DR, States Balk as PJM Pushes Capacity Vote

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 Proposed Method for Modeling of the Limited & Extended Summer Demand Response Targets (Source: PJM Interconnection, LLC)

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).

October 22, 2013

FERC Sets Hearing on Challenges to Delmarva Tx Rates

Delmarva Power & Light Co. must defend itself against challenges to its formula transmission rate filings for 2011 and 2012, the Federal Energy Regulatory Commission ruled last week.

FERC unanimously rejected Delmarva’s claim that the challenges by municipal power agencies and electric cooperatives were impermissible on procedural grounds, though the commission did narrow the issues to be litigated.

The commission ordered a hearing on whether Delmarva’s filings are consistent with FERC rules regarding accounting for income taxes and whether it properly allocated expenses from its parent, Pepco Holdings, Inc. It encouraged the parties — which include Delaware Municipal Electric Corporation, Inc. (DEMEC), Easton Utilities, Old Dominion Electric Cooperative and the Public Power Association of New Jersey — to settle the issues before the hearing.

DEMEC contends that Delmarva has added new costs that were not included in its initial formula rate and that the company improperly booked some non-transmission expenses. The protestors also complained about an increase in Delmarva’s administrative & general costs since implementation of the formula rate.

The commission rejected Delmarva’s contention that that the terms of a 2006 settlement (Baltimore Gas and Electric Co., 115 FERC 61,066) do not permit prudence challenges and that the formula rate inquiry is limited to whether costs were booked to the correct account.

“The commission’s acceptance of a formula rate constitutes acceptance of the formula, but not the inputs to the formula,” the commission wrote. “Parties can challenge the inputs to the formula rate in the same way as they can challenge costs in a stated rate case, including by raising prudence issues. In order for formula rates to work properly, they must allow for after-the-fact corrections and updates.”

The commission dismissed challenges to Delmarva’s handling of taxes associated with deferred investment tax credits and non-deductible pensions and other benefits.

FERC also rejected DEMEC’s request to reduce Delmarva’s return on equity, saying that it was outside the scope of issues permitted in challenges to annual rate filings. The panel noted that DEMEC and the Delaware Consumer Advocate’s office are contesting the ROE in a separate challenge before the commission (EL13-48).

October 22, 2013

FERC Upholds QF Rules; Orders PPL to Buy

The Federal Energy Regulatory Commission last week reiterated its 20 MW threshold regarding purchase obligations from qualifying facilities as the panel’s two Republican members said the commission should rethink its approach.

The commission ruled that PPL Electric Utilities Corp. must purchase excess power from a proposed 18.1 MW combined heat and power plant because the utility failed to prove the QF facility would have “nondiscriminatory” access to PJM’s wholesale markets.

The order reiterated the commission’s 2006 Order 688, in which it said that QFs above 20 MW were presumed to have access to the wholesale markets and those below were presumed to lack that access. For generators below 20 MW, FERC said, the burden of proof falls on the utility in whose territory the facility is located.

The commission said PPL failed to meet that threshold in its dispute with the IPS Power Engineering Inc. cogeneration facility at a beef processing plant in Souderton, Pa.

IPS Power Engineering Gas Turbine (Source: IPS Power Engineering)

JBS USA LLC, the meat processor, wants to team with IPS to control its power costs and ensure reliable supply. But the partners say the plant won’t be feasible without a contract to sell at least 10 years of its excess energy and capacity to PPL.

The commission ruled that PPL “attempted to make many of the same generalized showings” that the it rejected in its 2010 Public Service Co. of New Hampshire order (131 FERC ¶ 61,027). “Specifically, PPL Electric alleges that the Souderton QF has nondiscriminatory access to PJM’s markets because PJM’s market rules provide such access, and that the Souderton QF will neither have operational characteristics nor face constraints that would definitionally prevent access to PJM’s markets.”

