PJM generators told the Federal Energy Regulatory Commission last week that it should go beyond PJM’s qualification rules for demand response providers — with some proposing that planned DR resources be banned from the capacity market altogether.

Seven generators and two generator trade groups filed comments last week following a FERC technical conference Nov. 13 on PJM’s proposal to require “Sell Offer Plans” certified by the DR company officers and resource-specific data in some zones. Only a single Curtailment Service Provider, Comverge Inc., submitted comments opposing the rules, filed by PJM Aug. 2.

Support from Market Monitor

The generators — Calpine, Exelon, PSEG and four Ohio utilities — said the overwhelming stakeholder support for the proposed rules and the silence of most DR providers means the changes are reasonable and should be approved.

PSEG, the PJM Power Providers trade group and the Ohio utilities — FirstEnergy, AEP, Dayton Power & Light and Duke-Ohio — went further, saying FERC should order PJM to take tougher action against DR than the RTO could get through the stakeholder consensus process.

The failure to do so will allow speculative DR offers to continue suppressing capacity market prices and threatening reliability, they said. “The issue here is not `existing generation versus DR’ as some may seek to cast it,” the Ohio utilities wrote. “The issue is real versus speculative capacity resources.”
The generators have an ally on this issue in the Market Monitor, which called the PJM proposal a “compromise that does not solve the issue and which will lead inevitably to the need for further changes.”

Rules Vague

Comverge insisted in its filing that PJM’s rules are vague and unnecessary and will depress DR’s growth, echoing comments the company’s vice president of regulatory and market strategy, Frank Lacey, made at the hearing.

“PJM has neglected to provide any objective substantive criteria upon which it will determine the adequacy of DR Sell Offer Plans,” the company wrote. Allowing PJM “complete discretion” in accepting or rejecting the DR Sell Offer Plans violates the Federal Power Act’s prior notice requirements, the company said.

Ohio Utilities’ Filing

FirstEnergy and Duke protested the PJM proposal as insufficiently tough in a joint filing in August. For the post-conference comments, the two companies teamed up with DPL and AEP with a joint filing that cited analyses by a former FERC economist and a former PJM manager.

Former PJM transmission planning manager Scott Gass said in an affidavit that the RTO needs resource-specific information to identify locational delivery areas, which are priced as separate regions in the base auction. Gass performed an analysis of the ATSI transmission zone that he said shows that a reliability event that could be solved with 400 MW of targeted DR would require twice as much if the resources’ precise location cannot be identified.

The utilities also filed an affidavit from former FERC economist David Hunger, who analyzed the impact of “non-physical” DR offers on capacity prices. Because of the steepness of the demand curve, Hunger said, “a relatively small increase in the supply due to non-physical supply offers can result in a very large drop in the RPM clearing price.”

PJM’s Proposed Changes

The proposed Tariff changes require that officers of CSPs certify that they have a “reasonable expectation” of delivering the demand resources offered into the base Residual Auction. Comverge said the officer certifications are vague and give PJM too much discretion in enforcement.

The rules also set conditions under which PJM will flag transmission zones in which CSPs are claiming high levels of DR. CSPs offering resources from those zones will have to provide detailed site-specific information.

Comverge said the requirement creates a barrier to entry and is not motivated by reliability concerns. “Clearly, PJM is not basing its tariff changes on reliability concerns, because the changes proposed do not involve any sort of reliability analysis; they just say `X% of Demand Response is too much,’” Comverge said.

Generators have their own complaints about the criteria for flagging zones, saying they are too lenient.

Additional Changes Sought by Generators

The Ohio utilities said the commission should require DR to offer into the day-ahead energy market as is required of generators. The lack of such a requirement obscures the cost of energy in high demand periods, resulting in higher overall production costs and uneconomic dispatch of DR, the utilities said. A must-offer obligation would allow PJM operators to dispatch DR economically rather than as a block.

PSEG said PJM should require customer-specific information for all DR, not just those in flagged zones. The company also said PJM should either “tighten up the proposed DR Sell Offer Plan requirements” or be ordered to “enforce the Tariff provisions that already exist – which would require a contract between the CSP and its customers for the committed load reduction prior to the BRA.”

The Tariff requires that a “Capacity Market Seller may submit a Sell Offer for a Capacity Resource in a Base Residual or Incremental Auction only if such seller owns or has the contractual authority to control the output or load reduction capability of such resource.”

The PJM Power Providers, an organization representing more than a dozen generators and headed by the former chairs of the Pennsylvania and Michigan utility commissions, told FERC that the changes are needed but that “there is more work to be done” and questioned whether PJM should reevaluate “the participation of Planned DR in RPM.”

Market Monitor: Enforce Current Rules

The Market Monitor said PJM has not properly enforced its rules requiring that Planned DR must be a specific, physical resource. “This rule requires identification of a specific customer and a specific site, but does not require a contract,” the Monitor wrote.

“Under the current application of the rules, DR providers may not have identified Planned DR customers, may not have clear plans for implementing DR measures for these customers, and may not receive commitments from new customers until relatively close to the delivery year and well after the RPM BRA is run for that delivery year.

“PJM’s approach would not address the problem as well as the preferred option to enforce the existing rules and modify the existing rules to make explicit the obligation of cleared BRA resources to provide physical resources in the delivery year.”

What Will FERC Do?

The commission will weigh PJM’s filing against Congress’ direction in the 2005 Energy Policy Act that “unnecessary barriers to demand response participation in energy, capacity and ancillary service markets shall be eliminated.”

In ordering the technical conference, the commission said the proposed changes had not been proven just and reasonable and might be discriminatory. FERC staff expressed similar skepticism at the technical conference.

But Republican Commissioners Philip Moeller and Tony Clark have indicated they are leaning in support of PJM’s changes and Comverge’s arguments lacked the amplification the multiple generators provided in PJM’s support.

Comverge’s argument that the requirements are onerous could be undercut by the fact that PJM found “nearly all DR Providers” that offered into the 2013 BRA submitted adequate Sell Offer plans.

The rules will automatically take effect unless FERC rules by March 2 with an order modifying them. Another option is that the commission could delay a ruling in order to evaluate them along with other DR changes making their way through the stakeholder process. (See Members Deadlock on DR in Capacity Auctions.)