FEDERAL ENERGY REGULATORY COMMISSION 

WASHINGTON DC 20426 

OFFICE OF THE CHAIRMAN 

 September 30, 2004 

The Honorable David L. Hobson 

Chairman 

Subcommittee on Energy and Water 

 Development 

Committee on Appropriations 

U.S. House of Representatives 

Washington, D.C. 20515 

Dear Mr. Chairman: 

 As the fiscal year now draws to a close, I am taking this opportunity to forward the 

enclosed report detailing the Federal Energy Regulatory Commission’s utilization of the $5 

million budget increase earmarked by Congress for power grid reliability in H.R. 2754, the FY 

2004 Energy and Water Development Appropriations Act (Pub. L. No. 108-137, 117 Stat. 1827, 

1859 (2004)). These funds, roughly 2.5 percent of the Commission’s overall budget, were 

dedicated to “work related to the August 2003 blackout and for subsequent implementation of 

enforceable reliability standards.” 

 I want to once again thank you for your leadership efforts and unqualified support for this 

funding. You recognized that the task of preventing future power outages demanded additional 

resources. While mandatory reliability rules are not yet in place, the Commission has, I believe, 

wisely spent these funds, within the limits of our statutory authority, to further programs that will 

help prevent region-wide disruptions of electrical service. 

 As the report explains in greater detail, the expenditures over the past year fell into three 

broad categories: 1) drawing upon the lessons of past experience; 2) assessing current conditions 

that have driven incremental reform; and 3) fostering strategic improvements for the future 

through research initiatives addressing long-term reliability and security issues. 

 Notable accomplishments include the Commission’s pivotal participation in the joint 

U.S.-Canada blackout task force’s investigation and report; implementing the task force’s 

recommendations; and directing FirstEnergy Corporation to conduct a study of the 

characteristics and weaknesses of its Northern Ohio service area, where the blackout originated. 

The Commission has also provided a report to the Congress highlighting the current practices 

and deficiencies in vegetation management by the electric utilities responsible for maintaining 

the nation’s transmission rights-of-way. 

 In January 2004, the Commission established a new Division of Reliability to begin to 

address critical power grid reliability and security issues. This team is made up of experienced 
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staff engineers and high-level consultants with extensive expertise in power grid planning, 

engineering, construction, operations and maintenance, along with permitting and regulatory 

issues. 

 Broadly, the initiatives our reliability team are spearheading include: 1) working with 

industry to adopt tougher and unambiguous reliability standards; 2) working with the North 

American Electric Reliability Council (NERC) in conducting reliability readiness “audits”; 3) 

beginning a range of research studies on reliability and security issues, including replacement 

transformers, operator training, system vulnerability to cyber attack, and the potential impacts of 

gas supply disruption on electricity production; and 4) working with the Department of Energy, 

the Nuclear Regulatory Commission, the Department of Homeland Security and the Canadian 

government to develop long-term institutional solutions for grid reliability and security 

challenges. 

 I think you will agree that the Commission has made important strides and produced 

tangible returns on a Congressional investment that represents roughly 10 cents for each of the 

50 million people affected by the August 2003 blackout. 

 But, industry peer pressure and Commission encouragement will only get us so far. I 

strongly urge the Congress to enact comprehensive energy legislation that includes language 

authorizing a mandatory system of reliability standards for the nation’s bulk power supply. 

Without this unambiguous statutory authority, there will continue to be no clear regulatory 

regime to make sure reliability standards are complied with. This regulatory void increases the 

likelihood of another event. 

 Of course, for the Commission to continue to promote improvements in grid security and 

reliability, it needs additional funding. I support the reliability funding levels in the Housepassed FY 2005 Energy and Water Development Appropriations Act and recommend its 

enactment. 

 I look forward to working with you and the industry toward our mutual goal of promoting 

continued improvements in our electric grid operation and efficient dispatch. If I can be of 

assistance, please do not hesitate to call on me. 

 Best regards, 

 Pat Wood, III 

 Chairman 

Enclosure 
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cc: The Honorable Joe Barton, Chairman 

 Committee on Energy and Commerce 

 U.S. House of Representatives 

 The Honorable John Dingell, Ranking Member 

 Committee on Energy and Commerce 

 U.S. House of Representatives 

 The Honorable Ralph M. Hall, Chairman 

 Subcommittee on Energy and Air Quality 

 Committee on Energy and Commerce 

 U.S. House of Representatives 

 

 The Honorable Rick Boucher, Ranking Member 

 Subcommittee on Energy and Air Quality 

 Committee on Energy and Commerce 

 U.S. House of Representatives 

 The Honorable Peter J. Visclosky, Ranking Member 

 Subcommittee on Energy and Water Development 

 U.S. House of Representatives