April 18, 2013 Advice Letter 2740-E. SUBJECT: Submission of Bilateral Contract for Procurement of Renewable Energy

Transcription

1 STATE OF CALIFORNIA PUBLIC UTILITIES COMMISSION SAN FRANCISCO, CA Edmund G. Brown Jr. Governor April 18, 2013 Advice Letter 2740-E Akbar Jazayeri Vice President, Regulatory Operations Southern California Edison Company P O Box 800 Rosemead, CA SUBJECT: Submission of Bilateral Contract for Procurement of Renewable Energy Dear Mr. Jazayeri: Advice Letter 2740-E is effective as of February 28, 2013, per Resolution E Sincerely, Edward F. Randolph, Director Energy Division

2 Akbar Jazayeri Vice President of Regulatory Operations ` May 29, 2012 ADVICE 2740-E (U 338-E) PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION SUBJECT: Submission of Bilateral Contract for Procurement of Renewable Energy 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 a renewables portfolio standard ( RPS ) power purchase and sale agreement ( Alta Wind XIII PPSA ) between SCE and Alta Wind XIII, LLC ( Alta Wind XIII ), a Delaware limited liability company that is wholly-owned by Terra-Gen Power ( Developer ). A table summarizing the Alta Wind XIII PPSA is as follows: Seller Generation Type Size Estimated Annual Energy Forecasted Initial Operation Date Term of Agreement Alta Wind XIII, LLC Wind 100 to 180 MW 306 to 552 GWh January 1, years SCE requests that the California Public Utilities Commission ( Commission or CPUC ) issue a resolution containing findings in the form requested in this Advice Letter as soon as possible, but in any event no later than July 1, This Advice Letter contains both confidential and public appendices as listed below. In addition, in accordance with General Order ( GO ) 96-B, the confidentiality of information included in this Advice Letter is also discussed in Section I, Subpart F of this Advice Letter below. P.O. Box Walnut Grove Ave. Rosemead, California (626) Fax (626)

3 ADVICE 2740-E (U 338-E) May 29, 2012 Confidential Appendix A: Confidential Appendix B: Consistency with Commission Decisions and Rules and Project Development Status 2011 Solicitation Overview Confidential/Public Appendix C: Independent Evaluator Report Confidential Appendix D: Confidential Appendix E: Confidential Appendix F: Confidential Appendix G: Contract Summary Comparison of Alta Wind XIII PPSA with SCE s 2011 Pro Forma Renewable Power Purchase and Sale Agreement Alta Wind XIII PPSA Contribution Toward RPS Goals Confidential/Public Appendix H: SCE s Written Description of RPS Proposal Evaluation and Selection Process and Criteria Confidential Appendix I: Confidential Appendix J: Confidential Appendix K: Appendix L: Appendix M: AMF Calculator Renewable Premium Ranking of 2011 RFP Short List Project Viability Calculator Confidentiality Declaration Protective Order B. Subject of the Advice Letter The Alta Wind XIII PPSA is for the output of a proposed 100 MW to 180 MW wind facility. The Alta XIII project is to be located just west of Mojave, California, in the County of Kern. The project will interconnect at the Windhub Substation on the Tehachapi Renewable Transmission Project ( TRTP ). Due to the January 1, 2019 Commercial Operation Date ( COD ) for the Alta Wind XIII project, a specific wind turbine generator model has yet to be determined. Alta Wind XIII, LLC, however, has committed to use Type 3 (doubly fed asynchronous generator) or Type 4 (asynchronous or synchronous generator with full power converter interface) wind turbine generators. The Seller under the Alta Wind XIII PPSA is Alta Wind XIII, a Delaware limited liability company that is wholly-owned by the Developer.

