1. AB 920 Net Surplus Compensation: Proposal of the Solar Alliance and the Vote Solar Initiative Tom Beach Crossborder Energy July 9, 2010

2. AB 920 Net Surplus Compensation Rate  Other customers must be “unaffected” by the rate.  P.U. Code Section 2827[h][4][A]  Use Commission-approved long-run avoided costs.  Recognize that behind-the-meter DG resources avoid line losses and T&D costs, similar to EE resources.  Rate should be simple to understand and easy to administer.  Using a rate that is fixed for the life of a NEM customer’s system provides a hedge against volatile fossil fuel prices.  Proposed Net Surplus Compensation Rate (NSCR): NSCR = MPR x TOD Factor + Avoided Line Losses + Avoided T&D  Based on AB 1969 rate for surplus sales, extended to DG.

3. Avoided Cost Components of the NSCR  MPR: 20-year MPR  For the year the NEM customer begins operation.  Use 2008 MPR for existing NEM customers.  Fixed for the life of the NEM customer’s system.  TOD: RPS / MPR TOD factors  Calculate a utility-average TOD factor based on a representative PV profile from NREL’s PVWATTS model.  Avoided line losses: from the adopted E3 avoided cost model for EE  Hourly values weighted by the PV profile  Avoided T&D: also from E3 AC model for EE  Hourly values weighted by the PV profile

4. MPR is a Measure of Long-run Avoided Costs for Energy and Capacity in California  MPR is the levelized, all-in cost of a new CCGT  CCGTs are the IOUs’ avoided resource.  Cost of the “brown power” resource that the IOUs would build or buy but for RPS generation.  Pricing benchmark for RPS costs.  Other CPUC-approved uses of the MPR as a measure of long-run avoided costs  Long-run avoided costs for EE (D. 05-04-024 et al.).  Renewable FIT (AB 1969, D. 07-07-027).  10-year firm QF price for large CHP (D. 07-09-040).  FIT price for small CHP (AB 1613, D. 09-12-048).

5. Calculation of the TOD Factor

6. Calculation of Avoided Line Losses

7. Calculation of Avoided T&D Costs

8. Results: Proposed NSCR using 2008 MPR  Applies to NEM customers on-line before December 17, 2009.  2009 AB 920 NSCR based on the 2008 MPR: AB 920 Price ComponentPG&ESCESDG&E 2008 MPR (20-year, 2009 start) cents/kWh11.1 TOD Factor1.241.321.12 Avoided Line Losses cents/kWh1.151.221.02 Avoided T&D cents/kWh1.871.394.03 Total AB 920 Rate cents/kWh16.817.317.6

9. Results: Proposed NSCR using 2009 MPR  Applies to NEM customers on-line after December 17, 2009.  2010 AB 920 NSCR based on the 2009 MPR: AB 920 Price ComponentPG&ESCESDG&E 2008 MPR (20-year, 2009 start) cents/kWh9.67 TOD Factor1.261.321.12 Avoided Line Losses cents/kWh1.021.070.89 Avoided T&D cents/kWh1.901.434.13 Total AB 920 Rate cents/kWh15.115.315.9

10. Other Pricing Methods Considered  MRTU DA Prices or SRAC  PV systems are long-term renewable resources.  MRTU DA or SRAC prices are appropriate for fossil resources making daily or monthly dispatch decisions.  Energy-only markets; PV provides capacity.  No recognition of avoided losses or T&D costs from DG resources.  No hedge against volatile fossil fuel prices.  Use of REC market prices for renewable attributes.  Willing to consider once the REC market develops.

11. Eligibility and Administrative Issues  Solar Alliance / Vote Solar agree with PG&E on the following issues:  Pay the NSCR to NEM customers with surplus kWh but no excess bill credits.  Customer’s choice of a check or a rollover bill credit.  No WREGIS registration or CEC certification needed to count kWh for RPS.  Include NSCR in existing NEM tariff.  $1 threshold for a check.  FERC order removes the need for QF certification.  Affidavit on REC ownership for systems > 100 kW.

12. System Sizing Issue  No need for new system sizing rules.  CSI rules already limit incentives to the system capacity needed to serve the historical on-site load.  AB 920 compensation encourages “right-sizing”:  Optimize use of roof space and inverter capacity.  Minimize installation costs per kW.  Additional RPS-eligible generation at an avoided cost price well below the cost of utility-owned PV.  Price proposed is unlikely to result in a substantial increase in net surplus generation.

13. Implementation  Potential for customer confusion  Customers with excess bill credits but no surplus kWh may not understand why they do not receive a check.  Customer need to understand that they are selling RECs, to avoid duplicative sales.  Need simple, clear communications and information.  Permanent NSCR can be adopted now.  Review program in 2013 after two years’ experience.