Reactive Power Working Group Status Report

1. Reactive Power Working Group Status Report New England Reliability Committee November 1, 2005

2. Overview of Discussions • October 2004 - NEPOOL Tariff Committee established a Working Group to review reactive power compensation for non-generator resources • December 2004 - NEPOOL Tariff Committee directed the Working Group to comprehensively review reactive power compensation (rather than just addressing non-generator reactive power sources in isolation) • January 2005 – Initial briefing to Reliability Committee on the VAR Working Group • January 2005 to Present – VAR Working Group has been meeting on a monthly basis • Development of Work Plan (Feb-April) • “VAR 101” Sessions (May-June) • Scoping Sessions and Strawman Proposals (July-August) • Development of Potential Recommendations (Sept-Present)

3. Status Report • VAR Working Group developing a set of potential recommendations • Eligible Sources • Treatment of Static/Dynamic Sources • Leading/Lagging • Compensation Elements • Procurement Cap • Cost Allocation • Policies & Programs

4. Eligible Sources • Non-Generator Resources as Eligible Sources: • Consensus appears likely on inclusion of: • Clutch Devices on Non-Functioning Generators • HVDC Lite Technology • SVCs, SC, DVARs • Proposals Still Under Development & Consideration: • Clutch Devices on Functioning Generators • Non-PTF Static Devices (i.e., Phase I/II HVDC VAR facilities) • Scope of eligibility: • Cover equipment interconnected at transmission and/or distribution level that is dispatchable for VAR support or otherwise capable of being monitored and responsive to ISO-NE direction • Owner must have an MPSA and an agreement must be in place between the ISO, connecting transmission owner and resource operator to cover operational coordination

5. Treatment of Static/Dynamic Sources and Leading/Lagging Issues • Static/Dynamic • Potential recommendation to specifically recognize non-PTF, static devices • Issues raised as to whether static devices should receive same level of compensation or whether separate rate should be established. • Interested parties developing proposal • Leading/Lagging • Potential recommendation for testing of both lead and lag capabilities with single point for each capability • Reviewing issue of whether to compensate lead/lag capabilities at different rates

6. Compensation Elements • Capacity Component (CC) • Proposal under consideration for updating the CC rate using an “AEP proxy” methodology (based on FERC approved formula for VAR rate development and using set of representative units as proxy) • Volunteers from generators and transmission owners coordinating on identification of a potential set of units & costs • “Rough draft” presentation to be made in November based on inputs developed by generator/TO group • Applicability of Other Compensation Elements • No recommended changes to categories • Cost of Energy Consumed (SCL) • Cost of Energy Produced (PC) • Lost Opportunity Costs (LOC) • Ongoing discussion on applicability of each element to non-generator resources deemed eligible

7. Procurement Cap & Cost Allocation • Procurement Cap • ISO-NE recommendation to maintain cap at existing level under consideration • Cost Allocation • No consensus at this time • Parties to be provided opportunity at November meeting to make proposals on any changes to the cost allocation methodology for either CC rate or other compensation elements

8. Policies & Programs • Identification of Issues: • Develop better testing procedures • Identify policies to promote generator technologies that increase VAR support capabilities • Monitor developments in transmission design • Monitor requirements of special bulk invertor loads of non-three phase operations. • No recommendations to be made

9. Next Steps • Interested Reliability Committee members are encouraged to participate in the Working Group! • Working Group participants may request input from Voltage Support task force on technical questions. • Question has been raised as to whether operators of the system consider lead/lag capabilities to have separate and different values. • Upon completion of Working Group activities, the Reliability Committee’s October 2004 “Criteria and Performance Requirements” for non-generator sources is likely to require updates. • Working Group is willing to review and provide potential changes based on overall recommendations. • Next meeting of Working Group is November 22nd in Boston (DBH Offices)