2. BIDDERS CONFERENCE March 17, 2008 2008 SOLICITATION RENEWABLES PORTFOLIO STANDARD

3. 1 Agenda  Introduction  Commercial Overview  Shortlisting Evaluation Methodology  Transmission Ranking Costs  Interconnection Process  Solicitation Documents  Q & A

4. 2 Commercial Overview

5. 3 New for 2008  Short-term solicitation—offers as short as 1 month  Minimum size increased from 1 MW to 1.5 MW  Reduced delivery term security  Single contract price: Eliminate SEPs  Updated Non-Modifiable Terms  Option for PG&E as Scheduling Coordinator  Eliminate debt equivalence  New process for small generator interconnection <=20 mw

6. 4 Highlights  Eligible resources  Target volumes  Products  Delivery profiles  Delivery term  Project location & delivery point  Independent Evaluator

7. 5 RFO Schedule DATEEVENT March 17, 2008Bidders Conference TBD in April, 2008Bidder workshop – forms, Q&A May 12, 2008 5 p.m.Deadline to submit Offer(s) July 1, 2008Shortlist notification July 9, 2008Offer deposits due from shortlisted bidders July 15, 2008PG&E submits Shortlist to PRG and CPUC TBDCPUC issues Market Price Referent (“MPR”) By December 31, 2008 Negotiate and execute Agreements; PG&E submits Agreements for Regulatory Approval See Section II of the Solicitation Protocol

8. 6 Power Purchase and Sale Agreement (PPA) Offer Variations  Up to six discrete Offers for a PPA for each Project. Offers may vary by:  Size  Commercial Operation Date  Delivery Term  Generation Profile  Credit Terms  Pricing variations  With and without PTC/ITC  If not already in price, premium for delivery to CAISO See Section VIII of the Solicitation Protocol

9. 7 Ownership Offers  PPA with Buyout Option  Turnkey Ownership - Participants may propose to develop, permit, and construct a facility for purchase by PG&E upon commercial operation  Site Offers  For development or expansion by PG&E See Section III and Attachments I and J of the Solicitation Protocol

10. 8 PPA Contracts  Three Forms of PPA  As-Available (Whether or not eligible to participate in EIRP)  Baseload, Peaking, or Dispatchable  Short-term contract less than 5 years from existing ERR EIRP is Eligible Intermittent Resource Program

11. 9 PPA Key Commercial Terms  Contract Price is $/MWh (all-in) for all products except:  Dispatchable - $/kW-year for capacity, $/MWh for energy  Delivery Point is NP15, SP15, ZP26, anywhere else in California, or out-of-state  Minimum performance criteria apply to all products  Seller receives Contract Price as adjusted by TOD Factors  Certain non-modifiable terms (highlighted in PPAs)  Seller is or hires its own Scheduling Coordinator or equivalent, or can ask PG&E to be SC See Attachments G and H of the Solicitation Protocol

12. 10 Time of Delivery (TOD) Factors  As-Available  Payment = Contract Price * TOD Factor * MWh  Baseload, Peaking  Payment = Contract Price * TOD Factor * MWh Reductions for not meeting minimum performance  Short-term ERRs may price without TOD Monthly PeriodSuper-PeakShoulderNight Jun – Sep2.011.140.72 Oct.- Dec., Jan. & Feb.1.090.960.78 Mar.– May1.130.860.63 See Section IX of the Solicitation Protocol

13. 11 Short-Term PPA Key Commercial Terms (offers less than 5 years from existing resources)  Contract Price is $/MWh (all-in)  Price may be fixed $/mwh or  Index price (e.g. NP15, COB) + $/mwh adjustment  Seller may propose price with or without TOD factors  No bid deposit or exclusive negotiations required  Relaxed performance requirements See Attachment M of the Solicitation Protocol

14. 12 Credit  Offer Deposit of $3/kW upon Shortlisting  Following CPUC Approval, Project Development Security of $20/kW * capacity factor (minimum of $10/kW)  Upon commercial operation, Delivery Term Security:  Offer Deposit and Project Development Security – cash or Letter of Credit  Delivery Term Security – cash, Letter of Credit, or acceptable guaranty Term10 years15 years20 years Months Revenue6912 See Sections V and VII of the Solicitation Protocol

