Electric Utility Provisions in House-Passed H.R. 6, 109th Congress
Released: 2005-08-18T00:00:00

Title XII -- Electricity

Section 1201. Short title. This title may be citedas the "Electric Reliability Act of 2005."

Subtitle A -- Reliability Standards

Section 1211. Electric Reliability Standards. This section would require the Federal Energy Regulatory Commission (FERC) to promulgate ruleswithin 180 days of enactment to create a FERC-certified electric reliability organization (ERO). TheNorth American Electric Reliability Council (NERC) currently has responsibility for reliability ofthe bulk power system. NERC has established reliability guidelines but has no enforcementauthority. The Federal Power Act currently gives FERC jurisdiction over unbundled transmissionand authority to regulate wholesale rates; however, no authority was provided to regulate reliability. Under this section, the ERO would develop and enforce reliability standards for the bulk-powersystem, including cybersecurity protection. All ERO standards would be approved by FERC. Underthis title, the ERO could impose penalties on a user, owner, or operator of the bulk-power systemthat violates any FERC-approved reliability standard. In addition, FERC could order compliancewith a reliability standard and could impose a penalty if FERC finds that a user, owner, or operatorof the bulk-power system has engaged in or is about to engage in a violation of a reliability standard. This provision would not give an ERO or FERC authorization to order construction of additionalgeneration or transmission capacity.

This provision would also require that FERC establish a regional advisory body if requestedby at least two-thirds of the states within a region that have more than half of their electric loadserved within that region. The advisory body would be composed of one member from eachparticipating state in the region, appointed by the Governor of each state, and could provide adviceto the ERO or FERC on reliability standards, proposed regional entities, proposed fees, and any otherresponsibilities requested by FERC. The entire reliability provision would 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.

H.R. 6 would require the ERO to be funded through contributions from its utility members. The Congressional Budget Office (CBO) determined that, under the Unfunded MandatesReform Act (UMRA) of 1995, (1) these contributions would constitute an unfunded mandate both onthe private sector and intergovernmentally, because both private sector utilities and those run by localgovernments (munis) would be obligated to contribute. H.R. 6 would limit the totalamount "of all dues, fees, and other charges collected by the ERO" to $50,000,000 annually, withno adjustment for inflation, through 2015. This limit was initially included in H.R. 6 toavoid a point of order based on the budget resolution. UMRA limits would not apply to duescollected from Canadian utilities, and it is unclear whether the $50,000,000 limit on the ERO budgetapplies to fees collected from U.S. and Canadian utilities or just the U.S. utilities' contributions. (2) This limit would restrict thecost of this mandate to less than the threshold at which UMRA subjects congressional considerationof legislation containing intergovernmental mandates to a point of order. The 2005 budget forNERC and all of its regional entities, however, is $51,950,000, of which munis contributedapproximately $6,370,000, and the ERO would be required to engage in functions beyond whatNERC already performs. One new function is the ability of the ERO to impose and collect penalties. A $50,000,000 cap on all dues, fees, and other charges that can be collected by the ERO could limitthe penalties that could be collected by the ERO.

CBO provided no separate estimate for the cost of the mandates in this subtitle, but estimatedthat H.R. 6 as a whole contains both intergovernmental and private sector unfundedmandates that would exceed the applicable thresholds. The CBO estimate stated that the cost ofcomplying with intergovernmental mandates, in aggregate, could be significant and likely wouldexceed the threshold established in UMRA ($62 million in 2005, adjusted annually for inflation) atsome point over the next five years because CBO expects future damage awards for state and localgovernments under the bill's safe harbor provision (Title XV) would likely be reduced. (3)

Section 1211(c) would authorize to be appropriated not more than $50 million per year forFY2006 through FY2015 for all activities under the amendment to the Federal Power Act thatcreates the ERO. This is in addition to the dues paid by the ERO members. It is unclear whetherFERC would be the sole recipient of the $50 million annual authorization, since Section 1211(b)specifically states that the ERO, and its regional entities, are not departments, agencies, orinstrumentalities of the United States government.

The proposed legislation is intended to provide federal jurisdiction over activities that arerequired to support reliability of the U.S. bulk power system. Clarifying FERC authority to establishand regulate an ERO is intended to improve reliability as restructuring of the U.S. bulk power systemproceeds. Similar provisions were included in the conference report of H.R. 6 in the108th Congress.

Advocates of giving FERC authority over the ERO contend that central jurisdiction wouldprovide more accountability. FERC would be ultimately responsible for reliability issues. If thepenalties employed by the ERO were not successful, then FERC would have the authority to enforcepenalties for entities that did not comply with reliability standards. Establishing this newrelationship between FERC and the ERO would have the potential to improve coordination betweenmarket functions and reliability functions. Similar legislation has been introduced during the pastseveral sessions of Congress, but has not been enacted, despite general support. Minor oppositionto this proposal has centered on giving FERC jurisdiction over bulk power system reliability,contending that FERC has no experience in this area. If FERC is given this authority, it would haveto rely on the ERO for much of its expertise. Placing FERC in this position may add to theuncertainty associated with the changes in institutional structure as FERC takes on this new role.

