Containing the Cost of California’s RPS Yuliya Shmidt, Senior Analyst February 2, 2012

 The Division of Ratepayer Advocates (DRA) is a consumer advocate within the California Public Utilities Commission (CPUC) that represents customers’ interests on investor owned utility (IOU) matters. DRA’s statutory mission is to obtain the lowest possible rates for utility services consistent with safe and reliable service levels. In fulfilling this goal, DRA also advocates for consumer and environmental protections. The Voice of Consumers, Making a Difference! 2 About DRA

Renewables Portfolio Standard (RPS) Legislation in California  SB 107 (Simitian, 2006): Accelerated the RPS to 20% by 2010 with flexible compliance extending the deadline to 2013  SB 1036 (Perata, 2007): Adopted ratepayer protections through limits on above-market costs.  Above-Market Funds (AMFs) are allocated to the costs of each RPS contract above the Market Price Referent  AMFs for each utility were exhausted in 2009  SBx1 2 (Simitian, 2011): Established a 33% RPS by  Requires reporting on total cost of program each year  Requires CPUC to establish and enforce a cost limitation for each investor-owned utility  Limits procurement to resources that can be procured without exceeding a de minimis increase in rates The Voice of Consumers, Making a Difference! 3

4 Expenditures of Above-Market Funds Note: Data from August 2010 AMF Calculators. Figures in nominal dollars.

Implementation of 33% RPS Legislation by CPUC  Opened Rulemaking (R.) to apply SBx1 2  Addressed technical and definitional issues in 2011  Addressing cost limitation mechanism in Q  Issued two Final Decisions in December 2011 The Voice of Consumers, Making a Difference! 5

CPUC Decision: Implementing 33% RPS Decision (D.) on Portfolio Content Categories implements SBx1 2 restrictions on unbundled renewables The Voice of Consumers, Making a Difference! 6 Compliance Period BundledUnbundled REC-onlyFirmed and Shaped At least 50%Up to 25%Remainder At least 65%Up to 15%Remainder At least 75%Up to 10%Remainder

CPUC Decision: Implementing 33% RPS Decision (D.) on procurement quantity requirements The Voice of Consumers, Making a Difference! 7

Utilities are on Track to Meet 33% The Voice of Consumers, Making a Difference! 8 Note: based on executed contracts Risk Profile of Forecasted RPS Generation

California’s Renewable Mix The Voice of Consumers, Making a Difference! 9 Notes: Only contracts from 2002 and on are included. Includes contracts not yet online and those pending approval. Solar PV Program contracts are included but Feed-in Tariff and other programs are not. All data from updated January

Variety of Renewable Programs Multiple programs and procurement methods have been created to increase renewables:  Utility Requests for Offers (RFOs)  Bilaterally Negotiated RPS Contracts  Utility Owned Generation (UOG)  California Solar Initiative (CSI)  Feed-In-Tariff (FIT)  Qualifying Facilities (QFs)  Renewable Auction Mechanism (RAM)  Self Generation Incentive Program (SGIP)  Emerging Renewables Program (ERP)  Tradable Renewable Energy Credits (TRECs – now referred to as unbundled RECs)  Net Energy Metering (NEM)  New Solar Homes Partnership (NSHP) The Voice of Consumers, Making a Difference! 10

The Renewable Jungle The Voice of Consumers, Making a Difference! 11 CSI = California Solar Initiative ERP = Emerging Renewables Program FIT = Feed-in Tariff NEM = Net Energy Metering NSHP = New Solar Homes Partnership PPA = Power Purchase Agreement QFs = Qualifying Facilities RAM = Renewables Auction Mechanism RFO = Request for Offers RPS = Renewables Portfolio Standard SGIP = Small Generator Incentive Program SPVP = Solar Photovoltaic Program TRECs = Tradable Renewable Energy Credits UOG = Utility Owned Generation DRA Guide: Note: Not to Scale

Renewable Programs by Technology & Size SizeSolar PVWindOther Less than 1 MW  California Solar Initiative  New Solar Homes Partnership  Emerging Renewables Program  Net Energy Metering  Emerging Renewables Program  Small Generator Incentive Program  Net Energy Metering 1-3 MW  Feed-in Tariff  Renewables Auction Mechanism  Solar Photovoltaic Program  Request for Offers Power Purchase Agreement  Bilateral Power Purchase Agreement  Feed-in Tariff  Renewables Auction Mechanism  Small Generator Incentive Program  Request for Offers Power Purchase Agreement  Bilateral Power Purchase Agreement  Feed-in Tariff  Renewables Auction Mechanism  Request for Offers Power Purchase Agreement  Bilateral Power Purchase Agreement 1-20 MW  Solar Photovoltaic Program  Request for Offers Power Purchase Agreement  Renewables Auction Mechanism  Bilateral Power Purchase Agreement  Request for Offers Power Purchase Agreement  Renewables Auction Mechanism  Bilateral Power Purchase Agreement  Request for Offers Power Purchase Agreement  Renewables Auction Mechanism  Bilateral Power Purchase Agreement Greater than 20 MW  Request for Offers Power Purchase Agreement  Utility Owned Generation  Solar Photovoltaic Program  Bilateral Power Purchase Agreement  Request for Offers Power Purchase Agreement  Utility Owned Generation  Bilateral Power Purchase Agreement  Request for Offers Power Purchase Agreement  Bilateral Power Purchase Agreement  Utility Owned Generation The Voice of Consumers, Making a Difference! 12

Renewable Program Costs  Solicited RPS Contracts: estimated $20.8 billion to be expended  Bilateral RPS Contracts: estimated $13.3 billion to be expended  Qualifying Facilities: estimated $20.7 billion to be expended on renewable QFs  California Solar Initiative: $2.1 billion budgeted for the program  New Solar Homes Partnership: $400 million budgeted for the program  Small Generator Incentive Program: $623 million spent from The Voice of Consumers, Making a Difference! 13

Rate Impacts  Rate impacts of renewables are not yet known  A substantial portion of each utility’s RPS portfolio has not yet come online and therefore not yet entered rates  Rates are likely to increase but it is unclear how much of that is due to renewables  Renewable costs may increase the utilities’ revenue requirement in several areas including: cost of purchased power, utility-owned generation, transmission, and distribution The Voice of Consumers, Making a Difference! 14

Revenue Requirement Breakdown PG&ESCESDG&ETotal% Generation/Energy Procurement Purchased Power$4,739,030$3,723,745$1,080,290$9,543,06537% Utility Owned Generation$1,561,807$1,909,857$343,157$3,814,82115% Distribution (includes taxes)$3,267,148$3,663,902$982,858$7,913,90830% Transmission$752,286$591,273$279,789$1,623,3486% Demand Side Management$726,316$795,646$219,246$1,741,2087% Bonds & Fees$808,151$500,441$111,821$1,420,4135% Total 2010 Revenue Requirement$11,854,738$11,184,863$3,017,161$26,056,763100% The Voice of Consumers, Making a Difference! IOU Revenue Requirement Summary (000) Source: AB 67 Report, April 2011, p. 7.

Containing RPS Costs SBx1 2 (Sec (c)): “The commission shall establish a limitation for each electrical corporation on the procurement expenditures for all eligible renewable energy resources used to comply with the renewables portfolio standard.”  The CPUC is currently seeking input from parties on the design of the cost containment mechanism  Stakeholders will file comments on February 16 and March 1  A lengthy process involving workshops and stakeholder input will likely ensue with a final decision months away The Voice of Consumers, Making a Difference! 16

Contact Information Yuliya Shmidt