4 ADVICE 2740-E (U 338-E) May 29, 2012 The Alta Wind XIII PPSA is a new power purchase and sale agreement ( PPSA ) contract that originated via bilateral negotiations, which commenced in August 2011 and were completed in March The negotiations for the Alta Wind XIII PPSA arose during the negotiations for the amendments to the PPSAs between SCE and Alta Wind X, LLC and Alta Wind XI, LLC (the Alta Wind X and XI Amendments ). The Alta Wind X and XI Amendments were submitted for Commission approval through Advice 2683-E and Advice 2684-E, which were approved by the Commission in Resolution E-4487 on March 22, Specifically, the Alta Wind X and XI Amendments defer the online dates of the Alta Wind X and XI PPSAs by two years, from January 1, 2013 to January 1, 2015 with respect to: (1) the current Initial Operation Date for Alta Wind X and XI, (2) Delivery Term start and end date, (3) SCE s obligation to purchase and receive Product, and (4) the Seller s obligation to sell and deliver Product under the PPSAs from January 1, 2013 ( Original Initial Operation Date ) to January 1, Because SCE does not require deliveries from the Alta Wind X and XI product PPSAs to meet its RPS goals during this two year deferral period from January 1, 2013 through December 31, 2014 (the Deferral Period ), SCE s customers will receive material benefit from deferring the costs of the Alta Wind X and XI PPSAs during the Deferral Period. In consideration for the benefit received by SCE s customers from the deferral of the Alta Wind X and XI PPSAs, SCE agreed to pursue good faith, bilateral negotiations for a new project with Alta Wind XIII, LLC, at a price that compares well to SCE s other procurement opportunities. Due to the January 1, 2019 Commercial Operation Date ( COD ) for the Alta Wind XIII project, a specific wind turbine generator model has yet to be determined. Alta Wind XIII, however, has committed to use Type 3 (doubly fed asynchronous or induction generator) or Type 4 (asynchronous or synchronous generator with full power converter interface) wind turbine generators. The proposed Type 3 and Type 4 wind turbine generator technology for the Alta Wind XIII PPSA is well proven, with numerous installations in the United States and internationally. C. General Project Description Project Name Technology Capacity (MW) Alta Wind XIII Wind 100 to 180 MW (Seller s option) Capacity Factor 35% Expected Generation (GWh/Year) 306 to 552 GWh

5 ADVICE 2740-E (U 338-E) May 29, 2012 Initial Commercial Operation Date January 1, 2019 Date Contract Delivery Term Begins January 1, 2019 Delivery Term (Years) 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 Price Relative to MPR (i.e., above/below) 20 years New Approximately 5 miles west of Mojave, California California Independent System Operator ( CAISO ) Windhub NA Below 2011 Market price Referent ( MPR ) D. General Deal Structure The Alta Wind XIII PPSA was structured using SCE s 2011 Pro Forma Renewable Power Purchase and Sale Agreement filed with the CPUC on May 13, SCE is purchasing all electric energy produced by the Alta Wind XIII project, LLC 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 Alta Wind XIII project, LLC. The delivery point is the Windhub Substation on the TRTP near Mojave, California. Additional information regarding the deal structure of the Alta XIII PPSA is provided in Confidential Appendix D. E. RPS Statutory Goals By providing renewable energy from an eligible renewable energy resource ( ERR ), as defined under the RPS Legislation, the Alta Wind XIII PPSA is consistent with, and contributes toward, the RPS program s statutory goals. Among other things, by supporting a new wind generation project in California,

6 ADVICE 2740-E (U 338-E) May 29, 2012 the Alta Wind XIII PPSA helps 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 G, I through K, and the confidential versions of Appendices C and H to this Advice Letter. The information for which SCE is seeking confidential treatment is identified in the Confidentiality Declaration attached as Appendix L. 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 non-disclosure agreement. Parties wishing to obtain access to the confidential version of this Advice Letter may contact Rebecca Meiers-DePastino in SCE s Law Department at Rebecca.Meiers-DePastino@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 M. It is appropriate to accord this information 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 L, which cite to the specific provisions of the Investor-Owned Utility ( IOU ) Matrix adopted pursuant to D II. CONSISTENCY WITH COMMISSION DECISIONS A. SCE s 2011 RPS Procurement Plan 1. SCE s 2011 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 2011 RPS Procurement Plan, including the solicitation materials for SCE s 2011 RPS solicitation. The Commission also ordered SCE to make certain changes to its 2011 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

