137 FERC ¶ 61,064 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

18 CFR Part 35 

[Docket Nos. RM11-7-000 and AD10-11-000; Order No. 755] 

Frequency Regulation Compensation in the Docket Nos. RM11-7-000 

Organized Wholesale Power Markets AD10-11-000 

(Issued October 20, 2011) 

AGENCY: Federal Energy Regulatory Commission. 

ACTION: Final Rule. 

SUMMARY: Pursuant to section 206 of the Federal Power Act, the Commission is 

revising its regulations to remedy undue discrimination in the procurement of frequency 

regulation in the organized wholesale electric markets and ensure that providers of 

frequency regulation receive just and reasonable and not unduly discriminatory or 

preferential rates. Frequency regulation service is one of the tools regional transmission 

organizations (RTOs) and independent system operators (ISOs) use to balance supply and 

demand on the transmission system, maintaining reliable operations. In doing so, RTOs 

and ISOs deploy a variety of resources to meet frequency regulation needs; these 

resources differ in both their ramping ability, which is their ability to increase or decrease 

their provision of frequency regulation service, and the accuracy with which they can 

respond to the system operator’s dispatch signal. 

The Commission finds that current frequency regulation compensation practices of RTOs 
Docket Nos. RM11-7-000 and AD10-11-000 - 2 - 

and ISOs result in rates that are unjust, unreasonable, and unduly discriminatory or 

preferential. Specifically, current compensation methods for regulation service in RTO 

and ISO markets fail to acknowledge the inherently greater amount of frequency 

regulation service being provided by faster-ramping resources. In addition, certain 

practices of some RTOs and ISOs result in economically inefficient economic dispatch of 

frequency regulation resources. 

By remedying these issues, the Commission is removing unduly discriminatory and 

preferential practices from RTO and ISO tariffs and requiring the setting of just and 

reasonable rates. Specifically, this Final Rule requires RTOs and ISOs to compensate 

frequency regulation resources based on the actual service provided, including a capacity 

payment that includes the marginal unit’s opportunity costs and a payment for 

performance that reflects the quantity of frequency regulation service provided by a 

resource when the resource is accurately following the dispatch signal. 

EFFECTIVE DATE: This Final Rule will become effective [insert date 60 days after 

publication in the FEDERAL REGISTER]. 

FOR FURTHER INFORMATION CONTACT: 

Robert Hellrich-Dawson (Technical Information) 

Office of Energy Policy & Innovation 

888 First Street, NE 

Washington, D.C. 20426 

(202) 502-6360 

bob.hellrich-dawson@ferc.gov
Docket Nos. RM11-7-000 and AD10-11-000 - 3 - 

Eric Winterbauer (Legal Information) 

Office of the General Counsel 

888 First Street, NE 

Washington, D.C. 20426 

(202) 502-8329 

eric.winterbauer@ferc.gov

SUPPLEMENTARY INFORMATION:
137 FERC ¶ 61,064 

UNITED STATES OF AMERICA 

FEDERAL ENERGY REGULATORY COMMISSION 

Before Commissioners: Jon Wellinghoff, Chairman; 

 Marc Spitzer, Philip D. Moeller, 

 John R. Norris, and Cheryl A. LaFleur. 

Frequency Regulation Compensation in the 

Organized Wholesale Power Markets 

Docket Nos. RM11-7-000 

AD10-11-000 

ORDER NO. 755 

FINAL RULE 

(Issued October 20, 2011) 

1. Pursuant to section 206 of the Federal Power Act (FPA),1

 the Commission is 

revising its regulations to remedy undue discrimination in the procurement of frequency 

regulation in the organized wholesale electric markets and ensure that providers of 

frequency regulation receive just and reasonable and not unduly discriminatory or 

preferential rates. Frequency regulation service is one of the tools regional transmission 

organizations (RTOs) and independent system operators (ISOs) use to balance supply and 

demand on the transmission system, maintaining reliable operations. In doing so, RTOs 

and ISOs2

 deploy a variety of resources to meet frequency regulation needs; these 

 

(continued...) 

1

 16 U.S.C. 824e. Accord 16 U.S.C. 824d (providing that rates must be just and 

reasonable). 

2

 The following RTOs and ISOs have organized wholesale electricity markets: 

PJM Interconnection, LLC (PJM); New York Independent System Operator, Inc. 

(NYISO); Midwest Independent Transmission System Operator, Inc. (MISO); 
Docket Nos. RM11-7-000 and AD10-11-000 - 2 - 

resources differ in both their ramping3

 ability, which is their ability to increase or 

decrease their provision of frequency regulation service, and the accuracy with which 

they can respond to the system operator’s dispatch signal. In this instance, the ability to 

provide more accurate frequency regulation service means to follow the system 

operator’s dispatch signal more closely. 

2. The Commission finds that current frequency regulation compensation practices of 

RTOs and ISOs result in rates that are unjust, unreasonable, and unduly discriminatory or 

preferential. Specifically, current compensation methods for regulation service in RTO 

and ISO markets fail to acknowledge the inherently greater amount of frequency 

regulation service being provided by faster-ramping resources.4

 In addition, certain 

practices of some RTOs and ISOs result in economically inefficient economic dispatch of 

frequency regulation resources. 

 

ISO New England Inc. (ISO-NE); California Independent System Operator Corp. 

(CAISO); and Southwest Power Pool, Inc. (SPP). 

3

 “Ramping” or the ability to “ramp” is traditionally defined as the ability to 

change the output of real power from a generating unit per some unit of time, usually 

measured as megawatts per minute (MW/min). A generator ramps up to produce more 

energy and ramps down to produce less. A storage device ramps up by discharging 

energy and ramps down by charging. A demand response resource, in the context of the 

provision of frequency regulation, ramps up by consuming less energy and ramps down 

by consuming more. 

4

 Both existing market participants and potential entrants are affected by 

inefficient pricing. It is possible that existing market participants would offer faster 

ramping capabilities to the system operator in response to a pricing scheme that 

recognized such service. 
Docket Nos. RM11-7-000 and AD10-11-000 - 3 - 

3. By remedying these issues, the Commission is removing unduly discriminatory 

and preferential practices from RTO and ISO tariffs and requiring the setting of just and 

reasonable rates. Specifically, this Final Rule requires RTOs and ISOs to compensate 

frequency regulation resources based on the actual service provided, including a capacity 

payment that includes the marginal unit’s opportunity costs and a payment for 

performance that reflects the quantity of frequency regulation service provided by a 

resource when the resource is accurately following the dispatch signal. 

I. Background

A. Frequency Regulation Service

4. Frequency regulation5

 service is the injection or withdrawal of real power by 

facilities capable of responding appropriately to a transmission system operator’s 

automatic generator control (AGC) signal. When dispatched generation does not equal 

actual load plus losses on a moment-by-moment basis, the imbalance will cause the grid’s 

frequency to deviate from 60 Hertz, the standard in the U.S. While the system does 

deviate from 60 Hz in the normal operation of the grid, frequency deviations outside an 

acceptable range negatively affect energy consuming devices; major deviations cause 

 5

 Frequency regulation, or secondary frequency control, is distinguishable from 

frequency response, or primary frequency control, for the purposes of this rulemaking. 

The latter, i.e., frequency response, involves the automatic, autonomous and rapid 

action of turbine governor control to change a generator’s output and of demand 

response resources to change consumption in automatic response to changes in 

frequency. This occurs independently of any dispatch signal from a system operator. On 

January 20, 2011, the Commission released for public comment a staff study evaluating 

the use of frequency response metrics as a tool to assess the reliability impacts of varying 

resource mixes on the transmission grid. 
Docket Nos. RM11-7-000 and AD10-11-000 - 4 - 

generation and transmission equipment to disconnect from the grid, in the worst case 

leading to a cascading blackout. Frequency regulation service can help to prevent these 

adverse consequences by rapidly correcting deviations in the transmission system’s 

frequency to bring it within an acceptable range.6

 The system operator calibrates the 

AGC signal sent to frequency regulation resources to respond to actual and anticipated 

frequency deviations or interchange power imbalance, both measured by area control 

error (ACE). 

5. Today, frequency regulation is largely provided by generators (e.g., water, steam 

and combustion turbines) that are specially equipped for this purpose. Provision by other 

resources is emerging, as technologies develop and tariff and market rules adapt to 

accommodate new resources. For example, the Texas Interconnection and MISO 

currently use controllable demand response in addition to generators to provide frequency 

regulation service. Such “regulation capable” generation, storage devices, and demand 

response resources can respond automatically to signals sent by the RTO or ISO, through 

AGC, to increase or decrease real power injections or withdrawals and thereby correct 

actual or anticipated frequency deviations or interchange schedule imbalance, as 

measured by the ACE. The faster a resource can ramp up or down, the more accurately it 

 6

 A balancing authority achieves acceptable ranges by being in compliance with 

Control Performance Standards 1 and 2 as defined in the Commission-approved 

Reliability Standard BAL-001-0.1a. 
Docket Nos. RM11-7-000 and AD10-11-000 - 5 - 

can respond to the AGC signal and avoid overshooting.7

 Alternatively, when a resource 

ramps too slowly, its ramping limitations may cause it to work against the needs of the 

system and force the system operator to commit additional regulation resources to 

compensate. 

B. Current RTO and ISO Compensation Practices

6. In the RTO and ISO markets, compensation for frequency regulation service is 

presently based on several components. Depending on the RTO or ISO, these payments 

include consideration for capacity set aside to provide the service8

 as well as some of the 

following: the net energy that the resource injects into the system; accurately following 

the RTO’s or ISO’s dispatch signal; and the absolute (rather than net) amount of energy 

injected or withdrawn. These payments are intended to cover the range of costs incurred 

in providing frequency regulation service, e.g., operation and maintenance costs, and loss 

of potential revenue from foregone sales of electricity. 

7. The payment for capacity is essentially an option payment to the resource to keep 

a certain amount of capacity out of the energy or other markets in order to provide 

 7 See Beacon Power Corporation (Beacon), Technical Conference Speaker 

Materials, at Figure 3, which shows the difference between ISO-NE’s ACE control 

signal, Beacon’s flywheel response, and the allowable response rate under current 

ISO-NE rules. Here, “allowable response rate” means the rate at which the resource must 

respond to be considered in compliance with the dispatch signal. Frequency Regulation 

Compensation in the Organized Wholesale Power Markets, Docket No. AD10-11-000 

(May 26, 2010). 

8

 This type of capacity payment is distinguishable from capacity payments 

associated with the procurement of resources to meet planning reserve margin 

requirements. 
Docket Nos. RM11-7-000 and AD10-11-000 - 6 - 

frequency regulation service, typically based on a market clearing price per MW of 

capacity sold. ISO-NE, NYISO, MISO, California ISO, and PJM incorporate into this 

payment the opportunity cost of foregone energy sales incurred by a resource that 

provides frequency regulation service. However, ISO-NE and PJM do not apply the 

opportunity cost payment uniformly to all cleared resources, but rather make ex post

resource-specific opportunity cost payments. 

8. Compensation for frequency regulation service also includes payments or charges 

for the net energy the resource injects into or withdraws from the system. All RTOs and 

ISOs currently provide a payment for the net energy injected by a resource providing 

regulation service during the operating hour, calculated as the amount of energy injected 

less energy withdrawn multiplied by the real-time energy price. 

9. Accuracy of performance can also be incorporated into payments for frequency 

regulation service. Currently, NYISO incorporates accuracy into its compensation for 

frequency regulation service through a penalty that reflects the accuracy with which the 

resource follows its dispatch instruction.9

 This is done through a performance index that 

tracks how accurately a resource follows the dispatch signal.10

 9

 NYISO, Ancillary Services Manual, Manual 2 (Nov. 2010), 

http://www.nyiso.com/public/webdocs/documents/manuals/operations/ancserv.pdf. 

10 NYISO uses telemetry data to track how closely a frequency regulation 

resource’s output is to the dispatch signal. NYISO then adjusts the resource’s payments 

to reflect its accuracy. For example, if the resource’s response falls outside an acceptable 

range 10 percent of the time, for a performance index of 0.9, it will receive 90 percent of 

its payment. 
Docket Nos. RM11-7-000 and AD10-11-000 - 7 - 

10. ISO-NE makes payments for frequency regulation service to reflect the amount of 

work performed by a resource by reflecting the absolute amount of energy injected and 

withdrawn, sometimes referred to as a “mileage” payment. Mileage payments are 

intended to reward those resources that perform more regulation service instead of simply 

netting the total amount of energy injected by the resource.11

11. In general, when a resource submits its frequency regulation bid to the RTO or 

ISO, the bid is typically required to include its ramp rate in MW/min, its cost per 

megawatt-hours (MWh) of ramping ability, and the total capacity it is offering for 

frequency regulation.12 The resource’s total amount of capacity is based on and limited 

by its ability to ramp up or down.13 For example, a resource with a relatively large 

amount of capacity, but a relatively slow ramp rate would be limited in how much 

capacity it could offer as frequency regulation capacity. If the resource can ramp one 

MW per minute, it would only be able to offer five MW of regulation capacity (for a five 

minute dispatch) regardless of its total capacity. On the other hand, a smaller capacity, 

faster ramping resource might not face such a constraint. For instance, a storage device 

 11 ISO-NE, Market Operations Manual M-11, at 3-11 (Dec. 2010), available at

http://www.isone.com/rules_proceds/isone_mnls/m_11_market_operations_revision_35_12_01_10.doc. 

12 See, e.g., NYISO, Ancillary Services Manual, Manual 2, at 4-8 (Nov. 2010). 

13 A resource’s capacity is limited by the amount it can ramp in five minutes 

because the system operator in most RTOs and ISOs dispatch resources every five 

minutes. CAISO dispatches every 10 minutes, and so a frequency regulation resource’s 

capacity in that market is bound by the total capacity it can ramp in 10 minutes. 
Docket Nos. RM11-7-000 and AD10-11-000 - 8 - 

that can hold a 20 MW charge and ramp at 10 MW per minute, could offer its full 

20 MW of capacity for five minutes. 

12. The Commission recognizes that some RTOs and ISOs are considering changes to 

their frequency regulation markets.14 For example, in February of this year PJM 

established a “Regulation Performance Senior Task Force” to examine the existing PJM 

regulation market’s inability to distinguish between resources’ various levels of 

performance and the absence of additional compensation for the resources to perform at a 

high level once they have qualified for the regulation market.15 Therefore, the 

Commission believes that this Final Rule is timely, in that it will help guide these various 

stakeholder processes. 

C. Commission Inquiries Leading to this Rulemaking

13. On May 26, 2010, the Commission hosted a publicly noticed technical 

conference16 inviting various stakeholders, including representatives from the RTOs and 

ISOs, industry, and academia to share their views on whether current frequency 

regulation market designs reflect the value of the service provided, and whether the use 

 14 In addition to the examples cited here, SPP is in the process of developing its 

integrated marketplace that will include a day-ahead market and consolidated ancillary 

services market. 

15 See PJM Regulation Performance Senior Task Force Charter at 1 (2011) and 

ISO-NE, Report of ISO New England Inc. Regarding the Implementation of Market Rule 

Changes to Permit Non-Generating Resources to Participate in the Regulation Market, 

Docket No. ER08-54-014, at 5 (June 17, 2010). 

16 See Final Agenda, Frequency Regulation Compensation in the Organized 

Wholesale Power Markets, Docket No. AD10-11-000 (May 26, 2010). 
Docket Nos. RM11-7-000 and AD10-11-000 - 9 - 

of faster-ramping resources for frequency regulation has the potential to provide benefits 

to the organized markets. 

14. On February 17, 2011, the Commission issued a Notice of Proposed Rulemaking 

in this proceeding,17 seeking comment on its proposal to require both a uniform price for 

frequency regulation capacity paid to all cleared resources as well as a performance 

payment for the provision of frequency regulation service, with the latter payment 

reflecting a resource’s accuracy of performance.18

II. Discussion

A. The Need for Reform

15. As discussed below, the Commission finds that current frequency regulation 

compensation practices in organized wholesale electricity markets which fail to 

compensate resources for all of the service they provide as part of that service are unjust, 

unreasonable, and unduly discriminatory or preferential. 

1. NOPR Preliminary Finding

a. Unduly Discriminatory Pricing

16. In the NOPR, the Commission stated that the current rules that govern pricing and 

compensation for frequency regulation services in RTOs and ISOs may be unduly 

 17 Frequency Regulation Compensation in the Organized Wholesale Power 

Markets, 76 FR 11,177, 134 FERC ¶ 61,124 (2011) (NOPR). 

18 See Appendix for a list of commenters. 
Docket Nos. RM11-7-000 and AD10-11-000 - 10 - 

discriminatory, because resources are compensated at the same level even when 

providing different amounts of frequency regulation service.19 

17. Specifically, the Commission was concerned that under some existing frequency 

regulation compensation methods, resources may not be compensated for all of the 

service they provide even when given preference in the dispatch order and asked to 

provide more frequency regulation service than other resources. The Commission noted, 

for example, that CAISO, NYISO, MISO, and PJM pay a capacity payment to all 

resources that clear the frequency regulation market, and then net the amount of 

regulation up and regulation down provided by these resources in order to compensate for 

the energy costs they incur. The Commission preliminarily found that this compensation 

method does not acknowledge the greater amount of frequency regulation service being 

provided by faster-ramping resources.20 It stated that, as a result, slower-responding 

resources are compensated as if they are providing the same amount of service when, in 

 19 NOPR, 134 FERC ¶ 61,124 at P 27. 

20 A simplified example would be to consider two resources that clear with the 

same amount of capacity and are directed to provide regulation up and regulation down 

over the course of a five-minute interval. The fast-ramping resource might be directed to 

move around an initial output level up five MW, then down three MW, up one MW, 

down ten MW, and finally up nine MW. A netting approach to compensation would 

determine that the resource provided an additional two MW of energy to the system 

(+ 5 – 3 + 1 – 10 + 9 = +2) during that five minute interval. Meanwhile, a slowerramping resource may be directed to move up three MW and then down one MW for a 

net of two MW in relation to its initial output level. The operator is not able to direct 

more movement because the slower-ramping resource would not be able to respond in the 

requisite time frame. Both resources would receive identical compensation for their 

movement, despite the first resource providing more ACE correction. 
Docket Nos. RM11-7-000 and AD10-11-000 - 11 - 

reality, they are not,21 and that slower, larger resources are being given a compensatory 

advantage for their size while faster, smaller resources do not similarly receive 

compensation for their ramping speed and actual service provided. 

18. The Commission also expressed concern that the manner in which some resources 

that provide frequency regulation service are compensated for their opportunity costs22

may be unduly discriminatory.23 For instance, while PJM provides an ex ante estimate of 

opportunity costs that is included in the uniform clearing price, it also provides ex post

“make whole” payments based on individual unit opportunity costs, something that is not 

reflected in the uniform market clearing price calculation;24 ISO-NE pays opportunity 

costs on a resource-specific basis so that the market-clearing price for frequency 

regulation service does not reflect any opportunity costs. Both of these methods have the 

potential to inefficiently select regulating resources and also fail to reflect the marginal 

cost (including opportunity cost) that determines the market-clearing price paid to all 

cleared suppliers. Therefore, the NOPR proposed to require that all resource bids include 

opportunity costs and that all cleared frequency regulation resources be paid the single 

 21 NOPR, 134 FERC ¶ 61,124 at P 28. 

22 When participating in the energy and frequency regulation markets, a resource is 

dispatched at a set-point below its maximum capacity. Because this amount of capacity 

is held in reserve to provide frequency regulation, the resource misses the opportunity to 

provide energy at the current LMP. 

23 NOPR, 134 FERC ¶ 61,124 at P 31. 

24 PJM, Manual 18: Operating Agreement Accounting, at 12-16, available at

http://www.pjm.com/~/media/documents/manuals/m28.ashx. 
Docket Nos. RM11-7-000 and AD10-11-000 - 12 - 

market clearing price, which reflects the total marginal costs of the marginal cleared 

unit.25 

b. Potential Market Efficiency Gains

19. The NOPR also preliminarily found that the use of faster-ramping resources for 

frequency regulation has the potential to improve operational and economic efficiency 

and, in turn, lower costs to consumers in the organized markets. Faster-ramping 

resources may be able to replace resources that currently provide frequency regulation, so 

that RTOs and ISOs may be able to procure less regulation capacity, thereby lowering 

costs to load. 

2. Comments

a. Unduly Discriminatory Pricing

20. Many commenters expressly support the NOPR’s proposed performance payment 

to reflect the amount of frequency regulation provided by a resource.26 They generally 

argue that for a frequency regulation compensation mechanism to be just and reasonable 

it must compensate providers for the service they actually provide to the grid. They 

argue that the compensation systems currently used in the RTOs and ISOs are not only 

 25 NOPR, 134 FERC ¶ 61,124 at P 31. 

26 A123, Alcoa, Beacon, CESA, Duke, ESA, EDF, EPSA, ELCON, ENBALA, 

EnerNOC, Invenergy, ISO-NE, Manitoba Hydro, MISO, MSCG, NaturEner, NECPUC, 

NEPOOL, OMS, PaPUC, PG&E, Powerex, Primus Power, PIOs, PJM, SoCal Edison, 

Starwood/Premium, SunEdison, VCharge, Viridity, and Xtreme Power all submitted 

comments supporting the proposal to require a performance payment. Some have offered 

alternative means to accomplish the same goal, as described below. 
Docket Nos. RM11-7-000 and AD10-11-000 - 13 - 

unduly discriminatory but also problematic because they send inefficient price signals. In 

addition, they generally advocate that a performance payment for regulation will incent 

participants to offer more flexibility to the system operator and will compensate resources 

for the value they provide the grid.27 

21. Alcoa supports the proposal that compensation for frequency regulation service 

reflect the absolute (rather than net) energy the resource injects into or withdraws from 

the system. Alcoa states that compensating for the amount of movement creates strong 

market signals because it ensures that those resources that are performing more work to 

correct system deviations are rewarded more. It contends that this aligns with the 

physical reality that the more the resource is moved, the more wear will occur on the 

equipment and the higher the cost of supplying the service.28

22. Beacon contends that, currently, all resources (except in ISO-NE), regardless of 

how frequently they are deployed or how much of the ACE correction they provide, are 

paid the same price per MW for their capacity offered. Beacon contends that no payment 

is based on how much the resource is actually deployed to provide frequency 

 27 See, e.g., EDF May 2, 2011 Comments at P 14 and P 16, CESA May 2, 2011 

Comments at 2 and 8, ENBALA May 2, 2011 Comments at 8, ELCON May 2, 2011 

Comments at 4, Manitoba Hydro April 27, 2011 Comments at 2 (citing Prowse, D. 

