Energy Policy Act of 2005, P.L. 109-58: Electricity Provisions
Released: 2006-01-24T00:00:00

Introduction

The Energy Policy Act of 2005 ( P.L. 109-58 ), signed by President Bush on August 8, 2005,was the first omnibus energy legislation enacted in more than a decade. Major provisions include taxincentives for domestic energy production and energy efficiency, a mandate to double the nation'suse of biofuels, faster procedures for energy production on federal lands, and authorization ofnumerous federal energy research and development programs. This report describes the electricityprovisions.

Title XII -- Electricity

Sec. 1201. Short title. This title may be cited asthe "Electric Reliability Act of 2005."

Subtitle A -- Reliability Standards

Summary of Provisions. This subtitle is intendedto provide federal jurisdiction over activities that are required to support reliability of the U.S. bulkpower system. Clarifying the Federal Energy Regulatory Commission's (FERC) authority toestablish and regulate an electric reliability organization (ERO) is intended to improve reliability asrestructuring of the U.S. bulk power system proceeds.

Electric Reliability Standards (Sec. 1211). Thissection requires FERC to promulgate rules within 180 days of enactment to create a FERC-certifiedERO. The North American Electric Reliability Council (NERC) currently has responsibility forreliability of the bulk power system. NERC has established reliability guidelines but has noenforcement authority. Before enactment of P.L. 109-58 , the Federal Power Act (1) gave FERC jurisdiction overunbundled transmission and authority to regulate wholesale rates; however, no authority wasprovided to regulate reliability. Under this section, the ERO will develop and enforce reliabilitystandards for the bulk power system, including cybersecurity protection. All ERO standards will beapproved by FERC. Under this title, the ERO can impose penalties on a user, owner, or operator ofa bulk power system that violates any FERC-approved reliability standard. In addition, FERC canorder compliance with a reliability standard and can impose a penalty if FERC finds that a user,owner, or operator of a bulk power system has engaged in or is about to engage in a violation of areliability standard. This provision does not give an ERO or FERC authorization to orderconstruction of additional generation or transmission capacity.

This provision also requires that FERC establish a regional advisory body if requested by atleast two-thirds of the states within a region that have more than half of their electric load servedwithin that region. The advisory body will be composed of one member from each participating statein the region, appointed by the governor of each state, and is able to provide advice to the ERO orFERC on reliability standards, proposed regional entities, proposed fees, and any otherresponsibilities requested by FERC. The entire reliability provision does not apply to Alaska orHawaii. The state of New York is authorized to develop rules that would result in greater reliabilityfor New York, as long as those rules do not result in lower reliability for neighboring states.

If the penalties employed by the ERO are not successful, then FERC has the authority toenforce penalties for entities that do not comply with reliability standards. Establishing this newrelationship between FERC and the ERO could have the potential to improve coordination betweenmarket functions and reliability functions.

Subtitle B -- Transmission Infrastructure Modernization

Siting of Interstate Electric Transmission Facilities (Sec.1221). The Secretary of Energy is required to conduct a study of electrictransmission congestion every three years. Based on the findings, the Secretary of Energy maydesignate a geographic area as being congested. Under certain conditions, FERC is authorized toissue construction permits. Under new Section 216(d) of the Federal Power Act (FPA), affectedstates, federal agencies, Indian tribes, property owners, and other interested parties will have anopportunity to present their views and recommendations with respect to the need for, and impact of,a proposed construction permit. However, there is no requirement for a specific comment period. New FPA Section 216(e) will allow permit holders to petition in U.S. District Court to acquirerights-of-way through the exercise of the right of eminent domain. Any exercise of eminent domainauthority would be considered to be takings of private property for which just compensation is due. New FPA Section 216(g) does not state whether property owners would be required to reimbursecompensation if the rights-of-way were transferred back to the owner.

An applicant for federal authorization to site transmission facilities on federal lands couldrequest that the Department of Energy be the lead agency to coordinate environmental review andother federal authorization. Once a completed application is submitted, all related environmentalreviews are required to be completed within one year unless another federal law makes thatimpossible. FPA Section 216(h) gives the Department of Energy (DOE) new authority to prepareenvironmental documents and appears to give DOE additional decision-making authority forrights-of-way and siting on federal lands. This would appear to give DOE input into the decisionprocess for creating rights-of-way. Review under Section 503 of the Federal Land Policy andManagement Act (2) couldbe streamlined by relying on prior analyses. If a federal agency has denied an authorization requiredby a transmission or distribution facility, the denial could be appealed by the applicant or relevantstate to the President. The President is required to issue a decision within 90 days of the appeal'sfiling. With congressional approval, states may enter into interstate compacts for the purposes ofsiting transmission facilities and the Secretary of Energy could provide technical assistance. Thissection does not apply to the Electric Reliability Council of Texas (ERCOT).