7 ADVICE 2740-E (U 338-E) May 29, 2012 May 4, On May 4, 2011, SCE filed and served its 2011 RPS Procurement Plan, including its 2011 solicitation materials. On May 13, 2011, SCE filed and served its Amended 2011 RPS Procurement Plan, including its amended 2011 solicitation materials. Consistent with the schedule set forth in D , SCE issued its 2011 Request for Proposals ( RFP ) on May 13, Summary of SCE s 2011 RPS Procurement Plan s Assessment of Portfolio Needs In accordance with SCE s 2011 RPS Procurement Plan, SCE s planned procurement activities were designed to seek resources to augment those already under contract to the extent necessary to ensure that SCE continued to meet the State s overall renewable energy goals. SCE considered Base Case and High Need Case procurement scenarios. SCE s Base Case and High Need Case both assumed a 33 percent renewable energy goal as set forth in Senate Bill ( SB ) 2 (1x) and SCE is procuring renewable resources based on this 33 percent RPS goal. Additionally, in SCE s 2011 RFP, SCE indicated that it has a need for renewable products, and that SCE s evaluation criteria considered the benefit of projects located near approved transmission infrastructure and projects with generating facilities whose first point of interconnection with the Western Electricity Coordinating Council ( WECC ) is with the California Independent System Operator ( CAISO ), Los Angeles Department of Water & Power, Sacramento Municipal Utility District, Imperial Irrigation District, or Turlock Irrigation District (each a California Balancing Authority ). SCE s 2011 RFP solicited proposals to supply renewable products, including Bundled Energy Products, Renewable Energy Credit ( REC )-Only Bundled Energy Products, and REC Products, from ERRs. 3. The Alta Wind XIII PPSA Is Consistent With SCE s 2011 RPS Procurement Plan and SCE s Portfolio Needs The Alta Wind XIII PPSA is consistent with SCE s 2011 RPS Procurement Plan and SCE s current portfolio needs. Specifically, the Alta Wind XIII PPSA provides Bundled Energy Products, as defined in SCE s 2011 RFP, and satisfies SCE s long-term need for renewable energy with a wind project expected to come online in 2019 with a capacity of 100 MW to 180 MW, which will provide renewable wind energy throughout a 20-year term. Moreover, the Alta Wind XIII project satisfies SCE s locational preferences and delivery requirements. The Alta Wind XIII PPSA is also a highly viable contract with a developer, Terra-Gen Power, which has a successful track record of wind project development in California.

8 ADVICE 2740-E (U 338-E) May 29, The Alta Wind XIII PPSA Meets the Project Characteristics for SCE s 2011 RPS Solicitation SCE s 2011 RFP requested proposals with a minimum capacity of 1.5 MW. Although SCE considered and evaluated proposals with out-of-state generating facilities, as noted above, SCE gave preference to proposals with in-state generating facilities (i.e., where the generating facility s first point of interconnection is or will be to the transmission system of a California Balancing Authority). In particular, SCE strongly preferred proposals with generating facilities that are or will be interconnected to the CAISO s Balancing Authority Area. SCE also considered the benefits of projects locating near approved transmission infrastructure, such as the Sunrise Powerlink Transmission Project and TRTP. 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 California Energy Commission ( CEC ) RPS Eligibility Guidebook. Additionally, SCE required that the delivery point for generating facilities interconnected to the CAISO Control Area 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 required the delivery point to 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-to-scheduling 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. The Alta Wind XIII PPSA meets all project characteristics as defined in SCE s 2011 RFP. Specifically, the Alta Wind XIII PPSA is for the output of a wind facility that will have a total capacity of 100 MW to 180 MW located near Mojave, California and directly interconnected to the CAISO through TRTP. As noted above, the Alta Wind XIII PPSA will also meet SCE s long-term needs for RPSeligible energy and contribute significantly to the State s RPS goals beginning in January 2019.

