United States: FERC Holds That Demand Response, Energy Efficiency Resources Can Participate In PJM Transition Auctions For New Capacity Product

On July 22, 2015, the Commission determined that demand response and energy efficiency resources should be able to participate in two PJM Interconnection LLC ("PJM") transition auctions created to implement a new capacity product called Capacity Performance Resources. The Commission found that, while PJM had correctly interpreted the relevant provisions of its Open Access Transmission Tariff ("OATT") as not allowing non-generation resources like demand response and energy efficiency to participate in the transition auctions, such exclusion was nonetheless unjust, unreasonable, and unduly discriminatory. The Commission ordered PJM to submit revisions to its OATT, and a revised timeline for both transition auctions, within 15 days of the date of the order.

On December 12, 2014, PJM filed proposed OATT revisions to establish new rules for Capacity Performance Resources which, according to PJM, would be subject to more stringent performance requirements and penalties for a failure to deliver energy when called upon during the most critical hours of the delivery year. In order to integrate the new product into its capacity markets, PJM proposed a transitional period in which it would hold two transition auctions to procure a portion of Capacity Performance Resources for two delivery years, 2016-17 and 2017-18, for which the Base Residual Auction had already been conducted. On June 9, 2015, the Commission conditionally accepted PJM's proposed OATT revisions implementing these mechanisms (see June 17, 2015 edition of the WER).

On June 29 and 30, two coalitions of PJM stakeholders sought, through a request for clarification and a complaint against PJM, a determination from the Commission that the implementing OATT language approved in the June 9, 2015 order did not bar non-generation resources like demand response and energy efficiency resources from participating in the Capacity Performance Resource transition auctions.

In its July 22, 2015 order, the Commission found that PJM's proposal, as adopted, did bar the participation of non-generation resources, but that such a limitation was unjust, unreasonable, and unduly discriminatory. In support of the latter determination, the Commission found that its precedent required that a restriction on participation in PJM's capacity auctions be based on a demonstration as to why a precluded resource type was not similarly situated to a permitted resource type, and that PJM had failed to meet this requirement. Additionally, the Commission disagreed with PJM's contention that uncertainty surrounding the Supreme Court's pending decision in EPSA v. FERC—a case in which the Court will determine the extent of FERC's jurisdiction, if any, over demand response under the Federal Power Act—justified the exclusion of non-generation resources from the transition auctions. Such exclusion would be, in FERC's view, premature, inconsistent with prior Commission precedent, and contradict PJM's Capacity Performance proposal, which was filed after EPSA and permitted all resource types to participate in future, post-transition auctions.

In a dissenting opinion, Commissioner Clark argued that the Commission's ruling was in error for three specific reasons. First, no new information had been presented in the time between when the June 9, 2015 order was issued and when the complainants raised their objections to the Commission-approved PJM OATT language, thereby constituting an impermissible collateral attack on the June 9, 2015 order. Second, PJM was justified in treating non-generation resources differently, due to the nature of capital investments in traditional generation resources as compared with demand response resources, and had made this justification clear to the Commission throughout the course of the Capacity Performance Resources proceedings. Third, the uncertainty surrounding the Supreme Court's decision in EPSA warranted a more cautious approach than the Commission had demonstrated in the July 22, 2015 order.

Commissioner Moeller wrote separately in concurrence with the Commission's decision, stating, among other things, that there was "no cognizable reason" to bar non-generation resources from participation in the transition auctions, if those resources were able to satisfy the Capacity Performance Resource requirements. Commissioner Moeller also agreed with the Commission in finding that the uncertainty surrounding the Supreme Court's pending EPSA decision did not justify excluding non-generation resources from the transition auctions. Such action, he stated, would be "premature" and would "necessarily impact options the Commission could undertake in response to the EPSA decision."

A copy of the July 22, 2015 order may be found here.

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