Meeting Summary NEDRI 4-2-02

New Engl and Demand Response Initiat ive

New England Demand Response Initiative Sixth Member Meeting

Tuesday, July 16, 2002

Conveners: Dr. Jonathan Raab, Richard Cowart, Raab Associates, Ltd. Regulatory Assistance Project Co-Convener & Facilitator Co-Convener & Policy Director

Meeting #6: Summary

38 people attended the meeting, which began at 9:30 and concluded at 3:30. See attached attendance list.

I. Documents Distributed

Prior to meeting: 1. Meeting Agenda 2. “NEDRI Barriers Memo,” R. Cowart, July 11, 2002.

At meeting: 1. Policy and Program Options -- Summaries a. Price Responsive Load, Chuck Goldman b. Reliability, Rich Cowart c. Energy Efficiency, Jeff Schlegel d. Pricing/Metering, Rick Weston

II. Introduction and Administrative Issues

Dr. Raab welcomed the members, and then went over the agenda for the day and reviewed the Meeting Summary from the fifth NEDRI meeting. One member noted that at the 5th NEDRI meeting, a Products and Implementation Working Group was discussed, but that suggestion did not appear in the summary. Aside from that addition there were no other edits to the meeting #5 summary.

Rich Cowart then offered an update regarding discussions with FERC. He informed the group that FERC has proposed to work with New England on DR issues after the FERC NOPR is published, and discussion are underway with NECPUC, ISO-NE, NESCAUM and NEDRI to see how that work can proceed. FERC is offering to assist in funding for implementation-focused DR work, which will be coordinated with NEDRI’s technical and consulting work. Senior FERC staff may participate in NEDRI meetings, both to

1 assist in developing DR proposals for New England, and to apply lessons from the New England process that could help FERC revise the SMD rule before its finalized at the end of the year. FERC representatives will likely be at the next NEDRI meeting. Mr. Cowart also mentioned to the group that FERC is anxious to accelerate progress on the design of specific market design programs.

III. Discussion of Barriers to Demand Response

Next the Stakeholders discussed barriers to demand response, based on Rich Cowart’s memo circulated in advance of the meeting. Dr. Raab began the discussion by asking Stakeholders three questions: 1. Are there any important barriers that are missing? 2. Are there any there that can be dropped? 3. Which are the 2-3 most important barriers?

Group members made the following comments and suggestions regarding barriers. Note that these were offered by one or more members but do not necessarily represent a consensus of the Group.

 The last paragraph in the memo dealing with cross-cutting barriers should be moved to the front, as it best summarizes the complexity of the interactions between all the barriers. It might even deserve its own Working Group.  Demand Response has not been fully valued. It should be incorporated as a long- term resource. There should be continuity in programs, and DR should be integrated into system planning.  Lack of ability to aggregate small load and bid it.  FERC is not engaged enough in implementation details.  The main barrier is the time-differentiated price/cost not going through to the customer.  There’s no vibrant business opportunity for DR. LSEs (or CSPs and Escos) need to have a clear profit opportunity if they are going to work with their customers to deliver DR to the market.

Chuck Goldman, Rick Weston, Rich Cowart, and Jeff Schlegel then gave short presentations on barriers in the areas of their respective scoping paper areas. Each topic is listed below alongside some of the major points and observations made in response.

Price Responsive Load

 Even if price is set right and transparent to customers another set of customer barriers will still remain. Some of these additional barriers will be similar to those listed for energy efficiency.  DR technologies (hardware, software, connectivity) are not yet “plug and play” from customer’s perspective.  Lack of a robust retail energy supply market hinders DR service offerings

2  Are current program efforts sufficient? Can the market as well as specific businesses serving the market develop profitably?  Unclear that DR will be a viable, stand-alone business for Curtailment Service Providers; limited number of CSPs testing the waters in areas where they are eligible (e.g. NY, CA)  Payment levels, program design requirements, and perceived risks (e.g. penalties) may limit customer interest in certain DR programs  Barriers to aggregation must be removed in order to facilitate participation by smaller customers  The section title should be changed to “Regulatory and Market Rule Barriers”  Standard Offer suppliers don’t know specifically who their retail customers are and so can’t target DR efforts toward them  Small customers may need more than aggregation and access to demand bidding.  The cost of distributed generation is still too high  There’s a lack of open architecture on technology.

