Providing Reactive Power from

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Providing Reactive Power from Generating
Resources Schedule 2 of the MISO OATT by the OMS
Resource Adequacy Working Group OMS Board Meeting
at MARC June 16, 2004
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INTRODUCTION

• This presentation will cover the following
• FERC Order 888 requirements for unbundling costs
  of ancillary services,
• Reactive Power Rates in MISO paid by transmission
  customers but not collected by MISO,
• A discussion of the importance of Reactive Power,
• FERCs PJM Order regarding allowing
  non-transmission-owning independent power
  producers to seek compensation for supplying
  Reactive Power,
• Recent events that have focused on need for more
  sources of Reactive Power,
• FERC ALJs Decision in the Troy case,
• MISOs response with a Schedule 21 companion to
  Schedule 2,
• Will the new Schedule 21 end the controversy over
  Reactive Power compensation?
• MISOs responses during the frequent debates in
  the Tariff Working Group,

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FERC ORDER 888 REQUIREMENTS Starting in
1996, Transmission Providers across the country
began filing Open Access Transmission Tariffs at
the FERC to unbundle the costs for Wholesale
Transmission Services. FERC, Promoting
Wholesale Competition Through Open Access
Non-discriminatory Transmission Service by Public
Utilities Recovery of Stranded Costs by Public
Utilities and Transmitting Utilities, Order 888,
FERC Stats . Regs. Regs. Preambles 1991-1996
31.036 at 31,705 (1996), on rehg, Order No.
888-A, FERC Stats. Regs. Regs. Preambles
1996-2000 31.048 (1997), on rehg, Order No.
888-B, 81 FERC, 61,248 (1997), on rehg, Order
No. 888-C, 82 FERC, 61,046 (1998) (hereinafter
Order 888).
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SEPARATING OPEN ACCESS TRANSMISSION FROM
GENERATION SERVICES

• Companies had to identify assets that were booked
  in Generation Production (G) accounts that
  perform primarily a Transmission (T) Ancillary
  Service function.
• 2) They had to add the incremental rate to
  recover the cost of these assets to the
  Transmission tariff.

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• Separating T from G (contd)
• 3) Companies also had to identify assets booked
  in Transmission (T) accounts that primarily serve
  a generation production Generation (G) function
  and subtract the incremental rate for these
  assets from the transmission tariff.
• In essence The unbundled transmission tariff
  should avoid cross-subsidization among Generation
  Production (G) and Transmission (T) Customers.

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THE REVENUE REQUIREMENTS FOR UNBUNDLED
TRANSMISSION SERVICES MUST BE FILED AT FERC
UNRESOLVED ISSUES MAY BE SET FOR HEARING.The
Reactive Power envisioned by FERC in Order 888 as
one of six ancillary services addresses only
reactive power from generation resources.

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REACTIVE POWER RATES IN MISOREACTIVE POWER
RATES FOR UTILITIES IN THE MISO FOOTPRINT--
RESULTING FROM CALCULATIONS OF UNBUNDLED COSTS AS
FILED IN EACH UTILITYS INDIVIDUAL OATT AT FERC,
CAN BE FOUND ON THE MISO OASIS AS Ancillary
Service Schedule 2. These rates for Reactive
Power are paid by Transmission Customers to the
utilities today. They are not collected by MISO.

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ANCILLARY SERVICES - SCHEDULE 2 Reactive Supply
Voltage Control - Existing Customer Charges under
Current OATTs
Estimates based on On-Peak rate billed for an
average 800 kWh/month MISO Rate charged for
Sinks external to MISO (non-MISO members)
ITC (DECO) charges apply for ITC Schedule 2
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THE IMPORTANCE OF REACTIVE POWERIn order 888,
FERC noted-- Electric power consists of two
components. The first, Real Power (watts) is
the active force that causes electrical
equipments to work. -- The second
component Reactive Power (Volt-amperes
reactive or VARs) Is necessary to maintain
adequate voltages so that Real Power can be
transmitted. Order 888 at 31,707.
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TRANSMISSION LINES NEED TO BE ENERGIZED BEFORE
THEY WILL CARRY REAL POWER. REACTIVE POWER
PROVIDES THE ENERGIZATION TO MOVE REAL POWER.
ACCORDING TO NERC, HEAVY POWER TRANSFERS ACROSS
A TRANSMISSION INTERFACE AND HEAVY LOADING ON
TRANSMISSION LINES CAN CAUSE VOLTAGE IN AN AREA
TO BECOME DEPRESSED IF SUFFICIENT REACTIVE
SUPPLIES ARE NOT AVAILABLE TO THE
SYSTEM.UNLIKE REAL POWER, REACTIVE POWER
CANNOT BE TRANSMITTED EASILY OVER LONG DISTANCES
AND IS BEST SUPPLIED LOCALLY.Michael J.
Zimmer, Reactive Power Capability-A Challenge to
Grid Reliability atMichael.J.Zimmer_at_bakernet.com
(Washington, D.C. at 1
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FERC ALLOWS NON-TRANSMISSION-OWNING INDEPENDENT
POWER PRODUCERS TO SEEK COMPENSATION AT FERC
UNDER SEC. 205 OF THE FPA FOR REACTIVE POWER
PROVIDED BY THEIR GENERATORS UNRESOLVED ISSUES
MAY BE SUBJECT TO HEARING.