Third-Party Finance (Sec. 1222). The WesternArea Power Administration (WAPA) and the Southwestern Power Administration (SWPA) are ableeither to continue to design, develop, construct, operate, maintain, or own transmission facilitieswithin their regions or to participate with other entities for the same purposes if the Secretary ofEnergy designates the area as a National Interest Electric Transmission Corridor and if the facilitywill reduce congestion or is needed to accommodate projected increases in demand for transmissioncapacity. The project is required to be consistent with the needs identified by the appropriateRegional Transmission Organization or Independent System Operator. Under certain circumstances,the Secretary of Energy, acting through WAPA and/or SWPA, may design, develop, construct,operate, maintain, or own an electric power transmission facility in the WAPA and SWPA region. No more than $100 million from third-party financing may be used during fiscal years 2006 through2015. Before enactment, the enabling statutes for power marketing administrations could haverestricted third-party financing, construction, operation, and maintenance of transmissionfacilities. (3)

Advanced Transmission Technologies (Sec.1223). FERC is directed to encourage deployment of advanced transmissiontechnologies.

Advanced Power System Technology Incentive Program (Sec.1224). A program is established to provide incentive payments to owners oroperators of advanced power generation systems. Subject to the availability of funds, 1.8 cents perkilowatt-hour will be paid to the owner or operator of a qualifying advanced power systemtechnology facility. For facilities that the Secretary of Homeland Security and the Secretary ofEnergy determine are "qualifying security and assured power facilities," an additional 0.7 cents perkilowatt-hour will be paid to the owner or operator of such a facility. Under the incentive program,the first 10,000,000 kilowatt-hours produced in any facility in a fiscal year are eligible for theincentives. Eligible systems include advanced fuel cells, turbines, or hybrid power systems. ForFY2006 through FY2012, an annual appropriation of $10 million is authorized.

Subtitle C -- Transmission Operation Improvements

Open Nondiscriminatory Access (Sec. 1231). FERC is authorized to require, by rule or order, unregulated transmitting utilities (power marketingadministrations, state entities, and rural electric cooperatives) to charge rates comparable to whatthey charge themselves and require that the terms and conditions of the sales be comparable to thoserequired of other utilities. Before enactment of P.L. 109-58 , under the Federal Power Act (Section201(f)), federal power marketing administrations, state entities, and rural electric cooperatives werenot subject to FERC's rate-making. Under this provision, exemptions are established for utilitiesselling less than 4 million megawatt-hours of electricity per year, for distribution utilities, and forutilities that own or operate transmission facilities that are not necessary to facilitate a nationwideinterconnected transmission system. This exemption can be revoked to maintain transmission systemreliability. FERC is not authorized to order states or municipalities to take action under this sectionif such action would constitute a private use under Section 141 of the Internal Revenue Code of1986. FERC may remand transmission rates to an unregulated transmitting utility if the rates do notcomply with this section. FERC is not authorized to order an unregulated transmitting utility to joina Regional Transmission Organization or other FERC-approved independent transmissionorganization. (This section is often referred to as "FERC-lite.")

Federal Utility Participation in Regional TransmissionOrganizations (Sec. 1232). Federal utilities (power marketing administrations orthe Tennessee Valley Authority) are authorized to participate in regional transmission organizations.A law allowing federal utilities to study formation and operation of a regional transmissionorganization is repealed (16 U.S.C. 824n).

Native Load Service Obligation (Sec. 1233). Thissection amends the Federal Power Act to clarify that a load-serving entity is entitled to use itstransmission facilities or firm transmission rights to serve its existing customers before it is obligatedto make its transmission capacity available for other uses. FERC is not able to change any approvedallocation of transmission rights by an Regional Transmission Organization (RTO) or IndependentSystem Operator (ISO) approved prior to January 1, 2005. A government entity that ownstransmission facilities used predominantly to support its own water pumping facilities is providedprotections for transmission service to such facilities comparable to protections provided toload-serving entities. This section does not apply to ERCOT and does apply to load-serving entitieslocated within the service area of the Tennessee Valley Authority. Within one year of enactment,FERC is required to issue a rule or order on long-term transmission rights and organized markets.

Section 201 of the Federal Power Act gives FERC jurisdiction over "the transmission ofelectric energy in interstate commerce and the sale of such energy at wholesale in interstatecommerce." Section 205 of the Federal Power Act prohibits utilities from granting "undue preferenceor advantage to any person or subject any person to any undue prejudice or disadvantage" (16 U.S.C.824). The new language of this section is intended to clarify that reserving transmission for existingcustomers (native load) is not considered unduly discriminatory.

