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Cost Allocation for IROL Critical Generator CIP Costs

This document discusses the ways in which costs for IROL-critical generators can be allocated in a fair and transparent manner. It explores various cost recovery mechanisms proposed by the ISO and evaluates alternative options for allocating these expenses beyond transmission charges. Considerations for cost recovery, alternative allocation options such as Real-Time Load Obligation and Capacity Load Obligation, as well as the need for transparency in billing are highlighted.

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Cost Allocation for IROL Critical Generator CIP Costs

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  1. Cost Allocation for IROL Critical Generator CIP Costs Transmission Committee – March 27, 2019

  2. Background • The ISO plans to designate certain generators as Interconnection Reliability Operating Limits (IROL) “Critical” resources. • This designation may require these resources to add incremental CIP equipment and/or procedures. • The ISO says the cost of this incremental equipment and/or procedures cannot be competitively offered into the energy and capacity markets. • The ISO is proposing a new tariff mechanism that would allow “IROL-critical” generators to seek cost recovery for expenditures approved by FERC. • The ISO’s proposal would allocate these costs to electric consumers through charges born by Regional Network Load (i.e. transmission customers)

  3. Considerations for Cost Recovery • For most businesses, compliance with new regulations is a cost of doing business • Because only some generators are designated as IROL-critical and market-base cost recovery for these expenses, there may some justification for cost-based recovery. • Assuming that CIP costs for IROL critical generators are appropriately eligible for cost-based recovery, recovering these costs through transmission charges is inappropriate. • Transmission charges should primarily reflect the costs of building, operating, maintaining and ensuring the reliability of the transmission system. • Other rate mechanisms should be used to recover the costs of generation equipment or generator expenses.

  4. Alternative Cost Allocation Options • Cost allocation options exist other than Network Load. • Real-Time Load Obligation (RTLO), used for: • Winter fuel reliability programs and fuel security cost-of-service agreements (i.e. Mystic contracts) • Generator performance audit payments • Capacity Load Obligation • Primary mechanism for recovery of generator costs not covered by energy market (i.e. “missing money”) • Real-Time Non-Coincident Peak Load Obligations • Used for ISO Schedule 3 Reliability Administration Service (RAS) to provide other reliability and informational services. • Capacity Load Obligation or Real-Time Non-Coincident Peak Load Obligation are the most appropriate allocator for CIP costs for IROL critical generators • No matter the allocator, the ISO should create a separate billing item to facilitate transparency of these costs

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