David Howarth MRW & Associates Oakland, California dnh@mrwassoc

1. JUST THE Facts: Resource planning and procurementindependent energy producers annual meetingSeptember 18, 2014 David Howarth MRW & Associates Oakland, California dnh@mrwassoc.com

2. Overview of Presentation Update on 2012 long-term procurement plan (LTPP) proceeding and associated procurement Introduction to 2014 LTPP proceeding Review of other resource planning and procurement activities Conclusions

3. 2012 LTPP Update

4. 2012 LTPP Update • System requirements (Track 2) deferred to 2014 LTPP • Local capacity requirements (Track 1) expanded to address 2013 SONGS retirement (Track 4) • CAISO modeling identified ~4600 MW of local need, assuming ~200 MW DR, ~980 MW incremental EE, and ~460 MW DG • D.14-03-004 reduced CAISO’s need estimate to account for some combination of load shedding, transmission, and incremental uncommitted EE, energy storage, demand response and customer PV resources to determine procurement authorization: • SCE also authorized to procure 215 -290 MW in Moorpark sub-area of Big Creek/Ventura

5. 2012 LTPP Update • Offers were due 12/16/13 • Initially open to projects within West LA area • Expanded to include Track 4 authorization in March 2014 • No new bids • Eligible area revised to include just the southern portion • Final offers 9/4/14 • Final selections by 10/16/14 • Application to CPUC 11/21/14 • SCE issued Track 1 LCR RFO in September 2013

6. 2012 LTPP Update • SDG&E negotiated bilateral contract with Carlsbad Energy Center for 600 MW peaker • Application to CPUC for contract approval (A.14-07-009) filed July 21, 2014 • SDG&E issued Track 4 RFO seeking 800 MW on September 5, 2014 • If approved, the 600 MW Carlsbad contract will count towards the authorized need, leaving 25 MW of storage and 175 MW of preferred resources to be procured through the RFO • Offers due January 5, 2015 • Application to CPUC for approval of contracts Q1 2016

7. 2014 LTPP Kickoff

8. 2014 LTPP: Forecast of Loads & Resources

9. 2014 LTPP: Phase 1a Modeling Results • 2014 LTPP proceeding is focused on determining system reliability needs in 2024 • CAISO & ORA filed testimony in August presenting deterministic modeling results estimating reserve shortfalls for various scenarios • SCE performed stochastic modeling of the High Load Scenario only • Expected shortfall of 8,500 MW, with 34-37 Stage 3 emergencies and 1,000 GWh of expected dump energy

10. 2014 LTPP: Initial Conclusions • None of the modeling parties conclude that system reliability need can be determined from the Phase 1a results • Shortfall amounts do not account for 2,315 MW of Track 1&4 authorization not included in the CPUC scenarios • CAISO: unlimited renewable curtailment potentially masking the need for flexible resources, need further study • SCE: any need in 2024 can be addressed in 2016 LTPP, other ways to mitigate over-generation • ORA: given duration of shortfall, no need for additional capacity or further study in this LTPP proceeding • Reply testimony due September 24th • Will include PG&E modeling testimony • CAISO and SCE to submit stochastic results for Trajectory scenario in November 13th

11. Other Resource Planning and Procurement activities in ca

12. Resource Planning and procurement activities • Renewable Energy Procurement (R.11-05-005) • 2013 RPS purchases: PG&E 23.8%, SDG&E 23.6%, SCE 21.6% • Appear to be on track to reach 33% by 2020 • Procurement expenditure limitation to be adopted by CPUC

13. Resource Planning and procurement activities PG&E’s forecasted renewable net short (2014 RPS Procurement Plan) Source: PG&E 2014 Draft RPS Procurement Plan June 6, 2014

14. Resource Planning and procurement activities SCE’s forecasted renewable net short (2014 RPS Procurement Plan) Source: SCE 2014 Draft RPS Procurement Plan, June 6, 2014

15. Resource Planning and procurement activities SDG&E’s forecasted renewable net short (2014 RPS Procurement Plan) Source: SDG&E 2014 Draft RPS Procurement Plan, June 6, 2014

16. Resource Planning and procurement activities Comparison of SDG&E’s forecasted REC bank balances (2013 Plan vs. 2014 Plan)

17. Resource Planning and procurement activities • Energy Storage (R.10-12-007) • October 2013 decision set specific energy storage targets for each IOU totaling 1,325 MW by 2020 • PG&E (580 MW); SCE (580 MW); SDG&E (165 MW) • First RFOs anticipated December 1, 2014 • Energy Efficiency (R.13-11-005) • Considering move to “rolling portfolios” with long term (10 yr.) funding approval • Would avoid program funding disruptions and embed EE in demand forecasts used for resource planning and procurement • Rolling portfolios will not be considered in time for setting 2015 goals and funding levels, which will continue as an extension of the 2013-14 budget cycle

18. Resource Planning and procurement activities • Demand Response (R.13-09-011) • Demand Response Auction Mechanism (DRAM) proposal • Intended to create competitive procurement mechanism through reverse auction and to integrate DR supply resources into CAISO energy markets • Aim is to launch in 2015 and achieve 5% of peak by 2020 • Settlement agreement proposes DRAM pilot auctions to be held in 2015 and 2016, many details to be determined • CAISO/CPUC Joint Reliability Plan • Multi-year RA requirement, market-based replacement of CAISO backstop, unified long-term reliability planning • Facing pushback from legislature over FERC role in regulating RA market

19. Regulatory Proceedings with implications for procurement • Residential Rate Design Rulemaking and Net Energy Metering (NEM) • Will new rate design and NEM rules hinder further expansion of residential solar? • PG&E Gas Transmission and Storage • Combined with already approved pipeline safety enhancement plan (PSEP), likely to result in a significant increase in gas transportation costs for gas-fired generators

20. Conclusions • Procurement for local resources is under way • Results of all-source RFOs will tell us if EE and DR can compete with other supply resources to provide local capacity • If incremental EE and DR fall short of levels assumed in the procurement authorization, there will be implications for reliability • Significant modeling work remains to quantify system reliability needs • What level of forecasted shortfall justifies procurement? • Long-term procurement of system resources appears at least 1-2 years away • Renewable procurement seems to be reaching a plateau, but poised for new growth phase • Will the RPS be expanded or will there be other drivers for renewable procurement? • What is future of RAM and FiT?

21. Questions?Thanks! David Howarth MRW & Associates Oakland, California dnh@mrwassoc.com