Federal regulators last week rejected PJM Interconnection's proposed stop-gap measure to allow demand response resources to participate in an upcoming auction, saying the grid operator's proposal was premature. But while the decision was significant for PJM, appears to have changed very little on the DR landscape.

“Everyone is playing it day-by-day right now,” said Frank Lacey, who is chair of the Advanced Energy Management Alliance (AEMA) and vice president of regulatory and market strategy for Comverge.

“There are a lot of moving pieces here,” said Richard Caperton, director of national policy and partnerships at Opower.

Those sentiments were echoed by FERC, which found it is “unavoidable that some uncertainty is inherent” in the current situation.

Uncertainty over the future of demand response has been the rule ever since the D.C. Circuit Court vacated Order 745 last year, wiping out FERC jurisdiction over demand response in wholesale energy markets, at least temporarily. The situation was compounded when First Energy filed a court challenge to PJM's use of demand response in capacity markets as well.

PJM filed a plan to allow demand response to participate in the May 2015 Base Residual Auction (BRA), in the event the U.S. Supreme Court declines to hear an appeal of FERC Order 745's dismissal. A decision on whether or not to hear the case could come as soon as later this month, but if the court does grant review it could also be many months before the outcome is known. And regulators note that prematurely approving PJM's plan could interject even more uncertainty.

“Approval of PJM’s proposal at this time is premature and would necessarily impact options the commission could undertake” in response to the D.C. Circuit decision in Electric Power Supply Association (EPSA) v. FERC, the commission wrote in denying PJM's proposal.

The grid operator replied in a statement, saying the decision means the May BRA for capacity “will move forward under the existing rules for the participation of demand response.”

“PJM had sought the changes to provide greater certainty to market participants in the upcoming annual capacity auction in light of the questions surrounding demand response following the EPSA decision,” the operator said. “The stop gap provisions would have been implemented only in the event the U.S. Supreme Court denies the FERC’s petitions seeking review of the Electric Power Supply Association v. FERC jurisdictional issue.”

PJM proposal too soon

Ultimately, FERC rejected PJM's proposal on the basis that it is simply premature.

AEMA, which has other objections to PJM's plan, told regulators that for PJM to need to rerun its base residual auction, several events would need to occur, including: the Supreme Court declining to consider EPSA; the court deciding a second case to preclude FERC’s exercise of jurisdiction over demand response participation in the capacity market; and FERC would need to rule on both the EPSA remand and other complaints.

Additionally, FERC would need to decide that it is unable to provide guidance for a rational transition to the next BRA, which had not been cleared at the time of the commission's decision. 

FERC agreed with the group, finding approval “premature” and noting that it would “impact options the commission could undertake in response to the EPSA decision.”

“While we recognize that PJM’s goal is to reduce uncertainty surrounding demand response participation in its upcoming BRA, in the present circumstances, it is unavoidable that some uncertainty is inherent,” FERC said.

Uncertainty is the new normal

AEMA, which represents demand response providers and customers, said it also opposed the plan because it was a tariff change and not an actual remedy. 

“Any remedy would have to come through the stakeholder process,” Lacey said. “And the stakeholders are not very inclined to endorse anything that favors demand response. They called it a 'stop-gap' but sometimes naming is half the battle.”

“Moving demand response from the supply side at some point may be legally necessary and can work,” said Opower's Caperton. But PJM proposed “rapid, dramatic changes” within a matter of weeks that would not have given states time to work out new policies and methods for demand response providers to work with load serving entities.

Regardless of the reasons, FERC's decision leaves PJM and the demand response industry in limbo. And it appears things may stay that way for a while.

“It's such a dynamic situation, and that's no one's fault,” said Lacey. “That's just the way the system works. There's a lot of things in play right now, many moving parts, and I mean no disrespect to anyone when I say that everyone is just taking it day by day. We have no other choice.”

“Ultimately, if the Supreme Court upholds EPSA and lawyers decide that extends to capacity markets, which I could see happening, demand response will move form the supply side to the demand side and it will just be a cost reduction,” Caperton said. “That's all fine for Opower but it will take some time to work out new structures.”

Clark's dissent

FERC's decision was not unanimous, and Commissioner Tony Clark filed a dissent saying the rejection "unnecessarily delays action and perpetuates system inefficiencies created by the overcompensation of demand response products in wholesale electricity markets."

PJM's proposal, he wrote, is "responsible contingency planning," and regulators should have acted to give guidance on the merits of the proposal.

Through its capacity market, the Reliability Pricing Model (RPM), PJM has cleared tens of thousands of megawatts of demand response, and in the upcoming 2015/2016 delivery year the grid operator cleared over 164,500 MW of resources, including close to 15,000 MW of demand response.

Clark called PJM's intentions "laudable," but also said the grid operator's proposal "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."

Clark also called the concept of a "nega-watt" little more than "clever rhetoric," arguing that demand reduction and supply are not the same.

"It defies common sense," he said. "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.'"