Federal regulators have accepted the PJM Interconnection’s proposal to stop including energy efficiency resources in its capacity auctions, concluding that the move will reduce retail electricity bills while continuing to account for efficiency-driven load reductions on the demand side.
PJM began making capacity payments for energy efficiency resources in 2009, but the grid operator’s market monitor filed a complaint this summer with the Federal Energy Regulatory Commission asking for the practice to be stopped.
Monitoring Analytics said in a July 10 filing that capacity payments to energy efficiency resources total $126 million for the 2024/25 delivery year, but efficiency resources “are already compensated through the PJM markets to the extent that they actually reduce customer payments for energy and capacity.”
PJM stakeholders voted in August to remove efficiency resources from capacity auctions, and the grid operator filed the proposal with FERC in September, noting a lack of evidence that capacity market payments for energy efficiency resources directly incentivize efficiency projects. PJM had asked FERC to approve its proposal before its next capacity auction.
Federal regulators on Tuesday signed off on PJM’s plan, concluding that the grid operator’s current load forecasting methodology “reasonably accounts for energy efficiency measures on the demand side.”
“It is not necessary for PJM to also include Energy Efficiency Resources in the capacity market on the supply side to achieve just and reasonable rates,” FERC said. Removing them “will benefit consumers by reducing capacity payments without adversely affecting resource adequacy or undermining the demand-side benefits that energy efficiency measures can provide to load.”
The change should “reduce resulting wholesale capacity market costs, without any effect on the total amount of capacity that PJM must procure to meet its resource adequacy requirement,” the commission concluded.
