Defying the Federal Energy Regulatory Commission, California authorities Wednesday challenged the federal panel’s order from last month, which stated that by next year the state must replace its five-member, governor-appointed oversight board at the California Independent System Operator (Cal-ISO) with a larger, “more independent” board of governors. In effect, California officials are telling FERC it has no legal authority to force the state to do so.

The California attorney general in a letter to Cal-ISO said the current governor-appointed board for the grid operator is mandated by the state’s law, and as such, California cannot comply with FERC’s order, which the governor in a separate letter called a “federal takeover” of Cal-ISO that is “simply not tolerable.”

In a rare appearance before an energy agency, Gov. Gray Davis attended part of the Cal-ISO board meeting Wednesday and referred to letters from his office and the state Attorney General, asking Cal-ISO’s current board to disregard the FERC and begin negotiations on a compromise solution. The Cal-ISO board later voted unanimously to take those steps outlined by Davis and AG Bill Lockyer.

After California has “taken hold of its energy future,” Davis wrote in his letter to the Cal-ISO board, FERC is “threatening to do more damage to California. It has issued an order that would dissolve this (Cal-ISO) board and replace it with another stakeholder board. FERC continues to press its failed deregulation agenda.”

As part of a larger market assessment and recommendation for revamping California’s beleaguered wholesale electricity market, FERC called for Cal-ISO’s current board to be replaced with a two-tier, eight- to nine-member governing body by Jan. 1, 2003. FERC stated that the current Cal-ISO board appointed by Gov. Davis in the midst of the state’s electricity crisis in January 2001 is not “sufficiently independent.”

The Cal-ISO board voted to ask FERC for a rehearing of the issue and for a stay in implementing its order, pending the request for rehearing. “FERC’s suggestion would be equivalent to telling Mirant Corp. who should be on their board of directors,” the state AG’s letter to Cal-ISO CEO Terry Winter said. “The ISO can’t amend its bylaws per FERC’s direction without violating California law.” Davis attended the Cal-ISO board meeting in Sacramento to reinforce this message.

AG Lockyer reiterated that he is empowered to carry out the enforcement of California law, and the current Cal-ISO board is an extension of that law. “The Cal-ISO cannot amend its bylaws in any the way dictated by FERC without directly violating California law.” The AG further said that FERC’s order “exceeds any possible jurisdiction” that it holds under the Federal Power Act.

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