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NEPOOL Transmission Committee: Report of Cost Allocation Working Group

NEPOOL Transmission Committee: Report of Cost Allocation Working Group. September 25, 2007. Overview. Current focus Meetings Participation General principles Two main proposals Compromise efforts Final recommendation Next steps. Current Focus of the CAWG.

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NEPOOL Transmission Committee: Report of Cost Allocation Working Group

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  1. NEPOOL Transmission Committee:Report of Cost Allocation Working Group September 25, 2007

  2. Overview • Current focus • Meetings • Participation • General principles • Two main proposals • Compromise efforts • Final recommendation • Next steps

  3. Current Focus of the CAWG • Originally formed to address cost allocation issues associated with Local Second Contingency Protection Resources (LSCPR) • In a October 2006 filing, ISO-NE & NEPOOL agreed to use the CAWG to address the issue of cost allocation methodology for reactive power (Schedule 2 variable) costs • Stemmed from NPC October 2006 vote on an amendment to revise the existing cost allocation methodology for reactive power to allocate certain out-of-merit commitment costs on a local basis to Reliability Regions (57.59% support) • CAWG finished its LSCPR work in April 2007 • CAWG took up issue of VAR costs in May 2007 The CAWG has been looking at reactive power cost allocation issues since May 2007.

  4. May 23rd – kick-off meeting June 14th – developed criteria for weighing proposals July 12th – proposals presented to CAWG July 26th – discussed compromise offers August 23rd – straw poll on two main proposals September 5th – final review of CAWG report on reactive power cost allocation Meetings The CAWG met six times to discuss the issue of reactive power cost allocation.

  5. Participation ISO & NEPOOL Counsel also actively participated in meetings Generators, suppliers, transmission owners and the regulatory community regularly participated in the CAWG.

  6. General Principles • Proposal should recognize both the physical characteristics & physical operation of the New England bulk power system • Those customers that cause the cost or receive the benefits of voltage support should pay those costs. • The proposal should recognize other cost allocation methods approved under the ISO New England Transmission, Market & Services Tariff. • The proposal should provide for ease of implementation. • The proposal should be fair & equitable. • The proposal should encourage proper economic decisions. The CAWG agreed upon a set of principles for evaluating reactive power cost allocation proposals.

  7. Proposal #1: Reliability Region Cost Allocation • Offered by Maine PUC & CMP • Allocate “variable” elements to the Regional Network Load & Reserved Capacity of Transmission Customers within the Reliability Region in which the resource was flagged by ISO as needed for voltage support • “Variable” elements include: Lost Opportunity Cost (LOC); Cost of Energy Produced (CEP); & Cost of Energy Consumed (CEC) • Capacity costs associated with the CC portion of the rate would still be allocated to all PTF transmission customers on a New England–wide basis Proposal #1 would provide for a reliability region cost allocation of non-CC components of reactive power costs.

  8. Proposal #2: Maintain Existing Cost Allocation • Offered by Northeast Utilities, NGRID, NSTAR, UI & MMWEC • Would maintain the current treatment of all Schedule 2 costs, including Schedule 2 variable costs which are allocated on an hourly pro rata basis to all Regional Network Service & Through or Out Service Customers • Hourly value for all RNS customers is based on highest hour of use for the month & hourly value • Hourly value for Through or Out Service customers is based on respective hourly Reserved Capacity Proposal #2 would maintain the status quo for reactive power cost allocation.

  9. Compromise Efforts • Staff for the Massachusetts Department of Public Utilities & the Maine Public Utility Commission each put forth compromise proposals for discussion • No significant support developed for either proposal among CAWG members • Since neither proposal was going to serve as a basis for consensus, sponsors did not pursue either proposal further at the CAWG Two compromise proposals were offered, however no significant support developed for either approach.

  10. Final Recommendation • The CAWG did not achieve a consensus recommendation for how to allocate Schedule 2 variable costs • CAWG did identify two proposals that appear to have the most support • A straw poll on these two proposals indicated: • A substantial majority of those polled could accept Proposal #2 (status quo) & only a few could not • Only a few of those polled affirmatively indicated they could support Proposal #1 (reliability regions) • The ISO-NE may be bringing forward a cost allocation proposal but has not made a decision yet The CAWG did not reach consensus on how to allocate reactive power costs.

  11. Next Steps • CAWG representatives to discuss report with the Transmission Committee & obtain guidance on any future efforts of the CAWG related to Schedule 2 Variable Costs • ISO-NE may provide an update to the Transmission Committee on any further developments on the cost allocation issue Transmission Committee guidance will dictate “next steps” on the issue of Schedule 2 Variable cost allocation.

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