ANNUAL STATE OF THE GRID

MOVING FORWARD

MOVING FORWARDThe energy industry is very quickly transforming the way we make and move electricity—all in an effort to convert to a less carbon-dependent power grid that will reduce climate change. We have a lot at stake. California’s average summer temperature is nearly 2 degrees hotter now than in 1895. With more frequent and persistent heat waves expected, a multi-agency state study found that higher summer temperatures in California will continue to impact the delicate balance of electricity supply and demand.1

Development of zero-emission power sources is key to slowing the progress of climate change. The California Independent System Operator Corporation (ISO) is integrating large volumes of solar and wind resources that will contribute to a new climate resiliency. Emerging technologies enable energy ef�ciency and demand response resources thatdefer the use of conventional generation.

Powerful collaboration and resource sharing will also introduce new grid and market ef�ciencies. We see these types of bene�ts surfacing through an energy imbalance market (EIM) in which we partner with other areas in the West to make available a broad array of resources to cover real-time energy needs that help hold down wholesale costs while enhancing reliability.

Bridging from yesterday’s wires to tomorrow’s technologies may not be simple, although it is certainly essential as we achieve a more secure and sustainable energy future. We look forward to working with our stakeholders, regulators, policymakers and the public as we discuss, debate and decide how best to move our industry forward.

Bob Foster, Chairman Steve Berberich, President & CEO

1 http://www.energy.ca.gov/2012publications/CEC-500-2012-007/CEC-500-2012-007.pdf

LETTER FROM THECHAIR & CEO

Video The new power grid landscape

MOVING FORWARDPowerful Bene�ts . . . . . . . . . . . . . . . . . . . . . . . . . 1

Renewable Integration. . . . . . . . . . . . . . . . . . . . . . 6

Advanced Reliability . . . . . . . . . . . . . . . . . . . . . . . 11

Protecting Competition . . . . . . . . . . . . . . . . . . . . . 16

Emerging Resources . . . . . . . . . . . . . . . . . . . . . . . 18

TABLE OFCONTENTS

Spirit of regional market bene�ts grows Integral to advancing clean and ef�cient power supplies is sharing a broader array of resources within the West to take advantage of geographic differences that produce new ef�ciencies. One of the largest utilities in the West, Paci�Corp, is the �rst to partner with the ISO in a resource sharing or energy imbalance market (EIM) that will optimize available energy supplies by providing frequent and automatic dispatching, taking into account resources across the entire region.2 The EIM with Paci�Corp is set to launch October 2014. Additional utilities could participate as early as 2015.

The Federal Energy Regulatory Commission (FERC) has released a staff paper on the reliability bene�ts of EIMs that includes enhancing situational awareness, identifying and dispatching resources faster after a grid event as well as assisting with renewables integration.3 Another independent study from the National Renewable Energy Laboratory shows that sharing resources saves over a billion dollars annually.4

EIM partners use the ISO real-time energy service as they need, with no obligation to become a transmission member in the ISO. Participants pay a small usage fee as they go, which produces even greater cost-ef�cient returns when the alternative is to spend tens of millions of dollars to build a similar system from scratch. Currently, 38 balancing authorities (grid operators) serve utilities and their customers in the West.5

A study commissioned by the ISO and Paci�Corp from consultancy group Energy+Environmental Economics (E3) found an imbalance market can generate savings in four areas: interregional dispatch, intraregional dispatch, reduced �exibility reserves and reduced energy curtailments.

2 http://www.caiso.com/Documents/EnhancedGridCoordinationThroughExpandedEnergyImbalanceMarket.pdf3 http://www.caiso.com/Documents/QualitativeAssessment-PotentialReliabilityBene�ts-WesternEnergyImbalanceMarket.pdf4 “Examination of Potential Bene�ts of an Energy Imbalance Market in the Western Interconnection”, NREL, March 13, 2013; http://www.nrel.gov/electricity/transmission/energy_imbalance.html5 http://www.wecc.biz/library/WECC%20Documents/Publications/2012_WECC_AnnualReview.pdf

MOVING FORWARDPOWERFULBENEFITS

California ISO

Paci�Corp

11

MOVING FORWARD

“ ”“ ”“ ”“ ”

We are encouraged by the decision of the ISO and Paci�Corp to pursue a partnership. We see this as a pivotal development that could spur more coordination and more effective grid management across the entire region to the bene�t of all ratepayers.

