BILL ANALYSIS Ó
AB 2454
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Date of Hearing: April 20, 2016
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Mike Gatto, Chair
AB 2454
(Williams) - As Introduced February 19, 2016
SUBJECT: Energy: procurement plans
SUMMARY: Modifies the procurement plans that electrical
corporations must propose and that the California Public
Utilities Commission (CPUC) must approve, as specified.
Specifically, this bill:
1)Includes "demand response" in existing requirements for
electrical corporation to first meet their need resource needs
in their procurement proposals.
2)Requires electrical corporations, in determining the
availability of cost-effective, reliable, and feasible demand
response resources, to consider the findings of a study
authorized by the CPUC.
3)Requires the CPUC to demonstrate to report to the Legislature,
60 days after the CPUC issues a final decision approving new
capacity additions in excess of 500 thousand watts, that the
prioritized procurement of energy efficiency and demand
response resources is achieved.
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EXISTING LAW:
1)Requires the CPUC to specify the allocation of electricity,
including quantity, characteristics, and duration of
electricity delivery, that the Department of Water Resources
shall provide under its power purchase agreements to the
customers of each electrical corporation, which shall be
reflected in the electrical corporation's proposed procurement
plan. Each electrical corporation shall file a proposed
procurement plan with the CPUC not later than 60 days after
the CPUC specifies the allocation of electricity. The proposed
procurement plan shall specify the date that the electrical
corporation intends to resume procurement of electricity for
its retail customers, consistent with its obligation to serve.
After the CPUC's adoption of a procurement plan, the CPUC
shall allow not less than 60 days before the electrical
corporation resumes procurement pursuant to this section.
(Public Utilities Code Section 454.5)
FISCAL EFFECT: Unknown.
COMMENTS:
1)Author's Statement: "Demand response is a valuable tool that
can enhance system reliability by reducing peak demand on the
grid when it is most expensive to generate electricity,
provide economic alternatives to generation, reduce greenhouse
gas emissions, help with renewable resource integration, and
provide customers options for managing their energy needs.
Demand response (DR) occurs when customers change their
electricity usage (typically reducing use or shifting use to
other times in the day) at certain times in response to
economic incentives, price signals, or other conditions."
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2)Background: In 2014, the CPUC issued a decision indicating its
intention to adopt a firm DR goal specific to each utility to
increase participation in DR. To that end, the CPUC
authorized the undertaking of a DR Potential Study to
determine the amount of the DR capacity in California. This
report is due to be completed in 2016. In order to ensure that
the CPUC does not reach decisions that could reduce the
potential of DR, this bill requires utilities take into
account the facts and findings of the DR potential study
during the Long Term Procurement Planning proceeding as they
consider how to meet unmet need with preferred resources like
efficiency and DR.
The bill additionally requires the CPUC to report to the
Legislature every time they approve 500 megawatts (MW) of new
generation. While existing statute (Public Utilities Code
Section 454.5 (b)(9)(c)) requires procurement of all
cost-effective, feasible and reliable energy efficiency and
demand response first, before other resources are purchased,
there has not been any way of ensuring that the existing
statute is enforced. Therefore, the CPUC should notify the
Legislature when they approve the equivalent of a new
gas-fired power plant instead of preferred resources.
3)What is Demand Response? Demand response refers to altering
energy usage in response to an event or a schedule. By
altering demand for energy at a given time in a specified
amount DR can help maintain reliable operation of the
electricity grid. Used correctly, it can also reduce overall
cost of energy procurement because it has been generally true
that the electricity demanded when load is highest is always
the most expensive electricity. A reduction in demand can
avoid the need for that most expensive electricity.
According to a CPUC description of DR in one of its decisions:
a) A DR supply resource could include, but not be limited
to the use of on-site or local solar generation, energy
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storage, or other types of clean energy generation (such as
a fuel cell that uses biogas).
b) A load-modifying DR resource includes, but is not
limited to base interruptible rates, agricultural pump
controller, and air conditioner cycling programs, critical
peak pricing, real time pricing, time-of-use rates,
permanent load shifting, and peak time rebates.
4)Back Up Generation (BUGs): At this time the CPUC has not yet
completed a proceeding on how it will address DR and BUGs. The
CPUC stated in a recent decision (D.14-12-024) "the [CPUC's]
action to bar fossil-fueled BUGs both furthers the intent of
SB 1414 [Wolk, 2014] and meets the EPA's stationary source
requirements."
