Demand Response Programs: An Emerging Resource for Competitive Electricity Markets Charles Goldman (510) E. O. Lawrence Berkeley National Laboratory WGA CREPC Workshop Scottsdale, AZ April 18, 2001

Energy Analysis DepartmentOverview Why the Renewed Interest in Demand Management Typology of Demand Response Programs Key Program Design Features and Pricing

Energy Analysis Department Why the Renewed Interest in Load Management?  Network congestion and generation shortfalls  Price volatility in bulk power markets  Continuing electric emergencies in California  FERC rulings encouraging more use of price- responsive demand management  Improved capabilities & economics of control & communications technology  Emergence of energy-internet entrepreneurs

Energy Analysis Department Demand Response Program Types Traditional C/I Interruptible Tariffs -Up-front payment; typically bill or rate discounts for curtailments to Firm Service Level Direct Load Control -Utility control of customer loads (e.g., cycle or shed a/c, water heating, pool pump) VDRP - Call option -Customers selects Strike Price. LSE can exercise the Call Option and require customer to reduce load or face penalties when projected Mkt. Price > Strike Price VDRP - Quote option -Customers specify when and at what price they are willing to voluntarily curtail demand (“pay-per-interruption event”) Dynamic Pricing (e.g., real-time pricing)

Energy Analysis Department Key Program Characteristics & Design Features Target Market -“Mass market” vs. Large C/I Operational threshold -Emergency (system condition) vs. Economic programs Dispatchability -Utility vs. customer-controlled loads Resource Firmness -Call Option (participation is pre-paid) vs. Quote program (participation is fully voluntary)

Energy Analysis Department Key Program Characteristics & Design Features (cont.) Payment scheme -specified, fixed price vs. variable price, based on market conditions -upfront, reservation payments; energy credits -adjustments for performance Exposure to & assignment of forecast risk -day-ahead vs. day-of vs. real-time demand & prices Role of aggregators and/or third parties

Energy Analysis Department Demand Response Program: Some Examples

Energy Analysis Department Demand Response Program: Some Examples

Energy Analysis Department Financial Incentives: CA Interruptible vs. Demand Response Programs

Energy Analysis Department California Demand Response Programs: Background CPUC D orders: -Changes to Current Interruptible Program -New Base Interruptible Program (BIP) -Voluntary Demand Response Program (VDRP) -Optional Binding Mandatory Curtailment (OBMC) Program -Direct Load Control Programs (Res. A/C Cycling, Irrigation pumping)

Energy Analysis Department California’s Current Non-Firm “Interruptible” Rate Program 15% Rate discounts for ~1500 large customers ($220M/year) to curtail up to hrs/year on occasions Available curtailable load at peak during 2000: PG&E (500 MW), SCE (1800 MW), and SDG&E (40 MW) Actual curtailable load during 2000: PG&E (490 MW), SCE (1213 MW) Fairly dependable “Reliability” resource until But rarely utilized -~600 MW at SCE failed to interrupt when requested and incurred substantial penalties ($92M) -25%, or 124 MW, of PG&E’s load dropped out in 2000 CA would have had “rolling blackouts” on at least 5 occasions in 2000 in absence of Non-Firm program -Program demand reductions up to 2190 MW (8/2/2000)

Energy Analysis Department CPUC Changes to Current Interruptible, “Non-Firm” Tariff Current Program: 15% rate discount to customers willing to interrupt service for hrs/yr. with30 minutes notice; substantial penalties for failure to comply ($ /kWh) SCE Customers may elect to opt-out or change firm service level during 15 day notice window, with effective date of 11/1/00 or next billing cycle If SCE customers opt out, can’t participate in any other program that pays a Capacity payment (e.g., BIP, CA ISO DRP) Extend existing programs through 12/31/02 Program use limited to one 6 hour event/day; 4 events per calendar week and 40 hrs/month Current program open only to Existing Customers & lift suspension of penalty provisions