Susan Ackerman, Chair, John Savage, Commissioner, and Steve Bloom, Commissioner, Oregon Public Utility Commission

With the dramatic increase of wind and solar resources in the West, a coordinated effort to reduce the quantity of required balancing reserves while improving reliability is critical. Iberdrola Renewables applauds Paci�Corp and the ISO for taking this important step forward to lead the region toward a more effective balancing solution.

Kevin Lynch, VP External Affairs, Iberdrola Renewables, LLC

The possibility of a real-time balancing energy market that further transcends the historical CAISO footprint is an exciting opportunity that may eventually include other neighboring balancing authorities in the western states and produce signi�cant market ef�ciencies. WPTF applauds the CAISO and Paci�Corp for demonstrating leadership on this issue.

Gary Ackerman, Executive Director, Western Power Trading Forum

Hear from othersPOWERFULBENEFITS

We look forward to realizing the bene�ts and highly encourage other balancing authorities in the western region to enter into similar relationships, creating a more ef�cient western transmission grid.

Robert B. Weisenmiller, Chair, California Energy Commission andMichael R. Peevey, President, California Public Utilities Commission

2

MOVING FORWARDStrength in numbersMost utilities plan and balance systems separately, facing costly hurdles when moving least expensive power to where it is needed. The ISO market uses an automatic and highly transparent system that leverages the strength of dispatchable resources as it reliably balances electricity supply with demand.

POWERFULBENEFITS

17 participatingtransmission owners

City of AnaheimCity of AzusaCity of BanningCity of ColtonCity of PasadenaCity of RiversideCity of Vernon City of Merced (pending)Valley Electric Association, Inc.Western Area Power Administration, Sierra Nevada Region

Citizens Sunrise Transmission LLCPaci�c Gas & Electric CompanySan Diego Gas & Electric CompanySouthern California Edison CompanyStartrans IO, LLCTrans Bay Cable LLCTrans-Elect NTD Path 15, LLC (as of 1/1/2013)

3

Video ISO Overview

MOVING FORWARD140 market

participants

3 Phases Energy Services LLCACES Power MarketingArizona Electric Power Cooperative Inc.Arizona Public Service CompanyAPX Power Markets Inc.Barclays Bank PLCBJ Energy LLCBlack Oak Capital LLCBNP Paribas Energy Trading GPBonneville Power AdministrationBottle Rock Power LLCBP Energy CompanyBrook�eld Energy Marketing LPCalifornia Department of Water ResourcesCalpine Energy Services LPCargill Power Markets LLCCastleton Commodities Merchant Trading LPCitigroup Energy Inc.City of AnaheimCity of AzusaCity of BanningCity of BurbankCity of CerritosCity of ColtonCity of CoronaCity of GlendaleCity of PasadenaCity of Rancho CucamongaCity of RiversideCity of Roseville (Roseville Electric)Silicon Valley PowerCity of VernonCobalt Capital Partners V LLCComision Federal De Electricidad

Commerce Energy Inc.Commercial Energy of MontanaCommercial Energy of CaliforniaConocoPhillips CompanyConsolidated Edison Solutions Inc.Constellation Energy Commodities Group IncConstellation NewEnergy Inc.Covanta Delano Inc.CP Energy Marketing (US) Inc.Darby Energy LLPDC Energy California LLCDenver Energy LLCDirect Energy Business LLCDTE Energy Trading Inc.Dynegy Marketing and Trade LLCEastside Power AuthorityEDF Trading North America LLCEdison Mission Marketing & Trading Inc.EDMS LLCEnerCal USA LLCEntegra Power Services LLCETRACOM LLCExelon Generation Company LLCFranklin Power LLCFreepoint Commodities LLCGalt Power Inc.GenOn Energy Management LLCGenOn West, LPGila River Power LLCGlacial Energy of California Inc.Bear Valley Electric ServiceGridSpeak CorporationIberdrola Renewables LLCImperial Irrigation District

