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Breaking News: FERC’s DR Ruling and What It Means to PJM Program Participants
Luke McAuliffe | November 8, 2011 at 5:35 pm
On November 4th , FERC tentatively accepted docket ER11-3322-000, much of PJM’s proposal that companies participating in Demand Response programs should not be compensated above their Peak Load Contribution (PLC) when utilizing the Guaranteed Load Drop (GLD) methodology with enrollment. The question is what are the implications for large energy users who are currently enrolled with a Demand Response provider?
Large DR customers not being compensated above PLC using GLD
In effect, this ruling does not affect the revenue you will earn, as you are not being paid above your PLC anyway. However, if you are using the GLD methodology you should make certain you are being compensated off the full value of your load. We recently performed an analysis for a company who had over 50MWs enrolled in the market and was entitled to an additional $150,000 in revenue just by inserting specific additional clauses into the agreements they were about to renew. Another organization that had a similar curtailable load was also entitled to about $150k in additional revenue IF they switched their enrollment methodology from Firm Service Level (FSL) to GLD, which they had the ability to do. Understanding the nuances of these competitive markets can be very lucrative for large energy users, but thankfully this ruling will not directly affect what you earn.
Large DR customers being compensated above their PLC value using GLD
The jury is still out on how this will affect you in the short term. FERC basically stated that they agree with PJM in that companies should not be compensated above their PLC. However, capacity is acquired 3 years in advance in the PJM marketplace and thus Curtailment Service Providers (CSPs) “may have made commitments based on an assumption that they could count reductions from actual load levels above the PLC as part of their performance.” PJM had proposed compensation at 1.25 times a customer’s PLC, but FERC said they had concerns with this idea and gave PJM 60 days to come back with a more permanent solution that will cover the 2012 - 2015 delivery years.
What this ruling means at this point is that sometime in the future customers will not be compensated above their PLC if they are using the GLD enrollment methodology. PJM’s initial offer of 1.25 compensation above the PLC would have created a more level playing field for the vast majority of CSPs who had originally decided not to “interpret” how their customers would be compensated in the PJM market. PJM views compensation above the PLC as double counting and is seeking to bring clarity and transparency to the marketplace. The irony to me is that FERC seems to be directing PJM to let a select and very specific few CSPs continue to offer compensation above the PLC, which gives them a competitive advantage over the vast majority of CSPs who are just as capable at offering similar services (and which I discussed in an earlier post: More than meets the eye.)
If PJM comes back with a ruling that in effect allows compensation above the PLC for companies that have been historically doing this, then I predict you will see some of the biggest loads in the PJM marketplace continue to work with the same select handful of CSPs who have been, and will continue to be, handsomely rewarded for their “creativity” when enrolling customers into the PJM DR market. Many, many large Demand Response customers are acutely aware of this issue and are waiting on a final ruling before they re-enroll with a CSP.
I would like to see PJM come out with a ruling that is applicable to all CSPs.
Luke -
This is a very complex issue, especially for customers. Having had worked for 2 different CSP’s in the PJM service area I can tell you that some are more concerned with their revenues than that of their client. If they were interested in doing the best job for the client they would work with their customers to develop a strategy that best rewards the client.
The larger issue with PJM is the PLC calculation in general. Grid peak tends to be at 5-6PM and PJM want commercial clients to participate in the program. The problem is that many commercial accounts are shut down, or shutting down at those hours. However, demand response events usually happen between 2-3 PM when these businesses are at full production. So if a manufacturer is going to shut down at 2PM when asked to and curtails 20MW should they not be compensated for that? I would say yes, but PJM looks at their PLC they say it is only 15MW, and this is all they can be compensated for. As a result this client only shuts down 15MW when they could easily do 20. Why help the grid more than they get paid for.
Allowing for the 1.25 would offset the difference in what the client can do, and what they get paid to do.
The wonderful thing about World Energy is that you have a stake in earning the most for the client. If you did not know the business then the protection for the client is not there. Being able to review performance levels and agreements, particularly for the larger participants, can earn the client well beyond what they are accustomed.
Very interesting. I can clearly see the benefits of World’s DR Transparent Programs!
Hello Mr. Adams and Tony:
Thank you for the comments. Transparancy and our value based approach to Demand Response is the unique value proposition we bring to this market. I also agree that the baselines measurement for DR needs adjustment so folks are compensated off what they can actually reduce. These markets are evolving and it is difficult for customers to keep up - we are here to help!
Why doesn’t PJM just mimic ISO NE and NYISO’s solutions…I don’t buy the “we’re so different than everyone else, pitch.” All that needs to be done is to re-adjust the peak load contribution to account for curtailments and get to a real baseline. The problem is extremely complex…but the solution is pretty simple.