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City of San Diego Proposal re: SB 920, Net Surplus Compensation Rate

This proposal suggests setting the Net Surplus Compensation Rate for renewable energy in San Diego at the utilities' marginal cost of generation. The City offers an alternate proposal of setting the rate equal to the full retail rate to simplify administration. Other implementation issues are also discussed.

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City of San Diego Proposal re: SB 920, Net Surplus Compensation Rate

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  1. City of San Diego Proposal re: SB 920, Net Surplus Compensation Rate Suzie Kito MRW & Associates, LLC 1814 Franklin Street, Suite 720 Oakland, CA 94612 (510) 834-1999 www.mrwassoc.com July 9, 2010

  2. City of San Diego’s Proposal • Net Surplus Compensation Rate should be set at the utilities’ marginal cost of renewable generation with similar attributes • Price of renewable power that the utilities purchase from third parties is not publicly available • Reasonable proxy for utilities’ marginal cost of renewable energy is cost of utility-owned renewable energy facilities • This proposal is consistent with SB920 requirements

  3. City of San Diego’s Proposal (cont.) Utilities have requested approval for their own photovoltaic (PV) generating facilities, with capital costs (i.e., not O&M or A&G) ranging from $3500 - $4300/kW The City estimates that the Net Surplus Compensation Rate should be at least 20 – 25 cents per kWh* Cost reflects both the value of power and renewable attributes, since utility projects can meet RPS obligations This methodology ensures just compensation and leaves ratepayers indifferent between customer provided renewable power and utility provided renewable power *Assumes fixed charge rate of 15%, capacity factor of 30% 3

  4. City of San Diego’s Alternate Proposal The City’s alternate proposal is that the net compensation generation rate be set equal to the full retail rate This price is likely to be less than the utilities’ marginal cost of renewable generation, but may be less burdensome to administer 4

  5. Other Implementation Issues Rate should be set consistently for each utility and should not be updated until utilities pursue additional renewable projects Should not pay for renewable attributes if sold to a third-party Customers need only have surplus energy to receive compensation (no bill credit should be required, just as no compensation should be given even if bill credit present with no surplus energy) Should aim for administrative simplicity 5

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