BILL ANALYSIS                                                                                                                                                                                                    Ó




                                                                  AB 2363
                                                                  Page A
          Date of Hearing:   April 28, 2014

                    ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
                               Steven Bradford, Chair
                    AB 2363 (Dahle) - As Amended:  April 10, 2014
           
          SUBJECT  :   Electricity procurement.

           SUMMARY  :   This bill would require the California Public  
          Utilities Commission (PUC) to adopt a nonzero integration cost  
          adder methodology to use when approving procurement of eligible  
          renewable resources by a retail seller in excess of the minimum  
          quantities required by the renewables portfolio standard.  
          Specifically,  this bill  :  

          1)Requires the PUC to adopt, by rulemaking, by October 1, 2015,  
            a nonzero integration cost adder methodology that reflects a  
            reasonable estimate of the costs of procuring capacity and  
            energy required to accommodate the electrical generation of  
            the particular eligible renewable energy resource. 

          2)Requires the PUC to consider nonzero integration cost adders  
            prior to approving procurement of eligible renewable energy  
            resources by a retail seller in excess of the minimum  
            quantities of electricity products required to be purchased  
            pursuant to the renewables portfolio standard.

          3)Requires the PUC to direct electrical corporations to include  
            nonzero integration cost adders in their proposed procurement  
            plans.

           EXISTING LAW  

          a)Establishes procurement requirements which electrical  
            corporations and public utilities must meet in order to attain  
            a target of 33% renewable generation in their electricity  
            supply portfolios by 2020. (Public Utilities Code 399.11)

          b)Establishes a renewables portfolio standard requiring all  
            retail sellers to procure a minimum quantity of electricity  
            products from eligible renewable energy resources as a  
            specified percentage of total kilowatt-hours sold to their  
            retail end-use customers each compliance period to achieve  
            various targets. (Public Utilities Code 399.15)










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          c)Directs the 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)

          d)Authorizes the PUC to require each electrical corporation to  
            annually prepare a renewable energy procurement plan.

           FISCAL EFFECT  :   Unknown 

           


          COMMENTS :   

           1)Author's statement:  "Despite the CPUC's longstanding interest  
            in integration cost adders that accurately reflect the  
            differing integration costs associated with particular  
            renewable technologies, the CPUC has failed to take action to  
            level the playing field.  As a result, biomass and geothermal  
            projects with low integration costs but high operational and  
            capital costs cannot compete with intermittent renewables that  
            have relatively lower operational and capital costs but much  
            higher integration costs that are simply ignored.  

            AB 2363 obliges the CPUC to determine appropriate integration  
            cost adders so that the IOUs' LCBF analysis accurately  
            reflects the total costs, both direct and indirect, of  
            particular renewable resources.  This is significant given the  
            range of renewable procurement options available to California  
            public utilities.

            It is important to promote a policy that will assist the  
            state's RPS to ensure that the procurement process creates a  
            more level playing field and evaluates all new and existing  
            renewable resources accurately and fairly. The result will be  
            a more diverse and cost-effective portfolio of renewable  
            energy resources, which will help to balance the grid and  
            maintain reliability while keeping consumer electric rates  
            affordable."

           2)Integration costs.  California's Renewable Portfolio Standard  
            (RPS) mandates that electrical corporations and public  
            utilities must meet or exceed a target of 33% renewable  









                                                                  AB 2363
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            generation in their electricity supply portfolios by 2020. 
             
             A wide variety of renewable resources are available, and each  
            has diverse operating characteristics and costs. Solar and  
            wind energy are classified as intermittent renewables - they  
            are dependent upon the sun shining or wind blowing. In order  
            to ensure a reliable and steady flow of energy to customers,  
            they require additional generation to be available as a  
            backup. The costs of backup generation are referred to as  
            "integration costs" and are a necessary element of integrating  
            intermittent renewable resources into the grid. 

            Other renewable energy resources are classified as baseload  
            facilities - they are able operate 24 hours per day. These  
            include certain geothermal and biopower facilities. As such,  
            these types of facilities do not require additional backup  
            generation and thus may have lower integration costs than  
            intermittent resources such as solar and wind.

           3)The PUC's least cost best fit analysis.  Electricity  
            procurement plans and renewable energy contracts proposed by  
            investor owned utilities (IOUs) are subject to the PUC's least  
            cost best fit (LCBF) requirements. Currently, the PUC does not  
            include integration costs in its LCBF analysis. Therefore, all  
            renewables are considered to have no integration costs even  
            though certain renewable resources have higher integration  
            costs than others.
             
