On Thursday, July 18, 2013, FERC issued Order No. 784, the final rule on third-party provision of ancillary services and the accounting and financial reporting for new electric storage facilities (“Final Rule”).  FERC stated that the Final Rule, which will revise its regulations to reform its “Avista” policy, will provide additional rate flexibility for purchasers and sellers of ancillary services and increase transparency and competition in ancillary services markets.  Specifically, FERC has provided new means by which sellers can demonstrate a lack of market power in third-party sales of ancillary services in order to obtain expanded market-based rate authority for sales of such services.  FERC is also requiring each public utility transmission provider to state in its Schedule 3 that it will “take into account the speed and accuracy of regulation resources in its determination of reserve requirements for Regulation and Frequency Response service, including as it reviews whether a self-supplying customer has made ‘alternative comparable arrangements’ as required by the Schedule.”  Each public utility transmission provider is also required to post additional Area Control Error data onto its open access same-time information system (“OASIS”).  Additionally, FERC has revised its accounting and reporting requirements to add new electric plant and operation and maintenance (“O&M”) accounts in order to better account for, and report, transactions associated with the use of energy storage devices in public utility operations.

Historically, under its Avista policy, FERC required a third party seller of ancillary services at market-based rates 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 to provide a market power study demonstrating a lack of market power for the particular ancillary service in the particular geographic market for which the service was offered.  FERC recognizes in the Final Rule that providing the market power study required for such transactions has proven difficult.  The Final Rule will allow a resource with market-based rate authority for sales of energy and capacity to sell imbalance services to a public utility transmission provider in the same or a different balancing authority area (“BAA”) so long as the BAA in question has implemented intra-hour scheduling for transmission service.  With regard to Operating Reserve-Spinning and Operating Reserve-Supplemental services, third-party sellers must also receive FERC authorization before engaging in such sales by making a showing that the scheduling practices in their regions support the use of operating reserves.  FERC states in the Final Rule that it creating the intra-hour scheduling limitation because imbalance services generally require deliveries on intervals that are shorter than the current hour.  This change will become effective after November 12, 2013, which is the date by which all public utility transmission providers must offer intra-hour transmission scheduling under Order No. 764.  In accordance with these changes, FERC amended the Order No. 697 pro forma language regarding market-based rate sales of ancillary services.

FERC intends to hold a separate, new proceeding to gather further information on the effect of restrictions related to third-party sales of Reactive Supply and Voltage Control service and Regulation and Frequency Response service to public utility transmission providers.  In the meantime, FERC will allow third-party sales of Reactive Supply and Voltage Control service and Regulation and Frequency Response service to public utility transmission providers at rates that are not to exceed the buying public utility transmission provider’s OATT rate for the same service.  Transmission providers may also choose to procure Reactive Supply and Voltage Control service or Regulation and Frequency Response service through a competitive solicitation, so long as the solicitations meet the requirements of the Final Rule.  Third-party sellers responding to such solicitation may then sell at market-based rates.  With regard to the statements that must be added to OATT Schedule 3, FERC stated in the Final Rule that the statement also needs to include reference to how the transmission provider will provide a self-supplying customer its reasoning, in addition to any related relevant data, for its determination of whether the customer has made the appropriate “alternative comparable arrangements” for self-supplying such services.  In order to assist customers in deciding whether or not to make the self-service election, FERC is requiring that public utility transmission providers post historical one-minute and ten-minute Area Control Error data on OASIS.

Finally, FERC revised its Uniform System of Accounts to better account for and report transactions associated with energy storage devices.  Entities will now be required to account for and report their operations related to energy storage devices in accordance with FERC’s updated accounting and reporting requirements.  FERC amended Form Nos. 1, 1-F, and 3-Q to provide financial and operational information on energy storage assets and to add new electric plant and added O&M expense accounts to record the installed cost and operating and maintenance cost of energy storage assets.  In addition, FERC amended Form Nos. 1, and 1-F to include the new accounts and amended schedules to report statistical and operational information on energy storage operations.  FERC also created electric plant accounts for new energy storage products in the existing functional classifications of production, transmission and distribution.  Finally, FERC adopted a new Account 555.1, Power Purchased for Storage Operations, which will require that the initial charging and testing costs of an energy storage project be capitalized.  Utilities that are subject to FERC’s accounting and reporting requirements must begin to implement these changes for reporting information from January 1, 2013 onward.

To view a copy of the order, click here.