I
105TH CONGRESS
2D SESSION
H. R. 4432
To enhance the reliability of the electric power supply system of the United
States by reducing barriers to the construction of needed generation
and transmission facilities, to increase the efficiency of the Nation’s
interstate transmission grid, and to reduce discrimination in the provision
of transmission services.
IN THE HOUSE OF REPRESENTATIVES
AUGUST 6, 1998
Mr. DELAY (for himself and Mr. MARKEY) introduced the following bill; which
was referred to the Committee on Commerce
A BILL
To enhance the reliability of the electric power supply system
of the United States by reducing barriers to the con-
struction of needed generation and transmission facilities,
to increase the efficiency of the Nation’s interstate trans-
mission grid, and to reduce discrimination in the provi-
sion of transmission services.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION. 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Electric System Reliability Act of 1998’’.
(b) TABLE OF CONTENTS.—The table of contents is
as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Findings.
TITLE I—FERC AUTHORITY TO CERTIFY SELF-REGULATING
RELIABILITY ORGANIZATIONS
Sec. 101. Electric reliability organization and oversight.
Sec. 102. Statutory presumptions.
TITLE II—FERC AUTHORITY TO REQUIRE INDEPENDENT SYSTEM
OPERATORS, TO REQUIRE DIVESTITURE OF GENERATION FA-
CILITIES, AND TO PROHIBIT PREFERENTIAL TRANSMISSION
SERVICE
Sec. 201. Authority to establish and require independent system operation.
Sec. 202. Single siting authority and independent system operator siting au-
thority.
Sec. 203. Eminent domain.
TITLE III—INTERCONNECTION
Sec. 301. Interconnection.
TITLE IV—EXEMPT TRANSMITTING UTILITIES
Sec. 401. Exempt transmitting utilities.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) Electricity is used in virtually every home,
commercial enterprise, and manufacturing facility in
the United States; is a basic element of the inter-
state and foreign commerce of the United States;
and immediately, directly and substantially affects
interstate and foreign commerce.
(2) The Nation’s interconnected electricity gen-
eration, transmission, and local distribution systems
critically affect the economy and productivity of the
United States, and the health, safety, welfare, and
security of all Americans.
(3) Difficulties associated with the siting of new
generation and transmission plants threaten to jeop-
ardize the future supply and reliability of the Na-
tion’s electric bulk power supply system.
(4) The restructuring of the electric utility may
result in ambiguity regarding the ultimate respon-
sibility for maintenance of reliability.
(5) The retirement and early shut-down of nu-
clear plants has and is likely to continue to further
reduce the reserve margins and adequacy of generat-
ing capacity to satisfy regional demand for elec-
tricity.
(6) Maintaining an adequate and reliable supply
of electric power is vital for the preservation and
growth of the Nation’s economy and the safety of its
citizens.
(7) The ability of private reliability associations
to promote and insure reliability of the Nation’s
electric supply by establishing binding standards and
procedures may be hampered by exposure to anti-
trust liability;
(8) Granting additional authority to the Federal
Energy Regulatory Commission over the activities of
private reliability associations can avoid the risk of
such antitrust liability.
(9) Congestion and discrimination regarding the
use of the transmission systems of the nation’s utili-
ties can threaten the reliability of electric supply and
result in economic inefficiency and higher costs of
electricity to consumers.
(10) Market concentration and vertical integra-
tion of the generation and transmission functions of
electric utilities can result in discrimination in favor
of the transmission owner’s or its affiliate’s genera-
tion and prices in excess of the prices that would be
charged in the competitive market.
(11) Preventing or curing such discrimination
can require the establishment of an Independent
System Operator or the divestiture of ownership of
generation facilities by utilities that own trans-
mission facilities.
(12) Constraints on the use of the Nation’s
interstate transmission system imposed by regu-
latory policies that provide unfair advantages to ver-
tically integrated transmission owners have balkan-
ized the wholesale power marketplace and resulted in
power supply shortages and extreme price ‘‘spikes’’.
TITLE I—FERC AUTHORITY TO
CERTIFY 
SELF-REGULATING
RELIABILITY ORGANIZATIONS
SEC. 101. ELECTRIC RELIABILITY ORGANIZATION AND
OVERSIGHT.
(a) IN GENERAL.—The Federal Power Act is amend-
ed by adding the following new section after section 214
(16 U.S.C. 824m):
‘‘SEC. 215. ELECTRIC RELIABILITY ORGANIZATION AND
OVERSIGHT.
