Natural Gas Pathways: Towards a Clean and Renewable Energy Future for California Southern California Gas Company September 24, 2015

California’s Dual Emissions Challenge Federal Clean Air Act and California Climate Change Initiative Measures to Reduce Smog and GHG Emissions Drive Today’s Energy and Environmental Agenda Natural Gas will Play an Increasing Role as a Solution FEDERAL CLEAN AIR ACT Reduce SMOG by 75-80% before the next 20 years CA CLIMATE GOALS (AB32) GOVERNOR’S EO: By 2050, reduce GHG emissions to 80% of 1990

THE TRANSPORTATION SECTOR 80% of the region’s SMOG 40% of its GHG emissions And, we have a CLEAR FOCUS Major Ozone (NOx) Emissions Sources in South Coast Air Basin

It’s NOT Either/Or. It IS Both/And! California focused on electrifying end uses and “de-carbonizing” electricity  Electrify transportation  Electrify energy end uses  De-carbonize generation SoCalGas focused on “near-zero” end use technology and “de-carbonizing” the pipeline  Near-zero NGV’s  Near-zero gas technology  Decarbonize gas supply Hydrogen blending Renewable methane feedstocks California Climate Change Policy Make Room for “Near-Zero” End Uses and Low Carbon Gas

New “Near-Zero” Truck Engine to be Ready for Prime Time Near Zero Emission Natural Gas Engine <0.02 g NOx Near Zero Emission Natural Gas Engine <0.02 g NOx SoCalGas working with agencies and engine manufacturers to deliver truck engine 90% lower emissions for 2018! Tailpipe emissions the same as emissions from generating electricity to run similar truck on electricity, years before heavy- duty EV trucks ready for the market SoCalGas working with agencies and engine manufacturers to deliver truck engine 90% lower emissions for 2018! Tailpipe emissions the same as emissions from generating electricity to run similar truck on electricity, years before heavy- duty EV trucks ready for the market 5 NGV Game Changer

6 Expands upon 2012 Science article Natural Gas Energy Efficiency A Resource of First Choice for Multiple End Uses  Energy Efficiency has been a critical part of state policy for more than two decades.  EE maximizes uses, reduces GHG emissions, creates jobs  New EE goal is unachievable without including “To-Code” Savings in EE Programs.  State needs to shape Policies to increase EE Savings.

7 Codes & Standards: The Driver of Energy Efficiency and Zero Net Energy  From Technology Conceptualization to Code Compliance  Aggressive aspiration goals for Zero Net Energy (ZNE) All Residential New Construction by 2020 All Commercial New Construction by % of existing buildings to be retrofit to ZNE by 2030  As codes advance, “above-code” becomes difficult to justify

The move toward “near- zero” emission technology focuses on:  Distributed Generation  Community-scale Generation Matched with Renewables  Power Generation with Carbon Capture De-Carbonizing Electricity: Natural Gas Stationary Use Pathways Not just Solar and Wind… Fuel Cells Micro-turbines Combined Heat & Power

De-Carbonizing the Pipeline: Renewable Natural gas Convert waste from dairies, farms and landfills into biogas using anaerobic digestion extract the methane put in the pipeline for future use SOURCE: Bioenergy Association of California, CARB May 2014 Look-Up Table30 POWER 2-3 million homes WHAT’S POSSIBLE REPLACE 75% of all diesel used by CA vehicles When used for transportation, Biogas from food and green waste can actually REMOVE GHGs from the atmosphere

De-Carbonizing the Pipeline: Power-to-Gas carbon captured from factories and plants excess renewable energy goes through electrolysis which splits the molecule hydrogen & carbon combine through methanization methane can be stored in the pipeline for future use

 RD&D of cleaner, more efficient natural gas technologies, inc. P2G at UC Irvine.  Offering tariff services to support new markets  Compression Services to facilitate development of NGV market  Biogas Conditioning Services to facilitate development of renewable natural gas market  Proposing Distributed Energy Services tariff to facilitate more efficient use of heat and power  Portfolio of Energy Efficiency Programs  Supporting Legislative and Regulatory Policies that are:  Fuel and Technology Neutral  Maintain Customer Choice  Cost Effective SoCalGas Facilitating Cleaner Energy Options for Our Customers

