Establishing Default Levels for Mitigated Offer VOM Costs;

Revision Request Form

SPP Staff to Complete this Section
RR #: 69 / Date: 3/11/2015
RR Title: Mitigated Offer Variable Operations and Maintenance (VOM) Cost Calculation
Impact Analysis Required? No Yes
SUBMITTER INFORMATION
Name: Richard Dillon on behalf of the Mitigated Offer Strike Team / Company: Southwest Power Pool
Email: / Phone: 501-614-3228
REVISION REQUEST DETAILS
Requested Resolution Timing: Normal Expedited Urgent Action
Reason for Expedited/Urgent Resolution: MOPC required Revision Request.
Type of Revision (select all that apply):
Correction
Clarification / Design Enhancement
New Protocol, Business Practice, Criteria, Tariff / Regulatory Mandate (describe)
SPP Documents Requiring Revision:
Please select your primary intended document(s) as well as all others known that could be impacted by the requested revision (e.g. a change to a protocol that would necessitate a criteria or business practice revision).
Market Protocols / Protocol Section(s):1; 8.2.2.3; 8.2.2.4; Appendix G 1.1; 1.2; 1.3; 1.4; 1.5; 2; 2.1; 2.1.2; 2.2; 2.2.2; 2.2.3; 2.3; 2.3.1; 2.3.2; 2.3.3; 2.3.4; 2.3.5; 2.3.6; 2.4; 2.4.1(new); 2.4.2; 2.4.2.2; 2.4.2.3; 2.5; 2.6.1; 2.7.1; 2.8.1; 2.8.2; 2.8.3; 3; 3.3.2; 3.6; 4; 4.3; 4.4.1; 4.4.2; 4.4.3; 5; 5.4; 5.7; 6; 6.2; 6.8; 7.3; 8; 8.1; 8.3; 9 / Protocol Version: 25.a
Criteria / Criteria Section(s): / Criteria Date:
Tariff (OATT) / Tariff Section(s):Attachment AF 2.1 (new); 2.2 (new); 2.3 (new); 2.4 (new); 2.5 (new); 2.6 (new); 2.7 (new); 2.8 (new); 2.9 (new); 2.11 (new); 3.2; 3.3
Business Practice / Business Practice Number:
Objectives of Revision Request:
Explain why this Revision Request is needed and what will change as a result. Include benefits that will be realized from this revision.
The current process for developing VOM costs for mitigated offers is complicated and unclear.
These Market Protocols changes include:

1. Establishing default levels for Mitigated Offer VOM costs;
2. The process for calculating the default VOM amounts and an annual review of the defaults;
3. If MP VOM costs exceed default levels, MP may request Market Monitor to approve VOM costs that differ from default levels. The language includes FERC account examples from PRR 197;
4. If a Resource type is not listed in the default levels, MP will request Market Monitor to approve the Resource specific VOM costs;
5. Frequently Mitigated Resource (FMR) Adder for units that meet the criteria for a Frequently Mitigated Resource and are not recovering their costs;
6. For Resources not recovering their costs, an evaluation and determination by SPP if additional compensation for cost recovery is required.

REVISIONS TO SPP DOCUMENTS
In the appropriate sections below, please provide the language from the current document(s) for which you are requesting revision(s), with all edits redlined.
Market Protocols

1. Glossary

ARR Nomination Cap

As defined in Attachment AE of the Tariff.[MPRR138.1]

Associated Unit

As defined in Attachment AFH the SPP Tariff.

Avoidable Administrative Expenses (“AAE”)

As defined in Attachment AFH of the SPP Tariff.

Avoidable Carrying Charges (“ACC”)

As defined in Attachment AFH of the SPP Tariff.

Avoidable Corporate Level Expenses (“ACLE”)

As defined in Attachment AFH of the SPP Tariff.

Annual Avoidable Cost

As defined in Attachment AFH[1] of the SPP Tariff.

Avoidable Maintenance Expenses (“AME”)

As defined in Attachment AFH of the SPP Tariff.

Avoidable Operations and Maintenance Labor Expenses (“AOML”)

As defined in Attachment AFH of the SPP Tariff.

