BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E)

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1 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Southern California Gas Company (U 904 G) and San Diego Gas & Electric Company (U 902 G) Regarding Feasibility of Incorporating Advanced Meter Data Into the Core Balancing Process. Application (Filed October 2, 2017) OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) JANET S. COMBS REBECCA MEIERS-DE PASTINO Attorneys for SOUTHERN CALIFORNIA EDISON COMPANY 2244 Walnut Grove Avenue Post Office Box 800 Rosemead, California Telephone: (626) Facsimile: (626) Dated: January 16, 2019

2 OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) TABLE OF CONTENTS Section Page I. INTRODUCTION AND RELEVANT PROCEDURAL HISTORY...1 II. THE RATIONALE BEHIND THE OMNIBUS DECISION IS NO LONGER VALID...6 A. SCG/SDG&E s Metering Infrastructure Justify the Commission Requiring SCG/SDG&E to Balance Core Deliveries to Actual Demand...9 B. Significant Changes in System Storage Inventory Warrant the Commission Requiring GAD to Balance Core Usage to Actual Deliveries...13 III. THE CURRENT FORECAST METHODOLOGY DOES NOT ACCURATELY REPRESENT ACTUAL CORE DELIVERIES AND IS NEGATIVELY IMPACTING SYSTEM RELIABILITY...14 A. System Balancing, Operational and Emergency Flow Orders, and Curtailment...14 B. SCG/SDG&E s Forecast Significantly Deviates from Actual Retail Core Load and that Deviation is Caused by Balancing to a Forecast...17 C. Balancing to Actuals or Estimated Actuals will Improve Gas and Electric System Reliability SCG/SDG&E s Forecasting Error Harms the System SCG/SDG&E s Forecasting Error Harms Noncore Customers...23 IV. SCG/SDG&E HAVE MEANS TO MITIGATE ANY INCREASES IN COSTS FOR CORE CUSTOMERS ASSOCIATED WITH BALANCING TO ACTUALS...25 V. COMMISSION INTERVENTION IS NECESSARY BECAUSE SCG/SDG&E HAS NO INCENTIVE TO BALANCE TO ACTUAL DEMAND...26 VI. CONCLUSION i-

3 OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) TABLE OF AUTHORITIES Authority Page CPUC Decisions D ("Omnibus Decision")... passim D D D CPUC Rules of Practice and Procedure Rule ii

4 BEFORE THE PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA Application of Southern California Gas Company (U 904 G) and San Diego Gas & Electric Company (U 902 G) Regarding Feasibility of Incorporating Advanced Meter Data Into the Core Balancing Process. Application (Filed October 2, 2017) OPENING BRIEF OF SOUTHERN CALIFORNIA EDISON COMPANY (U 338-E) Pursuant to Rule of the California Public Utilities Commission s (Commission s or CPUC s) Rules of Practice and Procedure and the Scoping Memo and Ruling of Assigned Commissioner and Administrative Law Judge (Scoping Memo) and the August 20, Ruling by Administrative Law Judge Brian Stevens, Southern California Edison Company (SCE) respectfully submits its Concurrent Opening Brief in Southern California Gas Company/San Diego Gas and Electric Company s (SCG/ SDG&E s) Application Regarding the Feasibility of Incorporating Advanced Metering Data into the Core Balancing Process (Application). I. INTRODUCTION AND RELEVANT PROCEDURAL HISTORY SCG/SDG&E s Application narrowly proposed to incorporate SCG s Advanced Meter data into the core forecasting process when SCG s AMI installation is complete and sufficient historical AMI data is available for SCG s retail core customers to develop a statistical model. 1 SCE protested the scope of the Application, requesting the Commission expand the scope to include the issue of whether the Commission should permit SCG/SDG&E to continue to balance 1 A at p. 8. 1

5 core customer load to a forecast, or if the Commission should instead require SCG to balance the core supplies to core customers actual usage, as all other customers are required to do. 2 The basis for SCE s position was that a significant factual dispute exists regarding the feasibility of core balancing to actual usage, as well as how SCG balancing core to a forecast, as opposed to actuals, impacts gas and electric system reliability and the operations of all other SCG/SDG&E customers. 3 Specifically, in the Aliso Canyon and Electric Reliability Action Plan for the Winter (Action Plan), the CPUC, California Energy Commission (CEC), California Independent System Operator (CAISO), and Los Angeles Department of Water and Power (DWP) (collectively, the Joint Agencies) agreed that unless SCG balances core customer load to actual usage, gas and electric reliability will remain uncertain. 4 In the Action Plan, the Joint Agencies correctly observed, SoCalGas is responsible for doing nothing to reduce a core customer imbalance that could be large enough to put the system in stress. 5 To resolve this concerning inequity and potential reliability risk, the Joint Agencies recommended SCG/SDG&E achieve a better match of core customer gas purchases and actual core gas demand, 6 and noted CPUC action will be required to put this measure in place. 7 SCE contended that this Application was the appropriate forum for the Commission to address the issue. The Commission agreed, including the issue in the scope of the proceeding. The Scoping Memo states that at issue in the proceeding is whether: (2) Should SoCalGas and SDG&E be required to balance core gas deliveries to actuals as opposed to a forecast? 2 SCE Protest at pp SCE Protest at p Id. (citing Aliso Canyon Gas and Electric Reliability Winter Action Plan, Prepared by the Staff of the California Public Utilities Commission, California Energy Commission, the California Independent System Operator and the Los Angeles Department of Water and Power, August 22, 2016, at pp. 21, 25.). 5 Id. (citing p. 21.) 6 Id. 7 Id. 2

