BILL ANALYSIS                                                                                                                                                                                                    Ó

          |SENATE RULES COMMITTEE            |                       AB 2454|
          |Office of Senate Floor Analyses   |                              |
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                                   THIRD READING 

          Bill No:  AB 2454
          Author:   Williams (D)
          Amended:  8/16/16 in Senate
          Vote:     21 

           SENATE ENERGY, U. & C. COMMITTEE:  6-3, 6/27/16
           AYES:  Hertzberg, Hill, Lara, Leyva, McGuire, Pavley
           NOES:  Morrell, Cannella, Gaines
           NO VOTE RECORDED:  Hueso, Wolk


           ASSEMBLY FLOOR:  58-20, 6/2/16 - See last page for vote

           SUBJECT:   Energy: procurement plans

          SOURCE:    Clean Power Campaign

          DIGEST:  This bill directs the California Public Utilities  
          Commission (CPUC), to (1) require an investor-owned utility  
          (IOU) to demonstrate that it will first meet its unmet resource  
          needs through all available energy efficiency and demand  
          reduction resources that are cost effective, reliable, and  
          feasible; (2) require an IOU to demonstrate compliance with its  
          approved procurement plan prior to approving the IOU's contract  
          for any new gas-fired generating unit, and (3) consider the  
          findings of the Demand Response Potential Study.

          Senate Floor Amendments of 8/16/16 add a new section that  
          include the provisions of AB 2454 itself, as well as the  
          provisions of another bill - AB 1937 (Gomez) - that also affects  
          Public Utilities Code Section 454.5.  The amendments also add a  
          contingency clause stating that this bill only becomes effective  


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          if (1) both it and AB 1937 are enacted, (2) each bill amends  
          Public Utilities Code Section 454.5, and (3) this bill is  
          enacted after AB 1937.  Finally, the amendments also change  
          reference from "gas-fired generation resources from new  
          facilities" to "new generating units."  The author intends the  
          change to encompass bids for new facilitates as well as bids for  
          new generating units at existing facilities.


          Existing law:

          1)Requires electric utilities to procure 50 percent of their  
            retail sales of electricity from renewable energy by 2030.   
            This is known as the Renewable Portfolio Standard (RPS).   
            (Public Utilities Code §399.11 et seq.) 

          2)Requires each IOU to file an electricity procurement plan with  
            the CPUC, and requires the CPUC to review and accept, modify  
            or reject each IOU's proposed electricity procurement plan. 

          3)Provides that, among other elements, the procurement plan must  
            include a showing that it will achieve the IOU first meeting  
            its unmet resource needs through all available energy  
            efficiency and demand reduction resources that are cost  
            effective, reliable, and feasible.  (Public Utilities Code  

          4)Requires the CPUC to adopt a process for each IOU to file an  
            integrated resource plan (IRP) to ensure IOUs meet the  
            greenhouse gas (GHG) emissions reduction targets for the  
            electricity sector; procure at least 50 percent eligible  
            renewable energy resources by December 31, 2030; enable each  
            IOU to fulfill its obligation to serve its customers at just  
            and reasonable rates; minimize impacts on ratepayers' bills;  
            ensure system and local reliability; strengthen the diversity,  


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            sustainability, and resilience of the bulk transmission and  
            distribution systems, and local communities; enhance  
            distribution systems and demand-side energy management; and  
            minimize localized air pollutants and other GHG emissions,  
            with early priority on disadvantaged communities.  (Public  
            Resources Code §454.52) 

          This bill:

          1)Requires the CPUC, prior to approving a contract for any new  
            or repowered gas-fired generation resource, to require an IOU  
            to demonstrate that it will first meet its unmet resource  
            needs through all available energy efficiency and demand  
            reduction resources that are cost effective, reliable, and  

          2)Requires the CPUC to review and accept, modify, or reject any  
            updates or amendments to each IOU's procurement plan.

