No Payment Due for Reactive Power within the Deadband

In an order reinforcing its policy with regard to compensating generators for reactive power, FERC recently agreed with Entergy Services, Inc. ("Entergy") that the company is not required to pay non-affiliated generators for supplies of reactive power within their specified power factor range (the "deadband" range) so long as Entergy does not compensate its own or its affiliated generators for the same supplies.

According to its calculations, Entergy could be on the hook for millions of dollars in charges from independent power producers ("IPPs") for the provision of reactive power within the deadband range.  To avoid those charges, Entergy asked FERC in September to affirm that the utility prospectively need not pay those charges so long as it stops paying its own or affiliated generators for comparable reactive power service.  The utility argued that by providing the reactive power, IPPs are merely meeting obligations to which they are already subject under their interconnection agreements, and that they should not be compensated for a "service" that provides no grid-wide benefits.

FERC agreed, citing an earlier case in which it decided that transmission providers must compensate generators for reactive power only when directed by the transmission provider to operate outside the deadband.  In addition, FERC pointed to its Order 2003 for its specific provision that interconnecting generators should not be compensated for operating within the deadband, since they are merely meeting their obligations by doing so.  FERC also approved Entergy's associated proposal to set the charges it currently levies on its customers for its own generators' provision of reactive power at zero, thereby freeing Entergy from within-the-deadband reactive power charges from non-affiliated generators.

More problematic for Entergy was its proposal to pass through to transmission customers the costs that third-party generators may charge Entergy, under existing rate schedules, for reactive power outside the deadband.  FERC initiated an investigation into that proposal and set it for hearing, declaring that it could not determine on the record before the propriety of Entergy recovering from transmission customers the utility's payments to third-party generators for reactive power outside the deadband.  [Entergy Serivces, Inc., 113 FERC ¶ 61,040 (2005) Update]