BILL NUMBER: SB 107	CHAPTERED
	BILL TEXT

	CHAPTER  464
	FILED WITH SECRETARY OF STATE  SEPTEMBER 26, 2006
	APPROVED BY GOVERNOR  SEPTEMBER 26, 2006
	PASSED THE SENATE  AUGUST 31, 2006
	PASSED THE ASSEMBLY  AUGUST 31, 2006
	AMENDED IN ASSEMBLY  AUGUST 29, 2006
	AMENDED IN ASSEMBLY  AUGUST 22, 2006
	AMENDED IN ASSEMBLY  AUGUST 7, 2006
	AMENDED IN ASSEMBLY  AUGUST 30, 2005
	AMENDED IN ASSEMBLY  JULY 13, 2005
	AMENDED IN ASSEMBLY  JUNE 21, 2005
	AMENDED IN SENATE  MAY 4, 2005
	AMENDED IN SENATE  APRIL 19, 2005

INTRODUCED BY   Senators Simitian and Perata
   (Principal coauthor: Assembly Member Levine)
   (Coauthors: Assembly Members Blakeslee and Cohn)

                        JANUARY 20, 2005

   An act to amend Sections 25620.1, 25740, 25741, 25742, 25743,
25746, and 25751 of, to add Sections 25470.5 and 25744.5 to, and to
repeal Sections 25745 and 25749 of, the Public Resources Code, and to
amend Sections 387, 399.11, 399.12, 399.13, 399.14, and 399.15 of,
to add Article 9 (commencing with Section 635) to Chapter 3 of Part 1
of Division 1 of, to add and repeal Section 2854 of, and to repeal
and add Section 399.16 of, the Public Utilities Code, relating to
energy.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 107, Simitian  Renewable energy: Public Interest Energy
Research, Demonstration, and Development Program.
   (1) Existing law expresses the intent of the Legislature, in
establishing the Renewable Energy Resources Program, to increase the
amount of renewable electricity generated per year, so that it equals
at least 17% of the total electricity generated for consumption in
California per year by 2006.
   This bill would revise and recast that intent language so that the
amount of electricity generated per year from eligible renewable
energy resources is increased to an amount that equals at least 20%
of the total electricity sold to retail customers in California per
year by December 31, 2010. The bill would make conforming changes
related to this provision.
   (2) The Public Utilities Act imposes various duties and
responsibilities on the California Public Utilities Commission (CPUC)
with respect to the purchase of electricity and requires the CPUC to
review and adopt a procurement plan and a renewable energy
procurement plan for each electrical corporation pursuant to the
California Renewables Portfolio Standard Program. The program
requires that a retail seller of electricity, including electrical
corporations, community choice aggregators, and electric service
providers, but not including local publicly owned electric utilities,
purchase a specified minimum percentage of electricity generated by
eligible renewable energy resources, as defined, in any given year as
a specified percentage of total kilowatthours sold to retail end-use
customers each calendar year (renewables portfolio standard). The
renewables portfolio standard requires each electrical corporation to
increase its total procurement of eligible renewable energy
resources by at least an additional 1% of retail sales per year so
that 20% of its retail sales are procured from eligible renewable
energy resources no later than December 31, 2017.
   This bill would instead require that each retail seller, as
defined, increase its total procurement of eligible renewable energy
resources by at least an additional 1% of retail sales per year so
that 20% of its retail sales are procured from eligible renewable
energy resources no later than December 31, 2010.
   (3) Existing law requires the State Energy Resources Conservation
and Development Commission (Energy Commission) to certify eligible
renewable energy resources, to design and implement an accounting
system to verify compliance with the renewables portfolio standard by
retail sellers, and to allocate and award supplemental energy
payments to cover above-market costs of renewable energy.
   This bill would require the Energy Commission, if it provides
funding for a regional accounting system to verify compliance with
the renewables portfolio standard by retail sellers, to recover all
costs from user fees. The bill would require the Energy Commission to
develop tracking, accounting, verification, and enforcement
mechanisms for renewable energy credits, as defined. The bill would
specify that facilities located out of state shall not be eligible
for supplemental energy payments unless certain requirements are met,
and would limit awards to those facilities to 10% of funds
available. The bill would require that deliveries of electricity from
an eligible renewable energy resource under any electricity purchase
agreement with a retail seller executed before January 1, 2002, be
tracked and included in the baseline quantity of eligible renewable
energy resources of the purchasing retail seller. The bill would
require that electricity generated pursuant to a prescribed federal
act and pursuant to a purchase contract executed on or after January
1, 2002, count towards the renewables portfolio standard requirements
of the retail seller. The bill would provide for the tracking of
deliveries under these purchase contracts through a prescribed
accounting system. The bill would make other technical and conforming
changes.
   Existing law provides that if supplemental energy payments from
the Energy Commission, in combination with the market prices approved
by the CPUC, are insufficient to cover any above-market costs of
eligible renewable energy resources, the CPUC is required to allow a
retail seller to limit its annual procurement obligation to the
quantity of eligible renewable energy resources that can be procured
with available supplemental energy payments.
   This bill would require the CPUC to adopt flexible rules allowing
a retail seller to limit its annual procurement obligation to the
quantity of eligible renewable energy resources that can be delivered
by existing transmission if the CPUC finds that the retail seller
has undertaken all reasonable efforts to utilize flexible delivery
points, ensure the availability of any needed transmission capacity,
and, if an electric corporation, to construct needed transmission
facilities.
   (4) The Public Utilities Act permits the Energy Commission to
consider an electric generating facility that is located outside the
state to be an eligible renewable energy resource if it meets
specific criteria.
   This bill would delete that provision within the act and would
amend the definition of an "in-state renewable electricity generation
facility" within related provisions prescribing duties of the Energy
Commission to encompass certain facilities located outside the
state.
   (5) Under existing law, the governing board of a local publicly
owned electric utility is responsible for implementing and enforcing
a renewables portfolio standard that recognizes the intent of the
Legislature to encourage renewable energy resources, while taking
into consideration the effect of the standard on rates, reliability,
and financial resources and the goal of environmental improvement.
Existing law requires the governing board of a local publicly owned
electric utility to annually report certain information relative to
renewable energy resources to its customers.
   This bill would additionally require that the governing board of a
local publicly owned electric utility annually report the utility's
status in implementing a renewables portfolio standard and progress
toward attaining the standard to its customers and to report to the
Energy Commission the information that the governing board is
required to annually report to their customers. These additional
reporting requirements would thereby impose a state-mandated local
program.
   (6) Under the Public Utilities Act, the CPUC requires electrical
corporations to identify a separate rate component to fund programs
that enhance system reliability and provide in-state benefits. This
rate component is a nonbypassable element of local distribution and
collected on the basis of usage. The funds are collected to support
cost-effective energy efficiency and conservation activities, public
interest research and development not adequately provided by
competitive and regulated markets, and renewable energy resources
(renewable energy public goods charge).  Existing law requires the
Energy Commission to transfer funds collected from the renewable
energy public goods charge into the Renewable Resource Trust Fund and
establishes certain accounts in the fund to carry out certain
renewable energy purposes.
   This bill would require the Energy Commission, in carrying out the
renewable energy resources program, to optimize public investment
and ensure that the most cost-effective and efficient investments in
renewable energy resources are vigorously pursued with a long-term
goal of achieving a fully competitive and self-sustaining supply of
electricity generated from renewable sources. The bill would state
that a near term objective of the program is to increase the quantity
of electricity generated by in-state renewable electricity
generation facilities, while protecting system reliability, fostering
resource diversity, and obtaining the greatest environmental
benefits for California residents with an additional objective to
identify and support emerging renewable energy technologies that have
the greatest near-term commercial promise and that merit targeted
assistance. The bill would make legislative recommendations for
allocations among specified renewable energy resources.
   (7) Under existing law, 51.5% of the money collected as part of
the renewable energy public goods charge is required to be used for
programs designed to foster the development of new in-state renewable
electricity generation facilities, and to secure for the state the
environmental, economic, and reliability benefits that operation of
those facilities will provide. Existing law also provides that any of
those funds used for new in-state renewable electricity generation
facilities are required to be expended in accordance with a specified
report of the Energy Commission to the Legislature, subject to
certain requirements, including the awarding of supplemental energy
payments.
   This bill would require that these funds be awarded only to a
project that is selected by an electrical corporation pursuant to a
competitive solicitation procedure found by the CPUC to comply with
the California Renewables Portfolio Standard Program and that the
project participant has entered into an electricity purchase
agreement resulting from that solicitation that is approved by the
CPUC. The bill would authorize certain projects supplying electricity
to retail sellers, as defined, to the extent the retail seller is
servicing load that is within the distribution area of an electrical
corporation and subject to the renewable energy public goods charge,
to receive supplemental energy payments under certain circumstances.
The bill would prohibit the Energy Commission from awarding
supplemental energy payments for the sale or purchase of renewable
energy credits or to service load that is not subject to the
renewable energy public goods charge. The bill would incorporate the
modified definition of an "in-state renewable electricity generation
facility."
   (8) Existing law requires that 20% of the funds collected as part
of the renewable energy public goods charge be used for a program
designed to improve the competitiveness of existing in-state
renewable electricity generation facilities and to secure for the
state specified benefits.
   This bill would reduce that amount to 10% of the funds collected
and specify conditions under which certain facilities would be
eligible for funding.
   (9) Existing law requires that 171/2% of the funds collected as
part of the renewable energy public goods charge be deposited into
the Emerging Renewables Resources Account, and be used for a
multiyear, consumer-based program to foster the development of
emerging renewable technologies in distributed generation
applications.
   Existing law requires the Energy Commission, by January 1, 2008,
and in consultation with the CPUC, local publicly owned electric
utilities, and interested members of the public, to establish and
thereafter revise eligibility criteria for solar energy systems, as
