Board of Directors Meeting
Special Board Retreat – Power Procurement
Wednesday, July 6, 2022
11:00am
https://us02web.zoom.us/j/87023071843
Dial(for higher quality, dial a number based on your current location): US: +1 669 900 6833 or +1 346 248 7799 or +1 253 215 8782 or +1 929 205 6099 or +1 301 715 8592 or 888 475 4499 (Toll Free) or 877 853 5257 (Toll Free)
Webinar ID: 870 2307 1843
Meetings are accessible to people with disabilities. Individuals who need special assistance or a disability-related modification or accommodation to participate in this meeting, or who have a disability and wish to request an alternative format for the meeting materials, should contact the Clerk of the Board at least 2 working days before the meeting at (510) 906-0491 or [email protected].
If you have anything that you wish to be distributed to the Board of Directors, please email it to the clerk by 5:00 pm the day prior to the meeting.
1. Welcome & Roll Call
2. Pledge of Allegiance
3. Public Comment
This item is reserved for persons wishing to address the Board on any EBCE-related matters that are not otherwise on this meeting agenda. Public comments on matters listed on the agenda shall be heard at the time the matter is called. As with all public comment, members of the public who wish to address the Board are customarily limited to two minutes per speaker and must complete an electronic speaker slip. The Board Chair may increase or decrease the time allotted to each speaker.
4. Power Procurement Overview (Informational Item)
Receive overview of Power Procurement activities.
5. Board Member and Staff Announcements including requests to place items on future Board Agendas
6. Adjournment to Wednesday, July 20, 2022 at 5:00pm
Board Retreat:
Power Procurement
Overview
PRESENTED BY: Izzy Carson, Chris Eshleman, Ray Dai, Jim Dorrance, Marie Fontenot, Karen Lee
DATE: July 6, 2022
Agenda
2 • Section 1: Energy Markets & RPS Overview
• Section 2: Integrated Resource Planning: Role & Challenges • Section 3: Energy Risk Management & Business Risks
• Section 4: Resource Adequacy
SECTION 1:
Energy Markets &
RPS Overview
3 North American Balancing Authority Areas
4 California Balancing Authority Areas
5 CAISO BAA
• Avg. Peak Load 45,000 MW
• 26,000 circuit miles of transmission
Role of CAISO
• Competitive Wholesale Power Market
• Reliable Operations
• Grid Planning and Development
Wholesale Energy Market Products
6 • Energy
• Transmission
• Capacity
– Resource Adequacy
– Ancillary Services
• Operating Reserves
• Regulation Services
• Natural Gas
• Congestion Revenue Rights
• Renewable Energy Products
CAISO Markets
7 Day-Ahead Market
• Matching Supply / Demand • Majority of Transitions • Market Processes Real-Time Market
• Matching Supply / Demand • Incremental Adjustments to DAM • 15-Min. and 5 Min. settlements • Market Processes CAISO Nodal Pricing Settlement
8 Load and Supply Nodal Settlement
• Load Settlement at DLAP
– Default Load Aggregation Point
– EBCE in PG&E DLAP
• Generation Settlement
– Individual PNODE
• Pricing at location of generation
• Inter-SC Trades
– Trading Hub Settlement
– NP15 EZ GEN HUB
• Weighted average of generation PNODs
CAISO EIM – Energy Imbalance Market
9 Primary Goals
– Enhance reliability
– Generate cost savings
– Improve integration of
renewables
– Tap into locational specific
resources
– Reduce price variability
Regulatory Bodies
10 CAISO
• California Independent System Operator
– Manages the flow of electricity on high-voltage power lines, operates a wholesale energy market, and oversees infrastructure planning.
FERC
• Federal Energy Regulatory Commission
– United States federal agency that regulates the transmission and wholesale sale of electricity and natural gas in interstate commerce.
NERC
• North American Electric Reliability Corporation
– Nonprofit corporation created by the electric utility industry to promote the reliability and adequacy of bulk power transmission in the electric utility systems of North America.
CPUC
• California Public Utilities Commission
– Regulatory agency that regulates privately owned public utilities in the state of California, including electric power, telecommunications, natural gas and water companies.
CEC
• California Energy Commission
– As the state’s primary policy and planning agency, the Energy Commission is committed to reducing energy costs and environmental impacts of energy use while ensuring a safe, resilient, and reliable supply of energy.