15. 13 Credit—Short Term Offers See Sections XX of the Solicitation Protocol TermNew ERRsExisting ERRs Less than 1 year Project Development Security: None Delivery Term Security: None Pre-Delivery Term Security: None Delivery Term Security: None One year or greater, but less than 5 years Project Development Security: $5/kw Delivery Term Security: 3 months revenue Pre-Delivery Term Security: $3/kw Delivery Term Security: 3 months revenue 5 years or greater, but less than 8 years Project Development Security: $10/kw Delivery Term Security: 4 months revenue Pre-Delivery Term Security: $5/kw Delivery Term Security: 4 months revenue 8 years or greater, but less than 10 years Project Development Security: $10/kw Delivery Term Security: 5 months revenue Pre-Delivery Term Security: $5/kw Delivery Term Security: 5 months revenue

16. 14 CEC Requirements  RPS Eligible Renewable Energy Resources (ERR) must be CEC Certified  CEC Pre-Certification should be obtained prior to construction start  ERRs must participate in CEC Generation Tracking System (WREGIS)  See updated guidebooks at: http://www.energy.ca.gov/renewables/documents/ See Section IV of the Solicitation Protocol

17. 15 Resources less than 1.5 MW  Not part of RPS solicitation  Standard tariff available to all eligible renewable resources at http:// www.pge.com/b2b/energysupply/wholesaleelectricsuppliersolicitation/ standardcontractsforpurchase  Term up to 20 years  Price set at Market Price Referent  Based on combined cycle cost  Determined by CPUC on an annual basis  Levelized price depends on contract term and online date

18. 16 Shortlisting Evaluation Methodology

19. 17 Evaluation Criteria  Ranking based on combination of Quantitative and Qualitative factors  Quantitative Evaluation  Market Valuation  Transmission Adders  Qualitative Evaluation  Portfolio Fit  Credit  Project Viability  Consistency with RPS Goals  Modifications to Form Agreements See Section XI and Attachment K of the Solicitation Protocol

20. 18 Market Valuation  Market-Based Valuation  Value of contract is capacity plus the net of the energy benefit and cost.  The energy benefit is computed using market prices, volatilities, and correlations.  Capacity value is based on: the net economic carrying cost of a new combustion turbine contribution to PG&E’s Resource Adequacy requirements.  As-Available Contracts  Contract benefit is evaluated based on (deterministic) market forward prices, but with variable quantity, and the value of capacity.  Cost is calculated as energy generation times offer price times TOD factors for each period.

21. 19 Market Valuation (continued)  Baseload, Peaking Contracts  Contract benefit is evaluated based on (deterministic) market forward prices and the value of capacity.  Cost is calculated as energy generation times offer price times TOD factors for each period.  Dispatchable Contracts  Contract is evaluated as call option on energy. Benefit is the value of capacity and the expected value of energy.  Cost is the energy generation times the expected offer price, plus a capacity charge distributed monthly by a Time of Availability factor.

22. 20 Portfolio Fit  Differentiates offers by the firmness of their energy delivery and by their energy delivery patterns  Firmness (predictability) is preferred  Delivery when PG&E is short is preferred  Dispatchability is preferred

23. 21 Credit  Performance Assurance  Project Development Security  Delivery Term Security

24. 22 Project Viability  Project Status  Permits  Site Control  Equipment  Technology Viability and Participant Experience  Resource Risk  Historical Commercial Data  Participant Experience  Transmission Studies  Financing  Design/Construction

25. 23 Consistency with RPS Goals  CPUC-stated Goals  Legislative Findings  Governor ’ s Order on biomass  Impact on Water Quality  PG&E ’ s Supplier Diversity (WMDVBe)

26. 24 First Ranking  Shortlist rankings are relative  No fixed cut-off price  No fixed procurement limit  Based on quantitative and qualitative factors  First ranking done on the basis of market value with adjustments for qualitative criteria  Then, introduce transmission adders