defined, and to establish conditions for ratepayer funded incentives
that are applicable to the California Solar Initiative, as defined.
   This bill would require that the Energy Commission, in allocating
and using moneys in the Emerging Renewables Resources Account and the
Renewable Resource Trust Fund to fund photovoltaic and solar thermal
electric technologies, to utilize the eligibility criteria and
conditions for solar energy systems that are applicable to the
California Solar Initiative.
   (10) Existing law establishes the Customer-Credit Renewable
Resource Purchases Account in the Renewable Resource Trust Fund,
requires that 10% of the money collected under the renewable energy
public goods charge be deposited into the account and be used for
credits to customers that entered into a direct transaction on or
before September 20, 2001, for purchases of electricity produced by
registered in-state renewable electricity generating facilities.
   This bill would delete these provisions.
   (11) Existing law requires the use of standard terms and
conditions by all electrical corporations in contracting for eligible
renewable energy resources.
   This bill would require that those terms and conditions include
the requirement that, no later than 6 months after the CPUC's
approval of an electricity purchase agreement, the following
information about the agreement be disclosed by the CPUC: party
names, resource type, project location, and project capacity.
   (12) This bill would require an electrical corporation or local
publicly owned electric utility to adopt certain strategies in a
long-term plan or a procurement plan, as applicable, to achieve
efficiency in the use of fossil fuels and to address carbon
emissions, as specified.
   (13) This bill would delete certain obsolete and duplicative
provisions and make technical and conforming changes.
   (14) This bill would require the CPUC, in consultation with the
Energy Commission, to review the impact of allowing supplemental
energy payments to be applied toward contracts for the procurement of
eligible renewable energy resources that are of a duration of less
than 10 years, and, by June 30, 2007, to report to the Legislature
with the results of the review, including certain matters. The bill
would require the PUC to report to the Legislature, on or before
January 1, 2008, on the feasibility, desirability, and design of
performance-based incentives for solar energy systems of less than 30
kilowatts.
   (15) Existing law establishes the Public Interest Research,
Development, and Demonstration Fund in the State Treasury, and
provides that the money collected by the public goods charge to
support public interest research and development not adequately
provided by competitive and regulated markets, be deposited in the
fund for use by the Energy Commission to develop, implement, and
administer the Public Interest Research, Development, and
Demonstration Program to develop technologies which will improve
environmental quality, enhance electrical system reliability,
increase efficiency of energy-using technologies, lower electrical
system costs, or provide other tangible benefits.  The Energy
Commission is required to adopt a portfolio approach for the program
that accomplishes specified objectives.
   This bill would state that the general goal of the program is to
develop, and help bring to market, energy technologies that provide
increased environmental benefits, greater system reliability, and
lower system costs, and that provide tangible benefits to electrical
utility customers through specified investments. The bill would
require that the portfolio approach used by the Energy Commission
additionally ensure an open project selection process, encourage the
awarding of research funding for a diverse type of research as well
as a diverse award recipient base, equally considers research
proposals from the public and private sectors, and be coordinated
with other related research programs.
   (16) Existing law makes a violation of the Public Utilities Act or
a violation of an order of the CPUC a crime.
   Certain of the provisions of this bill are a part of the act and
an order of the CPUC would be required to implement these provisions.
Because a violation of the provisions of the bill that are part of
the act or of any CPUC order implementing these provisions would be a
crime, this bill would impose a state-mandated local program by
creating new crimes.
  (17) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that with regard to certain mandates no
reimbursement is required by this act for a specified reason.
   With regard to any other mandates, this bill would provide that,
if the Commission on State Mandates determines that the bill contains
costs so mandated by the state, reimbursement for those costs shall
be made pursuant to the statutory provisions noted above.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 25620.1 of the Public Resources Code is amended
to read:
   25620.1.  (a) The commission shall develop, implement, and
administer the Public Interest Research, Development, and
Demonstration Program that is hereby created. The program shall
include a full range of research, development, and demonstration
activities that, as determined by the commission, are not adequately
provided for by competitive and regulated markets. The commission
shall administer the program consistent with the policies of this
chapter.
   (b) The general goal of the program is to develop, and help bring
to market, energy technologies that provide increased environmental
benefits, greater system reliability, and lower system costs, and
that provide tangible benefits to electrical utility customers
through investments in the following:
   (1) Advanced electricity and natural gas transportation
technologies that reduce air pollution and emissions of greenhouse
gases beyond applicable standards, and that benefit electricity and
natural gas ratepayers.
   (2) Increased energy efficiency in buildings, appliances,
lighting, and other applications beyond applicable standards, and
that benefit electrical utility customers.
   (3) Advanced electricity generation technologies that exceed
applicable standards to increase reductions in emissions of
greenhouse gases from electricity generation, and that benefit
electric utility customers.
   (4) Advanced electricity technologies that reduce or eliminate
consumption of water or other finite resources, increase use of
renewable energy resources, or improve transmission or distribution
of electricity generated from renewable energy resources.
   (c) To achieve the goals established in subdivision (b), the
commission shall adopt a portfolio approach for the program that does
all of the following:
   (1) Effectively balances the risks, benefits, and time horizons
for various activities and investments that will provide tangible
energy or environmental benefits for California electricity
customers.
   (2) Emphasizes innovative energy supply and end-use technologies,
focusing on their reliability, affordability, and environmental
attributes.
   (3) Includes projects that have the potential to enhance
transmission and distribution capabilities.
   (4) Includes projects that have the potential to enhance the
reliability, peaking power, and storage capabilities of renewable
energy.
   (5) Demonstrates a balance of benefits to all sectors that
contribute to the funding under Section 399.8 of the Public Utilities
Code.
   (6) Addresses key technical and scientific barriers.
   (7) Demonstrates a balance between short-term, mid-term, and
long-term potential.
   (8) Ensures that prior, current, and future research not be
unnecessarily duplicated.
   (9) Provides for the future market utilization of projects funded
through the program.
   (10) Ensures an open project selection process and encourages the
awarding of research funding for a diverse type of research as well
as a diverse award recipient base and equally considers research
proposals from the public and private sectors.
   (11) Coordinates with other related research programs.
   (d) The term "award," as used in this chapter, may include, but is
not limited to, contracts, grants, interagency agreements, loans,
and other financial agreements designed to fund public interest
research, demonstration, and development projects or programs.
  SEC. 2.  Section 25740 of the Public Resources Code is amended to
read:
   25740.  It is the intent of the Legislature in establishing this
program, to increase the amount of electricity generated from
eligible renewable energy resources per year, so that it equals at
least 20 percent of total retail sales of electricity in California
per year by December 31, 2010.
  SEC. 3.  Section 25741 of the Public Resources Code is amended to
read:
   25741.  As used in this chapter, the following terms have the
following meaning:
   (a) "Delivered" and "delivery" mean the electricity output of an
in-state renewable electricity generation facility that is used to
serve end-use retail customers located within the state. Subject to
verification by the accounting system established by the commission
pursuant to subdivision (b) of Section 399.13 of the Public Utilities
Code, electricity shall be deemed delivered if it is either
generated at a location within the state, or is scheduled for
consumption by California end-use retail customers. Subject to
criteria adopted by the commission, electricity generated by an
eligible renewable energy resource may be considered "delivered"
regardless of whether the electricity is generated at a different
time from consumption by a California end-use customer.
   (b) "In-state renewable electricity generation facility" means a
facility that meets all of the following criteria:
   (1) The facility uses biomass, solar thermal, photovoltaic, wind,
geothermal, fuel cells using renewable fuels, small hydroelectric
generation of 30 megawatts or less, digester gas, municipal solid
waste conversion, landfill gas, ocean wave, ocean thermal, or tidal
current, and any additions or enhancements to the facility using that
technology.
   (2) The facility satisfies one of the following requirements:
   (A) The facility is located in the state or near the border of the
state with the first point of connection to the transmission network
within this state and electricity produced by the facility is
delivered to an in-state location.
   (B) The facility has its first point of interconnection to the
transmission network outside the state and satisfies all of the
following requirements:
   (i) It is connected to the transmission network within the Western
Electricity Coordinating Council (WECC) service territory.
   (ii) It commences initial commercial operation after January 1,
2005.
   (iii) Electricity produced by the facility is delivered to an
in-state location.
   (iv) It will not cause or contribute to any violation of a
California environmental quality standard or requirement.
   (v) If the facility is outside of the United States, it is
developed and operated in a manner that is as protective of the
environment as a similar facility located in the state.
   (vi) It participates in the accounting system to verify compliance
with the renewables portfolio standard by retail sellers, once
established by the Energy Commission pursuant to subdivision (b) of
Section 399.13 of the Public Utilities Code.
   (C) The facility meets the requirements of clauses (i), (iii),
(iv), (v), and (vi) in subparagraph (B), but does not meet the
requirements of clause (ii) because it commences initial operation
prior to January 1, 2005, if the facility satisfies either of the
following requirements:
   (i) The electricity is from incremental generation resulting from
expansion or repowering of the facility.
   (ii) The facility has been part of the existing baseline of
eligible renewable energy resources of a retail seller established
pursuant to paragraph (2) of subdivision (b) of Section 399.15 of the
Public Utilities Code.
   (3) For the purposes of this subdivision, "solid waste conversion"
means a technology that uses a noncombustion thermal process to
convert solid waste to a clean-burning fuel for the purpose of
generating electricity, and that meets all of the following criteria:

   (A) The technology does not use air or oxygen in the conversion
process, except ambient air to maintain temperature control.
   (B) The technology produces no discharges of air contaminants or
emissions, including greenhouse gases as defined in Section 42801.1
of the Health and Safety Code.
   (C) The technology produces no discharges to surface or
groundwaters of the state.
   (D) The technology produces no hazardous wastes.
   (E) To the maximum extent feasible, the technology removes all
recyclable materials and marketable green waste compostable materials
from the solid waste stream prior to the conversion process and the
owner or operator of the facility certifies that those materials will
be recycled or composted.
   (F) The facility at which the technology is used is in compliance
with all applicable laws, regulations, and ordinances.
   (G) The technology meets any other conditions established by the
commission.
   (H) The facility certifies that any local agency sending solid
waste to the facility diverted at least 30 percent of all solid waste
it collects through solid waste reduction, recycling, and
composting. For purposes of this paragraph, "local agency" means any
city, county, or special district, or subdivision thereof, which is
authorized to provide solid waste handling services.
   (c) "Procurement entity" means any person or corporation that
enters into an agreement with a retail seller to procure eligible
renewable energy resources pursuant to subdivision (f) of Section
399.14 of the Public Utilities Code.
   (d) "Renewable energy public goods charge" means that portion of
the nonbypassable system benefits charge authorized to be collected
and to be transferred to the Renewable Resource Trust Fund pursuant
to the Reliable Electric Service Investments Act (Article 15
(commencing with Section 399) of Chapter 2.3 of Part 1 of Division 1
of the Public Utilities Code).
   (e) "Report" means the report entitled "Investing in Renewable
Electricity Generation in California" (June 2001, Publication Number
P500-00-022) submitted to the Governor and the Legislature by the
commission.
   (f) "Retail seller" means a "retail seller" as defined in Section
399.12 of the Public Utilities Code.
  SEC. 4.  Section 25740.5 is added to the Public Resources Code, to
read:
   25740.5.  (a) The commission shall optimize public investment and
ensure that the most cost-effective and efficient investments in
renewable energy resources are vigorously pursued.
   (b) The commission's long-term goal shall be a fully competitive
and self-sustaining supply of electricity generated from renewable
sources.
   (c) The program objective shall be to increase, in the near term,
the quantity of California's electricity generated by in-state
renewable electricity generation facilities, while protecting system
reliability, fostering resource diversity, and obtaining the greatest
environmental benefits for California residents.
   (d) An additional objective of the program shall be to identify
and support emerging renewable technologies in distributed generation
applications that have the greatest near-term commercial promise and
that merit targeted assistance.
   (e) The Legislature recommends allocations among all of the
following:
   (1) (A) Except as provided in subparagraph (B), production
incentives for new in-state renewable electricity generation
facilities, including repowered or refurbished facilities.
   (B) Allocations shall not be made for electricity that is
generated by an in-state renewable electricity generation facility
that remains under an electricity purchase contract with an
electrical corporation originally entered into prior to September 24,
1996, whether amended or restated thereafter.
   (C) Notwithstanding subparagraph (B), production incentives may be
allowed in any month for incremental new electricity generated by an
in-state renewable electricity generation facility that is repowered
or refurbished, where the electricity is delivered under an
electricity purchase contract with an electrical corporation
originally entered into prior to September 24, 1996, whether amended
or restated thereafter, if all of the following occur:
   (i) The facility's electricity purchase contract provides that all
electricity delivered and sold under the contract is paid at a price
that does not exceed the Public Utilities Commission approved
short-run avoided cost of energy.
   (ii) Either of the following is true:
   (I) The electricity purchase contract is amended to provide that
the kilowatthours used to determine the capacity payment in any
time-of-delivery period in any month under the contract shall be
equal to the actual kilowatthour production, but no greater than the
five-year average of the kilowatthours delivered for the
corresponding time-of-delivery period and month, in the years 1994 to
1998, inclusive.
   (II) The facility's installed capacity as of December 31, 1998, is
less than 75 percent of the nameplate capacity as stated in the
electricity purchase contract, the electricity purchase contract is
amended to provide that the kilowatthours used to determine the
capacity payment in any time-of-delivery period in any month under
the contract shall be equal to the actual kilowatthour production,
but no greater than the product of the five-year average of the
kilowatthours delivered for the corresponding time-of-delivery period
and month, in the years 1994 to 1998, inclusive, and the ratio of
installed capacity as of December 31 of the previous year, but not to
exceed contract nameplate capacity, to the installed capacity as of
December 31, 1998.
   (iii) The production incentive is payable only with respect to the
kilowatthours delivered in a particular month that exceeds the
corresponding five-year average calculated pursuant to clause (ii).
   (2) Rebates, buydowns, or equivalent incentives for emerging
renewable technologies.
   (3) Customer education.
   (4) Incentives for reducing fuel costs, that are confirmed to the
satisfaction of the commission, at solid fuel biomass energy
facilities in order to provide demonstrable environmental and public
benefits, including improved air quality.
   (5) Solar thermal generating resources that enhance the
environmental value or reliability of the electrical system and that
require financial assistance to remain economically viable, as
determined by the commission. The commission may require financial
disclosure from applicants for purposes of this paragraph.
   (6) Specified fuel cell technologies, if the commission makes all
of the following findings:
   (A) The specified technologies have similar or better air
pollutant characteristics than renewable technologies in the report
made pursuant to Section 25748.
   (B) The specified technologies require financial assistance to
become commercially viable by reference to wholesale generation
prices.
   (C) The specified technologies could contribute significantly to
the infrastructure development or other innovation required to meet
the long-term objective of a self-sustaining, competitive supply of
electricity generated from renewable sources.
   (7) Existing wind-generating resources, if the commission finds
that the existing wind-generating resources are a cost-effective
source of reliable energy and environmental benefits compared with
other in-state renewable electricity generation facilities, and that
the existing wind-generating resources require financial assistance
to remain economically viable. The commission may require financial
disclosure from applicants for the purposes of this paragraph.
   (f) Notwithstanding any other provision of law, moneys collected
for renewable energy pursuant to Article 15 (commencing with Section
399) of Chapter 2.3 of Part 1 of Division 1 of the Public Utilities
Code shall be transferred to the Renewable Resource Trust Fund.
Moneys collected between January 1, 2007, and January 1, 2012, shall
be used for the purposes specified in this chapter.
  SEC. 5.  Section 25742 of the Public Resources Code is amended to
read:
   25742.  (a) Ten percent of the funds collected pursuant to the
renewable energy public goods charge shall be used for programs that
are designed to achieve fully competitive and self-sustaining
existing in-state renewable electricity generation facilities, and to
secure for the state the environmental, economic, and reliability
benefits that continued operation of those facilities will provide
during the 2007-2011 investment cycle. Eligibility for incentives
under this section shall be limited to those technologies found
eligible for funds by the commission pursuant to paragraphs (4), (5),
and (7) of subdivision (e) of Section 25740.5.
   (b) Any funds used to support in-state renewable electricity
generation facilities pursuant to this section shall be expended in
accordance with the provisions of this chapter, including the
following conditions:
   (1) The commission shall establish a production incentive, which
shall not exceed payment caps established by the commission,
representing the difference between target prices and the price paid
for electricity, if sufficient funds are available. If there are
insufficient funds in any payment period to pay either the difference
between the target and price paid for electricity or the payment
caps, production incentives shall be based on the amount determined
by dividing available funds by eligible generation.
   (2) The commission may establish a time-differentiated incentive
structure that encourages plants to run the maximum feasible amount
of time and that provides a higher incentive when the plants are
receiving the lowest price.
   (3) The commission may consider inflation and production costs.
   (c) Facilities that are eligible to receive funding pursuant to
this section shall be registered in accordance with criteria
developed by the commission and those facilities shall not receive
payments for any electricity produced that is used on site.
   (d) (1) The commission shall award funding to eligible facilities
based on a facility's individual need. In assessing a facility's
individual need, the commission shall, to the extent feasible,
consider all of the following:
   (A) The amount of the funds being considered for an award to the
facility.
   (B) The cumulative amount of funds the facility has received
previously from the commission and other state sources.
   (C) The value of any current federal or state tax credits.
   (D) The facility's contract price for energy and capacity.
   (E) The likelihood that the award will make the facility
competitive and self-sustaining within the 2007-2011 investment
cycle.
   (F) Any other criteria as determined by the commission.
   (2) The assessment shall also consider the public benefits
provided by the operation of the facility.
   (3) The commission shall use its assessment of the facility's
individual need to determine the value of an award to the public
relative to other renewable energy investment alternatives.
   (4) The commission shall compile its findings and report them to
the Legislature in the reports prepared pursuant to Section 25748.
  SEC. 6.  Section 25743 of the Public Resources Code is amended to
read:
   25743.  (a) Fifty-one and one-half percent of the money collected
pursuant to the renewable energy public goods charge shall be used
for programs designed to foster the development of new in-state
renewable electricity generation facilities, and to secure for the
state the environmental, economic, and reliability benefits that
operation of those facilities will provide.
   (b) Any funds used for new in-state renewable electricity
generation facilities pursuant to this section shall be expended in
accordance with the report, subject to all of the following
requirements:
   (1) In order to cover the above market costs of eligible renewable
energy resources as approved by the Public Utilities Commission and
selected by retail sellers to fulfill their obligations under Article
16 (commencing with Section 399.11) of Chapter 2.3 of Part 1 of
Division 1 of the Public Utilities Code, the commission shall award
funds in the form of supplemental energy payments, subject to the
following criteria:
   (A) The commission may establish caps on supplemental energy
payments. The caps shall be designed to provide for a viable energy
market capable of achieving the goals of Article 16 (commencing with
Section 399.11) of Chapter 2.3 of Part 1 of Division 1 of the Public
Utilities Code. The commission may waive application of the caps to
accommodate a facility if it is demonstrated to the satisfaction of
the commission that operation of the facility would provide
substantial economic and environmental benefits to end-use customers
subject to the renewable energy public goods charge.
   (B) Supplemental energy payments shall be awarded only to
facilities that are eligible for funding under this section.
   (C) Supplemental energy payments awarded to facilities selected by
a retail seller or procurement entity pursuant to Article 16
(commencing with Section 399.11) of Chapter 2.3 of Part 1 of Division
1 of the Public Utilities Code shall be paid for no longer than 10
years, but shall, subject to the payment caps in subparagraph (A), be
equal to the cumulative above-market costs relative to the
applicable market price referent at the time of initial contracting,
over the duration of the contract with the retail seller or
procurement entity.
   (D) The commission shall reduce or terminate supplemental energy
payments for projects that fail either to commence and maintain
operations consistent with the contractual obligations to an
electrical corporation, or that fail to meet eligibility
requirements.
   (E) Funds shall be managed in an equitable manner in order for
retail sellers to meet their obligation under Article 16 (commencing
with Section 399.11) of Chapter 2.3 of Part 1 of Division 1 of the
Public Utilities Code.
   (F) A project selected by an electrical corporation may receive
supplemental energy payments only if it results from a competitive
solicitation that is found by the Public Utilities Commission to
comply with the California Renewables Portfolio Standard Program
under Article 16 (commencing with Section 399.11) of Chapter 2.3 of
Part 1 of Division 1 of the Public Utilities Code, and the project
has entered into an electricity purchase agreement resulting from
that solicitation, that is approved by the Public Utilities
Commission. A project selected for an electricity purchase agreement
by another retail seller or procurement entity may receive
supplemental energy payments only if the Public Utilities Commission
determines that the selection of the project is consistent with the
results of a least-cost and best-fit process, and the supplemental
energy payments are reasonable in comparison to those paid under
similar contracts with other retail sellers. The commission may not
award supplemental energy payments to service load that is not
subject to the renewable energy public goods charge.
   (G) (i) Supplemental energy payments shall not be awarded for any
purchases of renewable energy credits.
   (ii) Supplemental energy payments shall not be awarded for
electricity purchase agreements that have a duration of less than 10
years. The ineligibility of agreements of less than 10 years duration
for supplemental energy payments does not constitute an
insufficiency in supplemental energy payments pursuant to paragraph
(4) or (5) of subdivision (b) of Section 399.15.
   (2) (A) A facility that is located outside of California shall not
be eligible for funding under this section unless it satisfies the
requirements of this subdivision and the criteria of subparagraph (B)
of paragraph (2) of subdivision (b) of Section 25741.
   (B) No more than 10 percent of the funds available under this
section shall be awarded to facilities located outside of California.

