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Senate RPS Hearing February 26, 2008 • Progress in 2007 – – Creation of Senate RPS Hearing February 26, 2008 • Progress in 2007 – – Creation of RETI to address vexing transmission issues – • Passage of SB 1036 will facilitate financing for more expensive projects Strong response by bidders in 2007 RFO Challenges for 2008 – Project development still very slow – only 30 MW of new in-state renewable projects completed in 2007 – Continue to work on transmission issues – ESP compliance – Federal PTC/ITC extension – RECs – do we want to export jobs and benefits to other states? – Seller market power – Is GE reaping windfall profits due to RPS requirements? February 26, 2008 1

Senate RPS Hearing February 26, 2008 • Progress and Compliance in 2007 – Response Senate RPS Hearing February 26, 2008 • Progress and Compliance in 2007 – Response to 2007 RFO very robust – IOUs - 13. 2% of 2006 retail sales • Pacific Gas and Electric (PG&E) - 11. 9% • Southern California Edison (SCE) - 16. 1% • San Diego Gas & Electric (SDG&E) - 5. 3% • ESPs mostly 0 -3% (weighted average impossible to calculate due to confidential data) February 26, 2008 2

Senate RPS Hearing February 26, 2008 3 Senate RPS Hearing February 26, 2008 3

Senate RPS Hearing February 26, 2008 • Renewable Energy Credits (RECs) – What we Senate RPS Hearing February 26, 2008 • Renewable Energy Credits (RECs) – What we have today? – SB 107 – CPUC “may authorize the use of renewable energy credits” PUC Sec. 399. 16(a) – SB 107 – modified definition of delivered energy to include electricity “generated at a different time from consumption by a California end-use customer” PRC Sec. 25741(a) – CEC interpretation: • “electricity delivered into California may be generated at a different location that of the RPS-certified facility” RPS Guidebook p. 23 • “a retail seller could buy energy and RECs from an RPS-eligible facility and … resell the energy from the RPS-eligible facility, but not the RECs” • – → The CEC allows RECs as long as they are not “tradable RECs” Out-of-state wind contracts – current situation creates extra cost for fixed price wind • • – Paying extra for “shaping and firming” to get system power delivered into California Get hedging value, but not other benefits of in-state renewables Solutions? – Must carefully consider how RECs should be used to promote goal of in-state renewables without creating extra costs February 26, 2008 4

Senate RPS Hearing February 26, 2008 TURN continues to be concerned that Tradable Renewable Senate RPS Hearing February 26, 2008 TURN continues to be concerned that Tradable Renewable Energy Credits (TRECs) will • Provide surplus profits to existing renewable projects • Subsidize solar DG installations at commercial properties and wealthier homeowners • Export jobs and benefits to other states February 26, 2008 5

Senate RPS Hearing February 26, 2008 Tradable Renewable Energy Credits – surplus profits for Senate RPS Hearing February 26, 2008 Tradable Renewable Energy Credits – surplus profits for existing projects • TREC prices insufficiently stable to promote financing of new renewable energy projects • Lack of excess TRECs in California due to RPS obligations • TRECs may be available from projects 1) with expiring contracts, or 2) located out-of-state where RPS obligations have not kicked in • Buying TRECs from those projects just rewards developers without stimulating new renewable projects February 26, 2008 6

Senate RPS Hearing February 26, 2008 Tradable Renewable Energy Credits for DG – More Senate RPS Hearing February 26, 2008 Tradable Renewable Energy Credits for DG – More subsidies for Wal. Mart and the rich? • Who gets CSI incentives? In 2007, 7, 541 applications worth $558 million – – Commercial – 8% of applications but 69% of MW – Get most of the incentives – • Residential – 89% of applications but only 15% of MW - About 15% of incentives Govt/Non-profit – 3% of applications for 16% of MW. TRECs for distributed solar – Those projects already receiving ratepayer-funded incentives through CSI – REC value not included in calculation of CSI incentive – Commercial - Owner of REC might be Chevron Energy Systems or Bank of America under a Purchased Power Agreement – • Residential – Which homeowners getting benefit of CSI? Are we taxing the poor to subsidize the rich? Better solution – up front municipal financing with payback through property tax assessments February 26, 2008 7

