BILL ANALYSIS Ó AB 177 Page 1 Date of Hearing: January 13, 2014 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Steven Bradford, Chair AB 177 (V. M. Perez) - As Amended: January 8, 2014 SUBJECT : Public Utilities; greenhouse gas emission reductions; renewable resources SUMMARY : This bill will establish a 2030 greenhouse gas emission limit for electrical corporations and publicly owned electric utilities; codify electricity procurement preferences for electrical utilities; remove any statutory or administrative limitations on electricity procurement; and require electrical corporations to procure all electricity needs consistent with the procurement preferences, as specified. Specifically, this bill : a)Requires the California Air Resources Board (ARB), by January 1, 2016, to adopt a statewide greenhouse gas emissions limit for electrical corporations and local publicly owned electric utilities to be achieved by 2030. b)States the policy of the state to require all retail sellers of electricity, including investor-owned electrical corporations and local publicly owned electric utilities, to procure all available cost-effective, reliable, and feasible energy efficiency, demand response, and renewable resources, so as to achieve grid reliability and greenhouse gases emission reductions simultaneously, in the most cost-effective and affordable manner practicable. c)Removes limitations on electricity procurement established by statute or regulatory decision. d)Requires electrical corporations to procure all available cost-effective, reliable, and feasible energy efficiency, demand response, and renewable energy resources, and to consider procuring available cost-effective energy storage technologies. EXISTING LAW a)Establishes procurement requirements which electrical corporations and public utilities must meet in order to attain AB 177 Page 2 a target of 33% renewable generation in its electricity supply portfolios by 2020. (Public Utilities Code 399.11) b)Directs the California Public Utilities Commission (PUC) to review and approve electricity procurement plans proposed by electrical corporations. The plans are to meet specified objectives, including just and reasonable rates and moderating price risks associated with serving utility customers. (Public Utilities Code 454.5) c)Directs the PUC to identify all potential cost effective electricity energy efficiency savings and establish targets to be achieved by electrical corporations. (Public Utilities Code 454.55) d)Directs the California Air Resources Board (ARB) to regulate greenhouse gas emissions (GHG) in order to reduce those emissions to 1990 levels by 2020. Also directs the ARB to make recommendations to the Governor and Legislature on how to continue emission reductions beyond 2020. (Health and Safety Code 38550) FISCAL EFFECT : Unknown COMMENTS : 1) Author's Statement. California has long led the nation in the development of cutting edge public policy to combat climate change. From the Renewable Portfolio Standard (RPS) to the first-of-its-kind cap and trade carbon reduction system, California has made strides toward reducing its impact on the environment. But while the state has not lacked for good ideas, it has failed to adequately coordinate its myriad of environmental policies to ensure each works toward the common goal of ensuring an affordable, reliable supply of energy that is renewable and addresses the root cause of climate change: greenhouse gas emissions. And today, many analysts, including those at the Lawrence Berkeley National Laboratory, believe California will not meet its 2050 greenhouse gas goal. To address these challenges, and calibrate how the state procures its energy resources, AB 177 will codify a key AB 177 Page 3 recommendation from both the 2013 AB 32 Scoping Plan Update and the 2013 Integrated Energy Policy Report (IEPR): the establishment of a 2030 interim greenhouse house gas reduction target for the electricity sector. AB 177 will direct the ARB to adopt a 2030 interim greenhouse gas (GHG) emission target consistent with the state's adopted goal (E.O. S-3-05) of reducing emissions by 80% of 1990 levels by 2050. Acknowledging that it will take ARB time to develop the 2030 target, AB 177 will also codify the PUC's "Loading Order," making permanent the existing requirement that utilities meet their energy needs first, to the maximum extent feasible and cost-effective, through energy efficiency, demand response and renewable resources before procuring conventional generation resources. Codifying this policy will place the electricity sector firmly on the path toward decarbonization while also sending a clear signal to the market that clean technologies will continue to be a valuable and integral part of California's energy future. 