ENERGY AND ELECTRICITY MARKETS 101

Community Choice Energy Advisory Committee

June 25th,2015

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About Pacific Energy Advisors• 50+ Years of collective experience w/in California’s electric utility

industry• Leading advisors for all technical matters related to the Community

Choice Aggregation service model• CCA feasibility assessments for over 40 municipalities since 2003• Exclusive professional focus on “non-IOU” service models• Current Clientele (sample):

o Marin Clean Energy (CCA)o Lancaster Choice Energy (CCA)o City and County of San Francisco (CCA)o City of Moreno Valley, Electric Utility Division (POU)o School Project for Utility Rate Reduction (Direct Access)

• Primary service offerings: resource planning and procurement, financial and economic analysis, contract negotiation and administration, legislative and regulatory analysis/compliance, rate-setting, utility operations support

• Formed in 2013; based in Folsom, CA (PEA principals engaged in CCA since 2003)

PEA’s CCA EXPERIENCE• Unique, unparalleled experience with CCA evaluation, implementation and

operation• PEA has provided key technical consulting services in support of ALL

California CCA’s, which have filed certified Implementation Plans with the CPUC

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CCA Key Activities/ResponsibilitiesAnalytical Highlights

Sample of Work Products

Marin Clean Energy

• Examined costs/benefits of CCA formation

• Proposed program structure and governance

• Developed retail product options/rates

• Created Implementation Plan and Joint Powers Agreement (“JPA”)

• Drafted supply agreements/contracts and assisted in supplier negotiations

• Cost-benefit analysis• Risk scenario

analysis• Load study analysis• Rate analysis• Supply portfolio

evaluation

• Marin Clean Energy Implementation Plan(s)

• Rate and Load Studies• Customized Confirmation

Agreements and Exhibits

Sonoma Clean Power

• Examined costs/benefits of CCA formation

• Proposed program structure and governance

• Developed retail product options/rates

• Developed procurement strategies• Drafted supply agreements/contracts

and assisted in supplier negotiations

• Cost-benefit analysis• Risk scenario

analysis• Load study analysis• Rate analysis• Supply portfolio

evaluation

• Sonoma County CCA Feasibility Study

• SCP Implementation Plan• Rate and Load Studies• Customized Confirmation

Agreements and Exhibits

Lancaster Choice Energy

• Recommended retail product options and developed related rate structure

• Developed procurement strategies• Drafted supply agreements/contracts

and assisted in supplier negotiations• Developed Net-Energy Metering

Program

• Load study analysis• Rate analysis• Supply portfolio

evaluation

• Implementation advisory services

• Rate and Load Studies• Customized Confirmation

Agreements and Exhibits• Net-Energy Metering Tariff

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How “The Grid” Works

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How “The Grid” Works (continued)•How does power get to CCA/PG&E customers?o California residents and businesses receive their power

from a networked grid: Western U.S. + parts of Canada and Mexico.

o Physically, all electricity is the same – the energy received by customers is determined by power flows rather than contract rights.

o A utility’s power mix is determined by the amount of electricity injected into the grid from generation resources it owns or controls (under contract).

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Who Manages the Grid?• Various “Balancing Authorities”

(BAs) are responsible for real-time balancing of supply (generating resources) and demand (load)

• BAs are responsible for ensuring grid reliability.

• There are five BAs in California, with the largest being the California Independent System Operator (CAISO). A CCA serving San Mateo County and surrounding areas would be operating within the CAISO BA.

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Hourly CAISO Electricity Pricing• Within CA, prices are established for over 5,000 “nodes” every

5-minutes.• The difference in price between two nodes is referred to as

“congestion”.

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California’s Generating Fleeto More than 1,000 electric

generating units over 1 MW in CA.

o A typical 1 MW generator will serve the annual energy needs of approximately 1,000 homes.

o 79,000 MW of generating capacity.

o ≈58% of capacity is natural gas.

o 70% of CA’s energy is produced in-state.

o ≈20% of CA’s generating capacity uses renewable fuel sources.

o 2,400 MW of distributed solar has been installed in CA.

