E. Participants' Major Concerns

We received comments and replies on numerous topics from participants during the various phases of this rulemaking proceeding, as described in Part A, "Background." During each phase, the participants were afforded an opportunity to file comments and replies. The parties raised general concerns, as well as more specific criticisms and recommendations addressed to particular provisions of the GO.

In this section, we address the parties' major concerns, starting with comments that apply to our implementation and enforcement of the standards adopted pursuant to section 761.3 and continuing with responses concerning the General Duty Standards and the Maintenance Standards. Our commentary here is in addition to the jurisdictional issues we have previously discussed in our Thermal Logbook Standards decision and those we address in Part C of this decision. In Attachment B, we include a more detailed, section-by-section response to the many other comments made on the draft GO.

1. General Concerns

a. Delegation of Functions to Staff

Several generators objected to what they believe is an impermissible delegation of Commission authority to its staff. They suggested that an unlawful delegation results in two main areas of the GO: (a) provisions allowing the Executive Director to exempt certain Generating Assets from certification and other requirements concerning the standards and requirements; and (b) staff imposition of scheduled fines.

We have considered the delegation of authority issue in many of our past decisions. The most recent, thorough discussion of the issue, in the context of staff suspension of advice letters, was set forth in our order denying rehearing in In re California Association of Competitive Telecommunication Companies.¹⁶ There we concluded that the Public Utilities Code authorizes the delegation to staff "of responsibilities that involve the exercise of actual judgment and discretion, and not simply the application of a rubber stamp or mathematical formula." Specifically, the Executive Director and staff are authorized under Pub. Util. Code § 308(b) to perform "such other duties as the president, or a vote of the commission prescribes."

When we authorize the Executive Director to exempt certain Generating Assets from logbook or maintenance certification requirements, we specify objective criteria for staff to use in making that determination (i.e., vintage, technology, generation (megawatt) capacity, ownership). In response to comments, we have eliminated language that would interject uncertainty as to the objective criteria to be used by the Executive Director (i.e., "including but not limited to"). With this minor modification, we have sufficiently circumscribed the Executive Director's role in establishing exemption categories. We provide this authority because we believe as staff proceeds to implement this program, the Executive Director can carefully calibrate, by establishing exemptions, how best to use the agency's limited resources while maximizing the program's benefits of improving electric service reliability and adequacy.

We also disagree that authorizing staff to apply scheduled fines for specified violations constitutes an unlawful delegation of Commission authority. The GO includes these scheduled fine provisions to allow prompt resolution of specified violations where facts are not in dispute. We previously have favorably described this approach as a "traffic ticket" or ministerial citation process.¹⁷ While the GO allows staff to assess the specified fine, the fine will not actually be imposed if the generator disagrees. In that case, staff must either drop the matter or proceed with other traditional methods of enforcement, such as an Order Instituting Investigation (OII) or other formal Commission proceeding. In short, scheduled fines can only be imposed when the generator consents. We see no delegation problem here.

While we intend to coordinate and cooperate with local, state and federal agencies to the fullest extent necessary and reasonable, at the same time we must implement and enforce Committee-adopted Operations and Maintenance Standards, as directed by the Legislature, and we will do so.

b. Procedures to Implement Standards

We asked for suggestions about procedures other than traditional methods to assist in the implementation of the standards. These methods could include training sessions or web-based materials, among others. We received very few suggestions concerning such approaches. One entity suggested that implementation of the standards might be incorporated into performance-based ratemaking. Several participants asked for a stakeholder advisory committee. Others asked for informal opportunities to meet and confer with CPSD in preparing certifications and in discussing apparent violations.

Few specific comments were offered on new or non-traditional implementation methods. We do not believe that we should vary our general approach to the implementation of these standards and requirements. This includes appropriate staff training, ongoing communication with the regulated community, monitoring of generator compliance, information requests, audits and inspections, and other activities. CPSD has worked over the last year to hire and train new staff and otherwise prepare for the implementation of this new program.

