1. NAESB Wholesale Demand Response Standards 1/14/09 NAESB Wholesale Electric Demand Response Measurement & Verification Standards Eric Winkler, Ph.D., ISO-New England Donna Pratt, New York ISO Paul Wattles, ERCOT January 14, 2009 1

2. NAESB Wholesale Demand Response Standards 1/14/09 Wholesale Demand Response Standards Overview

3. NAESB Wholesale Demand Response Standards 1/14/09 3 Goals/Guidelines Consolidate standards for existing and proposed Demand Response (DR) products and Performance Evaluation methodologies Define Common Terms Ensure compliance with tariffs, market rules, operating procedures, protocols and manuals Collaborate with ISO/RTOs, IRC, Retail Leadership and NAESB Stakeholders

4. NAESB Wholesale Demand Response Standards 1/14/09 4 Standards Approach Measurement and Verification (M&V) standards are intended to facilitate Demand Response in wholesale electricity markets by providing a common framework for: Transparency Accessible and understandable M&V requirements for Demand Response products Accountability Criteria that will enable the System Operator to accurately measure performance of Demand Response resources Consistency Standards applicable across wholesale electricity markets

5. NAESB Wholesale Demand Response Standards 1/14/09 5 Standards Applicability These standards do not establish requirements related to the compensation, design, operation, or use of Demand Response services System Operators are not required to offer these Services and may not currently offer each of these Services For purposes of these wholesale M&V standards, Demand Response does not include M&V of energy efficiency or permanent Load reduction

6. NAESB Wholesale Demand Response Standards 1/14/09 6 Standards Scope and Impact Scope Limitation Proposal is limited to M&V aspects of DR products No product eligibility characteristics or other participation features are defined in these standards Impact on Existing Products All current ISO/RTO demand response products are consistent with the proposed standards Local differences may be covered under clauses such as “System Operator shall specify” or “unless otherwise specified by the System Operator”, so long as transparency requirements are met

7. NAESB Wholesale Demand Response Standards 1/14/09 7 Tariff & NERC Standards Conflicts System Operator’s Tariffs, market rules, operating procedures, protocols or manuals have precedence in the event of any conflict. Terms defined in the Definition of Terms section are critical to understanding the applicability of these M&V standards, but do not modify or supersede market rule or tariff definitions that apply to the compensation, design, operation, or use of Demand Response services. All entities supplying Demand Response Services shall comply with NERC reliability standards.

8. NAESB Wholesale Demand Response Standards 1/14/09 8 Consistency w/ NERC Interest in Demand Side Management

9. NAESB Wholesale Demand Response Standards 1/14/09 Wholesale Demand Response Standards Structure and Content 9

10. NAESB Wholesale Demand Response Standards 1/14/09 10 Definitions of Terms Definition of Terms was developed to clarify specific meanings of terms while providing consistency and conformance to: –ISO/RTO Standard Reference –FERC –NERC Terms Areas –Demand Response Event Timing –General Terms

11. NAESB Wholesale Demand Response Standards 1/14/09 11 Demand Response Event Timing

12. NAESB Wholesale Demand Response Standards 1/14/09 12 General Terms Adjustment Window After-the-Fact Metering Aggregated Demand Resource Baseline # Baseline Adjustment Baseline Type-I (Interval Metered) ‡ Baseline Type-II (Non-Interval Metered) ‡ Baseline Window Capacity Service* Demand Response Provider Demand Demand Reduction Value Demand Resource # Demand Response # Energy Service* Highly-Variable Load Load Maximum Base Load ‡ Meter Before / Meter After ‡ Meter Data Recording Interval Meter Data Reporting Deadline Metering Generator Output ‡ Performance Window Ramp Rate Regulation Service* Reserve Service * System Operator # Telemetry Telemetry Interval Validation, Editing and Estimation * Product Types, ‡ Performance Methodologies, # Key Terms

