BILL ANALYSIS AB 5 X1 Page A Without Reference to File ASSEMBLY THIRD READING AB 5 X1 (Keeley) As Introduced January 9, 2001 2/3 vote. Urgency ENERGY 17-1 APPROPRIATIONS 17-2 ----------------------------------------------------------------- |Ayes:|Wright, Pescetti, Briggs, |Ayes:|Migden, Bates, Alquist, | | |Canciamilla, Diaz, | |Aroner, Cedillo, Corbett, | | |Dickerson, Dutra, | |Correa, Goldberg, | | |Jackson, Kelley, Leonard, | |Maldonado, Romero, | | |Migden, Oropeza, Reyes, | |Shelley, Simitian, | | |Richman Steinberg, | |Thomson, Wesson, Wiggins, | | |Vargas, Zettel | |Wright, Zettel | |-----+--------------------------+-----+--------------------------| |Nays:|Campbell |Nays:|Daucher, Robert Pacheco | | | | | | ----------------------------------------------------------------- SUMMARY : Revises specific provisions relating to the governance structures and authority of the California Independent System Operator (ISO); the Power Exchange (PX) and Electricity Oversight Board (EOB). Specifically, this bill : 1)Repeals existing law directing EOB to determine the composition and terms of service for governing boards of ISO and PX. 2)Repeals existing law which specifies an EOB member's right to decline or confirm representative groups on governing boards. 3)Repeals EOB'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 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 EOB revise ISO/PX articles of incorporation and bylaws to reflect the aforementioned changes and make AB 5 X1 Page B necessary filings with the Federal Energy Regulatory Commission (FERC) necessary to implement this act. 6)Removes the existing authority of EOB 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 EOB. EXISTING LAW provides for the creation of EOB and describes its functions, which includes oversight of ISO and PX, its board's composition and terms of service and appeals processes. FISCAL EFFECT : Unknown COMMENTS : 1)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 ISO's participation in any multistate entity or regional transmission organization. 2)The restructuring of California's electric industry came in the form of comprehensive electric restructuring legislation, AB 1890. Additionally, because ISO and PX are non-public entities engaged in the interstate transmission and wholesale power markets, their operations are subject to FERC jurisdiction under the Federal Power Act. 3)On December 15, 2000, FERC issued an Order Proposing Remedies for California Wholesale Electric Markets (Order), 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, ISO and PX are governed by what FERC calls stakeholder boards (i.e., those who have business in the AB 5 X1 Page C 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. 4)Generally, the FERC order requests state action in the following areas: a) PX Must Buy: FERC eliminates the requirement that the three investor-owned utilities<1> sell into and buy from the PX. This would free up IOUs to search for better deals through bilateral contracts. b) Real-Time Penalty: In order to discourage generators from selling into the day ahead/hour ahead market, FERC proposed the assessment of a $100 per mega-watt hour (MWh) penalty for generators that schedule 95% of their electricity in those markets. c) Soft Cap: FERC imposed a $150/MWh "soft cap" on 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 d) Governance: FERC proposes to replace the existing stakeholder boards with independent boards. e) 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. 5)This bill speaks to the ISO/PX governance issue only and proposes a governance structure for EOB 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 ISO and PX. 6)The following technical amendment was suggested in the policy --------------------------- <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 committee: Replace existing PU Code Section 337 (b) with the following language: " 337 (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. " 7)This technical amendment will appear in Section 337 (b) (regarding PX) and Section 338 (b) (regarding ISO) would remove the inability of the Governor to appoint some or all of the same people to both ISO and PX governing boards. 8)The author has indicated that he intends to work with parties to address the amendments described above. Analysis prepared by : Roderick A. Campbell / E.C. & A. / (916) 319-2083 FN: 0000057