March 5, 2008

1. Day-Ahead Load Response Program (DALRP) Proposal Review with DRWG March 5, 2008 Contact Information: Herb Healy 860-306-4503 hhealy@enernoc.com

2. Alternative DALRP Proposal – Overview • On February 7, prior to FERC approval, ISO-NE implemented revised minimum offer price for DALRP • Result of revised minimum offer price: • Participants not clearing on successive days • Any previously static customer baselines (CBs) have been refreshed • However, through March 1, the revised minimum offer price has effectively precluded demand response resources from clearing in the market • In CT, DA price > min. offer price in 20 of 187 program hours (10.7%) • In ME, DA price > min. offer price in 2 of 187 program hours (1.1%)

3. Alternative DALRP Proposal – Possible Approaches • EnerNOC raised two approaches with the Markets Committee representing possible long-term solutions • Alter CB methodology to force inclusion of recent data, as necessary • For example, baseline incorporates at least x of y trailing days worth of data, including DALRP cleared days as necessary • Impose administrative limit on resource clearing frequency (e.g., x days per week/month) • Neither approach was discussed or voted upon by the ISO or NEPOOL • Note: EnerNOC proposed a interim solution – a lower indexed threshold prices • EnerNOC believes that a change to the mechanics of the CB calculation will best address underlying program issues while keeping the program intact

4. EnerNOC’s Alternative DALRP Proposal Alter CB methodology to force inclusion of recent data • Mechanics • CB calculated over trailing 45 program-day window using existing weighted-average methodology • CB must include at least 15 program days • If 15 or more non-cleared program days exist in the 45-day window, CB calculated using all of those days (no cleared days included) • If 15 non-cleared program days do not exist in the 45-day window, CB calculation first uses all non-cleared program days then incorporates most-recent cleared program days until minimum 15 program days reached • This alternative proposal ensures dynamic CBs while allowing demand response resources to continue to actively participate in the market

5. EnerNOC Alternative DALRP Proposal – Application of Methodology • Example 1: resource clears 30 of 45 program days in trailing 45 program-day window • CB calculated using 100% non-cleared program days’ data • Example 2: resource clears 35 of 45 program days in trailing 45 program-day window • CB calculated using 10 non-cleared program days in window plus 5 most recent program days

6. Proposed Baseline – General Example

7. Baseline Illustration – Seed Period Gaming • Strategic behavior originally presented by ISO enabled by gaming of “locked” CB and “seed period” (first five days of enrollment -> create initial CB); we modeled how such behavior would play out under each strike price/CB scenario • Graph on following slide -- key takeaways: • Existing CB with $50 strike price (orange line) reflects seed period problem – customer has measured, but not actual, load reduction • Existing CB with heat rate-indexed strike price (purple line) adjusts over time (offer does not clear 70% of days), but slowly • Proposed baseline (red line), which gives a higher weight to more recent data, adjusts to actual load profile (even with 100% cleared offers)

8. Baseline Illustration – Seed Period Gaming

9. Baseline Illustration – Permanent/Seasonal Load Reductions • Assuming same customer would participate as often as possible (as in the past), we modeled how permanent/seasonal changes in load play out under each strike price/CB scenario • Graph on following slide -- key takeaways: • Existing CB with $50 strike price (orange line) reflects problem of “locked” baseline – customer has measured, but not actual, load reduction • Existing CB with heat rate-indexed strike price (purple line) is slow to pick up permanent changes to load profile • Customer participates ~50% of time (ISO-NE hub price, backcasted threshold price) • Proposed baseline (red line) is quick to pick up permanent load profile changes, refreshing CB even during a period of frequent customer participation

10. Baseline Illustration – Permanent/Seasonal Load Reductions

11. Proposed Baseline - Summary • Proposal is designed to be as similar to existing and (ex. gaming) effective baseline methodology while directly addressing underlying program issues: • Proposed CB is as accurate as existing CBsince it is based on current CB (weighted average of historical data), small changes for accuracy (more weight given to recent data, event days included if insufficient data) • Proposed CB addresses strategic behavior discussed by ISOeven over periods of frequent participation; no more “locked” CB • Guarantees program payments are appropriate; resources reducing usage as measured against a contemporary baseline • Restores substantial market benefits that demand resources can provide that are precluded by ISO-NE’s proposal • Not discriminatory (i.e., allows demand response resources to participate like supply resources—whenever market prices justify action)