New York Utility Proposes Changes To Default Service Reconciliation Mechanism
September 19, 2018 Email This Story Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
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Niagara Mohawk (National Grid, or Company) has filed with the New York PSC proposed changes to its reconciliations mechanism for electricity hourly-priced default service, which will also impact the reconciliations seen by non-hourly default service customers
A prior rate case settlement had directed NiMo to evaluate alternative methods for calculating the Electric Supply Reconciliation Mechanism (ESRM) for mandatory hourly-priced customers, including the possibility of reconciling capacity charges for hourly-priced customers separately.
NiMo filed a whitepaper summarizing the company’s Electric Supply Reconciliation Mechanism (ESRM) study. The company extended the scope of the study to include all customers who are hourly priced (either voluntary or mandatory under certain provisions of the following service classes: SC2D, SC3, and SC3A) because the pricing and mechanics of how these customers are charged for energy, capacity and reconciliations are identical ("HP customers")
NiMo presented several alternatives in the whitepaper but ultimately recommended changes labeled as "Option #1", which would create and calculate a new Supply Service Adjustment (SSA) for HP customers and reconcile capacity costs using $/kW rate on the ICAP tag.
The Supply Service Adjustment (SSA) recovers the difference between the actual monthly electric supply costs and actual revenue billed through the Electric Supply Cost (ESCost) rates pursuant to Rule 46.1 that are not otherwise recovered through other mechanisms – Legacy Transition Charge (LTC), NYPA Benefit, Mass Market Adjustment (MMA), New Hedge Adjustment (NHA). The SSA includes the reconciliation of actual capacity and ancillary costs from the NYISO and the energy balancing costs from the NYISO for Day Ahead (DA) and Real Time (RT) electric market transactions along with other supply related costs. The SSA amount is divided by the total electric commodity load forecast for the upcoming rate month and is applicable to all customers taking supply service from the Company.
Option #1 is further described below:
Option #1 – Create and calculate a new SSA for HP customers and reconcile capacity costs using $/kW rate on the ICAP tag
Option #1 includes two changes to the current process. First, HP customers and non-HP customers would each have a separate ESRM SSA rate for reconciling actual supply costs and actual revenues billed for each group. This will require programming for a new HP SSA rate in the billing system. Second, capacity costs would be reconciled separately for HP customers on a per kW basis using the ICAP tag applicable to each HP customer. This will require programming for a new HP capacity reconciliation surcharge that would also be displayed separately or possibly rolled into the customer’s existing ICAP tag charge on bills.
How would it work?
HP customers get billed the DA price multiplied by their actual volume, therefore (assuming it is appropriate to remove the timing effects of the ESRM from HP customers) only the reconciliation of capacity and ancillary forecasted rates, and DA/RT balancing transaction costs at NYISO, need to be assessed. Additionally, the Company is proposing to allocate other non-market based costs on a pro-rata basis to HP customers as they occur. The Company is proposing to sum up all of the reconciliation dollars from these categories (HP Reconciliation) and subtract that amount from the current SSA reconciliation mechanism, which represent these costs for all customers, resulting in the costs that are to be recovered in a separate ESRM SSA for profile (i.e., non-HP) customers. The HP Reconciliation dollars will then be used to create an ESRM SSA for HP customers.
Hourly Priced Customer Reconciliations
Capacity reconciliation - The capacity market price assessed to all customers is a forecast of the spot market price. A forecast is used because the filing deadline for monthly commodity rates comes before the NYISO spot market rate is published, by just a few days.
OGS has suggested that capacity costs for HP customers should be reconciled based on the customer’s ICAP tag, on a $ per kW basis and not through the ESRM rate, which is a $ per kWh rate. NiMo in its whitepaper said that this would be a more accurate reconciliation because HP customers pay for capacity based on their ICAP tag which is a per kW quantity. The HP capacity reconciliation rate would be the difference between the forecast capacity rate and the actual capacity rate. This reconciliation would be assessed on each customer’s ICAP tag on a two-month lag. The HP capacity reconciliation dollar amount that the Company would need to track for recovery purposes would be the capacity reconciliation rate multiplied by the sum of all HP customers’ ICAP tags for the reconciliation month.
