II 

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.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.—This Act may be cited as the 

5 ‘‘Interstate Transmission Act of 2005’’. 

6 (b) TABLE OF CONTENTS.—The table of contents of 

7 this Act is as follows:

Sec. 1. Short title; table of contents. 
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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.

1 SEC. 2. FINDINGS. 

2 Congress finds that— 

3 (1) transmission networks are the backbone of 

4 reliable delivery of electric energy and competitive 

5 wholesale power markets; 

6 (2) the expansion, enhancement, and improve7 ment of transmission facilities, and rules of the road 

8 for using the facilities, are necessary to maintain 

9 and improve the reliability of electric service and to 

10 enhance competitive wholesale markets across the 

11 United States and competitive retail markets that 

12 have been adopted by nearly the States; 

13 (3) to ensure reliable and efficient expansion, 

14 enhancement, and improvement of transmission fa15 cilities, the economics of the business of electric 
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1 transmission and the Federal regulatory structures 

2 applicable to the facilities must be improved; 

3 (4) Federal electricity regulatory policy should 

4 benefit consumers by providing incentives for infra5 structure improvement and by removing barriers to 

6 efficient competition, and not be dictated by the im7 position of market structures or costly mandates; 

8 (5) slow, burdensome, or duplicative reviews of 

9 utility mergers are a disincentive to the efficient dis10 position of utility assets needed to ensure a reliable 

11 and efficient infrastructure; 

12 (6) since efficient competition requires accurate 

13 price signals that reflect cost causation, parties that 

14 benefit from transmission upgrades should be re15 quired to pay for the upgrades; 

16 (7) Federal regulation should not override the 

17 interests of local consumers or State laws that en18 sure reliable service and adequate transmission ca19 pacity to serve consumers; 

20 (8) in regions where the formation of regional 

21 transmission organizations or similar entities have 

22 been formed voluntarily with oversight or approval 

23 by States, the Federal Energy Regulatory Commis24 sion should have clear authority to approve applica-
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1 tions for the organizations that are consistent with 

2 the Federal Power Act (16 U.S.C. 791a et seq.); 

3 (9) the States and electricity consumers in each 

4 region of the United States, and not the Federal 

5 Government, are in the best position to determine 

6 how the electric power systems serving their regions 

7 should be structured, including whether Regional 

8 Transmission Organization formation, traditional 

9 vertical integration, or other structures are cost ef10 fective for their region; and 

11 (10) mandatory reliability rules, developed and 

12 enforced by a self-regulating electric reliability orga13 nization, are a vital component of a comprehensive 

14 policy to ensure a robust and reliable electricity grid. 

15 TITLE I—RELIABLE AND ECO16 NOMIC TRANSMISSION INFRA17 STRUCTURE 

18 SEC. 101. TRANSMISSION INFRASTRUCTURE INVESTMENT. 

19 Part II of the Federal Power Act (16 U.S.C. 824 et 

20 seq.) is amended by adding at the end the following: 

21 ‘‘SEC. 215. TRANSMISSION INFRASTRUCTURE INVESTMENT. 

22 ‘‘(a) RULEMAKING REQUIREMENT.—Within 1 year 

23 after the enactment of this section, the Commission shall 

24 establish, by rule, incentive-based (including, but not lim25 ited to performance-based) rate treatments for the trans-
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1 mission of electric energy in interstate commerce by any 

2 public utility for the purpose of benefitting consumers by 

3 ensuring reliability and reducing the cost of delivered 

4 power by reducing transmission congestion. Such rule 

5 shall— 

6 ‘‘(1) promote reliable and economically efficient 

7 transmission and generation of electricity by pro8 moting capital investment in the enlargement, im9 provement, maintenance and operation of facilities 

10 for the transmission of electric energy in interstate 

11 commerce; 

12 ‘‘(2) provide a return on equity, determined 

13 using a variety of reasonable valuation methodolo14 gies, that attracts new investment in transmission 

15 facilities (including related transmission tech16 nologies); 

17 ‘‘(3) encourage deployment of transmission 

18 technologies and other measures to increase the ca19 pacity and efficiency of existing transmission facili20 ties and improve the operation of such facilities; 

21 ‘‘(4) allow recovery of all prudently incurred 

22 costs necessary to comply with mandatory reliability 

23 standards issued pursuant to section 216 of this 

24 Act; 
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1 ‘‘(5) allow a current return in rates for con2 struction work in progress for transmission facilities 

3 and full recovery of prudently incurred costs for con4 structing transmission facilities; 

5 ‘‘(6) allow the use of formula transmission 

6 rates; 

7 ‘‘(7) allow rates of return that do not vary with 

8 capital structure; and 

9 ‘‘(8) allow a maximum 15-year accelerated de10 preciation on new transmission facilities for rate 

11 treatment purposes. 

