PJM May Seek FERC OK Despite Stakeholder Opposition

The PJM Board of Managers may seek FERC approval for a plan to change the way demand response clears in capacity auctions despite stakeholders’ rejection of the plan.

That scenario emerged yesterday after a last-ditch compromise to address the RTO’s reliability concerns failed to win members’ endorsement. The proposal by Old Dominion Electric Cooperative won 58% support in a sector-weighted vote by the Members Committee, short of the two-thirds threshold to signal consensus.

After the vote, Executive Vice President for Markets Andy Ott told RTO Insider that he will recommend the Board seek Federal Energy Regulatory Commission approval of a PJM staff proposal backed by generators.

A Gamble

PJM would be gambling that FERC will find its arguments more persuasive than most members did. The staff proposal, which garnered only 37% support from the Markets and Reliability Committee Nov. 14, did only slightly better at the Members Committee yesterday, winning support of nearly 45%.

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

Ott said he expects PJM to file its proposal with FERC before Thanksgiving in the hope of implementing the changes in February, when the RTO will set the parameters for its next Base Residual Auction. Representatives of load and DR providers, who said the PJM plan will increase costs and stunt DR, are certain to file interventions opposing the changes.

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%.

Compromise

ODEC described its proposal as a compromise between the PJM proposal and one submitted jointly by Southern Maryland Electric Cooperative and state public advocates which would reduce the 4.8% by only a portion of the 2.5% holdback.

The SMECO/Advocates proposal had been the most popular with members, falling just short of a two-thirds plurality at the MRC Nov. 14. Its support eroded Thursday, when it won only 54% support from the Members Committee.

The ODEC plan was opposed by generators, transmission owners and PJM. Stu Bresler, vice president of market operations, said the ODEC proposal might not hurt reliability in the short term but would in the long term by undercutting prices in the capacity auctions.

Market Monitor Joe Bowring also panned the ODEC plan, saying PJM’s proposal was already a compromise from what he believes the RTO should do: eliminating limited DR altogether. Bowring said limited DR is suppressing the capacity market by $3 billion to $4 billion annually.

Other DR, Capacity Initiatives

PJM had more success on a separate proposal that could increase capacity prices as the Members Committee gave final approval to PJM’s methodology for limiting imports. The proposal was approved by 85% of stakeholders.

At the Markets and Reliability Committee meeting earlier Thursday, members also approved a proposal giving PJM more flexibility in the way it dispatches demand response. The plan won 67.4% support in a sector-weighted vote, just enough to clear the two-thirds threshold.

Members agreed to postpone an MRC vote on a fourth initiative to prevent arbitrage between the Base and Incremental capacity auctions. PJM officials said they wanted to return the issue to the Capacity Senior Task Force to seek revisions that could win broader stakeholder support.

The CSTF voted earlier this month on 11 proposals on the arbitrage issue, with PJM’s proposal winning 60% support and the others ranging from 0% to 33%. Two-thirds of voters backed a change in the status quo.

RTO Insider will have an updated report on the capacity market and demand response initiatives — plus other action from the Members and Markets and Reliability committees and highlights from the National Association of Regulatory Utility Commissioners (NARUC) annual meeting in Orlando — in Tuesday’s newsletter.