OUR MISSION: To provide our customers with high-quality, efficient and reliable water, power and sewer services in a manner that values environmental and community interests and sustains the resources entrusted to our care.
525 Golden Gate Avenue, 13th Floor
San Francisco, CA 94102
T 415.554.3155
F 415.554.3161
TTY 415.554.3488
DATE: April 12, 2022
TO: Commissioner Anson Moran, President
Commissioner Newsha Ajami, Vice President
Commissioner Sophie Maxwell
Commissioner Tim Paulson
THROUGH: Dennis Herrera, General Manager
Barbara Hale, Assistant General Manager, Power
Ramon Abueg, Deputy Assistant General Manager, Power Operations
FROM: Karina Leung, Manager, Risk Management and Business Analysis, Power
SUBJECT: Annual Power Risk Management Update – 2021
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Table of Contents
1. Executive Summary .................................................................................................................... 3
2. Enterprise Risk Management (ERM) .......................................................................................... 4
3. Risk Management 2021 Highlights ............................................................................................. 4
3.1 COVID-19 Pandemic ........................................................................................................ 4
3.2 Diversity, Equity, and Inclusion ........................................................................................ 5
3.3 Customer Interconnection and Expansion ....................................................................... 6
3.3.1 Fair and Affordable Access to PG&E’s Distribution Grid ......................................... 6
3.3.2 Investment in Transmission and Distribution ........................................................... 7
3.3.3 Acquisition of PG&E Electric Infrastructure Serving San Francisco ........................ 7
3.4 Supply Risk Management ................................................................................................ 8
3.4.1 Integrated Resource Planning (IRP) ........................................................................ 8
3.4.2 Portfolio Management ............................................................................................... 9
3.4.3 Resource Adequacy (RA) ........................................................................................ 9
3.5 CleanPowerSF and the Power Charge Indifference Adjustment (PCIA) ...................... 10
3.6 Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Study ................. 11
4. Risk Management Activities – Emphasis for 2022 ................................................................... 12
4.1 Business Continuity and Diversity, Equity, and Inclusion .............................................. 12
4.2 Customer Interconnection and Expansion ..................................................................... 13
4.3 Portfolio Management .................................................................................................... 13
4.4 Power Charge Indifference Adjustment and Direct Access .......................................... 13
4.5 Hetch Hetchy Power and CleanPowerSF Rate Study .................................................. 14
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1. Executive Summary
This report summarizes the Power Enterprise’s key risk management activities over the past calendar year (2021) and covers both the Hetch Hetchy Power and CleanPowerSF business lines. This report is Power Enterprise’s sixth annual update to the Commission.
Hetch Hetchy Power is our full-service electric utility and CleanPowerSF is San Francisco’s Community Choice Aggregation (CCA) program. Together, these retail electric service programs provide over 70% of the electricity consumed in San Francisco.
• 1 million MWh annual sales (150 MW)
• 4,500 customer accounts, and growing
• Ownership in 385 MW hydro
generation, 9 MW solar, 3 MW biogas
• Default product 100% GHG-free
• “Premium” 100% California RPS
renewable
• 160+ miles of transmission and
distribution lines
• 172 authorized positions
• 3.1 million MWh annual sales (550
MW)
• 380,000+ customer accounts,
relatively stable
• Diverse portfolio of short, medium, and
long-term power, storage, and
resource adequacy contracts
• Default ”Green” product at least 50%
RPS-eligible and nearly 100% GHG-
free
• “SuperGreen” and “SuperGreen
Saver” 100% California RPS
renewable
• 66 authorized positions
Hetch Hetchy Power and CleanPowerSF services benefit from shared risk management approaches and platforms. The Power Enterprise’s key updates for 2021 are:
1. Ensuring business continuity and providing dependable care and support to employees and customers during COVID-19 pandemic
2. Making consistent progress in racial equity imperative through Power workgroups and active engagement in PUC-wide racial equity groups
3. Managing risks in customer interconnection and expansion through a. Fighting for fair and affordable access to PG&E’s distribution grid b. Investing in city-owned infrastructure and advancing the Bay Corridor Transmission and Distribution (BCTD) project
c. Evaluating the City’s Pacific Gas and Electric Company (PG&E) acquisition proposal, risks and opportunities
4. Improving supply management tools and processes to ensure reliable, green and cost- effective supply
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a. Engaging in various power supply procurement efforts to support achievement of CleanPowerSF’s adopted 2020 Intergrade Resource Plan (IRP) energy portfolio planning targets
b. Improving portfolio management tools and procurement processes for both Hetch Hetchy Power and CleanPowerSF
5. Actively participating in the California Public Utilities Commission’s proceeding on Power Charge Indifference Adjustment (PCIA)
6. Embarking on Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Study to provide financial stability and affordability
Protecting and growing our customer base and providing reliable and affordable electric service are critical to meet our business plans’ goals and objectives. Hence, looking forward in 2022, Power will continue to focus on the efforts mentioned above as well as identify additional risk mitigation strategies.
