Public Service of New Mexico Sets Reactive Power Rate to Zero to Avoid Paying Reactive Power Compensation to Unaffiliated Resources
On September 30, 2021, Public Service of New Mexico (PNM) filed at FERC in Docket No ER21-2988 to add a pass-through mechanism to its Schedule 2 (reactive power) for recovery from customers of reactive power compensation paid to unaffiliated resources with a FERC approved rate. They also filed to set their Schedule 2 rate to zero, by which they would cease paying their own or affiliated generators for reactive power and thereby not have to pay for reactive power from unaffiliated resources. PNM, however, provided for continued payment to New Mexico Wind, which had an effective Schedule 2 rate when PNM made this filing. FERC denied the pass-through mechanism (PNM did not adequately show it was just and reasonable) and accepted the zero rate for Schedule 2. FERC found that PNM’s proposed revisions to eliminate compensation for reactive service under Schedule 2 are just and reasonable. Consistent with Commission precedent, a transmission provider may decide to eliminate compensation for having the capability of providing reactive service within the standard power factor range. As the Commission has stated, “[t]he decision to compensate affiliates and non-affiliates [for reactive service capability] rests with the transmission provider.” FERC found that PNM’s proposed Schedule 2 revisions to eliminate compensation for its own generation and the associated charges to transmission customers is permitted under, and consistent with, Commission policy.
However, regarding PNM’s proposed pass-through proposal, FERC found that, upon Commission acceptance of PNM’s revisions to eliminate compensation for reactive power provided by its own generation, it would be unduly discriminatory or preferential for PNM to continue compensating an existing wind facility for reactive service capability within the standard power factor range while compensating no other generators for reactive service capability within the standard power factor range. Commission policy requires that the transmission provider compensate affiliated and unaffiliated generators on a comparable basis, and the Commission has stated that “an unaffiliated generator should not receive compensation for reactive power inside the [standard power factor range] unless the transmission provider so compensates its own or affiliated generators.”
With respect to the effect of FERC’s decision on New Mexico Wind’s and Aragonne Wind’s rate schedules for reactive service compensation, FERC noted that as of the October 1, 2021 effective date of PNM’s revisions to eliminate Schedule 2 compensation, third-party generators, including New Mexico Wind and Aragonne Wind, will not be entitled to receive compensation for Schedule 2 service. Section 9.6.3 of the New Mexico Wind and Aragonne Wind LGIAs reflects the Commission’s comparability policy for reactive service compensation and precludes New Mexico Wind and Aragonne Wind from Schedule 2 compensation as of October 1, 2021. However, FERC clarified that New Mexico Wind is entitled to receive compensation for its reactive power revenue requirement at its filed rate, subject to the outcome of the hearing and settlement procedures in Docket No. ER21-1555-000, from the effective date of its filed rate schedule until September 30, 2021 (Aragonne Wind did not yet have an effective Schedule 2 rate on October 1, 2021). After September 30, 2021, neither PNM nor third-party generators will receive compensation for Schedule 2 reactive service. FERC stated in conclusion that resources like New Mexico Wind and Aragonne Wind, by designing their generating facilities to have the capability to provide reactive support, are only meeting the conditions of interconnection required of all generators and they not entitled to compensation unless the transmission provider pays its own or affiliated generators for reactive power within the established range.
 Bonneville Power Admin. v. Puget Sound Energy, Inc., 120 FERC ¶ 61,211, at P 20 (2007) (“Commission policy clearly allows [Bonneville Power Administration] to discontinue paying all its merchants for inside the [standard power factor range] reactive power service.”), order on reh’g, 125 FERC ¶ 61,273 (2008) (Bonneville Rehearing Order); E.ON U.S. LLC, 119 FERC ¶ 61,340, at P 15 (2007) (E.ON) (accepting proposal to compensate no generators for reactive power within the standard power factor range); Entergy, 113 FERC ¶ 61,040 at P 38 (accepting tariff revisions setting charge for reactive power to zero).
 Bonneville Rehearing Order, 125 FERC ¶ 61,273 at P 25 (noting further that the transmission provider “is under no obligation” to choose to compensate for reactive power within the standard power factor range).
 See Order No. 2003-B, 109 FERC ¶ 61,287 at P 119.
 Bonneville Rehearing Order, 125 FERC ¶ 61,273 at P 24.
On January 28, 2022, FERC issued Opinion 577 involving Pacific Gas and Electric (PG&E) and the City of San Francisco (City). The City requested additional service at a King Street Substation, the interconnection point with PG&E. PG&E performed a system impact study and determined the facility additions needed to provide the service the City requested. PG&E treated the facilities as direct assignment facilities and the City objected, saying they were upgrades.
The Initial Decision addressed four disputed issues: (1) whether the facilities at issue are properly categorized as direct assignment facilities under the WDT (Issue One); (2) if the facilities are not direct assignment facilities, then whether the facilities are “upgrades” under the WDT Interconnection Agreement (Issue Two); (3) whether PG&E is permitted, under the WDT and Commission policy, to directly assign San Francisco the full cost of facilities at issue where PG&E also requires San Francisco to pay the WDT distribution service charge (Issue Three); and (4) whether PG&E should be required to provide more detailed support for cost estimates in the WDT application process (Issue Four).
On Issue One, FERC found that the facilities were properly classified as direct assignment facilities, as they are for the sole use and benefit of the City. FERC also found that that since the facilities are properly classified as direct assignment facilities, it was not necessary to address the issues concerning whether the facilities are “upgrades” under the WDT Interconnection Agreement. Regarding Issue Three, FERC found that PG&E is permitted by Commission policy and the WDT to directly assign the costs of the King Street Substation facilities to San Francisco and require San Francisco to pay the WDT distribution service charge. As to Issue Four, FERC found that PG&E needs to provide a more detailed cost estimate to the City in connection with the King Street Project.
Further Information on Two Items
As to charging the City for the direct assignment facilities and for its charge under the tariff, FERC found this to be consistent with its Transmission Pricing Policy. FERC found that because direct assignment facility costs are netted out and excluded from PG&E’s revenue requirement that is used to calculate the distribution service charge, direct assignment facility costs are not included in the distribution service charge and the City is not paying twice for the same service. That is, because there is no cost overlap between the direct assignment facilities that the City pays for and the costs included in the distribution service charge, PG&E is not violating the “and” pricing policy.
FERC disagreed with the Presiding Judge’s finding that it is unjust and unreasonable “that the design of a distribution system to provide a customer electric service is within the sole discretion of the Distribution Provider.” Rather, distribution providers maintain discretion over their own systems. Each distribution utility, including the City, retains sole discretion over the provision of electric service to its own retail customers, and when two distribution utilities with a utility-to-utility relationship like here interconnect their systems at a point of interconnection, such as the City ’s WDT points of delivery, each distribution provider retains sole discretion over the management of the distribution system on its own side of the interconnection. Just as the City retains sole discretion over the provision of power to the SFMTA as its retail customer on its side of the interconnection at the King Street Project, PG&E retains discretion over the distribution facilities on its side of the interconnection.
Dr. Paul Dumais
CEO of Dumais Consulting with expertise in FERC regulatory matters, including transmission formula rates, reactive power and more.