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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[S. 498 Introduced in Senate (IS)]

109th CONGRESS
  1st Session
                                 S. 498

To provide for expansion of electricity transmission networks in order 
 to support competitive electricity markets, to ensure reliability of 
   electric service, to modernize regulation and for other purposes.

_______________________________________________________________________

                   IN THE SENATE OF THE UNITED STATES

                             March 2, 2005

   Mr. Burr (for himself, Ms. Landrieu, and Mr. Lott) introduced the 
 following bill; which was read twice and referred to the Committee on 
                      Energy and Natural Resources

_______________________________________________________________________

                                 A BILL

 
To provide for expansion of electricity transmission networks in order 
 to support competitive electricity markets, to ensure reliability of 
   electric service, to modernize regulation and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Interstate 
Transmission Act of 2005''.
    (b) Table of Contents.--The table of contents of this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings.
       TITLE I--RELIABLE AND ECONOMIC TRANSMISSION INFRASTRUCTURE

Sec. 101. Transmission infrastructure investment.
Sec. 102. Open nondiscriminatory access.
Sec. 103. Electric transmission property treated as 15-year property.
Sec. 104. Disposition of property.
Sec. 105. Electric reliability standards.
                 TITLE II--PROTECTING RETAIL CONSUMERS

Sec. 201. Native load service obligation.
Sec. 202. Voluntary transmission pricing plans.
      TITLE III--VOLUNTARY PARTICIPATION IN REGIONAL TRANSMISSION 
                             ORGANIZATIONS

Sec. 301. Promotion of voluntary development of regional transmission 
                            organizations, independent transmission 
                            providers, and similar organizations.

SEC. 2. FINDINGS.

    Congress finds that--
            (1) transmission networks are the backbone of reliable 
        delivery of electric energy and competitive wholesale power 
        markets;
            (2) the expansion, enhancement, and improvement of 
        transmission facilities, and rules of the road for using the 
        facilities, are necessary to maintain and improve the 
        reliability of electric service and to enhance competitive 
        wholesale markets across the United States and competitive 
        retail markets that have been adopted by nearly the States;
            (3) to ensure reliable and efficient expansion, 
        enhancement, and improvement of transmission facilities, the 
        economics of the business of electric transmission and the 
        Federal regulatory structures applicable to the facilities must 
        be improved;
            (4) Federal electricity regulatory policy should benefit 
        consumers by providing incentives for infrastructure 
        improvement and by removing barriers to efficient competition, 
        and not be dictated by the imposition of market structures or 
        costly mandates;
            (5) slow, burdensome, or duplicative reviews of utility 
        mergers are a disincentive to the efficient disposition of 
        utility assets needed to ensure a reliable and efficient 
        infrastructure;
            (6) since efficient competition requires accurate price 
        signals that reflect cost causation, parties that benefit from 
        transmission upgrades should be required to pay for the 
        upgrades;
            (7) Federal regulation should not override the interests of 
        local consumers or State laws that ensure reliable service and 
        adequate transmission capacity to serve consumers;
            (8) in regions where the formation of regional transmission 
        organizations or similar entities have been formed voluntarily 
        with oversight or approval by States, the Federal Energy 
        Regulatory Commission should have clear authority to approve 
        applications for the organizations that are consistent with the 
        Federal Power Act (16 U.S.C. 791a et seq.);
            (9) the States and electricity consumers in each region of 
        the United States, and not the Federal Government, are in the 
        best position to determine how the electric power systems 
        serving their regions should be structured, including whether 
        Regional Transmission Organization formation, traditional 
        vertical integration, or other structures are cost effective 
        for their region; and
            (10) mandatory reliability rules, developed and enforced by 
        a self-regulating electric reliability organization, are a 
        vital component of a comprehensive policy to ensure a robust 
        and reliable electricity grid.

       TITLE I--RELIABLE AND ECONOMIC TRANSMISSION INFRASTRUCTURE

SEC. 101. TRANSMISSION INFRASTRUCTURE INVESTMENT.

    Part II of the Federal Power Act (16 U.S.C. 824 et seq.) is amended 
by adding at the end the following:

``SEC. 215. TRANSMISSION INFRASTRUCTURE INVESTMENT.

