FERC Filings
Reactive Power
EPSA, NIPPC URGE FERC TO REJECT BPA PLOY (Dockets EL07-65-000 and EF07-2021-000)
<center>UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION
| ) | ||
| U.S. Department of Energy | ) | Docket Nos. EL07-65-000 |
| Bonneville Power Administration | ) | EF07-2021-000 |
MOTION OF THE ELECTRIC POWER SUPPLY ASSOCIATION AND THE NORTHWEST & INTERMOUNTAIN POWER PRODUCERS COALITION
FOR LEAVE TO INTERVENE AND PROTEST</center>
Pursuant to Rules 211 and 214 of the Rules of Practice and Procedure of the Federal Energy Regulatory Commission (FERC or Commission), 18 C.F.R. §§ 385.211 and 385.214 (2006), the Electric Power Supply Association (EPSA) and the Northwest & Intermountain Power Producers Coalition (NIPPC) respectfully file this intervention and protest in the above-captioned proceeding. If granted, Bonneville Power Administration's (BPA) request to adjust its wholesale power rates to eliminate compensation to non-affiliated generators for reactive power will represent a complete abrogation of the Commission's stated policy of promoting comparability, transparency and non-discrimination in reactive power supply. Accordingly, for the reasons explained below, EPSA and NIPPC urge the Commission to take this opportunity to rethink the rationale for ensuring truly comparable, nondiscriminatory compensation for this essential reliability service.
I. MOTION TO INTERVENE
EPSA is the national trade association representing competitive power suppliers, including generators and marketers. These suppliers, who account for 40 percent of the installed generating capacity in the United States, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers.
NIPPC is the regional advocate for competitive power on behalf of independent power producers active in the North and Intermountain West. The Coalition's principles include a commitment to work to ensure that all market and transmission access, pricing, and regulatory structures allow all market participants to operate under the same terms and conditions in the regional marketplace.
Many of EPSA and NIPPC's members are authorized to sell energy and ancillary services at market-based rates. Members of both organizations are and will continue to be active participants within BPA's territory, and several of EPSA and NIPPC will be directly impacted by the outcome of this proceeding. Accordingly, EPSA and NIPPC member companies have direct and substantial interest in the outcome of this proceeding that cannot be adequately represented by any other party.
All pleadings, correspondence and other communications concerning this proceeding should be directed to:
Nancy E. Bagot, Vice President of Regulatory Policy
Electric Power Supply Association
1401 New York Avenue, N.W., 11th Floor
Washington, D.C. 20005
(202) 628-8200
NancyB@epsa.org
Robert D. Kahn, Executive Director
Northwest & Intermountain Power Producers Coalition
7900 SE 29th Street #200
Mercer Island, WA 98040
(206) 236-7200
rkahn@nippc.org
II. INTRODUCTION AND BACKGROUND
Compensation for reactive power services, including the provision of MVars, as well as the capital investments required to build and maintain the capacity to provide reactive power, is extremely important to competitive power suppliers, particularly non-affiliated generators, as well as to competitive markets and overall grid reliability. EPSA and NIPPC have strongly supported the Commission's effort to address discriminatory compensation schemes, particularly those employed by incumbent utilities in non-RTO areas. Accordingly, EPSA welcomed the Staff Report that the Commission issued on February 4, 2005, and has repeatedly explained the importance of reactive compensation to individual companies, its significance to robust, reliable competitive markets, and the need to remedy the disparate treatment of affiliated and non-affiliated generation.
The critical role reactive power plays in voltage control and maintaining system reliability is widely recognized, including in reliability standards of the North American Reliability Council (NERC) and the Final Report on the August, 2003 blackout issued by the U.S.-Canada Power System Outage Task Force. FERC's own Staff Report provides a thorough and comprehensive look at the technical and policy aspects of reactive power, and the Commission itself has described reactive power as "essential to the operation of interconnected electric generation and transmission systems."
Pursuant to the Northwest Power Act, BPA's proposed rate in this docket is governed by that statute's "arbitrary and capricious" standard. EPSA and NIPPC submit that the Commission's approach to compensating generators for the provision of reactive power, as set forth in recent decisions regarding reactive compensation - largely based upon the scheme envisioned in Order No. 2003 - A - is fundamentally flawed and arbitrary and capricious. The notion that merchant generators assume a "Good Utility Practice" obligation to provide reactive power without compensation within the deadband unless the utility compensates its own generators has the outward appearance of symmetry, but in fact is not. The validity and efficacy of this approach rests upon the erroneous premise that utilities are, in fact, not receiving compensation for reactive power. However, utilities may rely on rate-based compensation, as BPA has indicated it intends to do or otherwise obtain payments, such as with BPA's stated intention of being compensated for reactive services from synchronous condensers.
Further complicating this effort is the Commission's apparent inclination to put the burden of proof on merchant generators to demonstrate that utilities are receiving compensation. Given the significance of comparability in reactive compensation, the intricate accounting methods utilities may employ to obtain revenue, and the Commission's substantial authority to adopt and enforce policies to eliminate discriminatory behavior affecting wholesale transmission customers, EPSA urges the Commission to place the burden on utilities to establish that they are not receiving compensation that would trigger payment obligations to merchant generators. As explained below, forcing merchants to attempt to recover reactive costs through energy market sales as somehow equivalent, or "comparable" to, a utility's rate revenue recovery, or some other accounting device, is conceptually flawed, as the Commission's own staff has concluded in its Staff Report.
