
[Federal Register Volume 79, Number 39 (Thursday, February 27, 2014)]
[Notices]
[Pages 11097-11100]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04278]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. AD14-7-000]


Third-Party Provision of Reactive Supply and Voltage Control and 
Regulation and Frequency Response Services; Notice of Workshop

    Take notice that Federal Energy Regulatory Commission (Commission) 
staff will convene a workshop to obtain input on third-party provision 
of reactive supply and voltage control and regulation and frequency 
response services. The workshop will be held on April 22, 2014 in the 
Commission Meeting Room at the offices of the Federal Energy Regulatory 
Commission, 888 First Street NE., Washington, DC 20426. Members of the 
Commission may attend.
    Advance registration is not required, but is encouraged. You may 
register at the following Web page: https://www.ferc.gov/whats-new/registration/04-22-14-form.asp.
    Those wishing to participate in the program for this event should 
nominate themselves through the on-line registration form no later than 
March 14, 2014 at the following Web page: https://www.ferc.gov/whats-new/registration/04-22-14-speaker-form.asp.
    The Commission will issue a subsequent notice providing the 
detailed agenda for the workshop.
    In Order No. 784, the Commission revised its regulations to foster 
competition and transparency in ancillary services markets.\1\ Among 
other things, the Commission revised Part 35 of its regulations to 
reflect reforms to its Avista \2\ policy governing the sale of 
ancillary services at market-based rates to public utility transmission 
providers. The Commission implemented these reforms out of a concern 
that the Avista restriction limiting the sale of ancillary services at 
market-based rates absent a showing of lack of market power to a public 
utility transmission provider for purposes of satisfying its open 
access transmission (OATT) requirements was proving to be an 
unreasonable barrier to entry, unnecessarily restricting access to 
potential suppliers.\3\ Based on the record developed in that 
proceeding, the Commission relaxed the Avista restrictions with respect 
to the sale of Energy Imbalance, Generator Imbalance, Operating 
Reserve-Spinning and Operating Reserve-Supplemental services.
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    \1\ Third-Party Provision of Ancillary Services; Accounting and 
Financial Reporting for New Electric Storage Technologies, Order No. 
784, 78 FR 46,178 (July 30, 2013), FERC Stats. & Regs. ] 31,349, at 
PP 2-3 (2013).
    \2\ Avista Corp., 87 FERC ] 61,223, order on reh'g, 89 FERC ] 
61,136 (1999) (Avista).
    \3\ See Order No. 784, FERC Stats. & Regs. ] 31,349 at P 9.
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    However, the Commission found that the technical and geographic 
requirements associated with Reactive Supply and Voltage Control 
(Schedule 2) and Regulation and Frequency Response (Schedule 3) 
services precluded application of the existing market power screens to 
the sale of those services. Instead, the Commission provided other 
options for such sales (price cap and competitive solicitation, 
described further below) and stated its intention to gather more 
information regarding the technical, economic and market issues 
concerning the provision of these services in a new, separate 
proceeding. The Commission stated that such proceeding will consider, 
among other things, the ease and cost-effectiveness of relevant 
equipment upgrades, the need for and availability of appropriate 
special arrangements such as dynamic scheduling or pseudo-tie 
arrangements, and other technical requirements related to the provision 
of Schedule 2 and Schedule 3 services.
    Consistent with the Commission's stated intent in Order No. 784, 
staff would like to receive input from interested persons regarding the 
technical, economic and market issues concerning the provision of 
Schedule 2

[[Page 11098]]

and Schedule 3 services. To facilitate this discussion, staff provides 
additional background regarding Commission policies and recent actions 
with respect to reactive power, frequency response, and frequency 
regulation.

