SUBJECT: Submission of the Maverick Solar, LLC Contract for Procurement of Renewable Energy from SCE's 2015 RPS Solicitation

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1 STATE OF CALIFORNIA Edmund G. Brown Jr., Governor PUBLIC UTILITIES COMMISSION 505 VAN NESS AVENUE SAN FRANCISCO, CA July 6, 2017 Advice Letter 3562-E Russell G. Worden Director, State Regulatory Operations Southern California Edison Company 8631 Rush Street Rosemead, CA SUBJECT: Submission of the Maverick Solar, LLC Contract for Procurement of Renewable Energy from SCE's 2015 RPS Solicitation Dear Mr. Worden: Advice Letter 3562-E is effective as of June 29, 2017, per Resolution E-4851 Ordering Paragraph. Sincerely, Edward Randolph Director, Energy Division

2 Russell G. Worden Managing Director, State Regulatory Operations February 15, 2017 ADVICE 3562-E (U 338-E) PUBLIC UTILITIES COMMISSION OF THE STATE OF CALIFORNIA ENERGY DIVISION SUBJECT: Submission of the Maverick Solar, LLC Contract for Procurement of Renewable Energy From SCE s 2015 Renewables Portfolio Standard Solicitation I. INTRODUCTION A. Purpose of the Advice Letter Southern California Edison Company ( SCE ) submits this Advice Letter pursuant to California Public Utilities Code Section et seq. (the RPS Legislation ) seeking approval of a Renewables Portfolio Standard ( RPS ) power purchase agreement ( PPA ) between SCE and Maverick Solar, LLC ( Maverick Solar ) (the Maverick Solar Contract ). B. Contract Summary The Maverick Solar Contract is based on SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement, which was approved by the California Public Utilities Commission (the Commission ) in Decision ( D. ) on December 17, The following tables summarize the Maverick Solar Contract: 1 D at 122 (Ordering Paragraph ( OP ) 1). The draft 2015 RPS Procurement Plans include the 2015 Pro Forma Renewable Power Purchase and Sale Agreement. See id. at P.O. Box Rush Street Rosemead, California (626) Fax (626)

3 ADVICE 3562-E (U 338-E) February 15, 2017 Seller Maverick Solar, LLC Generation Type Size (Megawatt ( MW )) Estimated Average Energy (Gigawatt Hour ( GWh )/Year) Solar PV Forecasted Commercial Operation Date December 1, 2020 Term of Agreement (Years) 15 Project Name Seller/Parent Company Technology Maverick Solar Project EDF Renewable Energy, Inc. Solar Photovoltaic ( PV ) Capacity (MW) 125 Capacity Factor (Term Year 1) 38% Expected Generation (GWh/Year) 406 Initial Commercial Operation Date December 1, 2020 Date Contract Delivery Term Begins December 1, 2020 Delivery Term (Years) 15 Vintage (New / Existing / Repower) Location (City and State) Control Area (e.g., California Independent System Operator ( CAISO ), Bonneville Power Administration ( BPA )) Nearest Competitive Renewable Energy Zone ( CREZ ) as identified by the Renewable Energy Transmission Initiative ( RETI ) Type of cooling, if applicable Interconnection Point New Desert Center, CA (Riverside County) CAISO CREZ 36 N/A SCE s Red Bluff Substation

4 ADVICE 3562-E (U 338-E) February 15, 2017 Project Name Type of Interconnection Study/Agreement Maverick Solar Project Large Generator Interconnection Agreement ( LGIA ), December 22, 2010 In accordance with General Order ( GO ) 96-B, the confidentiality of information included in this Advice Letter are 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 2015 Solicitation Overview Confidential/Public Appendix C: Independent Evaluator Report Confidential Appendix D: Confidential Appendix E: Confidential Appendix F: Contract Summary Comparison of the Maverick Solar Contract with SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement Maverick Solar Contract Confidential/Public Appendix G: Renewable Net Short Calculations Appendix H: Appendix I: Confidentiality Declaration Proposed Protective Order C. Subject of the Advice Letter The project contemplated by the Maverick Solar Contract (the Maverick Solar Project ) is described in the table above. The seller under the Maverick Solar Contract is a limited liability company that is wholly owned by EDF Renewable Energy, Inc. ( EDF Renewable Energy ). The Maverick Solar Contract is a new contract that originated from SCE s 2015 RPS solicitation. D. Project Location The Maverick Solar Project is to be located in Riverside County, California, in Desert Center, CA on undeveloped land.

5 ADVICE 3562-E (U 338-E) February 15, 2017 E. RPS Statutory Goals and Requirements By providing renewable energy from an eligible renewable energy resource ( ERR ) as defined in the RPS Legislation, the Maverick Solar Contract is consistent with, and contributes to, the RPS program s statutory goals. Pursuant to Public Utilities Code Section (b), the Legislature determined that procurement of electricity products from ERRs, such as the Maverick Solar Project, provides unique benefits to California including, among other things, displacing fossil fuel consumption within the state, reducing air pollution in the state, meeting the state s climate change goals by reducing emissions of greenhouse gases associated with electrical generation, and meeting the state s need for a diversified and balanced energy generation portfolio. Based on SCE s analysis of its renewable net short ( RNS ) position including the use of bank prior to executing 2015 RPS solicitation contracts, SCE projected a long-term renewable procurement need starting in 2028 and beyond. SCE chose to move forward with the 2015 RPS solicitation to review the availability of competitively priced projects and chose to enter into the Maverick Solar Contract to support the market for RPS resources and to assure that SCE meets or exceeds its RPS targets. SCE s RNS calculations are included in Appendix G.

6 ADVICE 3562-E (U 338-E) February 15, 2017 F. Confidentiality SCE is requesting confidential treatment of Appendices A, B, D through F, and the confidential versions of Appendices C and G, to this Advice Letter. The information for which SCE is seeking confidential treatment is identified in the Confidentiality Declaration attached as Appendix H. 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 Carol Schmid-Frazee in SCE s Law Department at Carol.SchmidFrazee@sce.com to obtain a non-disclosure agreement. In accordance with GO 96-B, a copy of SCE s Proposed Protective Order is attached as Appendix I. 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 D , 2 and is required to be filed by advice letter as part of the process for obtaining Commission approval of RPS power purchase and sale agreements. 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 H. This information is entitled to confidentiality protection pursuant to D (as provided in the Investor-Owned Utility ( IOU ) Matrix). 3 The specific provisions of the IOU Matrix that apply to the confidential information in this Advice Letter are identified in Appendix H. II. CONSISTENCY WITH COMMISSION DECISIONS A. SCE s 2015 RPS Procurement Plan 1. SCE s 2015 RPS Procurement Plan Was Approved by the Commission and SCE Adhered to Commission Guidelines for Filing and Revisions SCE filed its 2015 RPS Procurement Plan on August 8, In D , the Commission accepted SCE s 2015 RPS Procurement Plan, including the solicitation materials for SCE s 2015 RPS solicitation. 4 The Commission also ordered SCE to make certain changes to its 2015 RPS Procurement Plan and to file a final plan by January 21, On January 21, 2016, SCE filed its final 2015 RPS 2 D at 80 (OPs 1 and 2). 3 Id., Appendix 1. 4 D at 122 (OP 1).

7 ADVICE 3562-E (U 338-E) February 15, 2017 Procurement Plan. Consistent with the schedule set forth in D , SCE issued its 2015 RPS Request for Proposals ( RFP ) on February 1, Summary of SCE s Assessment of Portfolio Needs and Preferred Project Characteristics As explained in SCE s 2015 RPS Procurement Plan, under current 33% RPS program rules and using SCE s assumptions, SCE forecasts a net short position starting in 2022 without the use of bank and a net short position starting in 2027 with the use of bank. Using the Commission s assumptions, SCE forecast a net short position starting in 2021 without the use of bank and a net short position starting in 2027 with the use of bank. Accordingly, at the time SCE filed its 2015 RPS Plan, SCE did not have a short-term renewable procurement need, but did anticipate a longer-term need for additional RPSeligible energy. Since the filing of its final 2015 RPS Procurement Plan, SCE updated its forecasted RNS position using recent observations on project success rates and drivers of change to SCE s long-term sales forecast. Using SCE s current assumptions, SCE forecasts a net short position starting in 2023 without the use of bank and a net short position starting in 2028 with the use of bank. Using the Commission s current assumptions, SCE forecasts a net short position starting in 2021 without the use of bank and a net short position starting in 2026 with the use of bank. SCE weighed this updated need against current market trends and pricing when formulating its approach for the 2015 RPS solicitation. SCE chose to move forward with the 2015 RPS solicitation to review the availability of competitively priced projects and chose to enter into the Maverick Solar Contract to support the market for RPS resources and to assure that SCE meets or exceeds its RPS targets. In the 2015 RPS Procurement Plan, SCE received approval to conduct a targeted solicitation to acquire renewable resources. In its 2015 RPS RFP, SCE accepted proposals for projects with commercial operation dates of January 1, 2016 or later, and limited its procurement to Category 1 5 products and long-term portfolio content category 3 ( Category 3 ) 6 unbundled renewable energy credit ( REC ) products. SCE stated that prior to the start of the term of the contract with SCE, sellers may, at their discretion, deliver energy, capacity or other attributes of the project: (1) through the CAISO market, (2) to a balancing authority, or (3) to a third-party off-taker. SCE also stated that it may, but is not obligated to purchase any Resource Adequacy benefits attributed to a project while it is delivering energy prior to the commencement of the term of the contract with SCE. SCE required that projects have either a Phase II Interconnection Study or equivalent, a signed interconnection agreement, or an equivalent or better interconnection study, agreement, process, or exemption in order to submit a proposal. Additionally, if the 5 As defined in Public Utilities Code Section (b)(1) and D , at As defined in Public Utilities Code Section (b)(3) and D , at

8 ADVICE 3562-E (U 338-E) February 15, 2017 California Environmental Quality Act ( CEQA ) or the National Environmental Policy Act ( NEPA ) applies to the project and a lead agency has been designated under the applicable law, then SCE considered proposals from such projects only if the project had achieved, at a minimum, an application deemed complete (or equivalent) status under the land use entitlement process by the agency designated by CEQA or NEPA as the lead agency. Projects with a contract capacity of 500 kilowatts ( kw ) or greater were eligible to participate in SCE s 2015 RPS RFP. SCE indicated that it continued to solicit ERR generating facilities in the Western Los Angeles sub-area of the Los Angeles basin local reliability area and the Goleta substation area to meet local capacity requirements and, specifically, resources that are interconnected to SCE s distribution system in the Johanna and Santiago sub-station area to meet SCE s Preferred Resources Pilot goals. For in-state 7 generating facilities that are, or will be, interconnected to the CAISO, SCE required the delivery point to be the point where the generating facility connects to the CAISO-controlled grid. For in-state generating facilities that are, or will be, interconnected to a California Balancing Authority other than the CAISO, SCE required the delivery point to be the intertie point where the seller s transmission provider ties to the CAISO. For out-of-state 8 generating facilities, sellers had to reasonably demonstrate to SCE that the output of the proposed generating facility can in fact be scheduled on an hourly or sub-hourly basis into a California Balancing Authority, without substituting electricity from another source, or dynamically transferred into a California Balancing Authority. SCE decided on the total projected contract energy it signed based on several factors, including projected long- and short-term needs, the impact of reducing federal tax credits, variation in the performance of SCE s existing portfolio, technology resource risk, risk of delay of new projects, risk of new projects not performing as expected, overall pricing compared to conventional pricing forecasts and variation in bundled retail sales, among other factors. 3. The Maverick Solar Contract Is Consistent with SCE s 2015 RPS Procurement Plan, Portfolio Needs, and Preferred Project Characteristics 7 A generating facility was considered in-state if such generating facility s first point of interconnection is, or will be, to the transmission or distribution system of a California Balancing Authority, and the generating facility delivers Category 1 or Category 3 product. 8 A generating facility was considered out-of-state if such generating facility s first point of interconnection is not, or will not be, to the transmission or distribution system of a California Balancing Authority but the generating facility is delivering Category 1 or Category 3 product. Sellers are required comply with all requirements pertaining to Out-of-State Facilities as set forth in the California Energy Commission ( CEC ) RPS Eligibility Guidebook.

9 ADVICE 3562-E (U 338-E) February 15, 2017 The Maverick Solar Contract will provide renewable energy from a new 125 MW wind facility starting in 2020 for a 15-year term, to support the market for RPS resources and to assure that SCE meets or exceeds its RPS targets. The Maverick Solar Project also met the eligibility requirements and is consistent with the preferred project characteristics for SCE s 2015 RFP. The Maverick Solar Project s first point of interconnection will be with the CAISO, and thus the Maverick Solar Contract is expected to provide a Category 1 product. Additionally, the Maverick Solar Project s 125 MW contract capacity is consistent with SCE s 500 kw minimum size requirement. The Maverick Solar Project met the requirement to have a Phase II Interconnection Study or the equivalent or better, as the project already has a fully executed LGIA. Furthermore, the Maverick Solar Project will satisfy the delivery requirements for SCE s 2015 RFP because the project s delivery point will be the point where the project connects to the CAISO-controlled grid. Additional information is included in Appendix A. 4. The Maverick Solar Contract is Consistent with SCE s Portfolio Optimization Strategy As described in detail in SCE s 2015 RPS Procurement Plan, the objective of SCE s renewables portfolio optimization strategy is to minimize costs to its customers while ensuring that RPS procurement goals are met or exceeded. SCE determines the procurement target for each RPS solicitation based in part on its assessment of SCE s renewable procurement position and need, i.e., SCE s RNS. This includes a calculation of SCE s net short or long renewables position and SCE s bank. SCE carefully evaluates its renewable procurement need by assessing bundled retail sales, the performance and variability of existing generation, the likelihood of new generation achieving commercial operation, expected commercial on-line dates, technology mix, expected curtailment, and the impact of pre-approved procurement programs, among other factors. The Maverick Solar Contract meets the primary objectives of SCE s portfolio optimization strategy. The Maverick Solar Project is expected to start deliveries in December 2020, which will help meet SCE s renewable procurement need in the mid to late 2020s and beyond. Additional information is included in Appendix A. B. Least-Cost Best-Fit ( LCBF ) Methodology and Evaluation SCE evaluates and ranks proposals based on LCBF principles that comply with criteria set forth by the Commission in D and D (the LCBF Decisions ). 9 The goal of SCE s evaluation and selection criteria and processes is to provide decision metrics so that SCE can procure renewable energy economically, while providing the most value to its customers. The LCBF analysis evaluates both quantitative and 9 The Commission has also made rulings on various evaluation criteria in its decisions on the IOUs RPS Procurement Plans.

10 ADVICE 3562-E (U 338-E) February 15, 2017 qualitative aspects of each proposal to estimate its value to SCE s customers and its relative value in comparison to other proposals. Although 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 in its evaluation and selection process were: (1) initial data gathering and validation, (2) a quantitative assessment of proposals, and (3) adjustments to selections based on proposals qualitative attributes. SCE applied these criteria to the proposals received in its 2015 RPS RFP in order to establish a shortlist of proposals from sellers with whom SCE would engage in contract negotiations. Prior to receiving proposals, SCE finalized the shortlist selection criteria with the Independent Evaluator ( IE ). SCE then finalized the major assumptions and methodologies that underlie SCE s valuation, including power price forecast, SCE s existing and forecast resource portfolio, capacity value forecast, renewable integration cost adder ( RICA ) methodology, and capacity limits at interties. SCE also finalized and published congestion adders for sellers to use in preparing their proposals. Once proposals were received, SCE began an initial review of proposals for completeness and conformity with the solicitation protocol. The review included an initial screen for required submission criteria such as a Phase II interconnection study or equivalent, evidence of application deemed complete land use entitlement process status as required by the Commission, Geographic Information Systems files as required by the Commission, all SCE required attestations, and other items necessary to deem a proposal complete and conforming. Sellers lacking any of these items were allowed a reasonable cure period to remedy any deficiencies. Following this check for conformity, SCE conducted an additional review to determine the reasonableness of proposal parameters such as generation profiles and capacity factors. SCE worked directly with sellers to resolve any issues and ensure the data was ready for evaluation. After these reviews, SCE calculated the Net Market Value ( NMV ) for each complete and conforming proposal and ranked the proposals based on this quantitative assessment of costs and benefits. Benefits were composed of separate capacity, energy, curtailment (if applicable), and congestion components (congestion reduction if applicable). Costs included the contract payments, debt equivalents, congestion cost, RICA, and transmission cost. SCE discounted the annual benefit and cost streams to a common base year. The result of the quantitative analysis was a merit order ranking of all complete and conforming proposals by NMV that helped define the shortlist. Following the quantitative analysis, SCE conducted an initial assessment of the qualitative attributes of the top proposals with a competitive NMV. This analysis utilized the Project Viability Calculator to assess certain factors, including the company/development team, technology, and development milestones. Additional

11 ADVICE 3562-E (U 338-E) February 15, 2017 attributes such as contributions to other SCE programs and goals, start dates, term length, project size and total nominal payments were also considered in the qualitative analysis. Following its analysis, SCE consulted with its Procurement Review Group ( PRG ) regarding SCE s proposed final shortlist and specific evaluation criteria. SCE then negotiated with the shortlisted sellers. At the end of the contract negotiation period, SCE executed a PPA with Maverick Solar with which SCE successfully completed negotiations. SCE s 2015 RPS Shortlist Report was submitted to the Commission on June 6, 2016 in Advice Letter 3418-E. On June 30, 2016, the Commission approved Advice Letter 3418-E, effective July 6, Using SCE s LCBF methodology, the Maverick Solar Project compared favorably to other proposals received in the 2015 RPS RFP, as well as other procurement options available to SCE. Additional information is included in Appendix A. C. 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 retail sellers when contracting for RPS-eligible resources. 10 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. 11 The remaining nonmodifiable terms were converted to modifiable terms. 12 In D , as modified by D , the Commission added two new non-modifiable standard terms and conditions for both bundled contracts and REC-only contracts: (1) Transfer of Renewable Energy Credits; and (2) Tracking of RECs in WREGIS. 13 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. 14 In D , the Commission updated the non-modifiable RECs and Green Attributes term to a modifiable Bioenergy Transactions term. 15 The Maverick Solar Contract includes all non-modifiable standard terms and conditions for bundled contracts without change as indicated in the table below. 10 D at 20 (OP 1), Appendix A. 11 D at 33 (OP 1.a). 12 Id. at 34 (OP 1.b). Subsequently, 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. 13 D at 46 (OP 4.P). 14 Id. at (OP 4.Q). 15 D at 24-25, 70 (OP 6).

12 ADVICE 3562-E (U 338-E) February 15, 2017 NON-MODIFIABLE TERM STC 1: CPUC Approval CONTRACT SECTION NUMBER Exhibit A (See also Section 2.01(a)) CONTRACT PAGE NUMBER Exhibit A, Page 5 (Section 2.01(a) is on page 7) STC 6: Eligibility 10.02(b) 64 STC 17: Applicable Law STC REC 1: Transfer of RECs 10.02(c) STC REC 2: WREGIS Tracking of RECs 10.02(e) 65 A comparison of the Maverick Solar Contract against SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement is included as Appendix E. D. Portfolio Content Category Claim and Upfront Showing In D , the Commission found that [a] retail seller claiming that procurement for compliance with the California renewables portfolio standard from a procurement contract or ownership agreement signed... on or after June 1, 2010 counts in the portfolio content category described in Pub. Util. Code (b)(1), must provide information to the Director of Energy Division sufficient to demonstrate that the generation facility from which the electricity is procured is certified as eligible for the California renewables portfolio standard. 16 Additionally, retail sellers claiming procurement counts as a Category 1 product must provide information to the Energy Division Director sufficient to demonstrate that the generating facility from which the electricity is procured meets the statutory definition of Category 1 products set forth in Public Utilities Code Section (b)(1). 17 One way to make this demonstration is to show that the facility has its first point of interconnection to the Western Electricity Coordinating Council transmission grid within the metered boundaries of a California balancing authority area. 18 Another way is to show the generation from that facility is scheduled into a California balancing authority pursuant to a dynamic transfer agreement between the balancing authority where the generation facility is located and the California balancing authority into which the generation is scheduled. 19 The retail seller must also demonstrate that the renewable energy credits originally associated with the 16 D at (OP 1). 17 Id. 18 Id. at 76 (OP 1). 19 Id.

13 ADVICE 3562-E (U 338-E) February 15, 2017 electricity have not been unbundled and transferred to another owner, and that all other requirements for procurement for compliance with the California renewables portfolio standard are met by the procurement. 20 Furthermore, D provides that the utilities, in seeking approval of contracts for procurement, should enable the Commission to evaluate the following: the claimed portfolio content category of the proposed procurement; the risks that the procurement will not ultimately be classified in the claimed portfolio content category; the value to ratepayers of the procurement as proposed and the value to ratepayers if the procurement is not ultimately classified in the claimed portfolio content category. 21 Pursuant to the provisions in the Maverick Solar Contract, SCE will procure energy, capacity, and associated renewable energy attributes generated from an ERR with a first point of interconnection within the CAISO. In addition, per the contract, the Maverick Solar Project must obtain and keep current CEC certification as an ERR, 22 as well as perform all actions necessary to effectuate the transfer of Renewable Energy Credits ( RECs ) to SCE in the Western Renewable Energy Generation Information System ( WREGIS ). The RECs associated with the electricity from the Maverick Solar Project are yet to be delivered and therefore have not been unbundled or transferred to another owner. Such RECs will be transferred to SCE pursuant to the terms of the Maverick Solar Contract. Accordingly, this is a Category 1 transaction pursuant to the Public Utilities Code Section (b)(1) and D SCE has not identified a risk that the Maverick Solar Project will fail to deliver Category 1 RECs. 20 Id. 21 Id. at 80 (OP 9). 22 The project must qualify and be certified by the CEC as an ERR as such term is defined in Public Utilities Code Section (e). 23 D at (OP 1).

14 ADVICE 3287-E (U 338-E) February 15, 2017 Forecast of Portfolio Balance Requirements 24 PCC 1 Balance Requirement Compliance Period 2 ( ) GWh CP 2 = 65% of RECs applied to procurement quantity requirement CP 3 = 75% of RECs applied to procurement quantity requirement Quantity of PCC 1 RECs 25 (under contract, not including proposed contract) Quantity of PCC 1 RECs from proposed contract Compliance Period 3 ( ) GWh 10,253 53, Quantity of PCC 2 RECs 0 0 Quantity of PCC 2 RECs from proposed contract (under contract, not including proposed contract) PCC 3 Balance Limitation 0 0 CP 2 = 15% of RECs applied to procurement quantity requirement CP 3 = 10% of RECs applied to procurement quantity requirement Quantity of PCC 3 RECs (under contract, not including proposed contract) Quantity of PCC 3 RECs from proposed contract SCE s forecast assumes a 100% success rate for projects in development that are not yet online. 25 The Quantity of PCC 1 RECs (under contract, not including proposed contract) represents the total forecasted energy deliveries for all executed RPS-eligible contracts, minus the forecasted energy deliveries from the Maverick Solar Contract.

