FERC Filings
EPSA's Motion to Intervene and Comment on MISO's Proposed Schedule 21
COMMENTS
EPSA believes that MISO’s Schedule 21 reasonably compensates all generators for their reactive capacity. Despite the substantial time and effort that all parties have already devoted to working through the key issues , some stakeholders may continue to advance counterproductive proposals. Set forth below are several critical factors confirming the need for the Commission to approve the Schedule 21 as filed.
A. Reactive Power Enhances Reliability
It is well-established that reactive power is an indispensable component of the voltage stability necessary to maintain system reliability. The Commission itself recognized its importance by including it as an ancillary service in Order No. 888, and significant portions of the North American Reliability Council’s (NERC) Operating Polices and Planning Standards are devoted to this aspect of the power grid. Static and dynamic reactive power resources “are also necessary to avoid voltage instability and widespread system collapse in the event of certain contingencies. Transmission systems cannot perform their intended functions without an adequate reactive power supply.” Merchant generators are compensated only for selling real power, while the transmission grid still requires access to reactive power.
Additionally, in its Final Report on the August 14 blackout, the U.S.-Canada Power System Outage Task Force determined that included among “common or similar factors among major outages” is the “overestimation of dynamic reactive output of system generators” . Furthermore the report found that:
“Reactive supply is an important ingredient in maintaining healthy power system voltages and facilitating healthy power system voltages and facilitating power transfers. Inadequate reactive supply was a factor in most of the events.”
Indeed, reactive power and voltage support figured prominently in several key Task Force blackout recommendations designed to enhance power grid reliability. Recommendation 15 urges NERC to direct FirstEnergy to confirm that contracts exist with all non-utility generators in its area for the sale of generation with provisions for them to increase or maximize their production of reactive power upon FirstEnergy’s or MISO’s request. Importantly, the Task Force specifically stated that “[s]uch contracts should ensure that the generator would be compensated for revenue losses associated with a reduction in real power sales in order to increase production of reactive power.” Also, in Recommendation 23, the Task Force addressed the need for all NERC regions to strengthen reactive power and voltage control practices, including ongoing evaluations of existing standards and their implementation.
MISO’s Schedule 21 is consistent with and will promote the reliable operation of the power grid, and will support the recommendations of the Task Force concerning voltage support and reactive power management.
B. Schedule 21 Provides Comparability Among All Generators
EPSA has long-supported a strong set of standards that all generators must satisfy to qualify for compensation. However, in addition to these standards, certain transmission owners have urged the MISO to adopt a so-called “needs test” as a pre-condition for generators to obtain compensation for their reactive supply. Particularly troubling is their desire to exempt their own generators from the “needs test”. Some transmission owners have suggested a “needs test” so narrow that it would effectively exclude peakers, intermediate generation and most merchant generation from ever receiving any compensation for reactive supply. This represents a huge step backward and is unacceptable.
In its proposed Schedule 21, MISO has properly resisted the temptation to include a “needs test.”EPSA urges the Commission to reject any proposal, such as the “needs test”, that would result in an unjust, unreasonable and unduly discriminatory implementation of a reactive power compensation schedule. All generators are required by NERC standards and policies, as well as Order 2003-A and individual interconnection agreements, to maintain reactive supply capacity, to operate under automatic voltage control and to comply with the reactive supply schedules of their control area operator. Since all generators must incur the same costs and meet the same operational standards, they all should be subject to the same criteria.
Concluding that a “needs test” of any sort would be highly subjective, costly and time consuming, the MISO staff expressed serious reservations about how a “needs test” could be fairly administrated. In fact, MISO can not predict when specific generators reactive capability would be required to prevent voltage instability that could have widespread consequences. Further, in his direct testimony filed on behalf of MISO, Jeffrey R. Webb, Director of Planning for MISO, stated that a “needs” analysis was inappropriate. “Such an evaluation is superfluous because the results of such a needs test would always be in the affirmative. That is, all generators interconnecting to the Transmission System must be capable of providing reactive power to support system voltage in order to ensure reliable operation of the interconnected transmission systems.”
