CONTENTS:

I. Legislative Background

II. The Pilot Program

A. Term of the Pilot Program
B. Public Bidding Administered by the SEU
C. Procurement of SRECs from 4 Tiers of Solar Generators
D. Standard Transfer Agreements and Other Requirements
E. Procurement from Tier 1 and Tier 2A Solar Generators
F. Procurement from Tier 2B and 3 Solar Generators

III. Request for Expedition and Approval

DELMARVA POWER AND LIGHT COMPANY’S APPLICATION
FOR APPROVAL OF A PILOT PROGRAM FOR THE
PROCUREMENT OF SOLAR RENEWABLE ENERGY CREDITS

I. Legislative Background

1. In 2007, the Governor approved and signed into law the Renewable Energy Portfolio Standards Act, 26 Del. C. §§ 351-364, (“REPSA”), the purpose of which was to “establish a market for electricity from [renewable energy resources 1 in Delaware, and to lower the cost to consumers of electricity from these resources.” 26 Del. C. § 351(c). REPSA also recognized that having a market for renewable energy resources in Delaware would benefit the State through “improved regional and local air quality, improved public health, increased electric supply diversity, increased protection against price volatility and supply disruption, improved transmission and distribution performance, and new economic development opportunities.” 26 Del. C. § 351(b).

2. In furtherance of these goals, REPSA requires retail electricity suppliers, such as Delmarva Power, to purchase energy from Eligible Energy Resources (as that tenn is defined in RESPA) to meet a portion of their annual retail load. Beginning with compliance year 2010, REPSA sets forth the minimum percentage of retail energy sales to end-users that must come from Eligible Energy Resources, including solar photovoltaics. 26 Del. C. § 354(a). For compliance year 2011, the Minimum Cumulative Percentage from Eligible Energy Resources is 7.0% and the Minimum Cumulative Percentage from Solar Photovoltaics is 0.20%. Id The percentage of retail energy to be supplied from Eligible Energy Resources increases over time, reaching a requirement of25% in 2025. Id.

3. REPSA was amended in 2010 to require the formation of the Renewable Energy Taskforce (the “Taskforce”) for the purpose of “making recommendations about the establishment of trading mechanisms and other structures to support the growth of renewable energy markets in Delaware.” 26 Del. C. § 360( d). The Taskforce was required to include the following members: (i) four appointments by the Secretary of DNREC; (ii) one appointment by the Public Service Commission; (iii) one appointment by Delmarva Power & Light; (iv) one appointment by the Delaware Electric Cooperative; (v) one appointment by municipal electric companies; (vi) one appointment by the Sustainable Energy utility (“SEU”); (vii) one appointment by the Delaware Public Advocate; and (viii) one appointment by the Delaware Solar Energy Coalition. 26 Del. C. § 360( d)(l).

4. The Taskforce was charged with making recommendations about and reporting on, inter alia, the following:
a. Establishing a balanced market mechanism for Renewable Energy Credit (“REC”) and Solar Renewable Energy Credit (“SREC”) trading;
b. Establishing REC and SREC aggregation mechanisms and other devices to encourage the deployment of solar energy technologies in Delaware with the least impact on retail electricity suppliers, municipal electric companies and rural electric cooperatives;
c. Minimizing the cost for complying with REPSA;
d. Establishing revenue certainty for appropriate investment in solar renewable energy technologies, including consideration of long-term contracts and auction mechanisms;
e. Establishing mechanisms to maximize in-state solar renewable energy generation and local manufacturing; and
f. Ensuring that residential, commercial and utility scale photo voltaic and solar thermal systems of various sizes are financially viable and cost-effective instruments in Delaware.

5. The Taskforce first met on September 2,2010 and, at that time, voted to create a subcommittee to provide recommendations to the Taskforce. The voting members of the subcommittee are: Delmarva Power & Light, DNREC, Delaware Electric Cooperative, Delaware Solar Energy Coalition, the SEU and DEMEC. In addition to the voting members, other persons regularly attended the subcommittee meetings, including Delaware Public Service Commission Staff, the Public Advocate’s Office, Dr. Lado Kurdgelashbilli from the University of Delaware and additional representatives from the solar industry. Since its formation, the subcommittee has met almost weekly for a year to consider the issues as required by REPSA.

