Subject: Submission of Amended and Restated Agreements for Procurement of Renewable Energy From SCE s 2003 Renewables Portfolio Standard Solicitation

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1 STATE OF CALIFORNIA EDMUND G. BROWN JR., Governor PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE SAN FRANCISCO, CA January 13, 2011 Akbar Jazayeri Vice President, Regulatory Operations Southern California Edison Company P. O. Box 800 Rosemead, CA Advice Letter 2502-E Subject: Submission of Amended and Restated Agreements for Procurement of Renewable Energy From SCE s 2003 Renewables Portfolio Standard Solicitation Dear Mr. Jazayeri: Advice Letter 2502-E is withdrawn on December 23, Sincerely, Julie A. Fitch, Director Energy Division

2 Akbar Jazayeri Vice President of Regulatory Operations ` August 24, 2010 ADVICE 2502-E (U 338-E) PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION SUBJECT: Submission of Amended and Restated Agreements for Procurement of Renewable Energy From SCE s 2003 Renewables Portfolio Standard Solicitation I. INTRODUCTION A. Purpose of the Advice Letter Southern California Edison Company ( SCE ) submits this Advice Letter in compliance with California Public Utilities Code Section et seq. (the RPS Legislation ) seeking approval of two amended and restated renewable power purchase and sale agreements ( PPAs ) between SCE and Calico Solar, LLC ( Calico ), dated June 25, 2010, which together amend, restate, and replace in its entirety the renewables portfolio standard ( RPS ) PPA that was made effective as of August 9, 2005 (the Original Agreement ) between SCE and SES Solar One LLC ( SES Solar ) (now known as Calico). The Original Agreement resulted from SCE s 2003 RPS solicitation, and was approved by the California Public Utilities Commission ( Commission or CPUC ) by Resolution E-3957, effective October 27, The Original Agreement was for the purchase and sale of the output from a new solar thermal project with an initial capacity of 500 megawatts ( MW ), and a possible expansion capacity of 850 MW. On or about February 1, 2010, Calico was created as the result of the merger of certain affiliates of SES Solar holding permits, entitlements, and other documentation applicable to the Original Agreement. On or about April 22, 2010, SES Solar merged into Calico, and pursuant to that merger, SES Solar assigned, and Calico assumed, all rights, duties, and obligations of SES Solar under the Original Agreement. On or about P.O. Box Walnut Grove Ave. Rosemead, California (626) Fax (626)

3 Advice 2502-E (U 338-E) August 24, 2010 May 24, 2010, SCE consented to the assignment and Calico became the Seller under the Original Agreement. The Original Agreement has been amended and restated in two parts. The Amended and Restated PPA Part I ( Part I ) is for the output of a new 275 MW solar thermal facility that is eligible for early interconnection to the California Independent System Operator ( CAISO ) system. The Amended and Restated PPA Part II ( Part II ) is for the output of a new 575 MW solar thermal facility that is expected to come on-line later. The Amended and Restated PPAs Parts I and II shall be collectively referred to as the Amended & Restated Calico PPAs. The 275 MW (Phase I) and 575 MW (Phase II) solar thermal facilities together comprise the Calico Project. A table summarizing the Amended & Restated Calico PPAs is as follows: Seller Calico Solar, LLC Calico Solar, LLC Generation Type Solar Thermal Solar Thermal Size Estimated Annual Energy Forecasted Initial Operation Date Term of Agreement 275 MW 638 GWh January 31, Years 575 MW 1,335 GWh January 1, Years TOTAL 850 MW 1,973 GWh SCE requests that the Commission issue a resolution containing findings in the form requested in this Advice Letter as soon as possible, but in any event no later than November 19, 2010, due to the timing associated with Calico s parent company Tessera Solar North America, Inc. s ( Tessera ) application pursuant to the U.S. Department of Energy s July 29, 2009 solicitation entitled Federal Loan Guarantees for Projects that Employ Innovative Energy Efficiency, Renewable Energy, and Advanced Transmission and Distribution Technologies (reference number: DE-FOA ), as well as the timing associated with Tessera s application for a treasury grant pursuant to Grants for Specified Energy Property in Lieu of Tax Credits provided by the U.S. Department of Treasury under Section 1603 of the American Recovery and Reinvestment Act of In accordance with General Order ( GO ) 96-B, the confidentiality of information included in this Advice Letter is described below. This Advice Letter contains both confidential and public appendices as listed below. Confidential Appendix A: Confidential Appendix B: Consistency with Commission Decisions and Rules and Project Development Status 2009 Solicitation Overview and Workpapers Confidential/Public Appendix C: Independent Evaluator Report

4 Advice 2502-E (U 338-E) August 24, 2010 Confidential Appendix D: Confidential Appendix E: Confidential Appendix F: Confidential Appendix G: Confidential Appendix H: Appendix I: Confidential Appendix J: Confidential Appendix K: Confidential Appendix L: Confidential Appendix M-1: Confidential Appendix M-2: Confidential Appendix N: Appendix O: Appendix P: Confidential Appendix Q: Confidential Appendix R: Contract Summary Amended & Restated Calico PPA Part I Amended & Restated Calico PPA Part II Original Agreement Calico s Contribution Toward RPS Goals SCE s Written Description of RPS Proposal Evaluation and Selection Process and Criteria AMF Calculators Using 2008 MPR AMF Calculators Using 2009 MPR Project Viability Calculator Original Cash Flow Model Updated Cash Flow Model Pilot Project Information Confidentiality Declaration Proposed Protective Order Comparison of Amended & Restated Calico PPA Part I to 2009 Pro Forma Comparison of Amended & Restated Calico PPA Part II to 2009 Pro Forma B. Subject of the Advice Letter The Calico Project includes two solar thermal facilities: Calico Solar One (275 MW, Phase I early interconnect) and Calico Solar Two (575 MW, Phase II), which together comprise a new 850 MW solar thermal project. The Calico Project is owned and operated by Calico, a Delaware limited liability company. The seller under the Amended & Restated Calico PPAs is also Calico. Calico is wholly-owned by Tessera. The Calico Project is located on approximately 6,215 acres just north of Interstate 40, approximately 30 miles east of Barstow, California, near the Pisgah Substation. The interconnection point is the Pisgah Substation.

