Review of EDC Solar Long- term Financing Program Analysis January 12, 2012 Center for Energy, Economic, and Environmental Policy DRAFT

Review Assumptions and Caveats Center for Energy, Economic and Environmental Policy (CEEEP) asked to review the EDC Solar Long term Financing Programs. Current analysis includes ACE, JCP&L, RE, and part of PSE&G’s Solar Loan programs. This analysis: –Is NOT answering the question of whether the programs should be continued in the future. –Is NOT a review of New Jersey solar programs, the New Jersey SREC program, or the SREC short term market. –Does not include the environmental benefits of solar, the impacts on the transmission and distribution system, or any other costs or benefits of solar other than those directly related to the EDC Solar Long term Financing Program. Assumed Capacity Factor from 2010 to 2012 is 14% - the program caps SRECs at 1300 per MW per year Assumes that the capacity contracted in any given year is installed in that same year and 100% of the SRECs are created. 2DRAFT

Goals of EDC Solar Financing Program On December 6, 2007 (I/M/O the Renewable Energy Portfolio Standards, Alternative Compliance Payments and Solar Alternative Compliance Payments, Docket No. E ), the Board also directed the OCE to “initiate a proceeding to explore whether additional mechanisms could be established to support the financing of solar generation projects by providing greater assurances about the cash flow to be expected from such projects, noting that such financing depends not only upon certainty about long-term maximum prices for SRECs, as provided by the established rolling eight-year SACP schedule, but also requires greater certainty about the minimum cash flow from such projects” 3DRAFT

Data Collection Issues CEEEP staff reviewed a “Solar Review Matrix” (matrix) developed by the BPU and completed by the EDC’s. Matrix included program goals, number of megawatts solicited, awarded, contracted and installed, the number of SRECs produced and auctioned and the revenues generated by that auction, as well as the various costs of each utility’s program – only through June CEEEP met individually with staff from each utility and received more detailed information about each solicitation and auction from NERA Economic Consulting (NERA), the solicitation and auction manager. Due to significant differences in how each utility completed the matrix and additional data needs, CEEEP drafted an updated matrix for the utilities to complete. Updated matrices were completed by utilities in late November/early December, with data through October DRAFT

Solicitation Program Timeline (ACE, JCP&L, RE) Last Loan Application Timeline (PSE&G Solar Loan I and II) 5DRAFT Loan Application Project Installed Loan Approved Approximately 8 months days Oct 2012Feb 2012Dec 2011 Capacity Awarded Signed Contract Project Installed 45 daysApproximately 1 year Sept 2011Nov 2012Nov 2011 Solicitation Released Aug 2011

ACEJCP&LRE SolicitationDate AwardedContractedInstalledAwardedContractedInstalledAwardedContractedInstalled #1 August #2 December #3 March #4June #5 October #6 February #7June #8 September Total ACE, JCP&L, and RECO Awarded, Contracted, and Installed Capacity (MW) Awarded is capacity selected at solicitations, contracted is capacity that signs contract and pays deposit, installed is capacity that is installed 6DRAFT

PSE&G Awarded, Contracted, and Installed Capacity (MW) Solar Loan I (SL I)Solar Loan II (SL II)Solar for All Energy YearAwardedContractedInstalledAwardedContractedInstalledAwardedContractedInstalled Total Awarded is capacity approved for loan, contracted is capacity that signs contract, installed is capacity that is installed 7DRAFT

Pipeline Success Rates 8 DRAFT There are still projects moving through the pipeline. Project contract to install takes about one year. The overall pipeline success rate is difficult to ascertain until all of data for the program is available. Because projects are still in the pipieline, ongoing project data will be needed from the EDCs to complete the analysis. These numbers will be revised as additional project data is received from the EDCs.

Solicitation Results MW SolicitedNumber of Bids Received Number of Projects Awarded SolicitationACEJCP&LREACEJCP&LREACEJCP&LRE #1 (August 2009) #2 (December 2009) #3 (March 2010) #4 (June 2010) #5 (October 2010) #6 (February 2011) #7 (June 2011) #8 (September 2011) Total DRAFT

