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
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TTY 415.554.3488
DATE: April 14, 2024
TO: Commissioner Tim Paulson, President
Commissioner Anthony Rivera, Vice President
Commissioner Newsha Ajami
Commissioner Sophie Maxwell
Commissioner Kate Stacy
THROUGH: Dennis J. Herrera, General Manager
Barbara Hale, Assistant General Manager, Power
Michael Hyams, Deputy AGM, CleanPowerSF and Power Resources
FROM: Karina Leung, Manager, Risk Management and Business Analysis, Power Kevane Wong, Risk Management and Business Analysis, Power
SUBJECT: Annual Power Risk Management Update – 2023
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Table of Contents
1. Executive Summary ................................................................................................................3
2. Enterprise Risk Management (ERM) .......................................................................................4
3. Risk Management 2023 Highlights ..........................................................................................4
3.1 Diversity, Equity, and Inclusion ......................................................................................... 5
3.2 Customer Interconnection and Expansion ........................................................................ 6
3.2.1 Fair and Affordable Access to PG&E’s Distribution Grid.........................................6
3.2.2 Investment in Transmission and Distribution ..........................................................7
3.2.3 Acquisition of PG&E Electric Infrastructure Serving San Francisco ........................7
3.3 Power Supply Risk Management and Compliance ........................................................... 8
3.3.1 Integrated Resource Planning (IRP) ......................................................................9
3.3.2 Power Portfolio Management ...............................................................................10
3.3.3 Resource Adequacy (RA) ....................................................................................10
3.4 CleanPowerSF’s Financial Security Requirement ........................................................... 12
3.5 CleanPowerSF and the Power Charge Indifference Adjustment ..................................... 13
3.6 Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Studies .................. 13
4. Risk Management Activities – Areas of Emphasis for 2024 ...................................................14
4.1 Customer Interconnection and Expansion ...................................................................... 14
4.2 Power Supply Portfolio Management and Compliance ................................................... 15
4.3 Hetch Hetchy Power and CleanPowerSF Rate Studies .................................................. 15
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1. Executive Summary
This report summarizes the Power Enterprise’s key risk management activities over the past calendar year (2023) and covers both the Hetch Hetchy Power and CleanPowerSF programs.
This report is Power Enterprise’s eighth annual update to the Commission.
Hetch Hetchy Power is the City’s 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)
• Over 6,000 customer accounts and
growing
• Ownership in 385 MW hydro generation,
9 MW solar, 2 MW biogas
• Default product 100% Greenhouse Gas
(GHG)-free
• “Premium” 100% California RPS
renewable
• 160+ miles of transmission and
distribution lines, 7 substations
• 186 authorized positions
• 3 million MWh annual sales (>550 MW)
• Approximately 385,000 customer
accounts, stable
• Diverse portfolio of short, medium, and
long-term power, energy storage, and
resource adequacy contracts
• Default ”Green” product at least 50% RPS
renewable and nearly 100% GHG-free
• “SuperGreen” and “SuperGreen Saver”
100% California RPS renewable
• 69 authorized positions
Hetch Hetchy Power and CleanPowerSF services benefit from shared risk management approaches and platforms. The Power Enterprise’s key updates for 2023 include the following:
1. A continued focus on racial equity imperatives through Power workgroups and active engagement in PUC-wide racial equity groups to promote diversity, equity, and inclusion.
2. Managing risks in customer interconnection and expansion through:
a. Fighting for fair and affordable access to PG&E’s distribution grid; b. Ongoing investment in, and development of, city-owned infrastructure including the Bay Corridor Transmission and Distribution (BCTD) project and continuous effort in identifying strategic distribution investment opportunities; and
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c. Continued actions towards the goal of acquiring PG&E’s electric assets in San Francisco.
3. Improving supply management tools and processes to ensure reliable, green, and cost- effective supply:
a. Completion in November 2023 of Hetch Hetchy’s Integrated Resource Plan (IRP) update, which is required every five years. CleanPowerSF’s last IRP was completed in 2022 and its next biennial IRP is expected to be due in November 2024;
b. Advancing portfolio management tools and procurement processes for both Hetch Hetchy Power and CleanPowerSF, particularly important in a volatile market environment with elevated energy prices; and
c. Compliance with Resource Adequacy regulatory requirements with an eye on upcoming changes in 2025.
