Qualifying Facility Program Implementation Workshop

1. Qualifying Facility Program Implementation Workshop Elizabeth Stoltzfus Bob Strauss Molly Sterkel Energy Division San Francisco November 14-15, 2007

2. November 14th 10:00-10:15 Welcome 10:15-12:00 Market Heat Rate (MHR) calculation 12:00-1:00 Lunch 1:00-2:00 TOU factors 2:00-2:30 Calculation of gas price 2:30-3:00 Gas price data sources 3:00-3:30 Electricity price data sources 3:30-3:45 Updating O&M 3:45-4:00 SRAC posting  November 15th 10:00-10:30 Extension of expiring contracts 10:30-11:00 As-available capacity payments 11:00-11:30 Method for rejection 11:30-12:00 Process of protesting 12:00-1:00 Lunch 1:00-1:15 EEI Master Contract 1:15-1:45 CAC/EPUC draft contract 1:45-2:15 IOU draft contract 2:15-4:00 SO contract Agenda

3. Goal • The goal of this workshop is consensus building on the implementation of Decision 07-09-04.

4. Format • Decision guidance • Sample of perspectives • CPUC recommendation • Discussion

5. After the workshop • Highlights of workshop • Joint IOU tier 3 advice letter (AL) • Contains: • Exact data sets • Implementation methodology • Within 30 days of workshop (12/16/07) • Individual IOU tier 3 advice letter • Standard offer contracts • Within 60 days of workshop (1/15/08)

6. Advice Letter process • 20 day period for protests by parties • 5 days for IOUs to reply to protests • Energy Division (ED) considers AL within 30 days unless suspended • Draft resolution sent to service list • 10 day comment period • 30 days on Commission calendar • Resolution voted on by Commission

7. Result • Adopted by Resolution: • Finalized data sets and methodology • Finalized standard offer contract for each IOU

8. Market Heat Rate (MHR) calculation Rolling average of forward electricity price

9. Decision guidance on MHR • “In calculating the [MHR] using NP15/SP15 indices, rather than using historical prices, we will use a 12-month rolling average of the weighted average price of the forward market prices for NP15 (for PG&E) or SP15 (for SCE and SDG&E)…variable O&M shall be deducted from the market prices used to calculate the market based heat rate” (p. 67)

10. Decision guidance on weighted average • “The monthly weighted average power price is determined as follows. The monthly peak power price is weighted 57% and the off-peak power price is weighted 43%” (p. 7) • (Forward energy price – VO&M) / (Border gas price + Intrastate transportation)*1000 = HR MHR = (ΣHR1…HR12)/12 (Adapted from Table 3)

11. Rolling average • A rolling average or simple moving average (SMA) is the mean of the previous n data points. For example, a 10-day simple moving average of closing price is the mean of the previous 10 days' closing prices. If those prices are pM, pM − 1... pM − 9 then the formula is: http://en.wikipedia.org/wiki/Rolling_average

12. MHR calculation proposals • Data collection • Weekly • Monthly • Polling • Sample from 3 prior months • Sample from prior month • Sample from 12 prior months

13. CPUC proposal on MHR calculation • Data collection • Monthly average across sources • Collect 12 months of forwards each month • Average of samples from prior 12 months for following month • For example: • Forward price for Jan ‘08 = Average(12 month forward price as of Jan ‘07, 11 month forward price as of Feb ‘07, …1 month forward price as of Dec ‘07)

14. Time of Use (TOU) factors SRAC TOU MPR TOU

15. Decision guidance on TOU factors • “we believe that updating the IOUs’ TOU/TOD factors and periods to be consistentwith the TOU factors adopted in other procurement proceedings is reasonable…the TOD factors are too flat to adequately reflect the differential in prices in peak and off-peak periods. In light of this, we believe it is appropriate to adopt TOU factors that are consistentwith the adopted TOU factors for the Market Price Referent (MPR).” (p. 74)

