1. Demand Response – Is There Anything More Important? Scott Miller New England Conference of Public Utilities Commissioners June 18, 2002

2. DR – The Long Wait Much has been said about demand response but not much has been done Much has been said about demand response but not much has been done Demand Response has become a motherhood and apple pie issue Demand Response has become a motherhood and apple pie issue Discussion seems to stop with yes, we must do that Discussion seems to stop with yes, we must do that Feds and states have a role that needs to compliment each other Feds and states have a role that needs to compliment each other

3. DR – The Promise Demand Response benefits Demand Response benefits –Mitigation of Market Power –Mitigation of Load Pocket Issues (Boston, etc) –Environmental Benefits –DR should lead to innovative Distributed Generation (DG) such as fuel cells –Enhance Reliability –Reduce Retail costs relating to ICAP, gen adequacy standards

4. Supply/Demand Whether states have retail access or not, a market needs an elastic demand curve Whether states have retail access or not, a market needs an elastic demand curve –This is critical ISOs, States have tried some demand programs but mostly placeholders ISOs, States have tried some demand programs but mostly placeholders FERC has told ISOs to accommodate demand bidding but little else FERC has told ISOs to accommodate demand bidding but little else Standard Market Design and state programs must mesh… but how? Standard Market Design and state programs must mesh… but how?

5. What SMD Will Do Requirement that load (demand) has to be treated the same as supply for bidding Requirement that load (demand) has to be treated the same as supply for bidding Day ahead market requirement should facilitate some demand bidding Day ahead market requirement should facilitate some demand bidding What else do we need on the wholesale side to make to meet state requirements? What else do we need on the wholesale side to make to meet state requirements? We could use some help here… We could use some help here…

6. Proposal for New England Need to get real demand response going real soon Need to get real demand response going real soon New England region has a generally homogeneous interest in DR New England region has a generally homogeneous interest in DR Need a regional approach, not a single state Need a regional approach, not a single state Unique position to work as a group to advise FERC on SMD helping to make make demand responsive Unique position to work as a group to advise FERC on SMD helping to make make demand responsive

7. Proposal (2) Goal: Get 5-10% of NE load into a stable DR program that has longer than a summer peak lifespan Goal: Get 5-10% of NE load into a stable DR program that has longer than a summer peak lifespan –for 3-4 year period FERC would provide $50,000 for consultant work (collaborate on selection) to help FERC would provide $50,000 for consultant work (collaborate on selection) to help –DoE will provide $40,000 and national lab experts Timeline: Results needed by mid-November to be included in SMD final rule Timeline: Results needed by mid-November to be included in SMD final rule FERC personnel work with NE effort after NOPR FERC personnel work with NE effort after NOPR

8. Proposal (3) Need NE group to come up with a business plan that details what states are going to do and what they need SMD to do Need NE group to come up with a business plan that details what states are going to do and what they need SMD to do DoE will look to provide funding in FY 2003 ($200K) to support program implementation for states DoE will look to provide funding in FY 2003 ($200K) to support program implementation for states EPA looking to fund complimentary programs & possible help on SIP offset EPA looking to fund complimentary programs & possible help on SIP offset

9. Caveat DR in the past has suffered from stop-gap, one year pilot programs DR in the past has suffered from stop-gap, one year pilot programs Nothing done on a regional basis that really gets demand response other than during emergencies Nothing done on a regional basis that really gets demand response other than during emergencies Effort needs to get to real tariff results, not more consultant platitudes Effort needs to get to real tariff results, not more consultant platitudes Plan needs implementation follow through, stability, and occasional tweaks Plan needs implementation follow through, stability, and occasional tweaks

10. Benefits for New England You get to tell Feds what to do… who wouldnt love that? You get to tell Feds what to do… who wouldnt love that? NE could become the experts on DR and the national lab on the subject NE could become the experts on DR and the national lab on the subject Get the promise of DR earlier than everyone Get the promise of DR earlier than everyone –Environmental –Real market driven mitigation –Congestion relief –Others

11. Benefits for FERC Help from a region with a corresponding interest Help from a region with a corresponding interest If successful, will help market oversight as markets become more competitive If successful, will help market oversight as markets become more competitive Help connecting SMD to the missing element… responsive demand Help connecting SMD to the missing element… responsive demand Markets will not work as hoped without real demand response Markets will not work as hoped without real demand response