Section 1221. Siting of Interstate Electric TransmissionFacilities. The Secretary of Energy would be required to conduct a study of electrictransmission congestion every three years. Based on the findings, the Secretary of Energy coulddesignate a geographic area as being congested. Under certain conditions, FERC would beauthorized to issue construction permits. Under proposed Federal Power Act (FPA) Section 216(d),affected states, federal agencies, Indian tribes, property owners, and other interested parties wouldhave an opportunity to present their views and recommendations with respect to the need for andimpact of a proposed construction permit. However, there is no requirement for a specific commentperiod. New FPA Section 216(e) would allow permit holders to petition in U.S. District Court toacquire rights-of-way through the exercise of the right of eminent domain. Any exercise of eminentdomain authority would be considered to be takings of private property for which just compensationis due. New FPA Section 216(g) does not state whether property owners would be required toreimburse compensation 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 would be required to be completed within one year unless another federal law makes thatimpossible. FPA Section 216(h) would give the Department of Energy (DOE) new authority toprepare environmental documents and appears to give DOE additional decision-making authorityfor rights-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 could be streamlined by relying on prior analyses. If a federal agency has deniedan authorization required by a transmission or distributions facility, the denial could be appealed bythe applicant or relevant state to the Secretary of Energy. The Secretary of Energy would be requiredto issue a decision within 90 days of the appeal's filing. States could enter into interstate compactsfor the purposes of siting transmission facilities and the Secretary of Energy could provide technicalassistance. This section would not apply to the Electric Reliability Council of Texas (ERCOT). Asimilar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1222. Third-Party Finance. The WesternArea Power Administration (WAPA) and the Southwestern Power Administration (SWPA) wouldbe able to either continue to design, develop, construct, operate, maintain, or own transmissionfacilities within their regions or participate with other entities for the same purposes if: the Secretaryof Energy designates the area as a National Interest Electric Transmission Corridor and the projectwould reduce congestion, or the project is needed to accommodate projected increases in demandfor transmission capacity. The project would be required to be consistent with the needs identifiedby the appropriate Regional Transmission Organization or Independent System Operator. No morethan $100 million from third-party financing may be used during fiscal years 2006 through 2015. A similar provision was included in the conference report of H.R. 6 in the 108thCongress. Under current law the enabling statutes for power marketing administrations may restrictthird-party financing, construction, operation, and maintenance of transmission facilities. (4)

Section 1223. Transmission System Monitoring. Within six months of enactment, the Secretary of Energy and the Federal Energy RegulatoryCommission would be required to complete a study and report to Congress on what would berequired to create and implement a transmission monitoring system for the Eastern and Westerninterconnections. The monitoring system would provide all transmission system owners andRegional Transmission Organizations real-time information on the operating status of alltransmission lines. A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1224. Advanced TransmissionTechnologies. FERC would be directed to encourage deployment of advancedtransmission technologies. A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1225. Electric Transmission and DistributionPrograms. The Secretary of Energy acting through the Director of the Office ofElectric Transmission and Distribution would be required to implement a program to promotereliability and efficiency of the electric transmission system. Within one year of enactment, theSecretary of Energy would be required to submit to Congress a report detailing the program'sfive-year plan. Within two years of enactment, the Secretary of Energy would be required to submitto Congress a report detailing the progress of the program. The Secretary of Energy would bedirected to establish a research, development, demonstration, and commercial application initiativethat would focus on high-temperature superconductivity. For this project, appropriations would beauthorized for FY2006 through FY2010. A similar provision was included in the conference reportof H.R. 6 in the 108th Congress.

Section 1226. Advanced Power System Technology IncentiveProgram. A program would be established to provide incentive payments to ownersor operators of advanced power generation systems. Eligible systems would include advanced fuelcells, turbines, or hybrid power systems. For FY2006 through FY2012 an annual appropriation of$10 million would be authorized. A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1227. Office of Electric Transmission andDistribution. This would amend Title II of the Department of Energy OrganizationAct (5) and would establishan Office of Electric Transmission and Distribution. The Director of the office would, in part,coordinate and develop a strategy to improve electric transmission distribution, implementrecommendations from the Department of Energy's National Transmission Grid Study, overseeresearch, development, and demonstration to support federal energy policy related to electricitytransmission and distribution, and develop programs for workforce training and power transmissionengineering. A similar provision was included in the conference report of H.R. 6 in the108th Congress.

Subtitle C -- Transmission Operation Improvements

Section 1231. Open Nondiscriminatory Access. FERC would be authorized to require, by rule or order, unregulated transmitting utilities (powermarketing administrations, state entities, and rural electric cooperatives) to charge rates comparableto what they charge themselves and require that the terms and conditions of the sales be comparableto those required of other utilities. Currently under the Federal Power Act (Section 201(f)), federalpower marketing administrations, state entities, and rural electric cooperatives are not subject toFERC's ratemaking. In Â§1231, exemptions are established for utilities selling less than 4 millionmegawatt-hours of electricity per year, for distribution utilities, and for utilities that own or operatetransmission facilities that are not necessary to facilitate a nationwide interconnected transmissionsystem. This exemption could be revoked to maintain transmission system reliability. FERC wouldnot be authorized to order states or municipalities to take action under this section if such actionwould constitute a private use under Section 141 of the Internal Revenue Code of 1986. FERC mayremand transmission rates to an unregulated transmitting utility if the rates do not comply with thissection. FERC is not authorized to order an unregulated transmitting utility to join a RegionalTransmission Organization or other FERC-approved independent transmission organization. Thissection is often referred to as "FERC-lite." A similar provision was included in the conference reportof H.R. 6 in the 108th Congress.

