In response to California’s difficulties last Summer with the short supply and the resulting price volatility of electricity, members of the legislature, the Governor and FERC have recently presented proposals to change the system. All of these proposals address the composition of the governing boards of California’s Independent System Operator ("ISO") and Power Exchange ("PX"). Conflicts in the governing boards are viewed as a major contributing factor to the breakdown of California’s wholesale electricity market.
On December 4th California legislators introduced two bills, in both the Assembly and Senate, seeking to amend certain sections of the Public Utilities Act ("Act") related to the governing boards. Under the current version of the Act, the structure of the governing boards of both the ISO and PX must remain as they existed on July 1, 1999 until an agreement with a participating state is legally in effect. Until that time, the law provides that the state retains the right to change the ISO and PX governing boards into ‘nonstakeholder’ boards. The bills seek to make those governing board changes.
Senate Bill 38, introduced by Senators Bowen and Burton, amends Section 335 of the Act by removing authorization for the Oversight Board, the entity which was created to oversee the ISO and PX, to confirm governing board members of both the ISO and the PX representing agricultural, industrial, commercial, residential end users, end users at large, non-market participants, and public interest groups. Senate Bill 38 also repeals Sections 337 and 338, which contain the requirement that the ISO and PX governing boards be composed of the above noted entities. Additionally, this Bill requires that the existing ISO and PX governing boards be replaced within 90 days by three member independent boards of governors appointed by the Governor. The governing board members may not be affiliated with any participant in any market administered by the ISO and will be appointed for a term of one year.
The Bill further amends the portion of the Act concerning the Open Meeting Act, and requires action taken on matters based on confidential information to be taken by vote in an open session. The Bill, if passed, will be effective immediately.
The second bill, Assembly Bill 58, includes a preamble stating the intent of the Governor and Legislature in enacting the original electric restructuring laws. The Bill reemphasizes that restructuring should not expose California citizens to undue economic risk. Thus, it declares, it is now necessary to change the structure of the governing boards of the ISO and the PX. The Bill also declares it is the intent of the Governor and Legislature intent that the ISO and the PX evolve into or establish a regional transmission organization. The Bill includes admonishments to the ISO and PX to refrain from further committing California citizens to restructuring in the form intended by the original restructuring legislation, and into any agreement that would extend California's electric sector into the regional grid.
Unlike the Senate Bill, the Assembly Bill retains the Oversight Board’s authority to make appointments to the governing boards of the ISO and PX. Also, the Assembly Bill retains the requirement that the governing boards be composed of electricity consumers in the area served by the ISO or the PX it governs. The Assembly Bill further creates an additional Section of the Act that will prohibit the ISO from entering into an entity or regional organization without the approval of the Oversight Board.
The Bill’s introduction occurs on the heels of the issuance of a Federal Energy Commission proposal to California’s ISO and PX. The FERC proposal, issued November 1, also emphasized the need to allow better risk management and suggested allowing for greater reliance on forward markets. California Governor Gray Davis responded to FERC’s proposal and noted that he will propose legislation to replace the ISOs and PXs stakeholder boards with independent boards.
Governor Davis’ response to also stated that investigations into the events of last Summer and reasons for supply shortages and price volatility by the California Public Utilities Commission and Electricity Oversight Board have been hampered by the merchant generators refusal to provide information. He urged FERC to compel disclosure of information to allow completion of the investigations.
Governor Davis proposed that the reduce barriers to the siting of distributed generation and cogeneration siting facilities. He suggested expanding the use of forward contracting, including multi year bilateral contracts and the CPUC’s development of benchmarks to evaluate the reasonableness of these contracts. On the demand side, Governor Gray proposed that the CPUC expedite its investigation into demand reduction programs for commercial and industrial users, and to coordinate with the California Energy Commission to implement programs providing real time price signals and energy reduction systems.