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PJM Submits Proposal to Integrate Price Responsive Demand into Capacity, Energy Markets
September 26, 2011
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PJM has submitted to FERC a proposal to allow load serving entities, as well as other providers, to commit Price Responsive Demand (PRD) to PJM, with such commitments reducing the capacity obligation sourced through the Reliability Pricing Model auction.
The rules would allow LSEs and other market participants to commit, before the Base Residual Auction for a Delivery Year, that PRD in a zone will reduce to a specified level when LMPs exceed a certain level during a Maximum Generation Emergency. The Variable Resource Requirement curves will be revised to reflect such commitments.
PJM's revised Reliability Assurance Agreement defines PRD as, "end-use customer load registered by a PRD Provider ... that have ... the metering capability to record electricity consumption at an interval of one hour or less, supervisory control capable of curtailing such load ... at each PRD Substation identified in the relevant PRD Plan or PRD registration in response to a Maximum Generation Emergency declared by [PJM], and a retail rate structure, or equivalent contractual arrangement, capable of changing retail rates as frequently as an hourly basis, that is linked to or based upon changes in real-time [LMPs] at a PRD Substation level and that results in a predictable automated response to varying wholesale electricity prices."
Under this definition, a PRD Provider can be an LSE or it can be another market participant, such as a curtailment service provider.
The revised RAA provides that PRD must have a retail rate structure capable of changing retail rates as frequently as an hourly basis and that is linked to or based upon changes in real-time LMPs.
The retail rate could itself have real-time pricing based on real-time PJM LMPs, but it could also involve a structure where the retail charge or credit to the end-use customer is greater than or equal to PJM's real-time LMP, or a rate that applies only when PJM's real-time LMP exceeds a preset threshold, PJM said. Some other rate structures that might qualify also include:
- Critical peak pricing that allows retail rates to rise when the wholesale market price exceeds a threshold level; or
- Critical peak rebate pricing which provides bill credits to consumers that reduce their usage below a baseline quantity during periods when the wholesale market price exceeds a threshold level.
The revised RAA defines PRD to include supervisory control capable of curtailing the PRD load in response to a Maximum Generation Emergency event declared by PJM. The PRD Provider is required to have the remote capability to decrease the load at each of its identified locations (to the extent load was not already reduced based on price) to the specified maximum service level when PJM declares a Maximum Generation Emergency event. The market participant committing PRD in connection with RPM must identify in its PRD Plan the supervisory control mechanisms and equipment it will use, and must show that it can implement the committed reduction within 15 minutes of PJM's declaration of the emergency event when prices are above the identified level.
The revised market rules make an exception, however, for any individual end-use customer with a single site at a single location that has supervisory control over processes with which the load reduction would be accomplished. Thus, this exception still requires equipment that can provide an automated response, but it allows it to be under the control of the end-use customer rather than the PRD Provider. Notably, this exception does not relieve the end-use customer of the obligation to reduce load to levels committed in the PRD Plan or PRD Curves within 15 minutes of the triggering event (i.e., a PJM-declared emergency and/or realtime LMPs above the identified level).
Under PJM's proposal, the amount of PRD permitted in RPM would be phased in gradually over four years.
The maximum amount of PRD that may be registered in the PJM region as a forward commitment in connection with RPM is 1,500 MW for the Delivery Year that begins on June 1, 2015 (i.e., the Delivery Year that will be addressed in the May 2012 BRA); 2,500 MW for the Delivery Year that begins on June 1, 2016; 3,500 MW for the Delivery Year that begins on June 1, 2017, and 4,000 MW for the Delivery Year that begins on June 1, 2018. There is no limit on the quantity of PRD that can be registered for the Delivery Year that begins on June 1, 2019, or for any Delivery Year thereafter.
These caps are for the PJM Region as a whole, and PJM's proposal also spells out how these caps would apply to specific zones, based on the ratio of each such zone's Preliminary Zonal Peak Load Forecast to the PJM Region's Preliminary RTO Peak Load Forecast.
Under the RAA revisions, the LSE serving loads committed as PRD will pay for RPM capacity obligations as if PRD were not provided, but will also receive an offsetting credit that reflects the provision of PRD, regardless of whether the LSE is the PRD Provider for such load. PJM said that, "[t]his puts the LSE in the same position as if PJM had simply reflected the lower peak load level by directly reducing the LSE's capacity obligation. However, this approach creates a distinct credit that embodies the capacity value of PRD, which can be readily identified and tracked by retail market participants and retail regulators, and used in connection with their PRD programs."
PJM reported that some market participants advocated requiring PJM to give the PRD Credit to a PRD Provider that is not the LSE for the loads at issue. "The Commission should not adopt this change. LSEs should not be required to pay PJM for capacity that is not provided by PJM's wholesale market," PJM said.
To commit load as PRD in connection with RPM, a PRD Provider must submit a plan to PJM (PRD Plan) that identifies the load and supports the proposed PRD commitments. To be considered in connection with the BRA for any given Delivery Year, a PRD Provider must submit its PRD Plan by the January 15 preceding that BRA.
Penalties for failure to perform under PRD, or failure to maintain registration of sufficient PRD-eligible load, would mirror the RPM capacity deficiency penalties, and generally equal to the cost of the capacity for the shortfall, plus the greater of 20% of the price of that capacity or $20 per megawatt.
Aside from the capacity market, PJM will also take PRD load reductions into account (just like other load parameters) in its pricing algorithms that determine LMP on the system. While PRD is not a resource that sets clearing prices by serving as a marginal supply offer in the market, PJM will account for load reductions indicated on PRD Curves when determining the least costly means of obtaining energy to serve the next increment of load in both the day-ahead and real-time markets and thus use PRD to determine prices.
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