Bill Text: CA AB2454 | 2015-2016 | Regular Session | Chaptered
Bill Title: Energy: procurement plans.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Passed) 2016-09-29 - Chaptered by Secretary of State - Chapter 826, Statutes of 2016. [AB2454 Detail]
Download: California-2015-AB2454-Chaptered.html
BILL NUMBER: AB 2454 CHAPTERED
BILL TEXT
CHAPTER 826
FILED WITH SECRETARY OF STATE SEPTEMBER 29, 2016
APPROVED BY GOVERNOR SEPTEMBER 29, 2016
PASSED THE SENATE AUGUST 22, 2016
PASSED THE ASSEMBLY AUGUST 25, 2016
AMENDED IN SENATE AUGUST 16, 2016
AMENDED IN SENATE AUGUST 2, 2016
AMENDED IN ASSEMBLY MAY 31, 2016
AMENDED IN ASSEMBLY MAY 4, 2016
AMENDED IN ASSEMBLY APRIL 26, 2016
AMENDED IN ASSEMBLY MARCH 17, 2016
INTRODUCED BY Assembly Member Williams
FEBRUARY 19, 2016
An act to amend Section 454.5 of the Public Utilities Code,
relating to energy.
LEGISLATIVE COUNSEL'S DIGEST
AB 2454, Williams. Energy: procurement plans.
Under existing law, the Public Utilities Commission has regulatory
authority over public utilities, including electrical corporations.
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 requirements and objectives.
The act requires that an electrical corporation's proposed
procurement plan include certain elements, including a showing that
the electrical corporation will first meet its unmet needs through
all available energy efficiency and demand reduction resources that
are cost effective, reliable, and feasible.
This bill would require the electrical corporation, in determining
the availability of cost-effective, reliable, and feasible demand
reduction resources, to consider the findings of the Demand Response
Potential Study required by a specific order of the commission, as
specified. The bill would require the commission, prior to approving
a contract for any new gas-fired generating unit, to require the
electrical corporation to demonstrate compliance with its approved
procurement plan.
Under existing law, a violation of the Public Utilities Act or any
order, decision, rule, direction, demand, or requirement of the
commission is a crime.
Because the provisions of this bill would be a part of the act and
because a violation of an order or decision of the commission
implementing its requirements would be a crime, the bill would impose
a state-mandated local program by creating a new crime.
This bill would incorporate changes to Section 454.5 of the Public
Utilities Code proposed by both this bill and AB 1937, which would
become operative only if both bills are enacted and become effective
on or before January 1, 2017, and this bill is chaptered last.
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.
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) (i) 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.
(ii) In determining the availability of cost-effective, reliable,
and feasible demand reduction resources, the commission shall
consider the findings regarding technically and economically
achievable demand reduction in the Demand Response Potential Study
required pursuant to Commission Order D.14-12-024, to the extent
those findings are not superseded by other demand reduction studies
conducted by academic institutions or government agencies, and to the
extent that any demand reduction is consistent with commission
policy.
(10) The electrical corporation's risk management policy,
strategy, and practices, including specific measures of price
stability.
(11) A plan to achieve appropriate increases in diversity of
ownership and diversity of fuel supply of nonutility electrical
generation.
(12) A mechanism for recovery of reasonable administrative costs
related to procurement in the generation component of rates.
(c) The commission shall review and accept, modify, or reject each
electrical corporation's procurement plan and any amendments or
updates to the plan. The commission shall ensure that the plan
contains the elements required pursuant to this section, including
the elements described in subparagraph (C) of paragraph (9) of
subdivision (b). 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 of
these, provided that the Office of Ratepayer Advocates and other
consumer groups that are nonmarket participants shall be provided
access to this information under confidentiality procedures
authorized by the commission.
(h) Nothing in this section alters, modifies, or amends the
commission's oversight of affiliate transactions under its rules and
decisions or the commission's existing authority to investigate and
penalize an electrical corporation's alleged fraudulent activities,
or to disallow costs incurred as a result of gross incompetence,
fraud, abuse, or similar grounds. Nothing in this section expands,
modifies, or limits the Energy Commission's existing authority and
responsibilities as set forth in Sections 25216, 25216.5, and 25323
of the Public Resources Code.
(i) An electrical corporation that serves less than 500,000
electric retail customers within the state may file with the
commission a request for exemption from this section, which the
commission shall grant upon a showing of good cause.
(j) (1) Prior to its approval pursuant to Section 851 of any
divestiture of generation assets owned by an electrical corporation
on or after the date of enactment of the act adding this section, the
commission shall determine the impact of the proposed divestiture on
the electrical corporation's procurement rates and shall approve a
divestiture only to the extent it finds, taking into account the
effect of the divestiture on procurement rates, that the divestiture
is in the public interest and will result in net ratepayer benefits.
