Electricity Reforms Move Toward Enactment as House-Senate Conference Clears Energy Legislation
On November 17, Congress moved one step closer to enactment of comprehensive
energy legislation as the Conference Committee approved the conference
report on H.R. 6. The bill addresses a wide range of energy
issues and includes numerous reforms to the Federal statutes on electric
industry regulation. The conference report will now be considered by
the House of Representatives and the Senate.
Key Provisions in the Electricity Title
The electricity title of the bill that cleared the conference includes the
following key provisions:
Electricity Reliability – Provides for a system of
mandatory reliability standards to be developed and enforced by an
industry-comprised Electric Reliability Organization subject to FERC
Siting Authority – Authorizes FERC to issue permits for the construction
or modification of transmission facilities in DOE-identified “interstate
congestion areas” if a state has withheld approval or unduly conditioned
approval for such projects.
Transmission Infrastructure Investment – Directs FERC to conduct a
rulemaking on pricing policies to promote investments in transmission
Standard Market Design Deferral – Prohibits FERC from issuing any final
rule on Standard Market Design (SMD), or any rule “within the scope” of the
SMD proposal, prior to October 31, 2006, and any such rule cannot be
effective before December 31, 2006.
RTO Development – States a sense of the Congress that all transmitting
utilities should voluntarily become members of independently administered
regional transmission organizations (RTOs). Authorizes Federal utilities to
join RTOs. Provides rate incentives for transmission-owning utilities that
Native Load Protection – Requires FERC to ensure that load serving
entities are allowed to use transmission facilities and transmission
contract rights to meet service obligations to native load customers before
transmission capacity is made available to other parties.
Participant Funding – Allows utilities to implement participant funding
in transmission rates if FERC finds that utility plans satisfy statutory
“FERC Lite” – Authorizes FERC to require public power systems and
cooperatives to provide open access transmission service.
PUHCA Repeal – Repeals the Public Utility Holding Company Act, effective
one year from enactment of the legislation. Grants FERC and state regulators
authority to access the books and records of utility affiliates for purposes
of utility rate regulation.
Merger Review – Authorizes FERC review of holding company mergers.
Provides new statutory factors for evaluating whether a merger is in the
public interest. Requires FERC to expedite the review of merger applications
and provides that applications not acted upon within the statutory time
frames (360 days at most) will be deemed granted.
Market Manipulation – Prohibits wash trading, round-trip trades, and
false reporting to Federal agencies of wholesale prices or available
Market Transparency – Directs FERC to issue rules establishing a publicly
accessible electronic system on wholesale sales and transmission data.
Exempts from disclosure information that would be detrimental to the
operation of an effective market or would jeopardize system security.
Civil and Criminal Penalties – Increases civil penalties for violations
of the Federal Power Act (FPA) to $1,000,000 per day and extends civil
penalty sanctions to any violation of Part II of the FPA or any related FERC
rules or orders. Also increases criminal penalties.
Refund Authority – Authorizes FERC to provide refund remedies from the
date a complaint is filed. Authorizes FERC to order refunds by large public
power systems if short-term wholesale sales are made in violation of FERC
Contract Review – Applies a “public interest” standard for FERC review of
contracts unless contract expressly provides for a different standard.
PURPA: Qualifying Facilities – Eliminates, prospectively, the PURPA “must
buy” requirement where the qualifying facility (QF) has access to fully
competitive wholesale markets. Eliminates “must sell” obligation where QF
has access to competitive retail suppliers. Eliminates limitations on
utility ownership of QFs. Requires a FERC rulemaking on new criteria for
PURPA: State Proceedings – Requires State commissions and non-regulated
utilities to conduct proceedings to consider the adoption of new Federal
standards on net metering, fuel diversity, fossil plant efficiency and smart
Consumer Protections – Authorizes the Federal Trade Commission to
promulgate rules prohibiting cramming and slamming.
Next Steps for Energy Legislation
H.R. 6 is scheduled for consideration and a vote by the House of
Representatives today. Amendments are not allowed to a conference report, so
the House may vote to approve the report, reject the report, or recommit the
report back to the conference committee. Most expect the House to approve
the report. Consideration in the Senate could begin as early as tomorrow. It
is expected to be more difficult and timeconsuming than the House debate,
although a desire to recess for the year could expedite action on the bill.
During its consideration, the Senate has the option of approving the report,
rejecting it, tabling it, or requesting a new conference. In the Senate, the
motion to proceed to consideration of the conference report may be
Implementation and Implications
If the energy bill is enacted, governmental activity will shift from
Congress to FERC and other agencies. FERC in particular will be required to
conduct rulemakings on a number of issues, including reliability,
transmission pricing, PURPA, PUHCA and market transparency. In many cases,
the rules are to be completed on relatively short time frames. Key
interpretations and policies on other issues, such as participant funding
and native load protection, are likely to emerge from individual cases
considered at FERC. The Department of Energy, the Federal Trade Commission,
and State commissions also have implementation responsibilities for new
electricity title provisions.
FERC has announced that it plans to hold workshops in December to
consider issues relating to implementation of the legislation, beginning
with a discussion on reliability issues on December 1. Further sessions on
other aspects of the bill are expected to be held on December 15 and 16.
Likewise, electricity industry participants will themselves need to
digest the changed statutory framework and take steps to adjust their
business strategies as appropriate. Important ground rules will change for
all market players – transmission owners, transmission customers, generators
and power marketers, holding companies, qualifying facilities, public power
and the cooperatives – and it is important for all of these players to
determine exactly how these changes are going to impact their businesses.
Doug Smith & Janet Woodka