Frequency Regulation Compensation in the Organized Wholesale Power Markets, 11177-11187 [2011-4267]
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Federal Register / Vol. 76, No. 40 / Tuesday, March 1, 2011 / Proposed Rules
On July 15, 2010, the FAA received a
request for a legal interpretation
regarding how to apply flight time
limitations and rest requirements for
pilots engaged in flag operations when
those pilots participate in varying sizes
of flightcrews during a seven-day
period. Specifically, a pilot labor
organization requested a legal
interpretation regarding the application
14 CFR 121.481(d), limiting a two-pilot
crew to 32 hours of flight time within
any seven consecutive days, when that
same crew is augmented with an
additional pilot during or after the
completion of 32 hours of flight time
within a seven-day period. We have not
previously addressed these questions.
We do not require an air carrier to use
a pilot for just one flightcrew
complement in flag operations. Air
carriers engaged in flag operations are
permitted to use the same pilot as part
of a crew of two pilots, a crew of two
pilots and one additional flightcrew
member, or a crew of three pilots and
one additional flightcrew member. This
flexibility allows certificate holders who
use multiple flightcrew complements
throughout their operations to use
flightcrew members interchangeably.
The FAA’s rules have a long history
of acknowledging that pilots may be
used in flightcrews of varying sizes, in
that § 121.487 provides a framework for
calculating monthly and quarterly flight
time limitations for such pilots. In an
early version of the current requirement,
Special Civil Air Regulation No. 386F,
it was envisioned that this rule would
‘‘not allow evasion of the stricter
limitations applicable to smaller crew
combinations, but will allow assignment
of a pilot in any given month to another
type of crew combination without
additional flight time limitations if he
flies not more than 20 hours in the type
of crew to which the more restrictive
flight time limitations apply and if such
assignment is not interrupted more than
once during such month.’’ See 28 Fed.
Reg. 2000, 2000 (1963). Although
§ 121.487 provides a structure for
calculating monthly and quarterly flight
time limitations for pilots used in
varying sizes of flightcrews, neither the
current § 121.487 nor the regulatory
history answer the question of how to
apply daily and weekly flight time
limitations for these same pilots.
We did not intend, however, for this
flexibility to be used by a certificate
holder to select less restrictive flight
time limitations for a flightcrew by
augmenting that flightcrew midway or
at the completion of a scheduling
period. For example, the flight time
limits of 14 CFR 121.481(d) would be
circumvented if a certificate holder
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schedules a two-pilot crew for a series
of operations and then augments that
two-pilot flightcrew during or at the
completion of a 32 hours of flight time
within any seven-day period, for the
purposes of extending the flightcrew’s
flight time under the less restrictive
framework of § 121.483.
Although we have not clarified the
effects of augmenting a two-pilot
flightcrew within a seven-day period, in
a Legal Interpretation issued August 24,
1999, we examined the application of
§§ 121.481 and 121.483 when a twopilot flightcrew is augmented so as to
extend the duty times for the original
two-pilot flightcrew members within a
24-hour period. See Legal Interpretation
from Donald P. Byrne to James W.
Johnson (August 24, 1999). As
previously stated, § 121.481 applies
when a certificate holder conducts flag
operations with a one- or two-pilot
crew. When a certificate holder
conducts flag operations with a twopilot crew with one additional
flightcrew member, § 121.483 applies.
However, in an August 24, 1999 Legal
Interpretation, we stated that once an air
carrier conducting flag operations
schedules a pilot to fly under § 121.481
and the pilot completes the flight time,
it would be contrary to the intent of
§ 121.481 to then schedule that pilot to
fly under § 121.483 without providing
the rest required within a 24-hour
period as required by §§ 121.481(a) or
(b). See Legal Interpretation from
Donald P. Byrne to James W. Johnson
(August 24, 1999) (stating that the
regulations prohibit augmenting a twopilot crew after completing a 55 minute
flight, subject to § 121.481, so that those
two pilots may then continue on to
operate a 9 hour and 50 minute flight
subject to § 121.483(b) without
providing the rest required by
§ 121.481(a) or (b)). The August 24,
1999, Legal Interpretation ensures that
pilots who have operated as part of a
two-pilot crew receive the rest intended
by 14 CFR 121.481(a) and (b).
Finally, our knowledge regarding the
causes and effects of fatigue has
significantly increased since the
regulations on flight time limitations
were drafted. We now know that the
longer one has been awake and the
longer one spends on task, the greater
the likelihood of fatigue. We also know
more about transient and cumulative
fatigue. Transient fatigue and
cumulative fatigue are conditions
brought on by sleep restriction that
occurs over one or two days or a series
of days respectively, thus making the
daily and weekly flight time limitations
and rest requirements a significant
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11177
safeguard to ensure adequately rested
pilots.
Therefore, similar to the principle
articulated in the August 24, 1999 legal
interpretation and considering what we
now know about fatigue, to fulfill the
intended rest requirements of
§ 121.481(d), the FAA has tentatively
determined that once a flightcrew has
completed 32 hours of flight time under
14 CFR 121.481(d), that flightcrew must
be provided the rest required by
§ 121.481(d) before being scheduled
under § 121.483. Further, should an air
carrier engaged in flag operations use
two pilots in both a two-pilot flightcrew
and a flightcrew of two pilots and one
additional flightcrew member, within
any seven consecutive days, then the
flight time limitations and rest
requirements of § 121.481(d) would
apply to the two pilots who have moved
between crew complements.1
This clarification would fulfill the
intent that pilots serving in two-pilot
crews in flag operations are afforded the
rest contemplated by § 121.481.
Issued in Washington, DC, on February 22,
2011.
Rebecca B. MacPherson,
Assistant Chief Counsel for Regulations,
AGC–200.
[FR Doc. 2011–4271 Filed 2–28–11; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
18 CFR Part 35
[Docket Nos. RM11–7–000; AD10–11–000]
Frequency Regulation Compensation
in the Organized Wholesale Power
Markets
Federal Energy Regulatory
Commission, DOE.
ACTION: Notice of proposed rulemaking.
AGENCY:
The Federal Energy
Regulatory Commission (Commission) is
proposing to revise its regulations to
remedy undue discrimination in the
procurement of frequency regulation
service in the organized wholesale
electricity markets. The emergence of
technologies capable of responding
more quickly than the generators that
have historically provided frequency
regulation service has prompted the
SUMMARY:
1 § 121.483 does not contain a provision that is
parallel to § 121.481(d). Nevertheless, the flight
time limits for 48 and 72 hour periods found in
§ 121.483(b) are less restrictive than the flight time
limitations in § 121.481(d).
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Federal Register / Vol. 76, No. 40 / Tuesday, March 1, 2011 / Proposed Rules
jlentini on DSKJ8SOYB1PROD with PROPOSALS
Commission to evaluate market rules to
ensure that they are not unduly
discriminatory or fail to provide just
and reasonable compensation for the
service being provided. If found, the
Commission proposes to remedy the
undue discrimination by requiring a
uniform price for regulation capacity
paid to all cleared resources and a
performance payment for the provision
of frequency regulation, with such
payment reflecting a resource’s accuracy
of performance. This proposed action
helps to ensure that market rules do not
present unnecessary barriers to the
participation of all resource types in the
wholesale ancillary services markets.
The Commission seeks comment on the
proposed regulations.
DATES: Comments are due May 2, 2011.
ADDRESSES: You may submit comments,
identified by docket number by any of
the following methods:
• Agency Web Site: https://ferc.gov.
Documents created electronically using
word processing software should be
filed in native applications or print-toPDF format and not in a scanned format.
• Mail/Hand Delivery: Commenters
unable to file comments electronically
must mail or hand deliver their
comments to: Federal Energy Regulatory
Commission, Secretary of the
Commission, 888 First Street, NE.,
Washington, DC 20426.
FOR FURTHER INFORMATION CONTACT:
Robert Hellrich-Dawson (Technical
Information), Office of Energy Policy
& Innovation, 888 First Street, NE.,
Washington, DC 20426, (202) 502–
6360, bob.hellrich-dawson@ferc.gov.
Eric Winterbauer (Legal Information),
Office of the General Counsel, 888
First Street, NE., Washington, DC
20426, (202) 502–8329,
eric.winterbauer@ferc.gov.
SUPPLEMENTARY INFORMATION:
Notice of Proposed Rulemaking
1. Pursuant to section 206 of the
Federal Power Act (FPA),1 the
Commission is proposing to revise its
regulations to ensure just, reasonable
and not unduly discriminatory or
preferential rates in the procurement of
frequency regulation in the organized
wholesale electric markets. Maintaining
the frequency of the transmission
system within an acceptable range is
critical to reliable operations.
Historically, generators have provided
the power to regulate or correct
frequency deviations. Non-traditional
technologies that have the capability to
respond quickly and accurately to
1 16 U.S.C. 824e (2006). Accord 16 U.S.C. 824d
(providing that rates must be just and reasonable).
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certain transmission system needs are
being deployed in regional transmission
organization (RTO) and independent
system operator (ISO) 2 markets to
varying degrees. Resources such as
large-scale battery systems, flywheels,
electric vehicle-to-grid (V2G) systems,
and demand-side processes have the
ability to ramp 3 up or down faster than
some traditional resources and, as such,
are able to provide frequency regulation
services more accurately than
traditional resources.4
2. Taking advantage of the capabilities
of faster-ramping resources can improve
the operational and economic efficiency
of the transmission system and has the
potential to lower costs to consumers in
the organized wholesale energy
markets.5 However, current
compensation methods for regulation
service in ISO and RTO markets may
not acknowledge the inherently greater
amount of Area Control Error (ACE) 6
correction being provided by fasterramping resources.7 Frequency
regulation is the tool used to manage
ACE. In addition, some RTOs currently
2 The following RTOs and ISOs have organized
wholesale electricity markets: PJM Interconnection,
LLC (PJM); New York Independent System
Operator, Inc. (NYISO); Midwest Independent
Transmission System Operator, Inc. (Midwest ISO);
ISO New England Inc. (ISO–NE); California
Independent System Operator Corp. (CAISO); and
Southwest Power Pool, Inc. (SPP).
3 ‘‘Ramping’’ or the ability to ‘‘ramp’’ is
traditionally defined as the ability to change the
output of real power from a generating unit per
some unit of time, usually measured as MW/
minute. A generator ramps up to produce more
energy and ramps down to produce less. A storage
device ramps up by discharging energy and ramps
down by charging. A demand response resource, in
the context of the provision of frequency regulation,
ramps up by consuming less energy, and ramps
down by consuming more.
4 In this instance, the ability to provide more
accurate frequency regulation service means to
follow the system operator’s dispatch signal more
closely.
5 See infra n.32–33 and corresponding text.
6 ACE comprises two components, one measuring
the difference between a balancing authority’s
scheduled and actual interchange, and another
measuring the balancing authority’s share in
correcting the frequency of the interconnection. In
order to keep ACE within acceptable ranges, entities
will pre-schedule resources in anticipation of load
changes and use frequency regulation resources to
make up the difference. The frequency regulation
resources are sent a signal to increase or decrease
their provision of energy (or discharge or charge in
the case of a storage device, or consume more or
less energy in the case of a demand response
resource). This is done through what is known as
Automatic Generation Control (AGC). Because the
Balancing Area Authority must respond rapidly to
correct ACE deviations, fast responding resources
are particularly well-suited to maintaining system
frequency.
7 Both existing market participants and potential
entrants are affected by inefficient pricing. It is
possible that existing market participants would
offer faster ramping capabilities to the system
operator in response to a pricing scheme that
recognized the service this provides.
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provide unit-specific opportunity cost
payments to regulating resources rather
than incorporate the marginal resource’s
opportunity cost into the uniform
market clearing price, resulting in an
economically inefficient economic
dispatch.
3. The Commission is concerned that
frequency regulation compensation
practices may be resulting in rates that
are unjust and unreasonable and unduly
discriminatory or preferential.
Therefore, the Commission proposes to
require regional RTOs and ISOs to adopt
tariff revisions that will ensure that
resources providing frequency
regulation service are appropriately
compensated.8 The Commission seeks
public comment on these proposed
reforms.
I. Background
A. Frequency Regulation Service
4. Frequency regulation service is the
injection or withdrawal of real power by
facilities capable of responding
appropriately to a transmission system’s
frequency deviations or interchange
power imbalance, both measured by the
ACE. When generation dispatch does
not equal actual load and losses on a
moment-by-moment basis, the
imbalance will result in the grid’s
frequency deviating from the standard
(60 Hertz). Minor frequency deviations
affect energy consuming devices; major
deviations cause generation and
transmission equipment to separate
from the grid, in the worst case leading
to a cascading blackout. Frequency
regulation service can prevent these
adverse consequences by rapidly
correcting deviations in the
transmission system’s frequency to
bring it within the acceptable range.9
5. Frequency regulation is
distinguishable from Frequency
response.10 Frequency response
8 This NOPR is limited to the RTOs and ISOs. In
an RTO/ISO region (except SPP, which currently
does not have a frequency regulation market), the
frequency regulation market is designed to select
and compensate the resources needed to provide
frequency regulation service. The RTO/ISO market
design sends a price signal in order to incent
particular resource behavior that leads to the
reliable, least-cost provision of frequency
regulation. By contrast, in non-RTO/ISO regions,
frequency regulation is provided by the
transmission provider on a cost-of-service basis
through Schedule 3, with the transmission provider
selecting the mix of resources it uses to provide
frequency regulation service.
9 A balancing authority achieves acceptable
ranges by being in compliance with Control
Performance Standards 1 and 2 as defined in the
Commission-approved Reliability Standard BAL–
001–0.1a.
10 On January 20, 2011, the Commission released
for public comment a staff study evaluating the use
of frequency response metrics as a tool to assess the
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involves the automatic, autonomous and
rapid action of turbine governor control
to change a generator’s output and of
technically capable demand response
resources that can automatically change
consumption to respond to changes in
frequency. These changes occur
independent of any dispatch signal from
a system operator. Frequency regulation
service, in contrast, requires a dispatch
signal sent by the system operator to
those resources capable of and
dispatched to provide frequency
regulation service.
6. Today, frequency regulation is
largely provided by generators (e.g.,
water, steam and combustion turbines)
that are specially equipped for this
purpose. Provision by other resources is
emerging, as technologies develop and
tariff and market rules are appropriately
adapted to accommodate new resources.
For example, the Electric Reliability
Council of Texas (ERCOT) and Midwest
ISO currently use controllable demand
response in addition to generators to
provide frequency regulation service.11
Such ‘‘regulation capable’’ generation,
storage devices, and demand response
resources can respond automatically to
signals sent by the RTO or ISO, through
AGC, to increase or decrease real power
injections or withdrawals to correct
frequency deviations or interchange
schedule imbalance, as measured by the
ACE. The faster a resource can ramp up
or down, the more accurately it can
respond to the AGC, or ACE correction,
signal and avoid overshooting ACE
correction needs.12 When a resource
ramps too slowly, its ramping
limitations may cause it to work against
ACE correction needs and force the
reliability impacts of varying resource mixes on the
transmission grid.
