Amended in Senate August 2, 2016

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 454.5 of 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 requirements 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.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 compliance with above requirement regarding meeting its unmet needs.end insert

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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.

end delete
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This 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 delete

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:

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(a) The commission shall specify the allocation of
2electricity, including quantity, characteristics, and duration of
3electricity delivery, that the Department of Water Resources shall
4provide under its power purchase agreements to the customers of
5each electrical corporation, which shall be reflected in the electrical
6corporation’s proposed procurement plan. Each electrical
7corporation shall file a proposed procurement plan with the
8commission not later than 60 days after the commission specifies
9the allocation of electricity. The proposed procurement plan shall
10specify the date that the electrical corporation intends to resume
11procurement of electricity for its retail customers, consistent with
12its obligation to serve. After the commission’s adoption of a
13procurement plan, the commission shall allow not less than 60
14days before the electrical corporation resumes procurement
15pursuant to this section.

16(b) An electrical corporation’s proposed procurement plan shall
17include, but not be limited to, all of the following:

18(1) An assessment of the price risk associated with the electrical
19corporation’s portfolio, including any utility-retained generation,
20existing power purchase and exchange contracts, and proposed
21contracts or purchases under which an electrical corporation will
22procure electricity, electricity demand reductions, and
23electricity-related products and the remaining open position to be
24served by spot market transactions.

25(2) A definition of each electricity product, electricity-related
26product, and procurement related financial product, including
27support and justification for the product type and amount to be
28procured under the plan.

29(3) The duration of the plan.

30(4) The duration, timing, and range of quantities of each product
31to be procured.

32(5) A competitive procurement process under which the
33electrical corporation may request bids for procurement-related
34services, including the format and criteria of that procurement

36(6) An incentive mechanism, if any incentive mechanism is
37proposed, including the type of transactions to be covered by that
38mechanism, their respective procurement benchmarks, and other
39parameters needed to determine the sharing of risks and benefits.

P4    1(7) The upfront standards and criteria by which the acceptability
2and eligibility for rate recovery of a proposed procurement
3transaction will be known by the electrical corporation prior to
4execution of the transaction. This shall include an expedited
5approval process for the commission’s review of proposed contracts
6and subsequent approval or rejection thereof. The electrical
7corporation shall propose alternative procurement choices in the
8event a contract is rejected.

9(8) Procedures for updating the procurement plan.

10(9) A showing that the procurement plan will achieve the

12(A) The electrical corporation, in order to fulfill its unmet
13resource needs, shall procure resources from eligible renewable
14energy resources in an amount sufficient to meet its procurement
15requirements pursuant to the California Renewables Portfolio
16 Standard Program (Article 16 (commencing with Section 399.11)
17of Chapter 2.3).

18(B) The electrical corporation shall create or maintain a
19diversified procurement portfolio consisting of both short-term
20and long-term electricity and electricity-related and demand
21reduction products.

22(C) begin insert(i)end insertbegin insertend insert The electrical corporation shall first meet its unmet
23resource needs through all available energy efficiency and demand
24reduction resources that are cost effective, reliable, and feasible.
begin delete Inend delete

26begin insert(ii)end insertbegin insertend insertbegin insertInend insert determining the availability of cost-effective, reliable,
27and feasible demand reduction resources, the commission shall
28consider the findings regarding technically and economically
29achievable demand reduction in the Demand Response Potential
30Study required pursuant to Commission Order D.14-12-024, to
31the extent those findings are not superseded by other demand
32reduction studies conducted by academic institutions or government
33 agencies, and to the extent that any demand reduction is consistent
34with commission policy.

begin delete

35(D) (i) The electrical corporation shall undertake all feasible
36efforts to meet any identified resource need through available
37renewable energy, energy storage, energy efficiency, and demand
38reduction resources that are cost effective, reliable, and feasible.

end delete
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end delete

P5    1begin insert(iii)end insert Prior to approving a contract for any new or repowered
2gas-fired generation resource, the commission shall require the
3electrical corporation to demonstrate compliance with clause (i).

4(10) The electrical corporation’s risk management policy,
5strategy, and practices, including specific measures of price

7(11) A plan to achieve appropriate increases in diversity of
8ownership and diversity of fuel supply of nonutility electrical

10(12) A mechanism for recovery of reasonable administrative
11costs related to procurement in the generation component of rates.

12(c) The commission shall review and accept, modify, or reject
13each electrical corporation’s procurement plan and any amendments
14or updates to the plan. The commission shall ensure that the plan
15contains the elements required pursuant to this section, including
16the elements described in subparagraph (D) of paragraph (9) of
17subdivision (b). The commission’s review shall consider each
18electrical corporation’s individual procurement situation, and shall
19give strong consideration to that situation in determining which
20one or more of the features set forth in this subdivision shall apply
21to that electrical corporation. A procurement plan approved by the
22commission shall contain one or more of the following features,
23provided that the commission may not approve a feature or
24mechanism for an electrical corporation if it finds that the feature
25or mechanism would impair the restoration of an electrical
26corporation’s creditworthiness or would lead to a deterioration of
27an electrical corporation’s creditworthiness:

28(1) A competitive procurement process under which the
29electrical corporation may request bids for procurement-related
30services. The commission shall specify the format of that
31procurement process, as well as criteria to ensure that the auction
32process is open and adequately subscribed. Any purchases made
33in compliance with the commission-authorized process shall be
34recovered in the generation component of rates.

35(2) An incentive mechanism that establishes a procurement
36benchmark or benchmarks and authorizes the electrical corporation
37to procure from the market, subject to comparing the electrical
38corporation’s performance to the commission-authorized
39benchmark or benchmarks. The incentive mechanism shall be
40clear, achievable, and contain quantifiable objectives and standards.
P6    1The incentive mechanism shall contain balanced risk and reward
2incentives that limit the risk and reward of an electrical corporation.

