By Robert Mullin

CAISO last week released the third draft of a proposal outlining the governing framework for a Western RTO.

The latest draft fleshes out concepts introduced in earlier versions, including the composition and role of the Transitional Committee to guide regionalization, and sets out a timeline for transitioning to a board independent of California oversight.

The proposal also more thoroughly outlines the process by which a body of state representatives — the Western States Committee (WSC) — would determine whether a proposed RTO policy encroaches upon state regulatory authority. (See Revised Western RTO Governance Plan Highlights State Authority.)

The draft is the first revision since California Gov. Jerry Brown asked CAISO and other state agencies to postpone their joint effort to present lawmakers with a governance proposal in early August. Under state law, the legislature must authorize the ISO’s transition into a regional body. (See Governor Delays CAISO Regionalization Effort.)

“The governance structure of a regional ISO is clearly one of the key topics that must be addressed for regionalization to go forward,” CAISO said.

What is still unknown is whether the proposal will convert enough RTO skeptics inside and outside California to jump-start the process of regionalization and provide California legislators with a well-supported set of principles in January.

‘Collaborative Process’

Preservation of state authority remains a central focus of the revised proposal, which addresses stakeholder requests that the ISO delineate the process for determining whether a proposed policy initiative by a future RTO would “materially diminish” state or local authority. CAISO set out a series of measures modeled on the “collaborative process” currently used in the Energy Imbalance Market when a stakeholder challenges ISO staff assumptions about whether a policy matter falls under the primary authority of the ISO board or the EIM governing body.

The first step: a procedure for state and local authorities to raise concerns with RTO staff — and, if necessary, the board and WSC — during the stakeholder policy development process prior to a FERC filing.

The board would then consult and collaborate with the WSC to determine whether an initiative complies with the RTO’s provisions protecting state authority.

When either body — by majority vote — determines that a policy impairs state authority, the policy will be subject to a combined vote of both bodies. If a majority of the two bodies collectively vote against the policy, it will not be approved — unless members of the WSC unanimously approve it.

Transitional Committee Changes

The revised governance proposal also takes up stakeholder concerns about the Transitional Committee charged with transforming CAISO into an independent RTO and developing a final proposal on governance.

The latest draft narrows the range of issues to be considered by the committee, with the process of selecting a final, independent board delegated to separate Nominating and Approval committees.

“This change is made to ensure that the [Transitional] Committee has a well-defined and achievable scope of work that is focused specifically on the key outstanding issues that are not resolved in these principles,” CAISO said.

The proposal specifies that the committee will include one public official — as opposed to the more loosely defined “representative” — from each state in the RTO’s footprint.

As set out in the previous draft, the committee will also consist of one representative each selected from a cross-section of eight industry sectors. The proposal saw a few alterations to those sectors, including the folding of power generators and marketers into the independent power producer sector, the insertion of community choice aggregators into the publicly owned utilities sector, and the expansion of the consumer advocate sector to include “end-use” consumer groups as well as state-sanctioned ratepayer advocates.

Sectors will now directly choose their representatives, rather than forward two nominees to the current ISO board for final consideration. Still, the board will retain the option to appoint additional members in order to ensure geographical diversity on the committee.

CAISO’s draft also encourages the Transitional Committee to develop a governance proposal supported by all members, while providing for a resolution process if achieving consensus is not possible.

In response to stakeholder concerns about timelines, the revised proposal sets a deadline for the ISO’s transformation to a fully independent RTO. It would conclude with a new board selected through a new nomination and approval process, which must occur within 36 months of the adoption of the regional governance plan.

Supermajority Voting

To accommodate the interests of smaller Western states concerned about California’s outsized representation in an expanded CAISO, selection of the new RTO board will be subject to supermajority provisions that will apply to both the Nominating and Approval committees described in the latest proposal.

The final board will consist of nine members, a count the ISO says is consistent with other RTOs in the country — and which spreads responsibilities sufficiently enough without being too unwieldy to bring members together for monthly meetings.

The stakeholder-based Nominating Committee will be chosen by members of up to nine industry sectors, while the Approval Committee will consist of voting members of the WSC.

Board candidates will be forwarded to the Approval Committee only after winning 75% support in a load-weighted vote of the Nominating Committee. Finalists must meet the same vote threshold to be seated by the Approval Committee.

Decisions falling under the “primary authority” of the WSC will be subject to the same 75% load-weighted voting process. The committee — comprising one representative from each state in the RTO’s footprint — will be responsible for approving FERC filings related to “certain regional ISO policy initiatives on specific topics” dealing with transmission cost allocation and resource adequacy.

Exceptions to the WSC approval requirement can made when a reliability threat necessitates that the RTO file with FERC on a temporary basis or if a supermajority of the board determines that a WSC filing would undermine a reliability standard or FERC requirement.

The RTO would also be permitted to file at FERC without WSC approval after “a sustained period of inaction” by the committee, which the latest proposal defines as at least 90 days after a matter has been submitted for consideration.

Despite requests from a number of industry participants, the revised proposal makes no provision for the creation of a formal stakeholder committee — such as a market advisory committee.

“This is an important topic and one that deserves further discussion among all stakeholders, both in comments on this second revised proposal and ultimately in the transitional committee forum contemplated in this principle,” CAISO said.