1. Reaching the Next Level of the State’s Environmental Policy Goals Panel: Energy Procurement, Infrastructure and Policy: Climate Challenges Beyond 2020 33 rd IEPA Annual Meeting Stuart Hemphill Senior Vice President, Power Supply and Operational Services Southern California Edison September 18, 2014

2. 2 Energy procurement policy to date has often targeted simple and effective, singularly-focused initiatives This has resulted in significant advancements in renewable energy, but we need something different to achieve the State’s environmental policy objectives The future of energy procurement policy is to facilitate markets to target GHG reductions and other objectives through more sophisticated approaches Today’s Discussion

3. 3 California’s Current Procurement Programs & Targets Existing procurement policy in California is split into resource “buckets,” with each designed to target a specific resource, product, or policy objective Selected Procurement Program Requirements SCE MW Targets by 2020 Each renewables program is a subset of the larger RPS requirements, and targets different technologies or size of project SCE may also have to procure additional CHP in order to reach GHG-related targets 1,900 MW is the minimum that SCE may procure to reach the LCR requirements. The LCR includes sub- categories comprised of preferred resources, and storage; if procured in certain areas, there may be some overlap between this and the other categories

4. 4 Example: The Need For Something Different Than “More of the Same” Higher renewable targets could yield significant “overgeneration” (see right), creating operational and market challenges Even with significant increases in flexible generation and storage, curtailment is presently the only large-scale option to manage this level of overgeneration New market mechanisms would be needed to compensate for this high level of curtailment Source: Investigating a Higher Renewables Portfolio Standard in California, E3, January 2014 It’s time to consider different approaches to achieve the State’s environmental policy objectives

5. 5 Path Forward: The Next Level of Policy Because California has already achieved environmental successes through simple and targeted approaches, we are both obligated and well prepared to move to the next level of policy-making What does this look like? Market-based programs that allow for optimization of cost, reliability, and environmental effectiveness across multiple solutions Reasonable targets that take advantage of and contribute to the developing market Technical solutions that solve next-level electric system needs, rather than just capacity and energy production

6. 6 Testing This Approach: Energy Storage Storage can provide a large variety of grid services Energy shifting Ancillary services Reducing distribution load Voltage support and inertia California’s increased use of renewable energy increases dependence on flexible natural gas generation to account for intermittency Storage can help integrate renewable energy and, at scale, potentially achieve higher levels of renewables Integrating: Reliability Market development Reducing environmental impact / GHG emissions Competitive markets SCE held California’s first RFO for Energy Storage in spring 2014, and received 718 bids on a solicitation for 50 MW: 12 technologies offered Both behind and in front of meter Wide range of size: 5kW to 200 MW+

7. 7 Testing This Approach: Preferred Resources Pilot * If load growth is managed over the 10 year period of 2013 – 2022 to net zero through the use of preferred resources, the PRP will have demonstrated that preferred resources can met local capacity requirements The Preferred Resource Pilot’s purpose is to obtain “grid-level” measurement on how preferred resources can help meet local capacity requirements* Measure the local grid impact of Preferred Resources Implement a Preferred Resources portfolio to address local peak needs Demonstrate Preferred Resources can be used to meet local capacity requirements Minimize/eliminate the need for gas generation at these locations Identify lessons learned for further application Regions served by Johanna and Santiago sub-stations “Preferred Resources” that meet the definition for energy efficiency, demand response, renewable resources, clean distributed generation, and energy storage Processes used to evaluate, procure and deploy Preferred Resources Objectives Scope Integrating: Reliability Market development Reducing environmental impact / GHG emissions Competitive markets