II. The Pilot Program

6. Over the course of almost a year, the subcommittee developed the Pilot Program for the Procurement of Solar Renewable Energy Credits (the “Pilot Program”). The proposed Pilot Program, including attachments, is attached hereto as Exhibit 1. The Pilot Program was completed by the subcommittee and the subcommittee voted to send the Pilot Program to the full Taskforce on August 3,2011. The Taskforce met on August 22,2011 and voted to approve the Pilot Program. While certain members abstained from the vote (including the Delaware Electric Cooperative and the Public Service Commission), all non-abstaining members voted in favor of the Pilot Program.

7. The purpose of the Pilot Program is to assist in the creation of a market for SRECs in Delaware and to provide a mechanism for the procurement of SRECs to ensure that retail electricity suppliers meet the requirements set forth in REPSA. The key aspects of the Pilot Program are highlighted below.

A. Term of the Pilot Program

8. The Pilot Program is initially designed to meet only the SREC requirements for compliance year 2011 (Exhibit I at p. 4) and is subject to ongoing evaluation and revision (Exhibit I at p. 7) to ensure the Pilot Program is operating and meeting the goals set for the Taskforce in REP SA.

B. Public Bidding Administered by the SEU

9. The Pilot Program will utilize a public solicitation for SRECs for different categories of solar generators based on their capacity. (Exhibit I at p. 4). The Taskforce has already developed the bid form, which is included in Pilot Program (Exhibit 1, Appendix A). The SEU will administer all aspects of the bid process for each utility that decides to participate in the Pilot Program. The use of the SEU to fulfill this role allows one central entity to manage the program but also allows the SEU to take advantage of its banking rights under REPSA as the SEU will procure the SRECs from various solar generators and resell them to participating utilities.

10. Delmarva Power intends to participate in the Pilot Program and is currently involved in contract negotiations with the SEU. Furthermore, because Delmarva Power is the only participating utility at this time, the estimates for procurement set forth below are based Delmarva Power’s projected need for SRECs in compliance year 2011.

C. Procurement of SRECs from 4 Tiers of Solar Generators

11. The Pilot Program identifies 4 tiers (one of which has 2 levels) of solar generators from which the SEU will solicit bids and procure SRECs. (Exhibit I at p. 7). Those tiers are as follows: (i) Tier I is for generation units <= 50 kW; (ii) Tier 2A is for generation units > 50 kW to <= 250 kW; (iii) Tier 2B is for generation units > 250 kW to <= 500 kW; (iv) Tier 3 is for generation units > 500 kW to <= 2 MW; and (v) Tier 4 is for generation units >= 2MW.

12. As the Commission is aware, Delmarva Power currently has a contract to procure a large number of SRECs from the Dover Sun Park, which is classified as a Tier 4 solar generator. Delmarva Power does not have a need for further SRECs from a Tier 4 solar generator and, therefore, Tier 4 will not be utilized during the first year ofthe Pilot Program.

13. Based on Delmarva Power’s projected load for compliance year 2011, SRECs will be procured from the various tiers in the Pilot Program as follows:

Tier Size (kW) Number of SRECs Percentage of Total SRECs
1 <50 2,972 13.4%
2a 50 – 250 2,000 9.1%
2b 250 – 500 2,000 9.1%
3 500 – 2,000 4,500 20.4%
4 >2,000 10,600 48%

D. Standard Transfer Agreements and Other Requirements

14. The Taskforce has developed a standard Transfer Agreement (Exhibit 1 at Appendix B) that will be executed by the SEU and each solar generator selected through the public bidding process. Each SREC Transfer Agreement will have a term of 20 years. (Exhibit 1 at p. 11). The use of a standard agreement ensures consistency across all projects and also reduces transaction costs for all involved.

