The problem, simply stated is that the vast majority of electric utility customers do not have the ability to respond to market signals. These market signals can be in the form of variable energy and demand charges or demand response signals that indicate an impending system problem. This inability to respond often results in significant electric demand charges for the customer; charges that could be avoided if the customer had the knowledge and means to act. This inability to respond was identified as one of the fundamental flaws in the failed California electric utility industry "deregulation" experiment. Customers either didn't have the resources with which to respond, such as distributed generation or curtailable loads or customers with these distributed energy resources (DER) did not have the ability to routinely monitor the relevant market signals and make the needed decisions. Deregulation of the California electricity marketplace has since been replaced by a newly regulated market with a strong emphasis on customer demand response and on efficient energy use.

Customer demand response is an important element in the newly regulated marketplace. Demand response programs have had trouble attracting participants. The reluctance of customers to participate in Demand Response (DR) programs stems from the following:

• Other than very large customers with on-site personnel devoted to energy management, most customers do not have the local expertise to deal with a dynamic decision making environment. Somebody or something has to respond when the signal comes in and most customers do not have the equipment or staff to determine and implement the appropriate response.
• Customers without local staff can minimize the decision process by committing to a fixed response in advance. However, even a fixed response must be implemented and customers have little incentive to install the needed equipment or staff when the demand response signal comes so seldom (CPP is limited to 15 times per year maximum). Why install equipment or train staff to respond to a signal that may never, or seldom comes?
• Some DR programs utilize the services of a third-party to control and aggregate responses from customers in a utility's service territory. However, customers are reluctant or unwilling to cede control of a local asset when the third-party doesn't have any responsibility for the local financial impacts. For instance, when suddenly shutting down a piece of equipment could result in loss or damage of a production process. For this reason, customers that do decide to participate often utilize assets that have little or no impact on their daily operation, thus limiting the overall market response.

Smart*DER employs intelligent agent technology at the local site level to maximize the benefits of operating distributed energy resources (DER). The intelligent Smart*DER agent is software that operates continuously to determine how best to utilize the DER assets. The software agent monitors local site loads and develops an internal load model for use in predicting site load on an hourly and daily basis. Local weather and relevant pricing signals (such as fuel costs) are automatically collected via the Internet and used in conjunction with basic user inputs (such as asset availability, site occupancy schedules, etc.) to develop daily DER operating schedules. A demand response signal, if and when it comes in, is just another routine input that must be considered by the Smart*DER agent when developing the schedule for that day or hour of operation. Thus Smart*DER agent technology:

• Automates site response to the demand response or other market signals while eliminating the need for daily and hourly monitoring of market or demand response signals by on-site employees.
• In addition to responding to external market signals Smart*DER technology also provides daily benefits by continuously monitoring and predicting site energy use and maximizing the benefits of DER asset use on a daily basis. For instance, the Smart*DER agent(s) may determine that temporary load curtailment or increased local generation, even in the absence of a demand response signal, can achieve significant cost savings by minimizing or eliminating the monthly peak demand charge (where applicable).
• Retains local control of site DER assets thus further facilitating customer acceptance and participation in DR programs.