Reliability Demand Response Product February 25, 2011 John Goodin Lead, Demand Response Market Design & Regulatory Policy Jill Powers Manager Energy Measurement, Acquisition and Analysis

Today’s Discussion Why the Reliability Demand Response Product (RDRP) Product Foundation- Proxy Demand Resource Product What is RDRP and How is it being Implemented?

Today’s Discussion Why RDRP?

RDRP addresses long standing concerns with emergency demand response programs. Emergency demand response programs can only be utilized under extreme conditions but account for a significant amount of resource adequacy requirements (nearly 4%). Dispatching these resources outside of ISO markets and systems can suppress price signals. CPUC initiated a settlement proceeding as part of its demand response efforts to address these concerns.

RA Qualifying Emergency Demand Response The settlement resolved these concerns and defined requirements for reliability demand response product. Limits the quantity that can satisfy the resource adequacy requirement to 2% of the ISO all-time system peak. Transitions from the current ˜ 4% to the 2% limit as follows: Allows emergency resources to be available at a Warning Notice in advance of a Stage 1 or Stage 2 emergency. RA Qualifying Emergency Demand Response 2012 2013 & Beyond 3% 2.5% 2%

RDRP integrates emergency DR programs into the ISO market. Product can be offered by any demand response provider Eligible to set the locational marginal price Like a generator, dispatched by location and MW quantity Enables economic energy bids in the day-ahead In real-time, bids limited to ISO bid cap and 95% of bid cap Sets availability limits of 15 times and/or 48 hours per term

Wholesale Demand Response RDRP helps complete package of solutions for wholesale market demand response. Wholesale Demand Response Proxy Demand Resource Integrates Price Responsive/Economic Demand Response Participating Load Integrates Large Loads, Pumps, and Pump Storage Resources Reliability Demand Response Integrates Emergency Demand Response Future Enhancements Load providing Regulation Participating Load refinements SCP for DR resources

Product foundation- Proxy Demand Resource Today’s Discussion Product foundation- Proxy Demand Resource

Participating Load Product Long-standing CAISO DR Model PL (CLAP) Load Serving Entity (LSE) and Demand Response Provider (DRP) act as single entity PL “Load” scheduled and settled at Custom LAP (CLAP) “Pseudo gen” used to offer A/S capacity and RT energy resource at CLAP PL load and pseudo generation resources treated independently in the DA scheduling process DLAP LSE (Default LAP) Didn’t satisfy FERC Order 719 that enabled the LSE and DRP to be distinct entities

CAISO Needed New Demand Response Solutions Integrate DR into the CAISO Market Enable easier integration of retail DR programs Increase DR participation in the wholesale markets Provide a Model that Enabled “Direct Participation” Allow Demand Response Provider (DRP) to participate independent of the load-serving entity (LSE) Comparable treatment allowing Day-Ahead, Real-Time Energy and Ancillary Service (AS) market participation Enable DR all hours/days of the year

Proxy Demand Resource (PDR) New Demand Response model Launched August 10, 2010 Load serving entities (LSE) load continues to forecast bid at the DLAP. Demand response provider (DRP) bids the demand response portion of the load into the ISO markets as a separately defined proxy demand resource (pseudo generator). The LSE and the DRP could be the same entity or two separate entities. DRP PDR LSE DLAP Proxy Demand Resource Provides Direct Participation and Simplification of Forecasting/Scheduling

Proxy Demand Resource Implementation Elements CAISO Agreement Establish Resources Registration Market Participation Baseline Measurement of PDR Performance Settlement Demand Response Provider Load Serving Entity

Proxy Demand Resource Implementation High-Level Process Integration

New DR System to Support PDR Leveraging UISOL’s DRBizNet Framework Manage PDR/RDRP registration process Track underlying load locations Consolidated PDR/RDRP events (outages, awards, dispatches) All events are available on the DRS event search screen PDR/RDRP interval meter data management Automated baseline calculations Performance Measurement calculations and Default Load Aggregation (DLA) management

PDR/RDRP Processes High Level Sequential Activity Flow Market Post-Market Activities Pre-Market Activities Registration Process Begin: Provide end use load location info End: Receive Market Resource ID for PDR Submit 45 days of historic meter data Establishing PDR Baseline Market Participation Daily Meter Data Submission for PDR or DA RDRP; after the fact for RT only RDRP resources Baseline Performance Measurement Default Load Adjustment Settlement Access DRS Demand Response System Secure Agreements

Agreements Demand Response Provider establishes agreements prior to participating in the ISO Wholesale Energy Markets Agreement with Load Serving Entity (LSE) Agreement with Utility Distribution Company (UDC) Agreement with ISO (DRP and SC) “Above the Line” – Within the CAISO “Below the Line” – Outside the CAISO Wholesale Market Participation as PDR or RDRP Settlement of PDR or RDRP Performance with DRP Settlement of DLAP Load incorporating DLA with LSE Any Other Contractual Arrangements Between the DRP & LSE FERC Authority Retail