            As background, in the first year of the RPS program (2004),  
            the PUC recognized that integration costs for intermittent  
            renewables needed to be captured in a cost adder so that these  
            costs could inform and improve the renewable procurement  
            decisions. At the time, with limited renewables penetration  
            and low associated integration costs, the PUC approved an  
            adder of zero.<1> Today, estimates of integration costs for  
            intermittent renewables have suggested that this value is no  
            longer zero, but the PUC continues its consideration as to  
            whether a nonzero integration cost adder is appropriate for  
            such resources.

           4)State of RPS procurement.  California's electricity portfolio  
            must be balanced and diversified to promote reliability. Due  
            to the RPS and the increasingly competitive prices for  


          ---------------------------
          <1> PUC Decision 04-07-029.   
           http://docs.cpuc.ca.gov/word_pdf/FINAL_DECISION/38287.pdf  








                                                                  AB 2363
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            renewable generation, renewable technologies are providing  
            much larger amounts of electricity for California. However,  
            due to the performance characteristics of the technologies,  
            reliance on intermittent and variable renewable resources  
            (wind energy is available when the wind blows and solar energy  
            is available when the sun shines) balanced with other  
            renewable technologies, such as geothermal and biopower, which  
            can generate electricity at any time.  

             However, the most recent quarterly reports from the  
            investor-owned utilities (IOUs) show that renewable  
            procurement is weighted toward intermittent and variable  
            resources. The table below is based on data reported by PG&E,  
            SDG&E, and SCE in the most recent compliance reports. With  
            forecasts extended out to 2020, the data for all three large  
            IOUs generally show a large shift toward solar PV and wind,  
            with a corresponding decrease in geothermal and biopower.  
            SDG&E shows the most dramatic trend from 2011 to 2020, with a  
            large shift from 0.1% solar PV to 51.9%, and a decrease in  
            geothermal from 23.2% to 0%. The other IOUs display similar,  
            although not as dramatic, trends.

            The percentages below represent the percentage of  
            megawatt-hours, by technology each utility has contracted with  
            to meet the RPS goals.  
           

             ---------------------------------------------------------------- 
            |       RPS Procurement: August 1, 2013 Compliance Reports       |
             ---------------------------------------------------------------- 
             --------------------------------------------------------------- 
            |           |      PG&E       |     SDG&E      |      SCE       |
             --------------------------------------------------------------- 
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
            |Energy   |  2011   |  2012   |  2020   |  2011   |  2012   |  2020   |  2011   |  2012   |  2020   |
            |source   |         |         |         |         |         |         |         |         |         |
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
            |Biopower |  24.4%  |  23.9%  |  11.1%  |  16.8%  |  25.0%  |  2.8%   |  5.5%   |  4.1%   |  0.5%   |
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
            |Geotherma|  25.0%  |  26.0%  |  10.2%  |  23.2%  |  28.1%  |  0.0%   |  46.8%  |  43.4%  |  20.0%  |
            |l        |         |         |         |         |         |         |         |         |         |
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
            |Small    |  18.2%  |  12.4%  |  9.2%   |  0.0%   |  0.0%   |  0.3%   |  5.1%   |  3.2%   |  3.3%   |
            |Hydro    |         |         |         |         |         |         |         |         |         |
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|









                                                                  AB 2363
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            |Conduit  |  0.0%   |  0.0%   |  0.0%   |  0.5%   |  0.6%   |  0.1%   |  0.8%   |  1.0%   |  0.5%   |
            |Hydro    |         |         |         |         |         |         |         |         |         |
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
            |Solar    |  1.4%   |  8.0%   |  33.4%  |  0.1%   |  0.1%   |  51.9%  |  0.7%   |  1.1%   |  33.1%  |
            |Photovolt|         |         |         |         |         |         |         |         |         |
            |aic      |         |         |         |         |         |         |         |         |         |
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
            |Solar    |  0.0%   |  0.0%   |  14.4%  |  0.0%   |  0.0%   |  0.0%   |  5.7%   |  5.8%   |  3.2%   |
            |Thermal  |         |         |         |         |         |         |         |         |         |
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
            |Wind     |  31.0%  |  29.7%  |  21.8%  |  59.4%  |  46.2%  |  44.9%  |  35.4%  |  41.5%  |  39.5%  |
             --------------------------------------------------------------------------------------------------- 
            |Ocean/Tid|  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |
            |al       |         |         |         |         |         |         |         |         |         |
            |---------+---------+---------+---------+---------+---------+---------+---------+---------+---------|
            |Fuel     |  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |  0.0%   |0.0%     |
            |Cells    |         |         |         |         |         |         |         |         |         |
             --------------------------------------------------------------------------------------------------- 


            In the PUC's proceeding to establish RPS procurement plans,  
            comments were received from PG&E that suggested 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 in 2012 that integration  
            costs would remain set at zero until more information and a  
            public review had occurred.<2> 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 provides no  
            value to renewable technologies with different characteristics  
            (intermittent, variable, dispatchable, baseload). This may be  
            a contributing factor to the shift in utility procurement  
            toward intermittent and variable renewable generation. 

