Reliability Demand Response Product February 25, 2011

1. Reliability Demand Response Product February 25, 2011 John Goodin Lead, Demand Response Market Design & Regulatory Policy Jill Powers Manager Energy Measurement, Acquisition and Analysis

2. Today’s Discussion • Why the Reliability Demand Response Product (RDRP) • Product Foundation- Proxy Demand Resource Product • What is RDRP and How is it being Implemented?

3. Today’s Discussion Why RDRP?

4. RDRP addresses long standing concerns with emergency demand response programs. • Emergency demand response programs can only be utilized under extreme conditions but account for a significant amount of resource adequacy requirements (nearly 4%). • Dispatching these resources outside of ISO markets and systems can suppress price signals. CPUC initiated a settlement proceeding as part of its demand response efforts to address these concerns.

5. The settlement resolved these concerns and defined requirements for reliability demand response product. • Limits the quantity that can satisfy the resource adequacy requirement to 2% of the ISO all-time system peak. • Transitions from the current ˜ 4% to the 2% limit as follows: • Allows emergency resources to be available at a Warning Notice in advance of a Stage 1 or Stage 2 emergency.

6. RDRP integrates emergency DR programs into the ISO market. • Product can be offered by any demand response provider • Eligible to set the locational marginal price • Like a generator, dispatched by location and MW quantity • Enables economic energy bids in the day-ahead • In real-time, bids limited to ISO bid cap and 95% of bid cap • Sets availability limits of 15 times and/or 48 hours per term

7. RDRP helps complete package of solutions for wholesale market demand response.

8. Today’s Discussion Product foundation-Proxy Demand Resource

9. Participating Load ProductLong-standing CAISO DR Model • Load Serving Entity (LSE) and Demand Response Provider (DRP) act as single entity • PL “Load” scheduled and settled at Custom LAP (CLAP) • “Pseudo gen” used to offer A/S capacity and RT energy resource at CLAP • PL load and pseudo generation resources treated independently in the DA scheduling process DLAP LSE (Default LAP) PL (CLAP) Didn’t satisfy FERC Order 719 that enabled the LSE and DRP to be distinct entities

10. CAISO Needed New Demand Response Solutions • Integrate DR into the CAISO Market • Enable easier integration of retail DR programs • Increase DR participation in the wholesale markets • Provide a Model that Enabled “Direct Participation” • Allow Demand Response Provider (DRP) to participate independent of the load-serving entity (LSE) • Comparable treatment allowing Day-Ahead, Real-Time Energy and Ancillary Service (AS) market participation • Enable DR all hours/days of the year

11. Proxy Demand Resource (PDR)New Demand Response model Launched August 10, 2010 • Load serving entities (LSE) load continues to forecast bid at the DLAP. • Demand response provider (DRP) bids the demand response portion of the load into the ISO markets as a separately defined proxy demand resource (pseudo generator). • The LSE and the DRP could be the same entity or two separate entities. Proxy Demand Resource LSE DLAP DRP PDR Provides Direct Participation and Simplification of Forecasting/Scheduling

12. Proxy Demand Resource Implementation Elements • CAISO Agreement • Establish Resources • Registration • Market Participation • Baseline • Measurement of PDR Performance • Settlement • Demand Response Provider • Load Serving Entity

13. Proxy Demand Resource ImplementationHigh-Level Process Integration

14. New DR System to Support PDRLeveraging UISOL’s DRBizNet Framework • Manage PDR/RDRP registration process • Track underlying load locations • Consolidated PDR/RDRP events (outages, awards, dispatches) • PDR/RDRP interval meter data management • Automated baseline calculations • All events are available on • the DRS event search screen • Performance Measurement calculations and Default Load Aggregation (DLA) management

15. PDR/RDRP ProcessesHigh Level Sequential Activity Flow Market Post-Market Activities Pre-Market Activities Registration Process Begin: Provide end use load location info End: Receive Market Resource ID for PDR Submit 45 days of historic meter data Establishing PDR Baseline Market Participation Access DRS Demand Response System Settlement Daily Meter Data Submission for PDR or DA RDRP; after the fact for RT only RDRP resources Secure Agreements Baseline Performance Measurement Default Load Adjustment

16. Demand Response Provider establishes agreements prior to participating in the ISO Wholesale Energy Markets Agreement with Load Serving Entity (LSE) Agreement with Utility Distribution Company (UDC) Agreement with ISO (DRP and SC) Agreements “Above the Line” – Within the CAISO Wholesale Market Participation as PDR or RDRP Settlement of PDR or RDRP Performance with DRP Settlement of DLAP Load incorporating DLA with LSE FERC Any Other Contractual Arrangements Between the DRP & LSE Retail Authority “Below the Line” – Outside the CAISO

