ELECTRICITY CONSUMERS RESOURCE COUNCIL
1333 H ST., NW
  THE WEST TOWER, 8TH FLOOR
WASHINGTON, D.C. 20005

PHONE: 202/682-1390 ‚ FAX: 202/289-6370
E-MAIL ADDRESS: ELCON@ELCON.ORG 

HOMEPAGE ADDRESS: WWW.ELCON.ORG

MEMORANDUM

Date:		September 23, 1999	

To:		NERC’s Board of Trustees

From:		John Anderson, Executive Director, ELCON

Subject:	NERC Letters to Congress RE: NARUC Proposals

I departed the September 9th and 10th BOT meeting in Colorado Springs pleased both with the tone and content of the discussions.  We had more candid and progressive discussions than in previous meetings. I was particularly pleased with the dialogues on ATC and the RAS.  I tried to convey this upbeat mood in my remarks at the closing of the meeting.

Unfortunately, the upbeat mood was dashed a mere six days later when NERC released letters sent on September 16th to the House and Senate accepting the NARUC Proposals as additions to the NERC “consensus” legislative language.  I question this action on several grounds.

My primary concern is that NERC seems to have come to the conclusion that an immediate and significant response was necessary to keep the legislative process moving.  In fact, I assert that just the reverse may happen.  Support for the NERC “consensus” language is very fragile.  Violations of any semblance of due process may result in the “consensus” falling apart, thus making the chance of passage even less clear.

PROCEDURAL ARGUMENTS AGAINST NARUC’s PROPOSALS:

NERC is to be highly complimented for both its process and final product in the development of the consensus legislative language.  The process was fair and completely open.  All stakeholders were invited to participate – including the states.  Richard Drouin is to be particularly commended for his leadership – and patience.  All participants made compromises.  No participant got everything it wanted.

The product has withstood scrutiny over time.  It now is part of every comprehensive bill – and will continue to be included in the future.

NERC has continued its comprehensive monitoring and communications since the language was approved at the BOT meeting last February.  NERC established the “Legislative Steering Committee” made up of representatives of the firms and organizations that supported the language.  This Committee has met on numerous occasions and continually received countless electronic communications on every aspect of the process – until last week.  Then, NERC chose to ignore the Legislative Steering Committee.

As I am sure that you recall, the BOT had a rather detailed presentation on the status of legislation at its September 10th meeting.  Commissioner Susan Clark stated that the NARUC proposals had gone to the Hill.  Carol Guthrie (Chevron) stated clearly that industrials would strongly oppose the NERC language if the NARUC proposals were added.  There was no further discussion by the BOT (although I emphasized in my closing remarks that opposition to the NARUC language goes far beyond industrials).  The issue did not even rate a mention in the BOT “Meeting Highlights” circulated on September 15th.

NERC’s EXPLANATION:

NERC issued an explanation for the action on September 20th after at least two BOT members questioned various aspects of the process.  Rather than debate each point, I assert that the NERC response is weak.  There was no burning crisis that required an immediate NERC response.  The trade press has, for months, been saying that the chances for legislation this year are dim.  Two more articles don’t make an “out of control media.”  The candid acknowledgment that informal consultations with “several” members of the Legislative Steering committee clearly indicates that decisions were made not to consult with others on the Committee – although electronic communication with the entire group was proven and easy.

SUBSTANTIVE ARGUMENTS AGAINST NARUC’s PROPOSALS:

ELCON’s opposition to the NARUC proposals is based on a detailed consideration of both the savings clause and the proposal for a regional advisory body.  After very careful consideration, ELCON (and I assert many others) conclude that the NARUC proposals are unwise and unnecessary.

In our view, the proposals are unwise for at least the following reasons:

•	The implementation of the so-called “savings clause” would Balkanize the electricity market.  Each state could establish standards that would make flows between states difficult, or worse.

•	The savings clause would undermine the ability of NERC/NAERO to set and enforce interconnection-wide (or even regional) reliability standards.

•	Individual state actions taken to protect that state’s consumers would, almost by definition, have an adverse impact on other states’ consumers.

•	The savings clause would effect a substantial change in the current statutory scheme which provides FERC with plenary authority over Transmission.

