Money for Nothing? Why FERC Order 745 Should have Died

Xu Chen and Andrew N. Kleit

The Energy Journal, 2016, vol. 37, issue 2, 201-222

Abstract: Customer baseline load (CBL) measurement is designed to represent participants’ expected usage in a number of electricity demand response (DR) programs. Our empirical results, however, show that CBLs can be systematically higher than DR participants’ estimated load, especially for those experienced in DR activities, likely due to manipulation behaviors. Thus, the integrity of CBL may degrade over time. With an inflated CBL, the impact of DR programs may therefore be highly exaggerated, and consumers can be paid money when they are not actually reducing their demand. In particular, we design a manipulation-indicating variable “seemingly unattractive free-money opportunity†(SUFO) and discover systemwide manipulative behaviors that increase with time and are widely adopted by experienced DR participants. We suggest that policy makers in FERC, RTOs, and states regulatory agencies consider the threat of manipulation when modifying DR market rules following the Supreme Court’s recent upholding of FERC Order 745.

Keywords: Demand response; Customer baseline load (CBL); Market; manipulation; Electricity markets; FERC Order 745 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:sae:enejou:v:37:y:2016:i:2:p:201-222

DOI: 10.5547/01956574.37.2.xche

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