In this same decision the CPUC points out that federal law
does not preempt the CPUC's action to bar fossil-fueled BUGs.
As the CPUC has not yet reached a final decision on many
aspects of DR. The CPUC is currently examining, among other
things:
a) Goals for DR (including how to measure and increase
participation in demand response);
b) Resource Adequacy Concerns (including the cause of these
concerns and recommendations for resolving them);
c) California Independent System Operator (CAISO);
d) Market Integration Costs (Determine whether the
estimated costs are considered high, and the extent to
which they are a barrier to CAISO market integration);
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e) Supply Resources Issues (Determine the characteristics
of each DR program the CPUC should use to categorize the
current and future DR programs and develop, pilot, and
implement a competitive procurement mechanism for DR design
new programs that meet forecasted needs); and
f) Determine the roles of the Utilities and Third Party
Providers in administering the supply resources.
The author may wish to consider an amendment that would
require the CPUC to, when determining the availability of
cost-effective, reliable, and feasible demand reduction
resources, require electrical corporations to consider the
findings regarding technical, economic, and achievable demand
reduction in the Demand Response Potential Study required
pursuant to CPUC D.14-12-024, to the extent those findings are
not superseded by subsequent demand reduction potential
studies and to the extent that any demand reduction is
consistent with CPUC policy.
5)Arguments in Support: Supporters state that DR encourages
customers to conserve energy during times when power plants
are pushed to their limits. They also state that DR resources
are being integrated into the wholesale market as supply-side
resources to address transmission level reliability issues and
can be used on the distribution system to address local
reliability needs.
6)Arguments in Opposition: Opponents are concerned that this
bill will establish a process that will unnecessarily delay
the procurement of resources necessary to maintain
reliability.
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7)Suggested Amendments:
SECTION 1. Section 454.5 of the Public Utilities Code is
amended to read:
454.5. (a) The commission shall specify the allocation of
electricity, including quantity, characteristics, and duration
of electricity delivery, that the Department of Water
Resources shall provide under its power purchase agreements to
the customers of each electrical corporation, which shall be
reflected in the electrical corporation's proposed procurement
plan. Each electrical corporation shall file a proposed
procurement plan with the commission not later than 60 days
after the commission specifies the allocation of electricity.
The proposed procurement plan shall specify the date that the
electrical corporation intends to resume procurement of
electricity for its retail customers, consistent with its
obligation to serve. After the commission's adoption of a
procurement plan, the commission shall allow not less than 60
days before the electrical corporation resumes procurement
pursuant to this section.
(b) An electrical corporation's proposed procurement plan
authorized pursuant to either this section or Section 454.52
shall include, but not be limited to, all of the following:
(1) An assessment of the price risk associated with the
electrical corporation's portfolio, including any
utility-retained generation, existing power purchase and
exchange contracts, and proposed contracts or purchases under
which an electrical corporation will procure electricity,
electricity demand reductions and demand responses, and
electricity-related products and the remaining open position
to be served by spot market transactions.
(2) A definition of each electricity product,
electricity-related product, and procurement related financial
product, including support and justification for the product
type and amount to be procured under the plan.
(3) The duration of the plan.
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(4) The duration, timing, and range of quantities of each
product to be procured.
(5) A competitive procurement process under which the
electrical corporation may request bids for
procurement-related services, including the format and
criteria of that procurement process.
(6) An incentive mechanism, if any incentive mechanism is
proposed, including the type of transactions to be covered by
that mechanism, their respective procurement benchmarks, and
other parameters needed to determine the sharing of risks and
benefits.
(7) The upfront standards and criteria by which the
acceptability and eligibility for rate recovery of a proposed
procurement transaction will be known by the electrical
corporation prior to execution of the transaction. This shall
include an expedited approval process for the commission's
review of proposed contracts and subsequent approval or
rejection thereof. The electrical corporation shall propose
alternative procurement choices in the event a contract is
rejected.
(8) Procedures for updating the procurement plan.
(9) A showing that the procurement plan will achieve the
following:
(A) The electrical corporation, in order to fulfill its unmet
resource needs, shall procure resources from eligible
renewable energy resources in an amount sufficient to meet its
procurement requirements pursuant to the California Renewables
Portfolio Standard Program (Article 16 (commencing with
Section 399.11) of Chapter 2.3).
