Demand Response Programs help utilities reduce peak electricity demand by encouraging consumers to shift or lower their energy usage. With the unbundling of electric services at the heart of deregulation, electric utilities were uncertain about their ability to recover stranded investments in electricity infrastructure. As a result, many utilities delayed infrastructure investments in new generation and transmission, leading to local or regional transmission bottlenecks and areas with inadequate generating capacity. Demand Response Programs are becoming increasingly important as utilities seek more flexible ways to manage electricity demand.

Demand-response programs, which encourage electricity consumers to reduce energy use during system peak periods in exchange for lower electricity bills, can mitigate both problems. There are two types of demand-response programs.

Load Response

With these programs, a load reduction is called for by a utility company, with little discretion for the electricity consumed in complying. Utilities that may call for a load response include independent system operators (ISOs), load-serving entities, and utility distribution companies.

There are three types of load response programs:

• Direct load-control programs — Primarily for residential and small commercial facilities with equipment, such as air conditioners that may be “cycled” (turned off) for limited periods.
• Curtailable load programs — Primarily for large commercial and industrial facilities that can reduce at least some load, with a minimum threshold of 100 kW per event. Notification is generally from 30 minutes to two hours before the requested curtailment.
• Interruptible programs — primarily for industrial operations that can shed all or a significant portion of their load. Commercial facilities may also participate if backup generators supply a significant portion of the load.

Different types of Demand Response Programs are designed to meet the needs of residential, commercial, and industrial consumers.

Price Response

Price response programs operate based on the voluntary actions of electricity customers in response to market signals. They typically rely on wholesale clearing prices as a primary signal or reimbursement method for customers’ participation. Price-responsive demand helps mitigate spikes in wholesale market prices.

Price response programs include the following:

• Economic programs — Primarily for large commercial and industrial facilities that can provide a minimum load reduction of 100 kW per event. Participants may offer load reductions in specific amounts for specific periods in response to a proposed price or set of hourly prices in the day-ahead market (or potentially the hour-ahead or real-time market). Payment is based on the market-clearing price in the day-ahead market, as bid by the participant and accepted by the buyer, for day-ahead programs.
• Time-of-use rates — Eligible customers may be residential, commercial, or industrial users. Participation may be mandatory or voluntary, depending on the jurisdiction. Special meters are installed to measure consumption during peak, off-peak, and sometimes intermediate hours. Rates vary by time of day, day of the week (since weekends are generally considered off-peak), and season (since winter weekdays may be considered off-peak or in intermediate hours). Rates are fixed for each period, so the customer knows well in advance what the prices will be.
• Absolute time pricing — Primarily for commercial and industrial facilities that can reduce or shift loads. Advanced communication systems allow electricity customers to observe real-time energy usage and forecast prices. In one version, customers are provided hourly prices for the next day. Facility managers can maintain planned operations or adjust them to take advantage of lower rates. “Two-part” tariffs establish a baseline energy usage for each hour of the year. Baseline usage is agreed upon by both parties based on historical use, subject to appropriate adjustments for changes in operations or weather. Variances from baseline usage estimates are charged a premium if above the baseline and a discount if below it, using spot market-clearing prices. An alternative to the two-part tariff is a “one-part” tariff that links all usage to hourly prices that market-clear, market-clearing spot, and avoid baseline estimation.

Experience with regional power markets suggests that active demand response is crucial to power system reliability and market efficiency.

See the following for more information:

• States with demand response programs — Includes an overview map and detailed state-by-state descriptions.
• “Demand Response Helps ISOs Lighten Load” (PDF 196 KB). Download Acrobat Reader:— Transmission Insight, April 2002. The article is on page nine of this free sample issue.
• Dimensions of Demand Response (Word 1.1 MB) — New England Demand Response Initiative, July 2003.
• Electrical Load as a Reliability Resource
• Peak Load Management Alliance — An organization that investigates the role of demand response in creating efficient electricity markets.
• Examples of demand response programs
  • Pacific Gas and Electric Company
  • ISO New England Regional Transmission Organization
  • PJM regional transmission organization
• EERE documents on rate schedules.

Select a state below to access more detailed information about that state’s programs.

Legend

[Blue]	These states have public purpose and utility energy efficiency programs and demand response/load management programs.
[Green]	These states have demand response/load management programs.
[Orange]	These states have a public purpose and utility energy efficiency programs.
	These states have distributed energy resource options available.
	These states have gas energy efficiency programs.
[White]	These states have no energy management programs.

The future of Demand Response Programs will depend on advancements in smart energy management and consumer participation.

The energy management programs are categorized according to the following definitions:

• Energy Efficiency Programs: Can be either 1) public purpose programs which are administered either by utilities, state agencies, or other third parties and are paid for by utility ratepayers, typically through a non-bypassable System Benefits Charge which is instituted as part of restructuring legislation or rules, or 2) utility programs administered by the local utility and paid for by utility ratepayers through their bundled rates.
• Demand Response Programs/Load Management: Programs provide incentives to curtail demand and reduce load during peak periods in response to system reliability or market conditions.

Demand response programs work alongside modern energy technologies to improve efficiency and grid reliability. Learn more about advances in battery technology and their role in supporting the energy transition.