Retail%20Treatment%20of%20Zonal%20Generation%20Prices%20in%20Massachusetts

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Retail Treatment of Zonal Generation Prices in
Massachusetts

• Alvaro E. Pereira
• Director of Economic Policy Analysis
• Massachusetts Division of Energy Resources
• September 13, 2002
• Electric Restructuring Roundtable

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LMP in New England

• Transmission congestion is substantial in NE
• location of generation does not match demand
• some congestion is economic
• but current pricing prevents an economic solution
• Locational Marginal Pricing (LMP) will
• eliminate most cross-subsidies between zones
• encourage competitive suppliers to reduce
  inefficiencies (and offer hedges?)
• encourage economic location of new resources
• generation, transmission, demand response

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Supply Outlook and Transmission New
England, 2002-2006
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8 LMP Zones in NE

• 740 Nodes aggregated into 8 LMP Zones (or CMS
  Load)
• Differ from RTEP sub areas (13)
• LMP zones based on load-service territories and
  potential congestion problems

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LMP should be an Energy Cost

• Generators will charge zonal prices to
  wholesalers
• Wholesalers will charge zonal prices to retailers
• Retailers must recover zonal generation costs
• Recover these costs in the energy part of the
  bill
• make costs subject to competitive pressure
• keep a level playing field between SO/DS and
  others

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Distribution Territories and Zones

• Some distribution territories are within one zone
• Western Mass, Fitchburg, Cambridge, Commonwealth
• Boston Edison is in two zones
• 32 towns in NEMA, 7 towns in SEMA
• Massachusetts Electric is in three zones
• 26 towns in NEMA, 44 in SEMA, 94 in WMA

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3 LMP Zones in MA
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Charging a Zonal Price

• Customers in low cost zones no longer subsidize
  those in high cost zones
• Competitive suppliers can compete with SO/DS
• Customers in high cost zones less likely to
  return to DS
• Customers who can to respond to congestion price
  signals encouraged to do so
• Competitive suppliers compete to hedge congestion

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Charging an Average Price

• Congestion costs should be socialized for
• customers with little ability to change
  consumption
• customers with few or no competitive options
• customers whose small demand provides little
  incentive to change behavior
• An anti-competitive advantage is tolerable
• when competitive suppliers are not likely to
  differentiate zonal prices

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DOER Recommendations

• Include LMP cost recovery in the energy portion
  of the bill
• Differentiate cost recovery by type of customer
• Charge zonal price for large customers,
• permanently
• Charge average price for mass market,
• through end of the Standard Offer
• Prior to end of Standard Offer, re-evaluate policy