Energy, Project Development & Finance

On June 22, 2012, the Federal Energy Regulatory Commission issued a Notice of Proposed
Rulemaking (“NOPR”) in response to a growing interest in rate flexibility by both purchasers and sellers of ancillary services. In this NOPR, FERC sought comment on a package of related proposals developed in response to a June 16, 2011 Notice of Inquiry (“NOI”). FERC proposed to revise certain aspects of its current market-based rate regulations, ancillary services requirements under the pro forma open-access transmission tariff (“OATT”), and various accounting and reporting requirements.

First, FERC proposed to revise its Avista Corp. policy concerning the sale of ancillary services at market-based rates to public utility transmission providers. The Commission’s Avista policy authorizes the sale of certain ancillary services at market-based rates without the showing of a lack of market power except under specified circumstances. For example, a third-party may not sell ancillary services at market-based rates to a public utility that is purchasing ancillary services to satisfy its own OATT requirements to offer ancillary services to its own customers. In that situation, a potential seller must provide a market power study demonstrating a lack of market power for the particular ancillary service in the particular geographic market.

However, comments to the NOI noted that certain information needed to perform such a market power study is not currently available. The effect of the Avista policy is thus to categorically prohibit sales of ancillary services to public utility transmission providers outside of the RTO and ISO markets. In the NOPR, the Commission developed potential reforms to the Avista policy to provide greater flexibility to sellers, while protecting buyers from the exercise of market power that could lead to unjust and unreasonable or unduly discriminatory or preferential rates.

The Commission specifically considered whether passing existing market-based rate screens should create a rebuttable presumption that the seller lacks horizontal market power for ancillary services. The Commission believes that this may be appropriate for the two imbalance ancillary services (Energy Imbalance and Generator Imbalance), but found that alternative definitions of the relevant geographic market and alternative assumptions for identifying potential competing resources within the relevant geographic market may be needed in order to apply the existing indicative screens to other ancillary services. The Commission consequently proposed to revise its regulations to provide that sellers passing existing market-based rate analyses in a given geographic market should be granted a rebuttable presumption that they lack horizontal market power for sales of Energy Imbalance and Generator Imbalance ancillary services in that market. As a result, sellers who pass the existing market power screens would not be subject to the sales restrictions otherwise required under the Avista policy.

Second, the NOPR proposed to require each public utility transmission provider to include provisions in its OATT explaining how it will determine Regulation and Frequency Response reserve requirements in a manner that takes into account the speed and accuracy of resources used. The Commission determined that accounting for speed and accuracy is necessary to address the potential for undue discrimination against customers choosing to self-supply their Regulation and Frequency Response needs, including through purchases from third-parties. These proposed OATT provisions must include a description with enough detail to allow an entity wishing to self-supply to compare the resources it proposed to use to the resources the public utility transmission provider is using to provide Regulation and Frequency Response service. However, the Commission did not mandate a particular methodology.

Finally, FERC proposed to revise its accounting and reporting requirements to better account for and report transactions associated with the use of energy storage devices in public utility operations. The Commission determined that the current accounting and reporting requirements do not provide sufficiently transparent information on the activities and costs of new energy storage operations. As a result, the Commission proposed to add new electric plant and O&M expense accounts to record the installed cost and operating and maintenance cost of energy storage assets, and a new account to record the cost of power purchased for use in energy storage operations. In addition, the Commission proposed to amend several of its forms to include the new accounts and amended schedules to report statistical and operational information on energy storage operations. Further, the Commission proposed to amend another form’s schedule to include the proposed new account to record the cost of power purchased for use in energy storage operations.