Western Interconnect Gas Electric Interface Study Public Report - - PowerPoint PPT Presentation

woodmac.com Trusted commercial intelligence

2018

Western Interconnect Gas – Electric Interface Study

Public Report Presentation

2

Project Background & Context

INTRODUCTION AND SUMMARY

 In the West, we have entered a period in which it is both possible and reasonable to aspire to low wholesale power costs and steady reductions in emissions  However, the transition away from large, baseload nuclear and coal generation towards more intermittent resources places a considerable potential strain on

• verall system reliability

 In this context, natural gas generation will take on an increasingly important role due to its flexibility and ability to compensate for the variability of renewable resources  Consequently, the ability of the gas/electric systems to handle both everyday variability as well as unforeseen disruptions becomes critical for ensuring energy security in the West In 2017, WECC commissioned Wood Mackenzie, E3, and Argonne National Labs to undertake an evaluation of the reliability of the gas/electric interface in the Western Interconnection. This study consisted of multiple work-streams:

1) Identifying and modelling the impact of potential power system vulnerabilities stemming from gas system disruptions 2) Evaluating potential mitigation options and their associated costs and capabilities for reducing such impacts 3) Identifying reliability risks associated with gas contracting strategies as well as existing market rules & protocols 4) Providing reasonable and actionable recommendations for WECC and key stakeholders

Background Context

3

The configuration of the gas/electric system combined with the loss of Aliso Canyon will create region-wide reliability issues that need to be addressed

INTRODUCTION AND SUMMARY

Baseload retirements and load growth will drive natural gas demand growth, creating constraints

• n the gas system
• Prior to the 2015 gas leak, the 86 bcf of market-area gas

storage available at Aliso Canyon played a key role in managing system volatility and reliability

• Renewables additions help mitigate but do not replace the

increased need for firm, dependable resources stemming from the 11 GW of coal and nuclear retirements

• Pipeline flow analysis indicate concerns around volumetric

constraints, which limits daily operational flexibility

Absent key balancing with storage, Southern California and the Desert Southwest are at risk from disruptions of the gas system

• The Desert Southwest (DSW) and Southern California

regions are particularly at risk from disruptions of pipeline infrastructure or gas production

• The Pacific Northwest (PNW) is more resilient to major gas

system disruptions, largely owing to market area gas storage (in OR, WA and Northern CA) and electric transmission connectivity

There is no silver bullet: a portfolio

• f mitigation solutions will be

necessary to address the reliability risk

• A combination of physical solutions will be required:

investments in renewable generation, battery storage, demand response programs, gas infrastructure and storage as well as dual-fuel fired generation

• Improved regional coordination, reserve adequacy

accounting, curtailment priorities and forecasting would decrease market frictions and improve the ability of the system to respond to disruptions and day-to-day variability

4

Agenda

 The Situation in the West – 2026 WECC

Common Case Dynamics

 The Challenge – Disruption Scenario

Modelling Results

 Mitigation Options & Recommendations  Appendix

5

Installed capacity (MW)

The Western grid is being transformed through retirements of baseload resources and additions of solar and wind generation

5,000 10,000 15,000 20,000 25,000 30,000 12,364 4,834 2017 2020 2025 1,967 Nuclear Coal Retired capacity (MW)

 9 GW of coal and 2.2 GW of

nuclear generation is projected to be retired by 2026

 Up to 20 GW of new solar

(utility & distributed generation) is projected to be installed in California by 2026

 Bulk electricity storage will

play an increasing role, but there is little clarity on the scale and timing

Source: WECC 2026 Common Case

18,705 10,205 6,455 5,000 10,000 15,000 20,000 25,000 2017 2025 2020

THE SITUATION IN THE WEST – 2026 WECC COMMON CASE DYNAMICS

Cumulative West Coal/Nuclear Retirements to 2026 Cumulative New CA Solar Capacity through 2026

