At the February 17, 2011 meeting, FERC issued a Notice of Proposed Rulemaking (“NOPR”) on compensation for regulation service and a Notice of Inquiry (“NOI”) seeking comment on locational exchanges for wholesale power.  The NOPR determines that the benefits of faster ramping resources may not be currently recognized by existing compensation practices for frequency regulation service in the organized wholesale energy marketplace.  The NOI was issued in response to a 2010 petition from Puget Sound Energy Inc. which sought a ruling that two simultaneous transactions involving identical quantities of power and the same parties from separate locations at different prices do not fall under FERC transmission service tariffs.

The NOPR seeks to end undue discrimination for those procuring frequency regulation services, an ancillary service that corrects the grid for frequency and line imbalances.  The NOPR uses a two-part market-based compensation method.  The first part proposes a uniform capacity payment for providing frequency regulation service that includes opportunity costs.  The second part offers a market-based performance payment that would reveal a resource’s accuracy of performance.  FERC Chairman Jon Wellinghoff offered the following statement concerning the NOPR, “The ability to have adequate resources to provide frequency regulation to maintain reliability is essential.”

Notably Commissioner Spitzer dissented in part by saying the record is not robust enough to support the NOPR at this time.  Commissioner Spitzer believes that more preliminary information, through an NOI or Advanced NOPR, would have been more appropriate for developing a record on this issue.

The NOI broadly asks about the characteristics of locational exchanges of power and their impact on competition and transmission service.  The Commission wants to understand how locational exchanges and what benefits they provide, including how they affect congestion and how parties obtain transmission service.  The NOI’s purpose is to (i) detect if the transactions offer opportunities to unduly discriminate between transmission service customers, (ii) current reporting is adequate, and (iii) how reliability is affected.  Finally, the Commission solicits advice on whether to grant authority to enter into these transactions on a case by case basis or a generic basis. 

Comments on the NOPR and NOI are due sixty days after publication in the Federal Register.  A link to the NOI is available at and here, and a link to the NOPR is also available at and here.