BILL NUMBER: AB 2006	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  MAY 24, 2004
	AMENDED IN ASSEMBLY  APRIL 12, 2004

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 amended, 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 noncore customers may elect to receive electric service
from the electrical corporation or from an electric service provider.
  An electrical corporation would have no obligation to procure
electricity or otherwise meet resource adequacy requirements for
noncore customers that elect to enter into a direct transaction for
the purchase of electricity.  The bill would require electrical
corporations to file, and for the commission to approve, a long-term
resource plan, as specified, sufficient to fulfill the utility's duty
to serve while achieving best value for ratepayers.  The bill would
provide for the recovery of costs and investments made pursuant to an
approved long-term resource plan.  The bill would require that no
costs be shifted to the utility's core customers as a result of 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 physical generating capacity to meet
peak demand plus requisite planning and operating reserves is
available to reliably serve all customers  ,  and would
require the Independent System Operator to implement and enforce
these resource adequacy requirements in a nondiscriminatory manner on
all load serving entities, excluding a local publicly owned electric
utility  and customer generation, as defined  .  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 is of utmost
importance to the consumers of this state and its economy.
   (c) Electrical corporations have an obligation to provide 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 provide needed
resources, including cost effective energy efficiency and other
demand reduction measures, utility-owned and procured generation, new
and repowered generation, cogeneration, renewable generation,
transmission, distribution, and an adequately sized,  well
trained   well-trained  workforce, 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 a long-term resource plan for commission
review and approval, that achieves a diversified portfolio of
efficient, cost effective supply and demand resources.
   (f) In order to ensure that the long-term resource plan achieves a
diversified portfolio of efficient, cost effective supply and demand
resources, resource adequacy requirements shall be met first through
cost effective energy efficiency and other demand reduction
measures.
   (g) In order to ensure that a long-term resource 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.
   (h) 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
payments made to third parties under contract with an electrical
corporation for non-utility-owned generation, are recovered in rates.

   (i) California consumers will not receive reliable and affordable
electric service, nor will consumers avoid repetition of past
problems with excessive 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.
  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 provide
the utility's customers with reliable electric service at just and
reasonable rates, pursuant to Section 451.
   (b) For purposes of this article, "electric service" includes
providing adequate and efficient resources, including cost effective
energy efficiency and other demand response resources, utility-owned
and procured generation resources, new and repowered generation
resources, cogeneration, renewable generation resources, transmission
and distribution resources, metering, billing, and employing an
adequately sized,  well trained   well-trained
 utility workforce.
   (c) Notwithstanding subdivisions (a) and (b), an electrical
corporation has no obligation to procure electricity or otherwise
meet resource adequacy requirements for any customer that elects to
enter a direct transaction.  No costs incurred by the electrical
corporation to serve customers that have entered into a direct
transaction, shall be shifted to the utility's bundled customers.
   400.5.  (a) To ensure that adequate investments are made in
resources necessary to provide customers with reliable electric
service, the commission shall authorize an electrical corporation to
provide efficient, cost effective resources, including cost effective
energy efficiency and demand response resources, utility-owned and
procured generation resources, new and repowered generation
resources, cogeneration, and renewable generation resources,
consistent with the electrical corporation's procurement plan adopted
pursuant to Section 454.4.
   (b) The commission shall, after public hearing, approve and
thereafter maintain just and reasonable rates sufficient to ensure
that the electrical corporation fully recovers the cost of
investments found reasonable by the commission in the resources
necessary to provide customers with reliable electric service,
including a reasonable opportunity to fully recover a reasonable
return on investment over the life of the resource, in addition to
costs reasonably incurred to operate and maintain those resources, 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 for
generation resources with another entity, including the  cost
of   reasonable costs, as determined by the commission,
for  any collateral requirements and debt equivalence.
   (d) Nothing in this article alters the requirements of Section
455.5, 463, or 1005.5.  
   (e) It is the intent of the Legislature in enacting this section
to affirm, without requiring revision, California's traditional
doctrine regarding an electrical corporation's reasonable opportunity
to fully recover reasonable costs and investments, as reflected in
regulatory and judicial decisions prior to 1994. 
   400.10.  (a) To ensure that adequate investments necessary to meet
the electrical corporation's obligation to provide reliable electric
service are made, every electrical corporation shall prepare a
long-term resource plan in accordance with Section 454.5 to achieve a
diversified portfolio of efficient cost effective supply and demand
resources to serve the utility's customers.  The 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 customers.  The demand forecasts shall reflect energy
efficiency programs approved by the commission. The commission shall,
after public hearing, review and approve a long-term resource plan
for every electrical corporation consistent with Section 454.5,
including those revisions to the utility filed plan that the
commission determines are necessary.
   (b) The 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 plan shall provide for investments in necessary generation
resources, including extensions, renewal, or renegotiations of
contracts for existing generation resources, new or repowered
generation and cogeneration projects.
   (d) (1) The plan may provide for investments in distributed
generation that would improve system reliability, thereby deferring
or eliminating investments in distribution facilities that would
otherwise be 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 for ratepayers 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.
   (e) The plan shall provide for the continuation of the
self-generation incentive program authorized pursuant to Section
379.6 for ultraclean  and low-emission  distributed
generation, as defined in Section 353.2.
