1. Advanced Metering’s Next Frontier: Demand Response Interim Report Advanced Metering Implementation Team/ ERCOT Demand Side Working Group February 2012

2. 2 AMI DR Acceleration Initiative Market Workshops AMIT and DSWG co-sponsored two market workshops along with follow up meetings in smaller work sessions to identify barriers, discuss issues and document potential recommendations Both workshops were well attended: –August 30-31: over 125 in person, ~85 on the phone –December 16: over 50 in person, ~45 on the phone Participation from across the market, including: –PUC staff, ERCOT staff, REPs, Municipally Owned Utilities and Co-ops, Generators, TDSPs, CCET, Aggregators, third party service providers, technology vendors

3. 3 AMI DR Acceleration Initiative Statistics* ~4.7 million advanced meters installed across 5 TDSP service territories ~4.3 million advanced meters being settled on 15-minute data ~28,000 customers enrolled at Smart Meter Texas portal ~4,600 Home Area Network Devices provisioned through Smart Meter Texas (by TDSPs and REPs) Unknown number of dynamic price offerings by REPs and unknown number of customers enrolled Unknown number of demand response/direct load control retail offerings and unknown number of customers enrolled * As of 12/31/2011

4. 4 AMI DR Acceleration Initiative AMI environment – –Advanced metering infrastructure provides 15-minute interval data for customers –Wholesale settlement on that 15-minute data ensures retailers can realize benefits of any demand response or load management actions Customers could realize better pricing based on their actual load profile (via AMS 15-minute intervals) in lieu of pricing based on a deemed load profile (via scalar meter) Assumption underlying the workshops – –This foundation should be a catalyst for introduction and adoption of additional load management and demand response products and services

5. 5 AMI DR Acceleration Initiative Objective and Benefits Group objective: Accelerate the growth of demand response and load management among AMI customers leveraging this environment Benefits will include: –Improved market efficiency through price elasticity of demand –Improved grid reliability through measurable and verifiable demand response –Additional return on the AMI investment –Greater customer empowerment to manage their electricity use

6. 6 AMI DR Acceleration Initiative Purpose of report This interim report documents major issues and recommendations to inform ERCOT management and Board of Directors, PUC and Market Participants of the activities to date, and to seek guidance on next steps.

7. 7 AMI DR Acceleration Initiative Strategic Issues Strategic challenges discussed –Mass Market Loads’ lack of access to ERCOT markets for Energy & Ancillary Services Aggregations of AMI-enabled loads are not yet eligible to submit energy offers as Load Resources in Security-Constrained Economic Dispatch (SCED) SCED enablement could attract participation in the Ancillary Services markets –Short term retail contracts discourage DR investment Tendency of retail market contracts to be short term which may not allow for REP cost recovery for DR/Load management products/equipment –Over ¾ of residential offers on powertochoose.org are less than 24 months This barrier does not apply to products and services based purely on price incentives (IE, Time of Use (TOU)) that rely on behavioral changes Also noted: a lack of comprehensive knowledge of customer tolerance of DR (frequency and type of deployments) –Fragmented Benefits Many entities benefit from AMI; however no single entity yet captures sufficient benefits to justify investment in DR tools

8. 8 AMI DR Acceleration Initiative Strategic Issues (continued) Strategic challenges discussed –Limited ability for policymakers to affect product design Under PURA, REP DR-related products cannot be mandated and there is limited ability for regulators to stimulate DR-related products –Lack of a vehicle for near-term growth of AMI-enabled DR to contribute to resource adequacy Lack of products or services that could attract new demand response (DR) capacity quickly and improve ERCOT's planning reserves –Lack of knowledge of effects of price response (voluntary or passive load response) A publically available comprehensive study of ERCOT price responsive load has not been conducted –Lack of long-term DR revenue stream Energy-only market design offers limited opportunities to fund DR infrastructure (this acknowledges that there is little to no interest in changing the energy-only design)

9. 9 AMI DR Acceleration Initiative Tactical Issues Tactical issues discussed –Need for DR products with longer lead times (ramp periods) Current ERCOT DR products have 10-minute ramp requirements Longer ramp periods could attract more customer participation, especially for smaller loads –Need for advanced notification of wholesale prices In the current environment, Load Zone 15 minute prices are known after the settlement interval has expired Ideally notification would be at least 90 seconds prior to the interval –Limits on access to AMI data by entities other than customer or REP of Record Revised rules for access to Smart Meter Texas (SMT) data for DR providers and retail aggregators could lead to additional DR-related products –Need to identify customers participating in DR/price response ERCOT & TDSPs could benefit from knowing which customers are enrolled in DR/price response products Could benefit load forecasting and grid operations