The commission’s ruling could affect many other utilities within PJM. According to PPL, there are 150 generation projects below 20 MW in PJM’s interconnection queue.

The 1978 Public Utility Regulatory Policies Act (PURPA) requires electric utilities to purchase the output of cogeneration and small power production qualifying facilities at their “avoided costs.” The Energy Policy Act of 2005 amended PURPA to allow termination of QF requirements if FERC finds that the QF has nondiscriminatory access to make market sales.

The commission has never granted any utility relief from the mandatory purchase obligation for a QF of 20 MW or smaller. Nor has it given much guidance regarding what kind of evidence would convince it.

Order 688 said such evidence could include whether the QF has already participated in the market. PPL could not make that showing, the commission acknowledged, because the Souderton QF has not begun operation.

And that, said Commissioners Philip Moeller and Tony Clark, is a problem. Although they acknowledged the order follows FERC precedent they said the commission should provide more guidance.

“While we concur with the overall finding in this order and agree that PPL’s application lacked certain QF-specific information required under the Commission’s regulations, such as a system impact study for the interconnection, we do not agree that the PJM market rules and planning process are irrelevant for purposes of determining QF-specific market access,” they wrote.

They said the standard of proof shouldn’t be “so high as to preclude a utility from successfully making a showing before the QF is fully operational and the utility is obligated to purchase.”

Such a “circular result,” they said, could “[render] meaningless the opportunity to rebut the presumption and obtain PURPA relief.”

October 22, 2013

Cyber Attacks on PJM: When, Not If

LAUREL, MD — As manager of a team of eight staffers charged with combating cybersecurity threats to the PJM grid, Stephen McElwee carries secrets.

Steven McElwee, PJM Manager, Corporate Information Security at the October meeting of the INCOSE Chesapeake Chapter

“If I run off to a security briefing, I learn a lot of things and I go home scared. But I can’t tell my analysts who are actually doing the real-time monitoring anything about it” because security clearances are limited to managers, he says.

Such is life in the cybersecurity world, McElwee, PJM manager of corporate information security, told an audience of more than 80 systems engineers at John Hopkins University Applied Physics Laboratory here. Most of the audience at the lecture, sponsored by the International Council on Systems Engineering (INCOSE), were contract workers for the nearby National Security Agency. (See video of lecture.)

“A year and a half ago I would have said [hackers] haven’t touched the energy sector. Now they are touching the energy sector,” he said. “It’s not a matter of if [PJM is attacked] but when.”

Threats to Pipelines, Smart Meters

McElwee said natural gas pipelines have been under attack since last year. “That campaign resulted in breaching of many natural gas companies — stealing plans, and gaining possible footholds in those companies.” Some hackers obtained plans for pipeline compressors.

McElwee and his colleagues also worry about botnets — private computers infected with malicious software and controlled as a group — taking control of thousands of smart meters. “You could … suddenly switch on and off that load, making it nearly impossible to control” the system, he said.

PJM Defenses

PJM’s defenses are a combination of risk assessment, education of system users and information-sharing partnerships with government and industry.

Education is key to prevent “spear phishing,” in which hackers penetrate networks through unwitting employees.

Thus, PJM hired a consultant to conduct mock phishing campaigns by sending employees emails with links that could have contained malware. When the test started, McElwee said, one in five recipients clicked the bad links. Over a year of education, the click-through rate was reduced to 4%, where it has remained in the current year. “It’s hard to get it below that” rate, he said.

PJM also has hired contractors to conduct penetration testing — probing the network for vulnerabilities — and to provide 24-hour monitoring of threats. It has staff dedicated to installing patches and has formed a security assessment committee of PJM officials to identify risks in any new software and projects.

`Kill Chains’

The company uses “kill chain” analyses to assess threats: “How far did it make it? Where did we stop it? Where did we detect it?”

PJM uses that data as an input back in its risk assessment, McElwee said, “so we have a feedback loop that allows us to continually improve our security posture.”

