1. MSEIA COMPARATIVE STUDY OF SREC RATE IMPACTS BY PROGRAM Lyle Rawlings, Vice-President, New Jersey Dennis Wilson, President PRELIMINARY RELEASE January 12, 2012

2. PURPOSE OF STUDY: To make a comparison of the likely rate impacts of the EDC programs and the unstructured SREC market, using industry financial modeling with consistent assumptions and target returns

3. METHODOLOGY: Financial modeling tool: Proprietary investment modeling tool of ASP What was modeled: 4 sizes of typical PV projects using typical 2012 costs and other assumptions Model was made to converge on the same target IRR (after tax) for each program Model was also made to converge on the same target cash flow for each program SREC costs were projected into the future at various rates of decline in the cost of solar power relative to fossil fuel.

12. FUTURE YEAR CALCULATION MATRIX FOR PSE&G LOAN PROGRAM

13. FUTURE YEAR CALCULATION MATRIX FOR JCP&L/ACE 10-YR CONTRACT PROGRAM

14. FUTURE YEAR CALCULATION MATRIX FOR UNSTRUCTURED SREC MARKET

15. CHANGE IN RESULTS FOR FUTURE YEARS Example calculation: Weighted Average SREC Price, yr.3 = [(SREC Price in yr.4 for projects built in yr.1 x MW built, yr.1) + (SREC Price in yr.4 for projects built in yr.2 x MW built, yr.2) + (SREC Price in yr.4 for projects built in yr.3 x MW built, yr.3) + (SREC Price in yr.4 for projects built in yr.4 x MW built, yr.4)] Divided by (Total MW built, yrs.1-4)

20. The policy choice between EDC programs and the unstructured SREC is a bet on one of two paths: over time, one will be cheaper than the other. The lowest risk to ratepayers lies in choosing the one that can most reasonably be expected to be the cheaper one, using the best available data and analysis.

21. Possible confounders in this study: 1. Rate of decline in the relative cost of solar 2. Investors make irrational decisions in the SREC market or 10-yr contract solicitations - Desperation - Misinformation - Irrational exuberance SREC market is not highly competitive 10-year contract solicitations are not highly competitive

22. High-risk investments always carry a premium cost. Therefore, high-risk market designs carry a premium cost. Summit Blue study finds that the lowest-risk market designs ( Feed-in Tariff and “Auction-Standard Contract ”) will carry the lowest ratepayer impact. The highest-risk market designs will carry the highest ratepayer impact.