July 8 - 10, 2014| mc summer meeting

1. July 8 - 10, 2014| mc summer meeting Henry Yoshimura Email: hyoshimura @iso-ne.com Conforming Changes to the Forward Capacity Market Rules and Other Rule Changes Full Integration of Demand Response Resources into the Energy and Reserves Markets

2. Main Focus of Today’s Presentation • Explain numerous changes in Section III.13 resulting from replacing the Net Supply Generator with the common dispatch model • Clarify the relationship between Demand Response Resources (“DRR”) and Demand Response Capacity Resources (“DRCR”) • Clarify the manner in which audits of DRRs associated with a DRCR would be conducted • Carry forward the recent transition period Demand Response Baseline changes (that became effective June 1, 2014) into the market rules for full integration • Scheduled and forced curtailments (ER14-727-000) • Constraints on the adjusted baseline for Net Supply (ER14-1659-000) • Clarify metering requirements for behind-the-meter generators • Explain other minor rule changes 2

3. Replacing the Net Supply Generator Asset Model with the Common Dispatch Model • The current FCM rules model an end-use customer facility that can produce Net Supply as two assets: • A Demand Response Asset (“DRA”) that reduces demand from the grid • A Net Supply Generator Asset (“NSGA”) that injects energy into the grid • At the May 2014 MC meeting, the ISO proposed to model an end-use customer facility that can produce Net Supply as a single asset • By replacing the NSGA with the common dispatch model, any Net Supply produced is credited to the performance of the DRA • This change affects calculation of Real-Time Demand Reduction Obligation • Demand reductions are grossed up by average avoided peak distribution losses • Net Supply is not adjusted by average avoided peak distribution losses • Numerous changes to Section III.13 (in addition to Sections III.8B and III.E2) will be needed to reflect this design change

4. Common Dispatch Model Eliminated Need For Net Supply Generator Asset • The Common Dispatch Model • Manages the Demand Reduction and Net Supply by modeling the facility as one asset (instead of two)

5. Clarify the Relationship Between Demand Response Capacity Resources (“DRCR”) and Demand Response Resources (“DRR”) • The demand response model structure in the FCM under full integration is: • DRCR is the resource that receives the Capacity Supply Obligation, which consists of one or more DRRs in the same Dispatch Zone • DRR is the resource that is dispatched for energy, or designated to provide reserves, on which performance is measured • DRRs consist of one or more DRAs in the same Dispatch and Reserve Zone Capacity Market Participation Energy Market Participation Reductions Occur At Asset DRR DRA Demand Response Capacity Resource DRA DRR DRA

6. Clarify the Relationship Between DRCRs and DRRs for Auditing Purposes • The auditing section of the FCM rules did not always clearly reflect the relationship between the DRCR and its DRRs • The DRR is the entity that is dispatched and where performance is assessed • An “audit of Demand Response Capacity Resource” would be better stated as an “audit of Demand Response Resource associated with a Demand Response Capacity Resource” • The audit performances of the DRRs associated with the DRCR are summed to determine the capacity of the DRCR

7. Clarify the Manner in Which Audits of DRRs Associated with a DRCR Would be Conducted • The requirement that all DRRs associated with a DRCR must be audited simultaneously should be changed • With DRRs providing reserves, not all DRRs associated with a DRCR may be dispatched at the same time to provide energy • Retain the simultaneous audit requirement for the DRAs associated with a DRR (i.e., a DRR is audited by simultaneously dispatching all of the DRAs comprising the DRR) • New asset audit exclusion will still apply • Rules should also permit the actual performance of a DRR during a Shortage Event to be used as an audit • To be used as an audit, none of the assets that are part of the DRR can be on a scheduled or forced curtailment

8. Carry Forward the Recent Transition Period Demand Response Baseline Changes into Full Integration • Incorporate into the full integration market rules the scheduled and forced curtailment changes, which were implemented on June 1, 2014 • Scheduled curtailment notification requirements (7 days for assets < 5 MW; 15 days for assets ≥ 5 MW) • Limits on the number of scheduled curtailment days in a Capacity Commitment Period (14 days) • During curtailment, the Demand-Designated Entity would report unadjusted baseline values of the affected DRA; actual meter values reported during: • Shortage Events • The first day of an unanticipated forced curtailment • Incorporate into the full integration market rules the constraints on the Demand Response Baseline adjustment for DRAs that can provide Net Supply, which were implemented on June 1, 2014 • Include rules for resetting the Demand Response Baseline

9. Clarify Metering Requirements for Behind-The-Meter Generators • The present market rules require DRAs with behind-the-meter generation (“BTMG”) to report 5-minute interval data on BTMG output • Allows the ISO to see if generation output was manipulated to increase the DRA’s baseline, which is measured at the DRA’s Retail Delivery Point • As currently written, this requirement applies to all BTMG, both active and passive • Active or dispatchable: generator output can be controlled • Passive or non-dispatchable: solar, wind, and some cogeneration units

10. Clarify Metering Requirements for Behind-The-Meter Generators (cont.) • Upon further consideration, this requirement is unnecessary for passive BTMG • Difficult to manipulate the DRA’s baseline if generator output is not controllable • The market rules will be modified so that passive BTMG will not be required to provide 5-minute interval data • Both the transition rules and fully-integrated rules will be modified • Active BTMG will continue to be required to provide such data • Clean-up inconsistent language on BTMG meter data requirements • 5-minute interval data will be reported to the ISO as a single stream of values in real time

11. Other Minor Rule Changes • Clarify Shortage Event performance determination • Performance of a DRCR is based on the performance of all of the DRRs associated with the DRCR • The portion of performance associated with demand reductions will be increased by average avoided peak distribution losses; Net Supply will not be increased by average avoided peak distribution losses • Eliminate references to outdated demand response programs (Section III.13.1.4.1.1) • Real-Time Demand Response Program (30-minute and 2-Hours) • Real-Time Profiled Response Program • Correct some typographical errors (examples): • “as” should be “has” • “averge” should be “average”