UNITED STATES OF AMERICA
BEFORE THE
FEDERAL ENERGY REGULATORY COMMISSION

California Independent System		)		Docket Nos. EC96-19-029 
Operator Corporation			)		  and ER96-1663-030

CALIFORNIA INDEPENDENT SYSTEM OPERATOR 
CORPORATION’S RESPONSE TO 
WPTF’S MOTION TO INTERVENE OUT OF TIME AND COMMENTS
 AND EPMI’S PROTEST AND ANSWER 

	Pursuant to Rule 213 of the Commission’s Rules of Practice and Procedure, 18 C.F.R. § 213 (1998), the California Independent System Operator Corporation (ISO) submits this Response to Western Power Trading Forum’s (WPTF’s) Motion to Intervene Out of Time and Comments and Enron Power Marketing. Inc.’s (EPMI’s) Protest and Answer filed on September 28, 1998 in connection with the ISO’s August 31, 1998 filing of additional information relating to its Bylaws.  
BACKGROUND
On August 31, 1998, the ISO submitted additional information relating to its June 1, 1998 compliance filing required by the Commission’s December 17, 1997 order.  Pacific Gas & Elec. Co., 81 FERC ¶ 61,320 (1997).  In that filing, the ISO submitted its Amended and Restated Bylaws, which, among other things, extended the Board member terms, made technical and “clean-up” changes, and changed the ADR Committee from an advisory committee to a committee of the Board of Governors.  August 31, 1998 Transmittal Letter,    at 2.  The ISO stated in that filing that the Amended and Restated Bylaws did not address the changes regarding the residency requirement or the ongoing role of the Oversight Board as requested by the Commission in its October 30, 1997 order (81 FERC ¶ 61,122 (1997)).  August 31, 1998 Transmittal Letter, at 2.  The ISO stated that it was not in full compliance with the Commission’s orders because it finds itself caught between conflicting state and federal directives – the California legislation mandating the current governance structure in the ISO’s Bylaws and the Commission’s orders to remove the residency requirement and ongoing role of the Oversight Board.  Id.  The ISO further stated that pending the D.C. Circuit appeal, the ISO was not able to make the changes to the Bylaws required by the Commission without acting beyond its corporate powers.  Making the Bylaw changes required by the Commission would raise questions as to the legality of the ISO’s governance under California corporate law and, consequently, of any future actions it takes while it is under that governance.   
Nevertheless, to avoid an entire Board being selected under the current Bylaw provisions that the Commission has directed the ISO to change, the ISO Board of Governors again extended the terms of the Board members to coincide with the earlier of the resolution of the D.C. Circuit appeal on the governance issues or November 30, 1999.  Id. at 3.   In the March 4, 1998 order, the Commission recognized the ISO’s precarious position, noting that by voting to extend the Board member terms (to November 1998 at that time), the ISO would not be faced with an imminent problem of conflicting state and federal problems regarding the selection of Governing Board members.  82 FERC ¶ 61,223, at 61,871 (1998).     

RESPONSE TO INTERVENTION/PROTEST
EPMI and WPTF have raised the same issues that have been previously raised by various parties and the Commission regarding the governance issues in this proceeding.  The ISO has made the Commission aware of the precarious position in which the ISO finds itself with respect to these issues.  The ISO does not want to repeat those arguments.  However, WPTF and EPMI have made several allegations to which the ISO would like to respond.
First, the ISO wants to emphasize that its failure to change its Bylaws in accordance with the Commission’s orders is in no way a “flagrant violation” of the Commission’s orders, nor has the ISO “stubbornly” continued to maintain the residency requirement and the continued role of the Oversight Board.  These statements incorrectly imply that the ISO has made a political or strategic decision not to comply.  As previously explained, the ISO believes that it is beyond its corporate powers to take the action the Commission requests.  The state law that created the governance structure that FERC finds objectionable is beyond the ISO’s ability to change.  The ISO has taken the only action it believes that it can take without going beyond its corporate powers  – that is to seek appeal of the Commission’s orders with the Court of Appeals for the D.C. Circuit.       
Second, EPMI’s response refers to the Commission’s November 26, 1996 order in Pacific Gas & Elec. Corp., which states that “preemption may result from federal agency action taken within the scope of its congressionally delegated authority.”  The issue of whether the action taken by the Commission in its order requiring the ISO to amend its Bylaws falls within the scope of FERC’s congressionally delegated authority is currently being challenged on appeal.  In that proceeding, the ISO (and the Oversight Board) have raised issues regarding whether the FERC had the jurisdiction under the FPA to issue the November 1996 and October 30 orders relating to the governance structure.  Specifically, those issues are:
1.	Under the Federal Power Act, does the Federal Energy Regulatory Commission’s (FERC’s) jurisdiction extend to matters included in a state law that asserts jurisdiction over service reliability decisions affecting retail transactions subject to state jurisdiction where those same decisions also affect interstate transmission subject to FERC regulation?
 