           5)The Duck Chart.  The absence of integration costs may also be a  
            contributor to the "Duck Chart", a graphic released in 2013 by  
            the California Independent System Operator (CAISO).  

          ---------------------------
          <2> PUC Decision 12-11-016.  
           http://docs.cpuc.ca.gov/PublishedDocs/Published/G000/M033/K783/33 
          783021.PDF  








                                                                  AB 2363
                                                                  Page F
            Essentially, the chart demonstrates that as California adds  
            certain intermittent and variable sources of renewable energy  
            (i.e., wind and solar), the state will need more fossil-fuel  
            power plants to supply electricity when the sun and the wind  
            don't. Furthermore, it shows that those plants must be able to  
            cut or boost their output much faster than older plants can.

            The Duck Chart also warns that California may experience  
            challenges with grid reliability due to a convergence of  
            policies, including:

                     closure of at least some of the coastally-located  
                 gas power plants;
                     closure of the San Onofre Nuclear Generation Station  
                 (SONGS);
                     lack of transmission flexibility into regions of San  
                 Diego and southern Orange County;
                     updated hourly demand forecasts; and
                     performance characteristics of forecasted wind and  
                 solar procurement facilities.
                
             Because wind and solar facilities can produce large upward and  
            downward ramps of output without predictability or advance  
            warning (i.e., when the wind starts/stops or the sun is  
            blocked by cloud cover), the Duck Chart demonstrates that if  
            current procurement trends continue, there may be added cost  
            burdens and reliability challenges needed to maintain  
            compliance with federal reliability standards. 

            Possible remedies include paying (1) renewable generators to  
            curtail generation; (2) natural gas generators to stand by to  
            respond to large ramps; or even (3) other states to take  
            excess generation. These scenarios may occur if nothing is  
            done to reduce the size of the ramps, such as but not limited  
            to building more natural gas plants, modifying renewable  
            procurement practices within the renewable portfolio, or  
            increasing the size and effectiveness of energy efficiency and  
            demand response programs.

            Renewable technologies such as geothermal and biopower have  
            different characteristics and can provide power output  
            consistently over a 24 hour period. These energy sources may  
            be part of the mix of possible policy actions to address the  
            issues raised by the Duck Chart. One important factor to  
            consider is their costs, as described below.









                                                                  AB 2363
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           1)Cost Comparisons  . The cost of generation is paid by  
            ratepayers. The PUC is charged with ensuring safe, reliable,  
            affordable supplies of electricity to customers and that the  
            costs paid are just and reasonable.
             
             According to the February 2014 report to the Legislature on  
            RPS costs<3>: the weighted average time-of-delivery (TOD)  
            adjusted contract price was approximately 7.5 cents/kilowatt  
            hour (kWh) for all contracts approved in 2013 (including  
            renewable energy credit only, or REC only, transactions), and  
            approximately 8.4 cents/kWh for bundled energy product  
            (excluding REC only transactions). This 2013 average RPS  
            contract price is lower than the RPS contracts approved in  
            2012, which were 9.7 cents/kWh on average, because of price  
            declines in the renewable market.

            Table A-1 in this report also reports that the average TOD RPS  
            procurement from geothermal projects ranged from 6.5 to 7.19  
            cents/kWh - numbers relatively similar to those in 2012.  
            Photovoltaic projects ranged from 10 to 15.18 cents/kWh, a  
            decrease from the 2012 range of 15.33 to 23 cents/kWh.

            With the absence of a non-zero integration cost adder, it is  
            difficult to perform an "apples to apples" cost comparisons  
            between different renewable resources.

           2)Cost integration in excess of RPS requirements.  Currently bill  
            language mandates the PUC to use nonzero integration cost  
            adder methodology when approving procurement of eligible  
            renewable resources by a retail seller in excess of the  
            minimum required RPS quantities.

            This provision may have the unintended consequence of halting  
            renewable procurement in excess of the minimum quantities, as  
            the PUC does not currently have an approved nonzero  
            integration cost adder methodology.

             The author may wish to consider an amendment that removes  
            language related to the use of nonzero cost adder methodology  
            when procurement is in excess of the RPS requirements.
           

