1. Market Based Solutions for Demand Response Providers Today and the Future Alice Jackson Occidental Energy Ventures Corp.

2. Demand Response Today Active Opportunities –Responsive Reserve Service - Available –Non Spin – Available but flawed –RPRS – Not Available –Controllable Load – Pilot program Passive Opportunities –Balancing Energy Price Responsiveness –Peak Shaving

3. Demand Participation over Time (as of 09/2006 DSWG Mtg)

4. Today’s Market Active Participation Sample –RRS from LaaR (max 1150 MW/hr) 2/3 Bilateral Market 1/3 ERCOT Daily Auction Passive Participation Sample –Peak Shaving ERCOT acknowledges that it occurs and can roughly estimate activities

5. Peak Shaving Sample

6. Excess LaaR Possibilities Replacement Reserve Service (RPRS) from LaaR –Work with ERCOT to resolve the systems issues with permitting LaaR to perform in RPRS Controllable Load Resources –Complete the pilot program and have Controllable Load Resources as a fixed part of the Zonal market Non-Spin through Linked Bids –Currently LaaR Resources can not link RRS bids with NRS bids; the ERCOT systems effectively kick out the RRS bid

7. Controllable Load Resources What is a Controllable Load resource? Zonal Protocol Section 6.5.1.1 states: “…load resources capable of controllable reducing or increasing consumption under dispatch control (similar to AGC) and that immediately respond proportionally to frequency changes (similar to generator governor action)”

8. Real-time Frequency Signal Telemetry RRS / RGS Dispatch Signal Controllable Load Control System CLR dispatch set point Process Flow: ERCOT sends dispatch signal to QSE QSE passes signal to Controllable Load Resource (CLR) CLR control system monitors real- time frequency CLR control system accepts ERCOT signal and calculates required response (ERCOT dispatch +/- frequency response) CLR responds QSE views response via telemetry and passes signal to ERCOT QSE Controllable Load ERCOT

9. CLR Example: Pipeline Pumps w/Variable Speed Drives Could provide Regulation Up and Regulation Down Service –Large downstream tank with 2 days swing of volume and motor provides 1 MW up and 1 MW down swing capability -OR- Could provide Responsive Reserve –Set point is at full motor output unless called to provide the service

10. Outstanding Nodal Issues Load Resources not allowed in RUC (Reliability Unit Commitment) –Market Power / Cost Issues Load Resources are not paid LBMP upon activation –This causes a faulty price signal

11. Market Based Load Response Important to maintain the integrity and quality of demand response by implementing market based solutions. By definition market based solutions by demand response providers lower costs to consumers Lowering the cost to consumers is not necessarily true of subsidized programs.

12. Conclusion Demand response is off to a good start in ERCOT. In practice, further participation is being limited by assumptions about the capability of Load Resources versus the facts about Load Resource capabilities. As a demand response community we must work together to keep moving forward to advance the solutions currently in place and develop new market based solutions to meet the needs of the future.