Amended in Assembly March 17, 2016

California Legislature—2015–16 Regular Session

Assembly BillNo. 2454


Introduced by Assembly Member Williams

February 19, 2016


An act to amendbegin delete Sections 454.5 and 454.52 ofend deletebegin insert Section 454.5 of, and to add Section 921 to,end insert the Public Utilities Code, relating to energy.

LEGISLATIVE COUNSEL’S DIGEST

AB 2454, as amended, 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 wouldbegin delete recharacterize the term “demand reduction” as “demand response,” as specified, for purposes of this provision.end deletebegin insert also require the electrical corporation’s proposed procurement plan to include a showing that it will first meet its unmet needs through all available demand response resources.end insert The bill would require the electrical corporation in determining the availability of cost-effective, reliable, and feasiblebegin insert demand reduction andend insert demand response resources, to consider the findings ofbegin delete a specified study due to the commission in 2016,end deletebegin insert the Demand Response Potential Study required by a specific order of the commission,end insert and tobegin insert alsoend insert 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,begin delete andend delete that community choice aggregators may self-provide renewable integrationbegin delete resources.end deletebegin insert resources, and that unmet resource needs are met through available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible.end insert

This bill would also require the commission to demonstrate to the Legislature,begin delete as specified,end deletebegin insert for capacity additions authorized in excess of 500,000 watts,end insert that the electrical corporation met its unmet needs through all available energy efficiency andbegin insert demand reduction andend insert 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 1.  

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

3

454.5.  

(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
P3    1corporation’s proposed procurement plan. Each electrical
2corporation shall file a proposed procurement plan with the
3commission not later than 60 days after the commission specifies
4the allocation of electricity. The proposed procurement plan shall
5specify the date that the electrical corporation intends to resume
6procurement of electricity for its retail customers, consistent with
7its obligation to serve. After the commission’s adoption of a
8procurement plan, the commission shall allow not less than 60
9days before the electrical corporation resumes procurement
10pursuant to this section.

11(b) An electrical corporation’s proposed procurement plan
12authorized pursuant to either this section or Section 454.52 shall
13include, but not be limited to, all of the following:

14(1) An assessment of the price risk associated with the electrical
15corporation’s portfolio, including any utility-retained generation,
16existing power purchase and exchange contracts, and proposed
17contracts or purchases under which an electrical corporation will
18procure electricity, electricitybegin insert demand reductions andend insert demand
19responses, and electricity-related products and the remaining open
20position to be served by spot market transactions.

21(2) A definition of each electricity product, electricity-related
22product, and procurement related financial product, including
23support and justification for the product type and amount to be
24procured under the plan.

25(3) The duration of the plan.

26(4) The duration, timing, and range of quantities of each product
27to be procured.

28(5) A competitive procurement process under which the
29electrical corporation may request bids for procurement-related
30services, including the format and criteria of that procurement
31process.

32(6) An incentive mechanism, if any incentive mechanism is
33proposed, including the type of transactions to be covered by that
34mechanism, their respective procurement benchmarks, and other
35parameters needed to determine the sharing of risks and benefits.

36(7) The upfront standards and criteria by which the acceptability
37and eligibility for rate recovery of a proposed procurement
38transaction will be known by the electrical corporation prior to
39execution of the transaction. This shall include an expedited
40approval process for the commission’s review of proposed contracts
P4    1and subsequent approval or rejection thereof. The electrical
2corporation shall propose alternative procurement choices in the
3event a contract is rejected.

4(8) Procedures for updating the procurement plan.

5(9) A showing that the procurement plan will achieve the
6following:

7(A) The electrical corporation, in order to fulfill its unmet
8resource needs, shall procure resources from eligible renewable
9energy resources in an amount sufficient to meet its procurement
10requirements pursuant to the California Renewables Portfolio
11Standard Program (Article 16 (commencing with Section 399.11)
12of Chapter 2.3).

13(B) The electrical corporation shall create or maintain a
14diversified procurement portfolio consisting of both short-term
15and long-term electricity and electricity-related andbegin insert demand
16reduction andend insert
demand response products.

