FERC issues NOPR on revisions to ancillary services

FERC has proposed to revise its ancillary services requirements and accounting and reporting requirements, as well as certain aspects of its market-based rate regulations (Docket nos. RM11-24-000 and AD10-13-000).

In a notice of proposed rulemaking (NOPR) issued June 22, FERC said it is seeking comment on a package of proposals, including rate flexibility by purchasers and sellers of ancillary services and competition in ancillary services markets. The NOPR also proposes to address transparency in reserve requirements for ancillary services.

“Specifically, the commission proposes to revise its Avista Corp. policy governing the sale of ancillary services at market-based rates to public utility transmission providers and reflect such reforms in Parts 35 and 37 of the commission’s regulations,” FERC said.

Under the Avista policy, third-party sellers of ancillary services may sell these services at market-based rates without having to show a lack of market power, except under certain circumstances.

However, FERC found that third-party market power failed to be mitigated in three situations: sales to an RTO or ISO, which has no ability to self-supply ancillary services but depends on third parties; sales to a traditional, franchised public utility affiliated with the third-party supplier, or sales where the underlying transmission service is on the system of the public utility affiliated with the third-party supplier; and sales to a public utility that is purchasing ancillary services to satisfy its own open access transmission tariff (OATT) requirements to offer ancillary services to its own customers.

The NOPR focuses on the third situation, sales to a public utility that is purchasing ancillary services to satisfy its own OATT requirements to offer ancillary services to its own customers.

“The concern in this situation has been that if third parties who had not been shown to lack market power were permitted to sell to public utilities seeking to meet their OATT ancillary service obligations, the public utility’s ability to recover such purchase costs in OATT rates might lead it to agree to above-market purchases, which would then be incorporated into the public utility’s OATT ancillary service rate and gradually increase that rate,” FERC said.

This increase, in turn, would reduce the ability of the cost-based OATT rate to serve as an alternative to the third-party market based rate, and thus undermine the mitigation measure that FERC relied upon in Avista to enable relaxation of the requirement for a market power analysis – namely, that allowing third-party ancillary service providers that could not perform a market power study to sell certain ancillary services at market-based rates with certain restrictions would limit the price at which customers would be willing to buy ancillary services, and thus ensure that the third party sellers’ rates would remain just and reasonable, FERC said.

NOI comments form basis of NOPR

In a notice of inquiry (NOI) on June 16, 2011 FERC sought comment on existing restrictions on third-party provision of ancillary services.

The NOI questioned whether the various cost-based compensation methods for regulation and frequency response service that exist in regions outside of the current organized markets could be adjusted, and sought comment on the adequacy of current accounting and reporting requirements as they pertain to the oversight of the provision of jurisdictional services from energy storage devices.

“A variety of resources are poised to provide ancillary services but may be frustrated from doing so by certain aspects of the commission’s market-based rate policies,” FERC said in the NOPR. “At the same time, transmission customers and sellers alike are seeking greater transparency with regard to reserve requirements for ancillary services, with a particular focus on regulation and frequency response.”

The commission also proposes to require that public utility transmission providers include provisions in their OATTs explaining how they will determine regulation and frequency response service reserve requirements in a manner that takes into account the speed and accuracy of resources used, FERC said.

Comments are due 60 days after the NOPR’s publication in the Federal Register.

About Rosy Lum 525 Articles
Rosy Lum, Analyst for TransmissionHub, has been covering the U.S. energy industry since 2007. She began her career in energy journalism at SNL Financial, for which she established a New York news desk. She covered topics ranging from energy finance and renewable policies and incentives, to master limited partnerships and ETFs. Thereafter, she honed her energy and utility focus at the Financial Times' dealReporter, where she covered and broke oil and gas and utility mergers and acquisitions.