BILL ANALYSIS                                                                                                                                                                                                    




                                                                  SB 1753
                                                                  Page A
          SENATE THIRD READING
          SB 1753 (Bowen)
          As Amended June 27, 2002
          Majority vote 

           SENATE VOTE  :21-12  
           
           UTILITIES AND COMMERCE     10-4 GOVERNMENTAL ORGANIZATION      
          14-7                
           
           ----------------------------------------------------------------- 
          |Ayes:|Wright, Calderon,         |Ayes:|Horton, Canciamilla,      |
          |     |Canciamilla, Diaz,        |     |Cardenas, Cardoza,        |
          |     |Horton, Kelley, Nation,   |     |Chavez, Cohn, Corbett,    |
          |     |Papan, Reyes, Simitian    |     |Firebaugh, Papan,         |
          |     |                          |     |Longville, Nation, Reyes, |
          |     |                          |     |Wiggins, Wright           |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Pescetti, Bill Campbell,  |Nays:|Strickland, Briggs,       |
          |     |La Suer, Maddox           |     |Dickerson, Harman, La     |
          |     |                          |     |Suer, Maddox, Wyland      |
           ----------------------------------------------------------------- 

           APPROPRIATIONS      16-7                                        
           
           -------------------------------- 
          |Ayes:|Steinberg, Alquist,       |
          |     |Aroner, Cohn, Corbett,    |
          |     |Correa, Diaz, Firebaugh,  |
          |     |Goldberg, Negrete McLeod, |
          |     |                          |
          |     |Papan, Pavley, Simitian,  |
          |     |Washington, Wiggins,      |
          |     |Wright                    |
          |     |                          |
          |-----+--------------------------|
          |Nays:|Bates, Ashburn, Daucher,  |
          |     |Maldonado, Robert         |
          |     |Pacheco, Runner, Zettel   |
          |     |                          |
           -------------------------------- 

           SUMMARY  :  Modifies the duties of the Independent System Operator  
          (ISO).  Specifically,  this bill  :   









                                                                  SB 1753
                                                                  Page B

          1)Requires ISO to conduct its operations consistent with  
            applicable state and federal laws and consistent with the  
            interests of the people of the state.

          2)Specifies, that to ensure electric service reliability and  
            public health and safety, ISO shall manage the electric grid  
            and markets consistent with:

             a)   Making the most efficient use of available energy  
               resources;

             b)   Reducing overall economic costs to consumers; 

             c)   Applicable state law intended to protect public health  
               and safety; and,

             d)   Maximizing availability of existing electric generation  
               resources necessary to meet needs.

          3)Directs ISO to:

             a)   Consult and coordinate with appropriate state and local  
               agencies to ensure that ISO operates in furtherance of  
               state laws governing environmental and consumer protection;

             b)   Ensure that the purposes and functions of ISO are  
               consistent with the purposes and functions of non-profit  
               public benefit corporations in the state, including  
               conflict of interest standards for officers and directors  
               of a corporation;

             c)   Maintain open meeting standards consistent with open  
               meeting statutes applicable to state agencies<1>;and,

             d)   Provide public access to corporate records, consistent  
               with the general policies of the California Public Records  
               Act.  (Government Code  6250 et seq.)

          ---------------------------
          <1> This bill specifies that ISO's open meeting policy, as  
          adopted on April 23, 1998, meets this requirement, and this bill  
          requires ISO to maintain an open meeting policy that is no less  
          consistent with state open meetings law than its current policy.  










                                                                  SB 1753
                                                                  Page C
           EXISTING LAW  :

          1)Establishes ISO as a non-profit, public benefit corporation,  
            to ensure efficient use and reliable operation of the electric  
            transmission grid.

          2) Provides for the formation and regulation of non-profit  
            public benefit corporations.

          3)Requires officers and directors of a non-profit public benefit  
            corporation to perform their duties in the best interests of  
            the corporation, with such care as an ordinarily prudent  
            person in a like position would use under similar  
            circumstances.

           FISCAL EFFECT  :  Unknown

           COMMENTS :  ISO is a public utility under federal law and is  
          regulated by the Federal Energy Regulatory Commission (FERC).   
          FERC has jurisdiction over the transmission of electric energy  
          and the sale of electric energy at wholesale in interstate  
          commerce. ISO is a California non-profit public benefit  
          corporation that controls and maintains California's electric  
          power transmission grid.  As part of its responsibilities, ISO  
          acts as a power broker between generators and utilities.  ISO  
          Tariff governs these transactions, on file with FERC.  ISO also  
          coordinates and controls plant outages in the state, among other  
          duties. 

          This bill expands on the original charter of ISO, requiring it  
          to conduct its operations consistent with state and federal laws  
          and the public interest, and assigning it more detailed public  
          obligations. 

          Last fall, FERC conducted an operational audit of ISO.  On July  
          17, 2002, FERC issued an order<2> in the wake of recommendations  
          contained in a January 25, 2002 independent consultant's audit  
          report on ISO.  In the order, FERC found that the continuation  
          of the existing ISO board, appointed by the Governor pursuant to  




          ---------------------------
          <2> Order Concerning Governance of the California Independent  
          System Operator Corporation, 100 FERC   61, 059 












                                                                  SB 1753
                                                                  Page D
          state law,<3> will hamper the ability of ISO to implement its  
          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 found that the ISO board,  
          as presently constituted, does not meet the independence  
          requirement contained in earlier FERC decisions applicable  
          nationwide.  

          Among other things, FERC directed ISO to adopt a two-tier form  
          of governance by January 1, 2003.  The top tier would 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 (EOB), which will serve  
          as the state's representative in advising the ISO board. 

          On August 7, 2002, at the urging of Governor Davis and Attorney  
          General Lockyer, the ISO Governing Board voted to refuse to  
          disband, and so notified FERC.  In turn, FERC sued California on  
          August 16, 2002 in a U.S. District Court in Washington, DC for  
          defying its order to dissolve the Governing Board.  The suit  
          asks the court to compel California to follow FERC's July 17  
          order. 

          In light of the above, this bill now gives rise to myriad issues  
          concerning the appropriate role of government and private  
          entities concerning operation of the state's electricity system,  
          and injects additional issues into the ongoing showdown between  
          California and FERC.  


           Analysis Prepared by  :    Paul Donahue / U. & C. / (916) 319-2083  



                                                                FN: 0006921


                                                ---------------------------
          <3> Section 377 of the Public Utilities Code provides in part  
          that the ISO governing board shall be composed of a five-member  
          independent governing board of directors appointed by the  
          Governor and subject to confirmation by the Senate.