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2009 State of the Market Report

Demand Response

Most other Type I capacity is in the form of interruptible load programs catered toward large industrial end-users. Enrollment typically requires a minimum size of load reduction and a minimum level of peak demand. In an interruptible load program, customers agree to reduce consumption by (or to) a predetermined level in select ISO-determined instances in exchange for a small per-kWh reduction in their fixed rate. The Midwest ISO does not directly control this load – such programs are therefore ultimately voluntary, although penalties exist for non- compliance. Direct Load Control (“DLC”) programs are targeted toward residential and small commercial and industrial (“C&I”) users. They often require certain equipment end-uses, such as air conditioners or water heaters. In the event of a contingency, the LSE will manually reduce the load of certain equipment to a predetermined level.

Type II resources can set prices because they are capable of supplying energy or operating reserves over a dispatchable range and respond to five-minute set-point instructions. They are therefore treated comparably to generation resources. These price-based resources are referred to as “dynamic pricing” resources. Dynamic pricing is the most efficient form of DR because rates formed under this approach provide customers with accurate price signals that vary throughout the day to reflect the higher cost of providing electricity during peak demand. In turn, customers can alter their usage accordingly. There are significant barriers to implementing dynamic pricing, including a minimum size requirement, extensive infrastructure outlays and potentially retail rate reform. Only 4 units totaling 111 MW of capacity participated in 2009. Peak participation was 65 MW.

Module E of the Midwest ISO’s Tariff allows all DR resources except those that qualify only for EDR to count toward the fulfillment of an LSE’s capacity requirements. DR resources can also be included in the ISO’s long-term planning process as comparable to generation. Currently only DRR units can participate in the VCA, and do so just like generation resources. LMR will soon be able to participate as well, pending the approval of the Commission and certification by their LSE. The ability for all DR resources to provide capacity under Module E goes a long way toward addressing economic barriers to DR and ensuring comparable treatment with the Midwest ISO’s generation.

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