A Historic View of Clean Energy Power Purchase Agreements GreenGov Dialogue: Procuring Grid-Based Renewables September 11, 2015 Washington, DC Jerry R, Bloom Winston & STRAWN LLP jbloom@winston.com 213.615.1756

1970’s Nation Faced Serve Energy Crisis 1976 – oil embargo, skyrocketing oil prices, high dependence on foreign oil and dwindling natural gas supplies Gas lines and escalating power prices Significant capacity and power supply shortages Need for preservation of nonrenewable resources Significant contribution to environmental (air, water) problems associated with power generation

Federal Government Promotes Alternative Energy Development – Passes PURPA U.S. Congress passes Public Utility Regulatory Policies Act of 1978 (PURPA) Goal to promote energy independence and preservation of natural resources by eliminating regulatory and economic obstacles to alternative energy development Fuel Use Act of 1978 – limits natural gas for power generation, but exempts cogeneration to capture efficiencies

The Public Utility Regulatory Policies Act of 1978 (PURPA) PURPA established two classes of qualifying facilities (QFs) Cogenerators Electric and thermal energy Small Power Producers Renewables (biomass, waste, wind, solar, geothermal) Created utility obligation to purchase QF alternative energy and capacity at utility’s avoided cost - ratepayer economic indifference QFs were permitted to make wholesale sales of power Exempted QFs from the Federal Power Act, PUHCA and State Utility Regulation as utilities

PURPA Power Purchase Agreements The IOUs (monopsony buyers) were the primary off takers from QFs under the PURPA obligation to purchase, many markets the only purchasers Some states allowed limited retail sales on site (California added two contiguous neighbors) Product defined as capacity (firm and as available) and energy Must take obligation - IOUs purchase all power Sales and prices under PURPA PPAs were often contentious (avoided cost debates)

Benefits from Alternative Energy Development Advanced US independence from foreign imports QFs enhanced system reliability, reduced need for high reserve margins and costly transmission capacity additions (distributed generation) Deployment of Best Available Control Technology – enhanced energy efficiency and reduced emissions CHP(distributed generation) provided for self-service of thermal and electric demand

PURPA Success Drives Changes Over capacity lead to competitive bid pricing (RFPs) among QFs rather than IOU avoided cost pricing Success launched the restructuring of certain energy markets throughout the US Legislators and state Public Service Commissions adopt Renewable Portfolio Standards - mandatory purchases of renewables Product definition expanded to any know or unknown product associated with the development and operation of the QF (Green Attributes) Later PPAs incorporated dispatch rights limiting must take obligations Sales and prices for IOU purchases of QF power remained contentious Mark to market pricing against fossil-fuel generation

Climate Change – the Game Changer Dramatic increased in focus on environmental benefits from carbon neutral renewables Abundance of non-renewable fossil-fuels (oil/gas) eliminated preservation and energy independence as a drivers for renewables State adoption of Greenhouse Gas reduction goals increased IOU RPS requirements (AB 32) Federal adoption of reduction goals (EO 13693)

Public and Private Sectors’ Seek Alternatives to Traditional Utility Service Price Escalating energy prices despite decreasing fossil-fuel prices – renewable as a price hedge (Primary driver) Reliability, Stability Outages associated with major weather conditions (hurricanes, earthquakes) raise reliability and sustainability concerns Sustainability Product Compliance; EPA, state greenhouse gas reduction regulation, Executive Orders (involuntary) Corporations: Self-initiated programs for enhancement of corporate image/marketing/ shareholder, consumer demands (voluntary) Public Entities: Addressing sustainability goals and national security issues (defense)

Public and Private Sectors’ Role as Active Market Participants Public and private sector are taking greater control of energy future Focus on renewable energy and combined heat and power Products needed to meet sustainability goals usually not offered by the utilities Public and Private sector as owner/off taker of renewable electrons, renewable energy credits and thermal energy Private sector is not getting the products it wants from IOUs Various deal structures bring value to “green” suppressed by renewable sales to IOUs who want “green” at parity with fossil electrons and retire RECS

Access to Renewable Energy Products Ownership, PPAs, Leases On site - Distributed generation – bypass End user owns the generation facility and the products it produces Third party owns system on site (PPA, Lease) Off Site Customers who take delivery of energy and other products from generation facility owned by end-user or third party Customers have rights to renewable energy products but they are sold or traded in markets

Agreement Terms Vary Widely Product: Renewable electrons and/or environmental attributes Hedges: Market trading (no direct delivery) Quantity: Full verses partial output Term: 5, 10, 20 years Price: fixed, escalating (guaranteed savings) Project costs differ Availability of ITC/PTC may competitiveness Maintenance, metering, liabilities Disposition of project at end of term

The Private Sector Direct Access Among others, the list includes 76 of the Fortune 500, such as: Apple Coca-Cola FedEx Google Inc. Johnson Controls Intel Corporation Microsoft Corporation PepsiCo Safeway Wal-Mart Stores, Inc.

The Public Sector Direct Access PPPs ( Public Private Partnerships) Wide range of options Wide range of partnerships Government Buildings Aggressive sustainability goals Military Bases National security Vehicles – Federal Government 650,000 vehicles Federal Government $445 B purchasing power Leading on environment and energy performance Federal PPAs

Questions and Discussion