Pricing and Metering

 Standard Offer pricing is both too stable and artificially low.  Dynamic pricing necessary (or keep running incentive programs as a 2nd best sollution) but are such efforts sufficient?  Aggregation can help by making the economics more attractive.  We need long-term prices for customers to respond to.  Load profiling should be included in this section as a barrier.  Small customers may be more price responsive than we think and perhaps even more than large customers, like airline reservations and telephone service.  We should distinguish between stable prices and stable bills – customers usually only care about the latter.  The lack of uniformity in retail programs leads to confusion.  Consider the advantages of voluntary programs vs. mandatory ones.  There is no effective feedback loop to enable rapid evaluation of successful or failed programs.  There are currently limitations on DISCOs’ ability to take risks.  The structure of the regulated rate portion of bill – distribution/transmission – doesn’t support dynamic pricing structures.  We need to think more about what we mean by elasticity.  Be careful about standardizing too much too fast, as we can lock ourselves into rapidly outdated technology.

Reliability

 LMP will help to ensure reliability.  Transmission will still be regulated; transmission subsidies can undermine cost- effective DR resources.  How can we mesh reliability with the set of non-regulated options?

3  Standardized interconnection for DG – or the lack thereof – is important.  Demand response is also valuable at the distribution level.  Reserve rules are crucial; technology-neutral terms necessary to permit demand resources to participate in those markets.

Energy Efficiency

. Non-price barriers often overwhelm price barriers and are persistent. Therefore, even if the price signals are “right,” many market barriers will remain. . There aren’t one or two major barriers that apply equally well for all customers. Instead, there is a long list of diverse barriers, and the importance of a given barrier varies substantially across customers, market actors, and transactions. . For any one customer, there are usually 2, 3, or more barriers, not just one. . The markets and the incentives for system owners/investors, operators, and key decisionmakers are not aligned (or not well enough aligned) with public or customer value. . Unlike some economists and economic regulators, many customers see energy as a service, not a commodity. And they see energy efficiency as a product or service attribute, not a product or market unto itself. This fundamental difference in perspective helps explain why customers don’t behave as some economists think they should. . Discount rates, especially for low income consumers, are a huge barrier. . Many barriers also apply to products/service providers and other market actors, not just customers. . Efficiency has multiple benefits. Don’t divide and conquer by focusing on one area to the exclusion of others. . The lack of uniformity is a major barrier in energy efficiency as well. . These customer barriers for energy efficiency should be added as footnotes in the other 3 sections as they apply there as well . Timing of savings is important in evaluations of cost effectiveness. . There are other regional values not currently included in cost-effectiveness analyses, and the benefits of kW peak savings may be underrepresented in the analyses.

The Stakeholders then took a short break.

IV. Environmental Issues of Demand Response Policies and Programs

After the break, Nancy Seidman from the Massachusetts Department of Environmental Protection and Bill White from the U.S. EPA gave a presentation on the environmental ramifications of demand response. Their presentation is available at http://nedri.raabassociates.org/Articles/NEDRIEnviroPresentation-15Jul02.ppt.

The group then broke for lunch.

4 After lunch, Ken Colburn from NESCAUM gave a short presentation that presented further information about environmental impacts, particularly from the standpoint of air quality. His presentation is available at http://nedri.raabassociates.org/Articles/NEDRI- KAC-16Jul02.ppt.

V. Broad Working Group Discussions

After the environmental presentations, the Group broke into two large working groups, roughly organized around retail and wholesale markets and opportunities. The wholesale group took up the discussion of topics under Price-Responsive Load and Reliability, while the retail group took up Pricing and Metering, and Long-Term Efficiency. Participants were assigned to these groups, based both on the preferences most Stakeholders registered in advance of the meeting and the desire to have balanced representation in each group.

Each group was asked to:

1) Review the short memos that the consultants prepared on potential solutions in these areas, 2) Suggest additional solutions if any were missing, 3) Recommend the most important potential solutions for NEDRI to focus on over the next few months.