16. TOU factors proposals • Map MPR TOU factors to SRAC TOU periods • SCE same TOU periods • Hour-to-hour mapping PG&E, SDG&E • TOU implementation • Apply to both energy and capacity • Apply to just energy • Use only “energy component” of TOU factors

17. Proposed TOU factors for PG&E

18. Proposed TOU factors for SCE

19. Proposed TOU factors for SDG&E

20. CPUC proposal on TOU factors • Extension of expiring contracts • Map MPR TOU factors to PG&E, SDG&E SRAC TOU factors • SCE TOU periods are the same • Apply MPR TOU factors to energy payment • New contracts • Apply MPR TOU factors to energy payment • Use MPR TOU periods

21. Calculation of gas price Intrastate gas transportation rates

22. Decision guidance on gas prices • “we adopt a burnertip gas price for use in calculating SRAC. We will allow SDG&E and the other utilities to annually update the intrastate transportation rate to the most recent value in their gas tariffs, as necessary. For example, if border gas at Malin is $6.00/MMBtu and intra-state transportation is $0.50/MMBtu, the burner-tip gas price is $6.50/MMBtu…for SCE and SDG&E, SRAC shall be based on the Topock border price, while SRAC for PG&E shall be based on a 50/50 weighting of published border prices at Malin and Topock.“ (p. 72)

23. Gas price proposals • Border price calculation already in effect • Intrastate transportation costs • SCE follow current methodology • Schedule G-AA, EG, and G-SUR for PG&E • Schedule GT-F5 and G-MSUR for SCE • Schedule EG and GP-SUR for SDG&E • Firm Access Rights (FAR) • Update frequency of intra-state transportation costs • Monthly • Annually • As needed

24. SCE current methodology • (GT-F5) + (ITCS) + (G-MSUR) • Where: • GT-F5 = Firm Intrastate Transmission Service, for electric generation, for customers using 3 million therms or more per year (Schedule GT-F) • ITCS = Interstate Transition Cost Surcharge (Schedule GT-F) • G-MSUR = Transported Gas Municipal Surcharge (Schedule G-MSUR) = Surcharge % outside the city of Los Angeles x (G-CPA) x Imputed Franchise Fee Factor • G-CPA = The rate used for purposes of calculating the municipal surcharge as defined in Schedule G-MSUR (Schedule G-CP, G-CPA)

25. PG&E proposed methodology • (G-AFT ) + (G-EG) + G-SUR • Where: • G-AFT = Average (firm Redwood On-System transmission rate, Baja On-System transmission rate) plus applicable shrinkage for the relevant delivery path (PG&E G-AFT and Gas Rule 21). • G-EG = Applicable variable transportation charge for electric generator service under the G-EG tariff. • G-SUR = Gas Franchise Fee Surcharge, in effect on the first day of the pertinent SRAC posting month.

26. SDG&E proposed methodology • (EG) + (GP-SUR) • Where: • EG = rate from tariff schedule EG for customers using 3 million therms or more per year • GP-SUR = The rate used for purposes of calculating the municipal surcharge as defined in Schedule GP-SUR

27. CPUC proposal on gas prices • Sum of applicable tariffs • SCE: (GT-F5) + (ITCS) + (G-MSUR) • SDG&E: (EG) + (GP-SUR) • PG&E: (G-AFT) + (G-EG) + (G-SUR) • Update intra-state transportation costs annually or with changes in tariffs • Border price calculation already in effect

28. Gas price data sources Border gas price Gas forwards

29. Decision guidance on gas price data sources • “For PG&E in its May 2006 SRAC posting, the utility takes (1) the average of three Malin bidweek gas indices as reported in Gas Daily, Natural Gas Intelligence, and Natural Gas Weekly…For SCE in its May 2006 SRAC posting, the utility takes (1) the average of three Malin bidweek gas indices as reported in Gas Daily, Natural Gas Intelligence, and Natural Gas Weekly…SDG&E makes the same calculation as SCE.” (p. 71)