“Improvements to a Standard Automatic Generation Control Filter Algorithm” IEEE/PES 

Summer Power Meeting, 92 SM 451-5 PWRS), OMS May 2, 2011 Comments at 6, 

Primus Power April 18, 2011 Comments at 5-6, PIOs May 3, 2011 Comments at 5-7, 

PJM May 2, 2011 Comments at 6, SoCal Edison May 2, 2011 Comments at 3, 

Starwood/Premium May 2, 2011 Comments at 4-5, Viridity May 2, 2011 Comments at 1, 

Xtreme Power May 2, 2011 Comments at 6-7. 

28 Alcoa May 2, 2011 Comments at 3-4. 
Docket Nos. RM11-7-000 and AD10-11-000 - 14 - 

regulation.29 Beacon argues that this is unjust and unreasonable. Similarly, PIOs argue 

that NYISO’s and MISO’s frequency regulation markets fail to ensure just and 

reasonable treatment of faster-ramping regulation resources, and do not provide the 

proper economic incentive for efficient market participation.30

23. In order to illustrate the undue discrimination that can occur in frequency 

regulation markets, Beacon provides data from its own 1 MW flywheel operating in the 

ISO-NE market, contending that these data demonstrate that its resource provides more 

than four times as much frequency regulation service to ISO-NE as would a 1 MW 

resource with an allowable ramp rate of 1 MW/5 minutes.31 It contends that the flywheel 

provides 0.48 MWh while the slower ramping resource provides 0.11 MWh. Beacon 

states that the reason its flywheel is able to provide more frequency regulation service is 

not just because of its faster ramping ability, but also because it is able to switch the 

direction of the resource nearly instantaneously.32 In a frequency regulation market 

paying only a capacity payment, Beacon’s flywheel will have performed a greater 

amount of frequency regulation service, yet received the same payment as the other 

resource. 

 29 Beacon May 2, 2011 Comments at 20-21, ESA May 2, 2011 Comments 

at 19-20. 

30 PIOs May 2, 2011 Comments at P 16. 

31 Beacon May 2, 2011 Comments at 6-7. These data are the same data on which 

the table in Appendix A of the NOPR is based. 

32 Beacon May 2, 2011 Comments at 7. 
Docket Nos. RM11-7-000 and AD10-11-000 - 15 - 

24. Beacon and ESA argue that a performance payment system is needed in order to 

send efficient price signals and to compensate resources that are asked to do more work. 

Beacon and ESA maintain that this form of pricing will appropriately compensate 

resources and encourage the RTOs and ISOs to improve operational and economic 

efficiencies, thereby lowering costs to consumers.33 In support of its arguments, Beacon 

points to operating data from its flywheel in NYISO comparing the actual performance of 

its flywheel to a hypothetical, similarly sized slower resource to determine how much 

each resource would contribute to frequency regulation service.34 Beacon states that 

even though the flywheel would have been dispatched to provide more than twelve time

as much frequency regulation service, its flywheel would have actually been paid less 

than the slower-responding resource that provided less service to the system

s 

.

35 

 

25. Beacon also provides an example of five 20 MW resources with different ramp 

rates – two average resources, two slower resources, and one faster resource – that are 

dispatched and paid based only on the amount of capacity offered. Beacon asserts that if 

33 Beacon May 2, 2011 Comments at 26-27, ESA May 2, 2011 Comments 

at 24-25. 

34 See Beacon May 2, 2011 Comments at 22-24. 

35 Beacon May 2, 2011 Comments at 24 (citing NYISO Tariff, Section 15.3.2.1 

(d), Regulation Service Offers from Limited Energy Storage Resources. “The ISO may 

reduce the real-time Regulation Service offer (in MWs) from a Limited Energy Storage 

Resource to account for the Energy storage capacity of such Resource.”). See also ESA 

May 2, 2011 Comments at 21-23 (providing a numerical example of how a two-part 

payment system can result in cost savings in the procurement of frequency regulation 

capacity and service). 
Docket Nos. RM11-7-000 and AD10-11-000 - 16 - 

these resources were to be paid for both capacity and performance, the system operator 

could reduce the amount of capacity procured by 40 percent while obtaining the same 

amount of regulation service. Assuming a $10 decrease in the capacity price and a 

$1.00/MW mileage rate, Beacon estimates a reduction in total regulation cost of 

27 percent, in addition to releasing 40 MW of generation to provide energy or other 

reserves.36

26. PJM states that it strongly supports a performance-based methodology. PJM 

claims that a performance payment provides an appropriate incentive to provide high 

quality regulation service by tying a portion of the total compensation to a resource’s 

performance. In addition, PJM asserts that a performance payment will ensure resources 

provide accurate responses to control signals, in contrast with the current structure that 

provides no incentive to perform above a minimum threshold.37

27. Among the RTOs and ISOs, only CAISO makes the claim that its markets are not 

unduly discriminatory or preferential. CAISO asserts that the Commission cannot 

declare the existing rate unjust and unreasonable or unduly discriminatory based on an 

unsupported conclusion that all markets require more ACE correction.38 Indeed, CAISO 

argues that its operational and reliability requirements, including ACE correction, have 

been and continue to be adequately met by existing regulation services and resources. 

 36 Beacon May 2, 2011 Comments at 33-36. 

37 PJM May 2, 2011 Comments at 6. 

38 CAISO May 2, 2011 Comments at 6-7. 
Docket Nos. RM11-7-000 and AD10-11-000 - 17 - 

Furthermore, CAISO argues that its rates for regulation apply to all resources equally so 

long as the resource meets the minimum operating and technical requirements to provide 

regulation because the amount of capacity a resource may bid for regulation is based 

upon the resource’s certified ramp rate over a ten minute interval. It contends that, 

therefore, a faster-ramping resource can sell more regulation capacity than a slower 

ramping resource. It argues that these terms and conditions of service provide 

comparable treatment for all resources certified to provide regulation.39 CAISO also 

argues that while its energy management system does not include a priority dispatch for 

resources with faster-ramping capability, its system will send control signals to faster 

ramping resources if it requires a fast response to correct ACE. Control signals are sent 

in part based on a resource’s operating range and ramping capability.40

28. Some commenters argue that the Commission has failed to show a sufficient basis 

for exercising its section 206 authority to mandate revisions to existing RTO and ISO 

tariff provisions.41 CAISO argues it has and continues to meet its operational and 

reliability requirements, and pays equally all resources capable to meet the requirement. 

As such, CAISO argues, its markets are not unduly discriminatory or preferential. 

29. EEI contends that the Commission has not shown that changing the compensation 

mechanism to increase compensation for faster ramping resources will result in enhanced 

 39 CAISO May 2, 2011 Comments at 8. 

40 Id. at 9. 

41 EEI May 2, 2011 Comments at 9-10, TAPS May 2, 2011 Comments at 5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 18 - 

reliability or enable system operators to more easily meet reliability standards; that the 

Commission is looking at only one of the three elements of frequency response (inertial 

response and governor response being the others) and in doing so has failed to provide 

the necessary technical basis to demonstrate that its assumptions that resources providing 

frequency regulation are more valuable than resources providing the other services and 

that the resulting payments are unduly discriminatory. Similarly, NGSA argues that 

regulatory policies that focus singly on special forms of compensation and incentives for 

some forms of ancillary and balancing services, but not others, are likely to result in 

distorted market signals and a mix of services and products that are sub-optimal for 

meeting system balancing requirements. NGSA contends that there is a direct 

interrelationship between primary and secondary frequency control, and compensation 

for frequency regulation cannot be considered in isolation.42

30. TAPS also argues that the existing total compensation for frequency regulation has 

not been shown to be unjust and unreasonable. TAPS contends that any increased 

payments to faster-ramping resources must be balanced by savings through reduced 

regulation procurement or lower payments to slower resources, such that costs to 

consumers are reduced. 43

 42 NGSA May 2, 2011 Comments at 4. 

43 TAPS May 2, 2011 Comments at 5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 19 - 

31. Duke argues that the Commission should not favor or subsidize one type of 

resource over another.44 It contends that both fast- and slow-ramping resources have a 

role to play and there will be instances when operators will not need faster-ramping 

resources to address frequency deviations. As an example, Duke states that there will be 

a need for slower-ramping resources that ramp with the load over a five minute period 

(e.g., load following).45

32. EEI argues that the Commission failed to support the NOPR proposal as just and 

reasonable, because, according to EEI, the Commission did not explain how the two-part 

payment mechanism will enhance reliability or make compliance with reliability rules 

easier or cheaper for system operators. EEI claims that no substantial pilot programs 

have been conducted to evaluate the system cost and reliability impacts of substituting 

non-traditional resources for existing resources. EEI suggests that the Commission 

encourage the development of network pilot programs before requiring a revision of 

frequency regulation service.46

 

 44 See also CAREBS May 2, 2011 Comments at 5-6, AWEA May 2, 2011 

Comments at 3-4, Duke May 2, 2011 Comments at 4-5, ELCON May 2, 2011 Comments 

at 6, SoCal Edison May 2, 2011 Comments at 6. 

45 Duke May 2, 2011 Comments at 4-6. 

46 EEI May 2, 2011 Comments at 9. 
Docket Nos. RM11-7-000 and AD10-11-000 - 20 - 

33. Several commenters express concern that the Commission will act prematurely, 

without a full record addressing the various issues to which the NOPR was addressed.47 

For example, NGSA, among others, cited Commissioner Spitzer’s dissent to the NOPR, 

arguing that feedback is needed from a broad spectrum of industry participants; otherwise 

the record on which to make the proposed changes to the Commission’s regulations may 

be undermined.48 The NY TOs contend that the record is insufficient to support a 

conclusion that the NYISO-administered markets fail to adequately compensate fast 

response resources.49 

b. Potential Market Benefits

34. The primary economic benefit that some commenters expect to see is reduced 

costs of procuring frequency regulation capacity, with a secondary benefit of reduced 

energy costs.50 Commenters argue that faster-ramping resources are able to provide more 

frequency regulation service from the same amount of frequency regulation capacity 

because faster-ramping resources can provide more ACE correction in real-time. 

 47 CAISO May 2, 2011 Comments at 11-12, Duke May 2, 2011 Comments at 2, 

EEI May 2, 2011 Comments at 10 (supported by Dayton, Detroit Edison, and 

FirstEnergy), Jack Ellis May 2, 2011 Comments at 7, MISO TOs May 2, 2011 Comments 

at 5. 

48 Natural Gas Supply Association May 2, 2011 Comments at 5. 

49 New York Transmission Owners May 2, 2011 Comments at 1. 

50 See, e.g., Beacon May 2, 2011 Comments at 5, ESA May 2, 2011 Comments 

at 3, EDF May 2, 2011 Comments at P 5-7, EDF May 2, 2011 Comments at P 9, 

ENBALA May 3, 2011 Comments at 3, NEPOOL May 2, 2011 Comments at 6, PaPUC 

May 2, 2011 Comments at 5, PJM May 2, 2011 Comments at 3-4. 
Docket Nos. RM11-7-000 and AD10-11-000 - 21 - 

Commenters conclude that this will result in a system operator needing to procure less 

frequency regulation capacity.51 Commenters further explain that, as these fasterresponding resources displace slower-ramping resources, existing generators that are 

displaced can be shifted to provide an even greater amount of energy. These traditional 

resources can then run at their full capacity at their preferred steady-state operating point 

which improves their heat rate and reduces the wear and tear on their equipment, thereby 

lowering their cost to operate.52

35. Commenters cite several studies to support the argument that faster-responding 

resources will result in economic benefits. Among them is PNNL’s study showing that 

fast-ramping energy storage resources (such as flywheels and batteries) could be as much 

as 17 times more effective than conventional ramp-limited regulation resources because 

of how quickly and accurately they respond to a system imbalance;53 and a California 

Energy Commission study which showed that “on an incremental basis, storage can be up 

 51 SoCal Edison May 2, 2011 Comments at 3. 

52 Beacon May 2, 2011 Comments at 11, CESA May 2, 2011 Comments at 5, 

ENBALA May 3, 2011 Comments at 4, ESA May 2, 2011 Comments at 11, and PaPUC 

May 2, 2011 Comments at 5 and Snowberger Affidavit at 8. 

53 Makarov, Y.V., Ma, J., Lu, S., Nguyen, T.B., “Assessing the value of 

Regulation Resources Based on Their Time Response Characteristics,” Pacific Northwest 

National Laboratory, PNNL – 17632, June 2008. 
Docket Nos. RM11-7-000 and AD10-11-000 - 22 - 

to two to three times as effective as adding a combustion turbine to the system for 

regulation purposes.”54

36. Commenters also pointed to ISO-NE and NYISO as examples of markets that 

have a relatively high number of faster-responding frequency regulation resources. In 

both cases, the system operator is able to procure a relatively smaller amount of 

frequency regulation capacity, compared to other RTOs and ISOs. Beacon notes that 

ISO-NE, the only RTO or ISO to both dispatch faster-ramping resources first and then 

compensate resources based on performance, is able to procure the least frequency 

regulation capacity, measured as a percentage of peak load.55 EDF also notes that 

ISO-NE and NYISO, two balancing authority areas with relatively high concentrations of 

faster-responding resources, procure relatively less frequency regulation capacity.56

37. ISO-NE agrees that fast-ramping resources provide benefits in the regulation 

market and states that the participation of fast-ramping resources in the New England 

regulation market is a factor in New England’s low current regulation requirement. 

ISO-NE also states that all other things being equal, faster response is clearly better than 

slower response, for the reasons explained in the NOPR. PJM also argues the importance 

 54 Beacon May 2, 2011 Comments at 8-9 (citing KEMA, “Research Evaluation of 

Wind Generation, Solar Generation, and Storage Impact on the California Grid” 

(prepared for the California Energy Commission), June, 2010). 

55 Beacon May 2, 2011 Comments at 9-10. See also ESA May 2, 2011 Comments 

at 9-10. 

56 EDF May 2, 2011 Comments at P 8. 
Docket Nos. RM11-7-000 and AD10-11-000 - 23 - 

of procuring a mix of frequency regulation resources, some of which will have the ability 

to sustainably maintain their response.57 Likewise, SoCal Edison states that the use of 

faster-ramping regulation resources, in conjunction with an efficient regulation dispatch 

algorithm and effective unit compliance with the dispatch signal should reduce the total 

amount of regulation capacity needed to perform regulation service.58

38. PIOs state that PJM estimates that a 10 percent or 20 percent reduction in its 

frequency regulation capacity procurement could result in a $25 million or $50 million, 

respectively, reduction in costs to consumers. PIOs state that this savings is large in 

comparison to the modest software costs required to implement these market rules.59 

39. To illustrate the potential benefits of faster-ramping resources providing frequency 

regulation service, Primus Power extends the Beacon Power example60 to one that 

applies more generally. Primus Power simulates the output of both what they defi

traditional resource and a fast-response resource. Both resources were assumed to have a 

capacity of 1 MW; the traditional resource could ramp 1 MW in 5 minutes, while the 

ne as a 

 57 PJM May 2, 2011 Comments at 4. 

58 SoCal Edison May 2, 2011 Comments at 3. 

59 PIOs May 2, 2011 Comments at P 20 (citing PJM Staff, “Problem Statement,” 

Jan. 19, 2011), available at http://www.pjm.com/~/media/committeesgroups/committees/mrc/20110216/20110216-item-05-regulation-resource-performanceproblem-statement.ashx. The Problem Statement was presented to the PJM Markets and 

Reliability Committee, and led to the establishment of a PJM Regulation Performance 

Senior Task Force. 

60 Primus Power May 2, 2011 Comments at 2. 
Docket Nos. RM11-7-000 and AD10-11-000 - 24 - 

faster-response resource could ramp faster, mimicking the actual ability of a Primus 

Power energy storage resource. Primus Power’s result supports that of Beacon, with the 

faster-responding resource following the AGC signal nearly perfectly, while the slowerramping resource lags to the point of working against needed ACE correction.61 Primus 

Power claims that this results in the faster-ramping resource providing approximately 

76 percent more ACE correction.62

40. Commenters also mention the potential for reliability benefits stemming from the 

NOPR proposal. A123, Alcoa, Beacon, CESA, ESA, PIOs, and PJM all state that system 

operators can also expect to see reliability benefits from the integration of more fasterresponding resources. PIOs state that the integration of more faster-responding resources 

will result in enhanced reliability because their ability to more quickly and accurately 

follow dispatch instructions will allow the system operator to better maintain system 

balance. Further, PIOs state that the concern over sustainability is unfounded. First, 

PIOs state that there is little reason to believe that faster-responding resources will 

completely displace traditional resources in the short or near term. Second, PIOs state 

that, given the short dispatch window system operators use, i.e. 5 or 10 minute dispatch 

intervals, storage systems can be assured of maintaining appropriate charge.63

 61 Id. at 3. 

62 Id. at 5. 

63 PIOs May 2, 2011 Comments at P 22-23. 
Docket Nos. RM11-7-000 and AD10-11-000 - 25 - 

41. Xtreme Power argues that the advantages of fast response storage systems is that 

they do not have problems such as efficiency degradation, emissions, exposure to peaking 

fuel prices, accelerated O&M, and typical siting issues. Xtreme Power also states that 

fast response storage systems do not require air quality permits like conventional fossilfired generation resources, and can therefore be deployed to satisfy RTO or ISO needs for 

additional regulation service more quickly than new fossil-fired generation.64

42. A123 presents data from ERCOT indicating that incorporating storage resources 

capable of responding to a “ramp-focused” signal from the system operator will result in 

net ACE remaining within allowable NERC standards 100 percent of the time (as 

opposed to only 71 percent of the time when relying on traditional resources responding 

to a slower signal). A123 argues that this improvement will provide the system operator 

with a larger reliability margin. A123 presents this analysis as an illustration of the 

difference between traditional slower-ramping, unlimited energy resources and fasterramping, limited energy resources.65

43. Alcoa contends that the NOPR proposal is likely to result in increased efficient 

operation of demand side resources and therefore a decrease in the amount of resources 

dedicated to frequency regulation service.66 Alcoa contends that there are reliability 

benefits from integrating more direct load control demand response into system 

 64 Xtreme Power May 2, 2011 Comments at 4-5. 

65 A123 May 2, 2011 Comments at 6. 

66 Alcoa May 2, 2011 Comments at 5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 26 - 

operations because these resources can ramp faster and therefore help restore system 

frequency more rapidly in the event of a system upset. Alcoa states that because this 

response can happen within seconds, it can help avert cascading system instability.67

44. PJM states that the use of faster-ramping resources will enhance system control. 

Better control will then lead to a reduction in uncompensated flows imposed on the 

system by a given balancing authority and will provide better individual control by that 

balancing authority.68

45. Beacon and ESA agree that the use of faster-ramping resources can result in 

reliability benefits, based on the expectation that the United States will add 145,000 MW 

of wind generation to the grid over the next ten years. They argue that this will result in 

increased supply variability, requiring increased system flexibility.69 In the same vein, 

Beacon and ESA both cite CAISO’s 20 percent renewable portfolio standard study, 

which showed that CAISO will require an additional 37 percent of regulation up and 

11 percent of regulation down in the summer season.70

 67 Id. at 4. 

68 PJM May 2, 2011 Comments at 3. 

69 Beacon May 2, 2011 Comments at 11-12, ESA May 2, 2011 Comments at 11, 

(citing Rick Sergel, President and CEO, North American Electric Reliability Corporation, 

Executive Remarks, FERC Technical Conference on Integrating Renewable Resources 

into the Wholesale Electric Grid, March 2, 2009). 

70 Beacon May 2, 2011 Comments at 12, ESA May 2, 2011 Comments at 11-12 

(citing CAISO, “Integration of Renewable Resources: Operational Requirements and 

Generation Fleet Capability at 20% RPS,” at 52, table 3.3 (2010), available at: 

http://www.caiso.com/2804/2804d036401f0.pdf).
Docket Nos. RM11-7-000 and AD10-11-000 - 27 - 

46. In addition Beacon and ESA assert that NYISO expects to need increased 

regulation and reserve resources as more wind is integrated into its system.71 Beacon, 

CESA, and ESA also points to the Commission-sponsored, Lawrence Berkeley National 

Laboratory (LBNL) report that identified reliability concerns due to the declining 

frequency responsiveness of the US interconnections. In order to address these reliability 

concerns, LBNL recommends expanding the frequency control capability of the RTO and 

ISO interconnections using advanced technologies such as energy storage.72

47. Certain commenters73 argue that the integration of additional faster-responding 

resources into the mix of frequency regulation resources will result in environmental 

benefits. For example, Beacon, CESA, and ESA cite to a 2007 KEMA and an 

October 2008 Carnegie Mellon University study in support. The KEMA study 

demonstrated that continued reliance on thermal generating units to meet increased 

regulation requirements could actually increase emissions of carbon dioxide (CO2), 

nitrogen oxides (NOX) and 

 71 Beacon May 2, 2011 Comments at 12, ESA May 2, 2011 Comments at 11 

(citing NYISO, “Integration of Wind into System Dispatch White Paper,” October 2008). 

72 Beacon May 2, 2011 Comments at 13-14, CESA May 2, 2011 Comments at 6, 

ESA May 2, 2011 Comments at 13-14 (citing Joseph H. Eto, Use of Frequency Response 

Metrics to Assess the Planning and Operating Requirements for Reliable Integration of 

Variable Renewable Generation Lawrence Berkeley National Laboratory, LBNL-4142E, 

2010, available at http://certs.lbl.gov/pdf/lbnl-4142e.pdf).

