FERC Filings

MOTION FOR LEAVE TO INTERVENE AND PROTEST OF THE ELECTRIC POWER SUPPLY ASSOCIATION California Independent System Operator Corp. ) Docket No. L00-95-030

B. The Commission Should Enforce Its December 15th Order and Replace

Since the Commission’s December 15th Order, the State of California has moved beyond simple regulation to become the dominant participant in California energy markets. At the same time, the CAISO has been transformed from an “independent operator” of interstate transmission resources to a partisan advocate for the State of California. Because of the conflicts inherent in the politicization of the CAISO, the need for the Commission to reject this filing and enforce its December 15th order is compelling.

There can be no doubt that the State of California is the dominant market participant in California. By virtue of legislation requiring the DWR to purchase wholesale electric energy for resale, the DWR has acquired substantial long-term contracts for energy to serve retail load.20 This market dominance and influence will only increase as the State of California presses to acquire direct ownership of transmission and generation assets.21 For example, the recently announced MOU between Southern California Edison (SCE) and the Governor gives the DWR increased control over SCE’s generation. Beyond acquisition of the Utility Distributing Companies’ (UDCs) transmission assets, the state legislature has adopted a bill to create a State Public Power Authority that would construct, own and operate generating plants.22 That bill is now awaiting the Governor’s signature.

These events have wholly undermined the independence of the CAISO Board. As the result of A.B. x5, the CAISO Governing Board now serves at the pleasure of the Governor of California. If the Governor is dissatisfied with the Board’s decisions, he can appoint a new Board and direct the state attorney general to file suit to compel the resignation of the current governors. Alternatively, he can simply issue an executive order directing the Board to undertake whatever action the Governor desires. The consequences of the political power being exercised over the CAISO are palpable.

Under its tariffs, the CAISO’s responsibility and authority should be limited to ensuring the physical reliability and safe operation of that portion of the interstate electric transmission system located in California. The politicization of the incumbent CAISO Board has led to a shift in focus away from system reliability. For example, the CAISO’s approach to operations and maintenance scheduling appears to be driven by economic, rather than reliability, concerns.23 There are also concerns that the CAISO’s unilateral action to derate the south-to-north ATC at the California-Oregon border, which now only covers Firm Transmission Rights (FTRs), was driven not by changes in system configuration, but by an effort to limit export schedules.24 In its recently proposed “Market Stabilization Plan,” the CAISO took positions before the Commission which were unrelated to the reliability of the transmission system and which were unashamedly intended to favor the interests of the State of California and DWR over other market participants in negotiations for the sale of energy.25

These actions make clear the risks associated with a non-independent, highly politicized CAISO Board. The Commission should reject the proposed Amendment and implement appropriate measures to enforce its December 15th Order. The current CAISO Board and the filed Amendment should be rejected by the Commission. The
Commission should seek to reengage the State of California in discussions to revise the
CAISO structure. If the State of California is unwilling to work with the Commission to develop a truly independent CAISO Board, then the Commission must give serious consideration to other measures, including seeking judicial enforcement of its December 15th Order, to preempt the actions of the state authorities and restore independence to the CAISO. As the Commission has recognized:

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The Commission has exclusive jurisdiction under the FPA to regulate the rates, terms and conditions of transmission of electric energy in interstate commerce and sales for resale of electric energy. It is well established that Congress has the power under the Supremacy Clause of Article VI of the Constitution to preempt state law. Thus, the states may not legislate or promulgate regulations in areas that have been preempted by federal law or regulation.26 </center>

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20 California Department of Water Resources, Summary of California Department of Water Resources Power Purchase Contract Efforts, (Mar. 14, 2001) available at http://www.owe.water.ca.gov/newsreleases/2001/3-22-01contract_status.html.

21See e.g. News Release: SCE and Governor Reach Agreement on Plan to Restore Utility to Financial Health (Apr. 9, 2001) (Announcing that DWR and Southern California Edison Company [SCE] recently signed a memorandum of understanding to transfer SCE’s 12,000-mile transmission network to the DWR.), available at http://www.edisonnews.com/releasesexe/01-069.htm. Negotiations are also underway to purchase San Diego Gas & Electric Company’s transmission assets and there is strong speculation that California will seek, through bankruptcy proceedings, to acquire Pacific Gas & Electric Co.’s transmission assets, as well.

22S.B. x6. Passed by the California Assembly on April 26th and the Senate on May 3rd and signed by Governor Davis on May 16th .

23 See e.g. Reliant Energy Power Generation, Inc., et al. v. California Independent System Operator Corporation, Docket No. EL01-57-000 (Filed Mar. 21, 2001) (Complaint alleging abuse of emergency dispatch orders for economic reasons and improper interference in generator operations and maintenance scheduling.).

24See e.g. Motion to Intervene and Comments in Support of Complaint of Enron Power Marketing, Inc. and Coral Power, L.L.C., Docket No. EL01-57-000 (Filed April 10, 2001) (Alleging consistent and artificial derating of ATC at the California-Oregon border to prevent exports.).

25 See e.g. Answer of the California Independent System Operator Corporation to Request of the “California Generators” For Emergency Order, Docket. No. ER01-889-000, at 9-10 (Feb. 27, 2001). (Implicitly acknowledging that the CAISO intended to use emergency dispatch orders, requiring sellers to provide energy to meet residual loads of the uncreditworthy utilities, as leverage to compel them enter into long-term agreements with California public officials.)

2677 FERC 61,204, 61,818 (1996)