BILL ANALYSIS
AB 57
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ASSEMBLY THIRD READING
AB 57 (Wright)
As Amended April 26, 2001
Majority vote
UTILITIES AND COMMERCE 14-0 APPROPRIATIONS 14-0
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|Ayes:|Wright, Pescetti, |Ayes:|Bates, Ashburn, Cedillo, |
| |Calderon, | |Corbett, Correa, Daucher, |
| |Bill Campbell, John | |Maldonado, |
| |Campbell, Canciamilla, | |Robert Pacheco, Papan, |
| |Cardenas, Diaz, Kelley, | |Thomson, Wesson, Wiggins, |
| |Maddox, Nation, Papan, | |Wright, Zettel |
| |Reyes, Wesson | | |
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SUMMARY : 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 requires:
1)That when an electrical corporation resumes purchasing
electricity on behalf of retail and end-use customers, the
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% and no greater than 95% forward contracts for
terms of up to 10 years duration, of that portion of supply
not already being provided from generating resources owned or
contracted for by electrical corporations.
2)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 this bill, or any
contract for which there is existing authorization. None of
these contracts shall be subject to after-the-fact review.
3)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 Department of Water Resources (DWR), or any
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other market or power exchange recognized by CPUC, or was
executed on or before January 1, 2001.
4)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, 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)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% of the average of the lowest bid established by RFP
process.
6)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 Public Utilities Code Section 538, subject to CPUC
verification of accuracy of submissions.
7)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 : Cost savings to CPUC from avoided reasonableness
reviews.
COMMENTS : 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
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plagued the state throughout 2001.
This bill 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 bill 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 10
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 bill also provides a balance in the energy supply mix of
electrical corporations by requiring that a minimal portion of
half of purchases be through long-term contracts. This creates
a balance 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 bill 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 bill sets forth terms and
conditions of such contracts which should provide sufficient
protection against price squeezes in the contracts and this bill
also requires reporting in significant detail by electrical
corporations to allow CPUC to ascertain long-term pricing levels
and supply levels. Finally, this bill 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.
Analysis Prepared by : Kelly Boyd / U. & C. / (916) 319-2083
FN: 0000818
AB 57
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