Var fcm double recovery compliance changes
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VAR/FCM Double Recovery Compliance Changes. Janine Dombrowski 04/14/2010. Overview. January 2010 FERC Order (ER07-397-004) requires the ISO to change tariff language prior to 6/1/2010 to prevent double recovery out of “an abundance of caution.”

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VAR/FCM Double Recovery Compliance Changes

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Var fcm double recovery compliance changes

VAR/FCM Double Recovery Compliance Changes

Janine Dombrowski

04/14/2010


Overview

Overview

  • January 2010 FERC Order (ER07-397-004) requires the ISO to change tariff language prior to 6/1/2010 to prevent double recovery out of “an abundance of caution.”

  • February 9, 2010 ISO presents draft proposal to NEPOOL Markets Committee and receives feedback

  • March 9, 2010 ISO presents a revised proposal and draft rules to comply with the Order


Timeline

Timeline

  • February 28, 2007 FERC Order (ER07-397-000)

    “(t)he Commission agrees with ISO-NE that transition payments do not compensate resources for their reactive power capabilities since they are below the cost of new entry; however the Commission is concerned that double recovery can occur during the first FCA since the payments equal the cost of new entry. The ISO commits to proposing, for implementation prior to the first FCA commitment year, Tariff provisions to ensure that Resources eligible for CC payments under Schedule 2 for providing reactive supply and voltage control do not receive double compensation. Accordingly, the Commission will require ISO-NE to implement, prior to the commencement of the first FCA commitment year beginning June 1, 2010, tariff provisions to ensure that resources eligible for CC payments under Schedule 2 that provide reactive supply and voltage control do not receive double compensation.


Timeline continued

Timeline (continued)

  • The ISO game theoretic analysis, filed October 2008 (EL07-38-000), demonstrated the absence of a double recovery issue in a competitive FCA.

  • In the February 3, 2009 order (EL07-38-000), FERC reaches a similar conclusion, but repeats the directive from the February 2007 Order.

    “We agree that sellers in a competitive Forward Capacity Auction will have an incentive to submit bids that take into account revenues from the CC Rate component and, as a result, double recovery is not a concern.”

  • The first three FCAs were certified as competitive so double recovery is not a concern for the first three Commitment Periods (2010/2011 through 2012/2013).


Timeline continued1

Timeline (continued)

  • In the February 3, 2009 order (EL07-38-000), FERC dismisses the concern of double recovery if a resource without VAR capability sets the auction clearing price.

    “We acknowledge,…, that if a capacity resource without VAR capability (e.g. a demand response resource) sets the auction clearing price, a new VAR-capable resource would not recover its VAR-related capital costs without the CC Rate component of Schedule 2 and, therefore, would not receive double recovery.”

  • If a resource without VAR capability sets the auction clearing price, there is not a concern about double recovery.


Timeline continued2

Timeline (continued)

  • In the March 9, 2009 Order denying rehearing (ER07-397-001), the Commission reiterates, “as discussed in our prior order, the Commission has required ISO-NE to implement, prior to the commencement of the first FCA commitment year beginning June 1, 2010, tariff provisions to ensure that resources eligible for CC payments under Schedule 2 do not receive double compensation.”

  • In the July 8, 2009 Order denying rehearing (EL07-38-001), the Commission reiterates, “the capacity payments that were negotiated as part of the FCM transition period are at rates well below the agreed-to full (or gross) cost of new entry; they are not intended to allow full recovery of capital costs.”


Timeline continued3

Timeline (continued)

  • On April 6, 2009 ISO requests clarification on the March 2009 FERC Order (ER07-397-004)

  • January 2010 FERC Order (ER07-397-004) required the ISO to propose tariff language to prevent double recovery out of “an abundance of caution.”


Summary

Summary

  • FERC orders provide that

    • During transition period, no concern about double recovery

    • If FCA is competitive, no concern about double recovery

    • If FCA clearing price is less than “true” cost of new entry, no concern about double recovery

    • If FCA clearing price is set by a resource without VAR capability, no concern about double recovery

  • There is no double recovery concern for the FCAs conducted to date.


Proposed solution

Proposed Solution

  • Add to III.13.1.1.2.2.3 Offer Information

  • “By submitting a New Capacity Qualification Package, the Project Sponsor certifies that an offer from the New Generating Capacity Resource will not include any anticipated revenues the resource is expected to receive for its capacity cost as a Qualified Reactive Resource pursuant to Schedule 2 of Section II of this Tariff.”


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