Amended in Assembly May 31, 2016

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 454.5begin delete of, and to add Section 921 to,end deletebegin insert ofend insert 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 specifiedbegin delete elements, incentive mechanisms,end deletebegin insert requirementsend insert 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 wouldbegin delete 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. The bill wouldend delete 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.

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
P3    1electricity delivery, that the Department of Water Resources shall
2provide under its power purchase agreements to the customers of
3each electrical corporation, which shall be reflected in the electrical
4corporation’s proposed procurement plan. Each electrical
5corporation shall file a proposed procurement plan with the
6commission not later than 60 days after the commission specifies
7the allocation of electricity. The proposed procurement plan shall
8specify the date that the electrical corporation intends to resume
9procurement of electricity for its retail customers, consistent with
10its obligation to serve. After the commission’s adoption of a
11procurement plan, the commission shall allow not less than 60
12days before the electrical corporation resumes procurement
13pursuant to this section.

14(b) An electrical corporation’s proposed procurement plan shall
15include, but not be limited to, all of the following:

16(1) An assessment of the price risk associated with the electrical
17corporation’s portfolio, including any utility-retained generation,
18existing power purchase and exchange contracts, and proposed
19contracts or purchases under which an electrical corporation will
20procure electricity, electricity demand reductions, and
21electricity-related products and the remaining open position to be
22served by spot market transactions.

23(2) A definition of each electricity product, electricity-related
24product, and procurement related financial product, including
25support and justification for the product type and amount to be
26procured under the plan.

27(3) The duration of the plan.

28(4) The duration, timing, and range of quantities of each product
29to be procured.

30(5) A competitive procurement process under which the
31electrical corporation may request bids for procurement-related
32services, including the format and criteria of that procurement

34(6) An incentive mechanism, if any incentive mechanism is
35proposed, including the type of transactions to be covered by that
36mechanism, their respective procurement benchmarks, and other
37parameters needed to determine the sharing of risks and benefits.

38(7) The upfront standards and criteria by which the acceptability
39and eligibility for rate recovery of a proposed procurement
40transaction will be known by the electrical corporation prior to
P4    1execution of the transaction. This shall include an expedited
2approval process for the commission’s review of proposed contracts
3and subsequent approval or rejection thereof. The electrical
4corporation shall propose alternative procurement choices in the
5event a contract is rejected.

6(8) Procedures for updating the procurement plan.

7(9) A showing that the procurement plan will achieve the

9(A) The electrical corporation, in order to fulfill its unmet
10resource needs, shall procure resources from eligible renewable
11energy resources in an amount sufficient to meet its procurement
12requirements pursuant to the California Renewables Portfolio
13Standard Program (Article 16 (commencing with Section 399.11)
14of Chapter 2.3).

15(B) The electrical corporation shall create or maintain a
16diversified procurement portfolio consisting of both short-term
17and long-term electricity and electricity-related and demand
18reduction products.

19(C) The electrical corporation shall first meet its unmet resource
20needs through all available energy efficiency and demand reduction
21resources that are cost effective, reliable, and feasible. In
22determining the availability of cost-effective, reliable, and feasible
23demand reduction resources, the commission shall consider the
24findings regarding technically and economically achievable demand
25reduction in the Demand Response Potential Study required
26pursuant to Commission Order D.14-12-024, to the extent those
27findings are not superseded by other demand reduction studies
28conducted by academic institutions or government agencies, and
29to the extent that any demand reduction is consistent with
30commission policy.

31(D) (i) The electrical corporation shall undertake all feasible
32efforts to meet any identified resource need through available
33renewable energy, energy storage, energy efficiency, and demand
34reduction resources that are cost effective, reliable, and feasible.

35(ii) Prior to approving a contract for any new or repowered
36gas-fired generation resource, the commission shall require the
37electrical corporation to demonstrate compliance with clause (i).

38(10) The electrical corporation’s risk management policy,
39strategy, 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 procurement plan and any amendments
8or updates to the plan. The commission shall ensure that the plan
9contains the elements required pursuant to this section, including
10the elements described in subparagraph (D) of paragraph (9) of
11subdivision (b). The commission’s review shall consider each
12electrical corporation’s individual procurement situation, and shall
13give strong consideration to that situation in determining which
14one or more of the features set forth in this subdivision shall apply
15to that electrical corporation. A procurement plan approved by the
16commission shall contain one or more of the following features,
17provided that the commission may not approve a feature or
18mechanism for an electrical corporation if it finds that the feature
19or mechanism would impair the restoration of an electrical
20corporation’s creditworthiness or would lead to a deterioration of
21an electrical corporation’s creditworthiness:

22(1) A competitive procurement process under which the
23electrical corporation may request bids for procurement-related
24services. The commission shall specify the format of that
25procurement process, as well as criteria to ensure that the auction
26process is open and adequately subscribed. Any purchases made
27in compliance with the commission-authorized process shall be
28recovered in the generation component of rates.

29(2) An incentive mechanism that establishes a procurement
30benchmark or benchmarks and authorizes the electrical corporation
31to procure from the market, subject to comparing the electrical
32corporation’s performance to the commission-authorized
33benchmark or benchmarks. The incentive mechanism shall be
34clear, achievable, and contain quantifiable objectives and standards.
35The incentive mechanism shall contain balanced risk and reward
36incentives that limit the risk and reward of an electrical corporation.

