[Senate Report 106-324]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 642
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-324

======================================================================



 
                     ELECTRIC RELIABILITY 2000 ACT

                                _______
                                

                 June 28, 2000.--Ordered to be printed

                                _______
                                

  Mr. Murkowski, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2071]

    The Committee on Energy and Natural Resources, to which was 
referred the bill (S. 2071) to benefit electricity consumers by 
promoting the reliability of the bulk-power system, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill, as amended, do pass.
    The amendment is as follows:
    Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

    This Act maybe cited as the ``Electric Reliability 2000 Act''.

SEC. 2. ELECTRIC RELIABILITY ORGANIZATION.

    (a) In General.--Part II of the Federal Power Act (16 U.S.C. 824 et 
seq.) is amended by adding at the end the following:

``SEC. 215. ELECTRIC RELIABILITY ORGANIZATION.

    ``(a) Definitions.--In this section:
          ``(1) Affiliated regional reliability entity.--The term 
        `affiliated regional reliability entity' means an entity 
        delegated authority under subsection (h).
          ``(2) Bulk-power system.--
                  ``(A) In general.--The term `bulk-power system' means 
                all facilities and control systems necessary for 
                operating an interconnected electric power transmission 
                grid or any portion of an interconnected transmission 
                grid.
                  ``(B) Inclusions.--The term `bulk-power system' 
                includes--
                          ``(i) high voltage transmission lines, 
                        substations, control centers, communications, 
                        data, and operations planning facilities 
                        necessary for the operation of all or any part 
                        of the interconnected transmission grid; and
                          ``(ii) the output of generating units 
                        necessary to maintain the reliability of the 
                        transmission grid.
          ``(3) Bulk-power system user.--The term `bulk-power system 
        user' means an entity that--
                  ``(A) sells, purchases, or transmits electric energy 
                over a bulk-power system; or
                  ``(B) owns, operates, or maintains facilities or 
                control systems that are part of a bulk-power system; 
                or
                  ``(C) is a system operator.
          ``(4) Electric reliability organization.--The term electric 
        reliability organization means the organization designated by 
        the Commission under subsection (d).
          ``(5) Entity rule.--The term `entity rule' means a rule 
        adopted by an affiliated regional reliability entity for a 
        specific region and designed to implement or enforce 1 or more 
        organization standards.
          ``(6) Independent director.--The term `independent director' 
        means a person that--
                  ``(A) is not an officer or employee of an entity that 
                would reasonably be perceived as having a direct 
                financial interest in the outcome of a decision by the 
                board of directors of the electric reliability 
                organization; and
                  ``(B) does not have a relationship that would 
                interfere with the exercise of independent judgment in 
                carrying out the responsibilities of a director of the 
                electric reliability organization.
          ``(7) Industry sector.--The term `industry sector' means a 
        group of bulk-power system users with substantially similar 
        commercial interests, as determined by the board of directors 
        of the electric reliability organization.
          ``(8) Interconnection.--The term `interconnection' means a 
        geographic area in which the operation of bulk-power system 
        components is synchronized so that the failure of 1 or more of 
        the components may adversely affect the ability of the 
        operators of other components within the interconnection to 
        maintain safe and reliable operation of the facilities within 
        their control.
          ``(9) Organization standard.--
                  ``(A) In general.--The term `organization standard' 
                means a policy or standard adopted by the electric 
                reliability organization to provide for the reliable 
                operation of a bulk-power system.
                  ``(B) Inclusions.--The term `organization standard' 
                includes--
                          ``(i) an entity rule approved by the electric 
                        reliability organization; and
                          ``(ii) a variance approved by the electric 
                        reliability organization.
          ``(10) Public interest group.--
                  ``(A) In general.--The term `public interest group' 
                means a nonprofit private or public organization that 
                has an interest in the activities of the electric 
                reliability organization.
                  ``(B) Inclusions.--The term `public interest group' 
                includes--
                          ``(i) a ratepayer advocate;
                          ``(ii) an environmental group; and
                          ``(iii) a State or local government 
                        organization that regulates participants in, 
                        and promulgates government policy with respect 
                        to, the market for electric energy.
          ``(11) System operator.--
                  ``(A) In general.--The term `system operator' means 
                an entity that operates or is responsible for the 
                operation of a bulk-power system.
                  ``(B) Inclusions.--The term `system operator' 
                includes--
                          ``(i) a control area operator;
                          ``(ii) an independent system operator;
                          ``(iii) a transmission company;
                          ``(iv) a transmission system operator; and
                          ``(v) a regional security coordinator.
          ``(12) Variance.--The term `variance' means an exception from 
        the requirements of an organization standard (including a 
        proposal for an organization standard in a case in which there 
        is no organization standard) that is adopted by an affiliated 
        regional reliability entity and is applicable to all or a part 
        of the region for which the affiliated regional reliability 
        entity is responsible.
    ``(b) Commission Authority.--
          ``(1) Jurisdiction.--Notwithstanding section 201(f), within 
        the United States, the Commission shall have jurisdiction over 
        the electric reliability organization, all affiliated regional 
        reliability entities, all system operators, and all bulk-power 
        system users, including entities described in section 201(f), 
        for purposes of approving organization standards and enforcing 
        compliance with this section.
          ``(2) Definition of terms.--The Commission may by regulation 
        define any term used in this section consistent with the 
        definitions in subsection (a) and the purpose and intent of 
        this Act.
    ``(c) Existing Reliability Standards.--
          ``(1) Submission to the commission.--Before designation of an 
        electric reliability organization under subsection (d), any 
        person, including the North American Electric Reliability 
        Council and its member Regional Reliability Councils, may 
        submit to the Commission any reliability standard, guidance, 
        practice, or amendment to a reliability standard, guidance, or 
        practice that the person proposes to be made mandatory and 
        enforecable.
          ``(2) Review by the commission.--The Commission, after 
        allowing interested persons an opportunity to submit comments, 
        may approve a proposed mandatory standard, guidance, practice, 
        or amendment submitted under paragraph (1) if the Commission 
        finds that the standard, guidance, or practice is just, 
        reasonable, not unduly discriminatory or preferential, and in 
        the public interest.
          ``(3) Effect of approval.--A standard, guidance, or practice 
        shall be mandatory and applicable according to its terms 
        following approval by the Commission and shall remain in effect 
        until it is--
                  ``(A) withdrawn, disapproved, or superseded by an 
                organization standard that is issued or approved by the 
                electric reliability organization and made effective by 
                the Commission under section (e); or
                  ``(B) disapproved by the Commission if, on complaint 
                or upon motion by the Commission and after notice and 
                an opportunity for comment, the Commission finds the 
                standard, guidance, or practice to be unjust, 
                unreasonable, unduly discriminatory or preferential, or 
                not in the public interest.
          ``(4) Enforceability.--A standard, guidance, or practice in 
        effect under this subsection shall be enforceable by the 
        Commission.
    ``(d) Designation of Electric Reliability Organization.--
          ``(1) Regulations.--
                  ``(A) Proposed regulations.--Not later than 90 days 
                after the date of enactment of this section, the 
                Commission shall propose regulations specifying 
                procedures and requirements for an entity to apply for 
                designation as the electric reliability organization.
                  ``(B) Notice and comment.--The Commission shall 
                provide notice and opportunity for comment on the 
                proposed regulations.
                  ``(C) Final regulation.--Not later than 180 days 
                after the date of enactment of this section, the 
                Commission shall promulgate final regulations under 
                this subsection.
          ``(2) Application.--
                  ``(A) Submission.--Following the promulgation of 
                final regulations under paragraph (1), an entity may 
                submit an application to the Commission for designation 
                as the electric reliability organization.
                  ``(B) Contents.--The applicant shall describe in the 
                application--
                          ``(i) the governance and procedures of the 
                        applicant; and
                          ``(ii) the funding mechanism and initial 
                        funding requirements of the applicant.
          ``(3) Notice and comment.--The Commission shall--
                  ``(A) provide public notice of the application; and
                  ``(B) afford interested parties an opportunity to 
                comment.
          ``(4) Designation of electric reliability organization.--The 
        Commission shall designate the applicant as the electric 
        reliability organization if the Commission determines that the 
        applicant--
                  ``(A) has the ability to develop, implement, and 
                enforce standards that provide for an adequate level of 
                reliability of bulk-power systems;
                  ``(B) permits voluntary membership to any bulk-power 
                system user or public interest group;
                  ``(C) ensures fair representation of its members in 
                the selection of its directors and fair management of 
                its affairs, taking into account the need for 
                efficiency and effectiveness in decisionmaking and 
                operations and the requirements for technical 
                competency in the development of organization standards 
                and the exercise of oversight of bulk-power system 
                reliability;
                  ``(D) ensures that no 2 industry sectors have the 
                ability to control, and no 1 industry sector has the 
                ability to veto, the applicant's discharge of its 
                responsibilities as the electric reliability 
                organization (including actions by committees 
                recommending standards for approval by the board or 
                other board actions to implement and enforce 
                standards);
                  ``(E) provides for governance by a board wholly 
                comprised of independent directors;
                  ``(F) provides a funding mechanism and requirements 
                that--
                          ``(i) are just, reasonable, not unduly 
                        discriminatory or preferential and in the 
                        public interest; and
                          ``(ii) satisfy the requirements of subsection 
                        (1);
                  ``(G) has established procedures for development of 
                organization standards that--
                          ``(i) provide reasonable notice and 
                        opportunity for public comment, taking into 
                        account the need for efficiency and 
                        effectiveness in decisionmaking and operations 
                        and the requirements for technical competency 
                        in the development of organization standards;
                          ``(ii) ensure openness, a balancing of 
                        interests, and due process; and
                          ``(iii) includes alternative procedures to be 
                        followed in emergencies;
                  ``(H) has established fair and impartial procedures 
                for implementation and enforcement of organization 
                standards, either directly or through delegation to an 
                affiliated regional reliability entity, including the 
                imposition of penalties, limitations on activities, 
                functions, or operations, or other appropriate 
                sanctions;
                  ``(I) has established procedures for notice and 
                opportunity for public observation of all meetings, 
                except that the procedures for public observation may 
                include alternative procedures for emergencies or for 
                the discussion of information that the directors 
                reasonably determine should take place in closed 
                session, such as litigation, personnel actions, or 
                commercially sensitive information;
                  ``(J) provides for the consideration of 
                recommendations of States and State commissions; and
                  ``(K) addresses other matters that the Commission 
                considers appropriate to ensure that the procedures, 
                governance, and funding of the electric reliability 
                organization are just, reasonable, not unduly 
                discriminatory or preferential, and in the public 
                interest.
          ``(5) Exclusive designation.--
                  ``(A) In general.--The Commission shall designate 
                only 1 electric reliability organization.
                  ``(B) Multiple applications.--If the Commission 
                receives 2 or more timely applications that satisfy the 
                requirements of this subsection, the Commission shall 
                approve only the application that the Commission 
                determines will best implement this section.
    ``(e) Organization Standards.--
          ``(1) Submission of proposals to commission.--
                  ``(A) In general.--The electric reliability 
                organization shall submit to the Commission proposals 
                for any new or modified organization standards.
                  ``(B) Contents.--A proposal submitted under 
                subparagraph (A) shall include--
                          ``(i) a concise statement of the purpose of 
                        the proposal; and
                          ``(ii) a record of any proceedings conducted 
                        with respect to the proposal.
          ``(2) Review by the commission.--
                  ``(A) Notice and comment.--The Commission shall--
                          ``(i) provide notice of a proposal under 
                        paragraph (1); and
                          ``(ii) allow interested persons 30 days to 
                        submit comments on the proposal.
                  ``(B) Action by the commission.--
                          ``(i) In general.--After taking into 
                        consideration any submitted comments, the 
                        Commission shall approve or disapprove a 
                        proposed organization standard not later than 
                        the end of the 60-day period beginning on the 
                        date of the deadline for the submission of 
                        comments, except that the Commission may extend 
                        the 60-day period for an additional 90 days for 
                        good cause.
                          ``(ii) Failure to act.--If the Commission 
                        does not approve or disapprove a proposal 
                        within the period specified in clause (i), the 
                        proposed organization standard shall go into 
                        effect subject to its terms, without prejudice 
                        to the authority of the Commission to modify 
                        the organization standard in accordance with 
                        the standards and requirements of this section.
                  ``(C) Effective date.--An organization standard 
                approved by the Commission shall take effect not 
                earlier than 30 days after the date of the Commission's 
                order of approval.
                  ``(D) Standards for approval.--
                          ``(i) In general.--The Commission shall 
                        approve a proposed new or modified organization 
                        standard if the Commission determines the 
                        organization standard to be just, reasonable, 
                        not unduly discriminatory or preferential, and 
                        in the public interest.
                          ``(ii) Considerations.--In the exercise of 
                        its review responsibilities under this 
                        subsection, the Commission--
                                  ``(I) shall give due weight to the 
                                technical expertise of the electric 
                                reliability organization with respect 
                                to the content of a new or modified 
                                organization standard; but
                                  ``(II) shall not defer to the 
                                electric reliability organization with 
                                respect to the effect of the 
                                organization standard on competition.
                  ``(E) Remand.--A proposed organization standard that 
                is disapproved in whole or in part by the Commission 
                shall be remanded to the electric reliability 
                organization for further consideration.
          ``(3) Orders to develop or modify organization standards.--
        The Commission, on complaint or on motion of the Commission, 
        may order the electric reliability organization to develop and 
        submit to the Commission, by a date specified in the order, an 
        organization standard or modification to an existing 
        organization standard to address a specific matter if the 
        Commission considers a new or modified organization standard 
        appropriate to carry out this section, and the electric 
        reliability organization shall develop and submit the 
        organization standard or modification to the Commission in 
        accordance with this subsection.
          ``(4) Variances and entity rules.--
                  ``(A) Proposal.--An affiliated regional reliability 
                entity may propose a variance or entity rule to the 
                electric reliability organization.
                  ``(B) Expedited consideration.--If expedited 
                consideration is necessary to provide for bulk-power 
                system reliability, the affiliated regional reliability 
                entity may--
                          ``(i) request that the electric reliability 
                        organization expedite consideration of the 
                        proposal; and
                          ``(ii) file a notice of the request with the 
                        Commission.
                  ``(C) Failure to act.--
                          ``(i) In general.--If the electric 
                        reliability organization fails to adopt the 
                        variance or entity rule, in whole or in part, 
                        the affiliated regional reliability entity may 
                        request that the Commission review the 
                        proposal.
                          ``(ii) Action by the commission.--If the 
                        Commission determines, after a review of the 
                        request, that the action of the electric 
                        reliability organization did not conform to the 
                        applicable standards and procedures approved by 
                        the Commission, or if the Commission determines 
                        that the variance or entity rule is just, 
                        reasonable, not unduly discriminatory or 
                        preferential, and in the public interest and 
                        that the electric reliability organization has 
                        unreasonably rejected or failed to act on the 
                        proposal, the Commission may--
                                  ``(I) remand the proposal for further 
                                consideration by the electric 
                                reliability organization; or
                                  ``(II) order the electric reliability 
                                organization or the affiliated regional 
                                reliability entity to develop a 
                                variance or entity rule consistent with 
                                that requested by the affiliated 
                                regional reliability entity.
                  ``(D) Procedure.--A variance or entity rule proposed 
                by an affiliated regional reliability entity shall be 
                submitted to the electric reliability organization for 
                review and submission to the Commission in accordance 
                with the procedures specifies in paragraph (2).
          ``(5) Immediate effectiveness.--
                  ``(A) In general.--Notwistanding any other provision 
                of this subsection, a new or modified organization 
                standard shall take effect immediately on submission to 
                the Commission without notice or comment if the 
                electric reliability organization--
                          ``(i) determines that an emergency exists 
                        requiring that the new or modified organization 
                        standard take effect immediately without notice 
                        or comment;
                          ``(ii) notifies the Commission as soon as 
                        practicable after making determination;
                          ``(iii) submits the new or modified 
                        organization standard to the Commission not 
                        later than 5 days after making the 
                        determination; and
                          ``(iv) includes in the submission an 
                        explanation of the need for immediate 
                        effectiveness.
                  ``(B) Notice and comment.--The Commission shall--
                          ``(i) provide notice of the new or modified 
                        organization standard or amendment for comment; 
                        and
                          ``(ii) follow the procedures set out in 
                        paragraphs (2) and (3) for review of the new or 
                        modified organization standard.
          ``(6) Compliance.--Each bulk power system user shall comply 
        with an organization standard that takes effect under this 
        section.
      ``(f) Coordination With Canada and Mexico.--
          ``(1) Recognition.--The electric reliability organization 
        shall take all appropriate steps to gain recognition in Canada 
        and Mexico.
          ``(2) International agreements.--
                  ``(A) In general.--The President shall use best 
                efforts to enter into international agreements with the 
                appropriate governments of Canada and Mexico to provide 
                for--
                          ``(i) effective compliance with organization 
                        standards; and
                          ``(ii) the effectiveness of the electric 
                        reliability organization in carrying out its 
                        mission and responsibilities.
                  ``(B) Compliance.--All actions taken by the electric 
                reliability organization, an affiliated regional 
                reliability entity, and the Commission shall be 
                consistent with any international agreement under 
                subparagraph (A).
    ``(g) Changes in Procedure, Governance, or Funding.--
          ``(1) Submission to the Commission.--The electric reliability 
        organization shall submit to the Commission--
                  ``(A) any proposed change in a procedure, governance, 
                or funding provision; or
