Demand Response Program Operations
Vice President Utility Sales and Portfolios
Mountain View California
• Introduction to CPower
• Basic design issues
• DR in various markets
• Ancillary Services
• Alternatives for AESO
Founded in 2001, privately owned
One of the largest and most experienced non-utility demand response
providers in North America
• >1,800 MW of electric load under management
• 75 million square feet of commercial, industrial, and institutional properties
• Over 120,000 residential units
Active participant in Ontario, California, New York, New England, Mid-
Atlantic, and Texas and Ontario energy markets
Parent company of Xtend Energy and Ancillary Services Coalition
(ASC) California, pioneering providers of Demand Response to
ancillary services markets in Texas and California, respectively
Headquarters in Manhattan, NY
Regional offices in Toronto; Brea, CA; North Adams, MA; Austin, TX;
Oxford, CT; Lawrence, MA; and Allentown, PA
Basics - Markets or Programs?
Historically, there have been two approaches
•In the market-based approach, the ISO
creates performance specifications that make
DR look like existing products. DR is then
competitively bid into existing markets.
•In the program approach, utilities and
regulators design demand response
programs. Utilities then implement programs
or issue RFPs, typically with costs recovered
•Programs must meet cost-effectiveness tests
Market-Based Approach: Pros and Cons
The market based approach to demand response
shares many of the advantages and disadvantages of
•Easier to ensure cost-effectiveness: DR is only procured if it is
able to clear in competition with traditional generation
•No need to administratively decide how much DR to procure: the
markets decide the ‗right‘ level of DR
•So long as DR performance requirements match system needs,
gives participants greater flexibility to decide what resources they
enroll and how they‘ll implement demand response
•Increases risk to program participants
•Barriers to entry can slow initial DR growth
•There can be problems capturing and rewarding true value of DR
Program-Based Approach: Pros and Cons
The program based approach to demand response has
similar issues with efforts to promote energy efficiency:
•Helps overcome entry barriers, making this approach good at
creating new DR in the early stages
•Can be integrated with other policy goals
•Gives regulators and utilities more control over how much DR to
provide and how to provide it
•More risk falls on ratepayers
•Can be economically inefficient, as DR is not forced to compete on a
like-vs-like (directly comparable) basis with generation
•There can be complex interactions between multiple Utility and
Markets vs. Programs: CPower’s View
Overall, we believe that as Demand Response becomes
a more mainstream product, most ISOs are moving
towards the market-based approach
•Much easier to have competition in a market, creating a more robust
supply of DR
•Price signals have proven effective at stimulating DR where it is most
•Regulators don‘t have to try and pick the winning approach or
determine exactly how much DR is the right amount.
•Portfolio standards or incentive payments allow regulators to
influence the amount of DR to support policy goals
•Matching DR with existing products makes it easier to integrate into
Basics 2: Utility Run or Competitive Providers?
Much like provision of retail power, access to end-users
can either be limited to their incumbent utility or opened
to third-party providers.
•In the utility approach, end-users’ DR capacity is
considered part of the utility’s franchise. Historically,
most end-users enrolled in DR through some sort of
•In the competitive approach, end-users are free to
enroll through their choice of Curtailment Service
Provider (CSP). CSPs purchase DR capacity from retail
customers and sell into wholesale markets or
Utility Approach: Pros and Cons
The utility based approach limits end-user participation
to offerings made by their utility.
•Better able to meet utility-specific needs such as suppoting the
distribution system or hedging against wholesale prices.
•Reduces regulatory concerns, especially in areas without retail
•Allows utilities to better integrate DR into their resource planning and
•Eliminates concerns that DR amounts to improper resale of electricity
•May be easier to understand for customers.
•Utilities may see a conflict of interest between selling electricity and
encouraging demand response.
Competitive Approach: Pros and Cons
The competitive approach to demand response
presents similar issues to retail choice:
•Competition gives end-users more choice, hopefully providing them
with better prices, improved customer service, and more participation
•As DR is their primary line of business, CSPs are highly motivated to
•Might make it more difficult to integrate DR into resource adequacy
•Difficult for the ISO to avoid getting involved in retail issues.
•Care must be taken to ensure that costs of DR are not
Utility vs. Competitive, CPower’s View
As an independent demand response provider, we prefer
an open, competitive market. We believe that this
approach is much more likely to deliver meaningful
amounts of demand response:
•Historically, enrollment in interruptible rate tariffs has been limited
•Markets with CSP participation generally see higher levels of demand
•Competitive markets give end-users greater price transparency
•Cost allocation issues can be solved by proper settlement procedures
•Since AESO covers a single province, regulatory issues are manageable
•Utilities free to design their own programs to meet particular needs
Current DR Approach by ISO
OPA: ISO-run capacity market program
CAISO: Utility capacity programs only, in
process of switching to a direct ISO
MISO: Energy market open to utilities and
large loads, developing rules for
smaller load participation and ancillary
PJM, ISONE. NYISO, ERCOT:
Competitive wholesale market for all
Demand Response in Power Markets
Currently, various ISOs allow demand response to
participate in nearly all power markets:
•Energy: Demand response bids kWh reductions into
day-ahead, real-time, or self-scheduled energy markets.
•Capacity: Demand resources make forward
commitments to curtail when called upon, allowing DR to
serve in resource adequacy planning.
•Ancillary Services: Demand resources provide reserve
or regulation services with roughly the same
characteristics as generation.
Demand Response Markets by ISO
Energy Capacity A/S
CAISO Upcoming Utility Programs Upcoming
MISO Yes Partial Upcoming
PJM Yes Yes Yes
ISO-NE Yes Yes Yes
NYISO Yes Yes
ERCOT Yes Yes
Most ISOs have provisions for demand response to sell
curtailments as energy.