11 In Midwest ISO, Alcoa’s Warrick metallurgic
induction (smelting) operation provides
approximately 70 MW of frequency regulation.
Alcoa Comments, Docket AD10–11–000, at 2 (June
16, 2010). In ERCOT’s model, controllable loads are
a type of Load Acting as a Resource (LaaR) that is
capable of reducing or increasing consumption
under dispatch control (similar to AGC) and able to
immediately respond proportionally to frequency
changes (similar to generator governor action) to
provide Ancillary Services. See Electric Reliability
Council of Texas, Controllable Load Resource
Qualification (2007), available at https://www.ercot/
content/services/programs/load/laar/
Controllable%20Load%20Resource
%20Qualification.doc.’’
12 Frequency Regulation Compensation in the
Organized Wholesale Power Markets, Technical
Conference, Beacon Speaker Materials, Docket No.
AD10–11–000, at Figure 3 (May 26, 2010), which
shows the difference between ISO–NE’s ACE
control signal, Beacon’s flywheel response, and the
allowable response rate under current ISO–NE
rules. Here, ‘‘allowable response rate’’ means the
rate at which the resource must respond to be
considered in compliance with the dispatch signal.
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system operator to commit additional
regulation resources to compensate.
B. Current ISO and RTO Practices
7. In the ISO and RTO markets,
compensation for frequency regulation
service is presently based on several
components. Depending on the ISO or
RTO, these payments include
consideration for capacity set aside to
provide the service, as well as some of
the following: The net energy the
resource injects into the system;
accurately following the ISOs or RTOs
dispatch signal; and/or the absolute
(rather than net) amount of energy
injected or withdrawn. These payments
are intended to cover the range of costs
incurred in order to provide this service:
Operation and maintenance costs for
providing frequency regulation and loss
of potential revenue from foregone sales
of electricity.
8. With regard to the payment for
capacity set aside, this is essentially an
option payment 13 to the resource to
keep a certain amount of capacity out of
the energy market in order to provide
frequency regulation service (based on a
market clearing price per MW of
capacity sold). ISO–NE, NYISO,
Midwest ISO, and PJM incorporate into
this payment the opportunity cost of
foregone energy sales incurred by a
resource that provides frequency
regulation service; though in ISO–NE
and PJM, opportunity costs are not
applied uniformly to all cleared
resources.
9. Compensation for regulation
service also generally includes
payments for the net energy the resource
injects into the system. RTOs and ISOs
currently provide a payment for the net
energy injected by a resource providing
regulation service during the operating
hour, calculated as the amount of energy
injected less energy withdrawn
multiplied by the real-time energy price.
10. Accuracy of performance can be
incorporated into payments for
regulation service. Currently, NYISO
incorporates accuracy into its
compensation for regulation service
through a penalty that reflects the
accuracy with which the resource
follows its dispatch instruction.14 This
is done through a performance index
that tracks how accurately a resource
follows the dispatch signal.15
13 This type of capacity payment, based on dayahead offers to sell ancillary services, is
distinguishable from a long-term capacity payment
such as provided for in PJM’s reliability pricing
model or ISO–NE’s forward capacity market.
14 NYISO, Market Services Tariff, § 15.3.5.5.
15 NYISO uses telemetry data to track how closely
a frequency regulation resource’s output is to the
dispatch signal. NYISO then weights the resource’s
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11. ISO–NE makes payments for
regulation service to reflect the amount
of work performed by a resource by
reflecting the absolute amount of energy
injected and withdrawn. Regulating
resources receive a ‘‘mileage’’ payment
that reflects the amount of ACE
correction provided.16
12. In general, when a resource
submits its bid, the bid is typically
required to include its ramp rate in MW
per minute, its cost per MWh of
ramping ability, and the total capacity it
is offering for frequency regulation.17
The resource’s total amount of capacity
is based on and limited by its ability to
ramp up or down in 5 minutes.18 For
example, a resource with a relatively
large amount of capacity, but a
relatively slow ramp rate would be
limited in how much capacity it could
offer as regulation. If the resource can
ramp one MW per minute, it would only
be able to offer 5 MW of regulation
capacity (for a five minute dispatch)
even if it has a total capacity of many
hundreds of megawatts. On the other
hand, a smaller capacity, fast-ramping
resource might not face such a
constraint. For instance, a storage device
that can hold a 20 MW charge and ramp
at 10 MW per minute, could offer its full
20 MW of capacity for five minutes.
13. Some RTOs and ISOs are actively
discussing changes to their frequency
regulation markets or stated at the
technical conference that changes might
be appropriate.19 For example, CAISO
has recently approved a new Regulation
Energy Management proposal.20
Likewise, the Commission is aware that
ISO–NE is preparing new rules for
frequency regulation compensation to
formalize the participation of energy
payments to reflect its accuracy. For example, if the
resource’s response falls outside an acceptable
range 10 percent of the time, for a performance
index of 0.9, it will receive 90 percent of its
payment.
16 ISO–NE, Transmission, Markets and Services
Tariff, § III.3.5.5.
17 See, e.g., NYISO, Ancillary Services Manual,
Manual 2, at 4–8 (Nov. 2010).
18 A resource’s capacity is limited by the amount
it can ramp in 5 minutes because the system
operator in most RTOs and ISOs dispatch resources
every 5 minutes. CAISO dispatches every 10
minutes, and so a frequency regulation resource’s
capacity in that market is bound by the total
capacity it can ramp in 10 minutes.
19 See PJM, Market and Reliability Committee
Meeting Materials, (Jan. 2011), https://
www.pjm.com/∼/media/committees-groups/
committees/mrc/20110119/20110119-item-05regulation-market-performance-incentive-problemstatement-clean.ashx.
20 CAISO, Board of Governors, Decision on
Regulation Energy Management (Feb. 3, 2011),
available at https://www.caiso.com/2b1a/
2b1acd6d20610.pdf.
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storage devices, something that has been
only a pilot project to date.21
C. Commission Inquiries into FasterRamping Resources
14. The Commission began its inquiry
into faster-ramping resources in May
2010. On May 26, 2010, the Commission
hosted a publicly noticed technical
conference 22 inviting various
stakeholders, including representatives
from the RTOs and ISOs, industry, and
academia to share their views on
whether current frequency regulation
market designs reflect the value of the
service provided, and whether the use
of faster-ramping resources for
frequency regulation has the potential to
provide benefits to the organized
markets. Interested parties were
permitted to file comments after the
technical conference. Separately, the
Commission on June 11, 2010 issued a
request for comments regarding
potential approaches to categorizing
storage service for compensation
purposes.23
jlentini on DSKJ8SOYB1PROD with PROPOSALS
1. Market Design and the Value of the
Service Provided
15. With regard to market designs for
frequency regulation service,
participants at the technical conference
generally agreed that compensation for
regulating resources ought to reflect the
service they perform for the system
operator. However, there was
disagreement regarding whether current
market designs accomplish this
objective. Some current market design
features were cited as resulting in
efficient price signals and appropriately
differentiating between the amount of
ACE correction that is provided by
different regulating resources,24 while
others were said to be deficient.25
16. At the technical conference and in
written comments, Beacon Power
Corporation (Beacon) provided data on
the amount of ACE correction provided
by a faster-ramping resource relative to
the generator response allowable under
the ISO tariff.26 According to Beacon’s
21 ISO–NE, Report of ISO New England Inc.
Regarding the Implementation of Market Rule
Changes to Permit Non-Generating Resources to
Participate in the Regulation Market, Docket No.
ER08–54–014, at 5 (Dec. 17, 2010).
22 See Final Agenda, Frequency Regulation
Compensation in the Organized Wholesale Power
Markets, Docket No. AD10–11–000 (May 26, 2010).
23 Request for Comments Regarding Rates,
Accounting and Financial Reporting for Electric
Storage Technologies, Docket No. AD10–13–000
(June 11, 2010).
24 Tr. 93: 2–5 (Walawalkar); Tr. 103: 6–10 (Capp).
25 Tr. 72: 1–11 (Ott).
26 Beacon, Technical Conference Speaker
Materials, at 7, Data from 1 MW in ISO–NE
Alternative Regulation Pilot (May 26, 2010)
(attached hereto as Appendix A).
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analysis of resources performing in the
ISO–NE market, it is possible for a
faster-ramping resource to provide more
frequency regulation service than a
slower-ramping resource. Beacon
presents data showing, over a one hour
period, a faster-ramping resource
providing a total of 0.48 MWh of
movement in response to the system
operator’s dispatch signal. If this same
signal had been sent to a slowerramping resource, it could have
provided only 0.18 MWh and still been
within ISO–NE’s allowable response
rate.
17. In addition, under certain
circumstances a slower-ramping
resource could actually be working
against the system operator’s need for
ACE correction, so that only a portion
of the energy produced positively
contributes to correcting the ACE signal.
By contrast, the faster-ramping resource
can respond to the system’s control
needs more exactly. In the example
discussed above, the allowed generator
response produces 0.18 MWh, but 0.07
MWh of that is working against the
system’s ACE correction needs because
of its slow-ramping capability.
Therefore, only 0.11 MWh (61 percent)
actually contributes to correcting ACE.
At the same time, the fast-ramping
resource is being dispatched more often
and all of the energy it produces helps
to correct ACE. Both resources are
considered, from the perspective of
ISO–NE’s current tariff, to be 100
percent accurate, even though at times
the slower-ramping resource is working
against the system operator’s ACE
control needs.
18. In this example, Beacon asserted
that the fast-ramping resource actually
is providing more than four times as
much ACE correction relative to the
allowable response from an existing
generator providing frequency
regulation. With the exception of ISO–
NE, the RTOs and ISOs limit
compensation to frequency regulation
resources to a capacity payment and net
energy balancing. ISO–NE includes a
payment for the amount of frequency
service provided. As a result, these ISOs
and RTOs would pay the fast-ramping
resource and the slow-ramping resource
the same amount, assuming both
resources set aside the same amount of
capacity to provide the service.
19. During the technical conference,
PJM stated that it has no compensation
structure for how much it asks a
resource to move when providing
frequency regulation and, as a result, it
is likely under-compensating resources
for speed and accuracy.27
27 Tr.
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20. On the other hand, representatives
of Midwest ISO and NYISO indicated
that they believe their current market
designs are sufficient, because the
amount of regulating capacity a resource
is allowed to sell is based on its ramp
rate, so faster-ramping resources are
allowed to sell more regulating
capacity.28
21. Alcoa noted that MISO and
NYISO’s rationale is only relevant to
resources that are ramp constrained.
Alcoa stated that its demand responsebased regulating resource is capacity
constrained, but not ramp constrained.
Alcoa added that because Midwest ISO
and NYISO both net the regulation up
and regulation down that a regulating
resource provides, neither compensates
for the resource’s actual ramping
contribution. As a result, Alcoa’s fast
ramp rate does not allow it to sell any
additional regulating capacity, and
Alcoa has no incentive to bid into the
market its true ability to ramp, instead
offering a lower ramp rate.29
22. Several entities responding to the
June request for comments also
addressed market design issues for
frequency regulation service.30 These
commenters argue that the market
should place a monetary value on the
service provided by the speed and
accuracy with which certain storage
technologies can respond to a regulation
signal. Commenters also identified the
potential benefits of using fasterramping resources to provide frequency
regulation service.31
2. Potential Cost and Reliability Benefits
23. Participants at the technical
conference stated that the use of fasterramping resources for frequency
regulation has the potential to provide
benefits to the organized markets. These
benefits include allowing RTOs and
ISOs to use less regulation capacity to
meet current NERC standards, thus
lowering regulation costs.32 Further, use
of faster-ramping resources frees slower28 Tr. 72–73 (Ramey); Tr. 132: 8–11 (Ramey); Tr.
75–77 (Pike).
29 Tr. 68:13–22 (Todd).
30 Beacon, Comments, Docket No. AD10–13–000,
at 8 (Aug. 9, 2010); NEMA, Comments, Docket No.
AD10–13–000, at 2 (Aug. 9, 2010); Xtreme Power,
Comments, Docket No. AD10–13–000, at 5 (Aug. 9,
2010); A123 Systems, Comments, Docket No.
AD10–13–000, at 5–7 (Aug. 9, 2010); ESA,
Comments, Docket No. AD10–13–000, at 2 (Aug. 9,
2010); NAATBatt, Comments, Docket No. AD10–
13–000, at 4–5 (Aug. 9, 2010).
31 MegaWatt Storage Farms Comments Docket No.
AD10–13–000, at 8–9 (Aug. 9, 2010); Xtreme Power,
Comments, Docket No. AD10–13–000, at 2–3 (Aug.
9, 2010); A123 Systems, Comments, Docket No.
AD10–13–000, at 4 (Aug. 9, 2010); ESA, Comments,
Docket No. AD10–13–000, at 2 (Aug. 9, 2010).
32 Tr. 35–36 (Ott); Tr. 30–31 (Kathpal); Tr. 37–39
(Ramey).
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ramping resources to operate at stable
output levels and, therefore, at more
efficient heat rates which allows them to
submit lower bids into energy markets,
thereby lowering energy prices.33
24. To illustrate the efficiency of
faster-ramping resources, some industry
representatives—during the technical
conference and in comments—referred
to a Pacific Northwest National
Laboratory study that examined the
ability of faster-ramping resources to
replace traditional generation resources
in providing frequency regulation
service in the CAISO.34 The study
defined an ‘‘ideal resource’’ as one that
has a ramp rate equal to its entire
capacity in one minute. The study’s
authors determined the ramping ability
for various resource types in the current
CAISO generation fleet that provide
frequency regulation service, including
hydro, combustion turbine, steam
turbine, and combined cycle. The
authors then estimated how many
megawatts of these types of capacity can
be replaced by 1 MW from an ideal
resource. In one case, the ideal resource
was assumed to have no limits on its
ability to sustainably provide energy. In
a second case, the resource’s ability to
sustain energy reflects the actual ability
of a flywheel, i.e., it reflects an energylimited resource. In either case, the
authors concluded that a fasterresponding resource is able to provide
more effective regulation capacity than
most other resources, including the
current generation fleet mix in the
CAISO. When replacing these resources
for frequency regulation service with an
ideal resource, the authors found that 1
MW of an ideal resource with limited
energy could replace 1.43 MW of an
average hydro unit. The authors state
that effectiveness increases as the ideal
resource is compared to even slower
ramping resources, reaching a maximum
when 1 MW of an ideal resource with
limited energy replaces more than 24
MW of an average steam turbine.
Compared to the current CAISO fleet
mix providing frequency regulation,
which includes fast-responding hydro
units, the authors found that 1 MW of
a limited energy ideal resource could
replace 1.17 MW of the current
generation mix.
25. Representatives from some RTOs
and ISOs, however, questioned at the
technical conference whether procuring
more fast-response resources would
materially improve their ability to meet
33 Id.
34 Makarov, Y.V., Ma, J., Lu, S., and T.B. Nguyen,
‘‘Assessing the Value of Regulation Resources Based
on Their Time Response Characteristics,’’ Pacific
Northwest National Laboratory, PNNL–17632, June
2008.