2. Enterprise Risk Management (ERM)
Both Hetch Hetchy Power and CleanPowerSF have leveraged the ERM framework to manage risk since 2014 and 2016, respectively. The ERM framework provides a strategic, comprehensive approach to assess, prioritize, monitor, and mitigate business risks. Under this framework, risks are organized by functional area to facilitate operational focus and accountability within Power Enterprise and across the SFPUC.
As discussed in detail below, our focus in 2021 was on managing COVID-19 Pandemic impacts, and addressing increased racial tension and structural racial inequities, while continuing to mitigate risks posed by PG&E, optimize CleanPowerSF’s portfolio management, and analyze our cost of service and retail rate structure.
3. Risk Management 2021 Highlights
In 2021, the Power Enterprise continued to manage risk with a focus on protecting and growing our customer base, and continuing to provide reliable and affordable services to our customers.
The following six work areas were of particular note in 2021:
1. COVID-19 Pandemic
2. Racial Equity
3. Customer interconnection and expansion
4. Supply risk management
5. CleanPowerSF and the PCIA
6. Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Study
3.1 COVID-19 Pandemic
The Power Enterprise has implemented numerous measures to mitigate the impacts of the Covid-19 pandemic on our customers and staff as well as preserve the financial health of the San Francisco Public Utilities Commission (SFPUC) Power funds.
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As a top priority, the Power Enterprise has implemented all City and SFPUC protocols to ensure the safety and well-being of staff, with 20% of staff continuously reporting to worksites since the March 2020 shelter order. We are now in the process of safely returning the rest of our workforce to the office starting March 7, consistent with City requirements. We continue to track the impact of COVID-19 on electricity demand and its associated revenue to generate better projections of future spending and budget constraints.
From March 2020 through March 2022, Hetch Hetchy Power offered 30% bill discounts to residential customers who experienced a loss of income related to COVID-19 or the shelter in place order and faced difficulties in paying their bills through the Emergency Residential Customer Assistance Program. While this program has come to a close, the standard CAP has been altered per SFPUC Resolution 22-0044 to allow an easier application process for customers moving forward. Per SFPUC Resolution 22-0043, Hetch Hetchy Power has set a close for the suspension of power service shutoffs for customers in San Francisco for non- payment of bills until June 30, 2022, July 31, 2022, and August 31, 2022 for non-residential, non-CAP residential, and CAP residential customers, respectively.
In November 2021, CleanPowerSF applied for federal funding administered by the California Department of Community Services and Development, securing over $2.4 million in debt relief for its customers. This relief is being automatically applied to customer bills for debt incurred during the COVID-19 pandemic period defined as March 4, 2020 through June 15, 2021. Per SFPUC Resolution 22-0043, CleanPowerSF has also suspended the return of customers to PG&E for non-payment of CleanPowerSF charges until June, 2022.
3.2 Diversity, Equity, and Inclusion
Diversity, equity, and inclusion is a core value at the SFPUC and within the Power Enterprise.
Addressing racial inequity is both a moral imperative and a risk management activity, as it is key to ensuring the success and engagement of our workforce now and in the future. Racism, sexism, and lack of fairness in the workplace can lead to losing valued, qualified staff and workplace churn; loss of institutional knowledge, skills, and investments in training and onboarding; low staff moral; lower-quality decision making given narrower perspectives; lawsuits; as well as reputational risk for the SFPUC. Inequity in our work environment and in the delivery of our services can worsen health outcomes and wage inequity in San Francisco.