12 ‘‘(b) ADDITIONAL INCENTIVES FOR RTO PARTICIPA13 TION.—In the rule issued under this section, the Commis14 sion shall, to the extent within its jurisdiction, provide for 

15 incentives to each transmitting utility or electric utility 

16 that joins a Regional Transmission Organization or Inde17 pendent System Operator. Incentives provided by the 

18 Commission pursuant to such rule shall include— 

19 ‘‘(1) recovery of all prudently incurred costs to 

20 develop and participate in any proposed or approved 

21 RTO, ISO, or independent transmission company; 

22 ‘‘(2) recovery of all costs previously approved by 

23 a State commission which exercised jurisdiction over 

24 the transmission facilities prior to the utility’s par25 ticipation in the RTO or ISO, including costs nec-
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1 essary to honor preexisting transmission service con2 tracts, in a manner which does not reduce the reve3 nues the utility receives for transmission services for 

4 a reasonable transition period after the utility joins 

5 the RTO or ISO; and 

6 ‘‘(3) recovery as an expense in rates of the 

7 costs prudently incurred to conduct transmission 

8 planning and reliability activities, including the costs 

9 of participating in RTO, ISO and other regional 

10 planning activities and design, study and other 

11 precertification costs involved in seeking permits and 

12 approvals for proposed transmission facilities. 

13 The Commission shall ensure that any costs recoverable 

14 pursuant to this subsection may be recovered by such util15 ity through the transmission rates charged by such utility 

16 or through the transmission rates charged by the RTO 

17 or ISO that provides transmission service to such utility. 

18 ‘‘(c) JUST AND REASONABLE RATES.—All rates ap19 proved under the rules adopted pursuant to this section, 

20 including any revisions to such rules, are subject to the 

21 requirement of sections 205 and 206 that all rates, 

22 charges, terms, and conditions be just and reasonable and 

23 not unduly discriminatory or preferential.’’. 
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1 SEC. 102. OPEN NONDISCRIMINATORY ACCESS. 

2 Part II of the Federal Power Act (16 U.S.C. 824 et 

3 seq.) is amended by inserting after section 211 the fol4 lowing new section: 

5 ‘‘SEC. 211A. OPEN ACCESS BY UNREGULATED TRANSMIT6 TING UTILITIES. 

7 ‘‘(a) TRANSMISSION SERVICES.—Subject to section 

8 212(h), the Commission may, by rule or order, require an 

9 unregulated transmitting utility to provide transmission 

10 services— 

11 ‘‘(1) at rates that are comparable to those that 

12 the unregulated transmitting utility charges itself; 

13 and 

14 ‘‘(2) on terms and conditions (not relating to 

15 rates) that are comparable to those under which 

16 such unregulated transmitting utility provides trans17 mission services to itself and that are not unduly 

18 discriminatory or preferential. 

19 ‘‘(b) EXEMPTION.—The Commission shall exempt 

20 from any rule or order under this section any unregulated 

21 transmitting utility that— 

22 ‘‘(1) sells no more than 4,000,000 megawatt 

23 hours of electricity per year; or 

24 ‘‘(2) does not own or operate any transmission 

25 facilities that are necessary for operating an inter-
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1 connected transmission system (or any portion 

2 thereof); or 

3 ‘‘(3) meets other criteria the Commission deter4 mines to be in the public interest. 

5 ‘‘(c) LOCAL DISTRIBUTION FACILITIES.—The re6 quirements of subsection (a) shall not apply to facilities 

7 used in local distribution. 

8 ‘‘(d) EXEMPTION TERMINATION.—Whenever the 

9 Commission, after an evidentiary hearing held upon a 

10 complaint and after giving consideration to reliability 

11 standards established under section 216, finds on the 

12 basis of a preponderance of the evidence that any exemp13 tion granted pursuant to subsection (b) unreasonably im14 pairs the continued reliability of an interconnected trans15 mission system, it shall revoke the exemption granted to 

16 that transmitting utility. 

17 ‘‘(e) APPLICATION TO UNREGULATED TRANSMIT18 TING UTILITIES.—The rate changing procedures applica19 ble to public utilities under subsections (c) and (d) of sec20 tion 205 are applicable to unregulated transmitting utili21 ties for purposes of this section. 

22 ‘‘(f) REMAND.—In exercising its authority under 

23 paragraph (1) of subsection (a), the Commission may re24 mand transmission rates to an unregulated transmitting 
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1 utility for review and revision where necessary to meet the 

2 requirements of subsection (a). 

3 ‘‘(g) OTHER REQUESTS.—The provision of trans4 mission services under subsection (a) does not preclude a 

5 request for transmission services under section 211. 

6 ‘‘(h) LIMITATION.—The Commission may not require 

7 a State or municipality to take action under this section 

8 that would violate a private activity bond rule for purposes 

9 of section 141 of the Internal Revenue Code of 1986 (26 

10 U.S.C. 141). 

11 ‘‘(i) TRANSFER OF CONTROL OF TRANSMITTING FA12 CILITIES.—Nothing in this section authorizes the Commis13 sion to require an unregulated transmitting utility to 

14 transfer control or operational control of its transmitting 

15 facilities to an RTO or any other Commission-approved 

16 independent transmission organization designated to pro17 vide nondiscriminatory transmission access. 

