NARUC-FERC Demand Response Collaborative Meeting NARUC Fall Meeting Anaheim, CA T. Graham Edwards President & CEO November 11, 2007

2 Value of the Midwest ISO

3 Demand Response in Midwest Market Today Robust demand participation is important Enhances long-term adequacy Improves real-time reliability Reduces peak prices and price volatility Limits supplier market power Existing demand response is limited Most developed under state retail initiatives Primarily consists of resources available under emergency conditions The amount is large but experience suggests less may be available in practice

4 Available Demand Response ISO/RTO’s

5 Midwest ISO Load Reduction August 1, 2006 ~ 3,000 MW Relief from Demand Side Management 90,000 95, , , , , , , , , ,000 00:00:00 01:00:00 02:00:00 03:00:00 04:00:00 05:00:00 06:00:00 07:00:00 08:00:00 09:00:00 10:00:00 11:00:00 12:00:00 13:00:00 14:00:00 15:00:00 16:00:00 17:00:00 18:00:00 19:00:00 20:00:00 21:00:00 22:00:00 23:00:00 TIME (EST) Load (MW) 24:00:00 Forecast Footprint Load Actual Footprint Load

6 Recent Demand Response Efforts Midwest ISO and Stakeholders worked to address identified barriers Tariff changed to eliminate disincentive to demand response due to potential imposition of RSG charges Tariff change underway to increase incentives by assuring compensation for demand reductions called during emergencies Effort underway to evaluate alternative pricing mechanisms to increase incentives for participation by assuring market clearing prices accurately reflect value of demand reductions

7 Near-Term Market Enhancements Demand Response in Ancillary Services Market (ASM) Demand response resources can sell ancillary products –Operating Reserves if capable of responding within 10 minutes via physical load interruption (Type I) –Regulation if capable of supplying instantaneous energy to the market through behind-the-meter generation or controllable load (Type II) Demand Response in Resource Adequacy Requirements Planning Process – Demand response counts toward capacity requirements Efforts underway to finalize revised resource adequacy construct that enhances opportunities for participation of demand resources by tailoring resource requirements to demand characteristics

8 Demand Response Challenges Wholesale Market Market design issues limit flexibility or realization of the value of demand response, particularly in Real-Time Price signals do not provide incentives for participation when prices fail to reflect the value of demand response Technical limits restrict ability to dispatch demand consistent with physical characteristics

9 Demand Response Challenges Retail Market Regulatory barriers or contract terms of existing demand response limit participation in the regional wholesale market Misaligned incentives limit demand response where those making consumption decisions do not recognize (or pay) value of energy consumed

10 Demand Response Challenges Customer Frustration + Time of Use Pricing Opportunities to Reduce Retail Consumption Existing Barriers: Wholesale Retail Technology

11 Next Steps Multiple efforts are underway in the Midwest aimed at increasing opportunities for demand participation Midwest ISO Demand Response Working Group (DRWG) Addressing linkage between demand response and resource adequacy Developing additional market mechanisms based on unique characteristics of demand response resources Developing enhanced Midwest ISO emergency protocols Evaluating opportunities to lower barriers to participation due to misalignment between wholesale and retail markets Midwest Demand Response Initiative (MWDRI) OMS established task force focused on increasing opportunities for demand response in Midwest ISO markets Building a knowledge base among Midwestern regulators utilizing the work already done via New England and Mid-Atlantic demand response initiatives