FERC’s Role in Demand Response David Kathan Office of Energy Policy and Innovation Federal Energy Regulatory Commission Peak Load Management Alliance Practical Demand Response for a Complex Future October 20, 2009 Thank you for inviting me. This morning I will review exciting new developments at the Commission and the major focus being placed on demand response by our Chairman. Also, I have been a friend of PLMA for years. Prior to joining the Commission, I was with ICF Consulting. While I was with ICF, we were a member of PLMA.

FERC’s FY09-14 Strategic Plan Past Commission Activity Outline FERC’s FY09-14 Strategic Plan Past Commission Activity Recent Commission Activity I will cover 3 areas today. I believe that there are multiple areas and proceedings that should be of interest. The author’s views do not necessarily represent the views of the Federal Energy Regulatory Commission

FERC FY09-14 Strategic Plan Released October 2009 Reflects the direction of the Commission in supporting national goals Speaks to future energy policy It is my pleasure to present the Commission’s new strategic plan. This plan represents Chairman Wellinghoff’s vision and will help set the agenda for the Commission. The reason that this should be of interest to this group is the large focus and role for demand response in the plan.

Fulfilling this mission involves pursuing two primary goals: FERC’s Mission RELIABLE, EFFICIENT AND SUSTAINABLE ENERGY FOR CONSUMERS Assist consumers in obtaining reliable, efficient and sustainable energy services at a reasonable cost through appropriate regulatory and market means. Fulfilling this mission involves pursuing two primary goals: Ensure that rates, terms and conditions are just, reasonable and not unduly discriminatory or preferential. Promote the development of safe, reliable and efficient energy infrastructure that serves the public interest. At a high level, the plan states FERC’s misison. READ SLIDE

FERC FY09-14 Strategic Plan Strategic Goals and Objectives Goal 1: Just and Reasonable Rates, Terms and Conditions Ensure that Rates, Terms and Conditions are Just, Reasonable and not Unduly Discriminatory or Preferential 1. Regulatory and Market Means 2. Oversight and Enforcement Goal 2: Infrastructure Promote Development of Safe, Reliable, And Efficient Infrastructure that Serves the Public Interest. 1. Development and Siting 2. Safety 3. Reliability This slide goes down one more step and lists the objectives that are associated with each goal. The Strategic Plan includes multiple strategies and performance metrics for each strategy. In the interest of time, I will only review the objectives which directly relate to demand response.

FERC FY09-14 Strategic Plan Key Demand Response Strategies 1.1 Ensure implementation of appropriate regulatory and market means for establishing rates Strategy 1: Establish rules that enhance competition by allowing non-discriminatory market access to all supply-side and demand-side energy resources 2.1 Increase efficient infrastructure consistent with demand Strategy 1: Encourage new electric transmission consistent with demand Strategy 2: Support electric transmission planning through the use of open and transparent processes that include analysis and consideration on a comparable basis of proposed solutions involving any of generation, transmission, and demand resources At least three strategies in the Strategic Plan relate directly to demand response. READ SEPARATE PAGES

Past FERC Activity Continued co-sponsorship of the ongoing NARUC-FERC Demand Response Collaborative Dialogue Continued support for regional demand response efforts Issued two rulemakings that directly address demand response The Commission has supported demand response through several key activities over the past several years. In particular, READ SLIDE

Open Access Transmission Tariff Reform (Order No. 890) In February 2007 the Commission amended its regulations and the pro forma open access transmission tariff to remedy opportunities for undue discrimination and address deficiencies in the pro forma OATT. Key reform related to demand response was the requirement for open, coordinated and transparent planning on both a local and regional level. In particular, two rulemakings were conducted which resulted in two final rules. The first is Order No. 890 Order No. 890 amended its regulations and open access transmission tariff to remedy opportunities for undue discrimination. Key reform related to demand response was the requirement for open, coordinated and transparent planning on both a local and regional level. Preventing Undue Discrimination and Preference in Transmission Service, Order No. 890, FERC Stats. & Regs. ¶ 31,241 at P 418-602

Transmission Planning Processes Under Order No. 890 Comments are due by November 9, 2009 in AD09-8 on: Should there be consistency in the way transmission providers treat demand resources, such as demand response, energy efficiency and distributed storage, in the transmission planning process? Are there preferred methods of modeling or otherwise accounting for demand resources in the planning process? Does the planning process investigate transmission needs at fine enough granularity to identify beneficial demand resource projects? Compliance with Order No. 890 has proceeded through several rehearings of the final order and compliance filings from affected entities. Last month, the Commission conducted several regional technical conferences to examine transmission planning under Order No. 890 in greater depth. These conferences raised several important questions. A recent notice in docket AD09-8 asked these questions. Three questions were focused on demand response.

