MTS Working Group Webinar Mtg April 9 2015

MTS Working Group Webinar Mtg April 9, 2015

Agenda • Introduction - Paul De Martini • DRP Methodology - Mark Esguerra • Q 2 2015 Plan - Paul De Martini 2 2

Optimal Location Values & Methodology

Distribution Planning Process Bi-Annual DRP & Integration Capacity Analyses Identification of Optimal Locations DRP Locational Value Methodology $ 16 Locational Value: Avoided Costs and Benefits $ 14 Net Locational Value by Location $ 12 $ 10 Millions Annual Distribution Plan For Each DPA & Substations/Feeders $ 8 $ 6 $ 4 $ 2 $ - Locational Value Integration Cost Net Locational Value Geographical Areas Not Required for “Walk” Phase 4 4

Value Analysis: Avoided Costs and Benefits Locational Value: Avoided Costs and Benefits Illustrative $ 16 $ 14 Benefits Total Benefits Millions $ 12 Integration Costs Local Emissions Power Quality $ 10 Resiliency Reliability $ 8 Avoided Costs $ 6 Dist Capacity Net Avoided Cost $ 4 Transmission Capacity Generation Capacity Energy $ 2 $ - Value Integration Cost Net Locational Value Note: Analysis excludes some avoided costs/benefits that do not have a locational dimension. Therefore, analysis is not intended to estimate full stack of avoided costs and benefits associated with DER “Integration Costs”. These include investments to realize locational benefits such as grid modernization, procurement, and 5 other related costs. 5

Final CPUC Guidance on Optimal Location Benefit Analysis Requirements: • IOU Unified Locational Net Benefits methodology • Based on E 3 Cost-Effectiveness Calculator, but enhanced to include following location-specific values (minimum): 6 6

MTS Identified DER Value Components (1/2) For reference, yellow highlighted value components relate MTS defined values to CPUC Final Guidance for initial DRPs Societal & Environmental value components left to IOUs to identify locational linkage Wholesale Value Component Definition WECC Bulk Power System Benefits Regional BPS benefits not reflected in System Energy Price or LMP CA System Energy Price Estimate of CA marginal wholesale system-wide value of energy Wholesale Energy Reduced quantity of energy produced based on net load Resource Adequacy Reduction in capacity required to meet Local RA and/or System RA reflecting changes in net load and/or local generation Flexible Capacity Reduced need for resources for system balancing Wholesale Ancillary Services Reduced system operational requirements for electricity grid reliability including all existing and future CAISO ancillary services RPS Generation & Interconnection Costs Reduced RPS energy prices, integration costs, quantities of energy & capacity Transmission Capacity Reduced need for system & local area transmission capacity Generation/DER Deliverability Increased ability for generation and DER to deliver energy and other services into the wholesale market Transmission Congestion + Losses Avoided locational transmission losses and congestion as determined by the difference between system marginal price and LMP nodal prices Wholesale Market Charges LSE specific reduced wholesale market & transmission access charges 7 7

MTS Identified DER Value Components (2/2) Customer, Environmental & Societal Distribution Value Component Definition Subtransmission, Substation & Feeder Capacity Reduced need for local distribution system upgrades Distribution Losses Value of energy due to losses between wholesale transaction and distribution points of delivery Distribution Steady-state Voltage Improved steady-state (generally >60 sec) voltage, voltage limit violation relief, reduced voltage variability, compensating reactive power Distribution Power Quality Improved transient voltage and power quality, including momentary outages, voltage sags, surges, and harmonic compensation Distribution Reliability + Resiliency+ Security Reduced frequency and duration of outages & ability to withstand recover from external natural, physical and cyber threats Distribution Safety Improved public safety and reduced potential for property damage Customer Choice Customer & societal value from robust market for customer alternatives CO 2 Emissions Reductions in federal and/or state carbon dioxide emissions (CO 2) based on cap-and-trade allowance revenue or cost savings or compliance costs Criteria Pollutants Reduction in local emissions in specific census tracts utilizing tools like Cal. Enviro. Screen. Reduction in health costs associated with GHG emissions Energy Security Reduced risks derived from greater supply diversity Water Use Synergies between DER and water management (electric-water nexus) Land Use Environmental benefits & avoided property value decreases from DER deployment instead of large generation projects Economic Impact State and/ or local net economic impact (e. g. , jobs, investment, GDP, tax income) 8 8

