Existing law provides for the establishment of an Independent System Operator (ISO) as a nonprofit public benefit corporation and requires the ISO to ensure efficient use and reliable operation of the electrical transmission grid consistent with achieving planning and operating reserve criteria no less stringent than those established by the Western Electricity Coordinating Council and the North American Electric Reliability Council. The Clean Energy and Pollution Reduction Act of 2015 provides for the transformation of the ISO into a regional organization, with the approval of the Legislature, pursuant to a specified process. That process provides that modifications to the ISOs governance structure, through changes to its bylaws or other corporate governance documents, will not become effective until the ISO, the Public Utilities Commission (PUC), the State Energy Resources Conservation and Development Commission (Energy Commission), the State Air Resources Board (state board), the Governor, and the Legislature take specified actions on or before January 1, 2019.

This bill would prohibit a California electrical transmission facility owner, a retail seller of electricity, or a local publicly owned electric utility from joining a multistate regional transmission system organization, as defined, unless the bylaws or other organizational documents that govern the organization, and the organizations operations, meet Federal Energy Regulatory Commission requirements and other specified requirements. The bill would require a California transmission owner, retail seller, or local publicly owned electric utility, before joining a multistate regional transmission system organization, to submit the bylaws and other organizational documents that govern the multistate regional transmission system organization to the Energy Commission for review. The bill would require the Energy Commission, in consultation with the PUC and the state board, to review those materials for compliance with the bills requirements. The bill would prohibit a California transmission owner, retail seller, or local publicly owned electric utility from joining the multistate regional transmission system organization unless the Energy Commission has determined that the organizations bylaws and organizational documents meet those requirements. If a California transmission owner, retail seller, or local publicly owned electric utility has joined an independent system operator that becomes a multistate regional transmission organization and the Energy Commission determines that the organizations bylaws and organizational documents do not meet those requirements, the bill would require that the California transmission owner, retail seller, or local publicly owned electric utility not remain in the organization. The bill would authorize the ISO to develop and submit to the Energy Commission a governance proposal that complies with those requirements, requirements and to provide notice and a copy of this submission to the Legislature and the Governor at the same time as it is submitted to the Energy Commission. The bill would require the Energy Commission, in consultation with the PUC and state board, to review the proposal for compliance with the bills requirements, and, if the Energy Commission determines that the proposal meets those requirements requirements, to submit the governance proposal to the Governor and to the Legislature with a declaration that the Energy Commission has so found. If notice is delivered by the Energy Commission during a regular session of the Legislature, and if a transmission owner from outside California that is not a participating transmission owner as of January 1, 2019, has entered into an agreement with the ISO indicating an intent to become a participating transmission owner, would authorize the ISO the bill would authorize the ISO, beginning 270 days after receipt of notice by the Legislature, to proceed to implement the proposal. The bill would prohibit the ISO from implementing the new governance structure prior to January 1, 2021.

Existing law provides for the establishment of an Independent System Operator (ISO) as a nonprofit public benefit corporation and requires the ISO to ensure efficient use and reliable operation of the electrical transmission grid consistent with achieving planning and operating reserve criteria no less stringent than those established by the Western Electricity Coordinating Council and the North American Electric Reliability Council. The Clean Energy and Pollution Reduction Act of 2015 provides for the transformation of the ISO into a regional organization, with the approval of the Legislature, pursuant to a specified process. That process provides that modifications to the ISOs governance structure, through changes to its bylaws or other corporate governance documents, will not become effective until the ISO, the Public Utilities Commission, Commission (PUC), the State Energy Resources Conservation and Development Commission, Commission (Energy Commission), the State Air Resources Board, Board (state board), the Governor, and the Legislature take specified actions on or before January 1, 2019.

This bill would prohibit a California electrical transmission facility owner, a retail seller of electricity, or a local publicly owned electric utility from joining a multistate regional transmission system organization, as defined, unless the bylaws or other organizational documents that govern the organization, and the organizations operations, meet Federal Energy Regulatory Commission requirements and other specified requirements. The bill would require a California transmission owner, retail seller, or local publicly owned electric utility, before joining a multistate regional transmission system organization, to submit the bylaws and other organizational documents that govern the multistate regional transmission system organization to the State Energy Resources Conservation and Development Commission (Energy Commission) for review. The bill would require the Energy Commission, in consultation with the Public Utilities Commission (PUC) PUC and the State Air Resources Board (state board), state board, to review those materials for compliance with the bills requirements. The bill would prohibit a California transmission owner, retail seller, or local publicly owned electric utility from joining the multistate regional transmission system organization unless the Energy Commission has determined that the organizations bylaws and organizational documents meet those requirements. If a California transmission owner, retail seller, or local publicly owned electric utility has joined an independent system operator that becomes a multistate regional transmission organization and the Energy Commission determines that the organizations bylaws and organizational documents do not meet those requirements, the bill would require that the California transmission owner, retail seller, or local publicly owned electric utility not remain in the organization. The bill would authorize the ISO to develop and submit to the Energy Commission a governance proposal that complies with those requirements, require the Energy Commission, in consultation with the PUC and state board, to review the proposal for compliance with the bills requirements, and, if the Energy Commission determines that the proposal meets those requirements and if a transmission owner from outside California that is not a participating transmission owner as of January 1, 2019, has entered into an agreement with the ISO indicating an intent to become a participating transmission owner, would authorize the ISO to proceed to implement the proposal. The bill would prohibit the ISO from implementing the new governance structure prior to January 1, 2021.

Existing law establishes the California Renewables Portfolio Standard Program, which requires the PUC to establish a renewables portfolio standard requiring all retail sellers, defined as including electrical corporations, to procure a minimum quantity of electricity products from eligible renewable energy resources, as defined, so that the total kilowatthours of those products sold to their retail end-use customers achieves certain percentages of retail sales by certain dates. The program additionally requires each local publicly owned electric utility to procure a minimum quantity of electricity products from eligible renewable energy resources to achieve the procurement requirements established by the program. The program, consistent with the goals of procuring the least-cost and best-fit eligible renewable energy resources that meet project viability principles adopted by the commission, requires that all retail sellers and local publicly owned electric utilities procure a balanced portfolio of electricity products from specified categories of eligible renewable energy resources, known as portfolio content categories. Existing law provides that electricity products may be differentiated for these purposes by their impacts on the operation of the electrical grid in supplying electricity, as well as meeting the requirements of the program.

If the ISO becomes a multistate regional transmission system organization and thereafter operates an expanded balancing authority area that includes one or more new participating transmission owners located outside of California, this bill would specify that the boundary of the balancing authority area used for determining the portfolio content categories is the boundary of the Independent System Operators balancing authority area as of December 31, 2018. However, if another balancing authority in California elects to join the ISOs balancing authority area, the bill would add the facilities of that balancing authority to the ISOs balancing authority area for purposes of determining the portfolio content categories.

Existing law provides for the establishment of an Independent System Operator (ISO) as a nonprofit public benefit corporation and requires the ISO to ensure efficient use and reliable operation of the electrical transmission grid consistent with achieving planning and operating reserve criteria no less stringent than those established by the Western Electricity Coordinating Council and the North American Electric Reliability Council. The Clean Energy and Pollution Reduction Act of 2015 provides for the transformation of the ISO into a regional organization, with the approval of the Legislature, pursuant to a specified process. That process provides that modifications to the ISOs governance structure, through changes to its bylaws or other corporate governance documents, will not become effective until the ISO, the Public Utilities Commission, the State Energy Resources Conservation and Development Commission, the State Air Resources Board, the Governor, and the Legislature take specified actions on or before January 1, 2019.

This bill would prohibit a California electrical transmission facility owner, a retail seller of electricity, or a local publicly owned electric utility from joining a multistate regional transmission system organization, as defined, unless the bylaws or other organizational documents that govern the organization, and the organizations operations, meet Federal Energy Regulatory Commission requirements and other specified requirements. The bill would require a California transmission owner, retail seller, or local publicly owned electric utility, before joining a multistate regional transmission system organization, to submit the bylaws and other organizational documents that govern the multistate regional transmission system organization to the State Energy Resources Conservation and Development Commission (Energy Commission) for review. The bill would require the Energy Commission, in consultation with the Public Utilities Commission (PUC) and the State Air Resources Board (state board), to review those materials for compliance with the bills requirements. The bill would prohibit a California transmission owner, retail seller, or local publicly owned electric utility from joining the multistate regional transmission system organization unless the Energy Commission has determined that the organizations bylaws and organizational documents meet those requirements. If a California transmission owner, retail seller, or local publicly owned electric utility has joined an independent system operator that becomes a multistate regional transmission organization and the Energy Commission determines that the organizations bylaws and organizational documents do not meet those requirements, the bill would require that the California transmission owner, retail seller, or local publicly owned electric utility not remain in the organization. The bill would authorize the ISO to develop and submit to the Energy Commission a governance proposal that complies with those requirements, require the Energy Commission, in consultation with the PUC and state board, to review the proposal for compliance with the bills requirements, and, if the Energy Commission determines that the proposal meets those requirements and if a transmission owner from outside California that is not a participating transmission owner as of January 1, 2019, has entered into an agreement with the ISO indicating an intent to become a participating transmission owner, would authorize the ISO to proceed to implement the proposal. The bill would prohibit the ISO from implementing the new governance structure prior to January 1, 2021.

Existing law provides for the establishment of an Independent System Operator (ISO) as a nonprofit public benefit corporation and requires the ISO to ensure efficient use and reliable operation of the electrical transmission grid consistent with achieving planning and operating reserve criteria no less stringent than those established by the Western Electricity Coordinating Council and the North American Electric Reliability Council. The Clean Energy and Pollution Reduction Act of 2015 provides for the transformation of the ISO into a regional organization, with the approval of the Legislature, pursuant to a specified process. That process provides that modifications to the ISOs governance structure, through changes to its bylaws or other corporate governance documents, will not become effective until the ISO, the Public Utilities Commission, the State Energy Resources Conservation and Development Commission, the State Air Resources Board, the Governor, and the Legislature take specified actions on or before January 1, 2019.

This bill would prohibit a California electrical transmission facility owner, a retail seller of electricity, or a local publicly owned electric utility from participating in joining a multistate regional transmission system organization, as defined, unless the bylaws or other organizational documents that govern the organization, and the organizations operations, meet Federal Energy Regulatory Commission requirements and other specified requirements. The bill would require a California transmission owner, retail seller, or local publicly owned electric utility, before joining a multistate regional transmission system organization, to submit the bylaws and other organizational documents that govern the multistate regional transmission system organization to the State Energy Resources Conservation and Development Commission (Energy Commission) for review. The bill would require the Energy Commission, in consultation with the Public Utilities Commission (PUC) and the State Air Resources Board (state board), to review those materials for compliance with the bills requirements. The bill would prohibit a California transmission owner, retail seller, or local publicly owned electric utility from joining the multistate regional transmission system operator organization unless the Energy Commission has determined that the organizations bylaws and organizational documents meet those requirements. If a California transmission owner, retail seller, or local publicly owned electric utility has joined an independent system operator that becomes a multistate regional transmission organization and the Energy Commission determines that the organizations bylaws and organizational documents do not meet those requirements, the bill would require that the California transmission owner, retail seller, or local publicly owned electric utility not remain in the organization. The bill would authorize the ISO, by an unspecified date, ISO to develop and submit to the Energy Commission a governance proposal that complies with those requirements, require the Energy Commission, in consultation with the PUC and state board, to review the proposal for compliance with the bills requirements, and, if the Energy Commission determines that the proposal meets those requirements and if, by an unspecified date, one or more transmission owners if a transmission owner from outside California have that is not a participating transmission owner as of January 1, 2019, has entered into a memorandum of understanding or other an agreement with the ISO indicating an intent to join the ISO by becoming become a participating transmission owner, would authorize the ISO to proceed to implement the proposal. The bill would prohibit the ISO from implementing the new governance structure prior to January 1, 2021.