The Power Enterprise has designated a racial equity lead as well as staff who participate in PUC-wide racial equity groups. We’ve also set up a Power-specific racial equity workgroup, which meets monthly with about 35 participants and has staff-led subcommittees focused on the San Francisco Office of Racial Equity (ORE) Racial Equity Action Plan, external equity, learning opportunities, and creating a space for Black, Indigenous, and people of color (BIPOC) staff to connect and provide feedback on this effort. A Power racial equity implementation plan showing deliverables, timelines, persons responsible, and progress is regularly updated and shared with staff.
Key accomplishments this year include launching a SharePoint site hosting the Power Equity Policy, the Enterprise’s Racial Equity Workgroup Charter, link to a racial equity anonymous comments portal, as well as links to numerous racial equity educational resources. The Power BIPOC Advisory Committee has launched a well-attended affinity group that meets monthly.
The Enterprise also conducted two surveys to serve as a baseline against which to track progress as well as help identify needs and gaps for future action. One such survey sought employee responses about barriers to job qualifications, and the other survey asked employees DocuSign Envelope ID: C89C2DAB-60A4-4BA2-83D7-7CF616A51F7B
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about their needs and employment experiences from a diversity, equity, and inclusion perspective. The Power Enterprise also continued to work on many additional deliverables addressing ORE action plan implementation as well as fostering an organizational culture of inclusion.
3.3 Customer Interconnection and Expansion
Under the Federal Power Act and PG&E’s Wholesale Distribution Tariff (WDT or Tariff) on file with the Federal Energy Regulatory Commission (FERC), the City has the right to access PG&E’s distribution grid to serve its Hetch Hetchy Power customers. PG&E’s implementation of the WDT terms and its recent request to FERC to increase rates and change terms of the WDT pose significant challenges for the City in affordably and efficiently serving, maintaining and growing its customer base. These challenges will result in further loss of benefits to the City, loss of revenues to Power Enterprise, and impacts to City projects including increased equipment costs, delays, and site construction challenges associated with oversized and complex equipment configurations.
3.3.1 Fair and Affordable Access to PG&E’s Distribution Grid Since the City’s transition to the WDT in 2015, PG&E has continuously violated the terms of the Tariff and sought to impose additional requirements not required under the terms of our Service Agreements or the WDT. PG&E’s implementation of its WDT continues to be a substantial risk for the City’s ability to provide electric service.
In October of 2020, PG&E filed proposed revisions to its WDT. The proposed revisions are extremely detrimental to entities that must take service under this tariff. The new WDT filing (“WDT3”) imposes a change in billing methodology, a substantial rate increase and new non- rate terms. These changes, if adopted by FERC, could result in the conversion of many of the City’s General Fund interconnection points to PG&E retail service, thereby exposing them to substantial electricity bill increases, if the City does not invest in new oversized infrastructure.
This additional PG&E-required infrastructure investment is not needed for reliability or safety and in many cases cannot be sited due to space restrictions. Another provision of the WDT3 disallows all grid connections on the downtown ‘network’ grid, effectively terminating City service to any customers located in the City center, including City Hall and the SFPUC headquarter building, if they alter any aspect of their current service.
While the various settlement and litigation efforts proceed through the FERC process, staff continues to meet with PG&E on a weekly basis to facilitate our grid connections on a project- by-project basis. Senior Management also continues to engage with PG&E in efforts to resolve these issues more globally. These efforts have resulted in limited success thus far1. To the contrary, PG&E’s behavior has become increasingly less cooperative, and it appears they are less willing to seek a solution that enables the City to provide timely, affordable service consistent with the City’s rights under federal law.
1 The City and PG&E reached an agreement to allow for a limited set of Affordable Housing Projects to move forward with appropriately sized electrical equipment. The agreement was approved by the San Francisco Board of Supervisors on November 30, 2021. We expect that approximately one-third of the upcoming Affordable Housing projects will be eligible for service under this agreement.
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Power Enterprise staff also prepares quarterly reports for the Board of Supervisors describing the on-going disputes with PG&E and the impacts on the City. These reports are required by Board Resolution No. 227-18, and the next report will be issued in April 2022.
3.3.2 Investment in Transmission and Distribution
Investing in City-owned transmission and distribution infrastructure is another strategy that allows for local City control of the delivery of power to our customers, thereby reducing our reliance on PG&E’s grid and the associated challenges and costs described above. One of the major initiatives is the development and construction of the Bay Corridor Transmission and Distribution Project (BCTD). BCTD will provide medium-voltage power delivery to a limited number of the City’s Hetch Hetchy Power customers safely and reliably, gaining autonomy from PG&E.