PJM relies on partnerships with industry and government to ensure it has adequate response plans and the best technology. “We recognize we can’t do this on our own,” McElwee said.

Cyber Risk Information Sharing Program (CRISP) (Source: PJM Interconnection, LLC)

Thus, PJM has become one of four pilot participants in the Cyber Risk Information Sharing Program (CRISP), a Department of Energy program involving Argonne National Laboratory, Pacific Northwest National Laboratory (PNNL), and the Electric Sector Information Sharing Analysis Center, a project of the North American Electric Reliability Corp. (NERC).

CRISP analyzes PJM’s network traffic and uses “snort signatures” and other techniques to identify potential threats.

“When there’s something suspicious that they see on our network they give us a call and say `here’s an IP address you need to block’ and we can proceed and block that address and never know it was the nation-state of the day that was attacking us,” McElwee said. “All we know is that somebody was watching out for us.”

CRISP is considering adding 20 new participants soon, with a broader expansion after that. “Because the power grid isn’t just PJM,” McElwee said. “It’s all the transmission owners all the generation owners that make up the entire system.”

NERC Standards ‘Dated’

McElwee said NERC’s Critical Infrastructure Protection standards are “dated.” A new version, which is awaiting final approval by the Federal Energy Regulatory Commission, “promises a lot more protective mechanisms,” he said. (See FERC OKs New Reliability Standards)

President Obama’s executive order, issued in February, was helpful in providing industry increased access to information, he said. “Not all information needs to be classified as high as it is.”

October 22, 2013

State Briefs

State Site Removes ‘Pro-Coal’ Material

The Illinois Department of Commerce and Economic Opportunity took coal-education material off its website after objections that it was unduly pro-coal. The website sections, intended to educate children about energy, sparked a grassroots campaign demanding that the pages be taken down.

(Source: IL Dept. of Commerce & Economic Opportunity)

More: Yes! Magazine; Midwest Energy News

KENTUCKY

Fund Proposed to Move State Past Coal

An eastern Kentucky economic development organization recommended some coal severance tax funds be devoted to a program to diversify the regional economy. But many local needs and dwindling revenue from the tax present tough decisions for the area’s policy makers. Eastern Kentucky has lost more than 5,700 coal jobs in the last two years.

More: Kentucky.com

LG&E, KU Propose Gas Plant, Solar Facility

PPL’s two Kentucky utilities have proposed building a 700 MW combined-cycle plant and a 10 MW solar facility to help replace retiring coal generation. The new projects would make the Louisville Gas and Electric-Kentucky Utilities portfolio 59% coal, 40% gas and 1% renewables.

More: The Morning Call

MARYLAND

Push Harder on Smart Meters, PSC tells BG&E

Baltimore Gas & Electric must try harder to reach customers who have not responded to efforts to switch them to smart meters, the Public Service Commission said, rejecting for now the utility’s suggestion to call these customers meter “opt-outs.” BG&E also may not terminate their service for non-response, the PSC ruled.

More: Maryland PSC

MICHIGAN

Green Group Urges 40% Renewables by 2035

Michigan could get 40% of its energy from renewables by 2035, and do so at half the cost assumed when the state enacted its renewable portfolio standard in 2008, a renewable energy trade group said. The Michigan Energy Innovation Business Council made its comments in response to a draft state report that predicted the state could get 30% of its electricity needs from renewable sources by 2035.

More: CBS Detroit

ATC seeks approval of Upper Peninsula line

American Transmission Co. filed for state approval of a 60-mile 138 kV line to improve reliability of Michigan’s Upper Peninsula grid. The line, which would cost up to $132 million, is part of a larger Bay Lake project. ATC plans to spend up to $3.6 billion over the next decade in Michigan, Wisconsin and neighboring states.