15 ADVICE 3562-E (U 338-E) February 15, 2017 E. Long-Term Contracting Requirement In D , the Commission held that, [i]n order to count procurement from contracts of less than 10 years duration signed after June 1, 2010 for compliance with the California renewables portfolio standard in a compliance period, a retail seller... must sign in the compliance period in which the short term contract is signed, contracts of at least 10 years in duration with expected generation equal to at least 0.25 percent of its retail sales for the immediately prior compliance period. 26 Since there was not a compliance period prior to the compliance period, the requirement is 0.25 percent of 2010 retail sales for that compliance period. 27 The Maverick Solar Contract is a 15-year contract. Therefore, the long-term contracting requirement does not apply. F. 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 added 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), for a load-serving entity.... In order to institute the provisions of SB 1368, the Commission instituted Rulemaking ( R. ) That proceeding resulted in the establishment of a greenhouse gas ( GHG ) emissions performance standard ( EPS ) for carbon dioxide ( CO2 ). In D , 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 ) power plant. 28 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- 26 D at 98 (OP 15). 27 Id. at 98 (OP 16). 28 D at 2-3.

16 ADVICE 3562-E (U 338-E) February 15, 2017 term financial commitment by an LSE. 29 The statute defines baseload generation as electricity generation from a power plant that is designed and intended to provide electricity at an annualized plant capacity factor of at least 60%. For 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. 30 Pursuant to D , solar-powered generating facilities are deemed EPScompliant. 31 The Maverick Solar Project is a solar facility and therefore meets this requirement. G. PRG Participation SCE s PRG was formed on or around September 10, Participants include representatives from various divisions within the Commission, the Office of Ratepayer Advocates, The Utility Reform Network, California Utility Employees, the Union of Concerned Scientists, Sierra Club, and the California Department of Water Resources. SCE consulted with its PRG during each milestone of the 2015 RPS solicitation process. Among other things, SCE informed the PRG of the initial results of its RFP, explained the evaluation process, and updated the PRG periodically concerning the status of contract formation. On May 4, 2016, SCE advised the PRG of its proposed shortlist of proposals for its 2015 RPS solicitation. On October 19, 2016, SCE briefed the PRG on the proposed execution of the Maverick Solar Contract. H. IE The IE for the 2015 RPS solicitation 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, the Maverick Solar Contract, and other documents exchanged by the parties. The IE also participated in the PRG review. The IE Report is included as Appendix C. 29 LSE is defined as load-serving entity. 30 Id. at Id. at 269 (Conclusion of Law 35).

17 ADVICE 3562-E (U 338-E) February 15, 2017 III. PROJECT DEVELOPMENT STATUS 32 A. Company/Development Team The Maverick Solar Project is expected to be designed, permitted, constructed, operated, and maintained by EDF Renewable Energy and/or its designated contractors and affiliates. Maverick Solar is a wholly owned subsidiary of EDF Renewable Energy. Together with its development team, EDF Renewable Energy and its affiliated companies have has developed, operated and maintained, or built (or some combination of all three) over 10,000 MW of generating facility projects in North America. Some of the EDF Renewable Energy projects developed (or in the process of being developed) are the ~145 MW Catalina Solar project, the 27 MW CID Solar project, and the three Shiloh Wind projects, which total 450 MW. B. Technology 1. Technology Type and Level of Technology Maturity The Maverick Solar Project expects to utilize mature and proven solar photovoltaic technology from panel, inverter, and racking system manufacturers with proven deployment on utility-scale generation projects. The project will not deploy early stage or unproven technologies. All technologies will be designed for utility-scale operation with significant operating history. Additional information is included in Appendix A. 2. Quality of Renewable Resource SCE believes that the Maverick Solar Project will be able to satisfy the delivery terms of the Maverick Solar Contract. The Maverick Solar Project is located in the city of Desert Center, CA which is a well-known, high resource solar area with other solar projects nearby (see map below). SCE believes that the Maverick Solar Project will be able to meet the terms of the contract given the quality of the renewable resource in the area. 32 Some of the information in this section was provided by Maverick Solar or EDF Renewable Energy and was not independently verified by SCE.

18 ADVICE 3562-E (U 338-E) February 15, Other Resources Required No additional fuel supply is required for the Maverick Solar Project. C. Development Milestones 1. Site Control EDF Renewable Energy has secured site control to support the Maverick Solar Project. Maverick Solar has a Bureau of Land Management ( BLM ) Right of Way ( ROW ) Grant pending NEPA approval. EDF Renewable Energy has exclusive site control and the right to develop Maverick Solar by virtue of its BLM Right of Way application (CACA 48810) and the advancement of said ROW Grant application through the NEPA process. The conclusion of the BLM ROW process will result in a lease for the Maverick Solar Project. The BLM lease will cover all the land required for the Maverick Solar Project including the gen-tie. 2. Equipment Procurement As of the filing date of this Advice Letter, EDF Renewable Energy has not identified any equipment procurement issues that are expected to affect any of the project s ability to meet the commercial operation date. It should be noted that EDF Renewable Energy has a long history of successfully procuring

19 ADVICE 3562-E (U 338-E) February 15, 2017 equipment for its various projects. Additional information is included in Appendix A. 3. Permitting/Certifications Status A table listing the major permits and/or authorizations necessary for development and operation of the Project is included below. Maverick Solar Permit Status Name of Permit or Lease required Grantor Description of Permit or Lease Current Status (to be filed, pending approval, approved) Projected timeframe for approval BLM ROW Bureau of Land Management ROW grant authorizes rights and privileges for the construction of a PV solar facility and the underlying land rights for the use of Public Lands Filed and pending approval. Draft Supplemental Environmental Impact Statement ( DEIS ) to be released for public comment in Q CEC Pre- Certification CEC Pre-certifies project as an Eligible Renewable Resource Approved Completed LGIA CAISO LGIA Approved Completed 4. Production Tax Credits/Investment Tax Credits The Project expects to utilize the investment tax credit ( ITC ) at the rate that is available at the time the Project achieves commercial operation. The Seller bears the risk of the tax credits/funding not being received.

20 ADVICE 3562-E (U 338-E) February 15, Transmission The Maverick Solar Project will interconnect at 230kV and deliver energy to CAISO via interconnection at the SCE Red Bluff substation. EDF Renewable Energy has signed a LGIA. Maverick Solar Project Transmission Details Queue number (specify control area : CAISO, IID, etc.) and Relative Position CAISO Queue Number 365 If in CAISO Serial Group, status of: Feasibility Study System Impact Study Facilities Study N/A N/A N/A If in CAISO Cluster: Name of Cluster Status of Phase I and II studies Interconnection Agreement Date Signed or Anticipated Preferred Point of Interconnection (line, substation, etc.) Early Interconnection Details, if applicable Gen-Tie Type (new line, reconductor, increased transformer bank capacity, increased bus capacity, increased sub area) Gen-Tie Length Gen-Tie Voltage Network Upgrade(s) Transition Cluster Phase II studies have been completed and have been provided. The Project has an executed interconnection agreement signed on 12/22/2010 SCE Red Bluff Substation at the 230kV bus N/A New line in BLM approved ROW 5+ miles 230 kv Plan of Service Reliability Network Upgrades have been installed, including

21 ADVICE 3562-E (U 338-E) February 15, 2017 the 220kV circuits breakers, disconnects, associated bus supports and steel pedestals; conductor within the position; and breaker management relays. The RTU at Red Bluff still has to be expanded and the project has to be added to the Colorado River Corridor SPS. Expected Network Upgrade Completion Date Approx. 27 months D. Financing Plan Information regarding financing is included in Appendix A. IV. CONTINGENCIES AND MILESTONES The Maverick Solar Project is expected to begin operation on December 1, Specific information regarding performance criteria and guaranteed milestones is provided in Appendices D through F. V. SAFETY CONSIDERATIONS SCE is strongly committed to safety in all aspects of its business. Renewable sellers are responsible for the safe construction and operation of their generating facilities and compliance with all applicable safety regulations. SCE has taken several steps to address those issues over which it has the most visibility and control the delivery of renewable electricity products to SCE in a reliable, safe, and operationally sound manner. SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement provides that the seller must operate the generating facility in accordance with Prudent Electrical Practices Section 3.12(a) of SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement. Exhibit A of SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement provides the definition of Prudent Electrical Practices : those practices, methods and acts that would be implemented and followed by prudent operators of electric energy generating facilities in the Western United States,... during the relevant time period, which practices, methods and acts, in the exercise of prudent and responsible professional judgment in the light of the facts known... at the time the decision was made, could reasonably have been expected to accomplish the desired result consistent with good business practices, reliability and safety. Prudent Electrical Practices includes, at a minimum, those professionally responsible practices, methods and acts described in the preceding sentence that

22 ADVICE 3562-E (U 338-E) February 15, 2017 Further, these provisions specifically require that all sellers take reasonable steps to ensure that: (a) (b) (c) (d) (e) (f) Equipment, materials, resources, and supplies, including spare parts inventories, are available to meet the Generating Facility s needs; Sufficient Operating personnel are available at all times and are adequately experienced and trained and licensed as necessary to Operate the Generating Facility properly and efficiently, and are capable of responding to reasonably foreseeable emergency conditions at the Generating Facility and Emergencies whether caused by events on or off the Site; Preventive, routine, and non-routine maintenance and repairs are performed on a basis that ensures reliable, long term and safe Operation of the Generating Facility, and are performed by knowledgeable, trained, and experienced personnel utilizing proper equipment and tools; Appropriate monitoring and testing are performed to ensure equipment is functioning as designed; Equipment is not Operated in a reckless manner, in violation of manufacturer s guidelines or in a manner unsafe to workers, the general public, or the Transmission Provider s electric system or contrary to environmental laws, permits or regulations or without regard to defined limitations such as, flood conditions, safety inspection requirements, operating voltage, current, volt ampere reactive (VAR) loading, frequency, rotational speed, polarity, synchronization, and control system limits; and Equipment and components are designed and manufactured to meet or exceed the standard of durability that is generally used for electric energy generating facilities operating in the Western United States and will function properly over the full range of ambient temperature and weather conditions reasonably expected to occur at the Site and under both normal and emergency conditions. 34 comply with the manufacturer s warranties, restrictions in this Agreement, and the requirement of Governmental Authorities, WECC standards, the CAISO and Applicable Laws. 34 Definition of Prudent Electrical Practices in Exhibit A of SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement. Any capitalized term in this

23 ADVICE 3562-E (U 338-E) February 15, 2017 Consistent with SCE s focus on safety, SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement also includes a provision providing that, prior to commencement of any construction activities on the project site, the seller must provide to SCE a report from an independent engineer certifying that the seller has a written plan for the safe construction and operation of the generating facility in accordance with Prudent Electrical Practices. 35 The Maverick Solar Contract includes all of these provisions, which are in the same location (i.e., sections and exhibits) as they are in SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement. VI. REQUEST FOR COMMISSION APPROVAL The terms of the Maverick Solar Contract are conditioned on the occurrence of final CPUC Approval, as it is described in the Maverick Solar Contract. In order to satisfy that condition with respect to the Maverick Solar Contract, SCE requests that the Commission issue a resolution no later than August 16, 2017 containing: 1. Approval of the Maverick Solar Contract in its entirety; 2. A finding that the Maverick Solar Contract is consistent with SCE s 2015 RPS Procurement Plan; 3. A finding that the Maverick Solar Contract is compliant with the Emissions Performance Standard; 4. A finding that any procurement pursuant to the Maverick Solar Contract is procurement from an eligible renewable energy resource for 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.), D , or other applicable law; 5. A finding that the Maverick Solar Contract, and SCE s entry into it, is reasonable and prudent for all purposes, including, but not limited to, recovery in rates of payments made pursuant to the Maverick Solar Contract and administrative costs associated with the Maverick Solar Contract, subject only to further review with respect to the reasonableness of SCE s administration of the Maverick Solar Contract; and quotation but are not defined herein have the meaning set forth in Exhibit A of SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement. 35 Section 3.11(e) of SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement.

24 ADVICE 3562-E (U 338-E) February 15, Any other and further relief as the Commission finds just and reasonable. VII. TIER DESIGNATION Pursuant to GO 96-B, Energy Industry Rule 5.3, SCE submits this Advice Letter with a Tier 3 designation. VIII. EFFECTIVE DATE This Advice Letter will become effective upon Commission approval. IX. 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 submitted to: CPUC, Energy Division Attention: Tariff Unit 505 Van Ness Avenue San Francisco, California EDTariffUnit@cpuc.ca.gov Copies should also be mailed to the attention of the Director, Energy Division, Room 4004 (same address as above). In addition, protests and other correspondence regarding this advice letter should also be sent by letter and transmitted via facsimile or electronically to the attention of: Russell G. Worden Managing Director, State Regulatory Operations Southern California Edison Company 8631 Rush Street Rosemead, California Telephone: (626) Facsimile: (626) AdviceTariffManager@sce.com

25 ADVICE 3562-E (U 338-E) February 15, 2017 Laura Genao Managing Director, Regulatory Affairs c/o Karyn Gansecki 601 Van Ness Avenue, Suite 2030 San Francisco, California Facsimile: (415) Karyn.Gansecki@sce.com With a copy to: Carol Schmid-Frazee Senior Attorney Southern California Edison Company 2244 Walnut Grove Avenue, 3 rd Floor Rosemead, CA Facsimile: (626) Carol.Schmidfrazee@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 must be received by the deadline shown above. In accordance with General Rule 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 (626) For changes to any other service list, please contact the Commission s Process Office at (415) or Process_Office@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

26 ADVICE 3562-E (U 338-E) February 15, 2017 All questions concerning this Advice Letter should be directed to Janos Kakuk at (626) or by electronic mail at Janos.Kakuk@sce.com. Southern California Edison Company RGW:csf/ee:cm Enclosures /s/ Russell G. Worden Russell G. Worden

27 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) #: 3562-E Tier Designation: 3 Subject of AL: Submission of the Maverick Solar, LLC Contract for Procurement of Renewable Energy From SCE s 2015 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: Confidential treatment requested? Yes No See Appendix H If yes, specification of confidential information: 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: Carol Schmid-Frazee, Law Department, (626) or Carol.SchmidFrazee@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: N/A 1 Discuss in AL if more space is needed.

28 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, California Russell G. Worden Managing Director, State Regulatory Operations Southern California Edison Company 8631 Rush Street Rosemead, California Telephone: (626) Facsimile: (626) Laura Genao Managing Director, State Regulatory Affairs c/o Karyn Gansecki Southern California Edison Company 601 Van Ness Avenue, Suite 2030 San Francisco, California Facsimile: (415) With a copy to: Carol Schmid-Frazee Senior Attorney Southern California Edison Company 2244 Walnut Grove Avenue, 3rd Floor Rosemead, CA Facsimile: (626) Carol.Schmidfrazee@sce.com

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

30 CONFIDENTIAL Appendix B 2015 Solicitation Overview Confidential Protected Materials Public Disclosure Prohibited

31 CONFIDENTIAL Appendix C Independent Evaluator Report Confidential Protected Materials Public Disclosure Prohibited

32 PUBLIC Appendix C Independent Evaluator Report

33 Southern California Edison Company 2015 Renewable Resource Solicitation Report of the Independent Evaluator Review of Power Purchase Agreement with Maverick Solar, LLC November, 2016 Prepared by Merrimack Energy Group, Inc. Merrimack M Energy And New Energy Opportunities, Inc.

34 Table of Contents Executive Summary.. 2 I Renewable RFP Overview... 7 II. Role of the Independent Evaluator III. Adequacy of Outreach to Potential Sellers IV. Fairness and Appropriateness of RPS Bid Evaluation and Selection Methodology. 25 V. Administration of the Bid Evaluation Process 44 VI. Approval of Shortlist. 53 VII. Maverick Solar PPA and the Fairness of Negotiations...56 VIII. Does the Maverick Solar PPA Merit CPUC Approval?..65 Appendix A: SCE s Least Cost Best Fit Evaluation Methodology Appendix B: SCE 2015 RPS RFP Proposal List and Summary Merrimack Energy Group, Inc. 1

35 Executive Summary Effective November 21, 2016, Southern California Edison Company ( SCE ) executed a power purchase agreement ( PPA ) with Maverick Solar, LLC ( Maverick Solar ) for the purchase of all of the electric energy produced by the generating facility throughout the delivery term, net of station use, all capacity attributes, Resource Adequacy ( RA ) benefits and Green Attributes produced by a proposed 125 MW (AC) solar photovoltaic ( PV ) generating facility to be constructed in East Riverside County, Desert Center, California. The Delivery Point under the PPA with Maverick Solar is at SCE s Red Bluff Substation. The Interconnection Point is also at the Red Bluff Substation. The PPA was executed by SCE pursuant to the company s 2015 Request for Proposals from Eligible Renewable Energy Resource Suppliers for Renewable Products ( 2015 Renewable RFP, 2015 RPS RFP or 2015 RPS Solicitation ). SCE launched the 2015 Renewable RFP on February 1, 2016, and received proposals on March 7, xxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxx including a total of 125 MW of energy, capacity and Green Attributes purchased under the PPA with Maverick Solar. 1 Through the 2015 Renewable RFP, SCE solicited Proposals from bidders ( Seller or Sellers ) to supply either a Bundled Energy Product (product qualifying as Portfolio Content Category 1 product), Firmed and Shaped Product (product qualifying as Portfolio Content Category 2 product) or Renewable Energy Credit ( REC ) Product (product qualifying as Portfolio Content Category 3) from Eligible Renewable Energy Resources ( ERR or ERR Generating Facility ). Pursuant to the 2015 Renewable RFP, SCE received a large number of proposals 2 from renewable energy developers, reviewed and evaluated the proposals relative to the eligibility and conformance requirements listed in the 2015 Request for Proposals from Eligible Renewable Energy Resource Suppliers for Renewable Products ( Procurement Protocol ) document for the solicitation, evaluated and ranked the proposals, and determined which of those proposals to include on a short list for potential negotiations and contracting. xxxxxxxxxxxxxxxxxxxx Table ES-1 provides a short summary of the projects which were selected for the short list and for which contracts were expected to be executed. 1 Capitalized terms when used with reference to the Maverick Solar PPA and not otherwise defined herein are defined in the Maverick Solar PPA. 2 All proposals received were for Category 1 Product. Merrimack Energy Group, Inc. 2

36 Table ES-1: Shortlisted Projects for RPS and GTSR Programs Company Project Tech COD Term (years) Contract Capacity (MW) Gen (GWh/yr) NMV ($/MWh) xxxxxxxx xxxxxxxx xxxxxxx xxxxxxxx xx xxx xxx 3 xxxxx xxxxx xxxx xxxxxx xxxxxxx xxxxxxxx xx xxx xxx xxxxx xxxxxxxx xxxxxx xxxxxxx xxxxxxxx xx xx xxx xxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxx xxxxxxxx xx xx xx xxxxx xxxxxx xxxxxxxxx xxxx xxxxxxxx xxxxx xxxxxxx xxxxxxxx xx xx xx xxxxx Of note, the Palen I project, developed by EDF Renewables ( EDF ), was renamed Maverick Solar after shortlisting. SCE shortlisted the proposed 225 MW project on the condition that the project under contract be reduced in size to 125 MW with no price change. EDF agreed to this condition, which is reflected in the Maverick Solar PPA. 4 The net market value of the 125 MW Maverick Solar PPA was determined by SCE to be xxxxxxxxxxx SCE provided the following reasons to the PRG underlying its decision regarding shortlisting: SCE s RPS procurement needs are negligible (outside of GTSR requirements) for the next 10 years due to lower load forecasts and higher forecasted RPS contract project success rates (associated with higher threshold requirements in recent RPS solicitations); xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The RECs are bankable. xxxxxxxxxxxxxxxxxxxxxxxxxx The Maverick Solar project, which is the subject of this report, is a 125 MW solar PV project being developed in East Riverside County, California. The project is expected to 3 xxxxxxxxxxxx xxxxx 4 The total GWh/year in Table ES-1 for the Palen I (Maverick Solar) project is a prorated number to reflect the lower capacity of 125 MW based on the GWh generation from EDF s original 225 MW offer. Merrimack Energy Group, Inc. 3

37 deliver approximately 406 GWh/year. The forecasted date for commercial operation is December 1, The delivery term under the PPA is 15 years. Under the terms of the PPA, the project cannot deliver in excess of 125 MW in any settlement interval. Pursuant to regulatory requirements of the California Public Utilities Commission ( CPUC or Commission ), prior to the launch of the RFP, SCE retained Merrimack Energy Group, Inc. ( Merrimack Energy ) as the Independent Evaluator ( IE ) for the 2015 Renewable RFP. 5 Following the receipt and evaluation of proposals and selection of the shortlist, Merrimack Energy submitted its Report of the Independent Evaluator on the Bid Evaluation and Short List Selection Process and Results. This report ( IE Short List Report ), which was filed with SCE s Advice Letter seeking approval of the short list. 6 As addressed in this IE Short List Report, the IE is required to conduct a range of activities to review, assess, and scrutinize SCE s processes in implementing its solicitation process. The IE has spent considerable time and effort in reviewing SCE s proposal evaluation methodology and results and overseeing its evaluation of proposals and short-list selection. Generally, we found that the evaluation and selection process and short listing decisions were reasonable based on the 2015 Renewable RFP requirements and evaluation criteria set forth in SCE s Procurement Protocol. 7 The primary purpose of this report is (1) to describe and assess the fairness of the RFP process following SCE s short listing decisions, which included the contract negotiation period; and (2) to describe the fairness of the contract negotiation process with respect to the Maverick Solar PPA, the price, economic ranking, and other attributes of the Maverick Solar PPA and project, and whether the Maverick Solar PPA merits Commission approval. In addition, this report includes an assessment of the entire RFP process, including a description of IE activities and assessment of SCE s process from the IE Short List Report to contract execution. SCE s outreach activities, which included contacting a large number of prospective Sellers, holding a 2015 RPS Solicitation Request for Proposals Conference via Webex for prospective Sellers, and disseminating substantial information about the RFP on its website or the Accion Power website, were effective, as evidenced by the robust response to the RFP in terms of number of proposals, types of resources proposed, initial delivery dates, quality of the proposals submitted and importantly, maturity of the proposals submitted. SCE s approach adopted for this RFP was to apply fairly strict threshold requirements, notably that Sellers had to have a Phase II Interconnection Study or equivalent in order to participate. In addition, Seller s Proposal must demonstrate site control or the proposal will 5 New Energy Opportunities, Inc. is serving as a subcontractor to Merrimack Energy in this engagement. 6 On June 30, 2016, the Commission approved Advice Letter 3418-E, effective July 6, The Procurement Protocol is a public document describing the renewable energy products being sought, the 2015 Renewable RFP submission requirements, and SCE s preferences and evaluation criteria. Merrimack Energy Group, Inc. 4

38 not be given further consideration. The response of the market to the RFP was robust and was very competitive with more new projects being bid relative to existing projects. 8 SCE s project team was reasonably thorough in conducting its due diligence review to determine if the proposals received conformed to the completeness and eligibility requirements of the RFP and SCE worked with Sellers to cure any curable deficiencies. SCE s Least Cost Best Fit ( LCBF ) evaluation methodology was generally implemented in a consistent manner and was effective in assessing a range of projects, technologies, contract terms and product sizes in a fair, consistent, and technology neutral manner. Under this approach, once proposals are received, SCE begins an initial review for conformity and completeness with the requirements listed in the Procurement Protocol. After this process, SCE performs a quantitative assessment of each proposal and subsequently rankorders the proposals based on the proposal s benefit and cost relationship as reflected by the Net Market Value ( NMV ). The rank order of proposals helps define the preliminary short list. Within the overall LCBF methodology, SCE made revisions to the pure rank order approach for ranking and selecting projects based on NMV. 9 While the Net Market Value metric was still used as a starting point to identify the highest ranked projects, SCE considered other options proposed for the same project, including shorter terms and smaller project size options. 10 The IE has concluded that the proposal evaluation process was fairly administered and was a consistent, and comprehensive process. Furthermore, the flexibility included in the final selection to inform the ultimate selection served to lower total expected direct costs for customers relative to a pure rank order selection process (based on expected net costs taking into consideration forecasted market values for energy and capacity). 11 The methodology and proposed Short List selection were vetted with the PRG prior to final selection. 8 While the 2014 RPS RFP had a more balanced mix of new and existing projects, the 2015 RPS RFP project mix contained a greater percentage of new projects. 9 Net Market Value is calculated by subtracting costs from benefits. Benefits are comprised of separate capacity, energy, curtailment (if applicable), and congestion components (including congestion reduction, if applicable). Costs include the contract payments, debt equivalence, congestion cost, renewable integration cost adder, and transmission costs. 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 offers by Net Market Value, which is the foundation upon which a shortlist portfolio is established. 10 xxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxx xxx 11 Section IV of this report provides a detailed description of the evaluation methodology. Merrimack Energy Group, Inc. 5