Power Enterprise has identified key customers to serve through BCTD. Construction of BCTD infrastructure is in progress and scheduled to be completed before Summer 2022.
While proceeding with the construction of the BCTD project, Power staff will keep on pursuing strategic opportunities to expand City-owned infrastructure that will allow for the continued provision of electric distribution service independent of PG&E.
3.3.3 Acquisition of PG&E Electric Infrastructure Serving San Francisco On January 29, 2019, PG&E filed for bankruptcy and reorganization. PG&E was facing multibillion-dollar claims related to catastrophic wildfires that devastated communities in Northern California over the last few years. While PG&E emerged from bankruptcy in July 2020, their financial health continues to be precarious. PG&E continues to propose financial solutions that would be harmful to its ratepayers (such as its proposed $7.5 billion securitization), while it ignores cash offers from San Francisco and other public entities to purchase assets.
At the request of Mayor Breed and Resolution 174-19, Power Enterprise issued a report in May 2019 on Electric Service Options. The report discussed the long-standing disputes and difficulties interconnecting Power Enterprise Hetch Hetchy Power customers under the current WDT (see Section 3.3.1) and recommended further evaluation of acquiring PG&E’s electric grid in San Francisco. PG&E’s continued bad behavior and the terms proposed in it’s WDT3 makes the status quo even more untenable.
Consistent with the recommendations in the May 2019 report, the City provided a formal Indication of Interest to purchase PG&E’s electric assets in San Francisco, first in September of 2019 (during PG&E’s bankruptcy) and reiterated in August of 2020 (after PG&E’s emergence from bankruptcy). PG&E has declined these offers and refused to discuss them further, stating that the purchase price offered is too low and that its assets are not for sale, in spite of the potential for the asset purchase to strengthen PG&E’s financial position and management focus.
Instead, PG&E continues to refuse to provide reasonable access to its distribution grid as required under the WDT and Federal law. The City continues to pursue the purchase in parallel with its ongoing evaluation of that strategy.
Staff is preparing an updated Business Plan. The Business Plan will incorporate elements of the Options Report and update the 2016 Business Plan given PG&E’s continued obstruction and PG&E’s WDT3 filing and PG&E’s efforts to terminate WDT service to the City’s unmetered load.
We view the dependence on the PG&E-controlled distribution grid as the biggest risk to the City’s ability to continue to provide clean, reliable and affordable electricity to our Hetch Hetchy Power and CleanPowerSF customers.
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3.4 Supply Risk Management
The evolving energy market and uncertain regulatory requirements in California present an ongoing challenge for both the Hetch Hetchy Power and CleanPowerSF supply portfolios. This section provides an update on how staff are strategically managing these supply risks.
3.4.1 Integrated Resource Planning (IRP)
An Integrated Resource Plan (IRP) is a formal process undertaken by a utility to determine future resource procurement needs for meeting forecasted annual peak and energy demand, with an adequate reserve to provide for system reliability and integrity. IRPs are also used to assess the ability of a utility to meet its environmental and policy goals.
IRP helps Power Enterprise make informed and prudent decisions regarding the City’s long- term supply needs and capital investments to meet the City’s objectives while addressing any risks and uncertainties.
Hetch Hetchy Power
Hetch Hetchy Power, unlike CleanPowerSF, does not have a yearly IRP obligation. Under the requirements of Public Utilities Code section 9621, Hetch Hetchy Power is only required to prepare an IRP once every five years. The Commission approved Hetch Hetchy Power’s IRP on November 13, 2018 by Resolution 18-0187. The IRP concluded that Hetch Hetchy Power had sufficient resources to meet its expected energy demand through the 2041 planning horizon, would continue to meet all state-required targets, and continue to provide its customers with 100% GHG-free energy. This IRP was then submitted to the California Energy Commission, which found that the IRP was consistent with the requirements of Public Utilities Code section 9621 in that it addressed the various elements (e.g. reliability, achievement of state energy goals, energy efficiency, etc.) required to be evaluated and included in a POU’s IRP. Hetch Hetchy Power’s next required IRP will need to be prepared, and then provided to the CEC in late 2023. Although Hetch Hetchy Power will not need to prepare a formal IRP until 2023, staff continues to review and update Hetch Hetchy Power’s resource planning needs through Power Enterprise’s on-going planning and budgeting processes.
