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REC cost estimation . April 23, 2010 Eric Lavik. Agenda. Overview Valuation components and calculation Relation to other proposals/comments. Overview. Objective:

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Presentation Transcript

Agenda

- Overview
- Valuation components and calculation
- Relation to other proposals/comments

Overview

- Objective:
- Infer the cost of RECs from a transaction containing RECs and other products in a manner that is consistent with procurement decisions being made by the utilities

- Assumption:
- Residual cost of a contract (e.g., the cost in excess of the avoided brown energy and capacity benefits) is being incurred due to the RPS

- Proposal:
- Use solicitation valuation results from each utility to calculate the levelized nominal premium per MWh
- Valuation methodologies undergo review and approval by the CPUC and are subsequently reviewed by the PRG and an Independent Evaluator during implementation
- Consistent components and valuation methodology with solicitation approach, limiting any potential product biasing due to implementation of a secondary valuation approach

- Valuation components included in the calculation are as described on the following slide

- Use solicitation valuation results from each utility to calculate the levelized nominal premium per MWh

Levelized Benefits

- Contract Payments
- Based on the confidential contract price, contract specific time-of-delivery factors, expected generation profile and contract term
- Transmission Cost
- Cost to deliver energy to point specified for energy/capacity valuation
- Debt Equivalence Mitigation Expense
- Cost of mitigating contract commitments on SCE’s balance sheet per CPUC approved methodology
- Integration Cost
- Deemed to be $0/MWh per D.04-07-029
- REC cost estimation should be consistent with CPUC valuation methodology

- Energy Value
- Based on each utility’s proprietary energy price forecast, which consistently forecasts energy values throughout the WECC (including California)
- The availability and validity of alternative, public forecasts is limited1
- Capacity Value
- Due to the various delivery points and proposed contract structures, each proposal should be valued according to each utility’s approved procurement valuation methodology
- Firming and Shaping
- If firming and shaping is included in the contract cost, the incremental benefit to the utility will be incorporated into the energy and capacity benefits

Valuation Components

{Levelized Costs} – {Levelized Benefits} = REC cost in $/MWh

1. A public forecast of energy and capacity benefits has not been identified for use in benchmarking California bids in the MPR

Relation to other proposals/comments

- PG&E’s proposal
- Methodology of Costs – Benefits = REC Cost is similar to SCE’s
- Contains different cost components from SCE’s proposal
- Excludes debt equivalence
- Includes integration costs

- DRA comments
- Recommends that the adopted REC pricing method should not favor one transaction type over another
- SCE’s proposal provides an unbiased approach to procurement when considering all products bid into the solicitation, including firmed and shaped, REC-only, dynamically scheduled, and CA interconnected, within the CPUC approved valuation methodology

- Recommends that the adopted REC pricing method should not favor one transaction type over another

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