Section 1232. Sense of Congress on Regional TransmissionOrganizations. This would establish a sense of Congress that utilities shouldvoluntarily become members of regional transmission organizations. A similar provision wasincluded in the conference report of H.R. 6 in the 108th Congress. Currently, Section202(a) of the Federal Power Act directs FERC to promote and encourage regional districts for thevoluntary interconnection and coordination of transmission facilities by public utilities andnon-public utilities for the purpose of assuring an abundant supply of electric energy throughout theUnited States with the greatest possible economy.

Section 1233. Regional Transmission Organization ApplicationsProgress Report. FERC would be required to report to Congress within 120 daysof enactment the status of all regional transmission organization applications. A similar provisionwas included in the conference report of H.R. 6 in the 108th Congress.

Section 1234. Federal Utility Participation in RegionalTransmission Organizations. Federal utilities (power marketing administrationsor the Tennessee Valley Authority) would be authorized to participate in regional transmissionorganizations. A law allowing federal utilities to study formation and operation of a regionaltransmission organization would be repealed. (6) A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1235. Standard Market Design. FERC'sproposed rulemaking on standard market design would be remanded to FERC for reconsideration. No final rulemaking, including any rule or order of general applicability to the standard marketdesign proposed rulemaking, could be issued before October 31, 2006, or could take effect beforeDecember 31, 2006. This section would retain FERC's ability to issue rules or orders and act onregional transmission organization or independent system operator filings. A similar provision wasincluded in the conference report of H.R. 6 in the 108th Congress.

On July 31, 2002, FERC issued a Notice of Proposed Rulemaking (NOPR) on standardmarket design (SMD). (7) FERC's stated goal of establishing SMD requirements in conjunction with a standardizedtransmission service is to create "seamless" wholesale power markets that allow sellers to transacteasily across transmission grid boundaries. The proposed rulemaking would create a new tariff underwhich each transmission owner would be required to turn over operation of its transmission systemto an unaffiliated independent transmission provider (ITP). The ITP, which could be an RTO, wouldprovide service to all customers and run energy markets. Under the NOPR, congestion would bemanaged with locational marginal pricing. The NOPR comment period originally was 75 days(November 15, 2002), but the comment period was extended to January 10, 2003, for the followingissues: (1) market design for the Western Interconnection; (2) transmission pricing plan, includingparticipant funding; (3) Regional State Advisory Committees and state participation; (4) resourceadequacy; and (5) congestion revenue rights and transition issues.

Under the NOPR, FERC would assert jurisdiction over all power transmission, includingservice to bundled retail customers. Commissioners from 15 states (Alabama, Arkansas, California,Georgia, Idaho, Kentucky, Louisiana, Mississippi, New Hampshire, North Carolina, South Carolina,Oregon, South Dakota, Washington, and Wyoming) have argued that the SMD proposal usurps stateauthority. On August 15, 2002, state regulators from 22 states and the District of Columbia (Illinois,Indiana, Iowa, Michigan, Minnesota, Missouri, Montana, North Dakota, Ohio, Oklahoma, Texas,Wisconsin, Delaware, the District of Columbia, New Jersey, New York, Pennsylvania, WestVirginia, Connecticut, Maine, Massachusetts, New Hampshire, and Rhode Island) released astatement that "voiced support for FERC's ongoing effort to remedy undue discrimination in the useof the nation's interstate high voltage transmission system in order to create a truly competitive bulkpower market." Some industry groups have voiced concerns about the implementation of SMD.

On April 28, 2003, FERC staff issued Wholesale Power Market Platform , a White Paper thatintended to clarify FERC's SMD proposal. The White Paper responds to approximately 1,000 setsof formal comments submitted to FERC. In the White Paper, FERC states its intention to eliminatea proposed requirement that utilities join an Independent Transmission Provider. Instead, the finalrule would require utilities to join an RTO or ISO. In the NOPR, FERC proposed to assertjurisdiction over the transmission component of bundled retail service. The White Paper reverses thisposition and states that the final rule will not assert new FERC jurisdiction over bundled retail sales.

Some state officials have expressed concern that the proposed rule would infringe on stateauthority. FERC responded to this in the White Paper by clarifying that the final rule would notinclude a requirement for a minimum level of resource adequacy. In addition, the final rule wouldeliminate the NOPR's requirement that Firm Transmission Rights be auctioned. The White Papernoted that each RTO or ISO would need to have a cost recovery policy outlined in its tariff, but eachregion may differ on how participant funding would be used. In addition, FERC stated that the finalrule would allow for phased implementation to address regional differences.

The report language that accompanied the FY2003 Consolidated Appropriations Resolutionasked the Department of Energy to analyze the SMD NOPR's impact on wholesale electricity prices,and the safety and reliability of generation and transmission facilities. (8) DOE issued its report toCongress on April 30, 2003, but did not include changes from FERC's White Paper in its analysis. DOE, in part, quantitatively analyzed the wholesale and retail price impacts of SMD using twoeconomic models: General Electric's Multi-Area Production Simulation (MAPS) and DOE's PolicyOffice Electricity Modeling System (POEMS).

