July 9, 2010, AB 920 Workshop Pacific Gas and Electric Company

2 Compensation Requirements (emphasis added) PUC section 2827 (h) (4) (A). The net surplus electricity compensation valuation shall be established so as to provide the net surplus customer- generator just and reasonable compensation for the value of net surplus electricity, while leaving other ratepayers unaffected. The ratemaking authority shall determine whether the compensation will include, where appropriate justification exists, either or both of the following components: (i) The value of the electricity itself. (ii) The value of the renewable attributes of the electricity. PUC section 2827 (h) (4) (B). In establishing the rate pursuant to subparagraph (A), the ratemaking authority shall ensure that the rate does not result in a shifting of costs between solar customer-generators and other bundled service customers.

3 Energy Value The utility’s incremental load is purchased from the California Independent System Operator (CAISO) at the default load aggregation point (DLAP). One additional kWh of net surplus generation will mean the utility buys one less kWh from the CAISO at the DLAP price. Therefore the DLAP price is the appropriate compensation rate for the energy value.

4 Capacity Value Capacity payments are intended to help recover fixed costs. NEM customers can receive CSI incentives to help pay for their fixed costs. Including a capacity component in the NEM compensation rate would be a second payment for fixed costs and would not leave other ratepayers unaffected. No capacity component should be included in the NEM compensation rate.

5 Green Attributes Value To the extent that the utility receives RPS credit for net surplus generation, the value of the credit could be paid to NEM customers without shifting costs to other customers. Therefore the market value of one kWh of renewable energy credit (REC) is the appropriate compensation for the value of the green attributes of net surplus generation. At this time there is no transparent, liquid REC market for determining this value.

6 A Single Net kWh NEM customers’ net surplus generation has been netted across all TOU periods and all twelve months such that there is a single net kWh amount. There is no meaningful way of allocating that single net kWh amount back to different TOU periods or months. Since there is only a single meaningful net kWh amount for each customer, a single compensation rate should be used.

7 A Single Rate A simple average of all the DLAP prices within the true-up period could be used for the energy value. Since the majority of NEM customers are solar, using a simple average of DLAP prices from just the daytime hours is reasonable PG&E proposes using the simple average of DLAP prices from 7 AM to 5 PM.

8 PG&E’s Compensation Proposal Average of 7 AM to 5 PM DLAP over entire true-up period (for energy value) plus the market value of a REC (for green attributes value) is the appropriate compensation rate for net surplus generation. Unfortunately, there is no good market value for a REC at this time.

9 PG&E’s Interim Proposal Once there is a liquid, transparent market for RECs, DLAP plus REC should be the surplus generation compensation rate. Until that time the system average generation rate is a reasonable proxy for the value of net surplus generation and should be used as the compensation rate. As of January 1, 2010, PG&E’s system average generation rate was 8.1 cents/kWh (Advice Letter 3518-E-A).

10 Customer Communication Each NEM customer was contacted  Wait for normal true-up or initiate early 2010 true-up  Web site with FAQ At time of true-up, customers with net generation will be offered a choice  Cash-out if value of generation exceeds $1.00  Carry cash value forward to next true-up cycle  Do nothing – true-up proceeds as today Customers with no net generation will not be notified

11 CPUC Scenarios Scenario 1: Bill Credit of $100 but no surplus generation  There is nothing to purchase under AB 920; Customer must have net generation Scenario 2: Surplus generation of 100 kWh but no bill credit  Customer eligible to receive $8.10 Scenario 3: Surplus generation of 500 kWh and a bill credit of $200  Customer eligible to receive $40.50

12 Other Issues REC ownership  IOUs count compensated generation toward RPS with no regard for REC ownership CCA and DA customers  Customer is referred to their energy service provider Wind co-metering customers are eligible Over-sizing is not supported as eligibility for CSI and NEM remain unchanged by AB 920 Administrative costs to be absorbed by all ratepayers Different utilities (and ESPs) can have different compensation rates; different utilities (and ESPs) can have different program offerings. No QF certification required – May seek FERC blanket exemption from jurisdiction over interconnection arrangements for participating projects.