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.

PRESENTATION OBJECTIVES AND BACKGROUND

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.

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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.

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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.

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ADDRESSING THE NET SUPPLY PROBLEMProposed FCM rule changes

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

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Changes to Defined Terms

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Revised Terms Explanation

Maximum Net Supply

(new term)

An estimate of the maximum hourly Net Supply for a Demand Response Asset as measured from the Demand Response Asset’s Retail Delivery Point

Net Supply

(new term)

Energy injected at the Retail Delivery Point by a Demand Response Asset with Distributed Generation

Net Supply Generator Asset

(new term)

The Generator Asset registered in the energy market at the same Retail Delivery Point as a Demand Response Asset with Distributed Generation capable of delivering Net Supply

Offered Full Reduction Time

Modified to incorporate the sum of the Economic Maximum Limits of any associated available Net Supply Generator Assets

Baseline Computations

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Market Rule Reference Explanation

III.8B.1 Demand Response Baseline Calculations

Replaced “net supply of energy to the electrical system” with the defined term “Net Supply”

III.8B.5 Baseline Adjustment

Clarified that Net Supply is used in calculating the baseline adjustment factor

Introduced a new low-end capping on RTEG Asset baseline calculations based on the maximum generation of the facility

FCA Qualification

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Market Rule Reference Explanation

III.13.1. Forward Capacity Auction Qualification

Prevented double-counting of Net Supply by prohibiting a generation and a demand resource located at the same Retail Delivery Point from both participating in the FCM

III.13.1.4.3. Measurement and Verification Applicable to All Demand Resources

Allowed Net Supply to qualify as a Demand Resource

Prevented double-counting of Net Supply by prohibiting a Net Supply Generator Asset from participating in the FCM

III.13.1.4.3.2. Measurement and Verification Documentation of Demand Reduction Values Applicable to All Demand Resources

Allowed Net Supply to qualify as a Demand Resource

Availability Computation for Supplemental Availability Bilaterals

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Market Rule Reference ExplanationIII.13.5.3.2.3. ISO Review Allowed Net Supply (with proper adjustment for

avoided T&D losses) to be used in the calculation of availability for Supplemental Availability Bilaterals

Energy Market Offer Requirements

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Market Rule Reference Explanation

III.13.6.1.5.1.Energy Market Offer Requirements

Added the concept that a Demand Response Capacity Resource meets its obligation through both Demand Response Resource and Net Supply Generator Asset offers

Clarified that requirements applied to Demand Response Resource Demand Reduction Offers also apply to any Net Supply Generator Asset Supply Offers

III.13.6.2.5.1.Energy Market Offer RequirementsIII.13.6.2.5.1.1.Day-Ahead Energy Market ParticipationIII.13.6.2.5.1.2. Real-Time Energy Market ParticipationIII.13.6.1.5.2.Requirement that Offers Reflect Accurate Demand Response Capacity Resource Operating Characteristics

Clarified that requirements applied to Demand Response Resource Demand Reduction Offers also apply to any Net Supply Generator Asset Supply Offers

Demand Response Capacity Resource Auditing

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Market Rule Reference Explanation

III.13.6.1.5.4.2. General Auditing Requirements for Demand Response Capacity Resources

Added Net Supply Generator Assets to the auditing provisions for Demand Response Assets

Added an adjustment for RTEG output that results in an injection of energy into the grid

o If a Net Supply Generator Asset and a RTEG Asset at the same location are both dispatched and Net Supply is produced, each asset may receive credit for the same injection of energy into the grid. The rules were modified to adjust the availability or performance of a Net Supply Generator Asset to prevent such double counting

III.13.6.1.5.4.3.3.1.Demand Response Capacity ResourcesIII.13.6.1.5.4.5.Additional AuditsIII.13.6.1.5.4.6.Audit Methodologies

Avoided Transmission and Distribution Loss Adjustment

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Market Rule Reference Explanation

III.13.7.1.5.2.Capacity Values of Certain Distributed Generation

Clarified that the avoided T&D loss adjustment is not applied to Net Supply produced by Distributed Generation

III.13.7.1.5.10.Demand Response Capacity Resources

Clarified the conditions under which the avoided T&D loss adjustment is applied in the availability calculations:Applied to demand reductionsNot applied to Net Supply

Hourly Availability Computations

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Market Rule Reference Explanation

III.13.7.1.5.10.1 Hourly Available MW

Added Net Supply Generator Assets to the availability calculations

Added an adjustment for RTEG output that results in an injection of energy into the grid

III.13.7.1.5.10.1.1Adjusted Audited Demand Reduction

III.13.7.1.5.10.2Availability Adjustments

Clarified that “asset” is a Demand Response Asset Added Net Supply Generator Asset to availability

adjustment caps Added an adjustment for RTEG output that results

in an injection of energy into the grid

III.13.7.2.5.4. Energy Settlement for Real-Time Emergency Generation Resources

Clarified the conditions under which avoided losses are applied in the availability calculations

Added an adjustment for RTEG output that results in an injection of energy into the grid

III.13.7.2.5.4.1Adjustment for Net Supply Generator Assets

Added an adjustment for RTEG output that results in an injection of energy into the grid

Conforming Energy Market Rule Changes

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Market Rule Reference Explanation

III.E2.1.3. Demand Response Asset Registration

Added Net Supply Generator Asset and related concepts to the registration rules

Added the Net Supply concept for Demand Response Assets

III.E2.5. Scheduling and Dispatching

Added clarification that Net Supply Generator Assets will be dispatched at the same Location as its associated Demand Response Resource

III.E2.7.2. Real-Time Demand Reduction Obligations

Removed an unnecessary reference to “net supply”

III.E2.7.3. Treatment of Net Supply

Replaced “net supply” with the defined term “Net Supply”

NEXT STEPSStakeholder and regulatory processes

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.

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Discussion

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APPENDIX: ILLUSTRATING THE NET SUPPLY PROBLEMHow should net-metered facilities participate in the FCM?

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.

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The Net Supply Problem – Illustrated

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30 MW DG Output

20 MW Demand ReductionNet Supply Net Supply

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.

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