Wholesale Competition Final Rule (Order No. 719) Wholesale competition NOPR contains four demand response proposals: At All Times Aggregated retail demand responses may bid into RTO and ISO markets Unless the laws or regulations of the relevant electric retail regulatory authority do not permit a retail customer to participate Demand response may bid into ancillary services markets During a Power Shortage Reducing load is not penalized Price may help reduce demand Wholesale Competition in Regions with Organized Electric Markets Docket RM07-19, 122 FERC ¶ 61,167, issued February 22, 2008

Recent FERC Activity National Demand Response Assessment Annual demand response and advanced metering reports NOPR on measurement and verification of demand response products and services in wholesale electric energy markets National Action Plan on Demand Response In addition to this past activity, the Commission either just finished or is in the midst of several additional activities associated with demand response. READ THEM

EISA 2007 Statutory Requirements Section 529 of Energy Independence & Security Act of 2007 creates a new Section 571 of the National Energy Conservation Policy Act that requires FERC to: Conduct a National Assessment of Demand Response Due by June 19, 2009 Develop a National Action Plan on Demand Response Due by June 17, 2010 With DOE, submit National Action Plan Implementation Proposal to Congress Due by December 17, 2010

National Assessment of Demand Response Bottom-up, state-by-state analysis 15 pilot programs synthesized User-friendly spreadsheet model Review of barriers Recommendations to achieve potential Commission staff completed the National Assessment of Demand Response Potential last June. The Brattle Group was our contractor for the study. I’m told this is the first time all 50 states have been analyzed with a single, consistent approach Brattle and it’s subcontractors reviewed 15 DR pilot programs and selected the best to use to calibrate this analysis. So this analysis captures a great deal of experience from around the country.

Approach: Scenarios Business-as-Usual (baseline) Expanded Business-as-Usual Achievable Participation Full Participation Business-as-usual is simply today’s demand response programs, growing at the same rate as peak demand. Expanded business-as-usual took today’s programs and expanded them to all states and raised their participation levels. It also had partial AMI deployment and a small amount of dynamic pricing. But it’s primarily intended to estimate what would happen if today’s programs were aggressively pursued. The next two scenarios involve more price-responsive programs. The Achievable Participation scenario assumes full deployment of AMI, an opt-out dynamic pricing tariff with about 60 to 75 percent of customers participating, and substantial use of enabling technologies (like PCTs) where cost-effective. The Full Participation scenario is the most aggressive. Like the previous scenario, it has full deployment of AMI but it assumes dynamic pricing is the mandatory tariff. Enabling technologies are used everywhere they are cost-effective. Note that the analysis results are estimates of potential, NOT forecasts or goals.

U.S. Peak Demand & NADRP This shows U.S. peak demand, according to NERC. Starting at the top, the line labeled “No DR” is NERC’s peak demand forecast with demand response stripped out. The next, red line is the business-as-usual case. It starts with existing DR in 2009 at about 37 GW, and grows in parallel with the NERC forecast. The next three lines are the results of the analysis. Green is the expanded Business-as-usual, which by 2019 is 82 GW lower than the no-DR forecast. Blue is the Achievable Participation scenario, which ends up in 2019 138 GW below the no-DR case. Yellow is the Full Participation scenario, with a 188 GW reduction by 2019. Or compared to the business-as-usual case, it is 150 GWs lower.