Study on the Benefits of Economic Dispatch (Sec.1234). The Secretary of Energy, in consultation with the states, is required to issuean annual report to Congress and the states on the current status of economic dispatch. Economicdispatch is defined as "the operation of generation facilities to produce energy at the lowest cost toreliably serve consumers, recognizing any operational limits of generation and transmissionfacilities."

Protection of Transmission Contracts in the Pacific Northwest(Sec. 1235). FERC does not have the authority to require electric utilities in thePacific Northwest to convert firm transmission rights to tradable or financial rights. The area of thePacific Northwest is the region defined in Section 3 of the Pacific Northwest Electric PowerPlanning and Conservation Act (16 U.S.C.839a) or a portion of a state included in the geographicarea proposed for a Regional Transmission Organization in FERC Docket No. RT01-35.

Sense of Congress Regarding Locational Installed CapacityMechanism (Sec. 1236). It is the sense of Congress that FERC should carefullyconsider the objections of the states to a proposed locational installed capacity mechanism in NewEngland. The objections include that a locational installed capacity mechanism would not provideadequate assurance that necessary electric generation capacity or reliability will be provided and itwould impose a high cost on consumers.

Subtitle D -- Transmission Rate Reform

Transmission Infrastructure Investment (Sec.1241). Within one year of enactment, FERC is required to establish a rule to createincentive-based, including performance-based, transmission rates. The rule is to promote reliable andeconomically efficient electric transmission and generation, provide for a return on equity thatattracts new investment in transmission, encourage use of technologies that increase the transfercapacity of existing transmission facilities, and allow for the recovery of all prudently incurred coststhat are necessary to comply with mandatory reliability standards and those that would result fromtransmission siting and construction on a National Interest Electric Transmission Corridor. FERCis directed to implement incentive rate-making for utilities that join a Regional TransmissionOrganization.

Funding New Interconnection and Transmission Upgrades (Sec.1242). FERC may approve a participant funding plan for new transmission or fornew generator interconnection if the plan results in rates that are just and reasonable, not undulydiscriminatory or preferential, and otherwise consistent with sections 205 and 206 of the FederalPower Act.

Subtitle E -- Amendments to the Public Utility Regulatory Policies Act (PURPA)(4)

Net Metering and Additional Standards (Sec.1251). For states that have not considered implementation and adoption of netmetering standards, within two years of enactment, state regulatory authorities are required to beginconsidering whether to implement net metering. This process must be completed within three yearsof enactment. Net metering service is defined as service to an electric consumer under which electricenergy generated by that electric consumer from an eligible on-site generating facility (e.g., solar orsmall generator) and delivered to local distribution facilities may be used to offset electric energyprovided by the electric utility to the electric consumer during the applicable billing period. Duringthe same time frame, states must consider whether to implement a standard to require electricutilities to develop a plan to minimize dependence on one fuel source. In addition, states mustconsider whether to implement a requirement that electric utilities develop and implement a 10-yearplan to increase the efficiency of fossil fuel generation.

Smart Metering (Sec. 1252). For states that havenot considered implementation and adoption of a smart metering standard, state regulatoryauthorities are required issue a decision within 18 months of enactment on whether to implement astandard for time-based rate schedules for electric utility customers. Customers using time-based rateschedules must be provided with a time-based meter capable of allowing utility customer to receivethe time-based rate. This section amends the Public Utility Regulatory Policies Act of 1978 (5) (PURPA) and requires theSecretary of Energy to provide consumer education on advanced metering and communicationstechnologies, to identify and address barriers to adoption of demand response programs, and to issuea report to Congress not later than 180 days after enactment that identifies and quantifies the benefitsof demand response. The Secretary of Energy must provide technical assistance to regionalorganizations to identify demand response potential and to develop demand response programs torespond to peak demand or emergency needs. FERC is directed to issue an annual report, by region,to assess demand response resources.

Cogeneration and Small Power Production Purchase and SaleRequirements (Sec. 1253). Section 210 of PURPA required utilities to purchasepower from qualifying facilities and small power producers at a rate based on the utilities' avoidedcost, the cost they would have incurred to generate the additional power themselves, as determinedby utility regulators. (6) Thissection repeals the mandatory purchase requirement under Section 210 of PURPA for new contractsif FERC finds that a competitive electricity market exists and a qualifying facility has access toindependently administered, auction-based, day-ahead, real-time wholesale markets and long-termwholesale markets. Qualifying facilities also need to have access to transmission andinterconnection services provided by a FERC-approved regional transmission entity that providesnondiscriminatory treatment for all customers. Ownership limitations under PURPA are repealed.

