Alfred Kahn Testifies on FERC's 'Parity' Proposal

   NEW YORK - (BUSINESS WIRE) - 8/31/2010 - In an affidavit filed Monday with the Federal Energy Regulatory Commission (FERC) on demand response compensation in organized wholesale markets, the “father of regulatory economics” Dr. Alfred E. Kahn testified in support of FERC’s Notice of Proposed Rulemaking (NOPR) to require that organized wholesale markets compensate demand response in the same manner as generation.
   In his testimony, Kahn emphasizes that “demand response is in all essential respects economically equivalent to supply response,” and that “economic efficiency requires, as the NOPR recognizes, that it should be rewarded with the same Locational Marginal Price (LMP) that clears the market.”
   Kahn further advocates that “any increase in the efficient responsiveness of demand (to prices competitively determined, as in the ISO-conducted auctions) will move us in the direction of correcting the most severe deficiency in most such markets in the US, the lack of an adequately, price-responsive demand side.”
   Kahn’s testimony comes on the heels of comments filed by opponents to demand response parity, including the Electric Power Supply Association, which, according to Dr. Kahn, mischaracterized full LMP compensation for demand response as a “subsidy” rather than a legitimate investment.
   “That electricity generators have opposed this plan should not be surprising: their primary business is to sell power, not to encourage its conservation, and I have myself publicly cited evidence that they reap the preponderance of their profits on those occasions when demand is at its peak,” Kahn said in his comments.
   Kahn is a world-renowned economist and the Robert Julius Thorne Professor of Political Economy, Emeritus, at Cornell University. He served as an economic advisor to President Carter, the Chairman of the New York Public Service Commission, and the Chairman of the Council on Wage and Price Stability. Dr. Kahn is the author of many publications including "The Economics of Regulation," the first comprehensive integration of the economic theory and institutional practice of economic regulation.
   “Having Dr. Kahn, one of our country’s most respected economists, advocate so articulately for full LMP compensation for demand response as set forth in the FERC NOPR is a significant win for ratepayers, for the demand response industry, and for the businesses and organizations that provide this valuable service to the grid,” EnerNOC President David Brewster said.
  Viridity Energy President and CEO Audrey Zibelman added, “I am pleased to see such a strong statement from Professor Kahn highlighting the impact of demand response in bringing greater levels of competition to the organized electricity markets and in improving the operation of the markets for consumers."