H.R. 7729

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7729 Introduced in House (IH)]

<DOC>

119th CONGRESS
2d Session
H. R. 7729

To amend the Federal Power Act to require the issuance of rules 
relating to shared savings frameworks for certain transmitting 
utilities, and for other purposes.

_______________________________________________________________________

IN THE HOUSE OF REPRESENTATIVES

February 26, 2026

Mr. Casten introduced the following bill; which was referred to the 
Committee on Energy and Commerce

_______________________________________________________________________

A BILL

To amend the Federal Power Act to require the issuance of rules 
relating to shared savings frameworks for certain transmitting 
utilities, and for other purposes.

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) Short Title.--This Act may be cited as the ``Shared Utility 
Rewards for Grid Efficiency Act of 2026'' or the ``SURGE Act of 2026''.
(b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Amendments to the Federal Power Act.
Sec. 3. Shared savings framework rule for transmitting utilities 
subject to Federal Energy Regulatory 
Commission jurisdiction.
Sec. 4. Guidance for electric utilities not subject to Federal Energy 
Regulatory Commission jurisdiction.
Sec. 5. Grant program for State regulatory authorities.
Sec. 6. Studies on effects of certain rate treatments and alternative 
frameworks.
Sec. 7. Definitions.

SEC. 2. AMENDMENTS TO THE FEDERAL POWER ACT.

Section 219 of the Federal Power Act (16 U.S.C. 824s) is amended--
(1) in subsection (a)--
(A) by striking ``Not later than 1 year after the 
date of enactment of this section, the Commission shall 
establish, by rule,'' and inserting ``The Commission 
shall issue such rules as may be necessary to 
establish''; and
(B) by inserting ``, improving efficiency,'' after 
``ensuring reliability'';
(2) in subsection (b)--
(A) in the matter preceding paragraph (1), by 
striking ``The rule shall'' and inserting ``The rules 
issued under this section shall'';
(B) in paragraph (1), by inserting ``, and 
operational improvements for,'' after ``capital 
investment in'';
(C) in paragraph (2)--
(i) by inserting ``or other incentive 
mechanism'' after ``return on equity''; and
(ii) by inserting ``or incentivizes 
improvements that increase the efficiency of 
the transmission of electric energy and reduce 
costs for consumers'' after ``(including 
related transmission technologies)'';
(D) in paragraph (3), by inserting ``, including 
performance-based measures,'' after ``other measures''; 
and
(E) in paragraph (4)--
(i) in subparagraph (A), by striking ``; 
and'' and inserting a semicolon;
(ii) in subparagraph (B), by striking the 
period and inserting ``; and''; and
(iii) by adding at the end the following 
new subparagraph:
``(C) amounts determined pursuant to shared savings 
frameworks or other incentive mechanisms prescribed in 
such rules.''; and
(3) in subsection (c), by striking ``In the rule'' and 
inserting ``In a rule''.

SEC. 3. RULEMAKING ON SHARED SAVINGS FRAMEWORK FOR TRANSMITTING 
UTILITIES SUBJECT TO FEDERAL ENERGY REGULATORY COMMISSION 
JURISDICTION.