4. Ongoing participation in California PUC proceedings to ensure the level of the Financial Security Requirement that CCAs must post to the investor-owned utilities is reasonable.
5. Anticipating and planning for changes in the Power Charge Indifference Adjustment (PCIA) rates that CCA customers are required to pay under state law.
6. Completion of Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Studies 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. In 2024, Power is continuing to focus on the efforts mentioned above and on identifying additional risk mitigation strategies for these and related efforts.
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 2023 was on addressing increased racial tension and structural racial inequities while continuing to mitigate risks posed by PG&E, improving programs to ensure cost-effective supply, and rolling out CleanPowerSF and Hetch Hetchy Power rates based on our own costs of service and financial risks.
3. Risk Management 2023 Highlights
In 2023, 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 2023:
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1. Diversity, Equity, and Inclusion
2. Customer Interconnection and Expansion
3. Supply Risk Management
4. CleanPowerSF Financial Security Requirement
5. CleanPowerSF Power Charge Indifference Adjustment
6. Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Studies
3.1 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 SFPUC-wide racial equity groups. We’ve also set up a Power-specific Diversity, Equity, Inclusion & Belonging (DEI&B) workgroup, which meets bi-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 space for Black, Indigenous, and people of color (BIPOC) staff to be active in decision making processes. Efforts are ongoing to promote and maintain an affinity group space for BIPOC staff participation. A Power DEI&B implementation plan showing deliverables, timelines, persons responsible, and progress is regularly updated and reviewed by the group.
Key accomplishments this year include improvement of DEI&B communications, branding, and intranet sites to clearly promote and advocate for the DEI&B workgroup, its subcommittees and related initiatives; utilizing our Historically Black Colleges & Universities (HBCU) project as a springboard to launch a more comprehensive outreach program targeting minority serving institutions; supporting the launch of a pipeline program for student interns from minority serving institutions; collaborating with Human Resource Services (HRS) and our Racial Equity Diversity & Inclusion (REDI) teams to bring professional development opportunities to Power staff; collaboration with the REDI team to promote and hire interns from project pull, youthworks, and San Francisco Unified School District-sponsored programs for high school students; the development and maintenance of a racial equity focused document review tool for garnering feedback from across Power; the creation of an online learning hub which maintains and updates learning resources; the addition of racial equity focused lunch and learns each month hosted by and for the benefit of Power staff to engage in racial equity learning; and compiling DEI&B-focused interview questions for a more robust and inclusive recruitment process.
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3.2 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 latest request to FERC to increase rates and change terms of the WDT pose significant challenges for the Power Enterprise in affordably and reliably 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.
3.2.1 Fair and Affordable Access to PG&E’s Distribution Grid As noted, the City obtains distribution services under the federally regulated WDT. PG&E has continuously violated the terms of the Tariff, imposing additional barriers 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 to our customers.
In October of 2020, PG&E filed revisions to its WDT (“WDT3”) which took effect while parties litigated at FERC. Under the new terms, PG&E changed its rate methodology, raised rates, eliminated service to unmetered loads, and eliminated interconnections at secondary voltages.
These changes, if allowed to stand, would result in continued harm to the City, preventing some City projects from being able to interconnect without oversized, expensive electrical equipment, not needed for safety or reliability, and charges for upgrades to PG&E’s grid that would be used by PG&E retail customers.
In some cases, City customers were forced to take PG&E Retail Service and pay substantially higher rates due the inability to site oversized equipment or pay the upgrade costs PG&E sought to impose on the projects. In other cases, projects were put on hold due to the issues of cost and equipment.
The City challenged the proposed revisions. While we have reached partial settlement on a limited number of issues - primarily those related to rate design - significant non-rate issues were set for hearing at FERC in March of 2023. Power Enterprise staff and consultants submitted written testimony and attended hearings in Washington, DC, where they delivered in- person testimony before FERC. A decision in the case is pending while parties continue to try and reach settlement.
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 latest report was issued in February 2024. 1 1 The last report can be found here: https://www.publicpowersf.org/s/February-2024_BoS-Report.pdf (accessed on April 3, 2024)
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3.2.2 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.
To identify further strategic opportunities for investment in distribution infrastructure within the Power Enterprise, Power has been conducting a Strategic Investment Planning Study. The goal of the study is to create a comprehensive investment strategy outlining types, locations, and timelines of viable projects, along with expected costs and benefits, to reduce reliance on PG&E and enhance the Power Enterprise's distribution infrastructure. A professional services contract was awarded to conduct the study. The work is supported by a cross-functional group across Power Enterprise.