5 Advice 2502-E (U 338-E) August 24, 2010 The Calico Project uses Stirling Solar Dish technology, which employs mirrors set in a radial frame that concentrate and focus the sun s rays onto a collector that uses a Stirling engine to convert the thermal energy into electric energy. Each unit is a fully independent power plant rated at 25 kilowatts ( kw ). The thermodynamic cycle for the Stirling engine was first described in 1816 by Robert Stirling. Developed in stages by predecessors of Tessera s sister company, Stirling Energy Systems, Inc. ( SES ), the latest version of the design was unveiled in 2009, and is the unit that will be utilized by the Calico Project. The technology uses far less water than other thermal energy conversion technologies. The units utilize drives designed for full sun-tracking thereby maximizing the units on-sun time. The technology is modular and scalable. A pilot project demonstrating the commercialization of the technology (i.e., the Maricopa Reference Plant) was brought into commercial operation on March 15, The Original Agreement, executed on August 9, 2005, originated from SCE s 2003 RPS solicitation. In April 2009, Tessera approached SCE seeking a modification to the energy price in the Original Agreement because, among other things, Tessera had redesigned the power conversion units ( SunCatchers ), finalized contracts for supply and fabrication of major components, updated its projections of Bureau of Land Management ( BLM ) land lease rates, and refined its project capital cost structure. Negotiations began in earnest in November SCE and Tessera determined that rather than amending the Original Agreement, it would be more appropriate to amend and restate the agreement using SCE s 2009 pro forma PPA as the starting point. SCE and Tessera further determined that the agreement should be divided into two parts since 275 MW of the 850 MW may be interconnected with the CAISO system at the existing Pisgah Substation. Interconnection of the remaining 575 MW requires rebuilding and possibly relocating the Pisgah Substation and would not be available until a later date. Interconnection of both the 275 MW and the 575 MW facilities is the subject of a CAISO Large Generator Interconnection Agreement ( LGIA ) executed on February 26, After evaluating the cost data (included in the confidential appendices to this Advice Letter) and comparing the proposed Amended & Restated Calico PPAs to the proposals from SCE s 2009 RPS solicitation, SCE concluded that the Original Agreement must be modified so that development of the Calico Project can proceed. SCE presented the proposed Amended & Restated Calico PPAs to its Procurement Review Group ( PRG ) on May 12, On June 25, 2010, SCE and Calico executed the Amended & Restated Calico PPAs, which modify and update several of the terms and conditions in the Original Agreement. The amended energy price is above the 2009 market price referent ( MPR ). However, the amended energy price is at or below the 2008 MPR and compares favorably to the proposals from SCE s 2009 RPS solicitation. SCE believes that the Amended & Restated Calico PPAs are necessary for the continued development and operation of the Calico Project. Without the changes set

6 Advice 2502-E (U 338-E) August 24, 2010 forth in the Amended & Restated Calico PPAs, the Calico Project would not be viable. The Amended & Restated Calico PPAs will allow the Calico Project to remain viable and will help ensure that Calico meets the newly established forecasted initial operation dates of January 31, 2012 and January 1, 2014, as well as the startup deadlines of December 31, 2012 and December 31, 2016 for the 275 MW early interconnect facility and the 575 MW facility, respectively. The Calico Project will make a significant contribution to SCE s efforts to meet the State s RPS goals. Accordingly, SCE requests that the Commission approve the Amended & Restated Calico PPAs. C. General Project Description Project Name Technology Calico Solar One and Calico Solar Two Solar Thermal (Stirling Solar Dish SunCatchers ) Capacity (MW) 275 MW early interconnect (Phase I) 575 MW (Phase II) TOTAL 850 MW Capacity Factor 26.5% Expected Generation (GWh/Year) Phase I 638 GWh/year Phase II 1,335 GWh/year TOTAL 1,973 GWh/year Initial commercial operation date Phase I January 31, 2012 Phase II January 1, 2014 Date contract Delivery Term begins Phase I January 31, 2012 Phase II January 1, 2014 Delivery Term (Years) 20 Vintage (New/Existing/Repower) Location (city and state) Control Area (e.g., CAISO, BPA) Nearest Competitive Renewable Energy Zone (CREZ) as identified by the Renewable Energy Transmission Initiative (RETI) Type of cooling, if applicable New Approximately 30 miles east of Barstow, California CAISO Pisgah Air cooled. No central cooling facility. SunCatcher units are self-contained.

