Washington, D.C., August 16, 2010 – The U.S. Department of Energy’s Federal Energy Regulatory Commission issued the following order.
On June 14, 2010, Puget Sound Energy filed a new Schedule 12, Wind Integration Within-Hour Generation Following Service to its Open Access Transmission Tariff.
Puget’s proposed Schedule 12 Wind Following Service requires Puget to offer, and all wind generation resources in Puget’s balancing authority area to purchase or otherwise account for, Schedule 12 Wind Following Service from Puget; the cost of this service is based upon the incremental cost of a proxy generation unit that does not currently provide this service or even exist on Puget’s system.
In this order, the commission rejects Puget’s proposal, without prejudice, as discussed below. We reject the tariff sheets containing Puget’s proposed Wind Following Service because Puget has not shown that the rate it proposes to charge for the service is just and reasonable.
Changing system conditions, such as an increasing amount of wind generation described by Puget, present unique challenges that may require novel solutions. However, such solutions must fit the problems they are intended to solve, and the commission must ensure that ratepayers are protected from rate proposals–such as the one proposed by Puget here–that are not shown to be related to the actual, demonstrable costs incurred in providing service.
Section 205(a) of the Federal Power Act (FPA) requires that “[a]ll rates and charges made, demanded, or received . . . shall be just and reasonable.” In determining whether proposed rates meet this standard, the commission’s long-standing practice has been to ensure that in the aggregate, “rates are designed so that a transmission owner meets, but does not exceed, its revenue requirement.”
Puget attempts to justify its use of a proxy rate based on the Commission’s acceptance of proxy rates in the assessment of generator imbalance charges under Schedule 9 of the pro forma OATT. Puget seeks to expand this logic beyond the context of imbalance energy charges to the capacity reserves at issue in its Wind Following Service.
Puget argues that because there is no existing liquid market for the flexible capacity in the region, it is appropriate for Puget to use the hypothetical capacity costs of a hypothetical generator as a proxy for determining the rate to be charged for this service.
However, we find that Puget has not shown that its proposed proxy rate is just and reasonable. In the context of generator imbalance charges, to which Puget cites as support for its proposed rate schedule, the commission has explained that while it will allow for the recovery of legitimate and verifiable opportunity costs, it will do so only where transmission providers clearly explain how opportunity costs would be determined and demonstrate that the recovery of opportunity costs would not lead to over-recovery of costs.
While Puget has explained how it will determine its opportunity costs (based on the hypothetical Proxy unit), it has not demonstrated that calculating its opportunity costs in this manner will not lead to over-recovery of its costs. Accordingly, even under the standard for using proxy rates in assessing generator imbalance charges, Puget has not met its burden.
Based on the information submitted, we cannot find that Puget’s proposed rate is a reasonably accurate representation of the opportunity costs Puget incurs in providing a following service to wind resources.
Moreover, Puget has not explained its proposal for self-scheduling this service, including the types and locations of resources that may be used. We therefore reject Puget’s proposed Wind Following Service rate, without prejudice to Puget filing a new rate proposal consistent with the discussion in this order.