San Francisco
Water S»ewer
Services of the San Francisco Publlc Utilities Commission 525 Golden Gate Avenue, 7th Floor
San Francisco, CA 94102
T 415.554.0725
TTY 415.554.3488
sfpuc.org/power
DATE: April 22, 2025
TO: Commissioner Kate Stacy, President
Commissioner Joshua Arce, Vice
T
r ·aent
Commissioner Avni Jamdar
Commissioner Stephen Levero
THROUGH: Dennis J. Herrera, General Ma
Barbara Hale, Assistant Genera er
Michael Hyams, Deputy AGM, CleanPowerSF and Power Resources ror Michael FROM: Karina Leung, Manager, Risk Management and Business Analysis, Power a Kevane Wong, Risk Management and Business Analysis, Power a forKevane SUBJECT: Annual Power Risk Management Update - 2024
Hetch Hetchy -- SF
Hetch Hetchy Power and CleanPowerSF are programs of the San Francisco Pubhc Utillties Commission (SF PUC). an enterpnse department of the City and County of San Francisco.
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.
Danie! L Lurie
Mayor
Kate H. Stacy
President
Joshua Arce
Vice President
Avnl Jamdar
Commissioner
Steve Leveronl
Con1miss1oner
Dennis J. Herrera
General Manager
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Table of Contents
Table of Contents .......................................................................................................................... 2
1. Executive Summary .................................................................................................................. 3
2. Enterprise Risk Management (ERM) ........................................................................................ 4
3. Risk Management 2024 Highlights ........................................................................................... 5
3.1 Customer Revenue/Growth ................................................................................................ 5
3.1.1 Economic Uncertainty ............................................................................................. 5
3.1.2 Lengthy City Processes Can Slow Customer Service ............................................. 5
3.1.3 Rising Costs Make Affordability a Concern ............................................................. 6
3.2 Reduce and Eliminate Reliance on PG&E ......................................................................... 7
3.2.1 Achieve Fair and Affordable Access to PG&E’s Distribution Grid ........................... 7
3.2.2 Reduce Our Dependence on PG&E Interconnection .............................................. 8
3.2.3 Expand Power Enterprise Service to All Electricity Customers in San Francisco ... 9
3.3 Power Supply Risk Management and Compliance .......................................................... 10
3.3.1 Integrated Resource Planning (IRP) ..................................................................... 10
3.3.2 Power Portfolio Management ................................................................................ 11
3.3.3 Resource Adequacy (RA) ...................................................................................... 12
3.3.4 CAISO Grid Interconnection .................................................................................. 13
3.4 CleanPowerSF’s Financial Security Requirement ........................................................... 14
3.5 CleanPowerSF and the Power Charge Indifference Adjustment ..................................... 15
3.6 Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Studies .................. 16
4. Risk Management Activities – Areas of Emphasis for 2025 ................................................... 17
4.1 Customer Interconnection and Expansion ....................................................................... 17
4.2 Power Supply Portfolio Management and Compliance .................................................... 17
4.3 Hetch Hetchy Power and CleanPowerSF Rate Studies ................................................... 18
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1. Executive Summary
This report summarizes the Power Enterprise’s key risk management activities over the past calendar year (2024) and covers both the Hetch Hetchy Power and CleanPowerSF programs.
This report is Power Enterprise’s ninth 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 more than 75% of the electricity consumed in San Francisco.
• 1 million MWh annual sales (150 MW)
• Approximately 7,500 customer accounts,
and growing
• Ownership of 385 MW hydro generation,
8 MW solar, 2 MW biogas
• Default product 100% Greenhouse Gas-
free (GHGf)
• “Premium” 100% California RPS
renewable
• 160+ miles of transmission and
distribution lines, 10+ substations
• 222 authorized positions
• 3 million MWh annual sales (>550 MW)
• Approximately 384,000 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% Greenhouse
Gas-free
• “SuperGreen” and “SuperGreen Saver”
100% California RPS renewable
• 85 authorized positions
Hetch Hetchy Power and CleanPowerSF services benefit from shared risk management approaches and platforms. The Power Enterprise’s key updates for 2024 include the following:
1. Effectively managing our customer revenue/growth amidst numerous challenges including economic uncertainty, lengthy city processes, and managing rising costs with a goal of maintaining customer affordability.