7 Advice 2502-E (U 338-E) August 24, 2010 Price relative to MPR (i.e., above/below) Above 2009 MPR; at or below 2008 MPR D. General Deal Structure The Amended & Restated Calico PPAs are based on SCE s 2009 pro forma PPA, with certain provisions from the Original Agreement that remain relevant to the Calico Project development effort and the deployment of this new technology. SCE is purchasing all electric energy produced by the Calico Project throughout the contract term, net of station use (if any), and all green attributes, capacity attributes, and resource adequacy benefits generated by, associated with, or attributable to the Calico Project. The delivery point is the Pisgah Substation. Additional information regarding the deal structure of the Amended & Restated Calico PPAs is provided in Appendix D. E. RPS Statutory Goals By providing renewable energy from an eligible renewable energy resource ( ERR ) as defined under the RPS Legislation, the Calico Project is consistent with, and contributes toward, the RPS program s statutory goals. Among other things, by supporting a new solar thermal generation project in California, the Amended & Restated Calico PPAs help to ensure stable electricity prices, protect public health, improve environmental quality, stimulate economic development, and create new employment opportunities. F. Confidentiality SCE is requesting confidential treatment of Appendices A and B, D through H, J through N, Q and R, and the confidential version of Appendix C to this Advice Letter. The information for which SCE is seeking confidential treatment is identified in the Confidentiality Declaration attached as Appendix O. The confidential version of this Advice Letter will be made available to appropriate parties (in accordance with SCE s Proposed Protective Order, as discussed below) upon execution of the required nondisclosure agreement. Parties wishing to obtain access to the confidential version of this Advice Letter may contact Cathy Karlstad in SCE s Law Department at Cathy.Karlstad@sce.com or (626) to obtain a non-disclosure agreement. In accordance with GO 96-B, a copy of SCE s Proposed Protective Order is attached hereto as Appendix P. It is appropriate to accord confidential treatment to the information for which SCE requests confidential treatment in the first instance in the advice letter process because such information is entitled to confidentiality protection pursuant to Decision ( D. ) , and is required to be filed by advice letter as part of the process for obtaining Commission approval of RPS PPAs. SCE would object if the information were disclosed in an aggregated format. The information in this Advice Letter for which SCE requests confidential treatment, the pages on which the information appears, and the length of time for which the information should remain confidential, are provided in Appendix O. This information is entitled to confidentiality protection pursuant to D (as provided in the

8 Advice 2502-E (U 338-E) August 24, 2010 Investor-Owned Utility ( IOU ) Matrix). The specific provisions of the IOU Matrix that apply to the confidential information in this Advice Letter are identified in Appendix O. II. CONSISTENCY WITH COMMISSION DECISIONS A. Compliance with Commission Decisions on Amendments As explained below and in the Appendices, the Amended & Restated Calico PPAs are consistent with Commission guidelines regarding amendments. In particular, in Resolution E-4199, the Commission set forth eligibility criteria and guidelines for approving requests for above-market costs of renewable energy contracts negotiated through competitive solicitations. As part of that Resolution, the Commission established standard information that the IOUs, developers, and Independent Evaluators ( IE ) must provide when submitting amendments that affect the contract price of an approved contract. This Advice Letter complies with these requirements. More specifically, the Amended & Restated Calico PPAs compare favorably to current market data. The Amended & Restated Calico PPAs are competitive with projects that were shortlisted in SCE s 2009 RPS solicitation. Additional information on the comparison of the Amended & Restated Calico PPAs against current market data is provided in the Appendices A through D. The energy prices in the Amended & Restated Calico PPAs are above the 2009 MPR, but are at or below the 2008 MPR. Consistent with Commission decisions, SCE is providing the Commission with cash flow models in Appendices M-1 and M-2. SCE is also attaching the IE s Report as Appendix C. B. The Original Agreement In Resolution E-3957, the Commission approved the Original Agreement, having determined that it was consistent with SCE s Long Term Procurement Plan. The Commission concluded in Resolution E-3957 that the Original Agreement falls within the criteria identified in SCE s 2005 Request for Proposals ( RFP ) and will contribute toward achievement of SCE s RPS procurement goals. C. SCE s 2009 RPS Procurement Plan 1. SCE s 2009 RPS Procurement Plan Was Approved by the Commission and SCE Adhered to Commission Guidelines for Filing and Revisions In D , the Commission conditionally approved SCE s 2009 RPS Procurement Plan, including the solicitation materials for SCE s 2009 RPS solicitation. The Commission also ordered SCE to make certain changes to its 2009 RPS Procurement Plan and to file the amended documents with the Director of the Energy Division, and serve such documents on the service list, by June 22, On June 22, 2009, SCE

9 Advice 2502-E (U 338-E) August 24, 2010 filed and served its Amended 2009 RPS Procurement Plan, including its amended 2009 solicitation materials. On June 26, 2009, SCE filed and served its Second Amended 2009 RPS Procurement Plan, including its further amended 2009 solicitation materials. Consistent with the schedule set forth in D , SCE issued its RFP on June 29, On June 19, 2009, the Commission issued D , which approved a fast-track review process allowing for the use of Tier 2 advice letter filings for short-term RPS contracts of less than 10 years duration that meet certain criteria set forth in the decision. The Commission also directed the IOUs to submit their pro forma short-term contracts as amendments to their 2009 RPS Procurement Plans within 14 days from the date of the decision. Pursuant to D and an extension of time granted by the Commission s Executive Director, on July 17, 2009, SCE filed and served its Third Amended 2009 RPS Procurement Plan, including its very short-term pro forma confirmations and certain other further amended 2009 solicitation materials. As SCE s Third Amended 2009 RPS Procurement Plan was not suspended by the Commission s Executive Director or Energy Division Director by July 24, 2009, SCE used its shortterm pro forma confirmations and other further amended 2009 solicitation materials in its 2009 RFP as of that date. 2. Summary of SCE s 2009 RPS Procurement Plan s Assessment of Portfolio Needs SCE s 2009 RPS Procurement Plan indicated that SCE planned to seek ERRs to augment those under contract as a result of prior solicitations and bilateral negotiations to the extent necessary to ensure that SCE meets the overall goal of 20 percent renewables as soon as possible. SCE also noted that it intended to procure based on a High Need Case procurement scenario in order to account for potential project success rates and other contingencies. Furthermore, SCE indicated that it has both a near-term and long-term need for renewable energy, and that SCE s evaluation criteria favor proposals for renewable energy sales from generating facilities with near-term deliveries. SCE also stated its evaluation criteria consider the benefits of projects locating near approved transmission infrastructure, such as the Sunrise Powerlink Transmission Project and Tehachapi Renewable Transmission Project. SCE s 2009 RFP solicited proposals to supply electric energy, as well as all attributes, including, but not limited to, green attributes, capacity attributes, and resource adequacy benefits from ERRs. SCE solicited standard products, moderately short-term products, and very short-term products. SCE stated that it would consider all timely proposals to sell product to SCE from either a new or existing generating facility that can be certified by the California Energy Commission ( CEC ) as an ERR or multiple ERRs. Additionally, SCE noted that if the generating facility is not, or cannot be, fully certified as an ERR, then only the electric energy produced by the renewable fuel will be considered as electric energy produced by an ERR, as determined by the CEC.