13. NAESB Wholesale Demand Response Standards 1/14/09 13 Demand Response Products Energy Service –A type of Demand Response service in which Demand Resources are compensated based solely on Demand reduction performance. Capacity Service –A type of Demand Response service in which Demand Resources are obligated over a defined period of time to be available to provide Demand Response upon deployment by the System Operator. Reserve Service –A type of Demand Response service in which Demand Resources are obligated to be available to provide Demand reduction upon deployment by the System Operator, based on reserve capacity requirements that are established to meet applicable reliability standards. Regulation Service –A type of Demand Response service in which a Demand Resource increases and decreases Load in response to real-time signals from the System Operator. Demand Resources providing Regulation Service are subject to dispatch continuously during a commitment period. Provision of Regulation Service does not correlate to Demand Response Event timelines, deadlines and durations.

14. NAESB Wholesale Demand Response Standards 1/14/09 14 Product Standards OverviewGeneral Advance Notification Deployment Time Reduction Deadline Release/Recall Normal Operations Demand Resource Availability Measurement Aggregation Transparency of Requirements After-the-Fact- Metering After-the-Fact Metering Requirement Meter Accuracy Details of Meter/Equipment Standards Meter Data Reporting Deadline Meter Data Reporting Interval Clock/Time Accuracy Validating, Editing & Estimating (VEE) Method On-Site Generation Meter RequirementTelemetry Telemetry Requirement Telemetry Accuracy Telemetry Reporting Interval Other Telemetry Measurements Communication Protocol Governor Control Equipment On-Site Generation Telemetry Requirement Performance Evaluation Rules for Performance Evaluation

15. NAESB Wholesale Demand Response Standards 1/14/09 15 Performance Evaluation A performance evaluation methodology is used to determine the Demand Reduction Value provided by a Demand Resource. The standards include descriptions of acceptable Baselines and alternative performance measurements. –Maximum Base Load –Meter Before / Meter After –Baseline Type-I –Baseline Type-II –Metering Generator Output

16. NAESB Wholesale Demand Response Standards 1/14/09 16 Evaluation Methodologies Maximum Base Load –A performance evaluation methodology based solely on a Demand Resource’s ability to reduce to a specific level of electricity consumption or demand, regardless of its electricity consumption or demand at Deployment. Meter Before / Meter After –Metering Before Deployment vs. Metering After Reduction Deadline is a performance evaluation methodology where electricity consumption or demand over a prescribed period of time prior to Deployment is compared to similar readings during the Sustained Response Period.

17. NAESB Wholesale Demand Response Standards 1/14/09 17 Evaluation Methodologies Baseline Type 1 (Interval Metered) –A Baseline model based on a Demand Resource’s historical interval meter data which may also include but is not limited to other variables such as weather and calendar data. Baseline Type 2 (Non-interval Metered) –A Baseline model that uses statistical sampling to estimate the electricity consumption of an Aggregated Demand Resource where interval metering is not available on the entire population. Behind-The-Meter Generation –A performance evaluation methodology, used when a generation asset is located behind the Demand Resource’s revenue meter, in which the Demand Reduction Value is based on the output of the generation asset.

18. NAESB Wholesale Demand Response Standards 1/14/09 18 Evaluation Standards Overview Baseline Information Baseline Window Calculation Type Sampling Precision and Accuracy Exclusion Rules Baseline Adjustments Adjustment Window Special Processing Highly-Variable Load Logic On-Site Generation RequirementsEventInformation Use of Real-Time Telemetry Use of After-the-Fact Metering Performance Window Measurement Type

19. NAESB Wholesale Demand Response Standards 1/14/09 19 Performance Evaluation Criteria Rules for Performance Evaluation –Applicable Performance Evaluation methodologies Performance Evaluation Type Service Type EnergyCapacityReservesRegulation Maximum Base Load Meter Before / Meter After Baseline Type-I Baseline Type-II Metering Generator Output