Some of the assumptions that DOE uses are: the annual increase in electricity demand isassumed to be approximately 1.8% per year from 2005 to 2020; most regions are assumed to havereserve margins of 15%; current environmental laws and regulations are assumed to apply; generatorefficiency for fossil steam plants is assumed to be 2% to 4% higher in new RTO regions with SMD.In the non-SMD case, the models were not able to take into account freezes on retail rates in statesthat are transitioning to competitive markets, and no increase in transmission capacity is assumed. Under the SMD case, a 5% increase in transmission capability by 2005 is assumed by DOE due toimproved operational efficiency at regional seams. In addition, DOE assumes that adopting theSMD would result in some savings that are difficult to quantify but would be a result of severalfactors including the consolidation of control areas from the currently existing 150, the possibleavoidance of capital cost and software expenditures that would have been needed at existing controlcenters, improved regional planning, and consistency of market design. DOE assigns a 10% savingsdue to these efficiency improvements. DOE believes that the assumptions used in the models areconservative and result in an underestimation of the net economic benefits of the SMD.

DOE calculates the median cost of FERC's SMD rule to be about $760 million per year, orabout 21 cents per megawatt-hour. The model's range for uncertainties is estimated to be about $100million. The cost varies significantly by region, ranging from 47 cents per megawatt-hour forGridFlorida to 12 cents per megawatt-hour for PJM. (9) Regions with existing RTOs have zero additional costs. Under theSMD case, the effects of SMD on retail rates are influenced to a significant extent by whether thestates in question have cost-of-service regulation or competitive retail choice. DOE found that forsome importing regions with cost-based rates, the net result could be increased costs associated withwholesale purchases, which would be passed through to retail customers. For some exportingregions with cost-based rates, additional utility revenues from exports are expected to lead to lowerretail prices for the region under the SMD case. In contrast, in regions in which most states haveadopted retail choice, increased electricity exports are expected to lead to higher market-clearingprices in the short-term markets and somewhat higher consumer prices. However, in areas such asCalifornia that are projected to see increased imports, lower wholesale prices and lower prices forconsumers are expected. DOE found that the magnitude of the projected changes, both positive andnegative, decreases through 2020. Overall, DOE projects the net benefit for all consumers wouldbe about $1 billion per year over the first six years, after factoring in the estimated $760 million peryear and RTO costs. Over the long-term (2016-2020), the net benefit is expected to be about $700million per year. However, the projected change in retail prices varies by region. The mid-Atlanticregion is expected to see a 4% decrease in retail prices, but Illinois, Wisconsin, and Arizona areexpected to have a 3% increase in retail prices as a result of SMD.

Section 1236. Native Load Service Obligation. This section would amend the Federal Power Act to clarify that a load-serving entity is entitled touse its transmission facilities or firm transmission rights to serve its existing customers before it isobligated to make its transmission capacity available for other uses. FERC would not be able tochange any approved allocation of transmission rights by an RTO or ISO approved prior to January1, 2005. This section contains language not included in the conference report on H.R. 6 from the 108th Congress to allow for public power utilities to enter into long-term contracts to servetheir native load as well as giving them access to the transmission system.

Currently Section 201 of the Federal Power Act gives FERC jurisdiction over "thetransmission of electric energy in interstate commerce and the sale of such energy at wholesale ininterstate commerce." Section 205 of the Federal Power Act prohibits utilities from granting "unduepreference or 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 transmissionfor existing customers (native load) is not considered unduly discriminatory.

Section 1237. Study on the Benefits of EconomicDispatch. The Secretary of Energy, in consultation with the states, would berequired to issue an annual report to Congress and the states on the current status of economicdispatch. Economic dispatch would be defined as "the operation of generation facilities to produceenergy at the lowest cost to reliably serve consumers, recognizing any operational limits ofgeneration and transmission facilities." A similar provision was included in the conference reportof H.R. 6 in the 108th Congress.

Subtitle D -- Transmission Rate Reform

Section 1241. Transmission InfrastructureInvestment. FERC would be required to establish a rule to create incentive-basedtransmission rates. FERC would be authorized to revise the rule. The rule would promote reliableand economically efficient electric transmission and generation, provide for a return on equity thatwould attract new investment in transmission, encourage use of technologies that increased thetransfer capacity of existing transmission facilities, and allow for the recovery of all prudentlyincurred costs that are necessary to comply with mandatory reliability standards. In addition, FERCwould be directed to implement incentive rate-making for utilities that join a Regional TransmissionOrganization or Independent System Operator. A similar provision was included in the conferencereport of H.R. 6 in the 108th Congress.

Subtitle E -- Amendments to PURPA

Section 1251. Net Metering and AdditionalStandards. For states that have not considered implementation and adoption of netmetering standards, within three years of enactment, state regulatory authorities would be requiredto consider whether to implement net metering. Net metering service is defined as service to anelectric consumer under which electric energy generated by that electric consumer from an eligibleon-site generating facility (e.g., solar or small generator) and delivered to local distribution facilitiesmay be used to offset electric energy provided by the electric utility to the electric consumer duringthe applicable billing period. Net metering provisions were included in the conference report of H.R. 6 in the 108th Congress.

Section 1252. Smart Metering. For states thathave not considered implementation and adoption of a smart metering standard, state regulatoryauthorities would be required to initiate an investigation within one year of enactment, and issue adecision within two years of enactment, whether to implement a standard for time-based meters andcommunications devices for all electric utility customers. These devices would allow customers toparticipate in time-based pricing rate schedules. This section would amend the Public UtilityRegulatory Policies Act of 1978 (10) (PURPA) and would require the Secretary of Energy to provideconsumer education on advanced metering and communications technologies, to identify and addressbarriers to adoption of demand response programs, and issue a report to Congress that identifies andquantifies the benefits of demand response. The Secretary of Energy would provide technicalassistance to regional organizations to identify demand response potential and to develop demandresponse programs to respond to peak demand or emergency needs. FERC would be directed toissue an annual report, by region, to assess demand response resources. A provision for real-timepricing and time-of-use metering standards was included in the conference report of H.R. 6 in the 108th Congress.

