PJM Interconnection L.L.C., Docket No. ER Responses to Deficiency Letter re: Peak Shaving Adjustment Proposal

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1 PJM Interconnection, L.L.C Monroe Blvd. Audubon, PA Chenchao Lu Counsel T: (610) F: (610) The Honorable Kimberly D. Bose Secretary Federal Energy Regulatory Commission 888 First Street, N.E. Room 1A Washington, D.C Re: PJM Interconnection L.L.C., Docket No. ER Responses to Deficiency Letter re: Peak Shaving Adjustment Proposal Dear Secretary Bose: PJM Interconnection, L.L.C. ( PJM ) submits responses to the deficiency letter of the Federal Energy Regulatory Commission s ( Commission ) Office of Energy Market Regulation issued on February 4, seeking additional information concerning the filing PJM submitted on December 7, PJM appreciates the opportunity to further clarify the proposed Peak Shaving Adjustment proposal. As explained in PJM s initial transmittal letter, the Peak Shaving Adjustment proposal is a product of a vigorous stakeholder process and was ultimately endorsed by a majority of PJM stakeholders. Many issues were raised and considered as part of the stakeholder discussions, including the requirement that eligibility is limited to RERRA-governed peak shaving programs and the restriction to participate in both the Peak Shaving Adjustment program and other demand reduction products. The proposed filing is the end product based on those discussions, which included various compromises from all involved parties. PJM submits that while there may be 1 PJM Interconnection, L.L.C., Deficiency Letter, Docket No. ER (February 4, 2019) ( Deficiency Letter ). 2 PJM Interconnection, L.L.C., Transmittal Letter, Docket No. ER (October 12, 2018)( PJM Transmittal ).

2 Page 2 room for future enhancements, the Peak Shaving Adjustment proposal, as filed, represents a just and reasonable method to value certain summer-only demand response resources that are not currently participating in PJM s markets beginning with the upcoming Base Residual Auction. Accepting this filing in its entirety would ensure the benefits for certain seasonal resources that are already peak shaving can be realized in the near term while PJM and its stakeholders continue to address areas that could be enhanced after some experience is gained. I. RESPONSE TO DEFICIENCY LETTER 1. In your filing, you state Peak shaving programs that are eligible to participate in this program are limited to those that are governed by a tariff or order adopted by the Relevant Electric Retail Regulatory Authority (RERRA). PJM provides the following two justifications for this limitation: (1) This is reasonable because load curtailment that occurs on the demand side is appropriately governed by a RERRA. Thus, this rule ensures that the inclusion of peak shaving programs in PJM s load forecast does not unintentionally usurp state authority or impede states from taking any actions within their authority. ; and (2) Further, this restriction is necessary because programs that are governed by a RERRA will likely exist for several years. As a result, such programs will not elect to participate in the peak shaving program one year but not the next. 3 a. What types of entities (e.g. utilities, curtailment service providers, large commercial and industrial customers, residential end-users) are eligible to participate in programs that are governed by a RERRA? Please include citations to relevant state law, if necessary, when answering this question. Existing peak shaving programs that are governed by a RERRA may include a variety of different end-user segments. The RERRA decides what types of end-users are eligible for the specific program. Some programs may be targeted at residential end-users of electric distribution companies ( EDCs ), 4 while others may include commercial and industrial 3 PJM Transmittal at 6. 4 See 26 Del. C. 1008; Md. Public Service Commission, Order No ; Formal Case No. 1086, In the Matter of

