Energy Market Design

1. Energy Market Design Linking Generation, Demand Response, Energy Efficiency, Consumer Advocacy, and Measurement Policies for Optimal Social and Economic Outcomes

2. ConsumerPowerline • The first viable (positive cash-flow 2000 – 2005, prior to extensive investment in infrastructure), paying end-users >$20 million and • One of the largest (>200 mW’s DR; >1,000 mW’s of peak end-use) non-utility DR & energy efficiency aggregators in the nation • Operating nationally (CA, NE, NY, PJM, TX) • Serving much of the Fortune 200

3. Efficiency • A minimum of 8% energy efficiency within eight years is, we believe, easily achievable throughout the United States through efficiency portfolio standards (“EPS”).

4. Efficiency; Regulatory • Regulated utilities should be price-takers in the EEC markets. • Energy efficiency, as a static resource, is not appropriately included in the RTO’s IRP responsibilities.

5. Efficiency; Measurement • Large projects should be required to be metered.

6. Efficiency; Measurement • Small projects should be verified by simple evidence of purchases of eligible products or services. • Self-certification of measures taken, augmented by some random audits is perfectly adequate

7. Efficiency; Measurement • Because it buys us mass-markets, self-certification and random statistical verification of many small measures will add, by our estimate, 40% to what we can achieve, otherwise. • It is important to recognize that with self-certification, augmented by random audits, a small percentage (~5%?) may game the system.

8. Efficiency; Measurement • When we require an approach, rather than simply set a required outcome, we simply limit technology and limit what we can achieve as a society.

9. Efficiency; Measurement • A private entity who says that we need to meter all EEC eligible projects, large or small, is likely hawking some hardware product(s) that will prove to be an inefficient waste of taxpayer/ratepayer money.

10. Efficiency; Measurement • A public entity who says that we need to meter all EEC eligible projects, large or small, is likely focusing on the 5% that may, prospectively, game the system rather than on the total cost/benefit of real EEC achieved.

11. Efficiency; Ownership As we design and opine on who owns the EEC’s, let’s seek to align ownership with these two decision-makers: The person who decides to say “yes” to each efficiency capital project and The person who regularly decides whether to turn the light switch on or off.

12. Efficiency; Data Aggregated geographic data and disaggregated sectoral data are each public goods. Individuals’ data, with respect to their own use, is theirs to buy, sell, or protect, as they see fit.

13. Efficiency; Data Advanced Metering Infrastructure (“AMI”) projects, therefore, should rest on rules that send data to a public metering authority.

14. Efficiency; Decoupling It is appropriate and we support it when some regulator entity seeks to neutralize the impact of energy efficiency on utilities’ bottom line. However, it’s generally more of a distraction than it’s worth.

15. Demand Response Demand Response, as a dynamic resource, is appropriately included in the RTO’s IRP responsibilities.

16. Demand Response Anywhere a regulated utility is also the owner/maintenance entity/balancer of Transmission and Distribution (“T & D”) lines, they should be permitted and encouraged to buy demand response services from aggregators on a long-term or a short-term basis, as they prefer.

17. Demand Response In the event an RTO employs multiple vendors, they must pay the same for equal services of equal quality, provided by different aggregators.

18. Demand Response Re, “free-wholesale” (Independent System Operators conduct auctions that set clearing prices) markets in which RTO’s can also enter into material bi-lateral capacity or energy supply contracts that are not price-depressed by subsidies or barter arrangements: these bi-laterals need to be factored into market prices.

19. Demand Response We should build localized, neighborhood real-time and capacity Demand Response markets with simple economic structures that we’re now becoming quite familiar with…

20. Demand Response Our renewable portfolio standards (“RPS”) should always (in the presence of freely-traded capacity markets) include the identical renewable standard (%) for capacity markets.

21. Demand Response Capacity program Demand Response that is not generated by a “behind the meter” fossil-fuel generator should always qualify as renewable capacity.

22. Demand Response We should work toward building better VAR’s markets in the future (dynamic; where needed), particularly in urban areas, patterned after successful Demand Response markets.

23. Demand Response Load Regulation and synchronous reserve markets should all be offered to demand-response providers, on a roughly equal footing with the offerings to power plants

24. Demand Response Duration, frequency and price should be clear and appropriate for each individual demand response product and should relate to the objectives of that product

25. Demand Response All product price caps should either be eliminated, or they should be very high Free market clearing prices should reflect only the will of the society to achieve the desired level of resource

26. Demand Response; Measurement The metering authorities should seek to meter neighborhoods, perhaps at the transformer levels to build mass market programs, and localized DR target resource levels, respectively.

27. Demand Response; Measurement All suggestions related to metering EEC’s, apply equally and precisely to demand response metering protocols.

28. Thank You; Questions? Mike Gordon; Chief Strategy Officer & Founder, ConsumerPowerline mgordon@consumerpowerline.com Cel: 914.282.7000