Washington (Electric Power Daily), Aug 8, 2005

President Bush on Aug 8 signed Energy Policy Act of 2005 into law against a backdrop of the Sandia National Laboratories in Albuquerque, N.M., triggering a number of rulemakings and other actions by the Federal Energy Regulatory Commission.

The legislation "will help ensure that consumers receive electricity over dependable modern infrastructure," said Bush at the ceremony outside the laboratory. "The bill removes outdated obstacles to investment in electricity transmission lines in generating facilities. The bill corrects the provision of the law that made electric reliability standards optional instead of mandatory."

The bill authorizes FERC to grant permits for lines deemed critical by the Dept. of Energy. "To keep local disputes from causing national problems, the bill gives federal officials the authority to select sites for new power lines," said Bush. "With this bill, America can start building a modern 21st century electricity grid, as well."

The bill offers a broad ban on manipulation of the wholesale power market and allows FERC to issue rules to set up an electronic information system to provide public access to wholesale power prices and availability while boosting civil and criminal penalties for violations of the Federal Power Act. But it allows utilities to use their transmission rights to protect their native load customers.

As part of its 10-year multi-billion dollar tax incentive package, the bill accelerates the depreciation schedule for transmission investment to 15 years, and allows utilities that sell their transmission assets to a FERC-approved independent company up to eight years to pay the tax on any gain.

Meanwhile, in a briefing with reporters on Aug 8, FERC Chairman Joseph Kelliher said the bill is the "most significant" change for federal energy regulatory policy in 70 years and marks a major vote of confidence in the agency.

Kelliher said the bill is "very significant in scope and breadth" and one that will result in several new rules and regulations for the commission.

The legislation demonstrates that Congress "still wants to see competition" in the wholesale electricity markets and gives FERC new tools to penalize companies that attempt to manipulate the market, Kelliher said. For example, he pointed to the agency's new jurisdiction over all generation-only acquisitions and stronger penalties to punish those who try to game the wholesale market.

Under the new law, "we're not so limited" in how the agency punishes violators.

He said the agency is currently assessing the many timelines for each new rulemaking and regulatory change the bill requires, and said he will ask Congress for additional funding and staff if needed.

Kelliher said he expects the creation of a new reliability organization and mandatory reliability rules to be particularly taxing. Although the electric industry has been clearing up the existing reliability standards, Kelliher said under the law, FERC has its hands full. It must certify an electric reliability organization and determine how that agency will be funded, he said. FERC must also determine how it will enforce the new rules, once finalized. "That's an area we have to spend some time on," he said.

Under the law, FERC must issue a final rule on mandatory reliability standards within 180 days. Also, the commission within four months must implement new standards reflecting a streamlined version of the Public Utility Holding Company Act; by the end of the year it must report to Congress on the status of its California refund proceeding; after 180 days it must sign a memorandum with the Commodities Futures Trading Commission on natural gas and electric market transparency provisions; and, among other things, establish within a year a rulemaking allowing for incentive-based rate treatment for interstate transmission.

Here is a roundup on the law's key provisions for the electricity industry:

• Streamlines the hydroelectric licensing process by allowing disputed issues raised by the licensee or any party to be considered in a single trial-type hearing process lasting no more than 90 days. Provisions also allow for consideration of alternative conditions and prescriptions in licensing a hydroelectric project.
• Frees electric utilities from having to enter new purchase and sale contracts with qualifying facilities under the Public Utility Regulatory Policies Act in cases in which QFs have access to independent real-time and day-ahead wholesale power markets.
• Allows, but does not mandate, FERC to consider "participant funding" plans to finance new generation interconnection or upgrades so that those that benefit from the projects are assigned costs. FERC already has the discretion to consider such plans, but the participant funding issue went through a number of contentious iterations and apparently simply ended up with this language as a compromise.
• Says FERC may issue rules to set up an electronic information system to provide public access to wholesale power prices and transmission availability to inject transparency in the market. This issue was also contentious, since some lawmakers wanted to require FERC to establish such a system.
• Allows transmission property rated 69 kV or greater to be treated as 15-year property; the provision is expected to provide a $1.2-bil benefit over the 10-year period.
• Extends the placed-in-service date by two years--to December 31, 2007--for renewable energy sources to qualify for a production tax credit; includes hydropower and Indian coal generation in the mix of wind, closed-loop biomass, open-loop biomass, geothermal, small irrigation, landfill gas and trash combustion as "Section 45" QFs. The renewable production credit was projected to cost $2.7-bil through 2015.
• Provides the first production tax credit for nuclear power facilities with a 1.8-cent/kWh credit for electricity generated during an eight-year period. The value is projected at $278-mil.
• Provides a 15% investment tax credit for low-emission advanced coal facilities and a 20% investment tax credit for integrated gasification combined-cycle projects. The tax break for the 10-year period comes in at $1.6-bil.
• Allows coal-fired generating units built after 1975 to amortize the cost of certified air pollution control equipment over seven years. That is a two-year extension from present law and is expected to provide a $1.1-bil benefit.