Document ID: FERC-2015-0234-0001
Agency: ferc
Document Type: Proposed Rule
Title: Third-Party Provision of Primary Frequency Response Service
Posted Date: 2015-02-26T05:00Z

[Federal Register Volume 80, Number 38 (Thursday, February 26, 2015)]
[Proposed Rules]
[Pages 10426-10432]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-03741]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM15-2-000]

Third-Party Provision of Primary Frequency Response Service

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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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 market-based 
rates by sellers with market-based rate authority for energy and 
capacity.

DATES: Comments are due April 27, 2015.

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-to-PDF format and not in a scanned 
format.
     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: 
    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 market-based rates by sellers 
with market-based rate authority for energy and capacity.
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    \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).
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    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 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.
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    \3\ Third-Party Provision of Ancillary Services; Accounting and 
Financial Reporting for New Electric Storage Technologies, Order No. 
784, 78 FR 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).
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I. Background

    3. The Commission in Order No. 888 \4\ delineated two categories of 
ancillary services: those that the transmission provider is required to 
provide to all of its basic transmission customers \5\ 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 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\
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    \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 Reserve-Supplemental 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).
    \7\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,720-21.
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    4. Subsequently, in Avista,\8\ the Commission adopted a policy 
allowing

[[Page 10427]]

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\
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    \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.
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    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\
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    \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 
market-based 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.
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    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 solicitation that 
meets certain specified requirements \12\ 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\
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    \11\ Order No. 784, FERC Stats. & Regs. ] 31,349 at PP 59-61.
    \12\ Id. PP 99-101.
    \13\ Id. PP 82-85.
    \14\ Id. P 61.
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    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\
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    \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 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 Post-Workshop Comments, Docket No. AD14-7-000, at 
7-8 (filed June 3, 2014).
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    8. Separately, the Commission on January 16, 2014 issued a Final 
Rule approving reliability standard BAL-003-1 \17\ under which a 
Balancing Authority \18\ 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.
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    \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.
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    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.
    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.
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    \21\ Id. P 6.
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    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 Reliability Council of Texas, and Hydro 
Quebec

[[Page 10428]]

Interconnections. The interconnection-wide 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.
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    \22\ Order No. 784, FERC Stats. & Regs. ] 31,349 at PP 59-61.
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    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 frequency response and regulation for the purposes of 
considering how the transmission provider may procure the services it 
must offer under OATT Schedule 3.
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    \23\ Order No. 888, FERC Stats. & Regs. ] 31,036 at 31,707.
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    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

    18. The Commission analyzes horizontal market power \24\ 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 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\
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    \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).
    \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.
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    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 alternative, a seller may accept the 
presumption of horizontal market power and adopt some form of cost-
based mitigation.\32\
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    \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 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).
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    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 alternative larger or smaller geographic market instead of 
relying on the default geographic market.\34\
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    \33\ Order No. 697, FERC Stats. & Regs. ] 31,252 at P 15.
    \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.
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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

[[Page 10429]]

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 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.
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    \35\ See, e.g., Kosterev Statement, Docket No. AD14-7-000 
Workshop Transcript, at 180 (Apr. 22, 2014) (``. . . every 
synchronous machine has a governor'').
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    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.
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    \36\ See, e.g., Edison Electric Institute Post-Workshop 
Comments, Docket No. AD14-7-000, at 8 (filed June 3, 2014).
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    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 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.
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    \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.
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    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 
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\
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    \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 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.
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    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 
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

[[Page 10430]]

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 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 filed by utilities in 
their market-based rate tariffs 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:
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    \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.

    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 Reserve-
Supplemental, 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 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

    33. The Paperwork Reduction Act (PRA) \42\ 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.
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    \42\ 44 U.S.C. 3501-3520.
    \43\ See 5 CFR 1320.10 (2014).
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    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 service with the opportunity to avoid cost-of-
service regulation for such sales and the associated substantial 
reporting burdens.
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    \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.
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    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.

[[Page 10431]]

                                                         Changes Proposed in NOPR in RM15-2 \46\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Total annual
                                                                Annual number of   Total number of  Average burden &   burden hours &       Cost per
                     Number of respondents                        responses per       responses         cost per        total annual        response
                                                                   respondent                           response            cost
(a)                                                                          (b)   (a) x (b) = (c)               (d)   (c) x (d) = (e)           (e)/(c)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                       FERC-516 (Electric Rate Schedules and Tariff Filings) (one time, phased in)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1,551 \47\....................................................        \48\ 0.166               258           6, $432   1,548, $111,456              $432
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               FERC-920 (Electric Quarterly Report) (one-time, phased in)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1,551.........................................................        \49\ 0.166               258           2, $144      516, $37,152               144
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Action: Proposed changes.
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    \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.
    \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 
one-time 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.
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    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.
    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], email: 
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 email to: 
oira_submission@omb.eop.gov. Please refer to OMB Control No. 1902-0096 
(FERC-516) 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 the Commission's 
jurisdiction, plus the classification, practices, contracts, and 
regulations that affect rates, charges, classifications, and 
services.\51\
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    \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).
    \51\ 18 CFR 380.4(a)(15) (2014).
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VII. Regulatory Flexibility Act

    40. The Regulatory Flexibility Act of 1980 (RFA) \52\ generally 
requires a description and analysis of proposed rules that will have 
significant economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

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

    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

[[Page 10432]]

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 categories \55\ with the indicated thresholds (in terms 
of number of employees \56\):
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    \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.''

 Hydroelectric Power Generation, 500 employees
 Fossil Fuel Electric Power Generation, 750 employees
 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 proposals that commenters may wish 
to discuss. Comments are due April 27, 2015. 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.
    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 
Web site 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. Email 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.

    Issued: February 19, 2015.

    By direction of the Commission.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

    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

0
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.

0
2. Revise Sec.  35.37(c)(1) to read as follows:

Sec.  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 reserve-spinning service, 
operating reserve-supplemental service, and primary frequency response 
service if it fails either screen.
* * * * *
[FR Doc. 2015-03741 Filed 2-25-15; 8:45 am]
BILLING CODE 6717-01-P