Rule changes since last year’s auction resulted in reductions in cleared generation imports and demand response. The mix of DR that cleared also changed, with more annual resources and less summer-only.
Capacity Import Limits
In last year’s auction, generation imports nearly doubled, leading some to question their deliverability. (See Capacity Auction: New Generation, Imports Up, Prices, DR Down.) The Federal Energy Regulatory Commission approved PJM’s plan to create five import zones with a combined limit of 6,499 MW for this year’s base auction (ER14-503). (See FERC Clears Capacity Import Limits.)
FERC also approved several rule changes intended to make demand response a more flexible resource.
Clearing of Limited DR
Perhaps the most controversial change was one that reduced the volume of limited demand response that could clear in the auction (ER14-504). The new rules cap the amount of limited and extended summer DR at 10% of PJM’s reliability requirement, with limited DR providing no more than 4%.
The PJM Board of Managers proposed the changes to FERC in March despite a lack of stakeholder consensus. PJM told FERC the volume of limited DR clearing in the capacity market had to be reduced because the then-current rules resulted in a vertical demand curve that threatens reliability. (See FERC OKs Limits on DR in Capacity Auction.)
DR as an ‘Operational Resource’
FERC also approved most of PJM’s proposal for making demand response an “operational resource.” The order (ER14-822) allows operators to dispatch DR before emergencies, reduces default notice times to 30 minutes from as long as two hours and reduces minimum run times to one hour from two. However, the commission ordered PJM to allow small commercial customers to be eligible for a “mass market” exemption from the 30-minute notice along with residential ratepayers. The commission also rejected a proposal requiring DR providers to respond to sub-zonal dispatch. (See PJM Wins on DR, Loses on Arbitrage Fix in Late FERC Rulings.)
DR Sell Offer Plans
DR providers must also provide more assurances that they will be able to deliver the demand reductions promised in their offers under an order approved in February (ER13-2108).
PJM had filed manual changes before the 2013 auction requiring DR providers offering into the capacity market to submit a “Sell Offer Plan” that included a template with certain information and a certification from an officer of the provider. It also required DR providers to submit details on their end-use customers in areas where PJM suspected double counting.
The commission ruled on the eve of the 2013 auction that the new requirements significantly affected rates, terms and conditions of service, and thus required changes to the Tariff.
PJM filed the required Tariff changes last August. It said it was concerned that some of the increasing volumes of DR offered and cleared in the capacity auctions represented overly optimistic projections or double counting of the same resources. It also suspected that some DR providers were offering resources in the base residual auction assuming they could buy out of their commitments in the bilateral market or incremental auctions.
Some observers believe that although the requirements were not in effect for the 2013 auction, the expectation that they would be resulted in the decline in DR offers in last year’s base auction.
Auction Speculation Fix Rejected
PJM was unsuccessful in its attempt to eliminate financial speculation in the auction.
Because clearing prices in IAs are usually lower than those in the BRA, participants can profit by selling capacity in the BRA and buying out their commitments in the IAs. PJM and the Market Monitor say such buyouts are suppressing capacity prices and could undermine system reliability.
PJM’s solution would have reduced the number of IAs (currently three) and set conditions eliminating the potential to arbitrage between the BRA and IAs. PJM unilaterally proposed the changes in March after the Markets and Reliability Committee failed for a second time to reach consensus on a fix.
On May 9, FERC rejected PJM’s proposal (ER14-1461), saying it would increase risks for capacity sellers, create undue barriers to entry and increase costs to load through the acquisition of excess capacity. The commission was also unpersuaded by PJM’s evidence of speculative sell offers.
The commission instead ordered its staff to schedule a technical conference under a new docket (EL14-48) to develop a solution. (See PJM Wins on DR, Loses on Arbitrage Fix in Late FERC Rulings.)