We are also not persuaded to create a stakeholder committee or a meet-and-confer process, as several generators have suggested. The resources of parties and the Commission are not without limit, and there are many important uses for those limited resources. A stakeholder committee might be of assistance, but its need is not persuasively demonstrated. We will reconsider creating such a committee if and when a specific need is evident, and its cost-effectiveness can be evaluated. More generally, as this program is implemented, we encourage generators to suggest ways in which it may be improved.

c. Enforcement Procedures

Several comments raised concerns about who would file complaints under the standards, the role of Commission staff, the nature of the enforcement proceedings, and the burden of proof. We have addressed all these concerns in detail in the GO. Under the GO, CPSD will have the primary role for implementing and enforcing the requirements although we do not foreclose, at this time, the possibility that other persons may file complaints asserting violations of the GO. As for staff enforcement, we have set forth a graduated process that proceeds from self-certification, to audits and inspections, and ultimately to evidentiary hearings and the possible imposition of sanctions.

d. Potential Conflict with Other Authorities

Duke Energy North America (DENA) and others are concerned that the Commission will develop an implementation and enforcement program that will duplicate or conflict with the programs of local, state and federal authorities, or existing contracts. DENA concluded that creation of a duplicative and potentially conflicting regulatory structure will be exceedingly wasteful of the Commission's limited resources, as well as the resources of other agencies and stakeholders.

We agree that limited resources must be carefully allocated. The Legislature adopted section 761.3, however, because of concerns about the stability, reliability and adequacy of California's electricity system, as well as the public's health and safety. If the existing local, state and federal regulatory structure were satisfactory to the Legislature, section 761.3 would simply have been unnecessary.

e. Interference with FERC/CAISO Authority

In our Thermal Logbook Standards decision, we have discussed at length the relationship of our authority to implement and enforce standards with FERC's jurisdiction under federal law. As we said in our earlier decision, "FERC's jurisdiction does not extend to . . . operation and maintenance standards of `facilities used for the generation of electric energy.' These are precisely the standards and Generating Assets subject to this rulemaking proceeding."¹⁸

Some of the parties have commented that our enforcement of CAISO's Outage Coordination Protocol, which is part of CAISO's federal tariff, interferes with FERC's authority. One party suggested that our required adherence to CAISO's Protocol unlawfully expands CAISO's jurisdiction over entities not otherwise subject to its authority.

As a matter of state law, the Legislature has directed us to "enforce the protocols for the scheduling of power plant outages of the Independent System Operator."¹⁹ Both the Commission and CAISO are creations of state law, and the Legislature can lawfully coordinate the activities of both entities.

Our objective in enforcing CAISO's Protocol is to ensure the proper operation and maintenance of electric generating facilities, a responsibility reserved to us under federal law. FERC may also enforce the Protocol since its provisions are part of the federally filed tariff, but FERC's purpose in doing so is to regulate the transmission of electricity and the wholesale power market. Given these different purposes, both the state and federal commissions, we believe, may enforce the Outage Coordination Protocol.

f. Incorporation in Tariff

Most comments suggested that we enforce the standards by obtaining their incorporation in the tariff filed by CAISO with FERC. These comments indicated this approach is the only feasible way to avoid jurisdictional uncertainties about the Commission's authority over certain generators, principally the Exempt Wholesale Generators (EWGs). These comments, however, initially provided few details on how this "enforcement-by-incorporation" arrangement would work. The ALJ invited more information on this suggestion, and AES Generators, DENA, and West Coast Power submitted more specific proposals. We summarize their suggestions and then provide our own observations on the "enforcement-by-incorporation" possibility.

1) Generators' Proposals

AES Generators (AES) used a flow chart to illustrate how the Maintenance Standards (and presumably other standards) might be enforced through incorporation in the CAISO tariff and the joint efforts of our staff and that of CAISO.²⁰ The Maintenance Standards could be incorporated as a protocol or an appendix to Participating Generator Agreements (PGAs), those contracts allowing generators to schedule their power with CAISO. Our staff filing a formal complaint with FERC, to be heard and decided by that agency, could ultimately enforce violations of the standards. Many of the other steps in AES's proposal parallel the self-certification, audit, and inspection procedures we adopt in the GO.

DENA's proposal was similar.²¹ It suggested that an appropriate section in CAISO's tariff be used to describe the enforcement procedures and that the Maintenance Standards themselves be incorporated into a new protocol to the tariff. DENA also recommended the use of the existing detailed dispute resolution process that is already part of the CAISO tariff. The revised tariff and new protocol would be submitted to FERC for its approval. DENA also indicated that, ultimately, sanctions would be imposed by FERC although DENA expected most problems to be resolved through less formal processes.