‘‘(a) DEFINITIONS.—As used in this section:
‘‘(1) The term ‘bulk-power system’ means all
facilities and control systems necessary for operating
the interconnected transmission grids, including
high-voltage transmission lines; substations; control
centers; communications, data, and operations plan-
ning facilities; and generating units necessary to
maintain transmission system reliability.
‘‘(2) The term ‘electric reliability organization’
or ‘organization’ means the organization registered
by the Commission under subsection (d)(4).
‘‘(3) The term ‘system operator’ means any en-
tity that operates or is responsible for the operation
of the bulk-power system, including control area op-
erators, independent system operators, transmission
companies, transmission system operators, and re-
gional security coordinators.
‘‘(4) The term ‘users of the bulk-power system’
means any entity that sells, purchases, or transmits
electric power over the bulk-power system; owns, op-
erates or maintains facilities of the bulk-power sys-
tem; or is a system operator.
‘‘(b) COMMISSION AUTHORITY.—(1) The Commission
has jurisdiction over the electric reliability organization,
all system operators, and all users of the bulk-power sys-
tem for purposes of approving and enforcing compliance
with standards in the United States.
‘‘(2) The Commission may register an electric reli-
ability organization and approve and oversee the activities
in the United States of that electric reliability organiza-
tion.
‘‘(c) COMPLIANCE
WITH
EXISTING
RELIABILITY
STANDARDS.—Users of the bulk-power system shall com-
ply with standards established by the North American
Electric Reliability Council and the regional reliability
councils that exist on the date of enactment of this section,
consistent with any agreement entered into under sub-
section (f). Each standard remains in effect until modified
under this subsection or superseded by standards ap-
proved under subsection (e). The Commission, upon its
own motions or upon request and consistent with any
agreements entered into pursuant to subsection (f), may
modify or suspend the application of a standard and may
enforce a standard exercising the same authority that the
electric reliability organization may exercise under sub-
section (k). The North American Electric Reliability Coun-
cil and the regional reliability councils may monitor com-
pliance with these standards.
‘‘(d) ORGANIZATION REGISTRATION AND ESTABLISH-
MENT OF STANDARDS.—(1) Not less than 90 days after
the date of enactment of this section, the Commission
shall issue proposed rules specifying the procedures and
requirements for an organization to apply for registration
and file reliability standards. The Commission shall pro-
vide adequate opportunity for comment on the proposed
rules. The Commission shall issue final rules under this
subsection within 180 days after the date of enactment
of this section.
‘‘(2) Following the issuance of final Commission rules
under paragraph (1), an electric reliability organization
may apply for registration with the Commission. The orga-
nization shall include in its application its governance,
procedures, and funding mechanism, and shall file the
standards in effect under subsection (c).
‘‘(3) The Commission shall provide public notice of
the application and the standards filed under this sub-
section and afford interested parties an opportunity to
comment on the application and filing.
‘‘(4) The Commission shall register the organization
if the Commission determines that the organization—
‘‘(A) has the capacity to provide for an ade-
quate level of reliability of the bulk-power system;
‘‘(B) permits voluntary membership to any
users of the bulk-power system or interested cus-
tomer class or public interest group;
‘‘(C) assures fair representation of its members
in the selection of its directors and fair management
of its affairs, taking into account the need for effi-
ciency and effectiveness in decision making and op-
erations and the requirements for technical com-
petency in the development of standards and the ex-
ercise of oversight of the reliability system, and
assures that no single class of market participants
has the ability to control the organization’s dis-
charge of its responsibilities;
‘‘(D) assesses reasonable dues, fees, or other
charges necessary to support the organization and
the purposes of this section and has a funding mech-
anism that is fair and not unduly discriminatory;
‘‘(E) establishes procedures for standards devel-
opment that provide reasonable notice and oppor-
tunity for public comment, taking into account the
need for efficiency and effectiveness in decision mak-
ing and operations and the requirements for tech-
nical competency in the development of standards;
‘‘(F) establishes fair and impartial procedures
for enforcement of standards, including penalties,
limitation of activity, function or operations; or other
appropriate sanctions;
‘‘(G) establishes procedures for notice and op-
portunity for public observation of all meetings, ex-
cept that the procedures for public observation may
include alternative procedures for emergencies or for
the discussion of information the directors determine
should take place in closed session, including the dis-
cussion of information with respect to proposed en-
forcement or disciplinary action; and
‘‘(H) addresses other matters that the Commis-
sion considers necessary or appropriate.
‘‘(5) The Commission shall approve only one electric
reliability organization. If the Commission receives timely
applications from two or more applicants that satisfy the
requirements of this subsection, the Commission shall ap-
prove only the application that is most likely to provide
a reliable bulk-power system.
