Saturday, July 22, 2017

SPP Members Again Struggle with Solutions to Z2 Credits

By Tom Kleckner

SPP stakeholders’ effort to simplify the RTO’s complicated crediting system for transmission upgrades continues to spin its wheels.

Members once again discussed alternatives to SPP’s cumbersome Z2 process during an all-day meeting in Kansas City on Wednesday, but they adjourned without reaching any major decisions. (See SPP Z2 Panel Sees ILTCRs as Cure to ‘Mess of Complexity’.)

SPP z2 credits

Buffington | © RTO Insider

“It feels like we’re going over the same material every time,” said the group’s chair, Kansas City Power & Light’s Denise Buffington. “At some point, we have to get to where we can make a decision. We have to pull the trigger eventually, and it’s clear to me we’re not ready.”

The group did agree to schedule two additional meetings next month to improve its chances of presenting a recommendation in July to the Strategic Planning and Markets and Operations Policy committees.

The task force rehashed the pros and cons of two of the alternatives they have settled on: staff recommendations to replace Z2 credits with incremental long-term congestion rights (ILTCRs) or credit payment obligations (CPOs) under a Tariff schedule. Westar Energy’s Grant Wilkerson has proposed a third alternative, in which only upgrades that create transfer capability would receive credits under the Tariff.

Under Attachment Z2 of SPP’s Tariff, members are assigned financial credits and obligations for sponsored upgrades. The task force is trying to simplify the process while still meeting FERC requirements.

Several stakeholders raised concerns over using ILTCRs to replace Z2 credits, arguing that SPP’s transmission congestion rights (TCR) market is not yet fully functioning. Charles Cates, the RTO’s manager of transmission services, disputed that perception, saying the market is “working very well.”

“Seventy-eight percent of the load entities are fully hedged,” Cates said. “It’s a perception I do not agree with.”

SPP z2 credits

McAuley | © RTO Insider

“That’s not a perception OGE shares,” said Oklahoma Gas and Electric’s Greg McAuley, expressing a different viewpoint. “If you dilute a TCR market that’s not fully functional because you’ve never really used an ILTCR yet … I don’t know why you would do that intentionally.

“Z2 is functioning. Some people may not like it, but it’s doing the job it was designed to do. From OGE’s perspective, we’re getting credits for the upgrades that have been put in palace, and we’re also paying for upgrades that have been in place. We have a system that’s in place and working.”

“I’m hearing that we’re trading one set of problems for another set of problems,” NextEra Energy Resources’ Aundrea Williams said. “I want to make sure we don’t lose sight of the ultimate goal of simplification and transparency. I don’t want us to completely discount [that] Z2 can be improved, but the objective doesn’t have to be to get rid of it.”

Cates, who has been tasked with developing the ILTCR alternative, warned against changes to SPP’s market design, saying adding an auction revenue right mechanism connected to financial rights is a disconnect from the original purpose of the design.

“The unintended consequences of going this route could be profound — or not. It’s hard to say at this point,” he said to laughter. “If we’re not careful, the complaints I hear about the TCR market not working — which I personally don’t agree with — could get more loud.”

The moments of levity, while lightening the mood, did not diminish the difficulty of the task before the group.

“The problem I have now is every time I think I understand it, I don’t,” McAuley said. “I don’t have a problem going back to MOPC and saying this is a complicated animal. I don’t want to approve one of these [alternatives] and have a bigger mess on our hands because we didn’t understand it.”

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