BILL ANALYSIS AB 5 X1 Page A Without Reference to File CONCURRENCE IN SENATE AMENDMENTS AB 5 X1 (Keeley) As Amended January 16, 2001 2/3 vote. Urgency ----------------------------------------------------------------- |ASSEMBLY: |60-9 |(January 12, |SENATE: |28-8 |(January 16, | | | |2001) | | |2001) | ----------------------------------------------------------------- Original Committee Reference: E.C.& A. 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). The Senate amendments: 1)Require the replacement of the existing ISO governing board, 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. 2)Prohibit ISO from entering into a multi-state entity or regional organization unless EOB approves such a move. 3)Require ISO to publish a list of California power plants that are out of service due to either a planned or unplanned outage. AS PASSED BY THE ASSEMBLY , this bill: 1)Repealed existing law directing EOB to determine the composition and terms of service for ISO and PX governing boards. 2)Repealed existing law which specifies an EOB member's right to decline or confirm representative groups on governing boards. 3)Repealed EOB's responsibility for approval of election and qualifications of ISO and PX governing board members. AB 5 X1 Page B 4)Required 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)Required that EOB revise ISO and PX articles of incorporation and bylaws to reflect the aforementioned changes and make necessary filings with the Federal Energy Regulatory Commission (FERC) necessary to implement this act. 6)Removed 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)Prohibited 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 AB 5 X1 Page C jurisdiction under the Federal Power Act. 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 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 proposes to replace the existing stakeholder boards with independent boards. 3)This bill speaks to the ISO and 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 and PX board members to effectuate a five member, Governor-appointed governance structure for both ISO and PX. 4)Future of state oversight function. AB 1890 transferred responsibility for transmission reliability from electric utilities regulated by the California Public Utilities Commission (CPUC) to ISO and market-based mechanisms. 5)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 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 ISO governing board and limiting its accountability to the Governor and the Legislature. Analysis prepared by : Roderick A. Campbell / E.C. & A. / (916) 319-2083 AB 5 X1 Page D FN: 0000062