6 (a) Does balancing to a forecast rather than actuals cause SoCalGas and SDG&E to need to impose more operational flow orders (OFO) on non-core customers? (b) Do SoCalGas and SDG&E have the technical capability, including but not limited to the use of AMI data, to produce accurate actual core gas customer usage information at the end of a gas day? (c) Would there be reliability benefits by requiring SoCalGas and SDG&E to balance to core gas deliveries? (d) Would there be incremental reliability risks to core gas customers as a result of requiring SoCalGas and SDG&E to balance to core gas deliveries? (e) Would there be additional costs and/or potential penalty payments to core gas customers (in the event of core imbalances) as a result of requiring SoCalGas and SDG&E to balance to core gas deliveries? (f) Does the current daily core load forecast approach provide an accurate measure of whether SoCalGas s core deliveries are in balance with actual core gas usage on a daily basis? The Scoping Memo also includes five other issues. SCE s testimony in this proceeding, as well as its Opening and Reply briefs is and will be devoted solely to the narrow issue presented in Scoping issue two and its subparts. For the reasons discussed in greater detail below, SCE contends that SCG/SDG&E has not met it burden to prove that the Commission should not require it to balance core gas deliveries to actuals, as opposed to balancing core gas deliveries to a forecast. Likewise, it has not met its burden to prove (a) balancing to a forecast does not cause more operational flow orders (OFOs) on non-core customers; or that (b) it lacks the technical capability to produce actual core gas customer usage information at the end of the gas day; (c) there are insufficient or no reliability benefits to requiring SCG/SDG&E to balance core gas deliveries to actuals; (d) increased costs associated with balancing to actuals, if any, are unreasonable; or (e) the current daily core load forecast approach provides an accurate measure of whether core deliveries are in balance with actual core gas usage on a daily basis. 3

7 To the contrary, the current natural gas delivery balancing framework, which the Commission adopted in 2007 when it issued Decision (D.) (the Omnibus Decision), is outdated and inappropriate under the circumstances that exist today. 8 Under that framework, noncore customers must balance deliveries to actual metered usage, while SCG s Gas Acquisition Department (GAD) the single largest block of loads on the system approximately 350 days of the year 9 is only required to balance to a single daily forecast of core usage. 10 Since 2007, SCG/SDG&E has spent more than one billion dollars on its AMI system. As Applicant s responses to Southern California Generation Coalition s (SCGC s) and Indicated Shippers (IS s) Data Request Question 12 demonstrate, the AMI system is ostensibly complete. 11 SCG/SDG&E therefore have access to data and the technical capabilities, including AMI data, it lacked in 2007 that enables it to balance to actuals as noncore customers are required to do. There are also restrictions on SCG/SDG&E s system, including restrictions on the Aliso Canyon Storage Facility that did not exist in More accurate balancing will reduce stress on SCG/SDG&E s restricted system and result in less, not more OFOs. 13 In addition to these material changes in circumstances, over the years, the current framework has resulted in forecast errors that unnecessarily drive up costs for electric customers including residential electric customers, many whom are also SCG/SDG&E s core gas customers; created a strain on the efficient and reliable operation of the electrical system; and shifted the responsibility and cost of balancing the SCG system from the largest customer on the system with the most tools available to balance to noncore customers, many of whom have limited ability to fully manage their gas imbalances SCE-1 at p SCE-3 (SoCalGas/SDG&E Response to SCE Data Request, Set 1, Question 4, stating, For approximately 96% of the days in 2017, the aggregated load served by the Utility Gas Procurement Department represented the largest load compared to all other entities, including SCE. ) 10 SCE-1 at p SCG/IS-3 (Responsive Testimony of Cathy E. Yap) at p SCE-1 at p Id. 14 SCE-1 at p. 1. 4

8 The Commission intervention is necessary to require SCG/SDG&E s GAD to balance core deliveries against actual metered usage data. Without Commission intervention, SCG/SDG&E continue to have no incentive to balance delivered supply and actual retail core usage. In fact, its tariffs incentivize its GAD not to balance to known changes in core customer demand, which can (and unnecessarily) materially contribute to system imbalances. Greater accuracy in core balancing will materially ease the strain on SCG/SDG&E s system, reducing the risk of curtailment to noncore electric generators or costly efforts to avoid curtailments, such as OFOs. Core and noncore customers should both have the responsibility to balance to actual usage to support balancing the system. Requiring the core to have equivalent balancing requirements with the noncore also will have no impact on the core s highest physical service priority during a reliability event. No party has adduced evidence that requiring core to balance deliveries to actual usage will have a negative impact on core service reliability. The Commission should not adopt SCG/SDG&E s proposed 18 month timeline for improving its forecast with AMI data. SCG/SDG&E have not come forward with sufficient evidence to meet its burden to prove that it cannot or should not be required to balance to actuals or estimated actuals as noncore customers do. The availability of AMI data is an irrelevant red herring. SCG/SDG&E has not (because it cannot) demonstrated that it is unreasonable to require it to do what all noncore customers do: comply with SCG Rule 30, which requires noncore customers to balance using an after-the fact measurement, i.e., balance to estimated actual usage. 15 Regardless, the record evidence demonstrates that sufficient information exists in the existing AMI system to allow SCG/SDG&E to balance core deliveries to actual, rather than 15 SoCalGas Rule No. 30 paragraph G.1.e states, ii. For a Noncore End-Use Customer with nonfunctioning AMR meters, compliance during an OFO or EFO will be based on the Customer s actual daily metered usage; or the estimated daily usage in accordance with Section C of SoCalGas Rule 14 will be substituted for the actual daily metered usage when actual metered usage is not available. iii. For a Noncore End-Use Customer without AMR capability compliance during an OFO or EFO will be based on the Customer s MinDQ. 5

