Capping off a week in which California took center stage, the state-wide independent system operator (Cal-ISO), Southern California Edison and San Diego Gas and Electric (SDG&E) Friday filed — under protest — their plan to form a single-state regional transmission organization (RTO).

“We have filed this proposal or plan under protest because we believe that what FERC has ordered us to do is illegal,” said Charles Robinson, vice president and chief counsel for the Cal-ISO. Specifically, he was referring to the Commission’s April 26 decision that offered price-mitigation to the California electricity market, but only on the condition that the Cal-ISO and its three investor-owned utilities (IOU) submitted an RTO proposal by June 1. If the state missed the deadline, FERC threatened to deny the much-needed relief.

“We do not believe it [was] legal or appropriate” for the Commission to withhold price mitigation from the California public until an RTO filing was made, agreed Michael Kahn, chairman of the Cal-ISO board of governors during a teleconference with reporters late Friday. “We hope we don’t see this tactic again” from FERC.

Although the Cal-ISO and utilities complied with FERC’s demand, Robinson said they reserved all rights to pursue legal remedies against the Commission in the future. He noted that the Cal-ISO already has filed a petition for rehearing of the April 26 order at FERC.

Pacific Gas and Electric, the largest IOU in the state, reportedly filed a separate RTO plan. “The reason that PG&E felt it was unable to join…us was that they want to protect their rights in the bankruptcy,” Kahn noted. Whether FERC will accept two RTOs for the state — one essentially for Southern California and the other for Northern California (PG&E territory) — remains to be seen.

In the joint proposal, the Cal-ISO clearly noted that it believed that “in many ways [it already] meets nearly all of the requirements that FERC set forth for RTO organizations” in Order 2000. California is “ahead of its time in many ways,” said Robinson.

Both Kahn and Robinson defended the Cal-ISO’s and utilities’ decision to limit the RTO to California, but they noted that California is seriously committed to working with adjoining states “to find ways of further bringing benefits to California” and its neighbors.

They oppose the creation of a western-wide RTO organization at this stage. “We believe it would be inappropriate for FERC at this point to compel a western-wide…RTO until a number of issues are resolved,” Robinson noted, referring to the current market crisis facing California.

In fact, Kahn said that grid regionalization wasn’t uppermost in minds of most Californians. “I don’t think that anybody in California is concentrating on what we will do in two years, three years or four years” with respect to regionalization of the transmission market, he said, adding that the immediate concern in the state was summer power prices.

Kahn bristled at the suggestion that FERC might reject the RTO proposal, given that the current Cal-ISO board, whose members were handpicked by Gov. Gray Davis, might not be considered independent of the electricity market there. “It’s my feeling that we have a very independent board,” he said.

When asked if he thought the Commission might challenge the make-up of the Cal-ISO board, Kahn said it’s “not apparent to me that FERC’s going to do that,” although he conceded “I am not going to pick a fight” with the Commission over this issue. “Hopefully, FERC will leave it [the board] be.”

In other major developments last week, the never-say-die Gov. Davis quickly turned his attention to the two soon-to-be members of the Federal Energy Regulatory Commission to win their support for price caps on bulk power after he failed to get President Bush to budge on the issue during their meeting last Tuesday.

He sent letters to both Patrick Henry Wood III and Nora Mead Brownell, inviting them to travel to the Golden State to be briefed on the energy challenges facing it. With new blood at the Commission, Davis said he was “optimistic” that FERC might take a “fresh look” at its “essential role in controlling wholesale [power] prices in the West.”

While both Wood and Brownell, former state regulators, have been confirmed by the Senate, they have not yet been sworn in as commissioners at FERC. Wood is expected to be sworn in Tuesday in Austin, TX, and then will head for Washington D.C., but Brownell’s office did know when her swearing-in would take place.

“As you are well aware, I have been calling on the FERC for some time to provide meaningful relief from unjust and unreasonable wholesale electricity prices in the West…Unfortunately, FERC has resisted our requests to provide a temporary ‘time-out’ from a market that the Commission itself has found to be dysfunctional,” Davis wrote to both Wood and Brownell, adding that he was seeking their help in areas that fall “solely and squarely on the FERC’s shoulders.”

If Wood and Brownell should support price caps, they would join Commissioner William Massey — the sole member of the current Commission who favors price controls. While this would put them in a three-to-one majority at FERC (Chairman Curt Hebert opposes price caps; Commissioner Linda Breathitt is undecided), this would not necessarily signal a green light for price caps at the Commission. Hebert, as chairman, controls what’s placed on the agenda for FERC meetings, and he could see to it that price caps don’t come up for a vote.

As part of his outreach to Wood and Brownell, the governor said he would hold off at least 30 days before taking his already committed legal action to force FERC to regulate prices pursuant to the Federal Power Act. “We’ll give FERC 30 days at least and then file a lawsuit because I’m sure they won’t do as much as we need.”

So far, California hasn’t fared too well on the price-cap issue in the courts. The Ninth Circuit Court of Appeals in San Francisco recently wasted little time in rejecting an emergency request by the California legislature to force FERC to cap wholesale energy prices. The three-judge panel ruled that the legislature failed to demonstrate that the case warranted emergency action.

Although Bush stood firm on the issue of price caps, the president last week reiterated that he was committed to providing Californians with rate relief via refunds in the event of price gouging in the market. Bush, Vice President Dick Cheney and senior White House officials have incorrectly noted on several occasions that FERC already has begun to order refunds to California electric customers. But if the truth be known, while the Commission has targeted a number of California power generators and marketers for “potential” refunds, it has only ordered one marketer — Williams Energy Marketing & Trading — to pay refunds ($8 million) to the California Independent System Operator.

During their meeting in California, Bush agreed — at Davis’ request — to ask Wood to come to California to open a “steady line of communications” between the state and federal government on energy issues, a move that caused some concern since FERC is an independent agency. Other observers, however, saw it as a further sign that the president plans to name Wood to replace Hebert as chairman of FERC.

In fact, Vice President Cheney said as much during a PBS “Frontline”/New York Times program addressing the California energy crisis, which will be aired on “Frontline” at 10 p.m.(EST) June 5. “Pat Wood’s got to be the new chairman of the FERC, and he’ll have to address” energy problems in the West and elsewhere, the Times quoted him as saying. Wood, a close friend of the president, was appointed to the Texas Public Utility Commission in 1995 by then-Gov. Bush, and later named chairman. Brownell has been a member of the Pennsylvania Public Utility Commission since April 1997.

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