Short summaries of each of the working groups follow.

Wholesale group

Rich Cowart began the working group meeting and then turned the facilitation over to Rich Sedano. The Stakeholders present agreed to divide their time equally between the two topics to be addressed – price responsive load and reliability. Each topic appears below with a summary of the points made.

Price Responsive Load

Chuck Goldman began the discussion by taking the group through the items that had been laid out in the scoping paper. He emphasized the connections between energy efficiency and pricing, as well as the differences between retail load bidding and LSE bidding. The working group also briefly discussed day-ahead price-capped load bid and load reduction bidding as generation, mostly to help clarify the exact meaning of these approaches.

Some of the points made by members of the working group discussing this topic include:

. The NEDRI process needs to get more detail about what these options really consist of – for instance, some examples of SMD in options 1,2,3 would help to clarify exactly what these designs mean.

5 . Bullets delineating the things that are going to happen under SMD would also help to ensure Stakeholders understand the specifics of different options. . Need to distinguish LSEs and utilities from curtailment service providers. . How do you deal with double dipping? . Retail and wholesale have similar rate design challenges. . Liquidity of DR – maybe the goal should be to establish trading of units of DR as a uniform product, with all transactions for New England hosted at a central hub (as opposed to a system where one unit of DR is only good in Burlington and another is only good in Boston).

Reliability

Rich Cowart then went through the reliability barriers. He underscored the fact that though transmission and distribution planning is a long-term exercise, one of the greatest short-term arguments for DR might be congestion relief. The most complex question may turn out to be who should pay. What about where there is persistent congestion and the market doesn’t respond to make it go away? This is a controversial question in the NERTO process. DR can play an effective role in addressing those types of challenges.

Some of the points made by participants include:

. ICAP payments are a complex question. There is currently a huge debate over whether ICAP is even necessary. On good days, it promotes reliability; on its bad days it’s a generation subsidy. The program is intended to provide long term reliability and to make sure there’s adequate capacity. Long term DR could qualify under those criteria. Perhaps if the LSE has a certain amount of load reduction, they can use that to help meet their ICAP requirement. . When you run out of capacity, you run out of it – and it’s very expensive to buy on the open market. Equipment maintenance is another complex matter. . Some have suggested that we turn to a “socialized” solution – though many find that an uncomfortable turn of phrase. The real issue is equal treatment of supply, wires, and demand-side options (whether socialized or directly assigned). . DR may provide one of the only effective solutions to persistent (market- resistant) congestion. . There are different types of costs to allocate, such as causation costs vs. “uplift/socialize” costs. Is it possible to mix the two?

The Working Group members identified several issues and priorities they wanted to focus on moving ahead:

. The ISO should be more involved in developing PRL and reliability resources on the demand side – but it has certain business limitations because of its public role. . Transition challenges – which state is going to get stopped at the door? . Can we find a way to find those high value locations where concentrated DR would be valuable? And can we communicate that information to the legislatures?

6 . Mixed portfolio of fuel sources is a big component of reliability . For ICAP payments for energy efficiency, who gets the money? . Demand response mirrors generation . Diversity is an important value of DR and market design should preserve it . Offer DR on a locational basis to people who want it . Create a common set of rules to encourage entry into DR programs (such as subsidizing sign-up costs to make it more cost effective for new signups) . Information architecture should be kept open. . Capacity value should eventually flow to the customer . Load reduction bidding can be treated as generation . Integrate DR into NERTO system planning . Know what is already done and what has yet to be addressed . Be cognizant of environmental impacts and address them early in the process . Some public benefit money may be necessary to help kick start this market

Summarizing the group’s discussion, Rich Sedano set out an initial list of higher- priority topics for more detailed work by NEDRI in these two areas. Topics not listed were not “taken off the list,” but will be addressed later in the process. The higher- priority topics are: . Developing program details for day-ahead price-cap load bidding, and day-ahead demand response resales (DADRP); . Developing program details for emergency, short-term load response; . Developing rules and means for including dispersed, non-interval metered loads in DR programs through aggregation, remote controls, and statistical verification; . Designing ancillary service markets to permit routine participation by demand-side resources; . Identifying dispersed loads with high potential to provide reliability resources, and designing programs to attract their participation; . Developing policies and tariffs (such as deaveraged buy-back rates or distribution level DR planning) to target DR to high-need areas; . Building “all-resources” analysis into regional transmission planning, and designing the decision rules (e.g., “efficient reliability” test) to place supply and demand resources on equal footing; . Designing ICAP rules and markets to enable DR to provide capacity on an even basis with generation.