CleanPowerSF
CleanPowerSF is required to submit an IRP biennially to the California Public Utilities Commission (CPUC)2. The latest IRP was submitted on September 1, 2020. CleanPowerSF modeled three portfolios in its IRP analysis, and determined that the most cost-effective portfolio would also achieve the City’s goal of a 100% GHG-free and California-eligible Renewable Portfolio Standard (RPS) electricity supply by 2025, 5 years sooner than the City’s goal at the time. The selected portfolio includes investments in new solar, 4-hour storage, long-duration storage and wind. The CPUC certified CleanPowerSF’s IRP in February 2022 in Decision 22- 02-004.3 The Decision identified 11 of CleanPowerSF’s total 22 plan sections as exemplary, the most of any load serving entity. Power Enterprise is actively working on various power supply procurement efforts to support achievement of CleanPowerSF’s adopted 2020 IRP energy
2 The SFPUC Commission approved CleanPowerSF’s IRP on 8/25/2020 by Resolution No. 20-0182. 3 Decision 22-02-004 is available at:
https://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M451/K412/451412947.PDF.
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portfolio planning targets. CleanPowerSF’s next IRP will be due to the California PUC on November 1, 2022. Preparation for the 2022 submission is currently underway.
3.4.2 Portfolio Management
Considering the changes in the energy market, and evolving regulatory environment, the need to enhance our supply portfolio management tools and procedures continued to be critical in 2021 to support clean, reliable, and affordable power supply operations. To accomplish this, Power Enterprise engaged a consultant to identify areas of improvement in its operational functions, completing Phase I of the study in 2019 which resulted in the implementation of standardized Trade Review Process as well as a survey of portfolio management software vendors.
In 2020, through Phase II of the engagement staff worked with the consultant to review six portfolio management software solutions through interactive presentations in which specific use cases were designed based on key operational needs. The tools were evaluated as to their performance and functionality in the following areas: contract management, position management, portfolio operations, portfolio valuation, scenario modeling, reporting, market price, and implementation. At the end of this process, staff selected and recommended a portfolio management tool to support energy procurement.
The implementation of the portfolio management software was completed in 2021 in parallel with the development and implementation of hedging strategies. These tools and procedures will continue to reduce portfolio risk through robust modeling and procurement planning capabilities necessary to successful power supply operations.
3.4.3 Resource Adequacy (RA)
California’s Resource Adequacy (RA) compliance program is intended to ensure there is sufficient electric generating capacity available to the CAISO to meet demand at all times. The RA program requires Load Serving Entities (LSE), like Hetch Hetchy Power and CleanPowerSF, to secure sufficient RA capacity resources to meet forecasted monthly peak demand plus a 15% reserve margin to account for unexpected outages, higher than anticipated demand, and contingencies.
There are currently three RA products that Hetch Hetchy Power and CleanPowerSF must procure to meet the RA program requirements: (1) System RA, ensuring sufficient capacity at the CAISO system-wide level; (2) Local RA, ensuring sufficient capacity within smaller transmission-constrained geographic areas throughout PG&E’s planning area in northern and central California; and (3) Flexible RA, ensuring sufficient ramping capacity to address short periods of high demand or quickly dropping demand.
The RA compliance program is administered by the CAISO, and all LSEs serving customer demand within the CAISO’s system must comply with RA program requirements. In addition, Local Regulatory Authorities (LRAs), like the CPUC, have authority to regulate their jurisdictional LSE’s compliance with their own RA requirements, which can be in addition to the CAISO’s requirements but must at a minimum meet CAISO’s requirements. As a CPUC- jurisdictional entity, CleanPowerSF is bound to the CPUC’s RA compliance requirements, but Hetch Hetchy Power is not.
Unlike other ISO markets (such as ISO-NE, PJM), CAISO’s RA “market” is transacted bi- laterally among various market participants including LSEs, generators, brokers, power marketers, and other market participants. As a result, the RA capacity market in California lacks transparency and a number of factors including the increasing number of LSEs providing power DocuSign Envelope ID: C89C2DAB-60A4-4BA2-83D7-7CF616A51F7B
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service to customers in the CAISO, the concentration of RA capacity resources in the control of California’s largest investor-owned utilities, and a great deal of regulatory uncertainty, has resulted in increasing RA capacity price volatility and market supply uncertainty.
