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REC cost estimation

REC cost estimation . April 23, 2010 Eric Lavik. Agenda. Overview Valuation components and calculation Relation to other proposals/comments. Overview. Objective:

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REC cost estimation

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  1. REC cost estimation April 23, 2010 Eric Lavik

  2. Agenda • Overview • Valuation components and calculation • Relation to other proposals/comments

  3. 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. Levelized Costs Levelized Benefits • 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 • 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 limited1 • 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 Valuation Components {Levelized Costs} – {Levelized Benefits} = REC cost in $/MWh 1. A public forecast of energy and capacity benefits has not been identified for use in benchmarking California bids in the MPR

  5. 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

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