Jin Thian Monthly markets supervisor 2016 Rate Analysis OATT Schedule 2 Base Capacity Cost Rate Review 2 Presentation Overview Federal Energy Regulatory Commission FERC order issued on December 28 2011 in Docket No ER12229 ID: 794209
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Slide1
June 28, 2016 | NEPOOL transmission committee
Jin Thian
Monthly markets supervisor
2016 Rate Analysis
OATT Schedule 2 Base Capacity Cost Rate Review
Slide22
Presentation Overview
Federal Energy Regulatory Commission (FERC) order issued on December 28, 2011, in Docket No. ER12-229:
“…we will direct ISO-NE to complete a re-examination of the Base CC rate no later than July 1, 2016. Such examination shall determine whether the Base CC rate is still appropriate or whether it should be changed commencing January 1, 2017.”This presentation:
Background
2016 Schedule 2 Base Capacity Cost Rate (Base CC Rate) analysis
Results of ISO’s analysis
Next Steps
Slide33
Background: Schedule 2 of the ISO OATT
Schedule 2: establishes the methodology for the allocation of costs associated with reactive power supply and voltage control (VAR Service) and rules to receive compensation and payments for VAR Service
Schedule 2 compensation methodology provides for a multi-part payment, consisting of:Capacity Cost
Lost Opportunity Cost
Cost of Energy Consumed
Cost of Energy Produced
Base CC Rate: Compensates Qualified Reactive Resources (QRRs) for their fixed capital costs associated with the installation and maintenance of the capability need to provide VAR Service (currently $2.19/
kVAR
-yr)
A negotiated New England-wide rate for all QRRs
Not
a “cost-of-service”
based on the
actual costs of any particular
resource
Slide44
Background: 2006 Revisions to Schedule 2
In 2006, the ISO revised Schedule 2 to:
Update the Base CC Rate from the then-effective $1.05/kVAR-yr to $2.32/
kVAR-yr
to account for changes in the cost-basis and mix of generation in New England
Expand the class of resources eligible for compensation to include non-generator dynamic reactive power devices
Provide for compensation over the full range of QRR’s verified capability
Imposed new operational and testing requirements (e.g., Automatic Voltage Regulator (AVR) testing)
Slide55
Background: 2006 Revisions cont’d
The 2006 filed Base CC Rate reflected a proxy value determined by blending two sources of cost data:
Average cost from available data for pre-1998 built New England generators - $1.38/kVAR
-yr
Average cost for post-1998 built combined-cycle generators in PJM and MISO as reflected in individual “AEP” methodology based filings - $4.20/
kVAR
-yr
The two sources of cost data were weighted based on the amount of
generating capacity built in New England before and after 1998
Pre-1998
weighting factor x rate
2/3 x $1.38/
kVAR-yr
Post-1998
weighting factor x rate
1/3 x $4.20/
kVAR-yr
CC Rate
$2.32/
kVAR-yr
Slide66
Background: 2006 Revisions cont’d
On February 28, 2007 (ER07-397), FERC issued order:
Accepting the 2006-filed Schedule 2 revisions, except for the proposed Base CC Rate, and establishing settlement/hearing proceedings on the basis that:Reliable cost data for the New England units was unavailable; and
The units chosen were an appropriate proxy for recently built generator and non-generator reactive power resources in New England
On January 25, 2008, FERC accepted 2007 Settlement Agreement:
Establishing a negotiated Base CC Rate of $2.19/
kVAR-yr
Requiring an examination of the negotiated Base CC Rate within five years
FERC
Accepted
Settlement CC Rate
$2.19/
kVAR-yr
Slide77
Background: 2010 Base CC Rate Review
In 2010, the ISO initiated an examination of the negotiated Base CC Rate to determine if the rate was still appropriate:
Solicited New England-specific dynamic resource cost dataExamined certain conditions or assumptions that prevailed during the 2006-2007 Base CC Rate development and negotiation
Slide88
Background: 2010 Review cont’d
2010/11 Base CC Rate Review
ISO solicited NE-specific dynamic reactive resource cost data, first informally, and then by a formal surveyThe formal survey specifically asked NE generators and non-generator reactive resources the following questions:
Do you have any cost data associated with the capability (i.e., equipment) necessary to provide reactive power service and voltage support under Schedule 2?
(Yes, No)
If available, please itemize any costs associated with the installation and maintenance of the capability (i.e., equipment) to provide reactive service and voltage support under Schedule 2 that you have incurred since June 1, 2007.
Please exclude any costs recovered under the current Schedule 2 CC Rate or any other existing compensation mechanisms under the ISO Tariff, as well as any costs associated with the actual production of VARs.
Slide99
Background: 2010 Review cont’d
2010/11 Base CC Rate review
Mix of generation built in NE since 2006Primary type of generation built post-1998AEP methodology filings in PJM and MISO for recovery of capability compensation between 2006 and 2011
ISO concluded that the then-current Base CC Rate of $2.19/
kVAR
-yr was still appropriate and should continue
On December 28, 2011, the Commission issued an Order in Docket No. ER12-229:
Accepting the ISO’s proposed Tariff provisions maintaining the $2.19/
kVAR
-yr Base CC Rate
Directing the ISO to complete a re-examination of the Base CC Rate no later than July 1, 2016
Slide1010
2016 Schedule 2 Base CC Rate Analysis
In 2015, the ISO initiated an examination of the current Base CC Rate to determine if the rate is still appropriate:
Solicited New England-specific dynamic resource cost data in the form of a formal surveyExamined certain conditions or assumptions that prevailed during the 2006-2007 Base CC Rate development and negotiation
Slide1111
Comparison of Prior Used Cost Data for Proxy Values to Current Results
Review of conditions/assumptions:
Description
Results
Generator capacity split of pre and post 1998 built generators in New England (2/3 pre-1998, 1/3 post-1998)
Relatively Unchanged
The dominant post-1998 built generators in New England are combined-cycle (approximately 85%)
Relatively Unchanged
The cost basis for pre-1998 built generators ($1.38
kVAR
-year)
Unchanged
The average $
kVAR
-year cost for post-1998 built generators in PJM and MISO based on new/updated AEP methodology filings with FERC ($4.20
kVAR
-yr)
Increased
Qualification criteria to participate in the VAR
Unchanged
Slide1212
Results of ISO Analysis
Currently available data do not support an adjustment to the current Base CC Rate
Most of the conditions/assumptions used in the development of the 2006 & 2011 CC Rate remain unchanged
Only the average $
kVAR
/yr value for the AEP Methodology-based filings in PJM and MISO since 2006 has changed. This is expected since these are cost of service filings
ISO received few survey responses
and the data from those
responses did not justify an increase in the proxy
rate
37 responses stated no cost data available to first question
3 generators provided cost data
Slide1313
Next Steps
Stakeholder Meetings (July – Sept, as needed)
FERC filing in Oct, with 1/1/2017 as effective date