DRWG AUGUST 27, 2014 | Holyoke MA

1. DRWG AUGUST 27, 2014 | Holyoke MA Doug Smith DEMAND RESOURCE ADMINISTRATION Demand Response Component Overview Winter Reliability Solutions 2014-2015

2. Overview • Modification to the 2013/14 Winter Program • Filed in July 2014, FERC decision expected in September • Same goal: maintain reliability by • Creating incentives for dual fuel resource capability and participation, • Offsetting the carrying costs of unused firm fuel purchased by generators, and • Providing compensation for incremental demand response services to maintain Thirty-Minute Operating Reserves • Proposed changes are in response to: • Generator difficulty in replenishing oil mid-winter • More severe gas constraints than anticipated • Retirements of non-gas generators

3. Overview (continued) • Generation Component • Compensation for unused oil inventory and unused LNG contract volume • Limits ISO discretion in selecting offers and pays participants an administratively set rate • Account for newly-implemented market changes • Commissioning dual-fuel resources • Offer flexibility • Enhanced clarity for generator obligations • Demand Response Component • No changes to eligibility • Increased operational flexibility • Eliminated energy penalty • Compensation administratively set based on oil rate

4. Demand Response Winter ReliabilityEligibility • Open to end-use facilities • That normally consume energy and can reduce demand in response to dispatch instructions • With behind-the-meter generation, including facilities that can produce net supply • Assets may or may not be associated with FCM resources • If associated with an FCM resource, must have capacity in excess of that needed to meet CSO • Individual end-use facilities may be aggregated into one asset • Must be located in the same dispatch zone • Cannot result in total demand reduction and net supply at a single node of 5 MW or greater

5. Demand Response Winter Reliability Offers • Limited to 100 assets • Total cannot exceed 100 MW • Offers must be submitted by October 1, 2014 • ISO will select assets based on • Capacity • Location • Historic performance (where available)

6. Demand Response Winter Reliability Dispatch • Assets must be available for dispatch between 0500 and 2300, all days of the week • Dispatches: • Will not exceed six hours • Will be for the total committed MW quantity • Will exclude assets or zones if there are local reliability issues • No more than two dispatches each day • A minimum of four hours between dispatches • No more than 30 dispatches during the program • Dispatch will occur prior to or concurrent with an OP-4 Action 2 dispatch

7. Demand Response Winter Reliability Monthly Payment • Assets not mapped to an FCM Resource • $1,800 multiplied by the average MW performance in the month • Capped at 150% of committed quantity • Assets mapped to an FCM Resource • $1,800 multiplied by the average MW performance in the month and the Performance Factor • Capped at 100% of committed quantity • Performance Factor less than or equal to 1 ensures performance is incremental to the CSO of the resource the asset is mapped to • Payment rate is equivalent to the rate for unused oil inventory on an MMBTU basis assuming all hours are called

8. Demand Response Winter Reliability Energy Payment • Energy Payment • Maximum of $250 or the Zonal Locational Marginal Price, multiplied by the MWh delivered • Demand reductions will be multiplied by an avoided energy loss factor of 1.065 • Energy payments made for net supply to a generation asset at the same retail delivery point coincident with a winter dispatch will be subtracted • Transitional Demand Response energy payments for hours coincident with a winter dispatch will also be subtracted

9. Demand Response Program Penalties • No energy charges for underperformance for 2014/2015 • Assets failing to meet 75% of committed MW forfeits the capacity payment for the month