E 3 Cost Effectiveness Methodology • Utilize E 3’s Distributed Energy Resources Avoided Cost Model (DERAC) • But, Current DERAC model has “system level” values that need to be modified/replaced with relevant locational specific values. E 3 Value Components System/Local E 3 DERACT Method Generation Energy System Forward market prices based on fixed and variable operating costs of CCGT. Losses System loss factors Generation Capacity System Residual capacity value for a new simple-cycle combustion turbine Ancillary Services System Percentage of generation energy value T&D Capacity System Marginal system-wide sub-transmission and distribution costs from utility ratemaking filings Environment System Synapse Mid-level carbon forecast developed for use in electricity sector IRPs Avoided RPS System Cost of marginal renewable resource less the energy market and capacity value associated with that resource 9 9

Proposed Adaptation of E 3 DERACT for Locational Benefits Analysis Additional Values DERACT Values Value Components E 3 DERACT CPUC Guidance Generation Energy System N/A Losses System N/A Generation Capacity System Flexible RA Ancillary Services System N/A T&D Capacity System Yes, Local Use MTS Method in DERACT Environment System Yes, Local Use MTS Method in DERACT Avoided RPS System N/A Transmission Capacity None Yes, Local Use MTS Method in DERACT Dist. Voltage & Power Quality None Yes, Local Use MTS Method in DERACT Dist. Reliability, Resiliency & Security None Yes, Local Use MTS Method in DERACT Safety None Yes, Local Use MTS Method in DERACT Renewable Integration Costs None Yes, System Use MTS Method in DERACT 10 Recommendation Use MTS Method in DERACT based on Local Capacity Requirement 10

MTS Recommendations • Utilize E 3’s DERACT model as starting point, but leverage MTS locational methods in lieu of system values as applicable • For example, Local RA will be used for Generation Capacity value • Generation related integration costs incorporated using interim integration adder adopted by CPUC – System value • Societal & Public Safety will be included as qualitative factors until quantitative data is available. • Review and compare T&D deferral benefit calculations among the IOUs • For all categories, DERs may increase cost (e. g. , integration systems cost). Net Benefit for specific technologies will account for any increased costs. 11 11

Final Commission Guidance and MTS WG Recommendations 12 12

Q 2 2015 MTS WG Scope

MTS WG 2015 Structure Q 2 2015 Activity • Advisory Board • Complete discussion on alignment of DPP with CA planning and CPUC ratemaking • MTS Working Group • Define initial services (incl. functional requirements) for deferred capital, voltage/reactive power management and reliability/resilience. Plus identify sourcing structures related to these services (e. g. , procurement, tariffs, programs, other) (Quarterly, or as needed) (Monthly – webinar) • Technical sub-groups (as needed virtual & in person) • Define incremental operational functions to integrate and optimize DER related to the values identified in the CPUC final guidance. This includes identifying technology and new processes leveraging industry practices and CA developments (incl. measurement, ISO/IOU coordination processes, information protocols, etc. ) 14 14

DRP Methods Background

Avoided Sub-transmission, Substation and Feeder Capital & Operating Expenses • Definition • Avoidable costs incurred to increase capacity on sub-transmission, substation and/or distribution feeders to ensure system can accommodate forecast load growth • Value Calculation Approach • Use utility capacity 10 -year plans by substation and/or future plans that result from the DRP that include enhanced ICA analysis and locational benefits methodologies. • Benefit/Avoided Cost is the deferred cost of capital value of deferring capacity work • Examples • Substation upgrades • Transformer upgrades • Distribution feeder reconductoring/reconfiguration 16 16