10. 10 AMI DR Acceleration Initiative Process Workshop participants attempted to prioritize the recommendations: –Degree of impact: significant or incremental Context: –6.5 million meters –68,000 MW grid –Degree of difficulty: high, medium or low High examples: requires legislation / rulemaking, millions of dollars, multi-year development Medium examples: requires protocol / guide revision, less than 6 figures, less than 2 yrs for development Low examples: in scope of current market design, already budgeted Also documented whether consensus was achieved

11. 11 AMI DR Acceleration Initiative Recommendations –Impact: significant / difficulty: medium – market consensus Implement 3 rd party access to Smart Meter Texas (SMT) Develop and publish operational metrics for SMT Develop and publish service level objectives for SMT Create and implement Home Area Network (HAN) support –Impact: significant / difficulty: high – market consensus Implement load participation in SCED by aggregations of small customers Design ERCOT products with longer ramp periods

12. 12 AMI DR Acceleration Initiative Recommendations –Impact: incremental / difficulty: medium – with market consensus Expand scope of powertochoose.org to allow customers to search for DR/Smart Grid product offerings from REPs REPs communicate to ERCOT which of their customers are enrolled in REP administered DR products –Subst. R. §25.505 requires LSEs to share this information with ERCOT Develop and implement the SMT 4.0 release including requirements to support REP/Third party DR products Develop and implement the SMT / HAN customer education initiative including requirements to support REP/Third party DR products

13. 13 AMI DR Acceleration Initiative Recommendations –Impact: significant / difficulty: high – no market consensus Create a Demand Response Portfolio Standard (similar to Renewable Portfolio Standard/Renewable Energy Credit program) –Impact: significant / difficulty: medium – no market consensus Expand ability of TDSP to fund mass market DR infrastructure –For example Energy Efficiency programs (rulemaking currently open) –Impact: unknown / difficulty: unknown – no market consensus Increase (financial) attractiveness of EILS during peak hours Implement time-differentiated Transmission and Distribution tariffs (paying more for on peak usage than off peak) –Majority of participants opposed to this idea Review best practices in capacity markets and modify them for the Energy Only Market Design –Examine how demand resources are purchased in markets with ICAPs, etc.

14. 14 AMI DR Acceleration Initiative Next Steps: Participants agreed that issues and recommendations need further discussion and development –Communications / facilitation could be more efficient if a standing task force or working group is created Lesson learned between the two workshops is different groups had similar discussions; market participants had to attend different meetings to stay engaged with similar conversations Who should participate? –Parties interested in leveraging the value from the investment and developing market environment for the coming decades Strategic rather than tactical What is the best forum?

15. 15 Appendix

16. 16 AMI DR Acceleration Initiative Parking Deck During the 2 nd workshop, items that had not been discussed in detail were added to a parking deck and categorized Future agenda items: –Create a way for the ISO/Market to pay loads for energy as an interim solution to load participation in SCED –Are ERCOT DR resources ‘under-valued’ due to the market design? –Study EILS procurements and timing to better reflect market value of DR (post-EILS rule changes) –3 rd Parties communicate to ERCOT and/or REPs which of their customers are enrolled in 3 rd party administered DR products –Create a ‘Power to Choose’ central clearing house for all DR including from 3 rd Parties –Modify or eliminate the demand ratchet in T&D rates for small commercial customers (post-Project 39829 workshop) One TDSP may already reduce the ratchet

17. 17 AMI DR Acceleration Initiative Parking Deck Future research ideas: –Would longer ramps encourage participants to use more energy during the ramp period? –NYSERDA model – are there aspects that ERCOT could use to fund a DR infrastructure? –Further explore price response in the residential market -- update ERCOT survey with a new emphasis on residential response to dynamic prices in existing programs –Commission a large-scale demonstration project with goal of quantifying benefits of AMI-enabled DR and measuring customer acceptance –Update the pre-nodal white paper “Capturing the Value Stream of Demand Response in ERCOT Market” –Review existing or pending studies regarding customer tolerance for DR