Section 1253. Cogeneration and Small Power ProductionPurchase and Sale Requirements. Currently, Â§210 of PURPA requires utilities topurchase power from qualifying facilities and small power producers at a rate based on the utilities'avoided cost. (11) Thissection would repeal the mandatory purchase requirement under Â§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 and real-time wholesale markets and long-termwholesale markets. Qualifying facilities would also need to have access to transmission andinterconnection services provided by a FERC-approved regional transmission entity that providesnon-discriminatory treatment for all customers. Ownership limitations under PURPA would berepealed. Repeal of the mandatory purchase requirement was included in the conference report of H.R. 6 in the 108th Congress.

The oil embargoes of the 1970s created concerns about the security of the nation's electricitysupply and led to enactment of the Public Utility Regulatory Policies Act of 1978. For the first time,utilities were required to purchase power from outside sources. The purchase price was set at theutilities' "avoided cost," the cost they would have incurred to generate the additional powerthemselves, as determined by utility regulators. PURPA was established in part to augment electricutility generation with more efficiently produced electricity and to provide equitable rates to electricconsumers.

In addition to PURPA, the Fuel Use Act of 1978 (FUA) helped qualifying facilities (QFs)become established. (12) Under FUA, utilities were not permitted to use natural gas to fuel new generating technology. QFs,which are by definition not utilities, were able to take advantage of abundant natural gas as well asnew 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 as well as shortened the lead time for constructingnew plants. FUA was repealed in 1987, but by this time QFs and small power producers had gaineda portion 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. Since 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 non-regulated activities.

The Energy Policy Act of 1992 (EPACT) removed several regulatory barriers for entry intoelectricity generation to increase competition of electricity supply. (13) However, EPACT doesnot permit FERC to mandate that utilities transmit exempt wholesale generator (EWG) power toretail consumers (commonly called "retail wheeling" or "retail competition"), an activity that remainsunder the jurisdiction 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 PURPA repeal -- primarily investor-owned utilities (IOUs) located in theNortheast and in California -- argue that their state regulators' "misguided" implementation ofPURPA in the early 1980s has forced them to pay contractually high prices for power they do notneed. They argue that, given the current environment for cost-conscious competition, PURPA isoutdated. The PURPA Reform Group, which promotes IOU interests, strongly supports repeal ofÂ§210 of PURPA contending that the current law's mandatory purchase obligation is anti-competitiveand anti-consumer.

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) have many reasons to support PURPA as it stands. Mainly,their argument is that PURPA introduced competition in the electric generating sector and, at thesame time, helped promote wider use of cleaner, alternative fuels to generate electricity. Since theelectric generating sector is not yet fully competitive, they argue, repeal of PURPA would decreasecompetition and impede the development of the renewable energy industry. Additionally, opponentsof PURPA repeal argue that it would result in less competition and greater utility monopoly controlover the electric industry. Some state regulators have expressed concern that Â§210 repeal wouldprevent them from deciding matters currently under their jurisdiction.

Section 1254. Interconnection. Each stateregulatory authority and each nonregulated utility shall consider establishing an interconnectionstandard for on-site generating facilities wishing to be connected to the local distribution facilities,if it has not already done so. Consideration of the standard must be commenced not later than oneyear after enactment and completed not later than two years after the date of enactment.

Subtitle F -- Repeal of PUHCA

Section 1261. Short Title. This subtitle may becited as the "Public Utility Holding Company Act of 2005."

Section 1262. Definitions. This section wouldprovide definitions for: affiliate, associate company, commission, company, electric utility company,exempt wholesale generator and foreign utility company, gas utility company, holding company,holding company system, jurisdictional rates, natural gas company, person, public utility,public-utility company, state commission, subsidiary company, and voting security.

Section 1263. Repeal of the Public Utility Holding Company Actof 1935. The Public Utility Holding Company Act of 1935 (PUHCA) would berepealed. The provision to repeal PUHCA was included in the conference report of H.R. 6 in the 108th Congress.

In general, the Public Utility Holding Company Act of 1935 currently sets forth the structureof holding companies by prohibiting all holding companies that are more than twice removed fromthe operating subsidiaries. It also federally regulates holding companies of investor-owned utilities,and provides for Securities and Exchange Commission (SEC) regulation of mergers anddiversification proposals. Registered holding companies of subsidiaries are required to have SECapproval prior to issuing securities; all loans and intercompany financial transactions are regulatedby the SEC. A holding company can be exempt from PUHCA if its business operations and thoseof its subsidiaries occur within one state or within contiguous states.

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 (FPA) of 1935 (TitleI and Title II of the Public Utility Act) established a regime of regulating electric utilities that gavespecific and separate powers to the states and the federal government. A regulatory bargain wasmade between the government and utilities. In exchange for an exclusive franchise service territory,utilities must provide electricity to all users at reasonable, regulated rates. State regulatorycommissions address intrastate utility activities, including wholesale and retail rate-making. Stateauthority currently tends to be as broad and as varied as the states are diverse. At the least, a statepublic utility commission will have authority over retail rates, and often over investment and debt. At the other end of the spectrum, the state regulatory body will oversee many facets of utilityoperation. Despite this diversity, the essential mission of the state regulator in states that have notrestructured is the establishment of retail electric prices. This is accomplished through an adversarialhearing process. The central issues in such cases are the total amount of money the utility will bepermitted to collect and how the burden of the revenue requirement will be distributed among thevarious 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 followed 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. In addition, to prevent a recurrence of the abusive practices of the 1920s (e.g.,cross-subsidization, self-dealing, pyramiding, etc.), SEC regulates utilities' corporate structure andbusiness 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 supplantedby a preference for small-scale production facilities that can be brought on line more quickly andcheaply, with fewer regulatory impediments. Second, this has lowered the entry barrier to electricitygeneration and permitted non-utility entities to build profitable facilities.

