Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Yet Another Subsidy For Wind?

FERC risks going overboard in easing penalties for generation imbalances.

Fortnightly Magazine - August 2005

filed Nov. 1, 2004.)

How could regulators let this happen?

Alas, in the real world, control area operators must keep generation constantly in balance with load over small time intervals, to regulate voltage and cycle frequency on the grid. Thus, as instructed by the North American Electric Reliability Council (NERC), grid operators must maintain an average ACE (area control error) within a specific limit for at least 90 percent of the 10-minute intervals that occur in a given calendar month. This activity is known as the ancillary service of "regulation," and it can be costly to provide, perhaps even requiring a second set of generation resources to offset the volatility in output of the wind turbines. To minimize this need, FERC prescribed the 3 percent dead-band and $100 penalty in Order No. 888 as a matter of "good utility practice."

Of course, Order No. 888 and the pro forma tariff assumed that all generation was dispatchable—that generators could forecast and control their output in real time. The $100 penalty seemed reasonable to guarantee a smooth-running grid, for scheduling plant deliveries, as well as for promising ratepayer load at the receiving end.

But what good is a penalty that does nothing to deter the crime? For wind turbines, generation imbalances are caused primarily by variations in weather. Even if these imbalances are indeed a bad thing, no $100 penalty will make them go away.

Also, much has changed in the decade since FERC issued Order No. 888. Wind power has made tremendous inroads. Spurred by complaints from the wind power industry, and by technical analysis such as provided by TAPS, FERC has come to believe that the current regime of penalties for generation imbalances amounts to rate discrimination against wind power, discouraging investment in turbines farms. And so FERC now has sought to craft a remedy.

Accordingly, on April 14, FERC proposed a new rule for the pro forma tariff, applicable only to “intermittent resources” (IRs), as defined by the rule. This proposal, designed to put wind power on par with thermal plants, promises to reduce the seemingly harsh penalties for generator imbalances.

First, FERC would kill the $100 death penalty. Second, the commission would create a broader 20 percent dead-band, the greater of 2 MW or plus or minus 10 percent above or below schedule. For deviations within the dead-band, wind turbine owners would make up the difference at cost. They would buy back the imbalance shortfall at the transmission provider's incremental cost, and receive credits for excess deliveries at decremental cost. Only those imbalance amounts exceeding the dead-band would incur a penalty, calculated at only 10 percent. In other words, wind would buy back these outlier deviations at 110 percent of incremental cost for shortfalls, and would "sell" the surplus at 90 percent of decremental cost. (See FERC Docket No. RM05-10, notice of proposed rulemaking filed Apr. 14, 2005, and industry comments filed through July 7, 2005.)

At first blush, FERC's proposal might look like a win-win. In truth, virtually all sides of the power industry appear to be relieved to