Building power plants and the infrastructure required to deliver electricity to where it's needed is not easy business. It requires a multitude of financing, design, approval, engineering, and construction efforts that take years to complete. One of the biggest challenges is finding viable development sites that meet the needs of the electrical system and the communities that must live next to them.

Demand response, on the other hand, is an underutilized resource that stands ready to help take load off of the electrical system. Demand response makes use of the existing assets and latent capabilities of end-use consumers to reduce peak demand and support reliable operation of the power grid. In doing so, demand response provides similar benefits as peaking power plants, without the need to construct the plants or the infrastructure required to deliver the electricity. As a result, developers are able to bring demand response capacity online in a matter of weeks, not years. At no time in history has this key benefit of demand response been as clear as over the past six weeks in New England.

Hurricanes Katrina and Rita have had far reaching and traumatic effects. While minor compared to the devastating conditions that persist in hard hit areas such as New Orleans, one far reaching effect has been an increased risk of blackouts in New England this winter. The Gulf Coast accounts for 40 percent of U.S. natural gas production, and damage caused by Katrina and Rita cut the Gulf Coast's production in half (by roughly 5 billion cubic feet per day). With 40 percent of New England's electric generation capacity fueled by natural gas, ISO New England (ISO-NE) recognized the vulnerability and took precautionary steps to prepare the region for tight electricity supply conditions. One step ISO-NE took was to issue a Demand Response Winter Supplemental Program. This short-term program provides capacity payments to participating resources for four months, from December 2005 through March 2006.

The response to this program has been unprecedented. In the six weeks since ISO-NE officially launched the Winter Supplemental Program, over 260 MW's of demand response capacity has been brought online, 100 MW's of which has been enlisted by EnerNOC. When was the last time that 260 MW's of capacity was designed, permitted, procured, constructed, and commissioned in less than two months from start to finish? The answer is never.

The point of this article is not to blow our own horn. Instead, it is to explain why so many commercial and industrial customers were willing to expedite their decision-making process and jump into the Winter Supplemental Program. One thing is certain, it was not just about the money. While the Winter Supplemental Program does provide a new revenue stream for participating customers, the revenues only last for four months. Further, EnerNOC has been promoting demand response for years in markets that provide much healthier revenue streams to customers, and we have never before been able to enlist 100 MW's in six weeks. Our clients most commonly mention two reasons for why they signed on:

• To help avoid a crisis. Hurricanes Katrina and Rita were sobering events that, much like the blackout of 2003, highlighted the vulnerability of our existing energy infrastructure. News of potential blackouts facing New England's power grid this winter was everywhere – newspapers, websites, television stations, radio shows – you name it. Customers heard the message loud and clear: do what you can to conserve and help protect the grid. And the bottom line is that people respond in times of crisis.
• To get ready for the future. New England has been embattled for years in the process of implementing a locationally-based capacity market to create a more efficient and reliable electrical system. Initially, ISO-NE's Locational Installed Capacity (LICAP) market was to go live in June 2004. For numerous reasons, neither LICAP nor any derivative of LICAP has been implemented. Customers have been informed about these developments since 2004 and fully expect that some form of a capacity market is on the way. Although the Winter Supplemental Program will only last for four months, many customers see this as an opportunity to get involved now so that they are up and running when LICAP or some other form of a capacity market is implemented in the not-too-distant future.

In summary, while demand response is not a silver bullet for all capacity needs, it does provide a very good alternative to peaking power plants. It is cost-effective and can be brought online quickly and exactly where capacity is needed most. However, it is important for regulators and others to recognize that there was more to the success of the Winter Supplemental Program than may meet the eye. Customers in other areas and under different circumstances should not be expected to jump into short-term demand response programs with marginal economics with the same gusto as experienced this winter in New England. They did so in this case to do the right thing and to better position themselves for near-term market realities.

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