FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
Yes, We Have No Negawatts
When you sell demand response back to the grid, how much capacity are you now not buying?
PLCs (the “over-performers”). And such customers might well be found. A new and growing company, for example, might post a strong increase in consumption from year one to year two, driving its current demand far above its PLC. Another might have cut its year-one demand far below its usual level, simply by trimming its peak consumption during the hottest days of the prior summer—the coincident peak days that determine PLC under the PJM construct—under the common strategy known as peak shaving, employed when possible by large industrial customers, especially those who run batch processes that can be rescheduled, and often for no other reason than to reduce the retail capacity charge on monthly utility bills.
Hess Corp. explained how easy it all was:
“A CSP may contract with a Peak Load Shaver [the over-performing customer] for 20 MW. The PLS has a 10 MW PLC. That CSP then goes out and enrolls 10 1-MW customers … (that is, their PLC is greater than their expected performance). PJM calls an event. The PLS provides a 20-MW load drop. The remaining 1-MW customers do nothing. The CSP gets credit for 20 MW because the Peak Load Shaver covered the remaining customers’ obligations.” (See, Post-Technical Conference Comments of Hess Corp., p.5, FERC Docket EL11-3322, filed August 15, 2011.)
“The result,” wrote PJM and the IMM in their joint statement, “is that the CSP is paid twice for a single load reduction, thus double counting the value of the compliance.”
And not only that: this arbitrage would create the appearance of a greater supply of capacity in the RPM market than would actually exist, threatening reliability, because the over-performer would be earning credit for backing off demand and supposedly freeing up capacity for others—phantom capacity that had never been reserved for it in the first place.
Yet only some CSPs had double-counted, according to PJM’s tariff proposal filed in April.
“Most CSPs, do not engage in this practice,” PJM wrote, “because they believe it is inconsistent” with the rules.
Nevertheless, PJM feared that more aggregators soon would begin using the loophole: “They must do so to compete with the CSPs that already measure compliance in this way.”
Marie Pienizaek, CEO of Energy Curtailment Specialists, testified at the FERC’s July conference that diversity of customer performance was “fundamental” to aggregation. But Viridity Energy, a CSP founded by former PJM exec Audrey Zibelman, complained in comments of “performance alchemy” and favored closing the loophole. It warned that “assembly of a portfolio cannot change the measurement of any customer’s capacity performance.” Comverge, another aggregator, denied recruiting any “ghost customers.”
Just before the conference PJM said it had observed that the offending CSPs “appear to target or knowingly engage in recruiting customers with little or no capacity curtail capability.” (Response of PJM to Notice of Topics for Technical Conference, filed July 11, 2011.)
PJM added later that if all CSPs would have engaged in this double-counting for the 2014/15 delivery year, the region would have fallen 4,320 MW short of capacity, forcing PJM to boost the installed capacity requirement in