As expected, the PJM Board of Managers asked the Federal Energy Regulatory Commission to approve capacity market changes rejected by stakeholders last month.
PJM’s Nov. 29 filing (ER14-504) seeks to change the way demand response clears in capacity auctions. It would resurrect a PJM proposal that won only 45% support from the Members Committee Nov. 21 and 37% from the Markets and Reliability Committee Nov. 14.
PJM says the volume of limited DR clearing in the capacity market must be reduced because current rules result in a vertical demand curve that threatens reliability.
The RTO said it erred in 2011 when it won FERC approval for rules incorporating limited and extended summer demand response into the capacity market. The rules include measures for determining the maximum amount of the limited products that could clear the auction without hurting reliability.
“However, instead of using those `Reliability Targets’ as caps on the more-limited Demand Resources, PJM subtracted those values from the overall capacity requirement, and set the resulting value as a floor on the less-limited capacity product,” PJM said. “This one subtle distinction in the 2011 Demand Resource product rules, it turns out, has far-reaching adverse effects.”
Currently, 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%.
A simulation by PJM found that the RTO’s proposed changes would have increased total capacity costs by nearly $2 billion over the last two Base Residual Auctions. (See Demand Response Changes Could Cost $1B Annually.)
PJM said that because its proposal was unable to win supermajority support from stakeholders the board used its authority to submit the changes independently under section 205 of the Federal Power Act. “These RPM market reforms are concerned with preserving the reliability of the PJM Region, which is a core responsibility of the PJM Board,” PJM wrote.
Officials hope to implement the changes in February, when the RTO will set the parameters for its next base auction.
As of yesterday, 10 parties had filed notices to intervene in the case, including regulators from New Jersey, Delaware, Maryland, Ohio, Pennsylvania and the District of Columbia and the Organization of PJM States Inc. Also filing were the Market Monitor, Achieving Equilibrium LLC, and the PJM Power Providers Group.