(a) Rule Required.--Not later than one year after the date of the 
enactment of this Act, the Commission shall issue a final rule under 
section 219(b)(3) of the Federal Power Act (16 U.S.C. 824s(b)(3)), as 
amended by section 2, that establishes a framework under which a 
covered transmitting utility may recover a portion of verified cost 
savings attributable to a qualifying action of such transmitting 
utility as an incentive (in this subsection referred to as the ``shared 
savings framework'').
(b) Methodologies.--The Commission shall develop and include in the 
rule under subsection (a) standardized methodologies, applicable across 
similarly situated transmission segments, as follows:
(1) Baseline performance methodologies.--Methodologies, 
developed in consultation with the Secretary, for covered 
transmitting utilities to determine the annual baseline 
performance of transmission facilities or transmission segments 
absent qualifying actions--
(A) by measuring the baseline performance of such a 
transmission facility or transmission segment--
(i) through the actual amount of electrical 
energy entering and leaving such facility or 
segment (commonly referred to as ``direct 
metering''); or
(ii) if the method under clause (i) is not 
feasible, through an estimation of such amount 
consistent with modeling methodologies 
prescribed by the Commission; and
(B) by normalizing data to ensure such baseline 
performance accounts for variability in exogenous 
factors determined by the Commission, such as 
variability in--
(i) weather;
(ii) demand over time;
(iii) upgrades, interconnections, or 
operational changes made by other utilities, 
Independent System Operators or Regional 
Transmission Organizations, or other entities 
determined relevant by the Commission; or
(iv) other conditions affecting demand or 
generation.
(2) Methodologies relating to cost savings.--Methodologies 
for covered transmitting utilities to estimate and calculate, 
and for independent evaluators to verify, the cost savings 
attributable to qualifying actions under the shared savings 
framework, taking into account--
(A) the baseline performance of any transmission 
facility or transmission segment with respect to which 
a qualifying action is conducted; and
(B) price proxies, determined according to a 
methodology prescribed by the Commission, for the value 
of electric energy transmitted (which may include, for 
a region managed by an Independent System Operator or 
Regional Transmission Organization, the locational 
marginal price corresponding to the location on the 
electric grid where an injection or withdrawal of power 
is modeled (commonly referred to as a ``pricing 
node'')).
(3) Methodologies relating to recoverable percentage and 
rate recovery timeline.--
(A) In general.--Methodologies for covered 
transmitting utilities to determine, taking into 
account the factors described in subparagraph (B), the 
following:
(i) The total percentage of cost savings 
attributable to a qualifying action that such a 
utility may recover as an incentive under the 
shared savings framework, which may not be less 
than 10 percent or greater than 60 percent of 
such total attributable cost savings (in this 
section referred to as the ``recoverable 
percentage'' of such savings).
(ii) The period of time during which such a 
utility may recover amounts as an incentive for 
such an action, which may not be shorter than a 
2-year period or longer than a 5-year period 
(in this section referred to as the ``rate 
recovery timeline'' for such action).
(B) Factors.--The factors described in this 
subparagraph are the following:
(i) The extent of financial or operational 
risk to be assumed by a covered transmitting 
utility in conducting a qualifying action.
(ii) The baseline performance for 
transmission facilities or transmission 
segments with respect to which such action is 
to be conducted.
(iii) The replicability or demonstration 
value of such action.
(iv) The duration of cost savings predicted 
to result from such action and whether such 
cost savings will remain consistent over such 
duration.
(v) The extent to which such action is 
expected to result in additional benefits, such 
as improvements to the resilience or the 
reliable operation of the bulk-power system, 
reductions to transmission congestion, or 
reductions to greenhouse gas emissions.
(vi) Such other factors as the Commission 
may determine relevant to ensure the incentive 
is performance-based, transparent, and cost-
effective.
(c) Initial Filing Required.--To be considered for an incentive 
under the shared savings framework for the conduct of a qualifying 
action, a covered transmitting utility shall submit to the Commission 
an initial filing, the contents of which shall be verified by an 
independent evaluator determined appropriate by the Commission, that 
includes the following:
(1) An identification of the baseline performance of any 
transmission facility or transmission segment with respect to 
which such action is to be conducted for the one-year period 