    ``(a) Rulemaking Requirement.--Within 1 year after the enactment of 
this section, the Commission shall establish, by rule, incentive-based 
(including, but not limited to performance-based) rate treatments for 
the transmission of electric energy in interstate commerce by any 
public utility for the purpose of benefitting consumers by ensuring 
reliability and reducing the cost of delivered power by reducing 
transmission congestion. Such rule shall--
            ``(1) promote reliable and economically efficient 
        transmission and generation of electricity by promoting capital 
        investment in the enlargement, improvement, maintenance and 
        operation of facilities for the transmission of electric energy 
        in interstate commerce;
            ``(2) provide a return on equity, determined using a 
        variety of reasonable valuation methodologies, that attracts 
        new investment in transmission facilities (including related 
        transmission technologies);
            ``(3) encourage deployment of transmission technologies and 
        other measures to increase the capacity and efficiency of 
        existing transmission facilities and improve the operation of 
        such facilities;
            ``(4) allow recovery of all prudently incurred costs 
        necessary to comply with mandatory reliability standards issued 
        pursuant to section 216 of this Act;
            ``(5) allow a current return in rates for construction work 
        in progress for transmission facilities and full recovery of 
        prudently incurred costs for constructing transmission 
        facilities;
            ``(6) allow the use of formula transmission rates;
            ``(7) allow rates of return that do not vary with capital 
        structure; and
            ``(8) allow a maximum 15-year accelerated depreciation on 
        new transmission facilities for rate treatment purposes.
    ``(b) Additional Incentives for RTO Participation.--In the rule 
issued under this section, the Commission shall, to the extent within 
its jurisdiction, provide for incentives to each transmitting utility 
or electric utility that joins a Regional Transmission Organization or 
Independent System Operator. Incentives provided by the Commission 
pursuant to such rule shall include--
            ``(1) recovery of all prudently incurred costs to develop 
        and participate in any proposed or approved RTO, ISO, or 
        independent transmission company;
            ``(2) recovery of all costs previously approved by a State 
        commission which exercised jurisdiction over the transmission 
        facilities prior to the utility's participation in the RTO or 
        ISO, including costs necessary to honor preexisting 
        transmission service contracts, in a manner which does not 
        reduce the revenues the utility receives for transmission 
        services for a reasonable transition period after the utility 
        joins the RTO or ISO; and
            ``(3) recovery as an expense in rates of the costs 
        prudently incurred to conduct transmission planning and 
        reliability activities, including the costs of participating in 
        RTO, ISO and other regional planning activities and design, 
        study and other precertification costs involved in seeking 
        permits and approvals for proposed transmission facilities.
The Commission shall ensure that any costs recoverable pursuant to this 
subsection may be recovered by such utility through the transmission 
rates charged by such utility or through the transmission rates charged 
by the RTO or ISO that provides transmission service to such utility.
    ``(c) Just and Reasonable Rates.--All rates approved under the 
rules adopted pursuant to this section, including any revisions to such 
rules, are subject to the requirement of sections 205 and 206 that all 
rates, charges, terms, and conditions be just and reasonable and not 
unduly discriminatory or preferential.''.

SEC. 102. OPEN NONDISCRIMINATORY ACCESS.

    Part II of the Federal Power Act (16 U.S.C. 824 et seq.) is amended 
by inserting after section 211 the following new section:

``SEC. 211A. OPEN ACCESS BY UNREGULATED TRANSMITTING UTILITIES.

