(b) TABLE OF CONTENTS.—The table of contents is
as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Findings.
Sec. 3. Economically efficient transmission service and expansion of trans-
mission networks.
Sec. 4. Electric energy transmission reliability.
Sec. 5. Disposition of property.
Sec. 6. Promotion of voluntary development of regional transmission organiza-
tions.
Sec. 7. State and Federal authority to site transmission facilities.
Sec. 8. Puhca exemption for RTOs.
Sec. 9. Independent transmission companies.
SEC. 2. FINDINGS.
Congress finds as follows:
(1) Transmission networks are the backbone of
competitive power markets and increased interstate
commerce in electricity.
(2) Wholesale electric competition, already in
effect across the nation, and retail electric competi-
tion, adopted by nearly half of the States, depend on
adequate transmission networks to benefit electric
consumers.
(3) The expansion, enhancement, and improve-
ment of transmission facilities are necessary to
maintain and improve reliability of electric service.
(4) To support competitive power markets and
to maintain and improve reliability of electric serv-
ice, the regulation of transmission service must be
reformed.
SEC. 3. ECONOMICALLY EFFICIENT TRANSMISSION SERV-
ICE AND EXPANSION OF TRANSMISSION NET-
WORKS.
Part II of the Federal Power Act is amended by add-
ing at the end thereof the following new section:
‘‘SEC. 215. STANDARDS FOR ESTABLISHING RATES FOR
TRANSMISSION SERVICE.
‘‘(a) CERTAIN
REQUIREMENTS.—Rates, charges,
terms and conditions established for transmission service
pursuant to this Part shall—
‘‘(1) promote the economically efficient trans-
mission of electricity, the enlargement of trans-
mission networks, the introduction of new trans-
mission technologies to increase capacity of existing
transmission networks, and the provision of trans-
mission services by regional transmission organiza-
tions;
‘‘(2) encourage the efficient and reliable oper-
ation of transmission facilities and supply of trans-
mission services through performance-based or in-
centive ratemaking, and other measures;
‘‘(3) provide for a return on equity that—
‘‘(A) assures confidence in the financial
soundness of the utility and maintains and sup-
ports its credit, taking into consideration risks
associated with changes in regulatory or eco-
nomic circumstances;
‘‘(B) in the case of rates proposed by a re-
gional transmission organization, is commensu-
rate with the financial, operational and other
risks of turning facilities over to a regional
transmission organization and reflects other
changes in the structure of the industry; and
‘‘(C) enables the utility to raise the money
necessary for the proper discharge of its public
duties and to protect public interests, both ex-
isting and foreseeable, in reliable, high-capacity
transmission networks; and
‘‘(4) comply with applicable procedural require-
ments of sections 205 and 206 and the requirement
that rates, charges, terms and conditions be just and
reasonable and not unduly discriminatory or pref-
erential.
‘‘(b) INNOVATIVE TRANSMISSION PRICING POLICIES
GENERALLY.—The Commission shall encourage innova-
tive transmission pricing policies for a regional trans-
mission organization, a comparable transmission organiza-
tion approved by the Commission before the enactment of
this Act, a transmitting utility whose facilities are con-
trolled but not owned by either such entity, or an inde-
pendent transmission company. Such transmission pricing
shall—
‘‘(1) provide incentives to transmitting utilities
to promote the voluntary participation and forma-
tion of regional transmission organizations, without
having the effect of forcing transmitting utilities to
join regional transmitting organizations and extend
such incentives to transmitting utilities that already
have formed a regional transmission organization;
‘‘(2) limit separate, additive access charges for
transmission service over the transmission facilities
operated by the regional transmission organization,
except that a reasonable transition mechanism or pe-
riod may be used before eliminating such separate,
additive access charges;
‘‘(3) minimize the shifting of costs among exist-
ing customers of the transmitting utilities within the
regional transmission organization, including permit-
ting the use of transmission rates based on a single
transmitting utility’s costs for transmission services
provided within the regional transmission organiza-
tion;
‘‘(4) encourage the efficient and reliable oper-
ation of the transmission grid and supply of trans-
mission services through congestion management,
performance-based or incentive ratemaking, and
other measures;
‘‘(5) encourage efficient and adequate invest-
ment in and expansion of the transmission facilities
owned or controlled by the regional transmission or-
ganization; and
‘‘(6) provide enhanced returns on equity for in-
vesting in transmission and related facilities that im-
prove the operational reliability of the transmission
grid.
‘‘(c) NEGOTIATED RATES.—The Commission may
permit the charging of negotiated rates for transmission
services under this section without regard to costs when-
ever an individual company or companies are willing to
pay such negotiated rates. The costs associated with such
negotiated rates shall not be recovered from transmission
customers.
‘‘(d) RULEMAKING.—Within 180 days of the enact-
ment of this section, the Commission shall establish by
rule definitions and standards for implementing sub-
section (a) and subsection (b). With respect to perform-
ance-based rates or incentive rates, the definitions and
standards shall include, but not be limited to—
‘‘(1) a method for calculating initial trans-
mission rates (including price caps that would in-
clude discounting);
‘‘(2) an index mechanism for adjusting initial
rates;
‘‘(3) time periods for redetermining initial
rates; and
‘‘(4) costs to be excluded from performance
based rates.
‘‘(c) REPORT.—Within 180 days after enactment of
the section, and each year thereafter, the Commission
shall submit to Congress a report on all policies adopted
by the Commission to encourage the economic use and ex-
pansion of the transmission network through incentive
rates or other similar market-oriented approaches and
their effectiveness in doing so.’’.
SEC. 4. ELECTRIC ENERGY TRANSMISSION RELIABILITY.
(a) ELECTRIC
RELIABILITY
ORGANIZATION
AND
OVERSIGHT.—
(1) IN GENERAL.—The Federal Power Act is
amended by inserting at the end thereof the fol-
lowing new section:
‘‘SEC. 216. ELECTRIC RELIABILITY ORGANIZATION AND
OVERSIGHT.
