Intra-Regional Transmission
Service Agreement Limit
Hurdle Rate Proposal
Market Subcommittee Conference Call
June 25, 2014
Overview
• Purpose
– Discuss MISO’s proposal on dispatch flows over 1,000
MW Transmission Service Agreement Limit Between
MISO South and MISO North and Central including:
•
•
•
•
Status of Cost Allocation Filing
Overall Proposal
Initial Hurdle Rate
Rate Adjustment Mechanism
• Key Takeaways
– MISO recommends moving forward with this approach
and plans to file changes on June 30, 2014
2
Regulatory Update
• On June 16, 2014 FERC issued an order in Docket ER14-1736-000
accepting and suspending proposed tariff revisions and establishing
hearing and settlement procedures for MISO’s April 17, 2014
proposal to recover costs invoiced to MISO under the tariff of
another transmission provider.
• MISO had proposed the Transmission Surcharge be allocated on a
pro rata basis to Market Participants’ loads based on their Market
Load Ratio Share.
• Given the settlement procedures put in place from that filing, MISO
is not proposing any modification to its cost allocation in this filing,
although future modifications will be evaluated based on the
outcome of the Settlement proceedings established in ER14-1736000, as well as, the outcome of the proceedings in Docket Nos.
ER12-678-002, ER12-678-003, ER13-984-001, ER12-1266-005 and
ER13-2124-001.
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Proposal Overview
•
•
Establish a hurdle rate of $9.57/MW in the Day Ahead and Real-Time commitment
and dispatch in order to assess congestion charges to Market Transactions
associated with the Intra-Regional transfers above the 1,000 MW which are subject
to Transmission Service Charges under a FERC accepted SPP Transmission
Service Agreement.
– This hurdle rate will be implemented as a separate Sub-Regional Power Balance
Constraint (SRPBC) Demand curve with a limit of 1,000 MW, in parallel with a
SRPBC modeled to manage the ORCA limit, currently 2,000 MW
– The hurdle rate will be adjusted on a going forward basis to minimize surpluses
and shortfalls in congestion collection
Return excess congestion funds created by hurdle rate to loads and FTR Holders via
existing Market Settlement mechanisms
– Congestion funds created in Day Ahead will be returned to FTR holders through
the typical settlement processes (hourly, monthly, yearly), with excess Yearly
congestion returned to Firm Transmission Customers on a pro rata basis under
existing tariff provisions
– Congestion funds generated in Real Time will be returned to loads and exports
through Revenue Neutrality Uplift (RNU)
4
Proposal Addresses MISO’s Stated
Objectives
Hurdle Rate Demand Curve achieves MISO’s stated objectives
1. Minimizes economic inefficiencies and potential reliability
impacts
a) Avoids out-of-merit dispatch to maintain the 1,000 MW
SPP Transmission Service Agreement Limit once
production cost savings exceed the Hurdle Rate, while
maintaining the ability to manage to ORCA limits
2. Provides appropriate matching of costs and beneficiaries
a) SRPB Constraint reflects redispatch costs in LMPs
appropriately
3. Minimizes time to achieve result
a) Able to implement on or before July 1, 2014 with next day
effective filing at FERC
5
Funds Flow Overview
Proposal
Annual FTR Auction
Revenues
Individual Day
Ahead
Transactions
SRPBC Congestion Charges
Day Ahead Excess
Congestion Funds
and Monthly Auction
Revenues
All FTR Holders
(pro rata)
Annual Excess
Congestion Funds
S MW * [MCC_CPNode)
Individual Real
Time
Transactions
All Load and
Exports (ARR
Holders)
Real-time Excess
Congestion Funds
All Load and
Exports
(pro rata)
ER14-1736-000
SPP Transmission
Invoices
All Load and
Exports
(pro rata)
6
Proposal Overview
•
This proposal does not modify the cost allocation of Transmission Service
Invoices from SPP, which will be paid when and if appropriate, and recovered
through Revenue Neutrality Uplift as accepted and suspended by the
Commission on June 16, 2014, subject to refund.
– FTR holders (largely held by load) and load will receive the excess congestion funds
that would otherwise not be due to them absent the congestion associated with the
new hurdle rate
– Loads roughly equivalent to the FTR holders and other loads receiving the excess
congestion funds will pay the Revenue Neutrality Uplift Charge associated with the
invoices
•
•
However, the proposed changes to the demand curve and constraint limits are
not necessarily contingent on which cost allocation methodology is ultimately
accepted by FERC.
