FEDERAL ENERGY 

REGULATORY COMMISSION

WASHINGTON, D.C. 20426 

 FACT SHEET

AUGUST 8, 2006 

ENERGY POLICY ACT OF 2005

Significant Policy Changes 

The Energy Policy Act of 2005 (EPAct) is the first major energy law enacted in 

more than a decade, and makes the most significant changes in Commission authority 

since the New Deal’s Federal Power Act of 1935 and the Natural Gas Act of 1938. In 

passing EPAct, Congress signaled a strong vote of confidence in the Commission. The 

Commission has taken on new duties and authorities with a sense of purpose, mindful of 

the public trust they entail. Moreover, the Commission has been dedicated to meeting 

these obligations within the time allotted by Congress. 

EPAct had three principal policy goals in the areas of the statute that relate to the 

Commission: (1) it reaffirmed a commitment to competition in wholesale power markets 

as national policy, the third major federal law in the last 30 years to do so; (2) it 

strengthened the Commission’s regulatory tools, recognizing that effective regulation is 

necessary to protect the consumer from exploitation and assure fair competition; and (3) 

it provided for development of a stronger energy infrastructure. 

EPAct granted the Commission significant new responsibilities and significant 

new authority to discharge these responsibilities by modifying the Federal Power Act, the 

Natural Gas Act and the Public Utility Regulatory Policies Act of 1978 (PURPA). 

New Responsibilities 

Significant new responsibilities include: 

• overseeing the reliability of the nation’s electricity transmission grid; 

• implementing new tools, including penalty authority, to prevent market 

manipulation; 

• providing rate incentives to promote electric transmission investment; 

• supplementing state transmission siting efforts in national interest electric 

transmission corridors; and 
• reviewing certain holding company mergers and acquisitions involving electric 

utility facilities, a well as certain public utility acquisitions of generating facilities. 

EPAct also specified a number of actions to be taken by the Commission. In 

fulfilling these requirements during the first year since EPAct was signed into law on 

August 8, 2005, the Commission has promulgated nine final rules, issued three additional 

notices of proposed rulemaking, authored and submitted seven reports to Congress, and 

entered into a memorandum of understanding with the Commodity Futures Trading 

Commission. The Commission has taken these actions in a timely manner – meeting 

every deadline set for the Commission in EPAct. 

Some of these deadlines were challenging, particularly the task of implementing 

the repeal of the Public Utility Holding Company Act of 1935 (PUHCA 1935) and 

promulgating a new rule to implement the Public Utility Holding Company Act of 2005, 

as well as implementing rules to address the Commission’s expanded corporate 

transaction review authority under the Federal Power Act. 

Market Manipulation

EPAct gave the Commission the authority to issue rules to prevent market 

manipulation in jurisdictional wholesale power and gas markets, and in jurisdictional 

transmission and transportation services. For the Commission, this is one of the most 

important and challenging provisions of the Act. Congress granted this authority out of 

recognition that wholesale power and gas markets had changed dramatically since the 

1930s. While the Commission’s legal duty remains the same – protecting the wholesale 

power and gas customer – it needed additional regulatory tools to discharge this duty. 

EPAct gives the Commission civil penalty authority, which the Commission has 

indicated it will exercise carefully by assuring that its market manipulation rules are 

clear. That will make it easier for regulated entities to assure compliance, and make it 

easier for the Commission to identify violations. 

Electricity Reliability and Infrastructure 

EPAct significantly augmented the Commission’s electricity authorities. Perhaps 

the most important of these are the provisions governing reliability of the bulk power 

system. For the first time, the Commission was granted authority to oversee mandatory 

reliability standards governing the nation’s electricity grid. The Commission finalized 

rules on the certification of an Electric Reliability Organization (ERO) and on procedures 

for the establishment, approval and enforcement of mandatory electric reliability 
standards. The Commission has now certified the ERO and issued a preliminary staff 

assessment of 102 reliability standards filed by the ERO for Commission approval. 

