BILL ANALYSIS                                                                                                                                                                                                    




                                                                  AB 5 X1
                                                                  Page A
            Date of Hearing:   January 10, 2001

                 ASSEMBLY COMMITTEE ON ENERGY COSTS AND AVAILABILITY
                              Roderick D. Wright, Chair
                  AB 5 X1 (Keeley) - As Introduced:  January 9, 2001
           
          SUBJECT  : Electrical restructuring:  Independent System Operator:  
           Power Exchange Governance.

           SUMMARY  : This bill revises specific provisions relating to both  
          the Governance structures and authority of the California  
          Independent System Operator (CAISO) and the Power Exchange (PX)  
          and the duties and authority of the Electricity Oversight Board  
          (EOB).  Specifically,  this bill  :  

          1)Repeals existing law directing the EOB to determine the  
            composition and terms of service for governing boards of the  
            ISO and PX.

          2)Repeals existing law which specifies EOB member right to  
            decline or confirm representative groups on the governing  
            boards;

          3)Repeals the Oversight Board's responsibility for approval of  
            election and qualifications of ISO/PX governing board members.

          4)Requires that in 90 days of the effective date of this bill,  
            that the ISO and PX governing boards be composed of an  
            unlimited term, three member, annually and Governor appointed,  
            independent governing board of directors composed of  
            individuals not affiliated with any actual or potential  
            ISO-related market participant.

          5)Requires that the Oversight Board revise the CAISO/PX articles  
            of incorporation and bylaws to reflect the aforementioned  
            changes and make necessary filings with the Federal Energy  
            Regulatory Commission necessary to implement this act.

          6)Removes the existing authority of the Oversight Board to hold  
            a closed session to consider matters involving the removal of  
            an ISO or PX Governing Board member.  All such issues must now  
            be voted on in open session.

          7)Prohibits ISO participation in any multi-state entity or  
            regional organization unless approved by the Oversight Board.









                                                                  AB 5 X1
                                                                  Page B

           EXISTING LAW  provides for the creation of the Oversight Board  
          and describes its functions, which includes oversight of the  
          Independent System Operator and the Power Exchange, its board's  
          composition and terms of service and appeals processes.

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   

          AB 1890, (Brulte) [Chapter 854, Statutes of 1996], contained  
          intent language that established the process for California's  
          entry into an interstate compact with other western states to  
          require utilities selling energy into the California markets to  
          adhere to standards and protocols to protect the reliability of  
          regional transmission and distribution systems.  This bill  
          repeals those provisions and requires EOB approval prior to the  
          CAISO's participation in any multistate entity or regional  
          transmission organization. 

          The restructuring of California's electric industry came in the  
          form of comprehensive electric restructuring legislation, AB  
          1890.  Additionally, because the ISO and PX are non-public  
          entities engaged in the interstate transmission and wholesale  
          power markets, their operations are subject to Federal Energy  
          Regulation Commission (FERC) jurisdiction under the Federal  
          Power Act.

          On December 15, 2000, FERC issued an Order Proposing Remedies  
          for California Wholesale Electric Markets, which outlined its  
          desire to establish procedures to discuss with state  
          representatives the process for selection of the independent ISO  
          Board members that will replace the current stakeholder board.  
          The FERC decision proposes to replace the existing stakeholder  
          boards with independent boards.  Presently, the ISO and the PX  
          are governed by what the FERC calls stakeholder boards - i.e.  
          those who have business in the market/market participants.   
          Under the FERC order, the new board would be made up of  
          non-market participants.  The order sets out FERC's desire to  
          discuss the process for selection of the new board structure  
          with state representatives.

          Generally, the FERC order requests State action in the following  
          areas:  










                                                                  AB 5 X1
                                                                  Page C
           PX Must Buy: FERC eliminates the requirement that the three  
            investor-owned utilities<1> sell into and buy from the Power  
            Exchange.  This would free up the IOUs to search for better  
            deals through bilateral contracts.
           Real-Time Penalty: In order to discourage generators from  
            selling into the day ahead/hour ahead market, FERC proposed  
            the assessment of a $100/MWh penalty for generators that  
            schedule 95% of their electricity in those markets.  
           Soft cap: FERC imposed a $150/MWh 'soft cap' on the PX and ISO  
            markets.  All bids submitted that are below $150 will receive  
            the market-clearing price, whereas all bids above the $150  
            receive the bid amount.  FERC required all bids above $150 to  
            justify why the bid exceeded the cap of $150.  A hard cap  
            would have prohibited bids above $150 
           Governance:  FERC proposes to replace the existing stakeholder  
            boards with independent boards.   
           Refunds:  For 24 months after the date of the Order,  
            generators are potentially subject to refunds of excessive  
            costs if FERC determines there is a need based on information  
            it asked the generators to submit.    

          This bill speaks to the ISO/PX governance issue only and  
          proposes a governance structure for the Electricity Oversight  
          Board to communicate the State's intent to FERC.  This bill  
          makes modifications to existing law that affect the appointment,  
          governance structure, member affiliation limitation and terms of  
          ISO/PX board members to effectuate a four member,  
          Governor-appointed governance structure for both the ISO and the  
          PX.

          Suggested technical amendment:  The author may wish to address  
          the ambiguity created by the language in this bill which  
          replaces existing PU Code Section 337 (b) with the following  
          language:  

          377 (b)  A member of the independent governing board appointed  
          under subdivision (a) may not be affiliated with any actual or  
          potential participant in any market administered by the  
          Independent System Operator.   A member of the independent  
          governing board of the Independent System Operator shall not be  
          deemed to be affiliated with any actual or potential market  
          participant for purposes of this section.  



          ---------------------------
          <1> IOUs are Pacific Gas and Electric Company (PG&E), Southern  
          California Edison (SCE) and San Diego gas and Electric (SDG&E))








                                                                  AB 5 X1
                                                                  Page D
          This technical amendment, should be addressed in Section 377 (b)  
          regarding the Power Exchange and Section 338 (b) regarding the  
          Independent System Operator would remove the inability of  the  
          Governor to appoint some or all of the same people to both the  
          ISO and PX governing boards.    

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          None on file in the Committee.

           Opposition 
           
          None on file in the Committee.
           
          Analysis Prepared by  :    Roderick A. Campbell / E. C. & A. /  
          (916) 319-2083