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CA Fights FERC For Control of ISO and PX

CA Fights FERC For Control of ISO and PX

In a classic states' rights confrontation, California is challenging FERC jurisdiction over the operation of the state's two nonprofit organizations created to make electric restructuring run smoothly, the Independent System Operator (ISO) overseeing the transmission grid and the Power Exchange (PX) providing a wholesale spot electricity market. Two bills have been proposed in the state legislature to change the status of the ISO and PX in direct response to FERC jurisdictional questions.

The dispute centers on the governance of the two California entities, which were established under California's 1996 electricity law as "public benefits" corporations chartered by the state, with individual governing boards and a joint oversight board restricted to Californians among its members. Since their creation in 1997, FERC has said the boards have to go, and the ISO and PX until late last year tried to hold off complying with the federal commission's requests.

Since FERC's order Nov. 24, 1998, the ISO and PX have submitted revised bylaws, but in the state legislature the author of the 1996 electricity law, state Sen. Steve Peace, has proposed legislation that would transform both the ISO and PX to state agencies, ostensibly to place them under California jurisdiction. Meanwhile, a second proposed bill aimed at a compromise between the Peace bill (SB 96) and FERC would preserve the role of a state oversight board, while recognizing FERC's jurisdiction. This second approach from the state assembly (AB 1003) would not make the ISO and PX into state agencies.

Hearings in the state capital are scheduled for March 23 on both bills, and the state legislative leaders reportedly are talking regularly with FERC about further compromise.

Lawyers on both sides agree that FERC has the ultimate jurisdiction in any disputes under the federal preemption clause of the U.S. Constitution. Routine daily operations of the two state entitites so far have not been impacted by the dispute, which the ISO has taken to the DC Circuit Court of Appeals. With the threat of fines and other legal action-both civil and criminal-the two California orgranizations are in the process of complying with FERC while keeping an eye on state legislative proposals. Ultimately, if the dispute drags out, it could have an impact on market activites, according to George Sladoje, PX CEO.

"We have a lot of out-of-state power coming in here and a lot of out-of-state participants," Sladoje said. "And we don't know whether they would be bothered by having no FERC jurisdiction (if the Peace bill made the PX a state agency), or whether in that case, FERC would say they can't do business across state lines." In this scenario, Sladoje said, there might be some doubt on whether the PX would continue to seek FERC approvals for proposed new offerings at the exchange as they are now doing.

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