73 See e.g., EDF May 2, 2011 Comments at P10. 
Docket Nos. RM11-7-000 and AD10-11-000 - 28 - 

other pollutants, thereby defeating one of the main benefits of wind generation.74 The 

Carnegie Mellon University study estimated that 20 percent of the CO2 emission 

reduction and up 100 percent of the NOX emission reduction expected from introducing 

wind and solar power will be lost because of the extra ramping requirements they impose 

on traditional generation.75 Finally, CPUC states that while the Commission’s proposal 

is resource-neutral, it provides an economic incentive for resources to assist in reducin

greenhouse gas emissions, compensate for variability of intermittent resources, and 

reduce costs to consumers through decreased regulation procurement requirements.

g 

 

76

48. Other commenters offer cautious support. For example, while Duke Energy 

concurs that the faster-ramping resource should be compensated for the actual amount of 

work that it performs, it cautions that faster-ramping resources may not always be 

needed, and that micromanaging power swings with faster resources may even result in 

over-control of the system.77

74 Beacon May 2, 2011 Comments at 13, CESA May 2, 2011 Comments at 5, and 

ESA May 2, 2011 Comments at 12-13 (citing KEMA, Emissions Comparison for a 

20MW Flywheel-based Frequency Regulation Power Plant, May 18, 2007). 

75 Beacon May 2, 2011 Comments at 13, ESA May 2, 2011 Comments at 13 

(citing Katzenstein, W., and Jay Apt. Air Emissions Due To Wind and Solar Power. 

Environmental Science & Technology. 2009, 43, 253-258. (available at

http://pubs.acs.org/doi/pdf/10.1021/es801437t)). 

76 CPUC May 2, 2011 Comments at 2-3. 

77 Duke May 2, 2011 Comments at 7. 
Docket Nos. RM11-7-000 and AD10-11-000 - 29 - 

49. Some commenters argue that the Commission has not justified the increased costs 

that its compensation proposal may impose on load serving entities and other network 

integration transmission service customers.78 Others state that the Commission failed to 

consider the impact on customers, who EEI states will ultimately bear the greatest share 

of costs, by balancing increased payments to faster ramping resources with savings 

through reduced regulation procurement or lower payments to slower resources. As a 

result, EEI argues, load will likely pay more for regulation service without any 

demonstrated reliability benefit or decrease in the need for other resources.79 NY TOs, 

for example, request that the Commission require NYISO to estimate the net savings to 

consumers that would result if offering incentives for increased participation by dedicated 

frequency regulation resources induces more traditional capacity to shift away from the 

regulation market and into the energy market.80 NaturEner requests that the Commission 

be vigilant against possible unintended consequences, such as increasing frequency 

regulation cost or requiring a greater volume of frequency regulation resources. 

 78 EEI May 2, 2011 Comments at 12, TAPS May 2, 2011 Comments at 4-5; 

Invenergy May 2, 2011 Comments at 2-3. 

79 EEI May 2, 2011 Comments at 12. 

80 NY TOs May 2, 2011 Comments at 5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 30 - 

50. Invenergy cautions the Commission to evaluate whether alternative compensation 

structures, in addition to being higher cost, will also result in better quality regulation, 

lower quantities of regulation, and improved reliability.81 

51. EPSA states that while it supports RTOs and ISOs employing a mileage 

component similar to that employed in the ISO-NE regulation market, that measure 

should be used to meet the objectives of regulation service and not require incremental 

performance levels, which do not yield incremental benefits.82 EPSA states that adequate 

frequency is being achieved currently under NERC ACE control standards through 

reliability requirement CPS1 by each of the RTO and ISO balancing authorities. Thus, 

EPSA encourages the Commission to recognize that payment for enhanced performance 

should only be made if there is a material need for that performance.83 Duke agrees, 

stating that no study has been conducted that indicates faster response is necessary for 

reliable system operations.84 While CAISO notes that it is considering development of a 

performance payment for regulation service, it cautions the Commission against requiring 

a specific performance payment absent a conclusion that faster-ramping resources are 

required in all markets.85

 81 Invenergy May 2, 2011 Comments at 2-3. 

82 EPSA May 2, 2011 Comments at 7. 

83 Id. at 6. 

84 Duke May 2, 2011 Comments at 2. 

85 CAISO May 2, 2011 Comments at 11-12. 
Docket Nos. RM11-7-000 and AD10-11-000 - 31 - 

52. Jack Ellis contends that the Commission’s proposal to require a payment for 

performance has several flaws that cannot be easily corrected.86 He argues that the first 

flaw is that the rate is likely to be administratively-determined. Mr. Ellis contends that 

there is no straightforward way for both the mileage payment and the capacity payment to 

be established through competitive offers. Therefore, he argues, the subjective judgment 

of the Commission and the operators of RTOs and ISOs will replace market forces in 

determining the value of frequency regulation service. Second, Mr. Ellis argues that 

because the rate will be administratively-determined, it will be controversial and subject 

to litigation. Third, Mr. Ellis contends that the performance payment will increase 

payments that must be recovered through uplift, complicating existing settlement 

procedures and efforts to reduce uplift. Fourth, Mr. Ellis argues that a performance 

payment will unduly discriminate against existing technologies that could respond faster 

but for the presence of barriers that have not, to date, presented themselves as obstacles. 

He explains that these barriers include the use of static ramp rates that reflect typical 

performance under all conditions rather than peak performance under conditions that 

exist at a point in time. Finally, Mr. Ellis contends that multi-part offers require complex 

rules to deter market manipulation because it is difficult to differentiate between 

legitimate and illegitimate bidding behavior.87 Mr. Ellis asserts that it is neither 

 86 Jack Ellis April 12, 2011 Comments at 2. 

87 Jack Ellis April 12, 2011 Comments at 2-3. 
Docket Nos. RM11-7-000 and AD10-11-000 - 32 - 

reasonable nor cost-effective to pay a premium for faster ramping capability in situations 

where adequate ramping capability is available to meet the grid operator’s needs.88

53. TAPS recommends that the Commission direct each of the affected regions to 

evaluate its own frequency regulation market rules, and change them only if they make a 

regionally-specific showing that the changes will increase consumer welfare.89

54. Some commenters dispute the position that the integration of more fasterresponding resources for frequency regulation service will result in lower costs to 

consumers. Jack Ellis argues that, while it is possible that RTOs and ISOs could reduce 

the short-term cost of serving load by procuring less regulation, long-term costs would 

likely increase as supply resources that are pushed out of the frequency regulation market 

demand higher prices in other joint product markets such as capacity, energy, and other 

ancillary services markets. Mr. Ellis argues that this will happen because these resources 

will be losing revenue and will make up for that lost revenue by bidding in at higher 

levels in these other markets.90 Mr. Ellis concedes that long-term savings could accrue, 

but only if resource adequacy requirements also decrease by an equal or greater amount 

or if the integration of more faster-responding resources allows a reduction in the amount 

 88 Id. at 3. 

89 TAPS May 2, 2011 Comments at 2-3 

90 Jack Ellis April 12, 2011 Comments at 6 (emphasis in original). 
Docket Nos. RM11-7-000 and AD10-11-000 - 33 - 

of incremental resources that must be procured to deal with increases in variable 

generation.91

55. The NY PSC recognizes the potential benefits of the NOPR proposal, but it is 

uncertain what the cost and benefits of any proposed changes to the compensation 

mechanism would be within the NYISO.92 Finally, PG&E argues that while the benefits 

expected by others might be seen, a cost-benefit analysis is appropriate.93

56. EEI, NY TOs, TAPS and Invenergy also express concern that the NOPR proposal 

will result in increased costs to load. EEI argues that load will likely pay more for 

regulation service without any demonstrated reliability benefit or decrease in the need for 

other resources. NY TOs requests that the Commission require NYISO to estimate the 

net savings that would result if the NOPR’s compensation mechanism causes more 

traditional capacity to shift away from the frequency regulation market and into the 

energy market. 

57. CAISO states that while it has conducted studies that indicate a preliminary need 

for additional ramping capability, the full scope of its intended studies is not complete 

and the benefits have not been quantified. CAISO claims that studies conducted to 

identify system needs under a 20 percent renewable portfolio standard indicate a potential 

need for dispatchable down ramping capability. However, CAISO argues that studies for 

 91 Id. at 7. 

92 NY PSC May 2, 2011 Comments at 3. 

93 PG&E May 2, 2011 Comments at 8. 
Docket Nos. RM11-7-000 and AD10-11-000 - 34 - 

a 33 percent Renewable Portfolio Standard are still ongoing, and that the Commission 

should not impose a specific compensation model for regulation resources without 

quantifying the needs and benefits of such a model.94

58. EPSA asserts that the argument that slow resources work against the system 

operator assumes a regulation performance standard that exceeds existing requirements. 

EPSA states that RTOs and ISOs are currently required to maintain ACE within 

acceptable limits over a ten-minute period, consistent with NERC standards (CPS1 and 

CPS2). Because AGC signals are sent on a four-second cycle, the benefits of fastramping resources that are realized within that cycle, such as increased ramping mileage, 

may not materially improve the operator’s ability to regulate ACE on a ten-minute basis. 

EPSA argues that RTOs and ISOs already design and adjust regulation software to 

account for differing characteristics of regulation resources, and requiring increased 

payments is therefore unnecessary.95

59. While MISO states that it supports a mileage payment that compensates regulating 

resources for the wear and tear associated with performance, it also contends that there is 

presently no benefit to consumers within the MISO system that would justify payment for 

the provision of down regulation in addition to the capacity payment such market 

participants already receive. MISO recommends that the Commission continue to allow 

 94 CAISO May 2, 2011 Comments at 14-16. 

95 EPSA May 2, 2011 Comments at 7-9. 
Docket Nos. RM11-7-000 and AD10-11-000 - 35 - 

RTOs and ISOs to address whether netting or some other mechanism is appropriate to 

compensate regulating resources.96

c. Standardization of Market Rules

60. Several entities further oppose a uniform approach, arguing that existing market 

rules are different in the various RTOs and ISOs and disparate resources available in 

those markets creates a preference for a regional approach.97 While PJM and some other 

RTOs support the goal of the proposed regulation, stating that it will result in more 

efficient price signals and more accurate payment for the provision of frequency 

regulation service, a subset of the RTOs and ISOs seek flexibility to, for example in the 

case of ISO-NE, allow compensation for performance using the “mileage” paradigm that 

has been used since 2003.98 CAISO contends that there is not a single approach to 

incentivize resources to provide faster-ramping service, nor a single compensation 

scheme that fits all markets. Instead, CAISO recommends that the Commission direct 

RTOs and ISOs to examine through their stakeholder processes potential payment 

 96 MISO May 2, 2011 Comments at 6. 

97 Detroit Edison May 2, 2011 Comments at 2-4. Duke may 2, 2011 Comments at 

203. EEI May 2, 2011 Comments at 13-14, IRC May 2, 2011 Comments at 8, MISO TOs 

May 2, 2011 Comments at 5-7, NYISO May 2, 2011 Comments at 5-6, PG&E May 2, 

2011 Comments at 3-4, SCE May 2, 2011 Comments at 2, TAPS May 2, 2011 Comments 

at 4-5. 

98 ISO-NE May 2, 2011 Comments at 6. See also, NECPUC May 2, 2011 

Comments at 4, NEPOOL May 2, 2011 Comments at 8-9. 
Docket Nos. RM11-7-000 and AD10-11-000 - 36 - 

mechanisms that will address the Commission’s concerns.99 MISO adds that if the 

Commission determines in this Final Rule that compensation of frequency regulation 

providers requires further examination, the Commission should allow each RTO and ISO 

to develop the compensation mechanisms that are best for its region.100 Duke and the NY 

PSC argue that every RTO and ISO has different operations and market mechanisms, and 

each RTO and ISO should determine fair and just compensation methodologies for 

frequency regulation resources, including faster ramping ones, that are specifically 

tailored for their market.101

61. Dominion recommends that, instead of standardizing compensation for frequency 

regulation, the Commission should direct the RTOs and ISOs to revise their frequency 

regulation markets so that they appropriately value faster-ramping resources. Dominion 

states that each region operates differently and that each RTO or ISO and its stakeholders 

are in the best position to develop changes to the compensation mechanism.102

62. PG&E argues that accuracy payments alone (without any up and down mileage 

component) could be equally effective in addressing the Commission’s NOPR objectives, 

 99 CAISO May 2, 2011 Comments at 2. 

100 MISO May 2, 2011 Comments at 7. 

101 Duke Energy May 2, 2011 Comments at 2, NYPSC May 2, 2011 Comments 

at 4. 

102 Dominion May 2, 2011 Comments at 3-4. 
Docket Nos. RM11-7-000 and AD10-11-000 - 37 - 

or alternatively, there may be entirely different approaches such as new regulation ramprate constraints and market components.103

63. Starwood/Premium supports the Commission’s proposal for a performance 

payment and recommends that the Commission require that all RTOs and ISOs have 

standardized tariff provisions for the compensation of frequency regulation resources. 

They argue that a lack of standardization leads to inefficient long-term investment and 

makes it more difficult for potential market entrants to analyze the economic viability of 

entering one market or another.104 Xtreme Power seeks prompt implementation of the 

NOPR’s proposed reforms, recommending that the Commission establish an expedited 

timeline for RTOs and ISOs to comply with the Final Rule.105

3. Commission Determination

a. Unduly Discriminatory Pricing

64. After developing and reviewing an extensive record in this proceeding compiled 

through a technical conference in which 11 experts in the field participated and issuance 

of a NOPR, and consideration of responsive pleadings submitted by 53 commenters, the 

Commission finds, pursuant to FPA section 206, that existing market rules for the 

compensation of frequency regulation resources are unjust and unreasonable, and unduly 

discriminatory or preferential. Current rules in the RTO and ISO tariffs which govern 

 103 PG&E May 2, 2011 Comments at 8-9. 

104 Starwood/Premium May 2, 2011 Comments at 3. 

105 Xtreme Power May 2, 2011 Comments at 8. 
Docket Nos. RM11-7-000 and AD10-11-000 - 38 - 

pricing and compensation for frequency regulation services in the RTO and ISO markets 

are unduly discriminatory, because resources are compensated at the same level even 

when providing different amounts of frequency regulation service; existing frequency 

regulation compensation methods fail to compensate certain resources for all of the 

service they provide, even when the system operator directs them to provide more 

frequency regulation service than other resources. 

65. Beacon, Primus Power, and others argue and present evidence showing that 

current market rules allow for unduly discriminatory compensation among frequency 

regulation resources. Beacon provides data from its operations in ISO-NE106 and 

NYISO107 showing that two resources being asked to provide different amounts of 

frequency regulation service in real-time can be compensated at the same level. Beacon 

shows that it is even possible for the resource asked to provide more service to be paid 

less. Primus Power also provides evidence that resources that have different ramping 

capabilities can perform different amounts of work.108 Given current market rules these 

resources would not be compensated in a way that reflects the different amount of work 

they have performed. Support for this proposal also comes from the RTOs and ISOs. 

PJM states that a performance payment provides an appropriate incentive to provide high 

quality regulation service by tying a portion of the total compensation to a resource’s 

 106 Beacon May 2, 2011 Comments at 6-7. 

107 Id. at 22-24. 

108 Primus Power April 18, 2011 Comments at 5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 39 - 

performance. In addition, PJM asserts that a performance payment will ensure resources 

provide accurate responses to control signals, in contrast with the current structure that 

provides no incentive to perform above a minimum threshold. We are convinced by the 

evidence presented by commenters that current market designs can result in rates that are 

unduly discriminatory and unjust and unreasonable. 

66. As such, compensating resources for their capacity without compensating for the 

different amounts of frequency regulation service different resources provide fails to 

compensate for the additional work performed by the resources. Thus, contrary to 

CAISO’s position that its market rules are not unduly discriminatory or preferential 

because they allow a faster-ramping resources to offer a relatively greater amount of 

capacity into the regulation market than a slower ramping resources with the same 

capability, we find that this fails to differentiate between the different amounts of 

frequency regulation service different resources provide, and therefore fails to 

compensate for the additional work one resource may be asked to do by the system 

operator compared to another resource. In this respect, CAISO’s market design is no 

different from other RTOs and ISOs in that it compensates frequency regulation 

resources in a manner we find to be unduly discriminatory.109 

67. Where the Commission finds an existing rate to be unjust, unreasonable, unduly 

discriminatory, or preferential, the Commission has a statutory mandate to set the just and 

 109 This is irrespective of whether the energy management system includes a 

priority dispatch for resources with faster-ramping capability or the system dispatcher 

sends control signals to the resource. 
Docket Nos. RM11-7-000 and AD10-11-000 - 40 - 

reasonable rate.110 The Commission agrees with commenters who argue that current 

methods used by RTOs and ISOs to compensate frequency regulation providers that fail 

to account for the actual service provided by resources are unduly discriminatory and that 

a resource’s performance in following the AGC signal of the RTO or ISO should be 

taken into consideration when compensating that resource for providing frequency 

regulation service. We find that including a performance payment system will ensure just 

and reasonable rates, based on the actual service provided at costs established by 

competitive processes, and resulting in efficient price signals and appropriately 

compensating resources that are asked to do more work. 111

b. Potential Market Benefits

68. The Commission’s setting of a just and reasonable rate here is further supported 

by the many comments received in response to the NOPR’s contention that faster 

responding resources have the potential to improve the operational and economic 

 110 16 U.S.C. 824e. 

111 See Promoting Wholesale Competition Through Open Access NonDiscriminatory Transmission Services by Public Utilities; Recovery of Stranded Costs by 

Public Utilities and Transmitting Utilities, Order No. 888, 61 FR 21540 (May 10, 1996), 

FERC Stats. & Regs. ¶ 31,036 at 31,684 (1996), order on reh’g, Order No. 888-A, 62 FR 

12274 (Mar. 14, 1997), FERC Stats. & Regs. ¶ 31,048, order on reh’g, Order No. 888-B, 

81 FERC ¶ 61,248 (1997), order on reh’g, Order No. 888-C, 82 FERC ¶ 61,046 (1998), 

aff’d in relevant part sub nom. Transmission Access Policy Study Group v. FERC, 225 

F.3d 667 (D.C. Cir. 2000), aff’d sub nom. New York v. FERC, 535 U.S. 1 (2002). (“In 

the context of an emerging competitive market in generation, discriminatory practices 

that once did not constitute undue discrimination must be reviewed to determine whether 

they are being used to prevent the benefits of competition in generation from being 

achieved.”). 
Docket Nos. RM11-7-000 and AD10-11-000 - 41 - 

efficiency of the frequency regulation market. Commenters point to the more efficient 

utilization of all resources capable of providing frequency regulation when the payment 

to resources is structured to justly compensate resources for the work performed, thus 

freeing other resources to perform services more in line with their operational 

characteristics and increasing the efficiency of doing so. We find these comments 

persuasive. A123, Beacon, PNNL, CESA and ESA provide evidence demonstrating that 

faster-responding resources have the potential to lower frequency regulation capacity 

requirements, thereby improving market efficiencies. Further, experience in the 

organized markets that already have higher concentrations of faster-responding resources 

shows that less frequency regulation capacity procurement is required due to the 

availability of faster-responding resources to provide that capacity.112 

69. We are not persuaded by commenters, like EEI, that argue that the Commission 

should encourage pilot programs to measure reliability benefits before adopting the 

NOPR proposal. First, we note that ISO-NE has carried out just such a pilot program.113 

Second, the Commission has determined that it must act to remedy undue discrimination 

in the current compensation for frequency regulation; the Commission is ensuring just 

 112 Beacon May 2, 2011 Comments at 9-10, ESA May 2, 2011 Comments at 9-10, 

EDF May 2, 2011 Comments at P 8. 

113 See ISO-NE, Market Rule 1, Appendix J, Alternative Technologies Regulation 

Pilot Program, available at http://www.iso-ne.com/regulatory/tariff/sect_3/mr1_appendj.pdf. The most recent informational filing from ISO-NE describing this program can 

be found at http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=12768589 

(Sept. 19, 2011). 
Docket Nos. RM11-7-000 and AD10-11-000 - 42 - 

and reasonable rates and protecting against undue discrimination among resources in 

doing so. It is irrelevant to this finding that the RTOs and ISOs currently comply with 

the relevant NERC standards, as argued by EPSA. EPSA’s argument does not take away 

from the unduly discriminatory way in which the RTOs and ISOs compensate the 

resources that they procure in order to meet the NERC reliability standards. The reforms 

required here are necessary to remedy unduly discriminatory rates, but they will also 

enable greater competition in the organized markets and allow existing generation to 

provide more capacity in the energy markets and to run closer to their optimal output 

levels. 

70. Contrary to EEI’s arguments, the justness and reasonableness of the compensation 

mechanism directed here does not hinge on a finding that it will improve reliability. It is 

important to note, however, as discussed in the comments submitted by PJM, a resource’s 

ability to quickly and accurately follow dispatch instructions will allow the system 

operator to better maintain system balance.114

71. We also disagree with the contention that, while short-run costs might decrease, 

long-run costs will increase due to displaced frequency regulation resources demanding 

higher prices in the energy market to make up for their lost frequency regulation revenue. 

There is no reason to believe that energy costs would increase when the supply of 

available energy capacity increases. If markets currently clear with a sufficient level of 

capacity, adding new capacity at a higher cost would not change that and would not lead 

 114 PJM May 2, 2011 Comments at 3-4. 
Docket Nos. RM11-7-000 and AD10-11-000 - 43 - 

to higher market-clearing prices in the energy market. Any market participant that 

chooses to raise its offer price runs the risk of its capacity not clearing in the energy 

market. And because energy resources would be able to operate at more efficient heat 

rates, they would be able to offer their capacity into the energy markets at a lower price. 