   (3) Facilities that are eligible to receive funding pursuant to
this section shall be registered in accordance with criteria
developed by the commission and those facilities may not receive
payments for any electricity produced that has any of the following
characteristics:
   (A) Is sold under an existing long-term contract with an existing
in-state electrical corporation if the contract includes fixed energy
or capacity payments, except for that electricity that satisfies
subparagraph (C) of paragraph (1) of subdivision (c) of Section 399.6
of the Public Utilities Code.
   (B) Is used onsite or is sold to customers in a manner that
excludes competition transition charge payments, or is otherwise
excluded from competition transition charge payments.
   (C) Is a hydroelectric generation project that will require a new
or increased appropriation of water under Part 2 (commencing with
Section 1200) of Division 2 of the Water Code, or any other provision
authorizing an appropriation of water.
   (D) Is a solid waste conversion facility, unless the facility
meets the criteria established in paragraph (3) of subdivision (b) of
Section 25741 and the facility certifies that any local agency
sending solid waste to the facility is in compliance with Division 30
(commencing with Section 40000), has reduced, recycled, or composted
solid waste to the maximum extent feasible, and shall have been
found by the California Integrated Waste Management Board to have
diverted at least 30 percent of all solid waste through source
reduction, recycling, and composting.
   (4) Eligibility to compete for funds or to receive funds shall be
contingent upon having to sell the electricity generated by the
renewable electricity generation facility to customers subject to the
renewable energy public goods charge.
   (5) The commission may require applicants competing for funding to
post a forfeitable bid bond or other financial guaranty as an
assurance of the applicant's intent to move forward expeditiously
with the project proposed. The amount of any bid bond or financial
guaranty may not exceed 10 percent of the total amount of the funding
requested by the applicant.
   (6) In awarding funding, the commission may provide preference to
projects that provide tangible demonstrable benefits to communities
with a plurality of minority or low-income populations.
   (c) Repowered existing facilities shall be eligible for funding
under this subdivision if the capital investment to repower the
existing facility equals at least 80 percent of the value of the
repowered facility.
   (d) Facilities engaging in the direct combustion of municipal
solid waste or tires are not eligible for funding under this
subdivision.
   (e) Production incentives awarded under this subdivision prior to
January 1, 2002, shall commence on the date that a project begins
electricity production, provided that the project was operational
prior to January 1, 2002, unless the commission finds that the
project will not be operational prior to January 1, 2002, due to
circumstances beyond the control of the developer. Upon making a
finding that the project will not be operational due to circumstances
beyond the control of the developer, the commission shall pay
production incentives over a five-year period,
                           commencing on the date of operation,
provided that the date that a project begins electricity production
may not extend beyond January 1, 2007.
   (f) Facilities generating electricity from biomass energy shall be
considered an in-state renewable electricity generation facility to
the extent that they report to the commission the types and
quantities of biomass fuels used and certify to the satisfaction of
the commission that fuel utilization is limited to the following:
   (1) Agricultural crops and agricultural wastes and residues.
   (2) Solid waste materials such as waste pallets, crates, dunnage,
manufacturing, and construction wood wastes, landscape or
right-of-way tree trimmings, mill residues that are directly the
result of the milling of lumber, and rangeland maintenance residues.