17(C) The electrical corporation shall first meet its unmet resource
18needs through all available energy efficiency andbegin insert demand reduction
19andend insert
demand response resources that are cost effective, reliable,
20and feasible. In determining the availability ofbegin delete cost- effective,end delete
21begin insert cost-effective,end insert reliable, and feasiblebegin insert demand reduction andend insert demand
22response resources, the electrical corporation shall consider the
23findingsbegin delete of the study ofend deletebegin insert regardingend insert technical, economic, and
24achievablebegin insert demand reduction andend insert demand response potentialbegin delete that
25is due to the commission in 2016,end delete
begin insert in the Demand Response
26Potential Study required pursuant to Commission Order
27D.14-12-024, to the extent those findings are not superseded by
28subsequent demand response potential studies,end insert
and shall consider
29both load-modifying and supply-sidebegin insert demand reduction andend insert
30 demand response resources.

31(10) The electrical corporation’s risk management policy,
32strategy, and practices, including specific measures of price
33stability.

34(11) A plan to achieve appropriate increases in diversity of
35ownership and diversity of fuel supply of nonutility electrical
36generation.

37(12) A mechanism for recovery of reasonable administrative
38costs related to procurement in the generation component of rates.

39(c) The commission shall review and accept, modify, or reject
40each electrical corporation’s procurement plan. The commission’s
P5    1review shall consider each electrical corporation’s individual
2procurement situation, and shall give strong consideration to that
3situation in determining which one or more of the features set forth
4in this subdivision shall apply to that electrical corporation. A
5procurement plan approved by the commission shall contain one
6or more of the following features, provided that the commission
7may not approve a feature or mechanism for an electrical
8corporation if it finds that the feature or mechanism would impair
9the restoration of an electrical corporation’s creditworthiness or
10would lead to a deterioration of an electrical corporation’s
11creditworthiness:

12(1) A competitive procurement process under which the
13electrical corporation may request bids for procurement-related
14services. The commission shall specify the format of that
15procurement process, as well as criteria to ensure that the auction
16process is open and adequately subscribed. Any purchases made
17in compliance with the commission-authorized process shall be
18recovered in the generation component of rates.

19(2) An incentive mechanism that establishes a procurement
20benchmark or benchmarks and authorizes the electrical corporation
21to procure from the market, subject to comparing the electrical
22corporation’s performance to the commission-authorized
23benchmark or benchmarks. The incentive mechanism shall be
24clear, achievable, and contain quantifiable objectives and standards.
25The incentive mechanism shall contain balanced risk and reward
26incentives that limit the risk and reward of an electrical corporation.

27(3) Upfront achievable standards and criteria by which the
28acceptability and eligibility for rate recovery of a proposed
29procurement transaction will be known by the electrical corporation
30prior to the execution of the bilateral contract for the transaction.
31The commission shall provide for expedited review and either
32approve or reject the individual contracts submitted by the electrical
33corporation to ensure compliance with its procurement plan. To
34the extent the commission rejects a proposed contract pursuant to
35this criteria, the commission shall designate alternative procurement
36choices obtained in the procurement plan that will be recoverable
37for ratemaking purposes.

38(d) A procurement plan approved by the commission shall
39accomplish each of the following objectives:

P6    1(1) Enable the electrical corporation to fulfill its obligation to
2serve its customers at just and reasonable rates.

3(2) Eliminate the need for after-the-fact reasonableness reviews
4of an electrical corporation’s actions in compliance with an
5approved procurement plan, including resulting electricity
6procurement contracts, practices, and related expenses. However,
7the commission may establish a regulatory process to verify and
8ensure that each contract was administered in accordance with the
9terms of the contract, and contract disputes that may arise are
10reasonably resolved.

11(3) Ensure timely recovery of prospective procurement costs
12incurred pursuant to an approved procurement plan. The
13commission shall establish rates based on forecasts of procurement
14costs adopted by the commission, actual procurement costs
15incurred, or combination thereof, as determined by the commission.
16The commission shall establish power procurement balancing
17accounts to track the differences between recorded revenues and
18costs incurred pursuant to an approved procurement plan. The
19commission shall review the power procurement balancing
20accounts, not less than semiannually, and shall adjust rates or order
21refunds, as necessary, to promptly amortize a balancing account,
22according to a schedule determined by the commission. Until
23January 1, 2006, the commission shall ensure that any
24overcollection or undercollection in the power procurement
25balancing account does not exceed 5 percent of the electrical
26corporation’s actual recorded generation revenues for the prior
27calendar year excluding revenues collected for the Department of
28Water Resources. The commission shall determine the schedule
29for amortizing the overcollection or undercollection in the
30balancing account to ensure that the 5 percent threshold is not
31exceeded. After January 1, 2006, this adjustment shall occur when
32deemed appropriate by the commission consistent with the
33objectives of this section.

