BILL NUMBER: SB 997	INTRODUCED
	BILL TEXT


INTRODUCED BY   Senator Morrow

                        FEBRUARY 23, 2001

   An act to add Section 332.2 to the Public Utilities Code, relating
to public utilities.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 997, as introduced, Morrow.  Public utilities: bilateral
forward contracts.
   Under the Public Utilities Act, the Public Utilities Commission
regulates the rates of public utilities, including electrical
corporations.  The act requires that all charges demanded or received
by any public utility for any product or commodity furnished or to
be furnished, or any service rendered or to be rendered, to be just
and reasonable.
   This bill would authorize an electrical corporation to achieve and
thereafter maintain a portfolio of electricity supplies for its
bundled service customers consisting of no less than 50%, and no
greater than 95%, forward contracts.  The bill would prohibit the
portfolio of an electrical corporation that maintains the
above-stated supply portfolio mix from being subject to
reasonableness reviews by the commission.  The bill would require the
commission to deem reasonable, and not engage in a reasonableness
review of certain contracts that meet guidelines established by the
bill.
   This bill would require each electrical corporation to file with
the commission, quarterly, a report describing its then-current
annual supply portfolio of long-term forward contracts and financial
contracts, together with an explanation of whether and how the
contracts meet the specified guidelines.  Because a violation of the
Public Utilities Act is a crime, this bill would impose a
state-mandated local program by varying the definition of a crime.
  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.
   Vote:  majority.  Appropriation:  no.  Fiscal committee:  yes.
State-mandated local program:  yes.


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 from an increased reliance on
longer-term contracts and a lessened reliance on spot markets
(day-ahead and real-time markets).  Increased reliance on longer-term
purchases will bring needed price stability to all consumers and may
attract new electric supply into the state of California.
   (b) It is the intent of the Legislature to provide guidance for
the procurement of electricity by an electrical corporation, and to
establish standards under which the procurement will be deemed
reasonable, and to eliminate the need for after-the-fact
reasonableness reviews of an electrical corporation's electricity
procurement contracts, practices, and related expenses.
  SEC. 2.  Section 332.2 is added to the Public Utilities Code, to
read:
   332.2.  (a) It is the intent of the Legislature that an electrical
corporation, as defined in Section 218, shall, no later than July 1,
2001, achieve and thereafter maintain a portfolio of electricity
supplies for its bundled service customers consisting of forward
contracts sufficient to satisfy no less than 50 percent, and no
greater than 95 percent, of that portion of the electrical
corporation's peak monthly demand that is not already served through
pre-existing long-term supply commitments.  As long as an electrical
corporation maintains a supply portfolio mix within forward contract
commitments within this range, its portfolio is not subject to
reasonableness reviews by the commission.
   (b) The commission shall deem reasonable, and may not engage in a
reasonableness review of, any of the following:
   (1) A contract entered into by an electrical corporation in
accordance with the guidelines set forth in this section.
   (2) A contract, for which, upon application by the electrical
corporation, the commission has granted approval.  For all contracts
approved pursuant to this paragraph, there shall be no after-the-fact
review, whether based on the individual contracts, the electrical
corporation's portfolio, or otherwise.
   (c) Standardized forward contracts shall be deemed reasonable when
any of the following circumstances exist:
   (1) The contract is entered into pursuant to, or on terms
comparable 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 RFP or other bidding process.  An RFP shall be considered
open and competitive if the request was distributed to at least 15
potential suppliers, and notice of the RFP was posted on the
electrical corporation's website concurrently with the distribution
of the RFP.
   (2) The price of any contract is lower than the electrical
corporation's then-current annual volume-weighted portfolio cost, as
calculated by the electrical corporation, if the portfolio cost is
determined excluding any generation assets retained by the electrical
corporation and all pre-existing contracts as of the effective date
of the act adding this section.
   (3) The contract was entered into by the electrical corporation
through a power exchange, the Independent System Operator, or any
other market recognized by the commission.
   (4) The contract was executed by the electrical corporation prior
to December 31, 2000.
   (d) A nonstandard contract for electricity, including, but not
limited to, a tolling agreement, a peaking service agreement, a
load-following service agreement, an ancillary services agreement, or
other agreement for a service that is not traded on an exchange,
shall be deemed reasonable if the contract price is below the
electrical corporation's then-current annual volume-weighted supply
portfolio cost as calculated by the electrical corporation, if the
portfolio cost is determined excluding any generation assets retained
by the electrical corporation and all pre-existing contracts as of
the date of enactment.
   Any fuel costs associated with contracts under this subdivision
shall also be deemed reasonable.
   (e) Electrical corporations are hereby authorized to enter into
financial and other contracts to moderate the price risk associated
with long-term forward contracts.  Contracts under this subdivision
may be gas-based or electricity-based.  Contracts under this
subdivision and the premiums paid by the electrical corporations for
the contracts 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) No restriction may be placed on the number or length of
forward contracts entered into by any electrical corporation pursuant
to this section.
   (g) Electrical corporations should be encouraged to enter into
purchase transactions with renewable energy developers.  These
transactions shall be deemed reasonable if contract prices for
renewable energy are less than or equal to 115 percent of the annual
average price of the lowest winning bid established pursuant to
paragraph (1) of subdivision (c).
   (h) Subject to Section 583, each electrical corporation shall file
with the commission, on a quarterly basis a report describing its
then-current annual supply portfolio of long-term forward contracts
and financial contracts, together with an explanation of whether and
how those contracts that make up the supply portfolio meet the
guidelines set forth in this section.  The commission may verify the
accuracy of these quarterly submissions for the sole purpose of
ensuring that these guidelines are satisfied.
  SEC. 3.  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.