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NERC ACE control performance
standards.35 For example, ISO–NE and
NYISO acknowledged that using a
combination of faster-responding
resources has allowed them to meet
their NERC standards by procuring
relatively less regulation capacity than
they would otherwise need.36
II. Discussion
A. The Need for Reform
26. The Commission proposes to
adopt a frequency regulation
compensation mechanism, as set forth
below, for compensating regulation
providers in organized wholesale
electricity markets in order to eliminate
undue discrimination and ensure just
and reasonable rates. Faster-ramping
resources provide more ACE correction
to system operators than slower ramping
resources and are, at least in some RTOs
and ISOs, explicitly given priority in the
dispatch order. Yet these resources do
not appear to be receiving compensation
for all of the service they provide as a
result of pricing mechanisms that may
be unduly discriminatory. Further, the
Commission believes there are market
efficiencies to be gained by ensuring
efficient price signals for regulation
resources that forego the opportunity to
earn revenues in the energy markets.
1. Unduly Discriminatory Pricing
27. The Commission is concerned that
current rules that govern pricing and
compensation for frequency regulation
services in RTOs and ISOs may be
unjust and unreasonable because fasterramping resources are compensated at
the same level as slower ramping
resources, even though they can
respond more quickly and provide more
ACE correction.37
35 For example, NERC reliability requirement
CPS1 requires each balancing authority to operate
within a specific limit, taking into consideration
clock-minute averages of ACE, frequency bias, and
interconnection frequency error. NERC reliability
requirement CPS2 requires each balancing authority
to operate such that its average ACE is within a
specific limit, during a calendar month, for at least
90 percent of clock-ten-minute periods.
36 Tr. 49:2–14 (Pike); Tr. 53:24–25 (Potishnak).
37 See Promoting Wholesale Competition Through
Open Access Non-Discriminatory Transmission
Services by Public Utilities; Recovery of Stranded
Costs by Public Utilities and Transmitting Utilities,
Order No. 888, 61 FR 21540, at 21569 (May 10,
1996), FERC Stats. & Regs. ¶ 31,036 (1996), order
on reh’g, Order No. 888–A, 62 FR 12274 (Mar. 14,
1997), FERC Stats. & Regs. ¶ 31,048, order on reh’g,
Order No. 888–B, 81 FERC ¶ 61,248 (1997), order
on reh’g, Order No. 888–C, 82 FERC ¶ 61,046
(1998), aff’d in relevant part sub nom. Transmission
Access Policy Study Group v. FERC, 225 F.3d 667
(D.C. Cir. 2000), aff’d sub nom. New York v. FERC,
535 U.S. 1 (2002) (‘‘In the context of an emerging
competitive market in generation, discriminatory
practices that once did not constitute undue
discrimination must be reviewed to determine
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28. Specifically, the Commission is
concerned that under some existing
frequency regulation compensation
methods, a faster-ramping resource may
not be compensated for all of the service
it provides. For example, CAISO,
NYISO, Midwest ISO, and PJM net the
regulation up and regulation down
provided by resources. This
compensation method does not
acknowledge the inherently greater
amount of ACE correction being
provided by faster-ramping resources.38
As a result, slower-responding resources
are compensated as if they are providing
the same amount of ACE correction
when, in reality, they are not.
29. Some ISOs and RTOs dispatch
faster-ramping resources earlier than
other resources to take advantage of
their enhanced operation capabilities,
i.e., their ability to ramp faster, yet pay
all resources at the same rate, i.e., the
same clearing price for capacity and the
same price per MWh of net energy.39
Again, this could lead to providing
different amounts of ACE correction, yet
receiving the same compensation due to
netting practices.
30. The Commission acknowledges
that a resource’s ability to sell capacity
into the regulation market is dependent
on its ramping ability, such that a fasterresponding resource is able to offer a
relatively greater amount of capacity.
This does not, however, alleviate our
concerns about potential undue
discrimination toward resources that
provide more ACE correction. For
example, some new market entrants are
relatively small in terms of capacity
(capacity-constrained), but are capable
of responding rapidly to AGC signals
(not ramp-constrained), so a
compensation scheme that does not
reflect work performed will lead to
inadequate compensation when
compared to larger, slower responding
whether they are being used to prevent the benefits
of competition in generation from being achieved.’’).
38 A simplified example would be to consider two
resources that clear with the same amount of
capacity and are directed to provide regulation up
and regulation down over the course of a fiveminute interval. The fast-ramping resource might be
directed, for example, to move around an initial setpoint up five MW, then down three MW, up one
MW, down ten MW, and finally up nine MW. A
netting approach to compensation would determine
that the resource provided an additional two MW
of energy to the system (+ 5 ¥ 3 + 1 ¥ 10 + 9 =
+2) uring that five minute interval. Meanwhile, a
slower-ramping resource may be directed to move
up three MW and then down one MW for a net of
two MW in relation to its set-point. The operator
is not able to direct more movement because the
slower-ramping resource would not be able to
respond in the requisite timeframe. Both resources
would receive identical compensation for their
movement, despite the first resource providing
more ACE correction.
39 See, e.g., Tr. 83:9–24 (Ramey).
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generators.40 The Commission
preliminarily finds that slower, larger
resources are being given a
compensatory advantage for their size
while faster, smaller resources do not
similarly receive compensation for their
ramping speed. The Commission
believes compensation should take into
account the greater amount of service
that is being provided by faster-ramping
resources, through more frequent
provision of both up and down
regulation; this greater amount of ACE
correction is lost when positive and
negative contributions to ACE
correction are netted and no additional
payment is made to reflect performance.
Therefore, the Commission proposes to
reform current market designs that lack
a payment that reflects the amount of
ACE correction provided by a resource,
thereby under-compensating fasterramping resources when compared to
payments made to slower-ramping
resources.
31. Additionally, the Commission
believes that the manner in which some
resources that provide frequency
regulation service are compensated for
their opportunity costs may be unjust
and unreasonable and unduly
discriminatory.41 For instance, PJM
provides ex post ‘‘make whole’’
payments based on individual unit
opportunity costs, something that is not
reflected in the uniform market clearing
price calculation.42 ISO–NE pays
opportunity costs on a resource-specific
basis. Both of these methods have the
40 A resource that is capacity constrained but is
able to ramp at a very high rate will clear its
relatively small amount of capacity in the
regulation market and then be paid for providing
regulation service in real-time. But this performance
payment does not acknowledge ramping ability due
to netting. On the other hand, a ramp constrained
resource with a large amount of capacity to sell
could clear its relatively large amount of regulation
capacity (and, thus, receive a higher capacity
payment) and get paid at the same rate for
providing regulation service in real-time.
Expanding the hypothetical scenario provided
above, see supra n.37, assume that the first (faster)
resource is capacity constrained and can offer only
10 MW of regulation, while the second (slower)
resource, while ramp-constrained, can offer 30 MW
of regulation. The 30 MW resource will receive a
larger capacity payment for offering more
regulation, but the two resources will receive
identical net payments for their actual movement if
they are directed as indicated above. In other
words, the slower, larger resource receives a
compensatory advantage for its size, but the faster,
smaller resource does not similarly receive a
compensatory advantage for its ramping speed.
41 By participating in the regulation market, an
energy market resource is dispatched at a set-point
below its maximum capacity. Because this amount
of capacity is held in reserve to provide regulation,
the resource misses the opportunity to provide
energy at the current LMP.
42 PJM, Manual 18: Operating Agreement
Accounting, at 12–16, available at https://
www.pjm.com/∼/media/documents/manuals/
m28.ashx.
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potential to inefficiently select
regulating resources and also fail to
reflect the marginal unit’s full marginal
cost (including opportunity cost) that
should set the market clearing price that
is paid to all cleared suppliers. In
addition, as is noted by ISO–NE in
comments submitted after the technical
conference, failing to pay a uniform
clearing price that includes the marginal
unit’s opportunity costs could result in
inefficient price signals being sent that
will result in inappropriate long-term
investment.43 Therefore, the
Commission proposes to require that all
resource bids include opportunity costs
and that all cleared frequency regulation
resources be paid the single market
clearing price, which will reflect the
total marginal costs of the marginal
cleared unit. We believe that this
proposal will result in just and
reasonable rates and correct potential
undue discrimination.
2. Potential Market Efficiencies
32. The Commission preliminarily
finds that the use of faster-ramping
resources for frequency regulation has
the potential to improve operational and
economic efficiency and, in turn, lower
costs to consumers in the organized
markets. As described above, fasterramping resources may be able to
replace resources that currently provide
frequency regulation, so RTOs and ISOs
may be able to procure less regulation
capacity, thereby lowering costs to load.
This can be seen in both ISO–NE and
NYISO. Both have a relatively higher
concentration of faster-ramping
resources, easily meet NERC reliability
standards, and yet procure less
regulation capacity, as a percentage of
peak load, than other RTOs and ISOs.44
When dispatching faster-ramping
resources, the system operator is better
able to rely on those resources to
quickly and accurately follow the AGC
signal, without overshooting, thus
avoiding the need for additional
regulation resources to compensate.
33. The Commission also anticipates
a secondary effect on energy markets: as
slower ramping resources move out of
the frequency regulation market and are
able to focus on providing sustained
energy, they should be able to operate
at more efficient heat rates.45 For
example, for traditional thermal
generators, providing frequency
43 ISO–NE
Comments at 8.
Tr. 53:24–25 (Potishnak), Tr. 54:1–2
(Potishnak), Tr. 49:6–14 (Pike).
45 Participants at the May 26, 2010 technical
conference noted that it was unlikely that any
frequency regulation market would comprise only
fast-ramping storage resources due to the need for
sustained energy. Tr. 23:8–25 (Pike).
44 See
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regulation results in both operating at
inefficient heat rates and additional
wear and tear on equipment.46 If these
modes of operation are avoided, costs
can be reduced and lower energy bids
offered, thereby lowering prices in the
energy market. The Commission notes
that, at the May 2010 technical
conference, some participants
questioned the value of procuring only
faster-ramping, but short duration
resources, for frequency regulation.
Accordingly, the Commission seeks
comment on the benefits that fasterramping resources, no matter their exact
type, can and do bring to the RTO and
ISO markets. Likewise, the Commission
seeks comments on the drawbacks of
using faster-ramping resources, if any.47
B. Specific Proposals
34. In light of the foregoing concerns
the Commission proposes to amend its
regulations to provide a frequency
regulation compensation mechanism for
the RTO and ISO markets to ensure that
pricing and compensation of frequency
regulation service is just and reasonable
and not unduly discriminatory or
preferential. Specifically, the
Commission proposes to require ISOs
and RTOs to change their tariffs so that
regulation resources receive a two-part
payment. This two-part payment
structure is based on what the
Commission preliminarily finds are
‘‘best practices’’ used by the RTOs and
ISOs. As further described below, the
first part of the payment is a capacity,
or option, payment to have a certain
amount of capacity held in reserve and
not participate in the energy market in
order to provide frequency regulation
service. While all RTOs and ISOs with
a centrally-procured frequency
regulation market currently provide for
a capacity payment to frequency
regulation resources, the payment varies
by RTO or ISO. To produce the efficient
market outcome, this payment must
include the marginal regulating
resource’s opportunity costs. The
second part of the payment is a
performance payment based on the
amount of up and down movement, in
megawatts, the resource provides in
response to a control signal.48 This
46 Xcel Energy’s Pawnee coal plant shows
maintenance and capital costs (i.e., wear and tear)
for load following of approximately $1.5k per load
following cycle. Aptech Engineering Services, Inc.,
Cost of Cycling Analysis for Pawnee Station Unit 1
Phase 1: Top-Down Analysis, at vii (November
2008), available at https://www.xcelenergy.com/
SiteCollectionDocuments/docs/
CRPExhibit4CostofCyclingExecutiveSummary.pdf.
47 Tr. 28:13–24 (Potishnak); Tr. 40:9–15 (Ott).
48 This applies whether an RTO or ISO allows
resources to sell regulation up and regulation down
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performance payment should also take
into consideration a resource’s accuracy
in providing ACE correction. The
Commission preliminarily finds that
this compensation structure is necessary
to ensure that pricing schemes for
frequency regulation service in the
organized wholesale electricity markets
result in rates that are just and
reasonable, and not unduly
discriminatory or preferential.
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1. Capacity Payment and Opportunity
Cost
35. The Commission proposes to
require that each regulating resource is
paid a uniform capacity payment that
includes the opportunity cost of the
marginal regulating resource. As
discussed above, some ISOs and RTOs
currently pay resource-specific
opportunity costs in addition to or as
part of a capacity payment, while others
incorporate the marginal unit’s
opportunity cost into a uniform
frequency regulation market clearing
price for capacity. In order to send an
efficient price signal to frequency
regulation resources, the Commission
proposes that RTOs and ISOs base the
clearing price for frequency regulation
on the marginal resource’s marginal
cost, including opportunity cost. Paying
a unit-specific opportunity cost distorts
the market by basing the commitment of
regulating units on incomplete market
information, potentially leading to
committing units with higher costs than
other units not committed. Accordingly,
the Commission preliminarily finds that
a frequency regulation compensation
mechanism that includes a uniform
clearing price with accuratelydetermined opportunity costs will
reduce errors in selecting the optimal
portfolio of regulation suppliers each
hour (and each day), which reduces
total regulation costs to consumers and
ensures that rates are just and
reasonable and not unduly
discriminatory or preferential.
36. In addition, the Commission
preliminarily finds that cross-product
opportunity costs 49 should be
calculated by the RTO or ISO, as it has
the best information to determine a
frequency regulation resource’s crossproduct opportunity cost due to not
participating in the energy market.
Further, where appropriate, resources
should be permitted to include intertemporal opportunity costs in their
separately or requires resources to offer both
regulation up and regulation down.
49 A cross-product opportunity cost, in this case,
is the revenue a regulation provider loses because
it is on stand-by to provide regulation and is not
providing energy.
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capacity bid.50 The Commission seeks
comment on its proposal to require each
regulating resource to be paid a uniform
capacity payment that includes the
opportunity cost of the marginal
regulating resource.
2. Payment for Performance with
Accuracy Adjustment
37. The Commission preliminarily
finds that requiring a component in the
frequency regulation compensation
mechanism that recognizes the
resource’s contribution to ACE
correction is necessary to remedy undue
discrimination and ensure just and
reasonable rates in the organized
wholesale electricity markets. Resources
that provide more value to the grid by
doing more of the work to correct ACE
deviations should be paid more than
resources doing less work. Accordingly,
taking performance into consideration is
a key element of ensuring that any
frequency regulation compensation
mechanism is just and reasonable and
not unduly discriminatory or
preferential. We, therefore, propose to
require that all regulating resources be
paid for their performance, with this
payment taking the form of a payment
for each MW, up or down, provided by
the resource in response to the system
operator’s dispatch signal. Specifically,
an RTO or ISO would determine the
total movement up and down and then
multiply that sum by a price-per-MW of
ACE correction. We seek comment on
the proposed method and whether there
are alternative payments for
performance that can address our
concern about undue discrimination.
