Just about every day I read an opinion on the controversy regarding PJM’s attempt to change the GLD enrollment methodology that curtailment service providers (CSPs) are currently utilizing to enroll customers into their Emergency Demand Response program (aka RPM program). The ramifications from any change could have many potentially profound consequences on the marketplace, such as decreasing the revenues earned and lowering the kW nominations.

Regardless of how you feel on this matter, one likely outcome of any ruling is going to be a more uniform enrollment methodology which will create a level playing field in which all Demand Response Providers can compete. Currently there is a loophole in the GLD enrollment methodology that allows the largest CSPs in the PJM territory to leverage the size of their portfolio to enroll some of the biggest and thus most lucrative clients in the region. This “advantage” is about to be terminated and is one of main reasons why there is so much resistance to this change.

In PJM, a customer who wants to enroll in a Demand Response program must first find out what their Peak Load Contribution (PLC) is from their local utility company. The PLC is the average amount of electricity the customer was using for the five hours during which the grid “peaked” the previous summer. The customer’s PLC is used as a baseline to help determine how much load the company can shed in a Demand Response program. The PLC is also meant to serve as the maximum amount of load a customer can bid into a Demand Response program if they agree to shut down operations when asked to curtail.

The problem has arisen out of what some would see as a flaw in how the kW reduction is measured in this program. Under current rules, a CSP can use a GLD methodology to show how much load their customers reduce against their PLC. With the GLD methodology a customer actively reduces load to a predetermined amount. For example: PLC (60,000) – GLD 60,000 kW = payment for reduction of full 60000 kW’s. Makes sense, right? It does, but like every baseline methodology there is room for improvement as it does not capture the full reduction capabilities of all customers.

For example, some customers’ energy usage may normally be much higher than what their calculated PLCs actually are. This can happen for a variety of reasons, like less production the previous year, the system peak occurred late in the day when production was ramping down at a plant, or a plant was offline for maintenance for one of the five days when the PLC was calculated. If any or these things were to occur, the 60,000 kW example above could really be able to shed 80,000 kW but would be forced to only earn revenue off the PLC of 60,000 kWs. This is a substantial loss of revenue for a client of this size and can be seen as counterproductive in that the intent of the program is to compensate end users for providing relief to the grid.

The purpose of establishing a baseline methodology like the one mentioned above is to provide a uniform process that that CSPs can use to enroll customers into their Demand Response programs. This is supposed to ensure that everyone follows the same rules and earns the same amount of revenue for the load they curtail. Further, these rules are also supposed to provide an even playing field in which CSPs compete to enroll customers. That was the intent anyway….

This issue in conjunction with the fact that a select few very large CSPs have “interpreted” the GLD enrollment methodology to mean they are allowed to aggregate their customers’ loads to hit compliance goals (i.e., 10 customers must have a combined 100MW’s of load when called upon vs. each facility having to shed 10MW’s separately). This has led to an unintended “loophole” that is allowing these select few large CSPs to leverage the size of their portfolios to take advantage of market rules and gain an unfair competitive advantage. Even worse, the amount of load these select few CSPs represent in the market has allowed them to enroll the largest, and thus the most lucrative, potential DR customers in this region!

An example to put this in context:

• Demand Response Provider #1 has 1,000MW’s enrolled using the GLD methodology
• Demand Response Provider #2 has 150 MW’s enrolled using the GLD methodology
• They are both competing for a very large customer who has a PLC of 60MW’s
• However, the customer can really reduce 80MW’s when called upon

Each Demand Response provider has to cover the amount of load they are representing in the marketplace with the GLD methodology. In this example it is 1000MW’s for one DRP vs. 150MW’s for another DRP. As the rules currently stand, it does not matter how each DRP gets to their respective numbers as long as their customers shed this amount in aggregate. Thus a DRP who enrolls customers using the GLD methodology can manage their customers on a portfolio basis.

This is where the advantage goes to the DRP #1. DRP #1 can pay the 60MW customer for the full 80MW they can shed even though the PJM ISO will not compensate the DRP above the customer’s PLC of 60MW’s. Why? They do this because this large customer can act as an insurance policy. If DRP #1’s customers fail to reduce some load, the large DRP will make up for this shortfall with over-performance. DRP #2 does not have as much load to manage as DRP #1 and does not need an extra 20MW’s of “over performance” for their portfolio. Thus, they do not need and cannot compensate this large customer for the extra 20MW’s. Further, DRP#1 can offer the customer a much lower % share. Here’s the math:

DRP#1 offers 75% split of 80MWs valued at $41,500/MW = $2,490,000

DRP#2 offers 95% split of 60MW’s valued at $41,500/MW = $2,241,000

This is a difference of $249,000 * 3 year agreement = $747,000 difference.

To keep things simple, basically what PJM is attempting to do is put a 125% cap on how much load a DRP can bid over the PLC when using the GLD enrollment methodology. This may not solve the baseline enrollment problem completely but it certainly makes the rules black and white so that all CSPs can compete on an even basis