Demand Response: What It Is and Why It’s Important 2007 APPA National Conference San Antonio, Texas June 26, :00 a.m. to Noon Glenn M. Wilson Director of Utilities 295 Meridian Street Groton, CT

The Three Pillars Courtesy of ISO-NE Energy Efficiency – Managing energy consumption and energy assets Demand Response – Managing load shape Supply Management – Managing the supplier relationship and risk

What is Demand Response? Customers reducing their electricity consumption in response to either: –high wholesale prices or –system reliability events Customers being paid for performance based on wholesale market prices Courtesy of ISO-NE

Why is Demand Response Important? Reliability Benefits – Resource available to help “keep the lights on” during extreme emergency conditions Capacity Resource – Can be implemented quickly, where needed – Can be used to satisfy a capacity obligation Customer Benefits – Paid for performance and improve load shape Courtesy of ISO-NE

Program Types Reliability (Demand) Programs – Customers respond to System Reliability Conditions as determined by ISO Control Room Price Programs – Customers respond to Wholesale Prices as determined by the Market Courtesy of ISO-NE

Discussion Topics Why is demand participation in the electricity market needed? What is the Forward Capacity Market (FCM) and how does it work? What has been the interest in participating in the Forward Capacity Auction? Courtesy of ISO-NE

Demand Participation in Markets is Needed The load factor of the New England electricity system has been steadily declining over time resulting in: – peaky loads, higher energy and capacity costs, and higher average rates. A small amount of demand participation in markets can go a long way in mitigating peaks, lowering costs, and ultimately lowering electricity prices to final consumers. “Markets are the most efficient way to encourage the development of cost-effective Demand Resources.” (Henry Yoshimura, ISO-New England) Courtesy of ISO-NE

ISO-NE Summer Peak Load Factors History , Forecast Courtesy of ISO-NE

Why Should Demand Resources Participate In the FCM? New England Load Duration Curve (2006) Courtesy of ISO-NE

Forward Capacity Market Background The Forward Capacity Market (FCM) will be used to procure capacity to meet New England’s forecasted demand and reserve requirements three years into the future. – The design of the FCM resulted from a Settlement Agreement signed on March 6, FERC approved the Settlement Agreement on June 16, – Detailed FCM Rules were filed with the FERC on February 15, FERC approved the qualification and auction process on April 16, Generation and Demand Resources may participate in the FCM. Courtesy of ISO-NE

Eligible Resources Supply Resources – Traditional Generation (Oil, Coal, Natural Gas) – Intermittent/Renewable Generation (Hydro, Wind, Solar) Demand Resources – Energy Efficiency – Load Management – Distributed Generation – Demand Response Courtesy of ISO-NE

Forward Capacity Auction Objectives The FCM uses a competitive Forward Capacity Auction (FCA) process to determine which resources to buy, how much to buy, and how much to pay. The FCA will be used to select a portfolio of Generation and Demand Resources to meet Installed Capacity Requirements. All resources that clear the auction are paid the market- clearing price ($/kW-month), subject to performance incentives and penalties. To encourage investment, new resources can receive a long- term commitment (up to 5 years). Courtesy of ISO-NE

Show of Interest Results To participate in the first FCA (scheduled for February 2008), Project Sponsors had to submit an application called a “Show of Interest” form. ISO New England received more than 400 Show of Interest forms from new Generation and Demand Resources totaling over 12,400 MW. – Over 10,000 MW from new Generation Resources. – Over 2,400 MW from new Demand Resources, including energy efficiency, load management, distributed generation and demand response. Courtesy of ISO-NE

Demand Resources Show of Interest MW by State and Resource Type 80% of the proposed MWs are from non-utility suppliers such as energy services companies, third-party energy suppliers, equipment vendors and retail customers. Courtesy of ISO-NE

Early Observations: Significant potential for Demand Resources to participate in the Wholesale Electricity Markets – The strong showing with regards to the New Demand Resource Show of Interest is very encouraging. – Not all the projects that submitted Show of Interest forms will qualify, clear and perform. – However, the level of interest demonstrates the effectiveness of the Forward Capacity Market to attract investors and bring about the development of the most cost-effective capacity resources. Courtesy of ISO-NE

How Can Customers Participate? Reduce Electricity Consumption – Shut down a manufacturing process – Turn off discretionary lighting, motors, etc. – Raise HVAC temperatures – Use Lighting Controls (i.e., Dimming) – Use an Energy Management System Start Emergency Generator – Transfer load from the Grid to an Emergency Generator Combination – Start up Emergency Generator and reduce load at the same time (Real Time Demand Response only). Courtesy of ISO-NE

Demand Response (continued) Courtesy of ISO-NE

Demand Response (Continued) Courtesy of ISO-NE

Real-Time Demand Response Courtesy of ISO-NE

Real-Time Price Response Courtesy of ISO-NE

Day-Ahead Option Courtesy of ISO-NE

DR Program Enrollments 2/2006 – 2/2007 Courtesy of ISO-NE

Typical Emergency Generator Configuration Operating during System Reliability Events (OP4 Action 12) Courtesy of ISO-NE

Distributed Resources Energy Independence Act (Public Act 05-01) – Distributed Generation Qualifying Projects – Combined Heat and Power – Peak Shaving – Installed and Operating after July 21, 2005 Incentives – $450 or $500 per kW Courtesy of ISO-NE

Distributed Resources Energy Independence Act (Public Act 05-01) Emergency Generation – $250/kW Southwest Connecticut* – $200/kW Remainder of Connecticut – Must enroll in ISO-NE Demand Response Program Additional $50/kW only available for units operational before April 30, 2008 Courtesy of ISO-NE

Enrollment Process – Who’s Involved Retail Customer Enrolling Participant – Local Utility – Competitive Supplier – Demand Response Provider Internet Based Communication Service (IBCS) Provider ISO New England – ISO New England issues payments to Enrolling Participants and Demand Response Providers, not Retail Customers directly Courtesy of ISO-NE

ISO-NE Load Response Qualifying Projects ≥ 100 kW curtailable load (single site or in aggregation) Demand Response Program (mandatory) Price Response Program Enrollment through utility or other curtailment service provider Curtailment Methods Manual Automatic Emergency Generation Courtesy of ISO-NE

ISO-NE Load Response (continued) Courtesy of ISO-NE

ISO-NE Load Response (continued) Courtesy of ISO-NE

Peak Demand Savings Available from CEEF and EIA Programs (in kW) Courtesy of ISO-NE

Lost C&LM Summer Peak Savings Unless C&LM Funding is Restored Future C&LM Peak Demand Savings (MW) That Would Be Lost, Annual and Cumulative Courtesy of ISO-NE