preceding the date on which such conduct is to be commenced, 
determined by such utility pursuant to an applicable 
methodology under subsection (b)(1) (including the data 
underlying such calculation).
(2) A description of such action, including an analysis of 
improvements expected to result from such action.
(3) The rate recovery timeline for such action and the 
recoverable percentage of cost savings attributable to such 
action, determined pursuant to an applicable methodology under 
subsection (b)(3).
(4) An estimate, developed pursuant to an applicable 
methodology under subsection (b)(2), of the cost savings to 
result from such action for--
(A) the one-year period beginning on the date on 
which the conduct of such action commences; and
(B) the duration of the rate recovery timeline for 
such action.
(5) A claim for 50 percent of the recoverable percentage of 
cost savings estimated under paragraph (4)(A).
(6) An agreement by such utility to file with the 
Commission the annual reports required under subsection (d), 
the contents of which shall be verified by an independent 
evaluator determined appropriate by the Commission.
(d) Annual Reporting Required.--Beginning one year after the date 
on which a covered transmitting utility submits an initial filing for a 
qualifying action under subsection (c), and on an annual basis 
thereafter until the end of the rate recovery timeline for such action 
determined under paragraph (3) of such subsection or until such action 
no longer results in cost savings, whichever occurs first, such utility 
shall file with the Commission a report containing, with respect to the 
qualifying action of such utility, the following:
(1) Data on the performance during the preceding year of 
any transmission facility or transmission segment with respect 
to which such action was conducted, and a comparison of such 
performance to the baseline performance of that transmission 
facility or transmission segment determined pursuant to an 
applicable methodology under subsection (b)(1) for such year.
(2) The actual cost savings attributable to the qualifying 
action for the preceding year, calculated pursuant to an 
applicable methodology under subsection (b)(2).
(3) If such utility expects cost savings to result from the 
qualifying action during the following year, an estimate, 
developed pursuant to an applicable methodology under 
subsection (b)(2), of the cost savings for such following year.
(4) A claim for the following:
(A) An amount that is the recoverable percentage of 
the actual cost savings for the preceding year 
calculated under paragraph (2) minus any amount 
previously recovered based on an estimate of cost 
savings for such year under subsection (e)(1) or 
subsection (e)(2)(B), as the case may be.
(B) If the report includes an estimate of cost 
savings for the following year under paragraph (3), an 
amount that is 50 percent of the recoverable percentage 
of such estimated cost savings.
(5) If such utility finds that the total amount recovered 
for a year under subsection (e) exceeds the amount equal to the 
total recoverable percentage of the actual cost savings for 
that year under paragraph (2), an identification of the excess 
amount.
(e) Recovery Mechanism.--
(1) Rate adjustment based on initial filing.--Not later 
than 60 days after receiving an initial filing of a covered 
transmitting utility under subsection (c), the Commission shall 
provide to such utility a rate adjustment under which such 
utility may recover the amount claimed under subsection (c)(5).
(2) Rate adjustment based on annual reports.--Not later 
than 60 days after receiving an annual report of a covered 
transmitting utility under subsection (d), the Commission shall 
provide to such utility a rate adjustment under which--
(A) subject to paragraph (3), such utility may 
recover the amount claimed under subsection (d)(4)(A); 
and
(B) if the report included a claim under subsection 
(d)(4)(B), such utility may recover the amount so 
claimed.
(3) Reconciliation.--If a utility identifies an excess 
amount under subsection (d)(5), or the Commission determines 
the information reported for that year under subsection (d) is 
insufficient for purposes of this subsection, the Commission 
shall credit the difference to ratepayers through a rate 
adjustment.
(f) Sense of Congress Regarding Additional Rulemakings.--It is the 
sense of Congress that--
(1) following the issuance of the rule under subsection 
(a), the Commission should revise such rule, or issue 
additional rules under the authority of section 219(b)(3) of 
the Federal Power Act (16 U.S.C. 824s(b)(3)), as amended by 
section 2, to expand the shared savings framework to additional 
categories of measurable, demonstrable, and verifiable covered 
transmission actions;
(2) any such rule should include a version of the 
methodologies developed under subsection (b) adapted for such 
additional categories; and
(3) any such rule should take into account the findings of 
the most recently conducted study under section 6.

