How and Why Customers Respond to Electric Price Variability:
Researchers Evaluate New York's Price Responsive Load Programs
CERTS Contact: Allan Chen, (510) 486-4210;
NYISO Contact: Jean DerGurahian, (518) 356-6177
Berkeley, California—The New York Independent System Operator (NYISO) has released its 2002 Price Responsive Load Program (PRL) evaluation, "How and Why Customers Respond to Price Variability: A study of the NYISO and NYSERDA PRL Program Performance." NYISO and New York State Energy Research and Development Authority (NYSERDA) commissioned the study, which was conducted by Neenan Associates and the Consortium for Electric Reliability Solutions (CERTS). CERTS researchers from Lawrence Berkeley National Laboratory in Berkeley, California and Pacific Northwest National Laboratory in Richland, Washington were supported by funding provided by the U.S. Department of Energy.
The report provides a comprehensive assessment of the impact of PRL programs on maintaining reliability and dampening the volatility of electricity prices in New York State, and characterizes the factors contributing to customers' participation and performance in the programs.
The New York Independent System Operator (NYISO) administers three programs that provide payments to customers for reducing electricity consumption. The programs were developed in concert with the New York State Energy Research and Development Authority (NYSERDA), the New York State Public Service Commission, the state's electric utilities, and other market participants.
Through the Emergency Demand Response Program (EDRP), the NYISO solicits load curtailments to avoid the consequences of reserve shortfalls. Participants that curtail are paid the greater of the market price of electricity, or a $500/MWH floor price. In the Installed Capacity/Special Case Resources Program (ICAP/SCR), customers sell their curtailment capability in return for committing to reduce load when requested by NYISO.
The Day-Ahead Demand Response Program (DADRP) allows customers to submit load reduction bids into the NYISO's Day-Ahead Market and receive market-clearing prices for scheduled curtailments. All three programs are designed to provide retailers opportunities to take advantage of the load management capabilities of their customers.
"This is the second year of successful operation for the NYISO's EDRP and DADRP programs and the third of ICAP/SCR program," said David Lawrence, Manager of Product Development at NYISO. "The NYISO is committed to implementing a variety of PRL programs and to evaluating and refining them to ensure that they contribute to the overall performance of New York's electricity markets."
The report describes the extensive and diverse nature of program participation, including the following:
- Participation in EDRP increased substantially in 2002. More than 1,700 customers enrolled in the program in 2002, compared to just fewer than 300 customers in 2001. Furthermore, 2002 participants subscribed almost 1,500 MW of load reduction capability, a two-fold increase from 2001.
- EDRP Participants provided an average curtailment of 668 MW during the two load curtailment requests during summer 2002 reducing their hourly electricity usage on average by 34%, for which they were paid over $3.3 million.
- Customer enrollment in DADRP increased in 2002 (from 16 to 24 customers), although proposed and scheduled load reductions offered by customers decreased in 2002 compared to 2001. The average load scheduled was about 14 MW.
The key findings described in the report include the following:
- The EDRP program was estimated to have provided reliability benefits valued at between $1.7 million and $16.9 million. Real-time market prices were also reduced during the curtailment events which produced estimated savings of $0.9 million for load serving entities (LSE) and consumers.
- EDRP performance during curtailment events is influenced by several factors, including choice of reducing usage versus deploying on-site emergency generation, whether they also received ICAP/SCR payments and faced penalties for non-performance, their participation in a NYSERDA peak demand reduction program, and type of business and facility.
- Customers that received funding from NYSERDA and actively participated out-performed other EDRP participants, curtailing on average 64% of their subscribed load reduction compared to 46% for the non-NYSERDA participants.
- Awareness and education are key barriers to DADRP bidding:
- Only 45% of customers reported being aware of DADRP, even though many of these customers were also enrolled in other NYISO programs.
- Of those that were aware of the program but chose not to participate, about 36% indicated that they were unable to shift or curtail load. Another 35% indicated that inadequate compensation or the perceived risks (e.g., penalties for non-performance) as the primary reason for not participating in DADRP.
- While most survey respondents reported being capable of preparing and carrying out curtailment plans, a majority indicated a significant level of discomfort with developing a bidding strategy.
Neenan Associates (http://www.bneenan.com) is an electricity industry consultancy specializing in wholesale and retail electricity pricing.
The Consortium for Electric Reliability Technology Solutions (http://certs.lbl.gov) was formed in 1999 to research, develop, and disseminate new methods, tools, and technologies to protect and enhance the reliability of the U.S. electric power system in the transition to a competitive electricity market structure.