Potential Cost Savings in MISO from Demand Response

1. Potential Cost Savingsin MISO from Demand Response MWDRI Steering Committee September 24, 2007

2. Purpose of study: It’s Helpful to Quantify DR Benefits • Identify the Potential Capacity and Energy Cost Savings and Avoided Generation due to demand and energy reductions at various participation levels • Identify impacts on Emissions from demand and energy reductions • Allocate benefits of demand reductions to states and regions and demonstrate merits of regional cooperation

3. Methodology • Use the MTEP 2008 Assumptions and apply demand and energy reductions to the 20 year study period • Run “Base Case” and Benchmark against • All modeled cases include “Legacy” Demand Response • MW values reported in the 2007 Module E as interruptible and Direct Load Control are applied each year of the study period. • Reduce the growth rate of demand only, then both demand and energy (10 cases) • Reductions are from .1 to .5% from base growth rates • Run models on a regional level and present results on MISO as a whole and at the state level using a load based multiplier

4. Limitations of Study • Does not include the Cost of demand response in the model • Results identify potential cost savings • The outer limit of “What would you be willing to pay?” • Models given reductions in demand and energy growth rates. Does not identify the potential for demand response. • No specific type (DLC, Demand Bid etc.) of demand response is modeled, only demand and energy reductions • Production costs are based on an economic dispatch without transmission system constraints • However, benefits are benchmarked from the reference case, which identify the impact of demand and energy reductions • Models and Results only represent MISO companies • Potential benefits for Demand Response to load served outside the MISO market are not captured

5. Presentation of Results • The Study Results are data intensive. In consideration of various audiences interested at different levels of interest the results are presented in 2 sections • By MISO Footprint • By State • Focus on case “DE5” with 0.5% demand reduction and 0.5% energy reduction from reference case growth rates

6. Results for the MISO Footprint

7. Results from ReducingDemand and Energy (All MISO) Demand Reduction Only Demand and Energy Reduction *REF – Reference Case Demand & Energy are from 2007 Module E forecasts by each company Demand Reduction – Difference in Demand from Reference Case Energy Reduction (Cases DE1-DE5 Only) – Difference in Energy from Reference Case 20 Year Demand Reduction – Percent decrease in Demand = Demand Reduction / Reference Demand 20 Year Energy Reduction - Percent decrease in Demand = Energy Reduction / Reference Energy

8. Demand Reductionsfrom Base Case (All MISO) Demand Reductions from Base Case 12,613 9,906

9. Generation Expansion (All MISO) * Queue Generation includes only generation in the Midwest ISO Queue with a signed Interconnection Agr. ** Wind Additions were fixed at 12,600 MW to meet state mandates (Wind contributes 15% to Reserve Margin Requirements and Runs at a 40% Capacity Factor for new Wind units and 33% Capacity Factor for existing Wind Units)

10. MISO Queue with Signed IA

11. Reductions in Emissions from Reducing Demand,Energy (All MISO) Change in Emissions from Reference Case = Reference Case Emissions – Scenario Emissions Percent Emission Reduction = 100 x Change in Emissions / Reference Case Emissions Average Emission Reduction = Change in Emissions / (1, 2, 3, 4 or 5 Respective of the scenario modeled)

12. Capital & Production Costs(All MISO) Note: Production Costs Include costs for all emissions except CO2. Production costs with a CO2 tax are on the next slide. Average Cost Savings = Total Cost Savings / (1, 2, 3, 4 or 5 Respective of the Scenario Modeled) Maximum Demand Response Value = 1000 x Total Cost Savings / Demand Reduction in the Scenario

13. Reference Installed Capacity Cost Data No AFUDC ($/kW) - 2007$s Maximum Demand Reduction Value/kW: Case D5 $849 Case DE5 $1971 Source: Vermont Deliberative Polling Reference Document

14. ReferenceCost of Demand Response v. Peaking Capacity • Peakers cost roughly $75/kW-yr (50-110) • Capacity in excess markets can be cheaper • Typical Demand Response Program Costs • Direct Load Control: $55/kW/yr • Demand Bid/Buyback: $25/kW-yr or less • Interruptible rates: $50/kW-yr • Source: Quantec, Demand Response Proxy Supply Curves 2006 • Energy Efficiency also cheap

15. Case DE5 Summary • Compared with REF case in 2027 • Peak is 12,600 MW lower, -9% • 66,000 fewer GWh used, -9% • 14,800 MW of new generation avoided • Additional 35,200 MW still needed • Significant emissions savings from energy reductions • PV savings from production cost reductions and capital cost reductions equal to $24.9 B

16. Conclusions • Reducing the energy growth in addition to demand growth adds to effective demand reduction • Capacity Value of Load Reduction >> Cost of DR/EE • Demand-only reductions result in more emissions produced because older less efficient units are running more and more energy is needed, requiring more combustion. • There are regional differences in the benefits of demand response. Regions with a higher reserve margin benefit less with demand only reductions because the demand reductions do not defer capacity build until later years. With Energy reductions, the benefits are more uniform.

17. Results by State

18. Methodology to RepresentDemand Response By State • State Representations are derived from regional results using the following methods: • Regional Averages – represented at state level • Load Based Multiplier • This is a representation of the load in each state as compared to MISO as a whole. • The load participation of a company by state was developed from company websites and from company representatives and is summarized in the following two tables • Data is in supplemental slides

19. Potential Cost Savings By State (Calculated using Load Based Multiplier) Cost Savings does not include a Cost for Demand Response Program or a Tax on CO2 Emissions Savings are based on load served by MISO within each state – additional savings could be gained by other load serving entities

20. Total sums approximately to the $24.9 billion from slide 12

21. Maximum DR Value By State(Calculated From Regional Average) Source: From Regional Expansion with values applied to the state level. IN & OH have a load weighted calculation since they are in multiple study regions. Note: Values do not include a Cost for the Demand Response Program or a Tax on CO2 Emissions

22. On Mutual Benefit of Reductions among All States • States are within MISO and three sub-MISO regional markets • Individual state actions affect regional markets, are diluted from state perspective • States get full benefit of their demand resources if all states are producing demand resources • Brattle Report for MADRI illustrates this – possible further work for MISO

23. Central Region Reserve Margins After Expansion Note: No Firm Transmission is included in the Central Region Reserve Margins After Expansion

24. East Region Reserve Margins After Expansion

25. West Region Reserve Margins After Expansion

26. Regional Background Information on Demand Response, Reserve Margins andAllocation to States

27. 2007 Demand Response Levels

28. 2007 Demand Response Levels *Source: 2007 NERC Reliability Assessment **Source: 2007 MISO Module E

29. 2007 Demand Response Levels

30. Central RegionGeneration Reductions

31. East RegionGeneration Reductions

32. West RegionGeneration Reductions

33. Company Demand Distributionby State (In Percent) Source: Midwest ISO

34. Calculation of Load Based Multiplier Load Based Multiplier = Total MISO Demand in State / Total 2008 MISO Peak Demand