GETTING THE ACT TOGETHER

Electric Perspectives, Jan/Feb 2006

The process of implementing the provisions of the Energy Policy Act of 2005 continues. And over 2006, in the next weeks and months, the Federal Energy Regulatory Commission (FERC) and Department of Energy (DOE) will offer direction and rules on several issues important to shareholderowned electric companies. There's a lot on the plate.

Economic dispatch. The act directed DOE to study how electric companies make decisions on economic dispatch-that is, how they decide to power up the lowest-cost unit available to serve the next increment of load. Many in the industry want to avoid a federal mandate on such decisions (including decisions on "efficient" dispatch, which refers only to a plant's heat-rate, as opposed to other "economic" issues like environmental controls, transmission, etc.). A mandate might also create conflicts with state and transmission organization processes, affect reliability efforts, and lead to stranded costs.

Edison Electric Institute (EEI) filed comments on September 21 on the study's format. To generally good industry reviews, DOE issued the first of its annual economic dispatch reports last November. In addition, FERC has formed four federal/state joint boards on security-constrained economic dispatch-they met during November and will continue to meet through the first part of 2006. The commission expects the boards' report by May 2, 2006, so FERC can issue recommendations to Congress by August 7.

Reliability. FERC is on the way to establishing rules for an electric reliability organization (ERO), which would propose and enforce mandatory reliability standards. One focus is how the ERO delegates authority to regional reliability entities and the assurance of consistency among regions (with the allowance for some regional differences). Another focus is creating a process for improving standards over time. The industry generally supports a strong era with top-down enforcement and rigorous fere oversight.

FERC issued a notice of proposed rulemaking (NOPR) in early September; EEI filed comments in early October. The commission released a draft order in December and will issue its final rule on February 6.

Repeal of the Public Utility Holding Company Act of 1935. This is actually the repeal of the 1935 act in conjunction with the enactment of PUHCA 2005-EEI filed comments in October, and FERC issued the final rule in December, which is effective on February 6. PUHCA 2005 supplements FERC's authority to review company books and records but does not impose as heavy a regulatory regime as the security and Exchange Commission's.

Merger reform. FERC is to issue rules to extend the scope of its merger authority to include the transfers of generation assets with a value above $10 million. As part of this process, the commission also must define what an existing generation facility is and devise a way to measure the transaction's value. Many in the industry want FERC to maintain its current process for addressing whether a proposed merger would result in the cross-subsidization of affiliated nonutility companies. EEI filed comments in early November. FERC expects to issue its final rule on February 8.

Repeal of the Public Utility Regulatory Policies Act of 1978. The Energy Policy Act discards the requirement for mandatory purchase from PURPA's qualifying facilities (QFs) by electric utilities if a competitive market exists. The act also establishes new criteria for facilities. Most in the industry want FERC to define competitive wholesale market and QF criteria broadly enough so as to eliminate the mandatory purchase obligation in regional transmission organizations and independent system operators, and to ensure that utilities can recover their costs. Last October, EEI produced for FERC a white paper outlining industry concerns and filed comments on the commission's NOPR in early November. The commission will issue the final rule on February 6.

Market manipulation. FERC was to issue rules at the end of December for prohibiting market manipulation. Many felt that in the NOPR, released in October, the commission did not fully consider how to apply securities law concepts to electric and natural gas markets-the fear is that this may aggravate regulatory uncertainty. The industry generally urged FERC to issue a single market manipulation rule incorporating prohibitions from its current market behavior rules with the intent standard applied by the securities and I Exchange Commission.

Other issues are also on the 2006 plate-among them, rules and direction on appliance standards, demand response, hydropower facilities, market behavior, and transmission pricing incentives, rights, and siting. In addition, FERC is inviting comments on open access transmission tariff reform-a subject that has an effect on many parts of the act.