Article Info Email to a friend Printer friendly

Jon T. Brock: In your years at FERC, what stood out as your mission or the highest priority?

Alison Silverstein: The importance of infrastructure. Before we got to FERC, the industry and regulators didn't talk much about issues like resource adequacy, transmission bottlenecks, cyber-security or demand response in public. When Pat Wood, Nora Brownell and I got to FERC, we started saying infrastructure matters and if we don't have the infrastructure right your market results could get ugly. When I talk about infrastructure, I mean not just power plants and transmission lines, but also reliability rules, demand response, market rules, information technology, and even meters are part of infrastructure. If you don't have enough iron on the ground and meters on the wall, you don't have the capability to balance supply and demand—the market acts the way it is supposed to act, but we don't always like the societal consequences of that when there are shortages created by an insufficient infrastructure, or exacerbated by dumb market rules. I spent my three years at FERC working on ways to improve infrastructure by getting more transmission lines built, better reliability rules, cleaning up market rules and enabling infrastructure in the form of rules to make demand response and advanced metering possible. The smart grid itself is new technology, another form of infrastructure that we really need to have. I think that infrastructure focus was my most important mission and priority at FERC and still today.

Mr. Brock: A lot has been written about the Energy Policy Act of 2005 - in your opinion, does it give the industry adequate incentive and motivation to act on demand response?

Ms. Silverstein: No, not at all. Studies and policy statements are never actually forcing measures. They make people feel good, like they got something—but the classic lobbyist tactic is, if you can't get a mandate get a study you can take into some future legislative battle to try to get your outcome again. So the folks who fought the good fight to get demand response and advanced meters required across the country couldn't get all the way there, and we ended up with a bunch of required studies. And the fact of the matter is when you order fifty studies across fifty states the likelihood is that you are not going to change a lot of minds or get a consistent outcome. Demand response and advanced metering are still going to have to make it on their own merits and it is going to be pick-and-shovel work, state by state, utility by utility, case by case. Success will build on success but it will be a slow process that's only made a little bit faster by the Act. But it is always better to have a policy statement that says it is federal policy that we should have demand response and enabling devices—but that's a far cry from a mandate.

Mr. Brock: Should the utilities act on demand response? Will they?

Ms. Silverstein: Should utilities act on demand response? Absolutely. The customer benefits are huge, in terms of customer satisfaction. It has great value as a risk management tool, to stabilize and reduce the volatility of prices of electricity, which means it stabilizes and reduces the risks in volatility for the utility's procurement stream and income stream. And it also stabilizes the irritation level for regulators who get crazed by the utility trying to buy electricity in expensive, volatile electricity markets. The Northwest Power Planning Conservation Council did a lovely risk management analysis of thousands of portfolio combinations of demand and fuel supply cost options and found that a healthy dose of demand response was the single most valuable element in a "no regrets" electricity portfolio because it reduces risk, costs, and volatility. You cannot over-estimate or overstate the value of DR to make your customers happy, to steady your executives' nerves, and to cushion your shareholders' earnings. I believe demand response is grossly under-valued and under-employed at this time and every utility should be doing it.

The second question is, "Will utilities act on demand response?" And the answer is, not fast enough for my taste. Demand response is like energy efficiency—utilities don't make money doing this, because they are under-valuing the risk protection benefits, so in many cases they won't do it unless they are forced to by regulators or circumstances. The Pacific Northwest is a great story, where they are doing a ton of energy efficiency and trying to do more demand response because they very clearly see the effects of insufficient supply side infrastructure and growing demand. From the Western market meltdown they can see the value of demand response as both a resource adequacy measure and as a market volatility protection measure. I think a lot of the utilities that do more demand response will be backed into it by the fact that they do not have enough supply side options rather than because they really believe in their guts that it's a wonderful thing. But the fact is, I don't care why they start doing it, what I care is that they do it and they make it work.

There are ways to make DR work better—for instance, some new research by Nexant and Freeman Sullivan on customer-friendly demand response for the Department of Energy, will help us understand why demand response has not been selling well to customers. That's because it's been designed by traditional utility guys who want DR to act like supply in drag, but the fact is that customers are not power plants and they have different expectations that the utilities are not real sensitive to about how to make DR work for them. So as we try to get more demand response, we need to be designing smarter, more customer-friendly demand response programs so that there is stuff the customer wants to do as opposed to begging or bullying them into load reductions.

Mr. Brock: That is a great answer. You did mention some of the utilities being forced into it by supply side and some by regulatory issues. Do the state regulators understand what advanced metering and meter data management is and what the potential benefits can be?

Ms. Silverstein: I think regulators understand advanced metering as a concept but most don't understand any specifics. Part of the reason they don't understand more is that nobody has bothered to go out there and say clearly what an advanced meter is and what can it do for you—most of the business cases that the utilities push are very narrowly focused on the utility benefits like fewer meter readers and more accurate billing. Most regulators think of advanced meters in the context of the utility benefits or as an enabler for time-of-use and critical peak or real-time pricing. But very few of the utilities that are trying to sell their utility regulators on advanced meters are pitching the benefits and opportunities for customers, and few of the folks pitching advanced meters for demand response are mentioning the utility-side benefits, so I don't think regulators have a clear sense of what the possibilities are.

