2011 APPA Neophyte's Guide to Electricity - American Public Power ...

PJM and ISO NE operate centralized mandatory capacity markets that
procure capacity three years in advance of when it is needed. MISO, CA ISO
and NY ISO have voluntary capacity markets intended to supplement capacity
procured through contracts. MISO is developing a proposal to FERC for a
mandatory centralized capacity market. The CA ISO to date has decided not
to implement a centralized capacity market.
Demand Response
Another area of increased emphasis in the last few years has been the integration
of demand response into the RTO markets. Demand response occurs
when factories, businesses, or groups of home owners agree to cut back on
their electricity consumption during peak periods or when there is a shortage
of supply resulting from high demand or unit outages. The use of demand
response can reduce the cost of producing electricity because more expensive
peaking plants do not have to be run, and the construction of additional
plants can be avoided. RTOs generally pay for demand response either
through energy markets where customers voluntarily reduce their consumption
during times of high prices, or through capacity markets where customers
must agree in advance to cut use when called upon. Demand
response selling in the capacity market is often referred to as “emergency
demand response” because the demand response could be utilized during
periods when there is a shortage of supply.
Aggregators of retail customers (ARC) are third-party agents that aggregate
the demand response of individual retail customers. ARCs then sell the
aggregated demand response to utilities, RTOs and ISOs. (ARCs that resell
demand response are also known as curtailment service providers or “CSPs”.)
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