3 Page 3 customers. 5 RERRAs are free to amend these programs in their respective states as they see fit. PJM is aware of several existing peak shaving programs in Delaware, Washington, D.C., and Maryland that are administered by electric distribution companies and would be qualified to participate under this proposed program. b. On what basis does PJM rely in asserting that RERRA-governed programs will likely exist for several years? Please provide any relevant state legislation, RERRA tariffs, or prior capacity market supply-side participation data that support this conclusion. RERRA-governed peak shaving programs are more likely to exist for several years because they are enabled by state statute and detailed in a RERRA approved tariff or order. PJM is aware of existing state legislation and RERRA orders pertaining to peak shaving programs in Delaware, 6 Maryland, 7 and Washington D.C. 8 These currently existing RERRA governed programs either have no explicit termination date or are subject to a periodic review. 9 The lack of an explicit termination date suggests that RERRA-governed peak shaving programs are the Investigation into the Potomac Electric Power Company s Residential Air Conditioner Direct Load Control Program, Order No (2011). 5 See Pennsylvania Act 129, Energy Efficiency and Conservation (EE&C) Program, Peak demand, 66 Pa.C.S (d) 6 See 26 Del. C. 1008; DE PSC Order No (2012) (granting Delmarva Power & Light Company the authority to establish a residential air conditioning cycling program). 7 See Md. PUBLIC UTILITIES Code Ann (Requiring each electric distribution company to implement a cost-effective demand response program in its service territory and to be reviewed every three years); Md. Public Service Commission, Order No (authorizing Baltimore Gas and Electric Company, The Potomac Edison Company, Potomac Electric Power Company, Delmarva Power & Light Company, Southern Maryland Electric Cooperative, Inc., and Washington Gas Light Company to begin implementation of the peak demand reduction plans). 8 Formal Case No. 1086, In the Matter of the Investigation into the Potomac Electric Power Company s Residential Air Conditioner Direct Load Control Program, Order No (2011). 9 For instance, Maryland s peak shaving laws require a triennial review. See Md. Public Service Commission, Order No

4 Page 4 intended to last for at least several years and unlikely to be modified absent unforeseen circumstances. Further, once a peak shaving program is approved by a RERRA, the Load Serving Entity would be required to continue implementation of such program unless otherwise directed by the relevant RERRA. 10 This suggests that such peak shaving programs are not shortlived and unnecessarily cause PJM s load forecast to fluctuate year over year. c. Explain why it matters that participants in a peak shaving program be available for several years, given that the PJM capacity auction requires only a one-year commitment and the same requirement does not apply to demand reduction resources on the supply side. PJM clarifies that the RERRA requirement is intended to ensure that peak shaving programs, not individual participants within the program, are available for several years. The RERRA approved peak shaving programs generally have regulatory oversight with goals and reporting requirements that ensure the programs have consistent levels of peak shaving. Requiring peak shaving programs to be available for several years is reasonable and minimizes uncertainty that could result from potentially significant year over year changes to the load forecast. This requirement will not increase market volatility that may be attributable to other existing rules and practices, such as annual differences in offer behavior for resources on the supply side. Unlike demand reduction programs that participate in PJM s capacity market, load curtailment in the peak shaving program directly impacts PJM s load forecast. Capacity Market Sellers submit offers and make investments based on a variety of factors, including the 10 See e.g., PA PUC Energy Efficiency and Conservation Program Implementation Order, Docket No. M (June 11, 2015).

5 Page 5 anticipated annual load forecast. A stable load forecast supports market confidence that investments for supply side resources will not be made in vain due to changing load forecasts. PJM understands that Capacity Market Sellers make investments based on, among other things, the expectation that the load forecast will not significantly change from one year over the next. In addition, PJM s load forecast is also used in transmission studies for purposes of the Regional Transmission Expansion Plan. Given the generally long lead times necessary for developing transmission upgrades, potential annual fluctuations in the load forecast due to peak shaving programs that go into effect and are changed in the short term could create additional and unnecessary obstacles in determining whether transmission upgrades are needed. d. Given that any demand reduction program can only be effective if end-use customers participate, on what support does PJM rely in assuming that RERRA-governed programs will be better able to enroll the necessary end-use customer locations to maintain a consistent quantity of load curtailment MWs over several years compared to non-rerra-governed programs and non- RERRA-governed wholesale customer load curtailment (e.g., by large commercial and industrial customers)? PJM believes a RERRA tariff or order, as noted above, will result in a more stable long term forecast adjustment process compared to commercial contracts since the former is based on the RERRA s policy objectives, whereas the latter can change more frequently based on short term business decisions. Further, peak shaving programs governed by RERRAs are subject to regulatory oversight and generally have long term goals that are verifiable and subject to reporting requirements. In some cases, peak shaving programs governed by RERRAs are even subject to performance requirements that may include penalties for non-performance See Pennsylvania Act 129, Energy Efficiency and Conservation (EE&C) Program, Peak demand, 66 Pa.C.S

