BILL NUMBER: AB 57	AMENDED
	BILL TEXT

	AMENDED IN SENATE  JULY 9, 2001
	AMENDED IN ASSEMBLY  APRIL 26, 2001
	AMENDED IN ASSEMBLY  APRIL 16, 2001

INTRODUCED BY   Assembly Member Wright

                        DECEMBER 4, 2000

   An act to add Section 332.3 to the Public Utilities Code, relating
to public utilities.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 57, as amended, Wright.  Electrical energy:  contracts.
    (1) The 
    The  Public Utilities Act imposes various duties and
responsibilities on the Public Utilities Commission with respect to
the purchase of electricity.
   This bill would state findings and declarations regarding 
short-term and  long-term contracts for the purchase of
electricity and would state the intent of the Legislature with
respect to the procurement of electricity by an electrical
corporation.  The bill would declare the intent of the Legislature
that an electrical corporation, as defined, shall  achieve
and maintain a portfolio of electricity supplies for its bundled
service customers   create a diversified procurement
portfolio consisting of both short-term and long-term electricity and
electricity related products  .
   This bill would amend the act to require the commission  to
implement an incentive mechanism applicable to an electrical
corporation's procurement of electricity for its customers in
accordance with guidelines set forth in the bill.  The bill would
require the commission  to reflect in bundled service rates, and
to deem reasonable without engaging in a reasonableness review, any
contract entered into by an electrical corporation in accordance with
guidelines set forth in the bill.
   Vote:  majority.  Appropriation:  no.  Fiscal committee:  yes.
State-mandated local program:  no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  (a) The Legislature finds and declares that the
customers of an electrical corporation, as defined in Section 218 of
the Public Utilities Code, will benefit by  increased
reliance on long-term contracts, and less  the creation
of a diversified procurement portfolio consisting of both short-term
and long-term electricity and electricity related products and
lessening  reliance on the spot markets, including the day-ahead
and real time markets.  This  increased reliance on
long-term purchases   portfolio  will bring needed
price stability at reasonable prices to all consumers and may attract
new electric supply into the State of California.   Procurement
responsibilities for the net open positions (load not served by
utility retained generation) of the three largest electrical
corporations are currently being met by the Department of Water
Resources. 
   (b) It is the intent of the Legislature to do all of the
following:
   (1) Provide guidance for the procurement of electricity by an
electrical corporation.
   (2)  Establish  Direct the Public Utilities
Commission to establish  standards under which the procurement
of  electricity by an electrical corporation will be deemed
reasonable.   electricity and electricity related
products by an electrical corporation will be deemed reasonable, and
to the extent an electrical corporation requests, require the Public
Utilities Commission to provide electrical corporations with an
incentive to balance cost and risk goals for procurement. 
   (3) Eliminate the need for after-the-fact reasonableness reviews
of an electrical corporation's electricity procurement contracts,
practices, and related expenses.
  SEC. 2.  Section 332.3 is added to the Public Utilities Code, to
read:  
   332.3.  (a) It is the intent of the Legislature that, when an
electric corporation resumes purchasing of electricity on behalf of
retail and end-use customers, an electrical corporation shall achieve
and thereafter maintain on an annual basis a portfolio of electric
supply commitments for its bundled service customers, which shall
consist of forward contracts sufficient to supply no less than 50
percent, and no greater than 95 percent forward contracts, with terms
up to 10 years in duration, of that portion of the electrical
corporations's supply portfolio that was not already being supplied
from generating resources owned or contracted for by electrical
corporations.  As long as an electrical corporation maintains such a
portfolio mix, its portfolio may not be subject to reasonableness
reviews by the commission.  
   332.3.  (a) At least 180 days prior to an electrical corporation
resuming procurement responsibility, the commission shall implement
an incentive mechanism applicable to the electrical corporation's
procurement of electricity for its customers.  If the commission
fails to implement an incentive mechanism within the timeframe
prescribed, all purchases entered into by an electrical corporation
shall be deemed reasonable and recoverable in rates until the
commission implements an incentive mechanism.  In developing an
