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Commissioner Tony Clark Statement
March 31, 2015
Docket No. ER15-852-000 PDF
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Order Rejecting PJM’s Tariff Revisions

“Today’s order unnecessarily delays action and perpetuates system inefficiencies created by the overcompensation of demand response products in wholesale electricity markets. Rather than sidestepping PJM Interconnection, L.L.C.’s (PJM) filing, the Commission should address it on the merits and seize the opportunity to provide guidance on a functional demand-side product to the betterment of the PJM markets.

“On May 23, 2014, the U.S. Court of Appeals for the D.C. Circuit vacated Order No. 745 and found that demand response is outside of the Commission’s jurisdiction.1 As it stands today, the U.S. Supreme Court may reject the pending petitions for writ of certiorari of EPSA, thereby upholding the D.C. Circuit’s jurisdictional finding.2 Yet, today’s order comes to the conclusion that PJM’s filing is premature. I disagree and believe that rejecting PJM’s proposal without considering the merits fails to recognize the limited, “no regrets” nature of PJM’s filing.

“As designed, PJM’s proposal would “establish a jurisdictionally sound basis to realize the operational and market efficiencies of demand response in the PJM Region,”3 and would have become effective “only in the event the United States Supreme Court denies the [Commission’s and other parties’] petitions for certiorari seeking review of [EPSA].”4 In this respect, PJM’s filing comports with responsible contingency planning, and the Commission should not so easily dismiss PJM’s filing without guidance.

“The PJM region has much at stake in the outcome of this proceeding. PJM is a regional transmission organization tasked with ensuring reliability for more than 61 million people across 13 states and the District of Columbia. Through its capacity market, the Reliability Pricing Model (RPM), PJM has historically cleared tens of thousands of megawatts of demand response. In the upcoming 2015/2016 Delivery Year, for instance, PJM cleared over 164,500 megawatts of resources, including close to 15,000 megawatts of demand response.5

“While the D.C. Circuit’s decision was focused on Order No. 745 and compensation in energy markets, the capacity market provides the majority of wholesale payments to demand response resources in the PJM region,6 and capacity demand response resources are eligible for full locational marginal price (LMP) for their demand reductions in the delivery year.7

“With the weight of EPSA hanging in the balance, PJM emphasizes in its January 14, 2015 filing, and subsequently in its March 4, 2015 answer, that its filing is not premature. The purpose is to address inherent uncertainty in a pending court case, and to avoid having to rerun the upcoming capacity auction in the event the Supreme Court denies the petitions for certiorari. PJM states that rejecting the filing could compromise the goal of revenue certainty that is needed to encourage investment, and could result in capacity prices that do not reflect the region’s known demand response capability.8 In addition, PJM acknowledges that the uncertainty in the interim period could have a significant chilling impact on needed investment decisions during a critical period as the PJM region adapts to major changes in emissions regulations.9

“While PJM’s intentions are laudable and should have been considered on the merits, PJM’s filing may not have gone far enough and may have failed to recognize the significant role that its existing Price Responsive Demand (PRD) product could serve at this time. PJM states that its filing “is premised on a simple proposition: a functional market should accurately reflect demand, as well as supply.”10 Taking this concept one step further, EPSA presents this Commission with an opportunity to take a second look at the placement of demand response in the wholesale markets and to recognize that the regulation of retail electricity consumption is within the purview of the States. I continue to believe that calling a "nega-watt" the equivalent of a "mega-watt" is clever rhetoric, but it defies common sense. One supplies energy, the other is a retail/demand-side decision about whether to consume the energy. The Commission must recognize the problems created by its attempt to redefine "demand" as "supply."11

“Enabling functioning price-responsive demand is the right answer to the conundrum in which we now find ourselves, and it is where the Commission should expend the bulk of its efforts. Price-responsive demand provides all of the proper price-forming benefits the Commission seeks, but without concocting bureaucratically complex schemes to pay consumers not to consume power. In a world of robust price-responsive demand, end-use customers would be aided by advanced demand side management devices. This would allow them to signal their willingness to pay for energy, thereby fulfilling their role on the demand side of the equation. The result would be a properly functioning, efficient, and competitive marketplace.

Rededicating ourselves to this effort by refining PJM’s existing PRD product is exactly what is needed at this time. The Commission’s efforts would promote active participation of the States because only they have the retail rate setting authority needed to align retail rates in such a way that enables price-responsive demand. The Commission’s prior impatience with the pace of price-responsive demand has led us to the position in which we now find ourselves–jurisdictionally uncertain and compromised from the standpoint of sound economics.

“Given that PJM has already developed the PRD product, it is arguably better situated than most regional transmission operators to move forward as an example of a more advanced marketplace. As the PJM Independent Market Monitor states in this proceeding, “[i]f PJM wants to prepare for the future, regardless of the Supreme Court decision in the EPSA case, it should dismantle the current obsolete and flawed approach to demand response as a supply side product and implement an approach consistent with the principles underlying the [PRD] rules that became effective May 15, 2012.”12

“While the existing PRD product is a rational way for demand response to be recognized in the wholesale market, the current market rules have left PRD under-utilized in the PJM region. The wholesale capacity and energy market designs overcompensate and subsidize demand response as a supply resource, and not surprisingly, developers are being lured toward that unsustainable compensation scheme. The Commission should work with the States to promote more accurate demand-side signals, and the PRD product is a good start.

“Today’s order takes a gamble that PJM’s concerns about system reliability and efficiency will not come to light. This gamble carries with it the risk of a self-fulfilling prophecy. By rejecting the PJM filing and not proactively addressing a fallible demand response product, the Commission’s assertion in its petition for certiorari might unnecessarily be proven correct; that EPSA “is likely to have deleterious consequences for the Nation’s electricity system in a number of areas.”13 The Commission created Order No. 745, and it is the Commission that should explore ways to transition demand response from the supply-side to the demand-side where it properly belongs. PJM has presented us with an open door to begin to pare back on the “deleterious consequences,” and I believe it is time to address the broader issue on the merits and remedy the effects of prior regulatory overreach.

“For these reasons, I respectfully dissent from this order.”






                                               

    1 Electric Power Supply Ass’n v. FERC, 753 F.3d 216 (D.C. Cir. 2014) (EPSA). On September 17, 2014, the D.C. Circuit denied the Commission’s petition for rehearing en banc. On December 15, 2014, the D.C. Circuit granted a motion to stay the issuance of the court’s mandate pending the Supreme Court’s final disposition on petitions for writ of certiorari.
    2 FERC v. Electric Power Supply Ass'n, 753 F.3d 216 (D.C. Cir. 2014), petition for cert. filed, 2015 WL 217293 (U.S. Jan. 15, 2015) (No. 14-840) and EnerNOC, Inc. v. Electric Power Supply Ass'n, petition for cert. filed, 2015 WL 217294 (U.S. Jan. 15, 2015) (No. 14-841).
    3 PJM Transmittal at 2.
    4 Id. at 1.
    8 PJM March 4, 2015 Answer at 3.
    9 PJM March 4, 2015 Answer at note 4.
    10 PJM Transmittal at 3.
    12 Monitoring Analytics February 13, 2015 Comments at 2.
    13 FERC’s Petition for Cert. at 31.