•	The likelihood of federal/state jurisdictional clash poses a real threat.

The proposals are unwise since there already are many regional bodies and organizations and states can, and do, have guaranteed input into the NAERO process according to the NERC legislative language.  

First, the proposal for a regional advisory body adds another layer to the already crowded stable of regional organizations.  We already have NERC, Regional Reliability Councils (RRCs), Regional Transmission Groups (RTGs), Independent System Operators (ISOs), and multi-company control areas.  The NERC language already proposes adding affiliated regional reliability entities (ARREs).  FERC has proposed regional transmission organizations (RTOs).  Utilities have proposed transcos.  States for years have proposed joint boards.  Now, NARUC wants regional advisory bodies (RABs).  No one has proposed the elimination of any of the above-mentioned groups.

And second, the states already have guaranteed input to the NAERO process under the NERC-approved legislative language.  Specifically, Section (d)(4)(J) requires FERC to make a finding that NAERO “provides for the consideration of recommendations of States and State commissions” before approving an application from NAERO.  This state input is throughout the life of NAERO – not just at the time of the application.  This provision was agreed to during the lengthy and detailed discussions that let to the drafting of the compromise language at the insistence of the states.

It is true that, apparently due to an error, the state input is guaranteed only at the NAERO level, not at the ARRE level.  However, this error can easily be corrected simply by adding the (J) to Section (h)(2).  This simple correction has been suggested to the states on numerous occasions, to no avail.

Fixing the NERC language is a far better solution than creating yet another regional body.

ACTION REQUESTED:

ELCON requests that both the procedural and substantive aspects of this issue be discussed by the Board of Trustees.

Thank you in advance for your consideration.

Postscript: The ELCON letter to the House Subcommittee on Energy and Power is attached for your information.

Summary Comments of John Anderson
at the NERC BOT – September 10, 1999

	Overall, I am very pleased and grateful at both the tone and content of the discussions over the past two days.  I cite six specific examples:

I.	We have had the best discussion in years on the 10 year Reliability Assessment (RAS).  There was a candid recognition that the draft was not complete.  Even so, given the discussion, I feel confident that the next draft will clearly recognize that the market is working.  The Electric Power Supply Association (EPSA) now reports that substantially more than 100,000 MW of merchant plant capacity has been proposed.  Further, they propose that 61,000 MW of capacity is planned to be on line by 2001.  Certainly, the addition of this solid data to the draft RAS will justify the removal of emotional words and alarmist statements and a recognition that capacity will be adequate.

I.	We had a very constructive discussion – albeit without resolution – regarding CBM and ATC.  Earle Nye focused this discussion clearly when he said something like: Shame on us if we cannot come up with a single, best ATC method.  I certainly agree with Earle.  The fact is, some areas do not have any CBM at all.  Thus, it clearly is not needed for reliability.  At a minimum, NERC should comply with the recent FERC order requiring a standardized CBM method by the end of 1999.  Marvin Carraway furthered the discussion on ATC when he pointed out that it makes no sense at all to have significantly different ATC calculations on two sides of the same interface.  While there is not yet a resolve, the discussion was more healthy that ever before.  I look forward to a quick resolve on these issues.

I.	We had a good dialogue on funding.  For too long, we have acted as if the regions fund NERC.  In fact, one of the criteria for a truly independent BOT is that the regions are relieved of funding NERC.  In our discussions, it was clearly recognized that end-use consumers pay for everything today.  This is healthy.  Of course, it would be far better and more efficient to collect funds more directly from consumers than indirectly through utilities and then the regions.   This may not be easy, but it is essential.  Let’s get on with it.  We must work closely with both large and small consumer groups.  I am sure that Sonny Popowski will be cooperative and helpful.