3(3) Upfront achievable standards and criteria by which the
4acceptability and eligibility for rate recovery of a proposed
5procurement transaction will be known by the electrical corporation
6prior to the execution of the bilateral contract for the transaction.
7The commission shall provide for expedited review and either
8approve or reject the individual contracts submitted by the electrical
9corporation to ensure compliance with its procurement plan. To
10the extent the commission rejects a proposed contract pursuant to
11this criteria, the commission shall designate alternative procurement
12choices obtained in the procurement plan that will be recoverable
13for ratemaking purposes.

14(d) A procurement plan approved by the commission shall
15accomplish each of the following objectives:

16(1) Enable the electrical corporation to fulfill its obligation to
17serve its customers at just and reasonable rates.

18(2) Eliminate the need for after-the-fact reasonableness reviews
19of an electrical corporation’s actions in compliance with an
20approved procurement plan, including resulting electricity
21procurement contracts, practices, and related expenses. However,
22the commission may establish a regulatory process to verify and
23ensure that each contract was administered in accordance with the
24terms of the contract, and contract disputes that may arise are
25reasonably resolved.

26(3) Ensure timely recovery of prospective procurement costs
27incurred pursuant to an approved procurement plan. The
28commission shall establish rates based on forecasts of procurement
29costs adopted by the commission, actual procurement costs
30incurred, or combination thereof, as determined by the commission.
31The commission shall establish power procurement balancing
32accounts to track the differences between recorded revenues and
33costs incurred pursuant to an approved procurement plan. The
34commission shall review the power procurement balancing
35accounts, not less than semiannually, and shall adjust rates or order
36refunds, as necessary, to promptly amortize a balancing account,
37according to a schedule determined by the commission. Until
38January 1, 2006, the commission shall ensure that any
39overcollection or undercollection in the power procurement
40balancing account does not exceed 5 percent of the electrical
P7    1corporation’s actual recorded generation revenues for the prior
2 calendar year excluding revenues collected for the Department of
3Water Resources. The commission shall determine the schedule
4for amortizing the overcollection or undercollection in the
5balancing account to ensure that the 5 percent threshold is not
6exceeded. After January 1, 2006, this adjustment shall occur when
7deemed appropriate by the commission consistent with the
8objectives of this section.

9(4) Moderate the price risk associated with serving its retail
10customers, including the price risk embedded in its long-term
11supply contracts, by authorizing an electrical corporation to enter
12into financial and other electricity-related product contracts.

13(5) Provide for just and reasonable rates, with an appropriate
14balancing of price stability and price level in the electrical
15corporation’s procurement plan.

16(e) The commission shall provide for the periodic review and
17prospective modification of an electrical corporation’s procurement

19(f) The commission may engage an independent consultant or
20advisory service to evaluate risk management and strategy. The
21reasonable costs of any consultant or advisory service is a
22reimbursable expense and eligible for funding pursuant to Section

24(g) The commission shall adopt appropriate procedures to ensure
25the confidentiality of any market sensitive information submitted
26in an electrical corporation’s proposed procurement plan or
27resulting from or related to its approved procurement plan,
28including, but not limited to, proposed or executed power purchase
29agreements, data request responses, or consultant reports, or any
30combination of these, provided that the Office of Ratepayer
31Advocates and other consumer groups that are nonmarket
32participants shall be provided access to this information under
33confidentiality procedures authorized by the commission.

34(h) Nothing in this section alters, modifies, or amends the
35commission’s oversight of affiliate transactions under its rules and
36decisions or the commission’s existing authority to investigate and
37penalize an electrical corporation’s alleged fraudulent activities,
38or to disallow costs incurred as a result of gross incompetence,
39fraud, abuse, or similar grounds. Nothing in this section expands,
40modifies, or limits the Energy Commission’s existing authority
P8    1and responsibilities as set forth in Sections 25216, 25216.5, and
225323 of the Public Resources Code.

3(i) An electrical corporation that serves less than 500,000 electric
4retail customers within the state may file with the commission a
5request for exemption from this section, which the commission
6shall grant upon a showing of good cause.

7(j) (1) Prior to its approval pursuant to Section 851 of any
8divestiture of generation assets owned by an electrical corporation
9on or after the date of enactment of the act adding this section, the
10commission shall determine the impact of the proposed divestiture
11on the electrical corporation’s procurement rates and shall approve
12a divestiture only to the extent it finds, taking into account the
13effect of the divestiture on procurement rates, that the divestiture
14is in the public interest and will result in net ratepayer benefits.

15(2) Any electrical corporation’s procurement necessitated as a
16result of the divestiture of generation assets on or after the effective
17date of the act adding this subdivision shall be subject to the
18mechanisms and procedures set forth in this section only if its
19actual cost is less than the recent historical cost of the divested
20generation assets.

21(3) Notwithstanding paragraph (2), the commission may deem
22proposed procurement eligible to use the procedures in this section
23upon its approval of asset divestiture pursuant to Section 851.

24(k) The commission shall direct electrical corporations to include
25in their proposed procurement plans the integration costs described
26and determined pursuant to clause (v) of subparagraph (A) of
27paragraph (4) of subdivision (a) of Section 399.13.


SEC. 2.  

No reimbursement is required by this act pursuant to
29Section 6 of Article XIII B of the California Constitution because
30the only costs that may be incurred by a local agency or school
31district will be incurred because this act creates a new crime or
32infraction, eliminates a crime or infraction, or changes the penalty
33for a crime or infraction, within the meaning of Section 17556 of
34the Government Code, or changes the definition of a crime within
35the meaning of Section 6 of Article XIII B of the California