18 ‘‘(j) DEFINITION.—For purposes of this section, the 

19 term ‘unregulated transmitting utility’ means an entity 

20 that— 

21 ‘‘(1) owns or operates facilities used for the 

22 transmission of electric energy in interstate com23 merce; and 

24 ‘‘(2) is an entity described in section 201(f).’’. 
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1 SEC. 103. ELECTRIC TRANSMISSION PROPERTY TREATED 

2 AS 15-YEAR PROPERTY. 

3 (a) IN GENERAL.—Subparagraph (E) of section 

4 168(e)(3) of the Internal Revenue Code of 1986 (relating 

5 to classification of certain property) is amended by strik6 ing ‘‘and’’ at the end of clause (v), by striking the period 

7 at the end of clause (vi) and by inserting ‘‘, and’’, and 

8 by adding at the end the following new clause: 

9 ‘‘(vii) any section 1245 property (as 

10 defined in section 1245(a)(3)) used in the 

11 transmission at 69 or more kilovolts of 

12 electricity for sale the original use of which 

13 commences with the taxpayer after the 

14 date of the enactment of this clause.’’. 

15 (b) ALTERNATIVE SYSTEM.—The table contained in 

16 section 168(g)(3)(B) of the Internal Revenue Code of 

17 1986 (relating to special rule for certain property assigned 

18 to classes) is amended by inserting after the item relating 

19 to subparagraph (E)(vi) the following:

‘‘(E)(vii) .................................................................................... 30’’.

20 (c) EFFECTIVE DATE.—The amendments made by 

21 this section shall apply to property placed in service after 

22 the date of the enactment of this Act, in taxable years 

23 ending after such date. 
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1 SEC. 104. DISPOSITION OF PROPERTY. 

2 Section 203 of the Federal Power Act (16 U.S.C. 

3 824b) is repealed. 

4 SEC. 105. ELECTRIC RELIABILITY STANDARDS. 

5 (a) IN GENERAL.—Part II of the Federal Power Act 

6 (16 U.S.C 824 et seq.) (as amended by section 101) is 

7 amended by adding at the end the following: 

8 ‘‘SEC. 216. ELECTRIC RELIABILITY. 

9 ‘‘(a) DEFINITIONS.—For purposes of this section: 

10 ‘‘(1) The term ‘bulk-power system’ means— 

11 ‘‘(A) facilities and control systems nec12 essary for operating an interconnected electric 

13 energy transmission network (or any portion 

14 thereof); and 

15 ‘‘(B) electric energy from generation facili16 ties needed to maintain transmission system re17 liability. 

18 The term does not include facilities used in the local 

19 distribution of electric energy. 

20 ‘‘(2) The terms ‘Electric Reliability Organiza21 tion’ and ‘ERO’ mean the organization certified by 

22 the Commission under subsection (c) the purpose of 

23 which is to establish and enforce reliability stand24 ards for the bulk-power system, subject to Commis25 sion review. 
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1 ‘‘(3) The term ‘reliability standard’ means a re2 quirement, approved by the Commission under this 

3 section, to provide for reliable operation of the bulk4 power system. The term includes requirements for 

5 the operation of existing bulk-power system facilities 

6 and the design of planned additions or modifications 

7 to such facilities to the extent necessary to provide 

8 for reliable operation of the bulk-power system, but 

9 the term does not include any requirement to en10 large such facilities or to construct new transmission 

11 capacity or generation capacity. 

12 ‘‘(4) The term ‘reliable operation’ means oper13 ating the elements of the bulk-power system within 

14 equipment and electric system thermal, voltage, and 

15 stability limits so that instability, uncontrolled sepa16 ration, or cascading failures of such system will not 

17 occur as a result of a sudden disturbance or unan18 ticipated failure of system elements. 

19 ‘‘(5) The term ‘Interconnection’ means a geo20 graphic area in which the operation of bulk-power 

21 system components is synchronized such that the 

22 failure of 1 or more of such components may ad23 versely affect the ability of the operators of other 

24 components within the system to maintain reliable 

25 operation of the facilities within their control. 
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1 ‘‘(6) The term ‘transmission organization’ 

2 means a Regional Transmission Organization, Inde3 pendent System Operator, independent transmission 

4 provider, or other transmission organization finally 

5 approved by the Commission for the operation of 

6 transmission facilities. 

7 ‘‘(7) The term ‘regional entity’ means an entity 

8 having enforcement authority pursuant to subsection 

9 (e)(4). 

10 ‘‘(b) JURISDICTION AND APPLICABILITY.—(1) The 

11 Commission shall have jurisdiction, within the United 

12 States, over the ERO certified by the Commission under 

13 subsection (c), any regional entities, and all users, owners 

14 and operators of the bulk-power system, including but not 

15 limited to the entities described in section 201(f), for pur16 poses of approving reliability standards established under 

17 this section and enforcing compliance with this section. All 

18 users, owners and operators of the bulk-power system 

19 shall comply with reliability standards that take effect 

20 under this section. 