10 Advice 2502-E (U 338-E) August 24, The Amended & Restated Calicos PPAs Are Consistent With SCE s 2009 RPS Procurement Plan and SCE s Portfolio Needs The Amended & Restated Calico PPAs are consistent with SCE s 2009 RPS Procurement Plan and SCE s portfolio needs. In particular, the Amended & Restated Calico PPAs will satisfy SCE s near-term and long-term needs for RPS-eligible energy and will contribute significantly toward achieving the State s renewable energy goals, as the two facilities will provide 275 MW and 575 MW capacity, and approximately 638 GWh and 1,335 GWh per year for a term of 20 years beginning in 2012 and 2014, respectively. This represents a total of 850 MW capacity and approximately 1,973 GWh per year. Moreover, the Amended & Restated Calico PPAs improve the Calico Project s viability and will allow development of the project to continue. 4. The Amended & Restated Calico PPAs Meet the Project Characteristics for SCE s 2009 RPS Solicitation SCE s 2009 RPF requested proposals with a minimum capacity of 1.5 MW. As discussed above, SCE preferred proposals for renewable energy sales from generating facilities with near-term deliveries. SCE also considered the benefits of projects locating near approved transmission infrastructure, such as the Sunrise Powerlink Transmission Project and Tehachapi Renewable Transmission Project. SCE s locational preferences included: (1) California or (2) outside California if the seller complies with all requirements pertaining to Out-of-State Facilities as set forth in the CEC RPS Eligibility Guidebook. SCE stated that it prefers in-state facilities. Additionally, SCE indicated that the delivery point for generating facilities interconnected to the CAISO Control Area must be: (1) the point where the generating facility connects to the CAISO controlled grid if SCE is the scheduling coordinator; or (2) at a point to be determined by SCE. For generating facilities interconnected outside the CAISO Control Area, SCE stated the delivery point must be: (1) the intertie point where seller s transmission provider ties to the CAISO Control Area and seller s scheduling coordinator schedules energy to SCE, as scheduling coordinator within the CAISO Control Area, via an Inter-SC Trade (also known as a scheduling coordinator-toscheduling coordinator trade); (2) a liquid power trading hub or hubs outside of the CAISO Control Area (e.g., Mid-Columbia); (3) at the generating facility s first point of interconnection with the respective transmission provider s transmission grid, provided, however, that seller has (or will have) firm transmission rights to a liquid trading hub or CAISO for the duration of the term of the agreement that is acceptable to SCE; or (4) at a point to be determined by SCE. Although the Amended & Restated Calico PPAs were not part of the 2009 RPS solicitation, they meet all project characteristics for SCE s 2009 RFP. Specifically, the Calico Project is a solar thermal facility that will have a total capacity of 850 MW located near Barstow, California. As noted above, the Amended & Restated Calico PPAs will

11 Advice 2502-E (U 338-E) August 24, 2010 also meet SCE s near-term and long-term needs for RPS-eligible energy and contribute significantly to the State s RPS goals. D. Least-Cost/Best-Fit ( LCBF ) Methodology and Evaluation As explained above, SCE issued its 2009 RFP on June 29, 2009 in compliance with D and SCE s Commission-approved solicitation materials. On July 24, 2009, SCE expanded its 2009 RFP to include very short-term and moderately short-term products and very short-term pro forma confirmations pursuant to D In accordance with SCE s Commission-approved solicitation materials, sellers were required to submit their proposals in response to SCE s 2009 RFP on August 21, SCE submitted its 2009 Solicitation Short List Report to the Commission on December 4, SCE evaluates and ranks proposals based on LCBF criteria that comply with criteria set forth by the Commission in D and D (the LCBF Decisions ). The LCBF analysis evaluates both quantitative and qualitative aspects of each proposal to estimate its value to SCE s customers and its relative value in comparison to other proposals. The LCBF analysis was used to evaluate the proposals SCE received in its 2009 RPS solicitation. 1 SCE applied these criteria to the proposals received in its 2009 solicitation in order to establish a short list of proposals from sellers with whom SCE would engage in contract discussions. While assumptions and methodologies have evolved slightly over time, the basic components of SCE s evaluation and selection criteria and process for RPS contracts were established by the Commission s LCBF Decisions. Consistent with those LCBF Decisions, the three main steps undertaken by SCE are: (i) initial data gathering and validation, (ii) a quantitative assessment of proposals, and (iii) adjustments to selection based on proposals qualitative attributes. Prior to receiving proposals, SCE finalizes major assumptions and methodologies that drive valuation, including power and gas prices forecasts, existing and forecast resource portfolio, and capacity value forecast. Other assumptions, such as the Transmission Ranking Cost Report ( TRCR ), are filed with the Commission for approval prior to the release of solicitation materials. Once proposals are received, SCE begins an initial review for completeness and conformity with the solicitation protocol. The review includes an initial screen for required submission criteria such as conforming delivery point, minimum project size, and submission of particular proposal package elements. Sellers lacking in any of these items are allowed a cure period to remedy any deficiencies. Following this initial screen, SCE conducts an additional review to determine the reasonableness of 1 SCE has compared the Amended & Restated Calico PPAs to the proposals received in its 2009 RPS solicitation since that was the most recent information available to SCE at the time the those PPAs was negotiated and executed. Therefore, SCE discusses its LCBF methodology for the 2009 solicitation in this Advice Letter.