Existing law establishes the California State University, under the administration of the Trustees of the California State University, as one of the segments of public postsecondary education in this state. A provision of existing law specifies 25 institutions of higher education that are included in the California State University.

Certain campuses of the California State University operate satellite campuses, also known as off-campus centers, designed to serve students who are not able to commute to a main campus of the university or who wish to develop a particular skill or trade for which instruction is offered at the satellite campus.

This bill would require a campus of the California State University that operates a satellite campus to annually provide the Legislature with a satellite campus report that includes, but is not necessarily limited to, an updated sustainability plan, financial data, and pertinent historical data and enrollment projections. The bill would also prohibit an individual campus of the California State University that operates a satellite campus from disproportionately cutting funding from the satellite campus in order to support the main campus.

(1)Existing law establishes the University of California, under the administration of the Regents of the University of California, the California State University, under the administration of the Trustees of the California State University, the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, independent institutions of higher education, and private postsecondary educational institutions University, as one of the segments of public postsecondary education in this state. A provision of existing law specifies 25 institutions of higher education that are included in the California State University.

Existing law establishes the University of California, under the administration of the Regents of the University of California, the California State University, under the administration of the Trustees of the California State University, the California Community Colleges, under the administration of the Board of Governors of the California Community Colleges, independent institutions of higher education, and private postsecondary educational institutions as the segments of postsecondary education in this state.

This bill would make a nonsubstantive change in a provision relating to the state goals for the postsecondary education system.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2017 - 2018 Regular Session

AB 813 (Holden) - Multistate regional transmission system organization: membership

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

This bill would establish a pathway for the California Independent System Operator (CAISO) to transform its governance structure to operate as a multistate regional transmission system organization should certain requirements be met.

Fiscal Impact:

• Approximately $700,000 (special fund) for the California Public Utilities Commission (CPUC) to implement the process for developing a multistate transmission system, as directed by this bill.
• $37,500 (special fund) for the California Energy Commission (CEC) to perform the new duties set forth in the bill, create implementing and procedural rules, and update the Renewables Portfolio Standard (RPS) eligibility guidebook and regulations.
• Unknown costs to state as an electricity ratepayer.

Background:

Electricity utilized by California residents moves through a complex network of substations, power lines, and distribution transformers before it reaches customers. Local electricity grids are interconnected to form larger networks for reliability and commercial purposes. North America is comprised of two major and three minor alternating current grids or “interconnection,” which operate largely independently from each other with limited transfers of power between them.

The actual operation of the electric system is managed by “balancing authorities” or BAs. BAs are entities responsible for managing the transmission of high-voltage electricity across long-distance transmission lines, and must operate at a synchronized frequency. The BA ensures in real-time that power system demand and supply are finely balanced. If demand and supply fall out of balance, the result can be local or wide-area blackouts. BAs also must manage transfers of electricity with other BAs.

The California Independent Systems Operator (CAISO) is a nonprofit public benefit corporation that was created by California statute as part of the effort to deregulate the electricity market in the late 1990s. CAISO manages the flow of electricity across the high-voltage bulk power system that makes up 80 percent of California’s and a small part of Nevada’s electric grid. As with other BAs, the CAISO is regulated by the federal government. However, unique to the CAISO, as compared to other regional systems, is that CAISO governing board members are appointed by the Governor and require confirmation by the California Senate.

There is interest in transforming CAISO into a regional body that would manage high-voltage electricity transmission for entities located throughout the Western Interconnect. Generally, the argument for a Western region electric grid is that a regional BA would better coordinate planning and dispatch of electricity resources across the West. In 2017, the Legislature passed SB 350 (De Leon), which called for several studies examining grid regionalization. While these studies did show that ratepayers could potentially experience some level of savings, the methodology and results were not universally accepted by academia or stakeholders.

Proposed Law:

This bill would delegate to the California Energy Commission (CEC) the ability to authorize the transformation of the CAISO into a multistate regional transmission system, if specified requirements are satisfied. This bill would prohibit a California electrical transmission facility owner, a retail seller of electricity, or a local publicly owned electric utility (POU) to join a multistate regional transmission system organization, if specified requirements are not met.

Related Legislation:

• SB 726 (Holden, 2017) includes three distinct, largely unrelated components, one of which establishes a process to authorize transformation of the CAISO into a regional organization.
• SB 350 (De Leon, Chapter 547, Statutes of 2015) among other things, established targets to increase retail sales of renewable electricity to 50 percent by 2030, states the intent of the Legislature to provide for the regionalization of CAISO, and requires statutory authorization of such regionalization.

Staff Comments:

In the near term, the costs associated with implementing this bill for involved departments are fairly straightforward. However, the ultimate fiscal effect on the state as a utility ratepayer is less clear. Various studies exist that suggest both utility rate increases as well as potential savings.

As currently written, this bill does not identify, in specific terms, the structure of a new regional system. Ultimately, ratepayer costs or savings would depend upon the structure that the CEC eventually adopts, should this bill pass. Once more details are available regarding the potential structure of the regionalized grid, it would be possible to more accurately estimate this bill’s effect on electricity utility rates.

-- END --

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: AB 813 (Author:Holden)

Version: June 12, 2018

Hearing Date: June 26, 2018

Fiscal: Yes

Urgency: No

Consultant: CK

SUBJECT

Multistate regional transmission system organization: membership

DESCRIPTION

This bill would establish a pathway for the California Independent System Operator to transform its governance structure to operate as a multistate regional transmission system organization should certain requirements be met. It would require approval from the state before any California transmission owner, retail seller, or local publicly owned utility joins a multistate regional transmission system organization.

BACKGROUND

The California Independent System Operator (CAISO) is a nonprofit public benefit corporation created by statute as part of the State’s efforts to restructure the electric industry. (See Pub. Util. Code Sec. 334 et seq.) The purpose of the CAISO is to ensure the efficient use and reliable operation of the electrical transmission grid, and it is charged with managing the flow of electricity across a system comprising most of California and a piece of Nevada’s transmission. The CAISO also manages the wholesale electricity market in California and operates a voluntary energy imbalance market (EIM). As discussed further below, the EIM helps balance energy supply and demand by allowing for trading of bulk power on short-term scales among a variety of utilities and generators across a number of states in the region.

The CAISO governing board is made up of five members that are appointed by the Governor and subject to confirmation by the Senate. Such members are prohibited from being affiliated with any participant in any market administered by the CAISO.

This bill would allow for the transformation of the CAISO into a more widely integrated regional governance structure that would operate as a multistate regional transmission organization in the western United States. The bill would authorize the CAISO to submit a proposal for such a governance structure that meets certain detailed requirements to the California Energy Commission.

This bill passed the Senate Energy, Utilities, and Communications Committee on a 6-1 vote with four members not voting.

CHANGES TO EXISTING LAW

Existing law, the Federal Power Act, grants the Federal Energy Regulatory Commission (FERC) with exclusive jurisdiction over the transmission of electric energy in interstate commerce. It establishes the process and procedures for establishing transmission of electric energy in interstate commerce by public utilities. (16 U.S.C. 824, 824d, 824e)

Existing law provides that all rates and charges made, demanded, or received by any public utility for, or in connection with, the transmission or sale of electric energy subject to the jurisdiction of FERC, and all rules and regulations affecting or pertaining to such rates or charges shall be just and reasonable, and any such rate or charge that is not just and reasonable is hereby declared to be unlawful. (16 U.S.C. Sec. 824d.)

Existing law provides for the restructuring of the electricity industry and creates, among other entities, the California Independent System Operator (CAISO). (Pub. Util. Code Sec. 334 et seq.)

Existing law provides for a governing board of the CAISO made up of five members appointed for three-year terms by the governor and subject to confirmation by the Senate. (Pub. Util. Code Sec. 337 et seq.)

Existing law requires the CAISO to manage the transmission grid and related energy markets in order to ensure the reliability of electric service and the health and safety of the public. (Pub. Util. Code Sec. 345.5.)

Existing law requires, in order to fulfill unmet long-term resource needs, the establishment of a renewables portfolio standard (RPS) requiring all retail sellers to procure a minimum quantity of electricity products from eligible renewable energy resources as a specified percentage of total kilowatthours sold to their retail end-use customers each compliance period. (Pub. Util. Code Sec. 399.15, 399.16.)

This bill would authorize the CAISO Board of Governors to develop and submit to the Energy Commission a governance proposal that complies with specified requirements. The Energy Commission, in consultation with the Public Utilities Commission (PUC) and the State Air Resources Board(ARB), would be required to review the governance proposal for compliance. This review would include public review of, and written comment on, the proposal and at least one public workshop or hearing at which public comment is received.

This bill would provide that if the Energy Commission determines that the governance proposal meets all requirements, and if a transmission owner from outside California that is not a participating transmission owner as of January 1, 2019, has entered into an agreement with the CAISO indicating its intent to become a participating transmission owner, and FERC has approved any changes to the CAISO’s tariff necessary for the new participating transmission owner to join, then the CAISO would be allowed to proceed with implementing a governance structure consistent with the proposal. Such a new structure could be implemented as of January 1, 2021.

This bill would require the Energy Commission to verify that the CAISO has implemented a governance structure consistent with this section and, upon so verifying, shall promptly provide notice to the Secretary of State. Upon receipt of notice by the Secretary of State, the following provisions would become inoperative: Article 2 (commencing with Section 334), Section 345.5, and Sections 346 to 349, inclusive, of the Public Utilities Code. This bill would require the Energy Commission to report to the Legislature its verification and notification to the Secretary of State.

This bill would provide that a California transmission owner, retail seller, or local publicly owned electric utility shall not join a multistate regional transmission system organization as a California participating transmission owner unless the bylaws or other organizational documents that govern the organization and its operations meet FERC requirements and do all of the following:

• prohibit a member of the governing board of the organization from any affiliation with a participant in any market overseen by the organization. A member of the governing board also shall not have been an employee of a market participant within two years prior to becoming a member of the board;
• limit conflicts of interest by prohibiting any member of the governing board from directly owning any interest in energy-related assets that are appreciably affected by the actions of the organization and by requiring annual disclosure of significant financial interests;
• provide for and maintain a decision-making process that is independent of control by any market participant or class of participants;
• provide for and maintain open meeting standards and meeting notice requirements that are consistent with the general policies of the Bagley-Keene Open Meeting Act (Article 9 (commencing with Section 11120) of Chapter 1 of Part 1 of Division 3 of Title 2 of the Government Code) and afford the public the greatest possible access to meetings, consistent with other duties of the organization;
• subject to reasonable measures to limit the length of meetings or disruptions to meetings, authorize interested members of the public and representatives of customers to participate in person or through remote electronic means in meetings of the governing board and in the meetings of any advisory group to the governing board;
• provide public access to the records of the organization consistent with the general policies of the California Public Records Act (Chapter 3.5 (commencing with Section 6250) of Division 7 of Title 1 of the Government Code), consistent with the other duties of the organization;
• require that the governing documents of the organization be posted and maintained on the organization’s public Internet Web site;
• protect and preserve a state’s authority over matters regulated by the state, including procurement policy, resource planning, and resource or transmission siting within the state;
• require retail sellers in each state to meet minimum resource adequacy standards and permit each state to establish resource adequacy standards for its retail sellers that exceed those required by federal law, in the state’s discretion;
• require a participating local publicly owned electric utility in each state to meet minimum resource adequacy standards and permit the governing board of a participating local publicly owned electric utility to establish resource adequacy standards that exceed those required by federal law, in the discretion of the governing body;
• prohibit the multistate regional transmission organization from operating a centralized capacity market in California for the forward procurement of electrical generating capacity that requires capacity to clear at a market clearing price in order to count for resource adequacy purposes;
• ensure that the dispatch of resources by the multistate regional transmission organization to serve load in California appropriately reflects the costs for resources to comply with California’s climate policies, as implemented by the State Air Resources Board. The multistate regional transmission system organization shall maintain a transparent system for tracking emissions of greenhouse gases resulting from resources dispatched to serve California load;
• establish and maintain equitable transmission cost allocation rules through an open stakeholder process approved by FERC. The rules shall ensure that California participating transmission owners receive equitable use of, and just and reasonable compensation for, their past investments in the transmission system assets for which operational control is transferred to a multistate regional transmission system organization;
• enhance the competitive structure of the organization by providing for and maintaining an independent market monitor;
• establish a clear process, structure, and organizational support for state regulators within the region served by the multistate regional transmission system organization to collaborate and provide guidance to the organization on matters of interest to more than one state, including on issues relating to the organization’s independent market monitoring function established by FERC;
• enable participation of demand response, storage, and other distributed energy resources in the organization’s markets;
• provide for and maintain a process for obtaining stakeholder input on policy initiatives requiring approval of FERC that is open to all members of the public and that does not require payment of a membership fee or other charge to participate; and
• ensure the right of any participating transmission owner to unilaterally withdraw from the multistate regional transmission system organization, with or without cause, upon giving reasonable notice, not to exceed two years.

