Docket No. RM22-2-000 
Item E-1

Today’s Notice of Inquiry seeks comment on issues related to reactive power capability compensation.  In the United States, almost all electric power is generated, transported, and consumed in alternating current networks.  Elements of alternating current systems supply and consume two kinds of power:  real power and reactive power.  Real power accomplishes useful work, such as running motors and lighting lamps, while reactive power supports the voltages that allow power to flow, which must be controlled for system reliability.  At times, resources must either supply or consume reactive power in order for the transmission system to maintain the voltage levels required to reliably supply real power from generation to load.

In 1996, the Commission concluded in Order No. 888 that Reactive Supply and Voltage Control from Generation Sources is one of six ancillary services that transmission providers must include in an open access transmission tariff.  The Commission noted that there are two approaches for supplying reactive power to control voltage:  (1) installing facilities as part of the transmission system and (2) using generation resources.  The Commission concluded that the costs associated with the first approach would be recovered as part of the cost of basic transmission service and, thus, would not be a separate ancillary service.  The second, using generation resources, would be considered a separate ancillary service and must be unbundled from basic transmission service. 

In 1999, the Commission approved in Opinion No. 440 a method presented by American Electric Power Service Corp. (AEP), a vertically integrated utility, for allocating the costs of synchronous generator equipment between real power capability and reactive power capability, as well as the related operations and maintenance costs.  Subsequently, the Commission recommended that all resources located in regions that base reactive power capability compensation on a resource’s individual costs and that have actual cost data and support documentation should use the AEP Methodology when seeking to recover reactive power capability costs pursuant to individual cost-based revenue requirements.

Although the Commission recommended the use of the AEP Methodology in specific circumstances, it has not required a uniform approach with respect to compensation for reactive power capability across all regions.  As a result, different payment and cost recovery methods have been adopted in each region.  Transmission providers in some regions pay a cost-based payment for reactive power capability, while others require reactive power capability as a condition of interconnection under good utility practice, and therefore do not provide compensation.  For example, resources in PJM, MISO and certain non-RTO regions are compensated for their reactive power capability, and resources in those regions generally propose reactive power rates based on the AEP Methodology.  By contrast, ISO New England and NYISO compensate resources for reactive power capability using a flat rate, that is, a fixed dollar amount per mega-Volt Ampere of reactive power capability, which is then multiplied by a resource’s tested reactive power capability.  CAISO, SPP and certain other non-RTO regions do not compensate for reactive power capability.

Since the AEP Methodology was established in 1999, the electric industry has undergone significant changes, both in the generation resource mix and a general shift away from cost-of-service rates for generators selling into Commission-jurisdictional markets.  The AEP Methodology was designed based on the physical attributes of synchronous resources owned by a public utility that utilized the Commission’s Uniform System of Accounts and annually submitted a FERC Form No. 1.  However, now the majority of the reactive power filings submitted to the Commission are made by owners of non-synchronous resources.  In addition, most filing entities (both synchronous and non-synchronous) have received waivers of the requirement to maintain their accounts under the Uniform System of Accounts rules and to file FERC Form No. 1 when they were granted market-based rate authority, although they remain subject to other Commission reporting and accounting requirements.  In the last six years, the Commission has processed more than 260 reactive power proceedings in PJM, setting at least 95 for hearing and settlement procedures.  Over that same period, the Commission has processed more than 125 reactive power proceedings in MISO, setting at least 40 for hearing and settlement procedures.  These factors have contributed to customers and the Commission facing challenges in evaluating proposed reactive power rate schedules submitted pursuant to section 205 of the Federal Power Act.

Therefore, the Commission is seeking comment on various aspects of AEP methodology-based compensation; potential alternative methodologies; and reactive power capability compensation through transmission rates for resources that interconnect at the distribution level.

Initial comments on this Notice of Inquiry are due 60 days after publication in the Federal Register and reply comments are due 90 days after publication in the Federal Register.


This page was last updated on November 18, 2021