FERC issues new compensation rules for grid frequency regulation

The Federal Energy Regulatory Commission has issued new 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 commission issued the final rules (RM11-7) Oct. 20 after considering comment on proposed rules issued in February.

FERC found 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.

“It became clear that, by not compensating for the amounts of frequency regulation service that different resources provide, organized markets do not adequately compensate for the additional work performed by faster and more accurate resources,” FERC Chairman Jon Wellinghoff said. “This Final Rule remedies that by putting in place requirements to recognize the different characteristics and pay for actual performance.”

FERC requires two-part compensation

The rule requires organized wholesale power markets to include in their tariffs a two-part market-based compensation method for regulation service. 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.

Wellinghoff noted, at the suggestion of Commissioner John Norris, FERC issued a Notice of Inquiry (RM11-24) seeking comments on whether the goals of the regulation service rulemaking can be extended to regions outside organized wholesale energy markets.

The Final Rule is available on FERC’s Internet site, www.ferc.gov, under www.ferc.gov/whats-new/comm-meet/2011/102011/E-28.pdf.

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