BILL ANALYSIS
AB 57
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Date of Hearing: April 23, 2001
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
AB 57 (Wright) - As Amended: April 16, 2001
SUBJECT : Electrical energy: contracts.
SUMMARY : This bill provides guidance for the procurement of
electricity by electrical corporations through long term
contracting procedures and directs the California Public
Utilities Commission (CPUC) to determine that such contracts are
reasonable. Specifically, this bill :
1)Requires that no later than July 1, 2001, an electrical
corporation shall achieve and maintain on an annual basis, a
portfolio of electric supply commitments for its bundled
service customers, including forward contracts to supply no
less than 50 percent and no greater than 95 percent forward
contracts for terms of up to ten years' duration, of that
portion of supply not already being provided from generating
resources owned or contracted for by electrical corporations.
2)Requires CPUC to reflect in bundled service rates, and deem
reasonable without a reasonableness review, any contract
entered into in accordance with the guidelines set forth in AB
57, or any contract for which. Upon application therefore by
an electrical corporation, CPUC has granted approval. None of
these contracts shall be subject to after the fact review.
3)Requires CPUC to deem standard forward contracts reasonable if
entered into through an open, competitive bidding process,
including through the request for proposal (RFP) process; if
the price of the contract is lower than the electrical
corporation's then-current volume-weighted portfolio cost,
excluding any generation assets retained by the electrical
corporation; if the contract was entered into through the
Independent System Operator (ISO) or any other market or power
exchange recognized by CPUC or was executed on or before
January 1, 2001.
4)Requires CPUC to also 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,
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exclusive of any generation assets retained by the electrical
corporation. These contracts include tolling agreements,
peaking service agreements, load-following service agreements,
capacity agreements, exchange agreements, ancillary service
agreements or another agreement for a service not traded on an
exchange.
5)Requires CPUC to deem transactions entered into between
electrical corporations and renewable energy developers
reasonable if contract prices to the electrical corporation
are less than 115 percent of the average of the lowest bid
established by RFP process.
6)Requires electrical corporations to file quarterly with CPUC
its long term forward contracts and financial contracts,
together with an explanation of how the contracts meet
guidelines set forth in Section 538 of the Public Utilities
Code, subject to CPUC verification of accuracy of submissions.
7)Requires CPUC to adopt a ratemaking mechanism ensuring that
existing bundled service customers remain responsible for and
pay their proportionate share of the electrical corporation's
obligations under each contract.
EXISTING LAW requires CPUC to conduct a reasonableness review of
contract terms and prices for contracts entered into by
electrical corporations for purchase of generated electricity.
FISCAL EFFECT : Unknown.
COMMENTS :
Securing Supply at Reasonable Prices
The onset of California's energy crisis during the summer of
2000 and throughout 2001 has demonstrated the need for
California electrical corporations to secure long term contracts
to ensure a reliable supply of energy for their customers. Some
of the existing procedures at CPUC may work at counter purposes
to allowing investor owned utilities (IOUs) to secure these
types of long term agreements which both secure a supply stream
and allow for accurate forecasting of long term supply. Thus
ensuring against the type of supply constraints, which have
plagued the state throughout 2001.
AB 57
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AB 57 requires CPUC to forego the standard reasonableness
reviews generally applied to contracts for generated electricity
entered into by electrical corporations, under specified
conditions, to better facilitate IOUs' continued pursuit of such
contracts. Specifically, this measure requires that not less
than 50% and not more than 95% of the portion of the electrical
corporation's supply portfolio not already being provided from
generating resources owned or contracted for by electrical
corporations, shall come from forward contracts of up to ten
years' duration. This ensures that at least half of the supply
stream of generated electricity is arriving at prices, which can
be predicted, and in known volumes.
Encouragement of long term contracting provides electrical
corporations with some flexibility during periods of supply
adequacy, to not have to purchase large quantities of generated
electricity on the spot market at what may be higher prices.
This measure also allows for a balance in the energy supply mix
from electrical corporations between spot priced electricity,
(some of which may be obtained at lower prices if purchased
during optimal pricing cycles), and electricity priced based on
long term forecasts and subject to a competitive bidding process
designed to elicit reasonable, stable long term energy prices.
This measure requires CPUC to forego the reasonableness review,
which can constrain the price in these contracts or can be time
prohibitive and result in contracts being vacated or in terms
becoming less favorable due to the extended tie required for
such reviews. However, this measure sets forth terms and
conditions of such contracts which should provide sufficient
protection against price squeezes in the contracts and this
measure also requires reporting in significant detail by
electrical corporations to allow CPUC to ascertain long term
pricing levels and supply levels.
Finally, this measure also provides price protection against any
cross subsidy by requiring CPUC to develop a ratemaking
mechanism to ensure that bundled service customers pay their
share of the electrical corporation's obligations under the
contracting procedures.
Staff recommends:
AB 57 should ensure that sufficient additional electrical supply
shall be provided through long term contracts to ensure both a
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dedicated supply amount for customers and a fixed price for the
contract term. Elimination of the reasonableness review process
if specified terms are met should ensure that contract terms can
be locked in timely to help lower the overall cost of such
contracting and encourage generators to engage in long term
contracting with the limited oversight now required.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Water Agencies
Pacific Gas and Electric
Opposition
None on file
Analysis Prepared by : Kelly Boyd / U. & C. / (916) 319-2083