MEMORANDUM

TO: EPSA Legislative Affairs Committee
       EPSA Regulatory Affairs Committee
       EPSA Power Marketers Working Group
       EPSA NAERO Working Group

FROM: Scott A. Weiner, Legislative Affairs Committee Chair
            Jim Steffes, Regulatory Affairs Committee Chair
            Bob Reilley, Power Marketers Working Group Chair
            Mark Bennett, Senior Manager of Policy
            Donn J. Salvosa, Manager of Government Affairs

DATE: August 31, 2001

RE: August 20th Joint Legislative/Regulatory Affairs Meeting
      on Reliability Legislation
      -Summary of EPSA Position
      -Exploration of Future Initiatives

The August 20th Meeting

On August 20th, the EPSA's Legislative and Regulatory Affairs Committees met to review and discuss existing proposals on reliability legislation.  Dave Nevius of NERC explained the current draft of the so-called stakeholder "consensus" bill, and Bobby Lamb presented the competing proposal being advanced by PJM.  After these presentations, Nevius and Lamb responded to numerous questions.  Thereafter, EPSA members discussed the relative merits of the two proposals, concluding with a straw poll indicating support for exploring an alternative to NERC's bill.

Specifically, EPSA members expressed general dissatisfaction with the new, "streamlined" version of the NERC bill.  Additionally, serious doubts exist regarding the possibility of revising the language in the NERC bill in any way that would make it acceptable.  General observations about the fundamental aspects of the NERC bill indicated that people are not comfortable shifting authority away form FERC to an overly complex, prescriptive organization with uncertain delegations of enforcement authority to regional entities (apparently successors to existing Regional Reliability Councils).

Regarding alternatives, there was consensus that the general approach contained in the PJM proposal, subject to additional work to resolve several weaknesses, could become an acceptable vehicle for addressing reliability issues.  While EPSA members clearly are "leaning toward" the PJM  bill, the proposals raises serious questions concerning: (1) the states' role regarding "adequacy" and their right to adopt "more stringent" standards based upon "compelling need," even if inconsistent with national standards; and (2) limited provision for coordination with Canada and Mexico.

The PJM Proposal

PJM's proposal contains a number of positive aspects, including:

?Its simplicity: it is only 5 pages long.  Members and staff on Capitol Hill have repeatedly pleaded for a shorter version of reliability legislation.  The PJM proposal is at least 10 pages shorter than the NERC bill.

?FERC and the RTOs would have primary jurisdiction over development and enforcement of reliability standards.  The NERC language gives substantial deference to the ERO (in all likelihood, NERC, reformed in ways that are not yet clear or certain) and accompanying ARREs (successors to the Regional Reliability Councils).

?EISB - With the expected approval of the formation of EISB at the upcoming meeting of the GISB Board on September 19th, coupled with strong support from FERC Commissioners Wood, Brownell and Massey, the PJM proposal allows an opportunity to incorporate EISB.  The NERC bill is unclear how an EISB would be accommodated, if at all.
Some issues raising concern which need to be addressed, include:

?State role - the language contains a savings provision which would defer to each state to enforce standards within their boundaries.  Only through applications from affected parties can FERC review state actions and may delay such state action, although it does not specifically state that it can prevent it.

?International issues - specifically interfaces with Canada and Mexico.  The language expresses the need to establish "harmonious" reliability standards with each country throughout the North American region.  While simply instructing FERC to do so, PJM's proposal may need to more clearly explain how to this would be accomplished.

?Variances - The NERC language presently allows for interconnection wide variances.  The WSCC favors this approach and the Senate Energy Committee, with the bulk of its membership from the west region, may have something to say about the lack of ability for a region to request a variance.  Whether or not a compromise can be formulated is something we will need to explore.

Next Steps

The game plan is to open a dialogue with proponents of the PJM bill in order to discuss how best to improve the language to remove potential obstacles to it's attracting wider support.  While this memo summarizes several key issues, there may be others which will need to be discussed.  Please bring these ideas up for discussion during the NAERO Working Group conference call scheduled for Tuesday, September 4 at 2:30 pm (EDT) including any suggested language and changes to improve the PJM proposal. To access the call, dial 1-800-937-6563 and ask for the EPSA/Mark Bennett call.  We are looking to begin the process of working with PJM as quickly as possible and your input is needed.  If you have any questions, please contact Mark Bennett, Manager of Policy (mbennett@epsa.org) or Donn Salvosa, Manager of Government Affairs (dsalvosa@epsa.org) at (202) 628-8200.