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." Despite this recognition of substantial delegated authority to the Executive Director, we have deleted the delegation of exemption authority. Rather, in section 3 of the General Order, we have specified three classes of Generating Assets (small, medium, and all others) and indicated the requirements of each class.

We 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. This does not preclude staff, respondents and parties from meeting when and as necessary, appropriate and reasonable. We simply decline at this time to order the creation of a stakeholder committee with duties and obligations that might unreasonably burden those with limited resources. 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. With regard to the concerns expressed that our implementation and enforcement program could potentially duplicate or conflict with other existing programs, we address that point in more detail both in our contemporaneous Thermal Logbook Standards decision,¹⁸ as well as in subsection E.1.e. of this Decision, below.

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 may enforce the Outage Coordination Protocol.

e. 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 we have noted in our contemporaneous Thermal Logbook Standards decision, FERC and California have different purposes for taking actions that address closely related activities, namely, those concerning the maintenance and operation of power plants owned by EWGs. As we discuss in that decision, Congress has expressly withheld from FERC authority over facilities used for the generation of electric energy, while assigning to FERC responsibilities relating to wholesale price formation. We consider it important to try to harmonize the efforts we are taking in this and related decisions to implement California's generation facility maintenance and operation standards with those responsibilities of FERC. It does not serve the interests of California, FERC or the EWGs for there to be conflicting sets of rules that serve different regulatory purposes, but that address closely related subjects, in this case, those relating to generator maintenance and operation activities. In this regard, certain parties have advocated that we should work with the California Independent System Operator Corporation (ISO) to implement generator maintenance and operation standards and an oversight process to support the coordinated availability of generation. These parties are doubtless aware that the Committee is a joint entity made up of representatives of both the Commission and the ISO and that the staffs of the two entities collaborated fully on the development of the standards we approve today.

We agree that it is in the best interests of all of the affected entities, including the EWGs, for there to be one single set of generator maintenance and operation standards that would serve both FERC's market-related concerns as well as California's public health and safety and service adequacy and reliability concerns. Toward this end, and in a spirit of comity with our federal counterpart, FERC, we shall forward the standards that we adopt in this Decision to the ISO with a request that the ISO submit these adopted standards to FERC for approval as amendments to the ISO's tariff. FERC approval of the same standards that we adopt will accomplish three important goals: (1) it will eliminate any potential conflict in the maintenance and operation requirements that the EWGs must comply with in order to satisfy the complementary, but different, policy concerns of the state and federal governments; (2) it will allow multiple, complementary regulatory purposes to be satisfied by a single set of standards, thereby promoting governmental efficiency and simplifying the job of the regulated community; and (3) it will encourage and support the important principle of collaborative federalism, under which the state and federal governments recognize and respect, and to the extent possible seek to harmonize, their respective regulatory purposes and the mechanisms they employ to achieve these purposes.

We emphasize that we take this action solely in a spirit of cooperation and comity. As noted just above, it is desirable for all concerned that there not be conflicting sets of rules that serve different regulatory purposes but that may address closely related subjects, in this case, those relating to generator maintenance and operation activities. We emphasize, however, that by this action, we do not, nor do we intend to, concede or limit any authority of the State of California, either directly or indirectly.

f. 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, 2005.²³ 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.²⁴ 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 five General Duty Standards and the eighteen broad maintenance performance objectives, so long as the changes remain consistent with section 761.3. 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 that we implement and enforce in this decision are intended for the limited and temporary purpose of standing in for more detailed operation standards until such time as the Committee adopts such standards and we are able to implement and enforce them. We have also incorporated the gist of the General Duty Standards that we have determined to implement and enforce into relevant sections of the General Order in order to make it clear, for example, that medium sized facilities, i.e., those that are 1 megawatt or larger, but smaller than 50 megawatts, are subject to the general duties reflected in these standards. 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."²⁵

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 the limited implementation and enforcement of General Duty Standards that we approve in this Decision because of complaints that they are too general or too specific. The result would be a failure to implement or enforce any standards.

