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Compilation And Summary Of Comments Provided On SREC Competitive Contracting Securitization Model

NJ SREC Securitization Working Group. Compilation And Summary Of Comments Provided On SREC Competitive Contracting Securitization Model. Reflecting Comments From: Rate Counsel JCP&L Hess Corporation PP&L Atlantic City Electric PSE&G Companies

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Compilation And Summary Of Comments Provided On SREC Competitive Contracting Securitization Model

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  1. NJ SREC Securitization Working Group Compilation And Summary Of Comments Provided On SREC Competitive Contracting Securitization Model Reflecting Comments From: Rate Counsel JCP&L Hess Corporation PP&L Atlantic City Electric PSE&G Companies Sun Farm Network Sun Power Connective Energy Solar Alliance June 4th, 2008

  2. LSEs That Buy SRECs To Satisfy RPS Direct contracting still allowed (especially legacy contracts) SRECs sold to LSEs on a competitve basis 3 SREC $$$$ 4 Contracts issued monthly in order of increasing SREC price in three segments based on size. EDC SREC Contracting Entity (limited to RPS capacity) Any Shortfall made-up by rate-based charge (after SACP true-up) 6 Negotiate 10-yr Standard SREC contract pricing negotiated per contract 1 SREC $$$$ 5 All project SRECs sold to EDC as per contract terms 2 Project Owner Or Developer Concept Summary Proposal: Authorize EDCs to serve as contracting intermediaries between SREC generators and the LSE buyers for PART of the market (60%). They provide long term SREC purchase contracts, with pricing set competitively based on monthly allocation cycles. Project SRECs are aggregated and sold to the LSEs, proceeds of which cover payouts to projects. Shortfall after consideration of administrative costs and profit, if any, is recovered by the EDCs through a SPRC-like charge across its customers. The RPS obligation remains with the LSEs as it is today.

  3. Example MW Allocations (including “catch-up”)

  4. Key Design Question Summary • SREC Contract Term • EDC Contracting Percent • Contracting Segment Design and SoftCaps • Maximum System Size For EDC-Contracts • Developer Cap • Program Sunset • Contract Allocation Schedule • Contract Allocation Method • Contract Pricing • Contract Application Requirements • Contract Process Adminstration • Project Eligibility • Legacy System Treatment • How EDCs Resell SRECs To LSEs • SREC Resell Pricing • EDC Cost Recovery • Monitoring and Reporting

  5. Design Parameter: SREC Contract Term • Design Parameter: SREC Purchase Contract Term • Original Proposal: 10 Years • Alternatives: • Rate Counsel: 15 years • JCP&L: 10 year term, with a 5-yr EDC call option • PP&L: 10 years or less, the shorter the better • PSEG: Limit the length to the shortest term necessary to meet the EMP goals • Sun Farm: 15 years to reduce SREC costs • Sun Power: 10 years • Connective: 10 years • Solar Alliance: 10 or 15 years • Discussion And Analysis: Qualification life (set by BPU) is 15 years, and PSE&G Solar Loan program • Term is 15 years (non-residential). Other states have adopted (Maryland) or are considering 15 year contracting • terms. The longer the term, the lower the requires SREC price, which helps avoid triggering the 2% cost cap. • Shorter contracting term preferred by LSEs given downward solar costs over time.

  6. Design Parameter: EDC Contracting Percent • Design Parameter: Percentage of the market is sold through EDC contracts • Original Proposal: 60% of NEW RPS capacity each year sold through EDC channel, • 60% target remains unless adjusted annually by the board. • Alternatives: • Rate Counsel: 60% EDC contracting, but would like to see cost cap. • JCP&L: 60% of NEW MW required to meet RPS, initial allocation large enough to address shortfall • PP&L: declining over time – 40% yr 1, 25% yr 2, 15% yr 3, 10% yrs 4-6 for certain segments • PSEG: Limit the scope to the minimum necessary to meet the EMP goals • Sun Farm: 60% for 3 years, but first year reflects “catch up” to address shortfall, recommended • contracting amounts: 60MW starting Sept 09, 47MW starting Sept ’10, 51MW starting Sept ’11, • reviewed and modified annually by the board (transparently, with stakeholder input). • SunPower: Declining schedule – Yr 1 = 50%, Yr 2 = 40%, Yr 3 = 30%, maintain %s if needed • Connective: start at 50%, declining over three year period • Solar Alliance: Annual MWs determined as proposed, EDC contracting 65% yr1, adjusting downward • Discussion And Analysis: Must make sure there is room in “direct contracting” for legacy systems.