EPAct also contained a number of provisions directed at expanding and 

modernizing the nation’s electricity grid. The Commission has issued a rule on electric 

transmission pricing reforms designed to promote needed investment in energy 

infrastructure and benefit energy customers. This will bolster power grid reliability and 

lower costs for delivered power by reducing transmission congestion. In addition, the 

Commission issued a rule to require transmission organizations with organized electricity 

markets to make available to load-serving entities long-term firm transmission rights that 

satisfy certain guidelines. This will help customers who want to make long term supply 

arrangements. These customers want to be able to enter into long term transmission 

service arrangements without being exposed to unhedged congestion cost risk. The final 

rule goes far to reduce the risk exposure to transmission customers, and is important to 

development of the grid. 

EPAct addressed the difficulties of siting major new transmission facilities. It 

authorized the Secretary of Energy to designate “national interest electric transmission 

corridors” where there is major transmission congestion. EPAct allows applicants 

seeking to build transmission within these corridors to seek construction permits from the 

Commission under certain conditions. While most transmission projects will continue to 

be sited by states under state law, EPAct granted the Commission this important 

supplemental siting authority. FERC has proposed rules on transmission siting that will 

govern the issuance of construction permits by the Commission for projects that meet the 

statutory criteria. 

Also with respect to transmission, the Commission signed a Memorandum of 

Understanding with the Department of Energy and other federal agencies with authority 

to issue federal authorizations for electric transmission facilities to establish a 

coordinated federal review and permitting process that continues strong federal 

environmental protections. 

In addition to the provisions relating to transmission grid improvements, EPAct 

addressed a significant generation issue within the jurisdiction of the Commission. 

Pursuant to directives in EPAct, the Commission tightened the thermal efficiency 

requirements for qualifying cogeneration facilities under PURPA. These rules should 

limit the potential for abuse under PURPA, curtail sham transactions, and prevent new 

PURPA “machines.” At the same time, the rules support the development of new 

cogeneration facilities that truly conserve energy, by ensuring that new qualifying 

cogeneration facilities use thermal output in a productive and beneficial manner, and that 

the electrical, thermal, chemical or mechanical output of new qualifying cogeneration 

facilities is used fundamentally for industrial, commercial or institutional purposes. Also 
pursuant to EPAct amendments to the Federal Power Act, the Commission eliminated 

ownership restrictions on qualifying cogeneration and small power production facilities. 

Only minor changes to the Commission’s hydroelectric regulations were enacted 

with the passage of EPAct. For example, the first action the Commission took upon 

enactment of the law was to extend the Flint Creek Project preliminary permit for three 

years. Pursuant to section 241 of EPAct, the Commission has worked with other resource 

agencies to develop mandatory license conditions that are fairer and more balanced. The 

Commission also has issued a guidance document to help hydropower licensees seeking 

renewable tax credit certification for incremental energy gains from efficiency 

improvements. 

Natural Gas Infrastructure 

Pursuant to EPAct, the Commission has acted to encourage more investment in the 

nation’s natural gas infrastructure. In order to promote the expansion of natural gas 

storage capacity and mitigate natural gas price volatility, the Commission has issued new 

rules for allowing market-based rates for interstate natural gas storage. 

To decrease the time needed for creating a complete application for new liquefied 

natural gas (LNG) terminals, the Commission adopted a rule requiring potential developers to 

initiate pre-filing procedures at least six months prior to filing a formal application with 

the Commission. The Commission has proposed rules to implement provisions that grant 

authority to coordinate the processing of federal and state authorizations required under 

federal law for natural gas projects, as well as maintain a consolidated record of decisions 

for judicial review. 

Mergers and Acquisitions 

Pursuant to EPAct, the Commission implemented the repeal of PUHCA 1935 and 

the provisions of a new PUHCA 2005. PUHCA 2005 permits Commission access to 

books and records of holding companies and their members if necessary for determining 

jurisdictional rates. The Commission implemented PUHCA rules governing accounting, 

record retention and reporting, including certain blanket waivers and exemptions, within 

the deadlines in EPAct. 