                  ``(B) any change in an affiliated regional 
                reliability entity's procedure, governance, or funding 
                provision relating to delegated functions.
          ``(2) Contents.--A submission under paragraph (1) shall 
        include an explanation of the basis and purpose for the change.
          ``(3) Effectiveness.--
                  ``(A) Changes in procedure.--
                          ``(i) Changes constituting a statement of 
                        policy, practice, or interpretation.--A 
                        proposed change in procedure shall take effect 
                        90 days after submission to the Commission if 
                        the change constitutes a statement of policy, 
                        practice, or interpretation with respect to the 
                        meaning or enforcement of the procedure.
                          ``(ii) Other changes.--A proposed change in 
                        procedure other than a change described in 
                        clause (i) shall take effect on a finding by 
                        the Commission, after notice and opportunity 
                        for comment, that the change--
                                  ``(I) is just, reasonable, not unduly 
                                discriminatory or preferential, and in 
                                the public interest; and
                                  ``(II) satisfies the requirements of 
                                subsection (d)(4).
                  ``(B) Changes in governance or funding.--A proposed 
                change in governance or funding shall not take effect 
                unless the Commission finds that the change--
                          ``(i) is just, reasonable, not unduly 
                        discriminatory or preferential, and in the 
                        public interest; and
                          ``(ii) satisfies the requirements of 
                        subsection (d)(4).
          ``(4) Order to amend.--
                  ``(A) In general.--The Commission, on complaint or on 
                the motion of the Commission, may require the electric 
                reliability organization to amend a procedural, 
                governance, or funding provision if the Commission 
                determines that the amendment is necessary to meet the 
                requirements of this section.
                  ``(B) Filing.--The electric reliability organization 
                shall submit the amendment in accordance with paragraph 
                (1).
    ``(h) Delegations of Authority.--
          ``(1) In general.--
                  ``(A) Implementation and enforcement of compliance.--
                At the request of an entity, the electric reliability 
                organization shall enter into an agreement with the 
                entity for the delegation of authority to implement and 
                enforce compliance with organization standards in a 
                specified geographic area if the electric reliability 
                organization finds that--
                          ``(i) the entity satisfies the requirements 
                        of subparagraphs (A), (B), (C), (D), (F), (J), 
                        and (K) of subsection (d)(4); and
                          ``(ii) the delegation would promote the 
                        effective and efficient implementation and 
                        administration of bulk-power system 
                        reliability.
                  ``(B) Other authority.--The electric reliability 
                organization may enter into an agreement to delegate to 
                an entity any other authority, except that the electric 
                reliability organization shall reserve the right to set 
                and approve standards for bulk-power system 
                reliability.
          ``(2) Approval by the commission.--
                  ``(A) Submission to the commission.--The electric 
                reliability organization shall submit to the 
                Commission--
                          ``(i) any agreement entered into under this 
                        subsection; and
                          ``(ii) any information the Commission 
                        requires with respect to the affiliated 
                        regional reliability entity to which authority 
                        is delegated.
                  ``(B) Standards for approval.--The Commission shall 
                approve the agreement, following public notice and an 
                opportunity for comment, if the Commission finds that 
                the agreement--
                          ``(i) meets the requirements of paragraph 
                        (1); and
                          ``(ii) is just, reasonable, not unduly 
                        discriminatory or preferential, and in the 
                        public interest.
                  ``(C) Rebuttable presumption.--A proposed delegation 
                agreement with an affiliated regional entity organized 
                on an interconnection-wide basis shall be rebuttably 
                presumed by the Commission to promote the effective and 
                efficient implementation and administration of the 
                reliability of the bulk-power system.
                  ``(D) Invalidity absent approval.--No delegation by 
                the electric reliability organization shall be valid 
                unless the delegation is approved by the Commission.
          ``(3) Procedures for entity rules and variances.--
                  ``(A) In general.--A delegation agreement under this 
                subsection shall specify the procedures by which the 
                affiliated regional reliability entity may propose 
                entity rules or variances for review by the electric 
                reliability organization.
                  ``(B) Interconnection-wide entity rules and 
                variances.--In the case of a proposal for an entity 
                rule or variance that would apply on an 
                interconnection-wide basis, the electric reliability 
                organization shall approve the entity rule or variance 
                unless the electric reliability organization makes a 
                written finding that the entity rule or variance--
                          ``(i) was not developed in a fair and open 
                        process that provided an opportunity for all 
                        interested parties to participate;
                          ``(ii) would have a significant adverse 
                        impact on reliability or commerce in other 
                        interconnections;
                          ``(iii) fails to provide a level of 
                        reliability of the bulk-power system within the 
                        interconnection such that the entity rule or 
                        variance would be likely to cause a serious and 
                        substantial threat to public health, safety, 
                        welfare, or national security; or
                          ``(iv) would create a serious and substantial 
                        burden on competitive markets within the 
                        interconnection that is not necessary for 
                        reliability.
                  ``(C) Noninterconnection-wide entity rules and 
                variances.--In the case of a proposal for an entity 
                rule or variance that would apply only to part of an 
                interconnection, the electric reliability organization 
                shall approve the entity rule or variance if the 
                affiliated regional reliability entity demonstrates 
                that the proposal--
                          ``(i) was developed in a fair and open 
                        process that provided an opportunity for all 
                        interested parties to participate;
                          ``(ii) would not have an adverse impact on 
                        commerce that is not necessary for reliability;
                          ``(iii) provides a level of bulk-power system 
                        reliability that is adequate to protect public 
                        health, safety, welfare, and national security 
                        and would not have a significant adverse impact 
                        on reliability; and
                          ``(iv) in the case of a variance, is based on 
                        a justifiable difference between regions or 
                        subregions within the affiliated regional 
                        reliability entity's geographic area.
                  ``(D) Action by the electric reliability 
                organization.--
                          ``(i) In general.--The electric reliability 
                        organization shall approve or disapprove a 
                        proposal under subparagraph (A) within 120 days 
                        after the proposal is submitted.
                          ``(ii) Failure to act.--If the electric 
                        reliability organizations fails to act within 
                        the time specified in clause (i), the proposal 
                        shall be deemed to have been approved.
                          ``(iii) Submission to the commission.--After 
                        approving a proposal under subparagraph (A), 
                        the electric reliability organization shall 
                        submit the proposal to the Commission for 
                        approval under the procedures prescribed under 
                        subsection (e).
                  ``(E) Direct submissions.--An affiliated regional 
                reliability entity may not submit a proposal for 
                approval directly to the Commission except as provided 
                in subsection (e)(4).
          ``(4) Failure to reach delegation agreement.--
                  ``(A) In general.--If an affiliated regional 
                reliability entity requests, consistent with paragraph 
                (1), that the electric reliability organization 
                delegate authority to it, but is unable within 180 days 
                to reach agreement with the electric reliability 
                organization with respect to the requested delegation, 
                the entity may seek relief from the Commission.
                  ``(B) Review by the commission.--The Commission shall 
                order the electric reliability organization to enter 
                into a delegation agreement under terms specified by 
                the Commission if, after notice and opportunity for 
                comment, the Commissiondetermines that--
                         ``(i) a delegation to the affiliated regional 
                        reliability would--
                                 ``(I) meet the requirements of 
                                paragraph (1); and
                                 ``(II) would be just, reasonable, not 
                                unduly discriminatory or preferential, 
                                and in the public interest; and
                         ``(ii) the electric reliability organization 
                        unreasonably withheld the delegation.
         ``(5) Orders to modify delegation agreements.--
                 ``(A) In general.--On complaint, or on motion of the 
                Commission, after notice to the appropriate affiliated 
                regional reliability entity, the Commission may order 
                the electric reliability organization to propose a 
                modification to a delegation agreement under this 
                subsection if the Commission determines that--
                         ``(i) the affiliated regional reliability 
                        entity--
                                 ``(I) no longer has the capacity to 
                                carry out effectively or efficiently 
                                the implementation or enforcement 
                                responsibilities under the delegation 
                                agreement;
                                 ``(II) has failed to meet its 
                                obligations under the delegation 
                                agreement; or
                                 ``(III) has violated this section;
                         ``(ii) the rules, practices, or procedures of 
                        the affiliated regional reliability entity no 
                        longer provide for fair and impartial discharge 
                        of the implementation or enforcement 
                        responsibilities under the delegation 
                        agreement;
                         ``(iii) the geographic boundary of a 
                        transmission entity approved by the Commission 
                        is not wholly within the boundary of an 
                        affiliated regional reliability entity, and the 
                        difference in boundaries is inconsistent with 
                        the effective and efficient implementation and 
                        administration of bulk-power system 
                        reliability; or
                         ``(iv) the agreement is inconsistent with a 
                        delegation ordered by the Commission under 
                        paragraph (4).
                 ``(B) Suspension.--
                         ``(i) In general.--Following an order to 
                        modify a delegation agreement under 
                        subparagraph (A), the Commission may suspend 
                        the delegation agreement if the electric 
                        reliability organization or the affiliated 
                        regional reliability entity does not propose an 
                        appropriate and timely modification.
                         ``(ii) Assumption of responsibilities.--If a 
                        delegation agreement is suspended, the electric 
                        reliability organization shall assume the 
                        responsibilities delegated under the delegation 
                        agreement.
    ``(i) Organization Membership.--Each system operator shall be a 
member of--
         ``(1) the electric reliability organization; and
         ``(2) any affiliated regional reliability entity operating 
        under an agreement effective under subsection (h) applicable to 
        the region in which the system operator operates, or is 
        responsible for the operation of, a transmission facility.
    ``(j) Enforcement.--
         ``(1) Disciplinary actions.--
                 ``(A) In general.-- Consistent with procedures 
                approved by the Commission under subsection (d)(4)(H), 
                the electric reliability organization may impose a 
                penalty, limitation on activities, functions, or 
                operations, or other disciplinary action that the 
                electric reliability organization finds appropriate 
                against a bulk-power system user if the electric 
                reliability organization, after notice and an 
                opportunity for interested parties to be heard, issues 
                a finding in writing that the bulk-power system user 
                has violated an organization standard.
                 ``(B) Notification.--The electric reliability 
                organization shall immediately notify the Commission of 
                any disciplinary action imposed with respect to an act 
                or failure to act of a bulk-power user that affected or 
                threatened to affect bulk-power system facilities 
                located in the United States.
                 ``(C) Right to petition.--A bulk-power system user 
                that is the subject of disciplinary action under 
                paragraph (1) shall have the right to petition the 
                Commission for a modification or rescission of the 
                disciplinary action.
                 ``(D) Injunctions.--If the electric reliability 
                organization finds it necessary to prevent a serious 
                threat to reliability, the electric reliability 
                organization may seek injunctive relief in the United 
                States district court for the district in which the 
                affected facilities are located.
                 ``(E) Effective date.--
                         ``(i) In general.--Unless the Commission, on 
                        motion of the Commission or on application by 
                        the bulk-power system user that is the subject 
                        of the disciplinary action, suspends the 
                        effectiveness of a disciplinary action, the 
                        disciplinary action shall take effect on the 
                        30th day after the date on which--
                                 ``(I) the electric reliability 
                                organization submits to the 
                                Commission--
                                         ``(aa) a written finding that 
                                        the bulk-power system user 
                                        violated an organization 
                                        standard; and
                                         ``(bb) the record of 
                                        proceedings before the electric 
                                        reliability organization; and
                                 ``(II) the Commission posts the 
                                written finding on the Internet.
                         ``(ii) Duration.--A disciplinary action shall 
                        remain in effect or remain suspended unless the 
                        Commission, after notice and opportunity for 
                        hearing, affirms, sets aside, modifies, or 
                        reinstates the disciplinary action.
                         ``(iii) Expedited consideration.--The 
                        Commission shall conduct the hearing under 
                        procedures established to ensure expedited 
                        consideration of the action taken.
         ``(2) Compliance orders.--The Commission, on complaint by any 
        person or on motion of the Commission, may order compliance 
        with an organization standard and may impose a penalty, 
        limitation on activities, functions, or operations, or take 
        such other disciplinary action as the Commission finds 
        appropriate, against a bulk-power system user with respect to 
        actions affecting or threatening to affect bulk-power system 
        facilities located in the United States if the Commission 
        finds, after notice and opportunity for a hearing, that the 
        bulk-power system user has violated or threatens to violate an 
        organization standard.
         ``(3) Other actions.--The Commission may take such action as 
        is necessary against the electric reliability organization or 
        an affiliated regional reliability entity to ensure 
compliancewith an organization standard, or any Commission order 
affecting electric reliability organization or affiliated regional 
reliability entity.
    ``(k) Reliability Reports.--The electric reliability organization 
shall--
          ``(1) conduct periodic assessments of the reliability and 
        adequacy of the interconnected bulk-power system in North 
        America; and
          ``(2) report annually to the Secretary of Energy and the 
        Commission its findings and recommendations for monitoring or 
        improving reliability and adequacy.
    ``(l) Assessment and Recovery of Certain Costs.--
          ``(1) In general.--The reasonable costs of the electric 
        reliability organization, and the reasonable costs of each 
        affiliated regional reliability entity that are related to 
        implementation or enforcement of organization standards or 
        other requirements contained in a delegation agreement approved 
        under subsection (h), shall be assessed by the electric 
        reliability organization and each affiliated regional 
        reliability entity, respectively, taking into account the 
        relationship of costs to each region and based on an allocation 
        that reflects an equitable sharing of the costs among all 
        electric energy consumers.
          ``(2) Rules.--The Commission shall provide by rule for the 
        review of costs and allocations under paragraph (1) in 
        accordance with the standards in this subsection and subsection 
        (d)(4)(F).
      ``(m) Appplication of Antitrust Laws.--
          ``(1) In general.--Notwithstanding any other provision of 
        law, the following activities are rebuttably presumed to be in 
        compliance with the antitrust laws of the United States:
                ``(A) Activities undertaken by the electric reliability 
                organization under this section or affiliated regional 
                reliability entity operating under a delegation 
                agreement under subsection (h).
                  ``(B) Activities of a member of the electric 
                reliability organization or affiliated regional 
                reliability entity in pursuit of the objectives of the 
                electric reliability organization or affiliated 
                regional reliability entity under this section 
                undertaken in good faith under the rules of the 
                organization of the electric reliability organization 
                or affiliated regional reliability entity.
          ``(2) Availability of defenses.--In a civil action brought by 
        any person or entity against the electric reliability 
        organization or an affiliated regional reliability entity 
        alleging a violation of an antitrust law based on an activity 
        under this Act, the defense of primary jurisdiction, and 
        immunity from suit and other affirmative shall be available to 
        the extent applicable.
    ``(n) Regional Advisory Role.--
          ``(1) Establishment of regional advisory body.--The 
        Commission shall establish a regional advisory body on the 
        petition of the Governors of at least two-thirds of the States 
        within a region that have more than one-half of their 
        electrical loads served within the region.
          ``(2) Membership.--A regional advisory body--
                  ``(A) shall be composed of 1 member from each State 
                in the region, appointed by the Governor of the State; 
                and
                  ``(B) may include representatives of agencies, 
                States, and Provinces outside the United States, on 
                execution of an appropriate international agreement 
                described in subsection (f).
          ``(3) Functions.--A regional advisory body may provide advice 
        to the electric reliability organization, an affiliated 
        regional reliability entity, or the Commission regarding--
                  ``(A) the governance of an affiliated regional 
                reliability entity existing or proposed within a 
                region;
                  ``(B) whether a standard proposed to apply within the 
                region is just, reasonable, not unduly discriminatory 
                or preferential, and in the public interest; and
                  ``(C) whether fees proposed to be assessed within the 
                region are--
                          ``(i) just, reasonable, not unduly 
                        discriminatory or preferential, and in the 
                        public interest; and
                          ``(ii) consistent with the requirements of 
                        subsection (l).
          ``(4) Deference.--In a case in which a regional advisory body 
        encompasses an entire interconnection, the Commission may give 
        deference to advice provided by the regional advisory body 
        under paragraph (3).
      ``(o) Applicability of Section.--This section does not apply 
outside the 48 contiguous States.
      ``(p) Rehearings; Court Review of Orders.--Section 313 applies to 
an order of the Commission issued under this section.
      ``(q) Preservation of the State Authority.--
          ``(1) The Electric Reliability Organization shall have 
        authority to develop, implement, and enforce compliance with 
        standards for the reliable operation of only the Bulk Power 
        System.
          ``(2) This section does not provide the Electric Reliability 
        Organization or the Commission with the authority to set and 
        enforce compliance with standards for adequacy or safety of 
        electric facilities or services.
          ``(3) Nothing in this section shall be construed to preempt 
        any authority of any State to take action to ensure the safety, 
        adequacy, and reliability of electric service within that 
        State, as long as such action is not inconsistent with any 
        Organization Standard.
          ``(4) Not later than 90 days after the application of the 
        Electric Reliability Organization or other affected party, the 
        Commission shall issue a final order determining whether a 
        state action is inconsistent with an Organization Standard, 
        after notice and opportunity for comment, taking into 
        consideration any recommendations of the Electric Reliability 
        Organization.
          ``(5) The Commission, after consultation with the Electric 
        Reliability Organization, may stay the effectiveness of any 
        state action, pending the Commission's issuance of a final 
        order.''.
    (b) Enforcement.--
        (1) General penalties.--Section 316(c) of the Federal Power Act 
        (16 U.S.C. 825o(c)) is amended--
                (A) by striking ``subsection'' and inserting 
                ``section''; and
                (B) by striking ``or 214'' and inserting ``214 or 
                215''.
        (2) Certain provisions.--Section 316A of the Federal Power Act 
        (16 U.S.C. 825o-1) is amended by striking ``or 214'' each place 
        it appears and inserting ``214, or 215''.

