BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
AB 5X - Keeley
Hearing Date: January 17, 2001 A
As Amended: January 16, 2001 FISCAL
B
X
1
5
DESCRIPTION
This bill requires the replacement of the existing
governing board of the Independent System Operator (ISO),
composed of 26 "stakeholders," with a governing board
composed of five members appointed by the Governor who must
be independent of any ISO market participant.
The bill prohibits the ISO from entering into a multi-state
entity or regional organization unless such a move is
approved by the Electricity Oversight Board (EOB).
The bill requires the ISO to publish a list of California
power plants that are out of service due to either a
planned or unplanned outage.
KEY QUESTION
How can the state best maintain its interest in oversight
and governance of the ISO?
BACKGROUND
AB 1890 (Brulte), Chapter 854, Statutes of 1996, required
the establishment of the ISO as a "separately incorporated
public benefit, nonprofit corporation." The purpose of the
ISO is to ensure efficient use and reliable operation of
the state's electricity transmission system. As originally
enacted, AB 1890 required the governing board of the ISO to
be composed of California residents appointed by the EOB.
The board members were to be appointed according to classes
of stakeholders. The classes specified were investor-owned
utility transmission owners, publicly-owned utility
transmission owners, non-utility electricity sellers,
public buyers and sellers, private buyers and sellers,
industrial end users, commercial end users, residential end
users, agricultural end users, public interest groups, and
non-market participant representatives.
The EOB itself is composed of five members - three voting
members appointed by the Governor, who must be California
residents and electricity ratepayers, and one non-voting
member each appointed from the Assembly and the Senate.
Inasmuch as the ISO is a non-public entity engaged in the
interstate transmission and wholesale power markets, its
operations are subject to Federal Energy Regulatory
Commission (FERC) jurisdiction under the Federal Power Act.
When it approved the ISO tariffs, FERC rejected those
portions of the ISO bylaws requiring California residency
and EOB appointment of governing board members. In doing
this, FERC exercised jurisdiction over not only the
interstate operations of the ISO, but also over the
framework of the institution itself.
FERC found that the EOB's role (and thus the state's role)
in regulating the ISO conflicted with FERC's own
jurisdiction and undermined the independence of the ISO
governing board. FERC further found that the residency
requirement established in AB 1890 was inconsistent with
FERC's policy to provide "broad-based, non-discriminatory,
open-access transmission service" (FERC Order No. 888) and
"discourages participation in the ISO by out-of-state
entities by denying them meaningful representation." FERC
did recognize a limited oversight function for the EOB on
strictly California matters.
In November 1998, FERC ordered the ISO to change its bylaws
to eliminate the California residency requirement and the
EOB's appointment function, as well as the EOB's authority
to approve ISO bylaws and hear appeals of ISO governing
board decisions.
In the face of its order's conflict with the provisions of
AB 1890, FERC maintained that AB 1890's requirements are
preempted by the Federal Power Act and it threatened to go
to federal court to enforce its order or to unilaterally
revise ISO bylaws if the EOB did not consent to the
changes ordered. In January 1999, the ISO submitted
revised bylaws to FERC that complied with its order.
SB 96 (Peace), Chapter 510, Statutes of 1999, revised the
governance structure of the ISO, as well as the authority
of the EOB, to reflect a compromise reached between the
state and FERC. SB 96 limited the EOB's confirmation
powers to the appointments of customer representatives to
the ISO governing board and limited the EOB's authority to
serve as an appeal board for decisions made by the ISO to
matters that are exclusively within the jurisdiction of the
state. SB 96 also contained a statement that "California
shall retain the right to change the (ISO) governing board
into a nonstakeholder board." (Public Utilities Code
Section 337)
FERC issued a declaratory order on August 5, 1999 approving
the changes to the governance structure of the ISO, as well
as the authority of the EOB, proposed in SB 96. That order
declared the changes proposed by SB 96 outlined "an interim
role for the Oversight Board that is consistent with our
prior orders."
On November 1, 2000, FERC issued a draft "Order Proposing
Remedies for California Wholesale Electric Market" which
proposed a process for replacing the governing boards of
the ISO, as well as the Power Exchange (PX). FERC
concluded that the existing "stakeholder" governing boards
of the ISO and the PX should be replaced with independent
boards. However, the process for replacing the ISO and PX
governing boards that FERC proposed divorced the state of
any meaningful oversight.
FERC proposed that the existing board members would choose
seven members among candidates identified by an independent
search firm to form a successor board, without any advice
or consent of the EOB or other state entity. This approach
is inconsistent with both California statute and FERC's
August 5, 1999 Order, which recognized the revised role for
the EOB reflected in SB 96. In the SB 96 compromise, the
state's oversight functions were limited in deference to
FERC's jurisdiction, but oversight of certain matters
subject to state jurisdiction, as well as California's
right to change the ISO and PX governing boards into
non-stakeholder boards, were explicitly preserved.
In the final California order, issued on December 15, 2000,
FERC set aside its proposal for replacing the ISO and PX
boards, noting there was no consensus on the process for
selecting an independent board. However, FERC is still
requiring the ISO board to be replaced by an independent
board. FERC indicated it would establish procedures to
discuss the selection process with state representatives.
In the meantime, FERC has ordered the existing governing
board to turn over decision-making power and operating
control to ISO management on January 29, 2001. The ISO has
requested a stay of this portion of the FERC order, but
absent FERC granting that request, or the Legislature
acting to establish a new board as this bill proposes, the
ISO will be left without a duly-constituted board as of
January 29.
Due to other provisions of the December 15 order which
substantially diminish the PX's role in the market, FERC
found it unnecessary to replace its governing board.
COMMENTS
1.Future of state oversight function. AB 1890 transferred
responsibility for transmission reliability from electric
utilities regulated by the California Public Utilities
Commission (CPUC) to the ISO and market-based mechanisms.
The ISO functions as a quasi-utility, performing
exclusive duties delegated by the state, that are vital
to California residents in the deregulated generation
market. As such, the state has a compelling interest in
the operation of these institutions. AB 1890 recognized
this and established the EOB "to ensure that the
interests of the people of California are served."
FERC's orders have steadily decreased the state's role by
diminishing state representation on the governing board
and limiting the accountability of ISO actions to the
Governor, the Legislature and their constituents.
2.Companion bill. SB 47 (Bowen), currently pending in this
committee, would enact a permanent procedure for the
appointment of ISO board members that includes
confirmation by the Senate and three-year, rather than
one-year, terms.
ASSEMBLY VOTES
Assembly Energy Costs & Availability Committee(18-0)
Assembly Appropriations Committee (17-2)
Assembly Floor (60-9)
POSITIONS
Sponsor:
Author
Support:
None on file.
Oppose:
None on file.
Lawrence Lingbloom
ABX1 5 Analysis
Hearing Date: January 17, 2001