21 ‘‘(2) The Commission shall issue a final rule to imple22 ment the requirements of this section not later than 180 

23 days after the date of enactment of this section. 

24 ‘‘(c) CERTIFICATION.—Following the issuance of a 

25 Commission rule under subsection (b)(2), any person may 
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1 submit an application to the Commission for certification 

2 as the Electric Reliability Organization. The Commission 

3 may certify 1 such ERO if the Commission determines 

4 that such ERO— 

5 ‘‘(1) has the ability to develop and enforce, sub6 ject to subsection (e)(2), reliability standards that 

7 provide for an adequate level of reliability of the 

8 bulk-power system; and 

9 ‘‘(2) has established rules that— 

10 ‘‘(A) assure its independence of the users 

11 and owners and operators of the bulk-power 

12 system, while assuring fair stakeholder rep13 resentation in the selection of its directors and 

14 balanced decisionmaking in any ERO com15 mittee or subordinate organizational structure; 

16 ‘‘(B) allocate equitably reasonable dues, 

17 fees, and other charges among end users for all 

18 activities under this section; 

19 ‘‘(C) provide fair and impartial procedures 

20 for enforcement of reliability standards through 

21 the imposition of penalties in accordance with 

22 subsection (e) (including limitations on activi23 ties, functions, or operations, or other appro24 priate sanctions); 
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1 ‘‘(D) provide for reasonable notice and op2 portunity for public comment, due process, 

3 openness, and balance of interests in developing 

4 reliability standards and otherwise exercising its 

5 duties; and 

6 ‘‘(E) provide for taking, after certification, 

7 appropriate steps to gain recognition in Canada 

8 and Mexico. 

9 ‘‘(d) RELIABILITY STANDARDS.—(1) The Electric 

10 Reliability Organization shall file each reliability standard 

11 or modification to a reliability standard that it proposes 

12 to be made effective under this section with the Commis13 sion. 

14 ‘‘(2) The Commission may approve, by rule or order, 

15 a proposed reliability standard or modification to a reli16 ability standard if it determines that the standard is just, 

17 reasonable, not unduly discriminatory or preferential, and 

18 in the public interest. The Commission shall give due 

19 weight to the technical expertise of the Electric Reliability 

20 Organization with respect to the content of a proposed 

21 standard or modification to a reliability standard and to 

22 the technical expertise of a regional entity organized on 

23 an Interconnection-wide basis with respect to a reliability 

24 standard to be applicable within that Interconnection, but 

25 shall not defer with respect to the effect of a standard 
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1 on competition. A proposed standard or modification shall 

2 take effect upon approval by the Commission. 

3 ‘‘(3) The Electric Reliability Organization shall 

4 rebuttably presume that a proposal from a regional entity 

5 organized on an Interconnection-wide basis for a reliability 

6 standard or modification to a reliability standard to be ap7 plicable on an Interconnection-wide basis is just, reason8 able, and not unduly discriminatory or preferential, and 

9 in the public interest. 

10 ‘‘(4) The Commission shall remand to the Electric 

11 Reliability Organization for further consideration a pro12 posed reliability standard or a modification to a reliability 

13 standard that the Commission disapproves in whole or in 

14 part. 

15 ‘‘(5) The Commission, upon its own motion or upon 

16 complaint, may order the Electric Reliability Organization 

17 to submit to the Commission a proposed reliability stand18 ard or a modification to a reliability standard that ad19 dresses a specific matter if the Commission considers such 

20 a new or modified reliability standard appropriate to carry 

21 out this section. 

22 ‘‘(6) The final rule adopted under subsection (b)(2) 

23 shall include fair processes for the identification and time24 ly resolution of any conflict between a reliability standard 

25 and any function, rule, order, tariff, rate schedule, or 
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1 agreement accepted, approved, or ordered by the Commis2 sion applicable to a transmission organization. Such trans3 mission organization shall continue to comply with such 

4 function, rule, order, tariff, rate schedule or agreement ac5 cepted approved, or ordered by the Commission until— 

6 ‘‘(A) the Commission finds a conflict exists be7 tween a reliability standard and any such provision; 

8 ‘‘(B) the Commission orders a change to such 

9 provision pursuant to section 206 of this part; and 

10 ‘‘(C) the ordered change becomes effective 

11 under this part. 

12 If the Commission determines that a reliability standard 

13 needs to be changed as a result of such a conflict, it shall 

14 order the ERO to develop and file with the Commission 

15 a modified reliability standard under paragraph (4) or (5) 

16 of this subsection. 

