Demand Response in PJM

1. Demand Response in PJM 2009 NASUCA Mid-Year Meeting June 30, 2009 Boston, MA Panel: Price Responsive Demand – A Long-Term Bargain for Consumers? Paul M. Sotkiewicz, Ph.D. Senior Economist, Markets PJM Interconnection, LLC www.pjm.com

2. PJM Market Participants in Demand Response Load Serving Entity (LSE): PJM Member, including Load aggregator or power marketer, serving end-users within the PJM Control Area, to sell electric energy to end-users with the PJM Control Areas. Electric Distribution Company (EDC): PJM Member that owns, or leases, electric distribution facilities that are used to provide electric distribution service to electric load within the PJM Control Areas. End Use Customer: Cannot directly participate Unless it is a PJM Member (e.g. as an LSE or CSP) Curtailment Service Provider (CSP): PJM Members that will act on behalf of end-use customers who wish to participate in PJM Load Response opportunities. Who Can be a CSP?: • Any LSE • Any EDC • Any third party (PJM member) specializing in Demand Response www.pjm.com

3. What is Demand Response? From an operational perspective: • It is the ability of consumers to change consumption in response to energy market prices. • It is the ability of consumers to reduce consumption in response to a notice from a system operator to meet system needs such as a contingency or emergency situation to maintain reliability. www.pjm.com

4. What is Demand Response? From a customer perspective: • It is the ability of consumers to control energy expenditures through reductions in, or changing patterns of, consumption. • Reduction of consumption during high price events and possibly shifting that consumption to lower priced periods • Committing to reductions in usage during peak periods and/or “emergency of contingency events” for reliability needs www.pjm.com

5. What is Demand Response? From a load serving entity (LSE) or electricity distribution company (EDC) perspective: • It is the ability of consumers to help the LSE/EDC to avoid high cost purchases/production or avoid new capacity purchases/builds • May help reduce overall costs for remaining LSE/EDC customers www.pjm.com

6. Demand Response Opportunities in PJM www.pjm.com

7. Responding to Wholesale Prices in the Energy Market An End-Use-Customer reduce consumption when wholesale prices are high Retail Rate www.pjm.com

8. Revenue Opportunities in Economic Load Response 2007 • Total revenue a 1 MW Demand Resource could have generated. • Payment is LMP less the generation and transmission portion of the retail rate (no incentives included in 2007 figures). • Strike price is the price at which reductions occur based on PJM load-weighted average LMP. • Does not account for any increased consumption in off-peak periods at the retail price. www.pjm.com

9. Revenue Opportunities in Economic Load Response 2008 • Total revenue a 1 MW Demand Resource could have generated. • Payment is LMP less the generation and transmission portion of the retail rate (no incentives included in 2007 figures). • Strike price is the price at which reductions occur based on PJM load-weighted average LMP. • Does not account for any increased consumption in off-peak periods at the retail rate. www.pjm.com

10. Revenue Opportunities as Capacity Prices are those paid to DR committing 3 years forward. www.pjm.com

11. Revenue Opportunities as Capacity Revenues are for DR committed 3 years forward www.pjm.com

12. Revenue Opportunities in Ancillary Services • For a 1 MW resource clearing Synchronous Reserve in all hours • In 2007: RFC $192, Mid-Atlantic $63,522, Dominion $232 • In 2008: RFC $1,033, Mid-Atlantic $45,971, Dominion $0 • For a 1 MW resources clearing in Regulation when the price (inclusive of opportunity cost) exceeds $100/MW • In 2007: $47,306 for 305 hours • In 2008: $85,477 for 503 hours • To date there has been no Demand Resource that has bid into Regulation • For Day-ahead Scheduling Reserve (operating since June 1, 2008 through August 31, 2008) $1,236 www.pjm.com

13. Long-Term Vision for Demand Response • “Price Responsive Demand (PRD)” is the long-term vision for demand response. • What is PRD? • Deployment of advanced metering to end-use customers so they can see wholesale market prices in real-time; AND • End-use customers responding to wholesale market prices through the use of dynamic retail rates. • PRD allows end-use customers to respond to wholesale prices in real-time. • Changing consumption patterns to reduce energy expenditures • By reducing during peak days can avoid costs of capacity www.pjm.com

14. PJM Preparations for PRD • PJM must enhance load forecast methods • Day-ahead forecasts and real-time updates for the energy market. • Account for demand, by location, that will respond to prices to ensure resources are not over-committed • Forecasting for capacity adequacy and transmission planning • Account for quantity and location of demand that will have responded to price and not be on the system during the forecast peak • PJM to develop communication capabilities to provide price information to customers www.pjm.com

15. PJM Working in Concert with States • Provide assistance if requested to coordinate integration of dynamic retail rates • PJM is willing and able to support various retail rate structures that fit each State’s needs • Work with States to aid in understanding what information PJM can provide to facilitate PRD • Day-ahead and real-time LMP, for example • Assist, to the extent possible, in analyzing potential impacts of PRD • Shifts the locus of demand response to the retail level while accounting fully for it at the wholesale level www.pjm.com

16. PRD vs. Current PJM Demand Response • PRD – Long Term Vision • Benefits from responding to price embodied in dynamic retail rate linked to PJM prices. No measurement against a CBL or PJM settlement is necessary. • For capacity benefits, reduction in consumption at peak accounted for in reduced demand for capacity reflected in forecast. No need to offer reductions into capacity market. • Current PJM DR • Benefits from reductions in response to price as measured against CBL are submitted for settlement at PJM. • For capacity benefits, offer reductions in a manner similar to a supply side resource into capacity market. Reductions not included in forecast demand for capacity. www.pjm.com