California Legislature—2015–16 Regular Session

Assembly BillNo. 2454

Introduced by Assembly Member Williams

February 19, 2016

An act to amend Sections 454.5 and 454.52 of the Public Utilities Code, relating to energy.


AB 2454, as introduced, Williams. Energy: procurement plans.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations. The Public Utilities Act requires the commission to review and accept, modify, or reject a procurement plan for each electrical corporation in accordance with specified elements, incentive mechanisms, and objectives. The act requires that an electrical corporation’s proposed procurement plan include certain elements, including a showing that the electrical corporation will first meet its unmet needs through all available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible.

This bill would recharacterize the term “demand reduction” as “demand response,” as specified, for purposes of this provision. The bill would require the electrical corporation in determining the availability of cost-effective, reliable, and feasible demand response resources, to consider the findings of a specified study due to the commission in 2016, and to consider both load-modifying and supply-side demand response resources.

Under existing law, to the extent that additional procurement is authorized for an electrical corporation, as specified, the commission is required to ensure that the costs are allocated in a fair and equitable manner to all customers, that there is no cost-shifting among customers of load-serving entities, and that community choice aggregators may self-provide renewable integration resources.

This bill would also require the commission to demonstrate to the Legislature, as specified, that the electrical corporation met its unmet needs through all available energy efficiency and demand response resources that were cost effective, reliable, and feasible.

Under existing law, a violation of the Public Utilities Act or any order, decision, rule, direction, demand, or requirement of the commission is a crime.

Because the provisions of this bill would be a part of the 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.

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:

P2    1


Section 454.5 of the Public Utilities Code is
2amended to read:



(a) The commission shall specify the allocation of
4electricity, including quantity, characteristics, and duration of
5electricity delivery, that the Department of Water Resources shall
6provide under its power purchase agreements to the customers of
7each electrical corporation, which shall be reflected in the electrical
8corporation’s proposed procurement plan. Each electrical
9corporation shall file a proposed procurement plan with the
10commission not later than 60 days after the commission specifies
11the allocation of electricity. The proposed procurement plan shall
12specify the date that the electrical corporation intends to resume
13procurement of electricity for its retail customers, consistent with
14its obligation to serve. After the commission’s adoption of a
15procurement plan, the commission shall allow not less than 60
P3    1days before the electrical corporation resumes procurement
2pursuant to this section.

3(b) An electrical corporation’s proposed procurement plan
4begin insert authorized pursuant to either this section or Section 454.52end insert shall
5include, but not be limited to, all of the following:

6(1) An assessment of the price risk associated with the electrical
7corporation’s portfolio, including any utility-retained generation,
8existing power purchase and exchange contracts, and proposed
9contracts or purchases under which an electrical corporation will
10procure electricity, electricity demandbegin delete reductions,end deletebegin insert responses,end insert and
11 electricity-related products and the remaining open position to be
12served by spot market transactions.

13(2) A definition of each electricity product, electricity-related
14product, and procurement related financial product, including
15support and justification for the product type and amount to be
16procured under the plan.

17(3) The duration of the plan.

18(4) The duration, timing, and range of quantities of each product
19to be procured.

20(5) A competitive procurement process under which the
21electrical corporation may request bids for procurement-related
22services, including the format and criteria of that procurement

24(6) An incentive mechanism, if any incentive mechanism is
25proposed, including the type of transactions to be covered by that
26mechanism, their respective procurement benchmarks, and other
27parameters needed to determine the sharing of risks and benefits.

28(7) The upfront standards and criteria by which the acceptability
29and eligibility for rate recovery of a proposed procurement
30transaction will be known by the electrical corporation prior to
31execution of the transaction. This shall include an expedited
32approval process for the commission’s review of proposed contracts
33and subsequent approval or rejection thereof. The electrical
34corporation shall propose alternative procurement choices in the
35event a contract is rejected.

36(8) Procedures for updating the procurement plan.

37(9) A showing that the procurement plan will achieve the

39(A) The electrical corporation, in order to fulfill its unmet
40resource needs, shall procure resources from eligible renewable
P4    1energy resources in an amount sufficient to meet its procurement
2requirements pursuant to the California Renewables Portfolio
3Standard Program (Article 16 (commencing with Section 399.11)
4of Chapter 2.3).