Avoidable Taxes, Fees and Insurance (“AFTI”)

As defined in Attachment AFH of the SPP Tariff.

Avoidable Variable Expenses (“AVE”)

As defined in Attachment AFH of the SPP Tariff.

Balancing Authority

As defined in the SPP Tariff.

Floor-room

As defined in the SPP Tariff.

Frequently Mitigated Resource (“FMR”)

As defined in Attachment AF

H of the SPP Tariff.

FSE Schedule

As defined in the SPP Tariff.

FSE Transfer Point

As defined in the SPP Tariff.[MPRR180.2]

8.2.2.3Mitigation Measures for Energy Offer Curves

(1)Mitigated energy offer curves shall be submitted on a daily basis by the Market Participant in accordance with the Mitigated Offer Development Guidelines. The mitigated energy offer curve may be updated up to 1100 hours on the day before the Operating Day for use in the DA Market. In the caseWhen a Resource is not committed by the DA Market, the mitigated energy offer curve may be updated until the Day-Ahead RUC process begins. For Resources committed by the DA Market, the mitigated energy offer curve submitted as of 1100 hours on the day before the Operating Day will apply to the DA Market on the day before the Operating Day and the RTBM on the Operating day; for all other Resources the mitigated energy offer submitted at the time the Day-Ahead RUC process begins will apply to the Day-Ahead RUC process on the day before the Operating Day, and the Intra-Day RUC processes and the RTBM on the Operating Day.

(2)The Energy Offer Curve conduct thresholds are as follows:

(a)For Resources committed to address a Local Reliability Issue, the threshold is a 10% increase above the Mitigated Energy Offer Curve;

(b)For Resources located in a Frequently Constrained Area and not subject to the threshold in Section 8.2.2.3(2)(a), the threshold is a 17.5% increase above the Mitigated Energy Offer Curve.

(c)For all other Resources the threshold is a 25% increase above the Mitigated Energy Offer Curve.

(3)The Transmission Provider shall apply mitigation measures by replacing the Energy Offer Curve with the Mitigated Energy Offer Curve if:

(a)The Resource’s Energy Offer Curve exceeds the Mitigated Energy Offer Curve bythe applicable conduct threshold; and

(b)The Resource has local market power as determined in Section 8.2.2.7; and

(c)The Resource either:

(i)Fails the Market Impact Test as described in Section 8.2.2.9, or

(ii)Is manually committed by the Transmission Provider or by a local transmission operator.

An Energy Offer below $25/MWh will not be subject to mitigation measures for economic withholding.

(4)The Mitigated Energy Offer Curve shall bereflect the resource’s Resource’s short-run marginalvariable cost of producing energy as determined by the unit’s heat rate, fuel costs and the costs related to fuel usage, such as transportation and emissions costs (“total fuel related costs”), opportunity costs and variable operations and maintenance costs (VOM) detailed in the Mitigated Offer Development Guidelines. The formula for Mitigated Energy Offer Curves can be found in Appendix G Section 2.5.

(5)Opportunity costs may be reflected in the total fuel related costs and/or the VOM under the following circumstances:

(a)Externally imposed environmental run-hour restrictions; or

(b)Physical equipment limitations on the number of starts or run-hours; or

(c)Fuel supply limitations.

(6)The Market Participant shall submit heat rates and the methods for determining fuel costs, fuel related costs including emissions costs, opportunity costs, and variable operation and maintenance (VOM) costs to the Market Monitoring UnitMonitor. The information will be sufficient for replication of the Mitigated Energy Offer Curve and shall include, among other data, the following information:

(a)For fuel costs, Market Participants shall provide the Market Monitoring UnitMonitor with an explanation of the Market Participants’ fuel cost policy, indicating whether fuel purchases are subject to a fixed contract price and/or spot pricing and specifying the contract price and/or referenced spot market prices. Any included fuel transportation and handling costs must be short-run marginal costs only, exclusive of fixed costs. variable costs only, exclusive of fixed costs. Fuel handling variable costs include but are not limited to costs associated with coal combustion residual (CCR) handling and disposal, de-moisturization of oil, antifreeze for coal, maintenance of mills and conveyors, and other consumables directly related to the use of fuel, natural gas transportation loss charges and other commodity based charges that vary with volume of natural gas transported.