9 forecasted, usage. 16 Witness Yap states that SCG/SDG&E s proposed 18 month timeline for improving its forecast with AMI data it too leisurely because it would span the winter of and she recommends that SCG/SDG&E s GAD be required to balance core to actual usage no later than December 1, If the AMI data is not available by December 1, 2019 then operating actuals would be used until the AMI data is available. 17 SCE agrees that operating actuals should be used until the AMI data is available but SCE respectfully requests the Commission require SCG/SDG&E to balance core deliveries to actual usage without further delay, by June 1, 2019 at the start of the summer season. II. THE RATIONALE BEHIND THE OMNIBUS DECISION IS NO LONGER VALID 18 In D (the Omnibus Decision), the Commission permitted SCG to balance core to a forecast rather than to actual usage. Material changes to SCG/SDG&E s system and technical capabilities have occurred since the Commission issued D in Those changes warrant serious reconsideration of the 2007 Omnibus Decision allowing SCG/SDG&E to balance its core deliveries to a forecast of, as opposed to actual usage. In the Omnibus Decision, the Commission found that it was appropriate to allow SCG/SDG&E to balance core customer load to a forecast for two reasons, neither of which exist today. First, the Commission found it was not physically possible to obtain real-time usage information from each core customer. 19 Second, the Commission determined sufficient storage existed to rectify forecasting error imbalances, stating, [g]iven total system inventory capacity 16 SCE-1; SCGC/IS-1, 2, and SCGC/IS-3 at 12: Unless otherwise noted, the content of this prefatory text in Section II of this Opening Brief is reflected in SCE-1 at pp D at p. 57, Finding of Fact (FF) 48 at p ( Because it is not physically possible for SCG to obtain real-time usage information from each core customer, the core must balance to a forecast. ) 6

10 ... an imbalance... could be managed. 20 As discussed in Section II A and B below, Mr. Borkovich s statement that forecasting is still in alignment with the Omnibus Decision 21 is belied by the fact that neither of these conditions exist today. In addition to the changed circumstances since the Commission issued the Omnibus Decision, the basis for the Omnibus Decision rules no longer align with the Omnibus Decision s goals. The imbalance requirements and OFO provisions of the Settlement the Commission approved in the Omnibus Decision were intended to be implemented simultaneously to work together (1) to treat core customers more like noncore customers, (2) to address concerns that noncore customers may currently view the core as having a privileged position with respect to system balancing, and (3) to address the fact that the core currently shoulders all system minimum flow responsibilities.... result[ing] in a more equitable allocation of costs and responsibilities among utility customers. 22 SCG Rule No. 30 similarly attempts to appropriately align the responsibilities among all customers, stating, It is the intention of both the Utility and the customer that the daily deliveries of gas by the customer for transportation hereunder shall approximately equal the quantity of gas which the customer shall receive at the point(s) of delivery. 23 Acknowledging that perfect balancing may not always be possible, SCG Rule No. 20 Id. at p SCG/SDG&E-1 pp. 1, 2, 8 (citing cost, stating, SCG and SDG&E believe that the current system using daily forecasts to determine core usage for the purpose of operational flow order (OFO) compliance is still in alignment with the Omnibus Decision. ) 22 D at p SoCalGas Rule No. 30, Paragraph B.1 ( The Utility shall as nearly as practicable each day redeliver to customer and customer shall accept, a like quantity of gas as is delivered by the customer to the Utility on such day. It is the intention of both the Utility and the customer that the daily deliveries of gas by the customer for transportation hereunder shall approximately equal the quantity of gas which the customer shall receive at the point(s) of delivery. However, it is recognized that due to operating conditions either (1) in the fields of production, (2) in the delivery facilities of third parties, or (3) in the Utility's system, deliveries into and redeliveries from the Utility's system may not balance on a day-to-day basis. The Utility and the customer will use all due diligence to assure proper load balancing in a timely manner. ) 7

11 30 merely requires that, The Utility and the customer will use all due diligence to assure proper load balancing in a timely manner. 24 The Omnibus Decision created inequity by giving GAD an exception to the all due diligence standard that allows the GAD to balance core deliveries to a daily usage forecast to determine its compliance with OFO and EFOs. 25 The exception applies only to SCG/SDG&E s core customers. Noncore customers who do not have AMI enabled meter data are required to balance to actual usage or using estimated actuals, i.e., after-the-fact measurement of actuals to determine compliance with OFOs and EFOs. 26 Instead of being held to the same standard, SCG/SDG&E s GAD balances its gas deliveries to a daily forecast of retail core usage that is not adjusted to after-the-fact actuals to determine compliance with OFOs and EFOs. Balancing core to a forecast has not equalized core and noncore customers as the Omnibus Decision intended; rather it has perpetuated an inequity that has unnecessarily burdened noncore customers. In practical effect, noncore customers are held to a higher standard than GAD even though GAD is the single largest block of load on the system. 27 This inequity is inappropriate given that GAD s forecast errors materially impact system conditions, and can require noncore customers to have to adjust their gas deliveries (at increased expense) to manage imbalances created by core imbalances. The unfairness is particularly inappropriate given that 24 Id. (emphasis added). 25 Id. ( 1.For a Noncore End-Use Customer with non-functioning AMR meters, compliance during an OFO or EFO will be based on the Customer s actual daily metered usage; or the estimated daily usage in accordance with Section C of SoCalGas Rule 14 will be substituted for the actual daily metered usage when actual metered usage is not available. 2. For the Utility Gas Procurement Department, the Daily Forecast Quantity will be used as a proxy for daily usage. ) 26 SoCalGas Rule No. 30 paragraph G.1.e states, ii. For a Noncore End-Use Customer with nonfunctioning AMR meters, compliance during an OFO or EFO will be based on the Customer s actual daily metered usage; or the estimated daily usage in accordance with Section C of SoCalGas Rule 14 will be substituted for the actual daily metered usage when actual metered usage is not available. iii. For a Noncore End-Use Customer without AMR capability compliance during an OFO or EFO will be based on the Customer s MinDQ. 27 SCE-3, SCE Data Request, Set One, Response to Question 4 (stating, For approximately 96% of the days in 2017, the aggregated load served by the Utility Gas Procurement Department represented the largest load compared to all other entities, including SCE. ) 8