17 ‘‘(e) ENFORCEMENT.—(1) The ERO may impose, 

18 subject to paragraph (2), a penalty on a user or owner 

19 or operator of the bulk-power system for a violation of a 

20 reliability standard approved by the Commission under 

21 subsection (d) if the ERO, after notice and an opportunity 

22 for a hearing— 

23 ‘‘(A) finds that the user or owner or operator 

24 has violated a reliability standard approved by the 

25 Commission under subsection (d); and 
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1 ‘‘(B) files notice and the record of the pro2 ceeding with the Commission. 

3 ‘‘(2) A penalty imposed under paragraph (1) may 

4 take effect not earlier than the 31st day after the ERO 

5 files with the Commission notice of the penalty and the 

6 record of proceedings. Such penalty shall be subject to re7 view by the Commission, on its own motion or upon appli8 cation by the user, owner or operator that is the subject 

9 of the penalty filed within 30 days after the date such 

10 notice is filed with the Commission. Application to the 

11 Commission for review, or the initiation of review by the 

12 Commission on its own motion, shall not operate as a stay 

13 of such penalty unless the Commission otherwise orders 

14 upon its own motion or upon application by the user, 

15 owner or operator that is the subject of such penalty. In 

16 any proceeding to review a penalty imposed under para17 graph (1), the Commission, after notice and opportunity 

18 for hearing (which hearing may consist solely of the record 

19 before the ERO and opportunity for the presentation of 

20 supporting reasons to affirm, modify, or set aside the pen21 alty), shall by order affirm, set aside, reinstate, or modify 

22 the penalty, and, if appropriate, remand to the ERO for 

23 further proceedings. The Commission shall implement ex24 pedited procedures for such hearings. 
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1 ‘‘(3) On its own motion or upon complaint, the Com2 mission may order compliance with a reliability standard 

3 and may impose a penalty against a user or owner or oper4 ator of the bulk-power system if the Commission finds, 

5 after notice and opportunity for a hearing, that the user 

6 or owner or operator of the bulk-power system has en7 gaged or is about to engage in any acts or practices that 

8 constitute or will constitute a violation of a reliability 

9 standard. 

10 ‘‘(4) The Commission shall issue regulations author11 izing the ERO to enter into an agreement to delegate au12 thority to a regional entity for the purpose of proposing 

13 reliability standards to the ERO and enforcing reliability 

14 standards under paragraph (1) if— 

15 ‘‘(A) the regional entity is governed by— 

16 ‘‘(i) an independent board; 

17 ‘‘(ii) a balanced stakeholder board; or 

18 ‘‘(iii) a combination independent and bal19 anced stakeholder board. 

20 ‘‘(B) the regional entity otherwise satisfies the 

21 provisions of subsection (c)(1) and (2); and 

22 ‘‘(C) the agreement promotes effective and effi23 cient administration of bulk-power system reliability. 

24 The Commission may modify such delegation. The ERO 

25 and the Commission shall rebuttably presume that a pro-
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1 posal for delegation to a regional entity organized on an 

2 Interconnection-wide basis promotes effective and efficient 

3 administration of bulk-power system reliability and should 

4 be approved. Such regulation may provide that the Com5 mission may assign the ERO’s authority to enforce reli6 ability standards under paragraph (1) directly to a re7 gional entity consistent with the requirements of this para8 graph. 

9 ‘‘(5) The Commission may take such action as is nec10 essary or appropriate against the ERO or a regional entity 

11 to ensure compliance with a reliability standard or any 

12 Commission order affecting the ERO or a regional entity. 

13 ‘‘(6) Any penalty imposed under this section shall 

14 bear a reasonable relation to the seriousness of the viola15 tion and shall take into consideration the efforts of such 

16 user, owner, or operator to remedy the violation in a time17 ly manner. 

18 ‘‘(f) CHANGES IN ELECTRIC RELIABILITY ORGANIZA19 TION RULES.—The Electric Reliability Organization shall 

20 file with the Commission for approval any proposed rule 

21 or proposed rule change, accompanied by an explanation 

22 of its basis and purpose. The Commission, upon its own 

23 motion or complaint, may propose a change to the rules 

24 of the ERO. A proposed rule or proposed rule change shall 

25 take effect upon a finding by the Commission, after notice 
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1 and opportunity for comment, that the change is just, rea2 sonable, not unduly discriminatory or preferential, is in 

3 the public interest, and satisfies the requirements of sub4 section (c). 

5 ‘‘(g) RELIABILITY REPORTS.—The ERO shall con6 duct periodic assessments of the reliability and adequacy 

7 of the bulk-power system in North America. 

8 ‘‘(h) COORDINATION WITH CANADA AND MEXICO.—

9 The President is urged to negotiate international agree10 ments with the governments of Canada and Mexico to pro11 vide for effective compliance with reliability standards and 

12 the effectiveness of the ERO in the United States and 

13 Canada or Mexico. 

14 ‘‘(i) SAVINGS PROVISIONS.—(1) The ERO shall have 

15 authority to develop and enforce compliance with reli16 ability standards for only the bulk-power system. 