          ---------------------------
          <3> PUC. Padilla Report to Legislature. February 2014.  
           http://www.cpuc.ca.gov/NR/rdonlyres/775640F8-38D7-4895-9252-7E172 
          61776FE/0/PadillaReport2014FINAL.pdf  








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           3)Cost integration of all technologies and examining least-cost  
            integration solutions.  This bill focuses on the cost of the  
            RPS qualified technologies. However, all energy facilities are  
            likely to have integration costs to some extent. It may be a  
            worthwhile for the PUC to provide integration costs for all  
            generation technologies so that it does not single out  
            renewables as the only technologies that has such costs.

            It may also be worth considering how renewable integration  
            costs are defined. For example, it may not be appropriate to  
            include an assumption for natural gas generation as the only  
            way to address ramping or intermittency issues (as shown in  
            the duck chart). Smart demand response or energy storage may  
            be examples of some mechanisms that could address this in a  
            cost-effective manner. Smart demand and energy response were  
            two of four alternate scenarios for addressing potential  
            over-generation that could occur if the state's RPS is raised  
            to 50% in the January 2014 report by the consulting firm E3:  
            "Investigating a Higher Renewables Portfolio Standard in  
            California."

           4)Support and opposition.  Supporters claim the bill will improve  
            the procurement process by recognizing the integration costs  
            of intermittent resources, and that the full costs and  
            benefits of various choices should be as transparent as  
            possible to improve the analysis of least cost, best fit and  
            to protect ratepayers.  Additional supporters say the bill  
            will assist the state's RPS to ensure that the procurement  
            process creates a more level playing field and evaluates all  
            new and existing renewable resources accurately and fairly.  
            They further state the result will be a more diverse and  
            cost-effective portfolio of renewable energy resources, which  
            will help to balance the grid and maintain reliability while  
            keeping consumer electric rates affordable.

            Others are concerned that the term "non-zero" could force a  
            value onto some resources where the correct value may in fact  
            be zero.

            Opponents claim this bill inappropriately requires assignment  
            of an additional cost to renewable resources regardless if any  
            additional cost exists and could unnecessarily result in  
            negative impacts on both renewable energy procurement and  
            ratepayer costs. Additionally, they claim this requirement  
            circumvents the work underway by the PUC and the CAISO to  









                                                                  AB 2363
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            determine whether and to what extent there are costs related  
            to integration of renewable energy onto the California  
            electricity grid. Furthermore, the PUC has a process underway  
            to determine the appropriate costs of integration to assign-if  
            any. Other opponents argue specifically mandating a non-zero  
            adder, particularly in advance of demonstrated need, may have  
            the perverse impact of raising costs for consumers without  
            reason.

           5)Suggested amendments.
             
            SECTION 1. The Legislature finds and declares all of the  
            following:
            (a) California is leading the world in adopting comprehensive  
            programs that reduce emissions of greenhouse gases, including  
            passage of the California Global Warming Solutions Act of 2006  
            (Division 25.5 (commencing with Section 38500) of the Health  
            and Safety Code) and the California Renewables Portfolio  
            Standard Program (Article 16 (commencing with Section 399.11)  
            of Chapter 2.3 of Part 1 of Division 1 of the Public Utilities  
            Code).
            (b) The state has an abundant supply of renewable energy  
            resources, including geothermal, biomass, biomethane, wind,  
            and solar, that have contributed to the state's ability to  
            reduce its emissions of greenhouse gases and meet its  
            renewables portfolio standard procurement targets.
            (c) It is in the public's interest that the state continue to  
            promote policies to ensure eligible renewable energy resources  
            be procured and contributed to the state's ability to reduce  
            its greenhouse gas emissions and meet the targets of the  
            California Renewables Portfolio Standard Program (Article 16  
            (commencing with Section 399.11) of Chapter 2.3 of Part 1 of  
            Division 1 of the Public Utilities Code).
            (d) There are eligible renewable energy resources in the state  
            that, if developed and retained, would not require additional  
            capacity to maintain the reliability of the bulk electrical  
            system and could generate during periods in which electricity  
            is likely to be the most valuable, prospectively.
            (e) Procuring and retaining a diversified portfolio of  
                                                                                          eligible renewable energy resources may do all of the  
            following:
            (1) Assist electrical corporations in satisfying renewable  
            energy procurement and greenhouse gases emissions reductions  
            goals in a cost-effective manner.
            (2) Partially meet peak load requirements with electricity  









                                                                  AB 2363
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            generated by eligible renewable energy resources, which will  
            have substantial benefits from reduced emissions of greenhouse  
            gases, and cobenefits from reduced emissions of criteria  
            pollutants.
            (3) Maintain the reliability of the electrical grid to meet  
            demand for electricity on a 24-hour basis.
            (4) Contribute to local employment and economic growth  
            throughout the state.

