Qualification Criteria for Demand-Side Resources to be Considered as a Reserve Margin Adjustment

1. Qualification Criteria for Demand-Side Resources to be Considered as a Reserve Margin Adjustment Jay Zarnikau Frontier Associates March 18, 2005

2. Outline • Objectives • Framework Approved by Generation Adequacy Working Group (GAWG) • Issues • Counting LaaRs (discussion led by Mark and Steve) • Degree of Control by ERCOT • Degree of Contractual or Technical Commitment • Availability During Summer Peaks • Verification of Deployments by ERCOT / Information Flow • Enforcement of Criteria by ERCOT • Processes and Procedures • Report to GAWG

3. Objectives • Develop criteria for determining when a demand-side resource (e.g., a LaaR, a BUL, a load management program, direct load control, a NOIE interruptible tariff, or a group load curtailment program) is reliable enough to count as a reduction from firm demand in the calculation and (five year) forecast of ERCOT’s reserve margin. • Presumably, if we move toward an ICAP market or something similar, these qualification criteria might also be applied in order to qualify demand-side resources as ICAP resources. However, this is just speculation at this point. • In order to be “counted,” demand-side resources must meet various qualification criteria. GAWG has asked the DemandSideWG to refine these criteria. We need to report to GAWG tomorrow.

4. Framework Approved by GAWG • At the GAWG, there appears to be agreement that any party (e.g., a TDSP, a REP, a NOIE, or an ESCO) should be permitted to ask ERCOT to qualify a demand-side resource as a reserve margin adjustment, provided the resource meets the criteria we establish. • The GAWG appears to have dismissed earlier proposals that reserve margin adjustments be tied to • LaaRs qualified (but not necessarily in providing an operating reserve during a peak period), • pre-restructuring interruptible tariff participation, or • potential demand response to price signals (e.g., voluntary load response or passive load response).  • Instead, we’ll develop criteria and see what meets it.

5. Issue 1: Counting LaaRs • Strawman Position: Count 1150 MW of Responsive Reserve (RRS) LaaRs as a reserve margin adjustment. Even though there is no long-term contract, there is a surplus of LaaRs providing RRS. LaaRs can be OOMed. We have reasonable assurance that there will be 1150 MW available during peak periods in each of the next five years. • Alternative positions: • Don’t count anything, unless there is a long-term contract. • Add requirements onto LaaRs to make them more dependable (require stronger commitments) during peak periods. For example, require them to arm under-frequency relays or be available for an OOM deployment during the summer, regardless of whether they want to provide RRS.

6. Issue 2: Degree of Control by ERCOT • Strawman Position: Either directly or indirectly, ERCOT needs to have some ability (but not an obligation) to deploy a demand-side resource during a peak. • Tying deployment to an EECP is fine. • If ERCOT has the ability to OOM the demand-side resource, that is fine. • Alternative Positions: • More direct control by ERCOT? • Less control?

7. Issue 3: Degree of Contractual or Technical Commitment • Strawman Position: There must be either a contractual obligation for the load to deploy under qualifying conditions (and the contract must be available to ERCOT for verification) or deployment must be under the control of an under-frequency relay, a direct load control switch, or some other qualifying technology. A contract between a Market Participant (e.g., a REP) and an interruptible load that contains a “buy-through” provision should not be permitted. • Alternative Positions: • Only count contracts directly with ERCOT • Only count contracts with penalty provisions for non-compliance with dispatch requests • Adjust the quantity of the adjustment for the degree of interruptibility. Like in the old days, count an interruptible load with an underfrequency relay more than an interruptible load with a 30-minute notice requirement. Make a small adjustment for programs/contracts with buy-through provisions.

8. Issue 4: Availability During Summer Peaks • Possible ways of counting/quantifying the demand-side resource: • The load’s billing demand • The load’s average demand • The load’s average demand during summer afternoons • Count the load as an adjustment based on its historical coincidence with summer peaks (Question: Would this penalize the load for any demand response to peak prices and provide the wrong signal?) • Some fraction of the load’s billing demand, with the fraction related to the degree of interruptibility.

9. Issue 5: Verification of Deployments by ERCOT / Information Flow • Strawman Position: ERCOT needs to develop procedures and systems to enable it to monitor the deployment of demand-side resources that are not necessarily under ERCOT’s direct control. • Notes: • For some demand side resources (DLC) telemetry is impractical • Are IDR (or RIDR) readings collected a couple weeks following deployments OK?

10. Issue 6: Enforcement of Criteria by ERCOT • Three strikes and you are out? • Adjustments to the quantity counted based on historical performance during deployment requests? • Beat up on the QSE?

11. Issue 7: Processes and Procedures • Give more tasks to Mark and Steve? • Do we need a formal qualification process? • Would this include a review of contractual commitments made by the load? • If a contractual commitment is made, can we count the demand-side resource beyond the end of a contract with a REP? • Or, can the load contract with ERCOT (which might permit a contractual term longer than the load’s contract with its REP)? • How do we prevent any “double-counting” if a load participates in more than one program, tariff, etc. • Do interruptible loads served by dynamically-scheduled NOIEs present special problems? • How do we prevent double-counting in ERCOT’s future load forecasts?

12. Report to the GAWG • Who wants the spend the evening writing up our recommendations?