FERC Slaps Down PJM Attempt to Impose New Requirements on Demand Response in Capacity Market

Granting a complaint from demand response providers, FERC rejected, on procedural grounds, new policies instituted by PJM applicable to demand response offers in the capacity market.

As previously reported, the new policies required "DR Sell Offer Plans" which required officer certification from demand response providers attesting to, "the reasonable expectation…to physically deliver all megawatts that clear the RPM Auction through Demand Resource registrations by the specified Delivery Year," and also required, under certain circumstances, customer "letters of support" in which the customer must attest to being "likely to execute a contract" obligating them to provide demand response three or more years in the future.

PJM was moving forward with the new requirements by incorporating them into its manuals, which do not require FERC approval, and PJM did not file the changes as part of the PJM tariff at FERC.

FERC ruled that the changes are required to be included in the tariff, and therefore granted a complaint from demand response providers to halt the changes from being implemented via the PJM manuals.

"The changes proposed by PJM implement practices that significantly affect jurisdictional rates, terms and conditions of service, and accordingly must be submitted to the Commission pursuant to section 205 of the FPA. The FPA requires all practices that significantly affect rates, terms and conditions of service to be on file with the Commission, and these practices must be included in a Commission-accepted tariff rather than other documents," FERC said.

FERC noted that it addressed the specific issue of rules for demand response participation in RPM in 2006, when it stated: "[b]ecause the rules for demand response participation in RPM are an integral part of the new capacity construct, we will require that PJM incorporate the eight criteria in Schedule 6 of the Reliability Assurance Agreement and the rules in the PJM Manuals associated with standards and procedures for demonstration that a resource has the capability to provide a reduction in demand, the calculation of the DR Factor (Demand Response Factor) and Unforced Capacity Value of a demand resource, and rules and procedures for verifying performance of demand resources in the PJM Tariff."

While generation owners claimed that FERC has allowed similar rules to be implemented via business practice manuals, FERC said such cases are properly distinguished from the instant case. "In contrast to those cases, and as noted above, the Commission made a specific finding in 2006 that PJM's rules for demand response participation in RPM were an integral part of PJM's capacity construct and must be included in the PJM Tariff," FERC said.

FERC noted that PJM has acknowledged that some Manual 18 Revisions reflect new practices relating to demand response capability, including adopting a new template for submitting information, requiring an officer certification, and establishing a procedure for identifying certain zones in PJM where more detailed information must be provided. "Consistent with our prior finding, the changes PJM has proposed in its manuals regarding demand response capability must be filed with the Commission pursuant to section 205 of the FPA so that their justness and reasonableness can be reviewed," FERC said.

PJM may propose these changes through an FPA section 205 filing for the Commission's review and approval and FERC, "encourage[d] PJM to submit a section 205 filing as it feels is appropriate."

"We make no determination here as to whether such changes, if filed under section 205, would be just and reasonable," FERC said.

Commissioners Philip Moeller and Tony Clark issued a concurring opinion agreeing with FERC's finding procedurally, but also stating that, "it appears that PJM has a legitimate need to require that demand resources provide certain information to substantiate offers to supply capacity."

"Notwithstanding the question of where these changes should be located, our primary concern is that PJM cannot ensure that resources are making legitimate and accurate offers into the capacity market. This injects additional uncertainty about whether these resources, if committed, will actually be available at some point in the future to provide capacity. Such uncertainty begins to degrade the very purpose of PJM's capacity market, which is meant to ensure that sufficient capacity is procured in advance of the delivery year to meet peak load ... We thus reiterate here the encouragement for PJM to submit a section 205 filing to enable the Commission to address PJM's proposed changes on the merits," Moeller and Clark said.

Docket EL13-57