BILL ANALYSIS 1
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SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
SB 520 - Sher Hearing Date: May 6, 2003
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As Introduced: February 20, 2003 Non-FISCAL B
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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 to review its performance and costs,
compare its costs to other system operators, and report its
findings to the Legislature by February 1, 2004.
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. The ISO is not funded by tax dollars and its
expenditures aren't subject to legislative budgetary oversight.
Its costs are recovered in rates set by the Federal Energy
Regulatory Commission (FERC).
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. SB
1753 requires the ISO, in managing the grid and related energy
markets, to reduce overall cost to consumers.
COMMENTS
1.Essence of the conflict. According to this bill's sponsor,
California Municipal Utilities Association (CMUA), the ISO's
costs are excessive - three to six times more than other
transmission system operators. CMUA says this bill strives to
reduce ISO costs.
ISO says it has attempted to perform studies like the one
required by this bill, but has been unable to get cost
information from other system operators. ISO says it can't
produce a study that would be viewed as objective,
comprehensive, valid or accurate.
2.What will the study show? Previous studies already confirm
that the ISO's costs are higher than other system operators.
It's not clear which of the other system operators are
comparable to the ISO, or which the ISO would be required to
compare itself to under this bill. Some of the ISO's high
overhead is due to high sunk costs from ISO's abrupt and
expensive startup, some to additional responsibilities assumed
as a result of the energy crisis, some to generous
compensation for a relatively high number of staff and
consultants. An objective study may shed some light on where
cuts could be made, but the ISO is unlikely to conduct a
critical analysis of itself.
Assigning the study to a disinterested party, such as the
State Auditor, may provide a more objective assessment of the
ISO's performance and costs than the self-review called for in
this bill. However, the Auditor may run into the same problem
getting comparable cost information from system operators
outside California.
3.What to do with the results? The objective of this bill is to
compel the ISO to justify its costs to the Legislature and
bring costs into line with other system operators. Assuming
the study reveals unjustified costs, it's unclear what the
next step for the Legislature would be. The Legislature has
no ISO budgetary approval or oversight. It could pass a law
ordering a cut in ISO's budget, although FERC maintains
economic regulation of the ISO. The Legislature could also
respond by requiring the dissolution of the ISO and transfer
of transmission operation to the utilities or a public agency.
The Legislature could also attempt any of these steps now,
based on the information already available about ISO costs.
4.More time needed. The due date of the study, February 1,
2004, is only one month after the earliest possible effective
date of this bill. The author and the committee may wish to
consider extending the deadline to provide reasonable time to
complete the study.
POSITIONS
Sponsor:
California Municipal Utilities Association
Support:
None on file
Oppose:
None on file
Lawrence Lingbloom
SB 520 Analysis
Hearing Date: May 6, 2003