6 Page 6 RERRA-governed programs have specific long term load reduction requirements that the relevant program administrator must follow and may receive significant financial penalties if those requirements are not met. There are examples where states have peak shaving programs in places for many years or even decades, such as in Maryland, that led to the assumption that such programs are expected to continue into the future. Further, RERRAs typically set up compensation structures based on the zonal impact of the load forecast adjustment. This compensation structure in many cases is based on the costs and benefits of maintaining such peak shaving for the Zone. Given this RERRA directed compensation structure, peak shaving programs governed by RERRAs typically stays in place for longer periods of time compared with annual commercial contracts. A long term and stable program is likely able to attract and retain end-use customers since the rules governing the program will remain consistent and enable end-use customers to better understand the expectations of such program. Over time, enrollments into the program will increase as more end-use customers become familiar with the concept of peak shaving and the rules associated with such programs. e. Are you aware of any non-rerra-governed entity (e.g. curtailment service provider or industrial customer) that has provided, or would be capable of providing, peak shaving or similar services over several years? Does the historical supply-side participation by demand resources in the capacity market inform whether non-rerra-governed programs or non-rerragoverned wholesale customer load curtailment (e.g., by large commercial and industrial customers) may be capable of meeting the load curtailment commitment of the proposed Peak Shaving Adjustment over several years? Please provide data comparing the capacity offered by RERRA-governed and non-rerra-governed demand response resources in a reasonable sample of PJM auctions, including the number of resources, the capacity product offered (e.g. Limited Demand Response, Extended Summer Demand Response, Base Capacity Demand Response, Capacity Performance, etc.), the amount of MW offered, and the amount of MW cleared.

7 Page 7 PJM is not aware of any non-rerra-governed entities providing peak shaving. As such, PJM does not have a basis to confirm whether non-rerra-governed entities would be technically capable of providing peak shaving. This is because peak shaving is not reported to PJM under existing rules as it is instead merely reflected through a lower peak load contribution provided by the relevant electric distribution company. Further, under the existing demand response rules, the relevant electric distribution company is responsible for reviewing demand response registrations to ensure compliance with applicable RERRA s rules. 12 RERRAs may allow a Curtailment Service Provider, EDC, Load Serving Entity, a retail customer or any other entity they deem appropriate to provide demand response to the PJM wholesale markets. Some states allow Curtailment Service Providers to provide demand response subject to specific RERRA requirements. 13 Ultimately, all entities that provide demand response to the PJM wholesale markets are subject to the implicit or explicit RERRA approval pursuant to Order No. 719A. 14 The amount of Demand Resources provided by an electric distribution company ( EDC ) compared to the amount of Demand Resources provided by non-electric distribution companies ( Non-EDC ) is summarized in the Table 1 below. This table summarizes the estimated amount of Demand Resources committed for each Delivery Year by product, by Non-EDC, and by 12 See Tariff, Attachment K-Appendix, section 8.4.3, RAA, Schedule 6.1, section D(i) 13 For example, the Maryland commission imposes requirements on Curtailment Service Providers. See Md. Case No. 9241, In the Matter of an Investigation of the Regulation of Curtailment Service Providers. 14 Under Order No. 719A, all retail customers in a large EDC may participate as demand response in the wholesale market unless the RERRA passes an order, ordinance or resolution that qualifies or prohibits participation ( opt out ). All retail customers in a small EDC are not permitted to participate as demand response in the wholesale markets unless the RERRA passes an order, ordinance or resolution that qualifies or allows participation ( opt in ). See Wholesale Competition in Regions with Organized Electric Markets, Order No. 719A, 128 FERC 61,059, P 51 (July 16, 2009).

8 Page 8 EDC. 15 Table 1. f. How would year-to-year changes in the load forecast due to fluctuations in enrollment in the proposed Peak Shaving Adjustment threaten to undermine market certainty and likely reduce Market Seller confidence more than (1) changes in the load forecast due to other demand-side variables, such as increases or decreases in behind-the-meter generation; (2) changing net cost of new entry values; or (3) year-to-year changes in capacity supply resources offer behavior in the capacity market (particularly resources without capacity market must-offer obligations such as demand response and intermittent resources)? As explained above in response to question 1.c., potential fluctuations in peak shaving programs could undermine market certainty by creating an unstable load forecast on the demand side. Further, changes to the load forecast due to other demand-side variables such as behindthe-meter generation are expected to be maintained and would not change back and forth. That is because PJM does not expect behind-the-meter generation to be added and then removed from one year to the next as such generation needs to recover the initial investment costs over time. Further, unlike the quadrennial review that includes potential changes to the net cost of new entry values once every four years, potential annual changes to the load forecast could result 15 Electric distribution companies (EDCs) often create different PJM accounts to differentiate activity for the demand response EDC review process from the Curtailment Service Provider process for their own curtailment activity. PJM qualitatively reviews all Curtailment Service Provider accounts and assigned as either and EDC or non-edc in order to summarize the information in the table.

