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gional Transmission Organization or Independent 
System Operator (as defined in the Federal Power 
Act) (and related market structures or rules) or vol-
untary modification of an existing Regional Trans-
mission Organization or Independent System Oper-
ator (and related market structures or rules). 
SEC. 1236. NATIVE LOAD SERVICE OBLIGATION. 
Part II of the Federal Power Act (16 U.S.C. 824 et 
seq.) 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 pur-
chase electric energy, for the purpose of meeting a 
service obligation, and 
‘‘(B) by reason of ownership of transmission fa-
cilities, or 1 or more contracts or service agreements 
for firm transmission service, holds firm trans-
mission rights for delivery of the output of such gen-
eration facilities or such purchased energy to meet 
such service obligation,
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is entitled to use such firm transmission rights, or, equiva-
lent 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 ex-
tent 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 trans-
mission rights or equivalent tradable or financial trans-
mission rights associated with the transferred service obli-
gation. Subsequent transfers to another load-serving enti-
ty, or back to the original load-serving entity, shall be enti-
tled 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 rea-
sonable needs of load-serving entities to satisfy their serv-
ice obligations, and enables load-serving entities to secure 
firm transmission rights (or equivalent tradable or finan-
cial rights) on a long term basis for long term power sup-
ply arrangements made, or planned, to meet such needs.
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‘‘(b) ALLOCATION
OF
TRANSMISSION
RIGHTS.— 
Nothing in subsections (a)(1) and (a) (2) of this section 
shall affect any existing or future methodology employed 
by an RTO or ISO for allocating or auctioning trans-
mission rights if such RTO or ISO was authorized by the 
Commission to allocate or auction financial transmission 
rights on its system as of January 1, 2005, and the Com-
mission determines that any future allocation or auction 
is just, reasonable and not unduly discriminatory or pref-
erential, provided, however, that if such an RTO or ISO 
never allocated financial transmission rights on its system 
that pertained to a period before January 1, 2005, with 
respect to any application by such RTO or ISO that would 
change its methodology the Commission shall exercise its 
authority in a manner consistent with the Act and the 
policies expressed in subsections (a)(1) and (a)(2) as ap-
plied to firm transmission rights held by a load serving 
entity as of January 1, 2005, to the extent the associated 
generation ownership or power purchase arrangements re-
main in effect. 
‘‘(c) CERTAIN TRANSMISSION RIGHTS.—The Com-
mission 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
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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 distribu-
tion facilities adequate to meet its service obligations. 
‘‘(e) CONTRACTS.—Nothing in this section shall pro-
vide a basis for abrogating any contract or service agree-
ment for firm transmission service or rights in effect as 
of the date of the enactment of this subsection. If an ISO 
in the Western Interconnection had allocated financial 
transmission rights prior to the date of enactment of this 
section but had not done so with respect to one or more 
load-serving entities’ firm transmission rights held under 
contracts to which the preceding sentence applies (or held 
by reason of ownership of transmission facilities), such 
load-serving entities may not be required, without their 
consent, to convert such firm transmission rights to 
tradable or financial rights, except where the load-serving 
entity has voluntarily joined the ISO as a participating 
transmission owner (or its successor) in accordance with 
the ISO tariff. 
‘‘(f) WATER PUMPING FACILITIES.—The Commis-
sion shall ensure that any entity described in section 
201(f) that owns transmission facilities used predomi-
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nately to support its own water pumping facilities shall 
have, with respect to such facilities, protections for trans-
mission service comparable to those provided to load-serv-
ing entities pursuant to this section. 
‘‘(g) FERC RULEMAKING ON LONG-TERM TRANS-
MISSION RIGHTS IN ORGANIZED MARKETS.—Within one 
year after the date of enactment of this section and after 
notice and an opportunity for comment, the Commission 
shall by rule or order implement subsection (a)(3) in Com-
mission-approved RTOs and ISOs with organized elec-
tricity markets. 
‘‘(h) ERCOT.—This section shall not apply within 
the area referred to in section 212(k)(2)(A). 
‘‘(i) JURISDICTION.—This section does not authorize 
the Commission to take any action not otherwise within 
its jurisdiction. 
‘‘(j) 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. 
‘‘(k) TVA AREA.—For purposes of subsection 
(a)(1)(B), a load-serving entity that is located within the 
service area of the Tennessee Valley Authority and that 
has a firm wholesale power supply contract with the Ten-
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nessee Valley Authority shall be deemed to hold firm 
transmission rights for the transmission of such power. 
‘‘(l) 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 addi-
tional State utilities or electric cooperatives, provides 
electric service to end-users. 
‘‘(2) The term ‘load-serving entity’ means a dis-
tribution utility or an electric utility that has a serv-
ice obligation. 
‘‘(3) The term ‘service obligation’ means a re-
quirement 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 util-
ity. 
‘‘(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 fore-
going, competent to carry on the business of devel-
oping, transmitting, utilizing or distributing power.’’.
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SEC. 1237. STUDY ON THE BENEFITS OF ECONOMIC DIS-
PATCH. 