2. Reducing and eliminating our reliance on Pacific Gas & Electric Company (PG&E) due to the ongoing issues we’ve encountered. This includes the following:
a. Fighting for fair and affordable access to PG&E’s distribution grid; b. Reducing our dependence on PG&E interconnection to the grid through a range of strategic investments such as the development of city-owned infrastructure and the Bay Corridor Transmission and Distribution (BCTD) project; and c. Continued actions towards the goal of acquiring PG&E’s electric assets in San Francisco.
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3. Improving supply management tools and processes to ensure reliable, clean, and cost- effective power 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 due in November 2025; b. Advancing portfolio management tools and procurement processes for both Hetch Hetchy Power and CleanPowerSF so that we can effectively manage our power portfolios amidst a volatile and evolving regulatory and market environment;
c. Compliance with Resource Adequacy regulatory requirements with an eye on upcoming changes in 2025; and
d. Actively managing generator interconnection risks to ensure that we meet our future energy supply needs.
4. Ongoing participation in California Public Utilities Commission (California PUC) proceedings to ensure that the level of the Financial Security Requirement CCAs must post to the investor-owned utilities (IOU) to cover the costs of involuntarily returning customers to IOU generation service 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 2025, 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 supporting bureaus of the San Francisco Public Utilities Commission (SFPUC).
As discussed in detail below, our focus in 2024 was on mitigating 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.
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3. Risk Management 2024 Highlights
In 2024, 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 2024:
1. Customer Revenue and Growth
2. Reducing and Eliminating Reliance on PG&E
3. Power Supply Risk Management and Compliance
4. CleanPowerSF Financial Security Requirement
5. Power Charge Indifference Adjustment
6. Hetch Hetchy Power and CleanPowerSF Cost of Service and Rate Studies
3.1 Customer Revenue/Growth
3.1.1 Economic Uncertainty
Hetch Hetchy’s retail sales remain below pre-pandemic FY 2018-19 levels. Despite increased demand and the addition of new customers and loads from redevelopment and other projects, sustained decreases in load from legacy customers since the onset of the pandemic have kept load growth suppressed over the past few years. Future growth is primarily dependent on the materialization of load from new projects, including commercial, residential, and municipal. Examples include expansion at the Airport, port electrification projects, and Treasure Island redevelopment. In the SFPUC’s recently completed 10 Year Plan, loads are projected to grow by an average annual rate of ~4.0%, which includes generous adjustments for conservatism. These adjustments are made for risk management purposes due to San Francisco’s ongoing economic recovery and a history of project delays resulting from macro- economic conditions. Unforeseen project cancellations or delays, especially on large loads, would have an impact on revenues.
The CleanPowerSF program does not face similar risks as the Hetch Hetchy program. Demand and forecasted revenue are stable, and significant growth and reliance on new development is not anticipated. We anticipate slow, stable growth based on statewide trends.
3.1.2 Lengthy City Processes Can Slow Customer Service
Over the years, the City has developed processes and procedures intended to ensure fairness and deter corruption. However, the accumulation of these procedures has resulted in a slowing of administrative functions, particularly hiring and procurement.
Lengthy hiring timelines can leave critical positions vacant, making it difficult to attract and retain top candidates. To provide just one example, hiring has been delayed for over a year on the challenging task of filling the role of Transmission Line Supervisor due to a class specification amendment. While we are waiting for the process to complete, we are prevented from moving forward with filling this position. Once the process is complete, we expect it would take another nine to twelve months to bring new workers on board.
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In procurement, complex requirements delay the acquisition of essential goods and services, while the administrative burden on vendors reduces competition and can drive up costs. For example, we recently had a contract for a major capital project receive no bids, delaying the initiation of the project. When we reached out to potential bidders, they specifically cited concerns and uncertainty around City contract requirements as deterring them from bidding on the work.