17. A Registration is composed of one or more locations in a single Sub-Lap Location refers to a retail customer location uniquely identified by a UDC account number LSE and UDC have opportunity to review Registration information through DR System and provide CAISO with input on its accuracy CAISO makes final approval of registration Manage Registration Process DRP uses the DR System to submit service locations and registration information for LSE/UDC review and ISO approval. • DRP creates Registrations to establish a PDR or RDR resource • PDR/RDRR Constrained to Single Sub-LAP

18. Sub-LAPs • 23 Sub-LAPs within CAISO Control Area • Low to no congestion between PNodes within Sub-LAP • Historically, congestion interfaces between Sub-LAPs

19. Today’s Discussion What is rdRP and How is it being implemented?

20. RDRP Qualifications • Availability • All year/24x7, as resource is available • Summer and winter terms • 15 events and/or 48 hours/per term • Min run time ≤ 1 hour and max run time ≥ 4 hours • Advance notice + ramp to max curtailment must be ≤ 40 minutes • RDRP resources: • Min load reduction (single or aggregate) of 0.5 MW • Contained within a sub-LAP

21. RDRP Qualifications (cont’d) • Dispatch • Real-time: based on emergency operating procedures • Operating reserve shortage (ISO market/dispatch) • CAISO transmission emergency (ISO market/dispatch) • Local T&D emergency (utility dispatch/ISO notification) • Marginal market clearing and dispatch • Discrete or “block” dispatch option available • Address “firm service level” interruptible customers • Metering • Hourly interval data for Day-ahead participation • Up to 15 minute interval ‘reads” for real-time participation • Must be provided to ISO as 5-minute SQMD

22. RDRP Market Participation Market Systems used for bidding as well as for collecting market results and receiving dispatch instructions in Real-Time. • RDRR can bid into the following markets: • Day-Ahead energy market (economic bids) • Marginal clearing only in day-ahead • Real-Time market (reliability dispatch only) • Marginal Dispatch, or • Discrete dispatch option available in real-time • No A/S or Residual Unit Commitment participation

23. RDR Resource (RDRR) ModelingMarket Systems and Applications RDRR/PDR modeled in the network as a generator • Pre-defined RDRR in Sub-LAP • Pre-modeled and pre-assigned a Generation Distribution Factor (GDF) by the CAISO • Custom RDRR in Sub-LAP • DRP submits for a customized RDRR by selecting buses and defining the GDF to the selected buses

24. Baseline Methodology DRS used for Meter Data Submission, Baseline Calculations, DR Performance Measurement and DLA • RDRR Meter Data Submission Process • Day-Ahead participation- requires daily submission • Including initial 45 days of historical usage for establishing initial baseline data • Real-time participation only- requires submission of all current and historic meter data after the event by T+5B • Performance of the RDRR is determined using a customer baseline calculation • 10-in-10 non event day baseline methodology • Rules for selection of baseline days • Symmetrical 20% multiplicative adjustment

25. Settlement Process • DRS source of DR Performance Measurement used by SaMC for settlement of DRP’s RDR resources • Default Load Adjustment provided by DRS to SaMC for settlement of LSE’s DLAP Load • RDRR settled as a proxy generator • PDR paid at Day-Ahead or Real-Time LMP • Market Participants receive a settlement statement 7 business days after the trade date Settlements and Market Clearing (SAMC) system performs calculations to settle the RDRR and LSE Load.

26. Simple Settlement Example with Default Load Adjustment LSE DA Schedule = 10MW RDRR DA Award = 2MW Settlement Assumptions: LSE Adjusted Meter Quantity 2 MW DLA + 8 MW Actual = 10 MW RDRR Performance Measurement Adj Baseline – Actual = 2MW DLA 2 MW 2 MW DLA Add RDRR Performance to LSE DLAP ACTUAL 8 MW LSE paid for 0 MW (Scheduled – Actual) DRP paid for 2 MW (Expected = Performed) No Double Payment for Demand Response

27. Multiple User Accessibility to DRS Real Time Adjustment to DR Performance Measurement Conversion of “Hourly Baseline DR Performance Measurement” to a 10 minute performance measurement for RT market activity RDRP to be Implemented Spring 2012PDR experiences that carry over to RDRP implementation Challenges – Candid Comments from CAISO Implementation Team DRS Enhancements – Always wanting more… Baseline Methodology – Desire for more options • Request greater visibility of calculation information • Updating API to allow greater upload/download functionality • Request for more/different baseline types; part of CAISO Tariff • Challenge to assess need and best fit

28. Contact Information John Goodin Lead, Demand Response Market Design & Regulatory Policy (916) 608-7154 jgoodin@caiso.com Jill Powers Manager, Energy Measurement Acquisition & Analysis Market Services (916) 608-5781 jpowers@caiso.com