17 ‘‘(2) This section does not authorize the ERO or the 

18 Commission to order the construction of additional gen19 eration or transmission capacity or to set and enforce com20 pliance with standards for adequacy or safety of electric 

21 facilities or services. 

22 ‘‘(3) Nothing in this section shall be construed to pre23 empt any authority of any State to take action to ensure 

24 the safety, adequacy, and reliability of electric service 
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1 within that State, as long as such action is not incon2 sistent with any reliability standard. 

3 ‘‘(4) Within 90 days of the application of the Electric 

4 Reliability Organization or other affected party, and after 

5 notice and opportunity for comment, the Commission shall 

6 issue a final order determining whether a State action is 

7 inconsistent with a reliability standard, taking into consid8 eration any recommendation of the ERO. 

9 ‘‘(5) The Commission, after consultation with the 

10 ERO and the State taking action, may stay the effective11 ness of any State action, pending the Commission’s 

12 issuance of a final order. 

13 ‘‘(j) REGIONAL ADVISORY BODIES.—The Commis14 sion shall establish a regional advisory body on the petition 

of at least 2 15 ⁄3 of the States within a region that have more 

than 1 16 ⁄2 of their electric load served within the region. A 

17 regional advisory body shall be composed of 1 member 

18 from each participating State in the region, appointed by 

19 the Governor of each State, and may include representa20 tives of agencies, States, and provinces outside the United 

21 States. A regional advisory body may provide advice to the 

22 Electric Reliability Organization, a regional entity, or the 

23 Commission regarding the governance of an existing or 

24 proposed regional entity within the same region, whether 

25 a standard proposed to apply within the region is just, 
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1 reasonable, not unduly discriminatory or preferential, and 

2 in the public interest, whether fees proposed to be assessed 

3 within the region are just, reasonable, not unduly discrimi4 natory or preferential, and in the public interest and any 

5 other responsibilities requested by the Commission. The 

6 Commission may give deference to the advice of any such 

7 regional advisory body if that body is organized on an 

8 Interconnection-wide basis. 

9 ‘‘(k) ALASKA AND HAWAII.—The provisions of this 

10 section do not apply to Alaska or Hawaii.’’. 

11 (b) STATUS OF ERO.—The Electric Reliability Orga12 nization certified by the Federal Energy Regulatory Com13 mission under section 216(c) of the Federal Power Act 

14 and any regional entity delegated enforcement authority 

15 pursuant to section 216(e)(4) of that Act are not depart16 ments, agencies, or instrumentalities of the United States 

17 Government. 

18 TITLE II—PROTECTING RETAIL 

19 CONSUMERS 

20 SEC. 201. NATIVE LOAD SERVICE OBLIGATION. 

21 Part II of the Federal Power Act (16 U.S.C. 824 et 

22 seq.) (as amended by section 105(a)) is amended by add23 ing at the end the following: 
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1 ‘‘SEC. 217. NATIVE LOAD SERVICE OBLIGATION. 

2 ‘‘(a) MEETING SERVICE OBLIGATIONS.—(1) Any 

3 load-serving entity that, as of the date of enactment of 

4 this section— 

5 ‘‘(A) owns generation facilities, markets the 

6 output of Federal generation facilities, or holds 

7 rights under 1 or more wholesale contracts to pur8 chase electric energy, for the purpose of meeting a 

9 service obligation, and 

10 ‘‘(B) by reason of ownership of transmission fa11 cilities, or 1 or more contracts or service agreements 

12 for firm transmission service, holds firm trans13 mission rights for delivery of the output of such gen14 eration facilities or such purchased energy to meet 

15 such service obligation, is entitled to use such firm 

16 transmission rights, or, equivalent tradable or finan17 cial transmission rights, in order to deliver such out18 put or purchased energy, or the output of other gen19 erating facilities or purchased energy to the extent 

20 deliverable using such rights, to the extent required 

21 to meet its service obligation. 

22 ‘‘(2) To the extent that all or a portion of the service 

23 obligation covered by such firm transmission rights or 

24 equivalent tradable or financial transmission rights is 

25 transferred to another load-serving entity, the successor 

26 load-serving entity shall be entitled to use the firm trans-
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1 mission rights or equivalent tradable or financial trans2 mission rights associated with the transferred service obli3 gation. Subsequent transfers to another load-serving enti4 ty, or back to the original load-serving entity, shall be enti5 tled to the same rights. 

6 ‘‘(3) The Commission shall exercise its authority 

7 under this Act in a manner that facilitates the planning 

8 and expansion of transmission facilities to meet the rea9 sonable needs of load-serving entities to satisfy their serv10 ice obligations. 