    ``(a) Transmission Services.--Subject to section 212(h), the 
Commission may, by rule or order, require an unregulated transmitting 
utility to provide transmission services--
            ``(1) at rates that are comparable to those that the 
        unregulated transmitting utility charges itself; and
            ``(2) on terms and conditions (not relating to rates) that 
        are comparable to those under which such unregulated 
        transmitting utility provides transmission services to itself 
        and that are not unduly discriminatory or preferential.
    ``(b) Exemption.--The Commission shall exempt from any rule or 
order under this section any unregulated transmitting utility that--
            ``(1) sells no more than 4,000,000 megawatt hours of 
        electricity per year; or
            ``(2) does not own or operate any transmission facilities 
        that are necessary for operating an interconnected transmission 
        system (or any portion thereof); or
            ``(3) meets other criteria the Commission determines to be 
        in the public interest.
    ``(c) Local Distribution Facilities.--The requirements of 
subsection (a) shall not apply to facilities used in local 
distribution.
    ``(d) Exemption Termination.--Whenever the Commission, after an 
evidentiary hearing held upon a complaint and after giving 
consideration to reliability standards established under section 216, 
finds on the basis of a preponderance of the evidence that any 
exemption granted pursuant to subsection (b) unreasonably impairs the 
continued reliability of an interconnected transmission system, it 
shall revoke the exemption granted to that transmitting utility.
    ``(e) Application to Unregulated Transmitting Utilities.--The rate 
changing procedures applicable to public utilities under subsections 
(c) and (d) of section 205 are applicable to unregulated transmitting 
utilities for purposes of this section.
    ``(f) Remand.--In exercising its authority under paragraph (1) of 
subsection (a), the Commission may remand transmission rates to an 
unregulated transmitting utility for review and revision where 
necessary to meet the requirements of subsection (a).
    ``(g) Other Requests.--The provision of transmission services under 
subsection (a) does not preclude a request for transmission services 
under section 211.
    ``(h) Limitation.--The Commission may not require a State or 
municipality to take action under this section that would violate a 
private activity bond rule for purposes of section 141 of the Internal 
Revenue Code of 1986 (26 U.S.C. 141).
    ``(i) Transfer of Control of Transmitting Facilities.--Nothing in 
this section authorizes the Commission to require an unregulated 
transmitting utility to transfer control or operational control of its 
transmitting facilities to an RTO or any other Commission-approved 
independent transmission organization designated to provide 
nondiscriminatory transmission access.
    ``(j) Definition.--For purposes of this section, the term 
`unregulated transmitting utility' means an entity that--
            ``(1) owns or operates facilities used for the transmission 
        of electric energy in interstate commerce; and
            ``(2) is an entity described in section 201(f).''.

SEC. 103. ELECTRIC TRANSMISSION PROPERTY TREATED AS 15-YEAR PROPERTY.

    (a) In General.--Subparagraph (E) of section 168(e)(3) of the 
Internal Revenue Code of 1986 (relating to classification of certain 
property) is amended by striking ``and'' at the end of clause (v), by 
striking the period at the end of clause (vi) and by inserting ``, 
and'', and by adding at the end the following new clause:
                            ``(vii) any section 1245 property (as 
                        defined in section 1245(a)(3)) used in the 
                        transmission at 69 or more kilovolts of 
                        electricity for sale the original use of which 
                        commences with the taxpayer after the date of 
                        the enactment of this clause.''.
    (b) Alternative System.--The table contained in section 
168(g)(3)(B) of the Internal Revenue Code of 1986 (relating to special 
rule for certain property assigned to classes) is amended by inserting 
after the item relating to subparagraph (E)(vi) the following:

``(E)(vii)...........................................             30''.
    (c) Effective Date.--The amendments made by this section shall 
apply to property placed in service after the date of the enactment of 
this Act, in taxable years ending after such date.

SEC. 104. DISPOSITION OF PROPERTY.

    Section 203 of the Federal Power Act (16 U.S.C. 824b) is repealed.

SEC. 105. ELECTRIC RELIABILITY STANDARDS.

    (a) In General.--Part II of the Federal Power Act (16 U.S.C 824 et 
seq.) (as amended by section 101) is amended by adding at the end the 
following:

``SEC. 216. ELECTRIC RELIABILITY.