          3)Requires the CPUC, in determining the availability of energy  
            demand reduction resources that are cost effective, reliable,  
            and feasible for purposes of reviewing an IOU's procurement  
            plan, to consider the findings in specified studies and the  
            extent that any demand reduction is consistent with commission  


          Procurement plans tell how an IOU will procure electricity to  
          meet the needs of its customers.  The CPUC describes its  
          long-term procurement plan (LTPP) proceedings as intended to  
          ensure a safe, reliable and cost-effective electricity supply in  
          California through integration and refinement of a comprehensive  
          set of procurement policies, practices and procedures.  LTPP  
          proceedings take a 10-year-ahead look at system, local, and  
          flexible needs.  Proceeding assumptions are revised every two  


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          years to incorporate changes in the resource mix and revisions  
          to state policies. 

          An IOU's procurement plan - part of an LTPP proceeding - details  
          what energy resources an IOU is going to procure and how it will  
          procure them.  These plans must adhere to state policies,  
          including the loading order, which mandates that utilities seek  
          to meet need first though cost-effective energy efficiency and  
          demand response, followed by procurement of renewable energy  
          and, lastly, procurement of fossil-fuel-generated electricity.   
          If an IOU's procurement plan does not comply with state policies  
          or adequately balance safety, reliability, cost, and  
          environmental goals, the CPUC orders the IOU to modify the plan.

          Current law requires an IOU's procurement plan to show that the  
          IOU will first meet its unmet resource needs through all  
          available energy efficiency and demand reduction resources that  
          are cost effective, reliable, and feasible.  This bill adds new  
          teeth to the requirement, stating that the CPUC shall require  
          the IOU to demonstrate compliance with the preceding requirement  
          before approving a contract for any new gas-fired generation  
          unit.  But new teeth might not be needed.

          In 2015, the Legislature passed SB 350 (De León, Chapter 547,  
          Statutes of 2015).  In addition to significantly increasing the  
          state's commitment to renewable energy and energy efficiency,  
          the statute requires the IOUs (as well as the publicly owned  
          utilities) to develop and regularly update integrated resources  
          plans (IRPs).  The plans, which the CPUC must review and  
          approve, are to detail how each IOU is to meet the state's clean  
          energy and environmental objectives.  The CPUC, in approving an  
          IOU's proposed procurement, is to ensure the proposal is  
          consistent with the IOU's IRP.  

          If the IRP process works as intended, then there would seem to  
          be no need for this bill.   This is because, according to the  
          CPUC, the IRP process will subsume the LTPP.  The IRP process is  
          in its early stages of development.  It is as yet unknown how  


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          effectively the IRP process will function.

          Demand response.  Demand response refers to a variety of  
          mechanisms by which an electricity customer may vary its demand  
          for electricity in response to signals, such as a change in  
          price or the availability of incentives.  For example,  
          time-of-use rates use price signals to encourage customers to  
          reduce their use of electricity when the relative availability  
          of electricity is low or, in some cases, to increase their  
          electricity use when relative supply is abundant.

          The CPUC is currently considering establishing binding demand  
          response goals applicable to the state's regulated electric  
          utilities.  As part of that consideration, the CPUC authorized a  
          study to determine the potential of demand response as a  
          resource to meet California's energy needs.  In April of this  
          year, a team at Lawrence Berkeley National Laboratories issued  
          phase one of the study.  
          0Study_Phase1%20(1).pdf.]  The team will issue subsequent phases  
          of the study.  This bill seeks to ensure that the CPUC considers  
          the study's findings regarding technically and economically  
          achievable demand reduction when it review the IOU's procurement  

          Related/Prior Legislation

          AB 1937 (Gomez, 2016) requires an electric IOU bids for new  
          gas-fired generation resources to consider, and give preference  
          to, bids for resources that are not gas-fired generation  
          resources located in communities that suffer from cumulative  
          pollution burdens.  The bill was passed by the Senate Committee  
          on Energy, Utilities and Communications by a vote of 7-3 and is  
          pending consideration by the full Senate.

