Alberta Energy - Capacity Market Framework Engagement December 2017

Transcription

1 Capacity Market Cost Allocation - Response Template The engagement is seeking stakeholder feedback on the questions below. Please submit your responses to these questions, and any additional input on this topic, to the Submission Library for the Capacity Market Framework engagement at: Submissions will be accepted on this topic until January 2, 2018 Submitted by: Name Organization Janene Taylor, Manager Market Services and Regulatory TransCanada Energy Ltd. (TCE) Question Cost Allocation Criteria 1. Do the criteria presented in the discussion document fully reflect the elements required in a capacity cost allocation methodology? Response (Y/N) Explanation/Further Details TCE supports the Government of Alberta setting the criteria and principles that will provide guidance to the Alberta Electric System Operator (AESO) in designing and implementing an appropriate cost allocation methodology. The cost allocation methodology should be filed by the AESO and approved by the Alberta Utilities Commission (AUC) in the same manner the transmission tariff is today. Economic Efficiency The cost allocation methodology must reflect cost causation. An efficient price signal will encourage consumers who can, to avoid consuming in hours where capacity costs are allocated. This reduces the total amount of future capacity required and likewise the total cost of capacity. Further, an efficient price signal may also create incentives for consumers who can t currently respond to the signal to do so in the future. For example, retailers may respond to the price signal by installing time of use meters or create products that facilitate price responsiveness. Page 1

2 Absent an accurate and effective price signal there is no incentive for the technological and commercial innovation that gives consumers more opportunities to better manage their electricity costs. Equity A cost allocation methodology that reflects cost causation will also avoid crosssubsidization between rate classes. Price signals should be designed to encourage consumers that can respond to do so, as this this will lower the total cost of capacity. This benefits all consumers, even those that are unable to currently change their consumption patterns. Practicality TCE agrees that the AESO must be able to implement the cost allocation methodology. Stability TCE disagrees that Stability is a necessary criterion as it has been defined. TCE notes that one of the assumptions in the Capacity Market Cost Allocation Discuss Document (Discussion Document) is that costs will be determined through the capacity market in advance of the delivery period. However, rather than forecast billing determinants which will result in the need for deferral accounts and annual true-ups, TCE supports allocating costs to consumers based on the prior year s billing determinants. For example, billing would be dependent on a consumer s actual consumption in the prior year and therefore consumers would have an incentive to reduce their consumption in the current year as it would reduce their capacity costs in the following year. TCE understands that this has been the working assumption of the AESO work groups in their design conversations to date. Page 2

3 2. Are there other criteria not included in the discussion document that should be considered? N N/A Capacity Cost Allocation Options 3. Do the options presented in the discussion document accurately reflect the choices available for capacity cost allocation in Alberta? A cost allocation methodology should encourage consumers to reduce consumption in hours that will reduce the amount of capacity procured in future years. Therefore, it is necessary to identify which inputs in the AESO s model will impact the volume of capacity the AESO will procure and design a cost allocation methodology that sends a signal to consumers to influence those inputs. TCE understands that the AESO will undertake an analysis that will assess the expected reliability in all hours, targeting a specified level of expected unserved energy or loss of load hours. Hours where there is expected unserved energy are those hours where the supply cushion, or the difference between generation and load is the smallest (tight supply cushion hours). These hours reflect periods of system stress. The Discussion Document states that In Alberta, periods of system stress do not generally occur at the same time as peak demand, with approximately 50 per cent of stress periods occurring between July and September, while peak demand commonly occurs in either December or January. Accordingly, in addition to considering peak demand hours, it is also important to assess periods of system stress. Page 3

