November, 2008

Renewables Portfolio Standard (RPS) defined An RPS is a popular policy tool in the United States, and has been enacted in 34 states and Washington DC A Renewables Portfolio Standard (RPS) requires that a minimum (and growing) percentage of renewable generation be included in the electricity mix of a particular energy market. The benefits of an RPS include: Larger economies of scale for renewable technologies brings renewables down the cost curve Environmental protection & public health – clean air, cimate change Hedging against volatile natural gas prices Jobs, economic development Lower prices due to competitive procurement process

California’s RPS is the most Aggressive in the Country Source: Black and Veatch

California’s RPS Policy The RPS Program requires all retail energy sellers to procure 20% renewable energy by 2010 Original legislation (SB 1078, 2002) was 20% by 2017; Accelerated target to 2010, effective January, 2007 (SB 107, 2006) All RPS-obligated retail sellers must procure an incremental 1% of retail sales per year until 2010 20% obligation continues post-2010 RPS procurement compliance is measured in terms of electricity deliveries, not signed contracts California has set a further goal of 33% renewable energy by 2020

California’s RPS Eligibility Guidelines Delivery Rules Energy must be delivered into California Energy can be consumed by any California consumer, IOUs may remarket Out-of-state facilities (located in WECC) can firm and shape energy to deliver into California Eligible Resources Biodiesel Biomass Conduit hydroelectric Digester gas Fuel cells using renewable fuels Geothermal Wind Landfill gas Municipal solid waste Ocean wave, ocean thermal, tidal current Photovoltaic Small hydroelectric (30 MW or less) Solar thermal electric Hydroelectric (incremental generation from efficiency improvements

California RPS Procurement Process CPUC approves RPS procurement plans IOUs hold annual solicitation IOU rank bids pursuant to “least-cost, best-fit” methodology IOUs negotiate bids, execute contracts Independent evaluator oversees solicitation, bid evaluation, and negotiations Once the IOU executes contract, must submit to the CPUC for approval

CPUC Approval Project viability Price reasonableness CPUC reviews contracts for price reasonableness and project viability Project viability Technology Financing Permitting Transmission Online date Developer experience Price reasonableness Per se reasonable at or below ‘market price referent’ Bid supply curves for recent solicitation, technology

20% by 2010 RPS: Current Status CPUC has approved 101 contracts for more than 6,100 MW of new and existing RPS capacity Of these, 65 are contracts with new projects, totaling 4,660 MW Were all this capacity to come online by 2010, we would more than achieve our RPS target Response to RPS solicitations has been robust and increasing, one indication that the market is maturing Procurement process appears to be working

California has all major renewable resources within its borders Black and Veatch

Geothermal dominates current renewable mix

Current trends: Solar bids have increased dramatically since program’s inception

Generation costs of renewable technologies Source: Renewable Energy Transmission Initiative Phase1A Report

Current Trends: Renewable generation costs are increasing RPS bid prices have increased from 2002-2008 Construction costs increasing for both renewable and conventional generation Resource mix is shifting Little geothermal and biomass in response to recent RFOs Increase in share of solar thermal and PV – relatively high installation costs and significant permitting challenges Many prime resource sites have already been developed Concern that constrained supply and policy-driven demand drive up costs

Current Trends: Procurement process is working, but percentage of renewables has decreased

Some projects are at risk for delay or failure

Current Trends: Multiple barriers delay project development

Project development is complicated and involves multiple steps Project Development Process RPS Procurement Process Permitting Barrier to 13 projects Municipal Agencies (authority to construct, re-zoning) County Agencies (conditional use permit, air permits, water permits, re-zoning, CEQA) Energy Commission (RPS certification, thermal facility certification, CEQA) Bureau of Land Management and other federal agencies (Use permits, NEPA) Transmission Barrier to 24 projects CAISO Generator Interconnection (Apply & enter queue; CAISO/utility performs studies; sign Interconnection Agreement) CAISO Develops Overall Transmission Plan (CAISO-utility-stakeholder process; CAISO Board approval) CPUC Approval (CEQA, CPCN) IOU issues solicitation and reviews bids IOU negotiates contracts with short-listed developers Equipment Procurement & Construction Shortage of equipment (turbines, etc.) Escalating commodity costs (steel, concrete) IOU submits contract for approval Site Control Barrier to 10 projects Bureau of Land Management, Other Federal Land Management Agencies may grant right-of-way/use permits based on studies (e.g., NEPA) OR Lease/ownership contract with private party CPUC approves contract Financing Barrier to 17 projects Extension of Production and Investment Tax Credits needed

The CPUC is working to create multi-agency solutions to known barriers Increasing contracting flexibility New out-of-state delivery rules, deciding on tradable Renewable Energy Credits (RECs) Transmission Streamlined permitting process Initiated Renewable Energy Transmission Initiative (RETI) Working closely with California ISO on queue reform Permitting/ Site control Beginning to work with Bureau of Land Management (BLM), other relevant agencies California Energy Commission (thermal facilities) County agencies (wind, thermal <50 MW)

