[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
                   ELECTRIC RESTRUCTURING LEGISLATION

=======================================================================

                                HEARINGS

                               before the

                    SUBCOMMITTEE ON ENERGY AND POWER

                                 of the

                         COMMITTEE ON COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                        JUNE 17, 1999--H.R.1828
        JULY 22, 1999--H.R. 687, 971, 1138, 1587, 2050, and 2363

                               __________

                           Serial No. 106-61

                               __________

            Printed for the use of the Committee on Commerce




                     U.S. GOVERNMENT PRINTING OFFICE
57-439 CC                    WASHINGTON : 1999




                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
                                     BILL LUTHER, Minnesota
                                     LOIS CAPPS, California

                   James E. Derderian, Chief of Staff

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                    Subcommittee on Energy and Power

                      JOE BARTON, Texas, Chairman

MICHAEL BILIRAKIS, Florida           RALPH M. HALL, Texas
CLIFF STEARNS, Florida               KAREN McCARTHY, Missouri
  Vice Chairman                      THOMAS C. SAWYER, Ohio
STEVE LARGENT, Oklahoma              EDWARD J. MARKEY, Massachusetts
RICHARD BURR, North Carolina         RICK BOUCHER, Virginia
ED WHITFIELD, Kentucky               FRANK PALLONE, Jr., New Jersey
CHARLIE NORWOOD, Georgia             SHERROD BROWN, Ohio
TOM A. COBURN, Oklahoma              BART GORDON, Tennessee
JAMES E. ROGAN, California           BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ALBERT R. WYNN, Maryland
HEATHER WILSON, New Mexico           TED STRICKLAND, Ohio
JOHN B. SHADEGG, Arizona             PETER DEUTSCH, Florida
CHARLES W. ``CHIP'' PICKERING,       RON KLINK, Pennsylvania
Mississippi                          JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York                (Ex Officio)
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)


                            C O N T E N T S

                               __________
                                                                   Page

Hearings held:
    June 17, 1999................................................     1
    July 22, 1999................................................    47
Testimony of:
    Brooks, E.R. ``Dick'', Chairman and CEO, Central and 
      Southwest Corporation......................................   149
    Cavanagh, Ralph, Energy Program Co-Director, National 
      Resources Defense Council..................................   103
    Crisson, Mark, Chief Executive Officer, Tacoma Public 
      Utilities..................................................   161
    English, Glenn, Chief Executive Officer, National Rural 
      Electric Cooperative Association...........................    98
    Kanner, Marty, Coalition Coordinator, Consumers for Fair 
      Competition................................................   172
    Kean, Steven J., Executive Vice President, Enron Corporation.    79
    Owens, David, Executive Vice President, Edison Electric 
      Institute..................................................    60
    Parkel, James G., Member, Board of Directors, AARP...........   165
    Price-Davis, Jana, Assistant Vice President, Government 
      Affairs, Heilig-Meyers Company.............................    74
    Richardson, Alan H., Executive Director, American Public 
      Power Association..........................................    85
    Richardson, Hon. Bill, Secretary of Energy...................    14
    Schmidt, Fred, President, National Association of State 
      Utility Consumer Advocates.................................   115
    Zannes, Maria, President, Integrated Waste Services 
      Association................................................   169
Material submitted for the record:
    Food Marketing Institute, letter dated July 22, 1999, to Hon. 
      Joe Barton.................................................   187

                                 (iii)

  


                   ELECTRIC RESTRUCTURING LEGISLATION

                              ----------                              


                        THURSDAY, JUNE 17, 1999

                  House of Representatives,
                             Committee on Commerce,
                          Subcommittee on Energy and Power,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Bilirakis, 
Stearns, Largent, Burr, Whitfield, Rogan, Shimkus, Shadegg, 
Pickering, Bryant, Ehrlich, Bliley (ex officio), Hall, 
McCarthy, Sawyer, Markey, Pallone, Gordon, Rush, Wynn, 
Strickland, and Dingell (ex officio).
    Staff present: Joe Kelliher, majority counsel; Cathy 
VanWay, majority counsel; Donn Salvosa, legislative clerk; and 
Sue Sheridan, minority counsel.
    Mr. Barton. The subcommittee will come to order.
    We want to welcome the Secretary of Energy, the Honorable 
William Richardson.
    Today we will have a hearing on electricity competition, 
the administration's bill, Comprehensive Electricity 
Competition Act of 1999. This is our seventh day of hearings on 
electricity restructuring. The question before the Congress is 
whether retail markets should be opened, how best to open them.
    Today we see a very tangible sign of momentum as we hear 
from the Secretary of Energy, Bill Richardson, about the 
Clinton Administration's plan for a comprehensive electricity 
competition restructuring bill. But before we start to discuss 
the bill, I have some good news. The Texas legislature recently 
passed a restructuring bill and I talked to George W. Bush 
yesterday on the telephone, that he plans to sign that bill 
into law tomorrow in Austin, Texas. I am very pleased that the 
Texas legislature voted so overwhelmingly to give Texas 
consumers a choice in their electricity supplier. When Governor 
Bush signs the bill tomorrow, it will be a banner day for Texas 
and a major step in promoting choice for electricity consumers 
across the United States.
    Here in Washington, the action which just happened in Texas 
should be helpful, as myself and Ralph Hall, the ranking 
member, begin to craft a comprehensive consensus bill for the 
subcommittee to consider in the near future. The bill is 
supported by a broad coalition. The coalition will consist of 
business groups, labor unions, utilities, environmentalists and 
many other groups. We hope that it will show at the Federal 
level we can do the same things that Texas and other States 
have done in creating consensus at the State level.
    On April 15, 1999 the Clinton Administration issued its 
comprehensive electricity competition plan. The plan addresses 
retail competition, consumer protection, transmission system 
reliability, promotion of public benefits, and clarification of 
Federal and State authority. It also examines what the scope of 
Federal legislation should be with respect to reliability in 
transmission.
    Many of us on the subcommittee had the pleasure of meeting 
with Secretary Richardson several weeks ago in the first 
meeting of our Tuesday working group which is being co-chaired 
by Congressman Pickering and Congressman Sawyer. At that time 
we were very encouraged by the administration's willingness to 
work together on the issue before us today. Myself and others 
on the subcommittee and at the staff level have had a chance to 
study the administration's bill closer since it was introduced. 
I am heartened to see that we agree on many of the same goals, 
although in some cases perhaps there will be some disagreement 
about the means of reaching those goals, especially with 
respect to the Renewable Portfolio Standard and the Public 
Benefits Fund; but there are many more issues of consensus than 
not, including the Federal and State jurisdiction issue, the 
reliability standard issue, and PUHCA and PURPA repeal, among 
others.
    Utility competition benefits all consumers and electric 
utility restructuring should save American consumers up to $20 
billion annually. It is also noteworthy that billions of 
dollars in savings should realize for Federal spending. Since 
the U.S. Government is one of the largest consumers of 
electricity, it would stand to reason that the Federal 
Government would realize enormous savings from competitive 
electricity markets.
    In 1997, the Federal Government used 53.6 billion kilowatt 
hours, 55 percent of which was used by the Department of 
Defense. At this rate for each 1 cent per kilowatt hour saved 
through competition, the government saves half a billion 
dollars. In fact, the GAO has estimated that Federal spending 
on electricity could decrease by as much as $8 dollars over 
several years if it purchased its electricity competitively. 
That is a savings that even those of us in Washington can 
appreciate.
    I look forward to hearing from Secretary Richardson this 
morning on how the administration hopes to work with the 
Congress to proceed on a comprehensive bipartisan electricity 
restructuring bill to allow consumers in the United States to 
realize these savings.
    Mr. Secretary, we welcome you.
    [The prepared statement of Hon. Joe Barton follows:]
Prepared Statement of Hon. Joe Barton, Chairman, Subcommittee on Energy 
                               and Power
    Today we gather for our seventh day of hearings on electricity 
restructuring. The question before Congress has shifted from 
``whether'' retail markets should be opened to ``how'' best to open 
them. Today we see a very tangible sign of momentum as we hear from 
Secretary of Energy Bill Richardson about the Administration's plans 
for a comprehensive electricity restructuring bill.
    But before we start to discuss the Administration's bill, I have 
some good news to report. The Texas legislature has passed a 
restructuring bill and I have it on good authority that Governor George 
W. Bush will sign that legislation into law tomorrow.
    I am very pleased that the Texas legislature voted so 
overwhelmingly to give Texas consumers a choice in their electricity 
supplier. When Governor Bush signs the bill tomorrow it will be a 
banner day for Texas and a major step in promoting choice for 
electricity consumers across the United States.
    Here in Washington, this Texas action will be very helpful for me 
and Ranking Member Ralph Hall in working to craft a comprehensive 
consensus bill in the Subcommittee. The bill is supported by a broad 
coalition. This coalition consists of business groups, labor unions, 
utilities and environmentalists, and has shown us at the Federal level 
that broad consensus is possible.
    Now back at the Federal level, on April 15, 1999, the Clinton 
Administration issued its Comprehensive Electricity Competition Plan. 
This plan addresses retail competition, consumer protection, 
transmission system reliability, promotion of public benefits, and 
clarification of federal and state authority and examines what the 
scope of Federal legislation should be with respect to reliability and 
transmission.
    Many of us on the subcommittee had the pleasure of meeting with 
Secretary Richardson several weeks ago in the inaugural gathering of 
our Tuesday afternoon meetings co-hosted by Congressman Pickering and 
Congressman Sawyer. At that time we were encouraged by the 
Administration's willingness to work together on this critical issue. 
Now that I have had a chance to study the Administration's bill closer, 
I am heartened to see that we agree on many of the same goals, although 
in some cases we disagree on the means of getting there, especially 
with respect to a renewable portfolio standard and a public benefits 
fund. But there are more issues of consensus than not, including 
Federal/State jurisdiction, reliability standards, PUHCA and PURPA 
repeal, among others.
    Utility competition benefits all consumers and electric utility 
restructuring saves American consumers $20 billion annually. Also 
noteworthy is the billions of dollars in savings for Federal spending. 
As the largest consumer of electricity, the Federal Government stands 
to realize enormous savings from competitive electricity markets. In 
1997, the Federal government used 53.6 billion kilowatt hours, 55% of 
which was used by the Department of Defense. At this rate, for each 
$.01 per kilowatt hour saved through competition, the government saves 
half a billion dollars. In fact, the Government Accounting Office has 
estimated that federal spending on electricity would decrease by as 
much as $8 billion over several years, if it purchased that electricity 
competitively.
    I look forward to hearing from Secretary Richardson how the 
Administration hopes to proceed on electricity restructuring to allow 
consumers to realize this substantial savings.

    Mr. Barton. Does the gentleman from New Jersey wish to give 
an opening statement?
    Mr. Pallone. Yes.
    Mr. Barton. The gentleman is recognized.
    Mr. Pallone. Thank you, Mr. Chairman, and I also want to 
welcome Secretary Richardson before our subcommittee once 
again. I wanted to start by commending the administration for 
substantially improving its restructuring bill since last year 
and, just by example, I noticed improvements in the Renewable 
Portfolio Standard and inclusion of incentives for combined 
heat and power systems and distributed power technologies.
    I also would applaud the inclusion of a Public Systems 
Benefits Fund. Further, the bill includes stronger liability 
language, and while the aggregation provision may leave some 
room for improvement, it certainly is an important component of 
any comprehensive restructuring bill and one which is important 
to protect consumers, municipalities and cooperatives in all 
States.
    In addition, I am glad that the administration has included 
emissions trading in its bill. However, the bill does not go 
far enough, in my opinion, to protect the environment. The 
administration's cap and trade program only applies to 
NOX emissions.
    Shortly I will be reintroducing a bill that includes 
environmental and consumer protection provisions, the heart of 
which is a multipollutant emissions trading program. Addressing 
NOX emissions alone I don't think will sufficiently 
reduce greenhouse gas emissions. My bill will include trading 
for NOX, sulfate particulate matter, and carbon 
dioxide, and will address mercury emissions, as well.
    According to a study by the Alliance to Save Energy, the 
Union of Concerned Scientists and others, ``the U.S. electric 
sector alone is responsible for about 8 percent of total global 
carbon dioxide emissions,'' and we must do our part to reduce 
these emissions. In addition, if utilities act to reduce 
NOX emissions now, and then have to retrofit to 
reduce other pollutants later, they will experience exorbitant 
costs. So, many utilities are supportive of the approach taken 
in my bill to simultaneously address multiple pollutants.
    Further, I think it makes practical sense to include all 
power plants--old and new--in a trading program, as we 
restructure the electric utility sector to level the playing 
field. Otherwise, consumers would have an incentive to purchase 
cheaper or dirtier power, and trading is the most cost-
effective way for utilities to achieve emissions reductions.
    I look forward to hearing Secretary Richardson's 
perspectives on these and other provisions.
    Thank you, Mr. Chairman, for holding this important 
hearing.
    Mr. Barton. Thank you, Congressman Pallone.
    The gentleman from Kentucky, Mr. Whitfield, is recognized 
for an opening statement.
    Mr. Whitfield. Thank you, Mr. Chairman. All of us are 
anxious for this 7th hearing this year on this important 
subject, and we are particularly pleased that Secretary 
Richardson is with us today. He has a wide breadth of 
experience in a lot of different areas and we welcome his 
testimony.
    I am focused on Section 701 of the administration's bill, 
the NOX cap and trade provision. When this 
legislation started out, all of us were focused on a public 
policy discussion of deregulation of the electrical industry, 
but as we explore these bills, we find more and more 
environmental provisions in there. All of us are committed to 
the environment, but we want to make sure we have a balanced 
approach that is based on sound science and that is one of the 
provisions that I particularly want to look this morning. I 
look forward to the Secretary's testimony and I yield back the 
balance of my time.
    Mr. Barton. We thank you. The gentleman from Tennessee, Mr. 
Gordon, is recognized for an opening statement.
    Mr. Gordon. Thank you, Mr. Chairman. I just want to welcome 
the Secretary back and say that in my memory I can't think of 
any member of the Cabinet who has inherited more long-
festering, high-profile issues than you, Mr. Secretary. To your 
credit, you have stepped up to the plate, time and time again, 
to put a good starting point with the administration and I hope 
that some of these issues which have lingered can now move 
forward and I appreciate your initiative.
    Mr. Barton. Does the gentleman yield back the balance of 
his time?
    Mr. Gordon. I yield back the balance of my time.
    Mr. Barton. Does the gentleman from California, Mr. Rogan, 
which to make an opening statement?
    Mr. Rogan. No opening statement. I look forward to the 
testimony. Thank you, Mr. Chairman.
    Mr. Barton. And we recognize the gentleman from Florida, 
Mr. Bilirakis for an opening statement?
    Mr. Bilirakis. Thank you, Mr. Chairman. I have no opening 
statement, and I thank you for this hearing. It is always good 
to see Secretary Richardson who was an awfully good colleague 
when he was with us here, and I trust will remain one. It is 
good to see you, Bill.
    Mr. Barton. Does the gentleman from Michigan, Mr. Dingell, 
wish to be recognized for an opening statement?
    Mr. Dingell. Thank you, Mr. Chairman. I ask unanimous 
consent that my full statement be inserted into the word.
    Mr. Barton. Without objection, so ordered.
    Mr. Dingell. First, welcome back to the committee, Bill.
    Second of all, I believe there are some questions that need 
to be explored with regard to the administration's bill.
    First, how will these proposals affect the States? More 
than 20 States have enacted retail competition plans in one 
form or another. Is it necessary for the Congress to 
micromanage these? What burdens would the administration's bill 
impose on the States and which State prerogatives would be 
foreclosed? Does the bill transfer to State utility 
commissions, authority normally exercised by legislatures of 
the States? If so, is this good? What kinds of proceedings 
would States have to conduct?
    How much would they cost? What would be the result with 
regard to established policies of the State, including 
taxation? Which States have already considered competition and 
would they have to hold extensive new proceedings to conform 
with the bill's opt-out requirement?
    Second, are we talking about deregulation or are we talking 
about more regulation? The administration's bill would confer 
broad new authorities on FERC. FERC has a difficult and 
important job to perform in seeing the electric utility 
industries are able to function properly during a period of 
rapid change. Many of these authorities are new. Are they 
within the capability of FERC? Will their establishment require 
new authorities being given to FERC?
    Congress gave FERC substantial new authority in the Energy 
Policy Act of 1992, and since then the Commission has issued a 
number of important transmission orders. Some of these are 
still under review of the courts. Only last month FERC issued a 
major proposed rule on regional transmission organizations. In 
the midst of this rapid change it is imperative that the 
committee understand the extent and the status of FERC's 
current authority before deciding whether to amend the power 
act again.
    Third and last, what other policies are covered under the 
utility restructuring umbrella? The administration bill 
includes a number of noteworthy miscellaneous provisions that 
may or may not be related to the core issues in the electric 
restructuring bill. The legislation would promote a number of 
social and environmental policies with somewhat tenuous 
connection to the central debate, including a renewable energy 
portfolio that recognizes some but not all renewable resources. 
Why are we excluding some and including others?
    The NOX trading program to help EPA carry out an 
initiative has been struck down by the courts. How will this 
work and why is it there? Have we considered this in connection 
with air pollution problems?
    The next item is a public benefits program to provide 
matching grants to the States which is apparently intended to 
cushion the impact of retail competition. This is very 
interesting because it is a brand new Federal fund which is 
going to have to be funded by consumers. It appears to be 
susceptible to the same kind of raids as the Nuclear Waste Fund 
which has been a play thing for the budgeteers and for the 
appropriations people.
    While these matters may have merits, I want to know how 
they are going to work and why they are there and I want to 
know what they are going to do and whether they are in the 
public interest. I know, Mr. Richardson, my old and cherished 
friend, is going to help us understand all of these questions. 
Welcome, Mr. Richardson.
    Mr. Barton. Does the gentleman yield back the balance of 
his time?
    Mr. Dingell. I yield back the balance of my time, and I 
thank you, Mr. Chairman.
    [The prepared statement of Hon. John D. Dingell follows:]
    Prepared Statement of Hon. John D. Dingell, a Representative in 
                  Congress from the State of Michigan
    I welcome my friend and former Commerce Committee colleague Bill 
Richardson to this hearing. The Secretary has brought us a very 
comprehensive legislative proposal on electric utility restructuring, 
reflecting several years of work within the Administration and the 
expertise of a number of interested agencies. I expect the hearing to 
be informative and look forward to the Secretary's testimony.
    Mr. Chairman, as we examine the Administration's bill and the other 
bills on electric utilities, three general areas should be pursued.
    First, how will these proposals affect the states? More than twenty 
states have enacted retail competition plans in one form or another. 
Does Congress need to micromanage their activities?
    What burdens would the Administration's bill impose on the states, 
and which state prerogatives would it foreclose? Does the bill transfer 
to state utility commissions authority normally exercised by state 
legislatures--and if so, is this desirable? What proceedings would 
states have to conduct--and how much will they cost? Would states which 
have already considered competition have to hold extensive new 
proceedings to conform with the bill's ``opt out'' requirement?
    Second, are we talking about deregulation or more regulation? The 
Administration would confer broad new authorities upon the Federal 
Energy Regulatory Commission (FERC). The FERC has a difficult and 
important job to perform in overseeing the electric industry during a 
time of rapid change. It is possible that, after thorough examination, 
the Committee may determine that new grants of regulatory authority 
such as the Administration bill proposes are in fact warranted.
    However, there is some irony in the suggestion implicit in this 
bill that, in order to make markets more competitive, Congress must 
more closely regulate various aspects of industry behavior. Congress 
gave FERC substantial new authority in the Energy Policy Act of 1992, 
and since then the Commission has issued a number of important 
transmission orders. Some of these are still under review in the 
courts, and only last month FERC issued a major proposed rule on 
regional transmission organizations. In the midst of such rapid change, 
it is imperative that the Committee understand the extent and status of 
FERC's current authority before deciding whether or not to amend the 
Power Act again.
    Third and last, what other policies are covered under the umbrella 
of utility restructuring? The Administration bill includes a number of 
noteworthy miscellaneous provisions which may or may not be related to 
the core issues in any electric restructuring bill. The legislation 
would promote a number of social and environmental policies with 
varying degrees of connection to the central debate, including:

 a renewable energy portfolio that recognizes some, but not 
        all, renewable sources;
 a NOX trading program to help EPA carry out an 
        initiative which has been struck down by the courts;
 a public benefits program to provide matching grants to 
        states, which is apparently intended to cushion the impact of 
        retail competition. It is of particular concern to me that this 
        new federal fund, which will ultimately be financed by 
        consumers, appears to be susceptible to the same budgetary 
        diversion as has afflicted the Nuclear Waste Fund. This is not 
        a path the Committee should lightly tread again.
    While it may be that these provisions have some merit, they have a 
uniformly regulatory cast which warrants our close attention in the 
context of a bill designed to promote the operation of the free market.
    I look forward to hearing the Secretary's testimony, and to asking 
him questions about the very significant legislative proposal he has 
brought before the Committee.

    Mr. Barton. Before we introduce Mr. Largent for an opening 
statement, the Chair wants to make a point of personal 
privilege. Susan DeLay, who is my senior district 
representative from Arlington, Texas, recently married, is 
standing in the back of the room and we welcome you, and if you 
want to sit down, we do have a chair for you. We just can't let 
you sit where the Secretary of Energy is sitting. That is 
reserved for special people.
    The Chair would recognize Mr. Largent.
    Mr. Largent. Thank you, Mr. Chairman. I too want to welcome 
the Secretary here today and thank him for his leadership at 
the Department of Energy on this important issue.
    I think that this particular issue presents a lot of 
opportunities for the entire country that we will have the 
opportunity to benefit in many, many ways, other than just 
seeing our electric bills go down. I think the opportunities 
for job creation, economic growth, improved environment, are 
many and so I want to thank him for his leadership.
    I think the ranking member raises a number of important 
questions and I hope that he will take the time to listen to 
the responses in this meeting, and I think he will get some 
satisfactory answers to the questions that he raised as a 
result of the Secretary's testimony here today and I yield back 
the balance of my time.
    Mr. Barton. The Chair would recognize the distinguished 
ranking member of the subcommittee, Mr. Hall, for an opening 
statement.
    Mr. Hall. Thank you, Mr. Chairman. Of course I welcome Mr. 
Richardson. The bill that they sent us this spring I think has 
served pretty well to advance the debate. It frames the issues 
for the subcommittee very well. Since you were here last, Mr. 
Richardson, the Texas legislature has passed a very 
comprehensive utility restructuring bill that is going to be 
signed into law by President--Governor Bush tomorrow. We will 
have some important questions to ask you and we thank you again 
for your presence.
    Mr. Barton. I thank the gentleman for that opening 
statement. Does the gentleman from Tennessee, Mr. Bryant, wish 
to make an opening statement?
    Mr. Bryant. Thank you, Mr. Chairman. I am not sure that I 
can top that. I may just let that lay out there to be taken 
into consideration by all those here.
    Welcome, Mr. Secretary, and I thank you for being here 
today. I certainly out of great respect for you and your office 
will limit my remarks. We are all looking forward to hearing 
from you today on these very important issues. I am sure that 
we certainly miss you at third base as we approach that very 
important game next Thursday.
    Mr. Barton. The Chair recognizes Mr. Markey for an opening 
statement.
    Mr. Markey. Thank you, Mr. Chairman, very much. I thank you 
for holding this hearing. I have been, as you know, developing 
ideas in this area as well, based upon my earlier discussions 
with President Dukakis, I mean President Tsongas--as a former 
future Cabinet officer in several administrations, I have 
learned to keep my own enthusiasm for future administrations 
very low. However, when there is a future administration, I am 
sure that Secretary Richardson will continue his streak of the 
largest number of Cabinet posts ever held by a single American, 
and that is because he is one of our great Americans.
    And I thank you, Mr. Secretary, for your leadership in all 
of the areas, not just here at the Department of Energy, but 
when you were here on this committee and at the U.N. You have 
been one of the most distinguished Americans of this decade and 
I thank you. I think you will be remembered for that.
    You know, here we are, I am up to my lifetime 100th hearing 
on the restructuring of the electric utility industry. I was 
thinking of missing it, but like Cal Ripken I thought that I 
would keep it going for a while longer. Perhaps there is an end 
in sight.
    You have had every question posed and every conceivable 
answer that could be given, given. But out here there is still 
the remainder of the monopoly segment of the utility industry, 
and I appreciate their rabid enthusiasm for keeping monopolies 
in place. The same group of cable and local telephone and long 
distance telephone and wholesale electric monopolists sat here 
over the last 10 years, and this final group of monopolists sit 
here, continuing to hope that they can beat back the path of 
progress that will lead to lower electric rates and more job 
creation for our country. I understand that.
    There are swimming pools and wings being built onto their 
homes even as we sit here right now, and they clearly don't 
want this bill resolved for yet another Congress. That is their 
only goal. They have no other goals. It is a natural instinct 
that all lobbyists have, and there are an infinite number of 
questions that they can raise about any bill, and I am sure 
that they are going to continue to do so, sitting out there.
    The gentleman from Oklahoma and I have done our best in 
introducing a comprehensive piece of legislation to answer many 
of the questions that have been raised. Let me briefly discuss 
some of the key elements of our compromise. Rather than a date 
certain Federal mandate, our bill provides for a flexible 
mandate that allows States, municipal utilities, and co-ops the 
choice to opt out of retail competition if they conclude that 
moving to competition will have a negative impact on consumers, 
or if their monopolies just tell their States that they don't 
want any more competition, whichever is a more powerful 
influence on the State.
    We have included provisions on reciprocity and PUHCA which 
are intended to further incentivize States to move toward 
competition. Our bill also gives the FERC new authority to take 
action to curb market power, which is absolutely critical as we 
move from the old world of rate-regulated utility monopolies to 
a competitive marketplace.
    Under our bill FERC would be able to force utilities to 
mitigate their market power. If the utility failed to take 
appropriate action, FERC would be able to impose cost-based 
rather than market rates on the utilities' wholesale or retail 
sales, and could order a utility to turn over its transmission 
facilities to a regional transmission organization.
    In addition, the Largent-Markey bill contains a number of 
important provisions to protect consumers and the environment. 
It gives the FTC the authority to mandate uniform consumer 
disclosure requirements, including information regarding 
prices, generation sources, and generation emissions. It 
prohibits cramming or slamming and protects privacy, and it 
contains a number of provisions aimed at ensuring that 
restructuring does not degrade environmental protections. We 
have new tax credits for renewables and energy efficiency which 
are aimed at incentivizing investment in and expansion of 
renewables generation and efficiency. We have net metering and 
interconnection provisions aimed at fostering the growth of 
cleaner distributed power generation.
    We took the administration's bill as a working document. We 
modified some of the sections trying to bridge the gulf between 
the various philosophies and regions on this committee in an 
effort to produce something that ultimately may be passable. I 
don't think that either of us contend that it is necessarily 
the Magna Carta but it is a working, living document that has 
tried to deal with the times----
    Mr. Barton. Would the gentleman from Massachusetts 
understand that opening statements, with the exception of the 
ranking members of the full committee and the chairman and 
subcommittee chairman are normally 3 minutes.
    Mr. Markey. I yield back the balance of my time, Mr. 
Chairman.
    Mr. Barton. We appreciate the opening statement. The 
gentleman from Massachusetts has done yeomen's work and is one 
of many informed members of the subcommittee on this issue.
    The chairman of the full committee has just arrived, and 
the Chair would be happy to recognized the distinguished 
gentleman from Richmond for an opening statement.
    Chairman Bliley. Thank you, Mr. Chairman. I apologize for 
being late. I want to commend you not only for holding this 
hearing on H.R. 1828, the Comprehensive Electricity Competition 
Act, but also your leadership on this issue.
    I know that the success of Congressman Pickering's working 
group is in no small part attributable to your hard work. I 
want to personally thank you, Secretary Richardson, for your 
appearance today and for your tireless efforts in championing a 
competitive electric power market. Your participation, Mr. 
Secretary, I am confident will make this hearing most useful.
    ``Retail competition will be good for consumers, good for 
the economy and good for the environment.'' Those are your 
words, Mr. Secretary, but they could have as easily been mine. 
I am a Republican and you a Democratic, but we both agree that 
a true competitive electricity power market at both wholesale 
and retail levels benefits all Americans. To its credit the 
Department of Energy's leadership in producing credible 
administration-wide analysis of competition's impact on the 
economy makes clear that every customer, urban and rural, wins 
with competition. And it highlights the fact that efforts to 
short-circuit the process by going to other departments that 
have no expertise in energy are futile and lead to short-lived 
and incorrect conclusions.
    I believe it is fair to say that we both believe that 
competition will lower all consumers' electricity bills. Choice 
leads to a more efficient and leaner industry. It sparks 
innovative technologies and services whose benefits will reach 
far. We both also share a strong resolve that without 
comprehensive Federal restructuring legislation, all the 
benefits of competition will not accrue and those benefits will 
not reach all consumers. This is an issue that is vital to our 
national economy and impacts businesses across the country. I 
hope the next time groups like the Chamber of Commerce consider 
this issue, they listen to all of their members and call for 
congressional action to spur retail markets.
    While there are still several details on which we disagree, 
I am confident with hard work and cooperation we will overcome 
any and all obstacles to a comprehensive Federal electricity 
bill ushering in competition and consumer choice. We must work 
together to reach our mutual goal of a truly competitive 
electricity power market.
    Again, Mr. Chairman I commend you for holding this hearing. 
I look forward to hearing the Secretary's testimony and I thank 
you, and I yield back the balance of my time.
    Mr. Barton. We thank you. Let me say, Mr. Chairman, your 
willingness to support an open process and allow full 
participation in a thorough series of hearings, if we get a 
bill, it is the reason that we are going to get a good and 
comprehensive bill. It is your leadership that is moving this 
forward in conjunction with the administration; it is the 
reason that we are at this stage today.
    The Chair would recognize the gentleman from Ohio, Mr. 
Sawyer, for an opening statement.
    Mr. Sawyer. Thank you, Mr. Chairman. I am not going to take 
full advantage of the time that you have allotted for opening 
statements, but let me emphasize that I am convinced that the 
path that we are on is something that will take place at this 
juncture in our experience, a 100-year experience with the 
electric industry, not because it is so long overdue, but 
because finally at long last it can happen.
    At the heart of that change is, I believe, a transmission 
system that is the backbone of what will make retail 
competition possible. That transmission system in order to be 
an effective medium for competition has to be large and strong 
enough, interconnected enough, flexible enough and sufficiently 
capable of attracting the kind of capital that it will take to 
maintain itself and to grow in response to the commercial and 
residential needs of the Nation.
    I note in particular that the administration proposes 
mandating transmission owners to join a regional transmission 
organization. I think that is one potential model but it is 
clear at least to me that we need a flexible framework that is 
adaptable to many different conditions in many different parts 
of the country. I am interested in hearing your thoughts on 
that flexibility.
    I suggested it before, but let me emphasize again, the 
ability to maintain and raise capital to grow the grid, I 
think, is a critical element in real retail reform.
    In closing, let me mention that in some ways we are really 
in the same condition that the U.S. highway system was at the 
end of the Second World War. You could get from any place in 
the country to any place in the country, but on that system you 
ran into many roadblocks, bottlenecks and a lot of backed-up 
traffic. It took the thoughtful design of an interstate highway 
system along a consistent Federal model that recognized 
differences in various parts of the country and that was 
capable of meeting the growing changes of the country that led 
us to have the commercially important transportation system 
that we have today.
    In no small way, the transmission system of an electric 
grid represents the same critical element in the commercial 
future of the Nation. I look forward to hearing your comments. 
Thank you, Mr. Chairman.
    Mr. Barton. Thank you, Congressman Sawyer. The gentleman 
from Illinois, Mr. Shimkus, is recognized for an opening 
statement.
    Mr. Shimkus. Thank you. When the ranking member went 
through his list of questions, I saw, Mr. Secretary, you called 
up Rich Glick to the table to help you be prepared to answer 
those questions, and I appreciate and I want to thank you for 
being involved in the working group and allowing Rich to sit 
in, on a weekly basis, the working group headed by Congressman 
Sawyer and Congressman Pickering. I think it is going to be the 
foundation for movement on this issue and I think it has been 
very valuable and we have covered a lot of issues. I hope Rich 
is taking back all of the good information that we are 
discussing. I want to thank you for being part of that process. 
You were the first one who came before the working group and I 
want to thank you for that.
    Mr. Barton. We thank the starting catcher for the 
congressional baseball team for that statement.
    We welcome the opening statement from the gentleman from 
Chicago, Mr. Rush.
    Mr. Rush. Thank you, Mr. Chairman. After weeks and months 
of hearings on electricity restructuring, it appears that this 
subcommittee is finally moving toward legislative hearings and 
marking up a bill. As you know, in 1997 my home State of 
Illinois began the process of electricity competition by 
passing its own consumer choice bill. The State's law provides 
for a phased-in schedule for customer choice beginning October 
1, 1999 through May 2002.
    In the State law, however, electric co-ops and municipal 
systems may elect to enter the competitive marketplace to offer 
their customers choice, but they are not required to 
participate. Currently my district does not have any 
cooperatives. However, I am curious as to how the 
administration's bill will effect how Illinois has chosen to 
treat cooperatives.
    Furthermore, in light of what can be a trend started in New 
York city of intercity cooperatives, I have further interest in 
how smaller cooperatives which might possess few transmission 
lines might be affected by new FERC regulations such as 
transmission tariffs.
    Additionally, Mr. Chairman, I want to ensure that we get a 
bill that will truly produce competition and not simply 
establish greater regulation and thus stifle what we originally 
set out to do. I support greater competition, greater 
reliability and most of all greater consumer protection. To the 
extent that a bill comes before this committee that provides 
these elements and also is in accordance with what the State of 
Illinois has begun, that bill will have my support.
    Mr. Chairman, I look forward to today's hearing and I thank 
the Secretary for joining us today.
    Thank you, Mr. Chairman, and I yield back the balance of my 
time.
    Mr. Barton. We recognize Mr. Burr for an opening statement.
    Mr. Burr. Thank you, Mr. Chairman. I would use that time to 
welcome the Secretary and I yield back the balance of my time.
    Mr. Barton. The Chair recognizes the gentleman from 
Maryland, Mr. Wynn, for an opening statement.
    Mr. Wynn. Thank you, Mr. Chairman. I would like to thank 
you for your hard work. This is obviously a very difficult and 
complex issue and you have done a lot of good work on the 
issue. I too am looking forward to hearing from the Secretary 
and specifically his comments in a couple of areas.
    First, consumer savings for the retail customer. I think it 
is abundantly clear that large wholesale customers will do very 
well under a deregulated scheme. It is less clear that 
consumers at the neighborhood level will achieve those savings. 
I would certainly like to hear the Secretary's comments on 
that.
    Second, my State of Maryland has also entered the 
deregulation business. We have our own program in place which I 
think is a very sound one. I would also like to hear the 
Secretary's comments with respect to what the appropriate 
Federal role should be in light of the fact that so many States 
have already moved in this area, and specifically what role the 
Federal Government should play on the question of stranded 
cost.
    I welcome you, Secretary Richardson, and I look forward to 
your comments. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    Mr. Barton. Thank you, Congressman Wynn.
    Before I introduce Congressman Pickering, coming into the 
hearing room are 47 Girl Scouts from my district down in Fort 
Worth, Texas. Welcome to Congress and welcome to Washington, 
DC. With that, we would welcome Mr. Pickering for an opening 
statement.
    Mr. Pickering. Thank you, Mr. Chairman, I want to welcome 
the Secretary and thank him for his commitment. I kind of feel 
like I am hidden over here.
    Mr. Barton. They can hear you.
    Mr. Pickering. I want to thank you for your leadership and 
Chairman Bliley for his leadership. I do think that we are 
reaching critical mass in the working group and the different 
individuals and committee members that have worked hard putting 
proposals together. Again, I just thank you for your leadership 
and the point where we are today; I think we are close to 
reaching an agreement that can give us the momentum to move 
forward on this very critical issues. Thank you, Mr. Chairman.
    Mr. Barton. I would ask the young ladies if you can go out 
in the hall. As soon as I recognize Secretary Richardson, I 
will come out and visit with you.
    Seeing no other members----
    Mr. Pickering. We still extend the invitation to the 
Secretary to join us next Thursday on the baseball field.
    Mr. Barton. We are working on that.
    [Additional statements submitted for the record follow:]
Prepared Statement of Hon. Karen McCarthy, a Representative in Congress 
                       from the State of Missouri
    Thank you Mr. Chairman. I welcome the opportunity to continue the 
dialogue on electricity deregulation. As the last major industry to 
approach deregulation in current history I think it is important that 
we carefully consider all options and act with measured reason.
    Our states are the incubators of change and progress. In 
conjunction our actions at the Federal level should compliment their 
successes and be mindful of the potential negative impacts which might 
occur through a federal mandate. I represent a district in a low cost 
state--Missouri. My concern is that consumer's in my district and state 
are not paying more for power supplies that potentially could be less 
reliable.
    There are some good items in this measure and our challenge is to 
refine them and develop a consensus on the matter. One which I view as 
a positive step deals with the renewable energy provisions. Employing 
these green technologies make sense and in the long-term yields a 
comparative advantage through competition and for our environment. 
Affording incentives for utilities to pursue a strategy utilizing 
renewable sources is positive and a provision which should be enhanced.
    When I am home in my district each week, I visit with constituents 
in a number of settings both formal in community meetings and 
informally at the City Market or car wash. In my conversations with 
these individuals they express opinions on a variety of issues. Every 
time the subject of electricity deregulation comes up--they as a 
consumer assume that their rates will go down and their service will 
remain the same. Our experiences from other industries suggest that 
improvements can occur but the next step of better rates and service 
does not always follow.
    Our challenge is to make this perception among the citizens a 
reality. In order to accomplish this the consumers both residential and 
commercial must be foremost in our mind as we continue to move forward 
on deregulating electricity. When looking at stranded costs we ask how 
will this effect the consumer. In deciding if the state regulatory body 
or state legislature should determine ``opting out'' of retail 
competition--we ask how will this effect the consumers. As the 
evolution of FERC's authority is refined--we ask how will this effect 
the consumers.
    I welcome today's dialogue as another step toward a measured 
approach for addressing electricity deregulation. Ultimately we are 
talking about people's light and heat--we have to get it right--errors 
could make the difference between life and death.
    I yield back, the balance of my time--thank you.
                                 ______
                                 
Prepared Statement of Hon. Ted Strickland, a Representative in Congress 
                         from the State of Ohio
    Thank you Mr. Chairman. I would like to take tins opportunity to 
thank the Secretary for appearing before us today to respond to 
questions about the Administration's proposal for restructuring the 
electric industry. I welcome you and I look forward to your testimony.
    Briefly, I will mention some of my concerns for rural southern Ohio 
as we consider electricity restructuring legislation. I represent 
fourteen counties in southern Ohio, twelve of which are Appalachian 
Counties. The southern part of Ohio enjoys very reasonable, low-cost 
electricity. This is not the case in the northern part of the state of 
Ohio. I am concerned that under retail competition, my constituents 
will see their rates increase over time and they will not be part of 
the $20 billion annual savings assured consumers under H.R. 1828. These 
low energy costs help us compete for jobs and economic development that 
are so desperately needed in this region, which faces unemployment 
rates of nearly 12%.
    At this subcommittee's March 18, 1999 hearing, the Chairman of the 
Public Utilities Commission of Ohio, Mr. Glazer, testified that: ``Ohio 
has high electric costs in the northern part of our state (up to 12 
cents per kWh), and much lower costs in the southern part of the 
state.'' Given this statement, I asked him how he thought electric 
restructuring could result in a reduction of electric costs in the 
southern part of the state. He responded that states surrounding Ohio, 
such as Kentucky and West Virginia, have rates below those of southern 
Ohio and therefore, my constituents could expect to see lower electric 
rates if retail competition were implemented. While that may be 
possible, I wonder what happens if West Virginia and Kentucky do not 
adopt retail competition plans. I am very interested in hearing your 
testimony on both the ``opt-out'' and reciprocity provisions included 
in H.R. 1828.
    I am also concerned about the impact the environmental provisions 
of H.R. 1828 will have on the economic well-being of southern Ohio 
which is dependent upon coal-fired power plants.
    Finally, Mr. Secretary, it is my pleasure to welcome you here today 
to discuss a very complicated issue and I thank you for coming to the 
Hill to answer our questions. Although, I have outlined some of my 
general concerns and interests, I look forward to your entire 
testimony.

    Mr. Barton. Mr. Secretary, you are going to be recognized 
for such time as you may consume as soon as the Girl Scouts and 
their sponsors leave.
    Mr. Secretary, we do welcome you to the subcommittee, and 
you are recognized for such time as you may consume. Your 
entire written statement, which was on time and we appreciate 
that, is in the record in its entirety. We welcome you to the 
subcommittee once again, and you are recognized for your 
opening statement.

     STATEMENT OF HON. BILL RICHARDSON, SECRETARY OF ENERGY

    Mr. Richardson. Thank you very much, Mr. Chairman and 
members of the committee. It is good to be back in the House 
and in my old committee, the best committee in the House, I am 
convinced.
    Let me also thank many of our colleagues for the gracious 
remarks they have made. I wanted to commend your process. We 
have worked together with the Pickering group, we have 
participated in many hearings. We have been engaging in a good 
dialog. I hope that continues, and we are ready to work with 
you as we move ahead with a bill.
    I was particularly pleased that Congressmen Largent and 
Markey and Burr attended the administration's unveiling of our 
bill and I then attended Congressman Largent's and Markey's 
bill unveiling, and I think it is the spirit of cooperation 
that is working so well. I want to commend Congressman 
Pickering's group for bringing many important issues to our 
attention.
    Mr. Chairman, the Clinton Administration supports 
restructuring because we believe that retail competition, as 
provided for in the administration's bill, will be good for 
consumers, good for the economy, and good for the environment. 
Companies that had no incentive to offer lower prices, better 
service or new products are now going to compete to earn your 
business. Twenty-two States have already acted on restructuring 
proposals to allow consumers to choose among competing power 
suppliers; Texas, I believe, being the last one. Almost every 
other State is considering it.
    Clearly States are leading the way, as they should be, but 
if State programs are to reach their full potential, Federal 
action is necessary. Electrons do not respect State borders. 
Electricity markets are becoming increasing regional and 
multiregional. Actions in one State can and do affect consumers 
in another. States alone can't ensure that regional power and 
transmission markets are efficient and competitive. They can't 
ensure the reliability of the interstate power grid. They can't 
remove the Federal statutes that impede competition, and they 
can't provided for meaningful competition in regions served by 
Federal utilities.
    Mr. Chairman, the absence of Federal legislation is having 
a real impact. Utilities have postponed making important 
decisions until they learn from both State and Federal 
Governments what the new rules of the road will be. As a 
result, generating capacity reserve margins are being squeezed 
in some places, and that is evident by some of the opening 
statements today.
    Last summer we saw what can happen when decisions are 
delayed. A combination of hot weather, severe storms and tight 
generating and transmission capacity produced serious power 
shortages that caused huge price spikes in the Midwest. Just 
last week it took only a brief heat wave to stretch power 
supplies in New England to the limit. While major power outages 
were avoided, the fact remains that insufficient transmission 
and generating capacity was the chief culprit and it will be 
again unless the rules are made clear, and soon.
    In April I delivered to Congress the administration's plan 
for these rules of the road. This legislation includes 
provisions we feel are needed to make the most of State and 
retail competition plans. Our proposal would save consumers in 
all 50 States at least $20 billion per year, and I notice that 
Congressman Dingell raised some very important issues and 
questions. And as a result of the questions that he asked me 
recently, we ordered a full economic study to try to answer 
those questions. The study has been completed and I would be 
pleased to respond to some of those questions relating to the 
economic and environmental and competitive impact of this 
legislation.
    Our legislation would reduce greenhouse gas emissions by 
the year 2010 by the equivalent of that generated to power 30 
million American homes. At the same time, it offers State and 
local flexibility, which I think is essential to make 
legislation work. Nearly half of the States have already 
adopted retail competition programs. Eighteen of this 
subcommittee's 31 members represent States that have taken 
action. We believe all States should, but we are not advocating 
a ``one size fits all'' solution.
    In our legislation, all consumers could purchase power from 
the supplier of their choice by January 1, 2003. However, 
individual States and non-regulated utilities could opt out 
from this requirement if they find that their consumers would 
be better served by another policy or the current monopoly 
system. This approach recognizes that individual States and 
non-regulated utilities may face unique challenges, and they 
need the leeway to deal with it.
    Mr. Chairman, let me take a moment to outline what the 
administration bill does. First it empowers all consumers to 
reap the full benefits of competition.
    Second, it makes the electric grid more reliable.
    Third, it promotes more efficient and competitive 
interstate markets.
    Fourth, it removes Federal roadblocks to State competition 
plans.
    Fifth, it allows Native Americans, tribes and others living 
in remote areas to participate in the competitive marketplace.
    Sixth, it removes roadblocks to competition in the regions 
served by the Tennessee Valley Authority and the Federal Power 
Marketing Administration. They should compete like everybody 
else.
    And last, it enhances the environmental benefits associated 
with competition, which includes making renewable energy and 
conservation part of the mix. This is why we have increased the 
renewable portfolio standard. Yes, to make the bill greener.
    When we unveiled the administration's bill in April, I was 
joined by 3 members of this subcommittee, by several members of 
the Cabinet, and more than 20 representatives from diverse 
interests, from investor-owned utilities to consumer groups, to 
power marketers, to independent power producers. While they did 
not necessarily all agree on the administration bill or on any 
one single approach, their message was loud and clear: The time 
for Federal legislation is now.
    As I said, Mr. Chairman, we want to work with you and the 
other members of the full committee, on a bipartisan basis. I 
too commend Chairman Bliley's initiative in setting forth a 
dialog to get a bill passed this session to get the job done, 
and I would be very pleased to answer any questions any member 
of the subcommittee would have. Thank you.
    [The prepared statement of Hon. Bill Richardson follows:]
 Prepared Statement of Hon. Bill Richardson, Secretary, Department of 
                                 Energy
                              introduction
    Mr. Chairman, thank you for inviting me to testify today on the 
Clinton Administration's Comprehensive Electricity Competition Act 
(CECA).1 This legislation lays out our vision for the role 
the Federal government should play in the transition to retail 
competition.
---------------------------------------------------------------------------
    \1\ The Administration transmitted CECA to Congress in two separate 
parts. The first part, which was introduced by Congressmen Bliley and 
Dingell (upon request) as H.R. 1828 on May 17, includes all of the non-
tax-related provisions in the Administration's proposal. The portion of 
the legislation which would amend the tax code has not yet been 
introduced in the House of Representatives. Both parts of the bill were 
introduced in the Senate by Senators Murkowksi and Bingaman (upon 
request)--S. 1047 and S. 1048--on May 13.
---------------------------------------------------------------------------
    The Clinton Administration supports electric restructuring because 
we believe that retail competition, as provided for in the 
Administration bill, will be good for consumers, good for the economy 
and good for the environment. Companies that had no incentive to offer 
lower prices, better service, or new products will now compete to earn 
your business. Consumers will save money on their electric bills. Lower 
electric rates will also make businesses more competitive by lowering 
their costs of production. By promoting energy conservation and the use 
of cleaner and more efficient technologies, greenhouse gas emissions 
will be reduced.
    The rules and regulations that, since the New Deal, defined and 
directed the delivery of electricity to consumers are disappearing. 
Twenty-two states have already approved restructuring proposals to 
allow consumers to choose among competing power suppliers. Almost every 
other state has the matter under active consideration. What once 
appeared to be an experiment by a few high cost states, is now a trend 
that is sweeping the nation.
    States are, and should be, leading the way, but Federal action is 
necessary for state restructuring programs to achieve their maximum 
potential. Electrons do not respect state borders. The fact is that 
electricity markets are becoming increasingly regional and multi-
regional. Actions in one state can and do affect consumers in another.
    States alone can't ensure that regional power and transmission 
markets are efficient and competitive. And they can't provide for the 
continued reliability of the interstate bulk power grid. Moreover, 
states can't remove the Federal statutory impediments to competition 
and enable competition to thrive in the regions served by Federal 
utilities.
    The fact is that retail competition can't and won't reach its full 
potential without comprehensive Federal electricity restructuring 
legislation. Neither state nor Federal regulators have the necessary 
tools to ensure that electricity markets operate as efficiently as 
possible without complementary action by Congress.
    Significant uncertainty remains. Utilities have deferred making 
important decisions on new generation and transmission resources 
because of the uncertainties over the rules of the road they will be 
operating under. As a result, generating capacity reserve margins have 
tightened. Last summer, we witnessed the impact of the delay in 
decision making when a combination of hot weather, severe storms and a 
shortage of generating capacity led to significant power shortages that 
caused large price spikes in the Midwest. Just last week, during a 
brief heat wave, power supplies in New England grew very tight. While, 
fortunately, major power outages were avoided, the fact is that 
insufficient generation and transmission capacity was a contributing 
factor. Because the New England states are proceeding with 
restructuring programs, major capacity additions are being planned for 
that region and capacity shortfalls should be avoided in the future. 
Unfortunately this is not the case everywhere. Utilities and other 
market participants need to know what rules and regulations they will 
be operating under in order to respond to generation and transmission 
capacity shortages. Legislation laying out the Federal regulatory 
framework for restructuring would go a long way towards eliminating the 
uncertainties that exist.
Comprehensive Electricity Competition Act
    On April 15, I transmitted the Administration's Comprehensive 
Electricity Competition Act to Congress. This legislation contains the 
provisions which we believe are necessary to maximize the benefits 
associated with state and local retail competition programs. The 
Department of Energy's Office of Policy recently released its 
Supporting Analysis for the Administration's proposed legislation, 
copies of which have been made available to the Committee. This 
analysis estimated the economic and environmental benefits associated 
with retail competition and the Administration's legislation and 
concluded that (1) annual savings of at least $20 billion per year 
would be achieved; (2) residential consumers in all states would 
benefit from retail competition and (3) greenhouse gas emissions would 
be reduced by an estimated 40 to 60 million metric tons annually by 
2010.
    Mr. Chairman, I would like to take a few minutes to outline many of 
the key provisions included in the Administration's bill.
Removing Statutory Impediments to Competition
    The existing Federal regulatory framework for the electric power 
industry was established with the enactment of the Federal Power Act 
and the Public Utility Holding Company Act (PUHCA). This framework does 
not readily accommodate state initiatives to institute competition 
among retail suppliers. In fact, certain Federal statutes may prove 
unworkable in restructured markets.
    CECA includes several provisions designed to remove these 
impediments. For instance, the Federal Energy Regulatory Commission 
(FERC) would be provided with clear authority to enable retail 
transmission access to complete an authorized retail sale. In addition, 
the bill would repeal PUHCA, but provide for increased access to 
holding company books and records for state regulators and FERC.
State and Local Flexibility
    As I mentioned earlier, the Administration supports restructuring 
and retail competition, as provided for in the Administration's bill, 
because it is good for consumers, the economy and the environment. 
While nearly half of the states have already adopted retail competition 
programs, we believe that all States and non-regulated municipal and 
cooperative utilities should be encouraged to embrace the benefits of 
retail competition. Our legislation establishes a target date of 
January 1, 2003, by which all consumers would be able to purchase power 
from the supplier of their choice. However, individual states and non-
regulated utilities could opt-out from this requirement if they find, 
on the basis of a public proceeding, that consumers would be better 
served by an alternative policy or the current monopoly system.
    This approach, while establishing a preference for competition, 
recognizes that individual states and non-regulated utilities may face 
unique challenges and should have some discretion. Those states and 
unregulated utilities that have already implemented competitive 
programs would be grandfathered-in by filing a notice with FERC.
Promoting Competitive Interstate Markets
    Enacting a statute declaring that ``there shall be competition'' is 
not enough. Eliminating monopoly franchises and cost-of-service 
regulation still leaves in place the traditional vertically-integrated 
structure not suited for efficient and competitive markets.
    Access to transmission facilities which remain a monopoly function 
must be available to all potential suppliers on a non-discriminatory 
basis. FERC's Order Nos. 888 and 889 took critical steps in opening 
electricity markets to competition by requiring jurisdictional 
utilities to file open access transmission tariffs. However, effective 
competition requires that electricity suppliers have access to all 
necessary transmission facilities, regardless of ownership. The 
Administration's bill would subject the transmission facilities of all 
utilities, including those owned by Federal, municipal and cooperative 
utilities, to FERC jurisdiction to provide for greater and more 
efficient competition. CECA would also codify FERC's authority to 
impose open access requirements on jurisdictional utilities.
    While open access reduces a transmission owner's ability to 
discriminate in the provision of transmission service, the separation 
of the operation and control of transmission facilities from generation 
through participation in an independent Regional System Operator (RSO) 
structure would greatly reduce the risk that operation of the 
transmission system could be distorted to favor some generators or 
customers over others. An efficiently dispatched and properly priced 
bulk-power system might not develop absent the establishment of 
independent regional system operators. CECA would provide FERC with the 
authority to require that a transmission owner relinquish operational 
control over transmission facilities to an independent RSO.
    In certain instances utility companies may have the ability to 
exercise market power by virtue of high concentrations of ownership of 
generation facilities in a particular region. The Administration's bill 
would also provide FERC with the authority to remedy concentrations of 
market power in wholesale power markets. In addition, FERC would be 
able to remedy retail market power problems upon the request of a state 
implementing retail competition.
Consumer Protection
    While we expect retail competition to benefit all classes of 
consumers, we are mindful that small consumers must be adequately 
protected. The Administration's legislation contains a variety of 
provisions designed to ensure that consumers have adequate purchasing 
power and access to information and that electricity suppliers don't 
engage in fraudulent practices.
    One way that consumers can increase their purchasing power and 
access to low cost electricity in a competitive marketplace is through 
aggregation. Aggregation is the process whereby electric consumers join 
their loads in order to leverage buying power. While most State 
competition programs will encourage aggregation, it is essential that 
State and Federal laws not impose barriers for an entity to participate 
in aggregation. The Administration's bill would make it clear that no 
State or Federal law can be applied to impede aggregation in a 
competitive market.
    Consumers will also need reliable information so that they can 
compare the products and prices offered by electricity suppliers and 
make informed choices. The Administration's bill would enable DOE to 
require all electricity suppliers to disclose in a uniform, easy to 
read ``label'', basic information on the price, terms and conditions of 
service, the type of generation source and generation emissions 
characteristics.
    Certain service providers in the competitive long distance and 
emerging competitive local telephone markets have engaged in fraudulent 
practices, such as slamming and cramming 2. There is a 
concern that slamming and cramming could also occur in a competitive 
retail electric market. As a result, CECA would empower the Federal 
Trade Commission to establish and enforce anti-slamming and anti-
cramming provisions against unscrupulous power providers and marketers.
---------------------------------------------------------------------------
    \2\ ``Slamming'' is the practice of changing a customer's service 
provider without that customer's knowledge. ``Cramming'' is the 
practice of billing a customer for unauthorized or fictitious service.
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Reliability
    The electric utility industry, through a tradition of voluntary 
self-regulation and cooperation, has performed admirably in maintaining 
reliability of the transmission grid over the past thirty years. 
However, in a highly competitive market environment, a different mix of 
incentives will be at work. There will be pressures to cut costs and to 
drive the power grids harder, to squeeze as much economic value out of 
them as possible. Moreover, since many transmission owners will also be 
in the power generation and marketing business, there may also be an 
incentive to exercise control over strategic parts of the transmission 
system for economic purposes, perhaps using reliability concerns as a 
pretext.
    CECA implements the recommendations of the DOE Task Force on 
Electric System Reliability, chaired by Phil Sharp, and adopts almost 
all of the legislative proposal offered by the North American Electric 
Reliability Council (NERC). FERC would be given the authority to 
approve and oversee an organization that will prescribe and enforce 
mandatory electric reliability standards. FERC would review all 
mandatory reliability standards developed by the organization to ensure 
that they are in the public interest and reflect an appropriate level 
of reliability.
    It is also essential that both states and the Federal government 
develop tools to minimize both the occurrence and impact of power 
outages. DOE has traditionally been relied on to evaluate power system 
failures and develop recommended actions to minimize recurrences. 
However, without a dedicated in-house capability, it would be difficult 
for DOE to carry out this function in an increasingly complex 
competitive market. As a result, we are proposing that an independent 
Electricity Outage Investigation Board be created to investigate major 
incidents and report its findings to DOE to prevent future outages.
    In addition, we are proposing to approve interstate compacts for 
regional transmission planning among the states. Such compacts will 
enable states to address transmission capacity issues to avoid power 
outages.
Renewable Energy
    Retail competition has the potential to increase the amount of 
renewable energy generated because it will allow environmentally-
conscious consumers to purchase ``green'' energy packages from 
suppliers. However, the inherent uncertainty of the transition to 
competition, the recognition of important environmental and energy 
diversification benefits from renewables, and the fact that existing 
Public Utility Regulatory Policies Act (PURPA) 3 
requirements related to renewable energy are incompatible with 
competition suggests that Federal policy towards renewable energy 
should be revisited in the context of restructuring.
---------------------------------------------------------------------------
    \3\ PURPA requires utilities to purchase the electricity generated 
at certain renewable and cogeneration facilities at the utilities' 
avoided cost. CECA proposes to repeal the ``must buy'' provision of 
that Act, prospectively.
---------------------------------------------------------------------------
    CECA would establish a Federal Renewable Portfolio Standard (RPS) 
that requires all electricity sellers to cover 7.5% of their 
electricity sales with generation from non-hydroelectric renewable 
sources such as wind, solar, biomass or geothermal energy by 2010. 
Retail sellers could meet the proposed RPS requirement by generating 
sufficient renewable electricity or by purchasing tradeable renewable 
electricity credits from those sellers that exceed the RPS requirement, 
or by some combination of these strategies. The RPS would also provide 
for double credits for non-hydroelectric renewable power generated on 
Indian lands.
    To hold program costs down, the Administration's proposal would 
allow electricity sellers to purchase credits from the Department of 
Energy at a cost of 1.5 cents/kwh. As a result, sellers would not be 
forced to pay excessive amounts for credits that are sold by other 
electricity providers that exceed the 7.5% RPS requirement.
    The Renewable Portfolio Standard--together with the Public Benefits 
Fund, provisions regarding the use of combined heat and power and 
distributed power technologies, and consumer information about 
generation source and emissions characteristics--make up an important 
package of environmental provisions. This comprehensive group of 
measures will ensure that the economic benefits of restructuring are 
achieved in a manner that also benefits the environment.
Public Benefits
    The Administration is concerned that retail competition could lead 
to reduced support for electricity-related programs that provide 
important public benefits. Under cost-of-service regulation, programs 
supporting and promoting renewable generation, energy efficiency and 
low-income assistance were supported in part through utility rate 
structures, and utilities recovered the costs of approved programs 
within their monopoly service area as a part of the overall cost of 
service. In a competitive environment, utilities may be unwilling to 
include in their rates the cost of programs not included in the rates 
of their competitors.
    We support the creation of a public benefits fund (PBF) to provide 
matching funds to States for low-income assistance, energy efficiency 
programs, consumer education and the development and demonstration of 
emerging technologies, particularly renewables. The PBF would be funded 
through a generation or transmission interconnection fee on all 
electricity capped at 1 mill per kwh. No more than $3 billion annually 
could be provided to the states for these programs.
Rural and Remote Areas
    While our analysis concludes that rural America will benefit from 
electric restructuring, we recognize that some have expressed concerns 
about the impact of competition on rural areas. As a result, the 
Administration has proposed that a ``rural safety net'' be available 
should expectations associated with competition not be realized. Under 
the safety net provision, a national wires charge of up to .17 mills 
per kwh would be available to generate funds if the Secretary of Energy 
determines that competition has adversely impacted rural consumers.
    The Administration's Comprehensive Electricity Competition proposal 
is projected to provide significant benefits to electricity consumers 
connected to the three major power grids that serve the continental 
United States by accelerating the transition to competitive electricity 
markets. However, the situation of remote communities that may not be 
connected to the major power grids or that have transmission 
constraints merits particular attention. These communities, which may 
not have access to competing suppliers, also face high costs which can 
pose a significant barrier to economic development. The Administration 
bill would authorize grants programs for persons living in remote 
communities and Indian tribal land to address their electricity needs.
Federal Utilities
    Three of the four remaining Federal Power Marketing Administrations 
4--Bonneville Power Administration (BPA or Bonneville); the 
Western Area Power Administration (WAPA); and the Southwestern Power 
Administration (SWPA)--own transmission lines in the regions they 
serve. In fact, Bonneville is the major transmission owner and operator 
in the Pacific Northwest; with over 75% of the region's high voltage 
transmission capacity, with major links to Canada and other regions of 
the United States.
---------------------------------------------------------------------------
    \4\ The Southeastern Power Administration (SEPA) does not own 
transmission facilities and, therefore, is not subject to the 
provisions of CECA.
---------------------------------------------------------------------------
    As I discussed earlier, we believe it is important that FERC's open 
access authority extend to transmission facilities owned by the PMAs. 
We also believe it is essential to the proper development of 
competitive markets that Federal transmission facilities be subjected 
to other regulatory requirements in a manner similar to those of other 
utilities. Therefore, CECA proposes to subject PMA transmission 
facilities to Federal Power Act regulation. Our legislation does, 
however, recognize that the unique obligations of the PMAs require 
slightly different regulatory treatment than that accorded other 
utilities. For instance, FERC, in setting transmission rates for the 
PMAs, would be required to ensure that amounts collected are sufficient 
to cover costs so that the PMAs can repay what they owe the Treasury. 
In addition, our proposal would allow FERC to allow the PMAs to impose 
transmission surcharges in limited instances in order to pay for 
certain other costs, such as fish and wildlife remediation.
    CECA would also subject The Tennessee Valley Authority's (TVA's) 
transmission facilities to Federal Power Act jurisdiction. However, 
Federal legislation needs to go further in order to enable competition 
to occur in the Tennessee Valley.
    TVA supplies power to 159 retail distributors in a region including 
almost all of Tennessee and parts of six surrounding states. TVA also 
sells directly to 67 large industrial and Federal customers. Due to 
statutory and contractual restrictions, TVA is essentially the sole 
power supplier in the TVA region, and may only sell power elsewhere 
under very limited circumstances.
    The Administration's bill would authorize competing utilities to 
sell power into the Tennessee Valley beginning January 1, 2003 and 
require TVA to renegotiate its contracts with existing customers on 
several matters, including the ability to purchase power from others 
after 2002. At the same time, TVA would be permitted, for the first 
time, to sell wholesale power outside of the Tennessee Valley in order 
to mitigate its stranded costs.
Efficient Distributed Power and Combined Heat and Power
    The Administration believes that retail competition will spur the 
development of efficient distributed power (DP) and combined heat and 
power (CHP) technologies that will make our electric system more cost 
effective, reliable and environmentally friendly. However, there are 
currently certain statutory and regulatory barriers that act to impede 
the effective deployment of these technologies. Given the significant 
benefits associated with DP and CHP technologies, we have proposed 
actions to reduce these barriers.
    For example, interconnection standards vary widely from utility to 
utility, thereby discouraging widespread use of distributed generation. 
CECA proposes to establish and implement national, uniform, and non-
discriminatory technical interconnection standards to facilitate the 
hookup of distributed power generation systems to distribution 
utilities.
    In addition, we are concerned that present tax code treatment of DP 
technologies may have the effect of discouraging their use in many 
types of applications. We are proposing to amend the tax code to 
clarify that the depreciation schedule for all DP equipment is 15 
years. We are also proposing to establish an 8 percent investment tax 
credit for qualified CHP systems placed in service in calendar years 
2000 through 2002.
Municipal Tax-Exempt Debt
    We fully expect that public power systems will participate in 
restructured environments that allow competing, private generators of 
electricity to sell to customers who formerly had no option but to be 
supplied by those public systems. Currently, municipal utilities may 
finance their capital expenditures through the use of tax-exempt debt. 
The tax-exempt status of the debt would be jeopardized if a municipal 
utility participates in a competitive market. We believe that 
efficient, competitive markets depend upon leveling the playing field 
with respect to capital costs. At the same time, it is important that 
the tax-exempt status of debt previously issued by public power systems 
for existing facilities not be put in jeopardy if a municipal utility 
engages in competition.
    Accordingly, the Administration is recommending that existing 
facilities financed with outstanding tax-exempt bonds should be free 
from the tax code's limitation, but that new generation and 
transmission facilities should be ineligible for tax-exempt bond 
financing. Municipal utilities would still be able to finance new 
distribution facilities with tax-exempt debt.
                               conclusion
    When we released the Administration's bill on April 15, several 
cabinet officials and three members of this Subcommittee (Congressmen 
Markey, Largent and Burr) and I were joined on a stage by more than 20 
people representing a diverse set of interests, including investor-
owned utilities, municipal utilities, consumer groups, power marketers 
and independent power producers. While they did not necessarily all 
agree on the Administration bill, or any other single approach, their 
message was loud and clear--the time for Federal legislation is now.
    Mr. Chairman, we are pleased that the Subcommittee on Energy and 
Power is holding hearings on electric restructuring. The Administration 
believes that Federal restructuring legislation is needed sooner, 
rather than later, and we want to work with you and the members of the 
Commerce Committee and staff, on a bipartisan basis, to get the job 
done. I would be glad to answer any questions which you or the other 
Committee members may have.

    Mr. Bilirakis [presiding]. Thank you, Mr. Secretary. I am 
advised that probably within 20 minutes we are going to have 4 
to 5 votes on the floor. Obviously you are accustomed to that. 
Would you please identify the gentleman to your right?
    Mr. Richardson. Yes, this is Richard Glick. He is the 
Energy Department's point man on the electricity restructuring 
bill.
    Mr. Bilirakis. Thank you. I would advise all members of the 
subcommittee that all questions should be directed to the 
Secretary and not to the counsel, although the counsel 
obviously will be counseling Mr. Richardson.
    I am going to yield to Mr. Hall to start off our 
questioning.
    Mr. Hall. Mr. Secretary, as you have stated, 22 States have 
committed themselves to retail choice, and I guess by the time 
Congress passes electric industry restructuring legislation, 
hopefully a majority of States will already have acted to 
restructure their industries. A lot of these States will have 
addressed issues like support for renewable energy, net 
metering, consumer information disclosure, and a lot of other 
things.
    I guess my question is: Does the administration support 
grandfathering existing State plans that address these issues 
even if they don't address them in the same way that the 
administration would?
    Mr. Richardson. Congressman Hall, the answer is yes. A 
State public service commission or an unregulated municipal or 
cooperative utility that proceeds with retail competition by 
our deadline, which is January 1 of 2003, simply has to file a 
notice with FERC and is exempt from the bill's requirements to 
hold the proceeding to consider whether to implement 
competition. No State, however is grandfathered from any of the 
bill's other provisions that are related to transmission 
access, market access and market power, renewable energy and 
public benefits. We think that these issues are more interstate 
in nature and that everyone should participate.
    Mr. Hall. I notice in your bill you create at least 15 new 
Federal regulatory powers over retail sales, local services, 
and generation in all of the 50 States, and these areas were 
traditionally regulated by the States. I could list the powers 
or give you a list of them if you would like. Among other 
powers, they included retail consumer aggregation rules, a 
section set out in the notation that I will give you, Federal 
requirements regarding State retail supply regulations; it goes 
on to FTC rules barring slamming and cramming and so on and so 
forth.
    Do these new regulatory powers preempt the State in your 
bill?
    Mr. Richardson. No, they don't.
    Mr. Hall. Will States that have already acted to 
restructure their industries, like my State has, be forced to 
change their laws in order to be in compliance with your 
requirements?
    Mr. Richardson. No, they would not be required to change 
their laws.
    Mr. Hall. Does the administration have a grandfather clause 
that protects the 22 newly opened States like Texas from these 
Federal regulatory regulations; yes or no?
    Mr. Richardson. Yes.
    Mr. Hall. Okay. That sounds like good news to me. I 
expected a ``no'' from you on that. I yield back the balance of 
my time, Mr. Chairman. I thank you.
    Mr. Secretary, I am going to send you these 15 areas where 
it appears that the Feds have taken over powers that belong to 
the States and have you give me an answer in writing on that. 
And I thank you.
    Mr. Richardson. We will do that.
    Mr. Barton. We thank the gentleman from Texas. The Chair 
would recognize the distinguished full committee chairman for 
questions, Chairman Bliley.
    Chairman Bliley. Thank you, Mr. Chairman. Does the 
administration oppose enactment of stand-alone electricity 
legislation such as the stand-alone PUHCA bill?
    Mr. Richardson. Yes, Mr. Chairman.
    Chairman Bliley. Do you want to deal with electricity 
legislation in a comprehensive manner?
    Mr. Richardson. That is correct. We feel if we made it 
stand-alone, we would preclude our options to have a 
comprehensive bill.
    Chairman Bliley. Your testimony points out uncertainties 
over the rules of the road as discouraging electric suppliers 
from investing in generation and transmission. Has that 
uncertainty contributed, in your opinion, to tight reserve 
margins in some regions?
    Mr. Richardson. Yes it certainly has, Mr. Chairman.
    Chairman Bliley. Do you think congressional action will 
spark investment?
    Mr. Richardson. Yes, we think congressional action will 
spark investment, spark the need for capital and increase 
competition that is needed to get this process moving.
    Chairman Bliley. The Federal Government is the largest 
electric consumer in the United States. Do you have any 
estimate as to how much the Federal electric bill paid by 
taxpayers could be cut if we had nationwide retail competition?
    Mr. Richardson. We don't have estimates, but we know that 
it would be substantial. You are correct, the government is the 
largest energy consumer. Our analysis that was completed 
recently, which I would like to submit for the record, did not 
examine the impact on government electric bills, but it 
suggests that retail competition would produce significant 
savings for the Federal Government.
    Mr. Barton. Are you actually submitting that document?
    Mr. Richardson. If I could, Mr. Chairman.
    Mr. Barton. Without objection, so ordered.
    [The following was received for the record:]

    Supporting Analysis for the Comprehensive Electricity Competition 
Act (DOE/PO-0059, May 1999).--a paper copy has been provided to the 
Committee. It is also available on the Internet at www.doe.gov/policy/
ceca.htm.

