RE: Draft House Staff Reliabilty Language

John --

Thanks for the update. As long as the FERC is fully in control and the ERO is not a "self-regulating" organization, I assume we'd be ok. The ERO must be fully under the control of FERC.

Jim

-----Original Message-----
From: Shelk, John
Sent: Friday, September 14, 2001 10:42 AM
To: Robertson, Linda; Steffes, James D.; Novosel, Sarah; Yeung, Charles; Nicolay, Christi L.
Cc: 'gpeters@epsa.org'; 'dsalvosa@epsa.org'; 'mbennett@epsa.org'
Subject: Draft House Staff Reliabilty Language

EPSA had wanted comments by Noon today on the House staff draft on reliability (hence I have copied them on this e-mail). There has been e-mail traffic between and among many if not all of us as we have looked at this langauge and as Charles and I have had various conversations with EPSA staff. Below are some comments and some issue spotting to get your reaction as we continue to evaluate this important subject.

1. The House staff draft (supposedly based on informal Administration language) does appear to be an improvement over the NERC language -- the extent to which it is so is open to interpretation and judgment. While it is shorter and does NOT have the regional entities and variances in the NERC language, the basis of the House staff draft is still an ERO. I thought we did not want an ERO of any kind, particularly one created by statute. On the other hand, some argue an ERO of some type is inevitable and task should be to give FERC as much control over it as obtainable. Furthermore, the House staff draft appears to make approving an ERO discretionary with FERC (the text says FERC "may" certify an applicant to be the ERO).

2. Given that the House staff draft is an improvement -- and it is a welcome development that it is NOT the NERC language -- it would be a major tactical victory to have both the Senate and the House mark up vehicles WITHOUT the NERC "consensus text." Since EPSA is the group most likely to NOT want NERC at this point, I appreciate the tactical need not to dump on the House staff draft to the point where the House staff says, well, if you don't like, we should go back to the NERC version since there is a group that DOES support that version. So we have to keep that in mind. In short, we need to "nurture" the House staff draft for House markup purposes while keeping our options open to support the Bingaman language in the Senate and perhaps in conference, too.

3. EPSA may be able to seek further improvements to the House staff draft. As written, it gives FERC more jurisdiction than the NERC version, and less procedural hurdles -- but there are still some procedural hurdles, although one can argue of far less consequence than the NERC version. Bingaman gives FERC more direct reliability jurisdiction than the House staff draft. Specific issues are identified below.

4. Specific Issues Spotted In House Staff Draft --

a. There is no definition of "reliability" and thus it is unclear what matters are within the jurisdiction of the ERO on which to develop standards and enforce them. Perhaps there needs to be a sentence that says FERC can assign specific matters to them or otherwise define the EROs turf. Would FERC have that ability without specific language? Another option is to use the definition of "organization standard" in the NERC version which makes it clear that the subject matter is technical standards -- not a broader agenda under the guise of "reliability."

b. Unless I am mistaken, the House staff draft would allow FERC to certifiy more than one ERO. This would be an odd result; by contrast, the NERC version makes it clear that if more than one entity applies, FERC picks one to be THE ERO (but then requires that single ERO to defer to regional reliability entities -- there is no such deference under the House staff draft). On the other hand, if FERC can approve multiple EROs -- would this result in regional EROs? (perhaps one in the East and one in the West?)

c. There is an internal conflict in the House staff draft. Part of it says FERC could assign the enforcement role of an ERO in a given region to an RTO. But from the NERC-led discussions, PJM and others have pointed out the criteria for an ERO has "independence" language and other organizational criteria that an RTO could not meet (i.e., the ERO must be independent of users and owners and operators of the bulk power system under the House staff language).

d. Why does there need to be language saying proposed reliability rules go into effect after so many days if FERC does not act? Like the NERC version, the House staff draft precludes FERC from directly amending standards (although there is language that says FERC can order the ERO to propose a standard, as there is in the NERC version. Some say this should not be objectionable because as a practical matter this is the manner for FERC to amend proposed standards without offending Canada and Mexico. Others see it as a needless hurdle. (The House draft has direct FERC amending authority on the rules by which the ERO operates -- but NOT on the reliability standards themselves.)