More: Journal Sentinel

NEW JERSEY

Booker May Get Environment Assignment

Newly-elected Sen. Cory Booker, who won the seat made vacant by the death of New Jersey Democratic Sen. Frank Lautenberg, may be assigned to the Environment and Public Works Committee. Lautenberg was an active member of the panel, and Booker has been engaged with climate change issues in New Jersey.

More: The Hill

OHIO

PUC Chief Warns Against ‘Dash to Gas’

Natural gas is a major player right now, but “there is no doubt coal needs to continue to play a major role in our future generation mix,” PUC Chairman Todd Snitchler told a state House committee. He also expressed confidence in advanced coal technologies.

More: Columbus Business First

AEP Chief Says Coal ‘Out of the Picture’

AEP CEO Nick Akins sees coal as a diminishing part of the utility’s portfolio. The company’s future is “natural gas, energy efficiency, smart-grid activities and renewables,” he told a Columbus Metropolitan Club program.

More: Columbus Business First

PENNSYLVANIA

PPL Wants New Bill Rider for Storm Costs

PPL asked the Public Utility Commission to add another new line item to its customers’ bills: a fee that would help it recoup its costs for severe weather and expenses related to the $60 million blow dealt the company by Hurricane Sandy in 2012. The utility has just begun to collect a distribution improvement charge, a first in the state, and the new charge, if approved, would also be a first.

More: The Morning Call

PUC: No Details on PPL Storm Settlement

The Public Utility Commission refused to disclose details of its $60,000 settlement with PPL that resolved allegations that the company improperly transferred a repair crew from a high-priority outage to work on a low-priority outage after a freak snowstorm in October 2011.

The PUC denied a public records request by The Morning Call to review the letter from an anonymous tipster that launched regulators’ investigation. The PUC said its decision was necessary to protect the identity of the whistleblower. The agency also refused to identify the locations involved in the incident.

More: The Morning Call

PUC Approves Two Retailer Settlements

The Public Utility Commission approved settlements with IDT Energy and AP Gas & Electric on complaints of “slamming” and other illegal practices. The companies will pay civil settlements and take steps to comply with the state’s regulations. They admitted no wrongdoing.

More: Pennsylvania PUC

Enviros Take State to Task on Renewables

PennFuture, an environmental group, criticized state officials for refusing to consider raising Pennsylvania’s alternative energy standard above the current target of 8% by 2021. “While other states in the region and around the country recognize the multiple benefits of renewable energy and have increased the requirements in their state portfolios, [the Department of Environmental Protection] is telling us upfront that they won’t consider the idea of increasing renewable energy in Pennsylvania,” the group said.

More: PennFuture

VIRGINIA

Dominion Would Lower Fuel Charges

Dominion Virginia Power proposed lowering average customer bills 3.3% because of the unexpectedly lower cost of fuel. The fuel adjustment, which Dominion wants to make earlier than scheduled, would cut an average residential bill about $3.70. Overall rates would be about where they were five years ago, the company said.

More: Richmond Times-Dispatch

October 17, 2013

PJMNet Access to Expand

Generation owners that do not qualify for a connection to the PJMNet private communication network would be able to purchase as many as five under a proposal approved by the Operating Committee.

PJM currently pays for at least one PJMNet connection for each transmission owner considered important to system reliability and for generation owners with resources of at least 100 MW. Entities that do not have a PJMNet link connect to PJM by Internet SCADA, which is less reliable.

The committee approved a proposal that would let smaller generating members, and those that already have a PJMNet connection, buy up to five connections. Members rejected a proposal to allow smaller generators to buy only one connection and another that would have required all members to buy their first connection.

PJM says the monthly cost for a non-redundant connection will be about $2,600. Installation will cost about $12,000 or $22,000, depending on the type of protocol used. Redundant connections would cost more.

October 15, 2013

October 2013 Operating Committee Manual Changes

The Operating Committee last week endorsed changes to Manuals 3, 10 and 14D.

