March 3, 1998

The Honorable David P. Boergers
Acting Secretary
Federal Energy Regulatory Commission
888 First Street, N.E.
Washington, D.C.  20426

Re:	Pacific Gas and Electric Company, San Diego Gas & Electric Company, et al., Docket Nos. EC96-19-___ and ER96-1663-___

Amendment No. 5 to the ISO Operating Agreement and Tariff, including the ISO Protocols

Relating to Simplification Measures to Ensure Timely and Reliable Operation

Dear Secretary Boergers:

Pursuant to Section 205 of the Federal Power Act (“FPA”), 16 U.S.C. § 824(d), the California Independent System Operator Corporation (“ISO”) respectfully submits for filing new Sections 21 and 22 to the ISO Operating Agreement and Tariff, including the ISO Protocols (“ISO Tariff”), that will defer certain functions that the ISO Tariff currently contemplates.
The ISO respectfully requests that the Commission accept this amendment (“Amendment No. 5”) for filing and make it effective as of the ISO Operations Date, which will be no later than March 31, 1998.  Because these are limited deferrals of certain functions the ISO also respectfully requests that the Commission allow the reinstatement of the deferred functions upon seven days notice, by pre-approving the termination of proposed Sections 21 and 22.  The notice of termination will be given by the Chief Executive Officer of the ISO by contemporaneously posting it on the ISO’s “Home Page” and submitting it to the Commission.
Included with this submittal are:
•	a copy of new ISO Tariff and Operating Agreement Sections 21 and 22, containing the simplifications (Attachment A); and
•	a notice suitable for publication in the Federal Register (Attachment B).
I.	NOTICES
The following individuals should be placed on the Commission’s Official Service list for this submittal:
N. Beth Emery	Fiona Woolf
Vice President and General Counsel	Linda C. Ray
The California Independent System	Bridget E.R. Shahan
  Operator Corporation	Cameron McKenna LLP
151 Blue Ravine Road	2000 Pennsylvania Ave., N.W.
Folsom, California  95630	Suite 8550
Tele:  916-351-2334	Washington, D.C.  20006
Fax:  916-351-2350	Tele:  202-466-0060
	Fax:   202-466-0077