5(B) The electrical corporation shall create or maintain a
6diversified procurement portfolio consisting of both short-term
7and long-term electricity and electricity-related and demand
8begin delete reductionend deletebegin insert responseend insert products.

9(C) The electrical corporation shall first meet its unmet resource
10needs through all available energy efficiency and demandbegin delete reductionend delete
11begin insert responseend insert resources that are cost effective, reliable, and feasible.
12begin insert In determining the availability of cost- effective, reliable, and
13feasible demand response resources, the electrical corporation
14shall consider the findings of the study of technical, economic, and
15achievable demand response potential that is due to the commission
16in 2016, and shall consider both load-modifying and supply-side
17demand response resources.end insert

18(10) The electrical corporation’s risk management policy,
19strategy, and practices, including specific measures of price

21(11) A plan to achieve appropriate increases in diversity of
22ownership and diversity of fuel supply of nonutility electrical

24(12) A mechanism for recovery of reasonable administrative
25costs related to procurement in the generation component of rates.

26(c) The commission shall review and accept, modify, or reject
27each electrical corporation’s procurement plan. The commission’s
28review shall consider each electrical corporation’s individual
29procurement situation, and shall give strong consideration to that
30situation in determining which one or more of the features set forth
31in this subdivision shall apply to that electrical corporation. A
32procurement plan approved by the commission shall contain one
33or more of the following features, provided that the commission
34may not approve a feature or mechanism for an electrical
35corporation if it finds that the feature or mechanism would impair
36the restoration of an electrical corporation’s creditworthiness or
37would lead to a deterioration of an electrical corporation’s

39(1) A competitive procurement process under which the
40electrical corporation may request bids for procurement-related
P5    1services. The commission shall specify the format of that
2procurement process, as well as criteria to ensure that the auction
3process is open and adequately subscribed. Any purchases made
4in compliance with the commission-authorized process shall be
5recovered in the generation component of rates.

6(2) An incentive mechanism that establishes a procurement
7benchmark or benchmarks and authorizes the electrical corporation
8to procure from the market, subject to comparing the electrical
9corporation’s performance to the commission-authorized
10benchmark or benchmarks. The incentive mechanism shall be
11clear, achievable, and contain quantifiable objectives and standards.
12The incentive mechanism shall contain balanced risk and reward
13incentives that limit the risk and reward of an electrical corporation.

14(3) Upfront achievable standards and criteria by which the
15acceptability and eligibility for rate recovery of a proposed
16procurement transaction will be known by the electrical corporation
17prior to the execution of the bilateral contract for the transaction.
18The commission shall provide for expedited review and either
19approve or reject the individual contracts submitted by the electrical
20corporation to ensure compliance with its procurement plan. To
21the extent the commission rejects a proposed contract pursuant to
22this criteria, the commission shall designate alternative procurement
23choices obtained in the procurement plan that will be recoverable
24for ratemaking purposes.

25(d) A procurement plan approved by the commission shall
26accomplish each of the following objectives:

27(1) Enable the electrical corporation to fulfill its obligation to
28serve its customers at just and reasonable rates.

29(2) Eliminate the need for after-the-fact reasonableness reviews
30of an electrical corporation’s actions in compliance with an
31approved procurement plan, including resulting electricity
32procurement contracts, practices, and related expenses. However,
33the commission may establish a regulatory process to verify and
34ensure that each contract was administered in accordance with the
35terms of the contract, and contract disputes that may arise are
36reasonably resolved.

37(3) Ensure timely recovery of prospective procurement costs
38incurred pursuant to an approved procurement plan. The
39commission shall establish rates based on forecasts of procurement
40costs adopted by the commission, actual procurement costs
P6    1incurred, or combination thereof, as determined by the commission.
2The commission shall establish power procurement balancing
3accounts to track the differences between recorded revenues and
4costs incurred pursuant to an approved procurement plan. The
5commission shall review the power procurement balancing
6accounts, not less than semiannually, and shall adjust rates or order
7refunds, as necessary, to promptly amortize a balancing account,
8according to a schedule determined by the commission. Until
9January 1, 2006, the commission shall ensure that any
10overcollection or undercollection in the power procurement
11balancing account does not exceed 5 percent of the electrical
12corporation’s actual recorded generation revenues for the prior
13calendar year excluding revenues collected for the Department of
14Water Resources. The commission shall determine the schedule
15for amortizing the overcollection or undercollection in the
16balancing account to ensure that the 5 percent threshold is not
17exceeded. After January 1, 2006, this adjustment shall occur when
18deemed appropriate by the commission consistent with the
19objectives of this section.

