§ 69.205. Purchasing procedures.
(a) General guidelines. The Pennsylvania Public Utility Commission (Commission) recommends that a utility adopt the following general nuclear fuel purchasing guidelines:
(1) A balance of long-term, short-term and spot purchases should be utilized if possible and economic to maximize the utility’s flexibility in its nuclear fuel procurement practices. This balance can provide a reasonably stable supply while allowing the utility the option of taking advantage of changing market conditions.
(2) Suppliers should be selected on the basis of the best evaluated bid, as collectively determined from reliability, quality of service and pricing considerations. A utility should use its own staff in seeking and qualifying adequate nuclear fuel suppliers and should minimize the use of brokers, except if the use of brokers is consistent with the basic nuclear fuel procurement policy of obtaining nuclear fuel at the lowest reasonable price.
(3) A utility should maintain documentation of reasons for selection of any bid on file in accordance with the Federal Energy Regulatory Commission’s Record Retention Table. Commission staff may inspect this documentation as deemed necessary.
(4) A utility should actively seek and maintain a reasonable number of acceptable suppliers from which to solicit bids. This supplier list should be updated frequently.
(5) Utilities should consider sealed bids on large orders.
(6) A utility’s verbal agreements, including telephone conversations relating to nuclear fuel price and quantity, should be formalized by letter or log confirming details of the agreement.
(b) Long term contracts.
(1) Price escalation clauses included in long-term contracts should be based on measurable supplier costs or on regularly published relevant indices.
(2) A utility should seek contracts with broad ranges in minimum/maximum quantity deliverables to be exercised at the utility’s discretion. Contract quantities could increase or decrease at the utility’s discretion based upon market conditions and contractor’s performance. The contracts could also provide a means of control over suppliers whose pricing has become noncompetitive due to changes in market conditions.
(3) Right to audit clauses should be included in long-term contracts that provide for price escalation based on cost. The right to audit clause gives the utility the authority to audit specific records of its suppliers. It is recommended that the utility enforce the right to audit provisions either through the use of qualified internal audit staff or outside independent auditors on a regular basis. Contracts should contain resumption clauses to provide for continuation, at the utility’s discretion, of contracts that are temporarily curtailed. The Commission may review the audit reports of long-term contracts of nuclear fuel and conduct reexaminations of the utility as considered necessary.
(4) It is recommended that contracts, escalation clauses or terms of purchase of nuclear fuel agreements be reviewed by the legal counsel for the utility. Contracts should include specific reference to special arrangements, such as financial loan agreements, which may affect the operation of the utility or the price of nuclear fuel.
(5) A utility should regularly compare the price of nuclear fuel (U3O8) from its sources to that available for similar sources in the competitive market place. A utility may be called upon to explain why its U3O8 prices differ significantly from those published for similar competitive markets. The Commission may take appropriate action upon discovery of significant differences for an extended period. Decisions on the reasonableness of a utility’s deviation from the respective published prices will be made by the Commission on a case-by-case basis.
(6) This section, § § 69.201—69.204, 69.206 and 69.207 also apply to wholly-owned nuclear fuel sources.
(c) Dedicated nuclear fuel supplies. Dedicated nuclear fuel supplies are those in which a utility, through ownership, contract quantity requirements or guarantee of debt, has substantial influence and interest in the contracted nuclear fuel supply. The following guidelines are recommended for dedicated nuclear fuel supplies:
(1) To insure efficient management over a dedicated nuclear fuel supply, a utility should not provide, assume or guarantee an excessive amount of the project financing. The owner, operator or developer of the mine, or nuclear fuel supplier, should maintain substantial equity in the project or guarantee a substantial portion of the project financing.
(2) The use of cost-plus contracts is strongly discouraged unless justification can be provided that the contract is essential for assurance of supply.
(3) Contracts for dedicated nuclear fuel supplies should contain additional provisions so that if nuclear fuel prices exceed the range of prices from other available suppliers for nuclear fuel with similar characteristics for an extended period of time, the nuclear fuel price charged by the dedicated supplier would be adjusted to fall within the price range of the similar nuclear fuel.
Source The provisions of this § 69.205 adopted March 29, 1991, effective May 30, 1991, 21 Pa.B. 1331.
Cross References This section cited in 52 Pa. Code § 69.201 (relating to general); and 52 Pa. Code § 69.206 (relating to inventory management).
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