Through Calendar Year 2023, the study team conducted an initial analysis identifying the most promising prospective projects. These initial findings were used to inform Power Enterprise’s requests in the 10-Year Capital Plan and Two-Year Capital Budget submission for FY25 and FY26.
3.2.3 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, its financial health continues to be precarious. PG&E continues to propose financial solutions that could be potentially harmful to its ratepayers (such as its proposed $7.5 billion securitization and recent application to sells shares of its non-nuclear generation assets through a new subsidiary), while it ignores cash offers from San Francisco and other public entities to purchase assets.
At the request of Mayor Breed and the Board of Supervisors 2, the Power Enterprise issued a
report in May 2019 on Electric Service Options.3 The report discussed the long-standing disputes and difficulties interconnecting Hetch Hetchy Power customers under the current WDT and recommended further evaluation of acquiring PG&E’s electric grid in San Francisco.
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 again in August of 2020 (after PG&E’s emergence from bankruptcy). PG&E declined these offers and refused to discuss them further, stating that the
2 See San Francisco Board of Supervisors Resolution 174-19, r0174-19.pdf (sfbos.org) (accessed March 29, 2023).
3 Available at SFPUC Preliminary Public Power Options Report | SFPUC (accessed March 29, 2023).
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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.
The dependence on the PG&E-controlled distribution grid is 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. To address this risk, Power Enterprise continues to take active steps towards acquiring PG&E’s electric infrastructure assets to serve San Francisco.
On July 27, 2021, the City submitted a petition to the California Public Utilities Commission (California PUC) requesting a formal determination of the value of PG&E’s electric assets in San Francisco. This petition serves as the initial step in what will likely be a lengthy process to acquire PG&E’s local electric infrastructure to complete the City’s transition to full public power.
On June 24, 2022, the Assigned Commissioner issued a scoping memo and ruling outlining the scope of issues to be addressed and the proceeding schedule.
As requested by the California PUC, the City, PG&E, and the California Coalition of Utility Employees (CUE) filed a round of briefs beginning in August 2023 to address the scope of the California PUC’s review of the acquisition under Public Utilities Code Section 851, which requires that the California PUC approve sales of utility assets.
To prevent the petition from moving forward, PG&E has filed several motions to dismiss or stay the petition, one of which argues that the City must complete an Environmental Impact Review under the California Environmental Quality Act (CEQA) process prior to valuation. These motions are still pending before the Commission.
The City filed opening testimony on April 10, 2023, but the California PUC has delayed the schedule for PG&E’s opening testimony, as well as the rest of the schedule, while establishing estimated dates for the Proposed Decision, Comments, Reply Comments and Final Decision wrapping up in the 1st or 2nd quarter of 2025.
The purchase of PG&E’s electric grid would include essentially all of PG&E’s electric transmission and distribution assets needed to provide electric service within the City and County of San Francisco. As part of the transfer of assets, certain PG&E facilities outside of San Francisco’s boundaries will need to be physically separated from the facilities that will be owned by the City. The portion of the project requiring new construction or modifications to existing facilities (whether they be PG&E-owned or City-owned) would primarily be in the southern portion of San Francisco along the San Francisco-San Mateo County border (including the northern portions of Brisbane and Daly City). The San Francisco Planning Department is currently conducting a public process for environmental review of the City’s potential acquisition of PG&E’s assets under CEQA. The physical changes associated with the project (e.g., physical separation of San Francisco’s purchased assets from PG&E's remaining electric grid) will be identified and studied for CEQA.
3.3 Power Supply Risk Management and Compliance
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
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section provides an update on how staff are strategically managing these portfolio risks through iterative long-term planning to meet policy goals, regulatory requirements, resource needs, and procurement and management practices.
3.3.1 Integrated Resource Planning (IRP)
An Integrated Resource Plan (IRP) is a process undertaken by a utility to determine future resource procurement needs for meeting its forecasted annual energy and peak demand requirements, with an adequate reserve to provide for system reliability. IRPs are also used to assess the ability of a utility to meet its environmental and policy goals.