Manual 3: Transmission Operations – Adds language regarding approval of emergency rating changes; added applicability for individual generators greater than 20 MVA; clarified reference to voltage coordination; revised outdated references.
Manual 10: Pre-Scheduling Operations – Annual Review. Minor updates for clarity; added references to forecasted planned outages and reporting outages on synchronous condensers.
Manual 14D: Generator Operational Requirements – Changes made at RFC request, and for consistency. Includes changes to reactive capability testing; replaces outdated references; requires generators operating or scheduled for PJM to operate to notify PJM prior to attempting a restart following a trip or failure to start.

October 15, 2013

Short Circuit Analysis to be Changed

The Planning Committee last week endorsed changes to Manual 14B: PJM Region Transmission Planning Process to improve the procedure for analyzing and addressing short circuits.

Reason for Change: PJM currently analyzes short circuit cases for the current year +1 and +5. System modifications are difficult for transmission owners to implement with a one-year lead time.

Impact: The annual Regional Transmission Expansion Plan will analyze short circuit base cases for the current year +2.

PJM contact: Mark Sims

October 15, 2013

State Briefs

Delmarva Proposes Four-Year Rate Plan

Delmarva Power filed a proposed four-year rate plan with the Public Service Commission that would add $2.40 a month to average customer bills. Rather than the company seeking reimbursement for past expenses, the “forward-looking” plan would create a budget for future spending.

More: WHYY; Delaware State News

INDIANA

Lawmakers Eye Modular Reactors

No proposal is on the table, but a General Assembly committee started examining pros and cons of small modular reactors.

More: nwitimes.com

KENTUCKY

Mitchell Power Plant (Source: FirstEnergy)

Ky. Power OK’d to Buy 50% of Mitchell Plant

AEP subsidiary Kentucky Power won Public Service Commission approval for the utility’s purchase of half of the 780-MW Mitchell plant from sister company Ohio Power. Meanwhile AEP unit Appalachian Power awaits West Virginia approval to buy the other half.

More: The Intelligencer

MICHIGAN

ITC Activates Thumb Loop Phase 1

ITC Holdings Corp. put the first phase of its Thumb Loop, a 62-mile 345 kV line between Tuscola County and Huron County, into service. It said the rest of the 140-mile project is on schedule for completion in 2015. Designed to deliver wind power from the Thumb region, the project will have a capacity of about 5,000 MW.

More: CBS Detroit

Utility Wind Contracts Draw Criticism

Critics say a lack of competition and transparency in utility wind power contracts utilities leaves the public ignorant of whether the deals are good for ratepayers.

More: Midwest Energy News

NEW JERSEY

BPU Seeks Input on Auction Changes

The Board of Public Utilities is taking a survey on whether to carve renewable energy out of the auction for basic generation service as a report shows ratepayers have paid $388 million for the clean energy program.

More: NJSpotlight

OHIO

Blame Makes Rounds in Ormet Shutdown

Ohio officials traded blame after Ormet said it will shut down its aluminum manufacturing plant because the Public Service Commission approved an electricity rate break smaller than the company had sought. About 750 jobs will be lost.

More: News and Sentinel

PENNSYLVANIA

Brown Takes Seat on PUC

Former state Senate aide Gladys Brown was sworn in to the Public Utility Commission after unanimous Senate confirmation. Brown has served since 1991 as counsel to the Senate Democratic Leader, where she worked on many major utility issues.

More: Pa. PUC

VIRGINIA

Dominion Signs Offshore-Wind Lease

Dominion Virginia Power signed the lease and sent the government a check on 113,000 offshore acres intended for wind power development. The utility won the lease with a $1.6 million bid. (See Will an Old Utility Learn New Tricks?)

More: Richmond Times-Dispatch

WEST VIRGINIA

FE Accepts WV Terms

FirstEnergy agreed to West Virginia’s terms for approval of the company’s proposed generation asset transfer. The company’s Mon Power unit will own the Harrison Power Station and use local coal. Average customer bills will drop by about $1.50 per month. A citizen group said it would challenge the transfer approval.

