Comments to: Independent Electricity System Operator

(IESO) Stakeholder Engagement for Demand Response

Auction on April 30, 2015

Submission by

City of Toronto

May 11, 2014

DR AUCTION – Market Registration

DR Auction Timeline, Connection Assessment (Slide 4 & 9)

Q Can the IESO provide a definition for the term "Embedded Facility"?

DR Auction Demand Curve

Reference Price (Slide 4)

IESO – '"DR3/CBDR consultation with stakeholders has indicated that $104,000/MW-year is effective in

incentivizing increased participation in the existing CBDR program."

Comment 1: Participation rates have indicated that some loads can economically participate for $104,000; however this reference price may limit participation. As previously identified by the IESO on October 10 2014 http://www.ieso.ca/Documents/consult/dra/DRA-20141020-Auction_Mechanics.pdf the $104,000 was a historical price. In actuality the $104,000 may not accurately represent CONE costs. Further analysis shows that many participants signed with the OPA for the first orientation of DR3 which provided a higher yearly fee for a commitment of up to 200 hours of activation.

Comment 2: The City has provided the IESO with a representative sample of CONE costs which better

reflect current market conditions. (Comment sent to the IESO on January 19 2015).

Comment 3: Historical pricing was based on a limit of 100 hours of activation, the current IESO proposal

has no set limit.

Recommendation1: The City of Toronto recommends the IESO review current CONE costs for example a report provided by EIA including Costs in US dollars: http://www.eia.gov/forecasts/capitalcost/pdf/updated_capcost.pdf

Recommendation2: The City Recommends the IESO evaluate the reference price to include an added

cost for the risk of associated with substantial activations.

Maximum Auction Clearing Price (Slide 8)

IESO “$130,000/MW-year is the Long-Term Energy Plan’s forecasted net cost of building a Single Cycle

Gas Turbine plant, which represents the price where a wide variety of resources would be available to

provide capacity.”

Comment: Demand Response represents a resource that provides additional benefits not provided by a

single Cycle Gas Turbine Plant including reduced transmission and distribution cots costs, proposed

savings due to no utilization payments along with other benefits.

Question: Can the IESO provide a recent source for the $130,000 in CONE costs as this was provided in

2013 Long Term Energy Plan and may not be reflective of current market conditions?

Recommendation: The City of Toronto recommends the IESO evaluate increasing the maximum Auction

clearing price.

Energy Market Participation

Availability Window (Slide 8)

IESO Proposal "There is no maximum number of DR activations that can be called in a Commitment

Period."

Comment: The original OPA DR 3 Program has a 200 hour activation limit and paid substantially more

than $104,000 a MW. The IESO is basing the reference number incentive number for 100 hours and this

should be reflected in the program design.

Recommendation 1: The City of Toronto recommends the IESO consider limiting the hours of

activation.

Recommendation 2: The City Recommends the IESO re-evaluate the reference price or include a

Utilization Payment to reflect the risk and costs associated with increased activations.

Capacity Based Demand Response; CBDR Walk Through (Slide 11)

IESO "3. Receive Activation Notification at least 2.5 hours in advance of Activation Period; Will be

notified through a participant-specific private report.”

Question: Will the IESO provide private reports for facility operators who are contracted through a DR

aggregator?

Comment 1: Contributors who participate through an aggregator stand to lose substantial

unrecoverable revenues due to set-offs caused by limited advance notice.

Comment 2: Providing all contributors with early notification will enable the operator to respond and

contribute to system dependency and security.

Recommendation: The City of Toronto recommends that the IESO provide DR activation notification to

all participants including contributors through an aggregator.

CBDR Example (Slide 16)

Question: How will the IESO evaluate an organization that is unavailable for one of the four hours?

For Example a facility bids:

HE16 HE17 HE18 HE19

(500,00)(500,5) (500,00)(500,5) 0 (500,00)(500,5)

Test Activations (Slide 22)

IESO Proposal: "The IESO proposes to have the ability to call up to two Test Activations on each resource that has a DR Capacity Obligation for each Commitment Period…. • No payment is proposed for these Test Activations."

Comment 1: Facilities enrolling through an aggregator conduct an unscheduled Proof of Performance Test that can verify the available capacity.

Comment 2: Facilities using Behind the Metre Generation will be assessed costs associated with fuel and maintenance creating a further constraint on the business case.

Comment 3: As previously indicated in the "IESO Auction Market Design frequency of tests will be determined in detailed design and the DR resource dispatched for an out-of-market test may be eligible for compensation to recognize lost operating revenue resulting from reduced consumption" http://www.ieso.ca/Documents/consult/dra/DRA-20150417-Auction_Market_Design.pdf.

Question: Does the IESO provide compensation for testing of other capacity resources?

Recommendation 1: The City of Toronto recommends that the IESO evaluate DR as a Capacity resource and maintain a standard policy.

Test Activations (Slide 22)

IESO Proposal: "Test Activations can be called at any time during the Availability Window"

Recommendation: The City of Toronto purposes that the IESO limit the Test Activation to periods of normal energy use.

Measurement and Verification IESO Proposal: The IESO proposes to compare a participant’s DR Energy Bid quantity against their DR

Capacity Obligation amount for each hour in the Availability Window. Compliance check is capped at the

DR Capacity Obligation amount for every hour.

Comment: The current market design enables the IESO to benefit from over delivery without providing

compensation. This shift from the historical DR Program may affect the ability to participate at the

proposed reference price of $104,000 MW.

Recommendation: The City of Toronto proposes a hybrid solution; the IESO allow participants to submit

bids above their DR Capacity Obligation and meet their hourly obligation on a daily basis regardless of

the availability for one specific hour.

For Example:

HE16 HE17 HE18 HE19

(500,00)(500,5) (500,00)(500,5) (500,00)(500,10) 0

Compliance and Dispatch

CBDR Resources (Slide 4)

IESO "Proposal (maintain current CBDR baseline) - The High 15 of 20 with In-day Adjustment baseline

methodology that is used in the CBDR program to calculate compliance with dispatch will be used for

CBDR resources in the energy market."

Comment: Earlier stakeholder feedback submitted by the City on October 29th 2014 included the City’s

policy for meeting the Provincial request to reduce energy consumption on “Smog Days”.

http://www.ieso.ca/Documents/consult/dra/DRA-20141029-

City_of_Toronto_Environment_and_Energy.pdf

Recommendation: The City proposes that the IESO allow for affected stakeholders to identify a list of

days that should be excluded from the high 15 out of 20.

CBDR Resources (Slide 7)

IESO "Suitable Business Days will include business days where a resource has placed DR Energy Bids in

the system. It will exclude DR dispatch days"

Question: How does the IESO define Business Days? For example is the Civic Holiday on the First

Monday of August included?

Recommendation: The City proposes that the IESO allow for affected stakeholders to identify a list of

days that should be excluded from the high 15 out of 20.

Other Question /Comments Location based Dispatch Pricing

Question: Will the IESO hourly dispatch price vary depending on the location?

Question 2: If dispatch pricing is based on zones; will the IESO provide online access for historical and

forecast pricing. (This is necessary for dispatch forecasting.)