The IRP process helps the Power Enterprise make informed and prudent decisions regarding the long-term supply and capital investments needed to serve its customers and meet the City’s policy objectives while addressing risks and uncertainties.
Hetch Hetchy Power
Under the requirements of Public Utilities Code section 9621, Hetch Hetchy Power is required to prepare an updated IRP once every five years. The Commission approved Hetch Hetchy Power’s update to its IRP on November 28, 2023 by Resolution 23-0214. The adopted IRP concluded that, due to load growth and hydrological variability, Hetch Hetchy Power will need additional energy supply on a regular basis starting in calendar year 2033 to serve its forecasted retail energy sales through the 2045 planning horizon, to meet all state-required targets, and continue to provide its customers with 100% clean and renewable energy. In addition, the IRP recommends staff continue to evaluate opportunities to procure energy storage for Hetch Hetchy Power to both maximize the value of Hetch Hetchy hydroelectric generation and support compliance with evolving Resource Adequacy requirements.
This IRP will be submitted to the California Energy Commission, which will review its contents to ensure the IRP is consistent with the requirements of Public Utilities Code section 9621.
Although only required to update an IRP once every five years, staff plans to revisit the IRP in the next couple years as Hetch Hetchy Power’s load growth comes into clearer focus to support power procurement and financial planning activities.
CleanPowerSF
The California PUC requires load serving entities under its jurisdiction, including CleanPowerSF, to submit IRPs every two years. The Commission adopted CleanPowerSF’s 2022 IRP in October of 2022, and staff submitted the plan to the California PUC on November 1, 2022.4 The IRP process supported the Commission’s approval of a “preferred” resource portfolio that best balanced the Commission’s goals for CleanPowerSF of affordability, cleaner energy, local investment, and financial sustainability. For the 2022 IRP, CleanPowerSF analyzed four theoretical future energy supply portfolios and determined that the 90% Time Coincident Portfolio best balanced the program's various goals while achieving the City’s goal of supplying
4 The SFPUC Commission approved CleanPowerSF’s IRP on October 24, 2022 by Resolution No. 22- 0184.
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100% clean and renewable electricity supply by 2025.5 In the 90% Time Coincident Portfolio, renewable generation coincides with customer usage for at least 90% of all hours during the year. The selected portfolio includes investments in 80.6 MW of new solar and 75 MW of battery storage in the nine Bay Area counties, reflecting approximately $600-700 million in local renewable energy investments. CleanPowerSF is preparing for its next IRP cycle in 2024. We anticipate that the California PUC will issue a schedule and final guidelines for preparation of the IRP in June 2024.
3.3.2 Power Portfolio Management
Over the past few years, California’s power market has experienced significant price volatility brought on by a number of factors including extreme weather, power plant retirements, supply chain disruptions stemming from the COVID-19 pandemic, global unrest and armed conflict impacting global energy markets, and delays in the construction of new electric generation and storage capacity.
Energy project developers have been hindered by the growing interconnection queues as the California ISO struggles to process a surging number of applications. Many new clean energy projects in California remain stuck in the grid interconnection process and many projects have been delayed due to supply chain challenges and permitting delays. These project delays are creating scarcity in the marketplace and making it challenging for the Power Enterprise to meet certain regulatory requirements. California power markets remain in a high price environment due to the delays to new resource additions and state procurement mandates.
The Power Enterprise has put a particular focus on the risks to our operations posed by the challenging market environment in California today. This has included a greater emphasis on close monitoring and internal reporting of California electricity market trends, acquiring software to help us manage our growing fleet of dispatchable energy storage assets, and portfolio cost modelling under different future market price scenarios to ensure revenue sufficiency.
Given the uncertainty in the energy market and evolving state regulations, staff will continue to develop our power supply portfolio management and risk analysis tools and procedures to support our continued provision of clean, reliable, and affordable power supply.
3.3.3 Resource Adequacy (RA)
The Resource Adequacy (RA) compliance programs are intended to ensure there is sufficient electric generating capacity available to the California Independent System Operator (CAISO) to meet demand at all times. The RA programs require Load Serving Entities (LSEs), such as Hetch Hetchy Power and CleanPowerSF, to secure sufficient RA capacity resources to meet forecasted monthly peak demand plus a planning reserve margin (PRM) to account for unexpected outages, higher than anticipated demand, and other contingencies.
