BILL NUMBER: AB 2006	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Member Nunez

                        FEBRUARY 13, 2004

   An act to add Article 17 (commencing with Section 400) to Chapter
2.3 of Part 1 of Division 1 of the Public Utilities Code, relating to
electricity.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 2006, as introduced, Nunez.  Electrical restructuring:
Reliable Electric Service Act of 2004.
   Under existing law, the Public Utilities Commission has regulatory
authority over public utilities, including electrical corporations,
and authorizes the commission to fix just and reasonable rates and
charges.  Under existing law, a public utility has a duty to serve,
including furnishing and maintaining adequate, efficient, just and
reasonable service, instrumentalities, equipment, and facilities as
are necessary to promote the safety, health, comfort, and convenience
of its patrons and the public.  The existing Public Utilities Act
requires the commission, pursuant to electrical restructuring, to
authorize direct transactions between electricity suppliers and
retail end-use customers.  However, other existing law suspends the
right of retail end-use customers to acquire service from certain
electricity suppliers after a period of time to be determined by the
commission, until the Department of Water Resources no longer
supplies electricity under that law.
   This bill would establish a core and noncore model under which the
utility's duty to serve would extend to core customers and those
noncore customers that elect to receive bundled electric service from
the electrical corporation.  The utility's duty to serve noncore
customers that elect to purchase electricity through a direct
transaction would exist for transmission and distribution electric
service.  The bill would require electrical corporations to file, and
for the commission to approve, an integrated resource investment
plan, as specified, sufficient to fulfill the utility's duty to
serve.  The bill would provide for the recovery of costs and
investments made pursuant to an approved integrated resource
investment plan. The bill would require that a utility's bundled
service customers be indifferent to the election by noncore customers
to purchase electricity through direct transactions.  The bill would
require the commission, in consultation with the Independent System
Operator, to establish resource adequacy requirements to ensure
adequate reserves of physical generating capacity are available to
reliably serve all customers and would require the Independent System
Operator, consistent with federal law, to implement and enforce
these resource adequacy and reserve requirements in a
nondiscriminatory manner on all load serving entities.  The bill
would require the commission to adopt implementing rules and
regulations.
   A violation of the Public Utilities Act or an order of the
commission is a crime under existing law.
   Because a violation of the bill's provisions would be a violation
of the act, the bill would impose a state-mandated local program by
creating a new crime.
  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.  The Legislature finds and declares all of the
following:
   (a) An adequate and reliable supply of electricity is essential to
the health, safety, and welfare of all California consumers.
   (b) Safe, reliable, and affordable, electric service that is
environmentally sustainable, is of utmost importance to the consumers
of this state and its economy.
   (c) Electrical corporations have an obligation to serve their
customers with reliable electric service at just and reasonable
rates.
   (d) In order to provide safe, reliable, and affordable electric
service to consumers, electrical corporations must invest in needed
resources, including utility-owned and procured generation, new and
repowered generation, high-efficiency cogeneration, renewable
generation, transmission, distribution, and energy efficiency and
other demand reduction measures, in a manner that produces the best
value for ratepayers.
   (e) In order to ensure that investments in resources are made in a
manner that produces the best value for ratepayers, electrical
corporations should prepare an integrated resource investment plan
for commission review and approval, that achieves a diversified,
reliable, and environmentally sustainable portfolio of efficient,
cost-effective supply and demand resources.
   (f) In order to ensure that an integrated resource investment plan
will result in investments in resources sufficient to provide
reliable electric service to customers of an electrical corporation
without stranding costs or shifting costs, a stable and predictable
customer base is necessary and essential.
   (g) In order to attract sufficient capital to make investments in
needed resources, there must be assurance that reasonable costs and
investments, including a return of and on direct investments, and
investments made by third parties under contract with an electrical
corporation, are recovered in rates.
   (h) California consumers will not receive reliable and affordable
electric service, nor will consumers avoid repetition of past
problems with volatile wholesale electricity prices, rolling
blackouts, and long-term supply contracts that threaten consumers
with billions of dollars in above-market electricity costs, unless a
durable framework is enacted to support investment in needed
resources, as soon as possible.
