RE: Reliability Legislation

MEMORANDUM

TO: EPSA Legislative Affairs Committee
NAERO Working Group

FROM: Scott A. Weiner, Legislative Affairs Committee Chair
Donn J. Salvosa, Manager of Government Affairs
Mark Bennett, Senior Manager of Policy

DATE: September 18, 2001

RE: Reliability Legislation - New Drafts

A number of proposed bills addressing the reliability issue have recently been circulated. Senate Energy and Natural Resources Chairman Jeff Bingaman (D-NM) recently distributed a draft electricity title to a comprehensive energy bill. The reliability section of the draft is attached. The House Energy Subcommittee chaired by Rep. Joe Barton (R-TX) has also circulated language which is attached. Additionally in response to concerns expressed during a recent EEI CEO meeting, EEI has circulated their own legislative proposal, absent participation from NERC and its consensus group. Their draft is based on the NERC bill, but contains several significant changes as noted below. This is also attached for your review.

Senator Bingaman's language encompasses only two pages. The legislation simply grants to FERC authority to develop and enforce standards. FERC may choose to adopt any NERC proposed standard. Lastly, FERC can delegate enforcement of standards to NERC or an RTO if it chooses to do so.

The House four page draft version of reliability language proposes to do the following:

- Establish an Electric Reliability Organization (ERO), subject to FERC
approval; no Affiliated Regional Reliability Entities (ARREs); it is unclear
whether FERC could approve multiple EROs.

- ERO files proposed standards or modifications with FERC, which can
approve or remand for further consideration.
- ERO would enforce standards and impose penalties, subject to FERC
review. FERC can assign authority for a given region to an RTO. Also,
FERC on its own can order compliance and penalties.

- ERO to take "appropriate steps" to coordinate with Canada and Mexico;
President to use "best efforts" to reach international agreements.

The EEI proposal includes the following points:

- FERC would establish and maintain jurisdiction over EROs and an
appropriate number of ARREs. FERC can choose to direct the ERO to
develop or modify standards.

- EROs develop standards subject to FERC approval.

- ERO, under FERC direction, will delegate authority to regional entities.
This presumably can include ARREs or RTOs. ERO and appropriate
entities would enforce standards. FERC can also enforce and impose
penalties.

This past Tuesday, EPSA staff meet with Bobby Lamb and Craig Glazer, representatives from PJM, to discuss PJM's legislative proposal. It was clear from the meeting that there is flexibility to make changes, which could address our areas of concern in order to gain our support. For example, they told us that some parts of the proposed bill were written to gain support from groups who then favored the NERC bill. With the recent circulation of other versions of reliability language, they invited us to suggest changes to their reliability language. The meeting revealed that EPSA's and PJM's views are very similar, and that a potential opportunity exists to develop a better alternative to the NERC Bill.

We are holding a conference call on Thursday, September 20, 2001, at 4:00 P.M. (EDT) to discuss these opportunities and possible new legislative initiatives. To access the call, dial 1-800-937-6563. Ask for the Mark Bennett/EPSA Call. If you have any questions or concerns please contact Mark Bennett or Donn Salvosa at 202-628-8200.