This thesis identifies the conditions under which and quantifies how much society gains from integrating demand response directly into wholesale electricity markets and the level of participation that will bring about these improvements. Furthermore, it identifies the conditions under which the bulk power system is made more reliable through the participation of demand response and the inducements necessary to achieve this improvement. To accomplish these goals, an econometric representation of New York's wholesale electricity markets' supply curves is developed in order to understand exactly how changes in load affect price.

Economic demand response is very sensitive to locational differences in the bulk power system. The simulations undertaken illustrate how a significant amount of demand response is needed in Western NY to generate a positive change in net social welfare, under rather extreme conditions, whereas very little must be relied upon in New York City and Long Island, under much more reasonable circumstances. From a reliability standpoint, demand response can play a vital role in accurately maintaining reserve margins provided the payment or tariff rate is allowed to fluctuate given the quantity of reserves needed. When a fixed rate is instead used, the reliability benefits from load curtailments are almost always less than the costs to achieve them.