‘‘(e) RESTRICTIONS ON ACTIVITIES.—A reliability or-
ganization shall not—
(1) establish or operate a market for the sale,
purchase or exchange of electric energy,
(2) file any standard under subsection (d)(2) or
(f)(3)(A) that directly or indirectly establishes com-
mercial terms for the sale, purchase or exchange of
electric energy, or
(3) impede effective competition.
‘‘(f) REVIEW AND CHANGES OR MODIFICATIONS TO
STANDARDS.—(1) The Commission shall review the stand-
ards submitted under subsection (d)(2), concurrent with
its review of the application under subsection (d), and each
standard becomes effective if the Commission determines
that it is just, reasonable, and not unduly discriminatory
or preferential; is in the public interest; and provides for
an adequate level of reliability of the bulk-power system.
‘‘(2) With respect to a standard that does not become
effective under paragraph (1), the Commission shall refer
that standard to the electric reliability organization for de-
velopment of a new or modified standard under the organi-
zation’s procedures for assuring notice and opportunity for
comment approved by the Commission under subsection
(d)(4)(E).
‘‘(3)(A) The electric reliability organization shall file
with the Commission any standard developed under para-
graph (2) or a new standard or modification of a standard
effective under paragraph (1) for review and approval. A
new standard or modification does not take effect unless
the Commission determines, after notice and opportunity
for comment, that the standard or modification is just,
reasonable, and not unduly discriminatory or preferential;
is in the public interest; and provides for an adequate level
of reliability of the bulk-power system, taking into account
the purposes of this section to assure reliability of the
bulk-power system and giving due weight to the technical
competency of the registered electric reliability organiza-
tion, and is consistent with any agreement entered into
pursuant to subsection (f).
‘‘(B) Any standard or modification that does not be-
come effective under this paragraph shall be referred to
the electric reliability organization for development of a
new or modified standard under the organization’s proce-
dures for assuring notice and opportunity for comment ap-
proved by the Commission under subsection (d)(4)(E).
‘‘(C) The Commission, on its own motion, or upon
application or complaint, may require that the electric reli-
ability organization develop a new or revised standard if
the Commission considers a new or revised standard nec-
essary or appropriate to further the purposes of this sec-
tion. The organization shall file the new or revised stand-
ard in accordance with this paragraph.
‘‘(D) On its own motion or at the request of the elec-
tric reliability organization, the Commission may develop
and, consistent with any agreement under subsection (f),
require immediate implementation by the organization of
a new or revised standard if it determines that immediate
implementation is required to avoid a significant disrup-
tion of reliability that would affect public safety or welfare.
If immediate implementation is required, the Commission
shall not delay implementation for notice and comment
but shall publish the standard for notice and comment in
a timely manner.
‘‘(g) COORDINATION WITH CANADA AND MEXICO.—
The United States shall enter into international agree-
ments with the governments of Canada and Mexico deter-
mined to be necessary or appropriate to provide for effec-
tive compliance with standards and to provide for the ef-
fectiveness of the electric reliability organization in carry-
ing out its mission and responsibilities.
‘‘(h) CHANGES
IN
ORGANIZATION
PROCEDURES,
GOVERNANCE, OR FUNDING.—(1) The electric reliability
organization shall file with the Commission any proposed
change in its procedures, governance, or funding and ac-
company the filing with an explanation of the basis and
purpose for the change.
‘‘(2)(A) A proposed procedural change may take ef-
fect 90 days after filing with the Commission if the
change—
‘‘(i) constitutes a statement of policy, practice,
or interpretation with respect to the meaning, ad-
ministration, or enforcement of an existing proce-
dure; or
‘‘(ii) is concerned solely with administration of
the organization.
‘‘(B) The Commission, by order, either upon com-
plaint or upon its own motion, may suspend an existing
procedure or procedural change if it determines the proce-
dure or the proposed change is unjust, unreasonable, un-
duly discriminatory or preferential, or is otherwise not in
the public interest.
‘‘(3) A change in the organization’s governance and
funding does not take effect unless the Commission finds
that the change is consistent with any agreement under
subsection (f) and is just, reasonable, not unduly discrimi-
natory or preferential, and in the public interest.
‘‘(4) The Commission may require that the electric
reliability organization amend its procedures, governance,
or funding if the Commission considers the amendment
necessary or appropriate to ensure the fair administration
of the organization, conform the organization to the re-
quirements of this section, or further the purposes of this
section, consistent with any agreement entered into under
subsection (f). The organization shall file the amendment
in accordance with paragraph (1).
