XI. Standards for Utility Behavior

The Commission also needs to adopt standards and criteria that address the behavioral conduct of the utility and its personnel. The exhibits prepared by the utilities show that there were only a limited number of disallowance decisions made by the Commission during the seventeen year period from 1980 to 1996 for the three utilities and that the majority of these decisions and dollar adjustments involved affiliate transactions. The Commission has affiliate transaction rules in place to guard against affiliate abuse, but these rules were designed for the regulatory world of AB 1890, not today's market structure. Therefore, we will place a moratorium on Edison, PG&E, or SDG&E dealing with their own affiliates in procurement transactions, beginning January 1, 2003, to allow for a careful reexamination and appropriate modification of our affiliate rules.¹⁷ This moratorium is until we complete our rulemaking or two years, whichever date is first. Utilities may propose to include specific affiliate transactions in their procurement plans but these proposals cannot be implemented until the end of the moratorium. Based on comments, we are persuaded that transactions through the ISO that can be demonstrated to include multiple and anonymous bidders are permissible.

The abuses of energy companies during California's energy crisis are still being uncovered and investigated. The magnitude of these abuses clearly affirms the need for strong standards and vigilant oversight of energy procurement practices and the need for the Commission to investigate and act at any time if standards are violated.

Various commenters have expressed concern that the language at numbered paragraph 6 in the "minimum standards" section of the Proposed Decision confers unfettered discretion on the Commission to modify contract terms. In D.92-11-052, the Commission explained that "[a]lthough the language of GO 96-A [substantively identical to the language at issue] could be read to allow the Commission to modify a contract "at will," in fact, the Commission exercised its authority to modify existing contracts only rarely and under the most extraordinary circumstances." Nonetheless, in response to comments we are revising the disputed language to incorporate the "extraordinary circumstances" standard articulated in D.92-11-052 for when the Commission may exercise its authority to modify existing contracts. The minimum standards of behavior we adopt for the respondent utilities are as follows:

1. Each utility must conduct all procurement through a competitive process with only arms-length transactions. Transactions involving any self -dealing to the benefit of the utility or an affiliate, directly or indirectly, including transactions involving an unaffiliated third party, are prohibited.

2. Each utility must adopt, actively monitor, and enforce compliance with a comprehensive code of conduct for all employees engaged in the procurement process and ensure all employees with knowledge of its procurement strategies sign and later abide by a noncompetitive agreement covering a one year period after leaving utility's employment.

3. In filing transactions for approval, the utilities shall make no misrepresentation or omission of material facts of which they are, or should be aware.

4. The utilities shall prudently administer all contracts and generation resources and dispatch the energy in a least-cost manner. Our definitions of prudent contract administration and least cost dispatch is the same as our existing standard.

5. The utilities shall not engage in fraud, abuse, negligence, or gross incompetence in negotiating procurement transactions or administering contracts and generation resources.

6. All contracts must contain substantially the following revision: "in the event of extraordinary circumstances, this contract shall be subject to such changes or modifications by the CPUC as the CPUC may direct."

7. In order to exercise effective regulatory oversight of the behavior discussed above, all parties to a procurement contract must agree to give the Commission and its staff reasonable access to information within seven working days, unless otherwise practical, regarding compliance with these standards.

While we will review contract administration and economic dispatch issues on a timely and regular basis, there is no time limitation on our investigation of the violation of any other standard above. The Commission retains full authority to investigate when a violation is discovered and to effect any and all remedies available to us. This is consistent with Section 454.5(h)