N O R T H E R N C A L I F O R N I A P O W E R A G E N C Y

The Utility Business Model of the Future

NWPPA’s Power Supply Workshop August 3, 2015

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Addressing Key Issues and Changes

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Perspective on Issues and Changes

Technology, micro-grid models, governmental policies, customer usage and communication expectations are all changing fast. What is the priority and when? Business Models - Drivers Rate Strategies and Financial Impacts Opportunities with new Technology to Change E&O Engagement with Customers and Public Communication

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Drivers - Clean Energy Transformation

For many utilities, the power supply was built over the last 100 years. Over the next 15 years, most utilities will replace over 50% of their power supply to become more sustainable and to comply with federal and state environmental mandates. Throughout this transformation, the utilities top priority must be maintaining power system reliability to keep the energy flowing to our customers and reinforcing the distribution backbone.

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Achieve at Least 10% Energy Efficiency by 2020, Double that by 2030 Reach 33% Renewable Energy by 2020, 50% by 2030 Interim Target: 25% by 2016 Includes solar, wind, hydroelectric, geothermal, & biogas energy resources, emphasis on in-state , Scattergood & Harbor Generating Stations Eliminate Coal from CA’s Power Supply Navajo Generating Station, San Juan Generating Station Intermountain Power Plant (IPP), Four Corners Rebuild Coastal Power Plants to Eliminate Ocean Water Cooling & Integrate Renewables Invest in Distribution Modernization and Reliability Replace aging and inadequate infrastructure Reduce Transportation Fuels 50% by 2030

Drivers - CA Clean Energy Transformation Elements

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Energy Efficiency Programs

Target: Achieve at Least 10% Energy Efficiency by 2020, Proposal is to Double Savings by 2030 Designed to reach all customer sectors • Direct install for small business and residential customers • Partnership with Non-Profits and other Utilities (gas,water, etc…) • Rebate programs for Energy Star® appliances • Technical assistance programs available for large customers who need a

more customized approach • Codes and Standards

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Annual Generation by fuel type

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Coal Transition and Supply Integration CA is moving forward with eliminating coal from our energy mix. Maintaining reliable energy supply without coal requires careful integration of all transformation elements. Must follow the loading order.

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Drivers – Ensuring Reliability

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Reduce Transportation Fuels by 50% Substantially Increase the Number of Transportation Vehicles using Electricity as a Primary Fuel Higher Efficiency of Vehicles and Reduced Demand for Transportation Services •8% reduction in vehicles miles traveled through smart growth policies and demographic trends by 2030 •Sustained vehicle efficiency improvements •Petroleum refining and oil & gas extraction energy use decline proportionally with demand for liquid fossil fuels

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Greater reliance on electricity in buildings & zero emission vehicles - Switching to electric space conditioning & water heating in buildings - Electric processes in industry - Rapid ramp up of battery electric and/or fuel cell vehicles

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Rate Strategies and Financial Impacts

Cost allocation results are

causing the “ownership” assumptions underpinning the strategic plan to be questioned Incremental resource

additions Allocation factors

Continuing concerns on business model (strategy) structure Ease of entry/exit

- Bundled services versus ala carte service offerings

- Outsourcing services - Market pricing issues

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Rate Strategies and Financial Impacts

What will be the enforcement process? How much should be developed with Legislation versus Regulation? Will there be any local control left? Does it mean that large hydro or nuclear need to be divested by California to make room for renewables? Is this really about GHG? Are people going to buy the electric vehicles? Has anyone done this experiment before and are there sufficient off-ramps, cost containment, and evaluation points in the process?

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POU’s should be Evaluating the Impacts and Opportunities

Should POU’s continuing owning the customer relationship related to EE? How much responsibility should POU’s have to electrify transportation? Should POU’s own pay-go EV charging around the municipality? Can POU’s get the emission credits for electrification? Should POU’s install and own rooftop solar, community solar, or establish feed-in tariff programs?

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BUSINESS STRATEGY Annual surveys and ongoing

discussions with POU’s reveal different perspectives on the appropriate business strategy

The key is to build on core strengths when developing a business strategy going forward. How would you describe the

business strategies for: - Solar City - Tesla - Google - NRG - Costco

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Simplified Integrated System Example

CAISO

ACES Database quantities

TABS Prices

MARS

Pre- Scheduler

Trade Manager

NCPA Database

NADS

OATI

Web Services

NCPA Pre-Schedule

OE

Member OE

NCPA SC NCPA

contracts

Member SC

Plant Control (SCADA)

SAVEE

NCPA SaMC

Shredder

OMAR

Plant/Load meter data

ARB

Pool Billing

OE Billing

Western Portal

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IS THE BUSINESS MODEL (STRATEGY) SUSTAINABLE?

For small customers? For large customers? For customers with

DER projects? For wholesale

customers? For expanding non-

traditional revenue generating services?

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IS THERE A MAJOR ISSUE(S) THAT NEEDS TO BE ADDRESSED IMMEDIATELY?

Cost Allocation? Outsourcing? Contract requirements? Unbundling of

Services? Bundled service

groupings? Billing System? Metering and MDM?

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Opportunities with New Technology

Distributed Energy Resource Customers - Balancing Resource - Reliability/Voltage Quality - Energy Transaction - buy/sell - Sizing

Opportunity - Optimize Local and Central Resources - Rate Structure – Capacity and Energy - Interconnection Rules and Communication Standards - Advanced Distribution Management - DER Integrated Planning and Operation - FIT/Community Solar - Value the data

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Opportunities with New Technology

Transportation Electrification - Energy and Capacity Sales - Demand Management - Emission Credits

Opportunity – Shape and Marginally Price the Resources - Rate Structure – Real-time Capacity and Energy - Increase Load - Increase Customers beyond Service Territory Boundaries - DER Integrated Planning and Operation - Value the data - Increase System Capacity Factor

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Engagement with Customers and Public Communication Transition from one-way Power Flow to a Dynamic Network

Supporting two-way Flow Requires much more interactive communication with the

Customer - No longer just interface during turn-on/turn-offs - Customers do not understand interconnection agreements - DER Customers are empowered and monitor generation and usage

(real-time?) - Explore/research opportunities of owning the interface with customers - Explore business model changes and prepare business plan to develop

additional services and flexibility to Customers - Integrate sales/services/operations around the future customer

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Engagement with Customers and Public Communication Communication Technology Requires much more interactive communication with the

Customer - Digital and technology natives (77 million Millennials by 2020) - 91% of Millennials cite climate change and rising sea levels as serious

environmental problems - Prefer self-serve applications and mobile applications - Expect “perfect” reliability - Less commitment to business relationships - Requires more channels of information and transparency

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Questions?

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