ISO New England/NEPOOLDemand Response Working

Group Meeting

Demand Response Department

ISO New England, Inc.

Holyoke, Massachusetts

January 7, 2004

Agenda

• Introductions and Update on DR Business Activities 9:00 – 9:10

• Day Ahead Demand Response Program Design Concepts 9:10 – 9:40

• Performance Evaluation Recommendations 9:40 – 10:25

– Market Impacts / Benefit-Cost Analysis

– Program Recommendations - Work Plan

• 15 minute interval

• Semi Annual Report submitted to FERC 12/31/2003 10:40 – 11:25

• Data Reporting 11:25 – 11:55

• Wrap up and discuss next steps 11:55 – 12:00

IMPORTANT ANNOUNCEMENT

• SWCT Gap RFP

– Deadline for submission of proposals was extended to January 21, 2004, 3:00 p.m. EST

Demand Response(as of December 31, 2003)

Active: Pending:Zone Assets Total Assets Total

CT 120 147.7 1 0.4ME 4 76.4NEMA 116 68.8 1 0.2NH 2 0.6RI 14 2.1SEMA 77 8.4VT 15 13.1WCMA 91 18.3 2 7.3

Total 439 335.3 4 7.9

Demand Response(as of December 31, 2003)

Active: 439 Assets 335.3 MW Pending: 4 Assets 7.9 MWZone Assets RT Price RT 30-Min RT 2-Hour Profiled * Assets RT Price RT 30-Min RT 2-Hour Profiled *

CT 120 27.0 61.8 1.1 57.8 1 0.0 0.4 0.0 0.0

SWCT** 55 7.7 26.6 1.1 0.2 1 0.0 0.4 0.0 0.0

ME 4 0.4 0.0 0.0 76.0

NEMA 116 62.9 3.1 1.4 1.4 1 0.0 0.2 0.0 0.0

NH 2 0.2 0.4 0.0 0.0

RI 14 2.1 0.0 0.0 0.0

SEMA 77 7.9 0.5 0.0 0.0

VT 15 7.1 0.1 0.0 5.9

WCMA 91 9.3 4.8 2.3 1.9 2 7.3

Total 439 116.8 70.8 4.9 142.9 4 0.0 0.6 7.3 0.0

* Includes former Type 2 - Interruptible Loads** SWCT assets are included in CT values (SNEW 7 was in 2-Hour, now retired)

Comparison 2002 vs. 2003 Enrollment (12/31/2003)

As of 9/2002 As of 12/2003

Program Total SWCT Total SWCT

Demand Programs

111.7 90.3 218.5 28.0*

Price Response

72.3 6.7 116.8 7.7

* 22.8 MW in SWCT retired from RT 2-Hour to become a generator

Market Impacts of 2003 Demand Response Program

Comparison of Benefits and Costs From RLW Analytics/Neenan Associates

Report

Demand Response Program Impacts

• What was the improvement in reserves due to the load curtailments?– What is the change in the LOLP that is attributable to the

use of demand response resources?• What was the improvement in terms of the expected

reduction in the amount of un-served energy due to the load curtailments?– What is the magnitude of a potential outage?

• How do consumers value such improvements in reliability?– What is the value of lost load?

Reliability Benefits – VOLL = $2.50/kWh

1.00% 2.50% 5.00% 10.00%0.01 $22,350 $55,874 $111,749 $223,4980.05 $111,749 $279,372 $558,744 $1,117,4880.10 $223,498 $558,744 $1,117,488 $2,234,9750.15 $335,246 $838,116 $1,676,231 $3,352,463

Value of Lost Load (VOLL) set equal to $2,500/MWh.

Change in loss of load probability represent an improvement in system reliability. Load at risk reflects the expected impact of an outage, had one occurred during the event.

Total Payments for load curtailed = $396,594.Shaded boxes indicates cases where benefits to do not exceed payments.

% of Load at Risk

Change in LOLP

Reliability Benefits Estimated for ISO-NE 2003 Demand Response Program; VOLL = $2,500/MWh

Table 3.1 ISO -NE Demand Response Program Reliability Benefits Estimates; VOLL= $2,500/M W H

Reliability Benefits – VOLL = $5.00/kWh

1.00% 2.50% 5.00% 10.00%0.01 $44,700 $111,749 $223,498 $446,9950.05 $223,498 $558,744 $1,117,488 $2,234,9750.10 $446,995 $1,117,488 $2,234,975 $4,469,9500.15 $670,493 $1,676,231 $3,352,463 $6,704,925

Value of Lost Load (VOLL) set equal to $5,000/MWh

Change in loss of load probability represent an improvement in system reliability.

