FERC won’t penalize reactive providers with no rate schedule on file but requires prospective filings

On October 17, 2013, the Federal Energy Regulatory Commission (FERC) issued an order finding that all generators providing Reactive Supply and Voltage Control Service (“reactive power”) must have a rate schedule on file with FERC governing that service, even when the generator does not receive compensation for the service.

Traditionally, FERC only has required generators to file a rate schedule addressing its provision of reactive power if it received compensation for providing the service. Going forward, however, all generators providing reactive power will be required to have a rate schedule on file with FERC governing the provision of reactive power, even if they provide this service at no charge.

Noting that the provision of reactive power is a FERC-jurisdictional service, FERC found that Section 205 of the Federal Power Act imposes an obligation on any public utility providing this service to have a rate schedule on file with FERC, regardless of whether or not the utility receives compensation.

FERC found that the generator at issue in the case, which had been providing reactive power to Bonneville Power Administration (BPA) at no charge in accordance with its interconnection agreement, should have filed a rate schedule governing its provision of reactive power at the time that it first began providing this service.

Importantly, in recognition of FERC’s change in policy, FERC stated that it does not intend to exercise its enforcement authority against any utilities that have been providing reactive power at no charge without a rate schedule on file with FERC.

FERC emphasized, however, that public utilities that provide this service going forward must have a rate schedule on file or face possible sanctions. This issue may affect generators participating in bilateral markets to a greater degree than those in organized markets given that many organized markets have mechanisms for providing compensation for reactive power whereas whether compensation is provided varies from transmission owner to transmission owner in bilateral markets.

FERC directed its staff to conduct a workshop to explore the mechanics of public utilities filing reactive power rate schedules for which there is no compensation and concurrently issued a notice establishing a proceeding to address these issues in Docket No. AD14-1-000, with the time and date of the workshop to be released at a later date.

Authors: Sandra E. Rizzo is the head of Bracewell & Giuliani LLP’s Energy Regulatory Group. Her clients include electric utilities, power marketers, independent power producers, and investment and hedge funds owning securities of electric utility holding companies.

Stephen J. Hug represents clients in matters related to federal regulatory policies, regulations and rules applicable to the electric industry. His experience includes compliance issues with FERC and specifically the Federal Power Act (FPA).

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