Potential Cost Savings in MISO from Demand Response MWDRI Steering Committee September 24, 2007

Purpose of study: It’s Helpful to Quantify DR Benefits Identify the Potential Capacity and Energy Cost Savings and Avoided Generation due to demand and energy reductions at various participation levels Identify impacts on Emissions from demand and energy reductions Allocate benefits of demand reductions to states and regions and demonstrate merits of regional cooperation

Methodology Use the MTEP 2008 Assumptions and apply demand and energy reductions to the 20 year study period Run “Base Case” and Benchmark against –All modeled cases include “Legacy” Demand Response MW values reported in the 2007 Module E as interruptible and Direct Load Control are applied each year of the study period. Reduce the growth rate of demand only, then both demand and energy (10 cases) –Reductions are from.1 to.5% from base growth rates Run models on a regional level and present results on MISO as a whole and at the state level using a load based multiplier

Limitations of Study Does not include the Cost of demand response in the model –Results identify potential cost savings –The outer limit of “What would you be willing to pay?” Models given reductions in demand and energy growth rates. Does not identify the potential for demand response. No specific type (DLC, Demand Bid etc.) of demand response is modeled, only demand and energy reductions Production costs are based on an economic dispatch without transmission system constraints –However, benefits are benchmarked from the reference case, which identify the impact of demand and energy reductions Models and Results only represent MISO companies –Potential benefits for Demand Response to load served outside the MISO market are not captured

Presentation of Results The Study Results are data intensive. In consideration of various audiences interested at different levels of interest the results are presented in 2 sections –By MISO Footprint –By State Focus on case “DE5” with 0.5% demand reduction and 0.5% energy reduction from reference case growth rates

Results for the MISO Footprint

Results from Reducing Demand and Energy (All MISO) Scenario Demand Growth Rate Energy Growth Rate 2027 Coincident Peak 2027 Total Energy Demand Reduction Energy Reduction 20 Year Demand Reduction 20 Year Energy Reduction Average Demand Reduction %MWGWHMWGWH% REF*1.28%1.27%140,588745,187 D11.18%1.27%138,543745,1872, %0.00% 1,981 MW per.1% Demand Growth Rate Decrease D21.08%1.27%136,534745,1874, %0.00% D30.98%1.27%134,560745,1876, %0.00% D40.88%1.27%132,621745,1877, %0.00% D50.78%1.27%130,683745,1879, %0.00% DE11.18%1.17%137,975731,3352,61313, % 2,523 MW per.1% Demand & Energy Growth Rate Decrease DE21.08%1.07%135,408717,7265,18027, %3.69% DE30.98%0.97%132,886704,3577,70240, % DE40.88%0.87%130,409691,22510,17953, % DE50.78%0.77%127,976678,32512,61366, % *REF – Reference Case Demand & Energy are from 2007 Module E forecasts by each company Demand Reduction – Difference in Demand from Reference Case Energy Reduction (Cases DE1-DE5 Only) – Difference in Energy from Reference Case 20 Year Demand Reduction – Percent decrease in Demand = Demand Reduction / Reference Demand 20 Year Energy Reduction - Percent decrease in Demand = Energy Reduction / Reference Energy Demand Reduction Only Demand and Energy Reduction

Demand Reductions from Base Case (All MISO) Demand Reductions from Base Case 9,906 12,613

Generation Expansion (All MISO) Scenario20 Year Generation Additions (In MW) Generation Reduction from Reference Average Generation Reduction Queue*CoalCCCTWind**TotalMW REF6,32621,6006,0003,52012,60050,028 D16,32622,8003,6002,24012,60047,5482,480 2,448 per.1% Demand Growth Rate Decrease D26,32619,2003,6003,52012,60045,2284,800 D36,32620,40003,20012,60042,5087,520 D46,32619,2001,2001,28012,60040,5889,440 D56,32616,8001, ,60037,54812,480 DE16,32620,4004,8001,92012,60046,0284,000 3,397 per.1% Demand & Energy Growth Rate Decrease DE26,32618,0003,6002,56012,60043,0686,960 DE36,32616,8001,2003,20012,60040,1089,920 DE46,32614,4001,2002,56012,60037,06812,960 DE56,32613,2001,2001,92012,60035,22814,800 * Queue Generation includes only generation in the Midwest ISO Queue with a signed Interconnection Agr. ** Wind Additions were fixed at 12,600 MW to meet state mandates (Wind contributes 15% to Reserve Margin Requirements and Runs at a 40% Capacity Factor for new Wind units and 33% Capacity Factor for existing Wind Units)