Retail group

Dr. Raab facilitated this Group with Rick Weston and Jeff Schlegel present as consultants on pricing/metering and energy efficiency respectively. The Stakeholders spent about 2/3 the time discussing pricing/metering solutions, and 1/3 discussing energy efficiency solutions.

Pricing/Metering

7 The Working Group suggested the following additional potential solutions to the ones included in the memo:

 Add revenue reconciliation for utilities  Add integral meters at the time of normal replacement  Advanced meters and other DR-friendly technologies at new construction and major renovation  Standard Offer supplier needs to know their customers’ accounts  Standardize data systems between retail/wholesale  Implement sliding scale utility hook up fees for new service based on efficiency  Add more dynamic pricing for ratemaking for the regulated portion of bill –  Standardize interconnection requirements and back-up rates and make reasonable

The participants also raised the following questions and comments:

 Use “provider of last resort” service to focus solutions as Standard Offer fades out  Should recommendations be neutral about the structure of the retail competitive market?

The participants than identified the following potential solutions as high priorities for NEDRI:

1. Provider of last resort, establish longer term direct connection between itself and last resort customers 2. Advanced interval metering policies a. Decide when to change meters b. Whether and when changes should be mandatory or voluntary c. Applicability by customer size 3. Customer education and information 4. Improving load profiling 5. Realer time prices for transmission, distribution, and generation rates 6. Role of the DISCO, examine: a. buyer of last resort b. designer of REP c. optimize DR/DG d. consistency across states?

For all of the above policies do an equity overlay examining how solution offerings and impacts for large C&I customers, small C&I and residential customers, and look specifically at low income customers.

Energy Efficiency

The Group discussed several issues including whether we would approach energy efficiency programs differently if there were advanced interval meters universally deployed; how we might complement DR programs with SBC programs and other

8 funding sources; what objectives and activities the SBC funds are intended to support (e.g., efficiency versus load management); whether we are talking about redeploying SBC funds to bolster DR efforts or calling for new supplemental funding; and how much should be done regionally vs. by state SBCs.

The Group then recommended having NEDRI pursue two main options at this time in the energy efficiency area:

1. Identify specifically what energy efficiency related activities should be initiated to complement load response programs both in the short-run and the long-run (assuming increasing prevalence of advanced meters and time-differentiated pricing over time). The Group was interested in better determining the “what” of energy efficiency – what could be done in a complementary manner – before addressing the funding and administration questions in more detail. The complementary activities list should include options for targeted load response/constrained areas as well as summer peak load reductions from broad- based efficiency programs. The list should also include complementary technology options such as smart chips in energy efficient appliances and smart thermostats that could be controlled for load response. 2. Look at improving building codes in the region plus better enforcement, and sliding scale hookup fees. Also, look at regional appliance and equipment standards.

The Group thought that after the “what” list was more fully developed, they would be better able to address issues such as funding, administration, and regional coordination (including the possibility of a regional coordinating council).

The meeting then adjourned.

IV. Next Steps

Our next meeting is September 10, 2002 at Foley Hoag in Boston, MA. NOTE: Foley Hoag has moved to a new location since our last meeting there. Directions to the new location can be found at http://www.raabassociates.org/main/directions.htm. We plan to come together at the beginning and end of the day, but spend the bulk of the day working on potential DR programs and policies in working groups.