Inland Empire Energy Center LLCJ. Aron & CompanyJ.P. Morgan Ventures Energy CorporationLCG ConsultingLiberty Power Delaware LLCLiberty Power Holdings LLCLos Angeles Department of Water and PowerMacquarie Energy LLCMAG Energy Solutions Inc.Marin Energy AuthorityMercuria Energy America Inc.Merrill Lynch Commodities Inc.Midway Sunset Cogeneration CompanyModesto Irrigation DistrictMonterey CA LLCMonterey CAF LLCMorgan Stanley Capital Group Inc.Mountaineer Power LLCMountain View Power Partners LLCNV Energy NextEra Energy Power Marketing LLCNoble Americas Energy Solutions LLCNoble Americas Gas & Power Corp.Northern California Power AgencyNorthPoint Energy Solutions Inc.NRG Power Marketing LLCOccidental Power Services, Inc.Olivine Inc.Otter Tail Power CompanyPaci�Corp - MerchantPaci�Corp - TransmissionPaci�c Gas and Electric Company Pilot Power Group, Inc.Portland General Electric CompanyPower and Water Resources Pooling AuthorityPowerex Corp.Public Service Company of Colorado (Xcel Energy)

Public Service Company of New MexicoPuget Sound EnergyRainbow Energy Marketing CorporationRoyal Bank of CanadaSacramento Municipal Utility DistrictSalt River ProjectSan Diego Gas & Electric CompanySan Diego Gas & Electric TransmissionSaracen Energy West LPSempra GenerationSesco Caliso LLCShell Energy North America (US) LPSierra Paci�c Power CompanySolios Power LLCSouthern California Edison CompanySouthern California Edison - TOTenaska Power Services CompanyThe Energy Authority Inc.Tios Capital LLCTrademark Merchant Energy LLCTransAlta Energy Marketing (U.S.) Inc.TransCanada Energy Sales Ltd.Tucson Electric Power CompanyTurlock Irrigation DistrictTwin Eagle Resource Management LLCValley Electric Association Inc.Viasyn Inc.Vitol Inc.Wellhead Power eXchange LLCWestern Area Power Administration Desert Southwest RegionWestern Area Power Administration Sierra Nevada RegionXO Energy CAL LPXO Energy CAL2 LPZGlobal Inc.

4

MOVING FORWARDPOWERFULBENEFITS

Bene�ts of transmission membershipWhen a transmission owner becomes a member of the ISO, it gains a range of bene�ts that helps it operate more ef�ciently. The ISO is an impartial grid operator that has no �nancial interest in any market segment and that ensures diverse resources have equal access to the transmission network and markets. The ISO handles about 27,000 market transactions every day to deliver electricity where and when it is needed.

Most recently, two transmission owners decided to join the ISO; Valley Electric Association and the City of Colton became a part of the ISO grid in January. Merced Irrigation District started the process to become a participating generator owner in July 2014 and a transmission owner when certain system upgrades are in place in the next couple of years.

Most often, transmission owners are utilities that also sell power to consumers and some, as in the case of Merced, own generation as well. ISO participating owners have full privileges and use of ISO systems, market products and scale of resources to make informed and cost-ef�cient business decisions that enhance their ability to reliably serve their consumers.

Bene�ts of ISO market

A FULL NETWORK MODEL that analyzes generation and transmission schedules submitted a day in advance to better manage or avoid real-time bottlenecks.

AN INTEGRATED FORWARD MARKET that provides a one-stop shop for trading and analyzing the electricity bids, transmission capacity and reserves needed to keep the grid in balance.

LOCATIONAL MARGINAL PRICING that creates a highly transparent system that prices electricity based on the cost of generating and delivering it.

The City of Colton is the eighth California municipal owned utility to join the ISO, effective December 2012. The city has operated its own municipal utility for its 19,000 customers. It also owns diverse generation resources in California, Arizona, New Mexico and Nevada.By joining the ISO, Colton will have transmission access to new renewable resources in California and the Southwest, which are necessary to meet California’s green power goals.

Valley Electric Association is a member-owned cooperative headquartered in Pahrump, Nevada, making it the �rst utility outside California to leverage the bene�ts of the ISO when it joined in January 2013.

• Creates a cost-effective means of getting renewables to market.

• Several proposed solar projects are in Valley Electric’s region and seeking ef�cient and cost effective delivery to California.

• The small network expansion will strengthen reliability in the corner of the ISO grid that overlaps with Nevada.