  7. Design Parameter: Segment Design And Softcaps • Design Parameter: Design of segments, and segment softcaps • Original Proposal: Three Segments: <10KW residential (30%), <100KW • non-residential (40%), 100-700KW (30%); contracts for each cycle issued based on • soft caps in “first pass” of the cycle, any left-over MWs allocated in “second pass” • regardless of softcaps (to avoid stranded capacity). • Alternatives: • Rate Counsel: supports three segments as proposed (see max limit), opposes more segments • JCP&L: 4 segments - <20KW, 20-100KW, >100KW, grid supply • PP&L: limit to residential sector and certain segments needed • PSEG: Simplify segments • Sun Farm: Allocations run in “two passes”, left-over MWs reallocated in each cycle • SunPower: two segments: <30KW (25%), 30-700KW (75%) • Connective: low-income, <10KW residential, non-residential <150KW, 150-250KW • Solar Alliance: <20KW (25%), 20-200KW (25%), 200KW – 2MW (50%), adjusted annually. Any • MW not allocated within cycle automatically applied to other “oversubscribed” segments each cycle. • Discussion And Analysis: Trade Off: the more segments there are, the less efficient the program becomes • and the greater the chance that MWs are stranded; BUT, more Segments allow greater “shaping of the market” • to achieve policy goals.

  8. Design Parameter: Maximum System Size (EDC) • Design Parameter: Maximum system size for EDC contracts • Original Proposal: max system size of 700KW for EDC contracts, larger sells direct • Alternatives: • Rate Counsel: agrees with max size limit, but should consider special case for public projects • JCP&L: enlarge or eliminate caps on customer sited projects, no cap on grid supply projects • PP&L: 100KW max size • SunPower: 700KW as proposed • Connective: 250KW • Solar Alliance: 2MW • Discussion And Analysis: Maximum system size affected by size of cycle allocations (in KW)

  9. Design Parameter: Developer Cap • Design Parameter: Caps on developers getting EDC contracts • Original Proposal: No more than 30% by a developer within a given segment (per year) • Alternatives: • JCP&L: 50% developer cap for full contracted market in any given year, no cap on grid supply • PP&L: 33%, to align with current BGS policy • SunPower: 30% of EDC contracting total per year • Solar Alliance: 25-30% of EDC contracting within each segment for the year; projects that “drop out” • (times two) are deducted from involved contractor’s developer cap. • Discussion And Analysis: Cap requirement primarily driven by “market control” concerns, BGS precedent

  10. Design Parameter: Program Sunset • Design Parameter: How long the EDC contracting program is offered • Original Proposal: Three years, starting Sept 2009, Sept 2010. and Sept 2011; program • may be continued, modified, or eliminated by the board at the end of the 3 years. • Alternatives: • Rate Counsel: 3 Years as a pilot program. • JCP&L: start in Jan 2009, review at end of 2010 (continue, modify, discontinue), as needed changes • PP&L: 6 years, on a declining schedule (see segment design) • PSEG: Limit the scope to the minimum necessary to meet the EMP goals • Sun Farm: Three years, starting Sept ‘09, Sept ‘10, Sept ‘11, including “catch-up” from 08 • SunPower: Three years, starting in 2008 (some EY 09 impact, but mostly EY 2010) • SolarAlliance: Three years • Discussion And Analysis:

