BILL NUMBER: AB 57 AMENDED
BILL TEXT
AMENDED IN SENATE JULY 18, 2001
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.
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 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 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 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) Direct the Public Utilities Commission to establish standards
under which the procurement of 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) 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 , including, but
not limited to, the format and approaches of a request for proposals
(RFP) process . 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 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 , or the commission may reject a long-term forward contract
without prejudice and designate spot market purchases in lieu of the
rejected contract as per se reasonable for the term of the rejected
contract or until the commission approves a replacement contract
:
(1) Those contracts are entered into pursuant to 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 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 and there
are conforming offers submitted by at least three suppliers,
and notice of the RFP was posted on the electrical corporation's Web
site concurrently with the distribution of the RFP , subject to
any restriction or limitation established by the commission pursuant
to subdivision (a) , 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 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.
(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.
(m) The commission shall adopt a ratemaking mechanism that ensures
that the existing 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.