Recent efforts, including legislative reforms and citywide efficiency initiatives, have aimed to address these challenges. While progress has been made, further improvements are needed to better balance oversight and operational efficiency.
3.1.3 Rising Costs Make Affordability a Concern
The SFPUC Power Enterprise seeks to deliver clean and reliable power to our customers at affordable rates. However, nationwide, wholesale power costs have been extremely volatile.
Power market purchases represent the largest portion of the Power Enterprises’ expenses.
While Hetch Hetchy Power still offers the most affordable rates available in San Francisco, it remains dependent on PG&E for delivery service through the wholesale distribution tariff. For CleanPowerSF, SFPUC only controls 1/3rd of the bill (for generation supply) while PG&E controls the remaining 2/3rds (for delivery service), representing an additional challenge to keeping our rates affordable.
Electricity rates in California have been increasing rapidly in recent years, outpacing both inflation and rate increases in other states1. Some of the key factors that have contributed to high and growing rates include significant wildfire-related costs, climate policies and programs, and cost shifts between certain customer classes. While the California Public Utilities Commission is undergoing the process of identifying actions it could take under its authority to reduce ratepayer costs, many solutions will require legislative action. Throughout the 2025 legislative session lawmakers will debate the appropriate actions to take to address rising electricity rates. So far, a handful of ideas are being deliberated:
• Require more coordinated cost review and evaluation of investor-owned utilities’ (IOU) wildfire-related cost recovery requests;
• Reduce capital expenditures by lowering the costs of financing projects, such as transmission;
• Phase out ratepayer funding of programs that are not cost-effective, like certain energy efficiency programs;
• Address the cost shift resulting from legacy net energy metering customers; and • Limit IOU rate increases above inflation.
Legislators have until September 12, 2025 to pass bills and send them to the Governor’s desk.
1 The average rates charged by POUs, like Hetch Hetchy Power, in California are closer to the national average. See: https://lao.ca.gov/reports/2025/4950/Residential-Electricity-Rates-010725.pdf.
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CleanPowerSF does not have a significant capital program that would put material upwards pressure on rates, however, import tariffs, changing federal policy regarding clean energy incentives and general inflationary pressures are increasing long-term power purchase costs.
Currently, Hetch Hetchy Power’s debt service costs are minimal, but over time, additional capital investments in the Hetchy program will be made to modernize the grid, meet new demand, and accomplish climate goals, which will increase capital debt service costs.
Power is undertaking mitigation efforts to address rising costs to our customers served by our two electric service business lines. Any capital program will remain within the agency’s Commission-approved, prudent financial policies for levels of debt service to revenue. We have established low-income rates, specially focused programs aimed at supporting low-income customers, and regularly engage in outreach to support this customer class and ease the financial burden of electricity costs. This fiscal year, the Power Enterprise is launching an analysis to ultimately refresh and expand our policies and programs to foster affordability, support low-income customers, and undertake arrearage management. We will continue to be actively engaged in regulatory and legislative venues to advocate for affordability and the best interests of San Francisco residents. Finally, later in calendar year 2025, the SFPUC will be considering an affordability policy that sets a process, metrics, and targets for assessing the affordability of SFPUC power bills, adding to similar policy on water and sewer bills. Such a policy will inform decision making around capital budgeting and financial planning and will bolster communication with customers about rate transparency and affordability.
3.2 Reduce and Eliminate Reliance on PG&E
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 Achieve Fair and Affordable Access to PG&E’s Distribution Grid As noted, our Hetch Hetchy program 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 September 2020, PG&E filed revisions to its WDT (WDT3) with FERC. While parties litigated the revisions at FERC, WDT3 took effect in April 2021. Under the new terms, PG&E changed its rate methodology, raised rates, eliminated service to unmetered loads, and eliminated
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interconnections at secondary voltages. A settlement agreement has been reached for some of these issues under WDT3 and is going through the appropriate approval process.2 Two issues remain that are pending a final decision from FERC. These issues include assignment of costs for Upgrades to PG&E’s system and assignment of costs for Direct Assignment Facilities.
