WSPP Contract Subcommittee February 3, 2011 Meeting Notes

1. WSPP Contract SubcommitteeFebruary 3, 2011Meeting Notes These notes are to facilitate discussions of a WSPP REC Service Schedule, are subject to revision, and indicate no final decision by the Subcommittee or WSPP. Arnie Podgorsky WSPP Legal Counsel 202.393.1200 podgorsky@wrightlaw.com

2. Product Structure: Extent of Environmental Attributes Conveyed • In lieu of open matrix structure to identify the Environmental Attributes (“EA”) covered by the REC, use more specific product definitions. Following are concepts: • Selling all EA: The REC covers all EA of the Renewable Energy Facility (REF), regardless of whether the EA are required by a particular statute or Applicable Program. The product may contain an optional Seller representation that the REC fulfills requirements of identified statutes. • One perspective: the REC would likely fulfill requirements of all programs in all states, and under any Federal program that may arise, thereby facilitating a secondary market. • Another perspective: A Seller potentially would be providing EA for which it may not have been paid. Some Seller’s want to clearly to sell only what is identified in the REC. • Selling limited EA: The REC meets requirements of identified statutes, with Seller retaining all EA not required under the statute. For example, if the statute does not require carbon credits, the Seller would retain right to sell carbon credits associated with the same generation. Possibly: if no statute is identified, then Seller would be conveying all EA. • Related Draft Changes: Delete references to basic, specified, and standard REC, but the Confirmation could additional specificity if the parties elect.

3. Product Structure: Relationship between Energy and RECs • The relationship between energy and RECs raises two concerns: (a) differentiating between FERC-regulated bundled (energy and REC) transactions and not unwittingly extending FERC jurisdiction to pure REC transactions ; and (b) drafting to combine energy/REC concepts for bundle Confirmations. Following are product concepts: • Pure REC (no energy) • Bundled Energy/REC • Single price for energy and REC. If all EA are conveyed (up to the parties), this product would be “Green Tag.” Damages would be calculated for this single product via a single calculation. • Separate pricing for energy and REC stated in a single Confirmation. Damages would involve two calculations.

4. Product Structure:REC and Bundled Energy/REC Firmness • Two firmness levels: • “Firm:” a firm commitment, subject only to Uncontrollable Force (let’s review UF).such that unexcused performance . Remedy for failure to deliver. • “Resource Contingent:” Purchaser receives all RECs generated from a designated resource to a specified, maximum. Two options for this product (they differ materially): • As the designated resource is run: REC provision required only to the extent the unit runs, and reasons for not running are irrelevant. Assure confirm language conforms to definition • Required availability of designated resource: REC provision required only to the extent the unit runs, but the unit must run to the extent of the wind/sun, subject to outage (forced or planned), third-party curtailment, and otherwise as agreed in the Confirmation • For bundled products, these contingency categories apply to both the energy and RECs, substituting for the mandates of existing service schedules

5. Bundled Products:Payment Arrangements • Energy and REC delivery is not simultaneous (even in a bundle); REC delivery occurs upon WREGIS (or other) certification, which can take 90 days. • Bundled Product/Single pricing: Single payment schedule based on REC delivery (which will always be later than delivery of energy). • Bundled Product Split pricing: • Netting: applies to split payments across split payment schedules (such that the payment due for delivered energy will (will not?) be reduced by the (future?) obligation to pay for the REC upon delivery. • Payment for Delivered REC: same terms as for energy, i.e., 20th day of the month in which the invoice was received or the 10th day after receipt of the bill, whichever is later • Shortening REC delivery: potentially address with WREGIS why such a lengthy period for creation of certificate (90 days). • Bankruptcy risk: Consider/address bankruptcy status of RECs that are generated but not delivered (WREGIS has not yet certified). Analysis depends initially on who is owner: when does title pass under WREGIS framework? Also, forward transfer option under WREGIS could provide a remedy: checked box makes the transfer of the REC irrevocable once certified (but verify the bankruptcy status of that irrevocability).

6. Remedies • Purchaser failure to receive: Purchaser required to pay (Seller has mitigation duty, though, which may obligate Seller to seek substitute Purchaser) • Seller fails to provide: Damages would be the lower of market price (replacement cost) or the alternative compliance payments (ACP) applicable to the quantity of undelivered RECS. What is timing for the calculation (is it failure to generate or later, when WREGIS does not certify and deliver)? Further considerations: • The ACP for the quantity of undelivered RECS may differ from the ACP actually paid. If so, which applies? Amount actually paid may be lower because Purchaser may have other RECs it can use. One member urges that Seller should get this benefit, but this may deprive Purchaser of the benefit of the bargain and be a windfall to Seller. • If under statute giving rise to the ACP treats the ACP as a penalty or sanction for non-compliance, then verify whether Seller’s obligation to pay the ACP will be enforceable. • Some concern that Seller payment of ACP in lieu of damages may be insufficient to incent Seller performance. Proposal is to require payment of an enhanced ACP, perhaps 110%.