I.	The legislative discussion also was positive and instructive.  NERC should be proud of both the process and product of the GIITG.  All sectors of the electric industry were invited to participate in the process.  Most did.  Richard Drouin deserves great thanks for his work as Chairman of the GIITG.  The product has withstood scrutiny over time.  It now is part of every comprehensive bill – and will continue to be included in the future.  However, if NERC wants to see legislation move, the language must not be significantly changed.  Carol Guthrie was the only one to explicitly oppose the NARUC-proposed language that would Balkanize the interstate power grid.  I know that she is far from alone.  Others will come forward as things progress.  We can get legislation, even in an election year.  Both the Energy Policy Act of 1992 and the big telecom act were enacted in election years.  Let’s work together.  We can accommodate the states.  ELCON has offered specific language.  Unfortunately, that language has been ignored.  That does not mean that we must accept the very broad language now offered by NARUC.

I.	It also was quite positive to hear the recognition that it is premature and, I say, counter productive, to try to draft “regional reliability implementation agreements” before legislation is enacted.  I strongly urge us all to carefully study Roy Thilly’s very thoughtful letter to NERC on this issue.

I.	One of the highest points of the two days was Marvin Carraway’s comment that we will continue to have all of the problems we now face as long as the transmission owner, generation owner and security coordinator is one and the same.  If we can do only one thing, we must require complete independence for all security coordinators.  Our discussion suggests that we may be starting to address this significant problem.  We must move quickly.

Finally, I want to bring to the BOT a new reliability problem that neither NERC nor DOE have yet agreed to accept – at least formally.  I am pleased that both Bill Phillips and Paul Carrier have assured me that they want to look, very carefully, and behind closed doors, at the evidence.  As most of you know, a 37 year old woman climbed a Seattle transmission tower two days ago.  She danced topless for more than an hour, drinking vodka, spitting this out and lighting it on fire.  The local Colorado Springs paper published a picture of this incidence yesterday.  Seattle City Light cut power to 5,000 customers.  This clearly is a NERC and DOE outage issue.  Sharon Nelson assured me at dinner last night that this woman is not a close personal friend.  (In fact, she doesn’t even know her.)  I am pleased to conclude on a positive note that Bill and Paul plan to conduct private and personal interviews with the woman.  We should each thank them for their commitment to a safe and reliable electric system.

I appreciate the opportunity to offer a few remarks.

		

ELECTRICITY CONSUMERS RESOURCE COUNCIL
1333 H ST., NW  
THE WEST TOWER, 8TH FLOOR
WASHINGTON, D.C. 20005

PHONE: 202/682-1390 ‚ FAX: 202/289-6370
E-MAIL ADDRESS: ELCON@ELCON.ORG 

HOMEPAGE ADDRESS: WWW.ELCON.ORG

MEMORANDUM

Date:		August 5, 1999	

To:		The Honorable Marsha H. Smith
		Chair, NARUC’s Subcommittee on Strategic Issues

CC:		The Honorable Susan Clark
		Chair, NARUC’s Electricity Committee

From:		John Anderson
		Electricity Consumers Resource Council (ELCON)

Subject:	Proposals for Regional Advisory Bodies and Savings Clauses

As we discussed at the NARUC Summer Meetings, proposals have been made to include the creation of  “regional advisory bodies” (RABs) and a “savings clause” in federal electricity restructuring legislation.  This Memorandum presents the views of the Electricity Consumers Resource Council (ELCON) on these proposals.

RE:  Regional Advisory Bodies:

There are several proposals.  Most seem to have the following characteristics:   States would be authorized by statute to form RABs to advise the proposed North American Electric Reliability Organization (NAERO) and its Affiliated Regional Reliability Entities (ARREs).  RABs would not have explicit regulatory powers.  However, FERC would be permitted to give deference to the recommendations of RABs that encompasses an entire interconnection regarding governance, standards, and fees.   According to the advocates of the proposal, permissive deference allows the states to realize that if they join together to work cooperatively with NAERO and the ARREs in their region, they will not need to become litigants in FERC proceedings because their views will have a designated role in the process.  FERC would not be required to defer, however, even though FERC has often expressed its preference for regional solutions worked out on a regional level.

	More specifically, it is ELCON’s understanding that:

1.	The Secretary of DOE shall establish a regional advisory body (RAB) upon the petition of the Governors of at least 2/3 of the States within a region that have more than 1/2 of their electrical loads served within the region.

