APPA OVERVIEW OF EPACT APPA OVERVIEW OF EPACT 20052005

Transmission Provisions, Transmission Provisions, Merger Review, and MoreMerger Review, and More

Cindy BogoradSPIEGEL & MCDIARMID

1333 New Hampshire Ave., NWWashington, DC 20036

(202) 879-4000

November 10, 2005

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Electricity TitleElectricity Title

Most major overhaul of Federal Power Act and PUHCA since 1935

React to various problems—reliability, inadequate transmission, Enron scandals, regulatory gaps, QF machines

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Recurring ThemesRecurring Themes

Transmission infrastructure

Tradeoffs for PUHCA repeal-enhanced merger review authority

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Reliability (Reliability (EPAct05 § 1211; FPA EPAct05 § 1211; FPA § 215)§ 215)

Electric Reliability Organization to establish and enforce reliability standards with FERC oversight

Reliability standard “does not include any requirement to enlarge [bulk-power system] facilities or to construct new transmission capacity….”

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Reliability (cont’d)Reliability (cont’d)

Compliance with standards should prod transmission construction

Recovery of prudently-incurred costs to comply covered in incentive rulemaking

Periodic reports on bulk-power system reliability and adequacy

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Backstop Siting Authority Backstop Siting Authority (EPAct05 § 1221; FPA § 216)(EPAct05 § 1221; FPA § 216)

DOE to designate National Interest Electric Transmission Corridors- constraints or congestion adversely affects consumers

FERC (or where regional siting compact, DOE) may issue permit with federal eminent domain where state delays/conditions/lacks authority

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Backstop Siting Authority Backstop Siting Authority (cont’d)(cont’d)

Includes state inability to consider interstate benefits or failure to qualify requestor that does not serve end users

DOE lead agency for federal authorizations/environmental review

Expedition/reporting required

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Third-Party Finance (EPAct05Third-Party Finance (EPAct05§ 1222)§ 1222)

WAPA/SWPA participation in National Interest Electric Transmission Corridor facilities under certain circumstances

Third party funding, capped at $100 million through 2015

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Federal Utility RTO Participation Federal Utility RTO Participation (EPAct05 § 1232)(EPAct05 § 1232)

Permits TVA and PMAs to participate in RTOs

Through contracts with protections

Includes ensuring consistency with existing contracts, third-party financing arrangements, and statutory obligations

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Transmission Infrastructure Rule Transmission Infrastructure Rule (EPAct05 § 1241; FPA § 219)(EPAct05 § 1241; FPA § 219)

Incentive/performance-based rates to benefit consumers by ensuring reliability/reducing delivered power cost by reducing congestion

Promote transmission investment “regardless of the ownership”

Technologies to increase capacity/efficiency

Return that attracts new investment

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Transmission Infrastructure Transmission Infrastructure Rulemaking – RTO ParticipationRulemaking – RTO Participation

To the extent within jurisdiction, FERC to provide incentives to each transmitting utility and electric utility that joins an RTO/ISO

Ensure any costs recoverable under this subsection may be recovered through utility’s transmission rates or RTO/ISO rates

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Transmission Infrastructure Transmission Infrastructure RulemakingRulemaking

Little in the way of specifics

All subject to just, reasonable and not unduly discriminatory standard

Flexibility to design rates that get needed transmission built at reasonable cost, e.g., by reducing risks and/or accessing new sources of capital

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Participant Funding Participant Funding (EPAct05 § (EPAct05 § 1242)1242)

Far less prescriptive than last bill

Permissive to FERC-may approve if just and reasonable, not unduly discriminatory and otherwise consistent with §§ 205/206

Consistent with existing law

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Native Load Service Obligation Native Load Service Obligation (EPAct05 § 1233; FPA § 217)(EPAct05 § 1233; FPA § 217)

Facilitate planning and expansion of transmission to meet reasonable needs of LSEs

Enable LSEs to secure firm transmission rights (or equivalent financial rights) on a long-term basis for long-term power supply arrangements

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Native Load Service Obligation Native Load Service Obligation (planning/long-term rights)(planning/long-term rights)

Applies in RTO and non-RTO markets (except ERCOT)

Required rulemaking to implement within organized markets

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Native Load Service Obligation Native Load Service Obligation (existing rights)(existing rights)

LSE is entitled to use existing firm rights or equivalent financial rights to meet service obligation

Preserves resource-to-load rights existing as of date of enactment

Whether through ownership, GFA, or OATT service agreement

Consistent with OATT

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Native Load Service Obligation Native Load Service Obligation (existing rights)(existing rights)

Not just TO native load

LSEs include everyone in this room; not just those serving enduse load

Include joint action agencies—obligation under long term contracts to municipal utilities that serve endusers

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Native Load Service Obligation Native Load Service Obligation (existing rights)(existing rights) N/A to PJM, NYISO, ISO-NE, and

CAISO (except certain CA rights protected against conversion)

Not directly applicable to MISO, but FERC must take policies into account when MISO changes FTR allocation methodology

Applies to SPP and other new RTOs

Separate added protections for PNW

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PUHCA Repeal TradeoffsPUHCA Repeal Tradeoffs

PUHCA, by active and passive restraints, largely restricted utilities to compact vertically integrated entities

PUHCA’s repeal will open up industry to consolidation and fragmentation in ways we can’t imagine

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Tradeoffs - Mergers (Tradeoffs - Mergers (EPAct05 EPAct05 § 1§ 1289; amending FPA 289; amending FPA §§ 203) 203)

Expanded/clarified authority to review generation acquisitions and holding company mergers

But FERC must act within 180 days, plus 180-day extension period

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Merger Review (cont’d)Merger Review (cont’d)

Maintains traditional “consistent with the public interest” test

Added test: not result in cross-subsidization of non-utility or pledge/encumbrance of utility assets unless consistent with the public interest

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Qualifying Facilities (Qualifying Facilities (EPAct05 EPAct05 § 1§ 1253;253; amending PURPA § 210) amending PURPA § 210)

Eliminate restrictions on QF ownership

No obligation to purchase from new QF unless meets new requirements

No mandatory purchase obligation for new contracts if QF has non-discriminatory access to RTO/ISO with competitive wholesale market, or comparable markets

Preservation of existing QF contracts

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Odds and EndsOdds and Ends

Eliminate 60-day wait for Section 206 refunds

Non-RUS-financed coops with less than 4 million MWh sales removed from FERC jurisdiction

Sense of Congress that FERC should consider state objections to LICAP

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Bottom lineBottom line

Many, many rulemakings

Expanded FERC regulatory and enforcement tools

Costs won’t go down

Life won’t get less complicated