TEXAS ELECTRICITY
SERVICES

Key Provisions in the Electricity Title
The electricity title of the bill includes the following key provisions:

Reliability - Provides for a system of mandatory reliability standards to be developed and enforced by an Electric Reliability Organization (ERO) subject to FERC oversight. The ERO will have jurisdiction over all users, owners, and operators of the bulk power system, including public power systems and cooperatives. FERC will issue a final rule implementing the provision within 180 days of the date of enactment and will review applications from organizations seeking to serve as the ERO thereafter. (§1211, adding FPA §215)

Siting Authority - Requires DOE to designate “national interest electric transmission corridors” in areas with capacity constraints or congestion. Allows FERC to authorize transmission projects in those corridors if a State cannot or does not authorize a project within one year or authorizes a project subject to unreasonable conditions. FERC authorization grants the permit holder authority to exercise eminent domain to acquire the right of way. (§1221, adding FPA §216)

Federal Utility Participation in Transmission Organizations - Authorizes the TVA, BPA, and the PMAs to join “Transmission Organizations” including RTOs, ISOs, or other FERC-approved transmission organizations. (§1232)

Transmission Incentives - Requires FERC to establish incentive-based transmission rate policies to attract capital investment and allow recovery for compliance with reliability requirements. (§1241, adding FPA §219). Also directs FERC to encourage deployment of advanced transmission technologies. (§1223)

Participant Funding - Authorizes FERC to approve participant funding plans, without requiring participation in an RTO or ISO. (§1242)

Native Load Protection - Entitles load serving entities 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. (§1233, adding FPA §217). Prohibits FERC from requiring any entity located in the Pacific Northwest that holds firm transmission rights to convert those to tradable or financial rights. (§1235, adding FPA §218).

“FERC Lite” - Authorizes FERC to subject transmission-owing public power systems and cooperatives to certain open access transmission requirements. (§1231, adding FPA §211A)

PUHCA Repeal - Repeals the Public Utility Holding Company Act, effective six months from the date of enactment. Grants FERC and state regulators expanded authority to access books and records of utility affiliates for purposes of utility rate regulation. (§§1261-1277)

Merger Review - Authorizes FERC review of holding company mergers. Requires FERC to expedite review of merger applications and provides that applications not acted upon within maximum of 360 days will be deemed granted. (§1289, amending FPA §203)

Economic Dispatch - Requires FERC to establish joint boards, consisting of state and FERC representatives on a regional basis to consider economic dispatch. FERC must report to Congress within one-year on the recommendation of the joint boards. (§1298, adding FPA §223.) DOE to conduct a study on economic dispatch and report to Congress within 90 days of enactment and to update the study annually. (§1832)

Market Manipulation - Prohibits filing false information and “any manipulation or deceptive device or contrivance… in contravention of such rules and regulations as the Commission may prescribe.” (§§1282 & 1283, adding FPA §§221 & 222)

Market Transparency - Authorizes FERC to issue rules on price transparency and access of information in electric sales markets and to enter into a Memorandum of Understanding with the Commodity Futures Exchange Commission (CFTC) relating to information sharing. Allows FERC to issue rules establishing publicly accessible electronic system on wholesale sales and transmission data. (§1281, adding FPA §220)

Cramming and Slamming - Authorizes FTC to issue rules on retail marketing techniques referred to as “cramming” and “slamming.” (§1287)

Civil and Criminal Penalties - Increases civil penalties for violations of the FPA to $1,000,000 per day and extends civil penalty sanctions to any violation of Part II of the Federal Power Act or any related FERC rules or orders. Also increases criminal penalties. (§1284, amending FPA §§316 & 316A)

Sanctions for Market Manipulation - Permits FERC to seek injunctions prohibiting persons or corporations found to have engaged in energy market manipulation from engaging in transactions subject to FERC’s jurisdiction. (§1288, amending FPA §314 (note that the section refers to violations of FPA §221 on false information as opposed to § 222 on market manipulation but this is likely a technical error))

Refund Authority - Authorizes FERC to provide refund remedies from the date a complaint is filed. Allows FERC to order refunds from certain large public power systems for “short-term” wholesale sales made in violation of FERC rules. (§1286, amending FPA §206)

“Relief for Extraordinary Violations” - Provides FERC with exclusive jurisdiction to determine if termination payments required in certain contracts entered into in the Western Interconnection are just and reasonable and in the public interest. (§1290)

PURPA: Qualifying Facilities - Eliminates limitations on utility ownership of QFs. Eliminates, prospectively, the PURPA “must buy” requirement where the qualifying facility (QF) has access to competitive wholesale markets. Prospectively eliminates “must sell” obligation where QF has the ability to purchase from another seller and state law does not impose an obligation to serve. Requires FERC to revise the criteria for qualifying cogenerators. (§1253)

PURPA: State Proceedings - Requires State commissions and nonregulated utilities to conduct proceedings to consider adoption of new Federal standards on net metering, fuel diversity, fossil fueled plant efficiency, smart metering and demand response, and interconnection. (§§1251, 1252, & 1254)

Key Electricity Related Tax Provisions
The tax title also includes important electricity-related provisions, including:

Extension and Modification of Renewable Electricity Production Credit - Extends the placed-in-service date by two years (through December 31, 2007) for qualifying facilities: wind facilities; closed-loop biomass facilities; open-loop biomass facilities; geothermal facilities; small irrigation power facilities; landfill gas facilities; and trash combustion facilities. (The dates for solar and refined coal remain unchanged.) Most qualifying facilities receive a 1.9¢/KWH credit for electricity produced over a 10 year period. Hydropower and Indian coal are added as new qualifying energy resources.

Credit for Investment in Clean Coal Facilities - Establishes investment tax credits for IGCC, advanced coal-based generation and industrial gasification. The Secretary of Treasury may allocate up to $800 million for IGCC projects, up to $500 million for other advanced coal-based technologies and up to $350 million for industrial gasification. Tax credit bonds (see description of CREBs below) cannot be issued for these facilities.

Clean Renewable Energy Bonds - Creates a new category of tax credit bonds, known as Clean Renewable Energy Bonds (“CREBs”). Tax credit bonds are zero-interest bonds the holder of which receives a tax credit instead of interest. CREBs are issued by a qualified issuer to finance capital expenditures incurred for facilities qualifying for tax credit under section 45. Qualified issuers include governmental bodies (including Indian tribal governments) and electric cooperatives. Provision is effective for bonds issued after December 31, 2005.

Implementation and Implications
Once the energy bill is signed into law, the focus will shift from Congress to FERC and other agencies. FERC in particular will conduct rulemakings on a number of issues, including reliability, transmission pricing, and PURPA. In most cases, the rules will be completed on relatively short timeframes. The Department of Energy and State commissions also have implementation responsibilities for new electricity title provisions that will require rulemakings or other administrative proceedings.

In addition, the bill did not, in the end, include a renewable portfolio standard. The Senate version of the bill did include a requirement that utilities have renewable supplies equal to 2.5 percent of the electricity they sell at retail in 2008, rising to 10 percent by 2020. The House bill did not include such a provision. During the Conference Committee meetings, the issue was the subject of spirited debate and serious consideration but members were unable to reach agreement on the method and approach for such a standard. However, Rep. Barton, Chairman of the House Energy Committee, indicated that this was an issue whose time has come and indicated that this issue would come before his Committee in the near future.

Electricity industry participants will need to digest the changed statutory framework, monitor and participate in the administrative proceedings to implement the new provisions, 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.

Doug Smith, Janet Woodka & Curt Rich
Dalemartin-Hubbell