Implementing one of the most ambitious renewable energy standards in the country CALIFORNIA’S Implementing one of the most ambitious renewable energy standards in the country California Public Utilities Commission RENEWABLES PORTFOLIO STANDARD April 23, 2010 Energy Division Workshop on Tradable RECs

2 Workshop Agenda Intro 9-9:30 Agenda, logistics, introductionSara Kamins, CPUC Methodology for Estimating TRECs Price 9:30-10 PG&E ProposalRoy Alvarez, PG&E 10-10:30 SCE ProposalEric Lavik, SCE Dynamic Transfer 10:30-11CAISO dynamic transfer initiativeLorenzo Kristov, CAISO 11-11:30Developer perspective on dynamic transferWilliam Engelbrecht, Sempra 11:30-12Party proposals for verifying dynamic transferSara Kamins, CPUC LUNCH 12 – 1 Firm Transmission 1-1:15Guiding principles for evaluating firm transmission Sara Kamins, CPUC 1:15-2Developer perspective on firm transmissionKevin Lynch, Iberdrola 2 – 4Firm transmission panel Evan Estes, LS Power John Pespisa, SCE Kevin Lynch, Iberdrola Lorenzo Kristov, CAISO

Workshop Introduction Overview of Decision –Allows all retail sellers to buy RECs unbundled from underlying energy and to trade RECs with any market participants –Defines what is a bundled and REC-only transaction –Sets forth rules for integrating REC-only contracts into RPS compliance framework –Adopts contract review standards, incl. cost cap for IOUs –Limits the percentage of RECs the large utilities can use towards annual RPS targets for first two years CPUC authorized the use of tradable renewable energy credits for 20% RPS compliance in D

REC-only and Bundled Contracts Decision adopted categorization to facilitate contract review, apply TREC compliance rules and do resource planning –CPUC reviews reasonableness of RPS contracts for ratepayers –Utilities have executed numerous types of RPS contracts that provide different products –Contract types have different values to ratepayers Diversify electric portfolio Price hedging Cost of RPS compliance Remarketing risk Decision distinguishes between bundled and TRECs contracts for contract review, applying TREC rules, etc

What is a REC-only transaction? A bundled transaction is for energy and RECs and serves CA load without needing an intermediary energy transaction that in effect substitutes the RPS-eligible energy with energy that is not eligible –If the energy from the renewable facility can’t serve CA load, then it is a REC transaction Thus, bundled transactions are those where a facility is directly interconnected to a California balancing authority area or the facility uses a dynamic transfer arrangement –Decision finds that a direct interconnection and dynamic transfer allows renewable energy to be scheduled into CA Staff must hold a workshop to explore if transactions using firm transmission should be considered bundled

Implications of classification Bright line requires clear connection between the renewable energy generation and energy scheduled into California RPS contracts that include a disconnect between energy and REC will be reclassified as REC-only going forward –Buy/sell back: Utility buys energy and RECs from renewable generator and immediately sells back the energy to the generator –Matching: Utility buys, from one counterparty, RECs from a renewable generator and system energy from another market –Busbar: Utility buys energy and RECs at generator’s busbar and remarkets the energy locally rather than scheduling it into CA –Firming and shaping: Utility buys energy and RECs from a renewable generator and a third party remarkets the energy and delivers other energy at a different time

IOUs Actual and Forecasted RPS Generation

Today’s discussion In Scope –Which RPS transactions are consistent with the Decision’s classification principles –Market, regulatory, and operational issues associated with TREC classification –How to promote a least-cost and sustainable RPS market in the west and efficient use of the grid Out of Scope –Merits of petitions for modification and applications for rehearing, including TREC cap percentage