BILL NUMBER: SB 1368 AMENDED
AMENDED IN SENATE APRIL 24, 2006
INTRODUCED BY Senator Perata
(Coauthor: Assembly Member Levine)
FEBRUARY 21, 2006
An act to
amend Section 454.5 of, and to add
Chapter 3 (commencing with Section 8340) to Division 4.1 of
, the Public Utilities Code, relating to electricity.
LEGISLATIVE COUNSEL'S DIGEST
SB 1368, as amended, Perata Electricity: emissions of greenhouse
(1) Under existing law, the Public Utilities Commission (PUC) has
regulatory authority over public utilities, including electrical
corporations. Existing law requires the PUC 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.
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 electricity generated by
eligible renewable energy resources.
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 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 report certain information relative to renewable
energy resources to its customers.
Existing law defines an "electric service provider" as an entity
that offers electrical service to customers within the service
territory of an electrical corporation, excluding electrical
corporations, local publicly owned electric utilities, and certain
cogenerators. Provisions of the existing Public Utilities Act
restructuring the electrical services industry require that electric
service providers register with the PUC and require the PUC to
authorize and facilitate direct transactions between electric service
providers and retail end-use customers. However, other existing law
suspends the right of retail end-use customers other than community
aggregators, to acquire service through a direct transaction, until
the Department of Water Resources no longer supplies electricity
under that law.
Existing law defines a "community choice aggregator" and
authorizes customers to aggregate their electric loads as members of
their local community with community choice aggregators.
This bill would prohibit any load serving entity, including
electrical corporations, community choice aggregators, electric
service providers, and local publicly owned electric utilities, from
entering into , and the PUC from approving, a
long-term financial commitment, as defined, for
unless any baseload generation, as defined,
unless that baseload generation complies with a greenhouse
gases emission performance standard established by the Energy
Commission, by regulation, in consultation with the PUC and the State
Air Resources Board. The bill would require that the greenhouse
gases emission performance standard not exceed the per
kilowatthour rate of emissions of greenhouse
gases of a for existing combined-cycle
natural gas powerplant baseload generation.
The bill would prohibit the PUC from approving any long-term
financial commitment by an electrical corporation unless any baseload
generation supplied under the long-term commitment complies with the
greenhouse gases emission performance standard. The bill would
authorize the PUC to review any long-term financial commitment
proposed to be entered into by an electric service provider or
community choice aggregator . The bill would authorize the PUC
to adopt rules to enforce these requirements for electrical
corporations, electric service providers, and community choice
aggregators and would require the PUC to adopt procedures to
verify the emissions of greenhouse gases from any baseload generation
supplied under a contract subject to the greenhouse gases emission
performance standard . The bill would require that a
procurement plan approved by the PUC for an electrical corporation be
consistent with the greenhouse gases emission performance standard.
The bill would authorize the Energy Commission to adopt
regulations for the enforcement of the greenhouse gases emission
performance standard with respect to a local publicly owned electric
(2) Under existing law, a violation of the Public Utilities Act or
an order or direction of the commission is a crime.
Because certain of the provisions of this bill are within the act
and require action by the commission to implement its requirements, a
violation of these provisions would impose a state-mandated local
program by creating a new crime.
(3) 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
This bill would provide that no reimbursement is required by this
act for a specified reason.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: yes.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
(a) Global warming will have serious adverse consequences on the
economy, health, and environment of California.
(b) The Governor, in Executive Order S-3-05, has called for the
reduction of California's emission of greenhouse gases to 1990 levels
(c) Over the past three decades, the state has taken significant
strides towards implementing an environmentally and economically
sound energy policy through reliance on energy efficiency,
conservation, and renewable energy resources in order to promote a
sustainable energy future that ensures an adequate and reliable
energy supply at reasonable and stable prices.
(d) To the extent energy efficiency and renewable resources are
unable to satisfy increasing energy and capacity needs, the Energy
Action Plan II establishes a policy that the state will rely on clean
and efficient fossil fuel fired generation and will "encourage the
development of cost-effective, highly-efficient, and
environmentally-sound supply resources to provide reliability and
consistency with the State's energy priorities."
(e) California's investor-owned electric utilities currently have
long-term procurement plans that include proposals for making new
long-term financial commitments to electrical generating resources
over the next decade, which will generate electricity while producing
emissions of greenhouse gases for the next 30 years or longer.
(f) The Public Utilities Commission (PUC) and State Energy
Resources Conservation and Development Commission (Energy Commission)
both have concluded, and the Legislature finds, that federal
regulation of emissions of greenhouse gases is likely during this
(g) It is vital to ensure all electricity load serving entities
internalize the significant and underrecognized cost of emissions
recognized by the PUC with respect to the investor-owned electric
utilities, and to reduce California's exposure to costs associated
with future federal regulation of these emissions.