1.	The RAB (A) shall be composed of 1 member from each State in the region, appointed by the Governor of each State, and (B) may include other state representatives.  However, RABs would not include any other stakeholders other than the states.

1.	The RAB would provide advice to the Commission (FERC), NAERO, or an ARRE regarding: (A) governance of the ARRE, whether a proposed standard within the region is just and reasonable, not unduly discriminatory or preferential, and in the public interest, and (C) whether fees proposed to be assessed within the region are just and reasonable, not unduly discriminatory or preferential, and in the public interest.

1.	Where a regional advisory body encompasses an entire interconnection, FERC may (but does not have to) give deference to the recommendations of the regional body.
1.	

Concerns/Questions:

1.	Advocates of RABs have presented no evidence that legislation is needed.  Legislation is not needed to allow States to voluntarily get together to offer common advice to FERC, NAERO or ARREs.  There are no limitations or prohibitions to States getting together today under existing laws and regulations.  The burden of proof must be on those advocating RABs to clearly show why legislation is necessary to achieve their stated objectives.

1.	FERC today gives deference to proposals brought to it by groups of states -- whether on an interconnection-wide or any other geographical basis.  Specific examples include two proposals recently brought to FERC by the WSCC where FERC granted deference to WSCC.

1.	The creation of RABs would be highly duplicative of other existing regional bodies.  Today there already are: Regional Reliability Councils (RRCs), Regional Transmission Groups (RTGs), and Independent System Operators (ISOs).  Soon there will be Regional Transmission Organizations (RTOs).   Further, with the implementation of the proposed NERC legislative language, a new set of Affiliated Regional Reliability Entities (ARREs) will be created.  The proposal for RABs is in addition to, not in place of, any of these bodies.

1.	The formation of RABs is redundant since provision for State input is mandated in the proposed NERC legislative language.  Specifically, the proposed legislative language specifies that before approving NAERO, FERC must find that NAERO provides for consideration of the recommendations of States and State commissions.

1.	There is no requirement, or even encouragement, that the geographical boundaries of the RAB will coincide with any other regional entity, including the ARRE.  Further, even if their scope initially were required to match that of the ARREs, RABs could get in the way of the flexibility written into the NAERO legislation regarding the scope of the regions established by NAERO, which are designed to change from time to time.

1.	The creation of yet another regional body would require consumers, system operators, and other system users  (and other stakeholders) to make every effort to participate in yet another forum.  This would be costly both in time and money in that attorneys and consultants would have to be retained and numerous meetings, etc. would have to be covered.  Further, the results are questionable since the RAB proposals give no indication that RABs will allow any other stakeholder to participate.

1.	Consumers, system operators, and other system users could not ignore the RAB since FERC “may” give deference to its decisions and the “advice” given to FERC, NAERO, and the ARREs involves such critical issues as governance, the appropriateness of standards, and dues.

1.	While consumers, system operators, and other system users cannot ignore the RAB, they  have no formal way of participating since membership is limited to one representative of each state appointed by the Governor.

1.	There is no requirement that all States in a region have to participate in the RAB.  Thus, there is a high probability that individual state adjudication of issues will continue in addition to the activities of the RAB.  Alternatively, states that did not initially petition DOE may feel coerced to spend their scarce resources in participating in the RAB.

1.	There is no proposal that any state participating in an RAB must be bound by the findings and recommendations of the RAB.  Thus, states that are not pleased with the results will simply re-adjudicate the issues in separate state proceedings, adding even more expense and complexity to consumers.

1.	There is no suggestion of procedures that the RAB must follow.  Will RABs have to conform to the Administrative Procedures Act?

1.	There is no specified appeals process.  How would (or could) a party that is “harmed” by a decision of the RAB appeal the decision?

1.	The provision for FERC deference invites regional bodies to end-run, rather than participate in, the NAERO and ARRE process.  This additional deference provision also creates confusion with the deference provisions already included in the consensus legislation.

Alternative:

Given the significance of the questions and concerns, ELCON strongly recommends an alternative.