Merced Irrigation District eyes transmission member bene�ts:

• Resolve future transmission limitations for Merced

• Bring their generation into the market, which bene�ts Merced customers and adds �exible capacity to the system

5

As the ISO matches buyers and sellers of electricity, it is folding into the portfolio mix diverse, clean renewable resources such as solar, wind, small hydro, biomass and biogas—the largest and most diverse green power in the nation.

The American Council on Renewable Energy6 reports that California is at the forefront in integrating renewables into the market. Among the notable policies and incentives were the California Solar Initiative, a renewables auction and a feed-in tariff. The report also called out the state’s renewables research and development being led by the Lawrence Berkeley National Laboratory. In addition, California has about 80 percent of the nation’s geothermal capacity.7 Biomass and biogas are also steadily increasing.

MOVING FORWARDRENEWABLEINTEGRATION

Texas12,212 MW

California5,549 MW Iowa

5,137 MW

Illinois3,568 MW Oregon

3,153 MW

Sour

ce: A

WEA

as

of 1

/30/

13

WINDon the grid

13%renewable contacts costs fell by more than from 2011 to 2012 Source: CPUC8,9

What is RPS??

as mandated by the33% by 2020 RPS

Source: CPUC

25%by 2016 milestone

California utilities areon target to meet the

The Renewables Portfolio Standard is a California law that requires utilities use renewable resources for at least 33 percent of their retail sales by 2020 as measured in hours of use. For instance, if you have a 1000 watt microwave and you use it for an hour, then that would be 1000 watt-hours. If a building uses 1 gigawatt each hour, then that is 1 gigawatt hour.

6 http://acore.org7 http://geo-energy.org/pdf/reports/2013AnnualUSGeothermalPowerProductionandDevelopmentReport_Final.pdf8 http://www.cpuc.ca.gov/NR/rdonlyres/F0F6E15A-6A04-41C3-ACBA-8C13726FB5CB/0/PadillaReport2012Final.pdf9 http://www.cpuc.ca.gov/PUC/legislation/2013.htm

6

MOVING FORWARDRENEWABLEINTEGRATION

Environmental collaboration:Desert Renewable Energy Conservation Plan State and federal agencies, working with environmentalists, the ISO and other groups collaborated on a plan to protect endangered desert plant and animal species in the Mojave and Colorado Desert regions, while facilitating the review and construction of renewable resources.

Several agencies are collaborating on carrying out the ground-breaking mission, including the primary funder, the California Energy Commission. Other participants are the California Department of Fish and Game, the U.S. Bureau of Land Management and the U.S. Fish and Wildlife Service. Collectively, the agencies are known as the Renewable Energy Action Team. The ISO is a non-stakeholder participant.

While the group develops protection plans, it also is speeding permitting reviews for utility-scale renewable energy projects.

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MOVING FORWARDRENEWABLEINTEGRATION

Major wind project hooks up to Sunrise PowerlinkSunrise Powerlink, a major transmission project energized in 2012 to move remotely located renewable generation to consumers, began carrying clean wind power in 2013 from the 176-turbine Ocotillo Wind project in Imperial County. The 315 MW facility powers almost 95,000 homes,10 provides up to 20 permanent jobs and pumps millions of dollars in property taxes into the area. Five solar projects currently under construction will also feed into the 117-mile Sunrise Powerlink line.

Improving accuracy: solar energy forecastingThe California ISO, universities, utilities and commercial forecasters are partnering with the National Center for Atmospheric Research to predict with far more accuracy when cloud cover could reduce the amount of energy coming from the sun.

The three-year, $4.1 million project calls for designing a system that would forecast solar irradiance and the power produced every 15 minutes at speci�c solar facilities. At this time, the ISO uses a two-hour forecast.

If grid operators can more precisely predict the weather, they can line up megawatts well ahead of time instead of buying more expensive energy in the �ve minutes before it is needed. This saves money, much like buying an airline ticket in advance versus at the counter 5 minutes before takeoff.

In 2011, nationally, California ranked:

3rd in hydroelectric 1st in other renewables 1st in geothermal

electricitygeneration

Source: Energy Information Agency11

Twitter - solar records set:

10 http://www.blm.gov/ca/st/en/fo/elcentro/nepa/ocotillo_express_wind.html11 http://www.eia.gov/state/?sid=CA#tabs-1

8

MOVING FORWARDRENEWABLEINTEGRATION

Progress in forecasting technologiesOne of the top goals of the ISO is to improve wind and solar forecasting capabilities. Grid operators need advanced tools to better predict when clouds will track over solar facilities or wind speeds will alter wind production.

