Summary of the American Power Act and American Clean Energy and Security Act of 2009

Introduction

On May 12, 2010, Senators Kerry and Lieberman introduced a draft of the American Power Act in the Senate.  In many ways, the Senate bill mirrors the American Clean Energy and Security Act of 2009 passed by the House, but the bills take different approaches to FERC’s involvement with new energy policy initiatives designed to reduce greenhouse gas emissions.  The House bill extends FERC’s regulatory authority to include the newly created “Carbon Market”, the power to control new federal transmission planning, siting of transmission facilities in the Western Interconnection, and control over financial transmission rights.  However, the Senate bill is either silent on or takes a different approach to all of these issues.

Federal Transmission Planning Policy

The House bill:

1. Provides for a new federal transmission planning regime;
2. Introduces a new federal policy for transmission planning designed to facilitate the development of new generation sources that reduce greenhouse gases;
3. Requires FERC to adopt national electricity grid planning principles, consistent with Federal policy, within one year of the enactment of the bill.

The national electricity grid planning principles would be applied to current and future transmission planning involving the interstate transmission of electricity, and used by regional planning entities engaged in regional grid planning.  Regional planning entities would be required to submit their regional electric grid plans to FERC within eighteen months of FERC’s promulgation of the national electricity grid planning principles.  FERC will be responsible for reviewing the regional electric grid plans to ensure consistency with Federal policy and may return a plan to a regional planning entity, with FERC suggestions for improvement, for further consideration.

The House Energy and Commerce Committee is also considering the Grid Reliability and Infrastructure Defense Act (“GRID Act”), which addresses national electric grid security.  The GRID Act amends the Federal Power Act (“FPA”) to provide FERC with the authority to issue orders, with or without notice, hearing or report, for emergency measures to protect the reliability of the bulk-power system in the event of grid security threats.  A "grid security threat" implies a substantial likelihood of "a malicious act using electronic communication or an electromagnetic weapon, or a geomagnetic storm event" on "programmable electronic devices or communication networks" that are essential to the reliability of the bulk-power system, or "a direct physical attack on the bulk-power system or on defense critical infrastructure" that will likely have "significant adverse effects on the reliability of the bulk-power system."  FERC’s emergency measures authority would be contingent on a Presidential directive identifying an imminent grid security threat.  Emergency measures issued by FERC under this authority are applicable to the Electric Reliability Organization, regional entities, or any owner, user, or operator of the bulk-power system.  The GRID Act would also give FERC the authority to promulgate a rule or issue an order specifying bulk-power system protection measures for grid security vulnerabilities that have not been adequately addressed through a reliability standard.  A "grid security vulnerability" is defined as "a weakness that, in the event of a malicious act using electronic communication or an electromagnetic weapon, would pose a substantial risk of disruption to the operation of those programmable electronic devices and communications networks, including hardware, software, and data, that are essential to the reliability of the bulk-power system."

The Senate bill does not provide for a new Federal policy towards transmission planning, or for additional FERC oversight over national or regional electric grid plans.

FERC Transmission Siting Authority in the Western Interconnection

The House bill also provides new transmission facility siting and construction authority to FERC for the Western Interconnection.  Under the new siting authority, FERC has the authority to issue a certificate of public convenience and necessity as long as eight distinct requirements are met.  The eight requirements are:

1. Facility was identified and included in one or more relevant and final regional or interconnection-wide electric grid plans submitted to the FERC;
2. Conflict among regional grid plans concerning the need for the Facility was resolved;
3. Relevant grid plans are consistent with the national grid planning principles;
4. Facility was identified as needed in significant measure to meet demand for renewable energy;
5. Facility is a multi-state facility;
6. Developer of the facility filed a complete application seeking approval for siting of the facility with a state commission or other entity that has authority to approve the siting;
7. State commission or other entity:
   1. Did not issue a decision on the application within 1 year after the date the completed application was submitted to the State;
   2. Denied a complete application seeking siting approval for the Facility; or
   3. Authorized siting subject to conditions that unreasonably interfere with development of the facility.
8. Siting can be accomplished consistent with Federal policy and national grid planning principles.

