BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 72 - Dunn Hearing Date:
April 22, 2003 S
As Amended: April 10, 2003 Non-FISCAL
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DESCRIPTION
Existing law requires the creation of the Independent System
Operator (ISO) as a nonprofit public benefit corporation and
requires the ISO to ensure efficient use and reliable operation
of the transmission grid.
Existing law further requires the ISO to conduct its operations
consistent with applicable laws and the public interest,
including specific requirements to:
1.Perform its grid management function at the least possible
cost to consumers and the environment.
2.Coordinate with regulatory agencies to ensure its activities
are consistent with consumer and environmental protection
standards.
3.Ensure its purposes and functions are consistent with its
tax-exempt corporate status.
4.Provide public access to its meetings and records according to
standards analogous to the state open meetings and public
records laws that apply to governmental agencies.
This bill requires the ISO, prior to submitting any
discretionary tariff change to the Federal Energy Regulatory
Commission (FERC), to determine the change will have a
demonstrable economic benefit for ratepayers. FERC-required and
emergency filings are exempt from this requirement.
This bill requires the ISO to publish a report describing and
quantifying the benefit of its proposed change 30 days before
submitting the change to FERC.
BACKGROUND
AB 1890 (Brulte), Chapter 854, Statutes of 1996, required the
creation of the ISO as a "separately incorporated public
benefit, nonprofit corporation." When it established the ISO,
the Legislature gave little explicit guidance as to its public
obligations. Section 345 of the Public Utilities Code simply
declares the purpose of the ISO is to "ensure efficient use and
reliable operation of the transmission grid."
While the ISO is a corporation and not a governmental agency,
its performance of a public purpose is inherent in its duties
and fundamental to its status as a nonprofit public benefit
corporation. The ISO functions as a public utility, performing
exclusive duties delegated to it by the state, vital to maintain
public health and safety and funded by consumer electricity
rates. As such, the people of the state have a unique and
compelling interest in the operation of the ISO.
Because the ISO is not a governmental agency, it is not subject
to general state laws governing the conduct of state and local
agencies. Last year, SB 1753 (Bowen), Chapter 847, Statutes of
2002, expanded on the original charter of the ISO, requiring it
to conduct its operations consistent with state laws and the
public interest, and assigning it more detailed public
obligations.
In response to problems identified during the energy crisis and
subsequent investigations, the ISO is in the midst of a
significant redesign of its grid management practices and the
markets it administers. Ratepayers will bear the capital
expense of this redesign, which includes significant computer
and software costs, and will also be affected by any resulting
increase or decrease in electricity costs. Questions have been
raised about the effects of some elements of the ISO proposal on
consumers. In particular, uncertainty about the costs and
benefits of the ISO proposal for pricing transmission system
congestion prompted Senators Bowen, Burton, Dunn and Sher to ask
the ISO to suspend all tariff filings and capital expenditures
relative to implementing the proposal until the ISO analyzed its
costs and benefits for consumers. The ISO has complied with
this request and recently commissioned a cost/benefit study. The
Senators further requested any future market redesign filings
and expenditures - and other ISO actions - should be predicated
on a demonstrable benefit to electricity consumers.
This bill would impose specific analytical and reporting
requirements intended to prevent the ISO from filing tariffs
unless it determines that the proposed changes will have an
economic benefit for ratepayers.
COMMENTS
1.Is "economic benefit" always the appropriate standard?
Economic benefit may not be the primary purpose of an ISO
tariff filing. The ISO points out that many tariff changes
are needed for reliability and operational requirements, and
aren't based on economics. For such changes, or even for
changes which are based on economics, economic consequences
may be difficult to predict accurately. The ISO is concerned
this bill will invite parties to bring actions in state court
to challenge its tariff filings. A federal preemption issue
could arise if a court overturned a FERC-approved tariff
because it violated state law.
Also, current law requires the ISO to strike some balance
between reliability, economic and environmental
considerations. Economics may not always be the first
concern. The author and the committee may wish to consider
whether the ISO should be required instead to show a more
general benefit to the public.
2.Exemptions may undermine bill's effect. While this bill is
intended to ensure that ISO tariff filings have an economic
benefit for ratepayers, it may not apply to many significant
filings because of the bill's exemptions for FERC-required and
emergency filings. For example, the current market redesign
was undertaken in response to a FERC order and the ISO's
December 8, 2000 filing to remove price caps was an emergency
filing. The author and the committee may wish to consider
requiring a vote of the ISO's governing board to invoke the
emergency exemption.
POSITIONS
Sponsor:
Author
Support:
None on file
Oppose:
None on file
Lawrence Lingbloom
SB 72 Analysis
Hearing Date: April 22, 2003