2) Post-2020 Greenhouse Gas Emissions Goals. In October 2013, the ARB issued a discussion draft of its updated Climate Change Scoping Plan. This draft has not yet been adopted by the Board. The draft plan does suggest that a midterm goal should be adopted toward meeting a 2050 goal: "A target that reflects the scientifically-based level of emission reductions the state needs to achieve by 2030 will help guide ongoing and future policy decisions and provide a clear market signal for continued investment in low-carbon technologies." It also states that, "ARB will develop post-2020 emissions caps to reflect the establishment of a 2030 midterm target. The program will need to reflect the inclusion of any additional trading partners and may need to include broader emissions scope. In the section addressing continuing progress post-2020, the Scoping Plan states that, "The State needs an overarching energy plan to ensure that long term climate goals can be achieved" and "The plan should address a number of important administrative, financial, and technological issues to guide investment and planning in the electricity sector." The GHG emissions goals apply to all sectors of California, including the electricity sector, but also transportation, agriculture, commercial and residential buildings, other AB 177 Page 4 Global Warming Potential products, and the industrial sector. Assuming both the targets and the plan are included in the final scoping plan, it is unclear why it is necessary to establish a 2030 goal for only one of the regulated sectors. The author may wish to consider striking Section 1 of this section of the bill. 3) Intent Language addressing the Salton Sea. Section 2 includes a Legislative finding that substantial high quality renewable resources are located in Imperial County that can provide electricity to the grid, provide grid reliability, and reduce greenhouse gas emissions in a manner that will provide local environmental and economic benefits. Technical reports suggest that Imperial County may have between 2,000 and 2,500 MW of geothermal potential. In Northern California, estimated geothermal energy projects are in excess of 750 MW. Yet few of these projects have not been successful in renewable solicitations authorized by the PUC. The vast majority of pending contracts have been awarded to photovoltaic or wind projects. While Imperial County is clear that it has a variety of renewable resource opportunities available, not solely geothermal. The author may wish to make revisions to Section 2 of this bill. 4) Codifying the "Loading Order." The "Loading Order" is policy guidance that was first developed in 2003 through a coordination effort between the ARB, the California Energy Commission (CEC), and the PUC through an activity known as the "Energy Action Plan." Over time the Loading Order has remained generally the same as its initial concept in the 2003 Energy Action Plan: to guide decisions made by the agencies jointly and singly by optimizing all strategies for increasing conservation and energy efficiency to minimize increases in electricity and natural gas demand. AB 177 Page 5 In the most recent Energy Action Plan (2008) states that the State's Loading Order would invest first in energy efficiency and demand-side resources, followed by renewable resources, and only then in clean conventional electricity supply. The PUC applies the loading order to the annual energy procurement directives it gives to the electric utilities and specifies that preferred resources are to be procured to the extent that they are feasibly available and cost effective. (PUC Decision 13-02-015). Current law codifies that the PUC shall require all potentially achievable cost-effective electricity efficiency savings be set as targets for electrical corporations to achieve. The sponsors of AB 177 suggest that they are codifying existing policies. However, the language proposed in AB 177 is not consistent with the 2008 Energy Action Plan language and adds new language to include air quality, reduce GHG emissions, preserve electric grid reliability, and that "procurement shall not be limited by any targets established for these resources by statute or regulatory decision." It is unclear if the author intent to provide the PUC with authority to order procurement without any statutory limitations or Legislative oversight or vest the PUC. While the Loading Order provides guidance to energy agencies, it is not binding. This has the advantage of allowing agencies to modify the Loading Order to reflect changes in availability and cost of technologies that fit the definition of preferred resources. For example, the Loading Order does not distinguish between large scale or distributed resources, retail versus wholesale procurement priorities, or the various new technologies that appear to be achieving significant cost reductions that could be deemed preferred. It is also silent on developing vehicle-to-grid opportunities. For these reasons, codifying the Loading Order may produce limitations that make it difficult for state agencies to be responsive to new technologies or new methods of addressing California's energy preferences. The author may wish to revise strike Sections 3 and 4 of this bill. AB 177 Page 6 5) Procurement of Intermittent and Variable Resources in the Renewable Portfolio Standard. The most recent quarterly reports from the Investor owned utilities show that the trend is weighted heavily toward wind and solar photovoltaics. The chart below is based on data reported by PG&E, SDG&E, and SCE in its most recent compliance report. These percentages represent the percent of Megawatt-hours, by technology, that each utility has contracted with to meet the RPS goals. ---------------------------------------------------- | 2020 RPS Procurement, August 1, 2013 Compliance | | Reports | | Percent by Technology | ---------------------------------------------------- |-----------------+------------+---------+-----------| | | PG&E | SDG&E | SCE | |-----------------+------------+---------+-----------| |Biopower | 10 | 3 | 1 | |-----------------+------------+---------+-----------| |Geothermal | 10 | 0 | 20 | |-----------------+------------+---------+-----------| |Small Hydro | 9 | 0 | 3 | |-----------------+------------+---------+-----------| |Conduit Hydro | 0 | 0 | 1 | |-----------------+------------+---------+-----------| |Solar | 34 | 52 | 33 | |Photovoltaic | | | | |(PV) | | | | |-----------------+------------+---------+-----------| |Solar Thermal | 15 | 0 | 3 | |-----------------+------------+---------+-----------| |Wind | 22 | 45 | 39 | |-----------------+------------+---------+-----------| |Ocean/Tidal | 0 | 0 | 0 | |-----------------+------------+---------+-----------| |Fuel Cells | 0 | 0 |0 | ---------------------------------------------------- The Procurement trends indicate that California is steadily increasing its reliance on wind and solar PV. Pacific Gas and Electric Company's (PG&E) 2012 Procurement percentages change from 1% Solar PV to 24% and Wind procurement grows from 15% to 25%. Geothermal procurement changes from 47% AB 177 Page 7 to 10%. Similar trends for San Diego Gas & Electric (SDG&E) and Southern California Edison (SCE) are shown. SDG&E's Solar PV procurement grows from less than 1% in 2012 to 52% by 2020. Wind procurement decreases from 59% to 45%. Geothermal procurement decreases from 23% to zero. 6) The Duck Chart. In 2013, the California Independent System Operator (CAISO) released a graphic that is now known as "the Duck Chart." The Duck Chart provides an example of the results of current policy direction and warns that California may experience challenges with grid reliability due to a convergence of policies that will result in closure of at least some of the coastally-located gas power plants, the closure of the San Onofre Nuclear Generation Station (SONGS), the lack of transmission flexibility into the San Diego and Southern Orange County regions, hourly demand forecasts, and the performance characteristics of forecasted wind and solar procurement facilities. Because wind and solar facilities can produce large upward ramps of output and large downward ramps of output, without predictability or advance warning (when the wind starts and stops and the sun is blocked by weather conditions), the Duck Chart demonstrates that if current procurement trends continue, there may be added cost burdens and perhaps reliability challenges in order to maintain compliance with federal reliability standards. Possible remedies include paying renewable generators to curtail generation, pay natural gas generators to stand by to respond to large ramps, or even possibly pay other states to take excess generation. This scenario might occur if nothing is done to reduce the size of the ramps, such as but not limited to building more natural gas plants, modify renewable procurement practices within the renewable portfolio, or increasing the size and effectiveness of energy efficiency and demand response programs. Geothermal and biopower have different characteristics and can provide power output consistently over a 24 hour period. These renewable technologies may be part of the mix of possible policy actions to address the issues raised by the Duck Chart. 7) Cost Comparisons . The cost of generation is paid by ratepayers. The PUC is charged with ensuring safe, reliable, AB 177 Page 8 affordable supplies of electricity to customers and that the costs paid are just and reasonable. According to the March 2013 Report to the Legislature on RPS costs: "The weighted average time-of-delivery (TOD) adjusted price was approximately 9.6 cents/kilowatt hour (kWh) for all contracts approved in 2012 (including renewable energy credit only, or REC only, transactions), and approximately 9.9 cents/kWh for bundled energy product (excluding REC transactions)." Table A-1 in this report also reports that the Average TOD RPS Procurement from Geothermal projects ranged from 0.0748 to $0.0671. Photovoltaic projects ranged from $0.1533/kWh to $0.23/kWh. 8) Addressing Renewable Integration Costs. "Renewable Integration Costs" is refers to the cost of reliable operation of the electrical grid as California moves toward a larger percentage of renewable generation in in utility portfolios. The PUC has indicated that the addition of renewable energy to meet at 33% portfolio may lead to "integration costs" to maintain California electric system reliability. But, since 2004 the PUC has mandated that integration costs be assumed to be zero. In the PUC's proceeding to establish RPS procurement plans, the PUC received comments from PG&E suggesting a renewable integration adder. The Center for Energy Efficiency and Renewable Technology (CEERT), California Wind Energy Association and SCE filed comments asking that a process and timeline for the development of a renewable integration cost adder be established. The PUC decided (D.12-11-016, November 2012) that integration costs would remain set at zero until more information and a public review had occurred. The PUC invited comments on the integration cost adder in a separate Long Term Procurement Planning (LTPP) proceeding, R.12-03-014. This proceeding started in March 2012 and is still underway. By restricting integration costs to zero, the PUC, utility AB 177 Page 9 procurement provides no value to renewable technologies with different characteristics (intermittent, variable, dispatchable, baseload). This may be a contributing factor to both the utility procurement shifting toward greater levels of intermittent and variable renewable generation and also may be one of the factors that created the Duck Chart. The author may wish to amend Section 454.4 of the Public Utilities Code to specify that integration costs be included in renewable procurement. In addition, the author may wish to add a requirement that the California Energy Commission, through its Integrated Policy Report, to convene a stakeholder group to provide advice on developing and transmitting renewable energy projects located in Imperial County. 