FERC Rejects Must Offer Requirement For Demand Response Capacity Suppliers in PJM

FERC rejected a complaint filed by the PJM Independent Market Monitor which sought to impose a must-offer requirement, as applicable to PJM’s day-ahead energy market, on demand response with a capacity supply obligation

The IMM noted that while generation capacity suppliers are subject to a must-offer requirement, while demand response resources are currently cleared in PJM’s capacity market auctions as full substitutes for a generation capacity resource, demand response, for dispatch purposes in PJM’s energy market, is nonetheless treated as an emergency only resource with no obligation to submit an offer on a day-ahead basis. The Market Monitor argued that, as such, PJM’s tariff fails to treat demand response resources and generation resources on a comparable basis.

FERC, however, disagreed that such different treatment is unjust, unreasonable, unduly discriminatory or preferential.

FERC noted that it has previously held that comparability does not require that generation resources and demand response resources be subject to the same operational parameters in every circumstance; treating similarly-situated resources on a comparable basis does not necessarily mean that the resources are treated the same.

FERC said that generation and demand response, "are currently able to submit offers that reflect either the short-run marginal cost of providing energy or the cost of providing demand response, even though the mechanics of having these offers validated differ."

"With respect to the must-offer obligation, we note that generation resources are in the business of providing energy and ancillary services. Demand response resources, by contrast, include such entities as hospitals, schools, businesses, and homes whose primary purpose is typically not the provision of energy and ancillary services. As such, there is greater likelihood that end-use sources of this sort may have legitimate reasons for a willingness to provide demand response when needed to support the reliability of the system, without extending that willingness to other circumstances. Indeed, the Commission has long allowed a distinction between demand response resource participation in a day-ahead or real-time energy market administered by a regional transmission operator (RTO), or independent system operator (ISO), and demand response under programs that RTOs or ISOs administer for reliability or emergency conditions. A requirement that a must-offer obligation must attach to demand response resources would severely undercut such a distinction. The Market Monitor has not provided sufficient justification to warrant imposition of that requirement in the context of a section 206 proceeding," FERC said

Docket No. EL14-20