   (f) The plan shall provide that an electrical corporation shall
meet the resource adequacy requirements, by owning or contracting for
sufficient physical 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.  For purposes of this article,
"electric load served by the electrical corporation" does not include
the electrical load of customers who elect to enter into a direct
transaction.
   400.15.  (a) An electrical corporation's procurement plan approved
by the commission pursuant to Section 454.5, shall ensure that the
resource selection process for generation resources necessary to meet
resource adequacy requirements achieves best value for ratepayers by
considering price, reliability, stability, efficiency,
cost-effectiveness, system impacts, resource diversity, and risk.
   (b) In accordance with an electrical corporation's procurement
plan approved pursuant to Section 454.5, to meet resource adequacy
requirements each electrical corporation shall manage a diversified
portfolio of non-utility-owned generation under contract with the
utility, and utility-owned generation, combining the potential
benefits of a competitive wholesale market, including operating
efficiencies and lower prices, with the stability of cost-of-service
generation resources, to achieve best value for ratepayers.
   (c) In order to meet resource adequacy requirements, each
electrical corporation shall recommend for commission approval
generation resources that provide the best value for ratepayers,
consistent with all the following:
   (1) The electrical corporation shall conduct competitive
solicitations for nonutility generation, consistent with the
electrical corporation's procurement plan approved pursuant to
Section 454.5.
   (2) The electrical corporation may enter into a bilateral contract
for nonutility generation, consistent with the electrical
corporation's procurement plan approved pursuant to Section 454.5.
Prior to approving a bilateral contract for nonutility generation,
the commission shall find that the contract is reasonably priced
relative to a market-based benchmark.
   (3) The electrical corporation may file for a certificate of
public convenience and necessity for utility-owned generation,
consistent with the electrical corporation's procurement plan
approved pursuant to Section 454.5.  Prior to approving the
certificate of public convenience and necessity, the commission shall
find that the utility-owned generation is reasonably priced relative
to a market-based benchmark.  
   (d) For purposes of this article, "nonutility generation" means
facilities for the generation of electricity, owned and operated by
an entity other than an electrical corporation or an affiliate of an
electrical corporation. 
   400.18.  An electrical corporation shall invest in new or expanded
transmission facilities and control systems that are needed to
ensure efficient use and reliable operation of the electrical grid
for customers.  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 reliability
standards or to promote economic efficiency, that determination shall
be conclusive for purposes of determining  necessity when the
commission determines  whether to issue a certificate of public
convenience and necessity pursuant to Chapter 5 (commencing with
Section 1001).
   400.20.  (a) The Legislature finds and declares all of the
following:
   (1) To ensure that an electrical corporation can properly plan for
and provide resources to reliably serve its customers without
 stranding   incurring stranded  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 electric service to all
core customers with a maximum peak demand of less than 500 kilowatts
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 core 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 core customers, 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 core 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) Core customers, and noncore customers that do not elect to
enter into a direct transaction pursuant to this section, shall
receive reliable electric service from an electrical corporation on a
cost-of-service basis.
   (b) Noncore customers may elect to enter into a direct transaction
with a nonutility electric service provider.  The electric service
provider shall be fully responsible for meeting the resource adequacy
requirements of the electricity load established by the commission
for the customers it serves, and the long-term resource 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 does not elect to enter into a direct
transaction with a nonutility electric service provider shall be
subject to a five-year rolling commitment to the electrical
corporation.
   (d) A noncore customer that elects to enter into a direct
transaction may thereafter receive default electric commodity service
from the electrical corporation under terms established by the
commission to ensure that 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) The commission shall adopt rules sufficient to avoid any
shifting of costs to the electrical corporation's core 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 underrecovery 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, may choose to continue to purchase electricity
pursuant to a direct transaction or to return to service provided by
the electrical corporation.
   (h) For purposes of this article, "core customer" means any
customer with a maximum peak demand of less than 500 kilowatts.
   (i) For purposes of this article,  "non-core 
 "noncore  customer" means any customer with a single meter
with a maximum peak demand of at least 500 kilowatts.
   (j) 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 a long-term resource plan of the
electrical corporation that has been approved by the commission
pursuant to Section 454.5.
   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, and the renewable portfolio standard,
as applicable to electrical corporations.
   (b) The commission, in consultation with the Independent System
Operator, shall establish resource adequacy requirements to ensure
adequate physical generating capacity to meet peak demand and
planning and operating reserves, is available to serve all customers
reliably.  The Independent System Operator shall implement and
enforce these resource adequacy requirements in a nondiscriminatory
manner on all load serving entities.  Load serving entities may
procure physical generating capacity through a market-based
mechanism.  For purposes of this article, "load serving entity" does
not include a local publicly owned electrical utility as defined in
Section 9604  or customer generation.  For purposes of this
subdivision, "customer generation" means cogeneration, renewable
technologies, or any other type of generation that is dedicated
wholly or in part to serve a specific customer's load and that relies
on nonutility or dedicated utility distribution wires, rather than
the utility grid, to serve the customer, the customer's affiliates,
or the customer's tenants, or not more than two other persons or
corporations.  Those two persons or corporations must be located on
site or adjacent to the real property on which the generator is
located.  "Customer generation" includes distributed energy resources
as defined in Section 353.1 and ultraclean and low-emission
distributed generation as defined in Section 353.2  .
   400.30.  To ensure that the utility's obligation to provide
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.
   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.