                         Purpose of the Measure

    The purpose of S. 2071, as amended, is to promote the 
reliability of the bulk power market by creating an industry-
run, Federal Energy Regulatory Commission (FERC) overseen, 
organization that sets enforceable rules for the use of the 
interstate transmission grid. It also ensures that States have 
an appropriate role in promoting reliability.

                       Summary of Major Provision

    S. 2071, as amended, authorizes the establishment of a 
self-regulating Electric Reliability Organization (ERO). The 
ERO would establish, monitor and enforce compliance with 
reliability standards for the interstate bulk power system.
    The organization of the ERO and its reliability rules would 
be subject to approval and oversight by the FERC. The 
reliability standards established by the ERO would be mandatory 
on all owners, users and operators of the interstate bulk power 
system. Activities conducted in compliance with statutory 
requirements receive a rebuttable presumption of compliance 
with the Federal antitrust laws.
    Upon enactment of S. 2071, the North American Electric 
Reliability Council (NERC) and its individual regional 
reliability councils may file with FERC those existing 
reliability standards they propose to be mandatory in the 
interim before the new ERO is approved by FERC and it 
establishes reliability standards. FERC must approve any such 
standards before they become mandatory.
    FERC may select only one organization to become the ERO. 
FERC must select from applicants the one which will best meet 
the criteria for governance. The statutory criteria include: 
having the ability to develop, implement and enforce 
reliability; providing for voluntary membership; having fair 
representation on the board of directors and fair management; 
ensuring that no two industry sectors control the ERO and no 
individual industry sector can veto an ERO action; have an 
independent board of directors; having a funding mechanism that 
is just, reasonable, not unduly discriminatory or preferential 
and in the public interest; having procedures for the 
development of reliability standards, including notice and 
opportunity for public comment, openness, a balancing of 
interests and due process; having procedures for use in case of 
an emergency; having fair and impartial procedures for 
implementation and enforcement of organization standards; 
having procedures of notice an opportunity for public 
observation at all meetings; providing for the consideration of 
recommendations of States and State commissions; and addressing 
such other matters as the FERC considers appropriate to ensure 
that the procedures, governance and funding of the organization 
are just, reasonable, not unduly discriminatory or preferential 
and are in the public interest.
    FERC must approve all new and modified ERO reliability 
standards before they become effective, and FERC must provide 
an opportunity for public comment on such standards. FERC is 
required to give due weight to the technical expertise of the 
ERO with respect to new or modified standards, but it is not to 
give deference to the ERO with respect to the competitive 
effect of a standard. In the case of an emergency, the standard 
can take effect immediately, followed by notice and comment and 
FERC action.
    The ERO may delegate authority to implement and enforce 
standards to an affiliated regional reliability entity (ARRE). 
An ARRE would be similar to the current regional reliability 
councils. An ARRE must meet most of the same standards for its 
organization and governance as the ERO, except that an ARRE is 
not required to have an independent board of directors. FERC 
must approve all agreements to delegate authority to an ARRE. 
The ERO reserves the right to set organization standards. 
However, the ARRE may establish regional variances, if approved 
by the ERO and FERC. A delegation of authority to an ARRE on an 
interconnection-wide basis is rebuttably presumed to promote 
bulk power system reliability, one of the requirements for ARRE 
approval. A delegation of authority to an ARRE on less than an 
interconnection-wide basis requires the ARRE to make an 
affirmative showing that it meets the necessary requirements. 
There is also a presumption in favor of variances adopted on an 
interconnection-wide basis. Similarly, variances adopted on 
less than an interconnection-wide basis can be adopted only 
upon an affirmative showing of compliance with the statutory 
standards for approval of variances. Like the ERO, an ARRE can 
enforce reliability standards and take disciplinary action, 
subject to review by FERC, against system operators and users.
    The legislation does not give the Electric Reliability 
Organization or any affiliated regional reliability entity any 
authority to build or to pay for the building of any 
transmission or other facility necessary for a bulk power user 
to comply with a reliability requirement. The cost of complying 
with a reliability requirement is the responsibility of bulk 
power users, not the Electric Reliability Organization or any 
affiliated regional reliability entity.

                          Background and Need

    The Nation's interstate electric transmission grid is an 
extremely complex network that is also interconnected with the 
transmission grid in Canada and Mexico. It has developed over 
decades with various voluntary agreements between utilities and 
others that allow areas to work together to respond to changing 
power needs that vary from day-to-day, hour-to-hour and even 
minute-to-minute. Many of these voluntary agreements were 
developed after a disastrous event in 1965 that led to a major 
blackout in New York City and throughout other parts of the 
Northeast. While this voluntary system has worked well for the 
past 35 years, fundamental changes in the electric power 
industry are making this a voluntary system less workable for 
the future.
    With the expansion of competition in the wholesale electric 
power market--starting with the 1992 Energy Policy Act--the 
system of buying and selling wholesale power is now many times 
more complex than it was less than a decade ago. With a 
stronger economy, electricity usage has increased while 
thousands of new electricity marketers and buyers have created 
new stresses on the system. Moreover, the emergency of 
competition in the wholesale power market has changed the 
ability and willingness of market participants to act 
voluntarily, particularly when it is not in their economic 
interest to do so.
    As a result, the existing scheme of voluntary compliance 
with voluntary industry reliability rules is simply no longer 
adequate. There has been a marked increase in the number and 
seriousness of violations of voluntary reliability rules. Under 
a voluntary system, there is no penalty for violating a 
reliability standard. The users and operators of the system, 
who used to cooperate voluntarily on reliability matters, are 
now competitors without the same incentives to cooperate with 
each other or comply with voluntary reliability rules.
    In order to maintain grid reliability, rules must be made 
mandatory and enforceable, and fairly applied to all 
participants in the electricity market. To meet this need, NERC 
and a broad coalition of industry organizations have proposed 
the creation of an industry self-regulatory organization to 
develop and enforce mandatory reliability rules, with FERC 
oversight in the United States to make sure the ERO and its 
affiliated regional reliability entities operate effectively 
and fairly. The proposal follows the model of the Securities 
and Exchange Commission in its oversight of securities industry 
self-regulatory organizations (the stock exchanges and the 
National Association of Securities Dealers).
    To address this situation, more than a year ago a group of 
electricity industry officials began meeting to develop 
legislative language needed in this new era in electricity. The 
language in S. 2071, as amended, is supported by a broad 
coalition representing virtually all aspects of the electric 
power industry. It is supported by the American Public Power 
Association, the Edison Electric Institute, the Electric Power 
Supply Association, the Electricity Consumers Resource Council, 
the National Rural Electric Cooperative Association and the 
Canadian Electricity Association.
    S. 2071 authorizes the creation of a reliability 
organization to develop and enforce mandatory reliability 
rules. FERC would approve and oversee this organization to make 
sure it and its affiliated regional reliability entities 
operate effectively and fairly. The reliability standards that 
would be developed and enforced by the new reliability 
organization only concern the operational security of the bulk 
power system. The reliability organization would not deal with 
generation adequacy, reserve margins, distribution system 
reliability, safety, transmission siting, or retail customer 
choice plans.

                          Legislative History

    S. 2071 was introduced on February 10, 2000. Hearings were 
held by the Committee on April 11, April 13 and April 27, 2000. 
Hearings were held on related legislation on June 29 and July 
15, 1999, and on April 11, 13 and 27, 2000.

            Committee Recommendation and Tabulation of Votes

    The Senate Committee on Energy and Natural Resources, in 
open business session on June 21, 2000, by a voice vote with a 
quorum present, recommends that the Senate pass S. 2071, if 
amended as described herein.

                          Committee Amendments

    During the consideration of S. 2071, the Committee adopted 
an amendment in the nature of a substitute offered by Senators 
Murkowski, Bingaman and Gorton. The amendment incorporated 
language clarifying the jurisdiction of the States and State 
commissions in the context of an Electric Reliability 
Organization.

                      Section-by-Section Analysis


Section 1. Short title

    Section 1 provides that the Act may be cited as the 
``Electric Reliability 2000 Act''.

