UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION

San Francisco Bay Area Rapid Transit District,	)
an agency of the State of California, 			)
							)
v.							)		Docket No. EL98-10-000 
							)
Pacific Gas & Electric Company, a corporation,	)
and California Independent System Operator		)
Corporation, a corporation.				)

ANSWER OF THE CALIFORNIA INDEPENDENT SYSTEM OPERATOR IN OPPOSITION TO THE COMPLAINT FILED BY THE SAN FRANCISCO BAY AREA RAPID TRANSIT DISTRICT

I.	Introduction
In accordance with Rule 206 of the Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.206 (1997) and the Notice of Filing issued December 15, 1997, the California Independent System Operator (ISO) is filing an answer in opposition to the November 28, 1997 complaint filed by the San Francisco Bay Area Rapid Transit Authority (BART) against PG&E and the ISO.  According to BART, the ISO is named as a respondent in order to be bound by the Commission’s rulings.  
II.	SUMMARY
The ISO opposes the complaint.  The complaint is a collateral attack on the Commission’s October 30, 1997 order and seeks transmission service outside the ISO structure.  The issue of how to incorporate existing contracts into the ISO structure was extensively briefed by all parties, including BART, prior to the Commission’s October 30, 1997 order.  The October 30th order was very clear -- contracts executed before the date of the October 30, 1997 order would be honored.  However, contracts executed after the October 30, 1997 order were to be limited to a term coinciding with the start of ISO operations.  81 FERC ¶ 61,122, 61,472 (1997).  The purpose of limiting contracts executed after October 30, 1997 was to minimize the ISO’s burden of administering existing contracts and to expedite the transition to service under the ISO tariff.  BART did not have an existing contract on October 30, 1997.  As such, BART is required to take service under the ISO tariff.  
BART wants to be excluded from service under the ISO tariff through at least June 30, 2016.  To do that, BART seeks a long-term network service agreement.  To be an eligible customer for network service, BART must be seeking service  “pursuant to a state requirement that the Transmission Provider offer the transmission service.”
However, the California Public Utilities Commission (CPUC) has ruled that the state requirement to offer transmission service in California is that provided for under the ISO, not under the provisions of Section 701.8 of the California Public Utilities Code, and that BART is not exempted from those provisions.  In Order No. D.97-10-087 issued October 17, 1997, the CPUC said:  
	A review of AB 1890 [the California restructuring legislation] and other pertinent code sections [including Section 701.8 of the California Public Utilities Code] does not indicate any legislative intent to exempt BART from the applicable direct access rules.   
Thus, BART is not an eligible customer under the pro forma tariff and is not entitled to a long-term network service agreement outside the structure of the ISO.  
Granting the complaint would add to the already difficult task of administering existing contracts within the ISO structure.  BART can receive transmission service for its preference power purchases the same way others will receive transmission service, i.e. through the ISO.  In short, BART is entitled to purchase preference power.  It is not entitled to preference transmission service. 

IIi.	communications
Persons to be included on the Official Service List and to whom correspondence and communications should be directed on behalf of the ISO are:

N. Beth Emery
Vice President and General Counsel
California Independent System Operator Corporation
151 Blue Ravine Road
Folsom, CA  95630
Telephone:  (916) 351-2334 
Fax:  (916) 351-2350
E-Mail:  bemery@caiso.com

and 

Stephen Angle
Robert C. Fallon
Howrey & Simon
1299 Pennsylvania Avenue, N.W.
Washington, DC  20004-2402
Telephone:  (202) 383-7261
Fax:  (202) 383-6610
E-Mail:  angles@howrey.com