9 ADVICE 2740-E (U 338-E) May 29, 2012 B. Commission Decisions Regarding Bilateral Contracting In D , the Commission held that load-serving entities ( LSEs ) may enter into bilateral contracts with RPS-eligible generators, as long as the contracts are at least one month in duration. The Commission stated that IOUs bilateral RPS contracts must be submitted to the Commission for approval by advice letter, and that bilateral RPS contracts are not eligible for supplemental energy payments. 1 In addition, the Commission held that while bilateral contracts are not subject to the MPR, their contract prices must be reasonable. In D , the Commission held that bilateral contracts should be reviewed according to the same processes and standards as contracts that come through a solicitation. Additionally, the Commission found that the MPR should be used as a price benchmark for the evaluation of long-term bilateral contracts. The Commission also held that the contract review standards and processes set out in D for very short-term contracts and moderately short-term contracts govern both bilateral contracts and contracts that are the result of a solicitation. As discussed throughout this Advice Letter, the Alta Wind XIII PPSA complies with the requirements of D and D In particular, the Alta Wind XIII PPSA is at least one month in duration and SCE is submitting the contract for approval via an advice letter. The Alta Wind XIII PPSA is also reasonable based on the same review standards and processes applicable to solicitation contracts as set forth in D The Alta Wind XIII PPSA was pursued bilaterally for several reasons. The opportunity to pursue this transaction occurred after proposals were received for the 2011 RFP. The Alta Wind XIII PPSA has a long-term start date beginning in 2019 that fits well with SCE s overall RPS position and needs. Additionally, the pricing of the transaction is competitive with proposals received in SCE s 2011 RPS solicitation. SCE s customers would not have the opportunity to benefit from near-term rate relief due to the deferral of the COD of the Alta Wind X and XI PPSAs, and the competitive RPS-eligible energy from the Alta Wind XIII PPSA if SCE did not pursue the Alta Wind XIII PPSA bilaterally. Further, SCE did not have the option of waiting until the next solicitation to attain the benefits of the deferral of the Alta Wind X and XI PPSAs, and the benefits of the Alta Wind XIII PPSA together. C. Least-Cost/Best-Fit ( LCBF ) Methodology and Evaluation 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 ). 1 Supplemental energy payments were eliminated under SB Pursuant to SB 1036, the Commission now approves above-market funds for RPS contracts.

10 ADVICE 2740-E (U 338-E) May 29, 2012 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 2011 RPS solicitation and was applied to the Alta Wind XIII PPSA. While assumptions and methodologies have evolved 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 price forecasts, resource portfolio forecasts, and capacity value forecasts. 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 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 help 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 the

11 ADVICE 2740-E (U 338-E) May 29, 2012 ability to curtail 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 tiebreakers, 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 Confidential / Public Appendix H. D. 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 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; 2 (3) Eligibility; and (4) Applicable Law. The remaining non-modifiable terms were converted to modifiable. 3 In D , as modified by D , the Commission added two new non-modifiable standard terms and conditions for both bundled contracts and contracts for RECs only: (1) Transfer of Renewable Energy Credits; and (2) Tracking of RECs in WREGIS. The Commission also added a new version of the non-modifiable CPUC Approval standard term and condition for REC-only contracts, and held that the non-modifiable Applicable Law standard term and condition also applies to REC-only contracts. The Alta Wind XIII PPSA includes all non-modifiable standard terms and conditions for bundled contracts without change as indicated in the table below. NON-MODIFIABLE STANDARD TERMS AND CONDITIONS CPUC Approval CITATION TO THE ALTA XIII PPSA Page 5 of Exhibit A 2 In D , the Commission revised the non-modifiable RECs and Green Attributes standard term and condition. 3 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.

12 ADVICE 2740-E (U 338-E) May 29, 2012 RECs and Green Attributes Section 3.01(b) on page 16 and on pages 12 through 14 of Exhibit A Eligibility Section 10.02(b) on page 62 Applicable Law Section on page 66 Transfer or Renewable Energy Credits Section 3.01 on page 16 Tracking of RECs in WREGIS 10.02(e) on page 63 In addition, as permitted by D , SCE and Alta Wind XIII modified 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 Alta Wind XIII PPSA are permissible. A comparison of the Alta Wind XIII PPSA against SCE s 2011 Pro Forma Renewable Power Purchase and Sale Agreement is included as Confidential Appendix E. E. Portfolio Content Category SB 2 (1X) establishes portfolio content categories under Public Utilities Code Section (b) as implemented by the Commission in D The Alta Wind XIII PPSA falls under Category 1 in accordance with Public Utilities Code Section (b)(1) since the Alta XIII project s first point of interconnection will be with the CAISO. F. Minimum Quantity In D , the Commission held that, beginning in 2007, each LSE obligated under the RPS program must enter into long-term contracts 4 or shortterm contracts with new facilities 5 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 RPS-obligated LSEs may carry forward contracted energy in long-term contracts and short-term contracts with new facilities that is in excess of the 0.25 percent requirement in the year such 4 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

