Bunker Hill. Gettysburg. Pearl Harbor. Iwo Jima. The Cold War. Each of these famous conflicts resonates in our history books. Despite the end of the Cold War, we may face another battle, this time between the Federal Energy Regulatory Commission (FERC) and the states over jurisdiction. It could leave some of the better-known conflicts looking like minor squabbles.

And just as these other battles produced tragic losses, the dispute between the FERC and the states could leave jurisdictional disputes unresolved and the industry whipsawed. Competing messages coming from both inside and outside the Beltway threaten to frustrate many of the laudable goals of the Mega-NOPR (FERC's Notice of Proposed Rulemaking on Open-Access Transmission). Moreover, the movement toward competitive options for retail customers now coming from state capitols could come to a grinding halt, as state regulators and legislatures find themselves "frozen in the headlights" by the prospect that they may lose jurisdiction, not only over transmission lines, but over utility/customer relationships at the retail level, which for decades have formed a hallmark of regulation by state public utility commissions (PUCs).

Ohio recently hosted peace talks for Bosnia. So too would Ohio propose an olive branch (em more specifically, a solution to the conflict and confusion that may occur if the jurisdictional issues raised by the Mega-NOPR are not resolved clearly and amicably.

Overstepping the Bright Line

We should compliment the FERC on its substantial accomplishments in introducing more competition into wholesale bulk-power markets. The Mega-NOPR is an impressive document; the work that went into its development is evident. To promote competition and comparability of service, the FERC began a well-intentioned attempt to define a "bright line" between federal and state jurisdiction over transmission and distribution services. This bright line was apparently motivated by the FERC's interest to accommodate the states in their attempt to "hang" retail stranded costs on a piece of the wire between the customer and the utility. To define a bright line, the FERC established a four-part "functional test" to determine, on a case-by-case basis, whether a particular wire is a transmission line subject to FERC jurisdiction or a distribution line subject to state control. It is here that the Mega-NOPR goes awry: The FERC has underestimated both the importance and the scope of state responsibilities to ultimate customers.

We are at a crossroads. I am afraid that if the FERC adopts the functional test in its final order, the FERC, the states, and the industries we regulate will be diverted down a giant side track. Endless litigation will follow, shifting resources and attention away from the much more important goal of implementing the procompetitive policies embodied in the Energy Policy Act of 1992 (EPAct). The FERC's functional test is a lawyer's delight. After all, the prospect of repeal of the Public Utility Holding Company Act and Public Utility Regulatory Policies Act made life look a little bleak at meetings of the Federal Energy Bar Association. And although our law books are filled with famous decisions like Dred Scott and Roe v. Wade, I don't see people getting as excited about a landmark case known as In re Elm St. to Main St. to Juniper St. 69-kV Connector (em even though I suspect that a case with similar precedential import is lurking on the horizon. It just doesn't quite have the same ring to it.

I sympathize with what the FERC was trying to do. But I am not sure, at least on this issue, that the old system was "broke." Since the passage of the Federal Power Act (FPA) there has been a clear delineation of jurisdiction (em FERC has authority over sales for resale, and the states have authority over sales to ultimate customers. This tautology was enshrined in our teaching from our earliest studies in this field, and has formed a guiding principle of jurisdiction since the 1930s. But the Mega-NOPR goes further. Now, for the first time, the FERC asserts authority over the transmission piece of retail unbundled transactions. Of course, one is compelled to ask why: If the FERC "always" had this authority over retail transmission, why does unbundling change things? If the FERC always had jurisdiction over all transmission, then any state rate-setting over the years that involved transmission service was an ultra vires act. In fact, some have argued that the states should immediately take transmission out of rate base and begin massive proceedings for refunds, since obviously all those state decisions lacked any legal foundation!

The FERC has not explained why unbundling changes the nature and exercise of its jurisdiction. Moreover, the FERC has not come to grips with the full implications of its decision to grab what clearly were retail transactions. Where does the FERC's new-found jurisdiction end? And how will it be administered? Right now, the states adjudicate claims over transmission matters related to items such as the effect of electromagnetic fields and stray voltage on the milk production of dairy herds. Do I now send the citizens groups and irate farmers with cows in tow down to North Capitol St. because only the FERC has jurisdiction over transmission service? And if a major industrial customer in a retail wheeling environment experiences a power surge or voltage problem, do I now send them to the FERC for resolution? I don't think the FERC really wants these cases, nor do I think that the federalization of these purely state and local issues are what Congress has in mind. Yet these are the implications of the FERC's policy.

