1. WSPP REC Training A Walk Through The REC Schedule WSPP Webinar August 24, 2011 Arnold Podgorsky WSPP Legal Counsel www.wrightlaw.com

2. © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com2 Background Growing Renewable Portfolio Standards (RPS) requires Renewable Energy Certificate (REC) liquidity –REC trading assists in matching renewable resources with utility needs –REC trading is potentially a business opportunity EC and OC authorized development of Schedule –For incorporation into WSPP Agreement A word about FERC jurisdiction (when REC tied to a power trade) –Development through Contract Subcommittee with broad participation over numerous meetings www.wrightlaw.com2© Wright & Talisman, P.C. All rights reserved.

3. Overview of the Schedule A quick summary of where we are headed today: REC Products (several variants) –Unbundled (RECs alone); bundled (RECs with power) R-2.3 –Various levels of firmness (firm, resource contingent, facility as-run) R-2.3 –Cover all or some Environmental Attributes R-2.4 –Options for allocating risk, to seller or purchaser, of changes in law that occur between deal signing and delivery R-5 © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com3

4. Overview: RECs have Many Variants Remedies for non-performance (LD, and more) R-9 Delivery, acceptance, passage of title, mutual cooperation R-3 Representations and Warranties R-6 Revisions to Confidentiality R-7 Revisions to Uncontrollable Force R-8 Housekeeping R-10 And then we’ll sum it up again © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com4

5. REC Product Characteristics Level 1: Product Definitions Firm REC/Firm Bundled REC R-2.3.1, 2.3.2 –REC, or REC and energy, must be delivered except for Uncontrollable Force; non-performance damages available under R-9. Energy delivered under Service Schedule C. Resource Contingent REC/Resource Contingent Bundled REC R-2.3.3, 2.3.4 –REC, or REC and energy, must be delivered except for UF, Forced Outage, Scheduled Maintenance, or Fuel Impediment (too much/little wind, sun…) of unit in confirmation (Renewable Energy Facility). Non-production is allocated among all recipients. Energy delivered under Service Schedule B. © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com5

6. REC Product Descriptions Facility As-Run REC/Facility As-Run Bundled REC R-2.3.5, 2.3.6 –REC, or REC and Energy, must be delivered only to extent of the designated REF’s energy production (no running obligation); non-production is allocated. In bundled RECs, Energy delivered under existing service schedules (C for firm, B for resource contingent, A for as-run), with a few modifications to B and A –B-3.8 would make Purchaser’s reduction applicable to the REC requirement and consistent with RO obligations, and add a requirement that Seller inform Purchaser of Scheduled Maintenance R-2.3.4(b) –B-3.9 would tie a schedule reduction to an associated REC requirement; might add a Seller notification requirement © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com6

7. REC Product Descriptions In bundled RECs, Energy delivered under existing service schedules (C for firm, B for resource contingent, A for as-run, with a few modifications to B and A –B-3.8 would make Purchaser’s reduction applicable to the REC requirement and consistent with RO obligations, and add a requirement that Seller inform Purchaser of Scheduled Maintenance R-2.3.4(b) –B-3.9 would tie a schedule reduction to an associated REC requirement; might add a Seller notification requirement © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com7

8. Defining Covered Environmental Attributes Level 2: Defining Environmental Attributes Conveyed By the REC Once the REC Product is selected, the covered EAs need to be defined –All Attributes R-2.4.1 Conveys all EAs of the REF or Renewable Energy Source (wind, sun, etc. source is designated, but not a plant) –EAs must meet the requirements of the designed Applicable Program (a Federal, State, or voluntary program) –Other EAs are not conveyed (retained by Seller) –All Attributes is default, if Confirmation does not designate one or other. R-2.4 © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com8

9. Defining Covered Environmental Attributes Program Attributes R-2.4.2 –Conveys the RECs required to be covered by the Applicable Program designated in the Confirmation. –Other Environmental Attributes (whether recognized now or not), are retained by the Seller. Designating an Applicable Program –For Program Attributes, an Applicable Program must be designated –For All Attributes, it should be designated to obtain the minimum attributes for that program Designating resources –For All Attributes, a Renewable Energy Facility or a Renewable Energy Resource (sun, wind, etc.) must be designated © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com9

10. Allocating Risk of Changes in Law Level 3: Allocating Risk of Change in Law to Designated Applicable Program R-5.2 Applies –to changed in law between making the deal and delivery –only if an Applicable Program is designated Options: –“Regulatorily Continuing”- REC and EAs conform to the Applicable Program on deal date (Effective Date) and Transfer Date, so Seller takes risk of CoL Seller required to fix non-compliance, subject to any agreed expenditure cap If REC declined, but energy was received, Purchaser pays for energy –“Not Regulatorily Continuing” – REC and EAs conform to Applicable Program at deal date but not necessarily after; Purchaser takes risk of CoL © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com10

11. Remedies: Damages Level 4: Damages, Capping Reimbursement of Penalties and Alternative Compliance Payments Unbundled R-9.1.1 –Purchaser fails to receive, he pays: Resale Price less Contract Price x undelivered Contract Quantity –Seller fails to deliver, he pays: Replacement Price less Contract Price x undelivered Contract Quantity plus penalties and alternative compliance payments subject to limits stated in the Confirmation © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com11