(h) The establishment of a policy to reduce emissions of
greenhouse gases, including an emissions performance standard for all
procurement of electricity by load serving entities, is a logical
and necessary step to meet the goals of the Energy Action Plan II and
the Governor's goals for reduction of emissions of greenhouse gases.
(i) A greenhouse gases emission performance standard for new
long-term financial commitments to electrical generating resources
will reduce potential financial risk to California consumers for
future pollution-control costs.
(j) A greenhouse gases emission performance standard for new
long-term financial commitments to electric generating resources will
reduce potential exposure of California consumers to future
reliability problems in electricity supplies.
(k) In order to have any meaningful impact on climate change, the
Governor's goals for reducing emissions of greenhouse gases must be
applied to the state's electricity consumption, not just the state's
(l) The 2005 Integrated Energy Policy Report adopted by the Energy
Commission recommends that any greenhouse gases emission performance
standard for utility procurement be set no lower than levels
achieved by a new combined-cycle natural gas turbine.
(m) As the largest electricity consumer in the region, California
has an obligation to provide clear guidance on performance standards
for procurement of electricity by load serving entities.
SEC. 2. Section 454.5 of the Public Utilities
Code is amended to read:
454.5. (a) The commission shall specify the allocation of
electricity, including quantity, characteristics, and duration of
electricity delivery, that the Department of Water Resources shall
provide under its power purchase agreements to the customers of each
electrical corporation, which shall be reflected in the electrical
corporation's proposed procurement plan. Each electrical corporation
shall file a proposed procurement plan with the commission not later
than 60 days after the commission specifies the allocation of
electricity. The proposed procurement plan shall specify the date
that the electrical corporation intends to resume procurement of
electricity for its retail customers, consistent with its obligation
to serve. After the commission's adoption of a procurement plan, the
commission shall allow not less than 60 days before the electrical
corporation resumes procurement pursuant to this section.
(b) An electrical corporation's proposed procurement plan shall
include, but not be limited to, all of the following:
(1) An assessment of the price risk associated with the electrical
corporation's portfolio, including any utility-retained generation,
existing power purchase and exchange contracts, and proposed
contracts or purchases under which an electrical corporation will
procure electricity, electricity demand reductions, and
electricity-related products and the remaining open position to be
served by spot market transactions.
(2) A definition of each electricity product, electricity-related
product, and procurement related financial product, including support
and justification for the product type and amount to be procured
under the plan.
(3) The duration of the plan.
(4) The duration, timing, and range of quantities of each product
to be procured.
(5) A competitive procurement process under which the electrical
corporation may request bids for procurement-related services,
including the format and criteria of that procurement process.
(6) An incentive mechanism, if any incentive mechanism is
proposed, including the type of transactions to be covered by that
mechanism, their respective procurement benchmarks, and other
parameters needed to determine the sharing of risks and benefits.
(7) The upfront standards and criteria by which the acceptability
and eligibility for rate recovery of a proposed procurement
transaction will be known by the electrical corporation prior to
execution of the transaction. This shall include an expedited
approval process for the commission's review of proposed contracts
and subsequent approval or rejection thereof. The electrical
corporation shall propose alternative procurement choices in the
event a contract is rejected.
(8) Procedures for updating the procurement plan.
(9) A showing that the procurement plan will achieve the
(A) The electrical corporation will, in order to fulfill its unmet
resource needs and in furtherance of Section 701.3, until a 20
percent renewable resources portfolio is achieved, procure renewable
energy resources with the goal of ensuring that at least an
additional 1 percent per year of the electricity sold by the
electrical corporation is generated from renewable energy resources,
provided sufficient funds are made available pursuant to Section
399.6, to cover the above-market costs for new renewable energy
(B) The electrical corporation will create or maintain a
diversified procurement portfolio consisting of both short-term and
long-term electricity and electricity-related and demand reductions
(C) The electrical corporation will first meet its unmet resource
needs through all available energy efficiency and demand reduction
resources that are cost effective, reliable, and feasible.
(10) The electrical corporation's risk management policy,
strategy, and practices, including specific measures of price
(11) A plan to achieve appropriate increases in diversity of
ownership and diversity of fuel supply of nonutility electrical
(12) A mechanism for recovery of reasonable administrative costs
related to procurement in the generation component of rates.
(c) The commission shall review and accept, modify, or reject each
electrical corporation's procurement plan. The commission's review
shall consider each electrical corporation's individual procurement
situation, and shall give strong consideration to that situation in
determining which one or more of the features set forth in this
subdivision shall apply to that electrical corporation. A procurement
plan approved by the commission shall contain one or more of the
following features, provided that the commission may not approve a
feature or mechanism for an electrical corporation if it finds that
the feature or mechanism would impair the restoration of an
electrical corporation's creditworthiness or would lead to a
deterioration of an electrical corporation's creditworthiness:
(1) A competitive procurement process under which the electrical
corporation may request bids for procurement-related services. The
commission shall specify the format of that procurement process, as
well as criteria to ensure that the auction process is open and
adequately subscribed. Any purchases made in compliance with the
commission-authorized process shall be recovered in the generation
component of rates.
