What Was Learned From the 2015 Transition and Base Residual Auction Results? October 13, 2015 OPSI Annual Meeting CP Auction results – A DR perspective Bruce Campbell - EnergyConnect

CP results – A DR perspective Perspective on clearing prices What about summer peaking Demand Resources? Does the Aggregate Resource idea work? Does CP deliver reliability at least cost?

Auction Clearing CP represents a shift in key clearing drivers: Old – Bids of new resources New - Administrative Net Cone in the form of the default offer cap. BRA and Transition Auction results indicate that generators can strategically bid relative to the default offer cap to maintain high clearing prices

Auction Clearing - BRA Auction results suggest that strategic bidding can sustain higher prices. – Prices would have been higher but for excess supply from prior high forecasts. The year forward forecast was 1.8 % less than the forecast. Delivery YearCleared MW , ,836.9

Excess supply due to high forecasts

Incremental Auction Given prior history with comparable amounts of excess supply by PJM offered, the st IA results were significantly higher than similar auctions in the past. This suggests there is value for withholding capacity in order to hedge non-performance of CP resources and maintain eligibility for “bonus” revenues

Future The BRA prices were moderated by excess supply from prior delivery years – The forecasts for the BRA have declined for the last 2 years BRA Prices are moderated by Base Capacity – Base Capacity is slated for elimination in Conclusion - BRA prices should increase substantially in 2020 and beyond.

Summer Resources 62% of Demand Resources did not offer as CP. This represents about 4.5% of overall supply. 27% of DR is derived from HVAC These resources may only be available in Summer PSC mandated residential DR programs are at risk.

Why Isn’t DR moving to CP? PJM loads are summer peaking – Load simply isn’t there to curtail in winter. CP rules credit demand resources with only the lesser of summer or winter curtailment. Summer peaking Demand Resources must either curtail to less than their summer commitment in winter or reduce their summer commitment. Winter M&V rules for Demand Resources result in unpredictable performance outcomes.

Economic Impact Many State Commission’s mandated and ratepayer funded demand response programs relied on the PJM capacity market to pass their cost/benefit tests. These programs will by-and-large no longer be considered by PJM as contributing to reliability Investments in summer peak management and AMI will be stranded

Economic Impact Estimated impact of eliminating summer DR option will most likely cost ratepayers: $1 - $3 billion per year in unnecessary capacity charges

Aggregated Resources PJM’s “fix” for summer only DR (Aggregated Resources) is challenging at best - and possibly unworkable. Zero Aggregated Resources made offers. Issue – how to share capacity revenues and performance risk? Base-CP price spreads may be necessary to enable rational Aggregation contracts

Least Cost Result? BRA Base Resource clearing prices were within 10% of CP price. – Low spread between Base and CP may suggest that spread bids rather than coupled bids should be allowed. Relatively high Base Resource clearing prices may reflect the value of uncleared resources for use as performance hedges for co-owned CP resources. Uncleared Generation resources may be providing an additional 7% IRM – 12,000MW.

Least Cost Result? Auction algorithm does not solve for least cost solution with Base Resources – Anomalous results in BGE, Pepco and PPL – Low Cost, uncleared Base resources in BGE, PEPCO, and PPL can meet MAAC and RTO Base requirements. – Why were these lower cost resources not cleared, thereby reducing MAAC and RTO costs?

Auction Clearing Issues Questions Does the CP approach encourage withholding? If providers are encouraged to consider “bonus” revenue potential from uncleared resources, how should PJM account for installed capacity these uncleared resources? Should the 1% adder for point B of the VRR be eliminated?

Questions? To learn more about Demand Response and the Advanced Energy Management Alliance, visit our website. Or Bruce Campbell –