BILL ANALYSIS Ó AB 2516 Page 1 Date of Hearing: April 16, 2012 ASSEMBLY COMMITTEE ON UTILITIES AND COMMERCE Steven Bradford, Chair AB 2516 (Bradford) - As Amended: February 24, 2012 SUBJECT : Independent System Operator SUMMARY : This bill expands California Independent System Operator (CAISO) management requirements. Specifically, this bill : adds to existing law governing CAISO operations: 1)Reducing, to the maximum extent possible, overall economic cost to the state's consumers. 2)Conducting internal operations in a manner that maximizes electricity reliability at the lowest cost for ratepayers. 3)Communicating, to the maximum extent possible, with all balancing coordinators operating in California. EXISTING LAW: Requires the CAISO to manage the transmission grid and related energy markets in a manner consistent with: 1)Efficient use of available energy resources. 2)Reducing, to the extent possible, overall economic cost to the state's consumers. 3)Applicable state law intended to protect the public's health and the environment. 4)Maximizing the availability of existing electric generation resources necessary to meet the needs of the state's electricity consumers. FISCAL EFFECT : Unknown COMMENTS : 1)According to the author, "Following a widespread power outage that occurred in September 2011 in the San Diego region, The Assembly Utilities and Commerce Committee held a hearing to investigate the outage. Based on testimony at the hearing, it AB 2516 Page 2 was not clear that CAISO and other balancing authorities in the region were regularly communicating with each other before the outage." This bill recognizes the need for all entities involved with providing or enabling the safe, reliable supply of electricity to ensure that electricity rates remain affordable to Californians. 2)CAISO is responsible for matching California's electricity supply with demand and maintaining frequency of the power grid. It is the largest balancing authority in the western interconnection managing 80% of California's power grid and an estimated 35% of all electricity transmission in the west. Other balancing authorities operating in California include PacifiCorp, Sacramento Municipal Utility District, Sierra Pacific Power, Turlock Irrigation District, Nevada Energy, Los Angeles Department of Water and Power, Western Area Lower Colorado and Imperial Irrigation District. 3)While CAISO maintains a robust stakeholder process for developing new market rules and addressing issues, there is no mandated requirement for communication between all entities involved in providing consistent and reliable electricity to ratepayers. 4)Annually, the CAISO sets revenue requirements consisting of operations and maintenance budget, outstanding debt bond service, capital expenses, and miscellaneous revenue and expenses. The revenue requirement is then collected from ISO customers through the grid management charge (GMC). 5)The CAISO focuses on maintaining cost equity with other ISO and Regional Transmission Operator (RTO) peers, the goal being a bundled Grid Management Charge (GMC) cost per megawatt hours (MWh) at or below median level of North American ISO/RTO GMC rates. a) New England ISO: $1.011 b) Independent Electricity System Operator (Ontario): $0.834 c) ERCOT: $0.797 d) California ISO: $0.791 e) New York ISO: $0.676 f) Midwest ISO: $0.437 g) PJM: $0.347 h) Southwest Power Pool: $0.229 AB 2516 Page 3 1)CAISO is in the process of revising portions of its tariff governing the calculation of available transfer capacity (ATC). In certain narrowly defined circumstances the amendment will allow the CAISO to use a transmission reliability margin (TRM) to reduce the ATC on a particular Intertie scheduling path. The amendment is intended to address operational constraints that arise in the Hour Ahead Scheduling Process (HASP) and gives market participants and the CAISO the flexibility necessary to maintain uninterrupted service. 2)CAISO also establishes rules and procedures for independent energy generators to interconnect to the electricity grid. To a great extent, California's investor owned utilities adopt similar rules. 3)It is not clear that the CAISO process considers potential rate impacts along with reliability and safety when developing these rules. AB 2516 would clarify that rate impacts should be considered in a manner that does not diminish or reduce safety and reliability. 4)AB 2516 establishes CAISO management priorities that include communication between all balancing operators in California as well as a focus on internal operational cost efficiencies. REGISTERED SUPPORT / OPPOSITION : Support None on File. Opposition None on File. Analysis Prepared by : Susan Kateley / U. & C. / (916) 319-2083