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.