BILL NUMBER: AB 57 AMENDED
BILL TEXT
AMENDED IN SENATE SEPTEMBER 14, 2001
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 332.3 399.10
to the Public Utilities Code, relating to public utilities , and
making an appropriation therefor .
LEGISLATIVE COUNSEL'S DIGEST
AB 57, as amended, Wright. Electrical energy
corporations : contracts
procurement plans .
The
(1) 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 providing guidance to
electrical corporations and the Public Utilities Commission for the
procurement of electricity by an electrical corporation and providing
for review by the commission of procurement plans of electrical
corporations .
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
review and adopt a procurement plan for each electrical corporation
in accordance with guidelines elements,
incentive mechanisms, and objectives set forth in the bill.
The bill would authorize the commission to engage a highly capable
independent consultant or advisory service to evaluate risk
management and strategy. The bill would require the commission to
adopt appropriate procedures to ensure the confidentiality of any
market sensitive information submitted in an electrical corporation's
proposed procurement plan or resulting from or related to its
approved procurement plan, and to determine the impact of a proposed
divestiture on an electrical corporations procurement plan.
The bill would allow an electrical corporation that serves less
than 500,000 retail customers within the state to file with the
commission a request for exemption from the provisions of the bill,
which requested exemption the commission would be required to grant
upon a showing of good cause.
(2) Existing law makes a violation of provisions of the Public
Utilities Act a crime.
This bill, by imposing new requirements on electrical
corporations, would expand the scope of that crime, and thus impose a
state-mandated local program.
(3) 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.
(4) The bill would appropriate $600,000 from the Public Utilities
Commission Utility Reimbursement Account to the Public Utilities
Commission for the purposes of implementing this bill.
Vote: majority 2/3 .
Appropriation: no yes . Fiscal
committee: yes. State-mandated local program: no
yes .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. (a) The Legislature finds and declares that the
SECTION 1. It is the intent of the Legislature to do all of the
following:
(a) Provide guidance to electrical corporations and the Public
Utilities Commission for the prospective procurement of electricity
by an electrical corporation.
(b) Ensure, by no later than January 1, 2003, that each electrical
corporation whose customers are currently being served by the
Department of Water Resources will resume procurement for those needs
that are not being met by the Department of Water Resources.
(c) Direct the Public Utilities Commission to review each electric
corporation's procurement plan in a manner that assures creation of
a diversified procurement portfolio, assures just and reasonable
electricity rates, provides certainty to the electrical corporation
in order to enhance its financial stability and creditworthiness, and
eliminates the need, with specified exceptions, for after-the-fact
reasonableness reviews of an electrical corporation's prospective
electricity procurement performed consistent with an approved
procurement plan.
SEC. 2. Section 399.10 is added to the Public Utilities Code, to
read:
399.10. (a) Each electrical corporation shall file a proposed
procurement plan with the commission 90 days after the commission
specifies the allocation of electricity, including quantity,
characteristics, and duration of electricity delivery, to be provided
by the Department of Water Resources under its power purchase
agreements to the customers of the electrical corporation. The
proposed procurement plan shall specify the date the electrical
corporation intends to resume procurement of electricity for its
retail customers, consistent with its obligation to serve, which
shall be referred to for purposes of this subdivision as the
"proposed commencement date." The commission shall review and adopt
a procurement plan as specified in subdivisions (b), (c), and (d) no
later than 60 days prior to the proposed commencement date. No later
than January 1, 2002, the commission shall specify the allocation of
electricity, including quantity, characteristics, and duration of
electricity delivery, to be provided by the Department of Water
Resources under its power purchase agreements to the customers of
each electrical corporation, which shall be reflected in an
electrical corporation's proposed procurement plan.
(b) An electrical corporation's proposed procurement plan shall
include, but is not limited to, the following:
(1) An assessment of the price risk associated with the electrical
corporation's portfolio, including any utility-retained generation,
existing power purchase and exchange contracts, and proposed
contracts or purchases under which an electrical corporation will
procure electricity and electricity-related products and the
remaining open position to be served via spot market transactions.
(2) A definition of each electricity product, electricity-related
product, and procurement related financial product, including support
and justification for the product type and amount to be procured
under the plan.
(3) The duration of the plan.
(4) The duration, timing, and range of quantities of each product
to be procured.
(5) A competitive procurement process under which the electrical
corporation may request bids for procurement-related services,
including the format and criteria of that procurement process.
(6) An incentive mechanism, if any incentive mechanism is
proposed, including the type of transactions to be covered by that
mechanism, their respective procurement benchmarks, and other
parameters needed to determine the sharing of risks and benefits.
(7) The upfront standards and criteria by which the acceptability
and eligibility for rate recovery of a proposed procurement
transaction will be known by the electrical corporation prior to
execution of the transaction. This shall include an expedited
approval process for the commission's review of proposed contracts
and subsequent approval or rejection thereof. The electrical
corporation shall propose alternative procurement choices in the
event a contract is rejected.
(8) Procedures for updating the procurement plan.
(9) A showing that the procurement plan will create or maintain a
diversified procurement portfolio consisting of both short-term and
long-term electricity and electricity-related products.
(10) The electrical corporation's risk management policy,
strategy, and practices including specific measures of price
stability.
(11) A plan to achieve appropriate increases in diversity of
ownership and diversity of fuel supply of nonutility electrical
generation.
(12) A mechanism for recovery of reasonable administrative costs
related to procurement in the generation component of rates.