6

Source: Wood Mackenzie, E3 based on 2026 WECC Common Case *Purely on an energy, not capacity, basis keeping gas burn flat through 2021 would require 26 GW of solar power

THE SITUATION IN THE WEST – 2026 WECC COMMON CASE DYNAMICS

Gas burn for power could increase by ~21%* or slightly more than 1.0 bcfd through 2021

4 1 6 2 3 7 5 2022 2018 2024 2019 2020 2021 2023 2026 2025 +21% Canada DSW California PNW Rockies Basin

Western Interconnection gas power burn (bcfd) Average CCGT capacity factors (%)

10 20 30 40 50 60 70 80 90 100 2018 2019 2020 2021 2022 2023 2024 2025 2026 California Basin DSW PNW Rockies Baseload retirements increase gas demand for power post-2024

Planning to meet gas burn in 2021 is the immediate challenge

7

The Western Interconnection and other West Coast natural gas markets become increasingly dependent on 7 long-haul pipelines and 3 supply basins

Source: Wood Mackenzie

18 15 2026 2017 12 11 2017 2026 13 7 2026 2017

Rockies & San Juan (total production) Permian (total production) WCSB (total production)

bcfd bcfd bcfd

West US & Canada Gas Pipes & Producing Basins

THE SITUATION IN THE WEST – 2026 WECC COMMON CASE DYNAMICS



The West is blessed with access to diverse and economic supply sources between Western Canada, Permian and Rockies plays

» Combined reserves of 350 tcf available at less than $4/mmbtu for dry gas and $50/bbl for associated gas



However, several major interstate pipelines are already highly utilized (<75% on annual basis)



Western Canada remains a critical supply source for the Western US demand centers



Greater reliance on Permian gas increases reliability risks in Desert Southwest and Southern California



Market area underground gas storage is a key resource

GTN Northwest PL Northwest PL Kern River El Paso Transwestern/ El Paso Ruby Key 3.0 (80%) 1.8 (82%) 2.2 (93%) 1.2 (80%) 0.8 (82%) 4.0 (95%) 0.2 (30%) XX (XX%)

• Aug. 2026 Gas flow

in bcfd (Aug. 2026 utilization %)

8

Agenda

 The Situation in the West – 2026 WECC

Common Case Dynamics

 The Challenge – Disruption Scenario

Modelling Results

 Mitigation Options & Recommendations  Appendix

9 THE CHALLENGE – DISRUPTION SCENARIO MODELLING ANALYSIS

The study evaluated 5 key base cases representing major disruptions to the Western Interconnection as well as 5 additional sensitivities

Regional focus Base (N-1) Case N-2 case Disruption on a PNW pipeline

Pacific Northwest Disruption at the US/Canada border (or upstream) receipt point on the system Low hydro conditions

Seismic event disrupting Alberta supply

Pacific Northwest M6+ earthquake in the Rocky Mountain House area, that disrupts natural gas production in Alberta Low hydro conditions

Disruption on a Basin pipeline

Basin/ California Disruption on the critical mainline section downstream of the supply basin and upstream of the demand centers Low hydro conditions

Disruption on a DSW pipeline

Desert Southwest/ Southern CA Disruption on critical Southern NM section

• f DSW pipeline

NA

Winter supply freeze-off in the Permian & San Juan

Desert Southwest Week-long winter supply freeze-off in the Permian and San Juan basins reducing supply by 1.5 bcfd, higher residential gas

• demand. 15% of generation in AZ/NM

unavailable due to freezing conditions Low hydro conditions / Transmission outage from CA wildfire

10

The Southwest disruptions constitute the primary vulnerabilities within the Western Interconnection that we have identified to date

27 GW

Outage nameplate capacity (GW) Unserved energy & unmet reserves (GWh)