West Coast Power's proposal differed mainly in its suggestion that the generators' self-certifications be filed with CAISO and in its emphasis on the Commission's role "as the eyes and ears of the implementation and enforcement process, . . ."²² Once again, enforcement would be through a complaint filed with FERC, with the caveat that the Commission avoid adjudicating complaints against generators over whom West Coast Power believes we do not have jurisdiction.

2) Our Observations

As described by these generators, CAISO's FERC-approved tariff applies to generators who market power through the ISO-controlled electrical grid. Each generator marketing electricity through CAISO executes a PGA that serves as the basic contractual arrangement and requires the generator "to comply with all applicable provisions of the ISO Tariff." If the Maintenance Standards were incorporated into the CAISO tariff or the PGAs, they would be binding on all generators marketing power through CAISO, even on those EWGs who maintain they are beyond our jurisdiction.

Such an approach is not unique since the CAISO tariff already includes many conditions and restraints on participating generators. The CAISO Board of Directors also has adopted the "ISO Enforcement Protocol" that has been filed with FERC, although it was stayed by FERC shortly after filing.²³ The Enforcement Protocol includes "market rules" that proscribe certain generator behaviors interfering with the reliable operation of the transmission grid and the fair and competitive operation of markets.²⁴

We believe a useful regulatory arrangement could be crafted, using the CAISO tariff and Enforcement Protocol (assuming FERC approval), and PGAs to "backstop" our own enforcement of the Committee's standards through the GO. We believe enforcement in this manner, as a supplement to our own procedures, could be an especially strong incentive for responsible maintenance and operational practices. Such an arrangement would require close cooperation with CAISO, however, and is beyond the scope of this rulemaking proceeding. Nevertheless, we ask our Executive Director to investigate this possibility in greater detail, once the CAISO Enforcement Protocol becomes effective, and submit recommendations to us within 180 days.

g. Amendments to Standards

Some comments suggested that the standards would no longer be effective after the Standards Committee itself dissolves under SBX2 39, now scheduled for January 1, 2005.²⁵ We reject this interpretation. This "sunset" date applies only to the subsection of SBX2 39 pertaining to the Standards Committee. The "sunset" provision does not pertain to the standards themselves.

Other comments have asked how amendments to the standards will be incorporated into the Commission's ongoing implementation and enforcement program. While the Standards Committee is in existence, it has authority to revise the standards.²⁶ The GO specifies that if the Committee, during its existence, duly adopts and files amendments to the standards with the Commission, we will enforce those amended standards under the GO, as we have discussed in this decision.

Some comments suggested that, once the Committee terminates, the standards cannot be amended and will soon become obsolete and unenforceable in any reasonable fashion. We also reject this narrow interpretation of the legislation for two reasons.

First, the adopted standards involve reasonably stable criteria that are both of a general and specific nature. For example, the GDS are six standards that are likely to be reasonable standards no matter the other conditions or energy market structure in California (e.g., operation and maintenance that protects public health and safety, promotes availability and reliability, ensures maintenance of reasonable operation and maintenance records). Similarly, the Maintenance Standards are crafted as eighteen broad performance objectives that are unlikely to change with time (e.g., the first maintenance standard concerns safety, an enduring concern).

Second, under SBX2 39, the Committee was created in order to access the collective experience and insights of a Commissioner, a representative of the CAISO Board of Directors, and a third person with electric generating expertise in the drafting of the initial standards. Once those standards have been initially adopted, the Committee's work is done and the entity will be disbanded, pursuant to statute. We do not believe, however, that the Legislature authorized and funded a major new regulatory program only to have the detailed requirements under the broad performance objectives become unworkable over time. We do believe that the Legislature intended and directed a continuing implementation and enforcement program.

The Commission has a continuing obligation under section 761.3(a) to implement and enforce the standards. Necessarily, our continuing enforcement obligation, by implication, provides us authority to modify and update the specific requirements under the eighteen broad performance objectives, so long as the changes remain consistent with those broad objectives. In conclusion, we believe the Commission has the authority, after the Committee dissolves, to amend the standards as required.

