150 FERC ¶ 61,092

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

18 CFR Part 35

[Docket No. RM15-2-000]

Third-Party Provision of Primary Frequency Response Service

(Issued February 19, 2015)

AGENCY: Federal Energy Regulatory Commission.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Federal Energy Regulatory Commission (Commission) proposes to 

revise its regulations to foster competition in the sale of primary frequency response 

service. Specifically, the Commission proposes to amend its regulations to revise the 

regulations governing market-based rates for public utilities pursuant to the Federal 

Power Act (FPA) to permit the sale of primary frequency response service at marketbased rates by sellers with market-based rate authority for energy and capacity. 

DATES: Comments are due [Insert date 60 days after publication in the FEDERAL 

REGISTER].

ADDRESSES: Comments, identified by docket number, may be filed in the following 

ways: 

• Electronic Filing through http://www.ferc.gov. Documents created electronically 

using word processing software should be filed in native applications or print-toPDF format and not in a scanned format.
Docket No. RM15-2-000 - 2 -

• Mail/Hand Delivery: Those unable to file electronically may mail or hand-deliver 

comments to: Federal Energy Regulatory Commission, Secretary of the 

Commission, 888 First Street, NE, Washington, DC 20426.

Instructions: For detailed instructions on submitting comments and additional 

information on the rulemaking process, see the Comment Procedures Section of this 

document.

FOR FURTHER INFORMATION CONTACT:

Rahim Amerkhail (General Information)

Federal Energy Regulatory Commission, Office of Energy Policy and Innovation

888 First Street, NE

Washington, DC 20426

(202) 502-8266

Gregory Basheda (Market Power Screening Information)

Federal Energy Regulatory Commission, Office of Energy Market Regulation

888 First Street, NE

Washington, DC 20426

(202) 502-6479

Lina Naik (Legal Information)

Federal Energy Regulatory Commission, Office of the General Counsel

888 First Street, NE

Washington, DC 20426

(202) 502-8882

SUPPLEMENTARY INFORMATION:
150 FERC ¶ 61,092

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Third-Party Provision of Primary Frequency Response 

Service

Docket No. RM15-2-000

NOTICE OF PROPOSED RULEMAKING

(Issued February 19, 2015)

1. In this Notice of Proposed Rulemaking (NOPR), the Federal Energy Regulatory 

Commission (Commission) proposes to revise its regulations to foster competition in the 

sale of primary frequency response service.1

 Specifically, the Commission proposes to 

amend its regulations to revise Subpart H to Part 35 of Title 18 of the Code of Federal 

Regulations governing market-based rates for public utilities pursuant to the Federal 

Power Act (FPA)2 to permit the sale of primary frequency response service at marketbased rates by sellers with market-based rate authority for energy and capacity.

2. This NOPR is an extension of the policy reforms the Commission started with 

Order No. 784,3 in which, among other things, the Commission revised Part 35 of its 

 1 As envisioned in this NOPR, primary frequency response service would be a 

reserve product that involves dedicating capacity on a generator or other resource for 

autonomous, automatic, and rapid action to change its output (within seconds) to rapidly 

dampen large changes in frequency.

2 16 U.S.C. 824d, 824e (2012).

3 Third-Party Provision of Ancillary Services; Accounting and Financial Reporting 

for New Electric Storage Technologies, Order No. 784, 78 Fed. Reg. 46,178 (July 30, 

2013), FERC Stats. & Regs. ¶ 31,349, at PP 6-7 (2013), order on clarification, Order 

No. 784-A, 146 FERC ¶ 61,114 (2014).
Docket No. RM15-2-000 - 2 -

regulations to reflect reforms to its policy governing the sale of ancillary services at 

market-based rates to public utility transmission providers. As discussed in more detail 

below, the reforms proposed herein are in anticipation of the potential interest in purchase 

of primary frequency response service from third-parties as a result of a new reliability 

standard that requires a Balancing Authority to maintain a minimum frequency response 

obligation.

I. Background

The Commission in Order No. 8884 3. delineated two categories of ancillary services: 

those that the transmission provider is required to provide to all of its basic transmission 

customers5 and those that the transmission provider is only required to offer to provide to 

transmission customers serving load in the transmission provider’s control area.6

 With 

 4 See Promoting Wholesale Competition Through Open Access Non-Discriminatory 

Transmission Services by Public Utilities; Recovery of Stranded Costs by Public Utilities 

and Transmitting Utilities, Order No. 888, FERC Stats. & Regs. ¶ 31,036 (1996), order on 

reh’g, Order No. 888-A, 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).

5 The first category consists of Scheduling, System Control and Dispatch service 

and Reactive Supply and Voltage Control from Generation Sources service.

6 The second category consists of Regulation and Frequency Response service, 

Energy Imbalance service, Operating Reserve-Spinning service, and Operating ReserveSupplemental service. Order No. 890 later added an additional ancillary service to this 

category: Generator Imbalance service. See Preventing Undue Discrimination and 

Preference in Transmission Service, Order No. 890, FERC Stats. & Regs. ¶ 31,241, at 

P 85, order on reh’g, Order No. 890-A, FERC Stats. & Regs. ¶ 31,261 (2007), order on 

reh’g, Order No. 890-B, 123 FERC ¶ 61,299 (2008), order on reh’g, Order No. 890-C, 

126 FERC ¶ 61,228 (2009), order on clarification, Order No. 890-D, 129 FERC ¶ 61,126 

(2009).
Docket No. RM15-2-000 - 3 -

respect to the second category, the Commission reasoned that the transmission provider is 

not always uniquely qualified to provide the services, and customers may be able to more 

cost-effectively self-supply them or procure them from other entities. The Commission 

contemplated that third parties (i.e., parties other than a transmission provider supplying 

ancillary services pursuant to its Open Access Transmission Tariff (OATT) obligation) 

could provide these ancillary services on other than a cost-of-service basis if such pricing 

was supported, on a case-by-case basis, by analyses that demonstrated that the seller lacks 

market power in the relevant product market.7

 

Subsequently, in Avista,

8 4. the Commission adopted a policy allowing third-party 

ancillary service providers that could not perform a market power study to sell certain 

ancillary services at market-based rates with certain restrictions.9

 7 Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,720-21.

