September 4, 2019 | Westborough, Massachusetts

1. September 4, 2019 | Westborough, Massachusetts Henry Yoshimura (413) 540-4460 | hyoshimura@iso-ne.com Offer Requirements for Demand Response Resources Participating in the FCM and FCA End-of-Round Information on Demand Capacity Resources Price-Responsive Demand (“PRD”) Clean-Up Changes

2. Offer Requirements for Demand Response Resources (“DRRs”) Participating in the FCM • Demand Reduction Offers do not include avoided losses, but the CSO of the Active Demand Capacity Resource to which the DRR belongs does • Comparing Demand Reduction Offers to CSO for DRRs participating in the FCM as required by the Tariff is an “apples to oranges” comparison • Tariff changes are proposed to address this inconsistency • FCA End-of-Round Information on Demand Capacity Resources • For FCA 13, the ISO removed the functionality to publish the quantity of Demand Capacity Resources by type at the End-of-Round Price for each Capacity Zone • Implementation of PRD eliminated the reasons for publishing this information • It was later discovered that the provisions requiring the publication of these data remained in the Tariff • The ISO filed with the Commission in Docket No. ER19-1166-000 (May 24, 2019) when the omission was discovered • The omission of this information had no apparent impact on FCA 13 • The ISO committed to delete these provisions from the Tariff prior to FCA 14

3. Offer Requirements for Demand Response Resources Participating in the FCM

4. For Demand Response Resources, Energy Market Offers Do Not Include Avoided Losses, But CSOs Do • Within the PRD construct, DRR offers and dispatches are ‘at the retail meter’ and therefore do not include any applicable gross ups for avoided transmission and/or distribution (“T&D”) losses • Section III.1.10.1A(e)(iii) requires that Demand Reduction Offers: “Shall not include average avoided peak transmission or distribution losses in the demand reduction quantity.” • In the settlement process, only load reduction (and not Net Supply) is credited for avoided losses • The CSO of an Active Demand Capacity Resource, which is an aggregation of one or more DRRs, includes avoided T&D losses • Sections III.13.1.4.1.1.6(a) and III.13.1.4.2.1(a) increase the Qualified Capacity of a New and an Existing Demand Capacity Resource by average avoided T&D losses, which is currently eight percent • Therefore, the CSO of an Active Demand Capacity Resource that clears the FCA will include avoided T&D losses of eight percent

5. The CSO and Must-Offer Requirement of Active Demand Capacity Resources • Section III.13.6.1.5.1(a) requires that the sum of the Demand Reduction Offers of the DRRs comprising an Active Demand Capacity Resource must be equal to or greater than the resource’s CSO whenever the DRRs are physically available • Problem: Demand Reduction Offers do not include avoided losses, but the CSO of the Active Demand Capacity Resource to which the DRR belongs does • Thus, comparing Demand Reduction Offers to CSO is an “apples to oranges” comparison

6. Addressing the Problem • We currently interpret the Tariff to require that the portion of Demand Reduction Offers not associated with Net Supply be increased by average avoided peak T&D losses when compared to the relevant Active Demand Capacity Resource’s CSO • This addresses the inconsistency between Demand Reduction Offers, which exclude avoided losses, and the CSO of Active Demand Capacity Resources, which include avoided losses • We propose to modify the Tariff to clarify the comparison between Demand Reduction Offers and the CSO of Active Demand Capacity Resources

7. Proposed Tariff Change • III.13.6.1.5.1. Energy Market Offer Requirements. (a) A Market Participant with an Active Demand Capacity Resource having a Capacity Supply Obligation shall submit Demand Reduction Offers for its Demand Response Resources into the Day-Ahead Energy Market and Real-Time Energy Market in at least the MW amount described in this Section III.13.6.1.5.1; for purposes of establishing this amount, the portion of Demand Reduction Offers not associated with Net Supply shall be increased by average avoided peak transmission and distribution losses. The sum of the Demand Reduction Offers must be equal to or greater than the Active Demand Capacity Resource’s Capacity Supply Obligation whenever the Demand Response Resources are physically available. If the Demand Response Resources are physically available at a level less than the Active Demand Capacity Resource’s Capacity Supply Obligation, the sum of the Demand Reduction Offers will equal that level and shall be offered into both the Day-Ahead Energy Market and Real-Time Energy Market.

