A PJM Interconnection practice that prevents energy efficiency resources from fully participating in its capacity market should be stopped, according to a complaint filed Thursday at the Federal Energy Regulatory Commission.
Without FERC approval, PJM improperly uses an “addback” mechanism that increases its load forecast used to determine how much capacity it needs by the amount of energy efficiency supply offered in its capacity auctions, the New Jersey Division of Rate Counsel, the Maryland Office of People’s Counsel and the Illinois Citizens Utility Board said in their complaint.
The addback mechanism effectively removes energy efficiency from PJM’s supply curve, putting upward pressure on capacity prices and increasing customer rates, they said.
PJM cleared nearly 5,900 MW of energy efficiency resources in its 2023/24 delivery year, according to the complaint. Consumers were charged about $119.9 million for those resources, which weren’t allowed to offset other, more expensive resources because of the addback, the consumer advocates said.
“The addback denies PJM load the full benefits of allowing energy efficiency to compete with other capacity resources on the supply side of the market, including lower costs for consumers, reduced procurement of other higher‐cost capacity resources, and improved load forecasting,” they said.
PJM disagrees with the complaint’s allegations and will defend the “historical participation” of energy efficiency in its capacity market, Susan Buehler, a spokeswoman for the grid operator, said in an email Tuesday. PJM is reviewing with stakeholders its rules for how energy efficiency participates in the capacity market, she said.
FERC has long supported energy efficiency in capacity markets, the ratepayer advocates said, citing a Feb. 6 letter from FERC Chairman Willie Phillips to Reps. Jeff Jackson, D-N.C, and Wiley Nickel, D-N.C.
When PJM instituted the addback in 2015 through a change to its capacity market manual, the grid operator said the move would improve its load forecast and avoid double-counting efficiency resources, according to the complaint.
PJM’s failure to get FERC approval for the addback mechanism violates the Federal Power Act, according to the complaint. The addback discriminates against energy efficiency by treating it differently from all other capacity resources, the consumer advocates said.
They called on FERC to hold a technical conference to explore how best to ensure energy efficiency participation in wholesale markets.
Four U.S. senators last week also urged FERC to hold a technical conference on the same issue.
“We are concerned … that in some regions, energy efficiency is not fully participating in wholesale markets and other regions are considering rule changes that may negatively impact energy efficiency’s role in the future,” Sens. Angus King, I-Maine, Martin Heinrich, D-N.M., Sheldon Whitehouse, D-R.I, and Chris Van Hollen, D-Md., said in a June 17 letter to the agency.
PJM recently said it intended to suspend payments to energy efficiency providers until an energy efficiency-related complaint filed by the grid operator’s market monitor is resolved, according to the lawmakers. “The status quo is becoming untenable,” the lawmakers said.
Monitoring Analytics on May 31 filed a complaint at FERC challenging efficiency-related capacity payments to Baltimore Gas & Electric, FirstEnergy, NRG Energy and other companies. The market monitor contends the companies have failed to show they are eligible for the payments.
The market monitor has regulatory urged PJM to remove energy efficiency resources from its capacity market, arguing that energy efficiency is already compensated through PJM’s markets by lowering customer payments for energy and capacity.