    ``(a) Definitions.--For purposes of this section:
            ``(1) The term `bulk-power system' means--
                    ``(A) facilities and control systems necessary for 
                operating an interconnected electric energy 
                transmission network (or any portion thereof); and
                    ``(B) electric energy from generation facilities 
                needed to maintain transmission system reliability.
        The term does not include facilities used in the local 
        distribution of electric energy.
            ``(2) The terms `Electric Reliability Organization' and 
        `ERO' mean the organization certified by the Commission under 
        subsection (c) the purpose of which is to establish and enforce 
        reliability standards for the bulk-power system, subject to 
        Commission review.
            ``(3) The term `reliability standard' means a requirement, 
        approved by the Commission under this section, to provide for 
        reliable operation of the bulk-power system. The term includes 
        requirements for the operation of existing bulk-power system 
        facilities and the design of planned additions or modifications 
        to such facilities to the extent necessary to provide for 
        reliable operation of the bulk-power system, but the term does 
        not include any requirement to enlarge such facilities or to 
        construct new transmission capacity or generation capacity.
            ``(4) The term `reliable operation' means operating the 
        elements of the bulk-power system within equipment and electric 
        system thermal, voltage, and stability limits so that 
        instability, uncontrolled separation, or cascading failures of 
        such system will not occur as a result of a sudden disturbance 
        or unanticipated failure of system elements.
            ``(5) The term `Interconnection' means a geographic area in 
        which the operation of bulk-power system components is 
        synchronized such that the failure of 1 or more of such 
        components may adversely affect the ability of the operators of 
        other components within the system to maintain reliable 
        operation of the facilities within their control.
            ``(6) The term `transmission organization' means a Regional 
        Transmission Organization, Independent System Operator, 
        independent transmission provider, or other transmission 
        organization finally approved by the Commission for the 
        operation of transmission facilities.
            ``(7) The term `regional entity' means an entity having 
        enforcement authority pursuant to subsection (e)(4).
    ``(b) Jurisdiction and Applicability.--(1) The Commission shall 
have jurisdiction, within the United States, over the ERO certified by 
the Commission under subsection (c), any regional entities, and all 
users, owners and operators of the bulk-power system, including but not 
limited to the entities described in section 201(f), for purposes of 
approving reliability standards established under this section and 
enforcing compliance with this section. All users, owners and operators 
of the bulk-power system shall comply with reliability standards that 
take effect under this section.
    ``(2) The Commission shall issue a final rule to implement the 
requirements of this section not later than 180 days after the date of 
enactment of this section.
    ``(c) Certification.--Following the issuance of a Commission rule 
under subsection (b)(2), any person may submit an application to the 
Commission for certification as the Electric Reliability Organization. 
The Commission may certify 1 such ERO if the Commission determines that 
such ERO--
            ``(1) has the ability to develop and enforce, subject to 
        subsection (e)(2), reliability standards that provide for an 
        adequate level of reliability of the bulk-power system; and
            ``(2) has established rules that--
                    ``(A) assure its independence of the users and 
                owners and operators of the bulk-power system, while 
                assuring fair stakeholder representation in the 
                selection of its directors and balanced decisionmaking 
                in any ERO committee or subordinate organizational 
                structure;
                    ``(B) allocate equitably reasonable dues, fees, and 
                other charges among end users for all activities under 
                this section;
                    ``(C) provide fair and impartial procedures for 
                enforcement of reliability standards through the 
                imposition of penalties in accordance with subsection 
                (e) (including limitations on activities, functions, or 
                operations, or other appropriate sanctions);
                    ``(D) provide for reasonable notice and opportunity 
                for public comment, due process, openness, and balance 
                of interests in developing reliability standards and 
                otherwise exercising its duties; and
                    ``(E) provide for taking, after certification, 
                appropriate steps to gain recognition in Canada and 
                Mexico.
    ``(d) Reliability Standards.--(1) The Electric Reliability 
Organization shall file each reliability standard or modification to a 