IV.	BACKGROUND
On November 28, 1997, BART filed a complaint against PG&E and the ISO.  The complaint seeks an order from the Commission directing PG&E to (1) enter into a long-term network transmission agreement and (2) cease its discriminatory treatment of BART in refusing to enter into a network transmission agreement for the delivery of Federal preference power to BART.  BART does not allege that the ISO engaged in any discriminatory acts.  Rather, BART recognizes that under the California restructuring PG&E and California’s other investor owned utilities will commit control of their transmission facilities to the ISO and the terms and conditions of the operation of the ISO are subject to approval by the Commission.  The ISO is named as a respondent in this proceeding according to BART, in order that it may be bound by the Commission’s rulings.  
BART states that it has a contract with the Western Area Power Administration (Western) to purchase preference power from Western through December 31, 2004.  BART also states that it has a contract with Bonneville Power Administration (BPA) to purchase up to 69 megawatts of preference power through June 30, 2016.  Beginning in early 1996, BART alleges that it requested PG&E to transmit BART’s allocations of federal preference power from Western and BPA to certain points on BART’s system in the form of long-term transmission agreements commensurate with the terms of BART’s preference power contracts, i.e. through 2004 and 2016, respectively.  On May 21, 1997, BART states that it filed an application for network service.  On May 30, 1997, BART alleges that PG&E rejected the application as incomplete because among other reasons, it did not include a ten year load forecast.  On June 12, 1997, BART states it resubmitted the application including the ten year load forecast.  On June 25, 1997, BART alleges that PG&E rejected BART’s resubmitted application on the ground that BART is not an eligible customer under Section 1.12 of the Open Access Tariff (OAT).  BART alleges that PG&E rejected the application notwithstanding the provision in Commission Order No. 888-A that “[a]ny retail customer taking unbundled transmission service pursuant to a state requirement that the Transmission provider offer the transmission service, or pursuant to a voluntary offer of such service by the Transmission provider, is an eligible customer under the tariff.”  FERC Stats. & Regs. Regulations Preamble ¶ 31,048, 30,214 (1997).
BART alleges that the applicable state requirement is found in Section 701.8 of the California Public Utilities Code.  Section 701. 8 states in part:
(a)	To ensure that the commission regulated electric utilities do not operate their transmission and distribution monopolies in a manner that impedes the ability of the San Francisco Bay Area Rapid Transit District (BART District) to reduce its electricity cost through the purchase and delivery of preference power, electrical corporations shall meet the requirements of this section.
(b)	Any electric utility regulated by the commission that owns and operates transmission and distribution facilities that deliver electricity at one or more locations to the BART District’s system shall, upon request by the BART District, and without discrimination or delay, use the same facilities to deliver preference power purchased from a federal power marketing agency or its successor.  Cal. Pub. Util. Code Section 701 (West 1997).
BART states that as a result of PG&E’s failure to enter into a network service agreement it is currently paying duplicative charges to third parties in order to deliver its preference power to the PG&E system at the California Oregon Transmission Project (COTP) Terminus near Tracy, California for ultimate delivery to BART.  BART states that the relief requested in its complaint is essential to BART’s economical performance of contracts for the purchase of Federal preference power from Federal power marketing agencies.  
IV.	DISCUSSION 
The ISO opposes the BART complaint.  Setting aside for a moment that the ISO believes that PG&E correctly interpreted the pro forma tariffs, fundamentally, the ISO does not favor administering contracts entered into prior to the start of the ISO’s operations.  While the ISO will obviously implement the Commission’s decision to recognize contracts, which were entered into prior to October 30, 1997, the Commission must continue to recognize that administering those contracts limits the ISO’s flexibility.  The ISO’s goal is the same as the Commission’s goal in Order No. 888, i.e. to provide service to all customers under a standard tariff, rather than a patchwork of transmission service with different sets of rules for different customers. 