39 Of the xxxxprojects selected for the short list, SCE selected the two best projects (from a NMV basis) to meet GTSR requirements. These included the First Solar Windhub Solar A project and the FTP Power Antelope DSR 3 project, both of which are 20 MW projects. xxxxxxxxxxxxxx 12 xxxxxxxxxx 13 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 14 In the IE s opinion, SCE s selection of the shortlisted projects was generally reasonable and appropriate based on SCE s overall RPS position and the selection criteria. While SCE indicated that it is well positioned to satisfy procurement targets through at least 2025, the circumstances surrounding the offers received merited further consideration. xxxxxxxx xxxxxxxxxxxxxxxxxxx 15 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxx One of the primary revisions made to the evaluation process for the 2015 RPS RFP is the treatment of transmission network upgrade costs. For the 2015 RPS RFP, transmission network upgrade costs are based on the estimated cost of reimbursable network upgrades attributable to individual projects that will be paid by SCE customers. For projects in the CAISO-controlled area, it will be the share of costs that are paid by SCE customers. SCE s customer share of network upgrade costs for interconnections at higher transmission voltages will be determined by the CAISO s latest values for utility-specific Transmission 12 As noted earlier, SCE s shortlist selection of Palen I (Maverick Solar) was contingent on EDF lowering the contract capacity from 225 MW to 125 MW while retaining the same offered price. 13 xxxxxxxxx xxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 14 As we noted in the 2014 RPS RFP Shortlist report, Net Market Value calculations generally improve for proposals with longer terms and later start dates due to the increased forecast values for capacity and energy values in SCE s forecasts. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxx 15 xxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxx xxxxxxxxxxx xxxxx Merrimack Energy Group, Inc. 6

40 Access Charges based on load share. For non-caiso controlled projects, this cost will be zero. Overall, it is the IE s assessment that SCE reasonably designed and fairly implemented the 2015 Renewable RFP and appropriately selected the Maverick Solar project proposal. xxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 16 The project also had a relatively high ranking in terms of project viability, and the PPA was fairly negotiated. In the IE s opinion, the Maverick Solar PPA merits Commission approval. I Renewable Request for Proposals ( RFP ) Overview On February 1, 2016, Southern California Edison Company issued its 2015 Renewable RFP. SCE solicited proposals from bidders to supply either Bundled Energy Product, Firmed and Shaped Product or REC Product from Eligible Renewable Energy Resources sufficient to permit SCE to execute renewable power purchase and sale agreements ( PPAs ) in substantially the form as SCE s Pro Forma Renewable Power Purchase and Sale Agreement ( Pro Forma PPA ) or the Pro Forma Master Renewable Energy Credit Purchase Agreement ( Pro Forma REC Purchase Agreement ), as applicable, both posted on the Accion Power 2015 RPS Proposal Website. In addition, SCE is offering a nonnegotiable Standard Contract Option. SCE recognizes that the Renewable PPA would require modification to account for Firmed and Shaped Product. Through the 2015 Renewable RFP, SCE sought Proposals for product qualifying as Portfolio Content Category 1 ( Category 1 ), Firmed and Shaped Product qualifying as Portfolio Content Category 2, and REC Product qualifying as Portfolio Content Category 3 ( Category 3 ). Category 1 includes all electric energy produced by an ERR Generating Facility throughout the term of the Final Agreement, net of Station Use; all Green Attributes; all Capacity Attributes, if any; and all Resource Adequacy Benefits, if any; generated by, associated with, or attributable to the output of the ERR Generating Facility. 17 Category 2 includes firmed and shaped ERR electricity products providing incremental electricity and scheduled into a California Balancing Authority, as well as all associated Green Attributes, all Capacity Attributes and all Resource Adequacy Benefits. Category 3 encompasses only Renewable Energy Credits ( RECs ), all associated Green Attributes, and Western Renewable Energy Generation Information System ( WREGIS ) certificates evidencing the authenticity of the REC Product. REC Product does not include the energy generated as part of the creation of the RECs. All REC Product transactions must be for period of 10 years or more. The basic solicitation requirements and conditions are set forth in the 2015 Renewable RFP Procurement Protocol. These include: x xxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 17 Capitalized terms in this report are as defined in the Procurement Protocol, unless otherwise specified. Merrimack Energy Group, Inc. 7

41 1. SCE will only consider Proposals to purchase Product from ERR Generating Facilities with initial delivery dates to SCE on December 1, 2020 or earlier. Sellers must propose Commercial Operation Dates that start on the first day of the month; 2. Prior to the start of the Term of the Pro Forma PPA, Sellers may, at their discretion, deliver energy, capacity or other attributes of the ERR Generating Facility (i) through the CAISO market, (ii) to a balancing authority, or (iii) to a third-party offtaker; 3. SCE will consider Proposals from Sellers with ERR Generating Facilities that are located outside the State of California but only if they can deliver Product that qualifies as Category 1, Category 2 or Category Out of state Category 1 and Category 2 proposals must deliver Product into the CAISO; 4. Prior to the start of the Term of the Pro Forma PPA, Sellers may, at their discretion, deliver energy, capacity or other attributes of the ERR Generating Facility (i) through the CAISO market, (ii) to a balancing authority, or (iii) to a third-party offtaker; 5. With respect to any project, SCE will not accept proposals that propose to deliver product at the project s busbar; 6. SCE is only soliciting Product from ERR Generating Facilities which possess: (1) a completed Phase II Interconnection Study or equivalent, (2) a signed Interconnection Agreement, or (3) an equivalent or better interconnection study, agreement, process, or exemption. Further, the interconnection study or agreement (1) must be in the same name as the Seller under the Pro Forma PPA, or (2) the sponsor must demonstrate, to SCE s reasonable satisfaction, that sponsor has exclusive rights to the interconnection agreement by means of an unconditional assignment; 7. If (1) the California Environmental Quality Act( CEQA ) or the National Environmental Policy Act ( NEPA ) applies to the ERR Generating Facility and (2) a lead agency has been designated under the applicable law, then SCE will consider Proposals from such ERR Generating Facilities only if the ERR Generating Facility has achieved, at a minimum, an application deemed complete (or equivalent) status under the land use entitlement process by the agency designated by CEQA or NEPA as the lead agency. Proposals not meeting this requirement will not be given further consideration; 8. Seller may offer any term length equal to or greater than 10 years. If a Seller submits a long-term Proposal with a term length of more than 20 years, the Seller shall also submit an alternative Proposal with a 20-year term or less. SCE has a preference for ten (10) year term lengths but, in any event, shorter than twenty (20) years; 18 Category 1 projects are those: with a first point of interconnection to the Western Electric Coordinating Council transmission system within the boundaries of a California Balancing Authority Area; or with a first point of interconnection with an electricity distribution system used to serve end users within the boundaries of a CBA; or where the renewable generation is scheduled into a CBA without substituting electricity from another source; or where the generation from the renewable facility is dynamically transferred to a CBA. Merrimack Energy Group, Inc. 8

42 9. SCE will accept multiple proposals for the same Project (e.g., flat vs escalating pricing for the same project; 10-year vs 15-year term for the same project, etc). Multiple proposals for the same project shall be considered mutually exclusive; 10. Seller may submit a maximum of eight (8) different proposals for each project bid; 11. Proposals for Product delivered from ERR Generating Facilities with Contract Capacity of 500 kw or greater are eligible to participate in this RPS solicitation; 12. Seller s Proposal must demonstrate Site Control or the Proposal will not be given further consideration. SCE intends that the definition of Site and Site Control not only mean the land upon which the ERR Generating Facility is expected to be located, but also encompass any rights-of-way or other real property rights (e.g. land on which Seller s generation tie line between the ERR Generating Facility and the Interconnection Point shall be constructed) necessary for Seller to be able to deliver the Product to SCE; 13. Seller s Generating Facility must be a new, existing, or repowered Generating Facility that is an ERR, unless Seller intends to submit a proposal for consideration under the Green Rate program, in which case the Generating Facility must be a new Generating Facility that qualifies as an ERR; 14. SCE will consider Proposals with energy storage. Sellers must indicate their intent to offer a storage component when submitting the applicable proposal. Proposals that include dispatchable storage must also include, to the extent applicable, the operating parameters of the proposals storage facility in the comment field in the proposal form on the RPS Solicitation Website; 15. Through the RPS solicitation, SCE continues to solicit ERR Generating Facilities in the Western Los Angeles sub-area of the Los Angeles basin local reliability area ( Western LA Basin sub-area ) to meet local capacity requirements ( LCR ) and specifically, resources that are interconnected to SCE s distribution system in the Johanna and Santiago sub-station area to meet SCE s Preferred Resource Pilot ( PRP ) goals, which may also be met by ERR Generating Facilities. SCE also solicits ERR Generating Facilities that electrically connect to the Goleta substation; 16. SCE will only consider Proposals that are substantially complete and include all of the applicable information, representations, warranties, and covenants as set forth in this Procurement Protocol and/or the on-line application Sellers are required to complete (the Proposal Form ); 17. SCE will not accept an indexed pricing proposal; 18. The primary method for exchange of information or documents concerning this RPS solicitation, including any such exchange concerning the preparation or submission of Proposals to SCE, will be via the RPS Proposal Website; 19. As part of the RPS Solicitation, SCE is offering a Standard Contract Option using the streamlined Renewable Auction Mechanism ( RAM ) procurement tool authorized in D The Standard Contract Option is only available for Proposals offering Bundled Energy Product and is not available for Proposals offering Firmed and Shaped or REC product. Additionally, the Standard Contract option is only available to ERR Generating Facilities with a first point of interconnection to the CAISO, and not dynamically scheduled ERR Generating Facilities; Merrimack Energy Group, Inc. 9

43 20. SCE is also procuring for the Green Rate program through this RPS Solicitation. SCE is targeting 30 MW of Green Rate eligible resources and will procure those resources through the Standard Contract Option of this solicitation. 19 SCE evaluates and ranks Proposals based on Least-Cost Best-Fit principles that comply with criteria set forth by the CPUC in D and D ( LCBF Decisions ), and D 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. SCE s LCBF methodology will be discussed in detail in Section IV of this Report and Appendix A. SCE followed a multi-step approach designed to result in shortlist selection as described in the Procurement Protocol. In this process, once Proposals are received, SCE is to determine which Proposals are clear outliers. For proposals deemed clear outliers, SCE will conclude any further review. SCE will then begin a review for completeness and conformity with the Procurement Protocol. SCE will evaluate proposals utilizing information that is inserted into the Proposal Form. Supporting documents, such as the Team Development Experience Letter, Interconnection Documents or any other supporting information are for informational purposes only and are not relevant inputs related to the proposal evaluation process. SCE s review includes an initial screen of the Proposal Form for required submission criteria. Proposals that are substantially complete but lacking required information are allowed a reasonable cure period to remedy any deficiencies. Following this check for conformity, 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 the data is ready for evaluation. Through the Accion Website the IE is copied on any communications between SCE and the Sellers. After this review, SCE performs a quantitative assessment of each Proposal individually and subsequently ranks them based on each Proposal s benefit and cost relationship. The total benefits and total costs are used to calculate the net levelized cost or Net Market Value for each complete and conforming Proposal. Benefits are comprised of separate capacity, energy and congestion components, while costs include the contract payments, debt equivalents, integration cost, congestion cost, and transmission cost. SCE discounts the monthly benefit and cost streams to a common base date. SCE also normalizes the net cost or benefit data by MWh generation. The result of the quantitative analysis is a meritorder ranking of all complete and conforming proposal s Net Market Values that assist in defining the preliminary Short-List. Following the quantitative analysis SCE conducts an assessment of the most competitive Proposal s qualitative attributes. SCE utilizes the Project Viability Calculator ( PVC ) to 19 The CPUC implemented a GTSR program framework in D The GTSR program structure approved by the CPUC consists of two elements: (1) a green tariff option (called the Green Rate by SCE) allowing customers to purchase energy with a greater share of renewables, and (2) an enhanced community renewables option (called the Community Renewables program by SCE) allowing customers to subscribe to renewable energy from community-based projects. Merrimack Energy Group, Inc. 10

44 assess certain factors including the experience of the company/development team, project technology, project financing, and development milestones. Additional attributes such as nominal contract payments, contribution to other SCE program goals, transmission area, prior experience with project developers/sellers, seller concentration, and resource diversity are also considered in the qualitative analysis. If a Green Rate procurement need is identified, eligibility for the Green Rate program and Green Rate Environmental Justice Resource status will also be considered. These qualitative attributes are then considered to either eliminate or add proposals to the short-list, or to determine tie-breakers, if any. Following its analysis, SCE consults with its PRG regarding the proposed Short-List and specific evaluation criteria. SCE will then develop a final Short-List and negotiate with the Short-Listed Sellers after notification of Short-Listing. SCE, in its sole discretion, reserves the right to enter into Final Agreements with as many Sellers as SCE chooses, including the right to not enter into any Final Agreements at all. Whether a Proposal selected through this process results in an executed contract depends on the outcome of negotiations between SCE and the Seller and where a Seller s proposed pricing ranks based on the criteria set forth herein. Finally, SCE executes contracts and then submits them to the Commission for approval through advice letter filings. SCE s 2015 RPS RFP includes several changes from the company s previous RPS solicitations, including the following: The 2014 RPS solicitation solicited long-term Category 1 and Category 3 unbundled REC products. SCE will consider proposals for long-term Category 2 products from both new and existing generation facilities in the 2015 RPS solicitation; SCE will not require Bidders to bid the pre-paid economic curtailment option with the curtailment cap in the 2015 RPS solicitation; SCE will limit Sellers to eight proposals per project; SCE will not entertain mutually inclusive offers; SCE has updated its TOD Factors; SCE will continue to require a Phase II Interconnection Study for projects (or an equivalent of more advanced interconnection study or exemption) as it did in the two previous RPS solicitations; Project capacity has to be at least 500 kw; The Commercial operation date must be no later than December 1, 2020; SCE will offer a Standard Contract Option for those who want faster CPUC approval and/or are interested in GTSR; SCE will consider proposals with energy storage; Although the CPUC did not approve the requested requirement of a 10-year bid, SCE lists 10 year bids as a preference; SCE will only consider reimbursable transmission upgrade costs paid for by SCE customers attributed to individual bids: o Because all high voltage (>= 200 kv) related transmission network upgrade costs in the CAISO area are shared by Participating Transmission Owners, Merrimack Energy Group, Inc. 11

45 with 43 percent allocated to SCE (and its customers), 43% of these costs are included in the Net Market Value analysis; o Because all low voltage (< 200 kv) related transmission upgrade costs in SCE s territory are paid for by SCE s customers, 100% of these costs are included in the Net Market Value analysis; o Since none of the non-caiso related transmission upgrade costs are paid for by SCE s customers, none of these costs are included in the Net Market Value analysis; SCE will be updating its procurement targets and position reports once the Winter 2016 load forecast is approved; o SCE will return to eprmc and PRG to present its procurement targets and position reports once updated. SCE also made some revisions to its 2015 Pro Forma Contract from the 2014 RPS RFP. These include: SCE eliminated the provisions regarding pre-paid curtailment hours and the curtailment cap in the 2015 Pro Forma; SCE eliminated the startup period and initial synchronization periods that are outlined in the PPA; SCE incorporated language into the 2015 Pro Forma that will obligate the sellers to provide SCE with appropriate financial statements in order to include projects in its financial filings to the SCE in the event that SCE must consolidate any entity in which it has a controlling financial interest; SCE is entitled to retain 100% of the seller s development security in the event a project is unable to obtain material permits for the project after a six- month extension of the commercial operation deadline for reasonable permitting delays and an optional cure period of up to six months with daily delay liquidated damages; All development security must be posted at PPA execution. Some of these and other matters are addressed in the Commission s decision adopting 2015 RPS procurement plans. 20 In that decision, the Commission made the following directives that pertain to SCE s 2015 RPS RFP: The Commission denied SCE s request to require bidders to submit at least one bid with a term of 10 years. SCE s proposal to limit bidders to eight bids was approved; The Commission granted SCE s request to eliminate the use of indices in the 2015 RPS solicitation; The Commission denied SCE s request to require Sellers to execute an exclusivity agreement with respect to shortlisted projects; The Commission approved all of SCE s requests listed above to revise the pro forma contract. 20 D (Nov. 24, 2014). Merrimack Energy Group, Inc. 12

46 These solicitation elements were incorporated by SCE in its RPS Protocol, Pro Forma PPA, and/or its evaluation process, as applicable. II. Role of the Independent Evaluator A. Regulatory Requirements for the Independent Evaluator The requirements for participation by an IE in utility solicitations are outlined in Decisions ( D ) (Findings of Fact 94-95, Ordering Paragraph 28), D (Finding of Fact 20, Conclusion of Law 3, Ordering Paragraph 8) of the CPUC, D and D The role of the IEs in California IOU procurement processes has evolved over the past ten years. In D (December 16, 2004), the CPUC required the use of an IE by investor-owned utilities (IOUs) in resource solicitations where there is an affiliated bidder or bidders, or where the utility proposed to build a project or where a bidder proposed to sell a project or build a project under a turnkey contract that would ultimately be owned by a utility. The CPUC generally endorsed the guidelines issued by the Federal Energy Regulatory Commission ( FERC ) for independent evaluation where an affiliate of the purchaser is a bidder in a competitive solicitation, but stated that the role of the IE would not be to make binding decisions on behalf of the utilities or administer the entire process. 21 Instead, the IE would be consulted by the IOU, along with the Procurement Review Group ( PRG ) on the design, administration, and evaluation aspects of the Request for Proposals. The Decision identifies the technical expertise and experience of the IE with regard to industry contracts, quantitative evaluation methodologies, power market derivatives, and other aspects of power project development. From a process standpoint, the IOU could contract directly with the IE, in consultation with its PRG, but the IE would coordinate with the Energy Division. In D (May 25, 2006), the CPUC required each IOU to employ an IE regarding all RFPs issued pursuant to the RPS, regardless of whether there are any utility-owned or affiliate-owned projects under consideration. This was extended to any long-term contract for new generation in D (July 21, 2006). In addition, the CPUC directed the IE for each RFP to provide separate reports (a preliminary report with the shortlist and final reports with IOU advice letters to approve contracts) on the entire bid, solicitation, evaluation and selection process, with the reports submitted to the utility, PRG, and CPUC and made available to the public (subject to confidential treatment of protected information). The IE would also make periodic presentations regarding its findings to the utility and the utility s PRG consistent with preserving the independence of the IE by ensuring free and unfettered communication between the IE and the CPUC s Energy Division, and an open, fair, and transparent process that the PRG could confirm. 21 Decision at The FERC guidelines are set forth in Ameren Energy Generating Company, 108 FERC 61,081 (June 29, 2004). Merrimack Energy Group, Inc. 13

47 In 2007, the use of an IE was required for any competitive solicitation seeking products for a term of more than three months in D (December 21, 2007). Also, the process for retaining IEs was modified substantially, with IOUs developing a pool of qualified IEs subject to feedback and any recommendations from the IOU s PRG and the Energy Division, an internal review process for IE candidates, and final approval of IEs by the Energy Division. In 2008, in D , the CPUC changed the minimum term requirements from three months to two years, and reiterated that an IE must be utilized whenever an affiliate or utility bidder participates in the RFO, regardless of contract duration. In D issued on June 18, 2009 in Rulemaking , Order Instituting Rulemaking to Continue Implementation and Administration of California Renewable Portfolio Standard Program, the CPUC required that bilateral contracts should be reviewed according to the same processes and standards as contracts that come through a solicitation. This includes review by the utility s PRG and its IE, including a report filed by the IE. In D issued on July 29, 2010, the Commission reaffirmed the role of the IE and required the Energy Division to revise the IE Template to ensure that the IEs focus on their core responsibility of evaluating whether an IOU conducted a well-designed, fair, and transparent RFO for the purpose of obtaining the lowest market prices for ratepayers, taking into account many factors (e.g. project viability, transmission access, etc.). This IE report is submitted in conformance with the above requirements and is generally consistent with the requirements outlined in the CPUC s 2014 RPS Solicitation Shortlist Report Template. B. Description of Key IE Roles In compliance with the CPUC requirements identified above, SCE retained Merrimack Energy to serve as IE for SCE s 2015 RPS solicitation. 22 Merrimack Energy was retained to provide an independent evaluation of SCE s bid evaluation methodology and selection process and to provide SCE, SCE s PRG, and the Energy Division with periodic presentations, findings and other reports as requested. The objective of the role of the IE is to ensure that the solicitation process is undertaken in a fair, consistent, unbiased and objective manner and that the best resources are selected and acquired consistent with the solicitation requirements. In addition, the IE is required to ensure that no SCE affiliate has an undue advantage over non-affiliates in the solicitation. The IE will be required to make a determination as to whether SCE s final selection was fair and free from anti-competitive behavior, and was not unfairly influenced by any affiliate relationships. 23 In addition to the requirements identified in CPUC Orders, the Purchase Order between Merrimack Energy and SCE identifies the responsibilities and tasks to be performed by the IE. These include the following responsibilities and tasks: 22 Merrimack Energy also served as IE for SCE s 2013 and 2014 RPS solicitations. 23 SCE did not receive any offers from affiliates. Merrimack Energy Group, Inc. 14

48 Assist in the development and review of SCE s existing RFO and RFP protocols and design of the solicitation processes; Monitor the RFO or RFP solicitation process, energy auction, or bilateral negotiation to ensure that all bidders, if applicable, or counterparties, receive access to relevant communications in a non-discriminatory manner; Monitor the RFO or RFP solicitation process, energy auction, or bilateral negotiations and promptly submit recommendations to SCE management to ensure that no bidder has an information advantage provided by SCE; Provide recommendations concerning the precise definition of products sought and price and non-price evaluation criteria, so that all aspects of the products are clearly understood and all bidders may effectively respond to the solicitation; Review the comprehensive quantitative and qualitative bid evaluation criteria and methodologies and assess whether these are applied to all bids in a fair and nondiscriminatory manner; Promptly submit to SCE management any recommendations consistent with the objectives of ensuring a competitive and fair process, and to ensure that the overall scope of the RFO or RFP process is not unnecessarily broad or too narrow; The IE will be provided necessary access to SCE personnel, modeling tools, and meeting documentation in order to credibly evaluate SCE s bid valuation and selection processes; If required, must have the ability to perform parallel valuation analysis of sufficient rigor and robustness to validate, and reasonably identify potential errors in SCE s valuation and selection systems; Assess whether SCE s final selection was fair and was not unduly influenced by affiliate relationships; Provide periodic presentations as requested to SCE management and to the PRG concerning the IE s findings; Provide final written assessment on whether the solicitation or auction process was competitive and fair and whether any bidder received material information that gave them a competitive advantage or disadvantage relative to other bidders; Provide a final written assessment on whether SCE s evaluation criteria and methodologies were reasonable and appropriate and were applied in a fair and nondiscriminatory manner to all offers received; Merrimack Energy Group, Inc. 15