1 428 4 6 59 52 23 236 50 100 150 200 250 300 350 400 450

Freeze

• ff- Path

26 out Freeze

• ff - Base

Other cases Freeze

• ff - Low

hydro stress Canada

• Avg

hydro Canada

• Low

hydro DSW Pipeline Rupture

Unmet spinning reserves Unserved energy 18 20 22 24 26 10 16 2 8 14 4 6 12

Freeze Off - Path 26

• utage

Canada

• base

Freeze Off - stress

14 14 13 14 12 8

PNW

• base

Basin

• base

Canada

• low

hydro

15

Freeze Off - low hydro stress

16

DSW

• base

24

PNW

• low

hydro

Unserved energy in the DSW scenarios results from the configuration of the gas network, which limits deliverability in isolated “islands” of power plants in Phoenix and Southern California

Notes : (1) Economic impact estimated based on cost of unserved energy in each state for each type of demand sector (2) Risked Economic Impact estimated based on probability of each disruption Source: Argonne National Labs , E3, Wood Mackenzie

THE CHALLENGE – DISRUPTION SCENARIO MODELLING ANALYSIS

Identified issue At-risk Limited risk Unrisked Economic Impact1 ($US bn) Risked Economic Impact2 ($US bn) $27.4 $2.2 $0 $0 $1.1 $0.27 All at-risk scenarios are exhibiting unmet spinning reserves throughout the forecast $3.4 $0.002 $3.7 $0.02 $0.8 $0.6 $0.6

11

While the DSW pipeline rupture provokes a resource adequacy problem, the unserved energy in other cases result from transmission limitations

Source: Argonne National Labs , E3, Wood Mackenzie

THE CHALLENGE – DISRUPTION SCENARIO MODELLING ANALYSIS

August 6 2026 – DSW Pipeline Base Case Western Inter. Load and Generation Capability (GW)

160 140 40 180 20 100 60 80 120 19 17 23 10 1 2 3 14 12 4 5 6 7 8 9 22 11 13 24 1516 18 2021 Base Generation Capability Generation capability post-disruption Load The system is experiencing a resource adequacy issue during peak hours

December 1, 2026 – Canadian supply disruption low hydro Western Inter. Load and Generation Capability (GW)

180 80 100 40 140 20 60 160 120 15 5 3 1 2 4 6 7 13 8 9 10 20 1112 14 16171819 21222324 While BPS generation capabilities are sufficient, transmission constraints to the PNW are creating unserved load and unmet spinning reserves Unserved Load (GWh) Unmet spinning reserves (MW)

428 318 1 70

12 12

Agenda

 The Situation in the West – 2026 WECC

Common Case Dynamics

 The Challenge – Disruption Scenario

Modelling Results

 Mitigation Options & Recommendations  Appendix

13

Reconciliation and improvement of natural gas/electric coordination will be key to maximizing ability to manage increased gas demand

MITIGATION OPTIONS & RECOMMENDATIONS

Resource Adequacy Assessment Curtailment Priorities Forecasting & Execution



Greater transparency of firm contracting and linkage to power plants served in firm reserve reports



Re-visit classification of electric generation as “non-core” end-use



Designation of plants critical to grid reliability as core end-use



Require intra-day LDC core load balancing to ensure fair implementation

• f OFOs and penalties



Additional clarity around interstate pipeline curtailment protocol

Recommendations Benefits



Allows for more robust planning processes, especially as gas and power capacity dynamics tighten



Ensuring that critical power plants are not the first to be curtailed allows for additional flexibility for compensation via transmission



Higher accountability for prior-day forecasting allows easier utility

• peration



Explicit interstate curtailment protocols allow for better contingency planning

Gas-Electric Day Mismatch



Split weekend nomination period into daily blocks, resulting in a 7-day nomination cycle



A feasible step for both gas and electric sides that would minimize response lead times over the weekend period

Source: Wood Mackenzie, E3

Improved Regional Coordination



Conduct regional contingency planning exercises led by WECC to prepare for a number of disruption scenarios



Maximizes compensation ability for utilities across the Western Interconnection

14

Meeting the future needs of the Bulk Power System in the Western Interconnection reliably and at lowest cost will require a portfolio of options