‘‘(a) DEFINITIONS.—As used in this section:
‘‘(1) AFFILIATED REGIONAL RELIABILITY ENTI-
TY.—The term ‘affiliated regional reliability entity’
means an entity delegated authority under the provi-
sions of subsection (h).
‘‘(2) BULK-POWER SYSTEM.—The term ‘bulk-
power system’ means all facilities and control sys-
tems necessary for operating an interconnected
transmission grid (or any portion thereof), including
high-voltage transmission lines; substations; control
centers; communications; data, and operations plan-
ning facilities; and the output of generating units
necessary to maintain transmission system reli-
ability.
‘‘(3) ELECTRIC RELIABILITY ORGANIZATION, OR
ORGANIZATION.—The term ‘Electric Reliability Or-
ganization’ or ‘Organization’ means the organization
approved by the Commission under subsection
(d)(4).
‘‘(4) ENTITY
RULE.—The term ‘entity rule’
means a rule adopted by an affiliated regional reli-
ability entity for a specific region and designed to
implement or enforce 1 or more Organization Stand-
ards. An entity rule shall be approved by the organi-
zation and once approved, shall be treated as an Or-
ganization Standard.
‘‘(5) INDUSTRY SECTOR.—The term ‘industry
sector’ means a group of users of the bulk power
system with substantially similar commercial inter-
ests, as determined by the Board of the Electric Re-
liability Organization.
‘‘(6) INTERCONNECTION.—The term ‘inter-
connection’ means a geographic area in which the
operation of bulk-power system components is syn-
chronized such that the failure of 1 or more of such
components may adversely affect the ability of the
operators of other components within the inter-
connection to maintain safe and reliable operation of
the facilities within their control.
‘‘(7) ORGANIZATION
STANDARD.—The term
‘Organization Standard’ means a policy or standard
duly adopted by the Electric Reliability Organization
to provide for the reliable operation of a bulk-power
system.
‘‘(8) PUBLIC
INTEREST
GROUP.—The term
‘public interest group’ means any nonprofit private
or public organization that has an interest in the ac-
tivities of the Electric Reliability Organization, in-
cluding, but not limited to, ratepayer advocates, en-
vironmental groups, and State and local government
organizations that regulate market participants and
promulgate government policy.
‘‘(9) VARIANCE.—The term ‘variance’ means an
exception or variance from the requirements of an
Organization Standard (including a proposal for an
Organization Standard where there is no Organiza-
tion Standard) that is adopted by an affiliated re-
gional reliability entity and applicable to all or a
part of the region for which the affiliated regional
reliability entity is responsible. A variance shall be
approved by the organization and once approved,
shall be treated as an Organization Standard.
‘‘(10) SYSTEM OPERATOR.—The term ‘system
operator’ means any entity that operates or is re-
sponsible for the operation of a bulk-power system,
including but not limited to a control area operator,
an independent system operator, a regional trans-
mission organization, a transmission company, a
transmission system operator, or a regional security
coordinator.
‘‘(11) USER OF THE BULK-POWER SYSTEM.—
The term ‘user of the bulk-power system’ means any
entity that sells, purchases, or transmits electric
power over a bulk-power system, or that owns, oper-
ates, or maintains facilities or control systems that
are part of a bulk-power system, or that is a system
operator.
‘‘(b) COMMISSION AUTHORITY.—
‘‘(1) Within the United States, the Commission
shall have jurisdiction over the Electric Reliability
Organization, all affiliated regional reliability enti-
ties, all system operators, and all users of the bulk-
power system, for purposes of approving and enforc-
ing compliance with the requirements of this section.
‘‘(2) The Commission may, by rule, define any
other term used in this section, provided such defini-
tion is consistent with the definitions in, and the
purpose and intent of, this Act.
‘‘(3) Not later than 90 days after the date of
enactment of this section, the Commission shall
issue a proposed rule for implementing the require-
ments of this section. The Commission shall provide
notice and opportunity for comment on the proposed
rule. The Commission shall issue a final rule under
this subsection within 180 days after the date of en-
actment of this section.
‘‘(4) Nothing in this section shall be construed
as limiting or impairing any authority of the Com-
mission under any other provision of this Act, in-
cluding its exclusive authority to determine rates,
terms, and conditions of transmission services sub-
ject to its jurisdiction.
‘‘(c) EXISTING
RELIABILITY
STANDARDS.—Fol-
lowing enactment of this section, and prior to the approval
of an organization under subsection (d), any entity, in-
cluding the North American Electric Reliability Council
and its member regional reliability councils, may file any
reliability standard, guidance, or practice that such entity
would propose to be made mandatory and enforceable. The
Commission, after allowing an opportunity to submit com-
ments, may approve any such proposed mandatory stand-
ard, guidance, or practice, or any amendment thereto, if
it finds that the standard, guidance, or practice, or
amendment is just, reasonable, not unduly discriminatory
or preferential, and in the public interest. The Commission
may, without further proceeding or finding, grant its ap-
proval to any standard, guidance, or practice for which
no substantive objections are filed in the comment period.
Filed standards, guidances, or practices, including any
amendments thereto, shall be mandatory and applicable
according to their terms following approval by the Com-
mission and shall remain in effect until (1) withdrawn,
disapproved, or superseded by an Organization Standard,
issued or approved by the Electric Reliability Organization
and made effective by the Commission under subsection
(e); or (2) disapproved by the Commission if, upon com-
plaint or upon its own motion and after notice and an
opportunity for comment, the Commission finds the stand-
ard, guidance, or practice unjust, unreasonable, unduly
discriminatory, or preferential or not in the public inter-
est. Standards, guidances, or practices in effect pursuant
to the provisions of this subsection shall be enforceable
by the Commission.
