SM SOUTHERN CALIFORNIA EDISON® RETI 2.0 Workshop 03/16/2016 IOU Panel

SM SOUTHERN CALIFORNIA EDISON® Page 2 High-level Overview of SCE’s LCBF Principles Purpose: Select a mix of products in a competitive environment that in aggregate meet a specified RPS, system or local need, in a cost competitive manner –LCBF is applied to a wide variety of products Resource adequacy and bulk energy products Renewable procurement (RPS and other requirements) Local capacity needs (e.g., recent 2012 LTPP procurement cycle) –LCBF can meet requirements subject to a reasonable set of constraints The key element is that the offer selection provides competition that benefits SCE’s customers –LCBF quantifies direct utility customer benefits associated with a contractual product in assessing net costs Calculation subtracts benefits not directly associated with the product being procured from the cost of the contractual product Example: the cost of renewable energy purchased to meet an RPS obligation is reduced by the RA value and avoided energy procurement associated with the renewable energy procurement Typically, bids are ranked in terms of net cost per MW or MWh of the specified RPS, system or local requirement before qualitative criteria are applied

SM SOUTHERN CALIFORNIA EDISON® Page 3 RPS Valuation and Selection: LCBF Methodology Overview “Least-Cost” – Proposals are evaluated and ranked by Net Market Value ($/MWh) “Best-Fit” – After the quantitative valuation process, SCE evaluates each proposal’s qualitative characteristics –Contribution to other SCE programs and goals (e.g. Energy Storage, portfolio diversity, LCR, WMDVBE, TRTP, viability, safety, environmental impacts, etc.) Costs Contract Payments Based on the capacity prices, expected generation and contract term Transmission Cost Cost adders for required network upgrades based on the best information Debt Equivalence Cost Cost of contract commitments on SCE’s balance sheet GHG Cost (if applicable) There is usually no GHG cost to the majority of renewable offers Renewable Integration Cost Adder (RICA) Adopted interim methodology Congestion This can be a negative or a positive number for projects based on the location Energy Only Cost Adder Benefits Energy Value Captures market value of the energy including a forecast for GHG while taking into account generation profile of offers Capacity Value The value of the countable Resource Adequacy capacity. (zero for energy only projects) Ancillary Services and Real Time Flexibility Value (if applicable) Attributed to dispatchable, supply-side projects offering AS capability All costs and benefits are valued using SCE’s latest forecasts

SM SOUTHERN CALIFORNIA EDISON® Page 4 The annual system peak hour is expected to shift due to both behind-the-meter solar DG growth and increasing TE charging load Annual Peak Hour is Shifting

SM SOUTHERN CALIFORNIA EDISON® Page 5 Resource Adequacy Value – Ensuring incentives are aligned with reliability need 5 Reserve Margin Net Load Need Gap Peak Load Need How Much Solar and Wind Reduce Net Peak Wind and Solar QC Non-Solar and Non-Wind RA Resources RA Requirement after Solar and Wind