BILL ANALYSIS 1
1
SENATE ENERGY, UTILITIES AND COMMUNICATIONS COMMITTEE
DEBRA BOWEN, CHAIRWOMAN
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|SB 96 - Peace |Hearing Date:March 23, | S|
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|As Amended:March 11, 1999 |NON-FISCAL | B|
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DESCRIPTION
This bill declares the intent of the Legislature to provide
for the evolution of the Independent System Operator (ISO)
and the Power Exchange (PX) into regional organizations
that would be governed by members selected by participating
states.
KEY QUESTION
How can the state retain its legitimate interest in
oversight and governance of the ISO and the PX,
institutions that it created to facilitate restructuring of
electricity generation, when their operations extend beyond
California's borders and are subject to federal
jurisdiction?
BACKGROUND
AB 1890 (Brulte, Chapter 854, Statutes of 1996) established
intent language that contemplates California's entry into
an interstate compact with other western states to require
utilities selling energy into California markets to adhere
to standards and protocols to protect the reliability of
regional transmission and distribution systems.
This bill replaces that provision with more detailed intent
language that also describes the evolution of the ISO and
the PX into organizations that would serve the western
regional market and would be governed by members selected
by participating states and overseen, jointly or
separately, by those states. These changes reflect the
Federal Energy Regulatory Commission's (FERC) position that
the ISO and the PX, as corporations engaged in interstate
commerce of electricity transmission and wholesale power,
can't be governed exclusively by California.
AB 1890 required the establishment of the ISO and the PX as
"separately incorporated public benefit, nonprofit
corporations." The purpose of the ISO is to ensure
efficient use and reliable operation of the state's
electricity transmission system, while the PX is intended
to provide an open, efficient public auction to meet
customers' electricity loads. AB 1890 requires the
governing boards of the ISO and the PX to be composed of
California residents appointed by the Electricity Oversight
Board (EOB). The EOB itself is composed of five members -
three voting members appointed by the Governor, who must be
California residents and electricity ratepayers, and one
non-voting member each appointed from the Assembly and the
Senate.
Inasmuch as the ISO and the PX are non-public entities
engaged in the interstate transmission and wholesale power
markets, their operations are subject to FERC jurisdiction
under the Federal Power Act. When it approved the ISO and
the PX tariffs, FERC rejected those portions of their
bylaws requiring California residency and EOB appointment
of governing board members. In doing this, FERC exercised
jurisdiction over not only the interstate operations of the
ISO and the PX, but also over the framework of the
institutions themselves.
FERC found that the EOB's role (and thus the state's role)
in regulating the ISO and the PX conflicted with its own
jurisdiction and undermined the independence of the ISO and
the PX governing boards. FERC further found that the
residency requirement established in AB 1890 was
inconsistent with FERC's policy to provide "broad-based,
non-discriminatory, open-access transmission service" (FERC
Order No. 888) and "discourages participation in the ISO by
out-of-state entities by denying them meaningful
representation." FERC did recognize a limited oversight
function for the EOB on strictly California matters. The
EOB and the ISO both filed petitions for review of FERC's
orders in the Washington D.C. Circuit Court of Appeals.
In November, FERC ordered the ISO and the PX to change
their bylaws to eliminate the California residency
requirement and the EOB's appointment function, as well as
the EOB's authority to approve ISO and PX bylaws and hear
appeals of ISO and PX governing board decisions.
In the face of its order's conflict with the provisions of
AB 1890, FERC maintained that AB 1890's requirements are
preempted by the Federal Power Act and threatened to go to
federal court to enforce its order or to unilaterally
revise ISO and PX bylaws if the EOB did not consent to the
changes ordered. In January, the ISO and the PX submitted
revised bylaws to FERC that comply with its order. The
EOB's application for a stay of FERC's order was denied by
the D.C. Court in January. The EOB/ISO petition for review
is on hold, while the parties are engaged in settlement
discussions.
COMMENTS
1.Future of state oversight function. AB 1890 transferred
responsibility for transmission reliability and rates
from electric utilities regulated by the Public Utilities
Commission to the ISO, the PX and market-based
mechanisms.
The ISO and the PX function as quasi-utilities,
performing exclusive duties delegated by the state, that
are vital to California residents in the deregulated
generation market. As such, the state has a compelling
interest in the operation of these institutions. AB 1890
recognized this and established the EOB "to ensure that
the interests of the people of California are served."
FERC's order would generally limit the state's role by
diminishing state representation on the governing boards
and limiting the accountability of ISO and PX actions to
the Governor, the Legislature and their constituents. On
the other hand, if the ISO and the PX are to serve a
western regional market, the legitimate role of other
states should be recognized.
This bill, or other efforts to address this issue, may
need to revisit the provisions of AB 1890 that
established the state's oversight function and adapt them
to reflect the evolution of the ISO and the PX.
Alternatives for determining the future composition and
membership of the ISO and PX governing boards, and
oversight of their operations, could be developed through
a compact between states served by the ISO and the PX,
as this bill describes.
2.Public access . A separate issue revealed in the
operations of the ISO and the PX is the fact that, as
non-public entities, they are not subject to the Public
Records Act or the Bagley-Keene Open Meetings Act. The
San Jose Mercury News recently sued the ISO and the PX,
claiming that, as state agencies, they are required to
comply with these laws. In December, the Sacramento
Superior Court ruled that the ISO and PX are not state
agencies and granted their motions for summary judgement
on the Mercury News lawsuit.
The ISO and PX have since adopted public access policies
that approximate the Public Records Act and Bagley-Keene
in terms of process. However, the policies are voluntary
creations of these institutions and therefore lack the
enforceability and durability of statutes. As the ISO
and the PX evolve, and if other states get involved in
their governance, the future of their policies is
uncertain.
The Committee may wish to consider whether the conditions
of an interstate compact contemplated in this bill should
explicitly include appropriate public access to records
and proceedings of the ISO and the PX.
POSITIONS
Support:
PG&E
Oppose:
None reported to Committee.
Lawrence Lingbloom
SB 96 Analysis
Hearing Date: March 23, 1999