Thus to the extent any customer, including BART, seeks to avoid taking service under the ISO tariff, the ISO opposes those efforts.  Yet, that is in fact the goal of the BART complaint.  BART wants to receive service after the start of the ISO operations as if had an existing contract with PG&E prior to October 30, 1997.  However BART is not entitled to that service because it did not have an executed contract prior to that date.  Moreover, PG&E did not discriminate against BART because BART is not an eligible customer under PG&E’s OAT.  It therefore was not eligible for service under that tariff.  
The difficult issue of how to incorporate existing contracts into the ISO’s operations, and the relationship between the Commission’s open access tariffs and the start of ISO operations, was extensively briefed prior to the October 30, 1997 order.  The ISO recognized the considerable operational challenge posed by implementing existing contracts simultaneously with its new non-discriminatory open access regime.  The Commission also recognized the challenge; agreeing with the CPUC that it may be difficult for the ISO to accommodate the varied operational protocols and procedures of Existing Contracts.  81 FERC ¶ 61,122, 61,470 (1997).
Parties proposed different solutions.  For example, some wanted existing contracts honored in their entirety.  Others, such as the CPUC, considered the retention of existing contracts, in any way, a threat to the independence of the ISO and discriminatory and unfair to other market participants.  BART’s position filed on June 5, 1997 was that the operations of the ISO and PX must account for the PG&E pre-existing long-term transmission obligations pursuant to Section 701.8.  BART also filed comments on September 2, 1997 and requested that no provisions of the ISO and PX tariffs be applied in a manner contrary to Section 701.8.  
On September 2, 1997, PG&E asked for guidance in the ISO and PX dockets on how to proceed between now and January 1, 1998, with respect to requests for  new or increased service under existing agreements and PG&E’s OAT that would commit existing capacity for many years beyond the start of ISO operation.  PG&E’s comments frame the issue well.  According to PG&E, recent requests for service, if agreed to, would lock up virtually all available transmission capacity, leaving little to transfer to ISO operational control on January 1, 1998.  The real issue, according to PG&E, is between the ISO on the one hand [i.e. PG&E having available capacity to turn over to the ISO] and OAT tariff customers on the other [i.e. customers seeking a long-term firm service under the OAT].  
In the October 30, 1997 order, the Commission said that parties to contracts executed prior to October 30, 1997 could exercise their rights under those contracts.  81 FERC ¶ 61,122, 61,472 (1997).  The Commission then addressed contracts executed after October 30, 1997.  The Commission stated:
With respect to PG&E’s request for guidance concerning requests for new or increased service under its Open Access Tariffs, we find that it is necessary to limit future requests for service in order to minimize the ISO’s burden of administering these existing services and in order to expedite the transition to service under the ISO’s newly established operating rules and protocols.  Accordingly, we hereby amend the Companies’ [PG&E’s, SoCal Edison, and San Diego Gas & Electric] Open Access Tariffs to incorporate provisions that honor all transmission service agreements executed before the date of this order.  With respect to all future requests for service we direct the Companies to limit the term of all transmission service agreements so that service does not extend beyond the ISO Operations Date.  81 FERC ¶ 61,122, 61,472 (1997).  
BART did not have an executed contract as of the date of the October 30, 1997 order.  Thus, if BART executes a service agreement with PG&E under the Open Access Tariffs, the term of that agreement would be limited to that which coincides with the start of the ISO operations.  BART has filed for rehearing of the October 30, 1997 order.  It also filed this complaint where it seeks what the October 30, 1997 order would deny, i.e. a long term network service agreement through June 30, 2016.  
For BART to succeed on its complaint, it must successfully argue that it was an eligible customer under PG&E’s OAT and was wrongfully denied service under that tariff.  BART cannot make that showing.  To be an eligible customer for network service, BART must be seeking service  “pursuant to a state requirement that the Transmission Provider offer the transmission service.”  Thus, the question that must be answered what is the state mandated retail access program in California?  The California legislature and the CPUC have clearly said the state mandated program is the one provided for under AB 1890, i.e. the ISO and PX.  They have rejected the notion that there were two retail access programs.