This bill would provide that, in order to meet the requirement regarding state regulators, the proposal must provide for the establishment of a western states’ committee. The committee would have three representatives from each state that has a transmission owner participating in the Independent System Operator. The representatives from California would be appointed by the Governor, subject to confirmation by the Senate. The committee would provide guidance to the Independent System Operator on all matters of interest to more than one state.

This bill would provide that the requirements regarding open meetings and record access policies are met by the policies of the CAISO in effect as of January 31, 2018.

This bill would provide that no California transmission owner, retail seller, or local publicly owned electric utility would be required to join or remain in a multistate regional transmission system organization. However, before joining one, they would be required to submit the bylaws and other organizational documents that govern the multistate regional transmission system organization to the Energy Commission for review. The Energy Commission, in consultation with the PUC and ARB, shall review the bylaws and organizational documents that govern the multistate regional transmission system operator for compliance, including public review of, and written comment on, the materials and at least one public workshop or hearing at which public comment is received.

This bill would prohibit a California transmission owner, retail seller, or local publicly owned electric utility from joining a multistate regional transmission system organization unless the Energy Commission has determined that the organization’s bylaws and organizational documents meet the specified requirements. If a California transmission owner, retail seller, or local publicly owned electric utility has joined an independent system operator that becomes a multistate regional transmission organization, and the Energy Commission determines that the organization’s bylaws and organizational documents do not meet the requirements, the California transmission owner, retail seller, or local publicly owned electric utility would prohibit them from remaining in the organization.

This bill would provide that if the CAISO becomes a multistate regional transmission system organization and thereafter operates a balancing area that expands beyond the CAISO’s balancing authority area as of December 31, 2018, to include one or more new participating transmission owners located outside of California, the balancing authority area boundary used for determining compliance with the requirements of Section 399.16, except as provided, shall continue to be the boundary of the CAISO’s balancing authority area as of December 31, 2018. If another balancing authority in California elects to join the Independent System Operator’s balancing authority area, the balancing authority used for determining compliance with the requirements of Section 399.16 would include facilities of that other balancing authority that are added to the Independent System Operator’s balancing authority area.

This bill would provide that the CAISO shall not be deemed to be a multistate regional transmission system organization unless and until it has completed the governance change process requirements and the Energy Commission has provided notice of this change to the Secretary of State.

COMMENT

1. Stated need for the bill

According to the author:

The bill facilitates expansion of the CAISO to expand its membership to include other balancing authorities across the 14 western states which is also referred to as regionalization. Specifically, if the CAISO shows compliance with the operating standards and protocols set forth in this bill (which would be confirmed by the California Energy Commission), the CAISO reports an agreement with one or more out-of-state balancing authorities to join the CAISO, and the FERC approves a revised tariff, then, no sooner than 2021, The CAISO board would be deemed inoperable and a western states committee of the CAISO would be created which would include with three appointments by the Governor and confirmed by the Senate. [sic.]

The value of an expanded grid to the ratepayers of California is:

• Reduced rates for customers across the state: More efficient day-ahead unit commitment and dispatch of resources, beyond what can be achieved through the Energy Imbalance Market (EIM), resulting in reduced costs for customers across the footprint;
• Reduced reserve requirements, resulting in fewer unnecessary fossil power plants being built, both for peak demand and operating requirements, due to the regional diversity of loads across a broader footprint;
• Enhanced accuracy tracking and reporting of GHG emissions associated with out-of-state imports of power, including coal, which is largely masked as “system power” and does not properly account for costs of carbon coming into the state;
• Smoother integration of increasing renewable resources due to a more diverse supply, both technologically and geographically, and the potential to reduce otherwise expected curtailments of renewable generation; and
• Enhanced regional transmission planning and elimination of unnecessary “pancaked” transmission rates: Elimination of “pancaked” transmission rates across multiple Balancing Authorities (BAs) will facilitate increased trade in surplus renewable energy. More efficient transmission system planning across a broader geographic footprint will help ensure that only the most cost-effective system additions are approved.

2. The benefits and risks of regionalization

Proponents of regionalization contend that the move will provide significant environmental and economic benefits to California, as well as other western states. They argue a regionalized grid would enhance reliability as California and other states increase their integration of renewable energy into the system. Proponents believe that regionalization is critical to meeting the State’s lofty renewable goals. The ultimate outcome would be cheaper, cleaner electricity on a much larger scale.

Proponents argue that wider regionalization is infeasible with a board appointed by the Governor of California as other states would be unwilling to operate under such a model. Therefore, the transition of the CAISO governance structure, authorized by this bill, is necessary to achieve the benefits of a regionally-integrated grid.

In response, opponents generally acknowledge the benefits of wider regional coordination, but vehemently oppose the path laid out by this bill. They believe that regionalization as laid out by this bill would cause serious, irreparable harm to California and its progress in greater reliance on renewable energy sources.

Regionalization would provide certain efficiencies in the maintenance of energy supply and demand, addressing the issues of surplus renewable energy in California. Opening up a much larger market for this commodity could help California and other states meet their renewable energy goals. SB 350 (De León, Ch. 547, Stats. 2015) called upon the CAISO to conduct studies on the impacts of a regional market. Proponents point to some of the positive results that came out of those studies. However, there are cogent critiques of the methodology and results. For instance, the study declined to model the incremental economic benefits of regional expansion when compared to the benefits expected from the Energy Imbalance Market (EIM). This is particularly relevant, as discussed more thoroughly below, given that an expanded EIM is arguably a sounder step forward than the leap proposed by this bill. The study specifically acknowledges that its “analyses exclude any impacts related to the EIM. This means the benefits analyzed and quantified in our study do not include any that could be (or would be) achieved by expanding the EIM . . . .” (CAISO, Senate Bill 350 Study (July 8, 2016) <https://www. caiso.com/Documents/SB350Study_AggregatedReport.pdf> [as of June 22, 2018].)

A coalition of groups in opposition, including the Utility Reform Network, Sierra Club, and various labor organizations, point out deficiencies in the study, identifying “a variety of unrealistic assumptions,” “omissions,” and “misrepresentations” therein, including:

• Approximately 70% of the estimated benefits to California customers in 2020 are assumed to result from PacifiCorp paying a full share of CAISO operational costs. The study ignores the fact that PacifiCorp has insisted that it will pay little or none of these costs even after joining CAISO.
• The greatest job creation would result under a scenario where regional expansion does not occur but California increases coordination with other parts of the West to enable greater exports of electricity. This approach would yield an additional 10,000 in-state jobs by 2030. These results were withheld from the original results presented to stakeholders, are omitted from the main volume of the final report, and can only be found through careful review of a cryptic table buried within the 688-page document.

Given the concerns, the Committee may wish to consider calling for a revised study to include a wider range of regional coordination scenarios including an expansion of the EIM to inform any further regionalization attempts. This study should be completed prior to the passage of a bill to approve regionalization.

Despite the stated benefits, there are grave dangers in moving forward with the reorganization of the CAISO. Currently, California is able to exert a certain amount of influence over the direction of the CAISO with a board appointed by the Governor and subject to approval by the California State Senate. Under this bill, California would lose its control.

After California ceded control to the federal government in the 1990s, it took tremendous effort to claw back the amount of control currently maintained. This critical oversight was established by statute and a challenge several years later by Duke Energy and the Federal Energy Regulatory Commission (FERC) was narrowly defeated. (See Cal. Indep. Sys. Operator Corp. v. FERC (2004) 372 F.3d 395.) The concern is that once California gives up this degree of control, it will be gone forever, and in its place will be the uncertainty of increased federal intervention.

3. The Dormant Commerce Clause and federal preemption

The two major legal concerns that arise from the regionalization model proposed by this bill are based on the federal preemption doctrine and the Dormant Commerce Clause.

The supremacy clause of the United States Constitution provides:

This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.

(U.S. Const., art. VI, cl. 2.) This provision forms the basis of Congress’ authority to preempt state laws. “Under the Supremacy Clause, from which our pre-emption doctrine is derived, any state law, however clearly within a State’s acknowledged power, which interferes with or is contrary to federal law, must yield.” (Gade v. National Solid Waste Management Association (1992) 505 U.S. 88, 108.) United States Supreme Court precedent identifies several forms such preemption may take.

The simplest form is “express preemption,” which occurs when Congress explicitly preempts state law in its enactment of federal law. Congress can also preempt state law implicitly. Field preemption exists when federal law creates “a scheme of federal regulation ‘so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it.’” (Barnett Bank, N.A. v. Nelson (1996) 517 U.S. 25, 31 (quoting Rice v. Santa Fe Elevator Corp. (1947) 331 U.S. 218, 230).) “Conflict preemption” exists where federal law actually conflicts with state law and compliance with both state and federal law is impossible or where the state law impedes the realization of the full purposes and objectives of Congress. (California v. ARC America Corp. (1989) 490 U. S. 93, 100.) Federal preemption is not limited to federal statutes, as regulations adopted by federal agencies may also supersede state law. (Washington Mutual Bank v. Superior Court (2002) 95 Cal.App.4th 606, 612.)

Article I, Section 8 of the United States Constitution bestows the power upon the federal government to regulate commerce among the states. Although not explicitly stated therein, this clause has been interpreted to include a “dormant limitation on the authority of the States to enact legislation affecting interstate commerce.” (Healy v. Beer Inst. (1989) 491 U.S. 324, 326 n.1.) This is aptly referred to as the Dormant Commerce Clause. The key questions when determining whether a state law is in violation of this constitutional principle is whether the law discriminates between in-state and out-of-state actors. Thus, while preemption requires that the federal government has legislated, the Dormant Commerce Clause can be used to invalidate state laws where no federal law governs.

In the regionalization context, the concern is that should California open up the operation of the CAISO to a wider footprint and begin engaging with other states on a contractual basis, it may expose state policies and programs to federal preemption claims or Dormant Commerce Clause challenges. Simply put, if California attempts to regulate the type or amount of energy being produced while part of a regional market, there could be a challenge made that such laws either conflict with FERC jurisdiction and are preempted or that the laws unduly interfere with the interstate flow of energy and the energy generation and exchange in other states as part of the regional grid California would be integrated into.

