BILL ANALYSIS
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THIRD READING
Bill No: SB 96
Author: Peace (D), et al
Amended: 3/11/99
Vote: 21
SENATE ENERGY, U.&C. COMMITTEE : 10-0, 3/23/99
AYES: Bowen, Baca, Brulte, Hughes, Kelley, Mountjoy,
Peace, Solis, Speier, Vasconcellos
NOT VOTING: Alarcon
SUBJECT : Electrical restructuring: Independent System
Operator:
Power Exchange
SOURCE : Author
DIGEST : 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.
ANALYSIS : 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.
CONTINUED
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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
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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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 4/2/99)
PG&E
Southern California Edison
NC:jk 4/2/99 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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