BILL ANALYSIS
AJR 45
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Date of Hearing: August 5, 2002
ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE
Roderick D. Wright, Chair
AJR 45 (Canciamilla) - As Introduced: April 17, 2002
SUBJECT : Independent System Operator (ISO).
SUMMARY : Urges the Federal Energy Regulatory Commission (FERC)
to reject a proposed ISO fee tariff so that that electricity
load served by customer generation will not incur costs for any
transmission related service beyond those included in standby
service rates.
EXISTING LAW:
1)Provides for FERC regulation of the ISO as a federal public
utility that operates the interconnected high-voltage electric
transmission grid that connects California with neighboring
states, Mexico and British Columbia. ISO transmission
services and wholesale sales of electric energy (i.e., its
operation of imbalance energy markets) are within the
exclusive jurisdiction of FERC.
2)Specifies that a five-member independent board appointed by
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the Governor<1> and subject to confirmation by the Senate
shall govern the ISO.
3)Requires the ISO to secure generating and transmission
resources necessary to guarantee achievement of planning and
operating reserve criteria no less stringent than those
established by the Western Systems Coordinating Council<2> and
the North American Electric Reliability Council.
THIS RESOLUTION :
1)States that customer generation includes all manner of
customer self-reliance, such as cogeneration, distributed
generation, and self-generation of electricity.
2)Declares that California legislative and executive branches of
government have consistently supported the development of
customer generation because it promotes energy
self-sufficiency through private capital investment, and it
assists in relieving transmission congestion and enhancing the
reliability of the electric system.
3)Criticizes ISO for pursuing unnecessary and burdensome changes
to the metering, scheduling, and operational requirements of
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<1> On July 17, 2002, FERC found that "continuation of the
existing ISO board will hamper the ability of the ISO to
implement the market redesign proposal, and thus FERC's ability
to ensure non-discriminatory transmission services and just and
reasonable rates in the West. This is because the
state-controlled Governing Board of the ISO is not capable of
operating its interstate transmission facilities on a
non-discriminatory basis."
FERC directed the ISO to adopt a two-tier form of governance by
January 1, 2003. The top tier will consist of an independent,
non-stakeholder Board, while the lower tier will consist of an
advisory committee of stakeholders, which may recommend options
to the Board, and an advisory committee of the California
Electricity Oversight Board, which will serve as the state of
California's and its agencies' representative in advising the
Board. According to the FERC order, the top tier will have sole
decision-making authority in all matters.
<2> The WSCC has been renamed the Western Electric Coordinating
Council (WECC).
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customer generation and cogeneration resources in tariff
proposals before FERC.
4)States that ISO's proposed gross metering policy would
attribute a disproportionate share of ISO costs to electricity
load served by customer generation, and will result in
substantially higher ISO fees to customer generation without
any additional benefit for customers or for grid reliability.
5)Notes that ISO's overhead costs and staffing exceed the
average for other regional transmission organizations.
6)Urges FERC to ensure that electricity load served by customer
generation doesn't incur costs for any transmission related
service in excess of the transmission costs included in
standby service rates developed using ratemaking principles
that existed prior to the establishment of the ISO.
7)Requests FERC to maintain federal policies to promote
development of customer generation
FISCAL EFFECT : None.
COMMENTS :
Customer or self-generation
Self generation refers to distributed generation technologies,
such as microturbines, small gas turbines, wind turbines, fuel
cells that are installed on the customer's side of the utility
electric meter that provide electricity for either a portion or
all of that customer's electric load.
Grid-connected self-generation customers pay a standby charge to
the utility to reserve the capacity need to serve that customer.
Legislation enacted last year<3> waived standby charges imposed
by electrical corporations on customers with distributed
generation equipment that is five megawatts or smaller. The
standby charge waivers last for five years on gas-fired
generation equipment, and for ten years for non-gas-fired
equipment.
Power generated onsite is normally used to meet some of the
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<3> SB 28 X1 (Sher), Chap. 12, Stats. 2001.
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energy needs of a utility customer. It can be used as backup
power, to meet base or peak load needs, or to sell to adjacent
sites in an "over-the-fence" transaction. Customers normally
supplement on-site generation with power purchased from a public
utility.
A Qualifying Facility ("QF") cogeneration facility produces
electrical energy and steam or other forms of useful energy,
which are used for industrial, commercial, heating or cooling
purposes.<4> Customer-owned QF cogeneration in the state has
been developed for the purpose of serving the customer on-site
load and then to deliver any surplus generation to the grid as
measured by a single meter located at the customer's site
boundary.
Behind the meter load / gross metering
"Gross metering" means that behind-the-meter loads and
behind-the-meter generation are metered individually. In
contrast "net metering" refers to the practice that
behind-the-meter load or generation is metered by a single
meter, thus providing either a net load or net generation meter
read at a given instant of time.
For purposes of billing for its services under the FERC tariff,
ISO defines Control Area Gross Load as all demand for energy
within the ISO control area, except for auxiliary load (i.e.,
energy used in the power production process) or load that is
electrically isolated from the ISO controlled grid (i.e., load
that is not synchronized with the ISO controlled grid). In
recent filings at FERC, the ISO has proposed to assess various
charges on the basis of a billing determinant based on gross
metering, which includes this behind the meter Load.