9 Page 9 in annual fluctuations. Changes to the net cost of new entry values, if any, occurs every four years and is predictably less frequent than the potential yearly changes from peak shaving programs. Finally, unlike year-to-year changes in capacity supply resources offer behavior in the capacity market, inclusion under the Peak Shaving Adjustment proposal would result in an adjusted load forecast regardless of price. In contrast, changes in offer behavior for capacity resources may not affect the ultimate clearing price or quantity if the offer price is high. However, the clearing price and quantity would be affected irrespective of price by peak shaving programs through an altered load forecast. Therefore, year-to-year changes in peak shaving program are distinct from annual changes in offer behavior for capacity resources. g. Please explain how permitting non-rerra-governed programs or wholesale customers to enroll in the Peak Shaving Adjustment program would usurp state authority or impede states from taking any actions within their authority. 16 Please describe specifically how this would affect both restructured states and non-restructured states and what actions it would prevent states from taking. In restructured states, RERRAs generally regulate entities that interact directly with enduse retail customers. This is evidenced by laws in many restructured states for brokers, aggregators, electric suppliers, and Curtailment Service Providers to be licensed by the RERRA. 17 States regulate entities that interact directly with end-use retail customers for myriad reasons. For one, RERRAs often require electric suppliers, brokers, and aggregators in the state to be licensed for consumer protection purposes, which has traditionally been within the purview 16 PJM Transmittal at See, e.g., D.C. Code ; 26 Del. C. 1012; 220 ILCS 5/16-115; Md. PUBLIC UTILITIES Code Ann ; N.J. Stat. 48:3-78; ORC Ann ; 66 Pa.C.S. 2809

10 Page 10 of state regulation. The ability to regulate entities that aggregate retail customers for purposes of peak shaving is no different since such entities interact directly with end-use retail customers. 18 Similar consumer protection concerns could be present for states to regulate such activities. Thus, the ability to regulate the activities dealing with such end-use retail customers, in both restructured and non-restructured states, is within the purview of a RERRA. 19 PJM s proposed RERRA requirement is similar to the existing rules previously accepted by the Commission pertaining to Economic Load Response Participants, Demand Resources, and Price Responsive Demand where participation is conditioned upon a RERRA approval. 20 Without a clear mechanism for RERRAs to opt out of peak shaving similar to the rules for other demand reduction programs may arguably impede the ability of states from taking actions within their authority and at the very least cause state/federal jurisdictional clashes that the Commission sought to avoid through its Order 719A opt-out provisions. 21 As demonstrated by the existing state legislation and RERRA orders, states may wish to regulate peak shaving programs on the state level to result in reduced capacity obligations and charges to the relevant Zone. An unauthorized entity that aggregates end-use customers within the state to participate in PJM s Peak Shaving Adjustment program could undermine the state s ability to set the parameters for 18 Individual customers in either restructured or non-restructured states would not have any reason to submit a Peak Shaving Adjustment plan since reductions would be allocated among the entire Zone and they would not see any meaningful reduced capacity requirements under a Peak Shaving Adjustment plan. Instead, large individual customers would likely peak shave outside of the Peak Shaving Adjustment program based on the five Coincident Peak days/hours to reduce their capacity requirement for the following year. 19 In non-restructured states, Electric Distributors are generally the only entity allowed to interact directly with enduse customers and are fully regulated by the RERRA. 20 See Tariff, Attachment K-Appendix, section 8.4.3, RAA, Schedule 6.1, section D(i) 21 Order 719A at P 54. See also FERC v. Electric Power Supply Association, 136 S. Ct. 760, (2016) (ability for States to prohibit its consumers from making demand response bids in the wholesale market is a program of cooperative federalism, in which the States retain the last word ).

