PJM has formally filed at FERC to implement, contingent on developments in a potential Supreme Court review of FERC's jurisdiction of demand response, changes to the RPM capacity market to essentially recognize demand response without compensating such demand response at wholesale (and running afoul of jurisdictional issues), by allowing LSEs to commit to reduce their demand, with an attendant reduction in their capacity procurement obligation

PJM said that its proposed new wholesale “demand-side commitment” approach to account for demand response in the RPM market will avoid the distortions that current market circumstances otherwise would cause, promises to provide just and reasonable auction clearing prices for all PJM consumers, and will enable the Load Serving Entities (“LSEs”) that provide such load reductions to reduce their PJM capacity obligations and related capacity charges. In short, it will enable RPM, as intended, to provide an economically efficient capacity resource mix to meet the region’s peak demand reliably.

PJM’s proposal includes the following key elements:

• Existing terms and conditions of the PJM Tariff and RAA for supply-side Demand Resources’ participation in future RPM Auctions will be made ineffective, pending a future filing to restore or otherwise address those pre-existing provisions.

• New provisions in the PJM Tariff and RAA will enable wholesale entities to bid demand-side reductions in wholesale loads (to be called Wholesale Load Reductions, or “WLR,” and Wholesale Energy Efficiency Load, or “WEEL”13 into the 2015 BRA and subsequent Base Residual Auctions. Such wholesale load reductions will shift the VRR Curve to the left, reducing the amount of capacity PJM will procure in the auction and the price at which the auction will clear, in a manner which ensures that the resulting BRA price reflects wholesale purchasers’ choices to reduce their capacity purchases at higher prices.

• An LSE or other wholesale entity may submit a bid for a Wholesale Load Reduction commitment on its own behalf, or such a bid may be submitted by an agent authorized by state law or bilateral contract to act on the LSE’s behalf. Wholesale entities likewise may utilize agents to perform obligations and/or to exercise rights on their behalf under the tariff provisions relating to wholesale load reductions.

• Wholesale Load Reductions accepted in RPM will result in reductions to the PJM capacity obligations and associated charges of the affected LSEs. Committed Wholesale Load Reductions will be subject to measurement and verification (“M&V”) requirements, as well as compliance charges for non-performance, comparable to those the Commission previously has approved.

• To conform to changes in load-serving responsibility associated with customers in competitive markets that switch LSEs, wholesale entities will be permitted to transfer from one to another, prior to and during the affected Delivery Year, Wholesale Load Reduction commitments and associated reductions in capacity obligations, M&V obligations, and compliance charge liabilities.

Under this approach, PJM will not pay retail end-users (either directly or indirectly through aggregators) for demand response cleared in RPM Auctions. Nor does the approach provide for payments to wholesale entities; PJM proposes only to reduce the capacity obligations of, and thus the capacity charges owed to PJM by, wholesale entities that commit to reduce the wholesale loads they are responsible for serving. Thus, the new approach avoids the jurisdictional flaw that EPSA found in the energy market compensation prescribed by the Commission’s Order No. 745, even if that ruling is determined to extend to wholesale capacity markets. PJM’s new rules leave to LSEs, retail customers, and state regulatory authorities all arrangements regarding compensation to end-use consumers that support Wholesale Load Reductions by reducing their electricity consumption.

To ensure that the proposed alternative rules are in place for the scheduled opening of the next BRA on May 11, 2015, PJM proposes that these revisions become effective on April 1, 2015. However, PJM seeks to make this proposal effective only if the Supreme Court denies the petitions for certiorari review of EPSA. Therefore, if the Supreme Court has not acted on EPSA before the Commission issues its order on this filing, PJM requests that the Commission accept PJM’s tariff revisions, but suspend their effectiveness for a period of five days, until April 6, 2015. This nominal suspension will allow PJM to submit a motion to continue the suspension and further defer the effectiveness of this proposal as needed to provide additional time to await the Supreme Court’s order. In the event the Supreme Court has not yet acted as the BRA approaches, PJM expects to proceed with the auction under existing rules governing demand response.