‘‘(d) ORGANIZATION APPROVAL.—
‘‘(1) Following the issuance of a final Commis-
sion rule under subsection (b)(3), an entity may sub-
mit an application to the Commission for approval
as the Electric Reliability Organization. The appli-
cant shall specify in its application its governance
and procedures, as well as its funding mechanism
and initial funding requirements.
‘‘(2) The Commission shall provide public no-
tice of the application and afford interested parties
an opportunity to comment.
‘‘(3) The Commission shall approve the applica-
tion if the Commission determines that the
applicant—
‘‘(A) has the ability to develop, implement,
and enforce standards that provide for an ade-
quate level of reliability of the bulk-power sys-
tem;
‘‘(B) permits voluntary membership to any
user of the bulk-power system 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 ac-
count the need for efficiency and effectiveness
in decisionmaking and operations and the re-
quirements for technical competency in the de-
velopment of Organization Standards and the
exercise of oversight of bulk-power system reli-
ability;
‘‘(D) assures that no 2 industry sectors
have the ability to control, and no 1 industry
sector has the ability to veto, the Electric Reli-
ability Organization’s discharge of its respon-
sibilities (including actions by committees rec-
ommending standards to the board or other
board actions to implement and enforce stand-
ards);
‘‘(E) provides for governance by a board
wholly comprised of independent directors;
‘‘(F) provides a funding mechanism and
requirements that are just, reasonable, and not
unduly discriminatory or preferential and are in
the public interest, and which satisfy the re-
quirements of subsection (l);
‘‘(G) establishes procedures for develop-
ment of Organization Standards that provide
reasonable notice and opportunity for public
comment, taking into account the need for effi-
ciency and effectiveness in decisionmaking and
operations and the requirements for technical
competency in the development of Organization
Standards, and which standards development
process has the following attributes:
‘‘(i) Openness.
‘‘(ii) Balance of interests.
‘‘(iii) Due process, except that the
procedures may include alternative proce-
dures for emergencies;
‘‘(H) establishes fair and impartial proce-
dures for implementation and enforcement of
Organization Standards, either directly or
through delegation to an affiliated regional reli-
ability entity, including the imposition of pen-
alties, limitations on activities, functions, or op-
erations, or other appropriate sanctions;
‘‘(I) establishes procedures for notice and
opportunity for public observation of all meet-
ings, except that the procedures for public ob-
servation may include alternative procedures for
emergencies or for the discussion of information
the directors determine should take place in
closed session, such as litigation, personnel ac-
tions, or commercially sensitive information;
‘‘(J) provides for the consideration of rec-
ommendations of States and State commissions;
and
‘‘(K) addresses other matters that the
Commission may deem necessary or appropriate
to ensure that the procedures, governance, and
funding of the Electric Reliability Organization
are just, reasonable, not unduly discriminatory
or preferential, and are in the public interest.
‘‘(4) The Commission shall approve only 1 Elec-
tric Reliability Organization. If the Commission re-
ceives 2 or more timely applications that satisfy the
requirements of this subsection, the Commission
shall approve only the application it concludes will
best implement the provisions of this section.
‘‘(e) ESTABLISHMENT OF AND MODIFICATIONS TO
ORGANIZATION STANDARDS.—
‘‘(1) The Electric Reliability Organization shall
file with the Commission any new or modified orga-
nization standards, including any variances or entity
rules, and the Commission shall follow the proce-
dures under paragraph (2) for review of that filing.
‘‘(2) Submissions under paragraph (1) shall
include—
‘‘(A) a concise statement of the purpose of
the proposal, and
‘‘(B) a record of any proceedings con-
ducted with respect to such proposal.
The Commission shall provide notice of the filing of such
proposal and afford interested entities 30 days to submit
comments. The Commission, after taking into consider-
ation any submitted comments, shall approve or dis-
approve such proposal not later than 60 days after the
deadline for the submission of comments, except that the
Commission may extend the 60-day period for an addi-
tional 90 days for good cause, and except further that if
the Commission does not act to approve or disapprove a
proposal within the foregoing periods, the proposal shall
go into effect subject to its terms, without prejudice to
the authority of the Commission thereafter to modify the
proposal in accordance with the standards and require-
ments of this section. Proposals approved by the Commis-
sion shall take effect according to their terms but not ear-
lier than 30 days after the effective date of the Commis-
sion’s order, except as provided in paragraph (3) of this
subsection.
‘‘(3)(A) In the exercise of its review responsibil-
ities under this subsection, the Commission shall
give due weight to the technical expertise of the
Electric Reliability Organization with respect to the
content of a new or modified organization standard,
but shall not defer to the organization with respect
to the effect of the standard on competition. The
Commission shall approve a proposed new or modi-
fied organization standard if it determines the pro-
posal to be just, reasonable, not unduly discrimina-
tory or preferential, and in the public interest.
‘‘(B) An existing or proposed organization
standard which is disapproved in whole or in part by
the Commission shall be remanded to the Electric
Reliability Organization for further consideration.
‘‘(C) The Commission, on its own motion or
upon complaint, may direct the Electric Reliability
Organization to develop an organization standard,
including modification to an existing organization
standard, addressing a specific matter by a date cer-
tain if the Commission considers such new or modi-
fied organization standard necessary or appropriate
to further the purposes of this section. The Electric
Reliability Organization shall file any such new or
modified organization standard in accordance with
this subsection.