    Chairman Bliley. Mr. Secretary, how much currently is the 
Federal Government spending on electricity? Do you have figures 
for that?
    Mr. Richardson. $8 billion a year for total energy 
consumption.
    Mr. Barton. Our number is 55 billion kilowatt hours a year.
    Mr. Richardson. Including State and local governments, it 
is about $20 billion per year for electricity. And I believe 
that the Federal Government figure is $4 billion.
    Chairman Bliley. Thank you very much.
    The administration bill has a flexible mandate and permits 
States to opt out if they find implementation of the retail 
competition requirement will have a negative impact on a class 
of consumers. How high a hurdle is that?
    Mr. Richardson. Mr. Chairman, what we want to do is make it 
feasible, make it easy for the opt-out to take place. Here is 
the standard. In other words, if a State regulatory commission 
decides to opt out of competition, can a court overturn that 
decision? The answer would be that our bill requires a State or 
nonregulated utility to make a finding, after holding a 
proceeding, that a class of consumers would be adversely 
affected before opting out.
    What the bill does is it further prohibits a person from 
seeking a review of the State opt-out decision in Federal 
court. These decisions would be subject to State court review 
under State laws.
    Mr. Chairman, while the State statutory language is 
ambiguous, we don't intend to allow a court to substitute its 
judgment for that of a State utility commission or a 
cooperative or a municipal utility. So we would only envision a 
court to opt-out or to disapprove of an opt-out decision if the 
procedural requirements weren't complied with.
    Chairman Bliley. Thank you. Thank you, Mr. Chairman.
    Mr. Barton. I thank the gentleman from Richmond. The Chair 
would recognize the gentleman from Michigan, Congressman 
Dingell for 5 minutes.
    Mr. Dingell. Thank you, Mr. Chairman. I would like to 
welcome my old friend, Mr. Richardson, back to his committee. 
Let's look at TVA and Bonneville. Both of these entities would 
continue their tax subsidies and their tax-exempt status. Both 
of them would continue their exemptions from antitrust laws 
under the administration bill; isn't that so?
    Mr. Richardson. That is right, Mr. Chairman.
    Mr. Dingell. And they then would be able to go in and sell 
under such terms as they felt were appropriate outside their 
region, would they not?
    Mr. Richardson. That is correct.
    Mr. Dingell. But it doesn't necessarily follow that they 
would sell in all parts of the country. For example, it 
wouldn't make available to the people, let's say of New York or 
Texas or Michigan, access to those cheap subsidized powers at 
TVA or at Bonneville, would it?
    Mr. Richardson. That is correct. But TVA is subject to 
antitrust laws. I wanted to point that out.
    Mr. Dingell. TVA is; but Bonneville is not?
    Mr. Richardson. Correct.
    Mr. Dingell. Let's talk about the Public Benefits Fund. 
Some States would pay more into this fund than others; isn't 
this true?
    Mr. Richardson. Yes.
    Mr. Dingell. Why?
    Mr. Richardson. Size, population, competitive markets.
    Mr. Dingell. Not all States would get equal benefits back, 
would they?
    Mr. Richardson. The distribution is based on population and 
other economic indicators.
    Mr. Dingell. Now, your bill also authorized FERC to order 
utilities to divest generation if the utility has market power 
in sales of electric energy for resale in interstate commerce?
    Mr. Richardson. That is correct.
    Mr. Dingell. Now, that has been built for the benefit of 
the utility and for the benefit of its customers over time, 
subject to the approval of the State regulatory agencies, is it 
not?
    Mr. Richardson. That is correct.
    Mr. Dingell. And so FERC is now going to come in and 
instruct the utility that they are going to have to divest that 
power without considering any of the questions that might be 
related to the needs of the people in the area served? They 
will just come in and say sell this facility? Why?
    Mr. Richardson. Mr. Chairman, only in limited 
circumstances. FERC does not have unlimited power.
    Mr. Dingell. It says, it says, Mr. Secretary, that they can 
order to divest generation if the utility has market power in 
sales of electric energy for resale in interstate commerce.
    Mr. Richardson. Only if the utility has sufficient market 
power in the region.
    Mr. Dingell. Where is that in the bill?
    Mr. Richardson. That is in that provision that you just 
mentioned. In other words, it is not an unlimited authority. It 
is a specified authority that would be, we envision, exercised 
only in limited circumstances.
    Mr. Dingell. And the only defense that the utility has or 
the consumers of that particular State have is to go to court?
    Mr. Richardson. They can go to court. They can go to their 
consumer commission within the State.
    Mr. Dingell. The consumer commission has no authority under 
this to review the findings of FERC.
    Mr. Richardson. They primarily would have to go to court, 
but they would still have their legal options in that court.
    Mr. Dingell. That is all?
    Mr. Richardson. Yes.
    Mr. Dingell. And the court would be interpreting a statute 
of the United States and giving preferential consideration to 
the findings of FERC under the traditional rules of regulatory 
interpretation, would they not?
    Mr. Richardson. Yes. But----
    Mr. Dingell. Yes. Now, Mr. Secretary, I have limited time, 
and I am so much enjoying your answers that I have to move on. 
The bill also has a Federal mandate that all the utilities are 
going to open up retail competition by January 1 of 2003?
    Mr. Richardson. That is right.
    Mr. Dingell. And if they don't make that date, what 
happens?
    Mr. Richardson. Well, if they don't make that date--that is 
a very flexible date. That is several years from now.
    Mr. Dingell. No, no, no. It may be several years from now, 
but there is no flexibility. If they don't meet that, they have 
problems. What would happen?
    Mr. Richardson. The consumers would have the right to 
choose if they didn't meet that date.
    Mr. Dingell. So FERC would come in and issue an order?
    Mr. Richardson. No, FERC would not have that authority.
    Mr. Dingell. Who would then enforce this matter?
    Mr. Richardson. The State court would.
    Mr. Dingell. State court would?
    Mr. Richardson. What we are doing is giving the States the 
prime opt-out option to deal with any deadline, to deal with 
many of the provisions in the legislation. The States would 
have, in our judgment, more power than FERC to determine 
decisions like what you mention.
    Mr. Dingell. But there are two very narrow questions under 
which they could opt out. Just two. What are they?
    Mr. Richardson. They can opt out if there is a 
determination that the consumer is financially harmed. And they 
can opt out if their State legislature takes that position.
    Mr. Dingell. The State legislature or the State regulatory 
agency?
    Mr. Richardson. The State regulatory agency.
    Mr. Barton. This will have to be the gentleman's last 
question for this round.
    Mr. Dingell. Thank you, Mr. Chairman. I appreciate that.
    In some States, the State regulatory agency makes those 
decisions, and under State law in others it is the legislature 
which has not delegated those responsibilities. You are then 
going to run roughshod over the State legislature which chose 
to make those decisions itself, are you not?
    Mr. Richardson. State regulatory authority, if you look at 
22 States who have already taken action by their legislature--
--
    Mr. Dingell. That is not my question. You are going to ride 
roughshod over the legislators of the States who choose to take 
a different course?
    Mr. Richardson. I would think that the State-regulated 
entities, many are elected and many are responsive entities. We 
don't want the Federal Government making those determinations.
    Mr. Dingell. And you are going to ride roughshod over the 
State legislatures that have come to a different decision.
    Thank you, Mr. Chairman.
    Mr. Barton. The Chair would recognize himself for 5 
minutes.
    Mr. Secretary, while we are on the point of date certain, 
there are different ways to do date certain. You can have a 
hard date certain; a State has to act by date certain or 
Federal law would preempt. The administration does not support 
a hard date certain; is that correct?
    Mr. Richardson. That is correct.
    Mr. Barton. You could also go exactly the opposite and not 
have any date certain. We could do what is in the Federal 
domain in terms of interstate commerce and certain transmission 
issues and just be totally silent so that States that have 
acted, obviously we would accept that if it didn't violate the 
Federal interstate commerce clause; but States that didn't want 
to act wouldn't have to, so you could go from a very hard date 
certain to no date certain. And the administration does not 
support that approach either, does it?
    Mr. Richardson. That is correct. We think that to encourage 
competition, you want to have a date. Now, we are ready to 
discuss with you flexible responses to achieving the goal 
within that timeframe.
    I think if you don't have a date certain, you are not 
necessarily stimulating the competitive process and that is 
what we want to do. I believe that the reason that we have had 
such conclusive action by almost half of the legislatures and 
many more coming is because they see the prospect of 
competition. They want to get ahead of the curve on that.
    Mr. Barton. Because of some of the concerns that 
Congressman Dingell raised about requiring some finding of fact 
that consumers would be harmed, what would the administration's 
position be if we had a date but there was no question of fact 
if the State wanted to opt out, you simply required that the 
Governor of the State submit a letter to the President, the 
Secretary of Energy, that the State did not choose to engage in 
retail competition, so you had a soft, soft date certain, what 
would the administration's position be to something like that?
    Mr. Richardson. We would have difficulty with that. We 
think that there should be some type of a finding. If you leave 
it up to the Governor, the State legislatures, you get into the 
arguments that I got into with Congressman Dingell: Is the 
State entity more viable than the Governor or the legislature? 
This is why I think a proceeding with a conclusive answer with 
at least the process moving forward is the best way to go.
    Mr. Barton. So you wouldn't trust the Governor of a State 
to simply submit a letter and we would just trust their 
judgment?
    Mr. Richardson. Well, I do trust Governors, but we want to 
have a proceeding of some kind. We want to keep talking to you 
about this.
    Mr. Barton. My next question is a personal question. What 
is your travel schedule for July and August? There is a reason 
that I am asking this.
    Mr. Richardson. Well, I will be traveling a lot.
    Mr. Barton. Do you think that it is important that this 
subcommittee actually produce a bill and try to have an open 
markup sometime this summer?
    Mr. Richardson. I think definitely, Mr. Chairman. I think 
that the Senate is looking toward this committee to take 
action. I think the competitive markets are aching for 
movement.
    We want to get engaged in a process soon. We worry that the 
electoral season next year might preclude us from acting. If it 
means my staying in town to work with you, I will do that.
    Mr. Barton. I think it is very helpful to have the 
administration's point person on electricity restructuring in 
Washington when the subcommittee is marking up an electricity 
restructuring bill.
    Mr. Richardson. I will stay when you schedule your markup.
    Mr. Barton. Congressman Hall and I are discussing various 
proposals which have already been introduced, other members are 
going to be introducing proposals, and I am going to be meeting 
with Chairman Bliley, and Congressman Hall is going to be 
meeting with ranking member Dingell, and we have a working 
group established and so we are about to stop talking and start 
acting, I hope.
    We would need your guidance and participation, or your 
designee. And so I would think that the next 2 months are going 
to be critical times and I would hope that you would try to be 
available if we give you enough notice.
    Mr. Richardson. I will be available, Mr. Chairman. What you 
just said is indeed music to my ears; that you might move in 
July for markup.
    Mr. Barton. Well, saying it and doing it, as you know, are 
not the same. I want to assure the audience that there is no 
bill that you haven't seen because we haven't put it together 
yet, but we are beginning to work in that direction. My time 
has expired.
    The gentleman from New Jersey, Mr. Pallone, is recognized 
for questions for 5 minutes.
    Mr. Pallone. Thank you, Mr. Chairman. I wanted to ask the 
Secretary if he could clarify, under his bill or the 
administration bill, if the intention is for disclosure 
information or the labeling, so to speak, is to remain intact 
with every sale and resale of electric energy, even under an 
emissions trading program; and my question is whether that is 
the intent?
    Mr. Richardson. That is the intent.
    Mr. Pallone. Your bill allows electricity suppliers to sell 
interruptible power at certain times during the day to 
residential consumers. I wanted to ask, first, should utilities 
be allowed to sell interruptible power to residential 
consumers? What is your opinion? Obviously that is what the 
bill says, but what is the theory there?
    Mr. Richardson. We leave that up to the State to decide 
whether that should be interrupted. We, the FERC or any Federal 
entity, would not make the decision. So it would be up to the 
State.
    Mr. Pallone. Are there any protections in the bill to 
protect consumers from having their service interrupted if that 
is allowed?
    Mr. Richardson. The consumer protection entities within 
each State. Congressman, we feel that the State consumer 
entities are doing an adequate job of doing that.
    Now, within the Department of Energy, we have talked about 
expanding our role without causing concern in the Congress to 
be able to ensure that consumers are protected, and we would 
find ways, once this legislation starts being implemented, to 
ensure those consumer protections. We would be open to 
additional advice from you on how we might do that.
    Mr. Pallone. There is nothing specific in the bill in that 
respect?
    Mr. Richardson. No, there isn't, but there is a perception 
that State regulatory agencies will do a good job.
    Mr. Pallone. The bill requires payments to the Public 
Benefits Fund to be collected by a non-Federal fiscal agent. 
Based on what has happened in the past, my question is whether 
the administration is confident that these funds, if held 
outside of the Treasury, will be available for their proposed 
purposes, without appropriation and without being subject to 
budget caps and sequestration?
    Mr. Richardson. We think that the money will be available. 
It is not subject to appropriation. We believe that it will 
serve the noble purposes that you mentioned in the opening 
statement for conservation, to help low-income people pay for 
their utility bills, provide for research and development of 
emerging clean technologies.
    Mr. Pallone. Currently States may block aggregation 
attempts by local entities, particularly local governments. I 
want to know whether the administration's bill provides 
sufficient flexibility for local entities to aggregate as 
cheaply and as efficiently as possible.
    Mr. Richardson. Well, here is an area where we do preempt 
the States because we want to encourage aggregation.
    Mr. Pallone. Does the bill have an explicit grandfather for 
States that have already passed and have enacted restructuring 
legislation?
    Mr. Richardson. It is not in the bill, but it is implicit, 
so that you can make that assumption. In other words, it is not 
drafted in the legislation, but it is implicit.
    Mr. Pallone. How is it implicit?
    Mr. Richardson. Well, if a State goes to competition, it 
has to file a petition with FERC. Perhaps if you think it 
should be a little more explicit, maybe we can work together to 
achieve that.
    Mr. Pallone. Okay. What about securitization of stranded 
costs. Do you think that the bill would encourage 
securitization of stranded costs?
    Mr. Richardson. We leave all recovery and securitization of 
costs issues to the States. We are just saying this is your 
issue and you decide.
    Mr. Pallone. Thank you.
    Mr. Barton. The gentleman actually stopped right on time.
    The gentleman from Kentucky, Mr. Whitfield, is recognized 
for questions for 5 minutes.
    Mr. Whitfield. Thank you.
    Mr. Secretary, in the explanation of the administration's 
bill relating to section 701, it starts out that it will 
clarify EPA's authority to require a nitrogen oxide trading 
authority. Does that mean it is the position of the 
administration that they do not have that authority now?
    Mr. Richardson. This is our position. We clarify that EPA 
has authority to impose a cap and trade program for 
NOX emissions. We do clarify that. However, this 
language does not alter existing EPA authority to determine 
things like the geographic coverage or level of reductions 
required to address several regional transport considerations.
    Mr. Whitfield. I am trying to determine if you feel the 
authority is there right now for them to do that.
    Mr. Richardson. We think that EPA does have that authority. 
We just want to clarify it.
    Mr. Whitfield. This is just affirming it then?
    Mr. Richardson. That is right.
    Mr. Whitfield. Second of all, it is my understanding that 
one interpretation is that this will preempt the State 
implementation plans and will broaden the control region beyond 
the 22 States that are involved in the SIP call that was issued 
in last fall's provisions.
    Mr. Richardson. It wouldn't do that. It would reflect the 
original premise. It would not go beyond that.
    Mr. Whitfield. If this provision passes and it is 
determined that one State is violating the Ambient Air Quality 
Standards, then EPA would be required to issue new regulations 
that might preempt State law?
    Mr. Richardson. I think the answer is yes, but I want to 
get back to you with a definitive response, if I could for the 
record.
    [The following was received for the record:]

    Our proposal is designed solely to clarify EPA's existing authority 
to require a cost-effective interstate trading system for nitrogen 
oxide (NOX) pollutant reductions addressing the regional 
transport contributions of this ozone precursor needed to attain and 
maintain the National Ambient Air Quality Standards (NAAQS) for ozone. 
We do not propose changes to existing EPA authority to determine the 
geographic coverage, or the level, of reductions required to address 
regional transport contributions. In addition, our proposal does not 
include any changes to or clarification of in section 184, which 
addresses addressing the establishment, authorities and operations of 
ozone transport commissions.
    The proposal should assuage any misgivings States may have 
regarding participating in the optional market-based interstate 
allowance trading system permissible under EPA's 1998 rules. The 
proposal does not expand EPA's responsibility, which has existed under 
the Clean Air Act since 1970, to assure that each State implementation 
plan addresses not only the impact of its source emissions on air 
quality within its borders, but also any significant contribution of 
those emissions to air quality in other States.
    The 1998 rules are the subject of ongoing litigation in the U.S. 
Court of Appeals for the District of Columbia. The proposal does not 
provide any directives that would modify the 23-jurisdiction coverage, 
or the State-by-State NOX budgets, provided in the 
challenged rules.

    Mr. Whitfield. Okay. Then it seems like if that is the 
case, it also would preempt the interstate transport regions 
and transport commissions that were established under the Clean 
Air Act.
    Mr. Richardson. Congressman, that is not the intent. I 
think your questions are in the direction are we moving ahead 
to ratify the Kyoto treaty before going to Congress on climate 
change. That is not our policy. We are not going to back-door 
the Congress, the Senate on this.
    We have stated on numerous occasions that we are not going 
to seek to cap emissions of carbon dioxide and other greenhouse 
gases until such time that the work in progress in the Kyoto 
Protocol is completed and you and the Congress have ratified 
it. So that is not our intent to set new policy.
    Mr. Whitfield. I don't think you are trying to do anything 
with Kyoto, but there are significant changes here on nitrogen 
oxide. I just wanted to clarify that in my mind, and I look 
forward to working with you.
    One other question. The recent decision of the American 
Trucking Association on the Ambient Air Quality Standards in 
which the court said that EPA had in essence exceeded their 
legal authority, does that decision in any way change the 
administration's view of the necessity of section 701?
    Mr. Richardson. I don't believe so. We are sticking with 
our policy.
    Mr. Barton. Mr. Secretary, you need to either sit forward 
or move the microphone.
    Mr. Whitfield. Thank you, Mr. Chairman. I yield back the 
balance of my time.
    Mr. Barton. The gentleman from Massachusetts, Mr. Markey, 
is recognized for 5 minutes.
    Mr. Markey. Thank you, Mr. Chairman. My mother always said 
to me that the most important question to answer in all 
situations is, compared to what? The monopolists sitting out 
here have a secret bill that they all are holding very close, 
they don't want people to know about it, but they actually call 
it the ``monopolist phantom menace bill,'' and it is subtitled 
``the utility empire strikes back.''
    Mr. Barton. We want the monopolists to stand up.
    Mr. Markey. The monopolists all believe in competition, 
but--everybody wants to go to heaven, but nobody wants to die. 
Everybody wants competition, but no one wants to give up their 
monopoly. I actually have the provisions in their bill and I 
would like to read it to you and see if the administration 
would sign this bill.
    The first provision is that it forces consumers to pay $20 
billion more annually than they would under competition.
    Second, it would prevent a reduction in greenhouse gas 
emissions of 40 to 60 metric tons annually by 2010.
    Third in their plan, it degrades the reliability of the 
Nation's electricity grid by failing to establish any Federal 
oversight over the National Electricity Reliability Council or 
the various regional reliability councils, failing to create a 
sound legal basis for regional transmission organizations 
needed to assure reliable transmission and elimination of 
existing transmission constraints.
    The fourth thing their secret bill does is it allows 
inefficient government-sponsored utilities like the TVA to 
continue to enjoy special privileges and immunities from 
competition, from antitrust laws, and from meaningful Federal 
oversight and regulation by the FERC.
    Then it promotes protracted and expensive legislation by 
failing to properly clarify Federal and State jurisdictional 
boundaries.
    Sixth, it undermines environmentally sustainable renewable 
generation sources by failing to replace outdated Federal 
mandates such as PURPA with up-to-date incentives such as a 
renewable tax credit and a renewable portfolio standard.
    Seventh and finally, it ignores the threat of excessive 
utility market power by relying on PUHCA to restrain utility 
pyramids when the FTC already has amply demonstrated that it 
will not enforce PUHCA's restrictions and is willing to grant 
broad exemptions from PUHCA to any utility who wants one, 
without any significant limits, when what we should be doing is 
actually transferring some of that authority to an agency like 
FERC which might in fact protect consumers and ensure that we 
have competition.
    So this secret bill is out here and when we actually begin 
a markup, every one of these provisions is either going to be 
put out as the full bill, or what they might try to do is give 
amendments to individual members so it actually has a virtual 
presence.
    Could the administration ever sign a bill like that, Mr. 
Secretary, or would you recommend a veto?
    Mr. Richardson. We couldn't sign a bill like that. In fact, 
we like our bill and we also like the bill that you and 
Congressman Largent have proposed, with a few modifications.
    Mr. Markey. Thank you. I appreciate that. You are the big 
cheese on the block, and we are willing to work with you, Mr. 
Secretary. That is all I really wanted to know. I think that is 
the most important issue before the committee.
    Mr. Barton. We thank the gentleman from Massachusetts.
    The gentleman from Florida, Mr. Bilirakis, is recognized 
for 5 minutes.
    Mr. Bilirakis. Thank you, Mr. Chairman. You know, Mr. 
Secretary, at the outset of your remarks you made a comment 
that States are leading the way, as they should. Then, you went 
on to say how very significant it is that there be Federal 
legislation, and you talked about the 22 States that are 
already doing this. I think you basically indicated that every 
other State is considering addressing to do so, et cetera.
    So, I just really have to wonder why, particularly when you 
have an opt-out arrangement--whether or not it is in fact the 
true opt-out that I like to think you intend it to be when you 
use words such as ``reasonably mitigated,'' which does nothing 
except create lawsuit after lawsuit. But I guess what I am 
wondering, since you are providing for an opt-out, you are 
providing for the lack of the uniformity that I suppose you 
would mean is necessary to have Federal legislation when in 
fact progress is being taken by the States. Any comment?
    Mr. Richardson. Yes. First of all we think that our bill, 
and I am not going to recite the litany, is good for the 
economy, the environment and consumers. But the reason that we 
think that we should have Federal legislation is that there are 
still a number of statutory Federal impediments.
    I think you still have to provide for an efficient 
competitive transmission system. The Federal Government can do 
that. And then you have to deal with some of the Federal power 
markets that exist, the TVAs, the Bonnevilles that are in 
essence Federal entities. What you want to do with those 
Federal entities is promote competition.
    I have had some utility representatives from your area tell 
me what they want is open competition, but there are still laws 
on the books, there is still bureaucracy that prevents them 
from achieving the full benefits of competition.
    Mr. Bilirakis. I have heard the same thing and you are 
quite right, Mr. Secretary. I guess if we are talking about the 
Federal impediments, that is what I think we should be 
concentrating toward rather than in effect almost forcing 
competition. I just wonder if we are really concentrating on 
what we should be concentrating on these Federal impediments 
that you referred to.
    But I would also suggest to you and maybe through you to 
Messrs. Largent and Markey, that the words ``reasonably 
mitigated'' to me do not connote or equal to, if you will, a 
true opt-out because of the hoops that one would have to jump 
through when in fact the Public Service Commissions of the 
State, opt out rather than having to go through the hoops of 
particularly the words ``reasonably mitigated.'' Let me jump to 
another subject, but I would like to say that my support would 
be subject to maybe a readdressing of that particular area.
    On the renewables, your bill sets up the standard, et 
cetera, et cetera. For instance in Florida, I am going to be 
parochial here, but there are a lot of other States in the same 
category, they would have a tough time meeting that standard 
because of the geography of the State and the resources 
available. Solar energy is the one renewable energy source that 
Florida has an abundance of, but it is so very, very expensive 
so it is not really that practical. I would suggest that be 
taken a look at.
    Mr. Richardson. Well, Congressman, you have a lot of coal 
in Florida, coal-fired plants.
    Mr. Bilirakis. All right.
    Mr. Richardson. And while there may not be enormous 
potential of solar and wind in parts of the Southeast, some 
coal plants can take advantage of using biomass. That is one of 
the four, solar, wind, geothermal, and biomass, that we have as 
a renewable standard for coal-firing purposes. This is clean 
and this counts as a renewable.
    So we think that this 7.5 percent is reasonable. It would 
promote renewable energy production. We are doing a lot of good 
research on solar and wind in the Department of Energy will 
make them more commercially viable, technologically more 
advanced. So we think that this is a modest number and we think 
that your region would benefit, especially with--well, with 
solar and all of the sun that you have.
    Mr. Bilirakis. My time has expired. I can't respond.
    Mr. Barton. If you would like to respond?
    Mr. Bilirakis. No, that is all right.
    Mr. Barton. The gentleman's time has expired. The Chair 
would recognize Mr. Sawyer.
    Mr. Sawyer. Thank you, Mr. Chairman. I have just been 
sitting here trying to imagine scuba-equipped coal miners in 
Florida or strip mining the Everglades. It is all very 
interesting.
    Let me turn back to the subject of transmission that was 
talked about a little earlier. The administration bill gives 
FERC the ability to establish independent RTOs and to order 
utilities to turn over control of its transmission to such 
entities. It looks now, although I don't claim to be an 
authority on it, that the FERC NOPR stops short of mandating 
that an entity join an RTO.
    Do you believe that FERC has the authority, absent Federal 
legislation, to order utilities to turn over transmission 
systems to an RTO, and can you describe for me what you think 
the NOPR's impact on the language included in the 
administration bill would be?
    Mr. Richardson. Congressman Sawyer, I haven't read the 
notice of proposed rulemaking, but what I understand that it 
does is that it encourages but doesn't require utilities to 
join regional transmission organizations. I think one of the 
reasons that FERC--and I would encourage you to ask the 
chairman of FERC this question--that they may have stopped 
short of requiring utilities to join regional organizations is 
the lack of clarity in FERC's authority to do so. Now we give 
FERC this authority. In addition we give authority----
    Mr. Sawyer. Do you give them the authority or----
    Mr. Richardson. We give them the authority. And we do so 
also for Federal utilities, the TVAs, the PMAs, to turn over 
the operational control of their facilities to some of these 
regional transmission operators. So we do give them that 
clarity. The 8th Circuit Court of Appeals raised some questions 
about FERC's statutory authority, so we are clarifying it.
    Mr. Sawyer. Is it your belief that particular format is the 
ideal one across the country, or is there enough diversity in 
the kinds of circumstances that generators and transmitters 
might face to provide for alternative government structures 
over transmission?
    Mr. Richardson. We are not prescribing a ``one size fits 
all'' solution. What we are saying is this should be perhaps 
the way we grant operational control over transmission 
facilities. But we recognize also that FERC can approve a 
TRANSCO instead. Our only concern is that a regional system or 
TRANSCO be independent of any operating company generation 
entity in a region so that you ensure that you don't manipulate 
some of this transmission access, so that you have full 
competition, so that you don't favor one generator over the 
other.
    Mr. Sawyer. One of the biggest transmissions that we are 
trying to work our way through is moving from an era in which 
transmission lines were used for a very different purpose than 
we see them used for today; from the internal generating 
capacity of a service territory rate of return utility to the 
point of distribution, today being used for a vastly more 
complex set of demands that is only going to get more 
complicated.
    As we face the need to grow that system, where do you see 
the siting authority to address questions that may not be of 
direct benefit to the communities through which new 
transmission would have to be located? Or across whole State 
jurisdictions, for that matter?
    Mr. Richardson. There has to be sufficient transmission 
capacity. That is No. 1.
    The States have traditionally taken the lead in the siting 
and the approval process. I think it would be unwise to preempt 
the States in this activity.
    Mr. Sawyer. What would you do, Mr. Secretary, in the event 
that we needed to get from point A to point B, and in between 
was State C who had no direct benefit from that, and yet it 
would be a geographic place against which a siting decision----
    Mr. Richardson. We encourage regional solutions and 
compacts among the States. We think that is the best way to go.
    Our legislation, and this is something that I like, allows 
the Secretary of Energy to convene a joint meeting of the 
affected States to decide this issue. I am just kidding.
    Mr. Sawyer. You do like those controversial things, don't 
you?
    Mr. Richardson. We think that States can resolve this on 
their own through regional compacts. That is what we would 
encourage.
    Mr. Barton. Would the gentleman yield.?
    Mr. Sawyer. Yes.
    Mr. Barton. Mr. Secretary, the question that Congressman 
Sawyer just asked, I think, is the question if we are going to 
get an electricity restructuring bill that works in the market. 
If you have A that is generating and B that is consuming and 
you have to cross C, and C sees no benefit, I would really 
encourage you to give that quite a bit of thought and speak to 
your experts because when we do go to markup, the transmission 
element of the bill--and when Congressman Dingell was here, he 
was expressing some concerns about this, too. That is a complex 
question, but in my opinion of all of the questions that we 
have heard in our hearings and the working group, that is the 
one that we still don't have a satisfactory answer for.
    Mr. Richardson. I think we can work something out. We 
recognize that a State might not have the incentive to set up a 
transmission line that benefits consumers in another State. 
However, we still think that having regional compacts would be 
the way to go to resolve a difficulty with that. But we will 
work with you on that.
    Mr. Sawyer. Sort of like in low-level nuclear waste sites.
    Mr. Barton. The gentleman's time has expired. Mr. Largent 
to inquire.
    Mr. Largent. Thank you, Mr. Chairman. In the 
administration's bill as well as the Largent-Markey bill, there 
is a provision that provides for a regional transmission 
planning organization different from an RTO, a planning 
organization that specifically is charged with the 
responsibility of siting new generation and transmission that 
would address these issues that you were just talking about 
with Mr. Sawyer and Mr. Barton.
    I want to make a couple of comments. One is that there has 
been some expressed reticence about why we are doing this. We 
have answered that question whether we should be deregulating 
electricity and what are the benefits. By deregulating 
airplanes, trains, gas transmission, telecom, we have all seen 
that it is the right thing to do and that there are tremendous 
benefits. So the question that we are trying to answer now is 
not whether we should or how we should, but when we should. And 
my hope is that it is sooner than later.
    I want to get into some of the questions that the ranking 
member, Mr. Dingell, brought up. One of the questions: Are we 
not running roughshod over State legislatures? And I think the 
simple response is no, absolutely not. We clearly give States 
the opportunity to opt out, both in the administration and in 
the Largent-Markey bill. You don't want to compete, you show 
that a class of customers are going hard, and you don't have to 
compete. So you clearly have the opportunity to avoid 
competition if you want to.
    And the premise and the reason why this is a more workable 
solution that you, Mr. Secretary, have seen and we have seen as 
well, is that we believe that the market works and that market 
pressure will force people into competition and that the 
government doesn't have to.
    I want to get to my questions here, and that is a couple of 
points. One is on the grandfathering provision. I think this is 
an area that the administration needs to look at. Mr. Shimkus, 
from Illinois--the State of Illinois has moved competition in 
sort of a piecemeal fashion. On some of their entities they 
have said on a date certain, it is not until 2007, without 
specific language on grandfathering in your bill, you would 
order competition in Illinois and override the Illinois 
legislature, and so there are some areas that I think you need 
to look at that. We have addressed that in our bill and I think 
looking at that would be important to bring some of these 
States that already have gone on board.
    I want to get to the renewable portfolio and the whole 
environmental issue. My first question is, and we have had 
numerous people testify before this committee, do you believe 
that competition, the net effect of competition--forget 
renewable portfolio--will be better for the environment and 
will be providing more reliable electric grid than we currently 
have?
    Mr. Richardson. Congressman, the answer is yes. It would be 
better for the environment. It would reduce greenhouse gas 
emissions. Let me also say to you that we would be prepared to 
accept your explicit grandfather clause. We have an implicit 
grandfather. We think that it is clear. But given what I have 
heard here, we would be prepared to accept the explicit 
grandfathering clause that is part of your bill.
    The first point that you made, those organizations, those 
are some of the compacts that I was trying to explain. On the 
renewable portfolio, one of the reasons that we are stimulating 
the renewable portfolio is not just for conservation and clean 
energy and promote energy renewables, but also some of these 
solar, wind, biomass, they are not what are called mature 
technologies yet. So what we are trying to do is stimulate 
them.
    Was that the nature of your question?
    Mr. Largent. No. If you want to stop right there, you will 
be doing good. I understand what you are saying.
    The issue that I would like to raise is that I think by 
moving to competition, it is going to really spur a lot of 
innovation in a lot of areas. You are going to have more 
combined cycle and types of generation, even using fossil 
fuels, gas, coal, there will be cleaner and more efficient 
generation of electricity as a result of going to competition 
that will be better for the environment.
    My question is--and we have not figured this out either--
how do we incentivize that type of innovation that may not be 
renewable; it may be gas or coal, but the net effect is that it 
is very positive for the environment?
    Mr. Richardson. We agree. We think that our bill and your 
bill gives better incentives for better fuel use, greater 
opportunities to market green power and competitive markets. We 
talked about renewable portfolio standards. The Public Benefits 
Fund promotes conservation, and both of our bills contain 
measures to remove barriers to stimulate combined heat and 
power and distributed power technologies that are very 
conducive to the goals that you and I have.
    I would urge you, Congressman, to consider in your bill to 
raise the renewable portfolio from 3 to 7.5. That would be my 
only constructive suggestion.
    I think there will be some members of this subcommittee, 
but certainly of the full committee, that will be wanting to 
get into the Clean Air Act on the electricity bill. Is it your 
position that opening up that can of worms will be a poison 
pill for ever getting an electricity restructuring bill?
    Mr. Richardson. Yes, it would be a poison pill.
    Mr. Largent. Thank you.
    Mr. Whitfield [presiding]. We are going to have a series of 
votes coming up.
    What I would like to propose and do, Mr. Rush, if you would 
like to proceed with your questions and then when you finish, 
we will adjourn until 12:45.
    Mr. Rush. Thank you, Mr. Chairman. I really appreciate your 
recognizing me.
    Let me just say, Mr. Secretary, I am heartened by your 
expressed comments regarding accepting Largent-Markey's 
explicit language on grandfathering. It means a lot to me, as I 
do represent a district in Illinois.
    The administration's legislation allows electric co-ops, 
munis and States to opt out of electricity restructuring if 
they can show after notice and hearing that retail competition 
will have a negative impact upon a class of customers that 
cannot be reasonably mitigated.
    Can you further elaborate? And I think you started with the 
questions and your answer to the questions from Mr. Bilirakis, 
but what is exactly meant by negative impact that cannot be 
reasonably mitigated?
    Mr. Richardson. We probably should have clarified that 
language. It basically means that we are trying to preclude 
consumer rates and pricing from going up.
    Mr. Rush. Preclude them from going up?
    Mr. Richardson. Yes.
    Mr. Rush. You also indicated that the administration's bill 
would subject the transmission lines of all utilities, 
including those owned by cooperatives and municipal utilities, 
to FERC jurisdiction. The stated purpose is to ensure greater 
competition. That said, it is often the case that cooperatives 
own very few miles of transmission lines but, under the bill, 
would be subject to FERC order 888 and its tariff-filing 
requirements.
    It seems that by subjecting cooperatives that own so few 
miles of transmission lines to tariff-filing requirements will 
be overly burdensome and may put cooperatives at a distinct 
disadvantage. Could you explain how competition would be 
compromised if cooperatives that own few miles of transmission 
lines are exempted from the tariff filing requirement?
    Mr. Richardson. Congressman, we want to make sure that co-
op facilities are treated fairly. We think that this bill does. 
We recognize that some of the small co-ops don't own some of 
the interstate transmission lines as defined by FERC; and, 
therefore, those that don't own those transmission lines would 
not be subject to FERC competition.
    Those co-ops that do own transmission facilities, we think 
that they should not be treated differently than other 
transmission owners. However, let me just say that FERC can 
exempt those co-ops and other utilities which only own small 
amounts of transmission which are considered not essential to 
competitive markets.
    So I know how deeply you care about some of those co-ops, 
especially in an urban area, but we believe that the bill is 
fair to them. Basically the smaller ones have a protection and 
that is what we are trying to do.
    Mr. Rush. Have you developed cost burdens, projected cost 
burdens, on smaller municipal and cooperatives under your bill?
    Mr. Richardson. Congressman, we have broken it up by 
customers, not by utilities, but I have got my--if you want to 
hear, I have an expert.
    Mr. Rush. We don't have enough time. Will you get that to 
me?
    Mr. Richardson. I will.
    [The following was received for the record:]

    The vast majority of smaller municipals and cooperatives do not own 
transmission facilities and would therefore bear no cost burden under 
our proposal. We believe that FERC already has authority to exempt 
utilities that have small amounts of transmission which are not 
considered essential to competitive markets, and we would expect FERC 
to provide such exemptions. We would also support an explicit 
clarification of FERC authority to provide such exemptions. Given the 
above, we envision virtually no cost burden for smaller municipal and 
cooperative utilities.

    Mr. Rush. Thank you. Mr. Chairman, I yield back the balance 
of my time.
    Mr. Barton. Mr. Secretary, we are going to give you a 
personal convenience break. The committee is in recess until 
12:45.
    [Brief recess.]
    Mr. Stearns [presiding]. The Subcommittee on Energy and 
Power will reconvene. The chairman has asked me as vice 
chairman to start at 12:45; he will return at 1. And we also 
want to thank the Secretary for his patience. I understand that 
he would like to leave at 1:15 or thereabouts. So without 
further ado, we will continue our questions with Mr. Shimkus 
recognized for 5 minutes.
    Mr. Shimkus. Thank you, Mr. Chairman. Mr. Secretary, I will 
get right to brass tacks on some of these questions. One 
response that we need to understand about the Midwest power 
spikes is that it did send a market signal out to industry, and 
this year there is increased generation. So that unique event, 
the market has responded by creating new generation in the 
Midwest and has eased a lot of the tensions that many of us 
were fearful we would see again this year.
    On your testimony on page 10, you list a concern for rural 
co-ops and I was interested in hearing my colleague, Bobby Rush 
from Illinois, and the fact regarding New York City and the 
urban co-ops that are forming. This was addressed in the 
meeting that we had on Tuesday.
    I think you all are saying that you don't see regulation of 
the smaller co-ops. In Mr. Rush's case, that would be with very 
little transmission lines or none, in essence.
    In my area there are rural co-ops who are at the end of the 
line, and I think we are going to be looking for some maybe 
stronger language that says we are not going to regulate the 
rural co-ops that have no--that are not in the major 
transmission grid, they are at the end of the lines or bounded. 
Can you expand on your position a little more?
    Mr. Richardson. Yes. Congressman, we would prefer to give 
FERC that flexibility and I think we have given the rural co-
ops--and we want them to be happy with this bill. I had a 
meeting with our former colleague, Glenn English; we want them 
as part of this bill to feel that not only are they protected 
but they can flourish. We first have that rural safety net 
which we have calculated based on national wire charges of up 
to 1.7 mills kilowatt per hour would be available if I 
determine that competition has adversely impacted rural 
consumers.
    What I told Mr. Rush is that we want to give FERC this 
ability to make those decisions, but what we have is a 
differentiation between the small distribution cooperative 
utilities that own lines as defined by FERC and the ones that 
don't. So we believe that co-ops that do own transmission 
facilities should not be treated differently than other 
transmission owners. So we are trying to say to the co-ops that 
we want to be protective of their objectives.
    Mr. Shimkus. But obviously based upon my question, they 
don't have that surety, and I guess the more precise question 
would be is there anywhere that there is exemption of co-ops 
with de minimis transmission? And I think that is something 
that has to be addressed.
    Mr. Richardson. We don't have a specific exemption but FERC 
has that authority. And I think FERC has enough guidelines and 
enough sense to recognize that rural co-ops that may not be 
positioned properly deserve some type of protection.
    Mr. Shimkus. And where do you think FERC has that authority 
stated now?
    Mr. Richardson. I am told that it is order 888 that gives 
them this existing authority.
    Mr. Shimkus. I am being told 888 does not refer to 
distribution co-ops.
    Mr. Richardson. What this does is, this is a clause that 
gives FERC authority on some of these distribution clauses. 
That is my understanding.
    Mr. Shimkus. So maybe we need to work in the working groups 
to try to----
    Mr. Richardson. I want to work with you on the rural co-
ops. I know that they are important. They are essential. I 
think we can do that.
    Now, I do think that they will benefit from competition. I 
think there may be a little bit of concern that they won't, but 
I do think that they can.
    Mr. Shimkus. I agree with you, too. I am a big proponent, 
and I think eventually they will see the great benefits. And I 
know that Mr. Largent mentioned Illinois--and I guess my 
biggest concern, and the chairman would be really upset if I 
didn't trumpet the horn for the State bills, the 
grandfathering--and of particular interest to Illinois is the 
severability clause that is in our language, and we have to be 
very careful that if--and I am having this fight with the 
chairman--that if there is something in the Federal language 
that changes the Illinois bill, the Illinois bill by definition 
tumbles down and they have to restart the process. And we want 
to make sure that does not happen.
    Mr. Richardson. Congressman, on the first issue, you may 
not have been here, and I know that you have talked to me about 
this, I have agreed to a specific grandfathering clause, an 
explicit. Ours was implicit. And I know your State and I 
applaud your State. I talked to your Governor about it. This is 
a very good bill and we are ready to say that we accept an 
explicit grandfather.
    Mr. Shimkus. God bless America. Thank you.
    Mr. Stearns. The gentleman's time has expired. The Chair 
recognizes Mr. Burr for 5 minutes.
    Mr. Burr. Thank you. Has DOE met with Wall Street to get 
their response to your bill?
    Mr. Richardson. I have had meetings with Wall Street 
people, yes.
    Mr. Burr. Did they feel that your bill would generate a 
flight of capital to this industry?
    Mr. Richardson. Yes, I think they felt that this is a bill 
that has potential to generate capital, to give them investment 
opportunities. I addressed a Wall Street group, I think it was 
about 3 weeks ago, and the response that I got was quite 
positive.
    Mr. Burr. The working group, I think, is going to do the 
same. Does the administration's bill increase or decrease 
Federal regulation?
    Mr. Richardson. Well, we decrease Federal regulation. We 
consider our bill--this is a discussion I had with Congressman 
Dingell. We think that we restructure rather than deregulate. 
We are not adding more regulations. What we are doing is we are 
moving ahead with reducing Federal impediments to promote 
competition. I would say that is the basic objective of the 
bill.
    Mr. Burr. Let's suppose for a second that a co-op chooses 
to opt out under your opt-out provision.
    Mr. Richardson. Right.
    Mr. Burr. Let me ask you, would they still be required to 
meet DOE, FERC, EPA, FTC rules on retail consumer information 
disclosure of rates and terms found in your bill?
    Mr. Richardson. Yes, they would.
    Mr. Burr. Would they be under the DOE and FTC subpoena and 
enforcement authority covering retail data, notwithstanding 
jurisdictional limitations of the FTC Act?
    Mr. Richardson. Yes.
    Mr. Burr. FTC rules barring slamming and cramming?
    Mr. Richardson. Yes.
    Mr. Burr. DOE residential electric consumer data base and 
related DOE power to request any appropriate information?
    Mr. Richardson. Yes.
    Mr. Burr. From electric retail suppliers, $3 billion in 
Federal tax generation to the public fund?
    Mr. Richardson. Yes.
    Mr. Burr. Even if they opted out, they would have to pay?
    Mr. Richardson. Yes.
    Mr. Burr. Federal limitations on State retail wire charges 
for public benefits?
    Mr. Richardson. Yes.
    Mr. Burr. 7.5 percent renewable standards?
    Mr. Richardson. Right.
    Mr. Burr. Even if they opted out, the local grid net 
metering?
    Mr. Richardson. That is right.
    Mr. Burr. Local interconnection rules?
    Mr. Richardson. Yes.
    Mr. Burr. Retail market competition effects?
    Mr. Richardson. Yes.
    Mr. Burr. The FERC advanced review over generation-only 
mergers, they would actually expand FERC's merger from 
generation to generation only?
    Mr. Richardson. That is correct.
    Mr. Burr. It would give FERC the authority to order an end 
to ISO entities?
    Mr. Richardson. Yes.
    Mr. Burr. It would give the authority to regulate co-ops or 
munis under the system?
    Mr. Richardson. Yes. And our objective there is to promote 
wholesale competition.
    Mr. Burr. It would also increase DOE's authority over 
worker safety which is already covered under OSHA, wouldn't it?
    Mr. Richardson. I don't believe we do. What we talk about 
in the bill is model codes, but I don't believe we over take 
OSHA's jurisdiction.
    Mr. Burr. As you and I both know, we are both headed to the 
same place, and that is a bill.
    I think we attempt to get there in a little bit different 
way. Let me ask you just one last thing. Define market power 
for me? I have heard everybody in the world use it.
    Mr. Richardson. Market power.
    Mr. Burr. Because we are proposing that market power will 
be regulated by FERC. And to my knowledge there is no current 
Federal agency that regulates market power.
    Mr. Richardson. The ability to control a price in a 
volatile market.
    Mr. Burr. But your bill extends the jurisdiction, I think, 
to FERC to force divestiture when they have determined that 
market powers exists to a degree that is threatening, without 
market powers or threatening being defined?
    Mr. Richardson. I think the objective here, Congressman, is 
to give FERC the ability and the authority to prevent utilities 
from abusing their market power in a manner that manipulates 
prices in a specific region. Additionally, FERC's authority 
over mergers would be extended to mergers between holding 
companies and FERC to--we would want to look at the impact of a 
merger on retail competition.
    Mr. Burr. So through the administration's bill, do we 
increase regulation or decrease regulation?
    Mr. Richardson. I think we decrease regulation, but there 
has to be a role for a Federal entity that not only is reducing 
regulation, getting statutes that promote retail competition, 
but I think there has to be some oversight, and I think you and 
I can work together to deal with that. But FERC has been a good 
agency. It is active. It has a new chairman.
    Mr. Burr. I think the first thing that Wall Street would 
tell me and you and every member, if all we do is reregulate or 
increase regulation, we create new things for FERC, and capital 
will not see this as a great opportunity. So I look forward to 
working with you, as you well know, to try to make sure, 
because in the end my final test is how does capital respond to 
what we do.
    Mr. Richardson. And I think your objective and mine are the 
same, to develop competition, and we are heading in very much 
the same direction.
    Mr. Burr. Are the co-ops on board with the administration's 
plan?
    Mr. Richardson. I can't speak for them. I would sense they 
are moving in our direction. But they still have some 
provisions that they want clarified. But in general, I think 
they are supportive. They are fearful of some types of 
competition, especially from some of the bigger utilities. And 
we are ready to work with them. I represented many co-ops over 
many years, and I think they are very much moving in our 
direction. And I think competition is good for them. And this 
is something that I believe will make them stronger.
    Mr. Burr. As you know, there is a proposal on the table for 
no date certain, but a firm use of reciprocity. Do you see that 
personally as an effective tool or does it not create the 
incentive that you have talked about earlier?
    Mr. Richardson. I think, Congressman, I think we need both. 
I think you need a date certain and you need reciprocity. You 
need a date certain because you want to be able to have 
language and timeframes so that competition is stimulated. But 
we are ready to work with you on both of those.
    Mr. Burr. I would ask the chairman for unanimous consent if 
we have additional questions that we could include those into 
the record.
    Mr. Barton. Without objection.
    That completes the first round. We are going to kind of a 
general free-for-all. Congressman Hall has some questions and I 
have questions, and Mr. Whitfield. You have to leave at 1:15; 
is that correct?
    Mr. Richardson. Yes.
    Mr. Barton. Let me ask the first question and then other 
members that wish to, just join in.
    The electricity bill that you sent to the Congress was 
actually two bills. You have an authorization bill and you have 
a tax bill. We don't have jurisdiction on tax issues, so do you 
view the combination of the two bills as inextricably linked? 
And, if so, what do we need to do with the Ways and Means 
Committee?
    Mr. Richardson. Well, we need to obviously respect the 
jurisdiction of the Ways and Means Committee, but we think that 
the policy is set by this committee and we think that it is 
essential that the policy framework that we are seeking be 
first approved by this committee.
    You are right, Mr. Chairman, we need to work with the Ways 
and Means Committee. We have gotten generally good responses 
from them, but my sense is that everybody is looking to you to 
move because you are the main policy committee that has to deal 
with it.
    Mr. Barton. Your bill, the administration bill also has a 
Public Benefits Fund provision in it, and quite honestly, 
talking to members on both sides of the aisle, I don't see a 
lot of support for that in a national bill. Every State that 
has legislatively done something has included a Public Benefits 
Fund in their State legislation, and in most States they have 
increased the amount of money going into that fund. Given that 
fact, don't you think that that lessens the necessity of 
including a Public Benefits Fund provision at the Federal 
level?
    Mr. Richardson. Here is our concern, Congressman. We think 
that with the advent of competition, that utilities might not 
be willing to recover these costs from their customers. 
Therefore, we think that it makes sense--this is a very modest 
amount. And the goals are noble. It helps low-income persons 
pay for their bills. It promotes renewable energy.
    Mr. Barton. We know all of the good things that it proposes 
to do, Mr. Secretary. But do you know of any State that is 
active that hasn't included a Public Benefits Fund? We are not 
aware at the committee level that the States haven't done 
exactly what you are wanting them to do.
    Mr. Richardson. But I think the worry is that the utilities 
will not take these steps when competition takes place.
    Mr. Barton. But do you agree that the States have taken 
care of the problem?
    Mr. Richardson. I will provide you a breakdown, but I think 
some States have transitioned these Public Benefit Funds and 
are ending them. This is what worries us. We think that there 
should be this safety net.
    [The following was received for the record:]

    Information on recent trends in spending for two types of public 
purpose programs (demand-side management/energy efficiency and low-
income assistance) is readily available.
    Data collected by the Energy Information Administration indicates 
that total utility expenditures on demand-side management fell by 50 
percent between 1994 and 1998. The American Council for an Energy 
Efficient Economy has also compared peak spending for demand-side 
management programs to State public benefits funding in the fourteen 
States that have decided on public benefit fund amounts for energy 
efficiency. Comparing 1993 actual spending amounts to average public 
benefits fund amounts in these States, the average net change is a 
decline in spending of $61 million/year. Eight States increased funding 
over 1993 levels while 6 States decreased funding.
    With respect to low-income assistance, a July 1997 report by Oak 
Ridge National Laboratory, Low-Income Energy Assistance in a 
Restructuring Electricity Industry: An Assessment of Federal Options 
(ORNL/CON-443), reviewed national spending on low-income energy 
assistance. The report estimates that support for low-income 
electricity services in 1996 was between $400 and $600 million with a 
Federal contribution of roughly $300 million. Total low-income energy 
assistance for all fuels, including oil and natural gas used for 
heating, was $1.8 billion. A review of state-level information suggests 
that during the transition to restructured electricity markets, States 
have generally provided for low-income assistance at levels roughly 
comparable to those provided prior to restructuring. during the 
transition to restructured electricity markets
    Two additional points applicable to all types of public purpose 
programs are important. First, public benefit funds at the State level 
are typically established for a limited period, usually 3 to 5 years. 
The program offered in the Administration proposal would encourage 
States to continue their programs in order to qualify for the matching 
funds. Second, while many States have acted, most have not yet 
restructured or have yet to determine funding mechanisms and levels for 
public purpose programs. The national public benefits fund offers an 
incentive for these States to provide public purpose programs.

    Mr. Barton. I am just asking questions because I wanted to 
get the ball rolling. Mr. Shimkus, did you have a question?
    Mr. Shimkus. Of course, Illinois does have a very strong 
one. Of the 22 States, these are new legislation. This is all 
new legislation, so I didn't understand the comment that you 
are fearing that they are ending when--these are all new pieces 
of legislation that are dealing with deregulation.
    Mr. Richardson. Well, I think the worry, some of the States 
that have passed competition bills only have it for a few years 
so they are ending them. This is what worries us. We think that 
there should be a little pot there. It is not that big and it 
is not going to hurt the utilities. We think that it is money 
that comes back in many other good forms.
    Mr. Shimkus. I would yield back but that is not my 
question, Mr. Chairman.
    Mr. Barton. Mr. Hall?
    Mr. Hall. I have been away and I don't know if this has 
been asked, I know that you are aware for the last 30 years the 
United States and Canada have been electrically divided into 
so-called reliability regions, and one of these regions is 
called the Electric Reliability Council of Texas called ERCOT. 
You have heard that every time that we have been here, and it 
is completely contained within the State of Texas.
    All transmission owners within ERCOT are already regulated 
by the Public Utility Commission of Texas or by FERC, and that 
is for purposes of open access, transmission service; and by 
State law, utility commission rules for open access have to be 
consistent with FERC open access regulations.
    While I understand the need for FERC to extend the 
jurisdiction for major transmission owners across the U.S. to 
close any gaps--there might be a jurisdictional gap in an open 
access area--wouldn't you agree that there are no 
jurisdictional gaps to be filled within ERCOT within the State 
of Texas? If there are, I am not aware of them.
    Mr. Richardson. I think, Congressman, I want to work with 
you on that. We know the unique status of Texas on this and 
many other aspects, and we want to work with you. We have the 
North America Reliability Council, which we think that concept 
works well. I will tell you, though, I just met with a number 
of western Governors of western States who wanted to make sure 
that their input into this bill and this future transmission 
process is taken into account, and we will do that. If I can 
work with you to see how we can deal with the unique status 
of----
    Mr. Barton. Would the gentleman yield?
    Mr. Hall. Yes.
    Mr. Barton. Do you know who the current chairman of the 
NERC is?
    Mr. Richardson. He is a Texas guy.
    Mr. Barton. Yes, Erle Nye of Texas. So Texas is part of 
NERC, and we will be very happy for ERCOT to continue to work 
within the NERC framework.
    Mr. Hall. And Erle Nye has indicated a willingness to meet 
with you any time to advise you on this.
    Mr. Barton. And you do know that Congressman Hall is from 
Texas. You do know that the chairman of this subcommittee is 
from Texas, so you know that we are going to be very concerned 
when we look at things in Texas.
    Mr. Hall. I sat right by and supported the gentleman from 
the West for 12 years.
    Let me ask you to accept the fact that--a little more Texas 
bragging here--the first operational independent system 
operator ISO, as they are commonly called, in the country was 
the ERCOT ISO. If you accept all of these, I have a question 
that I want to ask you. The ISO was formed by ERCOT market 
participants at the direction of the utility commission, and 
the ISO ensures fairness and governance with a balanced 
stakeholder board, using a Democratic one-person, one-vote 
system. Since ERCOT already has the major attributes FERC is 
looking for nationwide--and don't tell him to disagree with me, 
we set your pay, you know, he doesn't. Since ERCOT has already 
had the major attributes that FERC is looking for nationwide, 
reasonable rates and a working ISO that generally meets FERC's 
transmission organizational principle, what can FERC 
jurisdiction possibly add to it?
    Mr. Richardson. Well, Mr. Ranking Member, we do give FERC 
that flexibility. We got into this discussion with Congressman 
Burr. I just think that you have to have some oversight. You 
have to have some standards and I think that is what we are 
trying to do.
    Mr. Hall. Well, I must say that you have been very 
reasonable and available for us to talk to and negotiate with.
    Mr. Barton. Would the gentleman yield?
    Mr. Hall. Sure.
    Mr. Barton. We had this same discussion on Tuesday in our 
working group with Chairman Hoecker and Commissioner Hebert of 
the FERC, and the way I put it to them, as long as the State 
conforms with to give the FERC the authority to set the 
guidelines, and then you have to require conformity, the bottom 
line is to make sure that there is oversight.
    Mr. Hall. Anybody not satisfied, Mr. Chairman, has recourse 
to FERC.
    Mr. Barton. So it is not a question of either/or; it is a 
question that you set the rules. But if you wanted State PUC, 
if it is totally intrastate, they should have that authority. 
Do you have a problem with that?
    Mr. Richardson. Well, you know, we give FERC that 
authority, but that is something that we can discuss, given the 
dramatic interest of Texas in this process.
    Mr. Barton. The gentleman from North Carolina, Mr. Burr, 
and then the gentleman from Illinois, Mr. Shimkus.
    Mr. Burr. Thank you, Mr. Chairman.
    Mr. Secretary, Chairman Hoecker also made a statement at 
this subcommittee. He said that FERC would be unable to ensure 
the availability of open access transmission unless electric 
co-ops, along with other utilities, became subject to agency 
jurisdictions under order 888.
    Let me ask you, given that that is clearly the sign of the 
direction the FERC wants to go is to cover everybody under 888, 
I am concerned in your bill with the expansion of their control 
for transmission, that a distribution co-op that generates 
their power and then gets that power to their distribution 
network to distribute to their retail customers, would in fact 
have to file under a transmission company if they met the----
    Mr. Richardson. Well, Congressman, it would not if it had 
interstate transmission facilities. If it didn't, that is the 
differentiation. We basically try to differentiate between the 
larger and the smaller, the more powerful and the less 
powerful.
    Mr. Burr. It is based on the amount of kilowatts moved over 
that transmission, and given the fact that they are rural, the 
likelihood is that we have a number of co-ops who would have 
to, one, pay a $25,000 filing fee, would come under all of the 
rate and tariff reporting and review of FERC, where they are 
currently regulated by FERC for open access, but don't fall 
under any of these specific requirements.
    Mr. Richardson. We don't think that these are very 
burdensome requirements. Now again, we want them to feel that 
by entering into this competition market, that they will get a 
chance to get more customers. Their prices are competitive, 
their technology is competitive.
    Mr. Burr. As you and I both know, co-ops today utilize for 
their lowest generated power hydro. It is not included in the 
7.5 renewable requirement that they would fall under even if 
they opt out. And I guess one has to figure, are the co-ops 
actually going to see an increase or a decrease in what they 
are able to pass on to their customers?
    Mr. Richardson. I think they will do well. Now, on the 
hydro issue, I think we have discussed this before. Hydro is 
clean, it is efficient, it is also a mature technology. It is 
not a technology that we felt was in the same category as 
others that still need a little help and more technology, that 
haven't access to as much commercialization. That is why we did 
not include it.
    Mr. Barton. The gentleman from Illinois.
    Mr. Shimkus. I know when you were a member here, you signed 
letters in support of bio-diesel. My question is simple. Does 
your definition of biomass include bio-diesel? And for the 
agricultural ravaged sector of the United States, it ought to 
consider soybeans and corn.
    Mr. Barton. He wouldn't show me that question, Mr. 
Secretary. He hid it from me.
    Mr. Richardson. I remember signing a letter about bio-
diesel.
    Mr. Shimkus. Yes, it helped me pass that legislation last 
year. I appreciate that.
    Mr. Richardson. Therefore that is our policy; it is 
included, bio-diesel.
    Mr. Shimkus. Amen.
    Mr. Barton. What does that have to do with electricity 
restructuring? Does any other member wish to ask a question. 
Mr. Shadegg, do you wish to ask questions?
    Mr. Shadegg. I pass.
    Mr. Barton. Mr. Secretary, we will have other questions for 
the record. I have three or four, but you said that you wanted 
to leave by 1:15.
    We are very serious about drafting a comprehensive 
bipartisan bill, and we want to thank you for your strong 
leadership and support on this issue and for appearing before 
our subcommittee. We will be in contact very soon.
    Mr. Richardson. Thank you very much.
    Mr. Barton. This hearing is adjourned.
    [Whereupon, at 1:20 p.m., the subcommittee was adjourned.]


                   ELECTRIC RESTRUCTURING LEGISLATION

                              ----------                              


                        THURSDAY, JULY 22, 1999

                  House of Representatives,
                             Committee on Commerce,
                          Subcommittee on Energy and Power,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 11 a.m., in 
room 2123, Rayburn House Office Building, Hon. Joe Barton 
(chairman) presiding.
    Members present: Representatives Barton, Stearns, Largent, 
Burr, Norwood, Shimkus, Bryant, Ehrlich, Bliley (ex officio), 
Hall, McCarthy, Sawyer, Markey, Pallone, Brown, Rush, Wynn, and 
Dingell (ex officio).
    Staff present: Cathy Van Way, majority counsel; Jeff 
Krilla, majority counsel; Joe Kelliher, majority counsel; Curry 
Hagerty, majority counsel; Ramsen Betfarhad, majority counsel; 
Donn Salvosa, legislative clerk; Sue Sheridan, minority 
counsel; and Rick Kessler, minority professional staff.
    Mr. Barton. The subcommittee will please come to order. We 
have a large number of witnesses today. We have a fairly 
significant number of bills to review. The Chair is going to 
ask unanimous consent that his written statement be put into 
the record. I am going to dispense with the reading of it in 
the interest of time.
    [The prepared statement of Hon. Joe Barton follows:]
Prepared Statement of Hon. Joe Barton, Chairman, Subcommittee on Energy 
                               and Power
    I'd like to welcome everyone to today's hearing in which we examine 
electricity restructuring bills which have been introduced in the 106th 
Congress and referred to this Subcommittee.
    When I took the helm of this Subcommittee at the beginning of this 
Congress, one of the goals we set for this Subcommittee was to pass 
comprehensive Federal electricity legislation that lowers electric 
prices for consumers by promoting competition in retail markets. 
Towards this end, today we are going to examine a number of bills which 
have been introduced to restructure the electricity industry in this 
country. There are many elements common to each of these bills: 
promoting retail competition, assuring consumer protection and 
clarifying federal and state authority as well as the scope of what 
Federal legislation should be with respect to reliability and 
transmission.
    Now that I have had a chance to study many of these bills more 
closely, I am heartened to see that we agree on many of the same goals, 
although in some cases we disagree on the means of getting there. But 
in general, there are more issues of consensus than not, which gives me 
great hope that a comprehensive electricity bill can be reported out of 
this panel with large support. Surely we won't all agree on every 
point, but the wide range of members who see comprehensive 
restructuring legislation as a positive and inevitable trend is 
encouraging.
    For anyone who hasn't seen the writing on the wall and still 
believes they can avoid competition, I have a message for you: its too 
late. Don't waste your time and energy trying to stop it and instead 
join in on the effort. Competition is coming. It's been proven over and 
over again competition leads to lower prices, improved customer 
service, and greater innovation. Federal and State legislators and 
regulators alike recognize that market forces and customer choice--not 
monopoly control and government regulation--should determine the prices 
that consumers pay for electric service. All we are doing now is 
working out the details and I invite everyone to constructively engage 
in the process.
    I believe there is a Federal role in assuring that utility 
competition benefits all consumers and electric utility restructuring 
saves American consumers $20 billion annually, and I am going to 
endeavor to pass a bill as expeditiously as possible.
    In this hearing I look forward to listening to the interests 
represented here today and work towards a restructured electricity 
markets.