9) Support and Opposition Supporters of AB 177 suggest that: AB 177 is an important next step that ensures California's grid of the future is based on the proper balance between all energy resources, the need for GHG reduction, and ratepayer protection. AB 177 will improve coordination between various state agencies in implementing the Renewable Portfolio Standard, the California Solar Initiative, and various other energy goals. Codifying the loading order will send a clear signal to market that clean technologies will continue to be a valuable and integral part of California's energy future. AB 177 will be a benefit for Environmental Justice Communities throughout the state of California. Opponents to AB 177 suggest that: Specific provisions in AB 177 are confusing, inconsistent with existing policy approaches, and could prove counterproductive. The bill appears to be aimed at mandating that particular resources be used to serve system reliability needs rather than other resources or practices that might more cost-effectively address these needs counterproductive. AB 177 Page 10 AB 177's GHG provisions are premature and should not create a sector specific cap. There is an ongoing process at ARB via the Scoping Plan to make recommendations on additional emission reductions by 2020 and it is premature to legislate post-2020 targets at this time. AB 177 bill would allow all of the procurement of new renewable generation above 33% to be from unbundled REC's. These RECs could be procured from anywhere in the world. The procurement plan does not have to be approved by the PUC. The bill places no requirements whatsoever on the new renewable procurement, thus eliminating all of the carefully balanced requirements in the Renewable Portfolio Standard. A long term limit for GHG emissions from the electric sector is not necessary and could increase already high electric rates. AB 177 creates cost and reliability risks by adopting a new loading order that could interfere with rational procurement strategies. AB 177 may undermine the regulatory framework created through the comprehensive approach of AB 32 by "carving out" specific industry for additional regulation. 1)Suggested Amendments. The author may wish to amend AB 177 to: a) Require the PUC to establish a value for renewable integration costs or other values it identifies, for each technology, bidding into renewable procurement contract opportunities authorized by the PUC to ensure that the costs and benefits of each type of renewable technology is assessed for both its energy value and its effect on electric reliability. b) Require the Energy Commission, through its Integrated Energy Policy Report, to convene a stakeholder group to advise the CEC, on developing and transmitting renewable energy projects located in Imperial County. Specifically, the suggested amendments are:SECTION 1. Section 38550 of the Health and Safety Code is amended to read: 38550. (a) By January 1, 2008, the state board shall, after one or more public workshops, with public notice, and an opportunity for all interested parties to comment, determine AB 177Page 11 what the statewide greenhouse gas emissions level was in 1990, and approve in a public hearing, a statewide greenhouse gas emissions limit that is equivalent to that level, to be achieved by 2020. In order to ensure the most accurate determination feasible, the state board shall evaluate the best available scientific, technological, and economic information on greenhouse gas emissions to determine the 1990 level of greenhouse gas emissions. (b) By January 1, 2016, the state board, after conducting one or more public workshops with public notice and an opportunity for all interested parties to comment, and performing an analysis of the progress being made to achieve the 2020 statewide greenhouse gas emissions limit, shall adopt in a public hearing a statewide greenhouse gas emissions limit for electrical corporations, as defined in Section 218 of the Public Utilities Code, and local publicly owned electric utilities, as defined in Section 224.3 of the Public Utilities Code, to be achieved by 2030. SEC 2. Section 399.23 is added to the Public Utilities Code, to read: 399.23. (a) The Legislature finds and declares all of the following: (1) There is increasing uncertainty with regard to the availability of California's fleet of older powerplants, as well as the state's ability to reduce greenhouse gas emissions beyond the target established for 2020, creating the need for both increased electrical generation from renewable energy resources and reduced demand through energy efficiency