‘‘(D) An affiliated regional reliability entity
may propose a variance or entity rule to the Electric
Reliability Organization. The affiliated regional reli-
ability entity may request that the Electric Reli-
ability Organization expedite consideration of the
proposal, and may file a notice of such request with
the Commission, if expedited consideration is nec-
essary to provide for bulk-power system reliability. If
the Electric Reliability Organization fails to adopt
the variance or entity rule, either in whole or in
part, the affiliated regional reliability entity may re-
quest that the Commission review such action. If the
Commission determines, after its review of such a
request, that the action of the Electric Reliability
Organization did not conform to the applicable
standards and procedures approved by the Commis-
sion, or if the Commission determines that the vari-
ance or entity rule is just, reasonable, not unduly
discriminatory or preferential, and in the public in-
terest, and that the Electric Reliability Organization
has unreasonably rejected the proposed variance or
entity rule, then the Commission may remand the
proposed variance or entity rule for further consider-
ation by the Electric Reliability Organization or may
direct the Electric Reliability Organization or the af-
filiated regional reliability entity to develop a vari-
ance or entity rule consistent with that requested by
the affiliated regional reliability entity. Any such
variance or entity rule proposed by an affiliated re-
gional reliability entity shall be submitted to the
Electric Reliability Organization for review and fil-
ing with the Commission in accordance with the pro-
cedures specified in this subsection.
‘‘(E) Notwithstanding any other provision of
this subsection, a proposed organization standard or
amendment shall take effect according to its terms
if the Electric Reliability Organization determines
that an emergency exists requiring that such pro-
posed organization standard or amendment take ef-
fect without notice or comment. The Electric Reli-
ability Organization shall notify the Commission im-
mediately following such determination and shall file
such emergency organization standard or amend-
ment with the Commission not later than 5 days fol-
lowing such determination and shall include in such
filing an explanation of the need for such emergency
standard. Subsequently, the Commission shall pro-
vide notice of the organization standard or amend-
ment for comment, and shall follow the procedures
set out in paragraphs (2) and (3) for review of the
new or modified organization standard.
‘‘(4) All users of the bulk-power system shall
comply with any organization standard that takes ef-
fect under this section.
‘‘(f) COORDINATION WITH CANADA AND MEXICO.—
The Electric Reliability Organization shall take all appro-
priate steps to gain recognition in Canada and Mexico.
The United States shall use its best efforts to enter into
international agreements with the appropriate govern-
ments of Canada and Mexico to provide for effective com-
pliance with organization standards and to provide for the
effectiveness of the Electric Reliability Organization in
carrying out its mission and responsibilities. All actions
taken by the Electric Reliability Organization, any affili-
ated regional reliability entity, and the Commission shall
be consistent with the provisions of such international
agreements.
‘‘(g) CHANGES IN PROCEDURES, GOVERNANCE, OR
FUNDING.—
‘‘(1) The Electric Reliability Organization shall
file with the Commission any proposed change in its
procedures, governance, or funding, or any changes
in the affiliated regional reliability entity’s proce-
dures, governance, or funding relating to delegated
functions, and shall include with the filing an expla-
nation of the basis and purpose for the change.
‘‘(2) A proposed procedural change may take
effect 90 days after filing with the Commission if
the change constitutes a statement of policy, prac-
tice, or interpretation with respect to the meaning or
enforcement of an existing procedure. Otherwise, a
proposed procedural change shall take effect only
upon a finding by the Commission, after notice and
opportunity for comments, that the change is just,
reasonable, not unduly discriminatory or pref-
erential, is in the public interest, and satisfies the
requirements of subsection (d)(4).
‘‘(3) A change in governance or funding shall
not take effect unless the Commission finds that the
change is just, reasonable, not unduly discriminatory
or preferential, in the public interest, and satisfies
the requirements of subsection (d)(4).
‘‘(4) The Commission, upon complaint or upon
its own motion, may require the Electric Reliability
Organization to amend the procedures, governance,
or funding if the Commission determines that the
amendment is necessary to meet the requirements of
this section. The Electric Reliability Organization
shall file the amendment in accordance with para-
graph (1) of this subsection.
‘‘(h) DELEGATIONS OF AUTHORITY.—
‘‘(1) The Electric Reliability Organization shall,
upon request by an entity, enter into an agreement
with such entity for the delegation of authority to
implement and enforce compliance with organization
standards in a specified geographic area if the orga-
nization finds that the entity requesting the delega-
tion satisfies the requirements of subparagraphs (A),
(B), (C), (D), (F), (J), and (K) of subsection (d)(4),
and if the delegation promotes the effective and effi-
cient implementation and administration of bulk-
power system reliability. The Electric Reliability Or-
ganization may enter into an agreement to delegate
to the entity any other authority, except that the
Electric Reliability Organization shall reserve the
right to set and approve standards for bulk-power
system reliability.
‘‘(2) The Electric Reliability Organization shall
file with the Commission any agreement entered into
under this subsection and any information the Com-
mission requires with respect to the affiliated re-
gional reliability entity to which authority is to be
delegated. The Commission shall approve the agree-
ment, following public notice and an opportunity for
comment, if it finds that the agreement meets the
requirements of paragraph (1), and is just, reason-
able, not unduly discriminatory or preferential, and
is in the public interest. A proposed delegation
agreement with an affiliated regional reliability enti-
ty organized on an interconnection-wide basis shall
be rebuttably presumed by the Commission to pro-
mote the effective and efficient implementation and
administration of bulk-power system reliability. No
delegation by the Electric Reliability Organization
shall be valid unless approved by the Commission.
‘‘(3)(A) A delegation agreement entered into
under this subsection shall specify the procedures for
an affiliated regional reliability entity to propose en-
tity rules or variances for review by the Electric Re-
liability Organization. With respect to any such pro-
posal that would apply on an interconnection-wide
basis, the Electric Reliability Organization shall pre-
sume such proposal valid if made by an interconnec-
tion-wide affiliated regional reliability entity unless
the Electric Reliability Organization makes a written
finding that the proposal—
‘‘(i) was not developed in a fair and open
process that provided an opportunity for all in-
terested parties to participate;
‘‘(ii) has a significant adverse impact on
reliability or commerce in other interconnec-
tions;
‘‘(iii) fails to provide a level of reliability of
the bulk-power system within the interconnec-
tion such that it would constitute a serious and
substantial threat to public health, safety, wel-
fare, or national security; or
‘‘(iv) creates a serious and substantial bur-
den on competitive markets within the inter-
connection that is not necessary for reliability.