(b)For emissions costs, Market Participants shall report the emissions rate of each of their units and indicate the applicable emissions allowance cost.

(c)For VOM costs, Market Participants shall submit must use either Energy Offer Curve VOM costs, calculated not to exceed the default Energy Offer Curve VOM costs stated in adherence with the the mitigated offer development guidelines in Appendix G of these Market Protocols, reflecting short-run marginal or request the Market Monitor to approve a Resource specific VOM cost by following the guidelines as described in this Section 8.2.2.3(6) in sub-paragraph (d). The default VOM costs shall be reviewed by the Market Monitor and the Market Working Group (MWG) at least annually, as described in Section 2.4.1 of Appendix G of the Market Protocols.

(c)(d)Market Participants may request that the Market Monitor review and approve a Resource specific Energy Offer Curve VOM. Such requested cost components shall reflect only variable operation and maintenance costs, exclusive of fixed costs. Fixed costs are costs that do not vary based on the use of the Resource for the production of energy, such as supervisory and engineering salary, office supplies, training, employee expenses. FERC accounts 502, 505, 512, 513, 530, 531, 545, 548, 553 and 554 are examples of accounts that contain VOM cost components that can be included, exclusive of fixed costs in these accounts. See Appendix G sections applicable to a specific type of resource for detailed information regarding costs components allowed for inclusion. For purposes of determining Resource specific VOM costs, the Market Participant shall exclude overhaul maintenance costs. A detailed listing of requested costs must be provided to the Market Monitor for review prior to approval in accordance with the mitigated offer development guidelines in Appendix G of these Market Protocols. These Resource specific costs shall be updated by the Market Participant at least annually.

(d)Further details associated with the development and validationof these costs are included in SPP’s Mitigated Offer Development Guidelines.

(e)Market Participants may request the Market Monitor determine a Resource’s eligibility for inclusion of an FMR Adder. The Market Participant shall submit sufficient data for determination of its Annual Avoidable Cost (in $/year), which includes: Avoidable Operations and Maintenance Labor; Avoidable Administrative Expenses; Avoidable Maintenance Expenses; Avoidable Variable Expenses; Avoidable Taxes, Fees, and Insurance; Avoidable Carrying Charges; and Avoidable Corporate Level Expenses. Upon receipt of such data and on a monthly basis thereafter, the Market Monitor shall notify the Market Participant of eligibility for an FMR Adder if it meets both of the following criteria:

(i)The Resource is mitigated at least 60% of its operating hours determined on a rolling twelve-month basis, effective with a one month lag; and

(ii)The Resource’s twelve-month Energy and Operating Reserve Market revenues (in $/year) are less than its Resource specific Annual Avoidable Cost (in $/year), as determined in consultation with the Market Monitor, determined on a rolling twelve-month basis, effective with a one month lag.

(f) For FMRs, and their Associated Resources as defined under Section 8.2.2.3(6)(g), for which the Market Monitor has verified eligibility as described in Section 8.2.2.3(6)(e), the following FMR Adders, subject to Market Monitor review and report to the MWG at least annually, shall apply:

(i) For Resources that are mitigated for 60% or more of their operating hours, but less than 70% of their operating hours, the FMR Adder will be $25.00 per megawatt-hour;

(ii) For Resources that are mitigated for 70% or more of their operating hours, but less than 90% of their operating hours, the FMR Adder will be $30.00 per megawatt-hour;

(iii) For Resources that are mitigated for 90% or more of their operating hours, the FMR Adder will be $40.00 per megawatt-hour.

Such payments shall be capped at the level required to make whole the resource to its verifiable costs for an applicable commitment period.

