California Public Utilities Commission Power Charge Indifference Adjustment

California Public Utilities Commission Power Charge Indifference Adjustment (PCIA) Workshop May 9 th, 2016

What is the PCIA? The Power Charge Indifference Adjustment (PCIA) is a rate applied to customers that choose to receive electric commodity service from third-party service providers, such as community choice aggregators (CCAs) or energy service providers (ESPs) serving direct access (DA) load, to ensure those customers continue to pay their portion of the above-market costs associated with resource commitments made by the utility on their behalf prior to their departure. 2

Purpose of PCIA • Protects bundled customers from financial harm due to load departures. • Intended to prevent above-market costs of prior resource commitments shifting from departing load customers to bundled customers. • PCIA revenues received from departing customers are credited to the Energy Resource Recovery Account (ERRA) to partially offset the cost of above-market generation. • PCIA revenues do not affect the utility’s earnings. 3

PCIA Background • Public Utilities Code sections 365. 2 and 366. 3 require that bundled customers be held indifferent to departing load, and that CCA and DA customers not experience cost increases because of an allocation of costs not incurred on their behalf. • D. 06‑ 07‑ 030 approved the original total portfolio indifference calculation methodology. • D. 07‑ 01‑ 030 modified the original total portfolio indifference calculation methodology and determined the above market costs associated with the Department of Water Resource (DWR) contract obligations. • Decision 11 -12 -018 and Resolution E-4475 established the current PCIA calculation method, which adopted reforms to the market price benchmark (MPB) calculation. 4

Total Portfolio Costs Market Value of Portfolio Indifference Amount = Power Charge Indifference Adjustment (PCIA) + Ongoing Competition Transition Charge (CTC) Methodology mandated by D. 11 -12 -018, Resolution E-4475 5

Market Price Benchmark • BROWN is intended to represent the energy value of the vintage portfolio • Energy Division updates the value based on a weighted average of a 1 -year forward strip of on-peak and off-peak power based on October data provided by Platts. • IOU specific peak and off-peak weighting factors are used GREEN is intended to represent the market value associated with renewable (RPS-compliant) resources in the vintage portfolio • Energy Division updates the GREEN Adder based on formula approved in D. 11 -12 -018 and implemented via Resolution E-4475. Capacity Adder “CAP ADDER” is intended to represent the market value of the resource adequacy (RA) that is provided by the portfolio 6

Data to Calculate Green Market Price Benchmark Provided Annually via Tier 1 Advice Letter Resolution E-4475 requires that by October 1 of each year, Pacific Gas and Electric (PG&E), San Diego Gas & Electric Company (SDG&E), and Southern California Edison Company (SCE), shall file Tier 1 advice letters to update the data as follows: • Most recent 12 -month figures derived from US Department of Energy survey of Western US renewable energy premiums in calculating a weighted proxy for the Market Price Benchmark • Projected costs, net qualifying capacity, and volumes (MWh) for all RPS-compliant resources that are used to serve customers during the current year (i. e. , most recent 12 months) and those projected to serve customers during the next year. 7

Market Price Benchmark (MPB) Green Component 0. 68 x URGgreen + 0. 32 x (BROWN + DOEadder) Green – 68% IOUs’ Newly Delivering Renewable Portfolio Standard Resources BROWN + DOE Adder - 32% Weighted Average of Platt’s On and Off Peak Trading Prices 8

MPB Data Sources Brown DOE Adder • The weighted average of on-peak and off -peak forward energy market prices from October 1 through October 31 for 12 months of on‑peak and off-peak energy by Platts. • Factors in utility specific peak and offpeak load • Simple average of the premiums of the renewable programs in states within Western Electricity Coordinating Council (WECC), as identified in the database compiled by the National Renewable Energy Laboratory for the US Department of Energy. 9

MPB Data Sources IOU RPS Resources Weighted at 68% Brown + DOE Adder Weighted at 32% Green Componen t of Market Price Benchmar k 10