4 4. Is there another viable option (methodology) to allocate capacity costs in Alberta that should be considered? Y As noted above the primary purpose of the cost allocation methodology should be to reduce the total capacity the AESO procures. Accordingly, a cost allocation methodology that allocates costs where the supply cushion is tight (or zero in the case of EEA events), will reduce consumption during periods of system stress improving reliability in real-time and reduce future capacity costs. A methodology that also considers hours of system stress is economically efficient as it reflects cost causation and encourages desired behaviour by sending a signal to reduce consumption during tight supply cushion hours systemically lowering future capacity market costs. Further, allocating capacity costs to those consuming in hours of system stress charges consumers that are impacting the total amount of capacity procured. As such, this methodology avoids cross-subsidization between consumer groups by charging each consumer group for its contribution to capacity procurement. Finally, the approach is simple and easy to implement. Consumer Behaviour 5. Do you believe that electricity consumption patterns of the following consumer groups will change because of the capacity cost allocation option selected: Residential? Possibly in the long term Residential consumers with cumulative meters are not able to respond to the price signal regardless of the methodology selected. However, an efficient price signal may create incentives for retailers to develop products or install technology that allows consumers to respond and better manage their energy costs in the future. If capacity costs are allocated based on total energy consumption, there will be no incentive for these consumers to change their consumption pattern. If capacity costs are allocated based on a weighted energy methodology, there may be a weak signal to shift consumption from super-peak hours to off-peak hours. Page 4

5 Farm/Irrigation? Possibly in the long term However, it should be noted that due to the small scale of residential customer consumption changes in consumption patterns may not significantly impact the total capacity procured regardless of the effectiveness of the price signal and therefore it is important that the price signal be efficient for commercial and industrial consumers. Likewise, farm/irrigation consumers with cumulative meters are not able to respond to the price signal regardless of the methodology. However, an efficient price signal may create incentives for retailers to develop products or install technology that allows consumers to respond and better manage their energy costs in the future. If capacity costs are allocated based on total energy consumption, there will be no incentive for these consumers to change their consumption pattern. If capacity costs are allocated based on a weighted energy methodology, there may be a weak signal to shift consumption from super-peak hours to off-peak hours. Small Commercial & Industrial? Large Commercial & Industrial? Y Y There will be consumers within this category that do not or cannot respond to the price signal while there will be others that are willing and able to respond. An efficient price signal may create incentives for retailers or individuals take action that allows these consumers to respond and better manage their energy costs in the future. If capacity costs are allocated based on total energy consumption, there will be no incentive for these consumers to change their consumption pattern. If capacity costs are allocated based on a weighted energy methodology, there may be a weak signal to shift consumption from super-peak hours to off-peak hours. There are large industrial consumers within this category that can respond to price signals. If capacity costs are allocated in a manageable number of hours, then those large commercial and industrial consumers could potentially change their consumption pattern. In the case of a coincident peak (CP) or the supply cushion methodology described above this would reduce the total amount of capacity the AESO needs to procure. If capacity costs are allocated based on total energy consumption, there will be no incentive for these consumers to change their consumption pattern. If capacity Page 5

6 costs are allocated based on a weighted energy methodology, there may be a weak signal to shift consumption from super-peak hours to off-peak hours. 6. Do you believe that your organization s electricity consumption pattern will change as a result of the capacity cost allocation option selected? 7. To which of the consumer groups above does your organization belong? Y If the cost allocation methodology is sent in a small number of hours through a CP or supply cushion methodology TCE would be capable of shifting its consumption away from hours where the electricity cost savings outweigh the costs associated with not consuming (i.e. process interruptions) for some of its load. TCE s ability to respond is dependent on the number of hours that the price signal is being sent as it is difficult for large industrial consumers to shift consumption in too many hours. A total energy or weighted energy methodology would not create an incentive for TCE to change its consumption pattern. Large Commercial & Industrial Evaluation of Cost Allocation Options 8. Please rank the Coincident Peak Allocation Option for each of the assessment criteria: Criterion Ranking Rationale Economic Efficiency High A CP methodology will incent consumers to shift their usage away from the system peak. This is preferable to a total energy or weighted energy approach that doesn t create an incentive for consumers to reduce their consumption. This methodology is aligned with the principle of cost causation to the extent that a higher peak load in one year will result in higher procurement in future years. This will result in lower costs to all consumers. Page 6