49 Report on the outcome of the RFP to the CPUC using the appropriate CPUC Independent Evaluator Report Template. With regard to the role of the IE, Merrimack Energy views that one of the primary roles is to independently evaluate and challenge the results of the utility s evaluation and selection process. Our objective is to ensure that the utility evaluation team can prove that the results of their evaluation are accurate, reasonable and consistent. This role generally involves a detailed review and assessment of the evaluation process and the results of the quantitative and qualitative analysis. This report on the short listing process provides an assessment of SCE s 2015 Renewable RFP solicitation from issuance of the RFP through selection and development of the short list of proposals with counterparties whom SCE intends to initiate negotiations. It is organized based on the 2014 RPS Solicitation Shortlist Report Template provided by the CPUC s Energy Division. This report addresses Merrimack Energy s assessment and conclusions with regard to the following questions: 1. Did SCE conduct adequate outreach to participants and was the solicitation robust? 2. Was SCE s Least-Cost Best-Fit methodology designed such that offers were fairly evaluated? 3. Was SCE s LCBF offer evaluation process fairly administered? 4. Did SCE fairly negotiate the terms and conditions of contracts with shortlisted bidders? 5. Did SCE make reasonable and consistent choices regarding which offers were shortlisted and which offers were awarded contracts? 6. With regards to the Maverick Solar PPA, (a) did SCE fairly and reasonably negotiate the contract, (b) did SCE fairly and reasonably evaluate and select Maverick Solar offer, and (c) does the Maverick Solar PPA merit Commission approval? C. Description of IE Oversight Activities In performing its oversight role, the IE participated in and undertook a number of activities in connection with SCE s outreach activities, implementation of its evaluation criteria, evaluation methodology, and the bid evaluation and short list selection process. Merrimack Energy was retained by SCE prior to the issuance of the 2015 RPS RFP. Provided below is a description of the IE activities both before receipt of proposals on March 7, 2016 and IE activities associated with the receipt, evaluation, and selection of Proposals for purposes of selecting the shortlist. Merrimack Energy Group, Inc. 16

50 IE Activities Prior to Receipt of Offers The primary activity of the IE prior to receipt of offers was to assess and review the methodologies to be used by SCE to undertake the evaluation and selection process. In particular, Merrimack Energy was focused on any revisions to the methodologies and assumptions updated or revised from the 2014 RPS RFP to the 2015 RPS process. To either confirm the existing methodologies or understand any proposed revisions, Merrimack Energy prepared a detailed list of issues and questions and submitted the list to SCE for feedback and discussions. The intent was to have a dialogue with SCE s project team to ensure that all aspects of the valuation process were addressed. The matters addressed included the following: Reviewed SCE s Procurement Plan filing, including the LCBF methodology, and prepared a number of clarification questions and comments on the proposed methodology for discussion with SCE. The IE and SCE discussed the details of the implementation of the methodology, notably revisions to the process from the 2014 RPS RFP. Discussion items identified by the IE included: o Summary of Changes to the 2015 RPS RFP relative to the 2014 RPS RFP Substantive changes to the RFP Changes to the evaluation methodology Changes in input forecast assumptions and methodologies Changes to contract provisions o Discussion of Forecast Assumptions/Variables and Methodology Energy Prices Capacity Prices by Product (including Flex RA) Renewable Integration Adder (including any revisions from 2014) Congestion Cost Adders and any revisions to the methodologies previous implemented Energy Only Incremental Cost Adder Assumptions regarding curtailment o Methodology/Calculation of Cost and Benefits Components of NMV Network Upgrade Costs and Methodology Debt Equivalence Calculation Methodology Renewable Integration Adder Methodology/Forecast Capacity Benefit Methodology Other Evaluation Issues o Use of Qualitative Factors Completion of the Project Viability Calculators and source of information for evaluation Other Qualitative Criteria of importance o Reporting Format for Valuation Results Completeness Checklist Matrix Valuation Sheets Validation Files Access to Model Results o Valuation Results and Shortlist Selection Merrimack Energy Group, Inc. 17

51 Rank order by NMV Portfolio approach Participated in meetings of the RPS project team to discuss the status of the procurement process; Attended SCE s 2015 RPS Solicitation Bidders Conference webinar on February 11, 2016; Reviewed Form of Sellers Proposal submittal requirements prior to posting on the Accion Power website; Prepared a Bid Summary Template for summary of the proposals received; Reviewed the Accion Power website; IE Activities After Submission of Proposals After receipt of proposals, Merrimack Energy: Prepared a detailed summary of all Proposals received to allow for a comparison with SCE s summary and to be used as input to review proposal evaluation; o The high level summary of each proposal included: Bidder name, Project name, technology, size (MW), location, COD, contract term, pricing, interconnection point, deliverability status, project vintage (new or existing), and whether the proposal will accept the Standard Contract; Compared the proposal compilation developed by the IE to SCE s list of proposals to ensure all proposals were accounted for by the IE and SCE. The Company and IE developed the same list of participants and total number of proposals; Participated in calls with SCE s project team to discuss the status of the proposal conformance with the minimum eligibility requirements of the RFP; Participated in regular discussions and meetings of SCE s project team to address a range of issues including the conformance of individual proposals and processes for addressing specific proposals; Reviewed SCE s preliminary evaluation results and raised questions about the evaluation of several proposals. The IE also tested the reasonableness of the evaluation results based on project pricing, location, reported transmission/network upgrade costs, deliverability status 24 and other factors; raised issues with SCE if results appeared to be inconsistent with the expected results based on project pricing, associated costs, and generation profile; Reviewed the s exchanged between SCE and Sellers regarding any missing information, or requests by SCE for Sellers to clarify proposal information or to explain the basis for information; Reviewed SCE s proposed shortlist and provided comments on the list overall as well as specific projects included or not included; 24 As one example, the IE noticed that there were several proposals that offered Interim Deliverability Service for a short period after COD until they could secure Firm Capacity Deliverability Service. SCE reported these projects as having Firm Capacity Deliverability Service. The IE suggested that the proposal summary should identify these as IDS offers. The IE also reviewed the capacity benefit values attributed to these projects to ensure that the capacity benefit reflected the shorter time period under which the project would receive full capacity value in the valuation process. Merrimack Energy Group, Inc. 18

52 Conducted an independent assessment of the potential shortlisted proposals and others proximate to the shortlist with respect to the Project Viability Calculator based on the information submitted by Sellers; Participated in meetings with SCE s project team to discuss the ranking and economic considerations as the basis for selecting the proposed shortlist including internal project team meetings and pre-reads with SCE program area management; Participated in the eprmc 25 meeting with senior management, and the PRG meetings of February 24, 2016 at which SCE discussed its short list valuation and selection methodology as well as the May 4, 2016 PRG meeting at which SCE provided an overview of Seller proposals and short list recommendations. The IE provided input and comments at all meetings, including observations based on the solicitation results and views on short list recommendations at the May 4, 2016 PRG meeting. D. Any other relevant information or observations No additional information or observations. III. Did SCE Conduct Adequate Outreach to Bidders and Was the Solicitation Robust? For its 2015 RPS solicitation, SCE initially sought to meet an RPS solicitation goal of approximately xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxx 26 This section of the report assesses SCE s process for conducting outreach to potential bidders in an attempt to encourage robust competition and whether the processes used by SCE were successful in meeting its objectives. A. Were Notifications/Announcements of the Solicitation Adequately Distributed? Outreach activities are important to the success of a competitive solicitation process. SCE s outreach efforts targeted a large number of potential Sellers based on contacts from previous solicitations and business relationships developed since then. SCE prepared a detailed list of potential Sellers with approximately 2,300 contacts that serves as the database for Seller contact and outreach. SCE sent s to all potential Sellers on this list informing them of the 2015 RPS RFP process and the issuance of the Procurement Protocol. SCE did not issue a press release or contact industry trade publications announcing its 2015 Renewable RFP. 25 Energy Procurement Risk Management Committee. 26 SCE revised its projection of RPS requirements compliance position after undertaking an assessment of its load forecast and updated success factors (from 50% to 75%) for contracts from the 2014 RPS solicitation. As a result of these assessments, SCE concluded that it is forecasted to meet its RPS obligations through 2025 and possibly through Merrimack Energy Group, Inc. 19

53 B. Were the Solicitation Materials Clear and Concise to Ensure That the Information Required by the Utility to Conduct its Evaluation Was Provided by the Bidders? Provide Suggestions for Improvements for Subsequent Solicitations. The IE had the opportunity to review the solicitation documents and related materials and was very familiar with the documents, information required from participants, and offer forms and similar documents based on our experience in serving as IE for the 2013 and 2014 RPS solicitations. Similar to these solicitations, SCE required Sellers to post their proposal documents on a website, designed by Accion Power, for this solicitation. 27 All written communications between the Seller and SCE took place via the Accion Power website and therefore Sellers were required to understand how to use the website to allow for proposal submission. In addition, the Accion Power website includes a tab which provides a tutorial for Sellers regarding access to and use of the website and for this solicitation included video instructions for the Participants. Based on receipt of proposals and review of the submittals, it was clear that the majority of Sellers were able to successfully navigate and utilize the website effectively during the solicitation process. All of SCE s RFP documents were posted on the Accion Power website. The eligibility requirements of Sellers and the documents that Sellers were required to submit with their proposals were clearly identified in the Procurement Protocol and on the Accion website. In addition, the Procurement Protocol identifies the documents required of Sellers, provides a description of the evaluation and selection process, and contains a schedule for the solicitation. The Accion website has a tab entitled Program Documents which includes the Procurement Protocol, Proposal Form Worksheets for each product, CPUC Decisions, Bidders Conference materials and Pro Forma Power Purchase Agreement. Information included on the Accion Website sets forth the documents and data that each Seller must include in its proposal. This tab identified all the documents to be included in the Bidders E-Binder when uploading documents to the website and also included a check list for Sellers to review to ensure they included all the information requested. Furthermore, the Accion Power website was set up to allow Sellers to upload their proposal documents in consistent files to ensure all Sellers essentially submitted the exact form proposal. The following information was required from each Seller as part of their proposal package: Proposal Submission Form (Proposal Form Worksheet) Fully executed Officer s Certificate; Fully completed and executed Non-Disclosure Agreement; Fully completed Project Viability Calculator; Fully completed project generation profile; Fully executed Team Development Experience Letter; A copy of all the Generating Facility s Interconnection studies; A completed Geographic Information System file of the project boundaries and associated gen-tie; 27 This was third RPS solicitation in which the Accion Website was used as the primary mechanism to communicate with bidders. Merrimack Energy Group, Inc. 20

54 A copy of the letter from the lead land use permitting agency documenting that the land use permit application for the project has been deemed complete to begin the permitting review process ( Environmental Review Letter ); Site Plan drawing Single Line Drawing Legal description of the site Site map Also, as previously noted, the Procurement Protocol document contained a number of eligibility requirements or preferences of SCE that should guide Sellers in the submission of proposals. For the most part, Sellers conformed their proposals to these requirements or preferences. Although there was a reasonable amount of communications between SCE and the Sellers after submission of the proposals, most of the communications involved clarifying questions from SCE about specific aspects of the proposals to cure or correct incomplete information or inconsistencies. For the most part, Sellers were able to cure any outstanding deficiencies or inconsistencies in their proposals in short order. Merrimack Energy believes that the contents of SCE s 2015 RPS RFP solicitation protocol provided clear and comprehensible direction to Sellers on how to prepare and submit a complete proposal package. In addition, the IE is of the view that the information available in the Procurement Protocol and on the Accion website provided Sellers with a substantial base of information to allow them to determine how they can best compete in the RPS solicitation process. While a few Sellers notified the IE and SCE that they were getting an error message when attempting to upload their proposals, all were able to successfully complete their proposal uploads in time with the assistance of the Accion Power project team. Merrimack Energy s observations regarding the solicitation documents, use of the website, and other means of providing information to Sellers (i.e. Request for Proposals Conference, Frequently Asked Questions, etc.) are provided below: Overall, the Accion Power website was an effective tool for communicating with Sellers and provided a repository of Seller proposal information which could be easily accessed by the IE and SCE s project team. The website is effective for allowing for the preparation of summary reports on each of the proposals. In addition, based on the organization of offers on the website by bid number in sequence, the IE was able to complete its bid summary document in a limited amount of time compared to other solicitations; Nearly all the proposals submitted were complete and conforming packages. Although SCE spent time reviewing the Proposals for conformity and completeness, and following up with questions about several offers, much of the communications with Sellers involved submission of required supporting documents that were not originally posted, clarification of the information provided, or correction of obvious errors. Clarifying questions regarding the generation profile were the most common. SCE and the Sellers were able to correct Merrimack Energy Group, Inc. 21

55 remaining deficiencies (where it was substantively possible to do so) early on in the evaluation process; As noted in Section 1 of this report, SCE s Procurement Protocol documents identified a number of eligibility requirements and SCE preferences. The results of the proposal submission process indicated that Sellers were well aware of these requirements and satisfied them, with relatively few exceptions. For example, SCE expressed an interest in receiving proposals with different contract term lengths and indicated that if a Seller provided a proposal for a 25-year term it also had to provide a proposal for a 20-year term. Sellers conformed to this requirement as illustrated by the variety of contract terms submitted. In addition, SCE specifically mentioned that it preferred 10 year offers; In addition to the program documents, the Accion Power website contained a list of questions and answers related to the solicitation. The Accion Power website also included an Announcement tab with latest information about the RFP, a solicitation schedule tab, and a Tutorial on the use of the website for bidders. The IE found the Accion Power website easy to access and navigate. The IE felt that one area of improvement for future solicitations is to require the Sellers to submit an Offer Structure Letter (as was required in past solicitations) or similar documents with the objective of requiring Sellers to submit background information on the project to aid in completion of the Project Viability Calculator ( PVC ). The report addresses this issue in more detail in subsequent sections of the report. C. Was a Bidder s Conference Held or Other Forum Available for Communications Regarding the Solicitation? Any Comments Regarding Information Provided or Questions Received. The 2015 Solicitation Request for Proposals Conference was held by SCE for prospective Sellers on February 11, The Proposals Conference was available via webex or teleconference only. The agenda for the Request for Proposals Conference included the following items: Overview of the solicitation process, including role of the IE, supplier diversity and solicitation schedule; Process, products sought and eligibility requirements Website review Pro Forma Power Purchase Agreement, including key terms and changes from the 2014 solicitation; Proposal evaluation methodology and process Interconnection issues Q&A The IE felt that the Request for Proposals Conference material was thorough and effective for providing an excellent background on the solicitation process and requirements. Merrimack Energy Group, Inc. 22

56 D. Did the IOU s Seek Adequate Feedback About the Bidding/Bid Evaluation Process From All Bidders After the Solicitation Was Complete? Similar to the 2013 and 2014 RPS solicitation processes, SCE offered to de-brief nonshortlisted Sellers and answer reasonable questions about the solicitation process and the general reasons why the Seller was not successful in being selected for the shortlist. Several bidders have requested de-brief calls with SCE. The IE attended several of the calls with Bidders. Bidders generally wanted to know the relationship between their prices and those of the successful shortlisted projects. SCE provided general direction but was not specific with regard to the magnitude of the difference. E. Provide Any Other Relevant Information or Observations Regarding Outreach and Robustness of the Solicitation The IE concludes that SCE conducted reasonable and sufficient outreach for this solicitation. The level of interest in the solicitation and the participation in the process indicate that SCE s outreach was effective in generating a robust response. The level of participation in RPS solicitations remains very high. As we will discuss later, there were a number of new participants in this solicitation that did not participate in the 2014 solicitation. For example, for the 2013 RPS RFP, xx unique solar PV projects were submitted with a total of xxxxxxxx compared to xx unique solar PV projects submitted into the 2014 RPS RFP. Interestingly, the unique number of projects submitted for other technologies was very similar between the 2013 and 2014 RPS solicitations. For the 2015 RPS solicitation, a total of xxxxxxxx representing over 8,000 MW were received. The total number of final offers was xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxx from the 2014 RPS solicitation. For the 2014 RPS solicitation, there were xxx xxxxxxxxxxxxxxxxxxxxxxx totaling nearly 6,600 MW. 28 As noted, the overall result of this outreach activity was a very robust response from Sellers, even in light of the stricter threshold or minimum requirements established by SCE, demonstrating the maturity of the renewable energy market in California. In addition, it appears clear that the decline in the number of proposals from 2013 to 2014 was not due to any issues associated with the solicitation requirements but is likely due to the anticipated changes in the federal Investment Tax Credits for solar projects, which encouraged Sellers to focus activities on bringing projects to fruition before the end of Proposals for the 2015 solicitation were received from a diverse set of Sellers including experienced well-financed Sellers as well as new market entrants, involving a variety of technologies, including wind, solar PV, geothermal, biomass, small-scale hydro and 28 For the 2014 RPS solicitation Bidders were required to submit offers with and without 50 hours of unpaid curtailment. As a result, in some cases the number of offers is reported to be xxxxxxxxx. However, for comparison purposes with the 2015 RPS solicitation, the IE is only counting each offer (with 2 pricing options) as one offer. Merrimack Energy Group, Inc. 23

57 landfill gas. Information regarding the proposals including MW and GWh quantities, types of resources bid, project location, pricing options, contract term, COD date, vintage, and deliverability status is contained in Appendix B to this report. Table 1 provides a summary, by technology, of the proposals and unique projects submitted into the 2015 RPS RFP. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Table 1: SCE s 2015 RPS Proposals Received by Technology Technology All Proposals Capacity (MW Unique Projects # of Proposals Total) Solar PV xxx xxxxxx xx Wind xx xxxxxx xx Biomass xx xxxx xx Geothermal xx xxxx x Small Hydro x xx x Landfill Gas x xx x Total xxx 8,112 xx The response indicates that the market is very mature and that establishing stricter thresholds can be a reasonable and effective strategy to solicit more highly developed projects, while still obtaining a very robust response from the market. In fact, one of the reasons given by SCE to reduce the level of procurement in this solicitation is that the probability of success of recent projects has increased due to the stricter thresholds and greater level of project maturity at the time of contract execution. In conclusion, the robust response of the market to SCE s 2015 Renewable RFP is evidence that the outreach activities of SCE were effective and Sellers felt they had an adequate opportunity to receive a contract from the process. Furthermore, the number of solar PV projects increased significantly from the 2014 RPS RFP, likely as a result of the competitive implications of the expected reduction of the ITC which may have led bidders with later term or less mature projects to wait for a future RFP where they could be more competitive. Merrimack Energy Group, Inc. 24

58 IV. Was the IOU s LCBF Methodology Designed Such That Offers Were Fairly Evaluated? This section of the report identifies the principles used by the IE to evaluate SCE s LCBF evaluation methodology, including its strengths and weaknesses, and identifies how the methodology was applied to the evaluation of the RPS proposals. A. Identify the Principles the IE Used to Evaluate the IOU s Offer Evaluation Methodology This section of the report addresses the principles and framework underlying Merrimack Energy s review of SCE s methodology for Renewable Resource proposal evaluation and selection. While the Energy Division has suggested a set of principles for evaluating the process used by IOU s for selecting Offers in competitive renewable solicitations, Merrimack Energy has included several additional principles that we often apply in other solicitations. These are included along with the Energy Division s principles. Key areas of inquiry by the IE and the underlying principles used by the IE to evaluate the methodology include the following: Were the procurement targets objectives, preferences, products solicited, principles and objectives clearly defined in SCE s 2015 RPS RFP and other materials? Were the bid evaluation and selection process and criteria reasonably transparent such that bidders would have a reasonable indication as to how they would be evaluated and selected? Was SCE s bid evaluation based on and consistent with the information requested in the RFP to be submitted by bidders in their proposal documents? Did the evaluation methodology reasonably identify the quantitative and qualitative criteria and describe how they would be used to rank offers? Were the bid evaluation criteria consistently applied to all offers? Was the quantitative evaluation methodology reasonably consistent with industry standards and did it adequately account for all reasonable costs and benefits identified in the Procurement Protocol? Did the evaluation methodology adequately treat all eligible resources and technologies in a technology neutral manner? Does the quantitative evaluation system allow for consistent evaluation of bids of different sizes, in-service dates, and length of contract? Merrimack Energy Group, Inc. 25

59 Did the bid evaluation criteria and evaluation process contain any undue or unreasonable bias that might influence project ranking and selection results or in any way favor affiliate bids? Was the RFP clear and concise to ensure that the information required by SCE to conduct its evaluation was provided by project sponsors? B. Evaluation of the Strengths and Weaknesses of SCE s Evaluation and Shortlisting Methodology in This Solicitation As defined in the Shortlist Report Template, the following considerations should be included in the IE s overall review of the strengths and weaknesses of the IOU s methodology in this solicitation: 1. Evaluation of consistency with the RPS procurement plan, requested products, and portfolio fit: Did the IOU adequately incorporate needs and preferences stated and approved in the RPS procurement plan and protocol? For instance, did the IOU account for contract start dates, contract lengths, and varying generation amounts? Did the IOU adequately take into account a project s characteristics related to portfolio fit preferences? 2. Market valuation: Were individual criteria calculated consistent with the protocol and Commission direction? In your opinion, were any costs or benefits that should not have been included in the IOU s LCBF calculation included (or vice versa)? Why or why not (e.g. double-counting, poor approximation of cost/benefit, inconsistent with the protocol, etc.)? Any recommendations for improvement to the methodologies? 3. Evaluation of offers transmission costs: Were costs calculated consistent with the protocol and Commission direction? Did the IOU weight the total cost of transmission upgrades for a project against the relative value in resource adequacy that the transmission upgrade will provide to each project? Any additional information, observations, or recommendations regarding the IOU s evaluation methodology (e.g. capacity valuation, congestion cost adder, curtailment, integration cost adder, etc.). 4. Evaluation of offers project viability: Did the IOU (or IE or developer) reasonably measure the viability of each project in the offer evaluation process? Did the IOU perform conformance checks related to the accuracy of the project s viability scores before the projects were included on the shortlist? 5. What future LCBF improvements would you recommend? Merrimack Energy Group, Inc. 26

60 1. Evaluation of Consistency with RPS Procurement Plan, Requested Products and Portfolio Fit This section discusses whether SCE s evaluation and selection process and methodology is consistent with its final 2015 Renewable Energy Procurement Plan and Protocol document. SCE generally applied the LCBF methodology in a consistent manner as outlined in the Protocol and the Procurement Plan. In addition, the evaluation and selection process and criteria were generally transparent and readily available for bidders to refer to in crafting their proposals. The findings of the IE are discussed below: While SCE provided information regarding its annual procurement target in confidential information provided to the PRG, SCE did not communicate its procurement target, or an approximate range of what it intended to procure, to prospective Sellers in any public presentation or document associated with this solicitation. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 29 xxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx o xxxxxxxxxxxxxxxx o xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx o xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxx The solicitation Protocol clearly identifies the eligibility requirements, including those eligibility requirements and criteria specified in the 2015 Renewable Procurement Plan. Among these are the requirements for a Phase II interconnection study or better as well as the type of products required (i.e. Category 1, Category 2 and Category 3), the commercial operation date (i.e. COD no later than 12/1/2020), eligible project sizes (greater than 500 kw) and term preference (SCE has a preference for 10-year term lengths but, in any event, shorter than 20 years). SCE s Renewable Energy Procurement Plan and Protocol requires that proposals have an initial delivery of December 1, 2020 or earlier. However, the protocol documents do not specifically identify a preference for projects that begin deliveries at an earlier date. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 29 SCE indicated that it was well positioned to satisfy RPS procurement targets through In addition, a CCA scenario shows that SCE is forecasted to meet its RPS obligations through Merrimack Energy Group, Inc. 27