72. We find persuasive the arguments made by commenters that we can expect to see 

market efficiency gains and reduced costs to consumers. For example, Beacon, ESA, 

Alcoa, Primus Power, and other commenters argue convincingly that sending efficient 

price signals will remove barriers to the entry of faster-ramping and more accurate 

frequency regulation resources. This in turn should lead to reductions in the amount of 

frequency regulation capacity that each balancing area authority needs to procure in order 

to maintain reliability. As the needed quantity of frequency regulation decreases, the net 

result should be a reduction in expenditures on frequency regulation, and ultimately a 

lower cost for electricity for consumers.115 Commenters cite studies from PNNL, the 

California Energy Commission, and PJM, and data from ISO-NE and NYISO, that 

support this conclusion. PNNL showed that faster-ramping frequency regulation 

resources could be as much as 17 times more effective than conventional ramp-limited 

regulation resources116 and the California Energy Commission found that storage 

resources can be up to two to three times as effective as adding a combustion turbine to 

 115 Primus Power May 2, 2011 Comments at 7. 

116 Makarov, Y.V., Ma, J., Lu, S., Nguyen, T.B., “Assessing the value of 

Regulation Resources Based on Their Time Response Characteristics,” Pacific Northwest 

National Laboratory, PNNL – 17632, June 2008. 
Docket Nos. RM11-7-000 and AD10-11-000 - 44 - 

the system for regulation purposes.117 In addition, Xtreme Power notes that many newer 

technologies can operate in the frequency regulation market at lower costs than other, 

older technologies.118 Therefore, we expect lower costs for consumers will result 

because less total capacity must be procured and because the capacity that is procured

will be from lower-cost resources entering the market. Further, we share the view th

the displacement of existing resources may result in those resources being able to mo

efficiently operate in the energy markets, submitting lower offers to supply energy, and 

thereby lowering costs to consumers in that market. Further, in the long-run, efficient 

price signals will also incent the efficient mix of resources to enter the market, thereby 

leading to lower long-run costs to consumers. We note that many commenters also cite 

potential reliability

at 

re 

 

119 and environmental120 benefits that could be seen from the use of 

faster-ramping resources. Thus, we find that the changes mandated by this Final Rule 

will not only remedy the undue discrimination existing in current market designs, but 

have the potential to result in lower costs to consumers. 

73. While Duke argues that faster-ramping resources may not always be needed to 

ensure the reliability of the system, and that the markets are currently operating without 

117 Beacon May 2, 2011 Comments at 8-9 (citing KEMA, “Research Evaluation of 

Wind Generation, Solar Generation, and Storage Impact on the California Grid” 

(prepared for the California Energy Commission), June, 2010). 

118 Xtreme Power May 2, 2011 Comments at 5. 

119 See generally A123, Alcoa, Beacon, CESA, ESA, PIOs, and PJM. 

120 See generally Beacon, CESA, CPUC, ESA, and EDF. 
Docket Nos. RM11-7-000 and AD10-11-000 - 45 - 

performance payments, the Commission finds that adding a performance payment to the 

compensation system will remedy undue discrimination and improve the efficiencies in 

the market and allow resources to provide those services that best suit them. Resources, 

no matter their type, will only receive the performance payment when they are actually 

called on to provide frequency regulation service, and they do so accurately. We also 

reject MISO’s recommendation that we allow RTOs and ISOs to continue to only net 

energy balances and provide a capacity payment as compensation for frequency 

regulation service. As we state above, doing so can result in unduly discriminatory 

treatment of frequency regulation resources. 

74. MISO’s claim that its customers derive no benefit from down regulation is based 

on the presumption that MISO never directs any regulation resources to provide 

frequency regulation in that direction. Even if this is true, and MISO provided no data 

showing that it is, it does not change the fact that relying only on the capacity payment 

and net energy balancing results in discriminatory compensation when one resource is 

asked to provide more movement than others, a situation that can occur even if MISO 

only ever directs its resources to provide up regulation. Accordingly, as discussed further 

in the compliance section below, we will require the ISOs and RTOs to include a 

performance payment in their frequency regulation pricing mechanism. 

c. Standardization of Market Rules

75. In response to certain commenters express concerns with requiring a uniform 

approach to compensation for frequency regulation, as described below, we will allow the 

RTOs and ISOs flexibility to design market rules that accommodate their markets, while 
Docket Nos. RM11-7-000 and AD10-11-000 - 46 - 

at the same time addressing existing unduly discriminatory rates. In response to 

Starwood/Premium, it is not practical for the Commission to mandate that all RTOs and 

ISOs have identical provisions in their tariffs for the compensation of frequency 

regulation resources. First, the RTOs and ISOs do not now have identical provisions for 

other market operations; mandating identical provisions in this regard could require 

completely overhauling all RTO and ISO tariffs. Second, identical tariff provisions are 

not necessary so long as all tariffs provide for just and reasonable and not unduly 

discriminatory or preferential rates. 

76. PG&E suggests that an accuracy component alone could suffice to remedy undue 

discrimination in the compensation of frequency regulation resources. While this would 

account for the difference in the accuracy of resources, it would fail to acknowledge the 

different levels of work requested of each. Further, the Final Rule does not create a 

special class of resource or otherwise compensate any one type of resource to the 

exclusion of others. This Final Rule is resource-neutral, requiring that compensation 

reflect the frequency regulation service provided, no matter the resource. 

77. Thus, we will require certain things of all RTOs and ISOs: to institute a two-part 

payment for frequency regulation and to account for a resource’s accuracy in its 

compensation. However, as described below, in many instances we will leave to the 

individual RTOs and ISOs how best to meet these requirements. 

B. Specific Proposals

78. The NOPR set forth a frequency regulation compensation mechanism for the RTO 

and ISO markets to ensure that pricing and compensation of frequency regulation service 
Docket Nos. RM11-7-000 and AD10-11-000 - 47 - 

is just and reasonable and not unduly discriminatory or preferential. Specifically, the 

Commission proposed to require RTOs and ISOs to change their tariffs so that regulation 

resources receive a two-part payment. The first part of the payment is a capacity, or 

option, payment to have a certain amount of capacity held in reserve and not participate 

in the energy market in order to provide frequency regulation service. To produce the 

efficient market outcome, this proposed payment includes the marginal regulating 

resource’s opportunity costs. The NOPR also set forth a second payment based on 

performance, as measured by the amount of MWh up and down movement the resource 

provides in response to the system operator’s dispatch signal.121 This performance 

payment takes into consideration a resource’s accuracy in responding to that signal. The 

Commission preliminarily found that this compensation structure is necessary to ensure 

that pricing schemes for frequency regulation service in the organized wholesale 

electricity markets result in rates that are just and reasonable, and not unduly 

discriminatory or preferential. 

1. Capacity Payment and Opportunity Cost

a. NOPR Proposal

79. The Commission proposed to require that each regulating resource be paid a 

uniform capacity payment that includes the opportunity cost of the marginal regulating 

resource. As discussed above, some RTOs and ISOs currently pay resource-specific 

 121 This applies whether an RTO or ISO allows resources to sell regulation up and 

regulation down separately or requires resources to offer both regulation up and down as 

one product. 
Docket Nos. RM11-7-000 and AD10-11-000 - 48 - 

opportunity costs or make-whole payments in addition to a capacity payment, while 

others incorporate the marginal unit’s opportunity cost into a uniform regulation market 

clearing capacity price. In order to send an efficient price signal to frequency regulation 

resources, the Commission proposed that RTOs and ISOs base the clearing price for 

frequency regulation on the marginal resource’s costs, including opportunity cost. The 

NOPR explained that paying a unit-specific opportunity cost distorts the market by 

basing the commitment of regulating units on incomplete market information, potentially 

leading to committing units with higher costs than other units not committed. This 

problem is especially glaring in a market such as this where some resources have no 

opportunity costs, resulting in disparate payments to resources.122 Accordingly, the 

Commission preliminarily found that a frequency regulation compensation mechanism 

that includes a uniform clearing price with accurately-determined opportunity costs will 

reduce errors in selecting the optimal portfolio of regulation suppliers each hour (and 

each day), which reduces total regulation costs to consumers and ensures that rates are 

just and reasonable and not unduly discriminatory or preferential. 

 

 122 For example, a storage resource that is only allowed to participate in the 

frequency regulation market has no opportunity costs related to the energy market, unlike 

a traditional generator. Therefore, the storage resource’s capacity payment could be 

lower than the generator’s capacity payment. These payments send inefficient signals to 

market participants. 
Docket Nos. RM11-7-000 and AD10-11-000 - 49 - 

80. In addition, the Commission preliminarily found that cross-product opportunity 

costs123 should be calculated by the RTO or ISO, as it has the best information to 

determine a frequency regulation resource’s opportunity cost due to not participating in 

the energy market. Further, the Commission proposed that, where appropriate, resources 

should be permitted to include inter-temporal opportunity costs in their capacity bid.124 

The Commission sought comment on its proposal to require each regulating resource to 

be paid a uniform capacity payment that includes the opportunity cost of the marginal 

regulating resource. 

b. Comments

i. The Capacity Payment

81. A number of commenters support the Commission’s capacity payment 

proposal.125 They agree that this proposal will result in a price signal that will more 

 123 A cross-product opportunity cost, in this case, is the revenue a regulation 

provider loses because it is on stand-by to provide regulation and is not providing energy 

or anot

 low. If such a resource were to provide frequency regulation, it could be asked 

to stop charging during low price periods and then be forced to charge during high price 

periods. 

125 Alcoa May 2, 2011 Comments at 3, Beacon May 2, 2011 Comments at 15-16, 

CESA May 2, 2011 Comments at 2, Dominion May 2, 2011 Comments at 4, Duke May 

2, 2011 Comments at 6, EDF May 2, 2011 Comments at 5, ELCON May 2, 2011 

Comments at 2-4, EPSA May 2, 2011 Comments at 5, ENBALA May 2, 2011 Comments 

(continued...) 

her product. 

124 An inter-temporal opportunity cost represents the foregone value when a 

resource must operate at one time, and therefore must either forego a profit from selling 

energy at a later time or incur costs due to consuming at a later time. The trade-off 

presented to thermal storage provides an example of inter-temporal opportunity costs. A 

thermal storage operator would prefer to “charge” (heat bricks or freeze water) when 

prices are
Docket Nos. RM11-7-000 and AD10-11-000 - 50 - 

efficiently select the portfolio of resources between the energy and regulation markets.126 

OMS states that it b of opportunity cost is used 

unity 

t associated with not providing 

 

elieves that when a consistent definition 

and reflected in the market price, the optimal solution for commitment and dispatching 

across energy and reserves is accomplished.127 Xtreme Power states that it supports the 

NOPR’s proposal because a uniform capacity payment will help entice new entry into the 

frequency regulation market, thereby enhancing competition, whereas unit-specific 

capacity costs, paid on a unit-specific basis, will distort the market.128

82. Beacon, CESA, EDF, PG&E, Powerex, ENBALA, and ESA129 agree that the 

capacity payment should be based on the marginal unit’s costs, including its opport

cost, in part because, as some parties note, a large part of a traditional resource’s cost to 

provide frequency regulation is the lost opportunity cos

at 8, ESA May 2, 2011 Comments at 16-18, IRC May 2, 2011 Comments at 7, ISO-NE 

May 2,

ts at 4, 

. 

 

9

 EDF May 2, 2011 Comments at P 12-13 (citing Beacon Power June 25, 2010 

Comm ence (Docket No. AD10-11-000) at 44-45), 

PG&E May 2, 2011 Comments at 7, Powerex May 2, 2011 Comments at 4, Primus 

Power

 2011 Comments at 2 and 13, NEPOOL May 2, 2011 Comments at 7-8, NYISO 

May 2, 2011 Comments at 2, OMS May 2, 2011 Comments at 4, PG&E May 2, 2011 

Comments at 7, PJM May 2, 2011 Comments at 5, Powerex May 2, 2011 Commen

Primus Power May 2, 2011 Comments at 6, SoCal Edison May 2, 2011 Comments at 4, 

VCharge April 27, 2011 Comments at 2, and Xtreme Power May 2, 2011 Comments at 6

126 Dominion May 2, 2011 Comments at 4, ELCON May 2, 2011 Comments 

at 2-3, 

127 OMS May 2, 2011 Comments at 4. 

128 Xtreme Power May 2, 2011 Comments at 6. 

12

ents on May 26, 2010 Technical Confer

 April 18, 2011 Comments at 6. 
Docket Nos. RM11-7-000 and AD10-11-000 - 51 - 

energy. Several parties also note that RTOs and ISOs that pay unit-specific opportun

costs send a distorted market signal, possibly resulting in a higher cost resource being 

selected to provide service in lieu of a lower-cost resource. These commenters assert tha

a uniform capacity payment that includes opportunity cost will send the strongest price 

signal to low cost resources, and that the grid should experience a reduction in the overal

market costs as low cost providers are encouraged to enter the market.

ity 

t 

l 

l 

ates 

at the marginal as-bid plus opportunity cost of the resources 

ient 

future infrastructure investment.132 

130 Specifically,

Beacon states that such a payment will remove an economic barrier to entry of new 

alternative regulation technologies by ensuring that the capacity payment reflects the ful

value of that service.131

83. EPSA agrees that the most efficient dispatch and fairest regulation market design

is one in which all resources compete on the same basis for the same price. EPSA st

that the regulation market should consider each resource's as-bid cost plus any 

opportunity cost, such th

selected should set a uniform clearing price paid to all. It argues that a uniform market 

clearing price will ensure consideration of all appropriate marginal costs for all regulation

market participants and will result in price signals that will properly incent effic

 130 Beacon May 2, 2011 Comments at 16, CESA May 2, 2011 Comments at 7, 

ESA May 2, 2011 Comments at 16, EDF May 2, 2011 Comments at P 12-13. 

131 Beacon May 2, 2011 Comments at 18. 

132 EPSA May 2, 2011 Comments at 5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 52 - 

84. ENBALA notes that individual side payments made to resources are generally 

confidential and hidden in a broader declaration of total payments, only adding 

complexity and inefficiency to the markets. On the other hand, it states that an optimized 

total cost solution that calculates a uniform price utilizing opportunity costs provides

transparency and clarity.

m 

he proposed method would ensure that the market-clearing 

y 

ket 

changes to Regulation resource compensation, and enhance price signals that will better 

enable new, innovative resources and technologies to meet the system’s Regulation 

 

133

85. PIOs state that not including opportunity costs in a uniform clearing price 

discriminates against newer resources with lower opportunity costs that, in a full

marginal clearing price auction, would generally be more economic than traditional 

generators with higher opportunity costs stemming from operating at less than maximu

capacity.134 PIOs state that t

capacity price would reflect the total marginal costs of the last cleared unit, thereb

eliminating the unlevel playing field that out-of-market opportunity cost payments

currently impart.135

86. Beacon, CESA, and ESA note that PJM has recently filed with the Commission 

tariff revisions that will alter how it calculates opportunity costs for regulation capacity. 

In it’s filing, PJM states that these revisions “[h]elp to reduce after-the-fact, non-mar

 8. 133 ENBALA May 3, 2011 Comments at

134 PIOs May 2, 2011 Comments at P 7. 

135 Id. P 12. 
Docket Nos. RM11-7-000 and AD10-11-000 - 53 - 

needs....”136 Beacon and CESA also contend that PJM has acknowledged that the v

of frequency regulat

alue 

ion capacity has been upwards of 33 percent higher than is reflected 

ical 

 more 

g run investment signals.”141 NEPOOL states that ISO-NE indicated that it is 

in market clearing prices,137 a statement they assert is supported by PJM’s market 

monitor.138

87. EPSA argues that ISO-NE pays unit-specific opportunity costs, which, according 

to EPSA, risks understating the regulation clearing price where a unit with an opportunity

cost is the marginal resource.139 Beacon, CESA, and ESA also note that at the techn

conference, ISO-NE stated that it is moving in the direction of paying a uniform clearing 

price.140 Beacon, ESA, CESA, and NEPOOL state that at the November 2010 NEPOOL 

Markets Committee meeting ISO-NE stated that a “uniform clearing price provides

efficient lon

 

ES

136 Beacon May 2, 2011 Comments at 17, CESA May 2, 2011 Comments at 7, 

Establish Just and Reasonable Pricing for Operative Reserve Shortages in the PJM 

Region (Docket No. ER09-1063-004) at 3). 

137 Beacon May 2, 2011 Comments at 18 (citing Monitoring Analytics, LLC. 

“2010 State of the Market Report for PJM.” March 10, 2011). 

 

.” 

 EPSA May 2, 2011 Comments at 5. 

 2011 Comments at 7, 

ESA May 2, 2011 Comments at 17 (citing Transcript of May 26, 2010 Technical 

Confer

ay 2, 2011 Comments at 17-18, ESA May 2, 2011 Comments at 17 

(continued...) 

A May 2, 2011 Comments at 16-17 (citing PJM’s Proposed Package of Reforms to 

138 Beacon May 2, 2011 Comments at 18-19, ESA May 2, 2011 Comments 

at 17-18 (citing Monitoring Analytics, LLC. “2010 State of the Market Report for PJM

March 10, 2011). 

139

140 Beacon May 2, 2011 Comments at 17, CESA May 2,

ence at 149 (lines 15-16)). 

141 Beacon M
Docket Nos. RM11-7-000 and AD10-11-000 - 54 - 

open to considering the Commission’s proposal for rules that would include opportunity 

costs in the uniform capacity payment, and that it was in the process of evaluating market 

rule changes that would accomplish this goal.142

88. At the same time, some commenters express concerns regarding the inclusion of 

opportunity costs in the market clearing price for frequency regulation capacity. In 

general, Duke agrees with the Commission’s proposal to require the market clearing price

for frequency regulation capacity to be uniform and reflect the marginal clearing unit’s 

opportunity costs. However, Duke argues that it is uncertain how some storage devices 

his 

circumstances in the region.144

 

would fit into a capacity payment mechanism. For instance, for a resource that is 

charging part of the time and discharging part of the time, Duke believes that when t

resource is charging (i.e. acting like a load), it should not receive a capacity payment.143

89. NEPOOL and IRC request that the Final Rule afford ISO-NE and stakeholders 

sufficient flexibility to develop a solution that accomplishes the Commission’s goals, 

given the current market design’s consistency with the NOPR proposal and 

 

lation 

). 

C May 2, 2011 Comments at 5-6. 

(citing NEPOOL Markets Committee presentation, “Alternative Technology Regu

Pilot Program.” November 9, 2010

142 NEPOOL May 2, 2011 Comments at 6-7. 

143 Duke May 2, 2011 Comments at 6. 

144 NEPOOL May 2, 2011 Comments at 8, IR
Docket Nos. RM11-7-000 and AD10-11-000 - 55 - 

90. SoCal Edison argues that, while the CAISO day-ahead market is efficient in that i

incorporates opportunity costs into a uniform clearing price for frequency regulation 

t 

s 

ensation 

, the Commission should consider whether the capacity 

capacity, the real-time market has difficulties capturing inter-temporal opportunity cost

due to its limited look-ahead time frame.145

91. PIOs recommend that after implementing the NOPR’s proposed comp

approach in the RTOs and ISOs

payment component of the method remains appropriate or whether, after some level of 

fast-acting resource penetration, the capacity payment proves no longer necessary. 146

ii. Calculation of Opportunity Costs

92. Most commenters state their belief that the RTO or ISO is in the best position to 

, 

o 

TO 

or ISO is also in the be ty costs and 

calculate a resource’s opportunity costs. ENBALA, IRC, ISO-NE, NYISO, PIOs, PJM

and Xtreme Power state that the RTO or ISO should calculate cross-product opportunity

cost for inclusion in the capacity payment, as the RTO or ISO has the best information t

determine a frequency regulation resource’s opportunity cost.147 PJM states that the R

st position to determine inter-temporal opportuni

should be allowed to calculate this as well.148

 145 SoCal Edison May 2, 2011 Comments at 4-5. 

ISO-NE May 2, 2011 Comments at 2, PIOs May 2, 2011 Comments at P 13, Xtreme 

Power

146 PIO May 2, 2011 Comments at 10. 

147 ENBALA May 3, 2011 Comments at 8, IRC May 2, 2011 Comments at 7, 

 May 2, 2011 Comments at 6. 

148 PJM May 2, 2011 Comments at 5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 56 - 

93. ISO-NE contends that if the resource owner were required to calculate its own 

cross-product opportunity costs, it would need to build into that bid an ex ante risk 

premium, to account for the possibility of large swings in the locational marginal price 

(LMP).149 NECPUC shares ISO-NE’s concerns over the possibility of ex ante

determination of opportunity costs and requests that the Commission allow for flexibility 

 the 

 would entail higher 

 marketposition to determine these costs.152

to address the undue discrimination described in the NOPR.150

94. NEPOOL states that a proposal to include cross-product opportunity costs in

regulation clearing price was the subject of much discussion during original stakeholder

consideration of the regulation market re-design in ISO-NE. At that time, according to 

NEPOOL, it was concluded that determining opportunity costs ex ante would be 

significantly more complex than the current ex post method and

implementation costs.151 NEPOOL states that it has not explicitly considered the 

inclusion of inter-temporal opportunity costs, but it notes that there is no restriction on 

including these costs in a resource’s bid. 

95. ELCON is the only commenter to recommend that all opportunity costs be

based and calculated by the supplier. ELCON states that the supplier is in the best 

 149 ISO-NE May 2, 2011 Comments at 13-14. 

at 3. 150 NECPUC May 2, 2011 Comments 

151 NEPOOL May 2, 2011 Comments at 7. 

152 ELCON May 2, 2011 Comments at 4. 
Docket Nos. RM11-7-000 and AD10-11-000 - 57 - 

96. ENBALA states that resources should submit regulation offers that reflect i

temporal opportunity costs.

nterer in the ISO-NE market where it operates, it is 

ring 

emporal opportunity costs may be complicated to 

-

o a 

sure its resource is at 

t 

 

153 VCharge states that while it does incur inter-temporal 

opportunity costs, because it is a price-tak

uncertain how the inclusion of this cost will affect its operation.154

97. Powerex generally supports inclusion of opportunity costs in the market clea

price. However, it argues that inter-t

implement and lead to an uneconomic solution. In addition, Powerex believes that inter

temporal opportunity costs are unnecessary. Powerex states that resources that bid int

day-ahead regulation market will typically know its award by 1:00 p.m. prior to the 

delivery day. As such, the resource will have at least 11 hours to en

the desired state by participating in the wholesale energy market. Therefore, Powerex 

suggests that inter-temporal opportunity costs only be included in bids for resources tha

are precluded from participation in the wholesale energy market.155 Powerex requests 

that the Commission clarify how inter-temporal opportunity costs will work in 

practice.156 

98. CAISO states that its current market design allows a regulating resource to earn 

the marginal resource’s opportunity cost, including cross-product opportunity costs. 