Background and Analysis. The oil embargoes of the1970s created concerns about the security of the nation's electricity supply and led to enactment ofthe Public Utility Regulatory Policies Act of 1978. For the first time, utilities were required topurchase power from outside sources, or "qualifying facilities." The purchase price was set at theutilities' avoided cost. PURPA was established in part to augment electric utility generation withmore efficiently produced electricity and to provide equitable rates to electric consumers.

In addition to PURPA, the Fuel Use Act of 1978 (FUA) helped qualifying facilities (QFs)become established. (7) Under FUA, utilities were not permitted to use natural gas to fuel new generating facilities. QFs,which are by definition not utilities, were able to take advantage of then-abundant natural gas as wellas new generating technology, such as combined-cycle plants that use hot gases from combustionturbines to generate additional power. These technologies lowered the financial threshold forentrance into the electricity generation business and shortened the lead time for constructing newplants. FUA was repealed in 1987, but by that time, QFs and small power producers had gained aportion of the total electricity supply.

This influx of QF power challenged the cost-based rates that previously guided wholesaletransactions. Before implementation of PURPA, FERC approved wholesale interstate electricitytransactions based on the seller's costs to generate and transmit the power. Because nonutilitygenerators typically do not have enough market power to influence the rates they charge, FERCbegan approving certain wholesale transactions whose rates were a result of a competitive biddingprocess. These rates are called market-based rates.

This first incremental change to traditional electricity regulation started a movement towarda market-oriented approach to electricity supply. Following the enactment of PURPA, two basicissues stimulated calls for further change: whether to encourage nonutility generation and whetherto permit utilities to diversify into nonregulated activities.

The Energy Policy Act of 1992 (EPACT) (8) removed several regulatory barriers for entry into electricitygeneration to increase competition of electricity supply. However, EPACT does not permit FERCto mandate that utilities transmit exempt wholesale generator (EWG) power to retail consumers(commonly called "retail wheeling" or "retail competition"), an activity that remains under thejurisdiction of state public utility commissions. PURPA began to shift more regulatoryresponsibilities to the federal government, and EPACT continued that shift away from the states bycreating new options for utilities and regulators to meet electricity demand.

Proponents of the PURPA repeal -- primarily investor-owned utilities (IOUs) located in theNortheast and in California -- argued that their state regulators' "misguided" implementation ofPURPA in the early 1980s had forced them to pay contractually high prices for power they did notneed. They argued that, given the current environment for cost-conscious competition, PURPA wasoutdated. Investor-owned utility interests strongly supported the repeal of Section 210 of PURPA,contending that PURPA's mandatory purchase obligation was anticompetitive andanticonsumer. (9)

Opponents of mandatory purchase requirement repeal (independent power producers,industrial power customers, most segments of the natural gas industry, the renewable energyindustry, and environmental groups) had many reasons to support PURPA as it stood. Mainly, theirargument was that PURPA introduced competition in the electric generating sector and, at the sametime, helped promote wider use of cleaner, alternative fuels to generate electricity. Since theelectric-generating sector is not yet fully competitive, they argued, repealing PURPA would decreasecompetition and impede the development of the renewable energy industry. Additionally, opponentsof the PURPA repeal argued that it would result in less competition and greater utility monopolycontrol over the electric industry. Some state regulators had expressed concern that repealingSection 210 would prevent them from deciding matters currently under their jurisdiction.

Interconnection (Sec. 1254). Each stateregulatory authority, if it has not already done so, and each nonregulated utility must considerestablishing an interconnection standard for on-site generating facilities that request to be connectedto the local distribution facilities. Interconnection services will be offered according to the Instituteof Electrical and Electronics Engineers (IEEE) Standard 1547 for Interconnecting DistributedResources with Electric Power Systems. Consideration of the standard is to commence not later thanone year after enactment and be completed not later than two years after the date of enactment.

Subtitle F -- Repeal of the Public Utility Holding Company Act of 1935 (PUHCA)(10)

Short Title (Sec. 1261). This subtitle is to becited as the "Public Utility Holding Company Act of 2005."

Definitions (Sec. 1262). This section establishesdefinitions for the following terms: affiliate, associate company, commission, company, electricutility company, exempt wholesale generator and foreign utility company, gas utility company,holding company, holding company system, jurisdictional rates, natural gas company, person, publicutility, public-utility company, state commission, subsidiary company, and voting security.

Repeal of the Public Utility Holding Company Act of 1935 (Sec.1263). The Public Utility Holding Company Act of 1935 (PUHCA) is repealed.

Background and Analysis. In general, PUHCA setforth the structure of holding companies by prohibiting all holding companies that were more thantwice removed from the operating subsidiaries. It also federally regulated holding companies ofinvestor-owned utilities and provided for Securities and Exchange Commission (SEC) regulationof mergers and diversification proposals. Registered holding companies of subsidiaries wererequired to have SEC approval prior to issuing securities; all loans in intercompany financialtransactions were regulated by the SEC. A holding company could have been exempt from PUHCAif its business operations and those of its subsidiaries occurred within one state or with a contiguousstate.