          SB 350 (De León, Chapter 547, Statutes of 2015) created, among  
          other things, the obligation that IOUs develop and regularly  


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          update IRPs, which the CPUC must review and approve, and are to  
          detail how each IOU is to meet the state's clean energy and  
          environmental objectives.  

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes

          SUPPORT:   (Verified8/16/16)

          Clean Power Campaign (source)
          Advanced Energy Management Alliance
          Environmental Defense Fund
          Silicon Valley Leadership Group

          OPPOSITION:   (Verified8/16/16)

          None received

          ARGUMENTS IN SUPPORT:  According to the author:

            The LTPP proceeding develops assumptions and forecasts of  
            resource availability and determines if the existing planned  
            mix of resources is sufficient to meet future needs.  An IOU's  
            proposed procurement plan must include certain elements,  
            including a requirement that it will first meet its unmet  
            needs through all available energy efficiency and demand  
            reduction resources that are cost effective, reliable, and  

            Demand response is defined as changes in electricity use by  
            customers from their normal consumption pattern in response to  
            fluctuations in the price of electricity, financial incentives  


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            to reduce consumption, changes in wholesale market prices, or  
            changes in grid conditions.  In other words, demand response  
            reduces energy demand when power is needed most, rather than  
            increasing supply from carbon-emitting fuels.  As of 2014, the  
            CPUC bifurcated demand response programs take two forms: 

             1)   Load modifying resources (LMR) modify load through  
               customers' behavioral change; for example, time-of-use  
               rates, and are administered by the IOUs or third-party  

             2)   Supply-side resources reduce or increase demand at a  
               particular time and location and by a specific amount and  
               can be scheduled and dispatched into the CAISO energy  
               markets when and where needed, for example; the Base  
               Interruptible Program. 

            In December 2014, the CPUC authorized the undertaking of a  
            demand response Potential Study to determine the amount of  
            demand response that is potentially available in the State.

            The Potential Study is currently being completed by the  
            Lawrence Berkeley National Lab and will answer some of the  
            most fundamental questions about the potential of demand  
            response and will consider all forms of demand response that  
            may be available to IOUs or the CAISO, as well as the  
            potential for integrating demand response with other  
            distributed energy resources, such as electric vehicles and  
            solar, to meet a broader range of system needs.  The Potential  
            Study will be a transparent framework that associates numbers  
            in gigawatts with every demand response end use, how many  
            hours of avoided generation are available, and a forecast of  
            costs. These models will extend to 2025 to provide a  
            comprehensive overview of the role that demand response can  
            provide to meet California's GHG reduction goals. 

            However, before the study's completion, the CPUC adopted a  


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            decision (R13-09-011) in November 2015 that significantly  
            devalued certain LMR programs and prohibited IOUs from  
            attributing any capacity value to these programs.  This  
            preemptive decision significantly impacts the ability for IOUs  
            to incorporate demand response into the LTTP process.

            AB 2454 highlights the significant challenge that demand  
            reduction has faced as an under-utilized resource in danger of  
            being prematurely undervalued by the CPUC.  This bill  
            solidifies the role demand reduction has in the LTPP  
            proceeding by clarifying that the CPUC shall take the results  
            of the study into account when IOUs include demand reduction  
            in their required portfolio of short and long term strategies.

          ASSEMBLY FLOOR:  58-20, 6/2/16
          AYES:  Alejo, Travis Allen, Arambula, Atkins, Baker, Bloom,  
            Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chang, Chau,  
            Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman,  
            Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,  
            Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin,  
            Jones-Sawyer, Lackey, Levine, Lopez, Low, Maienschein,  
            McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk,  
            Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone,  
            Thurmond, Ting, Waldron, Weber, Williams, Wood, Rendon
          NOES:  Achadjian, Bigelow, Brough, Chávez, Dahle, Beth Gaines,  
            Gallagher, Grove, Harper, Jones, Linder, Mathis, Mayes,  
            Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner, Wilk
          NO VOTE RECORDED:  Hadley, Kim

          Prepared by:Jay Dickenson / E., U., & C. / (916) 651-4107
          8/17/16 16:42:58

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