  11. Design Parameter: Contract Allocation Schedule • Design Parameter: When throughout the year are EDC contracts allocated • Original Proposal: Contract season starts in Sept of each year for construction during • the following year; 20% of annual allocated in Sept, 10% each of following 8 months. • Alternatives: • JCP&L: Quarterly, needs time to start-up processes (wants to start in Jan 2009). • PP&L: Auctioned to projects annually • PSEG: Simplify contract timelines • Sun Farm: Conduct cycle when accumulated applications = 1/4 of annual, but at least quarterly • SunPower: Monthly for <30 KW, quarterly for 30-700KW • Connective: no preference, but timing and transparency key, should be timely • Solar Alliance: Monthly for <20KW segment, quarterly for all other. • Discussion And Analysis: Needs to be far enough in advance of energy year to allow installations

  12. Design Parameter: Contract Allocation Method • Design Parameter: How EDC contracts are awarded to projects • Original Proposal: Rank ordered from lowest to highest SREC price, and secondarily • by time since project application (age); un-awarded projects stay “in line” for next cycle • but may adjust their application (to reduce administration costs and customer churn). • Alternatives: • JCP&L: ranked by price, with bonus points for constrained areas, un-awarded project re-apply • PP&L: ranked by lowest price via auction • SunPower: Lowest to highest price • Connective: ranked lowest to highest price, assuming acceptable performance metrics • Solar Alliance: ranked lowest to highest price, age secondarily; blind auction but results published • Discussion And Analysis: Intended to require supply-side competition

  13. Design Parameter: Contract Pricing • Design Parameter: How prices on EDC contracts are set • Original Proposal: Each contract gets the SREC price offered in their application, • As awarded in a “lowest to highest” allocation process. • Alternatives: • JCP&L: projects get price offered in application, tests to ensure fair bidding and board approval • PP&L: pricing set via annual auction to projects; payments made to projects quarterly • SunPower: Project gets price offered in application • Connective: must be competitive • Solar Alliance: • Discussion And Analysis:

  14. Design Parameter: Application Requirements • Design Parameter: Requirements for projects to apply to EDC contracts • Original Proposal: Completed standardized application, signed contracts, similar • to current applications to the SREC-only pilot, single projects only. • Alternatives: • JCP&L: Individual projects, signed contracts, application fee, security bonding • PP&L: Meet board established criteria • SunPower: Signed LOI, application deposit, installation deadlines • Connective: should encourage all types of projects • Solar Alliance: signed contract, refundable reservation fee, standard form w/ panel supply proof. • 6 Mo completion for <20KW, 12 Mo completion all other • Discussion And Analysis: Intended to minimize scrub without being overly onerous or increasing costs.

  15. Design Parameter: Contract Process Administration • Design Parameter: How are EDC contracts administered • Original Proposal: Done by each participating EDC for contracts in their territory • Alternatives: • JCP&L: Joint EDC process, reuse existing processes where possible, work with OCE/Market Managers • SunPower: By EDCs, different programs by different EDCs OK • Solar Alliance: standardized, similar to SREC-only pilot. Central administrator preferred. • Discussion And Analysis:

  16. Design Parameter: Project Eligibility • Design Parameter: Project eligibility requirements • Original Proposal: All customer sited (both rebated small (09-budget+, and SREC-only • Pilot), grid supply (once apporoved), and community solar projects (once approved). • Alternatives: • JCP&L: New SREC-eligible projects in territory, installation 6Mo (>20KW) or 12 mo, metered. • PP&L: Must meet in-service date, financial/operational requirements, developers penalized for scrub • SunPower: All non legacy projects that provide signed LOI, application deposit, installation deadlines • Connective: should encourage all types of projects, performance requirements; aggregation allowed • Solar Alliance: All new (both rebated and non-rebated) projects allowed, including customer • sited, grid supply, and community solar. • Discussion And Analysis:

  17. Design Parameter: Legacy System Treatment • Design Parameter: How legacy systems are treated under the program • Original Proposal: Projects that received rebates from the 2001-2008 CORE rebate • program are not eligible for EDC contracts. They still sell direct or through aggregators. • Alternatives: • JCP&L: existing systems not allowed, including expansions to existing systems • PP&L: legacy systems not eligible • Sun Farm: Legacy not eligible, Legacy = rebate under 01-08 CORE, doesn’t include SREC-pilot • SunPower: Legacy projects not eligible • Connective: Legacy projects not eligible • Solar Alliance: • Discussion And Analysis:

  18. Design Parameter: EDCs Reselling SRECs To LSEs • Design Parameter: Howe EDCs resell the aggregated SRECs to the LSEs • Original Proposal: At their own discretion, LSE participation optional. • Alternatives: • Rate Counsel: via auction (similar to PSE&G auction), LSE participation voluntary. • JCP&L: Statewide auction process (similar to PSE&G), multi-year contracts • Hess: strongly opposes LSEs being required to purchase EDC SRECs, participation must be voluntary • PP&L: SRECs allocated equally to LSEs that choose to participate, participation voluntary; OR Auction • SunPower: EDC auction with floor price (LSE participation voluntary), LSEs must buy un-auctioned • SRECs (at EDC cost plus admin) • Connective: Auction in January to all participants (BGS suppliers, other buyers) • Solar Alliance: Annual spot market purchases, with floor based on average price, LSEs must buy. • LSE affiliates not allowed to offer projects into the program. • Discussion And Analysis:

  19. Design Parameter: SREC Resell Pricing • Design Parameter: How SREC prices are set when resold by the EDCs to the LSEs • Original Proposal: Based on competition by the LSEs. • Alternatives: • JCP&L: set through the auction process. • PP&L: Allocation – average SREC price paid by EDC, Auction – based on auction. • ACE: Assign aggregated EDC SRECs to BGS winners, BPU approved BGS rate recovery • SunPower: EDC auction with minimum price (floor = EDC cost + admin) • Connective: Set in auction • Solar Alliance: Floor set based on average price, LSEs bid floor or higher to get SRECs • Discussion And Analysis:

  20. Design Parameter: EDC Cost Recovery • Design Parameter: How EDCs recover their costs • Original Proposal: SREC sales plus a charge across the customer base, covering • contract payouts, administrative costs, and an incentivized rate of return. • Alternatives: • Rate Counsel: can recover incurred costs and “reasonable” rate of return based on performance. • JCP&L: All admin costs and SREC revenues settle via SPRC-like rider, all classes, non-bypassable, • additional incentives (share of avoided cost) based on performance. • PP&L: Should recover costs, but not an incentivized rate of return. • ACE: Program losses, if any, cannot be borne by EDC customers • SunPower: Guaranteed if administrator meets performance requirements, earned return from savings • Connective: Must be able to stand up to scrutiny and allow market stability • Solar Alliance: shortfall, if any, recovered through rider with BPU regulated profit • Discussion And Analysis:

  21. Design Parameter: Monitoring And Reporting • Design Parameter: Requirements for monitoring and reporting of the program • Original Proposal: Not specified. • Alternatives: • Rate Counsel: Goals and metrics should be defined and transparently reported • JCP&L: Contract allocation results (including anonymous pricing) published quarterly • Sun Farm: Specific metrics should be established and reported frequently • Solar Alliance: Prices should be reported after each cycle, anonymously • Discussion And Analysis:

  22. Other Comments • Atlantic City Electric: exploring development of its own solar loan program • PSE&G Companies: • Use PSE&G Solar Loan program within PSE&G territory, give pilot time to work • Refrain from requiring other regulated mechanisms within territory • Consider encouraging other utilities to implement similar loan program • PSE&G is willing to consider significant expansion of current solar loan program • PSE&G is willing to take additional steps to facilitate solar development • Competitive SREC contracting not needed in PSE&G territory • PSE&G opposes EDC long term purchase contract paradigm • Competitive SREC contracting model represents a “radically different direction” • Competitive SREC contracting model potentially poses balance sheet issues • Debt financing for a large number of small PPAs will likely be costly and inefficient • PSE&G program went through extensive scrutiny, current proposal has not

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