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A Welcome Truce in the Electricity Wars

Let's enjoy this brief period of diminished acrimony before implementation of this landmark law.

Fortnightly Magazine - October 2005

In a time of record high gasoline prices, war, and increasingly shared global climate concerns, it is lamentable that the Energy Policy Act of 2005 does so little to address these critical issues. Within the narrower context of policies primarily affecting the electric power industry, however, this is a much more significant piece of legislation, and it includes a few accomplishments bordering on the extraordinary.

For more than a decade, Congress has expressed little more than ambivalence on the subject of electricity regulation. Of course, nearly all policymakers professed alliance to the goal of wholesale markets, and to local decisionmaking in matters of retail industry structure. Absolutely everyone favored strengthening electric reliability, and yet Congress stubbornly refused to pass reliability legislation. As the industry weathered its worst crises since the 1930s, from California blackouts to the collapse of Enron, Congress stood on the sidelines.

Congress' inaction cannot be blamed entirely on lethargy or a lack of courage. Underneath the pro-market, pro-reliability talking points shared by all members there lurked deep disagreements over retail deregulation and FERC's authority to force vertical de-integration (or membership in a regional transmission organization [RTO]), impose open access and reliability rules for all bulk power entities, and to oversee and remedy market wrongdoing.

Constructive Compromise

In these vitally important areas, the act strikes a constructive and much-needed compromise. To the proponents of deregulation and divestiture, the legislation articulates preferences for RTOs and markets. More importantly, it clearly establishes that operating a transmission grid that enables competition and protects reliability is federal business, and that every entity that uses this system must operate under a common set of rules. Reliability standards are mandatory, regional transmission planning is essential, and transmission incentive rates are desirable.

But if the legislation leans toward making the grid safe for markets, it also leans toward making the markets safer for customers. The act sets an earlier refund effective date and expands the authority of the Federal Energy Regulatory Commission (FERC) to oversee power markets in important and appropriate ways. Under Section 1281, FERC may obtain any information it needs, from any market participant, to make wholesale markets work-authority roughly comparable to that of the U.S. Department of Justice or the Commodity Futures Trading Commission. Market participants now explicitly are barred from false reporting to federal agencies and from using "any manipulative device or contrivance (as those terms are used in the section 10(b) of the Securities Exchange Act of 1934), in contravention of such rules and regulations as the commission may prescribe as necessary or appropriate in the public interest." FERC's penalty limits also were raised dramatically, from $10,000 to $1 million, for each violation of each rule for one day. All in all, this is the most significant expansion of federal electric policy authority in most of our lifetimes-a bargain between pro-consumer

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