13 ADVICE 2740-E (U 338-E) May 29, 2012 contracts are signed, to be used for compliance for the minimum quantity requirement in future years. The Alta Wind XIII PPSA is a long-term contract. Therefore, the minimum quantity requirement does not apply. G. MPR and Above-Market Funds ( AMFs ) The contract energy prices for the Alta Wind XIII PPSA is below the 2011 MPR. The AMF Calculator for the Alta Wind XIII PPSA can be found in Confidential Appendix I. H. Interim Emissions Performance Standard The California Legislature passed 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 loadserving entity or local publicly owned electric utility may enter into a long-term financial commitment unless any baseload generation supplied under the longterm financial commitment complies with the greenhouse gases emission performance standard established by the commission, pursuant to subdivision (d). 6 In order to institute the provisions of SB 1368, the Commission instituted Rulemaking That proceeding resulted in the establishment of a greenhouse 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. 7 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 longterm 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 baseload generation 6 Cal. Pub. Util. Code 8341(a). 7 D at 2-3.

14 ADVICE 2740-E (U 338-E) May 29, 2012 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. 8 The Alta Wind XIII PPSA is exempt from EPS regulations because the Alta Wind XIII PPSA will utilize wind turbine generators, which have been deemed compliant with the EPS standard under D I. Procurement Review Group ( 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 March 14, 2012, SCE briefed the PRG on the Alta Wind XIII PPSA. J. Independent Evaluator ( IE ) The IE for the Alta XIII PPSA was Sedway Consulting, 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 PPSA, and other documents exchanged by the parties. The IE also participated in the PRG review of the Alta Wind XIII PPSA. The IE Report is included as Confidential/Public Appendix C. III. PROJECT DEVELOPMENT STATUS A. Company/Development Team Alta Wind XIII is a wholly-owned subsidiary of the Developer. The Developer has multiple projects totaling approximately 1,020 MW of wind power capacity in the Tehachapi, California region that are operating. These projects sell renewable energy to SCE under long-term PPSAs. Currently, the Alta Wind I VIII projects are operating under PPSAs with SCE. The Alta Wind VII, IX, X, and XI projects have executed PPSAs, and each has an expected initial operation date of January 1, 2013 to January 1, The Developer is well-known in the renewable energy industry in California and elsewhere, and has an accomplished history as a developer, owner, and operator of renewable energy projects. 8 Id. at 4.

15 ADVICE 2740-E (U 338-E) May 29, 2012 B. Technology 1. Technology Type and Level of Technology Maturity The Alta Wind XIII project will utilize the next-generation model of wind turbine generator technology that has been in operation for several years. Given the long-dated nature of the Alta Wind XIII COD (January 2019), Alta Wind XIII is not required to specify wind turbine generation type and model at this time. However, Alta Wind XIII has committed to installing variable speed turbines with either partial (Type 3) or full (Type 4) power electronic conversion. 2. Quality of Renewable Resource The Alta Wind XIII project will be located in the Tehachapi Renewable Resource Area, an area well-recognized for its robust wind resources as demonstrated by several sources of wind generation throughout the region. SCE believes that this project will be able to meet the terms of the contract given SCE s independent understanding of the quality of the renewable resources in the area of the Alta Wind XIII project. 3. Other Resources Required The Alta Wind XIII project will require water for use in ancillary road maintenance or blade cleaning. The water will be provided by local water providers. SCE expects that water used for the site roads will be absorbed into the ground and back into the natural underground aquifers, where it will be recycled naturally. A. Development Milestones 1. Site Control The Developer has secured 100 percent site control to support its project including full site and substation access. The Developer has extensive land holdings, leases, and options in the Tehachapi Renewable Resource Area. 2. Equipment Procurement The Developer has extensive experience in designing, building, financing, and operating wind energy plants. Its established track record in California demonstrates that it is well qualified to ensure the successful procurement of equipment needed to build the Alta Wind XIII project.