61 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 30 The Protocol indicated that Sellers may propose any term length equal to or greater than 10 years. If a Seller submits a long-term proposal with a term length greater than 20 years, the Seller shall also submit an alternative Proposal with a 20-year term. While the Protocol clearly requires that a Seller who submitted a proposal with a term greater than 20 years would also have to submit a proposal for 20 years, xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx SCE requested in its RPS Procurement plan that it require bidders to offer a term of 10 years. However, the CPUC did not approve the request by SCE to require 10-year offers. The CPUC did allow SCE to list 10 year offers as a preference. The solicitation accepts proposals from new projects and from existing operating facilities (as long as such projects meet the eligibility requirements) and does not state a specific preference for either type. 31 SCE did receive proposals for both new and existing projects and the evaluation methodology did not contain any biases in the evaluation of one type of resource over another. Although SCE s evaluation methodology and process resulted in a shortlist that xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx the IE found that there was no apparent bias toward any type of technology or project size based on the evaluation methodology. While larger sized options for the same project may have been slightly more economic relative to smaller projects, the difference was not dramatic and allows for a reasonable assessment of the trade-offs between project size and cost. The 2015 Renewable Energy Procurement Plan and the Procurement Protocol indicate that SCE seeks proposals that enable SCE to comply with its Resource Adequacy Requirements. For the delivery of Firmed and Shaped and Bundled Energy Product, Seller must bid an ERR Generating Facility based on an interconnection assuming either Energy Only Deliverability Status ( EO ), or such x xxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxx 31 While the Project Viability Calculator typically yields higher viability scores for existing projects relative to new projects, there is no bias because existing projects are generally more viable than projects under development. Merrimack Energy Group, Inc. 28

62 proposals that include the conferment by the CAISO of FCDS, Partial Capacity Deliverability Status ( PCDS ) or Interim Deliverability Status ( IDS ) and a CAISO NQC assignment. EO projects will be deemed to have an NQC of zero and, therefore, cannot be considered to be a Resource Adequacy Resource. Importantly, SCE illustrates that the valuation methodology will essentially reward Full Capacity Deliverability Status interconnections by allocating a capacity value to the project to reflect the RA benefit. For projects with Interim Deliverability Status, SCE will allocate a capacity value only for the period in which the Seller expects to achieve FCDS. Sellers essentially have to weigh whether the additional cost to achieve Full Capacity Deliverability Status is worth the additional capacity value attributed to the project. With regard to transparency, SCE has included a detailed write-up of its LCBF methodology in its Procurement Plan filing. Surprisingly, in de-briefing sessions with Sellers, the question still keeps coming about the LCBF methodology used by SCE and where such information is available. SCE has continually informed Sellers who ask such a question where the information can be accessed by suggesting that Sellers review SCE s RPS Procurement Plan filings. One of the revisions to the 2015 RPS solicitation is that SCE removed the requirement that Sellers provide an Offer Structure letter with their offer as well as other forms which allowed SCE and the IE to evaluate the qualitative attributes of the offers in a more detailed fashion. To alleviate the information overload on Sellers, SCE removed the requirement to provide an Offer Structure Letter which included not only a summary of the offer but in some cases a more detailed status report on the project. SCE did require the most competitive offers to provide more details regarding the project and Sellers, however, the IE found in this solicitation that the action to not require the Offer Structure Letter with the other solicitation materials affected the ability of the Company and IE from completing the Project Viability Calculator ( PVC ) in a more thorough manner; The 2015 Renewable Energy Procurement Plan indicates that SCE will use the network upgrade cost results from the Phase II study or Interconnection Agreement as the basis for including reimbursable network upgrade costs in the analysis. The Phase II interconnection requirements help to ensure that more viable projects are the ones competing in the solicitation. At the same time, the availability of more refined and more certain network upgrade cost enhances the accuracy of the evaluation process relative to a methodology that attempts to use transmission adders or less certain cost information to assess project economics. SCE has also revised its methodology for assessing network upgrade costs for this solicitation. In its 2015 RPS procurement plan, SCE decided to include in its assignment of reimbursable network upgrade costs only those costs that will be incurred by SCE s customers (rather than considering those costs that will be incurred by a broader group of California customers). Implementing this approach required an assessment of the circumstances under which SCE customers would incur (a) 100 percent of the costs of Merrimack Energy Group, Inc. 29

63 network upgrades, (b) a percentage of the total amount of network upgrade costs, or (c) no upgrade costs. The IE suggested that SCE distinguish between those costs in the CAISOcontrolled area for which SCE (and its customers) would be responsible for all, a share, and none of the network upgrade costs. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx o xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxx o xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx This approach was different from that used in past RPS solicitations, which had included either: (a) 100 percent of all transmission upgrade costs incurred within California (the last two solicitations); or (b) 100 percent of all transmission upgrade costs incurred within CAISO (prior solicitations before the last two). For example, in the past two solicitations SCE included the full reimbursable transmission network upgrade costs in the quantitative valuation process for projects directly connected to the CAISO control area, essentially socializing such costs to all California customers. However, other utilities have generally taken the approach of valuing reimbursable transmission network upgrade costs relative to their own customers. SCE s approach in assessing network upgrade costs was consistent with the process for assessing network upgrade costs and criteria set forth in the 2015 RPS procurement plan, including (1) considering reimbursable transmission network upgrade costs for projects directly connecting to the CAISO control area in the LCBF evaluation process and (2) only considering the share of reimbursable transmission network upgrade costs that are paid by SCE customers. In summary, SCE s evaluation methodology and evaluation process and criteria are generally consistent with its 2015 Renewable Procurement Plan (and the CPUC Decision) and are generally consistent with the plan s stated preferences, eligibility requirements, evaluation criteria, and evaluation process. However, there are a few preferences or information requirements that could lead to more transparency to assist Sellers structuring their proposals in future solicitations while allowing the Company and IE to more effectively distinguish the key characteristics of the projects. These are described in Section IV.C of this report, along with other suggestions for future LCFB improvements. The basic LCBF components identified in the Protocol and Plan are still applicable for the evaluation and selection. Merrimack Energy Group, Inc. 30

64 2. Market Valuation As a starting point for addressing the strengths and weaknesses of SCE s market valuation, this section of the report provides an overall description of SCE s evaluation methodology and criteria applicable to the 2015 Renewable Resources RFP. SCE evaluates and ranks proposals based on LCBF principles intended to comply with criteria set forth by the CPUC in D and D ( LCBF Decisions ). The LCBF methodology includes evaluation of both quantitative and qualitative aspects of each proposal to estimate its value to SCE s customers and relative value in comparison to other proposals. Bid Evaluation Methodology and Selection Process SCE utilizes a multi-step bid evaluation and selection process from receipt of proposals through final selection. Once proposals are received, 32 SCE begins an initial screen for completeness and conformity with the solicitation protocols and bidder requirements. The review includes an initial screen for required submission criteria and eligibility requirements such as a conforming delivery point, commercial on-line date prior to December 1, 2020, a valid Phase II interconnection study, minimum project size, and submission of particular proposal package elements. Sellers lacking any of these will be allowed a reasonable cure period to remedy any deficiencies. Following this check for conformity, SCE will conduct an additional review to determine the reasonableness of proposal parameters such as generation profiles and capacity factors. SCE s goal is to work directly with Sellers to resolve any issues and ensure the project data is ready for evaluation. After the reviews are undertaken and the data for eligible projects is deemed complete, SCE will perform a quantitative assessment of each proposal individually and rank the proposals based on the proposals benefits and costs relationship. Total benefits and total costs are combined to calculate the net levelized cost or Net Market Value for each proposal. Benefits are comprised of the value of a proposal relative to its energy and capacity value in the market based on SCE s forecast of market values as well as congestion and curtailments benefits. Costs include contract payments based on the bid price, debt equivalents, integration costs, congestion costs and transmission upgrade costs. SCE discounts the monthly benefit and cost streams to a common base date. Specifically, Net Market Value is defined as Levelized Benefits Levelized Costs. The components of the Levelized Cost and Levelized Benefits that comprise the Net Market Value calculation are illustrated in Table For this solicitation, proposals were received via Accion Power s website established specifically for this solicitation. Merrimack Energy Group, Inc. 31

65 Table 2: Comparison of Cost and Benefit Valuation Categories Levelized Costs Contract Payments TOD-adjusted based on the proposed energy price, expected generation profile and contract term Transmission Costs Cost adders for required network upgrades based on latest Interconnection Study or Agreement. Debt Equivalence Cost Cost of mitigating contract commitments on SCE s balance sheet Integration Cost Cost of maintaining a reliable energy supply; $3/MWh for solar and $4/MWh for wind for variable cost Fixed cost based on flexible capacity need and price. Congestion Locational cost resulting from certain resource locations. For Energy-Only projects, an incremental cost adder is included. Levelized Benefits Energy Benefits Market value of energy based on SCE s internal forecast, taking into account dispatchability of the resource. Additional ancillary services and real time benefits may be applied to dispatchable projects. Capacity Benefits Based on SCE s forecast of net capacity value and the expected quantity of Resource Adequacy (RA). RA quantities are based on the Commission s applicable accounting rules (e.g. exceedance reference methodology for solar and wind). Congestion Locational benefit resulting from certain resource locations. In developing its relative merit order ranking of proposals, SCE s evaluation methodology incorporates information provided by Sellers as well as assumptions prescribed and set by the Company with regard to its internal methodologies and forecasts of market conditions. The result of the quantitative analysis is a merit-order ranking of all complete and conforming Proposals Net Market Value. 33 Following the quantitative analysis, SCE conducts an assessment of the top proposals qualitative attributes. The analysis utilizes the Project Viability Calculator to assess certain factors including the company/development team, project technology, project financing and development milestones. Additional attributes such as nominal contract payments, contribution to other SCE program goals, transmission area/cluster, generating facility location, experience with project developers/sellers, seller concentration, project 33 SCE initially ranked all the proposals submitted including proposals submitted by Sellers who offered the same project but with different delivery dates, contract terms or pricing mechanisms. SCE evaluated all the proposals in its evaluation. Merrimack Energy Group, Inc. 32

66 size/expected generation, and resource diversity are also considered in the qualitative analysis. If a Green Rate procurement need is identified, eligibility for the Green Rate program and Green Rate Environmental Justice Resource status will also be considered. These qualitative attributes are then considered to either eliminate or add proposals to the Short-List, or to determine tie-breakers, if any. Following its analysis, SCE will consult with its Procurement Review Group ( PRG ) regarding the Short-List and specific evaluation criteria. SCE will begin negotiations with the projects on the Short-List with the goal of completing negotiations over an approximate 3 to 4-month period. SCE s overall LCBF methodology and approach is described in more detail in Appendix A to this report. Congestion Cost Adders SCE developed congestion adders for the 2015 RPS RFP that are based on the same methodology used to develop congestion adders in the 2014 RPS solicitation. There are two elements of congestion costs that are incorporated into SCE s quantitative evaluation: (1) locational adders; and (2) energy-only cost adder. Locational Adders SCE s LCBF methodology specifies that SCE will apply a locational congestion adder, which may be positive or negative depending on expected congestion in the area, to differentiate the value of energy between different project locations. The locational adders are based on SCE s forecast of energy locational marginal prices ( LMPs ) in the CAISO market in the location that the seller plans to interconnect or to which it plans to inject energy. SCE generally produces the forecast using the GridView production simulation model, however, it is our understanding that SCE did not update the GridView analysis for this solicitation. SCE posted on the Accion website its long-term ( ) forecast of locational congestion adders by eight delivery periods (quarterly on-peak and quarterly off-peak). 34 By posting this information, SCE provided prospective bidders information regarding the relative value of locating generation at different locations. The information provided was on a nodal level, with 407 pricing points. The congestion adders (reported as percentages) are relative with respect to SCE s price forecast. The figures are intended to reflect the location differential between market and pnode pricing. A positive percentage equates to a positive cash flow to SCE whereas a negative percentage is a negative cash flow to SCE. Congestion varies from highs of approximately 14% to lows of -20% (for delivery periods at Malin) to various pricing nodes with much less that 1% differences. These values are 34 Bidders Conference Materials/&filedown=&HideFiles=True.. Merrimack Energy Group, Inc. 33

67 based on delivery points to CAISO locations. The forecast was based on a combination of historical data and a long-term forecast. 35 The IE views SCE s nodal-level energy price forecast as an improvement over energy forecasts with less local differentiation, which were used prior to the 2013 RPS solicitation. In addition, providing the locational adders to prospective bidders provides important guidance regarding the positive and negative values associated with locations for new projects. Energy-Only Adder In addition to the locational adders, SCE developed an additional congestion adder for Energy Only projects. These are projects that are not Full Capacity Deliverability Status ( FCDS ) interconnection projects and do not fund transmission delivery network upgrades. As such Energy Only ( EO ) projects do not qualify as capacity resources and do not receive RA capacity benefit value in SCE s quantitative evaluation. In its draft 2013 RPS Procurement Plan, SCE proposed a congestion adder for Energy Only projects on the basis that these projects increase the risk of congestion to a degree greater than FCDS projects because they do not fund the deliverability upgrades needed to ensure that their energy can serve load and avoid localized congestion. The Commission accepted use of an Energy Only congestion adder for the 2013 RPS solicitation on the grounds that energy-only interconnections may increase congestion risk. 36 For the 2013 RPS solicitation, SCE developed a congestion adder, xxxxxxxxxxxxxxxxxx and incremental to the locational congestion adder. The EO congestion cost adder applied to all CAISO projects that selected an EO interconnection, or any EO portion of the contract term if FCDS status is expected to be achieved after the commercial on-line date. This adder was based on SCE s estimate of the average impact on system congestion from adding incremental capacity without any incremental deliverability network upgrades. It was the same amount for all EO projects. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx SCE informed the IE that the methodology used for the 2015 RPS RFP was not changed from the methodology used in the 2014 RPS RFP as described below. SCE is therefore using the same EO congestion adder for the 2015 RPS RFO of xxxxxxxxxx For assessing the value of the congestion adder, after locational adders were determined, an amount of renewable generation forecast as being needed to meet the 33% RPS requirement is assumed to be added on an Energy Only basis, i.e., without delivery network upgrades. Then, forecast average system-wide congestion is applied to EO projects. SCE conducted the analysis using Trade-Hub SP15 as a proxy, increasing the generation in Trade Hub SP15 and then determining the congestion difference. In doing so, it excluded 35 SCE applied locational congestion adders to all projects in California. 36 D , p. 52. Merrimack Energy Group, Inc. 34

68 coastal units in the LA Basin and San Diego from the defined Trade Hub and added new renewable generation on a pro-rated basis within the redefined zone relative to existing generation. The resulting congestion adderxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx None of the shortlisted proposals had an EO interconnection, xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The methodology used by SCE seems reasonable, although by assuming that all new renewable generation is EO generation, it may produce an estimate of congestion that is at the upper end of a range of reasonableness. We concur with SCE s rationale for incorporating the EO congestion cost adder as part of the LCBF methodology. Adding new generation without network upgrades to assure deliverability is likely to add to congestion. Incorporating the adder, we believe, sends a proper price signal to generators. Renewable Integration Cost Adder Integration costs are the additional system costs required to provide sufficient operational flexibility to ensure adequate system reliability as more intermittent renewable resources join the grid. In D , the Commission approved an interim renewable integration cost adder ( RICA ) methodology, and directed SCE to include an interim RICA for the 2014 RPS solicitation. SCE proposed to use an interim RICA in the LCBF evaluation process for the 2015 RPS solicitation as used in the 2014 RPS RFP unless a final methodology were to be adopted before the launch of the solicitation. The interim RICA was calculated as the sum of two components of the RICA methodology approved for the 2014 RPS RFP: A variable cost component of $4/MWh for wind projects and $3/MWh for solar projects; A fixed component calculated by SCE. The fixed component is based on SCE s portfolio need to secure additional capacity to meet its flexible and non-flexible RA requirements over the contract period, which, in turn, is the product of two parameters: SCE s projection of a monthly premium for flexible RA expressed in $/kw-month; and the Monthly increase (or decrease) in the need for flexible RA associated with one MW of installed capacity of wind or solar expressed as MW of flex capacity needed/mw of wind or solar capacity. SCE calculates this change in flexible RA need by using the hourly aggregate system profile for load, wind, and solar from the 2014 LTPP Trajectory Scenario. This hourly data is used to calculate the hourly three-hour net-load ramp for each hour of the year, consistent Merrimack Energy Group, Inc. 35

69 with the CAISO s Flexible Capacity study. SCE then identifies the maximum three-hour net-load ramp for each month, and determines the relative contributions from wind and solar to that maximum ramp. Finally, SCE determines the monthly increase (or decrease) in the need for flexible capacity associated with one MW of installed capacity of wind and solar. This is determined based on the relative contribution of wind/solar indicated above and the total installed capacity of wind/solar in the system. Maximum generation for wind/solar from the 2014 LTPP Trajectory Scenario is used as the estimate for the total installed wind/solar capacity for the system. The result of flexible capacity needs for wind/solar based on the described methodology is summarized in Table 3 below: Table 3: Contribution of 1 MW of Installed Capacity to Flexible RA Month Solar Wind January February March April May June July August September October November December In terms of bid evaluation, SCE multiplies the estimate for flexible RA value by the need for flexible capacity for the wind or solar product and converts this fixed component to $/MWh by summing the fixed component for each month over the course of a year and dividing by the forecasted generation. The variable RICA amount in $/MWh is then added to derive the total RICA in $/MWh. As indicated previously, this is an interim methodology, and the Commission will review the methodology to determine RICA on a more permanent basis. Debt Equivalence SCE uses the Standard & Poor s method for assessing imputed debt (also referred to as debt equivalence) to long-term obligations that SCE would incur related to proposed PPAs plus an estimate of the additional cost that would be incurred if it were to rebalance its capital structure to counteract the effect of the imputed debt. It is this additional cost that is used as the debt equivalence cost in the LCBF methodology. The primary rationale for considering a PPA as equivalent to debt, from S&P s perspective, is to factor in the risk that the purchaser, SCE in this case, will not be able to recover its costs over the term of the PPA. Other things being equal, the longer the term of the contract, the larger the risk Merrimack Energy Group, Inc. 36

70 and, hence, the more imputed debt and the higher the debt equivalence cost used in the NMV evaluation. S&P only imputes debt to capacity charges in PPAs, but where there are no capacity charges in PPAs, such as the energy-only PPAs which SCE utilizes in its RPS contracts, S&P historically used 50 percent of the energy charges as imputed capacity charges for purposes of its debt equivalence calculations. In May 2007, S&P changed its guidance on this matter: The pricing for some PPA contracts is stated as a single, all-in energy price. Standard & Poor's considers an implied capacity price that funds the recovery of the supplier's capital investment to be subsumed within the all-in energy price. Consequently, we use a proxy capacity charge, stated in $/kw, to calculate an implied capacity payment associated with the PPA. The $/kw figure is multiplied by the number of kilowatts under contract. In cases of resources such as wind power that exhibit very low capacity factors, we will adjust the kilowatts under contract to reflect the anticipated capacity factor that the resource is expected to achieve. We derive the proxy cost of capacity using empirical data evidencing the cost of developing new peaking capacity. We will reflect regional differences in our analysis. The cost of new capacity is translated into a $/kw figure using a weighted average cost of capital and a proxy capital recovery period. This number will be updated from time to time to reflect prevailing costs for the development and financing of the marginal unit, a combustion turbine. 37 In past solicitations, SCE had used 50 percent of the all-in energy cost in its debt equivalence calculations. The IE inquired as to whether SCE had modified its approach to incorporate the revised S&P methodology. SCE responded that it had for internal financial purposes but not in its Net Market Value assessments for power procurements. SCE agreed that it should use the revised S&P approach and implemented it for this solicitation. There are a number of factors that go into the calculation. SCE s approach is similar to that used by other utilities with which we are familiar with one exception. xxxxxxxxxx xxxxxxxxxxxxx SCE also used a xxxxxxxxxxxxxxxxx, rather than a 25 percent risk factor that might be used under the S&P methodology, xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx All 37 Standard & Poor s Methodology for Imputing Debt to U.S. Utilities Power Purchase Agreements (May 7, 2007), pp Merrimack Energy Group, Inc. 37

71 in all, SCE reasonably applied the current S&P debt equivalence methodology for this solicitation. 38 Overall Market Valuation Assessment As previously described, SCE s valuation methodology takes into account both the proposed costs and benefits for each proposal based on the specific proposal submitted. The valuation methodology takes into consideration the total cost to ratepayers of a proposal by including the proposed contract payments (as bid by the Sellers in its Proposal) plus other costs to ratepayers (including the transmission rate impact associated with required network upgrades, congestion cost impacts, integration costs and the implications of the estimated cost of imputed debt). Importantly, all projects are treated equally using this methodology which allows for a comparison of different types of technologies, with different terms and start dates. Some of the major strengths of the LCBF methodology used by SCE include: All Proposals are treated the same with regard to the cost and benefit components and assessment for each project; All Proposals are evaluated using the same consistent set of input price forecasts and assumptions for energy, capacity, congestion, and transmission costs; The methodology can be efficiently utilized to evaluate a large number of proposals in a fairly quick manner as compared to other utility methodologies which may rely on detailed system-wide simulation or optimization model assessments; 38 We are aware that the other two major credit rating agencies do not impute debt to PPAs except in unusual circumstances. Moody s ordinarily views PPAs as operating expenses and not as debt-like obligations, where there are strong cost recovery provisions available to utilities. Some utilities have the ability to pass through the cost of purchasing power under PPAs to their customers. As a result, the utility takes no risk that the cost of power is greater than the retail price it will receive. Accordingly, Moody s regards these PPA obligations as operating costs with no long-term debt-like attributes. (Moody's Global Infrastructure August 2009, App. H) Fitch takes a similar approach. Fitch does not adjust the debt of issuers in the sector to reflect long-term purchase obligations, such as power or capacity contracts, as quasi-debt and does not impute a portion of these expenses as interest expense. Fitch treats purchases under such procurement contracts as a part of normal ongoing operating expenses affecting future EBITDA, operating margin, and operating cash flow. However, Fitch may consider a long-term contract that is significant in size relative to cash flow and grossly uneconomical as debt-like in its rating analysis in exceptional circumstances. (Fitch Ratings 2011, p. 7). Nevertheless, SCE s approach in considering debt equivalence is reasonable in the context of RPS solicitations. See Decision on Petitions for Modification of Decision (2008) pp We also note that the impact on the Net Market Value calculation is relatively small. Merrimack Energy Group, Inc. 38

72 The evaluation methodology generally treated all eligible resources and technologies in a technology neutral manner with no undue biases toward any technology or resource type. This was particularly true of the quantitative evaluation methodology which we felt was generally balanced and technology neutral; The use of a Market Valuation approach such as Net Market Value or similar process used by other utilities is common and generally accepted in the industry; For this RPS RFP, the evaluation methodology accounts for integration costs associated with intermittent renewable resources. The weaknesses of this methodology as applied in this solicitation include: The Net Market Value methodology tends to value offers more highly that have a later initial delivery date relative to an early initial delivery date or COD due primarily to the escalating forecast of energy and capacity prices. As a result, the strict rank ordering of proposals may tend to favor proposals for longer-term contracts, although SCE has indicated a preference for shorter-term contracts. As a result, the application of judgement may be important to assess the trade-offs between the valuation results and qualitative preferences. There is still much uncertainty associated with regard to transmission access and cost, status of new transmission projects, and the expectations about the initial operation date of the transmission facilities. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxx The methodology to account for integration costs and the impacts of these resources is still being applied on an interim basis but should evolve over time to produce more accurate estimates. 3. Evaluation of Transmission Costs SCE s evaluation methodology assigns estimated reimbursable transmission network upgrade costs to the contract price of generation in order to compare offers fairly and equitably. Transmission costs are based on the estimated cost of reimbursable network upgrades attributable to individual projects. SCE requires that all Proposals must demonstrate that they have a Phase II interconnection study or better or an equivalent. Transmission costs applicable to the project will be based on the applicable completed interconnection study or interconnection agreement. Merrimack Energy Group, Inc. 39