    Mr. Barton. I welcome everybody to the hearing.
    This is a review of several bills that have already been 
introduced on electricity restructuring. We hope in the very 
near future to have a comprehensive bill that this subcommittee 
introduces on a bipartisan basis. We will hold a number of 
legislative hearings on that particular bill.
    Before we do that, we want to take a look at H.R. 667, the 
Power Bill; H.R. 971, the Electric Power Consumer Rate Relief 
Act; H.R. 1138, the Ratepayer Protection Act; H.R. 1486, the 
Power Marketing Administration Reform Act; H.R. 1587, the 
Electric Energy Empowerment Act; H.R. 1828, the Comprehensive 
Electricity Competition Act; H.R. 2050, the Electric Consumer's 
Power To Choose Act of 1999; and H.R. 2363, the Public Utility 
Holding Company Act.
    I would like to recognize either Mr. Hall or Mr. Brown for 
an opening statement. Mr. Hall, would you like to be 
recognized?
    Mr. Hall. Defer to Mr. Brown.
    Mr. Barton. We will defer to Mr. Sherrod Brown of the great 
State of Ohio for what, I hope, is a brief opening statement.
    Mr. Brown. It is pretty brief, Mr. Chairman. Thank you and 
I thank both the gentlemen from Texas for the time. I will be 
introducing in the next week or 2, Mr. Chairman, the Community 
Choice For Electricity Act. The bill would ensure that 
individual electric consumers can aggregate, can join together 
to form buying groups to obtain better electricity rates and 
services than they could on their own.
    The legislation would apply only to States in which retail 
competition for electricity is already in effect. It would 
neither encourage nor discourage electric utility deregulation 
at the State or the Federal level. In addition to encouraging 
aggregation generally, this bill would give local governments 
the option to pursue a particular type of aggregation known as 
community choice.
    Through a City Council vote or a referendum, citizens could 
decide that their local government will negotiate an 
electricity contract for all consumers within the boundaries of 
the community. Participation is completely voluntary. Cities, 
towns, or counties must pro-actively decide to exercise 
community choice.
    Consumers in those communities who prefer to select their 
own electricity suppliers can opt-out with no penalty. 
Communities can join together and form larger buying groups. 
Electric utilities would continue to own and maintain the 
polls. In this type of aggregation, residents and small 
business consumers will be able to obtain lower electricity 
rates.
    Communities could also negotiate with electricity suppliers 
to include renewable energy generation, energy efficiency 
services, and programs to assist low-income customers. 
Community choice can relieve customers of the difficulty of 
evaluating competing offers from electricity suppliers, and the 
annoyance of responding to telemarketers; something with which 
we are all too familiar in the telecommunications industry.
    For an electricity supplier, a local government can provide 
a balanced electric load. Again, Mr. Chairman, this is all 
voluntary. Communities would need to make a decision to 
exercise community choice for electricity. The individual 
consumers who want to make their own choices would always be 
free to opt-out.
    I ask my colleagues to consider these ideas as you review 
the range of proposals for changes in the electricity sector in 
this hearing today, and in subsequent hearings and markups.
    Mr. Chairman, I thank you for your time. Mr. Hall, I thank 
you for yielding.
    Mr. Barton. Thank you, Congressman Brown. We recognize the 
distinguished ranking member of the full committee, Mr. Dingell 
for an opening statement.
    Mr. Dingell. Mr. Chairman, I thank you. My remarks will be 
brief this morning. I am sure that will please you greatly. 
This is an appropriate and convenient time to hold the 
legislative hearings on the sundry bills pending before the 
House, which would relate to electric restructuring.
    The breadth of these proposals underscores the complexity 
of the issues. The witness list indicated to me that a number 
of parties with keen interests and the committee's will be 
heard. It should be noted as well that this is the first 
hearing since Chairman Bliley and you, Mr. Chairman, released 
an outline of your joint legislative proposal.
    Since this proposal appears to reflect concepts embodied in 
the bills' notice for this morning's hearings, I believe that 
the testimony today will be timely. I understand that you, Mr. 
Chairman, also plan to hold separate hearings on the 
legislative language for your proposal, and also for Chairman 
Bliley's joint proposal. I believe that is a good idea.
    If the goal of the legislation is to achieve something 
other than mandating competition, the question remains, should 
the Congress enact restructuring legislation and for what 
purpose? We might also ask when?
    Indeed the question why is not an inappropriate one. Is the 
goal to provide federally managed competition for this 
industry, to redirect, or to direct competitive forces set free 
by the States? Are we in the business then of directing the 
States to take particular action?
    Does this mean that FERC will achieve what appears to be 
their ambition, to play the role of manager? I note that a 
number of FERC's proposals would confer upon them a number of 
new authorities, some of which would be cataloged as being 
clarifications of authorities, which they do not have; a very 
interesting thought I would observe to you.
    The question before us can also be should a State 
jurisdiction of their transmission system be preempted then in 
order to clarify Federal-State jurisdiction which seems to be 
quite clear at this time? If so, how would this work in States 
which choose not to adopt rate competition for the foreseeable 
future?
    Of course, the question again remains at what cost would 
such Federal reforms be secured as events played out in the 
political arena and other legislative issues come to the fore? 
One of the curious things I think we should ask is just how 
much do we want to load this legislation with new green 
proposals?
    How many of our environmental laws do we wish to amend, 
expand, or change? In any event, Mr. Chairman, I commend you. I 
am please to see the committee begin legislative hearings. This 
should help the members get their bearings on the issues. 
Perhaps we can consider matters, other than mandates, and 
better assess the need for time limits, and the prospects for 
moving legislation in the near-term, or whether we ought not 
move any legislation at all until such time as the States have 
carried out their proper responsibilities.
    In any event, Mr. Chairman, I thank you. I look forward to 
the testimony this morning.
    Mr. Barton. We thank you, Congressman Dingell. I think your 
questions that you illucidate in your opening statement are, as 
you put it, also very timely. I think those are the questions 
we need to take a look at.
    The gentleman from Illinois, Mr. Shimkus is recognized for 
an opening statement.
    Mr. Shimkus. Thank you, Mr. Chairman. It is a pleasure to 
be here and at this hearing, as we come to a culmination, I 
think, of a lot of stuff that we have been working on for at 
least the 2\1/2\ years that I have been a Member of Congress, 
and really fevently, this Congress, with the working group.
    I am very interested in hearing the testimony from the 
witnesses on the multitude of bills that have been introduced. 
I am going to focus on comments that deal with market power, 
consumer protection; particularly, since my State addressed 
these issues in its statute or by Commission's ruling.
    I hope to try to gleen from this whether Federal regulation 
is needed or will it create a duplication? In that duplication, 
will it hinder competitiveness? Of course, everyone knows my 
position is ensuring that no harm is done to especially the 
bill. I look forward to these hearings and the process as we 
move forward. I commend the chairman for his great leadership. 
I think there are exciting times ahead. I yield back my time.
    Mr. Barton. We thank you.
    What thank you. The gentleman from Texas, Mr. Hall, is 
recognized for an opening statement.
    Mr. Hall. Mr. Chairman, thank you. We are moving into the 
next phase, maybe in one of the, not the last phase, but a very 
important phase of consideration of our electricity legislation 
with this hearing here today. While we have had other 
legislative hearings earlier on the administration's bill, I 
think this is the first one that the witnesses have really 
gotten down to the nitty-gritty.
    Thank you for submitting your statements ahead of time to 
where we could read it. The chairman would get after you if you 
did not do that. You have done it. We have read them. I think 
you have addressed the specific legislative language in the 
specific bills.
    I am glad to see Glenn English, who was a long-time Member 
of this Congress; always known as a work horse and not a show 
horse. He is pretty enough to be a show horse, but he chose to 
by-golly do the work. I want to thank all of the witnesses that 
are here today. The quality of your testimony is, I think, 
extraordinarily high, extraordinarily helpful, and 
extraordinarily thoughtful.
    For you, I thank you for that and I am sure the chairman 
does. Of course, what we have missing from us today is the one 
bill that is yet to emerge. That is Mr. Bliley's bill. We are 
all anxious to see, on this side, are anxious to see that bill. 
The outline released last week has given us a slight peek at 
what it is going to contain. We are grateful for that. The 
subcommittee chairman, Mr. Barton, has really worked tirelessly 
to open the bill development and drafting process. He has 
assigned to both Democrats and Republicans positions on 
committees.
    He has brought in everyone from the administration, Bill 
Richardson and others knowledgeable and gleaned, I think from 
just about everybody he can, information with which I hope we 
are going to be able to write a bill. Joe, I appreciate your 
efforts to work on this bill, and to work in a collaborative 
basis as you work with Chairman Bliley to develop the best bill 
that you all think can be developed over there.
    I think your approach is the best way to seek consensus. I 
like your questionnaire that you sent out. I hope that you and 
your group will really read the answers to that questionnaire 
as you come up with a bill to submit over here; a bill that we 
hope we can help you with and work with you on.
    In the time remaining, I want to recognize a couple of 
Texans, if you do not mind, who are appearing before us today. 
They are not any of your kin folks. We usually have some of 
your family out there.
    Mr. Barton. We did not sob the audience today.
    Mr. Hall. We got to have a hearing in Ennis, Texas some of 
these times.
    Mr. Barton. My sister is in town. She is not in the 
audience today.
    Mr. Hall. If you have a picture of her----
    On first panel, welcome to Steve Kean, who is with Enron of 
Houston; a friend of ours. On the second panel it is good to 
see Dick Brooks, who is Chairman of Central and Southwest 
Corporation. I might add, welcome to Marty Kanner, who is proud 
to say he was born in Houston, Texas. So, we are glad to have 
you here today and look forward to getting your insights and 
wisdom on the task we are faced.
    What that, Mr. Chairman, I yield back my time. I thank you.
    Mr. Barton. Thank you, Mr. Hall. We did invite a 
constituent of full committee Chairman Bliley's, so that we 
have him covered, and that is Ms. Price-Davis. She is from 
Richmond. So, we do not have any of my relatives, but we do 
have the chairman's constituents. That is probably even better, 
I think, for progress. I will bet she is going to give us some 
good information when we get to that point.
    The distinguished vice chairman of the subcommittee, Mr. 
Stearns, who has a bill that we are reviewing today.
    Mr. Stearns. Thank you, Mr. Chairman. Perhaps we want to 
give the floor to Mr. Hall again. He has done such a great job 
here this morning. I, of course, want to thank you, with my 
colleagues, for holding this hearing.
    The issue before us today, and of course the past several 
years, is one that affects every constituent in everyone's 
district. So, I think we must be mindful of the decisions we 
make in this subcommittee, which will affect all businesses 
across this country. It is for this reason that we should 
continue the pragmatic, thoughtful, and inclusive approach that 
Chairman Barton, Mr. Hall, Mr. Pickering, and Mr. Sawyer have 
sought in addressing this complex issue.
    We have before us a number of bills designed, in one way or 
the other, to regulate this industry. In looking at these 
bills, I believe there is some consensus among all of the 
bills. Mr. Chairman, I thought I might just take a crack at 
outlining the consensus here. Repeal of PURPA, and providing 
for PURPA-mandated cost recovery is one.
    Repeal of PUHCA. Application of FERC authority over non-
jurisdictional entities, including Federal utilities, ensuring 
reliability as proposed by NERC consensus language, authority 
for States to order retail competition. Last, of course, to 
encourage competition through State reciprocity. So, there are 
number areas that almost all of the bills agree upon.
    Of course, there are a number of issues that remain that we 
must address. I am sure with this panel, with these witnesses, 
we will be able to talk about them. So, I look forward to the 
continuation of this hearing and others, Mr. Chairman, as well 
as what my colleagues will offer in the ensuring discussion. 
Thank you.
    Mr. Barton. Thank you, Congressman Stearns.
    We would now like to hear from Congressman Pallone, who has 
also introduced a bill. We do not have it on our agenda because 
it was not introduced on the date that we noticed this hearing, 
but he did introduce a very comprehensive bill earlier this 
week, I believe. I recognize Mr. Pallone for an opening 
statement.
    Mr. Pallone. Thank you, Mr. Chairman, and thank you for 
referencing the bill. It was introduced Tuesday, H.R. 2569. It 
contains environmental and consumer protection provisions that 
I believe are critical to the restructuring debate. I am 
pleased to note that my bill has support from a large spectrum, 
if you will, the environmental community, consumer groups, 
utilities, and others.
    Secretary Richardson attended our press conference Tuesday 
to lend his support to the importance of including 
environmental and consumer protections as we continue through 
this restructuring debate. The core of my bill is designed to 
reduce emissions from all power plants, not by mandatory 
regulations, but by using a market-based approach to achieve 
environmental and human health benefits in a cost-effective 
manner.
    As the Natural Resources Defense Council reiterated, energy 
and environmental sustainable development issues are 
intricately linked. Other provisions that I have included in my 
bill, such as the renewable portfolio standard, net metering, a 
Public Assistance Benefit Fund, and anti-slamming and anti-
cramming protections are in the Administration's bill, as well 
as other bills, some of which are before us today.
    I think that shows the wide range of support for these type 
of provisions. I know that in the testimony today by AARP, and 
we will hear that, it is mentioned that we cannot create 
disadvantages, nor unfair competitive advantages, particularly 
for consumers as we consider restructuring the electric utility 
sector on the Federal level. A Public Benefit Fund is one way 
to ensure universal service for all customers.
    To ensure transparency, my bill includes information 
disclosure or labeling provisions that will be similar to food 
labels, so the consumers can choose their electricity suppliers 
with complete knowledge, because they will have generation and 
emissions data in an easy-to-read and easily understandable 
format.
    Again, AARP is supportive of full disclosure of 
information, including whether power is interruptible, which my 
disclosure provision also would ensure. In addition to the 
anti-slamming and anti-cramming provisions, my bill ensures 
consumers privacy by prohibiting the release of confidential 
information without explicit permission of the consumer. Now, 
we all know that Americans spend over $215 billion each year on 
electricity.
    So, we must take extreme care in thoroughly examining all 
of the issues pertaining to this debate. If we are to enact 
Federal restructuring legislation, we must make sure we get it 
right the first time. So, I will be interested in hearing from 
our witnesses on a variety of issues.
    For example, reliability I think is very central to this 
debate. It has been a major issue in my home State of New 
Jersey during the past several weeks and in the Northeast, in 
general. As I am sure you know, we have experienced various 
rolling blackouts. As more States move toward restructuring, we 
must remove barriers to competition in a manner that is 
equitable.
    We must determination what issues need to be handled at the 
Federal level versus the State level, and clarify State versus 
Federal authority. So, I look forward to hearing from our 
witnesses on these and other issues. Thank you, Mr. Chairman.
    Mr. Barton. Thank you, Congressman Pallone.
    We would now like to hear from Mr. Burr of North Carolina 
for an opening statement.
    Mr. Burr. I thank the chairman and would also thank the 
chairman for allowing the full committee chairman to have a 
witness today.
    Mr. Barton. We ran out of Texans, you know.
    Mr. Burr. Clearly, we now know the population of Texas, at 
least those willing to come testify. We have learned a lot from 
the Texans who have come up here. Certainly the ones today, I 
am sure, will have a wealth of knowledge, not only about what 
Texas has done, but how the Texas experience so far might guide 
us as to what we do. I think that is very, very important; from 
Texas and other States that have started on it.
    We are here to review 8 or 9 bills. I am not sure, based 
upon the information that Mr. Pallone has a bill. That number 
is only surpassed by the number of witnesses we have to testify 
today. So, if quantity is an indication of quality, this will 
certainly be a knowledgeable day that we are started into. I am 
sure that it will be somewhat long.
    Let me take this opportunity to welcome all of the 
witnesses. I think that 90 percent of them will now go on my 
Christmas card list, as much time as we have spent together. 
Clearly, I welcome that because I think we will spend a lot 
more time over the next short-term trying to work out some of 
the differences.
    Clearly with 8 or 9 bills and one general outline 
introduced, this committee has a wealth of options to choose 
from. A wealth of options does not suggest that we 
automatically get it right. I think that the one plea that 
members of this subcommittee have made, at least this calendar 
year, is that our No. 1 interest is to get it right.
    To get it right means that we have to urge all of our 
witnesses, whether it is this hearing today, past hearings that 
we have had, and future hearings that we might have, to level 
with us; to tell us what it is that gets us to the right bill. 
I do not think that it is in total any one of the eight or nine 
bills. After my review of the outline, I do not think that it 
is in fact the answer in total.
    It may be a mixture of all nine and the outline. It may in 
fact be a new document that we have yet to think about. 
Clearly, that is the responsibility that lies on our shoulders. 
It is also the responsibility that lies on the shoulders of the 
individuals who represent the consumers around this country.
    I am confident that no witness has ever come before this 
committee and talked about electricity restructuring without 
consumers first and foremost in mind. Clearly, when you talk 
about this industry, in total, we do talk about an industry 
that is in a major shift. I have one very big principle in 
this. That is to see that if we introduce a deregulation bill, 
that it in fact deregulates electricity. I am not interested in 
substituting a new regulatory authority into the industry, but 
to call it something different.
    The challenge for this committee is to make sure that what 
we do is predictable, understood by all segments of the 
industry, welcomed by Wall Street, but, more importantly, 
welcomed by consumers around this country. I, for one, and I 
believe Mr. Barton, Mr. Hall, and many of the colleagues that I 
serve with, will not quit until we reach that point. It will 
not be a Republican bill. It will not be a Democratic bill. It 
will be a bipartisan bill that attempts to find the balance 
that is best for the country.
    I think for that reason, there is a great deal of optimism 
that we will reach that agreement. We will come as close to 
perfect as we possibly can from the information that is shared 
with us by witnesses. Mr. Chairman, I thank you for the 
opportunity to highlight these bills that have been introduced.
    Mr. Barton. One of which is your bill.
    Mr. Burr. One of which is my bill. I am not concerned with 
authorship. I am more concerned with the final product. I think 
that is the case with everybody who has introduced a bill. I 
would only urge our witnesses today to tell us what we need to 
do to get it right. That is the most important thing you can 
share with us. With that, I yield back.
    Mr. Barton. If you just said, it will take care of Texas, 
you would have had a perfect opening statement.
    Mr. Burr. Mr. Chairman, clearly with an ovation from Texas, 
I have said something wrong.
    Mr. Barton. Let me be serious for just a moment. That was a 
great presentation and opening statement, that all us are proud 
of and would be proud of. How about that?
    The gentleman from the great State of Tennessee, the 
Volunteer State, Mr. Bryant, is recognized for an opening 
statement.
    Mr. Bryant. Thank you, Mr. Chairman. It is a difficult act 
to follow. I do not intend to try to compete with that. In one 
hearing yesterday where Mr. Burr and I sat together, I 
associated myself with his remarks. I will do the same thing 
here. Again, I thank you for convening this panel and the 
second panel as we move toward what may be a final product.
    I commend you for your efforts and your ranking member 
here, Mr. Hall, for keeping this an open process as much as 
possible, giving everyone opportunities to participate, attend 
hearings and working groups, and try to make some sense out of 
a very complex issue.
    Coming from a TVA State, certainly we have concerns for 
TVA. Likewise, and even more importantly, for the consumers of 
TVA, our constituents. We have a caucus, and we have been 
working together trying to develop a consensus, as you have 
asked, to bring to you and to the chairman of the full 
committee on what we would like to see a bill look like as it 
pertains to TVA. That, too, is very complicated and very 
complex.
    Let me assure you that we will continue to work in good 
faith. We, again, thank all of you for being here today. I know 
many of us have other committees that we are on. There is 
another Commerce subcommittee meeting ongoing right now. We 
will be in and out.
    Let me assure you that we are studying your remarks and 
your statements and value, very highly, you input in this, both 
this panel and the second to come. I will yield back the 
balance of my time.
    Mr. Barton. Thank you, Congressman Bryant. I think one of 
the most complex and difficult issues to find a consensus on 
are some of the issues dealing with the TVA. I want to state on 
the record that the work that you have already done, and are 
continuing to do, is excellent. It is bearing fruit.
    I've had a number of individuals from your region comment 
on that and a number of other Congressmen from the region 
comment on that. So, you are doing good work and we appreciate 
that.
    The co-chairman of our Working Group on Electricity 
Restructuring, Mr. Sawyer of Ohio, for an opening statement.
    Mr. Sawyer. Thank you, Mr. Chairman. Thank you for having 
this hearing. Thank you for all of the work that has gone into 
this issue. You are right to characterize it as complex and 
important.
    It is one of those that I think we can accurately call a 
Century bill. The work that has lead us to this juncture is a 
Century old. If we do our work well, the changes that will take 
place over the next Century will find their basis in the 
product that we bring out in this issue.
    I would also like to thank all of my colleagues for having 
taken such care and time to take enough time so that I can be 
38 minutes late for the start of this hearing and still not 
have missed a bit of testimony. With that, I will not take up 
any more of your time.
    Thank you, Mr. Chairman.
    Mr. Barton. We thank you. The Chair must admit, I was 
somewhat late. I was uncharacteristically late. The gentleman 
from Oklahoma, who has one of the bills that is going to be 
reviewed today, and one of the more comprehensive bills with 
Mr. Markey. He has done excellent work on this issue; Mr. 
Largent of Oklahoma for an opening statement.
    Mr. Largent. Thank you, Mr. Chairman. I would like to begin 
by saying thank you to a number of our panelists and people 
that I see here in the audience today who have participated in 
our working group and lent their expertise to our small working 
group that has been working on electricity because their 
insight has been really valuable for us all.
    I want to thank you for calling this legislative hearing. I 
have a brief opening statement that I would like to read and 
then yield back. Thanks for having this legislative hearing to 
specifically address provisions in the Electricity 
Restructuring Bills introduced to this Congress.
    This hearing is an indication that we are coming down to 
the wire in our efforts to vote on a plan to give consumers 
choice of their retail electric provider and that, I wanted ask 
specifically in my opening comments, because I understand there 
are some discussion and rumors that are traveling around K 
Street and downtown that we have stumbled in our effort to move 
forward on electricity.
    I wanted to assure everybody that we are continuing to move 
forward, with a lot of momentum, and I am excited about that. I 
am proud of a bill that I have introduced with Representative 
Ed Markey, H.R. 2050, the Electric Consumer's Power To Choose 
Act, as the only bipartisan and comprehensive electricity 
restructuring bill initiated in the House.
    I feel that we have demonstrated that the challenge of 
opening up the electric industry to retail competition is one 
that can be met when Republicans and Democrats put politics 
aside and get to work on the policy. The Largent-Markey Bill 
focuses on the areas critical to fair and open competition. 
These areas include: setting a date for competition with 
flexibility; strong reciprocity; authority; preservation of the 
sanctity of State Competition Plans with explicit grandfather 
language; market-wide reliability standards; repeal of 
antiquated Federal laws like PUHCA and PURPA; moves FERC 
responsibility from regulating to refereeing; removes obstacles 
in transmission that maximize competition and generation; 
consumer protections from slamming, cramming and privacy 
abuses; encourages aggregation; interconnection and interstate 
compacts; protection from increasing prices result from market 
power; environment-friendly tax credits; and triggered 
renewable portfolio standard.
    Let us recall why we believe this challenge is worth 
accepting. Americans consume more than $200 billion of 
electricity a year, with about half of that used for 
residential purposes. Studies indicate that consumers will save 
between $20 billion and $40 billion through competition. I 
might add by the way, that it is quite possible that consumers 
will save more in the first 5 years after electric 
deregulation, than they will under the tax bill that we will be 
voting on later today. What about the savings from the products 
we buy?
    It requires approximately $700 in electricity to 
manufacture a single car. The cost of electricity in bringing 
food to the market is second only to labor. The benefits of 
electricity touch us all, but so does the increased cost of the 
monopoly under which it is generated today.
    Competition brings out the best in all of us, including the 
industries that we have deregulated: airline, long distance, 
trucking, railroad. Over a 10-year period, we have seen drastic 
reductions in costs from anywhere from 27 to 57 percent. Even 
in the wholesale electric industry, savings are estimated to be 
about $4 billion per year.
    Similar savings in retail electricity rates could save our 
school districts 35 percent on their electricity bills, and our 
hospitals' vital health care dollars as well. The Largent-
Markey bill is pro-consumer, pro-economy, pro-free market, pro-
environment. I am looking forward to hearing the views of our 
panelists on H.R. 2050, and the other bills introduced before 
this subcommittee. I think it is great that so many of my 
colleagues have also gotten deeply involved in the debate by 
introducing bills of their own. I look forward to learning more 
about all of them.
    Thank you, Mr. Chairman.
    Mr. Barton. Who could not expect a pro-bill from a Pro 
Football Hall of Famer? It would have to be pro-competition.
    The gentleman from the great State of Georgia, Mr. Norwood 
is recognized for an opening statement.
    Mr. Norwood. Thank you very much, Mr. Chairman. I 
appreciate being recognized. I, one more time, want to say how 
much I commend you and appreciate you on the hard work you have 
exhibited in holding these hearings, and bringing to light many 
of the issues that need to be explored.
    I do not really see how we have left any stones unturned. 
Most of the witnesses have been up on the Hill time, and time 
again, over the last 6 months. When it has come time for us to 
really look at the nuts and bolts of deregulation, you have 
done an outstanding job, and all of you, ladies and gentlemen, 
are appreciated in your efforts in coming back to try to help 
us as we operate on your industries.
    We have heard from organizations, advocates, and experts 
from all across the spectrum on nearly all aspects of these 
issues. I do not think anyone can say that they have been shut 
out of this debate. Mr. Chairman, in my opinion, that is the 
right way to conduct hearings and get us to the point where 
hopefully we can produce a bill that really will foster 
competition, and really will deregulate; not get us to a bill 
where we break down industries that we call monopolies and say 
that we want you to compete, however, we are going to just 
regulate you in a different way now that you are competing. I 
compliment you, Mr. Chairman.
    Now that the hearings are hopefully coming to a close, I 
hope and expect that this same spirit of inclusiveness can be 
carried forward into the process of actually drafting a bill. 
Because of your hard work and, the fact that you have driven 
members of your subcommittee, you have, in my observation, a 
very knowledgeable subcommittee on this subject.
    I think it is our duty and responsibility, as a 
subcommittee, to roll up our sleeves and get to work on the 
legislative language from bottom to top; not for us to simply 
just rubber stamp whatever a committee staff drops in our laps. 
This issue is far too important and there is far too much at 
stake for us as a subcommittee to abdicate our responsibility 
on this issue.
    I know and I feel strongly, Mr. Chairman, it is your 
intention to have an inclusive bill. It is your intention to 
allow us to participate with the understanding that probably 
none of us need or require the pride of authorship. Where that 
generally occurs is in committee, where they wish to have pride 
of authorship. And on this issue, as important as it is to 
rural Georgia, as important as it is to Washington, Georgia, 
and Monticello, Georgia, people that their lives can be turned 
upside down if we do this wrong.
    As important as it is, Mr. Chairman, I am glad you are the 
chairman because I know you know, we are not going to let a 
staff drop a final bill on our laps and rubber stamp it. Thank 
you very much, Mr. Chairman.
    Mr. Barton. Thank you, Congressman Norwood.
    I am not sure where Monticello, Georgia is, but I do know 
that they have a good Congressman, if they are in your 
District.
    Mr. Norwood. Mayor Holmes, on her behalf, will invite you 
to come any time you like, I can tell you.
    Mr. Barton. I was in Savannah, Georgia several weeks ago 
for a U.S.-Mexican exchange of parliamentarians. I had never 
seen homemade pecan pralines made from scratch on the spot 
until then, and just given to me hot. There is nothing better 
in this world than a homemade Georgia pecan praline cooked as 
you watch it.
    Mr. Norwood. If you will yield, I want to say again, what a 
good chairman you are.
    Mr. Barton. I ought to quit while I am ahead; should I not? 
Congressman Ehrlich of the great State of Maryland is 
recognized for an opening statement.
    Mr. Ehrlich. Thank you, Mr. Chairman. I just simply will 
adopt the remarks of the gentleman from Georgia; well-put from 
my friend and classmate, and I yield back.
    Mr. Barton. Thank you. Seeing no other member present on 
either side that has not yet been given an opportunity to give 
an opening statement, all members not present that have written 
statements will be put in the record at the appropriate point 
in the record. Without objection; hearing no objection, so 
ordered.
    [Additional statements submitted for the record follow:]
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    Mr, Chairman, I would like to commend you for holding this 
legislative hearing on some of the bills addressing electric utility 
restructuring. I would also like to commend you on the leadership you 
have shown on this issue thus far, and that I'm sure you will continue 
to show as we work to pass legislation which will help bring about a 
fully open and competitive electricity power market.
    Today is an important milestone. It marks the beginning of the 
final phase of hearings before we will begin marking up electric 
utility restructuring legislation. As I have stated many times in the 
past, I believe bringing retail competition to the electric utility 
industry will be good for this country. The fact that 23 States with 60 
percent of the population have taken steps to move to retail 
competition shows that I am not alone in that belief.
    Despite that tremendous progress, the job is not done. We would be 
shirking our responsibilities if we failed to pass Federal legislation 
doing the things which must be done on the Federal level if these 
programs are to work as intended. In particular we must assure the 
national grid is as open as possible. We must also assure that there 
are no holdovers from the old system of monopoly regulation that pose 
barriers to new entrants. Competition in electricity will only work if 
the system is as open as possible so competitors can reach customers 
and customers can reach competitors. This may mean putting in place 
mechanisms to assure that transmission lines do not become bottlenecks 
allowing incumbents to exert their market power to keep out new 
entrants as well as other protections.
    Today is the first step in identifying what elements in particular 
need to be included in a Federal bill. I am grateful to all of the 
witnesses who are participating in today's hearing. You and the 
organizations you represent play an important role in helping us 
develop electric utility restructuring legislation that will benefit 
all Americans.
    Thank you Mr. Chairman. I look forward to hearing the testimony of 
our distinguished witnesses today. I also want to thank you for 
including, among the many witnesses we've had from Texas, a witness 
from my home town of Richmond, Virginia. Ms. Jana Price-Davis, 
Assistant Vice President for Government Affairs for Heilig-Meyers Co., 
the nation's largest furniture retailer, is here today representing 
Americans for Affordable Electricity and I'd like to extend to her a 
special welcome.
                                 ______
                                 
Prepared Statement of Hon. Karen McCarthy, a Representative in Congress 
                       from the State of Missouri
    Thank you Mr. Chairman. I rise to revise and extend my remarks. I 
welcome the opportunity to continue the dialogue on electricity 
deregulation and thank the Chairman and Ranking Member Hall for our 
efforts today to come to terms with the complex issues associated with 
electricity deregulation. As the last major federal deregulation of 
this century it is important that we in Congress carefully consider all 
options and act with measured reason.
    Our states are the incubators of change, and 23 states have acted 
to address this issue, while many others, including my state of 
Missouri, currently are considering reform. Our actions at the Federal 
level should compliment their successes and be mindful of the potential 
negative impacts which might occur through a federal mandate. I 
represent a district with a low kilowatt hour rate. Our actions at the 
federal level should assure consumers such as those in my district and 
state that they will not pay more for power as a result of 
deregulation.
    There are worthy ideas in these measures, and our challenge is to 
refine them and develop a consensus for action. One positive step is a 
provision to encourage greater use of renewable energy. Employing green 
technologies is a win-win, for and in the long-term they yield a 
comparative competitive advantage while reducing our dependence on 
imported fuels. Besides increased efficiency, renewable energy sources 
help to distribute the burden of supplying energy to our country. All 
of our districts are struggling with meeting emission requirements and 
know that renewable energy plays a critical role with respect to 
emissions. Affording incentives for utilities to pursue a strategy 
utilizing renewable sources of energy is a provision which should be 
included in the final measure.
    When I am home in my district each week, I visit with constituents 
in a number of settings, such as in community meetings and at the 
Farmer's Market or car wash. In my conversations with these individuals 
they express opinions on a variety of issues. Every time the subject of 
electricity deregulation comes up, they assume that their rates will go 
down and their service will remain the same. Our experiences from other 
deregulated industries suggest that improvements can occur but better 
rates and service do not always occur. Our challenge is to make this 
perception among the citizens become a reality. In order to accomplish 
this both residential and commercial consumers must be foremost in our 
mind as we continue to move forward on deregulating the delivery of 
power.
    I welcome today's dialogue as another step toward a measured 
approach for addressing electricity deregulation. Ultimately we are 
talking about people's light and heat--we have to get it right--close 
just won't work. Many of these issues are interwoven and very 
complicated necessitating comprehensive review by our subcommittee and 
calculated actions in moving forward thoughtfully. Thank you, Mr. 
Chairman.

    Mr. Barton. We now want to welcome our first panel. 
Congressman Hall is not here, but he said it is a good thing we 
do not have any more tables in the room, because the panel 
would have been bigger. We have about the maximum number of 
people we can get with the maximum number of table space that 
is available.
    We are going to start with Mr. David Owens, who is the 
Executive Vice President for the Edison Electric Institute. 
Then we are going to go to Ms. Jana Price-Davis, who is the 
Assistant Vice President for Government Affairs for Heilig-
Meyers Company in Richmond. She is representing the Americans 
for Affordable Energy.
    Mr. Steven Kean, who is the Senior Vice President for Enron 
in the great State of Texas, in Houston, representing the 
Electric Power Supply Association; Mr. Allen Richardson, the 
Executive Director of the American Public Power Association; 
Mr. Glenn English, former Congressman, from the great State of 
Oklahoma, all around good guy, show horse and work horse, as 
Congressman Hall said. He is the Chief Executive Officer for 
the National Rural Electric Cooperative Association. Next, Mr. 
Ralph Cavanagh, representing the Natural Resources Defense 
Council, who has come all the way from San Francisco, 
California. We appreciate you being here sir.
    Last, but certainly not least on the first panel, Mr. Fred 
Schmidt, who is the President of the National Association for 
State Utility Consumer Advocates, who has got to be the longest 
named association that we are going to hear from today. We are 
glad to have you.
    Each of your statements are in the record in its entirety. 
We are going to start with Mr. Owens. We are going to go right 
down the line. We are, since we have so many people, we are 
going to try to hold you fairly strictly to the 5-minute rule 
to summarize your opening statements. We will have sufficient 
time for questions.
    Let me get the clock set here. Mr. Owens, we are glad to 
have you. You are recognized for 5 minutes.

  STATEMENTS OF DAVID OWENS, EXECUTIVE VICE PRESIDENT, EDISON 
ELECTRIC INSTITUTE; JANA PRICE-DAVIS, ASSISTANT VICE PRESIDENT, 
  GOVERNMENT AFFAIRS, HEILIG-MEYERS COMPANY; STEVEN J. KEAN, 
     EXECUTIVE VICE PRESIDENT, ENRON CORPORATION; ALAN H. 
     RICHARDSON, EXECUTIVE DIRECTOR, AMERICAN PUBLIC POWER 
 ASSOCIATION; GLENN ENGLISH, CHIEF EXECUTIVE OFFICER, NATIONAL 
RURAL ELECTRIC COOPERATIVE ASSOCIATION; RALPH CAVANAGH, ENERGY 
 PROGRAM CO-DIRECTOR, NATIONAL RESOURCES DEFENSE COUNCIL; AND 
FRED SCHMIDT, PRESIDENT, NATIONAL ASSOCIATION OF STATE UTILITY 
                       CONSUMER ADVOCATES

    Mr. Owens. Thank you, Mr. Chairman.
    Good morning, Mr. Chairman and members of this 
subcommittee. I am David K. Owens, Executive Vice President of 
the Edison Electric Institute. EEI is the Association of U.S. 
shareholder-owned electric utilities. We are pleased to share 
our views on specific issues and legislation pending before 
this subcommittee.
    Now, it is hard for me to believe that just 3 years ago 
this May, the fist State adopted a Retail Competition Plan. 
Today, roughly 70 percent of all electricity consumers live in 
the 22 States that have already approved Customer Choice 
Programs, with Oregon about to become the 23rd State.
    As States move forward with their Retail Competition Plans, 
there are significant restructuring issues that they cannot 
address. EEI supports Federal legislation that removes barriers 
to competition, facilitates State restructuring actions, 
addresses critical transmission and reliability issues, and 
applies the same rules to all competitors.
    Regarding Federal barriers to competition. First, we 
support repeal of PUHCA. PUHCA distorts electricity suppliers' 
business decisions and hinders competition. We urge passage of 
H.R. 2363, introduced by Representative Tauzin.
    Second, we support prospective repeal of PURPA's mandatory 
purchase obligation. We also feel strongly that Congress must 
assure the recovery of PURPA costs, since these are federally 
mandated, Federal jurisdiction costs. The PURPA Reform Bill, 
introduced by Representative Stearns, H.R. 1138, recognizes the 
distortion PURPA causes in a competitive marketplace.
    We also believe that Congress should facilitate State 
restructuring activities. In this area, we strongly support 
respecting the 22 States that have already moved forward in 
electric restructuring. Congress should clarify that States 
have the authority to restructure retail electric service, and 
impose non-bypassable wires charges to fund Public Purpose 
Programs.
    Both the Burr bill, H.R. 667, and the Stearns bill, H.R. 
1587, accomplish this, in our opinion. We believe Congress 
should endorse a utility's right to recover legitimate 
transition costs, while recognizing that States are 
implementing recovery of retail transition costs.
    Experience in the States demonstrate that competition is 
implemented more rapidly when transition cost recovery is dealt 
with responsibly. Congress must also address critical 
transmission and reliability issues. First, all transmission 
providers should be subject to FERC jurisdiction over 
transmission service.
    The Stearns bill, H.R. 1587, in our opinion, provides a 
good start. Second, we support facilitating the construction of 
new transmission facilities. This may include reforms to the 
siting process, and certainly transmission pricing policy that 
provides incentives for the expansion and the development of 
new transmission, and also rate of return on transmission to 
attract necessary capital.
    Concerning reliability; something that Mr. Pallone raised. 
We strongly urge Congress to enact the NERC Concensus Proposal 
establishing a self-regulating reliability organization under 
FERC oversight. The NERC proposal is in the Largent-Markey 
Bill, H.R. 2050.
    Congress should also assure that the same rules apply to 
all competitors. We support eliminating new tax benefits for 
government entities in a competitive market. The 
administration's bill, H.R. 28, moves in the right direction. 
We also support prohibiting Federal utilities from constructing 
new generation, except under limited circumstances. Now, as you 
consider electric legislation, we would hope that you would 
heed the comments of Mr. Pallone and others, let us get it 
right. We believe that there are areas where Federal 
legislation is necessary. We also believe that there are areas 
where it is not necessary.
    For example, we oppose new Federal authority to order 
divestiture, or participation of utilities of regional 
transmission organizations. As you know, utilities are the most 
heavily regulated businesses and are subject to a myriad of 
existing Federal and State laws or market power issues.
    Representative Stearns' bill, H.R. 1587, would encourage 
regional transmission organizations to develop with denying 
them the necessary flexibility. Now, on merges we believe that 
Congress should streamline their review and not impose 
additional restrictions.
    Finally, any electric restructuring bill should not be used 
as a vehicle to address broader environmental issues. Thank you 
for this opportunity. I would be pleased to answer questions.
    [The prepared statement of David Owens follows:]
Prepared Statement of David K. Owens, Executive Vice President, Edison 
                           Electric Institute
    I am David K. Owens, Executive Vice President of the Edison 
Electric Institute (EEI). EEI is the association of U.S. shareholder-
owned electric utilities and industry affiliates and associates 
worldwide. A super-majority of EEI's members have established EEI's 
approach to competition in the electricity industry, although a few 
members disagree with some elements of that approach. We are pleased to 
have the opportunity to share our views on specific issues and 
legislative proposals pending before this Committee.
    The pace of electricity restructuring in the states is far more 
intense than occurred in either the telecommunications or natural gas 
industries. Just three years ago this May, the first state adopted a 
retail competition plan. Today, roughly 70 percent of all American 
electricity consumers live in the twenty-two states that have approved 
customer choice programs. Oregon is about to become the twenty-third 
state once the governor signs the retail competition plan approved by 
the state legislature. The remaining states and the District of 
Columbia are considering reforms to retail electric service.
    As states move forward with their retail choice plans, it is 
obvious that there are significant restructuring issues they cannot 
address. We believe Congress should resolve these issues to help 
facilitate state activities and remove federal barriers to competition. 
While government cannot and should not control market forces in a 
competitive environment, it is responsible for addressing the 
transition issues and establishing the ground rules for fair and 
effective competition.
    As Congress considers electricity restructuring legislation, it is 
essential to understand how dramatically electricity markets are 
changing. One of the few constants in the electricity industry today is 
fundamental change. All too often, proponents of re-regulation or 
different regulation of competitive electricity markets ignore this 
reality.
Today's Changing Electricity Market
    It is important to remember what will be regulated and what will 
not be in competitive electricity markets. Electricity suppliers will 
compete to sell power and energy services to consumers. However, the 
``wires'' side of the electricity business--the distribution lines that 
deliver power to homes and businesses and the interstate transmission 
lines that move bulk power between sellers and buyers--will remain 
regulated for the foreseeable future.
     One of the keys to competitive markets is the existence of 
competitors. Thousands of suppliers currently participate in 
electricity markets, including almost 2,000 municipal electric 
utilities, more than 900 electric cooperatives, and roughly 200 
shareholder-owned utilities. There also are more than 4,000 non-utility 
generation projects that currently sell their power to utilities, as 
well as 650 power marketers. Plans for the construction of new merchant 
generating facilities representing over 90,000 megawatts of capacity 
are underway in states from coast to coast. As electricity markets 
become more competitive, many of these suppliers will be competing 
head-to-head to provide electricity and a variety of services to 
consumers.
     There also will be new entrants into competitive electricity 
markets, many of which are large corporations long familiar to American 
consumers. For example, Shell Oil Company and the recently merged BP 
Amoco Corporation--both among the world's largest oil and natural gas 
companies--have established subsidiaries to sell electricity. 
Honeywell, Inc.--the world's leading maker of control systems and 
components for buildings, industry, space and aviation--also has 
registered to compete in retail electricity markets.
    Energy markets are also becoming increasingly globalized. In recent 
weeks, the Federal Energy Regulatory Commission (FERC) approved the 
first acquisitions of U.S. electric utilities by foreign companies. In 
these transactions, National Grid of Great Britain will acquire New 
England Electric, and ScottishPower will merge with PacifiCorp.
    These competing suppliers will move power over distribution and 
transmission systems that remain regulated. FERC regulates the 
interstate high-voltage wires of shareholder-owned utilities to ensure 
guaranteed open access for all suppliers and to set fair and reasonable 
charges for transmission services. In 1996, FERC, in its Order 888, 
ordered shareholder-owned utilities, which own about 75 percent of the 
country's transmission systems, to open up their transmission lines to 
all suppliers in the wholesale market. This means that any wholesale 
power supplier can use transmission lines owned by shareholder-owned 
utilities at the same price and terms that those utilities charge 
themselves to ship power.
    In competitive retail electricity markets, states will still 
regulate the distribution wires to make sure that all suppliers have 
access to consumers and to establish fair and reasonable charges for 
distribution services. The states traditionally have regulated retail 
electric service, or the sale of power and energy services from the 
utility to retail consumers, such as homeowners, small businesses and 
industrial companies.
     As electricity markets become more competitive, electric utilities 
are making strategic decisions about which lines of business they 
intend to pursue. Because the generation side of the business will 
carry more risk in a competitive market, a number of utilities believe 
they do not have the size to adequately manage those risks and are 
selling their generation facilities in order to focus on other business 
opportunities. Other companies are purchasing generation with the 
intention of becoming national generation companies. As electricity 
becomes more of a bulk trading market, with a greater emphasis on 
achieving economies of large scale operations, generation companies 
will need to become significantly larger than most are currently in 
order to compete in regional and national energy markets.
    By the year 2000, about 25 percent of the total shareholder-owned 
fossil and hydro generation is expected to be offered for sale. The 
leading purchasers are national and international energy companies, 
some of them unregulated affiliates of electric utilities that compete 
around the world and others independent power producers who also are 
global competitors. Three of the five leading purchasers of divested 
generation are independent energy producers.
     Other electricity market players will pursue different business 
opportunities. Some energy companies will bundle electricity with 
specialized services, such as energy management. Others will become 
``network'' companies, utilizing their expertise in the ``wires'' 
business to provide cable, Internet and telecommunications services to 
consumers. Still others will become ``convergence'' companies, offering 
consumers the ability to purchase natural gas and other energy sources, 
along with electricity. It also will be important for these types of 
companies to achieve economies of scale through mergers and other forms 
of consolidation to achieve efficiencies and innovation that will lower 
prices to consumers.
           essential issues in the transition to competition
    EEI supports federal legislation that removes federal barriers to 
competition, facilitates state restructuring actions, addresses 
critical transmission and reliability issues and applies the same rules 
to all competitors. We would like to identify those areas in which we 
believe Congress should act and those in which we believe federal 
legislation is not appropriate, and give our views on the specific 
legislative proposals before this Committee.
        congress should remove federal barriers to competition.
    We believe that Congress can most effectively promote competitive 
electricity markets by reforming federal law to remove barriers to 
efficient electricity competition. While the states should continue to 
have the lead in restructuring retail electric service, they obviously 
cannot address federal statutes such as the Public Utility Holding 
Company Act (PUHCA) or the Public Utility Regulatory Policies Act 
(PURPA).
Congress should repeal the Public Utility Holding Company Act of 1935.
    PUHCA is an impediment to competitive markets that only Congress 
can address. We strongly support H.R. 2363, the Public Utility Holding 
Company Act of 1999, which was introduced by Representative Tauzin. We 
urge Congress to move expeditiously to consideration and passage of 
this bill. Representative Burr's bill (H.R. 667) contains the same 
provisions. These bills would repeal PUHCA 12 months after enactment 
and substitute a new act giving FERC and state regulatory commissions 
greater access to the books and records of holding companies and 
affiliates. The PUHCA provisions in Representative Stearns' bill, H.R. 
1587, are similar.
    The Administration's bill, H.R. 1828, contains similar provisions 
but would delay repeal until 18 months after enactment. H.R. 2050, 
introduced by Representatives Largent and Markey, would not repeal 
PUHCA for an electric or gas holding company having utility subsidiary 
companies operating in two or more states that have not elected retail 
competition. We are opposed to linking PUHCA reform to the 
implementation of retail competition. It does not make sense to repeal 
a federal statute on a company-by-company basis.
     PUHCA was enacted during the Great Depression and the New Deal in 
response to the virtual collapse of the holding companies that 
controlled the electricity industry at that time. By 1932, three 
holding companies--set up literally as pyramids--controlled almost half 
of the electricity generated in the country. As the economy collapsed, 
so did these companies. However, like everything else, the electricity 
industry obviously has changed over the past 60 years.
    In addition, the regulations that govern the industry also have 
changed. Since the 1930s, states have significantly increased their 
regulatory oversight of utilities. Other securities laws that cover 
electric utilities are on the books to protect investors. And, the 
Federal Power Act, passed in conjunction with PUHCA and amended many 
times since, provides FERC with tremendous regulatory oversight over 
utilities.
    PUHCA currently acts as a major barrier to electricity competition. 
First, it imposes an additional layer of regulation and restrictions on 
18 registered electric and gas holding companies. PUHCA prevents these 
companies from responding quickly to consumers' needs and from offering 
consumers the range of services and products that will exist in 
competitive markets.
    PUHCA also artificially distorts companies' business decisions. 
PUHCA makes it easier for U.S. utilities to invest in foreign utility 
assets than in U.S. utility assets. It also discourages non-utility 
businesses from acquiring utility assets, in effect keeping some 
potential competitors out of the market because they cannot qualify for 
an exemption and are unwilling to become registered holding companies. 
While most utilities can invest in other business opportunities without 
being affected by PUHCA, registered holding companies have a more 
difficult time investing in utility businesses in which they have 
expertise. And, under PUHCA, exempt wholesale generators are prohibited 
from selling electricity directly to retail consumers.
    PUHCA also acts as a barrier to one of the emerging trends in the 
electricity industry: the growth of regional transmission organizations 
(RTOs), particularly independent transmission companies. In order for 
these companies to be regional in scope, they obviously must cover 
multiple states. However, PUHCA would apply to the ownership of such a 
company, imposing significant restrictions on its operations.
Congress should repeal prospectively the mandatory purchase obligation 
        under PURPA, protect existing contracts, and provide for the 
        recovery of PURPA costs.
    PURPA forces electric utilities to purchase power at above-market 
prices regardless of whether they need the power. New PURPA qualifying 
facilities continue to be developed even today. This anti-consumer 
statute will require consumers to pay roughly $36 billion to $40 
billion above market prices over the life of the PURPA contracts. It is 
inconsistent with competitive generation markets. It has no 
justification when there is open transmission access where many 
different buyers can purchase a plant's output, let alone in a 
competitive retail market.
    The PURPA reform bill introduced by Representative Stearns, H.R. 
1138, recognizes that PURPA has no place in a competitive market. It 
would repeal the mandatory purchase obligation (Section 210) of PURPA 
prospectively, assure utilities they can recover the costs they 
incurred to comply with PURPA, and protect the sanctity of existing 
PURPA contracts. We strongly support passage of this bill. The same 
provisions are included in Representative Stearns' subsequent bill, 
H.R. 1587, and in Representative Burr's bill, H.R. 667. Representatives 
Largent and Markey's bill, H.R. 2050, also repeals section 210 and 
provides for recovery of PURPA costs.
    The Administration bill (H.R. 1828), while heading in the right 
direction on this issue, falls short. It would prospectively repeal the 
mandatory purchase requirement but fails to assure recovery of these 
federally-mandated costs. Representative Walsh's bill, H.R. 971, while 
attempting to ensure that rates charged for PURPA contracts do not 
exceed avoided costs, fails to repeal the mandatory purchase 
requirement, which is the source of these above-market costs. It also 
would allow states to require renegotiation of PURPA contracts. While 
contract renegotiation is one means to mitigate above-market mandatory 
purchase costs, it should be done by the parties themselves, and any 
statute should include the basic principle of honoring existing 
contracts.
    Because PURPA is a federal statute, and PURPA contracts are 
wholesale contracts, the federal government has a clear responsibility 
to assure the recovery of these costs. Under the Federal Power Act, 
FERC has exclusive jurisdiction over wholesale sales of electricity. 
States are prohibited from denying utilities the opportunity to recover 
FERC-approved wholesale costs, including, arguably, costs associated 
with contracts mandated by PURPA. In addition, PURPA itself has been 
interpreted to preclude states from denying the passthrough of PURPA 
contract costs.1
---------------------------------------------------------------------------
    \1\ Freehold Cogeneration v. Bd. Reg. Com'rs of N.J., 44 F. 3rd 
1178 (3rd Cir. 1995).
---------------------------------------------------------------------------
       congress should facilitate state restructuring activities.
Congress should respect state decisions regarding retail competition.
    The bills introduced by Representative Burr (H.R. 667) and 
Representative Stearns (H.R. 1587) take the right approach on this 
issue: both bills would clarify that states have the authority to 
restructure retail electric services under their own timetable, taking 
into consideration the interests of their consumers.
    The so-called ``flexible mandate,'' similar versions of which are 
contained in both the Administration bill (H.R. 1828) and the Largent-
Markey bill (H.R. 2050), in fact, gives the states too little 
flexibility. H.R. 1828 would require distribution utilities to provide 
open access to consumers by January 1, 2003, unless the state 
regulatory authority or non-regulated utility made a certain finding. 
H.R. 2050 requires states to make this critical decision one year 
earlier. The ``opt-out'' language contained in both bills significantly 
limits the state regulatory authorities' actions by providing them with 
only one standard for opting out: if implementation of retail 
competition would have a ``negative impact on a class of customers of 
that utility that cannot be mitigated.'' This standard is completely 
undefined. The bills also appear to leave the entire decision of 
whether to implement retail competition to the state regulatory 
commission, ignoring the critical roles played by state legislatures 
and governors in state restructuring decisions.
    Federal legislation should respect decisions already made by states 
regarding retail competition. However, the Administration bill (H.R. 
1828) does not grandfather customer choice plans already approved by 
state legislatures and regulatory commissions. And, a state such as 
Virginia, which is not scheduled to implement full retail competition 
until 2004, would presumably have to change its state plan to meet the 
2003 deadline or the state regulatory authority would have to ``opt 
out'' under the non-mitigable negative impact standard.
    The Largent-Markey bill does include a grandfathering provision, 
but its coverage seems incomplete. First, it only applies where the 
retail competition plan adopted covers retail sales to all classes of 
customers. On this basis, it would not include the recently passed 
Oregon bill, which does not include retail choice for residential 
customers at this time, preferring to bring the benefits of competition 
to these consumers through portfolio options and savings at the 
wholesale level. Second, it only exempts a state from making the actual 
retail competition election. It does not exempt or protect the existing 
22 state restructuring plans from the many new federal requirements 
relating to retail service in H.R. 2050. Some of these requirements may 
be inconsistent with the provisions in state retail competition plans 
already adopted. To the extent that a bill includes prescriptive 
requirements, such as the Administration bill or the Largent-Markey 
bill, it should respect state decisions that have already been made.
    Finally, the Supreme Court decision in Alden v. Maine raises 
questions about the constitutionality of the Administration's flexible 
mandate approach and the provision allowing enforcement of it in state 
court. In Alden, the Supreme Court held that a person cannot bring a 
suit against a state in state court to enforce a right under a federal 
statute, unless the state agrees to waive its sovereign immunity. The 
Alden case appears to put sharp limits on the ability of Congress to 
make federal requirements, such as the flexible mandate and opt-out 
provisions, binding on the states.
    The Largent-Markey bill (H.R. 2050) also would require FERC to 
order retail access to Department of Defense facilities and Indian 
tribes, even where a state has not yet approved retail competition. 
Again, this fails to respect state decisions on restructuring and could 
shift costs unfairly to other customers in the state, especially when 
it preempts state laws and policies.
Congress should endorse utilities' right to recover legitimate stranded 
        costs.
    Federal electricity legislation should endorse utilities' right to 
recover legitimate transition costs, while recognizing that the states 
will be responsible for key implementation decisions regarding retail 
transition costs. Congress also should confirm FERC's jurisdiction to 
provide for the recovery of legitimate wholesale transition costs and 
support recovery of PURPA and other federally created transition costs.
    In many states that have approved retail competition plans, utility 
worker protection has been an integral part of these packages and an 
integral part of transition cost recovery. To support utility workers 
who might be displaced, we urge Congress to also recognize that 
transition cost recovery should include costs for outplacement 
assistance, job retraining and/or appropriate severance packages for 
workers.
    Because policymakers create transition costs when they promote 
competition, they have the responsibility of ensuring that utilities 
can recover these legitimate costs. Allowing industries to recover 
their transition costs has been a normal part of the deregulation of 
major industries, including airlines, railroads, trucking, 
telecommunications and natural gas. Policymakers have taken different 
approaches to recovery of transition costs in various industries, 
including direct government subsidies for maintenance of unprofitable 
services, compensation to displaced workers, special consumer charges, 
and liberalized merger standards. The length of the transition period 
to competition also has varied from industry to industry. But, what has 
not varied is the government's commitment to assure payment of these 
transition costs.
    For almost a century, electric utilities have operated in a 
business environment vastly different from the one faced by competitive 
businesses. In order to fulfill their requirements to serve all 
consumers in their service areas, utilities have invested billions of 
dollars in generating facilities and a reliable distribution and 
transmission system. In addition, utilities invest heavily in public 
purpose programs like low-income energy assistance, energy efficiency 
and renewable energy resources. They also have been mandated by PURPA 
to purchase power produced from cogeneration and renewable energy 
facilities. And, utilities are heavily taxed at the local, state and 
federal levels.
    Before utilities can recover these investments from consumers, the 
expenditures must be reviewed and approved by regulators, and they are 
currently included in consumers' bills under regulated rates. Because 
one of the objectives of regulation has been to stabilize rates for 
consumers, recovery of these utility investments frequently has been 
stretched out over as long as 30 or more years.
    Government action that denies legitimate stranded cost recovery 
violates the government's half of the traditional ``regulatory 
bargain'' and would amount to an unconstitutional taking. Under the 
Constitution's Fifth Amendment, the government cannot ``take'' private 
property without providing just compensation. Because the property of 
utilities was committed to serve the public, the Constitution's 
protection against taking without just compensation requires regulators 
to set rates to provide an opportunity for an overall rate of return 
adequate to operate successfully, maintain financial integrity, attract 
capital and compensate investors. Duquesne Light Co. v. Barasch, 488 
U.S. 299 (1989); FPC v. Hope Natural Gas Co., 320 U.S. 591 (1944).
    Virtually all of the states that have adopted retail competition 
have provided for transition cost recovery, and they are moving swiftly 
toward implementing their restructuring plans. In contrast, New 
Hampshire--the only exception--has been mired in litigation over its 
failure to provide recovery for commitments made under the prior 
regulatory regime until recently.
    In fact, the judge in that litigation stated that the New Hampshire 
plan's failure to address transition cost recovery raised serious 
concerns that it violated the Constitution's Fifth Amendment. Likening 
a rate order that would have the effect of denying transition cost 
recovery to the confiscation of private property that occurred in Cuba, 
federal judge Ronald R. Langeux stated: ``If the Constitution of the 
United States means anything, it means here that the private property 
of a corporation cannot be taken without just compensation. What is 
happening here is that the [New Hampshire Public Service] Commission is 
acting for the benefit of the rate payers in New Hampshire to the 
detriment of the people who have invested in these two utilities.-- It 
is, in effect, appropriating to the use of the rate payers of New 
Hampshire the property of these two utilities.'' 2
---------------------------------------------------------------------------
    \2\ Public Service Company of New Hampshire, et al. v. Patch, No. 
97-97-JD (D.R.I.).
---------------------------------------------------------------------------
    A few weeks ago, a preliminary settlement was reached in New 
Hampshire that will allow competition to proceed and that recognizes 
transition cost recovery. The lesson is that fair dealing on transition 
cost recovery is a necessary part of the restructuring process.
    The Administration bill (H.R. 1828) recognizes the importance of 
transition cost recovery. It endorses the principle that utilities 
should be able to recover prudently incurred, legitimate and verifiable 
costs arising from the transition to retail competition. However, while 
the Administration bill provides assurances of transition cost recovery 
to federal utilities, and allows electric cooperatives and other 
government-owned utilities to determine their own transition costs, it 
provides no such assurances for shareholder-owned utilities. The 
Administration bill provisions addressing transition cost recovery for 
shareholder-owned utilities should be as strong as those afforded other 
utilities.
    The Burr bill (H.R. 667) attempts to provide incentives for 
transition cost recovery by tying it to the receipt of federal energy 
assistance. H.R. 667 also prohibits a state from changing its 
transition cost recovery provisions for seven years. While this 
provision appears well-intentioned, we are concerned that it would 
freeze in place initial state proposals, even if they could bankrupt 
utilities. In most state proceedings, the final transition cost 
recovery settlements are the result of intense negotiations.
Congress should resolve federal/state jurisdictional issues that may 
        impede the progress of competition.
    Since the beginning of the electricity industry, the states have 
regulated retail electric rates. In the 1935 Federal Power Act, 
Congress sought to draw a ``bright line'' between federal jurisdiction 
affecting interstate commerce and state jurisdiction over matters 
uniquely local. Any ambiguity in federal law about the scope of state 
authority to provide for retail competition in electricity should be 
removed. The Burr (H.R. 667), Stearns (H.R. 1587) and Largent-Markey 
(H.R. 2050) bills include provisions to clarify state authority. 
Similarly, federal law should make clear that each state has authority 
to impose wires charges and similar fees upon all users of electricity 
within the state, including end-users that connect directly with FERC-
regulated transmission facilities. These three bills also allow states 
to impose a non-bypassable charge on the purchase or distribution of 
electricity for a number of public policy purposes, including 
transition costs.
    In addition, federal jurisdiction over unbundled retail 
transmission, that is, the transmission component of a sale once retail 
competition has been implemented, should be clarified. Finally, federal 
law should provide reasonable mechanisms to distinguish interstate 
transmission from distribution facilities subject to state 
jurisdiction. H.R. 1587 includes a good approach to these issues. The 
Administration bill (H.R. 1828) also clarifies state and federal 
jurisdiction.
    Legislation should also clarify that states that provide for retail 
choice have the authority to impose reciprocity requirements, so that 
all generators that sell, directly or indirectly, to end-users within 
their borders themselves provide retail choice to their customers. The 
provision in the Burr bill (H.R. 667) that FERC must certify that the 
``predominance'' of energy sold by a particular seller is produced in a 
state without retail competition demonstrates the problems of 
implementing reciprocity provisions. While reciprocity provisions may 
be difficult to enforce, the Administration bill (H.R.1828) provides a 
good starting point for addressing these issues. The Largent-Markey 
bill (H.R. 2050) takes a similar approach, but it includes loopholes 
that would provide an exception to power generated by nonregulated 
utilities, such as government-owned utilities and electric 
cooperatives, that are not themselves open to competition. Finally, 
while we believe that states should have the option to impose a 
reciprocity requirement, the federal government should not mandate such 
a provision. Some states may prefer to allow the consumers unfettered 
choices of electricity suppliers, while other states may believe 
promoting competition in neighboring states is in their best interests. 
Thus, we find the requirement of a mandatory reciprocity requirement in 
the Stearns bill (H.R. 1587) troublesome.
  congress should address critical transmission and reliability issues
    In only three specific areas, Congress should grant FERC additional 
jurisdiction to ensure that the interstate transmission system will be 
able to meet the challenges and needs of competitive markets.
Congress should require all transmission providers to be subject to 
        FERC jurisdiction over transmission service to facilitate 
        efficient use of our nation's transmission system.
     Currently, transmission providers such as the federal Power 
Marketing Administrations (PMAs), the Tennessee Valley Authority (TVA), 
state and municipally-owned utilities and most electric cooperatives, 
which together operate about one-fourth of our nation's transmission 
system, are not subject to the same transmission rules as are 
shareholder-owned utilities that are subject to FERC jurisdiction. For 
example, these transmission providers are not subject to the 
nondiscriminatory open access requirements in FERC's landmark Order 
888. In some areas such as the Northwest, these non-jurisdictional 
transmission providers dominate the transmission system. It does not 
make sense, from a regulatory standpoint or from a competitive 
standpoint, to have a significant portion of the nation's transmission 
system operating under a different set of rules, or in some cases, no 
rules at all. Only Congress can address this concern by bringing all 
transmission providers under FERC jurisdiction for regulation of 
transmission service.
    The most comprehensive solution to this problem is contained in the 
Stearns bill (H.R. 1587), which would amend the definition of ``public 
utility'' in the Federal Power Act to include these entities. There is, 
however, a technical problem in the provision that may prevent it from 
fully covering all nonjurisdictional transmission providers. The 
Largent-Markey bill (H.R. 2050) attempts to deal separately with each 
class of nonjurisdictional transmission providers. In doing so, in what 
we believe is merely an oversight, H.R. 2050 fails to bring the 
transmission facilities of PMAs other than the Bonneville Power 
Administration under FERC's jurisdiction. While the Administration bill 
(H.R. 1828) attempts to address this issue, it allows too many 
opportunities for TVA and the PMAs to avoid complying with the same 
rules as all other transmission providers. Representative Franks' bill 
(H.R. 1486) also includes a provision to require the PMAs to provide 
open access, but this provision does not cover the other 
nonjurisdictional transmission providers. The Burr bill (H.R. 667) does 
not address this critical issue.
    Some have argued that electric cooperatives should be exempted from 
FERC's transmission jurisdiction because many cooperatives are small or 
own minimal transmission facilities. FERC already has the authority to 
grant waivers from its transmission regulations to small transmission 
providers and has granted such waivers on several occasions. Therefore, 
this should not be a reason to carve out the transmission facilities of 
electric cooperatives from FERC regulation, preventing uniform 
regulation of the nation's interstate transmission grid.
Congress should provide incentives for the construction of new 
        transmission facilities.
    Perhaps the most critical aspect of transmission policy is to 
address the substantial barriers to improving and expanding the 
interstate transmission system. As electricity markets grow and become 
more competitive, new transmission capacity will need to be 
constructed. Otherwise, electricity suppliers and regulators will find 
themselves fighting increasingly pitched battles over who gets priority 
for use of an increasingly scarce resource.
    In the past, transmission was built largely to upgrade the 
reliability of service by vertically integrated electric utilities to 
their retail franchise customers. In that circumstance it has made 
sense for state commissions, who are responsible for regulating retail 
electric service, to have jurisdiction over transmission additions. In 
competitive markets, however, transmission must facilitate interstate 
transactions and enhance the reliability of the interstate grid. FERC's 
role in encouraging transmission additions needs to be reexamined.
    Siting new transmission in a regulated monopoly environment is 
difficult enough. Eminent domain laws in some states require a 
demonstration of specific benefits to the state, and even to particular 
counties, that a proposed transmission line might cross. Increasingly, 
the benefits of transmission construction may fall primarily outside of 
the locality, or even the state where most of the construction occurs. 
Under these circumstances, it may be difficult to obtain the necessary 
permits from an affected state, which receives few direct benefits and 
thus has little incentive to approve the construction. As the 
electricity market becomes increasingly interstate in nature, these 
individual state requirements may hinder needed transmission 
expansions.
    In order to ensure that the nation's transmission system is 
adequate to meet consumers' electricity needs and to promote economic 
growth, Congress should carefully examine ways to remove barriers to 
transmission expansion, including enhancing FERC's authority over the 
siting of new transmission in consultation with the states. FERC 
currently has such authority over natural gas pipelines under section 7 
of the Natural Gas Act.
    We are certainly mindful of the concerns about possible 
encroachment on what has traditionally been an area of exclusive state 
control. To that end, we would recommend that in any proposal enhancing 
FERC's siting authority, states have the right to act first before 
resort to any federal authority would be sanctioned.
    Another major impediment to transmission expansion is the lack of a 
transmission pricing policy that provides incentives for construction 
of new facilities and a rate of return necessary to attract capital to 
these highly capital-intensive projects. Artificially holding down 
transmission rates such that no new construction takes place may appear 
to benefit consumers in the short term, but in the long run, consumers 
will be harmed. FERC must reform its transmission pricing policy to 
facilitate needed transmission construction in order to assure the 
continued expansion of competitive markets.
Congress should ensure the reliability of the transmission grid by 
        establishing a self-regulating organization to establish and 
        enforce reliability standards under FERC oversight.
    Assuring the reliability of our nation's transmission system is the 
third area where we believe that additional FERC authority is 
necessary. Our existing voluntary reliability organizations have served 
us well. However, with the dramatic changes in the use of the 
transmission system due to open access transmission under Order 888 and 
the spread of retail competition, the transmission system is being used 
by more market participants for more transactions than ever before and 
for purposes which it was not originally designed to accomplish.
    These changes are pushing the existing system harder. The many new 
entrants in the electric market also make it more difficult to manage 
the system using voluntary reliability standards. Virtually all 
industry participants believe strongly that new, enforceable standards 
need to be adopted to help ensure that our transmission system 
continues to operate safely and reliably.
    Consensus reliability legislation has been developed through a 
stakeholder process sponsored by the North American Electric 
Reliability Council (NERC). This proposal would establish an Electric 
Reliability Organization (ERO), modeled on the National Association of 
Securities Dealers (NASD), which regulates the stock exchanges and 
securities dealers. The Securities and Exchange Commission exercises 
oversight of the NASD, just as FERC would provide oversight of the ERO. 
Federal government oversight is necessary to assure mandatory 
compliance with reliability standards and in order for a private 
organization to enforce the reliability rules under the antitrust laws.
    A diverse group including EEI, the American Public Power 
Association, the National Rural Electric Cooperative Association, the 
Electric Power Supply Association, and the Electric Consumers Resource 
Council (ELCON) supports the NERC legislation. Representatives of state 
regulatory commissions, state energy offices, and the federal 
government also participated in the NERC process. The members of the 
coalition supporting the NERC language are working with representatives 
of various state organizations to resolve a few outstanding issues 
concerning state authority in this area.
    The fact that each of the comprehensive bills before this 
Subcommittee, with the exception of the Burr bill (H.R. 667), includes 
a reliability provision demonstrates the critical importance of action 
on this issue. The NERC consensus language has been included in the 
Largent-Markey bill (H.R. 2050). The Administration bill (H.R. 1828) 
contains the NERC language with some changes in language that are 
significant. We find the reliability provisions in the Stearns bill 
(H.R.1587) to be a less satisfactory approach than the NERC language, 
in part because it gives more authority to FERC at the expense of the 
broad-based industry ERO envisioned in the NERC language.
   congress should ensure that the same rules apply to all suppliers.
    Our principle is a simple, fundamental one: in competitive markets, 
the same rules should apply to all suppliers. This is essential for the 
most efficient, innovative and responsive companies to succeed. 
Therefore, Congress should address the role of federal utilities, such 
as the PMAs and TVA, as well as other government-owned utilities and 
electric cooperatives, in a competitive market and should deal with 
federal subsidies provided to certain suppliers, including the use of 
federal tax-exempt financing to build new facilities.
    The electricity industry is different from other deregulated 
industries. In industries such as natural gas or airlines, private 
enterprise did not have to compete with subsidized government 
providers. In certain regions, such as the Northwest and the Tennessee 
Valley, government utilities own significant amounts, if not the 
majority, of both generation and transmission facilities. Only 
Congress--not the states--has the authority to deal with many of the 
issues involving the role of these suppliers in competitive markets.
    Government-owned utilities and electric cooperatives are taxed very 
differently at the federal, state and local levels in comparison to 
shareholder-owned utilities. They also raise their financing 
differently. Government utilities can issue tax-exempt financing, while 
electric cooperatives are eligible for direct federal loans and federal 
loan guarantees. Credit subsidies available to cooperatives and 
municipal systems are substantial and enhance their abilities to 
compete and prevail in newly deregulated markets. The value of tax-
exempt financing to those municipal systems that can issue federally 
tax-exempt bonds has been reliably estimated at $0.5 billion per year. 
The Rural Utilities Service (RUS) has issued some $33 billion in low-
cost loans and guarantees to electric cooperatives. Roughly 70 percent 
of this went to generating cooperatives.
    A third subsidy to government-owned utilities and electric 
cooperatives is their preferential access to low-cost power, much of it 
hydroelectric power, generated at federal facilities and marketed 
through the PMAs and TVA. Yet another advantage enjoyed by these 
entities is that their transmission facilities are not subject to FERC 
jurisdiction.
    We are not challenging the right of government-owned utilities and 
electric cooperatives to exist, nor are we challenging the benefits 
they enjoy to provide distribution service to their traditional retail 
customers. However, when government utilities and electric cooperatives 
use their governmentally-derived benefits to compete directly for 
customers against taxpaying companies, markets are distorted and tax 
revenues are lost. Taxpayers in other areas of the country end up 
subsidizing these suppliers in competitive markets. This ``growing 
government'' at the expense of private business in our country is in 
direct contrast with England and other countries, which are achieving 
electricity competition by ``privatizing'' government-owned utilities.
Put all entities on the same accounting principles.
    Representative Franks' bill (H.R. 1486) and the Largent-Markey bill 
(H.R. 2050) make a contribution to needed reforms in this area. Both 
would require the PMAs (the Franks bill includes TVA as well) to use 
the same accounting principles and requirements as FERC applies to the 
electricity operations of public utilities subject to its jurisdiction. 
The bills would also require these federal utilities to submit rates 
for their power sales to review by FERC to ensure that costs 
attributable to generation, such as fish and wildlife expenditures, are 
included as generation costs. H.R. 1486 would also require that these 
entities transition to market-based pricing and would retain 
preferences to power generated by PMAs for government-owned utilities 
and cooperatives, but at market-based rates.
Do not subsidize future generation.
    The Administration bill (H.R. 1828) and the Largent-Markey bill 
(H.R. 2050) begin to restructure TVA, but unfortunately, neither bill 
addresses the underlying subsidies that TVA or the PMAs receive.
    Instead, we support prohibiting TVA or the PMAs from constructing 
new generation facilities or entering into long-term contracts with 
other suppliers, except when it is necessary to meet the electricity 
needs of their current customers. We also oppose removing the TVA fence 
or allowing them to make retail sales to new customers until these 
subsidies are removed.
    Finally, while H.R. 1828 brings TVA's operations under the nation's 
antitrust laws beginning in 2003, it exempts TVA from some of the most 
effective tools for antitrust enforcement--civil damages and attorneys 
fees. Moreover, the bill does not subject BPA or the other PMAs to the 
antitrust laws in any respect. H.R. 2050 would bring TVA, BPA and the 
other PMAs under federal antitrust laws, but exempts BPA and the other 
PMAs from civil damages and attorneys fees.
    While the Administration bill and the Largent-Markey bill fall 
short in removing competitive subsidies for government utilities and 
electric cooperatives, the other comprehensive bills, H.R. 667 and H.R. 
1587, do not address these critical issues at all.
Congress should provide the same commitment to all competitors 
        regarding transition costs.
    The Administration bill (H.R. 1828) and the Largent-Markey bill 
(H.R. 2050) also continue to grant special treatment to TVA, the PMAs, 
government-owned utilities, and electric cooperatives by ensuring their 
ability to recover transition costs, without a comparable commitment 
for shareholder-owned utilities. Non-regulated distribution utilities, 
which will include most electric cooperatives and government-owned 
utilities, would have the authority to determine for themselves whether 
they could recover their transition costs. In addition, RUS borrowers 
would be able to apply to FERC to impose a charge on transmission 
service to help pay for the recovery of transition costs. H.R 1828 and 
H.R 2050 would also authorize TVA to recover its transition costs. 
Finally, the Administration bill provides for the recovery of 
generating costs by BPA and the other transmission-owning PMAs through 
a surcharge on their transmission rates, thus forcing shareholder-owned 
utilities to pay for the generating capacity used to compete with them. 
The Largent-Markey bill (H.R. 2050) includes a similar provision for 
BPA.
Congress must address the tax benefits enjoyed by government utilities.
    Finally, amendments to the Internal Revenue Code concerning the 
tax-exempt status of bonds issued by government utilities are an 
essential part of a comprehensive resolution to the role of government 
utilities in competitive markets. The tax provisions in the 
Administration bill reflect a reasonable compromise, allowing 
government utilities to avoid current IRS ``private use'' restrictions 
on the ability to compete without having to refund existing tax-exempt 
bonds, but providing, in return, that as government utilities move into 
competitive markets, no new tax-exempt bonds should be issued for new 
generation or transmission facilities. The Largent-Markey bill (H.R. 
2050), on the other hand, would expand the ability of government-owned 
utilities to use tax-exempt financing in competitive markets without 
requiring them to open up to competition.
    We believe that legislation introduced by Representative Phil 
English (H.R. 1253) represents the best solution to this problem. It 
provides needed flexibility for government-owned utilities that choose 
to compete, while allowing those that elect not to compete and small 
government utilities the option to continue to operate under the 
existing private use rules. These changes are needed to ensure that 
government utilities that enter competitive markets do not enjoy any 
new unfair competitive advantages subsidized by the taxpayers.
  there are other areas, however, in which federal legislation is not 
                              appropriate.
    As Congress considers electricity restructuring legislation, it 
should focus on deregulating, not reregulating.
New federal authority to order divestiture is not needed.
    The utility industry is currently subject to intense scrutiny by 
federal and state governments acting under a number of different 
federal and state laws to address potential market power concerns. In 
addition, state restructuring plans are addressing potential market 
power concerns. For example, the laws recently passed in Texas and Ohio 
both contain market power provisions. FERC, the FTC and Department of 
Justice also can address market power issues under their antitrust and 
merger responsibilities. FERC certainly has adequate authority under 
the Federal Power Act to regulate wholesale rates, if necessary. 
Congress should not enact draconian new market power provisions, such 
as granting FERC new authority to order divestiture, to regulate retail 
rates, or to mandate participation in a regional transmission 
organization.
    FERC's open access rules address vertical market power concerns by 
mandating non-discriminatory open access to the transmission grid and 
removing the ability of integrated utilities to use their control over 
transmission to gain a competitive advantage in upstream or downstream 
power markets. FERC's rules also require utilities to separate both 
information flows and personnel between unregulated power marketing 
activities and their regulated wires business.
    In addition, potential market power is limited by the vigorous 
competition to construct new generation, which can also be constructed 
and brought on line much more quickly than in the past. In New England 
alone, there are proposals to build new plants representing 28,645 
megawatts in new generation, which is more than the total existing 
generation in that region of approximately 23,500 megawatts. In the 
ERCOT ISO in Texas, over 26,000 megawatts of new generation capacity is 
being proposed. While all these projects will not be built, they 
provide strong evidence that a vibrant competitive market imposes price 
pressure on existing generation.
    Many utilities are selling some or all of their generation. Since 
1997, generating facilities representing 61,834 megawatts of capacity 
have been sold or are the subject of pending sales transactions. 
Companies have also announced their intent to divest generating assets 
representing another 92,000 megawatts in fossil and hydroelectric 
generating capacity and over 11,000 megawatts in nuclear generation and 
purchased power agreements. As previously mentioned, some of the 
largest purchasers of these assets are independent power producers.
    The four largest shareholder-owned electric utilities combined have 
just a 16.5 percent share of the national market. Catalogue of 
Investor-Owned Utilities, 1997 revenues, 38th Edition, EEI, 1998. By 
comparison, the four largest long distance telephone carriers generate 
roughly 72 percent of the industry revenues. Trends in Telephone 
Service, Industry Analysis Division, Common Carrier Bureau, Federal 
Communications Commission, February 1999. The four largest railroads 
run 87 percent of all of the revenue ton/miles. Analysis of Class I 
Railroads 1997, Policy and Economic Department, Association of American 
Railroads. Defined by total capital, the four largest securities firms 
have 70 percent of the capital of the securities industry. Securities 
Industry Yearbook, 1998-99, Securities Industry Association, 1998. As 
we have seen, mergers and strategic alliances within all of these 
industries continue.
    Any evaluation of market power issues must look to where the 
electricity industry is rapidly heading, not to where it has been, or 
even where it is right now. As previously discussed, thousands of 
suppliers already participate in electricity markets and new business 
opportunities are attracting numerous new competitors, many of them 
huge international companies. These companies will go head-to-head to 
sell electricity and other energy services to consumers. They will sell 
their electricity over wires that remain regulated by the states and 
federal government to ensure guaranteed, open access to these essential 
facilities.
    Congress should let market trends continue to evolve and should 
refrain from enacting draconian market power provisions. We commend 
Reps. Burr and Stearns for not including such provisions in their 
respective bills. On the other hand, we find that the Administration 
bill (H.R. 1828) goes too far in giving FERC sweeping new powers. It 
authorizes FERC to require divestiture of generation facilities, even 
though states clearly have the authority to address these issues, and 
extends FERC's reach into retail markets within individual states. The 
Largent-Markey bill (H.R. 2050) would also give FERC unnecessary new 
authority to set retail rates--a clear intrusion into traditional state 
jurisdiction.
Regionalization of transmission requires flexibility.
    EEI supports grid regionalization policies that rely on flexible, 
market-based approaches that apply to both private and public 
transmission providers. Existing regional grid organizations and those 
under development reflect--and will continue evolving to reflect--
changes in technology, reliability requirements, corporate structure, 
local and regional priorities, market boundaries, and other market 
characteristics.
    Different forms of regional transmission organizations (RTOs) 
include independent system operators (ISOs), regulated, not-for-profit 
entities which control and operate transmission systems, but do not own 
the transmission assets. Another form of a RTO is an independent 
transmission company (an ITC or transco). A transco is a regulated for-
profit company that owns or leases transmission facilities within a 
certain area. A transco also administers and operates the transmission 
system.
    Since 1997, six independent system operators have been formed, 
covering the transmission systems of California, Texas, the eastern 
United States from Maryland north through New England, and a large part 
of the Midwest. Several other RTOs, including several independent 
transmission companies, are in various stages of development. On May 
12, FERC proposed new measures to promote the formation of RTOs. FERC's 
new proposed RTO rule will further facilitate the development of RTOs.
    RTOs help facilitate competition in electricity markets by assuring 
that all electricity suppliers will have fair, open access to 
transmission facilities. They coordinate the use of the transmission 
lines on a broader regional basis, as well as assuring the continued 
reliability of the bulk-power transmission system. And, they help 
reduce costs by eliminating the ``pancaking'' of transmission rates 
(the adding of costs for using the transmission systems of different 
utilities as power is moved across a region). However, RTOs and other 
market players must have the ability to profitably operate and 
construct new transmission facilities in order to expand markets.
    Just as companies need the flexibility to determine which corporate 
structure or which business opportunities to pursue as electricity 
markets change, so, too, should they have the flexibility to determine 
the best transmission structure for the future. Like everything else in 
electricity markets right now, these structures are not static or fixed 
in stone. The appropriate market organizations should be allowed to 
develop, instead of prematurely mandating one particular transmission 
structure on a company.
    The Stearns bill (H.R. 1587) is consistent with this approach. 
While it encourages the formation of independent system operators, it 
gives FERC no new authority to require them. Representative Burr's bill 
(H.R. 667) is silent on this issue, allowing utilities the flexibility 
to continue current trends toward regionalization. Both the 
Administration bill (H.R. 1828) and the Largent-Markey bill (H.R. 
2050), however, give FERC unnecessary new authority to order 
establishment of independent transmission entities, to mandate 
participation in such an entity, and perhaps even to draw the 
boundaries of transmission entities, rather than leaving it to market 
forces to determine the appropriate configurations of regional 
electricity markets. These bills also would carve out special 
exceptions for TVA and the PMAs regarding their participation in 
regional transmission organizations, which are unwarranted.
Congress should streamline the review of utility mergers.
    As for reviews of mergers, we urge the Subcommittee to streamline 
and simplify the process. FERC, the Department of Justice, the Federal 
Trade Commission, the SEC and state regulatory agencies review 
electricity mergers. Literally no other industry is as heavily 
regulated with regard to mergers as the electric utility industry.
    Many of the mergers are between electric utilities and companies 
that own natural gas distribution, pipelines and exploration and 
production capabilities. Combining electricity and natural gas products 
enables companies to offer consumers convenient ``one-stop shopping'' 
for their energy needs. These combinations also give companies more 
efficient, more competitive operations through economies of scope.
    Like almost every other industry in the country, the electricity 
industry is becoming global, and U.S. companies are positioning 
themselves to be regional, national and even international players. As 
a result, more mergers are occurring among energy companies. The 
reality is that U.S. energy companies are significantly smaller than 
their European or Asian counterparts. Most of the world's largest 
utilities are foreign. And, a growing number of foreign utilities are 
also interested in merging with U.S. utilities. European utilities 
entering our market are amazed and frustrated at the time it takes to 
get regulatory approvals, as compared to Europe where regulatory 
reviews take a fraction of the time.
    Federal statutes recognize that mergers are a normal and beneficial 
part of the competitive process unless they significantly increase 
market power. Mergers and other strategic alliances can increase 
efficiencies in product and service offerings, resulting in lower costs 
and greater benefits for consumers. Yet, regulatory delays in reviewing 
mergers impose significant costs on companies--impeding efficient 
combinations--and reduce or delay the benefits for consumers. It 
usually takes years to complete utility mergers. In comparison, giant 
multinational oil mergers can be approved in significantly less time, 
as are combinations of utilities in Great Britain and other European 
nations.
    Representative Burr, by the elimination in his bill (H.R. 667) of 
FERC authority to review mergers, has apparently concluded that the 
Department of Justice and FTC have sufficient authority to review 
mergers. We would certainly agree that utility mergers currently are 
subject to too many layers of frustratingly slow reviews. The 
Administration bill (H.R. 1848) and the Largent-Markey bill (H.R. 
2050), on the other hand, would expand FERC's authority to review 
mergers. None of the other bills address merger review.
Renewable energy should be encouraged, but a mandate is not 
        appropriate.
    Encouraging use of renewable sources of energy is an appropriate 
policy goal; however, the Administration bill follows the wrong course 
to achieve that goal. H.R. 1828 would impose a renewable portfolio 
standard on sellers of electricity of 7.5 percent. A renewable 
portfolio standard is a hidden tax on all consumers. This mandate also 
sets an unrealistically high requirement and will force consumers to 
pay more for electricity. The Largent-Markey bill (H.R. 2050) also 
establishes a renewable portfolio standard, albeit lower. Both the 
Administration and Largent-Markey bills ignore hydroelectric power, one 
of our nation's most abundant and most important renewable energy 
resources. Polls demonstrate that consumers will voluntarily pay a 
premium to purchase electricity generated from renewable sources. Many 
different companies are eager to market such products. Tax incentives 
may also be a vehicle to promote renewable energy sources. We should 
let market forces and production incentives, rather than government 
mandates, provide the encouragement for renewable energy. Reps. Burr 
and Stearns, by not including a renewable energy mandate in their 
respective bills, reach the same conclusion.
Additional federal requirements for consumer protection should be 
        carefully crafted.
    Public benefit programs, such as low-income assistance and 
universal service programs, which have traditionally been incorporated 
in utility rates, need to be restructured to work in a competitive 
market. States should have clear authority to assure that all users of 
electricity contribute equitably to the cost of such programs.
    We agree that representations about the source of fuels used to 
generate electricity and their environmental impact must not be false 
or misleading, but we believe that the Federal Trade Commission and the 
states can enforce the accuracy of such representations under existing 
law. To illustrate this, the FTC is holding workshops in September on 
electricity labeling and the National Association of State Attorneys 
General is already working on a detailed policy in this area. Thus, new 
statutory authority for determining the accuracy of claims about 
electric generation sources, such as is included in the Administration 
bill, is not needed.
Electricity restructuring legislation should not be used as a vehicle 
        to address broader environmental issues.
    Finally, we believe that electricity restructuring legislation 
should be just that. We are opposed to reopening the Clean Air Act or 
other environmental statutes in this context. This is not the 
appropriate place to deal with environmental issues. Any changes to the 
environmental laws should be addressed in a debate that considers all 
industries, not just one that singles out the electric utility 
industry.
                               conclusion
    As we have outlined, we support legislation that removes federal 
barriers to competition, facilitates state restructuring activities, 
and addresses critical transmission and reliability issues. These are 
restructuring issues that only Congress can address.
    The details of how we get from a regulated electricity regime to a 
competitive market are critical. The electric utility industry is a 
$200 billion a year industry, and it is the country's most capital-
intensive industry. Electricity powers our economy; it not only is 
essential to our well-being, it improves the quality of life of every 
American consumer. That's why we emphasize that it's important that we 
``get it right.''

