Designing a Real-Time Energy and Reserves Pilot Program for Alternative Resources

1. Designing a Real-Time Energy and Reserves Pilot Program for Alternative Resources Henry Yoshimura, ISO New England NEPOOL Markets Committee February 2010

2. Presentation Outline Background New Pilot Program Goals and Objectives Proposed Process Discussion

3. Background Real-Time Energy and Reserves Pilot Program for Alternative Resources

4. Background: Demand Response Reserves Pilot Program (“DRRP”) • DRRP ran from October 2006 to May 2010 • DRRP objectives: • Test the ability of smaller demand response resources to respond to ISO dispatch instructions in a manner similar to resources providing Operating Reserve • Performance was assessed by measuring how quickly and consistently participating assets were able to reduce load relative to the quantity of interruptible capacity enrolled in the DRRP • Results of the DRRP evaluation study by KEMA Consulting was presented to the Markets Committee on December 8, 2010

5. Total DR Performance (From KEMA Study)

6. Observations and Conclusions From the Demand Response Reserves Pilot • Participation was limited – pilot never reached 50 MW (average participation was 26.4 MW per session) • Response to dispatch instructions was statistically significant, but highly variable • On average, certain demand response asset groupings substantially under-performed while others substantially over-performed • The drivers of under- or over-performance are not completely clear at this time • Pilot results suggest that demand response performance could be improved

7. New Pilot Program Goals and Objectives Real-Time Energy and Reserves Pilot Program for Alternative Resources

8. Design and Implement a Real-Time Energy and Reserves Pilot Program • DRRP results suggest that the participation and performance of alternative resources in energy and reserves markets could be improved through: • Asset aggregation • Facility sub-metering • Improved baseline forecasts • Daily submission of offer curves consisting of multiple load reduction increments • Price-based dispatch • Improved incentive/penalty structures

9. New Pilot Program Objectives • Determine whether these (e.g., asset aggregation, daily submission of offer curves, etc.) and perhaps other appropriate changes increase the participation and performance of alternative resources in providing energy and reserve products • Alternative resources are installed measures (i.e., equipment, systems, services, practices and/or strategies) that are otherwise not able to participate in energy or reserve markets as a supply-side resource • Small, distributed resources such as Real-Time Demand Response, energy storage measures such as batteries, electric vehicles, HVAC (hot/cold) storage, etc.

10. New Pilot Program Objectives (cont) • Assess the ability of Market Participants to: • Forecast their asset’s demand and demand reduction capabilities • Non-price responsive (firm) demand • Price-responsive (non-firm) demand • Express their asset’s demand reduction capability as a supply offer consisting of price/quantity pairs • Follow an ISO dispatch instruction to change consumption based on its offer curve and Real-Time LMPs • Compare actual demand to expected demand at each price point • Submit accurate meter data in a timely manner • Assess infrastructure modifications for full integration of alternative resources into energy and reserves markets

11. Proposed Process Real-Time Energy and Reserves Pilot Program for Alternative Resources

12. Relationship of the Pilot to the Price-Responsive Demand (“PRD”) Project • An order in Docket No. RM10-17-000 – the NOPR on Demand Response Compensation in Organized Wholesale Energy Markets – could impact pilot payment structure: • The pilot will be made to conform to Commission requirements • The effort that went into developing the pilot will inform the development of any PRD approach required by a final Commission ruling • The NOPR will likely address what to pay, when to pay, and who pays; however, a complete design requires other technical issues be addressed • In addition to developing the technical provisions of the PRD “supply-side” approach, development of the pilot will inform how demand resources could provide reserve products to the market • The NOPR only addresses the energy market; however, ISO New England administers a co-optimized energy/reserves market • If an order in the NOPR is delayed, the lessons learned from operating the pilot will be used to develop the final PRD design

13. Two-Stage Development Process • Stage One: Develop Technical Provisions • Qualification and Enrollment • Asset qualification requirements, minimum/maximum asset size, sub-metering and aggregation of facilities into assets • Real-Time Operations • Load reduction offer parameters, scheduling and dispatch, operating reserves • Measurement, Communication and Verification • Baseline, load reduction calculations, metering and telemetry, data submission requirements, auditing • Pilot Program Evaluation • Performance metrics, data requirements, surveys, research and analysis

14. Two-Stage Development Process (cont) • Stage Two: Develop Financial Provisions • Overall pilot program size • Effective dates (i.e., start and end dates) • Payment rates • Energy • Reserves • Penalties • Allocation of pilot program costs

15. Development Forum • The ISO proposes that recommendations on the: • Technical provisions of the pilot be developed with input from the Demand Resources Working Group (“DRWG”) • Financial provisions of the pilot be developed with input from the Markets Committee • Recommendations concerning the technical provisions of the pilot would be presented to the Markets Committee prior to the development of the financial provisions • The entire pilot program package – i.e., the market rules codifying both the technical and financial provisions – would be subject to Markets Committee review, discussion, potential amendment, and vote

16. Approximate Development Schedule February – June 2011: Develop technical provisions June – August 2011: Develop financial provisions October 2011: Complete pilot program design and market rules for stakeholder consideration and vote December 2011: Filing with the FERC

17. Questions and Discussion