On October 31, 2016, FERC approved PJM Interconnection, L.L.C.’s (“PJM”) proposed revisions to Schedule 1 of the PJM Amended and Restated Operating Agreement (“Operating Agreement”) and the parallel provisions of Attachment K-Appendix of the PJM Open Access Transmission Tariff (“Tariff”). The approved revisions modify PJM’s compensation procedures for load reductions during emergency conditions.

Under its Emergency Load Response Program, PJM compensates load response participants (“Curtailment Service Providers”) that achieve load reductions from end-use customers for demand resources that reduce load during emergency conditions when dispatched by PJM. According to PJM – depending on the category for which a resource has registered to participate in the PJM energy market or ancillary services markets – it has previously used two alternative methods to calculate compensation owed to Curtailment Service Providers. First, the “hour before” method measured load reduction based on the difference between: (1) the load during the hour before the emergency event started; and (2) the actual load during the demand resource’s corresponding dispatch. Alternatively, PJM’s “economic” method measured load reduction based on the difference between: (1) the measured customer baseline load as stated in the resource’s registration; and (2) the actual load during the resource’s dispatch.

PJM explained in its proposal to FERC that it has experienced inefficiencies with the compensation procedures for its Emergency Load Response Program. Specifically, PJM stated that these inefficiencies include: (1) a lack of “analytical robustness” associated with the hour before method; (2) a complicated after-the-fact selection by Curtailment Service Providers of whether to use the hour before method or the economic method; and (3) the economic method’s potential underrepresentation of actual load reduction during certain emergency events.

In filing its proposed revisions, PJM sought to address such inefficiencies by implementing a “three-day” method that it claimed is more analytically robust and generally more accurate than the “hour before” method because it takes into account different load patterns during the week, adjusts the customer baseline load measure hour by hour, and adjusts the customer baseline load for each dispatch during the operating day. Additionally, PJM proposed other minor revisions related to customer baseline load registration, and requirements for submission of load data by Curtailment Service Providers for compensation purposes.

FERC stated in its order approving PJM’s proposed revisions that the revisions will “improve the accuracy of PJM’s Demand Response energy settlements and better align market incentives with efficient market outcomes.” Additionally, FERC found that that the three-day method “provides for an improvement over the “hour before” method because it uses a proxy baseline that represents what the load would have been absent the load reduction.”

The Order Accepting Proposed Tariff Revisions is available here.