How and Why Customers Respond to Electricity Price Variability: A Study of NYISO and NYSERDA 2002 PRL Program Performance

This summer was the second year of operation for the New York Independent System Operator's (NYISO) suite of Price Responsive Load (PRL) Programs: the Day-Ahead Demand Response Program (DADRP), the Emergency Demand Response Program (EDRP), and the third year of operation for the Installed Capacity Program/Special Case Resources (ICAP/SCR) program. It also marked the second year that the New York State Energy Research Authority (NYSERDA) provided funding to support participation in these programs.

NYISO and NYSERDA commissioned Neenan Associates to conduct a comprehensive evaluation of the performance of these PRL programs, building on methods and protocols developed last year and augmented by significant professional staff resources provided by the Consortium for Electric Reliability Technology Solutions (CERTS) with U.S. Department of Energy (DOE) funding. The PRL program evaluation was undertaken from three perspectives.

The first, top down, perspective looks at the overall impact of PRL programs on New York electricity market prices and system reliability. Quantifying price impacts involves simulating what prices would have been had the curtailments not been undertaken. A supply model developed last year was used to reconstruct this year's market supply curve and estimate the change in hourly prices due to PRL-induced curtailments. Reliability impacts were estimated by valuing the improvement in reliability associated with curtailments undertaken through the EDRP and ICAP/SCR programs, which were jointly administered during 2002.

The second perspective explores why some customers chose to participate while others did not and characterizes the strategies participants employed to curtail when the opportunity or obligation arose and quantifies their performance during events. A variety of statistical analyses and behavioral models were developed from data collected by a survey administered to both participants and non-participants. More in-depth interviews were conducted with a sub-set of survey respondents to further characterize the decision process that customers undertook when evaluating PRL participation opportunities. The third perspective examines demand response from the vantage of market entities that have incorporated or may incorporate these services into their business model by analyzing demand response as a business opportunity. A combination of survey data, collected from entities such as load-serving entities, curtailment service providers, control and information technology vendors and performance contractors, and financial models were used to characterize expectations for returns from subscribing customers to the NYISO's PRL programs.