VII. To Do

 Meeting Summary – Raab  Prepare memos outlining potential policy and program solutions in the wholesale and retail areas – Consulting teams

9 NEDRI Stakeholder Sign-In Sheet

Name Organization 2/26 4/2 5/2 6/4 6/25 7/16 Carolyn O'Connor ISO-NE x Dave LaPlante ISO-NE x x Craig Kazin ISO-NE x Robert Burke ISO-NE x x x x x Michael Dworkin Vt. PSB x x Ann Bishop (alternate) Vt. PSB x x Sandy Waldstein (altern.) Vt. PSB x x Tom Austin Maine PUC x x x x x x Denis Bergeron (alternate) Maine PUC Bob Keating MA DTE x Barry Perlmutter (alternate) MA DTE x x x x x Doug Hartley RI PUC x x x x x Nancy Brockway NH PUC x x Alex Lee (alternate) NH PUC x x x x x x Cindy Jacobs CT PUC x x x x x x Nancy Seidman MA DEP x x x x x Chris James CT DEP x x x x Ken Colburn NESCAUM x x x x x David O'Connor MA DOER x x x x Joanne McBrien (alternate) MA DOER x x x Gerry Bingham (alternate) MA DOER x Hans Mertens VT DPS x x x x x Steve Ward ME Public Advocate x Eric J. Bryant (alternate) ME Public Advocate x x x Elliott Jacobson Low Income Network x Jerry Oppenheim Low Income Network x x x Pat McDonnell United Illuminating x x x x Roger Parisi (alternate) United Illuminating x Angela O'Connor AIM x x Jeff Bergman (alternate) AIM/Texas Instruments Doug Stevenson HEFA/MA Energy Buying Cltn. x x x x x x Russ Sylva (alternate) HEFA Richard Silkman Competitive Energy Services x x Andrew Price (alternate) Competitive Energy Services x x x Deborah Donovan Union Concerned Scientists

NEDRI Stakeholder Sign-In Sheet (page 2)

10 Name Organization 2/26 4/2 5/2 6/4 6/25 7/16 Lucy Johnston (alternate) Union Concerned Scientists x x x x x x Dan Sosland Environment Northeast x Tony DeFilippis NU John Mutchler (alternate) NU x x x Earle Taylor (alternate) NU x x x x x Mike Hager National Grid x x x x x John O'Brien Sithe x x Phil Smith PG&E x x x x Chris Bursaw (alternate) PG&E x Pete Fuller Mirant x x x x Vance Mullis (alternate) Mirant x x Jason Gifford Green Mountain Energy x Bob Kinscherf AES New Energy x x Harvey Michaels Northeast Energy Effic.Council x x Don Gilligan NAESCo x x x x x George Roberts DRAM Paul Gromer (alternate) DRAM/Peregrine Energy x x x x x x Michael Vecchi (alternate) DRAM x Ruben Brown Joint DRR Supporters/Ecubed x x Keith O'Neal Joint DRR Supporters/Ecubed x x x Judy Silvia MTC x Raphael Herz (alternate) MTC x Sue Coakley NEEP x x x x Chris Neme VEIC x x x x Bill White EPA x x x x x x Craig Glazer PJM Stuart Bresler (alternate) PJM x Michael Kormos (alternate) PJM Larry DeWitt PACE x x x x Dave Lawrence NY ISO x x x x Kaz Tsamura (alternate) NY ISO x

11 Facilitators Organization 2/26 4/2 5/2 6/4 6/25 7/16 Jonathan Raab Raab Associates x x x x x x Colin Rule Raab Associates x x x x x x

Consultants Organization 2/26 4/2 5/2 6/4 6/25 7/16 Richard Cowart Regulatory Assistance Proj. x x x x x x Rick Weston Regulatory Assistance Proj. x x x x x x Chuck Goldman Lawrence Berkeley Labs x x x x x Jeff Schlegel Consultant x x Eric Hirst Consultant x Francis Cummings Xenergy / KEMA x x x x x x

Others Organization 2/26 4/2 5/2 6/4 6/25 7/16 Pentti Aalto PJA Energy Systems Design x x x x x Ross Malme RETX/PMLA x x Peter Scarpelli RETX/PMLA x x x Jennifer Hunsperger Praxair x Amy Ignatius NECPUC x x Brad Bradshaw Group Veritas x Nancy Harnick CT DCC x Richard Sedano RAP x Betty Jensen PSE&G x Mario DePillis ISO-NE x