FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
A West Coast View: The Case for Flow-Based Access Fees
Since generators pay for the regional access fees, there is no cost shifting between existing utility ratepayers.
For end users, who use the local grid at low voltage levels, the situation changes. As discussed (see sidebar), the accuracy of the power-flow model does not support application of a MW-mile allocator in WEPEX for voltages 230 kV and below, which tend to serve load. Instead, revenue requirements associated with these local transmission facilities should be assigned to end users on a postage-stamp basis, recognizing the local network functions these facilities provide. Existing ratepayers will see reduced transmission rates, because they pay only for local transmission.
Distinct, MW-mile usage based access fees will recover the fixed cost of regional transmission facilities. Based on a simulated "snap-shot" of power flows, these access fees are not determined in "real time." They do not reflect marginal costs of congestion. Within the context of WEPEX, access fees are not a form of capacity reservation tariffs and are not associated with retradeable rights. %n6%n
However, allocating costs solely on a single snap-shot, the summer-peak condition may not fairly represent regional transmission use. As load distributions change over load cycle, generator use of the transmission system changes. Additional power-flow simulations can further define the system's use, enabling fair allocation of regional transmission system cost among generators. One way to do this is to account for the seasonal and physical natures (revealed in low-capacity factors) of many generators when calculating the regional access fee. %n7%n
Why Not a Single Access Fee?
A single, postage-stamp access fee, as proposed by some, would fail to give proper locational signals to siting new generation facilities. When paid only by end users, it leads to cross-subsidies between customers.
Putting aside the question of ancillary services, buyers and sellers of wholesale power in WEPEX will tend to concentrate on generation costs. Delivery costs for WEPEX are not transaction-related, because the fixed costs for transmission are allocated to the end user on an average-cost basis.
Three distinct situations can illustrate the inaccuracies that would result from a single, postage-stamp access fee. For simplicity, assume all end users are residential customers. Based on the current rate design, a utility-specific access fee is calculated on a volumetric basis. The IOU's transmission revenue requirements are divided by the forecasted sales of the utility ($/kWh). Then, to ensure the total revenues collected are not more than the authorized revenue requirements (avoid "and" pricing), actual monthly congestion rents divided by actual monthly sales ($/kWh) are subtracted from the access fee.
PX Only. Assuming the simplest case, all power is bid into the power exchange. Power from all sources is commingled and establishes the market-clearing price (MCP). Losses and locational congestion fees define the marginal costs for transmission services. A single access fee, to recover all remaining sunk transmission costs, is paid by end users. Both local and non-local generators pay nothing for transmission access. Consequently, siting decisions will not include full transmission costs. In addition, even though more capital assets are used to bring non-local power to the load, higher access fees