1. 24 May 2007 DEMAND RESPONSE BENEFITS Dr. Eric Woychik Executive Consultant, Strategy Integration, LLC APSC Workshop on DR and AMI

2. l Guidelines for Considering DR/EE Benefits DR/EE programs are complex, have many elements, and require expert management and staffing Short-term programs have fewer benefits but similar costs Long-term programs provide greater benefits & certainty Single programs produce narrow value streams (benefits) Programs with multiple benefits streams – a menu of customer options – increase benefits relative to costs New technologies, both AMI and web-based, further enable multiple DR/EE customer offerings Long-term, fully-outsourced DR/EE contracts limit customer/utility risks & offer strong performance incentives

3. l How DR/EE Can Be Used – A Recap Lower short-run operating costs – no-fuel alternatives Reduce electricity loads, dynamically and permanently Dispatch specific load reductions, targeted locationally Fast ramping needs Economic dispatch, to avoid higher priced resources Transmission congestion management – redispatch Environmental dispatch – reduce emissions Distribution load-management Capacity reductions: G, T, D, including reserves Emergency operations, during contingencies/heat storms Automated response, to prices or reliability needs Customer cost reductions -- TOU, CPP, or RTP Hedging/insurance and portfolio diversification

4. l Substitute or Complement to Generation & Transmission? Does DR supplant or add to G&T? The answer is it can do both DR can with certainty reduce peak loads on transmission PacifiCorp – displace 90 MW on Wasatch Front NEISO – ensure reliable operation of Western Connecticut California crises (2003 through 2006) Dispatchable DR ensures against “criteria violations” (NERC) Overall DR and EE effort in California in 2006 Peak on over 52,000 MW July 24, 2006 compared to 44,000 MW on 2005 Neither generation or transmission cannot fully anticipate supply-side availability or load growth (i.e., siting and sizing are never quite right) Locationally dispatchable DR enables transmission and generation to be more fully used

5. l Resource Planning Priorities – Loading Order? What is the California Loading Order? Loading order is preference for EE, DR, and renewables Utilities must bring these projects forward before supply-side projects, as they entail less environmental impacts Recent case -- whether DR contracts should be approved Decision supported competitive procurement of DR projects Cost-effectiveness is not yet fully defined for DR Supply-side projects could not be built in the time frame Goals are set for DR and EE and loading order is ‘to be taken seriously” says CPUC President Mike Peevey Why not consider DR and EE before supply-side projects?

6. l Insurance and Hedging Whether DR provides hedging and insurance benefits? DR does not require added transmission or distribution It reduces congestion, losses, and need for T & D DR does not entail environmental impacts It reduces emissions (SOx, NOx, and CO2) It does not cause siting impacts or use water (for cooling) DR entails no fuel price of delivery risks DR reduces market prices and mitigates market power during the times when these problems are the most acute DR can be expanded incrementally, rapidly, & locationally

7. l Cost-effective Environmental Resource Is there agreement DR reduces pollution & energy use? Comverge recently quantifying EE (and GHG) impacts Dispatchable DR programs: 4+% savings per day Option is to implement Environmental Dispatch The can be 25% cycling of AC during peak periods (not super peak) DR programs have a large EE impact (e.g. shopping mall) EE impact is 10% to 24% impact annually Cost-effective compared to installation of a new CT ($80/kW-year)? Long-term dispatchable DR contract, for residential, always beats CT cost LT dispatchable DR contract, for convenience stores, always beats CT cost More cost-effective with T&D + hedge/insurance benefits

8. l Critical Peak Avoided Costs

9. l Avoided Energy Value for DR

10. l Pure Speed to Market & NIMBY Can DR be installed rapidly… & overcome NIMBY? Large increments of DR can be installed quickly Citing, environmental review, CPCN process not needed Rapid customer acquisition and installation are typical As soon as DR installation begins, DR operation occurs No waiting until the entire resource is installed Incremental MWs can be operational as soon as installed No NIMBY Impact Opposite effect; state, regional, and local support for DR as it is an environmentally preferred resource

11. l Load-Factor And Peaking Needs: Is DR a Reliability And an Economic Resource? DR clips peaks, reduces the use of generation that has limited use, and can increase the use of existing transmission through congestion management => provides increased system load factor With a high certainty of performance, DR reduces peak electricity use and therefore adds system reliability Load reduction, reserves, economic capacity, emergency DR can be dispatched in response to economic signals DR can retire old, dirty plants used for reserves, which have slow ramp rates (compare cost of ramping capacity)

12. l Congestion Mitigation And Peak Transmission Does DR mitigate transmission congestion and reduce total transmission need? Dispatchable DR to reduce specific transmission loadings Reduce the need to redispatch (use a more expensive unit because of it location though a cheaper usit is available) Redispatch is transmission congestion management Long-term DR contracts and capabilities can defer specific transmission needs, particularly on peak needs

13. l Distribution Load Management And Cost Reduction Can DR be used to reduce coincident peak distribution needs and lower costs? DR can be used to reduce transmission loadings The benefits are Reduced losses Greater certainty of operating within technical limits Less need for capacitors and distribution “load rolling” Reduced need for “reconductoring’ and new distribution Specific circuits with high outage rates can more reliable

14. l Customer Response (Choice) Opportunity DR as customer choice, an alternative to retail choice DR options can be provided as a set of customer choices Menu is possible Hassle free options are preferred Customer education for those that choose it Incentives and control over bills based on choice Less confusing than shopping for alternative electricity providers Some options: time-of-use/critical-peak pricing, direct load control, price response, and environmental dispatch

15. l Summary of DR Benefits Reduce overall system loads E.g., price response that is temporary or permanent Reduce system peak and locational loads – the DR effect E.g., price response that is predictable and has some certainty Reduce existing and new generation needs Provide dispatchability, ramping, and load following Retire old plants and defer capital and operating costs Reduce existing and new transmission needs Reduce congestion Defer capital and operating costs Reduce existing and new distribution costs… Reduce environmental mitigation costs DR is faster to install and poses no NIMBY issues compared to supply-side options

16. l Upgradeable technology Customers save in real dollars Energy consumption is reduced Environmental benefits persist Customers have a choice in control decisions Satisfied consumers Lasting Benefits

17. l Restatement of Basic DR Benefits Reduced short-run costs: Generation start-up and minimum load costs. Early plant commitment, hot spinning reserve, and non-spinning reserve Reduced fuel price risk Reduced market price volatility from higher prices Congestion (redicpatch) costs in specific locations Environmental emission costs Reduced customer outage costs Short term reliability value Reduced long-run costs: Generation (G) construction, lower O&M, and fast-ramping costs Transmission (T) construction, operating, and maintenance costs Distribution (D) construction, reconductoring, operating and maintenance costs, and substation, feeder, and transformer costs Environmental costs related to T/D/G siting, emissions, and operations Hedging/insurance and portfolio diversitication Black-start capability resulting from cold-load pickup Value of lost load or marginal value of service Increased Customer Choice