With several lawmakers from both sides of Capitol Hill calling for FERC to slow down its implementation of a proposed standard market design (SMD) for U.S. wholesale electricity markets, a Capitol Hill aide on Friday cast doubt on whether moves to rein in the federal agency’s SMD proposal will occur as part of the ongoing Congressional efforts to craft a comprehensive energy bill.

FERC in July issued a notice of proposed rulemaking for the SMD. But as the more than 600-page document continues to be digested by the power industry, certain lawmakers and governors are already urging Congress to order the Commission to put the brakes on SMD.

A spokesperson for Sen. Maria Cantwell (D-WA) recently said that the lawmaker plans to offer legislation, as part of the omnibus energy bill or one of the pending appropriation measures, to slow down FERC’s efforts to implement SMD. In the House, Rep. Peter DeFazio (D-OR) recently urged his fellow conferees on the House-Senate energy bill conference committee to place restrictions on what he called FERC’s “virtually unintelligible” SMD proposal. Cantwell is not a member of the conference committee.

“I don’t think anybody really thought that standard market design was going to become part of any energy legislation at this point,” Senate Energy and Natural Resources Committee spokesman Bill Wicker said.

Wicker’s comments come in the wake of a Sept. 19 letter sent by more than a dozen governors to Rep. Billy Tauzin (R-LA) and Sen. Jeff Bingaman (D-NM) urging Congress to order FERC to slow down its plans to adopt SMD. Tauzin and Bingaman are key players in the ongoing House-Senate energy bill conference committee.

In the letter, which was signed by 18 governors from the western and southern parts of the country, the state chief executives said that the SMD proposal “is an exceptionally far-reaching proposal which represents a significant shift in the nation’s policy and it is therefore deserving of a thorough review by Congress, states and other stakeholders.”

“We believe that the Federal Energy Regulatory Commission’s proposed standard market design is moving too rapidly and has not been adequately evaluated,” the governors wrote. “Congress should, therefore, direct the FERC to delay adopting a standard market design rule until the problems and alternate solutions have been identified and evaluated,” the governors said. “Such evaluations must be done in a comprehensive state-FERC effort in each region of the country involve stakeholders in the region.”

“I don’t think anybody is looking for standard market design language in what we’re dealing with with electricity right now,” Wicker said. “You don’t need to codify that in law,” Wicker said in reference to the idea that Congress should tell FERC to slow down its SMD efforts. “You don’t need to put it in an energy bill,” he went on to say. “You write a letter, but you don’t gum up energy legislation with those sorts of things.”

House members sitting on the energy bill conference committee on Thursday backed an electricity restructuring proposal offered by Rep. Joe Barton (R-TX) and Tauzin that would, among other things, ban so-called “round trip” power trades and direct FERC to offer electric utilities incentives to join regional transmission organizations (RTOs). The proposal was approved on a party-line vote of 8-6.

“That’s their offer to the U.S. Senate on electricity,” Wicker noted. “We accept their offer and take it under advisement…and in all likelihood we’ll be presenting the House with a counteroffer when we next meet on Wednesday morning.”

Under the House-backed electricity proposal, power companies would be prohibited from engaging in round trip or sham trades. The plan also directs FERC to provide incentives for electric utilities to join RTOs. Specific incentives include an increase in return on equity of 200 basis points above the average rates the Commission has approved for transmission facilities within an RTO’s region. Membership in RTOs would continue to be voluntary under the Barton-Tauzin proposal.

The proposal would also give FERC jurisdiction over an Electric Reliability Organization (ERO), which would establish and enforce reliability standards for the bulk power system, subject to Commission review. The Senate passed an amendment earlier this year backing the creation of an ERO.

In addition, the House plan directs FERC to issue rules establishing an electronic information system to provide the Commission and the public “with access to such information as is necessary or appropriate to facilitate price transparency and participation in markets subject to the Commission’s jurisdiction.” The electronic information system would provide information on the availability and price of wholesale electric energy and transmission services to FERC, state commissions, buyers and sellers of power, users of transmission services and the public.

Prior to Thursday’s passage of the House electricity plan, House Democratic members on the conference committee picked their way through provisions of the Tauzin/Barton electricity proposal, airing objections to numerous provisions, but losing amendment attempts on party line votes, 8-6. The amendment attempts, however, spotlighted issues that are likely to be heavily debated when Senate Democrats weigh in on the electric provisions. The House Democrats complained there had been no hearings, nor votes on the various electricity provisions in regular sessions of the House Energy and Commerce Committee.

Ranking Minority Member Rep. John Dingell (D-MI) sought to include language that would install audit trail requirements in line with Securities and Exchange Commission regulations. In addition, Dingell called for strong transaction transparency rules and civil and criminal penalties; rules against self-dealing and against abuse of regulated utilities by non-regulated affiliates; a call for yearly review by FERC of market-based rates of individual companies instead of the current three-year review; and stipulation of the circumstances in which FERC must revoke market-based rate authority, including fraud or unjust and unreasonable rates.

The Democratic side also complained about language allowing FERC to overrule states in siting transmission lines and repealing FERC’s merger review authority. They also sought to install a stronger renewable mandate, and noted several times the exemption of ERCOT and the state of Texas from many of the proposed new rules. Barton defended the ERCOT exclusion, noting it was entirely an intrastate system.

The Senate’s comprehensive energy legislation, passed this spring, would require electric producers to scale up their renewable component from 1% of the sales base in 2005 to 10% in 2020.

Democrats spent some time arguing against a provision designed to provide an exemption from the Investment Company Act of 1940 for companies which are affiliates of a holding company. This is a provision which Enron attempted to get through the Congress several years ago, and failing that, petitioned the SEC and received its own exemption. It would allow the formation of numerous unregulated investment companies and mutual funds, Rep. Edward Markey (D-MA) said. “Hundreds of companies could exploit the loophole.”

He said the exemption sought on behalf of Kansas-based Western Resources was significantly broader than the one sought by Enron. Barton claimed it was a unique situation and would benefit only that one company. Dingell, however, said “any company which could structure itself the same as Western could function as a mutual fund without any scrutiny or protection.”

Markey sought to strike incentives granted to companies which join RTOs, saying it amounted to a giant giveaway of ratepayers’ funds. Barton pointed out that if they didn’t give FERC authority to mandate companies joining RTOs, they would have to provide incentives. He noted Markey objected to a FERC mandate, and asked if he wanted to reconsider his position.

DeFazio said the RTOs should not go into effect until FERC can prove they will provide adequate transmission and congestion management, optimization of transmission capacity, and reliability, and have adequate strategic planning and rules. “You can put my name on that one,” Barton said.

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