Section 2(a). Electric reliability organization

    Section 2(a) adds a new section 215 to the Federal Power 
Act.
            Section 215(a). Definitions.
    Subsection (a) defines terms used in section 215.
            Section 215(b). Commission authority
    Subsection (b) gives FERC jurisdiction over the Electric 
Reliability Organization (ERO), Affiliated Regional Reliability 
Entities, system operators, and bulk-power system users (i.e., 
utilities that own, operate, or use any part of an 
interconnected transmission grid) for purposes of approving 
organization standards and enforcing compliance.
            Section 215(c). Existing reliability standards
    Subsection (c) authorizes FERC to approve any existing 
reliability standard that NERC and its regional reliability 
councils propose be made mandatory and enforceable if FERC 
finds that the standard is ``just, reasonable, not unduly 
discriminatory or preferential, and in the public interest.'' 
Once approved by FERC, the standard is mandatory, applicable, 
and enforceable by FERC until withdrawn, disapproved or 
superseded.
            Section 215(d). Designation of electric reliability 
                    organization
    Subsection (d) directs FERC to issue rules governing the 
approval of the ERO. Subsection (d)(4) requires FERC to approve 
an application for designation as the ERO if FERC determines 
that the applicant has the ``ability to develop, implement, and 
enforce'' reliability standard and will operate in a fair 
manner.
            Section 215(e). Organization standards
    Subsection (e) provides for the development of new or 
modified reliability standards by the ERO. Subsection (e)(2) 
provides for FERC review of new or modified standards and 
requires FERC to approve them if they are ``just, reasonable, 
not unduly discriminatory or preferential, and in the public 
interest.
    Subsection (e)(4) permits an Affiliated Regional 
Reliability Entity to propose to the ERO variances or ``entity 
rules'' (i.e., rules adopted by a regional entity to implement 
or enforce an organization standard in a specific region). 
Regional entities may request FERC to review variances or 
entity rules that the ERO does not approve.
            Section 215(f). Coordination with Canada and Mexico
    Subsection (f) directs the ERO to take steps to gain 
recognition in Canada and Mexico and the President to use his 
best efforts to enter into agreements with Canada and Mexico to 
ensure international compliance with organization standards.
            Section 215(g). Changes in procedure, governance, or 
                    funding
    Subsection (g) requires the ERO to submit proposed changes 
in procedure, governance, or funding to FERC for review and 
approval.
            Section 215(h). Delegations of authority
    Subsection (h)(1) requires the ERO to delegate authority to 
implement and enforce organization standards within regions to 
the Affiliated Regional Reliability Entities.
    Subsection (h)(2) requires a delegation of authority to a 
regional entity to be approved by FERC. FERC must approve if 
the delegation: (1) would promote the ``effective and efficient 
implementation and administration bulk-power system 
reliability''; and (2) is ``just, reasonable, not unduly 
discriminatory or preferential, and in the public interest.''
    Subsection (h)(3) establishes the factors the ERO must use 
to review variances and entity rules.
    Subsection (h)(4) gives FERC the authority to order the ERO 
to delegate authority to a regional entity if the delegation 
was unreasonably withheld.
    Subsection (h)(5) gives FERC the authority to order the ERO 
to modify or suspend a delegation of authority under certain 
circumstances.
            Section 215(i). Organization membership
    Subsection (i) requires system operators to join the ERO 
and the applicable Affiliated Regional Reliability Entity.
            Section 215(j). Enforcement
    Subsection (j)(1) authorizes the ERO to take disciplinary 
action against a bulk-powersystem user for violation of a 
reliability standard or to seek injunctive relief to prevent a serious 
threat to reliability. The bulk-power system user may petition FERC for 
modification or recission of a disciplinary action.
    Subsection (j)(2) authorizes FERC to take disciplinary 
action against a bulk-power system user for violation of a 
reliability standard. The Committee does not intend subsection 
(j)(2) to be read to preclude a municipality from filing a 
complaint under the subsection.
    Subsection (j)(3) authorizes FERC to take action against 
the ERO or an Affiliated Regional Reliability Entity to ensure 
compliance with an organization standard or FERC order.
            Section 215(k). Reliability reports
    Subsection (k) requires the ERO to conduct periodic 
assessments of reliability and report annually to the Secretary 
of Energy and FERC.
            Section 215(l). Assessment and recovery of certain costs
    Subsection (l) authorizes the ERO and the Affiliated 
Regional Reliability Entities to assess their reasonable costs.
            Section 215(m). Application of antitrust laws
    Subsection (m) rebuttably presumes that the activities of 
the ERO under section 215, the activities of an Affiliated 
Regional Reliability Entity under a delegation agreement, and 
the activities of a member of either the ERO or a regional 
entity undertaken in good faith under the rules of the 
Organization or a regional entity are in compliance with the 
antitrust laws.
            Section 215(n). Regional advisory role
    Subsection (n) directs FERC to establish a regional 
advisory body upon the petition of the governors of at least 
two-thirds of the states within a region. The advisory body may 
advise the ERO, the regional entity, or FERC on the governance 
of the regional entity, reliability standards, and fees.
            Section 215(o). Applicability of section
    Section (o) excludes Alaska and Hawaii from operation of 
section 215.
            Section 215(p). Rehearings; court review of orders
    Subsection (p) makes section 313 of the Federal Power Act 
(providing for judicial review of FERC orders) applicable to 
FERC orders issued under section 215.
            Section 215(q). Preservation of state authority
    Subsection (q)(1) states that the ERO has authority over 
reliability standards for the bulk-power system only.
    Subsection (q)(2) states that section 215 does not 
authorize either the ERO of FERC to set or enforce standards 
for adequacy or safety of electric facilities or services.
    Subsection (q)(3) states that section 215 does not preempt 
a state from ensuring the safety, adequacy, or reliability of 
electric service within the State, so long as the action is not 
inconsistent with an Organization Standard. Under sections 
215(c)(2) and 215(e)(2)(D)(i), FERC must find an existing 
reliability standard or a new or modified Organization Standard 
to be ``just, reasonable, not unduly discriminatory or 
preferential, and in the public interest,'' A State reliability 
measure that is not just and reasonable, is unduly 
discriminatory or preferential, or is not in the public 
interest, and overlaps an Organization Standard would, 
necessarily, be inconsistent with the Organization Standard.
    Subsection (q)(4) requires FERC to issue a final order 
determining whether a state action is inconsistent with an 
Organization Standard within 90 days after requested by the ERO 
or other affected party.
    Subsection (q)(5) permits FERC to stay the effectiveness of 
a state action pending issuance of a final FERC order.

Section 2(b). Enforcement

    Section 2(b) makes conforming changes to section 316(c) of 
the Federal Power Act (excluding orders issued under certain 
provisions of the Act from the Act's general penalty provision) 
and section 316A of the Federal Power Act (providing for civil 
penalties for the violation of certain other provisions of the 
Act).

                   Cost and Budgetary Considerations

    The Congressional Budget Office estimate of the costs of 
this measure has been requested but was not received at the 
time the report was filed. When the report is available, the 
Chairman will request it to be printed in the Congressional 
Record for the advice of the Senate.

                      Regulatory Impact Evaluation

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out this measure.
    The bill is not a regulatory measure in the sense of 
imposing Government-established standards or significant 
economic responsibilities on private individuals and 
businesses.
    No personal information would be collected in administering 
the provisions of the bill. Therefore, there would be no impact 
on personal privacy.
    Little, if any, additional paperwork would result from the 
enactment of this measure.

                        Executive Communications

    The pertinent communications received by the Committee 
setting forth Executive agency views relating to this measure 
are set forth below:

   Statement of Bill Richardson, Secretary, U.S. Department of Energy


                              introduction


    Mr. Chairman, thank you for inviting me today to present 
the Administration's views on the various electricity 
restructuring bills that are pending before the Senate Energy 
and Natural Resources Committee. I would like to commend you, 
the Ranking Member, Senator Bingaman, as well as other members 
of this Committee, for your leadership on this issue, which is 
critical to ensuring that consumers across this country will 
benefit from competitive electricity markets. The bills being 
addressed today contain concepts that merit serious 
consideration as Congress moves forward in enacting 
comprehensive electricity restructuring legislation.
    Almost one year ago to the day, when transmitting the 
Administration's proposed Comprehensive Electricity Competition 
Act (CECA),\1\ I called on Congress to enact comprehensive 
electricity restructuring legislation. Mr. Chairman, I have two 
messages today: (1) the need for Federal legislation is more 
urgent than ever; and (2) given recent developments, I am 
increasingly optimistic about the prospects for congressional 
action this year.
---------------------------------------------------------------------------
    \1\ The Administration transmitted CECA to Congress in two separate 
parts. Both parts were introduced in the Senate by Senators Murkowski 
and Bingaman (upon request)--S. 1047 and S. 1048--on May 13. S. 1047 is 
pending before this Committee. S. 1048 is pending before the Senate 
Finance Committee.
---------------------------------------------------------------------------
    There is growing evidence that our interstate electricity 
markets are in need of repair. Essential investments are not 
being made because of the uncertainty that exists due to delays 
in enacting legislation. Generating capacity reserve margins 
have significantly decreased. The construction of new major 
transmission facilities is almost non-existent and existing 
transmission capacity is tightly constrained in certain 
regions. At the same time, the demand for electricity continues 
to increase while funding for energy efficiency efforts is 
being reduced. If Congress fails to act soon, the development 
of competitive electricity markets will be stunted. And, I fear 
that an increasing number of Americans will experience the 
price spikes, blackouts and brownouts that residents of certain 
regions of the country witnessed during last summer's heat 
waves.
    Mr. Chairman, recent developments suggest that the 
consensus you have said is crucial in order to pass electricity 
restructuring legislation may, in fact, be close at hand. Last 
week a broad group of stakeholders representing consumers, the 
elderly, natural gas companies, electricity generators, 
electricity marketers, municipal utilities and investor-owned 
utilities released a comprehensive set of principles that they 
all agree should be included in Federal restructuring 
legislation. I understand that another group of stakeholders 
has also been preparing a set of comprehensive principles. This 
is a significant step forward. While these groups will need to 
reach out to other stakeholders as the legislative process 
moves forward, and I expect them to do so, there is reason to 
believe that enough consensus will exist to allow Congress to 
enact a bill this year.
    I would like to begin my testimony today by discussing an 
issue that is inextricably linked to the need to enact 
comprehensive electricity restructuring legislation--the 
reliability of our electric grids. Thereafter, I will focus my 
remarks on a number of key issues that must be addressed in a 
comprehensive bill and will compare how the bills pending 
before this Committee proposed to resolve these issues.


                              reliability


    Mr. Chairman, several regions of the country have 
experienced major problems in recent summers. As the heat and 
humidity rose, some utilities found it increasingly difficult 
to meet consumer demands for electric power. Spot prices for 
electricity rose dramatically. Elected officials and utility 
executives made urgent public appeals for conservation. 
Factories were forced to shut down their operations and sent 
workers home. Some areas experienced rolling blackouts. Other 
areas lost power due to failures in overworked and outdated 
distribution facilities.
    Reliability problems have not been confined to summer heat 
waves. Several weeks ago, a large portion of New Mexico 
suffered a blackout after a grass fire initiated a series of 
events that crippled much of the State's electric grid. In 
addition, recent warnings from the Pacific Northwest suggest 
that there is a 1 in 4 chance of significant power supply 
disruptions during future winters in that region.
    Last year I asked a team of experts from the Department of 
Energy, our national laboratories and academia to review the 
power outage events of last summer and provide recommendations 
on how we can protect and enhance the reliability of our 
electric grids. The Power Outage Study Team (POST), which 
recently submitted its final report on last year's outages and 
related incidents, found that the new industry structure should 
ultimately improve reliability. However, the uncertainties 
associated with the slow pace of the transition to competition 
have endangered reliability. More disturbingly, the POST report 
concluded that these problems may get worse before they get 
better.
    Clearly, many issues associated with reliability involve 
the distribution system, which has been and will continue to be 
within the purview of the state and local governments. 
Nevertheless, Mr. Chairman, much can be done at the Federal 
level. The Power Outage Study Team's final report contained 12 
recommendations concerning how the Federal government can help. 
Some of these recommended changes can be implemented through 
administrative actions. Others, however, require the enactment 
of comprehensive legislation, including provisions that will 
create fair and transparent markets that will spur new 
efficiencies, investments and innovation that will keep the 
lights on and the air conditioners and computers humming.


                        need for federal action


    Several years ago, hearings like this one focused on the 
pros and cons of doing away with the vertically-integrated 
monopoly utility that generated, transmitted and distributed 
the power consumed in a state-designated monopoly service 
territory. That debate is over. As a result of the Energy 
Policy Act of 1992 and the efforts of the Federal Energy 
Regulatory Commission (FERC), independent power producers are 
gaining an increasing share of the generation market. Utilities 
are now buying power from competing generators and marketers at 
competitive rates rather than building plants on their own.
    Restructuring and competition are not limited to the 
wholesale markets. Twenty-five states plus the District of 
Columbia have now adopted electricity restructuring proposals 
that allow for competition at the retail level. Almost every 
other state has the matter under active consideration.
    The Clinton Administration believes that this is a positive 
development. Competition, if structured properly, will be good 
for consumers, good for the economy and good for the 
environment. Companies that had no incentive to offer lower 
prices, better service, or new products are now being required 
to compete for customers. Consumers will save money on their 
electric bills. Lower electric rates will also make businesses 
more competitive by lowering their costs of production. By 
promoting energy conservation and the use of cleaner and more 
efficient technologies, competitition will lead to reduced 
emissions of greenhouse gases and conventional air pollutants.
    Nevertheless, the full benefits promised by competition can 
be realized only within an appropriate Federal statutory 
framework. What we do at the Federal level, and when we do it, 
will have a profound impact on the success of wholesale 
competitive markets, as well as on state and local retail 
markets. Federal action is necessary for state restructuring 
programs to achieve their maximum potential. Electrons do not 
respect state borders. Electricity markets are becoming 
increasingly regional and multi-regional. Actions in one state 
can and do affect consumers in other states.
    States alone can't ensure that regional power and 
transmission markets are efficient and competitive. They can't 
provide for the continued reliability of the interstate bulk 
power grid. And states can't remove the Federal statutory 
impediments to competition and enable competition to thrive in 
the regions served by Federal utilities.
    Mr. Chairman, I recognize that some members of this 
Committee represent states that may consider retail competition 
proposals at a less rapid pace than others. Nevertheless, 
Federal action should be equally important to their 
consituents. If wholesale markets are not working efficiently, 
the impediments to the flow of power between states will cause 
rates to go up and reliability to be endangered.