38. The Commission proposes that the
price-per-MW of ACE correction be
market-based. Specifically, resources
would specify the capacity (in MW)
available to provide regulation, a ramp
rate (in MW/minute), and bid into the
market a price-per-MWh ramping
capability and price-per-MW of ACE
correction. The RTO or ISO would then
determine the least cost set of resources
and set the price-per-MW of ACE
correction based on the bid of the
marginal regulating resource. We note
that there was little discussion at the
technical conference about how to
50 An inter-temporal opportunity cost represents
the foregone value when a resource must operate at
one time, and therefore must either forego a profit
from selling energy at a later time or incur costs due
to consuming at a later time. The trade-off
presented to thermal storage provides an example
of inter-temporal opportunity costs. A thermal
storage operator would prefer to ‘‘charge’’ (heat
bricks or freeze water) when prices are low. If such
a resource were to provide frequency regulation, it
could be asked to stop charging during low price
periods and then be forced to charge during high
price periods.
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design the price-per-MW of ACE
correction.51 The alternative to a
market-based price is to use an
administratively set price-per-MW of
ACE correction. We seek comment on
this proposal as well as the alternative
of an administratively determined price,
including how an administratively
determined price could be set. We note
that some commenters stressed the
importance of the ISO’s and RTO’s
energy and ancillary service cooptimization algorithms in producing
the least-cost portfolio of resources.52
We therefore seek comment on how this
proposal will integrate with the ISO’s
and RTO’s existing co-optimization
algorithms.
39. The Commission also proposes
that the performance payment must
reflect the resource’s accuracy in
following the system operator’s dispatch
signal. Specifically, we propose that the
accuracy be measured by the RTO or
ISO using currently available telemetry
technology. If an RTO or ISO receives
telemetry data every 10 seconds, for
instance, it would be able to measure
over the course of 5 minutes how often
the resource was delivering exactly the
megawatts requested. The resource
would then be compensated for the
fraction of its energy injected or
withdrawn that met the dispatch signal.
This method accepts as given the
resource’s stated ramping ability and
provides a disincentive to deviate from
the dispatch signal, which incorporates
actual ramping performance.
40. We note that there was little
agreement among the technical
conference panelists on how accuracy
should be incorporated into the
frequency regulation market design.53
Therefore, we seek comments on
alternative methods, including methods
to incorporate accuracy into the ACE
correction calculation. It is possible to
approximate how a resource contributes
to correcting ACE by taking the
difference between the energy it
provides that was in the direction
needed to correct ACE at any moment
and the energy that was in the direction
opposite to what was needed to correct
ACE. If ACE indicates that the system
requires regulation up, yet a resource is
still providing regulation down due to
its slow ramping ability, that resource
could be considered to not be
51 See,
e.g., Tr.124:10–131:19.
Comments at 9–10 (‘‘Going forward cooptimizaton and how that is evaluated will be
important to generation resources because the rules
that result will play an important role in
determining whether and when the resource will
provide energy or ancillary services.’’).
53 See Tr. 85–86 (Potishnak) and Tr. 117–118
(Ott).
52 EPSA
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contributing to ACE correction. Thus, its
payment for ACE correction would only
include the MWh that were actually
correcting ACE. The Commission seeks
comments on how to structure
payments for frequency regulation that
compensate a resource for its
contribution to ACE correction. We seek
comment on whether this method could
result in a resource being penalized
through lower measured ACE correction
even when it is following the system
operator’s dispatch signal.
3. Net Energy
41. Currently, regulating resources
receive a payment (or charge) for the net
energy injected (or withdrawn) as a
result of providing regulation service in
every RTO and ISO market. The
Commission seeks comment on the
appropriateness of retaining net energy
payments in light of the two-part
payment proposed here. Specifically,
the Commission seeks comment on
whether the provisions in existing tariffs
for net energy payments are redundant
given the proposed requirement
discussed herein that all RTOs and ISOs
must pay regulating resources a mileage
payment for the ACE correction they
provide, or whether this payment is a
necessary, appropriate feature of dayahead and real-time energy account
balancing and settlement.
III. Information Collection Statement
42. The following collection of
information contained in this Proposed
Rule are subject to review by the Office
of Management and Budget (OMB)
under section 3507(d) of the Paperwork
Reduction Act of 1995.54 OMB’s
regulations require approval of certain
information collection requirements
imposed by agency rules.55 The
Commission solicits comments on the
Commission’s need for this information,
whether the information will have
practical utility, the accuracy of the
burden estimates, ways to enhance the
quality, utility, and clarity of the
information to be collected or retained,
and any suggested methods for
minimizing respondents’ burden,
including the use of automated
information techniques.
43. Additionally, the Commission
encourages comments regarding the
time burden expected to be required to
comply with the proposed rule
regarding the requirement for ISOs and
RTOs to change their tariffs so that the
regulation resources receive just and
reasonable compensation for the
services provided, and the potential
time burden on regulation resources to
conform to new or modified bidding
requirements. Specifically, the
Commission seeks comment on: (1) The
additional burden and cost (human,
hardware and software) associated with
implementation, operation and
maintenance of this new provision in
ISO/RTO tariffs; and (2) the additional
burden and cost (human, hardware and
software) on regulation resources, if any,
associated with changes to the type of
information submitted in the bid or the
manner in which the bid is submitted.
Burden Estimate: The additional
estimated public reporting burdens for
the proposed reporting requirements in
this rule are as follows.
Data collection
Number of
respondents 56
Number of
responses
Hours per
response
Total annual hours
FERC 516
[1]
[2]
[3]
[1 × 2 × 3]
5
1
100
Totals ........................................................................................
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Conforming tariff changes (18 CFR 35.28(g)(3)). One time burden
..........................
........................
........................
Cost to Comply: The Commission has
projected the cost of compliance to be
$57,000. Total Annual Hours for
Collection in initial year (500 hours) @
$114 an hour [average cost of attorney
($200 per hour), consultant ($150),
technical ($80), and administrative
support ($25)] = $57,000
Title: FERC–516, Electric Rate
Schedules and Tariff Filings.
Action: Proposed Collection.
OMB Control No. 1902–0096.
Respondents for this Rulemaking:
Businesses or other for profit and/or
not-for-profit institutions.
Frequency of Information: As
indicated in the table.
Necessity of Information: The Federal
Energy Regulatory Commission is
proposing to require ISOs and RTOs to
change their tariffs to provide for
compensation of frequency regulation in
a manner that remedies undue
discrimination in the procurement of
54 44
U.S.C. 3507(d) (2006).
CFR 1320.11 (2010).
56 SPP is not included in the respondents because
they currently do not have a frequency regulation
compensation mechanism in their tariff and
55 5
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500
500 one time burden.
such service in the organized wholesale
electricity markets.
Internal Review: The Commission has
reviewed the proposed changes and has
determined that the changes are
necessary. These requirements conform
to the Commission’s need for efficient
information collection, communication,
and management within the energy
industry. The Commission has assured
itself, by means of internal review, that
there is specific, objective support for
the burden estimates associated with the
information collection requirements.
44. Interested persons may obtain
information on the reporting
requirements by contacting the
following: Federal Energy Regulatory
Commission, 888 First Street, NE.,
Washington, DC 20426 [Attention: Ellen
Brown, Office of the Executive Director],
e-mail: DataClearance@ferc.gov, Phone:
(202) 502–8663, fax: (202) 273–0873.
45. Comments on the collections of
information and the associated burden
estimates in the proposed rule should be
sent to the Commission in this docket
and may also be sent to the Office of
Information and Regulatory Affairs,
Office of Management and Budget, DC
20503 [Attention: Desk Officer for the
Federal Energy Regulatory
Commission]. For security reasons,
comments to OMB should be submitted
by e-mail to:
oira_submission@omb.eop.gov.
Comments submitted to OMB should
include Docket Number RM11–7 and
OMB Control Number 1902–0096.
independent of this proceeding they have indicated
that they are already planning to implement such
a mechanism. Therefore, it is expected that any
additional burden on SPP due to this proceeding is
expected to be de minimus.
57 Regulations Implementing the National
Environmental Policy Act, Order No. 486, 52 FR
47897 (Dec. 17, 1987), FERC Stats. & Regs.
Preambles 1986–1990 ¶ 30,783 (1987).
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IV. Environmental Analysis
46. The Commission is required to
prepare an Environmental Assessment
or an Environmental Impact Statement
for any action that may have a
significant adverse effect on the human
environment.57 The Commission has
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categorically excluded certain actions
from this requirement as not having a
significant effect on the human
environment.58 The proposed
regulations are categorically excluded as
they address rate filings submitted
under section 206 of the FPA and the
establishment of just and reasonable
rates, terms and conditions of
jurisdictional service under this section
of the FPA.59 Accordingly, no
environmental assessment is necessary
and none has been prepared for this
NOPR.
V. Regulatory Flexibility Act
47. The Regulatory Flexibility Act of
1980 (RFA) 60 generally requires a
description and analysis of final rules
that will have significant economic
impact on a substantial number of small
entities. The RFA mandates
consideration of regulatory alternatives
that accomplish the stated objectives of
a proposed rule and that minimize any
significant economic impact on a
substantial number of small entities.
The Small Business Administration’s
(SBA) Office of Size Standards develops
the numerical definition of a small
business.61 The SBA has established a
size standard for electric utilities,
stating that a firm is small if, including
its affiliates, it is primarily engaged in
the transmission, generation and/or
distribution of electric energy for sale
and its total electric output for the
preceding twelve months did not exceed
four million megawatt hours.62 Five
ISOs and RTOs, not small entities, are
impacted directly by this rule.
48. CAISO is a non-profit organization
with over 54,000 megawatts of capacity
and over 25,000 circuit miles of power
lines.
49. NYISO is a non-profit organization
that oversees wholesale electricity
markets, dispatches over 500 generators,
and manages a nearly 11,000-mile
network of high-voltage lines.
50. PJM is comprised of more than
600 members including power
generators, transmission owners,
electricity distributors, power
marketers, and large industrial
customers, serving 13 states and the
District of Columbia.
51. Midwest ISO is a non-profit
organization with over 145,000
megawatts of installed generation.
Midwest ISO has over 57,000 miles of
transmission lines and serves 13 states
and one Canadian province.
58 18
CFR 380.4.
18 CFR 380.4(a)(15).
60 5 U.S.C. 601–612.
61 13 CFR 121.101.
62 13 CFR 121.201, Sector 22, Utilities & n.1.
59 See
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52. ISO–NE is a regional transmission
organization serving six states in New
England. The system is comprised of
more than 8,000 miles of high-voltage
transmission lines and over 350
generators.
53. The Commission certifies this rule
will not have a significant economic
impact on a substantial number of small
entities, and therefore no initial
regulatory flexibility analysis is
required.
VI. Comment Procedures
54. The Commission invites interested
persons to submit comments on the
matters and issues proposed in this
notice to be adopted, including any
related matters or alternative proposals
that commenters may wish to discuss.
Comments are due 60 days from
publication in the Federal Register.
Comments must refer to Docket No.
RM11–7–000, and must include the
commenter’s name, the organization
they represent, if applicable, and their
address in their comments.
55. The Commission encourages
comments to be filed electronically via
the eFiling link on the Commission’s
Web site at https://www.ferc.gov. The
Commission accepts most standard
word processing formats. Documents
created electronically using word
processing software should be filed in
native applications or print-to-PDF
format and not in a scanned format.
Commenters filing electronically do not
need to make a paper filing.
56. Commenters that are not able to
file comments electronically must send
an original to: Federal Energy
Regulatory Commission, Secretary of the
Commission, 888 First Street, NE.,
Washington, DC 20426.
57. All comments will be placed in
the Commission’s public files and may
be viewed, printed, or downloaded
remotely as described in the Document
Availability section below. Commenters
on this proposal are not required to
serve copies of their comments on other
commenters.
VII. Document Availability
58. In addition to publishing the full
text of this document in the Federal
Register, the Commission provides all
interested persons an opportunity to
view and/or print the contents of this
document via the Internet through the
Commission’s Home Page (https://
www.ferc.gov) and in the Commission’s
Public Reference Room during normal
business hours (8:30 a.m. to 5 p.m.
Eastern time) at 888 First Street, NE.,
Room 2A, Washington, DC 20426.
59. From the Commission’s Home
Page on the Internet, this information is
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11185
available on eLibrary. The full text of
this document is available on eLibrary
in PDF and Microsoft Word format for
viewing, printing, and/or downloading.
To access this document in eLibrary,
type the docket number excluding the
last three digits of this document in the
docket number field.
60. User assistance is available for
eLibrary and the Commission’s Web site
during normal business hours from
FERC Online Support at (202) 502–6652
(toll free at 1–866–208–3676) or e-mail
at ferconlinesupport@ferc.gov, or the
Public Reference Room at (202) 502–
8371, TTY (202) 502–8659. E-mail the
Public Reference Room at
public.referenceroom@ferc.gov.
List of Subjects in 18 CFR Part 35
Electric power rates, Electric utilities,
Reporting and recordkeeping
requirements.
By direction of the Commission.
Commissioner Spitzer dissenting in part with
a separate statement attached.
Kimberly D. Bose,
Secretary.
In consideration of the foregoing, the
Commission proposes to amend Part 35
Chapter I, Title 18 of the Code of
Federal Regulations as follows:
PART 35—FILING OF RATE
SCHEDULES AND TARIFFS
1. The authority citation for Part 35
continues to read as follows:
Authority: 16 U.S.C. 791a–825r, 2601–
2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352.
2. Amend § 35.2 by adding a new
paragraph (g) to read as follows:
§ 35.2
Definitions.
*
*
*
*
*
(g) Frequency regulation. The term
frequency regulation as used in this part
will mean the capability to inject or
withdraw real power by resources
capable of responding to a balancing
area’s frequency deviations or
interchange power imbalance, measured
by the Area Control Error.
3. Amend § 35.28 by adding a new
paragraph (g)(3) to read as follows:
§ 35.28 Non-discriminatory open access
transmission tariff.
*
*
*
*
*
(g) * * *
(3) Frequency regulation
compensation in ancillary services
markets. Each Commission-approved
independent system operator or regional
transmission organization that has a
tariff that provides for the compensation
of frequency regulation must provide
such compensation based on the actual
service provided, including a capacity
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Federal Register / Vol. 76, No. 40 / Tuesday, March 1, 2011 / Proposed Rules
correcting the relevant balancing area’s
Area Control Error (when the resource is
accurately following the dispatch signal)
when providing regulation service.
Note: The following appendixes will not
appear in the Code of Federal Regulations:
SPITZER, Commissioner, dissenting in
part:
In the Notice of Proposed Rulemaking, the
majority is concerned that current
mechanisms for compensating frequency
regulation service in regional transmission
organization (RTO) and independent system
operator (ISO) regions may not adequately
compensate for the true value of the
frequency regulation service provided. I
share the majority’s concern. Resources that
have faster-ramping capability have the
potential to respond quicker and more
accurately to certain transmission system
needs.