In November 2024, PG&E filed another revision to its WDT (WDT4), which will take effect in April 2025. PG&E is seeking a 15% rate increase and the cost assignment of Upgrades and Direct Assignment Facilities still remains an issue in WDT4 as well. The City is currently engaged in settlement discussions with PG&E regarding these issues.
While cost assignment remains an issue, City projects are at risk of incurring excessive costs to upgrade PG&E’s infrastructure and build out PG&E’s grid. PG&E retail customers benefit from PG&E’s excessive demands on City projects and PG&E makes a rate of return on this equipment. Since 2018, City projects have paid over $13 million to PG&E for these Upgrades. In some cases, City customers have been forced to take PG&E Retail Service and pay substantially higher rates to avoid paying the excessive Upgrade costs. Other times, some projects have been foregone or put on hold.
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 March 2025. 3 3.2.2 Reduce Our Dependence on PG&E Interconnection
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 was the development and construction of the Bay Corridor Transmission and Distribution Project (BCTD). BCTD provides 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, Power conducted a Strategic Investment Planning Study. The goal of the study was to create a comprehensive investment strategy outlining the types, locations, and timelines of viable projects, along with their 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 was supported by a cross-functional group within the Power Enterprise. The study was completed in Summer 2024. The Power Enterprise has used the findings of the study to develop its next major transmission and distribution funding requests for the 10-Year Capital Plan and Two-Year Capital Budget submission for FYE27 and FYE28.
2 The settlement was introduced to the Board of Supervisors on 4/8/2025. We anticipate that it will be fully approved by the Board and Mayor by the end of May. After that, it will be sent to the Federal Energy Regulatory Commission (FERC) for its approval.
3 The last report can be found here: https://www.publicpowersf.org/s/22825-March-2025-BoS-Quarterly- Report.pdf ( accessed on March 11, 2025)
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3.2.3 Expand Power Enterprise Service to All Electricity Customers in 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 previous few years. While PG&E emerged from bankruptcy in July 2020, its financial health continues to be precarious. PG&E has continued to propose financial solutions that harm its ratepayers, and many of them have been approved by the California PUC and implemented. Overall, since it filed for bankruptcy in 2019, and through January 1, 2025, PG&E’s electric rates have increased by 75-80%. Some of these increases are a direct result of PG&E’s “financial solutions,” which include ratepayers funding $10 billion in cash for PG&E. Ratepayers will be paying for this liquidity infusion over the next 30 years. At the same time, PG&E’s corporate debt remains below investment grade. Unfortunately, since its bankruptcy in 2019, PG&E has continued to ignore cash offers from San Francisco and other public entities to purchase pieces of its service territory, each of which would likely improve PG&E’s financial condition without any adverse impacts on rates for its remaining customers.
At the request of Mayor Breed and the Board of Supervisors 4, the Power Enterprise issued a
report in May 2019 on Electric Service Options.5 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 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 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 a lengthy and arduous 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, which has been extended several times with numerous motions filed by PG&E and the City regarding process and procedures. Pending further refinement,
4 See San Francisco Board of Supervisors Resolution 174-19, https://sfbos.org/sites/default/files/r0174-
19.pdf ( accessed March 29, 2023).
5 Available at https://sfpuc.org/about-us/reports/sfpuc-preliminary-public-power-options-report (accessed March 29, 2023).
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testimony in the proceeding is expected to be completed by the 3rd or 4th quarter of 2025, with the remainder of the schedule to be set at a later date.
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 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) are being identified and studied for CEQA. The City’s Planning Department issued the Draft Environmental Impact Report on March 19th, 2025. After the public review period and the City’s responses to comments, we expect that Planning will issue the Final EIR in early 2026 for review by the Board of Supervisors.
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 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 California 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
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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 was submitted to the California Energy Commission, which will review its contents to ensure the IRP is consistent with the requirements of California Public Utilities Code section 9621. Although only required to update an IRP once every five years, staff plans to revisit the IRP earlier 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 approximately 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, 2022.6 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 100% clean and renewable electricity supply by 2025.7 In the 90% Time Coincident Portfolio, renewable generation coincides with customer usage for at least 90% of all hours during the year. CleanPowerSF is preparing for its next IRP cycle in 2025. We anticipate that the California PUC will issue a schedule and final guidelines for preparation of the IRP in June 2025.
