1. Emergency Demand Response Concept Overview and Examples Presented to: ERCOT December 3, 2004 Presented by: Neenan Associates

2. 2 Confidential 30-Nov-04 ISO Demand Response Programs Spot Energy Market Price Real Time Day Ahead Price Following Scheduled Curtailments PJM NYNY NE NYNY PJM 1020 108 377 Resources 2004 Very low activity in NYISO day-ahead (low prices) More real-time activity, but questions about value

3. 3 Confidential 30-Nov-04 ISO Demand Response Programs Capacity Reliability PJM Spot Forward Emergency Op Reserves ICAP Resource Dispatched Operating Reserves NYNY NYNY NE NYNY PJM 1783 249 1562 Resources 2004 Emergency program heavily marketed in NY, ICAP ICAP increasing in importance Ancillary services market participation is a new initiative

4. 4 Confidential 30-Nov-04 Need for Emergency DR  Operating reserves ensure that the loss of a major transmission line or large generator(s) does not imperil the entire system  If a deficiency is extreme enough, load shedding is undertaken to protect the overall system integrity  Well orchestrated load curtailments help mitigate, or avoid operating reserve deficiencies and their consequences…  Without disrupting spot market price formation  Only the ISO can effectively dispatch such resources – reliability is a social good

5. 5 Confidential 30-Nov-04 ISO Emergency DR Programs  Emergency DR Programs provide system operators with unique reserves  Resources indigenous to the market  Fully synchronized to the system, Short notice (2 hours)  High availability rate, diverse and reliable  No capacity payment required – pay for performance only NYISO PJM ISO-NE Start Date 2001 May 2001 June 2001 292 / 425 17 / 62 12 / 6 2002 1,711 / 668 61 / 629 79 / 113 2003 1,231 / 879 99 / 629 106 / 249 Reg. Sites / Subscr. MW Source : NERA Dec. 2003 About the same 2004 About the same Slightly higher

6. 6 Confidential 30-Nov-04 NYISO EDRP Registration Requirements  To participate, customers must:  Register at least 100 kW of load curtailment and/or output from on-site generator  Have an interval meter  Small-customer aggregations HVAC controls, pool pumps, etc. can employ statistical method for determining performance  Program registration options  Load Serving Entity (LSE)  Curtailment Service Provider (CSP)  As a Direct or Limited Customer of the NYISO Currently, almost all participants register through a default service utility

7. 7 Confidential 30-Nov-04 NYISO EDRP Dispatch Rules  NYISO can dispatch EDRP resources at the zonal level, on an as-needed basis  EDRP invoked when In-Day Peak Hour Forecast indicates an 30-Min operating reserve shortage and/or Major Emergency state is declared  Sometimes a non-binding advisory notice is provided a day-ahead  Once operating reserve shortage is verified in-day, curtailment event is declared with at least two (2) hour’s notice of event  Four (4) hour minimum event duration Concession to customers

8. 8 Confidential 30-Nov-04 NYISO EDRP Customer Baseline Load (CBL) Methodology  Uses most recent ten (10) days hourly interval-metered usage values 1. Calculate each day’s total usage during event hours 2. Choose the resulting five (5) highest days 3. Average the interval usage data by hour over those five days to get an hourly CBL value  Optional adjustment for weather can be applied  CBL is adjusted(up & down) relative to conditions 2 hours prior to the start of the event

9. 9 Confidential 30-Nov-04 NYISO EDRP Payment  Participation in any event is voluntary  No requirement to notify the NYISO of their intent to participate in an EDRP event in order to be paid  Payment is for any measured level of curtailment  Payment is the higher of $500/MWh or LBMP  NYISO pays the registration agent, not participants  Unregulated Agents’ contract terms are proprietary  NYPSC requires regulated LSEs pass along at least 90% of payment Price has generally lower

10. 10 Confidential 30-Nov-04 Emergency DR Program Benefits  Reliability Benefits – curtailments reduce the probability of an outage due to operating reserve shortfalls  Value is defined as product of:  Expected Unserved Energy  VOLL  Program is operated to avoid any unintended consequences on on real-time spot market prices  If the DR reserves turn out to be needed, then they can set real-time LBMP, but only if price otherwise is below $500  Adopted because initially the dispatch of large DR resources appeared to cause RT price to crash

11. 11 Confidential 30-Nov-04 NYISO EDRP Historical Program Benefits 2001 2002 2003 8,159 6,632 7,734 EDRP Curtailed MWHs 20.1 4.8 32.3 Reliability Benefits ($M) 4.2 3.3 3.9 Program Payments ($M) ~ 5 ~ 1.5 ~ 9.5 B/C Ratio

12. 12 Confidential 30-Nov-04 EDRP Reliability Benefits during Northeast Blackout of 2003  Recovering System State (August 15)  Change in LOLP=1.0, High VOLL=$5,000/MW, Load At Risk=DR  Recovered System State (August 16)  Change in LOLP=0.2, Low VOLL=$2,500/MW, Load At Risk=Only DR Needed to meet 30-Minute Reserve Margin DateSystem StateBenefitPaymentRatio Aug. 15Recovering$31.6M$3.2M9.5 Aug. 16Recovered$0.7M 1.0 Total$32.3M$3.9M8.3

13. 13 Confidential 30-Nov-04 Some Observations Participation in NYISO grew to over 800 MW in three years Only about 10% of registered resources are DG Diverse participation contributes to availability Constant and reliable curtailment performance Level stable over 5-6 hour events On average, curtailment is about 1/3 of CBL Vital early role for Curtailment Service Providers Vital agency role PSC tariffs and jawboning NYSERDA outreach and technology support