Energy Analysis Department New Base Interruptible Program (BIP) Designed primarily as replacement for current PG&E program which is fully exhausted Open year-round Key program elements -one 4-hour event/day -10 events per month and 120 hours/yr. -Incentive: $7 per kW-month credit on bill -$6/kWh penalty for usage above Firm Service Level -15% of load, with minimum drop of 100kW per event -No “double dipping” - Customer must complete obligations to current Utility Interruptible program or CA ISO DRP before eligible

Energy Analysis Department Voluntary Demand Response Program Utility solicits bids from customers when ISO notifies utility of need for demand relief Customer offers kW reduction for specified hours; Utility either accepts or rejects bids Customer paid for performance at $350/MWh with no penalties Baseline = average hourly usage during 10 immediate, similar days New Participants receive interval meter & communication equipment without CHARGE (if stay in program for 1 yr. and respond to 10 events) Customer minimum peak demand & reduction of 100 kW -Customer with 300 kW demand must drop 33% to participate -Customer with 100 kW demand must drop 100%

Energy Analysis Department Optional Binding Mandatory Curtailment (OBMC) Program Exempts participating customers from Stage 3 rotating outages if customer can reduce Circuit load by 15% during System Firm Load Reductions (I.e., concurrent with rotating outages) Load reductions requested in 5% increments Utility will facilitate circuit aggregation Program participants pay equipment costs and receive No payment Penalty for failure to reduce load = $6/kWh for excess energy Baseline -5% increments measured against average hourly demand during previous 10 similar business or weekend days -15% total peak reduction measured against prior year’s usage for the same month

Energy Analysis Department CAISO Demand Response Programs Demand Relief Program -Emergency curtailment program, prior to Stage 3 during Summer Months from 11 AM to 7 PM -First Request for Bids (~596 MW awarded; contracts signed) -Second Request for Bids for Loads without Back-up Generation (due 5/1/01; ISO wants 6/1 or 7/1start) -Third Request for Bids for Loads WITH Back up Generation (issued 4/3/01; WITHDRAWN 4/5/01) Discretionary Load Curtailment Program -RFP issued 4/11/01; ISO prefers responses by 4/23/01 Participating Load Program -Loads can bid in Ancillary Services markets

Energy Analysis Department CA ISO: Operation of Demand Response Programs Normal Operation Operating Reserves above 7% Stage 1 Emergency Operating Reserves forecast below 7% Stage 2 Emergency Operating Reserves forecast below 5% Stage 3 Emergency Operating Reserves actually below 1.5% Public alert Voluntary conservation Curtail UDC interruptible Loads Curtail DRP Load Blocks Curtail DRP Load with BUG Begin firm Load shedding Disc. Load Curtailment Program Utility VDRP ?? BUG = Back-up Generator

Energy Analysis Department CA ISO Demand Relief Program Emergency curtailment program prior to Stage 3 for 4 summer months (June - Sept 2001) Minimum bid = 1 MW; need hourly interval meter Mandatory curtailment limited to 24 hrs/month between 11 AM- 7 PM (4 hour blocks); must respond within 35 minutes Reservation payment = $20,000 per MW-month Energy performance payment = $500/MWh ISO can also issue Additional Optional Curtailment request or Contracted Load can offer “Voluntary” Curtailment under certain conditions

Energy Analysis Department CA ISO Discretionary Load Curtailment Program Provides additional resource to Grid for management of potential system emergency conditions Availability: 4/23/01- 3/31/02 between 7 AM - 8 PM Curtailed Energy payment = $350/MWh Minimum demand reduction: 1 MW Metering & Performance Measurement -Hourly interval meter or appropriate measuring devices as required by CAISO-approved Perf. Meas. Plan -Load Aggregator proposes Baseline Load profile Use of generation - <1MW behind each interval meter with approval from AQMD; not intended for Back-up generators