MW AwardedMW Contracted Weighted Average Awarded Bid Price ($/SREC) SolicitationACEJCP&LREACEJCP&LREACEJCP&LRE #1 (August 2009) N/A$384N/A #2 (December 2009) $372$382$460 #3 (March 2010) $422N/A #4 (June 2010) $431$449N/A #5 (October 2010) $463$452$456 #6 (February 2011) $424$379$454 #7 (June 2011) $322$264$335 #8 (September 2011) $213$215 Total $372$368$382 Solicitation Results The ACE reported awarded capacity was MW for solicitation #7 (June 2011), but NERA records show the capacity as MW. The NERA value is used. As of the date the data was requested, the 45-day waiting period for the September 2011 solicitation had not expired yet. CEEEP has requested updated data from the utilities. The total weighted average awarded bid price is the weighted average of all awarded projects The weighted average awarded bid price has been redacted when there is only one project due to confidentiality concerns. 10 DRAFT

Weighted Average Awarded Bid Price Vertical axis of graph does not start at zero. Some data has been redacted due to confidentiality concerns. 11DRAFT

EDC Weighted Average Awarded Bid Price vs PSE&G Floor Price Small Non-Res <=150 kW, Large Non-Res = kW 12DRAFT

Auction Results Number of SRECs Auctioned AuctionACEJCP&LREPSEG* (Solar Loan Programs) Weighted Average SREC Auction Price #1 (February 2010) N/A 2,800$ #2 (July 2010) N/A 5,750$ #3 (October 2010) N/A 5,841$ #4 (April 2011) ,427$ #5 (July 2011) 4041,528235,710$ #6 (August 2011) ,110$ #7 (October 2011) 9153, ,747$ Total 1,8396, ,385 ACEJCP&LREPSE&G Overall Weighted Average Auction Price $372.48$366.17$324.09$ *Solar Loan I and Solar Loan II PSE&G auctioned 1,352 SRECs in August DRAFT

Auction Prices and Auction Proceeds Auctioned SRECsAuction Proceeds Energy Year ACEJCP&LREPSEGACEJCP&LREPSEG ,152$0 $2,849, ,018$126,571$388,420$10,045$11,475, ,6505, ,657$558,430$1,822,889$37,920$6,186,234 Total1,8396, ,827$685,001$2,211,309$47,965$20,510,829 AuctionSREC Auction PriceFlett Exchange Monthly Average Price #1 (February 2010)$685$663 #2 (July 2010)$688$677 #3 (October 2010)$665$647 #4 (April 2011)$670$655 #5 (July 2011)$475 (EY11) $480 (EY10) $561 (EY11) $546 (EY10) #6 (August 2011)$480 (EY11)$501 #7 (October 2011)$227 (EY12) $669 (EY11) $216 (EY12) $623 (EY11) Auction Proceeds are determined using the auction bid clearing prices from each round Auction results from: auction.com/index.cfm?s=background&p=previousR esultshttp:// auction.com/index.cfm?s=background&p=previousR esults Flett Exchange Monthly Average prices were calculated based on data from DRAFT

Auction Prices vs Flett Exchange SREC Market Prices Flett Exchange does not report the volume of transactions and, when no transactions occur, the offered price is reported. 15DRAFT

NERA Solicitation Manager Costs Energy YearACEJCP&LRE 2010$237,220$584,014$47, $164,680$542,345$46, $222,226$390,863$35,078 Total$624,126$1,517,222$128,854 NERA Auction Manager Costs Energy YearACEJCP&LRE 2010$0 2011$4,038$3,302$2, $2,138$16,037$4,854 Total$6,176$19,339$6,929 Internal Utility Admin Costs Energy YearACEJCP&LRE 2010$31,356$65,954$ $55,120$82,995$12, $24,881$58,063$9,631 Total$111,357$207,012$22,910 EDC Program Administration Costs (ACE, JC, RE) Please note that the internal utility admin costs that are presented here were provided by the EDCs. Other costs associated with the Solar Long-term contracting program may be provided in rate base. Program Administration Costs include NERA solicitation management costs, NERA auction management costs, and internal utility administrative costs. 16DRAFT

Total Admin CostsTotal Contracted SRECs (10 years) Total Admin Costs/Contracted SRECs ACE$741,659239,393$3.10 JCP&L$1,743,573540,842$3.22 RE$158,69347,752$3.32 PSE&G SLP I$2,902,018387,788$7.48 PSE&G SLP II$2,220,218165,748$13.40 PSE&G Average$9.25 EDC Program Administration Costs per Contracted SREC 17DRAFT