incentive mechanism, the commission shall ensure that the incentive
mechanism includes all of the following:
   (1) Clear, achievable, and quantifiable objectives and standards.
   (2) Timely recovery of procurement costs.
   (3) Balanced risk and reward incentives.
   (4) Predetermined market-based price benchmarks.
   (5) Limited risk and reward for an electrical corporation.
   (6) Safety valves for major market disruptions. 
   (b) The commission shall reflect in bundled service rates, and
deem reasonable without a reasonableness review, any contract entered
into by an electrical corporation in accordance with  the
guidelines set forth in this section or any contract, for which, upon
application therefor by the electrical corporation, the commission
has granted approval.  For all of those contracts, there may be no
after-the-fact review, whether based on the individual contracts, the
electrical corporation's portfolio, or otherwise.
   (c) The commission shall deem standard forward contracts, as
described in paragraphs (1) and (4) of subdivision (c), reasonable if
one or more of the following applies:   subdivision
(a), and subdivisions (c) to (j), inclusive, or, through an
application by an electrical corporation that has been approved by
the commission.
   (c) For purposes of this section, a long-term forward contract is
a contract with a duration of not less than one month.
   (d) As part of the incentive mechanism implemented pursuant to
subdivision (a), the commission shall deem long-term forward
contracts reasonable if one or more of the following conditions are
met: 
   (1) Those contracts are entered into pursuant to  or
compared with  the results of an open, competitive bidding
process.  One acceptable form for an open, competitive bid is a
request for proposals (RFP).  The commission shall deem reasonable
any  contract the price of which is within the range of
prices that is no higher than the lowest 25 percent of the bids
received during that particular   contract which is
among 33 percent of the lowest price bids, as determined by
cumulative quantity, that are received for a particular product in a
given  RFP or other bidding process.  An RFP shall be considered
open and competitive  for a particular product  if the
request was distributed to at least 15 potential suppliers, 
offers are submitted by at least three suppliers,  and notice of
the RFP was posted on the electrical corporation's website
concurrently with the distribution of the RFP  or the
procurement   , or the transactions are entered into
 through electricity exchanges or brokerage services which may
also include electronic platforms with access to more than 15
potential suppliers.  
   (2) The price of the contract is lower than the electrical
corporation's then-current volume-weighted portfolio cost as
calculated by the electrical corporation.  However that portfolio
cost shall be determined excluding any generation assets retained by
the electrical corporation.
   (3) The contract was entered into by the electrical corporation
through the Independent System Operator, the Department of Water
Resources, or any other market or power exchange recognized by the
commission.
   (4) The contract was executed by the electrical corporation before
January 1, 2001.
   (d) The commission shall deem a nonstandard contract for
electricity reasonable if the contract price is below the electrical
corporation's then-current volume-weighted portfolio cost as
calculated by the electrical corporation, assuming an equivalent
level of annual production.  However, that portfolio cost shall be
determined excluding any generation assets retained by the electrical
corporation.  The fuel costs associated with those contracts are
deemed reasonable.  As used in this subdivision, the term
"nonstandard contract for electricity" includes a tolling agreement,
a peaking service agreement, a load-following service agreement, a
capacity agreement, an exchange agreement, an ancillary services
agreement, or another agreement for a service that is not traded on
an exchange.
   (e) Electrical corporations may enter into financial and other
contracts to moderate the price risk associated with long-term
forward contracts, including natural gas used to produce power under
these contracts.  Those contracts may be gas-based or
electricity-based.  Those contracts and the premiums paid by the
electrical corporations for those contracts also shall be deemed
reasonable if the contracts are entered into by the electrical
corporation for the purpose of hedging the price risk associated with
the electrical corporation's procurement portfolio.
   (f) A purchase transaction entered into between an electrical
corporation and a renewable energy developer shall be deemed
reasonable if contract prices to the electrical corporation for
renewable energy are less than 115 percent of the average of the
lowest bid established pursuant to paragraph (1) of subdivision (c).
 