30. Proposals for gas price determination • Border price • Gas Daily • Natural Gas Intelligence • Natural Gas Weekly • Btu Daily Gas Wire • MHR uses burnertip gas price • NYMEX for gas forwards

31. CPUC proposal on gas price determination • Border price • Gas Daily • Natural Gas Intelligence • Natural Gas Weekly • MHR uses burnertip price • NYMEX for gas forwards

32. Electricity price data sources Determine appropriate data sources

33. Decision guidance on electricity price data sources • “The forward market prices will be based on a weighted average price of the forward market prices for North of Path 15 (NP15) or South of Path 15 (SP15), as reported in Platts Megawatt Daily and/or the Intercontinental Exchange (ICE)” (pp. 6-7)

34. Proposals on electricity price data sources • Platts MW Daily • Platts and ICE • Tullet • Prebon • Amerex • TFS Energy • Kiodex

35. CPUC proposal on electricity price data sources • Platts MW Daily

36. Updating O&M Timing

37. Decision guidance on O&M adder • “SDG&E proposes to use the 2004 value for the variable cost of a CCGT adopted in Phase 1…We concur with this approach and adopt it for use in the SRAC energy formulae for the three utilities. However, the O&M shall be escalated by 2% per year” (p. 70)

38. Proposals for updating O&M adder • Escalate by 2% on January 1st of each year • Use four significant digits

39. CPUC proposal on O&M adder • Escalate by 2% on January 1st of each year • Use four significant digits

40. SRAC posting Day of month Format

41. Decision guidance on SRAC posting • “IOUs should post the monthly SRAC energy prices and annual capacity prices on their websites and file the prices with the Commission’s Energy Division and DRA.” (p.150)

42. Proposals for SRAC posting • Spreadsheet template of data • Posted on first business day of the month • Electronic copy to ED

43. CPUC proposal on SRAC posting • Posted on the Web and mailed/emailed to ED and DRA on the first business day of the month • Electronic copy to ED

44. Extension of expiring contracts Notifying and securing the extension terms Capacity and energy price provisions Term of the extension Process for moving to the new Standard Offer

45. Decision guidance on expiring or expired contracts • “Two Standard Contract Options for Expiring or Expired QF Contracts and New QFs: • One- to Five-Year As-Available Power Contract. • One- to Ten-Year Firm, Unit-Contingent Power Contract. QFs will also continue to have the option of either participating in Investor-Owned Utilities (IOU) power solicitations, or negotiating bilateral contracts with the IOUs.” (p. 2)

46. Decision guidance on contract extensions • “D.04-01-050 also put parties on notice that certain renewed contracts would be subject to subsequent changes in pricing methodologies that may result from this rulemaking. D.05-12-009, continued the interim relief provided in D.04-01-050 for QFs with expired or expiring contracts until the Commission issues a final decision in the combined dockets, R.04-04-003 and R.04-04-025. We issue that final decision today…we opt to make it available to QFs that are, or were, on contract extensions approved in D.02-08-071, D.03-12-062, D.04-01-050, and D.05-12-009. “ (p. 18)

47. Decision guidance on expiring contracts continued • “The QF may extend the non-price terms and conditions of the expiring contract and continue service with the pricing set forth in this Decision until the final contract is available.” (p. 126)

48. Proposals for expiring contracts • Option to shift to firm capacity terms and pricing if previously under a firm capacity contract • Process for notifying and securing the extension terms • Precise designation of capacity and energy price provisions • Term of the extension • Process for moving to the new Standard Offer contract

49. CPUC proposal on expiring contracts • MIF goes into effect on first business day of the month following finalized Resolution for Joint IOU Tier 3 AL • Capacity and energy price provisions based upon the Resolution for Tier 3 Joint IOU AL • Initiate SO contract as soon the resolution for the applicable individual IOU Tier 3 AL is finalized • Extension term ends when new contract is in place

50. As-available capacity payments Escalation