May 16, 2003

 

 

 

 

Donald W. Downes
Chairman
Connecticut Department of Public Utility Control
Ten Franklin Square
New Britain, CT 06051

Dear Chairman Downes:

 

On behalf of ISO New England (“ISO-NE”), we are writing to discuss the important role that demand response plays in promoting and maintaining competitive and reliable electricity service.  Demand response is particularly important for the area of Southwest Connecticut, where power demands are high, yet generation and transmission capacity are limited.  This summer, demand response resources will be critical to alleviating reliability concerns and possibly preventing a potentially disruptive situation. 

We are pleased to see your draft decision in Docket 03-01-01 approving conservation and load management (“C&LM”) budgets for Connecticut’s local distribution companies.  Importantly, these budgets support both demand response programs as well as the infrastructure to deliver the programs to electric customers.  However, ISO-NE is aware of the fiscal and budget situation in the state and understands that state funding for the local distribution companies’ budgets could be reduced, if not eliminated, for up to two years.  ISO-NE is very concerned about the impact such a reduction could have on demand response activities and possibly on the reliability of electric service, particularly in Southwest Connecticut.  ISO-NE urges the Department to consider alternatives to continue funding for these activities and to make certain that other state entities are aware of the precarious situation in Southwest Connecticut.

 As you are aware, ISO-NE has on previous occasions indicated that localized problems in Connecticut and Southwest Connecticut require additional steps to balance supply and demand in those areas.  This summer, despite the adequate supply of electricity forecasted for New England as a whole, the outlook for Southwest Connecticut remains one of concern due to the inability of transmission lines in that area to carry enough power to meet local demand and due to the possibility of transmission line or generator outages.

Peak demand in Southwest Connecticut could reach 3,500 MW during expected weather conditions and could exceed that level with hotter weather.[1]  The local generating supply is approximately 2,100 to 2,250 MW, and its availability to serve demand can be limited by transmission constraints within Southwest Connecticut.  The remaining demand must be served from power supplies over existing transmission lines from outside Southwest Connecticut.  If a local power plant becomes inoperable or a transmission line fails during a period of high demand, the ability to provide uninterrupted power supply in Southwest Connecticut would be seriously undermined.  ISO-NE forecasts that capacity deficiencies could occur in Southwest Connecticut up to six times this coming summer. 

ISO-NE has supported the need for both long- and short-term measures to address reliability issues.  In the long-term, ISO-NE supports efforts to expand local supply, C&LM, and transmission capacity.  In the short-term, to help prevent disruptive power outages, ISO-NE has urged the aggressive deployment of demand response resources and placement of emergency generators in certain locations in Southwest Connecticut.  To this end, the New England Power Pool (“NEPOOL”), consistent with ISO-NE’s recommendations, has expanded its Demand Response Program, which is administered by ISO-NE, (“ISO/NEPOOL Demand Response Program”) by offering financial incentives to customers that interrupt loads in response to capacity deficiencies and/or high locational energy prices.  Additionally, the state’s local distribution companies have budgeted some of their C&LM funds to supplement payments to participants that are located in Southwest Connecticut, in the amount of  $80,000 per megawatt this summer (“SWCT supplemental incentives” or the “SWCT supplemental incentive program”).  Until a long-term transmission solution is in place, implementation of a very aggressive demand response program and temporary emergency generation in SWCT would assist in maintaining uninterrupted power supply.

Demand response programs and initiatives in Connecticut are funded through electric distribution companies’ C&LM Funds, established pursuant to Section 33 of PA 98-28 (CGS § 16-245m), An Act Concerning Electric Restructuring.  Under this Act, the customers of electric distribution companies fund C&LM programs in Connecticut through a 0.3 cents per kWh charge on their electricity bills.  For the fiscal year 2003-2004 the total C&LM budget for CL&P was approximately $61 million and the budget for UI was approximately $17 million.  Of these funds, CL&P and UI proposed to dedicate approximately $2.3 million and $0.9 million respectively to support directly the ISO/NEPOOL Demand Response Program and the SWCT supplemental incentive program.[2]  These companies’ investments in the SWCT supplemental incentive program alone are designed to acquire approximately an additional 22.5 MW of targeted demand response in Southwest Connecticut.[3]  CL&P’s investment in the ISO/NEPOOL Demand Response Program has resulted in the enrollment of approximately 100MW of demand response from Southwest Connecticut and Connecticut.

