Cal ISO is supposed to be independent of market participants yet their COO is on loan to Gov. Davis as an advisor.!!!
Will CA give blackout exemptions to refineries? Or will Davis push the envelope one more time?
Enron will deal on debt, just a question of how much.
California ISO's independence at issue
Federal regulators could object to the state acting as a 'market
participant.'
June 7, 2001
By REBECCA SMITH
The Wall Street Journal
As California politicians wade deeper into the energy crisis, the state's electric-grid operator
appears headed toward a showdown with federal energy regulators over whether its board is
independent enough.
The California Independent System Operator bowed to pressure from the Federal Energy
Regulatory Commission and submitted its qualifications to continue as a federally sanctioned
grid operator.
But the tardy filing is almost certain to be challenged by federal regulators and market
participants because the ISO's governance structure has strayed from a "bedrock requirement"
that it be "independent of control by any market participant."
The market participant casting the long shadow is the state of California. Since January, when
the state of California began buying huge sums of electricity on behalf of its nearly broke
utilities, the ISO has been under pressure to give state officials preferential treatment and
unique access to market-sensitive information.
Its chief operations officer, paid $245,000 a year according to the most recent IRS filing, is on
indefinite loan to the governor's office where he is working as an energy adviser.
This politicization of the ISO is significant because the organization's purpose is to run a
market for power needed to keep the electric system in balance and to give buyers and sellers
impartial access to the power lines on which they depend to move electricity. Unlike other
commodities, electricity can't be stored. Transactions, therefore, depend completely on
instantaneous access to the electric superhighway of high-voltage lines. The FERC worries
that a loss of political independence by the ISO will further degrade the state's already
dysfunctional energy market.
The FERC hasn't formally accused the ISO of acting improperly, but it is clear that a wall
between the state and the ISO that once was solid has become permeable. Last month, the ISO
notified the FERC that the state of California had asserted "it must have access to the ISO
control room floor" and "nonpublic information" as a "necessary condition" of continuing to
buy power, even though such preferential access violates ISO rules. But without the state to
back power purchases - it has spent nearly $8 billion on electricity since January - the ISO's
market would collapse and blackouts and chaos likely would ensue.
The governance issue, which may appear esoteric, actually cuts to the heart of the power crisis
in California. State officials feel they have ceded too much control to the FERC, which they
accuse of shirking its duty to protect consumers. As a consequence, the state has forced its
way into the inner workings of the formerly arcane ISO, a public-benefit corporation formed
three years ago amid California's push to deregulate its electricity market.
In January, the Legislature authorized the governor to eject a FERC-approved board of
directors and hand-pick his own five-member ISO board. The state attorney general ordered
old board members to resign or face personal fines of $5,000. Currently, one ISO board
member is a former member of the governor's staff, while another, on the governor's behalf,
negotiated the proposed purchase of utility transmission assets by the state, all the while
serving as chairman of the supposedly independent board.
The ISO's chairman says changes in the board structure have made the ISO more answerable
to the citizenry and "efficient." Michael Kahn, who is a San Francisco attorney, added that the
governance structure had to change to reflect the fact that "we're in a state of emergency."
In its filing Friday, the ISO took the position that the tighter relationship between the ISO's
board and the state doesn't violate the FERC's requirement that ISO boards be free of control
by market participants. Even though the state has been "required to provide financial support,"
the ISO asserts, this "participation does not make ... the State a market participant." Many
market watchers scoff at that contention. Typical political doublespeak
"Inevitably, this will lead to a showdown," said N. Beth Emery, former general counsel of the
ISO and now an energy attorney for Ballard, Spahr, Andrews & Ingersoll in Washington,
D.C. "Clearly, the ISO is in violation of the independence requirement."
But the FERC doesn't have many tools for enforcing its vision of autonomy. That may explain
why it has failed to intervene. It can order the ISO to make board changes, for instance. But if
it refuses, there may not be much the FERC can do except threaten to rescind the ISO's
operating tariffs. That, of course, is the opposite of what the FERC wants to do, which is
encourage creation of multistate grid organizations free of any political favoritism.
But California's angry isolationism appears to be growing. Gov. Gray Davis said the ISO's
filing ensured the state will "maintain control of our own energy destiny and not be subject to
the whims of federal regulators or the interests of other states."
Energy notebook
Many experts see light at the end of the crisis sooner than expected
June 7, 2001
The Orange County Register
San Francisco California's power crisis, which has led to repeated statewide blackouts and the
bankruptcy of the state's largest utility, may end sooner than expected, some observers are
saying.
Gov. Gray Davis has predicted that the problems will ease by mid-2003. Dropping wholesale
power prices and new plants coming on line this summer are leading some to predict an earlier
end to the crisis.
"We're going to be surprised to see the results of the market starting to correct itself," James
Macias, an executive director with California power-plant owner Calpine Corp., said at a
briefing in New York. "I'm optimistic things are improving, and it won't be as bad as people
thought."
Calpine's 540-megawatt South Point Energy Center in Mohave County, Ariz., opened last
week. Two new plants in California that can generate a combined 1,080 megawatts, or enough
power to light 810,000 typical California homes, will open within six weeks, company
spokeswoman Katherine Potter said.
California electricity prices plunged to a nine-month low Wednesday as several power plants
returned to service after spring repairs, while milder weather reduced air-conditioning demand.
Regulators may put off decision on exemption for oil refineries
Los Angeles California utility regulators likely won't decide until August whether to exempt
refiners from rolling blackouts this summer, a spokesman for the California Public Utilities
Commission said Wednesday.
That delay could lead to spiking prices for gasoline and other fuels, as at least two major
California refiners have threatened to cut production if the exemptions aren't granted.
"The applications will be reviewed, and a decision will likely be made in August," said PUC
spokesman Armando Rendon.
Enron chairman says company would deal on state settlement
Houston Enron Corp. Chairman Kenneth Lay said the world's largest energy trader would
accept less than 100 percent of the money it's owed for power sold to California if it could
reach a settlement with the state.
Lay, who spoke on PBS's "Frontline" television program, refused to say how much of a
"haircut" the company would accept.
In other news:
California utilities would have to pay some alternative-energy producers 15 percent of back
debts under a plan by state energy regulators to reduce the likelihood of power shortages.
The proposal, which the California Public Utilities Commission plans to vote on today, would
permit payments to individual alternative-power generators that show they need the money to
keep making electricity.
House Republicans declared dead Wednesday a proposed bill to help electricity-starved
California avoid summer power outages, after Democrats refused to drop demands for
wholesale price caps opposed by President George W. Bush.
Edison International's Southern California Edison asked a state judge to take control of more
than 30 lawsuits filed in different courts by small generators seeking past-due payments from
the state's No. 2 utility. Southern California Edison wants one judge to hear all the cases to
eliminate the potential for conflicting verdicts from different courts.
The Assembly, by a 42-7 vote, approves a resolution asking the Federal Energy Regulatory
Commission to "impose interim price caps until the California power market has stabilized." |
