Floyd TrefnyDirector of Product Development

Future of Demand Response In ERCOT

A Presentation to the Workshop – September 15, 2006

Project Number 32853Evaluation of Demand-Response Programs in the Competitive Electric Market

2

Topics

Market Load Response to Support the Resource Adequacy Rule

Market Load Response and Reliability Load Response

Amount of Price Responsiveness that is needed

Where could it come from?

3

Market Load Response to Support the Resource Adequacy Rule

Necessary Conditions for a Successful Energy-Only Market Design Adequacy must be able to be treated as a private good

Each individual customer must carry the burden for assuring Resource Adequacy

Consumers must be willing to pay the energy price for scarcity or interrupt voluntarily so that ERCOT is not forced to de-energize other customers on an involuntary basis

Consumers must be charged proportionally with the cost to provide energy

Adequate Market Load Response must exist to respond to high prices

Free ridership can be overcome if there is sufficient voluntary demand response

Market participants must believe regulators can withstand pressure not to mitigate high prices due to scarcity

4

Characteristics of Market Load Response and Reliability Load Response

Market Load Response Private Good, individual

providers get a benefit only if interrupted

Provided only by Load Responds to high Market Prices Amounts needed are

determined by a balance of market dynamics of supply and demand

Deployed by individual consumers or by REPs in response to scarcity pricing that is so severe no other alternative is available to maintain supply

Reliability Load Response Public Good, capacity costs are

charged to all retail loads Generators also may provide and

price mitigation rules for generators cap prices paid by retail customers

Amount is specified by ERCOT and procured from qualified suppliers by bid award

Amounts needed are determined by engineering analysis of the reliability consequences of not having supply reserves

Deployed as a matter of routine control of the power grid, e.g. Regulation, Non-Spin, Responsive

The same Load can not be used for Reliability Load Response at the same time as it is being used for Market Load Response

5

ERCOT Load Duration Curve

0

10000

20000

30000

40000

50000

60000

70000

All Hours of the Year

Required Amount of Price Responsiveness

70,000 -

67,500 -

60,000 -

30,000 -

64,100 -

- 116.7%

- 112.5%

- 100.0%

- 50.0%

- 106.8%

0 - - 0

Ancillary Services – 4,100 Mw or 6.8%

Operating Range

Reserve for Forced Outages & LF Error – 3,400 Mw or 5.7%

Market Reserve – 2,500 Mw or 4.2%

Reserves for Forced Outages & Load Forecast Error Only 5.7% - 3400 Mw of Capacity

3400 Mw of Response is needed for 100 - 150 hours a year

ERCOT Load Duration Curve

52000

54000

56000

58000

60000

62000

1 30 59 88 117 146 175 204 233 262 291Hours

Peak ERCOT Load

6

Load Response OpportunitiesPrepared by DSWG – September 2006

Residential Small CommercialSmall Industrial &

Real Estate National Accounts Large Industrials Governmental

Relia

bilit

yPr

ice

Resp

onsi

veBa

rrie

rs

Reliability = Capacity Payments and Firm Obligation to performPrice Responsive = Energy Payments and Voluntary Performance Requirements

Market Segment

AC Frequency SwitchHot Water Heaters

Similar to Residential AC Frequency SwitchTarget loads < 1 MWBack up DieselPumping Loads

AC Frequency SwitchBack up Diesel

LaaR (RRS, NSRS)RGS and RPRSBalancing EnergyTiered FRRRS from CLRS

On site generationBoiler managementPumping Loads

Smart MetersCritical Peak PricingDay Ahead MarketAir ConditionersHousehold Devices

Similar to ResidentialIDR MetersDay Ahead Market

IDR MetersBULBack up DieselDay Ahead MarketGrid Lighting

Day Ahead MarketGrid LightingChillers and Coolers

Real Time ResponseBack Up DieselDirect Load ControlDay Ahead MarketIrrigation

Day Ahead MarketWaste Water PumpsPersonnel HoursGrid lightingThermal Storage

Cost to ImplementCost of MeterForward PricingREP or No REP?Cost of Meter ReadCustomer AcquisitionFractured Value ChainLack of Firm Price SignalsISO System

Cost of MeterCost of Meter ReadMany tenants leaseCustomer AcceptanceLack of Firm Price SignalsISO System Upgrades

Cost of MeterSub Metering IssuesIncentives (Landlord)InconvenienceLoss of productionAir PermitsTime ResponseNotification MechanismLack of Firm Price SignalsISO System

Time ResponseNotification MechanismLack of Firm Price SignalsISO System

TCEQ PermitsMeteringERCOT EMSLack of Firm Price SignalsISO System

Non Specific ProfilesLack of coordinationLack of incentiveFocus on efficiencyISO System

Reliability = Capacity Payments and Firm Obligation to performPrice Responsive = Energy Payments and Voluntary Performance Requirements

7

Questions????