FERC Rejects Puget Sound Energy's Proposal to Charge

Wind Generation for Regulation Service

On August 13, 2010, the Federal Energy Regulatory Commission issued an order rejecting Puget Sound Energy Inc.’s (“Puget”) proposed Schedule 12 to its Open Access Transmission Tariff, Wind Integration Within-Hour Generation Following Service.  132 FERC ¶ 61,128.  FERC’s stated reason for rejecting the filing was that Puget had not demonstrated that its proposed rate was just and reasonable.  However, since ordinarily FERC suspends a proposed rate and sets it for hearing if it cannot determine that it is just and reasonable, it is important to look behind FERC’s words to determine why FERC took the somewhat unusual step of rejecting the filing on that ground.  Also, even though the FERC rejected Puget’s proposal, it acknowledged that changing system conditions, such as an increasing amount of wind generation, present unique challenges that may require novel solutions.  This indicates that the FERC is willing to consider other approaches to the reliability issues posed by wind generation.

Puget proposed to charge wind generators for the generation capacity it must devote to following and balancing within-hour variations in output of wind generation, based on differences between a generator’s schedule and its 10-minute average output.  It proposed to require wind resources to either purchase the service or demonstrate that they have either dynamically scheduled the generation to another balancing area or are self-supplying the balancing in a manner that is equivalent to dynamic scheduling.  Puget proposed to charge for the service based on the cost of a proxy quick-start, quick-responding natural gas generation capacity.

The service that Puget proposed is priced based on the cost of generating capacity that is needed to follow differences between wind generators’ schedules and their 10-minute integrated output.  It is not comparable to Energy Imbalance Service or Generator Imbalance Service, both of which are included in the FERC’s pro forma Open Access Transmission Tariff (“OATT”), and which are priced based on the cost of supplying or absorbing energy as a result of imbalances between a customer’s load or generation schedules and its integrated hourly load or generator output.   Puget’s service is more akin to Regulation and Frequency Response Service under the OATT, which is priced based on the cost of generating capacity that is needed to respond to within-hour variations in load output regardless of whether it results in an energy imbalance.  It also is similar to Generator Regulation Service, which is not included in the pro forma OATT, but which the FERC has approved for several utilities on the ground that it is consistent with or superior to the pro forma OATT.[1] Evidently, the FERC decided that Puget’s proposal was sufficiently dissimilar to the Generator Regulation Service schedules that it had previously approved to warrant rejection instead of acceptance and suspension of the filing.

Several aspects of Puget’s proposal are not consistent with other transmission providers’ approaches to Generator Regulation Service, which may have contributed to the FERC’s rejection of the filing.  First, Puget’s proposed schedule is applicable only to wind generators.  A more customary approach would be to adopt a generator regulation service that is applicable to all generators, and to charge based on the amount of balancing each generator needs. The fact that a wind generator might need more of the service and therefore must pay more for it than other generators would not make the service unduly discriminatory

Second, Puget proposed to charge for the service based on the incremental cost of purchasing additional gas turbine capacity, rather than treating the balancing for wind as part of its embedded system cost of balancing.  Puget Sound did not want to charge for the service on an embedded cost basis because it wanted to reserve the cheaper balancing capability (much of which is hydro-based) for its native load.  However, such an approach arguably is inconsistent with the principles of open access service, which generally require transmission providers to treat customers the same as themselves.  Puget defended its approach on the ground that its native load should get the benefit of those facilities.  It analogized its proposal to the Commission’s policy of requiring a transmission customer to pay the higher of the cost of new facilities constructed to meet its request for service or the embedded cost of service on the provider’s system.  However, FERC has never applied an incremental costing principle to ancillary services.

Third, Puget proposed to charge for the service based on a proxy for its actual costs of purchasing the balancing capacity, using the cost of a GE LMS 100 unit for its calculations rather than the cost of capacity that it actually purchases or owns.  The use of a proxy for its actual costs is highly unusual in this situation, and predictably drew protests from intervenors who asserted that there was no proof that Puget was going to actually have to purchase the capacity, or proof of the price it would pay for the capacity.

FERC held out hope to Puget Sound, stating that wind generation requires novel solutions and that its rejection was without prejudice to Puget Sound returning with a better proposal. The Commission’s acceptance of other proposals for Generator Regulation Service indicates that a differently-structured proposal is more likely to obtain approval.

To access the order, please click here.

For more information, please contact Thomas Blackburn at This e-mail address is being protected from spambots. You need JavaScript enabled to view it or 202-296-1500.