73 For the 2015 RPS RFP, Sellers were required to provide copies of their Interconnection Studies (at least a Phase II study) and Interconnection Agreement, which was uploaded into the Accion Power website. In addition, the Proposal Form required the Seller to provide a significant amount of information (including additional requirements from the 2014 RPS solicitation) on the transmission arrangements for their project including: whether they were interconnecting to a new transmission project; whether the project has an interconnection queue position; what interconnection cluster are they in; what is their interconnection queue position number; what is the interconnection point; whether the project is connecting to a West LA Basin or Moorpark high voltage substation; name of Balancing Authority or utility; whether the Seller will dynamically transfer the product into a California Balancing Authority; is the interconnection point at an intertie point between CAISO and another Balancing Authority; is the interconnection point within the SCE service territory; interconnection in a Local Area Reliability Region; select the Local Area Reliability Region; interconnection documents provided; status of the project s interconnection; delivery point or point of interconnection; interconnection voltage; name, date and page of interconnection document from which the Delivery Point is transcribed; is conferment of deliverability status by the CAISO subject to the completion of the Tehachapi Renewable Transportation Project ( TRTP ); commercial operation date from Interconnection Agreement; deliverability status (Full Capacity Deliverability Status, Partial Capacity Deliverability Status, Interim Deliverability Status, Energy Only Deliverability Status); is the project intended to run as Energy Only for the term of the PPA; will the project have FCDS at the time of COD; please explain FCDS/EO issues, if necessary; Full Capacity Deliverability date or Partial Capacity Deliverability date; name of interconnection document from which the estimated time to construct is transcribed; page number from the Interconnection Document with regard to the time to construct; Seller s estimated date to sign an Interconnection Agreement; Network upgrade costs; document and page number from which the upgrade is provided; cost of reliability network upgrades and deliverability network upgrades. Merrimack Energy Group, Inc. 40

74 The information provided to the website allowed SCE to complete a number of cross checks on the information to determine whether the information is consistent. SCE s RPS project team also provided the transmission information for each project to its transmission group for review and assessment to insure the information was reasonable and credible. The SCE project team also sought input from the Transmission and Distribution Group regarding validation of the projects transmission information and any other information regarding transmission access and cost. SCE uses the interconnection studies submitted to determine the applicable reimbursable network upgrade costs for projects. SCE applies the required network upgrade costs to get the project delivered to the nearest defined market (e.g. NP15, SP15, ZP26 Generation Trading Hubs). xxxxxxxxxxxxxxxxxxxxxxxxxxxx The methodology used by SCE to determine reimbursable transmission upgrade costs is a major improvement over methodologies that rely on high level estimates, since the transmission upgrades are more defined and should be more accurate. Since all Sellers must have completed a Phase II study at a minimum, the projects are also placed on a more level playing field in the evaluation process. SCE s revision to its transmission cost allocation methodology to assess and allocate costs only to SCE s customers represents a significant change from previous approaches. Inclusion of more accurate transmission costs in the evaluation also provides a more complete view of all costs attributable to a specific project, including the cost to SCE s ratepayers of a new transmission project. The information required of the Sellers by SCE also provides valuable information as to whether a project will be fully deliverable at the time the project reaches its commercial operation date, which is relevant for assessing project viability and congestion cost impacts. 4. Evaluation of Project Viability Use of the Project Viability Calculator ( PVC ) was incorporated into SCE s evaluation of the proposals in connection with shortlisting. SCE asked the Sellers to complete the PVC based on their assessment of their own projects, including providing scores for the project and supporting justification for the scores. Also, both the IE and SCE completed the PVC scores for shortlisted projects. The original objective of the PVC was to evaluate the viability of renewable energy projects at different stages of development based on a number of traditional project viability criteria such as developers experience, site control, project financing status, environmental permitting status, status of interconnection progress, technical feasibility, Merrimack Energy Group, Inc. 41

75 transmission system upgrade requirements, and reasonableness of the Commercial Operation Date. SCE s approach for this solicitation to include stricter thresholds essentially changed to a large degree the importance of the PVC as structured. Through the IE s work on numerous competitive procurement processes throughout the United States and Canada, our assessment is that there is generally a trade-off between stricter threshold criteria and qualitative evaluation criteria such as those effectively included in the PVC. Stricter thresholds generally mean a project has to be more mature in the development process to compete and therefore should score more highly based on qualitative criteria. That proved to be the case in this solicitation. Nevertheless, the PVC has several strengths and weaknesses as a component of the evaluation and selection process. The advantages of the PVC include: The PVC represents a standardized tool to evaluate all projects; The PVC is a transparent tool; As a result, the PVC sends an important signal to Sellers regarding the qualitative criteria, at least those pertaining to project viability, of importance when developing their projects. The IE has found in other processes where the utility conducts a quantitative and qualitative evaluation that the weights and rankings of the various criteria are not explicitly defined but are used by the utility as an internal evaluation and scoring process; There are also disadvantages or current issues associated with the PVC that should be taken into consideration with respect to future solicitations. These include: While several of the criteria and guidelines are objective and scoring and ranking is fairly obvious, there are several criteria that are ambiguous and unclear and require the analyst to develop his/her own basis for scoring. For some of the criteria personal judgment is used which may vary among analysts. Reasonableness of the COD, Project Financing Status, and Transmission System Upgrade Requirements are criteria that involve judgment in the scoring process. SCE s elimination of documentation previously required from Sellers (e.g. Offer Structure Letter) creates a shortfall in the information provided by Sellers on the viability of the projects and increases the difficulty of effectively evaluating proposals via the PVC. For the most part, the Company and IE may have to rely too much on the own-scores of the Seller as the basis for evaluating many of the criteria in the PVC calculator since there are not many other sources of readily available data to assess each shortlisted proposal xxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxx Merrimack Energy Group, Inc. 42

76 C. Recommended Future LCBF Improvements The IE has several recommendations for future LCBF and solicitation improvements. We also assume that continued development of the methodology to derive integration costs will be a factor going forward as part of the RPS procurement planning process. The IE felt that based on the elimination of qualitative information requested from Sellers that it was particularly difficult to conduct an effective viability assessment of the shortlisted projects using the Project Viability Calculator. As a result of recent initiatives of SCE to reduce the burden on Sellers to provide justification for their self-provided scores or to provide supporting documentation to allow the IE and SCE to conduct effective viability assessments, it is a challenge to score such projects using the PVC. While the IE attempted to conduct an internet search of projects, it was obvious that there is generally no information available on new projects. As a result, the IE recommends that SCE reinstate the requirement for Sellers to provide an offer structure letter or a similar document to allow the utility and IE to effectively evaluate the offers. In addition, we feel that a component of the offer structure letter or PVC calculator should be information from Sellers supporting their self-scores. Frankly, at this point, we feel that the PVC calculators cannot be effectively used as intended to assess project viability, yet we find that there are more questions from PRG members and other regarding the viability of the shortlisted projects selected. Further analysis is required regarding the level of integration costs adders for future solicitations, particularly given the significant increase in solar PV projects in the CAISO market. The use of the interim integration cost adders appears out of date with regard to changes in the market and at this point probably do not add much value to distinguishing technologies. There are several areas in which SCE could improve the internal transparency of its evaluation of bids and, in so doing, improve accuracy of the evaluation. We say this in the context of several reevaluations having been conducted over the last several RFP cycles due to errors in the modeling. While due to the nature of developing and implementing complex models does not allow the Company or the IE to catch all errors based on formulas embedded in the models used, there are several checks which we have recommended for this RFP (which were not implemented) including requesting that SCE provide the model output in a form that will allow us to track through the equations to ensure accuracy of results. We have the following recommendations for future solicitations: o The summary spreadsheets should be simplified so that all the numbers have consistent signs for negative and positive values. For example, when using net market value (a positive sign means that benefits exceed costs) there should not also be a category for renewable premium (where a positive sign means that costs exceed benefits). We find this confusing. We suggest using net market value rather than renewable premium and use Merrimack Energy Group, Inc. 43

77 a positive sign for all benefits (energy and RA) and a negative sign for all costs. This may also help in assuring that the wrong signs for congestion costs (or benefits) are not used. o A spreadsheet should be provided summarizing the key components of the network upgrade cost calculation as a means to check for errors, including: Network upgrade cost, including the year of the estimate; Location: CAISO o High voltage interconnection xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx o Low voltage interconnection SCE service territory (100% costs to SCE) Not in SCE service territory (no costs to SCE) Outside of CAISO (no costs to SCE) Transmission line amortization and fixed charge rate to calculate monthly network upgrade charge assignable to PPA Monthly PPA MWh used to calculate $/MWh charge attributable to network upgrades o Documentation of the methodology used to calculate the debt equivalence values; o Including the first year bid price and escalation rates on the bid summary spreadsheets, which may be helpful in checking for errors in the evaluated levelized costs per MWh. D. Additional Information or Observations Regarding SCE s Evaluation Methodology No additional information or observations are provided. V. Did SCE Fairly Administer the Evaluation Process? This section of the report discusses SCE s administration of the evaluation and selection process and whether or not the process was conducted fairly and consistently. The IE s conclusion is that overall the process was conducted in a fair and consistent manner. The IE agreed that the proposals selected for the shortlist were reasonable xxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx This section of the report discusses the evaluation and selection process that led to the shortlist selected by SCE and describes the fairness of the decisions leading up to shortlist selection. A. Principles and Guidelines Used to Determine Fairness of Process In evaluating SCE s performance in implementing its evaluation and selection process, Merrimack Energy has applied a number of principles and factors, which incorporate those Merrimack Energy Group, Inc. 44

78 suggested by the Commission s Energy Division as well as additional principles that Merrimack Energy has used in its oversight of other competitive bidding processes. These include: Were all offers treated the same regardless of the identity of the Participant? Were Participant questions answered fairly and consistently and the answers made available to all Participants, where appropriate? Did the utility ask for clarifications that provided one Participant an advantage over others? Was the economic evaluation of the offers fair and consistent to all Participants? Was there a reasonable justification for any fixed parameters that were a part of the IOU s LCBF methodology (e.g. RMR values, debt equivalence parameters)? Were the quantitative and qualitative factors that were used to evaluate offers fair to all offers? Did SCE consistently apply the requirements, procedures and criteria of the evaluation process as identified in the RFP documents to different proposals and types of projects? Was the evaluation and selection process based on adequate information about each proposal and a thorough investigation by SCE s project team? B. Description of IE Methodology Used to Evaluate Administration of SCE s LCBF Process SCE provided the IE access to the data inputs used in the evaluation model via a data dump from the Accion website as well as the final evaluation results which served as the basis for selection of the shortlist. SCE provided two output files for IE review and comments during the evaluation process, with revisions to the outputs based on updates to proposal information obtained during the cure and conformance period as well as comments and suggestions provided by the IE based on issues identified during the initial output review xxxxxxxxxxx xxxxxxxxxxxx xxxxxxxx xxxxxxxxxx xxxxxxxxxxxxxx The IE also asked a number of questions of SCE with regard to select projects in relation to evaluation of projects with IDS service. Merrimack Energy Group, Inc. 45

79 As previously noted, SCE used the Accion Power website as the bidding platform. Sellers were able to upload their proposals to the website and were required to provide the proposals based on a consistent Bid Form which facilitated review and evaluation. Sellers were also provided with a bid number, including a unique identifier process for each option proposed. 41 The IE had access to all proposals and documents submitted to the website. The IE also had access to all questions and communications between SCE and the Seller throughout the process. The IE was notified via any time a Seller submitted a question or posted information on the website as well as when a response was submitted by SCE. The IE also had the option to review all communication between SCE and the Sellers and questions and answers posted to the website. One of the most attractive features of the website was the ability for the IE and SCE team to create reports to summarize proposal information and to then transform the files into Excel to manage the data. While SCE created a data dump of all proposal information provided, the IE prepared a summary file of all offers submitted as a means for assessing the reasonableness of SCE valuation results. The IE was able to compare its summary information for each proposal with the inputs generated by SCE based on the data dump to check the input files prior to offer valuation. The summary proved valuable with regard to the discussion of offers with the SCE team and assessment of SCE s evaluation results. The website also maintained a record of all communications and follow-up information provided by the Sellers, which allowed the IE to remotely monitor all activity and communications. During the course of proposal review, the IE raised questions and comments about the components of the evaluation results, specific questions about individual proposals, and possible inconsistencies for several proposals. The IE was also present via teleconference for all project team meetings, project management meetings, and eprmc meetings in which proposal review and shortlist selection decisions were taking place. The IE raised comments and was asked for its opinion on shortlist selection. The IE conducted a review and assessment of both the quantitative and qualitative aspects of proposal evaluation and selection. With respect to the quantitative analysis, the IE: Completed a detailed summary of each offer to be used to check the inputs used by SCE, primarily related to the cost categories for each offer; Reviewed the pricing formulas proposed by each Seller and developed a general ranking of proposals based on the pricing ranges proposed; 41 For example, a Seller who offered three proposals and was classified as Bidder 100, may have proposals 100-1, and as the identifiers for the three proposals submitted. This allowed SCE and the IE to easily identify specific proposals in reviewing and discussing the offers. Merrimack Energy Group, Inc. 46

80 Conducted an assessment of each shortlisted proposal based on the Project Viability Calculator; Conducted a comparison of the rankings of selected proposals by SCE in comparison to the rankings based on the IE s analysis and submitted comments to the SCE project team to review the results to ensure accuracy of the result; Reviewed the output generated by SCE and reviewed the results of the evaluation with SCE s project team leads, including raising questions and comments about the evaluation of specific projects that may have seemed inconsistent with the IE s views of the expected results; Audited the communications between SCE and Sellers by reviewing the traffic between the parties leading up to and after proposal submission by reviewing the exchanges on the Accion Power website; Maintained communications with the SCE project team during this process regarding the status of conformance of proposals with SCE eligibility requirements and identifying any proposals that were not yet in conformance with requirements; Reviewed and assessed the decisions made by SCE regarding shortlist selection, including calculation of Net Market Values for each project option and the application of qualitative factors used to assist in project ranking and selection. For qualitative factors, the IE independently scored all of the shortlisted proposals based on the Project Viability Calculator. The IE and SCE were consistent with regard to scoring of projects based on the PVC results. Overall, the PVC scores for all projects would indicate that the shortlisted projects, for the most part would appear to be very viable and feasible based on the limited amount of information available. Based on our review, we conclude that SCE on the whole reasonably followed the criteria outlined in the Procurement Protocol. The evaluation was consistent and equitable across different types of proposals and technologies and reflected the totality of costs and benefits identified in the Procurement Protocol. Furthermore, based on our assessment of the evaluation process relative to the above criteria, it is our opinion that all Sellers were treated fairly and consistently and all had access to the same amount and quality of information. SCE maintained a website dedicated to the 2015 RPS RFP and utilized the Accion Power website which provided same time access to information for all Sellers. We also observed no difference in the treatment of Sellers regarding clarification questions for Sellers, correspondence and communications with Sellers, and follow-up contacts. Finally, SCE generally implemented the evaluation criteria and methodologies as outlined in the Procurement Protocol. Merrimack Energy Group, Inc. 47

81 C. Did the Utility Identify, for Each Offer, the Terms that Deviate From the Utility RFO? Did the IOU Identify Nonconforming Offers Fairly Fair Both to the Nonconforming Offers and to Conforming Participants? As illustrated in Table 1, SCE initially received xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxx submitted for the 2014 RPS solicitation. xxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx Shortly after proposals were uploaded by Sellers to Accion Power s website, SCE performed a detailed review of the proposal packages to identify any deficiencies with regard to the information required from Sellers, which review would be used to seek information from Sellers to cure any deficiencies. Another SCE objective was to assess if any offers did not meet the eligibility requirements listed in the Protocol. Sellers were generally able to cure the deficiencies identified by SCE associated with their proposals and provided the information requested in a timely manner. No offers were eliminated for failure to cure deficiencies. In addressing non-conformities of a less substantive nature, such as incomplete information, SCE was fairly lenient in allowing a variety of shortcomings, such as errors in submittals, to be cured so that the proposals, as revised, would be sufficiently complete and conforming and could compete in the process. In our view, SCE s approach was fair, reasonable, and inclusive. Based on review of the offers, SCE identified offers that were viewed to be non-conforming for various reasons. SCE and the IE discussed the potentially non-conforming and identified such in the overall offer summaries. The offers removed or withdrawn during the bid review and evaluation process included the following: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Merrimack Energy Group, Inc. 48

82 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx D. If the IOU Conducted Any Part of the Offer Evaluation, Were the Parameters and Inputs to the Evaluation Criteria Determined Reasonably and Fairly? What Controls Were in Place to Ensure the Parameters and Inputs Were Reasonable and Fair? The parameters and input files for the quantitative evaluation were largely developed internally by SCE and were locked down prior to submission of the proposals. The IE had the opportunity to review the input files and forecasts prior to receipt of offers. 42 All the forward curves were locked down prior to receipt of proposals and would therefore not be influenced by any offer. The IE submitted a number of questions to SCE and met with the SCE project team to review and confirm the methodology used by SCE to develop its forward curves for energy at different pricing points and felt that the methodology (i.e. use of market quotes in the near term followed by a fundamental forecast for the mid-term and trend analysis beyond a certain date) 43 was reasonable and consistent with industry practices. xxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx 44 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx 42 The IE was familiar with SCE s approach for developing its input forecasts based on serving as IE on other solicitations such as the 2013 and 2014 RPS solicitation and the CHP RFO 1, 2 and 3 solicitations. The IE s objective prior to the 2015 RPS solicitation was to assess whether there were any changes or revisions to the input forecasting methodology and assess the reasonableness of the revisions. However, upon review and meetings with the SCE project team it was conveyed that the forecasting approach and methodology were generally the same, with the transmission cost methodology being the only major revision. 43 xxxxxx xxxxxxxxxxxxx xxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxx xxxxxxxxxxx by inflation. All proposals will be valued at either SP15, NP15, or ZP26 forecasts based on location. 44 SCE informed the IE that it intended to use the same forecast data for capacity value in the 2015 RPS RFP as it did for the 2014 RPS RFP. Merrimack Energy Group, Inc. 49

83 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxx Other inputs such as TOD factors, transmission adders, etc. were identified in the Procurement Protocol and appeared to be consistently applied in the evaluation. Furthermore, the quantitative methodology was consistently applied to all Sellers. From the qualitative perspective, the Project Viability Calculator tool developed by the Energy Division was used in the PVC scoring of shortlisted projects. SCE did not make any adjustments to the PVC. E. If the IE or a Third Party Conducted Any Part of the Offer Evaluation, What Information/Data Did the Utility Communicate to that Party and What Controls Did SCE Exercise Over the Quality or Specifics of the Out-Sourced Analysis? From the quantitative perspective, the IE or a third-party did not conduct any part of the evaluation. SCE conducted the entire evaluation, with review and comment of the input files by the IE. As noted, the IE conducted an independent evaluation of shortlisted proposals using the same Project Viability Calculator as SCE. The IE had the same access to information as did SCE in the PVC assessment. Other than the IE s independent PVC scoring, the IE did not conduct any part of the offer evaluation. F. Were Transmission Cost Adders and Integration Costs Properly Assessed and Applied to Bids? Any Additional Information, Observations, or Recommendations Regarding Integration Cost Adder Methodology. SCE s preferred approach was to use at a minimum the Phase II interconnection study results as the basis for assessing network upgrade costs to individual projects. If a project already had executed an Interconnection Agreement, the costs included in the Agreement were used (except as noted below). Merrimack Energy Group, Inc. 50

84 As previously discussed, SCE used a different methodology for assigning transmission network upgrade costs to bids from prior solicitations. The new methodology is based on costs which SCE customers will incur rather than a broader group of California customers. This entails distinguishing between projects that are interconnecting within or outside the CAISO-controlled grid (or having CAISO interconnection studies), whether projects are interconnecting at high or low voltage if within the CAISO-controlled grid, and if the latter, whether the projects are interconnecting to SCE s transmission system. There were some issues relating to individual bid projects. xxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx In the 2013 and 2014 solicitations SCE determined that to apply its transmission cost methodology in a strict fashion would result in a large overestimate of costs assigned to a project. xxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 45 G. Describe any additional measures the utility exercised in evaluating affiliate, buyout, and turnkey offers. There were no affiliate, buyout, or turnkey offers. H. Describe Any Additional Criteria or Analysis Used in Creating its Short List (e.g. Seller Concentration, Online Date, Transmission Availability, etc.). Were the Additional Criteria Clearly Included in the Solicitation Materials? While SCE rank ordered projects based on the Net Market Value, there were several areas where SCE exercised judgment in creating the shortlist. The shortlist selection process and the additional criteria used in developing the shortlist are described below. 1. First, as previously mentioned, SCE revised its procurement targetxxxxxxxxxx xxxxxxxxxxxx to no need through 2025 and possibly until approximately 2030 due to recent updates to its RPS position. 46 In addition, SCE selected two proposals, totaling 40 MW, to meet its procurement requirements for GTSR by August SCE conducted its evaluation of the eligible offers and rank ordered the offers according to the Net Market Value metric. SCE used the rank ordering of the projects as a basis for identifying the highest ranked offers. x xxxxxxxxxxxxx xxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxxxx x xxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Merrimack Energy Group, Inc. 51

85 1. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxrecs are bankablexxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxx 2. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxx I. Results Analysis 1. Identify instances where the IE and the IOU disagreed in the LCBF evaluation process The IE raised several clarifying questions with SCE about its interpretation of several proposals as well as potential inconsistencies in the evaluation results. Generally, the IE identified potential inconsistencies or potential errors, brought these to SCE s attention, and held discussions with SCE about the IE s questions. All specific issues associated with questions raised by the IE with regard to the evaluation of projects were resolved prior to the completion of the evaluation and ranking process. Merrimack Energy raised issues about the PVC calculator in its 2014 RPS RFP IE Shortlist report. In addition, in discussion with SCE team members prior to receipt of offers, the IE warned of lack of potential information to conduct a reasonable PVC evaluation of the offers if the offer structure letter and other related information requirements were eliminated. The lack of adequate information, such as the information on project status, often included in the offer structure letter created challenges for completing the Project Viability Calculators for the shortlisted projects. The IE also requested that SCE provide the IE with detailed model information to allow the IE to undertake a complete check and evaluation of the valuation results for each offer. The IE requested information pertaining to the model equations to allow us to track through the calculations for each cost and benefit component. During discussions about how such a request was going to be addressed, the IE was informed that the Risk Group within SCE was undertaking development of a model to independently audit and test the results of the valuation and that the model would be made available to the IE. However, apparently such a model was not developed. Merrimack Energy Group, Inc. 52

