Demand Response in PJM and NYISO

Demand response is the one energy program that pays you rather than charging you, which is why it gets pitched enthusiastically and understood poorly. The pitch is straightforward: agree to reduce electrical load when the grid is stressed, get paid for it. The reality has more structure, and the structure is where the economics live.

The central thing to understand is that you are usually being paid for a commitment, not for an action. That distinction determines how much you earn, what happens when you cannot perform, and how much load you should sign up in the first place.

Two Revenue Streams

• Capacity revenue. You commit to reduce a defined number of kilowatts on request during a defined season. You are paid for that commitment whether or not an event is ever called. For most commercial participants this is the larger and far more predictable component — and it is also the one carrying performance obligations.
• Energy revenue. You are paid for kilowatt-hours actually curtailed during an event, measured against a calculated baseline of what you would otherwise have consumed. Purely upside, no commitment, but entirely dependent on how many events occur — which in a mild year may be none.

The practical consequence: a site optimizing for capacity revenue should commit conservatively and perform reliably. A site with genuinely unpredictable operations may be better suited to voluntary energy-only programs, where a missed event costs nothing but forgone revenue.

PJM: Committed Capacity, Verified by Test

PJM covers all or part of thirteen states plus the District of Columbia — including New Jersey, Pennsylvania, Maryland, Ohio, Delaware, Virginia and northern Illinois. Its demand response sits primarily inside the capacity market: curtailment is offered as a resource for a delivery year, cleared at auction, and paid a capacity price for the commitment.

What matters operationally:

• Commitment is made well in advance of the delivery year, so you are agreeing today to curtailment capability you must still have next summer.
• Events are dispatched under emergency conditions rather than economically, so they are infrequent and concentrated in extreme weather.
• Test events verify that committed capability actually exists. A site that cannot perform in a test is treated as a site that cannot perform.
• Non-performance is penalized against revenue already received.

PJM capacity prices have risen sharply in recent auctions, which cuts both ways for commercial buyers: it raises what curtailment earns, and it raises what capacity costs the sites that do not manage their peak load contribution. We covered the cost side in why PJM capacity charges are rising.

NYISO and New York: Several Programs, Sometimes Stackable

New York has the more complicated landscape, with programs at both the ISO and the utility level.

• Capacity-based ISO participation (special case resources). Committed curtailment, enrolled by season, paid a capacity value, verified through periodic tests, with penalties for shortfall. Structurally the closest analogue to PJM's capacity DR.
• Voluntary emergency programs. Energy-only. You are notified, you curtail if you can, you are paid for what you reduce. No commitment and no penalty, and correspondingly lower expected value.
• Utility distribution-level programs. Con Edison and other New York utilities run their own commercial and distribution-load-relief programs targeting local network constraints rather than statewide shortage. These can be worth more per kilowatt in constrained networks — parts of New York City in particular — precisely because the local need is acute.

The stacking question is the valuable one, and it is program- and utility-specific: whether a given site can enroll the same curtailable load in an ISO program and a utility program simultaneously, or must choose. This is where a knowledgeable curtailment provider or advisor earns their share, and it is not something to assume in either direction.

New Jersey sites sit in PJM and are served by PJM's structure, though the state's utilities also run efficiency and load-management offerings worth checking separately. For the wider market context in these regions see the NYISO market and the New Jersey energy market.

What Determines Your Payment

One number dominates: committed curtailable kilowatts. Not your peak demand, not your annual consumption. A 5 MW facility that can shed 200 kW is a 200 kW demand response resource.

Establishing that number honestly is the whole exercise, and it requires the same load inventory that a peak management program needs — which is why the two projects should be run together rather than separately. Sort your load into shiftable, reducible, interruptible-with-cost and firm, attach kilowatts to each, and commit only what you would still be willing to shed on the worst possible afternoon in August. Then take the remaining capability and use it to manage your own peak charges, which pays regardless of whether an event is ever called. See peak load management.

The Baseline Problem

Energy payments are measured against a baseline — an estimate of what you would have consumed absent the event, typically calculated from recent comparable days. This creates two effects worth knowing about.

First, a site whose consumption is already low on the event day earns little, because the baseline is low. Second, and more subtly, a site that manages its peaks aggressively year-round has a flatter baseline and therefore less measurable curtailment to sell. Good peak management can slightly reduce demand response earnings. It is still the right trade — avoided cost is worth more than program revenue for most sites — but it should be modeled rather than discovered.

Who Is Actually a Good Fit

Strong candidates: manufacturing with interruptible process load, cold storage with thermal mass to coast on, water and wastewater treatment, warehouses and distribution centers with large HVAC and lighting load, and multi-building campuses with central plant flexibility.

Weak candidates: hospitals, data centers, continuous-process operations where a stop costs more than the annual revenue, and any site whose curtailment plan depends on running standby generators without first confirming the air permit allows non-emergency operation. That last one is a genuine compliance trap and should be checked before anything is signed.

Working With a Curtailment Service Provider

Most commercial sites participate through a curtailment service provider, which handles registration, metering, baselines, dispatch and settlement, and aggregates customers to meet minimum sizes. Four terms are worth negotiating:

• The revenue split, stated as a percentage with a worked example on your actual committed kilowatts.
• The term and exclusivity, including whether you are blocked from utility programs.
• Who bears the penalty if you underperform — some providers absorb it, some pass it through entirely.
• How the committed quantity is set, and whether you can revise it between seasons as your operations change.

Providers are incentivised toward larger commitments, because their share scales with committed capacity. Your interest is in a commitment you can always meet. Those are not the same objective, and the gap is where most disappointing demand response outcomes originate.