Review of EPAct05 and Other Significant Legislative Developments Joe Nipper APPA Senior Vice President, Government Relations APPA Legal Seminar San Antonio, Texas November 13, 2005

Overview Energy Policy Act of 2005 The next energy bill Broadband Anti-competitive rail practices Tax-exempt bonds Endangered Species Act

The Energy Policy Act of 2005 APPA’s Goals: Maintain and enhance fuel diversity Ensure reliability Facilitate new infrastructure development Promote effective wholesale competition Limit federal (FERC) jurisdiction over public power systems

Fuel Diversity Hydro licensing reform (Section 241) Clean Renewable Energy Bonds for renewables / $800 million ($500 million cap on government entities) for 2 years; 2006 and 2007 (Section 1303) Clean coal technology demonstration/R&D (Title IV) Reauthorization of Renewable Energy Production Incentive through 2026 (Section 202) Incentives for nuclear power (Title VI, Subtitle C) Energy efficiency (Title I) No federal renewable portfolio standard

Reliability Act establishes new electric reliability organization (ERO) (likely to be NERC) to develop and enforce mandatory reliability standards (Section 1211) FERC to issue Final Rule within 180 days NOPR issued on September 1; comments due October 7 FERC must approve or remand proposed standards and enforcement actions Emerging issue: balance of power between ERO and “regional entities” (like WECC)

Infrastructure Development DOE to designate “national interest electric transmission corridors” under Section 1221 Based on congestion study to be completed in one year; updated every three years FERC can issue construction permit for transmission facilities in such corridors if a state does not have authority or delays approval for more than one year

Infrastructure Development, cont’d Allows 3 or more states to form regional transmission siting agencies Agencies have authority to permit transmission facilities, including facilities in national interest corridors Such agencies can “trump” FERC’s siting authority, unless member states disagree Could change the siting equation substantially

Infrastructure Development, cont’d Re-affirms FERC flexibility in allocating costs for new transmission – no mandate for “participant funding” (Section 1242) New PURPA requirements for public power systems to “consider” smart metering, net metering, interconnection of distributed generation (Sections ) Applies to public power systems with annual retail sales in excess of 500 million kwh

Native Load Provisions Affirms load serving entities’, including public power systems’, authority to use existing transmission rights (by ownership or contract) to serve native load (Section 1233) Directs FERC to facilitate planning and expansion of transmission to meet needs of LSEs for firm long-term transmission rights to serve native load Protects certain transmission contracts in California and the Northwest (Section 1235)

Long-Term Transmission Rights Section 1233(b) deals with Long-Term Transmission Rights (LTTRs) in “Organized Markets” (read RTOs) Requires FERC to implement LTTRs in RTOs with organized markets through a rulemaking within 1 year of enactment

Transmission Rate Incentives Section 1241 requires FERC within one year to establish incentive-based rate treatments for transmission, including rates of return that “attract new investment in transmission facilities” FERC is to provide incentives for “transmitting utilities” to join a Transmission Organization

Effective Wholesale Competition Act Has Some Bitter Pills: Repeals the Public Utility Company Holding Act which will lead to greater consolidation by private utilities (FERC has issued NOPR on PUCHA replacement provisions; final rule in 90 days) Does not address costs, accountability, governance, or other problems in RTOs (but FERC is in midst of rulemaking on RTO cost accounting)

Effective Wholesale Competition, cont’d But there are compensations… Enhanced FERC authority to review mergers of holding companies, purchases of generation facilities used for interstate sales (Sec. 1289) New broad FERC authority to ban market manipulation (Sec. 1283) Significant new financial penalties for violation of the Federal Power Act (Sec. 1284) New market transparency rules (Sec. 1281)

FERC Jurisdiction Over Public Power Reliability requirements are mandatory for all, including public power entities Provisions on market transparency and market manipulation apply to all market participants “FERC-lite” gives FERC limited authorities over access to transmission owned by the largest public power systems, but generally keeps rate – setting at the local level (Sec. 1231) Allows FERC review over certain wholesale sales by some large public power systems for purposes of potential refunds (Sec. 1286)

Other Provisions of Interest Climate change – Title XVI –Requires DOE to develop a national climate change strategy to promote R&D for greenhouse gas reduction –Requires the State Department to report on significant GHG emissions in other countries and to facilitate assistance to developing countries to reduce GHGs –Seeks to identify trade barriers for exporting GHG reduction technologies

Other Provisions of Interest (Cont’d) Energy efficiency provisions LIHEAP authorization Hybrid vehicles Interagency study in competition at the wholesale and retail levels in electricity markets DOE study in “economic dispatch”

Implementation Dozens of new rules and programs to be developed and implemented by DOE, FERC, Treasury, CFTC, FTC, etc., per the Act’s requirements APPA priorities include: –Reliability –Long term transmission rights –FERC-lite –Hydro licensing –Clean Renewable Energy Bonds –Renewable Energy Production Incentive –PURPA smart/net metering requirements

Resources EPAct05 page on APPA website Additional APPA seminars in Washington, DC –December 15 – 16, EPAct05 and FERC –January 19 – 20, REPI, Conservation, and Clean Renewable Energy Bonds (CREBs)

The Next Energy Bill H.R 3893 by Rep. Joe Barton (R-TX) passed the House last month Addresses oil and gas supply and refinery capacity; no electricity provisions included Senate EPW and Energy Committees have been holding hearings; EPW failed to report its own more modest, supply and refinery capacity bill Senate Energy Committee may try to move a similar bill Final passage not likely; this is mostly a political exercise

Anti-Competitive Rail Practices The cost and availability of coal is increasingly adversely affected by anti-competitive activities by the railroads; some public power systems are now paying more for rail transportation than for the coal itself S. 919 by Senators Rockefeller (D-WV) and Craig (R-ID), et al, and H.R by Reps. Baker (R-LA), Oberstar (D-MN), et al address these issues; these bills are similar, but not identical This legislation provides structural and policy changes to improve competitive alternatives for shippers and improvements in consumer protection mechanisms administered by the Surface Transportation Board H.R by Representatives Green (R-WI) and Pomeroy (D- ND) would remove the railroads’ anti trust exemption

Broadband House Energy and Commerce Committee “staff draft” on IP enabled services includes Section 409 – Government Authority to Provide Services No state statute, regulation on other legal requirement “may prohibit or have the effect of prohibiting any public provider” from providing services to any person or entity Recently revised staff draft retains this language and drops the placeholder for cross-subsidization language Strongly supported by APPA Telecom and Internet Subcommittee held a hearing on November 9; possible markup before the end of the year

Broadband (Cont’d) S. 1294, the Community Broadband Act of 2005 by Senators McCain (R-AZ) and Lautenberg (D-NJ); also supported by APPA Precludes states from adopting laws or regulations prohibiting “public providers” from providing advanced communication capability or services S by Senator Ensign (R-NV), a major telecom re- write bill, includes section 15 that requires an “open bid” process for cities that want to provide services, but is really structured as a barrier Final action on broadband legislation not likely until 2007

Endangered Species Act H.R. 3824, the Threatened and Endangered Species Act (TESRA) by Rep. Pombo (R-CA) Passed the House September 29 Supported by APPA; improves designation and recovery process, provides greater certainty regarding requirements, is consistent with APPA’s policy resolution This is a controversial bill, primarily due to property owner compensation provisions Senate passage will be difficult