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Utility Proposes Mandatory Transfer of Demand Response Obligation, Payments Among Retail Suppliers, DR Providers In Light of PJM Stop-Gap Proposal

March 19, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

Baltimore Gas & Electric has asked the Maryland PSC to address various issues related to PJM's stop-gap proposal related to reflecting the impact of demand response in the capacity market if courts uphold that demand response cannot be compensated through the capacity market due to a lack of FERC jurisdiction.

PJM's stop-gap solution would essentially allow LSEs to commit to future demand reductions, with an attendant reduction in their capacity purchase obligation. However, BGE noted that the LSE may not be the demand response provider, such as in the case of a shopping customer who participates in BGE's peak time rebate program as a distribution (but not supply) customer of BGE.

In a filing with the Maryland PSC, BGE said that, "One problem presented by PJM's 'stop-gap' rules is that there is no mechanism to require an LSE to offer DR [demand response] resources into the BRA or to require an LSE to pass on the value of the reduced capacity obligation costs to the DR provider responsible for the DR resource. For example, BGE cannot compel an LSE/retail supplier to offer DR into the BRA that is associated with BGE's Peak Rewards program to BGE's shopping customers; and the LSE/retail supplier may resist that role because it is the LSE/retail supplier who would be responsible for performance penalties if BGE failed to deliver the DR three years hence. Moreover, BGE cannot compel an LSE/retail supplier to compensate BGE for the value of that DR. Other DR providers who are not the LSE for a customer in a DR program would face the same problem. This could have a damaging effect and cause a significant reduction in DR participation in PJM's auction."

"In order to facilitate continued, effective participation of DR in BRAs, and in the absence of a bilateral agreement reached between the LSE and DR provider, BGE believes that ultimately, the most prudent course of action would be a directive from the Commission that requires LSEs to enter into a Commission-approved standardized contract with the DR providers as a condition of being licensed as an electric supplier in Maryland. Such contract would address the terms and conditions under which an LSE would offer a DR provider's resources into the BRA," BGE said.

BGE said that the standardized contract would, among other things:

• "Fully protect the LSEs from any performance obligations attached to the DR provider's resources;

• Provide recovery for the LSEs of their actual administrative costs;

• Ensure appropriate payment from the LSE to the DR provider for the value of the reduced capacity obligation, subject to performance of the DR resources; and

• Address the daily transfer of DR obligations among LSEs throughout the delivery year to accommodate supplier choice."

While such mechanisms could be the ultimate solution, BGE said certainty is needed for the upcoming 2015 BRA.

"In the near term, however, if 'stop-gap" rules go into effect, action is needed by the Commission to ensure that DR providers are incented to offer the maximum DR into the May 2015 auction without fear of financial harm, as more fully explained below. BGE has had extensive discussions with PJM over the last two months. Two options have emerged for methods of DR participation in the upcoming BRA," BGE said

BGE described the options as follows:

"Option 1: PJM has informed BGE that under the 'stop-gap' rules, BGE is permitted to offer its entire residential demand response portfolio in its capacity as the Baltimore Zone Electric Distribution Company LSE. In other words, the offer could include both BGE DR resources attached to SOS customers and alternative supplier customers. The implication of such an approach, however, would be that the DR obligations that are attached to alternative LSE customers would be transferred from BGE to the alternative LSEs throughout the 2018-2019 delivery year. The LSEs, in turn, would realize the value of the reduced capacity obligation that BGE offered into the BRA, and would be required to pay BGE that value, subject to the performance of the DR resources. Without either (1) a contract compelling the LSEs to pass-through the capacity obligation cost savings to BGE, or (2) a Commission order protecting BGE and its customers against the risk that LSEs failed to make payment, BGE would be unwilling to pursue this plan due to the risk of non-payment from the LSEs."

"Option 2: In addition, PJM has informed BGE that under the stop-gap rules, BGE is permitted to offer all DR resources from all DR providers within its zone in its capacity as the Baltimore Zone Electric Distribution Company LSE, under the condition that PJM implements appropriate confidentiality protections in the BRA offering process. Under this approach, BGE would be the LSE through which third party DR providers would participate in the BRA, but only to the extent that the third party DR provider chose to do so. (Third party DR providers would still have the option of entering into a bilateral agreement with any LSE.) Similar to the BGE portfolio only offer described above, DR obligations (both BGE and third party) that are attached to alternative LSE customers would be transferred from BGE to the DR customers' alternative LSEs throughout the 2018-2019 delivery year. The LSEs, in turn, would realize the value of the reduced capacity obligation that BGE and third party DR providers offered into the BRA, and would be required to pay BGE and the third party DR providers that value, subject to the performance of the DR resources. Furthermore, under this approach in which BGE offers DR for the entire zone, BGE may be required to post collateral associated with third party DR resources, and so BGE would need the third party to provide its required collateral in order for BGE to proceed with the BRA offer."

"Under either of these options (BGE offering only its DR portfolio or BGE offering up to the entire zone of DR), BGE needs assurance from the Commission, before BGE makes its May 2015 BRA commitments, that it will attain full and timely cost recovery in the event that it incurs costs associated with third party (LSE or DR provider) non-performance. Moreover, if the Commission chooses the first option – BGE offering only its own DR – BGE requests assurance that BGE and its customers will not be harmed in any way if an LSE fails to make payment for our DR. BGE will need such assurances by early May in order to make offers in the May auction," BGE said.

BGE requested that the PSC address both the near-term and long-term issues.

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