Demand Response:
Four Options for Action, Four Mistakes to Avoid

My June essay, "D.C. Circuit Kills Demand Response Compensation: Now What?" offered ways to keep demand response traffic moving around the court's decision invalidating FERC Order 745. To recap: The court held that FERC has no power to order (or approve regional transmission organization tariffs requiring) buyers of energy in RTO-organized markets to compensate retail consumers for demand response. The Court's reasoning seemed to have two prongs: (1) FERC cannot order compensation to retail consumers for any product, because it has no jurisdiction over "retail markets"; and (2) FERC cannot order compensation for demand response, because demand response is not a FERC-jurisdictional product.

Thanks to many conversations since June, here are four more options for action. Credit for insights goes to my colleagues; blame for flaws lies with me. Following the four options are four mistakes to avoid.

Four Options for Action

Can FERC order compensation for demand response, if the demand response is sold by, and the compensation is received by, entities other than retail consumers? The court condemned the compensation because it went to retail consumers. But the universe of possible sellers includes load-serving entities, and non-utility aggregators (provided the latter are not merely agents for retail consumers, but instead take economic risk by buying demand response from retail consumers and reselling into the RTO market). The option escapes the court's Scylla because . . .


Testimony, Papers, and Presentations

“Regulatory capture” is a ringing phrase, too casually used. But because it is a hyperbolic phrase, it is too readily dismissed. With a careful definition, regulatory capture can be anticipated, detected, and resisted. Regulatory capture does not include illicit acts—financial bribery, threats to deny reappointment, promises of a post-regulatory career. These things all have occurred, but they are forms of corruption, not capture. Nor is regulatory capture a state of being controlled, where regulators are robots executing commands issued by interest groups.
In this proceeding before the Mississippi Public Service Commission, Entergy proposes to sell its transmission facilities to ITC at a gain. The transaction is a “spin-merge” transaction in which Entergy shareholders will end up owning 51% of ITC, along with their shares of Entergy.
Utilities are seeking to earn returns on equity above the real cost of equity. Currently, there are five strategies: (1) move assets from state jurisdiction to FERC jurisdiction; (2) use holding company debt to fund utility subsidiary equity (aka "double leveraging); (3) seek supranormal returns as "incentives" to perform normal tasks; (4) seek authorized returns that reflect certain business risks while shifting those risks to ratepayers; and (5) use "riders" reduce business risks without reducing authorized return on equity. This presentation describes these strategies.
After a century of near-choicelessness, consumers want supply choices and lower costs; while after a century of solid service, traditional utilities want predictable demand and stable revenues. On both sides, the arguments shade from legitimate and public-spirited to the cagey and opportunistic. Resolving the conflicts requires us to apply economic and legal reasoning that reflects common sense, economic efficiency, and constitutional principles. This article seeks to sort out these points.

Now Available

Regulating Public Utility Performance

“[A] comprehensive regulatory treatise …. In all respects, it merits comparison with Kahn and Phillips."

Regulating Public Utility Performance:  The Law of Market Structure, Pricing and Jurisdiction

Learn More and Order

Preside or Lead

Preside or Lead?
The Attributes and Actions of Effective Regulators

Now Available on Kindle

Learn More and Order

Electricity Jurisdiction

Take a Break

Interested in ceramics?

Interstellar space cup

Letter to Governors and Legislators

Hempling Appearances

Nigeria Electricity Regulatory Commission
3rd Judges’ Seminar

Telecom Forum
Asamblea Plenaria REGULATEL

NARUC Annual Meeting
Panel on State–Federal Relations

New England Electricity Restructuring Roundtable
The Future of Demand Response in New England

view ALL

Receive Essays


Working with Scott Hempling is both a pleasure and an honor. Ethical, fair-minded, and dedicated—these are a few of the attributes that Scott brings to his work and his clients. His pursuit of justice is to ensure that a practical outcome will ensue. Scott recognizes the significance of every issue and its implications for any person involved either directly or indirectly. His wide-angle lens encompasses a broad and deep technical legal knowledge that allows him to decipher and give insight into every challenge.
— Elise Herzig, President and CEO, Ontario Energy Association