Avoided Distribution Voltage and Power Quality Capital and Operating Expenses • Definition • Avoidable costs incurred to ensure power delivered is within required operating specifications (i. e. voltage, flicker, etc. ) • Value Calculation Approach • Use existing information in conjunction with DRP scenarios analysis to identify projected avoided overloads of distribution transformers and services, and any reactive requirements that cannot be met by smart inverters alone. • Examples • Breakdown maintenance investments that result from historical and projected customer complaints, or information from smart meters. • Best achievable avoided cost in this category are unnecessary transformer and service replacements due to overloading. 17 17

Avoided Distribution Reliability and Resiliency Capital & Operating Expenses • Definition • Avoidable costs incurred to proactively prevent/mitigate routine outages (reliability) and major outages (resiliency) • Avoidable costs incurred in responding to routine outages (reliability) and major outages (resiliency) • Distribution Resiliency costs defined as spending needed to meet reliability expectations that are above/beyond distribution planning criteria to address major outage events. • Value Calculation Approach • Avoided costs to improve reliability/resiliency based on statistics (i. e. SAIDI, CAIDI, SAIFI) by substation/local area • Examples: • Reduction of O&M expenses due to reduced duration of outages and labor required for restoration • Forecasted future capital reductions based on longer equipment replacement life cycles (better system efficiency) • Reduced outages due to the use of microgrids Note: In order to achieve improved reliability, more investments are needed in areas for microgrid development, control and communications with DER technologies for a portfolio solution, DMS, DERMS, advanced protection, etc. 18 18

Avoided Transmission Capital and Operating Expenses • Definition • Avoidable costs incurred to increase capacity on transmission line and/or substations to ensure system can accommodate forecast load growth • Value Calculation Approach • Use existing CAISO TPP plan by substation and/or • Perform load forecasting vs. capacity analysis to forecast needed capacity upgrades before exceeding NERC reliability criteria • Benefit/Avoided Cost is value of deferring transmission capacity work • Examples • • Substation upgrades Transformer upgrades Transmission line reconductoring/reconfiguration Voltage regulation investments 19 19

Avoided Flexible Resource Adequacy Procurement • Flexible RA determined at system level. • Instead of Flexible RA, recommend using Local RA. • Alternate Definition (Avoided Local RA Procurement) • Avoidable incremental costs incurred to procure Resource Adequacy (RA) in CAISO-identified local areas (e. g. LCR) • Value Calculation Approach • Use latest CAISO local capacity requirements to identify incremental capacity needs beyond current generation and identify deficient subareas. • Benefit/Avoided Cost is value of deferred Local Capacity or transmission • Examples • Local RA Procurement • PG&E: Needs to purchase Bay Area Local RA at a premium in area to fulfill Local RA requirements 20 20

Avoided Renewable Integration Costs • Renewable Integration determined at system level. • Not location specific • Definition • Avoidable incremental costs to integrate renewables onto electric system. • Value Calculation Approach • Current cost calculation is an interim method for calculating renewable integration costs at a system level, which is to be replaced in 2015. • Utilities to coordinate efforts with development of the updated RPS Calculator and Renewables Integration Charge to factor in locational specific values 21 21

Societal Avoided Costs • Definition • Avoidable incremental costs that are borne by the public, as well as environmental benefits (improvements in air and water quality and land impacts) that can be clearly linked to deployment of DERs. • Value Calculation Approach • Until more data is available in this area, qualitatively identify societal value of a location • Use Cal. Enviro Screening tool as a qualitative method • In some cases, DERs impose costs on society, such as increased taxes for those not participating with DERs Examples • Criteria Pollutant Emissions/Local Air Assessments/ Health Impacts 22 22

Avoided Public Safety Costs • Definition • Avoidable incremental public safety related costs that can be clearly linked to deployment of DERs. • Cost Calculation Approach • Until more data is available in this area, qualitatively describe the Public Safety Benefits • In some cases DER could potentially increase costs and hazards for safety related items • Note: • Safety is a fundamental consideration in distribution planning related to ageing infrastructure replacement, capacity additions and reliability/resiliency. Not clear at this time if there is a discrete locational avoided cost element. Also, due to the ongoing replacement of ageing infrastructure the inherent safety aspects of the distribution system are improving. 23 23