1. 1 Combined Heat and Power (CHP) Settlement Overview Power Association of Northern California Luncheon, November 9, 2010 Frank Lindh General Counsel California Public Utilities Commission

2. 2 Scope of Settlement Goal: to resolve existing disputes and future issues related to Combined Heat & Power QFs Parties include: –QF/CHP Trade Groups (CCC, EPUC/CAC, IEP) –Investor Owned Utilities (PG&E, SCE SDG&E) –Consumer Groups (DRA, TURN) Negotiations started May 2009 and lasted 16 months

3. 3 Scope of Settlement Past, Present and Future Huge number of contested cases before the Commission and the appellate courts on pricing and contract terms GHG emissions (cap & trade/allowances) and how that could fit into a “must take” standard offer contract and avoided cost based pricing GHG Emissions reductions and optimization for both the electricity portfolio and at the individual facility Energy Policy Act (2005) and the potential suspension of the must-take obligation authorized under PURPA

4. 4 New CHP Program Transition from a PURPA-based QF program to a new CHP program under the state’s procurement authority Utilities will procure CHP in CA primarily (but not exclusively) via a competitive solicitation process using firm targets –Both MW and GHG reduction targets

5. 5 Targets “Initial Program Period:” 3,000 MW of CHP –SCE: 1,402 MW –PG&E: 1,387 MW –SDG&E: 211 MW Jurisdictional Utilities’ proportional share of statewide GHG emissions reductions from CHP –To be achieved by the end of 2020 –Use the Commission’s Procurement Planning Process to determine proper portfolio fit

6. 6 Pro Forma Contracts CHP RFO Pro Forma Transition Contract QF PURPA Contract (under 20 MW) As-Available Contract Amendment to existing contracts –Three in total, one for each IOU CHP Auditor NDA

7. 7 Suspension of PURPA Purchase Obligation Upon CPUC approval of settlement, IOUs will ask FERC to suspend their must-take obligation under PURPA § 210(m)(1)(C) –Based on MRTU day ahead market, Renewable Portfolio Standard, Resource Adequacy Capacity market, and the new CHP program CHP Providers will stipulate to the suspension of the must-take obligation

8. 8 Resolution of Pending Claims QF-related claims at the CPUC and at the Court of Appeals are withdrawn or closed Extensive list, including (but not limited to) –Retroactive adjustment of SRAC prices –Retroactive claims on energy or capacity adjustments –CPUC reconsideration of administrative heat rates to be closed with prejudice Transition contract terms and pricing

9. 9 Thank you! For Additional Information: www.cpuc.ca.gov