Reactive power capacity compensation Comments sought
On November 18, 2021, the Federal Energy Regulatory Commission (FERC or Commission) issued a Notice of Inquiry (NOI), seeking comment on issues related to reactive power capacity compensation.
More specifically, the Commission is seeking comments on:
various aspects of remuneration based on the AEP methodology;
potential alternative methodologies for the calculation of reactive power compensation; and
compensation of reactive power capacity by transmission tariffs for the resources which interconnect at the distribution level.
Initial comments are due 60 days after the NOI’s publication in the Federal Register, and response comments are due 90 days after the initial comment deadline.
The NOI represents a step towards the potential of greater certainty regarding reactive power compensation.
Reactive power is an essential auxiliary service provided by generating and non-generating resources on a transmission network to facilitate the long-distance transport of real energy, to support system voltages and to help ensure the reliability of the transport network. The costs of reactive energy supplied using generation resources are recovered separately from the cost of basic transmission service.
In 1999, the Commission approved a method, now referred to as the AEP methodology, for American Electric Power Service Corp., a utility that complied with the Commission’s uniform accounting system and submitted an FERC Form No. 1 each year. , seeking to recover costs for the reactive power its synchronous generators provided. (See Opinion No. 440, 88 FERC ¶ 61 141.) Subsequently, the Commission recommended, although never required, the use of the AEP methodology, nor required any other uniform approach for the compensation of reactive power capacity. Since 1999, the electricity industry has undergone significant changes – today the majority of reactive power claims submitted to the Commission are made by non-synchronous resource owners and many reporting entities have received exemptions of the obligation to keep their accounts under the Uniform System of Accounting Rules and to file FERC Form No.1.
FERC Seeks Feedback on Reactive Power Capacity Compensation and Market Design
The NOI invites comments on three broad categories of issues and asks specific questions within each category. Below are the three categories, including a summary of some of the most important questions asked in each category.
1. Is the EAF methodology a fair and reasonable approach in all circumstances?
The Commission asked commentators to consider whether various aspects of the EAF methodology are still appropriate; take into account the resources whose reactive power needs are not dealt with in the resource interconnection agreement; and explain why parties other than the market monitor and RTO / ISO generally do not participate in reactive power depots set for court and adjudicator proceedings. The Commission also requested comments on the following topics:
a) Degradation: FERC asked how the reactive power capacity of a resource degrades over time, whether periodic tests of reactive power capacity should be required, and whether the AEP methodology should be modified to account for the degradation in capacity. reactive power over the life of the resource.
b) Non-synchronous resources: FERC asked if the existing AEP methodology can be appropriately applied to compensating reactive power capacity for non-synchronous resources, including which non-synchronous resource equipment corresponds to the synchronous resource equipment used in the methodology. AEP and how the costs associated with the non-synchronous resource collection system correspond to how the costs are allocated under the AEP methodology. The Council also asked how the intermittent availability of these non-synchronous resources should be taken into account.
c) Probationary support to the FERC: Recognizing that many depositing entities have received exemptions from the requirement to keep their accounts under the rules of the Uniform System of Accounts and to file FERC Form No.1, the Commission asked how to collect information on verifiable costs of independently from these depository entities. Specific to PJMs, MISOs and non-RTO / ISOs that compensate reactive power capacity based on the costs of individual resources or on a fleet basis, the Commission asks whether registrants in these regions should be required to submit with their request for compensation, a standardized form with recognized appendices and certification requirements for agents and independent accountants.
D) Potential overcompensation in PJM: FERC is seeking comments on the concerns of PJM market monitors regarding PJM’s potential for double recovery or overpayment for reactive power capacity.
2. Potential alternatives to the AEP methodology
FERC invited comments on alternatives to the EAF methodology, taking into account different types of resources. FERC asked about existing compensation approaches, including flat rate and replacement cost approaches. Noting that in CAISO and SPP, resources are not directly compensated for reactive power capacity, FERC asked how these resources recover their costs. FERC also questioned whether it would be preferable, in regions where the capacity market is centralized, for reactive power capacity compensation to be recouped by integrating costs into the resource capacity market offers, rather than using a separate cost-based tariff.
3. Should resources interconnected to a distribution network and participating in wholesale markets be eligible for reactive power capacity compensation?
FERC asks about the resources connected to distribution: if they are distributable on instruction from the transmission provider to provide voltage support and if they should be compensated for reactive power capacity. FERC also asked if these resources are subject to reactive power capability testing requirements.
Over the past six years, FERC has established almost all reactive rate filings for hearing and settlement proceedings with little direction or direction for participants on the issues to be resolved. With no certainty on how to adapt a methodology for synchronous producers who adhere to the FERC accounting system and file FERC Form # 1, reactive registrants are forced to either pay at significantly reduced rates or to submit to a potentially protracted litigation. Understandably, the vast majority of reporters have chosen to resolve their cases with unprecedented black box settlements. The inconsistent results in these cases left the industry in doubt as to the recovery of tariffs for reactive service capacity.
The FERC NOI is a step towards the potential for greater certainty about reactive power. The Commission’s apparent openness to reassessing its current inconsistent and sub-optimal approach is a positive development for owners of generators with reactive power capability. Regulations that establish certainty could drastically reduce the number of proposed reactive power rate schedules set for hearing proceedings, end often costly and lengthy settlement negotiations, and could allow reactive rate filers to obtain more representative prices.