(c) The commission shall review and accept, modify, or reject each
electrical corporation's procurement plan. The commission's review
shall consider each electrical corporation's individual procurement
situation, and shall give strong consideration to that situation in
determining which one or more of the features set forth in this
subdivision shall apply to that electrical corporation. A
procurement plan approved by the commission shall contain one or more
of the following features, provided that the commission shall not
approve a feature or mechanism for an electrical corporation if it
finds that the feature or mechanism would impair the restoration of
an electrical corporation's creditworthiness or would lead to a
deterioration of an electrical corporation's creditworthiness:
(1) A competitive procurement process under which the electrical
corporation may request bids for procurement-related services. The
commission shall specify the format of that procurement process, as
well as criteria to ensure that the auction process is open and
adequately subscribed. Any purchases made in compliance with the
commission-authorized process shall be recovered in the generation
component of rates.
(2) An incentive mechanism that establishes a procurement
benchmark or benchmarks and authorizes the electrical corporation to
procure from the market, subject to comparing the electrical
corporation's performance to the commission-authorized benchmark or
benchmarks. The incentive mechanism shall be clear, achievable, and
contain quantifiable objectives and standards. The incentive
mechanism shall contain balanced risk and reward incentives and will
limit the risk and reward of an electrical corporation.
(3) Upfront achievable standards and criteria by which the
acceptability and eligibility for rate recovery of a proposed
procurement transaction will be known by the electrical corporation
prior to the execution of the bilateral contract for the transaction.
The commission shall provide for expedited review and either
approve or reject the individual contracts submitted by the
electrical corporation to ensure compliance with its procurement
plan. To the extent the commission rejects a proposed contract
pursuant to this criteria, the commission shall designate alternative
procurement choices obtained in the procurement plan that will be
recoverable for ratemaking purposes.
(d) A procurement plan approved by the commission shall accomplish
each of the following objectives:
(1) Enable the electrical corporation to fulfill its obligation to
serve its customers at just and reasonable rates.
(2) Eliminate the need for after-the-fact reasonableness reviews
of an electrical corporation's actions in compliance with an approved
procurement plan, including resulting electricity procurement
contracts, practices, and related expenses. However, the commission
may establish a regulatory process to verify and assure that each
contract was administered in accordance with the terms of the
contract, and contract disputes which may arise are reasonably
resolved.
(3) Ensure timely recovery of prospective procurement costs
incurred pursuant to an approved procurement plan. The commission
shall establish rates based on forecasts of procurement costs adopted
by the commission, actual procurement costs incurred, or combination
thereof, as determined by the commission. The commission shall
establish power procurement balancing accounts to track the
differences between recorded revenues and costs incurred pursuant to
an approved procurement plan. The commission shall review the power
procurement balancing accounts, not less than semiannually, and shall
adjust rates or order refunds, as necessary, to promptly amortize a
balancing account. Until January 1, 2006, this adjustment shall
occur no later than when the power procurement balancing account
adjustment is overcollected or undercollected in an amount that
exceeds 5 percent of the electrical corporation's actual recorded
generation revenues for the prior calendar year excluding revenues
collected for the Department of Water Resources. After January 1,
2006, this adjustment shall occur when deemed appropriate by the
commission consistent with the objectives of this section.
(4) Moderate the price risk associated with serving its retail
customers, including the price risk embedded in its long-term supply
contracts, by authorizing an electrical corporation to enter into
financial and other electricity-related product contracts.
(5) Provide for just and reasonable rates, with an appropriate
balancing of price stability and price level in the electrical
corporation's procurement plan.
(e) The commission shall provide for the periodic review and
prospective modification of an electrical corporation's procurement
plan.
(f) The commission may engage a highly capable independent
consultant or advisory service to evaluate risk management and
strategy. The reasonable costs of any consultant or advisory service
is a reimbursable expense and eligible for funding pursuant to
Section 631.
(g) The commission shall adopt appropriate procedures to ensure
the confidentiality of any market sensitive information submitted in
an electrical corporation's proposed procurement plan or resulting
from or related to its approved procurement plan, including, but not
limited to, proposed or executed power purchase agreements, data
request responses, or consultant reports, or any combination,
provided that the Office of Ratepayer Advocates and other consumer
groups that are nonmarket participants shall be provided access to
this information under confidentiality procedures authorized by the
commission.
(h) Nothing in this section alters, modifies, or amends the
commission's oversight of affiliate transactions under its rules and
decisions or the commission's existing authority to investigate and
penalize an electrical corporation's alleged fraudulent activities,
or to disallow costs incurred as a result of gross incompetence,
fraud, abuse, or similar grounds.
(i) An electrical corporation that serves less than 500,000
electric retail customers within the state may file with the
commission a request for exemption from this section, which the
commission shall grant upon a showing of good cause.
(j) Prior to its approval pursuant to Section 851 of any
divestiture of generation assets owned by an electrical corporation
on September 1, 2001, the commission shall determine the impact of
the proposed divestiture on the electrical corporation's procurement
rates and shall approve a divestiture only to the extent it finds,
taking into account the impact of the divestiture on procurement
rates, that the divestiture is in the public interest and will result
in net ratepayer benefits. Any electrical corporation's procurement
necessitated as a result of the divestiture of generation assets on
or after the effective date of the act adding this subdivision shall
be subject to the mechanisms and procedures set forth in this section
only if its actual cost is less than the recent historical cost of
the divested generation assets, or if the commission deems that
procurement eligible when it approves the divesture.
SEC. 3. Nothing in this act is intended to imply that procurement
of electricity from third parties is the preferred method of
fulfilling an electrical corporation's obligation to serve its
customers at just and reasonable rates.
SEC. 4. No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB 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 XIIIB of the California Constitution.
SEC. 5. The sum of six hundred thousand dollars ($600,000) is
hereby appropriated from the Public Utilities Commission Utility
Reimbursement Account in the General Fund to the Public Utilities
Commission for the purposes of implementing this act.
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 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.