On February 19, 2014, FERC issued a Notice of Proposed Rulemaking (“NOPR”) proposing the sale of primary frequency response service at market-based rates by sellers with market-based rate authority for energy and capacity.  FERC also explained that the NOPR serves as an extension of the policy reforms set out in Order No. 784, the final rule on third-party provision of ancillary services and the accounting and financial reporting for new electric storage facilities (see July 29, 2013 edition of the WER).  In the NOPR, FERC concluded that companies that are able to pass “the existing market-based screens for sales of energy and capacity can adequately demonstrate a lack of market power for sales of primary frequency response service.” 

FERC proposed the primary frequency response service change in anticipation of the implementation of the North American Electric Reliability Corporation’s Reliability Standard BAL-003-1, which pertains to Frequency Response and Frequency Bias Setting.  Reliability Standard BAL-003-1 essentially requires Balancing Authorities to meet a minimum frequency response obligation and directs “the amount of frequency response needed from balancing authorities to maintain interconnection frequency within defined bounds and includes requirements for the measurement and provision of frequency response.”  (See January 24, 2014 edition of the WER).  FERC believes that with the implementation of this rule, some Balancing Authorities may be interested in voluntary purchases of a primary frequency response product in instances where it would be more economically beneficial than providing it directly.  FERC intends for this NOPR to promote competition in anticipation of a growing demand for the service.

FERC describes primary frequency response as involving “the autonomous, automatic and rapid action of a generator or other resource to change its output (within seconds) to rapidly dampen large changes in frequency.”  On the North American grid, frequency must be maintained within predetermined boundaries above and below 60 Hertz to ensure reliable operation.  Should an entity engage in selling primary frequency response service at either market- or cost-based rates, it would be required to report those sales in its Electric Quarterly Report to FERC.

Comments are due 60 days after publication in the Federal Register.  A copy of the NOPR is available here.