20. NAESB Wholesale Demand Response Standards 1/14/09 Wholesale DR Standards Informal Comment Overview 20

21. NAESB Wholesale Demand Response Standards 1/14/09 21 Informal Comments October 2 nd ISO/RTO work group presentation of recommendation October 6 th – October 22 nd Informal Comment period open to all interested parties regardless of membership status. October 24 th NAESB posts informal comments to website. November 4 th NAESB compiled comments received by ISO/RTO. November 25 th ISO/RTO work group submits reply comments and revised Recommendation. December 2 nd DSM-EE Subcommittee meeting considers comments and revised Recommendation. 21

22. NAESB Wholesale Demand Response Standards 1/14/09 22 Informal Comment Responders 22 American Electric Power Service Corporation Arizona Public Service BGE ConEdison E on U.S. Efficiency Valuation Organization ELCON EnerNOC EPRI IRC – Standards Review Committee Kansas City Power and Light National Rural Electric Cooperative Association Portland General Electric Southern Company TVA

23. NAESB Wholesale Demand Response Standards 1/14/09 23 Informal Comment Categories 23 Baseline representation Concern over the amount of flexibility given to the System Operator Concern regarding the standards’ effect on retail Definitions Flexibility is Important in the Standards General Comments Greater Clarity Request for Examples Specific Comments on the Standards Standards Clarification Suggested Additions to the Standards Suggested Deletions Suggested Rewording Support The application of the standards on negotiated contracts The draft is a framework, not standards

24. NAESB Wholesale Demand Response Standards 1/14/09 24 Informal Comment Details 90 Comments from 14 responders 90 Responses provided in late comments from ISO/RTO 18 Agreeing responses with no changes recommended 8 Agreeing responses with language changes 8 Clarifying responses with no changes recommended 37 Disagreeing responses with no changes recommended 19 Responses indicating no clear action may be taken based on comment 180 Revisions to Recommendation 24

25. NAESB Wholesale Demand Response Standards 1/14/09 25 Informal Comment Details 25 Category Agree no change Agree language change Clarify no change Disagree no change Unclear no change Grand Total Baseline representation 1 1 Concern over amount of flexibility given to the System Operator 32510 Definitions 22 Flexibility is Important in the Standards 11 General Comments 426 Greater Clarity1737523 Request for Examples235 Specific Comments on the Standards31410119 Standard Clarification213 Suggested Additions to the Standards1438 Suggested Rewording11 Support55 The application of the standards on negotiated contracts 11 The draft is a framework, not standards 325 Grand Total1888371990

26. NAESB Wholesale Demand Response Standards 1/14/09 26 Informal Comment Details 26 Company Agree no change Agree language change Clarify no change Disagree no change Unclear no change Grand Total American Electric Power Service Corporation 1 326 Arizona Public Service 112 BGE 2133110 ConEdison 358 E on U.S. 1427 Efficiency Valuation Organization 44 ELCON 21418 EnerNOC 44 EPRI 527 Entergy 248115 Kansas City Power and Light 11 National Rural Electric Cooperative Association 2316 Portland General Electric 11 Southern Company 21148 TVA 1113 Grand Total18106362090

27. NAESB Wholesale Demand Response Standards 1/14/09 27 Response Highlights Request for Examples –Comments asking for application of the standards to existing or proposed programs. –Concern: Want to be careful not to imply a higher degree of technical specificity at this time. –Response: “A working document supporting the responder’s request for clarity from an example is to be provided.” –Implications: Additional work needs to be done by ISO/RTO group to generate examples of application of the standards to existing standards. –NYISO DR Regulation program tentatively identified as possible example program. 27

28. NAESB Wholesale Demand Response Standards 1/14/09 28 Response Highlights All Categories –Comments that were positive or negative that did not contain a suggested change. –Concern: No action can be taken as a result of the comment without specificity. –Response (Positive): Agree –Response (Negative/Neutral): “The responder is free to submit a request with enough specificity to generate a change to the recommendation. The request could be considered now or may be addressed once the standards are approved.” –Implications: Potential work for ISO/RTO if a specific comment comes in during formal comment period. 28

