FERC proposes fairer compensation for grid frequency regulation

The Federal Energy Regulatory Commission has issued proposed rules intended to ensure just and reasonable rates for frequency regulation service provided to organized wholesale electricity markets by generators, including hydropower, and some emerging technologies.

The Notice of Proposed Rulemaking (RM11-7), issued Feb. 17, finds that current compensation practices for frequency regulation services in organized wholesale energy markets might not acknowledge the benefits of faster ramping resources, which might improve operational and economic efficiency and reduce costs to consumers. FERC has been examining such ancillary services, partly to ease barriers to integrating variable renewable energy sources into the grid.

Regulation service is an ancillary transmission service that protects the grid by correcting deviations in grid frequency and balance on transmission lines with neighboring systems. It is the injection or withdrawal of real power by facilities capable of responding appropriately. Typically it is provided by generators, such as fast-responding hydropower units, that are specially equipped for the purpose.

FERC noted regulation service, which is dispatchable, is distinguishable from frequency response, which involves automatic, autonomous, and rapid action of resources to respond to changes in frequency.

“Frequency regulation is critical to maintaining the reliability of the transmission system,” FERC Chairman Jon Wellinghoff said. “Historically, frequency regulation service has been provided by generators. In recent years, due to innovations in technology and communications, new resources have developed that are capable of providing this service. These could include storage technologies such as flywheels and electric vehicles, demand resources, and possibly even residential water heaters.”

FERC proposes two-part compensation

The proposed rule offers a two-part market-based compensation method. First, the resources would receive a uniform capacity payment, to include opportunity costs, for standing ready to provide frequency regulation service. Second, the resources would receive a market-based performance payment for each megawatt, up or down, provided in response to a system operator’s dispatch signal. The payment also would reflect the accuracy of the resource’s performance.

Commissioner Marc Spitzer issued a separate opinion, dissenting in part. Spitzer said the commission issued the proposed rulemaking without sufficient information. Instead, he said, FERC should have issued a notice of inquiry or advanced notice of proposed rulemaking, seeking more input.

“There are ‘traditional’ resources, such as pumped-storage hydro and certain combustion turbine resources that provide this type of ‘faster-ramping’ service, but we have received only limited feedback from these types of resources so far,” Spitzer said. “In addition, there may be proponents of new technologies that we have not heard from whose role with regard to frequency regulation may warrant a different change to our regulations than proposed…”

The Notice of Proposed Rulemaking is available on FERC’s Internet site, www.ferc.gov, under www.ferc.gov/whats-new/comm-meet/2011/021711/E-4.pdf.

Comments are due 60 days after publication of the notice in the Federal Register. They may be submitted via the eFiling link on FERC’s website or by delivery to Federal Energy Regulatory Commission, Secretary of the Commission, 888 First St., N.E., Washington, DC 20426.

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