8 Avista Corp., 87 FERC ¶ 61,223, at 61,882, order on reh’g, 89 FERC ¶ 61,136 

(1999) (Avista). Outside the markets operated by regional transmission organizations and 

independent system operators, Avista authorizes suppliers who cannot show a lack of 

market power with respect to certain ancillary services to nevertheless sell such services, 

subject to certain restrictions. One such restriction is that the authorization provided by 

Avista does not apply to sales to a public utility that is purchasing ancillary services to 

satisfy its own OATT requirements to offer ancillary services to its own customers.

9 These ancillary services included: Regulation and Frequency Response, Energy 

Imbalance, Operating Reserve-Spinning, and Operating Reserve-Supplemental. The 

Commission did not extend this Avista policy to Reactive Supply and Voltage Control 

from Generation Sources service, which means that third parties wishing to sell this 

ancillary service at market-based rates would be required to present specific evidence of a 

lack of market power in the provision of this specific product before the Commission 

would authorize sales of this service at market-based rates. The Commission also did not 

extend the Avista policy to Scheduling, System Control and Dispatch service. Because 

only balancing area operators can provide this ancillary service, it does not lend itself to 

competitive supply.
Docket No. RM15-2-000 - 4 -

5. The instant proceeding derives from Order No. 784 in which the Commission found 

that when appropriate intra-hour transmission scheduling practices are in place, the Avista

restrictions need not apply to the sale of Energy Imbalance, Generator Imbalance,

Operating Reserve-Spinning and Operating Reserve-Supplemental services, because with 

those practices in place, the results of the existing market power screens for sales of 

energy and capacity can also be applied to sales of these ancillary services.10 

6. However, the Commission also found in Order No. 784 that the record developed to 

that point did not support expanding these market-based rate authorizations to include 

sales of Reactive Supply and Voltage Control (under OATT Schedule 2) (Schedule 2 

service) and Regulation and Frequency Response (under OATT Schedule 3) services

(Schedule 3 service).

11 Instead, the Commission allowed market-based rate sales of 

Schedule 2 and Schedule 3 services to a public utility that is purchasing ancillary services 

to satisfy its OATT requirements, provided the sale is made pursuant to a competitive 

 10 Because energy and generator imbalance services merely require the ability to 

respond to dispatch within the hour, the Commission found that any sub-hourly 

transmission scheduling interval would be sufficient. Order No. 784-A, 146 FERC 

¶ 61,114 at P 12. Because the operating reserve services require more rapid response 

within the hour (spinning reserves must be available immediately and supplemental 

reserves must be available within a short period of time), the Commission required 

potential sellers of operating reserve services to satisfactorily explain, in their marketbased rate applications, how the particular intra-hour transmission scheduling practices or 

other protocols in their regions permit resources in one balancing area to respond to 

contingencies in a neighboring balancing area within these tight time frames. Order 

No. 784-A, 146 FERC ¶ 61,114 at PP 13-15.

11 Order No. 784, FERC Stats. & Regs. ¶ 31,349 at PP 59-61.
Docket No. RM15-2-000 - 5 -

solicitation that meets certain specified requirements12 or the sale is made at or below the 

buying public utility transmission provider’s own Schedule 2 or 3 rate, as applicable.13 

The Commission further stated its intention to gather more information regarding the 

technical, economic and market issues concerning the provision of these services in a 

separate proceeding that considers, among other things, the ease and cost-effectiveness of 

relevant equipment upgrades, the need for and availability of appropriate special 

arrangements such as dynamic scheduling or pseudo-tie arrangements, and other technical 

requirements related to the provision of Schedule 2 and Schedule 3 services.14

7. Pursuant to that directive, Commission staff held a workshop on April 22, 2014 to 

obtain input from interested persons regarding the technical, economic and market issues 

concerning the provision of Schedule 2 and Schedule 3 services.15 Among other things, 

the workshop explored issues surrounding the sale of these services at market-based rates. 

Comments submitted in response to the workshop that discussed the characteristics 

associated with a primary frequency response product indicated that market-based rate 

sales of such a product are feasible.16

 12 Id. PP 99-101.

13 Id. PP 82-85.

14 Id. P 61.

15 See Third-Party Provision of Reactive Supply and Voltage Control and 

Regulation and Frequency Response Services, Final Agenda, Docket No. AD14-7-000 

(Apr. 22, 2014).

16 For example, most commenters echoed EEI’s arguments that virtually all 

generators can provide primary frequency response, and because it is provided at the 

 (continued ...)
Docket No. RM15-2-000 - 6 -

8. Separately, the Commission on January 16, 2014 issued a Final Rule approving 

reliability standard BAL-003-117 under which a Balancing Authority18 must maintain a 

minimum frequency response obligation.19 While most Balancing Authorities should be 

able to meet the new reliability standard using their own resources,20 some may 

nevertheless be interested in purchasing primary frequency response service from others if 

doing so would be economically beneficial. Accordingly, the Commission concludes that 

there could be interest in the near future in voluntary purchases of a primary frequency 

response product.