  SEC. 2.  Article 17 (commencing with Section 400) is added to
Chapter 2.3 of Part 1 of Division 1 of the Public Utilities Code, to
read:

      Article 17.  Reliable Electric Service Act of 2004

   400.  This article shall be known, and may be cited, as the
Reliable Electric Service Act of 2004.
   400.1.  (a) An electrical corporation has an obligation to serve
the utility's bundled customers with reliable electric service at
just and reasonable rates, pursuant to Section 451.  For purposes of
this article, the utility's "bundled customers" means core customers
and those noncore customers that commit to bundled service pursuant
to this article.
   (b) The obligation to serve the utility's bundled customers
includes the obligation to plan for, invest in, and provide adequate,
efficient, and environmentally sustainable resources, including
utility-owned and procured generation resources, new and repowered
generation resources, high-efficiency cogeneration, renewable
generation resources, transmission and distribution resources, energy
efficiency and demand response resources, and to employ an
adequately sized, well trained utility workforce to provide these
resources.
   (c) An electrical corporation has an obligation to serve noncore
customers that elect to enter into direct transactions, with electric
transmission and distribution service at just and reasonable rates,
pursuant to Section 451.  No costs incurred by the electrical
corporation to serve noncore customers with electric transmission and
distribution service, shall be shifted to the utility's bundled
customers.
   400.5.  (a) To ensure that adequate investments are made in
resources necessary to provide consumers with reliable electric
service, the commission shall authorize an electrical corporation to
make investments in efficient, cost-effective resources, including
utility-owned and procured generation resources, new and repowered
generation resources, high-efficiency cogeneration, renewable
generation resources, transmission resources, and cost-effective
energy efficiency and demand response resources, consistent with the
electrical corporation's approved integrated resource investment
plan.
   (b) The commission shall, after public hearing, approve and
thereafter maintain just and reasonable rates sufficient to ensure
that reasonable investments in the resources necessary to provide
consumers with reliable electric service, including a reasonable
return of and on investment, are fully recovered over the life of the
resource, and that costs reasonably incurred to operate and maintain
those resources are fully recovered on a timely basis.
   (c) The cost recovery assurance for investments in resources
applies to both of the following:
   (1) Direct investments made by an electrical corporation.
   (2) The electrical corporation's full costs of contracting with
another entity, including the cost of any collateral requirements and
debt equivalence.
   400.10.  (a) To ensure that adequate investments necessary to meet
the electrical corporation's obligation to serve bundled customers
are made, each electrical corporation shall, no later than July 1,
2005, and at least every three years thereafter, prepare an
integrated resource investment plan to achieve a diversified,
environmentally sustainable portfolio of efficient cost-effective
supply and demand resources to serve the utility's bundled customers.
  The integrated resource investment plan shall include demand and
supply forecasts for 5-, 10-, and 15-year periods, and shall ensure
that adequate resources are available to reliably serve the utility's
bundled customers.  The process for utility selection and commission
approval of these resources shall be designed to achieve best value
for the utility's bundled customers, by considering reliability,
efficiency, cost-effectiveness, system impacts, resource diversity,
and risk.  The commission shall review and approve, with such
revisions as the commission deems necessary to implement the
provisions of this article, an electrical corporation's integrated
resource investment plan within 120 days of receipt.
   (b) The integrated resource investment plan shall provide for
investments in all practicable and cost-effective energy efficiency
and demand response resources, including load management, that offer
equivalent or better system reliability, equivalent or better
environmental improvements, and equivalent or lower costs to
ratepayers than supply alternatives.
   (c) The integrated resource investment plan shall provide for
investments in renewable generation consistent with Article 16
(commencing with Section 399.11), provided that investments in
renewable generation are made in furtherance of the goal of supplying
20 percent of an electrical corporation's retail sales from eligible
renewable energy resources, no later than December 31, 2010.
