1. Federal Energy Regulatory Commission 1 Overview of the Federal Energy Regulatory Commission (FERC) Roland W. Wentworth Office of Markets, Tariffs and Rates Federal Energy Regulatory Commission Presentation to the Baltics Working Group June 8, 2001 Washington, DC

2. Federal Energy Regulatory Commission 2 Introduction to the FERC What is FERC How is FERC organized What does FERC regulate What FERC does NOT do How does FERC regulate –Company specific decisions –Industry-wide decisions

3. Federal Energy Regulatory Commission 3 What is FERC? FERC Is An Independent Regulatory Agency of the Federal Government Independent from undue political party influence Independent from influence by President and Congress Independent from undue influence by industry participants

4. Federal Energy Regulatory Commission 4 Independence Political Party –No more than 3 commissioners from one political party President and Congress –No review of FERC’s decisions by President, Department of Energy or other agencies Industry –No private discussions of open cases –“Due process” requirements are enforced –Restrictions on FERC employees: stock, gifts, future employment

5. Federal Energy Regulatory Commission 5 Why? To give investors and consumers confidence that the regulatory process and decisions are fair.

6. Federal Energy Regulatory Commission 6 How is FERC Organized? There are 5 commissioners –Nominated by the President, confirmed by the Senate, President designates Chairman –Each commissioner has a 5 year fixed term, with one term expiring each year The Chairman sets the biweekly Commission agenda –Orders voted out by majority rule

7. Federal Energy Regulatory Commission 7 Budget of $175,200,000 (FY2001) –Approved by the President and Congress –Funds collected primarily through annual charges and filing fees –Budget is publicly available Staff of about 1150 –Electric: 400 –Gas and Oil: 425 –Hydro: 325 How does FERC operate?

8. Federal Energy Regulatory Commission 8 Historical Basis for Regulation Monopoly Evils Discriminatory service Inefficient pricing and investment Insider dealing Leveraging / Tying Poor service Benefits of Regulation No wasteful duplication of facilities Universal service No discrimination Surrogate for competition

9. Federal Energy Regulatory Commission 9 What Does FERC Regulate? Electric Power Industry –Interstate transmission rates and services –Wholesale energy rates and services –Corporate transactions, mergers, securities issued by public utilities Natural Gas Industry –Interstate transportation rates and services –Interstate gas pipeline construction and oversee related environmental matters

10. Federal Energy Regulatory Commission 10 What Does FERC Regulate? (con’t) Oil Pipeline Industry –Interstate transportation rates and services of crude oil and petroleum products Hydroelectric Industry –Licensing of nonfederal hydroelectric projects –Oversee related environmental matters –Inspect nonfederal hydropower projects for safety issues

11. Federal Energy Regulatory Commission 11 What FERC Does Not Do Regulate rates and service to retail customers Regulate safety standards of nuclear generation (Nuclear Regulatory Commission) Regulate pollution produced by electric generators (Environmental Protection Agency) Set electric reliability standards ( North American Electric Reliability Council ) Regulate pipeline safety standards (Department of Transportation)

12. Federal Energy Regulatory Commission 12 How Does FERC Regulate? Company Specific Decisions –Applications (rate increase, change in a term or condition of a contract, etc.) or complaints filed by utilities, customers, project sponsors, or interested parties Industry-wide Decisions –Notice of Inquiry (NOI) –Notice of Proposed Rulemaking (NOPR) –Final Rule or Policy Statement

13. Federal Energy Regulatory Commission 13 Company Specific Decisions Application or complaint filed Filing is publicly noticed Staff analysis and recommendation to the Commission Commission action –Decide merits of case without further procedures –Hold trial-type hearing before an Administrative Law Judge

14. Federal Energy Regulatory Commission 14 –Hold a “paper” hearing –Hold a technical conference –Try “Alternate Dispute Resolution” (ADR) –Minor matters are delegated to a staff Office Director to make a decision Commission makes final decision Commission decisions may be challenged in the Federal Court of Appeals Company Specific Decisions (con’t)

15. Federal Energy Regulatory Commission 15 Industry-wide Decisions Commission issues an NOI (to seek ideas) or a NOPR (to propose new regulations or a policy change) Public comments requested Commission reviews comments Commission decision –(After NOI) New proposed rules or policy –(After NOPR) New regulations or policy –Abandon initiative

16. Federal Energy Regulatory Commission 16 Review of FERC Decisions Any party to the proceeding (excluding FERC Staff) may appeal FERC decision to court Appeal goes to U.S. Court of Appeals Rarely to U.S. Supreme Court Generally the Courts will grant deference to the Commission

17. Federal Energy Regulatory Commission 17 Goals of Regulation Consumer Protection –Just and Reasonable Rates –No Undue Discrimination Encourage Competition Balance the Interests of all Affected Parties Multiple Opportunities for Public Input Rate and Terms of Service Known in Advance

18. Federal Energy Regulatory Commission 18 To succeed at regulation... Must assure investors that legitimate business interests will be protected; Must assure consumers that their interests will be protected; Must assure all interested parties that the process is fair; and Must assure all that sufficient skills, expertise and resources will be applied.

19. Federal Energy Regulatory Commission 19 The New Role of the Regulator Business structure redesign –de-regulate energy commodity –open-access transmission –non-discriminatory business rules –continued transmission rate regulation Empower customers to protect themselves –standard contracts –standard business practices –information

20. Federal Energy Regulatory Commission 20 The New Role of the Regulator Light-handed regulation –monitor markets –informal dispute resolution –adjudicate complaints –rely on the market whenever possible

21. Federal Energy Regulatory Commission 21 Thank you for your attention Please visit the FERC website –www.ferc.govwww.ferc.gov »Roland W. Wentworth, Economist »Office of Markets, Tariffs and Rates »Federal Energy Regulatory Commission »Washington, DC 20426 »(202) 208-1288 »(202) 219-2836 FAX »roland.wentworth@ferc.fed.us