9. For the reasons described more fully below, the Commission finds that sales of 

primary frequency response service at market-based rates should be authorized for entities 

granted market-based rate authority for sales of energy and capacity. 

 

interconnection level, balancing authority areas have more flexibility on the location of the 

resource than they would for other products. See, e.g., Edison Electric Institute PostWorkshop Comments, Docket No. AD14-7-000, at 7-8 (filed June 3, 2014).

17 Reliability standards proposed by the North American Electric Reliability 

Corporation (NERC) are subject to the Commission’s jurisdiction under section 215 of the 

Federal Power Act; 16 U.S.C. 824o(d). The Commission has authority to approve or 

reject such standards, and to enforce those that are approved.

18 The NERC Glossary defines a Balancing Authority as “(t)he responsible entity 

that integrates resource plans ahead of time, maintains load-interchange-generation 

balance within a Balancing Authority Area, and supports Interconnection frequency in real 

time.”

See http://www.nerc.com/pa/Stand/Glossary%20of%20Terms/Glossary_of_Terms.pdf.

19 See Frequency Response and Frequency Bias Setting Reliability Standard, Order 

No. 794, 146 FERC ¶ 61,024 (2014).

20 Id. PP 62-63.
Docket No. RM15-2-000 - 7 -

10. With respect to the remainder of the issues discussed at the workshop and in written 

comments, the Commission does not see sufficient evidence to support pursuing additional 

reforms on a generic basis. 

II. Discussion

A. Primary Frequency Response Service

11. As explained in Order No. 794, reliable operation of a power system depends on 

maintaining frequency within predetermined boundaries above and below a scheduled 

value, which is 60 Hertz (Hz) in North America.21 In order to do that, sufficient amounts 

of primary and secondary frequency response reserves must be maintained to stabilize 

frequency within an interconnection immediately following the sudden loss of generation 

or load.

12. Primary frequency response involves the autonomous, automatic, and rapid action 

of a generator, or other resource, to change its output (within seconds) to rapidly dampen 

large changes in frequency. Regulation, also known as secondary frequency response, is 

produced from either manual or automated dispatch from a centralized control system, 

generally using the communications and control system known as automatic generation 

control (AGC). In both cases, capacity must be set aside to provide the responses 

described above. 

13. Mechanically, the BAL-003-1 reliability standard provides interconnection-wide 

primary frequency response obligations for each of the Eastern, Western, Electric 

 21 Id. P 6.
Docket No. RM15-2-000 - 8 -

Reliability Council of Texas, and Hydro Quebec Interconnections. The interconnectionwide frequency response obligation is then allocated among all of the Balancing 

Authorities (or Frequency Response Sharing Groups made up of multiple Balancing 

Authorities) within each interconnection based on the ratio of the Balancing Authority’s 

generation and load to the total interconnection-wide generation and load times the

interconnection-wide frequency response obligation, and this value is called the Balancing 

Authority’s Frequency Response Obligation. However, Balancing Authorities are not 

limited in how they meet the requirements of BAL-003-1; the standard neither prohibits 

purchases nor requires self-supply. 

14. In Order No. 784, the Commission evaluated, among other things, whether the 

existing market power screens for sales of energy and capacity could be applied to the sale 

of Schedule 3 service without significant modification.22 In Order No. 784, the 

Commission discussed Schedule 3 without making a distinction between primary 

frequency response and regulation.

15. However, as noted above, primary frequency response is distinct from regulation; 

and the April 22, 2014 workshop distinguished between these two services for the purpose 

of discussing market power issues. While the Commission, in Order No. 888, found that 

primary frequency response did not merit a separate ancillary service given then-standard 

industry practices,

23 we preliminarily find that we can distinguish between primary 

 22 Order No. 784, FERC Stats. & Regs. ¶ 31,349 at PP 59-61.

23 Order No. 888, FERC Stats. & Regs. ¶ 31,036 at 31,707.
Docket No. RM15-2-000 - 9 -

frequency response and regulation for the purposes of considering how the transmission 

provider may procure the services it must offer under OATT Schedule 3. 

16. Specifically, following the approval of the new BAL-003-1 Frequency Response 

and Frequency Bias Setting Reliability Standard, it is now appropriate to consider the 

possibility that entities may wish to undertake voluntary sales of primary frequency 

response service as a stand-alone product distinct from regulation service. The 

Commission anticipates that sales of such a product would involve bilateral transactions 

by sellers and, while such sales could be made at cost-based rates, many sellers may prefer

the administrative ease of market-based rates. Accordingly, provision would need to be 

made for sales of primary frequency response within the Commission’s market-based rate

program. 

17. The Commission analyzes below the horizontal market power issues relevant to a 

primary frequency response product.

B. The Existing Market Power Analyses 

The Commission analyzes horizontal market power24 18. for sales of energy and 

capacity using two indicative screens, the wholesale market share screen and the pivotal 

supplier screen, to identify sellers that raise no horizontal market power concerns and can 

otherwise be considered for market-based rate authority.25 The wholesale market share 

screen measures whether a seller has a dominant position in the relevant geographic 

 24 18 CFR 35.37(b) (2014).

