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PJM Transitional Auctions Must Include Demand Response, Energy Efficiency

July 29, 2015 By Cheryl Kaften

The Federal Energy Regulatory Commission (FERC) ruled on July 22 that, pending a high court decision, demand response (DR) and energy efficiency (EE) providers should have an equal place at the table in PJM Interconnection’s capacity market.

On the heels of that mandate, PJM voted at its Market and Reliability Committee meeting on July 23 to delay two upcoming transitional capacity auctions, in order to give sufficient preparation time to the non-generator resources. The regional transmission organization (RTO) for the Mid-Atlantic/Midwest said that the transitional auctions previously planned for July 27 and August 3 would now be scheduled in the weeks “following the base residual auction for the 2018/2019 delivery year” on August 10-14.

The transitional auctions are part of PJM’s overall kickoff of its capacity performance initiative. The new “pay-for-performance” plan will place extra requirements on market participants to perform when PJM calls upon them – particularly during system emergencies.

According to PJM, the transitional capacity auctions have been designed to provide “incremental improvements to address the issues; while recognizing the need to allow time for investment, transition of contracts, and transition cost management.”

Previously, PJM said it had ruled out the involvement of non-generator providers in the transitional auctions on the grounds that they “could increase [the] uncertainty” of a successful progression to the higher-performance plan. The RTO pointed out that an upcoming case in the U.S. Supreme Court regarding Order 745 will determine FERC’s jurisdiction over demand response – and stipulated that, until the court decides, there can be no assurance that non-generator capacity can be included in the process.

PJM had stated in a July 15 filing with FERC that the RTO had limited participation in the transitional capacity auctions to generation resources in order to:

  • Provide additional time and investment to [non-generation] resources, which “would need it more” while the RTO moved toward 100 percent capacity performance by the 2020/2021 delivery year; and
  • Account for the significant risk associated with clearing additional megawatts – or converting any already cleared megawatts of demand resource and energy efficiency resources – in light of substantial uncertainty over the viability of wholesale demand response stemming from the recent appellate decision in Electric Power Supply Ass’n (EPSA) v. FERC, Case No. 11-1486.

However, as FERC Commissioner Philip Moeller stated, the regulators believe that omitting non-generators from the process would be “unjust and unreasonable.”

Moeller said, “If demand response, energy efficiency, or other non-generation resources satisfy the capacity performance resource requirements, then there is no cognizable reason to bar them from auction participation merely because service will be rendered during the transition period. To do so would constitute undue discrimination based on technology type and could unnecessarily inflate auction prices.”

Further, he pointed out that, when PJM originally proposed capacity performance, there was no explicit mention of excluding non-generators – and that addressing the uncertainty surrounding the Supreme Court case in this way would be “premature.”

“PJM initially represented that its capacity performance proposal ‘preserves its current approach’ to demand response participation, in contrast to its more recent position that it intended to limit non-generation resource participation in the transition auction due to the uncertainty surrounding EPSA,” said Moeller, adding, “Depending on potential Supreme Court action in EPSA, it’s possible that PJM’s auction results may be disrupted; however, as [FERC] previously found, ‘it is unavoidable that some uncertainty is inherent in the current stance of the EPSA case,’ and addressing this issue is premature and would necessarily impact options the commission could undertake in response to the EPSA decision.

At this point, the RTO must announce the new schedule for the auctions by August 6. Since the submission deadlines for both transitional auctions have passed, the PJM will have to delay those, as well.

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