One argument for additional PUHCA change has been made by electric utilities that want tofurther diversify their assets. Currently under PUHCA, a holding company can acquire securitiesor utility assets only if the SEC finds that such a purchase will improve the economic efficiency andservice of an integrated public utility system. It has been argued that reform to allow diversificationwould improve the risk profile of electric utilities in much the same way as in other businesses: therisk of any one investment is diluted by the risk associated with all investments. Utilities have alsoargued that diversification would lead to better use of under-utilized resources (due to the seasonalnature of electric demand). Utility holding companies that have been exempt from SEC regulationargue that PUHCA discourages diversification because the SEC could repeal exempt status ifexemption would be "detrimental to the public interest."

For a number of years there has been significant bipartisan congressional support forrepealing much of PUHCA. Since the 1980s, the Securities and Exchange Commission has testifiedbefore Congress that many provisions of PUHCA are no longer relevant and other provisions areredundant with state and other federal regulations. (14) However, as a result of Enron's dealings and collapse, some inCongress have taken a somewhat different view toward significantly amending or repealingPUHCA. (15) Eventhough Enron had claimed exemption from PUHCA, on February 6, 2003, Securities and ExchangeCommission Chief Administrative Law Judge Brenda P. Murray denied Enron's PUHCA exemptionapplications of April 12, 2000, and February 28, 2002, amended on May 31, 2002. (16) In the case of Enron,PUHCA, and many other laws, did not deter or prevent fraudulent filing of information with theSEC.

State regulators have 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 has reemerged as an argument against further PUHCA change. In the case of electricand gas companies, non-utility ventures that are undertaken as a result of diversification may benefitfrom the regulated utilities' allowed rate of return. Moneymaking non-utility enterprises wouldcontribute to the overall financial health of a holding company. However, unsuccessful venturescould harm the entire holding company, including utility subsidiaries. In this situation, opponentsfear that utilities would not be penalized for failure in terms of reduced access to new capital,because they could increase retail rates.

Several consumer and environmental public interest groups, as well as state legislators, haveexpressed concerns about PUHCA repeal. PUHCA repeal, such groups argue, could only exacerbatemarket power abuses in what they see as a monopolistic industry where true competition does notyet exist.

Section 1264. Federal Access to Books andRecords. Federal access to books and records of holding companies and theiraffiliates would be provided. Affiliate companies would have to make available to FERC books andrecords of affiliate transactions. Federal officials would have to maintain confidentiality of suchbooks and records. A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Currently, registered holding companies and subsidiary companies are required to preserveaccounts, cost-accounting procedures, correspondence, memoranda, papers, and books that the SECdeems necessary or appropriate in the public interest or for the protection of investors andconsumers. (17)

Section 1265. State Access to Books andRecords. A jurisdictional state commission would be able to make a reasonablydetailed written request to a holding company or any associate company for access to specific booksand records, which would be kept confidential. This section would not apply to an entity that isconsidered to be a holding company solely by reason of ownership of one or more qualifyingfacilities. Response to such a request would be mandatory. Compliance with this section would beenforceable in U.S. District Court. A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Currently under the Federal Power Act, state commissions may examine the books, accounts,memoranda, contracts, and records of a jurisdictional electric utility company, an exempt wholesalegenerator that sells to such electric utility, and an electric utility company or holding company thatis an associate company or affiliate of an exempt wholesale generator. In its order the statecommissions currently are not required to specify which books, account, memoranda, contracts, andrecords it is requesting. (18)

Section 1266. Exemption Authority. FERCwould be directed to promulgate rules to exempt qualifying facilities, exempt wholesale generators(EWGs), and foreign utilities, from the federal access to books and records provision (Section 1264). A similar provision was included in the conference report of H.R. 6 in the 108thCongress.

Section 1267. Affiliate Transactions. FERCwould retain the authority to prevent cross-subsidization and to assure that jurisdictional rates arejust and reasonable. FERC and state commissions would retain jurisdiction to determine whetherassociate company activities could be recovered in rates. A similar provision was included in theconference report of H.R. 6 in the 108th Congress. Currently, the Federal Power Actrequires that jurisdictional rates are just and reasonable and prohibits cross-subsidization. (19)

Section 1268. Applicability. Except asspecifically noted, this subtitle would not apply to the U.S. government, a state or any politicalsubdivision of the state, or foreign governmental authority operating outside the United States. Asimilar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1269. Effect on Other Regulations. FERC or state commissions would not be precluded from exercising their jurisdiction underotherwise applicable laws to protect utility customers. A similar provision was included in theconference report of H.R. 6 in the 108th Congress.

Section 1270. Enforcement. FERC would haveauthority to enforce these provisions under Sections 306-317 of the Federal Power Act. Currently,the Securities and Exchange Commission has authority to investigate and enforce provisions of thePublic Utility Holding Company Act of 1935. (20) A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1271. Savings Provisions. Personswould be able to continue to engage in legal activities in which they have been engaged or areauthorized to engage in on the effective date of this act. This subtitle would not limit the authorityof FERC under the Federal Power Act or the Natural Gas Act. A similar provision was included inthe conference report of H.R. 6 in the 108th Congress.