11 ‘‘(b) ALLOCATION OF TRANSMISSION RIGHTS.—

12 Nothing in this section shall affect any methodology ap13 proved by the Commission prior to September 15, 2003, 

14 for the allocation of transmission rights by an RTO or 

15 ISO that has been authorized by the Commission to allo16 cate transmission rights. 

17 ‘‘(c) CERTAIN TRANSMISSION RIGHTS.—The Com18 mission may exercise authority under this Act to make 

19 transmission rights not used to meet an obligation covered 

20 by subsection (a) available to other entities in a manner 

21 determined by the Commission to be just, reasonable, and 

22 not unduly discriminatory or preferential. 

23 ‘‘(d) OBLIGATION TO BUILD.—Nothing in this Act 

24 shall relieve a load-serving entity from any obligation 
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1 under State or local law to build transmission or distribu2 tion facilities adequate to meet its service obligations. 

3 ‘‘(e) CONTRACTS.—Nothing in this section shall pro4 vide a basis for abrogating any contract or service agree5 ment for firm transmission service or rights in effect as 

6 of the date of the enactment of this subsection. 

7 ‘‘(f) WATER PUMPING FACILITIES.—The Commis8 sion shall ensure that any entity described in section 

9 201(f) that owns transmission facilities used predomi10 nately to support its own water pumping facilities shall 

11 have, with respect to such facilities, protections for trans12 mission service comparable to those provided to load-serv13 ing entities pursuant to this section. 

14 ‘‘(g) ERCOT.—This section shall not apply within 

15 the area referred to in section 212(k)(2)(A). 

16 ‘‘(h) JURISDICTION.—This section does not authorize 

17 the Commission to take any action not otherwise within 

18 its jurisdiction. 

19 ‘‘(i) EFFECT OF EXERCISING RIGHTS.—An entity 

20 that lawfully exercises rights granted under subsection (a) 

21 shall not be considered by such action as engaging in 

22 undue discrimination or preference under this Act. 

23 ‘‘(j) DEFINITIONS.—For purposes of this section: 

24 ‘‘(1) The term ‘distribution utility’ means an 

25 electric utility that has a service obligation to end-
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1 users or to a State utility or electric cooperative 

2 that, directly or indirectly, through 1 or more addi3 tional State utilities or electric cooperatives, provides 

4 electric service to end-users. 

5 ‘‘(2) The term ‘load-serving entity’ means a dis6 tribution utility or an electric utility that has a serv7 ice obligation. 

8 ‘‘(3) The term ‘service obligation’ means a re9 quirement applicable to, or the exercise of authority 

10 granted to, an electric utility under Federal, State 

11 or local law or under long-term contracts to provide 

12 electric service to end-users or to a distribution util13 ity. 

14 ‘‘(4) The term ‘State utility’ means a State or 

15 any political subdivision of a State, or any agency, 

16 authority, or instrumentality of any 1 or more of the 

17 foregoing, or a corporation which is wholly owned, 

18 directly or indirectly, by any 1 or more of the fore19 going, competent to carry on the business of devel20 oping, transmitting, utilizing or distributing power.’’. 

21 SEC. 202. VOLUNTARY TRANSMISSION PRICING PLANS. 

22 Part II of the Federal Power Act (16 U.S.C. 824 et 

23 seq.) (as amended by section 201) is amended by adding 

24 at the end the following: 
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1 ‘‘SEC. 218. VOLUNTARY TRANSMISSION PRICING PLANS. 

2 ‘‘(a) IN GENERAL.—Any transmission provider, in3 cluding an RTO or ISO, may submit to the Commission 

4 a plan or plans under section 205 containing the criteria 

5 for determining the person or persons that will be required 

6 to pay for any construction of new transmission facilities 

7 or expansion, modification or upgrade of transmission fa8 cilities (in this section referred to as ‘transmission service 

9 related expansion’) or new generator interconnection. 

10 ‘‘(b) VOLUNTARY TRANSMISSION PRICING PLANS.—

11 (1) Any plan or plans submitted under subsection (a) shall 

12 specify the method or methods by which costs may be allo13 cated or assigned. Such methods may include, but are not 

14 limited to: 

15 ‘‘(A) directly assigned; 

16 ‘‘(B) participant funded; or 

17 ‘‘(C) rolled into regional or sub-regional rates.– 

18 ‘‘(2) FERC shall approve a plan or plans submitted 

19 under subparagraph (B) of paragraph (1) if such plan or 

20 plans— 

21 ‘‘(A) result in rates that are just and reason22 able and not unduly discriminatory or preferential 

23 consistent with section 205; and 

24 ‘‘(B) ensure that the costs of any transmission 

25 service related expansion or new generator inter26 connection not required to meet applicable reliability 
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1 standards established under section 216 are assigned 

2 in a fair manner, meaning that those who benefit 

3 from the transmission service related expansion or 

4 new generator interconnection pay an appropriate 

5 share of the associated costs, provided that— 

6 ‘‘(i) costs may not be assigned or allocated 

7 to an electric utility if the native load customers 

8 of that utility would not have required such 

9 transmission service related expansion or new 

10 generator interconnection absent the request for 

11 transmission service related expansion or new 

12 generator interconnection that necessitated the 

13 investment; 