(g)Any Resource, without regard to ownership, located at the same site as a FMR shall become an “Associated Resource” upon notification from the Market Monitor that it meets all of the following criteria:

(i)The Resource has electrically equivalent impact on the transmission system as the FMR; and

(ii)The Resource (a) belongs to the same design class (where a design class includes generation that is the same size and utilizes the same technology, without regard to manufacturer) and uses the identical primary fuel as the FMR or (b) is regularly dispatched by SPP as a substitute for the FMR based on differences in cost that result from the currently applicable FMR Adder; and

(iii)The Resource (a) has an average daily mitigated Energy Offer, as measured over the preceding 12-month period, that is less than or equal to the FMR’s average daily mitigated Energy Offer adjusted to include the currently applicable FMR Adder or (b) is regularly dispatched by SPP as a substitute for the FMR based on differences in cost that result from the currently applicable FMR Adder.

(h) For Resources that are not recovering their total operation and maintenance costs, at the request of the Market Participant, the Market Monitor, SPP and the impacted Market Participant shall evaluate the potential causes of such under recovery. The Market Monitor in coordination with SPP shall analyze the magnitude of the costunder recovery of costs and provide the analysis and conclusions from any such assessment to the Market Participant and will report any revealed market design or implementation flaws to the Market Working Group.

(7)For Demand Response Resources with behind the meter generation the Mitigated Energy Offer Curve shall be developed in the same manner, described above, as any other generating Resource. For load response Demand Response Resources, the mitigated Energy Offer Curve shall reflect the quantifiable opportunity costs associated with the reduction, net of related offsetting increases in usage.

(8)For Dispatchable Variable Energy Resources, the mitigated Energy Offer Curve may include, VOM costs not to exceed the default VOM levels for Energy Offer Curves stated in the mitigated offer development guidelines, Appendix G of these Market Protocols or a requested Resource specific VOM cost approved by the Market Monitor as described under Section 8.2.2.3(6)(d), which may include but shall not exceed, any quantifiable costs that vary by MWh output, including short-run incremental VOM. Mitigation will not apply to Non-Dispatchable Variable Energy Resources in the Real-Time Balancing Market; monitoring for Energy Offers of Non-Dispatchable Variable Energy Resources will occur.

(9)Intra-day changes to the Mitigated Energy Offer Curve are allowed under the following conditions:

(a)The Market Participant incurs higher fuel procurement costs due to a request by the Transmission Provider for a Resource to remain online past the scheduled commitment period by the DA Market or a RUC process; or

(b)A Resource must switch fuels due to unforeseen operating conditions;

(c)The Resource is employing the Quick-Start Resource logic described in Section 4.4.2.3.1 in accordance with Appendix G, Section 6.4. In which case, the Mitigated Energy Offer Curve may be changed after the DA RUC clears on the day before the operating day.

Intra-day(d)Intra-day Changes to the Mitigationed Energy Offer Curve must follow the Mitigated Offer Development Guidelines and will be validated by the Market Monitor.

(10)In all cases under this Section 8.2.2.3, cost data submitted for the development of mitigated offers, including opportunity cost data, shall be subject to the confidentiality provisions set forth in Section 11 of Attachment AE to the Tariff.

8.2.2.4 Mitigation Measures for Start-Up and No-Load Offers

(1)A Mitigated Start-up Offer and a Mitigated No-load Offer shall be submitted daily by the Market Participant in accordance with the Mitigated Offer Development Guidelines. The Mitigated Start-up and No-load Offers may be updated up to 1100 hours on the day before the Operating Day for use in the DA Market. In the case a Resource inis not committed by the DA Market, the Mitigated Start-up and No-load Offers may be updated until the Day-Ahead RUC process begins. The Mitigated Start-up and No-load Offers submitted at the time the Day-Ahead RUC process begins will apply to the Day-Ahead RUC process on the day before the Operating Day and the Intra-Day RUC processes on the Operating Day.

(2)The Start-Up and No-Load Offer conduct thresholds are as follows:

(a)For Resources committed to address a Local Reliability Issue, the threshold is a 10% increase above the mitigated offer for the applicable offer;

(b)For all other Resources the threshold is a 25% increase above the mitigated offer for the applicable offer.

(3)The Transmission Provider shall apply mitigation measures by replacing the Start-Up or No-Load Offer with the applicable Mitigated Start-up or Mitigated No-load Offer if:

(a)The Resource’s Start-Up or No-Load Offer exceeds the mitigated offer by the applicable threshold; and

(b)The Resource has local market power as determined in Section 8.2.2.7; and