For instance, existing law establishes a renewable portfolio standard (RPS) that requires the California Public Utilities Commission (CPUC) to establish an RPS requiring all retail sellers to procure a minimum quantity of electricity products from eligible renewable energy resources. (Pub. Util. Code Sec. 399.16.) The RPS “bucket” system has worked and the recent amendments to the bill would maintain it, but apply it to the current CAISO territory. Unfortunately, this boundary loses its meaning in a larger regional organization. A recent case out of the Second Circuit Court of Appeals upheld an RPS scheme in Connecticut, but specifically on the grounds that it applied across the wholesale electricity market the state operated within:

Significantly, we note that Connecticut’s RPS program makes geographic distinctions between RECs only insofar as it piggybacks on top of geographic lines drawn by [the New England ISO] and the [New England Power Pool Generation Information System], both of which are supervised by FERC—not the state of Connecticut. It is FERC that has created the geographic distinctions on which Connecticut’s program is predicated by organizing owners of transmission lines into “independent system operators” (ISOs), such as ISO-NE, and “regional transmission organizations” (RTOs) in order “to help manage the grid, ensure system reliability, and guard against discrimination and the exercise of market power in the provision of transmission services.”

(Allco Fin., Ltd. v. Klee (2d Cir. 2017) 861 F.3d 82, 107.) Under this bill, the RPS eligibility would not be defined on the basis of the regional market supervised by FERC and overlapping with the new regional market, but would be based on the CAISO borders as they exist prior to expansion. While the decision supports the existing system applying to the CAISO market boundaries, the language in Klee calls the continued viability of California’s RPS program into serious doubt if regionalization occurred pursuant to this bill. A system that appears to provide an in-state preference, as this bill would, leaves the program susceptible to a Dormant Commerce Clause challenge. In fact, no court has upheld delivery requirements to a single state within an RTO.

A coalition of organizations, including Food and Water Watch and Consumer Watchdog, state in opposition:

If California disbands the CAISO in favor of a RTO that would run electricity markets and transmission grids throughout the West, California will leave itself vulnerable to the FERC’s preempting California’s renewable energy mandates, its already approved contracts with California power plants, and its strong motion toward community-based and distributed energy resources. Recent U.S. Supreme Court decisions have affirmed FERC’s authority over RTOs and at least ten states that fought against their RTOs to preserve state authority over power decisions have lost at FERC.

Other opponents echo this point:

CAISO expansion would increase the likelihood of successful federal preemption challenges when state procurement and resource planning policies directly affect multi-state RTO wholesale markets. To the extent that CAISO’s preferred regional energy market design or other regional requirements conflict with state policies, California could be forced to defend its laws and regulations against challenges that would be adjudicated at FERC or in federal court. Conflicts in other regional markets have led to a variety of state laws being challenged by private interests with a number of high-profile state initiatives being struck down by federal courts on the basis of federal preemption. In at least one major case, the court relied heavily on the fact that the state was part of a multi-state RTO as the basis for striking down its efforts to reduce reliance on coal-fired generation.

The author argues that such concerns are without foundation. Proponents argue that California is at no greater risk of FERC interference under this bill than it already is. However, there is a growing volume of case law that supports the reality of these risks.

In North Dakota v. Heydinger (8th Cir. 2016) 825 F.3d 912, the Eighth Circuit Court of Appeals was presented with a challenge to a Minnesota statute governing carbon dioxide emissions. The statute intended to reduce “statewide power sector carbon dioxide emissions” by prohibiting utilities from meeting Minnesota demand with electricity generated by a “new large energy facility” in a transaction that will contribute to carbon dioxide emissions. (Id. at 915-916.) The statute regulated “the total annual emissions of carbon dioxide from the generation of electricity within the state and all emissions of carbon dioxide from the generation of electricity imported from outside of the state and consumed in Minnesota.” (Id.)

Minnesota is part of an ISO, the Midcontinent Independent Transmission System Operator (MISO). The court found that in the regional grid, “a person who imports electricity does not know the origin of the electrons it receives, whether or not the transaction is pursuant to a long-term purchase agreement with an out-of-state generator.” (Id. at 921.) The court explained:

In the MISO grid, electrons flow freely without regard to state borders, entirely under MISO’s control. Thus, when a non-Minnesota generating utility injects electricity into the MISO grid to meet its commitments to non-Minnesota customers, it cannot ensure that those electrons will not flow into and be consumed in Minnesota. Likewise, non-Minnesota utilities that enter into power purchase agreements to serve non-Minnesota members cannot guarantee that the electricity eventually bid into the MISO markets pursuant to those agreements will not be imported into and consumed in Minnesota.

(Id.) The court found that Minnesota’s statute therefore ran afoul of the Dormant Commerce Clause because it sought to impose carbon dioxide emissions standards that would necessarily implicate other participants in the regional grid where generation and transmission was occurring wholly out of state. (Id.) The court reasoned:

Other States in the MISO region have not adopted Minnesota’s policy of increasing the cost of electricity by restricting use of the currently most cost-efficient sources of generating capacity. Yet the challenged statute will impose that policy on neighboring States by preventing MISO members from adding capacity from prohibited sources anywhere in the grid, absent Minnesota regulatory approval or the dismantling of the federally encouraged and approved MISO transmission system. This Minnesota may not do without the approval of Congress.

(Id. at 922.)

One recent United States Supreme Court case involved PJM Interconnection, a regional transmission organization overseeing a multistate grid on the east coast. (Hughes v. Talen Energy Mktg., LLC (2016) ___U.S.___ [136 S.Ct. 1288, 1297].) PJM operated a capacity auction for the exchange of power through long-term bilateral contracts. (Id. at 1294-95.) Maryland, a participant in the PJM, became concerned that the capacity auction was not adequately incentivizing the development of sufficient new electricity generation in-state. (Id.) In response, Maryland enacted its own regulatory program, providing subsidies to a new generator that would sell that capacity into the auction. (Id.)

The United States Supreme Court struck down the Maryland program, finding it intruded upon FERC’s exclusive jurisdiction. (Talen Energy at 1297-99.) The Court specifically held that the fact Maryland was only attempting to encourage construction of new in-state generation did not save its program. (Id.) The Court concluded that “States may not seek to achieve ends, however legitimate, through regulatory means that intrude on FERC’s authority.” (Id.)

The author and proponents argue that such holdings are limited to the particular circumstances of those cases and would not serve to undermine California law should California enter into a larger regional market pursuant to this bill. However, this is far from clear. Although, for instance, the Court in Talen Energy expressly limited its holding to the particular intrusion presented therein, there is no certainty or guarantee that the underlying principles of these cases would not be applied to undermine California’s current or future policies. Regionalization would make the bounds of California’s energy policy blurrier and attempts to assert authority over in-state production could be found to run afoul of the Dormant Commerce Clause or, where impinging on the jurisdiction of FERC, preempted by federal law.

Should such fears materialize, California could see significant harms to its energy goals and its standing in the regional market. Opponents point out that should California laws governing the use of renewable energy be preempted in this new scheme, dirtier energy, such as from coal, could enter into the grid operating in California. Recent efforts by the Trump administration to promote coal and roll back environmental protections make clear the type of damage that could result in a worst-case scenario. Currently, coal-powered generation does not exist within CAISO territory, and nuclear generation has significantly declined, impairing the ability for the Trump administration to force either source of power generation on California ratepayers. However, under this bill, the territory of a western regional operator would likely include significant coal and natural gas generation capacity, markedly increasing the likelihood that California, as the largest statewide market in the western region, would be required to purchase coal and natural gas, in contravention of state climate policies and renewable energy goals.

It is an understatement to say the federal administration does not share the same environmental policy goals as California as the Trump administration has made unprecedented attempts to test the limits of the Federal Power Act (FPA), the key federal statute governing energy generation and transmission. In early 2018, FERC rejected an attempt by Secretary of Energy Rick Perry to implement a policy (the so-called “Perry Plan”), under Section 206 of FPA, to protect existing fossil fuel and nuclear generation.

Undeterred, in June of this year, a draft memo was leaked that indicated the Trump administration would attempt to use its emergency powers authority under Section 202 of the FPA to establish a Strategic Electric Generation Reserve composed of fossil fuel and nuclear generators, requiring FERC to impose a two-year reserve requirement of “strategic generation” on all regional transmission entities. The plan would also have relied on the Defense Production Act of 1950, which provides the executive broad powers.

One of the clearest examples of these risks is California’s carbon pricing. It is the main mechanism that keeps coal power out of California’s wholesale electricity market. However, it is uncertain whether California would be able to continue to impose carbon prices on generators outside of California without violating the Dormant Commerce Clause, and even if there was a way to maintain the carbon pricing scheme, it is unclear how it could function on a practical level. The current EIM operated by the CAISO is entirely voluntary and amazingly FERC approved the integration of carbon pricing into the EIM tariff. Regionalization of the grid would undermine the voluntary nature of this mechanism and likely run into serious issues, such as those faced in Heydinger.

Even if the law could be applied solely within California to California generators without affecting interstate commerce, out-of-state entities would have a clear advantage over in-state producers that would be required to absorb this additional cost.

The bill attempts to address these risks by strictly conditioning the restructuring of the CAISO on various prerequisites. For instance, a California transmission owner, retail seller, or local publicly owned electric utility would not be authorized to join a multistate regional transmission system unless certain requirements are met, such as clear processes for state regulators to provide guidance, maintenance of equitable transmission cost allocation rules, minimum resource adequacy standards, a prohibition on the organization operating a centralized market in California, and policies providing similar protections to the Bagley Keene Act and Public Records Act. However, despite all these up front assurances, once the CAISO is set out on its own, in territory strictly overseen by FERC, there are no guarantees, especially when the CAISO no longer has to operate under the political oversight of the Legislature. The holding in Talen Energy reinforces this concern, as it involved guarantees made to Maryland by the PJM in exchange for support for a centralized capacity market. However, those promises were later revoked over Maryland’s objections.

FERC has expansive jurisdiction over energy that is transferred through interstate commerce. Given the current administration and its ever-increasing appetite to usurp state control, it would arguably be dangerous policy to enter California into a regional grid and thereby increase the risk that FERC and this administration find a hook to challenge a host of laws in California, not to mention take control over what type of energy is generated and used in California and how much it costs.

4. Illusory safety net

Although proponents of the measure point to the escape hatch provisions of the bill that would allow participating transmission owners to unilaterally withdraw from the multistate regional transmission organization with two years’ notice should things go awry, the reality is that things would not be able to simply return to how they currently operate. Outside of the great expense and legal tangles that such a “reset” would involve, as indicated above, the current structure of the CAISO was nearly overturned by an aggressive legal challenge. A change in governance now would undermine any res judicata effect of that ruling and reestablishing a new structure with State oversight, such as the one the CAISO has now, would have a difficult time attaining the necessary approval from FERC. The United States Court of Appeals for the District of Columbia Circuit made clear this possibility. (See Cal. Indep. Sys. Operator Corp. v. FERC (2004) 372 F.3d 395.)

The only fool-proof way to secure a path back would be to require express and binding assurances from FERC in advance of any change in governance that the current structure would be recertified in the event of a pull out. The chances of attaining such assurances are dismal.

5. Another way forward

Despite the appealing benefits of decisive and expansive regionalization, the uncertainty that comes with increased regionalization, and the magnitude of the risks, supports a measured approach. While proponents assert that the increased expansion provided for by this bill in no way lessens California’s power over energy policies affecting it nor increases its susceptibility to federal preemption or commerce clause challenges, the evidence does not support such unequivocal optimism.

One alternative way forward that would achieve the benefits and efficiencies afforded by larger markets is expanding the existing voluntary EIM that the CAISO currently operates. The EIM currently includes participants from eight states and is steadily expanding. While the current market operates on a limited scale, it could be expanded to allow for longer-term agreements. Such a system would allow California to reap the benefits of more expansive trading without risking the relative autonomy over energy policy it currently enjoys.

A coalition of groups in opposition to the bill, including The Utility Reform Network, Sierra Club California, the State Building and Construction Trades Council, and other labor organizations, makes the case:

[Alternative options include] [e]xpanding the voluntary Energy Imbalance Market (EIM) to permit transactions with other western balancing authorities that go beyond real-time and allow day ahead scheduling. Previous CAISO studies found that participation by other Western utilities in the EIM could significantly reduce, or even eliminate, all expected curtailments of renewable resources within California. CAISO identified this potential change in its most recent policy initiatives roadmap and notes that an expanded EIM would improve market efficiency and more effectively integrate renewable generation while allowing each state to retain control over reliability responsibilities, integrated resource planning, resource adequacy and transmission planning and investment.