Reactive Power

    Reactive power is a critical component of operating an alternating 
current (AC) electricity system, and is required to control system 
voltage within appropriate ranges for efficient and reliable operation 
of the transmission system. At times generators or other resources must 
either supply or consume reactive power for the transmission system to 
maintain voltage levels required to reliably supply electricity from 
generation to load.
    Payments for reactive power capability vary by region. Some regions 
do not pay for reactive power capability within the required power 
factor range, finding that it is a requirement of generator operation 
under good utility practice. Other regions pay generators a cost-based 
rate for reactive power capability, since generators incur costs to 
provide that capability and paying generators aligns incentives with 
desired behavior for system flexibility. Where such cost-based rates 
are paid, providers of reactive power generally are authorized to 
receive payment pursuant to tariffs on file with the Commission. The 
Avista policy permitting some ancillary service sales without a showing 
of lack of market power, did not apply to Schedule 2 service.\4\ 
Accordingly, suppliers wishing to sell Schedule 2 service at market-
based rates have always needed to demonstrate a lack of market power 
with respect to the reactive power product before such sales would be 
authorized.
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    \4\ See id. n.17.
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    In Order No. 784, the Commission nevertheless evaluated whether the 
existing market power screens could be applied to the sale of Schedule 
2 service without significant modification.\5\ The Commission found 
that the more stringent technical and geographic considerations 
associated with Schedule 2 service suggest that it is not the simple 
combination of basic energy and capacity products. The Commission noted 
that most comments addressing the sale of Schedule 2 service agree that 
the set of resources considered by the existing market power screens 
for energy and capacity would differ too significantly from the set of 
resources that would be considered by market power analyses designed 
specifically for Schedule 2 service. The Commission therefore concluded 
that the record before it did not support application of the existing 
market power screens without significant modification to Schedule 2 
service. Instead, the Commission allowed market-based sales of Schedule 
2 service to a public utility that is purchasing ancillary services to 
satisfy its OATT requirements if the sale is made pursuant to a 
competitive solicitation that meets certain specified requirements,\6\ 
or when such sale is made at or below the buying public utility 
transmission provider's own Schedule 2 rate.\7\
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    \5\ Id. PP 59-61.
    \6\ Id. P 99.
    \7\ Id. PP 82-85.
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    At the workshop, staff would like to discuss the following:
     The extent to which reactive power can be traded across 
balancing areas in a manner consistent with existing market power 
screens for energy and capacity;
     Whether there should be payment for reactive power 
capability within the required power factor range;
     How cost-based payments for reactive power capability 
should be structured; and
     What are the obligations of generators receiving payment 
for reactive power capability?

Frequency Response and Frequency Regulation

    In Order No. 784, the Commission also evaluated whether the 
existing market power screens for sales of energy and capacity could be 
applied to the sale of Schedule 3 service without significant 
modification.\8\ The Commission discussed Schedule 3 as a single 
service in Order No. 784, focusing primarily on AGC-based frequency 
regulation. However, frequency response is distinct from frequency 
regulation.\9\ Frequency response involves the autonomous, automatic, 
and rapid reaction of an individual turbine-generator or other resource 
to change its output to rapidly dampen large changes in frequency, 
generally through appropriate governor settings. Frequency regulation 
is produced from either manual or automated dispatch (through Automatic 
Generation Control (AGC)) from a centralized system.\10\ In Order No. 
888, the Commission found that governor-based autonomous frequency 
response did not merit a separate ancillary service because at the time 
the same resources that respond to regulation signals also provided 
governor response under then-standard industry practices.\11\ As a 
result, the language of Order No. 888 discussing Schedule 3 was focused 
primarily on AGC-based central dispatch.\12\
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    \8\ Id. PP 59-61.
    \9\ As used herein, frequency response refers to primary 
frequency response and frequency regulation refers to secondary 
frequency response.
    \10\ See Frequency Response and Frequency Bias Setting 
Reliability Standard, Order No. 794, 146 FERC ] 61,024 at PP 8-9 
(2014).
    \11\ ``While the services provided by Regulation Service and 
Frequency Response Service are different, they are complimentary 
services that are made available using the same equipment.'' 
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, FERC Stats. & Regs. ] 31,036, slip at 212 (1996), 
order on reh'g, Order No. 888-A, 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).
    \12\ ``Regulation and Frequency Response Service is accomplished 
by committing on-line generation whose output is raised or lowered 
(predominantly through the use of automatic generation control 
equipment). . .'' See OATT Schedule 3.
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    While it remains true that most generating units capable of 
providing frequency regulation are also capable of providing frequency 
response, standard industry practices have changed and it is no longer 
clear that most resources providing frequency regulation are also 
providing frequency response. Accordingly, staff is evaluating whether 
additional market mechanisms are needed to facilitate the provision of 
either frequency response or frequency regulation in the organized or 
bilateral markets. For purposes of considering the technical, economic 
and market issues concerning the provision of Schedule 3 service, staff 
believes it would be productive to focus on frequency response and 
frequency regulation separately.