7 Equity High A cost allocation methodology that allocates costs to consumers in a manner that reflects that consumers contribution to the total capacity procured is consistent with cost causation and is equitable. Stability N/A This criterion is unnecessary as defined and TCE supports billing based on actual consumption in the pervious year rather than forecast billing determinants. Practicality High This approach is simple and easy to implement. 9. Please rank the Total Energy Allocation Option for each of the assessment criteria: Criterion Ranking Rationale Economic Efficiency Low This methodology is not consistent with cost causation as it is not correlated with consumption during periods of system stress or system peak. This methodology does not encourage behaviour that will reduce consumption in ways that reduce the total cost of capacity in the future. Total capacity costs will be highest under this methodology. Page 7

8 Equity Low This methodology ignores cost causation and will therefore result in crosssubsidization between rate classes. Total annual usage is not correlated with periods of system stress. Consumer groups with high load factors will subsidize others. Stability N/A This criterion is unnecessary as defined and TCE supports billing based on actual consumption in the pervious year rather than forecast billing determinants. Practicality High This approach is simple and easy to implement. 10. Please rank the Weighted Energy Allocation Option for each of the assessment criteria: Criterion Ranking Rationale Economic Efficiency Medium Depending in the specifics of the design a weighted energy allocation methodology could send an effective price signal. For example, if costs were allocated only during on-peak hours this would encourage a shift in consumption into the off-peak. If most costs are allocated during super-peak hours consumers are more likely to respond as the number of hours are small and are known in advance. However, unless costs are allocated based on total energy consumption in hours of peak demand or where there is a tight supply cushion TCE does not believe that a Page 8

9 weighted energy methodology will send an effective signal. Thus, this methodology is not reflective of cost causation as usage during peak and super-peak hours will not drive the need for additional capacity. Likewise, this methodology would not encourage behaviour that will reduce consumption in ways that reduce the total cost of capacity in the future and total capacity costs will be higher under this methodology. Equity Medium This methodology may result in cross-subsidization between consumer groups as periods of system stress, which are not necessarily correlated with peak hours and super-peak hours, are also drivers of additional future capacity costs. Stability N/A This criterion is unnecessary as defined and TCE supports billing based on actual consumption in the pervious year rather than forecast billing determinants. Practicality Medium This approach is simple and easy to implement. Preferred Option Page 9

10 11. Which capacity cost allocation option do you think is most suitable for Alberta? Why have you selected that option? The preferred capacity cost allocation methodology is one that: is reflective of cost causation and thereby minimizes cross-subsidization; sends the correct price signal to shift consumption away from hours that result in increased capacity procurement in future years; sends a transparent price signal that consumers can respond to; and sends appropriate price signals to all consumers, even where it is assumed that some consumers will not respond. If the price signal is strong enough, the market will develop creative solutions to avoid these costs. Additional Input Therefore, TCE supports a hybrid approach that allocates costs based on peak demand and tight supply cushion hours. TCE supports the AESO developing the specific cost methodology to ensure it is consistent with their modelling assumptions and outputs. The proposed cost allocation methodology proposal should be tested and approved by the AUC. 12. Do you have additional input? TCE suggests that those consumers who can adjust their consumption behaviour may only do so in a limited number of hours. Further, careful consideration should be given to how the price signal for energy, capacity and transmission work together. Page 10

11 Information submitted to Alberta Energy through this site is being collected for the purpose of the Capacity Market Technical Engagement Process. The Freedom of Information and Protection of Privacy Act, s. 33 (c) governs Alberta Energy s collection of personal information which may be included in the submissions. Please direct questions about the collection and use of this information to Alberta Energy,5 th Floor, Amec Place Building, Avenue S.W., Calgary, Alberta, T2P 3W2, (403) Page 11