The Federal Energy Regulatory Commission this week proposed a $210 million performance budget for 2005 that is long on goals that electric utilities and members of Congress are fighting, including continued development of regional wholesale power markets and electric reliability rules.

FERC's budget is supported by filing fees and other receipts from the electricity, natural gas, oil and hydro industries that the agency regulates. The FY '05 budget represents an overall 2.7 percent increase over the agency's estimated 2004 budget. It projects staffing levels of 1,280 full-time employees, a 5.8 percent increase over FY '04, including 30 new hires to cover FERC's growing electric power reliability activities.

For FY '05, the largest funding increase will go to natural gas regulatory functions, which at $65.2 million represents a 3.2 percent increase from FY '04. The hydropower portion of FERC's budget is estimated at $57 million, up 2.9 percent. And the electric power regulation portion of FERC's budget, by far the largest, is set for a 2.5 percent increase, from $85.5 million to $87.7 million.

FERC's budget narrative raised some industry eyebrows this week because it emphasizes continued formation of regional wholesale power markets and asserts the commission's intent to implement utility industry reliability rules in the absence of federal legislation that would give it statutory authority to do so.

The commission's move on the reliability front has been controversial because the assumption has been that it has no authority over reliability. Instead, the electric power industry formed a voluntary reliability overseer, the North American Electric Reliability Council (NERC), to handle the job.

Yet in the wake of the Senate's failure to pass the energy bill, and with the August 2003 blackout a fresh memory, FERC in December announced it would test the question of its involvement in reliability by issuing a rule requiring utilities to notify it whenever they violated NERC operating requirements.

But upon learning that NERC's rules were too vague on enforcement, FERC Chairman Pat Wood said the commission would slow down its ambitious plans. Also contributing to the decision, sources said, was the utility industry's continued opposition and threat of legal action, and congressional concerns about the commission acting before the energy legislation becomes law.

According to the budget, however, the commission intends to forge ahead with the program.

"While the commission hopes Congress will pass reliability legislation early in 2004, the commission cannot wait to move forward on reliability issues," said FERC in its budget report. "The commission's goal is to set up a viable mechanism for reliability standards by next summer, so it is starting to work with industry and market participants on such issues as determining what types of reliability standards might be appropriate, what measures might be used for auditing, how training of control room operators might be improved, and how reliability might be better enforced."

FERC spokesman Bryan Lee said the commission will continue pursuing the reliability regulations, adding that though the process is going slower than Wood had anticipated, the commission has no plans to step away from the issue indefinitely.

On the industry structure side, FERC's budget narrative calls its wholesale market platform an "especially important" initiative that encourages the voluntary formation of regional transmission organizations. The wholesale market platform was outlined in an April 2003 white paper that took out some of the more controversial assertions of federal oversight in FERC's far-reaching standard wholesale power market design (SMD) rules, which were so incendiary that the energy bill puts SMD on hold until 2007.

Wood himself has been forthcoming about his intent to pursue voluntary formation of regional markets, even though utilities, regulators, state officials and federal lawmakers from the West and the Southeast continue to oppose it.

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