BILL NUMBER: SB 1036	CHAPTERED
	BILL TEXT

	CHAPTER  685
	FILED WITH SECRETARY OF STATE  OCTOBER 14, 2007
	APPROVED BY GOVERNOR  OCTOBER 14, 2007
	PASSED THE SENATE  SEPTEMBER 12, 2007
	PASSED THE ASSEMBLY  SEPTEMBER 10, 2007
	AMENDED IN ASSEMBLY  JULY 12, 2007

INTRODUCED BY   Senator Perata

                        FEBRUARY 23, 2007

   An act to amend Sections 25742, 25744, 25748, and 25751 of, to
amend and repeal Section 25740.5 of, and to repeal and add Section
25743 of, the Public Resources Code, and to amend Sections 399.8,
399.13, 399.14, 399.15, 399.16, and 454.5 of the Public Utilities
Code, relating to energy, and making an appropriation therefor.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 1036, Perata. Energy: renewable energy resources.
   Under existing law, the Public Utilities Commission (PUC) has
regulatory authority over public utilities, including electrical
corporations. The Public Utilities Act requires the PUC to review and
adopt a renewable energy procurement plan for each electrical
corporation pursuant to the California Renewables Portfolio Standard
Program. The renewables portfolio standard 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).
Existing law requires the PUC to require the state's 3 largest
electrical corporations, Pacific Gas and Electric Company, San Diego
Gas and Electric, and Southern California Edison, to identify a
separate electrical 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. Existing PUC resolutions refer to the
nonbypassable rate component as a "public goods charge." The public
goods charge moneys 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.
   Existing law establishes the Renewable Resource Trust Fund as a
continuously appropriated fund in the State Treasury, and provides
that 51.5% of the money collected by the public goods charge for
renewable energy resources, after deducting certain administrative
expenses, be deposited in the New Renewable Resources Account in the
fund, for use by the State Energy Resources Conservation and
Development Commission (Energy Commission) to foster the development
of new in-state renewable electricity generation facilities. Existing
law requires the 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 award production incentives and allocate and award
supplemental energy payments from the New Renewable Resources Account
to cover above-market costs of purchasing electricity from eligible
renewable energy resources.
   This bill would, effective July 1, 2008, repeal those provisions
providing for the New Renewable Resources Account within the
Renewable Resource Trust Fund. The bill would delete the requirement
that the Energy Commission award production incentives and allocate
and award supplemental energy payments to eligible renewable energy
resources to cover above-market costs of renewable energy. The bill
would require the Energy Commission to terminate all production
incentives awarded prior to January 1, 2002, from the New Renewable
Resources Account, unless the renewable energy project began
generating electricity by January 1, 2007. The Energy Commission
would be required by March 1, 2008, to transfer to electrical
corporations serving customers subject to the renewable energy public
goods charge, the remaining unencumbered funds in the New Renewable
Resources Account, to be allocated among retail sellers on the basis
of annual retail sales of electricity. The bill would require the PUC
to ensure that electrical corporations allocate funds received from
the Energy Commission in a manner that maximizes the economic benefit
to all customer classes that funded the New Renewable Resources
Account. The bill would place certain cost limitations upon the
requirements placed upon electrical corporations pursuant to the
renewables portfolio standard. The bill would make other conforming
changes.
   Because this bill would make moneys in the New Renewable Resources
Account within the Renewable Resource Trust Fund available for use
for a new purpose, it would make an appropriation.
   Appropriation: yes.


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

  SECTION 1.  It is the intent of the Legislature to reform elements
of the renewables portfolio standard program relating to cost
containment. In recognition of numerous problems associated with the
current process for awarding supplemental energy payments, the
Legislature intends to restructure the renewables portfolio standard
program to streamline the approval of contracts executed by
electrical corporations for the purchase of electricity generated by
eligible renewable energy resources involving costs above the market
prices determined in subdivision (c) of Section 399.15 of the Public
Utilities Code, to ensure that any above-market costs sought by
generators may be relied upon in obtaining project financing, and to
minimize both unnecessary delays and duplicative agency reviews. In
achieving these objectives, the Legislature intends to continue
meaningful ratepayer protections through limits on the total costs of
meeting the renewable energy goals established pursuant to Article
16 (commencing with Section 399.11) of Part 1 of Division 1 of the
Public Utilities Code.