                              other issues


    I want to focus the remainder of my remarks on six issues 
that must be addressed by Federal restructuring legislation: 
(1) improving the efficiency and effectiveness of the 
interstate transmission system; (2) promoting regional 
transmission organizations; (3) preventing the abuse of market 
power; (4) establishing mandatory bulk power reliability 
standards; (5) ensuring that renewable energy and other public 
benefits do not get left behind; and (6) removing Federal 
impediments to the development of competitive wholesale and 
retail electric markets.
Reliability standards
    The North American Electric Reliability Council (NERC) has 
worked diligently to protect the reliability of the bulk power 
system. However, as we move to a more competitive environment, 
the reliability of our bulk power systems can no longer be 
entrusted to voluntary compliance with standards. Significant 
support has developed for a proposal to have an electric 
reliability organization, overseen by FERC, establish mandatory 
reliability standards. S. 1047 authorizes the development and 
enforcement of mandatory reliability standards established by a 
self-regulated independent reliability organization with 
oversight by FERC in a manner that is generally consistent with 
the reliability standard language contained in S. 2098, S. 516 
and S. 2071. In addition, S. 1273 also promotes the development 
of mandatory reliability standards.
    Mr. Chairman, some have argued that Congress should enact a 
stand-alone bill that authorizes the establishment of mandatory 
reliability standards, such as S. 2071, in order to enhance 
reliability. Unfortunately, improving and protecting 
realiability is significantly more complicated. While mandatory 
standards are an essential component of any effort to keep the 
lights on, by themselves they are insufficient. We can develop 
and enforce rules. However, if (1) the markets are constrained 
and power isn't flowing efficiently in interstate commerce; (2) 
we are not sending the appropriate market signals that will 
lead to the addition of necessary power plant and transmission 
capacity and alternatives, such as distributed generation; (3) 
energy efficiency efforts are hampered; and (4) we don't have a 
sufficient and skilled utility workforce, the reliability of 
our electricity grids will continue to be imperiled. That is 
why we must adopt comprehensive electricity restructuring 
legislation.
                                ------                                


   Statement of James J. Hoecker, Chairman, Federal Energy Regulatory 
                               Commission

    Mr. Chairman and Members of the Committee, I very much 
appreciate the invitation to appear here today to discuss the 
proposed electricity legislation now before this Committee. 
Permit me to applaud you, Mr. Chairman, and the Committee for 
focusing attention on the restructuring of the electric power 
industry, which is a matter of national importance. A timely 
transition to a competitive, efficient, and reliable wholesale 
market for electricity is in everyone's interest, whether or 
not there is retail competition. For that reason, I am pleased 
to assist Congress in its efforts to bring the benefits of this 
restructuring to the American people.
    The bills before the Committee address a number of critical 
issues. I urge the Congress to address as many of these matters 
as it can. However, from the perspective of the Federal Energy 
Regulatory Commission (FERC), the heart of the restructuring 
debate at this juncture is the future operation of the 
interstate transmission grid. It is the strategic asset, the 
integrated network platform, upon which any competitive and 
transparent wholesale power market must be built. Interstate 
bulk power trade increased dramatically in the 1990s, as 
elctricity demand increased and impediments to market access 
began to diminish. The entry of new participants in that 
market, the arrival of e-commerce and new financial 
instruments, and new technologies will greatly benefit the 
electricity economy unless competition is thwarted by immature 
market mechanisms, inefficient transmission network operations, 
or parochial and discriminatory practices by transmission 
owners. Electricity competition cannot thrive in a commercial 
environment with conflicting market rules, congestion, barriers 
to entry, vertical integration of transmission and generation 
functions, or declining reliability. The success of any 
restructuring legislation will ultimately be judged solely on 
whether it contributes to overcoming these obstacles and 
achieving good market outcomes.
    The Commission has already taken major steps within its 
authority to make the interstate transmission grid available to 
all wholesale users and to encourage regional efficient 
operation of the transmission grid. Its fundamental regulatory 
objectives are: (1) to substitute competition for price 
regulation in wholesale power markets to the extent possible; 
and (2) to regulate essential transmission facilities so as to 
enable competition in power markets. If these objectives are 
effectively met, American consumers will benefit from better 
prices, a greater selection of services, and enhanced 
reliability. Because there remain important impediments to the 
Commission's work in this area, it is now time for Congress to 
act.
    There are four major areas in which Congress needs to 
legislate, if we are to achieve and maintain competitive 
wholesale markets. Legislation is needed to: (1) place all 
transmission, even if it is publicly-owned or cooperatively-
owned, under the same non-discriminatory open access standards; 
(2) reinforce Commission authority over regional transmission 
organizations (``RTOs'') that will operate the transmission 
grid on a reliable, regional basis and reduce obstacles to 
competition among sources of generation; (3) establish 
mandatory reliability rules to protect the integrity of 
transmission service, relying on a self-regulating organization 
with appropriate Federal oversight and enforcement; and (4) 
enhance the Commission's authority to remedy market power. 
These actions to promote reliable transmission and competitive 
wholesale power markets will benefit consumers regardless of 
policy decisions about opening retail markets to competition.
    Today, I want to share with the Committee my observations 
about the difficulties we seek to solve and how we have 
approached those problems so far. I will then discuss in detail 
the legislative actions needed to achieve competitive wholesale 
power markets, and discuss how the bills pending before you 
would or would not accomplish that goal.

           *       *       *       *       *       *       *



                              reliability


    Let me turn next to the issue of reliability. In the past, 
regulators and industry participants relied upon voluntary 
industry cooperation to establish reliability standards and 
practices. Regional reliability councils and the North American 
Electric Reliability Council (NERC), comprised primarily of 
transmission-owning utilities, relied upon voluntary 
cooperation and peer pressure to ensure compliance with the 
standards they established.
    Competition in power markets has increased concern that 
reliability rules can no longer be set or enforced in the same 
voluntary manner as in the past. Power markets today have many 
more participants and transactions. Faced with competitive 
pressure, some participants may be prompted to cut corners on 
reliability. Many observers, including NERC and the industry 
itself, have concluded that a system of mandatory reliability 
rules is needed to ensure that competition does not compromise 
the security of our Nation's electric transmission system. 
Federal legislation is needed to achieve this end. I believe 
that appropriate reliability legislation is critical to a well-
functioning industry and that the consensus legislation 
sponsored by NERC and included in many of the bills pending 
before you contains the fundamental elements of sound 
legislation in this area.
    Congress should understand, however, that mandatory 
reliability rules are not enough to ensure the reliability of 
the grid. In addition, the market rules must elicit sufficient 
investment in new generation and transmission facilities. In 
the natural gas industry, for example, reliability is fostered 
in the first instance by market rules that elicit investment in 
the production and transportation of the commodity. In the 
electric industry, we can achieve the same result by ensuring 
that generators can get their power to as many customers as 
possible and that transmission owners have the incentives to 
meet the needs of transmission users. My recommendations above 
on open access and RTOs support this goal.
    An important State-Federal issue has arisen in the context 
of the debate on reliability legislation: the appropriate role 
of States in protecting reliability of service to consumers and 
the role of the Commission in protecting the integrity of the 
bulk power transmission system and ensuring that all 
transmission users are served by the interstate grid on a non-
discriminatory basis.
    Jurisdictional issues should not be allowed to obscure the 
need for a new enforcement system. There are important policy 
and operational issues that must be addressed. The transmission 
grid is increasingly being used for transmission that, either 
contractually or because of the laws of physics affecting the 
flow of electrons, cross State (and even international) 
borders. This has increased concern that a mandatory 
reliability mechanism must be developed to ensure that these 
interstate transactions do not compromise the transmission grid 
or the quality of service. This is a fundamental issue of 
interstate commerce. The Nation's need for a reliable 
transmission grid ought to prevail over the current 
jurisdictional disagreements. While State and local authorities 
legitimately want to protect retail consumers within their 
particular States, there is also a significant Federal interest 
in protecting reliability and fair commerce across State 
borders. I am confident that legislation can be developed to 
address both Federal and State concerns.

           *       *       *       *       *       *       *



                 s. 2071 (introduced by senator gorton)


    S. 2071 addresses electric reliability in essentially the 
same manner as S. 2098 and S. 1047. It would, among other 
things, amend the FPA to give the Commission the authority to 
approve and oversee an Electric Reliability Organization tasked 
with developing mandatory reliability standards. The approach 
taken in S. 2071 strikes an appropriate policy balance, as I 
indicated with respect to the reliability provisions of S. 2098 
and S. 1047.
    Reliability is of fundamental importance and I therefore 
clearly understand why stand-alone legislation on this subject 
is attractive. The Commission is prepared to implement such 
legislation if enacted. Reliable electric service will require 
more than an effective standard-setting and enforcement 
mechanism, however. It will require workable markets and the 
Congress must assist that effort as well.

           *       *       *       *       *       *       *

                                ------                                


    Statement of Curt L. Hebert, Jr., Commissioner, Federal Energy 
                         Regulatory Commission


                                overview


    I thank the Committee for the honor of testifying here this 
morning on the various electricity restructuring bills pending 
before you. In my opinion, Congress should adopt the principle 
that legislation should remove obstacles to the natural 
evolution of the industry. FERC does not need more 
jurisdiction; indeed, we need less. Right now, the generation 
and transmission businesses are moving in opposite directions. 
On the wholesale level, FERC has deregulated prices for 
generation because of the proliferation of independent power 
and technology that allows plants to come on line in 18 months 
or so. Transmission, on the other hand, will have to remain 
regulated for the foreseeable future. Transmission must become 
a stand-alone business and respond to the market. It must do 
so, however, within the framework of regulation, though a new 
form.
    Historically, regulation reined in economic interest for 
the sake of the public interest. Most people agree that 
approach failed. From now on, regulation must align economic 
interest with the public interest. Together, Congress and FERC 
must act in a way that gives the new model a chance to succeed. 
What may have worked in the Depression Era no longer works in 
the Internet Age. In our respective spheres, Congress and the 
FERC must clear out the underbrush to allow new growth to take 
over.
    FERC and the states can, and, under the right leadership, 
will remove most regulatory impediments toward efficiency in 
electricity. Recently, FERC issued Order No. 2000, which flatly 
states that restructuring will succeed only if transmission 
becomes a stand-alone business. By unanimous vote, we applied 
what an economist called a form of performance-based 
regulation. Rather than write rules and mandate outcomes, Order 
No. 2000 laid out a business plan--12 goals, four 
characteristics and eight functions, for regional transmission 
organizations to meet.
    The Commission opened the door to rate reforms for RTO's to 
propose as necessary to make the transmission business viable 
on a stand-alone basis. The Order listed eight, from temporary 
rate moratoria to performance-based rates. Rather than look at 
costs, we will focus on value to the customer, as businesses do 
in the free market. FERC has jurisdiction under current law to 
approve each of them and many others that RTO's can justify.
    People know that about half the States have passed laws 
opening their retail markets to increased customer choice, to 
one degree or another. Less well known to most people, some 
have gone farther. States, such as Wisconsin, have passed laws 
that require utilities to separate transmission into a separate 
business. In the case of Wisconsin, the Legislature chose a 
for-profit company. With transmission as a separate business, 
FERC has jurisdiction over the wires under current law.
    With the right leadership FERC will move forward toward 
effective restructuring. Incentives and performance-based rates 
will unleash entrepreneurial initiative. By aligning the public 
interest with economic interest, doing the right thing for 
customers will also result in better earnings for shareholders. 
Transmission companies will establish a business plan in 
consultation with customers. Companies that meet or exceed the 
goals in the business plan will earn profits for shareholders. 
Those that fail will take the risk, and, ultimately, as in any 
market, will sell their facilities to more efficient entities. 
All that can happen under FERC's current jurisdiction, without 
one word of new legislation.
    FERC can go only so far, however. Laws enacted as far back 
as the Depression and as recently as the Carter Administration, 
that made sense in their time, now act as a drag on 
restructuring. These laws have the ironic effect of causing 
harm to the very consumer they were supposed to protect. In 
addition, unintended consequences of tax law encrust the status 
quo, at a time that cries out for change. More than the 
incentives of Order No. 2000, Federal Marketing Agencies, 
including Bonneville Power Administration and the Tennessee 
Valley Authority, need legislation to authorize them to become 
or join Regional Transmission Organizations. Participants in 
the discussions in the Northwest agree that Congress should 
act, whether the RTO takes the form of a for-profit 
transmission company or a not-for-profit system operator.
    Worse than doing nothing, Congress can harm the process of 
restructuring by taking the wrong road and passing unnecessary 
legislation or laws that point toward more regulation.


                              reliability


    We hear great clamor over possible reliability problems in 
a restructured market. Many fear for this summer. I think this 
is a legitimate issue for discussion. I think, however, that 
the solution lies in the market, not in creating an 
organization, under FERC oversight, with FERC having last-
resort authority to impose standards on the industry.
    I testified on this question before the House Commerce 
Committee's Subcommittee on Energy and Power. I said then that 
I oppose FERC having authority to establish reliability 
standards. I also think that the current system, involving 
private regional reliability councils establishing the 
standards needs reform. I favor injecting reliability standards 
in the performance based rate plans I advocate for utilities. 
In particular, each plan for each Regional Transmission 
Organization would contain a target for reliable performance. I 
envision interested parties negotiating the issue, along with 
the other factors in the plan for presentation to FERC. Each 
RTO's earnings would rise or fall on how well it does.
    My suggestion then is to create a climate in which that 
occurs in transmission. Specifically, tie profits to 
performance--safe performance and an adequate number of 
transactions. Give transmission companies business plans to 
meet. Favorable earnings result from good results, losses from 
poor management. Clearly, we don't need legislation to do that. 
FERC has the authority to institute performance based rates. We 
did it in Mississippi. The Public Service Commission put three 
criteria into the final plans. Two of them fall directly under 
the category of reliability, and one indirectly. Earnings 
depended on the number and duration of interruptions, customer 
satisfaction (using actual complaints) and price into which we 
factored sales transactions. The companies figured out how to 
set and meet reserve margins, safety standards and capacity 
goals. We aligned the private economic interest with the public 
interest. FERC can do that now.
    Lastly, I note that, in other industries, such as electric 
appliances, the market participants established an 
organization, Underwriter's Laboratory, to endorse the safety 
and reliability of their products. RTO's, especially for-profit 
companies, have the same incentive to form an organization that 
will establish proper standards. I will illustrate the problem 
with a governmental mandate. At the most recent FERC public 
meeting, we considered in the case New York Reliability 
Council, whether to allow the New York Council to reduce its 
reserve margin from 22 to 18 percent. We did. It turns out, 
however, that the study on which the New York Council relied 
said that 12 percent would ensure smooth operation, but at 
maximum, 17 percent would do the job. The New York Council 
threw in 1 percent for good measure! In economic terms, the New 
York Council either withheld capacity that belongs on the 
market or wasted money. A private, for-profit transmission 
company would have relied on hedging or financial means in case 
12 or 17 percent proved too low.
    On this issue I think reasonable people can discuss various 
alternatives.
                                ------                                


Statement of William L. Massey, Commissioner, Federal Energy Regulatory 
                               Commission

    Mr. Chairman and Members of the Committee on Energy and 
Natural Resources, thank you for the opportunity to testify on 
the subject of electric restructuring. The Commission is 
committed to facilitating large and vibrant bulk power markets, 
yet there are anachronistic jurisdictional and other obstacles 
to achieving this important goal. I respectfully suggest that 
the Congressional focus should be on eliminating these 
obstacles and ensuring reliability. I am concerned that, 
otherwise, the transition to competitive markets will be 
prolonged, dramatic price volatility will continue, reliability 
may suffer, and consumers will be denied truly competitive 
supply options.
    Today, I will focus mostly on what I regard to be an area 
where reform is most critical to a successful transition to 
competition: access to, and efficient management of, the 
transmission grid. Electric power markets are inherently 
interstate in nature. The laws of physics, and hence power 
markets, do not respect state boundaries. In order to thrive, 
such markets must have an open, non-discriminatory, well 
managed, and efficiently priced interstate transmission network 
that links buyers and sellers of power. The existing patchwork 
of inconsistent and outdated jurisdictional rules for this 
essential interstate delivery system, coupled with splintered 
network management, create obstacles and uncertainties that 
undercut the market. If buyers and sellers lack confidence that 
electric power will be delivered reliably and on reasonable 
terms and conditions, they will not transact business.
    The seminal applicable laws, the Federal Power Act and the 
Public Utility Holding Company Act, were enacted in 1935, 
during an era of old fashioned monopolies and cost-of-service 
regulation. Their purpose was to ensure that monopolies were 
appropriately regulated; but now, sixty-five years later, our 
goal is markets. Changes in the law are necessary.
    Although I will be commenting on several pending bills, I 
endorse the Administration's bill (S. 1047) because it provides 
an excellent framework for resolving virtually all of the 
concerns I will raise. The Bingaman bill (S. 1273) also 
responds well to a number of my concerns and thus I commend 
that bill to the Committee as well.