The experience the ISO has gained over the past several years managing thousands of renewable megawatts has provided a solid base for understanding the unique operating characteristics of wind and solar power. Tapping into smarter forecasting technologies provides a clear advantage in managing variable supply as well as smoothing �uctuations in consumer demand. By more accurately predicting weather conditions, the ISO positions resources to meet demand more ef�ciently.

Modernizing the gridThe ISO is working with market participants to update common market and business systems software and technologies that support renewables integration.

One of the more important technology enhancements to ISO systems is implementing market software that enables resources such as storage devices to participate in the market.

Slated for 2013 are new rules to comply with FERC Order No. 755 that will enable the ISO to incent fast starting resources by providing them with additional performance payments when they respond to automatic dispatch signals. Resources that respond with greater accuracy will receive higher payments.

9

MOVING FORWARDRENEWABLEINTEGRATION

2012-2013 Transmission Plan overviewThe ISO Board of Governors approved an annual transmission plan that includes two policy-driven projects that support the 33 percent by 2020 renewable goal. The projects will be open to competitive solicitations, resulting in lower costs. The projects, 2 of 41 approved, represent an estimated investment of $1.7 billion to strengthen the grid and give access to renewables.

Reliability-driventransmission projects

Total projects: 36 Total cost: $1,343 M

Paci�c Gas & Electric31 projects - $1,168 M

Southern California Edisonno projects

San Diego Gas & Electric5 projects - $175 M

Valley Electric Associationno projects

March 20, 2013Approved by the ISO Board of GovernorsPrepared by: Infrastructure Development

TRANSMISSION PLAN

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Reliability planning for summer 2013The absence of the 2,200 MW from the San Onofre Nuclear Generating Station, now to close permanently, was �rst felt in the summer of 2012. A mitigation plan created jointly by the ISO, utilities, as well as state and federal agencies proved highly successful in producing a nearly uneventful summer, because it was relatively mild. The ISO peak demand last summer hit 46,675 MW and occurred on August 13, 2012 at 3:54 p.m. That was well shy of the all-time ISO peak of 50,270 MW that occurred July 26, 2006.

A similar industry-wide mitigation plan is in place for summer 2013. New actions include a reliability must-run agreement, approved by FERC, that converts retired Huntington Beach generating units, owned by power company AES, into synchronous condensers. The voltage support devices enable more power to be imported into the local area.

In addition, transmission upgrades, including shunt capacitors installed at three area substations, will also increase power �ows to the section of the grid impacted by the shutdown of San Onofre. At the Barre-Ellis substation, two 220 kilovolt circuits have been split into four lines to better handle potential overloading conditions.

MOVING FORWARDADVANCEDRELIABILITY

Summer 2013 mitigation plan

Convert Huntington Beach units 3 & 4 to synchronous condensers to provide voltage support.

Install capacitors, which also provide voltage support, at three Southern California substations.

Separate the two double circuits at Barre-Ellis substation into four separate circuits to better handle potential overloads.

Use Flex Alerts and available demand response programs to conserve energy during high demand hours and days.

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MOVING FORWARDADVANCEDRELIABILITY

Summer 2013Systemwide, the ISO Summer Loads and Resources Assessment forecasts that under normal conditions our reserve margins will exceed the 15 percent resource adequacy requirement set by the California Public Utilities Commission (CPUC).12 However, under 1-in-10 conditions, or extreme heat or high system outages, margins will be tighter.

The summer peak is projected to reach almost 47,500 MW under normal conditions, which is about 800 MW more than the 46,675 MW peak set August 13, 2012. This re�ects moderate economic growth over the 2012 summer.

As requested by the governor, the ISO is joining with the CPUC and the California Energy Commission to recommend infrastructure upgrades and additions needed to support the grid in Southern California now that the San Onofre Nuclear Generating Station will be permanently retired. Grid enhancements may include transmission and generation options.