NERC’s proposed legislative language contains a provision that requires NAERO to provide for input from the States.  Specifically, Section (d)(4)(J) states that FERC shall approve an application for a new NAERO only after determining that the applicant “provides for the consideration of recommendations of States and State commissions.”  The legislative language further provides for FERC delegation of authority to ARREs and requires that:  “A proposed delegation agreement with an Affiliated Regional Reliability Entity organized on an Interconnection-wide basis shall be rebuttably presumed by the Commission to promote the effective and efficient implementation and administration of Bulk-Power System reliability.” (Section (h)(2))

Unfortunately, the proposed legislative language does not provide for State input at the ARRE level.  Thus, as drafted, States are guaranteed input only at the NAERO level.  This seems backward and should be changes.  ELCON recommends and agrees to changes in the proposed NERC language that would require State consultation in ARREs.  States should be assured input in ARREs, not in NAERO.

RE: Savings Clause:

Proposal:	Several proposals have been offered to include a “savings clause” in federal legislation that would assure States that authorities that they now have regarding reliability could be continued after the enactment of the legislation.  There have been several proposals.  One recent proposal states:

Nothing in this Section (NERC proposed amendment to the FPAct) shall be construed to preempt the authority of states (including state-delegated authorities) to take any action regarding the safety, reliability and adequacy of electric service within that state, as long as such action does not have an adverse impact on bulk-power reliability. If such action has an adverse impact on commerce, it must be demonstrated that such action is necessary to maintain a level of reliability necessary to the public health, safety and reliability in the area within which the action applies.

Concerns/Questions:

1.	All reliability actions have commercial implications.  Who has the responsibility to “demonstrate” that a reliability action is “necessary?”  Who makes the final determination that the demonstration has been successively made?  Will a state action with potentially dire commercial consequences continue in force pending litigation?

1.	Who has the responsibility to demonstrate that the state action does or does not have an adverse impact on bulk system reliability?  Who will make the final determination?  Will the state action with potentially dire impacts on reliability continue in force pending litigation?

1.	Particularly if these determinations are made in a forum other than NAERO, subject to FERC oversight, there is a danger that the savings clause could severely undermine the intent of the consensus legislation of placing responsibility for bulk-power system reliability in the hands of a self-regulating reliability organization, under FERC supervision.  At a minimum, the proposed savings clause threatens to mire reliability decisions to litigation potentially in multiple fora.

1.	Almost all electricity flows are in interstate commerce.  Thus, reliability actions taken by one state can (will?) have commercial impacts in other states.  Who will have the responsibility to assess either (or both) reliability and commercial impacts on one state caused by actions taken by another state?

1.	How will a party protect itself from being harmed in one state by an action taken by another state?  What opportunities do out-of-state parties have to argue their cases before state action is taken?  What standing do such out-of-state parties have?

1.	Does the proposed savings clause conflict with the Commerce Clause of the Constitution?

1.	Would this provision result in inconsistent and conflicting state requirements?

In conclusion, ELCON believes that a savings clause is not needed.  Further, the proposals for savings clauses we have seen to date raise significant questions at best.  More than likely, they will be the cause of extensive litigation.

A Final Note:  ELCON intends to continue to work diligently with the states to find a way to accommodate their concerns.

SDS Draft

9/23/99 1:11 PM
#135354

WHAT IS WRONG WITH THE NARUC SAVINGS CLAUSE LANGUAGE

1.	The NARUC Proposal

		The National Association of  Regulatory Utility Commissioners (NARUC) has proposed language that addresses and substantially revises the states regulatory role to be included in  proposed electricity restructuring legislation.  The NARUC proposal has two elements: (1) a savings clause together with proposed  report language and (ii) a regional advisory board to which FERC may give deference.  The so-called savings clause proposal provides:

		Nothing in this section shall be construed to preempt the authority of a State to take action to ensure the reliability, adequacy, or safety of electric facilities within the state except where the exercise of such authority has a material adverse impact on the reliable operation of the bulk power system.