2.	Under the Federal Power Act does FERC have jurisdiction to change the governance of an entity created by the state legislature and charged with carrying out both federal and state regulated functions, including the regulation of service reliability to retail customers subject to the state’s jurisdiction? 

Thus, the condition that allows a federal agency ruling to preempt a state law – whether the Commission acted within the scope of its congressionally delegated authority – is now pending on appeal in the D.C. Circuit.  Moreover, EPMI has ignored the fact that the ISO’s corporate powers – attained through its Bylaws and Articles of Incorporation – preclude it from making the changes FERC has ordered.  Thus, due to the pending nature of these issues, the questions regarding the Commission’s preemption of state law and the ISO’s ability to comply with the Commission’s orders are not as easily resolved as EPMI indicates. 	Third, EPMI and WPTF request that the Commission order the ISO to make the changes to its Bylaws within fifteen days of the Commissions order in this docket.  EPMI Protest at 13; WPTF Motion to Intervene at 7.  EPMI requests a “forceful Commission rebuke” to show the ISO that it must follow the law.  EPMI Protest at 8-9.  This kind of enforcement action against the ISO is not necessary and not the most efficient way to alleviate EPMI’s and WPTF’s concerns regarding the independence of the ISO governance structure. The ISO has always been willing to facilitate a settlement or some other resolution to this issue and has on several occasions requested that the Commission schedule a public conference to discuss potential resolutions.  There is no question that the Commission’s enforcement authority is highly discretional in this type of situation:
The breadth of agency discretion is, if anything, at its zenith when the action assailed related primarily not to the issue of ascertaining whether conduct violates the statute, or regulations, but rather to the fashioning of policies, remedies and sanctions, including enforcement and voluntary compliance programs, in order to arrive at maximum effectuation of congressional objectives.

See e.g., Ozark Gas Transmission Sys., 42 FERC ¶ 61,198 (1988) (citing Niagara Mohawk Power Corp. v. FPC, 379 F.2d 153 (D.C. Cir. 1967)).  The ISO believes that state and federal objectives will best be met with a public conference that will enable parties and the Commission to better understand the issues and work out solutions that satisfy the Commission’s and parties’ concerns on the governance issues.  For example, such a conference would allow the Commission and parties to explore what might be an appropriate ongoing role for the Oversight Board as noted in the Commission’s March 4, 1998 order.  82 FERC at 61,871.
	Thus, pending the resolution of the D.C. Circuit appeal of the governance issues, the ISO respectfully requests that the Commission schedule a public conference so that the 
Commission and parties can discuss potential resolutions of these issues.    

								Respectfully submitted,

_______________________
N. Beth Emery					 	Stephen Angle
Vice President and General Counsel				Linda L. Walsh
California Independent System Operator			Maria Farinella*
  Corporation							Howrey & Simon 
151 Blue Ravine Road					1299 Pennsylvania Avenue, N.W.
Folsom, CA  95630						Washington, D.C.  20004
Tel:  (916) 351-2334						Tel: (202) 783-6924 
Fax:  (916) 351-2350 						Fax: (202) 383-6610
	
Counsel for the California Independent System Operator Corporation

Dated:  October 13, 1998

* Admitted in other than the District of Columbia.