Southern California Edison Company Proposed AB920 Net Surplus Compensation Rate [NSCR]

1. Southern California Edison CompanyProposed AB920 Net Surplus Compensation Rate [NSCR] July 9, 2010

2. Guiding Principles • AB 920 provides for compensation to NEM customer for net surplus electricity produced over the relevant period • Eligible generators are sized to offset a portion or all of the customers annual energy requirements, so net surplus production should be limited - AB 920 was not intended to encourage customer generators to oversize systems • Administration of AB 920 net surplus compensation should not impact the normal operation of energy credits provided under NEM • Indifference of non-participants to AB920 compensation is maintained through market pricing and limiting the cost of system changes • System costs are minimized by developing a compensation method that fits with existing NEM billing • Cost to implement a complicated compensation method could easily outweigh the value of compensation provided • IOUs’ ability to count REC’s purchased under AB920 toward RPS needs to be ensured

3. Net Surplus Compensation Rate (NSCR) Eligibility • Net surplus electricity produced by NEM customers over a billing period is valued at the customer’s retail energy rate and carried forward to offset energy charges for net consumption • At the conclusion of the relevant period, NEM customer bills may show a net credit position (and/or net energy surplus) • The NSCR is proposed as a Special Condition available to customers served on Schedule NEM • NEM customers are eligible for net surplus compensation if, at the conclusion of their relevant period; • The sum of monthly metered generation exceeds metered consumption (the customer is a net surplus generator), and • Energy credits for net production exceed energy charges (the customer has a net credit position) • Net surplus generation in the absence of a net credit position indicates that the customer has been compensated for all generation at the full retail rate and no further compensation is warranted.

4. Market Price Basis for Net Surplus Compensation • On a monthly basis, SCE will calculate and post on the SCE public website the NSCR Compensation Ratio applicable for relevant periods ending in that month • The NSCR Compensation Ratio is the ratio of the NSCR and the applicable average annual retail rate for each rate group • The NSCR reflects the annual average market price for energy over the relevant period plus a renewable premium • For each 12-month relevant period, the NSCR equals; • the annual average of hourly MRTU Locational Market Prices, SP15 • weighted by the applicable rate group load profile • plus the most current average premium for renewable energy reported by the DOE for the WECC region • An eligible customer’s compensation for the relevant period is determined by multiplying its remaining NEM credit by the NSCR Compensation Ratio

5. Determination of Customer Payment • NSCR eligibility is determined at the conclusion of the relevant period with the production of the final billing • AB920 requires that customers affirmatively elect compensation • For eligible customers electing compensation, the NSCR Compensation Ratio is multiplied by the customer’s remaining credit to determine net surplus compensation • Net surplus compensation will be added as a credit to the eligible customer’s next bill, and may offset existing or future charges • The customer may request payment, in check form, for the net credit amount reflected on any subsequent bill • Providing net surplus compensation in this way allows the indefinite carrying forward of credit amounts, and reduces implementation cost by utilizing existing billing processes

6. Communications • Schedule NEM will include a description of eligibility and how net surplus compensation is determined • Pursuant to AB 920 all existing NEM customers were informed of pending changes to NEM with regards to compensation • Following approval by the Commission of the NSCR, SCE will notify customers of their options regarding compensation • Customers will be provided a second opportunity to elect compensation • Additional information and the applicable NSCR Compensation Ratios will be provided on SCE’s public website • SCE expects to be prepared to implement the NSCR proposal as filed for relevant periods ending January 2011