   (3) Wood and wood wastes that meet all of the following
requirements:
   (A) Have been harvested pursuant to an approved timber harvest
plan prepared in accordance with the Z'berg-Nejedly Forest Practice
Act of 1973 (Chapter 8 (commencing with Section 4511) of Part 2 of
Division 4).
   (B) Have been harvested for the purpose of forest fire fuel
reduction or forest stand improvement.
   (C) Do not transport or cause the transportation of species known
to harbor insect or disease nests outside zones of infestation or
current quarantine zones, as identified by the Department of Food and
Agriculture or the Department of Forestry and Fire Protection,
unless approved by the Department of Food and Agriculture and the
Department of Forestry and Fire Protection.
  SEC. 7.  Section 25744.5 is added to the Public Resources Code, to
read:
   25744.5.  The commission shall allocate and use funding available
for emerging renewable technologies pursuant to Section 25744 and
Section 25751 to fund photovoltaic and solar thermal electric
technologies in accordance with eligibility criteria and conditions
established pursuant to Chapter 8.8 (commencing with Section 25780).

  SEC. 8.  Section 25745 of the Public Resources Code is repealed.
  SEC. 9.  Section 25746 of the Public Resources Code is amended to
read:
   25746.  (a) One percent of the money collected pursuant to the
renewable energy public goods charge shall be used in accordance with
this chapter to promote renewable energy and disseminate information
on renewable energy technologies, including emerging renewable
technologies, and to help develop a consumer market for renewable
energy and for small-scale emerging renewable energy technologies.
   (b) If the commission provides funding for a regional accounting
system to verify compliance with the renewable portfolio standard by
retail sellers, pursuant to subdivision (b) of Section 399.13 of the
Public Utilities Code, the commission shall recover all costs from
user fees.
  SEC. 10.  Section 25749 of the Public Resources Code is repealed.

  SEC. 11.  Section 25751 of the Public Resources Code is amended to
read:
   25751.  (a) The Renewable Resource Trust Fund is hereby created in
the State Treasury.
   (b) The following accounts are hereby established within the
Renewable Resource Trust Fund:
   (1) The Existing Renewable Resources Account.
   (2) New Renewable Resources Account.
   (3) Emerging Renewable Resources Account.
   (4) Renewable Resources Consumer Education Account.
   (c) The money in the fund may be expended, only upon appropriation
by the Legislature in the annual Budget Act, for the following
purposes:
   (1) The administration of this article by the state.
   (2) The state's expenditures associated with the accounting system
established by the commission pursuant to subdivision (b) of Section
399.13 of the Public Utilities Code.
   (d) That portion of revenues collected by electrical corporations
for the benefit of in-state operation and development of existing and
new and emerging renewable resource technologies, pursuant to
Section 25740.5, shall be transmitted to the commission at least
quarterly for deposit in the Renewable Resource Trust Fund pursuant
to Section 399.6 of the Public Utilities Code. After setting aside in
the fund money that may be needed for expenditures authorized by the
annual Budget Act in accordance with subdivision (c), the Treasurer
shall immediately deposit money received pursuant to this section
into the accounts created pursuant to subdivision (b) in proportions
designated by the commission for the current calendar year.
Notwithstanding Section 13340 of the Government Code, the money in
the fund and the accounts within the fund are hereby continuously
appropriated to the commission without regard to fiscal year for the
purposes enumerated in this chapter.
   (e) Upon notification by the commission, the Controller shall pay
all awards of the money in the accounts created pursuant to
subdivision (b) for purposes enumerated in this chapter. The
eligibility of each award shall be determined solely by the
commission based on the procedures it adopts under this chapter.
Based on the eligibility of each award, the commission shall also
establish the need for a multiyear commitment to any particular award
and so advise the Department of Finance. Eligible awards submitted
by the commission to the Controller shall be accompanied by
information specifying the account from which payment should be made
and the amount of each payment; a summary description of how payment
of the award furthers the purposes enumerated in this chapter; and an
accounting of future costs associated with any award or group of
awards known to the commission to represent a portion of a multiyear
funding commitment.
   (f) The commission may transfer funds between accounts for
cashflow purposes, provided that the balance due each account is
restored and the transfer does not adversely affect any of the
accounts.
   (g) The Department of Finance shall conduct an independent audit
of the Renewable Resource Trust Fund and its related accounts
annually, and provide an audit report to the Legislature not later
than March 1 of each year for which this article is operative. The
Department of Finance's report shall include information regarding
revenues, payment of awards, reserves held for future commitments,
unencumbered cash balances, and other matters that the Director of
Finance determines may be of importance to the Legislature.
  SEC. 12.  Section 387 of the Public Utilities Code is amended to
read:
   387.  (a) Each governing body of a local publicly owned electric
utility, as defined in Section 9604, shall be responsible for
implementing and enforcing a renewables portfolio standard that
recognizes the intent of the Legislature to encourage renewable
resources, while taking into consideration the effect of the standard
on rates, reliability, and financial resources and the goal of
environmental improvement.
   (b) Each local publicly owned electric utility shall report, on an
annual basis, to its customers and to the State Energy Resources
Conservation and Development Commission, the following:
   (1) Expenditures of public goods funds collected pursuant to
Section 385 for eligible renewable energy resource development.
Reports shall contain a description of programs, expenditures, and
expected or actual results.
   (2) The resource mix used to serve its customers by fuel type.
Reports shall contain the contribution of each type of renewable
energy resource with separate categories for those fuels that are
eligible renewable energy resources as defined in Section 399.12,
except that the electricity is delivered to the local publicly owned
electric utility and not a retail seller. Electricity shall be
reported as having been delivered to the local publicly owned
electric utility from an eligible renewable energy resource when the
electricity would qualify for compliance with the renewables
portfolio standard if it were delivered to a retail seller.
   (3) The utility's status in implementing a renewables portfolio
standard pursuant to subdivision (a) and the utility's progress
toward attaining the standard following implementation.
  SEC. 13.  Section 399.11 of the Public Utilities Code is amended to
read:
   399.11.  The Legislature finds and declares all of the following:

   (a) In order to attain a target of generating 20 percent of total
retail sales of electricity in California from eligible renewable
energy resources by December 31, 2010, and for the purposes of
increasing the diversity, reliability, public health and
environmental benefits of the energy mix, it is the intent of the
Legislature that the commission and the State Energy Resources
Conservation and Development Commission implement the California
Renewables Portfolio Standard Program described in this article.
   (b) Increasing California's reliance on eligible renewable energy
resources may promote stable electricity prices, protect public
health, improve environmental quality, stimulate sustainable economic
development, create new employment opportunities, and reduce
reliance on imported fuels.
   (c) The development of eligible renewable energy resources and the
delivery of the electricity generated by those resources to
customers in California may ameliorate air quality problems
throughout the state and improve public health by reducing the
burning of fossil fuels and the associated environmental impacts and
by reducing in-state fossil fuel consumption.
   (d) The California Renewables Portfolio Standard Program is
intended to complement the Renewable Energy Resources Program
administered by the State Energy Resources Conservation and
Development Commission and established pursuant to Chapter 8.6
(commencing with Section 25740) of Division 15 of the Public
Resources Code.
   (e) New and modified electric transmission facilities may be
necessary to facilitate the state achieving its renewables portfolio
standard targets.
  SEC. 14.  Section 399.12 of the Public Utilities Code is amended to
read:
   399.12.  For purposes of this article, the following terms have
the following meanings:
   (a) "Delivered" and "delivery" have the same meaning as provided
in subdivision (a) of Section 25741 of the Public Resources Code.
   (b) "Eligible renewable energy resource" means an electric
generating facility that meets the definition of "in-state renewable
electricity generation facility" in Section 25741 of the Public
Resources Code, subject to the following limitations:
   (1) (A) An existing small hydroelectric generation facility of 30
megawatts or less shall be eligible only if a retail seller owned or
procured the electricity from the facility as of December 31, 2005. A
new hydroelectric facility is not an eligible renewable energy
resource if it will require a new or increased appropriation or
diversion of water from a watercourse.
   (B) Notwithstanding subparagraph (A), an existing conduit
hydroelectric facility, as defined by Section 823a of Title 16 of the
United States Code, of 30 megawatts or less, shall be an eligible
renewable energy resource. A new conduit hydroelectric facility, as
defined by Section 823a of Title 16 of the United States Code, of 30
megawatts or less, shall be an eligible renewable energy resource so
long as it does not require a new or increased appropriation or
diversion of water from a watercourse.
   (3) A facility engaged in the combustion of municipal solid waste
shall not be considered an eligible renewable resource unless it is
located in Stanislaus County and was operational prior to September
26, 1996.
   (c) "Energy Commission" means the State Energy Resources
Conservation and Development Commission.
   (d) "Local publicly owned electric utility" has the same meaning
as provided in subdivision (d) of Section 9604.
   (e) "Procure" means that a retail seller receives delivered
electricity generated by an eligible renewable energy resource that
it owns or for which it has entered into an electricity purchase
agreement. Nothing in this article is intended to imply that the
purchase of electricity from third parties in a wholesale transaction
is the preferred method of fulfilling a retail seller's obligation
to comply with this article.
   (f) "Renewables portfolio standard" means the specified percentage
of electricity generated by eligible renewable energy resources that
a retail seller is required to procure pursuant to this article.
   (g) (1) "Renewable energy credit" means a certificate of proof,
issued through the accounting system established by the Energy
Commission pursuant to Section 399.13, that one unit of electricity
was generated and delivered by an eligible renewable energy resource.

   (2) "Renewable energy credit" includes all renewable and
environmental attributes associated with the production of
electricity from the eligible renewable energy resource, except for
an emissions reduction credit issued pursuant to Section 40709 of the
Health and Safety Code and any credits or payments associated with
the reduction of solid waste and treatment benefits created by the
utilization of biomass or biogas fuels.
   (3) No electricity generated by an eligible renewable energy
resource attributable to the use of nonrenewable fuels, beyond a de
minimus quantity, as determined by the Energy Commission, shall
result in the creation of a renewable energy credit.
   (h) "Retail seller" means an entity engaged in the retail sale of
electricity to end-use customers located within the state, including
any of the following:
   (1) An electrical corporation, as defined in Section 218.
   (2) A community choice aggregator. The commission shall institute
a rulemaking to determine the manner in which a community choice
aggregator will participate in the renewables portfolio standard
program subject to the same terms and conditions applicable to an
electrical corporation.
   (3) An electric service provider, as defined in Section 218.3, for
all sales of electricity to customers beginning January 1, 2006. The
commission shall institute a rulemaking to determine the manner in
which electric service providers will participate in the renewables
portfolio standard program. The electric service provider shall be
subject to the same terms and conditions applicable to an electrical
corporation pursuant to this article. Nothing in this paragraph shall
impair a contract entered into between an electric service provider
and a retail customer prior to the suspension of direct access by the
commission pursuant to Section 80110 of the Water Code.
   (4) "Retail seller" does not include any of the following:
   (A) A corporation or person employing cogeneration technology or
producing electricity consistent with subdivision (b) of Section 218.