(B) The electrical corporation shall create or maintain a
diversified procurement portfolio consisting of both
short-term and long-term electricity and electricity-related
and demand reduction and demand response products.
(C) The electrical corporation shall first meet its unmet
resource needs through all available energy efficiency and
demand reduction and demand response resources that are cost
effective, reliable, and feasible. In determining the
availability of cost-effective, reliable, and feasible demand
reduction and demand response resources, the electrical
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corporation shall consider the findings regarding technical,
economic, and achievable demand reduction and demand response
potential in the Demand Response Potential Study required
pursuant to Commission Order D.14-12-024, to the extent those
findings are not superseded by subsequent demand response
potential studies, and shall consider both load-modifying and
supply-side demand reduction and demand response resources. In
determining the availability of cost-effective, reliable, and
feasible demand reduction resources, the electrical
corporation shall consider the findings regarding technical,
economic, and achievable demand reduction in the Demand
Response Potential Study required pursuant to Commission
D.14-12-024, to the extent those findings are not superseded
by subsequent demand reduction potential studies and to the
extent that any demand reduction is consistent with commission
policy.
(10) The electrical corporation's risk management policy,
strategy, and practices, including specific measures of price
stability.
(11) A plan to achieve appropriate increases in diversity of
ownership and diversity of fuel supply of nonutility
electrical generation.
(12) A mechanism for recovery of reasonable administrative
costs related to procurement in the generation component of
rates.
(c) The commission shall review and accept, modify, or reject
each electrical corporation's procurement plan. The
commission's review shall consider each electrical
corporation's individual procurement situation, and shall give
strong consideration to that situation in determining which
one or more of the features set forth in this subdivision
shall apply to that electrical corporation. A procurement plan
approved by the commission shall contain one or more of the
following features, provided that the commission may not
approve a feature or mechanism for an electrical corporation
if it finds that the feature or mechanism would impair the
restoration of an electrical corporation's creditworthiness or
would lead to a deterioration of an electrical corporation's
creditworthiness:
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(1) A competitive procurement process under which the
electrical corporation may request bids for
procurement-related services. The commission shall specify the
format of that procurement process, as well as criteria to
ensure that the auction process is open and adequately
subscribed. Any purchases made in compliance with the
commission-authorized process shall be recovered in the
generation component of rates.
(2) An incentive mechanism that establishes a procurement
benchmark or benchmarks and authorizes the electrical
corporation to procure from the market, subject to comparing
the electrical corporation's performance to the
commission-authorized benchmark or benchmarks. The incentive
mechanism shall be clear, achievable, and contain quantifiable
objectives and standards. The incentive mechanism shall
contain balanced risk and reward incentives that limit the
risk and reward of an electrical corporation.
(3) Upfront achievable standards and criteria by which the
acceptability and eligibility for rate recovery of a proposed
procurement transaction will be known by the electrical
corporation prior to the execution of the bilateral contract
for the transaction. The commission shall provide for
expedited review and either approve or reject the individual
contracts submitted by the electrical corporation to ensure
compliance with its procurement plan. To the extent the
commission rejects a proposed contract pursuant to this
criteria, the commission shall designate alternative
procurement choices obtained in the procurement plan that will
be recoverable for ratemaking purposes.
(d) A procurement plan approved by the commission shall
accomplish each of the following objectives:
(1) Enable the electrical corporation to fulfill its
obligation to serve its customers at just and reasonable
rates.
(2) Eliminate the need for after-the-fact reasonableness
reviews of an electrical corporation's actions in compliance
with an approved procurement plan, including resulting
electricity procurement contracts, practices, and related
expenses. However, the commission may establish a regulatory
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process to verify and ensure that each contract was
administered in accordance with the terms of the contract, and
contract disputes that may arise are reasonably resolved.
