U.S. Court Reproves FERC Over Cal-ISO

A federal appeals court, siding with former Gov. Gray Davis in a political fight, strongly rebuked federal energy regulators for their attempt to replace the board that manages California’s electricity grid.

The move by the Federal Energy Regulatory Commission in December 2000 was an “unprecedented invasion of internal corporate governance,” the U.S. Court of Appeals for the District of Columbia Circuit ruled Tuesday.

As part of its intervention in the state’s power crisis of 2000-01, FERC contended that the makeup of the board of a utility or a grid operator affects rates and that the agency therefore had a right to order changes.

The court, saying that FERC lacks such authority, overturned the commission’s order that the California Independent System Operator disband and create a new governing structure. FERC contended that Cal-ISO, which was formed in 1996 as part of the state’s deregulation scheme, was not independent because Davis appointed all its members.

The move infuriated Davis, and his appointees to Cal-ISO ignored the order. The stinging 16-page ruling vindicated Davis’ position.

“If FERC can today remove, replace and reform a state-created ISO, it can tomorrow without any further claim of expanded power remove and replace the board of directors of, for example, Duke Energy, Reliant Resources Inc. or Dynegy Power Marketing Inc.,” wrote Judge David Sentelle, referring to three major power sellers during the crisis.

The argument FERC used to justify its order altering the Cal-ISO board was tantamount to claiming that it had “authority to regulate anything done by or connected with a regulated utility,” Sentelle wrote. “We are not biting.”

Cal-ISO Chairman Michael Kahn said the governance dispute “has been a major irritant for the past several years.... If the judge went the other way, it would have paralyzed us.”

FERC spokesman Bryan Lee said the commission “has always sought a process that would create independent boards.”

Meanwhile, Cal-ISO named Marcie Edwards, general manager of Anaheim Public Utilities, to lead the organization until a replacement was found for former Chief Executive Terry Winter. Edwards, who served on the Cal-ISO board through 2000, will take over management for three to six months starting July 1, the grid operator said.

Winter oversaw California’s power grid during the energy crisis. He resigned June 1 along with Elena Schmid, vice president of corporate and strategic development.