Message-ID: <21947511.1075863590609.JavaMail.evans@thyme> Date: Wed, 9 Aug 2000 03:54:00 -0700 (PDT) From: jeff.dasovich@enron.com To: james.steffes@enron.com, richard.shapiro@enron.com, joe.hartsoe@enron.com, sarah.novosel@enron.com, susan.mara@enron.com, mona.petrochko@enron.com, sandra.mccubbin@enron.com, bruno.gaillard@enron.com, karen.denne@enron.com, peggy.mahoney@enron.com, mpalmer@enron.com Subject: Critics Seek More Control Over ISO Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Jeff Dasovich X-To: James D Steffes, Richard Shapiro, Paul Kaufman@EES, Dave Parquet@ENRON_DEVELOPMENT, Tim Belden@ECT, Robert Badeer@ECT, Joe Hartsoe, Mary Hain@ENRON_DEVELOPMENT, Sarah Novosel, Susan J Mara, Mona L Petrochko, Sandra McCubbin, Bruno Gaillard, Karen Denne, Peggy Mahoney, mpalmer@enron.com X-cc: X-bcc: X-Folder: \Robert_Badeer_Aug2000\Notes Folders\All documents X-Origin: Badeer-R X-FileName: rbadeer.nsf THE WALL STREET JOURNAL / CALIFORNIA Critics Seek More Control Over ISO By Marc Lifsher 08/09/2000 The Wall Street Journal Page CA1 (Copyright (c) 2000, Dow Jones & Company, Inc.) Some people want the California Independent System Operator to be a lot less independent. The Folsom-based nonprofit corporation, which acts as the traffic cop for the state's electricity grid, has been a lightning rod for criticism during this summer's power crisis. Though generally praised for keeping lights on in the face of severe shortages of electricity, the ISO has come under fire for failing to move more quickly to lower the maximum price it will pay generators for emergency power to meet demand and prevent blackouts. Pressure on the ISO has eased considerably since last week, when its governing board voted to lower the cap on such same-day, emergency purchases -- the only type of pricing it has the power to affect directly -- to $250 a megawatt hour from $500. But the heat hasn't been turned off completely. Some lawmakers still are calling for changes in the 26-member ISO board, which includes people nominated by power generators, utilities, middlemen, and commercial and residential customers, among others. The critics want to streamline the board and make it more accountable to the state's elected officials. The ISO was created by the state's 1996 utility-deregulation act to transmit electricity smoothly between generators and utilities. Lawmakers devised the independent board as a way to give the various "stakeholders" -- generators, utilities, middlemen, customers and environmentalists -- a say in how energy is supplied. Members serve for up to three years. "It's inappropriate for the ISO governing board to vote on issues that benefit them financially," says Sen. Dede Alpert, a Coronado Democrat. She questions the wisdom of allowing out-of-state energy sellers and marketers to sit on the ISO board and vote on emergency prices, especially when they have an interest in keeping those prices high. Sen. Alpert spent much of the Legislature's recent summer recess fielding complaints about high electricity costs from her constituents, customers of San Diego Gas & Electric Co., a unit of San Diego-based Sempra Energy. Last summer, SDG&E became the first investor-owned utility in the state to have price regulations fully lifted. This summer, its rates have doubled, as high temperatures and power shortages have swept the West. In response to a series of price spikes in Southern California and the wider contention that skyrocketing prices indicate the failure of deregulation, state lawmakers have scheduled a joint hearing tomorrow in Sacramento. High on the agenda: possible changes in the ISO's governing structure and scrutiny of the way it handles power statewide on hot days. Critics say emergency purchases should be no more than 5% of electric-power sales, but were as high as 33% of the market on hot days earlier this summer. Key legislative leaders -- including Sen. Steve Peace, an El Cajon Democrat who was the architect of the 1996 deregulation law -- would like to make the ISO more accountable to state elected officials. Possible changes include preventing industry representatives with conflicts from sitting on the ISO board, as well as abolishing the ISO entirely and shifting its responsibilities back to state utilities, under the supervision of the state Public Utilities Commission. Until 1996, the PUC regulated all electric utility rates and services. ISO board members say legislative critics are unfairly focusing anger over the price spikes on the ISO, which has only a limited ability to set prices. Most electricity isn't sold through the same-day, emergency market -- but through long-term contracts between sellers and utilities, or at least a day in advance through the California Power Exchange, which is a nonprofit corporation established by the 1996 law to serve as a trading floor. "We need to create a government structure that is not susceptible to pressure from one state senator or anyone else," to keep prices artificially low, says ISO Chairman Jan Smutney-Jones, who represents the Independent Energy Producers Association, the trade group for non-utility power generators. He dismisses criticism of the board's out-of-state members. There needs to be "an independent, interstate board" because energy is transmitted across state lines, he says. Two Houston-based power sellers on the board, Dynegy Corp. and Enron Corp., deny any conflict. Chuck Watson, Dynegy's chairman and chief executive, blames state officials for expanding the ISO's role to include monitoring prices. "If there's any finger-pointing," Mr. Watson says, "they probably should start with the big finger pointed right at them." Substantial restructuring of ISO governance could prove difficult. The state, through the governor-appointed Electricity Oversight Board, has limited power to make changes. Past efforts by the Oversight Board to exert control didn't go far. Last year, state lawmakers tried to give the Oversight Board the power to confirm or reject ISO board members to make them accountable to state officials. (Nominees had previously gone on automatically.) The effort was opposed by officials of the Federal Energy Regulatory Commission in Washington, D.C., which argued that the state couldn't have veto power over the nominees of out-of-state power producers. In a compromise, California officials were given authority to veto half the board -- those nominated by residential, industrial, commercial and agricultural power-users. The federal energy commission has final regulatory authority over the ISO and has viewed state attempts to meddle with the agency as an unconstitutional attempt to hinder interstate commerce. Any proposed changes in ISO's governing structure "would be looked at very closely by FERC," says ISO attorney Richard Jacobs. This summer, the ISO board displayed an independence that was annoying to state lawmakers. In June, Sen. Peace called on the board to lower its price cap for emergency purchases, from $750 a megawatt hour (roughly the amount of electricity needed to power 1,000 homes) to $250. The board responded by lowering the cap to $500 a megawatt hour. A second attempt to lower the cap to $250 failed to get a majority vote. The reason? The three private power-seller representatives, including the Independent Energy Producers Association, were joined by those representing agricultural, industrial and commercial users in opposing a lowering of the cap. Then, the pressure on the ISO board really intensified. Gov. Gray Davis weighed in, by sending the ISO board a letter asking it to lower the cap "to the lowest possible level." Energy Secretary Bill Richardson ordered the representative of federal-public-power sellers to change his vote from no to yes. A consumer representative from the League of Women Voters also moved to the "aye" column, allowing the cap to be lowered to $250. Lowering the cap removes some of the rate pressure on residential and commercial consumers in San Diego -- and takes some of the heat off the ISO board. But not entirely: A Public Utilities Commission report on the state's electricity market that was sent to the governor after the vote said that the members of the ISO and the Power Exchange boards "can have serious conflicts of interest" and that both organization aren't "accountable to the state or its consumers." An ISO spokesman said the board is in the process of producing a formal response to the report and it declined to comment. A spokesman for the Power Exchange said that it has followed the law regarding conflicts and that it does protect consumers. ---