Load at risk reflects the expected impact of an outage, had one occurred during the event.

Total Payments for load curtailed = $396,594.Shaded boxes indicates cases where benefits to do not exceed payments.

% of Load at Risk

Change in LOLP

Reliability Benefits Estimated for ISO-NE 2003 Demand Response Program: VOLL=$5,000/MWh

Table 3.2 ISO-NE Demand Response Program Reliability Benefits Estimates; VOLL= $5,000/M WH

Conclusions – Reliability Benefits/Costs• “Given that the actions taken by ISO-NE system

operators during OP4 indicate shrinking levels of 30- and 10-minute reserves in southwestern Connecticut, it is likely that the 80-100 MW of load reduction provided by demand response participants resulted in a reduction of expected unserved energy commensurate with the upper range of the system state variables (the elements of the valuation formula) in the table, and it may have been substantially higher. Thus, even a conservative approach to estimating the B/C concludes that the program provided positive net benefits…. ”

Price Response Program Impacts – Direct

• Direct Benefits:– Load curtailments provided by the price

program produce bill savings to purchasers of energy in the real-time market.

– These savings are defined by the change in LMP times the load purchased in the real-time market during the event.

Slide courtesy of:

Relationship Between Load and LMP

P r ic e R e s p o n s e P r o g r a m 2 0 0 3 S u m m a r y o f M a r k e t P r ic e Im p a c tsL o a d (M W ) P r ic e ($ /M W H )

A c tu a l S im u la te d C h a n g e A c tu a l S im u la te d C h a n g e

W in te r 1 ,3 5 7 ,2 1 9 1 ,3 5 7 ,7 5 0 -5 3 1 8 7 .5 6$ 8 7 .6 6$ ( $ 0 .1 0 ) 3 .0S p r in g 1 ,7 9 4 ,4 3 2 1 ,7 9 4 ,8 5 7 -4 2 5 9 4 .7 9$ 9 4 .8 2$ ( $ 0 .0 3 ) 0 .6 - 1 .8S u m m e r 1 ,3 7 0 ,9 3 8 1 ,3 7 1 ,9 3 2 -9 9 4 7 8 .0 5$ 7 8 .1 6$ ( $ 0 .1 2 ) 0 .2 - 2 .1V a lu e s a r e th e a v e r a g e im p a c t fo r th e e n t i r e M a r k e t (W in te r ) a n d fo r Z o n e s (S p r in g a n d S u m m e r )

S u p p ly F le x ib i l i t y

T a b l e 3 . 3 I S O - N E P r i c e R e s p o n s e P r o g r a m - S u m m a r y o f M a r k e t P r i c e I m p a c t s

Methodology: Estimate the statistical relationship between load and LMP. This supply relationship, which reflects the bid curves that are used hourly to set LMP, is then used to simulate the impact of load curtailments on LMP.

Supply Flexibility: The measure of the steepness of the supply curve, which is defined as the percentage change in LMP resulting from a one percent change in the load served.

Price Response Program Impacts – Indirect

• Indirect Benefits:– Load curtailments during high price hours reduce the

overall volatility of market price.

– As the volatility declines, so do the risk premiums that suppliers can charge for hedged supplies.

– Methodology: Calculate the affect of the real-time price changes on the monthly average price. The product of the reduction in the average price times the amount of load purchased through bilateral contracts represent a first-order estimate of those savings.

Price Program Benefits to Costs

ISO -N E Price R esponse Program M arket Im pacts

Season B ill Sav ingsH edge

SavingsT otal

SavingsProgram

Paym entsM arket

Im pact R atio

W inter $24,542 $75,163 $99,705 $46,187 216%Spring $2,499 $28,563 $31,061 $38,264 81%Sum m er $9,150 $83,944 $93,094 $85,631 109%T otal $36,190 $187,670 $223,860 $170,082 132%

B ill savings are the price change in the real-tim e m arket tim es the load that cleared in real tim e. H edge savings are the corresponding induced change in the m onth ly average real-tim e price tim es the b ilaterally contracted load.

Table 3.4 ISO -NE Price Response Program - Summary of Total M arket Impacts

Conclusions – Price Program Benefits/Costs

• “Overall, the program benefits realized by buyers of electricity (and eventually by consumers) exceeded the payments made by ISO-NE to participants by 32%. The relatively low ratio reflects system conditions; prices were generally stable throughout the year. Moreover, prices were relatively low even during events; only about one-third of event hours were above $.10/kWh…. Consequently, customers curtailed in many hours when prices were relatively low, and the market price impacts were therefore small.”