           *       *       *       *       *       *       *



                              reliability


    Vibrant markets must be based upon a reliable trading 
platform with mandatory reliability rules. Yet, under existing 
law there are no legally enforceable reliability standards. The 
North American Electric Reliability Council (NERC) does an 
excellent job preserving reliability, but compliance with its 
rules is voluntary. A voluntary system, however, is likely to 
break down in a competitive electricity industry.
    I strongly recommend the enactment of provisions such as 
those in S. 1047, S. 516 and S. 2098 that would lead to the 
promulgation of mandatory reliability standards. A private 
standards organization (perhaps a restructured NERC) with an 
independent board of directors would promulgate mandatory 
standards applicable to all market participants. These rules 
would be reviewed by the Commission to ensure that they are not 
unduly discriminatory. The mandatory rules would then be 
applied by RTOs, the entities that will be responsible for 
maintaining short-term reliability in the marketplace.
    Mandatory reliability rules are critical to evolving 
competitive markets, and I urge Congress to enact legislation 
to accomplish this objective.

           *       *       *       *       *       *       *

                                ------                                


 Statement of Linda Breathitt, Commissioner, Federal Energy Regulatory 
                               Commission

    Mr. Chairman and Members of the Committee; thank you for 
inviting me to appear before you this morning to discuss the 
need for Federal electricity restructuring legislation and the 
various bills currently pending before your Committee. Let me 
begin by commending you, Mr. Chairman, Senator Bingaman, and 
other Members of the Committee for advancing the important 
discussions on how best to achieve the restructuring that is 
needed in the U.S. electric industry in order to arrive at 
competitive and efficient wholesale and retail electricity 
markets. The bills that are before you are important and worthy 
of serious consideration by the Committee.
    I believe that Federal electricity restructuring 
legislation is needed: (1) to address important and unresolved 
issues in electric industry, such as reliability, jurisdiction, 
and transmission access; and (2) to enable the Federal Energy 
Regulatory Commission to advance its goals of achieving fair, 
open, and competitive bulk power markets.
    In order to achieve these overarching goals, Federal 
legislation must address several specific policy areas. I would 
like to comment briefly on six issues that I believe are the 
most important: (1) open transmission access; (2) regional 
transmission organizations; (3) Federal/State jurisdiction; (4) 
market power; (5) electric reliability; and (6) reform of 
certain existing laws.
    In testimony presented before this Committee, Commission 
Chairman James J. Hoecker and Energy Secretary Bill Richardson 
have touched on these and other issues. I am in substantial 
agreement with their testimony on these issues. My testimony is 
intended primarily to supplement their comments and, in certain 
instances, to distinguish my views on these issues. I would 
also like to express my agreement with Chairman Hoecker and 
Secretary Richardson that the Administration's bill, S. 1047, 
appropriately addresses these policy issues and would produce 
significant benefits in wholesale electricity markets.

           *       *       *       *       *       *       *



                        electricity reliability


    Many in the industry, including the North American Electric 
Reliability Council (NERC), recognize the lack of clear Federal 
authority for establishing or enforcing reliability standards 
for the electric industry and the importance that electric 
reliability be maintained as the industry is restructured. I 
believe that emerging competition in the electric industry 
necessitates a change in the manner in which the reliability of 
the interconnected electric system is overseen and managed. The 
present model of voluntary compliance by electric utilities of 
regulatory rules and criteria established by NERC and its 
member Regional Reliability Councils has worked effectively for 
over three decades. However, given the profound changes taking 
place in the industry, I believe this voluntary system should 
be replaced with one in which a self-regulated independent 
reliability organization, with oversight by the Commission, 
establishes and enforces mandatory reliability standards. A 
similar system would be created by S. 1047 (Administration), S. 
1273 (Bingaman), S. 2098 (Murkowski), S. 516 (Thomas), and S. 
2071 (Gorton).
    I recognize and understand the concerns expressed by State 
commissions and the National Association of Regulatory Utility 
Commissioners (NARUC) regarding the need for an explicit State 
role in ensuring that reliable service to retail customers be 
preserved. My empathy on this matter comes from the years I 
spent as Commissioner and Chairman of the Kentucky Public 
Service Commission. I believe that States should have an 
appropriate role in preserving reliability. However, I also 
understand the need for unequivocal Federal authority to 
protect reliability across State borders. For this reason, I am 
unsure that a ``state savings clause'', as has been suggested 
by NARUC and included in S. 2098 (Murkowski) and S. 516 
(Gorton), is the appropriate approach for Congress to take. I 
share Chairman Hoecker's concern that such a clause might not 
protect the national interest in preserving the reliability of 
the interstate transmission grid, which serves customers in 
multiple states. Given my understanding of the concerns on both 
sides of this issue, I am especially encouraged by the recent 
discussions between NARUC and NERC, as alluded to in the 
testimony presented to this Committee by both of these groups. 
These discussions are intended to produce consensus language 
that clarifies the role of the States in ensuring reliable 
electric service to retail customers. It is my hope that these 
discussions are productive and that appropriate consensus 
language can soon be presented to the Committee.

           *       *       *       *       *       *       *


                            ADDITIONAL VIEWS

    While I strongly support the enactment of this legislation, 
there should be no misunderstanding that it does only part of 
the job of protecting consumers. It establishes enforceable 
rules for the use of the interstate transmission grid, but it 
does not stimulate the construction of new generation and 
transmission, which are essential if we are going to avoid 
electricity shortages this summer and in the future.
    The best way to ensure that consumers have a reliable and 
reasonably-priced supply of electricity is through 
comprehensive legislation, such as the bill I introduced, S. 
2098. Repeal of both the Public Utility Regulatory Policies Act 
of 1978 and the Public Utility Holding Company Act, as proposed 
in my bill, are essential if there is to be meaningful 
competition. In the absence of a comprehensive bill, I strongly 
support Senate action on the Banking Committee reported bill, 
S. 313, to repeal PUHCA.

                                                Frank H. Murkowski.

                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill, S. 2071, as ordered reported, are shown as follows 
(existing law proposed to be omitted is enclosed in black 
brackets, new matter is printed in italic, existing law in 
which no change is proposed is shown in roman):

                           FEDERAL POWER ACT

                 The Act of June 10, 1920, Chapter 285

                                PART 1

           *       *       *       *       *       *       *


                                PART 2

           *       *       *       *       *       *       *


SEC. 214. SALES BY EXEMPT WHOLESALE GENERATORS.

    No rate or charge received by an exempt wholesale generator 
for the sale of electric energy shall be lawful under section 
205 if, after notice and opportunity for hearing, the 
Commission finds that such rate or charge results from the 
receipt of any undue preference or advantage from an electric 
utility which is an associate company or an affiliate of the 
exempt wholesale generator. For purposes of this section, the 
terms ``associate company'' and ``affiliate'' shall have the 
same meaning as provided in section 2(a) of the Public Utility 
Holding Company Act of 1935.

SEC. 215. ELECTRIC RELIABILITY ORGANIZATION.

