The electric utility industry, through a tradition of voluntary self-regulation and cooperation, has performed admirably in maintaining reliability over the past thirty years. However, even in the absence of retail competition, under wholesale competition a different mix of incentives is presently at work. There are pressures to cut costs and to drive the power grids harder, to squeeze as much economic value out of them as possible without causing a system breakdown. Furthermore, it is difficult for transmission owners to resist the temptation to unfairly advance their power sales business under the guise of reliability concerns. To ensure reliability in the competitive marketplace, the Administration supports a framework that will build upon and maintain the industry's expertise and tradition of self-regulation, but also establish mandatory reliability rules of the road.
Federal oversight is essential to provide legal support for a private self-regulating structure.
Under this approach, FERC will be given the authority to review all mandatory reliability standards developed by the self-regulating organization to ensure that they are in the public interest and reflect an appropriate level of reliability. FERC's review of such standards will also give recognition to the technical expertise of the self-regulating organization. Under the oversight of FERC, the private self-regulating organization system will monitor compliance with the reliability standards and, when necessary, enforce compliance with the standards. The Department of Energy's Task Force on Electric System Reliability, an independent advisory body chaired by Dr. Philip Sharp, the former Chair of the U.S. House of Representatives Energy and Power Subcommittee, has submitted findings and recommendations to DOE regarding an appropriate reliability framework. These recommendations serve as the foundation for our proposal.