These requirements ensure that Western Interconnection entities first proceed through the applicable state process, and that the proposed transmission facility is part of one of the regional or interconnection-wide electric grid plans designed to further Federal energy policies.  If the requirements are met by the State commission then FERC has the authority to site a state-denied transmission facility.  The House bill does require FERC to consider specific siting constraints and mitigation measures identified by the State or local authorities, but FERC makes the final decision on whether to incorporate those constraints into the certificate of public convenience and necessity.  Lastly, FERC is given the authority to develop its own procedural rules for transmission facility siting under this provision, and to act as the lead environmental review agency unless the project is sited on Federal lands.

The Senate bill does not provide FERC with additional transmission siting authority in the Western Interconnection.

Federal Carbon Market

Both the House and Senate bills establish a Carbon Market where entities can trade regulated allowances/greenhouse gas instruments.  However, the House and Senate bills provide for different agencies to exercise regulatory control over the newly created market.  The House bill creates a “regulated allowance market” for the buying and selling of regulated allowances (defined as “any emission allowance, compensatory allowance, offset credit, or Federal renewable electricity credit”).  The House bill proposes to amend the FPA giving regulatory oversight authority to FERC, and allowing FERC to promulgate regulations that would provide general market oversight designed to prohibit fraudulent activities, and establish general standards for the efficient running of the market.  FERC can exercise general enforcement powers after notice and a hearing on record determining if an entity has violated a FERC rule or order.  The punishment for violations could range from a trading suspension of up to six months to a million dollar per day civil penalty for as long as the violation continues.  Further, the House bill grants FERC the power to issue cease and desist orders to trading entities either after notice and an opportunity for a hearing or before notice and an opportunity for a hearing if FERC determines that waiting is contrary to the public interest.  The House bill also requires FERC to collect transaction fees, originally set at an amount of no more than “$15 per $1,000,00 of the aggregate dollar amount of sales of regulated allowances transacted through the facility,” to recover the costs of supervising and regulating the regulated allowance market.  FERC is authorized to adjust the transaction fee annually to ensure that it is covering the costs of supervising and regulating the regulated allowance market.

The House bill, however, does not give FERC total regulatory authority over the regulated allowance market.  The House bill does allocate some regulatory authority to the Commodities Futures Trading Commission (“CFTC”)  for regulated allowance derivatives.  The House bill would amend the Commodity Exchange Act to allow the CFTC to regulate the carbon derivative markets.  The House bill provisions on the CFTC do not infringe on FERC authority because the bill states that no amendments to the Commodity Exchange Act are to be interpreted as affecting the “jurisdiction of the Federal Energy Regulatory Commission with respect to the authority of the Federal Energy Regulatory Commission under the Federal Power Act, the Natural Gas Act…”

Substantially different is the approach in the Senate bill.  The Senate bill revises the Commodity Exchange Act to provide the CFTC with regulatory oversight over the creation of a regulated greenhouse gas market.  The Senate bill gives the CFTC the authority to promulgate regulations to ensure greenhouse gas market compliance with the provisions set out in the Senate bill.  Unlike the House bill, the Senate bill gives no authority to FERC to regulate the greenhouse gas market, opting to consolidate all regulatory authority within the CFTC.

Financial Transmission Rights

The Senate bill does not address the issue of regulatory authority over financial transmission rights.  The CFTC and FERC are currently at odds over which agency has regulatory authority over these rights.  The House bill explicitly allocates this authority to FERC through its modification of the Commodity Exchange Act.  The House bill defines “Energy Commodity” as including electricity, but explicitly states that the definition “excludes financial transmission rights which are subject to regulation and oversight by the Federal Energy Regulatory Commission.”