Coordination of Retail Demand Response with Midwest ISO Wholesale Markets

The Organization of Midwest ISO States (OMS) launched the Midwest Demand Resource Initiative (MWDRI) in 2007 to identify barriers to deploying demand response (DR) resources in the Midwest Independent System Operator (MISO) region and develop policies to overcome them. The MWDRI stakeholders decided that a useful initial activity would be to develop more detailed information on existing retail DR programs and dynamic pricing tariffs, program rules, and utility operating practices. This additional detail could then be used to assess any "seams issues" affecting coordination and integration of retail DR resources with MISO's wholesale markets. Working with state regulatory agencies, we conducted a detailed survey of existing DR programs, dynamic pricing tariffs, and their features in MISO states. Utilities were asked to provide information on advance notice requirements to customers, operational triggers used to call events (e.g. system emergencies, market conditions, local emergencies), use of these DR resources to meet planning reserves requirements, DR resource availability (e.g. seasonal, annual), participant incentive structures, and monitoring and verification (M&V) protocols. This report describes the results of this comprehensive survey and discusses policy implications for integrating legacy retail DR programs and dynamic pricing tariffs into organized wholesale markets. Survey responses from 37 MISO members and 4 non-members provided information on 141 DR programs and dynamic pricing tariffs with a peak load reduction potential of 4,727 MW of retail DR resource. Major findings of this study area:

• About 72% of available DR is from interruptible rate tariffs offered to large commercial and industrial customers, while direct load control (DLC) programs account for ~18%. Almost 90% of the DR resources included in this survey are provided by investor-owned utilities.
• Approximately, 90% of the DR resources are available with less than two hours advance notice and over 1,900 MW can be dispatched on less than thirty minutes notice. These legacy DR programs are increasingly used by utilities for economic in addition to reliability purposes, with over two-thirds (68%) of these programs callable based on market conditions.
• Approximately 60% of DLC programs and 30% of interruptible rate programs called ten or more DR events in 2006. Despite the high frequency of DR events, customer complaints remained low. The use of economic criteria to trigger DR events and the flexibility to trigger a large number of events suggests that DR resources can help improve the efficiency of MISO wholesale markets.
• Most legacy DR programs offered a reservation payment ($/kW) for participation; incentive payment levels averaged about $5/kW-month for interruptible rate tariffs and $6/kW-month for DLC programs. Few programs offered incentive payments that were explicitly linked to actual load reductions during events and at least 27 DR programs do not have penalties for non-performance.
• Measurement and verification (M&V) protocols to estimate load impacts vary significantly across MISO states. Almost half of the DR programs have not been evaluated in recent times and thus performance data for DR events is not available. For many DLC programs, M&V protocols may need to be enhanced in order to allow participation in MISO's proposed EDR schedule. System operators and planners will need to develop more accurate estimates of the load reduction capability and actual performance.