APS Sustainability and Changing Grid Conditions. Charlene Saltz & Kent Walter January 23, 2018

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1 APS Sustainability and Changing Grid Conditions Charlene Saltz & Kent Walter January 23,

2 APS Sustainability and Changing Grid Conditions Sustainability at APS Evolving resource needs Challenges and Opportunities APS Solar Communities Smarter cities 2

3 APS Vision: Creating a sustainable energy future for Arizona Working to meet our business needs each day while implementing business practices that support a vibrant economy, a healthy environment and strong communities for future generations. 3

4 Sustainability Value Proposition Fosters Innovation Encourages development of new services Responds to competitive challenges Enhances Market & Financial Performance Helps with cost containment Lowers the cost of capital Lowers risk to protect the company Enhances Employee Engagement Attracts new employees Helps retain employees Improves employee engagement Improves Business Reputation Improves stakeholder relations Generates trust and understanding It s the right thing to do 4

5 2016 carbon emissions reduced by 26% Palo Verde s energy generation accounted for nearly 80 percent of all carbon-free generation in Arizona Through combined actions we avoided 4.9 million metric tons of carbon equivalent to taking 1 million cars off the road Received a CDP score of Leadership 5

6 EIM - saved almost $6M in the first three months Advanced metering and distribution management systems enhancing reliability Full deployment of AMI providing near real-time energy usage data, greater visibility and automation of the grid 6

7 Cybersecurity & Data Privacy Security measures implemented to maintain our networks and protect customer information Public Safety Trained more than 5,000 First Responders and others on electrical safety Reduced contact with overhead lines by more than 70% over the last seven years Employee Safety 2016 was our lowest OSHA Recordable year and we re on track to improve in

8 Reclaimed water accounted for more than two-thirds the water used in our generating facilities in 2016 We spend $500,000 per year to protect endangered fish species Over the next 10 years, our goal is to reduce water intensity company-wide by 20 percent compared to a 2014 baseline. 8

9 Invested more than $1B in capital in our service territory -- purchased almost $370M in goods and services with diverse suppliers Community Support APS donated more than $10M in worthy causes in 2016 and APS employees pledged more than $2.5M to community services Listed on Forbes 2016 List of America s Best Employers 20% of workforce is military veterans 9

10 Recent Sustainability Advancements at APS Restructured our Corporate Responsibility Report, PNW website and aps.com Focused on key sustainability indices CDP & MSCI Added a Sustainability sections to our Proxy and 2017 IRP to improve transparency List as a Top 100 Corporate Citizen by the Corporate Responsibility Magazine for the past two years Development of Sustainability Maturity Model 10

11 MW MW Arizona Resource Needs are Changing Value of energy not the same for all hours of the year Significant seasonal variations of resource need Continued evening growth during high load, summer periods Continued reduction in Net Load during the daytime, non-summer seasons Energy value differences throughout day based on time of day Lower even negatively priced energy during mid-day with more expensive prices during ramp periods 8,000 Summer Net Load 2017 and Winter Net Load 2017 and ,500 7,000 6, Peak Day 2022 Peak Day , ,500 5, ,500 4, ,500 3,

12 Southwest has significant renewable energy penetration Renewable resources economically curtailed to ensuring grid stability i.e. marginal resource Approx. 380,000,000 kwh renewable curtailment in CAISO alone 2017 Regional market (EIM) developed to help better integrate resources through regional diversity 12

13 Customer resources will add pressure on solar resource value Continued growth of customer resources Increased daytime energy supply coupled with low demand growth Falling energy value during solar production period Higher prices outside solar production period Operational challenges MW 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Spring Excess renewables for part of the day creates over-generation Generation Minimum Output Nuclear Output

14 Opportunities to partner with customers for solutions Customers establish resource needs through use of electricity Advanced rates provide customer value for use that aligns to low cost time-periods of service APS advance rates include: Demand components On-Peak time periods high price energy time periods Off-Peak time periods - lower price energy time periods Super Off-Peak time periods super low price energy time periods Maximizes customer choice and provides opportunity for customer value using technology, behavioral modifications, and/or smarter use of energy 14

