Amended in Senate June 27, 2016

Amended in Senate June 14, 2016

Amended in Assembly April 25, 2016

Amended in Assembly April 4, 2016

California Legislature—2015–16 Regular Session

Assembly Bill No. 1937

Introduced by Assembly Members Gomez and Williams

(Coauthor: Senator Pavley)

February 12, 2016

An act to amend Sections 399.13 and 454.5 of the Public Utilities Code, relating to electricity.

LEGISLATIVE COUNSEL’S DIGEST

AB 1937, as amended, Gomez. Electricity: procurement.

The Public Utilities Act requires the Public Utilities Commission to review and accept, modify, or reject a procurement plan for each electrical corporation in accordance with specified procedures, considerations, and objectives. The act requires that electrical corporations’ proposed procurement plans include certain elements, including a showing that the electrical corporations will first meet their unmet needs through all available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible.

This bill would require electrical corporations’ proposed procurement plans to also include a showing that the electrical corporations (1), in soliciting bids for gas-fired generation resources from new facilities, actively seek bids for resources that are not gas-fired generation resources located in communities that suffer from cumulative pollution burdens and (2), in considering bids for, or negotiating bilateral contracts for, new gas-fired generation resources, give preference to generation resources that are not gas-fired generation resources located in those communities. The bill would require the commission, before approving a contract for any new gas-fired generation resource, to require the electrical corporation to demonstrate that it has complied with its approved procurement plan. Because this requirement would be a part of the Public Utilities Act and because a violation of an order or decision of the commission implementing its requirements would be a crime, the bill would impose a state-mandated local program by creating a new crime.

Existing law requires electrical corporations, in soliciting and procuring of eligible renewable energy resources for California-based projects, to give preference to renewable energy projects that provide environmental and economic benefits to communities afflicted with poverty or high unemployment or those suffering from high emission levels of toxic air contaminants, criteria air pollutants, and greenhouse gases.

This bill would specify that the above requirements apply to all procurement of eligible renewable energy resources for California-based projects whether the procurement occurs through all-source requests for offers, eligible renewable energy resources only requests for offers, or other procurement mechanisms.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

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. The commission
shall require all other retail sellers to prepare and submit renewable
energy procurement plans that address the requirements identified
in paragraph (5).

(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 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 and best-fit basis.
This process shall take into account all of the following:

(i) Estimates of indirect costs associated with needed
transmission investments.

(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.

(v) (I) Estimates of electrical corporation expenses resulting
from integrating and operating eligible renewable energy resources,
including, but not limited to, any additional wholesale energy and
capacity costs associated with integrating each eligible renewable
resource.

(II) No later than December 31, 2015, the commission shall
approve a methodology for determining the integration costs
described in subclause (I).

(vi) Consideration of any statewide greenhouse gas emissions
limit established pursuant to the California Global Warming
Solutions Act of 2006 (Division 25.5 (commencing with Section
38500) of the Health and Safety Code).

(vii) Consideration of capacity and system reliability of the
eligible renewable energy resource to ensure grid reliability.

(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 retain the rules adopted by the commission and
in effect as of January 1, 2015, for the compliance period specified
in subparagraphs (A) to (C), inclusive, of paragraph (1) of
subdivision (b) of Section 399.15. For any subsequent compliance
period, the rules shall allow the following:

(i) For electricity products meeting the portfolio content
requirements of paragraph (1) of subdivision (b) of Section 399.16,
contracts of any duration may count as excess procurement.

(ii) Electricity products meeting the portfolio content
requirements of paragraph (2) or (3) of subdivision (b) of Section
399.16 shall not be counted as excess procurement. Contracts of
any duration for electricity products meeting the portfolio content
requirements of paragraph (2) or (3) of subdivision (b) of Section
399.16 that are credited towards a compliance period shall not be
deducted from a retail seller’s procurement for purposes of
calculating excess procurement.

(iii) If a retail seller notifies the commission that it will comply
with the provisions of subdivision (b) for the compliance period
beginning January 1, 2017, the provisions of clauses (i) and (ii)
shall take effect for that retail seller for that compliance period.

(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 shall include all of the following:

(A) An assessment of annual or multiyear portfolio supplies
and demand to determine the optimal mix of eligible renewable
energy resources with deliverability characteristics that may include
peaking, dispatchable, baseload, firm, and as-available capacity.

(B) Potential compliance delays related to the conditions
described in paragraph (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) (A) 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) Subparagraph (A) applies to all procurement of eligible
renewable energy resources for California-based projects, whether
the procurement occur through all-source requests for offers,
eligible renewable resources only requests for offers, or other
procurement mechanisms. This subparagraph is declaratory of
existing law.

(8) In soliciting and procuring eligible renewable energy
resources, each retail seller shall consider the best-fit attributes of
resource types that ensure a balanced resource mix to maintain the
reliability of the electrical grid.