II.	AMENDMENT NO. 5 - SECTIONS 21 AND 22
A.	Sections 21 and 22 Are the Result of the Task Force Process to Ensure a Timely Start-Up and Reliable Operations
Despite the very positive results that the ISO has experienced in preparing for the start of initial operations in the last few months, the overall process of assuring that all necessary components of the California market are ready for the initiation of operations by March 31, 1998, remains a very complex undertaking.  Beginning in early February, the ISO, the PX and the three California investor-owned utilities (“Companies”) organized a task force (the “Task Force”) to begin a systematic evaluation of all of the new computer systems associated with the California restructuring, with a view of finding a common understanding of the problems and possible solutions.  The Task Force identified a series of temporary simplification measures that the Task Force collectively believes will substantially improve the likelihood of start-up by March 31, 1998.
The Task Force began its evaluation with a “core” definition of what start-up on the ISO Operations Date must entail:  (1) the ability to start retail competition; (2) the ability of the ISO to operate the ISO Control Area; and (3) the ability of the PX to operate the Day-Ahead Market for Energy.  Many options were considered and rejected as the Task Force attempted to balance the positive benefits of delay from an operations point against the negative effect on Market Participants.  Several options that appeared to be simple solutions were in fact found to be more complicated than the specific problems that they were intended to resolve.  Other options simply did not provide sufficient assurance of the ISO’s ability to reliably operate.
Once the Task Force completed its initial report, ISO management consulted with the Scheduling Coordinators, seeking their input on the effect of the simplification proposals on the Market Participants.  These discussions continued throughout February.
ISO management presented the Task Force recommendations to the ISO Governing Board at a special teleconference on February 11, 1998.  At that meeting, the Board approved the five ISO Tariff simplification measures recommended, delegating certain tasks to ISO management to complete the necessary filings.
At an Executive Committee teleconference on February 17, management reported on the status of the five recommendations.  At that meeting, management noted that some of them would likely not be necessary. 
At the regularly-scheduled meeting of the Grid Reliability and Operations Committee on February 23 and at the Board meeting on February 24, management further updated the Board on the status of the recommendations.  In parallel, management continued to seek input from the Scheduling Coordinators on the implications of the simplification measures and alternatives that would minimize the adverse economic impact on Scheduling Coordinators. 
Ultimately, three of the five originally proposed simplifications were dropped when management and the Task Force determined they were unnecessary to meet the Task Force objectives.  The three proposals that have been dropped are:  (1) the proposal to require Ancillary Services bids for the Day-Ahead Market to be submitted four days in advance; (2) the proposal to defer for a short time after the ISO Operations Date the Hour-Ahead Market; and (3) the proposal to defer the acceptance of Revised Schedules (the Congestion iteration).
B.	The Nature of the Simplifications
Of the original five simplifications, only two remain:
1.	Section 21 – Setting the Generation Meter Multiplier to 1.0 for Schedules
Proposed Section 21 would set the Generation Meter Multiplier to 1.0 for scheduling purposes.  This is necessary for two reasons.  First, setting GMMs to 1.0 will make it easier to balance Energy portfolios and Inter-Scheduling Coordinator Trades involving the PX.  Second, the ISO is concerned that using different rules for the PX versus other Scheduling Coordinators would increase the potential for errors and delays in submitting and validating Schedules, particularly in the first weeks of full operations.  By initially imposing this rule on all Scheduling Coordinators, the ISO will have sufficient time to complete its scheduling process by making it easier to determine whether Schedules are balanced and reducing the risk of Schedules being rejected.
Once the ISO has been in operation and established a consistent record of timely validation and posting of Schedules, there will be more time to handle differences between the PX and the other Scheduling Coordinators.  The ISO will at that time allow Scheduling Coordinators to revert to the use of forecasted GMMs.  The PX will continue to use a GMM of 1.0 until its software is able to process forecasted GMMs.  For both the period when the GMM is set at 1.0 for Schedules and when the forecasted GMMs are used, the settlements process will remain unchanged.
2.	Section 22 – Increasing the ISO Schedule Validation Tolerance from 1 MW to 20 MW
Section 22 increases the ISO schedule validation tolerance from 1 MW to 20 MW.  This simplification reduces the risk of Schedules being rejected as unbalanced, thereby giving the ISO more time to complete its scheduling process.  Under this change, a Schedule will be treated as a Balanced Schedule when aggregate Generation, adjusted for Transmission Losses by the relevant GMM, is within 20 MW of aggregate Demand.
C.	Sections 21 and 22 have Self-Termination Provisions
In its order issued October 30, 1998, the Commission stated that if the ISO determines that there are functions that it would not be able to perform as of the ISO Operations Date, the ISO could simply delete those functions from the version of the ISO Tariff that it posts on the WEnet and reintroduce those functions as Section 205 filings.
As we stated in the July 30 Order, the Tariff must contain only those elements of the proposal that the ISO or PX intend to become effective when their respective operations commence.  Accordingly, the ISO and PX are directed to delete from their Tariffs and related agreements posted on the ISO WEnet all provisions that are not intended to be effective when ISO and PX operations commence.  Moreover, the ISO and PX are each directed to file under section 205, at least sixty days prior to the proposed effective dates, provisions for which implementation has been staged.
The ISO is fully cognizant of the “notice and posting” requirements of Section 205.  These simplifications are, however, distinguishable from the staged functions.  The market’s desire to revert to full functionality as soon as possible is sufficiently compelling that pre-approval of the termination of Sections 21 and 22, by their respective terms, is in the public interest and should be granted.  The ISO also believes that the termination mechanism provided by a stand-alone ISO Tariff provision for each of the two simplifications is the least confusing and most timely method of providing Market Participants with notice of full functionality on these narrow, minor simplification measures.
Consequently, the ISO seeks acceptance for filing of Sections 21 and 22 as temporary measures, complete with terminating provisions for each provision – the posting of a notice on the ISO’s “Home Page” with contemporaneous notice to the Commission that a specific provision will terminate – thereby allowing the attendant provisions in other Sections of the ISO Tariff to take effect.
The Commission has provided advance approval of termination under “extraordinary circumstances.”  Extraordinary circumstances are present here.
The measures in Section 21 and Section 22 are necessary to ensure the start-up of the ISO by March 31, 1998.  The advance approval of termination will allow the California electricity market to return to the currently approved ISO Tariff as quickly as possible with a minimal amount of disruption and confusion.  This procedure will benefit the Market Participants by allowing full scale operations to commence immediately.
III.	REQUESTED EFFECTIVE DATE FOR AMENDMENT NO. 5
The ISO respectfully requests that the Commission accept for filing Amendment No. 5, containing proposed ISO Tariff Sections 21 and 22, and allow it to become effective as of the ISO Operations Date.
IV.	REQUEST FOR WAIVER OF THE 60-DAY FILING REQUIREMENT
Pursuant to Section 35.11 of the Commission’s regulations, the ISO respectfully moves for waiver of the 60-day notice requirement with respect to proposed Amendment No. 5 and moves for waiver of the 60-day notice requirement for the termination of either of Section 21 or Section 22 upon seven (7) days notice of posting on the ISO’s “Home Page” and submission of such notice to the Commission.
Good cause exists for the Commission to grant the ISO a waiver of each of the 60-day notice requirements.  Proposed Amendment No. 5 is intended to ensure a fail-safe start-up for the ISO by March 31, 1998, and the measures set out in that provision are necessary for this purpose.
The ISO is making this filing at the earliest practicable date.  The provisions of Sections 21 and 22 are the result of continual operations testing and consultation with the PX and the stakeholders that only concluded in the past few days.
The ISO will, concurrently with this filing, take steps to ensure that all parties are quickly informed of this Amendment No. 5 by posting it on the ISO’s “Home Page” and faxing to all parties on the service list a notice that the filing may be obtained from the web site if a party wishes to review it in advance of receiving its service copy.
Wherefore, for the foregoing reasons, the ISO respectfully requests waiver of the 60-day notice requirement for Amendment No. 5 to allow it to become effective as of the ISO Operations Date and to pre-approve the effectiveness of the automatic termination provisions.
V.	CONCLUSION
Wherefore, for the foregoing reasons, the California Independent System Operator Corporation respectfully requests that (1) the Commission accept for filing proposed ISO Tariff Amendment No. 5 and allow it to become effective as of the ISO Operations Date; and (2) approve the termination of Section 21 and Section 22 to be effective without further action of the Commission upon seven (7) days posting of notice of the termination on the ISO Home Page and the providing of notice to the Commission; and (3) grant such other relief as is requested herein.
Respectfully submitted,

