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AEP Methodology


									Reactive Power

Federal Energy Regulatory Commission
            Open Meeting
         December 15, 2004
      Reactive Power Policy

• Review of Current Policy
  – Blackout
  – New Generation Filings
• Staff White Paper in Progress
• March 3, 2005 Technical Conference
  (tentative date)
Reactive Power Sources & Users

       Sources: Generators, Transmission
       Equipment (Capacitors, Static Var
       Users: Transmission Lines,
       Transformers, Loads (motors)
 Photos courtesy of Areva Transmission & Distribution, Hitachi, and NREL
           AEP Methodology

  1) Generator and its exciter;
  2) Accessory electric equipment that supports
     the operation of the generator exciter; and
  3) Remaining total production investment
     required to provide real power and operate
     the exciter

* Applyallocation factor to sort annual revenue
requirements of these components between real and
reactive power
      AEP’s Financial Impact
• Estimate of all Form 1 reactive power
  charges is $3.5 to $4.0 billion
 Goal of Reactive Power Policy
• Promote Reliable and Efficient
  Infrastructure Investment, Production, and
  Customer Use
           Market Issues
• Comparable Treatment of Generation
• Interconnection Standards
• Reactive Power Planning and
• Supply Incentives
• Demand Side Incentives
• Public Good
 Reactive Power Capacity Options

• Cost of Service
• Forward Market Procurement
• Pay Nothing
Reactive Power Real-Time Options

• No Payment within Bandwidth,
  Opportunity Costs Outside
• Strict Opportunity Cost
• Market Clearing Prices
• Fixed Payment
          Major Conclusions
• Align incentives with desired outcomes
  – Pay for reactive power
• Apply comparability to reactive power
• Treat capability and production differently
  – Pay more for dynamic than static capability
  – Review AEP method
  – Pay all sources same price for production
• Mitigate existing market power
  – Entry may reduce future market power

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