1. Reliable Power Reliable Markets Reliable People Demand Response in Alberta’s Wholesale Electricity Market Demand Response Working Group Kick Off Meeting- September 3, 2008 Laura Letourneau Director; Market Services

2. 2 Agenda Meeting Objectives –Introductions (interests & experience) –Terms of Reference - structure, transparency, scope, rules for engagement –Industry/Business Model for Demand Response in Alberta Presentation –Background and Context –Demand Response Overview –Alberta Facts –Challenges & Opportunities Next Steps –Finalize Terms of Reference –Evaluate Alberta Demand Response programs and results –Assess other market’s programs and results –Assess Demand Response challenges/limitations/barriers to success –Industry/Business Model – current, options, proposed

3. Reliable Power Reliable Markets Reliable People Background & Context Laura Letourneau Director; Market Services

4. 4 Electric Industry Evolution AESO formed Electric Utilities Act passed May 1995 June 1995 Jan. 1996 May 1998 June 1998 Aug. 2000 Jan. 2001 Power Pool Council formed EUA takes effect Power Pool begins operation Independent PPC & Market Surveillance Administrator appointed Independent Transmission Administrator appointed Gov’t auctions rights to generator output Retail competition Nov. 2000 Balancing Pool Phase I supply auction June 2003

5. 5 Industry Model Post-Restructuring competitive forces competitive forces natural monopoly Functional Separation Vertically Integrated Utility natural monopoly

6. 6 Electric Utilities Act Minister of Energy Appoints AESO Board members, MSA & AUC Chair Market Surveillance Administrator (MSA) Balancing Pool Wholesale Energy Market Transmission Alberta Electric System Operator Real-time Alberta Electric System Operator Alberta Utilities Commission (AUC) Regulates AESO Load Settlement Industry Structure

7. 7 Alberta Electric System Operator Independent –Not-for-profit with a public interest mandate –Holds no commercial interests – independent of the market –Impartial: no affiliation with industry –Governed by independent board Regulated by Alberta Utilities Commission –Transmission Tariff –ISO Rules & OPPs Revenue –energy trading charge –transmission tariff (load settlement)

8. 8 Key Agencies Roles Alberta Utilities Commission (AUC) –Independent, quasi-judicial agency of Alberta Government –Approves ISO Rules & Operating Policies and Procedures –Regulates transmission reinforcements/upgrades and tariffs –Approves environmental and siting for generation projects –Approves the distribution and regulated rate option tariffs Market Surveillance Administrator (MSA) –Performs on-going monitoring of Alberta’s electricity markets to ensure fair, efficient and openly-competitive operation of the markets –Monitors compliance with all rules, laws and regulations and manages non- compliance and penalties (resolves issues before complaints) Balancing Pool –Markets unsold Power Purchase Arrangement (PPA) capacity –Manages the unsold PPAs and ultimately returns profits to Alberta consumers

9. 9 AESO Mandate Reliability of the Electric System –coordinated operation of the power grid and make sure that the supply and demand are in constant balance Open, non-discriminatory access to the Transmission system Plans Transmission System - ensure important infrastructure keeps pace with growing demand and supply –supports reliability –enable fair, efficient and open competition –facilitates investment in both load and generation Fair, efficient and openly competitive (FEOC) –operate the market ensuring a fair, efficient and openly competitive wholesale market for all participants

10. 10 AESO Roles & Responsibilities Ensure safe, reliable and economic operation of the power system by dispatching merit order (generators & price-responsive bids) Connects customers (supply & load) – designs and administers tariff for system access Contracts with TFOs for service & provide direction to transmission facility owners to coordinate operation of the transmission system Schedules generation and loads to provide system services (AS) - procured through service contracts or tariff Dispatches merit order for reserves (reg/spin/supplemental) –procured from independent third party market or –over-the-counter arrangements and used to maintain required reserves Calculates and communicates the pool price Settlement – load, energy market and transmission

11. 11 Hourly Real-Time Market Customers Hourly AESO Pool Price Retailers AESO Transmission Exports Other generation Power Purchase Arrangements Imports Self Retailers

12. Reliable Power Reliable Markets Reliable People Demand Response Overview Laura Letourneau Director; Market Services

13. 13 Demand Response Drivers Aging industry infrastructure and the pace of Generation, Transmission or Distribution investment may contribute to –shrinking reserve margins and –increasing congestion and reliability events Increasing prices and price volatility – super peaks –associated with congestion, –load characteristics and –concentration of supply resources Increasing overall demand coupled with reduction of incentives for efficiency

14. 14 Benefits More Resource Options –reliable and efficient operation of the system and market, –increases liquidity and mitigates potential market power Shift and Reduce –Flattens load & dampens price spikes –Shifting peak use to off-peak use flattens load profile and reduces price spikes during scarcity/high prices Conservation and efficiency –Reduced use/demand –Shifting resources to lower cost resources increases market efficiency

