Dimensions of Demand Response

1. Dimensions of Demand Response Capturing Customer Based Resources in New England’s Power Systems and Markets Massachusetts Electric Restructuring Roundtable November, 2003

2. NEDRI Overview • Genesis: Power shortages, price spikes of 1999-2001 – something important is missing ! • “RTO Futures” Forum: FERC, PUC Commissioners, ISO and utility leaders endorse regional effort • Goal: balanced energy markets – regional scope • Breadth: Remove market and policy barriers to all customer-based resources: load response, energy efficiency, and distributed generation • Depth: Propose coordinated policies and programs for wholesale, retail and wires • New England can lead, provide a model

3. The Market Value of Price-Responsive Load

4. NEDRI Process: Key Points • Sponsorship: ISO-NE, NECPUC, NESCAUM, NYISO, DOE, EPA, FERC • State + Regional + Federal agencies • Utility + Environmental regulators • Direct support and participation by FERC • Broad, Regional Stakeholder Participation: • More than 30 stakeholder groups, including 3 ISOs, 6 state PUCs, utilities and DR providers, DOE , EPA, state air directors, market participants, state energy offices, and advocates • Personal commitment over an extended period • Working Groups developed recommendations for plenary review • Expert consulting team provided Framing Papers, technical support – great library of resources • Expert facilitation led to productive dialogue and consensus on almost all issues • Where consensus not possible, alternative approaches set out for the benefit of regional decision makers

5. Goals of the process • Identify short-term and long-term demand response opportunities in NE • Identify barriers at wholesale and retail • Develop consensus on policies and programs for the region • For the ISO, and to recommend to FERC • Recommendations to state PUCs • And to environmental regulators • Support viable business models for DR

6. Restructuring does not resolve barriers to DR resources • Breakup of the franchise: • Who is responsible for efficiency and load management? • DR provides several values at once – how can these fragmented values be assembled and recognized in the market, or by regulation? • Historic market barriers to efficiency did not evaporate • Supply-only bidding at wholesale • Default service plans blunt cost and value signals to end-use customers • Load profiling blunts incentives to retailers • Reliability rules not open to DR • Distribution companies – retain throughput incentive, barred from delivering efficiency and load mgt. • And so on…

7. Principles for DR Resource Policy • Efficiency and productivity: NEDRI’s overriding goal is to “maximize the value of electricity services in the region, while minimizing the total societal cost of electricity production, delivery, and use;” • Using market forces: enable DR resources to participate on a level basis in regional power markets; empower end-use customers to deliver DR, at prices reflecting their value to the grid; • Role of public policy: not all costs and values can be captured in markets; public policy should intervene to correct market failures; • Comprehensiveness: view the system as a whole, consider market rules, tariffs, and policies for DR at both wholesale and retail; • Environmental protection: DR policies should ensure no net environmental harm from DR activities, and should seek long-term environmental gains; • Administrative simplicity: minimize transaction costs and regulatory requirements for DR wherever possible. Source: NEDRI Report, pp 4-5.

8. NEDRI’s Broad View of Demand Response Resources • “DR resources include all … modifications to the electric consumption patterns of end-use customers that are intended to modify the timing or quantity of customer demand on the power system in total or at specific time periods.” –NEDRIReport, p. 6 • NB: includes responses to reduce capacity and/or energy required to serve load • Dimensions of DR: • Term of availability: a few hours, up to many years • How called? Dispatchable, Scheduled, Deployable • Nature of the customer’s response: Efficiency and conservation reductions, Short-term load reductions, Load shifts, Increase in onsite generation

9. The Market Value of Price-Responsive Load

10. Demand Response includes embedded efficiency

11. What if the NEDRI Recommendations were implemented actively? One post-NEDRI estimate: • Thus: Energy efficiency could offset 30-50% of incremental load growth • And: DR and Pricing could provide an additional ~300 – 1800 MW of resources – Source: Lawrence Berkeley National Lab estimates (C. Goldman and G. Barbose), based on 2003 NEDRI Report after adoption, thus not reviewed or endorsed by NEDRI participants. .

12. NEDRI Conclusions and Recommendations • NEDRI Stakeholders adopted 38 recommendations; • Almost all by consensus – • limited exceptions on options for transmission expansion and non-transmission alternatives • Organized into 5 substantive areas: • Regional Demand Response Programs • Energy Efficiency as a DR Resource • Pricing, Metering, and Default Service Reform • DR for Contingency Reserves • DR and Power Delivery (Transmission and Distribution)