29. NAESB Wholesale Demand Response Standards 1/14/09 29 Response Highlights Framework Versus Standards –Comments raised regarding the lack of specificity in Standards. –Concern: Specific approach by ISO/RTO was to find common ground versus develop detailed technical standards. Specific reference to the term Framework on Performance Evaluation led to comments suggesting overall standards were a framework. However, the term “framework” implies program design which is not the intent. –Response (General): Commonality in technical requirements does not preclude a minimum set of standards that may be unique to product application but common to product type. Standards require transparency and thereby affect the product use and uniformity. –Implications: ISO/RTO may be requested to develop technical standards in the future. 29

30. NAESB Wholesale Demand Response Standards 1/14/09 30 Response Highlights Requests for greater clarity –Comments addressing numerous areas requiring greater clarity, additional specifications, disagreement on standards practices 30

31. NAESB Wholesale Demand Response Standards 1/14/09 31 Recommendation Changes Enhanced definition of Regulation Service Modified language of Tariff Conflict and NERC Standards Modified Telemetry terminology and Standards Added clarifying language to Demand Response Event Definition Refined After-the-Fact Metering Performance Measurement terminology Refined Applicability Refined Aggregation Standard Refined Meter Accuracy Standard Addition of exclusion rules under Baseline Type-I & II Added applicability of Maximum Base Load to Reserve Service Corrected consistency of active/passive voice usage 31

32. NAESB Wholesale Demand Response Standards 1/14/09 32 Recent DSM/EE Sub Committee Activity December 2, 2008 – The group met in Birmingham hosted by Alabama Power to review comments and vote on the recommendation for Wholesale Electric Quadrant standards for M&V characteristics for DR products and services. After considerable discussion, and several votes to amend the recommendation the recommendation with the amendments put forward by the ISOs and RTOs and three separate amendments addressing titling, applicability, and additional specificity for the definition of Baseline, the motion to adopt the revised recommendation was approved with significant support with 86.5 percent approval by balanced vote. All WEQ segments were present and voting. The revised recommendation will go out for a thirty day comment period and is now considered a work product of the WEQ EC. The abbreviated update report was given for the Retail market effort. The Retail group plans to use the WEQ revised recommendation as a foundation for their work. 32

33. NAESB Wholesale Demand Response Standards 1/14/09 33 “Business Practices for a Framework for Measurement & Verification of Wholesale Electricity Demand Response” 33 Change to Title of Standards

34. NAESB Wholesale Demand Response Standards 1/14/09 34 Change to Applicability 34 2.Applicability of Measurement and Verification Standards: ISO/RTO Administered Markets These standards were developed by the Independent System Operators (ISO) and Regional Transmission Organizations (RTO) in North America through the North American Energy Standard Board (NAESB) stakeholder process. These standards are applicable only to Independent System Operator-Regional Transmission Organization administered markets in North America. The standards reflect business practices applicable to measurement and verification of wholesale market Demand Response services including the following four product/service categories 1 : Non-ISO/RTO Markets: These standards do not apply in markets administered by non-ISO/RTOs. Wholesale Demand Response standards applicable to non- ISO/RTO markets will be developed when required.

35. NAESB Wholesale Demand Response Standards 1/14/09 35 Change to Baseline Definition 35 A Baseline is an method of estimating estimate of the electricity that would have been consumed by a Demand Resource in the absence of a Demand Response Event. The Baseline is compared to the actual metered electricity consumption during the Demand Response Event to determine the Demand Reduction Value. Depending on the type of Demand Response product or service, Baseline calculations may be performed in real-time or after-the-fact. The System Operator may offer multiple Baseline models and may assign a Demand Resource to a model based on the characteristics of the Demand Resource’s Load or allow the Demand Resource to choose a performance evaluation model consistent with its load characteristics from a predefined list. A baseline model is the simple or complex mathematical relationship found to exist between Baseline Window demand readings and Independent Variables. A baseline model is used to derive the Baseline Adjustments which are part of the Baseline, which in turn is used to compute the Demand Reduction Value. Independent variable is a parameter that is expected to change regularly and have a measureable impact on demand. Figure 2. below illustrates the concept of Baseline relative to a Demand Response Event.

36. NAESB Wholesale Demand Response Standards 1/14/09 QUESTIONS