More: The State Journal

October 15, 2013

Demand Response Changes Could Cost $1B Annually

PJM and generators squared off against load-serving entities and industrial customers last week in a debate over the RTO’s proposal to change the way demand response clears in capacity auctions. The proposal could cost PJM load $1 billion a year.

The Capacity Senior Task Force last week heard three proposals regarding how offers for Limited, Extended Summer, and Annual demand response are cleared in the Base Residual Auction.

Had PJM’s proposal been in place, according to a simulation by PJM, the 2015/16 Base Residual Auction would have resulted in total costs of $28.9 million per day versus $26.6 million under the current rules, an annual increase of about $840 million (8.6%). For 2016/17, the PJM proposal would have increased total costs by $1.02 billion, a jump of almost 19%.

$1 Billion Hit

PJM’s proposal “is a $1 billion hit” for load, said Dave Mabry, representing the PJM Industrial Customer Coalition. “If generation bid cheaper than DR I don’t know that we would be here” discussing changes.

Paul Sotkiewicz, PJM’s chief economist for markets, insisted “it is not a pocketbook issue, per se. It’s a reliability issue.”

All three proposals would include a cap — or “reliability target” — on the amount of Limited DR permitted to offer into the auction.

PJM’s proposal would subtract all of the 2.5% Short-term Resource Procurement Target (STRPT) from the Limited DR cap. The proposal would have reduced the volume of Limited DR clearing by nearly two-thirds for 2015/16, according to the simulation.

An alternative submitted by James Wilson on behalf of consumer advocates in New Jersey, Maryland and Delaware would subtract only a portion of the 2.5% STRPT “holdback” from the cap on Limited DR.

Another alternative by the Southern Maryland Electric Cooperative (SMECO) does not address the holdback but does ask PJM to consider increasing the DR caps to reflect the increased operational flexibility that DR resources are being asked to provide under separate CSTF initiatives.

Once the Minimum Annual Resource Requirement is satisfied, both the Consumer Advocate and SMECO alternatives would allow Extended Summer and Annual DR to compete until the intersection with the Variable Resource Requirement curve.

1994 Rolling Blackouts Invoked

Sotkiewicz said neither of the two alternatives addressed PJM’s concerns that the increasing volumes of DR are undercutting capacity market prices and reducing incentives for new generation. Sotkiewicz invoked the memory of January 1994, when PJM was forced to order rolling blackouts because of a generation shortage as subzero temperatures reduced fuel supplies and caused increased plant breakdowns.

“What you’re doing here is exactly what we’re trying to get away from: a vertical demand curve for annual resources,” Sotkiewicz said regarding the SMECO proposal.

Sotkiewicz and generators said the two non-PJM proposals increase the risk of “boom-bust cycles.”

“I really think that under current circumstances that argument doesn’t work very well,” responded Wilson.

DR vs. Generation

Impact of PJM's Proposed Changes (Source: PJM Interconnection, LLC) — Impact of PJM’s Proposed Changes (Source: PJM Interconnection, LLC)

The task force session was part of a broader debate over the reliability value of excess capacity and the fairness of PJM’s treatment of demand response versus generation.

One generator representative said demand response has an unfair advantage in competing against generation in the capacity market. “I have a must-offer requirement for every megawatt I have and I have to offer at a capped rate. We’ve had a lot of new [generation] entry but we’ve had a lot more retirements” because the capacity market is not sending the right price signals, he said.

Ken Jennings, of Duke Energy, said that although demand response offers into the capacity market at lower prices than generation those savings could be offset by DR’s impact on the energy market. He noted that DR set prices at $1,800/MWh in some zones during the heat waves in July and September. DR’s effective maximum price is scheduled to rise to $2,700/MWh by 2015.

In contrast with DR role in reducing consumption, Jennings added, “It is the generators that tend to spur economic development.”