I also understand you to say that when Davis violates the regs and operates without adequate spinning reserves he risks a cascade effect in the whole northwest?
Is that about it?
No, not exactly. The National Electric Reliability Council (NERC) was created by federal legislation, but is basically a voluntary association of electric utilties that establish various reliability criteria. They established these under the threat of federal legislation establishing federal reliability criteria. NERC is divided into regions, one of which use to be WSCC, which recently became WECC. WECC has specific reliability criteria that all utilities within the Reliability region are required to use. Cal ISO is suppose to follow those criteria.
FERC in its RTO process is proposing to require of Independent transmission System Operators that they meet certain FERC mandated reliability criteria. Currently the proposed FERC transmission reliability criteria aren't in place yet. I hope that the Cal ISO is melded into a larger reliability group that has a different management structure and culture more in tune to providing reliable electric power.
So to provide a short answer to your question, the Cal ISO has not violated any federal regulations at the momement regarding reliability, but it has violated its own ISO proceedures (adopted to conform to WECC reliability criteria) or at the least, the Cal ISO bent its own reliability criteria significantly to avoid blacking out interruptible customers and others. I hope this explains this.