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June 28, 2016 | NEPOOL transmission committee

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. ER12-229:.

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June 28, 2016 | NEPOOL transmission committee






Presentation on theme: "June 28, 2016 | NEPOOL transmission committee"— Presentation transcript:

Slide1

June 28, 2016 | NEPOOL transmission committee

Jin Thian

Monthly markets supervisor

2016 Rate Analysis

OATT Schedule 2 Base Capacity Cost Rate Review

Slide2

2

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

Slide3

3

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

Slide4

4

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)

Slide5

5

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

Slide6

6

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

Slide7

7

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

Slide8

8

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.

Slide9

9

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

Slide10

10

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

Slide11

11

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

Slide12

12

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

Slide13

13

Next Steps

Stakeholder Meetings (July – Sept, as needed)

FERC filing in Oct, with 1/1/2017 as effective date