1. California Energy Commission Retail Electric Rate Scenarios: Key Drivers and Structure 2015 Integrated Energy Policy Report California Energy Commission February 26, 2015 Lynn Marshall Supply Analysis Office Energy Assessments Division Lynn.Marshall@energy.ca.gov/916-654-4767

2. California Energy Commission Purpose of Retail Electric Rate Cases 2 Natural gas supply basins Connected to Interstate and Intrastate Pipelines Connected to Demand centers Electricity consumption sector forecast models require annual average retail electric prices by sector and planning area Rates link the demand forecast with other common case assumptions Account for the effects of current policies and programs Account for the effects of revenue allocation on sector average rates

3. California Energy Commission Context of Electric Rate Model 3 Natural gas supply basins Connected to Interstate and Intrastate Pipelines Connected to Demand centers

4. California Energy Commission Modeling Approach Forecasting IOUs and POUs separately Dynamic, simultaneous equation model Structural equations define major elements of revenue requirements and allocation to major rate classes Demand forecasts, econ/demo and price elasticities from Demand Analysis Office Treat major long run investments as fixed per planning decisions, and sales and load-driven operational costs (such as incremental energy purchases) as endogenous Allocate revenue to rate class using current LSE revenue allocation shares 4

5. California Energy Commission Overview of Revenue Requirements PG&E Annual Revenue Requirements 5

6. California Energy Commission Overview of Revenue Requirements SCE Annual Revenue Requirements 6 Sources: SCE Annual Consolidated Revenue Requirments Advice Letters and Energy Resources Recovery Account (ERRA) 2015 Forecast of Operations November 2014 Update Sources: SCE Annual Consolidated Revenue Requirments Advice Letters and Energy Resources Recovery Account (ERRA) 2015 Forecast of Operations November 2014 Update

7. California Energy Commission Overview of Revenue Requirements SDG&E Annual Revenue Requirements 7 Sources: SDG&E Advice Letters, CPUC Annual Electric and Gas Utility Cost Reports to the Legislature, 2010-2014.

8. California Energy Commission Fuel and Purchased Power 8 Cost ComponentModeling Approach Generation fuel expenseNamGas forecast and IEPR Supply and Demand Forms Existing conventional contracts and authorized procurement IEPR Supply forms; FERC Form 1; Production simulation model scenarios Existing renewable generation contracts RPS procurement cost quantification data from IOU reports to CPUC on forecasted energy production and costs by generation technology; IEPR Supply and Demand forms. Incremental renewable generation costs Net short valued at Energy Commission Cost of Generation Report levelized cost trend; production simulation technology mix; LSE contract performance assumptions. Wholesale energy price and residual energy and capacity purchases CPUC GRC/Avoided Costs methodologies for pricing market energy and capacity purchases. Net GHG costs Staff GHG price forecast Integration costs LTTP Proceeding analysis as available

9. California Energy Commission General Rate Case Overview Adopted/Estimated PG&E GRC Revenue Requirements 9 Sources: CPUC D.14-08-032, Appendix C, August 14, 2014 and PG&E 2014 General Rate Case Application Exhibit 2

10. California Energy Commission Distribution Costs and Investment Major drivers of distribution capital and operation costs: –Customer and account growth –Demand – peak and noncoincident peak –Interconnections –Ongoing reliability upgrades & maintenance Impact of Expanded Distributed Energy Resources? –Energy Commission technical support contract to develop scenario assumptions and forecasting methods –Energy Commission ongoing pilot study on cost-effective strategies for integrating distributed resources –IOU Distribution Resource Plans forthcoming June 2014 –IOU EV Infrastructure Applications 10

11. California Energy Commission Utility Owned Generation 11 Utility Owned Resources: –Energy production and costs based on common scenarios, staff production cost model output, and IEPR supply and demand form submittals Generation Capital Expenditures –Assume no new IOU-owned generation unless specifically authorized –Maintenance expenditure based on historic trends Capital O&M based on historic trends and adopted GRC decisions

12. California Energy Commission Transmission Costs Major projects from CAISO Transmission Planning Process –Renewables integration projects –Reliability additions –CAISO TAC area charge forecast model includes estimate of project costs in current transmission plan –The model makes some simplified escalation assumptions Technical support contract will undertake further analysis on capital additions, costs and scenario assumptions. IOU Demand Forms request transmission and reliability service revenue requirements. Low voltage planned and in progress IOU transmission projects are reported in each PTO’s five year forecast on FERC Form 730. 12

13. California Energy Commission CAISO Transmission Access Charge Tool TAC Charge Estimate 13 Source: CAISO 2014 Transmission Access Charge Forecast Model, April 2014.

14. California Energy Commission Assumptions for IEPR Common Cases 14 –Mid Energy Demand Case: today’s results are using CED 2014 mid energy demand forecast assumptions –High Energy Demand Case High econ/demo, weather, and EV penetration drives higher demand and renewable procurement Low Natural Gas prices drive low wholesale electricity price and procurement costs Low energy efficiency and demand response contribute to demand growth –Low Energy Demand Case Low econ/demo, weather, and EV penetration High natural gas prices High energy efficiency and demand response

15. California Energy Commission Preliminary Results PG&E Average Bundled Rate by Case 15

16. California Energy Commission Preliminary Results SCE Average Bundled Rate by Case 16

17. California Energy Commission Preliminary Results SDG&E Average Bundled Rate by Case 17

18. California Energy Commission Conclusions 18 Questions and Comments