The retail DR programs once managed by utilities are increasingly bid into wholesale markets. DR is accumulated through third-party aggregators or curtailment service providers (CSPs) who recruit customers that are too small to participate on their own, such as schools, commercial chains, or groups of residential customers. By aggregating small customers, CSPs have increased customer participation in many wholesale reliability and emergency programs.
Traditionally, commercial and industrial DR programs have been the dominant participant in wholesale markets. High electricity consuming factories that have an individual ability to affect load were the natural first target for DR programs. Particularly because large commercial and industrial customers were more likely to meet RTO minimum thresholds for market participation. Now, there is a shift toward increased residential DR. Indeed, global RDR capacity is expected to increase from 13.8 gigawatts (GW) in 2019 to 47.4 GW in 2028. Key drivers of this growth are new grid-connected technologies and advanced data analytics as further explained below.
B. Regulatory Implications of Incorporating Residential DR into System Planning and Operations
1. Technological Innovations in Residential DR
In theory, the technological ability to increase the adoption of residential DR programs into wholesale markets exists. As a result of technological innovations and policy directives, new types and applications of DR are emerging. New technologies encompass the use of smart appliances that respond in near real-time to price or other signals. These customer-facing technologies may allow consumers to respond more easily to price signals as they require little customer monitoring or interaction. For example, real-time, price-based DR management software for residential customers could be programmed in smart meters for determining the optimal operation of residential appliances while considering variation in load. These nonintrusive programs automatically determine the optimal operation of residential appliances within five-minute time slots while considering uncertainties in real-time electricity prices. Widespread deployment of the technology is feasible given that nearly half of all homes in the United States now have smart meters. Further, a “learning algorithm,” referred to as Consumer Automated Energy Management System (CAES), can model energy prices and residential device usage. CAES can adapt to individual residents’ preferences, life patterns, and pricing changes over time to modify device usage and save residents money. This is important because maintaining a balance between energy consumption cost and users’ comfort satisfaction is paramount to residential user adoption and retention of RDR programs.
2.. Jurisdictional Barriers to Incorporating Residential DR
While the technological ability to incorporate RDR into system planning and operation is on the cusp of reality, the regulatory implications are unclear. A state may have viable legal arguments to oppose FERC’s acceptance of a tariff from an RTO that provides for residential participation. As explained in Order No. 745, “jurisdiction over demand response is a complex matter that lies at the confluence of state and federal jurisdiction.” A state could argue that consumers who reduce their electricity consumption in order to secure RDR payments would otherwise purchase that electricity in the retail market, which is under state jurisdiction. By approving the tariff, FERC is effectively regulating retail rates and usurping or impeding state regulatory efforts concerning demand response. Indeed, the Commission expressly declined to regulate retail rates in Order No. 745 for the same reason.