16 ADVICE 2740-E (U 338-E) May 29, Permitting/Certifications Status Neither SCE nor Alta Wind XIII anticipates any significant specific difficulties in obtaining the necessary permits. The Alta Wind I VIII projects are operational in close vicinity to the proposed final location of the Alta Wind XIII project. 4. Production Tax Credits ( PTCs ) / Investment Tax Credits ( ITCs ) Information regarding PTCs and ITCs is provided in Confidential Appendix A. 5. Transmission On December 21, 2011, the Developer executed a Large Generator Interconnection Agreement ( LGIA ) for transmission-associated work relating to the Alta Wind XIII project. The Alta Wind XIII project will interconnect with the CAISO system at the Windhub Substation. Additional information regarding transmission is provided in Confidential Appendix A. B. Financing plan Information regarding financing is provided in Confidential Appendix A. IV. CONTINGENCIES AND MILESTONES The Alta Wind XIII project is expected to begin commercial operation on January 1, Specific information regarding performance criteria and guaranteed milestones is provided in Confidential Appendices A and D through F. V. REQUEST FOR COMMISSION APPROVAL The terms of the Alta Wind XIII PPSA are conditioned on the occurrence of final CPUC Approval, as it is described in the Alta Wind XIII PPSA. In order to satisfy that condition with respect to the Alta Wind XIII PPSA, SCE requests that the Commission issue a resolution no later than July 1, 2013, containing: 1. Approval of the Alta Wind XIII PPSA in its entirety; 2. A finding that the Alta Wind XIII PPSA is consistent with SCE s 2011 RPS Procurement Plan; 3. A finding that the Alta Wind XIII PPSA is compliant with the Emissions Performance Standard;

17 ADVICE 2740-E (U 338-E) May 29, A finding that any procurement pursuant to the Alta Wind XIII PPSA is procurement from an eligible renewable energy resource for the purposes of determining SCE s compliance with any obligation that it may have to procure eligible renewable energy resources pursuant to the California Renewables Portfolio Standard (Public Utilities Code Section et seq.), Decision , or other applicable law. 5. A finding that the Alta Wind XIII PPSA, and SCE s entry into it, is reasonable and prudent for all purposes, including, but not limited to, cost recovery in rates for payments made pursuant to the Alta Wind XIII PPSA and administrative costs associated with the Alta Wind XIII PPSA, subject only to further review with respect to the reasonableness of SCE s administration of the Alta Wind XIII PPSA; and 6. Any other and further relief as the Commission finds just and reasonable. VI. TIER DESIGNATION Pursuant to GO 96-B, 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 upon Commission approval. 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 Rosemead, California Facsimile: (626) AdviceTariffManager@sce.com

18 ADVICE 2740-E (U 338-E) May 29, 2012 Leslie E. Starck Senior Vice President c/o Karyn Gansecki 601 Van Ness Avenue, Suite 2030 San Francisco, California Facsimile: (415) Karyn.Gansecki@sce.com Marc Ulrich Vice President of Renewable and Alternative Power c/o Katie Sloan Southern California Edison Company 2244 Walnut Grove Avenue, Quad 4D Rosemead, CA Facsimile: (626) Katie.Sloan@SCE.com With a copy to: Rebecca Meiers-De Pastino Attorney Southern California Edison Company 2244 Walnut Grove Avenue, 3 rd Floor Rosemead, CA Facsimile: (626) Rebecca.Meiers-DePastino@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 and 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

19 ADVICE 2740-E (U 338-E) May 29, 2012 All questions concerning this Advice Letter should be directed to Katie Sloan at ( Katie.Sloan@SCE.com). Southern California Edison Company AJ:ks:sq Enclosures Akbar Jazayeri

20 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: Darrah Morgan 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) #: 2740-E Tier Designation: 3 Subject of AL: Submission of Bilateral Contract for Procurement of Renewable Energy Keywords (choose from CPUC listing): Compliance, Contract, 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 L. 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: Rebecca Meiers-De Pastino, Law Department, at (626) or Rebecca.Meiers-DePastino@sce.com Resolution Required? Yes No Requested effective date: Upon Commission approval Estimated system annual revenue effect: (%): Estimated system average rate effect (%): No. of tariff sheets: -0- 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.