The California Municipal Utilities Association similarly states in opposition:

CAISO started the Energy Imbalance Market (EIM) in 2014 to increase efficiencies and help address renewable integration challenges. The Western EIM now has eight EIM Entities that have gone live, and four more currently scheduled to go live in the next two years. Notably, the largest public power systems in the West are in that group going live in 2019 and 2020. The CAISO had teed up possible expanded functionality of the EIM to include day-ahead bidding. Importantly, the decision to become an EIM Entity is voluntary and based on a case-by-case benefit/cost analysis for each organization. Furthermore, resource participation decisions within the EIM market structure are voluntary. It’s working, saving consumers money and benefitting the environment. Political intervention, like that contemplated in AB 813, puts this valuable progress in jeopardy.

Consumer benefits must drive consideration of CAISO expansion. CMUA firmly believes that the best way to ensure consumer benefits is to build upon the success of the EIM, let markets evolve organically, and shift our focus onto implementing other, more effective clean energy priorities rather than changes to CAISO governance.

One major impetus for pushing regionalization now is the surplus renewable energy California is unable to use effectively. Another proposal presented short of regionalization would involve an exchange of hydropower from the Northwest for the solar energy that California overproduces during the daylight hours. In addition, advances in electricity storage technology can also render this problem moot:

With battery costs continuing to decrease and battery alternatives coming into the fore, projections of storage capacity are indeed quite possible. Assuming the electric industry can indeed upgrade its current infrastructure, new grid connections means that energy will be able to be shared more than ever, perhaps even traveling far distances during peak or be stored for non-peak use anywhere on the grid. When storage costs and capacity align with market incentives, we may just see a renewable energy revolution, one that makes distributed generation mainstream for all consumers.

(Brigham McCown, Is Reliable Energy Storage On The Horizon? (June 19, 2018) Forbes <https://www.forbes.com/sites/brighammccown/2018/06/19/is-reliable-energy-storage-on-the-horizon/#5cc7a4f02993> [as of June 21, 2018].)

The California Environmental Justice Alliance offers additional methods, including:

• Taking steps to enable greater exports of surplus in-state renewable generation including obtaining an assessment from the Western Electricity Coordinating Council regarding the feasibility of increasing net export limits.
• Investigating the establishment of a regional planning reserve sharing agreement among Western Balancing Authorities to reduce overall reserve requirements.
• Work with other western balancing authorities to reduce barriers to exporting excess power produced by in-state renewable resources.

These proposals represent a move toward greater regional cooperation without the attendant risks associated with regionalization pursuant to the procedures laid out in this bill. Given the current climate at the federal level, it is arguably a more prudent policy decision to proceed incrementally and cautiously, rather than go all in with no path back.

6. Support and Opposition

The Environmental Defense Fund writes in support:

This bill is essential to achieving California’s bold greenhouse gas reduction goals. AB 813 leverages the capabilities of our CAISO, so that it can evolve into a regional platform for a low carbon grid. By linking our sophisticated grid operator and wholesale markets with other clean, renewable energy resources in the West, California will gain more flexibility to manage its own abundant renewable resources, while helping other states make the transition to low-carbon electricity systems.

Writing in support, the Natural Resources Defense Council states:

We need a fully integrated western power grid to replace our current fragmented system where 38 different grid operators move electricity to homes and businesses across California and other Western states. With greater coordination, an independent Western grid operator will be able to draw cleaner, cost-effective electricity from across the region and send it where it is needed. This approach will reduce costs and improve reliability for electricity customers across the region. A 2016 study by CAISO found that a transition to a regional grid operator with an independent board will save the state’s electricity customers $1 billion to $1.5 billion annually by 2030.

AB 813 will ensure that California can obtain the economic benefits of a regional grid while maintaining control of its own utilities and energy policies, by establishing a set of criteria in statute that must be met prior to participation of California utilities and transmission owners.

Stem writes in support that it “believes that a regionally-integrated grid and market, if designed correctly, can ensure continued growth of distributed energy resources, distributed storage, and largescale clean resources.” It cites its “experience with sustainability-oriented customers” in arguing that “consumers want to access the energy markets in new ways and to contribute to state and regional sustainability goals.” Stem contends:

Regionalization could help expand distributed storage and distributed clean resource growth to further serve local capacity constraints across the West as well as contribute to regional grid service functions. Distributed storage, inside and outside California via a regionalization paradigm, can help address our current, severe grid ramps in energy demand at sunset, when solar generation goes offline.

Writing in opposition, the County of Imperial states that the “consolidation of California’s grid with other states would increase costs to ratepayers, relinquish California’s control over resource procurement, result in the export of much-needed, well-paid jobs to other states, and place Imperial County’s renewable resources, particularly geothermal, at a competitive disadvantage.”

The Southern California Public Power Authority (SCPPA) writes in opposition:

Given the number of significant policy and implementation discussions that have yet to occur, SCPPA strongly believes that a more thorough cost-benefit analysis is needed before the State can make an informed decision. There are simply too many unknown components and variables – which, even if known, would be still difficult to control. The greater regional market touting advocates cannot feasibly measure California customer and ratepayer impacts without fully understanding these interactions. Any transition to new or expanded energy markets requires careful consideration to ensure that it is “in the best interests of California and its ratepayers” – a growing number of whom are served by not-for-profit public power entities.

California must be diligent in protecting its ratepayers from inadvertent negative long-term market and reliability impacts.

The California Alliance for Community Energy writes in opposition:

CAISO regionalization is about changing the governance of CAISO. Rather than being governed by a California-appointed board, California would become a minority party in a large Regional Transmission Organization (RTO), an industry-run authority directly regulated by the federal government via the Federal Energy Regulatory Commission (FERC).

This change in governance would place control over California’s energy market in the hands of a Western states RTO heavily dominated by coal interests (the largest coal-producing states in the U.S.) and under the direction of the Trump administration. California’s policies for transitioning to renewable energy—and initiatives to develop distributed or decentralized energy resources—would be subject to review and revision by a market authority that is not interested in either.

Support: 8minutenergy Renewables; Advanced Energy Economy; American Association of Blacks in Energy; American Council On Renewable Energy; Bay Area Council; Brightline Defense Project; California Chamber of Commerce; California Community Choice Association; California Independent System Operator; EDF Renewable Energy; EDP Renewables; Environmental Defense Fund; E2 – Environmental Entrepreneurs; Independent Energy Producers Association; The Honorable Jay Inslee, Governor, Washington; League of Women Voters of California; Monterey Bay Community Power; Natural Resources Defense Council; Public Generating Pool; Silicon Valley Leadership Group; Solar Energy Industries Association; Sonoma Clean Power; Stem; SunPower; Union of Concerned Scientists; Vote Solar

Opposition: 350 Bay Area; 350 Conejo – San Fernando Valley; 350 Riverside; 350 Santa Barbara; 350 Silicon Valley; 350 Sonoma; 350 South Bay Los Angeles; American Wind Energy Association California Caucus; Business for Good, San Diego; California Alliance for Community Energy; California Community Choice Association; California Environmental Justice Alliance; California for Progress; California Large Energy Consumers Association; California Municipal Utilities Association; California State Association of Electrical Workers; California State Pipe Trades Council; Californians for Energy Choice; Californians for Green Nuclear Power, Inc.; Change Begins with Me – Indivisible CA District 78; Chico 350; City of Lake Forest; Climate Action Campaign; Climate Hawks Vote; Consumer Watchdog; Democratic Socialists of America, Climate Justice Committee – Los Angeles; Divest LA; East Bay Clean Power Alliance; Emerald Cities San Francisco; Food & Water Watch; Greenpower; Imperial County Board of Supervisors; Imperial Irrigation District; Indivisible CA-33; Indivisible Media City; IndivisibleSF; Local Clean Energy Alliance; Los Angeles Alliance for a New Economy; Mothers Out Front; No Coal in Oakland; Northern California Power Agency; Northridge Indivisible; Oakmont Progressives; People Demanding Action; Progressive Democrats of America; The Resistance Sacramento/Elk Grove; Revolution LA; Romero Institute; Rootskeeper; San Diego 350 – Climate Action; San Diego Community Choice Alliance; San Diego Energy District; San Francisco Berniecrats; San Luis Obispo Clean Energy; San Luis Obispo Clean Water; Santa Barbara Standing Rock Coalition; San Jose Community Energy Advocates; Save Porter Ranch; Sierra Club; SoCal 350; Sonoma Valley Climate Coalition; Southern California Public Power Authority; State Building and Construction Trades Council; Sunflower Alliance; Surfrider Foundation, LA Chapter; Sustainable Marin; The Utility Reform Network; Western States Council SMART; Women’s Energy Matter; World Business Academy

HISTORY

Source: Author

Related Pending Legislation: None Known

Prior Legislation:

SB 726 (Holden, 2017) would have authorized the transformation of the CAISO into a regional organization if its governing board undertook certain steps and the Commission on Regional Grid Transformation, which the bill would have created, made specified findings. This bill is in the Senate Rules Committee.

SB 350 (De León, Ch. 547, Stats. 2015) among other things, established targets to increase retail sales of renewable electricity to 50 percent by 2030, states the intent of the Legislature to provide for the regionalization of CAISO, and requires statutory authorization of such regionalization.

Prior Vote:

Senate Energy, Utilities, and Communications Committee (Ayes 6, Noes 1)

Assembly Floor (Ayes 78, Noes 0)

Assembly Appropriations Committee (Ayes 12, Noes 4)

Assembly Higher Education Committee (Ayes 11, Noes 1)

**************

SENATE COMMITTEE ON ENERGY, UTILITIES AND COMMUNICATIONS

Senator Ben Hueso, Chair

2017 - 2018 Regular

Bill No: AB 813 Hearing Date: 6/19/18

SUBJECT: Multistate regional transmission system organization: membership

DIGEST: This bill would delegate to the California Energy Commission (CEC) the ability to authorize the transformation of the California Independent System Operator (CAISO) into a multistate regional transmission system, if specified requirements are satisfied. This bill would prohibit a California electrical transmission facility owner, a retail seller of electricity, or a local publicly owned electric utility (POU) to join a multistate regional transmission system organization, if specified requirements are not met.

