9. Reasonableness Review Risk and Indemnification
The utilities take the position that there should be no reasonableness review risk for the DWR contracts or the administration of those contracts, including sales of surplus power. As described above, the only day-to-day contract administration activities that remain with DWR are those associated with financial reporting and the actual payment of bills. The utilities will be making all other day-to-day administration and operating decisions for these contracts in the future. In effect, the utilities are requesting that we sanction any judgments or decisions they make during this process without any scrutiny or review. The utilities argue that this request is reasonable because they did not enter into the contracts to begin with and, by retaining title to the contracts, DWR is the only entity that should be held accountable for their administration.
As we discuss in Section 3 above, title can continue to reside with DWR while various operational and administrative functions are allocated along with the contracts to the individual utilities. From a policy perspective, it makes little sense to perform such an allocation without the expectation that each utility will manage these contracts in a reasonable manner, subject to our review and oversight. Accordingly, the prudency of the utilities' administration of the DWR contracts we allocate today, including how they elect to dispatch the contract power quantities relative to other resources in their portfolio, shall be at issue over the life of the contracts. The forum for this review should be the annual procurement proceedings where the utility procurement process as a whole is reviewed.
The utilities also contend that DWR will need to indemnify them for any claims that might arise out of the administration of the contracts. For example, if a supplier does not perform as required under a DWR contract, SDG&E argues that the utility should not be liable for that supplier's failure to perform.57 There may be certain types of "failure to perform" claims for which DWR indemnification is appropriate, as the utilities suggest. However, DWR indemnification should not relieve the utilities from the responsibility of implementing the terms of the contract in good faith, so that the supplier has a reasonable opportunity to perform under those terms.