    (a) Definitions.--In this section:
          (1) Affiliated regional reliability entity.--The term 
        ``affiliated regional reliability entity'' means an 
        entity delegated authority under subsection (h).
          (2) Bulk-power system.--
                  (A) In general.--The term ``bulk-power 
                system'' means all facilities and control 
                systems necessary for operating an 
                interconnected electric power transmission grid 
                or any portion of an interconnected 
                transmission grid.
                  (B) Inclusions.--The term ``bulk-power 
                system'' includes--
                          (i) high voltage transmission lines, 
                        substations, control centers, 
                        communications, data, and operations 
                        planning facilities necessary for the 
                        operation of all or any part of the 
                        interconnected transmission grid; and
                          (ii) the output of generating units 
                        necessary to maintain the reliability 
                        of the transmission grid.
          (3) Bulk-power system user.--The term ``bulk-power 
        system user'' means an entity that--
                  (A) sells, purchases, or transmits electric 
                energy over a bulk-power system; or
                  (B) owns, operates, or maintains facilities 
                or control systems that are part of a bulk-
                power system; or
                  (C) is a system operator.
          (4) Electric reliability organization.--The term 
        ``electric reliability organization'' means the 
        organization designated by the Commission under 
        subsection (d).
          (5) Entity rule.--The term ``entity rule'' means a 
        rule adopted by an affiliated regional reliability 
        entity for a specific region and designed to implement 
        or enforce 1 or more organization standards.
          (6) Independent director.--The term ``independent 
        director'' means a person that--
                  (A) is not an officer or employee of an 
                entity that would reasonably be perceived as 
                having a direct financial interest in the 
                outcome of a decision by the board of directors 
                of the electric reliability organization; and
                  (B) does not have a relationship that would 
                interfere with the exercise of independent 
                judgment in carrying out the responsibilities 
                of a director of the electric reliability 
                organization.
          (7) Industry sector.--The term ``industry sector'' 
        means a group of bulk-power system users with 
        substantially similar commercial interests, as 
        determined by the board of directors of the electric 
        reliability organization.
          (8) Interconnection.--The term ``interconnection'' 
        means a geographic area in which the operation of bulk-
        power system components is synchronized so that the 
        failure of 1 or more of the components may adversely 
        affect the ability of the operators of other components 
        within the interconnection to maintain safe and 
        reliable operation of the facilities within their 
        control.
          (9) Organization standard.--
                  (A) In general.--The term ``organization 
                standard'' means a policy or standard adopted 
                by the electric reliability organization to 
                provide for the reliable operation of a bulk-
                power system.
                  (B) Inclusions.--The term ``organization 
                standard'' includes--
                          (i) an entity rule approved by the 
                        electric reliability organization; and
                          (ii) a variance approved by the 
                        electric reliability organization.
          (10) Public interest group.--
                  (A) In general.--The term ``public interest 
                group'' means a nonprofit private or public 
                organization that has an interest in the 
                activities of the electric reliability 
                organization.
                  (B) Inclusions.--The term ``public interest 
                group'' includes--
                          (i) a ratepayer advocate;
                          (ii) an environmental group; and
                          (iii) a State or local government 
                        organization that regulates 
                        participants in, and promulgates 
                        government policy with respect to, the 
                        market for electric energy.
          (11) System operator.--
                  (A) In general.--The term ``system operator'' 
                means an entity that operates or is responsible 
                for the operation of a bulk-power system.
                  (B) Inclusions.--The term ``system operator'' 
                includes--
                          (i) a control area operator;
                          (ii) an independent system operator;
                          (iii) a transmission company;
                          (iv) a transmission system operator; 
                        and
                          (v) a regional security coordinator.
          (12) Variance.--The term ``variance'' means an 
        exception from the requirements of an organization 
        standard (including a proposal for an organization 
        standard in a case in which there is no organization 
        standard) that is adopted by an affiliated regional 
        reliability entity and is applicable to all or a part 
        of the region for which the affiliated regional 
        reliability entity is responsible.
    (b) Commission Authority.--
          (1) Jurisdiction.--Notwithstanding section 201(f), 
        within the United States, the Commission shall have 
        jurisdiction over the electric reliability 
        organization, all affiliated regional reliability 
        entities, all system operators, and all bulk-power 
        system users, including entities described in section 
        201(f), for purposes of approving organization 
        standards and enforcing compliance with this section.
          (2) Definition of terms.--The Commission may by 
        regulation define any term used in this section 
        consistent with the definitions in subsection (a) and 
        the purpose and intent of this Act.
     (c) Existing Reliability Standards.--
          (1) Submission to the commission.--Before designation 
        of an electric reliability organization under 
        subsection (d), any person, including the North 
        American Electric Reliability Council and its member 
        Regional Reliability Councils, may submit to the 
        Commission any reliability standard, guidance, 
        practice, or amendment to a reliability standard, 
        guidance, or practice that the person proposes to be 
        made mandatory and enforceable.
          (2) Review by the commission.--The Commission, after 
        allowing interested persons an opportunity to submit 
        comments, may approve a proposed mandatory standard, 
        guidance, practice, or amendment submitted under 
        paragraph (1) if the Commission finds that the 
        standard, guidance, or practice is just, reasonable, 
        not unduly discriminatory or preferential, and in the 
        public interest.
          (3) Effect of approval.--A standard, guidance, or 
        practice shall be mandatory and applicable according to 
        its terms following approval by the Commission and 
        shall remain in effect until it is--
                  (A) withdrawn, disapproved, or superseded by 
                an organization standard that is issued or 
                approved by the electric reliability 
                organization and made effective by the 
                Commission under section (e); or
                  (B) disapproved by the Commission if, on 
                complaint or upon motion by the Commission and 
                after notice and an opportunity for comment, 
                the Commission finds the standard, guidance, or 
                practice to be unjust, unreasonable, unduly 
                discriminatory or preferential, or not in the 
                public interest.
          (4) Enforceability.--A standard, guidance, or 
        practice in effect under this subsection shall be 
        enforceable by the Commission.
    (d) Designation of Electric Reliability Organization.--
          (1) Regulations.--
                  (A) Proposed regulations.--Not later than 90 
                days after the date of enactment of this 
                section, the Commission shall propose 
                regulations specifying procedures and 
                requirements for an entity to apply for 
                designation as the electric reliability 
                organization.
                  (B) Notice and comment.--The Commission shall 
                provide notice and opportunity for comment on 
                the proposed regulations.
                  (C) Final regulation.--Not later than 180 
                days after the date of enactment of this 
                section, the Commission shall promulgate final 
                regulations under this subsection.
          (2) Application.--
                  (A) Submission.--Following the promulgation 
                of final regulations under paragraph (1), an 
                entity may submit an application to the 
                Commission for designation as the electric 
                reliability organization.
                  (B) Contents.--The applicant shall describe 
                in the application--
                          (i) the governance and procedures of 
                        the applicant; and
                          (ii) the funding mechanism and 
                        initial funding requirements of the 
                        applicant.
          (3) Notice and comment.--The Commission shall--
                  (A) provide public notice of the application; 
                and
                  (B) afford interested parties an opportunity 
                to comment.
          (4) Designation of electric reliability 
        organization.--The Commission shall designate the 
        applicant as the electric reliability organization if 
        the Commission determines that the applicant--
                  (A) has the ability to develop, implement, 
                and enforce standards that provide for an 
                adequate level of reliability of bulk-power 
                systems;
                  (B) permits voluntary membership to any bulk-
                power system user or public interest group;
                  (C) ensures fair representation of its 
                members in the selection of its directors and 
                fair management of its affairs, taking into 
                account the need for efficiency and 
                effectiveness in decisionmaking and operations 
                and the requirements for technical competency 
                in the development of organization standards 
                and the exercise of oversight of bulk-power 
                system reliability;
                  (D) ensures that no 2 industry sectors have 
                the ability to control, and no 1 industry 
                sector has the ability to veto, the applicant's 
                discharge of its responsibilities as the 
                electric reliability organization (including 
                actions by committees recommending standards 
                for approval by the board or other board 
                actions to implement and enforce standards);
                  (E) provides for governance by a board wholly 
                comprised of independent directors;
                  (F) provides a funding mechanism and 
                requirements that--
                          (i) are just, reasonable, not unduly 
                        discriminatory or preferential and in 
                        the public interest; and
                          (ii) satisfy the requirements of 
                        subsection (l);
                  (G) has established procedures for 
                development of organization standards that--
                          (i) provide reasonable notice and 
                        opportunity for public comment, taking 
                        into account the need for efficiency 
                        and effectiveness in decisionmaking and 
                        operations and the requirements for 
                        technical competency in the development 
                        of organization standards;
                          (ii) ensure openness, a balancing of 
                        interests, and due process; and
                          (iii) includes alternative procedures 
                        to be followed in emergencies;
                  (H) has established fair and impartial 
                procedures for implementation and enforcement 
                of organization standards, either directly or 
                through delegation to an affiliated regional 
                reliability entity, including the imposition of 
                penalties, limitations on activities, 
                functions, or operations, or other appropriate 
                sanctions;
                  (I) has established procedures for notice and 
                opportunity for public observation of all 
                meetings, except that the procedures for public 
                observation may include alternative procedures 
                for emergencies or for the discussion of 
                information that the directors reasonably 
                determine should take place in closed session, 
                such as litigation, personnel actions, or 
                commercially sensitive information;
                  (J) provides for the consideration of 
                recommendations of States and State 
                commissions; and
                  (K) addresses other matters that the 
                Commission considers appropriate to ensure that 
                the procedures, governance, and funding of the 
                electric reliability organization are just, 
                reasonable, not unduly discriminatory or 
                preferential, and in the public interest.
          (5) Exclusive designation.--
                  (A) In general.--The Commission shall 
                designate only 1 electric reliability 
                organization.
                  (B) Multiple applications.--If the Commission 
                receives 2 or more timely applications that 
                satisfy the requirements of this subsection, 
                the Commission shall approve only the 
                application that the Commission determines will 
                best implement this section.
    (e) Organization Standards.--
          (1) Submission of proposals to commission.--
                  (A) In general.--The electric reliability 
                organization shall submit to the Commission 
                proposals for any new or modified organization 
                standards.
                  (B) Contents.--A proposal submitted under 
                subparagraph (A) shall include
                          (i) a concise statement of the 
                        purpose of the proposal; and
                          (ii) a record of any proceedings 
                        conducted with respect to the proposal.
          (2) Review by the commission.--
                  (A) Notice and comments.--The Commission 
                shall--
                          (i) provide notice of a proposal 
                        under paragraph (1); and
                          (ii) allow interested persons 30 days 
                        to submit comments on the proposal.
                  (B) Action by the commission.--
                          (i) In general.--After taking into 
                        consideration any submitted comments, 
                        the Commission shall approve or 
                        disapprove a proposed organization 
                        standard not later than the end of the 
                        60-day period beginning on the date of 
                        the deadline for the submission of 
                        comments, except that the Commission 
                        may extend the 60-day period for an 
                        additional 90 days for good cause.
                         (ii) Failure to act.--If the 
                        Commission does not approve or 
                        disapprove a proposal within the period 
                        specified in clause (i), the proposed 
                        organization standard shall go into 
                        effect subject to its terms, without 
                        prejudice to the authority of the 
                        Commission to modify the organization 
                        standard in accordance with the 
                        standards and requirements of this 
                        section.
                  (C) Effective date.--An organization standard 
                approved by the Commission shall take effect 
                not earlier than 30 days after the date of the 
                Commission's order of approval.
                  (D) Standards for approval.--
                          (i) In General.--The Commission shall 
                        approve a proposed new or modified 
                        organization standard if the Commission 
                        determines the organization standard to 
                        be just, reasonable, not unduly 
                        discriminatory or preferential, and in 
                        the public interest.
                          (ii) Considerations.--In the exercise 
                        of its review responsibilities under 
                        this subsection, the Commission--
                                  (I) shall give due weight to 
                                the technical expertise of the 
                                electric reliability 
                                organization with respect to 
                                the content of a new or 
                                modified organization standard; 
                                but
                                  (II) shall not defer to the 
                                electric reliability 
                                organization with respect to 
                                the effect of the organization 
                                standard on competition.
                  (E) Remand.--A proposed organization standard 
                that is disapproved in whole or in part by the 
                Commission shall be remanded to the electric 
                reliability organization for further 
                consideration.
          (3) Orders to develop or modify organization 
        standards.--The Commission, on complaint or on motion 
        of the Commission, may order the electric reliability 
        organization to develop and submit to the Commission, 
        by a date specified in the order, an organization 
        standard or modification to an existing organization 
        standard to address a specific matter if the Commission 
        considers a new or modified organization standard 
        appropriate to carry out this section, and the electric 
        reliability organization shall develop and submit the 
        organization standard or modification to the Commission 
        in accordance with the subsection.
          (4)Variances and entity rules.--
                  (A) Proposal.--An affiliated regional 
                reliability entity may propose a variance or 
                entity rule to the electric reliability 
                organization.
                  (B) Expedited consideration.--If expedited 
                consideration is necessary to provide for bulk-
                power system reliability, the affiliated 
                regional reliability entity may--
                          (i) request that the electric 
                        reliability organization expedite 
                        consideration of the proposal; and
                          (ii) file a notice of the request 
                        with the Commission.
                  (C) Failure to act.--
                          (i) In general--If the electric 
                        reliability organization fails to adopt 
                        the variance or entity rule, in whole 
                        or in part, the affiliated regional 
                        reliability entity may request that the 
                        Commission review the proposal.
                          (ii) Action by the commission.--If 
                        the Commission determines, after a 
                        review of the request, that the action 
                        of the electric reliability 
                        organization did not conform to the 
                        applicable standards and procedures 
                        approved by the Commission, or if the 
                        Commission determines that the variance 
                        or entity rule is just, reasonable, not 
                        unduly discriminatory or preferential, 
                        and in the public interest and that the 
                        electric reliability organization has 
                        unreasonably rejected or failed to act 
                        on the proposal, the Commission may--
                                  (I) remand the proposal for 
                                further consideration by the 
                                electric reliability 
                                organization; or
                                  (II) order the electric 
                                reliability organization or the 
                                affiliated regional reliability 
                                entity to develop a variance or 
                                entity rule consistent with 
                                that requested by the 
                                affiliated regional reliability 
                                entity.
                  (D) Procedure.--A variance or entity rule 
                proposed by an affiliated regional reliability 
                entity shall be submitted to the electric 
                reliability organization for review and 
                submission to the Commission in accordance with 
                the procedures specified in paragraph (2).
          (5) Immediate effectiveness.--
                  (A) In general.--Notwithstanding any other 
                provision of this subsection, a new or modified 
                organization standard shall take effect 
                immediately on submission to the Commission 
                without notice or comment if the electric 
                reliability organization--
                          (i) determines that an emergency 
                        exists requiring that the new or 
                        modified organization standard take 
                        effect immediately without notice or 
                        comment;
                          (ii) notifies the Commission as soon 
                        as practicable after making the 
                        determination;
                          (iii) submits the new or modified 
                        organization standard to the Commission 
                        not later than 5 days after making the 
                        determination; and
                          (iv) includes in the submission an 
                        explanation of the need for immediate 
                        effectiveness.
                  (B) Notice and comment.--The Commission 
                shall--
                          (i) provide notice of the new or 
                        modified organization standard or 
                        amendment for comment; and
                          (ii) follow the procedures set out in 
                        paragraphs (2) and (3) for review of 
                        the new or modified organization 
                        standard.
          (6) Compliance.--Each bulk power system user shall 
        comply with an organization standard that takes effect 
        under this section.
    (f) Coordination With Canada and Mexico.--
          (1) Recognition.--The electric reliability 
        organization shall take all appropriate steps to gain 
        recognition in Canada and Mexico.
          (2) International agreements.--
                  (A) In general.--The President shall use best 
                efforts to enter into international agreements 
                with the appropriate governments of Canada and 
                Mexico to provide for--
                          (i) effective compliance with 
                        organization standards; and
                          (ii) the effectiveness of the 
                        electric reliability organization in 
                        carrying out its mission and 
                        responsibilities.
                  (B) Compliance.--All actions taken by the 
                electric reliability organization. an 
                affiliated regional reliability entity, and the 
                Commission shall be consistent with any 
                international agreement under subparagraph (A).
    (g) Changes in Procedure, Governance, or Funding.--
          (1) Submission to the commission.--The electric 
        reliability organization shall submit to the 
        Commission--
                  (A) any proposed change in a procedure, 
                governance, or funding provision; or
                  (B) any change in an affiliated regional 
                reliability entity's procedure, governance, or 
                funding provision relating to delegated 
                functions.
          (2) Contents.--A submission under paragraph (1) shall 
        include an explanation of the basis and purpose for the 
        change.
          (3) Effectiveness.--
                  (A) Changes in procedure.--
                          (i) Changes constituting a statement 
                        policy, practice, or interpretation.--A 
                        proposed change in procedure shall take 
                        effect 90 days after submission to the 
                        Commission if the change constitutes a 
                        statement of policy, practice, or 
                        interpretation with respect to the 
                        meaning or enforcement of the 
                        procedure.
                          (ii) Other changes.--A proposed 
                        change in procedure other than a change 
                        described in clause (i) shall take 
                        effect on a finding by the Commission, 
                        after notice and opportunity for 
                        comment, that the change--
                                  (I) is just, reasonable, not 
                                unduly discriminatory or 
                                preferential, and in the public 
                                interest; and
                                  (II) satisfies the 
                                requirements of subsection 
                                (d)(4).
                  (B) Changes in governance or funding.--A 
                proposed change in governance or funding shall 
                not take effect unless the Commission finds 
                that the change--
                          (i) is just, reasonable, not unduly 
                        discriminatory or preferential, and in 
                        the public interest; and
                          (ii) satisfies the requirements of 
                        subsection (d)(4).
          (4)  Order to amend.--
                  (A) In general.--The Commission, on complaint 
                or on the motion of the Commission, may require 
                the electric reliability organization to amend 
                a procedural, governance, or funding provision 
                if the Commission determines that the amendment 
                is necessary to meet the requirements of this 
                section.
                  (B) Filing.--The electric reliability 
                organization shall submit the amendment in 
                accordance with paragraph (1).
    (h) Delegations of Authority.--
          (l) In general.--
                  (A) Implementation and enforcement of 
                compliance.--At the request of an entity, the 
                electric reliability organization shall enter 
                into an agreement with the entity for the 
                delegation of authority to implement and 
                enforce compliance with organization standards 
                in a specified geographic area if the electric 
                reliability organization finds that--
                          (i) the entity satisfies the 
                        requirements of subparagraphs (A), (B), 
                        (C), (D), (F), (J), and (K) of 
                        subsection (d)(4); and
                          (ii) the delegation would promote the 
                        effective and efficient implementation 
                        and administration of bulk-power system 
                        reliability.
                  (B) Other authority.--The electric 
                reliability organization may enter into an 
                agreement to delegate to an entity any other 
                authority, except that the electric reliability 
                organization shall reserve the right to set and 
                approve standards for bulk-power system 
                reliability.
          (2) Approval by the commission.--
                  (A) Submission to the commission.--The 
                electric reliability organization shall submit 
                to the Commission--
                          (i) any agreement entered into under 
                        this subsection; and
                          (ii) any information the Commission 
                        requires with respect to the affiliated 
                        regional reliability entity to which 
                        authority is delegated.
                  (B) Standards for approval.--The Commission 
                shall approve the agreement, following public 
                notice and an opportunity for comment, if the 
                Commission finds that the agreement--
                          (i) meets the requirements of 
                        paragraph (1); and
                          (ii) is just, reasonable, not unduly 
                        discriminatory or preferential, and in 
                        the public interest.
                (C) Rebuttable presumption.--A proposed 
                delegation agreement with an affiliated 
                regional reliability entity organized on an 
                interconnection-wide basis shall be rebuttably 
                presumed by the Commission to promote the 
                effective and efficient implementation and 
                administration of the reliability of the bulk-
                power system.
                  (D) Invalidity absent approval.--No 
                delegation by the electric reliability 
                organization shall be valid unless the 
                delegation is approved by the Commission.
          (3) Procedures for entity rules and variances.--
                  (A) In general.--A delegation agreement under 
                this subsection shall specify the procedures by 
                which the affiliated regional reliability 
                entity may propose entity rules or variances 
                for review by the electric reliability 
                organization.
                  (B) Interconnection-wide entity rules and 
                variances.--In the case of a proposal for an 
                entity rule or variance that would apply on an 
                interconnection-wide basis, the electric 
                reliability organization shall approve the 
                entity rule or variance unless the electric 
                reliability organization makes a written 
                finding that the entity rule or variance--
                          (i) was not developed in a fair and 
                        open process that provided an 
                        opportunity for all interested parties 
                        to participate;
                          (ii) would have a significant adverse 
                        impact on reliability or commerce in 
                        other interconnections;
                          (iii) fails to provide a level of 
                        reliability of the bulk-power system 
                        within the interconnection such that 
                        the entity rule or variance would be 
                        likely to cause a serious and 
                        substantial threat to public health, 
                        safety, welfare, or national security; 
                        or
                          (iv) would create a serious and 
                        substantial burden on competitive 
                        markets within the interconnection that 
                        is not necessary for reliability.
                  (C) Noninterconnection-wide entity rules and 
                variances.--In the case of a proposal for an 
                entity rule or variance that would apply only 
                to part of an interconnection, the electric 
                reliability organization shall approve the 
                entity rule or variance if the affiliated 
                regional reliability entity demonstrates that 
                the proposal--
                          (i) was developed in a fair and open 
                        process that provided an opportunity 
                        for all interested parties to 
                        participate;
                          (ii) would not have an adverse impact 
                        on commerce that is not necessary for 
                        reliability;
                          (iii) provides a level of bulk-power 
                        system reliability that is adequate to 
                        protect public health, safety, welfare, 
                        and national security and would not 
                        have a significant adverse impact on 
                        reliability; and
                          (iv) in the case of a variance, is 
                        based on a justifiable difference 
                        between regions or subregions within 
                        the affiliated regional reliability 
                        entity's geographic area.
                  (D) Action by the electric reliability 
                organization.--
                          (i) In general.--The electric 
                        reliability organization shall approve 
                        or disapprove a proposal under 
                        subparagraph (A) within 120 days after 
                        the proposal is submitted.
                          (ii) Failure to act.--If the electric 
                        reliability organization fails to act 
                        within the time specified in clause 
                        (i), the proposal shall be deemed to 
                        have been approved.
                          (iii) Submission to the commission.--
                        After approving a proposal under 
                        subparagraph (A), the electric 
                        reliability organization shall submit 
                        the proposal to the Commission for 
                        approval under the procedures 
                        prescribed under subsection (e).
                  (E) Direct submission.--An affiliated 
                regional reliability entity may not submit a 
                proposal for approval directly to the 
                Commission except as provided in subsection 
                (e)(4).
          (4) Failure to reach delegation agreement.--
                  (A) In general.--If an affiliated regional 
                reliability entity requests, consistent with 
                paragraph (1), that the electric reliability 
                organization delegate authority to it, but is 
                unable within 180 days to reach agreement with 
                the electric reliability organization with 
                respect to the requested delegation, the entity 
                may seek relief from the Commission.
                  (B) Review by the commission.--The Commission 
                shall order the electric reliability 
                organization to enter into a delegation 
                agreement under terms specified by the 
                Commission if, after notice and opportunity for 
                comment, the Commissiondetermines that--
                          (i) a delegation to the affiliated 
                        regional reliability entity would--
                                  (I) meet the requirements of 
                                paragraph (1); and
                                  (II) would be just, 
                                reasonable, not unduly 
                                discriminatory or preferential, 
                                and in the public interest; and
                        (ii) the electric reliability 
                        organization unreasonably withheld the 
                        delegation.
          (5) Orders to modify delegation agreements.--
                  (A) In general.--On complaint, or on motion 
                of the Commission, after notice to the 
                appropriate affiliated regional reliability 
                entity, the Commission may order the electric 
                reliability organization to propose a 
                modification to a delegation agreement under 
                this subsection if the Commission determines 
                that--
                          (i) the affiliated regional 
                        reliability entity--
                                  (I) no longer has the 
                                capacity to carry out 
                                effectively or efficiently the 
                                implementation or enforcement 
                                responsibilities under the 
                                delegation agreement;
                                  (II) has failed to meet its 
                                obligations under the 
                                delegation agreement; or
                                  (III) has violated this 
                                section;
                          (ii) the rules, practices, or 
                        procedures of the affiliated regional 
                        reliability entity no longer provide 
                        for fair and impartial discharge of the 
                        implementation or enforcement 
                        responsibilities under the delegation 
                        agreement;
                          (iii) the geographic boundary of a 
                        transmission entity approved by the 
                        Commission is not wholly within the 
                        boundary of an affiliated regional 
                        reliability entity, and the difference 
                        in boundaries is inconsistent with the 
                        effective and efficient implementation 
                        and administration of bulk-power system 
                        reliability; or
                          (iv) the agreement is inconsistent 
                        with a delegation ordered by the 
                        Commission under paragraph (4).
                  (B) Suspension.--
                          (i) In general.--Following an order 
                        to modify a delegation agreement under 
                        subparagraph (A), the Commission may 
                        suspend the delegation agreement if the 
                        electric reliability organization or 
                        the affiliated regional reliability 
                        entity does not propose an appropriate 
                        and timely modification.
                          (ii) Assumption of 
                        responsibilities.--If a delegation 
                        agreement is suspended, the electric 
                        reliability organization shall assume 
                        the responsibilities delegated under 
                        the delegation agreement.
    (i) Organization Membership.--Each system operator shall be 
a member of--
          (1) the electric reliability organization; and
          (2) any affiliated regional reliability entity 
        operating under an agreement effective under subsection 
        (h) applicable to the region in which the system 
        operator operates, or is responsible for the operation 
        of, a transmission facility.
    (j) Enforcement.--
          (1) Disciplinary actions.--
                  (A) In general.--Consistent with procedures 
                approved by the Commission under subsection 
                (d)(4)(H), the electric reliability 
                organization may impose a penalty, limitation 
                on activities, functions, or operations, or 
                other disciplinary action that the electric 
                reliability organization finds appropriate 
                against a bulk-power system user if the 
                electric reliability organization, after notice 
                and an opportunity for interested parties to be 
                heard, issues a finding in writing that the 
                bulk-power system user has violated an 
                organization standard.
                  (B) Notification.--The electric reliability 
                organization shall immediately notify the 
                Commission of any disciplinary action imposed 
                with respect to an act or failure to act of a 
                bulk-power system user that affected or 
                threatened to affect bulk-power system 
                facilities located in the United States.
                  (C) Right to petition.--A bulk-power system 
                user that is the subject of disciplinary action 
                under paragraph (1) shall have the right to 
                petition the Commission for a modification or 
                rescission of the disciplinary action.
                  (D) Injunctions.--If the electric reliability 
                organization finds it necessary to prevent a 
                serious threat to reliability, the electric 
                reliability organization may seek injunctive 
                relief in the United States district court for 
                the district in which the affected facilities 
                are located.
                  (E) Effective date.--
                          (i) In general.--Unless the 
                        Commission, on motion of the Commission 
                        or on application by the bulk-power 
                        system user that is the subject of the 
                        disciplinary action, suspends the 
                        effectiveness of a disciplinary action, 
                        the disciplinary action shall take 
                        effect on the 30th day after the date 
                        on which--
                                  (I) the electric reliability 
                                organization submits to the 
                                Commission--
                                          (aa) a written 
                                        finding that the bulk-
                                        power system user 
                                        violated an 
                                        organization standard; 
                                        and
                                          (bb) the record of 
                                        proceedings before the 
                                        electric reliability 
                                        organization; and
                                  (II) the Commission posts the 
                                written finding on the 
                                Internet.
                          (ii) Duration.--A disciplinary action 
                        shall remain in effect or remain 
                        suspended unless the Commission, after 
                        notice and opportunity for hearing, 
                        affirms, sets aside, modifies, or 
                        reinstates the disciplinary action.
                          (iii) Expedited consideration.--The 
                        Commission shall conduct the hearing 
                        under procedures established to ensure 
                        expedited consideration of the action 
                        taken.
          (2) Compliance orders.--The Commission, on complaint 
        by any person or on motion of the Commission, may order 
        compliance with an organization standard and may impose 
        a penalty, limitation on activities, functions, or 
        operations, or take such other disciplinary action as 
        the Commission finds appropriate, against a bulk-power 
        system user with respect to actions affecting or 
        threatening to affect bulk-power system facilities 
        located in the United States if the Commission finds, 
        after notice and opportunity for a hearing, that the 
        bulk-power system user has violated or threatens to 
        violate an organization standard.
          (3) Other actions.--The Commission may take such 
        action as is necessary against the electric reliability 
        organization or an affiliated regional reliability 
        entity to ensure compliance with an organization 
        standard, or any Commission order affecting electric 
        reliability organization or affiliated regional 
        reliability entity.
    (k) Reliability Reports.--The electric reliability 
organization shall--
          (1) conduct periodic assessments of the reliability 
        and adequacy of the interconnected bulk-power system in 
        North America; and
          (2) report annually to the Secretary of Energy and 
        the Commission its findings and recommendations for 
        monitoring or improving system reliability and 
        adequacy.
    (1) Assessment and recovery of certain costs.--
          (1) In general.--The reasonable costs of the electric 
        reliability organization, and the reasonable costs of 
        each affiliated regional reliability entity that are 
        related to implementation or enforcement of 
        organization standards or other requirements contained 
        in a delegation agreement approved under subsection 
        (h), shall be assessed by the electric reliability 
        organization and each affiliated regional reliability 
        entity, respectively, taking into account the 
        relationship of costs to each region and based on an 
        allocation that reflects an equitable sharing of the 
        costs among all electric energy consumers.
          (2) Rules.--The Commission shall provide by rule for 
        the review of costs and allocations under paragraph (1) 
        in accordance with the standards in this subsection and 
        subsection (d)(4)(F).
    (m) Application of Antitrust Laws.--
          (1) In general.--Notwithstanding any other provision 
        of law, the following activities are rebuttably 
        presumed to be in compliance with the antitrust laws of 
        the United States:
                  (A) Activities undertaken by the electric 
                reliability organization under this section or 
                affiliated regional reliability entity 
                operating under a delegation agreement under 
                subsection (h).
                  (B) Activities of a member of the electric 
                reliability organization or affiliated regional 
                reliability entity in pursuit of the objectives 
                of the electric reliability organization or 
                affiliated regional reliability entity under 
                this section undertaken in good faith under the 
                rules of the organization of the electric 
                reliability organization or affiliated regional 
                reliability entity.
          (2) Availability of defenses.--In a civil action 
        brought by any person or entity against the electric 
        reliability organization or an affiliated regional 
        reliability entity alleging a violation of an antitrust 
        law based on an activity under this Act, the defenses 
        of primary jurisdiction and immunity from suit and 
        other affirmative defenses shall be available to the 
        extent applicable.
    (n) Regional Advisory Role.--
          (1) Establishment of regional advisory body.--The 
        Commission shall establish a regional advisory body on 
        the petition of the Governors of at least two-thirds of 
        the States within a region that have more than one-half 
        of their electrical loads served within the region.
          (2) Membership--A regional advisory body--
                  (A) shall be composed of 1 member from each 
                State in the region, appointed by the Governor 
                of the State; and
                  (B) may include representatives of agencies, 
                States, and Provinces outside theUnited States, 
on execution of an appropriate international agreement described in 
subsection (f).
          (3) Functions.--A regional advisory body may provide 
        advice to the electric reliability organization, an 
        affiliated regional reliability entity, or the 
        Commission regarding--
                  (A) the governance of an affiliated regional 
                reliability entity existing or proposed within 
                a region;
                  (B) whether a standard proposed to apply 
                within the region is just, reasonable, not 
                unduly discriminatory or preferential, and in 
                the public interest; and
                  (C) whether fees proposed to be assessed 
                within the region are--
                          (i) just, reasonable, not unduly 
                        discriminatory or preferential, and in 
                        the public interest; and
                          (ii) consistent with the requirements 
                        of subsection (l).
          (4) Deference.--In a case in which a regional 
        advisory body encompasses an entire interconnection, 
        the Commission may give deference to advice provided by 
        the regional advisory body under paragraph (3).
    (o) Applicability of Section.--This section does not apply 
outside the 48 contiguous States.
    (p) Rehearings; Court Review of Orders.--Section 313 
applies to an order of the Commission issued under this 
section.
    (q) Preservation of State Authority.--
          (1) The Electric Reliability Organization shall have 
        authority to develop, implement, and enforce compliance 
        with standards for the reliable operation of only the 
        Bulk Power System.
          (2) This section does not provide the Electric 
        Reliability Organization or the Commission with the 
        authority to set and enforce compliance with standards 
        for adequacy or safety of electric facilities or 
        services.
          (3) Nothing in this section shall be construed to 
        preempt any authority of any State to take action to 
        ensure the safety, adequacy, and reliability of 
        electric service within that State, as long as such 
        action is not inconsistent with any Organization 
        Standard.
          (4) Not later than 90 days after the application of 
        the Electric Reliability Organization or other affected 
        party, the Commission shall issue a final order 
        determining whether a state action is inconsistent with 
        an Organization Standard, after notice and opportunity 
        for comment, taking into consideration any 
        recommendations of the Electric Reliability 
        Organization.
          (5) The Commission, after consultation with the 
        Electric Reliability Organization, may stay the 
        effectiveness of any state action, pending the 
        Commission's issuance of a final order.

