PennFuture's E-cubed is a commentary biweekly email publication  concerning 
the current themes and trends in the energy market. 

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December 11, 2000
Vol. 2, No. 24
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Demand Side,s Promise
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The coldest days of the year are when wholesale electricity prices are  among 
their highest, and when the risks of blackouts are greatest, least  welcome, 
and even dangerous. On these days, frequently around the holidays, our  
electric system and wallets are stressed to the limit. As energy demand 
surges,  prices in the wholesale electric market skyrocket, with price caps 
serving as  the only limits to the pricing power of wholesale suppliers. And 
as more  electricity is generated, old fossil fuel power plants emit more and 
more  pollution into our environment.
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At the other extreme, the hottest days of the year present the same  
scenario, often with the added designation of being the smoggiest days.  
Sometimes the smog * caused in part by the sun heating up pollutants emitted  
from power plants * is so bad that people are advised to stay indoors, and  
thousands with respiratory illness crowd emergency rooms across the nation.  
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Yet, we could all breathe easier, save money, and worry less about our  power 
going out, if many more consumers were given the opportunity to change  their 
electric usage in response to escalating prices, and to profit from doing  
so. In electric restructuring vocabulary, &demand-side response8 is 
typically  used to describe these consumer actions to reduce or shift their 
electric usage  in response to changes in prices. 
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For years, encouraging demand reduction or energy efficiency has been the  
holy grail for the environmental community, because many of our country,s 
most  pressing environmental and public health problems cannot be solved if 
the nation  simply guzzles ever more dirty power. But these days, the case 
for fostering  demand-side response has never been stronger, and there is an 
emerging consensus  that goes well beyond the environmental community about 
the importance of  increasing demand-side response. 
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More and more experts now agree that empowering consumers to modify their  
electricity usage in response to price will powerfully address the triple 
threat  of pollution, high electric bills, and rolling blackouts, all of 
which are now  plaguing California. Indeed, electric restructuring in 
California or any other  state will not be complete until consumers are able 
to modify their usage in  response to real-time prices. 
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But while greater demand-side response would deliver numerous benefits to  
consumers, the economy, system reliability, and the environment, most 
electric  markets presently provide far too few opportunities * even within 
Pennsylvania  and PJM, where retail and wholesale electricity competition 
have been the most  successful. 
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Therefore, as the next crucial stage in its electricity restructuring,  
Pennsylvania and PJM must now lead the way in creating policies and market  
mechanisms to increase opportunities for demand-side response. 
Encouragingly,  both the Pennsylvania Public Utility Commission (PUC), where 
Commissioner  Fitzpatrick sponsored a November 21st conference on the 
subject, and PJM,s  management understand the stakes.
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Demand-Side Benefits
A legitimate demand-side market  would serve as a check on high prices in the 
hourly and forward PJM energy  markets. PJM,s Market Monitoring Unit 
calculates that a 1 percent reduction in  demand during peak periods (about 
500 mW) can reduce market prices by about 10  percent. Empowering customers 
to participate in the demand-side market limits  wholesale and retail prices, 
impacting the forward market and making the retail  market more competitive. 
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In addition, a demand-side response reduction of 5,000 mW would enable PJM  
to once again retain its one-day-in-ten reliability standard, an historic  
reliability benchmark which has been put at risk due to the off-system sales 
of  generators this past summer. 
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The Technology
Three types of technologies are required  to achieve 5,000 mW of reliable 
demand-side participation. Each is readily  available and, more importantly, 
pays for itself. Yet not enough of these  technologies are being installed in 
homes and businesses to safeguard the public  interest.
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Remote appliance controls. These controls enable a consumer to  voluntarily 
curtail his/her electric usage during peak periods in exchange for  an 
economic benefit. For example, in its &On Call8 program, FPL installs an  
energy management device in consumers, homes, connecting it to one or more  
qualifying appliances. Through this program, FPL pays consumers up to $161 
per  year in credits on their electric bills. More than 600,000 FPL customers 
are  currently participating. 
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Here in PJM, BGE pays residential consumers $10 per summer month for  
installing an &Energy Saver Switch8 on their central air conditioners. 