MITIGATION OPTIONS & RECOMMENDATIONS

2018 Balanced Power Portfolio

Option Evaluation

Temporal Considerations Economic Cost Policy Considerations Gas System Expansion Renewables & Batteries DSR Programs Dual-Fired Generation Mitigation Capabilities 1 2 4 3

15

The availability of gas storage facilities located in key demand basins significantly decreases the impact of a DSW pipeline disruption

Source: Argonne National Labs , E3, Wood Mackenzie

MITIGATION OPTIONS & RECOMMENDATIONS

10 428 236 56 236 50 100 150 200 250 300 350 400 450 500 DSW Pipe Rupture with AZ gas storage facility DSW Pipe Rupture with Aliso Canyon operational DSW Pipe Rupture Unserved energy Unmet spinning reserves Case Working capacity (mmcf) Max withdrawal rate (mmcfd) DSW base case Aliso Canyon decommissioned Aliso Canyon

• perational

24,000 800 AZ Gas Storage 4,000 400

Unserved energy & unmet reserves (GWh)



The study modelled two alternative cases of the DSW pipeline disruption to examine the impact

• f the availability of gas storage in key locations

» The first case keeps Aliso Canyon operating at the current limitations on its working capacity and withdrawal rate » The second case models an additional underground natural gas storage facility in the Phoenix, AZ area, based on the open season proposed by Kinder Morgan 1

16

It will be necessary to bridge the path to battery storage implementation with other mitigation options

Source: E3

MITIGATION OPTIONS & RECOMMENDATIONS

Mitigation Capability of Battery & Solar Additions



We estimate that ~14 – 15 GW of 4-hr battery storage would need to be installed to mitigate all unserved energy in the EPNG scenario

» The associated capex of installing the battery storage needed to compensate for the DSW pipeline disruption scenario is estimated to be ~$12 – $18 bn



The limitations of solar capacity to flex on peak hour demand yield diminishing returns

» Consequently, solar capacity by itself is not able to completely compensate for impacts from the EPNG disruption



A feasible, explicitly articulated path forward utilizing a combination of mitigation options is critical for bridging to proposed renewables targets in a safe and reliable manner

50 100 150 200 250 300 350 400 450 5000 10000 15000 20000 25000 30000 35000 MW Added Unserved Energy (GWh) Batteries Solar 4

17

 This report has been prepared for WECC by Wood Mackenzie Incorporated. The report is intended solely for the benefit of WECC and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.  The information upon which this report is based has either been supplied to us by WECC or comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them.

STRICTLY PRIVATE & CONFIDENTIAL

Disclaimer

18

Wood Mackenzie™, a Verisk Analytics business, is a trusted source of commercial intelligence for the world's natural resources sector. We empower clients to make better strategic decisions, providing objective analysis and advice on assets, companies and markets. For more information visit: www.woodmac.com WOOD MACKENZIE is a trade mark of Wood Mackenzie Limited and is the subject of trade mark registrations and/or applications in the European Community, the USA and other countries around the world.

Europe Americas Asia Pacific Email Website +44 131 243 4400 +1 713 470 1600 +65 6518 0800 contactus@woodmac.com www.woodmac.com

19 19

Agenda

 The Situation in the West – 2026 WECC

Common Case Dynamics

 The Challenge – Disruption Scenario

Modelling Results

 Mitigation Options & Recommendations  Appendix

20

The gas/electric interface of the Western Interconnection faces increasing volumetric and flexibility constraints that could pose reliability challenges

APPENDIX – INTRODUCTION AND SUMMARY

A limited Aliso Canyon is now highlighting several issues that were previously masked

• Aliso Canyon’s 86 bcf of market-area gas storage was

historically sufficient to balance system variability

• However, we are now effectively in an N-1 scenario with any

major disruptions pushing the system to the limit

The system has experienced multiple close calls and near misses

• Unplanned SoCalGas pipe outages in Oct-Dec 2017

caused local gas prices to spike >$12/mmbtu

• Freeze-offs in winter 2018 brought a major pipeline to the

brink of gas curtailments

• In March 2018, the CPUC ordered SoCalGas to inject gas

after storage inventories reached “critically low” level

Baseload retirements and steady power demand growth drive increased gas demand through 2026