Appendix  Technology Transfer and Transportation Pathway  Current State GHG Pathway  Power To Gas Projects  German Energy Agency on P2G  E Study – Low Carbon Gas Pathway  SB350 Overview

Technology Transfer and Transportation Pathways Locomotives Short/Long Haul Transit/Fleet Vehicles Off-road High Horsepower/ Construction Equipment Marine VesselsHeavy Duty Trucks Short/Long Haul CNGLNG Current FocusExpanding Focus SoCalGas’ Transportation Pathway focuses on natural gas vehicles in heavy duty sectors, which represent the largest share of both ozone/greenhouse gas problem. Technology transferrable to other sectors:

2050 CARB Statewide GHG Target 75 ppb ozone standard Current State GHG Pathway -- Focused on Electrification Will Miss Ozone Deadlines 80 ppb ozone standard Natural Gas Opportunity Reductions need to be achieved Faster & Sooner than current statewide GHG reduction goals CA Statewide CO 2 South Coast Target NO x Reduction necessary to meet Federal Ozone Standards Use of Natural Gas in Transportation Sector can help achieve ozone standard sooner South Coast Air Quality Management District

2MW Power-to-Gas Demonstration Plant (Falkenhagen, Germany)  First power-to-gas plant to inject hydrogen into the natural gas grid (August 2013) Hydrogenics Plant (Stuttgart, Germany)  Uses a PEM electrolyzer to produce H 2 from water. Uses CO2 from biogas plant. Injects CH 4 in pipeline system Power-to-Gas Projects: Provides green hydrogen pathway and grid storage 30 projects launched in Europe to date

German Energy Agency on Power-to-Gas: “System Solution” DENA Website (German Energy Agency) With the Power-to-Gas Strategy Platform, the Deutsche Energie-Agentur GmbH (dena) – the German Energy Agency – and its partners are supporting the use and development of the Power- to-Gas system solution. CAISO (on the “Duck Curve”) …steps must be taken to mitigate over generation risk. These steps include increasing exports…and requiring renewable generation curtailment. The ability to export power depends on the needs of neighboring entities…the resource mix would also benefit from resources with energy storage capabilities…

Pipeline de-carbonization works together with electrification towards Climate Change objectives Pipeline de-carbonization offers Cost Effective and Resilient Pathways De-carbonization can play an important role Integrating Variable Renewable Generation Resources Pipeline de-carbonization reduces emissions in sectors that are otherwise difficult to electrify, including heavy duty vehicles; residential and commercial end uses, and industrial end uses Managing “Energy Grid” (gas and electric together) = efficiency and cost avoidance Strategic use of gaseous fuels supports near- and long-term goals In nearer term, opportunities for efficiency, “near zero” technology and new uses for natural gas (transportation) In medium- to long-term, new low- carbon sources of gas need development and introduction 17 Expands upon 2012 Science article E3 Study: Integration of New Low/Zero Carbon Options

18 Expands upon 2012 Science article Senate Bill 350 – Clean Energy and Pollution Reduction Act of 2015 (Sen. Kevin de Leon)  Purpose: Create jobs, grow the state’s economy, and improve public health by setting new standards for California’s Renewable Portfolio Standard, reducing petroleum use, and increasing energy efficiency in existing buildings.  Original Legislation: Called for doubling the existing energy efficiency goals  SoCalGas Position – Doubling of goal is unachievable without key policy changes  Amendments – SoCalGas lobbied to include substantive EE policy changes, including:  Allowing for “to-code” customer incentives and energy savings  Ensures that customers receive the incentive payment amount that was committed throughout the project  Allows for pay for performance energy efficiency programs  Continued Gaps  Amended language was removed that would ensure equal treatment to all EE program administrators  Amended language was removed that would create a more advantageous energy efficiency cost- effectiveness methodology

19 Expands upon 2012 Science article Shaping Policy to Increase EE Savings  Challenge: CPUC policy generally limits customer incentives to “above-code” savings.  Tougher for customers to participate in EE programs.  The standards gap between existing buildings and code requirements is widening.  Governor's goal is unachievable without including “To-Code” Savings  Current incentives are not enough for customer participation  SoCalGas is working with stakeholders to improve energy efficiency program policies:  CPUC authorized IOUs to implement a “To-Code” Pilot  SoCalGas has lobbied for amended language that incorporates EE policy changes  Joint Party Proposal