‘‘(B) With respect to any such proposal that
would apply only to part of an interconnection, the
Electric Reliability Organization shall find such pro-
posal valid if the affiliated regional reliability entity
or entities making the proposal demonstrate that
it—
‘‘(i) was developed in a fair and open proc-
ess that provided an opportunity for all inter-
ested parties to participate;
‘‘(ii) would not have an adverse impact on
commerce that is not necessary for reliability;
‘‘(iii) provides a level of bulk-power system
reliability adequate to protect public health,
safety, welfare, and national security, and
would not have a significant adverse impact on
reliability; and
‘‘(iv) in the case of a variance, is based on
legitimate differences between regions or be-
tween subregions within the affiliated regional
reliability entity’s geographic area.
The Electric Reliability Organization shall approve
or disapprove such proposal within 120 days, or the
proposal shall be deemed approved. Following ap-
proval of any such proposal under this paragraph,
the Electric Reliability Organization shall seek Com-
mission approval pursuant to the procedures pre-
scribed under subsection (e)(3). Affiliated regional
reliability entities may not make requests for ap-
proval directly to the Commission except pursuant to
subsection (e)(3)(D).
‘‘(4) If an affiliated regional reliability entity
requests, consistent with paragraph (1) of this sub-
section, that the Electric Reliability Organization
delegate authority to it, but is unable within 180
days to reach agreement with the Electric Reliability
Organization with respect to such requested delega-
tion, such entity may seek relief from the Commis-
sion. If, following notice and opportunity for com-
ment, the Commission determines that a delegation
to the entity would meet the requirements of para-
graph (1) above, and that the delegation would be
just, reasonable, not unduly discriminatory or pref-
erential, and in the public interest, and that the
Electric Reliability Organization has unreasonably
withheld such delegation, the Commission may, by
order, direct the Electric Reliability Organization to
make such delegation.
‘‘(5)(A) The Commission may, upon its own
motion or upon complaint, and with notice to the ap-
propriate affiliated regional reliability entity or enti-
ties, direct the Electric Reliability Organization to
propose a modification to an agreement entered into
under this subsection if the Commission determines
that—
‘‘(i) the affiliated regional reliability entity
no longer has the capacity to carry out effec-
tively or efficiently its implementation or en-
forcement responsibilities under that agree-
ment, has failed to meet its obligations under
that agreement, or has violated any provision of
this section;
‘‘(ii) the rules, practices, or procedures of
the affiliated regional reliability entity no longer
provide for fair and impartial discharge of its
implementation or enforcement responsibilities
under the agreement;
‘‘(iii) the geographic boundary of a trans-
mission entity approved by the Commission is
not wholly within the boundary of an affiliated
regional reliability entity and such difference is
inconsistent with the effective and efficient im-
plementation and administration of bulk-power
system reliability; or
‘‘(iv) the agreement is inconsistent with
another delegation agreement as a result of ac-
tions taken under paragraph (4) of this sub-
section.
‘‘(B) Following an order of the Commission
issued under subparagraph (A), the Commission
may suspend the affected agreement if the Electric
Reliability Organization or the affiliated regional re-
liability entity does not propose an appropriate and
timely modification. If the agreement is suspended,
the Electric Reliability Organization shall assume
the previously delegated responsibilities. The Com-
mission shall allow the Electric Reliability Organiza-
tion and the affiliated regional reliability entity an
opportunity to appeal the suspension.
‘‘(i) ORGANIZATION MEMBERSHIP.—Every system
operator shall be required to be a member of the Electric
Reliability Organization and shall be required also to be
a member of any affiliated regional reliability entity oper-
ating under an agreement effective pursuant to subsection
(h) applicable to the region in which the system operator
operates or is responsible for the operation of bulk-power
system facilities.
‘‘(j) INJUNCTIONS AND DISCIPLINARY ACTION.—
‘‘(1) Consistent with the range of actions ap-
proved 
by 
the 
Commission 
under 
subsection
(d)(4)(H), the Electric Reliability Organization may
impose a penalty, limitation of activities, functions,
operations, or other disciplinary action the Electric
Reliability Organization finds appropriate against a
user of the bulk-power system if the Electric Reli-
ability Organization, after notice and an opportunity
for interested parties to be heard, issues a finding
in writing that the user of the bulk-power system
has violated an organization standard. The Electric
Reliability Organization shall immediately notify the
Commission of any disciplinary action imposed with
respect to an act or failure to act of a user of the
bulk-power system that affected or threatened to af-
fect bulk-power system facilities located in the
United States, and the sanctioned party shall have
the right to seek modification or rescission of such
disciplinary action by the Commission. If the organi-
zation finds it necessary to prevent a serious threat
to reliability, the organization may seek injunctive
relief in a Federal court in the district in which the
affected facilities are located.
‘‘(2) A disciplinary action taken under para-
graph (1) may take effect not earlier than the 30th
day after the Electric Reliability Organization files
with the Commission its written finding and record
of proceedings before the Electric Reliability Organi-
zation and the Commission posts its written finding,
unless the Commission, on its own motion or upon
application by the user of the bulk-power system
which is the subject of the action, suspends the ac-
tion. The action shall remain in effect or remain sus-
pended unless and until the Commission, after notice
and opportunity for hearing, affirms, sets aside,
modifies, or reinstates the action, but the Commis-
sion shall conduct such hearing under procedures es-
tablished to ensure expedited consideration of the
action taken.
‘‘(3) The Commission, on its own motion or on
complaint, may order compliance with an organiza-
tion standard and may impose a penalty, limitation
of activities, functions, or operations, or take such
other disciplinary action as the Commission finds
appropriate, against a user of the bulk-power system
with respect to actions affecting or threatening to
affect bulk-power system facilities located in the
United States if the Commission finds, after notice
and opportunity for a hearing, that the user of the
bulk-power system has violated or threatens to vio-
late an organization standard.
