In a case that highlights some of the regulatory challenges presented by shifts in the nation’s generation mix, on October 20, 2011, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) accepted Puget Sound Energy, Inc.’s (“Puget”) proposed Schedules 3 and 13 concerning rates for Regulation and Frequency Response Service, but suspended them for a five-month period, to become effective January 5, 2012, subject to refund, and set them for hearing and settlement judge procedures.  At issue is whether Puget’s proposed capacity rate and differentiated purchase obligation for exporting intermittent/non-dispatchable and dispatchable generation resources was just and reasonable.  This case will be closely watched by both wind generators and utilities expecting to see large amounts of wind generation added to their system in the coming years.  

On June 6, 2011, Puget submitted proposed revisions to its Open Access Transmission Tariff  Schedules 3 and 13, with the intention of updating its existing rates for Regulation and Frequency Response Service and to require intermittent/non-dispatchable generators exporting power from Puget’s balancing authority area (“BAA”) to purchase an amount of regulation capacity equal to 16.77 percent of the customer’s transmission reservation.  Puget stated that the variable nature of Variable Energy Resource generation strains its transmission system in ways that dispatchable generation does not, and that because of this it must maintain significantly higher amounts of regulating reserves than the two percent capacity currently required under Schedule 13.  Further, Puget anticipates significant development of wind resources in its BAA, both for native load and for export, with approximately 377 MW of additional wind generation capacity currently in its interconnection queue.  Puget sought to update its schedules to reflect the regulation burden created by the within-hour balancing requirements that is unique to intermittent/non-dispatchable generation and calculated the 16.77 percent purchase obligation for intermittent/non-dispatchable resources by using a methodology that mirrored the approach that the Commission approved for calculating a differential regulation charge for wind resources in Westar Energy, Inc., 130 FERC ¶ 61,215 (2010), modifying it to reflect the different market structures in the Pacific Northwest. 

Protesters argued that Puget’s proposal is unduly discriminatory because only exporting intermittent/non-dispatchable generators are subject to the billing determinant of 16.77 percent of reserved transmission service, while intermittent/non-dispatchable generators which sink in Puget’s BAA are not subject to a differential charge.  Puget represented that regulation costs associated with regulation service to both dispatchable and intermittent/non-dispatchable generation resources that sink within Puget’s BAA are passed through directly to Puget’s retail and wholesale customers through their bundled rates.  As such, Puget does not distinguish between generators serving load inside Puget’s BAA based on ability to dispatch because all of the generators are serving the same customers and those customers are paying all the related regulation costs.  The Commission determined that it did not have sufficient information in the record before it for a final determination and designated the ordered hearing as the appropriate forum to resolve the issue. 

Several of the protesters also advocated for Puget’s reforms to track with the Commission’s Integration of Variable Energy Resources rulemaking proceeding in Docket No. RM10-11-00, but the Commission refrained from currently requiring transmission providers to implement those operating procedure reforms.  The Commission went on to clarify that “all public utility transmission providers, including Puget, will be required to make the necessary changes to be in compliance with any final rule the Commission issues in the Integration of Variable Energy Resources rulemaking proceeding; this order does not exempt Puget from complying with any such final rule.” 

A copy of the Commission’s Order is available here.