WG-1: DSPP MARKETS COMMITTEE

1. New York State Department of Public Service WG-1: DSPP MARKETS COMMITTEE July 10, 2014

2. About this Presentation • This presentation includes input from all sectors and parties This presentation does not nor was it intended to represent a consensus view For this committee, policies and facts are intertwined, and development of the issues requires consideration of both

3. Agenda • Committee Overview • Products & Services • Challenges & Pathways to Increased DER Penetration • Initial Model • Interaction with Wholesale Markets • Summary

4. Committee Overview: Participation & Structure • Each sector represented on a Steering Committee • Steering Committee members coordinated with parties within sector/sub-sector • Weekly working meetings of the Steering Committee • Weekly reports to and requests for information from the full Committee • Interaction with Wholesale Markets subgroup

5. Committee Overview: Scope • The scope and objectives of the Markets Committee was to: • Identify potential products, services and transactions between various parties under the new REV construct • Develop information on the value of the products and services • Focus on the near term or initial stage of REV rather than end state market structure • Define challenges and pathways to further proliferation of DER provision of products and services • Recommend a potential initial model or procurement structure to facilitate DER • Describe interaction of DSPP and other parties with NYISO wholesale markets

6. Committee Overview: Key Takeaways • There are numerous potential products and services that DER can provide • Some exist today; it is expected that new and innovative products will develop in the future • Precise definitions of DSPP products and services will be of great importance; the varying legal, industry, and customer context leads to ambiguity in such basic terms such as energy, capacity, demand response, and distributed energy resources •  Distributed energy resources exist today • Programs and initiatives by PSC, NYSERDA, utilities, ESCOs, NYISO etc. • Resources may be under utilized • More resources are needed to optimize efficiency and achieve the goals of REV • There are a number of challenges to further proliferation of DER • In the initial stage: • The utilities will play a key role in further developing and utilizing DER • Utilities and DER providers need to be engaged and share information • There are regulatory actions that can help facilitate DER development • NYISO market rules may also need to be aligned

7. Agenda • Committee Overview • Products & Services • Challenges & Pathways to Increased DER Penetration • Initial Model • Interaction with Wholesale Markets • Summary

8. Products & Services: Overview • The Committee broadly defined DER to include: • Distributed generation (e.g., fuel cells, PV, CHP, etc.) • Energy storage • Demand response • Energy efficiency • Microgrids • Other distributed resources New innovative resources are expected to be developed in the future For this effort, products and services viewed from two perspectives: • Procured by the DSPP for the benefit of the electric distribution system or to meet public policy requirements • Procured by and among customers, ESCOs, DER providers and other third parties

9. Products & Services: Bought by the DSPP Potential Benefits • Multiple benefits can be expected from some products:

10. Products & Services: Bought by the DSPP Potential Benefits * NOTE: The Committee disagreed as to whether energy and capacity are products that the DSPP would buy/make a market for and whether they provide value to the distribution system.

11. Products & Services: Bought by the DSPPPotential Benefits • The value of benefits of DER products are dependent on specifics of DER and system conditions. • Potential benefits will be influenced by: • Location • Resource • Time of day • Resource variability • Predictability and visibility • Price • Other factors

12. Products & Services: Bought by Others

13. Products & Services: Provision of DER • DER products and services may provided though various markets or funding mechanisms • Bilateral agreements • DSPP tariffs (e.g., tiered) • Fee based aggregation • DER funding based on future savings • Wholesale markets • On-bill financing • Property Assessed Clean Energy (PACE) • DSPP, DER, ESCO and/or Third-Party provision of services

14. Agenda • Committee Overview • Products & Services • Challenges & Pathways to Increased DER Penetration • Initial Model • Interaction with Wholesale Markets • Summary

15. Challenges and Pathways: DER Penetration & Utilization • DER penetration is not currently at a level where an “end-state” market would function • Need to identify and remove challenges to entry, expansion and integration of DER • Need to provide appropriate market structures and incentives Adapt and Improve Market DER Penetration Establish Day 1 Market Build Asset Base Time

16. Challenges & Pathways: How to Facilitate DER Penetration • Pricing • Monetize DER benefits • Varying compensation based on distribution level benefits (location, level and timing of system needs, and resource performance) • Monetize public policy and customer benefits • Develop appropriate pricing for services based on values and costs (e.g., incentives for performance of DER) • Information availability • Distribution system needs and capabilities • DER performance and commitment • Customer account/usage information • Billing and Metering • Standardization of metering, verification and reporting requirements

17. Challenges & Pathways: How to Facilitate DER Penetration • Technical • Interconnection rules • Streamline • Coordinate electric, gas and steam operations • Establish monitoring, control and verification of DER installations • Deployment of communication infrastructure • Other • Address cost and financing of DER • Incentivize utilities to consider DER alternatives to T&D investments • Continue RPS, EEPs, SBC through transition • Revisit standby rates (cost allocation) • Clarify future of net metering • Improve LSE/customer data submitted to the NYISO for capacity and energy settlements • Revise benefit/cost analysis framework to include societal benefits and costs (e.g., environmental) • Ensure use of DER maintains reliability of the T&D system

18. Agenda • Committee Overview • Products & Services • Challenges & Pathways to Increased DER Penetration • Initial Model • Interaction with Wholesale Markets • Summary