MISO Queue with Signed IA Coal 3,050 CC 2,236 CT 550 Wind 490 Total 6,326

Reductions in Emissions from Reducing Demand,Energy ( All MISO ) Change in Emissions from Reference Case = Reference Case Emissions – Scenario Emissions Percent Emission Reduction = 100 x Change in Emissions / Reference Case Emissions Average Emission Reduction = Change in Emissions / (1, 2, 3, 4 or 5 Respective of the scenario modeled) Scenario Change in Emissions from Reference Case (In Tons) Percent Change in Emissions (in %) Average Emission Reduction for each 0.10% Reduction (In Tons) CO2NoxSO2HgCO2NoxSO2HgCO2NoxSO2Hg Negative (values in red) indicate an increase in emissions from Reference Case REF10,873,595,44030,168,12328,347, D1-2,128,352264,281435, ,128,352264,281435, D2-5,826, , , ,913, , , D3-6,618, ,01450, ,206,283-34,67116, D4-4,260, , , ,065,100-91,930-92, D5-10,252, , , ,050, , , DE1109,569,552505,970683, ,569,552505,970683, DE2228,896,080617,703684, ,448,040308,851342, DE3330,775,040693,041742, ,258,347231,014247, DE4437,102,176714,144762, ,275,544178,536190, DE5543,499,328901,581951, ,699,866180,316190,

Capital & Production Costs (All MISO) Scenario Accumulated Present Value Capital Cost Accumulated Present Value Production Cost Accumulated Present Value Total Cost Accumulated Present Value Capital Cost Savings Accumulated Present Value Production Cost Savings Accumulated Present Value Total Cost Savings Average Cost Savings for each 0.10% Reduction Maximum Demand Response Value ($Million) $/KW REF48,519241,342289,861 D148,362239,808288, ,5341, D244,270241,783286,0534, ,8091, D343,637240,541284,1784, ,6831, D441,761241,590283,3516, ,5111, D539,084242,370281,4549,436-1,0288,4081, DE147,614237,271284, ,0714,977 1,904 DE244,306235,715280,0204,2145,6279,8414,9201,900 DE341,196233,118274,3147,3248,22415,5485,1832,019 DE438,051231,190269,24110,46810,15220,6205,1552,026 DE536,311228,687264,998 12,20812,65524,863 4,9731,971 Note: Production Costs Include costs for all emissions except CO2. Production costs with a CO2 tax are on the next slide. Average Cost Savings = Total Cost Savings / (1, 2, 3, 4 or 5 Respective of the Scenario Modeled) Maximum Demand Response Value = 1000 x Total Cost Savings / Demand Reduction in the Scenario

Reference Installed Capacity Cost Data No AFUDC ($/kW) $s Coal (CFB)2426 Coal (Pulverized)1936 CT (25MW)662 CT (50MW)524 CTCC730 Fuel Cell5820 IGCC2058 Nuclear2633 Solar6040 Wind2059 Maximum Demand Reduction Value/kW: Case D5 $849 Case DE5 $1971 Source: Vermont Deliberative Polling Reference Document

Reference Cost of Demand Response v. Peaking Capacity Peakers cost roughly $75/kW-yr (50-110) –Capacity in excess markets can be cheaper Typical Demand Response Program Costs –Direct Load Control: $55/kW/yr –Demand Bid/Buyback: $25/kW-yr or less –Interruptible rates: $50/kW-yr –Source: Quantec, Demand Response Proxy Supply Curves 2006 Energy Efficiency also cheap