            SEC. 2. Section 399.13 of the Public Utilities Code is amended  
            to read:
            399.13. (a) (1) The commission shall direct each electrical  
            corporation to annually prepare a renewable energy procurement  
            plan that includes the matter in paragraph (5), 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) Every electrical corporation that owns electrical  
            transmission facilities shall annually prepare, as part of the  
            Federal Energy Regulatory Commission Order 890 process, and  
            submit to the commission, a report identifying any electrical  
            transmission facility, upgrade, or enhancement that is  
            reasonably necessary to achieve the renewables portfolio  
            standard procurement requirements of this article. Each report  
            shall look forward at least five years and, to ensure that  
            adequate investments are made in a timely manner, shall  
            include a preliminary schedule when an application for a  
            certificate of public convenience and necessity will be made,  
            pursuant to Chapter 5 (commencing with Section 1001), for any  
            electrical transmission facility identified as being  
            reasonably necessary to achieve the renewable energy resources  
            procurement requirements of this article. Each electrical  
            corporation that owns electrical transmission facilities shall  
            ensure that project-specific interconnection studies are  
            completed in a timely manner.
            (3) The commission shall direct each retail seller to prepare  
            and submit an annual compliance report that includes all of  
            the following:
            (A) The current status and progress made during the prior year  
            toward procurement of eligible renewable energy resources as a  
            percentage of retail sales, including, if applicable, the  









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            status of any necessary siting and permitting approvals from  
            federal, state, and local agencies for those eligible  
            renewable energy resources procured by the retail seller, and  
            the current status of compliance with the portfolio content  
            requirements of subdivision (c) of Section 399.16, including  
            procurement of eligible renewable energy resources located  
            outside the state and within the WECC and unbundled renewable  
            energy credits.
            (B) If the retail seller is an electrical corporation, the  
            current status and progress made during the prior year toward  
            construction of, and upgrades to, transmission and  
            distribution facilities and other electrical system components  
            it owns to interconnect eligible renewable energy resources  
            and to supply the electricity generated by those resources to  
            load, including the status of planning, siting, and permitting  
            transmission facilities by federal, state, and local agencies.
            (C) Recommendations to remove impediments to making progress  
            toward achieving the renewable energy resources procurement  
            requirements established pursuant to this article.
            (4) The commission shall adopt, by rulemaking, all of the  
            following:
            (A) 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 California Renewables Portfolio  
            Standard Program obligations on a total cost basis. This  
            process shall take into account all of the following:
            (i) Estimates of indirect costs associated with needed  
            transmission investments and ongoing electrical corporation  
            expenses resulting from integrating and operating eligible  
            renewable energy resources.
            (ii) The cost impact of procuring the eligible renewable  
            energy resources on the electrical corporation's electricity  
            portfolio.
            (iii) The viability of the project to construct and reliably  
            operate the eligible renewable energy resource, including the  
            developer's experience, the feasibility of the technology used  
            to generate electricity, and the risk that the facility will  
            not be built, or that construction will be delayed, with the  
            result that electricity will not be supplied as required by  
            the contract.
            (iv) Workforce recruitment, training, and retention efforts,  
            including the employment growth associated with the  
            construction and operation of eligible renewable energy  
            resources and goals for recruitment and training of women,  
            minorities, and disabled veterans.









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            (v) A nonzero integration cost adder methodology, to be  
            initially determined by the commission no later than October  
            1, 2015, that reflects a reasonable estimate of the costs of  
            procuring capacity and energy required to accommodate the  
            electrical generation of the particular eligible renewable  
            energy resource.
            (B) Rules permitting retail sellers to accumulate, beginning  
            January 1, 2011, excess procurement in one compliance period  
            to be applied to any subsequent compliance period. The rules  
            shall apply equally to all retail sellers. In determining the  
            quantity of excess procurement for the applicable compliance  
            period, the commission shall deduct from actual procurement  
            quantities, the total amount of procurement associated with  
            contracts of less than 10 years in duration. In no event shall  
            electricity products meeting the portfolio content of  
            paragraph (3) of subdivision (b) of Section 399.16 be counted  
            as excess procurement.
            (C) 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, at a  
            minimum, shall 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.
            (D) An appropriate minimum margin of procurement above the  
            minimum procurement level necessary to comply with the  
            renewables portfolio standard to mitigate the risk that  
            renewable projects planned or under contract are delayed or  
            canceled. This paragraph does not preclude an electrical  
            corporation from voluntarily proposing a margin of procurement  
            above the appropriate minimum margin established by the  
            commission.
            (5) Consistent with the goal of increasing California's  
            reliance on 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  









