Commission staff identified several regulatory barriers to improved customer participation in demand response, peak reduction and critical peak pricing programs. These barriers are based on input received from parties in written comments, comments filed and discussion heard at the FERC Demand Response Technical Conference, a review of demand-response program experience, and through a comprehensive literature review.

 Key regulatory barriers include:

• Disconnect between retail pricing and wholesale markets. Retail rates for most customers are fixed, while wholesale prices fluctuate. Placing even a small percentage of customers on tariffs based on marginal production costs, can allocate resources more efficiently.

• Utility disincentives associated with offering demand response. Reductions in customer demand reduce utility revenue. Without regulatory incentives such as rate decoupling or similar incentives, electric utilities lack an incentive to use or support demand response.

• Cost recovery and incentives for enabling technologies. Utilities are reluctant to undertake investments in enabling technologies such as advanced metering unless the business case and regulatory support for deployment is sufficiently positive to justify the outlay. These investments may require an increase in rates. It is uncertain whether and how would regulators allow these costs to be recovered.

 • The need for additional research on cost-effectiveness and measurement of reductions.

There are deficiencies in the measurement of demand response and assessment of its cost- effectiveness. Cost-effectiveness tests that have been used by regulators must be improved to reflect changes in the industry, especially in organized markets.

• The existence of specific state-level barriers to greater demand response. Policies of retail rate regulators and state statutes in several states have created barriers to implementing greater levels of demand response, especially by exposing customers to time-based rates. Several states have laws that restrict the ability of regulators to implement critical peak pricing and other forms of time-based rates. (which ones?)

• Specific retail and wholesale rules that limit demand response. Certain wholesale and retail market designs have rules and procedures that are not conducive to demand participation. For example, the standard lengthy wholesale settlement periods utilized in ISO/RTO markets delays payment to participating retail customers. (weak spot?)

• Barriers to providing demand response services by third parties. Shifting regulatory rules that allow third parties to provide demand response and potential sunset of various demand response programs are a disincentive to demand response providers. Because third parties often bear the risks of programs dependent on enabling technologies, they need long-term regulatory assurance or long-term contracts to raise the capital needed to invest in enabling technologies.

• Insufficient market transparency and access to data. Lack of third-party access to data has been identified as a barrier to demand response. Greater transparency of unregulated retailer price offers and information on the amount of load under time-based rates or pricing would assist grid operation and planning. A related but more fundamental barrier related to data is timely access to meter data.

• Better coordination of federal-state jurisdiction affecting demand response. While states have primary jurisdiction over retail demand response, demand response plays a role in wholesale markets under Commission jurisdiction. Greater clarity and coordination between wholesale and state programs is needed.