FERC Rejects PJM "Stop Gap" Demand Response Proposal

FERC has rejected as "premature" PJM's "stop gap" demand response proposal intended to address demand response in the capacity market should the Supreme Court ultimately determine the decision in EPSA that FERC lacks jurisdiction to set compensation for demand response

PJM's stop-gap solution would have essentially allowed LSEs to commit to future demand reductions, with an attendant reduction in their capacity purchase obligation. LSEs would not receive any direct compensation from PJM, but the reflection of their willingness to reduce demand would result in lower capacity prices from the reduction in their purchase obligation.

"[H]aving considered the record, we find that approval of PJM’s proposal at this time is premature and would necessarily impact options the Commission could undertake in response to the EPSA decision. While we recognize that PJM’s goal is to reduce uncertainty surrounding demand response participation in its upcoming BRA, in the present circumstances, it is unavoidable that some uncertainty is inherent in the current stance of the EPSA case. Moreover, we are concerned that PJM’s proposal introduces uncertainties that may exceed those it seeks to avoid, particularly with respect to potential unanticipated spillover effects on state programs and private sector arrangements. We find that, on balance, PJM’s filing is premature and therefore reject it," FERC said.

Commissioner Tony Clark dissented, arguing that the matter was not premature as adopting a stop-gap proposal would avoid the need to re-run the BRA should the Supreme Court affirm the EPSA decision. Moreover, Clark suggested that PJM's filing did not go far enough, in that it still treats demand as supply (reducing capacity obligations based on demand response). Clark suggested that PJM should instead focus on price-responsive demand.

"Enabling functioning price-responsive demand is the right answer to the conundrum in which we now find ourselves, and it is where the Commission should expend the bulk of its efforts. Price-responsive demand provides all of the proper price-forming benefits the Commission seeks, but without concocting bureaucratically complex schemes to pay consumers not to consume power. In a world of robust price-responsive demand, end-use customers would be aided by advanced demand side management devices. This would allow them to signal their willingness to pay for energy, thereby fulfilling their role on the demand side of the equation. The result would be a properly functioning, efficient, and competitive marketplace," Clark said

Docket ER15-852