NYISO Demand Side Programs and Issues

1. NYISO Demand Side Programs and Issues Rana MukerjiSenior Vice President - Market Structures

2. Markets for Demand Response Products • Capacity Market • Assure enough resources, including demand that can be responsive, to assure resource adequacy • Reserves & Regulation Market • Keep sufficient resources, including responsive demand, available in ten or thirty minutes to maintain reliable operation. • Provide regulation services comparable to generators • Energy Markets • Schedule and dispatch resources, including price-sensitive demand, economically to meet customers’ demand 24 hours per day, 365 days per year.

4. NYISO Demand Response • Reliability-based programs • NYISO controls activation • Provide load reductions to supplement generation when operating reserves are forecast to be short or actual Operating Reserve Deficiency • Emergency Demand Response Program (EDRP) • ICAP-Special Case Resources (ICAP/SCR) • Economic-based programs • Resource determines when to participate through bidding • Load reduction acting as - and competing with - generation • Day-Ahead Demand Response Program (DADRP) • Demand-Side Ancillary Service Program (DSASP)

5. NYISO Special Case Resources & Emergency Demand Response Program Have Added Almost 2000 MW Since 2000.

6. NYISO – DR Impacts on 8/2/06 MWs

7. Capacity - Special Case Resources • Available to curtailable load & emergency backup generation of at least 100 kW per zone • Activated for operating reserve deficiency • Day-ahead advisory and a 2-hour in-day notification • Mandatory – Penalties and derated for non-compliance • Payment for capacity (kW) reduction plus payment for energy (kWh) reduction at the greater of real-time price or strike price (up to $500/MWh) for at least 4 hours. • May set real time market price under scarcity pricing rules

8. Emergency Demand Response • Available to curtailable load & emergency backup generation of at least 100 kW per zone • Activated for operating reserve deficiency after SCR resources • Providers notified of activation 2 hours ahead, if possible • Voluntary – no penalties for non-performance • Payment for energy (kWh) reduction at the greater of real-time price or $500/MWh for at least 4 hours. • May set real-time energy price at $500/MWh

9. Day-Ahead Demand Response • Available to interruptible load only of at least 1 MW / zone • Loads bid curtailment in Day-Ahead Market with $75/MWh minimum bid • Providers notified by 11 AM for following day schedule • Mandatory – Penalties assessed for non-compliance (penalized for buy-through at greater of DAM or RT price) • Payment for energy (kWh) reduction at the greater of DAM price or bid for actual interruption (also allowed lower credit requirements by curtailment amount) • May set DAM energy marginal price

10. Demand-Side Ancillary Service • Demand resources capable of at least 1 MW of curtailable load may provide Regulation or Operating Reserves • Demand resources with local generation may only provide non-synchronous reserves • Demand resources selected based on economics of day-ahead and/or real-time offers • Modeled as suppliers in the ancillary services markets • Real-time telemetry required • Performance measured relative to load at start of dispatch • Payments based on interval-level performance index

11. Real-Time Demand Response Pricing FERC NOPR on DR Pricing Proposal would require full Locational Marginal Price (LMP) payment for demand reduction in response to price signals Are DR and Generation comparable? “…the challenge of setting appropriate demand response compensation inherently includes a consideration of retail rates.”- Professor William Hogan, Harvard Electricity Policy Group A more economically efficient approach is “LMP-G” G = “an imputed amount reflecting some (or all) components of the retail rate” Provides the correct economic price signal to curtail Avoids the need for complicated and contentious net benefits test and cost allocation rules Full LBMP “subsidy” endangers development of dynamic retail pricing 11

12. Current Demand Response Issues • Evaluation of alternative demand response baseline approaches • Direct telemetry to demand response resources (including aggregated resources) providing ancillary services • Rules for demand response participation in real-time energy markets (major issue is settlements) • Implementing Demand Response Information System • Dynamic Pricing vs Demand Response

13. NYISO Dynamic Pricing Study Purpose Estimate the wholesale market impacts of expanded dynamic pricing No recommendation for particular rate design Approach Wholesale market simulation using proxy demand elasticity for New York under multiple scenarios Conservation case High capacity price High demand elasticity 13

