APPA OVERVIEW OF EPACT 2005 Transmission Provisions, Merger Review, and More Cindy Bogorad SPIEGEL & MCDIARMID 1333 New Hampshire Ave., NW Washington, DC (202) November 10, 2005

S PIEGEL & M C D IARMD 2 Electricity Title  Most major overhaul of Federal Power Act and PUHCA since 1935  React to various problems— reliability, inadequate transmission, Enron scandals, regulatory gaps, QF machines

S PIEGEL & M C D IARMD 3 Recurring Themes  Transmission infrastructure  Tradeoffs for PUHCA repeal-enhanced merger review authority

S PIEGEL & M C D IARMD 4 Reliability (EPAct05 § 1211; FPA § 215)  Electric Reliability Organization to establish and enforce reliability standards with FERC oversight  Reliability standard “does not include any requirement to enlarge [bulk-power system] facilities or to construct new transmission capacity….”

S PIEGEL & M C D IARMD 5 Reliability (cont’d)  Compliance with standards should prod transmission construction  Recovery of prudently-incurred costs to comply covered in incentive rulemaking  Periodic reports on bulk-power system reliability and adequacy

S PIEGEL & M C D IARMD 6 Backstop Siting Authority (EPAct05 § 1221; FPA § 216)  DOE to designate National Interest Electric Transmission Corridors- constraints or congestion adversely affects consumers  FERC (or where regional siting compact, DOE) may issue permit with federal eminent domain where state delays/conditions/lacks authority

S PIEGEL & M C D IARMD 7 Backstop Siting Authority (cont’d)  Includes state inability to consider interstate benefits or failure to qualify requestor that does not serve end users  DOE lead agency for federal authorizations/environmental review  Expedition/reporting required

S PIEGEL & M C D IARMD 8 Third-Party Finance (EPAct05 § 1222)  WAPA/SWPA participation in National Interest Electric Transmission Corridor facilities under certain circumstances  Third party funding, capped at $100 million through 2015

S PIEGEL & M C D IARMD 9 Federal Utility RTO Participation (EPAct05 § 1232)  Permits TVA and PMAs to participate in RTOs  Through contracts with protections  Includes ensuring consistency with existing contracts, third- party financing arrangements, and statutory obligations

S PIEGEL & M C D IARMD 10 Transmission Infrastructure Rule (EPAct05 § 1241; FPA § 219)  Incentive/performance-based rates to benefit consumers by ensuring reliability/reducing delivered power cost by reducing congestion  Promote transmission investment “regardless of the ownership”  Technologies to increase capacity/efficiency  Return that attracts new investment

S PIEGEL & M C D IARMD 11 Transmission Infrastructure Rulemaking – RTO Participation  To the extent within jurisdiction, FERC to provide incentives to each transmitting utility and electric utility that joins an RTO/ISO  Ensure any costs recoverable under this subsection may be recovered through utility’s transmission rates or RTO/ISO rates

S PIEGEL & M C D IARMD 12 Transmission Infrastructure Rulemaking  Little in the way of specifics  All subject to just, reasonable and not unduly discriminatory standard  Flexibility to design rates that get needed transmission built at reasonable cost, e.g., by reducing risks and/or accessing new sources of capital

S PIEGEL & M C D IARMD 13 Participant Funding (EPAct05 § 1242)  Far less prescriptive than last bill  Permissive to FERC-may approve if just and reasonable, not unduly discriminatory and otherwise consistent with §§ 205/206  Consistent with existing law

S PIEGEL & M C D IARMD 14 Native Load Service Obligation (EPAct05 § 1233; FPA § 217)  Facilitate planning and expansion of transmission to meet reasonable needs of LSEs  Enable LSEs to secure firm transmission rights (or equivalent financial rights) on a long-term basis for long-term power supply arrangements

S PIEGEL & M C D IARMD 15 Native Load Service Obligation (planning/long-term rights)  Applies in RTO and non-RTO markets (except ERCOT)  Required rulemaking to implement within organized markets

S PIEGEL & M C D IARMD 16 Native Load Service Obligation (existing rights)  LSE is entitled to use existing firm rights or equivalent financial rights to meet service obligation  Preserves resource-to-load rights existing as of date of enactment  Whether through ownership, GFA, or OATT service agreement  Consistent with OATT

S PIEGEL & M C D IARMD 17 Native Load Service Obligation (existing rights)  Not just TO native load  LSEs include everyone in this room; not just those serving enduse load  Include joint action agencies— obligation under long term contracts to municipal utilities that serve endusers

S PIEGEL & M C D IARMD 18 Native Load Service Obligation (existing rights)  N/A to PJM, NYISO, ISO-NE, and CAISO (except certain CA rights protected against conversion)  Not directly applicable to MISO, but FERC must take policies into account when MISO changes FTR allocation methodology  Applies to SPP and other new RTOs  Separate added protections for PNW

S PIEGEL & M C D IARMD 19 PUHCA Repeal Tradeoffs  PUHCA, by active and passive restraints, largely restricted utilities to compact vertically integrated entities  PUHCA’s repeal will open up industry to consolidation and fragmentation in ways we can’t imagine

S PIEGEL & M C D IARMD 20 Tradeoffs - Mergers (EPAct05 § 1289; amending FPA § 203)  Expanded/clarified authority to review generation acquisitions and holding company mergers  But FERC must act within 180 days, plus 180-day extension period

S PIEGEL & M C D IARMD 21 Merger Review (cont’d)  Maintains traditional “consistent with the public interest” test  Added test: not result in cross- subsidization of non-utility or pledge/encumbrance of utility assets unless consistent with the public interest

S PIEGEL & M C D IARMD 22 Qualifying Facilities (EPAct05 § 1253; amending PURPA § 210)  Eliminate restrictions on QF ownership  No obligation to purchase from new QF unless meets new requirements  No mandatory purchase obligation for new contracts if QF has non-discriminatory access to RTO/ISO with competitive wholesale market, or comparable markets  Preservation of existing QF contracts

S PIEGEL & M C D IARMD 23 Odds and Ends  Eliminate 60-day wait for Section 206 refunds  Non-RUS-financed coops with less than 4 million MWh sales removed from FERC jurisdiction  Sense of Congress that FERC should consider state objections to LICAP

S PIEGEL & M C D IARMD 24 Bottom line  Many, many rulemakings  Expanded FERC regulatory and enforcement tools  Costs won’t go down  Life won’t get less complicated