12. Remedies: Damages Bundled: –When price is not allocated between REC/Energy R-9.1.2(a) Purchaser fails to receive, he pays Contract Price less Resale Price x undelivered Contract Quantity, plus transmission costs incurred. –If Purchaser declined REC (but not energy), Purchaser pays for energy at the energy Resale Price. –If P declined energy (but not REC), P pays for REC at Contract Price less REC Resale Price [draft has a glitch on this] Seller fails to deliver, he pays Replacement Price less Contract Price x undelivered Contract Quantity, plus transmission costs incurred, plus penalties and alternative compliance payments subject to limits stated in the Confirmation. –If Seller delivers energy but not REC, no payment for energy is required (assumed the energy was not green) © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com12

13. Remedies: Damages --When price is allocated between REC/Energy R-9.1.2(b) Purchaser refuses to accept REC, pays Resale Price less Contract Price Seller fails to deliver REC, pays Replacement Price less Contract Price Purchaser refused to receive energy, pays Resale Price less Contract Price Seller fails to deliver energy, pays Replacement Price less Contract Price Injunction: allowed, due to reputation concerns R-9.2 © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com13

14. Other Terms Level 5: Other Terms Confirmation terms R-2-2 plus others –REC Product, Contract Quantity, Contract Price, Vintage (generation period) or Term of REC (generation period), Transfer Date for REC, Environmental Attributes –Possible allocation of price –Designate Renewable Energy Facility or Source –Designate a Tracking System © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com14

15. Delivery, Acceptance, and Title Delivery R-3.1.1 (Unbundled) R-3.1.2 (Bundled) –Transfer from Seller to Purchaser of Contract Quantity –Seller causes Tracking System to cause transfer, or transfer by Attestation Acceptance R-3.1.2 –Upon Purchaser’s written confirmation to Seller of receipt in its account via Tracking System or acceptance of Attestation; Energy upon receipt at the delivery point Title R-3.1.3 –Unbundled REC, title to REC passes upon Delivery and Acceptance –Bundled, passes upon generation of each megawatt, unless of prior vintage, which passes upon agreed date © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com15

16. Cooperation; Conveyance/Transfer Seller actions R-3.3.1 –Seller to provide generation information to Seller, initiate with Tracking System and provide it with information, expedite if Confirmation provides Tracking System Failure to issue R-3.3.2 –Each Party provides other with all documents and communications, cooperate to achieve issuance; if efforts fail Seller to provide Attestation Conveyance and Transfer R-3.4 –As of Delivery and title passage, Seller must transfer and convey all rights, title, interest in the REC, and all Reporting Rights, free and clear, etc. © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com16

17. Representations and Warranties Seller has title to convey, free and clear R-6.1 The REC and EAs confirm to the REC Transaction R-6.2 If Regulatory Continuing, it conforms to Applicable Program as of Effective Date and Delivery; if Not Reg Continuing, then as of Effective Date R-6.3, R-6.4 Bundled RECs include the reps and warranties of WSPP Agreement 33. R-6.5 Other warranties are disclaimed. © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com17

18. Records; Confidentiality Records to be corrected to accuracy, and payments adjusted R-7.1 Exceptions to confidentiality R-7.2 –Purchaser can disclose to a Governmental Authority information required to prove up the REC, provided Purchaser takes steps to preserve confidentiality © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com18

19. Uncontrollable Force Section 10 is conformed to include RECs R-8 Non-production for REC due to UF is allocated in order of Firm, Resource Contingent, As-Run, among purchasers proportionately to their respective entitlements © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com19

20. Undecided Issues We look forward to discussion of any issues members may raise; at a minimum, the following are open –Scheduling: in Resource Contingent Bundled, Seller’s obligation to timely inform of Scheduled Maintenance R-2.3.4 (Some believe the obligation is prudent; some do not want to change Schedules) –Scheduling: in Facility As-Run Bundled: Modify A to provide for limit of time for both Purchaser and Seller to notify of schedule changes R-2.3.6(b) –That a transaction is Regulatory Continuing unless specified as Not R-5.2.2 –If Seller cannot meet obligation to address Change of Law, and Purchaser declines REC, does Seller pay damages? –Injunction with damages? © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com20

21. More on the tour…. Annex 1 is Definitions- they matter Annex 2 is a simple form of confirmation for unbundled (yes, we need one for bundled) Annex 3 is a template for Attestation Annex 4 is under construction- terms and phrases required under California law © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com21

22. A Recap in Building a REC Level 1: Select a REC Product –REC alone: firm, resource contingent, facility as-run –REC and energy: same choices –Resource Contingent and As-Run require designation of Renewable Energy Facility (Plant) Level 2: Select Environmental Attributes –All Attributes; Program Attributes –Either one, you need to designate the Applicable Program –Either one, you need to designate the REF or Renewable Energy Resource Level 3: Allocate Change in Law Risk –Regulatorily Continuing (Seller guarantees – what mean? – against Applicable Program changes between deal date and delivery) Parties can cap costs of Seller’s obligation –Not Regulatory Continuing (Seller guarantees compliance with Applicable Program only on deal date) © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com22

23. A Recap in Building a REC Level 4: Damages, Capping Reimbursement of Penalties and Alternative Compliance Payments Level 5: Other terms: REC Product, Contract Quantity, Contract Price, Vintage (generation period) or Term of REC (generation period), Transfer Date for REC, Environmental Attributes; possible allocation of price; designate Renewable Energy Facility or Source; designate a Tracking System See the Confirmation Form In time remaining, let’s take questions but possibly hold discussion for next session © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com23

24. Thanks for your patience And your attention to these details © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com24

25. © Wright & Talisman, P.C. All rights reserved.www.wrightlaw.com25 Contact For more information, please contact: Arnold Podgorsky podgorsky@wrightlaw.com 202-393-1200 (O) 703-217-1827 (Mobile) www.wrightlaw.com25© Wright & Talisman, P.C. All rights reserved.