Addressing State-of-Charge Management for Limited Energy Storage Resources

1. september 3, 2014 | NEPOOL markets committee Jonathan Lowell Principal analyst | market development Order 755 Regulation Market Enhancement to Address State-of-Charge Management for Limited Energy Storage Resources Regulation Market (Order 755) FERC Compliance

2. Why Are We Discussing Regulation Again? • FERC approved ISO’s Order 755 design on 6/20/13, and issued a notice on 7/19/13 extending the effective date to October 1, 2014 • ISO filed a number of cleanup changes and corrections on 3/20/14 • FERC rejected that filing on 5/20/14, indicating it would create an unduly discriminatory barrier to entry for limited energy storage resources • Directed ISO to implement the approved tariff for 10/1/14 • Problem: the approved tariff would still create the same barrier to entry

3. The 5/20/14 Rejection Provides Clear Guidance on How to Comply with Order 755 • The FERC rejection on 5/20/14 raised three key points: • Lack of any capability for limited energy storage resources to manage state-of-charge creates a barrier to entry that must be eliminated (Paragraph 27, page 10) • Changes in regulation offers in between the selectionof regulation resources would invalidate the selection and the clearing prices produced by the selection process (Footnote 35 on page 11) • FERC has approved two different approaches in other ISOs that would allow limited energy resources to participate in the regulation market in a “not unduly discriminatory manner” (Paragraph 27, pages 10-11): • PJM – energy-neutral signal for fast ramping resources • MISO/NYISO/CAISO - active state-of-charge management

4. Proposed Design Enhancement – an Energy-Neutral AGC Signal Revised 9/4/14 • To address issues raised in the 5/20/14 rejection, the regulation market design will be enhanced to allow Alternative Technology Regulation Resources (ATRRs) the option to receive either: • An “energy-neutral” trinary AGC dispatch signal, or • A “continuous” AGC dispatch signal, as proposed in the filing that FERC rejected • The “continuous” AGC dispatch signal is the same signal currently used for generators • An “energy-neutral continuous” AGC dispatch signal • Choice of signal may be changed with 30 day notice, effective at the start of the next quarter

5. Energy-Neutral AGC Dispatch • What is an “energy-neutral” dispatch signal? • Over a relatively short time period (5-15 minutes), the amount of energy dispatched above the midpoint will be approximately equal to the energy dispatched below the midpoint • This eliminates any tendency for a limited energy storage-based regulation technologies with at least 15 minutes of storage (full to empty) to ”fade” during an hour when the average Area Control Error is not close to zero. • This approach has been approved by FERC in PJM

6. Energy-Neutral AGC Dispatch is the Simplest, Quickest, Most Direct Route to ISO-NE Compliance • ISO is already working with KEMA Consulting to develop and test a PJM-style energy-neutral dispatch signal. KEMA: • Performed the analysis on which the PJM design is based • Has significant additional experience working on regulation dispatch designs to meet NERC compliance standards in California, ERCOT and Hawaii • The infrastructure already developed for the originally planned Order 755 go-live this past May can be retained • Little to no impact on how Participants and System Operators interact with the regulation market • The MISO/NYISO/CAISO designs would require much greater structural changes to New England energy/reserve/regulation markets • Software development can be done primarily in-house • ISO proposes an effective date in March 2015 • Development work can commence after Offer Flexibility changes are complete • Avoids mid-winter changes to real-time market systems

7. Comparison of PJM vs ISO-NE Energy-Neutral Design

8. Other Aspects of Order 755 Compliance • The filing rejected by FERC included a number of tariff changes that are still helpful and/or necessary • These changes will be re-submitted. See appendix for detail. • Waiver of 1 MW minimum size requirement until 10/1/14 for ATRRs in the Pilot program will be dropped. • No longer necessary or relevant • Two EMOF conforming changes already approved by NEPOOL will be included • See appendix for detail • Note: regulation self-schedules will no longer be available under EMOF

9. EMOF-Related Tariff Reference Correction New 9/4/14 • Energy Market Offer Flexibility implementation occurs 12/3/14, prior to Order 755 implementation on 3/31/15 • As a result, the reference in the NCPC rules to the calculation of regulation energy opportunity costs at III.F.2.2.3.4 must be revised to point to the Order 755 rules on 3/31/15. • The reference changes from III.3.2.2(i) to III.14.8(b)(ii) • No impact on how opportunity costs are determined

10. Next Steps • FERC filing on August 1st to defer implementation of the new regulation market until March 31, 2015 • MC vote at September meeting on the proposal discussed today • PC review at September 12, 2014 PC meeting • FERC filing immediately after PC approval requesting approval of the changes with an effective date of March 31, 2015 • Request order within 60 days of filing • IT development work to start as soon as: • Comment period expires with no protests • FERC issues an order accepting the proposed changes • Go-live on March 31, 2015

11. appendix

12. Tariff Changes Previously Approved by NEPOOL That Will Be Included/Re-Submitted • Correct error in original filing that mistakenly stated generators must provide a minimum regulation capacity of 10 MW. Correct amount for generators is 5 MW. Previously approved by NEPOOL • Change in Section III.13.7.3.1 to correct how ATRR load is treated in determination of Capacity Load Obligation. Previously approved by NEPOOL • Clarification of the range of registration options available to ATRRs. Previously approved by NEPOOL • Deletion of incorrect use of “payment” from the phrase “energy opportunity cost payment” in Section III.14.8(b)(ii). Previously approved by NEPOOL • Change to Performance Adjustments to reflect how performance monitoring will be implemented. Previously approved by NEPOOL • Offer Flexibility Conforming Changes Previously approved by NEPOOL • These were pulled from EMOF CC changes after the FERC 5/20/14 rejection • Set energy opportunity cost to zero when market participants exercise the Offer Flexibility self-schedule option for a regulation resource • Modify the calculation of the regulation penalty price to accommodate negative prices

13. How is the Energy-Neutral Signal Derived? • High pass filter applied to ACE • Decomposes the ACE into • low-frequency content (i.e. slow variation, potentially energy-biased) and • high-frequency content (i.e. fast variation about the low-frequency content signal): statistically energy-neutral over a given time-frame • High pass filtered signal is processed and sent to resources requiring this type of statistically energy-neutral AGC setpoint • Separate non-neutral signal is sent to conventional-type regulation resources • Filter design is being refined • PJM uses a 15 minute cutoff frequency • Objective: use ATRR characteristics more optimally • Accommodate limited energy storage • Reduce conventional resource ramping • Reduce overall capacity requirement • Reduce overall service requirement