3.3.2 Power Portfolio Management
Over the past few years, California’s wholesale power market has experienced significant price volatility brought on by a number of factors including extreme weather, power plant retirements, supply chain disruptions, global unrest and armed conflict impacting global energy markets, and delays in the construction of new electric generation and storage capacity, due to permit and interconnection delays.
Energy project developers have been hindered by the growing interconnection queues as the California Independent System Operator (CAISO) 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
6 The SFPUC Commission approved CleanPowerSF’s IRP on October 24, 2022 by Resolution No. 22- 0184.
7 “Time coincident” means that the renewable power supply is available to meet forecasted customer demand. 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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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)
California’s RA compliance programs are intended to ensure there is sufficient electric generating capacity available to 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.
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 power generating capacity at the CAISO system-wide level; (2) Local RA, ensuring sufficient capacity within smaller transmission-constrained geographic areas; and (3) Flexible RA, ensuring sufficient capacity that can quickly respond to rapidly changing demand.
Entities serving electric load in CAISO territory must comply with RA program requirements.
However, the California PUC and other Local Regulatory Authorities have the authority to regulate their jurisdictional LSEs with their own RA requirements, as long as they meet the CAISO’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 comply with the CAISO’s RA compliance requirements and any requirements established by the SFPUC.
Unlike other ISO markets (such as ISO-NE, PJM), the CAISO’s RA “market” is transacted bi- laterally among various market participants including LSEs, generators, brokers, and power marketers. 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 CAISO, b) concentration of RA capacity resources in the control of California’s largest investor-owned utilities, c) retirement of existing capacity, d) increasing regional competition for capacity from out-of-state, and e) a great deal of regulatory uncertainty.
The market for RA capacity has been tight in recent years, resulting in high prices from 2022 – 2024. While prices in 2025 are still historically elevated, prices have significantly decreased relative to the past few years, the main drivers being an improved supply and demand balance due to a) the state forecasting a lower peak demand in its forecast (lowering the required
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quantity of RA capacity that needs to be supplied), b) increased supply due to new projects coming online, and c) changes in the counting methodology for renewable resources which increased the amount they can contribute to an LSE’s RA obligations.
The California PUC’s RA program has experienced major changes in the last few years and we expect there will continue to be further changes in the coming years. First, the planning reserve margin, which was set at 15% since the inception of the program, increased to 16% in 2023 and a minimum of 17% in 2024 and 2025. A higher planning reserve margin means that LSEs (including CleanPowerSF) will be required to procure more RA capacity, and therefore incur more costs, to meet the same forecasted demand. However, if the planning reserve margin is set too low then the grid will experience a higher probability of power outages, threatening the reliability of the system.
In addition, the California PUC adopted the Slice-of-Day framework, with 2025 being the first year of implementation. Formerly, the California PUC RA programs required LSEs to secure sufficient RA capacity to meet the forecasted peak demand for each month, plus a planning reserve margin. In the current Slice-of-Day 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 planning reserve margin. The “worst day” definition can change but will initially be set as the day of the month which corresponds to the CAISO system peak gross load. Thus, each resource will have 24-hourly capacity attributes that will be used to meet the LSEs 24-hourly RA compliance obligations.
In the near future we expect significant changes in both the California PUC RA program and the CAISO RA program. Currently, the California PUC is considering changes to its RA program that could result in higher PRM, but may also introduce a partial system RA waiver to contain potential price increases in the RA market. CAISO is considering more technical changes that will have more subtle impacts on the RA market, and focusing on refining processes that manage outages, and more accurately accrediting resources to reflect their likely availability during stressed grid conditions.
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 CAISO 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; and • Addressing the risk of supply availability through long-term forward procurement for RA capacity.
3.3.4 CAISO Grid Interconnection
Interconnection bottleneck has become an issue for getting new projects connected in a timely manner. CAISO has been implementing reforms through its Interconnection Process Enhancements Initiative. Power staff has participated in this reform, but it will take time to see the benefits if successful.