21 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 Avenue San Francisco, CA Akbar Jazayeri Vice President of Regulatory Operations Southern California Edison Company 2244 Walnut Grove Avenue Rosemead, California Facsimile: (626) Leslie E. Starck Senior Vice President c/o Karyn Gansecki Southern California Edison Company 601 Van Ness Avenue, Suite 2030 San Francisco, California Facsimile: (415) Marc Ulrich Vice President of Renewable and Alternative Power c/o Katie Sloan Southern California Edison Company 2244 Walnut Grove Avenue, Quad 4D Rosemead, CA Facsimile: (626) Rebecca Meiers-De Pastino Attorney Southern California Edison Company 2244 Walnut Grove Avenue, 3 rd Floor Rosemead, CA Facsimile: (626) Rebecca.Meiers-DePastino@sce.com

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

23 Confidential Appendix B 2011 Solicitation Overview Confidential Protected Materials Public Disclosure Prohibited

24 Appendix C Independent Evaluator Report

25 Sedway Consulting, Inc. INDEPENDENT EVALUATION REPORT FOR SOUTHERN CALIFORNIA EDISON S TERRAGEN ALTA XIII RPS TRANSACTION Submitted by: Alan S. Taylor Sedway Consulting, Inc. Boulder, Colorado May 25, 2012

26 Introduction and Background This Independent Evaluation Report addresses a renewable energy contract for a project that was originally bid by TerraGen into Southern California Edison s (SCE) 2011 Renewables Portfolio Standard (RPS) solicitation. The original proposal s pricing did not warrant shortlisting the project in SCE s 2011 RPS solicitation. However, in concert with negotiations associated with amendments to other executed agreements between SCE and TerraGen, the developer approached SCE with a revised proposal that it desired to forward via bilateral negotiations. The resulting contract the Alta Wind XIII, LLC (Alta XIII) power purchase agreement (PPA) was executed on March 30, 2012 and calls for the development of a 100 MW wind facility 1 in the Tehachapi region of Kern County, California, with a forecasted commercial operation date of January 1, 2019 (a Commercial Operation Deadline no later than June 30, 2020) and the sale of approximately 307 GWh/year 2 of renewable energy to SCE for 20 years. Role of Independent Evaluator The California Public Utilities Commission (CPUC) has issued several decisions in the last several years that require California s investor-owned utilities (IOUs) to retain an Independent Evaluator (IE) in RPS solicitations. 3 Sedway Consulting was the IE for SCE s 2011 RPS solicitation. Sedway Consulting was called on to monitor the Alta XIII negotiations when TerraGen approached SCE with a bilateral offer that was believed to be competitive with SCE s other RPS options from the 2011 solicitation short list. Sedway Consulting recognized that comparing an executed contract with a short list of potential projects/contracts could be problematic given that some projects on a short list invariably do not make it to the finish line. In fact, as of the date of this report, none of the 2011 shortlisted bids have translated into executed contracts. Therefore, Sedway Consulting also decided to compare the Alta XIII PPA to any RPS PPAs or PPA amendments (whether from bilateral negotiations or from earlier RPS solicitations) that SCE had executed in the previous 12 months. 4 In instances where an IE is reviewing a contract that is the product of bilateral negotiations (as is the case with the Alta XIII PPA), the CPUC has requested that the IE 1 The facility s capacity may be increased by another 80 MW (i.e., to a total of 180 MW), at the developer s option, provided that notice of such capacity increase is given no later than 30 days following CPUC Approval. 2 Approximately 552 GWh/year if the facility s capacity is increased to 180 MW. 3 D (Findings of Fact 94-95, Ordering Paragraph 28) and D (Finding of Fact 20, Conclusion of Law 3, Ordering Paragraph 8). 4 Sedway Consulting did not include small PPAs from SCE s RAM RFPs, believing that such smaller projects were not comparable. Sedway Consulting, Inc. 1

