A case study shows how today's typical tariffs can force some industrial electric customers to subsidize others.
There ought to be a better way for electric utilities to set prices for...
whether some customers account for shares of these services that differ substantially from their shares of total electricity consumption.
A Case Study: Definitions and Method
These two ancillary services (regulation and load following) are similar in that each follows temporal variations in system load and helps the control-area operator meet its Control Performance Standards, as set by the North American Electric Reliability Council. Nevertheless, they differ in important ways:[Fn.3]
* Regulation is the use of online generating units that are equipped with automatic-generation control (AGC) and that can change output quickly (megawatts per minute) to track the moment-to-moment fluctuations in customer loads and unintended fluctuations in generation. In so doing, regulation helps to maintain Interconnection frequency, minimize differences between actual and scheduled power flows between control areas, and match generation to load within the control area. This service can be provided by any appropriately equipped generator that is connected to the grid and electrically close enough to the local control area that physical and economic transmission limitations do not prevent the importation of this power.
* Load following is the use of online generation equipment to track the intra- and inter-hour changes in customer loads. Load following differs from regulation in three important respects. First, it occurs over longer time intervals than does regulation, 10 minutes or more rather than minute to minute, and is therefore likely to be provided by different generators. Second, the load-following patterns of individual customers are highly correlated with each other, whereas the regulation patterns are largely uncorrelated. Third, load-following changes are often predictable (e.g., because of the weather dependence of many loads) and have similar day-to-day patterns. Alternatively, the customer can inform the control center of impending changes in its electricity use; as a consequence, these changes can be captured with short-term forecasting techniques.
These differences between regulation and load following have strong commercial implications. Regulation is a higher-value service than load following because of the need for higher generator speed and maneuverability. Therefore, regulation is likely a more expensive service. Similarly, individual customers differ in the amount of regulation and load-following services they require, and should pay accordingly.
Curiously, the FERC did not discuss load following in the section of its Order 888 defining six distinct ancillary services. Perhaps because of this omission, most utilities and ISOs have not included load following in their tariffs. (The Mountain West Independent Scheduling Administrator, in Nevada, is the only U.S. entity we know of that has proposed to create an explicit load-following service.[Fn.4] ) The absence of this service requires the California ISO to acquire much more regulation (as well as other services, such as replacement reserves and supplemental energy) than it otherwise would.[Fn.5] Specifically, the California ISO buys regulation in amounts equivalent to about 5 percent of daily load, compared with about 1 percent for most vertically integrated utilities. Thus, the ISO is substituting an expensive service (regulation) for an inexpensive one (load following). The ISO is considering the addition of an explicit load-following service.
To develop and test methods for customer-specific assignment of the costs of