In the culmination of a process begun in 2007, on July 18 of this year the Federal Energy Regulatory Commission issued Order 784, "Third-Party Provision of Ancillary Services and Accounting and Financial Reporting for New Electric Storage Technologies." The goal of Order 784 is to increase competition and transparency in ancillary service markets, and it attempts to do so by:
- Eliminating certain restrictions on third-party ancillary-service sales at market-based rates to transmission providers.
- Making the speed and accuracy of ancillary services a consideration for utilities in the assessment of those resources.
- Applying new accounting practices to track the use of energy storage.
FERC designed the rule in part to create a market and develop proper pricing for ancillary services. The rule also reflects FERC's desire to support new grid technologies, particularly energy storage (and, by extension, intermittent renewable and distributed generation sources) and to adjust to the grid's changing needs. As such, the rule is a boon to energy-storage companies. Moreover, transmission providers, FERC hopes, should be able to find new, quicker sources of ancillary services.
In the end, the rule is not a small accomplishment. It is a foundation of FERC's vision of the "new" grid.
Changes to the Ancillary Services Markets
FERC's previous policy, prohibited third-party sales of certain ancillary services at market-based rates to a utility for resale absent a showing of a lack of market power for the particular service in that geographic market, This restriction stymied the growth in ancillary services, particularly those provided by quick-responding energy storage.
Order 784 now allows a third party with market-based rate authority to sell imbalance and operating reserve services at market-based rates to a transmission provider in a balancing authority area—as long as the area uses intra-hour scheduling for transmission service (as all areas are required to do by November 21, 2013).
Order 784 also allows third-party sales of reactive supply and voltage control service and regulation and frequency response service to transmission providers—either at rates capped at the provider's OATT rate for the same service or, if the provider uses a competitive solicitation for ancillary services, at market-based rates. FERC did not change the restrictions on the provision of those particular services, as it had originally proposed, but stated that it was "interested in exploring the technical, economic and market issues" in a future proceeding.
Order 784 also requires a transmission provider to add to its OATT a statement that "take[s] into account the speed and accuracy of regulation resources" as the provider determines its reserve requirements for regulation and frequency response service (as well as the "alternative comparable arrangements" of a self-supplying customer). The new criteria directly benefit energy storage sources, which consistently can react much faster than a traditional technology power plant.
In another effort to support and encourage energy storage, FERC requires that transmission providers post area control error data onto their open access same-time information system, in one- and ten-minute intervals—the goal is to have more data that might help a customer determine whether it can find competitive third-party regulating reserves. Transmission customers can purchase a small amount of reserves that have fast response times, or a greater amount of reserves with slower response times.
The rule also creates new electric plant and operations and management accounts for energy storage in production, transmission, and distribution. FERC found that current plant and O&M accounts do not provide for explicit recording of costs for energy storage assets, which could lead to inconsistent accounting making it difficult for FERC and others to determine proper cost-of-service rates and detect possible utility cross-subsidization between cost- and market-based services.
An asset that performs a single function will have its cost recorded in a single plant account. An asset that performs more than one function or has more than one purpose will have its cost allocated among the relevant plant accounts based on the functions performed by the asset and the allocation of the asset's costs through cost-based rates approved by regulation.
Although utilities generally argued that a requirement forcing them to allocate the costs of energy storage assets constitutes an undue administrative burden on utility companies, FERC disagreed and said that the value of uniform, transparent, and consistent energy-storage reporting superseded the potential burdens. FERC also said that the proliferation of accounts would offer the opportunity for third parties to create new products.
Lastly, Order 784 requires the reporting of financial, statistical, and operational information on energy storage assets and created new accounts for new energy storage projects and power purchased for storage operations.
Getting to the actual costs through new accounting procedures, like opening up the market and adding new criteria for the selection of ancillary services, is a way to create greater efficiency on the grid and to provide customer savings. But the more active and transparent ancillary services market also opens the door to a highly diversified grid (arguably a primary goal of this commission) and an increasing number of technological and economic benefits—and challenges.