15. In addition to standard Transfer Agreements, bids will only be accepted from projects with an “Accepted Completed Solar System Interconnection Application” letter dated after December 1, 2010. (Exhibit 1 at p. 6). This requirement ensures that the Taskforce is meeting its goal of supporting the growth of renewable energy markets in Delaware.

16. Furthermore, each bidder, regardless of tier, will be required to provide a binding estimate of the SREC quantity to be generated by the proposed facility. Each selected bidder will be required to sell a minimum amount ofSRECs to the SEU. (See Exhibit I at pp. 11-12). If a Tier 1 or Tier 2 solar generator produces more than 110% of its estimated SRECs, the SEU will have the option to determine whether or not to purchase the surplus SRECs. However, if a Tier 3 solar generator produces more than 110% of its estimated SRECs, those SRECs will remain with the solar generator, who shall have the right to sell the SRECs in any manner it deems appropriate. (ld.). This provides a level of certainty concerning the number of SRECs to be procured pursuant to the Pilot Program.

E. Procurement from Tier 1 and Tier 2A Solar Generators

17. The SEU will issue a solicitation for bids from Tier 1 and Tier 2A solar generators. The solicitation will remain open for 5 business days. (Exhibit 1. at p. 17). The SEU will be responsible for reviewing all applications and ensuring compliance with the requirements set forth in the Pilot Program. If, during the 5 business day period, the SEU receives bids that exceed the number of SRECs required for the Pilot Program, the SEU will utilize a lottery system as described in the Pilot Program, giving preference to those solar generators that have claimed both the Delaware Equipment Bonus and the Delaware Workforce Bonus. (Exhibit I at p. 18).

18. In addition to the use of the standard Transfer Agreement, For Tier 1 and Tier 2A projects, the Pilot Program sets the pricing for SRECs procured from those Tiers. (Exhibit 1 at p. 22). The subcommittee spent considerable time reviewing various scenarios and developing the pricing for the Pilot Program. To develop the pricing, the subcommittee utilized the PV Planner software (See Exhibit 1 at p. 21) as well as the assistance of Dr. Kurdgelashvilli and Barry Sheingold.

F. Procurement from Tier 2B and 3 Solar Generators

19. Tiers 2B and 3 will be subject to a competitive bidding process. (Exhibit 1 at p. 19). The SEU will administer and be responsible for the selections of Tier 2B and 3 solar generators, awarding Transfer Agreements to the projects with the lowest bids. (Id.). In order for a Tier 2B or Tier 3 bid to qualify, it must contain a fixed price for the first 10 years of the Transfer Agreement and thereafter will be subject to the fixed pricing set in the Pilot Program. (Exhibit 1 at pp. 19, 22).

20. In the event multiple bids are received at the same price, the SEU will allow the bidders five business days to reduce their price. (Exhibit 1 at p. 19). If a tie remains, the SEU will award contracts on the basis of specific requirements set forth in the Pilot Program. (Exhibit 1 at p. 20).

21. In any event, the SEU is not obligated to accept any Tier 2B or 3 bid with a price in excess of $280 per SREC. (Jd. at p. 19). If the SEU is inclined to accept a bid that exceeds $280 per SREC, the participating electricity provider will have the option to present the bid to the Commission for the purposes of passing the cost of such a procurement on to consumers. (Jd. ).

III. Request for Expedition and Approval

22. In order to immediately begin the public bidding contemplated by the Pilot Program for compliance year 2011, Delmarva Power respectfully requests that this Application be handled on an expedited basis such that it can be presented to the Commission on October 31 , 201 1 or as soon thereafter as possible.

23. Accordingly, because Delmarva Power and the Taskforce believe the Pilot Program satisfies the goals set forth by REPSA and, as demonstrated above, is in the public interest, Delmarva Power respectfully requests that the Commission approve the Pilot Program attached as Exhibit 1.

WHEREFORE, for the foregoing reasons, Delmarva Power respectfully requests that the Pilot Program be approved.