Assessing Energy Efficiency Performance in All Hours

1. May 8, 2019 | Westborough, MA Henry Yoshimura Chair, Demand Resources Working Group Director of Demand Resource Strategy, ISO New England First Report of the Demand Resources Working Group to the Markets Committee Assessing Energy Efficiency Resource Performance in All Hours

2. Agenda • Background and Markets Committee Referral • Options for Determining Demand Reduction Values in All Hours • Summary of Discussions to Date • Next Steps • Appendix Note: Given the short time between the most recent DRWG meeting (April 29) and the posting deadline for Markets Committee materials (May 1), this report has not been reviewed by the DRWG

3. Background • During the Nov. 2018 – Mar. 2019 timeframe, the Markets Committee was presented with different proposals to address settlement imbalances associated with the lack of Capacity Performance Payments for energy efficiency resources (“EERs”) during Capacity Scarcity Conditions (“CSCs”) in off-peak hours • One potential solution offered was to assess the ACP of EERs for CSCs that occur in off-peak hours, and to use the resulting values to calculate Capacity Performance Payments for EERs • This approach requires a method that estimates EER performance in all hours

4. Markets Committee Referral • On March 5, 2019, the NEPOOL Markets Committee instructed the Demand Resources Working Group (DRWG) to: • Consider how EER performance in all hours for existing and new measures could be established and what, if any, additional methodological standards and reporting mechanisms are required to accommodate such a change • Prioritize options that require the least time and expense to develop and implement • See: https://www.iso-ne.com/static-assets/documents/2019/02/a5_ee_problem_statement_and_referral.docx • The DRWG is to report potential options back to the Markets Committee, which may include time and cost estimates associated with implementing each option • The Markets Committee requested periodic reports of the DRWG’s progress; today’s report summarizes the DRWG’s progress to date • The DRWG met three times on this issue: March 26, April 18, and April 29 • Next meeting currently scheduled for May 24

5. Options for Determining Demand Reduction Values in All Hours* • Average hourly demand reduction for all off-peak hours(single value approach) • Shaping options: shaping currently known on-peak savings estimates to all hours a. Shaping option A: estimate hourly EE performance as a function of on-peak EE savings and system load levels (see the Appendix for a detailed description) b. Shaping option B: distribute total seasonal off-peak energy savings using an average load shape for the season • Modelling option • Bottom-up option * See the following for more details:https://www.iso-ne.com/static-assets/documents/2019/03/ee_performance_evaluation_032619.pptx

6. Many DRWG Participants Were Favorably Inclined Toward Shaping Option A • Shaping Option A can be implemented relatively quickly and at low cost, and could be implemented in reasonably short order after a FERC Order is issued • Preliminary analysis indicates that savings and load levels are correlated • Given what is known at this time: • All other options require retrieval of data and/or additional analysis that would be costly and time-consuming • It would be very challenging for Market Participants to develop EER savings for all hours that meets current precision and confidence interval requirements using a bottom-up approach • All other approaches would be more complex for the ISO to implement

7. General Support for Shaping Option A is Preliminary and Conditional • Several participants continue to state their preference to “exempt EE from off-peak performance” or treat EE “neutrally during off-peak hours” • Several participants indicated that they are continuing to analyze Shaping Option A as well as other potential approaches to estimating EER performance in all hours, so general support for Shaping Option A is preliminary • Several participants questioned the need to calibrate EER performance in all hours (on-peak hours as well as off-peak hours); an alternative approach would be to implement a method that estimates EER performance only for the hours in which we currently do not have values (i.e., off-peak hours)

8. Issues Raised but Not in DRWG Referral Scope • Policy issues concerning when any recommended approach ought to be implemented – i.e., should the recommended approach be implemented as soon as possible, or only for prospective Capacity Commitment Periods? • The likely amount of time needed to implement Shaping Option A is being reviewed by the ISO • Changes in risk to Market Participants from implementing Shaping Option A

9. Next Steps • Discussions to date have been productive, cordial, and generally focused on the scope of the referral • Next scheduled DRWG meeting is May 24, 2019 (teleconference) • The plan is for DRWG participants to report back any additional information from analyses conducted and hear any remaining comments • Determine whether the DRWG has sufficient information upon which to make recommendations to the Markets Committee • Develop draft report for DRWG review • Present the final report to the Markets Committee

10. Discussion M&V

11. appendix Detailed Description of Shaping Option A

12. Shaping Option A: Hourly EER Performance as a Function of On-Peak Savings and System Load Levels • Savings produced by a portfolio of Energy Efficiency measures affecting a cross-section of end-use applications should be greater during high-load periods, and lower during low-load periods • Building on this concept, on-peak energy savings could be allocated to all hours based on load levels • Hourly EER performance is correlated to hourly energy consumption levels, but observed ISO System Load is net of the impact of behind-the-meter (BTM) generation • The largest component of BTM generation is PV, and this component continues to grow significantly • Hourly EER performance should be based on system loads that have been reconstituted (increased) by data on BTM PV performance • There appears to be general agreement on this point based on preliminary discussions to date • The ISO presented refinements to Shaping Option A, which were discussed on April 18 and 29 – See:https://www.iso-ne.com/static-assets/documents/2019/04/ee_performance_evaluation_revised_option_a_4_23.pptx

13. On-Peak Demand Resource Shaping Proposal • Where: • ACPee= Actual Capacity Provided by the EER • Perfee, On-Peak = The EER’s reported On-Peak performance for the month • SL= System load during CSC interval(s) • PV = BTM PV during CSC interval(s) • ASLs,w = Average System Load during On-Peak hours of most recently completed 3 summer or 2 winter performance months • PVs,w= Average BTM PV output during On-Peak hours of most recently completed 3 summer or 2 winter performance months • 1.08 = gross-up for avoided T&D losses

14. Seasonal Peak Demand Resource Shaping Proposal • Seasonal Peak hours are hours where load is 90% of the 50/50 peak load forecast for each season • This is the appropriate calibration point for Seasonal Peak Resources • Where: • ACPee = Actual Capacity Provided • Perfee, Seasonal Peak = The EER’s reported performance for the month • SL = System Load during CSC interval(s) • PV = BTM PV during CSC interval(s) • SPLs,w = 90% of the net 50/50 peak load forecast for the season • PVs,w = Forecasted effect of BTM PV during peak load for the season • 1.08 = gross-up for avoided T&D losses