Sam Newell and Johannes Pfeifenberger are principals at The Brattle Group. Frank A. Felder is the director of the Center for Energy, Economic & Environmental Policy at Rutgers University and a senior advisor of The Brattle Group.
When summer heat waves cause electric demand to peak, they also often cause wholesale electricity prices to rise substantially above their average levels. However, since most electricity customers face retail rates that do not reflect this movement in wholesale market prices, they do not modify their consumption patterns, causing a significant drop in economic efficiency. The Energy Policy Act of 2005 calls upon states and utilities to evaluate and implement DR programs to mitigate this problem. 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.