1. FERC’s Role in Demand Response David Kathan ABA Teleconference December 14, 2005

2. Definition of Demand Response Demand response in electricity is defined as load response called for by others and price response managed by end-use customers. – Load response includes: Direct load control Partial or curtailable load reductions Complete load interruptions. – Price response includes: Time-based rates (e.g., time-of-use rates, critical peak pricing) Demand bidding or economic programs.

3. Benefits of Demand Response Key tool for handling: – Supplier market power – Inefficient reserve procurement – Power price volatility – Reliability issues Additional Benefits – Creates opportunities for risk management – Potential environmental improvements – Increased customer service and choice

4. ISO/RTO Demand Response Programs

5. ISO/RTO Experience with DR ISO/RTO operators value demand response programs highly – Considered as key reliability resources Reserves Capacity resources Helped during restoration from August 2003 blackout Fills short-term needs (e.g., southwest Connecticut) – Assists market efficiency Check against exercise of market power Can reduce severity of price spikes Introduces scarcity pricing into energy market

6. Time-Based Rates Types of time-based rates – Real-Time Pricing (RTP) Electricity prices that vary by hour. Direct pass-through of wholesale market price Variants include two-part RTP – Time of Use Rates Electricity prices that vary by time of day Have been in existence for years – Critical Peak Pricing Requires advanced meters Two-way communication helpful Time-based rates are typically subject to retail regulation

7. Advanced Metering Necessary enabling technologies for demand response are advanced meters and communication systems – i.e., Advanced Metering Infrastructure (AMI) AMI provides additional benefits to utilities, e.g., tamper and outage detection, remote turn-on/turn- off, improved customer support and billing, etc. Can also support development of a “smart grid” FERC does not have jurisdiction over end-use metering

8. FERC’s Demand Response Objective Objective 2.2 (Establish Clear Market Rules to Govern Electric Markets) of FERC’s 2005-2008 Strategic Plan states that FERC will – “Promote development of policies that accommodate effective demand response programs.”

9. FERC Demand Response Activity Approval and support of ISO/RTO demand response programs Direction for ISO/RTO economic and reliability planning processes to incorporate demand response Adoption of Small Generator interconnection rule Support for regional demand response efforts (e.g., New England Demand Response Initiative, Mid- Atlantic Distributed Resources Initiative) Support of International Energy Agency demand response resources task

10. EPAct Demand Response Policy Section 1252(e)(1): IN GENERAL.—It is the policy of the United States to encourage States to coordinate, on a regional basis, State energy policies to provide reliable and affordable demand response services to the public. Section 1252(f): FEDERAL ENCOURAGEMENT OF DEMAND RESPONSE DEVICES.— It is the policy of the United States that time-based pricing and other forms of demand response, whereby electricity customers are provided with electricity price signals and the ability to benefit by responding to them, shall be encouraged, the deployment of such technology and devices that enable electricity customers to participate in such pricing and demand response systems shall be facilitated, and unnecessary barriers to demand response participation in energy, capacity and ancillary service markets shall be eliminated. It is further the policy of the United States that the benefits of such demand response that accrue to those not deploying such technology and devices, but who are part of the same regional electricity entity, shall be recognized.

11. EPAct Section 1252(e)(3) REPORT.—Not later than 1 year after the date of enactment of the Energy Policy Act of 2005, the Commission shall prepare and publish an annual report, by appropriate region, that assesses demand response resources, including those available from all consumer classes, and which identifies and reviews— (A)saturation and penetration rates of advanced meters and communications technologies, devices and systems; (B)existing demand response programs and time-based rate programs; (C)the annual resource contribution of demand resources; (D)the potential for demand response as a quantifiable, reliable resource for regional planning purposes; (E) steps taken to ensure that, in regional transmission planning and operations, demand resources are provided equitable treatment as a quantifiable, reliable resource relative to the resource obligations of any load-serving entity, transmission provider, or transmitting party; and (F)regulatory barriers to improved customer participation in demand response, peak reduction and critical period pricing programs.

12. FERC Docket AD06-2 A docket has been created for the EPAct report Notice of survey and technical conference released November 3 Notice contains – Procedures and timelines for comments – Technical conference issues – Draft advanced metering and demand response program survey – Copy of notice can be found at http://elibrary.ferc.gov/idmws/common/opennat.asp?fileID=10871093

13. Timeline for Comments Comments on Technical Conference Issues – December 19 Technical Conference – Late January 2006

14. Timeline for Survey Currently under OMB review Contingent upon OMB approval, final survey released January 2006 Responses due by March 2006

15. Questions  Contact Information: David Kathan FERC 888 First St., NE Washington, DC 20426 (202) 502-6404 david.kathan@ferc.gov