On June 27, 2019, FERC rejected PJM Interconnection, L.L.C.’s (“PJM”) proposed revisions to its Open Access Transmission Tariff and Reliability Assurance Agreement Among Load Serving Entities in the PJM Region that would have required demand resources to be available year-round. PJM argued that the proposed revisions better aligned its Price Responsive Demand (“PRD”) program with the year-around availability obligation of other supply-side “Capacity Performance Resources” participating in PJM’s capacity market. On review, however, FERC agreed with concerns raised by PJM’s Independent Market Monitor (“IMM”) and other parties that, among other things, the price-responsive demand program must be more consistent with the annual peak-based billing framework for capacity procurement by Load Serving Entities (“LSEs”). FERC also agreed that, as a result, PJM’s proposal failed to accurately reflect PRD participants’ load reduction capabilities.

As background, PRD is a voluntary program in PJM where participating LSEs automatically respond to energy prices and curtail consumption by a certain MW amount (the “Nominal PRD Value”) during PJM emergencies in exchange for reduced capacity requirements. This translates into cost savings for LSEs in the form of reduced capacity payments (called “PRD Credits”). Since the PRD Program was implemented in 2012, PJM has also established additional requirements for Capacity Performance Resources participating in PJM’s capacity market, including that resources be available on an annual basis.

In February 2019, PJM proposed to better align its PRD Program with the general rules governing Capacity Performance Resources (“PRD Update”). A key feature of PJM’s proposed PRD Update was to revise the Nominal PRD Value for PRD resources to be essentially the lesser of summer and winter load reductions, while also reflecting a PRD’s resource’s ability to reduce load on an annual basis like other capacity resources. PJM argued that the PRD Update would address the disparities between PRD and Capacity Performance Resources and affirm the expectation that Capacity Performance Resources are available to provide called-upon energy and reserves, without regard to technology type.

Among the other participants in the proceeding on PJM’s PRD Update proposal, Exelon Corporation and PJM Power Providers Group largely supported the proposal and its goal of aligning the PRD Program with the rules applicable to capacity resources generally. The IMM, however, argued that the proposal failed to calculate the Nominal PRD Value based on how PJM customers actually pay for capacity, i.e., their load during the PJM system peak (i.e., peak load contribution) which occurs in the summer, not in the winter. Basing the Nominal PRD Value on anything other than customers’ peak load contribution, the IMM argued, would prevent customers from having the option to avoid paying for capacity. Various public interest groups similarly argued that the PRD Update would violate FERC precedent requiring Regional Transmission Operators and transmission owners to recognize load reductions resulting from interruptible load programs in computing billing determinants.

FERC agreed with the IMM and the public interest groups and rejected PJM’s proposed PRD Update. As FERC found, PJM did not show how calculating the Nominal PRD Value and associated PRD Credit, based on the lesser of summer and winter load reductions, was just and reasonable. The Commission further noted that PJM’s proposed Nominal PRD Value calculation conflicted with how the Commission calculates an LSE’s capacity obligation—namely, based on PJM’s system peak. Among other things, FERC found that PJM’s proposed approach would limit the amount of MW that PRD can commit, which would inaccurately reflect a PRD participant’s load reduction capabilities. FERC stated that its rejection of PJM’s proposed PRD Update was consistent with past precedent affirming that if load is reduced during a peak period used for billing, that load reduction should be credited consistent with principles of cost causation.

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