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PJM proposes to cap amount of limited demand response that can clear its capacity market

From the December 4, 2013 issue of Public Power Daily

Originally published December 4, 2013

By Robert Varela
Editorial Director

Despite a lack of consensus among stakeholders, PJM plans to pursue a proposal by its staff to place a hard cap on the amount of limited and extended summer demand response that can clear the regional transmission organization’s three-year forward capacity auction. PJM’s board "believes this correction to our prior approach would best maintain reliability and the integrity of [PJM’s reliability pricing model (RPM) capacity market], enhance the quality of [demand response] products and improve the RPM structure so that prices are properly differentiated among [demand response] products according to their relative reliability contribution," PJM CEO Terry Boston said Nov. 26.

Under PJM’s rules, starting with the 2014/2015 delivery year, limited demand response resources can be called on up to 10 times from noon to 8 p.m. on weekdays (other than certain holidays) from June through September; each interruption can be for up to six hours. Extended summer demand response must be available from 10 a.m. to 12 p.m. on any day during June-October and the following May, with an unlimited number of interruptions for up to 10 hours each.

"The effect and unintended consequence of implementing minimum requirements for the annual and extended summer products in the [capacity market] auction algorithm is to reinstate a vertical demand curve for the procurement of annual resources, which leads to boom-bust pricing cycles detrimental to attracting investment in the market," a PJM staff task force said in an Oct. 18 report on capacity market issues. 

PJM’s independent market monitor has recommended eliminating the limited and extended summer demand response products. While the staff proposal will not go that far, PJM’s board "recognizes arguments put forth by the independent market monitor, who has consistently recommended changes in the treatment of demand response in the capacity market for many years," Boston said.

Earlier this year, stakeholders "voted overwhelmingly that changes must be made and have worked extensively to identify ways that grid operators can use DR more efficiently to resolve local constraints," Boston said. Stakeholders and PJM staff have developed various proposals for restrictions on the clearing of limited demand response products "so that long-term reliability would be improved," he said. However, none of the competing proposals has attracted a two-thirds consensus of PJM’s Members Committee, which is needed to advance.

PJM will file the staff proposal with the Federal Energy Regulatory Commission, where stakeholders will be able to express their views, Boston noted. 



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Senior Vice President, Publishing 
Jeanne Wickline LaBella

Editorial Director
Robert Varela

Editor, Public Power Daily
Jeannine Anderson

Communications Assistant
Fallon W. Forbush

Manager, Integrated Media 
David L. Blaylock

Integrated Media Editor 
Laura D’Alessandro