Frequency Regulation

    Frequency regulation is used to balance generation, interchange and 
demand by managing the response of available resources within 
minutes.\13\ Frequency regulation is provided under different market 
mechanisms in the organized and bilateral markets. Regional 
transmission operators (RTOs) and independent system operators (ISOs) 
generally procure frequency regulation through auction-based market 
mechanisms in which payments are intended to cover the range of costs

[[Page 11099]]

incurred to provide service.\14\ Resources wishing to sell frequency 
regulation in RTO/ISO markets are authorized to do so pursuant to their 
MBR tariffs.
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    \13\ Order No. 794, 146 FERC ] 61,024 at P 9. The level of 
frequency regulation required for each balancing authority area is 
not fixed, but is set by each balancing authority area to meet the 
requirements of NERC Reliability Standards.
    \14\ Frequency Regulation Compensation in the Organized 
Wholesale Power Markets, Order No. 755, FERC Stats. & Regs. ] 
32,324, at PP 6-11 (2011), reh'g denied, Order No. 755-A, 138 FERC ] 
61,123 (2012).
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    Outside the RTO/ISO markets, Avista authorizes suppliers who cannot 
show a lack of market power with respect to Schedule 3 service to 
nevertheless sell that service with certain restrictions.\15\ One such 
restriction is that the authorization provided by Avista does not apply 
to sales to a public utility that is purchasing ancillary services to 
satisfy its own OATT requirements to offer ancillary services to its 
own customers.\16\ In Order No. 784, the Commission evaluated whether 
the existing market power screens could be applied with respect to the 
sale of Schedule 3 service without significant modification, as a way 
to permit such sellers to avoid the otherwise applicable Avista 
restriction.
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    \15\ Additionally, any seller who can successfully demonstrate a 
lack of market power with respect to Schedule 3 service would 
receive authorization from the Commission to sell to any entity 
without restrictions, including public utility transmission 
providers.
    \16\ See Avista, 87 FERC ] 61,223 at n.12.
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    As in Order No. 888, the Commission's evaluation of this issue in 
Order No. 784 focused primarily on frequency regulation, not frequency 
response.\17\ The Commission concluded that the existing market power 
screens for energy and capacity were inadequate for analyzing Schedule 
3 service because there are significant technical requirements, such as 
the need for AGC equipment, that limit the set of resources capable of 
supplying Schedule 3 service. The Commission agreed in principle with 
commenters that potential competitors could be viewed as existing 
competitors for purposes of market power analysis if it is known that 
they can install needed equipment rapidly and profitably in response to 
appropriate price signals, but found that the record does not 
conclusively support the notion that such equipment upgrades (e.g., to 
install AGC equipment in an existing generator) can be accomplished in 
such a manner. The Commission also noted that the record indicates that 
third-party sellers of Schedule 3 service might need to enter into or 
facilitate special transmission service arrangements between 
neighboring balancing authorities, such as dynamic scheduling or 
pseudo-tie arrangements, in order to make sales outside of their home 
balancing authority area. Because this fact could impact the 
appropriateness of using the default geographic market reflected in the 
existing market power screens for sales of energy and capacity, and 
thus the ability to apply those screens to sales of Schedule 3 service 
without significant modification, the Commission concluded that the 
record before it did not support application of the existing market 
power screens for sales of energy and capacity to sales of Schedule 3 
service. Instead, the Commission allowed market-based sales of Schedule 
3 service to a public utility that is purchasing ancillary services to 
satisfy its OATT requirements if the sale is made pursuant to a 
competitive solicitation that meets certain specified requirements,\18\ 
or when such sale is made at or below the buying public utility 
transmission provider's own Schedule 3 rate.\19\
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    \17\ Order No. 784, FERC Stats. & Regs. ] 31,349 at PP 59-61.
    \18\ Id. P 99.
    \19\ Id. PP 82-85.
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    At the workshop, staff would like to discuss the technical, 
economic and market issues concerning the provision of Schedule 3 
service as it relates to frequency regulation outside of the RTO 
regions, including:
     To what extent do existing resources lack the necessary 
AGC equipment to provide frequency regulation?
     Why do existing resources that have AGC equipment choose 
not to use it?
     What is the ease and expense of adding AGC equipment to an 
existing resource?
     Are any special transmission scheduling provisions needed 
to enable the provision of frequency regulation from one balancing 
authority area to another? If so, what is the ease and expense of 
implementing them?
     Are there efforts underway to make the provision of 
frequency regulation easier?