19. Initial Model: Utility Roles Third-Parties Customers DSPP Bought by customers Bought by DSPP Integrated Resource Planning Customer engagement Services  (e.g. metering and financing options) Aggregation Product valuation and pricing (i.e. Tariff )

20. Initial Model: Utility Roles • An entirely market-based system in the near term is probably unrealistic • Utilities will likely play an integral role in facilitating and integrating DER • Utilities should do the following in the near term: • Identify areas where DER would have near term value • Provide information and develop sufficient price signals to reflect distribution system needs for planning and real-time operations • May require DSPP explore DER opportunities as alternatives to T&D investment through a targeted RFP or rates • Partner with customers in identifying, designing and developing DER projects • Integrate DER in system planning • First establish visibility into new and existing DER • Develop standard methods for predicting, measuring, observing, and verifying performance • Where feasible, utilities should standardize (e.g., information to be exchanged between utilities and DER providers; contracts; etc.)

21. Initial Model: Potential Regulatory Actions • Regulatory actions may be needed to help facilitate utility procurement of DER and incorporation into its planning and operation functions • Some potential actions include: • Provide guidance on “values” to be monetized and develop appropriate metrics (e.g., environmental benefits, resiliency, etc.) • Adopt a cost/benefit valuation methodology for DERs as alternatives to T&D investment • Multiple types of market and procurement models will able to be developed using the same valuation methodology but applied to different compensation mechanisms • Leverage and expand existing programs as a bridge to sufficient DER penetration to animate markets • Create a platform for communication, monitoring and dispatch of distribution level DER • Address tariff, pricing and billing issues and policies (e.g., standby rates, net metering, capacity tags, access to customer information, utility rate design)

22. Initial Model: Potential Regulatory Actions • Potential actions include (continued): • Address technical challenges (e.g., interconnection requirements, equipment limitations associated with two way flow; DER measurement/verification) • Provide incentives, through performance-based ratemaking, for the utilities to pursue DER deployment opportunities • Create or modify rate structure to more appropriately reward customer load responsiveness • Begin transitioning toward advanced metering technology and direct load control where economic • Ensure proper market rules are in place to create a level playing field and give all competitors equal opportunities to sell their products • Develop a common portal to exchange information and solicit interest in products between Utilities, Customers, DER Providers, ESCO’s and other third parties • Continue to address barriers or conflicts as they arise

23. Agenda • Committee Overview • Products & Services • Challenges & Pathways to Increased DER Penetration • Initial Model • Interaction with Wholesale Markets • Summary

24. DSPP Interaction with Existing Markets and Programs • NYISO Markets • Energy Markets • Capacity Markets • Ancillary Services • Demand Response Opportunities in NYISO Programs • Day Ahead Demand Response Program – Energy • Demand Side Ancillary Service Program – Ancillary Services • Special Case Resources - Capacity • Emergency Demand Response - Reliability • Existing Utility DER Programs • Con Ed Demand Response Programs/NYPA and LIPA programs

25. DSPP Interaction with Existing NYISO Markets • DSPP use of DER to interact with the wholesale market: • Offsetting energy purchases by flattening load • Aggregating customer demand response capability • DER visibility and control: • Enhances market efficiency and operational control • Provides distribution and bulk power system reliability benefits • Aligned market rules: • Ensure efficient and appropriately valued DER participation in both arenas. • Avoid double payment for the same product purchased in both markets • NYISO rule changes subject to NYISO governance

26. Maximizing the Benefits of DSPP Interaction with the NYISO • Assess short-term impacts of increasing DER integration on the wholesale markets. • Avoid unanticipated adverse impacts on bulk power system: • Market commitments • Real time operations • Reliability rules and requirements • Plan DSPP market/program design to avoid unanticipated impacts requiring redesigns

27. Understanding the Impacts of Increased DER for Program Design and System Planning • Is an evaluation of the impact of DER penetration on the New York bulk electric system valuable? • Reliability, including installed reserves • Increased regulation and other ancillary services • Impacts on production costs • Planners must: • Recognize increased penetration of DERs • Account for its value • Understand reliability impacts • Design DER programs to ensure load forecasting and system planning can rely on results • Align measurement and verification requirements

28. Maintaining Demand Response Capability • Uncertainty as a result of the recent D.C. Circuit ruling on the FERC’s authority • Ongoing DER value to the wholesale market through DSPP rates / programs that: • Shape the peak energy use/price • Satisfy the installed capacity obligation and • Reduce energy purchases • Reliability can be facilitated by providing load reduction at NYISO request • Provide timely, transparent compensation to the DSPP for any bulk power reliability benefit and DSPP administrative services

29. Agenda Committee Overview Products & Services Challenges & Pathways to Increased DER Penetration Initial Model Interaction with Wholesale Markets Summary

30. Summary • There are numerous potential products and services; some exist today; it is expected that new and innovative products will develop in the future • Distributed energy resources exist today and they provide products and services today • In order to fully achieve the goals of the REV initiative, including more efficient distribution and bulk power systems, additional resources and better utilization of existing resources is needed • There are a number of challenges to further proliferation of DER • In the initial stage, the utilities will play a key role in further developing and utilizing DER More information sharing and engagement from both utilities and DER providers is needed

31. Summary (continued) • There are regulatory actions that can help facilitate DER development (e.g., performance based regulatory design, address tariffs and pricing) • NYISO market rules also need to be aligned to ensure efficient use of DER participants • Approaches to increasing the penetration of DERs should occur systematically, reliably and safely.