Casten, Durbin Introduce Legislation to Eliminate Demand Response Opt-Out
Washington, D.C. — U.S. Congressman Sean Casten (D-IL) and Senator Dick Durbin (D-IL) introduced the Responsive Energy Demand Unlocks Clean Energy (REDUCE) Act, legislation that would allow consumers to sell their energy use reduction into federal wholesale electricity markets by eliminating the “Opt Out” currently employed by 13 states that fully or partially ban “aggregated demand response” from these markets.
“Requiring FERC to take steps to eliminate the Opt Out rule will not only reduce emissions, it will create substantial economic benefits for local businesses,” said Casten. “I’m proud to introduce the REDUCE Act with Senator Durbin because it’s a win-win for our community and our environment.”
“Incentivizing consumers to sell their energy reductions into the wholesale market is an important strategy for decarbonizing our energy sector and stabilizing the electric grid. On top of that, it puts money back in the pockets of Americans who are doing their part to conserve energy,” said Durbin. “We need every state on board if we want to take a real step toward climate action. The REDUCE Act is critical to ensuring that every state has the tools needed to cut back on fossil fuels and deliver savings to homeowners and businesses.”
“Aggregated demand response” refers to an arrangement under which electricity consumers agree to be paid to conserve or shift their electricity use in response to grid signals. These signals can be triggered, for example, by a shortage of energy supply due to heat waves, storms, downed power plants, or variability in renewable energy.
Federal regulation currently permits states to prohibit electricity consumers from participating in wholesale electricity markets by selling flexibility in their demand for electricity. This is known as "opting out" of allowing competitive demand response. In Opt-Out states, when the grid is stressed, natural gas “peaker” plants are turned on to meet high demand, while in other markets energy consumption can be reduced. Turning on peaker plants causes the unnecessary consumption of fossil fuels and the associated pollution. Facilitating aggregated demand response will result in:
- Consumers earning revenues for their electricity-demand flexibility and grid support
- Overall lower energy costs, since the cheapest megawatt is the one that is never used
- Integration of renewable resources into the electric grid, since demand flexibility can balance the intermittency of solar and wind energy
The REDUCE Act would instruct FERC to initiate a rulemaking to eliminate the Opt Out, allowing consumers in every state to sell their electricity demand reduction into the wholesale market, while unifying the regulatory treatment of all distributed energy resources, including energy storage, energy efficiency, and distributed generation, resources that are not subject to the state Opt Out rule.
Allowing demand response reduces emissions and creates economic benefits for local businesses, an environmental and economic win-win. For example, when a business with a 5% profit margin earns $1,000 for reducing its energy consumption, this is pure profit, akin to earning $20,000 in top-line revenue.
States that Opt Out cause money to be paid to traditional fossil fuel-using generators rather than local businesses or residential consumers. Eliminating the Opt Out will help decarbonize the power sector.
Thirteen states have fully or partially “opted out”: Arkansas, Indiana, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, North Carolina, North Dakota, South Dakota, and Wisconsin.
Text of the REDUCE Act can be found here.
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