• Energy Policy Act of 2003 Approved by House
  • May 19, 2003
  • Law Firm: Orrick, Herrington & Sutcliffe LLP - San Francisco Office
  • Last Friday the U.S. House of Representatives, in a contentious 247-175 vote, approved "America's first comprehensive national energy policy in more than a decade," the Energy Policy Act of 2003. The legislation proposes to modify FERC's jurisdiction over public power (federal agencies, municipal companies, and rural cooperatives), addresses transmission design, repeals PUHCA, and establishes alternative energy programs. Most significantly, the legislation addresses concerns about FERC's standard market design proposal. In order to alleviate concerns from southern and western states about the federalization of the transmission grid, native load requirements would be guaranteed before any load serving entity makes transmission capacity available to third parties. In effect, the provision would dilute FERC's proposal to develop SMD for the entire country, and instead, according to Congressman Charles Norwood (R-Ga.), who authored the provision, would protect consumers in states where transmission and generation capacity are already abundant. At the same time, the legislation includes a "savings clause" to ensure the native load provision does not interfere with the operations of existing ISOs (including PJM, New York ISO, ISO New England, and the California ISO).

    Other provisions of the bill would subject public power to limited FERC jurisdiction under a "comparability" standard for transmission service. FERC would have authority to require government and cooperatively owned transmission providers to provide "open access" transmission service in a non-discriminatory manner under rates comparable to what it would charge itself for transmission. Certain small public power entities that do not own or operate interstate transmission facilities would be exempt from the open access requirement. The bill also recognizes the need for additional transmission lines by reducing the cost recovery period for these investments to 15 years. FERC also would be granted limited "last resort" siting authority for transmission lines to alleviate congestion, other than in Texas, upon a designation by DOE (to be conducted triennially) that a geographic area is experiencing congestion and the relevant state has not acted to alleviate the problem.

    Utilities would be encouraged to join independent regional transmission organizations (RTOs) by recommending that FERC allow any transmitting utility that joins an RTO to earn an enhanced return on equity. FERC also would be required to provide a status report to Congress within 120 days of enactment of the status of each proposed RTO. Federal power marketing agencies and the TVA also would be authorized to join an RTO. Other provisions provide for relatively "light" market transparency rules (as compared to previous proposals), "roundtrip" trading would be banned, and fines and penalties would be increased up to $1,000,000 for violations of the Federal Power Act. The House measure also would repeal the Public Utility Holding Company Act of 1935, but in contrast to previous legislative initiatives, does not propose replacement provisions.

    At the same time competing comprehensive energy legislation is winding its way through the Senate, which intends to consider the bill after the Spring recess. A controversial provision of that bill, proposed by Sen. Pete Domenici, R-NM, and chair of the Energy & Natural Resources Committee, would establish multi-state Regional Energy Services Commissions (RESCs). Each RESC would operate as a "regional FERC" and would have similar authority over transmission. The RESCs would coordinate their own regional transmission and market designs, providing states an unprecedented alternative to FERC jurisdiction over the regulation of wholesale markets. The RESC proposal has encountered widespread opposition and is likely to be deleted before the legislation emerges from committee.