Case DE5 Summary Compared with REF case in 2027 –Peak is 12,600 MW lower, -9% –66,000 fewer GWh used, -9% –14,800 MW of new generation avoided –Additional 35,200 MW still needed –Significant emissions savings from energy reductions –PV savings from production cost reductions and capital cost reductions equal to $24.9 B

Conclusions Reducing the energy growth in addition to demand growth adds to effective demand reduction Capacity Value of Load Reduction >> Cost of DR/EE Demand-only reductions result in more emissions produced because older less efficient units are running more and more energy is needed, requiring more combustion. There are regional differences in the benefits of demand response. Regions with a higher reserve margin benefit less with demand only reductions because the demand reductions do not defer capacity build until later years. With Energy reductions, the benefits are more uniform.

Results by State

Methodology to Represent Demand Response By State State Representations are derived from regional results using the following methods: –Regional Averages – represented at state level –Load Based Multiplier This is a representation of the load in each state as compared to MISO as a whole. The load participation of a company by state was developed from company websites and from company representatives and is summarized in the following two tables –Data is in supplemental slides

Potential Cost Savings By State ( Calculated using Load Based Multiplier) Scenario 20 Year Accumulated Present Value of Cost Savings MNWIIANDSDMTILMOINOHMI $Million D D D ,265.01,551.9 D ,228.31,299.71,405.3 D , ,633.41,676.21,771.8 DE ,025.8 DE21,214.31, ,344.31,731.92,113.7 DE31,745.01, ,437.81,209.92,253.22,817.13,383.2 DE42,334.52, ,025.31,704.33,088.43,635.94,217.9 DE52,815.43, ,539.22,136.73,809.84,315.94,888.2 Cost Savings does not include a Cost for Demand Response Program or a Tax on CO2 Emissions Savings are based on load served by MISO within each state – additional savings could be gained by other load serving entities

Total sums approximately to the $24.9 billion from slide 12

Maximum DR Value By State (Calculated From Regional Average) ScenarioMISOWest RegionCentral Region Central & East Region East Region MNWIIANDSDMTILMOINOHMI $/KW D11, ,4791,822 D ,1461,1251,0781,049 D31, ,0121,3461,547 D ,0501,111 D ,0001,0371,060 DE12,1131,8072,2542,2562,2602,263 DE21,9411,8531,6591,8022,1322,331 DE32,0771,7911,8982,0372,3582,552 DE42,0701,8132,0232,0972,2702,374 DE52,0071,7642,0472,0802,1572,203 Source: From Regional Expansion with values applied to the state level. IN & OH have a load weighted calculation since they are in multiple study regions. Note: Values do not include a Cost for the Demand Response Program or a Tax on CO2 Emissions

On Mutual Benefit of Reductions among All States States are within MISO and three sub- MISO regional markets Individual state actions affect regional markets, are diluted from state perspective States get full benefit of their demand resources if all states are producing demand resources Brattle Report for MADRI illustrates this – possible further work for MISO

Central Region Reserve Margins After Expansion Note: No Firm Transmission is included in the Central Region Reserve Margins After Expansion

East Region Reserve Margins After Expansion

West Region Reserve Margins After Expansion

Regional Background Information on Demand Response, Reserve Margins and Allocation to States

2007 Demand Response Levels

*Source: 2007 NERC Reliability Assessment **Source: 2007 MISO Module E

2007 Demand Response Levels

Central Region Generation Reductions Scenario Queue Generation Additions Expansion Generation Additions Total New Generation Additions Generation Expansion Reduction Average Generation Reduction Per each 0.10% Reduction Central RegionMW REF1,70012,36014,060 D11,70011,16012,8601,200 D21,70010,28011,9802,0801,040 D31,7009,32011,0203,0401,013 D41,7008,1209,8204,2401,060 D51,7007,2408,9405,1201,024 DE11,70011,16012,8601,200 DE21,7009,96011,6602,4001,200 DE31,7009,08010,7803,2801,093 DE41,7007,8809,5804,4801,120 DE51,7007,0008,7005,3601,072

