Distributed Solar Transactions: NEM and Beyond MEC Conference October 2013

1. Distributed Solar Transactions: NEM and Beyond MEC Conference October 2013

2. About SEPA Educational 501(c)3 non-profit 430+ Utilities 52% of electricity customers • Formed by utilities for utilities • 20 years of service • Balanced perspective • Research, education, collaboration and advisory services 500+ solar stakeholders +90% of installed solar capacity Membership

3. Aligning Solar and UtilitiesSampling of 340 Utility Members

4. Role of DG in Top 10 Solar States

5. Critical DG Issues • Grid integration • Distribution grid operational concerns – safety, reliability, operations, and grid management • Customer expectations • Satisfaction tied to the experience of “going solar” • Customers now perceive “choice” in electricity source • Business impacts of net metering • Revenue loss • Rate inequity, upward rate pressure • Obscured subsidies/lack of transparency

6. Net Metering: What’s the Issue? Is net metering in and of itself the problem? Or is it net metering in combination with how rates are currently designed?

7. SEPA Position on NEM • Customer-sited solar generation will play an increasingly important role in the energy mix for utilities and consumers. • NEM policies promote the deployment of customer-sited distributed solar generation in many markets. • However, NEM and rate design, inherently linked, need to evolve to transparently allocate costs and benefits, compensating all parties for their value contribution. • This transition will only be effective when utilities, the solar industry and customers collaborate to create a sustainable solar distributed generation marketplace.

8. Financial Impacts of NEMTiming dictates impacts on shareholders & customers Impact on shareholders (Between rate cases) = Revenue Requirement Not Collected Shareholder Impact Impact on non-solar ratepayer (Post-rate case) = + Impact redistributed to ratepayers Total Annual Incentive • Variable Costs: • Operating costs saved after solar installation • Fuel and potentially O&M • Fixed Costs: • Costs previously incurred in deploying utility infrastructure • Generation, T&D, etc. • Total Annual Incentive: • Sum of Production-based incentive payments • Revenue Requirement: • Authorized returns • Tax and depreciation • Operations and Maintenance

9. Ratemaking and NEM Not Typically Impacted Impacted For more information, see SEPA’s “Ratemaking, Solar Value and Solar Net Energy Metering – a Primer” (July 2013)

10. Rate Design Alternatives

11. Demand-Based vs. Volumetric Demand-based Rate Design (Typical Non-Residential) Volumetric Rate Design (Typical Residential) NEM Transaction

12. Value of Solar OverviewSolar FiT, Clean Contract, etc. The Value of Solar (VOS) transaction is based on a rate, reflecting the benefits and costs of distributed PV resources, which is offered to customers in exchange for PV output Attributes of the VOS transaction model • Rate is established through a transparent and repeatable analysis, potentially annually • Customer continues to pay their full retail rate based on consumption • PV systems are interconnected on the “utility side” of the meter • PV system production is individually monitored • Customers are compensated based on system production and the VOS rate • Market analysis is used to establish incentives to facilitate PV market above and beyond the VOS (if necessary) • Incentive program design demonstrates support, with established declines, if necessary • VOS sends appropriate market signals • VOS can be established for the system as a whole, or it can be designed to send specific locational signals • Maintain simplicity for both communications and transaction administration • Retains conservation signal for customer

13. Value of Solar Components

14. Value Analysis and PeriodSimilar valuations presented differently CPS Energy – VOS Study Source: T. Hoff et al, “The Value of Distributed Photovoltaics to Austin Energy and the City of Austin”; March 17, 2006

15. Importance of Program Design Calculating a Value of Solar is only the first step

16. Pitfalls of Stakeholder Processes • Stakeholder perception that outcomes have been predetermined, with stakeholder process used only to justify results • Talking “at” stakeholders rather than discussing “with” stakeholders • Positive components of the plan getting overshadowed by items stakeholders disagree with

17. Stakeholder Engagement PlanCommunicate the End Objective FIRST • Clearly articulate to stakeholders what the end objective of the process will be • Ex 1: a viable and transparent solar transaction that supports XYZ Utility’s goals, keeps costs down for distributors, and creates a functioning solar market • Ex 2: review of VOS compared to current program (retail rate +incentive until 2016), with determination if a change needs to occur • Lay out at the beginning what the stakeholder process will look like, how feedback/suggestions will get incorporated, and what will happen with the stakeholder process ends

18. Stakeholder Engagement PlanIdentify players/roles, and outline process Level of Engagement Phases of Process

19. Contact Information Julia Hamm President & CEO 202-559-2025 jhamm@solarelectricpower.org Eran Mahrer EVP, Strategy & Research 202-552-4411 emahrer@solarelectricpower.org