5 “Time coincident” means that the portfolio of renewable energy supply is available to meet forecasted demand for electricity in each hour of the year. The 2022 IRP preferred portfolio featured a mix of renewable energy resources that could satisfy forecasted electricity demand on an hourly basis at least 90% of the hours in each year of the planning horizon.
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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 California Independent System Operator (California ISO) 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.
Entities serving electric load in the California ISO territory must comply with RA program requirements. However, the California PUC and other Local Regulatory Authorities (LRAs) have the authority to regulate their jurisdictional LSEs with their own RA requirements, as long as they meet the California ISO’s minimum standards. CleanPowerSF is a California PUC- jurisdictional LSE, while Hetch Hetchy Power is not. Therefore, CleanPowerSF must comply with the California PUC RA compliance requirements, while Hetch Hetchy Power must only comply with the California ISO’s RA compliance requirements.
Unlike other ISO markets (such as ISO-NE, PJM), the California ISO’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 is challenging due to several other factors including: a) an increasing number of LSEs providing power service to customers in the California ISO, b) concentration of RA capacity resources in the control of California’s largest investor-owned utilities, c) retirement of existing capacity, d) increasing competition for capacity from out-of- state, and e) a great deal of regulatory uncertainty. This has resulted in an extremely high RA capacity price, price volatility, and persistent supply uncertainty.
CleanPowerSF must comply with the requirements of the California PUC RA program, which has experienced major changes in the last few years and will continue to experience major changes going forward. First, the PRM, which was set at 15% since the inception of the program, has increased to 16% in 2023 and a minimum of 17% in 2024. A higher PRM means that LSEs (including CleanPowerSF) will face a higher RA obligation, and therefore incur more costs, for the same forecasted load. However, if the PRM is set too low then the grid will experience a higher probability of power outage, threatening the reliability of the system.
In addition, the California PUC is in the process of developing a new framework that will significantly alter the RA program. While many details remain to be finalized, the most significant change will be a switch to a Slice-of-Day (SOD) framework. As mentioned above, the current California PUC RA programs require LSEs to secure sufficient RA capacity to meet the forecasted peak demand for each month, plus a PRM. In a SOD framework, LSEs will need to procure sufficient RA capacity on an hourly basis to meet the forecasted demand for the “worst day” of each month, plus a PRM. The “worst day” definition can change but will initially be set as the day of the month which corresponds to the California ISO system peak gross load. Thus, each resource will have 24-hourly capacity attribute that will be used to meet the LSEs 24- hourly RA compliance obligations. For now, 2024 is a test year where LSEs are submitting their RA supply plans to the California PUC for informational purposes. The first compliance year using the new SOD framework is scheduled to be in 2025. However, many implementation issues have been identified by stakeholders which present challenges to implementation in the
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next year. Most consequentially, California PUC is yet to come up with a robust methodology to determine an appropriate PRM under the new framework causing great uncertainty and concern to many stakeholders, especially LSEs that have to comply with these requirements.
Power Enterprise employs the following mitigation strategies to address the risks identified above:
• Monitoring and intervening in RA proceedings at the California PUC and relevant California ISO initiatives that affect the structure of the RA program and compliance obligations for CleanPowerSF and Hetch Hetchy Power.
• Coordinating with industry trade associations 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.
3.4 CleanPowerSF’s Financial Security Requirement
In order to provide service as a CCA, the California PUC requires CleanPowerSF to post a Financial Security Requirement (FSR) with PG&E. The FSR is intended to ensure that PG&E’s existing retail customers are not financially harmed if CleanPowerSF were to suddenly fail and all of it customers returned to PG&E for their generation service. In simple terms, the amount of the FSR is calculated as PG&E’s administrative cost plus the incremental cost of purchasing energy to serve returned CleanPowerSF customers at market prices. These costs are then offset by the increased revenues that PG&E would be receiving from the transferred former CleanPowerSF customers. Because PG&E’s current electricity rates are higher than the combined administrative cost and cost of purchasing energy at current wholesale electricity market prices to serve returned customers, the overall FSR calculation for CleanPowerSF is less than $0. Given these circumstances, under the current rules CleanPowerSF must only post the minimum FSR requirement of $147,000. CleanPowerSF is currently satisfying its FSR requirement by posting a Letter of Credit with PG&E for $147,000.