    Mr. Barton. Well, so far it is Stearns 4, Largent-Markey 1, 
Burr 1, and the Clinton Administration bill 1. So, Mr. Stearns 
has asked unanimous consent that the rest of the testimony be 
dispensed with. But we are going to press ahead. We would now 
like to hear from Ms. Jana Price-Davis; 5 minutes, please 
ma'am.

                 STATEMENT OF JANA PRICE-DAVIS

    Ms. Price-Davis. Good morning, Mr. Chairman and members of 
this subcommittee.
    Mr. Barton. You really need to put that microphone close to 
you, so that we can hear you in the audience. Thank you.
    Ms. Price-Davis. Good morning, Mr. Chairman and members of 
this subcommittee. Thank you for allowing me to speak to you 
today on the issue of electric restructuring. My name is Jana 
Price-Davis. I am the Assistant Vice President for Government 
Affairs for Heilig-Meyers Company, which is based in Richmond, 
Virginia.
    I am appearing today on behalf of the Americans For 
Affordable Electricity, or AAE, a coalition representing a 
broad array of stakeholders, including large and small 
consumers, utility and non-utility generators, citizens groups, 
school administrators, and others.
    I am also here on behalf of the International Mass Retail 
Association which represents the mass retail industry, discount 
department stores, home centers, specialty discounters, and the 
manufacturers who supply them. The goal of AAE is to achieve a 
competitive market for electricity, one in which all consumers 
have the right to choose their suppliers.
    I will now address the various AAE legislative objectives 
and how they are treated under the several proposals before the 
committee. First, we favor a date-certain by which all citizens 
have the right to choose their supplier of electricity.
    This is a question of individual rights. Should an 
individual be subjected to a State-mandated monopoly? We 
prefer, if possible, the language contained in H.R. 1828 and 
H.R. 2050. We do not oppose each State's role to provide for 
stranded cost recovery consistent with the unique concerns and 
circumstances of its citizens, and based on the market 
valuation of the assets in question.
    However, Federal legislation should guarantee that stranded 
cost recovery does not impede competition. It should not reward 
the inefficient at the expense of the efficient. It should not 
impede technology and innovation. Among the bills introduced 
during this Congress, we believe that H.R. 1828 and H.R. 2050 
provide the best treatment for stranded costs.
    Our third issue is aggregation. Federal legislation should 
in no way restrict any seller of electricity from aggregating 
consumers. It should guarantee to purchasers, wherever located, 
the right to join with any other purchaser to buy in an 
aggregated manner. For example, Heilig-Meyers Company, whom I 
work for, is currently exploring a number of opportunities for 
aggregation, not only amongst our stores, but among our 
employees in the States where that has become an option. 
Aggregation is important, not only to large purchasers, but to 
small ones.
    Without the ability to aggregate, small purchasers may not 
be able to reap the benefits of competition. For example, we 
operate over 1,100 stores in 37 States. Our individual store 
load profile is such that without the ability to aggregate, 
even across State lines, we would not be likely to see a great 
deal of savings on our commodity.
    The ability to aggregate should be open to all consumers. 
The objectives of H.R. 1828 and H.R. 2050 are consistent with 
those I have outlined. Federal legislation should specify that 
no consumer's rights and opportunities to obtain alternative 
electric service should be unduly hindered or discouraged.
    This includes the right of an industrial or commercial user 
to self-generate, and that of a rural consumer to utilize 
distributive generation. Exit fees and other impediments would 
reduce these opportunities. We are discouraged by provisions in 
the several bills that provide legislative authority for States 
to impose such fees. The linked issues of market power, PUHCA 
repeal, reliability, transmission, and grid governance are 
really at the heart of creating and guaranteeing a competitive 
retail market.
    Given that market power would still be exercised by the 
owners of monopoly transmission facilities, I cannot emphasize 
enough that regulation is needed to ensure that the owners of 
transmission systems do not use their position to the detriment 
of true competition.
    Federal and State Regulators must have the authority to 
prevent this exercise of market power and other practices that 
restrain trade or competition. Such authority should include 
the ability to monitor transactions between regulated and 
unregulated utility affiliates, mandating the operational 
unbundling of generation transmission system control, 
marketing, and local distribution functions, prohibiting cross-
subsidization between such entities, and establishing a code of 
conduct.
    Repeal of PUHCA should not be considered on a stand-alone 
basis. The repeal of PUHCA should not be effective until all 
customers have the ability to choose their electric supplier. 
The provisions of H.R. 1828 and H.R. 2050 are much more 
positive than the stand-alone approach in H.R. 2363.
    Related to the issue of market power is the issue of grid 
management. We believe that FERC should be authorized and 
required to promulgate rules that provide for the independent 
operation of the interstate grid; preserve reliability; promote 
economic, efficient, and competitive markets; and mitigate 
market power.
    Such rules should encourage the sale and transportation of 
electricity from any seller to any buyer in an open, 
competitively neutral, and non-discriminatory manner. States 
have traditionally played a valuable role in electricity 
regulation. We support the grandfathering of all State actions 
that promote competitive electricity markets.
    Many AAE members are producers of electricity, either as 
utilities or as non-utility generators. So, there are issues 
under PURPA that greatly concern us.
    Mr. Barton. Ms. Price-Davis, you need to summarize. I see 
you have got a whole page remaining.
    Ms. Price-Davis. Yes, sir. We believe that every consumer 
should have the right to choose a supplier of electricity. On 
behalf of Heilig-Meyers International Mass Retail Association 
and Americans for Affordable Electricity, I am asking this 
committee to develop a comprehensive electric utility 
restructuring piece of legislation addressing these issues. I 
thank you for your time and attention today.
    [The prepared statement of Jana Price-Davis follows:]
   Prepared Statement of Jana Price-Davis, Assistant Vice President, 
               Government Affairs, Heilig-Meyers Company
    Good morning, my name is Jana Price-Davis, Assistant Vice 
President, Government Affairs for Heilig-Meyers Company, which is 
headquartered in Richmond, Virginia. Heilig-Meyers Company operates 
1,165 stores in 37 states and Puerto Rico. I am here today representing 
Americans for Affordable Electricity, or AAE, a coalition with over 250 
members representing a broad array of stakeholders in the electricity 
debate including large and small consumers, utility and non-utility 
generators, citizen groups, school administrators, and others.
    I am also here on behalf of the International Mass Retail 
Association who represents which represents the mass retail industry--
consumers' first choice for price, value and convenience. IMRA's 
membership includes the fastest growing retailers in the world--
discount department stores, home centers, category dominant specialty 
discounters, catalogue showrooms, dollar stores, warehouse clubs, deep 
discount drugstores, and off-price stores--and the manufacturers who 
supply them.
    AAE was founded on the simple concept of favoring competition over 
monopolies. Members of AAE want an open market in electricity, with 
buyers and sellers having the greatest number of options.
    When AAE began, we had one common objective--that a federal date 
certain by which all consumers could choose their supplier of 
electricity was the best way to create the competitive national market 
that we all hoped for.
    Since then, two things have happened. First, as Chairman Bliley 
pointed out three weeks ago, the need for a date certain has 
diminished. We have seen 24 states put into place the framework for 
retail competition, and as each additional state chooses a competitive 
market over a monopoly market, the need for a date certain is less. 
That is not to say that we would not choose to have a date certain or 
``flexible mandate'' as proposed by Mr. Largent and Mr. Markey (in HR 
2050) if possible. That is still the cleanest and simplest way to allow 
customer choice for all citizens. But we recognize the political 
hurdles involved and, again, given state action to date, there is less 
imperative for a date certain.
    Second, the members of AAE recognize that in order to achieve the 
competitive markets we seek, we need more than simply a date certain. 
Customer choice and retail access are wonderful goals, but they are 
worthless if the transmission system, which will remain monopolistic 
for many years, does not allow for the free and non-discriminatory 
movement of electricity from seller to buyer. Accordingly, in seeking a 
more open and competitive market, the members of AAE found logical 
agreement on several other issues. I shall now discuss the various AAE 
legislative objectives, and how they are treated under the several 
proposals before the Committee.
Date Certain
    As I mentioned, AAE favors a date certain by which all citizens 
have the right to choose their supplier of electricity. This is a not a 
question of state vs. federal rights, it is a question of individual 
rights. Should any individual be subjected to a state-mandated 
monopoly? If possible, we prefer the language in HR 1828 and HR 2050.
Stranded Costs
    AAE does not oppose each state's role to provide for stranded cost 
recovery to resolve those differences consistent with the unique 
concerns and circumstances of its citizens. Each regulatory commission 
should base its determination of what constitutes recoverable stranded 
costs based on the market valuation of these assets, such as through a 
competitive sale or effective arms length appraisal which properly 
reflects the assets' worth in the marketplace.
    Given that, if possible federal legislation should guarantee that 
stranded cost recovery does not impede competition. It should not 
reward the inefficient at the expense of the efficient. It should not 
impede technology and innovation.
    AAE members believe that HR 1828 and HR 2050 provide the best 
treatment of stranded cost recovery among bills introduced this 
Congress.
Aggregation
    AAE believes that federal legislation should in no way restrict any 
seller of electricity from aggregating customers. At the same time, 
legislation should guarantee that any purchaser, wherever located, 
should have to right to join or affiliate with any other purchaser to 
buy in aggregated manner. This is obviously important for large 
purchasers--including industrial users and large commercial users such 
as supermarkets and department stores--who would like to purchase their 
electricity from one source and receive one bill. But it is also 
important for small users. As has often been said, most large 
industrial users already have some ability to negotiate with sellers of 
electricity. But without the ability to aggregate, small purchasers may 
be hard pressed to reap the full benefits of competition. Many affinity 
groups such as labor unions, churches, alumni associations and others 
could offer electricity on an aggregated basis at lower prices. And I 
know that several industrial and commercial users are exploring the 
possibility of allowing employees to purchase electricity through the 
same aggregator used by the corporation. We would hope that the ability 
to aggregate be open to all electricity users. The objectives of HR 
1828 and HR 2050 are consistent with those I have outlined.
Consumer Rights
    AAE members seek to ensure that federal legislation specify that no 
consumer's rights and opportunities to obtain alternative electricity 
services should be unduly hindered or discouraged. This includes the 
right of an industrial or commercial user to self-generate or a rural 
consumer to utilize distributed generation. Exit fees or other 
impediments would surely reduce those opportunities. By way of analogy, 
I offer Mr. Markey's observation that no one would expect that the 
purchaser of a satellite dish should pay an exit fee to the cable 
company. We are discouraged by provisions in several bills that provide 
legislative authority for states to impose such fees
Market Power/PUHCA
    The linked issues of Market Power, PUHCA Repeal, Reliability, and 
Transmission and Grid Governance are really at the heart of creating 
and guaranteeing a competitive retail electricity market.
    Given that market power--plainly put monopoly power--would still be 
exercised by owners of monopoly transmission facilities, I cannot 
emphasize too strongly that regulation is needed to ensure that the 
owners of the transmission systems do not use their position to the 
detriment of real competition.
    Members of AAE are not proponents of regulation. We are the side 
that prefers open competitive markets over regulated markets whenever 
possible. But as long as the transmission lines are owned by 
monopolies--and we are not recommending otherwise--they must remain 
regulated. As Chairman Bliley has often said, ``the only thing worse 
than a regulated monopoly is an unregulated monopoly.''
    Federal and state regulators must have adequate authority to 
prevent the exercise of market power and other practices that restrain 
trade and/or competition. Such authority should prohibit potential 
anti-competitive practices between and/or among regulated and 
unregulated utility affiliates by monitoring the transactions between 
such entities, mandating the operational unbundling of generation, 
transmission, system control, marketing, and local distribution 
functions, prohibiting cross-subsidization between such entities, and 
establishing a code of conduct. Regulators should have appropriate 
access to all books and records of regulated entities and entities 
which they own or control. Repeal of PUHCA should not be considered on 
a stand-alone basis and repeal of PUHCA should not be effective until 
all customers have the ability to choose their electricity supplier. 
Accordingly the provisions of HR 1828 and HR 2050 are much more 
positive than the stand-alone approach in HR 2363. We also commend the 
language co-authored by Reps. DeLay and Markey in HR 4432 in the 105th 
Congress.
Grid Management
    Related to market power is the issue of grid management. AAE 
believes that FERC should be authorized and required to promulgate 
rules that: (1) provide for the independent operation of the interstate 
grid; (2) preserve reliability; (3) promote economic, efficient and 
competitive markets; and (4) mitigate market power. Such rules should 
encourage the sale and transportation of electricity from any seller to 
any buyer in an open, competitively neutral and non-discriminatory 
manner.
Grandfathering
    We recognize that states have played a traditional a valuable role 
in field of electricity regulation. We support the grandfathering of 
all state actions that promote competitive electricity markets.
Other Issues
    Many AAE members are producers of electricity either as utilities 
or as non-utility generators. In the latter category there are many 
members with facilities that are qualifying facilities, or QFs, under 
PURPA.
    We recognize that in a competitive market the mandatory purchase 
provisions of PURPA Section 210 are an anachronism and should be 
repealed. However it is important to address this issue carefully and 
not repeal other protections in Section 210, including the right of 
interconnection and the right to stand-by power, which are vitally 
important to non-utility generators and have proven invaluable in 
broadening the base of the generating community. With the repeal of the 
mandatory purchase provisions, these other protections should extend to 
all qualifying facilities. HR 971 and HR 1138, in addition to being 
stand-alone PURPA repeal bills which we do not favor, offer ambiguity 
as to their intent. HR 2050 comes closer to our objective, but it 
raises questions about future protections. HR 1828 is perhaps the best 
approach, but it, too, is less than definitive in protecting all QFs. 
We believe it is necessary to maintain non-discriminatory access and 
stand-by power supply for QFs until retail competition is achieved in 
any state. At the very least, report language qualifying congressional 
intent may be needed.
Conclusion
    It should be apparent from this statement that AAE members 
recognize that electricity is an interstate commodity. It does not 
stop--or even slow down--at state lines. If we want an efficient, 
national electricity market, we need a federal bill. While AAE 
recognizes the noble intentions of the authors of HR 667 and 1587, 
their reliance on state governments to oversee a national industry 
would not enhance the development of more competition in the interstate 
electricity market.
    As Chairman Bliley recognized in his speech several weeks ago, 
competition is coming. But the reality is that we face a long 
transition period before we get there. AAE believes that everyone--
except perhaps some intransigent anti-competition monopolies--would 
benefit if the end state of competition came sooner rather than later. 
Strong, complete, and comprehensive Federal legislation is needed to 
achieve that objective.
    Every citizen should have the right to choose a supplier of 
electricity. No consumer should involuntarily be beholden to a 
monopoly. On behalf of Heilig-Meyers Company, The International Mass 
Retail Association and Americans for Affordable Electricity I am asking 
this Committee to develop a comprehensive electric utility 
restructuring bill that will address the issues previously outlined 
herein. Thank you for your attention and interest in this issue.

    Mr. Barton. Thank you. We appreciate that. Everybody's 
statement is in the record in its entirety. So, if you could 
try to hold it to 5 minutes, we would appreciate it. She was a 
little bit sneakier there. She did not use people's names. She 
used numbers. But as far as I could tell, Largent-Markey picked 
up 2 votes and the Clinton bill picked up 2 votes. So, they are 
gaining on you.
    Mr. Burr. Do you get any points for not being mentioned, 
Mr. Chairman? Sometimes that receives a bonus.
    Mr. Barton. I am not counting the negative things. She said 
some negative things, but I am a positive guy. So, I am not 
giving black marks. We want to hear now from the Electric Power 
Supply Association. Mr. Steven Kean is going to give us their 
view for 5 minutes.

                  STATEMENT OF STEVEN J. KEAN

    Mr. Kean. Mr. Chairman and members of the committee, it is 
an honor to appear before you today to talk about comprehensive 
electricity legislation, which I believe provides this 
committee and this Congress with an extraordinary opportunity 
to improve our Nation's most vital industry.
    Electricity powers our economy, everything from 
manufacturing, agriculture, to the Internet. It lights, heats, 
and cools our homes. It is the second largest expense faced by 
our Nation's schools. Opening this market to competition, as 
shown by just about any study, will result in----
    Mr. Barton. Pull that microphone up, Steve.
    Mr. Kean. Just about any study shows that opening this 
market to competition saves tens of billions of dollars a year 
and, just as important, allows for innovation in technology and 
services, which simply have not been possible in a regulated 
monopoly structure.
    It is also a bipartisan issue, as evidenced by the Largent-
Markey bill, and therefore I think presents the best 
opportunity for this Congress to do something great for this 
Nation this year. To deliver on this great promise, the 
legislation will need to do two things.
    It needs to be comprehensive and it needs to be forceful. 
The legislation needs to be comprehensive because this most 
essential, most interstate of our Nation's industries is mired 
in a Century-old public policy framework. That framework is 
crumbling around us now, with implications for the reliability 
of the system, and the cost to consumers and businesses of this 
most essential commodity.
    First, the reliability of the electric grid is dependent 
upon vague and voluntary standards, which are set by the 
monopolies that control the system. The call for reform in this 
area has come from everywhere, including the existing 
reliability organization. Second, as recent blackouts indicate, 
much of our Nation's infrastructure needs upgrading. Yet it is 
difficult, if not impossible to site new transmission lines.
    Third, many States have passed legislation purporting to 
open up 60 percent of the retail market to competition, but the 
interstate grid, which competitors depend on to give the 
citizens of those States' choices, is not open. Instead, it is 
openly discriminatory with perhaps 15 percent of the grid open 
to competitive uses.
    The rest is captive to the raw exercise of monopoly power. 
Worst of all, worlds creating an unregulated monopoly, both 
public and private, competitors labor second class access for 
the grid. In a recent decision has cast doubt on FERC's ability 
to fix the problem.
    In short, interstate transmission is not open today. The 
success of those State programs that have already been passed 
is vitally dependent on it and, therefore, dependent on this 
Congress to fix it.
    Finally, jurisdictional structure of the industry is 
bizentine. Four States which have attempted to open their 
markets alone have been sued by other utilities in Federal 
Court claiming Federal preemption. In this realtime industry, 
it is not clear where to turn for answers.
    All of these illustrations have one thing in common. Only 
Congress can fix the problem. The reliability organization must 
be reformed to be legitimate, and its governance non-
discriminatory in its rules, and have enforceability. FERC must 
be directed and empowered to ensure non-discriminatory access 
to the transmission system for all uses and for all systems, 
public and private.
    Third, the customer information channel must be open to 
competition. We can work on the problems, the reliability 
problems, in this industry, not just from the supply side, but 
from the demand side as well. To do that, we need to get the 
information that lets us know where those investments can be 
made.
    Fourth, the monopoly franchise should be removed. Everybody 
should have a choice. This is a matter of individual rights, 
not States' rights or Federal rights. Legislation must get at 
each of these issues. It must be comprehensive in its scope.
    I believe the Largent-Markey bill accomplishes that. The 
administration bill does as well, which brings me to the final 
point. Legislation in this area has to be forceful. No monopoly 
voluntarily surrenders its franchise or its market power. 
Industry and consumer consensus can yield some common ground, 
but tough choices remain to be made; access to transmission, 
choice, the ability to address market power.
    Those are choices that have to be exercised by this Body, 
and they have to be exercised in favor of giving America's 
consumers and business choice and the benefits of competition. 
The choices are essential. They require Congressional action. 
Today the system is broken. I urge you to move this legislation 
to a ``must-do'' priority for this committee and this Congress. 
Thank you.
    [The prepared statement of Steven J. Kean follows:]
 Prepared Statement of Steven J. Kean, Executive Vice President, Enron 
          Corp. on Behalf of Electric Power Supply Association
    Mr. Chairman, Ranking Minority Member, and Subcommittee Members, my 
name is Steven J. Kean. I am Executive Vice President of Enron Corp. It 
is my honor to appear before you.
    Enron Corp. owns more than $30 billion in energy and communications 
assets; produces electricity and natural gas; develops, constructs and 
operates energy facilities worldwide; delivers physical commodities and 
risk management and financial services to customers around the world; 
and is developing an Internetbased communications network. Enron is 
currently the largest marketer of natural gas and electricity in North 
America and serves 700,000 retail customers in Oregon through its 
subsidiary, Portland General Electric. Enron owns over 4,300 megawatts 
of generation and is one of the nation's leading energy management 
companies, offering commercial and industrial customers a full range of 
energy services such as commodity and transmission procurement, 
hardware installation and maintenance, and demandside management.
    Enron Corp. is a member of the board of the Electric Power Supply 
Association (``EPSA''). EPSA is a trade association that represents the 
leading competitive power suppliers--including power marketers and 
developers of competitive power projects--active in the U.S. and global 
energy markets. While I serve as a corporate officer of Enron and will 
comment on Enron's experience in the emerging competitive marketplace, 
my statement reflects the consensus views of EPSA's member companies.
    The structure of today's power industry is largely a throwback to 
the first two decades of this century. At that time, states scrambled 
to pass laws to address a new industry that was stringing electric 
cable up and down each side of many roads. Those laws sought to 
regulate the thenemerging power industry--from generator, through the 
wires, to switches to the monthly billing statement--as a monopoly, 
vested with the public interest. This was the case with investorowned 
utilities, municipal utilities, cooperative utilities, and even certain 
utilities that are instrumentalities of the U.S., such as the Tennessee 
Valley Authority (``TVA''). These utilities were given a state or 
municipal franchise service territory within which no one would be 
allowed to compete for their customers. In exchange for this exclusive 
state or municipal right, these utilities were obligated to provide a 
certain minimum quality of delivered electricity service, at regulated 
prices, to anyone that applied for service and could pay their bill or 
demonstrate creditworthiness. Where state regulation is not permitted 
to burden interstate commerce, (i.e bulk power wholesales using the 
interconnected transmission grid), Congress enacted the Federal Power 
Act of 1935 to empower the Federal Power Commission and its successor, 
the Federal Energy Regulatory Commission (``FERC''), to regulate prices 
and ensure that wholesales and interstate transmission were offered 
without undue discrimination.
    As we approach the next millennium, this model for the Nation's 
largest industry has become an anachronism. The century old public 
policy framework is crumbling around us and the consequences are 
profound. It is depriving consumers of very large potential savings 
that would result from increased competition, increased efficiency and 
the technological innovation that competition ignites. Over the last 
sixty years--particularly since 1978 when Congress took steps that 
instigated competition in power generation and since 1992 when Congress 
opened up grid access to competing wholesale generators--experience has 
shown that much of the power industry is not necessarily monopolistic 
and could, instead, prosper under competition. The only function within 
today's power industry that has not yet to show itself to be primed for 
competition is the wires business. Generating power, marketing at 
wholesale (and, where permitted, at retail), ensuring reliable 
deliveries, metering, billing and associated services all promise 
better service at lower prices through competition.
    In my statement I would like to share with you Enron's experience 
with historical barriers that persist in preventing entry to rivalrous 
competition in the nonwires services of the power industry. I shall 
follow my identification of those barriers, with a discussion of 
actions that Congress must take to eliminate the barriers and a review 
of the benefits likely to ensue. Where appropriate, I will comment on 
legislation currently pending before you.
The Exclusive Franchise
    The state or municipal franchise that prevents competition at the 
retail meter and bill within a service territory is, without a doubt, 
the single largest obstacle to competition in the power industry. The 
franchise has entrenched over decades a single supplier of all power 
products and services bundled and delivered to your light switch, dish 
washer, store front sign or industrial process. Even in those 
twentyfour states (representing approximately 60 percent of U.S. 
consumption) which have taken steps to open up the exclusive franchise, 
competition remains stymied by the adhesive force of incumbency as well 
as by the inertia of consumers who have always been captive and, thus, 
lack experience in being able to choose a provider from among many 
competitors.
    While Congress could leave to the states the decision as to whether 
to lift the franchise, we at Enron believe that a coordinated national 
move toward competition would be more fair and sensible for all 
consumers. If ever there were a service or commodity that is integrated 
across state lines in interstate commerce and recognizes no political 
boundaries, it is electric power, as forcefully recognized in the 
Largent/Markey bill (HR 2050) and the Administration's bill (HR 1828). 
Perhaps telephony rivals electricity in this regard. However, as this 
Committee surely knows, the exclusive state franchise over the local 
exchange was eliminated on a national basis by the Telecommunications 
Act of 1996. Enactment of that legislation left the power industry as 
the sole and largest remaining monopoly industry.
    Surely consumers benefit even when a single state opens up the 
franchise. However, a piecemeal, statebystate approach as envisioned by 
Congressman Burr's legislation (HR 667) and by Congressman Stearns' 
legislation (HR 1587) will inevitably cause inequities. Although these 
two bills provide partial solutions and would give needed state 
authority to those four states which were sued in federal court by 
electric monopolies claiming federal preemption of state competition 
plans, these two bills fail to fix the fundamental interstate 
structural problems. States cannot address interstate commerce. Some 
legislation before you (HR 667, HR 1828, HR 2050) seeks to attempt to 
address resulting inequities by reciprocity provisions. However, even 
the National Association of Regulatory Utility Commissioners (NARUC) 
has taken a position to outright oppose reciprocity since it would 
unfairly limit choices for consumers. Whether or not a state acts, we 
are all dependent on the interstate grid which only Congress can open. 
State program successes, with cost savings and product innovations that 
will benefit all consumers is dependent upon interstate transmission 
which is dependent upon Congressional action. Today, the transmission 
grid is openly discriminatory with monopoly utilities exercising raw 
market power. Congress must eliminate the discrimination in access to 
transmission so all competitors can have the same transmission tariff 
choices.
    New entry by competitors in a truly open marketplace will force 
prices down for all consumers. With new competitors able to enter the 
open market, new products will evolve. Only then will new products and 
new services be able to reach the market. Indeed, experience with other 
industries that have made the transition from franchise monopoly to 
competition indicate that, while price reductions have resulted from 
efficiency gains, the greatest benefits have been the result of new 
services and product innovations.
Transmission Discrimination Barriers
    Congress must quickly address the competitive structural barrier 
caused by unequal access to the interstate transmission grid. Congress 
must require that all users of the grid--traditional utilities and new 
market entrants, federal Power Marketing Administrations (PMAs) such as 
Bonneville Power Administration (BPA), and the TVA--are all subject to 
the same rules and procedures for transmitting power in interstate 
commerce.
    If the rates, terms, and conditions for tapping into and 
transmitting over the grid favor only certain users, then entry by new 
competitors will be deterred and choices for consumers' choices will be 
limited. Historically, denying access to their transmission facilities 
has been the preferred barrier by which traditional franchise electric 
utilities prevented competition from unwelcome new entrants within the 
bulk power market. When Congress introduced new nontraditional 
generators into the market with the enactment of the Public Utility 
Regulatory Policies Act of 1978 (``PURPA''), the new competitors and 
their offspring introduced types of competition that traditional 
franchise holders did not welcome.
    PURPA never was and is not now a barrier to competition. This law 
has been the impetus for the development of competitive markets and a 
new industry. If Congress determines that this law needs to be amended, 
first, tread lightly and, second, explicitly acknowledge the principle 
of contract sanctity and the need to protect existing legitimate 
contracts. While future competitive markets won't rely on PURPA to be 
robust, they will require a base built around legal contracts and many 
competitors. The wrong signals from Congress during this transition 
could lead to uncertainty about the value of contractual obligations 
and the bankruptcy of key competitive power suppliers. Congress should 
only address PURPA in a comprehensive legislative package and not 
consider piecemeal measures like HR 1138. Legislation such as HR 971 is 
counter-productive and fails to recognize contract sanctity and the 
inviolability of federally mandated power purchase contracts.
    Even with PURPA, the incumbents' first line of defense against new 
market entrants was a ``Not Open for Business'' sign posted on the 
franchise holder's high voltage wires. Through enactment of Title VII 
of the Energy Policy Act of 1992, Congress lessened the viability of 
this defense by authorizing FERC to issue orders, upon application, 
compelling traditional transmission owners to wheel power for their 
competitors' interstate wholesales. It took FERC only two years to 
recognize, however, that even egregious discrimination could not be 
effectively remedied on the basis of casebycase orders under the 1992 
legislation. That recognition caused FERC in 1996 to issue two 
rulemakings, Orders 888 and 889, that implemented nondiscriminatory 
access to the interstate grid generically, but only for wholesales. 
This limitation meant that only 10 percent to 15 percent of the uses of 
interstate transmission became open to fair competition. The remaining 
85 percent to 90 percent of uses by incumbent transmission owners 
remain bundled with captive, nativeload sales and cannot be effectively 
policed for discrimination.
    Moreover, a recent decision of a panel of the United States Court 
of Appeals for the Eighth Circuit calls into question FERC's authority 
to open even this small portion of the market. While FERC and Enron are 
pursuing a full Eighth Circuit rehearing of the panel's decision (which 
we believe is both legally and factually indefensible), the panel's 
decision, at a minimum, underscores the need for a clear Congressional 
endorsement of necessary FERC powers to eliminate undue discrimination 
from all uses of the interstate grid. No legislation before you today 
clearly subjects to federal jurisdiction interstate transmission that 
is bundled with retail sales to native load. But it should.
    Further, no legislation before you eases the barriers to siting new 
transmission lines necessary for interstate transmission reliability. 
Enactment of the federal authority to site new interstate transmission 
facilities would benefit nondiscriminatory access to transmission by 
preventing a single state from blocking needed upgrades or expansion of 
the interstate transmission grid. In addition, Congress must empower 
FERC to remedy horizontal and vertical market power.
    The solution to transmission discrimination is not unique to the 
power industry; it finds a perfect analogy in FERC's Order No. 636 in 
the natural gas industry. Following an earlier order that made natural 
gas pipelines transport the gas sales for their competitors, Order No. 
636 made gas sales by the owners of interstate natural gas pipelines 
subject to the same openaccess transportation tariff and rules as were 
thirdparty shippers who competed with the pipelines for sales. This had 
the effect of forcing the pipelines to separate their transportation 
business from their gas sales business. Thereafter the pipelines ceased 
to be used as a strategic asset to favor the pipelines' gas sales over 
the sales of thirdparty competitors; instead the pipelines began to 
operate as standalone businesses intent on maximizing throughput from 
all shippers because that became their primary profit center.
    The power industry needs the same fix as the natural gas industry 
received in Order No. 636. Only then will all potential suppliers of 
power be able to access markets fairly, in rivalrous competition, and 
only then will transmission owners focus on maximizing the efficiency 
of the grid on a standalone business. Congress can facilitate this by 
clarifying in legislation that FERC has plenary authority over 
electricity transmission in interstate commerce and an obligation to 
ensure that all uses of the grid are pursuant to the same rules of 
interconnection and use.
    The benefits of a fully open and nondiscriminatory grid promise to 
be many. First will be increased ability for new suppliers and 
marketers to enter and compete in markets in which discriminatory 
transmission access rules previously prevented them from being 
competitive. Second, and perhaps equally consequential for power 
consumers, they and their supplier of choice will be able to choose 
what combination of power services they want. This ability to combine 
transmission with various supply and demandmanagement combinations 
would be in sharp contrast to the status quo in which the franchise 
transmission owner confines the majority of customers to a single, 
bundled, delivered power product at price X. In short, once the 
monopoly wires business is fully separated from competitive businesses 
and available to all users without discrimination, the products 
delivered through the wires can be recombined and reconfigured in 
countless ways that meet individualized consumer demand. Absent 
separation of generation (or load) from monopoly transmission, Congress 
must give sufficient divestiture authority to FERC to remedy market 
power. In the active hourly market, existing antitrust laws are 
inadequate.
Reliability Concerns that Bar Competition
    The reliability of power supply is a paramount concern for 
suppliers and users of power alike. During the past three decades, the 
reliability of the highvoltage transmission system has largely been 
ensured by utility compliance with voluntary guidelines and policies 
established by the North American Electric Reliability Council 
(``NERC''). Entry into power markets by nontraditional power suppliers 
and marketers seeking to compete with traditional franchise utilities 
has made NERC's task of setting and enforcing standards significantly 
more onerous. First, there are more transactions on the grid and 
accommodating their performance, consistent with maintaining grid 
stability, is simply more work and more cumbersome than it was in the 
past.
    Second, many of the existing rules for ensuring reliable operations 
were written before any significant competition existed in the power 
industry; as a result, many of the rules needlessly undermine 
competition and prevent the benefits of competition from flowing 
through to consumers. By way of example, until recently, the NERC rules 
for managing excessive traffic on wires within the grid entailed 
quantity rationing, irrespective of economics. In other words, every 
transaction flowing on that wire was cut back proportionately, 
irrespective of a seller's or buyer's willingness to pay to avert being 
cut back or to pay for some other accommodation.
    The solution to the barriers that historical reliability 
institutions and rules pose to power industry competition is to 
recreate and modernize NERC. As proposed in Congressmen Largent's and 
Markey's bill (HR 2050) and in the Administration's Comprehensive 
Electricity Competition Act (HR 1828), a new standard setting 
organization should be formed to succeed NERC. It would be 
representative of all participants in the evolving power market and, 
under authorities delegated to it by FERC, would both establish and 
enforce reliability standards.
    The benefits of succeeding NERC with such a new standardsetting 
organization speak for themselves. A reliable power industry is 
important to almost every aspect of modern life and is indispensable 
for our national economy. With a growing number of competing 
participants in the market, voluntary rules will no longer be 
sufficient because cutting corners may be economically advantageous. 
Thus, the new organization must have some enforcement muscle. Giving it 
that muscle makes it imperative, however, that the standards that it 
sets are fair, reflect the interest of all sectors of the industry, and 
are not hostile to competition.
    I cannot overstate the importance of enacting legislation to 
address the reliability issues and authority this Congress. Last week's 
hot weather, with brownouts and blackouts, showed once again how 
fragile the current system really is. Congress must reform the 
reliability organization so it is legitimate in its governance, 
nondiscriminatory in its rules and able to enforce those rules.
Access to Customer Information
    Competition in the power industry is only worth pursuing if it 
produces an industry that better meets consumer needs. This means that 
all potential competitors should have equal access to information about 
consumer's needs and wants. Historically, only the incumbent franchise 
utility has had access to this information as it has been gathered at 
the meter--the point where the generation, transmission and 
distribution interface with the consumer. This information should be 
the property of the consumer and not its traditional supplier.
    The need for equal access to information on the customer cannot be 
overstated. Reduced to basics electricity is electricity. Certainly 
competition among its generators has and will continue to provide value 
to consumers. Nevertheless, it is in how electricity is packaged and 
delivered in response to consumer demand that will represent the 
greatest benefit of competition. If only the incumbent utility that 
traditionally has owned the customer meter has access to the 
information recorded through the meter concerning customer demand, then 
this competition will be thwarted.
    Congress should address this obstacle to competition by making 
clear that historical information on a customer obtained through the 
meter belongs to the consumer, as addressed in the Congressmen Largent 
and Markey bill. Doing so will make an enormous difference in giving a 
voice to consumer demands and in giving the ability of multiple 
suppliers to compete to meet that demand. Recognizing that it is the 
consumer that owns the historical information on demand for and uses of 
power will also respect the consumers' right to privacy.
    In this same area, Congress should address the free movement of 
goods, capital and services in the retail electricity market. As such 
Congress must establish standard terms and conditions for the interface 
perhaps by empowering NERC to coordinate minimum market standards. 
Finally, the customer information channel--the metering and billing of 
sales--must be open to competition. Reliability problems are as much a 
function of inadequate demand-side information and response as they are 
about the need for new generation.
Environmental Programs and Labeling Should Not Burden Interstate 
        Commerce
    One additional barrier warrants our attention. This barrier is not 
one that grows out of the power industry's past such as the exclusive 
monopoly franchise, the discriminatory rules for accessing the grid, 
the commercially hostile reliability rules, and the unequal access to 
information on consumer demand and consumption. Rather, this barrier is 
emerging today with the advent of competition. Potentially an 
impediment to competition is the wellintentioned effort of some state 
regulators and lawmakers to achieve new restrictions on power plant 
emissions by labeling all delivered electrons to show the fuel from 
which they were generated--e.g., coal, nuclear, hydroelectric, wind, 
geothermal, solar.
    If a power supplier consciously markets its product to consumers in 
terms of its emissions or lack thereof, surely it should be held 
accountable for substantiating its claims, irrespective of how 
burdensome that may be. However, a pro-market approach taken in 
California allows a generator to receive an identifying ``certificate'' 
for its output, showing, for example, that it uses 50 percent wind 
generation and 50 percent hydroelectric. That certificate can be sold 
to downstream marketers that represent to consumers that their power is 
not generated with fossil fuels. Ultimately, certificates of the 
California type or tradable credits for renewable energy generation 
could be used by power retailers to demonstrate compliance with a 
renewable portfolio standard, such as proposed by the Administration. 
In any event, whether it be the Administration's labeling or their 
renewable portfolio standard sections, Congress must enable a unified 
market rather than an ineffective and costly patchwork of state 
programs. States could choose to waive into these programs in lieu of 
mandates.
    If an accounting system is devised for tracing electrons back to 
their generation it will inevitably be complex, produce a lot of 
accounting entries and paperwork, and be of questionable accuracy. In 
the emerging power market, like other commodity markets, the product 
changes hands multiple times. Any attempt to trace a unit of power in 
this type of market will only make power more expensive. A certificate 
market will address labeling requirements while tracing molecules will 
shut the market down.
    Competitive markets provide the best opportunity for marketers to 
sell renewable products directly to consumers, based on the merits of 
these products. As we transition to full competition, however, it makes 
no sense to abandon our commitment to the environment and renewable 
energy sources. Especially during this transition, a public policy to 
support renewables through programs such as tax credits or perhaps a 
modest Renewable Portfolio Standard is appropriate.
Federal Statute Updates
    In addition, we recognize and support the need for Congress to 
address the Private Use issue in the context of comprehensive 
legislation (HR 721). We further support PUHCA repeal in the context of 
comprehensive legislation. Further, we have concerns that HR 2363 
creates unneeded regulatory oversight of affiliated companies that have 
no need for additional regulation on their books and records. Enron 
supports the Congressmen Largent/Markey approach on PUHCA as applying 
to existing retail monopolies in a two or more state service territory.
Conclusion
    Enron and EPSA are very appreciative of this opportunity to share 
with the Subcommittee our experiences with competitive power supply and 
to discuss our efforts to promote competition in power markets. To 
summarize, enormous consumer benefits can be achieved through removing 
the historical barriers to competition erected by the exclusive 
franchise, discriminatory restrictions on transmission access, and 
commercially hostile and unnecessary reliability rules. There are also 
emerging new barriers to interstate commerce in electric power that 
should be prevented in the first place by asserting the interstate 
commerce clause. In sum, we are not advocating re-regulation, rather we 
advocate deregulation of all competitive aspects of the industry with 
appropriate regulation and enforcement of the monopoly interstate 
transmission network. Today, the system is broken. I urge you to move 
legislation as a ``must do'' matter for this Congress.

    Mr. Barton. Thank you. Largent-Markey is now in the lead. 
We give you bonus points for pronouncing ``byzentine.'' That 
was an excellent use of that word. We would now like to hear 
from Mr. Alan Richardson, who is representing the American 
Public Power Association, which I assume are the municipally 
owned.

                STATEMENT OF ALAN J. RICHARDSON

    Mr. Richardson. That is correct, Mr. Chairman.
    My name is Alan Richardson. I am representing the American 
Public Power Association.
    Mr. Barton. Pull that microphone up to you, Mr. Richardson.
    Mr. Richardson. Yes, I will. Thank you.
    Thank you for the opportunity to appear here today. Thank 
you for the time and attention that you, personally, have taken 
in dealing with this issue and your colleagues. You are 
extremely well-informed. That is very comforting. While we do 
not always agree on the issues, it is nice to know that we are 
dealing with individuals who have taken a lot of time to 
address these issues in a very serious fashion. We really 
appreciate that.
    Mr. Barton. We are not going to take that away from your 
time. We are going to start your clock again.
    Mr. Richardson. Thank you very much, Mr. Chairman.
    Mr. Barton. Since you said something nice about the 
chairman, we are going to start it again.
    Mr. Richardson. When I testified before this committee a 
couple of years ago, Mr. Chairman, I stated at that time that 
we supported the enactment of comprehensive restructuring 
legislation that benefited all consumers and addressed a couple 
of critical issues; specifically market structure and private 
use. That was our position 2 years ago. It remains our position 
today.
    We were concerned 2 years ago with the issue of Federal 
mandate. We think that members of this committee, particularly 
its chairman, demonstrated great leadership then in pushing for 
a Federal mandate because the end result was to push States 
forward in a more rapid fashion than would otherwise have 
occurred.
    We are confident, however, now that the chairman has 
concluded that he does not believe that a date-certain mandate 
is necessary, in light of what has happened in the States. We 
support that because we do, and continue, to oppose either a 
Federal mandate or the mandate option of the administration's 
legislation.
    I would like to focus on a couple of issues in the couple 
of moments that I have here. These are market power and private 
use. Congress, we believe, has an extremely important role to 
play in protecting all consumers from abuses of market power. 
We disagree with those who suggest that we should simply let 
the market determine its future.
    There are cases where the market can determine the future 
of the marketplace. This happens in truly competitive markets 
where the beneficial forces of robust competition can and do 
create real opportunities for buyers and sellers to interact. 
Unfortunately, this is not the case in the electric utility 
industry, as it currently exit. It is a vertically integrated 
monopoly.
    Now for some, the idea of competition is a rather illusive 
concept. So, I would like to offer a definition presented by 
John Morris Clark, an economist. He said, ``Competition is 
rivalry in selling goods in which each selling unit seeks 
maximum revenue under conditions such that the price or prices 
each seller can charge are effectively limited by the free 
option of the buyer to buy from a rival seller or sellers of 
what we think of are the same product, necessitating an effort 
by each seller to equal or exceed the attractiveness of the 
other's offerings through a sufficient number of sellers to 
accomplish the end.'' They are a lot of words from an economist 
and a little difficult to parse. Basically, this definition 
focuses on the critical point of competition, and that is the 
nature of the options that are open to buyers. There is 
evidence today that the options for buyers are insufficient to, 
in this economist's words, ``force each seller to equal or 
exceed the attractiveness of others's offerings.'' In this 
regard we believe, Mr. Chairman, that there are a number of 
market power issues that need to be addressed in legislation. 
The administration has proposed to deal with market power 
issues as has the Largent-Markey bill. There are elements of 
both that we are supportive of.
    In our view, restructuring legislation must include issues 
such as enhanced FERC merger authority, protections against 
generation market power, truly neutral independent management 
of our Nation's transmission facilities, and the repeal of the 
Public Utility Holding Company Act, only in the context of 
comprehensive restructuring legislation that recognizes the 
interrelatedness of the Holding Company Act and the Federal 
Power Act, and carries forward consumer protection provisions 
otherwise addressed in the Holding Company Act itself. So, we 
oppose stand-alone repeal.
    With respect to private use, public land utilities have 
financed their transmission generation distribution facilities 
with tax exempt bonds and are now encountering significant 
problems in reconciling the old private use tax laws with the 
new dynamics of the marketplace in 22 States, and the dynamics 
of marketplace that we anticipate developing in the remainder 
of the States in the relatively near future.
    These tax code provisions are out of sync with State 
restructuring legislation. The private use limits of the 
Federal tax cut are impediments to competition. As long as they 
remain in effect, many public power systems will not be able to 
open their systems to competition. Only Congress can address 
this problem.
    The problem should be addressed in a fair and reasonable 
fashion that respects the rights of State and local 
governments. It should provide an opportunity for those public 
power systems that have this problem with a way to resolve it 
without penalizing those that do not have this problem.
    We believe this is exactly the approach that is taken in 
H.R. 721 and incorporate it in H.R. 2050. This legislation, if 
enacted, accomplishes two objectives. It clarifies existing tax 
laws, and it encourages public power systems to open their 
utilities to competition.
    We believe this is a fair and equitable resolution of the 
dilemma facing public power and we hope it will be included in 
any comprehensive legislation that comes out of this committee.
    There are a number of other issues, of course, Mr. Chairman 
that I have not addressed here. They are included, I think, in 
detail in my prepared comments. I appreciate again the 
opportunity to testify. Thank you very much.
    [The prepared statement of Alan J. Richardson follows:]
Prepared Statement of Alan H. Richardson, Executive Director, American 
                        Public Power Association
                              introduction
    Good Morning, Mr. Chairman and members of the subcommittee. Thank 
you for the opportunity to testify today on electric utility industry 
restructuring legislation. APPA is the national service organization 
representing the interests of over 2,000 municipal and other state and 
local government-owned utilities throughout the U.S. While APPA member 
utilities include state public power agencies, and serve many of the 
nation's largest cities, the majority of our members are located in 
small and medium-sized communities in 49 states. In fact, 75% of our 
members are located in cities with populations of 10,000 or less. APPA 
member utilities provide about fourteen percent of all kilowatt-hour 
sales to ultimate consumers in the U.S. and collectively serve more 
than 40 million Americans.
    Mr. Chairman, I am pleased to be here today to discuss public 
power's views regarding federal electricity industry restructuring 
legislation, and as well, to provide our thoughts regarding the related 
legislation before the subcommittee. In addition to our testimony today 
regarding these measures, I have attached copies of other APPA material 
that outlines our official positions regarding industry restructuring, 
as well as other items that address specific issues that we believe 
should be included in restructuring legislation
    Because APPA represents consumer-owned utility systems, our 
restructuring policies focus solidly on the goal of promoting federal 
action that compliments state retail choice plans in order to ensure 
that all consumers have an opportunity to enjoy the benefits of 
competition. In fact, public power has a long history of support for 
increased competition in the electricity industry. We were a primary 
force behind the transmission access provisions of the Energy Policy 
Act of 1992, and have been working closely with the Federal Energy 
Regulatory Commission (FERC) and others to foster the conditions needed 
for effective competition in wholesale electricity markets.
    Our leadership in the drive toward competition is no coincidence. 
Public power has existed in a competitive environment from the very 
beginning of the electric industry. In public power communities 
throughout the country, the very future of the electric utility is 
always a ballot box issue that can be put to the test by local voters 
in the next election.
    As the committee proceeds with its consideration of restructuring 
legislation for retail competition, we urge you, first and foremost, to 
ensure that federal policies preserve the rights of states and local 
governments to make their own decisions about restructuring based on 
their knowledge of their own electricity needs. We believe the aim of 
federal legislation should be to facilitate state decisions to 
implement retail competition by addressing issues that are necessary 
for retail competition to work, but which cannot be completely resolved 
by a single state or even a group of states.
    Mr. Chairman, APPA strongly supports the goal of increasing 
competition in the industry. But we face a difficult task of 
establishing an industry structure that will promote and enhance 
competition to ensure that the promised benefits of competition, 
advancing the interests of all consumers, including, of course, those 
served by public power, will be achieved.
    APPA has consistently supported comprehensive federal restructuring 
legislation. There are certain issues that can only be addressed by 
Congress, such as effective means of controlling or preventing market 
power and reconciling jurisdictional conflicts between the states and 
the Federal Energy Regulatory Commission. A comprehensive approach is 
essential because there are a number of interrelated issues involved in 
restructuring that need to be considered simultaneously. Consumers can 
and should benefit from a more competitive electric utility industry. 
However, we believe that any federal policy intended to foster 
competition in the electric utility industry will fail if it does not 
provide a foundation upon which competition can be developed and 
sustained. To achieve this goal, we believe Congress must address a 
number of critical issues.
    You have asked us to provide you with our views with respect to 
eight bills dealing in one way or another with restructuring. Specific 
comments on these bills are included as part of our statement. At the 
outset, however, I would like to provide a summary of those issues most 
important to the community owned utilities that we represent. These 
include: market power; private use; reliability; aggregation; and 
matters relating to the Federal power marketing administrations and the 
Tennessee Valley Authority.
Market Power
    The key ingredients for effective competition in any market include 
the existence of many buyers and sellers, freedom of entry and exit for 
competitors, and transparent access to market information. Market power 
can frustrate--even prevent--the achievement of this desired end state.
    Yet, high levels of market power are exactly what we have in our 
industry today. The electric utility industry in the United States is 
dominated by vertically integrated, regulated monopolies, with 
approximately 80% of our nation's generation resources controlled by 
incumbent utilities and their affiliates. These same incumbents also 
own about 70% of transmission lines of 138 kV or greater. (The 
Tennessee Valley Authority, and Bonneville, Western Area and 
Southwestern Power Administrations collectively own about 15 percent of 
transmission at voltages of 138 kV or above. Approximately 100 public 
power systems own about 8 percent of transmission lines of 138kV or 
greater. The balance is owned by rural electric cooperatives.) Vertical 
integration, high levels of concentration in generation markets and 
simultaneous regulated and unregulated activities provide a myriad of 
opportunities for anti-competitive market abuses. (Indeed, FERC Orders 
888 and 889 are premised on the finding that these private power 
companies had engaged in discriminatory practices, and that such 
practices could only be addressed through open access transmission 
requirements.)
    Some have said that Congress and regulators should let the market 
determine its future structure. There are cases where the market in 
fact can discipline the marketplace--creating real opportunities for 
buyers and sellers to interact, with no barriers to entry into the 
market, and with market information available to all actual and 
potential participants. Unfortunately, this is not the case in the 
electric utility industry. The proposed conversion from regulated 
monopoly service of power supply to a truly competitive market is 
starting from a situation where a few players have control over both 
generation and transmission assets. Each can be used to enhance the 
value of the other. If Congress decides to remove all constraints on 
these dominant market participants, the market won't determine its 
future--the current monopolists will.
    This is what most concerns APPA. Effective and efficient 
competitive markets do not require heavy regulatory or anti-trust 
scrutiny. But we do not now have an effective and efficient market in 
electricity. It is up to Congress to help structure the market to 
ensure that we don't end up with a situation that simply substitutes 
unregulated for regulated monopolies.
    Some states have taken steps to address market power within their 
borders. For example, the State of Texas has adopted restructuring 
legislation that takes an important step toward addressing generation 
market power by mandating that a power generation company cannot own 
and control more than 20 percent of the installed generation capacity 
within a qualifying power region. However, the ability of the states to 
adequately address market power is limited because:

 Power markets are regional, spanning multiple states;
 State commissions and legislatures lack jurisdiction over out-
        of-state market participants, and;
 Once states implement retail competition, generation assets 
        are no longer rate-based and subject to state commission 
        jurisdiction.
    The experience of California underscores these points:

 When restructuring legislation was passed, it was recognized 
        that most market power issues would be addressed at the federal 
        level;
 State law created the California Independent System Operator, 
        but it is FERC that approves and regulates the entity--not the 
        public utility commission or the legislature
 When prices for ancillary services spiked 3500% last July, it 
        was FERC--not the public utility commission--that had sole 
        authority to take remedial steps.
    Federal legislation must address this critical issue by instituting 
new structural protections against market power abuses. While a number 
of market power protections are needed in federal legislation, let me 
highlight the areas of primary importance. These include: 1) Enhanced 
FERC merger review authority; 2) Protections against generation market 
power; 3) Truly neutral, independent management of our nation's 
transmission facilities, and; 4) Repeal of the Public Utility Holding 
Company Act (PUHCA) only in the context of comprehensive restructuring 
legislation that recognizes the interrelatedness of PUHCA and the 
Federal Power Act. Let me take a moment to discuss these four important 
areas.
    Enhanced Merger Review Authority: Concentration in ownership of 
electric resources in this country is increasing at an unprecedented 
rate as today's utilities engage in mergers to assure themselves a 
strong position in a competitive marketplace. The rapid pace of this 
trend toward consolidation is clear--since 1997, 33 mergers were 
proposed, and 22 completed. In contrast, only nine were proposed during 
the three years prior to that, 1994-1996.
    While mergers are frequently touted as a means of preparing for 
competition, in many if not most cases they are a defense against 
competition. Today's merger-mania is in direct conflict with the 
objective of creating competitive generation markets out of a highly 
concentrated industry. If competition is the goal, then proposed 
mergers must be evaluated to ensure that they don't in fact preclude 
the realization of that goal. Toward that end, newly proposed mergers 
should be denied, unless it is clearly demonstrated that the benefits 
for consumers are not otherwise obtainable. Clearly there are benefits 
from some mergers, but there are detriments as well, including the fact 
that every merger eliminates at least one competitor from the market. 
Where significant concentration in ownership of generation already 
exists without a merger, FERC should have authority to reject the 
proposed merger. In addition, FERC should have the authority to require 
divestiture as a last resort remedy to prevent or correct market power 
problems.
    Early last year, Joel Klein, Assistant Attorney General for the 
Antitrust Division of the U.S. Department of Justice, addressed 
concerns about the impact of the increasing trend toward mergers in a 
presentation before FERC. He noted that, ``. . . utilities may see this 
as a time when they have a window of opportunity in which to consummate 
mergers. Mergers with little immediate anticompetitive effect can 
nonetheless frustrate the emergence of competition. For example, 
incumbent dominant firms could pick off competitors in their infancy, 
or even before they become competitors . . . Missed opportunities for 
the emergence of competition at the outset of the transition are 
forever lost, with potentially substantial social costs.''
    Because it is difficult at times to project what the impacts of 
today's decisions will be on an unknown and still-developing future 
market structure, APPA has suggested that a temporary moratorium on the 
largest electric mergers may be in order. In the absence of such a 
moratorium, it is important at a minimum to recognize that today's 
merger decisions are integrally related to the goal of competitive 
markets--and that FERC's merger review process must begin to take this 
fact into account by fully examining the effect of proposed mergers on 
competition.
    Generation Market Power: While enhanced merger review authority is 
designed to address further concentration of control of the nation's 
electric generation resources--much must also be done to address the 
existing control over generation that is now largely in the hands of a 
relatively small number of privately-owned utilities.
    State policies that restrict the amount of generation that can be 
owned by a single corporate entity are a very important step in the 
right direction--but the next step has to be to ensure that the company 
that purchases the generation, a company located over state lines for 
example--does not then exercise the generation market power that the 
state statute was designed to guard against. Simply transferring 
ownership from one entity to another does not do enough to achieve the 
goal of a less concentrated market that is more conducive to effective 
competition. Because electricity markets are regional, state 
restrictions on the ownership of generation have limited effectiveness.
    Clearly, those who control the market today will seek to maintain 
their control at the expense of potential competitors. If our goal is a 
truly competitive marketplace, the face of today's monopolistic 
industry has to change. That is why there must be strong structural 
remedies to guard against both new and existing market concentration. 
This includes FERC authority to intervene where market power develops, 
and if needed, cause the corporate separation of generation from for-
profit transmission companies. In addition, FERC should be able to 
prevent increased concentration in power markets when generators are 
sold by one utility and acquired by another. Without rigorous 
oversight--and divestiture authority as a last resort--market power 
abuses will choke competition before it can get a toehold in this 
industry. Again, because these markets are regional in nature, federal 
regulatory involvement is needed to protect consumers from the 
anticompetitive effects of market concentration throughout each region.
    Neutral, Independent Management of Transmission Facilities: In 
addition to taking such steps to guard against market power in 
generation, we must also concentrate on the important goal of ensuring 
that our nation's transmission facilities are operated on a truly 
neutral basis. The development of broad-based independent Regional 
Transmission Organizations (RTOs) will be critical in this regard.
    Private utilities that control vast amounts of the nation's 
transmission systems have a long history of denying municipal utilities 
access to their systems, or providing access at highly discriminatory 
rates and unfair terms. Despite congressional and regulatory actions to 
open up the nation's transmission grid and produce a competitive bulk 
power market through enactment of the Energy Policy Act of 1992 and the 
issuance of FERC Orders 888 and 889, private transmission owners 
continue to control essential transmission facilities in ways designed 
to frustrate competition. They are able to exercise control over these 
facilities to favor their own generation resources, placing power 
generators and bulk power purchasers, including consumer-owned 
utilities, at a competitive disadvantage.
    One of the lessons of the Energy Policy Act is that the only way to 
ensure that the nations' transmission assets are managed in a way that 
facilitates the development of retail competition is to ensure that the 
entire transmission system is in the hands of truly neutral entities 
that will treat all competitors the same. Achieving this end will 
require enabling FERC to mandate that all transmission owners 
participate in an independent RTO, and beyond that, to mandate 
divestiture of transmission from generation if necessary. In fact, the 
Federal Trade Commission has proposed the latter to FERC, suggesting 
that transmission operations be separated from ownership of generating 
plants in order to eliminate the incentives that exist for transmission 
owners to favor their own economic interests and evade regulatory 
constraints.
    It is important to note that APPA does not support the development 
of private, investor-owned utility (IOU) affiliated or controlled 
Transcos as an answer to these problems. Despite the arguments advanced 
for private, for-profit, Transcos either affiliated or otherwise 
controlled by IOU generators, they will not achieve the desired end of 
a truly competitive, economically efficient, lower cost, fair and open 
transmission grid, and should be rejected. They will not be truly 
competitive because they will lack the requisite independence from the 
parent corporation. They will not be economically efficient because 
they will not encompass a sufficiently broad geographic area. And, they 
will not produce a fair and open transmission grid because they will 
not incorporate the transmission facilities of publicly owned and 
consumer-owned utilities.
    We could support large, private, and investor-owned Transcos that 
have no affiliation--absolutely none--with generation and marketing 
interests. However, even these truly independent Transcos would be 
natural monopolies that must be overseen by FERC to prevent 
transmission market power abuses. A better option, in our view, would 
be publicly owned not-for-profit, regional transmission organizations.
    Opposition to Stand-Alone PUHCA Repeal: Lastly, in regard to market 
power, let me emphasize the importance of ensuring that changes in the 
Public Utility Holding Company Act (PUHCA) are undertaken only in the 
context of broader changes in the Federal Power Act. We strongly 
believe that future repeal of PUHCA must take place only in the context 
of a comprehensive electricity industry restructuring bill. PUHCA was 
enacted as a companion to the Federal Power Act in 1935 to, among other 
things, plug regulatory gaps created by multi-state holding companies 
that had--and still have--the ability and incentive to not only 
manipulate their books, but engage in activities that favor affiliate 
or subsidiary companies to the disadvantage of their competitors, and 
the ultimate disadvantage of all consumers. Because of the 
interrelatedness of these statutes--any legislation regarding PUHCA 
should be fully coordinated with changes in the Federal Power Act to 
protect consumers.
    Stand-alone repeal of the consumer protections afforded by PUHCA 
will unleash today's vast multi-state holding companies from public 
accountability before the structure of a competitive market is 
developed. It will enable today's monopolies to garner even greater 
amounts of market power through mergers and widespread diversification, 
and the existence of such significant concentrations of market power is 
sure to inhibit, if not prevent, the advent of structural competition 
in the electricity industry.
    In addition, stand-alone PUHCA repeal presents unacceptable risks 
for captive electric consumers who do not have alternative service 
options if their utility's diversification efforts fail, or worse, non-
regulated ventures are subsidized with captive ratepayer funds, and 
they are left to pay the price.
    While many argue that PUHCA is an imperfect and perhaps outdated 
statute that is in need of reform, it is clear that the statute's goals 
of preventing market power abuses and harmful utility interaffiliate 
and diversification activities have great relevance to developing 
markets today. Even though the statute is ineffectively enforced by the 
Securities and Exchange Commission (SEC), it still provides valuable 
passive restraints on the formation of holding companies that extend 
the effect of the law far beyond the registered multi-state holding 
companies that now fall under its direct purview.
    Public power interests have been integrally involved in the 
activities of the Consumers for Fair Competition, a coalition of small 
business interests, power marketers, consumer and investor-owned 
utilities, large industrial electricity consumers, environmental 
organizations and consumer groups that is unified in the belief that 
effective competition will not emerge and be sustainable if market 
power issues are not adequately addressed. Consumers for Fair 
Competition has developed proposed market power legislative language 
(please see attached), and we look forward to serving as a resource to 
you in this regard.
Reconciling Conflicts Between Existing Tax Laws and Changes in State 
        and Federal Energy Policy
    Twenty-three states have now adopted restructuring legislation. 
Many other states will follow in the near future. These new laws, and 
the ``open access'' policies they seek to promote, have created an 
extremely serious problem for communities served by public power 
systems that have issued tax-exempt debt to finance their local 
electric utility infrastructure. If these community-owned electric 
utilities take steps to conform their operations to these new state 
policies, they are immediately confronted with the nearly 
insurmountable obstacle of Federal tax code private use restrictions. 
In most cases, implementation of state restructuring plans--and even 
FERC policies designed to provide open transmission access for 
competitive wholesale markets--will jeopardize the financial standing 
of these public power communities and millions of bondholders across 
the U.S. Specifically, if municipal utilities enter the competitive 
arena and violate private-use restrictions, their outstanding tax-
exempt bonds could become retroactively taxable to the date of 
issuance.
    APPA supports a solution spearheaded by Representatives J.D. 
Hayworth and Bob Matsui--the Bond Fairness and Protection Act (H.R. 
721)--that would preserve local-decisionmaking about how to use tax-
exempt bonding authority. It would allow each public power system to 
``elect'' to obtain relief from private use limits, but forego the 
right to issue municipal tax-exempt bonds for new generation facilities 
in the future. If enacted, this legislation will accomplish two 
objectives: 1) Clarify existing tax laws and regulations regarding the 
private use rules so that they will work in a new competitive 
marketplace, and; 2) Provide encouragement for public power utilities 
to open their transmission or distribution systems, thereby providing 
choice to more consumers. This bipartisan bill has gained strong 
support in the Senate, where it has 26 co-sponsors. Companion House 
legislation has 60 co-sponsors. In addition, the provisions of H.R.721 
were recently incorporated in the Largert-Markey bill, H.R. 2050.
    Congressional action in this area is urgently needed--existing 
wholesale markets cannot function effectively, and state restructuring 
plans cannot be fully implemented, without public power's full 
participation. The private use restrictions not only hamstring the 
ability of public power utilities to ensure that their communities 
receive the benefits that effective competition can provide, but also 
negatively impact the underlying market.
    Assurance of a fair and reasonable resolution of this problem, a 
resolution that respects the inherent rights of the units of local 
government we represent, is an essential element in federal 
restructuring legislation. APPA could not support any restructuring 
legislation that did not include such an assurance.
Reliability
    The reliability of the integrated and interdependent electric 
system is extremely important to health and safety and the viability of 
our economy. In the monopoly paradigm of the past, reliability has been 
protected by mutual back-up arrangements among utilities, and a 
regional reliability council structure. However, this system of 
cooperation and mutual assistance lacks both clearly enforceable rules 
and sanctions as well as competitively neutral entities to determine 
and enforce the rules on a non-discriminatory basis. This voluntary 
approach to reliability will not work in an increasingly competitive 
market. Reliability rules and their enforcement can have significant 
competitive impacts, and it is essential that reliability be maintained 
and enhanced in the transition to competitive markets.
    APPA supports the North American Electric Reliability Organization 
(NAERO) Consensus Legislative Language on Reliability, which will 
create a self-regulating reliability organization that would be 
overseen by FERC. The mission of this new organization would be to 
ensure that reliability rules are applied equally to all electricity 
providers. APPA urges this committee to incorporate this language in 
its comprehensive restructuring legislation
Encourage Consumer Benefits Through Aggregation
    Federal legislation should provide for customer aggregation to 
assure that small business and residential consumers can derive maximum 
benefits from a competitive market. We believe the jury is still out on 
whether residential and small business consumers will benefit 
financially from restructuring, or even are of interest to many 
marketers. Aggregation provides these customers with an important tool 
that can help strengthen their position in an emerging competitive 
marketplace--and state and local governments are well positioned to 
play key roles as consumer aggregators. Federal restructuring 
legislation should emphasize the importance of aggregation, and 
explicitly allow state and local governments to serve as aggregators in 
an effort to garner lower electricity prices for the consumers they 
represent.
Federal Power Marketing Administrations and the Tennessee Valley 
        Authority
    APPA recently testified before the House Interior Committee's 
subcommittee on water and power regarding the role of the federal 
power-marketing program in a restructuring environment. A copy of the 
testimony presented before that subcommittee is attached.
    The debate on industry restructuring has resurrected the decades 
old debates over the federal power marketing program and the Tennessee 
Valley Authority. As explained in detail in the statement provided to 
the Interior Committee's subcommittee on water and power, we oppose 
fundamental changes in these programs for the following reasons:

