1. PJM©2013www.pjm.com Economic DR participation in energy market ERCOT April 14, 2014 Pete Langbein

2. PJM©2013 2 www.pjm.com PJM Opportunity by Wholesale Service Wholesale Service Demand Side Response Energy Efficiency Price Responsive Demand* CapacityYes yes EnergyYes Day Ahead Scheduling Reserves (30 min) Yes Synchronized Reserves (10 min) Yes RegulationYes Emergency resource Customer may participate as Emergency and Economic DSR and as EE *PRD recently approved by FERC Economic resource

3. PJM©2013 3 www.pjm.com Electric Distribution Company (EDC): Distribution assets used to distribute the electricity to the customer. Curtailment Service Provider (CSP): Demand side response activity by the customer. Load Serving Entity (LSE): Electricity supply to the customer. Market Structure – who does what? End Use Customer Energy Efficiency Provider (EERP): Energy efficiency activity by the customer.

4. PJM©2013 4 www.pjm.com Current (2013) DSR capability ~ 6% of System Peak Load Represents over 1 million end use customers (~14,000 C&I) across PJM EE 679 MW Emergency DR (Capacity) 8,976 MW Economic DR Capability (Energy) 2,616 MW ~900 MW offered into energy market on peak day

5. PJM©2013 5 www.pjm.com Evolution of DR in Energy Market Voluntary Emergency resource Economic DR Pilot program LMP – G&T, Incentive = G&T, over price X LMP – G&T, no incentive LMP, price => Net Benefits Threshold ~ 10 Years Purely voluntary – any that shows up can only help Help balance power flow and set prices

6. PJM©2013 6 www.pjm.com G&T compensation structure process Define LSE, retail contract type, and default G&T rate on registration –RT index (only participate in RT market and receive make whole payment) –DA index (only participate in RT market) –“Fixed” Price (participate in either market) –Registration default G&T rate applied to hourly settlement Registration sent to LSE to review & approve Each settlement sent to LSE to review and approve –Ensure G&T is accurate.

7. PJM©2013 7 www.pjm.com Economic DR resources offer into energy market DR resource Market offer ($) Small site participation through aggregation Generation & small demand resources in PJM market

8. PJM©2013 8 www.pjm.com Summary of Economic DR offer rules DR must have valid registration –Market offers are by Registration or by Dispatch Group Dispatch Group = multiple registrations at same price point with one offer curve DR energy market participation options –Offer in Day-Ahead market if cleared must respond –Dispatch in Real-Time market Ability to adjust hourly MW available up to 3 hours prior to operating hour. –LMP => Net Benefits Test (~$30 mwh) to receive compensation Actual load reduction must be +/-20% of hourly cleared or dispatched MW otherwise: –No “make whole” payment up to Offer price –Balancing Operating Charges are applied

9. PJM©2013 9 www.pjm.com Day Ahead Energy Market If actual load reductions are less than cleared amount then must buy back at real-time LMP If actual load reduction are more than cleared amount then compensated at real-time LMP PJM puts in sell offer (negative dec bid) against LSE of record’s account –Intention is to help ensure LSE is not accidently long to market because of DR load reductions.

10. PJM©2013 10 www.pjm.com Day-ahead vs Real-time energy market participation

11. PJM©2013 11 www.pjm.com Economic Demand Response Dispatched vs Settled Real-Time Energy Market Summary (2013) Average hourly settlement per registration = 6 MW

12. PJM©2013 12 www.pjm.com Economic Demand Response Dispatched vs Settled Day-Ahead Energy Market Summary (2013) Average hourly settlement per registration = 12 MW

13. PJM©2013 13 www.pjm.com Appendix Net Benefits Test

14. PJM©2013 14 www.pjm.com Net Benefits Test FERC final rule stipulates that DR be compensated full LMP when two conditions are met: 1. DR has the capability to balance supply and demand; and 2. Payment of LMP to DR is cost effective. Cleared or dispatched DSR resources balance supply and demand. Payment of LMP to DR is cost effective when the LMP of the cleared or dispatched DSR is greater than or equal to the Net Benefits Price. The net benefits test to define a threshold point on the PJM Supply curve where the net benefit exceeds the cost to load. The net benefit is the point where elasticity is equal to 1. Supply elasticity is defined as the percentage change in quantity supplied divided by the percentage change in price. When the elasticity is less than or equal to one, supply is considered inelastic. Generally, an "elastic" variable is one which responds "a lot" to small changes in other parameters. Similarly, an "inelastic" variable describes one which does not change much in response to changes in other parameters.

15. PJM©2013 15 www.pjm.com Net Benefits Test – Supply Curve To create the curve: Use a Supply Curve representative of the study month using the prior year’s curve Adjust for resource availability Adjust for fuel prices Smooth the curve using numerical methods PJM staff has developed a methodology that results in a curve fit that it believes correlates well to the general shape of the PJM supply curve. = ( ∗ −)+ The constants a, b, c, and d vary for each month’s solution.

16. PJM©2013 16 www.pjm.com Net Benefits Test

17. PJM©2013 17 www.pjm.com Net Benefits Test Results The Net Benefits Test results are calculated monthly and published by the 15 th of the prior month, per FERC Order. The Net Benefits Test results can be found on the PJM website by selecting: markets & operations / Demand Response / Net Benefits Test Results