25 See Order No. 697, FERC Stats. & Regs. ¶ 31,252 at PP 13, 62. See also 18 CFR 

35.37(b), (c)(1) (2014).
Docket No. RM15-2-000 - 10 -

market in terms of the number of megawatts of uncommitted capacity owned or controlled 

by the seller, as compared to the uncommitted capacity of the entire market.26 A seller 

whose share of the relevant market is less than 20 percent during all seasons passes the 

wholesale market share screen.27 The pivotal supplier screen evaluates the seller’s 

potential to exercise horizontal market power based on the seller’s uncommitted capacity 

at the time of annual peak demand in the relevant market.28 A seller satisfies the pivotal 

supplier screen if its uncommitted capacity is less than the net uncommitted supply in the 

relevant market.29 

19. Passing both the wholesale market share screen and the pivotal supplier screen 

creates a rebuttable presumption that the seller does not possess horizontal market power; 

failing either screen creates a rebuttable presumption that the seller possesses horizontal 

market power.30 A seller that fails one of the screens may present evidence, such as a 

delivered price test, to rebut the presumption of horizontal market power.31 In the 

 26 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 43. 

27 Id. PP 43-44, 80, 89. 

28 18 CFR 35.37(c)(1) (2014). 

29 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 42. 

30 18 CFR 35.37(c)(1) (2014). 

31 18 CFR 35.37(c)(2) (2014). For purposes of rebutting the presumption of 

horizontal market power, sellers may use the results of the delivered price test to perform 

pivotal supplier and market share analyses and market concentration analyses using the 

Herfindahl-Hirschman Index (HHI). The HHI is a widely accepted measure of market 

concentration, calculated by squaring the market share of each firm competing in the 

market and summing the results. The Commission has stated that a showing of an HHI 

less than 2,500 in the relevant market for all season/load periods for sellers that have also 

 (continued ...)
Docket No. RM15-2-000 - 11 -

alternative, a seller may accept the presumption of horizontal market power and adopt 

some form of cost-based mitigation.32 

20. Three of the key components of the analysis of horizontal market power are the 

definition of products, the determination of appropriate geographic scope of the relevant 

market for each product, and the identification of the uncommitted generation supply 

within the relevant geographic market. In Order No. 697, the Commission adopted a 

default relevant geographic market for sales of energy and capacity.

33 Specifically, the 

Commission generally uses a seller’s Balancing Authority area plus directly 

interconnected Balancing Authority areas, or the RTO/ISO market as applicable, as the 

default relevant geographic market. However, where the Commission has made a specific 

finding that there is a submarket within an RTO, that submarket becomes the default 

relevant geographic market for sellers located within the submarket for purposes of the 

market-based rate analysis. The Commission also provided guidance as to the factors the 

Commission will consider in evaluating whether, in a particular case, to adopt an 

 

shown that they are not pivotal and do not possess a market share of 20 percent or greater 

in any of the season/load periods would constitute a showing of a lack of horizontal

market power, absent compelling contrary evidence from intervenors. Order No. 697, 

FERC Stats. & Regs. ¶ 31,252 at P 111.

32 18 CFR 35.37(c)(3) (2014). 

33 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at P 15.
Docket No. RM15-2-000 - 12 -

alternative larger or smaller geographic market instead of relying on the default 

geographic market.34

C. Applicability of Existing Indicative Screens to Primary Frequency 

Response Service

21. The Commission has considered whether passing the market-based rate screens for 

energy and capacity described above should create a rebuttable presumption that the seller 

lacks horizontal market power for sales of primary frequency response service. As 

discussed below, the Commission believes it should.

22. As described above, primary frequency response service involves the autonomous, 

automatic, and rapid reaction of an individual turbine-generator or other resource to 

change its output to rapidly dampen changes in interconnection-wide frequency. With 

respect to the technical capability of resources to provide such response, essentially all 

synchronous resources and some non-synchronous resources have governors or equivalent 

control equipment capable of autonomous and automatic responses such as those 

necessary for primary frequency response.

35 The only real difference among resources in 

this regard involves the choice of settings applied to that equipment, where settings can 

range from those that result in appropriate levels of primary frequency response to those 

 34 A necessary condition that must be satisfied to justify an alternative market is a 

demonstration regarding whether there are frequently binding transmission constraints 

during historical peak seasons examined in the screens and at other competitively 

significant times that prevent competing supply from reaching customers within the 

proposed alternative geographic market. Id. P 268.

35 See, e.g., Kosterev Statement, Docket No. AD14-7-000 Workshop Transcript, at 

180 (Apr. 22, 2014) (“. . . every synchronous machine has a governor”).
Docket No. RM15-2-000 - 13 -

that result in no response at all, or even responses that worsen the situation. However,

such settings can be changed on short notice, thus enabling resources that have never 

provided primary frequency response in the past to quickly begin providing it if there is 

some reason and incentive to do so. Accordingly, the set of resources technically capable 

of providing primary frequency response service does not differ significantly from the set

of resources represented in the existing market power screens.

23. With respect to the geographic market, the frequency of an interconnection is 

uniform throughout that interconnection and is determined largely by the dynamic 

interconnection-wide balance of supply with demand. Large contingency events, such as 

the unexpected loss of large amounts of generation or load, which happen anywhere within 

a given interconnection, cause deviations from the target 60Hz frequency that propagate 

throughout that interconnection. Accordingly, primary frequency response service can be 

effectively supplied by any resource throughout an interconnection and have the same 

ability to dampen harmful changes in interconnection-wide frequency.

36 Therefore, the 

geographic market for a primary frequency response product could be the entire 

interconnection within which the buyer resides, and in any event would be no smaller than 

the geographic market represented in the existing market power screens.