The concluding statement in Mr. Webb’s direct testimony leaves no doubt of MISO’s position: “[t]he MISO strongly opposes this approach to the design of the bulk electric power system as it is unreliable, shortsighted and contrary to good utility practice.” Beyond MISO’s unequivocal rejection of the “needs test”, no other RTO performs such an analysis; the MISO would have to spend valuable resources in developing and implementing such a methodology. Since MISO presently collects $131M under Schedule 2 and IPP revenues are projected to be an additional $4.5M , MISO correctly concluded that the resources spent on a “needs test” would not be financially justifiable. There has not, nor could not, be any valid justification for according preferential status to certain classes or categories of generators vis-à-vis reactive power compensation. The “needs test” is designed to do just that and, accordingly, should be disallowed.
C. Schedule 21 Would Promote Seams Resolution
The MISO Schedule 21 would eliminate a potential seam issue with PJM and the joint and common market by having all generators receive compensation for reactive power capability. It is unclear whether the differences between MISO’s uplift method of compensating non-Transmission Owner generators and PJM’s zonal allocation method would create gaming opportunities. However, since FERC accepts and sets the generators revenue requirements under cost-based ratemaking, this regional difference in revenue collection should not be a problem.
Additionally, the MISO Schedule 21 would be consistent with and advance the effort to reduce and eliminate seams between PJM and MISO presently being orchestrated under their Joint Operating Agreement (JOA) filed with the Commission on December 31, 2003. In an order issued on March 18, 2004, the Commission accepted the JOA, with certain modifications and conditions. When discussing the treatment of ancillary services in the JOA, the Commission specifically recognized “the need to establish a separate Article in the JOA articulating proposed voltage control and reactive power coordination.” Moreover, the Commission urged both RTOs to “acknowledge that voltage control and reactive power coordination are essential to promote reliability”, and directed them to modify the JOA to address this topic.
D. Schedule 21 Would Help Protect Consumers
MISO’s proposed Schedule 21 is designed to ensure that compensation provided under that tariff is only provided when certain threshold criteria are met. Thus, before an independent generator could receive compensation under Schedule 21, it would need to have its revenue requirement approved by the Commission. The revenue requirement filing would give regulators, market participants and others the ability to scrutinize the reasonableness of the filing. In addition to the revenue requirement filing, the generator would need to seek Qualified Generator status with the MISO. In order to receive Qualified Generator status, a generator must satisfy the technical qualifications set forth in Schedule 21. As a result, the proposed Schedule 21 contains built in safeguards to protect customers against paying unnecessarily for reactive capability.
Furthermore, contrary to the positions taken by some parties in the MISO stakeholder process, there is no evidence that MISO has excess reactive supply capacity. On the contrary, last summer’s blackout demonstrates that reactive supply capacity may have been inadequate. PJM and NE-ISO have excess generation and they allow all generators to receive compensation and yet their consumers have saved billions of dollars while creating a reliable market. Even if there were excess reactive supply capacity, the cost of that excess reactive supply capacity would be offset many times over by the reduction in the price of energy that would result from the excess generating capacity.
E. MISO Schedule 2 Should be Amended to Match the Penalty Provisions in Schedule 21
Generators that are being compensated under MISO’s Original Schedule 2 are not subject to any penalties. Schedule 21 allows MISO to revoke Qualified Generator status if the generator fails to comply with the control area operator’s voltage control requirements three or more times a month. Once a generator looses Qualified Generator status, it will no longer be entitled to receive compensation. Thereis no legitimate reason for MISO to treat affiliated and non-affiliated generators differently. Generators receiving compensation under Schedule 2 should be under the same operational scrutiny and should have the same penalties as generators under Schedule 21. Accordingly, in addition to approving Schedule 21, EPSA urges the Commission to direct MISO to incorporate conforming changes into Schedule 2 to reflect the same qualification and penalty provisions set forth in Schedule 21.