03 April 2013 | NEPOOL Markets Committee

1. 03 April 2013 | NEPOOL Markets Committee Henry Yoshimura Clarifying the Treatment of Net Supply in the FCM and Energy Market (2nd meeting) Price-Responsive Demand and Net Metering Director, Demand Resource Strategy ISO New England Inc.

2. Presentation Objectives and Background

3. Objective of This Presentation • Introduce and discuss the proposed market rules that clarify how a Demand Response Asset with Distributed Generation, which is capable of delivering Net Supply as well as demand response, can participate in the Forward Capacity Market (“FCM”) during full integration (i.e., starting June 1, 2017). • Net Supply is the injection of generation into the wholesale power grid as measured from the asset’s Retail Delivery Point. • Demand response is the reduction of energy consumption from the wholesale power grid as measured from the asset’s Retail Delivery Point.

4. Background • The ISO’s April 26, 2012 filing – i.e., FCM Conforming Changes for Full-Integration – proposed that: • Demand reductions would be credited to the capacity of a Demand Response Capacity Resource. • Net Supply produced by the same facility would be credited to the capacity of a separate Generating Capacity Resource. • On January 14, 2013, the Commission rejected: • “ISO-NE’s proposal regarding net supply … without prejudice to ISO-NE filing revised Tariff language to clarify its rules regarding demand response resources that provide capacity through both demand reductions and behind-the-meter generation.” • Protests cited by the Commission stated that it was difficult to project in the FCM qualification process three years ahead of real time how much demand reduction and Net Supply a facility will produce.

5. Problem: Current Market Rules Lack Clarity • With the rejection of the ISO’s proposed treatment of Net Supply in the FCM, the market rules for full integration lack clarity on how Net Supply contributes to the capacity of a Demand Response Capacity Resource. • Many tariff provisions assume that capacity which supplies energy to the electric system is produced by a Generating Capacity Resource, not a Demand Response Resource. • About 300 MW of Net Supply could be provided from the 2,730 MW of Demand Resources registered with the ISO as of the beginning of March 2013.

6. Addressing the Net supply problem Proposed FCM rule changes

7. Clarifying the FCM Full Integration Rules for Net Supply • The ISO proposes rule changes that allow Net Supply delivered by a Demand Response Asset to contribute to the capacity of a Demand Response Capacity Resource to which the asset is associated. Tariff changes are proposed in the following nine areas: • Defined terms • Baseline computations • FCA qualification • Availability calculation for Supplemental Availability Bilaterals • Energy market offer requirements • Demand Response Capacity Resource auditing • Avoided transmission and distribution loss adjustment • Hourly availability calculations • Conforming energy market rule changes

8. Changes to Defined Terms

9. Baseline Computations

10. FCA Qualification

11. Availability Computation for Supplemental Availability Bilaterals

12. Energy Market Offer Requirements

13. Demand Response Capacity Resource Auditing

14. Avoided Transmission and Distribution Loss Adjustment

15. Hourly Availability Computations

16. Conforming Energy Market Rule Changes

17. Next Steps Stakeholder and regulatory processes

18. Process • March 2013 (done): discuss with the Markets Committee the areas in which market rule changes are needed to clarify the treatment of net supply in the FCM. • April 2013 (done): present to the Markets Committee the proposed Tariff changes. • May 2013: Markets Committee vote on the proposed Tariff changes. • June 2013: Participants Committee vote on the proposed Tariff changes. Filing with the Commission by the end of June 2013. • August 2013: Commission order on proposed Tariff Changes. • September 2013: QDNs issued for FCA 8.

19. Discussion

20. Appendix: illustrating the Net supply problem How should net-metered facilities participate in the FCM?

21. The Net Supply Problem – Example • Assume a retail customer with: • Overall (gross) energy consumption that normally varies between 45 to 55 MW each Operating Day. • A Distributed Generator with a capacity of 30 MW. • The customer runs this generator in base-load fashion – i.e., the generator runs at 30 MW in each interval of each Operating Day. • As a result, the net energy consumption placed on the wholesale power grid is 30 MW less, which lowers the customer’s demand response potential. • The capability of reducing 20 MW of energy consumption in each interval. • 20 MW load reduction potential reflects turning off specific machinery that normally run all the time and consume 20 MW.

22. The Net Supply Problem – Illustrated Consumption 30 MW DG Output 20 MW Demand Reduction Net Supply Net Supply

23. If the Plant Reduces 20 MW of Demand in Response to Dispatch… • The demand on the wholesale power grid is reduced, but not by 20 MW in each interval. • 20 MW of demand is reduced from the grid in intervals: • 0800 to 1400 • 1600 to 2100 • Less than 20 MW of demand is reduced from the grid in intervals: • 0100 to 0800 • 1400 to 1600 • 2100 to 2400 • However, 20 MW was provided in the form of demand response, or in the form of demand response and net supply, in each interval.