FERC Clarifies Demand Resources Not Always Entitled to Full LMP

FERC generally denied rehearing requests regarding Order 745, which ordered demand response to be paid the full LMP under certain conditions, but did clarify circumstances in which the full LMP shall not be paid to demand resources.

In Order 745, FERC ordered RTOs to pay demand resources the full LMP when two conditions are met. First, the demand response resource must have the capability to balance supply and demand as an alternative to a generation resource. Second, dispatch of the demand response resource must be cost-effective as determined by a net benefits test.

FERC clarified that this direction in Order 745 did not extend to situations where the LMP is not greater than or equal to the threshold price under the net benefits test. Thus, if LMP is less than the threshold price, Order 745 does not apply to determine the payment to a demand response resource, and any payment will be governed by the existing RTO or ISO tariff.

In a separate but related action, FERC denied in part PJM's compliance filing to implement Order 745, as PJM had proposed paying demand response the full LMP, as opposed to LMP minus the sum of retail generation and transmission, in hours where there was no net benefits test conducted to determine if demand response was cost effective.

FERC ordered PJM to reinstate its existing tariff provisions for payment of LMP-(G+T) in circumstances not addressed in Order No. 745. "If PJM wishes to propose changes with respect to circumstances that were not addressed by the Commission's section 206 action in Order No. 745, the appropriate forum for such a proposal would be a separate section 205 filing," FERC said.