34(4) Moderate the price risk associated with serving its retail
35customers, including the price risk embedded in its long-term
36supply contracts, by authorizing an electrical corporation to enter
37into financial and other electricity-related product contracts.

38(5) Provide for just and reasonable rates, with an appropriate
39balancing of price stability and price level in the electrical
40corporation’s procurement plan.

P7    1(e) The commission shall provide for the periodic review and
2prospective modification of an electrical corporation’s procurement
3plan.

4(f) The commission may engage an independent consultant or
5advisory service to evaluate risk management and strategy. The
6reasonable costs of any consultant or advisory service is a
7reimbursable expense and eligible for funding pursuant to Section
8631.

9(g) The commission shall adopt appropriate procedures to ensure
10the confidentiality of any market sensitive information submitted
11in an electrical corporation’s proposed procurement plan or
12resulting from or related to its approved procurement plan,
13including, but not limited to, proposed or executed power purchase
14agreements, data request responses, or consultant reports, or any
15combination, provided that the Office of Ratepayer Advocates and
16other consumer groups that are nonmarket participants shall be
17provided access to this information under confidentiality
18procedures authorized by the commission.

19(h) Nothing in this section alters, modifies, or amends the
20commission’s oversight of affiliate transactions under its rules and
21decisions or the commission’s existing authority to investigate and
22penalize an electrical corporation’s alleged fraudulent activities,
23or to disallow costs incurred as a result of gross incompetence,
24fraud, abuse, or similar grounds. Nothing in this section expands,
25modifies, or limits the Energy Commission’s existing authority
26and responsibilities as set forth in Sections 25216, 25216.5, and
2725323 of the Public Resources Code.

28(i) An electrical corporation that serves less than 500,000 electric
29retail customers within the state may file with the commission a
30request for exemption from this section, which the commission
31shall grant upon a showing of good cause.

32(j) (1) Prior to its approval pursuant to Section 851 of any
33divestiture of generation assets owned by an electrical corporation
34on or after the date of enactment of the act adding this section, the
35commission shall determine the impact of the proposed divestiture
36on the electrical corporation’s procurement rates and shall approve
37a divestiture only to the extent it finds, taking into account the
38effect of the divestiture on procurement rates, that the divestiture
39is in the public interest and will result in net ratepayer benefits.

P8    1(2) Any electrical corporation’s procurement necessitated as a
2result of the divestiture of generation assets on or after the effective
3date of the act adding this subdivision shall be subject to the
4mechanisms and procedures set forth in this section only if its
5actual cost is less than the recent historical cost of the divested
6generation assets.

7(3) Notwithstanding paragraph (2), the commission may deem
8proposed procurement eligible to use the procedures in this section
9upon its approval of asset divestiture pursuant to Section 851.

10(k) The commission shall direct electrical corporations to include
11in their proposed procurement plans the integration costs described
12and determined pursuant to clause (v) of subparagraph (A) of
13paragraph (4) of subdivision (a) of Section 399.13.

begin delete
14

SEC. 2.  

Section 454.52 of the Public Utilities Code is amended
15to read:

16

454.52.  

(a) (1) Commencing in 2017, and to be updated
17regularly thereafter, the commission shall adopt a process for each
18load-serving entity, as defined in Section 380, to file an integrated
19resource plan, and a schedule for periodic updates to the plan, to
20ensure that load-serving entities do the following:

21(A) Meet the greenhouse gas emissions reduction targets
22established by the State Air Resources Board, in coordination with
23the commission and the Energy Commission, for the electricity
24sector and each load-serving entity that reflect the electricity
25sector’s percentage in achieving the economywide greenhouse gas
26emissions reductions of 40 percent from 1990 levels by 2030.

27(B) Procure at least 50 percent eligible renewable energy
28resources by December 31, 2030, consistent with Article 16
29(commencing with Section 399.11) of Chapter 2.3.

30(C) Enable each electrical corporation to fulfill its obligation to
31serve its customers at just and reasonable rates.

32(D) Minimize impacts on ratepayers’ bills.

33(E) Ensure system and local reliability.

