BILL NUMBER: AB 57	CHAPTERED
	BILL TEXT

	CHAPTER  835
	FILED WITH SECRETARY OF STATE  SEPTEMBER 24, 2002
	APPROVED BY GOVERNOR  SEPTEMBER 24, 2002
	PASSED THE ASSEMBLY  JULY 3, 2002
	PASSED THE SENATE  JUNE 28, 2002
	AMENDED IN SENATE  JUNE 24, 2002
	AMENDED IN SENATE  JUNE 18, 2002
	AMENDED IN SENATE  JUNE 3, 2002
	AMENDED IN SENATE  MAY 15, 2002
	AMENDED IN SENATE  APRIL 24, 2002
	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
   (Coauthor:  Senator Alarcon)

                        DECEMBER 4, 2000

   An act to add Section 454.5 to the Public Utilities Code, relating
to public utilities, making an appropriation therefor, and declaring
the urgency thereof, to take effect immediately.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 57, Wright.  Electrical corporations:  procurement plans.
   (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
providing guidance to electrical corporations and the commission for
the procurement of electricity and electricity demand reductions by
an electrical corporation and providing for review by the commission
of procurement plans of electrical corporations.
   The bill would amend the act to require the commission to review
and adopt a procurement plan for each electrical corporation in
accordance with elements, incentive mechanisms, and objectives set
forth in the bill.
   The bill would authorize the commission to engage an 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 corporation's 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.
The bill would require the commission to grant the exemption upon a
showing of good cause.
   (2) Existing law makes a violation of the provisions of the 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 commission for the
purposes of implementing this bill.
   (5) The bill would declare that it is to take effect immediately
as an urgency statute.
   Appropriation:  yes.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  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
and electricity demand reductions 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, consistent with
subdivisions (a) and (b) of Section 701.1 of the Public Utilities
Code, to review each electrical 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 certain
exceptions, for after-the-fact reasonableness reviews of an
electrical corporation's prospective electricity procurement
performed consistent with an approved procurement plan.
   (d) Direct the Public Utilities Commission to assure that each
electrical corporation optimizes the value of its overall supply
portfolio, including Department of Water Resources contracts and
procurement pursuant to Section 454.5 of the Public Utilities Code,
for the benefit of its bundled service customers.
  SEC. 2.  Section 454.5 is added to the Public Utilities Code, to
read:
   454.5.  (a) The commission shall specify the allocation of
electricity, including quantity, characteristics, and duration of
electricity delivery, that the Department of Water Resources shall
provide under its power purchase agreements to the customers of each
electrical corporation, which shall be reflected in the electrical
corporation's proposed procurement plan.  Each electrical corporation
shall file a proposed procurement plan with the commission not later
than 60 days after the commission specifies the allocation of
electricity.  The proposed procurement plan shall specify the date
that the electrical corporation intends to resume procurement of
electricity for its retail customers, consistent with its obligation
to serve.   After the commission's adoption of a procurement plan,
the commission shall allow not less than 90 days before the
electrical corporation resumes procurement pursuant to this section.

   (b) An electrical corporation's proposed procurement plan shall
include, but not be limited to, all of 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, electricity demand reductions, and
electricity-related products and the remaining open position to be
served by 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 achieve the
following:
   (A) The electrical corporation will, in order to fulfill its unmet
resource needs and in furtherance of Section 701.3, until a 20
percent renewable resources portfolio is achieved, procure renewable
energy resources with the goal of ensuring that at least  an
additional 1 percent per year of the electricity sold by the
electrical corporation is generated from renewable energy resources,
provided sufficient funds are made available pursuant to Section
399.6, to cover the above-market costs for new renewable energy
resources.
   (B) The electrical corporation will create or maintain a
diversified procurement portfolio consisting of both short-term and
long-term electricity and electricity-related and demand reductions
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 may 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 that
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, according to a schedule determined by the
commission.  Until January 1, 2006, the commission shall ensure that
any overcollection or undercollection in the power procurement
balancing account does not exceed 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.  The commission shall determine the schedule for
amortizing the overcollection or undercollection in the balancing
account to ensure that the 5 percent threshold is not exceeded.
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 an 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.  Nothing in this section expands,
modifies, or limits the State Energy Resources Conservation and
Development Commission's existing authority and responsibilities as
set forth in Sections 25216, 25216.5, and 25323 of the Public
Resources Code.
   (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) (1) Prior to its approval pursuant to Section 851 of any
divestiture of generation assets owned by an electrical corporation
on or after the date of enactment of the act adding this section, 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
effect of the divestiture on procurement rates, that the divestiture
is in the public interest and will result in net ratepayer benefits.

   (2) 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.
   (3) Notwithstanding paragraph (2), the commission may deem
proposed procurement eligible to use the procedures in this section
upon its approval of asset divestiture pursuant to Section 851.
  SEC. 3.  Nothing in this act is intended to imply that procurement
of electricity from third parties in a wholesale transaction 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 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.
  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.
  SEC. 6.  This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the
meaning of Article IV of the Constitution and shall go into immediate
effect.  The facts constituting the necessity are:
   In order that the Public Utilities Commission may undertake the
review and approval of each electric corporation's procurement plan
at the earliest possible time, in a manner consistent with this act,
it is necessary that this act take effect immediately.