Amended in Assembly May 6, 2014

Amended in Assembly April 10, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2363

Introduced by Assembly Member Dahle

(Principal coauthor: Assembly Member Alejo)

(Coauthors: Assembly Members Bradford, Jones, and Patterson)

February 21, 2014

An act to amend Sections 399.13 begin delete , 399.15, end delete and 454.5 of the Public Utilities Code, relating to energy.

LEGISLATIVE COUNSEL’S DIGEST

AB 2363, as amended, Dahle. Electricity procurement.

(1) Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations, as defined, while local publicly owned electric utilities, as defined, are under the direction of their governing board. The Public Utilities Act imposes various duties and responsibilities on the Public Utilities Commission with respect to the purchase of electricity and requires the commission to review and adopt a procurement plan and a renewable energy procurement plan for each electrical corporation pursuant to the California Renewables Portfolio Standard Program.

The Public Utilities Act requires the Public Utilities Commission to review and adopt an overall procurement plan for each electrical corporation to meet electricity demand for its customers in accordance with specified elements, incentive mechanisms, and objectives. The act requires the Public Utilities Commission to review and accept, modify, or reject each electrical corporation’s procurement plan and requires that each approved procurement plan accomplish specified objectives.

This bill would require the Public Utilities Commission to direct electrical corporations to include in their proposed procurement plans the use of any nonzero integration cost adders, as specified.

(2) The California Renewables Portfolio Standard Program requires a retail seller, as defined, and local publicly owned electric utilities to purchase specified minimum quantities of electricity products from eligible renewable energy resources, as defined, for specified compliance periods. The program, consistent with the goals of procuring the least-cost and best-fit eligible renewable energy resources that meet project viability principles, requires that all retail sellers procure a balanced portfolio of electricity products from eligible renewable energy resources, as specified, referred to as the portfolio content requirements. The program requires the commission to adopt, by rulemaking, a process that provides criteria for the rank ordering and selecting of least-cost and best-fit eligible renewable energy resources to comply with the program obligations on a total cost basis, taking into account specified matter. begin delete Existing law authorizes the commission to require a retail seller to procure eligible renewable energy resources in excess of the specified minimum quantities of electricity products of the renewables portfolio standard. end delete

This bill additionally would require the commission to adopt, by rulemaking, by October 1, 2015, a nonzero integration cost adder methodology that reflects a reasonable estimate of the costs of procuring capacity and energy required to accommodate the electrical generation of the particular eligible renewable energy resource. begin delete The bill would require the commission to consider the nonzero integration cost adder methodology prior to approving any procurement of eligible renewable energy resources by a retail seller that is in excess of the specified minimum quantities of electricity products required to be purchased pursuant to the renewables portfolio standard. end delete

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

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

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) California is leading the world in adopting comprehensive
programs that reduce emissions of greenhouse gases, including
passage of the California Global Warming Solutions Act of 2006
(Division 25.5 (commencing with Section 38500) of the Health
and Safety Code) and the California Renewables Portfolio Standard
Program (Article 16 (commencing with Section 399.11) of Chapter
2.3 of Part 1 of Division 1 of the Public Utilities Code).

(b) The state has an abundant supply of renewable energy
resources, including geothermal, biomass, biomethane, wind, and
solar, that begin delete have end delete begin insert has end insert contributed to the state’s ability to reduce its
emissions of greenhouse gases and meet its renewables portfolio
standard procurement targets.

(c) It is in the public’s interest that the state continue to promote
policies to ensure eligible renewable energy resources be procured
and contributed to the state’s ability to reduce its greenhouse gas
emissions and meet the targets of the California Renewables
Portfolio Standard Program (Article 16 (commencing with Section
399.11) of Chapter 2.3 of Part 1 of Division 1 of the Public Utilities
Code).

(d) There are eligible renewable energy resources in the state
that, if developed and retained, would not require additional
capacity to maintain the reliability of the bulk electrical system
and could generate during periods in which electricity is likely to
be the most valuable, prospectively.

(e) Procuring and retaining a diversified portfolio of eligible
renewable energy resources may do all of the following:

(1) Assist electrical corporations in satisfying renewable energy
procurement and greenhouse gases emissions reductions goals in
a cost-effective manner.

(2) Partially meet peak load requirements with electricity
generated by eligible renewable energy resources, which will have
substantial benefits from reduced emissions of greenhouse gases,
and cobenefits from reduced emissions of criteria pollutants.

(3) Maintain the reliability of the electrical grid to meet demand
for electricity on a 24-hour basis.

