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FERC clears PJM's 2nd try at price-responsive demand program updates

The PJM Interconnection's second attempt at power market rule changes that would update its price-responsive demand, or PRD, program to conform to requirements imposed on capacity performance resources received the nod from the Federal Energy Regulatory Commission.

"We are pleased that FERC approved our latest filing, providing certainty around the PRD rules heading into the next capacity auction," PJM spokesperson Jeff Shields said Jan. 2.

Since 2017, all resources offering into PJM's capacity market, including demand resources, must meet more stringent requirements to be available any time, year-round. Under this capacity performance model, failing to deliver when called upon during emergency situations — or performance assessment intervals — subjects resources to penalties.

PJM's PRD program grants load-serving entities, or LSEs, an opportunity to designate a portion of their load as price-responsive to reduce their bills for energy and capacity. LSEs participating in the program receive no energy payment other than reduced energy bills, but they earn a capacity service bill credit, called the PRD credit, to reflect avoided capacity market costs. The program had gone largely unchanged since 2012, prompting PJM in 2019 to pitch revisions to better align PRD with the capacity performance requirements.

The grid operator's February 2019 proposal (FERC docket ER19-1012) was rejected by FERC over a provision that would have changed how the nominal PRD value used for determining the PRD credit is calculated.

Specifically, the commission found that PJM had not demonstrated that calculating the nominal PRD value and associated credit based on the lesser of an LSE's summer and winter load reductions was consistent with an LSE's capacity obligation, which is based on the LSE's annual coincident peak demand, according to the June 27, 2019, order.

New proposal

PJM submitted a new proposal (FERC docket ER20-271) in October 2019 that retained the aspects from the earlier filing that FERC did not explicitly reject, including changing the trigger for PRD performance assessment to the same emergency action that triggers a performance assessment interval.

Other provisions retained in the new filing included making PRD eligible for extra compensation known as performance payments when its actual performance exceeds expected performance during a performance assessment interval; charging PRD for nonperformance during those intervals; and aligning the PRD credit requirement with the credit requirement for capacity performance resources.

The new proposal also made two revisions to the nominal PRD value calculation that PJM asserted would "better align that calculation with the nomination and measurement methodology for capacity performance demand resources, and are consistent with the June 27 order."

Those changes involved designating the demand reduction PRD is expected to make during an emergency action as the firm service level and calling PRD's expected load absent any demand reductions peak load contribution. Both of those terms are already used for demand resources.

FERC said in an order Dec. 30, 2019, that it was appropriate to conform the PRD rules to the capacity performance rules "while respecting the fact that PRD operates on the demand side of PJM's markets and thus should align with how LSEs' capacity obligations are determined."

Compliance filing

That order accepted the new proposal as just and reasonable but directed PJM to submit a compliance filing in 30 days clarifying PRD's eligibility for performance payments.

Under PJM's tariff, PRD is exempt from reducing load when the locational marginal price, or LMP, is below its trigger price, even during emergency conditions. Thus, PJM's independent market monitor, Monitoring Analytics, had argued that PRD should not be eligible for bonus performance payments when the LMP during a performance assessment interval is below its trigger price and it is not obligated to reduce load.

PJM agreed in a response filed in the docket that "just as PRD would not be subject to a non-performance charge, it would also not receive bonus performance payments during a performance assessment interval when LMPs are less than the specified pricing points because PRD is not designed, and such PRD loads may not have the ability, to automatically reduce load at lower LMPs."

PJM's tariff, however, does not speak to this issue. FERC ordered a tariff revision to specify that PRD is ineligible for performance payments when its trigger price is above the prevailing LMP.

Shields said PJM would "make the required compliance filing according to the deadline FERC set."

Jasmin Melvin is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.