   (2) The contract was entered into by the electrical corporation
through the Independent System Operator, the Department of Water
Resources, the California Consumer Power and Conservation Financing
Authority, or any other market or exchange recognized by the
commission.
   (3) Electrical corporations may enter into long-term forward
contracts outside of the process described in paragraphs (1) and (2).
  Those contracts shall be subject to gains or losses according to
the incentive mechanism implemented by the commission pursuant to
subdivision (a).
   (e) An electrical corporation may file a procurement plan for the
commission's review and approval.  A procurement plan shall define
all of the following:
   (1) The specific electricity and electricity related products
including type, quantity, duration, and timing of each product to be
procured.
   (2) The standards to be used in evaluating those products.
   (3) A process for review and approval or rejection by the
commission of contracts proposed by the electrical corporation
pursuant to the plan.
   (f) Contracts entered into pursuant to a commission approved
procurement plan shall be deemed reasonable, shall be exempt from
reasonableness review, and may not be eligible for gains or losses
pursuant to the incentive mechanism implemented by the commission
pursuant to subdivision (a).
   (g) It is anticipated that the electrical corporation will need to
enter into short-term transactions, either through the Independent
System Operator's short-term markets or third party transactions, in
order to supplement long-term supply contracts, or to balance the
hourly load of its customers. Until the commission develops a
benchmark that can be used for short-term procurement transactions in
an incentive mechanism, these transactions by an electrical
corporation shall be deemed reasonable.  The commission may not adopt
any benchmark for short-term electricity purchases unless that
benchmark reasonably represents the market price of short-term
purchases taking into account the timing of the purchases, the
duration of the purchases, the location of delivery of the purchases,
and other factors that are relevant to reasonably estimating market
price.
   (h) At least 180 days prior to an electrical corporation resuming
procurement responsibility, the commission shall develop a process
allowing electrical corporations to enter into financial and other
contracts to moderate the price risk associated with serving its
customers, including the price risk embedded in its long-term supply
contracts.  If the commission fails to adopt a process within the
time prescribed, electrical corporations may enter into financial and
other contracts to moderate the price risk associated with its
procurement portfolio.  The contracts may be gas-based or
electricity-based.  The contracts and the prices and premiums paid by
the electrical corporations for the contracts shall also be deemed
reasonable if the contracts are entered into by the electrical
corporation for the purpose of hedging the price risk associated with
the electrical corporation's procurement portfolio.
   (i) A purchase transaction entered into between an electrical
corporation and a renewable energy developer shall be deemed
reasonable if contract prices to the electrical corporation for
renewable energy are less than 115 percent of the average of the
lowest bid established pursuant to paragraph (1) of subdivision (d).
Any transaction entered into at market-based rates by an electrical
corporation shall be deemed reasonable if the contract price to the
electrical corporation is less than the incremental cost of the
corporation's retained generation and contractual energy resources,
where that generation and those resources can be reduced in output by
an amount greater than or equal to the amount purchased.
   (j) It is anticipated that the electrical corporations will need
to procure from the Independent System Operator and third parties, or
self-provide, ancillary and other related services, and be subject
to charges by the Independent System Operator or its successor for
imbalance energy, congestion charges, unaccounted-for-energy charges,
neutrality adjustment charges, and grid management charges.  Until
the commission develops a benchmark that can be used for ancillary
service, and other related services and charges that may be imposed
by the Independent System Operator or its successor in an incentive
mechanism, the costs incurred by an electrical corporation shall be
deemed reasonable.
   (k) It is anticipated that the electrical corporation will incur
costs in connection with its procurement and risk management
functions needed to serve its customers.  These costs include the
cost of staffing these functions as well as the cost of acquiring the
maintaining systems needed to analyze, track, settle, and make
payments pursuant to supply and hedging contracts, and the cost of
meeting credit and collateral requirements.  The costs incurred by an
electrical corporation shall be recoverable in rates.  

   (g)  
   (l)  Under the protection of Section 583, each electrical
corporation shall file quarterly  with the commission its long-term
forward contracts and financial contracts, together with an
explanation of how those contracts meet the guidelines set forth in
this section.  The commission may verify the accuracy of these
submissions for the sole purpose of ensuring compliance with these
guidelines.  
   (h)  
   (m)  The commission shall adopt a ratemaking mechanism that
ensures that the existing  bundled service 
customers as of the date an electrical corporation enters into a
bilateral contract to serve those customers remain responsible for,
and pay, their proportionate share of the electrical corporation's
obligations under each contract.