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Frontlines

Is FERC the rightful heir?
Fortnightly Magazine - February 2004

Frontlines

Is FERC the rightful heir?

The possibility that energy legislation drafted last year won't pass in 2004 has created a power vacuum. Who now is czar of electric utility reliability? Language in the proposed bill would have answered that question. But when Congress demurred, did that imply an endorsement of the ?

"We think it's neat that no one's in charge," Congress might just as well have said. Or, perhaps our lawmakers intended a different message: "Nobody makes a move till we say. Don't call us, we'll call you."

For better or for worse, the Federal Energy Regulatory Commission (FERC) stepped into the void in late December when it directed its staff to develop an order requiring transmission system operators to report violations of the industry's power-grid reliability standards. "The pending order marks the first step in the commission's exploration of its authority under existing law to assure power grid reliability in the aftermath of an Aug. 14, 2003, blackout that affected millions in the U.S. and Canada," FERC said.

But FERC's actions have drawn criticism from several quarters in the industry that don't believe FERC has the legal authority to enforce reliability, and that it is too soon for the regulator to begin assuming a role Congress has not given it.

Moreover, many are concerned about a repeat of the August blackout. Rep. John Dingell, D-Mich., has introduced stand-alone reliability rules, and recently Sen. Hillary Clinton, D-N.Y., said she would introduce similar legislation that would require FERC to create a standard-setting board that would propose mandatory rules.

So, if Congress is to make FERC the oversight agency of any entity that makes reliability rules, who cares if FERC is the one setting the rules or overseeing a board or agency that does? Isn't it patently clear that Congress wants FERC to have ultimate responsibility for reliability? No, some executive say, Congress has not made FERC the reliability czar, and the agency is usurping the contribution and potential authority of the North American Reliability Council (NERC), the industry's voluntary, self-regulating organization-which, if the energy bill passes, would become the reliability organization to create and enforce tougher mandatory reliability rules.

Utilities: FERC Should Be at the Top

One utility expert familiar with reliability issues says FERC is ill equipped to set reliability standards. The expert, who requested anonymity, says, "There are three phases of a new approach to reliability that you need to get done. The first phase is the development of new standards. In other words, we have reliability standards, but we need to develop new and tougher standards. The second phase is monitoring compliance with those new standards. That basically involves compliance audits and things of that nature. The third phase is the so-called corrective action or penalty phase.

"It is the unambiguous view of the utilities industry that the historical memory and the knowledge and the expertise for executing the first two phases rest within NERC. And that FERC, appropriately, should be in charge of the third phase, which is the penalty phase. In other words, NERC develops the

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