86 J. Overall, Was the Overall Offer Evaluation Fairly Administered In the IE s opinion, the overall offer evaluation was fairly administered for the reasons previously stated in this report. K. Any Other Relevant Information or Observations No. VI. Does the Proposed RPS Shortlist Merit Commission Approval This section addresses whether SCE s shortlist merits CPUC approval. A. Did the IOU Conduct a Fair Solicitation That Was Consistent with Commission Decisions and its Approved LCBF Methodology? For the reasons stated herein, Merrimack Energy concludes that SCE conducted a fair solicitation process that was consistent with Commission decisions and SCE s approved LCBF methodology for the most part. SCE followed its stated evaluation process from receipt and initial review of proposals to final shortlist valuation and selection with a few exceptions. Specifically, SCE revised its RPS requirements based on its revised load forecast after receipt of offers which showed that SCE would be able to meet its RPS requirements through at least xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxx SCE included consideration of several factors to guide shortlist selection. Although SCE is well positioned to satisfy procurement targets through 2025, the following considerations were made in the shortlisting process: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxx Merrimack Energy Group, Inc. 53

87 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx RECs are bankable; Project size and term opportunity to pick up relatively smaller size projects with shorter terms at highly competitive prices; Consideration was also given to start date, total nominal payments, project size and term length. The final short list was comprised of the xxxxxxxxxxx listed in Table 4. xxxxxxxxx xxxxxxxxxxxxxxxxxxx Table 4: Shortlisted Projects for RPS and GTSR Programs Company Project Tech COD Term (years) Contract Capacity (MW) Gen (GWh/yr) NMV ($/MWh) xxxxxxxx xxxxxxxx xxxxxxx xxxxxxxx xx xxx xxx xxxxx xxxxx xxxx xxxxxx xxxxxxx xxxxxxxx xx xxx xxx xxxxx xxxxxxxx xxxxxx xxxxxxx xxxxxxxx xx xx xxx xxxxx xxxxxxxx xxxxxxxx xxxxxxxx xxxxxxx xxxxxxxx xx xx xx xxxxx xxxxxx xxxxxxxxx xxxx xxxxxxxx xxxxx xxxxxxx xxxxxxxx xx xx xx xxxxx In this context, SCE s shortlisting decisions were reasonable and were generally grounded in the requirements, evaluation criteria and stated preferences set forth in the Procurement Protocol, with modifications that were reasonable under the circumstances. The IE shared his view with the PRG regarding the 2015 solicitation process and SCE s shortlist decision at the May 2016 PRG meeting. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx In addition, the xxxxxxxxxxxxxxxxxxxxxxxx projects were being offered by very experienced, well capitalized project sponsors that have a track record of success. xxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Merrimack Energy Group, Inc. 54

88 B. Did the IOU Choose Projects for the Shortlist That Provide the Best Overall Value to Ratepayers? Could the IOU Have Incorporated a Decision-Making Process That Provided for a Different Portfolio of Projects That Provide Better Overall Ratepayer Value? With the qualifications noted above, SCE either selected projects in merit order xxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx or considered factors that would serve to lower overall cost to customers in making its selection. xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxx C. Did the Shortlist Conform to the Needs of the IOU s Portfolio, RPS Requirements, RPS Procurement Plan and Protocol? Based on SCE s latest load forecast and expected success rates for recently contracted projects, SCE does not have an unmet RPS requirement until at least 2025 on a forecasted basis. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx SCE s decision for shortlisting RPS projects should provide competitive benefits relative to market prices. In addition, SCE can bank the renewable energy and sell some RECs to improve the overall economics of its portfolio. We also feel that selection of a few projects through this solicitation should encourage continued development activities by renewable project developers. The IE noted based on its review of market activities over the past three RPS solicitations that there was a significant number of new projects proposed in the 2015 solicitation. The IE believes that overall SCE followed the general methodology described in its RPS Procurement Plan and Procurement Protocol in evaluating offers and in developing and finalizing a short list while taking into consideration its most recent forecast regarding RPS compliance and applying reasoned judgment. Overall, SCE s decisions were consistent with the RPS Procurement Plan, Procurement Protocol and with LCBF principles. D. In the IE s Opinion, is the IOU s Proposed Shortlist Reasonable The IE s overall opinion is that the shortlist was reasonable. E. Contract Negotiation Process xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxx Merrimack Energy Group, Inc. 55

89 VII. The Maverick Solar PPA and the Fairness of the Project- Specific Negotiations A. The Maverick Solar Project and the Maverick Solar PPA EDF submitted xxxxxxxxxx proposals for xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxx in response to the 2015 RPS RFP. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxx The Maverick Solar (Palen I) project is a proposed solar PV under development in East Riverside County, Desert Center, California. The project has a Contract Capacity of 125 MW, with expected annual energy delivery of 406 GWh per year. The project will be located on Bureau of Land Management ( BLM ) land. The project has a lengthy history. In December 2015, EDF acquired a site previously permitted by the California Energy Commission ( CEC ) for a concentrating solar thermal power tower project and modified the project to solar PV technology. Because the CEC does not have permitting jurisdiction over solar PV projects, BLM and Riverside County now have sole jurisdiction over the project as lead federal and state agencies respectively. BLM had previously issued a Draft Environmental Impact Statement for the solar thermal power tower project for a Right-of-Way application. EDF has stated that the prior application for a solar thermal project has been supplemented by an application for the solar PV project (submitted to BLM on December 22, 2015), which will have less environmental impact than predecessor projects with solar thermal technology. On February 26, 2016, BLM deemed complete EDF s revised Plan of Development for the solar PV project. EDF estimates a month period for federal and state supplemental environmental reviews of EDF s solar PV project prior to grant of major permits, Merrimack Energy Group, Inc. 56

90 The project has a fully executed interconnection agreement and will interconnect to SCE s Red Bluff Substation. The project is tied to SCE s West of Devers Upgrade Project, which has an expected completion date in xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Xxxxxxxxxxxx In past negotiation with EDF (and other counterparties), SCE sought to have the counterparty contractually specify the type of inverters and other equipment to be used for their projects. EDF Solar wanted more flexibility with respect to equipment type and ratings it might use as long as its performance fell within specified parameters. SCE was primarily concerned that equipment changes might result in higher than expected output. To address both parties concerns, the parties agreed to (a) a more flexible equipment definition (set forth in Exhibit B) without a specified Installed DC Capacity rating and (b) additional limits on output that the seller could deliver to SCE over any three-period and still receive the full contract price. In addition, EDF Solar is allowed to build the project early before 2020 and sell products from the projects to other buyers. Sales to SCE would begin in December 2020 assuming that the project has achieved commercial operation and EDF gives notice to SCE that commercial operation has occurred. In a number of other respects, the contract negotiations for the Maverick Solar built upon the PPA that EDF and SCE had negotiated for the Valentine Solar project in connection with SCE s 2014 RPS solicitation. Similar to the Valentine Solar PPA, both the Seller and SCE have the right to terminate the PPA (with the return of the Seller s Development Security) if Seller has not received its construction permits prior to June 1, In addition, the provisions pertaining to Force Majeure events resulting in no fault terminations were taken from the Valentine Solar PPA. Commercial Terms of the Maverick Solar PPA The key commercial terms of the Maverick Solar PPA are summarized below in Table 5. Table 5: Commercial Terms for the Maverick Solar PPA Delivery Term (Section 1.04) Type of Facility (Section 1.01(g)) Vintage (Recital A) Location of Facility (Section 1.01(b), Exhibit B 15 years following the month of the Commercial Operation Date Solar PV New East Riverside County, Desert Center, California, as further described in Exhibit B Merrimack Energy Group, Inc. 57

91 Contract Capacity (Section 1.01(h)) Installed DC Rating (Section 1.01(i) Excess Deliveries (Section 1.05(b)(i)), Exhibit E, and Exhibit A definition of Excess Deliveries Price. Excess Deliveries (Section 1.05(b)(ii) Excess Deliveries Price (Definition) Products (Section 1.01(d)) Commercial Operation Deadline (Section 1.04) Price (Section 1.06(a)) Expected first year energy output (Section 1.01(j)) Annual degradation factor (Section 1.01(i)) 125 MW (AC) Not specified Amounts delivered in excess of the lesser of (A) the product of 125 MW expressed in hours and (B) the product of the contract capacity expressed in MW multiplied by the length of such Settlement Interval expressed in hours then the product price shall be $0 per MWh, and if there is a Negative LMP Seller shall pay to SCE an amount equal to the absolute value of the Negative LMP times such excess MWh. If during the 36-month period measured from the beginning of each term year there are evaluation period amounts in excess of 300% of the average of the three Expected Annual Net Energy Production amounts then the amounts shall be compensated at the Excess Deliveries Price instead of the Product Price. The Excess Deliveries Price means with respect to a particular hour, the lesser of: (a) the greater of (i) the product of (1) the hourly Integrated Forward Market Locational Marginal Price for such hour at the Generating Facility s PNode expressed in $/MWh, and (2) 85% and (ii) $0 per MWh and (b) The product of (i) the Product Price set forth in Section 1.05(a) for such hour and (ii) the Product Payment Allocation Factor for the TOD Period that includes such hour. All energy (net of station use), capacity, Green Attributes, and RA benefits produced by the Facility December 1, 2020 (subject to allowable extensions); the Commercial Operation Deadline may not be later than December 1, xxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxx xxxx Merrimack Energy Group, Inc. 58

92 Interconnection Point (Section 1.01(e) Delivery Point (Section 1.01(f) Termination Rights of Both Parties (Section 2.03(a), 3.06(e)) Termination Rights of SCE (Section 2.03(b)) RA Performance Obligation (Section 3.02) Interconnection Agreement(Section 1.08) Development Security (Section 3.06) SCE Red Bluff Substation At the Point of interconnection with the CAISO-Controlled Grid, SCE Red Bluff Substation. Either Party has the right to terminate this agreement if: (i) CPUC Approval has not been obtained or waived by SCE within 365 days after SCE file its request for CPUC Approval; or (ii) if Seller has not obtained Permit Approval of the Construction Permits on or before June 1, 2020 and a Notice of termination is given on or before September 1, SCE has the right to terminate this agreement if an interconnection study estimates that network upgrade costs will exceed $3 million (unless Seller agrees to pay for network upgrade costs in excess of $3 million). Commencing on the later of the Commercial Operation Date and January 1, 2022, Seller shall pay to SCE an amount ( RA Deficit Payments ) equal to the product of (a) the difference, expressed in kw, of (i) the Qualifying Capacity of the Generating Facility for the applicable month, minus (b) the Net Qualifying Capacity of the Generating Facility for the applicable month, multiplied by (b) the then current CPM capacity price (not to exceed $120/kWyear). Large Generator Interconnection Agreement among Palen SEGS II, LLC (as assignee of Palen Solar II, LLC) and Southern California Edison Company and California Independent System Operator dated December 22, 2010 (and any amendments thereto). $75/kW of Contract Capacity--$9.375 million to be posted within five days of the Effective Date (November 21, 2016) Merrimack Energy Group, Inc. 59

93 Return of Development Security with no damages assessed (Section 2.03, 3.06(e), 5.04) Failure to obtain timely CPUC approval Failure to obtain timely construction permit approvals Termination due to excessive interconnection costs Seller timely achieves Commercial Operation and demonstrates the full Contract Capacity Force Majeure lasting for more than 1 year or a catastrophic Force Majeure occurring prior to the Commercial Operation Date Payments are made based on the stated contract price and the Product Payment Allocation Factors (Exhibit I of the PPA), which in turn are a function of the Time of Delivery Period (TOD Period) when the energy is produced. Time of Delivery Periods ( TOD Periods ) TOD Period Time of Day Applicable Days On-Peak 2:00 p.m. 8:00 p.m. Weekdays except Holidays. Off-Peak 8:00 a.m. 2:00 p.m. Weekdays, Weekends and Holidays 2:00 p.m. 8:00 p.m. H lid Weekends and Holidays. 8:00 p.m. 10:00 p.m. Weekdays, Weekends and Holidays Super-Off-Peak 10:00 p.m. -8:00 a.m. Weekdays, Weekends and Holidays Season TOD Period Full Capacity Deliverability Status Product Payment Allocation Factor Summer June 1 st Sep 30 th Winter Oct 1 st May 31 st On-Peak 1.29 Off-Peak 1.04 Super-Off-Peak 0.94 On-Peak 1.10 Off-Peak 0.96 Super-Off-Peak 0.95 Merrimack Energy Group, Inc. 60

94 Holiday is defined as New Year s Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Veterans Day, Thanksgiving Day, and Christmas Day. When any Holiday falls on a Sunday, the following Monday will be recognized as a Holiday. No change will be made for Holidays falling on Saturday. The Product Payment Allocation Factors in the Maverick Solar PPA were xxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx However, they were xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx In response to an inquiry from the IE regarding whether the final evaluation included consideration of the Maverick Solar PPA product payment allocation factors, SCE stated that the valuation was not based on the product payment allocation factors in the contract. 47 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 47 The Product Payment Allocation Factors in the 2015 RPS RFP economic analysis and in the 2015 RPS Pro Forma PPA are as follows: Season TOD Period Full Capacity Deliverability Status Product Payment Allocation Factor Summer June 1 st Sep 30 th Winter Oct 1 st May 31 st On-Peak 1.35 Off-Peak 1.08 Super-Off-Peak 0.86 On-Peak 1.18 Off-Peak 1.02 Super-Off-Peak 0.86 Holiday is defined as New Year s Day, Presidents Day, Memorial Day, Independence Day, Labor Day, Veterans Day, Thanksgiving Day, and Christmas Day. When any Holiday falls on a Sunday, the following Monday will be recognized as a Holiday. No change will be made for Holidays falling on Saturday. Merrimack Energy Group, Inc. 61

95 Other PPA Contract Terms and Conditions xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Scheduling Party (Section 3.13) Shared Facilities (Section 3.05) Portfolio Financing (Section 10.18) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx SCE Seller has the right to use Shared Facilities for purposes of interconnection and delivery of energy to the Delivery Point; any Shared Facilities Agreements shall contain provisions intended to protect the rights of Seller and the interests of SCE, as buyer under the PPA. SCE acknowledges that Seller may use portfolio financing with respect to the Generating Facility or Shared Facilities, which may involve cross-collateralization to enable such financing. B. Identify principles used to evaluate the fairness of the negotiations The general principles followed by the IE in evaluating contract negotiations include assurance that the risk allocation provisions in the contract are reasonably balanced between the counterparties and that the utility customers are not placed at undue risk as result of the contracting process. The IE generally monitors but does not actively participate in the contract negotiation process but will identify issues to the utility transactors if negotiations are moving off track, if there are biases or inconsistencies in the process, or if the IE wants to ensure that all similar projects being negotiated are treated in a similar manner. It has been our experience in monitoring a number of negotiation processes that contract negotiations can divert off course but eventually return to a balance after contested provisions are resolved. We also attempt to ensure that similarly situated Merrimack Energy Group, Inc. 62

96 counterparties are treated the same or similarly and that all counterparties are provided with the same message. For example, in previous solicitations SCE has informed shortlisted bidders that if they sought any changes in their proposals (such as accelerated or deferred CODs), SCE expected price concessions, especially if the change would be viewed by SCE as an adverse change from an evaluation standpoint or where the change could benefit the Seller. SCE has consistently notified bidders that reduced prices were important to the company and its customers. C. Using the above principles (section V.A), please evaluate fairness of project-specific negotiations SCE s process involved the initiation of contract negotiations with xxx counterparties for the RPS solicitation xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxx Shortly after the selection of the short-list, SCE notified the selected bidders of offer selection for the short list. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Internally, SCE established contract negotiation teams for each counterparty that included a commercial contract manager, attorney and credit analyst. In addition, SCE established a core team to address issues that arose during the contract negotiation process from an internal policy perspective to ensure a consistent message and internal policy was conveyed to all contract negotiation teams. Unlike the 2014 RPS RFP, given the limited number of contracts and recent experience with these counterparties SCE did not hold weekly core team meetings but scheduled meetings as required to provide any updates. Based on monitoring negotiations and contract turns, the IE concludes that all counterparties were fairly treated during the contract negotiation process. Furthermore, the checks and balances process undertaken by SCE to review and internally approve all contracts prior to execution resulted in reasonably consistent treatment for all counterparties. D. Identify the terms and conditions that underwent significant changes during the course of negotiations? The starting point for negotiations with all counterparties was the standard Pro Forma Renewable PPA. SCE posted the Pro Forma PPA on the website. SCE s Pro Forma PPA is structured under the assumption that: Seller s proposal is based upon the greenfield development of a new Generating Facility; The Generating Facility s first point of interconnection will be with the CAISO; and Merrimack Energy Group, Inc. 63

97 SCE will be the Scheduling Coordinator. Shortlisted Bidders were requested to provide a red-line version of the PPA as soon as practical after shortlist notification As noted, since SCE recently negotiated a contract with EDF there were not many changes to the contract for this negotiation process. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx This section of the report will address the standard PPA terms and conditions for the 2015 RPS pro forma that underwent material change during the course of negotiations between SCE and EDF for the Maverick Solar project. These include: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxx Merrimack Energy Group, Inc. 64

98 E. Was similar information/options made available to other participants, e.g. if a participant was told to reduce its price down to $X, was the same information made available to others? The IE concludes that similar information and options were made available to all participants. Not only were SCE s processes and procedures established with a goal of ensuring that all projects had access to the same information but SCE on several occasions sent s and other notification to all shortlisted bidders informing them of the schedule for completing negotiations and finalizing contracts through the Accion Power website. None. F. Any other relevant information or observations, such as other data or information used to inform the negotiations VIII. Does the Contract Merit CPUC Approval? A. Provide narrative for each category and describe the project s ranking relative to: 1) other offers from the solicitation (or recent bilaterals or market information if used in reasonableness comparison; 2) other procurement opportunities (e.g. distributed generation programs); and 3) from an overall market perspective: 1. Contract Price, including transmission cost adders 2. Project s net market value 3. Consistency with stated RFO goals 4. Portfolio Fit 5. Project Viability a. Project Viability Calculator score b. IOU-specific project viability measures c. Other (credit and collateral, developer s project development portfolio, transmission, other site-related matters, etc.) 6. Any other relevant factors Maverick Solar is a 125 MW (Contract Capacity) solar PV project located in East Riverside County, Desert Center, California, with a December 1, 2020 forecasted commercial Merrimack Energy Group, Inc. 65

99 operation date. The project will be interconnected to SCE s Red Bluff Substation, with delivery into the CAISO-controlled grid. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxover the 15-year contract term. The project is reasonably well developed, with the project in the permitting process and having obtained a fully executed LGIA. xxxxxxxxxxxxxxxxxx EDF is a highly experienced developer, builder and operator of solar PV and wind projects. On an overall basis, Maverick Solar is a highly attractive project with a high ranking PPA in terms of economic value. The offer selected by SCE was one of the most economically attractive among the offer variants proposed by EDF, and taking into consideration contract size and contract term length, was a very attractive offer. The project is also in a relatively advanced stage of development, xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxx as evaluated by both SCE and Merrimack Energy. EDF s proposed solar PV project is a successor to a concentrated solar project that had been in development for many years and has an interconnection agreement. Due to conversion to solar PV technology, the Maverick Solar project is still in the midst of a permitting process before BLM, although the IE has no reason to believe that construction permits will not be received. B. Do you agree with the IOU that the contract merits CPUC approval? Explain the merits of the contract based on offer evaluation, contract negotiations, final price, and viability. Merrimack Energy agrees with SCE that the Maverick Solar PPA merits CPUC approval. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx In addition, the PPA, in the IE s opinion, was reasonably negotiated with contract terms that taken as a whole appropriately protect the interests of SCE s ratepayers. Moreover, Maverick Solar is being developed by an experienced and capable firm, and the project is in a reasonably Merrimack Energy Group, Inc. 66

100 advanced stage of development. All in all, the Maverick Solar PPA merits Commission approval, in Merrimack Energy s opinion. C. Any other relevant information or observations None. Merrimack Energy Group, Inc. 67

101 Appendix A: SCE s Least Cost Best Fit Evaluation Methodology Market Valuation SCE will evaluate the quantifiable attributes of each Proposal individually and subsequently rank them based on the Proposal s benefit and cost relationship, specifically the net levelized cost of the project or Net Market Value ( NMV ). These individual quantitative components include: capacity benefits, energy benefits, congestion benefits, contract payments, debt equivalence mitigation cost, transmission cost, integration cost, and congestion cost. In developing its relative merit order ranking of Proposals, SCE s evaluation methodology incorporates information provided by sellers and assumptions prescribed and set by the Commission with its internal methodologies and forecasts of market conditions. The objective of the quantitative assessment and relative Net Market Value ranking is to develop a preliminary shortlist that is further refined based on the nonquantifiable attributes discussed below. Each of the elements for the RPS quantitative analysis is described below. Benefits 1. Capacity Benefit Each proposal is assigned a capacity benefit, if applicable, based on SCE s forecast of net capacity value and the quantity of Resource Adequacy ( RA ) derived by SCE based on the seller s offer capped at the generating facility s peak capacity contribution factor, calculated for each facility pursuant to the exceedance methodology, based on the hourly generation profile submitted as part of the Proposal submittal package. For wind and solar Proposals, peak capacity contribution factors are calculated in a manner consistent with the Commission s RA accounting rules (D ) utilizing a 70% exceedance factor methodology based on the hourly generation profile submitted as part of the Proposal submittal package. Peak capacity contribution factors are both technology and location-specific. Technological differentiation does not refer to the fuel source, but rather the method of converting other energy sources into electricity (e.g. solar trough, solar photovoltaic). For Proposals with dispatchable capabilities at SCE s control, the peak capacity contribution factor is based on the availability of the proposed project. For other technologies without dispatchable capabilities, the quantity of RA benefits is based on a three-year rolling average of production during certain hours. For proposals located outside of the California Independent System Operator ( CAISO ), SCE limits the monthly RA quantities to the available import allocation at each CAISO intertie. SCE utilizes the CAISO s Advisory Estimates of Future RA Import Capability ( CAISO Advisory Estimates ) published on the CAISO website. Capacity benefits for all Proposals located outside of the CAISO and delivering at a CAISO intertie, including Merrimack Energy Group, Inc. 68

102 Proposals located in the Imperial Irrigation District, will be capped by import capability quantities indicated in the CAISO Advisory Estimates. Monthly capacity benefits include the product of SCE s net capacity value forecast and the quantity of RA capacity determined for each month of the year. Capacity benefits are only applied for those months in which SCE has a capacity need. Additional value will be attributed to facilities located in the Los Angeles Basin or Big Creek/Ventura local reliability areas. Although SCE will use the exceedance methodology to calculate RA quantities, SCE will also report Proposal rankings based on RA quantities using an Effective Load Carrying Capacity methodology in accordance with D Energy Benefit SCE measures the energy benefits, as applicable, of a Proposal by evaluating the estimated market value of energy. The evaluation of energy benefits is performed with a base portfolio and system that is consistent with system need track of SCE s most recent Long- Term Procurement Plan ( LTPP ), with some updates to account for the latest gas price and the results of recent procurement activities. In the event that a Proposal provides additional value to SCE from the provision of one or more ancillary services (regulation, spin, or non-spin), SCE may use an internal forecast for ancillary service prices as a means of evaluating any incremental benefit. For Proposals with must-take energy, SCE calculates the energy benefits of a Proposal based on SCE s internal forecast of the market value of energy. The hourly energy benefit for the Proposal is the resulting market price multiplied by the hourly seller-provided generation profile. For Proposals with dispatchable capabilities at SCE s control, including any project offered that features an energy storage component, SCE calculates the net energy benefits based on the market value of the energy when the proposed resource dispatches. SCE utilizes a production cost or equivalent model to determine the dispatch economics for the proposed resource according to the unit characteristics provided by the seller. SCE s gas price and power price forecasts are based on a blend of a near-term market view and a longer-term fundamental view of prices. The simulation model, and hence the energy benefit calculation, captures additional quantitative effects that SCE has been asked to consider by the Commission, including dispatchability. The dispatchability benefits, such as ancillary services and real-time flexibility, are implied in the energy benefit and are not addressed separately. Merrimack Energy Group, Inc. 69

