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A Preliminary Agenda of Issues
for Comprehensive Reform
of Federal Electricity Laws
Charles Curtis, Deputy Secretary, Department of Energy
This addendum presents a preliminary agenda of issues to be considered in the debate on comprehensive legislation. This list is not intended to be exhaustive, but rather to highlight some of the most important issues for consideration. The issues discussed below fall into three areas: refining the boundaries of State and Federal regulatory jurisdiction; reexamining elements of substantive electricity policy embodied in Federal law; and firming up the statutory basis for policy reforms pursued by Federal regulatory agencies. Note that the Department has not yet developed policy proposals with respect to some of these issues.
With this caveat, however, let me say a little about the Department's vision of how the Federal laws might be usefully restructured in light of the industry transition if Congress chooses to take on this task. First, in our view, it is the State's role to determine what kind of retail service it wants -- whether to continue to rely on a regulated monopoly or to allow for customer choice. This policy suggests changes to Federal law to permit States to make this choice -- including, for example, modifying the Federal Power Act to eliminate the uncertainty as to whether Federal law preempts State efforts to order retail wheeling, and amending PUHCA to permit EWGs to make retail sales where permitted by State law. Second, we see it to be FERC's role to regulate unbundled transmission services on the interconnected interstate transmission grid, setting the rates, terms and conditions for these services. If necessary, Federal law should be amended to support this role for FERC. Third, we believe the market will be well served if Federal and State regulators are authorized and encouraged to reach agreements among themselves about how to arrange regulatory responsibilities, and Federal law should be amended to empower Federal regulators to make and implement such jurisdictional agreements. In the area of refining the boundaries of State and Federal regulatory jurisdiction, the areas for Congressional consideration include:
- State Authority to Order Retail Wheeling. While it is clear that the FERC cannot order retail wheeling under current law, the preemptive effect of the Federal Power Act on State efforts to order retail wheeling is simply unclear. Because a conclusive judicial resolution of this preemption issue may take years, Congress could usefully address the question in the context of any restructuring of the electricity statutes Congress may undertake. As mentioned above, we are inclined to eliminate any question of Federal preemption, and permit States to make this decision on the merits.
- Regulating Rates for Retail Wheeling. In our view, the Federal Power Act clearly vests jurisdiction to regulate the terms and conditions of unbundled transmission services, whether "wholesale" or "retail," in the FERC. However, a number of State commissions take a different view on retail transmission services, and legislative resolution of this issue may be helpful. While DOE believes that leaving with FERC the necessary authority to regulate the interstate transmission grid is essential, any ambiguity in the current law is best resolved by Congress rather than the courts
- State Jurisdiction to Impose Wires Charges. In the MegaNOPR, FERC offered proposed guidance on distinguishing "transmission" from "distribution" with the apparent intent of providing States with jurisdiction over some element of virtually every direct access transaction, thereby permitting effective State imposition of a wires charge. Whether FERC's proposed distinction will withstand court challenge, however, remains uncertain. Given the residual legal uncertainty, Congress might usefully consider whether to amend the Federal Power Act to provide an unassailable jurisdictional hook for a State-imposed wires charge.
- Federal-State Jurisdictional Agreements. There are numerous gaps and overlaps in the jurisdictions of the Federal and State agencies that regulate the electric power industry, and the consequences of these jurisdictional problems will worsen as this dynamic market evolves. Congress should consider authorizing FERC and the SEC to reach binding jurisdictional agreements with each other and with States, which would permit the regulators to clarify and adjust jurisdiction at the margins without the need for further amendments to Federal law. This authority might specifically address the growing need for effective arrangements to facilitate regional regulation. Congress should also consider giving Federal regulators greater exemptive authority.
- Reform of the Public Utility Holding Company Act and the Public Utility Regulatory Policies Act. The proposals to reform PUHCA and section 210 of PURPA deserve serious and careful attention. In any case, changes to PUHCA to permit Exempt Wholesale Generators to sell to end use customers where States have chosen to permit retail competition would appear to be necessary to give full effect to a customer choice option.
- Diversification/Renewable Energy/Demand Side Management. Congress should consider whether changes in Federal statutes are necessary to ensure appropriate consideration of environmental and energy security goals in the new markets for electrical generation. PURPA has been a principal policy driver to promote diversity in power generation and the market penetration of renewables. The effectiveness of PURPA incentives have diminished significantly as markets have become more competitive. We need to develop a long term position on whether we want to give favorable treatment to certain technologies or fuels and, if so, how. These questions should not be addressed until we have a broader shared vision of the future industry and how it is to be regulated.
- Wholesale Transmission Access. FERC is scheduled to complete its open access rulemaking -- which DOE strongly supports -- later this year. Some parties have, however, raised questions about FERC's authority to promulgate the proposed rule, and a judicial test of FERC's authority seems likely. If Congress chooses to legislate to address some of the issues identified above, Congress might also consider whether to make changes to the Federal Power Act to clarify FERC's authority and fortify the rule against attack in the courts.
- FERC Stranded Cost Recovery. FERC has proposed to address wholesale stranded costs in its ongoing rulemaking. However, questions have been raised about FERC's authority to implement elements of its proposal -- particularly stranded cost recovery relating to municipalization and recovery of retail stranded costs where States do not have sufficient authority to collect such costs. Federal Power Act amendments to address any legal uncertainty may be appropriate.
- Independent System Operators. The Department believes the trend to the establishment of independent system operators and power exchange markets, particularly on a regional basis, is positive and should be nurtured. There appears to be ample authority for FERC to approve arrangements involving independent system operators, but Congress may wish to consider whether FERC needs supplemental authority to speed this development.
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Last modified: February 21, 1996
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