Creating Win-Win DER Opportunities through Stakeholder Collaboration

1. Creating Win-Win DER Opportunities through Stakeholder Collaboration Ellen Petrill Director, Public/Private Partnerships Electric Power Research Institute 650-855-8939 epetrill@epri.com http://www.epri.com/der-ppp/index.html Restructuring Roundtable Boston, Massachusetts June 17, 2005

2. Win Win Win What is Win-Win and How to Achieve? Utility Shareholder & Other Customers DER Customer Rate Design Custom Contract Public Incentive DG Costs and Benefits • Cleaner Environment • Lower Total Costs • Cost Savings • Return on Investment Society

3. Government *California Energy Commission * NYSERDA DOE * Massachusetts Tech CollaborativeNASEOColorado Office of Energy Regulatory Agencies NJ BPU PUC Ohio TX PUC NY PSC CA PUC FERC CARB BAAQMD NRRI NARUC OR PUC Manufacturers Solar Turbines UTC Fuels Cell Cummins West Fuel Cell Energy Siemens Westinghouse STM Power ASCO Utilities * TVA * Ameren * NY ISO * NYPA * CPS San Antonio Exelon SCE First Energy OPG Southern Co. PEPCO Developers RealEnergy DTE Energy Technologies Northern Power Systems Consumers Silicon Valley Manufacturers Group Verizon Los Angeles County NGOs Energy Foundation USCHPA NRDC EPRI DER Public/Private Partnership Cuts Across All Stakeholder Groups

4. A Cost-Benefit Model Enables Transparent Analysis and Allocation

5. Decision Process for Win-Win: Identify and Allocate DER Costs and Benefits Use modeling tool to estimate DERcosts and benefits for each stakeholder Identify key stakeholders Does DER provide a net societal benefit? No Implement win-win DER solution Yes Identify ways to leverage DER values Does DER provide a net benefit for each stakeholder? Yes Eliminate barriers No Design efficient incentives to share benefits among stakeholders

6. California DER Pilot Project • Goal: Help Southern California Edison develop an RFP that yields successful proposals • Objectives • Test the EPRI stakeholder collaboration process • Identify win-win solutions • Develop a successful, scalable process • Approach • Share stakeholder needs and potential win-wins • Stakeholders address issues • Monitor results and report • Outcomes • DG community learned about distribution planning needs • SCE changed approach to several issues • Win-win = distribution deferral • Solicitation not yet begun

7. Stakeholders Addressed Potential Show Stoppers • DG Deferral Value: Will SCE disclose a dollar value for DG? • Yes, based on carrying cost of capital for distribution deferral • Physical Assurance Requirement: 24x7? • No, just 200 – 400 hours/year, decided by contract • Demand limitation agreement • Availability of Distribution System Data: What data will SCE provide? • Two-step process, detailed information in 2nd step • Additional DG Values: Wholesale electricity, generation savings from curtailment or demand response? • Yes, curtailment and DR • Eligibility for Other Incentives: Self-Generation Incentive Program? • No

8. Solicitation Specific Issues • Simplification of the Process and Agreement: Reduce costs • Simpler, less onerous agreement • Reasonable solicitation process • Eligible Resources: DG and DR? • Both, but DG is required to cover critical loads (as defined by customer) • Tailoring SCE Deferral Agreement to DG Project Realities: Can deferral periods be extended? • Two to three years, with option to renew • Facilitating Interaction between SCE Customers and DG Developers: • SCE will facilitate interactions

9. Broader Issues • Alternatives to the RFP Process: Feeder-specific tariffs, distribution credits, or other options to simplify process? • SCE will not issue an RFP, but directly solicit customers • Business Model: What will advance DER? • Role of utilities as proactive DER facilitators and integrators should be enhanced

10. Results and Stakeholder Recommendations Results • Stakeholders can resolve showstoppers through collaboration • Distribution deferral value is small • Outstanding issue: will customers propose? Recommendations • Capture all sources of value and allocate to achieve win-win • Simplify • Adjust regulated business model to motivate utilities to adopt DER

11. Developers Kevin Best, Real Energy (Sub: Robin Luke) Tom Drolet, DTE Tech Chach Curtis, Northern Power Systems Jeff Lyons, US Power Gordon Savage, Simmax Energy Suppliers Tod O’Connor, STM Power George Wiltsee, Ingersoll-Rand Eric Wong, Cummins Kevin Duggan, Capstone Bob Bjorge, Solar Turbines Customers/Customer Representatives Justin Bradley, SVMG (Sub: Jeff Byron) * Howard Choy, LA County ISD (Substitute: Steve Crouch) Southern California Edison Stephanie Hamilton, Tom Dossey, Ishtiaq Chisti, Dan Tunnicliff, Lynn Ferry Brian Stonerock, Gary Green Advisors Valerie Beck, CPUC Mark Rawson, CEC Nag Patibandla, NYSERDA Valerie Harris, CPS San Antonio Fran Cummings, Mass Tech Collaborative (Substitute: Gerry Bingham) Tony Prietto, SDG&E Sephir Hamilton, CHG&E Eileen Buzzelli, First Energy Pat Hoffman, DOE. (Designee: Joe Ianucci) Jim Armstrong, NStar Electric and Gas Corp (Invited by Mass Tech Collaborative) EPRI Pilot Project Team John Nimmons, Nimmons & Associates James Torpey, Madison Energy Consultants Snuller Price, E3 Dan Rastler, Ellen Petrill, EPRI Working Group Participants

12. California DER Pilot Working Group

13. CEC CHP Assessment Results:High CHP Penetration and Positive Societal Benefit not Necessarily a Win-Win Source: CEC Report Assessment of California CHP Market and Policy Options for Increased Penetration http://www.energy.ca.gov/distgen_oii/documents/index.html#042805

14. Exit Strategy for Subsidies $kWh Advancing CHP Market (policies to improve economics of current CHP industry and phase out over time as industry grows) CHP Market Structure (policies that pay CHP based on services they provide) Time

15. DER Partnership 2: Create Utility Incentives for Win-Win DER • Bring together key stakeholders from multiple states • Massachusetts, New York, California, Wisconsin • Create innovative business and regulatory models, such as • Decouple utility revenues from kWh sales • Utility ownership • Accounts to recover revenue shortfalls • Establish shareholder incentives for DG • Capitalize customer incentives and other DG costs • Provide shareholder return on avoided investment • Performance-based rewards • Demonstrate in pilot projects Join our collaborative!