SEC. 4. GUIDANCE FOR ELECTRIC UTILITIES NOT SUBJECT TO FEDERAL ENERGY 
REGULATORY COMMISSION JURISDICTION.

(a) In General.--Not later than two years after the date of 
enactment of this Act, the Secretary, in coordination with the 
Commission and State regulatory authorities, shall develop and publish 
on a publicly available website of the Department of Energy guidance to 
support State regulatory authorities in establishing frameworks under 
which covered electric utilities may recover a portion of verified cost 
savings attributable to a covered utility action as an incentive.
(b) Minimum Elements.--The guidance under subsection (a) shall 
include--
(1) guidance, developed in accordance with subsection (c), 
for determining the baseline performance of a covered electric 
utility absent a covered utility action;
(2) guidance, developed in accordance with subsection (d), 
for determining the cost savings attributable to a covered 
utility action;
(3) guidance for the measurement and verification of a 
covered utility action, and any cost savings attributable to 
such action, by an independent evaluator determined appropriate 
by the State regulatory authority concerned;
(4) guidance on potential mechanisms by which covered 
electric utilities may recover a portion of the verified cost 
savings attributable to a covered utility action, including 
through the provision of rate adjustments by State regulatory 
authorities; and
(5) such other elements as the Secretary determines 
appropriate to ensure the framework specified in subsection (a) 
is transparent, performance-based, cost-effective, and 
consistent with State ratemaking practices.
(c) Methodology for Determining Baseline Performance.--
(1) In general.--In developing the guidance under 
subsection (b)(1), the Secretary, in coordination with the 
Commission, shall--
(A) consult with State regulatory authorities, 
Independent System Operators, Regional Transmission 
Organizations, and independent evaluators determined 
appropriate by the Secretary regarding such guidance;
(B) include in such guidance technical guidance for 
normalizing data to ensure the baseline performance of 
a covered electric utility accounts for variability in 
exogenous factors, such as variability in--
(i) weather;
(ii) demand over time;
(iii) upgrades, interconnections, or 
operational changes made by other utilities, 
Independent System Operators or Regional 
Transmission Organizations, or other entities 
determined relevant by the Commission; or
(iv) other conditions affecting demand or 
generation, as determined by the Secretary; and
(C) ensure such guidance supports consistent 
treatment across covered electric utilities within each 
category described in subsection (e).
(2) Support from national laboratories.--The National 
Laboratories shall provide such technical support as the 
Secretary determines necessary to carry out this subsection.
(d) Guidance on Determining Cost Savings.--In developing the 
guidance under subsection (b)(2), the Secretary shall--
(1) include in such guidance--
(A) principles to ensure that cost savings 
attributable to a covered utility action are calculated 
in a manner that takes into account price proxies for 
the value of electric energy and the baseline 
performance of the covered electric utility; and
(B) tools, technical support, and reference data to 
assist State regulatory authorities in applying the 
principles specified in subparagraph (A); and
(2) ensure such guidance supports consistent treatment 
across covered electric utilities within each category 
described in subsection (e).
(e) Applicability to Utility Market Structures.--In carrying out 
subsection (a), the Secretary shall develop separate guidance for each 
category of covered electric utilities as follows:
(1) Vertically integrated utilities.
(2) Covered electric utilities that own or operate 
transmission infrastructure but not distribution or generation 
infrastructure.
(3) Covered electric utilities that own or operate 
distribution infrastructure but not transmission or generation 
infrastructure.
(4) Covered electric utilities that own or operate 
distribution and transmission infrastructure but not generation 
infrastructure.
(f) Revisions.--Upon the publication of each report under section 
6, the Secretary shall determine whether to revise the guidance under 
subsection (a), taking into account the contents of such report and the 
recommendations included therein.

SEC. 5. GRANT PROGRAM FOR STATE REGULATORY AUTHORITIES.

(a) Establishment.--Not later than two years after the date of the 
enactment of this Act, the Secretary shall establish a program under 
which the Secretary may award grants to State regulatory authorities to 
support the development, implementation, and oversight by such State 
regulatory authorities of frameworks under which covered electric 
utilities may recover a portion of verified cost savings attributable 
to a covered utility action as an incentive (in this section referred 
to as the ``grant program'').
(b) Authorized Uses of Funds.--Amounts awarded under the grant 
program may only be used to conduct the following activities:
(1) The development of a framework referred to in 
subsection (a), or revision of an existing such framework, such 
that the framework is consistent with the guidance developed 
under section 4, including the following:
(A) The development, including the design or 
modeling, of methodologies consistent with the 
methodologies set forth under such guidance.
(B) The development of data systems or other tools 
necessary for the development of the framework.
(C) The issuance or revision of regulations 
necessary for the development of the framework.
(D) The engagement with stakeholders with respect 
to the development of the framework.
(2) The implementation or oversight of a framework 
consistent with such guidance.
(c) Prohibited Use of Funds.--No amounts awarded under the grant 
program may be used to pay a covered electric utility.
(d) Grant Recipient Reporting Requirement.--
(1) In general.--As a condition of receiving amounts under 
the grant program, a State regulatory authority shall agree to 
submit to the Secretary, on an annual basis for the duration of 
the period in which such State regulatory authority expends 
such amounts, a report describing the activities carried out 
using such amounts.
(2) Effect of noncompliance.--If a grant recipient fails to 
submit a report required under paragraph (1), such recipient 
shall be ineligible for additional awards under this section 
until the report is submitted.
(e) Administration of Program.--
(1) Technical support; public registry.--In carrying out 
the grant program, the Secretary shall--
(A) provide to grant recipients technical 
assistance in support of activities conducted using 
amounts awarded under the grant program; and
(B) maintain a publicly accessible registry of the 
activities so conducted.
(2) Reporting by secretary.--Not later than two years after 
the date of enactment of this Act, and biennially thereafter 
for the duration of the grant program, the Secretary shall 
submit to the appropriate congressional committees a report 
containing--
(A) a summary of the activities conducted using 
amounts awarded under the grant program;
(B) an assessment of the effectiveness of any 
framework implemented using such amounts; and
(C) an identification of any barrier to the 
development, implementation, or oversight of a 
framework consistent with the guidance developed under 
section 4 and recommendations for addressing such 
barrier, as applicable.
(3) Allocation of funds.--Of the amounts authorized to be 
appropriated or otherwise made available to the Secretary to 
carry out the grant program--
(A) not more than 70 percent may be awarded for the 
conduct of activities under subsection (b)(1);
(B) not less than 30 percent may be awarded for the 
conduct of activities under subsection (b)(2); and
(C) not more than five percent may be obligated or 
expended for Federal administrative expenses.

