Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Paul N. Belval Day, Berry & Howard LLP CityPlace I Hartford, CT (860) December 14, 2005 RECs, RTOs and RPSs: The Three Rs of Renewable Energy

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Background: RTOs (Regional Transmission Organizations) Administer and operate wholesale power markets and transmission systems Typically multi-state Federally regulated by FERC (except ERCOT)

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Background: RTOs Source: Federal Energy Regulatory Commission

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Background: RPSs (Renewable Portfolio Standards) State statutory requirements Certain percentage of generation portfolio from renewable resources Periodically increasing targets Defines “renewable energy” for each state Imposed on various load serving entities Enforced and administered at state level, typically by PUC

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Background: RPSs Renewable Portfolio Targets Source: Pew Center, Updated August 2005

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Background: RECs (Renewable Energy Certificates/Credits) Source: EnergyPulse.net

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Active REC Tracking Systems ACTIVE REC TRACKING SYSTEMS ERCOTNEPOOL GENERATION INFORMATION SYSTEM (“GIS”) PJM GATSWISCONSIN RENEWABLE RESOURCE CREDITS (“RRCs”) States with Active or Pending RPS Requirements TexasCT, MA, ME, RI, VTPA, NJ, MD, D.C.Wisconsin RPS Compliance Texas RPSEach state has own RPSEach state (and D.C.) has own RPS Wisconsin RPS Other Characteristics 1 REC for every green MWh; Participation is voluntary; Two year banking 1 REC for every MWh generated or imported in NEPOOL; Quarterly trading periods; Limited banking; Unlimited forward REC transfers 1 REC for every MWh generated or imported; Active RECs may be transferred at any time; Limited banking depending on requirements of state RPS; Annual trading periods Limited to generators certified by Wisconsin PSC  Life span of RECs generally dependent on banking requirements of state RPS

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W REC Tracking Systems Under Development Western Renewable Energy Generation Information System (“WREGIS”) –Will cover the 11-state Western Interconnection –RFP released on Sept. 19, 2005; Bid submittal deadline: Feb. 3, 2006 New York –Initially contemplated system in 2009, but now considering earlier implementation –Summer 2005 Program Opportunity Notice issued by New York State Energy Research and Development Authority (“NYSERDA”) Midwest Renewable Energy Tracking System (“M-RETS”) –Will cover Dakotas, Illinois, Manitoba, Minnesota and Wisconsin –Two year initiative to design and implement by end of 2006

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Advantages of Using RTOs as Basis for REC Tracking Systems Readily Available Source of Generation Data Existing Technical Staff and Expertise Economies of Scale among Multiple States Forum for Stakeholder Input and Consensus Building

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W “In regions where there are state-established Renewable Energy Credit trading programs to monetize the value of renewable energy, the ISO/RTOs – including ERCOT, ISO- NE and PJM – are administering renewable energy credit trading programs, providing low-cost, high value services that benefit renewable resources and improve electricity retailers’ ability to offer ‘green’ electricity products cost- effectively.” -The Value of Independent Regional Grid Operators, a report by the ISO/RTO Council November 2005 RTOs and REC Trading Systems

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Challenges of Using RTOs as Basis for REC Tracking Systems Federal/State Regulatory Issues Differing RPS requirements Cost Allocation and Collection Issues Seams Issues

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Challenges: Regulatory Issues RPSs and RECs are creations of state law –(American Ref-Fuel Company, et al., 105 FERC ¶61,104 (2003)) Environmental compliance is primarily the role of state regulators –(New England Power Pool, et al., 103 FERC ¶ 61,304 (2003)) RTOs are generally regulated at federal level; RPSs and RECs are regulated at state level Need for cooperative relationship between RTOs and state regulators outside of traditional regulatory context RTOs had already created model for this relationship to some extent

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Challenges: Regulatory Issues (cont.) Solutions: NEPOOL –Working Group comprised of representatives of NEPOOL participants, environmental and utility regulators and ISO representatives formed to design system and draft and amend operating rules. Only NEPOOL participants took part in hiring of APX to develop and administer system PJM –State Agency Advisory Committee that provides input on GATS design and operation ERCOT –Not federally regulated –PUCT appointed ERCOT as program administrator

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Challenges: Differing RPS Requirements RPSs define “renewable” fuel sources differently RPSs cover different areas (e.g. labor characteristics in Massachusetts) Solution: –PJM and NEPOOL have “lowest common denominator” systems that are policy neutral

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Challenges: Cost Allocation Majority of RTO stakeholders not subject to RPS REC tracking systems not FERC jurisdictional and not RTO-related costs Solutions: NEPOOL –Costs allocated to LSEs subject to RPS –Presumed LSEs recover costs through rates or competitive charges PJM –PJM EIS – Separate corporate entity to capture and allocate costs to GATS subscribers –Subscriber fees – annual fee and transactional fee ERCOT –Costs included in ERCOT budget and collected through ERCOT fee – no separate fees

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Challenges: Seams Issues Rules for moving RECs between RTOs are evolving NEPOOL –RECs must be imported with energy –Imports from adjacent control areas only –Hourly matching with imported energy with NERC tags –“Green” energy only PJM –Imported RECs without energy if pre-qualified by a PJM state –Conversion of RECs from compatible system –Monthly matching with imported energy with NERC tags ERCOT –Only Texas generation and out-of-state generation serving Texas load exclusively eligible for RECs

Day, Berry & Howard LLP C O U N S E L L O R S A T L A W Systems in development are not being developed by RTOs New York – NYSERDA and NY Public Service Commission WREGIS – California Energy Commission, Western Governors Association and WECC M-RETS – Great Plains Institute, Center for Resource Solutions and Izaak Walton League of America Sources of generation data?