Senate RPS Hearing February 26, 2008 Tradable Renewable Energy Credits - exporting jobs and Senate RPS Hearing February 26, 2008 Tradable Renewable Energy Credits - exporting jobs and environmental benefits • TRECs provide value mainly if can access existing or cheaper projects in Oregon, Wyoming, etc. • The utilities want TRECs in order to access cheaper out-of-state renewables – • “Similarly, relaxing in-state deliverability requirements in order to broaden the TREC market will serve the public interest by facilitating development of a more robust, better functioning market. TURN’s claim that the public interest would not be served by modification of the in-state delivery requirement ignores the obvious benefits that would result from such a change. Elimination of the in-state delivery requirement could open new markets in the West to renewable developers, creating opportunities for additional revenue streams. A larger TREC market could also further increase supply, thereby placing additional downward pressure on the cost of RPS compliance, and could offer LSEs additional means of achieving RPS compliance. ” SDG&E Comments in R. 06 -02 -012, Dec. 5, 2007. TRECs may promote renewable energy development in other states but – – • Provide no local environmental benefits, provide no local jobs or economic benefits Provide NO price stability protection, since still have to buy the “energy” at volatile wholesale prices PG&E wind contracts –Klondike and Klickitat – are we really getting dirty coal? February 26, 2008 8

Senate RPS Hearing February 26, 2008 Is GE market power driving up wind costs? Senate RPS Hearing February 26, 2008 Is GE market power driving up wind costs? • Wind costs increasing due to turbine prices – “Recent increases in turbine prices have likely been caused by several factors, including the declining value of the U. S. dollar relative to the Euro, increased materials and energy input prices (e. g. , steel and oil), a general move by manufacturers to improve their profitability, shortages in certain turbine components, and an up-scaling of turbine size (and hub height) and sophistication. ” (DOE Report, May 2007) • California RPS deadlines coincide with cost escalation – CA is the only western state with an RPS compliance date before 2015 – Only three other states in the country have compliance dates before 2015 (with much lower percentages) – “Wind turbine manufacturers are scrambling to ramp up their capacity and also have been hit with high steel prices, a perfect storm that has created delays as long as 18 months for delivery of turbines. ” Atkinson Management Today, Jan. 9, 2008 February 26, 2008 9

Senate RPS Hearing February 26, 2008 Is GE market power driving up wind costs? Senate RPS Hearing February 26, 2008 Is GE market power driving up wind costs? • Is General Electric reaping windfall profits due to inflexible demand? – – Fourth-quarter profits in 2007 were led by a 26% profit increase for the infrastructure division – • GE manufactured 50% of all wind turbines installed in 2007 2008 profits in infrastructure poised to “capitalize on strong backlog” TURN protested a wind contract (AES Daggett Ridge) due to high price above MPR February 26, 2008 10

Senate RPS Hearing February 26, 2008 Is a Feed-In tariff the Proper Solution? • Senate RPS Hearing February 26, 2008 Is a Feed-In tariff the Proper Solution? • The comparison with Germany is misleading – – • Entirely different taxation and social safety net system Using regressive utility bill taxation has different impact in Germany We have a feed-in tariff in California already – NEM – feed-in for small (less than 1 MW) systems at full bundled rate – includes Gen and T&D – Capped at annual output – New FIT approved at MPR for 10 -20 years for projects less than 1. 5 MW which do not participate in CSI, RPS or NEM • A more lucrative feed-in tariff risks locking in high prices for many years – What is proper price – avoided cost? GHG adder? Bundled rate? MPR? – Do we want to create a system where we capture none of the downside benefits of cheaper renewables or existing projects whose contracts expire? February 26, 2008 – 11 How to balance price stability versus potential of overpaying if energy costs decline due to new supply and/or technology development

Senate RPS Hearing February 26, 2008 • Principles for Incentives and Subsidies – Above Senate RPS Hearing February 26, 2008 • Principles for Incentives and Subsidies – Above MPR costs for RPS, Solar CSI incentives, Feed-In Tariff for small generators, various tax rebates, energy efficiency incentives – Distributed Generation - Customer Side of the meter (CSI) • Benefits of reduced energy purchases by utility accrue entirely to owner/customer • Incentives should be through tax system – paid for by all taxpayers – RPS – utility side of meter • Benefits of avoided energy accrue to all ratepayers • Ratepayer-funded subsidies may be appropriate February 26, 2008 12