State Policies Driving Demand Response

While federal policies like FERC Order 2222 shape wholesale market access, state-level regulations and initiatives play a critical role in defining the specific Demand Response (DR) landscape, funding mechanisms, and program designs within their borders, even in deregulated markets.

State policies often reflect local priorities such as grid reliability, cost management, environmental goals, and economic development.

Examples of State-Level Drivers:

  • New York REV (Reforming the Energy Vision):
    This comprehensive initiative explicitly promotes Distributed Energy Resources (DERs), including DR, as key components of a modern, clean, and resilient grid. It led to utility DR procurements via DLM Auctions, encourages using DR as Non-Wires Alternatives (NWAs) to defer infrastructure spending, and fosters utility-run DR programs like CSRP/DLRP. Increases DR opportunities and potential for long-term contracts.
  • California's Clean Energy Goals & Reliability Needs:
    Aggressive goals (e.g., 100% clean energy by 2045) and reliability challenges (managing the "duck curve," preventing summer outages) drive significant DR policy. The CPUC regularly updates DR programs (like ELRP, DSGS pilots), mandates DR procurement after reliability events, prioritizes DR as a preferred resource, and explores dynamic pricing and flexible load management to align consumption with renewable generation.
  • Massachusetts & Other NE Energy Efficiency Plans:
    States like Massachusetts incorporate specific peak demand reduction targets into their multi-year Energy Efficiency Plans. These plans provide stable funding streams for utility-run DR programs like ConnectedSolutions, treating DR as a cost-effective efficiency resource. This policy ensures continued support for utility DR programs separate from, but coordinated with, ISO-NE markets.
  • Midwest State Responses to Capacity Concerns (MISO):
    Following periods of tight capacity and volatile prices in MISO's PRA auctions (like 2022), regulators in states like Michigan and Indiana have pushed utilities to expand DR offerings and interruptible programs to bolster resource adequacy and mitigate price spikes. While some states maintain restrictions on third-party aggregation, reliability pressures are increasing receptiveness to DR solutions.
  • Texas (ERCOT) Post-Winter Storm Uri Reforms:
    While not directly FERC-jurisdictional, reliability events like the 2021 winter storm spurred Texas regulators and ERCOT to evaluate ways to enhance grid resilience, including exploring expanded DR options beyond traditional ERS and ancillary services, potentially including pilots for controllable distribution-level loads.
  • Decarbonization & Electrification Policies:
    Across many states, broader climate goals are increasing the value of demand flexibility. As states push for electrification (EVs, heat pumps), DR and flexible load management become essential tools to manage the resulting new electric loads without overburdening the grid, leading to new program designs and incentives.
  • Peak Demand Reduction Mandates:
    Some states (e.g., Connecticut) have specific legislative mandates requiring utilities to achieve set targets for peak demand reduction through active demand management, ensuring ongoing focus and funding for DR initiatives.

Understanding the specific policy environment in your state is crucial, as it directly influences the types of DR programs available, incentive levels, funding stability, and rules for participation, complementing the broader framework set by the ISO/RTO.