BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 96| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 445-6614 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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 CONTINUED SB 96 Page 2 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. SB 96 Page 3 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. SB 96 Page 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 SB 96 Page 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 **** END ****