FERC Can?t Call Shots on CAISO Board, Grid Operator Tells Federal Court

By Published On: December 13, 2003

The California Independent System Operator asked a federal court of appeals to hear its side of the story on the configuration of the CAISO board after the Federal Energy Regulatory Commission found it improperly lacked independence from the state. CAISO?s complaint was filed in the District of Columbia?s U.S. Court of Appeals the day before the recall election. Despite sending a letter to Arnold Schwarzenegger after the election saying he hoped to work with him on the future of CAISO, the grid operator?s board chair, Michael Kahn, has not heard from the governor-elect on the matter. CAISO is mired in this state-federal tug of war in part over the pending board selection issue. Kahn said this week he does not expect to hear from the governor-elect until Schwarzenegger?s energy team is assembled. Kahn not only is CAISO board chair but also was chief counsel for Governor Gray Davis?s failed anti-recall effort. ?No comment at this time? on the FERC?CAISO board issue, responded Jessie Knight, who is part of Schwarzenegger?s transition team and a former California Public Utilities Commission member. CAISO argued to the court that the Federal Power Act does not give FERC authority over the composition of its or other utility boards. The grid operator specifically challenged FERC?s July 2002 order to appoint a new board that ruled the board selection was ?a practice that affected rates? under Section 206 and that having members picked by the governor was unjust and discriminatory. FERC also lacked the requisite substantial evidence to back its finding that a lack of board independence was unjust and unreasonable, CAISO claims in its October 6 brief. Furthermore, the grid operator asserts that FERC never before attempted to undermine the creation of a utility board of directors under the ?just and reasonable? section, and that the Securities and Exchange Commission is the agency with authority over board configurations. The Electricity Oversight Board and the California Public Utilities Commission filed petitions in support of CAISO, which were folded into the CAISO case. Several intervenors have sided with FERC, including Duke Energy, Dynegy Power, El Segundo Power, Mirant, Reliant Energy, the Northern California Power Authority, and the Modesto Irrigation District. The California Legislature in 2001 passed AB1x-5, which gave Governor Davis authority to name a five-member board at a time when the state was a major purchaser of electricity. It replaced the 26-member stakeholder board that lawmakers saw as too progenerator. After that, the legislature required state Senate confirmation of the board appointees. In mid-2002, FERC ruled that the five-member board violated federal law, and it rejected CAISO?s petition seeking a rehearing in September of that year. Federal regulators subsequently tried to enforce its order for a new nine-member board in district court, but the suit was rejected for lacking personal jurisdiction. If Schwarzenegger were to back FERC?s position on the board makeup, it is questionable how far he would get because Davis named the five members pursuant to state law and many of the legislators who voted for it have pushed for more state control over CAISO since the 2000-2001 energy crisis. Some expect the state and federal representatives to work out an agreement behind closed doors. Oral argument on the matter is set for May 17. <i>Court case #02-1287</i>

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