12 the GAD has the ability and technological capability to balance to actuals instead of a static dayahead forecast demand. Given the changed circumstances discussed below, the impact of this unequal treatment is no longer justifiable. SCG/SDG&E require appropriate incentives to balance their retail core load to actual usage. The Gas Cost Incentive Mechanism (GCIM) creates a disincentive for SCG/SDG&E to balance its GAD gas deliveries to actual core usages the Commission should take action to ensure GAD and other Core Balancing Agents are required to balance deliveries against actual metered AMI usage and do so without further delay. For all the reasons explained in the Responsive Testimony of Cathy E. Yap (SCGC/IS-3), delay, whether in improving the forecast or balancing to actuals or estimated actuals, is neither necessary nor appropriate. 28 A. SCG/SDG&E s Metering Infrastructure Justify the Commission Requiring SCG/SDG&E to Balance Core Deliveries to Actual Demand 29 When the Omnibus Decision was approved, there were no AMI enabled meters installed in the SDG&E or the SCG territories. That is no longer the case. First, D authorized SDG&E to install approximately 1.4 million AMI enabled meters. 30 Thereafter, D authorized SCG to install approximately 6 million AMI modules between 2009 and To date, SCG has spent more than one billion dollars on its AMI infrastructure. As a result, SDG&E has completed its AMI deployment 32 and SCG s service territory is over 99% complete. 33 As SCG/SDG&E s witness Chadhury conceded in rebuttal testimony, as of April 30, 2018, SCG/SDG&E s AMI infrastructure is 99.24% complete and capturing 98.57% of core 28 See, e.g, SCGC/IS-3 at pp. 2-3, Unless otherwise stated, the text in Section II.A is supported by SCE-1 at pp SCG/SDG&E-4 at p D at p SCG/SDG&E-2 at p SCE-01 at p. 6 (citing SoCalGas Advanced Meter Semiannual Report, February 28, 2018, Chapter 1 Project Overview and Summary). 9

13 load. 34 Existing SCG AMI infrastructure provides hourly data and SDG&E s AMI infrastructure provides daily data. 35 In practical application, meter data went from being manually obtained once a month from billing serials to downloading each retail core customer s metered usage to a computerized AMI billing system every six hours. 36 The AMI system captures and continuously updates data throughout the day, providing GAD with an increasing percentage of meter data throughout the day. SCG/SDG&E witness David Mercer explained when final values are available for SCG: The 5 AM AMI Load process ensures that approximately 40% (~2.4 million) customers have 100% of their data for the previous day. The 11 AM AMI Load process ensures that approximately 90% (~5.4 8 million) customers have 100% of their data for the previous day. SCG has all the data for the previous day available for processing after the 3 PM AMI Load process is complete. 37 As a result, a SCG core customer data is recorded and available during the gas day, with the remainder available by 3:00 PM the next day. 38 The AMI system gives SCG s GAD access to customer usage data during the actual gas day, which will allow it to refine its data and more effectively balance its customers supply to expected usage, and provides complete metered data by 3 PM, at least 6 hours before imbalance trades are due at 9 PM. GAD now has access to the same or similar AMI and/or operational data as noncore customers who currently must balance to actual usage while managing tighter balancing requirements. Despite the radical change in the data to which it has access, SCG/SDG&E nevertheless expresses no sense of urgency about improving their core load forecast, much less doing what all 34 SCG/SDG&E-6 at p SCG/SDG&E-3 at 1: Id. at pp Id. at p. 5: Id. at pp