Historically, electricity service was defined as a natural monopoly, meaning that the industryhas (1) an inherent tendency toward declining long-term costs, (2) high threshold investment, and(3) technological conditions that limit the number of potential entrants. In addition, many regulatorshave considered unified control of generation, transmission, and distribution as the most efficientmeans of providing service. As a result, most people (about 75%) are currently served by a verticallyintegrated, investor-owned utility.

As the electric utility industry has evolved, however, there has been a growing belief that thehistoric classification of electric utilities as natural monopolies has been overtaken by events and thatmarket forces can and should replace some of the traditional economic regulatory structure. Forexample, the existence of utilities that do not own all of their generating facilities, primarilycooperatives and publicly owned utilities, has provided evidence that vertical integration has notbeen necessary for providing efficient electric service. Moreover, recent changes in electric utilityregulation and improved technologies have allowed additional generating capacity to be providedby independent firms rather than utilities.

The Public Utility Holding Company Act and the Federal Power Act of 1935 (Title I andTitle II of the Public Utility Act) established a regime of regulating electric utilities that gave specificand separate powers to the states and the federal government. A regulatory bargain was madebetween the government and utilities. In exchange for an exclusive franchise service territory,utilities must provide electricity to all users at reasonable, regulated rates.

State regulatory commissions address intrastate utility activities, including wholesale andretail rate-making. State authority currently tends to be as broad and as varied as the states arediverse. At the least, a state public utility commission will have authority over retail rates, and oftenover investment and debt. At the other end of the spectrum, the state regulatory body will overseemany facets of utility operation. Despite this diversity, the essential mission of the state regulatorin states that have not restructured is the establishment of retail electric prices. This is accomplishedthrough an adversarial hearing process. The central issues in such cases are the total amount ofmoney the utility will be permitted to collect and how the burden of the revenue requirement willbe distributed among the various customer classes (residential, commercial, and industrial).

Under the FPA, federal economic regulation addresses wholesale transactions and rates forelectric power flowing in interstate commerce. Federal regulation follows state regulation and ispremised on the need to fill the regulatory vacuum resulting from the constitutional inability of statesto regulate interstate commerce. In this bifurcation of regulatory jurisdiction, federal regulation islimited and conceived to supplement state regulation. FERC has the principal functions at thefederal level for the economic regulation of the electric utility industry, including financialtransactions, wholesale rate regulation, transactions involving transmission of unbundled retailelectricity, interconnection and wheeling of wholesale electricity, and ensuring adequate and reliableservice. Before enactment of P.L. 109-58 , in order to prevent a recurrence of the abusive practicesof the 1920s (e.g., cross-subsidization, self-dealing, pyramiding), SEC regulated utilities' corporatestructure and business ventures under PUHCA.

The electric utility industry has been in the process of transformation. During the past twodecades, there has been a major change in direction concerning generation. First, improvedtechnologies have reduced the cost of generating electricity as well as the size of generating facilities. Prior preference for large-scale -- often nuclear or coal-fired -- powerplants has been supplanted bya preference for small-scale production facilities that can be brought on-line more quickly andcheaply, with fewer regulatory impediments. Second, technological advances have lowered the entrybarrier to electricity generation and permitted nonutility entities to build profitable facilities.

One argument for additional PUHCA change was made by electric utilities that wanted tofurther diversify their assets. Under PUHCA, a holding company could acquire securities or utilityassets only if the SEC found that such a purchase would improve the economic efficiency andservice of an integrated public utility system. It was argued that reform to allow diversification wouldimprove the risk profile of electric utilities in much the same way as in other businesses: the risk ofany one investment is diluted by the risk associated with all investments. Utilities also argued thatdiversification would lead to better use of underutilized resources (due to the seasonal nature ofelectric demand). Utility holding companies that were exempt from SEC regulation argued thatPUHCA discouraged diversification because the SEC could have repealed their exempt status ifexemption would be "detrimental to the public interest." (11)

State regulators expressed concerns that increased diversification could lead to abuses,including cross-subsidization -- a regulated company subsidizing an unregulated affiliate. Cross-subsidization was a major argument against the creation of exempt wholesale generators(EWGs) and reemerged as an argument against further PUHCA change. In the case of electric andgas companies, nonutility ventures that are undertaken as a result of diversification may benefit fromthe regulated utilities' allowed rate of return. Moneymaking nonutility enterprises would contributeto the overall financial health of a holding company. However, unsuccessful ventures could harmthe entire holding company, including utility subsidiaries. In this situation, opponents feared thatutilities would not be penalized for failure in terms of reduced access to new capital, because theycould increase retail rates.

