Without real independence that is not possible with a single-state ISO, none of the recommended fixes will work for California’s beleaguered nonprofit electric transmission grid operator, Cal-ISO, according to a third-party audit ordered by the Federal Energy Regulatory Commission released on Friday.

While the audit by Vantage Consulting, Inc., recommends what it calls an “integrated solution” that would involve Cal-ISO, FERC and the stakeholders, the caveat is given at the beginning of the 115-page report that until the organization’s lack of independence is resolved, “there is no hope for a comprehensive solution.” The report does not avoid the fact that there are significant identified problems at the state’s grid operator, which was created as a nonprofit, public benefits corporation as part of the now-infamous 1996 state electric industry restructuring law.

“One of the linchpin issues that needs to be resolved is governance of the Cal-ISO and the perception of an inherent lack of independence that is unique to a single-state ISO,” the Vantage audit report stated. “In virtually every interview this was a major topic and is clearly the root-cause of many other communication, culture and trust problems.”

The report concludes that the original stakeholders’ board was “very effective” until the crisis hit in mid-2000, and then with its large size and diversity it became ineffective; and the currently, small politically-appointed board was useful during the crisis, but it is “not the appropriate governing body going forward.” There is no effective process for stakeholder input, and Cal-ISO has lost its independence, according to the audit.

A Folsom, CA-based spokesperson for Cal-ISO said the grid operator will have to take some time to “digest” the audit before giving any formal reaction, but informally the organization was glad to see some praise of its operations in the report.

As an organization, the audit reported Cal-ISO to be in surprisingly good shape, noting “how well the organization functioned under the incredible stress placed on it.” However, it noted that there are “serious concerns” about how the state grid operator interacts with stakeholders.

Two areas that drew concern, aside from technical and operating systems, were the credit-worthiness issue and the complexity of Cal-ISO’s market design.

“The lack of credit-worthiness on the part of the key parties inhibits long-term solutions to the California energy crisis,” the audit said. In another section, the audit stated current market design “is complex and unworkable,” although it notes that the grid operator has initiated an ongoing project considering design alternatives.

“Comprehensive market reform is necessary to restore viable, transparent electricity markets in California.”

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