Operating reserve margins

19.6%21.4% 21.7%

9.6%

4.5%

7.7%

Normal weather Extreme weather

3% �rm load sheddingoperating reserve cannotdrop below this line

Including demand response and interruptible load.As of June 2013.

Systemwide

SoCal NoCal

SoCal

NoCal

Demand & Supplyplanning reserve margins

33.3%31.0%

38.8%

SoCal NoCal

Systemwide

Systemwide

Planning reserve margin is the total generation capacity available in the long-term to meet demand.

Operating reserve margin is adjusted for expected generation outages, imports and generation standing by to meet real-time demand.

12 http://www.cpuc.ca.gov/PUC/energy/Procurement/

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MOVING FORWARDADVANCEDRELIABILITY

New Flex Alert conservation campaign launchedThe Flex Alert conservation campaign will be available for reducing the strain on the power grid during heat waves. Flex Alerts are public requests for voluntary conservation when the grid is challenged by extreme conditions. The alerts helped out signi�cantly last summer during the shut down of San Onofre. Consumers turning down their air conditioners by just a couple of degrees can produce signi�cant results on the grid that help protect reliability and keep costs down. Local demand response programs to help with the reliability concerns during peak periods are also deployed. Video

Flex Alert TV commercial

13

http://vimeo.com/44823887

MOVING FORWARDADVANCEDRELIABILITY

Flexible grid The ISO and the CPUC hosted a joint forum in San Francisco, attended by 200 industry partners and others to talk about a forward capacity procurement framework that might ensure resource adequacy, including capacity with speci�c operating characteristics, available not just now but well into the future.

The day-long event featured industry panelists with diverse opinions, as well as market experts from PJM Interconnection and eastern interconnection regulators. The current procurement framework administered by the CPUC directs utilities to buy resource capacity 1 year and 10 years in advance. However, to better address the new dynamics of maintaining grid reliability with a more diverse power mix, participants discussed potential changes to the procurement framework to ensure resource adequacy over a 3 year period. The ISO, energy agencies and stakeholders are continuing to identify potential options to solve the procurement gap.

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MOVING FORWARDADVANCEDRELIABILITY

San Onofre Nuclear Generating Station(to retire)

Diablo CanyonPower Plant

Nuclear generation backup studies Prior to the announced retirement of San Onofre, the ISO performed detailed analysis in the 2012-2013 transmission planning cycle to determine the reliability impacts if both of the state’s nuclear plants went off line for extended periods. Combined, the Diablo Canyon Power Plant (Northern California) and San Onofre Nuclear Generating Station (Southern California) could have produced about 4,300 MW. The ISO looked at scenarios in which the plants would not be generating in the mid-term (2017-2018) and the long-term (2022). The studies also produced a backup plan that could be implemented by summer 2018, but did not assess greenhouse gas impacts on the overall system needs for replacement generation.

The ISO analysis, which only focused on transmission impacts in the absence of nuclear power plants in California and showed potential mid- and longer-term requirements can be found in the 2012-2013 Transmission Plan.

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Competitive market performanceThe ISO markets continued to perform ef�ciently in 2012, with wholesale energy prices over the year coming in about equal to the prices that the ISO Department of Market Monitoring estimates would result under highly competitive conditions. About 97 percent of the system load was scheduled in the day-ahead energy market, which contributed to the competitive market outcomes.

Total estimated wholesale costs of serving load in 2012 were $8.4 billion or just under $36/MWh. This represents a decrease of about 2 percent in nominal terms.13 Meanwhile, ancillary service (reserves) costs were about $84 million or about 1 percent of total energy costs, compared to about 2 percent in 2011. The standby reserves cost fell last year to $0.36/MWh from $0.63/MWh in 2011.

The DMM 2012 annual report did not indicate any material negative impact to prices as a result of new renewables coming onto the grid. Meanwhile, the report noted that new wind and solar power increases the need for complementary �exible and fast-ramping resources dispatchable by the ISO to integrate intermittent energy ef�ciently and reliably. The report noted support for a longer-term procurement process and a well-designed centralized capacity market to foster �exible capacity.

