  In this paper, we propose a novel incentive based Demand Response (DR)
program with a self reported baseline mechanism. The System Operator (SO)
managing the DR program recruits consumers or aggregators of DR resources. The
recruited consumers are required to only report their baseline, which is the
minimal information necessary for any DR program. During a DR event, a set of
consumers, from this pool of recruited consumers, are randomly selected. The
consumers are selected such that the required load reduction is delivered. The
selected consumers, who reduce their load, are rewarded for their services and
other recruited consumers, who deviate from their reported baseline, are
penalized. The randomization in selection and penalty ensure that the baseline
inflation is controlled. We also justify that the selection probability can be
simultaneously used to control SO's cost. This allows the SO to design the
mechanism such that its cost is almost optimal when there are no recruitment
costs or at least significantly reduced otherwise. Finally, we also show that
the proposed method of self-reported baseline outperforms other baseline
estimation methods commonly used in practice.