11 Page 11 other Load Serving Entities to develop peak shaving programs. That is because the unauthorized entity may aggregate end-use customers that would otherwise have been intended to be included in a RERRA-approved peak shaving program. In short, PJM s rationale for the RERRA requirement is grounded in much of the same rationale that the Commission utilized to create a RERRA opt-out under Order 719A. PJM recognizes that the services in question in peak shaving are different than those associated with supply side participation in the market at issue in Order 719A. However, if anything, the arguments for increased state oversight are even stronger for peak shaving programs, which are on the demand side, than it is for supply side demand response programs. As a result, it would be inconsistent and potentially arbitrary for the Commission to reject the RERRA requirements in this case while still maintaining the opt-out provisions of Order 719A as they relate to supply side demand response participation. h. According to Attachment D of Manual 19, a Peak Shaving Adjustment Plan summary must include a copy of tariff or an order approved by the Relevant Electric Retail Regulatory Authority. 22 Please explain how this requirement will be fulfilled by RERRAs that are not state regulatory agencies, e.g., municipalities and electric cooperatives. A Relevant Electric Retail Regulatory Authority is defined in PJM s Operating Agreement as an entity that has jurisdiction over and establishes prices and policies for competition for providers of retail electric service to end-customers, such as the city council for a municipal utility, the governing board of a cooperative utility, the state public utility commission 22 Proposed Revisions to PJM Manual 19 Load Forecasting and Analysis, Attachment D: Peak Shaving Adjustment Plan and Performance Rating, at 45.

12 Page 12 or any other such entity. 23 A municipality or electric cooperative that is not regulated by a state regulatory agency is the RERRA. In those circumstances, the municipality or electric cooperative that seeks to participate in the Peak Shaving Adjustment program would simply include a letter, which PJM will deem to be the equivalent of an order, explaining why it is authorized to participate. This proposed requirement is similar to PJM s existing rules for Economic Load Response Participants where the relevant electric distribution company is required to submit evidence that a RERRA authorizes the end-use customers participation In support of PJM s rule that participants in a peak shaving program will be prohibited from participating as [Price Responsive Demand] or Demand Resource (emergency or economic) as a means to prevent double counting of load reductions, PJM states if demand response customers participate in peak shaving, the load forecast would be reduced so that there is no longer the expectation of such customers consuming normal load when the relevant trigger is met. PJM then states, Absent this prohibition, load curtailment customers could receive the benefit of both a reduced load forecast as well as supply-side payments for the same MWs. Moreover, the purpose of the subject filing is to value summer-only demand response resources that are otherwise unable to participate as an annual resource in PJM s market. 25 Further, PJM proposed to incorporate this prohibition in the RAA by defining Peak Shaving Adjustment as a load forecast mechanism that allows load reductions by end-use customers to result in a downward adjustment of the summer load forecast for the associated Zone. Any End-Use Customer identified in an approved peak shaving plan shall not also participate in PJM Markets as Price Responsive Demand, Demand Resource, Base Capacity Demand Resource, Capacity Performance Demand Resource, or Economic Load Response Participant. 26 a. Please explain why a market participant enrolled in the Peak Shaving Adjustment program should be prevented from participating in the energy and ancillary services markets when it is capable of providing a service in those markets using load reduction MWs in excess of those necessary to satisfy its 23 See Operating Agreement, section See Operating Agreement, Schedule 1, section 8.4.3(a) and parallel provisions of Tariff, Attachment K- Appendix, section 8.4.3(a). 25 PJM Transmittal at PJM Transmittal at 8.

13 Page 13 Peak Shaving Adjustment commitment, or during periods when its Temperature Humidity Index (THI) trigger is not exceeded. If different reasons support this restriction for programs that aggregate residential customers than for programs that comprise one or more large commercial and industrial customers, please explain. If an individual customer separately meters two loads, one load allowing participation in the peak shaving program and the other load allowing participation in PJM s demand response programs, would this configuration address PJM s concerns? Allowing a Market Participant to enroll in the Peak Shaving Adjustment program on the demand side while also as an Economic Load Response Participant as a supply resource in the energy and ancillary services market is problematic and presents several challenges. First, it is not clear how excess MWs that may available for participation in the energy and ancillary services market would be determined. Performance evaluation is based on the aggregate performance of all customers in the Peak Shaving Adjustment plan. Thus, while individual enduse customer locations may have additional MW capabilities, load reductions from all locations within a participating Zone are aggregated in a peak shaving program. Consequently, if an end use customer location curtails more than expected, such curtailment would be aggregated with other end use customer locations that may not perform as anticipated in the same Zone for purposes of Peak Shaving Adjustment. This makes it challenging, if not impossible, to ensure MWs from an Economic Load Response Participant s registration are not already included in the adjusted load forecast for the Zone from also participating as peak shaving. Given the zonal nature of the forecast adjustments, peak shaving reductions associated with the same end-use customer locations cannot be combined with an Economic Load Response Participant because individual end-use customer reductions would be aggregated across the Zone. 27 Thus, it is not 27 Large individual customers that peak shave can reduce their Peak Load Contribution and therefore will likely not

