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