In addition, BPA has filed an OATT pursuant to Order No. 888, and is accordingly subject to the unbundling requirements applicable to all open access transmission providers. The Commission expressly conditioned its approval of the reciprocity tariffs on Bonneville's providing the "six ancillary services in the pro forma tariff on an unbundled basis." Although BPA has historically maintained Reactive Supply as a separate Ancillary Service in Schedule 2 of its OATT, it is now setting that charge to zero with disrespect to its own Reactive Supply costs. Those Reactive Supply costs have not, of course, just gone away - they have merely been recharacterized and "rebundled" into PBA's power rates.
As the Commission emphasized in Order No. 888, functional unbundling is necessary to achieve open access, non-discriminatory transmission. Bonneville's proposal to rebundle its Reactive Supply service rates into its power sale rates violates the unbundling requirements of Order No. 888 and, as such, its OATT will no longer satisfy the reciprocity requirements under that Order. FERC cannot approve a proposed rate structure under the "arbitrary and capricious" standards of the Northwest Power Act that so clearly violates the unbundling requirements of open access transmission providers."
III. THE NEED FOR A MEANINGFUL AND EFFECTIVE COMPARABILITY POLICY
Based upon the extensive technical and policy analysis in its Report, FERC staff attached critical importance to reactive compensation, stating that "[w]e conclude that market participants should be compensated for the reactive power they provide, in order to ensure an adequate, reliable, and efficient supply of reactive power." Furthermore, FERC staff specifically identified the existence of discriminatory compensation, stating that "[t]ransmission-based suppliers of reactive power capability receive compensation, yet many generation-based suppliers are not compensated for reactive power capability that aids in system reliability."
Accordingly, the existence of serious comparability issues is well-known. The looming question is: what does the Commission need to do to effectively address the problem? To date, the Commission's decisions clearly indicate that utilities are exploiting a huge loophole created by Order No. 2003-A. Therefore, unless and until this loophole is closed, the effectiveness and reasonableness of the Commission's approach to comparability in reactive compensation greatly depends upon its strict scrutiny of whether a utility is actually obtaining revenue for reactive power that its own or affiliated generators provide. EPSA and NIPPC respectfully urge the Commission to begin to close that loophole by denying BPA's effort to deprive merchant generators' of legitimate compensation for reactive power services.
In this regard, the revenue source utilities may avail themselves of to obtain reactive compensation should not be determinative. For example, utilities should not be allowed to take refuge in rate proceedings as a means of evading their payment obligations, thereby undermining the integrity and efficacy of FERC's comparability policy. In this case, BPA's effort to evade its reactive payment obligation does not present the same jurisdictional issue, as both its Power Services (formerly Power Business Line "PBL") and Transmission Services (formerly Transmission Business Line "TBL") divisions are subject to FERC approval under Section 7 of the Pacific Northwest Electric Power Planning and Conservation Act.
In any case, whenever a utility obtains reactive compensation, from whatever source, the Commission's comparability policy - and the merchant's right to compensation and corresponding FERC authority - are implicated. No entity should be permitted to evade, and thereby undermine, significant FERC policy objectives by merely adjusting the revenue source to obtain reactive compensation. Here, this is precisely what BPA proposes to do, by decreasing payments from its Transmission Services division and seeking to increase its Power Services Division revenue to cover its reactive costs.
EPSA and NIPPC understand that while FERC considers the provision of reactive power within the established power factor range to be a "good utility practice" and not entitled to compensation, "compensation for reactive power within the established power factor range is based on comparability and thus, if the transmission provider compensates its own or its affiliated generators for reactive power within the established range, it must also pay the interconnecting generator." The dictate and import of this statement are clear and unequivocal. Thus, it certainly does not admit to developing rough equivalents that would force merchants to obtain reactive compensation from other sources, such as including the costs in their power sales. In its SPP Order, the Commission rationalized this approach by stating that merchants "may be able to make up the revenue that they previously may have been receiving for reactive power within the deadband in other ways—such as through higher power sales rates of their own." (emphasis added).
The Commission's own Staff Report raises serious concerns about this approach. "However, failing to pay generators for reactive power could reduce the amount of generation investment, because revenue from real power sales and other sources, by themselves, may not be sufficient for some project's costs and return a profit." The Commission itself has recognized that "it is hardly consistent to allow an affiliate to have different and/or superior terms and conditions for interconnection than non-affiliates..." Clearly, to the extent that merchants do not have the same range of options for reactive cost recovery as utilities, or here the BPA, comparability is threatened. Whenever a utility obtains revenue for reactive power, through whatever recovery mechanism, and seeks to avoid its obligation to pay merchant generators for that same service, the potential for merchants to be placed at a competitive disadvantage is created. Here, BPA's resort to Power Services for its reactive compensation, while excluding all merchant providers, is unduly discriminatory and should be rejected.
IV. CONCLUSION
Accordingly, BPA's rate proposal with its cross-subsidization between its Power Services and Transmission Services division is incompatible with the Commission's commitment to promote comparability in the compensation for reactive power services and should be rejected.
Respectfully Submitted,
Nancy Bagot, Vice President of Regulatory Policy
Mark Bennett, General Counsel/Director of Policy
Electric Power Supply Association
1401 New York Avenue, NW, 11th Floor
Washington, DC 2000
(202) 628-8200
Robert D. Kahn, Executive Director
Northwest & Intermountain Power Producers Coalition
7900 SE 28th Street #200
Mercer Island, WA 98040
(206)236-7200
June 19, 2007
<center>CERTIFICATE OF SERVICE</center>
I hereby certify that I have served a copy of the comments by first class mail, postage prepaid, or via email upon each person designated on the official service list compiled by the Secretary in this proceeding.
Dated at Washington, D.C., June 19, 2007.
Mark Bennett, Esq.
EPSAProtestBPAReactive.pdf