and demand response. (2) It is in the best interest of the electricity consumers of this state that sufficient renewable energy generation supply and demand-side resources are procured to meet electricity demand, and that this supply and these resources provide the highest value, including providing safe, reliable, and affordable electricity supplies and minimizing air quality impacts to consumers in the most cost-effective manner practicable. (3) Renewable energy generation from renewable energy resources that qualify as local capacity resources are essential to maintaining reliable electricity deliveries. (4) There are substantial high-quality renewable energy resources in the County of Imperial near the Salton Sea with the ability to reduce greenhouse gas emissions that can generate electricity in a manner that will simultaneously meet local capacity requirements, maintain grid reliability, and AB 177 Page 12 provide significant local and regional environmental and economic development benefits. (5) The commitment to a loading order of preferred resources in the manner prescribed in Section 454.55 is necessary to the continued health and safety of California electric consumers. (b) Consistent with the loading order adopted by the Energy Commission and the commission that sets forth state policy for preferred resources to meet electrical load needs, it is the intent of the Legislature, and the policy of the state, that all retail sellers of electricity, including investor-owned electrical corporations and local publicly owned electric utilities, shall procure all available cost-effective , reliable, and feasible energy efficiency, demand response, and renewable energy resources, so as to achieve grid reliability and greenhouse gases emission reductions simultaneously, in the most cost-effective and affordable manner practicable. Procurement shall not be limited by any targets established for these resources by statute or regulatory decision. SEC. 3. Section 454.55 of the Public Utilities Code is repealed. SEC. 4. Section 454.55 is added to the Public Utilities Code, to read: 454.55. Pursuant to a loading order of preferred resources to meet electricity demand in a manner that improves the state's air quality, reduces greenhouse gas emissions, and preserves electric grid reliability, electrical corporations shall procure all available cost-effective , reliable, and feasible energy efficiency, demand response, and renewable energy resources, and shall consider procuring available cost-effective energy storage technologies. Procurement of conventional or gas fired generation shall only be undertaking to meet residual need forecasted for the long-term planning period that is not otherwise met by preferred resources. In measuring the cost-effectiveness of the procurement of preferred resources, the commission shall determine and include the value of grid reliability, including the value of grid reliability of diversity in renewable electric generation by resource type, size and location, both alone and in combination with nontransmission alternatives, and local environmental benefits provided by each renewable energy resource type technology in disadvantaged communities that have been identified by the California Environmental protection agency pursuant to Section 39711 of the Health and Safety Code. This procurement shall not be limited by any targets established for these resources by statute or AB 177 Page 13 regulatory decision. However, the commission shall continue to establish efficiency targets for an electrical corporation to achieve pursuant to Section 454.5. SECTION 1. The Legislature finds and declares all of the following: (1) There are substantial high-quality renewable resources in the County of Imperial near the Salton Sea with the ability to reduce greenhouse gas emissions that can generate electricity in a manner that will simultaneously assist in maintaining grid reliability, provide lower renewable integration costs, help meet California's renewable portfolio standard and greenhouse gas mitigation regulations, and provide significant local and regional environmental and economic development benefits. (2) There are similar high-quality renewable resources located in Northern California with the ability to reduce greenhouse gas emissions that can generate electricity in a manner that will simultaneously assist in maintaining grid reliability, provide lower renewable integration costs, help meet California's renewable portfolio standard and greenhouse gas mitigation regulations, and provide significant local and regional environmental and economic development benefits. (2) The County of Imperial and the Imperial Irrigation District ("IID") have signed a memorandum of understanding that pledges their mutual efforts to advance the development of renewable resources and precious minerals extraction in the IID Balancing Authority and thereby provide a funding source that will assist the State of California meet its mitigation and restoration obligations pursuant to the Quantification Settlement Agreement. (3) The Natural Resources Agency, in cooperation and consultation with the Salton Sea Authority, is conducting a feasibility study that will serve as the blueprint to guide future efforts to restore the Salton Sea, develop the renewable resources located there, and provide direction to local, regional, and State agencies responsible for the protection of the health of those who could otherwise be subjected to the detrimental air quality effects from an exposed lake bed. 