14 noncore customers do with tighter balancing requirements and more complex variables affecting load. To the contrary, it proposes to start merely improving its forecast after July Even if GAD contends it cannot rely solely upon AMI data to manage deliveries to match core usage, it should be expected to incorporate any available information, including AMI data, to improve its estimate of core usage in real time and begin to balance core usage to actual usage, i.e., estimated actuals, immediately but not later than June 1, Stated differently, SCG/SDG&E s GAD should develop a real time core usage tool based on AMI data, weather data, and other available information and then have its compliance with OFOs and EFOs determined by an after-fact-adjustment using actual core usage. Balancing to estimated actual data makes use of existing procedures and data that are readily available to SCG. 40 GAD would be responsible for balancing daily gas deliveries to estimated actual bundled core usage, which is the residual after subtracting noncore and core transport agents physical demand from the measured daily total send out. 41 However, similar to noncore customers, actual compliance with daily and monthly balancing requirements would be based on actual metered data. Using AMI data in conjunction with estimated actuals will provide SCG with the proper incentives because SCG will be required on OFO and EFO days to balance its deliveries for the bundled core customers on a given gas day as close as possible to the actual burn using all information available to it. Subjecting core customers to imbalance charges based on recorded 39 Attachment B to SCGC/IS-3, Response to SCGC-IS-11, Q SCE-1 at p. 7, fn. 20 (explaining Estimated actual data is determined by Gas System Operator and was the basis for the data measuring the historic forecast error as reported to the Commission in the SCG and SDG&E Monthly Core Forecasting Reports. See Letter from Joseph Mock to Franz Cheng, SCG and SDG&E Monthly Core Forecasting Report - March 2017, April 28, 2017, Note 4. The specific formula is: The retail core estimated actual demand for SoCalGas is the physical residual after subtracting noncore and core transport agents (CAT) (sic) physical gas demand from the measured daily total system gas sendout, which has been converted to Dth using a MDth/MMcf heat rate (core average monthly heat rates have ranged from 1.02 to 1.04 MDth/MMcf). The CAT (sic) demand is estimated based on the historical CAT (sic) usage per meter with its meter growth assumption. Id. This information is available to the Gas System Operator throughout the day and could be used as the basis for retail core usage for balancing purposes. ) 41 Id. at p. 8 (citing Letter from Joseph Mock to Franz Cheng, SCG and SDG&E Monthly Core Forecasting Report - March 2017, April 28, 2017, Note 4.) 11

15 usage will provide GAD with a strong incentive to use all due diligence 42 to more accurately manage its deliveries to match actual usage, even if it has to estimate actual usage to do so. One way to operationalize balancing to AMI and estimated actuals is for the Commission to adopt a procedure in which SCG s Gas System Operator authorizes a one way data transfer from the Gas System Operator to the GAD. Specifically, the Gas System Operator would push estimated actual usage data to the GAD periodically throughout the day. This information will allow the GAD to have access to operating information during the day and make delivery adjustments as appropriate. As discussed below, imbalance trading will allow SCG to mitigate potential costs increases for core customers in the unlikely event that the core deliveries are not in-balance with core usage. Allowing GAD to use AMI data with estimated actuals not only provides GAD with the proper incentives, but also gives GAD the freedom to use all the data available to it to improve its intraday forecasting, nomination, and balancing or to determine an effective way to use estimated actual usage, as well as to use imbalance trading to mitigate increased costs as needed. Greater accuracy in core balancing will materially ease the strain on SCG s system year round, but particularly in the winter, which can mitigate the risk of curtailment or costly efforts to avoid curtailments. In summary, SCG/SDG&E has daily data for virtually every customer every day and access to estimated actual usage for the retail core load as soon as it is available from the Gas System Operator. With the amount of data and information available to SCG/SDG&E, GAD is able to, and thus should be required to, more accurately match deliveries to actual usage to facilitate greater resiliency of gas supply to all customers. Second, the Aliso Canyon Natural Gas Storage Field (Aliso Canyon) leak severely limited the ability of SoCalGas gas storage system to support fluctuating gas demands on the 42 SCG Rule

16 pipeline system. 43 The Omnibus Decision assumed total system inventory capacity of about 131 Bcf, and on that basis concluded a delivery imbalance at an expected level of about 2 Bcf could be managed. The total system inventory and surpluses that then existed no longer exist today due to the partial or potentially total unavailability of Aliso Canyon. 44 B. Significant Changes in System Storage Inventory Warrant the Commission Requiring GAD to Balance Core Usage to Actual Deliveries 45 As with the changes to the metering infrastructure, total system inventory, surpluses and pipeline transmission capabilities that existed at the time of the Omnibus Decision have materially changed. The Omnibus Decision assumed total system inventory capacity of about 131 Bcf, and on that basis concluded a delivery imbalance at an expected level of about 2 Bcf could be managed. 46 Those fact also no longer exist today due to the partial or potentially total unavailability of Aliso Canyon Natural Gas Storage Facility (Aliso Canyon). 47 As the Commission knows, the SoCalGas/SDG&E s transmission system is also constrained. The Aliso Canyon leak severely limited the ability of SCG gas storage system to support fluctuating gas demands on the pipeline system. 48 In response to the events at Aliso Canyon, the Commission opened Investigation (I.) , as required by Senate Bill 380, to determine the feasibility of minimizing or eliminating the use of the [Aliso Canyon storage field] while still maintaining energy and electric reliability for the Los Angeles region and just and reasonable 43 Draft Aliso Canyon Withdrawal Protocol. 44 SCE-1 at fn. 24 (10/30/17 Letter from SoCalGas to the CPUC and CEC available at: E--final-pdf-A-compliant.pdf (discussing system inventory).) 45 Unless otherwise noted, facts discussed in this section are either set forth in SCE-1 at pp or are judicially noticeable. 46 D , FF SCE-1 at fn. 24 (10/30/17 Letter from SCG to the CPUC and CEC available at: (discussing system inventory).) 48 SCE-1 at fn. 25 ( Draft Aliso Canyon Withdrawal Protocol.) 13

