We study operations of a battery energy storage system under a baseline-based demand response (DR) program with an uncertain schedule of DR events. Baseline-based DR programs may provide undesired incentives to inflate baseline consumption in non-event days, in order to increase apparent DR reduction in event days and secure higher DR payments. Our goal is to identify and quantify such incentives. To understand customer decisions, we formulate the problem of determining hourly battery charging and discharge schedules to minimize expected net costs, defined as energy purchase costs minus energy export rebates and DR payments, over a sufficiently long time horizon (e.g., a year). The complexity of this stochastic optimization problem grows exponentially with the time horizon considered. To obtain computationally tractable solutions, we propose using multistage model predictive control with scenario sampling. Numerical results indicate that our solutions are near optimal (e.g., within 3% from the optimum in the test cases). Finally, we apply our solutions to study an example residential customer with solar photovoltaic and battery systems participating in a typical existing baseline-based DR program. Results reveal that over 66% of the average apparent load reduction during DR events could result from inflation of baseline consumption during non-event days.
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