1. Demand Response in Connecticut Presented by: Bob Laurita ISO New England December 2, 2004

2. Agenda Definitions Program Descriptions Participation and Performance Southwest Connecticut Myths vs. Facts

3. What is Demand Response? Customers reducing their electricity consumption in response to either: –High Wholesale Prices –System Reliability Problems Demand Response events happen infrequently Demand Response provides Capacity and Reserves – Not Energy like Traditional Generation or Energy Efficiency

4. In a Perfect World …. Wholesale markets provide Price Signals for energy, capacity and reserves Suppliers pass Wholesale Price Signals on through Retail Rates Low cost advanced metering and communication systems abound Low cost technology allows customers to quickly control their consumption Retail customers change their behavior in response to high prices or reliability problems. Demand Response happens naturally without any special effort or programs!

5. In the Real World …. Wholesale Markets are still “Under Construction” Wholesale and Retail markets are Disconnected Suppliers (standard offer and competitive) do not offer Demand Response Rates and Services to customers Interval metering and control technology is limited and more widespread deployment will cost money Customers have little incentive to naturally respond to wholesale prices or reliability problems. Programs are needed until Demand Response is mature enough to be fully integrated into the Wholesale Markets

6. ISO New England’s Programs Reliability (Demand) Programs: –Customers respond to System Reliability Problems as determined by the ISO New England Control Room Price Programs: –Customers voluntarily respond to Wholesale Prices (LMP) as determined by the Market.

7. 95 MW 42 Customers 39 MW 40 Customers 134 MW Help Maintain Reliability Source: 10/1/2004 Enrollments

8. 2 MW 1 Customer 14 MW 4 Customers 2 MW 6 Customers 8 MW 2 Customers 26 MW Respond to Price Source: 10/1/2004 Enrollments

9. 97 MW 14 MW 41 MW 8 MW 160 MW of Total Demand Response Source: 10/1/2004 Enrollments

10. Payment and Performance

11. Customer Benefits: Paid to Get in Shape! Short-Term –Paid for Performance Minimum Payment $0.10 to $0.50/kWh –Paid for Availability* $/kW per Month based on Capacity Market or Supplemental Capacity Agreement Long-Term –Better Load Shape = Better Retail Price! * Reliability Programs Only

12. Demand Response in Southwest Connecticut

13. Background Load growth has exceeded the capacity of local generation and transmission to reliably serve customers. New local resources and transmission lines are badly needed. Project delays have creating a “reliability gap”. The serious threat to the region’s reliability could not go unresolved.

14. ISO New England’s Solicitation RFP issued in December 2003 for up to 300 MW of new emergency resources in Southwest Connecticut for 4 years. Eligible resources included: –Quick Start Generation –Demand Response –On-Peak Energy Conservation

15. RFP Results 34 Proposals Received –Many offered multiple projects and options 8 Suppliers Selected Contracts Executed in April 2004 All Selected Resources are either Demand Response or On-Peak Conservation

16. Contract Terms Performance Based Payments –$/kW per Month and $/kWh Penalties for Failing to Deliver and Perform 4 Year Term with 5 th Year Option Monitoring and Verification Plan Approx. $128 Million over 4 years

17. Selected Suppliers Conservation Services Group

18. Summary of Selected Resources

19. Why did Demand Response do so well? Location, Location, and Location –Resources located in the load pockets –No interconnection issues Price –Mostly incremental investments in metering, communications and controls. Permitting –Not an issue for load reduction –Pending changes (Section 42) will make it easier for emergency generators to participate.

20. August 20 th Performance – All SWCT RFP Resources Started: 11:00 a.m. Ended: 1:30 p.m. Resources had 30 minutes to respond

21. August 20 th Performance – Emergency Generation Only

22. August 20 th Performance – Load Reduction Only

23. Common Myths about Demand Response Slow and Insignificant – it will never provide enough capacity to solve real problems Not Reliable Not Functionally Equivalent to Generation. Should Happen Naturally and would succeed if it were only better advertised. Not Enough Customers will want to do this! It will not make a difference. Source: EnerNOC 9/14/2004

24. Myths vs. Facts MythFact Slow & Insignificant120 MW in 30-Minutes Not Reliable5-minute data to monitor and verify performance Not Equivalent to Generation Can be implemented quickly and exactly where it is needed Should Happen Naturally Maybe in a perfect world. In the real world, given the imperfections in the market, we need programs to procure this cost-effective resource. Not Enough CustomersIt’s not for everyone! A few customers can have a huge impact on price and reliability for the benefit of everyone.

25. Bob Laurita ISO New England Office: 413-535-4398 Cell: 860-202-5983 rlaurita@iso-ne.com