14. Demand Reductions Dynamic rates encourage shift to off-peak usage Reduced capacity requirement drives savings: potential 10-14% reduction in system peak Additional benefits with significant Plug-In Electric Vehicle (PEV) deployment Supports renewable resource integration Impact of Dynamic Pricing on Hourly Loads Effects of Dynamic Pricing on Peak and Average Demand 14

15. Cost Savings Change in Annual Resource Costs Change in Annual Market-Based Customer Costs Change in Annual Market-Based Consumer Costs • Total resource cost reduction of 3 to 6 percent ($143 to $509 mm) for the year • Market-based customer cost reduction of 2 to 5 percent ($171 to $579 mm) per year, excluding AMI deployment costs 15

16. How do we achieve these savings ?

17. ISO/RTO Role: Wholesale Level • Control & Operation of bulk system (transmission system) • Administration of wholesale electric markets • Transparency of wholesale price signals • Communications systems and smart grid devices for: • ISO/RTO control centers SCADA and economic dispatch systems • Generators connected to bulk system • Transmission Owners’ control centers • Aggregators of retail customer demand response resources

18. State Role: Retail Level • Deployment of smart grid devices at the distribution level • Distribution stations and facilities • Customer owned facilities • Retail rate design • Real time pricing • Smart meters • Providing cost recovery for TOs • Allowing aggregation of retail loads

19. Dynamic Retail Pricing • Currently only a fraction of large C&I load faces dynamic prices • Currently, ~6000 MW large C&I in NY has hourly pricing as the default, but only 20% of those stayed with the default. 80% went to competitive LSEs, and about half of those chose fixed rates • Large untapped potential: if most/all customers faced dynamic prices, peak hour consumption could be reduced by more than 10% • NYISO/Brattle study • But greater participation is largely outside of NYISO’s control. Depends primarily on actions by others: • The state: approve AMI deployment (for mass market dynamic pricing) & make dynamic pricing the default rate for more classes of customers • EDCs: install AMI • LSEs: offer dynamic rates

20. Dynamic Pricing Driving Smart Grid / Renewables Wind Generators Aggregator Evolutionary Market Design NYISO Control Center Demand Response (Real Time) Dispatch Instructions & Prices 20

21. Paradigm Shift – Load follows generation Charging Profile: EPRI/NRDC Wind Power: 2007 average normalized load

22. Smart Grid Future Dynamic price signals Intelligent load responding to price Plug-in hybrid vehicles Advanced consumer components Seamless integration of intermittent resources Wind, solar, hydropower Enhanced control of power grid 22

23. Smart Grid Building Blocks • Regulatory & Market Incentives • Environment • Sustainability • Reliability • Organizational Capabilities • Business Processes • Roles & Responsibilities - Skills • Technology • Supply Side • Distributed & Demand-Side Resources • Interconnections and Micro-Grids • Power Delivery • Network Design • Protection and Control Strategies • Asset Management & Utilization • Information Technologies • Data Communications • Data Management • Enterprise Level Integration and Inter-operability • Intelligent Applications

24. Smart Grid - What needs to happen? • Industry standards – Uniform standards for communication and interoperability • Removal of barriers – Elimination of legal and regulatory policy barriers • Informed customers – Better education and timely information for consumers

25. Appendix

26. Program Feature Summary

27. Program Feature Summary

28. ISO Demand Response Programs

29. Dynamic Pricing -Simulation Design Define fixed and dynamic rates Dynamic rates based on LBMPs w/ capacity cost during critical hours Dynamic rate structured so that average customer’s cost would be unchanged from fixed rate if demand remained unchanged Analysis uses representative customers in four regions: Western NY (Load Zones A-E), Eastern NY (Load Zones F-I), NYC (Load Zone J) and Long Island (Load Zone K) Estimate the effects of dynamic pricing on consumer demand Elasticity of demand derived from dynamic pricing pilot programs with small customers and full scale deployments for large customers Used Brattle’s PRISM software to apply elasticities of demand to calculate hourly differences between fixed and dynamic rates Quantify changes in demand on LBMPs using dispatch simulation Conservative assumption that suppliers’ offers to supply energy remain the same despite price-responsive demand Did not evaluate long-term savings or long-term equilibrium prices 29

30. The New York Independent System Operator (NYISO) is a not-for-profit corporation that began operations in 1999. The NYISO operates New York’s bulk electricity grid, administers the state’s wholesale electricity markets, and conducts system and resource planning for the state’s bulk electricity system. __________________________________________________________ www.nyiso.com