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Retail Treatment of Zonal Generation Prices in Massachusetts

Retail Treatment of Zonal Generation Prices in Massachusetts. Alvaro E. Pereira Director of Economic & Policy Analysis Massachusetts Division of Energy Resources September 13, 2002 Electric Restructuring Roundtable. LMP in New England. Transmission congestion is substantial in NE

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Retail Treatment of Zonal Generation Prices in Massachusetts

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  1. Retail Treatment of Zonal Generation Prices in Massachusetts Alvaro E. Pereira Director of Economic & Policy Analysis Massachusetts Division of Energy Resources September 13, 2002 Electric Restructuring Roundtable

  2. LMP in New England • Transmission congestion is substantial in NE • location of generation does not match demand • some congestion is economic • but current pricing prevents an economic solution • Locational Marginal Pricing (LMP) will • eliminate most cross-subsidies between zones • encourage competitive suppliers to reduce inefficiencies (and offer hedges?) • encourage economic location of new resources • generation, transmission, demand response

  3. Supply Outlook and Transmission : New England, 2002-2006 3

  4. Hub 8 LMP Zones in NE • 740+ Nodes aggregated into 8 LMP Zones (or CMS Load) • Differ from RTEP sub areas (13) • LMP zones based on load-service territories and potential congestion problems 4

  5. LMP should be an Energy Cost • Generators will charge zonal prices to wholesalers • Wholesalers will charge zonal prices to retailers • Retailers must recover zonal generation costs • Recover these costs in the energy part of the bill: • make costs subject to competitive pressure • keep a level playing field between SO/DS and others

  6. Distribution Territories and Zones • Some distribution territories are within one zone • Western Mass, Fitchburg, Cambridge, Commonwealth • Boston Edison is in two zones • 32 towns in NEMA, 7 towns in SEMA • Massachusetts Electric is in three zones • 26 towns in NEMA, 44 in SEMA, 94 in WMA

  7. 3 LMP Zones in MA

  8. Charging a Zonal Price • Customers in low cost zones no longer subsidize those in high cost zones • Competitive suppliers can compete with SO/DS • Customers in high cost zones less likely to return to DS • Customers who can to respond to congestion price signals encouraged to do so • Competitive suppliers compete to hedge congestion

  9. Charging an Average Price • Congestion costs should be socialized for • customers with little ability to change consumption • customers with few or no competitive options • customers whose small demand provides little incentive to change behavior • An anti-competitive advantage is tolerable • when competitive suppliers are not likely to differentiate zonal prices

  10. DOER Recommendations • Include LMP cost recovery in the energy portion of the bill • Differentiate cost recovery by type of customer • Charge zonal price for large customers, • permanently • Charge average price for mass market, • through end of the Standard Offer • Prior to end of Standard Offer, re-evaluate policy

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