An add-on provision requiring utilities to extend for another five years the current five-year contracts they have with small qualifying facility (QF) generating plants has temporarily derailed a proposal in the California state senate to crack down on alleged misuse of published natural gas price indices that are used by state regulators and market participants to establish contract pricing formulas.

The proposed legislation (SB 173) was sent back to the state senate energy committee, where it could be sorted out as early as this week, according to the chairperson’s chief of staff.

The new amendment by SB 173’s author, Sen. Joe Dunn, a relentless critic of reliance on energy markets, caught off guard some of the Senate energy committee members who backed the legislation, and they are concerned it may be mixing “apples and oranges,” according to insiders in the Senate policy committee.

Payments for the renewed QF contracts would be established by the California Public Utilities Commission, which in the past has relied on the gas indices to help set power prices. However, the mandating of the extensions has caused some concerns, the energy committee source said.

While being set for consideration last Thursday by the Senate appropriations committee — its third committee stop — SB 173 was referred back to the energy, utilities and communications committee, which approved as earlier version of the bill in early April. Sen. Dunn, who has headed the Senate special wholesale energy price manipulation investigative committee, is a member of the energy/utilities panel.

Following revelations last fall in Dunn’s investigative committee that attempts by energy traders were made to manipulate gas price indices, SB 173 took shape conceptually, and eventually earlier this year a bill was devised with the aim of restricting use of the indices by state regulators. Current language says:

SB 173 “would restrict the (CPUC) to the use of gas price indexes determined by the commission to be reliable and verified, and meeting listed requirements, and would require the (CPUC) to establish standards for reliability and verification for gas price indexes used to establish or adjust prices paid to QFs by a public utility electrical corporation.” The language goes on to restrict the use of the indexes in determining so-called “incentives” or “bonuses” awarded to utilities based on their performance in energy procurement.

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