What is Demand Response?
During periods of intense heat or cold, consumer usage drives demand, which intensifies the strain on the electricity grid. Increased strain causes grid instability, which can result in brown outs or even rolling black outs.
So how do grid operators protect against this potentially dangerous situation?
The answer, demand response (DR). DR enables businesses to voluntarily cut back on their electricity consumption when demand on the grid is high and grid stability may be compromised. For their participation, businesses are paid for acting as an insurance policy against grid failure.
Types of DR in ERCOT
There are three types of DR programs in ERCOT (TX) that most commercial and industrial businesses can participate in:
- Emergency DR (ERS) is used in situations where there is supply scarcity to prevent uncontrolled service interruptions. Typically, these are short notice interruptions but pay participating businesses regardless if they are called upon to lower load or not, (i.e. an insurance policy against grid failure).
- Ancillary Services DR is made up of services to make sure that the operation of the transmission grid is secure. Typically, these are also short notice interruptions and sometimes notifications can be made with a response time as short as one or two minutes.
- Economic DR allows businesses to reduce their consumption based upon some voluntarily set “price threshold”. This can be set in the real-time market or be set for a day-ahead trade.
The Impact of DR
Over the past few decades, utilities, electricity providers, and curtailment service providers (CSPs) put DR programs into action. DR has been key to maintaining the electric grid’s core infrastructure and stability.
Both regulated and deregulated utilities, CSP’s, and power providers offer incentives in the form of bill credits, discounted rates, and actual revenue (all of which tend to be based upon level of participation). These programs offer a way for end users to cut power costs or potentially create new revenue streams. There is also the added benefit of contributing to sustainable green initiatives for participants.
Environmental Benefits of DR
When energy is conserved or reduced, it has a direct impact on the environment. By using less electricity, power plants have to generate less, leading to an increase in energy efficiency and a decrease in the need to build more expensive power plants.
Demand Response Is Here to Stay
On Monday, January 25th, the Supreme Court upheld the Federal Energy Regulatory Commission's (FERC) jurisdiction over demand response, reversing the D.C. Circuit Court of Appeals in a 6-2 ruling. The decision upheld FERC Order 745, which required grid operators to pay curtailment service providers location based marginal prices (LMPs) equal to generation. 
“This decision means that consumers will continue to see the significant benefits of demand response, which enhances competition in the markets, reduces wholesale prices and helps makes the grid more reliable,” FERC Chairman Norman Bay said in a statement. 
So why is DR better than sliced bread?
Overall, this is very good news for the grid, consumers, clean energy, reliability and the overall economy as DR: 1) lets businesses earn compensation for their participation and and turn their energy use into a revenue steam; 2) protects the grid by proactively preventing blackouts and brownouts; and 3) conserves energy.
 FERC v. Elec. Power Supply Assoc., No. 14-840 (U.S. January 25, 2016). http://www.supremecourt.gov/opinions/15pdf/14-840_k537.pdf
 FERC. Chairman Norman C. Bay Statement. (January 25, 2016) https://www.ferc.gov/media/statements-speeches/bay/2016/01-25-16-bay.asp#.Vq-kCJMrLkI