Frequency Response

    Sufficient frequency response is necessary to stabilize frequency 
within an interconnection immediately following the sudden loss of 
generation or load. The ability of a power system to withstand a sudden 
loss of generation or load depends on the presence and adequacy of 
resources capable of providing rapid incremental power changes to 
counterbalance the disturbance and arrest a frequency deviation. Most 
frequency response is provided by the automatic and autonomous actions 
of turbine-generators that have appropriate governor settings, with 
some response being provided by load resources that have capabilities 
similar to autonomous governor response.\20\
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    \20\ Order No. 794, 146 FERC ] 61,024 at P 6. Once it becomes 
effective, NERC Reliability Standard BAL-003-1 will establish a 
minimum frequency response obligation for each balancing authority 
area.
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    On January 16, 2014 the Commission issued Order No. 794, Frequency 
Response and Frequency Bias Setting Reliability Standard. The now-
approved NERC Reliability Standard BAL-003-1 establishes a minimum 
Frequency Response Obligation for each balancing authority areas or 
frequency response sharing group; provides a uniform calculation of 
frequency response measure; establishes Frequency Bias Settings that 
set values closer to actual balancing authority frequency response; and 
encourages coordinated AGC operation.\21\ By imposing a requirement on 
balancing authority areas and frequency response sharing groups to 
provide frequency response, Order No. 794 will have the effect of 
transitioning frequency response from what was historically considered 
an interconnection-wide system characteristic to a distinct balancing 
service that specific entities must deliver. Recognizing this, the 
Commission issued a separate docket in July 2013 to explore the market 
implications of the new frequency response and frequency bias setting 
requirements, including potential impacts of the frequency bias setting 
being different from actual frequency response; potential market and 
commercial impacts of not accounting for transmission limitations and 
historical flows when calculating frequency response obligations; 
crediting load resources as part of the frequency response obligation; 
the potential need for compensating frequency response resources; and 
any other potential impacts on transmission capacity or ancillary 
services.\22\
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    \21\ Id. P 1.
    \22\ Market Implications of Frequency, Response and Frequency 
Bias Setting Requirements, Notice of Request for Comments, 144 FERC 
] 61,058 (2013).
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    Although a public utility transmission provider using its own 
resources to provide Schedule 3 service would likely recover most of 
its costs of providing governor-based frequency response along with its 
costs for AGC-based frequency regulation under OATT Schedule 3, to the 
extent the same units are providing both services, there are few market 
mechanisms in place regarding compensation for frequency response as a 
stand-alone service. Unlike frequency regulation, frequency response 
has not been defined as a

