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FERC Wants Those Who Benefit from Reactive Power to Pay by Staff Restructuring Today - February 9, 2005

FERC wants to reform the way the industry deals with reactive power — the kind used to stabilize line voltages.

A good use for market forces?

Not this time, according to FERC’s 176-page report unveiled this week to spur comments ahead of a March 8 technical conference.

It’s a pet project of Chairman Pat Wood’s.

IPPs don’t get paid for power they supply but generators affiliated with vertically integrated grid owners get costof- service payments.

Put another way transmission-based reactive power suppliers are paid while most generators have to absorb costs.

FERC wants all reactive power suppliers to be treated equally and it wants those who supply reactive power to be paid by those who benefit.

Cost-of-service encourages the grid owner to build reactive power units, the report concluded, even though it might be cheaper to buy it from another source.

Generators in today’s market are reluctant to build competing reactive power units with payment issues unresolved.

Meanwhile industry standards for supplying reactive power are rigid in FERC’s view, allowing local needs to be ignored.

Although a range of reactive power can be used to stabilize voltage, system operators follow guidelines that are often more costly, FERC has learned.

This could be a software problem, FERC suggested, since nothing exists today to analyze reactive power needs at any given time.

The commission isn’t looking for ways to rev up a market to fix the problems claiming too many issues exist with market power a major concern.

Reactive power doesn’t live long on the grid and often must be located near where it’s needed and where few reactive power generators are located.

To calm a nervous industry, FERC reportedly isn’t seeking to change existing contracts.

Chairman Wood’s vision is that an unregulated reactive power market would be developed but that isn’t likely for at least another five — maybe 10 years.

The report suggests that consumers could be charged a fee that would in turn provide the financial incentives to build.

FERC staff did not like the idea that IPPs should provide reactive power as a condition of interconnecting to the grid.