14 Page 14 clear how excess MW would be determined since performance evaluation is based on the aggregate performance of all customers in the Peak Shaving Adjustment plan which can be different from the aggregation of customers that participate as an Economic DR resource. 28 Second, even if the complexities due to aggregation could be solved, it is unclear how excess MW would be defined. For example, assume the unlikely scenario where aggregation issues do not exist or somehow get solved or there is only one customer that participates in a Peak Shaving Adjustment plan and that same customer also participates as an Economic Load Response Participant. If that participant is represented by one Market Participant for Peak Shaving Adjustment and another Market Participant as an Economic Load Response Participant, PJM would need to determine which PJM member is responsible for what part of the load reduction and how to determine that the customer s total load reductions are not over-committed between the load reduction on the demand side and the load reductions on the supply side. Specifically, if a customer commits to reduce two MWs as part of a Peak Shaving Adjustment Plan and an additional two MWs for Economic Load Response, it is unclear how the actual curtailed MWs would be allocated if the customer only reduces three MWs instead of four MWs. An allocation process would need to be developed for under and over performance, which would be especially contentious if two different PJM members represent the same end-use customer. 29 participate in Peak Shaving Adjustment programs. Thus, PJM fully expects Peak Shaving Programs to be based on a portfolio of customers. Experience with other demand reduction programs suggests within a portfolio of customers, some end-use customers will curtail when specified while others may not. Ultimately, PJM aggregates the overall performance of all end-use customers within the Peak Shaving Adjustment plan when measuring for compliance. 28 An Economic DR resource may also be part of an aggregation of customers and also be eligible for Capacity Performance bonus payments under specific conditions. 29 PJM would need to establish a rule that would appropriately allocate the MWs. Without such a rule in place, PJM could not just unilaterally determine how the MWs should be allocated. While such issues may eventually be resolved through additional stakeholder discussions, the proposal as filed represents a just and reasonable method to recognize peak shaving from summer only demand resources.

15 Page 15 Third, participation in the Peak Shaving Adjustment program requires customers to reduce load when the relevant THI threshold is triggered, regardless of wholesale market energy participation. However, Economic Load Response Participants are only eligible for compensation in PJM s energy market based on load reductions that occur in response to Locational Marginal Prices ( LMP ). Load reductions that would have occurred regardless of LMPs are ineligible for compensation from the energy market because dispatching customers that would have curtailed regardless of LMP does not satisfy the Net Benefits Test. 30 In other words, the cost to other loads resulting from the effects of such load reduction exceeds the benefits of any reduction in price from such dispatch. Since customers in a Peak Shaving Adjustment program may be required to reduce load reduction regardless of LMPs, such load reductions would not satisfy the Net Benefits Test. In these circumstances, load reductions would be ineligible to receive energy market payments because they do not provide a net benefit to the market. 31 Challenges arise even if Economic Load Response Participants are allowed to only participate in the energy and ancillary services market on different days from Peak Shaving Adjustment days. It may not always be clear the day before the operating day if the applicable THI trigger for a Peak Shaving Adjustment program will be met. That is because the determination of whether or not an end-use customer would be required to curtail under a Peak Shaving Adjustment program is dependent on actual weather conditions and not forecasted 30 See Tariff, Attachment K-Appendix, section 3.3A.4 and the parallel provisions of Operating Agreement, Schedule 1, section 3.3A See Tariff, Attachment K-Appendix, section 3.3A.1 and the parallel provisions of Operating Agreement, Schedule 1, section 3.3A.1.

16 Page 16 conditions. 32 Thus, Economic Load Response Participants would be required to submit Dayahead offers prior to knowing with certainty whether it would be required to curtail under Peak Shaving Adjustment. While this concern may not be insurmountable on low temperature days, rules need to be vetted and developed through the stakeholder process to specify when an enduse customer would be eligible to participate as an Economic Load Response Participant. Further, the customer baseline rules would need to be analyzed to determine how to handle the impact of load reductions from one type of resource to another type of resource for the same customer. 33 Similar to the above issues, this would be compounded if two different Market Participants represented the same end-use customer(s) - one for the Economic Load Response Participant resources and the other for the Peak Shaving Adjustment resource. PJM s concerns would not be fully addressed even if an individual customer separately meters two loads, one load allowing participation in the Peak Shaving Adjustment program and the other load allowing participation in PJM s Economic Load Response programs in the energy and ancillary service markets. PJM currently manages all customer load reductions at an EDC account number level. 34 This is done for several reasons and it would be challenging to manage participation at the meter level. PJM works with electric distribution companies regarding meter data accuracy and the electric distribution companies do not have different meters based on different end use technologies. PJM would need to track all aspects of Peak Shaving Adjustment 32 This means the Peak Shaving Adjustment Plan participant will need to forecast if they are required to peak shave since the forecast was adjustment based on actual forecast conditions. 33 For example, should the Economic customer baselines omit days where the customer reduce load based on the Peak Shaving Adjustment plan? 34 There is one exception where a regulation only resource can participate with a submeter because the signal tends to be neutral which could make it impossible to verify if the amount that regulates is significantly smaller than the overall load.

