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Customers Interrupted

Utilities that are short on capacity and operate in a stable regulatory environment may be able to extract value from interruptible rates.
Fortnightly Magazine - October 1 2003

curtailing. The result is that the utility's costs are -$20/MWh. If the utility does not interrupt, it receives the $20/MWh from the customer and pays $40/MWh for fuel with the result of -$20/MWh. The utility would be neutral to interrupting or running the CTG. Therefore, the options are equivalent in energy costs.

Value of an Interruptible Rate

The first step in the proposed method of valuing an interruptible rate is to establish the capacity discount. Fundamentally, LOLP analysis can be run for various sensitivities mentioned earlier. One difficulty is that the parameters in the calculation are constantly changing. An example that has been mentioned several times is the utility's capacity position. When a utility is adding supply-side resources, such as peaking plants, it can be short one year and long the next. LOLP analysis for each year will result in different discount values. Changing the value of the capacity equivalence each year would not be acceptable to most customers. When purchasing nonfirm power, customer's need to incorporate the curtailments into their business plans. They may even purchase equipment to allow them to curtail. To evaluate these investments, a customer needs a certain amount of rate stability. General discount values should be established using analysis and experience to provide the consistency needed by the utility and customer.

Before deriving the capacity equivalence values, the operating guidelines for the interruptible tariff need to be outlined. The assumptions used in creating the "Capacity Equivalence Values" table are as follows:

  • Tariff has some kind of LD or buy-through
  • Customers agree to long-term agreements (i.e., 3 years into the future)
  • No limitations on reasons for interrupting customers
  • No limitation on frequency of interruptions

Other assumptions will result in different discount values. For example, a rate that limits the interruptions to system reliability reasons only will have smaller capacity equivalence value. The basis for this method of interruptible rate valuation is equivalence-finding the balance in value of the supply-side and demand-side resource.

AmerenUE's Interruptible Rate: A History

In 1999, AmerenUE filed a stipulation and agreement (Case No. EO-96-15) that provided for the elimination of AmerenUE's Interruptible Power Rate (10M), among other things. It also provided that AmerenUE would implement a new tariff, the Voluntary Curtailment Rider. In 2000, a group of AmerenUE's industrial customers filed a pleading requesting that the commission open a case to investigate the establishment of an additional alternative rate option for AmerenUE's interruptible customers. The commission staff and AmerenUE filed pleadings opposing the application. The commission denied the industrial customers' pleading. At the time the rate was terminated, AmerenUE had four Missouri customers utilizing the rate. The four customers had a total nonfirm load of 47MW.

AmerenUE's and the commission staff's main objection to the 10M interruptible rate was the cost. Savings for customers on 10M amounted to $5/Kw-mo. At the time of the case, the average interruptible credit paid by other utilities in Missouri was $2.01/Kw-mo. By offering the Voluntary Curtailment Rider, AmerenUE was able to maintain much of the reliability benefit realized from the 10M rate.

The concept of the Voluntary Curtailment