27. 25 Transmission Adder - “the lower of”  Use “the lower of” the result of the Transmission Ranking Cost Report or Alternative Commercial Arrangements (remarketing, swaps, or as-available transmission)  When no Alternative Commercial Arrangement is feasible, and no transmission study results are available, use the TRCR

28. 26 Second Ranking  Market Valuation is adjusted for Transmission Adders, resulting in a Net Value  Offers are re-ranked, just like first ranking, but using the new Net Value instead of Market Value  Ranking is a relative one  Offers strong relative to others will be near the top  Offers weak relative to others will be closer to the bottom  Shortlist will err on side of greater inclusion

29. 27 Consultation with PRG and IE  Discuss proposed shortlist and evaluation methodology  Solicit feedback on whether certain offers should be included and whether certain offers should be excluded  Incorporate feedback and finalize shortlist

30. 28 Transmission Ranking Costs

31. 29  Pursuant to D.04-06-013 and D. 05-07-040  Generator Cost responsibility - Include in bid price  Direct Assignment Facilities (Gen-tie)  Identify if desire PG&E to evaluate potential for sharing  Wheeling Charges to Delivery Point  Customer Cost Responsibility – Considered in bid evaluation  Network Upgrades  Costs estimates from  CAISO Interconnection Process (ISIS/IFAS)  Transmission Ranking Cost Report Consideration of Transmission Cost in Bid Ranking See Section X of the Solicitation Protocol

32. 30 Transmission Ranking Cost  For Projects that have not completed the ISIS/IFAS  Solely for bid ranking in this solicitation  Based on proxy transmission facilities  Successful bidders must complete the ISO Interconnection Process Alternative Commercial Arrangements covered in Shortlist Evaluation Methodology – not part of Transmission Section

33. 31  Clusters for Bid Evaluation Purposes only  Clusters do not have to be Points of Interconnection  Out of area resources:  North:Round Mountain  South:Midway  East: Summit PG&E Substations Associated with Renewable Resource Clusters Oregon California Malin Captain Jack Gates Diablo Canyon Tracy Southern California Edison (SCE) Vincent Sylmar Tesla Newark Vaca-Dixon Round Mt. Metcalf Olinda Pacific Gas and Electric Co. (PG&E) Cottonwood Fulton Panoche Midway Bellota Wilson Gregg Helm Summit Table Mt. Rio Oso Los Banos Caribou Delta Metering Station Pit 1 Morro Bay Renewable resource cluster Stagg

34. 32 Ways to avoid triggering Next Level of Transmission Ranking Cost Attachment D to the Protocol  Energy Pricing Sheet  Optional “Dispatch Down Provision” * Specify the MW of curtailable capacity  Gen Profile Sheet  Generation profile that does not trigger transmission upgrades  Forecast of average-day net output energy production, in MW by hour, by month and by year * This provision is optional and is supplemental to the standard Dispatch Down provision.

35. 33 Table X.1 Transmission Ranking Cost Where PG&E is the Purchaser Substation Associated With Cluster of Potential Generation Level Peak and ShoulderNightBase Load and As Available Year Round Maximum MW of Potential Generation In each Level Cost of Proxy Network Upgrades to accommodate MW Level of Potential Generation ($ millions in 2007 dollars) Maximum MW of Potential Generation In each Level Cost of Proxy Network Upgrades to accommodate MW Level of Potential Generation ($ millions in 2007 dollars) Maximum MW of Potential Generation In each Level Cost of Proxy Network Upgrades to accommodate MW Level of Potential Generation ($ millions in 2007 dollars) Proxy Voltage Support Devices* Other Proxy Transmission upgrades Proxy Voltage Support Devices* Other Proxy Transmission upgrades Proxy Voltage Support Devices* Other Proxy Transmission upgrades Fulton 230 kV 1750490300200300200 220013162001316 * Cost of Proxy Voltage Support Devices are to be prorated in proportion to the size of the project.