Solicitation-Related Costs The Solicitation-related Costs are the cost associated with running the solicitation or loan program. Solicitation-related costs include NERA’s costs to run the solicitations, the internal utility administrative costs related to the solicitations, and “other” costs (PJM-GATS registration costs for Rockland Electric). Internal utility administrative cost was distributed between solicitation and auction at the same percentage as the reported NERA costs. For PSE&G, it was assumed to be 95%. The total solicitation costs were divided by the total SRECs contracted over the term of the contracts. All projects in the solicitation program were assumed to have 10 year terms. The PSE&G Residential program has a loan period of 10 years, but the Commercial loans have 15 year terms. 18 DRAFT High PSE&G SL II cost is due to very small number of SRECs for 2010

Auction-Related Costs The Auction-related Costs are the cost associated with running the auction. Auction-related costs include NERA’s costs to run the auctions and the utility administrative costs related to the auction. Internal utility administrative cost was distributed between solicitation and auction at the same percentage as the reported NERA costs. For PSE&G, it was assumed that 5% of internal admin costs were devoted to auction. Instead of using the total SRECs over the 10 year term of the solicitations, only the SRECs contracted in the actual energy year of the auction were considered. The NERA auction costs reported by the EDCs are being reexamined, so we are not reporting the auction-related costs at this time. 19 DRAFT

“SREC Transaction Fee” As defined in the Program Stipulations, the EDC’s “will collect a fee, referred to as an "SREC Transaction Fee", for each SREC that is procured and subsequently sold pursuant to the Program.” PSE&G Solar Loan Programs do not have “SREC Transaction Fee”. 20DRAFT

Total Combined Costs is the summation of the total solicitation-related costs, total auction-related costs, and the “SREC Transaction Fees”. It is important to remember that not all of the data is available on the programs since there are still projects in the pipeline. Since the NERA auction costs reported by the EDCs are being reexamined, we are not reporting the total costs at this time. Total Costs per Contracted SREC Compared High PSE&G SL II cost is due to very small number of SRECs for DRAFT

SREC Auction Proceeds are uncertain due to unknown future SREC prices. Does not include any environmental benefits of solar, the impacts on the transmission and distribution system, or any other costs or benefits of solar other than those directly related to the EDC Solar Long term Contract Program. Ratepayer Exposure for Long-term Financing Programs Only Ratepayer Exposure is not for the overall SREC Program, but only for the Long-term financing Program. 22DRAFT

Ratepayer Exposure for Long-term Financing Programs Only A: Solicitation Obligations are the summation of total SRECs contracted over the contract term multiplied by the SREC price awarded. B: Various Program Costs including NERA’s solicitation and auction management costs, internal utility administrative costs, “other costs” (PJM-GATS registration fees), and “SREC Transaction Fees.” C: SREC auction proceeds are difficult to estimate into the future because of the uncertainty of SREC costs in the future. If the solicitation obligations and program costs exceed the auction proceeds then the ratepayer will make a payment. If the solicitation obligations and program costs are less than the auction proceeds then the ratepayer will receive a refund. 23DRAFT

Solicitation Obligations for ACE, JCP&L, and RE Total Contracted SRECsSolicitation Obligations Energy YearACEJCP&LREACEJCP&LRE ,58813,368110$964,176$5,435,400$50, ,86533,2351,758$5,336,812$13,832,566$683, ,93954,0844,775$8,138,521$18,663,067$1,829, ,93954,0844,775$8,138,521$18,663,067$1,829, ,93954,0844,775$8,138,521$18,663,067$1,829, ,93954,0844,775$8,138,521$18,663,067$1,829, ,93954,0844,775$8,138,521$18,663,067$1,829, ,93954,0844,775$8,138,521$18,663,067$1,829, ,93954,0844,775$8,138,521$18,663,067$1,829, ,93954,0844,775$8,138,521$18,663,067$1,829, ,35240,7164,665$7,174,345$13,227,666$1,779, ,07420,8493,017$2,801,709$4,830,501$1,146,439 Total 239,393540,84247,752$81,385,210$186,630,666$18,299,345 Total values are not net present values. 24DRAFT

Solicitation Obligations The total solicitation obligations are estimated by multiplying the incremental SRECs for each year by the weighted average awarded solicitation price for that year and summing them up. The incremental SRECs are Total SRECs – Auctioned SRECs The weighted average bid prices are: Weighted Awarded Average Bid Price ($/SREC) Energy Year ACEJCP&LRE 2010$373$407$ $425$423$ $253$232$380 25DRAFT