   (B) The Department of Water Resources acting in its capacity
pursuant to Division 27 (commencing with Section 80000) of the Water
Code.
   (C) A local publicly owned electric utility.
  SEC. 15.  Section 399.13 of the Public Utilities Code is amended to
read:
   399.13.  The Energy Commission shall do all of the following:
   (a) Certify eligible renewable energy resources that it determines
meet the criteria described in subdivision (b) of Section 399.12.
   (b) Design and implement an accounting system to verify compliance
with the renewables portfolio standard by retail sellers, to ensure
that electricity generated by an eligible renewable energy resource
is counted only once for the purpose of meeting the renewables
portfolio standard of this state or any other state, to certify
renewable energy credits produced by eligible renewable energy
resources, and to verify retail product claims in this state or any
other state. In establishing the guidelines governing this accounting
system, the Energy Commission shall collect data from electricity
market participants that it deems necessary to verify compliance of
retail sellers, in accordance with the requirements of this article
and the California Public Records Act (Chapter 3.5 (commencing with
Section 6250) of Division 7 of Title 1 of the Government Code). In
seeking data from electrical corporations, the Energy Commission
shall request data from the commission. The commission shall collect
data from electrical corporations and remit the data to the Energy
Commission within 90 days of the request.
   (c) Establish a system for tracking and verifying renewable energy
credits that, through the use of independently audited data,
verifies the generation and delivery of electricity associated with
each renewable energy credit and protects against multiple counting
of the same renewable energy credit. The Energy Commission shall
consult with other western states and with the Western Electricity
Coordinating Council in the development of this system.
   (d) Certify, for purposes of compliance with the renewable
portfolio standard requirements by a retail seller, the eligibility
of renewable energy credits associated with deliveries of electricity
by an eligible renewable energy resource to a local publicly owned
electric utility, if the Energy Commission determines that the
following conditions have been satisfied:
   (1) The local publicly owned electric utility that is procuring
the electricity is in compliance with the requirements of Section
387.
   (2) The local publicly owned electric utility has established an
annual renewables portfolio standard target comparable to those
applicable to an electrical corporation, is procuring sufficient
eligible renewable energy resources to satisfy the targets, and will
not fail to satisfy the targets in the event that the renewable
energy credit is sold to another retail seller.
   (e) Allocate and award supplemental energy payments pursuant to
Chapter 8.6 (commencing with Section 25740) of Division 15 of the
Public Resources Code, to eligible renewable energy resources to
cover above-market costs of renewable energy. A project selected by
an electrical corporation may receive supplemental energy payments
only if it results from a competitive solicitation that is found by
the commission to comply with the California Renewables Portfolio
Standard Program under this article and the project has entered into
an electricity purchase agreement resulting from that solicitation
that is approved by the commission. A project selected for an
electricity purchase agreement by another retail seller may receive
supplemental energy payments only if the retail seller demonstrates
to the commission that the selection of the project is consistent
with the results of a least-cost and best-fit process, and that the
supplemental energy payments are reasonable in comparison to those
paid under similar contracts with other retail sellers.
  SEC. 16.  Section 399.14 of the Public Utilities Code is amended to
read:
   399.14.  (a) (1) The commission shall direct each electrical
corporation to prepare a renewable energy procurement plan that
includes the matter in paragraph (3), to satisfy its obligations
under the renewables portfolio standard. To the extent feasible, this
procurement plan shall be proposed, reviewed, and adopted by the
commission as part of, and pursuant to, a general procurement plan
process. The commission shall require each electrical corporation to
review and update its renewable energy procurement plan as it
determines to be necessary.
   (2) The commission shall adopt, by rulemaking, all of the
following:
   (A) A process for determining market prices pursuant to
subdivision (c) of Section 399.15. The commission shall make specific
determinations of market prices after the closing date of a
competitive solicitation conducted by an electrical corporation for
eligible renewable energy resources.
   (B) A process that provides criteria for the rank ordering and
selection of least-cost and best-fit eligible renewable energy
resources to comply with the annual California Renewables Portfolio
Standard Program obligations on a total cost basis. This process
shall consider estimates of indirect costs associated with needed
transmission investments and ongoing utility expenses resulting from
integrating and operating eligible renewable energy resources.
   (C) (i) Flexible rules for compliance, including rules permitting
retail sellers to apply excess procurement in one year to subsequent
years or inadequate procurement in one year to no more than the
following three years. The flexible rules for compliance shall apply
to all years, including years before and after a retail seller
procures at least 20 percent of total retail sales of electricity
from eligible renewable energy resources.
   (ii) The flexible rules for compliance shall address situations
where, as a result of insufficient transmission, a retail seller is
unable to procure eligible renewable energy resources sufficient to
satisfy the requirements of this article. Any rules addressing
insufficient transmission shall require a finding by the commission
that the retail seller has undertaken all reasonable efforts to do
all of the following:
   (I) Utilize flexible delivery points.
   (II) Ensure the availability of any needed transmission capacity.

   (III) If the retail seller is an electric corporation, to
construct needed transmission facilities.
   (IV) Nothing in this subparagraph shall be construed to revise any
portion of Section 454.5.
   (D) Standard terms and conditions to be used by all electrical
corporations in contracting for eligible renewable energy resources,
including performance requirements for renewable generators. A
contract for the purchase of electricity generated by an eligible
renewable energy resource shall, at a minimum, include the renewable
energy credits associated with all electricity generation specified
under the contract. The standard terms and conditions shall include
the requirement that, no later than six months after the commission's
approval of an electricity purchase agreement entered into pursuant
to this article, the following information about the agreement shall
be disclosed by the commission: party names, resource type, project
location, and project capacity.
   (3) Consistent with the goal of procuring the least-cost and
best-fit eligible renewable energy resources, the renewable energy
procurement plan submitted by an electrical corporation shall include
all of the following:
   (A) An assessment of annual or multiyear portfolio supplies and
demand to determine the optimal mix of eligible renewable energy
resources with deliverability characteristics that may include
peaking, dispatchable, baseload, firm, and as-available capacity.
   (B) Provisions for employing available compliance flexibility
mechanisms established by the commission.
   (C) A bid solicitation setting forth the need for eligible
renewable energy resources of each deliverability characteristic,
required online dates, and locational preferences, if any.
   (4) In soliciting and procuring eligible renewable energy
resources, each electrical corporation shall offer contracts of no
less than 10 years in duration, unless the commission approves of a
contract of shorter duration.
   (5) In soliciting and procuring eligible renewable energy
resources, each electrical corporation may give preference to
projects that provide tangible demonstrable benefits to communities
with a plurality of minority or low-income populations.
   (b) The commission may authorize a retail seller to enter into a
contract of less than 10 years' duration with an eligible renewable
energy resource, subject to the following conditions:
   (1) No supplemental energy payments shall be awarded for a
contract of less than 10 years' duration. The ineligibility of
contracts of less than 10 years' duration for supplemental energy
payments pursuant to this paragraph does not constitute an
insufficiency in supplemental energy payments pursuant to paragraph
(4) or (5) of subdivision (b) of Section 399.15.
   (2) The commission has established, for each retail seller,
minimum quantities of eligible renewable energy resources to be
procured either through contracts of at least 10 years' duration or
from new facilities commencing commercial operations on or after
January 1, 2005.
   (c) The commission shall review and accept, modify, or reject each
electrical corporation's renewable energy procurement plan prior to
the commencement of renewable procurement pursuant to this article by
an electrical corporation.
   (d) The commission shall review the results of an eligible
renewable energy resources solicitation submitted for approval by an
electrical corporation and accept or reject proposed contracts with
eligible renewable energy resources based on consistency with the
approved renewable energy procurement plan. If the commission
determines that the bid prices are elevated due to a lack of
effective competition amongst the bidders, the commission shall
direct the electrical corporation to renegotiate the contracts or
conduct a new solicitation.
   (e) If an electrical corporation fails to comply with a commission
order adopting a renewable energy procurement plan, the commission
shall exercise its authority pursuant to Section 2113 to require
compliance. The commission shall enforce comparable penalties on any
other retail seller that fails to meet annual procurement targets
established pursuant to Section 399.15.
   (f) (1) The commission may authorize a procurement entity to enter
into contracts on behalf of customers of a retail seller for
deliveries of eligible renewable energy resources to satisfy annual
renewables portfolio standard obligations. The commission may not
require any person or corporation to act as a procurement entity or
require any party to purchase eligible renewable energy resources
from a procurement entity.
   (2) Subject to review and approval by the commission, the
procurement entity shall be permitted to recover reasonable
administrative and procurement costs through the retail rates of
end-use customers that are served by the procurement entity and are
directly benefiting from the procurement of eligible renewable energy
resources.
   (3) A project selected for a long-term electricity purchase
contract of more than 10 years' duration by a procurement entity
through a competitive solicitation, and approved by the commission,
may receive supplemental energy payments from the Energy Commission
if the transaction satisfies the requirements of subdivision (b) of
Section 25743 of the Public Resources Code.
   (g) Procurement and administrative costs associated with long-term
contracts entered into by an electrical corporation for eligible
renewable energy resources pursuant to this article, at or below the
market price determined by the commission pursuant to subdivision (c)
of Section 399.15, shall be deemed reasonable
                    per se, and shall be recoverable in rates.
   (h) Construction, alteration, demolition, installation, and repair
work on an eligible renewable energy resource that receives
production incentives or supplemental energy payments pursuant to
Sections 25742 and 25743 of the Public Resources Code, including work
performed to qualify, receive, or maintain production incentives or
supplemental energy payments is "public works" for the purposes of
Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of
the Labor Code.
  SEC. 17.  Section 399.15 of the Public Utilities Code is amended to
read:
   399.15.  (a) In order to fulfill unmet long-term resource needs,
the commission shall establish a renewables portfolio standard
requiring all electrical corporations to procure a minimum quantity
of electricity generated by eligible renewable energy resources as a
specified percentage of total kilowatthours sold to their retail
end-use customers each calendar year, if sufficient funds are made
available pursuant to Section 399.6 and Chapter 8.6 (commencing with
Section 25740) of Division 15 of the Public Resources Code, to cover
the above-market costs of eligible renewable energy resources.
   (b) The commission shall implement annual procurement targets for
each retail seller as follows:
   (1) Each retail seller shall, pursuant to subdivision (a),
increase its total procurement of eligible renewable energy resources
by at least an additional 1 percent of retail sales per year so that
20 percent of its retail sales are procured from eligible renewable
energy resources no later than December 31, 2010. A retail seller
with 20 percent of retail sales procured from eligible renewable
energy resources in any year shall not be required to increase its
procurement of renewable energy resources in the following year.
   (2) For purposes of setting annual procurement targets, the
commission shall establish an initial baseline for each retail seller
based on the actual percentage of retail sales procured from
eligible renewable energy resources in 2001, and to the extent
applicable, adjusted going forward pursuant to Section 399.12.
   (3) Only for purposes of establishing these targets, the
commission shall include all electricity sold to retail customers by
the Department of Water Resources pursuant to Section 80100 of the
Water Code in the calculation of retail sales by an electrical
corporation.
   (4) In the event that a retail seller fails to procure sufficient
eligible renewable energy resources in a given year to meet any
annual target established pursuant to this subdivision, the retail
seller shall procure additional eligible renewable energy resources
in subsequent years to compensate for the shortfall if sufficient
funds are made available pursuant to Section 399.6 and Chapter 8.6
(commencing with Section 25740) of Division 15 of the Public
Resources Code, to cover any above-market costs of eligible renewable
energy resources.
   (5) If supplemental energy payments from the Energy Commission, in
combination with the market prices approved by the commission, are
insufficient to cover any above-market costs of electricity procured
from eligible renewable energy resources through an electricity
purchase agreement of at least 10 years' duration, the commission
shall allow a retail seller to limit its annual procurement
obligation to the quantity of eligible renewable energy resources
that can be procured with available supplemental energy payments. A
retail seller shall not be required to enter into long-term contracts
with operators of eligible renewable energy resources that exceed
the market prices established pursuant to subdivision (c).
   (c) The commission shall establish a methodology to determine the
market price of electricity for terms corresponding to the length of
contracts with eligible renewable energy resources, in consideration
of the following:
   (1) The long-term market price of electricity for fixed price
contracts, determined pursuant to an electrical corporation's general
procurement activities as authorized by the commission.
   (2) The long-term ownership, operating, and fixed-price fuel costs
associated with fixed-price electricity from new generating
facilities.
   (3) The value of different products including baseload, peaking,
and as-available electricity.
   (d) The Energy Commission shall provide supplemental energy
payments from funds in the New Renewable Resources Account of the
Renewable Resource Trust Fund to eligible renewable energy resources
pursuant to Chapter 8.6 (commencing with Section 25740) of Division
15 of the Public Resources Code, consistent with this article, for
any above-market costs. Indirect costs associated with the purchase
of eligible renewable energy resources by an electrical corporation,
including imbalance energy charges, sale of excess energy, decreased
generation from existing resources, or transmission upgrades, shall
not be eligible for supplemental energy payments, but are recoverable
in rates, as authorized by the commission. The Energy Commission
shall not award supplemental energy payments to service load that is
not subject to the renewable energy public goods charge.
   (e) The establishment of a renewables portfolio standard shall not
constitute implementation by the commission of the federal Public
Utility Regulatory Policies Act of 1978 (Public Law 95-617).
   (f) The commission shall consult with the Energy Commission in
calculating market prices under subdivision (c) and establishing
other renewables portfolio standard policies.
  SEC. 18.  Section 399.16 of the Public Utilities Code is repealed.

