Demand resource emergency energy measurement and verification DRS 7/30/14 www.pjm.com

Existing Process – Emergency Energy settlements Emergency Full DR registrations receive compensation for real time energy load reductions when dispatched Real time energy load reductions based on: If only an emergency registration then hour before event is CBL If there is economic registration at time of settlement submission then use economic CBL Current rules established to balance administration with load reduction accuracy www.pjm.com

Catalyst for issue High volume of PJM dispatches 11 days in 13/14 DY to date $86.5 mm DR dispatch during non-summer months DR dispatch during early morning hours Multiple dispatches in same day DR dispatch of several hours www.pjm.com

Key issues Accuracy of the hour before CBL methodology Cumbersome administrative process to use an economic CBL which requires an EDC review. After the fact selection of CBL to use for settlements and process used to determine which registrations require settlement. Use of economic CBL from economic registration when customer primarily participates in ancillary service market and economic CBL is conservative (“max base load”). www.pjm.com

Issue1: Accuracy of Hour Before CBL Rational for existing market rules Economic CBL is more accurate approach and therefore use when available. Use of 1 hour to represent multiple hours is not robust Over-estimate: schools toward end of the day Under-estimate: early morning event prior to business hours Conclusion from prior empirical analysis Administrative effort to collect historic meter data for RRMSE may not be worth the effort for CSP DR resource may never be dispatched for emergency – why collect and process 60 days of historic data when it may not be used Allow CSP to make decision on administrative effort after event but before submission deadline (60 days after the event). www.pjm.com

Issue1: Accuracy of Hour Before CBL Potential solution: Use current default economic CBL as emergency energy CBL Impact: Load reduction will be much more accurate and stable (mornings, afternoons, winter/summer) More hourly data will be required to complete emergency settlement. www.pjm.com

Issue2: Cumbersome administrative process to use an economic CBL which requires an EDC review. Potential Solution: If we use proposed solution for issue 1 then this may no longer be an issue CSPs will no longer submit economic registration when they only want to use default economic CBL This will cut down workload for CSP and EDC that must review the registrations CSPs submitted thousands of economic registrations from winter event for this reason. www.pjm.com

Issue3: After the fact selection of CBL to use for settlements and process used to determine which registrations require settlement. Potential Solutions: Proposed solution for number 1 will help Only use CBL on economic registration if economic registration in place prior to emergency event This will eliminate cherry picking after the fact to use method that produces highest load reduction Adopt the following energy settlements submission requirements: Voluntary event (PJM does not measure capacity compliance) – CSP must receive confirmation from location that they reduced load during event in order for CSP to submit the settlement If load is typically down and location did not do anything then it does not qualify for settlement (Example - location already down for the day) Notification from CSP to Location does not qualify as confirmation from customer. PJM will periodically request supporting information from CSP. Lack of supporting information may result in referral to MMU and/or FERC OE Mandatory event (PJM measures capacity compliance) – may only submit when capacity compliance records are also submitted Determination of whether or not to submit a settlement for voluntary event is NOT solely based on difference between CBL and meter load www.pjm.com

Issue4: Use of economic CBL from economic registration when customer primarily participates in ancillary service market and economic CBL is conservative (“max base load”). Potential Solutions: Use Emergency CBL if Economic CBL is Max Base Load. www.pjm.com

Only change is to make default economic CBL the default emergency CBL Example1 CSP submits Emergency registration for Location Same process as today (no RRMSE test) PJM has emergency event CSP submits necessary load data to calculate CBL At least 5 weekdays CBL will be calculated based on standard economic CBL (high 4 of 5 with Symmetric Additive Adjustment) Only change is to make default economic CBL the default emergency CBL www.pjm.com

Example2 CSP submits Emergency registration and Economic registration for Location (prior to emergency event) Emergency registration goes through same process as today (no RRMSE test) Economic registration has standard CBL (passed RRMSE test) PJM has emergency event CSP submits necessary load data to calculate economic CBL At least 5 weekdays CBL will be calculated based on standard economic CBL (high 4 of 5 with Symmetric Additive Adjustment) www.pjm.com

Example3 CSP submits Emergency registration and Economic registration for Location (prior to emergency event) Emergency registration goes through same process as today (no RRMSE test) Economic registration has alternative CBL (passed RRMSE test) PJM has emergency event CSP submits necessary load data to calculate standard economic CBL At least 5 weekdays CBL will be calculated based on alternative economic CBL www.pjm.com

Example4 CSP submits Emergency registration and Economic registration for Location (prior to emergency event) Emergency registration goes through same process as today (no RRMSE test) Economic registration has alternative CBL = MBL (max base load) PJM has emergency event CSP submits necessary load data to calculate economic CBL CBL will be calculated based on standard economic CBL (high 4 of 5 with Symmetric Additive Adjustment) www.pjm.com