1. Pay for Performance Regulation
Donald Tretheway
Senior Market Design and Policy Specialist
January 11, 2012

2. Agenda Time Topic Presenter 1:00 – 1:15 Introduction Chris Kirsten
1:15 – 1:30
FERC Order 755
Don Tretheway
1:30 – 2:50
Changes from Straw Proposal
2:50 – 3:00
Next Steps

3. ISO Policy Initiative Stakeholder Process
POLICY AND PLAN DEVELOPMENT
Issue
Paper
Straw
Proposal
Draft Final
Proposal
Board
Stakeholder Input
We are here

4. FERC Order 755 ISO compliant ISO non-compliant
Capacity payment based upon energy opportunity costs of marginal unit
Payment of net energy from providing regulation
ISO non-compliant
Market based mileage payment
Accuracy adjustment for mileage payment
Inter-temporal opportunity costs implemented in participant’s bid not by the ISO, but must be verifiable by the ISO

5. What is mileage and accuracy?
Mileage: the absolute change in AGC set points between 4 second intervals
Accuracy: comparison of AGC set point to actual telemetry
Mileage adjustment for under-response
Hourly percentage for response accuracy to AGC set points

6. Changes from Straw Proposal (1 of 2)
Clarified the methodology to set marginal clearing prices for regulation capacity and mileage rate based upon the expected total regulation costs and the historical accuracy of individual resources
Modified calculation of the mileage multiplier to an hourly value using historical data from the prior week
Changed the interval to calculate accuracy and mileage for individual resources from hourly to 15 minutes
Clarified how the ISO will settle incremental RTPD mileage awards and the impacts of these awards on bid cost recovery revenue

7. Changes from Straw Proposal (2 of 2)
Modified how the ISO will measure the minimum performance threshold to reflect a monthly 30 day average of 15 minute interval accuracy measurements
Propose to publish a report on pay for performance data to assess mileage multiplier calculation, bid cap, and minimum performance threshold after obtaining one year of actual data
Added a mileage bid cap of $50.00
Determined ramp period for regulation certification will be 10 minutes

8. Mileage Multiplier and Historical Performance
Hourly Mileage Multiplier based upon prior week
Resource specific historical accuracy
Calculated monthly based upon prior 30 day average 15 minute accuracy
Used for minimum performance threshold and to determine market awards

9. Determination of Market Clearing PricesB C D
A: Determine expected cost B: Divide expected cost by historical accuracy C: Select the highest mileage bid that cleared D: Capacity is highest expected cost less expected mileage

10. Alignment with RT regulation 15 minute award interval
Accuracy and mileage determine per 15 minute interval
Same measurement interval for DA and RT awards
Mileage rate if both DA and RT regulation award
Weighted price paid for actual miles in 15 minute interval
Mileage payments included in BCR revenue
Weighted split if DA and RT regulation award
No accuracy adjustment included

11. Market performance report 1 year after implementation
Using actual mileage and accuracy data to evaluate:
Appropriateness of the minimum performance threshold level
Historical data used to calculate the mileage multiplier used to determine the expected cost of regulation
Level of the mileage bid cap given the change in resource participation under the new compensation mechanism
Other
Determine if modifications are needed to refine PFP regulation design

12. Next Steps Please submit comments to PFPRegulation@caiso.com Item Date
Post Revised Straw Proposal
January 4, 2012
Stakeholder Conference Call
January 11, 2012
Stakeholder Comments Due
January 18, 2012
Post Draft Final Proposal
February 8, 2012
February 15, 2012
February 22, 2012
Board Meeting
March 22, 2012
Please submit comments to