ASM Pilot Program Preliminary Design November 1, 2004

1. ASM Pilot ProgramPreliminary DesignNovember 1, 2004

2. What’s the Problem? • Current ASM design not attractive to many existing Demand Response customers: • Why? • Nodal Pricing for All Usage • 4-Second Metering Requirement • 5 MW Minimum (must be an individual end-use metered customer) • Must be available to 11 p.m. (Weekdays)

3. Size Requirement • Very few Load Response resources with 5 MW or greater of interruption • 6 in CT (121 MW) • 1 in NEMA (15 MW) • Over 100 MW of resources in CT & NEMA under 5 MW • 74 MW in CT • 30 MW in NEMA

4. Current Demand Response Distribution

5. Zonal vs. Nodal Settlement • Two types of customers • Customer in constrained area on high price node • Zonal LMP is less than nodal price • Basically must reduce 100% of load to achieve meaningful savings • 2 customers in SWCT with interruptions great than 80% of their load • Customer in constrained area on low priced node • Can obtain benefit through SCNP • Doesn’t need to be involved in reserved for savings • Why would they trouble themselves?

6. Positive Customer Attributes • The remaining 466 resources are: • What the pilot focuses on • These customers are where we want them • Located in constrained areas • Dispersed within load

11. Why do a Pilot? • Determine if Demand Response can provide functionally equivalent Reserves: • Dispatched on Nodal Pricing, but settlement on Zonal Pricing • 5-Minute vs. 4-Second Meter Data to ISO-NE’s Control Room • Customers less than 5 MW (or customer aggregations to meet size requirement) • Available to 6 p.m. (Weekdays)

12. Value of Demand Response • Response Time • Location

13. Response Time – All Zones (August 20, 2004)

14. Response Time – Connecticut (August 20, 2004)

15. Location Demand Response Resources available as of 10/1/2004 ready to respond within 30-minutes

16. Preliminary Pilot Project Design

17. Eligibility • Customers • 100 kW Minimum Reduction • Aggregation allowed at Node • With approved M&V plan where necessary (i.e., for aggregations of customers) • Pilot limited to XXX MW and/or YY customers • Limitations resulting from Manual Settlement for Pilot resources • Suppliers (Enrolling Participants) • NEPOOL Participants • Demand Response Providers (Non-participants)

18. Schedule • Design Phase • Start: 10/1/2004 End: 10/1/2005 • FERC Filing in February 2004 • Implementation Phase • Start: 10/1/2005 End: 5/31/2007 • Pilot will continue until Evaluation Completed. If deemed viable, until incorporated in ASM • Evaluation Phase • Start: 10/1/2006 End: 6/1/2007

19. Preliminary Design (Continued) • Location • No restrictions. Market Prices will encourage resources in the higher valued locations • OR Limited to Constrained Zones • Availability • 7 a.m. to 6 p.m. Weekdays, Non Holidays • Payment • Forward Reserve Auction Clearing Price • Zonal LMP if Dispatched (No Floor Price)

20. Preliminary Design (Continued) • Dispatch • Dispatched when Nodal Price > or = Offer Price • Group 1 Resources offered at Strike Price • Group 2 Resources offered at $ ZZ /MWh • Establish Group 2 offered based on expected hours of operation • Day-Ahead Energy Bid • Equal to or greater than the Strike Price described above • Penalty for Non-Performance • Forfeit Forward Reserve Revenue, plus • Pay Replacement Energy at Zonal LMP

21. Preliminary Design (Continued) • Metering and Communications • Internet Based Communication System (IBCS) • Meter data submitted to Open Solution every 5-minutes • “Dispatch” notice through IBCS • Settlement • Reductions settled at Zonal Price • Customers can remain on existing Retail Rate

22. Preliminary Design (Continued) • Capacity • Resources eligible for ICAP • Source of Funding • Funding source identical to proposed ASM or current Forward Reserve Market • Real-Time Reserve Payment • If a DR Pilot resource does not clear in the Forward Reserve Auction it can qualify for Real-Time Reserve Payments

23. Market Issues • Other Demand Response Programs • Pilot DR resource can not provide Forward Reserves and be an OP4 Action resource, at the same time • Pilot DR resources will be enrolled in a 30-minute notice program • Activated on Nodal Price not OP 4 Actions

24. Market Issues (Continued) • Forward Reserve Purchases • Pilot DR resource selection will be run parallel to Forward Reserve Auction • Pilot DR resources will not effect the Forward Reserve Clearing Price • Presently DR does not meet NPCC requirements • Pilot DR resources will not offset other non-DR Forward Reserve resources

25. Resource Selection Process • DR resources submit bid in $/kW-Month on same timeline as Forward Reserve Auction • Bid may be zero. • DR bids accepted that are < or = Forward Reserve Clearing Price • DR bids accepted up to _____ MW • Ties broken through pre-determined preference criteria (to be determined) • Location • Allocating among different resource types: emergency generation, direct load control, different customer sectors, etc.

26. Pilot Budget • ____ MW eligible to participate • Expected average $____/kW per Month Forward Reserve Payment • 20 month duration • Winter 05/06, Summer 06, Winter 06/07 • Total Budget: $__________

27. Project Team • Demand Response Department • National Labs • Lawrence Berkeley, Oak Ridge, and Pacific Northwest National Laboratories • Demand Response Working Group