RENEWABLE ENERGY PROCUREMENT February 6, 2007

2 PROGRAM OVERVIEW In 2002, just 1% (141,026 MWh) of SDG&E’s portfolio was from renewables. In 2002, SDG&E issued its first Renewable Request for Offers and has issued renewable Request for Offers every year since purchases from renewables was 5.6% (894,735 MWh) 2007 purchases from renewables projected to be 6.4% (1,074,562 MWh).

3 PROGRAM OVERVIEW SDG&E is in the process of finalizing several additional contracts from its 2005 RFO. In November 2006, SDG&E filed 4 contracts for CPUC approval that will add just under 4% to its 2010 renewable portfolio. As of Feb 2007, SDG&E has contracted for approximately 17% of 2010 energy needs from renewables. SDG&E is attempting to finalize several other negotiations that could increase this total.

4 EXPECTED RENEWABLE RESOURCE MIX SDG&E Projected 2010 Renewable Portfolio 17% Renewable SDG&E Projected 2007 Renewable Portfolio 6.4% Renewable

5 SDG&E Renewables Status

6 MAJOR ISSUES Procurement on Schedule for 20% Target –17% currently under contract for 2010 delivery –Additional contracts in final negotiations –Shortlist for 2006 RFO submitted to CPUC on January 17, 2007 Portfolio Costs for commitments made to date less than “Market Referent Price” However, prices are generally increasing Uncertainty with transmission Regulatory process

7 Near-Term Action Items Solicitations –Negotiate with Shortlist from 2006 RFO Deadline to submit contracts for CPUC Approval: July 9, 2007 –Prepare to issue 2007 RFO CPUC currently finalizing solicitation schedule Work with Federal Government to extend Production Tax Credits and Investment Tax Credits for up to 5 years

8 Legislative/Regulatory Actions That Can Foster Renewable Procurement Un-complicate the Regulatory Process –Shortened approval process would increase probability that new renewable projects can be built. Currently it takes 6 months or longer to move contracts through the regulatory approval process If SEP funding is required, this process can take significantly longer (no project has yet received SEP funding; major question about financeability). Delay significantly increases risk that cost to build will increase and make project non-financeable at negotiated price SEP funding has not to date proven to be a useful tool –Should consider: Maintain MPR as reasonable target but not make public to non-IOU entities until after negotiations concluded. Eliminate SEP funding and return non-bypassable portion of funding to each of the respective IOU customers. Allow utilities to voluntarily sign desirable project above MPR with CPUC approval.

9 Legislative/Regulatory Actions That Can Foster Renewable Procurement Support and Expedite Transmission Facilities necessary to bring new renewables to market Allow unbundled REC trading –No reason to delay beyond when WREGIS is operational –Would foster increase in renewable procurement –Could help sustain existing projects –RECs do not exist in significant amounts to impede new development