Revenues required to provide ISO services
The ISO is a not for profit corporation. Because of its status,
the ISO is limited in its discretion as to the timing and level
of expenditures it makes. The ISO has responsibility as the
Control Area operator of a large transmission grid. The chief
source of revenues for the ISO is its Grid Management Charge
("GMC"). ISO recently separated, or unbundled, its GMC into
three proposed service categories: Control Area Services
("CAS"), ancillary service and real-time energy markets, and
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<4> 16 U.S.C. 796 (18)(A).
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congestion management.
Ancillary Services
The ISO recently proposed to assess charges for ancillary
services based on gross metering to take into account load
generated behind the meter. The ISO assesses a charge for
ancillary services<5> that the ISO procures on behalf of grid
customers.
The ISO is required as Control Area Operator to maintain the
reliability of the Control Area Grid according to the criteria
of the Western Electric Coordinating Council ("WECC"). The WECC
requires the ISO to maintain 7% operating reserves<6> for firm
load served by thermal generation and 5% operating reserves for
firm load served by hydroelectric generation.
In a preliminary decision<7> last year, a FERC administrative
law judge (ALJ) denied ISO's request to assess charges for
ancillary services based on gross metering of behind the meter
load. The ALJ noted that the utility, not the ISO, provides the
necessary ancillary services for QF behind-the-meter loads
through its standby charges, despite the ISO claims that standby
service provided by the utility is not a substitute for
operating reserves. The ALJ found it reasonable to allocate
ancillary service costs only for a QF's net load, not its gross
load.
Control Area Services
The CAS services include, performing operation studies, system
security analyses, transmission maintenance, system planning for
reliability integration with other control areas, emergency
management, outage coordination, transmission planning, and
scheduling in the Day-Ahead and Hour-Ahead markets.
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<5> Ancillary Services are defined as regulation and operating
reserves.
<6> Operating reserves are either "spinning" and available to
serve load instantaneously; or non-spinning and available to
serve load in 10 minutes.
<7> 96 FERC 63, 015, July 31, 2001.
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ISO has proposed to assess CAS fees on "behind the meter" load,
to which the sponsors of this resolution object.
Under the ISO proposal, which has been tentatively approved by
an administrative law judge at FERC, all electric load,
including that which is served by self generation, such as
co-generation, and is located behind the electric meter on the
customer side, is treated the same for purposes of the CAS
billing. ISO maintains that assessment that it is not merely
"actual usage" of the grid which "causes" the ISO to incur costs
for CAS. Because the ISO performs its CAS, which include
planning and operational functions designed to ensure the
reliability of the system, based on all load in its Control
Area, the charges are fairly allocated to all load.
The sponsors oppose the CAS charges because they include
behind-the-meter loads that do not "use" the ISO-controlled
grid, and because the parties responsible for serving that load
provide their own ancillary services, energy, and CAS.
In its Initial Decision,<8> a FERC ALJ recently upheld the
allocation of ISO's proposed CAS charges to behind the meter
load, noting among other things that the ISO is not seeking to
charge behind the meter Load for the use of the ISO-controlled
grid. The ALJ noted that all load within the ISO Control Area
depends on CAS provided by the ISO, so all load-serving entities
should pay for these administrative CAS costs comparably on the
basis of their gross load. The costs the ISO incurs for
planning and monitoring are based on the existence of the load,
not its "potential" for used. The ISO must plan for all load at
all times, so, according to the ALJ, the basis for allocating
these costs should be the load, not the use of the system.
The Initial Decision notes that any load that does not rely on
the ISO for Control Area reliability should be able to
disconnect from the grid.
Should AJR 45 specify that gross metering is undesirable for
ancillary services?
If CAS services are not assessed to behind-the-meter loads, the
resultant revenue shortfall may result in cost shifting to other
customer classes and market participants within the Control Area
by increasing their share of CAS charges. On the other hand, it
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<8> May 10, 2002, 99 FERC 63,020.
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appears that self-generation customers already pay appropriate
charges for ancillary services through their purchase of standby
services.
The author and the Committee may wish to consider amending the
resolution, consistent with the above, to clarify that the
Legislature recommends to the FERC Commissioners, in considering
the initial decisions now before them, that the ISO ancillary
service tariff proposal should not employ a gross metering
policy.
ISO overhead costs
According to anecdotal information available to the Committee,
the Electric Reliability Council of Texas, Inc. (ERCOT), the
corporation that administers that state's power grid, charges a
grid management charge of 25 cents/MWh. The Pennsylvania-New
Jersey-Maryland (PJM) ISO, which is responsible for the
operation and control of the electric power grid throughout
major portions of five Mid-Atlantic states and the District of
Columbia, charges about 33 cents/MWh for its GMC. The
California ISO bundled GMC runs about $2.00/MWh.
To its critics, the ISO is obviously far more expensive than
other independent system operators are. The ISO has noted that,
although its revenue requirements have increased, this is due in
large part to the volatility of California's electricity markets
and the increased number of tasks the ISO is expected to
perform.
REGISTERED SUPPORT / OPPOSITION :
Support
Western States Petroleum Association (Sponsor)
California Cogeneration Council
California Portland Cement Company
Silicon Valley Manufacturing Group
TXI Riverside Cement
U.S. Borax, Inc.
Opposition
None on file.
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Analysis Prepared by : Paul Donahue / U. & C. / (916) 319-2083