17 Page 17 plans and other demand response programs on a meter level instead of at an EDC account number level. This includes avoiding duplicate participation of a meter by different members where there is no standard convention to track end use meters and resolve duplicate participation. Also, meter level participation could lead to gaming opportunities that would need to be mitigated. For example, if a home has two air conditioning units and only has a meter on one air conditioner, if the one air conditioner with the submeter is cycled, the other air conditioner which is not submetered will simply operate more keep the house cool. 35 Effectively, there may be no load reduction because one air conditioning unit may completely offset the other air conditioning unit. Further, depending on the amount of participation, this approach could also create scale issues until systems are modified to accommodate. For example, three meters for each location will increase the size of what needs to be managed in the system by 300 percent. These are the major known issues that would need to be resolved which require substantial changes to the current rules, processes and systems in place today to manage load reduction activity. There are likely other issues that have not yet been identified because the PJM wholesale market has minimal experience with participation at the end use meter level. b. Please support the decision to preclude a Curtailment Service Provider or other market participant from aggregating end-use customer locations that are also enrolled in the Peak Shaving Adjustment to participate in the energy and ancillary services markets during periods that do not trigger a THI event. 35 This realistic scenario can occur for submetered participation because Curtailment Service Providers are allowed to submeter a specific end use.

18 Page 18 Many of the same concerns explained above support the decision to preclude a Curtailment Service Provider or other Market Participant from aggregating end-use customer locations that are also enrolled in the Peak Shaving Adjustment program. For instance, performance evaluation is based on the aggregate performance of all customers in the Peak Shaving Adjustment plan, which allows excess MWs from one customer to be used to offset underperformance from another customer. Thus, it would be challenging to determine the actual excess amount of MWs from Peak Shaving Adjustment that could be used to participate in the energy and ancillary services market. Further, as alluded in the above response, allowing Curtailment Service Providers or other Market Participants to aggregate end-use customer locations that are also enrolled in the Peak Shaving Adjustment program could allow different Members to be responsible for the same end-use customers. PJM will need to determine which Member is responsible for the Peak Shaving Adjustment commitment and which is responsible for the energy and ancillary services portion for the same end-use customer location. This arrangement also presents allocation issues for to the different Members for over or under performance of end-use customer locations. The question around whether or not it will be a Peak Shaving Adjustment day is further exacerbated when different Members represent the same end-use customer locations. As PJM previously explained, while not perfect, the Peak Shaving Adjustment proposal represents a just and reasonable method to value certain summer-only demand response resources that do not currently participate in PJM s markets or are already peak shaving. If accepted, this proposal will enable such resources to reduce the load forecast beginning with the upcoming Base Residual Auction in August, PJM suggests that Peak Shaving Adjustment

19 Page 19 participants gain experience with the new Peak Shaving Adjustment opportunity as originally filed. Once experience is gained with the currently filed Peak Shaving Adjustment, participants can initiate a stakeholder discussion to consider possible participation in PJM s capacity, energy and ancillary services market. PJM commits to report to the Commission on the level of participation of the Peak Shaving Adjustment program and any associated stakeholder developments after one year upon acceptance of this filing. 3. Under PJM s proposal, resources committed to providing identical Peak Shaving Adjustments during the three summer months whose peaks align with those that make up the bulk of the Loss of Load Expectation share will result in reductions in the Reliability Requirement commensurate with the number of peak shaving MWs times the Forecast Pool Requirement. Put differently, if the peak shaving resources reduce load during the expected summer peaks, the Reliability Requirement will be reduced by both the MWs associated with the peak shaving resources and the expected reserves needed to serve those MWs. Does this hold for all MW quantities, or will the reductions decrease as peak shaving MWs increase above a certain level? The reduction in the Reliability Requirement will decrease as the peak shaving amount increases. This is due to the fact that, as the peak shaving amount increases, the likelihood of shifting the daily peak to a different hour, day or season (in which peak shaving did not occur) increases. PJM models peak shaving only for the hours the program is obligated to curtail. Specifically, the peak shaving program administrator specifies in the Peak Shaving Adjustment plan the THI trigger and an hourly curtailment window. If the trigger is met in any hour of a day, PJM assumes the load will curtail in the amount and over the number of hours specified in the Peak Shaving Adjustment plan. If the daily peak shifts to an hour outside of this obligation period, PJM cannot count on the curtailment because it is outside of the window that they committed to curtail. 4. In situations where resources commit to provide Peak Shaving Adjustments

