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FERC Seeks Expanded Authority to Levy Penalties

The main thing the Federal Energy Regulatory Commission needs from an energy bill is muscle, or the authority to levy stiff penalties for criminal and civil rules violations, FERC Chairman Patrick Wood said in a letter to Rep. John Dingell, D-MI, ranking minority member of the House Energy and Commerce Committee.

Responding to Dingell's request for an update on what FERC needs from the legislative body, Wood noted that last year's energy bill, H.R. 6, provided for increased criminal penalties for violations of the Federal Power Act and the Natural Gas Act (NGA), but no civil penalty authority under the NGA. While, "the Commission's civil penalty authority is extremely limited," it nevertheless has used the authority it does have under the Natural Gas Policy Act (NGPA) to extract significant penalties in the last year, he said.

But much of FERC's penalty authority is limited to disgorgement of unjust profits, Wood said in recommending new legislation address the gaps in FERC's civil penalty authority and increase penalty limits.

Another priority would be for Congress to clarify the Commission's jurisdiction to site LNG facilities and provide for a single federal record and for direct appeal of LNG-related decisions to a U.S. court of appeals.

Dingell's letter in January soliciting Wood's recommendations, cited ones the chairman had made in testimony before the committee in March 2003, and asked if there were any changes.

On the issues of price transparency and the Alaska pipeline, Wood cited progress made on both those issues that made them less pressing. Since the last Congress enacted the Alaska Natural Gas Pipeline Act, establishing a framework for consideration of a pipeline project, there is no need for additional legislation, he said.

On price transparency, Wood noted, FERC had made significant progress on its own, through technical conferences, workshops and guidelines. This resulted in "significant progress in the amount and quality of both price reporting and the information provided to market participants by price indices." FERC still would like to have the Congress clarify FERC's "authority to require the development of an electronic price reporting system if the Commission determined it was appropriate to do so, and if the Congress gave the Commission the ability to require all electric market participants to participate in such a reporting system." Wood noted that continued monitoring may be sufficient if price discovery continues to improve, but the Commission should have the authority to step in, if necessary.

The chairman suggested that the electric transparency language in H.R. 6, Section 1281 -- "if modified to be permissive" -- would be sufficient. "The Congress also should consider allowing the Commission to rely on a nongovernmental entity to compile this information and make it publicly available."

Also on the electric side, Wood said a system of mandatory reliability rules -- with penalties -- is still a necessity "to maintain the reliability of our nation's transmission system." While FERC has stretched its existing bulk power authority into that area, it still would like to see the establishment of an Electric Reliability Organization (ERO) with mandatory and enforceable standards under federal oversight.

Congress also should consider giving the ERO the authority to require expansion of transmission facilities for reliability purposes, subject to jurisdictional entities, but with recourse to backstop siting procedures, Wood's letter said.

Other new suggestions would be for the Congress to (1) consider allowing FERC to require a public utility to use economic dispatch if it will reduce the costs to a utility's customers; and (2) give the Commission emergency authority to approve temporary changes to, or temporarily suspend, tariff provisions if necessary to ensure reliability or prevent market power abuse.

Regional transmission organizations (RTO) or independent system operators (ISO) now serve two-thirds of the country and FERC is not seeking any legislative mandates in that direction, but is simply encouraging membership in those organizations. Wood said H.R. 6 would facilitate increased membership for federal power marketing agencies and the Tennessee Valley Authority.

Wood also supports the legislative authority that H.R. 6 would provide for backstop transmission siting by the Commission in the event state or local entities don't do the job.

The chairman believes FERC no longer needs legislation to provide transmission rate incentives, since it already has offered incentives in connection with certain projects. However, legislative support on that issue could provide greater certainty to investors on grid improvement projects. Also, the sanctity of contracts section 1286 in H.R. 6 could be useful in clarifying the standard of review for proposed changes to FERC-jurisdictional contracts and ensure greater preservation of the terms of contracts, he said.

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