East Region Generation Reductions Scenario Queue Generation Additions Expansion Generation Additions Total New Generation Additions Generation Expansion Reduction Average Generation Reduction Per each 0.10% Reduction East RegionMW REF010,560 D109, D209,040 1, D307,920 2, D407,840 2, D507,200 3, DE109, DE209,040 1, DE307,600 2, DE406,640 3, DE506,320 4,240848

West Region Generation Reductions Scenario Queue Generation Additions Expansion Generation Additions Total New Generation Additions Generation Expansion Reduction Average Generation Reduction Per each 0.10% Reduction West RegionMW REF4,62620,78225,408 D14,62620,14224, D24,62619,58224,2081, D34,62618,94223,5681, D44,62618,30222,9282, D54,62616,78221,4084, DE14,62618,62223,2482,160 DE24,62617,74222,3683,0401,520 DE34,62617,10221,7283,6801,227 DE44,62616,22220,8484,5601,140 DE54,62615,58220,2085,2001,040

Company Demand Distribution by State (In Percent) % Demand by StateRegion Multi State MNWIIANDSDMTILMOINMIOH Alliant EastWn 1.00 Alliant WestWy AmerenCILCOCn 1.00 AmerenCIPSCn 1.00 AmerenIPCn 1.00 AmerenUECn 1.00 Cincinnati Gas & Electric Co.Cn 1.00 City Water, Light & Power (Springfield, IL)Cn 1.00 Consumers Energy Co.En 1.00 Detroit Edison Co.En 1.00 FirstEnergy OhioEn 1.00 Great River EnergyWy Hoosier Energy Rural Electric Coop, Inc.Cn 1.00 Hutchinson Utilities CommissionWn1.00 Indianapolis Power & Light Co.Cn 1.00 Lansing Board of Water & LightEn 1.00 Madison Gas & Electric Co.Wn 1.00 Minnesota Power, Inc.Wn1.00 Montana Dakota Utilities Co.Wy Northern Indiana Public Service Co.En 1.00 Northern States Power Co.Wy Otter Tail Power Co.Wy PSI Energy, Inc.Cn 1.00 Southern Illinois Power CoopCn 1.00 Southern Minnesota Municipal Power AgencyWn1.00 Vectren (SIGE)Cn 1.00 We EnergiesWn 1.00 Wisconsin Public Power, Inc. SystemWn 1.00 Wisconsin Public Service Corp.Wn 1.00 Wolverine Power Supply Coop, Inc.En 1.00 Source: Midwest ISO

TOTAL 2008 MISO PEAK DEMNAD = 115,154Region Multi StateMNWIIANDSDMTILMOINMIOH Alliant EastWn02, Alliant WestWy40403, AmerenCILCOCn , AmerenCIPSCn , AmerenIPCn , AmerenUECn , Cincinnati Gas & Electric Co.Cn ,889 City Water, Light & Power (Springfield, IL)Cn Consumers Energy Co.En ,5520 Detroit Edison Co.En ,3850 FirstEnergy OhioEn ,982 Great River EnergyWy2, Hoosier Energy Rural Electric Coop, Inc.Cn ,42200 Hutchinson Utilities CommissionWn Indianapolis Power & Light Co.Cn ,24200 Lansing Board of Water & LightEn Madison Gas & Electric Co.Wn Minnesota Power, Inc.Wn1, Montana Dakota Utilities Co.Wy Northern Indiana Public Service Co.En ,59100 Northern States Power Co.Wy7,6991, Otter Tail Power Co.Wy PSI Energy, Inc.Cn ,26700 Southern Illinois Power CoopCn Southern Minnesota Municipal Power AgencyWn Vectren (SIGE)Cn ,35900 We EnergiesWn06, Wisconsin Public Power, Inc. SystemWn Wisconsin Public Service Corp.Wn02, Wolverine Power Supply Coop, Inc.En TOTAL MISO DEMAND IN STATE 13,72115,6063,6341, ,0729,31716,88223,05019,872 Load Based Multiplier* (State to MISO) Calculation of Load Based Multiplier Load Based Multiplier = Total MISO Demand in State / Total 2008 MISO Peak Demand