(2) Any electrical corporation's procurement necessitated as a
result of the divestiture of generation assets on or after the
effective date of the act adding this subdivision shall be subject to
the mechanisms and procedures set forth in this section only if its
actual cost is less than the recent historical cost of the divested
generation assets.
(3) Notwithstanding paragraph (2), the commission may deem
proposed procurement eligible to use the procedures in this section
upon its approval of asset divestiture pursuant to Section 851.
(k) The commission shall direct electrical corporations to include
in their proposed procurement plans the integration costs described
and determined pursuant to clause (v) of subparagraph (A) of
paragraph (4) of subdivision (a) of Section 399.13.
(l) Prior to approving an electrical corporation's contract for
any new gas-fired generating unit, the commission shall require the
electrical corporation to demonstrate compliance with its approved
procurement plan.
SEC. 1.5. 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) (i) 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.
(ii) In determining the availability of cost-effective, reliable,
and feasible demand reduction resources, the commission shall
consider the findings regarding technically and economically
achievable demand reduction in the Demand Response Potential Study
required pursuant to Commission Order D.14-12-024, to the extent
those findings are not superseded by other demand reduction studies
conducted by academic institutions or government agencies, and to the
extent that any demand reduction is consistent with commission
policy.
(D) (i) The electrical corporation, in soliciting bids for new
gas-fired generating units, shall actively seek bids for resources
that are not gas-fired generating units located in communities that
suffer from cumulative pollution burdens, including, but not limited
to, high emission levels of toxic air contaminants, criteria air
pollutants, and greenhouse gases.
(ii) In considering bids for, or negotiating contracts for, new
gas-fired generating units, the electrical corporation shall provide
greater preference to resources that are not gas-fired generating
units located in communities that suffer from cumulative pollution
burdens, including, but not limited to, high emission levels of toxic
air contaminants, criteria air pollutants, and greenhouse gases.
(iii) This subparagraph does not apply to contracts signed by an
electrical corporation and approved by the commission prior to
January 1, 2017.
(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 and any amendments or
updates to the plan. The commission shall ensure that the plan
contains the elements required by this section, including the
elements described in subparagraphs (C) and (D) of paragraph (9) of
subdivision (b). 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 of
these, provided that the Office of Ratepayer Advocates and other
consumer groups that are nonmarket participants shall be provided
access to this information under confidentiality procedures
authorized by the commission.
(h) Nothing in this section alters, modifies, or amends the
commission's oversight of affiliate transactions under its rules and
decisions or the commission's existing authority to investigate and
penalize an electrical corporation's alleged fraudulent activities,
or to disallow costs incurred as a result of gross incompetence,
fraud, abuse, or similar grounds. Nothing in this section expands,
modifies, or limits the Energy Commission's existing authority and
responsibilities as set forth in Sections 25216, 25216.5, and 25323
of the Public Resources Code.
(i) An electrical corporation that serves less than 500,000
electric retail customers within the state may file with the
commission a request for exemption from this section, which the
commission shall grant upon a showing of good cause.
(j) (1) Prior to its approval pursuant to Section 851 of any
divestiture of generation assets owned by an electrical corporation
on or after the date of enactment of the act adding this section, the
commission shall determine the impact of the proposed divestiture on
the electrical corporation's procurement rates and shall approve a
divestiture only to the extent it finds, taking into account the
effect of the divestiture on procurement rates, that the divestiture
is in the public interest and will result in net ratepayer benefits.
(2) Any electrical corporation's procurement necessitated as a
result of the divestiture of generation assets on or after the
effective date of the act adding this subdivision shall be subject to
the mechanisms and procedures set forth in this section only if its
actual cost is less than the recent historical cost of the divested
generation assets.
(3) Notwithstanding paragraph (2), the commission may deem
proposed procurement eligible to use the procedures in this section
upon its approval of asset divestiture pursuant to Section 851.
(k) The commission shall direct electrical corporations to include
in their proposed procurement plans the integration costs described
and determined pursuant to clause (v) of subparagraph (A) of
paragraph (4) of
subdivision (a) of Section 399.13.
(l) Prior to approving an electrical corporation's contract for
any new gas-fired generating unit, the commission shall require the
electrical corporation to demonstrate compliance with its approved
procurement plan.
SEC. 2. Section 1.5 of this bill incorporates amendments to
Section 454.5 of the Public Utilities Code proposed by both this bill
and Assembly Bill 1937. It shall only become operative if (1) both
bills are enacted and become effective on or before January 1, 2017,
(2) each bill amends Section 454.5 of the Public Utilities Code, and
(3) this bill is enacted after Assembly Bill 1937, in which case
Section 1 of this bill shall not become operative.
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.