27 opine on whether the IOU s contract evaluation process accurately reflects the PPA s market valuation and whether the PPA s market valuation is competitive relative to the IOU s other options in the most recent solicitation. Because Sedway Consulting had been the IE in SCE s 2011 RPS solicitation and had a parallel evaluation model in place, Sedway Consulting was in a position to perform the necessary comparisons for a determination of the Alta XIII PPA s competitiveness with SCE s other RPS options. This report touches on several of the items listed in the CPUC Independent Evaluator Report Template (Short Form); 5 however, that template was developed for reports associated with the annual RPS solicitations and many of the elements are not particularly applicable to bilateral contract reviews. Independent Evaluator Activities and Analysis Sedway Consulting reviewed the Alta XIII PPA, monitored virtually all of the significant negotiation calls between TerraGen and SCE during early 2012, and monitored the backand-forth exchange of negotiation s and associated redlined contracts. Sedway Consulting participated in the Alta XIII PPA discussions in SCE s Energy Procurement Risk Management Committee (eprmc) and Procurement Review Group (PRG) meetings on March 13, 2012 and March 14, 2012, respectively, and contributed to SCE s internal discussions regarding key aspects of the PPA. Sedway Consulting also reviewed drafts of SCE s advice letter filing for the PPA. Given that it had been the IE in SCE s 2011 RPS solicitation, Sedway Consulting already had market valuation results and related information for all 2011 shortlisted bids. As part of that solicitation process, prior to the opening of any bids, Sedway Consulting had obtained all necessary market price and evaluation assumptions to allow it to calibrate its bid evaluation model and perform a parallel evaluation of RPS proposals. With this precalibrated model from the 2011 RPS solicitation, Sedway Consulting was thus able to confirm that SCE s assessment of the Alta XIII PPA accurately reflected the revised project s market valuation. Such market and evaluation information included regional energy market forecast assumptions, capacity valuation assumptions, cost of capital components, discount rate, and transmission revenue requirement assumptions. Sedway Consulting s model is a renewable project evaluation tool that uses the following information for each proposal: Capacity Commencement and expiration dates for power deliveries Energy pricing Expected hourly generation profile 5 Administrative Law Judge s Ruling Issuing Templates for Independent Evaluator Reports and Contract Approval Requests, Attachment B, R , Carol Brown, ALJ filed May 8, 2008 and subsequently revised and reissued by the CPUC s Energy Division on September 14, Sedway Consulting, Inc. 2

28 Expected total annual generation. The model is a spreadsheet-based tool that was calibrated with SCE s regional forward price curves and detailed modeling results for the 2011 RPS solicitation. The model calculates the present value of a project/ppa s monthly energy payments, debt equivalence impacts, energy benefits, and capacity value. The model then subtracts each project/ppa s economic benefits from its costs and divides the resulting net costs by the present value of the proposed project s generation to yield a $/MWh renewable premium that represents the above market costs of a proposed project/ppa. SCE s evaluation model develops the same renewable premium metric in the same way. Sedway Consulting found that the Alta XIII PPA s renewable premium compared favorably to the 2011 RPS solicitation short list and to recently executed RPS PPAs. The results of Sedway Consulting s comparative analysis are provided in the Confidential Appendix A to this report. This material is being afforded confidential treatment in line with the CPUC s Decision (issued on June 29, 2006) which included guidelines for defining what constitutes confidential versus public information in California utility electricity procurement and related activities. Pursuant to Public Utilities Code Section 583, General Order (G.O.) 66-C, and the above decision, score sheets, analyses, and evaluations of proposed RPS projects are deemed confidential. 6 Sedway Consulting also reviewed the project s development status and concluded that the Alta XIII project appears to be fairly viable. The project s owner, TerraGen, is a major operator of wind generation facilities and has significant wind project development experience in California. The developer has control of the proposed project site. That said, the project s expected on-line date is fairly far into the future, so much of the permitting and development process is yet to occur. The project will interconnect to the transmission infrastructure that is being developed as part of the Tehachapi Renewable Transmission Project (TRTP). Currently, the TRTP assets are expected to be in place prior to Alta XIII s proposed on-line date, although that is not an absolute certainty (given recent delays in one or more TRTP segments) and the Alta XIII project may require additional transmission network upgrades. Also, the fate of the federal renewable production tax credit (PTC) upon which the project s financing presumably depends is unknown. The PTC provision is due to expire at the end of this year (2012), absent an extension from Congress. 6 Interim Opinion Implementing Senate Bill No. 1488, Relating to Confidentiality of Electric Procurement Data Submitted to the Commission, June 29, 2006, Appendix 1, page 17. Sedway Consulting, Inc. 3

29 Conclusion Sedway Consulting believes that SCE s contract evaluation process accurately reflected the Alta XIII PPA s market valuation and that the PPA s market valuation is competitive relative to SCE s other options on the 2011 RPS solicitation short list or recently executed RPS transactions. The project appears to be fairly viable. Sedway Consulting concludes that the Alta XIII PPA compares favorably with SCE s 2011 RPS solicitation short list and recently executed RPS transactions. Sedway Consulting does not believe that there is any material issue or deficiency that would warrant the CPUC s rejection of the Alta XIII PPA. Sedway Consulting, Inc. 4