 Withdrawing Federal power allocations to the 1180 public power 
        and rural electric cooperative systems that currently purchase 
        power from these federal entities would undermine their 
        financial stability. Some would become more vulnerable to 
        hostile acquisitions. The Congressional goal of enhancing 
        competition in the electric utility industry would suffer, 
        since removing a substantial number of these utilities from the 
        market would reduce the number of active market participants. 
        The marketplace today requires more, not fewer, participants to 
        prosper.
 Accepting the assumption that market rates would exceed 
        current Federal power cost-based rates, converting TVA and PMA 
        sales from cost-based to market-based rates would likewise make 
        it more difficult for the current public power and cooperative 
        power systems to survive this difficult transition from 
        regulated monopolies to robust competition.
 The continuation of cost-based rates for sales of power from 
        TVA and the PMAs provides a valuable yardstick by which 
        regulators, legislators and others can compare the performance 
        and price of market participants in a new, restructured, 
        environment.
 The goal of restructuring is lower rates for all consumers. 
        Conversion of TVA and PMA rates from cost-based to market based 
        would increase the cost to consumers of 1180 mostly small, 
        rural communities. The Administration's proposal postulates 
        that all consumers will benefit from restructuring, but only if 
        the Federal power marketing program, including current power 
        allocation policies and cost-based rates, are preserved. Change 
        this assumption through the adoption of legislation to charge 
        market rates for federal power and millions of Americans would 
        experience higher, not lower, rates for electric service.
 Requiring the Administrator's of the Federal power marketing 
        administrations or the Board of TVA to charge market rates, and 
        devote any profits in excess of costs to specific, 
        Congressionally identified programs, would convert these 
        entities into de facto taxing entities, and would have an 
        adverse effect on their management of publicly-owned resources.
 The Congressional debates on restructuring are already 
        extremely complex, and fraught with political pitfalls. 
        Throwing Federal power marketing policies into this mix further 
        complicates an extremely difficult political equation. APPA 
        would be forced to oppose Federal restructuring legislation 
        that proposes fundamental changes in these power allocation and 
        cost-based rate policies.
    Other TVA and PMA related issues have been addressed in legislation 
pending before this committee, including H.R. 1828 and H.R.2050. The 
provisions in these bills deal with such issues as the application of 
the Federal Power Act to TVA and PMA transmission facilities, 
application of the antitrust laws to these federal entities, and 
stranded cost recovery.
    APPA does not represent TVA or the PMAs, but how these agencies are 
treated will certainly affect the several hundred public power systems 
that purchase wholesale power from them for sale at retail to consumers 
in their communities. Stakeholders in the areas served by TVA and the 
PMAs have been working with their own Congressional delegations and the 
Administration to develop policies that address their needs and 
concerns. APPA urges this Committee to allow their colleagues from the 
regions served by these agencies to take the lead in developing 
restructuring proposals.
FERC Jurisdiction over Publicly Owned Transmission Facilities
    APPA is concerned over proposals in several pending bills to expand 
the jurisdiction over rates, terms and conditions of transmission 
service to non-jurisdictional utilities. APPA does support changes in 
the Federal Power Act to enable FERC to require all transmitting 
utilities to participate in Regional Transmission Organizations. We 
believe such a provision adequately addresses whatever concerns might 
exist with respect to the use of transmission facilities of non-
jurisdictional utilities.
    Expanding FERC jurisdiction over currently non-jurisdictional 
public power owners of transmission lines of 138 kV or greater would 
bring under FERC authority nearly 100 public power systems. 
Collectively, these utilities own about 18,000 miles of transmission, 
representing slightly less than 8% of the nation's transmission system. 
The total amount of transmission owned by these 100 public power 
systems is less than the transmission assets of two of the largest 
investor owned utilities--Texas Utilities and PacifiCorp. These two 
utilities alone own over 21,100 miles of transmission facilities of 138 
kV or higher.
    We do not believe a case has been made for the expansion of FERC 
jurisdiction over publicly owned transmission facilities (beyond the 
ability of FERC to order all transmitting utilities to participate in 
RTOs). There has been no demonstration, for example, that public power 
systems have engaged in discriminatory or anti-competitive practices. 
In contrast, such practices by the investor owned utilities are well 
documented. Expanded jurisdiction as proposed will increase the 
regulatory burdens on both FERC and these 100 public power systems 
without producing any real benefits for consumers or the general public 
interest.
    Finally, it is important to recognize that FERC already has 
jurisdiction under provisions of the Energy Policy Act of 1992 to 
order, on a case-by-case basis, publicly owned utility transmission 
owners to provide access to third parties. While publicly owned 
utilities are not directly covered by FERC Orders 888 and 889, most of 
these utilities with substantial transmission assets have voluntarily 
filed open access tariffs. The fact that no complaints have been lodged 
or cases filed against public power transmission owners pursuant to the 
provisions of the Energy Policy Act of 1992 is further evidence that 
expanding FERC jurisdiction is unwarranted.
    Despite all of these facts, it is apparent that many Members of 
Congress and the Administration believe that expanding FERC 
jurisdiction over public power transmission facilities is in the public 
interest. WE are willing to work with this subcommittee and other 
Members of Congress to better understand the goals sought to be 
achieved and the least intrusive and burdensome means of achieving 
them.
Public Power's Views on Pending Restructuring Proposals
    With the preceding comments as background, there follows APPA 
specific comments on the eight restructuring bills that are the subject 
of this legislative hearing.
H.R. 667, The Power Bill
    H.R. 667 is a relatively basic restructuring bill that would remove 
some federal barriers to retail competition but not mandate competition 
by a date certain, both actions that APPA supports. The measure 
eliminates the Federal Energy Regulatory Commission's authority over 
mergers. We believe FERC's authority in this area should be expanded, 
not eliminated. The bill also proposes to repeal PUHCA, but does not 
provide any alternatives to the current provisions of PUHCA that we 
believe are essential to protect consumers from abuses of market power. 
As far as the treatment of public power, the bill preserves the 
opportunity for local choice in determining whether and when municipal 
systems decide to engage in a competitive marketplace, which APPA 
endorses.
H.R. 971, Electric Power Consumer Rate Relief Act of 1999 and H.R. 
        1138, Ratepayer Protection Act
    APPA does not have a specific policy resolution regarding the 
prospective repeal of the mandatory purchase requirements of PURPA, 
which is the primary objective of these bills. However, it is apparent 
that changing market conditions indicate that repeal of Section 210 of 
PURPA is necessary. It is of vital importance, in our view, that any 
changes in this regard must be made only as part of comprehensive 
industry restructuring legislation that furthers PURPA's original 
purposes regarding the growth and development of renewable energy 
resources.
H.R. 1486, Power Marketing Administration Reform Act of 1999
    For the reasons set forth above, APPA opposes H.R.1486.
H.R. 1587, Electric Energy Empowerment Act of 1999
    For many of the reasons stated previously, APPA supports the 
general direction of H.R. 1587. It does not impose a federal mandate, 
it removes federal barriers to competition and it empowers the states 
to make many of the specific decisions related to restructuring. There 
are, however, new proposals related to FERC jurisdiction over public 
power that we oppose, given that there is no reason to change the 
regulatory status of public power, nor has any state attempted to 
change the regulatory relationship with public power in their own state 
restructuring bills. In addition, the bill does not, in our view, 
include sufficient protections against abuses of market power and does 
not include the industry consensus reliability language that we believe 
must be included in any comprehensive restructuring legislation.
H.R. 1828, Comprehensive Electricity Competition Act of 1999
    Because the Administration's restructuring proposal, H.R.1828, is, 
in most respects similar to the proposal advanced in 1998, we have had 
more time to analyze its provisions than we have had for many of the 
more recently introduced comprehensive bills. Consequently, our 
positions with respect to this measure are more clearly defined. Last 
year, APPA adopted a resolution addressing the Administration's 
proposal. A copy of that resolution is attached to this statement. APPA 
believes this proposal goes a long way toward addressing the key 
objectives of electricity industry restructuring. I would like to 
highlight for the committee what we see as some of the strengths of the 
bill, and note for you some of the issue areas where we believe 
additional attention are needed.
    First, let me comment on the bill's flexible mandate under which 
all states and self-regulated utilities must decide whether or not to 
deregulate their operations by January 1, 2002. While a flexible 
mandate is better than an inflexible one, no mandate at all is better 
yet. APPA has consistently opposed any restructuring mandate. We 
applaud Chairman Bliley's comments a few weeks ago that he no longer 
believes a mandate is appropriate, given the rapid pace of state 
restructuring legislation. In light of those comments, we hope the 
issue of a mandate is now off the table and we can focus on other, more 
pressing, restructuring issues.
    With regard to market power, the Administration has also included 
in its bill some important provisions designed to prevent market power 
abuses. In particular, H.R.1828 expands FERC's merger review authority 
to account for potential impacts of proposed mergers on the status of 
competition in wholesale and retail electricity markets. This provision 
is necessary to ensure that existing levels of market power in the 
industry do not inhibit the development of truly competitive markets.
    In addition, the bill is designed to guard against transmission 
market power abuses by enabling FERC to require transmitting utilities 
to turn over operational control of transmission facilities to an 
independent transmission organization which would also be vested with 
transmission planning authority. As a sector of the industry that has 
long been subject to abusive transmission practices, we believe 
strongly that any federal legislation must contain such provisions to 
ensure transmission is available and provided on a truly neutral basis 
to all competitors.
    While the legislation includes several necessary market power 
protections, we believe that FERC's authority to intervene in cases 
where market power exists must be more direct than is provided for 
under H.R. 1828. Requiring that FERC take action to mitigate market 
power in certain circumstances only at the request of states will 
result in costly delays and duplicative review. Because electricity 
markets are regional in nature, FERC is best positioned to identify the 
existence of market power and take immediate remedial action--in many 
cases, by the time state action can effectively trigger a federal 
response, prices will have already gone up for consumers, potential 
competitors will have been harmed and the goal of competition 
compromised.
    It is important to note that we are highly supportive of the 
authority H.R. 1828 would grant FERC to order divestiture or control of 
generation assets as a last resort to mitigate the adverse competitive 
effects of market power. We believe such authority is essential, and 
should be included in any restructuring legislation. We recognize that 
this is viewed by some as an extremely heavy-handed regulatory 
intrusion into the market. However, as stated previously, we are 
attempting to introduce robust competition into a highly concentrated, 
vertically integrated industry. Divestiture, as a ``last resort'' 
remedy, essentially a club in the closet, is a necessary tool that 
should be provided to ensure the success of this transition. Further, 
we believe FERC should be able to initiate such proceedings, and should 
not be dependent on state applications for intervention.
    H.R. 1828 would provide slightly over a year for implementation of 
structural market power protections prior to repeal of the Public 
Utility Holding Company Act (PUHCA). APPA agrees that structural market 
power protections must be deployed in advance of PUHCA repeal in order 
to protect consumers from market power abuses, and to ensure that 
competitive markets are given a meaningful chance to develop. We also 
support strong provisions to require state and federal access to books 
and records of holding companies to ensure that consumers are protected 
against the effects of cross-subsidization and abusive interaffiliate 
transactions.
    I would also like to comment on the tax-related portion of the 
Administration's bill. It is our view that the Bond Fairness and 
Protection Act H.R. 721 offers a preferable approach to addressing the 
private-use tax issues that inhibit the ability of municipal utilities 
to fully participate in a restructured electricity industry. While the 
Administration's proposal is commendable in that it grandfathers 
outstanding tax-exempt debt and protects bondholders, it has two 
significant shortcomings. First, it provides no element of choice. All 
public power systems would lose the ability to issue tax-exempt bonds 
regardless of whether they faced private-use problems. This approach 
would represent a virtually unprecedented restriction on the ability of 
states and localities to use tax-exempt financing for facilities that 
did not necessarily violate private-use restrictions. Second, we find 
little justification for eliminating tax-exempt financing for 
transmission facilities. It is unlikely that competitive pressures will 
affect transmission services in the foreseeable future. The benefits of 
bond-financed transmission facilities accrue to all electricity market 
participants: states and localities, investor-owned utilities, power 
marketers and, most important, consumers.
    Ultimately, requiring all utilities to forego future tax-exempt 
financing would force many municipal systems to give up an essential 
tool of municipal government for no tangible gain. In addition, a wide 
array of local government groups would strongly oppose the mandated 
denial of tax-exempt financing for what is a legitimate governmental 
function. H.R. 721 is preferable in this regard in that it will allow 
each local utility to determine which policy option is better for that 
community.
    H.R.1828 also deals with another ``tax transition'' issue--the tax 
treatment of contributions to nuclear decommissioning funds by investor 
owned utilities. We believe all these tax transition issues should be 
handled together. Investor owned utilities, who want tax code changes 
with respect to nuclear decommissioning matters so that they reconcile 
the tax code to changes in state law, are simultaneously opposing the 
tax code changes needed by public power for precisely the same reason. 
We applaud Chairman Bliley's request that the Ways and Means Committee 
handles these issues simultaneously. Unfortunately, the tax bill now 
pending before the House addresses nuclear decommissioning but does not 
address private use. We hope, as the process proceeds, a way will be 
found to deal with both of these issues together.
    Let me briefly touch on a few other areas of H.R. 1828 that relate 
to public power's restructuring objectives. First, we appreciate that 
the Administration recognizes the need to provide specific treatment of 
issues related to the Bonneville Power Administration, the Tennessee 
Valley Authority and the other federal power marketing administrations. 
We believe that any proposals in this regard must honor the traditional 
objectives and responsibilities of the power marketing administrations 
as they play an important role in maintaining market diversity and help 
further the goals of competition by ensuring affordable electric rates 
for millions of consumers.
    We are also pleased that the bill allows for aggregation of 
electricity consumers to ensure they have the means to achieve the 
lowest possible electricity rates. In addition, we support the 
Administration's general inclusion of the industry consensus 
reliability language as developed through NAERO. APPA actively 
participated in the development of the NAERO reliability proposal, and 
believes it should serve as a cornerstone for any federal restructuring 
legislation.
    Finally, let me note that APPA would encourage the committee to 
consider any air quality issues stemming from the restructuring debate 
in the context of the Clean Air Act rather than as a part of a 
comprehensive federal restructuring bill. Moreover, we do not support 
the imposition of any fuel mandate such as the renewable portfolio 
standard as proposed in S. 1047. However, if such a mandate is to be 
imposed, we urge you to include hydropower within the eligible mix.
H.R. 2050, Electric Consumers' Power to Choose Act of 1999
    APPA applauds the bipartisan leadership of Representatives Largent 
and Markey, and expresses its sincere gratitude to them for the 
inclusion of the provisions of the Bond Fairness and Protection Act as 
part of their comprehensive legislation. The efforts of these two 
Members to advance comprehensive electric utility industry 
restructuring legislation have brought all electric consumers one step 
closer to realizing the benefits of a more competitive electric utility 
industry.
    The Largent/Markey bill addresses a very broad range of issues, 
including: public power's ``private use'' problem; reliability and the 
need for mandatory reliability standards; market power and means to 
address it and the right of ``any entity'' to serve as an aggregator to 
meet the electric the demands of one or more consumers, whether or not 
permitted under state law; provisions regarding the Tennessee Valley 
Authority and the federal power marketing administrations; prospective 
elimination of the mandatory purchase requirements of the Public 
Utility Regulatory Policies Act; prospective repeal of the Public 
Utility Holding Company Act within a limited time, while transferring 
certain consumer protection provisions of that Act to the Federal 
Energy Regulatory Commission and the Federal Trade Commission; 
modifications to the Federal Power Act regarding approval of mergers by 
FERC; modifications to the Federal Power Act regarding FERC 
jurisdiction over public power transmission facilities; expanded 
authority for FERC to order utilities to participate in regional 
transmission organizations; and clarification of FERC and state 
commission jurisdiction over electric utility transactions.
    With respect to ``private use,'' the Largent/Markey bill adopts the 
solution advanced in the 106th Congress by Representatives Hayworth and 
Matsui, H.R. 721. This solution is strongly endorsed by the American 
Public Power Association. There are really only two areas of concern 
with the provisions , albeit, very important areas for public power.
    The Largent/Markey bill includes a ``flexible mandate'' under which 
all states and self-regulated utilities must decide whether or not to 
deregulate their operations. As stated previously, we do not believe 
such a mandate is appropriate, and, in view of Chairman Bliley's recent 
comments on this issue, hope that this proposition is no longer in 
play.
    The market power provisions of H.R. 2050 enhance to a limited 
extent FERC's authority to deal with market power problems, but fail to 
address certain critical issues, including concentration of control of 
generation facilities in the hands of a few giant corporations, which 
is one of the most critical market power problems facing the industry 
today. A review of APPA's specific positions on the provisions of H.R. 
2050 follows:
Provisions of H.R. 2050 Consistent with APPA Policy
 The bill includes provisions of the Bond Fairness and 
        Protection Act, S.386/H.R. 721 in order to address the private 
        use problem for public power with tax exempt bonds in a 
        competitive environment.The bill repeals PUHCA prospectively, 
        and provides some level of market power and consumer protection 
        in its place.
 The bill also gives FERC the authority to require all 
        transmitting utilities (including public power) to participate 
        in a regional transmission organization.
 The bill reforms PURPA by eliminating future purchase 
        requirements, but in a comprehensive manner with the inclusion 
        of incentives to support use of renewable resources.
 The bill includes provisions that deal with the TVA, BPA, and 
        other PMAs that maintain preference; flexibility for related 
        distribution systems and does not include a move to market-
        based rates.
 The bill retains state authority over stranded cost 
        determinations and the creation of public purpose programs.
 The bill includes industry consensus language on the 
        transition from the North American Electric Reliability Council 
        (NERC) to the North American Electric Reliability Organization 
        (NAERO) with the teeth needed to enforce the resulting NAERO 
        reliability standards.
 The bill allows for consumers, or any entity acting on their 
        behalf, to aggregate electricity purchases in order to benefit 
        from the ability to secure a lower cost contract. (Please note 
        the need to clarify that ``any entity'' includes 
        municipalities, to ensure we do not encounter the 
        interpretation problems we have seen with respect to the 
        telecommunications competition law.)
Areas of Concern
 The ``Flexible Mandate''--H.R. 2050 provides for a ``flexible 
        mandate'' for retail choice of electric supplier by January 1, 
        2002 by allowing states, municipal utilities and cooperative 
        systems to opt-out of competition, similar to the 
        Administration's competition proposal. The burden, however, is 
        on the states and municipal systems to prove that competition 
        will harm a particular class of customer that cannot be 
        ``reasonably mitigated'', and its creates a burdensome 
        reporting relationship with FERC that encroaches on local 
        control.
 Insufficient Market Power Provisions--while the bill includes 
        some important consumer protections, overall the market power 
        provisions are not strong enough to adequately protect all 
        consumer interests.
 The bill expands FERC authority to address market power only 
        as related to the use of transmission and distribution. The 
        bill's biggest shortcoming regarding market power is that it 
        does not provide avenues for remedies to generation market 
        power issues.
 FERC's authority is reactive; it only goes into effect in 
        cases where market power is occurring or has occurred. FERC 
        does not have the authority to address cases where market power 
        can occur.
 When FERC identifies that market power abuses are happening, 
        it can force a company to develop a plan to ``reduce or 
        eliminate'' market power. Failure to abide by a FERC-approved 
        plan, or failure to gain FERC approval for a plan, would result 
        in FERC requiring the company to charge cost-based rates plus a 
        reasonable rate of return on investment for either wholesale or 
        retail sales. This is a new expansion of FERC authority into 
        retail rates that the states are sure to protest. FERC has the 
        ability to elect not to take such action if it determines that 
        it would not reduce market power. Further, it is not apparent 
        that this is a sufficient remedy for abuses of market power.
 Approach to Renewable Resources--the bill attempts to foster 
        growth in the renewables market without a mandate, but does 
        include the provision for a renewable portfolio standard if 
        enough renewable resources are not ``chosen'' by consumers to 
        constitute 3 percent of the energy produced by 2005. 
        Furthermore, a significant portion of the renewable provisions 
        involve ``tax incentives'' not available to public power. 
        Lastly, hydropower is not defined as a ``renewable'' resource.
 Transmission Jurisdiction--the bill gives FERC full authority 
        over all transmission facilities, including those owned by 
        public power.
H.R. 2363, Public Utility Holding Company Act of 1999
    With regard to H.R. 2363, let me reiterate a point that was made in 
my earlier testimony. While APPA understands that many stakeholders 
believe that PUHCA must be repealed, we are opposed to stand-alone 
PUHCA repeal. Changes in the Public Utility Holding Company Act (PUHCA) 
should only be undertaken in the context of broader changes in the 
Federal Power Act.
H.R. 2569, The Fair Energy Competition Act of 1999
    Representative Pallone's recently introduced legislation builds 
upon his proposal from the last session. The bill replaces many 
features of the current Clean Air Act with new provisions to control 
electric generator emissions of NOx, SO2, CO2 and mercury. It also 
includes provisions to promote renewable and energy efficiency. APPA 
does not support dealing with Clean Air Act issues in a restructuring 
bill, but it is important to note, with appreciation to Representative 
Pallone, that the legislation does recognize some of the unique 
features of public power's use of small generators and the fact that 
tax incentives are not helpful to all sectors of the industry. 
Furthermore, while the bill does not recognize hydropower as a 
renewable resource, which is important to APPA member utilities, it 
does contain other positive elements such as defining landfill methane 
recovery project as renewable under RPS, recognizes the value of 
existing small municipal generators for use as peaking units and 
important for reliability, and does not preempt state renewable 
activities.
Conclusion
    Mr. Chairman, thank you for inviting me to testify before you today 
regarding public power's restructuring objectives and views on pending 
industry restructuring proposals. APPA looks forward to working closely 
with you to enact legislation that can achieve our shared goal of 
bringing more affordable electricity to all consumers. A detailed set 
of legislative suggestions that APPA supports for inclusion in a 
federal bill is attached at the end of this testimony.

    Mr. Barton. I thank the gentleman. Congressman English, for 
your opening statement.

                   STATEMENT OF GLENN ENGLISH

    Mr. English. Thank you very much, Mr. Chairman. I 
appreciate that. I am Glenn English. I do represent the 
National Rural Electric Cooperative Association, which is made 
up of some 1,000 electric cooperatives in 46 States all across 
the country. Some 32 million consumers are served by electric 
cooperatives and own those cooperatives.
    I might also point out, Mr. Chairman, that those of course 
are not for profit, private ownership by those consumers. Let 
me just say I appreciate the opportunity to testify here today 
and to talk about restructuring. As has been noted, some 23 
States have already passed laws within their States or 
regulatory regimes, that are going to result in some kind of 
consumer choice for electricity consumers across this country. 
Virtually every other State in the country is reviewing similar 
legislation.
    Certainly those members of the committee are well-
acquainted with the fact that many of their constituents, who 
own those electric cooperatives, are also participating in that 
competition. In fact, two-thirds of our members are residential 
and small business consumers. We represent primarily rural 
America, and more sparsely rugged areas of the country and 
those that we serve. However, this cooperative model that is in 
existence, and has been used for some 60 years primarily by 
people in rural America, is now emerging as an effective 
business model for people in urban areas as well. As members of 
the committee I think are well-aware that we have a new 
electric cooperative in New York City, the First Rochdale 
Electric Cooperative, which is a purchasing power for people 
who are primarily living in housing cooperatives.
    In California we have a similar type of new cooperative 
that was established in which a number of agra business have 
joined; some 18 agra businesses in fact; California growers and 
producers creating the California Electric Users Cooperative. 
These, we think, are extremely important to take note of, given 
the fact that they do provide all of those consumers in those 
areas a new option, an option that they have not had in the 
past.
    Now, we think done right, that competition can result in 
some very dramatic technological innovation and lower electric 
bills for consumers. Also, if it is done wrong, Mr. Chairman, 
we think that it can very well raise prices, lower competition, 
and damage already vulnerable sections of our economy.
    What we would suggest, Mr. Chairman is that, first, 
Congress must not allow the restructuring debate to result in a 
massive shift of regulatory to the Federal Government. This 
could dramatically increase rates to businesses and residential 
consumers, and of course diminish the opportunity for consumers 
to meet their own needs and to do it themselves, so to speak.
    Second, we would suggest, Mr. Chairman, that electric 
cooperatives believe that Congress should craft Federal 
restructuring policy that recognizes the threshold of the 
question of how and when should be left up to the individual 
States. We are very pleased to see that this committee seems to 
be moving in that direction.
    We also, Mr. Chairman, oppose any kind of opt-out 
provision, such as the Administration is suggesting simply 
because we think that simply requires States to jump through a 
series of regulatory hoops and second guessing the State 
legislatures themselves.
    Third, Mr. Chairman, we think effective competition must 
enable cooperatives, as aggregation groups, to offer the same 
services as any other sellers of electricity. The repeal of the 
Public Utility Holding Company Act is a central feature of many 
other restructuring proposals that we have seen. Now, if this 
long-standing consumer protection law is to be repealed, 
consumers may be left with few choices.
    Multi-national holding companies with deep pockets and no 
allegiance to local communities that they serve will suddenly 
expand into areas that were limited because of PUHCA. The 
result could be a risk to consumers. That can be mitigated 
assuming that consumers do have the choice of doing it for 
themselves.
    Fourth, Mr. Chairman, I think effective competition depends 
upon the ability of consumers to have a real bargaining 
strength in the marketplace. While industrial consumers, by 
virtue of their very large size and the large pie requirements, 
will likely see lower prices because of competition. 
Residential and small business consumers will enjoy the benefit 
of competition, only if they are able to aggregate.
    Fifth, Mr. Chairman, effective competition must ensure that 
all Americans have access to reliable, affordable, and safe 
electric power. That means that they must continue to have 
access to the power marketing administrations.
    I want to commend this committee for holding the hearings 
and the work that is done, Mr. Chairman. Thank you very much.
    [The prepared statement of Glenn English follows:]
Prepared Statement of Glenn English, Chief Executive Officer, National 
                 Rural Electric Cooperative Association
    Mr. Chairman, members of the Committee. I am Glenn English, Chief 
Executive Officer of the National Rural Electric Cooperative 
Association (NRECA), the Washington-based association of the nation's 
nearly 1,000 not-for-profit, consumer-owned private electric systems. 
These systems provide electric service to more than 32 million 
consumers in 46 states.
    I appreciate the opportunity to appear before the House Commerce 
Subcommittee on Energy and Power today to continue the dialogue on the 
restructuring of the electric utility industry. As the Committee knows, 
the electric utility industry is in a period of dramatic 
transformation. Twenty-three states have adopted laws or regulatory 
regimes that will eventually result in customer choice for electricity 
and related services.Virtually every other state is seriously reviewing 
whether retail choice is the right fit for their particular 
circumstance.
    This Committee is well acquainted with their constituents who are 
the owners of America's electric cooperatives. Nationally, about two-
thirds of our consumer/owners buy power for their homes and small 
businesses. We serve predominately rural America--the most sparsely 
populated, rugged, difficult to serve areas in the country. Yet, as 
states move to embrace retail competition, the cooperative model is 
emerging as an effective business model for consumers everywhere to 
achieve competition's promise of more affordably priced electricity.
    In New York City, housing cooperatives have joined together and 
formed the 1st Rochdale Electric Cooperative to increase the buying 
power of residential consumers in a competitive marketplace. Similarly, 
in California 18 agriculture cooperatives representing California 
growers and producers have formed the California Electric Users 
Cooperative (CEUC). CEUC is the nation's first electric cooperative 
structured solely to service agriculture with an aggregated electric 
power purchase. These are but two examples of how important the 
cooperative choice is to real competition in the electric utility 
industry.
    As a general proposition, electric cooperatives and their 32 
million consumers welcome the benefits that competition in the electric 
utility industry can potentially bring to all classes of electricity 
consumers. Done right, competition can result in dramatic technological 
innovation and lower electric bills for American families. But, 
Congress must act carefully. Done wrong, restructuring can raise 
prices, lower competition and damage already vulnerable rural 
economies. Electric cooperatives believe the following basic priorities 
should guide federal restructuring efforts:

 Congress should not use this debate to bring about a massive 
        shift of regulatory authority to the Federal Government.
 The decision to open retail electricity markets to competition 
        properly rests with the individual states.
 Effective competition will allow consumers to have a 
        cooperative choice for their electric and energy service 
        provider.
 Congress should not use this debate to set environmental 
        policy or subsidize otherwise non-profitable types of 
        generation.
 The benefits provided to rural citizens by Power Marketing 
        Administration (PMA) power and the RUS loan programs must not 
        be jeopardized.
Federal Restructuring Legislation
    Electric cooperatives will support electric utility industry 
restructuring legislation only if the specific proposal promotes real 
competition for American families, farms and small businesses. It is 
against this determinant that we evaluate the several legislative 
proposals introduced this Congress and pending before this Committee.
    First, Congress must not allow the debate on restructuring to 
result in a massive shift of regulatory authority to the Federal 
Government. The creation of an expansive new federal bureaucracy over 
rural electric cooperatives could dramatically increase the electricity 
rates for businesses and residential consumers and diminish the 
opportunity for consumers to meet their own needs without providing any 
tangible benefits.
    For example, the Clinton Administration's legislation on electric 
industry restructuring (H.R. 1828) requires substantial new taxes on 
all electric generation, creates a myriad of new programs at the 
Department of Energy, and confers broad new powers on the Federal 
Energy Regulatory Commission (FERC). Included in these new powers is 
the expansion of FERC jurisdiction over transmission-owning rural 
electric cooperatives, including possibly more than 400 distribution 
cooperatives. Some of these cooperatives own less than ten miles of 
line that serve a distribution purpose but could be defined as 
``transmission'' by FERC. Cooperatives could be further burdened by 
duplicative and potentially contrary regulation between existing United 
States Department of Agriculture Rural Utility Service regulation and 
expanded FERC jurisdiction. Why submit these utilities to FERC 
jurisdiction without any corresponding benefit or value to the 
consumers of these coops?
    Electric cooperatives strongly oppose this expansion of federal 
regulation. Such regulation is tremendously expensive and unnecessary 
to the promotion of open retail electric markets or system reliability. 
Cooperatives are already active proponents of national reliability 
standards, and the development of effective voluntary regional 
transmission organizations (RTOs). These measures, not more regulation, 
will be the most effective federal tools in managing the nation's 
transmission system for robust competition and reliability.
    Second, electric cooperatives believe that Congress should craft a 
federal restructuring policy that recognizes that the threshold 
question of if, when, and how to move to retail competition should be 
left to the states.
    Congress should not require states to implement retail competition 
by a date certain. Such a date-certain mandate undercuts the rights of 
states to craft customized solutions to meet their unique challenges.
    For example, both Texas and Ohio recently concluded fierce debates 
over whether to enact retail competition legislation. That they had the 
freedom to wage this debate without the specter of a federal mandate 
hanging over their heads is a prerogative all states should enjoy. 
States should not be forced to act prematurely in order to beat a 
federal deadline.
    Similarly, a special Kentucky legislative task force researching 
utility restructuring has just received a study that concludes that 
competitive electricity prices will be higher than the current 
regulated rates. The Kentucky legislature should be given time and 
flexibility to protect Kentucky citizens from the risks inherent in 
competition, without the external pressure of a federal mandate.
    NRECA also opposes an ``opt out'' provision, such as that in the 
Administration's restructuring proposal (H.R. 1828). The Administration 
would require a state regulatory agency to jump through onerous 
regulatory proceedings solely to justify the state's decision to 
maintain the status quo. Such an opt-out provision serves as an 
effective mandate by imposing additional costs on states that seek to 
opt out.
    The Administration's opt-out provision also denigrates the 
sovereignty of state legislatures. If a state legislature chooses not 
to implement competition for some customers, why should the state 
public utility commission be required to second guess the legislature 
by conducting a proceeding and making statutorily required findings?
    Third, effective competition must enable cooperatives to offer the 
same services as other sellers of electricity. The decision whether to 
repeal the Public Utility Holding Company Act (PUHCA) is a central 
feature of the federal restructuring debate. If this longstanding 
consumer protection law is repealed, consumers may be left with fewer 
choices. Multi-national holding companies with deep pockets and no 
allegiance to the local communities they serve will suddenly expand 
into areas previously limited by PUHCA. This resulting risk to 
consumers can be mitigated, however, by ensuring that consumers have 
the choice of doing it for themselves.
    In fact, the arguments used by supporters of PUHCA repeal strongly 
supports language removing restrictions on the activities in which 
consumer-owned electric cooperatives can engage. The imposition of 
artificial limitations on the lines of business in which companies can 
engage and on the corporate form they can adopt raises prices for 
consumers and harms competition by eliminating significant efficiencies 
and reducing the number of competitors in the restricted businesses. 
That is as true of the restrictions state enabling acts place on 
cooperatives as it is of the restrictions PUHCA places on registered 
holding companies.
    Yet, unlike the enabling acts, PUHCA plays an important consumer 
protection role, preventing registered holding companies from amassing 
undue market power and engaging in consumer abuses.
    As the industry is restructured there will remain a critical need 
for an effective statute to check potential abuses of market power in 
the electric utility industry. Thus, if PUHCA is repealed, Congress 
must ensure that consumers are protected against market dominance and 
market power abuses. Representative Burr's proposal (H.R. 667) provides 
an effective consumer protection--a federal guarantee that consumers 
have a cooperative choice in the post PUHCA marketplace.
    Fourth, effective competition also depends upon the ability of 
consumers to have real bargaining strength in the marketplace. While 
industrial customers, by virtue of their large power requirements, will 
likely see lower prices under competition, electricity sellers are less 
likely to actively compete for the individual homeowner.
    Residential and small business customers will enjoy the benefits of 
retail competition in the electric industry only if they are able to 
aggregate as one collective buying group. For this reason, NRECA 
strongly supports language that guarantees the right of all consumers 
to either join or form an electric cooperative for the purpose of 
buying energy and energy related services.
    Fifth, effective competition must ensure that all Americans--
including consumers owning electric cooperatives--have access to 
reliable, affordable and safe electric service. To ensure this, 
electric cooperatives must continue to have access to the loan programs 
of the RUS and to the federal Power Marketing Administration (PMA) 
hydroelectric power programs.
    While retail competition is likely to mean lower rates for large 
commercial and industrial customers throughout the U.S., and may lower 
rates for families in high-cost states, residential customers in many 
states will see limited benefits, and may see higher rates, under 
retail competition. A number of studies, including those completed by 
the American Gas Association (The Impact of industry Restructuring on 
Electricity Prices, July 1998), the U.S. Department of Agriculture 
(Electric Utility Deregulation: Rural Effects, Briefing to Senior USDA 
Policy Officials, January 1999), and the Energy Information Agency 
(Electricity Prices in a Competitive Environment: Marginal Cost Pricing 
of Generation Services and Financial Status of Electric Utilities, DOE/
EIA-0614, August 1997) have recently made this very finding. A strong 
RUS loan program and continued access to the power of the PMAs are 
essential to ensuring that rural consumers who are otherwise at risk 
will enjoy affordably priced and dependable electricity.
Environmental Issues.
    Electric cooperatives operate between six and seven percent of the 
nation's generating facilities, and 80 percent of those facilities are 
coal-fired. Electric cooperatives also operate 20 percent of the 
Nation's most environmentally advanced, state-of-the-art coal 
generation facilities.
    New and emerging technologies and techniques provide promising 
alternatives to command and control environmental mitigation 
conventions. Electric cooperatives have been in the forefront of 
efforts to discover and implement technologies that address the 
Nation's environmental concerns economically and efficiently. For 
example, electric cooperatives were among the first, a decade ago, to 
utilize fluidized bed technology to reduce sulfur dioxide emissions.
    Restructuring of the electric utility industry, however, should not 
become a vehicle for making environmental policy. We are particularly 
concerned about policies that would virtually tax coal-fired generation 
out of business. While suggestions that define the sources for 
America's growing electric energy requirements make for fine sound 
bites, they do not adequately address the Nation's long-term 
requirement for electricity. Electric cooperatives believe that 
sustainable research, technological innovation and incentive programs 
will lead the way to realistic planning for the Nation's energy future.
The Power Marketing Administration Reform Act (H.R. 1486)
    NRECA strongly opposes the Power Marketing Administration Reform 
Act (H.R. 1486). More than 600 rural electric systems in 34 states 
purchase all or part of their power supply from the PMAs. The rural 
electric systems have relatively few consumers per mile of transmission 
and distribution line. These systems, and the fragile rural economies 
they serve, depend on the continued availability of the federal 
resources at stable rate levels. The PMAs, while providing power at 
cost, return millions of dollars each year to the federal Treasury. 
Consumer-owned private electric systems have faithfully honored their 
side of the partnership by repaying, on schedule, all costs assigned to 
them by Congress. For instance, the original investments in the Hoover 
Dam, Bonneville Dam and Grand Coulee Dam have been completely paid off 
at Congressionally established interest rates.
    H.R. 1486 is nothing more than a discriminatory, backdoor tax on 
rural Americans. The bid and auction system envisioned by this 
legislation will pit small non-profit rural electric cooperatives 
against deep-pocketed IOUs and power marketers for access to federal 
power. H.R. 1486 is possibly one of the most anti-consumer proposals 
this Congress will consider. The Congressional Research Service 
accurately identified the negative impacts of market rates in its 1995 
report on the PMAs:
        ``Since the 1930's (sic), it has been the policy of the federal 
        government to market Federal power at cost, encouraging its 
        use. As a result, an entire infrastructure has developed which 
        has significant regional economic implications . . . For those 
        whose economy and way of life are tied to this system, this 
        market pricing alternative must be considered among the worst 
        of the alternatives discussed in this report . . . it may also 
        maximize the pain to the consumers affected by the change.''
    The General Accounting Office has concluded that under a market 
rate scenario, many consumers could see large increases in their power 
bills. According to the GAO, consumers in my home state of Oklahoma 
would pay about $22 more in their average monthly electricity bills. 
Consumers in the rural Midwest would suffer a similar fate. In the 
Pacific Northwest, a move to market rates would have a devastating 
impact on a regional economy that was built upon cost-based federal 
power. In the Southeast and Southwest, rural electric consumers would 
most assuredly lose access to valuable cost based peaking power under 
H.R. 1486. Accordingly, NRECA urges the Committee to reject this anti-
consumer legislation.
Conclusion.
    In closing, let me express the appreciation of electric 
cooperatives for the Committee's willingness to examine in some depth 
the issues involved in electric utility restructuring. The electric 
utility industry is the largest, most complex industry for which 
Congress has contemplated deregulation. The immensity of the industry, 
not to mention the effect on every consumer in these United States, 
warrants careful and thorough dialogue with all concerned--especially 
consumers--before concepts are set into law.
    The general principles that I have articulated today provide the 
essential framework for protecting consumers in a restructured 
marketplace. These principles provide the measure by which electric 
cooperatives support or oppose any legislative proposal pending before 
this Committee.

    Mr. Barton. Thank you. Mr. Cavanagh, your opening statement 
for 5 minutes.

                  STATEMENT OF RALPH CAVANAGH

    Mr. Cavanagh. Mr. Chairman, on behalf of the Natural 
Resources Defense Council, I have worked for 20 years with 
utilities across America; public power, cooperatives, David 
Owens' membership. I do not show up here very often to ask 
Congress to do something. My forums are State and local forums.
    There are a few times when there are major interstate 
problems that only Congress can solve, and we think this is one 
of them. I would submit, Mr. Chairman, that all of the issues 
you have heard about today really fall into four big 
categories: reliability, competition, environmental quality, 
equity.
    Now, those are the big interstate issues. We are all 
talking about them. The competition and reliability, issues 
well-covered by my colleagues on this panel, I think Congress 
is moving toward a consensus. It is a consensus that is 
illustrated by the Largent-Markey bill and by the 
administration's bill.
    On those issues, we are clearly moving for the common 
position. We need to apply that same constructive energy, Mr. 
Chairman, to the environment and equity issues, as you did 
Congressman Pallone with your bill last Tuesday. You reminded 
us in that bill that electric generation creates, by weight, 
more than \1/3\ of the four major interstate air pollutants 
that carry Federal emissions reporting requirements, more than 
\1/3\ of all of the air pollution, even though this industry 
accounts for less than 3 percent of our Gross Dometic Product, 
if you just think about the electric bill.
    If you think this is a big pocketbook issue, as it surely 
is as Congressman Largent reminded us. It is an even bigger 
environmental issue. As to the equity dimension, which I know 
Fred Schmidt will also speak to, the recent heat emergencies 
have reminded us that access to electricity can be quite 
literally a matter of life and death.
    The provision of services to low income households is a 
continuing responsibility of this industry, however it is 
restructured. Now, what we learned at the State and local level 
is that a promising way to tackle both the environment and 
equity challenges is to dedicate a small generally uniformed 
fraction of every electric bill to support investments in 
energy efficiency, low income services renewable energy. All of 
your States have done that.
    For more than 20 years, these environment and equity 
investments have been a small part and a very productive part 
of electric bills across America, in different packages to be 
sure, with designs tailored to local conditions. My testimony 
lists some of the success stories.
    We have cut the electricity needs of the average 
refrigerator, Congressman, by \2/3\ over the last 20 years, 
even as the machines have gotten bigger and delivered better 
service. We did that in large part through utility investment.
    We brought biomass, geothermal, wind and solar, the 
emerging renewables close to competitive parity. Those four 
kinds of renewable resource apply to every one of your States. 
They are pleased to make a significant move into the market.
    So, why does Congress need to do anything in this field 
about environment and equity? Why not just open the grid to 
competition and leave these issues to the States? Two big 
problems the States cannot solve by themselves.
    The first is inconsistent pollution regulation. We have 
heard the older plants, the encumbents, to looser standards for 
new entrants. I have heard repeatedly today that we have got to 
apply the same rules to our competitors. We do not do it, 
Congressman, with pollution regulation. Congressman Pallone, 
your bill shows the way to do it. You described it. We like it.
    The second major problem that the States cannot solve by 
themselves is that an altogether unintended consequence of 
industry restructuring has been drastic cutbacks in those 
utility sector investments in efficiency, renewable, low income 
services. Now Congressmen, historically in all of your States 
those investments were at 2.5 to 5 percent of the electric 
bill; small fraction, hugely productive fraction.
    In the last several years, we have seen cutbacks averaging 
about 50 percent across the country, simply in response to 
uncertainty about future industry structure and regulation. 
Now, we are not calling on you to take over those functions 
from the States. We are calling on you to provide financial 
incentives to restore those reduced incentives.
    The Pallone and the administration's bills use two 
integrated and wholly compatible market-based approached. Both 
are cost captive; 1 to 2 percent of the National electric bill.
    The first is the renewable portfolio standard for emerging 
renewables to ensure that they complete the transition toward 
commercial maturity.
    The second, conceived by a State Regulator from Vermont, 
Rich Cowart, is a matching fund for environment and equity 
investments, which is included in both the administration and 
Pallone bills.
    Now, do these represent new taxes, or new Federal programs, 
or new Federal bureaucracies? Congressmen these proposals 
simply keep in electric rates; environment and equity 
investments that are already in electric rates that have been 
there for two decades that are related directly to electric 
service.
    These cost capped initiatives are intended to relieve 
pressure for new taxes and new Federal programs. Their system 
reliability benefits, Mr. Chairman, will help ensure that we do 
not have to spend more summers reading editorials called 
``Lessons From the Blackout.''
    Thank you.
    [The prepared statement of Ralph Cavanagh follows:]
   Prepared Statement of Ralph Cavanagh, Energy Program Co-Director, 
                   Natural Resources Defense Council
    This testimony presents the views of the Natural Resources Defense 
Council (NRDC), a nonprofit organization dedicated to environmental 
protection with more than 400,000 members nationwide. I have served 
since 1979 as Co-Director of NRDC's Energy Program, and have worked 
with electric utilities, regulators, and others throughout the nation 
on solutions to environmental challenges associated with electricity 
generation. My additional roles during that period include Visiting 
Professor of Law at Stanford and the University of California and a 
member of Task Forces appointed by the Secretary of Energy to address 
North American reliability concerns and long-term priorities for 
research and development.
                          summary of testimony
    The Chairman's invitation to present this testimony included 
references to eight pending bills, all of which--including a proposal 
by the Administration--address America's vital and rapidly changing 
electricity system. My focus here is the environmental challenges that 
this Subcommittee confronts as it seeks to integrate these and related 
initiatives. I include specific strategies for addressing the concerns 
that NRDC and many colleagues bring to this process.
    Often I am asked to predict whether environmental quality will 
suffer under electric-industry restructuring (sometimes misnamed 
``deregulation''). My answer is that matters could get significantly 
better or worse, depending on decisions by publicly accountable bodies 
that have not yet been made. Failures to decide generally make things 
worse, by unleashing a corrosive uncertainty that threatens grid 
reliability and strangles long-term investment in environmentally 
superior technologies. Short-term trends suggest that inconsistent 
environmental regulation is delivering wholly inappropriate competitive 
advantages to the oldest and dirtiest incumbent generators. Congress is 
now the forum whose prolonged inaction on restructuring would be most 
dangerous.
    I reach this conclusion without disputing that state and local 
authorities are going to continue making most decisions about the 
structure of the U.S. electric industry. Skepticism inevitably 
confronts efforts to involve the Congress, yet it manages to intervene 
periodically on matters broadly understood to raise compelling 
interstate and national interests. Successful legislation requires 
bipartisan cooperation, substantial consensus across the utility 
industry and its principal constituents, and executive-branch 
leadership.
    I will not predict precisely when all those ingredients will next 
come together, but that it will happen I have no doubt whatever. And 
among the best reasons will be to stop inferior environmental 
performance from yielding market rewards and pollution damages. Both 
cross state lines with impunity.
    Some in the evolving debate over Congressional action ask why a 
restructuring bill must take on potentially contentious environmental 
concerns. Isn't tackling the rules of competition and reliability hard 
enough without having to worry about environment at the same time? But 
in literally no other industry do these issues intertwine so 
thoroughly, and no other industry has so much to gain by persuading 
Congress to launch a comprehensive and integrated response. As such 
legislation meanders inexorably toward the President's desk, the 
economic case for strong environmental provisions will help ensure that 
the entire package survives and succeeds.
         i. electricity's paramount environmental significance
    Electricity production is the most important single factor in the 
nation's principal interstate environmental dilemmas. Our collective 
electricity bill is less than 3% of the gross national product, but for 
major air pollutants the relative contribution is more than tenfold 
greater. 1 The environmental challenges that implicate 
electrical generation include ``urban and regional smog (ozone), fine 
particles, acid deposition, excessive nutrient loads to important water 
bodies . . ., toxic impacts on health and ecosystems from mercury 
emissions, nitrogen saturation of sensitive forest ecosystems, regional 
haze and climate change.'' 2 Even that daunting list is 
incomplete, given--for example--electricity's dominance in debates over 
disposal of radioactive waste, survival of endangered salmon fisheries, 
and the preservation of undammed rivers. And its importance on all 
these counts has grown with a surging market share. The United States 
saw electricity generation almost double between 1973 and 1998, while 
petroleum use barely increased and natural gas consumption actually 
declined.3
---------------------------------------------------------------------------
    \1\ For a useful review of the downward trend in U.S. electricity 
costs since the early 1980s, see K. Smith, Electricity Pricing Trends 
Challenge Conventional Wisdom on Retail Wheeling, Electricity Journal 
(April 1996), p. 84.
    \2\ Letter to Congressman Edward J. Markey from Mary D. Nichols, 
Assistant Administrator for Air and Radiation, March 28, 1997, p. 1.
    \3\ U.S. Energy Information Administration, Monthly Energy Review 
(March 1999). Petroleum consumption increased by 5% over that period, 
while natural gas was down by 3%. Electricity generation totals are 
approximate, since EIA data for nonutility generation do not extend 
back to 1973.
---------------------------------------------------------------------------
    Given the electric sector's fuel mix, this meant that coal 
dominated inter-fuel competition over that period, with coal 
consumption up more than 80%. By 1998, electric generation accounted 
for 90% of U.S. coal use (up from 69% a quarter century earlier), and 
while for all other purposes coal consumption is down about 40% since 
1973, power plants burned 134% more last year than they did 
then.4
---------------------------------------------------------------------------
    \4\ See id., Table 6.2.
---------------------------------------------------------------------------
    Entire volumes have been compiled on the many water, air and land 
pollutants associated with the nation's diverse array of electric 
generation technologies.5 Prominent among these, and 
associated most prominently with coal combustion, are sulfur dioxide, 
nitrogen oxides, mercury and carbon dioxide. In total tonnage released 
to the atmosphere, more than one-third of these emissions originate in 
power plants; for sulfur dioxide, that figure doubles.6 For 
the power sector, coal-fired units account for virtually all the sulfur 
and mercury emissions and 90% of the carbon dioxide.7
---------------------------------------------------------------------------
    \5\ One of the most comprehensive attempts was commissioned by the 
New York State Energy Research and Development Authority. Pace 
University Center for Environmental Legal Studies, Environmental Costs 
of Electricity (1990).
    \6\ For an assessment of cross-border impacts and relative 
contributions by power generation, see Commission for Environmental 
Cooperation, Continental Pollutant Pathways: An Agenda for Cooperation 
to Address Long-Range Transport of Air Pollution in North America 
(September 1997). For example, electric utilities' contribution to 
total sulfur dioxide emissions is 22%, 48% and 70% for Canada, Mexico 
and the United States, respectively; for nitrogen oxides the figures 
are 10%, 15% and 33%. Id., p. 21. The U.S. figure for mercury is 
approximately 33%, which means that ``coal-fired electricity generating 
boilers are the single largest source of anthropogenic mercury 
emissions.'' Environmental Energy Insights, Vol. II, Issue 4, p. 3 
(M.J. Bradley & Associates: April 1994). For discussion of cross-border 
consequences of mercury emissions, see id., pp. 4-8. U.S. CO2 emissions 
account for about 36% of the national total. U.S. Environmental 
Protection Agency, Inventory of US Greenhouse Gas Emissions and Sinks: 
1990-1997 (March 1999).
    \7\ Clean Air Task Force, The U.S. Coal Fleet: A Current Snapshot 
(April 20, 1999).
---------------------------------------------------------------------------
    Sulfur and nitrogen emissions, reverberating over hundreds and even 
thousands of kilometers, inflict varied and sometimes linked damages to 
ecosystems and public health. For example, both figure prominently in 
the acid deposition that ``has been implicated in . . . the decline and 
loss of fish populations in thousands of lakes and streams in Eastern 
North America'' and in ``harm[ing] forests by causing leaf damage, 
limiting the availability of nutrients in the soil, and releasing toxic 
substances such as heavy metals (e.g, aluminum) in the soil.'' 
8 Evidence also abounds of public health losses associated 
with minute airborne particles, many traceable directly to fuel 
combustion in power plants, with estimates of the annual U.S. death 
toll alone as high as 60,000 annually.9 Moreover, nitrogen 
oxides exacerbate urban ozone problems, inflicting on residents 
``symptoms such as cough, shortness of breath, pain . . . , throat 
dryness, wheezing, chest tightness, and inhibition or interference with 
the immune system.'' 10
---------------------------------------------------------------------------
    \8\ CEC, note 6 above, at p. 10.
    \9\ Id., at p. 14 (citing estimates by Harvard University 
researchers). See generally R. Wilson & J. Spengler, Particles in Our 
Air: Concentrations and Health Effects (Harvard School of Public 
Health, 1996).
    \10\ CEC, note 6 above, at p. 12.
---------------------------------------------------------------------------
    Airborne mercury emissions and subsequent accumulation in animal 
fats are additional unwelcome byproducts of coal combustion. ``A 
significant proportion of these emissions circulate far beyond their 
sources, resulting in elevated levels throughout North America, 
particularly in the northeastern United States, eastern Canada and the 
Arctic.'' 11 Results include liver and kidney damage, 
infertility, and fetal malformations, along with multiple forms of 
damage to aquatic ecosystems. ``This problem is so prevalent that five 
Canadian provinces and over 35 U.S. states have issued health 
advisories to reduce the consumption of certain freshwater fish that 
are known to contain excessive levels of mercury.'' 12
---------------------------------------------------------------------------
    \11\ Id., at p. 10.
    \12\ Id., at p. 11.
---------------------------------------------------------------------------
    Finally, carbon dioxide emissions from electric generation 
challenge the U.S. treaty commitment to help stabilize concentrations 
of greenhouse gases in the atmosphere. Emissions are increasing despite 
the President's pledge to stabilize greenhouse gas releases at 1990 
levels by the year 2000. Worldwide, atmospheric concentrations of 
carbon dioxide are up by one-third from pre-industrial levels, and 
potential consequences over the next century include rising sea levels 
and widespread disruptions of both natural ecosystems and 
agriculture.13
---------------------------------------------------------------------------
    \13\ See, e.g., House of Commons, Canada, Standing Committee on 
Environment, Out of Balance: The Risks of Irreversible Climate Change 
(March 1991).
---------------------------------------------------------------------------
    Of course, the electricity sector also has been a prolific source 
of environmental solutions. The industry's output of sulfur dioxide and 
nitrogen oxides has dropped over the past two decades, at control costs 
far below initial projections. High-efficiency natural gas and 
renewable energy applications offer attractive replacements for aging 
fossil and nuclear fleets. End-use efficiency improvements, many 
pioneered with electric-utility investment, provide abundant 
opportunities to deliver more and better service with less electricity 
and pollution.14
---------------------------------------------------------------------------
    \14\ See, e.g., U.S. Department of Energy, Report to the President 
and Congress of the United States on the Current Status and Likely 
Impacts of Integrated Resource Planning (March 1995).
---------------------------------------------------------------------------
    The environmental consequences of electric-industry restructuring 
depend vitally on the sources of incremental generation and the extent 
to which energy efficiency improvements can substitute for additional 
power production. Will a giant, unequally regulated fleet of coal-fired 
power plant expand market share at the expense of sources with lower 
emissions? Will restructuring inhibit or help countervailing efforts to 
promote energy efficiency and renewable energy? Through choices that 
are reviewed below, the states and Congress will resolve together 
whether meeting our expanding needs for electricity service will yield 
a net environmental benefit or cost.
         ii. a short history of electric-industry restructuring
    Americans traditionally have secured their electrical service from 
integrated monopolies with tightly defined geographical franchises. The 
monopolies were responsible for meeting all local power needs, by 
building generation dedicated to and compulsorily paid for by all 
customers within their service territories. The transmission grid that 
evolved around and through the local monopolies was shaped to fit their 
peculiar domestic needs. Interchanges between systems were modest, both 
physically and economically. In this world of self-sufficient 
monopolies, intersystem (let alone international) trade had at best a 
marginal role.
    But this cloistered system began to change decisively as early as 
the 1960s with the construction of the Pacific Intertie,15 
and it is fast disappearing today. North America's entire electricity 
sector faces fundamental restructuring as the twentieth century closes. 
A host of causes include technological change, local economic pressures 
and independent initiatives by industry and regulatory leaders in 
Canada and Mexico as well as the United States, with numerous States 
and Provinces now striking out on their own.
---------------------------------------------------------------------------
    \15\ The Pacific Intertie effectively links British Columbia and 
Alberta with at least eleven Western states and parts of Mexico; 
simultaneous transfer capacity for the AC and DC elements of the system 
is close to 8,000 MW.
---------------------------------------------------------------------------
    Alberta took the lead in 1993 by deciding to establish the 
continent's most fully competitive wholesale spot market for electric 
generation, even as British Columbia was moving to invigorate its own 
short-term markets.16 California followed in April of 1994 
with an ambitious proposal, later embodied in legislation, to phase out 
its retail electric monopolies and offer all customers direct access to 
competitive generation markets.17 Still more consequential 
was an April 1996 ruling by the Federal Energy Regulatory Commission, 
which forced all private owners of transmission to offer competitors 
access to their grids on the same terms afforded the owners' own 
generating units.18
---------------------------------------------------------------------------
    \16\ The California Public Utilities Commission cited the B.C. 
reforms as precedent for its own much more wide-ranging restructuring 
proposal. See Order Instituting Rulemaking and Order Instituting 
Investigation on the Commission's Proposed Policies Governing 
Restructuring California's Electric Services Industry and Reforming 
Regulation, R. 94-04-031 (April 1994), at p. 19 n. 16.
    \17\ See id.
    \18\ See 61 Federal Register 21540 (1996).
---------------------------------------------------------------------------
    By mid-1999, 21 states with more than half of the population had 
formally signaled an end to their integrated utility monopolies, and 
Congress was considering numerous proposals for industrywide 
restructuring.19 Several of the federal bills envisioned a 
prompt deadline for giving all U.S. customers what Californians 
obtained on March 31, 1998: the opportunity to choose their electricity 
supplier over a transmission system that was operated with complete 
independence from every generation owner. All these initiatives in part 
reflect a clamor among industrial- and commercial-sector electricity 
customers for reduced and more uniform electricity prices. They see 
their utilities shopping for the lowest priced power across a 
continental grid, and they seek comparable opportunities for 
themselves.
---------------------------------------------------------------------------
    \19\ The states were Arkansas, Arizona, California, Connecticut, 
Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, 
Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, 
Pennsylvania, Rhode Island, Texas and Virginia. Other states, including 
Ohio and Oregon, were poised to act. For an internet site summarizing 
state-by-state progress, see http://www.eia.doe.gov/cneaf/electricity/
chg--str/tab5rev.html
---------------------------------------------------------------------------
    Electric-industry restructuring also had roots in much earlier 
domestic initiatives, like the Public Utility Regulatory Policies Act 
of 1978 and the National Energy Policy Act of 1992. These statutes 
helped launch a diverse, intensely competitive electric-generation 
sector that was increasingly independent of the traditional utility 
monopolies.
    At the heart of the restructuring enterprise is a vision of a 
competitive generation sector fighting for markets across a continental 
transmission grid.20 No incumbent generator can be sheltered 
by any monopolist from competitive challenge, and new entrants are 
guaranteed access to the grid on terms identical to those that 
incumbents enjoy. Although not yet fully realized anywhere in North 
America, this ``open grid'' ideal is at the heart of reform initiatives 
in all three countries and draws support from the spirit and letter of 
the North American Free Trade Agreement (NAFTA).21 Certainly 
no NAFTA signatory can open its grid to domestic competitors without 
according the same opportunity to neighbors.22 Already 
electricity transactions routinely cross state and national borders and 
link generators to buyers thousands of miles away.
---------------------------------------------------------------------------
    \20\ For an influential variation on this theme by the Chair of the 
Economics Department at the Massachusetts Institute of Technology, see 
P. Joskow, How Will It All End? The Electric Utility Industry in 2005, 
Electricity Journal (January/February 1996), at 67.
    \21\ See, e.g., U.S. Federal Energy Regulatory Commission, Order 
No. 888, 18 C.F.R. Parts 35 and 36 (April 24, 1996); Order Denying 
Motion for Stay, 79 FERC 61,367 (June 20, 1997) (addressing open access 
issues in the context of NAFTA requirements, in proceeding brought by 
Ontario Hydro).
    \22\ See id. for an early case study involving Ontario Hydro and 
the U.S. grid.
---------------------------------------------------------------------------
    The open grid movement draws continuing impetus from the collapse 
of historic generation monopolies. Competitive procurement is now the 
rule for generation additions in Canada and Mexico as well as the 
United States. Largely vanished is the availability of integrated 
utility monopolies as regulated investors in new generating assets, 
with repayment guaranteed by levies on captive customers. New 
generation equipment must make its way in an increasingly unforgiving 
marketplace. Units built under the old monopoly regimes are changing 
hands, as pressures build to separate competitive generation assets 
from the regulated monopolies that continue to control transmission and 
distribution systems. The goal of the open grid is to make electricity 
demand throughout North America contestable by every existing and 
prospective generator, with little or no regard for national and 
provincial boundaries. Transmission constraints obviously create limits 
on this prospect, but a combination of technological innovation, 
entrepreneurial ingenuity and market incentives should steadily expand 
those limits.
    As markets open and consumption increases, public policy choices 
loom that could have profound environmental consequences. The most 
immediate involve a huge U.S. coal generation fleet that could expand 
production significantly within the constraints of today's electrical 
grid; increasingly aggressive natural-gas generation competitors eager 
to win new customers; an incipient renewable energy sector of uncertain 
scope and promise; and a host of inexpensive but untapped opportunities 
to improve the efficiency of energy use.
    It is too soon to know how those elements will combine. What 
follows are scenarios for the evolution of trade over a continental 
power grid, which yield a spectrum of environmental outcomes. None is 
preordained; all hinge in substantial part on choices that have yet to 
be made.
   iii. alternative restructuring scenarios and their environmental 
                              implications
    None of the scenarios below represent a prediction of the 
environmental consequences of electric-industry evolution. The exercise 
facing policymakers and industry is not fundamentally predictive but 
creative. Electrical energy futures are the product of human and 
institutional initiative, not immutable natural forces.
    I begin with a worst-case scenario under which economic growth and 
electricity trade yield significant net environmental degradation. 
Industry restructuring has increased competitive pressures on producers 
of all goods and services throughout North America. This could mean 
fuel switching to cheaper and dirtier generation, and a deferral of 
investment in new technologies. But a critical variable is how 
environmental considerations will figure in new statutory and 
regulatory regimes for electricity.
A. Inconsistent Emissions Standards and Regulatory Uncertainties Could 
        Lead to Increased Pollution
    For at least the next decade, North America's single most important 
environmental variable is the fate of more than 300,000 Megawatts of 
coal-fired generation in the United States. This equipment now produces 
more than half of U.S. generation, and dwarfs the combined installed 
capacity of all kinds in Canada and Mexico (about 150,000 
MW).23 Most of the units ``are allowed to pollute at 
emission levels 4 to 100 times those that must be met by their new 
competitors.'' 24 If the competitive advantage associated 
with these looser standards proved decisive, U.S. coal-fired generation 
could raise production by as much as one third over levels prevailing 
in the mid-1990s, in response to continental demand growth and access 
to new markets.25 The units at which these increases would 
occur already lead the power generation sector--and indeed the entire 
economy--in their emissions of sulfur dioxide, nitrogen oxides, carbon 
dioxide and mercury.26
---------------------------------------------------------------------------
    \23\ Commission for Environmental Cooperation, Assessing 
Environmental Effects of the North American Free Trade Agreement 
(1999), p. 364.
    \24\ A. Cohen, Unfinished Business: Cleaning Up the Nation's Power 
Plant Fleet, Clean Power J., Summer 1997, at 1 [http://
www.cleanpower.org]. Cohen goes on to explain that ``[t]his anomaly 
stems from the `old source' exemption granted to existing fossil fuel 
plants in the original Clean Air Act, in 1970 and again in 1977, on the 
theory that these older plants would be retired within 20-30 years.''
    \25\ This is among the findings of the Environmental Impact 
Statement prepared in conjunction with FERC Order 888. Federal Energy 
Regulatory Commission, Final Environmental Impact Statement: Promoting 
Wholesale Competition Through Open Access Non-Discriminatory 
Transmission Services by Public Utilities (RM95-8-000) (April 1996). 
FERC's view, however, is that coal will fail to achieve this level of 
penetration as a result of aggressive competition from gas-fired units.
    \26\ Sulfur emissions from U.S. generation are capped by the 1990 
Clean Air Act, of course, but the statute does not address emissions 
from expanded generation in Canada and Mexico.
---------------------------------------------------------------------------
    Early returns are inconclusive but hardly encouraging. From 1995-
1997, coal combustion for electric generation was a big winner, 
increasing by 8 percent, while natural gas use for the same purpose 
declined by more than 5 percent.27 Among the apparent 
environmental losers have been New England and New York, which are 
seeing significant short-term increases in power-plant 
pollution.28
---------------------------------------------------------------------------
    \27\ Monthly Energy Review, note 3 above, Table 7.6 [data from both 
utility and non-utility sources were available only through 1997]. Oil 
did even better in percentage terms, taking advantage of favorable 
commodity prices to boost its production of electricity by 18%, but oil 
started from a modest base of about 2% of total generation.
    \28\ See Air Pollution Jumps at NE Power Plants, Boston Globe, 
April 6, 1999, p. A1 (reporting increases in sulfur dioxide and 
nitrogen dioxide oxides releases, respectively, of 41% and 24% between 
1996 and 1998 for New England as a whole); A. Revkin, Report Finds 
Power Plants Dirtier in '98, New York Times, April 21, 1999, p. B5 (New 
York's in-state power plant emissions of sulfur dioxide and nitrogen 
oxides increased 21 percent and 12 percent, respectively, in 1998). 
Much more encouraging, from a long-term perspective, is a surge in 
Northeastern applications to build high-efficiency natural gas 
generation.
---------------------------------------------------------------------------
    At the same time, industry restructuring could work to stall recent 
progress in bringing new nonpolluting technologies to the electricity 
marketplace. An immediate potential victim is improvements in end-use 
efficiency, which faced formidable market barriers even before the 
restructuring process gained momentum. These widely documented market 
failures generate ``systematic underinvestment in energy efficiency,'' 
creating opportunities for ``substantial cost-effective energy savings 
in buildings and equipment, generally in the range of 20-40%.'' 
29
---------------------------------------------------------------------------
    \29\ See M. Levine, J. Koomey, J. McMahon, A. Sanstad & E. Hirst, 
Energy Efficiency Policy and Market Failures, 20 Annual Review of 
Energy and the Environment 535, 536 & 547 (1995); Alliance to Save 
Energy et al., Energy Innovations: A Prosperous Path to a Clean 
Environment (June 1997).
---------------------------------------------------------------------------
    The nation measures these lost opportunities in foregone wealth as 
well as environmental degradation. Two examples will suffice here. We 
spend $26 billion annually to light commercial buildings, yet 80 
percent of the lighting stock is inefficient and obsolete; it wastes at 
least half the electricity it consumes, compared with readily available 
upgrades that would pay for themselves in three years or 
less.30 Less than five percent of large new nonresidential 
buildings--and less than one-tenth of one percent of the existing 
stock--take advantage of basic ``commissioning'' services to ensure 
that the major energy-using systems perform as designed; the resulting 
energy waste from simple neglect is on the order of 10%, or about $5 
billion per year.31
---------------------------------------------------------------------------
    \30\ C. Calwell, D. Dowers & D. Johnson, How Far Have We Come?: 
Remaining Opportunities for Upgrading Fluorescent Ballasts and Lamps (E 
Source Strategic Memo, May 1998), pp. 1-2.
    \31\ PECI, National Strategy for Building Commissioning (U.S. 
Department of Energy, September 1998), p. 6.
---------------------------------------------------------------------------
    Electricity distribution companies potentially have much to 
contribute as catalysts of energy-efficiency progress, but progress has 
slowed in recent years. ``Whereas in 1992, utility spending on energy 
efficiency programs was expected to increase by 50% from 1994 to 1997, 
actual spending took a `u-turn' and went down by over 30 percent from 
1994 to 1996, with declines now projected to continue for the rest of 
the decade.'' 32 Major elements of the utility industry have 
halted investment altogether; a survey of 1997 data concluded acidly 
that ``the City of Eugene, Oregon, whose utility serves some 73,000 
customers, invested more in energy efficiency than the combined outlay 
of Southern Company, Entergy, Commonwealth Edison, and American 
Electric Power, which serve more than 12 million customers.'' 
33
---------------------------------------------------------------------------
    \32\ M. Kushler, An Updated Status Report of Public Benefit 
Programs in an Evolving Electric Utility Industry (American Council for 
an Energy Efficient Economy, September 1998), p. 3.
    \33\ J. Coifman, Utility Deregulation a Bust for Energy Efficiency 
Programs (Environmental Media Services Press Release, October 1, 1998). 
On the other hand, Commonwealth Edison's subsequent appointment of CEO 
John Rowe virtually ensured an energy-efficiency renaissance there at 
least.
---------------------------------------------------------------------------
    These trends threaten a fifteen year success story, in which 
hundreds of utilities built a whole new renewable energy industry and 
also proved that they could invest productively in a host of end-use 
energy efficiency improvements. That record of achievement cuts across 
the spectrum of utility size and ownership structure. It yielded mass-
produced energy savings less costly than equivalent unburned fuel at 
power plants, even as ``annual savings equivalent to one percent of 
system consumption were being achieved by companies that had in no 
sense tested the limits of their capacity.'' 34
---------------------------------------------------------------------------
    \34\ R. Cavanagh, Restructuring for Sustainability: Toward New 
Electric Services Industries, Electricity Journal (July 1996), at p. 
72.
---------------------------------------------------------------------------
    As industry restructuring proceeds, however, it creates fierce 
pressures to accelerate recovery of investments in potentially 
uneconomic generation without increasing rates. The surest and least 
controversial means to this end seems to be sustained increases in 
commodity sales. Dependence on such increases, of course, undermines 
commitments to efficiency improvements and pollution reductions. The 
maturation of small-scale load-center generation is creating analogous 
dilemmas for throughput-addicted distribution systems, since customers 
who installed such resources would be cutting directly into their 
utilities' retail margins.
    In short, a plausible worst-case scenario is a surge of production 
from aging coal-fired plants that overwhelms more tightly regulated 
competitors, coupled with a rapid decline of utility-sector investment 
in energy efficiency and renewable generating technologies. While 
certainly conceivable, there is nothing inevitable about this prospect. 
But it looms today unless Congress unleashes countervailing forces, 
which are the subject of the next two sections. These options should be 
seen as complementary rather than competitive; in Carl Weinberg's 
phrase, the electricity sector's best hope now is not a silver bullet, 
but silver buckshot.
B. Open Grids Could Improve Environmental Quality by Accelerating 
        Capital Turnover
    One straightforward change in the assumptions governing the 
previous scenario yields dramatic results: eliminate the competitive 
advantage older coal-fired plants hold over new market entrants by 
virtue of inconsistent U.S. pollution standards. ``Requiring all fossil 
plants to meet the same emissions standards met routinely by post-1977 
power plants would decrease [U.S.] power sector sulfur dioxide and 
nitrogen oxides by 75-80 percent from otherwise projected levels in the 
year 2000.'' 35 Decisions about how to achieve such 
reductions would benefit also from greater certainty about future 
limits on emissions of mercury and carbon dioxide; Congress's 
continuing failure to provide it creates escalating risks that capital 
will be wasted on partial one-pollutant fixes that miss opportunities 
to reduce other emissions. Wherever one stands in the spectrum of 
generation competitors in terms of relative environmental performance 
today, there is a shared stake in a more predictable, integrated and 
coherent regulatory future.
---------------------------------------------------------------------------
    \35\ A. Cohen, note 24 above.
---------------------------------------------------------------------------
    If Congress acts to remove regulatory pollution subsidies for 
existing units, the open grid emerges as a powerful force for upgrading 
one of North America's oldest industrial infrastructures. Three-fifths 
of U.S. coal-fired capacity is at least thirty years old; about 40% has 
celebrated a fortieth birthday.36 Open grids should 
eliminate the capacity of monopoly owners to shield their aging progeny 
from newer, cleaner competitors.
---------------------------------------------------------------------------
    \36\ Clean Air Task Force, Coal Plant Distribution by Date (Boston, 
MA: April 1999)
---------------------------------------------------------------------------
    Critical here, however, are assurances that incumbent generators 
are indeed functioning independently of the monopoly systems that 
historically have protected them from market pressures. As industry 
restructuring begins, many transmission and distribution monopolies 
continue to own generation. Those companies have obvious incentives to 
favor that part of the competitive generation market comprised of their 
own power plant investments. Mechanisms will be needed to overcome that 
conflict of interest. Otherwise, residual monopolies could temporarily 
frustrate open markets that industry restructuring 
promotes.37
---------------------------------------------------------------------------
    \37\ As a result, much regulatory attention currently centers on 
mechanisms for separating grid operation from generation ownership. In 
addition, as noted earlier, some integrated monopolies are selling off 
their generation.
---------------------------------------------------------------------------
    A related problem is the political temptation to protect 
influential incumbents by including, as an element of electric-industry 
restructuring, government subsidies for selected power plants. 
California effectively closed important markets to competitors from 
every western jurisdiction, foreign and domestic, when it guaranteed 
above-market payments to more than 4500 Megawatts of nuclear 
generation.38 In the same category are Washington State's 
tax breaks for Centralia's 1300 Megawatts of aging coal-fired 
capacity.39 Fortunately, as these examples themselves reveal 
on inspection, the politics of subsidy for selected competitors are 
increasingly tenuous; California's nuclear-generation payments will end 
between 2001 and 2003, and Centralia's survival even that long is in 
doubt.40
---------------------------------------------------------------------------
    \38\ See California Public Utilities Commission, Decision 96-01-011 
and 96-04-059, affirmed by the California legislature in AB 1890, 
section 367 (1996).
    \39\ Substitute House Bill 1257 (1997) (establishing tax exemption 
for pollution control facilities, and forcing repayment of part or all 
of exempted tax if Centralia is retired prior to 2023).
    \40\ See, e.g., Editorial, Centralia Coal a Clunker, The Oregonian 
(April 20, 1999); A. Gibbs, Bidders Asked to Convert Centralia Steam 
Plant from Coal to Gas, Tacoma News-Tribune (March 22, 1999) 
(describing regionwide campaign to force an end to coal combustion at 
site).
---------------------------------------------------------------------------
C. End-Use Efficiencies and Renewable Energy Could Benefit from 
        Integrated Incentives and Regulatory Policies
    At least four specific strategies have emerged in Congress for 
promoting energy efficiency and renewable energy under electric-
industry restructuring. All attack the market barriers to long-term 
investment in efficiency and renewable energy technology. Proposals are 
now pending for a uniform volume-based charge on transmission use, 
which would be used to match dollar-for-dollar qualifying state-level 
investments in energy efficiency, renewable energy, and other public 
purposes.41 Counting both the proposed charges and the 
potential matching funds, these initiatives could raise as much as $12 
billion annually to open new U.S. markets for energy efficiency and 
renewable energy.
---------------------------------------------------------------------------
    \41\ See, e.g., H.R. 1357 (DeFazio) (1997).
---------------------------------------------------------------------------
    A second strategy focuses specifically on renewable energy and 
assigns a minimum content requirement to all electricity producers. 
They could meet this obligation either by acquiring qualifying 
renewable capacity or buying credits from those with surplus renewable 
production. Bills incorporating such requirements are designed to spur 
up to a ten-fold increase in renewable energy's nationwide 
contribution.42
---------------------------------------------------------------------------
    \42\ See H.R. 655 (Schaefer), H.R. 1960 (Markey), S. 237 (Bumpers) 
and S. 687 (Jeffords), all introduced during the 1997-1998 legislative 
session. These bills set the initial minimum-content requirement at the 
current average contribution of renewable sources other than 
hydropower--about two percent--and phase in increases, reaching (for 
H.R. 1960 and S. 687) ten percent by 2010. The mandate reached 20% by 
2020 in S. 687. In addressing the possible international application of 
such U.S. requirements, the Commission on Environmental Cooperation 
recently concluded that ``portfolio requirements may will survive a 
challenge under NAFTA if applied in an equal and nondiscriminatory way 
to all electricity production, regardless of origin.'' CEC, note 23 
above, at p. 269.
---------------------------------------------------------------------------
    Third, the United States has at least two decades of experience 
with direct government regulation of equipment and building efficiency, 
based on mandatory minimum standards. The potential for environmental 
and economic benefit is illustrated in a recent assessment by two 
national laboratories; 43 they investigated the impact of 
legislation enacted in 1987, which phased in minimum efficiency 
standards for seven equipment categories:
---------------------------------------------------------------------------
    \43\ M. Levine et al., note 29 above, pp. 543-47. The equipment 
categories are residential furnaces, room air conditioners, central air 
conditioners, electric heating, water heating, refrigerators and 
freezers. The net benefit estimate is based upon a real discount rate 
of 6% and reflects ``a net present cost of $32 billion for higher-
priced appliances and a net present savings of $78 billion.''

Cumulative government expenditures to develop standards: $50 million
Cumulative net benefit for appliances sold from 1990-2015: $46 billion
Avoided electrical generation over twenty years: 20,000+ MW
Reductions in total national emissions of SO2, 
NO2 & CO2: 1.5-2%

    Despite these and other widely acclaimed precedents, federal and 
state regulators have not come close to exhausting the potential cost-
effective contribution of tighter appliance and building standards. And 
opportunities to coordinate such initiatives across national boundaries 
barely have been touched. Also needed is better synchronization of 
incentive-based and regulatory approaches; to help minimize costs and 
controversy associated with tighter minimum efficiency standards, 
utilities have shown how to use targeted financial incentives for the 
appliance and building industries and training programs for code 
enforcers.44
---------------------------------------------------------------------------
    \44\ A recent illustration is the April 1997 increase in the U.S. 
minimum efficiency standard for refrigerators, which drew in part on 
technological advances associated with a multi-utility investment 
program that successfully integrated higher operating efficiencies with 
a phaseout of chlorofluorocarbons.
---------------------------------------------------------------------------
    Finally, both Congress and the Administration have shown 
substantial interest in giving customers better and more uniform 
information about the environmental characteristics of electricity 
products, as a necessary if not sufficient condition to opening new 
markets for cleaner power sources. The evolution of ``nutrition-label'' 
equivalents for electricity products is not a substitute for the 
regulatory and incentive policies discussed above; here as elsewhere, 
the nation would be ill-advised to rely solely on individual volunteers 
to meet important interstate environmental objectives. But 
opportunities to vote with electric bills for environmentally superior 
generation and energy efficiency certainly can complement other means 
to those ends.
                               conclusion
    A former U.S. Secretary of Energy liked to observe that if 
electricity is just another commodity, then oxygen is just another gas. 
Competitive markets for generation cannot work efficiently if 
regulatory subsidies for incumbents are suppressing new entrants, if 
power-plant emissions are defeating environmental and public-health 
objectives, or if technological progress stalls. And individual states 
are in no position to solve these manifestly interstate dilemmas, even 
assuming the best efforts of local regulatory and legislative bodies. 
Pending a comprehensive Congressional response, piecemeal and 
inconsistent industry-restructuring and environmental initiatives will 
ensure escalating pressures for remedial action, as frustration grows 
among economic and environmental constituencies alike. Before too much 
longer the combination should prove irresistible.
[GRAPHIC] [TIFF OMITTED] T7439.001

[GRAPHIC] [TIFF OMITTED] T7439.002

    Mr. Barton. I thank the gentleman. Mr. Schmidt, you are 
recognized for 5 minutes for your opening statement.

