1. DER Provide Grid Services for the 21 st Century Electric System Lorenzo Kristov, Ph.D. Principal, Market & Infrastructure Policy More Than Smart Conference “California’s Distributed Energy Future” March 17, 2016

2. Ideas in this presentation are offered for discussion purposes only, and do not reflect the views or policies of the California ISO. Page 2

3. Grid evolution in progress today involves a paradigm shift, not a straight extrapolation of the present. Distributed energy resources (DER) are driving changes to all aspects of the electric system –DER growth is driven by bottom up customer demand and autonomous adoption –Enabled by powerful, low-cost emerging technologies The needed shift is to think in terms of a decentralized services paradigm, not just the kWh commodity –DER will be providers of grid services, not just users of the distribution grid Local jurisdictions will be key participants and innovators in grid evolution Page 3

4. DER will play a major role in achieving SB-350 targets. DER will help meet the challenges of integrating high volumes of solar and wind in a more volatile future – Local storage & EV can charge at low/negative spot prices & make good use of mid-day excess supply – Co-locate storage & EV charging with solar & wind to smooth output to the grid – Discharge to mitigate steep ramp & late afternoon peak – Provide 2-way DR, frequency response & regulation – Storage with rooftop PV minimizes export onto distribution – Manage local variability locally & flatten load profiles – Provide enhanced reliability & resilience at the local level – Open up grid capacity to access distant renewables without costly new transmission

5. ISO offers several market pathways for DER. Distributed Energy Resource Provider (DERP) –Aggregator can form a virtual resource from diverse DER types for wholesale market participation – (filed with FERC March 4) Provide energy, reserves, regulation under non-generator resource (NGR) model Energy Storage & Distributed Energy Resources (ESDER) – (filing Q1-2016) –Adds performance metrics for behind-the-meter DER to provide demand response (energy, reserves) under proxy demand resource (PDR) model This year: ESDER Phase 2 – (est. filing Q1-2017) –Enhance PDR for 2-way dispatch & regulation –Expand options for multiple-use configurations

6. DER provide challenges and possible solutions to distribution system operations. Flows on distribution circuits can reverse direction ISO dispatches of DER will have impacts on distribution that ISO cannot see or predict DER providers seek to provide services to multiple users: –End-use customers (e.g., load management) –Distribution system services to support operation and infrastructure deferment –Wholesale market and bulk system services –Potential peer-to-peer services via future distribution-level markets All factors add up to new challenges for distribution utilities, which DER can help solve by providing needed services –CPUC DRP proceeding will address specification of distribution service requirements

7. Local jurisdictions help create the grid of the future. –Cities, counties, water agencies, etc. are highly motivated, capable innovators Climate action plans, clean energy goals, local economic development Tailor local energy programs to fit local customer mix, climate zone, geography/topology, local economic resources & needs “Convergences” between electricity network and other municipal services – water supply, wastewater treatment, waste management, local transport, high-speed internet Local resilience through community microgrids –Distribution utilities & DER developers can partner with cities/counties –Regulators become facilitators of change rather than driving change through top-down policy Page 7

8. Interesting policy and design questions await answers. Devise revenue streams and rate designs based on services and volatility rather than kWh New complex multiple-use scenarios – DER serve and earn revenues from multiple entities – When do wholesale/retail rates apply? – Which entity (ISO, UDC, customer) has operational priority? – How to sort out possible double payment for the same performance? – How can customer and distribution system uses coexist with resource adequacy must-offer requirements? – How might DER be operated & compensated as T/D assets and participate in wholesale market? Define roles and responsibilities of ISO and UDCs at the T-D interface with high DER

9. Thank you. Lorenzo Kristov lkristov@caiso.com lkristov@caiso.com Page 9