12 Advice 2502-E (U 338-E) August 24, 2010 proposal parameters such as generation profiles and capacity factors. SCE works directly with sellers to resolve any issues and ensure data is ready for evaluation. After these reviews, SCE performs a quantitative assessment of each proposal individually and subsequently ranks them based on the proposal s benefit and cost relationship. Specifically, the total benefits and total costs are used to calculate the net levelized cost or renewable premium per each complete and conforming proposal. Benefits are comprised of separate capacity and energy components, while costs include the contract payments, integration costs, transmission cost, and debt equivalence. SCE discounts the annual benefit and cost streams to a common base year. The result of the quantitative analysis is a merit-order ranking of all complete and conforming proposals renewable premiums that helps define the preliminary short list. In parallel with the quantitative analysis, SCE conducts an in-depth assessment of each proposal s qualitative attributes. This analysis utilizes the Commission s prescribed Project Viability Calculator to assess certain factors including the company/development team, technology, and development milestones. Additional attributes such as transmission area/cluster, seller concentration, portfolio fit of commercial on-line date, project size, and dispatchability and curtailability are also considered in the qualitative analysis. These qualitative attributes are then considered to either eliminate non-viable proposals or add projects with high viability to the final short list of proposals, or to determine tie-breakers, if any. Following its analysis, SCE consults with its PRG regarding the final short list and specific evaluation criteria. Whether a proposal selected through this process results in an executed contract depends on the outcome of negotiations between SCE and sellers. Periodically, SCE updates the PRG regarding the progress of negotiations. SCE also consults with its PRG prior to the execution of any successfully negotiated contracts. Subsequently, SCE executes contracts and submits them to the Commission for approval via advice letter filings. A complete discussion of SCE s proposal evaluation and selection process and criteria is provided in Appendix I. E. Compliance With Standard Terms And Conditions In D , the Commission established a number of modifiable and nonmodifiable standard terms and conditions to be used by load-serving entities ( LSEs ) when contracting for RPS-eligible resources. In D , the Commission reduced the number of non-modifiable terms to the following four terms: (1) CPUC Approval; (2) RECs and Green Attributes; (3) Eligibility; and (4) Applicable Law. The remaining non-modifiable terms were converted to modifiable. In D , the Commission compiled the standard terms and conditions in one document and deleted the modifiable standard term and condition on supplemental energy payments from the standard terms and conditions. In D , the Commission revised the nonmodifiable RECs and Green Attributes standard term and condition.

13 Advice 2502-E (U 338-E) August 24, 2010 The Amended & Restated Calico PPAs include the four non-modifiable standard terms and conditions without change. The CPUC Approval term is located on page 5 of Exhibit A in both PPAs. The RECs and Green Attributes terms are located in Section 3.01(b) on page 14 and on pages 11 through 13 of Exhibit A in both PPAs. The Eligibility term is located in Section 10.02(b) on page 68 of both PPAs. The Applicable Law term is located in Section on page 74 of both PPAs. In addition, as permitted by D , SCE modified most if not all of the modifiable terms. These modifications, however, include the same principles and serve the same purpose as the standard terms and are consistent with the law and government regulations. Thus, the modifications contained in the Amended & Restated Calico PPAs are permissible. Comparisons of the Amended & Restated Calico PPAs against SCE s 2009 pro forma PPA are included as Appendices Q and R. F. Unbundled Renewable Energy Credit ( REC ) Transactions SCE is purchasing bundled RPS-eligible energy and green attributes under the Amended & Restated Calico PPAs. Accordingly, the Amended & Restated Calico PPAs are not unbundled REC transactions under D G. Minimum Quantity In D , the Commission held that, beginning in 2007, each LSE obligated under the RPS program must enter into long-term contracts 2 or short-term contracts with new facilities 3 for energy deliveries equivalent to 0.25 percent of that LSE s prior year s retail sales, in order to be able to count for RPS compliance energy deliveries from short-term contracts with existing facilities. The Commission also ruled that RPSobligated LSEs may carry forward contracted energy in long-term contracts and shortterm contracts with new facilities that is in excess of the 0.25 percent requirement in the year such contracts are signed, to be used for compliance for the minimum quantity requirement in future years. The Amended & Restated Calico PPAs are long-term contracts. Therefore, the minimum quantity requirement does not apply. H. MPR and Above-Market Funds ( AMFs ) The prices in Amended & Restated Calico PPAs are above the 2009 MPR. However, the prices in the Amended & Restated Calico PPAs are at or below the 2008 MPR. 2 Long-term contracts are contracts of at least 10 years duration. See Cal. Pub. Util. Code New facilities are facilities that commenced commercial operation on or after January 1, See Cal. Pub. Util. Code

