There is widespread recognition of the need to institute demand response (DR) in today’s electricity markets. During critical peaks in the demand for electricity, such as during summer heat waves, wholesale electricity prices can rise to their highest levels. Most end-use customers are on fixed retail rates that do not reflect spot market signals, causing inefficient outcomes in which they continue to use energy in low-value applications even when the wholesale price of electricity is very high. The recent Energy Policy Act of 2005 includes provisions that call upon states and utilities to evaluate and implement demand response programs to help address this situation. California has initiated comprehensive regulatory proceedings about demand response, advanced metering and dynamic pricing. Other states, including Hawaii, Idaho, Illinois, Missouri and New Jersey, are conducting pilot programs with a variety of innovative demand response rates and technologies.
For these reasons, the PJM Interconnection, LLC (PJM) and the Mid-Atlantic Distributed Resources Initiative (MADRI) are interested in developing DR resources as a meaningful contributor to the power markets within the PJM region.In order to inform the development of prudent policies and investments, they have sought to quantify the benefits of demand response. PJM, working with the MADRI state commissions, thus issued a request for proposal (RFP) for this study quantifying the impact of demand curtailment on wholesale prices and customer costs in the MADRI states and in the broader PJM region.