On March 31, 2015, the Commission denied a proposal from PJM Interconnection, LLC (“PJM”) to modify the manner in which demand response resources participate in capacity auctions within the RTO.  PJM’s proposal was intended as a means of maintaining the participation of demand response resources in PJM’s capacity market in the event that the U.S. Supreme Court upholds the D.C. Circuit’s May 2014 ruling vacating Order No. 745 (see May 27, 2014 edition of the WER).

PJM operates its Reliability Pricing Model (“RPM”) capacity market in order to procure sufficient capacity to meet its reliability needs.  Currently, demand response resources participate as a source of supply in the PJM capacity procurement process, and the RPM provides capacity compensation for demand response resources that clear in RPM auctions on the same basis as cleared generation resources.  According to PJM, these demand response resources are currently composed primarily of retail end-users willing to commit to reduce their consumption of electricity, and aggregators that bundle retail end-users’ load reductions into supply commitments to PJM.

In a January 14, 2015 filing, PJM expressed concern that the D.C. Circuit’s May 2014 ruling in EPSA v. FERC, if upheld by the U.S. Supreme Court, would prevent many of the demand response resources that currently participate in its capacity market from continuing to participate.  In that case, the D.C. Circuit held that the Commission did not have jurisdiction under the Federal Power Act (“FPA”) to establish compensation for demand response by retail end-users in wholesale markets.  As a solution, PJM proposed to permit Load-Serving Entities (“LSEs”) that purchase capacity at wholesale to make offers to reduce load into the capacity market.  In order to implement this solution, PJM proposed to create two new products: i) Wholesale Load Reductions; and ii) Wholesale Energy Efficiency Load.  Through these products, LSEs would bid load reductions into capacity auctions.  PJM argued that the cumulative effect of these changes would be to shift the capacity demand curve, thereby reducing the amount of capacity PJM ultimately procures in the auction, and the price at which the auction will clear.  PJM proposed that by extension, LSEs—who pay capacity charges based on their allocated share of the total PJM capacity requirement—would be compensated through a reduction in their capacity charges, but would not receive any direct capacity payments or energy revenues, as generation resources do.  PJM argued in its petition that, because this mechanism focuses strictly on load reduction commitments implemented by LSEs purchasing capacity at wholesale, it was within the Commission’s exclusive regulatory jurisdiction under the FPA, and therefore compliant with the D.C. Circuit’s ruling in EPSA v. FERC, should that ruling be upheld.

In its March 31, 2015 order, the Commission rejected PJM’s proposal, finding that “approval of PJM’s proposal at this time is premature and would necessarily impact options the Commission could undertake in response to the EPSA decision.”  The Commission also expressed concern that PJM’s proposal “introduces uncertainties that may exceed those it seeks to avoid, particularly with respect to potential unanticipated spillover effects on state programs and private sector arrangements.”  Regarding the substance of PJM’s proposal, the Commission noted that, because it was rejecting PJM’s filing as premature, it did not need to address any intervener arguments challenging its merits.

A copy of the Commission’s order may be found here.