© 2005 San Diego Gas and Electric Company and Southern California Gas Company. All copyright and trademark rights reserved Senate Energy Committee Hearing on PIER San Diego Gas and Electric / Southern California Gas Company S.A.Yari Director of Electric Transmission and Distribution Engineering, SDG&E March 1, 2011

LAO Report Finding Overall, we agree with the LAO Report findings CEC PIER research does not always provide overall tangible ratepayer benefit Tightening of funding eligibility parameters and allocation process improvements are needed IOUs have a greater incentive now than when PIER was originally created to invest in research to meet state energy goals PIER program benefits have been overstated by CEC in some instances Program needs a more strategic focus to help the state reach its energy goals 2

If Program Continues, Changes are Needed to Improve RD&D Efforts More IOU control over program planning and project selection to ensure tangible ratepayer benefits and focus on state energy goals The IOUs collectively have tremendous experience and knowledgeable personnel in the electric business, state energy mandates and can provide significant guidance and efficiency Direct IOU control over a substantial portion of funds currently contributed to PIER Bullet-proof security that funds collected for RD&D will be used for RD&D Streamline program management to facilitate quicker project implementation POUs should participate in the process only to the extent they contribute to the program Program needs to target more demonstration and real-world application of projects Our support for reauthorization of PIER is contingent on these changes 3

LAO Option 1: Continue PIER Under CEC with Tighter Focus Pros: Tighter focus could potentially help target RD&D on meeting state energy goals Cons: Does Not Address Other Program Changes No assurance IOUs have the control or flexibility to meet their CPUC mandated targets and ensure its ratepayers are receiving benefits No security of funds No allocation of funds directly for IOU use Does not address POU issue Conclusion: Option is inadequate without further changes to address other needed program modifications 4

LAO Option 2: IOU Rate Recovery of Public Interest Research Pros: Process would be more efficient Ensures tangible research and demonstration is targeted for direct ratepayer benefit Ensures research is targeted to meet reaching state energy goals and utility operating issues IOUs better understand the needs of their ratepayers, operations, and investments needed to meet state energy goals IOUs have the necessary experience managing programs to meet state energy goals such as energy efficiency and demand response Ensures that funds will not be diverted Cons: Statewide framework for collaboration would need to be established Conclusion: Option generally addresses issues of concern, we need to assure CPUC authorization of funding transfer back to IOUs 5

LAO Option 3: Public – Private Partnership Pros: Places the responsibility of delivering ratepayer benefits with the IOUs, and if designed properly could result in more secure funding Cons: Greater bureaucracy – depends on creating an effective advisory council, including a multitude of stakeholders, to provide input to utility plans Inhibits the IOU’s flexibility to act in the best interest of its ratepayers Conclusion: Creates more bureaucracy and will result in longer review and approval process of research projects and create more delays in getting much needed research completed to meet state energy goals 6