Net Surplus Compensation Proposal for DRA: Guiding Principals and Interim Recommendations

1. DRA AB920 Net Surplus Compensation (NSC) ProposalJuly 9, 2010 Workshop in A.10-03-001 Guiding principals Interim proposal Recommendations for future Modifications

2. Guiding Principals for DRA - Policy • Accurate pricing at avoided cost is key to meeting two goals of AB 920 • Ratepayer indifference • Fair compensation for renewable DG • Balance accuracy with implementation cost • Encourage on-peak conservation and efficiency • Net Surplus Generation (NSG) curve is NOT the same as a PV production profile • NSC consistent with cost-benefit analyses

3. Guiding Principals for DRA - Mechanics • Need NSC rate and mechanism by Jan 1, 2011 • Build on findings from EE, DG, QF, FiT, and RPS proceedings • NSC mechanism comprehensible to customers with minimal outreach • Adjust mechanism to changing conditions • Start simply and add complexity as NEM and AB 920 impacts increase

4. DRA Interim Proposal • Use most current adopted MPR • RPS eligible DG at MPR is a good balance for participant and ratepayers as a short term solution • MPR value for 10 year contract with most recent installation date • TOD adjustment for customers on TOU rates, to encourage shifting consumption off peak and use of TOU rates • Provide NSC even if bill debit (subject to change) • IOUs aggregate NSG to generate RECs

5. TOD Adjustment • Net generation profile is known for TOU customers, but not for those on flat rates • Average TOD factor applied to annual NSG • TOD factors mapped to TOU periods • TOD factors weighted by % of NSG in each TOU period • Weighted TOD factors summed to get the average TOD factor • If flat rate or insufficient TOU usage date, TOD factor = 1

6. Scenario 2 TOD Example

7. Future Steps for Long-Term NSCR • Confirm utility ability to count RECs • Quantify administration costs • Consider adjusting NSCR to include admin costs • Workshop on interval data from AMI • could interval data be used to improve accuracy without excessive implementation costs? • Investigate implementation of DG avoided costs as basis of NSCR • Use of ex post data • Re-evaluate CSI sizing exemptions

8. Metering and NSCR • Current meters – basic, TOU, 1 hour interval, 15 minute interval • 2012 – interval meters for all large IOU customers • Interval meters • provide NET generation profile for each customer • CANNOT indicate when annual net surplus occurred • Advanced meters can help guide accurate NSC, but policy choices still required

9. When was the 100 kWh produced? Flat Load On-Peak Load Off-Peak Load 1,450-1,575 kWh net production 100 kWh Annual Excess

10. DG Avoided Costs • Party proposals for NSCR ranged from 4.2 to 27+ cents/kWh • The question “what is avoided by net-metered DG?” remains controversial • DG avoided costs SHOULD provide the answer, but need to be vetted • Hourly avoided costs have significant non-recurring, and recurring implementation costs

11. CSI Sizing Exemptions • There is a potential for over sizing, particularly for systems smaller than 5 kW • (See section 2.2.4 of CSI Handbook) • CSI sizing exemptions were established prior to AB 920 • NSC provides a new motivation to over size PV systems • CSI sizing exemptions should be reconsidered in lieu of AB 920