Along with the repeal of PUHCA 1935, EPAct expanded the Commission’s 

corporate review authority to include authority over certain holding company mergers 

and acquisitions, as well as certain public utility acquisitions of generating facilities. It 

also imposed statutory deadlines for acting on mergers and other jurisdictional corporate 

transactions. The Commission implemented these new provisions of EPAct by providing 
blanket authorizations for certain transactions while ensuring that captive utility 

customers are protected. The Commission acted quickly, so that new rules would be in 

effect before the effective dates of the new corporate review authority and PUHCA 2005, 

and the repeal of PUHCA 1935, all of which became effective on February 8, 2006. 

Studies and Reports 

The Commission has issued seven reports as mandated by EPAct. In December 

2005, the Commission issued a report on its investigation of the California electricity 

crisis, detailing the actions the Commission has taken and the timetable for future action 

to resolve outstanding refund claims from this time period. Also in December, the 

Commission submitted to Congress a report on whether any PUHCA technical and 

conforming changes were needed as a result of the repeal of the 1935 act. In February 

2006, the Commission together with the Department of Energy issued a report on the 

steps which must be taken to establish a system to make available to all transmission 

owners and regional transmission organizations in the Eastern and Western 

interconnections real-time information on the functional status of all transmission lines 

within the interconnections. Also in February, the Commission issued its initial report on 

the progress made in licensing and constructing the Alaska natural gas pipeline; and a 

subsequent progress report was issued in July 2006, as required by EPAct. 

Meeting EPAct deadlines of August 8, 2006, the Commission issued two 

additional reports. First is a report assessing, by region, demand response resources and 

the use of advanced metering resources. The second is a report detailing the 

recommendations of regional joint boards to study the issue of security-constrained 

economic dispatch for the various market regions, what constitutes security-constrained 

economic dispatch and how it affects or enhances the reliability and affordability of 

electric service. 

Future Responsibilities of the Commission 

Other EPAct requirements that the Commission will be implementing in the 

future:

• Approve or remand more than 100 separate proposed electric reliability standards, 

act on proposed regional delegation agreements, and oversee the effective 

enforcement of approved mandatory reliability standards. 

• Issue a final rule setting up procedures for the Commission to exercise its siting 

authority for transmission applications in national interest transmission corridors. 
• Issue a final rule on termination of the mandatory purchase obligation under 

section 210 of PURPA. 

• Issue a final rule on coordinating the processing of interstate natural gas 

infrastructure proposals among federal and state authorities and to maintain a 

consolidated record of decisions for judicial review. 

• Enter into a Memorandum of Understanding with the Secretary of Defense to 

ensure coordination of LNG facilities that may affect an active military 

installation. 

• Work jointly with other resource agencies to designate corridors for oil, gas, and 

hydrogen pipelines and electricity transmission and distribution facilities on 

federal land in the 11 contiguous Western states, perform environmental reviews 

for such designations and incorporate the designated corridors into the relevant 

agency land use and resource management plans. 

• Along with the Department of Energy, study and submit a report to Congress on 

the benefits of cogeneration and small power production. 

• Determine the appropriate exercise of authority under new Federal Power Act and 

Natural Gas Act transparency provisions. 

• Along with the Departments of Justice, Energy, Agriculture and the Federal Trade 

Commission, submit a report to Congress on competition within the wholesale and 

retail markets for electric energy in the United States. 

In Conclusion 

EPAct has significantly changed the Commission’s role in electricity and natural 

gas markets, and has added to the Commission’s historical functions. Throughout it all, 

the Commission has been faithful to execute the law in the manner Congress intended 

and will continue to do so. 

Implementation of EPAct was and is a huge undertaking. Although, the 

Commission so far has met every deadline Congress set, some of the EPAct requirements 

have 18-month deadlines and others four years, so clearly the Commission’s work is not 

done. Also, the Commission must address petitions for rehearing and compliance filings 

associated with the numerous rulemakings it has promulgated. More information is 

available at www.ferc.gov. 

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