Amended in Senate May 5, 2014

Amended in Senate March 28, 2014

Senate Bill No. 1414

Introduced by Senator Wolk

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(Coauthor: Assembly Member Williams)

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February 21, 2014

An act to amend Sections 380 and 454.5 of the Public Utilities Code, relating to electricity.

LEGISLATIVE COUNSEL’S DIGEST

SB 1414, as amended, Wolk. Electricity: resources adequacy requirements.

(1) The Public Utilities Act requires the Public Utilities Commission, in consultation with the Independent System Operator, to establish resource adequacy requirements for all load-serving entities in accordance with specified objectives. The act requires each load-serving entity to maintain physical generating capacity adequate to meet its load requirements to provide reliable electric service. The act requires the commission to determine the most efficient and equitable means for achieving prescribed objectives.

This bill would include maximizing the begin delete economic dispatch of time-variant electrical demand reductions end delete begin insert cost-effective use of demand response end insert as an objective for the resource adequacy requirements referenced above. The bill would additionally require each load-serving entity to maintain either electrical demand reductions or physical generating capacity adequate to meet its load requirements. The bill would require the commission to determine the most efficient and equitable means to ensure begin delete that end delete begin insert the end insert begin delete electrical demand reductions are deployed and economically dispatched. end delete begin insert inclusion of demand response that is reliable and cost effective in achieving environmental or demand reduction goals or grid reliability. end insert

(2) The act requires each electrical corporation to file with the commission a proposed procurement plan with specified information, including, among other things, a procurement process under which the electric corporation may request bids for procurement-related services, a showing that the procurement plan will achieve, among other objectives, the creation or maintenance of a diversified procurement portfolio, and the electric corporation’s risk management policy, strategy, and practices.

This bill would require the proposed procurement plan to include a competitive procurement process that would also allow the electric corporation to request bids for demandside begin delete reduction end delete begin insert response end insert services. The bill would require that the plan’s diversified procurement portfolio include begin delete time-variant demand reductions to minimize purchase of on-peak generation resources. end delete begin insert demand response that is reliable and cost effective in achieving environmental goals and electrical grid reliability. end insert begin delete The bill would also require the electrical corporation’s risk management policy, strategy, and practices, as specified in the procurement plan, to include specific measures to reflect time-variant wholesale procurement costs in retail electrical rates. end delete

(3) Under existing law, a violation of the Public Utilities Act or an order or direction of the commission is a crime.

This bill would be part of the act and an order or other action of the commission would be required to implement the bill. Because a violation of this bill or an order or other action of the commission implementing those provisions would be a crime, and because the bill would make certain violations by a load-serving entity a crime, this bill would thereby impose a state-mandated local program by creating new crimes and by expanding the definition of existing crimes.

(4) The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

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

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

SECTION 1.  

Section 380 of the Public Utilities Code is
amended to read:

380.  

(a) The commission, in consultation with the Independent
System Operator, shall establish resource adequacy requirements
for all load-serving entities.

(b) In establishing resource adequacy requirements, the
commission shall achieve all of the following objectives:

(1) Facilitate development of new generating capacity and
retention of existing generating capacity that is economic and
needed.

(2) Equitably allocate the cost of generating capacity and prevent
shifting of costs between customer classes.

(3) Minimize enforcement requirements and costs.

(4) Maximize the ability of community choice aggregators to
determine the generation resources used to serve their customers.

(5) Maximize the begin delete economic dispatch of time-variant electrical
demand reductions. end delete begin insert cost-effective use of demand response. end insert

(c) Each load-serving entity shall maintain physical generating
capacity or electrical demand reductions adequate to meet its load
requirements, including, but not limited to, peak demand and
planning and operating reserves. The generating capacity or
electrical demand reductions shall be deliverable to locations and
at times as may be necessary to maintain electric service system
reliability and local area reliability.

(d) Each load-serving entity shall, at a minimum, meet the most
recent minimum planning reserve and reliability criteria approved
by the Board of Trustees of the Western Systems Coordinating
Council or the Western Electricity Coordinating Council.

(e) The commission shall implement and enforce the resource
adequacy requirements established in accordance with this section
in a nondiscriminatory manner. Each load-serving entity shall be
subject to the same requirements for resource adequacy and the
renewables portfolio standard program that are applicable to
electrical corporations pursuant to this section, or otherwise
required by law, or by order or decision of the commission. The
commission shall exercise its enforcement powers to ensure
compliance by all load-serving entities.

(f) The commission shall require sufficient information,
including, but not limited to, anticipated load, actual load, and
measures undertaken by a load-serving entity to ensure resource
adequacy, to be reported to enable the commission to determine
compliance with the resource adequacy requirements established
by the commission.

(g) An electrical corporation’s costs of meeting resource
adequacy requirements, including, but not limited to, the costs
associated with system reliability and local area reliability, that
are determined to be reasonable by the commission, or are
otherwise recoverable under a procurement plan approved by the
commission pursuant to Section 454.5, shall be fully recoverable
from those customers on whose behalf the costs are incurred, as
determined by the commission, at the time the commitment to
incur the cost is made, on a fully nonbypassable basis, as
determined by the commission. The commission shall exclude any
amounts authorized to be recovered pursuant to Section 366.2
when authorizing the amount of costs to be recovered from
customers of a community choice aggregator or from customers
that purchase electricity through a direct transaction pursuant to
this subdivision.

(h) The commission shall determine and authorize the most
efficient and equitable means for achieving all of the following:

(1) Meeting the objectives of this section.

(2) Ensuring that investment is made in new generating capacity.

(3) Ensuring that existing generating capacity that is economic
is retained.

(4) Ensuring that the cost of generating capacity is allocated
equitably.

(5) Ensuring that community choice aggregators can determine
the generation resources used to serve their customers.

begin delete

(6) Ensuring that electrical demand reductions are deployed and
economically dispatched.

end delete begin insert

(6) Ensuring inclusion of demand response that is reliable and
cost effective in achieving environmental or demand reduction
goals or grid reliability.

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(i) In making the determination pursuant to subdivision (h), the
commission may consider a centralized resource adequacy
mechanism among other options.

(j) For purposes of this section, “load-serving entity” means an
electrical corporation, electric service provider, or community
choice aggregator. “Load-serving entity” does not include any of
the following:

(1) A local publicly owned electric utility.

(2) The State Water Resources Development System commonly
known as the State Water Project.

(3)  Customer generation located on the customer’s site or
providing electric service through arrangements authorized by
Section 218, if the customer generation, or the load it serves, meets
one of the following criteria:

(A) It takes standby service from the electrical corporation on
a commission-approved rate schedule that provides for adequate
backup planning and operating reserves for the standby customer
class.

(B) It is not physically interconnected to the begin delete electric end delete begin insert electrical end insert
transmission or distribution grid, so that, if the customer generation
fails, backup electricity is not supplied from the begin delete electricity end delete
begin insert electrical end insert grid.

(C) There is physical assurance that the load served by the
customer generation will be curtailed concurrently and
commensurately with an outage of the customer generation.

SEC. 2.  

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 and demand begin delete reduction end delete begin insert response end insert 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, including begin delete time-variant demand reductions to
minimize purchase of on-peak generation resources. end delete begin insert demand
response that is reliable and cost effective in achieving
environmental goals and electrical grid reliability. end insert

(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 begin delete and specific measures to reflect time-variant wholesale
procurement costs in retail electrical rates. end delete

(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.

SEC. 3.  

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