Demand Response in Midwest ISO Markets February 17, 2008

Demand Response Example: August 2006

Value of Demand Response System-wide demand response: –Enhances reliability –Reduces prices for all demand remaining on the system –Provides significant savings to those offering demand reductions 3,000 MW 10 Hours ~$100/MWh on peak prices = $3,000,000 savings for end users

Targeted Demand Reductions

Targeted demand response in constrained areas provides benefits, including significant cost savings with only modest reductions –In February 2007, prices savings of $200- $300/MWh were realized with only 500 MW of demand response

New Demand Participation Opportunities in ASM  Ancillary Services Markets: –Demand Response Resources (DRRs) may participate directly, selling products tailored to the resource capabilities Type I DRR - Capable of supplying through physical load interruption, may sell either Energy or Contingency Reserves Type II DRR - Capable of supplying through behind-the-meter generation or controllable load, may sell Energy, Contingency Reserves or Regulation

ASM DRR Registration Status of DRR Registration –DRR Type I 9 Market participants registered 24 DRR’s in 10 load zones Overall capacity: The default MW is not required to be specified during registration –DRR Type II 1 registration with controllable load Overall capacity: 60MW

Additional New Demand Participation Opportunities Emergency Demand Response: –Designed to encourage entities with demand response to offer during emergencies and be compensated appropriately Resource Adequacy: –Addresses capacity value of demand resources in fulfilling planning reserve requirements

Additional New Demand Participation Opportunities RSG Forgiveness: –Provides forgiveness of RT RSG distribution for curtailed demand in an energy emergency (EEA2) situation Planning Process: –In the 2009 MTEP planning study, the Midwest ISO has begun the process of allowing demand resources to compete against generation or transmission in its evaluations

Demand Response Challenges Wholesale Market Market design issues limit flexibility or realization of the value of demand response, particularly in Real- Time Price signals do not provide incentives for participation when prices fail to reflect the value of demand response Technical limits restrict ability to dispatch demand consistent with physical characteristics

Demand Response Challenges Retail Market Regulatory barriers or contract terms of existing demand response limit participation in the regional wholesale market Misaligned incentives limit demand response where those making consumption decisions do not recognize (or pay) value of energy consumed

Next Steps Midwest ISO Demand Response Working Group (DRWG) –Developing additional market mechanisms based on unique characteristics of demand response resources –Evaluating opportunities to lower barriers to participation due to misalignment between wholesale and retail markets Midwest Demand Response Initiative (MWDRI) –OMS established task force focused on increasing opportunities for demand response in Midwest ISO markets –Building a knowledge base among Midwestern regulators utilizing the work already done via New England and Mid- Atlantic demand response initiatives