_________________________________
Fiona Woolf
Linda C. Ray
Bridget E.R. Shahan
Counsel for 
The California Independent System Operator Corporation

CERTIFICATE OF SERVICE
I hereby certify I have this day served the foregoing submittal upon each person designated on the Official Service List compiled by the Secretary in Docket Nos. EC96-19-003 and ER96-1663-003, in accordance with the requirements of Rule 2010 of the Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.2010.
Dated at Washington, D.C., this 3rd day of March, 1998.

_____________________
      Harry Dupre

Notice Suitable for Publication in the Federal Register

Pacific Gas and Electric Company, 	       )
San Diego Gas & Electric Company, and     )     Docket Nos. EC96-19-___ 
Southern California Edison Company	       )	                      ER96-1663-___

NOTICE OF FILING
Take notice that on March 3, 1998, the California Independent System Operator Corporation (ISO) filed for Commission acceptance in this docket, pursuant to Section 205 of the Federal Power Act, an application to amend the ISO Operating Agreement and Tariff, including the ISO Protocols (ISO Tariff), by adding new Sections 21 and 22 (Amendment No. 5), and a motion for waiver of the 60-day notice requirement.  The ISO requests that the Amendment No. 5 be accepted for filing and be made effective as of the ISO Operations Date, which will be no later than March 31, 1998.

The ISO states that the ISO Tariff Sections 21 and 22 would defer, for a brief period of time, certain functions contemplated by the ISO Tariff.  Specifically, Section 21 would set the Generation Meter Multiplier at 1.0 for scheduling purposes.  Section 22 would increase the schedule validation tolerance from 1 MW to 20 MW.  The ISO also requests the Commission allow the reinstatement of the deferred functions upon seven days notice (via posting on the ISO’s “Home Page” and submission of such notices to the Commission), by pre-approving the termination of proposed Sections 21 and 22.

Any person desiring to be heard or to protest said filing should file a petition to intervene or protest with the Federal Energy Regulatory Commission, 888 First Street, N.E., Washington, D.C.  20426, in accordance with 18 C.F.R. §§ 385.212 and 385.207.  All such petitions or protests should be filed on or before _________.  Protests will be considered by the Commission in determining the appropriate action to be taken, but will not serve to make protestants parties to the proceeding.  Any person wishing to become a party must file a petition to intervene.  Copies of this application are on file with the Commission and available for public inspection.