37(3) Upfront achievable standards and criteria by which the
38acceptability and eligibility for rate recovery of a proposed
39procurement transaction will be known by the electrical corporation
40prior to the execution of the bilateral contract for the transaction.
P6    1The commission shall provide for expedited review and either
2approve or reject the individual contracts submitted by the electrical
3corporation to ensure compliance with its procurement plan. To
4the extent the commission rejects a proposed contract pursuant to
5this criteria, the commission shall designate alternative procurement
6choices obtained in the procurement plan that will be recoverable
7for ratemaking purposes.

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

10(1) Enable the electrical corporation to fulfill its obligation to
11serve its customers at just and reasonable rates.

12(2) Eliminate the need for after-the-fact reasonableness reviews
13of an electrical corporation’s actions in compliance with an
14approved procurement plan, including resulting electricity
15procurement contracts, practices, and related expenses. However,
16the commission may establish a regulatory process to verify and
17ensure that each contract was administered in accordance with the
18terms of the contract, and contract disputes that may arise are
19reasonably resolved.

20(3) Ensure timely recovery of prospective procurement costs
21incurred pursuant to an approved procurement plan. The
22commission shall establish rates based on forecasts of procurement
23costs adopted by the commission, actual procurement costs
24incurred, or combination thereof, as determined by the commission.
25The commission shall establish power procurement balancing
26accounts to track the differences between recorded revenues and
27costs incurred pursuant to an approved procurement plan. The
28commission shall review the power procurement balancing
29accounts, not less than semiannually, and shall adjust rates or order
30refunds, as necessary, to promptly amortize a balancing account,
31according to a schedule determined by the commission. Until
32January 1, 2006, the commission shall ensure that any
33overcollection or undercollection in the power procurement
34balancing account does not exceed 5 percent of the electrical
35corporation’s actual recorded generation revenues for the prior
36calendar year excluding revenues collected for the Department of
37Water Resources. The commission shall determine the schedule
38for amortizing the overcollection or undercollection in the
39balancing account to ensure that the 5 percent threshold is not
40exceeded. After January 1, 2006, this adjustment shall occur when
P7    1deemed appropriate by the commission consistent with the
2objectives of this section.

3(4) Moderate the price risk associated with serving its retail
4customers, including the price risk embedded in its long-term
5supply contracts, by authorizing an electrical corporation to enter
6into financial and other electricity-related product contracts.

7(5) Provide for just and reasonable rates, with an appropriate
8balancing of price stability and price level in the electrical
9corporation’s procurement plan.

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

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

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

28(h) Nothing in this section alters, modifies, or amends the
29commission’s oversight of affiliate transactions under its rules and
30decisions or the commission’s existing authority to investigate and
31penalize an electrical corporation’s alleged fraudulent activities,
32or to disallow costs incurred as a result of gross incompetence,
33fraud, abuse, or similar grounds. Nothing in this section expands,
34modifies, or limits the Energy Commission’s existing authority
35and responsibilities as set forth in Sections 25216, 25216.5, and
3625323 of the Public Resources Code.

37(i) An electrical corporation that serves less than 500,000 electric
38retail customers within the state may file with the commission a
39request for exemption from this section, which the commission
40shall grant upon a showing of good cause.

P8    1(j) (1) Prior to its approval pursuant to Section 851 of any
2divestiture of generation assets owned by an electrical corporation
3on or after the date of enactment of the act adding this section, the
4commission shall determine the impact of the proposed divestiture
5on the electrical corporation’s procurement rates and shall approve
6a divestiture only to the extent it finds, taking into account the
7effect of the divestiture on procurement rates, that the divestiture
8is in the public interest and will result in net ratepayer benefits.

9(2) Any electrical corporation’s procurement necessitated as a
10result of the divestiture of generation assets on or after the effective
11date of the act adding this subdivision shall be subject to the
12mechanisms and procedures set forth in this section only if its
13actual cost is less than the recent historical cost of the divested
14generation assets.

15(3) Notwithstanding paragraph (2), the commission may deem
16proposed procurement eligible to use the procedures in this section
17upon its approval of asset divestiture pursuant to Section 851.

18(k) The commission shall direct electrical corporations to include
19in their proposed procurement plans the integration costs described
20and determined pursuant to clause (v) of subparagraph (A) of
21paragraph (4) of subdivision (a) of Section 399.13.

begin delete22

SEC. 2.  

Section 921 is added to the Public Utilities Code, to



To the extent that additional procurement is authorized
25for the electrical corporation in the integrated resource plan or the
26procurement process authorized pursuant to Section 454.5, the
27commission shall demonstrate to the Legislature, in a report
28submitted pursuant to Section 9795 of the Government Code not
29more than 60 days after the commission issues a final decision
30approving new capacity additions in excess of 100 megawatts, that
31the prioritized procurement of energy efficiency and demand
32reduction resources required by subparagraph (C) of paragraph
33(9) of subdivision (b) of Section 454.5 is achieved.

end delete

begin deleteSEC. 3.end delete
begin insertSEC. 2.end insert  

No reimbursement is required by this act pursuant to
36Section 6 of Article XIII B of the California Constitution because
37the only costs that may be incurred by a local agency or school
38district will be incurred because this act creates a new crime or
39infraction, eliminates a crime or infraction, or changes the penalty
40for a crime or infraction, within the meaning of Section 17556 of
P9    1the Government Code, or changes the definition of a crime within
2the meaning of Section 6 of Article XIII B of the California