Manage Registration Process DRP uses the DR System to submit service locations and registration information for LSE/UDC review and ISO approval. DRP creates Registrations to establish a PDR or RDR resource A Registration is composed of one or more locations in a single Sub-Lap Location refers to a retail customer location uniquely identified by a UDC account number LSE and UDC have opportunity to review Registration information through DR System and provide CAISO with input on its accuracy CAISO makes final approval of registration PDR/RDRR Constrained to Single Sub-LAP

Sub-LAPs 23 Sub-LAPs within CAISO Control Area Low to no congestion between PNodes within Sub-LAP Historically, congestion interfaces between Sub-LAPs

What is rdRP and How is it being implemented? Today’s Discussion What is rdRP and How is it being implemented?

RDRP Qualifications Availability All year/24x7, as resource is available Summer and winter terms 15 events and/or 48 hours/per term Min run time ≤ 1 hour and max run time ≥ 4 hours Advance notice + ramp to max curtailment must be ≤ 40 minutes RDRP resources: Min load reduction (single or aggregate) of 0.5 MW Contained within a sub-LAP

RDRP Qualifications (cont’d) Dispatch Real-time: based on emergency operating procedures Operating reserve shortage (ISO market/dispatch) CAISO transmission emergency (ISO market/dispatch) Local T&D emergency (utility dispatch/ISO notification) Marginal market clearing and dispatch Discrete or “block” dispatch option available Address “firm service level” interruptible customers Metering Hourly interval data for Day-ahead participation Up to 15 minute interval ‘reads” for real-time participation Must be provided to ISO as 5-minute SQMD

RDRP Market Participation Market Systems used for bidding as well as for collecting market results and receiving dispatch instructions in Real-Time. RDRR can bid into the following markets: Day-Ahead energy market (economic bids) Marginal clearing only in day-ahead Real-Time market (reliability dispatch only) Marginal Dispatch, or Discrete dispatch option available in real-time No A/S or Residual Unit Commitment participation

RDR Resource (RDRR) Modeling Market Systems and Applications RDRR/PDR modeled in the network as a generator Pre-defined RDRR in Sub-LAP Pre-modeled and pre-assigned a Generation Distribution Factor (GDF) by the CAISO Custom RDRR in Sub-LAP DRP submits for a customized RDRR by selecting buses and defining the GDF to the selected buses

Baseline Methodology RDRR Meter Data Submission Process DRS used for Meter Data Submission, Baseline Calculations, DR Performance Measurement and DLA RDRR Meter Data Submission Process Day-Ahead participation- requires daily submission Including initial 45 days of historical usage for establishing initial baseline data Real-time participation only- requires submission of all current and historic meter data after the event by T+5B Performance of the RDRR is determined using a customer baseline calculation 10-in-10 non event day baseline methodology Rules for selection of baseline days Symmetrical 20% multiplicative adjustment

Settlement Process Settlements and Market Clearing (SAMC) system performs calculations to settle the RDRR and LSE Load. DRS source of DR Performance Measurement used by SaMC for settlement of DRP’s RDR resources Default Load Adjustment provided by DRS to SaMC for settlement of LSE’s DLAP Load RDRR settled as a proxy generator PDR paid at Day-Ahead or Real-Time LMP Market Participants receive a settlement statement 7 business days after the trade date

Simple Settlement Example with Default Load Adjustment LSE DA Schedule = 10MW RDRR DA Award = 2MW Settlement Assumptions: LSE Adjusted Meter Quantity 2 MW DLA + 8 MW Actual = 10 MW 8 MW RDRR Performance Measurement Adj Baseline – Actual = 2MW 2 MW DLA DLA 2 MW Add RDRR Performance to LSE DLAP ACTUAL LSE paid for 0 MW (Scheduled – Actual) DRP paid for 2 MW (Expected = Performed) No Double Payment for Demand Response

RDRP to be Implemented Spring 2012 PDR experiences that carry over to RDRP implementation Challenges – Candid Comments from CAISO Implementation Team Multiple User Accessibility to DRS Real Time Adjustment to DR Performance Measurement Conversion of “Hourly Baseline DR Performance Measurement” to a 10 minute performance measurement for RT market activity Request greater visibility of calculation information Updating API to allow greater upload/download functionality DRS Enhancements – Always wanting more… Request for more/different baseline types; part of CAISO Tariff Challenge to assess need and best fit Baseline Methodology – Desire for more options

John Goodin Jill Powers Contact Information John Goodin Lead, Demand Response Market Design & Regulatory Policy (916) 608-7154 jgoodin@caiso.com Jill Powers Manager, Energy Measurement Acquisition & Analysis Market Services (916) 608-5781 jpowers@caiso.com