Compliance with the Renewable Portfolio
Standard (RPS)
11 What is RPS?
• Key program for advancing renewable energy
• Sets escalating renewable energy procurement requirements for CA Load-Serving Entities • Must be procured from RPS eligible facilities
• Targets verified on multi-year period rather than annually Portfolio Content Category (PCC) Classifications
and Renewable Energy Credits (RECs)
12 PCC 1Energy and REC are from same source and delivered into a California Balancing Authority (CBA) without any substitution PCC 2Substitute Energy not from the same source as REC
PCC 3Electricity Products Not Qualified as PCC 1 or PCC 2, Including Unbundled RECs
RECs:
• Represent clean energy attributes of renewable electricity • Each REC is equivalent one MWh of renewable electricity generated • Limitations to the amount that each group can count towards RPS requirements
Classified into three distinct categories
Compliance with the Renewable Portfolio
Standard (RPS)
13 Power Content
• Annual requirement, for 1
calendar year of purchases
• Detailed breakdown on sources
of energy used to provide
electricity
• Resembles a nutrition label
RPS Compliance
• Multi-year compliance periods
with annual reporting
requirements
• Minimum required percent of
electricity from designated
renewable energy resources
vs.
SECTION 2:
Integrated Resource
Planning & its
Impact
14 What is the Integrated Resource Plan (IRP)?
15 California statute requires all load-serving entities to prepare IRPs • Each CCA, as well as each IOU and ESP, is required to file its IRP with the CPUC on a biennial basis (2-year cycle)
• First year of cycle: CPUC develops a Reference System Portfolio (RSP) – used in the CAISO Transmission Planning Process and in load serving entity IRPs • Second year of cycle: LSEs file IRPs at the CPUC; CPUC aggregates, evaluates, and uses IRPs to form a recommended Preferred System Portfolio (PSP). Can also result in procurement mandates
First IRPs were due in 2018; second were 2020, next: ~November, 2022. Takeaways from previous studies:
• Initial IRPs were developed as individual plans but with no understanding of the collective impact of plans
• By planning jointly, CCAs can understand where their reliance on resources in their plan is duplicative or if their plans fail to adequately support grid reliability • Additional detailed modeling may supplement the information developed by the CPUC IRP – Project Objectives
16 Questions we seek to answer:
• What is the ideal mix of resources to achieve both the state’s and EBCE’s own goals?
• What resources will most cost effectively contribute to grid reliability? • Recognizing EBCE’s plan to achieve an emission-free portfolio by 2030,what would the impact be of attempting to achieve the portfolio on a time-coincident basis Create an Integrated Resource Plan (IRP) reference portfolio that will:
• Conform with the CPUC reference case
• Meet CPUC required inputs and regulations
• Achieve additional EBCE priorities and goals
Potentially develop a second preferred portfolio to achieve EBCE’s objectives while managing risk and cost
IRP – Goals for 2022 IRP
17 1) Identify cost-effective, feasible, reliable, equitable and robust options to achieve our communities’ goals and objectives, and to reduce carbon emissions 2) Inform and engage stakeholders in the IRP process
3) Allow the IRP process to inform the selection of a preferred portfolio 4) Use one model for consistency in optimization, simulated dispatch, and probabilistic functions
5) Test a range of portfolios in scenario modeling and ultimately in risk analysis 6) Meet CPUC requirements
7) Timely obtain necessary Board approvals
IRP – Objectives & Measures
18 •Purpose of the IRP is to evaluate CCAs' current
energy resource portfolio & a range of alternative
future portfolios to meet customers’ electrical energy
needs in an affordable, system-wide manner that
also takes into account
•Each objective is important & worthy of
balanced consideration in the IRP process; taking into
account uncertainty, some objectives are better captured in portfolio construction than as a portfolio measure
•The measures allow the analysis to compare
portfolio performance and potential risk on an equal basis IRP Objectives
Affordability
Meeting GHG
Emissions Reduction
Targets
System Reliability
Resource Diversity
IRP – Key Market Drivers
19 Hypothetical Future January
Asset Values
20 Hypothetical Future July
Asset Values
21 Step 1: Needs Assessment
Asset Values
22 • Demand forecast o Peak vs average monthly loads • Quantity Compliance Requirements o RPS o RA • Other EBCE-goals • Market Dynamics o Open position o Market price exposure • Risk Management o Hedge strategies o Financeability of transactions Step 2: Prioritization & Valuation
Asset Values
23 Prioritization
• Compliance Requirements
o RPS
o RA
• Market Dynamics
o Open position
o Market price exposure
• Risk Management