14 Advice 2502-E (U 338-E) August 24, 2010 Pursuant to Resolution E-4199, the Amended & Restated Calico PPAs comply with the eligibility criteria for AMFs set forth in California Public Utilities Code Section (d)(2) as follows: each agreement (1) covers a duration of no less than 10 years; (2) is with new or repowered facilities commencing operations on or after January 1, 2005; (3) is not a purchase of RECs; and (4) does not include any indirect expenses as set forth in the statute. Notably, as SCE s AMFs are exhausted, SCE proposes to voluntarily procure energy under the Amended & Restated Calico PPAs pursuant to California Public Utilities Code Section (d)(4) and requests Commission approval of recovery of the total costs of the agreements pursuant to Section (d)(4). The AMF Calculators for the Amended & Restated Calico PPAs can be found in Appendices J and K. I. Interim Emissions Performance Standard The California Legislature passed Senate Bill ( SB ) 1368 on August 31, 2006, and Governor Schwarzenegger signed the bill into law on September 29, Section 2 of SB 1368 adds Public Utilities Code Section 8341(a), which provides, No load-serving entity or local publicly owned electric utility may enter into a long-term financial commitment unless any baseload generation supplied under the long-term financial commitment complies with the greenhouse gases emission performance standard established by the commission, pursuant to subdivision (d). 4 In order to institute the provisions of SB 1368, the Commission instituted Rulemaking That proceeding resulted in the establishment of a green house gas ( GHG ) emissions performance standard ( EPS ), for carbon dioxide ( CO 2 ). The Commission noted, SB 1368 establishes a minimum performance requirement for any long-term financial commitment for baseload generation that will be supplying power to California ratepayers. The new law establishes that the GHG emissions rates for these facilities must be no higher than the GHG emissions rate of a combined-cycle gas turbine (CCGT) powerplant. 5 The decision further explains: SB 1368 describes what types of generation and financial commitments will be subject to the EPS ( covered procurements ). Under SB 1368, the EPS applies to baseload generation, but the requirement to comply with it is triggered only if there is a long-term financial commitment by an LSE. The statute defines baseload generation as electricity generation from a powerplant that is designed and intended to provide electricity at an annualized plant capacity factor of at least 60%.... For 4 Cal. Pub. Util. Code 8341(a). 5 D at 2-3.

15 Advice 2502-E (U 338-E) August 24, 2010 baseload generation procured under contract, there is a long-term commitment when the LSE enters into a new or renewed contract with a term of five or more years. 6 In D , the Commission found that it would be redundant and costly to require LSEs to demonstrate EPS compliance for each new ownership investment, new contract or renewed contract with baseload renewable resources if the record clearly demonstrated that these resources comply with the EPS on a net emissions basis. 7 The Commission found that the net GHG emissions from the following renewable resources/technologies meet the interim EPS: (1) solar thermal electric (with up to 25 percent gas heat input); (2) wind; (3) geothermal, with or without reinjection; and (4) generating facilities using biomass (e.g., agricultural and wood waste, landfill gas) that would otherwise be disposed of utilizing open burning (uncontrolled, gas collection with flare, gas collection with engine), forest accumulation, landfill, spreading or composting. 8 By this Advice Letter filing, SCE requests that the Commission approve the Amended & Restated Calico PPAs. The Amended & Restated Calico PPAs are exempt from EPS regulations because the Calico Project will utilize solar thermal technology (with less than 25 percent gas heat input), which has been deemed compliant with the EPS standard under D J. PRG Participation SCE s PRG was formed on or around September 10, Participants include representatives from the Commission s Energy and Legal Divisions, the Division of Ratepayer Advocates, The Utility Reform Network, the Natural Resources Defense Council, California Utility Employees, the Union of Concerned Scientists, and the California Department of Water Resources. On May 12, 2010, SCE briefed the PRG concerning the Amended & Restated Calico PPAs. K. Independent Evaluator The IE for this transaction was Merrimack Energy Group, Inc. The IE joined and contributed to a number of conference calls and negotiation sessions. In addition, the IE reviewed traffic, several versions of the proposed contract, and other documents exchanged by the parties. The IE also participated in the PRG review of the Amended & Restated Calico PPAs. The IE Report is included as Appendix C. 6 Id. at 4. 7 Id. at , Finding of Fact No Id. at 246, Finding of Fact No. 118; , Conclusion of Law No. 35.

16 Advice 2502-E (U 338-E) August 24, 2010 III. PROJECT DEVELOPMENT STATUS The Amended & Restated Calico PPAs will improve the viability of the Calico Project and help ensure that development will continue and that Calico will meet the initial operation dates of January 31, 2012 and January 1, 2014, and the startup deadlines of December 31, 2012 and December 31, 2016 for the 275 MW early interconnect facility and the 575 MW facility, respectively. The following subsections provide additional information pertaining to the development status of the Calico Project and the viability of the project. A. Company/Development Team Calico is a wholly-owned subsidiary of Tessera. Tessera and its sister company, SES, hold the responsibility for the project development and the deployment of the energy conversion equipment. Tessera holds an additional 750 MW of power purchase agreements in California. Management of Calico includes individuals involved in the operation and ownership of utility-scale power generation facilities in the United States since B. Technology 1. Technology Type and Level of Technology Maturity The Calico Project is a solar thermal energy project that will use solar dish power generation technology to generate electrical energy. Calico plans to install SunCatchers units, each with a nameplate capacity of 25 kw. The Phase I 275 MW facility will use 11,000 SunCatchers units and the Phase II 575 MW facility will use 23,000 SunCatchers units, for a total of 34,000 SunCatchers units. In 1816, Scottish inventor Robert Stirling experimented with a closed-cycle air engine. At the time it was thought that such an invention could rival steam engines of the age, but it never reached prominence or wide acceptance. Later, the Stirling engine, as it became known, was thought to be able to convert solar energy to electric energy more efficiently than photovoltaic cells. SES combined the Stirling engine with a parabolic solar collector constructed with curved mirror sets mounted on a steel frame to form a dish-like system. The SES dish system was initially developed by Ford Motor Company in the late 1970s and further developed by McDonnell Douglas in the mid 1980s. Thus, the basic design has been in existence for at least 30 years and prototype systems have been operating for more than 20 years. During that time the critical elements of the system, such as the power conversion unit and dish concentrator, have logged over 180,000 and 120,000 hours of total operating history, respectively.