Significant changes in the CAISO RA program are expected to be adopted as a result of CAISO’s “Resource Adequacy Enhancements” stakeholder initiative launched in 2018. If fully implemented, the Resource Adequacy Enhancements initiative will have a dramatic impact on how the RA program operates resulting in new compliance obligations for both Hetch Hetchy Power and CleanPowerSF. These changes could impact the overall availability of Hetch Hetchy Power to meet its RA compliance requirements from its hydroelectric system, potentially increasing Hetch Hetchy Power’s cost to comply with RA regulations.
The CPUC in turn has adopted numerous changes to the RA requirements that apply to CleanPowerSF since 2019, and continues to do so in various regulatory proceedings. These changes directly impact CleanPowerSF’s operations and compliance while reverberating across the CAISO RA program indirectly impacting Hetch Hetchy Power’s RA procurement and compliance.
Power Enterprise employs the following mitigation strategies to address the risks identified above:
• Monitoring and intervening in RA proceedings at the CPUC and relevant CAISO initiatives that affect the structure of the RA program and compliance obligations for CleanPowerSF and Hetch Hetchy Power.
• Coordinating with industry trade groups to ensure that RA regulations support an efficient, cost-effective, and generally well-functioning RA capacity market. • Addressing the risk of supply availability through long-term forward procurement for RA capacity.
3.5 CleanPowerSF and the Power Charge Indifference Adjustment (PCIA)
The PCIA is a surcharge that customers taking generation supply from CleanPowerSF or any other third-party generation supplier must pay to PG&E. The fee is intended to recover the unavoidable “above market” costs of the power supply procured by PG&E on behalf of the customers prior to them switching from PG&E’s generation supply service (called “bundled service”). The cost of the PCIA influences the ability of CleanPowerSF to offer a generation supply service at an “all-in” cost that is below that of PG&E’s bundled service. To deliver a service that “meets or beats” PG&E’s bundled service costs, higher PCIA costs necessitate reducing CleanPowerSF’s rates to levels that also decrease the revenue CleanPowerSF has available to procure energy.
The PCIA rate is directly linked to CAISO market prices because PCIA rates are calculated based on the difference between the forecasted cost of PG&E’s generation portfolio in 2022 and the forecasted market value of PG&E’s generation portfolio in 2022, and the 2021 year-end balance of the PCIA balancing account. Due to the fact that PCIA rates are set on a forecast basis and then trued-up, the PCIA rate can increase or decrease in a volatile manner. In March 2022, the PCIA rate decreased around 60% for CleanPowerSF’s vintages. However, forecasts for the PCIA rate indicate the rate is likely to increase in 2023.
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During 2022, the CPUC will consider two potential modifications to the PCIA calculation method.
First, the CPUC plans to re-examine the calculation of the RPS component of the PCIA.
Second, the CPUC is planning to calculate a value for GHG-free energy (nuclear and hydroelectric) contained within the IOU’s portfolio for inclusion in the PCIA calculation. These modifications could increase or decrease the level of the PCIA.
Longer-term, CalCCA is engaged in an extensive forecasting exercise of PCIA levels in order to allow better long-term resource planning by CCAs and guide advocacy efforts to reform the PCIA. It appears that continuing increases in the PCIA may peak in 2023 and that, absent other changes, it should decline around 2025 when PG&E’s Diablo Canyon Nuclear Power Plant retires, a significant contributor to PG&E’s PCIA levels4.
As a result of CalCCA advocacy, in May 2021 the CPUC adopted a decision (D.21-05-030) that all load-serving entities (LSEs) whose customers pay the PCIA would have the opportunity to receive a proportionate percentage of the RPS attributes of the IOU’s resources that the LSE’s customers are paying for through the PCIA. Under this framework, CleanPowerSF would have the option of purchasing approximately 5% of PG&E’s RPS generation by paying the PCIA calculated Market Price Benchmark (MPB) for these resources. CleanPowerSF would have an option of purchasing these resources on a short-term (2-year) or long-term (longer than 10-year basis. Purchasing some portion of the allocated resources would accelerate the achievement of CleanPowerSF’s RPS and GHG-reduction targets although CleanPowerSF will need to determine if the cost of acquiring these resources at the MPB price is more or less expensive than acquiring these resources directly from suppliers. D.21-05-030 did not adopt Cal-CCA’s proposal to allocate the IOU’s RA resources.