[[Page 11100]]

product in the RTO/ISO markets. And while the authorization provided in 
Avista would apply to frequency response, the restriction on sales to a 
public utility that is purchasing ancillary services to satisfy its own 
OATT requirements to offer ancillary services to its own customers 
effectively precludes development of a market for frequency response. 
These concerns along with the recently authorized reliability standard 
have created the need for Commission Staff to request input regarding 
existing regulatory and tariff provisions as well as potential market 
implications for frequency response service.
    At the workshop, staff would like to discuss the technical, 
economic and market issues concerning the provision of Schedule 3 
service as it relates to frequency response, including:
     To what extent should existing resources be required to 
provide their inherent quantity of frequency response as part of their 
existing obligations, with any shortfall in achieving the balancing 
authority area's frequency response obligation being procured through 
tariff or market mechanisms such as in ERCOT;
     Could competitive, market-based procurement of primary 
frequency response performance be structured to address potential 
market power concerns;
     Whether provision of autonomous governor response could be 
traded in a manner that is consistent with the existing market power 
screens for sales of energy and capacity;
     To what extent can existing resources be equipped with 
governors, or other control equipment that can serve the same function, 
and how expensive or time consuming would such a retrofit be;
     Since governor-based autonomous frequency response would 
not require any dispatch signal from a balancing area operator, would 
any special dispatch or transmission scheduling provisions be needed to 
provide the service from resources in a neighboring balancing authority 
area;
     Could competitive procurement of primary frequency 
response be structured to avoid increases in Transmission Reliability 
Margin, avoid barriers to non-conventional resources, and assure the 
performance will be consistent with the Commission-approved balancing 
authority area obligation, assure the generators providing primary 
frequency response achieve appropriate speed and magnitude of power 
output;
     How could cost-based payments for primary frequency 
response performance be structured;
     To what extent do existing resources lack the necessary 
equipment or fail to utilize the appropriate settings on that equipment 
to provide primary frequency response;
     Why do existing resources that have the necessary 
equipment to provide primary frequency response choose not to use it or 
to absorb response; and,
     Are penalties for deviating from generation schedules 
viewed as a serious impediment to the provision of frequency response?
    The workshop will not be transcribed. However, there will be a free 
webcast of the workshop. Anyone with Internet access interested in 
viewing this workshop can do so by navigating to the FERC Calendar of 
Events at www.ferc.gov and locating this event in the Calendar. The 
event will contain a link to its webcast. The Capitol Connection 
provides technical support for the webcasts and offers the option of 
listening to the workshop via phone-bridge for a fee. If you have any 
questions, visit www.CapitolConnection.org or call (703) 996-3100.
    FERC workshops are accessible under section 508 of the 
Rehabilitation Act of 1973. For accessibility accommodations please 
send an email to accessibility@ferc.gov or call toll free (866) 208-
3372 (voice) or (202) 502-8659 (TTY), or send a fax to (202) 208-2106 
with the requested accommodations.

FOR FURTHER INFORMATION CONTACT: 
Sarah McKinley (Logistical Information), Federal Energy Regulatory 
Commission, Office of External Affairs, (202) 502-8368, 
sarah.mckinley@ferc.gov
Rahim Amerkhail (Technical Information), Federal Energy Regulatory 
Commission, Office of Energy Policy and Innovation, 888 First Street 
NE., Washington, DC 20426, (202) 502-8266, Rahim.amerkhail@ferc.gov.

    Dated: February 20, 2014.
Kimberly D. Bose,
Secretary.
[FR Doc. 2014-04278 Filed 2-26-14; 8:45 am]
BILLING CODE 6717-01-P


