FERC Approves Final Rule on Demand Response Compensation

Photo by woody1778a. Some rights reserved

Two days ago, FERC issued the final version of a rule that establishes “a specific compensation approach for demand response resources participating in the organized wholesale energy markets administered by RTOs and ISOs.”

The rule is guided by the notion that a wholesale energy market is only as effective and competitive as the active participation of its customers in the form of “demand response.” (Demand response means a reduction in the consumption of electric energy by customers in response to an increase in the price of electric energy or to incentive payments designed to induce lower consumption of electric energy.) Because demand response can help improve the function of these markets, some demand response resources are also compensated for their participation.

To date, compensation schemes have widely varied across Regional Transmission Organization (RTO) and Independent System Operator (ISO) organized wholesale energy markets. FERC’s final rule creates a uniform system for compensating demand response resources. The organized wholesale market operators will be required to make compliance filings by July 22, 2011.

You can see the rule in its originally proposed form here.

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