BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 47 - Bowen Hearing Date: April 24, 2001
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As Amended: April 18, 2001 FISCAL B
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DESCRIPTION
This bill requires Senate confirmation of members of the
Independent System Operator (ISO) governing board.
The bill also extends those members' terms from one year to
three years and provides for staggered terms.
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 As originally enacted, AB 1890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 Electricity Oversight
Board (EOB). The board members were to be appointed according
to classes of stakeholders.
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 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 were preempted
by the Federal Power Act and it threatened to go to federal
court to enforce its order or to unilaterally revise the ISO's
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. FERC proposed
that the existing board members 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.
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. FERC indicated it would establish procedures
to discuss the selection process for an independent ISO board
with state representatives. FERC ordered the existing ISO
governing board to turn over decision-making power and operating
control to ISO management on January 29, 2001. Due to other
provisions of the December 15 order which substantially
diminished the PX's role in the market, FERC found it
unnecessary to replace its governing board.
In the meantime, the Legislature enacted AB 5X (Keeley), Chapter
1, Statutes of 2001 First Extraordinary Session. AB 5X required
the replacement of the ISO's 26-member stakeholder board with a
governing board composed of five members appointed by the
Governor. AB 5X also required the new board members to be
independent of any ISO market participant.
The following five new ISO board members were appointed by
Governor Davis on January 18 and confirmed by the EOB on January
23:
Michael Kahn, Folger Levin & Kahn LLP, Chair
Maria Contreras-Sweet, Secretary of the Business,
Transportation and Housing Agency
Michael Florio, The Utility Reform Network
Carl Guardino, Silicon Valley Manufacturing Group
Tal Finney, Governor's Office
COMMENTS
1)Why Senate confirmation wasn't included in AB 5X. As an
urgency measure, the scope of AB 5X was intentionally limited
in consideration of Section 8 (d) of Article IV of the
California Constitution. Section 8 (d) states that an
"urgency statute may not create or abolish any office or
change the salary, term, or duties of any office?"
Because the ISO is not an "office" within the meaning of the
Constitution, it was concluded that changing its governing
board in an urgency bill would be acceptable (In a December
1998 ruling on the matter, the Sacramento Superior Court ruled
that the ISO and PX are not state agencies.)
However, the EOB, which has the authority to decline to
confirm ISO appointees, is a state office. Therefore removing
its confirmation duty, as requiring Senate confirmation
instead necessarily would, in an urgency bill was considered a
likely violation of Section 8 (d). Prior to passage of AB 5X,
the Governor committed to sign follow-up legislation to
replace EOB confirmation with Senate confirmation.
2)Where's FERC? In its December 15 order, FERC indicated it
would issue a subsequent order to establish procedures to
discuss the selection process for ISO board members with state
representatives. Since then, the state has unilaterally
selected a new ISO board and FERC has undergone a change of
leadership. The former FERC Chairman indicated his opposition
to the approach taken by AB 5X, but no formal order was
issued. The new Chairman has not set a schedule to address
this issue.
3)Exemption for service on PX. AB 5X disqualifies people
affiliated with ISO market participants from serving on the
governing board. This bill modifies that provision to allow
people who have served on the PX board to serve on the ISO
board if they are not otherwise affiliated with an ISO market
participant.
The rationale for this exemption is that, while the PX is an
ISO market participant and its board members are certainly
affiliated with the PX, the conflict of an otherwise
independent board member is not sufficient to merit
disqualification. Further, the addition of Senate
confirmation to the appointment process is designed to ensure
qualified, independent board members.
Given that the PX has filed for bankruptcy, this exemption
appears to be moot.
4)Are state employees affiliated with a market participant? In
ongoing litigation over jurisdiction over the ISO, some have
suggested that at least two of the new ISO board members, as
state employees, are affiliated with an ISO market participant
and that their service on the ISO board violates AB 5X.
This is based on the argument that the state is itself a
market participant through its agent, the Department of Water
Resources (DWR). DWR has clearly been a market participant
since the inception of ISO-administered markets. The question
is whether service to the state in a capacity unrelated to
DWR's activities constitutes "affiliation" with DWR.
The author and the committee may wish to consider clarifying
the Legislature's intent on this matter. If the intent is to
allow state employees to serve on the ISO board if their
duties are unrelated to the duties of a market participant
agency, clarifying language could be added as follows:
A state employee whose duties are unrelated to the
duties of a market participant agency shall not be
considered to be affiliated with a market participant
solely as a consequence of that individual's service
to the state.
5)Staggering forward. This bill requires initial appointments
to be made for one, two or three-year terms. The purpose of
this is to ensure that subsequent terms are staggered, that is
only one or two, rather than all five, members' terms expire
in any given year. The mechanism is similar to that used for
the initial EOB appointments. Staggering terms is a
traditional way to ensure continuity in institutions with
elected or appointed members.
6)What's left of the EOB? With the passage of SB 96, the demise
of the PX, and this bill, the powers of the EOB have been
severely diminished. Of the powers originally conferred by AB
1890, the EOB maintains general, largely unenforceable,
oversight of the ISO and the ability to decline to confirm the
Governor's appointments to the ISO board, a power it is
unlikely to meaningfully exercise. Under this bill, the
latter power would be removed. Should this bill pass, the
author and the committee may wish to consider reviewing, and
possibly revising, the purposes of the EOB.
7)Have we seen this before? On February 22, this committee
approved SB 31X (Bowen), with provisions identical to this
bill. However, on April 5, SB 31X was hi-jacked in the
Assembly and its contents (and author) were replaced with
unrelated language. This bill is intended to replace SB 31X.
POSITIONS
Sponsor:
Author
Support:
California First Amendment Coalition
Oppose:
None on file
Lawrence Lingbloom
SB 47 Analysis
Hearing Date: April 24, 2001