1. FERC Perspective on Demand Response David Kathan FERC Midwest Demand Response Initiative Chicago, IL February 9, 2007 The author’s views do not necessarily represent the views of the Federal Energy Regulatory Commission

2. 2 FERC Demand Response Report FERC staff completed a report in August 2006 required by the Energy Policy Act of 2005 Report assesses demand response and advanced metering http://www.ferc.gov/legal/staff-reports/demand-response.pdf

3. 3 Demand Response Results Demand response is important in both wholesale and retail markets 37,500 MW of demand response potential in existing programs: –Vast majority from incentive-based demand response – many legacy utility programs –ISO and other wholesale demand response represents about 8,900 MW (24%) Demand response capability represents between 3% to 7% of peak demand in most regions

4. 4 Existing DR Resource Contribution By Region and Customer Class Sources: FERC Survey, EIA, and ISO/RTO Reports

5. 5 Existing DR Resource Contribution By Type of Program Source: FERC Survey

6. 6 Advanced Metering Results Market Penetration by Region Nationwide ~6%

7. 7 Benefits of Demand Response Key tool for handling: –Supplier market power –Inefficient reserve procurement –Power price volatility –Reliability issues Additional Benefits –Creates opportunities for risk management –Potential environmental improvements –Increased customer service and choice

8. 8 Regulatory Barriers Disconnect between retail pricing and wholesale markets Utilities’ disincentives to offering demand response Enabling technologies’ deployment need cost-recovery certainty; may need incentives Research is needed on cost-effectiveness and how to measure demand reductions Specific state-level rules may inhibit more demand response Specific retail and wholesale market rules may limit use of demand response Fluctuating rules may limit third-party participation Insufficient market transparency and access to data Better coordination of federal and state jurisdictional programs could enable more demand response Barriers identified by staff include:

9. 9 Demand Response and Markets NYISO 2002 Source: David Patton, Potomac Economics

10. 10 FERC’s Role in Demand Response The Commission recognizes –Demand response is missing from wholesale markets “ One thing that is missing in wholesale markets is effective demand response.” Chairman Kelliher (Inside FERC, 1/15/07) –Need to coordinate with states on demand response “Federal and state regulation has to work together and encourage greater demand response” Chairman Kelliher (1/25/06) The Commission has –Approved demand response programs proposed by ISO/RTOs –Supported regional demand response initiatives (e.g., the Mid- Atlantic Distributed Resources Initiative) –Co-sponsored the NARUC-FERC Demand Response Collaborative Dialogue

11. 11 NARUC-FERC Collaborative Dialogue on Demand Response Joint NARUC-FERC effort Co-Chaired by FERC Commissioner Wellinghoff, Commissioner Ervin (NC), and Commissioner Reha (MN) In addition to FERC, participation from 13 states from all regions of the United States –Commissioners Lieberman (IL) and Norris (IA) are also members First meeting held on November 13 in Miami Next meeting will be on February 18 at the NARUC Winter Meetings