(4) Contribute to local employment and economic growth
throughout the state.

SEC. 2.  

Section 399.13 of the Public Utilities Code is amended
to read:

399.13.  

(a) (1) The commission shall direct each electrical
corporation to annually prepare a renewable energy procurement
plan that includes the matter in paragraph (5), to satisfy its
obligations under the renewables portfolio standard. To the extent
feasible, this procurement plan shall be proposed, reviewed, and
adopted by the commission as part of, and pursuant to, a general
procurement plan process. The commission shall require each
electrical corporation to review and update its renewable energy
procurement plan as it determines to be necessary.

(2) Every electrical corporation that owns electrical transmission
facilities shall annually prepare, as part of the Federal Energy
Regulatory Commission Order 890 process, and submit to the
commission, a report identifying any electrical transmission
facility, upgrade, or enhancement that is reasonably necessary to
achieve the renewables portfolio standard procurement
requirements of this article. Each report shall look forward at least
five years and, to ensure that adequate investments are made in a
timely manner, shall include a preliminary schedule when an
application for a certificate of public convenience and necessity
will be made, pursuant to Chapter 5 (commencing with Section
1001), for any electrical transmission facility identified as being
reasonably necessary to achieve the renewable energy resources
procurement requirements of this article. Each electrical
corporation that owns electrical transmission facilities shall ensure
that project-specific interconnection studies are completed in a
timely manner.

(3) The commission shall direct each retail seller to prepare and
submit an annual compliance report that includes all of the
following:

(A) The current status and progress made during the prior year
toward procurement of eligible renewable energy resources as a
percentage of retail sales, including, if applicable, the status of any
necessary siting and permitting approvals from federal, state, and
local agencies for those eligible renewable energy resources
procured by the retail seller, and the current status of compliance
with the portfolio content requirements of subdivision (c) of
Section 399.16, including procurement of eligible renewable energy
resources located outside the state and within the WECC and
unbundled renewable energy credits.

(B) If the retail seller is an electrical corporation, the current
status and progress made during the prior year toward construction
of, and upgrades to, transmission and distribution facilities and
other electrical system components it owns to interconnect eligible
renewable energy resources and to supply the electricity generated
by those resources to load, including the status of planning, siting,
and permitting transmission facilities by federal, state, and local
agencies.

(C) Recommendations to remove impediments to making
progress toward achieving the renewable energy resources
procurement requirements established pursuant to this article.

(4) The commission shall adopt, by rulemaking, all of the
following:

(A) A process that provides criteria for the rank ordering and
selection of least-cost and best-fit eligible renewable energy
resources to comply with the California Renewables Portfolio
Standard Program obligations on a total cost basis. This process
shall take into account all of the following:

(i) Estimates of indirect costs associated with needed
transmission investments and ongoing electrical corporation
expenses resulting from integrating and operating eligible
renewable energy resources.

(ii) The cost impact of procuring the eligible renewable energy
resources on the electrical corporation’s electricity portfolio.

(iii) The viability of the project to construct and reliably operate
the eligible renewable energy resource, including the developer’s
experience, the feasibility of the technology used to generate
electricity, and the risk that the facility will not be built, or that
construction will be delayed, with the result that electricity will
not be supplied as required by the contract.

(iv) Workforce recruitment, training, and retention efforts,
including the employment growth associated with the construction
and operation of eligible renewable energy resources and goals
for recruitment and training of women, minorities, and disabled
veterans.

(v) A nonzero integration cost adder methodology, to be initially
determined by the commission no later than October 1, 2015, that
reflects a reasonable estimate of the costs of procuring capacity
and energy required to accommodate the electrical generation of
the particular eligible renewable energy resource.

(B) Rules permitting retail sellers to accumulate, beginning
January 1, 2011, excess procurement in one compliance period to
be applied to any subsequent compliance period. The rules shall
apply equally to all retail sellers. In determining the quantity of
excess procurement for the applicable compliance period, the
commission shall deduct from actual procurement begin delete quantities, end delete
begin insert quantities end insert the total amount of procurement associated with
contracts of less than 10 years in duration. In no event shall
electricity products meeting the portfolio content of paragraph (3)
of subdivision (b) of Section 399.16 be counted as excess
procurement.

(C) Standard terms and conditions to be used by all electrical
corporations in contracting for eligible renewable energy resources,
including performance requirements for renewable generators. A
contract for the purchase of electricity generated by an eligible
renewable energy resource, at a minimum, shall include the
renewable energy credits associated with all electricity generation
specified under the contract. The standard terms and conditions
shall include the requirement that, no later than six months after
the commission’s approval of an electricity purchase agreement
entered into pursuant to this article, the following information
about the agreement shall be disclosed by the commission: party
names, resource type, project location, and project capacity.

