PJM files with FERC changes to rules involving demand response

PJM Interconnection on Jan. 15 said it has filed with FERC proposed changes to its rules addressing participation by demand response in PJM‘s capacity market, the Reliability Pricing Model (RPM), according to TransmissionHub.

Noting that it has a responsibility to ensure reliability and market efficiency despite the complexity and uncertainty surrounding demand response in the wake of the appeals court vacating FERC order 745, PJM added that the filing provides a “stop gap” or “temporary detour” to allow demand response to provide benefits to the market in a way that is consistent with the court’s ruling.

Based on its interpretation of Federal Power Act Sections 824(d) and 824(e), FERC in 2011 issued Order 745 to eliminate barriers to the use of demand response commitments in wholesale markets.

The U.S. Court of Appeals for the District of Columbia on May 23, 2014, vacated Order 745 in the Electric Power Supply Association v. FERC (EPSA) case, finding that FERC’s interpretation of Sections 824(d) and 824(e) was overreaching and that states have exclusive authority to regulate the retail market.

PJM said it seeks to implement the revisions only in the event the U.S. Supreme Court denies FERC’s petitions seeking review of EPSA. If the Supreme Court agrees to hear the case, then PJM would withdraw the filing and existing tariff rules would remain in place.

PJM said in its Jan. 14 filing that the filing is intended to allow PJM and the marketplace to have a fully adjudicated method to allow demand response to participate in the May 2015 Base Residual Auction (BRA), should the Supreme Court deny review of EPSA.

PJM said it proposes the changes in order to establish a jurisdictionally sound basis to realize the operational and market efficiencies of demand response in the PJM region in lieu of the risks and uncertainties that would arise if PJM cleared demand response in its capacity market auctions under the existing rules after the EPSA mandate had issued.

Under the proposal, should the Supreme Court deny review of EPSA, starting with the 2015 BRA, PJM will adjust the amounts of capacity it procures in RPM auctions by modifying the demand curve for such auctions, known as the Variable Resource Requirement, or VRR Curve, to conform to qualifying commitments by wholesale entities to reduce their wholesale loads in the capacity market.

With such modifications, PJM added, the VRR curve will more accurately reflect the amount of capacity that PJM properly should procure in RPM because it will reflect the actual — reduced — load that wholesale customers want to be served, based on the RPM clearing price for capacity.

Thus, PJM will be able to ensure that, in the event the EPSA mandate issues, RPM auctions will operate with accurate representations of demand, and thus will continue to provide just and reasonable prices for the capacity needed to maintain resource adequacy.

PJM added that the proposed new market rules include provisions for reduction in the PJM capacity obligations and associated capacity charges under the PJM tariff and the reliability assurance agreement among load serving entities in the PJM region (RAA) for wholesale entities whose load reduction bids are accepted in RPM.

PJM said it does not contend that the “stop-gap” rules that it is proposing are superior to the current RPM rules, nor can PJM predict how much demand response may participate in the capacity market under the proposed rules, though it could be substantially lower under the proposal than it has been historically.

Curtailment service providers (CSPs) have historically accounted for most of the demand response registered in PJM, but would not be allowed to offer demand response directly into the PJM market under the proposal, PJM said. However, if the current rules under which demand response participates in the PJM market must be revised, PJM said it believes the rules it is proposing in the filing would preserve the reliability and economic benefits of some demand response, and would be superior to rules that do not recognize any demand response.

PJM noted that currently, demand response supply in PJM comes, in large part, from end-users willing to commit to reduce their electricity consumption, or from CSPs, aggregators that bundle end-users’ load reductions into supply commitments to PJM. However, PJM claimed, EPSA raises serious questions about the viability of continuing that approach for the upcoming 2015 BRA.

For instance, PJM said, because EPSA involves the scope of FERC’s jurisdiction to establish compensation for demand response by retail end-users in wholesale markets, if PJM chose to take a “business-as-usual” approach to the 2015 BRA, there is foreseeable risk that the demand response offers cleared in that auction later could be nullified. Whether or when such an auction could occur is uncertain and unknowable, PJM said.

Of more immediate concern, however, PJM claimed, should the Supreme Court deny certiorari prior to the 2015 BRA, conducting the auction under the current rules could lead to either of two unacceptable outcomes, including that “the pending issuance of the EPSA mandate might significantly chill participation by demand response in the upcoming auction, thus compelling PJM to procure more generation capacity than would be needed to ensure resource adequacy if demand response participation were not hindered.”

On the other hand, PJM said, demand response providers might participate in the BRA to the same extent they have in prior auctions, and thus could force the market to clear substantial amounts of demand resources that may prove to be unable to perform as promised during the 2018/2019 delivery year.

That, PJM said, could unreasonably depress the BRA clearing price, while also creating a need to replace cleared demand resources at significantly different prices in RPM’s subsequent incremental auctions for the same delivery year.

PJM noted that its proposal includes such key elements as:

·      Existing terms and conditions of the PJM tariff and RAA for supply-side demand resources’ participation in future RPM auctions will be made ineffective, pending a future filing to restore or otherwise address those pre-existing provisions

·      New provisions in the PJM tariff and RAA will enable wholesale entities to bid demand-side reductions in wholesale loads into the 2015 BRA and subsequent BRAs. Such wholesale load reductions will shift the VRR curve to the left, reducing the amount of capacity PJM will procure in the auction and the price at which the auction will clear, in a way that ensures that the resulting BRA price reflects wholesale purchasers’ choices to reduce their capacity purchases at higher prices

·      Wholesale load reductions accepted in RPM will result in reductions to the PJM capacity obligations and associated charges of the affected load serving entities. Committed wholesale load reductions will be subject to measurement and verification requirements, as well as compliance charges for non-performance, comparable to those FERC previously has approved

PJM said its new rules leave to load serving entities, retail customers and state regulatory authorities all arrangements regarding compensation to end-use customers that support wholesale load reductions by reducing their electricity consumption.

PJM also said that the proposed rules do not affect existing commitments of demand resources that cleared as supply sources in prior RPM auctions, and do not affect PJM’s capacity payments to such resources for the duration of their commitments. However, under the proposed rules, PJM said, such “supply-side” demand response will no longer be allowed in future RPM auctions, and instead, starting with the 2015 BRA, the proposed new tariff terms would authorize commitments by wholesale entities in such auctions of wholesale load reductions and wholesale energy efficiency load reductions.

Among other things, PJM noted that to ensure that the proposed alternative rules are in place for the scheduled opening of the next BRA on May 11, PJM proposes that the revisions become effective on April 1. Noting that it seeks to make the proposal effective only if the Supreme Court denies the petitions for certiorari review of EPSA, PJM said that if the court has not acted on EPSA before FERC issues its order on PJM’s Jan. 14 filing, PJM requests that FERC accept PJM’s tariff revisions, but suspend their effectiveness until April 6.

That nominal suspension, PJM added, will allow it to submit a motion to continue the suspension and further defer the proposal’s effectiveness as needed to provide additional time to await the court’s order. If the court has not yet acted as the BRA approaches, PJM said that it expects to proceed with the auction under existing rules governing demand response.

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