‘‘(4) The Commission may take such action as
is necessary against the Electric Reliability Organi-
zation or an affiliated regional reliability entity to
assure compliance with an organization standard, or
any Commission order affecting the Electric Reli-
ability Organization or an affiliated regional reli-
ability entity.
‘‘(k) RELIABILITY REPORTS.—The Electric Reli-
ability Organization shall conduct periodic assessments of
the reliability and adequacy of the interconnected bulk-
power system in North America and shall report annually
to the Secretary of Energy and the Commission its find-
ings and recommendations for monitoring or improving
system reliability and adequacy.
‘‘(l) ASSESSMENT
AND
RECOVERY
OF
CERTAIN
COSTS.—The reasonable costs of the Electric Reliability
Organization, and the reasonable costs of each affiliated
regional reliability entity that are related to implementa-
tion and enforcement of organization standards or other
requirements contained in a delegation agreement ap-
proved under subsection (h), shall be assessed by the Elec-
tric Reliability Organization and each affiliated regional
reliability entity, respectively, taking into account the rela-
tionship of costs to each region and based on an allocation
that reflects an equitable sharing of the costs among all
end users. The Commission shall provide by rule for the
review of such costs and allocations, pursuant to the
standards in this subsection and subsection (d)(4)(F).
‘‘(m) SAVINGS PROVISIONS.—
‘‘(1) The Electric Reliability Organization shall
have authority to develop, implement and enforce
compliance with standards for the reliable operation
of only the Bulk Power System.
‘‘(2) This section does not provide the Electric
Reliability Organization or the Commission with the
authority to set and enforce compliance with stand-
ards 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 ac-
tion is not inconsistent with any Organization
Standard.
‘‘(4) Within 90 days of the application of the
Electric Reliability Organization or other affected
party, the Commission shall issue a final order de-
termining whether a state action is inconsistent with
an Organization Standard, after notice and oppor-
tunity for comment, taking into consideration any
recommendations of the Electric Reliability Organi-
zation.
‘‘(5) The Commission, after consultation with
the Electric Reliability Organization, may stay the
effectiveness of any state action, pending the Com-
mission’s issuance of a final order.
‘‘(n) REGIONAL ADVISORY BODIES.—The Commis-
sion shall establish a regional advisory body on the petition
of at least two-thirds of the States within a region that
have more than one-half of their electric loan served within
the region. A regional advisory body shall be composed of
1 member from each participating State in the region, ap-
pointed by the Governor of each State, and may include
representatives of agencies, States, and provinces outside
the United States, upon execution of an international
agreement or agreements described in subsection (f). A
regional advisory body may provide advice to the electric
reliability organization, an affiliated regional reliability en-
tity, or the Commission regarding the governance of an
existing or proposed affiliated regional reliability entity
within the same region, whether an organization standard,
entity rule, or variance proposed to apply within the region
is just, reasonable, not unduly discriminatory or pref-
erential, and in the public interest, and whether fees pro-
posed to be assessed within the region are just, reasonable,
not unduly discriminatory or preferential, in the public in-
terest, and consistent with the requirements of subsection
(l). The Commission may give deference to the advice of
any such regional advisory body if that body is organized
on an interconnection-wide basis.
‘‘(o) COORDINATION WITH REGIONAL TRANSMISSION
ORGANIZATIONS.—
‘‘(1) Each regional transmission organization
authorized by the Commission shall be responsible
for maintaining the short-term reliability of the
bulk-power system that it operates, consistent with
organization standards.
‘‘(2) Except as provided in paragraph (5), in
connection with a proceeding under subsection (e) to
consider a proposed organization standard, each re-
gional transmission organization authorized by the
Commission shall report to the Commission, and no-
tify the electric reliability organization and any ap-
plicable affiliated regional reliability entity, regard-
ing whether the proposed organization standard
hinders or conflicts with that regional transmission
organization’s ability to fulfill the requirements of
any Commission-accepted, approved, or ordered rule,
regulation, order, tariff, rate schedule, or agreement.
Where such hindrance or conflict is identified, the
Commission shall address such hindrance or conflict,
and the need for any changes to such Commission-
accepted, approved, or ordered rule, order, tariff,
rate schedule, or agreement in its order under sub-
section (e) regarding the proposed standard. Where
such hindrance or conflict is identified between a
proposed organization standard and a provision of
any rule, order, tariff, rate schedule or agreement
accepted, approved or ordered by the Commission
applicable to a regional transmission organization,
nothing in this section shall require a change in the
regional transmission organization’s obligation to
comply with such provision unless the Commission
orders such a change and the change becomes effec-
tive. If the Commission finds that the tariff, rate
schedule, or agreement needs to be changed, the re-
gional transmission organization must expeditiously
make a section 205 filing to reflect the change. If
the Commission finds that the proposed organization
standard needs to be changed, it shall remand the
proposed organization standard to the electric reli-
ability organization under subsection (e)(3)(B).
‘‘(3) Except as provided in paragraph (5), to
the extent hindrances and conflicts arise after ap-
proval of a reliability standard under subsection (c)
or organization standard under subsection (e), each
regional transmission organization authorized by the
Commission shall report to the Commission, and no-
tify the electric reliability organization and any ap-
plicable affiliated regional reliability entity, regard-
ing any reliability standard approved under sub-
section (c) or organization standard that hinders or
conflicts with that regional transmission organiza-
tion’s ability to fulfill the requirements of any Com-
mission-accepted, approved, or ordered rule, regula-
tion, order, tariff, rate schedule, or agreement. The
Commission shall seek to assure that such hin-
drances or conflicts are resolved promptly. Where a
hindrance or conflict is identified between a reli-
ability standard or an organization standard and a
provision of any rule, order, tariff, rate schedule or
agreement accepted, approved or ordered by the
Commission applicable to a regional transmission or-
ganization, nothing in this section shall require a
change in the regional transmission organization’s
obligation to comply with such provision unless the
Commission orders such a change and the change
becomes effective. If the Commission finds that the
tariff, rate schedule or agreement needs to be
changed, the regional transmission organization
must expeditiously make a section 205 filing to re-
flect the change. If the Commission finds that an or-
ganization standard needs to be changed, it shall
order the electric reliability organization to develop
and submit a modified organization standard under
subsection (e)(3)(C).