		Proposed language related to a Regional Advisory Role provides that the states through a Regional Advisory body may provide advice about whether a standard proposed to apply within the region is just, reasonable, not unduly discriminatory or preferential, and in the public interest.  In a case in which a regional advisory body encompasses an Interconnection, the Commissioner may give deference to the recommendations of the regional advisory body

2.	What Is Wrong With The So-Called State Savings Clause

		Traditionally, states regulate retail electric power sales, siting of transmission, certificate generation, and local distribution.  For sixty years the Federal Power Act has delegated authority over high-voltage transmission (the interconnected bulk power grid) to a single, non-parochial regulatory body (FPC/FERC).  NARUCs Savings Clause language is ambiguous but appears to authorize a fundamental change in bulk power regulation by allowing each state to adopt standards affecting transmission to serve that states own interests in the name of reliability, adequacy and safety. 
	
		The proposed report language  lists several  important regulatory responsibilities traditionally  reserved to the states:  e.g., siting, investigation of reliability complaints and failure of service, siting, universal programs/system benefit charges.  However, the Report language includes an extremely troublesome statement that the savings clause would allow State commissions to take actions that strengthen the NAERO standards. 

		Without going through any NAERO process at all, a state could unilaterally adopt differing  reliability requirements,  including requirements inconsistent with NAERO rules, so long as there is not a material adverse impact on reliability, presumably as determined after the fact in litigation.  The net result is that the country is at risk of a multitude of different reliability requirements imposed by different states.  Such differing reliability requirements will present obstacles to development of standardized markets. While state power over the reliability of the local distribution system and over  siting, safety etc. should be preserved, there should be one set of reliability standards governing operation of the interstate bulk system  ‑‑ in the interest of both reliability and commerce.

		If such state standards are challenged, endless litigation will ensue as to whether the individual state guessed right that its action affecting interstate transmission did not have a material adverse impact on the reliable operation of the bulk power system.  The material adverse impact language is too vague a standard; compliance can only be judged via litigation after the fact.  Those who are curtailed by state action will raise Commerce Clause challenges.

		We believe that the Savings Clause should clarify that the states may not regulate bulk power transmission.  The NARUC language will encourage protectionist state actions that interfere with interstate commerce. At all costs Congress should avoid  balkanization of the grid and  a return to the pre-NERC environment of conflicting reliability standards.

3.	The NSP Decision Should Be Overruled by Congress

		In Northern States Power (NSP) v. FERC, the Eighth Circuit has ruled that FERCs prohibition against utilities discrimination in transmission curtailment between native load and other customers exceeded FERCs jurisdiction.  The court ruled that FERCs no discrimination rule in transmission curtailment could cause utilities to run afoul of state laws which prohibit utilities from shedding retail load. The Eighth Circuit failed to consider that there are other ways to avoid curtailing service to native load even if transmission  is interrupted.

		Consistent with the Supremacy Clause, Congress should overrule NSP v. FERC and make clear that FERC has authority to remedy discrimination in interstate transmission of power just as FERC has authority to remedy discrimination in interstate transportation of gas although it lacks jurisdiction to regulate retail sales of gas.
		The NSP Decision erroneously concludes that FERC exceeds its jurisdiction when FERC seeks to remedy undue discrimination in the provision of interstate transmission service by requiring transmission providers to curtail firm service in a way that may affect the 
transmission providers service to its direct retail sales customers.  NSP is inconsistent with Louisiana Power and Light v. FPC, 406 U.S. 621 (1972), where the U.S. Supreme Court ruled that FPC had authority to redress discrimination in curtailment in the context of natural gas transportation, although FERC has no jurisdiction over rates charged for retail sale of gas.
		The NSP decision interferes with FERC administration of the FPA.  The NSP decision has adverse implications for FERC jurisdiction over restructuring:
			(1)	Order 888 transmission curtailment provisions are now unenforceable, at least in the Eighth Circuit.
			(2)	FERC has ordered that transmission-owning utilities cannot discriminate in curtailing transactions under NERCs transmission line relief (TLR) policy between their wholesale customers and native load.  The logic of the NSP Decision is to render vulnerable decisions that FERC issued in connection with its review of the TLR policy adopted by NERC to reduce critical transmission congestion caused by loop flows.
			(3)	The decision has adverse implications for a large number of FERC initiatives past and pending that have imposed or would impose a duty on transmission providers to avoid discrimination (e.g. ability of ISOs and RTOs to administer transmission curtailment).
			(4)	The NSP Decision counters FERC efforts to administer the interconnected reliability grid in the interest of grid reliability rather than parochial state interests.  Under the rationale of NSP, the argument will be that FERC simply cannot take an action which in the view of any given state commission curtails that states customers.  Parochial administration of the grid by fifty different states any of whom can block transmission curtailment would not only be a regulatory nightmare but risk blackouts. 
4.	Regional Advisory Board:  Potentially Conflicting Regulatory Authority
		The role of the regional advisory board potentially conflicts with FERC and NAERO administration of the grid.  The legislation intends to establish boards as shadow regulators who will opine on whether standards are just and reasonable ‑‑ precisely the determination that FERC must make when it reviews NAERO standards as just and reasonable.  The proposal invites deference to this interconnection-wide regional advisory bodies, placing FERC in a quandary about the extent to which FERC is responsible for SRO oversight.  The injection of a regional government regulator in the chain of review of NAERO actions is very troublesome.  
		In the context of authorizing the National Association of  Securities Dealers (NASD) as a self-regulatory organization, the  courts have approved delegation of regulatory authority to private bodies in the context of unambiguous SEC oversight.  Under the NARUC proposal, it is unclear the extent to which FERC must defer to other regional regulatory bodies.  Equally problematic, the new regional body will be making its own initial determination of whether a standard is just and reasonable without having the national perspective, technical expertise, professional staff or financial resources that FERC brings to the task. States have a legitimate advisory role in the context of participating in regional transmission organizations. No legislation is needed to authorize such participation.