24. With respect to potential barriers related to transmission scheduling or reservation, 

while information sharing arrangements will certainly be necessary between buyers and 

sellers to enable the buyers to rely on purchased resources to meet their frequency 

 36 See, e.g., Edison Electric Institute Post-Workshop Comments, Docket No. AD14-

7-000, at 8 (filed June 3, 2014).
Docket No. RM15-2-000 - 14 -

response obligations under BAL-003-1, primary frequency response service should not

require any transmission reservation or scheduling, even for sales from resources in a 

different Balancing Authority area. This is because individual frequency responses, by 

definition,37 would not be sustained for long enough periods to trigger a need for 

transmission service or schedule changes. Rather, regulation resources dispatched by 

balancing authorities would be expected to assume responsibility for returning the system 

to the target 60Hz frequency as soon as the central dispatch system is able to send 

appropriate dispatch signals and the dispatched resources are able to respond. 

25. The AGC signals used for that dispatch are generally issued every 2-6 seconds, and 

actual response from dispatched resources is a gradual process on a scale of minutes due to 

the inherent ramping constraints of each resource; for example, PJM Interconnection, 

L.L.C. requires a maximum response time of 5 minutes, and certain regions may allow up 

to 10 minutes. Accordingly, the expectation would be for primary frequency response to 

gradually decline over a span of 1 to 10 minutes as regulation resources ramp up to their 

designated output.38 As such, this short period of time means that transmission scheduling 

 37 Primary frequency response service would entail the setting aside of some 

amount of capacity dedicated to providing autonomous frequency response, and the actual 

autonomous responses to predefined levels of frequency deviation. While the capacity 

would be set aside for extended periods, the actual autonomous responses would be of 

very short duration, as explained in the next section of the text.

38 When some event causes a sudden and large drop (or increase) in system 

frequency across the interconnection in question, all of the frequency-responsive resources 

maintained by Balancing Authorities in that interconnection will automatically and 

autonomously begin to respond within fractions of a second to try to arrest the deviation in 

frequency. Within 2-6 seconds after that, each Balancing Authority’s AGC system will 

begin issuing dispatch instructions to regulation resources to try to reverse the deviation in 

 (continued ...)
Docket No. RM15-2-000 - 15 -

and reservation should not be needed in connection with the provision of the temporary, 

autonomous changes in output associated with primary frequency response service that 

would in all normal cases be quickly replaced by regulation service.39

26. Accordingly, there should be no barriers related to transmission scheduling or 

reservation preventing sellers anywhere within the same interconnection as the buyer from 

providing effective primary frequency response service to that buyer. 

III. Proposal

27. For the reasons discussed above, the Commission concludes that passage of the 

existing market-based rate screens for sales of energy and capacity can adequately 

demonstrate lack of market power for sales of primary frequency response service.

28. The Commission, therefore, proposes that sellers passing the existing market power 

screens should be permitted to sell primary frequency response service at market-based 

rates. As a result, we propose to revise our regulations governing market-based rate 

 

frequency and return the interconnection-wide system frequency to 60Hz, and those 

regulation resources, depending upon their ramping capabilities, may take up to 

10 minutes or so to reach their full dispatched levels. At this point, they should have fully 

displaced the autonomous primary frequency response resources that initially reacted to 

slow and arrest the frequency deviation. 

39 As relevant to the topic of this order, such frequency responsive reserves 

(resources set aside to provide primary frequency response) may include both resources 

owned by the Balancing Authorities and resources purchased from other entities anywhere 

within the same interconnection. For remote resources within the same interconnection, 

arrangements will have to be made for sharing telemetry data from the resources in order 

to allow the host Balancing Authority to demonstrate that it met its frequency response 

obligation, and for ACE accounting purposes, but such telemetry sharing should not pose 

any significant barrier to the use of remote resources for the purposes of market-based 

rates here.
Docket No. RM15-2-000 - 16 -

authorizations to provide that sellers passing the existing market-based rate screens in a 

given geographic market should be granted a rebuttable presumption that they lack 

horizontal market power for sales of primary frequency response service in that market. 

Specifically, section 35.37 of the Commission’s regulations would be revised to state that 

a seller would have a rebuttable presumption it lacks market power with respect to sales of 

energy, capacity, energy imbalance service, generator imbalance service, and primary 

frequency response service if the seller passes the indicative screens for that geographic 

market. The Commission preliminarily concludes that expanding the rebuttable 

presumption adopted in Order No. 697 for energy and capacity to include primary 

frequency response service provides adequate protection that market-based rates charged 

by public utilities will be just and reasonable and not unduly discriminatory or preferential. 

29. Any entity selling primary frequency response service, either at market-based or 

cost-based rates, will be required to report such sales in the Electric Quarterly Report.

Accordingly, the Commission proposes to update its Electric Quarterly Report system to

include a specific product name option for primary frequency response service. 

30. The Commission seeks comment on this proposal, including the proposed revisions 

to section 35.37(c)(1) of our regulations. Comments may address, among other things, 

any unique technical requirements or limitations that might apply to the provision of 

primary frequency response service, and the Commission’s proposal to extend the 

rebuttable presumption to primary frequency response service. 