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The Interconnection Process Enhancements initiative by CAISO aims to enhance coordination of resource procurement, interconnection, resource planning, and transmission planning to achieve state reliability and policy needs. The proposed changes address unsustainable interconnection request volumes and enable rapid deployment of new generation resources.
Under the CAISO’s Initiative, CleanPowerSF and Hetch Hetchy Power were each allocated Commercial Interest Points for assignment to projects seeking to interconnect to the CAISO.
The SFPUC solicited proposals for projects seeking to interconnect to the CAISO in its Queue Cluster 15 group to allocate CleanPowerSF and Hetch Hetchy Power Commercial Interest Points, in accordance with the CAISO’s Interconnection Process Enhancements initiative.
The CAISO’s Interconnection Process Enhancements initiative concluded on December 23, 2024. SFPUC awarded all our allocated Commercial Interest Points across 9 projects. SFPUC’s strategy for awarding points was to focus on new energy supply projects (as opposed to energy storage projects), and to create a robust bidder pool for future power supply solicitations.
Spreading points across multiple projects helped ensure greater participation in future solicitations.
3.4 CleanPowerSF’s Financial Security Requirement
In 2021, the California PUC, as directed by Senate Bill 520 (Hertzberg, 2019), initiated a rulemaking (R.21-03-011) to improve and strengthen the Provider of Last Resort rules and regulations. The Provider of Last Resort is the electricity provider that will provide electricity service to customers if applicable load serving entities are unable to (e.g. due to insolvency or other causes). State law designates the investor-owned utilities to be the default Provider of Last Resort in the event of a mass involuntary return of customers from a CCA or Direct Access provider. PG&E is currently the Provider of Last Resort for CleanPowerSF as well as all other CCAs and electric service providers in PG&E’s service area.
Part of the Provider of Last Resort regulations require CCAs to post a Financial Security Requirement to the investor-owned utility Provider of Last Resort in its service territory. With the approval of Decision 24-04-009 in April of 2024, the California PUC made modifications to the Financial Security Requirement that CCAs must post to the investor-owned utilities to cover the cost of returning and procuring energy for returned CCA customers as well as a “re-entry” fee calculation. This is the fee required to be paid by returning CCA customers if the CCA cannot, or the Financial Security Requirement is insufficient, to cover the incremental administrative and procurement costs in a mass involuntary return. Decision 24-04-009 also added new financial reporting requirements for CCAs to act as an early warning signal in the event a CCA is in financial distress, among other changes to the Provider of Last Resort regulations.
CCAs will be subject to the new calculation methodology for the first Financial Security Requirement posting following approval of PG&E’s tariffs that include the updated Financial Security Requirement calculation. Those tariffs have not been approved yet by the California PUC, but could be approved prior to the next posting date of July 1, 2025. Currently, the
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minimum Financial Security Requirement for CleanPowerSF is $147,000, but under the new methodology the new minimum Financial Security Requirement will be $4.24 per customer account served or approximately $1.6 million for CleanPowerSF. Working with the Business Services Capital Finance team, CleanPowerSF has the financial instruments in place to meet this new requirement when it becomes effective.
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 (“unbundled customers”) 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 these customers prior to them switching from PG&E’s generation supply service. CleanPowerSF’s competitiveness with PG&E’s retail service is measured, in part, by comparing CleanPowerSF’s cost of generation supply plus the PCIA rate against PG&E’s retail service generation 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 then trued-up based on 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.
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 participates in the California PUC proceeding to consider PG&E’s Energy Resource Recovery Account application, which sets PG&E’s PCIA rates and evaluates PG&E’s generation costs on an annual basis.
PCIA rates declined significantly in 2023, due to high market energy prices, and they remain low for 2025 relative to CleanPowerSF generation rates. However, in early 2025 the California PUC initiated a new rulemaking proceeding considering modifications to the methodology used to develop PCIA rates. Given recent changes to the Resource Adequacy framework and volatile prices observed for RA, energy, and Renewable Energy Credits, this proceeding is meant to reevaluate the calculation of PCIA rates to ensure that costs are divided fairly between customers who take generation service from the investor-owned utilities (“bundled customers”) and customers who take generation service from CCAs or Direct Access providers (“unbundled” customers). This proceeding has the potential to impact PCIA rates as soon as 2026.
