FERC again orders California ISO to seat an independent governing board

POWER - 0 3/03/2004

The Federal Energy Regulatory Commission has again ordered the California Independent System Operator to seat an independent governing board and threatened to block the grid operator from implementing new market-monitoring rules if it continues to ignore the agency's directive.

In a Feb. 20 decision, FERC approved a series of rules proposed by the ISO to mitigate market power and punish market participants that game the system (ER03-1102). But before the rules can be implemented, FERC said the ISO must replace its governing board with one that is independent of political or market influence.

"As we have previously found, due to the composition of the current ISO governing board, the ISO is not sufficiently independent to ensure operation of its interstate transmission facilities on a non-discriminatory basis," the order said.

FERC in 2002 determined that the ISO board, which is currently made up of gubernatorial candidates, did not meet the commission's independence standards. FERC said that because board members were selected by the state government, they could make decisions that are detrimental to wholesale competition.

Because the ISO has not reconstituted its board, FERC will not allow it to begin enforcing its new market-mitigation rules and behavioral standards. "Once the commission accepts the ISO's demonstration of independence, [it] may begin to administer the proposed enforcement protocol and to charge certain penalties," the order said.

The ISO filed the new market rule standards in July. The rules and accompanying enforcement protocol define punishable behavior and attempt to more accurately describe to market participants the types of trading methodologies that are illegal. They stem from the mass of show-cause orders FERC issued last summer to nearly all participants in its market during the 2000-2001 energy crisis.

In its order, FERC told the grid operator to refile its enforcement protocols once it demonstrates its independence, and also to comply with the commission's new market-based tariff rules. FERC, the order said, late last year revised its market-based rate tariff criteria with rules prohibiting certain behaviors. To the extent that the ISO's protocols are duplicative, FERC ordered the grid operator to revise certain rules.

"In keeping with the [market-based rates] tariff order, we will require the ISO to modify its proposed enforcement protocol to conform to our delineation of market monitoring responsibilities and determinations regarding the types of behavior that should be subject to potential sanctions," the order said.