However, the majority concludes, based on
the existing record, that the Commission
should require a standard formula through
which all RTO/ISO regions must compensate
frequency regulation service. I believe the
record is not adequate to propose a specific
proposal at this time. Accordingly, I believe
the Commission should have taken a
preliminary step (such as the issuance of a
Notice of Inquiry or Advanced Notice of
Proposed Rulemaking) before moving
forward with the specific proposal in a
Notice of Proposed Rulemaking.
I disagree with the majority that the record
is sufficiently robust to make a specific
proposal at this time to change our
regulations. Although the record provides
some data regarding potential reliability and
efficiency benefits of faster-ramping
resources providing frequency regulation
service, I am concerned this evidence may be
incomplete.1 In the existing record, several
commenters raise concerns about the lack of
hard data; these commenters argue that more
study is needed to demonstrate incremental
value.2 Even RTO/ISOs examining these
issues express reservations that the evidence
may be inadequate to support the
conclusions asserted in the NOPR.3
The May 26, 2010 Staff Technical
Conference and subsequent outreach
provided some feedback on these issues.
However, I am concerned that the limited
participation from entities other than the
RTOs/ISOs and non-traditional technologies
undermines the record on which to base a
change to our regulations. There are
‘‘traditional’’ resources, such as pumped-
storage hydro and certain combustion turbine
resources that provide this type of ‘‘fasterramping’’ service,4 but we have received only
limited feedback from these types of
resources so far. 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 in
the Notice of Proposed Rulemaking.
Initiation of a Notice of Inquiry or Advanced
Notice of Proposed Rulemaking may better
allow evidence regarding those technologies.
Appropriately, the Notice of Proposed
Rulemaking asks questions to develop a more
complete record. However, the nature of the
questions posed is an indication that we
should do more prior to issuing a specific
proposal. While the Notice of Proposed
Rulemaking asks some generic questions in
this regard, the majority fails to address the
concerns already in the record about co-
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18:33 Feb 28, 2011
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1 Compare Notice of Proposed Rulemaking at P
16–18, P 24 with Transcript of May 26, 2010
Technical Conference (Transcript) at 24:2–16 (Pike);
Transcript at 18:13–25 and 29–1–21 (Potishnak).
2 Electric Power Supply Association (EPSA) June
16, 2010 Comments at 2; Xcel Energy Services Inc.
(XES) June 16, 2010 Comments at 3, 5–7; Transcript
at 59:15–24 (Lowell); Transcript at 124:4–9 (Pike).
3 Notice of Proposed Rulemaking at P 25; ISO
New England Inc. (ISO–NE) June 16, 2010
Comments at 5–6; California Independent System
Operator Corporation (CAISO) June 16, 2010
Comments at 2–3.
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4 ISO–NE June 16, 2010 Comments at 4–6;
Transcript at 14:18–22 (Masiello); Transcript at
49:3–14 (Pike).
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jlentini on DSKJ8SOYB1PROD with PROPOSALS
payment that includes the marginal
unit’s opportunity costs and a payment
for performance that reflects a frequency
regulating resource’s contribution to
Federal Register / Vol. 76, No. 40 / Tuesday, March 1, 2011 / Proposed Rules
optimization,5 sustainability 6 and potential
limitations of faster-ramping resources.7
Moreover, I believe there is no basis to
propose a single, one-size-fits-all approach
for frequency regulation compensation. In
fact, several commenters caution specifically
against such an approach.8 In addition, I
have concerns that the majority decision
could detract from, or otherwise delay, efforts
ongoing at the RTO/ISO stakeholder level.9
It is essential that this Commission address
frequency regulation compensation to ensure
appropriate compensation for service
provided. Moreover, new technologies could
offer substantial benefits. While I recognize
the majority’s desire to move quickly, I
believe it is more important to ‘‘measure
twice, cut once.’’ Accordingly, I believe the
Commission should have taken a preliminary
step (such as the issuance of a Notice of
Inquiry or Advanced Notice of Proposed
Rulemaking) before moving forward with the
specific proposal in a Notice of Proposed
Rulemaking. For these reasons, I respectfully
dissent in part from this Order.
Marc Spitzer,
Commissioner.
[FR Doc. 2011–4267 Filed 2–28–11; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF LABOR
Mine Safety and Health Administration
30 CFR Part 75
RIN 1219–AB75
Examinations of Work Areas in
Underground Coal Mines for Violations
of Mandatory Health or Safety
Standards
Mine Safety and Health
Administration, Labor.
ACTION: Proposed rule; extension of
comment period.
AGENCY:
The Mine Safety and Health
Administration (MSHA) is extending
the comment period on the proposed
rule addressing Examinations of Work
SUMMARY:
jlentini on DSKJ8SOYB1PROD with PROPOSALS
5 Notice
of Proposed Rulemaking at P 38; EPSA
June 16, 2010 Comments at 9–10; Southern
Company Services, Inc. (Southern) June 16, 2010
Comments at 6–8; Southern California Edison
Company (SCE) June 16, 2010 Comments at 3.
6 Notice of Proposed Rulemaking at P 33; ISO–NE
June 16, 2010 Comments at 5; EPSA June 16, 2010
Comments at 6–8; XES June 16, 2010 Comments at
5; Transcript at 15:13–15 (Potishnak); Transcript at
18:18–25 and 19:1–5 (Ramey); Transcript at 23:18–
25 and 24:1 (Pike); Transcript at 75:15–25 and 76:4
(Pike); Transcript at 86:18–20 (Potishnak).
7 Notice of Proposed Rulemaking at P 33, n.51;
ISO–NE June 16, 2010 Comments at 5; EPSA June
16, 2010 Comments at 8–9; Transcript at 17:20–25
(Ramey); Transcript at 73:4–16 (Ramey).
8 ISO–NE June 16, 2010 Comments at 7–8; SCE
June 16, 2010 Comments at 2,5; Southern June 16,
2010 Comments at 3.
9 Notice of Proposed Rulemaking at P 13; SCE
June 16, 2010 Comments at 3–4; CAISO June 16,
2010 Comments at 1–2.
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18:33 Feb 28, 2011
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Areas in Underground Coal Mines for
Violations of Mandatory Health or
Safety Standards. It proposed revising
MSHA requirements for preshift,
supplemental, and on-shift, and weekly
examinations of underground coal
mines. This extension gives commenters
an additional 30 days to comment on
the proposed rule.
DATES: The comment period for the
proposed rule published December 27,
2010, at 75 FR 81165, is extended. All
comments must be received or
postmarked by 12 midnight Eastern
Daylight Savings Time, March 28, 2011.
ADDRESSES: All submissions must be
clearly identified and reference MSHA
and RIN 1219–AB75. Comments may be
submitted by any of the following
methods:
• Federal e-Rulemaking Portal:
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Electronic mail: zzMSHAcomments@dol.gov. Include ‘‘RIN 1219–
AB75’’ in the subject line of the message.
• Facsimile: (202) 693–9441. Include
‘‘RIN 1219–AB75’’ in the subject line of
the message.
• Regular Mail: MSHA, Office of
Standards, Regulations, and Variances,
1100 Wilson Blvd., Room 2350,
Arlington, Virginia 22209–3939.
• Hand Delivery or Courier: MSHA,
Office of Standards, Regulations, and
Variances, 1100 Wilson Blvd., Room
2350, Arlington, Virginia 22209–3939.
Sign in at the receptionist’s desk on the
21st floor.
MSHA will post all comments on the
Internet without change, including any
personal information provided.
Comments can be accessed
electronically at https://www.msha.gov
under the ‘‘Rules & Regs’’ link.
Comments may also be reviewed in
person at the Office of Standards,
Regulations, and Variances, 1100
Wilson Boulevard, Room 2350,
Arlington, Virginia. Sign in at the
receptionist’s desk on the 21st floor.
MSHA maintains a list that enables
subscribers to receive e-mail notification
when the Agency publishes rulemaking
documents in the Federal Register. To
subscribe, go to
https://www.msha.gov/subscriptions/
subscribe.aspx.
• Information Collection
Requirements: Comments concerning
the information collection requirements
of this proposed rule must be clearly
identified with ‘‘RIN 1219–AB75’’ and
sent to both the Office of Management
and Budget (OMB) and MSHA.
Comments to OMB may be sent by mail
addressed to the Office of Information
and Regulatory Affairs, Office of
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11187
Management and Budget, New
Executive Office Building, 725 17th
Street, NW., Washington, DC 20503,
Attn: Desk Officer for MSHA. Comments
to MSHA may be transmitted by any of
the methods listed above in this section.
SUPPLEMENTARY INFORMATION: On
December 27, 2010 (75 FR 81165),
MSHA published a proposed rule,
Examinations of Work Areas in
Underground Coal Mines for Violations
of Mandatory Health or Safety
Standards. The proposal would require
operators to examine for violations of
mandatory health or safety standards in
addition to hazardous conditions, and
take corrective actions if violations are
found. It would also require that
operators review with mine examiners
on a quarterly basis all citations and
orders issued in areas where
examinations are required. The proposal
would require that underground coal
mine operators find and fix violations of
mandatory health or safety standards,
thereby improving health and safety for
miners. The proposed rule is available
on MSHA’s Web site at https://
www.msha.gov/REGS/FEDREG/
PROPOSED/2010PROP/2010-32410.pdf.
In response to a request from the
public and to provide the opportunity
for additional public participation in
this rulemaking, MSHA is extending the
comment period from February 25,
2011, to March 28, 2011. All comments
and supporting documentation must be
received or postmarked by 12 midnight
Eastern Daylight Savings Time, March
28, 2011.
Dated: February 24, 2011.
Joseph A. Main,
Assistant Secretary of Labor for Mine Safety
and Health.
[FR Doc. 2011–4592 Filed 2–25–11; 4:15 pm]
BILLING CODE 4510–43–P
DEPARTMENT OF VETERANS
AFFAIRS
38 CFR Part 59
RIN 2900–AN77
Due Date of Initial Application
Requirements for State Home
Construction Grant
Department of Veterans Affairs.
Proposed rule.
AGENCY:
ACTION:
This document proposes to
amend the Department of Veterans
Affairs (VA) regulation concerning the
calendar date that VA must receive an
initial application for a State Home
Construction Grant in order for the
application to be included on the
SUMMARY:
E:\FR\FM\01MRP1.SGM
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]]>Agencies
[Federal Register Volume 76, Number 40 (Tuesday, March 1, 2011)]
[Proposed Rules]
[Pages 11177-11187]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-4267]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
18 CFR Part 35
[Docket Nos. RM11-7-000; AD10-11-000]
Frequency Regulation Compensation in the Organized Wholesale
Power Markets
AGENCY: Federal Energy Regulatory Commission, DOE.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: The Federal Energy Regulatory Commission (Commission) is
proposing to revise its regulations to remedy undue discrimination in
the procurement of frequency regulation service in the organized
wholesale electricity markets. The emergence of technologies capable of
responding more quickly than the generators that have historically
provided frequency regulation service has prompted the
[[Page 11178]]
Commission to evaluate market rules to ensure that they are not unduly
discriminatory or fail to provide just and reasonable compensation for
the service being provided. If found, the Commission proposes to remedy
the undue discrimination by requiring a uniform price for regulation
capacity paid to all cleared resources and a performance payment for
the provision of frequency regulation, with such payment reflecting a
resource's accuracy of performance. This proposed action helps to
ensure that market rules do not present unnecessary barriers to the
participation of all resource types in the wholesale ancillary services
markets. The Commission seeks comment on the proposed regulations.
DATES: Comments are due May 2, 2011.
ADDRESSES: You may submit comments, identified by docket number by any
of the following methods:
Agency Web Site: https://ferc.gov. Documents created
electronically using word processing software should be filed in native
applications or print-to-PDF format and not in a scanned format.
Mail/Hand Delivery: Commenters unable to file comments
electronically must mail or hand deliver their comments to: Federal
Energy Regulatory Commission, Secretary of the Commission, 888 First
Street, NE., Washington, DC 20426.
FOR FURTHER INFORMATION CONTACT:
Robert Hellrich-Dawson (Technical Information), Office of Energy Policy
& Innovation, 888 First Street, NE., Washington, DC 20426, (202) 502-
6360, bob.hellrich-dawson@ferc.gov.
Eric Winterbauer (Legal Information), Office of the General Counsel,
888 First Street, NE., Washington, DC 20426, (202) 502-8329,
eric.winterbauer@ferc.gov.
SUPPLEMENTARY INFORMATION:
Notice of Proposed Rulemaking
1. Pursuant to section 206 of the Federal Power Act (FPA),\1\ the
Commission is proposing to revise its regulations to ensure just,
reasonable and not unduly discriminatory or preferential rates in the
procurement of frequency regulation in the organized wholesale electric
markets. Maintaining the frequency of the transmission system within an
acceptable range is critical to reliable operations. Historically,
generators have provided the power to regulate or correct frequency
deviations. Non-traditional technologies that have the capability to
respond quickly and accurately to certain transmission system needs are
being deployed in regional transmission organization (RTO) and
independent system operator (ISO) \2\ markets to varying degrees.
Resources such as large-scale battery systems, flywheels, electric
vehicle-to-grid (V2G) systems, and demand-side processes have the
ability to ramp \3\ up or down faster than some traditional resources
and, as such, are able to provide frequency regulation services more
accurately than traditional resources.\4\
---------------------------------------------------------------------------
\1\ 16 U.S.C. 824e (2006). Accord 16 U.S.C. 824d (providing that
rates must be just and reasonable).
\2\ The following RTOs and ISOs have organized wholesale
electricity markets: PJM Interconnection, LLC (PJM); New York
Independent System Operator, Inc. (NYISO); Midwest Independent
Transmission System Operator, Inc. (Midwest ISO); ISO New England
Inc. (ISO-NE); California Independent System Operator Corp. (CAISO);
and Southwest Power Pool, Inc. (SPP).
\3\ ``Ramping'' or the ability to ``ramp'' is traditionally
defined as the ability to change the output of real power from a
generating unit per some unit of time, usually measured as MW/
minute. A generator ramps up to produce more energy and ramps down
to produce less. A storage device ramps up by discharging energy and
ramps down by charging. A demand response resource, in the context
of the provision of frequency regulation, ramps up by consuming less
energy, and ramps down by consuming more.
\4\ In this instance, the ability to provide more accurate
frequency regulation service means to follow the system operator's
dispatch signal more closely.
---------------------------------------------------------------------------
2. Taking advantage of the capabilities of faster-ramping resources
can improve the operational and economic efficiency of the transmission
system and has the potential to lower costs to consumers in the
organized wholesale energy markets.\5\ However, current compensation
methods for regulation service in ISO and RTO markets may not
acknowledge the inherently greater amount of Area Control Error (ACE)
\6\ correction being provided by faster-ramping resources.\7\ Frequency
regulation is the tool used to manage ACE. In addition, some RTOs
currently provide unit-specific opportunity cost payments to regulating
resources rather than incorporate the marginal resource's opportunity
cost into the uniform market clearing price, resulting in an
economically inefficient economic dispatch.
