BILL NUMBER: SB 1976 ENROLLED
BILL TEXT
PASSED THE SENATE AUGUST 29, 2002
PASSED THE ASSEMBLY AUGUST 19, 2002
AMENDED IN ASSEMBLY AUGUST 15, 2002
AMENDED IN ASSEMBLY JUNE 28, 2002
AMENDED IN ASSEMBLY JUNE 19, 2002
AMENDED IN SENATE APRIL 30, 2002
INTRODUCED BY Senator Torlakson
(Coauthor: Assembly Member Wright)
FEBRUARY 22, 2002
An act to add Section 454.5 to the Public Utilities Code, relating
to electricity, and declaring the urgency thereof, to take effect
immediately.
LEGISLATIVE COUNSEL'S DIGEST
SB 1976, Torlakson. State Energy Resources Conservation and
Development Commission: report: real-time pricing: electrical
corporation: procurement plans.
(1) Existing law requires the State Energy Resources Conservation
and Development Commission (Energy Commission) to conduct an ongoing
assessment of the opportunities and constraints presented by all
forms of energy.
Under existing law, the Public Utilities Commission is required to
conduct a pilot study of real-time metering for nonresidential
customers, to determine the effectiveness of real-time metering in
reducing energy demand and overall energy consumption, to examine
customer response, to determine how real time metering should be
implemented, and to determine whether more widespread use of
real-time metering is in the public interest. Real-time metering is a
system for measuring a customer's usage of electricity on at least
an hourly basis, variably pricing that electricity based on the cost
of acquisition or production, and regularly providing and updating
that usage and pricing information to the customer.
This bill would require the commission, in consultation with the
Public Utilities Energy Commission, to report to the Legislature and
the Governor, by March 31, 2003, regarding the feasibility of
implementing real-time, critical peak, and other dynamic pricing
tariffs for electricity in California, as strategies which can either
reduce peak demand or shift peak demand load to off-peak periods.
(2) The Public Utilities Act imposes various duties and
responsibilities on the Public Utilities Commission with respect to
the purchase of electricity.
The bill would amend the act to require the commission to review
and adopt a procurement plan for each electrical corporation in
accordance with elements, incentive mechanisms, and objectives set
forth in the bill.
The bill would authorize the commission to engage an independent
consultant or advisory service to evaluate risk management and
strategy. The bill would require the commission to 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, and to determine the impact of a proposed
divestiture on an electrical corporation's procurement plan.
The bill would allow an electrical corporation that serves less
than 500,000 retail customers within the state to file with the
commission a request for exemption from the provisions of the bill.
The bill would require the commission to grant the exemption upon a
showing of good cause.
(3) Existing law makes a violation of the provisions of the act a
crime.
This bill, by imposing new requirements on electrical
corporations, would expand the scope of that crime, and thus impose a
state-mandated local program.
(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.
(5) This bill would declare that it is to take effect immediately
as an urgency statute.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) Californians can significantly increase the reliability of the
electricity system and reduce the level of wholesale electricity
prices by reducing electricity usage at peak times through a variety
of measures designed to reduce electricity consumption during those
periods.
(b) Dynamic pricing, including real-time pricing, provides
incentives to reduce electricity consumption in precisely those hours
when supplies are tight and provides lower prices when wholesale
prices are low.
(c) The State of California, through Assembly Bill 29 of the
2001-02 First Extraordinary Session, has already invested thirty-five
million dollars ($35,000,000) in real-time metering systems for
customers who consume greater than 200 kilowatts.
(d) Real-time pricing integrates information technology into the
energy business, and creates new markets for communications,
microelectronic controls, and information.
(e) Electricity consumption for air conditioning purposes during
peak demand periods significantly contributes to California's
electricity shortage vulnerability during summer periods.
(f) It is the intent of the Legislature to promote energy
conservation and demand reduction in the State of California.
SEC. 2. (a) On or before March 31, 2003, the State Energy
Resources Conservation and Development Commission, in consultation
with the Public Utilities Commission, shall report to the Legislature
and the Governor regarding the feasibility of implementing real-time
pricing, critical peak pricing, and other dynamic pricing tariffs
for electricity in California, as strategies which can either reduce
peak demand or shift peak demand load to off-peak periods.
(b) The report shall consider all of the following:
(1) How wholesale real-time prices would be calculated and made
available to customers.
(2) Options for day-ahead and hour-ahead retail prices.
(3) Options for facilitating customer response to real-time and
critical peak prices and managing total customer costs, including,
but not limited to, interval metering and communication systems,
consumer-side of the meter notification, and automatic response
equipment.
(4) An assessment of the options for a variety of customer
classes, including, but not limited to, industrial, commercial,
residential, and tenants of a mobilehome park, apartment building, or
similar residential complex, that receive electricity from a
master-meter customer through a submetered system.
(5) Estimates of potential peak load reductions, including the
shifting of peak load demand to off-peak periods.
(6) Options for incorporating demand responsiveness into the
wholesale competitive market and operations of the California
Independent System Operator.
(7) Options for ensuring customer protection under a real-time,
critical peak, and other dynamic pricing scenarios, including
identifying potentially disadvantaged groups who may be
disproportionately vulnerable to the impact of volatile prices and
suggestions for effective safeguards for those customers.
SEC. 3. Section 454.5 is added to the Public Utilities Code, 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 will, in order to fulfill its unmet
resource needs and in furtherance of Section 701.3, until a 20
percent renewable resources portfolio is achieved, procure renewable
energy resources with the goal of ensuring that at least an
additional 1 percent per year of the electricity sold by the
electrical corporation is generated from renewable energy resources,
provided sufficient funds are made available pursuant to Section
399.6, to cover the above-market costs for new renewable energy
resources.
(B) The electrical corporation will create or maintain a
diversified procurement portfolio consisting of both short-term and
long-term electricity and electricity-related and demand reductions
products.
(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 assure that each
contract was administered in accordance with the terms of the
contract, and contract disputes which 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. 4. 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.
SEC. 5. This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the
meaning of Article IV of the Constitution and shall go into immediate
effect. The facts constituting the necessity are:
In order to determine the feasibility of dynamic pricing as soon
as possible, and in order that the Public Utilities Commission may
undertake the review and approval of each electric corporation's
procurement plan at the earliest possible time in a manner consistent
with this act, it is necessary that this act take effect
immediately.