                   STATEMENT OF FRED SCHMIDT

    Mr. Schmidt. Thank you. Although my address is listed on 
your handout as Washington, DC, this is actually one of the 
very few times that I come to Washington, DC. My formal title 
is I am the State Consumer Advocate in the State of Nevada 
where I oversee anti-trust regulation, consumer protection 
laws, and utility advocacy.
    I am out in the trenches, in the States doing what your 
Federal legislation is going to affect. In my own State, we 
passed comprehensive electric restructuring legislation 2 years 
ago. We modified it and we clarified it this year. I will tell 
you it is not impossible to do a bipartisan bill. We had 
Republicans and Democrats almost unanimously vote for both 
bills that went through my legislature.
    We are looking forward to opening our market in March of 
the year 2000. On the other hand, there are certain things that 
we recognized as we went through all of those debates that only 
Federal legislation can do and not State legislation; ways in 
which States interact with each other because transmission 
crosses our borders.
    I am here today on behalf of the National Association I 
represent as President this year of the utility consumer 
advocates. People, like me, who by State law in 39 of our 
States only have one voice and one constituency. We speak for 
your representatives who are consumers of electricity. Our job 
is to get it right for them to make sure that they are not 
negatively impacted.
    So, what I am here to do today is not talk in detail about 
your bills. I have 10 pages of testimony that I urge you to 
look at. I am here to give you a guideline to measure what you 
do against what your constituents, who are electricity 
consumers, want. The checklist that I have attached to my 
testimony in the back of the testimony is also blown up in the 
chart on my left here.
    [Chart]
    There are 12 points to that checklist. Those are things 
that myself and my colleagues in 39 other States have agreed 
are appropriate areas for Federal legislation not to deal with 
or needs to deal with. If your legislation meets those 12 
checklist points, then we support it. I will tell you the 
Largent-Markey bill comes closest now to comprehensively 
dealing with those 12 points.
    A number of other bills deal with individual points. We 
only support those points that they deal comprehensively with 
the points that are listed on the checklist. The first point 
that is listed on the checklist, I would note that I want to 
offer my praise as well as the other speakers, for the 
chairman's recent statements which suggest, as we have been 
urging, that you do not need to mandate legislation on the 
Federal level or a date-certain for States. Nearly two dozen 
States have gone. My State is gone. We are all doing it. There 
is a lot of value to those State experiments.
    The second point on the checklist for stranded cost is 
another area that you do not need to deal with. States have 
stranded cost issues that are unique to each State. Nearly 
every State that has gone forward on competition of the 22 has 
addressed and dealt with that issue. We do not need a Federal 
standard to deal with it.
    The third point, market power, that is an issue area where 
you do need to deal with something. If you do not have 
structural separation in this industry, I assure you, just like 
it took more than a decade for telecommunications to get into 
competition and get going to where we are today, it is going to 
take that long or longer for us to have meaningful retail 
electrical competition.
    All utilities do not necessarily agree with Mr. Owens' 
statement on this. The utilities in my State have announced 
plans to divest every single power plant in the State within 
the next 1\1/2\ years. All of the States that have competition 
are moving in that direction. The State utilities that are 
experiencing competition are making a choice.
    They are either getting into the generation business, which 
is going to be very, very competitive in the near future, more 
so than it has in the past, or they are getting in to the 
business of deciding they want to be a wires utility where we 
will need regulation and we will need to continue to have 
oversight because those will continue to be monopolies.
    In that regard, my fourth checklist point, transmission and 
ISOs. This is a critical point. ISOs are not forming, even 
though we have voluntarily sought to have them formed through 
the FERC's guidance and through encouragement from State 
Regulators and from industry representatives. We have had a lot 
of talk, but no action.
    The only ISOs that are in place and working with our tight 
power pools are in the Northeast, the mid-Atlantic States which 
has PJM, and California which went through the expensive cost 
of creating it from scratch. We are not going to have 
competition in the rest of the country until we have those type 
of buffers between the competitive market on the generation 
side and the regulated market, which will remain for some time 
on the wires side of the distribution utilities.
    We need an independent buffer and we need the ability of 
Federal legislation to mandate that, that occurs. I will skip 
reliability standards because you had a hearing on that 2 
months ago. We supported the NERC bill. We now have two 
consumer advocate members on that committee.
    I will also skip through the other ones since my time is 
up. I will tell you that consumer protection is the key area. 
Consumer protection, if you did not learn anything form the 
telecommunications experience, is something you need to deal 
with here. It took 15 years for us to figure out that cramming 
and slamming was going to become a major problem. Then you had 
to deal comprehensively on an individual basis.
    We ought to deal with something like that up front. With 
three times the amount of money involved in the electric 
industry as the telephone industry, I can assure you as a State 
Attorney General's representative, slamming and cramming, which 
is now the No. 3 issue area in complaints in our State and 
across the Nation, will be just as big a problem for 
electricity.
    So, deal with it up front. Do not wait for it to become a 
problem. Thank you very much.
    [The prepared statement of Fred Schmidt follows:]
Prepared Statement of Fred Schmidt, President, National Association of 
                        State Consumer Advocates
    My name is Fred Schmidt. I am the Consumer Advocate for the state 
of Nevada and a Chief Deputy Attorney General. In my state, I oversee 
the Attorney General's consumer fraud, antitrust and utility consumer 
advocate units. I also serve as President of the National Association 
of State Consumer Advocates (NASUCA), on whose behalf I am testifying 
today.
    NASUCA is an organization of 42 state utility consumer advocate 
offices from 39 states and the District of Columbia, charged by their 
respective state statutes with representing utility consumers before 
state and federal utility commissions and before state and federal 
courts. For the most part, consumer advocates represent residential and 
small commercial consumers. As a result, NASUCA members are intricately 
involved in electric utility restructuring debates in their respective 
states, and--through NASUCA--in Washington as well. NASUCA greatly 
appreciates the opportunity to testify at this legislative hearing.
                            i. introduction
    First, I would like to commend Chairman Barton, the members of the 
Committee, and your staffs for your consistent recognition throughout 
your careful deliberations that it is the impact of your actions on 
consumers of electricity that is of paramount importance. NASUCA truly 
appreciates your continuing efforts seek out the views of consumers and 
consumer representatives. We look forward to continuing to work with 
you in developing policies and legislation that benefit all consumers 
and complement what many states have already chosen to do.
    As this Committee proceeds with consideration of restructuring 
legislation, NASUCA is confident that you will keep the interests of 
consumers foremost in your mind. Electricity is an essential component 
of modern life. The actions taken by this Committee--and ultimately the 
Congress--will have a profound effect not only on electric consumers, 
but on the future of the nation as a whole. Therefore, NASUCA urges 
Congress to adopt those policies and principles that are fair and 
benefit all electric consumers. The truth is that we will have 
accomplished very little if the end result of our labors is to bring 
competitive benefits to only a small segment of the electricity market, 
while rendering basic service less affordable and less reliable for all 
other Americans.
    The restructuring legislative proposals before this Committee offer 
different visions of the future of the electric industry. NASUCA, as a 
truly state-based organization, also embraces many, diverse visions of 
the future electric industry. Nevertheless, the members of NASUCA have 
been able to develop a Consumer Checklist of provisions that must be 
included in any legislation in order to insure that consumers get a 
fair deal, not a raw deal. I will spend the next few minutes discussing 
the Consumer Checklist and how it relates to the legislation before 
this Committee.
    In summary, NASUCA will support legislation that will facilitate 
the transition to competition in those portions of the electric 
industry where competition is likely to do a better job than regulation 
in protecting consumers. However, NASUCA shares the belief of many 
members of this subcommittee that Congress should not mandate retail 
competition in every state by a date certain, and should not preempt 
the ability of states to determine whether and to what extent utilities 
should recover costs that are stranded as a result of retail 
competition. On the other hand, NASUCA members believe that there are a 
number of critical issues in this debate that only Congress can handle. 
These issues include market power and reliability.
                         ii. consumer checklist
    As I just mentioned, NASUCA has developed a Consumer Checklist, a 
common sense roster of principles that must be included in any federal 
legislation to insure that electric restructuring benefits, rather than 
harms consumers. I would like to take the next few minutes to review 
the checklist and apply the principles to the legislation at hand.
    1. Federal Preemption: Federal legislation should permit states to 
adopt retail competition statutes or rules. There should not be a 
federal mandate for states to require retail competition by a date 
certain.
    Without a legislative mandate from Congress, states are already 
considering and adopting alternatives to traditional regulation of 
electric utilities. For example, my state of Nevada has already adopted 
restructuring legislation. In NASUCA's view, it is the state 
legislatures and regulators that are in the best position to tailor 
restructuring to meet the needs of consumers within their states. I 
would like to applaud the Chair of the full committee for his recent 
comments that a date certain mandate is not necessary. We encourage the 
subcommittee to follow through with legislative language that adopts 
those sentiments.
    2. Stranded Costs: Retail stranded cost issues should be left to 
the states.
    State legislators and regulators are best suited to determine the 
appropriate sharing of costs and benefits which result from the 
transition from regulation to competition. H.R. 1828 contains federal 
``backup'' authority related to stranded costs. This provision concerns 
us if it results in a federally-mandated stranded cost rule and allows 
forum shopping for stranded costs. H.R. 2050 specifically leaves it up 
to the states to determine the recovery of ``transitions costs.'' This 
provision is obviously consistent with NASUCA policy.
    3. Market Power: Legislation should provide the FERC with specific 
authority to monitor the development of competitive markets, to 
eliminate undue concentrations of market power in any relevant market, 
and to remedy anticompetitive conduct or the abuse of market power by 
any player--incumbents, affiliates, or new market entrants. These 
powers should include the authority to order divestiture or other 
structural remedies when necessary.
    Language in H.R. 1828 and H.R. 2050 are the absolute floors in 
regard to market power. Unless FERC has the authority to order the 
structural and behavioral remedies necessary, there will be little fear 
of sanctions for misbehavior and abuse by incumbent monopolies, and 
little hope of competition ever developing. This would leave us with 
deregulated monopolies, the worst of all possible worlds.
    4. Transmission/ISOs: Legislation should authorize FERC to require 
ISOs or other independent and competitively-neutral regional 
transmission operation organizations. Legislation should authorize FERC 
to rectify transmission policies, practices or prices which create a 
competitive advantage for services offered by the transmission provider 
or affiliates.
    Simply stated, open, fair and nondiscriminatory transmission access 
is the key to developing a competitive electricity market. To encourage 
open access , H.R.1828 and H.R. 2050 include provisions on new 
institutional arrangements known generally as ``Independent System 
Operators.'' H.R.1828 permits FERC to ``approve interstate compacts 
that establish regional transmission planning agencies,'' while H.R. 
2050 authorizes FERC to create entitities for the independent ownership 
or control of transmission and authorizes FERC to compel utilities to 
relinquish control of transmission facilities to such independent 
entities. NASUCA supports language similar to that in H.R. 1828 that 
would clarify FERC's authority to approve ISOs and mandate minimum 
standards.
    5. Reliability: Legislation should authorize FERC to review the 
reliability requirements imposed by an independent North American 
Reliability Organization to promote reliability of electricity supply.
    The reliability of the nation's electric system is of paramount 
importance to the consumers represented by the members of NASUCA. First 
and foremost, under any scheme the lights must continue to come on. 
NASUCA supports the efforts taken to date by NERC to expand 
representation within that organization, but recognizes that additional 
changes will be necessary to preserve reliability in an increasingly 
competitive environment. Reliability provisions must be included in any 
legislation you consider. H.R. 1828 contains a praiseworthy reliability 
section which NASUCA will support with one modification. It must be 
made clear that states have a vital role in maintaining the 
reliability, safety and adequacy of electric systems within each 
state's borders. As long as states do not act in a manner that 
interferes with NERC's or FERC's requirements in interstate commerce, 
the states must not be preempted from taking action to insure that the 
lights stay on.
    6. Consumer Protection: Legislation by Congress should adopt 
provisions which would set minimum standards for basic consumer 
protection. States should retain authority to set additional or more 
stringent or more specific standards. Legislative consumer protection 
standards should:

 Provide all consumers access to reliable, safe and affordable 
        electric services.
 Require protections from unreasonable deposit and credit 
        requirements and service denials.
 Require the provision of default energy supply service at a 
        fair, reasonable and affordable price.
 Protect consumers from unfair, deceptive, fraudulent or anti-
        competitive practices such as slamming, cramming and pyramid 
        schemes.
 Develop accreditation or other appropriate financial 
        requirements for marketers.
 Ensure that all consumers are given clear, unbiased and 
        accurate information concerning price and terms of service.
 Require the disclosure of resource mix and environmental 
        characteristics of generation.
 Establish the right of consumers to privacy.
 Establish or maintain access to an independent complaint 
        process.
 Protect consumers from price increases resulting from 
        inequitable cost shifting.
 Establish service quality standards.
    The only legislation before this Committee that addresses consumer 
protection issues in a comprehensive manner is H.R. 1828. These 
provisions, however, need to be expanded and strengthened to insure 
that consumers have at least minimal protection from abuses of 
unscrupulous marketers in the new competitive environment.
    7. Universal Service: Legislation should adopt universal service 
standards and principles as part of any restructuring. If there is a 
public benefits fund, a significant share of funding should be directed 
to provide matching grants to states to fund assistance to low-income 
customers and to ensure that adequate electric service is available to 
all customers.
    Market forces alone will not insure that all Americans have access 
to safe, affordable electric service. Of all the legislation before 
this Committee, only S.1828 includes a comprehensive universal service 
provision, including a matching fund provision. While NASUCA supports 
the matching fund concept, we have not taken a position on the issue of 
the public benefits language as a whole.
    8. Aggregation: Aggregation of small customers should be 
encouraged. Federal legislation should not preclude states from 
facilitating the aggregation of small customers by any entity.
    Aggregation is needed to insure that small customers benefit from 
restructuring. H.R.1828 and H.R. 2050 include provisions which 
facilitate aggregation subject to legitimate and nondiscriminatory 
state requirements. NASUCA supports this language.
    9. Renewable Energy: Legislation should remove any barriers to 
state implementation of net energy metering. If a renewable portfolio 
standard is established to promote renewable energy, it should apply 
only to new renewable resources.
    NASUCA supports the development and increased use of renewable 
resources for electric production, and has promoted regulatory 
strategies to encourage their development at the state level. Net 
metering is one of those strategies, and currently over 20 states 
require utilities to make net metering available. Concerning a federal 
renewable portfolio standard, NASUCA believes that it should be 
targeted to promote development of new resources, rather than provide a 
windfall for existing projects. None of the proposals before that 
committee are consistent with this policy.
    10. Mergers: Legislation should specifically revise merger 
standards to require a net benefit to consumers. Legislation should 
expand FERC merger authority to include combinations that are currently 
outside of FERC jurisdiction, such as electric-communications and 
electric-gas mergers.
    Today, FERC interprets court precedent to only require a ``do no 
harm'' result from mergers. However, state statutes and Section 201 of 
the Federal Power Act require action to minimize costs and to promote 
the public interest. Mergers are undertaken by utilities in emerging 
markets for strategic purposes. If these mergers are to truly promote 
the public interest, they must provide a net benefit to consumers. 
Unfortunately, language establishing a net benefit standard is lacking 
in all of the bills under consideration today. In addition, so-called 
``convergence mergers'' can have a significant impact on incumbent 
market power, cross-industry consolidation, and can create potential 
cross-subsidies. Language expanding FERC merger authority to cover such 
``convergence mergers'' is not present in H.R. 1828 or H.R. 2050.
    11. PUHCA: PUHCA should be addressed only as part of comprehensive 
restructuring legislation. Waiver of certain PUHCA provisions should be 
conditioned on holding companies (i) being subject to effective 
competition in every state in which they operate, or (ii) divesting all 
of their generation assets. In addition, legislation should provide 
FERC with current PUHCA authority to review affiliate transactions, 
provide state and federal access to books and records, and limit 
diversification.
    Only H.R. 2050 incorporates this key concept of competition first, 
then deregulation. If PUHCA provisions are not included, holding 
companies would have an ability to take advantage of a transition 
situation to gain tremendous market and financial advantage at the 
expense of captive utility ratepayers. The Largent-Markey legislation 
also provides the FERC with authority to review affiliate transactions, 
provides state and federal access to books and records, and retains 
limitations on diversification. This language is absolutely necessary 
to ferret out potential cross-subsidies between regulated and 
competitive endeavors of holding companies.
    12. PURPA: Legislation should not waive Section 210, the PURPA 
mandatory purchase obligation, unless protections are in place to 
insure that utility generation is subject to effective competition.
    NASUCA has long supported the development of cogeneration and small 
power production under the Public Utility Regulatory Policies Act of 
1978. PURPA has given rise to the development of a substantial number 
of non-utility generation projects that might not have been built or 
even considered were it not for this provision of federal law. If 
Section 210 of PURPA is repealed prior to the development of effective 
competition, electric utilities could return to their pre-PURPA role of 
monopoly seller and monopoly buyer of power within their service 
territories. All of the legislative proposals before this Committee 
provide for repeal of Section 210 of PURPA without first insuring that 
a competitive market exists.
                            iii. conclusion
    Crafting a new regulatory model that mixes competition in 
generation with continued regulation of transmission and distribution 
services is a formidable challenge that requires cooperation and 
coordination between federal and state governments. States have and 
will continue to move forward to develop retail competition plans that 
best meet the needs of their residents. However, it is clear that 
ultimately states can't do everything alone. The states need the 
federal government to step in to remove barriers to the development of 
competition, and to resolve issues which cross state borders.
    NASUCA encourages this subcommittee and Congress to move forward on 
the issues included in the Consumer Checklist I have just outlined. 
Failure to do so guarantees failure and harms the consumer. After all, 
why go through all of this if the consumer is not going to reap the 
benefits of our labors?
    Again, I thank you for this opportunity to testify today on behalf 
of NASUCA, and I look forward to your questions.

    Mr. Barton. I thank all of the witnesses. Mr. Schmidt, let 
me just ask you, I am looking at your chart. I was talking with 
staff. Where you mention market power; allowing FERC to remedy 
abuses of market power. Does that mean divestiture?
    Mr. Schmidt. I think they need to have the authority to 
order structural separation. That can include divestiture, yes.
    Mr. Barton. So, that is what you favor. When you have 
consumer protection, of course, establishing minimum Federal 
standards for consumer protection, are you talking about the 
President's bill, labeling and other things?
    Mr. Schmidt. I think that labeling is very critical to 
consumers. In survey work that has been done across the 
country, consumers want to know what they are paying for. They 
want to know, in fact, rather than mandate specific 
environmental things, if you have a requirement that you 
disclose what the source of electricity is, consumers, as has 
been shown in Pennsylvania and in California, will make choices 
on that basis, and they want to.
    Mr. Barton. Mr. Kean, did Order 888 eliminate the ability 
of IOU transmission owners to use their control of transmission 
to discriminate against their competitors? Do we need to take 
further steps to assure wholesale competition?
    Mr. Kean. Definitely we need to take further steps. Order 
888 did not eliminate the problem. What Order 888 dealt with 
was really just about 10 to 15 percent of the use of the 
transmission system today. Wholesale transactions are really 
not done by the utility itself. It will have negative load in 
this market as markets open up to competition. We have negative 
load today.
    Mr. English has negative load. Mr. Richardson's members 
have negative load. Our access to transmission needs to have 
the same priority, the same terms and conditions, the same 
processes as utilities have access to today, and we do not have 
that, and will not have it, even if Order 888 is applied to 
public transmission systems as well.
    Mr. Barton. This is a question for Mr. Owens and Mr. 
Richardson. What can be done to eliminate transmission 
constraints? What will be the consequences if no action is 
taken to eliminate transmission constraints? Mr. Owens.
    Mr. Owens. I think a number of things can be done. I 
appreciate your asking that question. Our transmission system 
today is used significantly more than what it was intended to 
be used for. We have a significant number of new participants 
in the marketplace. There are several things that need to be 
done.
    First, we need to provide incentives for the construction 
of new transmissions. If you will look at what is happening 
with open competition since the Energy Policy Act has been 
developed, you have over 4,000 new independent power producers, 
650 power marketers, 2,000 municipal systems, 900 cooperative 
systems, and 200 investor-owned utilities.
    There is not enough space on those transmission systems. 
So, we have to provide new incentive for the construction of 
transmission. We also have to look at how the transmission 
system is currently used and make sure that we have the right 
pricing incentives so that we can encourage efficient 
transactions to occur.
    Finally, we need to make sure that all participants in the 
marketplace are subject to the same set of transmission rules. 
What Order 888 could not do was put all of the entities under 
FERC's jurisdiction. I think we need to do that as well.
    Mr. Barton. Mr. Richardson.
    Mr. Richardson. It seems to me, Mr. Chairman, that a part 
of the problem is that there are economic incentives not to 
remove constraints because of the way the transmission system 
is currently owned and operated. One of the primary issues that 
needs to be addressed to deal with this problem is to grant 
FERC the authority to order utilities to participate in 
independent system operator organizations in order to remove 
the economic incentives that the transmission owners have to 
continue with those constraints. With respect to incentives for 
construction, again, I think there are incentives not to 
construct because of the way that the system is currently 
operated. So, that utilities that own the transmission can 
favor their own generation by continuing the constraints in 
transmission.
    Perhaps the most effective thing that could be done, but 
probably the most difficult issue to tackle, would be for this 
Congress to allow utilities to extend the authority of Federal 
eminent domain to construct transmission facilities because 
that is where the real problems are in getting these 
transmission lines constructed.
    Mr. Barton. Anyone else on the panel that perhaps disagrees 
and wants to comment? Yes, Mr. Cavanagh.
    Mr. Cavanagh. Mr. Chairman, a quick reminder that a part of 
the solution to congestion lies in using electricity more 
efficiently. It ought to be a matter of concern, if as I have 
suggested, we cut our National investment utility level by 
about 50 percent in energy efficiency, that might just be a 
part of the reason why we are seeing these increasing problems 
of congestion and restoring the incentive. To ramp those 
investments back up is surely a part of the solution.
    Mr. Barton. Mr. Owen, let me come back to you. I think in 
your opening statement you mentioned and you criticized the 
subsidies to government utilities and cooperatives. Do you 
think the Rural Loan Program should be changed, reformed, 
reduced? What is your comment on that?
    Mr. Owens. Congressman, my criticism was not on the RUS 
Program. My comments were directed more specifically to how the 
electric system should evolve. In that area, for example, I 
would advocate that if new generation were to be constructed, 
that it needs to be constructed under the same set of rules.
    I would not advocate that tax exempt financing should be 
available to any entity. If we are seeking to participate in 
the open competitive market, then they have to play by market 
rules, rather than having tax exempt financing in a range of 
broad subsidies to compete in that market.
    That comment would relate to generation and transmission 
cooperatives who are seeking to expand competition through RUS 
funding. Those comments would equally apply to municipal 
systems that are seeking to participate in the open competitive 
market, through tax exempt finance.
    Those comments would apply to the power marketing 
administrations, which I understand are very difficult entities 
to look at; the Bonneville Power Administration, the Tennessee 
Valley Authority, who are seeking to participate in open 
competitive markets. My point is that if they are seeking to 
build new power supply, then they need to be subject to the 
same set of rules.
    Mr. Barton. Thank you for that clarification. My time is 
expired. The gentleman from New Jersey, Mr. Pallone, is 
recognized for his questions.
    Mr. Pallone. Thank you. I wanted to ask Mr. Cavanagh a 
couple of questions. With regard to PURPA, I guess initially 
whether you believe that PURPA should be repealed and why? I 
guess I am assuming it is going to be repealed at some point. 
The question is what can we do to promote the commercial 
viability of renewables?
    Mr. Cavanagh. Well, exactly, Congressman Pallone. I hope if 
you are going to repeal it, what are we going to replace it 
with? The good news is we have learned over the 20 years since 
PURPA a whole lot about how to create incentives to cut the 
cost of new renewable capacity.
    Your bill and the administration's bill also includes what 
we think is an extremely promising replacement for PURPA, which 
is the renewable portfolio standard that basically will put 
intense competitive pressure on the renewables industry to 
basically deliver those kilowatt hours at the lowest possible 
cost.
    We will be replacing the old guaranteed purchase contracts 
with a market-based solution, but we have got to replace it 
with something. We are poised on the edge after 20 years of, 
again, a 2 percent share of solar, geothermal, wind, biomass 
ready to move. You will be hearing more about that from other 
witnesses. We do not want to just abandon it as we are on the 
verge of reaching our objective. We commend you for coming up 
with what we think is a good replacement for PURPA, but do not 
just get rid of it. Let us make sure that we sustain and build 
on the momentum that it created over the last 20 years.
    Mr. Pallone. Thank you. Let me ask you, in terms of the 
renewable portfolio standards, the whole issue of renewables, 
what percentage do you think we really need to move renewables 
into the marketplace?
    Mr. Cavanagh. We are now at 2 percent. We know we are 
within 1 to 1.5 cents a kilowatt hour, really, of competition. 
We have got bills now pending on the renewable portfolio 
standard in the range of 7.5 to 10 percent is the objective to 
expand that sector over the next decade. I think that is a 
reasonable place to start.
    The point is we have also cost capped these bills. They 
have been referred to as open-ended, blank check mandates. They 
are anything but. We recognize and support cost caps on this 
provision. We are not trying to say renewables at any price. We 
are saying renewables are poised to be competitive. Give them a 
chance to prove it.
    Mr. Pallone. Okay. Let me ask Mr. Richardson if you would 
support a renewable portfolio standard? You mentioned tax 
incentives. What kind of tax incentives would you support?
    Mr. Richardson. Mr. Chairman, we have not specifically 
taken a position on the renewable portfolio standards provision 
of the Administration's bill or others. We do very strongly 
support continued investment and development of renewable 
energy sources.
    We feel very strongly that hydro power is also a renewable 
energy source. We are concerned with respect to the mandates of 
the portfolio standards forcing, putting floors or ceilings. 
Forcing utilities to abide by those portfolio standard 
requirements may not be the most efficient or effective means 
of increasing development of renewable energy.
    With respect to tax incentives, the members of my 
association are not-for-profit units of State and local 
government. Federal Tax Code incentives, automatic deductions, 
tax credits do not provide any incentive for members of my 
association.
    Your legislation, and I have not had a chance to review it 
carefully does, I believe have a structure that treats all 
segments of the industry fairly. That is certainly very 
attractive for us to find solutions that treat all segments of 
the industry, yet provide incentives for the development of 
renewables in a way that applies across the board to all 
sectors of the industry.
    Mr. Pallone. Okay. Thank you. Let me ask Mr. Kean if you 
could clarify the EPSA's views on PURPA repeal or the language 
of PURPA repeal? Comment a little bit on PURPA.
    Mr. Kean. First of all, I think it is important to 
recognize what great progress PURPA has brought to this 
industry, in terms of increasing efficiency and the generation 
resources that have been brought on as a result of PURPA.
    This is the first time we had competition with the 
vertically integrated monopolies. So, it has been a successful 
program from that standpoint. Going forward in an open and 
competitive market, is it necessary to have a mandatory 
purchase obligation in place? No, it is not.
    We believe that the repeal should be No. 1, carefully 
crafted to deal with just the mandatory purchase obligation. It 
should be prospective only, and should bolster, rather than 
setting aside, existing contracts. So, it needs to be 
comprehensive.
    It needs to be a part of a comprehensive package. It needs 
to be carefully done because people invested in contracts and 
literally took those to the bank to finance the projects that 
they have and it should be prospective only.
    Mr. Pallone. Thank you. Thank you, Mr. Chairman.
    Mr. Barton. I thank the gentleman. The gentleman from 
Illinois, Mr. Shimkus, is recognized.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Mr. Schmidt, I read in your testimony that you are a State-
based organization. That you support plans for States to enact 
electric restructuring, which obviously I am very supportive 
of. However, I would like for you to clarify a few points. I am 
glad they kept that up.
    Going down to point 6, which is the Consumer Protection 
Check Mark; as I read your list that is your testimony, nothing 
jumps out as something my State has not addressed. I will bet 
if you go throughout the 22 or 23 States, most of them have 
covered a lot of those issues.
    For example, you advocate for disclosure of resource mix 
and environmental characteristics of generation. Are you aware 
that the Illinois law requires energy producers active in our 
markets to include this information in their customers' bills 
already?
    Mr. Schmidt. Yes, I am. I think that is a very good bill. I 
am very familiar with Illinois' provisions. I do know that 
other States have not adopted language like Illinois' though. I 
think that now that we have gone through a lot of those State 
experiments, I would like to see some of those set as Federal 
minimum standards.
    Mr. Shimkus. Well, what if there is a difference between 
what we end up passing than what Illinois has? What gets 
reported? What gets filed? Is there a duplication? Would you 
feel that is overly burdensome? I do want to point out the 
Illinois Commerce Commission and its environmental disclosure 
statements. You did mention the good work that was done by the 
State General Assembly.
    I pulled up one from Illinois Power which has the fuel mix. 
This is actually the insert into the bills, along with the pie 
chart on where the fuel base comes from. How would you respond 
as far as the duplication of documents required?
    Mr. Cavanagh. First of all, I would not like to see any 
sort of expansion of Federal bureaucracy out of this. The only 
thing I am recommending is specific guidelines so that there 
would be standards, but not some sort of enforcement of 
bureaucracy at the Federal level to enforce those things.
    I think what the States are doing is good. What is 
important to recognize is that if we are going to have 
successful marketers who are going to go out and market, 
particularly aggregated markets, small communities, they cannot 
have separate standards for disclosure in their types of bill 
format in 50 different States.
    They have got to have some uniformity or there is going to 
be some significant inefficiencies under our ability to go out 
and market. So, I think what you need to do at this point is 
take what Illinois has done and what other States have done and 
set a set of Federal minimum guidelines for those things. I do 
not want to preclude a State from implementing something more 
stringent. So, there may be circumstances where that 
inconsistency would still be there.
    I think that you should have a minimum set of Federal 
standards. If you do that, most of the States, particularly 
those who have not acted on the issue like Illinois has, will 
act consistent with that. Then you will have a uniform set of 
National guidelines that will make it very easy for competitors 
to go out and sell their product to consumers.
    Mr. Shimkus. I think the point is possible minimums that 
States, as far as like my colleague from New Jersey, there may 
be States who want even more specific type information. You 
would then allow them to be more specific in the information 
they provide within their States?
    Mr. Schmidt. Yes. They will preempt States from doing 
something if they, in their State, believe something more 
detailed is needed.
    Mr. Shimkus. Do you not see that, that might become a 
difficult process with duplication bills? Mr. Cavanagh, you are 
shaking your head. So, I am going to give you a chance just to 
jump in.
    Mr. Cavanagh. Yes. Perhaps a small disagreement with Fred 
on only one point. I really do think, and we supported the 
State level disclosure efforts. We are at-risk of having a 
Nation of inconsistent food labels on electricity. I think that 
is one area where Federal uniformity might make sense. Fred is 
talking about the equivalent of a food label for an electricity 
product. It would be nice if you had similar content and 
similar standards across the country so people who cross State 
lines could make useful comparisons.
    Mr. Shimkus. Thank you. I do not know where we are going, 
but I think that is a part of the debate when we get to define 
language in what we want to do. I think the concern is going to 
be, in my perspective, a knit-picking on sometimes what will be 
a controversial issue on a billing process can best be done by 
the State General Assembly in a particular State, based upon 
their concerns and desires of what the people have told their 
elected representatives they want to see.
    I am just concerned that this Nation is a great diverse 
Nation. In Illinois when we just have another coal mine close 
down because of the Clean Air Act, we may be more sympathetic 
to job losses versus other concerns that people may be spouting 
forth as they feel is good business.
    Number 11 on your check list deals with PUHCA reform. I 
also want to highlight and address what is going on in Illinois 
and throughout States, when there is a holding company that may 
go across State lines. One, Illinois being considered a high-
cost State and Missouri being a low-cost State. Ameron has now 
merged.
    The question is, again, Illinois has addressed the issue of 
cross-subsidization. The issue will be cross-subsidization. 
People espout that. In the Illinois bill, they address cross-
subsidization. I quote, ``Electric utilities shall not provide 
affiliated interests, or customers of affiliated interests, 
preferential treatment or advantages relative to unaffiliated 
entities' or their customers in connection with services 
provided under tariffs on file with the Illinois Commerce 
Commission.'' It goes on, and on, and on. I have obviously the 
legislation here.
    What is wrong with, again, allowing the States to address a 
cross-subsidization issue?
    Mr. Cavanagh. There is nothing wrong with that. I agree it 
should be done. In my State we did it. Each State that does 
electric competition needs to adopt a comprehensive set of what 
I call affiliate transactions to ensure that the affiliates of 
the utility that stay in or get involved in the competition 
business are not treated dissimilarly or favorably compared to 
other competitors who want to enter the marketplace.
    Mr. Shimkus. I think based upon the discussions we have 
had, and I am a former Army Officer, we had an acronym 
K.I.S.S., ``Keep It Simple Stupid.'' For us to move, I think we 
have to be careful with loading up additional problematic 
issues at the Federal level that can best be handled by the 
States. If they are doing so effectively which I, of course in 
my universe of the State of Illinois, I think we did the best 
we could bringing the parties together. My position is we need 
to continue to move in that direction and be careful about 
federally mandating other things that are going to cause 
dissension in getting competition passed. Thank you, Mr. 
Chairman. I yield back.
    Mr. Barton. I thank the gentleman. The gentleman from Ohio, 
Mr. Sawyer, is recognized for his questions.
    Mr. Sawyer. Thank you, Mr. Chairman.
    Virtually, all of us, in one way or another, have talked 
about the critical importance of transmission, and the 
importance of getting the fundamentals right. If we do that 
right within transmission, we have a very good chance of 
getting it right in many of the other elements that we are 
talking about.
    There are no guarantees, but it is so central to what we 
are talking about when we talk about competition, that it 
becomes a set of critical questions. We have come down to a 
couple of different directions in which we view the best way to 
evolve a modern transmission system suitable to very different 
purposes from the one which has evolved over the last 100 
years, and one which is capable of evolving as communities, as 
needs, as funding resources, as technology itself changes in 
the foreseeable future.
    Steve and Ed, in the Largent-Markey bill, have come to the 
conclusion, as many here have, that FERC ordering the 
affiliation in RTOs, or to give up control, or ownership of 
assets under a standard of what would be appropriate to 
competitive electric markets in reliability.
    We have also heard, in the course of our hearings, that an 
awful lot of people believe that no one single structure or 
design is well-suited to every part of the country in the same 
way. In that sense, I am very interested in what kinds of 
characteristics and by what standards we think that a FERC 
order to facilitate the formation of transmission entities 
ought to take place. So, let me just ask, and I am thinking in 
terms particularly of Mr. Owens, Mr. Kean, Mr. Richardson, Mr. 
English, and Mr. Schmidt. Others can join in if you will.
    If we are talking about what is appropriate for the 
promotion of competitive electric markets, I mean, do we need 
what is necessary for competition and reliability, or do we 
mean that which is least burdensome, or restrictive? Do we mean 
that it is unavoidably the only choice for competition 
reliability, or in effect should transmission organizations 
evolve in various parts of the country to meet the needs of 
that part of the country? We will start here and just move on 
down.
    Mr. Owens. Congressman, you actually hit the nail right on 
the head. I think we have to provide flexibility. I do not 
support a bandaid. If you look at what is occurring in the 
industry, and I am speaking specifically with respect to 
regional transmission organizations. I might disagree with many 
of panelists this morning. I think we have a very impressive 
record of what is happening with respect to regional 
transmission organizations.
    It has only been 3 years since 888 has gone into play and 
we already six independent system operators that are in 
operation. We have five other very significant proposals. In 
other words, 41 percent of our electric consumers are already 
getting the benefits of good regionalization.
    What you do on the east coast, for example, three of those 
ISOs have evolved out of what we call centrally dispatched 
power polls. Those were pretty sophisticated systems. Given 
what is occurring in California, you cannot apply the ISO rules 
to New York, or to New England, or to the Pennsylvania, New 
Jersey, Maryland interconnection, which is the area that serves 
this part of the country.
    In California, it cost $400 million to create that system. 
So, I would say a voluntary system. One that encourages 
transmission expansion. One that puts all players under the 
same set of rules, and one that preserves the reliability 
rules, and another one, one that also recognizes that we need 
to clarify the siting jurisdiction of FERC in the States.
    Mr. Sawyer. Mr. Kean.
    Mr. Kean. I think your suggestion that there are different 
approaches that will be best suited to individual circumstances 
is right. I think in order for those good proposals to come 
forward and be developed, there have to be some kind of basic 
ground rules set. I mentioned one of them already and the other 
panelists have mentioned them.
    One is that it has to be clear that transmission access is 
going to be non-discriminatory for all uses. That includes 
everybody's State as well. Second, structural separation as a 
remedy for the Commission is important. Once you have that, you 
will have transmission companies looking at transmission as a 
business.
    They will be looking for ways to make that work because 
they will want to be able to sell the service they have. They 
will want to be able to expand the system to serve new needs. 
So, I think if you lay those rules in at the front end, you 
will get good proposals.
    Mr. Sawyer. Mr. Richardson.
    Mr. Richardson. I agree with a lot of what Steve just said. 
I think it is a question of what is appropriate and when is it 
appropriate? We do support the enhanced FERC authority to order 
utilities to do this. I think if the appropriate guidelines are 
established by which independent system operators, regional 
transmission organizations, or whatever the acronym might be, 
will pass muster or will not pass muster with the authority of 
FERC to order utilities to participate. By utilities, I mean 
all transmitting utilities, not simply investor-owned 
utilities, but public power systems as well. That is part of 
our policy.
    Mr. Sawyer. You are trying to be very kind to me, but I 
really would like to hear briefly from each of you. Thank you. 
Mr. English.
    Mr. English. Mr. Sawyer, I think what you are really 
getting into is that this is another one of those devils in the 
detail issues. I think the real question the committee is going 
to have to face is whether you want to take a kind of one size 
fits all. We really do not want to get into all of this stuff.
    Let us kick it over to FERC. Let them sort it sort it all 
out. We do not have to mess with it, or when you are in fact 
going to get at the reality at what is going to work for the 
country? Now, that means you are going to get down to some 
details, and it is not going to be neat. It is not going to be 
orderly.
    For instance, we have a lot of our small distribution 
cooperatives that may have a mile or two of line that could be 
interpreted by FERC to fall in under their jurisdiction. No one 
is saying that they really believe that those distirbution 
cooperatives are going to go through the expense and the 
difficulty in hiring all of the expertise to get exempt. It 
does not make any sense.
    On the other hand, well that means we have to write 
something a little bit differently in the language, and we have 
to provide exemptions. We have to carve it out. It will be 
difficult. We are hopeful that the committee will take the time 
and will focus on the reality of trying to get a system that 
really works as opposed to a uniformed system.
    Mr. Sawyer. Mr. Schmidt.
    Mr. Barton. This will be our last answer.
    Mr. Schmidt. I agree with you. We need regional 
differences. We need to recognize those differences, but that 
is not the same as saying we do not need to do anything or go 
slow, as Mr. Owens said. We are not moving in competition in a 
lot of areas in the country. The main reason is we do not have 
regional transmission organizations.
    FERC is the only entity, unless you want to create regional 
regulatory entities. Some entity that crosses State lines needs 
to have that power. You need to authorize that. If you do not 
do that, you will not get competition moving very rapidly in 
most of the country in the near future.
    Mr. Sawyer. Thank you for your latitude, Mr. Chairman.
    Mr. Barton. I thank the gentleman. The gentleman from 
Oklahoma, Mr. Largent is recognized for his opening statement 
and his questions.
    Mr. Largent. Thank you, Mr. Chairman.
    I want to ask just a quick yes or no question. That is did 
I understand you to say that you do not believe that FERC 
should have the authority to order a utility into an RTO?
    Mr. Owens. I think that FERC should not have mandatory 
authority or should not require the formation of regional 
transmission organizations.
    Mr. Largent. What about if they show market power exist? 
Should that be one of the remedies if FERC says, here is market 
power. Get into an RTO?
    Mr. Owens. I think there are a range of options that FERC 
has to do on a specific finding of market power. You can 
allege, but you have to make a finding that there is actual 
abuse.
    Mr. Largent. Assume there is a finding. Should one of the 
remedies be that they can order that offending utility into an 
RTO?
    Mr. Owens. FERC has at its disposal, FERC can suspend 
market-based rates.
    FERC can do a number of things aside from trying to 
institute what we call structural remedies.
    Mr. Largent. Mr. Cavanagh, I wanted to enter into a 
discussion with you about the whole environmental issue. Is it 
your view that going to competition is going to be good for the 
environment, even if there is not a renewable portfolio in the 
bill?
    Mr. Cavanagh. No, because it is my view that everything 
depends on how you do it. That is our argument and my testimony 
tries to do this in detail. It is not inherently good or bad. 
What is crucial is do we have consistent pollution rules for 
all of the competitors? Do we have incentives to maintain our 
historic investments in efficience and renewables.
    Mr. Largent. So you are saying the answer to my question 
was no?
    Mr. Cavanagh. If stripped of the environmental content, we 
think this restructuring would be bad for the environment, 
Congressman.
    Mr. Largent. Okay. Let me ask you this question. Under the 
Clean Air Act, a lot of the older, dirtier generators of 
electricity were grandfathered in. Is that correct?
    Mr. Cavanagh. Right; yes.
    Mr. Largent. Is it not possible, and we have heard 
testimony before this committee that a lot of those generating 
facilities are average age about 43 years. That they operate at 
an efficiency level of about 35 percent, meaning they are not 
really very economical unless they are held captive within a 
monopoly. So, is it not likely, in fact probable, that as we 
move to competition, that a lot of those older generating 
facilities that you cannot touch through the Clean Air Act 
would actually be cycled out as a result of competition? Thus, 
meaning that competition will do what the Clean Air Act has not 
be able to do, and in effect be better for the environment, 
even without getting in to the renewables.
    Mr. Cavanagh. Congressman, if we can hold everyone to 
consistent pollution standards in the competitive process, you 
are absolutely right.
    Mr. Largent. Forget pollution standards. What I am saying 
is, let us talk about market efficiencies, competition, the low 
cost producers. Let us talk about all of those things.
    Mr. Cavanagh. The problem is that those incumbents have an 
economic advantage by virtue of the looser standards of 
commerce. In our testimony, we gave you the figures. In the 
first 2 years after restructuring, the older coal plants 
expanded market share by 8 percent. The cleaner gas plants lost 
5 percent of market share. Now, that is not the permanent rule. 
That is a short-term trend. I hope it turns around. It is a 
cautionary note.
    It says to us that we cannot just assume that opening up 
the market yields an instant environmental dividend. That had 
been my hope too. That is not what we are seeing. That is why 
we are urging you to look at the standards.
    Mr. Largent. I would ask you to continue to explore that 
question. Let me ask you another question.
    Mr. Cavanagh. Sure.
    Mr. Largent. What percent of Americans do you believe would 
choose renewable energy, even if it cost them a little bit 
more?
    Mr. Cavanagh. Congressman, we do not know the answer to 
that. My hope is a substantial number. We are encouraging them 
to choose. Here is, again, the cautionary tail. We have got a 
year after the markets open in California. About 1 percent of 
Californians have chosen a supplier. The overwhelming majority 
have chosen renewable.
    Most are not choosing. Most customers just cannot make 
sense of the new market. There is a lot of confusion, a lot of 
uncertainty. What I would say to you is we are glad to have 
that environmental dividend from voluntary choice. We celebrate 
it. We do not want to rely exclusively on volunteers to meet 
the Nation's environmental objectives. We do not want to 
deregulate environment.
    Mr. Largent. So, what is the answer to my question?
    Mr. Cavanagh. The answer to your question is at least 1 
percent.
    Mr. Largent. What about New Hampshire? They have folks up 
there. That is pretty vibrant choice.
    Mr. Cavanagh. The New Hampshire residential, the pilots 
looked great, Congressman, then the bottom fell out of the 
market. Nobody is making money in the residential markets today 
in electricity. It is a real problem. Now, we hope to see it 
open up. We hope that 10 percent will choose renewable, but we 
certainly are not there yet.
    Mr. Largent. You have industrial consumers that are 
actually using, as a part of their portfolio, renewables.
    Mr. Cavanagh. A few.
    Mr. Largent. That is the way they market themselves.
    Mr. Cavanagh. A few.
    Mr. Largent. Yes.
    Mr. Cavanagh. We would love to see more.
    Mr. Largent. So, you are not really giving me a percentage. 
Is that 1 percent, 5 percent, 10 percent, 20 percent?
    Mr. Cavanagh. In California, the answer is 1 percent.
    Mr. Largent. Now, 1 percent have elected to change their 
electric supplier?
    Mr. Cavanagh. The overwhelming majority of them have chosen 
renewable; the overwhelming majority.
    Mr. Largent. The ones that have been knowledgeable enough 
to say I have an option here, so what percent of the 1 percent?
    Mr. Cavanagh. Almost all of them.
    Mr. Largent. If you are saying the 1 percent is 100 
percent, how many have chosen renewables?
    Mr. Cavanagh. Almost all of them.
    Mr. Largent. So, a large percent.
    Mr. Cavanagh. A large percent of those who have chosen, but 
such a small fraction have chosen that there is not much of an 
environmental dividend to show at this point.
    Mr. Largent. Would you guess, if we had informed choice, 
assume informed choice, say in a 5-year period we have informed 
choice on electric, would you say that maybe as high as 5 to 10 
percent, maybe even 15 percent of consumers, and even some 
industrial consumers would choose renewables?
    Mr. Cavanagh. That would sure be my hope. We are with you 
there.
    Mr. Largent. Thank you, Mr. Chairman.
    Mr. Barton. I thank the gentleman. The ranking member, Mr. 
Dingell from Michigan, is recognized for questions.
    Mr. Dingell. Mr. Chairman, I thank you. Ladies and 
gentlemen of the panel, welcome. I have a number of questions 
to try and determine whether or not there will be a consensus 
on this complex matter. The time for my questions is limited. 
Therefore, I will ask only for a ``yes'' or ``no'' answer.
    We will commence with Mr. Owens. The first question is as a 
general matter, should Congress address the environmental 
policy in the context of restructuring legislation; ``yes'' or 
``no?''
    Mr. Owens. No.
    Mr. Dingell. Pardon?
    Mr. Owens. No.
    Mr. Dingell. Ma'am.
    Ms. Price-Davis. I do not have an answer to that question 
right now. AAE has not gotten a position to implement.
    Mr. Dingell. Yes, sir.
    Mr. Kean. Yes, if it is needed to get the deal done.
    Mr. Dingell. Yes, if needed to get a bill?
    Mr. Kean. Yes.
    Mr. English. Yes.
    Mr. Cavanagh. Yes.
    Mr. Schmidt. Yes.
    Mr. Dingell. Now, let us talk about a naked policy; yes or 
no?
    Mr. Owens. I think yes.
    Mr. Dingell. All right.
    Mr. English. No.
    Mr. Cavanagh. I am sorry, Congressman, I do not even know 
what the ``it'' is again.
    Mr. Dingell. I am sorry?
    Mr. Cavanagh. The ``it'' you are asking about?
    Mr. Dingell. Should Congress address environmental policy 
in the context of restructuring legislation.
    Mr. Largent. You are a yes.
    Mr. Cavanagh. I am a yes, Congressman.
    Mr. Dingell. Sir?
    Mr. Schmidt. Yes.
    Mr. Dingell. Next question: should Congress specifically 
address the Clean Air Act in restructuring legislation? Mr. 
Owens.
    Mr. Owens. I am sorry. I was distracted.
    Mr. Dingell. Should the Congress address Clean Air Act 
concerns in restructuring legislation?
    Mr. Owens. No.
    Mr. Dingell. Ma'am?
    Ms. Price-Davis. No.
    Mr. Kean. No.
    Mr. Richardson. No.
    Mr. English. No.
    Mr. Cavanagh. Mr. Chairman, I will say yes and wish I could 
say more.
    Mr. Schmidt. No.
    Mr. Dingell. Okay. Next question: should Congress 
reestablish renewable energy requirements for generators and 
sellers of electricity?
    Mr. Owens. No, if they are mandatory.
    Mr. Dingell. Ma'am?
    Ms. Price-Davis. Again, I would prefer to leave that at the 
option of the generator.
    Mr. Dingell. So, in other words, the answer to that would 
be no.
    Ms. Price-Davis. Correct.
    Mr. Dingell. Okay; sir?
    Mr. Kean. Sir, this is very hard to answer.
    Mr. Barton. The gentleman will get the microphone.
    Mr. Dingell. Congress either should or should not.
    Mr. Kean. That would be one way to do it. That would be one 
way to do it.
    Mr. Dingell. Pardon?
    Mr. Kean. That would be one way address environmental 
issues.
    Mr. Dingell. Are you for or against? Which is it, yes or 
no?
    Kean. Yes.
    Mr. Dingell. Okay. Sir?
    Mr. Richardson. No.
    Mr. English. No.
    Mr. Cavanagh. Yes.
    Mr. Schmidt. Yes, but it should be done at the wires level, 
not at the generator level.
    Mr. Dingell. Okay. Next question; let us talk about 
increasing FERC authority to deal with market power issues. 
Question: should Congress authorize FERC to require utilities 
and other transmission owners to join regional transmission 
groups or RTOs?
    Mr. Owens. No.
    Mr. Dingell. Ma'am?
    Ms. Price-Davis. Yes.
    Mr. Kean. Yes.
    Mr. Richardson. Yes.
    Mr. Dingell. Mr. English?
    Mr. English. Yes.
    Mr. Cavanagh. Yes.
    Mr. Schmidt. Yes.
    Mr. Dingell. Should Congress authorize FERC to require 
divestiture of utility assets in order to mitigate market 
power?
    Mr. Owens. No.
    Ms. Price-Davis. We believe it should be an option.
    Mr. Kean. Yes.
    Mr. Richardson. Yes.
    Mr. English. No.
    Mr. Cavanagh. An option.
    Mr. Schmidt. Yes.
    Mr. Dingell. Next question: should Congress adopt more 
stringent standards for FERC approval of mergers?
    Mr. Owens. No.
    Mr. Dingell. Ma'am?
    Ms. Price-Davis. Yes.
    Mr. Kean. No.
    Mr. Richardson. Yes.
    Mr. English. Yes.
    Mr. Cavanagh. Yes.
    Mr. Schmidt. Yes, and it should be a public benefits test, 
absolutely.
    Mr. Dingell. PUHCA repeal; do you support PUHCA repeal on a 
stand-alone basis, not at all, or only, or I am not sure how we 
get a yes or no answer.
    Question: do you support outright repeal of PUHCA?
    Mr. Owens. Yes.
    Ms. Price-Davis. Not until competition exists.
    Mr. Kean. As part of a comprehensive package.
    Mr. Richardson. Comprehensive and not until competition 
exists.
    Mr. English. No.
    Mr. Cavanagh. Comprehensive and not until competition 
exists.
    Mr. Schmidt. It has to be part of a comprehensive package, 
otherwise no.
    Mr. Dingell. Let us talk about PURPA repeal. Should PURPA 
be repealed on a stand-alone basis? Mr. Owens.
    Mr. Owens. With PUHCA repeal, yes.
    Mr. Dingell. In other words, you are in doubt.
    Ms. Price-Davis. On a stand-alone basis, no sir.
    Mr. Kean. No.
    Mr. Richardson. No.
    Mr. Dingell. Mr. English?
    Mr. English. No.
    Mr. Cavanagh. No.
    Mr. Schmidt. No.
    Mr. Dingell. Should Congress provide for the recovery of 
stranded costs under PURPA; yes or no?
    Mr. Owens. Yes.
    Ms. Price-Davis. Yes.
    Mr. Kean. Yes.
    Mr. Richardson. No position.
    Mr. English. No position.
    Mr. Cavanagh. Yes.
    Mr. Schmidt. It is not necessary. You have the Tenth 
Amendment.
    Mr. Dingell. You also, if I recall, have the Tucker Act. 
This committee, to its prodigious distress, learned about the 
Tucker Act when we had to pay out $7.5 billion to create Penn 
Central Corporation because we were careless in the setting up 
of the restoration of the rail service in the Northeast. Ladies 
and gentlemen, I thank you for your comments.
    Mr. Barton. Thank you. The gentleman from North Carolina, 
Mr. Burr, is recognized for his questions.
    Mr. Burr. I have a great deal of respect for my good 
friend, John Dingell. I want to thank him for drawing on the 
consensus of our panelists today. I think it also shows the 
challenge for members. I think that all of the answers were 
genuine.
    I do not think there is anybody who is in the industry who 
would not lobby for an unfair advantage. Not everybody can get 
it. That is the unfortunate thing. So, I think that certainly 
the answers were consistent with, not only your statements now, 
but your statements in the past.
    As we move forward, hopefully we will be able to find the 
balance that I think all would agree has to be met, forced to 
in fact address many of the questions that Mr. Dingell and 
other members have asked. Let me just move to a specific 
things. Mr. Schmidt, define market powers for me.
    Mr. Schmidt. Market power is when there is too much of a 
concentration and control of a particular industry with a small 
industry sector or entity.
    Mr. Burr. Would our current structure in those States who 
have not deregulated, not opened their retail markets because 
they are monopolies, would that be market power?
    Mr. Schmidt. Where you have a monopoly that is regulated, 
that is market power. It is regulated, which is why it is 
accepted.
    Mr. Burr. So, as long as it is regulated, we could accept 
market power?
    Mr. Schmidt. That is the definition of public utility 
regulation, yes.
    Mr. Burr. Would that be the case that we should not worry 
about market power as long as we regulate it in an open 
marketplace?
    Mr. Schmidt. I would prefer a model of competition in open 
markets myself.
    Mr. Burr. Can you have regulated power and have an open 
marketplace?
    Mr. Schmidt. You can if you have a natural monopoly that is 
more efficiently existing as a monopoly. I think that is still 
where we are as a wires utility. I do not think anyone is 
advocating that we should duplicate the wires that run down the 
streets to everyone's home and business. That is a natural 
monopoly. Unless you regulate it, there can be market power 
exercised there that would be very detrimental to your 
constituents.
    Mr. Burr. So, if we successfully address transmission, 
which Mr. Sawyer is desperately trying to come up with the 
right language, and we are all supportive of his efforts, and 
we are able to break that out of generation, if generation were 
to stand on its own by definition, nobody would have a market 
power advantage, as long as competition existed.
    Mr. Schmidt. If it existed. The problem is you do have 
pockets called load pockets of generation that was built with 
the wires that are in place where there is not other generation 
today, and the only people in that area without additional 
transmission can----
    Mr. Burr. Let me ask because your State had already done 
this. This is a very important question for the committee. If 
you had a situation where you had an area where there was a 
population, and limited generation, and retail competition in 
that area, what is the likelihood that an entrepreneur or a 
company, seeing that, would build generation to try to feed 
that population?
    Mr. Schmidt. I would hope that is going to happen when we 
open up the market.
    Mr. Burr. Can we do that without removing the Federal 
barriers that exist?
    Mr. Schmidt. I am not sure which Federal barriers you are 
referring to. I hope we can do that.
    Mr. Burr. We are all hopeful we can do that. Let me go to 
your chart, if I could. I went down it. Again, I think that 
Nevada, like other States, has moved forward. I am concerned 
with a re-regulation. Let me just ask you about one 
specifically. Do you feel that FERC is the only agency that 
could authorize mergers successfully?
    Mr. Schmidt. No. I think the Department of Justice is very 
good at doing that as well. We work with them in our State. I 
am with my own State Department of Justice essentially. I have 
done seven major mergers in the last 6 years within my own 
State government. I did not worry about my public utility 
commission or the FERC in many of them.
    Mr. Burr. If you were to rate today the FCC on their merger 
actions in the new telecommunications world that we are in, how 
would you rate them?
    Mr. Schmidt. I hesitate to do that, but I smile with you.
    Mr. Burr. So, clearly if we took mergers and we moved them 
to the DOJ and the FTC, and they used the FERC as an expert, 
but they were the ones that wrote the decision, since they do a 
majority of the merger decisions, you would feel comfortable 
with that?
    Mr. Schmidt. Let me tell you why my chart says allow FERC 
to do it. FERC, in doing a rulemaking about 1\1/2\ to 2 years 
ago, adopted or essentially referred to the Department of 
Justice's Standards For Evaluating Mergers. I think it is 
critical that the agency that evaluates a merger have knowledge 
of the industry.
    That is why I think FERC has some involvement or role. This 
tricky question as to whether it should be DOJ or FERC, I do 
not have a real strong opinion on that. The most critical part 
is that someone do it, someone do it that has knowledge of the 
industry.
    Mr. Burr. And someone do it that has knowledge of 
everything that is tied to merger decisions, even the capital 
questions that follow it, both understanding how they affect 
the merger, but also understanding if delays in decisions are 
made, how that capital is affected.
    Mr. Schmidt. Yes. Do not misread my chart. Although there 
are a lot of things there that only FERC could do, I see a 
substantial amount of diminishment of certain things FERC does. 
In my own State, my experience has been our State Commission 
has really had to shift the type of entity it is.
    It has gotten rid of auditors and it has replaced them with 
economists. It has gotten rid of some of the engineers who did 
all of the planning work and micro-managed what the utilities 
were going to build or not build, and it has replaced those 
with market experts who are trying to evaluate making sure we 
have the right guidelines in place to entice companies to come 
and build power plants in our State.
    So, it is a change in regulation. I also see it as a 
diminishment, which hopefully makes you happier. It is a 
diminishment of Federal activity in a number of areas. There 
are these areas where the Federal Government, if it does not 
play a role, natural market powers that exist today will take a 
long, long time before you get significant retail competition.
    A good example of that, as Mr. Cavanagh to my right here 
has said, is California. California opened its market. For 
small customers, there is virtually no competition. Why? 
Because they regulated parts of it in a manner in which I think 
they should not have regulated.
    Mr. Burr. I think the lesson from California is 
deregulation, not reregulation. That is why I started with it 
in my statement. Mr. Chairman, if I could just ask Mr. Cavanagh 
one question.
    Mr. Barton. One more and then we will have to go to Mr. 
Hall.
    Mr. Burr. Mr. Cavanagh, you talked about in the 
Administration's bill, the renewable portion, you spoke very 
favorable of.
    Mr. Cavanagh. Yes.
    Mr. Burr. Let me just ask you relative to their bill, as I 
read it, and I think as they have stated it to me, a State or 
an entity has the opportunity to opt-in or opt-out.
    Mr. Cavanagh. Right.
    Mr. Burr. Under the opt-out, though, that entity or that 
State would be required to fulfill the 7.5 percent renewable 
portion found in the bill.
    Mr. Cavanagh. Yes.
    Mr. Burr. Do you believe that if they opt-out they should 
be held to that new Federal standard?
    Mr. Cavanagh. I do, Congressman, even as I think they 
should be held to other environmental standards. It is an 
interstate matter. Even Texas is not big enough to contain all 
of these pollutants.
    Mr. Barton. You are meddling now.
    Mr. Burr. I thank the Chair for his indulgence.
    Mr. Barton. The distinguished ranking member of this 
subcommittee, Mr. Hall, of the great State of Texas, for 5 
minutes.
    Mr. Hall. Mr. Chairman, thank you.
    You know when we received the first bill when the former 
chairman of this subcommittee introduced his bill, there was a 
lot of talk, and mumbling, and rumbling going around about 
stranded costs. I think that I did not perceive that this 
committee had its mind made up. That we listened to a lot of 
folks that said let them eat those stranded costs.
    Well, that is an invitation to the courthouse and everyone 
knew that would not work. We have had a lot of hearings all 
over the country, even Ms. Price-Davis in Richmond. I do not 
know why or how this committee got sent to Richmond for a 
hearing, but we had a nice hearing there; in Chicago, Atlanta, 
Dallas, and many hearings here.
    It seems to me, this committee is in unison on not whether 
or not we are going to pay stranded costs, or whether or not 
they are entitled to be reimbursed or paid for those, but how 
are we going to do it? That seems to be the way everybody feels 
now. If you have a different feeling to that, I would listen to 
it.
    I think we have felt it was a little far-fetched to say 
these boards of directors, who are honorable men and women, who 
had the best interest of those that they served, were not going 
to foolishly throw any money away. They may have made some bad 
decisions, but at the time I think they thought they were good 
decisions.
    If they thought that, and I think you have to in law 
presume that, and it takes testimony to remove it, that we have 
stranded costs now. So, I have arrived to the point where I 
want to get before I ask my question. I had to work myself into 
that type frizzy.
    Ms. Price-Davis, I think I like your idea on stranded 
costs. I am not sure. I want to ask you, it seemed that you 
were a little vague, but probably it is because you have 
already given us a nice long statement. You did not want to 
stay too long on one subject, but you say given that if 
possible Federal legislation should guarantee that stranded 
cost recovery does not impeded competition. It is a great 
statement and I like that.
    It should not reward the inefficient at the expense of the 
efficient. Common sense; that makes sense. It is a fact 
question. It would take you to the courthouse. It should not 
impede technology and innovation. I do not disagree with you on 
any of those. Who ought to make that decision? Do you not think 
the States are in a better position to make such a decision?
    Ms. Price-Davis. I believe the States are in the position 
to make the case-by-case decision on the factual basis. 
However, I think they need Federal guidelines.
    Mr. Hall. Well, do you think they need Federal instruction? 
Is that what you are saying?
    Ms. Price-Davis. I am thinking that they need a framework. 
For example, they need to make sure that the stranded cost 
recovery that is allowed----
    Mr. Hall. You want the Federal Government to override a 
State's findings?
    Ms. Price-Davis. No, sir.
    Mr. Hall. Then what kind of guidelines do you want to give 
them?
    Ms. Price-Davis. I would like the Federal Government to 
state that any stranded cost recovery allowed should be based 
on net, non-mitigable stranded costs. There has been a great 
deal of controversy in the States, at the various commissions, 
over the definition of stranded costs and the positions taken 
between the utilities and the consumers on what is a stranded 
cost. We are looking at whether net market value, proposed 
market value, or whether an option is required of the 
properties.
    Mr. Barton. Would the gentleman yield?
    Mr. Hall. Sure, I will yield.
    Mr. Barton. But every State that has addressed deregulation 
and restructuring has accounted for stranded costs. Is that not 
correct?
    Ms. Price-Davis. To my knowledge, yes sir.
    Mr. Barton. Is there anything wrong with letting each State 
do it the way they think is best for their State as opposed to 
the Federal Government trying to mandate how it is done?
    Ms. Price-Davis. I think, sir, though that we have seen 
that the lack of similarity between how the States are handling 
it is presenting some problems in certain States. Some States 
have handled it very well. Other States have in fact slowed 
down the path to competition by the way they determine stranded 
cost recovery should occur.
    Mr. Barton. So, you really support a Federal mandate that 
would preempt the legislature in Sacramento or the legislature 
in Austin, or the legislature in Little Rock, or Richmond, 
Virginia?
    Ms. Price-Davis. No, sir because what I am asking for is 
not a Federal mandate. What I am asking for, as I said, are 
Federal guidelines; something that gives guidance to the States 
when they look at stranded costs.
    Mr. Hall. Would you have those guidelines to be mandatory 
or precatory? If you say precatory, I will go to the next 
question. Say it. It is precatory. I do not believe you want 
the Federal Government telling the State of Virginia how to 
handle their stranded costs. I really do not believe that, but 
you may. You have a right to.
    Ms. Price-Davis. I believe that the Federal Government 
needs to provide the State of Virginia with some guidance. I 
have seen how in the Virginia bill that has played out.
    Mr. Hall. I agree. They ought to help them all they can. 
You are not going to tell me that you think the States want to 
mandate those types of guidance from the Federal Government to 
the States, are you?
    Ms. Price-Davis. No, sir.
    Mr. Hall. Thanks. You have been a good witness.
    Now, I do not expect to get such good treatment from Mr. 
English. I want to talk to him. In your testimony, Mr. English, 
you argued that coops, electric coops, ought to continue to 
have access to the Rural Utility Service Loan Program and 
preference power from the PMAs. Are you familiar with the new 
style cooperatives that have shown on the horizon? Should they 
be included on that? Tell me whether they should or not.
    Mr. English. They are not eligible, as it is, under 
existing law, for any kind of loans under the Rural Utilities 
Service. So none of the new aggregation cooperatives, such as I 
mentioned in New York and California, are eligible for any RUS 
funding at all.
    As far as the PMAs are concerned, preference power, that 
too is set out by law. I would simply point out two points with 
regard to the existing borrowers from the Rural Utilities 
Service. Even though we have about 10 percent of the consumers 
of the country, we have nearly half of the infrastructure.
    That infrastructure, just like interstate highways, are 
going to have to be maintained. Whenever I left the Congress 
and I was a member of the Agriculture Committee, if I remember 
correctly, in January 1994 the cost of that program to the 
Federal Government was some $150 million. This year it is less 
than $30 million.
    It has been reduced substantially, but it still has to 
maintain the same infrastructure, but none of the new 
cooperatives deal with that. On PMAs, again, those people who 
are a part of that agreement, those are the folks that came in 
and gave the assurance, in some cases, when the power that was 
being sold by the PMAs, just after construction of those dams 
was higher. They are not only paying for the cost of the power, 
the cost of building the dam, they are also paying for 
environmental programs that are underway, irrigation projects, 
recreation; a whole host of activities.
    Those are regional facilities that are benefiting the 
people in that area, and the people themselves are paying for 
that cost. They are paying for every prescribed Congressional 
cost that has been outlined under the existing law. I would say 
that bond or that contract is just as valid as any of those 
contracts we are talking about on stranded costs and should 
remain.
    Mr. Hall. Let me see if I can get you 5 more minutes, 
Glenn. Could I have another minute, Mr. Chairman?
    Mr. Barton. We are giving you a Texas 5 minutes, so you can 
continue. Mr. Rush is waiting patiently. So, he reserves the 
right to object.
    Mr. Hall. Do you glean anything in any of the bills that 
you have examined, including Mr. Pallone's if you have seen a 
summary of it or anything, that would give these entities that 
have no distribution facilities of their own a change in the 
law? Is that in any of these bills?
    Mr. English. Mr. Chairman, let me first of all, draw on my 
Congressional experience and say that the chairman was taking 
count on how many votes for each of the bills. I hope you will 
mark up, Mr. Chairman, a vote for each of the bills for me. I 
love them all.
    Let me very quickly say the thing that troubles me the most 
in what I am seeing in all of the bills, most troublesome 
factor that I have seen is the lack of recognition of the fact 
that individual consumers and citizens of this country should 
have the right to do this for themselves.
    I see, unintentionally, some impediments that are being put 
into some of the legislation in this effort to just kind of 
grossly address major problems that may affect the big power 
companies, or may affect others that want to get into this 
business. That is the biggest concern I have at this point.
    Mr. Hall. Before I yield back my time, Mr. Chairman, I want 
to say I cannot wait until we get this written down where I can 
read it an see what Mr. English has said.
    Mr. Barton. Before I recognize Mr. Rush, Mr. Stearns 
chaired the hearing while I went to my Delegation lunch. 
Apparently, after I left there is about 40 votes for Stearns, 
and no votes for anybody else. So, we may have to do a recount 
on that. The very patient gentleman from Chicago, Congressman 
Rush, who is recognized for a Chicago 5 minutes.
    Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, I really 
want to commend you for this hearing. I want to commend all of 
the witnesses. It has been really interesting this morning. I 
have a couple of questions and I want to direct my initial 
question to Mr. Cavanagh.
    It was suggested that we adopt a Federal renewal portfolio 
standard to guarantee that a minimum level of additional 
renewable generation be developed in this country. The RPS will 
require the electricity sellers to cover a percentage of their 
electricity sales with generation from non-hydro electric 
renewable technologies, such as wind, solar, biomass, or 
geothermal generation.
    The RPS requirement initially will be set close to the 
ration of RPS-eligible generation to retail electricity sales 
projected under baseline conditions.
    Mr. Barton. Congressman, for some reason, they were getting 
some feedback through your microphone. You might come a little 
closer this way and try that one because it seems to be causing 
a problem.
    Mr. Rush. Additionally, there would be an increase in RPS 
requirements in 2005, followed by an increase to 7.5 percent in 
2010. The RPS would be subject to a cost cap and would sunset 
in 2015. It seems that a must-die provision, like PURPA or 
PUHCA should be repealed because it is inconsistent with the 
compatible electric market.
    With that said, this is the question. Does the possibility 
exist that the renewable mandate proposal will lead to lower 
prices for consumers? Should we consider something like what 
Illinois has done, provide for a renewable energy fund to 
support renewable generation technologies?
    Mr. Cavanagh. Congressman Rush, I just tried to make the 
point that I think what the administration is proposing and 
Congressman Pallone are proposing, in both their renewable 
portfolio standards and their public benefits trust, is an 
effort to support and buildupon what States like Illinois have 
done. That is I do not view these as incompatible approaches.
    Basically, these are market-based financial incentives to 
expand the contribution of renewables and efficiencies at the 
lowest possible cost. That is absolutely in the spirit of what 
the best of the States have been doing, and it is what the 
Federal Government would be doing. It would be encouraging more 
States to follow the lead of States like Illinois.
    Mr. Rush. Mr. Schmidt, would you comment on my question 
also?
    Mr. Schmidt. My national association has not taken a 
position on portfolio standards. I will tell you in my own 
State, I personally supported one. I think the critical aspects 
of it are that it needs to be clear that it applies to new 
resources.
    It should not be a windfall, by definition of the 
percentage, for the existing renewables who have already made 
the investment, have taken the risk, and are already in 
existence. It should be a standard that applies to developing 
new resources.
    Also, I think that it is important that you recognize in 
that metering issue, renewables can be developed in a portfolio 
standard to encourage central power plant development. The most 
efficient renewables that are beginning to emerge are onsite 
generation.
    Without net metering legislation, which has now been 
adopted by 20 States, it is not going to happen in other 
States. The momentum is encouraging on net metering, but the 
standards have been inconsistent in the different States, and 
there are still 60 percent of the States that have not adopted 
it.
    So, our association does support net metering energy 
legislation. That may be part of a Federal bill. We would 
encourage and support that. We also encourage if you do some 
sort of portfolio, make sure it applies to new resources and 
does not become a windfall for any existing generators.
    Mr. Rush. Mr. Schmidt, on your chart there, I cannot see 
exactly what number that is, but under universal services, you 
have indicated that the Federal Government should look at 
standards and principles in terms of universal services. Can 
you expound upon what those standards and principles would 
entail? What would they look like?
    Mr. Schmidt. There is a general standard in the Largent-
Markey bill that I find acceptable. I do not think you need to 
go a lot beyond that. I think what you need is a standard. It 
is important to have in Federal law that is still a policy of 
this Federal Government to have everyone in this country have 
affordable electric service. I think that is very important.
    Sometimes we get caught up in the competition. I will tell 
you, in my own State a number of utilities have looked at 
trying to get out of the obligation to serve. It has been a 
debate that has occurred in several States now. That is a 
negative step, if that is what moving to competition is about.
    We need to have, as a first policy, we are trying to make 
sure everybody has electricity. That is what has made this 
country great. The fact that we expanded to the rural areas, 
even at an investment cost to the Federal Government. We do 
have low-cost affordable electric in most area of this country.
    Just like in telephone where you did a universal service 
standard, you should do a universal service standard for the 
Federal Government. I am not saying do a fund like in telephone 
or in some other areas, but I am saying have a standard so 
that, that is a principle Nationwide.
    Mr. Hall. So, you would not be in favor of the 
administration's Public Benefits Fund, the $3 billion Public 
Benefits Fund, that the administration is proposing?
    Mr. Schmidt. My association does not have a position on the 
exact Public Benefits Fund that is in the administration's 
bill. We do support low-income, low-cost programs that assist 
ratepayers in being able to afford electricity.
    We have been consistent over the years in supporting the 
LAHEAP Program, which has kept affordable electric service for 
many years. We do not have a position on the level or the type 
of fund that is in the administration's bill.
    Mr. Barton. Will the gentleman yield on that point?
    Mr. Rush. Yes.
    Mr. Barton. Your association does not have a problem if 
States maintain these programs. As far as I am aware, every 
State that has acted has maintained some sort of a low-income 
assistance program. Is that not correct?
    Mr. Schmidt. I wish I could say that were true, but my own 
State is an example where we did not adopt a program.
    Mr. Barton. What State is that?
    Mr. Schmidt. Nevada.
    Mr. Barton. Nevada.
    Mr. Schmidt. Frankly, there are a lot of States in the 
southeast and in the western United States that do not have a 
low-income program.
    Mr. Barton. Is there anybody in Nevada that is low-income? 
It seems like I contribute quite a bit to the economy every 
time I go out there.
    Mr. Schmidt. Well, I could gamble and say no, but we do 
have those people. We are assisted through LAHEAP. Our 
association does have a position though on if a Public Benefits 
Fund is established, that it be a matching program and that it 
be consistent with States participating in those programs and 
allow the States to administer the programs, and not create a 
new Federal bureaucracy to administer the programs.
    Mr. Barton. I yield back to Mr. Rush.
    Mr. Rush. You wanted to say something?
    Mr. Cavanagh. I wanted to associate myself with that, but 
just remind the chairman, rule of thumb. The last 3 or 4 years, 
50 percent reductions across the board in these public benefits 
investments, including low-income. So, yes, the States are 
continuing to do it, but at a much lower level. Hence, the 
restoration plea.
    Mr. Rush. Mr. Chairman, I have one final question. Either 
Mr. Schmidt or Mr. Cavanagh can answer. Should the Federal 
public benefits standards preempt any State benefits standards?
    Mr. Cavanagh. I think I answered that, no. I think the 
State programs should be consistent with, and they should be 
matching programs to the extent possible.
    Mr. Schmidt. I will gladden the chairman's heart by 
agreeing.
    Mr. Rush. Okay. Thank you, Mr. Chairman.
    Mr. Barton. Thank you, Congressman Rush.
    Before I recognize Mr. Wynn, I believe the unemployment 
rate has declined quite a bit in the last 2 or 3 years too. 
That might have something to do with some of these programs 
going down.
    The distinguished gentleman from Maryland, who has been 
very patient, Mr. Wynn, for 5 minutes.
    Mr. Wynn. Thank you very much, Mr. Chairman.
    Mr. Schmidt, I believe your fifth item had to do with 
reliability and essentially a FERC oversight of an independent 
industry reliability organization, if that is a fair 
characterization. My question basically is to the panel. Does 
anyone on the panel object to that kind of FERC oversight as a 
mechanism to address the reliability issue?
    [No response.]
    Mr. Wynn. Okay, great.
    My second question is to Mr. Schmidt, in view of the fact 
that, what, nearly two dozen States have already moved toward 
deregulation, would it be appropriate to begin to put that 
mechanism in place now with FERC oversight?
    Mr. Schmidt. Yes. I think it is time to do it now. The 
standards of the legislation really that has been drafted by 
the NERC representatives is something that we were here a 
couple of months ago before this committee and supported. We 
continue to support that.
    Mr. Wynn. Okay. Thank you.
    Your third item, market power, I do not know if this is an 
accurate analogy, but in telecommunications, we have 
essentially tried to address the same issue with, at best, 
mixed results. Given the trend toward mergers, market 
concentration and the like, can you expound a little bit on 
what role you see the Federal Government playing in this whole 
market power issue?
    When you start talking about limiting, concentration, 
mergers, these types of things, structuring market power, I 
become a bit uneasy as to whether or not the Federal Government 
is getting into an area where maybe it ought to play but 
really, for practical matters, cannot play given the fact that 
this is a very capital-intensive industry. How is this going to 
work in your mind? I would like to hear other opinions as well.
    Mr. Schmidt. My preference is structural separation. If you 
have a vertically integrated utility and you allow it to 
continue to exist, it will be very slow until you get to 
meaningful competition. If you cutoff, and you say competition 
is at the top level of generation, and at the other level of 
that distribution transmission, you still have clear market 
power, and a monopoly circumstance that is likely to exist for 
another decade. Then there needs to be something in between 
those. A utility really ought to make a choice. If it wants to 
go into and continue its vertical integration, you are going to 
have to have strong affiliate rules that prevent self-dealing 
and abuses of market power that could exist. Even with that, 
you are going to still have some problems.
    The problems you have now, which I think is over-
regulation, would be unnecessary with structural separation, is 
where you have a load pocket area and you have power plants 
that are built for a particular group of customers, and you do 
not have adequate transmission so they can buy power all hours 
of the year from someone else, there is market power there. 
Whoever owns that plant has it.
    Mr. Wynn. Can I jump in for a second just to clarify 
something? Should that be addressed by divestiture, or by 
transmission, adjustment of transmission assessibility.
    Mr. Schmidt. Utilities have found that divestiture is the 
cleanest, quickest way to deal with it. At most, many utilities 
are starting to sell off their power plants. It has been a 
great windfall for many too because the market price for those 
has been even greater than many expected.
    Mr. Wynn. Exactly. Why should the Federal Government to 
make those decisions as opposed to the marketplace?
    Mr. Schmidt. I am not saying the Federal Government should. 
I am not saying you should pass a law that says you mandate 
divestiture. I am saying where there are market power 
circumstances, and FERC makes a finding of those, FERC should, 
as a remedy, have the tool of ordering divestiture.
    Mr. Wynn. Does FERC have the experience of making these 
kinds of decisions, given that we have never been involved in 
this kind of competitive marketplace? In other words, we are 
asking them to undertake something that now the FCC is 
grappling with, again, with mixed results. Are we opening up 
something that we really do not have the capability to handle?
    Mr. Schmidt. Well, the Department of Justice clearly has 
the experience of doing it and does it regularly. We just 
negotiated a grocery story circumstance that did the same 
thing. We approved a merger, ordered divestiture of the plants 
and we maintained competition.
    Mr. Wynn. So, this ought to be through Justice rather than 
FERC?
    Mr. Schmidt. I think Justice can do it, but Justice does 
not have the expertise developed yet in the electric industry 
and FERC does. Now, I think as I have talked to Mr. Burr about, 
I think ultimately this may shift to Justice, but in the 
interim, FERC is the entity trying to establish a competitive 
marketplace. FERC is the best place to put it first. FERC has 
deferred to Justice on their standards. So, I do not think you 
are going to get an inconsistency.
    Mr. Wynn. I thank the gentleman. Mr. English.
    Mr. English. Just a point that I wanted to make, Mr. Wynn. 
I think there is another issue here. This is what I was 
concerned about a little bit earlier. We are kind of glossing 
over things.
    It is one thing if you are talking about some group, a big 
power company that has generation all the way down through 
distribution and is worried about competition. It is something 
else when the consumers themselves own the distribution and the 
consumers themselves own the generation.
    Now, if you are going to come in and apply the same laws 
and say, okay, you consumers cannot own your own generation, 
that is much like having your own backyard garden and you are 
growing your own tomatoes, and they say, well, you have got to 
sell your tomatoes in the marketplace and you have got to buy 
them from the grocery store. You cannot consume your own 
tomatoes.
    If we get ourselves into this kind of dilemma, that is 
where I see a real concern. There has to be a freedom in this 
legislation for consumers to take care of their own needs 
without this kind of blanket approach to everyone who is 
involved in the generation or distribution of electric power.
    Mr. Wynn. Thank you. I see my time is up. Thank you, Mr. 
Chairman.
    Mr. Barton. Thank you, Mr. Wynn. You questions, I thought 
for a minute I was sitting down there. I had to make sure it 
was you and not me. That is where I used to sit about 6 years 
ago. So, apparently there is something about that chair.
    Mr. Wynn. Your aura is still here.
    Mr. Barton. It creates a market pro-competition aura there. 
I am not going to ask any questions because I have talked to 
most of you individually. I have certainly talked to your 
groups collectively. I may have some questions in writing. I 
know Mr. Burr has a few and Mr. Sawyer has indicated they are 
going to have some.
    We have another whole panel and we are going to start 
voting on the tax bill here fairly quickly. I want to commend 
each of you and your organizations for coming today, and for 
the seriousness with which you have looked at the bills that 
have been introduced. I hope that we have another subcommittee 
draft, on a bipartisan basis, that is available for you to 
review just as seriously in the next several weeks.
    So, this panel is released. We would like the second panel 
to come forward now.
    Let me have everyone's attention. We have a series of votes 
right now. Instead of trying to start, it has been suggested by 
the Minority that we go ahead and have a short recess so we can 
go vote, and you all can eat lunch and have personal 
convenience breaks.
    So, we are going to reconvene at 2:30 p.m. I will be here 
at 2:30 p.m. I hope, at a minimum, the panel is here at 2:30 
p.m. and anybody who wants to listen to their testimony.
    So, we are in recess until 2:30 p.m.
    [Brief recess]
    Mr. Barton. We want to welcome our second panel. One of our 
panel members had an airplane at 2 p.m. left, Ms. Darlene Kerr 
who was representing the PURPA Reform Group. So, her statement, 
as the others, are in the record in its entirety, but she will 
not be here to give a verbal summary of it.
    [The prepared statement of Darlene Kerr follows:]
  Prepared Statement of Darlene D. Kerr, Executive Vice President and 
Chief Operating Officer, Niagara Mohawk Power Corporation on Behalf of 
                         the PURPA Reform Group
I. Introduction
    Mr. Chairman and Members of the Subcommittee, I am Darlene Kerr, 
Executive Vice President and Chief Operating Officer of Niagara Mohawk 
Power Corporation. I am here today testifying on behalf of my company, 
and the PURPA Reform Group. The PURPA Reform Group, an ad hoc coalition 
of utilities 1 concerned about the Public Utility Regulatory 
Policies Act of 1978 (``PURPA''), was established in 1995 to encourage 
Congressional and FERC reform of this statute. I very much appreciate 
the opportunity to testify on the legislation that has been introduced 
in the House of Representatives addressing PURPA.
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    \1\ Members of the PURPA Reform Group include: Central Maine Power 
Company; Niagara Mohawk Power Corporation; GPU, Inc.; Duke Power 
Company; Edison Electric Institute; New York State Electric & Gas 
Corporation; Sempra Energy; Florida Power Corp.; and Puget Sound 
Energy.
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    Niagara Mohawk Power Corporation (``Niagara Mohawk''), a subsidiary 
of Niagara Mohawk Holdings Inc., is an investor-owned energy services 
company that provides electricity to more than 1.5 million customers 
across 24,000 square miles of upstate New York. In addition, Niagara 
Mohawk delivers natural gas to more than 500,000 customers across 4,500 
square miles of eastern, central and northern New York.
    Niagara Mohawk also is in the unfortunate position of being one of 
the most PURPA burdened utilities in the country. Our above-market 
PURPA costs have been estimated at almost six billion dollars, or about 
three-quarters of our total above market costs. While we have acted to 
limit the impact of PURPA costs by buying out and restructuring 
contracts where possible, Niagara Mohawk and its customers will bear 
the burden of above-market PURPA costs for years to come. I hope this 
puts into perspective our interest in this issue.
    On many electric industry restructuring issues, a legislative 
consensus unfortunately still seems to be elusive, despite some 4 years 
of debate in this body. With respect to PURPA, however, I believe that 
a consensus does exist between all major stakeholders, and that 
consensus is reflected in several of the bills that have been 
introduced in this Congress and referred to this Committee. In 
particular, H.R. 1138, the ``Ratepayer Relief Act,'' introduced by 
Congressman Stearns and cosponsored by 22 other Members, H.R. 667, 
``The Power Bill,'' introduced by Mr. Burr, H.R. 1587, ``Electric 
Energy Empowerment Act of 1999,'' also by Mr. Stearns, and H.R. 2050, 
the ``Electric Consumers'' Power to Choose Act,'' by Mr. Largent and 
Mr. Markey, satisfactorily address the unfortunate legacy of PURPA. 
H.R. 1828, the Administration's bill, does not.
    H.R. 1138, H.R. 667, H.R. 1587 and H.R. 2050 all do three things 
with respect to PURPA. They each:

