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Is FERC the rightful heir?
Fortnightly Magazine - February 2004

standards and NERC says company XYZ broke the standards, and the third step [is FERC] using its appropriate oversight and enforcement and supporting role ... [in] the third phase."

The source says utilities are uncomfortable with FERC getting involved in the first two phases. Plus, where will FERC get the expertise to monitor grid reliability? "NERC is the only place where there are engineers who can do what FERC is proposing to do. Wouldn't the agency be taking away valuable human resources from NERC on the eve of its transformation to reliability cop by Congress?" the source says.

Echoing the view that NERC should be in command of setting standards and enforcement is the Edison Electric Institute (EEI). In early January, EEI's board of directors unanimously adopted a resolution declaring that NERC should take the lead in formalizing new electric reliability standards.

Specifically, the resolution suggests prompt action by NERC to implement a number of strategic initiatives to strengthen reliability, including: readiness audits of control areas and reliability coordinators; enhanced compliance performance reviews; vegetation management surveys; and recommendations tracking. The role of the FERC should be one of "supporting and providing oversight to the NERC initiatives," according to the resolution. EEI President Tom Kuhn said of the resolution, "We are pleased that the commission wants to take an active role in helping achieve a goal we all share-that of making certain our bulk power system is the world's most reliable. Consistent with the reliability provisions approved by both the Senate and House as part of the comprehensive energy bill, our CEOs believe strongly that the expertise to make this happens resides within NERC and the industry, with FERC in an important oversight role."

An EEI spokesman points out that the preferred route is quick enactment of the comprehensive national energy legislation, which contains provisions for creation of a national electric reliability organization, rather than any stand-alone legislation on reliability. Moreover, one utility expert does not believe that the August blackout was proof that NERC has failed as an organization and deserves elimination. He and other executives strongly believe NERC has been ineffective because of its inability to mandate reliability standards.

It's All About Authority

Even as some utility executives are putting their full support behind NERC, others believe FERC has the authority to enforce and set reliability standards. They ask, what is to happen if Congress does not act on any reliability legislation? Then the industry and regulators will have done nothing to change a status quo that caused the largest U.S. blackout in history. Furthermore, even if NERC, rather than FERC, sets new standards as Kuhn and other propose, those standards still are voluntary, assuming the energy bill does not pass. In the end, everyone wants to know if FERC has the authority to act.

Attorney James D. Hobson recently submitted to FERC his 1970s analysis related to the New York City blackout of that year. The analysis supports FERC's authority to oversee reliability. "The authority of the Federal Power Commission [as the FERC was then called] in the area of