  SEC. 2.  Section 25740.5 of the Public Resources Code, as added by
Section 4 of Chapter 464 of the Statutes of 2006, is amended 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) Rebates, buydowns, or equivalent incentives for emerging
renewable technologies.
   (2) Customer education.
   (3) Production 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.
   (4) 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.
   (5) 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.
   (6) 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. 3.  Section 25740.5 of the Public Resources Code, as added by
Section 9 of Chapter 512 of the Statutes of 2006, is repealed.
  SEC. 4.  Section 25742 of the Public Resources Code is amended to
read:
   25742.  (a) Twenty 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 production
incentives under this section shall be limited to those technologies
found eligible for funds by the commission pursuant to paragraphs
(3), (4), and (6) 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.
   (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 has any of the following
characteristics:
   (1) Is sold at monthly average rates equal to or greater than the
applicable target price, as determined by the commission.
   (2) Is used onsite.
   (d) (1) Existing facilities generating electricity from biomass
energy shall be eligible for funding and otherwise considered an
in-state renewable electricity generation facility only if 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 any of the following:
   (A) Agricultural crops and agricultural wastes and residues.
   (B) 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.
   (C) Wood and wood wastes that meet all of the following
requirements:
   (i) The wood or wood waste has 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).
   (ii) The wood or wood waste has been harvested for the purpose of
forest fire fuel reduction or forest stand improvement.
   (iii) Do not transport or cause the transportation of species
known to harbor insect or disease nests outside zones of infestation
or 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.
   (2) The commission shall report the types and quantities of
biomass fuels used by each facility to the Legislature in the reports
prepared pursuant to Section 25748.
   (e) Each existing facility seeking an award pursuant to this
section shall be evaluated by the commission to determine the amount
of the funds being sought, the cumulative amount of funds the
facility has received previously from the commission and other state
sources, the value of any past and current federal or state tax
credits, the facility's contract price for energy and capacity, the
prices received by similar facilities, the market value of the
facility, and the likelihood that the award will make the facility
competitive and self-sustaining within the 2007-2011 investment
cycle. The commission shall use this evaluation to determine the
value of an award to the public relative to other renewable energy
investment alternatives. The commission shall compile its findings
and report them to the Legislature in the reports prepared pursuant
to Section 25748.
  SEC. 5.  Section 25743 of the Public Resources Code is repealed.
  SEC. 6.  Section 25743 is added to the Public Resources Code, to
read:
   25743.  (a) The commission shall terminate all production
incentives awarded from the New Renewable Resources Account prior to
January 1, 2002, unless the project began generating electricity by
January 1, 2007.
   (b) (1) The commission shall, by March 1, 2008, transfer to
electrical corporations serving customers subject to the renewable
energy public goods charge the remaining unencumbered funds in the
New Renewable Resources Account.
   (2) The Public Utilities Commission shall ensure that each
electrical corporation allocates funds received from the commission
pursuant to paragraph (1) in a manner that maximizes the economic
benefit to all customer classes that funded the New Renewable
Resources Account.
  SEC. 7.  Section 25744 of the Public Resources Code is amended to
read:
   25744.  (a) Seventy-nine percent of the money collected pursuant
to the renewable energy public goods charge shall be used for a
multiyear, consumer-based program to foster the development of
emerging renewable technologies in distributed generation
applications.
   (b) Any funds used for emerging technologies pursuant to this
section shall be expended in accordance with this chapter, subject to
all of the following requirements:
   (1) Funding for emerging technologies shall be provided through a
competitive, market-based process that is in place for a period of
not less than five years, and is structured to allow eligible
emerging technology manufacturers and suppliers to anticipate and
plan for increased sale and installation volumes over the life of the
program.
