April 23, 2010

1. Energy Division Workshop on Tradable RECs April 23, 2010

2. Workshop Agenda Intro 9-9:30 Agenda, logistics, introduction Sara Kamins, CPUC Methodology for Estimating TRECs Price 9:30-10 PG&E Proposal Roy Alvarez, PG&E 10-10:30 SCE Proposal Eric Lavik, SCE DynamicTransfer 10:30-11 CAISO dynamic transfer initiative Lorenzo Kristov, CAISO 11-11:30 Developer perspective on dynamic transfer William Engelbrecht, Sempra 11:30-12 Party proposals for verifying dynamic transfer Sara Kamins, CPUC LUNCH 12 – 1 Firm Transmission 1-1:15 Guiding principles for evaluating firm transmission Sara Kamins, CPUC 1:15-2 Developer perspective on firm transmission Kevin Lynch, Iberdrola 2 – 4 Firm transmission panel Evan Estes, LS Power John Pespisa, SCE Kevin Lynch, Iberdrola Lorenzo Kristov, CAISO

3. Workshop Introduction CPUC authorized the use of tradable renewable energy credits for 20% RPS compliance in D.10-03-021 • Overview of Decision • Allows all retail sellers to buy RECs unbundled from underlying energy and to trade RECs with any market participants • Defines what is a bundled and REC-only transaction • Sets forth rules for integrating REC-only contracts into RPS compliance framework • Adopts contract review standards, incl. cost cap for IOUs • Limits the percentage of RECs the large utilities can use towards annual RPS targets for first two years

4. REC-only and Bundled Contracts Decision distinguishes between bundled and TRECs contracts for contract review, applying TREC rules, etc • Decision adopted categorization to facilitate contract review, apply TREC compliance rules and do resource planning • CPUC reviews reasonableness of RPS contracts for ratepayers • Utilities have executed numerous types of RPS contracts that provide different products • Contract types have different values to ratepayers • Diversify electric portfolio • Price hedging • Cost of RPS compliance • Remarketing risk

5. What is a REC-only transaction? • A bundled transaction is for energy and RECs and serves CA load without needing an intermediary energy transaction that in effect substitutes the RPS-eligible energy with energy that is not eligible • If the energy from the renewable facility can’t serve CA load, then it is a REC transaction • Thus, bundled transactions are those where a facility is directly interconnected to a California balancing authority area or the facility uses a dynamic transfer arrangement • Decision finds that a direct interconnection and dynamic transfer allows renewable energy to be scheduled into CA • Staff must hold a workshop to explore if transactions using firm transmission should be considered bundled

6. Implications of classification • Bright line requires clear connection between the renewable energy generation and energy scheduled into California • RPS contracts that include a disconnect between energy and REC will be reclassified as REC-only going forward • Buy/sell back: Utility buys energy and RECs from renewable generator and immediately sells back the energy to the generator • Matching: Utility buys, from one counterparty, RECs from a renewable generator and system energy from another market • Busbar: Utility buys energy and RECs at generator’s busbar and remarkets the energy locally rather than scheduling it into CA • Firming and shaping: Utility buys energy and RECs from a renewable generator and a third party remarkets the energy and delivers other energy at a different time

7. IOUs Actual and Forecasted RPS Generation

8. Today’s discussion • In Scope • Which RPS transactions are consistent with the Decision’s classification principles • Market, regulatory, and operational issues associated with TREC classification • How to promote a least-cost and sustainable RPS market in the west and efficient use of the grid • Out of Scope • Merits of petitions for modification and applications for rehearing, including TREC cap percentage