Section 1272. Implementation. Not later than 12months after enactment, FERC would be required to promulgate regulations necessary to implementthis subtitle and submit to Congress recommendations for technical or conforming amendments tofederal law that would be necessary to carry out this subtitle. A similar provision was included inthe conference report of H.R. 6 in the 108th Congress.

Section 1273. Transfer of Resources. TheSecurities and Exchange Commission would be required to transfer all applicable books and recordsto FERC. However, no time frame for transfer of books and records is provided. Currently, theSecurities and Exchange Commission maintains books and records and regulates securitytransactions. (21) Asimilar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1274. Effective Date. Twelve monthsafter enactment, this subtitle would take effect.

Section 1275. Service Allocation. FERC wouldbe required to review and authorize cost allocations for non-power goods or administrative ormanagement services provided by an associate company that was organized specifically for thepurpose of providing such goods or services. This section would not preclude FERC or statecommissions from exercising their jurisdiction under other applicable laws with respect to reviewor authorization of any costs. FERC would be required to issue rules within six months of enactmentto exempt from the section any company and holding company system if operations are confinedsubstantially to a single state. A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Section 1276. Authorization of Appropriations. Necessary funds to carry out this subtitle would be authorized to be appropriated. A similar provisionwas included in the conference report of H.R. 6 in the 108th Congress.

Section 1277. Conforming Amendments to the Federal PowerAct. The Federal Power Act would be amended to reflect the changes to the PublicUtility Holding Company Act of 1935. (22)

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

Section 1281. Market Transparency Rules. Within 180 days after enactment, FERC would be required to issue rules to establish an electronicsystem that provides information about the availability and price of wholesale electric energy andtransmission services. FERC would exempt from disclosure any information that, if disclosed, couldbe detrimental to the operation of the effective market or jeopardize system security. FERC wouldbe required to assure that consumers in competitive markets are protected from adverse effects ofpotential collusion or other anti-competitive behaviors that could occur as a result of untimely publicdisclosure of transaction-specific information. This section would not affect the exclusivejurisdiction of the Commodity Futures Trading Commission with respect to accounts, agreement,contracts, or transactions in commodities under the Commodity Exchange Act. FERC would notbe allowed to compete with, or displace, any price publisher or regulate price publishers or imposeany requirements on the publication of information. Creation of market transparency rules wasincluded in the conference report of H.R. 6 in the 108th Congress.

Section 1282. Market Manipulation. It wouldbe unlawful to willfully and knowingly file a false report on any information relating to the price ofelectricity sold at wholesale or the availability of transmission capacity, with the intent tofraudulently affect data being compiled by a federal agency. It would be unlawful for any individual,corporation, or government entity (municipality, state, power marketing administration) to engagein round-trip electricity trading. Round-trip trading is defined to include contracts in which purchaseand sale transactions have no specific financial gain or loss and are entered into with the intent todistort reported revenues, trading volumes, or prices. A similar provision was included in theconference report of H.R. 6 in the 108th Congress.

Currently, 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 false orfraudulent pretenses, representations, or promises. (23) Wire fraud statutes cover use of wire, radio, or televisioncommunication in interstate or foreign commerce to transmit or to cause to be transmitted anywritings, signs, signals, pictures, or sounds for the purpose of executing a scheme or artifice todefraud or for obtaining money or property by means of false or fraudulent pretenses,representations, or promises. (24)

Section 1283. Enforcement. The Federal PowerAct would be amended to allow electric utilities to file complaints with FERC and to allowcomplaints to be filed against transmitting utilities. Criminal and civil penalties under the FederalPower Act would be increased. Criminal penalties would not exceed $1 million and/or five yearsimprisonment. In addition, a fine of $25,000 could be imposed. A civil penalty not exceeding $1million per day per violation could be assessed for violations of Sections 211, 212, 213, or 214 ofthe Federal Power Act. A similar provision was included in the conference report of H.R. 6 in the 108th Congress.

Currently, criminal penalties may not exceed $5,000 and/or two years' imprisonment. Anadditional fine of $500 can be imposed. A civil penalty not exceeding $10,000 per day per violationmay be assessed for violations of Sections 211, 212, 213, or 214 of the Federal Power Act.

Section 1284. Refund Effective Date. Section206(b) of the Federal Power Act would be amended to allow the effective date for refunds to beginat the time of the filing of a complaint with FERC but not later than five months after such a filing. If FERC does not make its decision within the time-frame provided, FERC would be required tostate its reasons for not acting in the provided time-frame for the decision. A similar provision wasincluded in the conference report of H.R. 6 in the 108th Congress.

Currently, refunds for rates that FERC finds to be unjust, unreasonable, undulydiscriminatory, or preferential begin a minimum of 60 days after a complaint is filed. (25)

Section 1285. Refund Authority. Any entity thatis not a public utility (including an entity referred to under Â§ 201(f) of the Federal Power Act) andenters into a short-term sale of electricity would be subject to the FERC refund authority. Ashort-term sale would include any agreement to the sale of electric energy at wholesale that is for aperiod of 31 days or less. This section would not apply to electric cooperatives, or any entity thatsells less than 8 million megawatt hours of electricity per year. FERC would have refund authorityover voluntary short-term sales of electricity by Bonneville Power Administration if the rates chargedare unjust and unreasonable. FERC would have authority over all power marketing administrationsand the Tennessee Valley Authority to order refunds to achieve just and reasonable rates. Currently,Section 201(f) of the Federal Power Act exempts government entities from FERC rateregulation. (26) Refundauthority was provided for in the conference report of H.R. 6 in the 108th Congress.

