An Economic Debate Over Electric Demand-Side Response

Tue Nov 01 16:24:38 EDT 2011
By Jonathan Falk and Dr. Michael Rosenzweig with Robert Borlick

In the latest issue of The Electricity Journal, experts from NERA's Energy, Environment, and Network Industries Practice -- Vice President Jonathan Falk and Special Consultant Dr. Michael Rosenzweig -- engage in a debate with economist Robert Borlick over the issue of electric demand-side response. The debate began in response to Mr. Falk's article in a previous Electricity Journal issue, "Paying for Demand-Side Response at the Wholesale Level." In that article, Mr. Falk assessed the Federal Energy Regulatory Commission's (FERC's) controversial Notice of Proposed Rulemaking on the "just and reasonable" payment in FERC-regulated wholesale markets to consumers who offer to cut back their power purchases to reduce demand on costly electric generating capacity. On one side are those who want to pay the marginal costs saved, while on the other side are those who advocate paying less -- sometimes much less. Mr. Falk critically assessed the arguments for paying less and found the arguments to be both short on substance and highly impractical. This view prompted a rebuttal from Mr. Borlick, who argued that the FERC's Order prescribes an inefficient pricing rule that overcompensates demand response, thereby reducing market efficiency and unfairly burdening small electricity consumers. Mr. Falk and Dr. Rosenzweig then countered by demonstrating how Mr. Borlick's latest salvo offered nothing substantively new. They showed that Mr. Borlick simply restated, in different guises, previous arguments that were rebutted either in the late Professor Alfred Kahn's testimony in the proposed rulemaking or in Mr. Falk's earlier piece.

The full debate, including Mr. Falk's original article, Mr. Borlick's response, Mr. Falk and Dr. Rosenzweig's rebuttal, Mr. Borlick's counter-rebuttal, and Mr. Falk's conclusion on the subject, can be accessed on The Electricity Journal website.