(a) STUDY.—The Secretary of Energy, in coordina-
tion and consultation with the States, shall conduct a 
study on— 
(1) the procedures currently used by electric 
utilities to perform economic dispatch; 
(2) identifying possible revisions to those proce-
dures to improve the ability of nonutility generation 
resources to offer their output for sale for the pur-
pose of inclusion in economic dispatch; and 
(3) the potential benefits to residential, com-
mercial, and industrial electricity consumers nation-
ally and in each state if economic dispatch proce-
dures were revised to improve the ability of non-
utility generation resources to offer their output for 
inclusion in economic dispatch. 
(b) DEFINITION.—The term ‘‘economic dispatch’’ 
when used in this section means the operation of genera-
tion facilities to produce energy at the lowest cost to reli-
ably serve consumers, recognizing any operational limits 
of generation and transmission facilities. 
(c) REPORT TO CONGRESS AND THE STATES.—Not 
later than 90 days after the date of enactment of this Act, 
and on a yearly basis following, the Secretary of Energy 
shall submit a report to Congress and the States on the
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results of the study conducted under subsection (a), in-
cluding recommendations to Congress and the States for 
any suggested legislative or regulatory changes. 
Subtitle D—Transmission Rate 
Reform 
SEC. 1241. 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. 218. 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 lim-
ited to performance-based) rate treatments for the trans-
mission of electric energy in interstate commerce by public 
utilities for the purpose of benefiting consumers by ensur-
ing 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 pro-
moting capital investment in the enlargement, im-
provement, maintenance and operation of facilities 
for the transmission of electric energy in interstate 
commerce;
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‘‘(2) provide a return on equity that attracts 
new investment in transmission facilities (including 
related transmission technologies); 
‘‘(3) encourage deployment of transmission 
technologies and other measures to increase the ca-
pacity and efficiency of existing transmission facili-
ties and improve the operation of such facilities; and 
‘‘(4) allow recovery of all prudently incurred 
costs necessary to comply with mandatory reliability 
standards issued pursuant to section 215 of this 
Act. 
The Commission may, from time to time, revise such rule. 
‘‘(b) ADDITIONAL INCENTIVES FOR RTO PARTICIPA-
TION.—In the rule issued under this section, the Commis-
sion shall, to the extent within its jurisdiction, provide for 
incentives to each transmitting utility or electric utility 
that joins a Regional Transmission Organization or Inde-
pendent 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 par-
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ticipation in the RTO or ISO, including costs nec-
essary to honor preexisting transmission service con-
tracts, in a manner which does not reduce the reve-
nues the utility receives for transmission services for 
a reasonable transition period after the utility joins 
the RTO or ISO; 
‘‘(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; 
‘‘(4) a current return in rates for construction 
work in progress for transmission facilities and full 
recovery of prudently incurred costs for constructing 
transmission facilities; 
‘‘(5) formula transmission rates; and 
‘‘(6) a maximum 15 year accelerated deprecia-
tion on new transmission facilities for rate treatment 
purposes. 
The Commission shall ensure that any costs recoverable 
pursuant to this subsection may be recovered by such util-
ity through the transmission rates charged by such utility
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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 ap-
proved 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.’’. 
Subtitle E—Amendments to PURPA 
SEC. 1251. NET METERING AND ADDITIONAL STANDARDS. 
(a) ADOPTION OF STANDARDS.—Section 111(d) of 
the Public Utility Regulatory Policies Act of 1978 (16 
U.S.C. 2621(d)) is amended by adding at the end the fol-
lowing: 
‘‘(11) NET
METERING.—Each electric utility 
shall make available upon request net metering serv-
ice to any electric consumer that the electric utility 
serves. For purposes of this paragraph, the term 
‘net metering service’ means service to an electric 
consumer under which electric energy generated by 
that electric consumer from an eligible on-site gener-
ating facility and delivered to the local distribution 
facilities may be used to offset electric energy pro-
vided by the electric utility to the electric consumer 
during the applicable billing period.
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‘‘(12) FUEL
SOURCES.—Each electric utility 
shall develop a plan to minimize dependence on 1 
fuel source and to ensure that the electric energy it 
sells to consumers is generated using a diverse range 
of fuels and technologies, including renewable tech-
nologies. 
‘‘(13) 
FOSSIL
FUEL
GENERATION
EFFI-
CIENCY.—Each electric utility shall develop and im-
plement a 10-year plan to increase the efficiency of 
its fossil fuel generation.’’. 
(b) COMPLIANCE.— 
(1) TIME LIMITATIONS.—Section 112(b) of the 
Public Utility Regulatory Policies Act of 1978 (16 
U.S.C. 2622(b)) is amended by adding at the end 
the following: 
‘‘(3)(A) Not later than 2 years after the enactment 
of this paragraph, each State regulatory authority (with 
respect to each electric utility for which it has ratemaking 
authority) and each nonregulated electric utility shall com-
mence the consideration referred to in section 111, or set 
a hearing date for such consideration, with respect to each 
standard established by paragraphs (11) through (13) of 
section 111(d). 
‘‘(B) Not later than 3 years after the date of the en-
actment of this paragraph, each State regulatory authority