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 AB 177 Page 14 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 AB 177 Page 15 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, in order to fulfill its unmet resource needs, shall procure resources from eligible renewable energy resources in an amount sufficient to meet its procurement requirements pursuant to the California Renewables Portfolio Standard Program (Article 16 (commencing with Section 399.11) of Chapter 2.3). (B) The electrical corporation shall create or maintain a diversified procurement portfolio consisting of both short-term and long-term electricity and electricity-related and demand reduction products, and electric system reliability. (C) The electrical corporation shall 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 establish a value for assessing all renewable procurement contracts that includes the cost of renewable integration. The commission may also include other values, such as but not limited to voltage support.(c)(d) 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 AB 177 Page 16 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)(e) 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 ensure that each contract was administered in accordance with the terms of the contract, and contract disputes that may arise are reasonably resolved. AB 177 Page 17 (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) Provide for procurement of preferred resources in a manner that ensures electric system reliability.(e)(f) The commission shall provide for the periodic review and prospective modification of an electrical corporation's procurement plan.(f)(g) 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)(h) The commission shall adopt appropriate procedures to ensure the confidentiality of any market sensitive information submitted in an electrical corporation's proposed procurement AB 177 Page 18 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)(i) 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 3. Section 25328 is added to the Public Resources Code, to read: The commission shall, in cooperation and consultation with the AB 177 Page 19 Public Utilities Commission, the Natural Resources Agency, and the Salton Sea Authority, convene a stakeholders group to advise the commission on the steps that should be taken to properly develop, integrate, and transmit the renewable energy resources located in and around the Salton Sea. Workshops and public hearings shall be held to consider the recommendations of the stakeholders group. The commission and the stakeholders shall consider at least the following: (1) Methods to expedite transmission line development from the Imperial Irrigation District Balancing Authority to utilities and regional Independent System Operators. (2) Analyze whether State loan guarantees loans or State funds could be made available to assist geothermal and other renewables developers access capital and long term financing. (3) Identify permitting issues and responsible agencies. (4) Analyze the feasibility of granting blanket permits to multiple geothermal project developments located near or under the existing Salton Sea. (5) Analyze the effectiveness of the value used for renewable integration specified in Section 454.5 of the Public Utilities Code and whether it has resulted in new Salton Sea renewables development and make recommendations on whether other measures are appropriate to ensure that Salton Sea renewable development occurs. (6) Analyze the costs and the value provided by base load renewable energy projects at the Salton Sea. (7) Assist in the framing of a pilot project to evaluate algae and solar energy facilities located on or near Salton Sea playa areas. (8) Analyze the benefits and costs of rare earth extraction in consultation with the relevant State and federal agencies. REGISTERED SUPPORT / OPPOSITION : Support CalEnergy Operating Corporation Coalition for Clean Air Energy Source Imperial County Board of Supervisors San Joaquin Valley Latino Environmental Advancement Project (Valley LEAP) Opposition AB 177 Page 20 California Business Properties Association California Chamber of Commerce (CalChamber) California Farm Bureau Federation California Large Energy Consumers Association (CLECA) California League of Food Processors California Manufacturers & Technology Association (CMTA) California Municipal Utilities Association (CMUA) California Retailers Association California Wind Energy Association (CalWEA) Calpine Corporation Coalition of California Utility Employees (CCUE) Independent Energy Producers Association (IEP) Large-Scale Solar Association (LSA) Northern California Power Agency (NCPA) Pacific Gas and Electric Company (PG&E) PacificCorp Plumbing-Heating-Cooling Contractors Association of California San Diego Gas and Electric Company (SDG&E) Southern California Edison (SCE) Southern California Gas Company Southern California Public Power Authority (SCPPA) Terra-Gen Power The Utility Reform Network (TURN) (unless amended) Western Electrical Contractors Association Western States Petroleum Association Analysis Prepared by : Susan Kateley / U. & C. / (916) 319-2083