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Rethinking Prices

The changing architecture of demand response in America.

Fortnightly Magazine - January 2010

distributed generation. Plug-in hybrid electric vehicles also are expected to hit the road in large numbers in the decades to come. Such technologies have a marked diurnal usage pattern, so managing them successfully will depend on widespread deployment of time-of-day rates. Thus, this traditional form of dynamic pricing likely will get a new lease of life as it’s repurposed to support the successful operation of the smart grid.

Finally, the need for pilots clearly will be the greatest in service areas with the largest gap between AMI investments and AMI operational benefits. For many utilities, this gap exceeds 50 percent. Such companies can’t afford to rely on guesses or borrowed data.



1. FERC Staff, “A National Assessment of Demand Response Potential,” prepared by The Brattle Group, Freeman, Sullivan & Co., and Global Energy Partners, June 2009 .

2. FERC Staff, “Assessment of Demand Response and Advanced Metering,” December 2008.




6. “Demand Response in the PJM Markets,” June 26, 2009.

7. A Faruqui, A. Hajos, R. M. Hledik and S. A. Newell, “Fostering economic response in the Midwest ISO,” Energy: The International Journal , forthcoming, 2010.

8. James Bushnell, Benjamin Hobbs and Frank A. Wolak, “When it comes to demand response, is FERC its own worst enemy,” CSEM WP 191, Center for the Study of Energy Markets, August 2009.



11. Ahmad Faruqui, Ryan Hledik and John Tsoukalis, “The Power of Dynamic Pricing,” The Electricity Journal , April 2009.

12. Cheryl Hindes, “Smart Energy Pricing,” given at the Smart Pricing for a Smart Grid World, San Francisco, California, Nov. 5, 2009.

13. Ahmad Faruqui and Sanem Sergici, “Household Response to Dynamic Pricing of Electricity—A Survey of the Experimental Evidence.”

14. Charles River Associates, “Impact Evaluation of the California Statewide Pricing Pilot,” March 2005 .

15. The elasticity of substitution measures the ease which customers modify their load shapes in response to price changes. For example, a value of -0.10 says that if the ratio of peak to off-peak prices were to be doubled, the corresponding ratio of peak to off-peak consumption would fall by ten percent.

16. Ahmad Faruqui, Ryan Hledik, and Sanem Sergici, “Piloting the Smart Grid,” The Electricity Journal , August/September 2009.

17. Jim Eber, “Dynamic Pricing AMI Pilot,” PJM Symposium on Demand Response, Nov. 9, 2009 .


19. Prepared Opening Remarks of John Haney, Nov. 19, 2009. Docket Number AD09-10-000 .