15 Advanced rates share benefit with customers Advanced rates support the integration of existing otherwise curtailed renewable energy Renewable energy is the marginal system resource 24% of Super Off-Peak period Lower energy prices encourage customer shifting demand Frequency Renewable Energy Is Marginal System Resource 15 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 12 AM 4% 7% 3% 3% 3% 3% 3% 1 AM 3% 3% 3% 3% 3% 7% 2 AM 6% 7% 3% 10% 3% 3% 3% 3% 3 AM 6% 7% 13% 10% 3% 7% 3% 3% 4 AM 10% 18% 26% 17% 5 AM 10% 25% 29% 13% 3% 3% 6 AM 10% 11% 3% 7% 6% 17% 3% 3% 7 AM 4% 13% 23% 23% 3% 8 AM 19% 30% 26% 30% 6% 6% 6% 7% 9 AM 6% 18% 35% 23% 16% 27% 3% 10% 6% 10% 10 AM 19% 39% 48% 30% 19% 17% 10% 10% 17% 11 AM 13% 36% 61% 50% 16% 13% 3% 3% 6% 17% 12 PM 16% 43% 48% 37% 19% 13% 3% 13% 6% 1 PM 26% 29% 65% 33% 19% 10% 3% 3% 10% 6% 2 PM 23% 29% 48% 37% 19% 10% 3% 13% 3% 3 PM 13% 29% 45% 33% 10% 7% 3% 3% 10% 4 PM 13% 29% 45% 27% 7% 5 PM 6% 25% 16% 13% 7% 6 PM 3% 7% 7 PM 8 PM 3% 9 PM 3% 10 PM 3% 11 PM 6% 3% 3% 3% 3% 3% 15

16 Enable customer choices and empowerment Technology agnostic rates support customer technology choice EV owners can fill-up for as little as 29 cents/gallon gasoline equivalent during Super Off-Peak Energy storage technologies can limit On-Peak usage Pre-cooling home in advance of peak Water heaters timers Battery storage 16

17 APS Solar Communities

18 APS Leads the Way for Solar in Arizona More than 60 years supporting solar energy 1.2 gigawatts total solar capacity 500 megawatts grid-scale capacity 70,000-plus private rooftop solar installations 300-plus schools with solar systems Nationally recognized advanced solar research 18

19 Rate Review Benefit for Customers APS Solar Communities program created as part of Rate Review settlement process Received broad support, including from solar and limited-income advocates Based on award-winning APS Solar Partner Program Expands access to solar for limited- and moderate-income customers 19

20 The Program Open to qualifying customers, and those who primarily serve limited- income customers, throughout APS service territory including rural Arizona Designed to run for 3 years; requires a yearly program capital spend of $10 million-$15 million APS will deploy utility-owned photovoltaic solar panels, using local installers, that are connected to the distribution system Customers will benefit via monthly bill credit, not tied to energy production 20

21 Program Participants Primary Participants Limited-Income Residential Customers and Multifamily Dwellings Secondary Participants Moderate-Income Residential Customers Other Eligible Participants Organizations Serving Limited- & Moderate-Income Customers Title 1 Schools Nonprofits Rural Government Residential bill credit amount $49 per month; rooftop solar PV Multifamily bill credit amount $25 per month; covered parking Non-residential bill credit amount up to $250 per month; covered parking After the end of nine months of each program year, any unspent funds dedicated to limited-income residential installations can be used for other eligible customers. 21

22 Electrification

23 Size of Opportunity Transportation by sector is largest contributor of CO2 emissions across west In addition to time TOU rates, APS proposed a number of Electric Vehicle focused programs in its 2018 DSM plan CO2 by Sector - 11 Western States (EIA - million metric tons) Commercial Industrial Transportation Source: CNEE Residential Electric Power *Elec. Adjusted to 2016

24 Residential Proposed Program(s) Advertise savings opportunity through use of APS rates to charge electric vehicles offpeak Rebate pre-wire costs for new home construction Key objectives Create environment for cities to transition EV codes in new construction by mitigating resistance from stakeholders Residential rate $/G gasoline equivalent $/mile Saver Choice Off-Peak $ $ 0.88 $ Saver Choice Super Off-Peak $ $ 0.29 $ Saver Choice Plus Off-Peak $ $ 0.64 $ Saver Choice Max Off-Peak $ $ 0.44 $ 0.018

25 Non-residential Proposed Program(s) Fleet, Workplace, and Multi-family infrastructure as a service EV buses Short-term: limited program to support schools in financial need Medium-term: broadly available rebate program for all schools rebate for APS owned infrastructure/buses

26 Questions