Ancillary reconciliation - The ancillary market price assessed to all customers is a forecast of the ancillary rate based on a rolling twelve-month average of historical ancillary costs. The Company will use actual ancillary cost data from the NYISO (as billed to the Company) to calculate an actual ancillary rate which will then be subtracted from the ancillary rate forecast and multiplied by HP monthly billed kWh plus losses to create an HP ancillary reconciliation amount.
NYISO load bidding and other miscellaneous costs - The Company’s incremental costs due to load bid forecast inaccuracies and other miscellaneous non-market based costs will also be allocated to the HP reconciliation amount based on the monthly HP customer share of the total billed commodity load. This calculation is done using the NYISO four-month true-up settlement data.
How will the new ESRM rates for HP customers be calculated?
Supply Service Adjustment rate for HP customers (SSA HP) - To calculate the SSA HP, the Company will sum up the reconciliation amounts designated to HP customers as specified above, for ancillary, NYISO load bidding and miscellaneous costs. This dollar amount will be divided by a load forecast for HP customers for the upcoming rate month. The capacity reconciliation amount is not included because this will be included as a $ per kW rate for each customer applied to its ICAP tag.
Balance of ESRM rate for HP customers - Every month the Company would perform a calculation of the amount to be billed through the ESRM for HP customers (including the amount the Company intended to collect through the capacity reconciliation) and compare that to the actual HP ESRM billed revenues (including the capacity reconciliations billed through the ICAP tag). The variance between these amounts will be divided by the HP load forecast for the upcoming rate month. The total ESRM for HP customers will be the sum of the SSA HP and the Balance of ESRM HP rates.
How will the new ESRM rates for non-HP/profile customers be calculated?
Supply Service Adjustment rate for non-HP/profile customers (SSA Prof) - To calculate the SSA Prof, the Company will sum up the HP reconciliation dollar amounts for capacity, ancillary, NYISO load bidding and miscellaneous costs. This dollar amount will be subtracted from the SSA amount calculated under the current method, which represents the costs for all customers. The result will be the SSA reconciliation dollars that need to be assessed to non-HP/profile customers. This amount will be divided by the total non-MHP/profile load forecast for the upcoming rate month.
Balance of ESRM rate for non-HP/profile customers - Every month the Company would perform a calculation of the amount to be billed through the ESRM for non-HP/profile customers and compare that to the actual non-HP/profile ESRM billed revenues. The variance in these amounts will be divided by the total non-MHP/profile load forecast for the upcoming rate month.
The total ESRM reconciliation rate for non-HP/profile customers will be the sum of the SSA Prof and the Balance of ESRM profile rates.
NiMo analyzed historical data, prices, costs and loads to determine what this new ESRM rate structure would have looked like had it been in place for 2017. NiMo said that the analysis showed that the new ESRM rate for HP customers is relatively flat each month when compared to the existing ESRM. The resultant ESRM rate for non-HP/profile customers is now slightly more volatile as a result.
NiMo lists Pros and Cons of Option 1 as follows:
Pros - Option 1 vs Current ESRM
• ESRM for hourly priced customers is much less volatile because the reconciliation only accounts for the reconciliation of the ancillary rates and the load bidding/miscellaneous costs as described above.
• Capacity is reconciled on a $/kW rate using the HP customer capacity tag, therefore HP customers are getting a fair allocation of capacity reconciliation based on their contribution to the peak rather than using a $/kWh rate.
• Mitigates ESRM volatility for HP customers.
• Overall impact to profile customers is small, but the resultant ESRM rate for all profile customers is slightly more volatile (peaks are higher, valleys are lower).
Cons - Option 1 vs Current ESRM
• The new resulting ESRM for profile customers is now slightly more volatile than the current ESRM (peaks are higher, valleys are lower).
• Not a perfect fix. Profile customers would now bear all of the timing risk with regards to balancing revenues and expenses each month, despite the fact that HP customers do contribute to this timing variance
• Customer migration (and ICAP tag migration), as well as capability period shifts, present risk for under/over collection of capacity reconciliation amounts from HP customers. Hourly Priced customer ICAP tags change every May, therefore, when the capacity rate for March is reconciled in May it will done be [sic] over a new ICAP tag for customers, which could be larger or smaller than the ICAP tag previously in effect. The under/over collection will flow into the Balance of ESRM HP.
