BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 31X - Bowen
Hearing Date: February 22, 2001 S
As Introduced: February 5, 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.
KEY QUESTIONS
1.Should the members of the ISO governing board appointed
by the Governor be subject to confirmation by the Senate?
2.Does the proposed appointment and confirmation process
justify a three-year term?
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 As originally
enacted, AB 1890 required the governing board of the ISO to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 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. 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 will further
ensure qualified, independent board members.
Given that the PX is likely to either file for bankruptcy
or merge with the ISO in the near future, this exemption
will likely 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 likely
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 PX 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.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Lawrence Lingbloom
SB 31X Analysis
Hearing Date: February 22, 2001