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FERC Sets New Compensation for Frequency Regulation

On October 20, 2011, FERC approved a new two-part compensation method for frequency regulation in wholesale power markets that would provide higher compensation for faster ramping technologies.  The Commission found that the old form of regulation service payment from regional transmission organizations (“RTOs”) and independent system operators (“ISOs”) were unjust, unreasonable, and unduly discriminatory because it failed to acknowledge the speed of different ramping resources, and in some cases this led to inefficient economic dispatch.

Frequency regulation is an ancillary service where there is the injection or withdrawal of power by facilities that respond to a system operator’s automatic generator control signal (“AGC signal”), so an RTO and ISO will use regulation service to balance the grid.  Most frequency regulation is provided by generators, but it is also provided by storage technologies such as flywheels and electric vehicles, demand resources, and possibly residential water heaters.  The faster a resource can ramp up or down, the more accurately it can respond to AGC signals.

The new compensation method will first give all cleared resources a uniform capacity payment to include opportunity costs.  Second, each resource will receive a market-based performance payment for service, and that payment will reflect a resource’s accuracy of performance.   Chairman Wellinghoff spoke of the criticality of this rule in maintaining grid reliability, and he said this rule will allow for additional compensation to those facilities that are faster and more accurate in providing frequency regulation.  

The final rule will take effect 60 days from publication in the Federal Register.

A copy of the FERC order is available here.