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Proposal for Cost Recovery of IROL-Critical Generators

This proposal discusses the adoption of a new tariff mechanism to allow IROL-critical generators to recover costs approved by FERC. It also explores the use of a formula rate spreadsheet template for consistency in cost recovery filings.

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Proposal for Cost Recovery of IROL-Critical Generators

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  1. April 17, 2019 | WESTBOROUGH, MA Jonathan Lowell (413) 540-4658 | jlowell@iso-ne.com Interconnection Reliability Operating Limit Critical Infrastructure Protection Cost Recovery

  2. Generators designated by the ISO as “critical” to the determination of Interconnection Reliability Operating Limits (IROL) must meet higher North American Electric Reliability Corporation (NERC) Critical Infrastructure Protection (CIP) standards than “non-critical” generators • These costs cannot be competitively offered into the energy and capacity markets • ISO is proposing a new tariff mechanism that would allow “IROL-critical” generators and similarly-situated transmission facilities to recover costs approved by FERC • Today’s discussion • ISO’s plans to further explore the adoption of a formula rate spreadsheet template that can be used to provide consistency in individual cost recovery filings • Examples illustrating how the ISO “billing agent” function will work • Discussion of questions and open issues from March meeting

  3. identification of IROL-cip compliance costs

  4. Determining the Costs to be CompensatedISO is planning to adopt and support a formula rate spreadsheet template to be included as part of new Schedule 17 New 4/17/19 • IROL-critical generators and similarly-situated transmission facilities are providing input on cost categories relevant to the incremental cost of meeting medium impact CIP requirements • The cost categories will be line items in the formula rate template • Each line item will have a description of the types of costs to be included • Each line item will also indicate if it is a recurring or non-recurring cost • Since the formula rate template will become part of the ISO tariff in the new Schedule 17, the appropriateness and reasonableness of the cost categories will need to be supported by expert witness testimony

  5. Formula Rate TemplateBurns & McDonnell independent review New 4/17/19 • Very shortly after the April TC meeting, ISO will send the formula rate template to Burns & McDonnell (BMcD) for review • BMcD is an energy engineering consulting firm that provided cost estimation services to the ISO for the recently updated blackstart proxy rate (see Schedule 16) • BMcD will provide recommendations (additions, deletions, clarifications) on the cost categories • BMcD will not be providing recommendations of reasonable cost ranges • BMcD’s recommendations will be: • Presented at the May 16, 2019 TC meeting • Reflected in the formula rate template to be included in the new Schedule 17 • Supported by BMcD testimony in the ISO’s FERC filing

  6. Formula Rate Implications Modified From 3/27/19 TC Meeting • Schedule 17 will provide for compensation of incremental costs not eligible for recovery through other means (e.g., energy market, capacity market or other rates or charges)... • The formula rate template is anticipated to include moderately high-level summary categories • “IROL-critical” facilities will presumably need/want to include workpapers and discussion showing how the submitted values were developed • Beyond identifying and describing the cost categories, Schedule 17 will not attempt to prescribe the level of supporting workpaper detail appropriate for FERC review • The template will separately identify each line item as a recurring expense or a one-time non-recurring expense, but will not define reasonable ranges of costs for the different line items • Costs must be broken out by the specific generator or facility to which they apply • In the case of multiple IROL-designated generators at a station, common costs (if any) must be apportioned and allocated to a specific generator to enable the ISO to make appropriate payments based on ownership share • Costs not associated with a specific IROL-designated unit cannot be compensated through the new OATT schedule