Several consumer and environmental public interest groups, as well as state legislators,expressed concerns about the PUHCA repeal. Such groups argued that the repeal could onlyexacerbate market power abuses in what they viewed as a monopolistic industry where truecompetition does not yet exist.

Federal Access to Books and Records (Sec.1264). Holding companies and their affiliates are required to make available toFERC books and records of affiliate transactions that FERC determines are relevant to costs incurredby a public utility or natural gas company within the holding company system to protect ratepayerswith respect to FERC jurisdictional rates. Federal officials are required to maintain confidentialityof such books and records. Before enactment, registered holding companies and subsidiarycompanies were required to preserve accounts, cost-accounting procedures, correspondence,memoranda, papers, and books that the SEC deemed necessary or appropriate in the public interestor for the protection of investors and consumers.

State Access to Books and Records (Sec. 1265). A jurisdictional state commission may make a reasonably detailed written request to a holdingcompany or any associate company for access to specific books and records. The states mustsafeguard against unwarranted disclosure to the public of any trade secrets or sensitive commercialinformation. Response to such a request is mandatory. Compliance with this section is enforceablein U.S. District Court. This section does not apply to an entity that is considered to be a holdingcompany solely by reason of ownership of one or more qualifying facilities.

Before enactment, the Federal Power Act allowed state commissions to examine the books,accounts, memoranda, contracts, and records of a jurisdictional electric utility company, an exemptwholesale generator that sells to such electric utility, and an electric utility company or holdingcompany that is an associate company or affiliate of an exempt wholesale generator. In issuing suchan order for information, a state commission was not required to specify which books, accounts,memoranda, contracts, and records it was requesting.

Exemption Authority (Sec. 1266). FERC isdirected to promulgate rules within 90 days from the effective date of this section to exemptqualifying facilities, exempt wholesale generators, and foreign utilities from the federal access tobooks and records provision (Section 1264). FERC is also required to exempt books, accounts,memoranda, and other records that are not relevant to the jurisdictional rates of a public utility ornatural gas company. Any class of transactions that is not relevant to the jurisdictional rates of apublic utility or natural gas company is also exempt.

Affiliate Transactions (Sec. 1267). FERC retainsthe authority to prevent cross-subsidization and to assure that jurisdictional rates are just andreasonable. FERC and state commissions retain jurisdiction to determine whether associate companyactivities could be recovered in rates. Before enactment of the new energy law, the Federal PowerAct required that jurisdictional rates were just and reasonable and prohibitedcross-subsidization. (12)

Applicability (Sec. 1268). Except as specificallynoted, this subtitle does not apply to the U.S. government, a state, or any political subdivision of thestate, or foreign governmental authority operating outside the United States.

Effect on Other Regulations (Sec. 1269). FERCor state commissions are not precluded from exercising their jurisdiction under otherwise applicablelaws to protect utility customers.

Enforcement (Sec. 1270). FERC is given theauthority to enforce provisions under sections 306-317 of the Federal Power Act. Before enactment,the Securities and Exchange Commission had the authority to investigate and enforce provisions ofthe Public Utility Holding Company Act of 1935.

Savings Provisions (Sec. 1271). Persons maycontinue to participate in legal activities in which they have been engaged or are authorized toengage in on the effective date of this act. This subtitle would not limit the authority of FERC underthe Federal Power Act or the Natural Gas Act. (13) Tax treatment for exchanges of stock or securities under section1081 of the Internal Revenue Service Code, Nonrecognition of Gain or Loss on Exchanges orDistributions in Obedience to Orders of the SEC , is not affected due to the repeal of PUHCA.

Implementation (Sec. 1272). Not later than fourmonths after enactment, FERC is required to promulgate regulations necessary to implement thissubtitle (excluding section 1265, which relates to state access to books and records) and submit toCongress recommendations for technical or conforming amendments to federal law necessary tocarry out this subtitle.

Transfer of Resources (Sec. 1273). The Securitiesand Exchange Commission is required to transfer all applicable books and records to FERC.

Effective Date (Sec. 1274). Six months afterenactment, this subtitle will take effect. This effective date does not apply to Section 1282(implementation). If any FERC rule-making that modifies the standards of conduct governingentities that own, operate, or control facilities for transmission of electricity in interstate commerceor transportation of natural gas in interstate commerce takes effect prior to the effective date of thissection, any action taken by a public utility company or utility holding company to comply with theFERC requirements will not subject these companies to any regulatory requirement under PUHCA.