14 ‘‘(ii) the party requesting such trans15 mission service related expansion or new gener16 ator interconnection shall not be required to 

17 pay for both— 

18 ‘‘(I) the assigned cost of the upgrade; 

19 and 

20 ‘‘(II) the difference between— 

21 ‘‘(aa) the embedded cost paid for 

22 transmission services (including the 

23 cost of the requested upgrade); and 
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1 ‘‘(bb) the embedded cost that 

2 would have been paid absent the up3 grade; and 

4 ‘‘(iii) the party or parties who pay for fa5 cilities necessary for the transmission service 

6 related expansion or new generator interconnec7 tion receives full compensation for its costs for 

8 the participant funded facilities in the form 

9 of— 

10 ‘‘(I) monetary credit equal to the cost 

11 of the participant funded facilities (ac12 counting for the time value of money at 

13 the Gross Domestic Product deflator), 

14 which credit shall be pro-rated in equal in15 stallments over a period of not more than 

16 30 years and shall not exceed in total the 

17 amount of the initial investment, against 

18 the transmission charges that the funding 

19 entity or its assignee is otherwise assessed 

20 by the transmission provider; 

21 ‘‘(II) appropriate financial or physical 

22 rights; or 

23 ‘‘(III) any other method of cost recov24 ery or compensation approved by the Com25 mission. 
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1 ‘‘(3) A plan submitted under this section shall apply 

2 only to— 

3 ‘‘(A) a contract or interconnection agreement 

4 executed or filed with the Commission after the date 

5 of enactment of this section; or 

6 ‘‘(B) an interconnection agreement pending re7 hearing as of November 1, 2003. 

8 ‘‘(4) Nothing in this section diminishes or alters the 

9 rights of individual members of an RTO or ISO under 

10 this Act. 

11 ‘‘(5) Nothing in this section shall affect the allocation 

12 of costs or the cost methodology employed by an RTO or 

13 ISO authorized by the Commission to allocate costs (in14 cluding costs for transmission service related expansion or 

15 new generator interconnection) prior to the date of enact16 ment of this section. 

17 ‘‘(6) This section shall not apply within the area re18 ferred to in section 212(k)(2)(A). 

19 ‘‘(7) The term ‘transmission provider’ means a public 

20 utility that owns or operates facilities that provide inter21 connection or transmission service in interstate com22 merce.’’. 
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1 TITLE III—VOLUNTARY PARTICI2 PATION IN REGIONAL TRANS3 MISSION ORGANIZATIONS 

4 SEC. 301. PROMOTION OF VOLUNTARY DEVELOPMENT OF 

5 REGIONAL TRANSMISSION ORGANIZATIONS, 

6 INDEPENDENT TRANSMISSION PROVIDERS, 

7 AND SIMILAR ORGANIZATIONS. 

8 Part II of the Federal Power Act (16 U.S.C. 824 et 

9 seq.) (as amended by section 202) is amended by adding 

10 at the end thereof the following new section: 

11 ‘‘SEC. 219. PROMOTION OF VOLUNTARY DEVELOPMENT OF 

12 REGIONAL TRANSMISSION ORGANIZATIONS, 

13 INDEPENDENT TRANSMISSION PROVIDERS, 

14 AND SIMILAR ORGANIZATIONS. 

15 ‘‘(a) IN GENERAL.—The Commission may approve 

16 and may encourage the formation of regional transmission 

17 organizations, independent transmission providers, and 

18 similar organizations (referred to in this section as ‘trans19 mission organizations’) for the purpose of enhancing the 

20 transmission of electric energy in interstate commerce. 

21 Among options for the formation of a transmission organi22 zation, the Commission shall prefer those in which— 

23 ‘‘(1) participation in the organization by trans24 mitting utilities is voluntary; 
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1 ‘‘(2) the form, structure, and operating entity 

2 of the organization are approved of by participating 

3 transmitting utilities; and 

4 ‘‘(3) market incentives exist to promote invest5 ment for expansion of transmission facilities and for 

6 the introduction of new transmission technologies 

7 within the territory of the organization. 

8 ‘‘(b) CONDITIONS.—No order issued under this Act 

9 shall be conditioned upon or require a transmitting utility 

10 to transfer operational control of jurisdictional facilities 

11 to an independent system operator or other transmission 

12 organization. 

13 ‘‘(c) COMPLAINT.—In addition to any other rights or 

14 remedies it may have under this Act, any entity serving 

15 electric load that is denied services by a transmission orga16 nization that the transmission organization makes avail17 able to other load serving entities shall be entitled to file 

18 a complaint with the Commission concerning the denial 

19 of such services. If the Commission shall find, after an 

20 evidentiary hearing on the record, that the denial of serv21 ices complained of was unjust, unreasonable, unduly dis22 criminatory or preferential, or contrary to the public inter23 est, the Commission may order the provision of such serv-
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1 ices at rates and on terms and conditions that shall be 

2 in accordance with this Act.’’.

Æ