‘‘(4) An affiliated regional reliability entity and
a regional transmission organization operating in the
same geographic area shall cooperate to avoid con-
flicts between implementation and enforcement of
organization standards by the affiliated regional reli-
ability entity and implementation and enforcement
of Commission-accepted tariffs, rate schedules, and
agreements by the regional transmission organiza-
tion. In areas without an affiliated regional reli-
ability entity, the electric reliability organization
shall act as the affiliated regional reliability entity
for purposes of this paragraph.
‘‘(5) Until 6 months after approval of applica-
ble subsection (h)(3) procedures, any reliability
standard, guidance, or practice contained in Com-
mission-accepted tariffs, rate schedules, or agree-
ments in effect of any Commission-authorized inde-
pendent system operator or regional transmission or-
ganization shall continue to apply unless the Com-
mission accepts an amendment thereto by the appli-
cable operator or organization, or upon complaint
finds them to be unjust, unreasonable, unduly dis-
criminatory or preferential, or not in the public in-
terest. At the conclusion of such transition period,
any such reliability standard, guidance, practice, or
amendment thereto that the Commission determines
is inconsistent with organization standards shall no
longer apply.’’.
(2) ENFORCEMENT.—Sections 316 and 316A of
the Federal Power Act are each amended by striking
‘‘or 214’’ each place it appears and inserting ‘‘214,
or 215’’.
(b) APPLICATION OF ANTITRUST LAWS.—Notwith-
standing any other provision of law, each of the following
activities are rebuttably presumed to be in compliance with
the antitrust laws of the United States:
(1) Activities undertaken by the Electric Reli-
ability Organization under section 215 of the Fed-
eral Power Act or affiliated regional reliability entity
operating under an agreement in effect under sec-
tion 215(h) of such Act.
(2) Activities of a member of the Electric Reli-
ability Organization or affiliated regional reliability
entity in pursuit of organization objectives under
section 215 of the Federal Power Act undertaken in
good faith under the rules of the organization.
Primary jurisdiction, and immunities and other affirma-
tive defenses, shall be available to the extent otherwise ap-
plicable.
SEC. 5. DISPOSITION OF PROPERTY.
Section 203 of the Federal Power Act (16 U.S.C.
824b) is repealed.
SEC. 6. PROMOTION OF VOLUNTARY DEVELOPMENT OF RE-
GIONAL TRANSMISSION ORGANIZATIONS.
Part II of the Federal Power Act is amended by in-
serting at the end thereof the following new section:
‘‘SEC. 217. PROMOTION OF VOLUNTARY DEVELOPMENT OF
REGIONAL TRANSMISSION ORGANIZATIONS.
‘‘(a) IN GENERAL.—The Commission may approve
and may encourage the formation of regional transmission
organizations for the purpose of enhancing the trans-
mission of electric energy in interstate commerce. Among
options for the formation of regional transmission organi-
zations, the Commission shall prefer those in which—
‘‘(1) participation in the regional transmission
organization by transmitting utilities is voluntary;
‘‘(2) the form, structure, and operating entity
of the regional transmission organization are ap-
proved of by participating transmitting utilities; and
‘‘(3) market incentives exist to promote invest-
ment for expansion of transmission facilities and for
the introduction of new transmission technologies
within the territory of the regional transmission or-
ganization.
‘‘(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 regional trans-
mission 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 regional trans-
mission organization that the regional transmission orga-
nization makes available to other load serving entities shall
be entitled to file a complaint with the Commission con-
cerning 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, unreason-
able, unduly discriminatory or preferential, or contrary to
the public interest, the Commission may order the provi-
sion of such services at rates and on terms and conditions
that shall be in accordance with section 215 of this Act.’’.
SEC. 7. STATE AND FEDERAL AUTHORITY TO SITE TRANS-
MISSION FACILITIES.
Part II of the Federal Power Act is amended by in-
serting at the end thereof the following new section:
‘‘SEC. 218. STATE AND FEDERAL AUTHORITY TO SITE
TRANSMISSION FACILITIES.
‘‘(a) In order to ensure the availability of adequate
capacity to provide for reliable, economic transmission of
electric energy in interstate commerce, upon enactment of
this section, and after notice and opportunity for com-
ment, the Commission shall publish a report, which it shall
revise each year thereafter, describing areas where addi-
tional facilities are necessary to increase electric trans-
mission capacity. The report shall include information
from the regional transmission organization planning
processes explaining the feasibility of providing additional
transmission capacity through existing transmission rights
of way, and shall assess efforts to promote adequate and
economically efficient transmission of electricity through
the introduction of new transmission technologies, and to
encourage investment in new and existing transmission fa-
cilities. The Commission shall rely upon information pro-
vided by regional transmission organizations developed in
conjunction with States through regional transmission or-
ganization planning processes, information provided by
State public utility commissions, and such other informa-
tion about transmission constraints, reliability, and prices
of electric energy as the Commission deems appropriate.
In the report, the Commission shall review the status of
facilities for which an application has been submitted pur-
suant to subsection (b).
‘‘(b) A regional transmission organization which has
submitted an application to a State or local agency for
approval of transmission facilities to provide additional
transmission capacity in an area identified in the report
required by subsection (a) shall notify the Commission by
providing a copy of the application, including a description
of the facilities and the proposed route. The regional
transmission organization shall submit to the Commission
with a copy of the application a statement assessing the
feasibility of upgrading existing transmission facilities to
provide additional capacity in an area identified in the re-
port required by subsection (a).