. 

153 ENBALA May 3, 2011 Comments at 8. 

154 VCharge April 27, 2011 Comments at 3

155 Powerex May 2, 2011 Comments at 6-8. 

156 Id. at 5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 58 - 

CAISO asserts that while there is no formal compensation mechanism for inter-temporal 

opportunity costs, bidding rules do not prevent scheduling coordinators from including 

them in supply bids. CAISO requests that the Final Rule not preclude the use o

informal com

f such 

pensation mechanisms to account for inter-temporal opportunity costs.157

c. Commission Determination

99. The Commission finds that paying to all cleared frequency regulation resource

uniform clearing price that includes the marginal resource’s opportunity costs is just and 

reasonable. Accordingly, this Final Rule requires that all RTOs and ISOs with centrally

procured frequency regulation resources must provide for such opportunity costs in the

tariffs. Further, this uniform clearing price must be market-based, derived from markets a 

-

ir 

participant b apacity. As commenters 

ring 

city 

costs but very high opportunity costs, rather than a lower-cost unit which has relatively 

higher explicit capacity costs but low opportunity costs. This can result in distorted 

 

ids for the provision of frequency regulation c

recognize, contrary market pricing rules would consistently result in artificial and 

inaccurate prices that do not include the total cost of reserving regulation capacity. In 

addition, paying an out-of-market unit-specific opportunity cost, rather than a uniform 

clearing price, can result in the market basing the commitment of regulating units on bids 

that do not reflect the true cost of providing capacity, potentially leading to committing 

units with higher costs than other units not committed. By not paying a uniform clea

price, it is possible, for instance, to dispatch a unit with relatively low explicit capa

157 CAISO May 2, 2011 Comments at 17-18. 
Docket Nos. RM11-7-000 and AD10-11-000 - 59 - 

investment and entry decisions by market participants. Paying to all cleared frequency

regulation resources a uniform price that includes opportunity costs will ensure that all 

appropriate costs are considered and will send an efficient price signal to current and 

potential market participants. This will also be consistent with long-standing 

Commission policy approving uniform clearing prices.

t 

id for the 

e. We recognize that some 

t. 

 

158

100. We decline to specify, as requested by Duke, certain circumstances under which 

certain resources should not receive the capacity payment. Specifically, Duke provides 

the example of an energy storage resource, stating that it should not be eligible for a 

capacity payment during the time it charges in order to attain a charge state that allows i

to provide frequency regulation service. Duke’s example ignores the fact that a storage 

resource that is charging could be, at the same time, providing frequency regulation 

service at the direction of the system operator and therefore is appropriately pa

capacity it sets aside to provide frequency regulation servic

RTOs and ISOs manage the charge state of energy storage resources, while others do no

We find that it is appropriate to allow the RTOs and ISOs flexibility in addressing this 

issue and explaining any implications for compensation. 

158 See, e.g., PJM Interconnection, L.L.C.,, 117 FERC ¶ 61,331, at P 141 (2006);

Commonwealth Edison Company, 113 FERC ¶ 61,278, at P 43 (2005) (citing New York 

Independent System Operator, Inc., order on reh'g, 110 FERC ¶ 61,244, at P 65 n.76 

(2005) (explaining that NYISO uses this method because "under this model, the generator 

has the proper incentive to bid the lowest price that covers its marginal cost, knowing that 

if the market produces a higher price it will receive the market price")); and New England 

Power Pool, 85 FERC ¶ 61,379 (1998), reh'g denied, 95 FERC ¶ 61,478, at 61,074 

(2001) (approving market clearing prices in energy and ancillary services markets).
Docket Nos. RM11-7-000 and AD10-11-000 - 60 - 

101. The Commission rejects PIOs’ argument that the capacity payment should be 

wholly discontinued, in the event that it proves no longer necessary. The capacity 

payment is necessary, because it exists in order to ensure that resources are indifferen

between offering their capacity as a frequency regulation resource or as an energy 

resource. While the market-clearing price for frequency regulation service may 

eventually fall as lower-cost resources enter the market, the capacity payment provides 

resources that clear as frequency regulation capacity recompense for holding such 

capacity in reserve from the energy and other markets so 

t 

that it is available to the system 

tunity 

s offer 

aring 

ng a resource to bid in its own cross-product 

s, 

in 

operator as frequency regulation capacity. 

102. Regarding cross-product opportunity costs, which reflect the foregone oppor

to participate in the energy or ancillary services markets, the Commission finds that it is

appropriate for the RTOs and ISOs to calculate this and include it in each resource’

to supply frequency regulation capacity, for use when determining the market cle

price and which resources clear. Therefore we will require this. We agree with PJM, 

NYISO, IRC, and other commenters which state that the RTOs and ISOs have the 

necessary and accurate information for determining this cost. Further, ISO-NE and 

NEPOOL both express concern that requiri

opportunity costs could result in inefficient prices as resources include a risk premium. 

We disagree with ELCON’s argument that the resource is in the best position to 

determine its cross-product opportunity costs. Because cross-product opportunity costs 

are calculated based on the clearing prices of other energy and ancillary service product

specific knowledge of the market variables used to formulate these prices is necessary 
Docket Nos. RM11-7-000 and AD10-11-000 - 61 - 

order to accurately calculate the opportunity cost of providing frequency regulation

service. RTOs and ISOs have unique access to this information and, accordingly, RT

and ISOs are in the best position to perform accurate cross-product opportunity cost 

calculations. 

103. Regarding inter-temporal opportunity costs, there is little agreement on ho

costs should be calculated, and to whom that responsibility should fall. The Commission

will require the RTOs and ISOs to allow for inter-temporal opportunity costs to be 

included in a resource’s offer to sell frequency regulation service, with the requirement 

that the costs be verifiable. We find that inter-temporal opportunity costs are a legiti

cost for a market participant to include in its offer to sell frequency regulation and thus 

must be allowed. However, we will allow the RTOs and ISOs to propose who is 

responsible fo

Os 

w these 

mate 

r calculating such costs, whether the RTO or ISO itself or market 

participants. 

2. Payment for Performance

a. NOPR Proposal

104. The Commission preliminarily found that requiring a component in the frequency

regulation compensation mechanism that recognizes the resource’s real-time provision of 

frequency regulation service is necessary to remedy undue discrimination and ensure jus

and reasonable rates in the organized wholesale electricity markets.159 As stated i

NOPR, resources that provide more value to the grid by doing more of the work 

 

t 

n the 

to 

 

PR, 134 FERC ¶ 61,124 at P 37. 159 NO
Docket Nos. RM11-7-000 and AD10-11-000 - 62 - 

correct ACE de frequency regulation service, should be 

paid more th cordingly, taking performance into 

ld 

and 

e 

en 

 dministratively set price-per-MWh of ACE correction. The 

Commission sought comment on this proposal as well as the alternative of an 

 

viations, through the provision of 

an resources doing less work. Ac

consideration is a key element of ensuring that any frequency regulation compensation 

mechanism is just and reasonable. The Commission, therefore, proposed to require that 

all regulating resources be paid for their performance, for instance, with this payment 

taking the form of a payment for each MWh, up or down, provided by the resource in 

response to the system operator’s dispatch signal. Specifically, an RTO or ISO wou

determine the total movement up and down and then multiply that sum by a price-perMWh of ACE correction. The NOPR solicited comment on the proposed method 

whether there are alternative payments for performance that address concern about undu

discrimination.160

105. The Commission also proposed that the price-per-MWh of ACE correction be 

market-based. Specifically, resources would specify the capacity (in MW) available to

provide regulation, a ramp rate (in MW/minute), and bid into the market a price-per-MW

ramping capability or a price-per-MWh of ACE correction. The RTO or ISO would th

determine the least cost set of resources and set the price-per-MWh of ACE correction 

based on the bid of the marginal regulating resource. The alternative to a market-based 

price is to use an a

160 Id. P 37. 
Docket Nos. RM11-7-000 and AD10-11-000 - 63 - 

administratively determined price, including how an administratively determined price

could be set. 

b. Comments

i. Market-based Pricing versus Administrativelydetermined Prices

106. Regarding whether the price used to calculate the performance payment should be 

market-based or administratively-determined, the majority of commenters who 

market. According to commenters, allowing 

the market to establish the for resources’ performance will allow more 

economically efficient outco incentives for market 

 would 

l be 

 

commented on this topic expressed a preference for a market-based option.161 They 

argue that market-based pricing will encourage resources with the lowest costs to provide 

regulation movement to enter the market and ensure that rate-payers receive the benefit 

of new low-cost resources competing in the 

compensation

mes and create appropriate

participants. Specifically, they contend, a market-based price would encourage resources 

to make bids that accurately reflect their costs of ramping up and down, and thus

ensure that resources which can provide ramping capability most cost-effectively wil

selected and, in turn, should lower costs to customers.162

161 Beacon May 2, 2011 Comments at 30, ESA May 2, 2011 Comments at 29, 

EDF May 2, 2011 Comments at P 17, ELCON May 2, 2011 Comments at 4, PJM 

May 2,

2, 2011 Comments at 7. 

 2011 Comments at 7, Powerex May 2, 2011 Comments at 8-9, SoCal Edison 

May 2, 2011 Comments at 10, TAPS May 2, 2011 Comments at 8, Xtreme Power 

May 2, 2011 Comments at 7. 

162 Xtreme Power May 
Docket Nos. RM11-7-000 and AD10-11-000 - 64 - 

107. Powerex claims that use of a forecast for ACE correction would allow RTOs and 

ISOs to include the mileage payment in their co-optimization and determine an 

appropriate market clearing price for the mileage payment.163 PJM states that 

proposed dollars-per-MW bidding and market-clearing mechanisms best capture the 

market-based value of ramping regulating units, and can be efficiently and accurately 

modeled in market-clearing algorithms. PJM suggests that on-going updates to these 

models will be required to ensure that market results and 

the 

compensation correctly align 

ulation 

ecific 

o 

S 

um 

y 

n 

with resource performance.164

108. TAPS argues that to require that performance payments for frequency reg

service be administratively-determined would be especially disruptive to region-sp

market designs and unwarranted. It argues that it would not be in the public interest t

then require that prices in this market segment be administratively-determined.165 TAP

notes that no showing has been made, and there is no reason to expect, that the maxim

necessary price to elicit frequency response offers cannot be revealed through a properl

structured bid-based market.166

109. Although supporting a market-based price, Powerex argues that if the Commissio

finds that an administratively-set price is appropriate, that price should be based on the 

 163 Powerex May 2, 2011 Comments at 8. 

164 PJM May 2, 2011 Comments at 7. 

165 TAPS May 2, 2011 Comments 8. 

166 Id. at 9-10. 
Docket Nos. RM11-7-000 and AD10-11-000 - 65 - 

frequency regulation capacity price, in order to provide transparency and certainty for 

market participants.167

ii. Calculating the Performance Payment and Bidding 

Parameters

110. Regarding the form a performance payment should take, Beacon and ESA both 

state that they support a performance payment that takes the form of a payment for each 

MW, up or down, provided by the resource in response to the system operator’s dispatch 

signal multiplied by a market-based price per MW-movement based on the marginal 

unit’s cost to ramp up and down.168 Beacon argues that this would correspond to each 

resource’s contribution to A is consistent with what it views as industry 

capability as possible because the resource will be compensated for the additional 

 

CE correction and 

best practices, i.e. the current policy in ISO-NE.169 Beacon cites data from its ISO-NE 

operation to show that the mileage payment it receives is approximately three times that 

of an allowable slower-responding resource, yet it actually does more than three times the

work.170

111. Beacon and ESA contend that a payment to all resources based on their MW 

movement, up and down, will encourage all resources to offer as much ramp-rate 

t 9. 

ments at 19, ESA May 2, 2011 Comments at 27-28. 

167 Powerex May 2, 2011 Comments a

168 Beacon May 2, 2011 Com

169 Beacon May 2, 2011 Comments at 27. 

170 Id. at 28. 
Docket Nos. RM11-7-000 and AD10-11-000 - 66 - 

movement (and additional costs it incurs) to provide this service.171 Beacon and ESA 

further argue that having bidding parameters that match the way payments are ultimately

calculated will aid resources in determining their bidding strategy.

nd that the appropriate bidding parameters include the total MW offered for 

st for 

 fuel 

 and 

st 

n 

etermine their bidding strategy.174

 

172 Beacon and ESA 

recomme

frequency regulation and the $/MW of ramping capability. They contend that the co

ramping up and down in response to an RTO or ISO control signal is the increased

costs of operating in a non-steady state condition, the increased costs of operations

maintenance due to additional ‘wear and tear’ on the equipment, and potentially the co

of decreased cycle life.173

112. CESA recommends that each resource should bid in its price–per-MW of 

movement for regulation service and the system operator should set the price-per-MW

used in the performance payment at the price of the marginal unit’s bid. While CESA 

notes that another method for calculating the performance payment would be to base it o

the total amount of MWh of ACE correction, no matter the method used, it is most 

important that the bidding parameters match the way compensation is calculated so that 

resources can most easily d

ay 2, 2011 Comments at 29, ESA May 2, 2011 Comments at 28. 171 Beacon M

172 Beacon May 2, 2011 Comments at 29, ESA May 2, 2011 Comments at 28. 

173 Beacon May 2, 2011 Comments at 30, ESA May 2, 2011 Comments at 29. 

174 CESA May 2, 2011 Comments at 9. 
Docket Nos. RM11-7-000 and AD10-11-000 - 67 - 

113. CAISO questions whether the ISO’s bid optimization and ultimate perform

payment should reflect a resource’s pre-certified ramping capability or a resource’s actu

performance for which a resource would receive a payment for moving in either the up 

down direction.

ance 

al 

or 

ernot consistent to have both 

determining the market-clearing price for ramp. Once a clarification 

f ACE 

nt 

 

175

114. OMS and VCharge ask the Commission to clarify the need for both a price-p

MWh ramping capability and price-per-MW of ACE correction parameters in a 

frequency regulation service offer.176 OMS indicates that it is 

of these pricing parameters in the ramping portion of the frequency regulation offer. 

OMS states that it interprets price-per-MWh as a parameter on which the system operator 

would make dispatch decisions, while price-per-MW of ACE correction would be a 

parameter used for 

is made, OMS requests further time to comment on that clarification.177

115. ENBALA argues that compensating resources based on a price-per-MW o

correction bid is not advisable. It argues that calculating such a bid price would be 

difficult for the resource, as would be verification of the bid. It contends that settleme

would also be complex. ENBALA recommends instead that resources submit a price-

. 

 May 2, 2011 Comments at 4 

(citing the NOPR at P 37). 

1 Comments at 7-8. 

175 CAISO May 2, 2011 Comments at 19

176 OMS May 2, 2011 Comments at 7, VCharge

177 OMS May 2, 201
Docket Nos. RM11-7-000 and AD10-11-000 - 68 - 

per-MW ramping ability, which would reflect the costs associated with movement of the 

device, i.e. variable O&M costs such as fuel consumption and mechanical fatigue.178 

t 

ered 

g 

n 

 market 

 operating costs for oscillating a resource’s 

 

116. Primus Power recommends that compensation for performance be based on the ne

energy contribution of a resource. Primus Power defines this as the total MWh deliv

by the resource in the direction of the control signal minus the total MWh delivered 

against the control signal (or delivered in excess of the control signal). This would 

determine the quantity for which the frequency regulation service provided would be 

compensated. To determine the price, Primus Power proposes using the market clearin

price for frequency regulation capacity as a basis. Specifically, Primus Power 

recommends multiplying the capacity price by some weight, and then multiplying this by 

the MWh the resource delivered over the settlement period, as a fraction how much a

“ideal” resource would have delivered.179 

117. Regarding how resources would bid their costs into such a market, NEPOOL 

states that the ISO-NE regulation market currently operates on a system that minimizes 

total customer payment, and it supports the continued application of the current

design.180

118. TAPS argues that a resource’s offering price-per-MW of ACE correction should

be expected to typically reflect only variable

. 

 at 6. 

178 ENBALA May 2, 2011 Comments at 8

179 Primus Power April 18, 2011 Comments

180 NEPOOL May 2, 2011 Comments at 9. 
Docket Nos. RM11-7-000 and AD10-11-000 - 69 - 

output instead of holding it steady. TAPS provides an example to illustrate that the 

resource’s offer price for frequency regulation service ought to reflect the amount of 

revenue that would make the resource indifferent between being dispatched up and down

around its set point over some period of time and sitting constant at the set point. This 

efer 

 is, as is done in 

, 

Beacon and ESA state that this has been used successfully in ISO-NE, where the split of 

compensation is administratively determined in order for an “average” resource to 

 

offer can be calculated by the resource.181 In addition, TAPS notes that bids for 

frequency regulation may require mitigation in certain circumstances. TAPS states that 

regional market designs should provide for mitigation, and the Commission should d

to the regions to decide what mitigation scheme would be effective.182

119. SoCal Edison encourages the Commission to consider both ex ante and ex post

calculation of market prices. SoCal Edison states that an ex ante approach will likely 

make it easier to establish a clearing price for the service, whereas an ex post 

performance payment ensures the market only pays for what was delivered.183

120. Both ESA and Beacon recommend that the Commission allow the RTOs and ISOs 

to base their compensation schemes on a single bid if it so chooses; that

ISO-NE, one bid can be submitted reflecting the costs of frequency regulation capacity

and from this, the payment for both capacity and performance can be determined. 

son May 2, 2011 Comments at 10. 

181 TAPS May 2, 2011 Comments 9-10. 

182 Id. at 10. 

183 SoCal Edi
Docket Nos. RM11-7-000 and AD10-11-000 - 70 - 

receive half its compensation from the capacity payment and half from its perf

payment. Both ESA and Beacon state that while this does not allow ISO-NE to

ormance 

 optimize 

in real-time like a two-bid market would, it does send the correct price signals to market 

participants.184

iii. Creating a New Ancillary Service Product

121. Various commenters suggest that the Commission specifically define fasterslower-ramping resources, or use speed to distinguish various resources for purposes of 

calculating the performance payment. 

122. For example, Viridity and Starwood/Premium recommend that “fast” and “slow”

resources be treated as different products or offering different services.

 and 

r the provision of frequency regulation service, i.e. make no performance 

payment to slow resour ire that a 

h of ACE correction, rather than a price-per-MW 

of ACE correction.186

 

185 Viridity 

further recommends that the Commission not change how slow resources are 

compensated fo

ces. However, Viridity would have the Commission requ

performance payment be made to fast resources providing frequency regulation service. 

123. Viridity also suggests that the performance payment made to fast responding 

resources be based on the price-per-MW

184 Beacon May 2, 2011 Comments at 31-33, ESA May 2, 2011 Comments 

at 30-32. 

185 Viridity May 2, 2011 Comments at 2. 

in our discussion of accuracy, where 

Viridity’s proposal for an accuracy measure is discussed. Viridity May 2, 2011 

(continued...) 

186 More explanation can be found below 
Docket Nos. RM11-7-000 and AD10-11-000 - 71 - 

124. Manitoba Hydro asserts that when regulation prices are market-based, ancillary 

market design should establish a clearing price that preserves the value ratio between fast 

and slow ramping resources. Manitoba Hydro suggests that this could be accomplished

by establishing fast, medium and slow regulation products, and clearing the market with 

the constraint that more valuable products must clear at a higher price.

illary service 

sponders to changes in ACE. 

187 

125. CAISO argues that system operators could define a fast-ramping anc

product with a ramp requirement based upon a change in output over a period of time, 

such as four seconds. It contends that System operators would then use fast-ramping 

resources as primary re

iv. Other Comments Regarding the Performance 

Payment

126. SoCal Edison adds that after market system design, each market will have to be 

scrutinized for criteria such as barriers to entry. If analyzing the new system does not 

reveal workable competition, then the Commission will have to define market power 

mitigation before letting such markets run.

127. TAPS does allow that in some necessary instances, regional market designs should 

provide for mitigation, and it may well be appropriate to mitigate offers down to an 

administratively-determined level where the resource is indifferent between providing 

 

188

Comm

ba Hydro May 2, 2011 Comments at 4. 

ents at 6. 

187 Manito

188 SoCal Edison May 2, 2011 Comments at 10. 
Docket Nos. RM11-7-000 and AD10-11-000 - 72 - 

frequency regulation service (actual movement up and down) and remaining steady at 

given set point.189

a 

c. Commission Determination

i. Market-based Pricing versus Administrativelydetermined Prices

128. The Commission will require use of a market-based price, rather than an 

administratively-determined price, on which to base the frequency regulation 

performance payment. This price must reflect the market participant bids submitted by 

 Additionally, unlike an administratively-based price, which could be 

subject to a p tive process each time the 

price was changed, and 

need for frequency regulation, thereby providing market participants with an efficient 

price signal. 

129. Further, as PJM states, a market-based price can be efficiently and accurately 

modeled in the market-clearing algorithm. For these reasons, we find it just and 

 

resources for the provision of frequency regulation service. As commenters note, a 

market-based price for frequency regulation will encourage market participants to 

accurately bid their cost to provide the service. A resource that chooses to increase its 

offer price could find itself in a position of not being dispatched and, therefore, losing 

potential revenues.

otentially lengthy stakeholder and/or adjudica

a market-based price will better reflect current system conditions

189 TAPS May 2, 2011 Comments 10. 
Docket Nos. RM11-7-000 and AD10-11-000 - 73 - 

reasonable to require that all RTOs and ISOs base their payment for frequency regu

service on a market-based price. 