Auction Prices and Auction Proceeds Auctioned SRECsAuction Proceeds Energy Year ACEJCP&LREPSEGACEJCP&LREPSEG ,152$0 $2,849, ,018$126,571$388,420$10,045$11,475, ,6505, ,657$558,430$1,822,889$37,920$6,186,234 Total1,8396, ,827$685,001$2,211,309$47,965$20,510,829 AuctionSREC Auction PriceFlett Exchange Monthly Average Price #1 (February 2010)$685$663 (EY10) #2 (July 2010)$688$677 #3 (October 2010)$665$647 #4 (April 2011)$670$655 #5 (July 2011)$475 (EY11) $480 (EY10) $561 (EY11) $546 (EY10) #6 (August 2011)$480 (EY11)$501 #7 (October 2011)$227 (EY12) $669 (EY11) $216 (EY12) $623 (EY11) Auction Proceeds are determined using the auction bid clearing prices from each round Auction results from: auction.com/index.cfm?s=background&p=previousR esultshttp:// auction.com/index.cfm?s=background&p=previousR esults Flett Exchange Monthly Average prices were calculated based on data from DRAFT

Net Ratepayer Refund or Payment for Long-term Financing Programs Only Net Ratepayer Exposure is not for the overall SREC Program, but only for the Long-term financing Programs. Net Ratepayer Refund or Payment = (Proceeds of Remaining SRECs)-(Auction Proceeds)-(Solicitation Obligations) Proceeds of Remaining SRECs = (Total SRECs) - (Auctioned SRECs) X (Value of Remaining SRECs) The value of remaining SRECs were determined under three price scenarios: $200, $400, and SACP. For Solicitation #8, it was assumed that 100% of the awarded capacity would be contracted. This assumption will need to revised at a later date as more project information is available. 27DRAFT

Results/Conclusions for ACE, JCP&L, and RE Net Ratepayer Exposure has not been calculated for PSE&G, but will be in future. Due to projects still being in the pipeline, ongoing data will be needed from EDCs to update results in future. If all remaining SRECs are valued at $200, ratepayers have a total payment of over $125 million. If all remaining SRECs are valued at $400, ratepayers will receive a total refund of over $38 million. If all remaining SRECs are valued at the SACP, ratepayers will receive a total refund of over $167 million. The breakeven SREC price, or the price where the solicitation obligations will be equal to the SREC and auction proceeds, ranges from $345 to $384, depending on the utility. Conclusion: Ratepayer refunds or payments as a result of the program depend almost exclusively on the SREC price that is assumed over the term of the program. Total values are not net present values. 28DRAFT

Scenario 1: SREC Price = $200 Energy YearACEJCP&LRE 2010 ($446,635)($2,761,848)($28,698) 2011 ($2,928,197)($7,689,898)($344,883) 2012 ($4,239,085)($10,760,908)($939,408) 2013 ($3,350,655)($7,846,219)($874,888) 2014 ($3,350,655)($7,846,219)($874,888) 2015 ($3,350,655)($7,846,219)($874,888) 2016 ($3,350,655)($7,846,219)($874,888) 2017 ($3,350,655)($7,846,219)($874,888) 2018 ($3,350,655)($7,846,219)($874,888) 2019 ($3,350,655)($7,846,219)($874,888) 2020 ($2,904,020)($5,084,370)($846,190) 2021 ($586,830)($660,741)($543,050) Total ($34,559,355)($81,881,296)($8,826,443) Net Ratepayer Refund or Payment under Four SREC Price Scenarios Total values are not net present values. 29DRAFT

Scenario 2: SREC Price = $400Scenario 3: SREC Price = SACP Energy YearACEJCP&L RE ACEJCP&LRE 2010 $70,906($88,296)($6,623)$829,103$3,828,457$25, ($393,009)($1,158,810)$3,775$3,092,873$7,821,436$483, $218,780($1,035,860)($10,961)$5,969,427$11,509,452$1,186, $1,437,210$2,970,629$80,159$7,206,588$16,004,931$1,230, $1,437,210$2,970,629$80,159$6,823,559$15,139,583$1,154, $1,437,210$2,970,629$80,159$6,440,530$14,274,236$1,078, $1,437,210$2,970,629$80,159$6,081,440$13,462,972$1,006, $1,437,210$2,970,629$80,159$3,232,660$7,026,947$438, $1,437,210$2,970,629$80,159$2,945,388$6,377,937$380, $1,437,210$2,970,629$80,159$2,658,116$5,728,926$323, $1,366,305$3,058,926$86,782$2,220,370$4,687,585$273, $1,628,048$3,509,019$60,339$1,949,206$4,113,634$147,830 Total $12,951,501$25,079,384$694,424$49,449,258$109,976,096$7,730,148 Net Ratepayer Refund or Payment under Four SREC Price Scenarios Total values are not net present values. 30DRAFT