•In general, energy provided is measured as curtailment from a
•Bid into day-ahead and real-time markets just like generation
•Some ISOs allow DR to self-schedule curtailments and be
compensated based on the prevailing LMP
•Generally only attractive to load in very high energy price situations,
or if capacity value recognized
Energy Market Design Issues
Energy markets have proven to be the most challenging
to design correctly.
•Correctly calculating baselines is critical. Early programs had
gaming issues caused by improper baseline design.
•Settlement should recognize that economic curtailment imposes
costs on EDCs, possibly including lost revenue and balancing
charges. These may be addressed either through make-whole
payments from the CSPs to the EDC, or through socialized charges.
•Revenues are generally low, limiting participation.
•But, AESO has ‗spiky‘ LMPs that frequently hit very high prices. This
may make the AESO energy market more attractive to DR than other
Energy Market Potential in AESO
Various features of AESO make a demand response
energy market attractive:
•Frequent, short periods of high LMP encourage participation
•System benefits of economic and emergency DR are especially
important in a relatively small, isolated system with ―radial‖
characteristics and lack of cheap fast-response resources
Alberta 2008 (Jan to Sep)
2008 Alberta Load 800
9000 2008 Alberta Spot Price
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 17
In many ways, demand response resembles a ‘super
peaker,’ with very low capital costs, short build times,
and high operating costs. This makes them a natural fit
for capacity markets.
•Resources make forward commitments to curtail when called upon,
generally as a stage in the emergency procedures process.
•Most capacity markets operate through periodic auctions, with EDCs
required to purchase sufficient capacity to meet resource adequacy
•Given that AESO does not currently have a capacity market, this
option is probably best deployed at the utility/muni level in Alberta
•Can used by utilities to supplement ISO market offerings
Capacity Market Design Issues
•How frequently can resources be called? For how long? Existing
programs vary from X to Y events per year, of X-Y hour duration.
•Should there be a limit on the amount of DR procured? Limits on
how often it can be called need to be considered.
•E.g. if DR amounts to 3% of your capacity, need to make sure that the number of
‗peak 3% hours‘ doesn‘t exceed the number of hours you can call upon the DR.
•ISO-NE is the leader in this, with DR approaching 10% of their installed capacity.
•What are the testing and performance requirements? What penalties
are imposed? Are these sufficient to prevent gaming?
•Capacity programs can be tailored to meet specific locational issues
such as easing strain on distribution networks or transmission
Ancillary Services: Synch Reserve
Synch Reserve (or similar 10 to 30 minute products)
•Reliability organizations are increasingly allowing demand response
to meet a portion of system ready reserve requirements.
•Demand response has been very successful at providing these
products. Notably, DR was credited with preventing widespread load
drops in ERCOT during an unexpected wind drop-off last summer.
DR is now the leading provider of synch reserve in PJM‘s market.
•Like capacity, these markets are a good match for DR‘s low
capital/high operating cost structure.
•With appropriate controls, many types of end-user can ramp down
load in 10 minutes or less
•Short curtailment times minimize costs of curtailment
•A reserves product may be the ideal solution for AESO’s ramp
rate issues. 20
Reserve Products in AESO
From earlier presentations, demand response reserves
are good fit to several AESO needs:
•Presentations in September DRWG meeting highlighted need for
increased ramp rate to handle large coal units going off line. The cost
structure of DR makes it an economical solution to increase system
•DR particularly good (fast) at handling wind drop as wind becomes
significant part of generation
•Longer lead-time DR (say, 1 to 4 hour notification, or day-ahead) can
be deployed to dampen price swings caused by expected outages of
Ancillary Services: Regulation
Demand Response has had more difficulty providing
frequency regulation products.
•Very technically demanding. Few loads can ramp up and down with
the precision and speed these products require (but there are
examples – pumps, air conditioners, pevs?)
•Load is generally better at providing reg-up (=reduced load) than reg-
down. DR has been most successful in markets that have separate
up and down regulation products.
•Most participation is by large, sophisticated industrials—aluminum
smelters, chemical plants, water pumpers etc.
•Some kinds of load common in Alberta, such as pumping stations
and extractive industries, have proven able to provide regulation.
Ancillary Services: Other Products
The Wind Impact Study from 2006 concluded that AESO
may need more ramp-down capacity to fully integrate
large amounts of wind.
•Is this still a concern? If so, may be a niche for demand response.
•Generally, DR is not a good provider of ramp-down, as it‘s easier for
customers to reduce load than increase it.
•But, Alberta is unique in that many end-users meet routinely meet
portions of their load using their own generation.
•Is a ‗reverse-DR‘ product possible? In this case, Demand Response
would mean ordering end-users to turn off their generation.
Roles for Demand Response
Ways Demand Resources could help
• Provide supplemental reserves
• Demand Response is an economical source of 10-minute reserves
• Perfect fit to ramp rate issues
• Procuring more supplemental reserves could allow regulating reserve
resources to be biased towards the top of their range, creating more
• Fits into existing AESO product mix
• Enter the energy market
• High, variable energy prices demonstrate the value of this product
• Efficient way to integrate backup generation into grid operations
• Fits into existing AESO product mix
A Straw Proposal
For discussion purposes, CPower
suggests the following for AESO:
• Go with a market-based approach,
• But be sure full value of DR recognized and
• Allow CSPs to aggregate retail customers into
resources that can be bid into AESO markets
• Synch reserve is the low-hanging fruit; make
allowing DR entry into that market the first goal
• At the same time, begin discussions on
regulatory, M&V, and settlement issues related to
DR participation in energy markets