In a classic states’ rights confrontation, California ischallenging FERC jurisdiction over the operation of the state’s twononprofit organizations created to make electric restructuring runsmoothly, the Independent System Operator (ISO) overseeing thetransmission grid and the Power Exchange (PX) providing a wholesalespot electricity market. Two bills have been proposed in the statelegislature to change the status of the ISO and PX in directresponse to FERC jurisdictional questions.

The dispute centers on the governance of the two Californiaentities, which were established under California’s 1996electricity law as “public benefits” corporations chartered by thestate, with individual governing boards and a joint oversight boardrestricted to Californians among its members. Since their creationin 1997, FERC has said the boards have to go, and the ISO and PXuntil late last year tried to hold off complying with the federalcommission’s requests.

Since FERC’s order Nov. 24, 1998, the ISO and PX have submittedrevised bylaws, but in the state legislature the author of the 1996electricity law, state Sen. Steve Peace, has proposed legislationthat 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 oversightboard, while recognizing FERC’s jurisdiction. This second approachfrom the state assembly (AB 1003) would not make the ISO and PXinto state agencies.

Hearings in the state capital are scheduled for March 23 on bothbills, and the state legislative leaders reportedly are talkingregularly with FERC about further compromise.

Lawyers on both sides agree that FERC has the ultimatejurisdiction in any disputes under the federal preemption clause ofthe U.S. Constitution.Routine daily operations of the two stateentitites so far have not been impacted by the dispute, which theISO has taken to the DC Circuit Court of Appeals. With the threatof fines and other legal action-both civil and criminal-the twoCalifornia orgranizations are in the process of complying with FERCwhile keeping an eye on state legislative proposals. Ultimately, ifthe 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 ofout-of-state participants,” Sladoje said. “And we don’t knowwhether they would be bothered by having no FERC jurisdiction (ifthe Peace bill made the PX a state agency), or whether in thatcase, FERC would say they can’t do business across state lines.” Inthis scenario, Sladoje said, there might be some doubt on whetherthe PX would continue to seek FERC approvals for proposed newofferings at the exchange as they are now doing.

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.