34(F) Strengthen the diversity, sustainability, and resilience of the
35bulk transmission and distribution systems, and local communities.

36(G) Enhance distribution systems and demand-side energy
37management.

38(H) Minimize localized air pollutants and other greenhouse gas
39emissions, with early priority on disadvantaged communities
40identified pursuant to Section 39711 of the Health and Safety Code.

P9    1(I) Meet the energy efficiency and demand response targets
2established by the commission in concert with the Energy
3Commission pursuant to Section 454.56 and Section 25310 of the
4Public Resources Code.

5(2) (A) The commission may authorize all source procurement
6for electrical corporations that includes various resource types
7including demand-side resources, supply-side resources, and
8demand-response resources that may be categorized as either load
9modifying or supply side, taking into account the differing
10electrical corporations’ geographic service areas, to ensure that
11each load-serving entity meets the goals set forth in paragraph (1).

12(B) The commission may approve procurement of resource
13types that will reduce overall greenhouse gas emissions from the
14electricity sector and meet the other goals specified in paragraph
15(1), but due to the nature of the technology or fuel source may not
16compete favorably in price against other resources over the time
17period of the integrated resource plan.

18(b) (1) Each load-serving entity shall prepare and file an
19integrated resource plan consistent with paragraph (2) of
20subdivision (a) on a time schedule directed by the commission and
21subject to commission review.

22(2) Each electrical corporation’s plan shall follow the provisions
23of Section 454.5.

24(3) The plan of a community choice aggregator shall be
25submitted to its governing board for approval and provided to the
26commission for certification, consistent with paragraph (5) of
27subdivision (a) of Section 366.2, and shall achieve the following:

28(A) Economic, reliability, environmental, security, and other
29benefits and performance characteristics that are consistent with
30the goals set forth in paragraph (1) of subdivision (a).

31(B) A diversified procurement portfolio consisting of both
32short-term and long-term electricity and electricity-related and
33demand response products.

34(C) The resource adequacy requirements established pursuant
35to Section 380.

36(4) The plan of an electric service provider shall achieve the
37goals set forth in paragraph (1) of subdivision (a) through a
38diversified portfolio consisting of both short-term and long-term
39electricity, electricity-related, and demand response products.

P10   1(c) To the extent that additional procurement is authorized for
2the electrical corporation in the integrated resource plan or the
3procurement process authorized pursuant to Section 454.5, the
4commission shall demonstrate to the Legislature, in a report
5submitted pursuant to Section 9795 of the Government Code not
6more than 60 days after the commission issues a final decision
7approving new capacity additions in excess of 500,000 watts, that
8the prioritized procurement of energy efficiency and demand
9response resources required by subparagraph (C) of paragraph (9)
10of subdivision (b) of Section 454.5 is achieved, that the costs are
11allocated in a fair and equitable manner to all customers consistent
12with 454.51, that there is no cost-shifting among customers of
13load-serving entities, and that community choice aggregators may
14self-provide renewable integration resources consistent with
15Section 454.51.

16(d) In order to eliminate redundancy and increase efficiency,
17the process adopted pursuant to subdivision (a) shall incorporate,
18and not duplicate, any other planning processes of the commission.

end delete
19begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 921 is added to the end insertbegin insertPublic Utilities Codeend insertbegin insert, to
20read:end insert

begin insert
21

begin insert921.end insert  

To the extent that additional procurement is authorized
22for the electrical corporation in the integrated resource plan or
23the procurement process authorized pursuant to Section 454.5,
24the commission shall demonstrate to the Legislature, in a report
25submitted pursuant to Section 9795 of the Government Code not
26more than 60 days after the commission issues a final decision
27approving new capacity additions in excess of 500,000 watts, that
28the prioritized procurement of energy efficiency and demand
29reduction and demand response resources required by
30subparagraph (C) of paragraph (9) of subdivision (b) of Section
31454.5 is achieved.

end insert
32

SEC. 3.  

No reimbursement is required by this act pursuant to
33Section 6 of Article XIII B of the California Constitution because
34the only costs that may be incurred by a local agency or school
35district will be incurred because this act creates a new crime or
36infraction, eliminates a crime or infraction, or changes the penalty
37for a crime or infraction, within the meaning of Section 17556 of
38the Government Code, or changes the definition of a crime within
P11   1the meaning of Section 6 of Article XIII B of the California
2Constitution.



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