130. However, as described more fully in the next section, unlike what was proposed

the NOPR, we will not require a specific methodology for how that market-based price 

shall be determined. We will not mandate specific bidding parameters or other techni

details that will determine the pricing methodology. We will require two-part bidding; 

though we are mindful that CAISO and ISO-NE each noted the expected difficulty or 

ease with whi

lation 

 in 

cal 

ch the proposed NOPR changes can be integrated into existing market 

s and 

earing algorithms that determine dispatch. The 

solution software. ISO-NE’s concerns about two-part bidding, in particular, are 

addressed by the flexibility we will allow in the bidding parameters that the RTO

ISOs may use and in that we will not mandate a specific method by which the RTOs and 

ISOs must specify their market-cl

Commission recognizes that two-part bidding solutions are not insignificant problems.190 

However, they can be overcome, and we believe the time-frame that we have required 

will allow sufficient time to overcome such hurdles. Beyond this, the Commission will 

withhold judgment on the RTOs and ISOs’ specific proposals until receiving the 

compliance filings ordered below. As TAPS states, market participants have invested 

heavily in market software and hardware, and the different regional markets operate 

 

 The problem of simple scoring rules used to solve two-part bids is illustrated,

for example, in Swider, Derk J. “Efficient Scoring-Rule in Multipart Procurement 

Auctions for Power System Reserve” IEEE Transactions on Power Systems, 22(4): 

1717-1725. 

190
Docket Nos. RM11-7-000 and AD10-11-000 - 74 - 

slightly differently in how their markets function. We conclude that mandating a 

standardized solution on this issue could result in significant costs and disruption of 

existing stakeholder processes. Therefore, we will allow the RTOs and ISOs to 

determine how to implement the market-based pricing we are mandating, as discu

the compliance section below. 

ii.

ssed in 

Calculating the Performance Payment and Bidding 

Parameters

131. Because RTO and ISO markets do not all operate in the same manner, the 

Commission will not mandate a particular form that the performance payment must take. 

Nor will we mandate specific bidding parameters or other technical specifications 

(including requirements for qualification as a regulation resource). Given regional 

differences, we direct the RTOs and ISOs to propose the specific technical requirements 

that will meet the requirem le. We will require, however, that the 

me 

ying a 

calcula

ents of this Final Ru

clearing performance price be paid uniformly to all resources cleared during the sa

settlement period, for the same reasons discussed above. A uniform clearing price sends 

an efficient price signal to all current and potential market participants. Further, pa

uniform clearing price in this instance is consistent with long-standing Commission 

policy.191 

132. While several commenters state their preference for a particular method for 

ting the performance payment, there is no compelling evidence that one method 

 191 See supra n.153. 
Docket Nos. RM11-7-000 and AD10-11-000 - 75 - 

will work best in all RTOs and ISOs. As CESA notes, there could be more than one 

efficient way to compensate performance; but resources should be paid a uniform price 

for their frequency regulation service. 

133. In addition, we clarify that the NOPR proposal was not intended to tie the 

performance payment explicitly to a resource’s ACE correction. The performance 

f 

. A resource’s performance must be measured 

 and 

ed 

 

payment proposed in the NOPR was based on the amount of up and down movement, in 

megawatts, the resource provides in response to a control signal.192 We recognize that, i

an RTO or ISO were to compensate a resource based on how well it corrects ACE, 

resources would have the incentive to try to second-guess dispatch signals in an effort to

meet this potentially contradictory goal

based on the absolute amount of regulation up and regulation down it provides in 

response to the system operator’s dispatch signal. 

134. In response to SoCal Edison’s argument that any performance payment system 

should only pay for services actually provided, the Commission agrees and believes that 

measuring accuracy, as is required below, will account for this. In response to OMS

VCharge, who question the need for both a price-per-MWh ramping capability and priceper-MW of ACE correction, the Commission did not intend to state that there was a ne

for both alternatives.193

 ¶ 61,124 at P 34 and 37. 

ce should have read “Specifically, 

resources e to provide regulation, a ramp rate 

(continued...) 

192 NOPR, 134 FERC

193 See 134 FERC ¶ 61,124 at P 38. The senten

 would specify the capacity (in MW) availabl
Docket Nos. RM11-7-000 and AD10-11-000 - 76 - 

iii. Creating a New Ancillary Service Product

135. In response to Manitoba Hydro and other comments, we do not believe it is 

necessary to define faster- and slower-ramping resources or use speed to distinguish 

among resources to create new ancillary services products based on the ramping speed in 

the context of this rulemaking. The purpose of this Final Rule is to remedy undue 

discrimination in compensation for the existing frequency regulation service employed by 

RTOs and ISOs by ensuring that frequency regulation resources are compensated based 

on individual performance and ensure that all eligible resources, not just traditional 

resources and not just non-traditional resources, providing frequency regulation service 

within RTO or ISO regulation markets are compensated at the just and reasonable rate. 

While we do not choose to require additional categories of ancillary services based on 

ramping speeds in the context of this rulemaking, we do recognize that there may be 

value in having a certain level of granularity in defining the ancillary service products. 

Most of the ancillary services are defined by certain characteristics, and we understand 

that numerous different ancillary service products could be created based on the 

characteristics of different suppliers. We understand that the RTOs and ISOs and market 

monitors will continue examining the ancillary service product definitions and may 

propose to create new ancillary services as market needs evolve.194

 

See, e.g., CAISO’s flexible ramping constraint, available at

(continued...) 

(in MW/min), and bid into the market a price-per-MWh ramping capability or price-perMW of ACE correction.” 

194
Docket Nos. RM11-7-000 and AD10-11-000 - 77 - 

iv. Other Comments Regarding the Performance 

Payment

136. As to SoCal Edison’s and TAPS’s concerns about the issue of market power 

mitigation, we agree that there may be circumstances under which an RTO or ISO may 

wish to test for market power and potentially impose mitigation. We note that the 

Commission has approved market power mitigation in frequency regulation markets.195 

This rule requires fundamental changes to the way RTOs and ISOs procure and 

compensate frequenc O 

market power rules insufficient for purposes of addressing market power concerns. 

Given the Commission’s recognition of the need for proper mitigation methods in the 

current RTO and ISO markets, we will require the RTOs and ISOs either to submit tariff 

provisions for market power mitigation methods appropriate to redesigned frequency 

regulation markets or to explain how their current mitigation methods are sufficient to 

address market power concerns given the changes required in this rulemaking. 

y regulation resources, which may render existing RTO and IS

3. Accuracy

a. NOPR Proposal

137. The Commission proposed that the performance payment reflect the resource’s 

accuracy in following the system operator’s dispatch signal. Specifically, the 

 

http://www.caiso.com/informed/Pages/StakeholderProcesses/FlexibleRampingConstraint.

aspx. 

195 See PJM Interconnection, LLC, 125 FERC ¶ 61,231 (2008). 
Docket Nos. RM11-7-000 and AD10-11-000 - 78 - 

Commission proposed that the accuracy be measured by the RTO or ISO using 

currently available telemetry technology. If an RTO or ISO receives telemetry data every 

10 seconds, for instance, it would be able to measure over the course of 5 minutes how 

often the resource was delivering exactly the megawatts requested. The resource would 

 the energy it provides that was in the 

196

then be compensated for the fraction of its mileage that met the dispatch signal. This 

would provide a disincentive to deviate from the dispatch signal, which incorporates 

actual ramping ability. 

138. The Commission noted that there was little agreement among the technical 

conference panelists on how accuracy should be incorporated into the frequency 

regulation market design. Therefore, the NOPR sought comments on alternative 

methods, including methods to incorporate accuracy into the ACE correction calculation. 

The Commission posited that it is possible to approximate how a resource contributes to 

correcting ACE by taking the difference between

direction needed to correct ACE at any moment and the energy that was in the direction 

opposite to what was needed to correct ACE. Thus, a resource’s payment for ACE 

correction could only include the MWh that were actually correcting ACE. The 

Commission sought comments on how to structure payments for frequency regulation 

that compensate a resource for its contribution to ACE correction. We sought comment 

on whether this method could result in a resource being penalized through lower mileage 

even when it is following the system operator’s dispatch signal.

 196 NOPR, 134 FERC ¶ 61,124 at P 40. 
Docket Nos. RM11-7-000 and AD10-11-000 - 79 - 

b. Comments

139. A number of commenters state their support for some form of accuracy adjustme

for frequency regulation service performance payments.

nt 

ure of how the 

resource contributes to AC Several also emphasize the importance of 

o 

con 

y 

 

197 Most, however, are clear in 

their recommendation that an accuracy measure reflect how accurately a resource follows 

the system operator’s dispatch signal and not be based on any meas

E correction. 

allowing RTOs and ISOs flexibility in how they devise their own accuracy measures. 

140. Beacon, CESA, and ESA state that an accuracy metric will encourage resources t

accurately respond to the control signal sent by the ISO and will ensure that the 

performance payment is truly tied to the resource’s actual service provided.198 Bea

and ESA state that the NYISO’s performance index is a good example of an accurac

metric. Beacon also states that, while NYISO provides a good model, the 30 second 

snapshot of accuracy is too slow to capture the accuracy of a storage resource that can 

dramatically change its output each 6 second AGC cycle. Therefore, Beacon 

197 Alcoa May 2, 2011 Comments at 2, Beacon May 2, 2011 Comments at 38-39, 

CESA ments at 34-36, Duke 

May 2, 2011 Comments at 7, EDF May 2, 2011 Comments at 21, ENBALA May 2, 2011 

Comm

s 

 May 2, 2011 Comments at 11, ESA May 2, 2011 Com

ents at 3, IRC May 2, 2011 Comments at 3-4, ISO-NE May 2, 2011 Comments at 

6-8, NEPOOL May 2, 2011 Comments at 10, Manitoba Hydro May 2, 2011 Comment

at 3, NYISO May 2, 2011 Comments at 2 and 4-5, OMS May 2, 2011 Comments at 6-7, 

PJM May 2, 2011 Comments at 7-8, Powerex May 2, 2011 Comments at 9-10, Primus 

Power May 2, 2011 Comments at 6, SoCal Edison May 2, 2011 Comments at 2, Viridity 

May 2, 2011 Comments at 4-5, and Xtreme Power May 2, 2011 Comments at 7. 

198 Beacon May 2, 2011 Comments at 38, CESA May 2, 2011 Comments at 11, 

ESA May 2, 2011 Comments at 34. 
Docket Nos. RM11-7-000 and AD10-11-000 - 80 - 

recommends that any accuracy metric be capable of measuring performance each AGC 

dispatch cycle and account for any latency in the ISO’s dispatch software.199 Further, 

Beacon and ESA warn that compensating a resource for accuracy alone is not sufficie

to send efficient price signals. They contend that the accuracy adjustment must be tied 

a performance payment.

nt 

to 

ENBALA, Manitoba Hydro supports an accuracy measure 

MW of up and down movement any movement that is not in the direction of correcting 

ACE. They state that this could penalize a resource even when it is following the system 

operator’s dispatch signal, but that this is appropriate because it further aligns the 

 

200

141. ENBALA believes that a real-time accuracy metric should be calculated by the 

RTO or ISO to reflect how accurately the regulation provided by a resource follows the

regulation requested. But ENBALA cautions that the accuracy metric should take into 

account the time needed to communicate data and the frequency with which the dispatch 

signal can change.201 Like 

provided that telemetry update frequency and latency are adequately considered.202

142. In response to the Commission’s inquiry about whether a resource should be 

compensated for performance when it is moving in a direction that is against ACE, 

Beacon, CESA, and ESA recommend subtracting from the sum of the resource’s total 

 

199 Beacon May 2, 2011 Comments at 38. 

omments at 35. 

202 Manitoba Hydro May 2, 2011 Comments at 3. 

200 Beacon May 2, 2011 Comments at 38, ESA May 2, 2011 C

201 ENBALA May 3, 2011 Comments at 3. 
Docket Nos. RM11-7-000 and AD10-11-000 - 81 - 

payment the resource receives with the value it provides to the grid.203 At the same tim

Beacon and ESA acknowledge that a reward or penalty structure should not change 

e, 

the 

ovide an incentive to 

s 

 

 

requirement that a resource follow the operator’s dispatch signal.204

143. Duke agrees with the Commission’s proposal that a resource’s accuracy in 

following a dispatch signal should be compensated through a performance payment. 

However, Duke does not agree with the proposal that a resource be penalized if its MWh

contribution works against needed ACE correction yet is compliant with the system 

operator’s dispatch signal. Duke cites the situation where a system operator is 

dispatching resources, but the dispatch signal is not designed just to correct ACE.205

144. The IRC, ISO-NE, NEPOOL, CAISO, PJM, MISO, NYISO, OMS, and SoCal 

Edison recommend that the accuracy metric should be designed to pr

follow operational instructions that facilitate compliance with the system operator’

dispatch signal, rather than focusing narrowly on rewarding ACE correction efforts.206

ISO-NE asserts that compensation for accuracy should not be based solely on how well 

203 Beacon May 2, 2011 Comments at 39, CESA May 2, 2011 Comments at 11, 

ESA May 2, 2011 Comments at 35-36. 

204 Beacon May 2, 2011 Comments at 40, ESA May 2, 2011 Comments at 36. 

205

206 omments at 6-8, 

NEPO

-8, MISO May 2, 2011 Comments at 7-8, 

NYISO May 2, 2011 Comments at 2, OMS May 2, 2011 Comments at 6-7, SoCal Edison 

May 2

 Duke May 2, 2011 Comments at 7. 

 IRC May 2, 2011 Comments at 3-4, ISO-NE May 2, 2011 C

OL May 2, 2011 Comments at 10, CAISO May 2, 2011 Comments at 12-14 and 

18-19, PJM May 2, 2011 Comments at 7

, 2011 Comments at 2. 
Docket Nos. RM11-7-000 and AD10-11-000 - 82 - 

resource output tracks ACE. It contends that this creates an incentive for a reso

owner to ignore, or second-guess, an ISO’s dispatch signal. ISO-NE explains that ce

urce 

ntral 

d 

how 

nd offer 

at this 

etermination of frequency regulation 

service eligible for compensation, or into other measures of regulation performance 

that ma rent regions of the country.208 

ISO-N

dispatch allows an ISO to take advantage of its superior information to produce a 

coordinated AGC dispatch that produces the lowest cost result. This dispatch may differ 

from the outcome that would result from resources individually chasing after the 

expected ACE needs or otherwise second-guessing the operator’s dispatch signal. 

CAISO suggests that paying for response to a control signal rather than ACE correction 

would be easier to implement, avoids potential adverse impacts to slow resources, an

does not tie compensation to one measure of ACE. 

145. At the same time, ISO-NE warns that compensation not be based solely on 

closely a resource tracks its AGC dispatch signal. ISO-NE imagines a situation where 

frequency regulation resources actually reduce their reported ramping capability a

in less capacity in order to more easily follow the dispatch signal. ISO-NE states th

could defeat the entire purpose of paying for performance.207 With this in mind, ISO-NE

recommends that the Commission adopt a final rule that provides the flexibility for 

accuracy considerations to be incorporated into the d

y be more appropriate for RTOs and ISOs in diffe

E also notes that measuring accuracy is complex because it requires knowing the 

 207 ISO-NE May 2, 2011 Comments at 6-7. 

208 Id. at 8. 
Docket Nos. RM11-7-000 and AD10-11-000 - 83 - 

realistic performance characteristics of each resource and presumes reliable 

instrumentation and dependable communications.209 NEPOOL supports retaining 

ISO-NE’s current method of measuring performance.210

146. In addition, CAISO argues that linking the performance payment to ACE 

correction adds unnecessary complexity to settlement of regulation transactions.211 

MISO also raises the concern that the introduction of an accuracy consideration to th

performance payment could require substantial modifications to existing RTO and ISO 

algorithms, and other dispatch and accounting tools.

e 

 the dispatch 

ommission’s proposal but offer 

us 

 

212

147. OMS is concerned both about technical issues, such as needed telemetry, as well 

as, for example, a situation where a resource is following dispatch instructions, but those

dispatch instructions are contrary to ACE. In that case, a resource following

instruction should not be penalized, OMS says.213

148. Primus Power and Viridity generally support the C

their own versions of how accuracy should be measured. As describes above, Prim

Power recommends that "net energy contribution" be the metric used to determine 

performance payment. It defines this as the total MWh delivered by the resource in the

 May 2, 2011 Comments at 10. 

ay 2, 2011 Comments at 18-19. 

209 Id. at 6. 

210 NEPOOL

211 CAISO M

212 MISO May 2, 2011 Comments at 8. 

213 OMS May 2, 2011 Comments at 7. 
Docket Nos. RM11-7-000 and AD10-11-000 - 84 - 

direction of the control signal minus the total MWh delivered against the control signal 

(or delivered in excess of the control signal). Primus Power would use this as the basis 

e 100 percent of its performance 

urces 

on which to base a resource’s performance payment.214

149. Viridity recommends an accuracy measure that can be broken into three types of 

performance. A resource that performs perfectly delivers exactly the MWh as dispatched 

by the system operator. This resource would receiv

payment. A resource that does not deliver the exact amount requested through the 

dispatch signal, but which nonetheless is delivering frequency regulation service in the

direction requested would only receive a fraction of its performance payment. Reso

that move in the opposite direction of the dispatch signal will face a charge. 

150. Viridity recommends that accuracy be measured over what it describes as a 

reasonable number of intervals of the frequency regulation signal. It cites 4 intervals, or

every 16 seconds in the case of a 4 second signal.215

c. Commission Determination

151. The Commission finds that measuring and accounting for accuracy in a resource’s 

compensation is just and reasonable and will encourage resources to report accurately

their achievable ramp rate and to follow the system operator’s dispatch instructions.

Commission also finds it appropriate to base a resource’s accuracy on how well it follow

 The 

s 

the dispatch signal and not on its contribution to correcting ACE. Indeed, we note that no 

 

ents at 6. 214 Primus Power April 18, 2011 Comm

215 Viridity May 2, 2011 Comments at 4-5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 85 - 

commenters argue against accounting for frequency regulation service providers’ 

accuracy. 

152. First, as the RTOs and ISOs and others note, the system operator does not al

use the AGC signal to correct ACE to zero. There are situations where a resource can be 

given an AGC signal that is calibrated to anticipate ch

ways 

anges in ACE. Second, as noted 

above, to base accuracy on en the door to resources 

sources 

nomic incentive to follow dispatch signals. 

or 

l 

will m he work that frequency regulation 

resources perform for the system operator. We direct the RTOs and ISOs to determine 

ACE correction would be to op

second-guessing dispatch signals and under-reporting their actual ramping capability. 

Neither of these would be a desirable outcome. Indeed, a system operator faced with a

fleet of resources with suddenly slower ramp rates would be forced to procure more 

frequency regulation capacity in order to be sure of reliable operations. Further, the 

system operator needs to have the confidence that when a dispatch signal is sent, 

resources will respond to it as directed. This is best accomplished by providing re

with an eco

153. Therefore, we will require all RTOs and ISOs to account for frequency regulation 

resources’ accuracy in following the AGC dispatch signal when determining the 

performance payment compensation. However, we will not mandate a certain method f

how accuracy is measured. For instance, we will not, contrary to Beacon’s request, 

mandate that the system operator measure response on the same frequency as the AGC 

signal (i.e., every 4 or 6 seconds). In combination with the performance payment, 

accounting for accuracy by tracking how closely a resource follows its dispatch signa

eet the goal of having compensation reflect t
Docket Nos. RM11-7-000 and AD10-11-000 - 86 - 

the technical specifications of measuring accuracy. We will not pre-judge the method

measuring accuracy presented by Primus Power and Viridity. Any stakeholder m

the standard RTO and ISO stakeholder processes to suggest how best to measure 

accuracy. The RTOs and ISOs are in the best position i

s of 

ay use 

n the first instance to design a 

at 

d 

have 

method for measuring accuracy which works with their system. 

154. However, we will require the RTOs and ISOs to use the same accuracy 

measurement method for all resources. That is, the RTO or ISO may not develop an 

accuracy metric that applies to one class of resources and another accuracy metric th

applies to other resources. Doing so would move in the direction of creating a “fast” an

“slow” regulation service which we have declined to do. The RTOs and ISOs will 

flexibility in how the designed method is used to determine accuracy (e.g., the method 

could be used to define an accuracy threshold or it could be used to define a resourcespecific performance payment multiplier), but all resources have to be measured on the 

same basis. This flexibility will address comments that we should allow RTOs and ISOs 

to acknowledge the realistic performance characteristics of the resources providing 

frequency regulation service. 

4. Net Energy

a. NOPR Proposal

155. As explained in the NOPR, currently, regulating resources receive a pay

charge) for the net energy injected (or withdrawn) as a result of providing regulation 

service in every RTO and ISO market. The Commission sought comment on the 

appropriateness of retaining net energy payments in light of the two-part payment 

ment (or 
Docket Nos. RM11-7-000 and AD10-11-000 - 87 - 

proposed in the NOPR.216 Specifically, the Commission sought comment on whether the

provisions in existing tariffs for net energy payments are redundant given the proposed 

requirement discussed herein that all RTOs and ISOs must pay regulating resources a 

mileage payment for the ACE correction service they provide, or whether this payment i

a necessary, appropriate feature of day-ahead and real-time energy account balancing and 

settlement. 

b.

s 

Comments

156. Many com retaining net energy balancing. ESA and CESA state 

that hourly n nce Payments are not redundant. ESA and 

e 

ergy 

menters support 

et-energy payments and Performa

CESA state that both types of payments are needed to ensure appropriate compensation 

of frequency regulation providers.217 ENBALA agrees that net energy payments in th

existing tariffs should be maintained.218 Occidental also agreed, stating that net en

payments must be maintained in order to 1) recognize the true cost of frequency 

regulation service, 2) avoid subsidization of inefficient providers and 3) avoid inefficient 

market outcomes.219 Powerex suggests that the Commission should require RTOs and 

ISOs to continue to settle net energy in each five-minute interval.220 Xtreme Power 

 

218

216 NOPR, 134 FERC ¶ 61,124 at P 41. 

217 ESA May 2, 2011 Comments at 36, CESA May 2, 2011 Comments at 12. 

 ENBALA May 2, 2011 Comments at 10. 

