Navigant Research Blog

Enforcement Report Highlights Demand Response Compliance Issues

Brett Feldman — December 19, 2013

The Federal Energy Regulatory Commission (FERC) released its 2013 Report on Enforcement in November.  It includes the highest number of demand response cases of any Enforcement Report to date, showing that compliance with DR programs is coming under increasing scrutiny.  These cases, which involve violations of DR rules and lack of oversight on program management, have resulted in multimillion dollar penalties or settlements.  The penalties are often orders of magnitude greater than the original over-compensation, so it’s far more than a matter of just paying back what you owe and calling it even.  Furthermore, some of the penalties have been levied against end-use customers and even individuals in DR programs, so clearly the FERC feels that its jurisdiction goes beyond DR aggregators.

Several of the cases occurred in ISO New England (ISO-NE), which may point to the complexity of rules for DR participation there.  First, and largest in magnitude, is the Day-Ahead Load Response Program investigation.  The FERC found that two large paper mills and an energy procurement consulting company engaged in fraudulent inflating of customer load baselines in order to increase payments.  One of the companies has settled with the FERC for a $10 million civil penalty and $2.8 million disgorgement, or paying back undeserved revenues.  The other parties have multimillion dollar penalties outstanding, including $1.25 million against one individual whom the FERC claims to be a mastermind of the scheme.

Undue Diligence

The second ISO-NE related case involved a settlement between the FERC and EnerNOC.  The FERC claimed that EnerNOC failed to exercise adequate due diligence and resolve significant data quality issues for five assets it registered as DR, thereby inducing overpayments from the ISO and violating the due diligence requirement in the ISO’s tariff.  The settlement resulted in a civil penalty of $820,000 and $656,806 in disgorgement of unjust profits.  EnerNOC also agreed to develop a comprehensive compliance program and to submit to compliance monitoring.

The FERC also evaluated Connecticut Light & Power Company’s (CL&P) compliance with DR programs within ISO-NE and found that CL&P did not properly account for revenues associated with its conservation and load management programs and did not accurately record demand reduction data in its reporting system; however, there are no penalties associated with this case at this point.  The one case outside of ISO-NE occurred in PJM, where the FERC came to a settlement with Comverge on a claim that Comverge registered a large customer for a load reduction amount it knew the customer could not reliably achieve and then instructed the customer to artificially increase its electric load prior to a test event in order to demonstrate a larger load reduction.

No Free Passes

As described in Navigant Research’s recent report, Demand Response Tracker 4Q13, DR is becoming a bigger part of the reliability solution for the electric grid.  That means DR providers and customers must be aware that greater responsibility is required and higher risks must be managed. In the early days of DR, baseline and program rules were being refined and there may have been some loopholes that were exploited. These days, the FERC and RTOs rely more on DR to run the grid and will not give free passes to intentional or inadvertent infractions.

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