reliability standard that it proposes to be made effective under this 
section with the Commission.
    ``(2) The Commission may approve, by rule or order, a proposed 
reliability standard or modification to a reliability standard if it 
determines that the standard is just, reasonable, not unduly 
discriminatory or preferential, and in the public interest. The 
Commission shall give due weight to the technical expertise of the 
Electric Reliability Organization with respect to the content of a 
proposed standard or modification to a reliability standard and to the 
technical expertise of a regional entity organized on an 
Interconnection-wide basis with respect to a reliability standard to be 
applicable within that Interconnection, but shall not defer with 
respect to the effect of a standard on competition. A proposed standard 
or modification shall take effect upon approval by the Commission.
    ``(3) The Electric Reliability Organization shall rebuttably 
presume that a proposal from a regional entity organized on an 
Interconnection-wide basis for a reliability standard or modification 
to a reliability standard to be applicable on an Interconnection-wide 
basis is just, reasonable, and not unduly discriminatory or 
preferential, and in the public interest.
    ``(4) The Commission shall remand to the Electric Reliability 
Organization for further consideration a proposed reliability standard 
or a modification to a reliability standard that the Commission 
disapproves in whole or in part.
    ``(5) The Commission, upon its own motion or upon complaint, may 
order the Electric Reliability Organization to submit to the Commission 
a proposed reliability standard or a modification to a reliability 
standard that addresses a specific matter if the Commission considers 
such a new or modified reliability standard appropriate to carry out 
this section.
    ``(6) The final rule adopted under subsection (b)(2) shall include 
fair processes for the identification and timely resolution of any 
conflict between a reliability standard and any function, rule, order, 
tariff, rate schedule, or agreement accepted, approved, or ordered by 
the Commission applicable to a transmission organization. Such 
transmission organization shall continue to comply with such function, 
rule, order, tariff, rate schedule or agreement accepted approved, or 
ordered by the Commission until--
            ``(A) the Commission finds a conflict exists between a 
        reliability standard and any such provision;
            ``(B) the Commission orders a change to such provision 
        pursuant to section 206 of this part; and
            ``(C) the ordered change becomes effective under this part.
If the Commission determines that a reliability standard needs to be 
changed as a result of such a conflict, it shall order the ERO to 
develop and file with the Commission a modified reliability standard 
under paragraph (4) or (5) of this subsection.
    ``(e) Enforcement.--(1) The ERO may impose, subject to paragraph 
(2), a penalty on a user or owner or operator of the bulk-power system 
for a violation of a reliability standard approved by the Commission 
under subsection (d) if the ERO, after notice and an opportunity for a 
hearing--
            ``(A) finds that the user or owner or operator has violated 
        a reliability standard approved by the Commission under 
        subsection (d); and
            ``(B) files notice and the record of the proceeding with 
        the Commission.
    ``(2) A penalty imposed under paragraph (1) may take effect not 
earlier than the 31st day after the ERO files with the Commission 
notice of the penalty and the record of proceedings. Such penalty shall 
be subject to review by the Commission, on its own motion or upon 
application by the user, owner or operator that is the subject of the 
penalty filed within 30 days after the date such notice is filed with 
the Commission. Application to the Commission for review, or the 
initiation of review by the Commission on its own motion, shall not 
operate as a stay of such penalty unless the Commission otherwise 
orders upon its own motion or upon application by the user, owner or 
operator that is the subject of such penalty. In any proceeding to 
review a penalty imposed under paragraph (1), the Commission, after 
notice and opportunity for hearing (which hearing may consist solely of 
the record before the ERO and opportunity for the presentation of 
supporting reasons to affirm, modify, or set aside the penalty), shall 
by order affirm, set aside, reinstate, or modify the penalty, and, if 
appropriate, remand to the ERO for further proceedings. The Commission 
shall implement expedited procedures for such hearings.
    ``(3) On its own motion or upon complaint, the Commission may order 
compliance with a reliability standard and may impose a penalty against 
a user or owner or operator of the bulk-power system if the Commission 
finds, after notice and opportunity for a hearing, that the user or 
owner or operator of the bulk-power system has engaged or is about to 
engage in any acts or practices that constitute or will constitute a 
violation of a reliability standard.
    ``(4) The Commission shall issue regulations authorizing the ERO to 
enter into an agreement to delegate authority to a regional entity for 
the purpose of proposing reliability standards to the ERO and enforcing 