DR Potential by Program Type (2019) Here are the same nationwide potential estimates, broken down by program type. The business-as-usual scenario is on the left, and the analysis scenarios are to the right: Expanded business-as-usual, Achievable Participation and Full Participation. The types of DR programs used in the analysis are shown in the legend: Pricing (meaning dynamic pricing) with and without enabling technology, Direct Load Control (where the utility cycles your air conditioner remotely) Interruptible Tariffs, and Other DR, which is mostly RTO programs. The most important observation is that, in the Achievable and Full scenarios, dynamic pricing programs with and without enabling technology (the dark blue and light blue columns) make up a large part of the potential.

DR Potential by Customer Class (2019) Here again are the nationwide numbers, by scenario. This time, they’re broken down by customer class. Residential customers are the green bars. Today (business-as-usual) residential customers are a small portion of DR, but in the analysis they provide a lot of the potential.

Range of State Results (Achievable Participation Scenario) Gigawatt Basis Texas (13.2 GW) Florida (11 GW) California (8.8 GW) Hawaii (0.2 GW) Vermont (0.01 GW) Alaska (0.01 GW) Peak Load Fraction Conn. (26%) Maryland (24%) Maine (22%) Wisconsin (8.5%) Hawaii (8.5%) Alaska (4.6%) Let’s look at some state-by-state results. These numbers are from the Achievable Participation scenario in 2019. When looking at absolute amounts of potential (on the left, measured in gigawatts), it’s no surprise that the states with the largest peak demands also have the largest potential: Texas, Florida and California. And states with low peak demand have the smallest potential. Expressing potential as a percent of the state’s peak demand, (right-hand column) the results paint a different picture. Connecticut, Maryland and Maine have the highest potential, reflecting large quantities of existing demand response resources . Other factors that affect state-by-state results are the speed and degree of AMI rollout, central air conditioning penetration, and the relative load shares of each customer class.

State Details in Appendix D Much of the data that was developed to create the state-by-state estimates is shown in Appendix D of the report. For instance, the number of customers by rate class, peak demand, and average per-customer peak load by rate class (shown here). Analysts might find these data useful as a “reality check” on the model results, and perhaps for other uses too. And as I’ll discuss in a moment, the model itself is available to you.

FERC Assessments of Demand Response and Advanced Metering Required by EPAct 2005 Section 1252(e)(3) FERC staff issued reports in 2006, 2007 and 2008 2009 FERC staff report issued September 2009 Future staff reports: Comprehensive reports every even year reports (e.g. 2008) that will include survey results Informational reports every odd year based largely on publicly available information

2009 FERC Demand Response Report Fourth annual report issued in September 2009 Report includes Results from Assessment Summary of recent Commission actions Summary of noteworthy retail demand response activities http://www.ferc.gov/legal/staff-reports/sep-09-demand-response.pdf

2010 Survey 2010 Demand Response and Advanced Metering survey under development Draft survey released for comment in Docket IC09-731 Small number of comments were received Survey will be fielded in March/April 2010

Wholesale Demand Response Measurement and Verification Issued NOPR on proposed business practices on wholesale M&V developed by NAESB in RM05-5-017 Proposed standards categorize various demand response products and services and support M&V in wholesale electric energy markets Finds that more work is needed to develop substantive standards Comments due October 22, 2009

Demand Response National Action Plan Subsection 571(b) of the National Energy Conservation Policy Act require FERC to: Develop a National Action Plan on Demand Response Solicit input and participation from broad range of stakeholders Including industry, state utility commissioners, and non-governmental groups Identify requirements for technical assistance to states Identify requirements for a national communications program Identify analytical tools and other support material

Demand Response National Action Plan Status Developed a FERC Staff Discussion Draft of Possible Elements of a Demand Response National Action Plan Conducted initial and broad outreach on Discussion Draft with stakeholders

Demand Response National Action Plan Next Steps Release Revised Discussion Draft Conduct National Action Plan Technical Conferences Publish for Comment Draft National Action Plan Publish Final National Action Plan by June 2010

Demand Response National Action Plan Implementation Proposal Post-June 2010 FERC will work with the Secretary of Energy to develop a proposal to implement the National Action Plan Contents of implementation proposal could include: Specific proposed assignments of responsibility Proposed budget amounts Agreements secured for participation from State and other participants Implementation proposal due to Congress by December 2010

David Kathan david.kathan@ferc.gov 202-502-6404 Questions? David Kathan david.kathan@ferc.gov 202-502-6404