(2) An incentive mechanism that establishes a procurement
benchmark or benchmarks and authorizes the electrical corporation to
procure from the market, subject to comparing the electrical
corporation's performance to the commission-authorized benchmark or
benchmarks. The incentive mechanism shall be clear, achievable, and
contain quantifiable objectives and standards. The incentive
mechanism shall contain balanced risk and reward incentives that
limit the risk and reward of an electrical corporation.
(3) Upfront achievable standards and criteria by which the
acceptability and eligibility for rate recovery of a proposed
procurement transaction will be known by the electrical corporation
prior to the execution of the bilateral contract for the transaction.
The commission shall provide for expedited review and either approve
or reject the individual contracts submitted by the electrical
corporation to ensure compliance with its procurement plan. To the
extent the commission rejects a proposed contract pursuant to this
criteria, the commission shall designate alternative procurement
choices obtained in the procurement plan that will be recoverable for
(d) A procurement plan approved by the commission shall accomplish
each of the following objectives:
(1) Enable the electrical corporation to fulfill its obligation to
serve its customers at just and reasonable rates.
(2) Eliminate the need for after-the-fact reasonableness reviews
of an electrical corporation's actions in compliance with an approved
procurement plan, including resulting electricity procurement
contracts, practices, and related expenses. However, the commission
may establish a regulatory process to verify and assure that each
contract was administered in accordance with the terms of the
contract, and contract disputes which may arise are reasonably
(3) Ensure timely recovery of prospective procurement costs
incurred pursuant to an approved procurement plan. The commission
shall establish rates based on forecasts of procurement costs adopted
by the commission, actual procurement costs incurred, or combination
thereof, as determined by the commission. The commission shall
establish power procurement balancing accounts to track the
differences between recorded revenues and costs incurred pursuant to
an approved procurement plan. The commission shall review the power
procurement balancing accounts, not less than semiannually, and shall
adjust rates or order refunds, as necessary, to promptly amortize a
balancing account, according to a schedule determined by the
commission. Until January 1, 2006, the commission shall ensure that
any overcollection or undercollection in the power procurement
balancing account does not exceed 5 percent of the electrical
corporation's actual recorded generation revenues for the prior
calendar year excluding revenues collected for the Department of
Water Resources. The commission shall determine the schedule for
amortizing the overcollection or undercollection in the balancing
account to ensure that the 5 percent threshold is not exceeded. After
January 1, 2006, this adjustment shall occur when deemed appropriate
by the commission consistent with the objectives of this section.
(4) Moderate the price risk associated with serving its retail
customers, including the price risk embedded in its long-term supply
contracts, by authorizing an electrical corporation to enter into
financial and other electricity-related product contracts.
(5) Provide for just and reasonable rates, with an appropriate
balancing of price stability and price level in the electrical
corporation's procurement plan.
(6) Be consistent with the requirements of Chapter 3 (commencing
with Section 8340) of Division 4.1.
(e) The commission shall provide for the periodic review and
prospective modification of an electrical corporation's procurement
(f) The commission may engage an independent consultant or
advisory service to evaluate risk management and strategy. The
reasonable costs of any consultant or advisory service is a
reimbursable expense and eligible for funding pursuant to Section
(g) The commission shall adopt appropriate procedures to ensure
the confidentiality of any market sensitive information submitted in
an electrical corporation's proposed procurement plan or resulting
from or related to its approved procurement plan, including, but not
limited to, proposed or executed power purchase agreements, data
request responses, or consultant reports, or any combination,
provided that the Office of Ratepayer Advocates and other consumer
groups that are nonmarket participants shall be provided access to
this information under confidentiality procedures authorized by the
(h) Nothing in this section alters, modifies, or amends the
commission's oversight of affiliate transactions under its rules and
decisions or the commission's existing authority to investigate and
penalize an electrical corporation's alleged fraudulent activities,
or to disallow costs incurred as a result of gross incompetence,
fraud, abuse, or similar grounds. Nothing in this section expands,
modifies, or limits the State Energy Resources Conservation and
Development Commission's existing authority and responsibilities as
set forth in Sections 25216, 25216.5, and 25323 of the Public
(i) An electrical corporation that serves less than 500,000
electric retail customers within the state may file with the
commission a request for exemption from this section, which the
commission shall grant upon a showing of good cause.