Service Allocation (Sec. 1275). FERC is requiredto review and authorize cost allocations for nonpower goods or administrative or managementservices provided by an associate company that was organized specifically for the purpose ofproviding such goods or services. This section does not preclude FERC or state commissions fromexercising their jurisdiction under other applicable laws with respect to review or authorization ofany costs. FERC is required to issue rules within four months of enactment to exempt from thesection any company and holding company system if operations are confined substantially to a singlestate.

Authorization of Appropriations (Sec. 1276). Necessary funds to carry out this subtitle are authorized to be appropriated.

Conforming Amendments to the Federal Power Act (Sec.1277). The Federal Power Act is amended to reflect the changes to the PublicUtility Holding Company Act of 1935.

Subtitle G -- Market Transparency, Enforcement, and Consumer Protection

Electricity Market Transparency (Sec. 1281). FERC is directed to facilitate price transparency in wholesale electric markets. FERC may prescriberules to provide on a timely basis information about the availability and prices of wholesale electricenergy and transmission service to FERC, state commissions, buyers and sellers of wholesale electricenergy, users of transmission services, and the public. FERC is directed to rely on existing pricepublishers and providers of trade processing services the maximum extent possible. However,FERC may establish an electronic information system if it determines that existing price informationis not adequate. Any rules promulgated by FERC will exempt from disclosure any information thatwould be detrimental to the operation of an effective market or jeopardize system security. Within180 days of enactment, FERC must enter into a memorandum of understanding (MOU) with theCommodity Futures Trading Commission to ensure coordination of information requests to markets.

Entities with a de minimis market presence are not required to comply with the reportingrequirements of the section. No one will be subject to civil penalties for any violation of thereporting requirements that occur more than three years before the date on which the person hasprovided notice of the proposed penalty. This would not apply to entities that have engaged infraudulent market manipulation activities. The section does not apply to the area of the ElectricReliability Council Texas.

False Statements (Sec. 1282). The Federal PowerAct is amended to expressly prohibit any entity from willingly and knowingly reporting falseinformation to a federal agency relating to the price of electricity sold at wholesale or the availabilityof transmission capacity.

Existing mail fraud laws, in part, apply to use of the mail for the purpose of executing, orattempting to execute, a scheme or artifice to defraud, or for obtaining money or property by falseor fraudulent pretenses, representations, or promises. Wire fraud statutes cover use of wire, radio,or television communication in interstate or foreign commerce to transmit or to cause to betransmitted, any writings, science, signals, pictures, or sounds for the purpose of executing a schemeor artifice to defraud, or to obtain money or property by means of false or fraudulent pretenses,representations, or promises.

Market Manipulation (Sec. 1283). Amends theFederal Power Act to expressly prohibit any entity, in connection with the purchase or sale of FERCjurisdictional electric energy or transmission services, from directly or indirectly using anymanipulative or deceptive device or contrivance.

Enforcement (Sec. 1284). The Federal Power Actis amended to allow electric utilities to file complaints with FERC and to allow complaints to befiled against transmitting utilities. Criminal and civil penalties under the Federal Power Act areincreased. Criminal penalties may not exceed $1 million and/or five years' imprisonment. Inaddition, a fine of $25,000 may be imposed. A civil penalty not exceeding $1 million per day perviolation may be assessed for violations of sections 211, 212, 213, or 214 of the Federal Power Act. Before enactment of the new energy law, criminal penalties could not have exceeded $5,000 and/ortwo years' imprisonment. An additional fine of $500 could have been imposed. A civil penalty notexceeding $10,000 per day per violation could have been assessed for violations of sections 211,212, 213, or 214 of the Federal Power Act.

Refund Effective Date (Sec. 1285). Section206(b) of the Federal Power Act is amended to allow the effective date for refunds to begin at thetime of the filing of a complaint with FERC, but not later than five months after such a filing. IfFERC does not make its decision within the time frame provided, FERC would be required to stateits reasons for not acting in the provided time frame for the decision.

Refund Authority (Sec. 1286). Any entity thatis not a public utility (including an entity referred to under Section 201(f) of the Federal Power Act)and enters into a short-term sale of electricity is subject to the FERC refund authority. A short-termsale includes any agreement to the sale of electric energy at wholesale that is for a period of 31 daysor less. This section does not apply to electric cooperatives or any entity that sells less than 8 millionmegawatt-hours of electricity per year. FERC is given refund authority over voluntary short-termsales of electricity by Bonneville Power Administration if the rates charged are unjust andunreasonable. FERC is given authority over all power marketing administrations and the TennesseeValley Authority to order refunds to achieve just and reasonable rates. Before enactment, Section201(f) of the Federal Power Act exempted government entities from FERC rate regulation.