---------------------------------------------------------------------------
\5\ See infra n.32-33 and corresponding text.
\6\ ACE comprises two components, one measuring the difference
between a balancing authority's scheduled and actual interchange,
and another measuring the balancing authority's share in correcting
the frequency of the interconnection. In order to keep ACE within
acceptable ranges, entities will pre-schedule resources in
anticipation of load changes and use frequency regulation resources
to make up the difference. The frequency regulation resources are
sent a signal to increase or decrease their provision of energy (or
discharge or charge in the case of a storage device, or consume more
or less energy in the case of a demand response resource). This is
done through what is known as Automatic Generation Control (AGC).
Because the Balancing Area Authority must respond rapidly to correct
ACE deviations, fast responding resources are particularly well-
suited to maintaining system frequency.
\7\ Both existing market participants and potential entrants are
affected by inefficient pricing. It is possible that existing market
participants would offer faster ramping capabilities to the system
operator in response to a pricing scheme that recognized the service
this provides.
---------------------------------------------------------------------------
3. The Commission is concerned that frequency regulation
compensation practices may be resulting in rates that are unjust and
unreasonable and unduly discriminatory or preferential. Therefore, the
Commission proposes to require regional RTOs and ISOs to adopt tariff
revisions that will ensure that resources providing frequency
regulation service are appropriately compensated.\8\ The Commission
seeks public comment on these proposed reforms.
---------------------------------------------------------------------------
\8\ This NOPR is limited to the RTOs and ISOs. In an RTO/ISO
region (except SPP, which currently does not have a frequency
regulation market), the frequency regulation market is designed to
select and compensate the resources needed to provide frequency
regulation service. The RTO/ISO market design sends a price signal
in order to incent particular resource behavior that leads to the
reliable, least-cost provision of frequency regulation. By contrast,
in non-RTO/ISO regions, frequency regulation is provided by the
transmission provider on a cost-of-service basis through Schedule 3,
with the transmission provider selecting the mix of resources it
uses to provide frequency regulation service.
---------------------------------------------------------------------------
I. Background
A. Frequency Regulation Service
4. Frequency regulation service is the injection or withdrawal of
real power by facilities capable of responding appropriately to a
transmission system's frequency deviations or interchange power
imbalance, both measured by the ACE. When generation dispatch does not
equal actual load and losses on a moment-by-moment basis, the imbalance
will result in the grid's frequency deviating from the standard (60
Hertz). Minor frequency deviations affect energy consuming devices;
major deviations cause generation and transmission equipment to
separate from the grid, in the worst case leading to a cascading
blackout. Frequency regulation service can prevent these adverse
consequences by rapidly correcting deviations in the transmission
system's frequency to bring it within the acceptable range.\9\
---------------------------------------------------------------------------
\9\ A balancing authority achieves acceptable ranges by being in
compliance with Control Performance Standards 1 and 2 as defined in
the Commission-approved Reliability Standard BAL-001-0.1a.
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5. Frequency regulation is distinguishable from Frequency
response.\10\ Frequency response
[[Page 11179]]
involves the automatic, autonomous and rapid action of turbine governor
control to change a generator's output and of technically capable
demand response resources that can automatically change consumption to
respond to changes in frequency. These changes occur independent of any
dispatch signal from a system operator. Frequency regulation service,
in contrast, requires a dispatch signal sent by the system operator to
those resources capable of and dispatched to provide frequency
regulation service.
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\10\ On January 20, 2011, the Commission released for public
comment a staff study evaluating the use of frequency response
metrics as a tool to assess the reliability impacts of varying
resource mixes on the transmission grid.
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6. Today, frequency regulation is largely provided by generators
(e.g., water, steam and combustion turbines) that are specially
equipped for this purpose. Provision by other resources is emerging, as
technologies develop and tariff and market rules are appropriately
adapted to accommodate new resources. For example, the Electric
Reliability Council of Texas (ERCOT) and Midwest ISO currently use
controllable demand response in addition to generators to provide
frequency regulation service.\11\ Such ``regulation capable''
generation, storage devices, and demand response resources can respond
automatically to signals sent by the RTO or ISO, through AGC, to
increase or decrease real power injections or withdrawals to correct
frequency deviations or interchange schedule imbalance, as measured by
the ACE. The faster a resource can ramp up or down, the more accurately
it can respond to the AGC, or ACE correction, signal and avoid
overshooting ACE correction needs.\12\ When a resource ramps too
slowly, its ramping limitations may cause it to work against ACE
correction needs and force the system operator to commit additional
regulation resources to compensate.
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\11\ In Midwest ISO, Alcoa's Warrick metallurgic induction
(smelting) operation provides approximately 70 MW of frequency
regulation. Alcoa Comments, Docket AD10-11-000, at 2 (June 16,
2010). In ERCOT's model, controllable loads are a type of Load
Acting as a Resource (LaaR) that is capable of reducing or
increasing consumption under dispatch control (similar to AGC) and
able to immediately respond proportionally to frequency changes
(similar to generator governor action) to provide Ancillary
Services. See Electric Reliability Council of Texas, Controllable
Load Resource Qualification (2007), available at https://www.ercot/
content/services/programs/load/laar/
Controllable%20Load%20Resource%20Qualification.doc.''
\12\ Frequency Regulation Compensation in the Organized
Wholesale Power Markets, Technical Conference, Beacon Speaker
Materials, Docket No. AD10-11-000, at Figure 3 (May 26, 2010), which
shows the difference between ISO-NE's ACE control signal, Beacon's
flywheel response, and the allowable response rate under current
ISO-NE rules. Here, ``allowable response rate'' means the rate at
which the resource must respond to be considered in compliance with
the dispatch signal.
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B. Current ISO and RTO Practices
7. In the ISO and RTO markets, compensation for frequency
regulation service is presently based on several components. Depending
on the ISO or RTO, these payments include consideration for capacity
set aside to provide the service, as well as some of the following: The
net energy the resource injects into the system; accurately following
the ISOs or RTOs dispatch signal; and/or the absolute (rather than net)
amount of energy injected or withdrawn. These payments are intended to
cover the range of costs incurred in order to provide this service:
Operation and maintenance costs for providing frequency regulation and
loss of potential revenue from foregone sales of electricity.
8. With regard to the payment for capacity set aside, this is
essentially an option payment \13\ to the resource to keep a certain
amount of capacity out of the energy market in order to provide
frequency regulation service (based on a market clearing price per MW
of capacity sold). ISO-NE, NYISO, Midwest ISO, and PJM incorporate into
this payment the opportunity cost of foregone energy sales incurred by
a resource that provides frequency regulation service; though in ISO-NE
and PJM, opportunity costs are not applied uniformly to all cleared
resources.
---------------------------------------------------------------------------
\13\ This type of capacity payment, based on day-ahead offers to
sell ancillary services, is distinguishable from a long-term
capacity payment such as provided for in PJM's reliability pricing
model or ISO-NE's forward capacity market.
---------------------------------------------------------------------------
9. Compensation for regulation service also generally includes
payments for the net energy the resource injects into the system. RTOs
and ISOs currently provide a payment for the net energy injected by a
resource providing regulation service during the operating hour,
calculated as the amount of energy injected less energy withdrawn
multiplied by the real-time energy price.
10. Accuracy of performance can be incorporated into payments for
regulation service. Currently, NYISO incorporates accuracy into its
compensation for regulation service through a penalty that reflects the
accuracy with which the resource follows its dispatch instruction.\14\
This is done through a performance index that tracks how accurately a
resource follows the dispatch signal.\15\
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\14\ NYISO, Market Services Tariff, Sec. 15.3.5.5.
\15\ NYISO uses telemetry data to track how closely a frequency
regulation resource's output is to the dispatch signal. NYISO then
weights the resource's payments to reflect its accuracy. For
example, if the resource's response falls outside an acceptable
range 10 percent of the time, for a performance index of 0.9, it
will receive 90 percent of its payment.
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11. ISO-NE makes payments for regulation service to reflect the
amount of work performed by a resource by reflecting the absolute
amount of energy injected and withdrawn. Regulating resources receive a
``mileage'' payment that reflects the amount of ACE correction
provided.\16\
---------------------------------------------------------------------------
\16\ ISO-NE, Transmission, Markets and Services Tariff, Sec.
III.3.5.5.
---------------------------------------------------------------------------
12. In general, when a resource submits its bid, the bid is
typically required to include its ramp rate in MW per minute, its cost
per MWh of ramping ability, and the total capacity it is offering for
frequency regulation.\17\ The resource's total amount of capacity is
based on and limited by its ability to ramp up or down in 5
minutes.\18\ For example, a resource with a relatively large amount of
capacity, but a relatively slow ramp rate would be limited in how much
capacity it could offer as regulation. If the resource can ramp one MW
per minute, it would only be able to offer 5 MW of regulation capacity
(for a five minute dispatch) even if it has a total capacity of many
hundreds of megawatts. On the other hand, a smaller capacity, fast-
ramping resource might not face such a constraint. For instance, a
storage device that can hold a 20 MW charge and ramp at 10 MW per
minute, could offer its full 20 MW of capacity for five minutes.
---------------------------------------------------------------------------
\17\ See, e.g., NYISO, Ancillary Services Manual, Manual 2, at
4-8 (Nov. 2010).
\18\ A resource's capacity is limited by the amount it can ramp
in 5 minutes because the system operator in most RTOs and ISOs
dispatch resources every 5 minutes. CAISO dispatches every 10
minutes, and so a frequency regulation resource's capacity in that
market is bound by the total capacity it can ramp in 10 minutes.
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13. Some RTOs and ISOs are actively discussing changes to their
frequency regulation markets or stated at the technical conference that
changes might be appropriate.\19\ For example, CAISO has recently
approved a new Regulation Energy Management proposal.\20\ Likewise, the
Commission is aware that ISO-NE is preparing new rules for frequency
regulation compensation to formalize the participation of energy
[[Page 11180]]
storage devices, something that has been only a pilot project to
date.\21\
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\19\ See PJM, Market and Reliability Committee Meeting
Materials, (Jan. 2011), https://www.pjm.com/~/media/committees-
groups/committees/mrc/20110119/20110119-item-05-regulation-market-
performance-incentive-problem-statement-clean.ashx.
\20\ CAISO, Board of Governors, Decision on Regulation Energy
Management (Feb. 3, 2011), available at https://www.caiso.com/2b1a/2b1acd6d20610.pdf.
\21\ ISO-NE, Report of ISO New England Inc. Regarding the
Implementation of Market Rule Changes to Permit Non-Generating
Resources to Participate in the Regulation Market, Docket No. ER08-
54-014, at 5 (Dec. 17, 2010).
---------------------------------------------------------------------------
C. Commission Inquiries into Faster-Ramping Resources
14. The Commission began its inquiry into faster-ramping resources
in May 2010. On May 26, 2010, the Commission hosted a publicly noticed
technical conference \22\ inviting various stakeholders, including
representatives from the RTOs and ISOs, industry, and academia to share
their views on whether current frequency regulation market designs
reflect the value of the service provided, and whether the use of
faster-ramping resources for frequency regulation has the potential to
provide benefits to the organized markets. Interested parties were
permitted to file comments after the technical conference. Separately,
the Commission on June 11, 2010 issued a request for comments regarding
potential approaches to categorizing storage service for compensation
purposes.\23\
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\22\ See Final Agenda, Frequency Regulation Compensation in the
Organized Wholesale Power Markets, Docket No. AD10-11-000 (May 26,
2010).
\23\ Request for Comments Regarding Rates, Accounting and
Financial Reporting for Electric Storage Technologies, Docket No.
AD10-13-000 (June 11, 2010).
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1. Market Design and the Value of the Service Provided
15. With regard to market designs for frequency regulation service,
participants at the technical conference generally agreed that
compensation for regulating resources ought to reflect the service they
perform for the system operator. However, there was disagreement
regarding whether current market designs accomplish this objective.
Some current market design features were cited as resulting in
efficient price signals and appropriately differentiating between the
amount of ACE correction that is provided by different regulating
resources,\24\ while others were said to be deficient.\25\
---------------------------------------------------------------------------
\24\ Tr. 93: 2-5 (Walawalkar); Tr. 103: 6-10 (Capp).
\25\ Tr. 72: 1-11 (Ott).
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16. At the technical conference and in written comments, Beacon
Power Corporation (Beacon) provided data on the amount of ACE
correction provided by a faster-ramping resource relative to the
generator response allowable under the ISO tariff.\26\ According to
Beacon's analysis of resources performing in the ISO-NE market, it is
possible for a faster-ramping resource to provide more frequency
regulation service than a slower-ramping resource. Beacon presents data
showing, over a one hour period, a faster-ramping resource providing a
total of 0.48 MWh of movement in response to the system operator's
dispatch signal. If this same signal had been sent to a slower-ramping
resource, it could have provided only 0.18 MWh and still been within
ISO-NE's allowable response rate.
---------------------------------------------------------------------------
\26\ Beacon, Technical Conference Speaker Materials, at 7, Data
from 1 MW in ISO-NE Alternative Regulation Pilot (May 26, 2010)
(attached hereto as Appendix A).
---------------------------------------------------------------------------
17. In addition, under certain circumstances a slower-ramping
resource could actually be working against the system operator's need
for ACE correction, so that only a portion of the energy produced
positively contributes to correcting the ACE signal. By contrast, the
faster-ramping resource can respond to the system's control needs more
exactly. In the example discussed above, the allowed generator response
produces 0.18 MWh, but 0.07 MWh of that is working against the system's
ACE correction needs because of its slow-ramping capability. Therefore,
only 0.11 MWh (61 percent) actually contributes to correcting ACE. At
the same time, the fast-ramping resource is being dispatched more often
and all of the energy it produces helps to correct ACE. Both resources
are considered, from the perspective of ISO-NE's current tariff, to be
100 percent accurate, even though at times the slower-ramping resource
is working against the system operator's ACE control needs.
18. In this example, Beacon asserted that the fast-ramping resource
actually is providing more than four times as much ACE correction
relative to the allowable response from an existing generator providing
frequency regulation. With the exception of ISO-NE, the RTOs and ISOs
limit compensation to frequency regulation resources to a capacity
payment and net energy balancing. ISO-NE includes a payment for the
amount of frequency service provided. As a result, these ISOs and RTOs
would pay the fast-ramping resource and the slow-ramping resource the
same amount, assuming both resources set aside the same amount of
capacity to provide the service.
19. During the technical conference, PJM stated that it has no
compensation structure for how much it asks a resource to move when
providing frequency regulation and, as a result, it is likely under-
compensating resources for speed and accuracy.\27\
---------------------------------------------------------------------------
\27\ Tr. 84:9-16 (Ott), 72:1-11 (Ott).
---------------------------------------------------------------------------
20. On the other hand, representatives of Midwest ISO and NYISO
indicated that they believe their current market designs are
sufficient, because the amount of regulating capacity a resource is
allowed to sell is based on its ramp rate, so faster-ramping resources
are allowed to sell more regulating capacity.\28\
---------------------------------------------------------------------------
\28\ Tr. 72-73 (Ramey); Tr. 132: 8-11 (Ramey); Tr. 75-77 (Pike).
