New England’s Load Response Program: Proposed Enhancements For 2002

1. Agenda Item #4 10/30/01 MC Mtg. New England’sLoad Response Program:Proposed Enhancements For 2002 NEPOOL Markets Committee Meeting October 30, 2001 Paul McCurley ISO New England

2. Purpose of Presentation • Present proposed program and rule changes for LRP II 2002 • Objectives of LRP Revisions: • Increase program participation and value (i.e., make it simpler, easier and add more money) • Address administrative issues for next summer’s program • Build onto current NEPOOL program as much as possible (i.e., no “radical” changes for 2002)

3. Overview of Presentation • The Current Program • Implementation Issues With Current Program • Status of Current Program • Summer 2001 Results • Proposed Enhancements to Load Response For 2002 • Additional Issues Considered for 2002 Enhancements • Next Steps • Feedback Process • Additional Information

4. The Current Program • The current Load Response Program was filed in March of 2001and included two distinct classes: • Class 1 – An emergency interruptible load program where loads guarantee a Contract MW amount and are paid the ECP and TMOR payments • Class 2 – A price responsive program where customers are paid the ECP when they respond to an ISO notice voluntarily • The RETX Internet Based Communications System is required to participate • LRP payments and approved connection costs are allocated to NEPOOL Participants based on pro-rata share of Electrical Load.

5. Implementation Issues In Current Program • Complex system vs. “old” manual interruptible load programs • Cost of implementation • Administration cost • No minimum payment or interrupt time guaranteed • NYISO, PJM both offer $500/MWH for up to 4 hours • TMOR payment for Class 1 amounts to very little • No ICAP for Class 1

6. Status of Current Load Response Program • Class 1, Demand Response • 18 sites for 6.8 MW • Class 2, Price Response • 106 sites for 58.8 MW • LSEs continue to sign up customers • ISO and stakeholders meeting monthly

7. Summer 2001 LRP Market Results

8. Summary of Proposed Enhancements • Allow “low tech” providers to participate in program • Make Class 1 providers eligible to receive ICAP credit • Set a minimum price and payment duration to increase price certainty • Change the time frame that participants are required to be available to accommodate larger potential participant base

9. Allow Low-Tech Option • The current LRP requires the RETX Internet Based Communications System • Potential customer feedback was for simpler protocol that would: • be less expensive for customers to administer, • allow site aggregation and a level of measurement tolerance • Proposal: Provide the option of a low-tech communications protocol

10. Implementing the Low Tech Solution • Low Tech solution providers may participate in both Class 1 and Class 2 • Must demonstrate capabilities to meet Class 1 requirements except mandatory use of RETX System • Means for determining ICAP credit discussed later • Metering data must be submitted in ISO defined format • ISO will modify internal business processes to accommodate different notification procedures • Pager, fax, email, etc.

11. Providing ICAP Credit • Issue: The current LRP does not provide a direct ICAP benefit to program participants. • Factors to consider: • Demonstrable load response is equivalent to generation capability, particularly from an ICAP perspective • ICAP payments for Class 1 customers would be a logical means to increase value of the program and encourage more participation • New York (ICAP credit available) and PJM (only impacts ICAP obligation) take different approaches • Value of ICAP determined in bilateral market under current NE ICAP rules

12. ICAP Credit Proposal and Implementation • Proposal • Provide Class 1 Customers with ICAP benefit by giving them an ICAP credit that can be valued and sold through the bilateral market. • Implementation • Treat Class 1 Customers similar to the Settlement Only generation resources (< 5 MW) to provide them with an ICAP Settlement Resource • Participant may then sell ICAP in bilateral market • No ICAP credit given until customers demonstrate curtailment to obtain their capability rating.

13. Price Certainty • Potential customers desire a level of price certainty before committing to join the LRP • Both NY and PJM’s LRPs provide: • a minimum payment ($500/MWh) and, • a minimum payment period (NY 4 hours, PJM 2 hours) • Factors to consider • Both PJM and NY floor prices are applied for emergency programs only • What would be an appropriate minimum price for New England’s LRP? • Should Class 2 be treated any differently than Class 1 with respect to minimum payments?

14. Price Certainty Proposal • Minimum Price • Class 1 • Pay greater of ECP or $100/MWh for MWh curtailed in response to ISO request • Class 2 • Pay ECP for all voluntary curtailments between 0800 – 2300 as per procedures today • Pay greater of ECP or $100/MWh for MWh curtailed when requested by ISO • Minimum payment duration • Customers guaranteed payment for at least 2 hours of curtailment per notification even if ISO notice is for shorter duration • Example • ISO issues curtailment notice from 1600 to 1700 • Customer curtails load for 2 hours starting at 1630 • Customer eligible for payment for 2 hours of curtailment • Customer only receives payment for actual load curtailed • Eliminate TMOR payments since these are less understandable to LRP Customers and it will simplify settlements

15. Earlier Availability Period End Time • Currently LRP Customers must be available to curtail from 7 a.m. until 11 p.m. • Potential LRP Customers are restricted from participating in the program due to their own operations that end by 5-6 p.m. • Proposal • Set the required availability period end time to 6 p.m. for Class 1 customers • No mandatory availability period required for Class 2 since program is voluntary

16. Additional Issues Considered for 2002 Enhancements • Considerations for ECP Reciprocity • Locational Value Considerations Relative to Congestion Zones • SMD Program Compatibility • Others?

17. ECP Reciprocity Considerations • Class 1 units only interrupted during emergencies, therefore price will likely be at or near $100 • Class 2 units guaranteed $100 payment when price is forecast or be $100 or higher • Resulting differences between LRP payments and payments to generators are likely to be very small • Main objective is to get more MW into program for 2002 • SMD will address in 2003

18. Zonal Congestion Value for LRP • Concept being considered is a “zonal congestion multiplier” • Utilizing historical congestion costs and RTEP analysis, ISO determines an average zonal ratio of congestion price to ECP (e.g., NEMA =1.8; SWCT=1.5; etc.) • Ratio is then used as a “multiplier” to the settlement price for LRP in the most congested areas • All multipliers would be equal to greater than “1” • Multipliers could be in effect at all times for simplicity

19. SMD Considerations • Issues regarding price certainty are likely to be the same under SMD as today (e.g., frequency and accuracy of forecasts) • Current program is real-time, and should be compatible with the SMD model (e.g., NYISO is considering adopting NE real-time program) • DA programs can be designed to work with proposed program for 2002 and beyond

20. Next Steps • Key milestones to approve proposed changes • November 20 – MC vote on proposed rule changes for LRP 2002 • December 7 – PC vote on proposed rule changes • December 28 – Rule changes filed with FERC • Other activities • Modify OP 14 to accommodate low tech solutions • Update LRP Manual to reflect proposed changes • Define LRP requirements in context of SMD

21. LRP Feedback Process • Load Response Program Working Group (meets monthly) • Includes • Participants Active and Inactive in Program • Regulators • ISO LRP team (includes IT, CS&T, Market Development, Operations) • Discusses Problem & Issues • Suggests solutions • Group e-mail and contact lists • Contact a member of the ISO LRP team

22. Additional Information • ISO New England Contact Information • Customer Service Hotline (413) 540-4220 • Customer Service Email custserv@iso-ne.com • ISO New England Website (http://www.iso-ne.com) • Select on Projects then Load Response

23. Questions??