MOVING FORWARDPROTECTINGCOMPETITION

2011 2012

$35.69 MWh$36.48 MWh

$2.91MMBtu

averageannual

gas price

$4.06MMBtu

averageannual

gas price

Average annual cost

13 http://www.caiso.com/Documents/2012AnnualReport-MarketIssue-Performance.pdf

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PROTECTINGCOMPETITION Financial snapshot

2011 2010 2009 2008

GMC (MWh) $0.791 $0.793 $0.776 $0.755

Volume (millions of MWh) 240 246 248.6 253.7

Revenue requirement (millions) $189.8 $195.1 $193 $191.6

GMC revenues (millions) $190.7 $195.7 $202.4 $194.8

Market participants 107 97 87 78

Employees 584 578 581 583

Market revenues (in millions) $7,316.80 $7,883.33 $6,443.92 $2,416.38

Total assets (in millions) $890.6 $931.7 $996 $706.5

$0.804

242

$198.8

$195.2

123

588

$8,446.57

$787.5

17

MOVING FORWARD

EV to grid opportunitiesElectric vehicles and renewable power may prove the ideal marriage, pairing advanced technologies to create new ef�ciencies. The ISO sees great value in aggregating electric vehicle �eets, such as those owned by large corporations and transportation businesses. The �eets could act as a potentially large-scale battery and earn revenue from that market participation as well as become another resource for grid operators to manage the grid in an ef�cient and �exible way. The ISO is working with stakeholders to develop a roadmap that will guide the way to effectively plug into the potential grid bene�ts of electric vehicles.

MOVING FORWARDEMERGINGRESOURCES

Pilot project with the Department of Defense at the Los Angeles Air Force base

Leadership role in the development of vehicle-to-grid roadmap for the Governor’s of�ce Zero Emission Vehicle Action Plan

Engaging in California Public Utilities Commission’s electric vehicle proceeding, which addresses charging issues, metering requirements, mandates for utilities to do load research and other related topics

ISO activities supporting vehicle-to-grid

30,000approximate number of plug-in EVs purchased in California over the next 3 years Source: CEC

NEA

RLY30%

of all EV sales inthe US will be

made in CaliforniaSource: CEC

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MOVING FORWARDEMERGINGRESOURCES

StorageIn addition to electric vehicles acting as energy storage resources, the ISO is looking to other storage technologies to enhance grid operations and meet state environmental goals. The ISO believes storage devices, such as batteries and �ywheels, could help maintain local grid voltages, which supports grid stability by providing a steady push of electrons across long-distance power lines.

Recently, other more advanced forms of energy storage have come to the forefront, including compressed air energy storage. The ISO is positioning the market and grid to have the �exibility to interconnect these devices once they are proven. This effort is already underway with the ISO Board of Governors approving early last year a market modi�cation that improves how storage operators can be compensated for their services.

To better enable these types of alternatives to building new wires and plants, the ISO is exploring new telemetry requirements that reduce barriers to entry and provide a range of energy products.

2.4 MW, 7 hour (14 MWh) sodium sulfur (NaS) battery located in Vaca-Dixon, owner: Paci�c Gas and Electric

8 MW, 4 hour (32 MWh) lithium-ion battery located in the Tehachapi area, owner: Southern California Edison

Storage projects and pilots:

Paci�c Gas and Electric is also installing a 4 MW battery to test such things as telemetry and battery ef�ciency.

Funded through Department of Energy grants

Additional storage project:

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MOVING FORWARDEMERGINGRESOURCES

Improved and updated Advanced Technology centerThe ISO Advanced Grid Tech Center located at our headquarters is using videos and animations displayed on touchscreen monitors as well as educational exhibits that bring home the progress the industry and the state are seeing in modernizing the grid. Presentations include such topics as the 2020 Grid, demand response, energy storage and microgrids. The Center also features our own new solar station forecasting system developed by UC San Diego for the ISO’s solar PV production and shows the output of the ISO’s carport and system solar panels that generate up to 750 kilowatts.

Learn more:

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MOVING FORWARDEMERGINGRESOURCES

MicrogridsThe ISO is working with the California State University system to investigate the viability of using new smart grid technology platforms, including microgrids, which would serve as emergency grid backup resources and help balance wind and solar power �uctuations.