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Energy Products & Services for CCAs• Scheduling Coordinator Services (“SC” services)

• Electric Energy

• Renewable Energy

• Resource Adequacy Capacity

• Other Specified Energy Products

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Electricity Contracting• Bilateral Contracts

• Contracting parties – Buyer/Seller

• Term length

• Price

• Product(s)

• Delivery parameters/schedules

• Credit terms

• Market Purchases

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Renewable Energy Procurement• Mandatory renewable energy (RE) procurement:

• California’s Renewables Portfolio Standard (RPS) Program

• Specified renewable energy (RE) procurement mandates through

2020

• RPS mandates apply to all Load Serving Entities (LSEs), including

CCAs

• Only California Energy Commission-certified generators are RPS-

eligible

• Various RE products are procured to demonstrate compliance

• Compliance is demonstrated via retirement of RECs

• Compliance measured over multi-year periods

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Renewable Energy Procurement (cont.)• Voluntary RE procurement:

• Responsive to local goals and objectives

• Accommodates green pricing programs

• Not subject to RPS rules

• General Information:

• ALL renewable energy production is substantiated via REC

ownership

• RECs are created, tracked, transferred and retired through

WREGIS

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Renewable Energy Products• Various RE contracting mechanisms/products under RPS:

• Bucket 1 – In-state or dynamically scheduled into CA (RECs

delivered contemporaneously with electric energy)

• Bucket 2 – Firmed/shaped imports into CA (delivered REC and

energy quantities are balanced annually)

• Bucket 3 – Unbundled RECs (RECs are sold separately from

energy)

• Increasing interest in maximizing Bucket 1 product use

• Variety of contracting options are available

• Voluntary RE products (example: Green-e)

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Resource Adequacy Capacity• Reserve capacity promotes grid reliability

• LSEs must secure/procure capacity at 115% of peak demand

• Reserve capacity is referred to as “Resource Adequacy” or

“RA”

• Additional RA requirements: generator location and

operational flexibility

• RA capacity is transacted bilaterally (i.e., no organized

market)

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Sources of Power Generation – Hydro• In California, < 35MW = RPS-eligible; > 35 MW = “large

hydro”

• Drought conditions have reduced hydropower production (and increased natural gas generation):

• During the first half of 2014 ~ 10% of CA’s total electricity generation

• Average 2004 – 2013 ~ 20%

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Sources of Power Generation – Wind• In CA, highest installed capacity amongst all renewable

resource types

• Intermittent power supply

• Relatively low cost resource

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Sources of Power Generation – Biogas • Power produced through the

anaerobic digestion of biodegradable materials

• Uses material that is already part of the carbon-cycle

• Power production process results in overall decrease in emissions

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Sources of Power Generation – Solar• Rapidly growing and “preferred” renewable resource

• Different technologies: photovoltaic, thermal

• Power supply is intermittent with predictable near-term

delivery profile

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Sources of Power Generation – Geothermal

• Very low-carbon emitting generating process

• Electricity generated using heat from the earth’s core

• Generating potential is regionally isolated

• Typically requires considerable water use

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California CCA Overview• CCA provides for:• Local control/accountability• Competitive rates (based on current market conditions)• Customized power supply• Locally focused energy programs• Economic development benefits

• Opt-out model• CCA’s are self-regulating entities• Three operating CCA’s in California:

o Marin Clean Energy (2010)o Sonoma Clean Power (2014)o Lancaster Choice Energy (2015)

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Pertinent California Regulatory Agencies• California Public Utilities Commission

(CPUC): Regulates the investor owned utilities (i.e., PG&E, SCE, and SDG&E), but also regulates capacity reserve requirements of CCA’s

• California Energy Commission (CEC): Primary energy policy and planning agency in California – long-term forecasting, planning for energy emergencies, generator permitting and certification as well as promoting energy efficiency and renewable technologies

• California Air Resources Board (ARB): Objectives are to maintain healthy air quality and to promote approaches for compliance with air pollution rules/regs