IV. Summary of Compliance and Implementation

31. In Order No. 697, the Commission provided standard tariff provisions that sellers 

must include in their market-based rate tariffs to the extent they are applicable based on 
Docket No. RM15-2-000 - 17 -

the services provided by the seller,40 including a provision for sales of ancillary services as 

a third-party provider.41 The Commission proposes to revise the “Third Party Provider” 

ancillary services provision to change the reference to “Regulation and Frequency 

Response Service” to “Regulation Service” and to add a reference to “Primary Frequency 

Response Service.” The proposed new language is as follows:

Third-party ancillary services: Seller offers [include all of the 

following that the seller is offering: Regulation Service, Reactive 

Supply and Voltage Control Service, Energy and Generator 

Imbalance Service, Operating Reserve-Spinning, Operating ReserveSupplemental, and Primary Frequency Response Service]. Sales will 

not include the following: (1) sales to an RTO or an ISO, i.e., where 

that entity has no ability to self-supply ancillary services but instead 

depends on third parties; and (2) sales to a traditional, franchised 

public utility affiliated with the third-party supplier, or sales where 

the underlying transmission service is on the system of the public 

utility affiliated with the third-party supplier. Sales of Operating 

Reserve-Spinning and Operating Reserve-Supplemental will not 

include sales to a public utility that is purchasing ancillary services to 

satisfy its own open access transmission tariff requirements to offer 

ancillary services to its own customers, except where the Commission 

has granted authorization. Sales of Regulation Service and Reactive 

Supply and Voltage Control Service will not include sales to a public 

utility that is purchasing ancillary services to satisfy its own open 

access transmission tariff requirements to offer ancillary services to 

its own customers, except at rates not to exceed the buying public 

utility transmission provider’s OATT rate for the same service or 

where the Commission has granted authorization.

32. The Commission proposes that a seller that already has market-based rate authority 

as of the effective date of the Final Rule issued in this proceeding would be authorized as 

 40 Order No. 697, FERC Stats. & Regs. ¶ 31,252 at Appendix C.

41 In Order No. 784, the Commission revised the standard third party provider 

provision to reflect the changes adopted in Order No. 784. Order No. 784, FERC Stats. 

& Regs. ¶ 31,349 at P 200.
Docket No. RM15-2-000 - 18 -

of the effective date of the Final Rule to make sales of primary frequency response service 

at market-based rates. Such a seller would be required to revise the third-party provider 

ancillary services provision of its market-based rate tariff to reflect that it wishes to make 

sales of primary frequency response service at market-based rates. However, while this 

authorization would be effective for sellers with existing market-based rate authority as of 

the date specified in a Final Rule in this proceeding, the Commission proposes that such 

sellers may wait to file this tariff revision until the next time they make a market-based 

rate filing with the Commission, such as a notice of change in status filing or a triennial 

update.

V. Information Collection Statement

The Paperwork Reduction Act (PRA)42 33. requires each federal agency to seek and 

obtain Office of Management and Budget (OMB) approval before undertaking a collection 

of information directed to ten or more persons or contained in a rule of general 

applicability. OMB regulations require approval of certain information collection 

requirements imposed by agency rules.43 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 an agency rule will not be penalized for failing to respond to the 

collection of information unless the collection of information displays a valid OMB 

control number.

 42 44 U.S.C. 3501-3520.

43 See 5 CFR 1320.10 (2014).
Docket No. RM15-2-000 - 19 -

34. The Commission will submit the proposed revised information collection 

requirements to OMB for its review and approval. The Commission solicits public 

comments on its need for this information, whether the information will have practical 

utility, the accuracy of burden and cost estimates, ways to enhance the quality, utility, and 

clarity of the information to be collected or retained, and any suggested methods for 

minimizing respondents’ burden, including the use of automated information techniques.

35. Burden Estimate and Information Collection Costs: While, to the Commission’s 

knowledge, no entity currently sells primary frequency response service on an unbundled 

basis,44 there is no reason why primary frequency response service could not be sold today 

under cost-based rates. Such cost-based sales, if they occurred, would face all of the 

burdens associated with cost-of-service regulation, including a variety of requirements 

from which market-based rate sellers frequently seek and are granted waiver.45 

Furthermore, just like market-based rate sellers, cost-based rate sellers must report all 

transactions in the Electric Quarterly Report. Accordingly, the Commission views this 

NOPR as providing potential market-based rate sellers of primary frequency response 

 44 It is likely that some customers purchase primary frequency response service 

along with other services on a bundled basis, such as through full requirements contracts, 

but this NOPR is focused on unbundled sales of primary frequency response service.

45 For example, the need to maintain Open Access Transmission Tariffs and Open 

Access Same-Time Information Systems related to any jurisdictional transmission 

facilities owned by the entity, the need to adhere to the Commission’s standards of 

conduct, the need to adhere to the detailed cost-of-service related requirements of subparts 

B and C of Part 35 of the Commission’s regulations, the need to adhere to the accounting 

and reporting requirements of Parts 41, 101, and 141 of the Commission’s regulations, and 

the need to seek separate authorizations for issuances of securities and assumptions of 

liabilities under FPA section 204 and Part 34 of the Commission’s regulations.
Docket No. RM15-2-000 - 20 -

service with the opportunity to avoid cost-of-service regulation for such sales and the 

associated substantial reporting burdens.

36. Below, we discuss the expected increases in burdens as a result of the proposals in 

this NOPR, which we expect to be greatly outweighed by the reduction in burden from 

avoiding cost-of-service regulation. The additional estimated annual public reporting 

burdens and costs for the requirements in this proposed rule are as follows.

