1. SOUTHERN CALIFORNIA EDISON SM REC cost estimation April 23, 2010 Eric Lavik

2. SOUTHERN CALIFORNIA EDISON SM Page 2 2009 Renewable RFP Proposal Conference Agenda Overview Valuation components and calculation Relation to other proposals/comments

3. SOUTHERN CALIFORNIA EDISON SM Page 3 2009 Renewable RFP Proposal Conference Overview Objective: –Infer the cost of RECs from a transaction containing RECs and other products in a manner that is consistent with procurement decisions being made by the utilities Assumption: –Residual cost of a contract (e.g., the cost in excess of the avoided brown energy and capacity benefits) is being incurred due to the RPS Proposal: –Use solicitation valuation results from each utility to calculate the levelized nominal premium per MWh Valuation methodologies undergo review and approval by the CPUC and are subsequently reviewed by the PRG and an Independent Evaluator during implementation Consistent components and valuation methodology with solicitation approach, limiting any potential product biasing due to implementation of a secondary valuation approach –Valuation components included in the calculation are as described on the following slide

4. SOUTHERN CALIFORNIA EDISON SM Page 4 2009 Renewable RFP Proposal Conference Valuation Components {Levelized Costs} – {Levelized Benefits} = REC cost in $/MWh Levelized Costs Contract Payments Based on the confidential contract price, contract specific time-of-delivery factors, expected generation profile and contract term Transmission Cost Cost to deliver energy to point specified for energy/capacity valuation Debt Equivalence Mitigation Expense Cost of mitigating contract commitments on SCE’s balance sheet per CPUC approved methodology Integration Cost Deemed to be $0/MWh per D.04-07-029 REC cost estimation should be consistent with CPUC valuation methodology Levelized Benefits Energy Value Based on each utility’s proprietary energy price forecast, which consistently forecasts energy values throughout the WECC (including California) The availability and validity of alternative, public forecasts is limited 1 Capacity Value Due to the various delivery points and proposed contract structures, each proposal should be valued according to each utility’s approved procurement valuation methodology Firming and Shaping If firming and shaping is included in the contract cost, the incremental benefit to the utility will be incorporated into the energy and capacity benefits 1. A public forecast of energy and capacity benefits has not been identified for use in benchmarking California bids in the MPR

5. SOUTHERN CALIFORNIA EDISON SM Page 5 2009 Renewable RFP Proposal Conference Relation to other proposals/comments PG&E’s proposal –Methodology of Costs – Benefits = REC Cost is similar to SCE’s –Contains different cost components from SCE’s proposal Excludes debt equivalence Includes integration costs DRA comments –Recommends that the adopted REC pricing method should not favor one transaction type over another SCE’s proposal provides an unbiased approach to procurement when considering all products bid into the solicitation, including firmed and shaped, REC-only, dynamically scheduled, and CA interconnected, within the CPUC approved valuation methodology