The California PUC is currently re-evaluating the methodology for calculating the FSR in Rulemaking 21-03-011 and issued a Proposed Decision on March 14, 2024. The Proposed Decision changes the methodology of the FSR calculation as well as other financial monitoring requirements for CCAs. Under the Proposed Decision, we estimate that CleanPowerSF’s minimum FSR amount would increase from $147,000 to approximately $1.6 million. A troubling proposal by PG&E that would have required the minimum FSR amount to include two months of its energy procurement costs to serve returned CCA customers was rejected in the Proposed Decision, but the decision has not been finalized yet. Adoption of PG&E’s proposal could require CleanPowerSF to post an FSR amount equal to tens of millions of dollars.
CleanPowerSF will remain engaged in the California PUC proceeding to advocate for a reasonable FSR that accurately and fairly reflects the costs that PG&E would incur in the event CleanPowerSF ceases operating and returns all of its customers to PG&E generation service.
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3.5 CleanPowerSF and the Power Charge Indifference Adjustment The Power Charge Indifference Adjustment (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. To deliver a service that is competitive with PG&E’s retail service, CleanPowerSF’s cost of generation supply plus the PCIA rate must be lower than PG&E’s retail service rates. Given our interest in preserving competitive rates, the higher the PCIA, the less revenue CleanPowerSF has available to procure energy.
The PCIA rate is directly linked to the market prices of energy, resource adequacy, and renewable energy because PCIA rates are calculated based on the difference between the forecasted cost and forecasted market value of PG&E’s generation portfolio in a given year, and trued-up given the year-end balance in PG&E’s PCIA account. Because PCIA rates are set on a forecast basis and then trued-up, the PCIA rate can increase or decrease in a volatile manner.
PCIA rates declined significantly in 2023 due to high market energy prices and are currently low relative to CleanPowerSF generation rates. However, CleanPowerSF must anticipate and plan for changes in PCIA rates as part of its on-going risk management activities. This risk management includes monitoring energy prices for their effect on PCIA rates and incorporating forecasted PCIA rates into its planning. CleanPowerSF also continues to participate in the yearly Energy Resource Recovery Account proceedings that develop PCIA rates and consider modifications to the PCIA methodology.
3.6 Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Studies
As required by San Francisco Charter Section 8B.125, cost of service and rate studies were completed for Hetch Hetchy Power and CleanPowerSF in Spring 2022. This was the first rate study for CleanPowerSF, and only the third for Hetch Hetchy. The rate study analyzed the total revenues needed to operate the programs and comply with adopted financial policies, performed a detailed cost allocation to customer classes, and proposed rates that recover these costs. In May 2022, the Commission approved FY23-24 rates for CleanPowerSF, and Hetch Hetchy Power rates for two fiscal years. While the rate study itself recommended five years of rates, the shorter adopted time period reflects the significant uncertainty in power market prices and resulting expenditures. Each year, Hetch Hetchy Power and CleanPowerSF can re-assess what rate modifications are needed with more up-to-date information, allowing adjustments if financial conditions worsen.
The rate studies successfully addressed major financial risks faced by both programs. For the first time, all of Hetch Hetchy and CleanPowerSF rates are independent from PG&E rates, instead based on our agency’s own cost of providing service. Our own cost of service rates address our own financial risks – for instance, setting power supply budgets with margins to cover market volatility for CleanPowerSF or reduced hydropower generation and increased market exposure for Hetch Hetchy. And without the pressure to constantly change rates to
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follow PG&E up-and-down throughout the year, both customers and the Power Enterprise benefit from predictable rate changes and revenues.
For Hetch Hetchy Power, this rate study also recommended the Commission 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 consistent with legal requirements, fair to customers, and easier to administer. Moreover, this change corrects structural imbalances that have limited Hetch Hetchy Power’s ability to adequately fund its capital program and build reserves. With sufficient rate revenue, future Hetch Hetchy Power budget processes will be able to move past the austerity of recent years, and instead support strategic planning for the future of Hetch Hetchy Power.
In 2023, Hetch Hetchy implemented the second fiscal year of its adopted rate increases, setting most “Enterprise” and “retail” rate schedules to the same tariffs, which eliminates structural differences in the rates charged to different customers and sets up the program to fully consolidate these two types of rate schedules. CleanPowerSF approved new rates for FY 2023- 24 on May 9, 2023, averaging a 15% increase in generation rates. This change was driven by increased power supply costs due to market volatility, as well the goal of increasing reserves to meet the program’s Fund Balance Reserve Policy, demonstrating the value of the program’s ability to set its own rates in addressing major financial risk factors. Even with the 15% rate increase, CleanPowerSF was able to continue to deliver electricity bill savings to its customers as compared to PG&E generation service.
