BILL ANALYSIS SB 920 Page 1 Date of Hearing: June 30, 2003 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Sarah Reyes, Chair SB 920 (Bowen) - As Amended: June 26, 2003 SENATE VOTE : 23-11 SUBJECT : Electricity Oversight Board: Independent System Operator: Power Exchange. SUMMARY : Eliminates the Electricity Oversight Board (EOB) and transfers all legal and regulatory proceedings where EOB is a party to the Attorney General and makes related changes to provisions concerning the Independent System Operator (ISO) and the Power Exchange (PX). Specifically, this bill : 1)Deletes provisions of law establishing, and granting powers to EOB, which includes oversight of ISO. 2)Requires the corporate powers of the ISO, under the Corporations Code, to be exercised only by a governing board appointed by the Governor and confirmed by the Senate. 3)Specifies that it is the intent of the Legislature to abolish EOB as an agency of the State of California, and to preserve the state's interest in any legal or regulatory proceedings where EOB is a party by transferring the state's interest to the Attorney General. The Attorney General is vested with the power to exercise all rights, claims, powers or entitlements of EOB in legal and regulatory proceedings, contracts, settlements, tariffs, bylaws and articles of incorporation. 4)Requires ISO to receive approval from the Legislature before entering into a multi-state entity or a regional organization. 5)Deletes an obsolete provision requiring ISO to provide a report to the Legislature six months after Federal Energy Regulatory Commission (FERC) approval, which was done in 2000. EXISTING LAW: 1)Specifies that EOB duties are the following: a) Oversee ISO and PX. SB 920 Page 2 b) Determine the composition and terms of service and to exercise the exclusive right to decline to confirm the appointments of specific members of the governing board of PX. c) Serve as an appeal board for majority decisions of ISO governing board. d) Investigate any matter related to the wholesale market for electricity to ensure that the interests of California's citizens and consumers are served, protected, and represented in relation to the availability of electric transmission and generation and related costs, during periods of peak demand. 2)Establishes an EOB that has five members, of which the Governor appoints the chair. The five members of EOB are appointed in the following manner and serve three year terms: a) Three members appointed by the Governor who are California residents and electricity ratepayers; b) One member appointed by the Speaker of the Assembly; c) One member appointed by the Senate Rules Committee. 3)Establishes the governing board for ISO and requires any changes to its bylaws to be in conformance with the Federal Powers Act. FERC shall have the authority to take any action necessary to address undue discrimination or other violations of the Federal Powers Act as it pertains to ISO's bylaws. 4)Establishes ISO, as a nonprofit, public benefit corporation, and to manage the transmission grid and related energy markets consistent with applicable state and federal laws. FISCAL EFFECT : Unknown. COMMENTS : According to EOB it was created in 1996 to help ensure reliable electricity supply and state public oversight of market operations. The state under AB 1890 (Brulte), Chapter 854, Statutes of 1996, transferred responsibility for ensuring SB 920 Page 3 short-term reliability and some key aspects of long-term reliability away from the electric utilities and regulatory bodies to ISO. Because ISO is not a State entity, EOB was created to ensure accountability to a state body, and to ensure that California citizens are not exposed to undue economic risk in connection with system reliability. Legislation in 1996 restructured the electric generation market and ended the vertical monopolies held by IOUs. Directives at that time required IOUs to divest generation facilities, and to transfer control of their transmission lines to ISO, a private, non-profit corporation. As the State board created to provide oversight for ISO, EOB has the primary responsibility of monitoring grid reliability issues. These issues include transmission planning, interconnection issues, congestion management, and local reliability contracts. In addition, grid reliability represents an integral component of the overall operation of the restructured wholesale electricity markets. EOB performs significant market monitoring functions, including investigating and initiating market rate complaints and participating in the extensive market redesign proceedings under FERC. What are the costs to eliminating EOB? The elimination of EOB would result in a cost savings of $4.2 million, of which only $730,000 is General Fund, but will deleting it cause any work that EOB is currently involved with to fall through the cracks? The