(1) prospectively repeal the PURPA Section 210 power purchase 
        obligation;
(2) protect existing contracts; and
(3) deal with the legacy of above market costs by directing the FERC, 
        which has jurisdiction over these federally-mandated contracts, 
        to ensure that costs are recovered.
    The Administration's bill would prospectively repeal PURPA and 
protect existing contracts but is silent on what happens to federally-
mandated PURPA costs. For this reason, the Administration's bill is 
unsatisfactory and falls outside of the mainstream consensus which I 
believe exists on this issue.
    The approach represented by H.R. 1138, H.R. 667, H.R. 1587 and H.R. 
2050 represents a reasonable compromise of the three major issues 
(prospective repeal, protection of existing contracts, recovery of 
costs) presented by PURPA. More importantly, it is legally the right 
thing to do and represents good public policy. The eminent 
reasonableness of this compromise is clear from the support that this 
approach has received from the Electric Power Supply Association 
(``EPSA''), the major trade association representing PURPA project 
developers, the United States Chamber of Commerce, Members of Congress, 
and PURPA-burdened utilities. I strongly urge you to include the text 
of H.R. 1138, the Stearns bill, as the PURPA module of the 
comprehensive legislation that you hopefully will develop over the next 
several weeks.
II. The Legacy of PURPA
    There is no longer any real debate over whether to repeal PURPA. 
All bills addressing PURPA prospectively repeal the Section 210 
mandatory purchase obligation. The only two remaining issues are 
whether to protect existing contracts, and if so, who has 
responsibility to address cost consequences of protecting them. 
Nevertheless, I think it useful to highlight the history of PURPA to 
illustrate how we got to where we are.
    PURPA was enacted as one of the original components of the Carter 
Energy Plan to alleviate the oil and natural gas shortages of the late 
1970s. The intent of PURPA was to encourage conservation and promote 
the development of renewable fuels. It did this by establishing a 
special class of power generators, known as qualifying facilities 
(``QFs''), and it required utilities to buy all electricity that these 
qualifying facilities wished to sell. In general, a QF must be of a 
certain size, burn certain renewable or waste fuels, or produce steam 
for commercial or industrial use as well as electricity.
    PURPA mandatory purchase obligations generally are long-term, 25-30 
years in most cases, and often have price escalator clauses built into 
them. Pursuant to regulations adopted by the FERC, PURPA project 
developers have the option of ``locking-in'' administratively-
forecasted prices for the entire duration of the contract, or allowing 
prices to be reset periodically. Not surprisingly, most project 
developers have chosen to lock-in prices for the duration of the 
purchase obligations. And, unlike utility investments, PURPA preempts 
the states from adjusting, modifying the terms, or engaging in utility-
type rate regulation of these obligations once they are 
imposed.2
---------------------------------------------------------------------------
    \2\ See, e.g., Freehold Cogen. Assocs. v. Bd. of Regulatory Comm'rs 
of New Jersey, 44 F. 3d 1178 (3rd Cir. 1995), cert. denied, 516 U.S. 
815 (1995); Smith Cogen. Mgmt. v. Corporation Comm'n, 863 P.2d 1227 
(Okla. 1993).
---------------------------------------------------------------------------
    PURPA was not intended to lead to costs above those available 
elsewhere, but that has been the result. A 1996 study by the Utility 
Data Institute found that while the average cost of wholesale power was 
2.85 cents/kwh, power purchased under federally-mandated contracts with 
PURPA generators averaged 6.64 cents/kwh, or over twice as much. 
Nationwide, electric utilities and their customers are paying $7.8 
billion a year in above-market prices to PURPA developers.3 
PURPA contracts are one of the largest components of utility above-
market costs--some $42 billion in net present value terms.4 
While PURPA contracts account for just 7 percent of all electricity 
sold into the grid, these contracts represent nearly 30 percent of the 
total above-market cost for investor-owned utilities, publicly-owned 
utilities and co-ops. Unfortunately, over 60% of PURPA contracts do not 
expire until after the year 2010.5
---------------------------------------------------------------------------
    \3\ Utility Data Institute, Measuring the Competition: Operating 
Cost Profiles for U.S. Investor-Owned Utilities 1995 (1996).
    \4\ Resource Data International, Power Markets in the U.S. 1996 
(1997).
    \5\ Id.
---------------------------------------------------------------------------
    Besides the high cost of PURPA power, PURPA is inconsistent with 
wholesale competition that has been a reality since 1992 and with 
retail competition that is a reality for utilities serving over half 
the population in the country. Electricity generators and wholesale 
customers today have access to each other under the same terms and 
conditions applicable to the utility owning the transmission wires. 
Retail customers in some 23 states have, or soon will have, open access 
to the suppliers of their choice. This open access has sharply 
increased competition for sales of electricity, but it also has 
resulted in a substantial competitive disadvantage for utilities which 
have been federally mandated to purchase power from PURPA qualifying 
facilities.
    As a consequence of the changes that are sweeping through the 
industry, many utilities, including Niagara Mohawk, have decided that 
they no longer will be in the generation or electricity supply business 
and are selling their generation assets. Unfortunately, they are still 
obligated to buy power from QFs, whether they need it or not. This 
makes no sense. Thus, continuing PURPA impedes the transition to a 
competitive retail market. On this, there can be no debate.
III. Dealing With PURPA is a Federal Responsibility, Not a State Issue
    I often hear the argument that Congress should leave the issue of 
PURPA costs up to the States. With all due respect to those making this 
argument, this ignores the law, sound public policy, and is tantamount 
to urging the Congress to leave the scene of an accident it caused. If 
the States had jurisdiction over PURPA contracts, I am confident that 
they would be able to satisfactorily address the problems we now face 
with over-market PURPA contracts by requiring the renegotiation or 
termination of these contracts. There would be no above market costs if 
this were the case. Unfortunately, the States do not have jurisdiction 
and cannot force renegotiation. Past efforts to give states 
jurisdiction over these contracts have been met with strong opposition 
from PURPA project developers, fuel suppliers and financiers. There is 
no reason to believe that the situation will be different today.
    Sales from QFs to utilities are wholesale sales of electricity (QFs 
are not authorized to sell at retail). Since passage of the 1935 
Federal Power Act, wholesale sales of electricity are exclusively 
subject to FERC jurisdiction. While PURPA established a role for the 
States in exercising authority delegated to them by FERC, the 
fundamental Federal Power Act allocation of jurisdiction was not 
disturbed. The FERC retains jurisdiction over PURPA contracts. Indeed, 
Section 210(e) of PURPA authorizes the Commission to promulgate 
regulations under which QFs are exempt from ``State laws and 
regulations respecting the rates, or respecting the financial or 
organization regulations of electric utilities . . . if the Commission 
determines such exemption is necessary to encourage cogeneration and 
small power production.'' The Commission has promulgated such 
regulations, and the courts have uniformly held that the FERC has 
preempted the states from regulating or modifying the rates, terms or 
conditions of PURPA contracts.6
---------------------------------------------------------------------------
    \6\ See, e.g., Independent Energy Producers Ass'n. v. California 
Pub. Util. Comm'n, 36 F.3d 848 (9th Cir. 1994); Smith Cogen. Mgmt. v. 
Corporation Comm'n, 863 P.2d 1227 (Okla. 1993); Freehold Cogen. Assocs. 
v. Bd. of Regulatory Comm'rs of New Jersey, 44 F.3d 1178 (3rd Cir. 
1995), cert. denied, 516 U.S. 815 (1995).
---------------------------------------------------------------------------
    Under the Supremacy Clause of the United States Constitution, State 
law that conflicts with federal law must give way. This supremacy 
extends not only to federal statutes themselves but also to the actions 
of a federal agency acting within the scope of its congressionally 
delegated authority. With respect to PURPA, FERC's implementing 
regulations requires that the rates for purchases from QFs shall be at 
the utility's avoided cost rate 7 and that such rates shall 
be ``just and reasonable to the electric consumers of the electric 
utility and in the public interest.'' 8 Thus, as a matter of 
law, FERC has found QF rates to be ``just and reasonable and in the 
public interest'' if they equal a utility's avoided costs and it has 
required purchasing utilities to pay QFs this avoided cost rate. Any 
effort by a state to reduce a rate deemed just and reasonable by FERC, 
by restricting a utility's ability to recover these costs and thus 
``trapping'' them, would conflict with FERC's just and reasonable rate 
determination. Therefore, such state action cannot stand. To do 
otherwise would allow states to undermine FERC's jurisdiction over 
wholesale transactions.
---------------------------------------------------------------------------
    \7\ 18 C.F.R. Sec. 292.304(b)(4) (1997).
    \8\ 18 C.F.R. Sec. 292.304(a)(2) and 292.304(b)(2) (1997).
---------------------------------------------------------------------------
    In Nantahala Power & Light Co. v. Thornburg, the Supreme Court 
reversed a decision by the North Carolina Utilities Commission which 
had allocated purchased power between two owners of hydroelectric 
powerplants in a way that differed from the allocation of power ordered 
by FERC. In rejecting the position of the State of North Carolina, the 
Court determined that the states must allow recovery of FERC-approved 
wholesale rates.
        [A] state utility commission setting retail prices must allow, 
        as reasonable operating expenses, costs incurred as a result of 
        paying a FERC-determined wholesale price . . . Once FERC sets 
        such a rate, a State may not conclude in setting retail rates 
        that the FERC-approved wholesale rates are unreasonable. A 
        State must rather give effect to Congress'' desire to give FERC 
        plenary authority over interstate wholesale rates, and to 
        ensure that the States do not interfere with this 
        authority.9
---------------------------------------------------------------------------
    \9\ Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953, 965-66 
(1986).
---------------------------------------------------------------------------
        When FERC sets a rate between a seller of power and a 
        wholesaler-as-buyer, a State may not exercise its undoubted 
        jurisdiction over retail sales to prevent the wholesaler-as-
        seller from recovering the costs of paying the FERC-approved 
        rate . . . Such a ``trapping'' of costs is 
        prohibited.10
---------------------------------------------------------------------------
    \10\ Id. at 970; see also Mississippi Power & Light Co. v. 
Mississippi ex rel. Moore, 487 U.S. 354 (1988).
---------------------------------------------------------------------------
    PURPA itself has been found to have preempted the States from 
denying the passthrough of federally-mandated PURPA costs. In the 
leading decision supporting this conclusion, Freehold Cogeneration 
Assocs. v. Board of Regulatory Commissioners of New Jersey, the U.S. 
Court of Appeals for the Third Circuit ruled that a State could not 
modify a long-term contract between a QF and an electric utility or 
deny the passage of those rates to consumers because the State was 
preempted by PURPA. The court stated that ``[a] state law may not only 
be preempted expressly by Congress, but whenever it conflicts with 
federal law.'' 11 The court further held that ``[u]nder the 
Supremacy Clause of the United States Constitution, a federal agency 
acting within the scope of its congressionally delegated authority has 
the power to preempt state regulation and render unenforceable state or 
local laws which are otherwise not inconsistent with federal law.'' 
12 The court concluded that ``[b]ased on the overall scheme 
of PURPA . . . we hold that Congress intended to exempt qualified 
cogenerators from state and federal utility rate regulations'' 
13 and that ``once the [state commission] approved the power 
purchase agreement between Freehold and [the utility] on the ground 
that the rates were consistent with avoided cost, just, reasonably, and 
prudentially incurred, any action or order by the [state commission] to 
reconsider its approval or to deny the passage of those rates to [the 
utility's customers] under purported state authority was preempted by 
federal law.'' 14
---------------------------------------------------------------------------
    \11\ Freehold Cogen. Assocs. v. Bd. of Regulatory Comm'rs of New 
Jersey, 44 F. 3d 1178, 1190 (3rd Cir. 1995), cert. denied, 516 U.S. 815 
(1995).
    \12\ Id. at 1190.
    \13\ Id. at 1192.
    \14\ Id. at 1194 (emphasis added).
---------------------------------------------------------------------------
    All States that have restructured their electric industries have 
allowed the continued recovery of federally-mandated PURPA costs. At 
least three, New Jersey, Massachusetts and New Hampshire, explicitly 
have found that they have been preempted by federal law from denying 
recovery.15
---------------------------------------------------------------------------
    \15\ Re: Electric Industry Restructuring, Docket D.P.U. 96-00, at 
273-80 (Mass. D.P.U. 1996); Restructuring the Electric Power Industry 
in New Jersey, Docket No. EX94120585y, at 112-15 (N.J.B.P.U., April 30, 
1997); Re Restructuring New Hampshire's Electric Utility Industry, 175 
Pub. Util. Rep. 4th 193, 239-40 (N.H.P.U.C. 1997).
---------------------------------------------------------------------------
    In summary, we believe that the law is clear that the States have 
been preempted by the Federal Power Act and PURPA from denying recovery 
of federally-mandated PURPA costs. However, there are still creative 
legal and regulatory challenges to this view, and these challenges 
create uncertainty, especially given the long duration of most PURPA 
contracts.16 This uncertainty raises the cost of capital to 
QFs and utilities. In the case of utilities, these increased costs are 
reflected in higher customer rates. Congressional clarification of the 
FERC's obligation to ensure recovery of federally-mandated PURPA costs 
is necessary to finally put this issue behind us.
---------------------------------------------------------------------------
    \16\ See, e.g., In the Matter of the Petition of Atlantic City 
Electric Company for a Final Increase in its Energy Adjustment Charge, 
708 A.2d 775(1998).
---------------------------------------------------------------------------
IV. Why Assurance of Cost Recovery is the Right Public Policy
    In the competitive electricity markets now emerging across the 
nation, many utilities cannot recover in their electric rates all the 
costs they previously incurred to meet government mandates such as 
PURPA and to provide electric service to consumers. Some have argued 
that this is just ``too bad,'' and that utilities should bear the 
burden of ``bad business decisions.'' With respect to PURPA, however, 
there were no ``bad business decisions'' (unless one considers 
complying with a federal law a ``bad business decision'') only 
legislative and regulatory judgments that were misguided in many 
respects. Moreover, unlike investments in generating facilities, 
utilities are not permitted to earn a rate of return (i.e., profit) on 
their PURPA mandatory purchases. So utility shareholders never have 
been compensated for the risk associated with non-recovery of PURPA 
costs. Thus, to deny utilities recovery of PURPA costs represents bad 
public policy and is unfair to utility shareholders.
    There is another very practical reason for Congressional 
clarification of utilities' continuing right to recovery of federally-
mandated PURPA costs. In the words of the Electric Power Supply 
Association:
        [B]ecause these purchases fulfilled a public service 
        obligation, it is reasonable for the utilities to recover the 
        costs. To deny the utilities an opportunity to recover the 
        costs would signal that contracts entered into reasonably, and 
        often under a legal mandate, can be ignored. Abrogation of 
        contracts will create a serious disincentive to newcomers 
        considering whether to enter competitive markets which will be 
        built extensively upon contracts.
                                  *  *  *
        Today's contracts must be honored to ensure that tomorrow's 
        contracts can provide the confidence needed for a robust 
        market.17
---------------------------------------------------------------------------
    \17\ Electric Power Supply Association, ``Retail Electric 
Competition: Getting it Right!'' 23-24, 35-36 (January, 1999).
---------------------------------------------------------------------------
    Protection of existing PURPA contracts brings with it a corollary 
federal obligation to address the costs of these contracts. It would be 
irresponsible for Congress to protect existing federally-mandated 
contracts while remaining silent on the consequences of that 
protection. On the other hand, if the Congress were to transfer 
jurisdiction over PURPA from the FERC to the states, and thus not 
protect existing PURPA contracts, the result undoubtedly would be years 
of litigation and uncertainty. Neither of these options represents 
sound public policy.
    To help ensure the continued development of competitive electric 
markets, Congress should clarify of the right to recovery federally-
mandated PURPA costs.
V. Conclusion
    Failure to face up to the federal government's responsibility for 
PURPA costs will only slow the transition to greater competition in the 
electric industry by increasing utility and project risks, and 
guaranteeing years of counterproductive litigation. Congress can strike 
a blow for a speedier transition to a more competitive electric market, 
while respecting past government commitments, by repealing PURPA 
prospectively, protecting existing contracts, and ensuring that PURPA 
costs can be recovered by those utilities that were forced to enter 
into PURPA contracts. Fortunately, I believe that a consensus exists to 
do just that, and this consensus is reflected in a number of bills 
before you.

    Mr. Barton. We are going to hear from Mr. Dick Brooks who 
is the Chairman and CEO of Central and Southwest Corporation. 
He is representing the Repeal PUHCA Now Coalition; Mr. Mark 
Crisson who is the Chief Executive Officer of Tacoma Public 
Utilities. He represents the Large Public Power Council; Mr. 
James Parkel, who is a member and on the Board of Directors of 
the American Association of Retired Persons. We are glad to 
have Mr. Parkel.
    Ms. Maria Zannes who is the President of Integrated Waste 
Services Association; Mr. Marty Kanner who is the Coalition 
Coordinator for Consumers For Fair Competition. We welcome each 
of you. We are going to start with Mr. Brooks. Your statements 
are in the record. We are going to give you 5 minutes to 
summarize it and go right on down the line.

 STATEMENTS OF E.R. ``DICK'' BROOKS, CHAIRMAN AND CEO, CENTRAL 
   AND SOUTHWEST CORPORATION; MARK CRISSON, CHIEF EXECUTIVE 
  OFFICER, TACOMA PUBLIC UTILITIES; JAMES G. PARKEL, MEMBER, 
 BOARD OF DIRECTORS, AARP; MARIA ZANNES, PRESIDENT, INTEGRATED 
    WASTE SERVICES ASSOCIATION; AND MARTY KANNER, COALITION 
          COORDINATOR, CONSUMERS FOR FAIR COMPETITION

    Mr. Brooks. Thank you, Mr. Chairman.
    I am Dick Brooks with Central and Southwest, Chairman and 
CEO. I am here today to represent the Coalition Repeal PUHCA 
Now. I do commend the chairman and the committee members for 
all of the effort you have put forth on this bill and certainly 
on PUHCA repeal. I would today like to express the views of the 
coalition.
    The coalition is only focusing on PUHCA repeal. So, I will 
keep my remarks to that and provisions pertaining to same. Mr. 
Chairman, the coalition supports the passage of H.R. 2363, the 
Public Utility Holding Company Act of 1999. It is a bipartisan 
bill introduced by Congressman Tauzin and Congressman Towns.
    This bill has been carefully developed, and crafted, and 
negotiated, and compromised over the last several Congresses. 
It has gotten the point that I think it is a culmination of the 
efforts over the last several sessions. In our opinion, it is 
certainly ripe for consideration and passage at this time.
    Since the Securities and Exchange Commission actually 
recommended repeal of this act in 1995, we think it has been a 
question of not whether it is going to be repealed, but when it 
is going to be repealed. In the 1980's a Republican 
Administration recommended to a Democratic Congress that we 
repeal PUHCA.
    In the 1990's, a Democratic Administration recommended to a 
Republican Congress that we repeal PUHCA. Underscoring this 
support, repeal language was included in the legislation 
introduced this session, both by Republicans, Democrats, and by 
the Administration.
    Repeal provisions in the Tauzin-Towns bill provide 
replacement of the 1935 act with a modernized Public Utilities 
Holding Company Act that guarantees that FERC and the States 
will have access to books and records of the companies, of 
their affiliates, and of all transactions occurring among the 
same.
    It continues all FERC and State authority to regulate these 
companies like they do today on whatever basis they feel is 
proper. It grants FERC the power to decide who should be 
exempted under the act. We support similar provisions under the 
Burr bill and under the Bliley-Dingell bills.
    The difference there is that there is an 18-month time 
period between enactment of the bill and its effective date, as 
compared to the Tauzin-Towns bill, which is 12 months. We 
support either and both of those. We like the repeal provisions 
in the Stearns bill, quite frankly.
    As a matter of fact, it may be a little bit more favorable 
to us than others. The language there does not really reflect 
the concessions that have been given up to represent consumer 
protection over the last several sessions of Congress; so, that 
and other amendments put on by the Senate during the last 
several sessions.
    So, we do like the Stearns bill, but the language is maybe 
not quite as conservative as it is in the bills we are talking 
about. The Tauzin-Towns bill has undergone very rigorous 
scrutiny by the policymakers. That is why we say it is ripe for 
passage at this session.
    I will say that the coalition strongly opposes language, 
any language that would tie PUHCA repeal to retail access in 
the States. The repeal language in the Largent-Markey bill, and 
any proposal that would create a new exemption for the 
companies which offer retail access, we strongly oppose.
    Mr. Chairman and members, let me say this. If we do not 
repeal PUHCA and we continue to delay that, and let this 
onerous act continue to be applicable, first off, it will 
continue to hamper competition in the States that currently 
offer choice or are planning to offer choice on a date-certain.
    Second, it encourages market power. One of the best ways to 
start solving market power is to eliminate the act. As a matter 
of fact we, as holding companies, can only expand or purchase 
assets next door. It also limits people from foreign States 
from coming in and being additional providers of generation.
    It currently limits investment in growth opportunities in 
other industries. It limits us from providing additional 
services to customers we already serve. It would continue to 
favor foreign investors coming in and buying into our utility 
systems as compared to our being able to do that. It limits us 
to be able to invest in foreign opportunities compared to those 
companies who are not jurisdictional.
    Mr. Barton. You need to summarize, Mr. Brooks. I hate you 
rush you. You have waited a long time, but we have four other 
people. We probably do not even have about 30 or 35 minutes 
before we have to go vote again.
    Mr. Brooks. Yes, sir, I will. I will say this last point. 
If conditional repeal is to get us to influence the retail 
choice in the States, please reconsider because we have about 
as much influence in the States as we have had in Congress in 
getting PUHCA repealed.
    So, with that, Mr. Chairman, thank you for allowing me to 
be here. I will be glad to answer questions at a later time.
    [The prepared statement of E.R. ``Dick'' Brooks follows:]
    Prepared Statement of E.R. ``Dick'' Brooks, Chairman and Chief 
Executive Officer, Central and South West Corporation on Behalf of the 
                      Repeal PUHCA Now! Coalition
    Mr. Chairman and Members of the Committee: The Repeal PUHCA Now! 
Coalition (the Coalition) is pleased to submit this testimony to 
address the various proposals providing for the repeal of the Public 
Utility Holding Company Act of 1935 (PUHCA) pending before the 106th 
Congress. The Coalition includes registered and exempt electric and gas 
utility holding companies restricted under PUHCA. We have supported 
enactment of PUHCA repeal legislation as recommended in 1995 by the 
Securities and Exchange Commission in a report to Congress. The 
Coalition believes it is essential that PUHCA repeal legislation be 
enacted into law this year and is pleased that most restructuring bills 
introduced this year contain some form of PUHCA repeal. Simply put, 
repealing PUHCA is a pro-competitive step, and eliminates a barrier to 
competition, a barrier to state restructuring efforts, and a barrier to 
consumer benefits.
    The Coalition commends the Committee for conducting a hearing at 
which the need and urgency for PUHCA repeal may be made again this 
Congress. The Coalition respectfully believes that all of the issues on 
restructuring the electric industry discussed at today's hearing need 
not be linked in order to establish and justify the need to repeal 
PUHCA now. As discussed below, the Coalition believes that PUHCA repeal 
must be considered independently, on its own merits. Keeping the 64-
year old statute in place frustrates competition, is a barrier to 
entry, and actually promotes industry concentration. The industry and 
its regulators understand this and the Coalition hopes to convince the 
Congress that the case for repealing PUHCA now is overwhelming. Since 
the Coalition is united only on the need to repeal PUHCA, these 
comments will be limited to the PUHCA provisions contained in the 
several bills introduced thus far this Congress.
    The Coalition supports legislation that repeals PUHCA and replaces 
it with a streamlined regime that provides for adequate measures to 
provide consumer protections as a stand-alone measure. We support 
Congressmen Tauzin (R-LA) and Towns (D-NY), and their cosponsors in 
their bipartisan effort to enact H.R. 2363, the ``Public Utility 
Holding Company Act of 1999,'' to ensure that another Congress does not 
conclude without considering PUHCA repeal.
    Some background is necessary to understand the genesis and 
evolution of the provisions of H.R. 2363. This bill's provisions arose 
out of the SEC's 1994-1995 yearlong study on PUHCA's continued 
relevance in today's evolving electric and gas markets and 
sophisticated utility oversight. The SEC study began in July, 1994, 
with a round-table hearing at which consumer groups, rating agencies, 
State and Federal regulators, industry representatives all analyzed 
PUHCA's effectiveness and continued with an invitation for all 
interested parties to submit comments on all aspects of PUHCA, pro and 
con. The SEC received thousands of pages of comments, with only one out 
of over 110 participants suggesting that PUHCA should not be repealed 
or modernized. All other interested parties agreed that PUHCA needed 
significant revisions. And today, no knowledgeable party that 
understands the role of PUHCA disagrees that PUHCA should not be 
significantly modernized. Those that argue for delay or for the 
continuation of PUHCA do so for either unsubstantiated reasons or for 
political expediency ignoring the overwhelming case made for repeal by 
the objective experts.
    Following the SEC's 1995 report to Congress, a bipartisan bill was 
drafted incorporating the consumer protection provisions the SEC 
recommended. This bill was introduced in the 104th Congress. (S. 1317 
by Senators D'Amato (R-NY) and Sarbanes (D-MD), et al.). S. 1317 passed 
the Senate Banking Committee and was awaiting final consideration by 
the full Senate before that Congress adjourned. A companion bill (H.R. 
3601 by Congressman Tauzin, et al.) was introduced in the House but was 
not reported out of committee, notwithstanding several vigorous and 
extensive hearings before the House Commerce subcommittees on the SEC's 
report and proposed legislation.
    In the 105th Congress, a similar unconditional PUHCA repeal bill 
was introduced in the Senate. (S. 621 by Senators D'Amato, et al.). In 
this Congress, the bill was amended in the Senate to provide additional 
consumer protections but, again, Congress adjourned prior to action by 
the full Senate. A companion bill to this amended Senate bill (H.R. 
3976 by Congressman Tauzin, et al.) was introduced in the House. And 
again, notwithstanding additional committee hearings on the need to 
repeal PUHCA, no action was taken by this Committee.
    The provisions of H.R. 2363 are identical to the PUHCA repeal bills 
reviewed by this Committee and reported, as amended, by the Senate 
Banking Committee last Congress. Thus, H.R. 2363 reflects several years 
of negotiations and collaboration between the FERC, the SEC, NARUC, 
Congressional staff, as well as various industry stakeholders. It 
represents a carefully developed and negotiated compromise and one ripe 
for Congressional action. It provides for PUHCA to be repealed 12 
months after date of enactment. It provides for sufficient consumer 
protection provisions in a regulated, yet evolving restructured market. 
This bill grants FERC in wholesale rate proceedings, and the State 
commissions in retail rate proceedings, access to the necessary books 
and records of holding companies and their associate companies when 
such are relevant to reviewing costs proposed to be recovered by 
regulated public utilities in their jurisdictional rates. The bill also 
authorizes FERC to review affiliate transactions between regulated and 
non-regulated associate companies within holding company systems. FERC 
is empowered to determine which utilities will be exempt under the new 
PUHCA, including those currently exempt from PUHCA of 1935 and those 
currently free from FERC jurisdiction.
    H.R. 2363 also ensures the continuance of all existing authority 
FERC and the states currently have in reviewing affiliate transactions. 
Additionally, the bill continues all existing authority FERC and the 
States currently have under the Federal Power Act and all applicable 
State law, respectively, to protect consumers.
    In the event that Congress is unwilling to repeal PUHCA as a stand-
alone bill this year, the Coalition supports legislative language that 
has similar provisions to H.R. 2363, and, as discussed below, several 
of the bills already introduced this Congress has these provisions.
    The Coalition strongly opposes, however, any language that 
conditionally repeals PUHCA. As discussed more fully below, there 
exists no substantive reason why PUHCA repeal should be tied to retail 
competition.
    PUHCA repeal provisions similar to H.R. 2363 have been reproduced 
in four bills introduced in this Session of Congress. Although 
essentially the same, each are different and will be discussed in 
greater detail.
    H.R. 667, ``The Power Bill,'' introduced by Congressman Burr (R-
NC), contains language identical to the stand-alone bill introduced by 
Congressman Tauzin in the 105th Congress (H.R. 3976). It does not 
condition the repeal of PUHCA of 1935 recognizing that PUHCA stands in 
the way of effective competition within the several States. It requires 
the keeping of certain books and records by holding companies and their 
subsidiary companies and provides FERC and the States access to such 
records if deemed relevant to disallow any cost recovery in a rate 
proceeding. Like the H.R. 2363, it authorizes FERC to exempt companies 
from these requirements. However, unlike H.R. 2363 that provides for a 
12-month effective period from date of enactment, the Burr bill 
provides for an 18-month effective period. Thus, it is identical to S. 
313 that has been reported out of the Senate Banking Committee and is 
awaiting final action by the full Senate in the 106th Congress.
    H.R. 1587, the ``Electric Energy Empowerment Act of 1999,'' 
introduced by Congressman Stearns (R-FL), contains language similar to 
the unconditional repeal PUHCA legislation introduced in the 104th 
Congress prior to the original Senate Bill being amended. But for 
relatively minor differences in the stated purpose of the repeal 
section, its provisions are identical to H.R. 3601 by Congressman 
Tauzin, et al., and S. 1317 by Senator D'Amato, et al., of the 104th 
Congress. While the Coalition does not object to these provisions of 
H.R. 1587, is should be noted that the provisions of H.R. 667, H.R. 
1828 and H.R. 2363 contain amendments adopted by the U.S. Senate and 
incorporated in subsequent PUHCA repeal bills since the 104th Congress. 
(See H.R. 3976 by Congressman Tauzin, et al., and S. 621 by Senator 
D'Amato, et al., of the 105th Congress). These amendments clarified 
certain definitions and provided for certain exemption authority by the 
FERC. Like Tauzin's H.R. 2363, the Stearns bill's provisions become 
effective one year from date of enactment.
    H.R. 1828, the ``Comprehensive Electricity Competition Act,'' 
introduced by Congressmen Bliley (R-VA) and Dingell (D-MI), contains 
repeal provisions virtually identical to the Tauzin and Burr bills. 
Like the Burr bill, Bliley's bill repeals PUHCA 18 months after the 
date of enactment. With this effective date, these provisions are 
identical to those of S. 313 awaiting final consideration by the full 
Senate.
    H.R. 2050, the ``Electric Consumers' Power To Choose Act of 1999,'' 
introduced by Congressmen Largent (R-OK) and Markey (D-MA), contains 
PUHCA repeal provisions similar to those of H.R. 2363 but differs in 
one major way. PUHCA of 1935 is not unconditionally repealed as in H.R. 
2363 but rather only if all but one of the states within the service 
territory of public utilities of a holding company system provides for 
retail electric or gas access. If two or more states within the service 
territory of a registered holding company system have not provided for 
retail access, PUHCA's onerous restrictions continue to apply.
    The Coalition strongly opposes this provision. This exemption 
scheme effectively is a back-door mandate on the states regarding 
retail access. This approach is at odds with the consensus that now 
exists on the Committee that Congress should not mandate retail access 
on the states. Thus, Congress should not enact any legislation that 
ties PUHCA repeal to whether the states order retail access in their 
respective states.
    H.R. 2050 also differs from H.R. 2363 in two less significant ways. 
First, the provisions are effective 18 months from date of enactment. 
Second, an ``exempt telecommunications company'' (ETC) authorized in 
the Federal Telecommunications Act of 1996 is added to the list of 
those entities exempted from the PUHCA provisions. The Coalition 
prefers a 12-month effective date since sufficient time has elapsed for 
states to address any perceived regulatory gaps since the 1995 SEC 
report recommending repeal but has supported bills with an 18-month 
effective date. The Coalition does not object to the exemption of ETCs.
    As described more fully under our attempt to debunk the several 
myths surrounding PUHCA's repeal, PUHCA repeal should not be held up 
for full-fledged competition. The current restrictions under the Act 
are preventing the affected companies from offering many services now 
that would benefit consumers. There cannot be effective competition if 
the electric and gas utility segment of the competitive market 
continues to be hampered by the Act.
    There also has been one proposal suggesting that another class of 
exemptions be created under PUHCA rather than repealing the Act. 
Current holding companies registered under PUHCA would be permitted to 
become exempt from PUHCA's restrictions if each of the public utilities 
of a holding company's system unilaterally offers retail choice to its 
customers even if their respective States have not mandated retail 
choice.
    There are several problems with this approach. First, all experts 
agree that PUHCA should be repealed now, because it unnecessarily 
prevents companies from becoming competitive, is not necessary as part 
of today's regulatory regime even without retail competition, and 
because it has accomplished its goals. An exemption would continue an 
unnecessary, burdensome regime for which no purpose exists for its 
continuance.
    Second, many exempt companies today support PUHCA repeal because it 
limits their flexibility and efficiencies both structurally and 
financially. Adding another exemption simply increases the burdens on 
all exempt companies. Rather than removing obstacles to competition and 
efficiencies, Congress is perpetuating them.
    Third, such a provision is punitive to companies operating in the 
several States that have decided for local reasons not to offer retail 
choice to its citizens at this time. It is unclear how companies can 
offer such choice to its customers they are obligated to serve in such 
states. PUHCA companies are faced with a clear dilemma: If a State 
commission does not believe allowing a company the ability to offer 
choice, the only real option left is the sale of the company to an 
entity that is not subject to PUHCA. What are the public policy goals 
of such a proposal?
    The Coalition thanks the Subcommittee on Energy and Power for this 
opportunity to comment on the various PUHCA repeal proposals introduced 
this Congress. We strongly believe that the case to repeal PUHCA had 
been made during this Congress and the past two. The only question was 
when was Congress going to repeal PUHCA, not if. However, with the 
recent proposals to tie PUHCA relief to customer choice, we feel it 
necessary once again to make the case for repeal--even without customer 
choice. Therefore, to reiterate the sound public policy reasons 
supporting PUHCA repeal, the Coalition submits, once again, the case 
for PUHCA repeal.
                       the case for puhca repeal
                            i. introduction
    As everyone here knows, the electric utility industry is changing 
rapidly. Twenty-four states have now enacted laws or regulations 
restructuring retail electric markets affecting 58% of the U.S. 
population. Other states are considering similar measures. As 
electricity markets become more and more competitive, the strictures 
and limitations of PUHCA are not compatible with the current state of 
the industry. PUHCA is outdated, duplicative and no longer serves the 
interests of consumers or investors. PUHCA has become a regulatory 
anachronism, a barrier to competition and innovation. It imposes 
unneeded restrictions, significant costs, and confers no real benefit. 
The time to act to repeal PUHCA is now and the Repeal PUHCA Now! 
Coalition urges the Congress to pass PUHCA repeal legislation as soon 
as it can reasonably be done.
    PUHCA repeal should not be held hostage to the important debate 
about the potential further restructuring of the electric industry, or 
whether comprehensive federal electricity legislation is needed to 
benefit all consumers nationwide. From state to state and here in 
Washington, the members of the Repeal PUHCA Now! Coalition have been 
very active in this debate. But the Congress must realize that electric 
utility restructuring issues impact all stakeholders in the electric 
utility industry, not just the eighteen (18) active registered holding 
companies and one hundred fifty-one (151) exempt electric holding 
companies. These electric utility restructuring issues deserve serious 
study, discussion and debate. This discussion and debate is well 
underway in the Congress. Already this Congress, there are no less than 
seven bills currently pending in the Congress that would in some 
respect restructure the electric utility industry, and other bills, 
including the Administration's, are expected to be introduced soon. As 
this reflects, the issues are as contentious as they are complex. As a 
result, no meaningful consensus has emerged on whether, or even if, 
Congress should enact comprehensive electricity legislation. A truly 
durable consensus will not develop overnight. Thus, the Repeal PUHCA 
Now! Coalition strongly urges that the debate on future electric policy 
move forward separately from consideration of PUHCA repeal legislation.
    Keep in mind, Mr. Chairman, that serious debate and discussion of 
these global electric policy issues has only developed in the last two 
Congresses. Conversely, a full merits review of PUHCA repeal started 
over seventeen years ago. In 1982, during a Republican Administration, 
the SEC found that PUHCA's statutory objective had been achieved and 
recommended PUHCA repeal to a Congress composed of a Republican Senate 
and a Democratic House. In the intervening seventeen years, the case 
has been overwhelmingly built to show that conclusion was correct. In 
1995, during a Democratic Administration, after conducting another full 
study of PUHCA's relevance, including significant public participation, 
the SEC again concluded that PUHCA was no longer needed and that, with 
appropriate consumer protection provisions to assure effective 
regulation of utilities, repeal was the preferred option.
    The Repeal PUHCA Now! Coalition agrees. The SEC's 1995 supporting 
analysis is clear and irrefutable. Indeed, it has now been over twenty-
five years that the agency accomplished the goals Congress set for it 
when the PUHCA was passed in 1935. We agree with the SEC that leaving 
PUHCA in place burdens the industry and the agency, and does so at a 
cost to society that far exceeds any potential benefits.
    Repealing PUHCA is important not just to the companies that for 
over 64 years have borne the burden of its regulatory requirements, and 
whose ability to respond to existing competition is handicapped by that 
Act, but to other utilities--gas and electric--as well. On this issue, 
gas and electric registered holding companies are united: we all need 
the ability to respond more freely and flexibly to market opportunities 
emerging daily as the States restructure retail electric markets and 
respond to vigorous competition in the wholesale markets.
    Similarly, companies now exempt from the Act's requirements again 
both gas and electric--also seek repeal. The potential application to 
them of the Act's full strictures, and the current imposition of limits 
on their ability to serve customers geographically or through 
additional utility services, hinders innovation and frustrates an 
exempt holding company's ability to compete in wholesale and retail 
markets.
    While the future structure of the electric industry remains open to 
debate, there is a much clearer picture with respect to the natural gas 
industry. The gas industry has already experienced significant and 
historic regulatory and competitive changes. All the gas registered 
companies now face competition in virtually every facet of their 
business. Yet they remain subject to additional regulation over their 
lines of business, corporate structures and financing that their 
competitors do not have. PUHCA's regulations impose higher costs and 
less flexibility, handicapping them in meeting the demands of intensely 
competitive gas markets. Suffice it to say, repeal of PUHCA, with 
appropriate consumer safeguards, is essential in letting these gas 
companies compete and develop innovative products and services, while 
the regulatory agencies and legislatures, including Congress, consider 
further changes in energy policy as applied to the electric industries.
                        ii. the burdens of puhca
    Registered holding companies face burdensome and limiting 
requirements under PUHCA. These burdens, which create severe 
disadvantages when compared to other industry participants, include:

 We are limited to serving utility customers in a ``single 
        integrated'' utility system, which seriously restricts the 
        geographic scope of our utility operations. As a result, we are 
        hampered in offering services to others, even in our core 
        business, either by significantly expanding our operations or 
        investing in other utilities, as can be done by non-holding 
        companies.
 We generally need prior approval from the SEC before our 
        affiliates and subsidiaries can enter into contracts with each 
        other. The SEC determination of the terms (including whether 
        the contract will be at market rates or at cost) is binding on 
        rate regulatory agencies. As a result, opportunities to save 
        some costs or to operate with efficiencies, available on short 
        notice, cannot always be seized.
 Our non-utility subsidiaries and we generally cannot issue or 
        sell securities, or alter the rights and powers of security 
        holders, without prior SEC approval. As a result, our capital 
        structures are much more limited; and our ability to take 
        advantage of financing opportunities, especially in dynamic 
        capital markets, is more limited; and we cannot use several 
        types of securities now widely accepted as appropriate 
        throughout the rest of our industries.
 Without special SEC approval, we cannot diversify into other 
        lines of business--under existing SEC interpretations, we are 
        limited to the single utility business, plus only such other 
        businesses as ``reasonably incidental, or economically 
        necessary or appropriate'' to the operation of an integrated 
        utility business. Even with some recent SEC initiatives, 
        business opportunities that would help additional economic 
        development in our service territories, and even businesses 
        that if allowed to operate freely would save our customers 
        money, may be foreclosed. In addition, where exemptions do 
        exist, they often contain technical requirements that prevent 
        the use of efficient business structures and often restrict or 
        limit how registered companies can employ shareholder capital.
    PUHCA places severe restrictions on registered holding company 
acquisitions of natural gas distribution companies. The SEC has 
consistently refused to view an electric system and a natural gas 
system as capable of constituting a ``single integrated public utility 
system''. The agency allows electric registered holding companies to 
``retain'' a gas system only if the demanding standards of the Section 
11 ``ABC Clauses'' are met. This requirement effectively precludes an 
existing electric registered holding company from acquiring even a 
neighboring gas system and enjoying the competitive convergence 
benefits enjoyed by numerous combination (electric and gas) exempt 
holding companies. A registered holding company could potentially 
satisfy the ABC clauses only if it acquired or merged with an existing 
combination company.
    Even the exempt companies, although free of virtually all of the 
specific corporate restrictions in PUHCA, are limited to serving 
utility customers in a specific geographic area, lest they lose their 
exemption. They also must be concerned about diversification, because 
the SEC has the power to revoke their exemption under the so-called 
``unless and except'' clause.
    Although they were important at the time of the Act's passage, the 
stringency and severity of these restrictions make little sense today, 
especially as the utility industry is restructuring. In the 64 years 
since 1935, securities markets have become much more effective and 
efficient. The SEC's other authorities under the Securities Act of 
1933, the Securities Exchange Act of 1934, and the Trust Indenture Act 
of 1939 assure that investors receive appropriate information and can 
make informed decisions. Moreover, there is extensive financial and 
corporate information available commercially through hundreds of 
magazines, newsletters, on-line computer services, and network sources, 
enabling the markets to respond within hours of significant events. 
Rating agencies, such as Moody's and Standard & Poor's, constantly 
evaluate our management, financial integrity, and operations and rate 
us accordingly. As a capital intensive industry dependent on the 
financial markets and being sensitive to the costs of such capital, we 
are committed to maintaining financial flexibility through a strong 
capital structure and favorable securities ratings by such agencies.
    Similarly, the utility regulatory commissions, both FERC and the 
State Commissions, have clearer authority than was in place in 1935. 
The standardization of utility accounting, better staffing and more 
clearly defined requirements have all made rate regulation more 
effective.
    In light of the changes the electric industry is experiencing 
today, and expressly in light of the authority that already exists in 
the SEC, FERC and the State Commissions regarding the securities 
markets and rate matters, PUHCA has become redundant regulation. It 
lacks the flexibility to allow the companies to adapt to new 
circumstances. Its model of the utility industry simply no longer 
comports with the reality of what the industry is doing, and what FERC, 
the State legislatures and State Commissions would like us to do. We 
need permanent relief today from the unnecessary regulatory burdens 
imposed by the Act.
                  iii. debunking the myths about puhca
    There is strong bipartisan support for PUHCA reform. In the last 
two Congresses, PUHCA repeal bills have had cosponsors from both sides 
of the aisle. Both Democratic and Republic Administrations, dating back 
to the Reagan Administration, support PUHCA repeal. While not everyone 
may agree on all the details of potential federal electric utility 
restructuring legislation, there is strong support that the time for 
PUHCA to be repealed or reformed is now. With this in mind, it may be 
helpful to address several of the last gasp arguments repeal opponents 
still make.
Myth No. 1: PUHCA cannot be repealed until retail competition is 
        established.
    As discussed above, effective retail competition can not be 
established unless and until PUHCA is repealed. PUHCA's requirements 
and restrictions unduly limit and burden virtually any utility company 
owning or operating any utility assets for the production, 
transmission, transportation or distribution of electric energy or 
manufactured or natural gas within the United States. As discussed more 
fully below, not Congress, the states, or the FERC can create a truly 
competitive environment with PUHCA remaining in place.
    In reviewing the issues that may need to be addressed this year, 
Congress should keep in mind the level of activity concerning retail 
choice in the states and at the FERC. As you know, almost every state 
currently has some type of electricity restructuring proceedings 
underway. Twenty-four states have implemented retail competition 
frameworks, some on a phased-in basis.
    Congress has wisely given the states and FERC significant time and 
latitude in picking the pace, method and means for achieving retail 
competition. This approach has allowed the states to proceed with 
retail competition tailored to their own regional circumstances. This 
has provided Congress and regulators critical information and 
experience to make informed decisions about any potential comprehensive 
federal legislation.
    Based upon the evidence to date, the states that are restructuring 
are in fact moving forward without federal intervention. From 
California to New York, Arizona to Arkansas, Maine to Maryland, the 
states have passed laws or regulations to establish retail competition. 
Thus, the real question for the Congress to focus on is whether the 
sixty-four year old statute is impeding the numerous state initiatives 
to restructure retail electric markets. Does PUHCA help or hurt the 
existing and future efforts to establish state ordered retail 
competition?
    In the Coalition's view, keeping PUHCA in place will hurt state 
ordered establishment of retail electric competition. Simply put, the 
scope of retail competition will be artificially constrained and 
truncated by a number of PUHCA's regulatory restrictions. Let us give 
you several examples.
    PUHCA forbids domestic Exempt Wholesale Generators (``EWGs'') from 
selling power at retail. As a result, many low-cost generation 
suppliers refrain from making retail sales because of PUHCA-related 
concerns. This applies to all entities--whether registered, exempt or 
non-holding companies. Indeed, any generation supplier wishing to avoid 
a holding company structure would face potential PUHCA jurisdiction if 
it were to setup a subsidiary and that subsidiary were to make retail 
sales.
    Registered holding companies interested in making retail sales from 
facilities that are distant from their franchised retail service areas 
must face the geographic constraints of PUHCA's ``integration'' 
standard, which, as noted above, generally restricts registered company 
``utility'' operations to a regional scope. This means, for example, 
that a registered holding company based in the Eastern U.S. would be 
effectively excluded from selling retail power from a facility located 
in California. Similarly, an exempt holding company can risk its exempt 
status by undertaking non-EWG sales outside the geographic boundaries 
defined by Sections 3(a)(1) and 3(a)(2). Thus, for example, a utility 
holding a Section 3(a)(1) ``intrastate'' exemption cannot make 
substantial retail sales outside the state where the utility is 
incorporated and conducts most of its utility business. This does not 
promote economic efficiency or a robust retail generation market.
    In addition, many state restructuring laws call for or are 
contemplating the separation of generation and transmission/
distribution assets into separate corporate entities. This aspect of 
restructuring can cause particular problems for both registered and 
exempt holding companies. Think about it: can a 64-year-old piece of 
legislation be applied to a different utility business than was 
conceivably envisioned in 1935? PUHCA was not designed to be flexible. 
PUHCA mandates a single geographically and operational integrated 
structure, not well adapted to an evolving industry as a result of 
federal and state restructuring competition initiatives. As noted 
earlier, PUHCA isolates electric and gas systems to limited, discrete 
geographic areas. The requirement under PUHCA that registered holding 
companies maintain a single, integrated utility business has quickly 
become problematic as governmental entities and a growing competitive 
market pressures companies to restructure. As electric utilities are 
compelled by state legislation, regulation or competitive forces to 
either ``unbundle'' utility functions and assets in an effort to 
restructure their businesses along product lines or comply with 
corporate unbundling requirements, the conflicts with PUHCA are 
becoming acute.
    PUHCA controls this ``unbundling'' process unnecessarily. Yet the 
``unbundling'' already has begun as a result of the twenty state 
restructuring plans already enacted, the Public Utility Regulatory 
Policies Act of 1978 (``PURPA'') and the Energy Policy Act of 1992 
(``Policy Act''). This ``unbundling'' has produced significant new 
players with geographically widespread utility properties. Since the 
new players under PURPA and the Policy Act are exempt from PUHCA, how 
can PUHCA's geographic integration requirements be significant and 
necessary to this changing industry?
    There is another aspect of PUHCA's integration requirements, which 
may be at odds with retail competition unbundling of functions and 
services. Registered holding company systems are required to operate in 
an integrated manner. This requirement has led to centralized electric 
system planning, construction, and the use of: (a) companies providing 
common management, financial, accounting and planning services, among 
other services, for all companies, utility and non-utility alike, in 
the same system, (b) fuel companies serving various affiliated 
companies and (c) companies operating power plants for various 
affiliated companies. In addition, for registered holding company 
systems and their integrated operations, it has been a prevalent 
practice to have common officers, and in many cases, common directors 
among affiliated companies. Will these integrated planning, service and 
personnel requirements be appropriate and workable in a disaggregated 
and competitive electric business where flexibility is necessary?
    A number of registered holding companies have divested or are 
planning to divest their electric generator assets and will operate in 
restructured systems where their retail customer base will be open to 
competition. It is unclear that the integration standard will have any 
relevance under such circumstances.
    For multistate registered holding company, PUHCA is a major concern 
as states move forward to competition. PUHCA restricts our ability to 
compete. This is attractive to our ``unregulated'' competitors as they 
move forward unimpeded. PUHCA restricts the types of business we can 
invest in, where we can invest and how much capital we can deploy. 
Restricted investments, required integration systems and financial 
prohibitions severely impact our structural and financial ability to 
respond to a rapidly moving competitive retail market. If a level 
playing field is sought, for a competitive market, PUHCA stands out as 
a significant barrier to achieving this goal.
    Technology is another issue. PUHCA was adopted in a world without 
computers, without reliable transmission systems, without regional 
power pools, without reliable long-distance communication. Technology 
was one reason for PUHCA's geographic integration limits. Obviously, 
technology has passed PUHCA, and its integration requirements by.
    A prominent feature of current FERC policy and most state 
restructuring frameworks is the establishing of so-called Regional 
Transmission Organizations (``RTOs'')--whether they are an independent 
transmission company (``Transco'') or an Independent System Operator 
(or ``ISO''). These RTOs typically assume in some fashion control of 
the regional or statewide electric transmission grid in order to assure 
further non-discriminatory access and efficient, reliable system 
operation.
    PUHCA presents a potential regulatory dilemma for some RTOs, since 
these entities may, depending on the facts, fall under the definition 
of ``electric utility company'' under Section 2(a)(3) of PUHCA--that 
is, an RTO will ``operate facilities used for the generation, 
transmission, or distribution of electric energy for sale ...'' Indeed, 
in order to perform their mandate effectively, RTOs must necessarily 
exercise operational control over transmission grid facilities.
    RTOs are not the kind of public utility entities that PUHCA was 
designed to regulate. They will not exercise market power. They raise 
no issues regarding ratepayer harm; rather, they will facilitate 
ratepayer interests by promoting regional electricity markets. Yet 
because RTOs could, under certain circumstances, be deemed to be PUHCA 
``electric utility companies'', any person or company which might be 
regarded as exerting a ``controlling influence'' over an RTO could in 
turn be deemed a ``holding company'' potentially subject to full PUHCA 
regulation. This is a very real concern. To be sure, the SEC Staff has 
issued a no-action letter concurring that the California ISO is not a 
PUHCA ``electric utility company'' because it is an ``instrumentality'' 
of the State of California, based on the State legislature's 
restructuring directive. However, the means of RTO creation varies from 
region to region, and most RTOs will operate on a regional, rather than 
a statewide basis. The PUHCA uncertainties associated with the 
structure and operations of RTOs may cast a regulatory cloud over a 
vital aspect of state and federal restructuring efforts. It is unclear 
how the SEC will deal with this critical issue, especially now that 
most of the RTOs that have been approved to date have been and are also 
power pools, which have not been regarded as creating a holding company 
structure for member utilities. Thus, on the one hand, RTOs will be 
critical to successful restructuring efforts. On the other hand, PUHCA 
may impede RTOs from developing regionally, with broad-based 
membership. Is it really in the public interest to require RTOs to 
become registered holding companies simply to provide a function almost 
everyone believes will become necessary in the future?
    The corporate or functional unbundling features of current 
restructuring programs can also be highly problematic for utilities 
holding a Section 3(a)(2) exemption. Section 3(a)(2) provides an 
exemption for holding companies that carry on the bulk of their utility 
activity at the parent company level, with only minor utility 
subsidiary operations. Thus, for example, if a parent utility company 
must transfer to a subsidiary company substantial generation assets to 
comply with state initiated restructuring law, it may no longer qualify 
for a Section 3(a)(2) exemption, since the bulk of its utility 
operations may now be conducted downstream at the subsidiary level.
    In addition, restructuring mandates may effectively compel a 
utility to create a new holding company over generation, transmission/
distribution, and non-utility subsidiaries, as a means of assuring 
effective corporate separation of utility functions and safeguarding 
against potential cross-subsidization. The creation of such a top-tier 
holding company with no utility assets of its own, however, precludes 
retention of a Section 3(a)(2) exemption (which requires that the 
parent holding company also be a utility company).
    In sum, over the long-road PUHCA will hinder state restructuring 
efforts. PUHCA is an entry barrier, impeding robust retail competition. 
State driven restructuring presents potential problems for the ability 
of registered companies to comply with PUHCA's requirements and compete 
in newly created retail markets. Registered companies are subject to 
the ``integration'' standard, which demands, among other things, that 
utility operations be component parts of a vertically integrated 
system. This standard clearly clashes with emerging competitive systems 
based on unbundled service, independent system operators, and power 
exchanges. And ironically, state restructuring will likely endanger 
certain utilities' existing exemptions and thus require them to become 
registered holding companies.
    Leaving PUHCA intact as state restructuring proceeds will create 
perverse incentives, as companies recreate ``PUHCA Pretzels'' 
especially regarding transmission assets--to comply with PUHCA's broad 
reach, restructure their products and services, and to compete in 
retail electricity markets. This federal barrier to state enacted 
retail competition reforms can only be removed by the Congress. That is 
why PUHCA repeal legislation should be signed into law this year.
Myth No. 2: PUHCA prevents utilities from exercising market power.
    This hearing today appears to link PUHCA with merger and market 
power issues. Such appearance might lead policy makers to conclude 
erroneously that PUHCA repeal will create market power abuses. Contrary 
to the myths about PUHCA preventing the exercise of market power, PUHCA 
actually perpetuates market concentration. Companies subject to PUHCA 
are confined within geographic boundaries consistent with the 
``integration'' standard. While at one time this was considered a way 
of stopping growth, and enabling federal and state utility regulation 
to mature, it has instead led to a concentration of the utility market. 
This market concentration that occurs in a monopoly situation serves to 
impede competition and frustrate state restructuring programs. If PUHCA 
stays in place, it will only perpetuate a monopoly situation for those 
consumers in that service territory.
    Now the Coalition realizes that some have asserted that it is 
essential to retain PUHCA in order to limit what they call 
``concentration of market power'' as the electric industry 
restructures. Those who make that assertion either do not understand 
the role PUHCA has played, or willfully misstate it. As stated earlier, 
PUHCA is a corporate structure and securities statute. Its main goal 
was corporate simplification, not establishing or setting specific 
rates for utility services. We cannot emphasize enough that PUHCA's 
existing provisions actually increase the likelihood of concentrations 
in particular markets, because the ``integration requirements'' and 
geographic restrictions of the Act limit both registered companies and 
exempt companies to retail utility holdings in particular areas, and 
restricts the ability of more distant companies to acquire, construct 
or operate facilities that could compete with the local utility. PUHCA 
effectively keeps new entrants out of markets, and keeps registered 
companies from engaging in competitive lines of business. Indeed, PUHCA 
as it stands requires utilities to limit acquisitions to nearby 
utilities--ones that can be integrated or that do not result in a loss 
of exempt status. Those nearby utilities are the ones most likely to 
have presented the possibility of competition.
    PUHCA was originally enacted to prevent abuses by utility companies 
by restricting growth and advancements at a time when there were little 
or no state or federal utility regulatory controls available. While 
this approach served us well in 1935, it is now outdated and serves as 
an impediment and a barrier to a competitive market, especially at the 
retail level.
    PUHCA was not designed as and is not a utility or rate regulation 
statute. PUHCA is primarily a law dealing with corporate governance and 
securities issues. Aside from the fact that it has outlived its 
usefulness because of changes in the way we regulate and review 
securities transactions, PUHCA might be viewed as an energy matter only 
from the standpoint that the companies it governs happen to be in the 
energy sector. Other significant laws govern regulating public 
utilities when they provide electricity services to consumers. These 
laws, most notably the Federal Power Act, the Natural Gas Act, and 
other state utility laws, deal with the rates consumers pay for 
electricity and gas services. PUHCA does not. In fact, PUHCA repeal 
bills in the last two Congresses, with their consumer protection 
provisions, actually will help public utility regulators do their 
ratemaking job at both the federal and state levels. To withhold PUHCA 
repeal from moving forward due to concerns about market concentration 
in a time when competition in the retail market is rapidly moving 
forward sends conflicting policy signals. Competition is good, unless 
you are a registered holding company. Over the long-term, a 
competitive, free market provides low prices and efficiencies for our 
consumers, but long-term consumers benefits will be prevented to 
consumers served by the 18 active registered holding companies.
Myth No. 3: Repealing PUHCA will create a regulatory gap.
    Repealing PUHCA will not create a regulatory gap, it will eliminate 
one. Ever since the U.S. Supreme Court issued the Ohio Power decision, 
PUHCA's general requirements that affiliate contracts be ``at cost'' 
have prevented FERC and state regulators from applying a market test to 
lower costs of services for wholesale and retail consumers in most 
cases. This decision has preempted FERC and perhaps the state 
regulators from disallowing the recovery of certain costs. With the 
repeal of PUHCA, this regulatory gap will be eliminated prospectively 
once and for all. The rate regulators, at both the wholesale and retail 
levels, properly will have the authority to determine the allocation 
and reasonableness of costs incurred by the utility in the provision of 
necessary services and whether or not such costs should be recovered in 
rates. Currently PUHCA hinders such rate regulation.
    Yet, despite the need to repeal this outdated act, many are 
concerned that repeal of PUHCA is a repeal of consumer protections. 
This is simply not true.
    It is important to remember that there are more than 3,000 entities 
currently providing electric and gas service to consumers. Of these, 
approximately 170 are holding companies. However, approximately 151 
holding companies are exempt from PUHCA, leaving PUHCA to regulate the 
18 active registered holding companies. Repealing PUHCA does not mean 
these registered holding companies will no longer be regulated. It only 
means they will be regulated under other a number of statutes, 
including all state public utility laws, the Federal Power Act, and the 
Natural Gas Act. There will be no regulatory gap if PUHCA is repealed.
    Yet the cries continue that PUHCA cannot be repealed because it 
protects consumers. What about the majority of individuals who are 
served by utilities not covered by PUHCA? Who is currently protecting 
them?
    Repealing PUHCA will not hurt consumers, but retaining the status 
quo will. If a consumer is served by a company regulated under PUHCA, 
that company is restricted from entering into competitive transactions, 
expanding into new business areas and improving efficiencies that could 
benefit the consumer. While the protections that various PUHCA repeal 
bills provide for consumers are clear, we should also note the 
benefits.
    In fact, stand alone PUHCA repeal bills introduced in the last two 
Congresses continue to provide protection for consumers, but eliminates 
unnecessary agency duplication and deletes arcane provisions that no 
longer serve a public interest purpose. These repeal bills actually 
improve certain important aspects of federal and state utility 
regulation if enacted in the current regulated market conditions. Some 
have indicated that this may be financially burdensome to states; 
however, the ongoing restructuring of the electric utility system has 
imposed significant new responsibilities on the states, involving 
numerous companies and issues. The states have been in the lead in 
taking on these responsibilities. Surely, with the experience the 
states have had to date with restructuring issues, they will be able to 
effectively deal with any potential resource issues.
    Various stand alone PUHCA repeal bills also fully provide for 
protection of consumers by providing access to books and records, by 
maintaining accountability procedures, providing for review of 
affiliate transactions and continued FERC and State commission rate 
regulation and audit authority. These are a far more direct means of 
addressing market concerns and protecting consumers than PUHCA of 1935 
can provide in today's regulated market.
    The Repeal PUHCA Now! Coalition recognizes that some state 
commissioners and other ratepayer advocates have expressed concern that 
state authority would not be sufficient to obtain the necessary 
information for proper discharge of state regulatory action. They are 
concerned that there would be a continuing need, after repeal of PUHCA, 
for federal audit authority and federal oversight of system 
transactions that would pass costs through to ratepayers. The Coalition 
understands those concerns. We also understand the significant 
difference between repealing the Act while providing for certain 
safeguards, and simply transferring the existing burdensome 
requirements to a new forum. We believe PUHCA repeal legislation can 
fully address these concerns and include provisions to provide 
appropriate access to books and records. The Coalition is fully 
prepared to work with the Congress to assure that a final bill includes 
provisions that would implement any necessary consumer safeguards.
    With regard to books and records, all utility companies know full 
well that the books and records of the utility company must be 
available to regulators for their review. The burden will remain on a 
utility to demonstrate that its proposed rates are just and reasonable. 
Similarly, we understand and can accept a review of the books and 
records of those affiliates that deal with the utility company and that 
would thereby pass costs through in rates. Regulators should have 
access to all information that is relevant in reviewing and 
establishing rates for electric services. However, there are 
undoubtedly some affiliates in a diversified company that will not pass 
costs through to ratepayers, or whose activities are so removed from 
the utility activities that access to their books and records would be 
of no legitimate value for ratemaking or cost allocation purposes. The 
key test is what access is actually necessary for the effective and 
proper discharge of the regulatory authority involved.
    As to the oversight of affiliate transactions, again we understand 
the interest of regulators in reviewing those transactions involving 
the utility, and which will cause the incurrence of costs to be passed 
through to ratepayers. Indeed, many state regulatory commissions 
already review transactions between a utility and its affiliates, and 
no further authority is needed. Here again, to the extent it affects 
rates, we do not oppose reasonable affiliate transaction provisions in 
a PUHCA repeal bill. However, we can also envision a number of 
transactions between affiliates completely apart from the operating 
utility companies, and which would not cause the incurrence of costs to 
the utility. Where the affiliate contractual arrangements are not 
related to costs to be incurred or passed through in the utility's 
regulated rates, separate regulatory review of the interaffiliate 
transactions would be unnecessary.
Myth No. 4: More utilities will merge if PUHCA is repealed.
    As noted earlier, the competitive transformation of the utility 
industry is underway. Twenty states have now enacted restructuring 
legislation or regulations. Similar to every other heavily regulated 
industry that has undergone a competitive transition, some 
consolidation of service providers is inevitable. But contrary to myth, 
whatever consolidation will occur will not escape significant 
regulatory review and oversight.
    It is important to recognize several facts about mergers and market 
power assertions if PUHCA is repealed. First, the very same expert 
agencies and departments who today substantively review mergers will do 
so after PUHCA is repealed. FERC will retain all of its merger 
authority. It has recently updated its merger policy in light of 
changes occurring in the electric utility industry. Without PUHCA, FERC 
will still review future mergers unconstrained by any new Ohio Power or 
other similar regulatory conflicts at the federal level. State 
Commissions will still have their authority to approve, block or 
condition mergers that they have today under state law. State 
legislatures that wish to require that a utility company operating in 
that state must be incorporated in that state and remain fully subject 
to the state's authority regarding its securities and other corporate 
matters, can continue to do so. PUHCA's repeal will have no effect on 
that. The Department of Justice will retain its antitrust authority, 
and the FTC its Hart-Scott-Rodino authority. The only thing that will 
change when PUHCA is repealed is that after all of those approvals are 
given, the SEC will no longer have the unnecessary and duplicative 
regulatory burden of again stating its deference to the decisions the 
regulatory agencies have already reached.
    Mr. Chairman, let us be clear: when PUHCA is repealed, no merger 
will occur without the same full regulatory scrutiny that occurs today. 
If there are efficiencies and benefits to be gained, those mergers 
should go forward. If there are not, there is ample regulatory 
authority in the hands of knowledgeable regulators to stop or condition 
them.
    The Repeal PUHCA Now! Coalition recognizes there is concern that 
states may not have the resources necessary to handle these new 
responsibilities. But again, the Coalition notes that the additional 
resources needed to handle the activities of 18 companies is nothing 
compared with the responsibilities of regulating the remaining electric 
and gas utility companies that do not come under the purview of PUHCA. 
It seems this problem is one of ensuring that this type of review 
occurs, not by whom it is done.
    Simply put, we believe that the nation's state and federal 
regulators have the ability to review potential mergers and protect the 
consumer. There is no failure of federal and state utility regulation 
requiring PUHCA to stay in place to review the inevitable consolidation 
of the utility industry. In fact, removing the SEC from reviewing 
mergers does not mean these assurances go away.
                             iv. conclusion
    In conclusion, the Repeal PUHCA Now! Coalition believes it has 
addressed the various issues of concern that have been raised about 
repeal of this statute which, as the SEC has noted, is outdated and no 
longer needed. Consumer protections will still be provided, market 
power problems are not compounded and regulatory guardians will still 
vigorously oversee the exercise of market power through rate reviews 
and merger activities. If we are for fair wholesale and retail 
competition, where numerous firms compete under similar regulatory 
restrictions, then removal of PUHCA is a key component to a competitive 
atmosphere. Using PUHCA repeal as a political chit in the restructuring 
debate exacts a heavy toll on consumers, competition, and certain 
companies. We urge the Congress to repeal PUHCA this year.

