TxPBR - Performance-Based Transmission Pricing:...

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Performance-Based Transmission Pricing: Alternatives and Incentives Judy Cardell ESD.126 March 18, 2002 2 March 18, 2002 Overview • Transmission product definitions • Performance based rates in FERC Order 2000 • Performance based ratemaking alternatives – Economic models – Incentives and benefits of each alternative • Conclusions: Achieving both FERC and industry goals
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3 March 18, 2002 Transmission Product Definition • Differentiate between market-based and cost- based products • Transmission access charges are cost based • Transmission congestion charges – Traditionally have been managed under a command and control process – Moving to market based congestion management mechanism 4 March 18, 2002 Transmission Product Definition • Basic transmission products include – Firm, non-firm, … – Monthly, daily, hourly… – Ancillary services – Transfer capability products may not be uniquely defined in a network • Congestion – A product has economic value only when it is scarce
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5 March 18, 2002 Performance Based Rate Regulation • The options for setting rates or prices are – Competitive markets – Government regulation • Performance based regulation is a form of regulation that aims to capture market incentives in the regulatory structure 6 March 18, 2002 Performance Based Rates and Efficiency • Set rates related to competitive market prices – Ensures the efficient allocation of resources • Base allowed rates on readily available data – Facilitates monitoring and enforcement • Constrain the overall or average price, not prices of each individual service – Maintains the ability to reward utility innovation • Base rates on factors beyond the influence of any one individual utility – Provides incentives for cost minimization
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7 March 18, 2002 Innovative Ratemaking in FERC Order No. 2000 8 March 18, 2002 Performance Rates in FERC Order 2000 – Level playing field for new and incumbent participants • Order 2000 adds focus on operating transmission system to support regional markets – Expand the playing field for everyone – Requires increased transfer capability • Dual objectives – Offer incentives for efficient expansion and operation – Remove existing disincentives to efficient expansion and operation
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March 18, 2002 Performance Rates in FERC Order 2000 • PBR is only one of the 8 transmission ratemaking topics discussed in Order 2000 – FERC interest is in “innovative pricing” in general • Economic benefits of PBR are to be shared by – Transmission owners – Transmission customers – Generation market participants • PBR proposals can incorporate – Performance standards – Price/revenue caps – Price inventives 10 March 18, 2002 Background: Policy Statement on PBR 5 standards from FERC’s 1992 Policy Statement on Incentive Regulation 1. Incentive ratemaking must be prospective 2. Participation must be voluntary 3. Incentive mechanisms must be understood by all
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TxPBR - Performance-Based Transmission Pricing:...

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