Power Enterprise will need to make decisions on how much, if any, of these resources it chooses to accept for its CleanPowerSF supply portfolio within the next few months with allocation starting in 2023. Power Enterprise would need to determine the effect of receiving these resources on CleanPowerSF‘s overall portfolio. LSEs, including CleanPowerSF, would have the option to not accept all or a portion of its allocation, in which case some portion of these resources could be sold by the IOU through an RFO/auction process. Power Enterprise could participate in this secondary market or accept CleanPowerSF’s share of PG&E’s resource attributes and re-sell them.
The Power Enterprise will continue to participate in the PCIA and PG&E’s Energy Resource Recovery Account (ERRA) proceedings – where these issues will be addressed – to ensure fair and equitable treatment for CleanPowerSF customers.
3.6 Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Study
As required by San Francisco Charter Section 8B.125, a cost of service and rates study is currently underway for Hetch Hetchy Power and CleanPowerSF. This is the first rates study for CleanPowerSF, and only the third for Hetch Hetchy. The rates study will analyze the total revenues needed to operate the programs and comply with adopted financial policies, perform a detailed cost allocation to customer classes, and propose rates that recover these costs. Rates are expected to be adopted in Spring 2022 to go into effect for Fiscal Year 2022-23.
The study began in spring 2021, and is being led by an independent rate consultant, NewGen Strategies & Solutions with the subconsultant Bell Burnett & Associates. Within the SFPUC, Finance is providing project management and analysis, with Power staff providing key subject matter expertise in the Enterprises’ cost drivers, risks, and policy goals. At the executive level, DocuSign Envelope ID: C89C2DAB-60A4-4BA2-83D7-7CF616A51F7B
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major policy decisions are presented to the Steering Committee comprised of the General Manager, Assistant General Managers, and key representatives from the Power Enterprise and Support Bureaus.
The rates studies will be highly impactful in addressing major financial risks faced by both programs. For the first time, we expect to propose and adopt rates for both Hetch Hetchy and CleanPowerSF which are independent from PG&E rates, and instead based on our agency’s own cost of providing service. Our own cost of service rates will address our own financial risks – for instance, setting power supply budgets with margins to cover market volatility in CleanPowerSF or reduced hydropower generation and increased market exposure in Hetch Hetchy. And without the pressure to constantly change rates to follow PG&E up-and-down throughout the year, both customers and the Power Enterprise will benefit from predictable rate changes and revenues.
For Hetch Hetchy, this rate study will also phase out historic rates that do not cover costs, such as the “GUSE” or “General Fund” subsidized rate. While the phase-out will take time, the end result will be rates that are more legally defensible, fair to customers, and easier to administer.
Moreover, this change will correct structural imbalances that have limited Hetch Hetchy’s ability to adequately fund its capital program and build reserves. With sufficient rate revenue, future Hetch Hetchy budget processes will be able to move past the austerity of recent years, and instead support strategic planning for the future of the Power Enterprise.
While the benefits of the rate study are significant, it also represents the largest changes to rate structures in decades. This comes with risks: rates could be implemented incorrectly in the billing system, leading to billing errors; customers could be confused by changes in their bills; and increased attention from elected and appointed officials and the public will require clear and accurate communication. As the proposed rates are rolled out during spring-summer 2022, leads from Power, Finance, Customer Service, IT, Regulatory & Legislative Affairs, and Communications will all need to devote sufficient resources to make this study a success.
In light of time constraints and a significant scope, certain rate proposals are being delayed from the July 2022 effective date, and will be rolled out during the following fiscal year. For example, changes to time-of-use periods and the compensation structure for net energy metering are needed, but require additional analysis and customer engagement that is not possible at this time. This decision will allow the rates study to focus on delivering the prioritized changes effectively, but also means that rates will continue to require focused resources and attention to ensure the programs can meet the expectations for modern power utilities.
4. Risk Management Activities – Emphasis for 2022
In 2022, the Power Enterprise will continue its efforts as outlined above with focus on:
4.1 Business Continuity and Diversity, Equity, and Inclusion The Power Enterprise will continue to participate in SFPUC’s business continuity planning group and implement all guidance to support worker safety, productivity, and return to the office for those who have been working remotely. We monitor load changes and financial impacts on revenues and our customers, as well as support customers in need.
Power staff will continue to participate actively engage in racial equity workgroups and projects.
Planned activities and priorities for 2022 include:
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• Building a database for recruitment from Historically Black Colleges and Universities (HBCUs), Hispanic Serving Institutions (HSIs), and Asian American and Native American Pacific Islander serving institutions (AANAPISIs) providing power industry specific degrees.
