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FERC signs off on SPP resource adequacy program

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FERC signs off on SPP resource adequacy program

The Southwest Power Pool can implement a resource adequacy requirement program for its footprint, effectively requiring loads with insufficient resources to participate in bilateral capacity markets, federal regulators told the grid operator.

In doing so, the Federal Energy Regulatory Commission found that the proposed change would "help ensure sufficient capacity, plus planned reserves, are maintained to meet the SPP balancing authority's load requirements." When the SPP implemented its integrated marketplace for day-ahead and real-time energy, operating reserves and financial transmission rights in March 2014, it also assumed the balancing authority function for the entire region.

"SPP asserts that its current mechanisms provided in its planning criteria are inadequate to provide an appropriate level of assurance that capacity will be available as needed to serve load in the SPP balancing authority area," FERC said in its Aug. 7 order. "SPP explains that existing assurance options under the SPP planning criteria are only applicable to SPP's load-serving members and therefore do not cover all load in the SPP balancing authority area."

Loads in the balancing authority area that are not also load-serving members include "non-member load-serving entities ... [as well as] network and point-to-point transmission service customers and other entities with grandfathered agreements," SPP spokesman Derek Wingfield said Aug. 8.

Planning reserve margins

SPP therefore in March proposed to revise its open-access transmission tariff to include a new Attachment AA (Resource Adequacy), with "all the terms and conditions relevant to the establishment, compliance and enforcement of the requirement that each [load responsible entity, or LRE] in the SPP balancing authority area maintain sufficient capacity and planning reserves to serve its forecasted load." An LRE is "an asset owner with registered load in the integrated marketplace," the filing stated.

As a first step, the filing generally requires a planning reserve margin of 12% of an LRE's "net peak demand," although the reserve margin would be 9.89% for an LRE with a resource mix of at least 75% hydropower.

The FERC order noted that SPP plans to recalculate the planning reserve margin every two years "based on a probabilistic analysis using a loss of load expectation study."

SPP defined "net peak demand" as forecast peak demand, minus the projected impact of demand response and behind-the-meter generation that is dispatchable but not registered in the integrated marketplace as a resource and minus the amount of megawatts included in a firm power purchase contract.

Deficiency payments

The RAR planning reserve requirement would be applicable for the period of June 1 through September 30 of each year, and an LRE failing to maintain that minimum level of reserves would incur a "deficiency payment" equal to the number of megawatts it is deficient times a calculated cost-of-new entry (initially $85.61/kW-year) times a "CONE factor."

The CONE factor varies according to the percentage by which the SPP balancing authority's planning reserve exceeds the required planning reserve margin. If the SPP balancing authority's overall planning reserves exceed the required margin by 3% or less, the CONE factor is 200%, for example. If the SPP balancing authority's overall planning reserves exceed the required margin by 8% or more, the CONE factor is just 125%. When the excess is between 3% and 8%, the CONE factor is 150%.

The new tariff attachment also establishes a "winter season obligation" with equivalent planning reserve margin requirements for December 1 through March 31 of the subsequent year, but the tariff does not require a related deficiency payment. Instead, failing to meet the obligation constitutes a tariff violation reportable to FERC, which may decide to take an enforcement action.

While the order was made effective retroactive to July 1, no deficiency payments would be applied until the summer of 2019.

Firm power contracts executed before July 1 can qualify as complying with RAR and winter obligation rules, "if the contract does not include terms that allow for interruption of deliveries for reasons other than force majeure or uncured defaults," the order stated.

SPP maintains "that an event of force majeure means 'any curtailment order, regulation, or restriction imposed by governmental, military, or lawfully established civilian authorities,'" the order stated. (FERC docket ER18-1268)

Mark Watson is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.