By Rich Heidorn Jr.
PJM Insider

WASHINGTON, D.C. (Feb. 22, 2013) – The Federal Energy Regulatory Commission yesterday enacted new standards for measuring demand response and energy efficiency in PJM and other organized markets, rejecting objections from industrial customers who said the rules will hurt their efforts to participate.

PJM Independent Market Monitor Joseph Bowring also had raised concerns about the standards, saying they failed to distinguish between energy and capacity markets and could undermine PJM’s efforts to eliminate “double counting.”

The new rules add definitions and business practices to existing standards while leaving regions flexibility to tailor the specifications. The commission said the new standards, developed by stakeholders through the North American Energy Standards Board (NAESB), will reduce transaction costs and increase incentives for demand response and energy efficiency resources to participate in PJM and other RTO and ISO markets.

Incremental Improvement

The commission order (Order 676-G, Docket # RM05-5-20) acknowledged the new standards represented only an “incremental” improvement over the initial NAESB standards approved by the commission in 2010, and encouraged stakeholders to continue refining the measures.

The measures, built in part on those already in use in PJM and ISO New England, were generally supported by generators and transmission owners, while demand response aggregators told the commission they didn’t go far enough in standardizing rules across regions. Industrial customers complained that that the NAESB process was stacked in favor of generators — which are struggling to maintain revenues in the face of a sluggish economy and low natural gas prices — and against industrials, whose potential to reduce peak demand could pinch revenues even further.

Industrial Customers Object

The PJM Industrial Customer Coalition and the Industrial Energy Consumers of America (IECA) said the rules were appropriate for commercial customers, whose energy use is highly correlated with weather, but not for steel mills, plastics manufacturers and other large energy users whose energy use is driven by production schedules. Given the right incentives, industrials said, such users could delay production during a heat wave, reducing peak demand and prices.

But IECA acknowledged that it had not taken part in the multi-year NAESB drafting process and said that only “a handful” of individual industrials were involved. As a result, NAESB never considered the industrials’ call for adoption of industry-developed coincidence factors in evaluating energy efficiency.

Industrials complained current RTO requirements that coincidence factors be validated for each project created a costly barrier to their participation. IECA said that PJM’s “overly prescriptive” process for verifying energy efficiency projects result in costs that exceed the potential benefits to manufacturers.

The commission rejected the industrials’ request that it order RTOs to consider the industry-developed factors but said NAESB should continue to work on baselines that are more accurate for highly-variable load and consider whether the standards should distinguish between capacity and energy products — a concern raised by Bowring.

Concerns from PJM’s Market Monitor

Bowring told the commission that the NAESB standards were “more likely to create confusion than resolve it” because they do not differentiate metrics appropriate to energy demand from those for capacity.

Bowring said the standards threatened to undermine years of work by PJM stakeholders to eliminate the risk of gaming and “double counting” of demand response efforts.

In Docket No. ER11-3322-000, the commission approved using Peak Load Contribution as the fundamental measurement for evaluating reductions in capacity. Bowring said the NAESB standards “appear to conflict with and undermine the clear recognition of this fundamental metric.”

In its own filing, PJM Interconnection disagreed with Bowring’s concern, saying its existing methodologies “are compatible with the NAESB Standards.” The commission ruled that in the event of any conflicts between NAESB standards and RTO/ISO rules, the regions’ governing documents will take precedence.

The order will take effect 60 days after publication in the Federal Register. The commission said regions must make a tariff filing incorporating the standards by Dec. 31, 2013.

A pdf of this article is available for printing: FERC ruling on demand response verification – 2013-02-22