SUMMARY

In competitive electricity markets, the costs for each ancillary service should be charged to those who cause the costs to be incurred with charges based on the factors that contribute to these costs. For example, the amount of generating capacity assigned to the regulation service is a function of the short-term volatility of system load. Therefore, the charges for regulation should be related to the volatility of each load, not to its average demand. The Federal Energy Regulatory Commission (FERC) requires this as well. In its recent Notice of Proposed Rulemaking, FERC wrote (1999), “The Commission believes that, whenever it is economically feasible, it is important for the RTO [regional transmission organization] to provide accurate price signals that reflect the costs of supplying ancillary services to particular customers. ” Earlier, FERC (1996) wrote in its Order 888, “Because customers that take similar amounts of transmission service may require different amounts of some ancillary services, bundling these services with basic transmission service would result in some customers having to take and pay for more or less of an ancillary service than they use. For these reasons, the Commission concludes that the six required ancillary services should not be bundled with transmission service.” Fortunately customer specific measurement and allocation of ancillary service consumption can be done