2. General Duty Standards

a. Enforceability

Several parties asserted that the General Duty Standards are too broad and vague to be enforced. These parties contend that the Commission should not implement and enforce the General Duty Standards, but should rely on the more specific and detailed Maintenance Standards (now adopted) and operations standards (to be adopted). We are not persuaded.

The General Duty Standards complement more specific standards that have been and will be adopted. To the extent a requirement is imposed by a more specific standard, compliance with the specific standard satisfies compliance with the general standard. This is a reasonable approach to implementation and enforcement.²⁷ Consistent with this approach, specific standards control where the Committee has adopted specific standards (e.g., logbook standards for thermal power plants) and they are being implemented and enforced by the Commission (e.g., units of 50 MW and larger). The general standards control, however, where specific standards have not been adopted, implemented and enforced (e.g., logbooks for thermal power plants less than 50 MW and logbooks for all non-thermal power plants).

We reject the proposition that the Committee must adopt, and the Commission must implement and enforce, only detailed, specific, and itemized standards. Some of the comments support our view, as when DENA said the General Duty Standards establish "standards of appropriate generality and that are also consistent with DENA's long-standing operation and maintenance practices."²⁸

For example, the Committee acted reasonably to adopt a broad standard requiring covered facilities to maintain logbooks consistent with prudent industry practice. No party asserted that facilities fail to keep records (logbooks) of operation and maintenance or that no industry practice exists. The Commission also acts reasonably in choosing, as we have, to implement and enforce this and the other General Duty Standards under the GO.

Parties at the same time criticized the General Duty Standards as being too vague and the other standards (e.g., logbook, maintenance) as being too specific. The Committee has sought an appropriate balance of broad and specific standards, and the Commission will similarly implement and enforce broad and specific standards. We decline to abandon implementation and enforcement of general standards because of complaints that they are too general or too specific. The result would be a failure to implement or enforce any standards.

b. Relationship with Existing Rules

DENA stated, "[T]he General Duty Standards makes clear that it is not intended to override any existing rules, permits or other regulations related to generation facilities."²⁹ DENA concluded that nothing remains for, and the Commission should refrain from, any implementation or enforcement. In support, DENA cited the following Committee statement:

Pursuant to the provisions of California Public Utilities Code § 761.3(f), nothing in these General Duty Standards for Operations and Maintenance shall modify, delay, or abrogate any deadline, standard, rule or regulation that is adopted by a federal, state, or local agency for the purposes of protecting public health or the environment, including, but not limited to, any requirements imposed by the California State Air Resources Board, an air pollution control district, or an air quality management district pursuant to Division 26 (commencing with section 39000) of the California Health and Safety Code.30

We disagree with the suggestion that the General Duty Standards should not be implemented and enforced by the Commission. The Committee's citation is taken directly from the law, and is with respect to "any deadline, standard, rule or regulation that is adopted by a federal state or local agency for the purposes of protecting public health or the environment."³¹ This language, concerning health or environmental rules, does not preclude the Commission from imposing other "existing rules, permits or other regulations related to generation facilities."

c. Authority to Adopt, Implement and Enforce General Duty Standards

Mirant and others claimed that the Committee has exceeded its authority in adopting the General Duty Standards, and the Commission may not implement and enforce standards that the Committee may not lawfully adopt. We are not persuaded.

As an example, Mirant and others argued that the Committee may not adopt outage coordination protocols (i.e., General Duty Standard 3). To the contrary, outage coordination is a crucial element of operations and maintenance. In fact, each of the General Duty Standards is limited to operations and maintenance of electric generation facilities. The Committee has properly adopted them, and the Commission is not only permitted but is required to provide for their implementation and enforcement.

Mirant also claimed that the General Duty Standards are not "standards" but descriptions of honorific conduct (e.g., to be available, to operate). To the contrary, General Duty Standard 2, for example, requires that "each facility be operated and maintained so as to reasonably available . . . ." This General Duty Standard is an operation and maintenance requirement designed to meet the state's vital goals (e.g., reliability, stability, adequacy), not a generalized admonition to be "available." Similarly, each of the other General Duty Standards is an operations and maintenance standard designed to meet the state's goals for its electricity system.