           *       *       *       *       *       *       *

    Sec. 316(a) Any person who willfully and knowingly does or 
causes or suffers to be done any act, matter, or thing in this 
Act prohibited or declared to be unlawful, or who willfully and 
knowingly omits or fails to do any act, matter, or thing in 
this Act required to be done, or willfully and knowingly causes 
or suffers such omission or failure, shall, upon conviction 
thereof, be punished by a fine of not more than $5,000 or by 
imprisonment for not more than two years or both.
    (b) Any person who willfully and knowingly violates any 
rule, regulation, restriction, condition, or order made or 
imposed by the Commission under authority of this Act, or any 
rule or regulation imposed by the Secretary of the Army under 
authority of Part I of this Act shall, in addition to any other 
penalties provided by law, be punished upon conviction thereof 
by a fine of not exceeding $500 for each and every day during 
which such offense occurs.
    (c) This [subsection] section shall not apply in the case 
of any provision of section 211, 212, 213, [214] 214 or 215, or 
any rule or order issued under any such provision.

SEC. 316A. ENFORCEMENT OF CERTAIN PROVISIONS.

    (a) Violations.--It shall be unlawful for any person to 
violate any provision of section 211, 212, 213, or 214 or any 
rule or order issued under any such provision.
    (b) Civil Penalties.--Any person who violates any provision 
of section 211, 212, 213, [or 214] 214, or 215 or any provision 
of any rule or order thereunder shall be subject to a civil 
penalty of not more than $10,000 for each day that such 
violation continues. Such penalty shall be assessed by the 
Commission, after notice and opportunity for public hearing, in 
accordance with the same provisions as are applicable under 
section 31(d) in the case of civil penalties assessed under 
section 31. In determining the amount of a proposed penalty, 
the Commission shall take into consideration the seriousness of 
the violation and the efforts of such person to remedy the 
violation in a timely manner.

                                  
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