17 rates in California. 49 The proceeding introduces the real possibility that Aliso Canyon s use may be minimized or eliminated in the foreseeable future. Additionally, CEC Chair Weisenmiller sent a letter to President Picker, stating, My staff is prepared to work with the CPUC and other agencies on a plan to phase out the use of the Aliso Canyon natural gas storage facility within ten years. 50 The on-going gas storage restrictions, which may be permanent, have reduced the gas system s capability to accommodate the inherent delivery imbalance of SCG/SDG&E balancing core to a forecast rather than actual usage. For this reason, as the Commission previously acknowledged, the goal of core balancing to actual usage makes sense for the overall efficiency of the system and system reliability. 51 III. THE CURRENT FORECAST METHODOLOGY DOES NOT ACCURATELY REPRESENT ACTUAL CORE DELIVERIES AND IS NEGATIVELY IMPACTING SYSTEM RELIABILITY A. System Balancing, Operational and Emergency Flow Orders, and Curtailment 52 A gas system is limited by operating characteristics to ensure reliable service. In general, gas receipts are approximately the same for each hour of the day and gas load varies depending on how customers use gas. For example, a power generation facility will use more gas when the generation facility is producing higher levels of electricity than it does when the generation facility is producing lower levels of electricity. Similarly, a residential customer s use will increase when it is using gas for cooking, space heating, water heating, etc. The fundamental 49 SCE-1 at fn. 26 (I , Administrative Law Judge s Ruling Setting Phase 1 Prehearing Conference and Public Participation Hearing, March 21, 2017, at p. 1.) 50 See SCE-1 at fn. 27 (citing July 19, 2017 Letter from CEC Chairman Weisenmiller to CPUC President Picker.) 51 D at p Unless otherwise noted, the support for this section is in SCE-1 at pp

18 challenge for the Gas System Operator is to have a balanced gas system where the gas receipts match the gas load. OFOs and EFOs are an economic incentive mechanism for protecting the operational integrity of the gas pipeline by assessing financial costs to customers who do not ensure that their deliveries match their demand to maintain reliability. If the system inventory level is high or low, SCG/SDG&E may issue and implement an OFO or EFO. OFOs require shippers to take action to either deliver additional or limit supply to balance their supply with their customer s usage on a daily basis within a specified tolerance band. Whether high or low, OFOs are in stages that correspond to increasing financial penalties. The logic behind the scale is that these penalties will financially incentivize customers to adjust their gas receipts to match their actual gas demand. If a supply shortage is so extreme that an OFO will not sufficiently financially incentivize customers to rectify the imbalance, the Gas System Operator will issue an EFO. Next, gas curtailment orders are applied to selected customers depending on the level of curtailment required. Gas curtailment orders are designed to redirect gas purchased by lower priority customers, typically electric generation customers, to other higher priority customers, including retail core load. 53 That is the case even if GAD s inaccurate retail core customer load forecast is contributing to the need for the curtailment. 53 SCG Rule No All Dispatchable Electric Generation not currently forecasted to be operating at the time the curtailment order is effective; All Dispatchable Electric Generation not currently forecasted to be operating at the time the curtailment order is effective. 2. Up to 60% of Dispatched Electric Generation load during November through March and up to 40% of Dispatched Electric Generation load during April through October. These curtailment levels may be reduced if an Electric Grid Operator requests additional gas in order to assure electric system reliability 3. Up to 100% of non-electric generation noncore and noncore cogeneration usage on a pro rata basis, except for pre-established refinery minimum usage requirements. a. Up to 100% of remaining refinery load not curtailed in step 3. b. Up to 100% of remaining Dispatched Electric Generation load not curtailed in step 4. All Priority 2A service on a pro rata basis. 5. All Priority 1 non-residential service on a pro rata basis. 15

19 Mr. Borkovich s rebuttal testimony that noncore customers are not responsible for covering the imbalances of any other noncore balancing agent or core balancing agent 54 demonstrates a fundamental misunderstanding of how the system works. 55 As noted above, the fundamental challenge for the Gas System Operator is to have a balanced system. It must therefore account for the imbalances of all customers. 56 As Mr. Borkovich concedes, the need to call an OFO is based on the forecast sendout compared to receipts and storage available for balancing. 57 The determination of and calculation to determine when to call an OFO is based on the physical capabilities of the system and the behavior of all customers, including the largest customer on the gas system on most days, which is GAD. 58 As a result, forecast imbalances for GAD necessarily contribute to the need to call OFOs. 59 Mr. Borkovich also incorrectly testifies that that it is merely speculative that core customer s imbalance management is shifted to noncore customers. 60 Unresolved imbalances on one day can directly impact pipeline or storage operations and result in the issuance of OFOs that are extended for multiple days. 61 As a result, large forecast errors made by the largest customer on the gas system will cause the Gas System Operator to extend OFOs across multiple days. 62 While it is necessary to prioritize core reliability for public safety regardless of the cause of the problem, given that allowing GAD to balance core supplies to a forecast instead of actual demand can actually exacerbate a system imbalance, there is no sound public policy or technical 6. All Priority 1 residential service on a pro rata basis.) 54 SCG/SDG&E-5 at p. 5: SCE-2 at p Id. 57 SCG/SDG&E-5 at pp. 5: : SCE-2 at p Id. 60 SCG/SDG&E-5 at p. 5: SCE-2 at p Id. 16