   (2) The program shall provide monetary rebates, buydowns, or
equivalent incentives, subject to paragraph (3), to purchasers,
lessees, lessors, or sellers of eligible electricity generating
systems. Incentives shall benefit the end-use consumer of renewable
generation by directly and exclusively reducing the purchase or lease
cost of the eligible system, or the cost of electricity produced by
the eligible system. Incentives shall be issued on the basis of the
rated electrical generating capacity of the system measured in watts,
or the amount of electricity production of the system, measured in
kilowatthours. Incentives shall be limited to a maximum percentage of
the system price, as determined by the commission. The commission
may establish different incentive levels for systems based on
technology type and system size, and may provide different incentive
levels for systems used in conjunction with energy-efficiency
measures.
   (3) Eligible distributed emerging technologies are fuel cell
technologies that utilize renewable fuels, including fuel cell
technologies with an emission profile equivalent or better than the
State Air Resources Board 2007 standard, and that serve as backup
generation for emergency, safety, or telecommunications systems.
Eligible renewable fuels may include wind turbines of not more than
50 kilowatts rated electrical generating capacity per customer site
and other distributed renewable emerging technologies that meet the
emerging technology eligibility criteria established by the
commission and are not eligible for rebates, buydowns, or similar
incentives from any other commission or Public Utilities Commission
program. Eligible electricity generating systems are intended
primarily to offset part or all of the consumer's own electricity
demand, including systems that are used as backup power for
emergency, safety, or telecommunications, and shall not be owned by
local publicly owned electric utilities, nor be located at a customer
site that is not receiving distribution service from an electrical
corporation that is subject to the renewable energy public goods
charge and contributing funds to support programs under this chapter.
All eligible electricity generating system components shall be new
and unused, shall not have been previously placed in service in any
other location or for any other application, and shall have a
warranty of not less than five years to protect against defects and
undue degradation of electrical generation output. Systems and their
fuel resources shall be located on the same premises of the end-use
consumer where the consumer's own electricity demand is located, and
all eligible electricity generating systems shall be connected to the
utility grid, unless the system purpose is for backup generation
used in emergency, safety, or telecommunications in California. The
commission may require eligible electricity generating systems to
have meters in place to monitor and measure a system's performance
and generation. Only systems that will be operated in compliance with
applicable law and the rules of the Public Utilities Commission
shall be eligible for funding.
   (4) The commission shall limit the amount of funds available for a
system or project of multiple systems and reduce the level of
funding for a system or project of multiple systems that has
received, or may be eligible to receive, any government or utility
funds, incentives, or credit.
   (5) In awarding funding, the commission may provide preference to
systems that provide tangible demonstrable benefits to communities
with a plurality of minority or low-income populations.
   (6) In awarding funding, the commission shall develop and
implement eligibility criteria and a system that provides preference
to systems based upon system performance, taking into account
factors, including shading, insulation levels, and installation
orientation.
   (7) At least once annually, the commission shall publish and make
available to the public the balance of funds available for emerging
renewable energy resources for rebates, buydowns, and other
incentives for the purchase of these resources.
   (c) Notwithstanding Section 27540.5, the commission may expend,
until December 31, 2008, up to sixty million dollars ($60,000,000) of
the funding allocated to the Renewable Resources Trust Fund for the
program established in this section, subject to the repayment
requirements of subdivision (f) of Section 25751.
   (d) Any funds for photovoltaic or solar thermal electric
technologies shall be awarded in compliance with Chapter 8.8
(commencing with Section 25780), and not with this section.
  SEC. 8.  Section 25748 of the Public Resources Code is amended to
read:
   25748.  (a) The commission shall report to the Legislature on or
before November 1, 2007, and annually thereafter, regarding the
results of the mechanisms funded pursuant to this chapter. The report
shall contain all of the following:
   (1) A description of the allocation of funds among existing, new,
and emerging technologies, the allocation of funds among programs,
including consumer-side incentives, and the need for the reallocation
of money among those technologies.
   (2) The status of account transfers and repayments.
   (3) A description of the cumulative commitment of claims by
account, the relative demand for funds by account, and a forecast of
future awards.
   (4) A list identifying the types and quantities of biomass fuels
used by facilities receiving funds pursuant to Section 25742 and
their impacts on improving air quality.
   (5) A discussion of the progress being made toward achieving the
targets established under Section 25740 by each funding category
authorized pursuant to this chapter.
