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RESA Seeks Additional Changes to NiMo Capacity Cost Calculation
May 16, 2011
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In addition to transitioning to spot-based capacity pricing for retail customers, Niagara Mohawk must ensure that capacity costs are tied, to the maximum degree possible, to the customer's actual usage patterns, the Retail Energy Supply Association said in comments to the New York PSC (10-E-0050).
RESA was commenting on NiMo's proposal to change its electric commodity pricing structure, which was first noted in Matters (3/11). In its proposal, NiMo would, among other things, modify retail pricing to reflect the NYISO capacity spot market price, rather than the six-month strip auction as used currently.
RESA supports the change to spot market capacity pricing, but said that, "it is vitally important that the current capacity costs associated with each customer's usage pattern are accurately reflected in the manner by which the Company bills each customer for capacity."
"It is our understanding that under current practice, the Company does not necessarily bill customers in accordance with the capacity costs associated with the customer's individualized usage pattern," RESA said.
RESA recommended that NiMo use the following formula to bill customers for capacity in all service classifications where account peak level demand values are measured:
ICAP tag x NiMo Loss Factor x NiMo annual adjustment factor (weather & load growth) x (1 + NYCA IRM (New York Control Area Installed Reserve Margin)) x (1 - NYISO EFORd (equivalent forced derating)) x (1 + (Excess Spot MW / NYCA required MW)) x Spot Auction Price.
"This formulation accommodates the spot market price, any excess or Demand Curve spot prices and is tied to the customer's particular usage. It thus provides a billing modality that maintains the nexus between usage and cost causation," RESA said.
In the event that NiMo's billing process is unable to apply an individualized capacity tag to the customer or if the capacity charge is relatively similar on a class basis (possibly for SC 1 residential customers), "it may be appropriate in such limited circumstances to apply a class based capacity formula utilizing the spot auction capacity market," as set forth in the following proposed formula from RESA:
$/kWh cost for capacity for rate class = [Spot Auction Price x NiMo Loss Factorclass x NiMo annual adjustment factor (weather & load growth) x (1 + NYCA IRM (New York Control Area Installed Reserve Margin)) x (1 - NYISO EFORd (equivalent forced derating) x (1 + (Excess Spot MW / NYCA required MW)) x (Class average peak demand / Class average Hourly Load at NYCA Peak)] / Number of on peak hours of the applicable month
This formula incorporates the spot market price and Demand Curve charges, but reflects the class based capacity factor.
RESA also noted that NiMo's proposal fails to include costs associated with the Demand Curve charges imposed by the NYISO on all Load Serving Entities. "This omission should be corrected. Such costs are duly associated with the procuring of capacity and thus need to be reflected in the calculation of capacity costs," RESA said.
RESA additionally sought clarification that certain legacy (pre-June 2001) hedging reconciliations will appear on the delivery portion of the bill. NiMo has proposed to disburse legacy hedge benefits on a nonbypassable basis through a Legacy Transition Charge; however, RESA said that it was unclear if reconciliations of these charges (specifically with respect to NYPA Hydropower) will also appear on the delivery side of the bill.
NiMo's proposal states that bypassable costs of new hedges, which are intended for the benefit of mass market customers, will only be recovered from mass market customers and not commercial and industrial customers (both those on and off hourly pricing). RESA agrees with this approach, but said that, in NiMo's discussion of the bypassable Electric Supply Reconciliation Mechanism (ESRM), NiMo does not limit the applicability of the New Hedges Adjustment to only mass market customers.
Furthermore, RESA sought greater disclosure of NiMo's hedges. "With the advent of the new commodity cost recovery mechanism and the direct application of the cost of new hedges in the utility commodity cost, it becomes increasingly important for there to be provided greater detail and transparency in connection with the Company's new hedging activity for mass market customers," RESA said.
RESA requested that the following be disclosed by NiMo regarding its ongoing hedges on a quarterly basis:
- Start Date;
- End Date;
- Commodity (i.e. Electricity, capacity);
- Delivery Point;
- Transaction Type (i.e. Fixed, Indexed, Option);
- Price;
- Timing (i.e. 5x16, 7x24, 5x8 + 2x24, etc.);
- On Peak Volume by Hour, Month and Contract Term; and
- Off Peak Volume by Hour, Month and Contract Term
Finally, RESA noted that NiMo does not address whether and to what extent implementation of the new commodity cost recovery mechanism will affect the current Rate Ready billing model. Should the new mechanism require changes to Rate Ready billing, RESA requested that NiMo disclose such changes.
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