SEC. 6. STUDIES ON EFFECTS OF CERTAIN RATE TREATMENTS AND ALTERNATIVE 
FRAMEWORKS.

(a) Studies Required.--Not later than three years after the date of 
enactment of this Act, and every five years thereafter, the Secretary, 
in consultation with the Commission, shall--
(1) conduct a study on--
(A) inefficiencies in the electric power sector 
incentivized by existing rate treatments for the 
transmission of electric energy and any economic, 
environmental, or societal effect of such 
inefficiencies, including with respect to the customers 
of electric utilities, the reliable operation of the 
bulk-power system, and the deployment of cost-effective 
grid-enhancing technologies; and
(B) alternative frameworks for incentive-based, 
including performance-based, rate treatments for such 
transmission, such as the alternative frameworks 
described in subsection (b); and
(2) publish on a publicly available website of the 
Department of Energy, and submit to the appropriate 
congressional committees, a report that includes--
(A) a detailed description of the findings of such 
study; and
(B) recommendations of the Secretary to align rate 
treatments for the transmission of electric energy with 
the goals of lowering costs for the customers of 
electric utilities, enhancing the reliable operation of 
the bulk-power system, reducing transmission congestion 
and other inefficiencies in the transmission or 
delivery of electric energy, and encouraging the 
deployment of cost-effective grid-enhancing 
technologies.
(b) Examples of Alternative Frameworks.--The alternative frameworks 
described in this subsection are the following:
(1) Shared savings frameworks.
(2) Revenue decoupling models, under which authorized 
revenues of utilities are separated from volumetric sales of 
electricity to reduce disincentives for energy efficiency and 
programs to reduce the consumption of, or peak demand for, 
electric energy.
(3) Return on equity adjustments, under which authorized 
utility returns are increased or decreased based on measurable 
factors such as risk profile, performance outcomes, or 
efficiency improvements.
(4) Multi-year rate plans, under which revenue requirements 
and performance expectations for utilities are established for 
a fixed multi-year period rather than through single-year rate 
cases.
(5) Earnings sharing mechanisms, under which earnings of 
utilities falling outside an authorized range as compared to 
the return on equity are shared between shareholders and 
ratepayers.
(6) Total expenditure models, under which capital and 
operating expenditures of utilities are treated on an 
equivalent basis to reduce bias toward capital investment.
(7) Performance scorecards, under which utilities are 
evaluated against transparent outcome-based metrics such as 
reliability, affordability, equity, or the reduction of 
emissions, with results informing regulatory decisions or 
incentive adjustments.
(c) Sources.--The Secretary shall ensure that each study under 
subsection (a) is informed by--
(1) reports filed with the Commission pursuant to sections 
3 and 5 of this Act and section 304 of the Federal Power Act 
(16 U.S.C. 825c);
(2) relevant reports issued by the National Laboratories; 
and
(3) such other studies, reports, and other data sources as 
the Secretary may determine appropriate.

SEC. 7. DEFINITIONS.