bankruptcy of PX and the replacement of EOB appointed ISO stakeholder board with a board of gubernatorial appointees reduced the duties of EOB. Subsequent legislation gave the EOB authority to conduct the following activities: 1)SB 1388 (Peace), Chapter 1040, Statutes of 2000, requires EOB, in conjunction with PUC, to petition FERC to allow the recovery of certain expenses of investor owned utilities relating to the replacement and expansion of the state's electricity transmission grid. 2)Communicate ISO's Rule Changes to FERC. Chapter 1, First Extraordinary Session, Statutes of 2001 (AB X1 5 (Keeley)), requires EOB to require ISO to amend its bylaws in response to FERC decisions, and to communicate this action to FERC. 3)SB 47 (Bowen) Chapter 766, Statutes of 2001 authorizes EOB to SB 920 Page 4 investigate any matter related to the wholesale market for electricity. 4)Provide EOB with oversight over scheduling planned power outages as well as monitoring, investigating, and enforcing activities related to unplanned outages. Should the Legislature wait till next year before eliminating EOB pending their report? Most of EOB workload is currently around the energy refund cases and FERC representation. This year's joint budget conference committee adopted budget bill language and supplemental report language that requires EOB to report back to the Legislature on or before March 1, 2004, describing the state's activities before FERC. This report shall describe the roles of each agency that is active before FERC, how the policies and objectives are determined, and what mechanisms are in place to coordinate activities among the several agencies. Does the Governor need an energy policy advisor? The EOB created in AB 1890 (Brulte) oversaw the functions of ISO and PX and until the passage of AB 1X 5 had the authority to appoint the members of the EOB and ISO. During the energy crises the EOB served a valuable role in monitoring abuses in the wholesale market and representing the state interest to FERC. By eliminating EOB will this valuable service be lost and can the Attorney General pick it up? Does the Attorney General want the job? This bill seeks to move all the legal and regulatory proceedings where the EOB is a party to the Attorney General but doesn't give the Attorney General any more money. Will the Attorney General be able to pick up the EOB's workload while not jeopardizing any state interests in claims or current proceedings with the resources that it currently has? And will the courts and FERC be able to legally recognize the Attorney General in cases or proceedings that EOB was a claimant in? Furthermore, it is possible there may be a conflict of interest for the Attorney General to pick up the claims and proceedings that EOB is party in. An example would be in the case of DWR contracts where the Attorney General represents the state and EOB is the party arguing that the contracts are unjustified and should be renegotiated. Other issues that may pose a problem with the transfer is that EOB under current settlement agreements has a responsibility and SB 920 Page 5 authority to require generators to make changes to their plants to comply with the agreements. Under this bill that responsibility would now seem to fall with the Attorney General and would it be the proper office to handle that responsibility? Also, the Integrated Energy Policy Report developed by the Energy Resources Conservation and Development Commission requires agencies like EOB to submit information to it for purposes of developing the report. Under this bill the Attorney General would seem to now be required to provide this information, which is outside the mission and duties of the agency. Who should appoint the ISO board members? In this bill the corporate powers of the ISO board is contingent upon whether the appointment authority rests with the Governor versus with FERC. The history over this issue goes back to the enactment of AB X1 5 (Keeley), Chapter 1, Statutes of 2001, during the energy crises that replaced the ISO board make up from one appointed by the EOB to one that was appointed by the Governor subject to Senate confirmation. On July 17, 2002 FERC announced that the governing board of ISO, set up by AB X1 5 (Keeley), was in violation of FERC orders by being insufficiently independent to operate its interstate transmission facilities, and hampered efforts of ISO to implement needed design proposals for electricity markets. FERC set up a stakeholder committee and directed an executive research firm to select new candidates for positions to the board. ISO is currently appealing FERCs decision in the Court of Appeals and a decision is not expected until the summer of 2004. REGISTERED SUPPORT / OPPOSITION : Support None on file. Opposition None on file. Analysis Prepared by : Daniel Kim / U. & C. / (916) 319-2083 SB 920 Page 6