1. Measurement & Verification at the Wholesale Market Level David Kathan FERC NAESB DSM/EE Business Practices Washington, DC April 11, 2007 The author’s views do not necessarily represent the views of the Federal Energy Regulatory Commission

2. 2 Demand Response in Wholesale Markets Retail demand response key source of wholesale demand response –LSEs use demand response as a hedge and/or serve as aggregators for ISO/RTO programs –Grid operators operate demand response to support reliability 37,500 MW of demand response potential in existing programs –About 25% of total are associated with ISO/RTO demand response ISO/RTO demand response programs –Energy markets (CAISO, ISONE, MISO, NYISO, PJM) –Ancillary services (CAISO, ERCOT, ISONE, PJM) –Capacity markets (ISONE, NYISO, PJM)

3. 3 FERC’s Role in Demand Response The Commission recognizes –Demand responsiveness is missing from wholesale markets “ One thing that is missing in wholesale markets is effective demand response.” Chairman Kelliher (Inside FERC, 1/15/07) –Need to coordinate with states on demand response “Federal and state regulation has to work together and encourage greater demand response” Chairman Kelliher (1/25/06) The Commission has –Approved demand response programs proposed by ISO/RTOs –Supported regional demand response initiatives (e.g., the Mid- Atlantic Distributed Resources Initiative) –Co-sponsored the NARUC-FERC Demand Response Collaborative Dialogue Commissioner Jon Wellinghoff is a co-chair

4. 4 Need for M&V at the Wholesale Level FERC Staff Demand Response Report identified the need for consistent and accurate measurement and verification (M&V) as key regulatory issue M&V needed: –To support just and reasonable rates for the delivery of demand response in wholesale markets –To provide system operators with accurate forecasts and assessments of demand response –To accurately measure and verify demand resources that participate in capacity markets

5. 5 Wholesale Market M&V Challenges and Issues Measurement of demand response impact is different than metering of generation output M&V needed to support wholesale demand response –Likely different than needed for retail energy efficiency and load management –Differs by type of demand resource Incentive-based programs requires estimate of customer baseline Time-based rates require forecasts of response based on statistical or regression analysis No standardization of M&V protocols –Customer baseline calculations vary across ISO/RTOs

6. 6 Commission M&V Activities Joint NARUC-FERC DR Collaborative is examining the issue –Discussed at February 18 meeting Subject of panel at upcoming April 23 Commission technical conference on demand response Recently approved reliability standards (Order 693) emphasize need for measurement of demand response –Documentation of interruptible and controllable load MOD-019, MOD-020, and MOD-021 –When providing contingency reserves BAL-002, EOP-002