FERC Approves Payment of PJM Price Responsive Demand Credits to Load Serving Entities Only, For Now

Credits under PJM's price responsive demand (PRD) program, which reflect the capacity savings from the existence of the price responsive demand, will be paid only to load serving entities, and not non-LSE PRD providers, under a FERC order issued yesterday, but FERC will be monitoring the issue going forward, and ordered reports on PRD market development (ER11-4628).

PJM's price responsive demand program will allow LSEs and other market participants to commit, before the Base Residual Auction for a Delivery Year, that PRD in a zone will reduce to a specified level when LMPs exceed a certain level during a Maximum Generation Emergency. The Variable Resource Requirement curves will be revised to reflect such commitments.

As was first reported by Matters, LSEs will pay for Reliability Pricing Model capacity obligations as if PRD associated with the LSE's load were not provided. However, to reflect the capacity value of the PRD, PJM proposed that LSEs serving loads committed as PRD shall receive an offsetting credit that reflects the provision of PRD, regardless of whether the LSE is the PRD Provider for such load.

As previously noted by Matters, the payment of the PRD to LSEs exclusively is necessary in such circumstance because an LSE's capacity obligation is not reduced to reflect price responsive demand. Rather, the credit provided to LSEs for price responsive demand compensates the LSE for any "extra" capacity it is required to be assigned under the Reliability Pricing Model despite the customer's price responsive demand reducing the customer's actual capacity obligation.

Non-LSE curtailment service providers had protested the design.

"We find that PJM's proposal to provide the PRD Credit to LSEs is reasonable and not unduly discriminatory. PJM's approach will have the same economic consequences as if it had merely reduced the LSE's capacity obligation, without paying any credit, but will provide the added benefit of greater transparency," FERC affirmed.

FERC rejected claims that the mechanism was unduly discriminatory. "Since only the LSE has demand and pays for capacity, we find it reasonable for PJM to provide the credit solely to the LSE that pays for capacity. In this regard, we do not find that PRD providers and LSEs are similarly situated since pure PRD providers have no capacity obligation that can be reduced," FERC said.

However, FERC was, "nonetheless ... concerned about competition among all players in the demand response arena."

Accordingly, FERC's acceptance of PJM's proposal to limit the PRD Credit to LSEs was made subject to an assessment to be submitted by PJM, and separately by the Independent Market Monitor, addressing the market effects of PJM's proposal, within 60 days of PJM's release of the results of its May 2014 base residual auction. Specifically, the report should assess the penetration of PRD into PJM's markets, and evaluate whether any of PJM's PRD rules might be acting as unreasonable barriers to greater PRD penetration, FERC said.

Regarding other issues, FERC generally approved PJM's proposal to phase-in the participation of PRD in the capacity market, but ordered PJM to further clarify the phase-in process. As proposed, the amount of PRD permitted in RPM would be phased in gradually over three years.

Under PJM's proposal, the maximum amount of PRD that may be registered in the PJM region as a forward commitment in connection with RPM is 2,500 MW for the Delivery Year that begins on June 1, 2016 (May 2013 BRA); 3,500 MW for the Delivery Year that begins on June 1, 2017, and 4,000 MW for the Delivery Year that begins on June 1, 2018. There is no limit on the quantity of PRD that can be registered for the Delivery Year that begins on June 1, 2019, or for any Delivery Year thereafter.

FERC also accepted, for the time being, PJM's proposal to limit loads participating as PRD from participating in PJM's other demand response programs. FERC also agreed with PJM's proposal to work with its stakeholders to develop necessary rules and submit a tariff proposal within nine months allowing for load registered as PRD to participate as a demand response resource in PJM's energy markets, or in the alternative, make an informational filing apprising the Commission of its progress on the issue.