reliability standards under paragraph (1) if--
            ``(A) the regional entity is governed by--
                    ``(i) an independent board;
                    ``(ii) a balanced stakeholder board; or
                    ``(iii) a combination independent and balanced 
                stakeholder board.
            ``(B) the regional entity otherwise satisfies the 
        provisions of subsection (c)(1) and (2); and
            ``(C) the agreement promotes effective and efficient 
        administration of bulk-power system reliability.
The Commission may modify such delegation. The ERO and the Commission 
shall rebuttably presume that a proposal for delegation to a regional 
entity organized on an Interconnection-wide basis promotes effective 
and efficient administration of bulk-power system reliability and 
should be approved. Such regulation may provide that the Commission may 
assign the ERO's authority to enforce reliability standards under 
paragraph (1) directly to a regional entity consistent with the 
requirements of this paragraph.
    ``(5) The Commission may take such action as is necessary or 
appropriate against the ERO or a regional entity to ensure compliance 
with a reliability standard or any Commission order affecting the ERO 
or a regional entity.
    ``(6) Any penalty imposed under this section shall bear a 
reasonable relation to the seriousness of the violation and shall take 
into consideration the efforts of such user, owner, or operator to 
remedy the violation in a timely manner.
    ``(f) Changes in Electric Reliability Organization Rules.--The 
Electric Reliability Organization shall file with the Commission for 
approval any proposed rule or proposed rule change, accompanied by an 
explanation of its basis and purpose. The Commission, upon its own 
motion or complaint, may propose a change to the rules of the ERO. A 
proposed rule or proposed rule change shall take effect upon a finding 
by the Commission, after notice and opportunity for comment, that the 
change is just, reasonable, not unduly discriminatory or preferential, 
is in the public interest, and satisfies the requirements of subsection 
(c).
    ``(g) Reliability Reports.--The ERO shall conduct periodic 
assessments of the reliability and adequacy of the bulk-power system in 
North America.
    ``(h) Coordination With Canada and Mexico.--The President is urged 
to negotiate international agreements with the governments of Canada 
and Mexico to provide for effective compliance with reliability 
standards and the effectiveness of the ERO in the United States and 
Canada or Mexico.
    ``(i) Savings Provisions.--(1) The ERO shall have authority to 
develop and enforce compliance with reliability standards for only the 
bulk-power system.
    ``(2) This section does not authorize the ERO or the Commission to 
order the construction of additional generation or transmission 
capacity or to set and enforce compliance with standards for adequacy 
or safety of electric facilities or services.
    ``(3) Nothing in this section shall be construed to preempt any 
authority of any State to take action to ensure the safety, adequacy, 
and reliability of electric service within that State, as long as such 
action is not inconsistent with any reliability standard.
    ``(4) Within 90 days of the application of the Electric Reliability 
Organization or other affected party, and after notice and opportunity 
for comment, the Commission shall issue a final order determining 
whether a State action is inconsistent with a reliability standard, 
taking into consideration any recommendation of the ERO.
    ``(5) The Commission, after consultation with the ERO and the State 
taking action, may stay the effectiveness of any State action, pending 
the Commission's issuance of a final order.
    ``(j) Regional Advisory Bodies.--The Commission shall establish a 
regional advisory body on the petition of at least \2/3\ of the States 
within a region that have more than \1/2\ of their electric load served 
within the region. A regional advisory body shall be composed of 1 
member from each participating State in the region, appointed by the 
Governor of each State, and may include representatives of agencies, 
States, and provinces outside the United States. A regional advisory 
body may provide advice to the Electric Reliability Organization, a 
regional entity, or the Commission regarding the governance of an 
existing or proposed regional entity within the same region, whether a 
standard proposed to apply within the region is just, reasonable, not 
unduly discriminatory or preferential, and in the public interest, 
whether fees proposed to be assessed within the region are just, 
reasonable, not unduly discriminatory or preferential, and in the 
public interest and any other responsibilities requested by the 
Commission. The Commission may give deference to the advice of any such 
regional advisory body if that body is organized on an Interconnection-
wide basis.
    ``(k) Alaska and Hawaii.--The provisions of this section do not 
apply to Alaska or Hawaii.''.
    (b) Status of ERO.--The Electric Reliability Organization certified 
by the Federal Energy Regulatory Commission under section 216(c) of the 
Federal Power Act and any regional entity delegated enforcement 
authority pursuant to section 216(e)(4) of that Act are not 
departments, agencies, or instrumentalities of the United States 
Government.