As the Commission is aware, California Assembly Bill 1890 (Chapter 854 Stats. 1996) restructured the California electric industry and created two state chartered, nonprofit market institutions: a Power Exchange and an Independent System Operator.  The bill did not exempt BART from the provisions of the ISO and PX.  
Indeed, the CPUC recently ruled that Section 701.8 does not exempt BART from the direct access rules in California.  In Order No. D.97-10-087, issued on October 17, 1997, BART argued that PG&E’s Direct Access Implementation Plans and its pro forma tariff and service agreements are in conflict with Section 701.8 and 374(b) of the Public Utilities Code.  Similar to its arguments here, BART argued there that it had been informed by PG&E that it will be subject to the direct access requirements and recommended that the CPUC exempt its federal power purchases from PG&E’s direct access.  PG&E argued that nothing in Section 701.8(b) states that BART should not be subject to the direct access rules.  According to PG&E, once direct access begins, BART will receive delivery of its preference power purchases under the same direct access terms and conditions as other retail customers.  The CPUC stated:  
	From our review of PU Code Sections 701.8 and 374(b), as well as a review of other provisions of AB 1890, it is apparent that the Legislature did not intend to exempt BART from the applicable direct access rules.  PU Code Section 701.8 became effective on January 1, 1996.  That section does not contain any exemptions from direct access.  Instead, PU Section 701.8(b) imposes an obligation on the electric utility to use its transmission and distribution facilities to deliver BART’s federal preference power.  When the Legislature enacted the provisions of AB 1890, the Legislature obviously knew of the existence of PU Code Section 701.8 because PU Code Section 374 was one of AB 1890ís provisions.  PU Code Section 374(b) specifically addressed PU Code Section 701.8 when it exempted BART from having to pay the transition costs found in PU Code Sections 367, 368, 375, and 376.  There are no other provisions in AB 1890 which exempt BART from the direct access rules.  Accordingly, we refuse to adopt BART’s recommendation that we exclude it from PG&E’s direct access rules.  
The CPUC decision clearly states that the state requirement to offer transmission service in California is that provided for under the ISO, not under the provisions of Section 701.8 of the California Public Utilities Code, and that BART is not exempted from those provisions.  The Commission should defer to the CPUC’s determination as to the state mandated retail access program in California.  That decision should not be disturbed absent compelling justification, which is not found in the BART complaint.  Granting the complaint and in doing so somehow find that there are two retail access programs in California disturbs that decision.  Thus, the Commission should find that BART is not an eligible customer under the pro forma tariff.  It should then find that BART is not entitled to a long-term network service agreement, an agreement that would have to be administered outside the ISO tariff, and delay the transition to service in California under one standard ISO tariff.
In sum, BART’s complaint, seeking a long-term network service agreement under Section 701.8 is not pursuant to the state mandated retail access in California program and would 
frustrate the operations of the state mandated program, i.e., the one under the ISO.  The Commission should deny the complaint.

						Respectfully Submitted,

						CALIFORNIA INDEPENDENT SYSTEM
						OPERATOR CORPORATION

					By:	____________________________
						Stephen Angle
						Robert C. Fallon
						Howrey & Simon
						1299 Pennsylvania Avenue, N.W.
						Washington, DC  20004-2402
						Telephone:  (202) 383-7261
						Fax:  (202) 383-6610
						E-Mail:  angles@howrey.com

					N. Beth Emery
					Vice President and General Counsel
					California Independent System Operator 							Corporation
					151 Blue Ravine Road
					Folsom, CA  95630
					Telephone:  (916) 351-2334 
					Fax:  (916) 351-2350
					E-Mail:  bemery@caiso.com

						Its Attorneys

Certificate of Service
I hereby certify that I have this day served the foregoing document upon each person designated on the official service list compiled by the Secretary in the captioned proceeding.
Dated at Washington, DC, this 14th day of January, 1998.

					___________________________
					Robert C. Fallon
						Howrey & Simon
						1299 Pennsylvania Avenue, N.W.
						Washington, DC  20004-2402
						Telephone:  (202) 383-7357