(j) (1) Prior to its approval pursuant to Section 851 of any
divestiture of generation assets owned by an electrical corporation
on or after the date of enactment of the act adding this section, the
commission shall determine the impact of the proposed divestiture on
the electrical corporation's procurement rates and shall approve a
divestiture only to the extent it finds, taking into account the
effect of the divestiture on procurement rates, that the divestiture
is in the public interest and will result in net ratepayer benefits.
(2) Any electrical corporation's procurement necessitated as a
result of the divestiture of generation assets on or after the
effective date of the act adding this subdivision shall be subject to
the mechanisms and procedures set forth in this section only if its
actual cost is less than the recent historical cost of the divested
(3) Notwithstanding paragraph (2), the commission may deem
proposed procurement eligible to use the procedures in this section
upon its approval of asset divestiture pursuant to Section 851.
SEC. 3. SEC. 2. Chapter 3
(commencing with Section 8340) is added to Division 4.1 of the Public
Utilities Code, to read:
CHAPTER 3. GREENHOUSE GASES EMISSION PERFORMANCE STANDARD FOR
BASELOAD ELECTRICAL GENERATING RESOURCES
8340. For purposes of this chapter, the following terms have the
(a) "Baseload generation" means electricity generation from a
powerplant that is designed to provide electricity for at
least 60 percent of the hours in a year.
(b) "Community choice aggregator" means a "community choice
aggregator" as defined in Section 331.1.
(c) "Electrical corporation" means an "electrical corporation" as
defined in Section 218.
(d) "Electric service provider" means an "electric service
provider" as defined in Section 218.3.
(e) "Energy Commission" means the State Energy Resources
Conservation and Development Commission.
(f) "Greenhouse gases" means those gases listed in subdivision (h)
of Section 42801.1 of the Health and Safety Code.
(g) "Load serving entity" includes every electrical corporation,
community choice aggregator, electric service provider, and local
publicly owned electric utility serving end-use customers in
(h) "Local publicly owned electric utility" means a "local
publicly owned electric utility as defined in Section 9604.
(i) "Long-term financial commitment" means either an ownership
investment in a powerplant or a contract for procurement of
baseload electricity with a term of three or more years.
baseload generation or a contract with a term of three or more
years, which includes procurement of baseload generation.
8341. (a) No load serving entity may enter into a long-term
financial commitment for baseload generation unless that
baseload generation unless any baseload generation
supplied under the long-term financial commitment
complies with the greenhouse gases emission performance standard
established by the Energy Commission , as required in
subdivision (d) .
(b) (1) The commission may not approve a long-term financial
commitment for baseload generation for by
an electrical corporation unless that baseload
generation any baseload generation supplied under the
long-term financial commitment complies with the greenhouse
gases emission performance standard established by the
Energy Commission , as required in subdivision (d)
(2) The commission may adopt rules to enforce the requirements of
this section, for electrical corporations, electric service
providers, and community choice aggregators.
(2) The commission may, in order to enforce
the requirements of this section, review any long-term financial
commitment proposed to be entered into by an electric service
provider or a community choice aggregator.
(3) The commission may adopt rules to enforce the requirements of
this section, for electrical corporations, electric service
providers, and community choice aggregators. The commission shall
adopt procedures to verify the emissions of greenhouse gases from any
baseload generation supplied under a contract subject to the
greenhouse gases emission performance standard to ensure compliance
with the standard.
(c) The Energy Commission may adopt regulations for the
enforcement of this chapter with respect to a local publicly owned
electric utility. The Energy Commission may, in order to ensure
compliance with the greenhouse gases emission performance standard by
local publicly owned electric utilities, apply the procedures
adopted by the commission to verify the emissions of greenhouse gases
from baseload generation pursuant to subdivision (b).
(d) (1) The Energy Commission, in consultation with the commission
and the State Air Resources Board, shall establish a greenhouse
gases emission performance standard for baseload generation.
The all baseload generation at a rate of emissions of
greenhouse gases that is no higher than the average rate of
emissions of greenhouse gases for existing combined-cycle natural gas
(2) The greenhouse gases emission
performance standard shall be adopted by regulation pursuant to the
Administrative Procedure Act (Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the Government Code).
(2) The Energy
Commission shall base the greenhouse gases emission performance
standard on the anticipated life-cycle emissions of greenhouse gases
from the baseload generation. In
(3) In determining the rate of emissions of greenhouse gases for
baseload generation, the Energy Commission shall include the net
lifecycle emissions resulting from the production of electricity by
the baseload generation.
(4) In adopting the greenhouse
gases emission performance standard, the Energy Commission shall
consider the effects of the standard on system reliability and
overall costs to electricity customers.
(3) The greenhouse gases emission performance standard shall not
exceed the per kilowatthour emissions of greenhouse gases of a
combined-cycle natural gas powerplant.
SEC. 4. SEC. 3.
No reimbursement is required by this act pursuant to Section 6 of
Article XIII B of the California Constitution because the only 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.