During  periods of high demand for electricity, BGE sends a radio signal 
which activates  the switch, cycling the compressor in 15-minute increments. 
More than 225,000  BGE residential customers currently use the Energy Saver 
Switch and help BGE  manage summer peak load. Consumers who choose to 
similarly cycle their electric  water heater receive an additional $5 credit 
per summer month. 
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Also in PJM, PEPCO,s 200 mW-sized &kilo-watchers plus8 program offers  
participants about $100/year for the right to remotely cycle 100 hours of  
residential air conditioning. In another example, The Allegheny Electric  
Cooperative in Pennsylvania remotely switches air conditioners and water 
heaters  from a central location in downtown Harrisburg.
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For most consumers in these programs, it,s money in the bank without  
noticeable impact. These programs demonstrate that many small consumers want 
the  opportunity to voluntary save money in return for agreeing to brief  
interruptions of selected appliances, and that it,s fairly simple to provide 
the  technology and operate the program.
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The Pennsylvania PUC and other state Commissions should encourage and, if  
necessary, direct jurisdictional EDCs to offer remote appliance devices to  
consumers. It,s not difficult to imagine that, if remote appliance devices 
were  implemented throughout PJM, 3,000 mW of small commercial and 
residential  remotely cycled load could be bid in a demand-side market. 
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Metering Set-Top Devices or Advanced Metering. Advanced metering or  metering 
set-top devices register load decrements, enabling consumers and/or  their 
suppliers to sell firm power into the peak market, instead of using it.  For 
example, a supplier (either the local utility or a competitive supplier)  
could offer a lower price to a large consumer willing to reduce usage during  
peak load, enabling the supplier to sell a relatively small amount of  
electricity to those requiring firm service during the peak load. The 
consumer  need not agree to limit usage except upon specific approval. 
Already Duquesne  and soon PECO Energy will have deployed advanced metering 
system-wide,  demonstrating that it can be economic even without the benefits 
of demand-side  response. 
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There are also various devices or meter add-ons that modify existing meters  
and allow recording of load decrements (see, for example, 
www.stonewatersoftware.com). These  devices or meter add-ons appear to pay 
for themselves when the energy is sold  during periods when prices are above 
the price the consumer is paying the EDC.  
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The need to ensure reliability in PJM, combined with the current  
availability of technology to enable demand-side participation by all 
consumers,  dictate that by 2004, all Pennsylvania customers should be 
equipped with a  metering or appliance control device.
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Internet-based Energy Management Platforms. Computer software is  necessary 
to maximize the effectiveness of advanced metering. Programs have  already 
been developed and used by major international corporations which enable  
them to make precise decisions on when to sell power back into the market,  
decrease usage, and use on-site generation. BGE, for one, recently announced  
deployment of the Omni-Link platform 
(www.powerwebtechnologies.com/news/111200.htm).  
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Demand-Side Barriers
There are no inherent obstacles to  obtaining the benefits of demand-side 
responses, but there are several important  commitments necessary to make the 
promise of demand-side market participation a  reality. 
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PJM and other ISOs, as well as utilities and suppliers, must all be able to  
offer demand-side platforms without discrimination. In addition, PJM and 
other  ISOs have the direct responsibility to manage system reliability and 
the  wholesale energy market. Demand-side responses directly impact 
reliability and  wholesale market prices, including undesirable market power 
during peak load.  There can be no doubt that ISOs have an inherent role, 
indeed an inherent  responsibility, to maximize the effective deployment of 
demand-side market  responses, especially to offer a platform for LSEs to 
sell load decrements  created in response to price signals. PJM is on board, 
but consumers who want to  sell directly into the PJM demand-side market face 
opposition from some  EDCs.
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To unlock the potential of demand-side markets, the Pennsylvania PUC, other  
state commissions and the FERC must support the role of PJM and other ISOs 
in  creating such a market. PJM must be permitted and encouraged to offer a  
demand-side platform. Finally, EDCs must be required to fully deploy 
advanced  metering and remote appliance control programs.
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These small but important public policies will help to protect the  
reliability of our electricity system, our wallets, and our environment.  

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 - Vol2No24_121100.doc