(D) An appropriate minimum margin of procurement above the
minimum procurement level necessary to comply with the
renewables portfolio standard to mitigate the risk that renewable
projects planned or under contract are delayed or canceled. This
paragraph does not preclude an electrical corporation from
voluntarily proposing a margin of procurement above the
appropriate minimum margin established by the commission.

(5) Consistent with the goal of increasing California’s reliance
on eligible renewable energy resources, the renewable energy
procurement plan submitted by an electrical corporation shall
include all of the following:

(A) An assessment of annual or multiyear portfolio supplies
and demand to determine the optimal mix of eligible renewable
energy resources with deliverability characteristics that may include
peaking, dispatchable, baseload, firm, and as-available capacity.

(B) Potential compliance delays related to the conditions
described in paragraph (5) of subdivision (b) of Section 399.15.

(C) A bid solicitation setting forth the need for eligible
renewable energy resources of each deliverability characteristic,
required online dates, and locational preferences, if any.

(D) A status update on the development schedule of all eligible
renewable energy resources currently under contract.

(E) Consideration of mechanisms for price adjustments
associated with the costs of key components for eligible renewable
energy resource projects with online dates more than 24 months
after the date of contract execution.

(F) An assessment of the risk that an eligible renewable energy
resource will not be built, or that construction will be delayed,
with the result that electricity will not be delivered as required by
the contract.

(6) In soliciting and procuring eligible renewable energy
resources, each electrical corporation shall offer contracts of no
less than 10 years duration, unless the commission approves of a
contract of shorter duration.

(7) In soliciting and procuring eligible renewable energy
resources for California-based projects, each electrical corporation
shall give preference to renewable energy projects that provide
environmental and economic benefits to communities afflicted
with poverty or high unemployment, or that suffer from high
emission levels of toxic air contaminants, criteria air pollutants,
and greenhouse gases.

(b) A retail seller may enter into a combination of long- and
short-term contracts for electricity and associated renewable energy
credits. The commission may authorize a retail seller to enter into
a contract of less than 10 years’ duration with an eligible renewable
energy resource, if the commission has established, for each retail
seller, minimum quantities of eligible renewable energy resources
to be procured through contracts of at least 10 years’ duration.

(c) The commission shall review and accept, modify, or reject
each electrical corporation’s renewable energy resource
procurement plan prior to the commencement of renewable energy
procurement pursuant to this article by an electrical corporation.

(d) Unless previously preapproved by the commission, an
electrical corporation shall submit a contract for the generation of
an eligible renewable energy resource to the commission for review
and approval consistent with an approved renewable energy
resource procurement plan. If the commission determines that the
bid prices are elevated due to a lack of effective competition among
the bidders, the commission shall direct the electrical corporation
to renegotiate the contracts or conduct a new solicitation.

(e) If an electrical corporation fails to comply with a commission
order adopting a renewable energy resource procurement plan, the
commission shall exercise its authority pursuant to Section 2113
to require compliance. The commission shall enforce comparable
penalties on any retail seller that is not an electrical corporation
that fails to meet the procurement targets established pursuant to
Section 399.15.

(f) (1) The commission may authorize a procurement entity to
enter into contracts on behalf of customers of a retail seller for
electricity products from eligible renewable energy resources to
satisfy the retail seller’s renewables portfolio standard procurement
requirements. The commission shall not require any person or
corporation to act as a procurement entity or require any party to
purchase eligible renewable energy resources from a procurement
entity.

(2) Subject to review and approval by the commission, the
procurement entity shall be permitted to recover reasonable
administrative and procurement costs through the retail rates of
end-use customers that are served by the procurement entity and
are directly benefiting from the procurement of eligible renewable
energy resources.

(g) Procurement and administrative costs associated with
contracts entered into by an electrical corporation for eligible
renewable energy resources pursuant to this article and approved
by the commission are reasonable and prudent and shall be
recoverable in rates.

(h) Construction, alteration, demolition, installation, and repair
work on an eligible renewable energy resource that receives
production incentives pursuant to Section 25742 of the Public
Resources Code, including work performed to qualify, receive, or
maintain production incentives, are “public works” for the purposes
of Chapter 1 (commencing with Section 1720) of Part 7 of Division
2 of the Labor Code.

begin delete

SEC. 3.  