In this Act:
(1) Advanced conductor.--The term ``advanced conductor'' 
means an electric transmission conductor that, relative to a 
conductor being replaced on a given transmission or 
distribution line, is designed to substantially improve 
electrical or mechanical performance through the achievement of 
at least one of the following criteria, as determined by the 
Commission:
(A) A substantial increase in current-carrying 
capacity under normal operating conditions.
(B) A substantial reduction in electrical 
resistance or line losses under normal operating 
conditions.
(C) Operation at materially higher continuous 
allowable operating temperatures.
(D) A reduction in thermal sag or mechanical 
constraints that enables increased use of a 
transmission segment or facility.
(2) Appropriate congressional committees.--The term 
``appropriate congressional committees'' means--
(A) the Committee on Energy and Commerce of the 
House of Representatives; and
(B) the Committee on Energy and Natural Resources 
of the Senate.
(3) Bulk-power system; electric utility; independent system 
operator; regional transmission organization; state regulatory 
authority; transmitting utility.--The terms ``bulk-power 
system'', ``electric utility'', ``Independent System 
Operator'', ``Regional Transmission Organization'', ``State 
regulatory authority'', and ``transmitting utility'' have the 
meanings given such terms in section 3 of the Federal Power Act 
(16 U.S.C. 796).
(4) Commission.--The term ``Commission'' means the Federal 
Energy Regulatory Commission.
(5) Covered electric utility.--The term ``covered electric 
utility'' means an electric utility not subject to the 
jurisdiction of the Commission for ratemaking purposes under 
Part II of the Federal Power Act (16 U.S.C. 824 et seq.).
(6) Covered action.--The term ``covered action''--
(A) means an action that would generate cost 
savings for ratepayers; and
(B) does not include the construction of a new 
facility or the complete reconstruction of an existing 
facility.
(7) Covered transmission action.--The term ``covered 
transmission action'' means a covered action to improve the 
efficiency, capacity, reliability, or resilience of one or more 
transmission facilities or transmission segments, including 
through--
(A) the replacement of a conductor on a 
transmission line within such a facility or segment 
with an advanced conductor; or
(B) the deployment of a grid-enhancing technology.
(8) Covered transmitting utility.--The term ``covered 
transmitting utility'' means a transmitting utility subject to 
the jurisdiction of the Commission for ratemaking purposes 
under part II of the Federal Power Act (16 U.S.C. 824 et seq.).
(9) Covered utility action.--The term ``covered utility 
action'' means a covered action taken by an electric utility 
to--
(A) improve the efficiency of the generation, 
transmission, or distribution of electric energy, 
including by reducing the proportion of electrical 
energy lost during such generation, transmission, or 
distribution (including through the deployment of 
energy storage systems or other technologies); or
(B) reduce the consumption of, or peak demand for, 
electric energy, including through--
(i) a technological improvement, such as 
the deployment of high-efficiency appliances, 
smart thermostats, distributed energy 
resources, or building retrofits;
(ii) the establishment of a pricing 
mechanism to encourage customers of the 
electric utility to reduce such consumption or 
shift such demand to non-peak hours; or
(iii) any other action or program to 
incentivize or otherwise produce such a 
reduction or shift in demand.
(10) Grid-enhancing technology.--The term ``grid-enhancing 
technology'' means any hardware or software that--
(A) increases the capacity, efficiency, 
reliability, resilience, or safety of transmission 
facilities and transmission technologies; and
(B) is installed, in addition to transmission 
facilities and transmission technologies, for the 
purpose of--
(i) providing operators of such facilities 
and technologies increased situational 
awareness and control over the electric grid;
(ii) improving the efficiency of such 
facilities and technologies;
(iii) increasing the transfer capacity of 
such facilities and technologies; or
(iv) otherwise enabling the increased use, 
or more efficient of use, of such facilities 
and technologies under normal operating 
conditions.
(11) Qualifying action.--The term ``qualifying action'' 
means a covered transmission action achieved through the 
reduction of transmission physical losses.
(12) Secretary.--The term ``Secretary'' means the Secretary 
of Energy.
(13) Similarly situated.--The term ``similarly situated'', 
with respect to transmission segments, means transmission 
segments that the Commission determines share comparable 
characteristics, such as voltage class, geography, load 
profile, or historical performance.
(14) Transmission physical loss.--The term ``transmission 
physical loss'' means the amount of electrical energy that 
enters a transmission segment but does not exit such 
transmission segment, as measured over a prescribed period of 
time.
(15) Transmission segment.--The term ``transmission 
segment'' means a functionally distinct portion of an 
interconnected transmission system (such as a single 
transmission line or multiple transmission lines within a 
prescribed zone, such as between prescribed substations), for 
which the amount of electrical energy transmitted and the 
amount of electrical energy lost during such transmission may 
be independently measured, as determined by the Commission.
(16) Vertically integrated electric utility.--The term 
``vertically integrated electric utility'' means a covered 
electric utility that--
(A) owns and operates generation, transmission, and 
distribution facilities; and
(B) directly provides retail electric service to 
end-use customers.
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