ANALYSIS:

Existing law:

1. Establishes that U.S. Federal Energy Regulatory Commission (FERC) as exclusive jurisdiction over the transmission of electric energy in interstate commerce. Also establishes the process and procedures for establishing transmission of electric energy in interstate commerce by public utilities, i.e., the rates, terms & conditions of interstate electric transmission by public utilities. (Federal Power Act §§§201, 205, 206 (16 USC 824, 824d, 824e)
2. Sales of electric energy at wholesale in interstate commerce by public utilities, i.e., the rates, terms & conditions of wholesale electric sales by public utilities – Federal Power Act §§§201, 205, 206 (16 USC 824, 824d, 824e)
3. Provides for the restructuring of the electricity industry and creates several entities: the Energy Oversight Board (defunct), the Power Exchange (defunct) and CAISO. (Public Utilities Code §334 et seq.)
4. Establishes the CAISO governing board with five members appointed for three-year terms by the governor and subject to confirmation by the Senate. (Public Utilities Code §337 et seq.)
5. Charges CAISO with management of the transmission grid and related energy markets in order to ensure the reliability of electric service and the health and safety of the public. (Public Utilities Code §345.5)
6. Expresses the intent of the Legislature that CAISO transform into a regional organization to promote the development of regional electricity transmission markets in the western states and to improve the access of consumers served by CAISO to those markets, only when such transformation is in the best interest of California ratepayers. Directs CAISO to prepare changes to its governance that would allow it to transform into a regional organization, but prevents such changes to CAISO governance from taking effect until several specified steps have occurred, including that the Legislature enact statute implementing the proposed governance changes. (Public Utilities Code §359.5)
7. Established the renewable portfolio standard (RPS) which requires the California Public Utilities Commission (CPUC) to establish a RPS requiring all retail sellers to procure a minimum quantity of electricity products from eligible renewable energy resources. (Public Utilities Code §399.16)

This bill:

1. States the Legislature’s intent is to enable the transition of the CAISO to a regional governance structure and explicitly have CAISO work with regional stakeholders to develop and refine the October 7, 2016 “Second Revised Proposal: Principles for Governance of a Regional ISO.”
2. Authorizes the CAISO’s Board of Governors to develop and submit to the CEC a governance proposal that complies with each of the requirements proposed in this bill.
3. Requires the proposal to provide for the establishment of a western states’ committee. Requires the committee to have three representatives from each state that has a transmission owner participating in the Independent System Operator (ISO). Requires the representatives from California to be appointed by the governor, subject to confirmation by the Senate. Requires the committee to provide input to the ISO on all matters of interest to more than one state.
4. Requires the open meeting policy and records availability policy of the ISO in effect as of January 31, 2018 to meet the requirements of subdivision (d), that are consistent with the general policies of the Bagley-Keene Open Meeting Act, and that are consistent with the general policies of the California Public Records Act, in this bill.
5. Requires the CEC, in consultation with the CPUC and the California Air Resources Board (ARB), to review the governance proposal for compliance with the requirements of Chapter 7 of Division 4.1 – established by this bill. Requires the review to include public review of, and written comment on, the proposal and at least one public workshop or hearing at which public comment is received.
6. Authorizes the CAISO to implement a governance structure consistent with the proposal, if the CEC determines the governance proposal meets the requirements of this bill and if a transmission owner from outside California that is not a participating transmission owner as of January 1, 2019, has entered into an agreement with the CAISO indicating its intent to become a participating transmission owner, and the FERC has approved any changes to the ISO’s tariff necessary for the new participating transmission owner to join, the n the ISO may proceed with implementing a governance structure consistent with the proposal. Requires the governance structure to not be implemented before January 1, 2021. Requires the ISO or its successor to provide notice to the CEC, upon completing implementation of the governance structure.
7. Requires the CEC to verify that the CAISO has implemented a governance structure consistent with the section and upon so verifying, requires promptly providing notice to the Secretary of State. Requires Article 2, Section 345.5, and Sections 346 and 349, to become inoperative upon receipt of notice by the Secretary of State. Requires the CEC to report to the Legislature its verification and notification to the Secretary of State and requires the report to the Legislature to be in compliance with Section 9795 of the Government Code.
8. Requires the balancing authority (BA) area boundary used for determining compliance with the requirements of Section 399.16, except if a BA in California elects to join the ISO’s BA area, to be the boundary of the ISO’s BA area as of December 31, 2018, if the ISO becomes a multistate regional transmission system organization pursuant to the process set forth by this bill.
9. Prohibits a California transmission owner , retail seller, or local POU from participating in a multistate regional transmission system organization unless the bylaws or other organizational documents that govern the organization and the organization’s operations meet FERC requirements and do all of the following:
   1. Prohibit a member of the governing board of the organization from any affiliation with a participant in any market overseen by the organization and from having been an employee of a market participant within two years prior to becoming a member of the board.
   2. Limit conflicts-of-interest by prohibiting any member from owning any interest in energy-related assets that are appreciably affected by the actions of the organization and by requiring annual disclosure of significant financial interests.
   3. Provide for and maintain a decision making process that is independent of control by any market participant or class of participants.
   4. Provide for and maintain open meeting standards and meeting notice requirements that are consistent with the general policies of the Bagley-Keene Open Meeting Act.
   5. Subject to reasonable measures to limit the length of meetings or disruptions
   6. Provide public access to the records of the organization consistent with the general policies of the California Public Records Act.
   7. Protect and preserve a state’s authority over matters regulated by the state, including procurement policy, resource planning, and resource or transmission siting.
   8. Require retail sellers in each state to meet minimum resource adequacy standards and permit each state to establish resource adequacy standards for its retail sellers that exceed those required by federal law, in the state’s discretion. Require a local POU in each state to meet minimum resource adequacy standards and permit the governing board of a participating local POU to establish resource adequacy standards that exceed those required by federal law, in the discretion of the governing body.
   9. Prohibit the multistate regional transmission organization from operating a centralized capacity market in California for the forward procurement of electrical generating capacity that requires capacity to clear at a market clearing price in order to count for resource adequacy purposes.
   10. Ensure that the dispatch of resources by the multistate regional transmission organization to serve load in California appropriately reflects the costs for resources to comply with California’s climate policies, as implemented by the ARB. Prohibits the multistate regional transmission system organization to maintain a transparent system for tracking emissions of greenhouse gases (GHG) resulting from resources dispatch and other requirements.

1. States that this bill does not require any California transmission owner, retail seller, or local POU to join or remain in a multistate regional transmission system organization.
2. Requires a California transmission owner, retail seller, or POU, before joining a multistate regional transmission system organization, to submit the bylaws and other organizational documents that govern the multistate regional transmission system organization to the CEC for review.
3. Requires the CEC, in consultation with the CPUC and the ARB, to review the bylaws and organizational documents that govern the multistate regional transmission system operator for compliance with the requirements of Section 8391. Requires the review to include public review of, and written comment on, the materials and at least one public workshop or hearing at which public comment is received.
4. Prohibits a California transmission owner, retail seller, or local POU to join a multistate regional transmission system operator unless the CEC has determined that the organization’s bylaws and organizational documents meet the requirements of this bill. Prohibits a California transmission owner or retail seller, or local POU from remaining in an ISO that becomes a multistate regional transmission organization if the CEC determines that the organization’s bylaws and organizational documents do not meet the requirements of this bill.
5. Prohibits the ISO from being deemed a multistate regional transmission system organization unless and until it has completed the governance change process requirements of this bill and the CEC has provided notice of this change to the Secretary of State.

Background

About the U.S. power grid. Electricity supplied by power plants moves through a complex network of electricity substations, power lines, and distribution transformers before it reaches customers. Local electricity grids are interconnected to form larger networks for reliability and commercial purposes. The electric grid consists of the bulk power systems, high-voltage transmission equipment, and the distribution system, which are generally lower voltages. North America is comprised of two major and three minor alternating current grids or “interconnection,” which operate largely independently from each other with limited transfers of power between them. The United States electric power system in the Lower 48 states is made up of three main interconnections:

• The Eastern Interconnection – the area east of the Rocky Mountains and a portion of northern Texas, which consists of 36 BAs.
• The Western Interconnection – the area from the Rockies west, stretching north into Canada and south to Baja California in Mexico and consists of 38 BAs.
• The Electric Reliability Council of Texas (ERCOT) – covers most of Texas and consists of a single BA.

Many entities interface to ensure bulk power system reliability:

• The North American Electric Reliability Corporation (NERC) is a not-for-profit international regulatory authority whose mission is to assure the reliability and security of the bulk power system in North America.
• Regional Entities have responsibility delegated by NERC for assuring bulk power system reliability in their respective footprints. Western Electric Coordinating Council (WECC) is the Regional Entity responsible for the Western Interconnection.
• Reliability Coordinators (RC) monitor the grid in real-time and interact with individual operators and other RCs to maintain reliable operations.
• BAs are responsible for maintaining load-generation balance within their footprint.
• ISO and Regional Transmission Operators (RTO) coordinate, control and monitor portions of the electric grid. ISOs and RTOs may also operate wholesale electricity markets. The Western Energy Imbalance Market (EIM) is a real-time market operated by the CAISO.

About the Western Interconnect. There are 38 separate BAs operating across the interconnected western United States (known as the Western Interconnect which is managed by the WECC), (as shown below). All of the electric utilities in the Western Interconnection are electrically tied together during normal system conditions and operate at a synchronized frequency of 60 Hz. Within the Western Interconnection are 38 BAs, including the CAISO, Balancing Authority of Northern California (BANC), Los Angeles Department of Water and Power, Turlock Irrigation District and Imperial Irrigation District, as wells as several outside California. According to the WECC, the generation capacity of the Western Interconnection makes up approximately 20 percent of all capacity in the United States and Canada.

About BAs. The actual operation of the electric system is managed by entities called BAs. A “balancing authority” is an entity responsible for managing the transmission of high-voltage electricity across long-distance transmission lines. BAs must operate at a synchronized frequency of 60 Hz. The BA ensures in real-time that power system demand and supply are finely balanced. If demand and supply fall out of balance, the result can be local or wide-area blackouts. BAs also must manage transfers of electricity with other BAs. The NERC issues mandatory reliability standards which are approved by the FERC and mandated on BA.

RTOs/ISOs. Most BAs are electric utilities that have taken on the balancing responsibilities for a specific portion of the power system. All of the RTOs in the United States also function as BA. Nine RTOs/ISOs operate bulk electric power systems across much of North America. As a practical matter RTOs and ISOs are largely the same. RTOs are independent, membership-based, non-profit organizations that ensure reliability and optimize supply and demand bids for wholesale electric power. RTOs first developed in the 1990s to accommodate the FERC policy to encourage competitive generation through requiring open access to transmission. RTOs dispatch power by feeding both day-ahead and real-time bids from both generators and load-serving entities into complex optimization software. These entities are often compared to air traffic controllers because they manage the electron traffic on a power grid they do not own, as traffic controllers manage airplanes landing and taking off on airport runways. RTOs have different types of members, including: independent generators, transmission companies, and load-serving entities, integrated utilities that combine generation, transmission and distributions functions, and power marketers and energy traders. RTOs and ISOs operate a region's electricity grid, administer the region's wholesale electricity markets, and provide reliability planning for the region's bulk electricity system.

About the CAISO. The CAISO is a nonprofit public benefit corporation that was created by California statute as part of the effort to deregulate the electricity market in the late 1990s. The CAISO manages the flow of electricity across the high-voltage bulk power system that makes up 80 percent of California’s and a small part of Nevada’s electric grid. CAISO is registered as both a transmission operator and BA under the NERC reliability functional model. As a general matter, BAs may contain transmission operators. For example, some participating transmission owners with the CAISO are also registered as transmission operators under the NERC reliability functional model. As with other BAs, the CAISO is FERC and NERC regulated. However, unique to the CAISO, as compared to other RTOs, is the appointment of the CAISO governing board members who are appointed by the governor and require confirmation by the Senate.

CASIO Energy Imbalance Market (EIM). As part of its management of the wholesale electric market, the CAISO also operates a voluntary EIM. The EIM is a real-time bulk power trading market involving eight western states that trades the difference between the day-ahead forecast of power and the actual amount of energy needed to meet demand in each hour. Energy trade in the EIM is limited and intermittent. Currently, the EIM handles generation that a participating utility considers surplus at the last minute. However, the CAISO is in the midst of active proposal to expand the EIM functions, including potential inclusion of day-ahead transactions.

SB 350 Studies. Several parties have pushed for transformation of CAISO into a regional body that would manage high-voltage electricity transmission for entities located throughout the Western Interconnect. Generally, the argument for a Western region electric grid is that a regional BA would better coordinate planning and dispatch of electricity resources across the West. Proponents of regionalization assert that greater reliance on intermittent renewable resources, such as wind and solar energy, necessitate such increased coordination in order to benefit from both exporting and importing electric generation during the ramps when resources are declining or increasing.

In passing SB 350 (De Leon, 2017), the Legislature expressed its intent that CAISO regionalize. Specifically, SB 350 states the intent of the Legislature as:

To provide for the transformation of the Independent System Operator into a regional organization to promote the development of regional electricity transmission markets in the western states and to improve the access of consumers served by the Independent System Operator to those markets, and that the transformation should only occur where it is in the best interests of California and its ratepayers.