CleanPowerSF is actively engaged in this rulemaking along with other members of our CCA trade association, the California Community Choice Association, to prevent the California PUC from inappropriately shifting costs to unbundled customers such as CleanPowerSF ratepayers.
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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. While the rate study itself recommended five years of rates, the Commission adopted rates for Hetch Hetchy and CleanPowerSF for only 1-2 years due to 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 2022 rate studies successfully addressed major financial risks faced by both programs. For the first time, all 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 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, the 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 easier to administer while remaining fair to customers and consistent with legal requirements. 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.
On May 14, 2024, the Commission adopted rates for FY 2024-25 for both Hetch Hetchy Power and CleanPowerSF. Hetch Hetchy Power completed the consolidation of “Enterprise” and “retail” rates, eliminating all Enterprise rates except for a handful of legacy rates unavailable to retail customers, and shifting all other Enterprise customers to the equivalent retail rate structure. This significant effort reduced duplicative rate schedules, simplifying rate administration and communication. All Hetch Hetchy Power retail and Enterprise rates increased by 12%, while GUSE rates increased by the equivalent of $0.03/kWh. CleanPowerSF generation rates increased by 8.5% on average, although shifts in customer class composition meant that individual rates rose by more/less than this. This 8.5% increase was lower than initially planned and was chosen to balance the goal of building up reserve balances to the 180 days cash on hand target established in the program’s reserve policy with the desire to maintain rates competitive with PG&E to reduce the risk of customer opt-outs. While the adopted FY 2024-25 increase still builds reserve balances, it was not as large was initially planned, and at
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the time it was expected that CleanPowerSF would require additional rate increases in FY 2025- 26 to meet the policy target.
4. Risk Management Activities – Areas of Emphasis for 2025 In 2025, the Power Enterprise will continue its efforts as outlined above with focus on the following major initiatives.
4.1 Customer Interconnection and Expansion
The City’s reliance on PG&E for electric interconnection and distribution services continues to pose the biggest risk to our ability to obtain reliable, safe, timely, and affordable electric service.
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 2025.
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 our direct customer base while we pursue the expansion of public power in San Francisco in order to remove our reliance on PG&E for local distribution services.
Power Enterprise will be using the results of the Strategic Investment Planning Study to move forward with further investigation and implementation of the 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 2025, 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,
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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, meet RA compliance requirements, and 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 2025, 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 CAISO 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. 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. Power staff has issued competitive solicitations to identify and procure new energy resources and are in the process of negotiating Power Purchase Agreements. We will also continue to work with California Community Power (CC Power), the joint powers agency CleanPowerSF is a member of, to leverage the collective buying power of CC Power’s group of CCA members.
Given on-going changes to state regulatory requirements for the RA program, Power staff will continue to participate in various regulatory proceedings conducted by state agencies and CAISO to ensure that market rules are fair, reasonable, and continue to provide for statewide electric reliability that is affordable to ratepayers.
Also to be highlighted, Power Staff has completed procurements for CleanPowerSF, that place it on track to meet the City's Climate Action Plan target of 100% renewable and/or GHG-free electricity in 2025.
4.3 Hetch Hetchy Power and CleanPowerSF Rate Studies
In 2025, Power staff have supported the development of new power rates for consideration by the Commission for Fiscal Year 2025-26. No rate changes are anticipated for CleanPowerSF, while Hetch Hetchy rates are expected to increase by 10% for retail customers and the equivalent of $0.03/kWh for GUSE customers. After significant cleanup and consolidation of rate schedules in prior years, no structural changes are expected for next fiscal year’s rates.8 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. A contractor has been selected for this study and is beginning work now; the study is expected to be completed in spring 2026 to support new rates for FY 2026-27 and onward. 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.
8 The Commission adopted these proposed rates on April 8, 2025 in Resolution 25-0059.