(b) A retail seller may enter into a combination of long- and
short-term contracts for electricity and associated renewable energy
credits. Beginning January 1, 2021, at least 65 percent of the
procurement a retail seller counts toward the renewables portfolio
standard requirement of each compliance period shall be from its
contracts of 10 years or more in duration or in its ownership or
ownership agreements for eligible renewable energy resources.

(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.
The commission shall assess adherence to the approved renewable
energy resource procurement plans in determining compliance
with the obligations of this article.

(d) Unless previously preapproved by the commission, an
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 to require compliance.

(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. 2.  

Section 454.5 of the Public Utilities Code is amended
to read:

454.5.  

(a) The commission shall specify the allocation of
electricity, including quantity, characteristics, and duration of
electricity delivery, that the Department of Water Resources shall
provide under its power purchase agreements to the customers of
each electrical corporation, which shall be reflected in the electrical
corporation’s proposed procurement plan. Each electrical
corporation shall file a proposed procurement plan with the
commission not later than 60 days after the commission specifies
the allocation of electricity. The proposed procurement plan shall
specify the date that the electrical corporation intends to resume
procurement of electricity for its retail customers, consistent with
its obligation to serve. After the commission’s adoption of a
procurement plan, the commission shall allow not less than 60
days before the electrical corporation resumes procurement
pursuant to this section.

(b) An electrical corporation’s proposed procurement plan shall
include, but not be limited to, all of the following:

(1) An assessment of the price risk associated with the electrical
corporation’s portfolio, including any utility-retained generation,
existing power purchase and exchange contracts, and proposed
contracts or purchases under which an electrical corporation will
procure electricity, electricity demand reductions, and
electricity-related products and the remaining open position to be
served by spot market transactions.

(2) A definition of each electricity product, electricity-related
product, and procurement related financial product, including
support and justification for the product type and amount to be
procured under the plan.

(3) The duration of the plan.

(4) The duration, timing, and range of quantities of each product
to be procured.

(5) A competitive procurement process under which the
electrical corporation may request bids for procurement-related
services, including the format and criteria of that procurement
process.

(6) An incentive mechanism, if any incentive mechanism is
proposed, including the type of transactions to be covered by that
mechanism, their respective procurement benchmarks, and other
parameters needed to determine the sharing of risks and benefits.

(7) The upfront standards and criteria by which the acceptability
and eligibility for rate recovery of a proposed procurement
transaction will be known by the electrical corporation prior to
execution of the transaction. This shall include an expedited
approval process for the commission’s review of proposed contracts
and subsequent approval or rejection thereof. The electrical
corporation shall propose alternative procurement choices in the
event a contract is rejected.

(8) Procedures for updating the procurement plan.

(9) A showing that the procurement plan will achieve the
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.

(D) (i) The electrical corporation, in soliciting bids for gas-fired
generation resources from new facilities, shall actively seek bids
for resources that are not gas-fired generation resources located
in communities that suffer from cumulative pollution burdens,
including, but not limited to, high emission levels of toxic air
contaminants, criteria air pollutants, and greenhouse gases.

(ii) In considering bids for, or negotiating contracts for, new
gas-fired generation resources, the electrical corporation shall
provide greater preference to resources that are not gas-fired
generation resources located in communities that suffer from
cumulative pollution burdens, including, but not limited to, high
emission levels of toxic air contaminants, criteria air pollutants,
and greenhouse gases.

begin insert

(iii) This subparagraph does not apply to contracts signed by
an electrical corporation and approved by the commission prior
to January 1, 2017.

end insert

(E)  begin delete (i) end delete begin delete   end delete The electrical corporation shall undertake all feasible
efforts to meet any identified resource need through available
renewable energy, energy storage, energy efficiency, and demand
reduction resources that are cost effective, reliable, and feasible.

begin delete

(ii) Prior to approving a contract for any new gas-fired
generation resource, the commission shall require the electrical
corporation to demonstrate it has complied with its approved
procurement plan.

end delete

(10) The electrical corporation’s risk management policy,
strategy, and practices, including specific measures of price
stability.

(11) A plan to achieve appropriate increases in diversity of
ownership and diversity of fuel supply of nonutility electrical
generation.

(12) A mechanism for recovery of reasonable administrative
costs related to procurement in the generation component of rates.

