FERC Rejects PJM Tariff Revisions To Change Price Responsive Demand Rules To Reflect Capacity Performance Requirements, Says Proposal Would Improperly Charge PRD LSEs

June 28, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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FERC has rejected tariff changes from PJM to update the rules and requirements for Price Responsive Demand (PRD) to conform to the rules and requirements for Capacity Performance Resources (PRD Update).

"[W]e reject the filing as unjust and unreasonable because PJM has not demonstrated that calculating the Nominal PRD Value and the associated PRD Credit based on the lesser of summer and winter load reductions is consistent with a Load Serving Entity’s (LSE) capacity obligation, which is based on the LSE’s annual coincident peak demand," FERC said

PJM’s PRD program provides LSEs an opportunity to designate a portion of their load as price-responsive in order to reduce their bills for energy and capacity. PJM’s PRD program only allows for participation through an LSE: either the LSE acts as the PRD Provider itself, or the LSE contracts with a third party to act as the PRD Provider on its behalf. Furthermore, PRD Providers must: (1) limit PRD to customers served under a dynamic retail rate structure; (2) employ advanced metering; and (3) employ supervisory control to ensure the committed demand reduction can be accomplished.

A PRD Provider reflects retail customers’ willingness to reduce load using a set of price/quantity pairs called a PRD Curve, and is required to autonomously ensure its customers’ real-time load does not exceed the amount in its PRD Curve corresponding to the prevailing real-time Locational Marginal Price (LMP). The PRD Provider can also commit to reduce the LSE’s load by a certain amount of MW (the Nominal PRD Value) during PJM’s annual peak, which generally occurs in the summer. Because PRD operates as price-sensitive demand in the energy market, LSEs participating in PRD receive no energy payment other than reduced energy bills. Similarly, LSEs receive a capacity service bill credit (the PRD Credit) for any PRD in their Locational Deliverability Area (LDA) to reflect avoided capacity market costs. The amount of the PRD Credit is based on Nominal PRD Value, which reflects the reduction in the LSE’s demand during PJM’s annual peak. That is, the PRD Credit puts the LSE in the same position as if PJM had reduced the LSE’s capacity obligation, which is calculated based on the LSE’s demand during PJM’s annual peak.

PJM’s filing proposed to revise the PRD program to align with the rules for supply-side Capacity Performance Resources. PJM proposed to: (1) change the calculation of the Nominal PRD Value used for determining the PRD Credit from the reduction in load during PJM’s annual peak to the lesser of summer and winter load reductions; (2) assess Non-Performance Charges and award Performance Payments to PRD in accordance with the rules for Capacity Performance Resources; and (3) revise the PRD credit rate to conform to the credit requirements for Capacity Performance Resources. PJM proposed an effective date of July 28, 2019 for its revisions.

PJM had argued that the PRD Update will address the current disparities between PRD and Capacity Performance Resources, and thereby affirm the expectation that Capacity Performance Resources "will be available to provide energy and reserves when called upon[], without regard to technology type." Specifically, PJM cited four disparities between PRD and Capacity Performance Resources: (1) PRD is not required to perform annually, yet can displace an annual Capacity Performance Resource in the RPM auction; (2) the trigger for PRD non-performance charges is a Maximum Generation Emergency, while the trigger for Capacity Performance Resources is an Emergency Action, which is by definition broader; (3) PRD is not currently eligible to receive Performance Payments during a PAI [Performance Assessment Interval]; and (4) the existing credit requirement for PRD is not in line with that of other capacity resources.

However, FERC said that PJM has not shown that it is just and reasonable to calculate the Nominal PRD Value and associated PRD Credit based on the lesser of summer and winter load reductions (rather than based on the reduction in demand during PJM’s annual peak)

"PJM’s proposed Nominal PRD Value calculation conflicts with the manner in which it calculates an LSE’s capacity obligation, which is based on an LSE’s demand during PJM’s annual peak," FERC said

FERC further said that, "Indeed, PJM’s filing is at odds with its original justification for proposing a PRD Credit that reflects an accurate reduction in an LSE’s capacity obligation based on PRD load reductions," as FERC quoted PJM as previously stating that, "[The PRD Credit] 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. . . . Importantly, therefore, the enclosed approach ensures that LSEs are not improperly charged by PJM for capacity that is not needed and not provided."

"PJM’s proposal would improperly charge LSEs participating in PRD by not providing a PRD Credit that reflects the full value of load reductions during PJM’s annual peak. We agree with the IMM and Public Interest Organizations that PJM’s proposed approach would limit the amount of MW that PRD can commit and thereby inaccurately reflect PRD’s load reduction capabilities," FERC said

"Our finding here is consistent with precedent in which the Commission has found that Regional Transmission Operators and transmission owners must recognize load reductions resulting from interruptible load programs in computing billing determinants," FERC said

"PJM argues that the rules and requirements for PRD should be consistent with those of Capacity Performance Resources. In light of our finding that it is unjust and unreasonable to calculate the Nominal PRD Value in a manner inconsistent with how an LSE’s capacity obligation is determined, we do not find it necessary to address the need for consistency between the PRD requirements and the requirements for capacity resources," FERC said

Docket ER19-1012

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