BILL ANALYSIS                                                                                                                                                                                                    



                                                             


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|SENATE RULES COMMITTEE            |                    SB 96|
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                    UNFINISHED BUSINESS
                              

Bill No:  SB 96
Author:   Peace (D), et al
Amended:  6/14/99
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

  SENATE FLOOR  :  35-0, 4/26/99 (Consent)
AYES:  Alpert, Bowen, Brulte, Burton, Chesbro, Costa, Dunn,  
  Escutia, Figueroa, Hayden, Haynes, Hughes, Johannessen,  
  Johnson, Johnston, Kelley, Knight, Lewis, McPherson,  
  Monteith, Morrow, Mountjoy, Murray, O'Connell, Ortiz,  
  Peace, Polanco, Poochigian, Rainey, Schiff, Sher, Solis,  
  Speier, Vasconcellos, Wright
NOT VOTING:  Alarcon, Baca, Karnette, Leslie, Perata

  ASSEMBLY FLOOR  :  77-0, 7/15/99 - See last page for vote
 

  SUBJECT  :    Electrical restructuring:  Independent System  
Operator:
            Power Exchange

  SOURCE  :     Author

 
  DIGEST  :    This bill declares legislative intent, and  
revises specific provisions relating to the governing  
structures of the Independent System Operator (ISO) and the  
Power Exchange (PX), and the duties of the Electricity  
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Oversight Board (EOB) to reflect a settlement between the  
state and the Federal Energy Regulatory Commission (FERC).
  Assembly Amendments  add co-authors and add the provisions  
that revise the governing structure of the ISO and the PX  
and the duties of the EOB to reflect the settlement.

As approved by the Senate, this bill declared 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.

As amended in the Assembly, this bill now enacts specific  
provisions relating to the governing structures of the ISO  
and the PX, and the duties of the Electricity Oversight  
Board (EOB).  

  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.  


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.

Specifically, this bill: 

 1.  Limits the EOB's confirmation powers to the  
    appointments of customer representatives to the ISO and  
    PX governing boards, thus removing the EOB's current  
    ability to confirm all representatives to the governing  
    boards.







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 2.  Limits the EOB's authority to serve as an appeals  
    board for decisions made by the ISO to matters that are  
    exclusively within the jurisdiction of the state.

 3.  Specifies those matters which are exclusively the  
    jurisdiction of the state.

 4.  Specifies that if California reaches agreement with  
    other states for the ISO or PX to serve states in  
    addition to California, any changes in bylaws or  
    governance structures caused by such agreements shall  
    be effective upon approval by the governing boards, the  
    EOB, and acceptance for filing by the Federal Energy  
    Regulatory Commission (FERC).

  Background  :

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.







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4



FERC found that the EOB's role (and thus the state's role)  
in regulating the ISO and the PX conflicted with FERC's own  
jurisdiction and undermined the independence of the ISO and  
the PX governing boards.  FERC further found the residency  
requirement established in AB 1890 to be inconsistent with  
FERC's policy to provide "broad-based, non-discriminatory,  
open-access transmission service" (FERC Order No. 888) and  
that it "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.  This  
bill reflects revisions negotiated with FERC to the  
governance structure of the ISO and PX, as well as the  
authority of the EOB.

  Comments  :

FERC issued a declaratory order on August 5, 1999 regarding  
changes to the governance structure of the ISO and PX, as  
well as the authority of the EOB, proposed in this bill.   
That order declares that the changes proposed by this bill  
outline "an interim role for the Oversight Board that is  
consistent with our prior orders."  The changes to the law  
proposed by this bill are necessary so the ISO and PX  
governing boards may file amended bylaws as required by  
FERC.

Fundamentally, the changes negotiated with FERC focus the  
EOB's authority to matters which are strictly the  
jurisdiction of the state.  Therefore, the EOB may confirm  
the end user and public interest group appointments to the  
ISO and PX governing boards, because the end users and  
public interest groups are necessarily limited to  
Californians.   However, the EOB may not confirm the seller  
appointments because sellers of electricity will not  
necessarily be California entities.  If and when other  
states elect to join the ISO and/or PX, the EOB role will  
need to change again so other states may have their end  
user and public interest groups appointed to the boards, if  
they so desire.  To that end, the FERC declaratory order  
declares that the ISO and PX governance procedures  
prescribed in this bill are only acceptable until such time  







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5

as another state elects to participate with California in  
either the ISO or the PX.  At that time further statutory  
changes will be necessary.

  FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
Local:  No

Minor, absorbable costs to the EOB to adopt the governance  
modifications in the bill.

  SUPPORT  :   (Verified  8/26/99)

PG&E
Southern California Edison
California Independent System Operator

  ASSEMBLY FLOOR  :
AYES:  Aanestad, Ackerman, Alquist, Aroner, Ashburn,  
  Baldwin, Bates, Battin, Baugh, Bock, Brewer, Briggs,  
  Calderon, Campbell, Cardenas, Cardoza, Cedillo, Corbett,  
  Correa, Cox, Cunneen, Davis, Dickerson, Ducheny, Dutra,  
  Firebaugh, Floyd, Frusetta, Gallegos, Granlund, Havice,  
  Hertzberg, Honda, House, Jackson, Kaloogian, Keeley,  
  Knox, Kuehl, Leach, Leonard, Longville, Lowenthal,  
  Machado, Maddox, Maldonado, Margett, Mazzoni, McClintock,  
  Migden, Nakano, Olberg, Oller, Robert Pacheco, Rod  
  Pacheco, Pescetti, Reyes, Romero, Runner, Scott, Shelley,  
  Soto, Steinberg, Strickland, Strom-Martin, Thompson,  
  Thomson, Torlakson, Vincent, Washington, Wayne, Wesson,  
  Wiggins, Wildman, Wright, Zettel, Villaraigosa
NOT VOTING:   Florez, Lempert, Papan


NC:jk  8/30/99   Senate Floor Analyses 

               SUPPORT/OPPOSITION:  SEE ABOVE

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