Assessing energy-efficiency resource performance in all hours

Update: On July 21, 2020, the Federal Energy Regulatory Commission (FERC) accepted by letter order tariff changes to address an implementation issue regarding the treatment of energy-efficiency resources (EERs) during capacity scarcity conditions. ISO New England and the New England Power Pool (NEPOOL) filed the changes with the commission on June 2, 2020. These revisions implement the commission-directed treatment of EERs when capacity scarcity conditions occur during hours in which energy-efficiency resource performance is not reported to the ISO.

The revisions filed follow the proposal described in the article below and were supported overwhelmingly by NEPOOL. Specifically, the capacity supply obligations of EERs will be removed from the denominator of the balancing ratio outside of measure hours, so that EERs will be absent from both the numerator and the denominator of the ratio in those hours. Such a balancing ratio effectively assumes that EERs perform exactly at their balancing-ratio adjusted capacity supply obligation in a scarcity condition outside of measure hours. (A mathematically equivalent way to conceptualize this balancing ratio is that EERs effectively do not exist outside of measure hours.) This will eliminate the undercollection problem and associated mutual insurance pool charges, and will more appropriately allocate Pay For Performance proceeds, all while more fully honoring the Commission’s directive in the 2014 PFP Order to calculate performance payments for EERs only when scarcity conditions occur during measure hours.

Recap of the final report by the Demand Resources Working Group presented to the NEPOOL Markets Committee

An issue has arisen over the past year as to how to address market settlement imbalances associated with the lack of capacity performance payments for energy-efficiency resources (EERs) during capacity scarcity conditions in off-peak hours. To calculate capacity performance payments for EERs during capacity scarcity conditions that occur in off-peak hours, the ISO would need to assess the actual capacity provided by EERs during those periods. To make this assessment, a method would need to be developed that estimates EER performance in all hours.

Markets Committee referral

On March 5, 2019, the New England Power Pool (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

The DRWG was asked to report potential options back to the Markets Committee, including time and cost estimates associated with implementing each option. The DRWG met five times on this referral:  March 26, April 18, April 29, May 24, and July 1, and issued its final report on July 12.

Options for determining demand reduction values in all hours

The DRWG considered five options, which were initially developed by the ISO to facilitate discussion among DRWG participants (DRWG participants were invited to provide other potential approaches to be considered by the group, but none were provided). Of the five, an option called Shaping Option A received the most support. The shaping options are defined on pp. 6-10 of the final report.

Shaping Option A entails profiling currently known on-peak savings estimates to all hours. Hourly EER performance is estimated by multiplying established on-peak EER savings by the ratio of actual system load during a capacity scarcity condition to average on-peak load levels.

This option is perceived as more beneficial to the others because:

  • Preliminary analysis indicated that savings and load levels are generally correlated
  • All of the inputs needed to estimate the actual capacity provided by EERs are available immediately after a capacity scarcity condition occurs
  • It’s implementable at low cost and in reasonably short order after a FERC Order is issued
  • It would require the least time and expense to develop and implement

See the September 18, 2019, Markets Committee presentation for a summary of the other four options.

No initial consensus

Some stakeholders have asserted that Shaping Option A can overstate performance and assess the actual capacity provided by EERs above their balancing ratio-adjusted capacity supply obligation (CSO) during off-peak hours. They argued that this does not make sense given that most end-use facilities are closed during non-business, overnight, and/or weekend hours.

Others familiar with measurement and verification and EER delivery explained that many energy-efficiency measures produce savings during off-peak hours – e.g., street lighting, parking lot lighting, security lighting, HVAC, refrigeration, and that some extent of EER performance during all off-peak hours ought to be expected. In addition, the actual capacity provided by an EER may exceed its balancing ratio-adjusted CSO because market participants with EERs tend to install more energy-efficiency measures than the quantity needed to meet their CSO. These participants concluded that Shaping Option A would result in an accurate representation of the capacity delivered by EERs in any interval.

Some who supported Shaping Option A as a feasible option for timing and expense reasons did not necessarily support its use in establishing the actual capacity provided by EERs in off-peak hours; their preferred approach would be to treat EERs neutrally during off-peak hours.

Next steps

Going forward, the Markets Committee can use the information in the final report to deliberate whether and how to assess the actual capacity provided of EERs for capacity scarcity conditions that occur in off-peak hours.

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