As the rules of the electricity game continue to change, the current set of voluntary transmission system reliability guidelines is starting to look more and more antiquated, several experts told a Senate Governmental Affairs Committee hearing yesterday examining the impact of electric industry restructuring on system reliability. The voluntary approach to reliability should be scrapped in favor of a mandatory set of rules that include an enforcement element, the experts told the panel.

The issue of electricity reliability has received increased attention from Capitol Hill and the White House in recent months. Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee, has introduced omnibus energy legislation that touches upon transmission reliability issues, while Sen. Frank Murkowski (R-AK) has also introduced energy legislation that addresses the area of reliability. In May, the Bush Administration unveiled its national energy policy report that called on the secretary of energy to work with FERC to improve the reliability of the interstate transmission system.

David Cook, general counsel of the North American Electric Reliability Council (NERC), argued that legislation is needed to change from a system of voluntary transmission system reliability rules to one that has mandatory rules coupled with an enforcement mechanism backed by government. Pending legislation would allow NERC to be transformed into an independent, industry self-regulatory reliability organization with FERC oversight in the United States.

In his prepared testimony, Cook noted that as the electric industry continues to restructure, the current system of voluntary transmission system reliability rules “will not serve us well for the future” for a myriad of reasons. In particular, the NERC official noted that the grid is now being used in ways for which it is not designed and that there has been a “quantum leap” in the number of hourly transactions and in the complexity of those transactions. Also, some entities appear to be deriving economic benefit from bending or violating current reliability rules, Cook added.

For his part, Sonny Popowsky, Pennsylvania’s consumer advocate, said that the National Association of State Utility Consumer Advocates fully supports legislation that would establish a self-regulating industry organization that would continue to develop reliability standards, but whose standards would be ultimately subject to FERC review. “I believe this proposal is essential in a world of increased competition,” he said. “The players in this game can no longer also serve as the referees and the referees must be able to do more than just issue warnings to the players who violate the rules.”

“I believe that a legislative approach is preferable to another approach that some have been trying in the absence of legislation — that is to ensure reliability through contractual commitments,” Kevin Kelly, director of policy innovation and communication at FERC, told the committee. The FERC official emphasized up front that he was appearing before the committee as a Commission staff witness and that he was not speaking for FERC itself or for any individual commissioner.

But Kelly also said that Congress should understand that mandatory transmission reliability rules alone “are not enough to ensure reliable electric service.” He noted that partially for reliability reasons, FERC has “strongly encouraged” the formation of regional transmission organizations (RTOs) to operate the electricity grid. “These RTOs would eliminate many of the reliability problems caused by the highly balkanized way in which the interstate transmission grid is now operated.”

Yesterday’s hearing was the third energy-related hearing that Sen. Joseph Lieberman (D-CT) has called since taking over as chairman of the Senate Governmental Affairs Committee. Previous hearings examined the role of FERC and the restructuring of energy industries (see Daily GPI, June 21) and economic issues associated with industry restructuring (see Daily GPI, June 14).

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