Demand Response and Market Power

Abstract

In her article, Bypassing Federalism and the Administrative Law of Negawatts, Sharon Jacobs educates her readers about the concept of demand response, and then describes its propagation in recent years while making the broader argument that the Federal Energy Regulatory Commission (“FERC”) — the federal government’s principal energy regulator — has engaged in a strategy of “bypassing federalism” that may entail more costs than benefits. Professor Jacobs is right to call attention to demand response and to FERC’s approach to matters of jurisdictional doubt. While I share many of her concerns about boundary lines in a federal system, I argue that FERC's demand response program represents a fair and legally defensible attempt to, among other things, diffuse the market power of energy producers. I conclude that wholesale demand response is a tool well worth defending in spite of jurisdictional friction.

Keywords: demand response, federalism, FERC, ISO, RTO, energy, renewable energy, restructuring, regulation, wholesale energy markets, utilities, electricity, smart grid

JEL Classification: L84, K23, K32