1 Demand Response in Midwest ISO Markets 09 February 2007

2 The Midwest ISO strives to have  an open wholesale energy market where Market Participants can buy or sell energy in fair, efficient and non- discriminatory markets, while providing a reliable grid operation.  Markets work best when there is vigorous participation by both buyers and sellers  End-use customers do demand response  State regulators can influence that demand response Demand Response in ISO Spot Energy Markets Today

3 The Midwest ISO currently has market design elements regarding demand that enable LSEs to enhance revenues or avoid costs  Day-Ahead Market:  Price Responsive Demand (PRD) – LSEs can and do submit PRD bids to manage their exposure to high LMPs  Demand Response Resources (DRRs) – Midwest ISO treats DRRs like generation; they can be committed and dispatched based on economics  Currently, DRRs are not guaranteed RSG credits and cannot set LMP; however, the quid pro quo is DRRs are not subject to UIDs and have no offer cap Demand Response in ISO Spot Energy Markets Today

4 The Midwest ISO currently has market design elements regarding demand that enable LSEs to enhance revenues or avoid costs  Real-Time Market:  Price Responsive Demand (PRD) – LSEs cannot submit PRD bids in this market but can manage their exposure to high LMPs by considering the current LMPs as broadcast by MISO, projecting future LMPs and acting accordingly  Demand Response Resources (DRRs) – DRRs can be dispatched based on economics Demand Response in ISO Spot Energy Markets Today

5 The Midwest ISO currently has market design elements regarding demand that enable LSEs to enhance revenues or avoid costs  Across DA/RT Markets:  Definition of load zones – unlike most if not all of the other ISOs/RTOs, LSEs in the Midwest ISO can voluntarily define their load zones based on the actual withdrawal points of their customers. Load zones establish pricing points upon which the LSE will be charged. Most other ISOs/RTOs establish broader pricing zones across multiple LSEs; this serves to mute the price signal these MPs face, and therefore, inhibit demand response. Demand Response in ISO Spot Energy Markets Today

6 The Midwest ISO currently has market design elements regarding demand that enable LSEs to enhance revenues or avoid costs  Resource Adequacy:  Some existing RROs allow demand response to count in fulfillment of capacity requirements. The ISO’s Module E accommodates this treatment.  Emergency Procedures:  Emergency demand response provided almost 3000 MW of relief on 1 August this year. Demand Response in ISO Spot Energy Markets Today

7  Energy Markets  Price sensitive demand bids in both DA/RT markets, DRRs in both markets, ISO projects LMPs for price transparency & discovery  Ancillary Services Markets  Reliability response demand bids – response required only under power system contingencies  Resource Adequacy Construct  Allow demand response to qualify as ‘capacity credits’  Planning Process  Integrate demand response into resource planning  Emergency Procedures  Provide more rigorous Emergency Protocols to enhance reliability and promote demand response Demand Response in ISO Markets – moving forward: Day 3 efforts by product types

8  Outstanding Issues:  What are the current barriers for demand participation?  How to price emergency demand response?  How to accommodate PRD in Real- Time markets?  Should the ISO create ‘programs’ to jumpstart demand response efforts?  How can the ISO (with coordination from states) link wholesale markets with retail rates, so end-use customers can see real time prices? Demand Response in ISO Markets – moving forward: Day 3 efforts by product types