1. Cost of Services Pricing Enables a Net Zero Energy World © 2011San Diego Gas & Electric Company. All copyright and trademark rights reserved. 1

2. Where are we going? An eye on the future can guide no-regret decisions today What do we want to do now? Give customer’s options, including the types and level of renewables they want What are the issues that need to be tackled? The services customers want and Distributed Energy Resources (DERs) they adopt change the technical requirements of the grid How do we provide customers with choice, protect customers from cost shifts and provide consumer protections The cost of services pricing A Low Carbon Energy Future 2

3. The Utility of the Future Developing a Common Vision 3 An I-Phone creates a platform for customization Third parties develop apps that target services that customer’s value Customers love the I-Phone because it allows them to customize their phone and their phone service The utility grid will do the same thing: Some customers may want DG Some may want an EV Some may want distributed storage Some may want to sell services to the grid Some may want community solar Others may want a green tariff from their utility, service from an ESP, or customary utility procurement service

4. A Market to Support a Common Vision Cost of Services Pricing Pricing that reflects the services that are available to customers on an unbundled basis When customers receive a service they should pay for that service If customers provide a service/benefit to utilities, they should also be compensated for that service We must identify what services customers with new technologies will want from utilities and may be able to provide to utilities If subsidies/incentives are needed, they should be clearly identified, equitably recovered from all customers with a plan for what will happen to that subsidy over time 4

5. 5 The Utility World Today

6. 6 The Utility World of the Future

7. Integration of DER The Future is Today 7

8. Infrastructure is Required to Maintain Power Quality Nominal Voltage Upper ANSI Range Nominal Voltage

9. Forecasted peak and low day for SDG&E system Generation Needs to Ramp Up and Down to Follow Customer Demand & Renewable Generation Gross LoadNet Load Solar and Wind The type of capacity needed to manage system requirements is changing Capacity is still needed to meet peak demand However, capacity is also needs to address much steeper ramp requirements and ultimately store surplus energy

10. 2 9 8 1 4 5 10 11 6 12 13 14 37 16 15 17 18 19 20 22 21 23 24 25 26 27 28 29 30 31 32 Resource Diversity? Installed Solar – 3588 kW Installed Fuel Cell – 400 kW TOTAL – 3988 kW Installed Projects as of 5/15/12

11. The Grid Requires More Flexible Capacity Today than in the Past The CAISO estimated load following MW would increase by roughly 1/3 rd and regulation MW would double in going from a 20% RPS to a 33% RPS The CPUC is studying the cost of renewable integration 11

12. The Distribution System has its Own Capacity Needs Customers energy demands are different The customers on an individual circuit drive circuit capacity needs 12 Given the diversity in circuit peaks a customer’s individual peak is a typical measure of their cost responsibility for distribution capacity

13. Customers Respond to Accurate Prices Customers respond to price signals When customers do not receive accurate price signals they can increase costs 13 SDG&E EV Customers on TOU Rates

14. Charging Customers their Cost of Service can Unlock the Value of DER( 2013 Peak Day*) *4,604 MWs August 30 th 2013 at 4pm 14 How DER Customers respond to traditional Tiered Rate How DER customers could respond

15. Achieving a Low Carbon Future The grid requires more flexible Capacity Today than in the Past The distribution system has its own capacity needs Customers respond to accurate prices Charging customers their cost of service can unlock the benefits of DER 15