Davis, Energy Board Defy U.S. Order
Gov. Gray Davis and his appointees to the board that oversees most of California’s electrical transmission system defied the federal government Wednesday by refusing to disband the board and create a new one free of political influence.
The vote by the governing board of the California Independent System Operator sets the stage for a showdown with the Federal Energy Regulatory Commission, which has been pushing states to relinquish control of their transmission grids in favor of standardized rules.
Last month FERC, the nation’s top regulator of power prices, ordered Cal-ISO to dissolve its governing board of five Davis appointees in favor of a politically independent board chosen by a committee.
Davis, who was burned by an electricity deregulation plan that was crafted before he became governor but went awry on his watch, said he wants to yield no more authority to FERC and its campaign to foster private electricity markets.
“The Federal Regulatory Energy Commission order is wrong, and it comes at the worst possible time,” Davis told the Cal-ISO board at a meeting in Sacramento. “Just as the energy market is beginning to stabilize in California, they want to reshuffle the deck and take a giant step backward.”
The governor also said he would support a ballot measure this year or in 2004 that asks Californians whether control of hundreds of thousands of miles of transmission wires should be in state or federal hands.
“Their voice would speak volumes not only in Sacramento but in Washington,” he said.
State Sen. Steve Peace (D-El Cajon) said this week that he will sponsor a ballot measure to guarantee state control of the grid if the Legislature fails to pass a constitutional amendment.
The four members of the Cal-ISO board--there is one vacancy--voted unanimously to defy the FERC order and instead ask the federal panel to withdraw it.
The issue probably will wind up in federal court, said Davis legal advisor Barry Goode.
Kevin Cadden, FERC director of external affairs, said no state governs its transmission system like California.
Since January 2001, the state’s biggest buyer of electricity has been the state itself, which stepped in to serve the customers of ailing utilities.
“In the Midwest, New York, the Pennsylvania-New Jersey-Maryland Interconnection, New England,” said Cadden, “no one on the board has economic interest.”
Amid several recent scandals that highlight corporate governance, Cadden said, “it seems to me that people would want a completely independent board.”
California and FERC have been arguing about who should oversee Cal-ISO since 1997, when FERC approved California’s deregulation plan in nearly every element except for Cal-ISO oversight.
Based east of Sacramento in Folsom, Cal-ISO is supposed to serve as a sort of neutral traffic cop to ensure the steady, smooth flow of electricity on 75% of the state’s transmission grid. Cal-ISO took control of those wires from the state’s private utilities as part of deregulation.
In 2000, as the state’s deregulated market began to collapse under high prices and power shortages, Cal-ISO was overseen by a FERC-dictated, 26-member board of “stakeholders.” Three of the board members represented power plant owners, and three were chosen by private utilities.
That board deadlocked repeatedly over whether to limit the prices Cal-ISO would pay for the last-minute power needed to balance the grid.
In December 2000, FERC emasculated the board, making it advisory. In January 2001, with the state gripped by the threat of blackouts and two big utilities teetering toward bankruptcy, Davis signed a bill that created an entirely new Cal-ISO board of his appointees.
FERC questioned Davis’ authority to do so but did not challenge him until last month.
“Why would we possibly go back to this nightmare when all we did every day was scramble to see if we could find power to keep the lights on that day?” Davis said. “That is a nightmare that I want to recede in my mind, not revisit.”
As justification for their vote Wednesday, Cal-ISO board members cited a letter sent Tuesday by state Atty. Gen. Bill Lockyer warning that following the FERC order would violate state law.
Back at FERC headquarters in Washington, a federal mediator said Wednesday that he was “extremely optimistic” that California would be able to renegotiate a majority of the long-term power deals it entered into last year when the market was at its peak. California officials are seeking a $21-billion reduction on $43 billion in long-term contracts.
In addition to tentative agreements reached with five power companies, “significant offers” have been exchanged by the state and eight other sellers, said Curtis L. Wagner Jr., FERC’s chief administrative law judge.
Some offers would require the state to drop any legal action against the companies.
“If settlement can be reached on terms such as those that are now being discussed, the people of California will receive both lower rates and sufficient electric power to fulfill their needs for many years to come,” Wagner said in a report to FERC’s governing board, which assigned him to try to broker an agreement.
Wagner scheduled a round of meetings Aug. 28-30 in Washington to resolve outstanding differences.
*
Times staff writer Ricardo Alonso-Zaldivar contributed to this report.