In addition to the funds associated with the SWCT supplemental incentive program and with the support provided by electric distribution companies for the Demand Response Program administered by ISO-NE, CL&P and UI allocate several million dollars to support their own C&LM programs (i.e., conservation and load management not directly associated with NEPOOL’s Demand Response Program).  In the longer term, the redirection of the C&LM funds would almost entirely eliminate the C&LM programs, which have been carefully constructed over the past 22 years.  Higher growth in electricity demand would, absent these programs, place Connecticut in an increasingly precarious position from a reliability standpoint in the short-and long-terms.

ISO-NE is aware that in an attempt to address the projected state budget deficit for fiscal years 2004 and 2005, state officials are considering reallocating monies from the C&LM Fund to the General Fund.  If the proposed transfer is signed into law, funding for C&LM programs may be reduced or discontinued as of July 1, 2003, for a period of up to two years. Given that the summer season is almost upon us, the loss of these demand response resources could not happen at worse time since peak loads tend to occur in the July/August timeframe.

Three important points therefore should be emphasized.  First, the C&LM programs provide the general infrastructure over which programs such as ISO/NEPOOL’s Demand Response Program are delivered.  This infrastructure involves expertise from several industries, research and development, the provision of incentives and the establishment of customer relationships that often take years to establish.  Furthermore, the C&LM Fund also provides for day-to-day administration of the C&LM programs and the associated overhead.  Therefore, the loss of C&LM monies would disrupt the infrastructure that Connecticut has so carefully constructed over many years and would disrupt the implementation of demand response initiatives both now and for several years into the future.

Second, the immediate loss of demand response will have a dramatic impact on Southwest Connecticut.[4]   While ISO-NE is presently updating its annual system assessment, last year’s system assessment showed that reduction in demand in Southwest Connecticut had a significant and proportionately larger impact on improving reliability than in other areas in Connecticut.[5]  Given the precarious situation in Southwest Connecticut, any loss of demand resources correspondingly has a significant and proportionately larger adverse impact on maintaining reliability. 

Third, in addition to increasing system reliability, demand response provides Connecticut in general, and Southwest Connecticut in particular, a valuable hedge against price volatility – volatility that is exacerbated by transmission constraints in the state.  According to analysis prepared by ISO-NE, with the implementation of Standard Market Design and Locational Marginal Prices, demand response can protect Southwest Connecticut and Norwalk from price spikes related to transmission constraints and congestion.[6]

Accordingly, ISO-NE strongly supports the use of C&LM monies to aid in reducing demand in Connecticut and, in particular, Southwest Connecticut.  It is imperative that the C&LM funds be available to support demand response in order to permit the local utilities to acquire more demand response resources in time for the summer of 2003.  We plan to communicate this to other state officials.  In the absence of such C&LM funds, ISO-NE urges the Department to make other State officials aware of the precarious situation in Southwest Connecticut and to consider alternatives for funding these activities to secure delivery of C&LM programs in Connecticut at least until the reliability situation in Connecticut improves substantially.

We appreciate your consideration of this most urgent issue.  If you have questions or concerns, please do not hesitate to contact us.

Regards,

 

 

Henry Yoshimura, Manager of Demand Response

Stephen G. Whitley,

Senior Vice President and Chief Operating Officer

 

 

 

cc: Executive Secretary, DN 03-01-01


[1] To put this demand forecast in perspective, the predicted peak demand of 3,500 MW this summer exceeds the record Southwest Connecticut demand of 3,300 MW established on July 3, 2002.

 

[2]  Of the $2.3 million allocated by CL&P, $1.3 million is allocated to support the ISO/NEPOOL Demand Response Program and $1.0 million is allocated to support the SWCT supplemental incentive program.  Of the $0.9 million allocated by UI, approximately $0.15 million is allocated for ISO/NEPOOL Demand Response Program and $0.75 million is allocated for the ISO/NEPOOL Demand Response Program.  Because of the UI’s service territory, all of the funds it has allocated to the ISO/NEPOOL Demand Response Program benefit Southwest Connecticut.  By comparison, CL&P’s investment in the ISO/NEPOOL Demand Response Program results in demand response both in the Southwest Connecticut area and in Connecticut more generally.

[3]   See DPUC Docket No. 03-01-01; DPUC Review of the Connecticut Light and Power Company’s and the United Illuminating Company’s Conservation and Load Management Programs and Budgets for the Year 2003 and 2004, page 59.  

[4] This range includes the additional 10 MW from the supplemental incentives and up to 100 MW that are currently enrolled by CL&P in the Demand Response Program.

[5] See ISO-NE, Regional Transmission Expansion Plan, Figure 3.2 (Nov. 7, 2002)

[6] Regional Transmission Expansion Plan (RTEP02), ISO New England, November 7, 2002, pages 136-143.