17 Advice 2502-E (U 338-E) August 24, 2010 The SunCatcher system has significant operating history with various elements being tested at a number of different locations. Six full scale SunCatchers have been operating as a model power plant at Sandia National Laboratories ( Sandia ) in Albuquerque, New Mexico, with the first SunCatcher coming on-line in December Based on the operational experience gained at Sandia and elsewhere, SES redesigned and modified the entire SunCatcher system using information and lessons learned from the Sandia project to allow the system to be fully commercialized using high volume manufacturing techniques. This resulted in a dish structure with a new look that is easy to manufacture and assemble. The power conversion unit and pedestal were also redesigned and improved. In fact, four of the new dishes are currently in operation at Sandia, having been installed to supplement the existing six dishes. After the addition of the new model dishes at Sandia, Tessera and SES announced the construction of the Maricopa Reference Plant located on the outskirts of Phoenix in Peoria, Arizona. That 1.5 MW facility, comprised of 60 of the redesigned SunCatcher solar dishes, was constructed in late 2009, has been in test operation since January 2010, and achieved commercial operation on March 15, The Maricopa Reference Plant represents the first commercial facility developed using the SunCatcher technology and serves as a key milestone for nationwide deployment. Additional information is included in Appendix A. 2. Quality of Renewable Resource Information regarding quality of renewable resource is provided in Appendix A. 3. Other Resources Required No additional fuel is required for the Calico Project. The Calico Project will utilize water for washing the SunCatcher mirrors and plans to obtain its water supply from water wells permitted and drilled on the site. During operation, the Calico Project will consume approximately 6.5 million gallons per year. C. Development Milestones 1. Site Control Information regarding site control is included in Appendix A. 2. Equipment Procurement SES s commercial expertise includes having a fully developed manufacturing supply chain that is structured, measurable, and targeted for full scale production. The supply chain uses automotive and aerospace suppliers seeking to employ excess capacity and diversify their customer base. The aerospace and automotive industries are proven, mature industries characterized by international standards of quality, high levels of

18 Advice 2502-E (U 338-E) August 24, 2010 sophistication, and generations of expertise. These attributes are being leveraged to provide the optimal manufacturing process for key SunCatcher components. Additionally, long-term supply agreements for key components include integrated processes for quality assurance. By integrating the SunCatcher s components from key suppliers, SES is able to achieve rapid and scalable production. SES leverages the engineering, design, manufacturing, and supply chain capabilities of its suppliers to ensure high volume manufacturing. In conjunction with SES, suppliers assist in shifting designs from highly specialized customized pieces to off-the-shelf parts. By leveraging automotive and aerospace suppliers, SES has developed a high-quality, low-cost manufacturing supply chain that supports the rapid and scalable supply of SunCatchers. Additional information is included in Appendix A. 3. Permitting/Certifications Status Information regarding permitting/certifications status is included in Appendix A. 4. Production Tax Credits ( PTCs ) / Investment Tax Credits ( ITCs ) Information regarding PTCs and ITCs is provided in Appendix A. 5. Transmission On February 26, 2010, Calico completed and executed an LGIA for transmissionassociated work relating to the Calico Project. The Calico Project will interconnect with the CAISO system at the Pisgah Substation. Additional information regarding transmission is provided in Appendix A. D. Financing plan Information regarding financing is provided in Appendix A. IV. CONTINGENCIES AND MILESTONES The Amended & Restated Calico PPAs modify certain performance criteria and milestones from the Original Agreement to reflect current project status. Specific information regarding performance criteria and guaranteed milestones is provided in Appendices A and D through F. V. REQUEST FOR COMMISSION APPROVAL The terms of the Amended & Restated Calico PPAs are conditioned on the occurrence of final CPUC Approval, as it is described in the Amended & Restated Calico PPAs. In order to satisfy that condition with respect to the Amended & Restated Calico PPAs,

19 Advice 2502-E (U 338-E) August 24, 2010 SCE requests that the Commission issue a resolution no later than November 19, 2010, containing: 1. Approval of the Amended & Restated Calico PPAs in their entirety; 2. A finding that any electric energy sold or dedicated to SCE pursuant to the Amended & Restated Calico PPAs constitutes procurement by SCE from ERRs for the purpose of determining SCE s compliance with any obligation that it may have to procure from ERRs pursuant to the RPS Legislation or other applicable law concerning the procurement of electric energy from renewable energy resources; 3. A finding that all procurement under the Amended & Restated Calico PPAs counts, in full and without condition, towards any annual procurement target established by the RPS Legislation or the Commission which is applicable to SCE; 4. A finding that all procurement under the Amended & Restated Calico PPAs counts, in full and without condition, towards any incremental procurement target established by the RPS Legislation or the Commission which is applicable to SCE; 5. A finding that all procurement under the Amended & Restated Calico PPAs counts, in full and without condition, towards the requirement in the RPS Legislation that SCE procure 20 percent (or such other percentage as may be established by law) of its retail sales from ERRs by 2010 (or such other date as may be established by law); 6. A finding that the Amended & Restated Calico PPAs, and SCE s entry into the Amended & Restated Calico PPAs, is reasonable and prudent for all purposes, including, but not limited to, recovery in rates of payments made pursuant to the Amended & Restated Calico PPAs, subject only to further review with respect to the reasonableness of SCE s administration of the Amended & Restated Calico PPAs; and 7. Any other and further relief as the Commission finds just and reasonable. VI. TIER DESIGNATION Pursuant to D , Energy Industry Rule 5.3, SCE submits this Advice Letter with a Tier 3 designation (effective after Commission approval). VII. EFFECTIVE DATE This Advice Letter will become effective on November 19, 2010.

