Order 755-A confirms frequency regulation payment

Friday, February 17, 2012

In a move likely to please innovative energy resources capable of keeping the electric grid stable, federal regulators have affirmed a decision to require grid operators to pay fairly for frequency regulation service.  In FERC Order No. 755-A, released yesterday, the Federal Energy Regulatory Commission declined to deviate from its previous Order No. 755 which transformed the way grid operators pay for frequency regulation.

Frequency regulation service involves adding or withdrawing energy from the electric grid in real time to ensure that supply and demand remain balanced.  Electricity is surprisingly challenging to store, so historically grid operators have asked generators to ramp their production up or down in response to changes in the balance of supply and demand.  This is known as frequency regulation service.

New energy storage technologies, like flywheels or batteries, appear to be able to provide frequency regulation service quicker and more cost-effectively than generation can.  On the premise that existing payment structures are unfair, Order No. 755 required grid operators to shift to a two-part payment for frequency regulation service, including: (1) a capacity payment that includes the marginal unit’s opportunity costs; and (2) a payment for performance that reflects the quantity of frequency regulation service provided by a resource when the resource is accurately following the dispatch signal.

SoCal Edison had asked FERC for rehearing of Order No. 755 on two grounds involving eligibility for payments.  In Order No. 755-A, FERC denied rehearing.

Order No. 755-A thus represents a confirmation of the basic premise in Order No. 755: grid operators must restructure the way they pay for frequency regulation service.  Companies capable of providing frequency regulation, and the grid as a whole, stand to gain.

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