February 2014

1. February 2014 Henry Yoshimura Director, Demand Resource Strategy ISO New England Inc. Baseline Adjustment Issue for Assets Providing Net Supply

2. The Adjusted Demand Response Baseline • The Demand Response Baseline is calculated by averaging a demand response asset’s recent, historical interval meter data. • However, demand response events tend to happen on days with unusual conditions – e.g., hotter or colder than normal weather. • Research has shown that an “adjustment factor” – reflecting the in-day conditions that make a demand response asset’s load higher or lower than the historical load used to calculate its baseline – must be applied to the calculated Demand Response Baseline to maintain its accuracy. • Section III.8A.4.4 proposed in Docket No. ER14-727-000 addresses the calculation of the “adjustment factor” to the Demand Response Baseline. • The adjustment factor is the difference between the calculated Demand Response Baseline and the asset’s metered demand prior to the start of a demand response event. • The adjustment factor is added to every interval of the calculated baseline to determine the asset’s “adjusted Demand Response Baseline.” • Settlement is based on the adjusted Demand Response Baseline. • The adjustment factor could be negative. However, the resulting adjusted Demand Response Baseline in any interval was not allowed to be less than zero.

3. What is the Purpose of the Zero MW Floor on the Adjusted Demand Response Baseline? • Most demand response assets only consume energy from the grid – i.e., they cannot inject energy into the grid because they do not have a generator, or do not have an interconnection supporting energy injections. • However, the adjustment factor as described on the previous page could result in a negative adjusted Demand Response Baseline in certain circumstances. See Example 1 on the next slide. • For assets that cannot inject energy into the grid, negative consumption is physically impossible, so the adjusted Demand Response Baseline should likewise never be a negative value for these assets. • In this circumstance, a negative adjusted Demand Response Baseline could result in an under-estimated demand reduction quantity and a corresponding underpayment. • Therefore, Section III.8A.4.4 enforced a limit on the resulting adjusted Demand Response Baseline – i.e., “the resulting adjusted Demand Response Baseline in any interval shall not be less than zero.”

4. Example 1: An Asset that Cannot Produce Net Supply An Asset that Cannot Produce Net Supply Should Never Have a Negative Baseline

5. What is the Problem with a Zero MW Floor on the Adjusted Demand Response Baseline ? • Some demand response assets have behind-the-meter generation and an interconnection supporting energy injections. • A demand response asset injecting energy into the grid will have a negative meter reading. An asset with a negative calculated Demand Response Baseline is one that often provides net supply to the grid. • However, if “the resulting adjusted Demand Response Baseline in any interval shall not be less than zero,” the adjusted Demand Response Baseline of demand response assets that normally provide net supply would be adjusted up to zero MW, which in all likelihood is too high. See Example 2 on the next slide. • In this circumstance, a zero adjusted Demand Response Baseline could result in an over-estimated demand reduction quantity and a corresponding overpayment. • Using the demand response asset’s interconnection agreement to establish the floor on its adjusted baseline would address this problem.

6. Example 2: Asset that Produces Net Supply A Floor of 0 MW Overestimates the Baseline of an Asset Producing Net Supply