The ISO Board of Governors, voted in May 2012 to approve �ling tariff changes with federal regulators that streamlined the process for distributed generation to interconnect to the grid and provide their full value. This action means smaller renewable resources can achieve deliverability approvals in about half the time, allowing the generation to count toward the state’s resource adequacy requirements, in addition to helping utilities meet their 33 percent RPS targets. At the ISO’s request, federal regulators approved most of the tariff changes in time for them to take effect for the 2013 transmission planning cycle, although a small number of provisions underwent further re�nement. Most market participants are satis�ed with the approach and �led supporting comments with federal regulators. The ISO conducted the �rst annual distributed generation deliverability assessment in March 2013, which showed 1,400 MW available system-wide to assign deliverability status to distributed generation without requiring additional delivery network upgrades.

Microgrid:any network of distributed energy resources that operates in concert as a system, and when neces-sary can disconnect from the larger grid.

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MOVING FORWARDEMERGINGRESOURCES

Microgrid

PilotsA University of California-San Diego microgrid was available last summer to help in a small way with addressing the supply shortage caused by the loss of the 2,200 MW San Onofre Nuclear Generating Station. Instead of creating a problem for the ISO as a resource that it cannot control or see, UC San Diego opened up its microgrid internal workings to the ISO. The 42 MW microgrid, one of the world’s largest, provides enough power for a small city with 40,000 homes.

As part of a pilot project with San Diego Gas & Electric and the ISO, UC San Diego installed technology on its campus that provides data about the status of power �ows at more than 50 times a second and is sharing the data with the ISO — and we are learning a lot.

The most ambitious microgrid project in California is in the very early stages of development. General Microgrids is negotiating to develop a microgrid network that �rst focuses on the California State University system. Under this compelling vision, microgrids can protect and serve the larger grid and cooperate with adjacent microgrids, creating networks that epitomize the new grid paradigm. Moreover, these microgrids can work independently and aggregate their capabilities, thereby becoming solutions for both universities and the larger power grid.

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MOVING FORWARDEMERGINGRESOURCES

DR RoadmapThe ISO and the state energy agencies’ coordination identi�es alternatives to transmission or local capacity — such as demand response (DR) — to �nd the most cost-effective options to satisfy grid needs.

Also, DR developers need solid information to make the best business decisions about their projects, so the ISO is supporting revenue certainty that encourages demand response investments. In addition, aligning wholesale and retail price signals will enable distributed resources to respond to grid conditions.

The ISO is gathering input from stakeholders and creating a demand response roadmap that will help re�ne initiative efforts as well as the activities needed to prepare energy and demand response as resources that can offset the need for building new fossil-�red generation, defer investments in transmission and distribution assets as well as measurably reducing load.

DR Roadmap objectives:

Enable alternatives for transmission or local capacity

Support demand response and energy ef�ciency investments

Integrate alternative resources in ISO markets to follow load, integrate renewables or avoid new capacity

Align wholesale and retail signals to enable resources to respond to grid conditions

Evolve and establish technology and regulatory framework to support all goals

What is the difference between energy ef�ciency and demand response??Energy ef�ciency means consumers need less electricity when using their appliances than previous, more energy needy models. Demand response is when consumers voluntarily reduce their electricity use to respond to price signals or reliability situations.

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MOVING FORWARDEMERGINGRESOURCES

Pursuing ef�ciency: CPUC Ef�ciency OrderThe California Public Utilities Commission approved a new plan in 2012 to invest nearly $2 billion in 2013 and 2014 to fund energy ef�ciency programs. The commission created two regional energy networks to complement the utility programs — the San Francisco Bay Area Regional Energy Network and the Southern California Regional Energy Network. This is a new innovation in which local governments can undertake energy ef�ciency activities that utilities cannot or do not intend to perform as well as create innovative pilots in areas without access to utility program offerings.

California’s pioneering work in energy ef�ciency has paid off as the Rosenfeld Curve14 shows. The state has kept per capita electricity consumption nearly �at over the past 40 years while national use jumped over 50 percent. California Governor Brown noted in his 2013 State of the State Address that energy ef�ciency has saved consumers $65 billion over 30 years. This is quite a feat considering California is the most populous state in the nation and its total energy demand is second only to Texas.15

1970 2010

CA

rest ofthe US

Electricity consumption

Source: EIA, SEDS database (2012)

14 Named for Dr. Arthur Rosenfeld, one of the “fathers” of energy ef�ciency and recent recipient of the National Medal of Technology and Innovation15 http://www.eia.gov/state/print.cfm?sid=ca

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