Renewables Portfolio Standard Status Report California Public Utilities Commission February 26 th, 2008

What is RPS? Established under SB 1078 (2002) and SB 107 (2006) Load-serving entities must procure an additional 1% of retail sales per year from eligible renewable sources until 20% is reached, no later than 2010 CPUC oversees RPS procurement of Investor-Owned Utilities (IOUs), Electric Service Providers (ESPs) and Community Choice Aggregators (CCAs) Compliance is based on delivered energy Publicly-owned utilities must design similar programs, report progress to the California Energy Commission

RPS Procurement Process is Working Year Total Number of contracts approved MW approved 295 MW262 MW74 MW1255 MW635 MW1395 MW3916 MW CPUC is responsible for overseeing RPS solicitations and reviewing IOU contracts for RPS-eligible energy. 80 contracts approved since 2002, for almost 4,000 MW. CPUC contract approval is not to exceed 6 months; approval time averaged 5 months over the past year.

Participation in RPS solicitations is accelerating Solar energy saw a dramatic increase in participation from developers in the 2007 RPS solicitation. Wind and geothermal will continue to be large contributors to RPS generation.

RPS Generation by Fuel Type Wind and geothermal will be the largest contributors to RPS generation in 2010.

Contracts signed and under negotiation may put IOUs close to 20% in 2010

However, project viability is a concern

Project development hurdles are the major source of risk CPUC contract approval is only one step in the complex project development process. Inter-agency coordination is key to reaching 20% Barriers facing projects needed to meet 2010 goal

CPUC working on project development solutions SB 1036 Implementation Addressing transmission barriers: Renewable Energy Transmission Initiative (RETI), ISO Queue reform, streamlined permitting Increasing supply: Feed-in tariffs (AB 1969), tradable RECs (CSI), Emerging Renewable Resource Program (ERRP) Contract management work to track projects, improve analysis and reporting of challenges to project development Future: Solutions team works with relevant agencies

Prices for renewables are rising

Above-market funds may not be sufficient

Flexible Compliance Rules Penalty for non-compliance is 5 cents per kWh, up to $25 million per year Banking/Earmarking: LSEs can “apply excess procurement in one year to subsequent years or inadequate procurement in one year to no more than the following three years”, pursuant to Public Utilities Code §399.14(a)(2)(C)(i). Penalties may be avoided or deferred pursuant to statutory or Commission adopted conditions, such as; inadequate public goods funds to cover above-market costs (399.16(a)(8)), insufficient transmission (399.14(a)(2)(C)(ii)), lack of competition (399.14(d)) insufficient response to solicitation, seller non-performance. An LSE is expected to reasonably diversify its RPS procurement portfolio, taking generation and transmission project development risk into account. Any requested relief, including the use of flexible compliance, will be examined by the CPUC

Flexible compliance may allow for more rational build-out, mitigate market power New MW under contract New MW needed without flexible compliance New MW needed with flexible compliance , , , , Total3,9193,966 Utilities over-contract to account for possible project failure About 3,000 MW of new RPS development needed to meet 20% About 3,600 new MW now under contract or pending CPUC approval

Tradable Renewable Energy Credits What is a Renewable Energy Credit?  A Renewable Energy Credit (REC) generally represents the environmental and renewable attributes of renewable electricity as a separate commodity from the energy itself. A REC can be sold either "bundled" with the underlying energy or "unbundled" into a separate REC trading market. Currently, unbundled RECs do not count for RPS compliance.  Pursuant to SB 107, CPUC is currently considering the use of tradable (unbundled) RECs within the California RPS. Staff proposal for a tradable REC regime was issued in October  Goals for TREC regime, if adopted: Encourage renewable development Help overcome transmission issues Increase market efficiency Facilitate compliance by smaller LSEs Lower RPS compliance costs In the Western region of the U.S., RECs (both voluntary and compliance) will be tracked using the Western Renewable Energy Generation Information System (WREGIS). 1.