---------------------------------------------------------------------------
21. Alcoa noted that MISO and NYISO's rationale is only relevant to
resources that are ramp constrained. Alcoa stated that its demand
response-based regulating resource is capacity constrained, but not
ramp constrained. Alcoa added that because Midwest ISO and NYISO both
net the regulation up and regulation down that a regulating resource
provides, neither compensates for the resource's actual ramping
contribution. As a result, Alcoa's fast ramp rate does not allow it to
sell any additional regulating capacity, and Alcoa has no incentive to
bid into the market its true ability to ramp, instead offering a lower
ramp rate.\29\
---------------------------------------------------------------------------
\29\ Tr. 68:13-22 (Todd).
---------------------------------------------------------------------------
22. Several entities responding to the June request for comments
also addressed market design issues for frequency regulation
service.\30\ These commenters argue that the market should place a
monetary value on the service provided by the speed and accuracy with
which certain storage technologies can respond to a regulation signal.
Commenters also identified the potential benefits of using faster-
ramping resources to provide frequency regulation service.\31\
---------------------------------------------------------------------------
\30\ Beacon, Comments, Docket No. AD10-13-000, at 8 (Aug. 9,
2010); NEMA, Comments, Docket No. AD10-13-000, at 2 (Aug. 9, 2010);
Xtreme Power, Comments, Docket No. AD10-13-000, at 5 (Aug. 9, 2010);
A123 Systems, Comments, Docket No. AD10-13-000, at 5-7 (Aug. 9,
2010); ESA, Comments, Docket No. AD10-13-000, at 2 (Aug. 9, 2010);
NAATBatt, Comments, Docket No. AD10-13-000, at 4-5 (Aug. 9, 2010).
\31\ MegaWatt Storage Farms Comments Docket No. AD10-13-000, at
8-9 (Aug. 9, 2010); Xtreme Power, Comments, Docket No. AD10-13-000,
at 2-3 (Aug. 9, 2010); A123 Systems, Comments, Docket No. AD10-13-
000, at 4 (Aug. 9, 2010); ESA, Comments, Docket No. AD10-13-000, at
2 (Aug. 9, 2010).
---------------------------------------------------------------------------
2. Potential Cost and Reliability Benefits
23. Participants at the technical conference stated that the use of
faster-ramping resources for frequency regulation has the potential to
provide benefits to the organized markets. These benefits include
allowing RTOs and ISOs to use less regulation capacity to meet current
NERC standards, thus lowering regulation costs.\32\ Further, use of
faster-ramping resources frees slower-
[[Page 11181]]
ramping resources to operate at stable output levels and, therefore, at
more efficient heat rates which allows them to submit lower bids into
energy markets, thereby lowering energy prices.\33\
---------------------------------------------------------------------------
\32\ Tr. 35-36 (Ott); Tr. 30-31 (Kathpal); Tr. 37-39 (Ramey).
\33\ Id.
---------------------------------------------------------------------------
24. To illustrate the efficiency of faster-ramping resources, some
industry representatives--during the technical conference and in
comments--referred to a Pacific Northwest National Laboratory study
that examined the ability of faster-ramping resources to replace
traditional generation resources in providing frequency regulation
service in the CAISO.\34\ The study defined an ``ideal resource'' as
one that has a ramp rate equal to its entire capacity in one minute.
The study's authors determined the ramping ability for various resource
types in the current CAISO generation fleet that provide frequency
regulation service, including hydro, combustion turbine, steam turbine,
and combined cycle. The authors then estimated how many megawatts of
these types of capacity can be replaced by 1 MW from an ideal resource.
In one case, the ideal resource was assumed to have no limits on its
ability to sustainably provide energy. In a second case, the resource's
ability to sustain energy reflects the actual ability of a flywheel,
i.e., it reflects an energy-limited resource. In either case, the
authors concluded that a faster-responding resource is able to provide
more effective regulation capacity than most other resources, including
the current generation fleet mix in the CAISO. When replacing these
resources for frequency regulation service with an ideal resource, the
authors found that 1 MW of an ideal resource with limited energy could
replace 1.43 MW of an average hydro unit. The authors state that
effectiveness increases as the ideal resource is compared to even
slower ramping resources, reaching a maximum when 1 MW of an ideal
resource with limited energy replaces more than 24 MW of an average
steam turbine. Compared to the current CAISO fleet mix providing
frequency regulation, which includes fast-responding hydro units, the
authors found that 1 MW of a limited energy ideal resource could
replace 1.17 MW of the current generation mix.
---------------------------------------------------------------------------
\34\ Makarov, Y.V., Ma, J., Lu, S., and T.B. Nguyen, ``Assessing
the Value of Regulation Resources Based on Their Time Response
Characteristics,'' Pacific Northwest National Laboratory, PNNL-
17632, June 2008.
---------------------------------------------------------------------------
25. Representatives from some RTOs and ISOs, however, questioned at
the technical conference whether procuring more fast-response resources
would materially improve their ability to meet NERC ACE control
performance standards.\35\ For example, ISO-NE and NYISO acknowledged
that using a combination of faster-responding resources has allowed
them to meet their NERC standards by procuring relatively less
regulation capacity than they would otherwise need.\36\
---------------------------------------------------------------------------
\35\ For example, NERC reliability requirement CPS1 requires
each balancing authority to operate within a specific limit, taking
into consideration clock-minute averages of ACE, frequency bias, and
interconnection frequency error. NERC reliability requirement CPS2
requires each balancing authority to operate such that its average
ACE is within a specific limit, during a calendar month, for at
least 90 percent of clock-ten-minute periods.
\36\ Tr. 49:2-14 (Pike); Tr. 53:24-25 (Potishnak).
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II. Discussion
A. The Need for Reform
26. The Commission proposes to adopt a frequency regulation
compensation mechanism, as set forth below, for compensating regulation
providers in organized wholesale electricity markets in order to
eliminate undue discrimination and ensure just and reasonable rates.
Faster-ramping resources provide more ACE correction to system
operators than slower ramping resources and are, at least in some RTOs
and ISOs, explicitly given priority in the dispatch order. Yet these
resources do not appear to be receiving compensation for all of the
service they provide as a result of pricing mechanisms that may be
unduly discriminatory. Further, the Commission believes there are
market efficiencies to be gained by ensuring efficient price signals
for regulation resources that forego the opportunity to earn revenues
in the energy markets.
1. Unduly Discriminatory Pricing
27. The Commission is concerned that current rules that govern
pricing and compensation for frequency regulation services in RTOs and
ISOs may be unjust and unreasonable because faster-ramping resources
are compensated at the same level as slower ramping resources, even
though they can respond more quickly and provide more ACE
correction.\37\
---------------------------------------------------------------------------
\37\ See Promoting Wholesale Competition Through Open Access
Non-Discriminatory Transmission Services by Public Utilities;
Recovery of Stranded Costs by Public Utilities and Transmitting
Utilities, Order No. 888, 61 FR 21540, at 21569 (May 10, 1996), FERC
Stats. & Regs. ] 31,036 (1996), order on reh'g, Order No. 888-A, 62
FR 12274 (Mar. 14, 1997), FERC Stats. & Regs. ] 31,048, order on
reh'g, Order No. 888-B, 81 FERC ] 61,248 (1997), order on reh'g,
Order No. 888-C, 82 FERC ] 61,046 (1998), aff'd in relevant part sub
nom. Transmission Access Policy Study Group v. FERC, 225 F.3d 667
(D.C. Cir. 2000), aff'd sub nom. New York v. FERC, 535 U.S. 1 (2002)
(``In the context of an emerging competitive market in generation,
discriminatory practices that once did not constitute undue
discrimination must be reviewed to determine whether they are being
used to prevent the benefits of competition in generation from being
achieved.'').
---------------------------------------------------------------------------
28. Specifically, the Commission is concerned that under some
existing frequency regulation compensation methods, a faster-ramping
resource may not be compensated for all of the service it provides. For
example, CAISO, NYISO, Midwest ISO, and PJM net the regulation up and
regulation down provided by resources. This compensation method does
not acknowledge the inherently greater amount of ACE correction being
provided by faster-ramping resources.\38\ As a result, slower-
responding resources are compensated as if they are providing the same
amount of ACE correction when, in reality, they are not.
---------------------------------------------------------------------------
\38\ A simplified example would be to consider two resources
that clear with the same amount of capacity and are directed to
provide regulation up and regulation down over the course of a five-
minute interval. The fast-ramping resource might be directed, for
example, to move around an initial set-point up five MW, then down
three MW, up one MW, down ten MW, and finally up nine MW. A netting
approach to compensation would determine that the resource provided
an additional two MW of energy to the system (+ 5 - 3 + 1 - 10 + 9 =
+2) uring that five minute interval. Meanwhile, a slower-ramping
resource may be directed to move up three MW and then down one MW
for a net of two MW in relation to its set-point. The operator is
not able to direct more movement because the slower-ramping resource
would not be able to respond in the requisite timeframe. Both
resources would receive identical compensation for their movement,
despite the first resource providing more ACE correction.
---------------------------------------------------------------------------
29. Some ISOs and RTOs dispatch faster-ramping resources earlier
than other resources to take advantage of their enhanced operation
capabilities, i.e., their ability to ramp faster, yet pay all resources
at the same rate, i.e., the same clearing price for capacity and the
same price per MWh of net energy.\39\ Again, this could lead to
providing different amounts of ACE correction, yet receiving the same
compensation due to netting practices.
---------------------------------------------------------------------------
\39\ See, e.g., Tr. 83:9-24 (Ramey).
---------------------------------------------------------------------------
30. The Commission acknowledges that a resource's ability to sell
capacity into the regulation market is dependent on its ramping
ability, such that a faster-responding resource is able to offer a
relatively greater amount of capacity. This does not, however,
alleviate our concerns about potential undue discrimination toward
resources that provide more ACE correction. For example, some new
market entrants are relatively small in terms of capacity (capacity-
constrained), but are capable of responding rapidly to AGC signals (not
ramp-constrained), so a compensation scheme that does not reflect work
performed will lead to inadequate compensation when compared to larger,
slower responding
[[Page 11182]]
generators.\40\ The Commission preliminarily finds that slower, larger
resources are being given a compensatory advantage for their size while
faster, smaller resources do not similarly receive compensation for
their ramping speed. The Commission believes compensation should take
into account the greater amount of service that is being provided by
faster-ramping resources, through more frequent provision of both up
and down regulation; this greater amount of ACE correction is lost when
positive and negative contributions to ACE correction are netted and no
additional payment is made to reflect performance. Therefore, the
Commission proposes to reform current market designs that lack a
payment that reflects the amount of ACE correction provided by a
resource, thereby under-compensating faster-ramping resources when
compared to payments made to slower-ramping resources.
---------------------------------------------------------------------------
\40\ A resource that is capacity constrained but is able to ramp
at a very high rate will clear its relatively small amount of
capacity in the regulation market and then be paid for providing
regulation service in real-time. But this performance payment does
not acknowledge ramping ability due to netting. On the other hand, a
ramp constrained resource with a large amount of capacity to sell
could clear its relatively large amount of regulation capacity (and,
thus, receive a higher capacity payment) and get paid at the same
rate for providing regulation service in real-time. Expanding the
hypothetical scenario provided above, see supra n.37, assume that
the first (faster) resource is capacity constrained and can offer
only 10 MW of regulation, while the second (slower) resource, while
ramp-constrained, can offer 30 MW of regulation. The 30 MW resource
will receive a larger capacity payment for offering more regulation,
but the two resources will receive identical net payments for their
actual movement if they are directed as indicated above. In other
words, the slower, larger resource receives a compensatory advantage
for its size, but the faster, smaller resource does not similarly
receive a compensatory advantage for its ramping speed.
---------------------------------------------------------------------------
31. Additionally, the Commission believes that the manner in which
some resources that provide frequency regulation service are
compensated for their opportunity costs may be unjust and unreasonable
and unduly discriminatory.\41\ For instance, PJM provides ex post
``make whole'' payments based on individual unit opportunity costs,
something that is not reflected in the uniform market clearing price
calculation.\42\ ISO-NE pays opportunity costs on a resource-specific
basis. Both of these methods have the potential to inefficiently select
regulating resources and also fail to reflect the marginal unit's full
marginal cost (including opportunity cost) that should set the market
clearing price that is paid to all cleared suppliers. In addition, as
is noted by ISO-NE in comments submitted after the technical
conference, failing to pay a uniform clearing price that includes the
marginal unit's opportunity costs could result in inefficient price
signals being sent that will result in inappropriate long-term
investment.\43\ Therefore, the Commission proposes to require that all
resource bids include opportunity costs and that all cleared frequency
regulation resources be paid the single market clearing price, which
will reflect the total marginal costs of the marginal cleared unit. We
believe that this proposal will result in just and reasonable rates and
correct potential undue discrimination.
---------------------------------------------------------------------------
\41\ By participating in the regulation market, an energy market
resource is dispatched at a set-point below its maximum capacity.
Because this amount of capacity is held in reserve to provide
regulation, the resource misses the opportunity to provide energy at
the current LMP.
\42\ PJM, Manual 18: Operating Agreement Accounting, at 12-16,
available at https://www.pjm.com/~/media/documents/manuals/m28.ashx.
\43\ ISO-NE Comments at 8.
---------------------------------------------------------------------------
2. Potential Market Efficiencies
32. The Commission preliminarily finds that the use of faster-
ramping resources for frequency regulation has the potential to improve
operational and economic efficiency and, in turn, lower costs to
consumers in the organized markets. As described above, faster-ramping
resources may be able to replace resources that currently provide
frequency regulation, so RTOs and ISOs may be able to procure less
regulation capacity, thereby lowering costs to load. This can be seen
in both ISO-NE and NYISO. Both have a relatively higher concentration
of faster-ramping resources, easily meet NERC reliability standards,
and yet procure less regulation capacity, as a percentage of peak load,
than other RTOs and ISOs.\44\ When dispatching faster-ramping
resources, the system operator is better able to rely on those
resources to quickly and accurately follow the AGC signal, without
overshooting, thus avoiding the need for additional regulation
resources to compensate.
---------------------------------------------------------------------------
\44\ See Tr. 53:24-25 (Potishnak), Tr. 54:1-2 (Potishnak), Tr.
49:6-14 (Pike).
---------------------------------------------------------------------------
33. The Commission also anticipates a secondary effect on energy
markets: as slower ramping resources move out of the frequency
regulation market and are able to focus on providing sustained energy,
they should be able to operate at more efficient heat rates.\45\ For
example, for traditional thermal generators, providing frequency
regulation results in both operating at inefficient heat rates and
additional wear and tear on equipment.\46\ If these modes of operation
are avoided, costs can be reduced and lower energy bids offered,
thereby lowering prices in the energy market. The Commission notes
that, at the May 2010 technical conference, some participants
questioned the value of procuring only faster-ramping, but short
duration resources, for frequency regulation. Accordingly, the
Commission seeks comment on the benefits that faster-ramping resources,
no matter their exact type, can and do bring to the RTO and ISO
markets. Likewise, the Commission seeks comments on the drawbacks of
using faster-ramping resources, if any.\47\
---------------------------------------------------------------------------
\45\ Participants at the May 26, 2010 technical conference noted
that it was unlikely that any frequency regulation market would
comprise only fast-ramping storage resources due to the need for
sustained energy. Tr. 23:8-25 (Pike).