• ~13 GW of baseload coal and nuclear retirements by 2026

result in gas burn increasing by ~30%* (6.3 bcfd)

• Pipeline flow analysis and industry conversations indicate

concerns around volumetric constraints as early as 2019, which limits daily operational flexibility

Addition of renewables helps mitigate but does not replace the increased need for gas generation and firm, dependable resources

• Renewables provide energy but little capacity; the

dispatchability of gas-fired generation becomes critical for managing variability and meeting peak demand

• Increased intra-day variability and uncertainty add to
• perating challenges

* Based on WECC 2026 Common Case; this percentage will likely increase as baseload retirements and renewables targets are pushed even more aggressively

21

Disruptions in the gas system translate quickly to loss of load in the Desert Southwest and Southern California regions

APPENDIX – INTRODUCTION AND SUMMARY

The configuration of the gas/electric system combined with the loss of Aliso Canyon creates region-wide reliability issues

• Modelling scenarios have identified DSW and Southern

California in particular as reliability risks, with the DSW pipe disruption and freeze-off scenarios resulting in unserved energy and unmet spinning reserves

• The results translate into risked economic impacts on the
• rder of several hundred million to a billion dollars

The PNW is more resilient to major gas system disruptions, largely

• wing to market area gas storage

and electric transmission connectivity

• Most PNW disruption cases do not result in any unserved

energy, highlighting the resilience of the region to major gas disruptions

• The few cases that result in any kind of impact are

associated with extremely high impact, low probability disruptions to Canadian supply

The existing strain on the system means that even modest changes to assumptions can quickly exacerbate the challenges

• Modest changes regarding additional baseload retirements
• r storage limits would exacerbate the need for new gas

generation

• Natural gas support will continue to be necessary to

ensure system reliability while achieving policy goals

22

Our recommendations focus on improvements in gas-electric coordination & protocols and a combination of investments to ensure system reliability

APPENDIX – INTRODUCTION AND SUMMARY

Develop a balanced portfolio (energy and capacity) to achieve renewable standards without sacrificing system reliability

• Maintenance and new investments in gas & electric

infrastructure are necessary to meet near-term needs and ensure that the system can reliably meet BPS capacity needs

• A mix of options (gas capacity, dual-fired gen, DSR, battery

storage) incentivized with an appropriate commercial construct will be needed to ensure system security and reliability

Improve coordination of gas and electric industries' operating practices

• Our modelling assumes perfect electric dispatch and gas

procurement; in a real-world scenario, market frictions will need to be tightly managed across the region

• Adjusting protocols to increase ability to manage increased gas

demand yields gains during both business-as-usual and sustained disruption scenarios

Syndicate and communicate the study results to the appropriate stakeholders

• It will be important to provide an improved understanding on

these issues to a wide range of potential stakeholders

• Buy-in at all levels (gas pipelines, utilities, generators, PUCs,

NERC, FERC) will be necessary in order to move any significant change forward

23

The three teams established a robust modelling methodology leveraging AURORA, GPCM, and NGfast to provide a comprehensive view

APPENDIX – INTRODUCTION AND SUMMARY

• 1. Assumes perfect dispatch across Western Interconnection

Source: Wood Mackenzie, E3

Detailed modelling methodology

BPS 2026 base case (Aurora model1) Gas 2026 base case (GPCM model) Impact of major disruption on power plants

(NGFast model)

Impact on BPS

(Aurora model)

 Power plants

disrupted

 Natural gas

infrastructure constraints

 Infrastructure

developments

 Natural gas

demand

 Pipeline flows  Supply forecast  Installed

capacity

 Gas demand for

power Data inputs Data inputs Data inputs Data inputs E3 model WM model Argonne model