20 Advice 2502-E (U 338-E) August 24, 2010 VIII. NOTICE Anyone wishing to protest this Advice Letter may do so by letter via U.S. Mail, facsimile, or electronically, any of which must be received by the Energy Division and SCE no later than 20 days after the date of this Advice Letter. Protests should be mailed to: Akbar Jazayeri Vice President of Regulatory Operations Southern California Edison Company 2244 Walnut Grove Avenue, Quad 3D Rosemead, California Facsimile: (626) AdviceTariffManager@sce.com Bruce Foster Senior Vice President, Regulatory Affairs c/o Karyn Gansecki 601 Van Ness Avenue, Suite 2040 San Francisco, California Facsimile: (415) Karyn.Gansecki@sce.com Marc Ulrich Vice-President of Renewable and Alternative Power c/o Mike Marelli Southern California Edison Company 2244 Walnut Grove Avenue, Quad 4D Rosemead, CA Facsimile: (626) Mike.Marelli@sce.com With a copy to: Cathy Karlstad Attorney Southern California Edison Company 2244 Walnut Grove Avenue, 3 rd Floor Rosemead, CA Facsimile: (626) Cathy.Karlstad@sce.com There are no restrictions on who may file a protest, but the protest shall set forth specifically the grounds upon which it is based and shall be submitted expeditiously. In accordance with Section 4 of GO 96-B, SCE is furnishing copies of this Advice Letter to the interested parties shown on the attached R , R , and

21 Advice 2502-E (U 338-E) August 24, 2010 GO 96-B service lists. Address change requests to the GO 96-B service list should be directed to AdviceTariffManager@sce.com or at (626) For changes to any other service list, please contact the Commission s Process Office at (415) or at ProcessOffice@cpuc.ca.gov. Further, in accordance with Public Utilities Code Section 491, notice to the public is hereby given by filing and keeping the Advice Letter at SCE s corporate headquarters. To view other SCE advice letters filed with the Commission, log on to SCE s web site at All questions concerning this Advice Letter should be directed to Laura Genao at (626) ( Laura.Genao@sce.com). Southern California Edison Company Enclosures Akbar Jazayeri

22 CALIFORNIA PUBLIC UTILITIES COMMISSION ADVICE LETTER FILING SUMMARY ENERGY UTILITY MUST BE COMPLETED BY UTILITY (Attach additional pages as needed) Company name/cpuc Utility No.: Southern California Edison Company (U 338-E) Utility type: Contact Person: James Yee ELC GAS Phone #: (626) PLC HEAT WATER Disposition Notice to: EXPLANATION OF UTILITY TYPE ELC = Electric GAS = Gas PLC = Pipeline HEAT = Heat WATER = Water (Date Filed/ Received Stamp by CPUC) Advice Letter (AL) #: 2502-E Tier Designation: 3 Subject of AL: Submission of Amended and Restated Agreements for Procurement of Renewable Energy From SCE s 2003 Renewables Portfolio Standard Solicitation Keywords (choose from CPUC listing): Compliance, Agreements, Procurement AL filing type: Monthly Quarterly Annual One-Time Other If AL filed in compliance with a Commission order, indicate relevant Decision/Resolution #: Does AL replace a withdrawn or rejected AL? If so, identify the prior AL: Summarize differences between the AL and the prior withdrawn or rejected AL 1 : Confidential treatment requested? Yes No If yes, specification of confidential information: See Appendix O. Confidential information will be made available to appropriate parties who execute a nondisclosure agreement. Name and contact information to request nondisclosure agreement/access to confidential information: Cathy Karlstad, Law Department, at (626) or Cathy.Karlstad@sce.com Resolution Required? Yes No Requested effective date: 11/19/10 No. of tariff sheets: -0- Estimated system annual revenue effect: (%): Estimated system average rate effect (%): When rates are affected by AL, include attachment in AL showing average rate effects on customer classes (residential, small commercial, large C/I, agricultural, lighting). Tariff schedules affected: None Service affected and changes proposed 1 : Pending advice letters that revise the same tariff sheets: 1 Discuss in AL if more space is needed.

23 Protests and all other correspondence regarding this AL are due no later than 20 days after the date of this filing, unless otherwise authorized by the Commission, and shall be sent to: CPUC, Energy Division Attention: Tariff Unit 505 Van Ness Ave., San Francisco, CA and Akbar Jazayeri Vice President of Regulatory Operations Southern California Edison Company 2244 Walnut Grove Avenue Rosemead, California Facsimile: (626) Bruce Foster Senior Vice President, Regulatory Affairs c/o Karyn Gansecki Southern California Edison Company 601 Van Ness Avenue, Suite 2040 San Francisco, California Facsimile: (415) Marc Ulrich Vice President, Renewable and Alternative Power c/o Mike Marelli Southern California Edison Company 2244 Walnut Grove Avenue, Quad 4D Rosemead, California Facsimile: (626) With a copy to: Cathy Karlstad Attorney Southern California Edison Company 2244 Walnut Grove Avenue, 3 rd Floor Rosemead, California Facsimile: (626) Cathy.Karlstad@sce.com

24 Confidential Appendix A Consistency with Commission Decisions and Rules and Project Development Status Confidential Protected Materials Public Disclosure Prohibited

25 Confidential Appendix B Solicitation Overview and Workpapers Confidential Protected Materials Public Disclosure Prohibited

26 Appendix C Independent Evaluator Report

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