Renewable Energy Credits may increase supply RECs can provide greater compliance flexibility, procurement efficiency, and potentially lower costs CPUC is currently deciding whether unbundled/ tradable RECs can be used for California RPS compliance: CPUC  issued a proposed decision authorizing the use of tradable RECs for RPS compliance  (starting 1/1/09) : SB107 authorized CPUC to allow unbundled/tradable RECs to be used for RPS compliance Draft resolution adopting a Joint Staff Report determining that WREGIS  is operational  (required by legislation before CPUC can authorize tradable RECs) mailed Sept 23, 2008

Transmission is the most significant barrier Almost 50% of RPS projects are at risk of project delay due to transmission Many of California’s most valuable renewable resources are far from load centers Existing transmission lines are often congested Significant transmission expansion required to bring resources to market Chicken-and-egg problem: utilities don’t want to build transmission until generation development is confirmed generators don’t want to commit to projects unless transmission access is confirmed Permitting of transmission lines often contentious

CPUC response to the “Transmission Problem” CPUC has taken multiple steps to overcome transmission siting, permitting, and construction challenges Streamlined transmission permitting process Backstop rate recovery Agency culture of proactive collaboration with California ISO, utilities, stakeholders, and federal land use agencies to minimize delays New RPS Transmission investigation opened this year Public education Initiated the Renewable Energy Transmission Initiative (RETI)

The Renewable Energy Transmission Initiative (RETI): One solution to the transmission problem Statewide collaborative study effort to identify the transmission needed to access and deliver the most cost-effective renewable resources in CA and neighboring states Phase I – will be finalized this month Report ranks competitive renewable resource zones (CREZs) through stakeholder consensus to reflect commercial potential, economic potential, and environmental restrictions Phase 2 Conceptual transmission plans for the highest ranking CREZs Phase 3 Transmission plans of service that result in applications to construct new transmission infrastructure to meet RPS goals

What’s Next? California is considering a 33% by 2020 RPS The CPUC, California Energy Commission, and the California Air Resources Board recommended 33% renewables by 2020 to meet the state’s climate change goals The governor has also endorsed a 33% by 2020 RPS and is working with the legislature to make it law CPUC staff are analyzing the barriers to reach a 33% RPS and will work with other state entities to develop and implement solutions

20% 33% Magnitude of a 33% by 2020 RPS One scenario for achieving a 20% by 2020 RPS would require: One scenario for achieving a 33% by 2020 RPS (starting today and using primarily in-state resources) would require: 20% by 2020 29,000 GWh of new renewable energy in 2020, in addition to 31,000 GWh of generation from renewables in existence today 33% 70,000 GWh of new renewable energy in 2020, in addition to 31,000 GWh of generation from renewables in existence today 2 New Major Transmission Lines (6,700 MW) at cost of $3.5 Billion 7 New Major Transmission Lines (15,900 MW) at cost of $6.4 Billion

More information RPS website: www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/ Renewable Energy Transmission Initiative (RETI): www.energy.ca.gov/reti/

Renewable Portfolio Standard Policy – Key Resources CPUC Decisions/Resolutions[1] Initial implementation of Senate Bill 1078, D.03-06-071 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/27360.PDF Least-cost best-fit criteria (used to evaluate RPS bids), D.04-07-029 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/38287.PDF Initial participation rules for ESPs, CCAs, SMJUs, D.05-11-025 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/51414.PDF 2005 Market Price Referent, D.05-12-042 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/52178.PDF 2006 Market Price Referent, Resolution E-4049 http://www.cpuc.ca.gov/WORD_PDF/FINAL_RESOLUTION/63132.PDF Reporting and compliance methodology for RPS program, D.06-05-027 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/61025.PDF 2007 IOU procurement plans approved, D.07-02-011 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/64640.PDF Rules for ESP and CCA participation, D.06-10-019 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/60585.PDF Minimum procurement from long-term contracts and new facilities, D.07-05-028 http://www.cpuc.ca.gov/WORD_PDF/FINAL_DECISION/67490.PDF CPUC RPS Website[2]: http://www.cpuc.ca.gov/static/hottopics/1energy/r0404026.htm CEC RPS Eligibility Guidebook: http://www.energy.ca.gov/renewables/documents/index.html#rps WREGIS: http://www.wregis.org/ 2007 Renewable RFO links Pacific Gas and Electric: http://www.pge.com/suppliers_purchasing/wholesale_electric_supplier_solicitation/renewables2007.html San Diego Gas & Electric: http://www.sdge.com/renewablerfo2007/ Southern California Edison: http://www.sce.com/AboutSCE/Regulatory/qualifyingfacilities/RFP2007.htm [1] CPUC Rulemakings to Implement RPS R.04-04-026: OIR to Implement RPS R.06-02-012: OIR to Develop Additional Methods to Implement RPS R.06-05-027: OIR to Continue RPS Implementation and Administration [2] Includes links to Status Reports