4. Risk Management Activities – Areas of Emphasis for 2024 In 2024, the Power Enterprise will continue its efforts as outlined above with focus on:
4.1 Customer Interconnection and Expansion
PG&E continues to obstruct, delay and impose unwarranted costs on the City for projects that provide critical City services. Additionally, PG&E frustrates the City’s efforts to make progress on important Climate Action goals, such as decarbonization. Meanwhile, PG&E continues to experience outages as a result of its inadequate investment in the SF grid, while raising rates almost continuously, making their grid service both unreliable and unaffordable.
In order to ensure safe, reliable, and affordable service to all of San Francisco, the City’s efforts to acquire PG&E’s distribution and transmission assets in the City and expand public power to all of San Francisco’s residents and businesses, will continue into 2024.
In parallel with the acquisition effort, 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
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our direct customer base while we pursue other options to remove our reliance on PG&E for local distribution services.
In addition, in Calendar Year 2024, Power Enterprise will complete the Strategic Investment Planning Study. The completed study will include the full details on the specific recommended investments as well as an analytical tool that can be used to evaluate potential strategic investments on an ongoing basis. At that point, Power Enterprise will use the results of the study to move forward with further investigation and implementation of those projects that were identified as the best prospects for strategic investments. This effort, along with other investments in City-owned infrastructure, is important to help circumvent some of PG&E’s obstruction while the City works to acquire the electric grid in San Francisco.
4.2 Power Supply Portfolio Management and Compliance
In 2024, Power staff will continue to prioritize the on-going improvement of our power supply risk management practices and the implementation of new portfolio optimization tools. In particular, staff will be implementing new software to support the evaluation and operations of utility scale energy storage projects under contract with CleanPowerSF to maximize the value of these new and flexible assets.
To serve future Hetch Hetchy Power customer load growth as outlined in the 2023 IRP update, RA compliance requirements, and to continue to deliver 100% clean and renewable energy, Power staff will continue to identify and evaluate opportunities to acquire or develop new clean energy resources. In 2024, the Power Enterprise will seek to identify viable and cost-effective resources to meet Hetch Hetchy Power’s forecasted power supply requirements through review of the California ISO interconnection queue, engagement with project developers, and competitive solicitations.
Power staff will also continue to procure new clean energy resources to serve CleanPowerSF’s forecasted customer demand, as outlined in the 2022 IRP. This includes continuing to add, as necessary, new renewable energy supplies and clean energy resources that can provide RA capacity, to support CleanPowerSF’s on-going compliance with state and local requirements. In 2024, Power staff will issue our own competitive solicitations to identify and procure new energy resources. We will also continue to work with California Community Power, the joint powers agency (JPA) CleanPowerSF is a member of, to leverage the collective buying power of the JPA’s group of CCA members.
Given on-going changes to state regulatory requirements for the RA program, Power staff will also continue to participate in various regulatory proceedings conducted by state agencies and the California ISO to ensure that market rules are fair, reasonable, and continue to provide for statewide electric reliability that is affordable to ratepayers.
4.3 Hetch Hetchy Power and CleanPowerSF Rate Studies
In 2024, Power staff will be supporting the development of new power rates for consideration by the Commission for Fiscal year 2024-25. Changes planned to be implemented in Fiscal Year 2024-25 include adjustments to rate amounts to ensure continued cost recovery and financial stability for our Power programs, further cleanup and consolidation of Hetch Hetchy Power rate
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schedules, and adjustments to CleanPowerSF’s Net Energy Metering tariff to accommodate recent changes PG&E has made to its tariffs that support customers with rooftop solar.
Other updates, including new time-of-use rates and other rate-based demand management programs are expected to be addressed in the next cost of service and rate study cycle managed by the SFPUC’s Financial Planning group. The Request for Proposal process to identify a contractor for this work will be started in 2024 and is expected to be completed in spring 2026 to support completion of the rate studies by 2027. The rate studies will include the evaluation of new rate proposals to ensure the Power Enterprise continues to offer competitive products and services to our customers.