\46\ Xcel Energy's Pawnee coal plant shows maintenance and
capital costs (i.e., wear and tear) for load following of
approximately $1.5k per load following cycle. Aptech Engineering
Services, Inc., Cost of Cycling Analysis for Pawnee Station Unit 1
Phase 1: Top-Down Analysis, at vii (November 2008), available at
https://www.xcelenergy.com/SiteCollectionDocuments/docs/CRPExhibit4CostofCyclingExecutiveSummary.pdf.
\47\ Tr. 28:13-24 (Potishnak); Tr. 40:9-15 (Ott).
---------------------------------------------------------------------------
B. Specific Proposals
34. In light of the foregoing concerns the Commission proposes to
amend its regulations to provide a frequency regulation compensation
mechanism for the RTO and ISO markets to ensure that pricing and
compensation of frequency regulation service is just and reasonable and
not unduly discriminatory or preferential. Specifically, the Commission
proposes to require ISOs and RTOs to change their tariffs so that
regulation resources receive a two-part payment. This two-part payment
structure is based on what the Commission preliminarily finds are
``best practices'' used by the RTOs and ISOs. As further described
below, the first part of the payment is a capacity, or option, payment
to have a certain amount of capacity held in reserve and not
participate in the energy market in order to provide frequency
regulation service. While all RTOs and ISOs with a centrally-procured
frequency regulation market currently provide for a capacity payment to
frequency regulation resources, the payment varies by RTO or ISO. To
produce the efficient market outcome, this payment must include the
marginal regulating resource's opportunity costs. The second part of
the payment is a performance payment based on the amount of up and down
movement, in megawatts, the resource provides in response to a control
signal.\48\ This
[[Page 11183]]
performance payment should also take into consideration a resource's
accuracy in providing ACE correction. The Commission preliminarily
finds that this compensation structure is necessary to ensure that
pricing schemes for frequency regulation service in the organized
wholesale electricity markets result in rates that are just and
reasonable, and not unduly discriminatory or preferential.
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\48\ This applies whether an RTO or ISO allows resources to sell
regulation up and regulation down separately or requires resources
to offer both regulation up and regulation down.
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1. Capacity Payment and Opportunity Cost
35. The Commission proposes to require that each regulating
resource is paid a uniform capacity payment that includes the
opportunity cost of the marginal regulating resource. As discussed
above, some ISOs and RTOs currently pay resource-specific opportunity
costs in addition to or as part of a capacity payment, while others
incorporate the marginal unit's opportunity cost into a uniform
frequency regulation market clearing price for capacity. In order to
send an efficient price signal to frequency regulation resources, the
Commission proposes that RTOs and ISOs base the clearing price for
frequency regulation on the marginal resource's marginal cost,
including opportunity cost. Paying a unit-specific opportunity cost
distorts the market by basing the commitment of regulating units on
incomplete market information, potentially leading to committing units
with higher costs than other units not committed. Accordingly, the
Commission preliminarily finds that a frequency regulation compensation
mechanism that includes a uniform clearing price with accurately-
determined opportunity costs will reduce errors in selecting the
optimal portfolio of regulation suppliers each hour (and each day),
which reduces total regulation costs to consumers and ensures that
rates are just and reasonable and not unduly discriminatory or
preferential.
36. In addition, the Commission preliminarily finds that cross-
product opportunity costs \49\ should be calculated by the RTO or ISO,
as it has the best information to determine a frequency regulation
resource's cross-product opportunity cost due to not participating in
the energy market. Further, where appropriate, resources should be
permitted to include inter-temporal opportunity costs in their capacity
bid.\50\ The Commission seeks comment on its proposal to require each
regulating resource to be paid a uniform capacity payment that includes
the opportunity cost of the marginal regulating resource.
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\49\ A cross-product opportunity cost, in this case, is the
revenue a regulation provider loses because it is on stand-by to
provide regulation and is not providing energy.
\50\ An inter-temporal opportunity cost represents the foregone
value when a resource must operate at one time, and therefore must
either forego a profit from selling energy at a later time or incur
costs due to consuming at a later time. The trade-off presented to
thermal storage provides an example of inter-temporal opportunity
costs. A thermal storage operator would prefer to ``charge'' (heat
bricks or freeze water) when prices are low. If such a resource were
to provide frequency regulation, it could be asked to stop charging
during low price periods and then be forced to charge during high
price periods.
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2. Payment for Performance with Accuracy Adjustment
37. The Commission preliminarily finds that requiring a component
in the frequency regulation compensation mechanism that recognizes the
resource's contribution to ACE correction is necessary to remedy undue
discrimination and ensure just and reasonable rates in the organized
wholesale electricity markets. Resources that provide more value to the
grid by doing more of the work to correct ACE deviations should be paid
more than resources doing less work. Accordingly, taking performance
into consideration is a key element of ensuring that any frequency
regulation compensation mechanism is just and reasonable and not unduly
discriminatory or preferential. We, therefore, propose to require that
all regulating resources be paid for their performance, with this
payment taking the form of a payment for each MW, up or down, provided
by the resource in response to the system operator's dispatch signal.
Specifically, an RTO or ISO would determine the total movement up and
down and then multiply that sum by a price-per-MW of ACE correction. We
seek comment on the proposed method and whether there are alternative
payments for performance that can address our concern about undue
discrimination.
38. The Commission proposes that the price-per-MW of ACE correction
be market-based. Specifically, resources would specify the capacity (in
MW) available to provide regulation, a ramp rate (in MW/minute), and
bid into the market a price-per-MWh ramping capability and price-per-MW
of ACE correction. The RTO or ISO would then determine the least cost
set of resources and set the price-per-MW of ACE correction based on
the bid of the marginal regulating resource. We note that there was
little discussion at the technical conference about how to design the
price-per-MW of ACE correction.\51\ The alternative to a market-based
price is to use an administratively set price-per-MW of ACE correction.
We seek comment on this proposal as well as the alternative of an
administratively determined price, including how an administratively
determined price could be set. We note that some commenters stressed
the importance of the ISO's and RTO's energy and ancillary service co-
optimization algorithms in producing the least-cost portfolio of
resources.\52\ We therefore seek comment on how this proposal will
integrate with the ISO's and RTO's existing co-optimization algorithms.
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\51\ See, e.g., Tr.124:10-131:19.
\52\ EPSA Comments at 9-10 (``Going forward co-optimizaton and
how that is evaluated will be important to generation resources
because the rules that result will play an important role in
determining whether and when the resource will provide energy or
ancillary services.'').
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39. The Commission also proposes that the performance payment must
reflect the resource's accuracy in following the system operator's
dispatch signal. Specifically, we propose that the accuracy be measured
by the RTO or ISO using currently available telemetry technology. If an
RTO or ISO receives telemetry data every 10 seconds, for instance, it
would be able to measure over the course of 5 minutes how often the
resource was delivering exactly the megawatts requested. The resource
would then be compensated for the fraction of its energy injected or
withdrawn that met the dispatch signal. This method accepts as given
the resource's stated ramping ability and provides a disincentive to
deviate from the dispatch signal, which incorporates actual ramping
performance.
40. We note that there was little agreement among the technical
conference panelists on how accuracy should be incorporated into the
frequency regulation market design.\53\ Therefore, we seek comments on
alternative methods, including methods to incorporate accuracy into the
ACE correction calculation. It is possible to approximate how a
resource contributes to correcting ACE by taking the difference between
the energy it provides that was in the direction needed to correct ACE
at any moment and the energy that was in the direction opposite to what
was needed to correct ACE. If ACE indicates that the system requires
regulation up, yet a resource is still providing regulation down due to
its slow ramping ability, that resource could be considered to not be
[[Page 11184]]
contributing to ACE correction. Thus, its payment for ACE correction
would only include the MWh that were actually correcting ACE. The
Commission seeks comments on how to structure payments for frequency
regulation that compensate a resource for its contribution to ACE
correction. We seek comment on whether this method could result in a
resource being penalized through lower measured ACE correction even
when it is following the system operator's dispatch signal.
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\53\ See Tr. 85-86 (Potishnak) and Tr. 117-118 (Ott).
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3. Net Energy
41. Currently, regulating resources receive a payment (or charge)
for the net energy injected (or withdrawn) as a result of providing
regulation service in every RTO and ISO market. The Commission seeks
comment on the appropriateness of retaining net energy payments in
light of the two-part payment proposed here. Specifically, the
Commission seeks comment on whether the provisions in existing tariffs
for net energy payments are redundant given the proposed requirement
discussed herein that all RTOs and ISOs must pay regulating resources a
mileage payment for the ACE correction they provide, or whether this
payment is a necessary, appropriate feature of day-ahead and real-time
energy account balancing and settlement.
III. Information Collection Statement
42. The following collection of information contained in this
Proposed Rule are subject to review by the Office of Management and
Budget (OMB) under section 3507(d) of the Paperwork Reduction Act of
1995.\54\ OMB's regulations require approval of certain information
collection requirements imposed by agency rules.\55\ The Commission
solicits comments on the Commission's need for this information,
whether the information will have practical utility, the accuracy of
the burden estimates, ways to enhance the quality, utility, and clarity
of the information to be collected or retained, and any suggested
methods for minimizing respondents' burden, including the use of
automated information techniques.
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\54\ 44 U.S.C. 3507(d) (2006).
\55\ 5 CFR 1320.11 (2010).
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43. Additionally, the Commission encourages comments regarding the
time burden expected to be required to comply with the proposed rule
regarding the requirement for ISOs and RTOs to change their tariffs so
that the regulation resources receive just and reasonable compensation
for the services provided, and the potential time burden on regulation
resources to conform to new or modified bidding requirements.
Specifically, the Commission seeks comment on: (1) The additional
burden and cost (human, hardware and software) associated with
implementation, operation and maintenance of this new provision in ISO/
RTO tariffs; and (2) the additional burden and cost (human, hardware
and software) on regulation resources, if any, associated with changes
to the type of information submitted in the bid or the manner in which
the bid is submitted.
Burden Estimate: The additional estimated public reporting burdens
for the proposed reporting requirements in this rule are as follows.
----------------------------------------------------------------------------------------------------------------
Number of
Data collection respondents Number of Hours per Total annual hours
\56\ responses response
FERC 516 [1] [2] [3] [1 x 2 x 3]
----------------------------------------------------------------------------------------------------------------
Conforming tariff changes (18 5 1 100 500
CFR 35.28(g)(3)). One time
burden.
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Totals..................... ............... .............. .............. 500 one time burden.
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Cost to Comply: The Commission has projected the cost of compliance
to be $57,000. Total Annual Hours for Collection in initial year (500
hours) @ $114 an hour [average cost of attorney ($200 per hour),
consultant ($150), technical ($80), and administrative support ($25)] =
$57,000
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\56\ SPP is not included in the respondents because they
currently do not have a frequency regulation compensation mechanism
in their tariff and independent of this proceeding they have
indicated that they are already planning to implement such a
mechanism. Therefore, it is expected that any additional burden on
SPP due to this proceeding is expected to be de minimus.
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Title: FERC-516, Electric Rate Schedules and Tariff Filings.
Action: Proposed Collection.
OMB Control No. 1902-0096.
Respondents for this Rulemaking: Businesses or other for profit
and/or not-for-profit institutions.
Frequency of Information: As indicated in the table.
Necessity of Information: The Federal Energy Regulatory Commission
is proposing to require ISOs and RTOs to change their tariffs to
provide for compensation of frequency regulation in a manner that
remedies undue discrimination in the procurement of such service in the
organized wholesale electricity markets.
Internal Review: The Commission has reviewed the proposed changes
and has determined that the changes are necessary. These requirements
conform to the Commission's need for efficient information collection,
communication, and management within the energy industry. The
Commission has assured itself, by means of internal review, that there
is specific, objective support for the burden estimates associated with
the information collection requirements.
44. Interested persons may obtain information on the reporting
requirements by contacting the following: Federal Energy Regulatory
Commission, 888 First Street, NE., Washington, DC 20426 [Attention:
Ellen Brown, Office of the Executive Director], e-mail:
DataClearance@ferc.gov, Phone: (202) 502-8663, fax: (202) 273-0873.
45. Comments on the collections of information and the associated
burden estimates in the proposed rule should be sent to the Commission
in this docket and may also be sent to the Office of Information and
Regulatory Affairs, Office of Management and Budget, DC 20503
[Attention: Desk Officer for the Federal Energy Regulatory Commission].
For security reasons, comments to OMB should be submitted by e-mail to:
oira_submission@omb.eop.gov. Comments submitted to OMB should include
Docket Number RM11-7 and OMB Control Number 1902-0096.
IV. Environmental Analysis
46. The Commission is required to prepare an Environmental
Assessment or an Environmental Impact Statement for any action that may
have a significant adverse effect on the human environment.\57\ The
Commission has
[[Page 11185]]
categorically excluded certain actions from this requirement as not
having a significant effect on the human environment.\58\ The proposed
regulations are categorically excluded as they address rate filings
submitted under section 206 of the FPA and the establishment of just
and reasonable rates, terms and conditions of jurisdictional service
under this section of the FPA.\59\ Accordingly, no environmental
assessment is necessary and none has been prepared for this NOPR.
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\57\ Regulations Implementing the National Environmental Policy
Act, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs.
Preambles 1986-1990 ] 30,783 (1987).
\58\ 18 CFR 380.4.
\59\ See 18 CFR 380.4(a)(15).
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V. Regulatory Flexibility Act
47. The Regulatory Flexibility Act of 1980 (RFA) \60\ generally
requires a description and analysis of final rules that will have
significant economic impact on a substantial number of small entities.
The RFA mandates consideration of regulatory alternatives that
accomplish the stated objectives of a proposed rule and that minimize
any significant economic impact on a substantial number of small
entities. The Small Business Administration's (SBA) Office of Size
Standards develops the numerical definition of a small business.\61\
The SBA has established a size standard for electric utilities, stating
that a firm is small if, including its affiliates, it is primarily
engaged in the transmission, generation and/or distribution of electric
energy for sale and its total electric output for the preceding twelve
months did not exceed four million megawatt hours.\62\ Five ISOs and
RTOs, not small entities, are impacted directly by this rule.
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\60\ 5 U.S.C. 601-612.
\61\ 13 CFR 121.101.
\62\ 13 CFR 121.201, Sector 22, Utilities & n.1.
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48. CAISO is a non-profit organization with over 54,000 megawatts
of capacity and over 25,000 circuit miles of power lines.
49. NYISO is a non-profit organization that oversees wholesale
electricit
