Statement of Mr. Michael A. Kahn
Chairman, California Electricity Oversight Board

Prepared for Senate Energy, Utilities and Communications Committee Hearing
March 14, 2000

Good afternoon Chairwoman Bowen and Committee members and staff. I am Michael Kahn, Chairman of the Electricity Oversight Board. I appreciate the opportunity to appear before you today. I will discuss the Oversight Board’s preparation for the Summer of 2000 related to ensuring adequate electricity supply, efficient market operation, and continued reliable performance of the California electricity grid under the California Independent System Operator’s (CAISO) control.

As the state’s oversight agency of the electricity grid and markets, the EOB is, as always, very concerned about the reliability of the grid and efficient functioning of the markets.

The current design of the CAISO and CalPX markets allow for some demand responsiveness that encourages electricity customers to reduce their use of electricity. In addition, various new programs are being proposed by the CAISO, the California Power Exchange (CalPX), and California’s electric utilities that aim to improve market performance and reliability by better incorporating load response into the markets. Both the CAISO and the CalPX are working with state agencies and the industry to explore additional load products that could be ready for this summer.

We consider these efforts to be very important and consistent with the EOB positions regarding demand responsiveness. In addition, these efforts are consistent with recently published recommendations from the United States Department of Energy’s Power Outage Study Team. As well, the municipal utilities have participated in the CAISO and CalPX efforts and have also formed a task force to assess their systems and prepare for the Summer 2000.

Efforts should be continued to ensure that all of these programs are operational prior to the summer of 2000. A summary of these programs has been distributed to the Committee. We encourage all parties involved to continue to work diligently to get these programs approved and in place by early June 2000.

Since the CAISO and CalPX come under the jurisdiction of the Federal Energy Regulatory Commission (FERC), programs from these corporations will be filed with and considered by FERC for approval. The EOB is the designated representative of the State of California before FERC for issues related to grid reliability and market design and performance. The EOB will participate in the FERC proceedings when the CAISO and the CalPX file their proposed programs for approval. We expect that the EOB’s support of these programs will be important in obtaining prompt approval by the FERC. Previously, FERC has given great deference to the State’s positions on these matters.

Once these programs are in place we will continue to assess the effectiveness of these programs to ensure that the expected benefits to California’s citizens are realized.

We believe that efficient markets and a reliable electricity grid can go hand-in-hand. Well functioning, transparent markets will enhance reliability as well as market efficiency.

The EOB will continue to work with the Administration, the agencies and the industry in addressing the energy supply issue for summers 2000 and 2001.

Thank you for the opportunity to appear here today. I would be happy to respond to any of your questions.