BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 31X|
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THIRD READING
Bill No: SB 31X
Author: Bowen (D)
Amended: As introduced
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 8-0, 2/22/01
AYES: Bowen, Alarcon, Battin, Dunn, Poochigian, Sher,
Speier, Vasconcellos
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Electrical restructuring: Oversight Board:
Independent System Operator
SOURCE : Author
DIGEST : This bill requires appointments to the governing
board of the Independent System Operator be for three
years, with staggered terms, and requires Senate
confirmation of members.
ANALYSIS : AB 1890 (Brulte), Chapter 854, Statutes of
1996, required the establishment of the Independent System
Operator (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 As originally
enacted, AB 1890 required the governing board of the ISO to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.
CONTINUED
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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
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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
This bill requires Senate confirmation of members of the
Independent System Operator (ISO) governing board.
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The bill also extends those members' terms from one year to
three years and provides for staggered terms.
Comments
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.
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.
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
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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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
NC:kb 2/28/01 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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