Changes Proposed in NOPR in RM15-246

Number of 

Respondents

(a)

Annual 

Number of 

Responses per 

Respondent

(b)

Total 

Number of 

Responses

(a)X(b)=(c)

Average 

Burden & 

Cost Per 

Response 

(d)

Total Annual 

Burden 

Hours & 

Total Annual 

Cost

(c)X(d)=(e)

Cost per 

Response

(e)/(c)

FERC-516 (Electric Rate Schedules and Tariff Filings) (one time, phased in)

 46 We think that industry staff members are similarly situated to FERC, in terms of 

hourly cost per full time employee. Therefore, the estimated average hourly cost (salary 

plus benefits) is $72.00. 
Docket No. RM15-2-000 - 21 -

1,55147 0.16648 258

6

$432

1,548

$111,456 $432

FERC-920 (Electric Quarterly Report) (one-time, phased in)

1,551 0.166 49 258

2

$144

516

$37,152 $144

 47 The 1,551 respondent universe includes existing sellers (1,965 total market-based 

rate sellers - 697 Category 1 sellers + 70 Category 1 sellers = 1,338 sellers estimated to 

sell primary frequency response services) plus 213 new market-based rate applicants (as 

estimated in Docket No. RM14-14). (We estimate that ten percent (or 70, as indicated 

above) of the Category 1 sellers may choose to sell primary frequency response services.) 

48 We expect respondents to enter the primary frequency response market gradually. 

For each of the next three years, we expect all 213 new market-based rate applicants per 

year (or 639 total during Years 1-3), to include the primary frequency response language 

in their tariffs. 

Additionally, during the three-year period, we expect a total of ten percent of the 

existing 1,338 respondents (or 134 respondents), to decide to sell primary frequency 

response services and to make the corresponding FERC-516 rate filing. The 

corresponding annual estimate is 45 of the existing respondents (an average of 3.3% 

annually). Therefore, the annual estimate, including both new respondents and existing 

respondents, is an average of 258 (213 + 45) respondents and responses per year.

49 As respondents decide to sell primary frequency response services, they would 

report the new offering in their Electric Quarterly Report (FERC-920), and would continue 

to report in subsequent EQRs. When a filer adds the new service, we estimate the onetime burden to be two hours. We expect any additional burden associated with reporting 

the new service in the EQR to be negligible after the first implementation as it would 

become part of the respondent’s normal reporting practice in the EQR and would only 

involve selecting the ‘primary frequency response’ option from a list of product names. 

On average, we expect filers of the new primary frequency response service to phase in:

• Year 1, 258 respondents or 16.6 percent of EQR filers.

• Year 2, 258 respondents or 16.6 percent of EQR filers.

• Year 3, 258 respondents or 16.6 percent of EQR filers.
Docket No. RM15-2-000 - 22 -

Titles: FERC-516 (Electric Rate Schedules and Tariff Filings) and FERC-920 (Electric 

Quarterly Report (EQR)).

Action: Proposed changes.

OMB Control Nos.: 1902-0096 (FERC-516) and 1902-0255 (FERC-920).

Respondents: Public utilities, FERC licensees.

Frequency of responses: One-time (FERC-516) and (FERC-920).

Necessity of the Information: Regarding FERC-516, section 205(c) of the Federal Power 

Act requires public utilities to file with the Commission schedules showing all rates and 

charges for any transmission or sale subject to the Commission’s jurisdiction. 

Accordingly, entities wishing to sell primary frequency response service at market-based 

rates must amend their market-based rate tariffs to include the language included in this 

NOPR. Regarding FERC-920, the Commission is revising the EQR to ensure that public 

utilities that may sell primary frequency response service at market-based rates report 

those sales in the EQR, consistent with their filing obligations under section 205(c). 

Internal Review: The Commission has reviewed the requirements associated with the 

proposed revisions to the information collections and determined they are necessary to 

ensure that rates remain just, reasonable, and not unduly discriminatory.

37. These requirements conform to the Commission’s need for efficient information 

collection, communication, and management within the energy industry. The Commission 

has assured itself, through internal review, that there is specific, objective support for the 

burden estimates associated with the information collection requirements.
Docket No. RM15-2-000 - 23 -

38. Interested persons may obtain information on the reporting requirements by 

contacting the following: Federal Energy Regulatory Commission, 888 First Street, NE, 

Washington, DC 20426 [Attention: Ellen Brown, Office of the Executive Director], 

e-mail: DataClearance@ferc.gov, Phone (202) 502-8663, fax: (202) 273-0873.

Comments on the collections of information and associated burden estimates in the 

proposed rule should be sent to the Commission in this docket and may also be sent to the 

Office of Information and Regulatory Affairs, Office of Management and Budget, 

Washington, DC 20503 [Attention: Desk Officer for the Federal Energy Regulatory 

Commission]. For security reasons, comments to OMB should be submitted by e-mail to: 

oira_submission@omb.eop.gov. Please refer to OMB Control No. 1902-0096 (FERC516) and OMB Control No. 1902-0255 (FERC-920).

VI. Environmental Analysis

39. The Commission is required to prepare an Environmental Assessment or an 

Environmental Impact Statement for any action that may have a significant adverse effect 

on the human environment.50 The Commission concludes that neither an Environmental 

Assessment nor an Environmental Impact Statement is required for this Final Rule under 

section 380.4(a)(15) of the Commission’s regulations, which provides a categorical 

exemption for approval of actions under sections 205 and 206 of the FPA relating to the 

filing of schedules containing all rates and charges for the transmission or sale subject to 

 50 Regulations Implementing the National Environmental Policy Act, Order 

No. 486, 52 FR 47,897 (Dec. 17, 1987), FERC Stats. & Regs., Regulations Preambles 

1986-1990 ¶ 30,783 (1987).
Docket No. RM15-2-000 - 24 -

the Commission’s jurisdiction, plus the classification, practices, contracts, and regulations 

that affect rates, charges, classifications, and services.51

VII. Regulatory Flexibility Act

The Regulatory Flexibility Act of 1980 (RFA)52 40. generally requires a description 

and analysis of proposed rules that will have significant economic impact on a substantial 

number of small entities.