Section 399.15 of the Public Utilities Code is amended
to read:

399.15.  

(a) In order to fulfill unmet long-term resource needs,
the commission shall establish a renewables portfolio standard
requiring all retail sellers to procure a minimum quantity of
electricity products from eligible renewable energy resources as
a specified percentage of total kilowatthours sold to their retail
end-use customers each compliance period to achieve the targets
established under this article. For any retail seller procuring at least
14 percent of retail sales from eligible renewable energy resources
in 2010, the deficits associated with any previous renewables
portfolio standard shall not be added to any procurement
requirement pursuant to this article.

(b) The commission shall implement renewables portfolio
standard procurement requirements only as follows:

(1) Each retail seller shall procure a minimum quantity of
eligible renewable energy resources for each of the following
compliance periods:

(A) January 1, 2011, to December 31, 2013, inclusive.

(B) January 1, 2014, to December 31, 2016, inclusive.

(C) January 1, 2017, to December 31, 2020, inclusive.

(2) (A) No later than January 1, 2012, the commission shall
establish the quantity of electricity products from eligible
renewable energy resources to be procured by the retail seller for
each compliance period. These quantities shall be established in
the same manner for all retail sellers and result in the same
percentages used to establish compliance period quantities for all
retail sellers.

(B) In establishing quantities for the compliance period from
January 1, 2011, to December 31, 2013, inclusive, the commission
shall require procurement for each retail seller equal to an average
of 20 percent of retail sales. For the following compliance periods,
the quantities shall reflect reasonable progress in each of the
intervening years sufficient to ensure that the procurement of
electricity products from eligible renewable energy resources
achieves 25 percent of retail sales by December 31, 2016, and 33
percent of retail sales by December 31, 2020. The commission
shall require retail sellers to procure not less than 33 percent of
retail sales of electricity products from eligible renewable energy
resources in all subsequent years.

(C) Retail sellers shall be obligated to procure no less than the
quantities associated with all intervening years by the end of each
compliance period. Retail sellers shall not be required to
demonstrate a specific quantity of procurement for any individual
intervening year.

(3) The commission may require the procurement of eligible
renewable energy resources in excess of the quantities specified
in paragraph (2). Prior to approving any procurement of eligible
renewable energy resources that would be in excess of the
quantities specified in paragraph (2), the commission shall consider
the nonzero integrated cost adder methodology determined pursuant
to clause (v) of subparagraph (A) of paragraph (4) of subdivision
(a) of Section 399.13.

(4) Only for purposes of establishing the renewables portfolio
standard procurement requirements of paragraph (1) and
determining the quantities pursuant to paragraph (2), the
commission shall include all electricity sold to retail customers by
the Department of Water Resources pursuant to Division 27
(commencing with Section 80000) of the Water Code in the
calculation of retail sales by an electrical corporation.

(5) The commission shall waive enforcement of this section if
it finds that the retail seller has demonstrated any of the following
conditions are beyond the control of the retail seller and will
prevent compliance:

(A) There is inadequate transmission capacity to allow for
sufficient electricity to be delivered from proposed eligible
renewable energy resource projects using the current operational
protocols of the Independent System Operator. In making its
findings relative to the existence of this condition with respect to
a retail seller that owns transmission lines, the commission shall
consider both of the following:

(i) Whether the retail seller has undertaken, in a timely fashion,
reasonable measures under its control and consistent with its
obligations under local, state, and federal laws and regulations, to
develop and construct new transmission lines or upgrades to
existing lines intended to transmit electricity generated by eligible
renewable energy resources. In determining the reasonableness of
a retail seller’s actions, the commission shall consider the retail
seller’s expectations for full-cost recovery for these transmission
lines and upgrades.

(ii) Whether the retail seller has taken all reasonable operational
measures to maximize cost-effective deliveries of electricity from
eligible renewable energy resources in advance of transmission
availability.

(B) Permitting, interconnection, or other circumstances that
delay procured eligible renewable energy resource projects, or
there is an insufficient supply of eligible renewable energy
resources available to the retail seller. In making a finding that this
condition prevents timely compliance, the commission shall
consider whether the retail seller has done all of the following:

(i) Prudently managed portfolio risks, including relying on a
sufficient number of viable projects.

(ii) Sought to develop one of the following: its own eligible
renewable energy resources, transmission to interconnect to eligible
renewable energy resources, or energy storage used to integrate
eligible renewable energy resources. This clause shall not require
an electrical corporation to pursue development of eligible
renewable energy resources pursuant to Section 399.14.