15. 15 DR Program Categories Incentive Programs: Induce customers to reduce during periods of system need or stress with payments rather than direct price signals –Direct load control –Interruptible/curtailable rates –Demand bidding/buyback programs –Emergency demand response programs –Capacity market programs –Ancillary services market programs Time/Price Programs: Promote DR based on price - move away from flat or average pricing and promote more efficient markets that reflect underlying costs –Time-of-use prices (day, week, season)=> differentiate by peak/off-peak or shoulders –Critical peak/scarcity pricing=> use real-time prices during extreme peaks –Real-time pricing => links hourly prices to cost of power

16. 16 Demand Response Continuum Multi-year Year MonthDay-Ahead Real-Time Energy Efficiency Conservation Load Shifting Load Shed Distributed Generation Timeframe Varied demand response products/services suited to varied needs

17. Reliable Power Reliable Markets Reliable People Alberta Facts Laura Letourneau Director; Market Services

18. 18 Alberta at a Glance Alberta Western System BCSask. Intertie limitations, high load factor and growing variable resources increase risk of reliability events and reduces options to manage it. 9,710 MW peak and 80% LF 12,072 MW total generation 9,710 MW peak and 80% LF 12,072 MW total generation Interties Max Capability BC (up to 780 MW) Sask. (up to 150 MW) Interties Max Capability BC (up to 780 MW) Sask. (up to 150 MW) 5,893 MW 4,635 MW (Other renewables) 178 MW (Wind) 523 MW 869 MW

19. 19 Alberta’s Demand Response AESO has implemented a combination of market and out-of-market DR programs, some are incentive based and others are time/priced based. Time/Price (market) Solutions include: Operating Reserves (OR)–Supplemental Price Responsive Loads (PRL) Incentive programs (out-of-market/real time emergencies) include: Voluntary Load Curtailment Program (VLCP) Load Shed Service (LSS) (59.5 Hz freq. response) Interruptible Load Remedial Action Scheme (ILRAS) Demand Opportunity Service (DOS)

20. 20 Comparing Alberta’s DR FERC’s 2007 Assessment of DR: estimated demand reductions in RTO/ISO regions with wholesale markets to be 1.4 - 4.1% of peak reductions achieved via a combination of DR programs, retail DR, & voluntary reductions Assessment of Alberta’s DR: Most significant demand response comes from the approximately 175 - 300 MW of Price Responsive Load - 1.8% to 3.1% of peak (9710 MW ’07/08) Additionally, over 400 MW in VLCP, LSS, ILRAS,DOS and OR supplemental service provide additional options to managing reliability and ensure a fair, efficient, and openly competitive electricity market

21. 21 Price Responsive Load in Alberta Price Responsive Load responding to price spikes

22. 22 Alberta’s Price Responsive Load (PRL) PRL on-line & average load reduced by Price Range 96 69 71

23. 23 Growth in Electricity Consumption Unprecedented load growth in Alberta could potentially outpace market-driven generation additions resulting in decreased reserve margins and reduced reliability

24. 24 Trends in Alberta System Peak Historical Peaks Alberta’s peak demand (AIL) and consumption grew by an average of 4% and 5% per year respectively (2001-2006) AESO forecasts (20 years) peak demand to grow on average by 3.1% per year and consumption to grow on average by 3.2% per year Winter Summer

25. 25 Price Trends (con’t) System and market conditions can increased frequency of price spikes

26. 26 Price Trends in Alberta Year Price > $100/MWh Price > $250/MWh Price > $500/MWh Price > $750/MWh 20041.93%0.32%0.05%0.01% 20054.21%0.84%0.17%0.05% 20063.68%1.42%0.46%0.21% 20072.83%0.80%0.34%0.18% Historical Pool Prices Historical Price Frequency

27. Reliable Power Reliable Markets Reliable People Challenges & Opportunities Laura Letourneau Director; Market Services

28. 28 Challenges & Objectives Increased risk of reliability events –demand growth –delays in transmission and distribution infrastructure –potential misalignment of generation and transmission –increasing variable resources - need for fast ancillary services Increasing prices and frequency of scarcity pricing (price spikes) Generally, Alberta like other markets, may experience: To capitalize on the benefits of demand response, there is a need to explore and analyze the physical and financial structures within Alberta identifying demand response opportunities and options

29. 29 The Flow of Power There will be a need to segment electricity transactions (physical and financial) in order to appropriately assign roles and responsibilities.

30. 30 Next Steps Finalize Terms of Reference Evaluate Alberta Demand Response programs and results Assess other market’s programs and results Assess Demand Response Challenges, limitations and barriers to success Industry/Business Model – current, options, proposed

31. 31 Questions For further information, questions or concerns please contact: Laura Letourneau Director; Market Services Alberta Electric System Operator 2500, 330 – 5 th Avenue S.W. Calgary, Alberta T2P 0L4 laura.letourneau@aeso.ca