20 reason to give core load preferential balancing treatment particularly when doing so actually diminishes the reliability of gas supply to all customers. 63 B. SCG/SDG&E s Forecast Significantly Deviates from Actual Retail Core Load and that Deviation is Caused by Balancing to a Forecast 64 SCG/SDG&E s retail core customers represent the largest load on the system approximately 96% of the time (or 350 days per year). 65 The GAD s forecast errors have historically been material enough to impact system conditions. In fact, during a cold weather event between February 18, 2018 and March 10, 2018, the core forecast was more than 20% below actual usage on two days of a low OFO event caused by cold weather 66. Balancing to a forecast creates these deviations. While the retail core load is bound by the same OFO/EFO/Curtailment rules, SCG/SDG&E s retail core customer load is not based on its actual usage, but rather on a load forecast that is created by SCG/SDG&E s Rates and Analysis Group. Once the forecast is created, SCG/SDG&E s Rates and Analysis Group does not periodically adjust it to take into account variables, such as if the temperature differs from the temperature upon which the forecast is based. The OFO/EFO financial incentive mechanism is not effective if the largest load on the system is balanced to a forecast that does not represent actual load. In fact, by not requiring the largest load on the system to balance to known changing conditions, the imbalances created by balancing to a static forecast adversely impact the remaining customers who are effectively required to balance the system. Core load is more predictable than the unstable load of many noncore customers. As SCG/SDG&E admit, core usage is relatively simple to forecast because, [c]hanges in bundled 63 SCE-1 at p SCE-1 at pp SCE-3, SCG Response to SCE Data Request Set 1, Question No SCE-1 at pp (citing the Winter SoCalGas Conditions and Operations Report, Prepared by Energy Division Staff, December 6, 2018, at p. 17, of which the CPUC may take judicial notice) 17

21 core usage are almost always a function of temperature variation, and changes in temperature occur over time they are almost never as dramatic, at least from a system operator standpoint, as a large quick-start electric generation unit starting up on an un-forecasted basis. 67 Other variables include (1) Heating Degree Days (HHD), (2) day of the week, (3) the month, (4) holidays, and (5) the number of retail core meters. 68 Only one of these variables out of the five is subject to change during the day. 69 That variable is temperature. Temperature data is continuously available for the various climatic areas of the SoCalGas/ SDG&E system. 70 It therefore can be used as a continuous real-time measurement of core load. 71 To do so, GAD would need to continually update the model to account for actual temperature. 72 GAD could use HDD derived from ambient temperature along with the other variables in its forecast model to develop a virtual real-time check meter of core load. 73 GAD should find this methodology acceptable given that it utilizes its core load forecasting model to represent its actual usage for the purposes of determining compliance with OFOs. 74 If the core model is sufficiently accurate to be relied upon for system balancing purposes, it should also be sufficiently reliable for the purpose of measuring core load in real-time. 75 Conversely, if it is not sufficiently reliable to measure core load in real-time, it should not be used to calculate core compliance with OFOs 76 By contrast, it is more complicated to forecast the gas for SCE s electric generation than for 100% of SCG/SDG&E s retail core load because SCE s gas demand is impacted by many factors outside of SCE s control. Among the many drivers impacting SCE s gas demand is 67 SCE-1 at fn. 33 (SCG/SDG&E s Response to the 9/22/16 Customer Coalition Motion for Consideration of Winter Reliability Measures at p. 21.) 68 SCE-3, SCG Response to SCE Data Request Set 1, Question No SCE-2 at p Id. 71 Id. 72 Id. 73 Id. 74 Id. 75 Id. 76 Id. 18

22 weather, non-sce generator bids/availability in CAISO wholesale markets, electric transmission availability, renewables production (solar and wind generations), import availability, western United States electricity demand, and wholesale market constraints, among others. Despite also not having access to perfect real-time information and being exposed to more unpredictable variables affecting usage, noncore customers are not permitted to balance to a forecast. The potential of incurring imbalance charges incentivizes such entities to balance with greater accuracy and rigor than is the case for the retail core load that is not required to make adjustments if its load forecast is inaccurate. SoCalGas/SDG&E does not affirmatively come forward with evidence that meaningfully addresses, much less creates reasonable doubt about SCE s contention that SoCalGas/SDG&E can and should be held to the same standard as non-core customers. Mr. Borkovich s Rebuttal Testimony does not refute that noncore customers grapple with more numerous and complex variables, yet must balance to actual usage under SoCalGas/SDG&E s own tariffs, even if they also lack access to perfect, real-time data. 77 Mr. Borkovich s response to SCE s reference to SoCalGas/SDG&E s tariff requirement is to contend noncore customers can rely on check meters if AMR meters are not functioning. 78 As discussed above, SoCalGas/SDG&E can do the same with the temperature model described above. Moreover, Mr. Borkovich s testimony fails to acknowledge that SCE is required to stay within tolerance after the fact, even when SoCalGas/SDG&E s meters fail and or they fail to post accurate information on Envoy. Regardless of what noncore customers can or cannot do under certain circumstances to balance to actual usage, Mr. Borkovich does not explain why SoCalGas/SDG&E cannot be held to the same Rule 30 standard. The limited variables impacting core demand with which SCG/SDG&E must grapple paired with the considerable AMI data available to SCG/SDG&E clearly demonstrates 77 See SCG Rule SCG/SDG&E-5 at p. 14:5. 19