However, we find that we are unable to implement and enforce the proposed General Duty Standard # 4 at this time. General Duty Standard # 4 makes specific reference to potential behaviors - economic and physical withholding -- that might violate requirements imposed by FERC. This reference raises some question in our minds as to how we might properly enforce this standard. While we are mindful of the serious consequences that physical and economic withholding have for the health, safety and convenience of retail customers in California - it would be prudent in our view for the Committee to review the scope and applicability of this standard and to determine whether some careful tailoring of its language might remedy this potential problem. Accordingly, we refer this standard back to the Committee and request that the Committee consider revising the scope and applicability of General Duty Standard # 4 in order to specifically tailor its language to those regulatory purposes of public health and safety and system reliability that are squarely within the authority of this Commission.

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."²⁶ 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.27

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."²⁸ 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.²⁹ 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.³⁰ 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.

4. Hydroelectric Logbook Standards

The Committee adopted Logbook Standards for Hydroelectric Generating Facilities at its meeting on April 7, 2004. By a ruling dated April 9, 2004, the parties were asked to comment on Commission implementation and enforcement, along with comments on specific language proposed for section 6 of the GO. PG&E and SCE filed comments on April 16, 2004. No reply comments were filed by the April 22 deadline.

As a threshold matter, the parties were asked to comment on incorporating the hydroelectric logbook standards in this decision and the accompanying GO. No comments in opposition to this approach were submitted. We adopt this method to promote efficient use of the time and resources of parties and the Commission.

Regarding the specific language that might be incorporated into the GO, PG&E and SCE raised two concerns. First, they recommended modifying section 6.2 to clarify that the 50 MW limit regarding facilities that are remotely controlled applies to the individual generating facility and not the switching center. In support, they contend that there is no compelling reason to treat remotely controlled hydroelectric facilities that are less than 50 MW differently from locally controlled facilities that are less than 50 MW.

To the contrary, switching centers can, or already do, keep logs. Just as with thermal units, the cumulative output from several units can be significant. For example, six 49 MW remotely controlled hydroelectric facilities would total 294 MW. Our concern is the cumulative megawatts under the control of the remote center or switching center. The 50 MW criteria is applied uniformly when applied to the remote control center/switching center or the locally controlled facilities when the cumulative output under one controller is 50 MW or more. We decline to adopt the utilities' recommendation.

Second, these utilities recommended an exemption for FERC-licensed facilities for the same reasons that we exempt FERC-licensed facilities from limited other parts of the GO above (e.g., GO sections 7.0, 9.0, 10.3, 10.4, and 15.1). For example, PG&E argued that it is unnecessary for the Commission to duplicate FERC's ongoing regulation in this area. We are not persuaded.

We specifically and carefully identified the exemptions discussed above. We considered but did not exempt FERC-licensed facilities entirely from section 6 (hydroelectric logbook standards) just as we did not exempt them from section 4 (GDS). Rather, record-keeping (i.e., logbooks) is a fundamental, critical and important element of operation and maintenance that merits special attention.

Both utilities affirmed that the Committee-adopted hydroelectric logbook standards are workable, practical, and reflect the current practices of both utilities. PG&E stated that it "is not aware of any direct conflict between the Hydroelectric Logbook Standards and current regulations issued by the Federal Energy Regulatory Commission." (PG&E Comments April 16, 2004, page 1.) PG&E and SCE failed to point out any inconsistencies or conflicts between FERC and Committee-adopted hydroelectric logbook standards that necessitate a reconciliation, harmonization or exemption. Nonetheless, for the same reasons we apply a 50 MW limit for other specific standards (e.g., thermal logbook, maintenance standards as contrasted with GDS), we limit application of the specific hydroelectric logbook standards to facilities that are 50 MW and larger.