Section 1286. Sanctity of Contract. Upondetermining that failure to take action would be contrary to protection of the public interest, FERCwould be authorized to modify or abrogate any contract entered into after enactment of this section. FERC would not be able to abrogate or modify contracts that expressly provide for a standard ofreview other than the public interest standard. A similar provision was included in the conferencereport of H.R. 6 in the 108th Congress.

Section 1287. Consumer Privacy and Unfair TradePractices. The Federal Trade Commission would be authorized to issue rules toprohibit slamming and cramming. Slamming occurs when an electric utility switches a customer'selectric provider 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. A similar provision was included in the conference report of H.R. 6 inthe 108th Congress.

Subtitle H -- Merger Reform

Section 1291. Merger Review Reform andAccountability. Within 180 days of enactment, the Secretary of Energy would berequired to transmit to Congress a study on whether FERC's merger review authority is duplicativewith other agencies' authority and that would include recommendations for eliminating anyunnecessary duplication. FERC would be required to issue an annual report to Congress describingall conditions placed on mergers under Section 203(b) of the Federal Power Act. FERC would alsobe required to include in its report whether such a condition could have been imposed under anyother provision of the Federal Power Act. A similar provision was included in the conference reportof H.R. 6 in the 108th Congress.

Section 1292. Electric Utility Mergers. TheFederal Power Act would be amended to give FERC review authority for transfer of assets valuedin excess of $10 million. FERC would be required to give state public utility commissions andgovernors reasonable notice in writing. FERC would be required to establish rules to comply withthis section. Currently, under Section 203(a) of the Federal Power Act, FERC review of assettransfers applies to transactions valued at $50,000 or more. (27) A similar provision wasincluded in the conference report of H.R. 6 in the 108th Congress.

Subtitle I -- Definitions

Section 1295. Definitions. The definitions for"electric utility" and "transmitting utility" under the Federal Power Act would be amended. Definitions for the following terms would be added to the Federal Power Act: electric cooperative,regional transmission organization, independent system operator, and commission.

Section 1297. Conforming Amendments. TheFederal Power Act would be amended to conform with this title.

Subtitle K -- Economic Dispatch

Section 1298. Economic Dispatch. FERC isdirected to convene regional boards to study "security constrained economic dispatch." A memberof FERC will chair each regional joint board that is to be composed of a representative from eachstate. Within one year of enactment, FERC is required to submit a report to Congress on therecommendations of the joint regional boards. This section does not define "security constrainedeconomic dispatch" but it generally means a dispatch system that ensures that all normal andcontingency limits of the system are simultaneously met under a base case with one contingency (i.e,the loss of a critical network element, N-1 security analysis).

Other Electric Provisions

Section 504. Four Corners Transmission LineProject. The Dine Power Authority, an enterprise of the Navajo nation, would beeligible to receive grants and other assistance to develop a transmission line from the Four CornersArea to southern Nevada, including related generation facilities.

Section 1441. Continuation of Transmission SecurityOrder. On August 28, 2003, the Secretary of Energy issued Order No. 202-03-2,allowing the Cross Sound Cable between Connecticut and Long Island to begin transmitting electricpower. This provision would require the order to remain in effect unless rescinded by federal statute.

In 2002, a 24-mile 330-megawatt (MW) transmission cable was installed beneath the seabedof Long Island Sound between Connecticut and Long Island. Shortly after the line was installed, itwas determined that in several places, the cable was not buried to depths specified in permits issuedby the U.S. Army Corps of Engineers (Corps) and the Connecticut Department of EnvironmentalProtection (CDEP). While the Corps determined that operation of the cable would not poseenvironmental or navigational harm and did not object to the operation of the transmission line, theCDEP objected to the operation of the line based on procedural grounds. CDEP's position was thatoperation of the cable would violate the permit, unless the cable was installed to the permitted depthrequirements. CDEP denied a request to modify the permit.

On June 12, 2003, Cross-Sound, the owners of the cable, filed a new permit application withthe CDEP. However, on June 26, 2003, Connecticut Governor John Rowland signed into law a billextending a prohibition on considering permits or applications related to certain infrastructurecrossings of the sound. On August 14, 2003, the Northeast experienced a widespread electricblackout. In response, Secretary of Energy Spencer Abraham issued an emergency order to energizethe cross-sound cable. This order was rescinded on May 7, 2004. Long Island Power Authority(LIPA) and Cross-Sound filed a petition with FERC to have the cable re-energized by July 1, 2004. At a June 17, 2004, FERC meeting, Chairman Pat Wood asked the parties to negotiate a settlementwithin seven days, after which FERC was ready to issue an order. On June 25, 2004, the partiescame to an agreement and the cross-sound cable was re-energized.

Section 1611. Reliability and Consumer ProtectionAssessment. Within five years of enactment, and every five years thereafter, FERCwould be required to assess the effects of electric cooperative and government-owned utilities'exemption from FERC ratemaking regulation under Section 201(f) of the Federal Power Act. IfFERC found that the exemption resulted in adverse effects on consumers or electric reliability,FERC would be required to make recommendations to Congress.