(3) Ensure timely recovery of prospective procurement costs
incurred pursuant to an approved procurement plan. The
commission shall establish rates based on forecasts of
procurement costs adopted by the commission, actual
procurement costs incurred, or combination thereof, as
determined by the commission. The commission shall establish
power procurement balancing accounts to track the differences
between recorded revenues and costs incurred pursuant to an
approved procurement plan. The commission shall review the
power procurement balancing accounts, not less than
semiannually, and shall adjust rates or order refunds, as
necessary, to promptly amortize a balancing account, according
to a schedule determined by the commission. Until January 1,
2006, the commission shall ensure that any overcollection or
undercollection in the power procurement balancing account
does not exceed 5 percent of the electrical corporation's
actual recorded generation revenues for the prior calendar
year excluding revenues collected for the Department of Water
Resources. The commission shall determine the schedule for
amortizing the overcollection or undercollection in the
balancing account to ensure that the 5 percent threshold is
not exceeded. After January 1, 2006, this adjustment shall
occur when deemed appropriate by the commission consistent
with the objectives of this section.
(4) Moderate the price risk associated with serving its retail
customers, including the price risk embedded in its long-term
supply contracts, by authorizing an electrical corporation to
enter into financial and other electricity-related product
contracts.
(5) Provide for just and reasonable rates, with an appropriate
balancing of price stability and price level in the electrical
corporation's procurement plan.
(e) The commission shall provide for the periodic review and
prospective modification of an electrical corporation's
procurement plan.
(f) The commission may engage an independent consultant or
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advisory service to evaluate risk management and strategy. The
reasonable costs of any consultant or advisory service is a
reimbursable expense and eligible for funding pursuant to
Section 631.
(g) The commission shall adopt appropriate procedures to
ensure the confidentiality of any market sensitive information
submitted in an electrical corporation's proposed procurement
plan or resulting from or related to its approved procurement
plan, including, but not limited to, proposed or executed
power purchase agreements, data request responses, or
consultant reports, or any combination, provided that the
Office of Ratepayer Advocates and other consumer groups that
are nonmarket participants shall be provided access to this
information under confidentiality procedures authorized by the
commission.
(h) Nothing in this section alters, modifies, or amends the
commission's oversight of affiliate transactions under its
rules and decisions or the commission's existing authority to
investigate and penalize an electrical corporation's alleged
fraudulent activities, or to disallow costs incurred as a
result of gross incompetence, fraud, abuse, or similar
grounds. Nothing in this section expands, modifies, or limits
the Energy Commission's existing authority and
responsibilities as set forth in Sections 25216, 25216.5, and
25323 of the Public Resources Code.
(i) An electrical corporation that serves less than 500,000
electric retail customers within the state may file with the
commission a request for exemption from this section, which
the commission shall grant upon a showing of good cause.
(j) (1) Prior to its approval pursuant to Section 851 of any
divestiture of generation assets owned by an electrical
corporation on or after the date of enactment of the act
adding this section, the commission shall determine the impact
of the proposed divestiture on the electrical corporation's
procurement rates and shall approve a divestiture only to the
extent it finds, taking into account the effect of the
divestiture on procurement rates, that the divestiture is in
the public interest and will result in net ratepayer benefits.
(2) Any electrical corporation's procurement necessitated as a
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result of the divestiture of generation assets on or after the
effective date of the act adding this subdivision shall be
subject to the mechanisms and procedures set forth in this
section only if its actual cost is less than the recent
historical cost of the divested generation assets.
(3) Notwithstanding paragraph (2), the commission may deem
proposed procurement eligible to use the procedures in this
section upon its approval of asset divestiture pursuant to
Section 851.
(k) The commission shall direct electrical corporations to
include in their proposed procurement plans the integration
costs described and determined pursuant to clause (v) of
subparagraph (A) of paragraph (4) of subdivision (a) of
Section 399.13.
SEC. 2. Section 921 is added to the Public Utilities Code, to
read:
921. To the extent that additional procurement is authorized
for the electrical corporation in the integrated resource plan
or the procurement process authorized pursuant to Section
454.5, the commission shall demonstrate to the Legislature, in
a report submitted pursuant to Section 9795 of the Government
Code not more than 60 days after the commission issues a final
decision approving new capacity additions in excess of 500,000
watts one half of one megawatt , that the prioritized
procurement of energy efficiency and demand reduction and
demand response resources required by subparagraph (C) of
paragraph (9) of subdivision (b) of Section 454.5 is achieved.
REGISTERED SUPPORT / OPPOSITION:
Support
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Clean Power Campaign (Sponsor)
Advanced Energy Management Alliance
Environmental Defense Fund
EnerNOC
TechNet
Opposition
Independent Energy Producers
Analysis Prepared by:Sue Kateley / U. & C. / (916) 319-2083
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