   (6) A description of the allocation of funds from interest on the
accounts described in this chapter, and money in the accounts
described in subdivision (b) of Section 25751.
   (7) An itemized list, including project descriptions, award
amounts, and outcomes for projects awarded funding in the prior year.

   (8) Other matters the commission determines may be of importance
to the Legislature.
   (b) Money may be reallocated without further legislative action
among existing, new, and emerging technologies and consumer-side
programs in a manner consistent with the report and with the latest
report provided to the Legislature pursuant to this section, except
that reallocations shall not increase the allocation established in
Section 25742.
  SEC. 9.  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) Existing Renewable Resources Account.
   (2) Emerging Renewable Resources Account.
   (3) 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 399.8 of the Public Utilities Code, shall be transmitted to
the commission at least quarterly for deposit in the Renewable
Resource Trust Fund pursuant to Section 25740.5. 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. 10.  Section 399.8 of the Public Utilities Code is amended to
read:
   399.8.  (a) In order to ensure that the citizens of this state
continue to receive safe, reliable, affordable, and environmentally
sustainable electric service, it is the policy of this state and the
intent of the Legislature that prudent investments in energy
efficiency, renewable energy, and research, development and
demonstration shall continue to be made.
   (b) (1) Every customer of an electrical corporation shall pay a
nonbypassable system benefits charge authorized pursuant to this
article. The system benefits charge shall fund energy efficiency,
renewable energy, and research, development and demonstration.
   (2) Local publicly owned electric utilities shall continue to
collect and administer system benefits charges pursuant to Section
385.
   (c) (1) The commission shall require each electrical corporation
to identify a separate rate component to collect revenues to fund
energy efficiency, renewable energy, and research, development and
demonstration programs authorized pursuant to this section beginning
January 1, 2002, and ending January 1, 2012. The rate component shall
be a nonbypassable element of the local distribution service and
collected on the basis of usage.
   (2) This rate component may not exceed, for any tariff schedule,
the level of the rate component that was used to recover funds
authorized pursuant to Section 381 on January 1, 2000. If the amounts
specified in paragraph (1) of subdivision (d) are not recovered
fully in any year, the commission shall reset the rate component to
restore the unrecovered balance, provided that the rate component may
not exceed, for any tariff schedule, the level of the rate component
that was used to recover funds authorized pursuant to Section 381 on
January 1, 2000. Pending restoration, any annual shortfalls shall be
allocated pro rata among the three funding categories in the
proportions established in paragraph (1) of subdivision (d).
   (d) The commission shall order San Diego Gas and Electric Company,
Southern California Edison Company, and Pacific Gas and Electric
Company to collect these funds commencing on January 1, 2002, as
follows:
   (1) Two hundred twenty-eight million dollars ($228,000,000) per
year in total for energy efficiency and conservation activities,
sixty-five million five hundred thousand dollars ($65,500,000) in
total per year for renewable energy, and sixty-two million five
hundred thousand dollars ($62,500,000) in total per year for
research, development and demonstration. The funds for energy
efficiency and conservation activities shall continue to be allocated
in proportions established for the year 2000 as set forth in
paragraph (1) of subdivision (c) of Section 381.
   (2) The amounts shall be adjusted annually at a rate equal to the
lesser of the annual growth in electric commodity sales or inflation,
as defined by the gross domestic product deflator.
   (e) The commission shall ensure that each electrical corporation
allocates funds transferred by the Energy Commission pursuant to
subdivision (b) of Section 25743 in a manner that maximizes the
economic benefit to all customer classes that funded the New
Renewable Resources Account.
   (f) The commission and the Energy Commission shall retain and
continue their oversight responsibilities as set forth in Sections
381 and 383, and Chapter 7.1 (commencing with Section 25620) and
Chapter 8.6 (commencing with Section 25740) of Division 15 of the
Public Resources Code.
   (g) An applicant for the Large Nonresidential Standard Performance
Contract Program funded pursuant to paragraph (1) of subdivision (b)
and an electrical corporation shall promptly attempt to resolve
disputes that arise related to the program's guidelines and
parameters prior to entering into a program agreement. The applicant
shall provide the electrical corporation with written notice of any
dispute. Within 10 business days after receipt of the notice, the
parties shall meet to resolve the dispute. If the dispute is not
resolved within 10 business days after the date of the meeting, the
electrical corporation shall notify the applicant of his or her right
to file a complaint with the commission, which complaint shall
describe the grounds for the complaint, injury, and relief sought.