                 TITLE II--PROTECTING RETAIL CONSUMERS

SEC. 201. NATIVE LOAD SERVICE OBLIGATION.

    Part II of the Federal Power Act (16 U.S.C. 824 et seq.) (as 
amended by section 105(a)) is amended by adding at the end the 
following:

``SEC. 217. NATIVE LOAD SERVICE OBLIGATION.

    ``(a) Meeting Service Obligations.--(1) Any load-serving entity 
that, as of the date of enactment of this section--
            ``(A) owns generation facilities, markets the output of 
        Federal generation facilities, or holds rights under 1 or more 
        wholesale contracts to purchase electric energy, for the 
        purpose of meeting a service obligation, and
            ``(B) by reason of ownership of transmission facilities, or 
        1 or more contracts or service agreements for firm transmission 
        service, holds firm transmission rights for delivery of the 
        output of such generation facilities or such purchased energy 
        to meet such service obligation, is entitled to use such firm 
        transmission rights, or, equivalent tradable or financial 
        transmission rights, in order to deliver such output or 
        purchased energy, or the output of other generating facilities 
        or purchased energy to the extent deliverable using such 
        rights, to the extent required to meet its service obligation.
    ``(2) To the extent that all or a portion of the service obligation 
covered by such firm transmission rights or equivalent tradable or 
financial transmission rights is transferred to another load-serving 
entity, the successor load-serving entity shall be entitled to use the 
firm transmission rights or equivalent tradable or financial 
transmission rights associated with the transferred service obligation. 
Subsequent transfers to another load-serving entity, or back to the 
original load-serving entity, shall be entitled to the same rights.
    ``(3) The Commission shall exercise its authority under this Act in 
a manner that facilitates the planning and expansion of transmission 
facilities to meet the reasonable needs of load-serving entities to 
satisfy their service obligations.
    ``(b) Allocation of Transmission Rights.--Nothing in this section 
shall affect any methodology approved by the Commission prior to 
September 15, 2003, for the allocation of transmission rights by an RTO 
or ISO that has been authorized by the Commission to allocate 
transmission rights.
    ``(c) Certain Transmission Rights.--The Commission may exercise 
authority under this Act to make transmission rights not used to meet 
an obligation covered by subsection (a) available to other entities in 
a manner determined by the Commission to be just, reasonable, and not 
unduly discriminatory or preferential.
    ``(d) Obligation to Build.--Nothing in this Act shall relieve a 
load-serving entity from any obligation under State or local law to 
build transmission or distribution facilities adequate to meet its 
service obligations.
    ``(e) Contracts.--Nothing in this section shall provide a basis for 
abrogating any contract or service agreement for firm transmission 
service or rights in effect as of the date of the enactment of this 
subsection.
    ``(f) Water Pumping Facilities.--The Commission shall ensure that 
any entity described in section 201(f) that owns transmission 
facilities used predominately to support its own water pumping 
facilities shall have, with respect to such facilities, protections for 
transmission service comparable to those provided to load-serving 
entities pursuant to this section.
    ``(g) ERCOT.--This section shall not apply within the area referred 
to in section 212(k)(2)(A).
    ``(h) Jurisdiction.--This section does not authorize the Commission 
to take any action not otherwise within its jurisdiction.
    ``(i) Effect of Exercising Rights.--An entity that lawfully 
exercises rights granted under subsection (a) shall not be considered 
by such action as engaging in undue discrimination or preference under 
this Act.
    ``(j) Definitions.--For purposes of this section:
            ``(1) The term `distribution utility' means an electric 
        utility that has a service obligation to end-users or to a 
        State utility or electric cooperative that, directly or 
        indirectly, through 1 or more additional State utilities or 
        electric cooperatives, provides electric service to end-users.
            ``(2) The term `load-serving entity' means a distribution 
        utility or an electric utility that has a service obligation.
            ``(3) The term `service obligation' means a requirement 
        applicable to, or the exercise of authority granted to, an 
        electric utility under Federal, State or local law or under 
        long-term contracts to provide electric service to end-users or 
        to a distribution utility.
            ``(4) The term `State utility' means a State or any 
        political subdivision of a State, or any agency, authority, or 
        instrumentality of any 1 or more of the foregoing, or a 
        corporation which is wholly owned, directly or indirectly, by 
        any 1 or more of the foregoing, competent to carry on the 
        business of developing, transmitting, utilizing or distributing 
        power.''.

SEC. 202. VOLUNTARY TRANSMISSION PRICING PLANS.

    Part II of the Federal Power Act (16 U.S.C. 824 et seq.) (as 
amended by section 201) is amended by adding at the end the following:

``SEC. 218. VOLUNTARY TRANSMISSION PRICING PLANS.