20(4) Moderate the price risk associated with serving its retail
21customers, including the price risk embedded in its long-term
22supply contracts, by authorizing an electrical corporation to enter
23into financial and other electricity-related product contracts.

24(5) Provide for just and reasonable rates, with an appropriate
25balancing of price stability and price level in the electrical
26corporation’s procurement plan.

27(e) The commission shall provide for the periodic review and
28prospective modification of an electrical corporation’s procurement

30(f) The commission may engage an independent consultant or
31advisory service to evaluate risk management and strategy. The
32reasonable costs of any consultant or advisory service is a
33reimbursable expense and eligible for funding pursuant to Section

35(g) The commission shall adopt appropriate procedures to ensure
36the confidentiality of any market sensitive information submitted
37in an electrical corporation’s proposed procurement plan or
38resulting from or related to its approved procurement plan,
39including, but not limited to, proposed or executed power purchase
40agreements, data request responses, or consultant reports, or any
P7    1combination, provided that the Office of Ratepayer Advocates and
2other consumer groups that are nonmarket participants shall be
3provided access to this information under confidentiality
4procedures authorized by the commission.

5(h) Nothing in this section alters, modifies, or amends the
6commission’s oversight of affiliate transactions under its rules and
7decisions or the commission’s existing authority to investigate and
8penalize an electrical corporation’s alleged fraudulent activities,
9or to disallow costs incurred as a result of gross incompetence,
10fraud, abuse, or similar grounds. Nothing in this section expands,
11modifies, or limits thebegin delete Stateend delete Energybegin delete Resources Conservation and
12Developmentend delete
Commission’s existing authority and responsibilities
13as set forth in Sections 25216, 25216.5, and 25323 of the Public
14Resources Code.

15(i) An electrical corporation that serves less than 500,000 electric
16retail customers within the state may file with the commission a
17request for exemption from this section, which the commission
18shall grant upon a showing of good cause.

19(j) (1) Prior to its approval pursuant to Section 851 of any
20divestiture of generation assets owned by an electrical corporation
21on or after the date of enactment of the act adding this section, the
22commission shall determine the impact of the proposed divestiture
23on the electrical corporation’s procurement rates and shall approve
24a divestiture only to the extent it finds, taking into account the
25effect of the divestiture on procurement rates, that the divestiture
26is in the public interest and will result in net ratepayer benefits.

27(2) Any electrical corporation’s procurement necessitated as a
28result of the divestiture of generation assets on or after the effective
29date of the act adding this subdivision shall be subject to the
30mechanisms and procedures set forth in this section only if its
31actual cost is less than the recent historical cost of the divested
32generation assets.

33(3) Notwithstanding paragraph (2), the commission may deem
34proposed procurement eligible to use the procedures in this section
35upon its approval of asset divestiture pursuant to Section 851.

36(k) The commission shall direct electrical corporations to include
37in their proposed procurement plans the integration costs described
38and determined pursuant to clause (v) of subparagraph (A) of
39paragraph (4) of subdivision (a) of Section 399.13.

P8    1

SEC. 2.  

Section 454.52 of the Public Utilities Code is amended
2to read:



(a) (1) Commencing in 2017, and to be updated
4regularly thereafter, the commission shall adopt a process for each
5load-serving entity, as defined in Section 380, to file an integrated
6resource plan, and a schedule for periodic updates to the plan, to
7ensure that load-serving entities do the following:

8(A) Meet the greenhouse gas emissions reduction targets
9established by the State Air Resources Board, in coordination with
10the commission and the Energy Commission, for the electricity
11sector and each load-serving entity that reflect the electricity
12sector’s percentage in achieving the economywide greenhouse gas
13emissions reductions of 40 percent from 1990 levels by 2030.

14(B) Procure at least 50 percent eligible renewable energy
15resources by December 31, 2030, consistent with Article 16
16(commencing with Section 399.11) of Chapter 2.3.

