Henry Yoshimura

1. Henry Yoshimura Director, Demand Resource strategy National Summit on Integrating Energy Efficiency & Smart Grid The Past, Present, and Future of Demand Resources in New England October 16, 2013 | Washington, DC

2. New England’s Electric Power Grid at a Glance • 6-state region • 14 million residents; 6.5 million retail electricity customers • 350+ generators • 37,000 MW of resources with capacity supply obligations • 32,000 MW generation • 2,900 MW demand resources • 1,900 MW imports • 8,400 miles of transmission • 28,130 MW all-time peak demand

3. Energy Efficiency a Priority for New EnglandState policies and the regional capacity market have produced robust EE investment • Ranking of state EE efforts by the American Council for an Energy-Efficient Economy : • Massachusetts 1 • Vermont 5 • Connecticut 6 • Rhode Island 7 • New Hampshire 18 • Maine 25 • Billions spent over the past few years; more on the horizon • Approximately $1 billion invested from 2008 to 2010 • ISO estimates $5.7 billion to be invested in EE from 2015 to 2021

4. Energy is the Primary Driver of Wholesale Electricity Market Costs in New England Billions of Dollars Wholesale price for electric energy is determined by supply and demand in daily energy markets – about $6-$12 billion annually EnergyMarket ISO determines capacity needs three years into the future and resources compete to sell capacity to system through annual auctions – about $1-$2 billion annually Forward Capacity Market Resources are compensated for providing regulation services and reserves to ensure the reliability of the transmission system in real time – about $40-370 million annually Ancillary Services Source: Report of the Consumer Liaison Group (2012)

5. Growth of Demand Resources in New England Demand Resources Clearing in the Wholesale Capacity Market Demand Resource Participation in Region Enrollment in ISO programs before the start of FCM FCM  PassiveEE Real-Time EG Active Real- Time DR 2010/11–2015/16: Total DR cleared in FCAs #1 – #6; real-time emergency generation capped at 600 MW

6. Impact on New England Demand: Energy Demand Flat, Peak Demand Still Growing (but at a Lower Rate) New England: Annual Energy (GWh) New England: Summer 90/10 Peak (MW)

7. Progress Has Been Made … But Additional Things Can be Done • While enormous progress has been made … • Retail pricing, with very few exceptions, has retained the characteristics of being static (not dynamic) and reflecting average costs (not marginal costs)

8. Using Demand Response as an Energy ResourceNot Just as a Capacity and/or Ancillary Services Resource • Demand response as Price-Responsive Demand (PRD) • Consumers change consumption in real time, in response to changes in wholesale power prices • Use less energy when prices are high, and more when prices are low • Helps increase efficiency and reduce customer energy bills • Increases system productivity and reliability by encouraging customers to shift usage from peak to off-peak periods, and by implementing efficient storage and distributed generation • Reduces wholesale costs and average rates • Reduces risk premiums in retail rates • Eliminates cross-subsidies • Treats customers as customers • Avoids treating customers as suppliers with obligations • Avoids estimating customer baselines • Supports retail choice—services customized to each customer

9. Barriers to Dynamic Retail Prices • Most New England states lack advanced metering infrastructure and associated tools to assist customers respond to prices • Results in default service being based on a uniform rate • Consumers cannot benefit from changing their consumption levels in response to changing real-time wholesale energy prices • Smart grid technology not fully utilized under uniform retail rates • Limits ability of retail suppliers to offer other retail products • Limits the ability of consumers to evaluate other retail products, such as dynamic retail offers) or the cost-effectiveness of smart grid investment opportunities

10. Region Lacks Advanced Metering Infrastructure Advanced Meter Penetration (2012)* ME VT NH MA RI CT *Source: FERC 2012 Assessment of Demand Response and Advanced Metering. (December 2012) , Table 2-3.

11. Challenges to Investment in a Smarter Grid • Utility distribution companies risk disallowance of cost recovery associated with improved infrastructure investments • Use of historic test year • Incremental benefits of improved infrastructure accrue mostly to customers and society, not to the utility • Savings in utility operating costs may have already been captured through infrastructure upgrades with limited functionality made at the time of industry restructuring • Customers benefit from service improvement and bill reductions • Society benefits from an improved environment • Revise the ratemaking process so as to encourage broader, more forward-thinking concerning the future electric grid

12. In Conclusion… Past Present Future New England Demand Resource Growth in MW • Advanced metering and communications • Dynamic retail rates • Automated load control • Distributed generation • Energy storage (and EVs) • All customers enabled to provide demand response – i.e., more efficient use of energy in real-time • Integration of demand response into wholesale electricity markets • ISO implements “smart-grid” system • Monitor and dispatch demand response in real-time by location • Dispatch comparable to generation: when and where needed to balance supply and demand • Facilitates customer aggregation into portfolios of resources • State policies and regional capacity market payments helped stimulate Demand Resource growth • Billions spent on energy efficiency