Legislative Analyst's Office Analysis of the 2002-03 Budget Bill

Electricity Oversight Board (8770)

The Electricity Oversight Board (EOB) was created by Chapter 854, Statutes of 1996 (AB 1890, Brulte), which deregulated California's wholesale electricity industry. The board was created to oversee the California Independent System Operator (ISO), which manages the transmission grid serving most of California, and the Power Exchange (PX), which for a time was the marketplace in which all electricity in the state was bought and sold. The EOB was also given very broad authority over ensuring reliability of the state's supply of electricity.

The budget includes $4.2 million ($730,000 General Fund) for the board's activities in the budget year, which is roughly $260,000 less than the estimated current-year expenditures. The decline in 2002-03 is due to the use of one-time funds in 2001-02 to reduce or remove market constraints on the state's electrical transmission and distribution system. Proposed 2002-03 funding would support 25.9 personnel years. (We would note that the activities of all of these positions should be considered in examining the issue of reorganizing and coordinating the state's various energy-related activities. This issue is discussed in more detail in "Part V" of our Perspectives and Issues.)

EOB's Original Role Has Been Modified

Central to the original role of the EOB was overseeing the activities of the ISO and the PX and determining the composition of the governing boards of these two organizations. However, among the many developments associated with the 2001 energy crisis was the bankruptcy of the PX in January, and the replacement of the EOB-appointed ISO stakeholder board with a board of gubernatorial appointees. Thus, the EOB's original duties have been drastically curtailed. However, subsequent legislation has given it authorization to conduct certain other activities. These include the following:

• Petition the Federal Energy Regulatory Commission (FERC) on Specific Transmission Matters. Chapter 1040, Statutes of 2000
• (SB 1388, Peace), requires the EOB, in conjunction with the California Public Utilities Commission (CPUC), to petition FERC to allow the recovery of certain expenses of investor owned utilities relating to the replacement and expansion of the state's electricity transmission grid.
• Communicate ISO's Rule Changes to FERC. Chapter 1x, Statutes of 2001 (AB 5x, Keeley), requires the EOB to require the ISO to amend its bylaws in response to FERC decisions, and to communicate this action to FERC.
• Investigate Wholesale Market. Chapter 766, Statutes of 2001
• (SB 47, Bowen), authorizes the EOB to investigate any matter related to the wholesale market for electricity.

In addition, legislation has been proposed that would provide the EOB with oversight over scheduling planned power outages as well as over monitoring, investigation, and enforcement activities relating to unplanned outages. An executive order was also issued in February 2001 that directed the EOB to maintain records of unplanned generation facility outages.

Representation at FERC. The EOB has also generally been involved in representing the state's interests at FERC on various matters. Budget bill language in the 1999-00 Budget Act provided that the EOB would enter into a memorandum of understanding with the CPUC in deciding which agency would represent what issues before FERC. While this budget bill language only provided guidance to expenditures made in that particular budget year, it is our understanding that the EOB has continued to represent the state at FERC under this memorandum of understanding. Furthermore, the EOB has been given several directives by FERC as a result of its representation, including oversight over some decisions made by the ISO.

Current Activities

The EOB is currently involved in many activities related to the different statutory authorizations listed above. The EOB has indicated that its current assignments and near-term anticipated work cover the following areas:

• Market Monitoring. This includes market investigation, market rate complaints, and market redesign proceedings.
• Litigation. This primarily includes litigation involving refunds from generators to the state.
• Grid Reliability. This includes analyzing transmission terms and rate cases, transmission planning review, interconnection issues, rules for the scheduling and curtailing of energy deliveries, reliability contract proceedings, and selecting which generation units will provide back-up generation.
• Generation Outage and Maintenance. This includes specific work on the development and implementation of outage scheduling protocols and of generator availability standards, as well as related FERC filings. Funding for this activity, however, is contingent on legislation that has not yet been approved by the Legislature.

About 50 percent of the EOB's resources are dedicated to market monitoring activities, while 30 percent are involved with grid reliability. The remaining 20 percent, which represents the EOB's only General Fund resources, are dedicated to generation outage and maintenance activities.

Funds to Monitor Energy Transmission and Generation Outages

We recommend deleting $730,000 requested to undertake specific activities to monitor energy transmission and generation equipment outages because the board lacks the authority to undertake these activities. (Delete $730,000 from Item 8770-001-0001.)

The 2002-03 budget proposes funding for the EOB to oversee scheduling planned power outages, as well as the monitoring, investigation, and enforcement activities relating to unplanned outages. However, legislation to authorize these new duties for the EOB has not been enacted. Therefore, we recommend deleting the budget bill support for this activity. If the Legislature wishes to support these activities, the funding could be included in legislation authorizing the EOB to perform these functions.