United States: FERC Approves PSCo Tariff Revisions Regarding Energy And Generator Imbalance Penalty Charges

Last Updated: December 10 2016
Article by Adrienne Thompson and Christopher Zentz

On November 30, 2016, FERC issued an order accepting tariff revisions filed by Public Service Company of Colorado ("PSCo") regarding penalty charges for energy imbalance and generator imbalance services under Schedules 4 and 9 of PSCo's open access transmission tariff ("OATT"). FERC found the revisions, which PSCo filed to address the influx of variable wind generation on its system, to provide incentives for accurate scheduling from transmission customers.

As part of the pro forma OATT reforms in Order No. 890, the Commission adopted Schedules 4 and 9 to address energy and generator imbalances, respectively, and to set out penalty charges for such imbalances. In Order No. 890, FERC also considered three principles in crafting the pro forma OATT's imbalance charges. Most relevant here, FERC determined that the penalty charges must be structured to encourage accurate scheduling among transmission customers. Order No. 890 also requires that any transmission provider wishing to deviate from pro forma OATT Schedules 4 and 9 must demonstrate that their proposed changes are consistent with or superior to the pro forma OATT.

In August 2016, PSCo submitted proposed OATT Schedule 4 and 9 changes to address imbalance issues related to increasing wind energy on its system. As PSCo explained in its filing, because of tax incentives like the federal production tax credit, the incremental cost of energy can be negative during some hours. As a result, PSCo explained that when it sells at negative prices, the company is essentially paying customers to take its energy. Similarly, when PSCo is the buyer of energy during negative pricing, PSCo is paid to take the energy. Thus, according to PSCo, when the incremental/decremental cost of energy is negative, dispatchable generators have an incentive to generate less than their scheduled amount because they would receive revenue rather than a penalty.

To address this issue, PSCo proposed, among other changes, a formula that splits the imbalance charge into two charges for energy deviations and a penalty. Under PSCO's formula, the energy charge is based on the total imbalance amount multiplied by the incremental/decremental cost, while the penalty charge would be a percentage of the absolute value of the energy charge. As a result, PSCo indicated that deviations would be penalized regardless of whether the incremental or decremental cost is positive or negative.

Tri-State Generation and Transmission Association, Inc ("Tri-State") intervened and protested PSCO's filing, arguing that negative pricing events occur infrequently and that PSCo failed to provide sufficient information to justify its proposal. Additionally, Tri-State argued that transmission customers are unable to anticipate negative prices for purposes of gaming the system, and in any event, under-deliveries may benefit PSCo's balancing area by reducing the amount of wind power curtailment when production is high but demand is low.

In its order, FERC approved PSCo's proposed formula as being consistent with or superior to the pro forma OATT Schedules 4 and 9, as well as with the Commission's imbalance charge principles set out in Order No. 890. The Commission was persuaded by PSCo's argument that negative pricing events created perverse incentives for dispatchable generators when imbalance charges are calculated based on incremental/decremental costs. FERC rejected Tri-State's arguments by noting that incremental pricing events were becoming more frequent on PSCo's system, and that regardless of whether transmission customers were attempting to "game" the system, or even whether under-deliveries benefit the system in some ways, imbalances become less manageable as more customers deviate from their schedules. Because PSCo's tariff revisions were consistent with the Commission's goal of encouraging accurate scheduling, therefore, they were approved subject to a further compliance filing to modify certain of PSCo's proposed tariff language to address concerns raised by Tri-State regarding apportionment of the imbalance penalties.

A copy of the Commission's order can be found here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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