Amid complaints that the issue has not been fully vetted, members of the Capacity Senior Task Force are voting on four proposals to cap the volume of limited demand response that can clear PJM’s base capacity auction. The vote, which was opened last week, closes today.

Katie Guerry, representing demand response aggregator EnerNOC Inc., said the vote should be delayed because changes being considered to increase DR’s flexibility may alleviate some of the concerns that prompted calls for caps.  “We’re concerned that we’re putting the cart before the horse,” she told the task force at a meeting last week. “We’re not convinced there’s a problem.”

Walter Hall, of the Maryland Public Service Commission, and John Farber, of the Delaware Public Service Commission, supported Guerry’s call for a delay. Hall said Maryland would like more time to evaluate the impact of the proposed changes on demand response in the state before taking a position.

But PJM’s Scott Baker, chair of the task force, said the schedule was necessary to make changes by February, when the RTO must post planning parameters for the 2014 Base Residual Auction.

Boom-Bust Cycles

PJM says the current rules result in a vertical demand curve that leads to boom-bust cycles where the system “oscillates” between being long on capacity, with low prices, and being short on capacity with high prices.

Under current rules, 4.8% of PJM’s reliability requirement can be filled with limited demand response, with higher levels possible if excess capacity clears against the sloped Variable Resource Requirement (VRR) demand curve. PJM wants to reduce the 4.8% by all of the 2.5% Short-term Resource Procurement Target (STRPT) for a net of 2.3%.

An alternate proposal by Southern Maryland Electric Cooperative and consultant James Wilson on behalf of consumer advocates for Maryland, Delaware and New Jersey would reduce the 4.8% by only a portion — to be determined — of the 2.5% holdback. The proposal would increase the 4.8% base to recognize that DR will increasingly be used as an operational resource.

$1.8 Billion Cost Increase

PJM’s proposal would have increased total costs by more than $1.8 billion over actual costs for 2015/16 and 2016/17, an increase of 12%, according to a simulation by PJM. It would have reduced the volume of limited DR by 64%.

The SMECO/Public Advocates’ proposal would have increased costs by less than 1% over the two years while reducing the volume of limited DR by about one-fifth.

Wilson, who drafted the public advocates’ proposal, said he was pleased with the results of the analysis. “It allows annual and extended summer to compete to the VRR curve,” he said.

EnerNoc and EnergyConnect, another demand response aggregator, also submitted alternatives, but they came too late for PJM to conduct simulations.

EnerNOC’s proposal would re-institute sloped demand curves for Extended Summer, Annual and Limited DR products. It would use the minimum resource requirements for Annual and Extended Summer resources to create sloped demand curves for those products, in the same manner that the VRR curve is created.  The auction would have to clear to the sloped curves instead of the vertical curves before resuming clearing in merit order for all products.

EnergyConnect’s proposal would adopt PJM’s proposal but differs on its handling of extended summer DR. It would continue the current rules capping Extended Summer DR at 10.5%. PJM wants to reduce that limit by the 2.5% holdback to a net of 8%.

The vote asks members whether they can support any of the four proposals and also includes a non-binding poll asking whether they would prefer to keep the status quo. The results will be presented at the Markets and Reliability Committee meeting Thursday.

DR as an Operational Resource

While the task force remained deeply split over the handling of limited DR, members seemed to be coming closer to consensus on two related issues — increasing DR’s flexibility and eliminating arbitrage opportunities between the Base and Incremental auctions — during the day-long meeting.

PJM’s Pete Langbein said the RTO has amended its proposal regarding a must-offer requirement for economic DR in response to stakeholder feedback. Langbein said PJM now wants to drop the must-offer requirement as long as it can dispatch DR with capacity commitments without declaring an emergency.

“These [changes] are really going in the right direction for us,” said Guerry.

Dispatch Time

Bruce Campbell, representing EnergyConnect, said a PJM proposal to require DR resources to prove they cannot be dispatched in 30 minutes could create an “unwieldy administrative construct.” He said proposals to pay quicker-responding DR resources more than slower ones will be sufficient to give PJM the resource diversity it seeks.

If 10% of the 15,000 DR resources seek such waivers, he said, it would result in 1,500 applications. “I think you risk losing a lot of demand response resources, at significant cost to load, if you continue going down this road,” he said.

But Stu Bresler, PJM vice president of market operations, noted that only 5% of DR has voluntarily chosen to be dispatched in one hour, with the remainder choosing two-hour dispatch. “My response to Bruce is, ‘How do I know I’m going to get that stratification?’”

Auction Arbitrage

Members reacted favorably to a new proposal by Gabel Associates to eliminate auction arbitrage opportunities.

PJM has proposed eliminating any profits that resources might receive from clearing at high prices in the BRA and buying out their position at a lower price in the incremental auction.

Gabel’s Michael Borgatti told the task force that PJM’s proposal provides little incentive to develop resources and may still result in resources failing to deliver.

Gabel’s proposal, made on behalf of RC Cape May Holdings, would reduce deficiency penalties for projects that pass development milestones evidencing good faith efforts to meet their commitments. Unlike PJM’s proposal, it would not apply the rules changes retroactively.

The Federal Energy Regulatory Commission has scheduled a technical conference for Nov. 13 to explore the implications of rule changes already proposed by PJM to address arbitrage concerns. The commission conditionally accepted proposed Tariff changes on Oct. 1 (Docket No. ER13-2108).