Compensation for Reactive Power Within the Standard Power Factor Range

<RULE> DEPARTMENT OF ENERGY <SUBAGY>Federal Energy Regulatory Commission</SUBAGY> <CFR>18 CFR Part 35</CFR> <DEPDOC>[Docket No. RM22-2-000; Order No. 904]</DEPDOC> <SUBJECT>Compensation for Reactive Power Within the Standard Power Factor Range</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Energy Regulatory Commission. <HD SOURCE="HED">ACTION:</HD> Final determination. <SUM> <HD SOURCE="HED">SUMMARY:</HD> In this final determination, the Federal Energy Regulatory Commission (Commission) finds that allowing transmission providers to charge transmission customers for a generating facility's provision of reactive power within the standard power factor range is unjust and unreasonable. The Commission, therefore, is revising Schedule 2 of its <E T="03">pro forma</E> open-access transmission tariff (OATT), section 9.6.3 of its <E T="03">pro forma</E> large generator interconnection agreement (LGIA), and section 1.8.2 of its <E T="03">pro forma</E> small generator interconnection agreement (SGIA) to prohibit the inclusion in transmission rates of any charges related to the provision of reactive power within the standard power factor range by generating facilities. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Effective January 27, 2025. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <FP SOURCE="FP-1"> Paul Robinson (Technical Information), Office of Energy Market Regulation, 888 First Street NE, Washington, DC 20426, (202) 502-8460, <E T="03">Paul.Robinson@ferc.gov</E> </FP> <FP SOURCE="FP-1"> Jennifer Enos (Legal Information), Office of the General Counsel, 888 First Street NE, Washington, DC 20426, (202) 502-6247, <E T="03">Jennifer.Enos@ferc.gov</E> </FP> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <GPOTABLE COLS="2" OPTS="L2,tp0,i1" CDEF="s200,9"> <TTITLE> </TTITLE> <CHED H="1"> </CHED> <CHED H="1"> Paragraph Nos. </CHED> <ROW> <ENT I="01">I. Background</ENT> <ENT>3</ENT> </ROW> <ROW> <ENT I="03">A. Historical Framework Including Order Nos. 888 and 2003</ENT> <ENT>3</ENT> </ROW> <ROW> <ENT I="03">B. Notice of Inquiry and Notice of Proposed Rulemaking</ENT> <ENT>16</ENT> </ROW> <ROW> <ENT I="01">II. Discussion</ENT> <ENT>20</ENT> </ROW> <ROW> <ENT I="03">A. Need for Reform</ENT> <ENT>27</ENT> </ROW> <ROW> <ENT I="03">1. Comments</ENT> <ENT>29</ENT> </ROW> <ROW> <ENT I="03">2. Commission Determination</ENT> <ENT>49</ENT> </ROW> <ROW> <ENT I="03">B. Cost of Producing Reactive Power</ENT> <ENT>62</ENT> </ROW> <ROW> <ENT I="03">1. Comments</ENT> <ENT>66</ENT> </ROW> <ROW> <ENT I="03">2. Commission Determination</ENT> <ENT>89</ENT> </ROW> <ROW> <ENT I="03">C. Cost Recovery</ENT> <ENT>109</ENT> </ROW> <ROW> <ENT I="03">1. Comments</ENT> <ENT>113</ENT> </ROW> <ROW> <ENT I="03">2. Commission Determination</ENT> <ENT>141</ENT> </ROW> <ROW> <ENT I="03">D. Reliability</ENT> <ENT>155</ENT> </ROW> <ROW> <ENT I="03">1. Comments</ENT> <ENT>157</ENT> </ROW> <ROW> <ENT I="03">2. Commission Determination</ENT> <ENT>165</ENT> </ROW> <ROW> <ENT I="03">E. Investment</ENT> <ENT>170</ENT> </ROW> <ROW> <ENT I="03">1. Comments</ENT> <ENT>171</ENT> </ROW> <ROW> <ENT I="03">2. Commission Determination</ENT> <ENT>178</ENT> </ROW> <ROW> <ENT I="03">F. Additional Comments</ENT> <ENT>187</ENT> </ROW> <ROW> <ENT I="03">1. Comments</ENT> <ENT>187</ENT> </ROW> <ROW> <ENT I="03">2. Commission Determination</ENT> <ENT>201</ENT> </ROW> <ROW> <ENT I="01">III. Compliance Procedures</ENT> <ENT>202</ENT> </ROW> <ROW> <ENT I="03">A. Revisions to Eliminate Compensation for Reactive Power Supply Within the Standard Power Factor Range</ENT> <ENT>202</ENT> </ROW> <ROW> <ENT I="03"> 1. Revise Schedule 2 of the Commission's <E T="03">Pro Forma</E> 2. Revise Section 9.6.3 of the <E T="03">Pro Forma</E> Large Generator Interconnection Agreement 3. Revise Section 1.8.2 of the <E T="03">Pro Forma</E> Small Generator Interconnection Agreement </ENT> <ENT>205</ENT> </ROW> <ROW> <ENT I="03">4. Compliance Procedures</ENT> <ENT>206</ENT> </ROW> <ROW> <ENT I="03">B. Transition Period</ENT> <ENT>207</ENT> </ROW> <ROW> <ENT I="03">1. Comments</ENT> <ENT>210</ENT> </ROW> <ROW> <ENT I="03">2. Commission Determination</ENT> <ENT>224</ENT> </ROW> <ROW> <ENT I="01">IV. Information Collection Statement</ENT> <ENT>228</ENT> </ROW> <ROW> <ENT I="01">V. Environmental Analysis</ENT> <ENT>242</ENT> </ROW> <ROW> <ENT I="01">VI. Regulatory Flexibility Act</ENT> <ENT>243</ENT> </ROW> <ROW> <ENT I="01">VII. Document Availability</ENT> <ENT>247</ENT> </ROW> <ROW> <ENT I="01">VIII. Effective Date and Congressional Notification</ENT> <ENT>250</ENT> </ROW> </GPOTABLE> 1. In this final determination, pursuant to section 206 of the Federal Power Act (FPA), the Federal Energy Regulatory Commission finds that allowing public utility transmission providers (transmission providers)  <SU>1</SU> <FTREF/> to