   (d) (1) The integrated resource investment plan shall provide for
investments, including extensions, renewals, or renegotiations of
existing contracts, in new or repowered generation and
high-efficiency cogeneration projects.  These resources may be
obtained through investment by independent generators under contract
with the electrical corporation, through a competitive procurement
process or other process approved by the commission, consistent with
Section 454.5, or from direct utility investment.  To the maximum
extent permissible under law, repowering and high-efficiency
cogeneration projects that offer equivalent or better system
reliability, equivalent or better environmental benefits, and
equivalent or lower costs to ratepayers than new generation, shall be
given first consideration.
   (2) For purposes of this chapter, "high-efficiency cogeneration
projects" means a cogeneration project that can achieve thermal
efficiencies greater than 75 percent and are used to meet the thermal
requirements of continuous industrial or commercial processes.
   (3) For purposes of this chapter, "repowered generation" means a
project for the modification of an existing generation unit of a
thermal powerplant that meets all of the following criteria:
   (A) The project complies with all applicable requirements of
federal, state, and local laws.
   (B) The project is located on the site of, and within the existing
boundaries of, an existing thermal facility.
   (C) The project will not require significant additional
rights-of-way for electrical or fuel-related transmission facilities.

   (D) The project will result in significant and substantial
increases in the efficiency of the production of electricity,
including, but not limited to, reducing the heat rate, reducing the
use of natural gas, reducing the use and discharge of water, and
reducing air pollutants emitted by the project, as measured on a per
kilowatthour basis.
   (e) The integrated resource investment plan shall provide for
investments in new or expanded transmission facilities and control
systems that are needed to ensure efficient use and reliable
operation of the electric grid for core and noncore customers, to
facilitate the development of new, repowered, or renewable generation
facilities, or to accommodate load growth.  With respect to any new
or expanded electrical transmission facility for which the
Independent System Operator has made a determination that the project
is needed to meet applicable reliability standards or to promote
economic efficiency, that determination shall be conclusive for
purposes of determining whether to issue a certificate of public
convenience and necessity pursuant to Chapter 5 (commencing with
Section 1001), and shall be included in the approved integrated
resource investment plan.
   (f) (1) The integrated resource investment plan may provide for
investments in distributed generation to improve system reliability,
thereby deferring or eliminating investments in distribution
facilities that are otherwise needed to improve system reliability,
by either direct investment by the electrical corporation or under
contract with a third party, provided the electrical corporation
finds that the investment in distributed generation would accomplish
each of the following:
   (A) Result in overall cost savings due to deferral or elimination
of electric distribution projects.
   (B) Provide the required reliability and operational
characteristics to support adequate service reliability to customers
in the affected area.
   (2) In cases where the distributed generation is provided under
contract with a third party to reduce distribution system loads, the
third party must maintain physical assurance that the contracted load
reduction will be available during all required time periods.
   (g) The integrated resource investment plan shall provide for the
continuation of the self-generation incentive program authorized
pursuant to Section 379.5 for ultraclean distributed generation, as
defined in Section 353.2.
   (h) The integrated resource investment plan shall provide that an
electrical corporation shall meet the resource adequacy requirements,
owning or procuring sufficient electric generating capacity to meet
100 percent of annual peak demand, plus requisite operating and
planning reserve margins as determined by the commission, for the
electric load served by the electrical corporation.
   400.20.  (a) The Legislature finds and declares all of the
following:
   (1) To ensure that an electrical corporation can properly plan for
and invest in resources to reliably serve its customers without
stranding costs or shifting costs among customers, a stable and
predictable customer base is necessary and essential.
   (2) A core and noncore electric service model, under which an
electrical corporation is required to provide bundled electric
service to all core customers on a cost-of-service basis, while
noncore customers with a maximum peak demand of at least 500
kilowatts, can elect to enter into a direct transaction to purchase
electricity from a nonutility electric service provider, will, if
properly structured, provide this stability.
   (3) Under a properly structured core and noncore electric service
model, a utility's bundled service customers are indifferent to
whether or not a noncore customer elects to purchase electricity from
an electrical corporation or through a direct transaction.
   (4) To ensure indifference, the commission is required to prevent
any shifting of costs to a utility's customers receiving bundled
service, from noncore customers that elect to purchase electricity
through direct transactions.
