By Rich Heidorn Jr.

PJM’s plan to implement new demand response rules in time for the May capacity auction is in doubt following a Federal Energy Regulatory Commission order requiring the RTO to provide more information to support its proposal.

The March 6 deficiency notice (ER14-822) shows that commission staff is taking seriously state regulators’ and curtailment service providers’ objections to changes in the speed and granularity with which DR would be deployed.

PJM has 15 days to respond to the order, which lays out 10 questions regarding the dispatch and compensation of DR. PJM had requested the commission approve the changes effective March 15.

Several of the questions focus on “Pre-Emergency” dispatch of DR and the reduction in the default response time from two hours to 30 minutes. The commission also asked about PJM’s proposal to make DR offer prices contingent on the speed of resources’ response and how that stratification compares to current rules for generators.

In addition, FERC asked PJM to explain how it will weight factors such as location and minimum notification time in deciding which resources to dispatch.

Changes Summarized

Current rules require PJM operators to provide two hours’ notice before dispatching DR. Under the proposal approved by PJM stakeholders in December, resources will be dispatchable in 30 minutes unless they can demonstrate they are physically unable to do so.

The new rules, which were backed by a 70% vote of the Members Committee Dec. 9, also would limit the Emergency DR designation to resources using back-up generators that are subject to environmental permits. Other resources will be known as Capacity DR. In addition, the minimum event duration will be reduced from two hours to one hour and the strike price will be reduced. (See Members OK DR Dispatch Rules after Late Amendments.)

Cost Concerns

In response to protests by CSPs EnergyConnect and Comverge, FERC asked PJM to defend its claim that day-of sub-zonal dispatch will “not impose prohibitive costs on demand resource providers.”

The proposal would allow PJM to call for curtailments immediately after defining a sub-zone, with most resources expected to respond within 30 minutes.

In a Feb. 4 filing, EnergyConnect and Comverge said that automated equipment needed to meet the 30-minute lead time could run “well into six figures.”

“The average size of a Demand Resources customer is less than 0.5 MW. In the upcoming 2014-15 delivery year, capacity prices are approximately $46,000/MW year, or an average of $23,000 per customer.” Thus it would take years to recover payback of those investments, the companies said.

Barriers to Entry?

The CSPs and the PJM Industrial Customer Coalition also raised equity concerns, pointing out that only about half of the RTO’s combustion turbines have start times of less than 30 minutes and that combined cycle and steam units require much longer lead times.

“Thus, overly restrictive rules that drive Demand Resources out of the market would invariably only lead to the reliance on and retention of older, less flexible, fossil fuel steam plants with hours and perhaps days of notice times required for startup,” Comverge and Energy Connect said. “It is difficult to understand how changes of this sort … could benefit the market.”

EnerNOC, in a Feb. 11 filing, said PJM’s proposed exemptions to the 30-minute start time were too narrow, calling them a “transparent attempt to erect a market barrier” to DR.

Must-Offer Requirement

Meanwhile, Market Monitor Joseph Bowring has asked FERC to impose on DR a must-offer requirement similar to that for generation resources, saying PJM’s proposal doesn’t go far enough in addressing disparities between the competing resources. Several generation-owning utilities have also called for such a requirement.

The Monitor also said FERC should limit DR’s offer cap — now effectively $1,800/MWh — to the $1,000 allowed generators. (See Monitor Asks FERC for Must-Offer on Demand Response.)

EnerNOC said a must-offer requirement is unnecessary because the new rules making most DR “pre-emergency” resources will provide PJM sufficient flexibility.

While generators’ must-offer requirement acts as a protection against withholding, EnerNOC said, DR participants don’t have an incentive to withhold. “Demand Resource participants are load, and as such do not have an interest in raising prices,” EnerNOC said.

Impact on BRA

FERC’s deficiency notice raises questions about whether the proposed changes will be implemented in time for the May 12-16 Base Residual Auction.

The proposal would mandate the 30-minute dispatch beginning delivery year 2015/16. CSPs would be able to choose among 30-, 60- and 120-minute dispatch for DY 2014/15.

All other provisions would be effective for 2014/2015.