o Hedge strategies
o Finance-ability of transactions
• Other EBCE goals
Valuation
• Quantitative Inputs
o Forward Curve Development (Energy,
RA, RPS)
o Estimated Value of Location
o Others
• Qualitative Inputs
o Open position risk (+ or -)
o Credit terms & seller creditworthiness
o Counterparty concentration
o Project risk/ability to construct in a
timely manner
o Environmental considerations
Step 3: Define Eligible Products
Asset Values
24 Example: “un-hedged” January, 2024
25 Currently
unhedged
Fill open position with:
• Fixed-price energy
purchases (short-term
hedges)
• Additional generating
resources
• Dispatchable energy
storage
Our current portfolio of resources fills January demand… CAISO Wide Curtailment
26 Climate Driven Drought
27 Source: https://blog.ucsusa.org/pablo-ortiz/can-the-us-survive-californias-drought/ Step 4: Go-to-Market
Asset Values
28 • Identify Product
• Develop Timeline
• Market/Seller Outreach
• Evaluate Offers
• Negotiate
• Calculate final, proposed notional values
• Execute Agreements
SECTION 3:
Energy Risk
Management
29 Energy Price Volatility
30 Energy Risk Management
31 Key Energy Market Risks
• Volumetric Risk
– Fluctuations in the volume of
supply and demand
• Price Risk
– Price volatility
Risk Management Objectives
• Mitigate Exposure to Volatility
• Durable Rates
• Financial Stability
• Regulatory Compliance (FERC & CFTC)
Risk Oversight Committee
• Energy Risk Management Policy approved by the Board
• Energy Risk Management Procedures approved by the Risk Oversight Committee
– Approved trading counterparties
– Approved trading products/instruments
– Approved personnel
– Approved authorities
– Compliance training
– Exception reporting
32 Hedge Strategy guided by price distribution
33 Long-Term Hedging
• Load Forecasting
• Coverage Objectives
• Market Conditions
• Resource Composition
Short-Term Hedging
• Refined Load Forecast
• Intra-Month / Intra-Day Shaping
• Market Conditions
Fixed-Price Energy Hedging
• Inter-SC Trades
Example:
Counterparty Credit Risk Management
34 • Evaluate and monitor CP credit worthiness
• Assess CP Mark to Market exposure
• Mitigate CP credit risk through collateral
SECTION 4:
Resource
Adequacy
35 Resource Adequacy
36 Resource Adequacy (RA):
• A compliance product to ensure there is adequate capacity to match customer demand with available generation at any hour of the day in the CAISO • Resource Adequacy is purchased as available capacity, Requirements:
• EBCE is required to procure an amount of capacity that is determined from the peak customer demand by month + 15%
• The RA requirement is defined annually, and is impacted by customer load growth and retiring resources
• LSEs must demonstrate compliance to both the CPUC and CAISO, annually and monthly
Resource Adequacy - Types
37 • CPUC Jurisdictional LSEs (EBCE) have 3 types of RA requirements: System, Local and Flexible
System
• Interconnected to CAISO
• Imports
o Energy imported from
outside the CAISO
Local*
• EBCE has a Local capacity
requirement
• Local areas have limited
import capability
(transmission constraints)
with local reliability
problems
Flexible
• Determined by resource
ability to dispatch energy
during hours of “flexible
need”
• Both System and Local can
be flexible
*Central Procurement Entity (CPE): EBCE is responsible for Local RA in 2022 and years prior. Starting in 2023 Local RA will be purchased by the CPE.
38 • ELCC (Effective Load Carrying Capability) is used to determine the contribution of intermittent resources to system reliability.
• Solar and wind offer diminishing contributions to RA as penetration grows, particularly for solar, which was already facing low ELCC.
• Dramatic decrease in Solar ELCC in summer months will contribute to a more constrained RA market in summer.
Resource Adequacy - Renewables
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Solar ELCC
2020 2023
0%
5%
10%
15%
20%
25%
30%
35%
40%
Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec
Wind ELCC
2020 2023
RA Reform & Slice of Day
39 • Intent of RA Reform: Minimize customer cost, meet hourly reliability needs, be adaptable to a changing grid. • Full implementation starts with compliance year 2025. • Under SOD, RA obligations based on EBCE’s hourly share of CAISO load for the “worst day” of each month. • Chart below is an example showing.
RA – Reliability Procurement Mandates
40 • Two procurement orders: Near-Term Reliability (2021-23) and Mid-Term Reliability (2023-26) • Incremental capacity to be procured from resources such as solar, wind, storage, hybrid, geothermal, demand response.
Near-Term Reliability Mid-Term Reliability
Compliance Term 2021-2023 2023-26
EBCE Requirement (across
Compliance Term)
99.6 MW 418 MW
Resource Counting RA framework Incremental ELCC’s (e.g. solar counts for 6.6% for
2024, and 4-hr Batteries
count for 90.7% for 2024)
Penalty none Cost of New Entry
QUESTIONS &
DISCUSSION
41