Will Seasonal Capacity Resources Become Obsolete at PJM?
April 3, 2017
One of the most successful methods of reducing electricity demand during peak periods in the PJM Interconnection, L.L.C. (“PJM”) region may be destroyed based upon recent PJM tariff changes that were approved by Federal Energy Regulatory Commission (“FERC”) staff on March 21, 2017.
PJM, the transmission organization that operates the wholesale competitive energy market in its region, is obligated by its FERC tariff to ensure the ability of the electric system to: (1) supply the aggregate electric power and energy requirements of the electricity consumers at all times, in spite of scheduled and reasonably expected unscheduled outages of generation facilities; and (2) withstand sudden disturbances, including, but not limited to electric short circuits or unanticipated loss of transmission and/or generation facilities.
For over a decade, PJM has operated a resource capacity market (“RPM”) that compensates generation resources, demand response resources, and energy efficiency resources that are able to provide adequacy and operating reliability. Until recently, RPM resources were evaluated based upon their ability to respond during PJM’s peak demand periods, which have occurred during the summer months. Due to the 2014 Polar Vortex conditions, however, PJM proposed changes to RPM by implementing a Capacity Performance (“CP”) mechanism. CP requires, in essence, that an RPM resource be evaluated based upon its ability to respond during the summer months and also during the winter months; the value of the resource, however, is based upon its lowest performance during the two periods. Thus, many demand response resources (“DR”) that operate only during the summer (e.g., air conditioning control technologies), will be unable to qualify for CP because they are unable to “perform” during the winter months.
During the last decade, many entities have been making large capital investments in the ability to control electric air conditioning and heating facilities, in order to be able to participate in RPM as a DR. PJM reported in a February 2017 study that these technology investments have resulted in over 9,000 megawatts (“MWs”) of DR for PJM consumers. Unfortunately, only 595 MWs of such DR qualify as CP. The rest of these DR (8,749 MWs) are “summer only” DR and thus will have virtually no ability to participate in CP.
On November 16, 2016, PJM made a FERC filing in Docket No. ER17-367 to permit “aggregation” of summer and winter DR. In theory, the PJM proposal would permit summer-only DR to “pair up” with winter-only DR, in order to participate in the CP program.
Despite these proposed tariff modifications, parties such as the Advanced Energy Management Alliance (“AEMA”) and the Natural Resources Defense Council protested PJM’s filings. These parties contended that PJM’s aggregation program will not allow robust participation by resources with capacity that varies seasonally. Failure to allow such DR to participate in RPM will constrain available capacity, increase capacity costs and cause customers to pay inflated prices for electricity.
One compromise proposal would be for PJM to modify its tariff to apply a modified balancing ratio to DR that participates in RPM. This proposal would pro-rate the capacity obligation of DR in Performance Assessment Hours (the hours when resources are needed most at PJM) based upon the ratio of actual system demand to the total PJM system requirements. This would equitably assist DR in a way that is comparable to the relief PJM currently provides generating resources during Performance Assessment Hours. Without such changes, PJM would be denying DR the same rational reduction in penalty exposure that PJM currently gives to generating resources; PJM would thus inequitably dis-incentivize DR participation at PJM.
On March 21, 2017, FERC’s Office of Energy Market Regulation issued a letter order in which it concluded, in part, that the PJM tariff changes “have not been shown to be just and reasonable and may be unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful.” Nonetheless, FERC staff accepted PJM’s aggregation tariff changes for filing, suspended it for a nominal period, subject to refund and further FERC order. (FERC currently lacks a quorum of Commissioners to address this type of filing, so it is uncertain when a final FERC decision will be made).
Please feel free to contact us if you would like to learn more about seasonal demand response resources and the applicable PJM requirements for CP resources.
This Eckert Seamans Energy and Utilities Blog is intended to keep readers current on matters affecting businesses and is not intended to be legal advice. If you have any questions, please contact Dan Clearfield at 717.237.7173.