By Brian Warshay

The multi-year battle between power producers and demand response providers continues with the June filing by numerous energy trade groups challenging the March

The petitioners include the Electric Power Supply Association, American Public Power Association, the Edison Electric Institute, Old Dominion Electric and the National Rural Electric Cooperative Association (NRECA). They disagree with the notion that power saved (a "negawatt") is equal in value to energy generated. Pushback from the power industry against the FERC 745 ruling is by no means a new occurrence, but is merely the latest in an effort to preserve its higher bidding prices into the capacity markets in the unregulated power markets in the U.S.

Demand response aggregators are often able to bid into capacity markets at $0 per megawatt, guaranteeing their contracts receive the clearing price most often set by natural gas peaker plants, providing windfall profits to demand response providers due to their extremely low capital and operating costs relative to peaking power plants.

While it will be some time before the U.S. Court of Appeals in Washington D.C. rules on this issue, and it is unlikely that the court will overturn the FERC's ruling, this filing will add an element of uncertainty into future margins for pure-play demand response providers already being challenged by automated demand management and demand response auctions.

Integrated energy management systems providing conventional and automated demand management services will offer higher value to customers and utilities alike, improving the value proposition for demand response to compete with generators while opening doors to ancillary service markets to supplement demand response revenues.

Brian Warshay is a research associate for Lux Research, which provides strategic advice and on-going intelligence for emerging technologies. For more information, visit the Lux Research site.

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