Open Access and Transition Costs: Will the Electric Industry Transition Track the Natural Gas Industry Restructuring?*

Article excerpt

I. INTRODUCTION

The Energy Policy Act of 1992 (EPAct)1 marked the first comprehensive energy policy legislation enacted in the United States in over a decade. Title VII of the EPAct2 amended the Public Utility Holding Company Act of 1935 (PUHCA)3 and the Federal Power Act (FPA),4 two New Deal era laws that constitute much of the statutory framework for federal regulation of the electric power industry. These amendments have been hailed as "two notable revisions to previous law that will eventually reshape the electric power business in North America."5 While competitive forces already were taking root in the electric power industry prior to the enactment of the EPAct,6 the new law has been a catalyst for change in the industry and its regulatory environment. Even the EPAct's authors have been surprised by the pace of change that has occurred in the two years following the statute's enactment.7

Title VII of the EPAct has changed the legal landscape for the electric power industry in two ways. First, it gives the Federal Energy Regulatory Commission (FERC or Commission) expanded authority under section 211 of the FPA to order certain entities to transmit ("wheel") electricity for third parties.8 Second, title VII amended PUHCA to create a class of electricity sellers known as Exempt Wholesale Generators (EWGs). The availability of EWG status has lowered regulatory hurdles to generation market entry previously imposed by the PUHCA.9

Following enactment of the EPAct, the Commission has taken major steps to implement both the letter10 and the spirit" of the new amendments to the FPA. The FERC has construed its charge under the new law in terms of its interpretation of the Congressional intent underlying title VII: to foster competition in wholesale electricity markets in general, and to do so by means of open access to transmission services in particular.12 Consequently, the FERC has moved forward assertively to facilitate the emergence of a more competitive bulk power market.

In this regard, FERC's post-EPAct electric policy initiatives have included the following:

(1) A final rule establishing filing requirements and ministerial procedures for persons seeking EWG status under section 32 of the PUHCA, as added by section 711 of EPAct;13

(2) A notice of technical conference and request for comments concerning the Commission's policy for pricing transmission services;14

(3) A policy statement establishing the requirements for "good faith" requests for section 211 transmission service;15

(4) A policy statement issuing guidance for, and extolling the virtues of, Regional Transmission Groups (RTGs);16

(5) A final rule requiring transmitting utilities to file information periodically regarding their transmission systems, including capacity and constraint information;17

(6) A generic policy, first articulated in an adjudication, requiring that transmission owners provide to third parties transmission access which is the same or comparable to the access which the transmission owners provide to themselves;18

(7) A general policy, first articulated in an adjudication, that all "new" sellers of unbuilt generating facilities lack generation market power;19 and

(8) A notice of proposed rulemaking regarding so-called "stranded costs."20

Access to electric transmission facilities has been the predominant theme of the Commission's post-EPAct electric policy initiatives. Five of the eight initiatives mentioned above relate directly to making access to transmission facilities more widely available. The Commission recently explained why transmission access is particularly important to the development of a competitive bulk power market, and ultimately, to the possibility for lower electricity costs to ultimate consumers:

As a genera] matter, the availability of transmission service (or increased flexibility to use transmission) will enhance competition in the market for power supplies over the long-run because it will increase both the power supply options available to transmission customers (thereby benefiting their customers) and the sales options available to sellers. …