OATT Ancillary Services - GDS Associates
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OATT Ancillary Services

Transmission dependent utilities (TDUs) have to sort through a myriad of ancillary service schedules that are contained within the open access transmission tariffs (OATT) of their electric transmission service providers. What are these “ancillary” services? Which ones need to be purchased? What is the basis for the charges under the various ancillary service schedules? For the generation based ancillary services, can the service be self-supplied with customer-owned generating resources or other non-generation resources?

“Ancillary Services” are services supplied mostly from generation resources to facilitate (or are “Ancillary to”) the delivery of and reliability of power over the transmission system and fortunately, the answers to the preceding questions are not as daunting as they may seem.

Under the Federal Energy Regulatory Commission’s (FERC or Commission) Order Nos. 888 and 890 pro forma OATT, FERC established seven ancillary service schedules consisting of:

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The seven ancillary service schedules listed above are the schedules that are most commonly included in transmission providers’ OATTs. While the costs for these ancillary services are fairly low (less than 5%) relative to the total delivered cost of power, they do become more significant for electric utility owners of intermittent resources, such as wind and solar. In addition, these costs will mostly likely continue to increase as electric utilities pursue cost recovery for new ancillary services. For example, some utilities have recently sought FERC approval for a new Schedule 6A to cover “Flex Reserve Service.” For simplicity purposes, this article only addresses the ancillary services under the seven schedules mentioned above.

FERC jurisdictional utilities must seek the Commission’s approval for the rates, terms and conditions for the ancillary services that are provided under t heir respective OATTs. Non-jurisdictional utilities do not fall under the purview of the Commission and, therefore, do not need to seek FERC approval of their ancillary services rates. However, a jurisdictional utility may refuse to provide OATT services (including ancillary services) to a non-jurisdictional utility if the non-public utility refuses to provide reciprocal services. TDU’s have certain rights under the Federal Power Act that provides them with the opportunity to question the justness and reasonableness of the ancillary services rates charged by transmission providers.

Regional Transmission Organizations (RTOs) with established ancillary services markets provide opportunities for TDUs to sell ancillary services from their generating resources. Of course, in this kind of market the TDU will face a more competitive environment which will somewhat limit the amount of sales it can make from its resources.

Schedule 1 – Scheduling, System Control & Dispatch Service

These services include the scheduling of the movement of power through, out of, within, or into a control area (or balancing authority). The transmission customer must purchase Schedule 1 services from either the Transmission Provider or the Control Area Operator, to the extent they are not one in the same. Transmission customers are required to acquire Schedule 1 services regardless of the form of transmission service purchased.

The rates for Schedule 1 service are typically derived based on certain costs booked by the transmission provider to FERC Account No. 561, which include the expenses related to load dispatching and scheduling, system control and dispatch services.

Schedule 2 – Reactive Supply & Voltage Control from Generator Other Source Service

These services maintain transmission voltages on the Transmission Provider’s transmission facilities within acceptable limits using generation facilities and non-generation resources capable of providing reactive power. Similar to Schedule 1 service, the transmission customer must purchase Schedule 2 services from either the transmission provider or the control area operator. However, the transmission customer may be eligible for credits subject to the business practices of the transmission provider. These credits are usually for the reactive supply and voltage control capabilities provided by the transmission customer’s generation resources.

The rates for Schedule 2 service are typically derived based on the fixed production costs of certain equipment that is required for producing or absorbing reactive power.

Schedule 3 – Regulation & Frequency Response Service

The services provided under Schedule 3 are related to the continuous balancing of resources, either generation or interchange, with load and to maintain scheduled interconnection frequency at sixty cycles-per-second (60Hz). This service is typically provided with on-line generation whose output can be raised or lowered through the use of automatic generating control (AGC) equipment. The transmission customer has the option to purchase this service from the transmission provider, self-supply, or make alternative comparable arrangements that satisfy the Schedule 3 obligation.

The rates for Schedule 3 service are derived based on the fixed production costs of the generating units that typically provide this service (e.g., those with AGC equipment installed). It is fairly common for the rates under Schedule 3 to be inclusive of the purchase obligation, unless specified otherwise.

Schedule 4 – Energy Imbalance Service

The services provided under Schedule 4 are to cover any differences that occur between the scheduled and actual delivery of energy to a load within a control area over a given hour. The transmission customer can satisfy its energy imbalance service obligation by either purchasing this service from the transmission provider or make alternative comparable arrangements. The transmission customer cannot be charged a penalty for either hourly energy imbalances under this Schedule 4 or a penalty for hourly generator imbalances under Schedule 9 for imbalances that occur during the same hour unless the imbalances aggravate rather than offset each other. Under an Energy Imbalance Market or an RTO/ISO energy market, this service is provided by the market and priced at the prevailing LMP. Outside of these organized markets, the cost is based on the incremental/decremental cost of the local transmission provider (and is usually quite punitive).

Schedule 5 – Operating Reserve-Spinning Reserve Service

The reserve services support load in the control area and exports from the control area immediately in the event of a system contingency. This service may be provided by generating units that are on-line and loaded at less than maximum output and by non-generation resources capable of providing this service. The transmission customer has the option to purchase this service from the transmission provider, self-supply, or make alternative comparable arrangements.

The rates for Schedule 5 service are derived based on the fixed production costs of the generating units that typically provide this service, which would include those units that are on-line and loaded at less than maximum output. Normally, this would include those units that are installed with AGC equipment.

Schedule 6 – Operating Reserve-Supplemental Reserve Service

The reserve services support load in the control area and exports from the control area in the event of a system contingency. Unlike Schedule 5, it is not necessary for the service to be available immediately to serve load but rather within a short period of time. This service may be provided by generating units that are on-line but un-loaded, by quick-start generation or by interruptible load or other non-generation resources capable of providing this service. The transmission customer has the option to purchase this service from the transmission provider, self-supply, or make alternative comparable arrangements.

The rates for Schedule 6 service are derived based on the fixed production costs of the generating units that typically provide this service, which would include those units that are on-line but un-loaded, by quick-start generation, or the avoided cost of interruptible load.

Schedule 9 – Generator Imbalance Service

This service covers any differences that occur between the output of a generator located within the transmission provider’s control area and a delivery schedule from that generator to another control area or a load within the transmission provider’s control area over a given hour. The transmission customer can satisfy its generator imbalance service obligation by either purchasing this service from the transmission provider or make alternative comparable arrangements. And similar to Schedule 4, for generators operating in an Energy Imbalance Market or an RTO/ISO energy market, this service is provided by the market and priced at the applicable hourly LMP. Outside of these organized markets, the cost is based on the incremental/decremental cost of the local transmission provider (and is usually quite punitive).

It is worthwhile to understand how the local control area operator/transmission provider has calculated the cost of ancillary services, and if necessary, review and challenge those costs when they do not represent the actual cost incurred to provide the service.

Just as important, is the ability for TDU’s with generation resources to self-supply/provide reactive power, regulation, spinning and supplemental reserve services. This creates considerable value for the TDUs and results in lower overall power cost to the retail customer.


For more information or to comment on this article, please contact:

TransActions Newsletter 114.ai

Patrick Brin, Senior Project Consultant | CONTACT
GDS Associates, Inc. – Orlando, FL
407.563.4463.0626

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Also in this issue: The Next Evolution of Residential Rates