                                                                  AB 2363
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            energy resources with deliverability characteristics that may  
            include peaking, dispatchable, baseload, firm, and  
            as-available capacity.
            (B) Potential compliance delays related to the conditions  
            described in paragraph (4) (5)  of subdivision (b) of Section  
            399.15.
            (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.
            (D) A status update on the development schedule of all  
            eligible renewable energy resources currently under contract.
            (E) Consideration of mechanisms for price adjustments  
            associated with the costs of key components for eligible  
            renewable energy resource projects with online dates more than  
            24 months after the date of contract execution.
            (F) An assessment of the risk that an eligible renewable  
            energy resource will not be built, or that construction will  
            be delayed, with the result that electricity will not be  
            delivered as required by the contract.
            (6) In soliciting and procuring eligible renewable energy  
            resources, each electrical corporation shall offer contracts  
            of no less than 10 years duration, unless the commission  
            approves of a contract of shorter duration.
            (7) In soliciting and procuring eligible renewable energy  
            resources for California-based projects, each electrical  
            corporation shall give preference to renewable energy projects  
            that provide environmental and economic benefits to  
            communities afflicted with poverty or high unemployment, or  
            that suffer from high emission levels of toxic air  
            contaminants, criteria air pollutants, and greenhouse gases.
            (b) A retail seller may enter into a combination of long- and  
            short-term contracts for electricity and associated renewable  
            energy credits. 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 through  
            contracts of at least 10 years' duration.
            (c) The commission shall review and accept, modify, or reject  
            each electrical corporation's renewable energy resource  
            procurement plan prior to the commencement of renewable energy  
            procurement pursuant to this article by an electrical  
            corporation.
            (d) Unless previously preapproved by the commission, an  









                                                                  AB 2363
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            electrical corporation shall submit a contract for the  
            generation of an eligible renewable energy resource to the  
            commission for review and approval consistent with an approved  
            renewable energy resource 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 resource  
            procurement plan, the commission shall exercise its authority  
            pursuant to Section 2113 to require compliance. The commission  
            shall enforce comparable penalties on any retail seller that  
            is not an electrical corporation that fails to meet the  
            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 electricity products from eligible renewable energy  
            resources to satisfy the retail seller's renewables portfolio  
            standard procurement requirements. The commission shall 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  
            contracts entered into by an electrical corporation for  
            eligible renewable energy resources pursuant to this article  
            and approved by the commission are reasonable and prudent 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, are  
            "public works" for the purposes of Chapter 1 (commencing with  
            Section 1720) of Part 7 of Division 2 of the Labor Code.

            SEC. 3. Section 399.15 of the Public Utilities Code is amended  
            to read:
            399.15. (a) In order to fulfill unmet long-term resource  









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            needs, the commission shall establish a renewables portfolio  
            standard requiring all retail sellers to procure a minimum  
            quantity of electricity products from eligible renewable  
            energy resources as a specified percentage of total  
            kilowatthours sold to their retail end-use customers each  
            compliance period to achieve the targets established under  
            this article. For any retail seller procuring at least 14  
            percent of retail sales from eligible renewable energy  
            resources in 2010, the deficits associated with any previous  
            renewables portfolio standard shall not be added to any  
            procurement requirement pursuant to this article.
            (b) The commission shall implement renewables portfolio  
            standard procurement requirements only as follows:
            (1) Each retail seller shall procure a minimum quantity of  
            eligible renewable energy resources for each of the following  
            compliance periods:
            (A) January 1, 2011, to December 31, 2013, inclusive.
            (B) January 1, 2014, to December 31, 2016, inclusive.
            (C) January 1, 2017, to December 31, 2020, inclusive.
            (2) (A) No later than January 1, 2012, the commission shall  
            establish the quantity of electricity products from eligible  
            renewable energy resources to be procured by the retail seller  
            for each compliance period. These quantities shall be  
            established in the same manner for all retail sellers and  
            result in the same percentages used to establish compliance  
            period quantities for all retail sellers.
            (B) In establishing quantities for the compliance period from  
            January 1, 2011, to December 31, 2013, inclusive, the  
            commission shall require procurement for each retail seller  
            equal to an average of 20 percent of retail sales. For the  
            following compliance periods, the quantities shall reflect  
            reasonable progress in each of the intervening years  
            sufficient to ensure that the procurement of electricity  
            products from eligible renewable energy resources achieves 25  
            percent of retail sales by December 31, 2016, and 33 percent  
            of retail sales by December 31, 2020. The commission shall  
            require retail sellers to procure not less than 33 percent of  
            retail sales of electricity products from eligible renewable  
            energy resources in all subsequent years.
            (C) Retail sellers shall be obligated to procure no less than  
            the quantities associated with all intervening years by the  
            end of each compliance period. Retail sellers shall not be  
            required to demonstrate a specific quantity of procurement for  
            any individual intervening year.
            (3) The commission may require the procurement of eligible  