8. FCA End-of-Round Demand Capacity Resources Information

9. Background • Section III.13.2.3.3 requires the Auction Manager to publish the amount of Demand Capacity Resources by type in the Capacity Zone at the End-of-Round Price • The requirement to publish this information dates to the implementation of the FCA in 2008* • The purpose was to provide suppliers of Real-Time Demand Response (“RTDR”) and Real-Time Emergency Generation (“RTEG”) Resources with the amount of RTDR and RTEG capacity remaining at end of each FCA round • At that time, RTDR and RTEG Resources were dispatched in various stages of OP-4 and the frequency of their dispatch was directly proportional to their share of total system capacity, and was not a function of offers submitted into the Energy Market • Further, RTEG resources were subject to price-proration if the amount of RTEGs clearing the FCA exceeded 600 MW • Providing RTDR and RTEG Resources with the amount of RTDR and RTEG capacity remaining at end of each FCA round informed their continued participation in the auction * See:ISO New England Inc. and New England Power Pool, Tariff Revisions Regarding Demand Resource Integration; Docket No. ER09-5-000 (October 1, 2008)

10. The Publishing Requirement is Obsolete • The PRD Tariff changes, which became effective on June 1, 2018, enable DRRs to fully participate in the Day-Ahead and Real-Time Energy Markets, provide Operating Reserves and participate in the Forward Reserve Market • RTDR and RTEG Resources ceased to exist as of June 1, 2018 • DRRs are dispatched based on Demand Reduction Offers (i.e., priced energy market offers) and not on OP-4 conditions • The ISO does not post end-of-round information for any other type of resource offered into the FCA • Given the above, there appears to be no rationale for posting disaggregated quantity information for Demand Capacity Resources at End-of-Round Prices

11. Omission Discovered • For FCA 13, the ISO removed the functionality to publish the quantity of Demand Capacity Resources at the End-of-Round Price for each Capacity Zone • ISO staff and the Auction Manager reasoned that implementation of PRD eliminated the need to publish this information • It was later discovered that the provisions requiring the publication of these data remained in the Tariff • The ISO filed ISO New England Inc., Supplemental Information for Thirteenth Forward Capacity Auction Results Filing, Docket No. ER19-1166-000 (May 24, 2019) to notify the Commission and stakeholders of the omission • Omitting this information had no apparent impact in FCA 13 • The ISO committed to delete these provisions from the Tariff prior to FCA 14

12. The Following Tariff Changes Are Proposed • III.13.2.3.3(a)(2): … If neither of the two conditions above are met in the round, then the auctioneer shall publish the quantity of capacity in the Capacity Zone from Demand Capacity Resources by type at the End-of-Round Price, and that Capacity Zone will be included in the next round of the Forward Capacity Auction. • III.13.2.3.3(b): … If the Forward Capacity Auction for the Rest-of-Pool Capacity Zone is not concluded then the Rest-of-Pool Capacity Zone will be included in the next round of the Forward Capacity Auction, and the auctioneer shall publish the Total System Capacity at the End-of-Round Price, adjusted to include the additional supply in the import-constrained Capacity Zone that may be cleared at a higher price, less the amount of capacity determined by the System-Wide Capacity Demand Curve at the End-of-Round Price, and also shall publish the quantity of capacity from Demand Capacity Resources by type at the End-of-Round Price. • III.13.2.3.3(c)(2): … If it is not the case that both of the two conditions above are satisfied in the round, then the auctioneer shall publish the quantity of excess supply in the export-constrained Capacity Zone at the End-of-Round Price (the amount of capacity offered at the End-of-Round Price in the export-constrained Capacity Zone minus the maximum amount of capacity determined by the Capacity Zone Demand Curve at a price of zero) and the quantity of capacity in the Capacity Zone from Demand Capacity Resources by type at the End-of-Round Price, and that Capacity Zone will be included in the next round of the Forward Capacity Auction.

13. Conclusion • Offer Requirements for DRRs Participating in the FCM • Demand Reduction Offers do not include avoided losses, but the CSO of the Active Demand Capacity Resource to which the DRR belongs does • Comparing Demand Reduction Offers to CSO for DRRs participating in the FCM as required by the Tariff is an “apples to oranges” comparison • Tariff changes are proposed to address this inconsistency • FCA End-of-Round Information on Demand Capacity Resources • For FCA 13, the ISO removed the functionality to publish the quantity of Demand Capacity Resources by type at the End-of-Round Price for each Capacity Zone • Implementation of PRD eliminated the reasons for publishing this information • It was later discovered that the provisions requiring the publication of these data remained in the Tariff • The ISO filed with the Commission in Docket No. ER19-1166-000 (May 24, 2019) when the omission was discovered • The omission of this information had no apparent impact on FCA 13 • The ISO committed to delete these provisions from the Tariff prior to FCA 14

14. Stakeholder Schedule

15. Henry Yoshimura (413) 540-4460 | hyoshimura@iso-ne.com