23 SCG/SDG&E has the tools to balance to actual demand (even if it has to estimate its actual demand during the gas day) and should be held to the same balancing standard as noncore customers. Requiring GAD to balance core supplies to actual demand will give SCG a financial incentive to make real time adjustments to balance gas supply with actual demand, and thereby ensure equity across customer classes and enhance gas system reliability for all customers. C. Balancing to Actuals or Estimated Actuals will Improve Gas and Electric System Reliability 79 To protect the reliability of the gas system for all customers and bring core and noncore customers into cost and responsibility parity, the Commission should require SCG/SDG&E to balance core deliveries to actual core usage. Given the size of core customer load, balancing to actual usage will enhance, and not jeopardize core customer reliability. By contrast, allowing GAD to continue to balance core deliveries to a stale forecast of core demand perpetuates a costly inequity that also puts gas and electric system reliability at risk. 1. SCG/SDG&E s Forecasting Error Harms the System The declaration of Cathy Yap 80 (incorporated in SCE-1 by reference) demonstrates the degree of deviation in SCG/SDG&E s forecast described above puts considerable strain on the System Operator to balance the system, and materially increases the risk of curtailment for noncore and potentially core customers, particularly in winter months when core loads are approximately 60% of the total system load and noncore electric generation and industrial classes each account for approximately 20%. 81 The core gas demand forecast error on March 1, 2017 and March 8, 2018 provide an illustrative example of the way retail core forecasting error is harmful to noncore customers and 79 Unless otherwise stated, the support for this section is in SCE-1 at pp SCE-1 at pp (citing Yap Decl. at pp to the 8/17/16 Customer Coalition Motion for Consideration of Winter Reliability Measures.) 81 Id. 20

24 the system. On both of those days, the forecast error was very large meaning more than + or 13% of burns on days when the Gas System Operator was forced to simultaneously call a High OFO and Low OFO. Under such circumstances, SCG/SDG&E continuing to deliver gas supplies to their stale and inaccurate demand forecast, which is how they avoid OFO charges, would be detrimental to the system. However, the existing balancing framework financially incentivizes that precise conduct because buying to the forecast allows SCG/SDG&E to avoid OFO penalties, and instead shifts the responsibility and cost of balancing the system exclusively to noncore customers even though the GAD s management of core demand is contributing to the system imbalance. 82 As noted above, the total gas storage capacity that existed at the time of the Omnibus Decision has been reduced significantly by the unavailability of Aliso Canyon. In the Aliso Canyon and Electric Reliability Action Plan for the Winter (Action Plan), of which the Commission can take judicial notice, the CPUC, California Energy Commission (CEC), California Independent System Operator (CAISO), and Los Angeles Department of Water and Power (DWP) (collectively, the Joint Agencies) all agreed that unless SCG balances core customer load to actual usage, gas and electric reliability will remain uncertain. 83 In the Action Plan, the Joint Agencies correctly observed, SoCalGas is responsible for doing nothing to 82 SCE-1 at p. 18, fn. 38 ( While the Gas System Operator may have had good reason to require that all customers gas receipts be no less than 95% and no greater than 105% of its actual gas usage, the March 1, 2017 retail core forecast was 113.8% of actual usage and the March 8, 2018 retail forecast was 113.4% of actual usage. Letter from Joseph Mock to Franz Cheng, SCG and SDG&E Monthly Core Forecasting Report - March 2017, April 28, Given that retail core follows the same balancing rules as other customers, the retail core could be within 95% and 105% of its forecast. In other words, the retail core could avoid OFO charges if its gas supplies on March 1, 2017 was within 108.8% and 118.8% of its actual gas usage and from March 8, 2017 the range was 108.4% and 118.4% of actual usage. Assuming the Gas System Operator called the simultaneous High OFO and Low OFO because the gas system was under stress and required that all customers balance to tight tolerances, the retail core had an economic incentive to deliver at least 108.8% of its actual load and was allowed to deliver up to 118.8% of its actual load. ) 83 SCE-1 at fn. 39 (citing Aliso Canyon Gas and Electric Reliability Winter Action Plan, Prepared by the Staff of the California Public Utilities Commission, California Energy Commission, the California Independent System Operator and the Los Angeles Department of Water and Power, August 22, 2016, at pp. 21, 25.) 21

25 reduce a core customer imbalance that could be large enough to put the system in stress. 84 To resolve this concerning inequity and potential reliability risk, the Joint Agencies recommended SCG/SDG&E achieve a better match of core customer gas purchases and actual core gas demand, 85 and noted CPUC action will be required to put this measure in place. 86 The forecasting error is particularly concerning with regard to maintaining gas and electric system reliability because electric generation is the first load curtailed during a gas system shortfall, irrespective of the cause of the gas shortfall. Thus, if there was a gas shortage on the system, and core being 60% of the demand during the winter months, SCG/SDG&E would curtail gas deliveries to electric generation first to bring the gas system in balance. 87 Electric residential customers do not enjoy the same level of reliability as gas residential (core) customer. Thus, electric system outage is likely to impact some residential customers. 88 Given the loss of the system storage surplus and the availability of AMI data, it is now appropriate to require SCG/SDG&E s GAD to balance core supplies to actual usage, similar to non-core customers, to ensure all customers share the responsibility to balance the system. This is particularly important during the winter when core represents approximately 60% and the remaining and noncore customers represent approximately 40% of the system load. It is in the best interest of the gas and electric systems reliability to incentivize all customers to operate in support of gas and electric system reliability, and certainly not in a manner contrary to system 84 Id. at fn. 40 (citing at Aliso Canyon Gas and Electric Reliability Winter Action Plan, Prepared by the Staff of the California Public Utilities Commission, California Energy Commission, the California Independent System Operator and the Los Angeles Department of Water and Power, August 22, 2016, at p. 21.) 85 SCE-1 at p. 19 (citing p. 21 of the Winter Action Plan). 86 Id. 87 In addition to the obvious impact on wholesale prices, curtailments arguably create a stress on CAISO, which is responsible for managing electric system reliability, by forcing it to redispatch. 88 SCE-1 at p. 19, fn. 43 (stating Some gas appliances (like a forced air furnace) do not work without electricity so even if a customer has gas service in cold weather, if they lose electric service, they will not be able to heat their home with a forced air furnace. ) 22