  7. Settlement timing

  8. Compensation and Charges Timing Overview Added 3/27/19 • Compensation/billing process begins in the month following notification by the "IROL-critical" facility of the incremental CIP cost amounts approved by FERC • Payments and charges for that initial month appear on the monthly Non-Hourly Charges statement two months later • Billing determinants for the month are not available until late in the following month • This means the statement is always issued with a 2-month lag • Monthly payments for Non-Recurring costs continue for 24 months • This is to mitigate the potential for rate-shock • Payments for Non-Recurring costs do not terminate, even if the facility is no longer "IROL-critical" • Monthly payments for annualized Recurring costs continue for the earlier of: • 36 months • Removal of the facility from the list of "IROL-critical" designated facilities • Facility retirement • Notification of a new FERC order with a new approved cost amount • The 36-month window balances the risk of “stale costs” (e.g. costs that are no longer appropriate) against the costs required to prepare, submit and review a CoS filing

  9. Settlement Timeline - ExampleSuppose a facility receives FERC approval of costs in April 2020… Minor Mods from 3/27/19 • Facility owner/Lead Market Participant notifies ISO of the order and approved amounts before the end of April 2020 • Compensation process begins in May 2020, the month following ISO notification • Billing determinants for May 2020 only become available in late-June • First payment to the "IROL-critical" facility occurs in the monthly Non-Hourly Charges statement for July 2020 • First charges associated with that facility made to RNS & TOUT customers also occur in the monthly Non-Hourly Charges statement for July 2020, based on billing determinants from May 2020 • Final payment to the facility owner & charges to transmission cusotmer for approved Non-Recurring IROL-CIP costs would occur 24 months later, in June 2022 • The final payment & charges for Recurring IROL-CIP costs associated with the facility would occur 36 months later in June 2023 • Unless modified by new FERC order or terminated earlier due to removal from the "IROL-critical" designated facilities list

  10. Settlement Example – payments New 4/17/19 • Compensation/billing process begins in the month following notification by the "IROL-critical" facility of the incremental CIP cost amounts approved by FERC

  11. Settlement Example – billing determinants New 4/17/19

  12. Settlement Example – monthly statement New 4/17/19

  13. Summary of Proposed Tariff Revisions

  14. Summary of Proposed Tariff Changes New 4/17/19 • The Schedule 17 tariff language addresses: • Introduction • Applicability • Market Participant responsibilities – 205 filing • Invoicing and collection of IROL-CIP costs • Monthly payments • Monthly charges • The language posted for today’s meeting reflects the ISO’s original cost of service design • If necessary, minor revisions to reflect the formula rate design will be presented at the May meeting • Adopting the formula rate design should not require any changes to the billing-agent functions or cost allocation formulas

  15. Summary of Proposed Tariff Changes (cont.) New 4/17/19

  16. Schedule 17 Introduction New 4/17/19

  17. Schedule 17 Introduction (cont.) New 4/17/19

  18. Schedule 17 Section 1 New 4/17/19

  19. Schedule 17 Section 2.1 New 4/17/19

  20. Schedule 17 Section 2.2 New 4/17/19

  21. Schedule 17 Section 2.3 New 4/17/19

  22. Schedule 17 Section 2.3 (cont.) New 4/17/19

  23. Schedule 17 Section 2.4 New 4/17/19

  24. Tentative Stakeholder Schedule Updated 4/17/19 • The ISO is continuing to work with impacted parties, such as the generators and the states/consumers, on ways to streamline the compensation process

  25. Conclusion Updated 4/17/19 • A new OATT schedule will be implemented to enable the ISO to act as a billing agent for “IROL-critical” facilities’ incremental CIP costs approved by FERC • ISO is working towards a solution where each “IROL-critical” facility seeking compensation submits compliance costs to FERC using a formula rate template that becomes part of new Schedule 17 • ISO will support the appropriateness of the formula rate template cost categories with independent expert testimony

  26. Jon Lowell (413) 540-4658 | jlowell@iso-ne.com

  27. Acronyms Used in this Presentation • BES = Bulk Electric System • CIP = Critical Infrastructure Protection • CoS = Cost of Service • ERO – Electric Reliability Organization • IROL = Interregional Operating Limit • NERC = North American Electric Reliability Council • NPCC = Northeast Power Coordinating Council • OATT = Open Access Transmission Tariff

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