Volume I. Part I - California Public Utilities Commission

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B. Introduction to Procurement Policy and State Law
1. California’s Policy Framework for Energy Procurement
In the aftermath of California’s devastating energy crisis, the legislature passed
a comprehensive statutory scheme for the development and approval of energy
procurement plans. Assembly Bill (“AB”) 57, enacted in 2002, added Section 454.5
to the Public Utilities Code and included numerous requirements for electrical
corporations and the Commission with regard to long-term planning. 26 In addition to
establishing procurement planning criteria, AB 57 also provided assurance that if an
electrical corporation followed its approved plan, it would not be subject to after-the-
fact reasonableness review. Section 454.5 requires in relevant part that:
• Electrical corporations submit proposed procurement plans that include
assessments of price risk, definitions of electric products and specific plans
for product procurement, proposed incentive mechanisms, upfront standards
and criteria for rate recovery, procedures for updating plans, achievement of
certain renewables goals and portfolio diversity, risk management strategies,
plans to increase ownership and fuel supply diversity, and a mechanism for
recovery of administrative costs (§ 454.5(b));
• The Commission review and accept, modify or reject these plans, and ensure
that the plan addresses competitive procurement processes, incentive
mechanisms that establish a procurement benchmark and authorizes the
electrical corporation to procure from the market, and/or up-front achievable
standards and criteria for the “acceptability and eligibility for rate recovery”
for bilateral transactions (§ 454.5(c));
• After-the-fact reasonableness reviews of actions in compliance with an
approved procurement plan be eliminated, except for verification and
assurance that contracts were properly administered and disputes reasonably
resolved (§ 454.5(d)(2));
26 Public Utilities Code section 454.5, enacted by AB 57, was amended by Senate Bill
(“SB”) 1976 on September 24, 2002 to change the required procurement resumption date. In
2005, SB 1037 further amended Section 454.5. While these amendments have added
provisions and made some substantive changes, they have not changed the underlying
requirements and purpose of the statute.
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