219 Occidental May 2, 2011 Comments at 4. 

0. 220 Powerex May 2, 2011 Comments at 1
Docket Nos. RM11-7-000 and AD10-11-000 - 88 - 

reasons that es should be paid—or pay for—the energy they 

, 

t 

tility in 

d 

f 

net energy balancing.225 PIOs recommend that the Commission not allow what they view 

 

frequency regulation resourc

inject or withdraw. It argues that any net purchases of energy should be charged to 

storage-based frequency regulation providers at wholesale rates.221 NEPOOL explained 

that while mileage payments compensate for what is done in the regulation market; 

hourly net-energy payments are part of the compensation for what is done, and not done

in the energy market.222 Primus Power recommends retaining a separate payment for ne

energy, stating that this will ensure that capacity bids are not distorted by the vola

the real-time energy market.223

157. SoCal Edison states that there are two fundamentally disparate ways to treat net 

energy balancing. One is to charge or credit a resource for its net real-time energy an

the other is to exempt frequency regulation resources from such crediting and charging. 

Because, SoCal Edison states, the specific market design impacts the final outcome o

using either method, it recommends that the Commission not mandate one particular 

method for treating net energy balances.224

158. On the other hand, Manitoba Hydro states that RTOs and ISOs should eliminate 

7. 

 9. 

. 

221 Xtreme Power May 2, 2011 Comments at 8. 

222 NEPOOL May 2, 2011 Comments at 12. 

223 Primus Power May 2, 2011 Comments at 

224 SoCal Edison May 2, 2011 Comments at

225 Manitoba Hydro May 2, 2011 Comments at 4
Docket Nos. RM11-7-000 and AD10-11-000 - 89 - 

as a redundant payment mechanism. Instead, PIOs recommend that the Commission only

allow the retention of net energy balancing and remuneration if the RTOs and ISOs can 

show that this payment is distinct from the service that will be compensated under the 

y 

ill remove a significant barrier to the 

ispersed 

should be afforded the opportunity to provide regulation without being required to 

participate in the wholesale energy market and meet the associated requirements that 

could be cost-prohibitive for small resources. Other ISOs, however, have not 

 

NOPR’s proposal, and that such payment is necessary and not redundant.226

159. Beacon explains that tariffs that require energy storage facilities to purchase 

energy when providing “regulation down” without allowing for a corresponding energy 

settlement payment when the facility provides “regulation up” creates a financially 

infeasible situation within which these resources can operate. Tariffs that allow energ

storage to settle their energy on a net basis w

participation of energy storage projects connected at transmission.227 

160. ISO-NE suggests that net energy payments not be mandated for storage resources 

in the Final Rule, as, for instance, expensive metering requirements designed for 

generators would preclude participation from a number of promising technologies that 

aggregate resources to provide regulation. ISO-NE asserts that small aggregated 

resources that take electric service at the retail level and are geographically d

228

14-15. 

226 PIOs May 2, 2011 Comments at 9. 

227 Beacon May 2, 2011 Comments at 40-41.

228 ISO-NE May 2, 2011 Comments at 
Docket Nos. RM11-7-000 and AD10-11-000 - 90 - 

incorporated net energy payments into their regulation markets. PJM argues that alt

existing energy market provisions will likely result in other unintended consequences or 

will create a disincentive to provide frequency regulation service.

ering 

229 

c. Commission Determination

161. Upon consideration of the comments received, the Commission will take no

at this time on net energy balancing as it is currently used in the RTOs

 action 

 and ISOs; RTOs 

ire that 

ween 

the 

ect of 

 price when 

charging but is not likewise credited when discharging that power in response to a 

frequency regulation signal is put in an untenable financial position. We find that 

Beacon’s c O rules. Frequency regulation 

 

and ISOs may retain their current rules in this regard. Given the market rule changes 

being required above, the Commission currently does not find it necessary to requ

RTOs and ISOs change their existing methods for netting injections and withdrawals of

energy over the settlement period. In CAISO, for instance, there is no relation bet

the provision of frequency regulation service and netting of energy. In other markets, 

treatment of net energy is different. SoCal Edison makes the valid point that the eff

the rules governing treatment of net energy balances depends on the specific market 

design into which they are integrated. As PIOs suggest, net energy balancing can be an 

integral part of the RTOs’ and ISOs’ accounting and system balancing and we will 

impose no requirements concerning this issue at this time. 

162. Beacon states that a storage resource that must pay the real-time

oncern is addressed by current RTO and IS

229 PJM May 2, 2011 Comments at 9. 
Docket Nos. RM11-7-000 and AD10-11-000 - 91 - 

resources are charged at the real-time price for energy withdrawals and credited for 

energy injections. 

5. Technical Issues

a. Comments

163. Several commenters raise concerns over a variety of technical issues ranging from 

the definition of ramp rate, to software issues, to the substitutability of new technologies 

for old. 

164. On the issue of ramp rate, Alcoa states that existing market designs are ill suited 

for non-traditional resources, and RTOs and ISOs tend to develop models that force these 

resources to conform to the traditional design rather than create unique models. Alco

refers to the current clearing mechanism, which multiplies a resource’s ramp rate by five

minutes. Alcoa argues that this design limits its ability to provide demand response

which is full range responsive in one minute, to nearly one 

a 

, 

fourth of its ramping 

eased 

te 

231

uld 

new 

O would have to develop a settlement system based on more granular 

 

capability. Alcoa claims that this leads to inefficient utilization of resources and incr

costs. 230 Similarly, SunEdison asserts that limiting performance to a MW per minu

ramp response discriminates against resources that can respond in MW per second.

165. Concerning software, CAISO claims that implementation of the Final Rule wo

present considerable technical challenges. CAISO states that in addition to creating 

charge codes, CAIS

230 Alcoa May 2, 2011 Comments at 5-6. 

231 SunEdison May 2, 2011 Comments at 2-4. 
Docket Nos. RM11-7-000 and AD10-11-000 - 92 - 

telemetry tha ttlement interval. According to CAISO, at least 

12 months w test and implement the Commission’s proposed 

and processes.232

 

n the current 10 minute se

ould be required to design, 

performance payment mechanism. As such, CAISO requests the Commission provide a 

minimum of 18 months after the issuance of the Final Rule to implement necessary 

systems 

166. Similarly, ISO-NE claims that formulating a design that seeks to co-optimize 

energy, reserves, and regulation, particularly where correctly determining inter-temporal 

opportunity costs for storage resources might require an optimization horizon spanning 

hours or days, is a daunting technical challenge. It argues that formulating such a design 

might require a complete overhaul of existing real-time dispatch algorithms.233

167. On the other hand, CESA states that the Commission should ensure 

implementation of the Final Rule is not delayed by computer software. CESA argues that 

there is no reason why the compensation method as set forth in the NOPR cannot be 

integrated into system operators’ existing co-optimization algorithms.234 Beacon and 

ESA argue that while some flexibility may be required, delaying the implementation of 

the Final Rule would send inappropriate price signals to investors in energy storage 

technology that would be detrimental to the industry.235

233 ISO-New England May 2, 2011 Comments at 9-13. 

234 CESA May 2, 2011 Comments at 10. 

235 Beacon May 2, 2011 Comments at 36-37; ESA May 2, 2011 Comments 

(continued...) 

232 CAISO May 2, 2011 Comments at 20-22. 
Docket Nos. RM11-7-000 and AD10-11-000 - 93 - 

168. Raising concerns about technical substitutability of resources, EEI asserts that 

advantages in speed may be offset by a non-traditional resource’s lack of sustainabil

automatic response. EEI a

ity or 

rgues that pricing policies must consider the needs of the entire 

izes 

ng their 

 may cause 

 and 

 

system including the proper mix of resources to minimize system impacts. EEI theor

that excessive use of fast acting resources may cause a balancing authority to require 

more traditional resources to offset the risk of being shorted.236

169. Similarly, several commenters, including SoCal Edison, ISO-NE, CAREBS, and 

EPSA assert that over-emphasis on faster regulation resources without consideri

ability to provide sustained energy (for as long as, for example, 15 minutes)

overcorrection, decreased reliability, and increased costs.237CAREBS suggests that the 

Commission should consider how to compensate resources that are both fast-ramping

long-duration.238

170. Likewise, CAISO argues that a fleet of resources that can respond accurately to 

dispatch signals for an appropriate duration is more valuable than resources that can 

at 33-3

SoCal Edison May 2, 2011 Comments 

at 5-6, CAREBS May 2, 2011 Comments at 6-8. 

EBS May 2, 2011 Comments at 6-8. 

4. 

236 EEI May 2, 2011 Comments at 8-9. 

237 EPSA May 2, 2011 Comments at 6-7, 

238 CAR
Docket Nos. RM11-7-000 and AD10-11-000 - 94 - 

respond quickly. CAISO therefore states that rules should compensate resources that 

respond accurately rather than simply quickly.239

171. ENBALA further expresses a concern that fast-responding resources could cause 

reliability issues in the power system by creating resonance conditions with inter-area 

oscillations if they respond to AGC signals with time constants less than 10 seconds. 

explains that inter-area oscillations occur as a result of an imbala

It 

nce of generation and 

. When there is insufficient or negative damping, the oscillations will 

s of resources need to be maintained 

above a safe level so as to eliminate this reliability risk. It recommends that NERC be 

allowed at AGC control action within this time-

 

system load. It argues that, within an interconnection, some generators will respond 

differently to load changes depending on their distance to the load center, which will 

cause some units to speed up or down more than others. As the generators change their 

speed by a small amount the power flow between the generators will change. Once this

imbalance occurs, ENBALA contends, all generators will continually move with or 

against each other

be sustained, or increase, which ENBALA states can cause damage to the power 

system.240

172. ENBALA argues that fast responding resources should be integrated in the 

regulation fleet, but it states that the response time

 to assess the potential reliability risk th

7. 

239 CAISO May 2, 2011 Comments at 16. 

240 ENBALA May 2, 2011 Comments at 6-
Docket Nos. RM11-7-000 and AD10-11-000 - 95 - 

frame represents before the Commission accepts the proposed incentive structure for 

frequency regulation in the wholesale electricity market.241

173. EnerNOC claims that the Commission’s proposed telemetry requirements 

represent a burden to demand response participation by end-use customers. EnerNOC 

asserts that an aggregated load management data system can meet reporting requirem

without forcing each individual end-use customer to conform to a system operator’s 

normal telemetry requirements. Accordingly, EnerNOC encourages the Commission to 

allow for flexible RTO or ISO telemetry requirements for frequency regulation 

services.

ents 

qual the 

egulation down. Xtreme Power asserts that “drift” interferes with the ability 

ro 

n 

eir frequency regulation 

 

242

174. Xtreme Power states that pilot programs in several ISOs have identified “drift” in 

their frequency regulation signal, whereby the amount of regulation up does not e

amount of r

of energy-limited resources to provide regulation service, and suggests that a net ze

energy balance regulation signal be implemented to address this concern. In addition, 

Xtreme Power questions whether RTOs and ISOs use frequency regulation service to 

provide other functions due to legacy control practices, thereby placing an undue burde

on buyers and sellers of regulation. Xtreme Power therefore urges the Commission to

require each RTO and ISO report on the nature of drift in th

omments at 3. 

241 Id. at 7. 

242 EnerNOC May 2, 2011 C
Docket Nos. RM11-7-000 and AD10-11-000 - 96 - 

markets, the causes of such drift, and options to mitigate drift to allow for fair 

competition between generators and other resources.243

175. ENBALA also raises the issue of what they term as an energy bias or lack of 

energy neutrality in the frequency regulation dispatch signal as a potential barrier to e

for energy storage devices and demand response.

ntry 

 energyrces and that is energy neutral, and another signal that still contains the 

e 

st 

nd, 

 a ramp 

 

244 ENBALA describes a method by 

which the signal could be split into two different signals, one that is sent only to

limited resou

energy bias for other resources. 

176. Jack Ellis recommends an examination of the costs, benefits, and technical 

feasibility of an approach that uses smaller market intervals and allows providers of 

flexibility to update their price/quantity offers more frequently than is typically the cas

today.245 Mr. Ellis claims that this is simply an extension of intra-hour markets that mo

RTOs and ISOs currently operate, with two modifications. He contends that the first is

that the time intervals will be shorter. Second, suppliers will be able to revise their 

price/quantity offers more frequently and closer to the start of the market interval; a 

resource would offer to sell or buy back a quantity of energy in an upcoming 30 seco

one minute or five minute interval, rather than providing the grid operator with

243 Xtreme Power May 2, 2011 Comments at 8-10. 

. 244 ENBALA May 2, 2011 Comments at 4-6

245 Jack Ellis April 12, 2011 Comments at 4. 
Docket Nos. RM11-7-000 and AD10-11-000 - 97 - 

rate well ahead of time.246 Mr. Ellis states that this interval could be, in theory, as sh

as the AGC signaling interval, typically four or six seconds, though market intervals of 

30 seconds or one minute may be more practical and equally effective. 

b.

ort 

Commission Determination

177. Regarding Alcoa’s concerns that existing market designs are ill-suited for nontraditional resources, we find, for the reasons stated above, that a mileage-based 

is 

ish to provide 

frequency regulation service must be capable of sustained response for an appropriate 

period as determined by the system operator. Furthermore, linking the performance 

 

performance payment component, as required in this Final Rule, will provide 

compensation that appropriately recognizes a resource’s actual ramp rate capability. 

178. We reject SunEdison’s request to redefine ramp rate. The expression of ramp 

rates in MW per minute does not limit the amount of capacity a resource with faster 

response times may offer into the frequency regulation market. Redefining ramp rate in 

MW per second would do no more than change the scale by which ramp rates are 

reported. 

179. In response to concerns that faster-responding resources will result in less 

sustainable or accurate resources being procured for regulation service, we disagree. Th

Final Rule only modifies the way in which resources are compensated for providing 

frequency regulation. It does not address requirements for qualification as a resource 

eligible to participate in wholesale regulation markets. Resources that w

 246 Id. at 4. 
Docket Nos. RM11-7-000 and AD10-11-000 - 98 - 

payment to a vide an appropriate incentive 

allowed 

 for 

ver-

 faster-responding resources, we note again that currently the RTOs and ISOs 

y. 

ng 

eir 

TOs 

and ISOs are allowed flexibility in complying with the Final Rule to accommodate 

ccuracy as required in the Final Rule will pro

for resources of any speed to accurately follow the system operator’s control signal. 

180. We agree with SoCal Edison’s argument that each RTO or ISO should be 

to determine whether the operator or the market participant is to be responsible

managing energy limitations. Nothing in this Final Rule affects how RTOs and ISOs

manage energy limitations in their systems. 

181. We further emphasize that nothing in this Final Rule requires payments for 

enhanced performance; rather, it requires that resources providing frequency regulation 

be paid for the amount of service actually provided. As to potential impacts from o

reliance on

meet their NERC-required reliability standards. If an RTO or ISO finds that the 

integration of too much of one type of resource impacts its ability to meet NERC 

reliability standards, we expect that it will take the necessary steps to ensure reliabilit

182. As to comments seeking compensation for resources that are both fast-respondi

and long-duration, we find that such resources will receive appropriate compensation 

under the Final Rule. In addition to receiving a performance payment that rewards the 

provision of frequency regulation service, these resources will be compensated for th

long duration by being able to offer their full regulation capacity for a greater number of

regulation intervals. 

183. In response to EnerNOC’s statement regarding telemetry requirements, we note 

that this Final Rule directs no new telemetry requirements. We also reiterate that R
Docket Nos. RM11-7-000 and AD10-11-000 - 99 - 

regional differences and the needs of their particular region and market, including 

telemetry requirements. 

184. We also reject as outside the scope of this proceeding Xtreme Power’s reque

require reporting on “drift” or energy neutrality in the frequency regulation signal, as we

as ENBALA’s suggestion that RTOs and ISOs use different frequency regulation signal

for different resources. These issues concern a technical issue of dispatch, not 

compensation. However, we note that some RTOs and ISOs have implemented c

to their markets that serve to mitigate the impact of drift on energy storage devices

example, MISO and NYISO have developed market provisions that manage the charge 

sts to 

ll 

s 

hanges 

. For 

rs 

ISO and ISO-NE request that sufficient time be allowed for 

 in 

state of energy storage devices,247 while ISO-NE allows energy storage devices to update 

their bids more frequently.248 We encourage entities to work together with stakeholde

to analyze potential impediments to new technologies in all markets. 

185. CAISO, ISO-NE, and CESA all submit comments on the expected difficulty or 

ease with which the proposed NOPR changes can be integrated into existing market 

solution software. CA

implementation, with ISO-NE going so far as to speculate that including inter-temporal 

opportunity costs might be infeasible and that two-part bidding schemes can be very 

complex. As a general matter, the Commission believes that the deadlines discussed

 247 See MISO, Ene

Attachment D, Section 3

rgy and Operating Reserve Markets Business Practice Manual, 

.26; NYISO, Ancillary Services Manual, Section 4.3.2. 

248 See ISO-NE, Market Rule 1, Appendix J. 
Docket Nos. RM11-7-000 and AD10-11-000 - 100 - 

the compliance section below will allow sufficient time for all RTOs and ISOs to comply.

First, we note that we are not requiring RTOs and ISOs to be responsible for ca

inter-temporal opportunity costs; though we do require that resources be able to include 

such verifiable costs in their bids. We agree with ISO-NE that the decision of who 

should calculate inter-temporal opportunity costs is best left to the RTOs and ISOs. 

Requiring the RTO or ISO to calculate this cost might burden the system operator too 

much; in other RTOs and ISOs, the system operator might find it easier to complete this 

task. Thus, we leave it to the individual RTOs and ISOs, in the first in

 

lculating 

stance, to find the 

-

 The 

ein 

solution that best fits their needs. Second, with regard to ISO-NE’s concerns about two

part bidding, while we do require two-part bidding, we have not specified the specific

technical aspects of how those bids are then used in the market-clearing algorithm. 

Commission recognizes that two-part bidding solutions are not insignificant problems 

that might need to be addressed.249 However, we believe the time-frame set forth her

for submitting compliance filings will allow sufficient time to overcome such hurdles. 

6. Definition of Frequency Regulation

a. Comments

186. Duke seeks clarification of the definition of “frequency regulation,” which Duke 

asserts is defined differently in the NOPR than in the NERC Glossary of Terms. It points 

out that NERC’s definition includes both “primary frequency control” (i.e., turbine 

govern

 

or response) and “secondary frequency control” (i.e., AGC). In Duke’s view, the 

249 See supra note 190. 
Docket Nos. RM11-7-000 and AD10-11-000 - 101 - 

NOPR was not clear as to whether both primary and secondary frequency controls ar

included, although Duke contends that the body of the NOPR suggests that only 

secondary frequency control is included. Duke asks the Commission to clarify this point 

or, in the alternative, to direct NERC and its stakeholders to examine the issue and 

propose a resolution.

e 

rs 

compliance with th

188. MISO argues that the Commission’s proposed definition of frequency regulation is 

etween 

 

250

187. ISO-NE expresses concern that the NOPR defined frequency regulation too 

narrowly by focusing exclusively on responding to ACE to the exclusion of broader 

reliability criteria. It proposes a modified definition of frequency response that conside

that the objective of the regulation market is to provide a means for the balancing 

authority to competitively procure sufficient frequency regulation resources to ensure 

e NERC CPS1 and CPS2 standards.251

inconsistent with the Commission-approved NERC definition. MISO contends that the 

proposed definition characterizes frequency regulation as a response to transmission 

system ACE, while frequency response is separated and defined as an autonomous 

response by generators to system frequency. MISO claims that NERC’s definition, in 

contrast, refers to a systems ability to maintain scheduled frequency, and includes both 

AGC and governor response. MISO argues that there is not a direct correlation b

scheduled frequency and ACE. Furthermore, MISO asserts that NERC’s definition 

250 Duke May 2, 2011 Comments at 3-4. 

ay 2, 2011 Comments at 5-6. 251 ISO-New England M
Docket Nos. RM11-7-000 and AD10-11-000 - 102 - 

appears to encompass both frequency regulation and frequency response as defined 

the Commission. Accor

by 

dingly, MISO requests that the Commission reconsider the 

f 

g 

ons 

, 

roducts.253

em 

 

proposed definition of frequency regulation to avoid potential confusion as a result o

conflicting terms, or limiting the flexibility of the system operator to call on regulatin

resources to maintain system balance and reliability.252 

189. In addition, Invenergy requests that the Commission create standard definiti

and terminology for regulation, with the intention of avoiding confusion, inconsistency

and/or the creation of redundant or extraneous regulation p

190. IRC is also concerned that the proposed definition of frequency regulation in the 

NOPR is focused solely on ACE, which IRC argues is only one component of regulation

service. Instead of rapid response, IRC advocates for “smart response,” which it 

describes as aligning the response characteristics of all available resources with syst

needs to provide the most efficient means of managing frequency regulation in each 

balancing authority Area. IRC notes that a resource with rapid response capability can 

provide significant response to the ACE (i.e., following the ACE both up and down). But

IRC argues that a significant part of that response may be unnecessary if the response

was strictly utilized for a zero-averaging ACE. Alternatively, IRC explains that the 

response could provide significant value if it is directed against a non-zero averaging

ACE, because in that case it would be utilized against the overall system needs rather 

252 MISO May 2, 2011 Comments at 3-5. 

253 Invenergy May 2, 2011 Comments at 3. 
Docket Nos. RM11-7-000 and AD10-11-000 - 103 - 

than to merely “chase” ACE, which, as only one part of the operational equation, does 

not produce the most effective operational response.254

b. Commission Determination

191. The Commission disagrees with Duke’s contention that the NOPR is not clear as 

to whether its definition of frequency regulation includes both primary and secondary 

tor’s 

, 

 order to correct for actual or 

expected Area Control Error needs.” We also address Invenergy’s request for a standard 

 

frequency controls. The NOPR stated, “Frequency regulation service is the injection or 

withdrawal of real power by facilities capable of responding appropriately to a 

transmission system’s frequency deviations or interchange power imbalance, both

measured by the ACE . . . . Frequency regulation is distinguishable from Frequency 

response.”255

192. In response to ISO-NE, MISO, and the IRC’s concerns that the Commission’s 

proposed definition of frequency regulation in the NOPR is too narrow and is 

inconsistent with the Commission-approved NERC definition, we address this issue in

section 3 infra by requiring that accuracy be measured in relation to the system opera

dispatch signal and in by revisions to the proposed regulatory text. As described below

we have revised the regulatory text to define frequency regulation as “the capability to

inject or withdraw real power by resources capable of responding appropriately to a 

system operator’s automatic generation control signal in

 254 IRC May 2, 2011 Comments at 4-5. 

255 NOPR, 134 FERC ¶ 61,124 at P 4-5. 
Docket Nos. RM11-7-000 and AD10-11-000 - 104 - 

definition. T we believe, provides a 

ncy 

e it 

holesale markets: the RTOs and ISOs. 

he alteration to the proposed regulatory text, 

sufficiently detailed definition of frequency regulation to avoid confusion. The definition

avoids the implication that a system operator’s dispatch signal for frequency regulation

resources always aims to drive ACE to zero at any given moment in time, but also 

describes only secondary frequency control and does not include primary freque

control, i.e., frequency response. Further, the Commission finds that the distinction

between the pro forma OATT and this new language will not cause confusion becaus

applies only to the organized w

7. Miscellaneous Issues

a. Comments

193. Several commenters discussed various issues pertaining to barriers to 

participation256 and separating regulation up and regulation down,257 and, a few 

 256

regulation service to units within the RTO or ISO market footprint undermines marke

Accordingly, Powerex requests that the Commission clarify that RTOs and ISOs cann

reliability or deliverability concerns. Powerex May 2, 2011 Comments at 5-6. 

