State governments and utilities paid out $1.2 billion during 2014 in exchange for promises by home and business owners to not use electricity during times when demand for power is high, according to a Monday report by the Energy Information Administration (EIA).
The cash is getting paid through a policy called demand-side management (DSM), which the Federal Energy Regulatory Commission (FERC) has encouraged since 2011. Essentially, DSM forces electricity companies to pay middlemen for “negative electricity” — power theoretically saved by consumers during peak demand times. These middlemen temporarily turn off equipment or industrial processes their customers use.
The average residential customer who is involved with DSM gets paid about $40 annually. The average commercial customer incentive amounts to roughly $600, and the average industrial incentive clocks in at more than $9,000 annually, according to EIA. Roughly 43 percent of the cash went to industrial users.
FERC’s policy allows regulators to recoup these payments through increases in the cost consumers pay for electricity, earning the middlemen billions of dollars. California participated the most in DSM with 20 percent of the nation’s customers, but only 12 percent of the nation’s population.
“The way FERC approached the demand response question opens the door for companies to get paid for selling electricity they never bought,” Travis Fisher, an economist at the Institute for Energy Research, told The Daily Caller News Foundation. “By not accounting for that huge flaw, FERC’s compensation scheme overpays participants and is a handout to demand response companies. That is why FERC’s plan was demolished point-by-point in an amicus brief by a group of academic economists and rejected by the Court of Appeals.”
The U.S. Court of Appeals for the District of Columbia previously held that FERC did not have the statutory authority to DSM, but this was was overturned by the U.S. Supreme Court in late January by a six to two decision.
The Supreme Court openly said that it supported DSM to make green energy more marketable. Normally, the timing and magnitude of electricity demand do not coincide with the limited availability and intermittent nature of wind and solar power. Wind power is only available when the wind is blowing and solar power is only available during certain times of the day. The Supreme Court ruling allows regulators to hike consumers’ rates in order to make wind and solar more competitive.
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