3. Maintenance Standards

a. Status of Appendix A to Standards

When the Committee first adopted the Maintenance Standards, the Standards included an Appendix A, "Maintenance Guidelines for Electric Generating Facilities." Many of the early comments in this proceeding urged us to specify that these guidelines are not binding requirements on Generating Asset Owners.

The Committee itself has addressed this concern. In its Resolution No. 2, dated May 2, 2003, the Committee clarified that the "Maintenance Guidelines for Electric Generating Facilities" are not meant to be enforceable standards.³² In subsection 2.13, the GO utilizes the Committee's limited definition of "Generator Maintenance Standards."

b. Unique Characteristics of Generating Assets

Many of the comments emphasized the unique characteristics of individual Generating Assets. These distinctive features result from differences in technologies, age, and other factors. The comments urged that we not apply a "one size fits all" solution to maintenance issues.

The Legislature directed the Committee to develop standards that consider some of the distinctive qualities of Generating Assets, such as aging facilities scheduled for retirement.³³ We believe the Committee's Maintenance Standards respond to this direction. They allow the Commission, in its enforcement, to adapt the standards to the unique features of Generating Assets. The standards emphasize the importance of an overall maintenance program and strategy that, to be effective, must consider the unique features of each Generating Asset. We believe the certifications and recertifications required by the GO afford the generators numerous opportunities to inform CPSD of these unique characteristics and how these special circumstances are addressed in the generator's maintenance program.

c. Overlap with Other Requirements

Many of the comments pointed to potential conflicts between the standards and other obligations imposed upon generators by FERC, FERC-approved tariffs, CAISO protocols and requirements, contractual obligations, warranty requirements, and Western Electricity Coordinating Council (WECC) and NERC generator reliability protocols. During the proceeding, PG&E submitted the relevant documents concerning the NERC and WECC protocols.

WECC is a 145-member electricity reliability council covering fourteen western states and parts of Canada and Mexico. The council works to ensure reliable and nondiscriminatory transmission access among its members. This goal is accomplished principally through standards that are enforced through contracts among the members. The contracts are also filed with and approved by FERC. For instance, control areas scheduling power through CAISO must execute Reliability Management System Agreements (RMS Agreements). The RMS Agreements require adherence with WECC's reliability criteria. These criteria emphasize technologies, such as properly functioning power system stabilizers and automatic voltage control equipment, which help ensure overall transmission system reliability.

Control areas, which are subject to WECC's contractual obligations, also must self-certify that they meet certain planning standards and operating policies promulgated by NERC. These policies also address overall transmission system reliability and, as a means to ensure that reliability, the appropriate technical requirements for generators to connect to the transmission system.

After examining these and other areas of potential overlap, we find no conflict between the WECC standards and the Maintenance Standards implemented here. First, any overlap between the two sets of standards is very limited. As noted above, WECC standards generally apply to control areas and not individual power plants. Some WECC standards do require that certain control systems at plants operate properly, such as those control systems that change plant output in response to changes in system voltage or frequency. Those plants systems, however, are a small fraction of power plant equipment. Second, where equipment is subject to both WECC requirements and the Maintenance Standards, the Maintenance Standards reinforce, rather than conflict with, WECC requirements by ensuring that the relevant control systems are properly maintained.

Section 761.3(e) also requires that our enforcement not interfere with the regulatory programs of other federal, state, or local agencies that protect the public health or the environment. We have included provisions in our GO concerning the reporting of public health, environmental, and other regulatory information to the appropriate agencies.

d. Relationship to Commission's Ratemaking and Regulatory Functions

Most comments indicated that enforcement of the Maintenance Standards should be distinct from the Commission's ratemaking and other regulatory functions. As previously discussed, one comment requested the use of performance-based ratemaking as an alternative method for enforcing the Maintenance Standards.

Many regulated firms prefer performance-based requirements because the firms have more flexibility in selecting methods to achieve compliance. The Committee's approach allows generators considerable flexibility in achieving the generally stated standards. The Committee's flexible approach benefits all generators who are subject to the GO. Because we do not determine rates for all generators, however, we are reluctant to use performance-based ratemaking as one method of enforcing the standards. To do so would create separate enforcement tracks that are not available to all generators. For this new program, we believe it is prudent to rely on more traditional enforcement methods to achieve electrical service reliability and adequacy.