Reg and Dereg

The Energy Policy Act Of 2005 (EPAct2005).
EPAct 2005 modernized several major federal laws governing the electric power industry—including the Federal Power Act—and made important changes, which are detailed below, to guarantee electric reliability for consumers. EPAct 2005 also expanded FERC’s existing authority to review merger and acquisition activity by shareholder-owned electric companies and strengthened FERC’s anti-manipulation authority.

Repeal of the Public Utility Holding Company Act (PUHCA): PUHCA was enacted in 1935 to regulate the corporate structure and financial operations of utility holding companies. EPAct 2005 repealed the outdated PUHCA, effective February 8, 2006, and transferred strong consumer protection authorities to FERC and the states. The congressional repeal of PUHCA eliminated significant federal restrictions on the scope, structure, and ownership of electric companies. PUHCA repeal encourages critically needed investment in energy infrastructure by opening the door to new classes of non-utility investors, thus broadening the pool of capital available to enhance the electric power infrastructure.

However, the repeal of PUHCA is explicitly accompanied by new provisions in EPAct 2005 that transfer to FERC and state regulatory commissions access to the books and records of most holding companies and their affiliates to assure consumer protection. FERC also obtained authority to approve cost allocation issues within holding company systems if requested by a utility or state commission. Additionally, some states may reconsider the scope of their existing regulation and impose additional restrictions on holding companies in light of PUHCA’s repeal.

Reform of the Public Utility Regulatory Policies Act (PURPA): PURPA is one of five bills signed into law on November 8, 1978, as the National Energy Act. A major objective of PURPA was to expand the use of cogeneration and renewable energy sources. Regulated utilities were required to purchase power produced by a “qualifying facility” at a price equal to that which the utility would otherwise pay if it were to build its own power plant or buy power from another source (its avoided cost), regardless of whether they needed the power. In large part because of the way PURPA was implemented, it resulted in electricity consumers being forced to pay billions of dollars in above-market electricity prices. PURPA similarly imposed an obligation on electric companies to sell requested energy and capacity to qualifying facilities.

EPAct 2005 removed some of these costly requirements. The law established conditions for eliminating the mandatory purchase obligation and revising the criteria for new qualifying facilities that seek to sell power under the mandatory purchase obligation. To qualify for relief from the mandatory purchase obligation, electric companies must demonstrate that qualifying facilities in their region have nondiscriminatory access to competitive wholesale power markets.

Creation of the Electric Reliability Organization (ERO): EPAct 2005 added a new section to the FPA to create the ERO, an independent, self-regulating entity that will enforce mandatory electric reliability rules on all users, owners, and operators of the nation’s transmission system. This will require otherwise unregulated utilities, such as electric cooperatives and government-owned utilities, to comply with the mandatory reliability standards, as well. FERC is given oversight authority for the ERO. In July 2006, FERC certified the North American Electric Reliability Corporation (NERC) as the ERO. The ERO became operational in January 2007.