(iii) Procured an appropriate minimum margin of procurement
above the minimum procurement level necessary to comply with
the renewables portfolio standard to compensate for foreseeable
delays or insufficient supply.

(iv) Taken reasonable measures, under the control of the retail
seller, to procure cost-effective distributed generation and allowable
unbundled renewable energy credits.

(C) Unanticipated curtailment of eligible renewable energy
resources necessary to address the needs of a balancing authority.

(6) If the commission waives the compliance requirements of
this section, the commission shall establish additional reporting
requirements on the retail seller to demonstrate that all reasonable
actions under the control of the retail seller are taken in each of
the intervening years sufficient to satisfy future procurement
requirements.

(7) The commission shall not waive enforcement pursuant to
this section, unless the retail seller demonstrates that it has taken
all reasonable actions under its control, as set forth in paragraph
(5), to achieve full compliance.

(8) If a retail seller fails to procure sufficient eligible renewable
energy resources to comply with a procurement requirement
pursuant to paragraphs (1) and (2) and fails to obtain an order from
the commission waiving enforcement pursuant to paragraph (5),
the commission shall exercise its authority pursuant to Section
2113.

(9) Deficits associated with the compliance period shall not be
added to a future compliance period.

(c) The commission shall establish a limitation for each electrical
corporation on the procurement expenditures for all eligible
renewable energy resources used to comply with the renewables
portfolio standard. In establishing this limitation, the commission
shall rely on the following:

(1) The most recent renewable energy procurement plan.

(2) Procurement expenditures that approximate the expected
cost of building, owning, and operating eligible renewable energy
resources.

(3) The potential that some planned resource additions may be
delayed or canceled.

(d) In developing the limitation pursuant to subdivision (c), the
commission shall ensure all of the following:

(1) The limitation is set at a level that prevents disproportionate
rate impacts.

(2) The costs of all procurement credited toward achieving the
renewables portfolio standard are counted towards the limitation.

(3) Procurement expenditures do not include any indirect
expenses, including imbalance energy charges, sale of excess
energy, decreased generation from existing resources, transmission
upgrades, or the costs associated with relicensing any utility-owned
hydroelectric facilities.

(e) (1) No later than January 1, 2016, the commission shall
prepare a report to the Legislature assessing whether each electrical
corporation can achieve a 33-percent renewables portfolio standard
by December 31, 2020, and maintain that level thereafter, within
the adopted cost limitations. If the commission determines that it
is necessary to change the limitation for procurement costs incurred
by any electrical corporation after that date, it may propose a
revised cap consistent with the criteria in subdivisions (c) and (d).
The proposed modifications shall take effect no earlier than January
1, 2017.

(2) Notwithstanding Section 10231.5 of the Government Code,
the requirement for submitting a report imposed under paragraph
(1) is inoperative on January 1, 2021.

(3) A report to be submitted pursuant to paragraph (1) shall be
submitted in compliance with Section 9795 of the Government
Code.

(f) If the cost limitation for an electrical corporation is
insufficient to support the projected costs of meeting the
renewables portfolio standard procurement requirements, the
electrical corporation may refrain from entering into new contracts
or constructing facilities beyond the quantity that can be procured
within the limitation, unless eligible renewable energy resources
can be procured without exceeding a de minimis increase in rates,
consistent with the long-term procurement plan established for the
electrical corporation pursuant to Section 454.5.

(g) (1) The commission shall monitor the status of the cost
limitation for each electrical corporation in order to ensure
compliance with this article.

(2) If the commission determines that an electrical corporation
may exceed its cost limitation prior to achieving the renewables
portfolio standard procurement requirements, the commission shall
do both of the following within 60 days of making that
determination:

(A) Investigate and identify the reasons why the electrical
corporation may exceed its annual cost limitation.

(B) Notify the appropriate policy and fiscal committees of the
Legislature that the electrical corporation may exceed its cost
limitation, and include the reasons why the electrical corporation
may exceed its cost limitation.

(h) The establishment of a renewables portfolio standard shall
not constitute implementation by the commission of the federal
Public Utility Regulatory Policies Act of 1978 (Public Law
95-617).

end delete

begin delete SEC. 4. end delete
begin insert SEC. 3. end insert   

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 State Energy Resources Conservation and
Development 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.

(k) The commission shall direct electrical corporations to include
in their proposed procurement plans the use of any nonzero
integration cost adders determined pursuant to clause (v) of
subparagraph (A) of paragraph (4) of subdivision (a) of Section
399.13.