Amended in Assembly May 4, 2016

Amended in Assembly April 26, 2016

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 amend Section 454.5 of, and to add Section 921 to, the Public Utilities Code, relating to energy.


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 would require the electrical corporation, in determining the availability of cost-effective, reliable, and feasible demand reduction resources, to consider the findings of the Demand Response Potential Study required by a specific order of the commission, as specified.

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, that community choice aggregators may self-provide renewable integration resources, and that unmet resource needs are met through available energy efficiency and demand reduction resources that are cost effective, reliable, and feasible.

This bill would also require the commission to demonstrate to the Legislature, if the commission approves new capacity additions in excess of 100 megawatts, that the electrical corporation met its unmet needs through all available energy efficiency and demand reduction resources that were cost effective, reliable, and feasible.begin insert The bill would require the commission, prior to approving a contract for any new or repowered gas-fired generation resources, to require the electrical corporation to demonstrate that it has undertaken all feasible efforts to meet identified resources needs through available renewable energy, energy storage, energy efficiency, and demand reduction resources that are cost effective, reliable, and feasible.end insert

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
P3    1each electrical corporation, which shall be reflected in the electrical
2corporation’s proposed procurement plan. Each electrical
3corporation shall file a proposed procurement plan with the
4commission not later than 60 days after the commission specifies
5the allocation of electricity. The proposed procurement plan shall
6specify the date that the electrical corporation intends to resume
7procurement of electricity for its retail customers, consistent with
8its obligation to serve. After the commission’s adoption of a
9procurement plan, the commission shall allow not less than 60
10days before the electrical corporation resumes procurement
11pursuant to this section.

12(b) An electrical corporation’s proposed procurement plan 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, electricity demand reductions, and
19electricity-related products and the remaining open position to be
20served 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

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

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 and demand
16reduction products.

17(C) The electrical corporation shall first meet its unmet resource
18needs through all available energy efficiency and demand reduction
19resources that are cost effective, reliable, and feasible. In
20determining the availability of cost-effective, reliable, and feasible
21demand reduction resources, thebegin delete electrical corporationend deletebegin insert commissionend insert
22 shall consider the findings regardingbegin delete technical, economic, andend delete
23begin insert technically and economicallyend insert achievable demand reduction in the
24Demand Response Potential Study required pursuant to
25Commission Order D.14-12-024, to the extent those findings are
26not superseded bybegin delete subsequentend deletebegin insert otherend insert demand reductionbegin delete potential
27studies,end delete
begin insert studies conducted by academic institutions or government
28agencies,end insert
and to the extent that any demand reduction is consistent
29with commission policy.

begin insert

(D) (i) The electrical corporation shall undertake all feasible
31efforts to meet any identified resource need through available
32renewable energy, energy storage, energy efficiency, and demand
33reduction resources that are cost effective, reliable, and feasible.

end insert
begin insert

(ii) Prior to approving a contract for any new or repowered
35gas-fired generation resource, the commission shall require the
36electrical corporation to demonstrate compliance with clause (i).

end insert

37(10) The electrical corporation’s risk management policy,
38strategy, and practices, including specific measures of price

P5    1(11) A plan to achieve appropriate increases in diversity of
2ownership and diversity of fuel supply of nonutility electrical

4(12) A mechanism for recovery of reasonable administrative
5costs related to procurement in the generation component of rates.

6(c) The commission shall review and accept, modify, or reject
7each electrical corporation’s procurementbegin delete plan.end deletebegin insert plan and any
8amendments or updates to the plan. The commission shall ensure
9that the plan contains the elements required pursuant to this
10section, including the elements described in subparagraphend insert
begin insert (D) of
11paragraph (9) of subdivision (b).end insert
The commission’s review shall
12consider each electrical corporation’s individual procurement
13situation, and shall give strong consideration to that situation in
14determining which one or more of the features set forth in this
15subdivision shall apply to that electrical corporation. A
16procurement plan approved by the commission shall contain one
17or more of the following features, provided that the commission
18may not approve a feature or mechanism for an electrical
19corporation if it finds that the feature or mechanism would impair
20the restoration of an electrical corporation’s creditworthiness or
21would lead to a deterioration of an electrical corporation’s

23(1) A competitive procurement process under which the
24electrical corporation may request bids for procurement-related
25services. The commission shall specify the format of that
26procurement process, as well as criteria to ensure that the auction
27process is open and adequately subscribed. Any purchases made
28in compliance with the commission-authorized process shall be
29recovered in the generation component of rates.

30(2) An incentive mechanism that establishes a procurement
31benchmark or benchmarks and authorizes the electrical corporation
32to procure from the market, subject to comparing the electrical
33corporation’s performance to the commission-authorized
34benchmark or benchmarks. The incentive mechanism shall be
35clear, achievable, and contain quantifiable objectives and standards.
36The incentive mechanism shall contain balanced risk and reward
37incentives that limit the risk and reward of an electrical corporation.

38(3) Upfront achievable standards and criteria by which the
39acceptability and eligibility for rate recovery of a proposed
40procurement transaction will be known by the electrical corporation
P6    1prior to the execution of the bilateral contract for the transaction.
2The commission shall provide for expedited review and either
3approve or reject the individual contracts submitted by the electrical
4corporation to ensure compliance with its procurement plan. To
5the extent the commission rejects a proposed contract pursuant to
6this criteria, the commission shall designate alternative procurement
7choices obtained in the procurement plan that will be recoverable
8for ratemaking purposes.

9(d) A procurement plan approved by the commission shall
10accomplish each of the following objectives:

11(1) Enable the electrical corporation to fulfill its obligation to
12serve its customers at just and reasonable rates.