Using this process, we have modelled a number of disruption scenarios (for both N-1 and N-2 situations) as well as a few mitigation options to demonstrate the magnitude of impact

24

The WECC 2026 Common Case serves as the basis of the modelling scenarios conducted in this study

*The assumed buildout of solar resources has been updated from the 2026 Common Case based on the portfolio modelling conducted by the CPUC in its Integrated Resource Plan. This update, which substitutes an additional 3 GW of solar for 1 GW of geothermal in California, is a small overall difference in the Western resource mix but reflects more recent information on the state’s planning goals to meet clean energy needs.

APPENDIX – INTRODUCTION AND SUMMARY

Gas System Infrastructure Changes Plant Retirements Renewable Additions



Aliso Canyon gas storage completely retired by 2026



Casing regulations reduce overall California storage deliverability by ~30%



~9 GW of coal plant capacity retired by 2026



~2 GW of nuclear plant capacity retired by 2026



~3.5 GW of gas-fired plant capacity retired by 2026



Wind capacity increases from 20 GW to 29 GW of capacity by 2026



Solar capacity increases from 18 GW to 36 GW of capacity by 2026*

Load & Demand Growth



Increase of ~7% in total Western Interconnection load by 2026



Increase of ~30% in natural gas demand for the whole Western Interconnection by 2026

25

Source: WECC 2026 Common Case

APPENDIX – THE SITUATION IN THE WEST – 2026 WECC COMMON CASE DYNAMICS

Load growth, focused outside of California, will increase generation needs in the Western Interconnection

27 GW

Western Interconnection Annual Load (TWh)

 Regional load grows over the course

• f 2018-2026, with an annual average

growth rate of 0.8% per year across the entire footprint.

 Non-CA load increases on average

1.0% per year, inclusive of EE and BTM

 California load is limited to a 0.3%

increase per year over the period

120 100 20 80 60 40 160 220 240 280 200 180 300 140 260 360 320 340 80 Rockies California 191 Northwest 210 274 107 280 +1.2% p.a. 119 91 +1.0% p.a. Southwest +0.3% p.a. +1.5% p.a. 87 70 +0.5% p.a. Basin 2026 2017

26

Source: E3

APPENDIX – THE SITUATION IN THE WEST – 2026 WECC COMMON CASE DYNAMICS

In California, large renewables additions are creating a larger and steeper load ramp-up in the evenings

36 GW 27 GW

2026 hourly electric load - Aug 21 (GW)

2 4 6 8 10 12 14 16 18 20 22 24 25 20 10 35 40 5 15 30 45 44 +25 GW Load Net load 2 4 6 8 10 12 14 16 18 20 22 24 5 35 10 15 30 20 25 40 45 39 +21 GW

2017 hourly electric load – Aug 21 (GW) The BPS is becoming more reliant on natural gas to meet peak demands due to planned baseload retirements and increasing renewables penetration

27

The study included an independent review of gas contracting to determine the amount of firm capacity backing up generation

Source: Wood Mackenzie

APPENDIX – THE SITUATION IN THE WEST – GAS TRANSPORT CONTRACTING ANALYSIS & STRATEGY

The analysis was supported with online contracting info, generator IRPs, and contact with utilities and generators to validate results

Gas Pipeline Contracting Gas Burn Calculations

Gather interstate and LDC contract info Establish list of gas-fired power plants Determine capacity, heat rates, and base vs. peaking functionality Calculate gas supply needs

• n 3 different analyses:

Peak Hour:

Max burn for 1 hour

Compare versus firm contracted capacity Catastrophic:

24 hour max burn

Base Case:

7 hour peaking plant utilization

Map LDC/pipeline connections for power plants Establish hourly variation tolerances for rate schedules Calculate available firm capacity on daily and peak hour basis Compare versus gas burn

28

Regional contracting analysis shows that a significant amount of generation capacity is uncovered by FT, increasing reliability risk

