BILL NUMBER: AB 1937	CHAPTERED
	BILL TEXT

	CHAPTER  664
	FILED WITH SECRETARY OF STATE  SEPTEMBER 26, 2016
	APPROVED BY GOVERNOR  SEPTEMBER 26, 2016
	PASSED THE SENATE  AUGUST 22, 2016
	PASSED THE ASSEMBLY  AUGUST 25, 2016
	AMENDED IN SENATE  AUGUST 17, 2016
	AMENDED IN SENATE  AUGUST 11, 2016
	AMENDED IN SENATE  JUNE 27, 2016
	AMENDED IN SENATE  JUNE 14, 2016
	AMENDED IN ASSEMBLY  APRIL 25, 2016
	AMENDED IN ASSEMBLY  APRIL 4, 2016

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, 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 new gas-fired generating
units, actively seek bids for resources that are not gas-fired
generating units located in communities that suffer from cumulative
pollution burdens and (2), in considering bids for, or negotiating
bilateral contracts for, new gas-fired generating units, give
preference to resources that are not gas-fired generating units
located in those communities. The bill would require the commission,
before approving a contract for any new gas-fired generating unit, 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 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.
   This bill would incorporate changes to Section 454.5 of the Public
Utilities Code proposed by both this bill and AB 2454, which would
become operative only if both bills are enacted and become effective
on or before January 1, 2017, and this bill is chaptered last.
   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.


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 new
gas-fired generating units, shall actively seek bids for resources
that are not gas-fired generating units 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 generating units, the electrical corporation shall provide
greater preference to resources that are not gas-fired generating
units 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.
   (iii) This subparagraph does not apply to contracts signed by an
electrical corporation and approved by the commission prior to
January 1, 2017.
   (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 showings described in subparagraph (D) 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 of
these, 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 Energy 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.
   (l) Prior to approving a contract for any new gas-fired generating
unit, the commission shall require the electrical corporation to
demonstrate it has complied with its approved procurement plan.
  SEC. 2.5.  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) (i) 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.
   (ii) In determining the availability of cost-effective, reliable,
and feasible demand reduction resources, the commission shall
consider the findings regarding technically and economically
achievable demand reduction in the Demand Response Potential Study
required pursuant to Commission Order D.14-12-024, to the extent
those findings are not superseded by other demand reduction studies
conducted by academic institutions or government agencies, and to the
extent that any demand reduction is consistent with commission
policy.
   (D) (i) The electrical corporation, in soliciting bids for new
gas-fired generating units, shall actively seek bids for resources
that are not gas-fired generating units 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 generating units, the electrical corporation shall provide
greater preference to resources that are not gas-fired generating
units 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.
   (iii) This subparagraph does not apply to contracts signed by an
electrical corporation and approved by the commission prior to
January 1, 2017.
   (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 by this section, including the
elements described in subparagraphs (C) and (D) 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 of
these, 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 Energy 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.
   (l) Prior to approving an electrical corporation's contract for
any new gas-fired generating unit, the commission shall require the
electrical corporation to demonstrate compliance with its approved
procurement plan.
  SEC. 3.  Section 2.5 of this bill incorporates amendments to
Section 454.5 of the Public Utilities Code proposed by both this bill
and Assembly Bill 2454. It shall only become operative if (1) both
bills are enacted and become effective on or before January 1, 2017,
(2) each bill amends Section 454.5 of the Public Utilities Code, and
(3) this bill is enacted after Assembly Bill 2454, in which case
Section 2 of this bill shall not become operative.
  SEC. 4.  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.