‘‘(c) If a regional transmission organization has not
received approval of its application to the State to con-
struct transmission facilities in an area identified in the
report required by subsection (a) within one year of the
notice to the Commission pursuant to subsection (b), or
within two years of such notice has not received all permits
and approvals required to construct the facilities, the
Commission may, after considering the feasibility of up-
grading existing facilities to increase electric transmission
capacity, upon its own motion or upon request, and after
notice and opportunity for hearing, issue a certificate of
public convenience and necessity to construct a proposed
transmission facility if it finds the facilities to be author-
ized by the certificate are or will be required by public
convenience and necessity.
‘‘(d) The Commission shall have the power to attach
to the issuance of such certificate and to the exercise of
the rights granted thereunder such reasonable terms and
conditions related to the construction of such facility as
the public convenience and necessity may require; pro-
vided, that the Commission shall have no authority to
compel the construction, enlargement or modification of
transmission facilities directly or indirectly, including as
a condition of the receipt of any other approval from the
Commission.
‘‘(e) The Commission shall issue its final decision in
the certificate proceeding within 180 days after the filing
of a request for a certificate or the initiation of pro-
ceedings on its own motion.
‘‘(f) When any holder of a certificate of public con-
venience and necessity for electric transmission facilities
issued by the Commission pursuant to subsection (c) can-
not acquire by contract, or is unable to agree with the
owner of the property to the compensation to be paid for
the necessary rights-of-way to construct, operate and
maintain such transmission facility, it may acquire the
same by the exercise of the right of eminent domain in
the district court of the United States for the district in
which such property may be located, or in the State
courts.’’.
SEC. 8. PUBLIC UTILITY HOLDING COMPANY ACT EXEMP-
TION FOR RTOS.
The Public Utility Holding Company Act is amended
as follows:
(1) After section 35, insert the following:
‘‘SEC. 36. SAVINGS CLAUSE.
‘‘This Act shall not apply to regional transmission or-
ganizations, as described in Federal Energy Regulatory
Commission Order No. 2000 and 2000A, or to any action
to form, modify, finance, sell, purchase, operate, or other-
wise affect such an organization.’’.
(2) Renumber existing section 36 as section 37.
SEC. 9. INDEPENDENT TRANSMISSION COMPANIES.
(a) IN GENERAL.—Section 1033 of the Internal Rev-
enue Code of 1986 (relating to involuntary conversions)
is amended by redesignating subsection (k) as subsection
(l) and by inserting after subsection (j) the following new
subsection:
‘‘(k) SALES OR DISPOSITIONS TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE
ELECTRIC RESTRUCTURING POLICY.—
in such authorization, but not later than
the close of the period applicable under
subsection (a)(2)(B) as extended under
paragraph (2), or
‘‘(C) in the case of facilities subject to the
exclusive jurisdiction of the Public Utility Com-
mission of Texas, a person which is approved by
that Commission as consistent with Texas State
law regarding an independent transmission or-
ganization.
‘‘(5) EXEMPT
UTILITY
PROPERTY.—For pur-
poses of this subsection—
‘‘(A) IN
GENERAL.—The term ‘exempt
utility property’ means property used in the
trade or business of—
‘‘(i) generating, transmitting, distrib-
uting, or selling electricity, or
‘‘(ii) producing, transmitting, distrib-
uting, or selling natural gas.
‘‘(B) NONRECOGNITION OF GAIN BY REA-
SON OF ACQUISITION OF STOCK.—Acquisition of
control of a corporation shall be taken into ac-
count under this section with respect to a quali-
fying electric transmission transaction only if
the principal trade or business of such corpora-
tion is a trade or business referred to in sub-
paragraph (A).
‘‘(6) 
SPECIAL
RULE
FOR
CONSOLIDATED
GROUPS.—In the case of a corporation which is a
member of an affiliated group filing a consolidated
return, such corporation shall be treated as satis-
fying the purchase requirement of subsection (a)(2)
with respect to any qualifying electric transmission
transaction engaged in by such corporation to the
extent such requirement is satisfied by another
member of such group.
‘‘(7) ELECTION.—An election under paragraph
(1), once made, shall be irrevocable.’’
(b) EXCEPTION FROM GAIN RECOGNITION UNDER
SECTION 1245.—Subsection (b) of section 1245 of such
Code is amended by adding at the end the following new
paragraph:
‘‘(9) DISPOSITIONS
TO
IMPLEMENT
FEDERAL
ENERGY REGULATORY COMMISSION OR STATE ELEC-
TRIC RESTRUCTURING POLICY.—At the election of
the taxpayer, the amount of gain which would (but
for this paragraph) be recognized under this section
on any qualified electric transmission transaction (as
defined in section 1033(k)) for which an election
under section 1033 is made shall be reduced by the
aggregate reduction in the basis of section 1245
property held by the taxpayer or, if insufficient, by
a member of an affiliated group which includes the
taxpayer at any time during the taxable year in
which such transaction occurred. The manner and
amount of such reduction shall be determined under
regulations prescribed by the Secretary.’’
(c) EFFECTIVE DATE.—The amendments made by
subsections (a) and (b) of this section shall apply to trans-
actions occurring after the date of the enactment of this
Act.
(d) DISTRIBUTIONS OF STOCK TO IMPLEMENT FED-
ERAL ENERGY REGULATORY COMMISSION
OR STATE
ELECTRIC RESTRUCTURING POLICY.—
(1) IN GENERAL.—Subparagraph (A) of section
355(e)(3) of such Code (relating to special rules re-
lating to acquisitions) is amended by inserting after
clause (iv) the following new clause:
‘‘(v) The acquisition of stock in any
controlled corporation in a qualifying elec-
tric transmission transaction (as defined in
section 1033(k)).’’.
(2) EFFECTIVE DATE.—The amendment made
by paragraph (1) shall apply to distributions after
the date of the enactment of this Act.
Æ