Paying for Demand-Side Response at the Wholesale Level: The Small Consumers’ Perspective

In March 2011 the Federal Energy Regulatory Commission issued Order No. 745, Demand Response Compensation in Organized Wholesale Energy Markets. The Commission rejected economic efficiency as a suitable criterion for determining “just and reasonable” wholesale rates. The Order prescribes an inefficient pricing rule that overcompensates demand response, thereby reducing market efficiency and unfairly burdening small electricity consumers.