13(2) Eliminate the need for after-the-fact reasonableness reviews
14of an electrical corporation’s actions in compliance with an
15approved procurement plan, including resulting electricity
16procurement contracts, practices, and related expenses. However,
17the commission may establish a regulatory process to verify and
18ensure that each contract was administered in accordance with the
19terms of the contract, and contract disputes that may arise are
20reasonably resolved.

21(3) Ensure timely recovery of prospective procurement costs
22incurred pursuant to an approved procurement plan. The
23commission shall establish rates based on forecasts of procurement
24costs adopted by the commission, actual procurement costs
25incurred, or combination thereof, as determined by the commission.
26The commission shall establish power procurement balancing
27accounts to track the differences between recorded revenues and
28costs incurred pursuant to an approved procurement plan. The
29commission shall review the power procurement balancing
30accounts, not less than semiannually, and shall adjust rates or order
31refunds, as necessary, to promptly amortize a balancing account,
32according to a schedule determined by the commission. Until
33January 1, 2006, the commission shall ensure that any
34overcollection or undercollection in the power procurement
35balancing account does not exceed 5 percent of the electrical
36corporation’s actual recorded generation revenues for the prior
37calendar year excluding revenues collected for the Department of
38Water Resources. The commission shall determine the schedule
39for amortizing the overcollection or undercollection in the
40balancing account to ensure that the 5 percent threshold is not
P7    1exceeded. After January 1, 2006, this adjustment shall occur when
2deemed appropriate by the commission consistent with the
3objectives of this section.

4(4) Moderate the price risk associated with serving its retail
5customers, including the price risk embedded in its long-term
6supply contracts, by authorizing an electrical corporation to enter
7into financial and other electricity-related product contracts.

8(5) Provide for just and reasonable rates, with an appropriate
9balancing of price stability and price level in the electrical
10corporation’s procurement plan.

11(e) The commission shall provide for the periodic review and
12prospective modification of an electrical corporation’s procurement

14(f) The commission may engage an independent consultant or
15advisory service to evaluate risk management and strategy. The
16reasonable costs of any consultant or advisory service is a
17reimbursable expense and eligible for funding pursuant to Section

19(g) The commission shall adopt appropriate procedures to ensure
20the confidentiality of any market sensitive information submitted
21in an electrical corporation’s proposed procurement plan or
22resulting from or related to its approved procurement plan,
23including, but not limited to, proposed or executed power purchase
24agreements, data request responses, or consultant reports, or any
25begin delete combination,end deletebegin insert combination of these,end insert provided that the Office of
26Ratepayer Advocates and other consumer groups that are
27nonmarket participants shall be provided access to this information
28under confidentiality procedures authorized by the commission.

29(h) Nothing in this section alters, modifies, or amends the
30commission’s oversight of affiliate transactions under its rules and
31decisions or the commission’s existing authority to investigate and
32penalize an electrical corporation’s alleged fraudulent activities,
33or to disallow costs incurred as a result of gross incompetence,
34fraud, abuse, or similar grounds. Nothing in this section expands,
35modifies, or limits the Energy Commission’s existing authority
36and responsibilities as set forth in Sections 25216, 25216.5, and
3725323 of the Public Resources Code.

38(i) An electrical corporation that serves less than 500,000 electric
39retail customers within the state may file with the commission a
P8    1request for exemption from this section, which the commission
2shall grant upon a showing of good cause.

3(j) (1) Prior to its approval pursuant to Section 851 of any
4divestiture of generation assets owned by an electrical corporation
5on or after the date of enactment of the act adding this section, the
6commission shall determine the impact of the proposed divestiture
7on the electrical corporation’s procurement rates and shall approve
8a divestiture only to the extent it finds, taking into account the
9effect of the divestiture on procurement rates, that the divestiture
10is in the public interest and will result in net ratepayer benefits.

11(2) Any electrical corporation’s procurement necessitated as a
12result of the divestiture of generation assets on or after the effective
13date of the act adding this subdivision shall be subject to the
14mechanisms and procedures set forth in this section only if its
15actual cost is less than the recent historical cost of the divested
16generation assets.

17(3) Notwithstanding paragraph (2), the commission may deem
18proposed procurement eligible to use the procedures in this section
19upon its approval of asset divestiture pursuant to Section 851.

20(k) The commission shall direct electrical corporations to include
21in their proposed procurement plans the integration costs described
22and determined pursuant to clause (v) of subparagraph (A) of
23paragraph (4) of subdivision (a) of Section 399.13.


SEC. 2.  

Section 921 is added to the Public Utilities Code, to



To the extent that additional procurement is authorized
27for the electrical corporation in the integrated resource plan or the
28procurement process authorized pursuant to Section 454.5, the
29commission shall demonstrate to the Legislature, in a report
30submitted pursuant to Section 9795 of the Government Code not
31more than 60 days after the commission issues a final decision
32approving new capacity additions in excess of 100 megawatts, that
33the prioritized procurement of energy efficiency and demand
34reduction resources required by subparagraph (C) of paragraph
35(9) of subdivision (b) of Section 454.5 is achieved.


SEC. 3.  

No reimbursement is required by this act pursuant to
37Section 6 of Article XIII B of the California Constitution because
38the only costs that may be incurred by a local agency or school
39district will be incurred because this act creates a new crime or
40infraction, eliminates a crime or infraction, or changes the penalty
P9    1for a crime or infraction, within the meaning of Section 17556 of
2the Government Code, or changes the definition of a crime within
3the meaning of Section 6 of Article XIII B of the California