(c) The commission shall review and accept, modify, or reject
each electrical corporation’s procurement plan and any amendments
or updates to the plan. The commission shall ensure that the plan
contains the elements required pursuant to this section, including
the elements described in subparagraphs (D) and (E) of paragraph
(9) of subdivision (b). The commission’s review shall consider
each electrical corporation’s individual procurement situation, and
shall give strong consideration to that situation in determining
which one or more of the features set forth in this subdivision shall
apply to that electrical corporation. A procurement plan approved
by the commission shall contain one or more of the following
features, provided that the commission may not approve a feature
or mechanism for an electrical corporation if it finds that the feature
or mechanism would impair the restoration of an electrical
corporation’s creditworthiness or would lead to a deterioration of
an electrical corporation’s creditworthiness:

(1) A competitive procurement process under which the
electrical corporation may request bids for procurement-related
services. The commission shall specify the format of that
procurement process, as well as criteria to ensure that the auction
process is open and adequately subscribed. Any purchases made
in compliance with the commission-authorized process shall be
recovered in the generation component of rates.

(2) An incentive mechanism that establishes a procurement
benchmark or benchmarks and authorizes the electrical corporation
to procure from the market, subject to comparing the electrical
corporation’s performance to the commission-authorized
benchmark or benchmarks. The incentive mechanism shall be
clear, achievable, and contain quantifiable objectives and standards.
The incentive mechanism shall contain balanced risk and reward
incentives that limit the risk and reward of an electrical corporation.

(3) Upfront achievable standards and criteria by which the
acceptability and eligibility for rate recovery of a proposed
procurement transaction will be known by the electrical corporation
prior to the execution of the bilateral contract for the transaction.
The commission shall provide for expedited review and either
approve or reject the individual contracts submitted by the electrical
corporation to ensure compliance with its procurement plan. To
the extent the commission rejects a proposed contract pursuant to
this criteria, the commission shall designate alternative procurement
choices obtained in the procurement plan that will be recoverable
for ratemaking purposes.

(d) A procurement plan approved by the commission shall
accomplish each of the following objectives:

(1) Enable the electrical corporation to fulfill its obligation to
serve its customers at just and reasonable rates.

(2) Eliminate the need for after-the-fact reasonableness reviews
of an electrical corporation’s actions in compliance with an
approved procurement plan, including resulting electricity
procurement contracts, practices, and related expenses. However,
the commission may establish a regulatory process to verify and
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
supply contracts, by authorizing an electrical corporation to enter
into financial and other electricity-related product contracts.

(5) Provide for just and reasonable rates, with an appropriate
balancing of price stability and price level in the electrical
corporation’s procurement plan.

(e) The commission shall provide for the periodic review and
prospective modification of an electrical corporation’s procurement
plan.

(f) The commission may engage an independent consultant or
advisory service to evaluate risk management and strategy. The
reasonable costs of any consultant or advisory service is a
reimbursable expense and eligible for funding pursuant to Section
631.

(g) The commission shall adopt appropriate procedures to ensure
the confidentiality of any market sensitive information submitted
in an electrical corporation’s proposed procurement plan or
resulting from or related to its approved procurement plan,
including, but not limited to, proposed or executed power purchase
agreements, data request responses, or consultant reports, or any
combination, provided that the Office of Ratepayer Advocates and
other consumer groups that are nonmarket participants shall be
provided access to this information under confidentiality
procedures authorized by the commission.

(h) Nothing in this section alters, modifies, or amends the
commission’s oversight of affiliate transactions under its rules and
decisions or the commission’s existing authority to investigate and
penalize an electrical corporation’s alleged fraudulent activities,
or to disallow costs incurred as a result of gross incompetence,
fraud, abuse, or similar grounds. Nothing in this section expands,
modifies, or limits the State Energy Resources Conservation and
Development Commission’s existing authority and responsibilities
as set forth in Sections 25216, 25216.5, and 25323 of the Public
Resources Code.

(i) An electrical corporation that serves less than 500,000 electric
retail customers within the state may file with the commission a
request for exemption from this section, which the commission
shall grant upon a showing of good cause.

(j) (1) Prior to its approval pursuant to Section 851 of any
divestiture of generation assets owned by an electrical corporation
on or after the date of enactment of the act adding this section, the
commission shall determine the impact of the proposed divestiture
on the electrical corporation’s procurement rates and shall approve
a divestiture only to the extent it finds, taking into account the
effect of the divestiture on procurement rates, that the divestiture
is in the public interest and will result in net ratepayer benefits.

(2) Any electrical corporation’s procurement necessitated as a
result of the divestiture of generation assets on or after the effective
date of the act adding this subdivision shall be subject to the
mechanisms and procedures set forth in this section only if its
actual cost is less than the recent historical cost of the divested
generation assets.

(3) Notwithstanding paragraph (2), the commission may deem
proposed procurement eligible to use the procedures in this section
upon its approval of asset divestiture pursuant to Section 851.

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

begin insert

(l) Prior to approving a contract for any new gas-fired
generation resource, the commission shall require the electrical
corporation to demonstrate it has complied with its approved
procurement plan.

end insert

SEC. 3.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.