California Legislature—2013–14 Regular Session

Assembly Bill No. 1936

Introduced by Assembly Member Quirk

February 19, 2014

An act to amend Section 454.5 of the Public Utilities Code, relating to electricity.

LEGISLATIVE COUNSEL’S DIGEST

AB 1936, as introduced, Quirk. Electrical corporation procurement plans.

Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations, as defined. 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, except that 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 the requirement to file a procurement plan and the commission is required to grant the exemption upon a showing of good cause.

This bill would make a nonsubstantive revision to the act’s requirement that the commission review and accept, modify, or reject a procurement plan for each electrical corporation.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

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 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
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.

(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 products.

(C) The electrical corporation shall first meet its unmet resource
needs through all available energy efficiency and demand reduction
resources that are cost effective, reliable, and feasible.

(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:

(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 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
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 begin delete State Energy Resources Conservation and
Development end delete begin insert Energy end insert 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
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.