• Compiling DEIB-focused interview questions for candidates as well as interview and panel best practices
• Identifying Black, Indigenous, and People of Color customer needs and energy equity issues through a community engagement assessment.
• Examining staff sentiment about expression of cultural and religious identities, self- representation, and acceptance,
• Developing recommendations for racial equity training.
4.2 Customer Interconnection and Expansion
The Power Enterprise will continue to negotiate with PG&E and litigate at the FERC to ensure fair and open access to PG&E’s distribution grid under the WDT.
Staff will continue to meet regularly with PG&E in order to move individual projects forward and Power Enterprise will continue to evaluate opportunities for larger strategic investments in distribution and transmission infrastructure that will allow us to maintain and, possibly, expand our direct customer base while we pursue other options to remove our reliance on PG&E for local distribution services.
In order to ensure safe, reliable, and affordable service to our customers, the City’s evaluation of acquiring PG&E’s distribution assets in the City will continue to be a focus in 2022.
4.3 Portfolio Management
Power staff will continue the implementation and enhancement of the selected portfolio management tool and designed hedging strategies. These new tools and approaches will improve Power Enterprise’s ability to perform robust and timely analyses for effective decision making.
To serve the CleanPowerSF customer load as outlined in the 2020 IRP, RPS long term procurement requirements, RA requirements, and other regulatory requirements, operations staff will continue to work on soliciting and negotiating Power Purchase Agreements (PPAs) for new combined solar and energy storage facilities, wind facilities, and Energy Storage Service Agreements (ESSAs) stand-alone 4-hour and long-duration energy storage facilities.
Given the continued uncertainty in RA supply and compliance requirements, Power staff will engage in regulatory proceedings and work with trade groups in 2022 to ensure the Power Enterprise is able to meet its obligations effectively and at reasonable cost.
4.4 Power Charge Indifference Adjustment and Direct Access A legacy of California’s restructuring of the electric industry in the late 1990’s was the creation of a category of customers, called Direct Access customers, who continue to buy their energy from energy service providers (ESPs) rather than from either PG&E or community energy programs DocuSign Envelope ID: C89C2DAB-60A4-4BA2-83D7-7CF616A51F7B
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like CleanPowerSF. The amount of Direct Access customer load was essentially capped and limited to the amount of load served by ESPs in 2009, or about 10% of electric load in San Francisco. In San Francisco, this load principally consists of larger customers such as downtown office buildings, private hospitals, and university campuses. In 2018, Senate Bill 937 (Hertzberg): 1) raised the cap on the amount of electric load eligible for Direct Access service; and 2) directed the CPUC to study further re-opening of the Direct Access market to all large commercial customers. Power Enterprise has already identified, and planned for, the amount of load that may switch from CleanPowerSF to a Direct Access provider as a result of this limited re-opening.
In September 2020, the CPUC submitted its report to the Legislature on further re-opening the Direct Access market. The report recommended that if the Legislature directs further reopening of nonresidential Direct Access, it should be phased in over time in increments of 10% per year, and more importantly that each annual expansion is conditioned on ESPs being able to meet California’s goals for IRP, RA, RPS, and GHG-emission targets, requirements the report concluded ESPs were currently having trouble meeting. Of particular importance to CleanPowerSF’s operations and customers, the report recommends that provisions be adopted to ensure that no cost shifting occurs as the result of customers moving between different energy providers including CCAs.
Any changes to the amount of load allowed to participate in Direct Access service would require legislation. The SFPUC will continue to monitor any regulatory and legislative proceedings that address the potential re-opening of the Direct Access market.
4.5 Hetch Hetchy Power and CleanPowerSF Rate Study
As described in the prior section, new rates proposed by the rates study are expected to be adopted and implemented in Spring 2022. This is a major cross-agency effort that will require focused attention to complete successfully. In addition, certain rate goals have been prioritized for implementation in FY 2022-23, meaning that other rate changes will be delayed and continue through 2022. In particular, we expect to devote additional analysis to time-of-use rates, net energy metering rates, and peak day pricing and other demand management programs. These analyses will support further rate proposals which will ensure the Power Enterprise offers competitive products and services that customers increasingly expect.
DocuSign Envelope ID: C89C2DAB-60A4-4BA2-83D7-7CF616A51F7B