SB 350 called upon CAISO to modify its governance structure to accommodate regionalization. The bill, however, conditioned implementation of the proposed governance changes upon several actions. Among those actions:

• Completion of studies (SB 350 studies) of the effects of the regionalization on ratepayers, the environment, disadvantaged communities, and safety and reliability.
• Public hearing.
• And, of particular relevance for this analysis, enactment of statute implementing the revised governance changes.

CAISO completed its studies in 2016, finding, among other things, that regionalization of the electric grid to incorporate most of the U.S. portion of the Western Interconnection could yield California ratepayers with $1 billion to $1.5 billion annually as of 2030, potentially benefitting California ratepayers in 2-3 percent reduction in their rates. According to the studies, those benefits came from:

• Reduced capital investments for RPS-related procurement, resulting from less need for curtailment and access to lower-cost renewable resources.
• Reduced production, purchase and sales costs for wholesale electricity.
• Reduced capital investment form regional load diversification.
• Reduced grid management charges for system and market operations.

The studies also acknowledged “regional [electric] market benefits significantly depend on the size of the regional market.”

The results of the studies were not universally embraced.

As required by law, state energy and air regulators held public hearings on the CAISO regionalization studies. The administration explored regionalization with its counterparts in other Western states. In addition, legislative staff organized many (many, many) inclusive stakeholder meetings. Stakeholders never reached consensus over the details of regionalization, the most contentious issues being governance, environmental effects and potential actions by the FERC, concerns that only increased after the presidential elections in 2016.

Bill attempts to provide assurances; doubts remain. This bill again states the intent of the Legislature that CAISO become a regional body. However, the author attempts to provide assurance as to the risks associated with transforming to regional body, including the risks to California’s ratepayers, risks to the state’s climate policies, risk to the state’s oversight, risk to California’s energy policies, and others. To this end, this bill prohibits a California transmission owner, retail seller, or local POU from joining a multistate regional transmission system organization unless the bylaws or other organizational documents that did not meet the 17 requirements noted in this bill. The 17 or so requirements relate to addressing conflict-of-interest by governing board members, providing open meetings, public access to records, preserving a state’s authority regarding procurement policy and resource adequacy standards, track GHG emissions from resources dispatched to serve California load, and others. Presumably, since the CAISO currently incorporates a small portion of load from the Nevada, the CAISO is a multistate regional transmission system organization and presumably satisfies all the requirements noted in this bill.

Bill requires Legislature to defer to CEC. This bill repeals the existing statute related to the current governance of the CAISO and instead authorizes the CEC to review proposals submitted to it by the governing board of the CAISO to transform the body into a multistate entity. This bill requires the CEC, in consultation with the CPUC and the ARB, to review the proposal(s) to ensure it (they) comply with the 17 requirements. This bill also establishes a western states’ committee, with three representatives from each state with a transmission owner participating in the ISO, and requires California governor to appoint the state’s three. This bill does not address whether the votes by the states should be weighted by electricity load, in consideration that California represents the largest market. Furthermore, the role of the CEC may be better suited for the CPUC, at least in so far as ratepayer costs, resource adequacy, and procurement policy are entailed. While the CPUC does not have jurisdiction over POU, the CPUC has much more familiarity with the FERC process and ratepayer considerations, which would affect customers of investor-owned utilities, as well as, the municipally-owned utilities.

Preventing buyer’s remorse. Many opposed to this bill express concerns regarding the current federal direction on energy policy and the potential implications for Californians should the CAISO footprint expand. Of particular concern are the continued efforts by the Trump Administration to push for procurement of coal generation, whereas California has largely shifted away from coal generation and pushed for increased procurement of renewable generation. Last year, the Trump Administration pushed for changes through FERC that would utilize reliability framework to support coal procurement. More recently, the Trump Administration has proposed mandating ISOs/RTOs to procure coal, nuclear and other generation assets that have stored fuel on-site. Some opposed to this bill express concerns that expansion of the ISO foot print would allow for coal assets within the footprint, which do not exist currently. As such, should the Trump Administration be successful, California ratepayers would be forced to procure coal generation at above market prices for generation they could otherwise secure that would be cleaner, greener, and more cost-effective. Would an expanded grid increase that risk by incorporating more coal assets into the footprint? It seems it would likely increase that risk and at a minimum merits further caution before so as to prevent increasing GHG emissions, as well as, increasing utility bills for customers. It seems to be a given that the Trump Administration will continue to pursue these efforts whether the current iteration is successful or not. While the author has attempted to alleviate this concern by incorporating language that prevents a new governance structure from taking effect before January 1, 2021, presumably a date by when President Trump would no longer be in office. The actions to make the change to the CAISO would already be authorized. Notwithstanding that presidents are sworn-in on January 20^th, the bill may also presume, perhaps with too much confidence, that President Trump would be unsuccessful in securing a second term to the office.

Other issues to consider, should this bill move forward:

Does this bill kick the (RPS) bucket? Expanding the CAISO electric grid to a regional footprint would likely eliminate the RPS buckets that provide preferences for in-state generation resources. However, the recent author amendments preserve the RPS buckets with some complications under the broader regional footprint. Based on the SB 350 studies, the overriding source of potential economic benefit for ratepayers is the ability to secure out-of-state renewable resources, as opposed to the capital costs associated with developing new in-state renewable resources. However, these are complex tradeoffs as reduced in-state generation resources means fewer jobs associated with building those resources, but can also mean less ratepayer costs. However, other states may not provide comparable worker protections and benefits.

Transmission charge. This bill attempts to allay concerns regarding transmission charges. However, as noted by the author, transmission charges are the purview of the federal government, and of FERC, in particular. However, it’s important to note that any potential ratepayer savings of expanding a regional footprint could be overwhelmed by the transmission charges attributed to California ratepayers. It is understandably difficult to legislate the concerns regarding transmission charges. However, the risk of transmission charges overwhelming ratepayer benefits underscores the need to review the particulars of any multistate entity proposal to ensure California’s concerns are properly considered and reviewed. Moreover, recent language inserted into this bill ensuring that California participating transmission owners receive equitable use of, and just and reasonable compensation for, their past investments in the transmission system assets. While on its surface the intent seems laudable and reasonable, there is concern by parties that the language may have more to do with a battle regarding how FERC has been approving incentive adders for Pacific Gas & Electric even in the face of CPUC opposition. The issue recently came to a head in a U.S. Court of Appeals decision, wherein the court sided with CPUC and took FERC to task on the policy of approving the incentive adder (which would be shouldered by ratepayers), but also for FERC’s failure to address the CPUC’s concerns. Unfortunately, these actions by FERC are not reassuring as to how California ratepayers would fair in an expanded regional electric grid.

Ability to track GHG emissions? CAISO has been working with ARB to track GHGs within the EIM. However, as noted by ARB, the effort is still ongoing with a third attempt to be proposed shortly, as previous efforts have been less than adequate. Would an expanded electric grid footprint provide for better tracking or worse tracking. It is currently unclear.

Fundamental question: Should Legislature ratify terms? At its core, the notion of a multistate entity implies many of the principles one might associate with establishing a trade deal. Parties representing different interests and jurisdictions would engage to hammer out what one would hope to be mutually beneficial agreements, but at a minimum would require the parties to ensure their self-interest is protected, if not benefited. At the federal level, trade deals are negotiated by the executive branch of government but ratified by the Legislature, specifically the U.S. Senate. California, itself, has a similar framework for negotiating tribal compacts which are negotiated by the executive branch but often require approval by the Legislature. Recognizing that the author’s best attempt to provide assurance and guarantees to protect California ratepayers and the state’s policies may not be sufficient, it seems reasonable that the Legislature should be able to weigh in once the specifics of a proposal have been developed, perhaps even worked through the process as envisioned by this bill. However, rather than solely a report to the Legislature, the agencies, CEC, CPUC, CAISO should have to report to the Legislature in order to inform a future review by the legislature of the merits of the details of the proposal. Therefore, if members are inclined to support this bill to move forward, the committee should consider amending the bill to preserve the statutes related to the CAISO as proposed to be repealed and require the executive branch to report back to the legislature and require a future vote for the statutory change.

Double referral. Should this bill be approved by this committee, it will be re-referred to the Senate Committee on Judiciary for their consideration.

Prior/Related Legislation

SB 726 (Holden, 2017) includes three distinct, largely unrelated components, one of which establishes a process to authorize transformation of the CAISO into a regional organization.

SB 350 (De Leon, Chapter 547, Statutes of 2015) among other things, established targets to increase retail sales of renewable electricity to 50 percent by 2030, states the intent of the Legislature to provide for the regionalization of CAISO, and requires statutory authorization of such regionalization.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT:

OPPOSITION:

*Position letters received before 2018.

ARGUMENTS IN SUPPORT: According to the author:

“The bill [AB 813] facilitates expansion of the CAISO to expand its membership to include other balancing authorities across the 14 western states which is also referred to as regionalization. Specifically, if the CAISO shows compliance with the operating standards and protocols set forth in this bill (which would be confirmed by the California Energy Commission), the CAISO reports an agreement with one or more out-of-state balancing authorities to join the CAISO, and the FERC approves a revised tariff, then, no sooner than 2021, The CAISO board would be deemed inoperable and a western states committee of the CAISO would be created which would include with three appointments by the Governor and confirmed by the Senate.”

ARGUMENTS IN OPPOSITION: Arguments in opposition to this bill are many, mostly concerning the risks of such a policy and the adequacy of protecting California’s interests, the limiting benefits due to the recent amendments to limit procurement to RPS buckets. Many of the municipally-owned utilities express grave concern with the implications to transmission access charges and their effect on their ratepayers. Several parties have expressed concerns regarding the Trump Administration’s continued efforts to prop up coal and the risks of these efforts to undermine California’s climate policies. In general, many of those opposed raise concern that the overall potential benefits are not significant enough (1-2 percent ratepayer reduction) against potential risks.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 813

Author:()

As Amended Ver:May 30, 2017

Majority vote

SUMMARY: Requires a campus of the California State University (CSU) that operates a satellite campus to annually provide the Legislature with a satellite campus report that includes, but is not necessarily limited to, all of the following: 1) an updated sustainability plan for the satellite campus; 2) financial data that include, but are not necessarily limited to, detailed accounts of spending for the satellite campus; and, 3) pertinent historical data and enrollment projections for the satellite campus.

EXISTING LAW:

1. Declares the intent of the Legislature that sites for new institutions or branches of the CSU shall not be authorized or acquired unless recommended by the California Postsecondary Education Commission (CPEC) and that CPEC should advise the Legislature and the Governor regarding the need for, and location of, new institutions and campuses of public higher education (Education Code (EC) Sections 66900 and 66904).
2. Establishes the CSU administered by the Board of Trustees, and provides that the Trustees shall have the full power over the construction and development of any CSU campus and any buildings or other facilities or improvements (EC Section 89030, et seq.).

FISCAL EFFECT: According to the Appropriations Committee, approximately $80,000 in costs to the CSU Chancellor's Office to compile and submit a report to the Legislature.

COMMENTS: California Postsecondary Education Commission (CPEC). There is currently no coordinating entity for higher education in California. Existing law establishes CPEC to be responsible for coordinating public, independent, and private postsecondary education in California and to provide independent policy analyses and recommendations to the Legislature and the Governor on postsecondary education issues. However, over time, CPEC's budget was reduced, resulting in its inability to perform all of its responsibilities, casting doubt on its effectiveness and triggering calls for its restructuring. As part of his 2011-12 Budget, Governor Brown proposed eliminating CPEC. Both Houses rejected this proposal, but the Governor exercised his line item veto to remove all General Fund support for CPEC, describing the commission as "ineffective." In his veto message, however, the Governor acknowledged the need for coordinating and guiding state higher education policy and requested that stakeholders explore alternative ways these functions could be fulfilled. CPEC shut down in Fall 2011, transferring its federal Teacher Quality Improvement grant program to the California Department of Education and extensive data resources to the CCC Chancellor's Office.