• In a 2000 PJM case, FERC allowed
  non-transmission-owning independent power
  producers to unbundle their costs of providing
  Reactive Power as an ancillary service from their
  generating resources for inclusion in a
  Transmission Providers OATT.
• PJM Interconnection L.L.C., Docket No.
  ER00-3327 (September 25, 2000) (unpublished
  letter order), as cited in 105 FERC 61,250.

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RECENT EVENTS HAVE FOCUSED ON A NEED FOR MORE
SOURCES OF REACTIVE POWER

• The Bi-National Task Force Final Report found
  that August 14, 2003 Blackoutaffecting nearly
  10 of the Eastern Interconnections entire load,
  began with declining voltages during a warm
  summer afternoon of consistently increasing air
  conditioning demand and power transfers into
  FirstEnergy, a member of MISO.
• With the loss of just one generating unit in a
  high demand load pocket, FirstEnergy had no
  additional generation to provide the needed
  Reactive Power Support.
• U.S.-Canada Power System Outage Task Force,
  Final Report on the August 14, 2003 Blackout in
  the United States and Canada Causes and
  Recommendations (April 2004) at 31,.

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More recent events have focused on a need for
more sources of Reactive Power (contd)

• The Bi-National Task Force Final Report also
  recommended that NERC require the utility to
  confirm that all non-utility generators in its
  area enter into contracts committing them to
  producing increased or maximum reactive power
  when called upon by FirstEnergy or MISO to do
  so.
• Id., at 151.

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The FERC ALJs Decision in the Troy LLC Complaint
Case (Docket ER03-1396-000)

• On April 21, 2004, FERC ALJ Cintron certified an
  uncontested Agreement and Settlement BETWEEN Troy
  L.L.C. (an affiliate of Dominion Power in
  Virginia) and FirstEnergy, MISO, the Midwest
  Standalone Transmission Companies and Calpine.
• Article 2.3 of the Settlement states that MISO
  shall tender revisions to its OATT Schedule 2
  providing terms and conditions under which a
  generator is eligible for compensation for its
  reactive power capability

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IN RESPONSE, MISO HAS MODIFIED ITS SCHEDULE 2 FOR
REACTIVE SUPPLY AND VOLTAGE CONTROL FROM
GENERATION RESOURCE SERVICES

• MISO intends to preserve existing zonal rate
  design for transmission service and grandfather
  existing Schedule 2 revenue requirements of
  generators within the MISO footprint.
• Consistent with FERCs intentions in its earlier
  PJM ruling, MISO will seek to preserve the filing
  rights of non-transmission owning independent
  generators seeking compensation for reactive
  power and voltage control from their generation
  service For this purpose, MISO introduces a
  separate schedule Schedule 21.
• Holsclaw e-mail to Tariff_wg_at_lists.midwestiso.O
  RG (April 23, 2004)

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THE NEW MISO SCHEDULE 21 WILL PROVIDE
COMPENSATION FOR FERC-FILED REVENUE REQUIREMENTS
FOR SUPPLYING REACTIVE POWER

• The new Schedule 21 companion to the existing
  Schedule 2 is specifically designed to capture
  the terms and conditions for compensating
  non-transmission-owning generators, including
  those generating utilities separated from their
  former transmission assets by corporate
  restructuring.

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Will the introduction of the new Schedule 21 end
the ongoing controversy over Reactive Power
compensation?

• The Vertically-integrated transmission-owning
  companies insist that MISO
• Institute a needs test to determine if and when
  reactive power is needed by non-transmission-ownin
  g companies, and
• Institute an additional testing procedure to
  determine the VAR capability of a generator.

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DURING THE FREQUENT DEBATES IN THE TARIFF WORKING
GROUP, MISO HAS RESPONDED

• No MISO needs test will be included in the
  Schedule 2 modification (now known as companion
  Schedule 21),
• Under Sections 205(b) and 203 of the FPA, rates,
  charges, and services of transmission and
  wholesale generation sales are to be
  nondiscriminatory.
• Non-transmission-owning generators must file
  their revenue requirements at FERC. Parties may
  (and do) intervene in these cases to argue for
  hearing of contested issues.

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During the frequent debates in the Tariff Working
Group, MISO responded (contd)

• Additional testing will not be required.
  Interconnection of new generators, under MISOs
  compliance with FERC Order 2003, will include
  feasibility, system impact and facilities
  studies.
• Under an Order 2003 Interconnection Agreement,
  the interconnecting generator must be willing to
  supply VAR support.

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MISO can design the details of the Tariff terms
and conditions in order to avoid abuse and
misrepresentation by Reactive Power providers

• State regulators may want to review the response
  time requirements in the new Schedule 21 to
  assure there is no unwarranted delay or lag in a
  generators response to MISOs call for reactive
  power and voltage control,
• State regulators may want to review the terms and
  conditions of any penalties imposed by MISO for a
  non-response by a generator to MISOs call for
  reactive power and voltage control.

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Any Questions?