							September 22, 1999

The Honorable Joe Barton
Chairman, Subcommittee on Energy and Power
Committee on Commerce
U.S. House of Representatives
Washington, DC 20515

Dear Mr. Chairman:

As you know, last February the North American Electric Reliability Council (NERC) approved consensus language on system reliability that was agreed to by virtually every stakeholder, including ELCON.  You recently received a letter from NERC seeking to change that consensus language by adding suggestions offered by the National Association of Regulatory Utility Commissioners (NARUC), including a so-called “savings clause” and the establishment of regional advisory bodies.  Such proposed language would be added to your draft legislation on electricity restructuring.

Such action violates the spirit of consensus.  ELCON strongly opposes the NARUC-proposed additions and would have great difficulty supporting any legislation that includes such language.

By way of background, ELCON, representing industrial consumers, was an active participant in NERC proceedings throughout the development of the consensus language.   ELCON supported the consensus language, recognizing that it was a compromise document, reflecting the views of many groups, including state commissioners, with widely differing ideas and objectives.  The NERC language did not contain a “savings clause” or any other provision expanding the role of state utility commissions when it was approved by the NERC Board of Trustees last February, nor did it propose regional advisory bodies.  NARUC representatives participated fully in this consensus-building process.

Our opposition to the new NARUC proposals is based on several factors:

C	It is not a “savings clause” in the traditional sense.  It does far more than preserve existing state commission rights — its expands them to include new authority over interstate bulk power facilities. 

C	One objective of your draft legislation —  an objective ELCON strongly supports — is to create a strong and robust interstate wholesale electricity market.  Allowing individual states to Balkanize the interstate electricity market, allegedly for reliability purposes, would retard, not increase, wholesale competition.

The Honorable Joe Barton
September 22, 1999
page two

C	The so-called “savings clause” would allow any one state commission to establish grid rules, allegedly to benefit the citizens of that state, that could harm consumers in other states.

C	If an objective is to deregulate by reducing the regulatory bodies that can impose burdensome rules and requirements, a “savings clause” that grants states more regulatory authority is counter-intuitive.   True competition needs fewer regulatory arenas, not more.

C	Similarly, the proposal for regional advisory bodies is duplicative and unnecessary.  There already exist several regional bodies, and more are proposed in your legislation and by FERC.  Each new level of bureaucracy creates impediments to new market entrants, and fewer market entrants would harm consumers.

In summary, the agreed upon NERC consensus language on reliability represents a very fragile agreement that would be shattered by the addition of the NARUC-proposed language.  ELCON and its member companies urge you not to include such provisions in any legislation

							Sincerely,

savingsclsltr092199