FTC Submits Comment to FERC on Demand Response Compensation in Wholesale Electricity Markets

The Federal Trade Commission has provided a comment to the U.S. Federal Energy Regulatory Commission outlining its views on a proposal to set compensation levels for customers that reduce their electricity consumption in response to an increase in electricity prices, a practice known as “demand response.”

The FTC’s comment was developed in response to FERC’s Supplemental Notice of Proposed Rulemaking, issued as part of an initiative designed to enhance the ability of consumers to adjust their demand to price changes in wholesale electricity markets, thereby increasing the competitiveness of those markets. Among other things, FERC is trying to devise a test that could be administered to determine the “net benefits” of paying demand response providers the prevailing wholesale price of electricity, so that these payments are made only when the benefits – reduced power consumption – outweigh the cost of the payments to customers who provide demand response.

In its comment, the FTC states that devising and administering this kind of a net benefits test will be unnecessary if FERC uses efficient prices to determine demand response compensation. Efficient pricing induces customers to respond efficiently and encourages them to invest in demand response technologies. According to the FTC, a net benefits test would be necessary only if FERC were to set inefficiently high levels of compensation for customers that provide demand response. The comment therefore urges FERC to adopt efficient pricing for demand response. It then discusses ways in which FERC can achieve efficient pricing.

The FTC vote approving the comment was 5-0. It is available on the FTC’s website and as a link to this press release at http://www.ftc.gov/os/2010/10/1010wholesaleenegrymarkets.pdf. (FTC File No. V100010; the staff contact is John H. Seesel, Associate General Counsel for Energy, Office of the General Counsel, 202-326-2702; see related press release dated May 21, 2010, at http://www.ftc.gov/opa/2010/05/100521fyi.shtm.)

Copies of the documents mentioned in this release are available from the FTC’s website at http://www.ftc.gov and from the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. Call toll-free: 1-877-FTC-HELP.