The commission shall issue its findings in response to a filed
complaint within 30 business days of the date of receipt of the
complaint. Prior to issuance of its findings, the commission shall
provide a copy of the complaint to the electrical corporation, which
shall provide a response to the complaint to the commission within
five business days of the date of receipt. During the dispute period,
the amount of estimated financial incentives shall be held in
reserve until the dispute is resolved.
  SEC. 11.  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.
  SEC. 12.  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, if 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 among 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.
   (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 and approved by
the commission 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 pursuant to Section 25742 of the Public
Resources Code, including work performed to qualify, receive, or
maintain production incentives is "public works" for the purposes of
Chapter 1 (commencing with Section 1720) of Part 7 of Division 2 of
the Labor Code.
  SEC. 13.  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, subject to limits on the total
amount of costs expended above the market prices determined in
subdivision (c), to achieve the targets established under this
article.
   (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, subject to the
limitation on costs for electrical corporations established pursuant
to subdivision (d).
   (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 commission shall establish, for each electrical
corporation, a limitation on the total costs expended above the
market prices determined in subdivision (c) for the procurement of
eligible renewable energy resources to achieve the annual procurement
targets established under this article.
   (1) The cost limitation shall be equal to the amount of funds
transferred to each electrical corporation by the Energy Commission
pursuant to subdivision (b) of Section 25743 of the Public Resources
Code and the 51.5 percent of the funds which would have been
collected through January 1, 2012, from the customers of the
electrical corporation based on the renewable energy public goods
charge in effect as of January 1, 2007.
   (2) The above-market costs of a contract selected by an electrical
corporation may be counted toward the cost limitation if all of the
following conditions are satisfied:
   (A) The contract has been approved by the commission and was
selected through a competitive solicitation pursuant to the
requirements of subdivision (d) of Section 399.14.
   (B) The contract covers a duration of no less than 10 years.
   (C) The contracted project is a new or repowered facility
commencing commercial operations on or after January 1, 2005.
   (D) No purchases of renewable energy credits may be eligible for
consideration as an above-market cost.
   (E) The above-market costs of a contract do not include any
indirect expenses including imbalance energy charges, sale of excess
energy, decreased generation from existing resources, or transmission
upgrades.
   (3) If the cost limitation for an electrical corporation is
insufficient to support the total costs expended above the market
prices determined in subdivision (c) for the procurement of eligible
renewable energy resources satisfying the conditions of paragraph
(2), the commission shall allow the electrical corporation to limit
its procurement to the quantity of eligible renewable energy
resources that can be procured at or below the market prices
established in subdivision (c).
   (4) Nothing in this section prevents an electrical corporation
from voluntarily proposing to procure eligible renewable energy
resources at above-market prices that are not counted toward the cost
limitation. Any voluntary procurement involving above-market costs
shall be subject to commission approval prior to the expense being
recovered in rates.
   (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. 14.  Section 399.16 of the Public Utilities Code is amended 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 toward 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 electrical corporation shall be obligated to procure
renewable energy credits to satisfy the requirements of this article
in the event that the total costs expended above the applicable
market prices for the procurement of eligible renewable energy
resources exceeds the cost limitation established pursuant to
subdivision (d) of Section 399.15.
   (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. 15.  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
following:
   (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 Sections
399.6 and 399.15, to cover the above-market costs for new renewable
energy resources.
   (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 reduction
products.
   (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
stability.
   (11) A plan to achieve appropriate increases in diversity of
ownership and diversity of fuel supply of nonutility electrical
generation.
   (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
ratemaking purposes.
   (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
resolved.
   (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.
   (e) The commission shall provide for the periodic review and
prospective modification of an electrical corporation's procurement
plan.
   (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 631.
   (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
commission.
   (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
Resources Code.
   (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
generation assets.
   (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. 16.  The amendments made to Section 25751 of the Public
Resources Code made by Section 9 of this act shall become operative
on July 1, 2008.