1. New Incentives for Pursuing Demand Response Scott Strauss and Sean Flynn Spiegel & McDiarmid APPA Legal Seminar San Francisco – November 2004

2. Spiegel & McDiarmid Overview  Demand Response: What is it?  The Problem: “The Hockey Stick”  Benefits of demand response  Implementation in SW Connecticut –Opening Bidding Markets –Incentives to curtail  Conclusion

3. Spiegel & McDiarmid Conclusions  DR largely relegated to emergency/price response –Limited participation –Limited benefits  FERC moving toward economic DR programs  Need market design changes that allow revenue stream and financing of technology

4. Spiegel & McDiarmid Demand Response  “programs that encourage customers to adjust their usage in response to changes in prices or market conditions affecting reliability.” –GAO 2004  Reliability (emergency)  Price response  Market-based bidding

5. Spiegel & McDiarmid

6. Price Spikes  1998/’99 NY Ancillary Services: $10,000 /mwh  1998 Midwest: $7,500 /mwh  2000 New England: $6,000 /mwh  2000 Pacific NW: $1,000 /mwh  CA Average prices /mwh –1998: $33 –1999: $317

7. Spiegel & McDiarmid

8. Benefits of Demand Response  Cut price spikes  Control market power  Reliability  Reduce/supplement transmission and generation investments  Reduce use of peaking plants (air quality benefits)

9. Spiegel & McDiarmid Emerging Consensus  DOE, National Energy Policy, 2001  CBO, Lessons of the CA Crisis, 2001  FTC, Focus on Retail Competition, 2001  FERC SMD, 2002  DOE Report to Congress, 2003  DOE “Grid 2030”, 2003  H.R. 6, Energy Policy Act 2003

10. Spiegel & McDiarmid Actual and Potential Cost Savings  Summer 2001 New York ISO: $13 million  FERC 2002 RTO “economic assessment”: $7.5 billion /year by 2010  McKinsey & Co. $10-15 billion /year + 250 peaking plants  DOE: $80 billion savings over 20 years

11. Spiegel & McDiarmid Southwest Connecticut

12. Spiegel & McDiarmid Problems  Reliability –“loss of a single major transmission line or power plant in Southwest Connecticut could lead to the disruption of electricity supply” in the region. New England ISO April 2004  Price –LMP

13. Spiegel & McDiarmid Goals  Incentives for customers to curtail –Time-based pricing options Time of use Critical Peak Pricing Real Time –Advanced metering & load control  Link to wholesale markets –Bidding –Curtailment service providers Provide technology; Aggregate load

14. Spiegel & McDiarmid Incentives to Curtail Public Act No. 03-135; CPUC Doc. 03-07-16  Alternative Transitional Standard Offer Services  Mandated offerings (green and DR)  Customer Education –Bill inserts –Check off to apply  Technology financing –On the bill financing/Pay as you go –Conservation funding  But: no real time pricing yet

15. Spiegel & McDiarmid Link to Wholesale Markets NE ISO SMD (2002)  Day Ahead/Real Time Reliability –ISO Call –Pay LMP price or $500 min.  Real Time Price Response –ISO call –$100 floor –$500 ceiling  No bidding as resource/ cannot set market clearing price

16. Spiegel & McDiarmid New England Demand Response Initiative  Day ahead price-driven demand bidding  Equalize bid ceilings  Remove 1MW minimum  LICAP credits for DR

17. Spiegel & McDiarmid Link to Wholesale Markets Cont’d FERC 9/20 & 12/20 2002  Support and expand demand bidding –Price-based Day Ahead (But: 10/04 filing: “Sequential Clearing”) –May allocate costs to all load –Equalize Bid Ceilings (But: $50/$100 bid floors)

18. Spiegel & McDiarmid More FERC  Opportunities for Curtailment Service Providers –“any party that can curtail its own use or provide curtailment services is eligible”  “Commission will insist on similar measures in all regional markets.”

19. Spiegel & McDiarmid National demonstration project DOE “Gridwise”, Nxegen, DPUC (Energy Conservation Mgt Board)  1000 customers goal: Commercial, retail, municipal  Advanced metering, load control, monitoring, efficiency technology  Split savings + Conservation funding  Load aggregation and centralized monitoring –Could participate in day ahead market

20. Spiegel & McDiarmid Progress to date  New Haven –95 schools and municipal buildings –Savings: $42,000 /month; $15 m /5 yrs; $51 m 2010  Norwalk –14 Schools, $85,000 savings /year  Stratford –15 schools by 2005  ISO NE –136 MW enrolled in price driven real time –260 MW enrolled reliability programs

21. Spiegel & McDiarmid Conclusions  Goal: Create incentives for customers to curtail; link to wholesale markets.  Means: Advanced technology, real time pricing + demand bidding.  It takes a village –FERC, PUC, Curtailment service providers  NE not perfect –No day ahead price bidding –Bid floors –“Sequential clearing”