20 Page 20 during only some of the summer months, the annual Reliability Requirement will be reduced by less than the number of peak shaving MWs times the Forecast Pool Requirement, and the target reserve percentage (i.e., Installed Reserve Margin) will increase for the relevant region. Under this scenario, is there a potential cost shift to the remaining LSEs that will face a higher reserve target as a result of, and a higher share of the total capacity costs due to, other LSEs participation in the peak shaving program? While it is theoretically possible, it is unlikely that the remaining LSEs would incur higher costs in practice. A higher share of costs associated from an increased Forecast Pool Requirement does not necessarily result in higher actual costs. This is because capacity costs are a function of total demand times the Forecast Pool Requirement times the auction clearing price. Thus, if the peak shaving reduction is proportional to the Forecast Pool Requirement increase, then this would merely constitute shifting of capacity costs from peak shaving participating LSEs to those that are not. However, under the scenarios PJM has investigated, the impact on the Forecast Pool Requirement is not proportional to the peak shaving amount. Peak shaving adjustments result in a shift of the capacity market Variable Resource Requirement (demand) curve that influences the auction clearing price. With the demand curve accounting for peak shaving, the resulting clearing price could only go down or stay the same assuming a consistent supply curve. As a result, the reduced demand curve likely offsets any increased Forecast Pool Requirement in the ultimate capacity costs for non- peak shaving participants.

21 Page 21 II. CORRESPONDENCE AND COMMUNICATIONS individuals: Correspondence and communications regarding this filing should be sent to the following Craig Glazer Vice President Federal Gov t Policy PJM Interconnection, L.L.C G Street, N.W. Suite 600 Washington, D.C (202) Craig.Glazer@pjm.com Chenchao Lu Counsel PJM Interconnection, L.L.C Monroe Boulevard Audubon, PA (610) Chenchao.Lu@pjm.com III. SERVICE PJM has served a copy of this filing on all PJM members and on all state utility regulatory commissions in the PJM Region by posting this filing electronically. In accordance with the Commission s regulations, 36 PJM will post a copy of this filing to the FERC filings section of its internet site, located at the following link: with a specific link to the newly-filed document, and will send an e- mail on the same date as this filing to all PJM members and all state utility regulatory commissions in the PJM Region 37 alerting them that this filing has been made by PJM and is available by following such link. PJM also serves the parties listed on the Commission s official service list for this docket. If the document is not immediately available by using the referenced link, the document will be available through the referenced link within 24 hours of the filing. Also, a copy of this filing will be available on the FERC s elibrary website located at the following link: in accordance with the 36 See 18 C.F.R. 35.2(e) and (f)(3). 37 PJM already maintains, updates, and regularly uses lists for all PJM members and affected state commissions.

22 Page 22 Commission s regulations and Order No PJM also served this on each person designated on the official service list maintained by the Commission for this proceeding. IV. CONCLUSION Wherefore, PJM requests that the Commission accept this response to the Commission s deficiency letter. Respectfully submitted, Craig Glazer Vice President Federal Government Policy PJM Interconnection, L.L.C G Street, N.W. Suite 600 Washington, D.C (202) Craig.Glazer@pjm.com Chenchao Lu Counsel PJM Interconnection, L.L.C Monroe Boulevard Audubon, PA (610) Chenchao.Lu@pjm.com Jennifer Tribulski Associate General Counsel PJM Interconnection, L.L.C Monroe Boulevard Audubon, PA (610) Jennifer.Tribulski@pjm.com On behalf of PJM Interconnection, L.L.C.

23 CERTIFICATE OF SERVICE I hereby certify that I have this day served the foregoing document upon each person designated on the official service list compiled by the Secretary in this proceeding. Dated at Audubon, this 6 h day of March /s/ Chenchao Lu Chenchao Lu Counsel PJM Interconnection, L.L.C Monroe Boulevard Audubon, PA (610) chenchao.lu@pjm.com