  SEC. 19.  Section 399.16 is added to the Public Utilities Code, to
read:
   399.16.  (a) The commission, by rule, may authorize the use of
renewable energy credits to satisfy the requirements of the
renewables portfolio standard established pursuant to this article,
subject to the following conditions:
   (1) Prior to authorizing any renewable energy credit to be used
toward satisfying annual procurement targets, the commission and the
Energy Commission shall conclude that the tracking system established
pursuant to subdivision (c) of Section 399.13, is operational, is
capable of independently verifying the electricity generated by an
eligible renewable energy resource and delivered to the retail
seller, and can ensure that renewable energy credits shall not be
double counted by any seller of electricity within the service
territory of the Western Electricity Coordinating Council (WECC).
   (2) A renewable energy credit shall be counted only once for
compliance with the renewables portfolio standard of this state or
any other state, or for verifying retail product claims in this state
or any other state.
   (3) The electricity is delivered to a retail seller, the
Independent System Operator, or a local publicly owned electric
utility.
   (4) All revenues received by an electrical corporation for the
sale of a renewable energy credit shall be credited to the benefit of
ratepayers.
   (5) No renewable energy credits shall be created for electricity
generated pursuant to any electricity purchase contract with a retail
seller or a local publicly owned electric utility executed before
January 1, 2005, unless the contract contains explicit terms and
conditions specifying the ownership or disposition of those credits.
Deliveries under those contracts shall be tracked through the
accounting system described in subdivision (b) of Section 399.13 and
included in the baseline quantity of eligible renewable energy
resources of the purchasing retail seller pursuant to Section 399.15.

   (6) No renewable energy credits shall be created for electricity
generated under any electricity purchase contract executed after
January 1, 2005, pursuant to the federal Public Utility Regulatory
Policies Act of 1978 (16 U.S.C. Sec. 2601 et seq.). Deliveries under
the electricity purchase contracts shall be tracked through the
accounting system described in subdivision (b) of Section 399.12 and
count towards the renewables portfolio standard obligations of the
purchasing retail seller.
   (7) The commission may limit the quantity of renewable energy
credits that may be procured unbundled from electricity generation by
any retail seller, to meet the requirements of this article.
   (8) No retail seller shall be obligated to procure renewable
energy credits to satisfy the requirements of this article in the
event that supplemental energy payments, in combination with the
market prices approved by the commission, are insufficient to cover
the above-market costs of long-term contracts, of more than 10 years'
duration, with eligible renewable energy resources.
   (9) Any additional condition that the commission determines is
reasonable.
   (b) The commission shall allow an electrical corporation to
recover the reasonable costs of purchasing renewable energy credits
in rates.
  SEC. 20.  Article 9 (commencing with Section 635) is added to
Chapter 3 of Part 1 of Division 1 of the Public Utilities Code, to
read:

      Article 9.  Long-Term Plans and Procurement Plans

   635.  In a long-term plan adopted by an electrical corporation or
in a procurement plan implemented by a local publicly owned electric
utility, the electrical corporation or local publicly owned electric
utility shall adopt a strategy applicable both to newly constructed
or repowered generation owned and procured by the electrical
corporation or local publicly owned electric utility to achieve
efficiency in the use of fossil fuels and to address carbon
emissions.
  SEC. 21.  Section 2854 is added to Chapter 9 of Part 2 of Division
1 of the Public Utilities Code, to read:
   2854.  (a) Notwithstanding Section 7550.5 of the Government Code,
on or before January 1, 2008, the commission shall report to the
Legislature on the feasibility, desirability, and design of
performance-based incentives for solar energy systems of less than 30
kilowatt.
   (b) This section shall remain in effect only until January 1,
2009, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2009, deletes or extends
that date.
  SEC. 22.  By June 30, 2007, the Public Utilities Commission, in
consultation with the State Energy Resources Conservation and
Development Commission, shall review the impact of allowing
supplemental energy payments to be applied toward contracts for the
procurement of eligible renewable energy resources that are of a
duration of less than 10 years, and to report to the Legislature with
the results of the review, including both of the following:
   (a) The impact that higher priced short-term contracts may have on
the allocation of supplemental energy payments.
   (b) Recommended methods to fairly allocate supplemental energy
payments for the above-market costs of short-term contracts that
ensure that no more supplemental energy payments are paid for those
contracts than would have been allocated for an equivalent long-term
contract.
  SEC. 23.  No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution for
certain costs that may be incurred by a local agency or school
district because, in that regard, this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
   However, if the Commission on State Mandates determines that this
act contains other costs mandated by the state, reimbursement to
local agencies and school districts for those costs shall be made
pursuant to Part 7 (commencing with Section 17500) of Division 4 of
Title 2 of the Government Code.