• FERC Approves PJM Demand Response Products
  • February 10, 2011 | Authors: William "Bill" R. Derasmo; Kevin C. Fitzgerald; Peter S. Glaser; Kevin C. Greene; Lara L. Skidmore
  • Law Firms: Troutman Sanders LLP - Washington Office ; Troutman Sanders LLP - Atlanta Office ; Troutman Sanders LLP - Portland Office
  • On January 31, 2011, FERC approved new demand response products for PJM Interconnection, L.L.C. (“PJM”) through two separate orders that accepted revisions to the PJM open access transmission tariff (“OATT”).  The Commission also approved changes to the tariff that would remove disparate treatment between existing units and new resources with regard to market mitigation, and the new revisions will apply must-offer requirements to units that go live in the middle of a year.

    PJM’s capacity market follows rules established in the region’s Reliability Pricing Model (“RPM”) and related contracts.  PJM conducts several forward auctions three years before delivery in order to acquire capacity.  This allows existing generation, new/proposed generation, demand response, and energy efficiency resources to compete in the installed capacity markets.  Over time demand resources have grown significantly, but time periods for which the products qualified under the RPM were more narrowly defined until now.  PJM contended the narrow timeframe posed greater risk of calling on a resource when the resource is not required to respond due to the decrease in broadly available units.

    PJM proposed to create two additional demand resource products: 1) Annual DR which is available all year for an unlimited number of interruptions and 2) Extended Summer DR which contains an expanded summer commitment period of any day May through October.  Annual DR maybe limited on the number of hours in a day that it must be available, and there is a ten hour cap on the duration of required interruption.  The extended Summer DR will allow power to be reduced from 10:00 am to 10:00 pm, and the maximum duration for interruption is also ten hours.  The original demand resource product will be known as Limited DR for market sellers since they will be required to specify a product in the RPM auctions.

    PJM also proposed RPM revisions to the definition for “Existing Generation Capacity Resource” and “Planned Generation Capacity Resource.”  Prior to the revisions, planned generation capacity resources were exempt from market power mitigation for the first delivery year, but for any subsequent year, the unit is considered an existing generation capacity resource subject to market mitigation.  The new definition for an existing generation capacity resource will now require new generating plants to offer must-run requirements for every year after service commences, and a planned generation capacity resource is one where construction has not commenced.  Further, PJM will treat new capacity similarly regardless of whether it comes from a new unit or if an existing unit has been modified.  Finally, PJM clarified the role of the market monitor, and PJM stated the revisions will make the role consistent with Order No. 719, Wholesale Competition in Regions with Organized Electric Markets. 

    FERC received several objections to the tariff revisions, however, FERC said PJM does have a process in place that would ensure providers did not over-bid, and rates would be just and reasonable.  The new demand resource products are effective in the tariff as of February 1, 2011, and the definitional and market monitor changes are effective January 31, 2011.