To the extent the RNU cost allocation mechanism is not ultimately adopted, two
alternate methods could be to:
– Allocate the bill based on FTR Ratio Share: Allocate Transmission Costs based on
FTR Administration Volumes pro rata
– Use some combination of the two methods
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Funds Flow Overview
Alternate FTR Annual FTR Auction
Revenues
Individual Day
Ahead
Transactions
SRPBC Congestion Charges
Day Ahead Excess
Congestion Funds
and Monthly Auction
Revenues
All FTR Holders
(pro rata)
Annual Excess
Congestion Funds
S MW * [MCC_CPNode)]
Individual Real
Time
Transactions
All Load and
Exports (ARR
Holders)
Real-time Excess
Congestion Funds
All Load and
Exports
(pro rata)
ER14-1736-000
SPP Transmission
Invoices
All FTR Holders
(pro rata)
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Simplified Funds Flow Overview
Day ahead and
Real time
Transactions
generate excess
revenues
approximating the
cost of the SPP
bill
• Requires addition of
hurdle rate to Sub
Regional Power
Balance Demand
Curve
Loads receive
(through FTRs
and directly) the
excess revenues
collected from the
Day ahead and
Real Time
Transactions
MISO pays SPP
transmission
service bill and
then recovers
those costs from
Loads holding
excess revenues
• Currently through
Revenue Neutrality
Uplift, but subject to
modification
through settlement
and hearing
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Reserving Day Ahead Excess Congestion
Funds to Pay the Bill is Significantly More
Complex and Not Necessarily More Precise
• Complex Settlement rules associated with FTRs,
including monthly and annual true ups, full funding
guarantees and auction revenue
• Require additional rules to handle shortfalls,
underfunding, and rebates of surplus funds
• Requires creating a special congestion right, held by
MISO to account for funds, however, only addresses
Day Ahead Congestion
• Similar to GFA Carveout, as shown on next page
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Funds Flow Overview - GFA
Carve Out
Annual FTR Auction
Revenues
Individual Day
Ahead
Transactions
SRPBC Congestion Charges
Day Ahead Excess
Congestion Funds
and Monthly Auction
Revenues
All FTR Holders
(pro rata)
Real-time Excess
Congestion Funds
ER14-1736-000
SPP Transmission
Invoices
All Load and
Exports
(pro rata)
REBATES AND
UPLIFT
Annual Excess
Congestion Funds
S MW * [MCC_CPNode)
Individual Real
Time
Transactions
All Load and
Exports (ARR
Holders)
MISO holds FTRs to
fund SPP Invoices
Excess/Shortfall
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Funds Flow Overview
Annual FTR Auction
Revenues
Individual Day
Ahead
Transactions
SRPBC Congestion Charges
Day Ahead Excess
Congestion Funds
and Monthly Auction
Revenues
All FTR Holders
(pro rata)
Annual Excess
Congestion Funds
S MW * [MCC_CPNode)
Individual Real
Time
Transactions
All Load and
Exports (ARR
Holders)
Real-time Excess
Congestion Funds
All Load and
Exports
(pro rata)
ER14-1736-000
FERC
Settlement
SPP Transmission
Invoices
All Load and
Exports
(pro rata)
All FTR
Holders
(pro rata)
Combination of
Load, Exports,
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FTR Holders
Illustration of Proposal
Sub-Region
Transfer
Hurdle
Rate
$9.57
Dispatch
Flow
Congestion
FTR
Excess
Funds
Payments Congestion
$
3,254
$
$
9,570 $ 6,316
8,613
$
8,613
2,000 MW Dispatch Flow
650 MW
Histoical Rights
1,900 MW
Orca Limit
Contract Path
Hurdle Rate
Approach
1,000 MW
Contract Path
Current
Approach
Existing
FTRs
Surplus/(Shortfall)
SPP
Rate
$12.50
SPP
Charges
~$0
$ 12,500
$
(633)
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Illustration of Proposal – True Up
Sub-Region
Transfer
Hurdle
Rate
$9.57
Congestion
$10.05
Funds
$
$
Dispatch
Flow
FTR
Excess
Payments Congestion
$
3,254
9,570 $ 6,316
8,613
$
8,613
2,000 MW Dispatch Flow
650 MW
Histoical Rights
1,900 MW
Orca Limit
Contract Path
Hurdle Rate
Approach
1,000 MW
Contract Path
Current
Approach
Existing
FTRs
Surplus/(Shortfall)
SPP
Rate
$12.50
SPP
Charges
~$0
$ 12,500
$
(633)
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Proposal: Addition of Transmission Service Agreement
Constraint and associated Hurdle Rate Demand Curve
• Define two SRPB Constraints in each Sub
Regional Flow Direction: South to MW, and
MW to South
1. Transmission Service Agreement Limit
Constraint
– Limit: 1,000 MW
– Demand Curve: Single Price generates
congestion revenue sufficient to fund
SPP Transmission Charges
2. ORCA Constraint
– Limit: Set per terms of ORCA.
• Phase I limit of 2,000 MW or less.