Legislative Analyst's Office (LAO). The LAO released its report, "Assessing University of California (UC) and CSU Enrollment and Capacity" in January of this year. The report found, in part, the following: 1) a new CSU campus is not warranted; 2) projected little enrollment growth at both the UC and CSU; and, 3) every CSU region could grow on existing campus sites.

According to the report, CSU has 17 undergraduate centers (otherwise known as satellite campuses) and formally recognizes seven sites as off-campus centers for undergraduate instruction; Stockton, being one such location. The seven centers enroll undergraduate students whose instruction is supported with state funding and systemwide student tuition. Additionally, CSU provides undergraduate extension courses at 10 other sites. Centers enroll 4,100 state-funded students and course offerings vary based on distance from the main campus.

Purpose of this bill. According to the author, "In times of recession and/or budget cuts, off-campus centers are subject to disproportionate funding cuts in order to maintain services and enrollment at the main campus."

The author contends that, "The consequence of disproportionate funding cuts is that students whose only public higher education option is an off-campus center do not see that option as a viable one. Funding cuts lead to reductions in course options and thus force potential students to explore other higher education options or not pursue a post baccalaureate degree."

The author argues that enactment of this bill will ensure that, "off-campus centers are treated equitably to an institution's main campus by ensuring that an off-campus center does not face deeper budget cuts compared to the main campus."

Analysis Prepared by: Jeanice Warden / HIGHER ED. / (916) 319-3960 FN: 0000817

Date of Hearing: May 10, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 813

Author:(Eggman) – As Amended Ver:March 21, 2017

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill adds a Stockton campus to the list of institutions of higher learning authorized for construction upon resolution by the California State University (CSU) trustees; and, adds provisions to CSU campus that operate a satellite campus. Specifically, this bill:

1. Requires a campus of the CSU that operates a satellite campus to annually provide the Legislature with a satellite campus report that includes, but is not necessarily limited to, all of the following:
   1. An updated sustainability plan for the satellite campus;
   2. Financial data that include, but are not necessarily limited to, detailed accounts of spending for the satellite campus; and,
   3. Pertinent historical data and enrollment projections for the satellite campus.
2. Stipulates that an individual campus of the CSU that operates a satellite campus cannot disproportionately cut funding from the satellite campus in order to support the main campus.

FISCAL EFFECT:

On-going general fund (GF) cost pressures in the hundreds of millions. By adding a Stockton campus to the list of CSU institutions authorized for construction, CSU would require $250 million for capital outlay and $150 million for self-support facilities such as housing, in year one. This creates an on-going cost pressure and additional pressures to establish campuses in other regions of the state. CSU would require general funds or private funding to open a new campus.

Approximately $80,000 in costs to the CSU Chancellor’s Office to compile and submit a report to the Legislature. Campuses which have off-campus centers, would have to absorb staff time to compile and submit the required information to the Chancellor’s Office.

Unknown CSU campus cost pressures. The bill prohibits a campus which operates a satellite center from disproportionately cutting funding from the satellite campus in order to support the main campus.  This could result in the main campuses having to continue to fund enrollment at satellites when it is not justified through demand or enrollment.  Providing course offerings when enrollment does not justify it would result in an inefficient use of state resources. 

COMMENTS:

1. Background. California has 23 CSU campuses. Existing law establishes the Legislature’s intent for new institutions or branches of the CSU to acquire authorization by the Legislature or be recommended by the California Postsecondary Education Commission (CPEC), who will advise the Legislature and the Governor regarding the need for, and location of, new institutions and campuses of public higher education. However, there is currently no CPEC. As part of his 2011-12 Budget, Governor Brown proposed eliminating CPEC. Both Houses rejected this proposal, but the Governor exercised his line item veto to remove all General Fund support for CPEC, describing the commission as "ineffective."

The LAO released a report, "Assessing University of California (UC) and CSU Enrollment and Capacity" in January of this year. The report found, in part, the following: 1) a new CSU campus is not warranted; 2) projected little enrollment growth at both the UC and CSU; and, 3) every CSU region could grow on existing campus sites.

According to the report, CSU has 17 undergraduate centers (otherwise known as satellite campuses) and formally recognizes seven sites as off-campus centers for undergraduate instruction; Stockton, being one such location. The seven centers enroll undergraduate students whose instruction is supported with state funding and systemwide student tuition. Additionally, CSU provides undergraduate extension courses at 10 other sites. To note, as of 2015-16, the Stockton center had 189 full-time equivalent students (FTES) enrolled. The 2016-17 FTES number of enrolled students at the Stockton center is approximately 192.

1. Purpose. According to the author, "In times of recession and/or budget cuts, off- campus centers are subject to disproportionate funding cuts in order to maintain services and enrollment at the main campus." The author contends that, "The consequence of disproportionate funding cuts is that students whose only public higher education option is an off-campus center do not see that option as a viable one. Funding cuts lead to reductions in course options and thus force potential students to explore other higher education options or not pursue a post baccalaureate degree." The author argues that enactment of this bill will ensure that, "off-campus centers are treated equitably to an institution's main campus by ensuring that an off-campus center does not face deeper budget cuts compared to the main campus."

Analysis Prepared by: Daisy Gonzales / APPR. / (916) 319-2081

Date of Hearing: April 25, 2017

ASSEMBLY COMMITTEE ON HIGHER EDUCATION

Jose Medina, Chair

ABPCA Bill Id:AB 813 (

Author:Eggman) – As Amended Ver:March 21, 2017

SUBJECT: Postsecondary education: California State University: campuses.

SUMMARY: Adds a Stockton campus to the list of institutions of higher learning that are included in the California State University (CSU); and, adds reporting requirements to any CSU campus that operates a satellite campus. Specifically, this bill:

1. Adds a Stockton campus to the list of CSU sites and specifies that construction of a campus in Stockton shall take place only upon resolution of the CSU Trustees and approval by the California Postsecondary Education Commission (CPEC).
2. Requires a campus of the CSU that operates a satellite campus to annually provide the Legislature with a satellite campus report that includes, but is not necessarily limited to, all of the following:
   1. An updated sustainability plan for the satellite campus;
   2. Financial data that include, but are not necessarily limited to, detailed accounts of spending for the satellite campus; and,
   3. Pertinent historical data and enrollment projections for the satellite campus.
3. Stipulates that an individual campus of the CSU that operates a satellite campus cannot disproportionately cut funding from the satellite campus in order to support the main campus.

EXISTING LAW:

1. Declares the intent of the Legislature that sites for new institutions or branches of the CSU shall not be authorized or acquired unless recommended by the CPEC and that CPEC should advise the Legislature and the Governor regarding the need for, and location of, new institutions and campuses of public higher education (Education Code (EC) Sections 66900 and 66904).
2. Specifies that the CSU includes the institutions for higher education whose locations or designations are as follows: a) San José; b) San Francisco; c) Chico; d) Humboldt; e) San Diego; f) Fresno; g) California Polytechnic State University (Cal Poly), San Luis Obispo; h) Cal Poly, Pomona; i) Long Beach; j) Los Angeles; k) Sacramento; l) Hayward; m) San Fernando Valley; n) Fullerton; o) Stanislaus; p) Sonoma; q) San Bernardino; r) Dominguez Hills; s) Contra Costa; t) Kern; u) Redwood City; v) Ventura; w) San Marcos; x) The California Maritime Academy, a specialized institution; and, y) Monterey County. Specifies that the authorized campuses of Contra Costa, Redwood City, and Ventura shall commence construction only upon resolution of the CSU Trustees and approved by CPEC (EC Sections 89001 and 89002).
3. Establishes the CSU administered by the Board of Trustees, and provides that the Trustees shall have the full power over the construction and development of any CSU campus and any buildings or other facilities or improvements (EC Section 89030, et seq.).

FISCAL EFFECT: Unknown

COMMENTS: California Postsecondary Education Commission (CPEC). There is currently no coordinating entity for higher education in California. Existing law establishes CPEC to be responsible for coordinating public, independent, and private postsecondary education in California and to provide independent policy analyses and recommendations to the Legislature and the Governor on postsecondary education issues. However, over time, CPEC's budget was reduced, resulting in its inability to perform all of its responsibilities, casting doubt on its effectiveness and triggering calls for its restructuring. As part of his 2011-12 Budget, Governor Brown proposed eliminating CPEC. Both Houses rejected this proposal, but the Governor exercised his line item veto to remove all General Fund support for CPEC, describing the commission as "ineffective." In his veto message, however, the Governor acknowledged the need for coordinating and guiding state higher education policy and requested that stakeholders explore alternative ways these functions could be fulfilled. CPEC shut down in Fall 2011, transferring its federal Teacher Quality Improvement grant program to the California Department of Education and extensive data resources to the CCC Chancellor's Office.

Legislative Analyst's Office (LAO). The LAO released its report, "Assessing University of California (UC) and CSU Enrollment and Capacity" in January of this year. The report found, in part, the following: 1) a new CSU campus is not warranted; 2) projected little enrollment growth at both the UC and CSU; and, 3) every CSU region could grow on existing campus sites.

According to the report, CSU has 17 undergraduate centers (otherwise known as satellite campuses) and formally recognizes seven sites as off-campus centers for undergraduate instruction; Stockton, being one such location. The seven centers enroll undergraduate students whose instruction is supported with state funding and systemwide student tuition. Additionally, CSU provides undergraduate extension courses at 10 other sites. Centers enroll 4,100 state-funded students and course offerings vary based on distance from the main campus. To note, as of 2015-16, the Stockton center had 189 full-time equivalent students (FTES) enrolled. Committee staff understands that the 2016-17 FTES number of enrolled students at the Stockton center is approximately 192.

Purpose of this bill. According to the author, "In times of recession and/or budget cuts, off-campus centers are subject to disproportionate funding cuts in order to maintain services and enrollment at the main campus."

The author contends that, "The consequence of disproportionate funding cuts is that students whose only public higher education option is an off-campus center do not see that option as a viable one. Funding cuts lead to reductions in course options and thus force potential students to explore other higher education options or not pursue a post baccalaureate degree."

The author argues that enactment of this bill will ensure that, "off-campus centers are treated equitably to an institution's main campus by ensuring that an off-campus center does not face deeper budget cuts compared to the main campus."

This measure requires any campus of the CSU that operates a satellite campus to: 1) annually provide the Legislature with a satellite campus report; and, 2) not disproportionately cut funding from the satellite campus in order to support the main campus.

Policy considerations. As presently drafted, it appears as though this bill is based on an assumption that if enrollment at the main CSU campus is up, there will be a decrease in the enrollment at the satellite campus. To note, CSU does not control enrollment numbers; there could be several other factors as to why enrollment numbers fluctuate at satellite campuses.

Additionally, Committee staff understands that course offerings at satellite campuses increase based on the needs for services; in other words, the satellite campuses are at a regional level to meet unique needs and change as demands arise.

Furthermore, in the absence of CPEC, and per the LAO demonstrating that no new campuses are needed, it is not prudent policy to add additional locations to the list of CSU sites.

Committee staff recommends the following amendment: Delete Section 1 (a) (26) of the bill.

Lastly, Committee staff understands that in some cases, residents of areas with CSU satellite campuses may not be aware that such a campus is present.

Moving forward, if the author's intent is to increase the course offerings and capacity of the CSU Stanislaus Stockton Satellite Campus, the author may wish to, instead of requiring various reporting, work with the CSU in order to secure funding so that outreach and awareness campaigns take place for residents of Stockton and other cities about the satellite campuses in their vicinity.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

None on file.

Analysis Prepared by: Jeanice Warden / HIGHER ED. / (916) 319-3960