Source: Wood Mackenzie

APPENDIX – THE SITUATION IN THE WEST – GAS TRANSPORT CONTRACTING ANALYSIS & STRATEGY

Utilities outside of California contract FT to cover baseload capacity and use IT to supply peaking plants - this approach will become less feasible towards the end of the decade as flexibility in the system declines

Flexibility offered by Rockies storage allows implementation of firm no-notice service Multiple PNW utilities adopt conservative strategy and contract for Catastrophic coverage California has significant capacity currently utilizing interruptible transportation capacity Several DSW generators contract FT to cover baseload and flex IT for peaking needs

Rockies Desert Southwest Basin California Pacific Northwest 1,742 89% Cat.

100%

2,036 76% Peak Hour 90 85% Base Covered by Storage Covered by FT Baseload Peaking 6,971 22% Cat.

100%

8,234 18% Peak Hour 351 21% Base 2,000 73% Cat.

100%

2,010 72% Peak Hour 87 76% Base Total burn MMcf/d 1,493 88% Cat.

100%

1,797 73% Peak Hour 158 87% Base 2,737 84% Cat.

100%

3,402 68% Peak Hour 175 82% Base Total burn MMcf/d Total burn MMcf/d Total burn MMcf/d Total burn MMcf/d

29

Virtually all local SoCal generation is effectively unsupported by FT due to historical flexibility and mismatches in protocols and incentives

Source: Wood Mackenzie

APPENDIX – THE SITUATION IN THE WEST – GAS TRANSPORT CONTRACTING ANALYSIS & STRATEGY

>15 GW

• n SCG

Local >8 GW

• n PG&E

Local TW & El Paso Firm >5 GW on PG&E Backbone >7 GW on SCG Backbone

McDonald Island Aliso Canyon

System Service

Backbone FT / IT (Analogous to interstate) Local No FT; pay by use Subject to Curtailment Priority & OFOs

• Pre-Aliso Canyon, LDCs could manage volatility

and flexibility of generators using storage capacity

• However, post-Aliso Canyon, storage capacity

has been regulated from 86 to 23.6 bcf, reducing margin for error

• Commercially, generators have no motivation to

hold FT, with lack of incentives due to existing curtailment protocols

Honor Rancho

30

Focusing on the freeze-off scenario, market inefficiencies and potential additional weather-related failures would push it over the edge

Source: Argonne National Labs , E3, Wood Mackenzie

APPENDIX – THE CHALLENGE – DISRUPTION SCENARIO MODELLING ANALYSIS

 Compensation in our modelling

runs assumes perfect dispatch and no difficulties with sourcing gas

» Additional transmission constraints » Unplanned outages » Gas sourcing » Scheduling issues

 Disruption impacts could be

further exacerbated by additional retirements and more ambitious renewable additions

December 28, 2026 – Freeze-off low hydro stress case Western Interconnection Load and Generation Capability (GW)

100 80 60 40 20 180 160 140 120

20 19 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 24 23 22 21 2 1

Generation capability post-disruption Base Generation Capability Load Spinning reserves While no unserved energy appears, the system is unable to meet its spinning reserves on peak hours

31

The PNW is more resilient to major disruptions, exhibiting unmet reserves and unserved energy only in extremely severe cases

Source: Argonne National Labs , E3, Wood Mackenzie

APPENDIX – THE CHALLENGE – DISRUPTION SCENARIO MODELLING ANALYSIS

Canada supply disruption – Outage nameplate capacity vs. average hydro

• utput (GW)

While the disruptions modelled have a major impact on the PNW utilities, in most cases the rest of the Western Interconnection is able to provide the additional resources needed to meet load

15 5 20 10 Gas-fired generation

• utage nameplate capacity

15 14 Average hydro output

• 19%

+5% 12 15 Canada - Low hydro Canada - Base 1 52 59 20 40 60 80 100

Canada

• Low hydro

Canada

• Avg hydro

GTN

• Avg hydro

GTN

• Low hydro

Unmet spinning reserves Unserved energy The Canadian earthquake disruption with low hydro conditions is the lowest probability case examined in the study The low hydro case is based on a 1-in-80 year low hydro conditions

