This week FERC approved a PJM proposal to establish two new demand resource (DR) products for the PJM forward capacity market, which is conducted under the Reliability Pricing Model (RPM). PJM holds one Base Residual Auction (BRA) and up to three incremental auctions yearly to procure capacity for a future delivery year under the RPM. FERC’s approval brings to three the number of DR products that will be offered in the next BRA, which will occur in May 2011 for the 2014-15 delivery year.

Until now, PJM recognized only one narrowly circumscribed DR product for trade in its forward capacity market. To qualify, that product had to be interruptible from 12:00 p.m. to 8:00 p.m. weekdays June through September, on call for interruption up to ten times during that period annually, and capable of remaining interrupted for up to six hours. PJM and some market participants complained that increasing use of this inflexible DR product threatened reliability.

While retaining the existing DR product—renamed “Limited Demand Resource”— PJM will introduce two new, more broadly available types of DR products. One is an Extended Summer DR product, available for up to ten hours of interruption from 10:00 a.m. to 10:00 p.m. on any day from May through October. The other is an Annual DR product, available for an unlimited number of interruptions of up-to ten hours on any day throughout the year.

The three DR products will be offered in direct competition with other generation and energy efficiency resources, despite the fact there is only one product for generation resources. Under the FERC-approved proposal, in order to work around the operational constraints of the Limited DR product, PJM will calculate and establish minimum requirements for the amounts of Annual and Extended Summer Resources needed to be procured in the auction. This will enable the auction clearing process to select Annual or Extended Summer DR products out of merit order if needed to satisfy PJM’s minimum requirements.

FERC determined that PJM’s methodology for calculating these minimum targets is a “practice affecting wholesale rates” and thus must be included in PJM’s tariff rather than simply in a market manual; FERC’s acceptance of PJM’s DR proposal is conditioned upon PJM filing revised tariff provisions within 30 days of the order.