Occidental requests that the Commission revise the definition of demand response to state 

that an increase in load in response to dispatch is also considered demand respons

Occidental May 2, 2011 Comments at 3-4. 

257 Alcoa, AWEA, Occidental and Steel Producers argue that the Commission 

should urge or require separate regulation up and regulation down markets in order to 

recognize the separate value of each service and to promote more efficient regulation 

 For example, Powerex argues that restricting units eligible to provide 

t 

liquidity and discourages the development of competitive regulation markets. 

ot 

unduly restrict participation by external resources and must justify restrictions solely on 

e. 

response. Alcoa May 2, 2011 Comments at 7-8; AWEA May 2, 2011 Comments at 4-5; 

Occidental May 2, 2011 Comments at 1; Steel Producers May 2, 2011 Comments at 2. 
Docket Nos. RM11-7-000 and AD10-11-000 - 105 - 

commenters argue that the Commission should adopt various requirements related t

NERC,258 or storage facilities.259

b.

o 

Commission Determination

194. These issues are beyond the scope of this proceeding, which is limited to 

remedying the existing undue discrimination in the compensation of frequency regulation 

service in the or y markets. This Final Rule is also not 

focused on a but rather is resource-neutral. The directives of 

lation 

ed at the 

the directives of this Final Rule apply only to 

secondary frequency regulation in the organized wholesale electricity markets and not to 

ganized wholesale electricit

ny particular resource type, 

this Final Rule will ensure that all eligible resources providing frequency regu

service within existing RTO or ISO frequency regulation markets are compensat

just and reasonable rate. 

195. We further emphasize that 

primary frequency response. As noted in the NOPR, the Commission has separately 

 258 EEI and Detroit Edison seek a requirement that RTOs and ISOs develop pilot 

programs in consultation with NERC to evaluate the impact of non-traditional resources;

Alcoa argues that NERC performance standards are designed based on tradition

technologies and request that the Commission direct NERC to study the reduction in 

system requirements through integration of nontraditional resources outside the scope

this rulemaking; Duke states that it is unawa

al 

 of 

re of any technical study or NERC standard 

or requirement that would indicate that a faster response to AGC is necessary for reliable 

system

discussed in the Commission’s June 11, 2010 Notice of Request for Comments. See 

Reques

 operations and that RTOs and ISOs are ultimately responsible for determining 

what resources are necessary to comply with the NERC reliability standards. 

259 Starwood/Premium recommends that the Commission consider adapting the 

NOPR proposal to include storage devices that are able to provide multiple services as 

t for Comments Regarding Rates, Accounting and Financial Reporting for 

New Electric Storage Technologies, Docket No. AD10-13-000 (2010) (Storage RFC). 
Docket Nos. RM11-7-000 and AD10-11-000 - 106 - 

released for e of frequency response 

e 

tical 

rwood/Premium’s request that the Commission address in this 

 notes 

s and 

public comment a staff study evaluating the us

metrics as a tool to assess the reliability impacts of varying resource mixes on the

transmission grid.260 However we disagree with commenters who argue that requiring 

the reforms directed herein to ensure just and reasonable rates will provide excessiv

compensation in the secondary frequency regulation markets. We decline to impose 

generic requirements in this Final Rule relating to compensation reforms for other cri

ancillary services. 

196. With respect to Sta

proceeding the storage-related issues raised in the Storage RFC the Commission

that, on June 16, 2011, the Commission issued a Notice of Inquiry that continues our 

examination of storage-related issues.261 Because these issues are being addressed in 

another proceeding, we decline to address them here. 

III. Compliance Requirements and Summary of Commission Determination

Findings

197. In this Final Rule the Commission finds that current methods for compensating 

 

resources for the provision of frequency regulation are unduly discriminatory. To 

remedy this undue discrimination, the Commission finds that it is just and reasonable to 

require all RTOs and ISOs to modify their tariffs to provide for a two-part payment to 

frequency regulation resources. 

 

260 NOPR, 134 FERC ¶ 61,124 at n.610. 

261 Third-Party Provision of Ancillary Services; Accounting and Financial 

Reporting for New Electric Storage Technology, 135 FERC ¶ 61,240 (2011). 
Docket Nos. RM11-7-000 and AD10-11-000 - 107 - 

198. The first part of this payment will be a capacity, or option, payment for keeping a

resource’s capacity in reserve in the event that it is needed to provide real-time freque

regulation service. This payment must be a uniform payment to all cleared resources,

must be a payment that includes the marginal unit’s opportunity costs. The RTO or ISO 

must calculate and 

ncy 

 and 

include in its market-clearing process the cross-product opportunity 

amount of work each resource performs in real-time. This payment must reflect the 

accuracy with which each resource responds to the system operator’s dispatch signal. 

The performance payment must be market-based (i.e., based on resource bids that reflect 

the cost of providing the service). We leave to the RTOs and ISOs to propose such 

details as bidding parameters and other details that may need to vary by market and 

region. 

200. Regarding accuracy, the Commission finds that it is appropriate to tie the 

measurement of a resource’s accuracy to the system operator’s AGC dispatch signal and 

not to AC d ISO must propose a method for 

signal 

it is sent and reflecting that accuracy in the resource’s payment. We do require that the 

costs of each resource offering its capacity. We will leave to the RTOs and ISOs the 

discretion of proposing to whom the responsibility falls of calculating any applicable 

inter-temporal opportunity costs. This capacity payment also must be based on 

competitive market-based bids for the provision of frequency regulation capacity 

submitted by resources. 

199. The second part of the payment shall be a performance payment that reflects the 

E correction. Therefore, each RTO an

measuring a frequency regulation resource’s accuracy with respect to the dispatch 
Docket Nos. RM11-7-000 and AD10-11-000 - 108 - 

same accuracy metric must be used for all resources providing frequency regulation 

service in an RTO or ISO. 

201. The Commission recognizes that making these changes could require significant 

work on the part of the RTOs and ISOs. Therefore, the tariff changes needed to 

implement the compensation approach required in this Final Rule, including a uniform

price for regulation capacity, and a performance payment for the provision of fre

regulation service, with such payment reflecting a resource’s accuracy in followin

AGC dispatch signal, mu

quency 

g the 

st be filed within 120 days of the effective date of this Final 

Rule. We will allow further 180 days from that date for implementation. 

IV. Information Collection Statement

202. The Office of Management and Budget’s (OMB) regulations require approval o

certain information collection requirements imposed by agency rules. Upon approval of 

a collection(s) of information, OMB will assign an OMB control number and an 

expiration date. Respondents subject to the filing requirements of a rule will not be 

penalize

f 

d for failing to respond to these collections of information unless the collections 

city to 

pt 

ese changes. In addition to making tariff changes, the 

of information display a valid OMB control number. 

203. This Final Rule amends the Commission’s regulations under Part 35 to require 

RTOs and ISOs to pay both a uniform clearing price for frequency regulation capa

all cleared frequency regulation resources and a performance payment for the provision 

of frequency regulation service, with the latter payment reflecting a resource’s accuracy 

of performance. To accomplish this, the Commission requires RTOs and ISOs to ado

tariff revisions reflecting th
Docket Nos. RM11-7-000 and AD10-11-000 - 109 - 

Commission also expects that RTOs and ISOs will be required to modify existing 

software systems. The information provided for under Part 35 is identified as FE

204. Under section 3507(d) of the Paperwork Reduction Act of 1995,262 the reporting

requirements in this rulemaking will be submitted to OMB for review. In their notice of 

March 15, 2011, OMB took no action on the NOPR, instead deferring their approval unt

review of the Final Rule. 

205. The Commission solicited comments on the need for this informati

RC-516. 

il 

on, whether the 

information will have practical utility, the accuracy of provided burden estimates, ways to 

enhance the quality, utility, and clarity of the information to be collected, and any 

suggested methods for minimizing the respondent’s burden, including the use of 

automated information techniques. The Commission did not receive any specific

comments regarding its burden estimates. The Public reporting burden for the 

requirements contained in the Final Rule is as follows: 

 262 44 U.S.C. 3507(d). 
Docket Nos. RM11-7-000 and AD10-11-000 - 110 - 

Data Collection Respondents

FERC 516 

Number of 

 [1] 

Number of 

[2] 

Hours per 

[3] 

Total Hours 

[1 X 2 X 3] 

changes made by 

CFR 35.28(g)(3)). 

made by 

time burden.

5 1 1000 5000 

time burden 

The additional one-time burden of 5500 hours is being spread over the next three years 

for the purposes of submittal to the OMB, giving an average additional annual burden of 

1833 hours (rounded) or 367 hours (rounded) per year per respondent. 

Cost to Comply

263

Responses Response in Year one 

Conforming tariff 

RTOs/ISOs (18 

One time burden. 

5 1 100 500 

Software changes 

RTOs/ISOs. One 

264

Totals 5500 one 

: The Commission has projected the cost of compliance to be $687,500. 

Total Annual Hours for Collection in initial year (5500 hours) @ $125 an hour [average 

 263 SPP is not included in the respondents because they currently do not have a 

equency regulation compensation mechanism in their tariff and independent of this 

roceeding they have indicated that they are already planning to implement such a 

echanism. Therefore, it is expected that any additional burden on SPP due to this 

roceeding will be de minimus. 

264 This category was not included in the NOPR estimates. Since issuing the 

NOPR the Commission has determined that each RTO’s and ISO’s market software will 

need to comply with this final rule. 

fr

p

m

p

 be modified in order to
Docket Nos. RM11-7-000 and AD10-11-000 - 111 - 

cost of attorney ($200 ns , 2

adm pport ($ 687,500 

 per hour), co

25)] = $

ultant ($150) technical ($1 5),265 and 

inistrative su

Title: FERC-516, Electric Rate Schedules and Tariff Filings 

Action: Proposed Collection. 

OMB Control No. 1902-0096 

Respondents for this Rulem ing ak : Busines or other -profit 

Frequency of Information

ses for profit and/or not-for

institutions. 

: As indicated in the table. 

Necessity of Information: The Federal Energy Regulatory Commission is requiring ISO

and RTOs to change their tariffs to provide for compensation for frequency regulation 

service in a manner that remedies undue discrimination in the procurem

s 

ent of such 

Internal Review

service in the organized wholesale electricity markets, and ensure just and reasonable 

rates. 

: The Commission has reviewed the proposed changes and has 

determined that the changes are necessary. These requirements conform to the 

Commission’s need for efficient information collection, communication, and 

manag

 

ement within the energy industry. The Commission has assured itself, by means of 

internal review, that there is specific, objective support for the burden estimates 

associated with the information collection requirements. 

 

265 The Commission has increased this estimate from $80/hour to $125/hour to 

account for the software changes that will be needed to be done by high level staff. 
Docket Nos. RM11-7-000 and AD10-11-000 - 112 - 

206. Interested persons may obtain information on this information collecti

contacting the following: Federal Energy 

on by 

Regulatory Commission, 888 First Street, NE, 

e Executive Director, 

v

Washington, DC 20426, Attention: Ellen Brown, Office of th

email: DataClearance@ferc.go , phone: (202) 502-8663, or fax: (202) 273-0873. 

his information collection can be sent to the Office of 

C 

tion: Desk Officer for the Federal Energy Regulatory Commission, phone: 

207. Comments concerning t

Management and Budget, Office of Information and Regulatory Affairs, Washington, D

20503 [Atten

(202) 395-4718, fax: (202) 395-7285]. 

V. Environmental Analysis

208. The Commission is required to prepare an Environmental Assessment or an 

Environmental Impact Statement for any action that may have a significant adverse 

on the human environment.266 The Commission concludes that neither an Environmen

Assess

effect 

tal 

ment nor an Environmental Impact Statement is required for this Final Rule under 

g of 

to the 

 

section 380.4(a)(15) of the Commission’s regulations, which provides a categorical 

exemption for actions under sections 205 and 206 of the FPA relating to the filin

schedules containing all rates and charges for the transmission or sale subject 

Commission’s jurisdiction, plus the classification, practices, contracts, and regulations 

that affect rates, charges, classifications, and services.222

266 Regulations Implementing the National Environmental Policy Act, Order 

No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations Preambles 

1986-1990 ¶ 30,783 (1987). 
Docket Nos. RM11-7-000 and AD10-11-000 - 113 - 

VI. Regulatory Flexibility Act

209. The Regulatory Flexibility Act of 1980 (RFA)267 generally requires a description 

and analysis of final rules that will have significant economic impact on a substantia

number of small entities. The RFA mandates consideration of regulatory alternativ

l 

es that 

shed a size standard for electric utilities, stating 

 affiliates, it is primarily engaged in the transmission, 

for 

2009 

s, 

 

accomplish the stated objectives of a proposed rule and that minimize any significant 

economic impact on a substantial number of small entities. The Small Business 

Administration’s (SBA) Office of Size Standards develops the numerical definition of a 

small business.268 The SBA has establi

that a firm is small if, including its

generation and/or distribution of electric energy for sale and its total electric output 

the preceding twelve months did not exceed four million megawatt hours.269 Only five 

ISOs and RTOs, not small entities, are impacted directly by this rule. 

210. CAISO is a non-profit organization with over 54,000 megawatts of capacity and 

over 25,000 circuit miles of power lines. CAISO’s annual total energy deliveries in 

were 230,754,000 MWh. 

211. NYISO is a non-profit organization that oversees wholesale electricity market

dispatches over 500 generators, and manages a nearly 11,000-mile network of high267 5 U.S.C. 601-12. 

ctor 22, Utilities & n.1. 

268 13 CFR 121.101. 

269 13 CFR 121.201, Se
Docket Nos. RM11-7-000 and AD10-11-000 - 114 - 

voltage lines. NYISO’s 2009 energy deliveries, including transmission and distribution 

on 

. 

sion lines and over 

stantial number of small entities, and therefore no regulatory 

losses and excluding station power was 680,767,000 MWh. 

212. PJM comprises more than 600 members including power generators, transmissi

owners, electricity distributors, power marketers, and large industrial customers, serving 

13 states and the District of Columbia. PJM’s net energy for load in 2009 was 

680,767,000 MWh. 

213. MISO is a non-profit organization with over 145,000 megawatts of installed 

generation. MISO has over 57,000 miles of transmission lines and serves 13 states 

and one Canadian province. MISO’s annual transmission billings for 2010 were 

629,000,000 MWh. 

214. ISO-NE is a regional transmission organization serving six states in New England

The system comprises more than 8,000 miles of high-voltage transmis

350 generators. In 2009, ISO-NE’s net energy for load was 126,839,000 MWh. 

215. Based on the above, the Commission certifies this rule will not have a significant 

economic impact on a sub

flexibility analysis is required. 

VII. Document Availability

216. In addition to publishing the full text of this document in the Federal Register, the 

Commission provides all interested persons an opportunity to view and/or print the 

contents of this doc et through the Commission's Home Page 

(http:// eference Room during normal 

ument via the Intern

www.ferc.gov) and in the Commission's Public R
Docket Nos. RM11-7-000 and AD10-11-000 - 115 - 

business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A, 

Washington, DC 20426. 

217. From the Commission's Home Page on the Internet, this information is available 

on eLibrary. The full text of this document is available on eLibrary in PDF and 

Microsoft Word format for viewing, printing, and/or downloading. To access th

document in eLibrary

is 

, type the docket number excluding the last three digits of this 

1-866-

t ferconlinesupport@ferc.gov, or the Public Reference Room at 

document in the docket number field. 

218. User assistance is available for eLibrary and the Commission’s website during 

normal business hours from FERC Online Support at (202) 502-6652 (toll free at 

208-3676) or email a

(202) 502-8371, TTY (202)502-8659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov. 

VIII. Effective Date and Congressional Notification

219. This Final Rule will become effective on [INSERT DATE 60 DAYS AFTER 

DATE OF PUBLICATION IN THE FEDERAL REGISTER]. The Commission has 

determined, with the concurrence of the Administrator of the Office of Information and 

Regulatory Affairs, Office of Management and Budget, that this rule is not a “major rule” 
Docket Nos. RM11-7-000 and AD10-11-000 - 116 - 

as defined in section 351 of the Small Business Regulatory Enforcement Fairness Act of

1996. 

Deputy Secretary. 

By the Commission. Commissioner Spitzer is not participating. 

( S E A L ) 

Nathaniel J. Davis, Sr., 
Docket Nos. RM11-7-000 and AD10-11-000 - 117 - 

In consideration of the foregoing, the Commission proposes to amend Part 35 

Chapter I, Title 18 of the Code of Federal Regulations as follows: 

PART 35 – FILING OF RATE SCHEDULES AND TARIFFS 

 1. The authority citation for Part 35 continues to read as follows: 

Authority: 16 U.S.C. § 791a-825r, 2601-2645; 31 U.S.C. § 9701; 42 U.S.C. § 

7101-7352. 

2. Amend § 35.2 as follows, by adding a new paragraph (g). 

§ 35.2 Definitions. 

* * * * * 

(g) Frequency regulation. The term frequency regulation as used in this part will 

mean the capability to inject or withdraw real power by resources capable of responding 

appropriately to a system operator’s automatic generation control signal in order to 

correct for actual or expected Area Control Error needs. 

3. Amend § 35.28 as follows, by adding a new paragraph (g)(3) . 

 § 35.28 Non-discriminatory open access transmission tariff. 

* * * * * 

 (g) * * * 

(3) Frequency regulation compensation in ancillary services markets. Each 

Commission-approved independent system operator or regional transmission 

organization that has a tariff that provides for the compensation for frequency regulation 
Docket Nos. RM11-7-000 and AD10-11-000 - 118 - 

service ng a 

capaci payment for 

erformance that reflects the quantity of frequency regulation service provided by a 

source when the resource is accurately following the dispatch signal. 

 must provide such compensation based on the actual service provided, includi

ty payment that includes the marginal unit’s opportunity costs and a

p

re
Docket Nos. RM11-7-000 and AD10-11-000 - 119 - 

Appendix

List of Commenters

A123 Systems, Inc. (A123) 

Alliance for Industrial Efficiency, Inc. (The Alliance) 

Alcoa Inc. (Alcoa) 

American Wind Energy Association (AWEA) 

Beacon Power Corporation (Beacon) 

California Independent System Operator Corporation (CAISO) 

California Energy Storage Alliance (CESA) 

Coalition to Advance Renewable Energy Through Bulk Energy Storage (CAREBS) 

California Public Utilities Commission (CPUC) 

Dayton Power and Light Company (Dayton) 

Detroit Edison Company (Detroit Edison) 

Dominion Resources Services, Inc. (Dominion) 

Duke Energy Corporation (Duke) 

Environmental Defense Fund (EDF) 

Edison Electric Institute (EEI) 

Electricity Consumers Resource Council (ELCON) 

Electric Storage Association (ESA) 

Jack Ellis 

ENBALA Power Networks (ENBALA) 

EnerNOC, Inc. (EnerNOC) 

Electric Power Supply Association (EPSA) 

FirstEnergy Service Company (FirstEnergy) 

Invenergy Wind Development LLC (Invenergy) 

ISO/RTO Council (IRC) 

ISO New England Inc. (ISO-NE) 

Manitoba Hydro 

Midwest Independent System Operator, Inc. (MISO) 

Midwest Independent System Operator Transmission Owners (MISO TOs) 

Morgan Stanley Capital Group Inc. (Morgan Stanley) 

NaturEner USA, LLC (NaturEner) 

Natural Gas Supply Association (NGSA) 

New England Conference of Public Utilities Commissioners (NECPUC) 

New England Power Pool (NEPOOL) 

New York Independent System Operator, Inc. (NYISO) 

New York Public Service Commission (NYPSC) 

New York Transmission Owners (NY TOs) 

Occidental Chemical Corporation (Occidental) 

Organization of Midwest ISO States (OMS) 

Pennsylvania Public Utility Commission (PaPUC) 
Docket Nos. RM11-7-000 and AD10-11-000 - 120 - 

Pacific Gas and Electric Company (PG

PJM Interconnection, L.L.C. (PJM) 

Powerex Corporation (Powerex) 

C Energy Policy on Behalf of Public Interest Organizations 

ison) 

poration 

&E) 

Primus Power (Primus) 

Project for a Sustainable FER

(PIO) 

Recycled Energy Development (RED) 

Southern California Edison Company (SoCal Ed

Starwood Energy Global Group, L.L.C and Premium Power Cor

(Starwood/Premium) 

Steel Producers 

SunEdison LLC (SunEdison) 

Transmission Access Policy Study Group (TAPS)

VCharge 

Viridity Energy, Inc. (Viridity) 

Xtreme Power, Inc. (Xtreme Power)