Unserved energy, unmet reserves and disruption probabilities (GWh)

0.3% 2.7% 0.6% 0.07% Probability of a 1-in-10 year event

32

Pipeline capacity expansion could provide additional flexibility but issues around timing and policy will complicate support for future projects

Source: Various Pipeline Operators, Wood Mackenzie

APPENDIX – MITIGATION OPTIONS & RECOMMENDATIONS



An incremental addition of 75 – 300 mmcfd of deliverability could be achieved with an investment of ~$25 – 500 mn

» Various other expansion designs (e.g. compression, looping, pipe capacity) could add an additional 100 mmcfd – 1 bcfd into SoCal » However, operators typically evaluate projects on 15-25 year timeframes; battery technology will likely have evolved significantly



Expansion of the pipe system would provide additional flexibility to handle long-term sustained disruptions

» Operators are already concerned about their ability to meet business-as-usual demand; a combination of knock-on effects (e.g. low hydro, weather events, unplanned outages) could break the system



Existing policies challenge project funding

» Interstate expansions must be approved through FERC regulatory process, which can take 36 months or longer » Discussions with pipeline operators have all indicated a key constraint around SoCalGas’s system deliverability that should be evaluated by the LDC

Potential Areas for Pipeline Expansion

1 Kern river expansion EPNG & TW expansions SoCal gas expansion

33

While dual-fired generation provides some mitigation capability, difficulties stemming from policy, economics, and logistics limit its effectiveness

1. Verified on best-efforts basis Source: Argonne National Labs, EIA, Wood Mackenzie

APPENDIX – MITIGATION OPTIONS & RECOMMENDATIONS



We estimate that by keeping all existing facilities

• nline today, an additional 700 MW of

compensation would be available in the DSW pipeline disruption scenario



Procurement logistics limit long-term compensation capability of dual-fired generation

» Utilities typically only keep enough fuel onsite for a few days of generation, if at all » Access to product pipelines, railroads, and terminals is key; truck availability and pump capacity become the limiting factors



Additionally, further limitations stem from environmental and policy regulations as well as associated costs of storage and procurement



Similar to other regions, we recommend that utilities implement good practices by ensuring sufficient fuel storage, especially in advance of extreme weather events

Estimated Available Dual-Fired Generation Capacity1

5 10 15 25 20 NM AZ WA OR GW CA UT CO ID CA permitting and environmental regulations mandate a maximum duration that dual-fired generation can run, regardless of any consequences Outaged Capacity from DSW Pipe Disruption Scenario 2 Outaged Capacity from Freeze-off Disruption Scenario

34

Demand Response (DR) programs will continue to be key for peak shaving purposes but are otherwise limited due to scope and duration

Source: WECC Utilities, Wood Mackenzie

APPENDIX – MITIGATION OPTIONS & RECOMMENDATIONS



Utilities have implemented both formal and voluntary DR programs to manage peak demand at comparatively limited costs

» In response to a 2004 fire that knocked out a key substation, a DSW utility was able to reduce load by ~200 – 300 MW through public outreach » A Southern California utility currently implements multiple DSR programs; the two largest have capacity potentials of ~600 MW and ~300 MW



However, while DR programs may be able to influence behavior for extended duration, effectiveness is typically limited to peak shaving

» In the aftermath, the DSW utility customers maintained the reduced load profile for a few years after the event » However, consumption was officially reduced only when temperatures exceeded 110F



Moving forward, continued implementation of DR programs and outreach will continue to be an effective tool for managing peak demand and limiting disruption impacts

DSW Utility DR Mitigation (2004) Southern California Utility DR Mitigation (2017)

Peak Load 95% 5% DR Mitigation 4% DR Mitigation Peak Load 96% 3