• Changes to the billing system (new cons types to track new ESRM rate and capacity reconciliation rate dollars) and changes to HP customer bills to include another line for capacity reconciliation.
• The loss factor that is applied to the ancillary reconciliation is monthly weighted average loss factor based on the summation of kWh for each HP account in the month and the tariff loss factor based on the interconnection voltage. As a result the allocation of losses for the ancillary reconciliation is not perfect since customers have different loss factors.
• What will be the impact as more and more customers move to HP rate structures?
Given the above, "The Company recommends the implementation of Option #1 for reconciliation of electric supply and capacity costs for hourly-priced customers. Option #1 provides the most accurate approach to reconcile HP customer supply costs and will significantly reduce the volatility of the ESRM for HP customers. Option #1 also improves the capacity cost reconciliation by allocating the capacity reconciliation to the capacity tag of each HP customers based on their contribution to the system peak," NiMo said
Based on the current estimated timeline for approvals and implementation, the Company estimates that these changes would go into effect July 1, 2019 which would coincide with the reconciliation of electric supply and capacity prices for May 2019 where new capacity tags for HP customers are in effect.
"The Company recommends that the capacity reconciliation charge be displayed as a separate line item on HP customer bills, rather than rolling it up into the forecast capacity rate for the billing month. This treatment is identical to the way the Company displays the ESRM separate from the electric supply cost rates on customer bills. The separation the capacity reconciliation cost allows for full price transparency for customers. Additionally, if the capacity reconciliation rate is included in the forecast billed capacity rate, it could distort the capacity market price signal for HP customers and Energy Service Companies (ESCOs) looking to compare rates and prices," NiMo said
NiMo's whitepaper provided another alternative, which was not recommended, and also noted other changes being explored to improve ESRM
Such other changes being explored include:
1. Move the monthly Supply Service Cost Rate statement filing date to allow for actual capacity price to be included in initial rates
• Currently the Company uses the most recent NYISO monthly capacity auction result to forecast the monthly spot market capacity price.
• The NYISO posts the monthly spot market capacity price approximately two business days prior to the end of the month.
• Moving the filing to after the capacity price is published would eliminate the need to reconcile the forecast capacity price for all customers.
• Need to evaluate impact to batch timing, start/end dates.
• Tariff currently states the filing deadline is three business days prior to the effective date of the first scheduled batch date each month.
• Would require tariff change.
• No incremental costs.
• Need to evaluate impact to other electric tariff rules.
2. Change the meter reading cycles of all hourly-priced customers to calendar bill batch cycle
• Change all HP customers to the calendar month batch cycle 3.
• HP customers would all be billed on calendar month and thus it would remove HP customers from the timing issues associated with revenues and expenses explained in the sections above.
• As a result the ESRM reconciliation Options #1 or #2 for HP customers would be even more justified.
• Concurrently, some of the timing issues that cause revenue and expense variances in the ESRM for profile customers should be reduced since revenues and costs for HP customers would be properly aligned.
• This batch cycle change would need to be implemented for all HP customers whether they take electric commodity service from the Company or from an ESCO. Although customers taking supply from an ESCO are not charged the ESRM, this change is needed to be prepared for customers who may switch back to the Company for supply service at any time.
• If more customers are eventually moved to HP rates (a possibility with AMI), then the Company would need to do some further evaluation on whether the billing system could handle the additional calendar month billings and the impacts to Company cash flows. Company would also need to re-evaluate the ESRM impacts to non-HP customers.
• Customer and ESCO outreach would be needed to communicate the cycle switch and potential bill impacts, which could include a one-time long period bill or short period bill.
Niagara Mohawk will not be implementing the potential other changes being explored at this time. "The Company will continue to research and evaluate the possibilities for the delay of the filing date of supply rates and the switching of HP customers to monthly billing. The Company will file changes at a later date, if needed, or make operational changes if no tariff revisions are required, if these options are deemed to be beneficial to customers and feasible to implement," NiMo said