    ``(a) In General.--Any transmission provider, including an RTO or 
ISO, may submit to the Commission a plan or plans under section 205 
containing the criteria for determining the person or persons that will 
be required to pay for any construction of new transmission facilities 
or expansion, modification or upgrade of transmission facilities (in 
this section referred to as `transmission service related expansion') 
or new generator interconnection.
    ``(b) Voluntary Transmission Pricing Plans.--(1) Any plan or plans 
submitted under subsection (a) shall specify the method or methods by 
which costs may be allocated or assigned. Such methods may include, but 
are not limited to:
            ``(A) directly assigned;
            ``(B) participant funded; or
            ``(C) rolled into regional or sub-regional rates.-
    ``(2) FERC shall approve a plan or plans submitted under 
subparagraph (B) of paragraph (1) if such plan or plans--
            ``(A) result in rates that are just and reasonable and not 
        unduly discriminatory or preferential consistent with section 
        205; and
            ``(B) ensure that the costs of any transmission service 
        related expansion or new generator interconnection not required 
        to meet applicable reliability standards established under 
        section 216 are assigned in a fair manner, meaning that those 
        who benefit from the transmission service related expansion or 
        new generator interconnection pay an appropriate share of the 
        associated costs, provided that--
                    ``(i) costs may not be assigned or allocated to an 
                electric utility if the native load customers of that 
                utility would not have required such transmission 
                service related expansion or new generator 
                interconnection absent the request for transmission 
                service related expansion or new generator 
                interconnection that necessitated the investment;
                    ``(ii) the party requesting such transmission 
                service related expansion or new generator 
                interconnection shall not be required to pay for both--
                            ``(I) the assigned cost of the upgrade; and
                            ``(II) the difference between--
                                    ``(aa) the embedded cost paid for 
                                transmission services (including the 
                                cost of the requested upgrade); and
                                    ``(bb) the embedded cost that would 
                                have been paid absent the upgrade; and
                    ``(iii) the party or parties who pay for facilities 
                necessary for the transmission service related 
                expansion or new generator interconnection receives 
                full compensation for its costs for the participant 
                funded facilities in the form of--
                            ``(I) monetary credit equal to the cost of 
                        the participant funded facilities (accounting 
                        for the time value of money at the Gross 
                        Domestic Product deflator), which credit shall 
                        be pro-rated in equal installments over a 
                        period of not more than 30 years and shall not 
                        exceed in total the amount of the initial 
                        investment, against the transmission charges 
                        that the funding entity or its assignee is 
                        otherwise assessed by the transmission 
                        provider;
                            ``(II) appropriate financial or physical 
                        rights; or
                            ``(III) any other method of cost recovery 
                        or compensation approved by the Commission.
    ``(3) A plan submitted under this section shall apply only to--
            ``(A) a contract or interconnection agreement executed or 
        filed with the Commission after the date of enactment of this 
        section; or
            ``(B) an interconnection agreement pending rehearing as of 
        November 1, 2003.
    ``(4) Nothing in this section diminishes or alters the rights of 
individual members of an RTO or ISO under this Act.
    ``(5) Nothing in this section shall affect the allocation of costs 
or the cost methodology employed by an RTO or ISO authorized by the 
Commission to allocate costs (including costs for transmission service 
related expansion or new generator interconnection) prior to the date 
of enactment of this section.
    ``(6) This section shall not apply within the area referred to in 
section 212(k)(2)(A).
    ``(7) The term `transmission provider' means a public utility that 
owns or operates facilities that provide interconnection or 
transmission service in interstate commerce.''.

      TITLE III--VOLUNTARY PARTICIPATION IN REGIONAL TRANSMISSION 
                             ORGANIZATIONS

SEC. 301. PROMOTION OF VOLUNTARY DEVELOPMENT OF REGIONAL TRANSMISSION 
              ORGANIZATIONS, INDEPENDENT TRANSMISSION PROVIDERS, AND 
              SIMILAR ORGANIZATIONS.

    Part II of the Federal Power Act (16 U.S.C. 824 et seq.) (as 
amended by section 202) is amended by adding at the end thereof the 
following new section:

``SEC. 219. PROMOTION OF VOLUNTARY DEVELOPMENT OF REGIONAL TRANSMISSION 
              ORGANIZATIONS, INDEPENDENT TRANSMISSION PROVIDERS, AND 
              SIMILAR ORGANIZATIONS.

    ``(a) In General.--The Commission may approve and may encourage the 
formation of regional transmission organizations, independent 
transmission providers, and similar organizations (referred to in this 
section as `transmission organizations') for the purpose of enhancing 
the transmission of electric energy in interstate commerce. Among 
options for the formation of a transmission organization, the 
Commission shall prefer those in which--
            ``(1) participation in the organization by transmitting 
        utilities is voluntary;
            ``(2) the form, structure, and operating entity of the 
        organization are approved of by participating transmitting 
        utilities; and
            ``(3) market incentives exist to promote investment for 
        expansion of transmission facilities and for the introduction 
        of new transmission technologies within the territory of the 
        organization.
    ``(b) Conditions.--No order issued under this Act shall be 
conditioned upon or require a transmitting utility to transfer 
operational control of jurisdictional facilities to an independent 
system operator or other transmission organization.
    ``(c) Complaint.--In addition to any other rights or remedies it 
may have under this Act, any entity serving electric load that is 
denied services by a transmission organization that the transmission 
organization makes available to other load serving entities shall be 
entitled to file a complaint with the Commission concerning the denial 
of such services. If the Commission shall find, after an evidentiary 
hearing on the record, that the denial of services complained of was 
unjust, unreasonable, unduly discriminatory or preferential, or 
contrary to the public interest, the Commission may order the provision 
of such services at rates and on terms and conditions that shall be in 
accordance with this Act.''.
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