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SB-997 Public utilities: bilateral forward contracts.(2001-2002)

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CALIFORNIA LEGISLATURE— 2001–2002 REGULAR SESSION

Senate Bill
No. 997

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   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 XIII B 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 XIII B of the California Constitution.