Dive Brief:
-
Federal regulators should overturn the Southwest Power Pool’s decision to increase its planning reserve margin, or PRM, to 15% from 12%, according to a complaint that American Electric Power, Oklahoma Gas and Electric and Xcel Energy filed at the Federal Energy Regulatory Commission.
-
The increased reserve requirement gave utilities six months to procure an additional 1,600 MW combined and exposes them to about $173 million in penalties if they don’t meet the higher reserve levels, the utility companies said in the Feb. 10 filing.
-
“SPP failed to take into account whether immediate compliance with a higher PRM was practical or even possible,” the utility companies said, noting SPP’s interconnection queue is backlogged, and projects take about eight years to complete the interconnection process.
Dive Insight:
SPP last year held a stakeholder process to address shrinking capacity reserves and the resulting “resource adequacy crisis” in its region, according to the complaint.
With “broad support,” three stakeholder groups — the Supply Adequacy Working Group, the Cost Allocation Working Group and the Markets & Operations Policy Committee — voted to phase in the planning reserve margin increase over several years, according to the complaint.
In a July MOPC meeting, AEP and OG&E offered a motion to increase the PRM to 13% this year, 14% in 2024 and 15% in 2025, according to the complaint. It passed with 95% approval.
But with the support of state utility regulators, the grid operator’s board in late July approved increasing the reserve margin by three percentage points for 2023. Utilities and other “load responsible entities” had six months to meet the new reserve margin or face so-called deficiency payments.
“The deficiency payment in this context will not serve to induce prudent resource investments; rather, it will merely serve to transfer revenue from one utility’s customers to another despite the good faith efforts of [load responsible entities] to acquire what little additional capacity may be available in the market,” the utility companies said. “As a result, enforcing the increased PRM and the associated deficiency payment will do nothing to improve resource adequacy.”
The sudden increase in the PRM interferes with a healthy bilateral capacity market because any supplier with available capacity knows that any resource-deficient utility is in a “must-buy” situation, the utility companies said.
Further, SPP’s planning reserve margin is illegally not included in its tariff, leaving it outside FERC review, according to the utility companies.
The agency should require SPP to include the PRM in its tariff and submit it for the agency’s review, they said. It also should require SPP to amend its tariff with rules for changing the PRM and setting penalties for failing to meet reserve levels, they said.
Asserting authority to review the PRM wouldn’t infringe on state jurisdiction, according to the utility companies.
“The PRM plays no role in state regulation and the level of the PRM is not evaluated or approved in a proceeding before a state commission,” they said.
The utilities asked FERC to make a decision by April 30, ahead of a May 15 deadline for meeting the new reserve margin requirements.
SPP runs the grid and wholesale electricity markets in 14 states from New Mexico to North Dakota.