– Demand Curve:
Contract Path Demand Curve
Exceedance
Percentage
Price
> 100%
$9.57
ORCA Demand Curve
Exceedance
Percentage
Price
≥ 100% and < 110% $40.00
≥ 110% and < 130% $90.00
≥ 130%
$500.00
• Multi-Step from $40/MW increasing to
$500/MW
• Effect of two constraints will be cumulative
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Proposal: Calculation of Hurdle Rate
• Analysis of January through March SPP Invoices
and operational results yielded an initial Hurdle rate
of $9.57/MW from the following process:
– Convert SPP bill rates into a MW/HR capacity bill rate
– Calculate Total Dispatch Flow MWh / Billable MW capacity
factor
– Calculate derived hurdle rate – MW/HR capacity bill
rate/capacity factor
Period
JanuaryMarch
A
SPP Cap
Rate
(Calc.
$/MWHR)
$ 6.457
B
C
Billable MW
(From SPP
Bill)
Billable
MWHR
(B * 24)
129,548
3,109,152
D
E
Total
Dispatch
Cap Factor (%)
Flow (MWh)
(D / C)
2,098,190
67.48%
F
Hurdle Rate
($/MWh)
(A / E)
$ 9.5675
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Proposal: Ongoing Recalculation of Hurdle
Rates
• As illustrated above, congestion revenues generated from the
hurdle rate are expected to produce surpluses or shortfalls,
given the differing basis for the SPP Transmission Service
Charges and congestion collections.
• Included in the proposal is an on-going True Up of the derived
hurdle rate based on actual surpluses or shortfalls of
congestion revenues relative to Transmission Service charges.
• On a monthly basis, Transmission Service invoice amounts will
be compared with computed net congestion collections
associated with the Hurdle Rate for the Transmission Service
Agreement and the derived hurdle rate will be updated for
future periods.
• This process will help ensure that Market Dispatch is not over
or under constrained, maximizing the benefits attained to all
participants.
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Proposal: Demand Curves
Contract Path Demand Curve
Exceedance
Percentage
Price
> 100%
$9.57
ORCA Demand Curve
Exceedance
Percentage
Price
≥ 100% and < 110% $40.00
≥ 110% and < 130% $90.00
≥ 130%
$500.00
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Proposal: Demand Curves
Potential
Benefits
($)
19
Matching of Costs and Beneficiaries
•
•
•
Hurdle rate congestion approach establishes a self-funding
mechanism for SPP Transmission Charges
Load in importing region pays increased LMP which are deposited in
DA and RT ECF
RNU is a reasonable basis to recover the cost of transmission charges
because:
– Loads with firm transmission service qualifies them for Auction Revenue
Rights (ARRs) Entitlements, which lead to allocations of ARRs including
Long Term Transmission Rights (LTTRs)
– Loads with ARRs, receive the FTR Auction value of the transmission
system on a point to point or pro-rata basis
– Loads hold a majority of FTRs
• Self scheduled FTRs representing 80 percent the auction value of the all allocated point
to point rights
• FTR Holders purchased their FTRs from Load Serving Entities, ARR Holders directly or
indirectly via an FTR Auction
– Annual Congestion Surpluses are returned to Firm Transmission
Customers at the end of the year, not FTR Holders
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Frequently Asked Questions
• Why not reserve the day ahead and real time congestion
funds and pay the bill directly out of that pool?
– FTR and Day ahead processes do not exactly align with the
dispatch flow method;
– Reconciling those differences and extracting funds would require
complex changes to FTR, DART and Settlements systems.
– Similar to the administration of Carved-Out GFA Rebates, this
approach still results in surplus revenues that need to be rebated
and shortfalls that need to be uplifted.
• Why not use a zero hurdle rate?
– It is appropriate to constrain the dispatch until the production
cost savings exceed the potential cost of transferring energy
(potential transmission service cost).
21
Required Tariff Changes
• This approach builds on the Sub Regional Power
Balance Constraint mechanism that was recently
accepted by FERC.
• Changes are required to Schedule 28B - SubRegional Power Balance Constraint Demand
Curve, to describe the new Hurdle Rate curve,
the initial price, and the process for updating the
price to true up for under of over collections.
22
Implementation Timeline
• June 25, 2014 - Special MSC Call
• June 30, 2014 - File changes to Sub Regional
Power Balance Constraint Demand Curve with
next day effectiveness
• July 1, 2014 – Implement changes to the Sub
Regional Power Balance Constraint and Demand
Curve
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Next Steps
• Continue settlement discussions with Southwest
Power Pool on contract path sharing and
transmission service dispute
• Settlement Conference at FERC on Cost
Allocation filing, Docket ER14-1736-000
• Develop BPM changes and process changes as
appropriate
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