1. january 15, 2013 | NEPOOL markets committee Jonathan Lowell Principal analyst | market development Tariff Clarifications to Enable an Improved Implementation Regulation Market – Improved Resource Modeling and AGC Dispatch Coordination

2. Order 755 Regulation Market Implementation • ISO’s development team has been working to meet the October 1, 2014 Order 755 implementation deadline • The FERC approved design included separate AGC dispatch algorithms for Generators and Alternative Technology Regulation Resources (ATRRs) • Continuously varying setpoints for generators • Trinary dispatch (high, low or midpoint setpoints) for ATRRs • Coordination required to ensure consistent treatment of different resource types • This was thought to be the simplest and fastest solution to meet Order 755 compliance requirements when discussed with stakeholders in 2013-14.

3. ISO’s Software Vendor is Able to Provide Improved AGC Dispatch Solution with Important Benefits • Discussions with the principle software vendor identified an existing software solution that, with modifications, can meet ISO requirements better, sooner, and less expensively than the planned “two algorithm” approach approved by FERC. • Allows ISO’s internal development resources to focus more effort on other critical projects • Allows for earlier Order 755 implementation, new target is end of May 2014 • Implementing the improved solution requires tariff changes to remove references to the trinary AGC dispatch.

4. Single Automatic Generation Control (AGC) Algorithm Better Meets Everyone’s Needs • “Better” because • Single algorithm treats all resource types consistently • No need to coordinate between two independent approaches • Generators will see little or no change in how they are dispatched • Alternative Technology Regulation Resources (ATRRs) will now receive continuous AGC setpoints (just like generators) • The trinary dispatch signal used in the Pilot Program is eliminated • ISO System Operations will see more accurate regulation outcomes because coordination across all resource types will happen automatically

5. No Changes Required to Order 755 Performance Monitoring Approach • The ISO evaluated several modifications that take advantage of a single AGC dispatch algorithm for potential benefits, such as: • Greater accuracy, greater transparency and more consistent results • Greater flexibility to handle resources with widely different performance characteristics • The ISO determined the potential benefits were outweighed by the additional implementation cost and complexity • The planned methodology using defined performance tolerance bands and defined grace periods can be effectively applied to all resource types under the single “continuous” AGC dispatch • No tariff language changes are proposed

6. Flexible Approach to ATRR Registration & Modeling for Energy Settlement • ATRRs inherently produce energy injections and/or withdrawals when providing regulation • When the energy is supplied via a retail provider, the ATRR has no energy settlement with the ISO • For example, regulation provided using a demand-response technology for loads served under a retail supplier contract or tariff • ATRRs that desire “wholesale” settlement of these ancillary energy flows may opt to register as a combination of resource types: • ATRR for regulation • ARD or load asset for energy consumption • Settlement Only Generator for energy injections (if < 5 MW) • Non-dispatchable Generator for energy injections (if >= 5 MW)

7. Flexible Approach to ATRR Registration & Modeling (continued) • Composite modeling/registration approach is quite similar to what we do today for pumped storage facilities (modeled & registered as Gen + DARD) • A resource that provides regulation and registers as a dispatchable generator provides regulation as a generator • Otherwise, would not be eligible for opportunity costs • A resource registering as a combination of types must meet the appropriate requirements for each type • These requirements are addressed in the Operating Procedures, including OP-14 and OP-18 • The “building blocks” already exist in the MR-1 • However, the options will be spelled out in Section III.14.8(d)

8. Several Tariff Cleanup Items are also Required • Waive the 1 MW minimum regulation capacity requirement for ATRRs active in the Pilot Program until 10/1/2014 • The earlier-than-expected Order 755 implementation is creating hardship for Pilot Participants with plans in place to meet the FERC-approved implementation date. • All other Order 755 rules and requirements for regulation market participation would still apply • Load of an ATRR-associated load asset will be treated like DARD (pumps only) load for capacity cost allocation purposes • Correct a misstatement in the Order 755 rules • Generators must have a 5 MW minimum regulation capacity ( = 10 MW regulation range), not a 10 MW regulation capacity • This matches the requirement in current rules

9. Next Steps • MC Vote requested at February 2014 MC meeting • PC review at March 2014 meeting • FERC filing mid-March 2014 • FERC order anticipated by mid-May 2014 to support a late-May effective date • Note that the ISO will be presenting Order755-related OP-14 & OP18 updates to the RC in the coming months