Enabling Customer Demand Management

1. Enabling Customer Demand Management Kevin Evans President & CEOJune 24, 2010

2. Legacy market: Grid Operator/Utility Centric “Command and Control” driven environment Emerging market: Hybrid market with traditional Command and Control augmented by more customer centric “Inform and Motivate” Situational awareness is better than command and control Command and control may remain appropriate for ancillary services or emergency peak reduction until telemetry provides real-time situational awareness Factors limiting customer participation Complex rules differentiated across all jurisdictions Pricing implications not put in “easy to understand” context for customers Enabling technology not available, too costly or too complicated to use Evolution of Demand Response

3. DR Forces – RTO vs. Energy User Energy User RTO / ISO RTO needs and energy user desires often at odds with each other • Needs • Reliability • Predictability • High Capacity Factor • Efficient Markets • Desires • Min. Operational Impact • On Demand • Flexibility • Lowest Cost Electricity

4. Bringing Forces Together Energy User RTO / ISO Demand Resource Enabling technology that inform and motivate energy users and meet Grid’s needs • Win/Win • Curtailment Planning • Adequate Compensation • Situational Awareness • Price Discovery • Needs • Reliability • Predictability • High Capacity Factor • Efficient Markets • Desires • Min. Operational Impact • On Demand • Flexibility • Lowest Cost Electricity

5. History of Price Response in PJM • 2007 – 2008: Program Design & Testing • Baselines, price signals • Rebate or incentives • 2009 – 2010: Getting the Rules Right • Standardized baseline usage calculation • Curtailment plans and telemetry • FERC NOPR Compensation • Market education & adoption • 2011 and Beyond • Wider adoption in other RTO’s PJM moves from full LMP to LMP - G $48M $27M $1M

6. Putting Price Signals in Context Market opportunities automatically monitored for customers and put in their perspective Assess Curtailment Capability Install Telemetry Set Notification Criteria Test & Certify Value Proposition Notify Customer of Opportunities Accept, Modify, or Ignore Settlement and Payment

7. Easily Evaluate and Modify Schedules Value Proposition • More than just a “price signal,” full value proposition quantified for customer • Makes it easy for customers understand value from THEIR perspective • Easy “what if” analysis of running modified scenarios • Enables direct scheduling of load shift via BAS or other control tech

8. Real-time Price Discovery

9. Real-time Performance Monitoring

10. Utility Based Dynamic Capacity Pricing High Incentive 50 hours of $500/MWh = $25,000 Medium Incentive 50 hours of $300/MWh = $15,000 Low Incentive 100 hours of $100/MWh = $10,000 2008 Top 200 Hours “Reconstituting” capacity payments to a “Pay for Performance” incentive 26,500 Assume the capacity payment is $50,000/MWyr., the economic offer could be: 26,250 26,000 25,750 25,500 25,250 25,000

11. Participant Site o ) t r m e n 2 y a h a m L a u k n H a o ( i , t r e c o Operations Personnel n t a i r a h e r c e t a n p I M O Bidding , Notification , Performance , Settlement Baselines Usage Information Settlement Electric Meter ( s ) Information ) Electric Utility Independent m 2 System Operator , m , Electric Utility a k a Retail Electric , r Electricity e e Supplier n y i Usage a h L Notification of c On - Site Collection Information , or n a System Events o ( e . g . , data logger , M i t c o BAS , etc .) Internet , Phone t a r e Connection , e n t i n h Cellular Modem I c a M ( Control System a t Control Signals a D Full Integration with Grid Operations • Automatically processes notification from utility or grid operator • Customer notification options via e-mail, voice message to phone, pager, etc. • Processes 10,000’s of messages per minute • Communicates directly with customer control systems • Remotely starts processes or back-up generation

12. Automated Load Management , Satellite Location , Utility Meter ( s ) Submeters / CTs National Retailers Main Office Richards - Zeta Mediator Internet Customer Managed VPN Andover Andover Network Controller Continuum Server Key HVAC Lighting Metering Events / Control Satellite Location Notification Utility Meter ( s ) Submeters / CTs of System Baselines Events & Usage Price Info Information Customer Settlement Richards - Zeta Managed Information Mediator VPN Siemens / ALC / etc . HVAC Lighting DR Interface

13. Shaping the Smart Grid Command & Control Inform & Motivate E-Connect Energy Resource Interface (ERI) • Communication • & Control Network • Resource Energy • Controller (REC) • Thermal Network • Electric Network • Virtual End Node (VEN) • Communication • & Control Network • Resource Energy • Controller (REC) • Thermal Network • Electric Network • Virtual End Node (VEN)

14. Technology Enabled Demand Response Demand Resource Enabling technology that inform and motivate energy users and meet Grid’s needs Energy User RTO / ISO • Win/Win • Curtailment Planning • Adequate Compensation • Situational Awareness • Price Discovery • Desires • Min. Operational Impact • On Demand • Flexibility • Lowest Cost Electricity • Needs • Reliability • Predictability • High Capacity Factor • Efficient Markets