The current Deficiency Charge framework combines an annual charge concept with seasonal calculations and revenue distributions. This can create different outcomes depending on whether a Participant’s maximum deficiency occurs in Summer or Winter and how its deficiencies develop across the Forward Showing Year.
Under the current structure, the maximum Summer deficiency is assessed the higher CONE-based charge following the Summer Showing. If the Participant’s maximum Winter deficiency is higher, only the incremental deficiency above the Summer maximum is assessed the higher charge following the Winter Showing. Revenues from each calculation are then distributed to Participants that were non-deficient in the applicable season.
This creates two primary concerns:
Revenue allocation can be driven by the sequencing of the seasons. A portion of what is effectively an annual Deficiency Charge is allocated based on Summer sufficiency simply because Summer occurs first. If the Participant establishes its maximum deficiency in Summer, the associated revenues go to Participants without Summer deficiencies. If it establishes a higher maximum in Winter, only the incremental amount is distributed based on Winter sufficiency. This can disproportionately direct annual Deficiency Charge revenues to Participants that are adequate in Summer.
The amount charged can depend on when the deficiency occurs. Because different Summer and Winter CONE Factors may apply, two Participants that ultimately have the same maximum deficiency for the Forward Showing Year can face different total charges depending on how much of that maximum was established in Summer versus Winter. This is difficult to reconcile with the concept that the higher Deficiency Charge is associated with an annual resource adequacy obligation.
The Transition Period adjustments can further complicate these calculations because the final annual obligation may not be known when the Summer charge is initially calculated and collected.
The proposed change would more clearly separate the seasonal and annual components of the Deficiency Charge framework.
1Please supply any comments related to the changes in BPM 107 – Forward Showing Deficiency Charges2Please supply any comments related to the changes in the WRAP Tariff (pages 58-60)3General Comment
Comment Topic
Overview
Lead Sponsor's (WPP) Description of the Issue
The current Deficiency Charge framework combines an annual charge concept with seasonal calculations and revenue distributions. This can create different outcomes depending on whether a Participant’s maximum deficiency occurs in Summer or Winter and how its deficiencies develop across the Forward Showing Year.
Under the current structure, the maximum Summer deficiency is assessed the higher CONE-based charge following the Summer Showing. If the Participant’s maximum Winter deficiency is higher, only the incremental deficiency above the Summer maximum is assessed the higher charge following the Winter Showing. Revenues from each calculation are then distributed to Participants that were non-deficient in the applicable season.
This creates two primary concerns:
Revenue allocation can be driven by the sequencing of the seasons. A portion of what is effectively an annual Deficiency Charge is allocated based on Summer sufficiency simply because Summer occurs first. If the Participant establishes its maximum deficiency in Summer, the associated revenues go to Participants without Summer deficiencies. If it establishes a higher maximum in Winter, only the incremental amount is distributed based on Winter sufficiency. This can disproportionately direct annual Deficiency Charge revenues to Participants that are adequate in Summer.
The amount charged can depend on when the deficiency occurs. Because different Summer and Winter CONE Factors may apply, two Participants that ultimately have the same maximum deficiency for the Forward Showing Year can face different total charges depending on how much of that maximum was established in Summer versus Winter. This is difficult to reconcile with the concept that the higher Deficiency Charge is associated with an annual resource adequacy obligation.
The Transition Period adjustments can further complicate these calculations because the final annual obligation may not be known when the Summer charge is initially calculated and collected.
The proposed change would more clearly separate the seasonal and annual components of the Deficiency Charge framework.
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