103 3. Congestion Benefit Localized congestion may cause a reduction or increase in prices at a particular locational marginal price ( LMP ) in the CAISO market. In D , the Commission held that the IOUs must incorporate an assessment of these congestion costs in their LCBF evaluation. SCE applies a locational congestion adder to all projects to differentiate between project locations. These locational adders may be positive or negative depending on the expected congestion in the area. The locational adders are based on SCE s forecast of LMPs in the CAISO market in the location that seller plans to interconnect. Projects that select an Energy-only ( EO ) interconnection do not fund the deliverability upgrades needed to ensure their energy can serve load and avoid localized congestion. As such, these projects increase the risk of congestion in these locations to a degree greater than projects with a Full Capacity Deliverability Status ( FCDS ) interconnection. In order to capture this difference, SCE applies an incremental congestion cost adder to all CAISO projects that selected an EO interconnection, or any EO portion of the contract term if FCDS status is expected to be achieved after the commercial on-line date. The incremental congestion cost adder is based on SCE s estimate of the average impact on system congestion from adding incremental capacity without any incremental deliverability network upgrades, and is the same for all EO projects. The incremental congestion cost adder is also based on SCE s forecast of LMPs in the CAISO market in the location that the seller plans to interconnect. Costs 1. Contract Payments The primary costs associated with each Proposal are the contract payments that SCE makes to sellers for the expected renewable energy deliveries. Proposals typically include an all-in price for delivered renewable energy, which is adjusted in each time-of-delivery ( TOD ) period by the applicable energy payment allocation factors ( TOD factors ). Total payments are determined by multiplying the generation by the contract price, adjusted for each TOD period 2. Debt Equivalence Debt Equivalence is the term used by credit rating agencies to describe the fixed financial obligation resulting from long-term power purchase agreements ( PPAs ). Pursuant to D , the Commission permitted the IOUs to recognize costs associated with the effect debt equivalence has on the IOU s credit quality and cost of borrowing in their evaluation process. In D , the Commission reversed this position. SCE, however, filed a petition for modification of D In November 2008, the Commission issued D , which authorized the IOUs to recognize the effects of debt Merrimack Energy Group, Inc. 70

104 equivalence when comparing PPAs in their bid evaluations, but not when the IOUs are considering a utility-owned generation project. As such, SCE considers debt equivalence in the evaluation process. 3. Integration Cost Integration costs, where applicable, are the additional system costs required to provide sufficient operational flexibility to ensure adequate system reliability as more intermittent renewable resources join the grid. In D , the Commission approved an interim renewable integration cost adder ( RICA ) methodology, and directed SCE to include an interim RICA in its RPS solicitation until a final methodology is adopted. The Commission also stated that a final RICA methodology will be considered in the RPS proceeding and in coordination with the LTPP proceeding and any other relevant proceeding in the future. SCE will use an interim RICA in the LCBF evaluation process for its 2015 RPS solicitation unless a final methodology is adopted before the launch of the solicitation. Pursuant to D , this interim RICA will be calculated as the sum of two cost components: variable costs and fixed costs. For the interim RICA, the variable cost component is set at $4/MWh for wind and $3/MWh for solar. SCE will calculate the fixed cost component based on SCE s portfolio need to secure additional capacity from resources not already procured to meet its flexible and non-flexible RA requirements over the contract period. Specifically, this component will be the product of two parameters: SCE s confidential projection of a monthly premium (which can be zero or positive) for flexible RA expressed as $/kw-month; and Monthly increase (or decrease) in the need for flexible RA associated with one MW of installed capacity of wind or solar expressed as MW of flex capacity needed/mw of wind or solar capacity. SCE will calculate this change in flexible RA need by using the hourly aggregate system profile for load, wind, and solar from the 2014 LTPP Trajectory Scenario. This hourly data will be used to calculate the hourly three-hour net-load ramp for each hour of the year, consistent with the CAISO s Flexible Capacity study. SCE will then identify the maximum three-hour net-load ramp for each month, and determine the relative contributions from wind and solar to that maximum ramp. Finally, SCE will determine the monthly increase (or decrease) in the need for flexible capacity associated with one MW of installed capacity of wind and solar. This is determined based on the relative contribution of wind/solar indicated above and the total installed capacity of wind/solar in the system. Maximum generation number for wind/solar from the 2014 LTPP Trajectory Scenario will be used as the estimate for the total installed wind/solar capacity for the system. The result of flexible capacity needs for wind/solar based on the described methodology is summarized below: Table A1: Contribution of 1 MW of Installed Capacity to Flexible RA Month Solar Wind January February Merrimack Energy Group, Inc. 71

105 March April May June July August September October November December SCE will apply the interim RICA in bid valuation by multiplying the monthly RICA estimate in $/MWh to the generation profile for each wind/solar bid. 4. Congestion Cost As explained in the benefits section, congestion adders could be positive or negative depending on the direction of congestion. Depending on the direction of congestion, congestion is included as either a cost or benefit in SCE s valuation. 5. Transmission Costs Transmission costs are based on the estimated cost of the reimbursable network upgrades attributable to individual projects that are paid by SCE s customers. For projects in the CAISO-controlled area, it will be the share of costs that are paid by SCE s customers. SCE s customer share of network upgrade costs will be determined by the CAISO s latest numbers for utility-specific Transmission Access Charges based on load share. For non- CAISO controlled projects, this cost will be zero. To participate in the 2015 RPS RFP, SCE requires sellers to have an existing Phase II Interconnection study, or to have an equivalent or better process or exemption. Transmission costs applicable to the project will be based on the applicable completed interconnection study or interconnection agreement. SCE requires all sellers to have an existing Phase II Interconnection Study or to have an equivalent or better process or exemption. The Seller must provide copies of all interconnection studies and/or agreements as part of seller s proposal. SCE uses the interconnection studies submitted as part of the Proposal submittal package to determine the applicable network upgrade costs for all projects. These costs will not be imputed for projects in transmission-constrained areas. SCE applies the required upgrade costs to get the project delivered to the nearest defined market (e.g. NP15, SP15, ZP26 Generation Trading Hubs). Merrimack Energy Group, Inc. 72

106 Portfolio Fit SCE s LCBF quantitative evaluation process inherently captures the impact of portfolio fit. For example, as different Proposals are added to the overall portfolio, the resultant residual net short or net long position is impacted. Projects that more often increase SCE s net long capacity positions are assigned less capacity benefits than those projects that are more often filling net short positions. SCE also considers portfolio fit in its qualitative analysis. Specifically, when assessing additional qualitative characteristics to determine advancement to the shortlist or tiebreakers, SCE s preference is for those projects that have commercial operation dates that match periods of SCE s need for renewable energy. Credit and Collateral Requirements In order to ensure comparable pricing for ranking, SCE requires sellers to bid conforming Proposals committing to posting SCE s pro forma performance assurance amount. SCE accepts lesser performance assurance to be bid as long as a conforming Proposal is also submitted. Performance assurance is the collateral posted by the seller during the operating period. Project Viability SCE assesses the following attributes using the Project Viability Calculator: Company/Development Team Project Development Experience Ownership/O&M Experience Technology Technical Feasibility Resource Quality Manufacturing Supply Chain Development Milestones Site Control Permitting Status Project Financing Status Interconnection Progress Transmission Requirements Reasonableness of Commercial Operation Date (COD) Other Qualitative Criteria/Preferences Following the Project Viability Calculator qualitative assessment, SCE considers additional qualitative characteristics to determine advancement to the shortlist or tiebreakers, if any. These additional characteristics may include: Merrimack Energy Group, Inc. 73

107 Nominal contract payments Contribution to other SCE program goals (e.g. GHG reductions pursuant to the CHP Settlement Agreement); Transmission area (e.g. Tehachapi, Sunrise, within SCE s load pocket); Congestion, negative price, and curtailment considerations not captured in the quantitative valuation; EO concentration; Facility interconnection process progress; Portfolio fit of COD; Prior experience with project developers/sellers; Seller concentration; Expected generation (GWh/year); Dispatchability; Alternative Renewable Premium (i.e. Renewable Premium including integration costs); Environmental impacts of seller s proposed project on California water quality and use; Resource diversity; Benefits to minority and low income communities; Local reliability; Environmental stewardship; [If Green Rate procurement need is identified only] Project eligibility for Green Rate program, if developer has chosen to be considered for the Green Rate program; [If Green Rate procurement need is identified only] Project eligibility for Green Rate Environmental Justice reservation, if developer has chosen to be considered for the Green Rate program SCE s LCBF quantitative evaluation of the Proposals incorporates energy and capacity benefits with nominal capacity payments, transmission cost, debt equivalence, integration cost, and congestion cost to create individual benefit and cost relationships, namely, the Net Market Value. It is the Net Market Value that is used to rank and compare each project. Qualitative attributes of each Proposal are then considered to further screen the shortlist and arrive at a final shortlist of Proposals. The overall evaluation methodology is applied consistently to projects regardless of location. Energy benefits for those projects outside of the CAISO are based on the pricing at the seller-elected liquid power trading hub or CAISO intertie (subject to SCE s approval in its sole discretion) according to SCE s fundamental price forecast for hubs across the Western Electricity Coordinating Council ( WECC ). For projects with an assumed delivery point outside the CAISO (e.g. liquid power trading hub), SCE applies a power swapping methodology, where the power is assumed to be sold into the local market. SCE customers are not liable for network upgrades outside of the CAISO or California (outside of any costs that may be imbedded within the contract pricing) so transmission cost adders are zero for these projects. Merrimack Energy Group, Inc. 74

108 CONFIDENTIAL Appendix D Contract Summary Confidential Protected Materials Public Disclosure Prohibited

109 CONFIDENTIAL Appendix E Comparison of the Maverick Solar Contract with SCE s 2015 Pro Forma Renewable Power Purchase and Sale Agreement Confidential Protected Materials Public Disclosure Prohibited

110 CONFIDENTIAL Appendix F Maverick Solar Contract Confidential Protected Materials Public Disclosure Prohibited

111 CONFIDENTIAL Appendix G Renewable Net Short Calculations Confidential Protected Materials Public Disclosure Prohibited

112 PUBLIC Appendix G Renewable Net Short Calculations

113 Physical Renewable Net Short Calculations Based on CPUC Assumptions Variable Calculation Item Deficit from RPS prior to Reporting 2011 Actuals 2012 Actuals 2013 Actuals Actual 2015 Actual 2016 Forecast Forecast 2018 Forecast 2019 Forecast 2020 Forecast Forecast 2022 Forecast 2023 Forecast 2024 Forecast 2025 Forecast 2026 Forecast 2027 Forecast 2028 Forecast 2029 Forecast 2030 Forecast Forecast Year CP1 1 CP CP Annual RPS Requirement A Bundled Retail Sales Forecast (LTPP) 1 73,777 75,597 74, ,854 75,829 75,322 xxxxx xxxxxx xxxxx xxxxx xxxxx 71,316 xxxxxx 76,194 76,660 76,980 77,205 77,599 77,995 78,393 78,792 79,194 79,598 B RPS Procurement Quantity Requirement (%) 20.0% 20.0% 20.0% 21.7% 23.3% 25.0% 27.0% 29.0% 31.0% 33.0% 34.8% 36.5% 38.3% 40.0% 41.7% 43.3% 45.0% 46.7% 48.3% 50.0% C A*B Gross RPS Procurement Quantity Requirement (GWh) 14,755 15,119 14,896 44,771 16,455 17,550 xxxxx xxxxx xxxxx xxxxx xxxxx 23,534 xxxxx 26,478 27,981 29,445 30,882 32,333 33,798 35,277 36,770 38,277 39,799 D Voluntary Margin of Over-procurement E C+D Net RPS Procurement Need (GWh) 14,755 15,119 14,896 44,771 16,455 17,550 xxxxx xxxxx xxxxx xxxxx xxxxx 23,534 xxxxx 26,478 27,981 29,445 30,882 32,333 33,798 35,277 36,770 38,277 39,799 RPS-Eligible Procurement Fa Risk-Adjusted RECs from Online Generation 15,585 15,764 16,445 47,794 17,731 18,316 21,234 57,282 23,275 23,211 22,344 21,460 90,290 20,790 20,313 20,268 20,188 20,086 19,826 18,333 16,971 16,766 15,479 Faa Forecast Failure Rate for Online Generation (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Fb Risk-Adjusted RECs from RPS Facilities in Development ,076 2,068 3,324 5,887 12,355 6,508 6,421 6,387 6,380 6,344 6,322 6,301 6,294 6,259 6,238 Fbb Forecast Failure Rate for RPS Facilities in Development (%) N/A N/A N/A N/A N/A N/A 22.9% 22.9% 24.4% 21.5% 25.2% 31.5% 27.7% 32.4% 32.3% 32.3% 32.3% 32.3% 32.3% 32.2% 32.2% 32.2% 32.2% Fc Pre-Approved Generic RECs Fe Executed REC Sales , F Fa+Fb+Fc-Fe Total RPS Eligible Procurement (GWh) 2 15,223 14,986 15,972 46,181 17,731 18,316 20,911 56,958 24,371 25,355 25,959 27, ,472 27,872 27,494 27,589 27,508 27,368 27,087 25,572 24,206 23,963 22,654 F0 Category 0 RECs 3 15,170 14,876 15,771 45,817 16,492 15,169 15,045 46,705 14,122 12,794 11,709 10,882 49,507 10,270 10,195 10,224 10,161 10,126 9,938 9,766 9,748 9,594 8,339 F1 Category 1 RECs ,240 3,147 5,866 10,253 10,228 12,486 13,959 16,465 53,138 17,029 16,539 16,431 16,406 16,304 16,211 14,868 13,517 13,432 13,378 F2 Category 2 RECs F3 Category 3 RECs Gross RPS Position (Physical Net Short) Ga F-E Annual Gross RPS Position (GWh) 467 (133) 1,076 1,410 1, xxxx xxxx xxxx xxxx xxxx 4,253 xxxxx 1,394 (487) (1,856) (3,374) (4,965) (6,711) (9,705) (12,564) (14,314) (17,145) Gb F/A Annual Gross RPS Position (%) 20.6% 19.8% 21.4% 20.6% 23.4% 24.3% xxxx xxxx xxxx xxxx xxxx 39.0% xxxx 36.6% 35.9% 35.8% 35.6% 35.3% 34.7% 32.6% 30.7% 30.3% 28.5% Application of Bank Ha Existing Banked RECs above the PQR ,371 2,646 3,379 1,371 xxxx xxxxx xxxxx 17,114 xxxx 20,879 21,787 21,787 21,787 21,787 21,787 21,787 21,787 21,787 21,787 Hb RECs above the PQR added to Bank 467 (142) 1,046 1,371 1, xxxx xxxx xxxx xxxx xxxx 3,766 xxxxx Hc Non-bankable RECs above the PQR xx xxx xxx xxx xxx 487 xxxx H Ha+Hb Gross Balance of RECs above the PQR ,371 1,371 2,646 3,379 xxxx xxxx xxxxx xxxxx xxxxx 20,879 xxxxx 21,787 21,787 21,787 21,787 21,787 21,787 21,787 21,787 21,787 21,787 xx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx x x x - x x x - x x x x - x x x x x x x x x x xx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx x x x - x x x - x x x x - x x x x x x x x x x x xxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxx xxx xxxx 1,371 xxxx xxxx xxxx xxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xx xxxxxxxxxxxxxxxx xxxx x x 1,007 x x x x x x x x x x x x x x x x x x x xx xxxxxxxxxxxxxxxx xx xxx xxx 364 xxxx xxxx xx xxxx xxxxx xxxx x x xxxxx xxx x x x x x x x x x xx xxxxxxxxxxxxxxxx x x x - x x x x x x x x x x x x x x x x x x x Expiring Contracts K RECs from Expiring RPS Contracts - 1,678 2,099 3,212 4,068 11,057 4,647 4,960 5,058 5,206 5,204 5,409 5,596 5,642 5,749 6,226 Net RPS Position (Optimized Net Short) xx xxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxx xxxx xxxx 1,371 xxxx xxx xxxx xxxx xxxx xxxx xxxx xxxx xxxxx xxx xxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxxx xxxxxx xxxxxx xx xxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxx xxxx xxxx 20.6% xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx xxxx Note: Fields in grey are potected as Confidential under CPUC Confidentiality Rules Note: Values are shown in GWhs Notes: 1 Bundled retail sales forecast for is from SCE's February 2016 bundled retail sales forecast; bundled retail sales forecast for is forecast used in 2014 LTPP with extension beyond 2024 calculated based on average annual rate of change between Includes all contracts executed through August 31, 2016; new generation forecast based on individual project specific success rates for large near-term projects and flat average success rate for remaining projects based on these projects' overall weighted average success rate 3 Forecast of deliveries by portfolio content categories is for executed contracts only; does not include program generics

114 Physical Renewable Net Short Calculations Based on SCE Assumptio Variable Calculation Item Deficit from RPS prior to Reporting 2011 Actuals 2012 Actuals 2013 Actuals Actual 2015 Actual 2016 Forecast Forecast 2018 Forecast 2019 Forecast 2020 Forecast Forecast 2022 Forecast 2023 Forecast 2024 Forecast 2025 Forecast 2026 Forecast 2027 Forecast 2028 Forecast 2029 Forecast 2030 Forecast Forecast Year CP1 1 CP CP Annual RPS Requirement A SCE Bundled Sales Forecast 1 73,777 75,597 74, ,854 75,829 75,322 xxxxx xxxxxx xxxxx xxxxx xxxxx 71,316 xxxxxx 70,765 70,724 71,006 71,659 72,103 72,974 74,041 75,105 76,002 77,065 B RPS Procurement Quantity Requirement (%) 20.0% 20.0% 20.0% 21.7% 23.3% 25.0% 27.0% 29.0% 31.0% 33.0% 34.8% 36.5% 38.3% 40.0% 41.7% 43.3% 45.0% 46.7% 48.3% 50.0% C A*B Gross RPS Procurement Quantity Requirement (GWh) 14,755 15,119 14,896 44,771 16,455 17,550 xxxxx xxxxx xxxxx xxxxx xxxxx 23,534 xxxxx 24,591 25,814 27,160 28,664 30,043 31,622 33,318 35,049 36,734 38,533 D Voluntary Margin of Over-procurement E C+D Net RPS Procurement Need (GWh) 14,755 15,119 14,896 44,771 16,455 17,550 xxxxx xxxxx xxxxx xxxxx xxxxx 23,534 xxxxx 24,591 25,814 27,160 28,664 30,043 31,622 33,318 35,049 36,734 38,533 RPS-Eligible Procurement Fa Risk-Adjusted RECs from Online Generation 15,585 15,764 16,445 47,794 17,731 18,316 21,234 57,282 23,275 23,211 22,344 21,460 90,290 20,790 20,313 20,268 20,188 20,086 19,826 18,333 16,971 16,766 15,479 Faa Forecast Failure Rate for Online Generation (%) 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Fb Risk-Adjusted RECs from RPS Facilities in Development ,076 2,068 3,324 5,887 12,355 6,508 6,421 6,387 6,380 6,344 6,322 6,301 6,294 6,259 6,238 Fbb Forecast Failure Rate for RPS Facilities in Development (%) N/A N/A N/A N/A N/A N/A 22.9% 22.9% 24.4% 21.5% 25.2% 31.5% 27.7% 32.4% 32.3% 32.3% 32.3% 32.3% 32.3% 32.2% 32.2% 32.2% 32.2% Fc Pre-Approved Generic RECs Fe Executed REC Sales , F Fa+Fb+Fc-Fe Total RPS Eligible Procurement (GWh) 2 15,223 14,986 15,972 46,181 17,731 18,316 20,911 56,958 24,371 25,355 25,959 27, ,472 27,872 27,494 27,589 27,508 27,368 27,087 25,572 24,206 23,963 22,654 F0 Category 0 RECs 3 15,170 14,876 15,771 45,817 16,492 15,169 15,045 46,705 14,122 12,794 11,709 10,882 49,507 10,270 10,195 10,224 10,161 10,126 9,938 9,766 9,748 9,594 8,339 F1 Category 1 RECs ,240 3,147 5,866 10,253 10,228 12,486 13,959 16,465 53,138 17,029 16,539 16,431 16,406 16,304 16,211 14,868 13,517 13,432 13,378 F2 Category 2 RECs F3 Category 3 RECs Gross RPS Position (Physical Net Short) Ga F-E Annual Gross RPS Position (GWh) 467 (133) 1,076 1,410 1, xxxx xxxx xxxx xxxx xxxx 4,253 xxxxx 3,281 1, (1,156) (2,675) (4,535) (7,746) (10,843) (12,771) (15,878) Gb F/A Annual Gross RPS Position (%) 20.6% 19.8% 21.4% 20.6% 23.4% 24.3% xxxx xxxx xxxx xxxx xxxx 39.0% xxxx 39.4% 38.9% 38.9% 38.4% 38.0% 37.1% 34.5% 32.2% 31.5% 29.4% Application of Bank Ha Existing Banked RECs above the PQR ,371 2,646 3,379 1,371 xxxx xxxxx xxxxx 17,114 xxxxx 20,879 23,674 25,301 25,730 25,730 25,730 25,730 25,730 25,730 25,730 Hb RECs above the PQR added to Bank 467 (142) 1,046 1,371 1, xxxx xxxx xxxx xxxx xxxx 3,766 xxxxx 2,795 1, Hc Non-bankable RECs above the PQR xx xxx xxx xxx xxx 487 xxxxx H Ha+Hb Gross Balance of RECs above the PQR ,371 1,371 2,646 3,379 xxxx xxxx xxxxx xxxxx xxxxx 20,879 xxxxx 23,674 25,301 25,730 25,730 25,730 25,730 25,730 25,730 25,730 25,730 xx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx x x x - x x x - x x x x - x x x x x x x x x x xx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx x x x - x x x - x x x x - x x x x x x x x x x x xxxxxxx xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxx xxx xxxx 1,371 xxxx xxxx xxxx xxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xx xxxxxxxxxxxxxxxx xxxx x x 1,007 x x x x x x x x x x x x x x x x x x x xx xxxxxxxxxxxxxxxx xx xxx xxx 364 xxxx xxxx xx xxxx xxxxx xxxx x x xxxxx xxxx xxxx xxx x x x x x x x xx xxxxxxxxxxxxxxxx x x x - x x x x x x x x x x x x x x x x x x x Expiring Contracts K RECs from Expiring RPS Contracts - 1,678 2,099 3,212 4,068 11,057 4,647 4,960 5,058 5,206 5,204 5,409 5,596 5,642 5,749 6,226 Net RPS Position (Optimized Net Short) xx Ga+Ia-Ib-Hc xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxx xxxx xxxx 1,371 xxxx xxx xxxx xxxx xxxx xxxx xxxx xxxx xxxxx xxxx xxxx xxx xxxxx xxxxx xxxxx xxxxx xxxxxx xxxxxx xxxxxx xx (F+Ia-Ib-Hc)/A xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx xxxxx xxxxx xxxxx 20.6% xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx xxxxx 27.7% Note: Fields in grey are potected as Confidential under CPUC Confidentiality Rules Note: Values are shown in GWhs Notes: 1 Based on SCE's February 2016 bundled retail sales forecast 2 Includes all contracts executed through August 31, 2016; new generation forecast based on individual project specific success rates for large near-term projects and flat average success rate for remaining projects based on these projects' overall weighted average success rate 3 Forecast of deliveries by portfolio content categories is for executed contracts only; does not include program generics

115 PUBLIC Appendix H Confidentiality Declaration

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