The Ohio Alternative

In its comments on the Mega-NOPR, the Ohio PUC proposed a much simpler alternative model for jurisdiction. The Ohio model is in keeping with the FPA and supported by ample legal authority in our comments. Basically, our model is no different from the system that has served us well for over 60 years. Our proposed division of responsibility is transactional rather than purely functional (em the FERC has jurisdiction over sales for resale, and the states have jurisdiction over sales to ultimate customers. In a retail wheeling environment the model assigns "wheeling out" of a utility's service territory or "wheeling through" that service territory to FERC jurisdiction, while placing "wheeling in" transactions (i.e., final sales between an end user and an ultimate customer) under state jurisdiction. So as not to frustrate the FERC's comparability policy, the states would defer to the FERC on technical pricing issues to promote a national

policy of nondiscrimination. The commerce clause, rather than a wholesale taking of all retail transmission jurisdiction, would be available to the FERC to enforce the policy against an uncooperative state.

Ohio's proposed jurisdictional model and system of deference would simply recognize what is already embodied in the FPA (em i.e., concurrent jurisdiction over these assets. When the FPA was enacted, Congress recognized this point by calling for a federal-state joint board (em a point that Congress sought to reiterate to the FERC in passing the savings clause of the EPAct, which reserved jurisdiction to the states over "retail market areas." Such a transactional bright line and approach would be far preferable to the wasted time and resources that will be visited upon both the FERC and state staffs if they adopt the pure functional test embodied in the Mega-NOPR and apply it to the literally hundreds of thousands of power lines across the nation.

The FERC's proposed jurisdictional model poses additional problems with regard to Regional Transmission Groups (RTGs). Much is made in the NOPR of relying upon the RTGs to solve many regional pricing issues. And the FERC has encouraged state PUC involvement in RTG activities. I welcome the FERC approach of looking at transmission grid operations and planning by region. However, I urge some caution and consideration for some of the problems that could result. For one, although the FERC has sought state involvement in its RTG order, presumably to police the RTG to make sure the public interest is protected, the Mega-NOPR basically allows the states no legal role in transmission. How seriously will state PUC concerns be addressed if RTG members now perceive that the states have no jurisdiction? And given the reduced role of state PUCs in the FERC model, how do we prevent RTGs from becoming massive price-fixing organizations eligible for state or federal antitrust

exemption? This problem is acute in regions such as mine, where there simply aren't many independent power producers because of the availability of low-cost utility fossil generation. The deference shown to the FERC should reflect the degree to which the RTG membership, legally and practically, includes all players and stakeholder interests, and the degree to which states are empowered to ensure that the public interest is protected.

Finally, what is the future of bundled transmission and service at the state level? This question is subject to serious debate. On the one hand, the FERC's exercise of jurisdiction over unbundled retail transactions could immobilize the states (em no one knows all the implications of ceding this vital part of state jurisdiction to the federal government. On the other hand, it will be unacceptable for states to do nothing, because the FERC's comparability policy could put upward pressure on bundled rates. State regulators have seen this phenomenon in the telecommunications arena, where imputed federal and state access charges, particularly for local service, would increase traditionally subsidized state local telephone rates. In that situation, at least, the state has control over the intrastate access charges. In this case, FERC's comparability policy will inevitably lead to similar pressure, and offer utilities the opportunity to argue that they are subject to "trapped costs" if the state does not comply.

Although these conundrums exist, states need to move forward actively both at the state and federal level. To prevent the Mega-NOPR from becoming the legal Iwo Jima of the 90's, I urge consideration of the Ohio model for jurisdiction. Our model embraces

cooperation and competition, while establishing a workable bright line that can circumvent endless litigation between the FERC and the states. t

Craig Glazer is chairman of the Ohio Public Utilities Commission.

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