charge transmission customers for a generating facility's provision of reactive power within the standard power factor range is unjust and unreasonable. The Commission, therefore, is revising Schedule 2 of the Commission's <E T="03">pro forma</E> OATT to prohibit transmission providers from including in their transmission rates any charges associated with the provision of reactive power within the standard power factor range from generating facilities and requiring transmission providers to make compliance filings to update Schedule 2 of their OATTs accordingly. <SU>2</SU> <FTREF/> The final determination further revises the Commission's <E T="03">pro forma</E> LGIA and <E T="03">pro forma</E> SGIA to remove the requirement that a transmission provider pay an interconnection customer for reactive power within the standard power factor range if the transmission provider pays its own or affiliated generating facilities for the same service, and the final determination requires transmission providers to make compliance filings to update their <E T="03">pro forma</E> interconnection agreements accordingly. As a result of this final determination, transmission providers will be required to pay an interconnection customer for reactive power only when the transmission provider requests or directs the interconnection customer to operate its facility <E T="03">outside</E> the standard power factor range set forth in its interconnection agreement. <FTNT> <SU>1</SU>  Section 201(e) of the FPA, 16 U.S.C. 824(e), defines “public utility” to mean “any person who owns or operates facilities subject to the jurisdiction of the Commission under this subchapter.” As stated in the Order No. 888 <E T="03">pro forma</E> OATT, “transmission provider” is a “public utility (or its Designated Agent) that owns, controls, or operates facilities used for the transmission of electric energy in interstate commerce and provides transmission service under the Tariff.” <E T="03">Promoting Wholesale Competition Through Open Access Non-Discriminatory Transmission Servs. by Pub. Utils.; Recovery of Stranded Costs by Pub. Utils. & Transmitting Utils.,</E> Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996) (cross-referenced at 75 FERC ¶ 61,080), <E T="03">order on reh'g,</E> Order No. 888-A, FERC Stats. & Regs. ¶ 31,048 (cross-referenced at 78 FERC ¶ 61,220), <E T="03">order on reh'g,</E> Order No. 888-B, 81 FERC ¶ 61,248 (1997), <E T="03">order on reh'g,</E> Order No. 888-C, 82 FERC ¶ 61,046 (1998), <E T="03">aff'd in relevant part sub nom. Transmission Access Pol'y Study Grp.</E> v. <E T="03">FERC,</E> 225 F.3d 667 (D.C. Cir. 2000), <E T="03">aff'd sub nom. N.Y.</E> v. <E T="03">FERC,</E> 535 U.S. 1 (2002); <E T="03">Pro forma</E> OATT section I.1 (Definitions). The term “transmission provider” includes a public utility transmission owner when the transmission owner is separate from the transmission provider, as is the case in regional transmission organizations (RTO) and independent system operators (ISO). </FTNT> <FTNT> <SU>2</SU>  Operating “inside the standard power factor range” refers to a generating facility providing reactive power within the power factor range set forth in the generating facility's interconnection agreement when the unit is online and synchronized to the transmission system. The standard power factor range is sometimes referred to as the “deadband.” <E T="03">Compensation for Reactive Power Within the Standard Power Factor Range,</E> Notice of Proposed Rulemaking, 89 FR 21,454 (Mar. 28, 2024) (cross-referenced at 186 FERC ¶ 61,203, at P 2 n.1) (NOPR). </FTNT> 2. As discussed below, the Commission has a statutory duty to ensure that transmission rates are and remain just and reasonable. We find that this reform will ensure that transmission providers do not pass onto transmission customers unjust and unreasonable charges that lack a sufficient economic basis or justification and yield no commensurate benefit for ratepayers. <HD SOURCE="HD1">I. Background</HD> <HD SOURCE="HD2">A. Historical Framework Including Order Nos. 888 and 2003</HD> 3. Almost all bulk electric power is generated, transported, and consumed in alternating current (AC) networks. Reactive power, which is measured in megavolt-amperes reactive (MVAr), <SU>3</SU> <FTREF/> is a critical component of operating an AC electricity system and is required to control system voltage within appropriate ranges for efficient and reliable operation of the transmission system. Reactive power supports the voltages that must be controlled to provide for delivery of real power and for system reliability. Reactive power can be produced or absorbed  <SU>4</SU> <FTREF/> by generating facilities, power electronic equipment such as flexible AC transmission sy ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 445k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━