Consumer Privacy and Unfair Trade Practices (Sec.1287). The Federal Trade Commission is authorized to issue rules to prohibit slamming and cramming . Slamming occurs when an electric utility switches a customer's electricprovider without the consumer's knowledge. Cramming occurs when an electric utility addsadditional services and charges to a customer's account without permission of the customer. If theFederal Trade Commission determines that a state's regulations provide equivalent or greaterprotection, then the state regulations would apply in lieu of regulations issued by the Federal TradeCommission.

Authority of Court to Prohibit Individuals from Serving AsOfficers, Directors, and Energy Traders (Sec. 1288). The court is allowed toprohibit any person who is found to have violated Section 221 of the Federal Power Act (Prohibitionon Filing False Information) from acting as an officer or director of an electric utility or engagingin the business of purchasing or selling FERC jurisdictional electric energy or transmission services.

Merger Review Reform (Sec. 1289). The FederalPower Act is amended to give FERC approval authority over the acquisition of securities and the merger, sale, lease, or disposition of facilities under FERC's jurisdiction with a value in excess of$10 million. FERC is required to give state public utility commissions and governors reasonablenotice in writing of the acquisition of securities and the merger, sale, lease, or disposition offacilities under FERC's jurisdiction. FERC must approve the proposed change of control,acquisition, disposition, or consolidation if it finds that the proposed transaction is consistent withthe public interest and will not result in cross-subsidization of a nonutility associate company or thepledge or encumbrance of utility assets for the benefit of an associate company, unless it is consistentwith the public interest. If FERC does not act within 180 days of an application, the application willbe deemed granted unless FERC finds that further consideration is required. This section takes effectsix months after enactment. Before enactment, under section 203(a) of the Federal Power Act,FERC review of asset transfers applied to transactions valued at $50,000 or more.

Relief for Extraordinary Violations (Sec. 1290). This section applies to contracts for wholesale electricity within the Western Interconnection priorto June 20, 2001, for which FERC has found that the wholesale power sellers manipulated thatelectricity market, resulting in unjust and unreasonable rates, and FERC has revoked the seller'sauthority to sell at market-based rates. For these contracts, FERC may determine whether terminationpayments for power not delivered by the seller are unlawful on the grounds that the contract is unjustand unreasonable or contrary to the public interest. This applies only to cases still pending beforeFERC and not previously settled.

Subtitle H -- Definitions

Definitions (Sec. 1291). The definitions forelectric utility and transmitting utility under the Federal Power Act are amended. Definitions for thefollowing terms are added to the Federal Power Act: electric cooperative, regional transmissionorganization, independent system operator, and transmission organization.

Section 201(f) of the Federal Power Act is amended to add that, in addition to a politicalsubdivision of a state, an electric cooperative that receives financing under the Rural ElectrificationAct of 1936 or an electric cooperative that sells less than 4,000,000 MW-hours of electricity per yearis not subject to FERC rate regulation.

Subtitle I -- Technical and Conforming Amendments

Conforming Amendments (Sec. 1295). TheFederal Power Act is amended to conform with this section.

Subtitle J -- Economic Dispatch

Economic Dispatch (Sec. 1298). FERC isdirected to convene regional boards to study "security constrained economic dispatch." A memberof FERC will chair each regional joint board, composed of a representative from each state. Withinone year of enactment, FERC is required to submit a report to Congress on the recommendations ofthe joint regional boards. This section does not define "security constrained economic dispatch," butit generally means a dispatch system that ensures that all normal and contingency limits of the systemare simultaneously met under a base case with one contingency: the loss of a critical network element(n-1 security analysis).

Title XVIII -- Studies

Effect of Electrical Contaminants Unreliability of EnergyProduction Systems (Sec. 1822). Within 180 days after enactment, the Secretaryof Energy will enter into a contract with the National Academy of Sciences (Academy), under whichthe Academy will determine the effect that electrical contaminants may have on the reliability ofenergy production systems, including nuclear energy.

Final Action on Refunds for Excessive Charges (Sec.1824). FERC is directed to complete its investigation into the unjust andunreasonable charges incurred by California during the 2000-2001 electricity crisis. A report toCongress will be submitted by December 31, 2005, that describes FERC's actions and a timetablefor further actions. This was submitted to Congress on December 27, 2005. (14)

Study the Benefits of Economic Dispatch (Sec.1832). The Secretary of Energy, in consultation with the states, must studyeconomic dispatch and issue an annual report to Congress and the states. Economic dispatch isdefined as "the operation of generation facilities to produce energy at the lowest cost to reliably serveconsumers, recognizing any operational limits of generation and transmission facilities."

Transmission System Monitoring (Sec. 1839). Within six months after enactment, the Secretary of Energy and FERC will study and report toCongress on what would be involved in providing all transmission system owners and RegionalTransmission Organizations with real-time transmission line operating status.