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