Renewables Portfolio StandardStatus Report

California Public Utilities Commission

February 26th, 2008

What is RPS?

Established under SB 1078 (2002) and SB 107 (2006)

Load-serving entities must procure an additional 1% of retail sales per year from eligible renewable sources until 20% is reached, no later than 2010

CPUC oversees RPS procurement of Investor-Owned Utilities (IOUs), Electric Service Providers (ESPs) and Community Choice Aggregators (CCAs)

Compliance is based on delivered energy

Publicly-owned utilities must design similar programs, report progress to the California Energy Commission

RPS Procurement Process is Working

Year 2002 2003 2004 2005 2006 2007 Total

Number ofcontractsapproved

14 7 3 20 10 26 80

MWapproved

295 MW 262 MW 74 MW 1255 MW 635 MW 1395 MW 3916 MW

CPUC is responsible for overseeing RPS solicitations and reviewing IOU contracts for RPS-eligible energy. 80 contracts approved since 2002, for almost 4,000 MW. CPUC contract approval is not to exceed 6 months; approval time averaged 5 months over the past year.

Participation in RPS solicitations is accelerating Solar energy saw a dramatic increase in participation from developers in the 2007 RPS

solicitation. Wind and geothermal will continue to be large contributors to RPS generation.

RPS Bids by Fuel Type

0

20,000

40,000

60,000

80,000

100,000

En

erg

y (

GW

h)

Solar 8,808 1,725 5,278 7,484 33,046

Wind 3,959 7,406 10,479 9,339 29,990

Geothermal 4,747 5,841 12,263 2,514 4,027

Biomass 1,470 1,635 2,403 2,694 8,186

Biogas 349 1,220 272 245 15

Small Hydro 107 14 200 49 0

Other 0 105 208 1,413 996

2003 RFO 2004 RFO 2005 RFO 2006 RFO 2007 RFO

RPS Generation by Fuel Type

IOU Actual and Forecasted RPS Generationby Fuel Type

0

10,000

20,000

30,000

40,000

50,000

60,000

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

GW

h/y

r

expiring (fuelunknown)

solar

wind

geothermal

small hydro

bioenergy

34,8640

Target: 20% of Expected IOU Retail Sales

Wind and geothermal will be the largest contributors to RPS generation in 2010.

IOU Actual and Forecasted RPS Generation

0

10,000

20,000

30,000

40,000

50,000

60,000

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

GW

h

Pre-2002 Contracts 2002 Contracts 2003 Contracts 2004 Contracts

2005 Contracts 2006 Contracts 2007 Contracts Pending Approval

Short-listed Bids Expired Contracts RPS Target

Target: 20% of Expected IOU Retail Sales

Contracts signed and under negotiation may put IOUs close to 20% in 2010

However, project viability is a concern

IOU Expected RPS Generation and Risk

0

10,000

20,000

30,000

40,000

50,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Gw

h/y

r

Target: 20% of Expected IOU Retail Sales

977 MW

1370 MW

808 MW

Online/existing

Expiring

Low Risk

Medium Risk

High Risk

Project development hurdles are the major source of risk

0%5%

10%15%20%25%

30%35%40%45%50%

Transm

issi

on

Devel

oper

Finan

cing

Site C

ontrol

Perm

ittin

g

Price

Reopen

er

Radar

Techn

ology

Fuel S

upply

Equip

men

t Pro

curm

ent

CPUC contract approval is only one step in the complex project development process.

Inter-agency coordination is key to reaching 20%

Barriers facing projects needed to meet 2010 goal

CPUC working on project development solutions SB 1036 Implementation

Addressing transmission barriers: Renewable Energy Transmission Initiative (RETI), ISO Queue reform, streamlined permitting

Increasing supply: Feed-in tariffs (AB 1969), tradable RECs (CSI), Emerging Renewable Resource Program (ERRP)

Contract management work to track projects, improve analysis and reporting of challenges to project development

Future: Solutions team works with relevant agencies

Prices for renewables are rising

Annual IOU Expected Above-MPRCosts from RPS Energy

approved contracts, contracts pending approval, and short-listed bids

0

20

40

60

80

100

120

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

An

nu

al C

ost

s (M

illio

n $

/ Y

ear) Non-SEP-Eligible Above-MPR Costs

SEP-Eligible Above-MPR Costs

Above-market funds may not be sufficient

Expected Above-MPR RPS Energy Costs2002-2020

0

200

400

600

800

1000

1200

1400

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Mill

ion

$

Total above-MPR costs

Eligible for above-MPR funds

Not eligible for above-MPR funds

Above market fund cap ≈$770 million

Flexible Compliance Rules Penalty for non-compliance is 5 cents per kWh, up to $25 million per year

Banking/Earmarking: LSEs can “apply excess procurement in one year to subsequent years or inadequate procurement in one year to no more than the following three years”, pursuant to Public Utilities Code §399.14(a)(2)(C)(i).

Penalties may be avoided or deferred pursuant to statutory or Commission adopted conditions, such as;

inadequate public goods funds to cover above-market costs (399.16(a)(8)),

insufficient transmission (399.14(a)(2)(C)(ii)), lack of competition (399.14(d)) insufficient response to solicitation, seller non-performance.

An LSE is expected to reasonably diversify its RPS procurement portfolio, taking generation and transmission project development risk into account.

Any requested relief, including the use of flexible compliance, will be examined by the CPUC

Flexible compliance may allow for more rational build-out, mitigate market power

New MW under

contract

New MW needed without flexible

compliance

New MW needed with

flexible compliance

2002 0 0 0

2003 36 36 36

2004 66 66 66

2005 51 51 51

2006 75 75 75

2007 114 114 114

2008 620 1,092 546

2009 309 1,092 546

2010 709 1,092 546

2011 827 113 659

2012 82 119 665

2013 1,030 116 662

Total 3,919 3,966 3,966

Utilities over-contract to account for possible project failure About 3,000 MW of new RPS development needed to meet 20% About 3,600 new MW now under contract or pending CPUC approval

0

1,000

2,000

3,000

4,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

MW

New MW online

New MW needed each year with out flexible

compliance

New MW each year under contract

New MW needed each year with flexible

compliance

Tradable Renewable Energy Credits What is a Renewable Energy Credit?

A Renewable Energy Credit (REC) generally represents the environmental and renewable attributes of renewable electricity as a separate commodity from the energy itself. A REC can be sold either "bundled" with the underlying energy or "unbundled" into a separate REC trading market.

Currently, unbundled RECs do not count for RPS compliance. Pursuant to SB 107, CPUC is currently considering the use of

tradable (unbundled) RECs within the California RPS. Staff proposal for a tradable REC regime was issued in October 2007.

Goals for TREC regime, if adopted: Encourage renewable development Help overcome transmission issues Increase market efficiency Facilitate compliance by smaller LSEs Lower RPS compliance costs

In the Western region of the U.S., RECs (both voluntary and compliance) will be tracked using the Western Renewable Energy Generation Information System (WREGIS).

1. http://www.cpuc.ca.gov/PUC/energy/electric/RenewableEnergy/misc/070824recworkshop.htm