   (5) It is in the public interest to allow noncore customers that
elect to purchase electricity through direct transactions, a safe
harbor of limited duration during which they can receive electricity
from an electrical corporation, provided the utility's bundled
service customers are indifferent to whether a noncore customer
purchases electricity from an electrical corporation during the safe
harbor period.  To ensure indifference, a noncore customer should pay
the higher of the incremental costs of additional short-term spot
electricity procured or generated to serve them or the otherwise
applicable tariff rate.
   400.21.  On or before December 31, 2005, the commission shall
adopt rules and regulations to implement a core and noncore model
that accomplish all of the following:
   (a) An electrical corporation shall remain obligated to provide
reliable bundled electric service to core customers that have a
maximum peak demand of less than 500 kilowatts on a cost-of-service
basis.
   (b) Noncore customers with a maximum peak demand of at least 500
kilowatts may elect to enter into a direct transaction with a
nonutility electric service provider.  The electric service provider
shall be fully responsible for the resource adequacy requirements of
the electricity load of the customers it serves, and the integrated
resource investment plan of the electrical corporation shall exclude
the resource adequacy requirements of the electricity load serviced
by an electric service provider.
   (c) A noncore customer that elect to take bundled service from the
electrical corporation shall be subject to a five-year rolling
commitment to the electrical corporation.
   (d) A noncore customer that elects to purchase electricity through
a direct transaction may thereafter receive default electric
commodity service from the electrical corporation under terms
established by the commission to ensure that the utility's bundled
service customers are indifferent to whether the noncore customer
purchases electricity from the electrical corporation during this
safe harbor period.  To ensure indifference, a noncore customer shall
pay the higher of the incremental costs of additional short-term
spot electricity procured or generated to serve the noncore customer
or the otherwise applicable tariff rate.
   (e) To ensure indifference, the commission shall adopt rules
sufficient to avoid a shifting of costs to the utility's bundled
customers that would result from noncore customers electing to
purchase electricity through direct transactions.  Noncore customers
shall continue to pay those costs recoverable pursuant to
subdivisions (d), (e), (f), and (g) of Section 366.2.
   (f) The commission shall adopt rules that defer new elections to
enter into direct transactions for the purchase of electricity by
noncore customers until the commission has approved a cost recovery
mechanism that ensures that new elections by noncore customers to
purchase electricity through direct transactions will not result in
the under recovery of any costs attributable to those noncore
customers.
   (g) Customers that are purchasing electricity pursuant to a direct
transaction as of January 1, 2005, including customers that qualify
as core customers, pursuant to rules adopted by the commission, may
choose to continue to purchase electricity pursuant to direct
transaction or to return to bundled service provided by the
electrical corporation.
   (h) In designating the earliest possible date for implementation
of a community choice aggregation program, the commission shall
ensure that there will be no cost-shifting or stranding of
investments made pursuant to an integrated resource investment plan
of the electrical corporation that has been approved by the
commission.
   400.22.  (a) All electrical load serving entities, including
nonutility electric service providers and community choice
aggregators, shall be subject to the same requirements for resource
adequacy, resource diversity, the renewable portfolio standard, and
demand response resources applicable to electrical corporations.
   (b) The commission, in consultation with the Independent System
Operator, shall establish resource adequacy requirements to ensure
adequate reserves of physical generating capacity are available to
serve all customers reliably.  Consistent with federal law, the
Independent System Operator shall implement and enforce these
resource adequacy and reserve requirements in a nondiscriminatory
manner on all load serving entities.
   400.30.  To ensure that the utility's obligation to serve bundled
customers with reliable electric service at just and reasonable rates
is met by an electrical corporation, the commission shall adopt
rules and regulations consistent with the policies and provisions of
this article.  Subject to judicial review as provided in this act,
those actions undertaken by the commission pursuant to the provisions
of this article are binding upon the commission, and modify, amend
and supercede any other provisions of law, including Section 1708.
   400.40.  Nothing in this chapter shall alter or affect any outcome
of a competitive procurement process conducted by an electrical
corporation pursuant to any other law, including Section 454.5, prior
to January 1, 2005.
  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.