                                                                  AB 2363
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            renewable energy resources in excess of the quantities  
            specified in paragraph (2).  Prior to approving any procurement  
            of eligible renewable energy resources that would be in excess  
            of the quantities specified in paragraph (2), the commission  
            shall consider the nonzero integrated cost adder methodology  
            determined pursuant to clause (v) of subparagraph (A) of  
            paragraph (4) of subdivision (a) of Section 399.13. 
             (4) Only for purposes of establishing the renewables portfolio  
            standard procurement requirements of paragraph (1) and  
            determining the quantities pursuant to paragraph (2), the  
            commission shall include all electricity sold to retail  
            customers by the Department of Water Resources pursuant to  
            Division 27 (commencing with Section 80000) of the Water Code  
            in the calculation of retail sales by an electrical  
            corporation.
            (5) The commission shall waive enforcement of this section if  
            it finds that the retail seller has demonstrated any of the  
            following conditions are beyond the control of the retail  
            seller and will prevent compliance:
            (A) There is inadequate transmission capacity to allow for  
            sufficient electricity to be delivered from proposed eligible  
            renewable energy resource projects using the current  
            operational protocols of the Independent System Operator. In  
            making its findings relative to the existence of this  
            condition with respect to a retail seller that owns  
            transmission lines, the commission shall consider both of the  
            following:
            (i) Whether the retail seller has undertaken, in a timely  
            fashion, reasonable measures under its control and consistent  
            with its obligations under local, state, and federal laws and  
            regulations, to develop and construct new transmission lines  
            or upgrades to existing lines intended to transmit electricity  
            generated by eligible renewable energy resources. In  
            determining the reasonableness of a retail seller's actions,  
            the commission shall consider the retail seller's expectations  
            for full-cost recovery for these transmission lines and  
            upgrades.
            (ii) Whether the retail seller has taken all reasonable  
            operational measures to maximize cost-effective deliveries of  
            electricity from eligible renewable energy resources in  
            advance of transmission availability.
            (B) Permitting, interconnection, or other circumstances that  
            delay procured eligible renewable energy resource projects, or  
            there is an insufficient supply of eligible renewable energy  
            resources available to the retail seller. In making a finding  









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            that this condition prevents timely compliance, the commission  
            shall consider whether the retail seller has done all of the  
            following:
            (i) Prudently managed portfolio risks, including relying on a  
            sufficient number of viable projects.
            (ii) Sought to develop one of the following: its own eligible  
            renewable energy resources, transmission to interconnect to  
            eligible renewable energy resources, or energy storage used to  
            integrate eligible renewable energy resources. This clause  
            shall not require an electrical corporation to pursue  
            development of eligible renewable energy resources pursuant to  
            Section 399.14.
            (iii) Procured an appropriate minimum margin of procurement  
            above the minimum procurement level necessary to comply with  
            the renewables portfolio standard to compensate for  
            foreseeable delays or insufficient supply.
            (iv) Taken reasonable measures, under the control of the  
            retail seller, to procure cost-effective distributed  
            generation and allowable unbundled renewable energy credits.
            (C) Unanticipated curtailment of eligible renewable energy  
            resources necessary to address the needs of a balancing  
            authority.
            (6) If the commission waives the compliance requirements of  
            this section, the commission shall establish additional  
            reporting requirements on the retail seller to demonstrate  
            that all reasonable actions under the control of the retail  
            seller are taken in each of the intervening years sufficient  
            to satisfy future procurement requirements.
            (7) The commission shall not waive enforcement pursuant to  
            this section, unless the retail seller demonstrates that it  
            has taken all reasonable actions under its control, as set  
            forth in paragraph (5), to achieve full compliance.
            (8) If a retail seller fails to procure sufficient eligible  
            renewable energy resources to comply with a procurement  
            requirement pursuant to paragraphs (1) and (2) and fails to  
            obtain an order from the commission waiving enforcement  
            pursuant to paragraph (5), the commission shall exercise its  
            authority pursuant to Section 2113.
            (9) Deficits associated with the compliance period shall not  
            be added to a future compliance period.
            (c) The commission shall establish a limitation for each  
            electrical corporation on the procurement expenditures for all  
            eligible renewable energy resources used to comply with the  
            renewables portfolio standard. In establishing this  
            limitation, the commission shall rely on the following:









                                                                  AB 2363
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            (1) The most recent renewable energy procurement plan.
            (2) Procurement expenditures that approximate the expected  
            cost of building, owning, and operating eligible renewable  
            energy resources.
            (3) The potential that some planned resource additions may be  
            delayed or canceled.
            (d) In developing the limitation pursuant to subdivision (c),  
            the commission shall ensure all of the following:
            (1) The limitation is set at a level that prevents  
            disproportionate rate impacts.
            (2) The costs of all procurement credited toward achieving the  
            renewables portfolio standard are counted towards the  
                                         limitation.
            (3) Procurement expenditures do not include any indirect  
            expenses, including imbalance energy charges, sale of excess  
            energy, decreased generation from existing resources,  
            transmission upgrades, or the costs associated with  
            relicensing any utility-owned hydroelectric facilities.
            (e) (1) No later than January 1, 2016, the commission shall  
            prepare a report to the Legislature assessing whether each  
            electrical corporation can achieve a 33-percent renewables  
            portfolio standard by December 31, 2020, and maintain that  
            level thereafter, within the adopted cost limitations. If the  
            commission determines that it is necessary to change the  
            limitation for procurement costs incurred by any electrical  
            corporation after that date, it may propose a revised cap  
            consistent with the criteria in subdivisions (c) and (d). The  
            proposed modifications shall take effect no earlier than  
            January 1, 2017.
            (2) Notwithstanding Section 10231.5 of the Government Code,  
            the requirement for submitting a report imposed under  
            paragraph (1) is inoperative on January 1, 2021.
            (3) A report to be submitted pursuant to paragraph (1) shall  
            be submitted in compliance with Section 9795 of the Government  
            Code.
            (f) If the cost limitation for an electrical corporation is  
            insufficient to support the projected costs of meeting the  
            renewables portfolio standard procurement requirements, the  
            electrical corporation may refrain from entering into new  
            contracts or constructing facilities beyond the quantity that  
            can be procured within the limitation, unless eligible  
            renewable energy resources can be procured without exceeding a  
            de minimis increase in rates, consistent with the long-term  
            procurement plan established for the electrical corporation  
            pursuant to Section 454.5.









                                                                  AB 2363
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            (g) (1) The commission shall monitor the status of the cost  
            limitation for each electrical corporation in order to ensure  
            compliance with this article.
            (2) If the commission determines that an electrical  
            corporation may exceed its cost limitation prior to achieving  
            the renewables portfolio standard procurement requirements,  
            the commission shall do both of the following within 60 days  
            of making that determination:
            (A) Investigate and identify the reasons why the electrical  
            corporation may exceed its annual cost limitation.
            (B) Notify the appropriate policy and fiscal committees of the  
            Legislature that the electrical corporation may exceed its  
            cost limitation, and include the reasons why the electrical  
            corporation may exceed its cost limitation.
            (h) 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).

            SEC. 4. 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  









                                                                  AB 2363
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            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, 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.
            (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,  









                                                                  AB 2363
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            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  









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            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 ensure that each contract was  
            administered in accordance with the terms of the contract, and  
            contract disputes that 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  









                                                                  AB 2363
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            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  









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            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.
            (k) The commission shall direct electrical corporations to  
            include in their proposed procurement plans the use of any  
            nonzero integration cost adders determined pursuant to clause  
            (v) of subparagraph (A) of paragraph (4) of subdivision (a) of  
            Section 399.13.

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Athens Services
          California Forestry Association
          California Manufacturers & Technology Association (CMTA)
          California Wind Energy Association (CalWEA)
          California Women for Agriculture
          Calpine Corporation
          Covanta
          HL Power Company
          Individual Letters (5)
          Lassen County
          North Coast Chapter of California Women in Timber
          PacifiCorp (if amended)
          Paramount Farming Company
          Plumas County Fire Safe Council (PCFSC)
          Sierra County Board of Supervisors
          Sierra Pacific Industries
          Tubit Enterprises, Inc.
          Wadham Energy LP
           
          Opposition 
           









                                                                  AB 2363
                                                                  Page Y
          Large-scale Solar Association (LSA) (unless amended)
          Solar Energy Industries Association (SEIA)
           
          Analysis Prepared by  :    Brandon Gaytan / U. & C. / (916)  
          319-2083