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Reliability Pricing Model Part 2. Gloria Godson VP, Federal Regulatory Policy. Combined Service Territory. Who is Pepco Holdings, Inc. Transmission & Distribution. Competitive Energy / Other . PHI Investments. Regulated transmission and distribution is PHI’s core business. 2.
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Reliability Pricing Model Part 2 Gloria Godson VP, Federal Regulatory Policy
Combined Service Territory Who is Pepco Holdings, Inc. Transmission & Distribution Competitive Energy / Other PHI Investments Regulated transmission and distribution is PHI’s core business. 2
PJM’s Proposal: DR Operational Deployment • Enhancements to DR obligations • Changes to administrative procedures during emergency • Revise emergency DR to an economic dispatch approach • Changes to notification time requirements for DR • Diversify the lead time for notification of DR during emergency • Current Emergency DR: 2 hour (~9,000 MWs) and 1 hour (~500 MWs) lead time • Allow for DR resources to operate with a dispatchable range • Must offer requirement for DR in the Day-Ahead market • Address the impact of Limited DR clearing in RPM auctions • Cap/Curtail Extended Summer/ Limited DR • Revise DR assumptions and modeling in PJM planning studies • Whether capacity DR meets the RPM physical reliability requirement
PHI’s Demand Response Programs • PHI’s participation is PJM’s DR market is to implement the public policy objectives of our states and the needs of our customers • PHI offers mass-market mostly residential DR programs including Direct Load Control and Peak Energy Savings to our customers • We offer the summer extended and limited DR products • PHI programs provide RT market offers once an emergency has been declared • Peak Energy Savings program pays customers $1.25KWh ($1250) • Must have capability to reflect true cost in bids • DR customer fatigue from frequent calls • Impact Advanced Metering (AMI) value proposition • PHI’s program was designed around existing RPM rules and interruption expectations. Every interruption costs PHI $$$ • Changing the DR operational characteristics and compliance rules will affect PHI’s ability to deliver on our state commitments and product offerings to customers
PHI Issues & Concerns • Market Issues • Must offer requirement for the Day-Ahead energy market • “Parameter Limited Schedules” for DR • Compliance issues & concerns • How will compliance change? • Clear criteria for calling customers • Compliance timeline • Prospective only • Appropriate transition mechanisms • DR fatigue - “cycling” period • Eliminating emergency declaration • Regulatory • Regulatory recovery • Reduced revenues for customers • Impact on utility’s ability to support state public policy objectives • Regulatory risk due to penalties if no adjustments are allowed • Limitations on participation in incremental auctions
DR Operational Deployment : PHI’s Position • PHI supports changes to notification times for DR: • DR buckets with 60 and 120 minutes lead time • Trigger:PHI supports having both emergency and economic DR • DR programs like PHI’s play a key public policy role and should be carved out: • Achieving conservation, changing customer behavior, changing the load profile/curve, shaving the peak and implementing public policy mandates • Direct impact on a million customers • No flexibility - state mandated • Dispatch granularity/Geographic Diversity: dispatch of local regions: • PHI supports dispatch granularity but not by zip code or pNode • For program purposes, mass market calls must occur by zone e.g. All of PEP, not certain zip codes • Penalty structure revision: • PHI opposes any rule changes that will impair our ability to transact in the incremental auctions to meet our capacity obligations and manage risk • Keep in mind that it was DR that saved the day during hot weather operations in July and September
DR Comparability to Generation – PHI’s Position • Comparability: Should all capacity resources be paid the same price? • PHI supports all capacity resources being paid the market clearing price. Discrimination by resource type is undue discrimination • PHI supports the greater participation of cost effective DR products that are functionally comparable to generation • Comparability is not equivalency • DR is that it can be both load as well as supply • PHI can support a must offer requirement provided parties can bid their legitimate costs • PHI supports market prices that reflect real system conditions and sends the right price signals • PHI opposes using DR as a purely financial product for arbitrage. We believe that the capacity product under the Reliability Pricing Model (RPM) was intended to be a physical product • PHI opposes a DR day-ahead “must offer” obligation as it could expose PHI to significant downside market risk with no upside • PHI’s mass market DR programs do not pose market power concerns
PHI Recommendations • Rule changes should be prospective only - Starting from 2015/16 • Include appropriate transition mechanisms and timelines • Support state regulatory processes to reconfigure existing programs • Mass-market mostly residential programs like PHI's should be carved out of some rules changes <100 kW or similar standard • Rules must minimize barriers to entry for residential customers to reduce end use administrative complexity and risk • Protect or hold members harmless from the negative impact of market positions taken under existing rules - honor existing commitments • Rule revisions must recognize the differences between mass market (residential) and contractual resources • Emergency Declaration - the programs have been designed around an emergency implementation. Implementation ahead of an emergency declaration is problematic and may require state tariff changes • PJM should not cap the extended summer product or eliminate the limited DR product. PJM must resist the temptation to make major long term changes to solve a short term problem