‘‘(i) ORGANIZATION DELEGATIONS OF AUTHORITY.—
(1) The organization may enter into an agreement under
which it may delegate some or all of its authority to any
person.
‘‘(2) The organization shall file an agreement entered
into under this subsection with the Commission together
with the information on the delegated person that the
Commission may require. The Commission shall approve
the agreement, following public notice and an opportunity
for comment, if it finds that the agreement is consistent
with the requirements of this section. The Commission
shall disapprove and prevent the agreement from entering
into effect if the Commission finds that the agreement is
inconsistent with the requirements of this section. The
agreement takes affect upon Commission approval.
‘‘(3) The Commission may direct a modification to
or suspend an agreement entered into under this sub-
section if it determines that the delegated person no longer
has the capacity to carry out its implementation respon-
sibilities under that agreement effectively and efficiently
or that the rules, practices, or procedures of the delegated
person no longer provide for the fair and impartial dis-
charge of its implementation responsibilities. The electric
reliability organization shall assume the previously dele-
gated responsibilities if the agreement is suspended.
‘‘(j) ORGANIZATION MEMBERSHIP.—Every system
operator shall be a member of the electric reliability orga-
nization. The organization rules shall provide for vol-
untary membership to other users of the bulk-power sys-
tem and any interested customer class or public interest
group. A person required to become a member of the orga-
nization who fails to do so is subject to sections 314 and
316A of this Act upon notification from the organization
to the Commission.
‘‘(k) FAILURE TO APPLY FOR REGISTRATION.—(1)
If an organization fails to apply for registration with the
Commission within six months after the issuance date of
final Commission rules for such a filing, or the Commis-
sion does not register an agreement within twelve months
after the issuance date of final Commission rules for such
a filing, the Commission shall convene a process to register
an electric reliability organization.
‘‘(2) Until an electric reliability organization is reg-
istered, the Commission has the same authority to enforce
existing standards or standards it amends that the electric
reliability organization has under subsection (k).
‘‘(l) DISCIPLINARY ACTION
AND PENALTIES.—(1)
The electric reliability organization may impose a civil
penalty and take injunctive action or impose other civil
disciplinary action the organization finds appropriate
against a user of the bulk-power system located in the
United States if the organization finds, after notice and
opportunity for a hearing, that the user has violated an
organization procedure or standard.
‘‘(2) An action taken under subparagraph (1) takes
effect 30 days after the finding unless the Commission,
on its own motion or upon application by the user of the
bulk-power system who was the subject of the action, sus-
pends the action. The action shall remain in effect or re-
main suspended until the Commission, after notice and op-
portunity for comment, sets aside, modifies, or reinstates
the action.
‘‘(m) ADEQUACY, RELIABILITY, AND REPORTS.—The
electric reliability organization shall conduct periodic as-
sessments of the reliability and adequacy of the inter-
connected bulk-power system in North America and shall
report annually to the Commission its findings and rec-
ommendations for monitoring or improving system reli-
ability or adequacy.’’.
(b) CONFORMING AMENDMENTS.—Sections 316(c)
and 316A of the Federal Power Act (16 U.S.C. 825o(c)
and 825o–1) are amended by striking ‘‘or 214’’ each place
it appears and inserting ‘‘214, or 215’’.
SEC. 102. STATUTORY PRESUMPTIONS.
(a) FEDERAL POWER ACT.—Any reliability standard
developed by the reliability organization, and any actions
taken in good faith to comply with such a reliability stand-
ard, under section 215 of the Federal Power Act, as added
by section 101 of this Act, are rebuttably presumed just
and reasonable and not unduly discriminatory or pref-
erential for purposes of that Act.
(b) ANTITRUST LAWS.—The following activities are
rebuttably presumed to be in compliance with the antitrust
laws of the United States:
(1) Activities undertaken by the electric reliabil-
ity organization under section 215 of the Federal
Power Act, as added by section 101 of this Act, or
a delegated person operating under an agreement in
effect under subsection (i) of such section 215.
(2) Activities of a member of the electric reli-
ability organization in pursuit of organization objec-
tives under such section 215 undertaken in good
faith under the rules of the organization.
TITLE II—FERC AUTHORITY TO
REQUIRE INDEPENDENT SYS-
TEM 
OPERATORS, 
TO 
RE-
QUIRE DIVESTITURE OF GEN-
ERATION FACILITIES, AND TO
PROHIBIT 
PREFERENTIAL
TRANSMISSION SERVICE
SEC. 201. AUTHORITY TO ESTABLISH AND REQUIRE INDE-
PENDENT SYSTEM OPERATION.
