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Conn. Draft Would Revise Method for Calculating CL&P Variable Peak Pricing Rates

August  12, 2011
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A draft Connecticut PURA decision would require Connecticut Light and Power to modify the method for calculating the generation rates that are assessed under the optional Variable Peak Pricing (VPP) tariff, since the current method has resulted in on-peak rates below standard rates as well as off-peak rates.

Under the current methodology, CL&P uses the ISO-NE day-ahead LMP for the Connecticut load zone as the basis for calculating a daily VPP rate, which applies only in peak hours (with off-peak prices reflecting the otherwise applicable Time of Use rate). CL&P first calculates a daily arithmetic average of the eight hourly peak DA-LMPs, and then adjusts this daily average rate to reflect full requirements service.

However, because CL&P's Standard Service is procured over three years, and wholesale prices have declined precipitously over that time, the Variable Peak Prices, which better reflect current market conditions, have been 20% to 50% lower than the rates for Standard Service peak generation from July 2008 to February 2010. Additionally, under the current structure, peak VPP rates are often lower than the off-peak generation rate charged to VPP customers.

CL&P serves VPP load using its existing portfolio of Standard Service contracts. Any difference between the cost of Standard Service generation and the revenue provided by VPP customers is reconciled through CL&P's annual generation cost true up.

"As a result, non-VPP ratepayers are subsidizing the difference between the price paid by VPP customers and the cost to provide this service," the draft concludes.

To date the subsidy has been limited because only 17 residential customers are served under the VPP tariff. "However, the subsidy would increase should additional customers opt for this service," the draft adds.

To address these issues, the draft would approve CL&P's proposal to modify the VPP rate calculation as follows, by essentially creating an adder to the rate obtained under the current DA-LMP methodology and also creating separate off-peak rates for VPP customers.

CL&P would:

- Determine monthly peak energy revenue by multiplying (1) the monthly forward market peak energy price obtained from the company's Last Resort Service filing by (2) the appropriate peak kWh from the company's Standard Service solicitation;

- Determine monthly off-peak energy revenue by multiplying (1) a monthly off-peak price obtained by subtracting the applicable retail tariff peak/off-peak generation service rate differential from the monthly forward market peak energy price determined above by (2) the appropriate off-peak kWh from the company's Standard Service solicitation;

- Subtract the peak and off-peak revenue determined above from total monthly Standard Service solicitation revenue and derive the monthly per kWh adder to be applied to all VPP kWh purchases;

- Set the daily peak VPP price using the DA LMP and monthly adder described above.

The above process would be performed quarterly for each rate class.

In other words, CL&P will use Standard Service TOU rates, which are currently assessed on an annual levelized basis, to develop load weighted monthly peak and off-peak rates. The monthly load weighted off-peak rate would be assessed to VPP customers with no further adjustments. Therefore, the off-peak rate would change monthly.

CL&P would then use the monthly load weighted peak rate to develop an adder that will be applied to the ISO-NE average DA-LMP. However, instead of calculating the adder as the difference between the forward market price and current Last Resort Service pricing (i.e., the current method), CL&P will develop the adder by subtracting the forward market price from the load weighted monthly peak price of Standard Service TOU generation, adjusted for delivery efficiency. CL&P will apply the adder to the average ISO-NE average DA-LMP which will continue to be calculated as it is currently: the arithmetic average of the eight hourly DA-LMP peak prices.

The draft would also require CL&P to solicit VPP supplies separately under its generation procurement process.

The draft would also direct that the offering of VPP service by retail suppliers shall be addressed in the Supplier Working Group under Docket No. 10-06-24

 

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