Entering 2015 we would like to discuss the current state of Demand Response in the United States and specifically, in the PJM Reliability Zone. First, it is important to review 2014 as some of the legal developments during the year have impacted expectations for the coming year.
Just to clarify, demand response as defined by the Federal Energy Regulatory Commission (FERC) is “changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized”.
However, in May 2014 the US Court of Appeals for the DC Circuit vacated FERC Order 745 which brought wholesale demand response regulation and pricing under FERC jurisdiction. This decision has been appealed to the Supreme Court by FERC and it could be several months before it is known whether the case will be heard. In further developments this month, PJM filed a plan with FERC to allow demand response to participate in the May 2015 Base Residual Auction in the capacity markets in the event the Supreme Court declines to hear the appeal. FERC also authorized ISO New England to fully integrate demand response into the operator’s wholesale reserve markets.
All this legalese has created uncertainty for demand response participants. It is our opinion that demand response will continue in one form or the other as the benefits are undeniable and technology has made the ability to participate easier and significantly more reliable. It is important for participants in both economic and capacity-based demand response programs to review their contracts with their Energy Curtailment Service Providers to see if the terms of their agreements address changes in regulatory rulings. For customers interested in just capacity demand response and who are good candidates, it is still of economic benefit for 2015-16 as the capacity prices for this period are quite elevated. Again, it is important to negotiate contracts with curtailment providers in such a manner as that all possible legal outcomes around the recent developments are addressed.