36. 34 Example Two Offers received: A:250 MW (base load) B:250 MW (base load) Offer A ranks higher than Offer B Transmission Ranking Cost to be used in Evaluation “In ranking RPS bids, PG&E, SCE, and SDG&E shall each allocate costs of transmission upgrades that would be used by more than one RPS project on a pro rata basis, based on the percentage of transfer capacity added by the proposed upgrade that would be used by the RPS project: This pro rata allocation of upgrade costs shall be applied only if sufficient renewables potential exists, as identified by the California Energy Commission, to fully utilize the transmission facility sometime in the future." OfferLevelGen Capacity (MW) Proxy VAR Support ($Million/MW) Other Proxy Network Upgrades ($Million) A12500.0650 B1500.0650 B22000.06516

37. 35 Interconnection Process

38. 36 Generation Interconnection Study Process  Interconnection process must be complete in order for generator to deliver power to the grid and meet obligations of RPS contract  Generator responsible for all generation interconnection costs  Generator responsible for timely applications with CAISO and timely completion of the process  Not part of RPS Solicitation  Process should be started early

39. 37 Generation Interconnection Study Process  Transmission Interconnections  All Applications must be submitted with the CAISO  Generators less than or equal to 20 MW, Small Generator Interconnection Procedures (SGIP)  Generators greater than 20 MW, follow Large Generator Interconnection Procedures (LGIP)  Information on the SGIP and LGIP found on CAISO Website, http://www.caiso.com/docs/2002/06/11/2002061110300427214.html  Distribution Interconnections  Follow Attachment E of WDT http://www.pge.com/mybusiness/customerservice/nonpgeutility/ge nerateownpower/wholesaleinterconn/

40. 38 Small Generator Interconnection Procedures (SGIP) Interconnection Request (IR) Interconnection Feasibility Study (IFS) Interconnection System Impact Study (ISIS) Interconnection Facilities Study (IFAS) Interconnection Agreement (SGIA) Study Process (30 BD) Study Process (45 BD) Negotiation (30 BD) Cumulative time >= 6 months

41. 39 Large Generator Interconnection Procedures (LGIP) Interconnection Request (IR) Interconnection Feasibility Study (IFS) Interconnection System Impact Study (ISIS) Interconnection Facilities Study (IFAS) Interconnection Agreement (LGIA) Study Process (60 CD) Study Process (120 CD) Negotiation (60 CD) Cumulative time >= 1 Year

42. 40 Solicitation Documents

43. 41 Offer Submittal  Offers must be received by PG&E by Thursday, May 12, 2008 at 5 p.m. (PDT)  Both Electronic and Hard Copies  Electronic copies - two (2) compact discs (CDs)  Hard copies (5 Bound & 1 Unbound) delivered to: RPS Solicitation Electric Supply Department Pacific Gas & Electric Company 245 Market Street, 13 th floor San Francisco, CA 94105

44. 42 Information due May 12  Signed RPS Solicitation Protocol Agreement (Attachment A)  Fully Completed Offer Form (Attachment D)  FERC Order 2004 Waiver (Attachment F)  Applicable Form of PPA (Attachments G, H or M), including proposed modifications  Buyout Offers must also include a fully completed term sheet (Attachment I) in addition to PPA  Ownership Offers must include a fully completed term sheet (Attachment J) instead of a PPA See Section VIII.C. of the Solicitation Protocol

45. 43 Information due May 12  Project Description (includes, but is not limited to):  Technology and equipment type  Environmental issues and permit status  Project Viability  Community Development Plans  Contribution to RPS Goals  Site Control  Milestone Schedule  Transmission/Interconnection  Experience and Qualifications  Supplemental CEC Funding  Support of RPS Goals See Section VIII.C. of the Solicitation Protocol

46. 44 Additional forms if Shortlisted  Within 5 business days  Offer Deposit  Confidentiality Agreement (Attachment L)  Credit and Finance Information Form (Attachment E) See Section XIV of the Solicitation Protocol

47. 45 Communications and Website  All RFO documents are available on PG&E’s website at: www.pge.com/rfo and click on 2008 Renewable RFO, or paste and bookmark the following in your browser: http://www.pge.com/b2b/energysupply/wholesaleelect ricsuppliersolicitation/renewables2008.html  All announcements, updates and Q&As will also be posted on the website  Communications should be directed to: RenewableRFO@pge.com RenewableRFO@pge.com See Section I of the Solicitation Protocol

48. 46 Q & A