With respect to meter data management, I think most regulators most don't have a clue about meter data management. Frankly, it is premature to expect them to since even within the metering industry and within the utility industry you're just now figuring out what the MDM task is. You have to do this giant data warehousing project and immense corporate IT and process reengineering effort to extract the value from the metering data and move it across the utility's business system, from operations to billing to systems planning and load forecasting—calling this meter data management is a gross under-statement. Meter data management makes it sound like some boring number-crunching task, when in fact we are talking about reinventing the utility business from top to bottom by extracting and exploiting the information that comes out of advanced meters if they are deployed effectively and smartly.

Mr. Brock: Maybe we can invent a new acronym.

Ms. Silverstein: Yeah, we need to rebrand this.

Mr. Brock: Speaking of AMI and MDM, can demand response be achieved without it?

Ms. Silverstein: Oh, sure, but it won't be as good. You can achieve some demand response without advanced meters. For instance, the classic stuff like interruptible and curtailable load programs, or residential air conditioner cycling. But the true value of demand response comes when you let the customer see something that either is a price signal or is a proxy for reliability or price, and let her respond to that signal in real time. You can get a lot of demand response if you have advanced meters and a set of programs designed to give the customers to exploit and respond with the meters. But, of course, you could also have smart meters deployed with stupid rate designs and DR programs, in which case you will get very little quality demand response and then you'll be shocked, shocked that it didn't work and you'll blame demand response rather then the fact that your people don't know how to design a demand response program well.

The last question is, "Can you get demand response without meter data management?" And the answer is sure you can, and you can get a lot out of it, but you can probably get more leverage and value from demand response over time if you have a sound MDM program to back it up. So for a short term proposition, yes you can get demand response without meter data management but in the long term proposition you can get a lot more if you systematically work to understand and maximize what you are getting and how people are responding.

Mr. Brock: I have noticed two different types of programs starting here recently and some are ISO demand response and some are actually utility demand response. Is there a conflict between those two or can they be made complementary to each other?

Ms. Silverstein: I think they can be complementary and I think they have to be. Two-thirds of the United States is under ISO or RTO grid management and/or centralized market operations. One of the great benefits of having an ISO is you get economies to scale in terms of educating, training, and recruiting customers for demand response programs. If you try to do this over a small utility footprint it can get fairly expensive and the customers can get confused if they see their offering is different than the one down the street under a different utility. So there is great value in regional consistency and compatibility, which is why there's some coherence within the kinds of programs offered in the Pacific Northwest as well as across most of the Northeast. You don't want to get into a duel between the utility program and an ISO program. Usually they are looking for different things. California proved that a few years ago, when every utility's program was different and the ISO's program was different from everyone else's, and there were too many programs, all of which were changing constantly, and most of the customers just said, "I don't understand what you are offering me and if I don't understand, I'm not going to play." What we need are programs that are careful and complementary and serve different purposes—for instance, the utility may be more effective at doing mass market demand response for residential and small commercial customers, where the ISOs tend to like big players with measurable loads. You want programs that are complementary and leveraging common ideas and themes and messages.

Mr. Brock: You spent some time on the DR report to Congress for DOE. What is your impression of where we are and where we should go?

Ms. Silverstein: I'd love to see demand response be treated like a requirement in a portfolio for resource acquisition and procurement. We are seeing an excess of market mitigation that is causing insufficient new capacity builds and increasing scarcity is being complicated on the supply side by increased costs of fuel and transmission bottlenecks. We need resources fast on the supply side that we can't get and we should take to heart the value of demand response for risk management, for making customers happy, and for peak price mitigation and volatility reduction. I'd like to see regulators mandate that fifteen to twenty percent of load gets access to interruptible and curtailable programs or time of use and critical pricing rates. And then we should spend at least three years collecting good data on how those customers behave as prices change or when there's a curtailment call. We need better data and statistical analysis with respect to the impact of demand responses on market price levels and what it does to markets and to the supply-demand balance. And we really need to lean hard on DR operationally in areas that are capacity deficient because those are not going to be solved any time soon. We also need to start designing DR programs as though the customer matters, to be customer-friendly first and utility-friendly second, with less reliance on traditional DR programs. We need to not jerk around the programs but let the customers respond and grow, recruit and train and measure. And then we can take stock three to five years from now and ask, what did we learn and how are we going to use it from here? We can't wait too long, because people's demand keeps growing and bills keep rising and customers can't afford the reliability threat or the economic pain for much longer. So I want the DR tool to be used wisely and quickly.

About Alison Silverstein Alison Silverstein is a recovering regulator, now working as a consultant, lecturer and writer on electric reliability, infrastructure security, energy efficiency, demand response and technology adoption issues. Ms. Silverstein worked as Senior Energy Policy Advisor to Chairman Pat Wood, III, at the Federal Energy Regulatory Commission, from July 2001 through July 2004. She advised the Chairman on a variety of legal, economic, strategic and administrative issues spanning the agency's electric, hydro, and pipeline responsibilities. She served as the agency's lead on infrastructure security, cyber-security and energy reliability and worked on many of the agency's major cases and rulemakings. Silverstein was a co-chair of the Electric Systems Investigation for the US-Canada Joint Power System Outage Task Force and principal author of the Interim and Final Blackout Reports. Before moving to the FERC, she worked as Advisor to Chairman Wood at the Public Utility Commission of Texas between June, 1995 and June, 2001, covering both electricity and telecommunications matters. Before becoming a regulator, Ms. Silverstein worked variously for Pacific Gas & Electric Co., ICF Inc., the Environmental Law Institute, and the U.S. Department of Interior. She has a BA in Economics from the Johns Hopkins University, an MSE in Systems Analysis from Johns Hopkins, and an MBA from Stanford University. She lives with her family near Austin, Texas.