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FERC Orders Electric Power Marketplace to Allow Energy Efficiency Projects

March 2009 - Energy Efficiency

A federal agency recently ordered the operator of the United States’ largest marketplace for electric power to allow energy efficiency projects to compete directly with electric power plants.

The new head-to-head competition was ordered by the Federal Energy Regulatory Commission (FERC) to begin with an auction this May to purchase the resources needed to meet peak power demands during the summer of 2012.

The auction will be run by PJM Interconnection, Inc., which coordinates electric grid operations serving 51 million people in 13 states and the District of Columbia, and operates the nation's largest competitive wholesale electricity market.

The PJM market constitutes approximately 20 percent of the electric power market in the U.S. Last May, PJM sought bids for power to be available in the summer of 2011 totaling 133,000 megawatts, according to FERC.

FERC had ordered PJM in 2007 to consider ways in which energy efficiency projects could participate in future auctions. Following many months of discussions with stakeholders, and over the objections of power generators and traders, PJM submitted in December its eligibility rules for energy efficiency that were largely approved last week.

Under PJM’s rules, the minimum amount of energy savings that will be eligible to bid in the auction will be 100 kilowatts, far larger than the peak demand reduction that might result from efficiency improvements in an individual appliance or home.

However, electric utilities and independent contractors are expected to bundle up the peak demand savings from groups of residential and small commercial customers to provide an increment of demand reduction that can qualify for auction.

Additionally, bidders of energy efficiency resources will be required to submit plans to measure and verify their projected savings, subject to PJM approval. Under PJM’s plan, energy efficiency resources are eligible to bid, and be paid, for four consecutive years, and FERC has now ordered PJM to consider even longer periods of eligibility.


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