Procuring Our Way to Compliance IEP 27 th Annual Meeting September 23, 2008 Fong Wan, PG&E

2 GHG Reduction: What’s Required of the Electric Sector? 169 MMT of total reductions needed to reach the 2020 target of 427 MMT CARB’s Draft Scoping Plan describes several incremental reduction measures that could impact PG&E if adopted: CARB estimate of total reductions from measures Percent of total required reductions Energy efficiency programs19.5 MMT11.5% Combined heat and power6.9 MMT4.1% 33% Renewable Portfolio Standard21.2 MMT12.5% Electric sector responsibility47.6 MMT28.1% Multi-sector California cap-and-trade35.0 MMT20.7% CSI existing program targets are expected to contribute an additional 2.1 MMT

3 PG&E Compliance Exposure Remains Uncertain CARB continues to develop its AB32 recommendations but PG&E has limited direct GHG emissions PG&E has been focused on reducing its direct and indirect emissions Estimated Emissions 2012 Utility Owned Generation~4 MMT Natural gas operations< 0.5 MMT Total estimated direct emissions:~4.5 MMT Small commercial & residential natural gas use~17 MMT Indirect emissions from purchased energy~16 MMT Total estimated direct and indirect emissions:~37 MMT

4 PG&E Continues to Emphasize Energy Efficiency PG&E’s EE programs have contributed significant savings and are expected to provide even more in the next decade –Over 1,000 MW of installed energy efficiency projects in the last 5 years –An additional 1,050 MW expected over the next 3 years CARB’s EE targets rely on ambitious government action, technology advancement, market transformation, and unprecedented customer adoption and rebate levels CHP as a GHG reduction measure is uncertain –CHP must have true efficiency advantages and be matched against existing thermal load to achieve reductions –Based on currently available information, it’s questionable whether efficient CHP capacity exists for the 30,000 GWh described in the Draft Scoping Plan

5 PG&E Will Reach and Exceed 20% Renewables PG&E has 24% RPS eligible resources under contract for future delivery Pursuing power contracts with diverse energy technologies Seeking new supply options both within and outside of state Key components to achieving RPS targets remain elusive –Extension of ITC and PTC –Transmission improvements –Expedited permitting approvals –Developer performance and timing consistent with contract Given the challenges with reaching 20% RPS, is 33% achievable by 2020?

6 PG&E’s Role in a California Cap-and-Trade PG&E will focus on mitigating significant increases in costs to its customers that may arise in a cap-and-trade Compliance will result mostly from: –Role as a “first deliverer” of imports –Recent commitments to utility-owned fossil generation –PG&E may have a role in managing compliance costs for some power producers All of the uncertainties with EE, RPS and cap-and-trade suggest a need for high quality offsets and other cost containment measures

7 Current Options for Compliance Strategies Strategies for compliance with a cap-and-trade –Reduce energy consumption through EE and DR programs –Reduce carbon content of energy delivered with low or no carbon energy through PPAs, UOG and Distributed Generation –Purchase allowances –Purchase offsets One of the key pre-compliance options are offsets where rules and protocols remain in flux Need defined rules to encourage offset market development before it can be a viable pre-compliance option

8 PG&E Procurement Accomplishments to Date Since resuming procurement in January 2003, PG&E has worked to restore system reliability and implement the state’s policy goals Energy Efficiency: Over 1,000 MW of installed energy efficiency projects Demand Reduction: About 750 MW of dependable programs Renewables: Almost 3,700 MW under contract California Solar Initiative: PG&E began implementation January 1, 2007 and has installed 232 MW of solar units at more than 25,000 sites The 2004 LTRFO and utility-owned generation: 3,000 MW of new, efficient gas-fired generation The 2008 LTRFO seeks 800-1,200 MW of new, efficient, flexible resources

9 Utility and IPP Generation Capacity Power Plant Ownership n Northern California by Net Qualifying Capacity (MW) PG&E Owned New Resources and PG&E PPAs in Northern California by Capacity (MW) QFs and Merchant Plants PG&E Municipal Utilities Signed RPS PPAs PG&E Owned 2008 LTRFO 2004 LTRFO PPAs PG&E supports the current hybrid market structure for California *RPS resources have a lower net qualifying capacity *