41. The Small Business Administration’s (SBA) Office of Size Standards develops the 

numerical definition of a small business.53 The SBA recently revised its size standard for 

electric utilities (effective January 22, 2014) from a standard based on megawatt hours to a 

standard based on the number of employees, including affiliates.54 Under SBA’s current 

size standards, the entities with market-based rates which are affected by this NOPR likely 

come under the following categories55 with the indicated thresholds (in terms of number of 

employees

56): 

• Hydroelectric Power Generation, 500 employees

• Fossil Fuel Electric Power Generation, 750 employees

 51 18 CFR 380.4(a)(15) (2014).

52 5 U.S.C. 601-612 (2012).

53 13 CFR 121.101 (2014). 

54 SBA Final Rule on “Small Business Size Standards: Utilities,” 78 FR 77,343 

(Dec. 23, 2013).

55 13 CFR 121.201, Sector 22, Utilities.

56 SBA’s regulations at 13 CFR 121.201 state that “[t]he number of employees ...

indicates the maximum allowed for a concern and its affiliates to be considered small.”
Docket No. RM15-2-000 - 25 -

• Nuclear Electric Power Generation, 750 employees

• Solar Electric Power Generation, 250 employees

• Wind Electric Power Generation, 250 employees

• Geothermal Electric Power Generation, 250 employees

• Biomass Electric Power Generation, 250 employees

• Other Electric Power Generation, 250 employees.

42. The categories for the applicable entities have a size threshold ranging from 

250 employees to 750 employees. For the analysis in this proposed rule, we are using the 

threshold of 750 employees for all categories. We anticipate that a maximum of 

82 percent of the entities potentially affected by this NOPR are small. In addition, we 

expect that not all of those entities will be able to or will choose to offer primary frequency 

response service. 

43. Based on the estimates above in the Information Collection section, we expect a 

one-time cost of $576 (including the burden cost related to filing both the tariff and the 

EQR) for each entity that decides to offer primary frequency response service. 

44. The Commission does not consider the estimated cost per small entity to impose a 

significant economic impact on a substantial number of small entities. Accordingly, the 

Commission certifies that this NOPR will not have a significant economic impact on a 

substantial number of small entities.

VIII. Comment Procedures

45. The Commission invites interested persons to submit comments on the matters and 

issues proposed in this notice to be adopted, including any related matters or alternative 
Docket No. RM15-2-000 - 26 -

proposals that commenters may wish to discuss. Comments are due [Insert date 60 days 

after publication in the FEDERAL REGISTER]. Comments must refer to Docket No. 

RM15-2-000, and must include the commenter's name, the organization they represent, if 

applicable, and their address in their comments.

46. The Commission encourages comments to be filed electronically via the eFiling 

link on the Commission's web site at http://www.ferc.gov. The Commission accepts most 

standard word processing formats. Documents created electronically using word 

processing software should be filed in native applications or print-to-PDF format and not 

in a scanned format. Commenters filing electronically do not need to make a paper filing.

47. Commenters that are not able to file comments electronically must send an original 

of their comments to: Federal Energy Regulatory Commission, Secretary of the 

Commission, 888 First Street NE, Washington, DC 20426.

48. All comments will be placed in the Commission's public files and may be viewed, 

printed, or downloaded remotely as described in the Document Availability section below. 

Commenters on this proposal are not required to serve copies of their comments on other 

commenters.

IX. Document Availability

49. 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 document via the Internet through the Commission's Home Page 

(http://www.ferc.gov) and in the Commission's Public Reference Room during normal 

business hours (8:30 a.m. to 5:00 p.m. Eastern time) at 888 First Street, NE, Room 2A, 

Washington, DC 20426.
Docket No. RM15-2-000 - 27 -

50. 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 this document in 

eLibrary, type the docket number excluding the last three digits of this document in the 

docket number field.

51. User assistance is available for eLibrary and the Commission’s website during 

normal business hours from the Commission’s Online Support at 202-502-6652 (toll free 

at 1-866-208-3676) or email at ferconlinesupport@ferc.gov, or the Public Reference 

Room at (202) 502-8371, TTY (202) 502-8659. E-mail the Public Reference Room at 

public.referenceroom@ferc.gov.

List of subjects in 18 CFR Part 35 

Electric power rates; Electric utilities; Reporting and recordkeeping requirements.

By direction of the Commission.

( S E A L )

Nathaniel J. Davis, Sr.,

Deputy Secretary.
Docket No. RM15-2-000 - 28 -

In consideration of the foregoing, the Commission proposes to amend Part 35, 

Chapter I, Title 18, 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. Revise § 35.37 (c)(1) to read as follows:

§ 35.37 Market power analysis required.

* * * * *

(c)(1) There will be a rebuttable presumption that a Seller lacks horizontal market 

power with respect to sales of energy, capacity, energy imbalance service, generation 

imbalance service, and primary frequency response service if it passes two indicative 

market power screens: a pivotal supplier analysis based on annual peak demand of the 

relevant market, and a market share analysis applied on a seasonal basis. There will be a 

rebuttable presumption that a Seller lacks horizontal market power with respect to sales of 

operating reserve-spinning and operating reserve-supplemental services if the Seller passes 

these two indicative market power screens and demonstrates in its market-based rate 

application how the scheduling practices in its region support the delivery of operating 

reserve resources from one balancing authority area to another. There will be a rebuttable 

presumption that a Seller possesses horizontal market power with respect to sales of 

energy, capacity, energy imbalance service, generation imbalance service, operating 
Docket No. RM15-2-000 - 29 -

reserve-spinning service, operating reserve-supplemental service, and primary frequency 

response service if it fails either screen.

* * * * *