(a) ISSUANCE OF ORDERS.—Section 202 of the Fed-
eral Power Act (16 U.S.C. 824a) is amended by adding
at the end the following new subsections:
‘‘(h)(1) The Commission shall order the establish-
ment of an entity for the purpose of independent operation
and control of interconnected transmission facilities for
the broadest feasible geographic region and direct the
transmitting utility to relinquish control over operation of
its transmission facilities or other associated facilities to
an entity established for the purpose of independent oper-
ation and control of interconnected transmission facilities
for the broadest feasible geographic region if the Commis-
sion, upon its own motion or upon application or com-
plaint and after notice and an opportunity for a hearing,
finds that—
‘‘(A) this action is appropriate to promote com-
petitive electricity markets and efficient, economical
and reliable operation of the interstate transmission
grid;
‘‘(B) the entity established for the purpose of
independent operation and control of interconnected
transmission facilities will operate the transmission
facilities in a manner that assures that ownership of
transmission facilities provides no advantage in com-
petitive electricity markets; and
‘‘(C) the transmitting utility will receive just
and reasonable compensation for the use of its
transmission facilities.
‘‘(2) Any order issued by the Commission under para-
graph (1) shall provide that the entity to which control
over operation of a transmitting utility’s transmission fa-
cilities is relinquished shall not establish or operate a mar-
ket for the sale, purchase or exchange of electric energy.
‘‘(3) For purposes of this subsection, the entity estab-
lished for the purpose of independent operation and con-
trol of interconnected transmission facilities may be either
a nonprofit or a for-profit entity.
‘‘(i)(1) The Commission shall order divestiture or
other transfer of control of the generation or transmission
facilities of an electric utility that result in the market
power described in this paragraph if the Commission
finds, upon its own motion or upon application or com-
plaint and after notice and an opportunity for a hearing,
that—
‘‘(A) there are markets in which an electric util-
ity that owns or controls generation or transmission
facilities has market power in wholesale or retail
markets for electric energy;
‘‘(B) such market power can result in prices for
electric energy that exceed the prices that would be
charged in a competitive market;
‘‘(C) divestiture or transfer of control of some
or all of an electric utility’s generation or trans-
mission facilities is necessary to reduce or eliminate
such market power;
‘‘(D) such divestiture or transfer of control
would not unreasonably impair the continued reli-
ability of electric systems affected by such divesti-
ture or transfer of control; and
‘‘(E) there is no reasonable probability that the
market power of the utility can be constrained by
less intrusive means, including, but not limited to—
‘‘(i) directing the electric utility to relin-
quish control of its transmission system to an
entity established for the purpose of independ-
ent operation and control of its transmission
system, pursuant to section 202(g)(h); or
‘‘(ii) instituting a proceeding under section
206 to deny the opportunity of the electric util-
ity and any of its affiliates that is a public util-
ity to engage in sales at market-based rates.
‘‘(2) Any order requiring such divestiture or transfer
of control shall be conditioned upon receipt by the electric
utility of just and reasonable compensation for such dives-
titure or transfer of control of such generation or trans-
mission facilities.
‘‘(3) In the case of a transmitting utility that is an
affiliate of an electric utility that owns or controls genera-
tion facilities, upon making the findings in paragraph (1),
the Commission may require the person that directly or
indirectly owns the securities of the electric utility that
owns or controls generation facilities to sell or otherwise
dispose of such securities. However, any such divestiture
or disposition shall be conditioned upon receipt by such
person of just and reasonable compensation for such dives-
titure of disposition of securities. In the case of an electric
utility that owns or controls generation facilities and is
an affiliate of a transmitting utility, upon making the find-
ings in paragraph (1), the Commission may require the
person that directly or indirectly owns the securities of the
transmitting utility to sell or otherwise dispose of such se-
curities. However, any such divestiture or disposition shall
be conditioned upon receipt by such person of just and
reasonable compensation for such divestiture of disposition
of securities.’’.
(b) PROHIBITION OF PREFERENTIAL TRANSMISSION
SERVICE.—Section 206 of the Federal Power Act (16
U.S.C. 824e) is amended by adding at the end the follow-
ing new subsection:
‘‘(e) For purposes of subsection (a), any rate,
charges, or classification demanded, observed, charged, or
collected by any public utility for any transmission subject
to the jurisdiction of the Commission, or any rule, regula-
tion, or practice that provides for or has the effect of pro-
viding more favorable transmission service to any cus-
tomer or customer group than is provided to other cus-
tomers or customer groups shall be conclusively deemed
to constitute unduly discriminatory and preferential serv-
ice, which the Commission shall fix by order under sub-
section (a).’’.