17(C) Enable each electrical corporation to fulfill its obligation to
18serve its customers at just and reasonable rates.

19(D) Minimize impacts on ratepayers’ bills.

20(E) Ensure system and local reliability.

21(F) Strengthen the diversity, sustainability, and resilience of the
22bulk transmission and distribution systems, and local communities.

23(G) Enhance distribution systems and demand-side energy

25(H) Minimize localized air pollutants and other greenhouse gas
26emissions, with early priority on disadvantaged communities
27identified pursuant to Section 39711 of the Health and Safety Code.

begin insert

28(I) Meet the energy efficiency and demand response targets
29established by the commission in concert with the Energy
30Commission pursuant to Section 454.56 and Section 25310 of the
31Public Resources Code.

end insert

32(2) (A) The commission may authorize all source procurement
33for electrical corporations that includes various resource types
34including demand-side resources,begin delete supply sideend deletebegin insert supply-sideend insert resources,
35andbegin insert demand-responseend insert resources that may bebegin insert categorized asend insert either begin delete36 demand-side resources or supply side resources,end delete begin insert load modifying
37or supply side,end insert
taking into account the differing electrical
38corporations’ geographic service areas, to ensure that each
39load-serving entity meets the goals set forth in paragraph (1).

P9    1(B) The commission may approve procurement of resource
2types that will reduce overall greenhouse gas emissions from the
3electricity sector and meet the other goals specified in paragraph
4(1), but due to the nature of the technology or fuel source may not
5compete favorably in price against other resources over the time
6period of the integrated resource plan.

7(b) (1) Each load-serving entity shall prepare and file an
8integrated resource plan consistent with paragraph (2) of
9subdivision (a) on a time schedule directed by the commission and
10subject to commission review.

11(2) Each electrical corporation’s plan shall follow the provisions
12of Section 454.5.

13(3) The plan of a community choice aggregator shall be
14submitted to its governing board for approval and provided to the
15commission for certification, consistent with paragraph (5) of
16subdivision (a) of Section 366.2, and shall achieve the following:

17(A) Economic, reliability, environmental, security, and other
18benefits and performance characteristics that are consistent with
19the goals set forth in paragraph (1) of subdivision (a).

20(B) A diversified procurement portfolio consisting of both
21short-term and long-term electricity and electricity-related and
22demandbegin delete reductionend deletebegin insert responseend insert products.

23(C) The resource adequacy requirements established pursuant
24to Section 380.

25(4) The plan of an electric service provider shall achieve the
26goals set forth in paragraph (1) of subdivision (a) through a
27diversified portfolio consisting of both short-term and long-term
28electricity, electricity-related, and demandbegin delete reductionend deletebegin insert responseend insert
29 products.

30(c) To the extent that additional procurement is authorized for
31the electrical corporation in the integrated resource plan or the
32procurement process authorized pursuant to Section 454.5, the
33commission shallbegin delete ensureend deletebegin insert demonstrate to the Legislature, in a report
34submitted pursuant to Section 9795 of the Government Code not
35more than 60 days after the commission issues a final decision
36approving new capacity additions in excess of 500,000 watts, that
37the prioritized procurement of energy efficiency and demand
38response resources required by subparagraph (C) of paragraph
39(9) of subdivision (b) of Section 454.5 is achieved,end insert
that the costs
40are allocated in a fair and equitable manner to all customers
P10   1consistent with 454.51, that there is no cost-shifting among
2customers of load-serving entities, and that community choice
3aggregators may self-provide renewable integration resources
4consistent with Section 454.51.

5(d) In order to eliminate redundancy and increase efficiency,
6the process adopted pursuant to subdivision (a) shall incorporate,
7and not duplicate, any other planning processes of the commission.


SEC. 3.  

No reimbursement is required by this act pursuant to
9Section 6 of Article XIII B of the California Constitution because
10the only costs that may be incurred by a local agency or school
11district will be incurred because this act creates a new crime or
12infraction, eliminates a crime or infraction, or changes the penalty
13for a crime or infraction, within the meaning of Section 17556 of
14the Government Code, or changes the definition of a crime within
15the meaning of Section 6 of Article XIII B of the California