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<title>December 2000: California Legislators and Governor Propose Changes,
Including Restructure of the Independent System Operator and Power Exchange
Governing Boards</title>
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<p align="left"><strong><small><font face="Arial">About The Author:</font></small></strong></p>
<p align="left"><font face="Arial" style="font-size: 9pt">Robert A. Olson is a partner in the law firm of
Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law,
public utility law and related commercial transactions.</font></p>
<p><small><font face="Arial"><font style="font-size: 9pt">He can be reached at:</font><br>
<br>
<b><font color="#0000FF">Brown, Olson & Gould, PC</font></b><br>
2 Delta Drive<br>
Suite 301<br>
Concord, NH 03301<br>
<a href="mailto:[email protected]">[email protected]</a><br>
(603) 225-9716<br>
<a href="mailto:[email protected]"></a></font></small></p>
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<img src="../images/statelin.gif" alt="STATELINE by Robert Olson" border="0" width="375" height="75"><p><b><u><br>
December 2000</u><br>
<font face="Arial" size="6" color="#000000">California
Legislators and Governor Proposes Changes, Including Restructure of the
Independent System Operator and Power Exchange Governing Boards<br>
</font>
</b><strong>by Robert Olson -- Brown, Olson and Wilson, P.C.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine Magazine:
2000/</em>12)</font></p><center>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
<p ALIGN="JUSTIFY"><font face="Arial">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.</font></p>
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<p align="left"><font face="Arial">
<small>Robert A. Olson is a partner in the law firm of Brown, Olson &
Gould P.C.
which maintains a nationwide practice in energy law, public utility law and related
commercial transactions. He can be reached at:</small></font><p align="center">
<font face="Arial"><small><font color="#0000FF"><b>Brown, Olson & Gould, PC</b></font><br>
2 Delta Drive, Suite 301<br>
Concord, NH 03301 <br>
<br>
<a href="mailto:[email protected]">[email protected]</a> | (603) 225-9716<a href="mailto:[email protected]"></a></small></font>
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