    Mr. Barton. Thank you, Mr. Brooks. We would now like to 
hear from Mr. Crisson; 5 minutes, please sir.

                   STATEMENT OF MARK CRISSON

    Mr. Crisson. Thank you, Mr. Chairman. Good afternoon. My 
name is Mark Crisson. I am the CEO of Tacoma Public Utilities 
and the immediate past-Chairman of the Large Public Power 
Council. I am testifying today on behalf of that group.
    The LPPC is an association of 21 of the largest State and 
Locally owned electric utilities in the United States. Our 
members serve approximately 6 million direct retail customers 
and own and operate 44,000 megawatts of generation, as well as 
24,000 circuit miles of transmission lines.
    We appreciate the efforts of this committee to advance the 
debate on how to achieve a competitive market that benefits 
consumers. Our members believe that unless the private use 
issue is addressed by Congress, there can be no truly 
competitive market. I will focus my comments on this issue.
    Private use restrictions, most recently revised by Congress 
in the 1986 Tax Reform Act, were written prior to the advent of 
a competitive electric industry. Today, the restrictions form a 
serious barrier to open competition and customer choice.
    Because of the rapid pace of restructuring in the States, 
it is important that Congress act immediately to fix this 
problem. Failure to address private use will preclude many 
public power systems from opening their systems for full 
competition, and could result in higher rates for consumers, 
contrary to the goals of electric industry restructuring.
    By way of background, public power systems have no 
practical source of external financing, other than the 
municipal debt markets. Unlike private companies, public 
entities cannot issue stock. The current private use rules 
which apply to our financing, provides that no more than the 
lesser of 10 percent, or $15 million of a power plant or 
transmission line financed with municipal debt, can be sold to 
a private entity under a customer-specific contract.
    In the regulated monopoly world that existed prior to 
competition, this requirement was problematic, but manageable. 
In a world of open transmission access, however, it has very 
serious consequence for our members, their customers, and 
investors.
    Let me provide a couple of examples. First, as you are 
aware, in its recent proposed rulemaking, FERC has strongly 
encouraged that all transmission owning utilities participate 
in regional transmission organizations, RTOs. From the 
discussion this morning, I know that is a central issue before 
this committee.
    Our group supports the development of RTOs. They are 
important to the establishment of competitive markets that are 
both efficient and reliable. At the same time, private use 
rules may preclude effective participation of public systems in 
an RTO because an issuer that joins an RTO may not be able to 
issue tax exempt bonds to finance its transmission facilities.
    Worse, we may be required to redeem or defuse outstanding 
bonds because we could violate the private use rules. Another 
example, in a competitive environment, large customers will 
seek and obtain special contracts tailored to meet their 
specific needs, just as they do in buying any product.
    Because of outdated private use rules, a public power 
utility may be unable to offer such a contract, even to 
customers in their own service territory, that they have been 
successfully serving for decades. This could deny that customer 
the best choice in the market and will lead to loss of 
customers for the utility for reasons that have absolutely 
nothing to do with price or quality of service.
    Now, there are also consequences for public powers' 
investors who hold more than $70 billion in outstanding tax 
exempt debt, but I will refer you to my written testimony for 
further details on those impacts. Consequently, Mr. Chairman, 
as a result of these problems, our members will find it 
difficult to support restructuring legislation that does not 
provide private use relief, using the same bill on companion 
legislation from the Tax Committees. Now, we recognize that the 
Commerce Committee's jurisdiction does not permit it 
unilaterally to deal with all pending tax and non-tax 
restructuring issues.
    However, we are confident that the Commerce and Ways and 
Means Committees can work together on this issue. With respect 
to the bills currently before your committee, the LPPC endorses 
the private use provisions of the retail competition bill 
introduced by Congressmen Largent and Markey in H.R. 2050.
    These provisions allow publicly owned utilities to elect to 
grandfather existing tax exempt debt, freeing them from 
restrictive private use rules. In this way, publicly owned 
utilities will bring the benefits of competition to their 
customers.
    In exchange, these utilities would permanently forego the 
ability to issue future tax exempt debt to build new generating 
facilities. We also understand that Chairmen Bliley and Barton 
are working to fashion a compromise comprehensive restructuring 
proposal that will address private use and other tax issues.
    We strongly encourage the committee to pursue this path. 
Thank you, Mr. Chairman.
    [The prepared statement of Mark Crisson follows:]
  Prepared Statement of Mark Crisson, CEO, Tacoma Public Utilities on 
                Behalf of The Large Public Power Council
    My name is Mark Crisson, and I am CEO of Tacoma Public Utilities. I 
am the immediate past Chairman of the Large Public Power Council, and I 
am testifying today on behalf of that group. We appreciate the efforts 
this Committee has made to advance the debate on how to achieve a 
competitive market that benefits consumers, and would like to offer the 
Large Public Power Council's assistance in crafting legislation to 
facilitate competitive markets.
    There are many issues that will be addressed by various witnesses 
today, but I will focus my comments today on a matter of pivotal 
importance to the Large Public Power Council's customers--private use 
restrictions that stand to deny public power customers the benefits of 
competition. Having said that, I would like to emphasize that our 
members believe that unless the private use issue is addressed by 
Congress, there can be no truly competitive market.
    The Large Public Power Council (``LPPC'') is an association of 21 
of the largest state and locally-owned electric utilities in the United 
States. Our members directly serve approximately 6,000,000 direct 
retail customers, and own and operate over 44,000 megawatts of 
generation, or about 11 percent of the nation's total capacity. In 
addition, we own and operate in excess of 24,000 circuit miles of 
transmission lines. LPPC's members are located throughout the country 
in states including Washington, Texas, Arizona, California, Florida, 
Georgia, New York and Tennessee.
    Since its inception, the LPPC has focused on transmission policy as 
a critical issue for its members. The LPPC was the first group of 
transmission owning utilities which expressed support for open 
transmission access in the debates preceding the Energy Policy Act of 
1992. At the same time, we led the way in developing and promoting 
regional transmission entities as a mechanism to manage and operate the 
transmission system in an open access environment. In addition to 
addressing the private use issue, we look forward to working with the 
Committee to develop transmission policies that ensure 
nondiscriminatory access to public power transmission facilities while 
recognizing that it may not be feasible to govern access to investor-
owned and public power transmission by identical rules.
Private Use
    The most compelling issue for LPPC's members today is private use 
restrictions. These restrictions, most recently revised by Congress in 
the 1986 Tax Reform Act, were written prior to the advent of a 
competitive electric industry. Today, the restrictions form a serious 
barrier to open competition and customer choice. Because of the rapid 
pace of restructuring in the states, it is important that Congress act 
immediately to fix this problem. Failure to address private use will 
preclude many public power systems from opening their systems to full 
competition, and could result in higher rates for consumers, contrary 
to the goals of electric industry restructuring. In my testimony, I 
will outline the private use problem, and further explain why federal 
legislation to provide fair competition that benefits all consumers 
cannot work without private use relief.
Background
    By way of background, public power systems have no practical source 
of external financing other than the municipal debt markets. Unlike 
private companies, public entities cannot issue stock. The private use 
rules which apply to our financing provide that no more than the lesser 
of 10 per cent, or $15 million of a power plant or transmission line 
financed with municipal debt, can be sold to a private entity under a 
customer-specific contract. In the regulated monopoly world that 
existed prior to competition, this requirement was problematic but 
manageable. In a competitive world of open transmission access, it has 
very serious consequences for our members, their customers, and 
investors.
The Problem
    In practice, here's what the private use rules mean in a 
competitive environment, which already is a reality in the wholesale 
market and which is becoming a reality in the retail market in nearly 
half of all the states :

1. In its recent Notice of Proposed Rulemaking, FERC has strongly 
    encouraged that all transmission-owning utilities participate in 
    Regional Transmission Organizations (RTOs). Furthermore, Congress 
    is considering legislative proposals that give FERC the authority 
    to require participation in RTOs. We support the development of 
    RTOs as important to the establishment of competitive markets that 
    are both efficient and reliable. At the same time, private use 
    rules may act to preclude effective participation of public systems 
    in an RTO, because an issuer that joins an RTO may not be able to 
    issue tax-exempt bonds to finance its transmission facilities, or 
    worse, may be required to redeem or defease outstanding bonds.
2. In a competitive environment, large customers will seek and obtain 
    special tailored contracts to meet their specific needs, just as 
    they do in buying any product. Because of outdated private use 
    rules, a public power utility may be unable to offer such a 
    contract, even to customers in their own service territory that 
    they have been successfully serving for decades. This could deny 
    that customer the best choice in the market, and will lead to loss 
    of customers for the utility for reasons that have absolutely 
    nothing to do with price or quality of service.
3. If a public power system loses a customer in a competitive 
    environment (and all utilities will lose customers), the public 
    system may be unable to re-market the generating capacity it had 
    built to serve that lost customer as a result of the private use 
    rules. Thus, any excess capacity that a public system has may 
    become idle and unproductive for the economy solely as a result of 
    the private use tax rules. Inability to resell the capacity can 
    lead to significant financial losses and reductions in overall 
    economic efficiency. The bottom line: the remaining customers of 
    that utility would pay higher costs.
    In summation, penalties for public power customers come in the form 
of higher rates, at a time when competition is supposed to be reducing 
rates. The consequences for public power's investors, which hold more 
than $70 billion in outstanding tax exempt debt issued to finance the 
generation, transmission and distribution facilities, are equally 
undesirable. Public power's investors include a broad spectrum of 
people who have invested in this debt either directly or indirectly 
through mutual funds to fund their retirements, college educations, and 
other needs. They rely on the ability of public power systems to repay 
them through the sale of power from the assets they financed. Failure 
to deal with the private use issues, however, may cause downgrades of 
public power bonds, and lead to increased turbulence in the public 
power debt market. This in turn may impact other segments of the 
municipal debt market, upon which states, cities and towns rely to 
finance necessary infrastructure. Turbulence and uncertainty in these 
markets leads to higher borrowing costs, all of which ultimately will 
be absorbed by investors, citizens and customers.
Legislative Solution
    Mr. Chairman, you have asked me to identify which elements of the 
various proposals before you are essential to comprehensive federal 
legislation. While I am sure we could agree on certain elements of the 
proposals which are designed to ensure reliability and provide fair 
rules of the road for competition, in our view, for our members, one 
issue acts as the linchpin for the entire restructured market--
meaningful relief from the existing, anti-competitive private use 
restrictions. Our members will find it difficult to support 
restructuring legislation that does not provide private use relief--
either in the same bill or in companion legislation from the tax 
committees. We need to address private use in a manner that permits 
public power to continue to provide its customers with competitive, 
low-cost, reliable power. We recognize that the Commerce Committee's 
jurisdiction does not permit it unilaterally to deal with all pending 
tax and non-tax restructuring issues; however, we are confident that 
the Commerce and Ways and Means committees can work together to resolve 
this issue.
    With respect to the bills currently before this Committee, the LPPC 
has endorsed the private use provisions of the retail competition bill 
introduced by Congressmen Largent (R-OK) and Markey (D-MA). Just as the 
overall bill represents bipartisan compromise, its private use 
provisions, which also have been introduced by Congressmen Hayworth (R-
AZ) and Matsui (D-CA), represent a fair solution. These provisions 
allow publicly-owned utilities to elect to grandfather existing tax-
exempt debt incurred to build generation facilities, and permits them 
to operate outside of restrictive current private use rules. In this 
way, publicly-owned utilities will be able to bring the benefits of 
competition to their customers. In exchange, publicly-owned utilities 
would permanently forgo the ability to issue future tax-exempt debt to 
build new generating facilities. Those utilities that do not elect to 
terminate issuance of tax-exempt debt would remain subject to modified 
private use rules.
    We also understand that Chairmen Bliley and Barton are working to 
fashion a compromise comprehensive restructuring proposal that will 
address private use and other tax issues. We encourage the Committee to 
pursue this path.
    In conclusion, the LPPC believes that the Committee is moving in a 
positive direction on retail competition issues. We would like to work 
with you to ensure that the Largent-Markey private use provisions are 
enacted by this Congress, and through that effort, offer our assistance 
in supporting this Committee's efforts on broader restructuring issues, 
including transmission policy.
    Thank you for the opportunity to testify before you today.

    Mr. Barton. Okay, Mr. Crisson. We appreciate you coming 
from Washington to share that message; Washington State, that 
is, not Washington, DC. We would now like to hear from Mr. 
Parkel from the AARP for 5 minutes.

                  STATEMENT OF JAMES G. PARKEL

    Mr. Parkel. Thank you, Mr. Chairman.
    My name is Jim Parkel. I am a member of the AARP National 
Board of Directors. We thank Chairman Baton and the other 
members of the committee for inviting us to present our views 
on the consumer protection provisions of electric utility 
restructuring legislation introduce to this Congress.
    We will confine our comments to H.R. 1828 and H.R. 2050. 
These two bills specifically address the major areas of concern 
that AARP outlined in May's testimony before this committee. In 
short, AARP wants to ensure that the residential customer 
benefits from competition. That there is a strong consumer 
protection provision in place, and that electric utility 
service is available to all.
    AARP believes strongly that residential customers should 
benefit from restructuring. Unfortunately, residential 
consumers are simply not as attractive to utilities as 
industrial consumers are. However, one means to strengthen the 
position of residential consumers is through aggregation.
    Aggregation will allow residential consumers to pool their 
respective electric needs, enabling them to negotiate lower 
rates from a power provider and benefit from the outset. AARP 
supports a Federal role in facilitating aggregation.
    The AARP commends the sponsors of H.R. 1828 and H.R. 2050 
for including provisions that require States to allow 
aggregation. We believe that legislation would benefit 
residential consumers. Further, if language were included 
recommending that municipal aggregation be done on an opt-out 
basis.
    The opt-out provisions would ensure that a majority of 
under-served consumers would reap and could reap the benefits 
of lower rates. For competition in the electricity industry to 
work, strong consumer protection laws must be applied to the 
sale of electricity in a restructured industry.
    We are pleased that both H.R. 1828 and H.R. 2050 include 
provisions that will take advantage of the unique opportunity 
to prevent fraudulent activity. For starters, the anti-slamming 
and anti-cramming provisions will go a long way toward 
addressing these practices. In addition to providing the FTC 
with the tools to counter slamming and cramming, Congress 
should consider enacting a truth in billing requirement.
    A comprehensive, easy to read billing statement each month 
would better inform consumers. AARP strongly believes that 
providing such information to consumers will help alleviate 
confusion, making them more likely to become participants in a 
competitive marketplace. AARP is pleased that the need for 
information disclosure is increasingly understood by the 
policymakers and reflected in the legislation. Both H.R. 1828 
and H.R. 2050 include important provisions outlining the kind 
of information that suppliers must present to consumers when 
offering their services.
    Finally, we applaud Representatives Largent and Markey's 
plan for the protection of individual privacy, placed on the 
information exchange, included in H.R. 2050. AARP values the 
individual's right and ability to control the movement of 
personal information.
    We are pleased that the provisions in H.R. 2050 recognize 
that right. As we have said previously, electric utility 
service is essential. It is arguably more important to the 
residential consumer than phone service. Unfortunately, none of 
the legislation introduced to-date provides adequately for a 
Federal role in the area of universal service.
    H.R. 2050 recognizes universal service through, ``a sense 
of the Congress.'' H.R. 1828 attempts to address the universal 
service issue through a proposed Public Benefits Fund. Our 
written statement details our concerns with both these 
approaches and offers a solution.
    AARP hopes that as legislation moves toward passage in the 
House, the provisions we have discussed today remain in tact or 
are strengthened. We urge this committee to remember that 
residential consumers will benefit from restructuring only if 
aggregation is facilitated, strong consumer protection 
provisions are enacted, and electric service is ensured for 
all.
    Thank you very much.
    [The prepared statement of James G. Parkel follows:]
    Prepared Statement of James G. Parkel, Board of Directors, AARP
    Mr. Chairman and Members of the Committee: My name is Jim Parkel 
and I am a member of AARP's Board of Directors. We thank Chairman 
Barton and the other members of the Committee for inviting us to 
present our views on the consumer protection provisions of various 
pieces of legislation introduced this Congress dealing with the 
restructuring of the electric utility industry. While we will make 
mention of provisions in other pieces of legislation, we will confine 
the majority of our comments to H.R. 1828 and H.R. 2050. The former, 
authored by the Administration and sponsored by Chairman Bliley, and 
the latter, sponsored by Reps. Largent and Markey, specifically address 
AARP's major areas of concern.
    AARP's membership has a vested interest in the move towards 
competition now underway in the electric utility industry. For 
everyone, electricity is a basic necessity of modern life. The cost of 
this necessity, however, can comprise a significant portion of an 
average consumer's personal expenditures. In fact, energy costs can 
take up to as much as 5 percent of the median-income household's 
monthly budget. Older Americans are particularly vulnerable to rapid 
increases in energy prices. Although older persons consume 
approximately the same amount of residential energy as non-elderly 
Americans do, they devote a higher percentage of total spending to 
residential energy. Among low-income older families, an average of 17.5 
percent of their income is spent on residential energy. Too often, low-
income older persons are faced with the choice of risking their health 
and comfort by cutting back on energy expenditures or reducing spending 
for other basic necessities.
    In testimony AARP presented to this Committee earlier this year, we 
discussed generally our concerns surrounding the move to retail 
competition. We questioned the claims that retail competition would 
bring about substantial rate reductions for all ratepayers, including 
the elderly. We also expressed hope that consumers would receive the 
corollary benefits of the ability to shop among competitive providers, 
and to take advantage of a new array of products and pricing options. 
We concluded that the fate of residential consumers in a restructured 
electric industry will depend on whether the new market structure gives 
them a fair chance to receive the benefits of competition, ensures that 
their interests are represented in the market, and provides fundamental 
protections against abuse.
    Residential ratepayers, and particularly older Americans, face very 
significant risks--and few, if any, assured benefits--in the move to 
retail competition in the electric power industry. These risks go 
beyond the ability to benefit from choice. They also include risks 
associated with confusion, deception and fraud.
    AARP's concerns have led us to question the need for federal 
legislation. However, as restructuring activity in the individual 
states continues, issues have crystallized that require congressional 
action. Still, until recently, AARP continued to have doubts because 
the issues we deem important to residential consumers were not being 
addressed by federal lawmakers. That has changed.
    The most significant factor in that change has been the elimination 
of the mandate to the states to restructure their markets--otherwise 
known as a ``date certain.'' AARP has expressed its opposition to that 
proposal repeatedly. That barrier now removed, we can discuss the 
positive potential that passage of federal legislation might hold for 
consumers. Our testimony today will focus on how legislation introduced 
to date has addressed AARP's goals to:

 Ensure that residential customers are among the first to 
        benefit from competition;
 Provide strong consumer protection provisions; and
 Establish a comprehensive universal service policy, including 
        a guarantee of affordability.
Residential Customers First
    AARP believes strongly that residential customers should benefit 
from restructuring. Unfortunately, residential consumers are simply not 
as attractive to utilities as industrial customers are.
    I think that an experience a fellow member of AARP's Board of 
Directors had last October is illustrative of this point. He 
represented residential consumers in a panel discussion on electric 
utility restructuring. The remainder of the panel was made up of 
decision-makers from utilities, industrials, power marketers, 
regulatory bodies and Wall Street investors. The spontaneous discussion 
focused on scenarios offered by the moderator. The scenarios were set 
on a timeline beginning with the opening of a competitive market and 
running well into the first few decades of the 21st century. It is 
instructive to note that the residential consumer was not brought into 
the discussion until the market had been open for 10 years!
    All is not hopeless, however. Aggregation will allow residential 
consumers from like communities or associations to pool their 
respective electricity needs, enabling them to negotiate lower rates 
from a power provider and benefit from the outset.
    AARP supports a federal role in facilitating aggregation. On the 
state level, we have been promoting municipal aggregation with a 
voluntary opt-out procedure. We favor allowing non-governmental 
entities to become aggregators as well. AARP commends the sponsors of 
H.R. 1828 and H.R. 2050 for including provisions that require states to 
allow aggregation. We suggest that the legislation would benefit 
residential consumers further if language were included recommending 
that municipal aggregation be done on an opt-out basis. The opt-out 
provisions would ensure that a majority of underserved consumers would 
reap the benefits of lower rates.
Consumer Protection Laws
    For competition in the electricity industry to work, strong 
consumer protection laws must be applied to the sale of electricity in 
a restructured industry. Low-income, non-English speaking and elderly 
consumers, in particular, will need very strong consumer protections to 
prevent abuse in the competitive market. Legislation introduced in the 
last Congress neglected to focus any attention on protecting the 
residential consumer.
    We are pleased that both H.R. 1828 and H.R. 2050 include provisions 
offered by AARP to address consumer protection concerns. The proactive 
approach to addressing the specific problems of slamming, cramming and 
information disclosure is to be commended.
    The sponsors of H.R. 1828 and H.R. 2050 have taken advantage of the 
unique opportunity to nip fraudulent activity in the bud. If enacted, 
the anti-slamming and anti-cramming provisions will go a long way 
towards addressing these abuses.
    In addition to providing the FTC with the tools to counter slamming 
and cramming, Congress could put in place another measure that would 
reduce incidents of fraud while providing the consumer with valuable 
and necessary information. A ``Truth-in-Billing'' requirement is of 
paramount importance to consumers and would serve the best interests of 
electric utility service providers as well. We recognize that the 
functional components of metering and billing are under state 
jurisdiction, but a regulation similar to the one recently approved by 
the Federal Communications Commission would provide consumers with a 
wealth of information, in a form that is ``user friendly'' without 
preempting state authority.
    It is undeniable that as various industries continue to converge, 
and the utility billing statement becomes a more attractive means to 
bill for services, consumers are likely to become more and more 
confused by what they are being asked to pay for. A comprehensive, 
easy-to-read billing statement each month will enable consumers to 
better track what services are being provided, who is providing them, 
at what cost they are being provided, what additional taxes or charges 
are being imposed and whom they can call if they have a dispute. Other 
items that should be displayed on the billing statement include 
information regarding service interruption and the mix of resources 
used to generate the power. We also support the use of standardized 
language in describing fees or charges that are being imposed on 
consumers. AARP strongly believes that providing such information to 
consumers will help alleviate confusion, making them more likely to 
become participants in the competitive marketplace.
    AARP is pleased that the need for information disclosure is 
increasingly understood by policymakers and reflected in legislation. 
Both H.R. 1828 and H.R. 2050 include provisions outlining the kind of 
information that suppliers must present to consumers when offering 
services. Many of the details that we have proposed to be included in 
billing statements are included in this section of the respective 
bills. Further, H.R. 2050 clarifies that states may impose additional 
requirements. Again, this kind of ``consumer information floor'' is 
what we are seeking in a ``truth-in-billing'' provision.
    AARP also supports the creation of a consumer database to assist 
residential customers in obtaining information about retail electric 
utility providers, including aggregators, as called for in H.R.1828. 
However, we suggest housing the database at the FTC, an agency whose 
traditional role and primary mission has been consumer protection, 
rather than DOE as proposed.
    To protect consumers, licensing requirements and safeguards against 
fraud must also be put in place. As large aggregators, utility 
companies and power marketers are likely to operate on an interstate 
basis, it is incumbent upon the Congress to ensure that they meet 
certain threshold operational requirements and that deceptive, 
fraudulent or other illegal behavior not be not tolerated.
    Finally, we applaud Reps. Largent and Markey for the detailed 
restrictions placed on information exchange included in H.R. 2050. AARP 
values the individual's right and ability to control the movement of 
personal information. We are pleased that the provisions in H.R. 2050 
recognize that right.
Universal Service
    As we have said previously, electric utility service is essential. 
It is arguably more important to the residential consumer than is 
telephony. Therefore, one of the cornerstones in any restructuring 
effort is the requirement that electric utility service be universal 
and affordable. A universal service policy must ensure basic electric 
service at a level of consumption that would meet the needs of 
residential ratepayers for lighting, heating, cooling, cooking, and 
recreation. In our view, affordability means that electricity rates do 
not strain the household budget.
    AARP is concerned that in a competitive environment, less 
attractive customers will be adversely affected. While we recognize 
that there have been problems with the universal service program in 
telecommunications, we believe these problems need not carry over into 
the electric utility arena.
    Unfortunately, none of the legislation introduced to date provides 
adequately for a federal role in the area of universal service. H.R. 
2050 recognizes universal service through a ``Sense of the Congress,'' 
but places the full burden on the states to collect fees and implement 
the program. In H.R. 1828, the Administration has made an attempt to 
address universal service through a proposed Public Benefits Fund. Our 
concern with this fund is that it renders low-income energy assistance 
an option, not a requirement. Further, we are concerned that the cost 
of the program may ultimately be borne by all consumers as a line-item 
charge `` effectively a new tax. We recommend rather that the costs of 
implementing a universal service system be placed on all generators of 
electricity based on a standard formula.
Conclusion
    We would be remiss if we did not acknowledge the fact that six 
other pieces of legislation have been introduced in this Congress on 
electric utility restructuring. They deal with critical topics ranging 
from PUHCA and PURPA repeal to reforming the power marketing 
administrations. Both H.R. 1828 and H.R. 2050 also include sections 
that address those areas, as well as addressing concerns regarding 
stranded cost recovery and the private use issue. AARP has offered 
suggestions to decision-makers based on our policy positions in those 
areas.
    However, we have been invited here today to discuss consumer 
protection--and we are pleased that there is legislation in this area 
to discuss.
    AARP hopes that as legislation moves toward passage in the House, 
the provisions we have discussed today remain intact or are improved. 
We urge this Committee to remember that residential consumers will 
benefit from restructuring only if aggregation is facilitated, strong 
consumer protection provisions are enacted and electric service is 
ensured for all.
    Mr. Chairman, the work that you have done to highlight many of the 
inherent problems in the move to a deregulated environment this 
Congress is to be commended. Further, we applaud the sponsors of H.R. 
1828 and H.R. 2050 for their meaningful efforts to address the need for 
consumer protection. AARP looks forward to continuing our active 
participation in this debate on both the federal and state level and to 
working with you in crafting solutions that will ultimately benefit not 
only our members, but the nation as a whole.

    Mr. Barton. Thank you, Mr. Parkel.
    The Chair would recognize Ms. Zannes for her opening 
statement.

                   STATEMENT OF MARIA ZANNES

    Ms. Zannes. Thank you. Good afternoon, Mr. Chairman and 
members of the subcommittee. My name is Maria Zannes and I am 
President of the Integrated Waste Services Association. The 
IWSA is the Nation's leading waste-to-energy trade association. 
Our members would like to thank and commend Chairman Barton and 
other members of the subcommittee for their leadership on this 
issue.
    The IWSA represents power plants that are dual purpose. We 
dispose of household trash and generate clean, reliable 
electric energy. Nationwide, waste-to-energy power plants 
generate more than 2,700 megawatts of electricity for more than 
32 million tons of trash each year.
    Nearly 40 million people in 31 States safely dispose of 
their trash at one of the 103 waste-to-energy power plants in 
this country. Nearly 2.5 million homes plug into trash power. 
Revenues from electricity sales benefit the cities that use 
waste-to-energy facilities, and these same cities that use 
waste-to-energy will be directly impacted by the changes to the 
electricity marketplace.
    For these reasons, the U.S. Conference of Mayors and the 
Solid Waste Association of North America support the 
recommendations we are making here today. We urge the committee 
to include, as it seems to have, legislative provisions that 
preserve the rights and remedies of parties with existing PURPA 
contracts, to continue a long-standing recognition of waste-to-
energy and landfill gas utilization as renewable energy 
sources, and that encourage the use of renewable energy in 
tomorrow's electricity marketplace.
    The majority of States in which waste-to-energy plants 
operate, that have passed restructuring legislation, have 
embraced all three of these principles. Several of the measures 
now before this committee prospectively repeal Section 210 of 
PURPA and we join other independent power producers in 
supporting the strong contract sanctity provisions contained in 
virtually all of the bills.
    Waste-to-energy has been continuously recognized as a 
renewable energy source since the earliest drafts of PURPA in 
1977. More than 80 percent of the trash we use as fuel, is 
organic biomass. Trash is sustainable. It is indigenous to 
basic criteria for establishing what is a renewable energy 
source.
    Waste-to-energy is included under the term ``biomass'' in 
PURPA, as well as in the Federal Power Act Amendments of 1978, 
the Federal Energy Regulatory Commission regulations governing 
biomass energy, the Clean Air Act Amendments of 1990, and 
Department of Energy policy. We see no reason for legislation 
to reverse long-standing policy.
    Moreover, there are good environmental reasons to continue 
this policy on renewable energy. Our industry is a case in 
point. We are completing a more than $400 million retrofit on 
existing facilities to equip plants with the most modern 
pollution control equipment available. In fact, our industry is 
significantly cleaner than traditional fuels with respect to 
such environmental impacts as acid rain potential, global 
warming potential, and natural resources depletion.
    For example, the use of waste to energy technology 
prevented the release last year into our atmosphere of more 
than 4 million tons of methane, 15 million tons of carbon 
dioxide, as well as nearly 25,000 tons of nitrogen oxides, and 
5,000 tons of volatile organic compounds. Environmental 
provisions in any bill are as much an economic issue to us as 
an environmental consideration.
    Credit, we believe, should be provided to those suppliers 
that improve their technology by the use of modern pollution 
control equipment. A pure market may not be best suited at 
providing so-called public goods, such as a clean environment 
or fuel diversity.
    There is also a mismatch in the electricity context between 
the short term investment horizons of consumers and the long-
term investment requirements of capital-intensive power 
projects. It is therefore particularly important that 
government energy policymakers consider at least the 
environmental consequences of deregulation. In this context, 
continued governmental support for renewable energy is 
essential. This is true not only for the obvious health and 
environmental reasons, but for the economic security that 
renewables provide in the form of an insurance policy against 
becoming overly reliant on any single fuel.
    The larger the share of renewables in the electricity 
generation mix, and the more diverse the mix of renewables, the 
greater reduction and overall electric price volatility. We, 
therefore, support a renewable portfolio standard as one way to 
support renewables.
    In summary, we support legislative provisions that keep 
contracts whole and give waste-to-energy and other renewable 
energy a place in the emerging electricity marketplace. Thank 
you.
    [The prepared statement of Maria Zannes follows:]
    Prepared Statement of Maria Zannes, President, Integrated Waste 
                          Services Association
                            i. introduction
    Good afternoon, Mr. Chairman and members of the subcommittee. Thank 
you for providing me with the opportunity to testify today. My name is 
Maria Zannes, and I am president of the Integrated Waste Services 
Association (``IWSA''). The IWSA is the nation's leading waste-to-
energy trade association. Our members would like to commend Chairman 
Bliley and Chairman Barton and the committee for its leadership in 
tackling the complex issues facing a restructured electricity 
marketplace.
    The IWSA represents power plants that are dual purpose. We dispose 
of household trash and generate clean, reliable electric energy. 
Nationwide, waste-to-energy power plants generate more than 2,700 
megawatts of electricity from more than 32 million tons of trash each 
year. Nearly 40 million people in 31 states safely dispose of their 
trash at one of the 103 waste-to-energy power plants in the country. 
Nearly two and a half million homes plug into trash power.
    Revenues from electricity sales benefit the cities that use waste-
to-energy facilities. Those same cities that use waste-to-energy will 
be directly impacted by changes--either for the good or for the bad--to 
the electricity marketplace as a result of federal legislation. For 
these reasons, among others, the U.S. Conference of Mayors and the 
Solid Waste Association of North America (``SWANA'') support the 
recommendations made here today.
    The IWSA urges the committee to include legislative provisions that 
preserve the rights and remedies of parties with existing PURPA 
contracts; that continue a long-standing recognition of waste-to-energy 
and landfill gas utilization as renewable energy sources; and that 
encourage the use of renewable energy in tomorrow's electricity 
marketplace.
    The majority of states in which waste-to-energy plants operate that 
have passed restructuring legislation have embraced all three of these 
principles.
                   ii. contracts should be preserved
    Several of the measures now before this committee prospectively 
repeal section 210 of PURPA which includes the mandatory power purchase 
provisions. We join other independent power producers in supporting 
strong contract sanctity provisions that preserve the rights and 
remedies of parties with PURPA contracts now in effect. We urge the 
committee to make plain in any legislation that existing contracts will 
not be affected by the prospective repeal of PURPA.
    We support the contract sanctity provisions of H.R. 2050 as 
introduced by Congressmen Largent and Markey.
          iii. waste-to-energy as a renewable source of power
    Waste-to-energy power has been considered a renewable source of 
electricity in this country for more than twenty years, and has been 
continuously recognized as a renewable energy source since the earliest 
drafts of PURPA in 1977. More than 80 percent of the trash we use as 
fuel is organic biomass, according to the U.S. Department of Energy. 
Trash is both sustainable and indigenous--two basic criteria for 
establishing what is a renewable energy source. Waste-to-energy is 
included under the term ``biomass'' in PURPA, as well as in the Federal 
Power Act Amendments of 1978, the Federal Energy Regulatory Commission 
regulations governing biomass energy, the Clean Air Act Amendments of 
1990, and Department of Energy policy.
    We see no reason for legislation to reverse long standing policy.
    Moreover, there are good reasons to continue this policy from an 
environmental standpoint. Our industry is completing a more than $400 
million retrofit on existing facilities to equip plants with the most 
modern pollution control equipment available. We are one of the first 
industries to be subject to new Clean Air Act rules. We meet some of 
the most stringent environmental standards in the world. In fact, our 
industry is significantly cleaner than traditional fossil fuels with 
respect to such environmental impacts as acid rain potential, global 
warming potential and natural resources depletion.
    The use of waste-to-energy technology prevented the release last 
year into our atmosphere of more than 4 million tons of methane, and 15 
million tons of carbon dioxide, as well as nearly 25,000 tons of 
nitrogen oxides, and 5,000 tons of volatile organic compounds.
    We support environmental provisions that ``level the playing 
field'' for generators of electricity. This is as much an economic 
issue as it is an environmental consideration. Credit should be 
provided to those suppliers that improve their technology by the use of 
modern pollution control technology.
    The stellar results from the retrofit of the waste-to-energy 
industry is a case in point. The U.S. Environmental Protection Agency 
estimates that the waste-to-energy industry has decreased mercury 
emissions by more than 90 percent, to less than three percent of EPA's 
inventory of mercury emissions from industry; and decreased organic 
emissions such as dioxin by more than 99 percent, to less than one-half 
of one percent of EPAs estimate of manmade dioxin emissions.
                  iv. renewables should be encouraged
    An unfettered, competitive market may not be well suited to make 
all the decisions on resource allocation for our society. A pure market 
is simply inefficient at providing so-called public goods such as a 
clean environment or fuel diversity. There is also a mismatch in the 
electricity context between the short term investment horizons of the 
consumer and the long term investment requirements of capital intensive 
power projects. It is therefore particularly important that government 
energy policy makers not lose sight of the environmental consequences 
of the rapid deregulation of the electric generation industry.
    In this context, continued governmental support for renewable 
energy, including biomass, waste fuels, solar, wind and landfill gas, 
is essential. This is true not only for the obvious health and 
environmental reasons, but for the economic security that renewables 
provide for consumers. Non-depletable, indigenous energy resources 
constitute an insurance policy against becoming overly reliant on--and 
therefore vulnerable to the potential price fluctuations of supply 
shortages of--any single fuel. consumers may enjoy unleashing supply 
and demand forces for as long as there is an overhang of capacity. 
However, we should remember that the larger the share of renewables in 
the electric generation mix, and, equally important, the more diverse 
the mix of renewables, the greater the reduction in overall electric 
price volatility.
    IWSA supports provisions in H.R. 1828 and H.R. 2050 that call for a 
renewable portfolio standard. Many states in which we operate, 
including California, Oregon, Massachusetts, Connecticut, New Jersey, 
and New Hampshire, have included an RPS in their restructuring laws, 
and have defined waste-to-energy as a renewable. While an RPS may not 
be the only method to encourage renewable power, it is perhaps the most 
assured way to keep renewables part of the mix because it mandates that 
some small percentage of power will come from renewable sources.
                             v. conclusion
    In summary, we support legislative provisions that keep contracts 
whole, and give waste-to-energy and other renewable energy a place in 
the emerging electricity market. Thank you.

    Mr. Barton. Thank you. We would now like to hear from Mr. 
Marty Kanner who is with the Consumers For Fair Competition. 
Mr. Kanner.

                   STATEMENT OF MARTY KANNER

    Mr. Kanner. Thank you, Mr. Chairman.
    Consumers For Fair Competition is a broad and diverse 
coalition of interests dedicated to formation and promotion of 
a competitive market structure. We have had the pleasure and 
benefit of testifying before your subcommittee before on the 
issue of market power. As such, my comments today will focus on 
the bills and provisions, and how they address the issues of 
market power.
    In general, CFC is encouraged by the recognized need to 
address these issues. However, we believe the pending bills, to 
varying degrees, lack sufficient tools and guidance to fully 
combat the varied and multiple ways in which the exercise of 
market power can and most likely will frustrate the development 
of competitive markets.
    The potential for market power abuse cannot be adequately 
addressed by market forces, Federal anti-trust enforcement, or 
State restructuring laws. As noted by many of the witnesses on 
the first panel today, Congress must include provisions in 
Federal restructuring legislation to ensure that the 
transmission grid operates independently of electricity market 
participants, alleviate overly concentrated generation markets 
that will sustain high prices, entry barriers, and inefficient 
markets, scrutinize the competitive implications of all utility 
mergers, provide State regulators with access to utility books 
and records, and provide model, enforceable standards to 
prevent utility cross-subsidization.
    Finally, establish mandatory reliability standards that 
ensure system integrity and prevent unfair market manipulation. 
With these objectives in mind, I offer the following 
observations and recommendations on the bills pending before 
this subcommittee. CFC encourages this subcommittee to adopt 
the regional transmission organization provisions of the 
Largent-Markey bill.
    CFC commends the administration for proposing similarly 
strong RTO language, and also commends Representative Stearns 
for recognizing the need to advance independence of the 
transmission grid. On the issue of market concentration, CFC 
would urge this subcommittee to adopt the provisions of the 
Delay-Markey bill of last Congress.
    In the alternative, Section 104 of the Largent-Markey bill 
should be revised and strengthened to correct the limitations 
of scope and authority that are outlined in my testimony. CFC 
encourages this subcommittee to adopt the merger provisions of 
H.R. 1828, the administration's bill, and also provide for FERC 
review of electric and gas convergence mergers.
    CFC urges this subcommittee to adopt measures that parallel 
the affiliate transaction provisions contained in the 1996 
Telecommunications Act. Finally, we urge this subcommittee to 
adopt the reliability provisions contained in both H.R. 2050 of 
the Largent-Markey bill, as well as the administration's 
proposal. Consumers For Fair Competition does not support 
adoption of H.R. 2363 on a stand-alone basis.
    In addition, we believe that PUHCA repeal should be delayed 
to provide adequate opportunity for replacement market power 
provisions and retain competition to take hold. For that 
reason, we prefer the conditional repeal provided in the 
Largent-Markey bill, and prefer the 18-month effective date 
contained in various proposals pending before this 
subcommittee.
    To promote the transition to competitive electricity 
markets, affirmative steps must be taken to remove the vestiges 
of the former regulatory system and its accumulated 
opportunities to exercise market power. Once done, the 
transition to competition can occur. The need for active 
regulation will subside, and the intended consumer benefits 
will be realized. Thank you very much, Mr. Chairman.
    [The prepared statement of Marty Kanner follows:]
  Prepared Statement of Marty Kanner on Behalf of Consumers for Fair 
                              Competition
    Mr. Chairman, Members of the Subcommittee, I am Marty Kanner. I am 
testifying today on behalf of Consumers for Fair Competition (CFC), a 
coalition of small business interests, power marketers, consumer and 
investor owned utilities, small and large electric consumer 
representatives, and environmentalists.1 While the interests 
of these organizations in the broader restructuring debate are diverse, 
we are unified in the belief that the intended benefits of competition 
will not be realized or sustained if market power issues are not 
adequately addressed in federal legislation.
---------------------------------------------------------------------------
    \1\ American Public Power Association, Electricity Consumers 
Resource Council (ELCON), Enron, Friends of the Earth, Madison Gas & 
Electric, Missouri River Energy Services, National Association of State 
Utility Consumer Advocates (NASUCA), Northern California Power Agency, 
Ohio Municipal Electric Association, Transmission Access Policy Study 
Group (TAPS), Wisconsin Public Power Inc., National Alliance for Fair 
Competition (members include: Air Conditioning Contractors of America, 
Air Conditioning & Refrigeration Wholesalers Association, American 
Supply Association, Associated Builders and Contractors, Independent 
Electrical Contractors, Petroleum Marketers Association of America, 
Plumbing, Heating and Cooling Contractors--National Association, 
National Electrical Contractors Association, Sheet Metal and Air 
Conditioning Contractors National Association)
---------------------------------------------------------------------------
    Given the coalition's focus, my testimony will address only the 
treatment of market power issues in the pending restructuring bills and 
will not address the broader issues contained in these bills nor those 
bills (such as H.R. 971, H.R. 1138, and H.R. 1486) in which CFC as a 
coalition has no formal position.
    In general, CFC is encouraged by the recognized need to address 
market power concerns. However, we believe the pending bills lack 
sufficient tools and guidance to fully combat the varied and multiple 
ways in which the exercise of market power can and will be used to 
frustrate the development of competitive markets.
    CFC looks forward to continuing to work with the Subcommittee to 
address this central issue in the restructuring debate.
Fostering Competition
    At its core, restructuring legislation is intended to combat market 
power--removing monopoly provision of retail electric supply. However, 
simply declaring open retail markets does not remove all of the 
structural impediments to competitive markets.
    First, the continued vertical integration of the industry provides 
opportunities for utilities to manipulate the transmission system to 
advantage their own generation or power marketing activities. Second, 
many generation markets remain highly concentrated with high barriers 
to entry, resulting in above-market prices and inadequate market 
development. Third, many market participants will participate in both 
regulated markets (transmission and distribution) and competitive 
markets (generation, marketing, energy and non-utility services), which 
provides considerable opportunities for cross-subsidization and other 
anti-competitive practices.
    As CFC has previously testified before this Subcommittee, the 
potential for market power abuse cannot be adequately addressed by 
market forces, federal anti-trust enforcement or state restructuring 
laws. Congress must include provisions in federal restructuring 
legislation to:

 Ensure that the transmission grid operates independent of the 
        electricity market participants
 Alleviate overly-concentrated generation markets that will 
        sustain high prices, entry barriers and inefficient markets
 Scrutinize the competitive implications of all utility mergers
 Provide state regulators with access to utility books and 
        records and provide model, enforceable standards to prevent 
        utility cross-subsidization
 Establish mandatory reliability standards that ensure system 
        integrity and prevent unfair market manipulation
 Prevent impermissible cross-subsidization and cost shifting in 
        order to establish fair and open competitive markets.
Independent Transmission Operations
    The vertical integration of the electric utility industry is 
largely incompatible with the needs of the competitive market. Despite 
the progress that has been made as a result of the Energy Policy Act 
and FERC Orders 888 and 889, the nation's transmission grid is not 
operated on a non-discriminatory and competitively neutral basis, and 
fails to fully promote or support a competitive generation market.
    Today, each utility's transmission network, despite a certain 
amount of reliability coordination, is operated largely as if it were 
an isolated island. This unnecessarily constrains and contracts 
markets. By acting in their own self-interest, owners can:

 reserve the majority of transmission capacity for their own 
        use (which use is not effectively subject to FERC comparability 
        standards),
 operate the system to favor its own (or affiliates') wholesale 
        or retail marketing function,
 take actions ostensibly for reliability purposes--such as 
        congestion management and emergency curtailment procedures--in 
        a discriminatory and anti-competitive manner, and
 fail to make transmission investments that would alleviate 
        congestion and promote the competitive market.
    CFC believes that ownership and/or control of the nation's 
transmission system must be transferred to truly independent regional 
bodies with strong authority to operate, plan, maintain and expand the 
transmission system. Such action will:

 ensure all market participants have equal and 
        nondiscriminatory access to transmission services;
 facilitate competition by eliminating ``pancaking'' of 
        multiple transmission charges and thereby expanding the 
        physical scope of markets;
 eliminate opportunities for the exercise of vertical market 
        power;
 reduce horizontal market power in generation by expanding the 
        geographical scope of the market; and
 insure that transmission additions occur to eliminate 
        bottlenecks, improve reliability, and facilitate construction 
        of new generation.
    Legislative Review: The formation of Regional Transmission 
Organizations (RTOs) is a common thread among many of the pending bills 
and is treated with varying degrees of success. The RTO provisions in 
H.R. 1828 and 2050 are most effective. The bills provide sufficient 
inducement and critical policy guidance--with the RTO comprising a 
broad geographic region, having true independence, and full 
responsibility for the operation of the grid.
    CFC is particularly pleased that Representatives Largent and Markey 
have drafted Section 108 of H.R. 2050 to provide the RTO with 
responsibility for planning and expanding the transmission system.
    CFC commends Representative Stearns for recognizing the need to 
encourage RTOs.
    CFC encourages the Subcommittee to adopt the RTO provisions of H.R. 
2050.
Market Concentration
    Formation of RTOs will mitigate vertical market power--where 
dominance in one market is leveraged to provide unfair advantages in a 
competitive market. However, while RTOs can to some extent reduce 
horizontal market power, more is needed to address generation markets 
that are so highly concentrated that competitive forces either don't 
exist or are insufficiently robust.
    In the electric generation market, market boundaries are determined 
largely by transmission constraints--physical limitations on transfer 
capabilities. Within these boundaries, it is common for an incumbent 
utility to own more than 40 percent of the generating capacity--a 
concentration level at which economists assume an ability of a dominant 
firm to set and control prices above what would occur in a truly 
competitive market.
    It is not simply total installed generation capacity that is 
important. Because of the physics inherent in electric system 
operations, some generation assets hold disproportionate strategic 
value--their operation may increase the carrying capacity of a vital 
transmission link, may be necessary for system reliability, provide 
peaking capacity that largely sets market prices, or provide ``high-
value'' ancillary services. Ownership of these facilities provides 
opportunities for anti-competitive behavior in a sub-market of the 
industry. Thus, while a generating company may possess a small 
percentage of total generation in a given geographic market, it may 
dominate a particular product sub-market within the region.
    Despite a significant increase over the past few years in the 
construction of non-utility generation, such facilities still represent 
a comparatively small fraction of total generation. Moreover, potential 
developers of such facilities often face a diverse set of entry 
barriers. Frequently, incumbent utilities own the prime sites for 
future plant location (often adjacent to existing plants). In addition, 
in many states, only utilities themselves can request and receive the 
necessary regulatory permits. Even if new, independent plants can be 
built, it will be years--and there will need to be considerable growth 
in demand--before competitive suppliers will break the lock of the 
dominant player and markets will begin to operate competitively.
    Legislative Review: Only H.R. 1828 and H.R. 2050 include provisions 
intended to address market concentration.
    Section 503 of H.R. 1828, the Administration's bill, properly 
defines the problem and provides necessary tools to address market 
power. Specifically, the provision directs the Federal Energy 
Regulatory Commission (FERC) to require utilities that possess market 
power to submit market power mitigation plans and allows FERC to modify 
those plans if needed to eliminate market power. A number of market 
power mitigation tools are outlined and FERC is expressly authorized to 
require asset divestiture. The Administration's market power provision 
is partially flawed, however, by the establishment of a bifurcated 
system in which FERC can only act in ``retail markets'' at the request 
of a state commission who confesses a lack of authority to remedy 
market power abuse. CFC believes that the division between wholesale 
and retail markets--and exercise of market power within them--becomes 
murky in a restructured industry which is inherently multi-state in 
nature. Consequently, this provision could cause confusion and 
``gaps.''
    CFC commends Representatives Largent and Markey for recognizing the 
need to address market power issue in restructuring legislation. 
However, we would like to see Section 104 of H.R. 2050 strengthened and 
modified. First, the provision is too narrow: it applies only to the 
exercise of market power by parties that own generation and 
transmission or distribution. As outlined above, market power can be 
exerted by generation-only companies. Second, the provision triggers 
only upon a FERC determination that market power has been exercised. 
Most importantly, we believe it is important that the existence of 
market power is addressed up-front before abuses occur. The exercise of 
market power can be quite subtle and subject to multiple 
``explanations.'' The trigger mechanism in H.R. 2050 renders the 
provision cumbersome and potentially ineffective. Third, the provision 
provides insufficient remedies, relying on a reimposition of cost-based 
rates at wholesale and retail. Inefficient cost-based pricing is what 
restructuring legislation is intended to correct. It would be 
unfortunate to re-impose cost-based rates in those highly concentrated 
markets in which real competition is most needed. Moreover, cost-based 
rates might be a financial reward--rather than the behavior-correcting 
``punishment'' intended by the authors. Finally, cost-based rate 
regulation--particularly by FERC in retail markets--may prove an 
impossible task once markets are deregulated by state action.
    CFC urges the Subcommittee to adopt the market power provisions of 
the DeLay-Markey bill of last Congress. In the alternative, Section 104 
of H.R. 2050 should be revised to correct the limitations outlined 
above.
Mergers
    As you know, utilities are merging at an unprecedented rate. Since 
the mid-1990's, 24 utility mergers have been completed, and 12 
additional mergers are pending at FERC. While mergers can bring 
efficiencies of size and scope, improved efficiencies and reduced rates 
are frequently not the result. According to a recent report by Anderson 
Consulting, less than half of the energy utility mergers over a 10 year 
period were profitable for shareholders. More troubling for the future 
of the competitive market, these mergers are often a mechanism for 
further consolidation of resources that increases market concentration 
and creates anti-competitive abuses.
    Incumbent utilities are also able to leverage their regulated 
operations to advantage their unregulated affiliates. Proprietary 
information on customer load patterns and energy needs can be 
transferred exclusively to affiliate power suppliers. Similarly, 
utilities can refer customers to their affiliates for installation and 
maintenance of HVAC equipment and other demand-side measures. Finally, 
utilities can cross-subsidize their unregulated affiliates through the 
market value of using the utility's name, logo or personnel, or by 
misallocating overhead expenses from the affiliate to the regulated 
utility.
    CFC believes that FERC's merger authority should be revised in 
several ways. First, the FERC standard for reviewing mergers should be 
expressly expanded to make competitive impacts the primary ``screen.'' 
If a merger advances competition--either on its own or through FERC-
imposed conditions--it should be approved; if it potentially frustrates 
competition, it should be rejected. Second, certain types of utility 
mergers and acquisitions--``convergence'' mergers between electric and 
gas utilities, merger of generation-only companies and mergers between 
utility holding companies--can be structured to escape FERC review. 
These regulatory gaps should be closed. Third, mergers should be 
scrutinized to ensure that they will produce continuing net consumer 
benefits, not simply advance company empires and egos.
    Legislative Review: The Administration's bill, H.R. 1828, comes 
closest to addressing CFC's objectives with respect to utility mergers. 
Under Section 110, FERC authority is clarified to address both mergers 
between holding companies and disposition of generation assets. CFC 
also commends the Administration for adding a ``competitive screen'' to 
FERC's merger review.
    CFC commends Representatives Largent and Markey for addressing 
mergers between holding companies. We encourage expansion of Section 
110 to address the other issues outlined above.
    Section 7 of H.R. 667 would eliminate FERC review of utility 
mergers and disposition of assets. CFC believes that FERC merger review 
should be maintained and refined as outlined above. While Department of 
Justice and Federal Trade Commission merger review is important, the 
regulated history of electric utilities and FERC's resulting expertise 
justify continued FERC merger review.
    CFC encourages the Subcommittee to adopt the merger provisions of 
H.R. 1828 and also provide for FERC review of electric and gas 
``convergence'' mergers.
Utility Affiliate Transactions
    The former monopoly status of utilities (and continued monopoly 
operation of distribution systems) provides anti-competitive 
opportunities in the ways that utilities and their unregulated 
affiliates interact. Utilities can:

 provide affiliates with preferential and discriminatory access 
        to important information on power and non-power sales 
        opportunities;
 purchase goods or services from affiliates at above-market 
        rates;
 provide affiliates with goods or services at below-market 
        rates;
 perform various administrative services for the affiliate that 
        are charged to the parent company or regulated utility; and
 provide the affiliate, at no cost, with the considerable 
        market value associated with the company name and logo.
    Such actions harm consumers by having captive distribution system 
ratepayers cross-subsidize the utilities unregulated affiliate venture. 
Such actions also harm competitors by providing utility affiliates with 
an unearned and anti-competitive advantage.
    Legislative Review: H.R. 667, H.R. 1587, H.R. 2050, H.R. 1828 and 
H.R. 2363 establish standards for affiliate transactions and FERC and 
state commission access to books and records. CFC believes the scope of 
and standards for affiliate transactions should be expanded and that a 
workable enforcement provision be included in order to address fully 
and effectively the problem of abusive affiliate transactions.
    CFC urges the Subcommittee to adopt measures that parallel the 
affiliate transactions provisions contained in the 1996 
Telecommunications Act.
Reliability
    As long as parties with a commercial commodity interest retain 
exclusive control of system reliability, opportunities will exist to 
manipulate legitimate reliability objectives for commercial advantage.
    Establishment of a self regulating reliability organization subject 
to FERC oversight, with authority to establish mandatory reliability 
requirements (and the security coordinators that do the implementation) 
will both promote a reliable electric system and competitively neutral 
reliability standards. The members of CFC support the consensus 
proposal developed by the North American Electric Reliability Council 
(NERC) and urge its adoption.
    Legislative Review: CFC commends the Administration and 
Representatives Largent and Markey for adopting the consensus 
reliability language in their bills. CFC also commends Representative 
Stearns for recognizing the importance of reliability issues by 
including meaningful provisions in his bill.
    CFC urges the Subcommittee to adopt the reliability provisions 
contained in H.R. 2050 or H.R. 1828.
Stand-Alone PUHCA Repeal
    PUHCA was enacted as a companion to the Federal Power Act. PUHCA 
establishes passive restraints on the structure of the electric utility 
industry in order to mitigate the formation and exercise of market 
power, preclude practices abusive to captive consumers and competitors, 
and facilitate effective regulation.
    Rather than ushering in competition as repeal proponents would have 
you believe, stand-alone repeal will have substantial anti-competitive 
repercussions and retard the development of a vibrantly competitive 
market.
    The members of CFC recognize that the current administration of 
PUHCA has clear limitations. However, its underlying purposes--the 
mitigation of market power and prevention of anti-competitive and anti-
consumer utility diversifications--remain relevant today. CFC believes 
that PUHCA could and should only be repealed as part of a broad 
electric restructuring bill that contains the market power provisions 
outlined above.
    Legislative Review: CFC does not support adoption of H.R. 2363 on a 
stand-alone basis. In addition, we believe that PUHCA repeal should be 
delayed to provide adequate opportunity for replacement market power 
provisions and retail competition to take hold. For that reason, CFC 
prefers the conditional repeal provided in H.R. 2050 and prefers the 18 
month effective date contained in H.R. 667, H.R. 1828, H.R. 2050 and 
H.R. 2363.
Conclusion
    Effective, sustainable competition will not automatically emerge in 
the absence of regulation. Regulation can--and should--be relaxed for 
those markets and products that are subject to effective competition. 
However, given the historical operation and structure of the electric 
utility industry, competition in all sectors and regions will not occur 
simply by legislative declaration.
    To promote the transition to competitive electric markets, steps 
must be taken to remove the vestiges of the former regulatory system 
and its accumulated opportunities to exercise market power. Once done, 
the transition to competition can occur and the need for active 
regulation will subside.

    Mr. Barton. Thank you, Mr. Kanner. I am not used to people 
finishing early. I was in the middle of collecting my thoughts. 
The Chair is going to recognize himself for the first 5 minutes 
of questions. I want to go to Mr. Crisson. I assume that you 
are the CEO of a City-owned municipal utility. You said Tacoma, 
Washington. Is that correct?
    Mr. Crisson. Yes, sir.
    Mr. Barton. Do not answer anything that is proprietary. I 
am not trying to get too nosey. In Tacoma, does the electricity 
company, on a net basis, generate funds that go to the general 
treasury of the City?
    Mr. Crisson. Subject to our City Charter and State law, we 
are assessed a 6 percent gross earnings tax on the revenues of 
our utility and that does go to the general fund of our City.
    Mr. Barton. So, you are assessed a tax, but if you have a 
good year and sell lots of electric, and generate more revenue 
than you can spend on maintenance and any improvements, the 
balance does not go to the City; it stays in some sort of a 
reserve fund?
    Mr. Crisson. That is correct. We have very specific State 
and City ordinances to that effect.
    Mr. Barton. For large municipals, I understand the city of 
Los Angeles has their own utility and the city of San Antonio. 
Those are two that I know of. Do they have a natural 
competitive advantage, vis-a-vis an investor-owned utility, or 
perhaps something like Bonneville, or the TVA? In today's 
marketplace, is there a reason to expand municipally owned 
utilities?
    Mr. Crisson. I think there is a reason to expand publicly 
owned utilities today as much as there ever was. I have a bit 
of a bias in that regard.
    Mr. Barton. You should.
    Mr. Crisson. I think it is important to recognize that 
historically public power has been the sole competitive yard 
stick, and the one option that people did have in the absence 
of wholesale and retail choice.
    Mr. Barton. I am absolutely for municipal power when the 
utility generating industry started. My question is 
prospectively, I mean, I listened to your testimony very 
carefully. Your group has signed off on one of the bills that 
grandfathers existing financing.
    If I understood you correctly, you agreed not to issue 
additional bonds in the future for new capacity that is not tax 
exempt. Is that not correct?
    Mr. Crisson. Well, that would be a feature of the bill in 
which an election is offered. That would be one of the choices 
a system could make; yes, sir.
    Mr. Barton. So, what I am trying to just work through, if 
we are going to enact a comprehensive restructuring bill, if 
you are going toward a competitive market, and that is the 
goal, is there still a need to have some sort of a guarantee, I 
do not want to be too punitive, a protected area for 
municipals? That is all.
    Mr. Crisson. No. I do not think there is a need for a 
protected area, Mr. Chairman, and I do not think that is what 
we are seeking.
    Mr. Barton. No. That is not what you said. I am asking more 
of a theoretical question.
    Mr. Crisson. No. I do not think there is a need for any 
protection for public systems in that regard. I think it is 
important to preserve, as I think I sense from many members of 
the committee, the principle of local choice and State control. 
That is all we are asking.
    What this particular request is all about is to make sure 
that as we make that transition, our customers are not punished 
or disadvantaged simply because they happened to be served by a 
publicly owned utility.
    Mr. Barton. I understand that. I think your position is a 
very defensible position. Mr. Brooks, you are the PUHCA Repeal 
Now spokesman, I think. Is that correct?
    Mr. Brooks. Yes, sir.
    Mr. Barton. What is your group's position on a Federal 
provision on PUHCA repeal that never repeals PUHCA, merely sets 
up conditions that exempt companies that are subject to it from 
it, so that the statute remains on the books, but there are 
conditions under which you are exempted from it. Is your group 
for that or against that type of a concept?
    Mr. Brooks. We are actually against that because we think 
the act itself should be repealed. You can come in and out of 
exemption, and even exempt companies are threatened by some of 
the aspects of it; foreign investment as an example.
    Mr. Barton. Okay. Your group has signed off on the Tauzin 
bill which is a 12-month repeal. There is another bill that is 
an 18-month repeal. What is magic about 12 months versus 18 
months, as opposed to immediate repeal?
    Mr. Brooks. When we say repeal now, we assume there would 
be a period of time from the time you enact it until it is 
effective. Of course, the sooner the better for us. We will not 
quibble over 6 months.
    Mr. Barton. Is there a business defensible technical reason 
that the transition period needs to be 18 months, or 24 months, 
or 12 months? I know there has got to be a certain time period. 
I am just interested in the difference between 12 months and 18 
months; if there is some actually fact-based reason to have a 
different time period.
    Mr. Brooks. No, sir. For us, the sooner the better. Others 
would just like longer to make the process.
    Mr. Barton. So, those who support a longer time period are 
doing it primarily to give political considerations time to 
come into being.
    Mr. Brooks. I think that is correct.
    Mr. Barton. Okay. My time is expired. I will have other 
questions perhaps after everybody has been given their 
opportunity. Mr. Hall is recognized for 5 minutes.
    Mr. Hall. Thank you, Mr. Chairman.
    Ms. Zannes, as the domestic oil and gas industry, which I 
have a great interest, since I have an oil patch in my 
district, and Mr. Kanner knows that. We have been concerned 
about our vulnerability from a national security standpoint; 
too much reliance on foreign oil. That has been ongoing. We 
have tried to do some things about it with import fees and 
things like that.
    We went up against mistreating people in the Northeast that 
have to have heating oil and all of that. It has just been 
almost an impossible thing to do. We have gone at it from every 
direction and we still have not done it. We have talked about 
the danger of us being vulnerable from a national security 
standpoint because of this reliance and the enormous 
disruptions that might occur if imports were substantially 
disrupted.
    I am going to give you one that I think you can knock right 
out of the park here. Would you say that increased reliance on 
renewables, I think our trash power, as you call it, could 
bring about a similar energy security problem for the Nation?
    Ms. Zannes. I do not believe, sir, that we will develop 
renewables to the point that we would be so dependent on 
renewables that it would cause a security concern. In fact, it 
is the opposite. I would propose that an increase from 2 
percent to 4 percent, which would be a doubling of renewables, 
would be a very small fraction of our energy generation. It 
could only go further to support and to help with national 
diversity and help with our security. How was that?
    Mr. Hall. That was good. They do not really compare in size 
or enormity, but it is a similar trend that you could fear, I 
think.
    Ms. Zannes. Yes, sir.
    Mr. Hall. Mr. Parker, would you like to tie into that one? 
I thought you blinked there or nodded or something. No. You 
just got your arms folded. You have been supportive of the 
renewable portfolio standard. If a standard is not adopted how 
well would tax credits work for your industry? Any of you 
working on those?
    Ms. Zannes. Well, Mr. Hall, I view perhaps a little 
differently than some of the renewable sources of power and 
interests. I view an RPS, or a tax credit, or a payment, all of 
that at the end of the day as similar; as producing the same 
result, which is an encouragement of renewables. So, my 
industry is more flexible perhaps in its position on 
encouragement of renewables.
    If you look at the RPS provisions of either the 
administration's bill or Mr. Largent's bill, you would see that 
there is a cap. In such, even an aggressive RPS, if our power 
is more than a penny and a half against all other power, the 
purchaser will go after getting credits versus buying power 
from us.
    So, the upshot, the bottom line to it is that even under an 
RPS, there is in some way just an encouragement of renewables 
up to 1.5 cents per kilowatt hour. The reason I think that our 
industry has supported an RPS more than tax credits or payments 
is that we believe that an RPS would be harder to take away.
    Large power investments are over the long-term. So, you 
want security; to the extent that you are saying you are going 
to get more for your power. To the extent you have an 
authorization, and every year you have to go back for an 
appropriation, there is less security in the price you are 
going to get for your power. Therefore, more reluctance in 
making the investment.
    Mr. Hall. Let me ask you about the burning of municipal 
solid waste, which sounds like a pretty sensible way to me to 
solve more than one problem. It eliminates a growing problem 
and you get something for it. It is a win-win deal. Why have 
not the waste energy plants become more common place throughout 
our country?
    Ms. Zannes. We have 103. We burn 15 percent of the 
country's trash. I must say that people do not say we need a 
new energy source. Let us gather up the trash and burn it. The 
facilities are built primarily as disposal options. Most 
recently especially, there has been a lower cost option with 
landfills. So, cities have turned to that. But, we are still 
growing.
    Mr. Hall. When you are trying to build, then own, and 
operation these things, what barriers do you hit? Who pushes 
you back? If we want to build a lake, the environmentalists 
hold you up for years and years.
    Ms. Zannes. To some extent, certainly the environmental 
concerns of anything with a smokestack becomes problematic. I 
do believe that, from a business standpoint, to the extent you 
have security and price, and security and fuel, those are the 
things that are of most concern. Quite frankly, having this 
uncertainty in the power market right now does not help. So, we 
look forward to the Congress acting and moving forward.
    Mr. Hall. I thank you.
    Ms. Zannes. Thank you.
    Mr. Hall. I yield back my time, Mr. Chairman.
    Mr. Barton. Thank you. We will recognize Mr. Burr for 5 
minutes.
    Mr. Burr. Thank you, Mr. Chairman. Let me thank Mr. Brooks, 
because if he had not mentioned me, I would have been aced out. 
I did not get mentioned by anybody else. So, I want to take 
this opportunity because I think that the exclusion or 
inclusion of something in these pieces of legislation I do not 
think is indicative of the total thoughts of any one individual 
or the reflection of the entire group.
    I would say to Mr. Parkel that we are all interested in 
making sure that we especially learn from some of the 
telecommunications things and those things that we feel might 
have a Federal need are in fact addressed. I hope that in the 
end, we can all look at the bill and say, you know, this is 
good.
    I think we would make a mistake, and this is a personal 
observation, that we would make a mistake to try to identify 
what those are prior to understanding where it is we are going. 
I think that is some of the reasoning that went into some of 
the bills and the exclusion of that component.
    Until we can find the consensus on where it is we are 
trying to get to and what that world will look like, it is 
difficult to determine how many things we need to address or 
what is appropriate and what is not; what might be our 
responsibility; what might be the State's responsibility. I 
would say that to some degree, Mr. Crisson, the same is true 
about the needs of public power.
    Clearly, it is an issue that goes through Ways and Means. 
One of the decisions that we have to make is do we want a bill 
that limits itself on deregulation to the concerns within the 
Commerce Committee, or do we feel confident in the expertise on 
deregulation of the members of the Ways and Means Committee who 
would then have the jurisdictional power, based upon that 
referral, to change the renewable portfolio or the consumer 
protection portions?
    There is some discomfort with that. I am happy to tell you 
that there is a willingness on the part of Ways and Means as we 
move for them to move. So, it can be done separately. If I were 
you, I would be calling for it to be all one package as well. 
So, please understand that we are empathetic of where you are.
    Ms. Zannes, you ended with the uncertainty in the power 
market.
    Ms. Zannes. Yes, sir.
    Mr. Burr. Tell me, if you will, what you mean by the 
uncertainty of the power market.
    Ms. Zannes. I come from a very limited view of being a 
PURPA contractor. Right now, primarily all of my contracts are 
PURPA contracts. As such, it is difficult to sit down and 
negotiate those types of contracts, given the uncertainty. You 
would think there would be a rush, quick, let us get them done. 
That does not seem to be the case. Whenever, both on a State 
basis, there are 23 States so far that have enacted some type 
of restructuring legislation. As I understand it, there are 
many more looking at it.
    Mr. Burr. I think 27 is the correct number.
    Ms. Zannes. I only looked last week.
    Mr. Burr. It is 23 that have done it and 27 that are 
looking at it, but that does add to 50; does it not.
    Ms. Zannes. I thought 27, as of last week, actually passed. 
I thought you were up on that. As such, if you are negotiating, 
you can imagine two business people, it leaves the more 
uncertainty as you sit down on both sides. Business does not 
like to negotiate in the uncertainty, and the risk of what may 
change, and whether you will get a better deal if you would 
just wait.
    Mr. Burr. Is there anybody on this panel that believes that 
Congress will do nothing?
    Ms. Zannes. I am sorry?
    Mr. Burr. Is there anybody on the panel that thinks 
Congress will do nothing as it relates to deregulation?
    [No response.]
    Mr. Burr. For the record, let me state that everybody 
agrees, Congress is going to do something. Mr. Brooks.
    Mr. Brooks. Mr. Burr, there is a good chance Congress may 
do nothing on the restructuring bill. I am speaking from 
experience. We have been working on this for a long time, which 
happens to be the reason why we would like to have a stand-
alone PUHCA bill because we question whether we will get a 
deregulation bill.
    Mr. Barton. We give you one point for getting that extra 
plug in there.
    Mr. Burr. So, given that most believe that Congress is 
serious about doing something, is it not reasonable to believe 
that, that uncertainty is going to exist and it is not just 
going to exist in the PURPA contracts? It is going to exist 
everywhere. Mr. Crisson, I take for granted you are in 
generation.
    If you were on the verge of needing additional power, you 
might be uncertain about whether to build your own generation 
or to buy until this thing gets straightened out so that you 
knew what the lay of the land looked like. Pretty accurate?
    Mr. Crisson. Yes, sir. That is a fair statement.
    Mr. Burr. I think the last litmus test that this committee, 
and hopefully this Congress, should go to is how does Wall 
Street respond to what we have done? With the exception of 
possibly Mr. Crisson, the rest of the world has to go to Wall 
Street for capital.
    It attracts it through shareholders or through loans. I 
think that one of the important things is Wall Street's 
assessment of what we have done. Does it make it predictable or 
does that uncertainty still exist? I think ultimately that is a 
question that every member, and hopefully the panelists, will 
look at, as well as those on Wall Street to determine what type 
of certainty did we bring to it.
    Did we bring the same certainty to the future for 
generation decisions that I am sure Mr. Parkel would like as it 
relates to the consumer protections? Certainly, we are not 
there yet. Until we can wrap this up, which will require work 
on both sides of the aisle, that uncertainty will exist and is 
certainly not healthy for the expansion of your business or any 
of the entities in the power business that are here. I 
certainly thank you for your expertise and your willingness to 
come. Mr. Chairman, I would yield back the balance of my time.
    Mr. Barton. Thank you, Congressman Burr.
    There were some other people on the first panel that 
mentioned the Burr bill. You got some votes this morning.
    Mr. Burr. I did not come for votes. I came for knowledge. 
Most of it I have gotten from Mr. Markey and I am eternally 
thankful for that.
    Mr. Barton. The vote winner of today's hearings, including 
the administration's bill is now with us, the Markey-Largent 
bill has gotten more positives on everybody's scorecard, except 
the Stearns scorecard who showed about 40 votes for Stearns for 
some reason. So, are going to recognize Mr. Markey for 5 
minutes for questions.
    Mr. Markey. I thank you, Mr. Chairman, very much.
    I apologize for not being here for the first panel. This is 
like my 40th, 50th electricity restructuring hearing. I am 
suffering from, my doctor says it is electricity restructuring 
fatigue syndrome. So, I am just kind of worn out. So, I thought 
I would give myself a break on the first panel.
    The beauty of that Stearns provision, by the way, is that 
it is inside of Largent-Markey. That is the great part about 
it. We actually have it in. He has just broken off kind of a 
tasty little tid-bit, but it is inside that larger smorgasbord 
that we have put together.
    So, here is what I would like to do, if I could. This is 
self-indulgent. Mr. Burr would appreciate this about me. What I 
would like to do is to go down the panel, if I could, and just 
get some sense of how they feel about Largent-Markey. So, 
Maria, who I know, do you support the PURPA language?
    Ms. Zannes. Yes, we do.
    Mr. Markey. Do you support the contract sanctity 
provisions?
    Ms. Zannes. We do.
    Mr. Markey. You do. All right. Let me keep moving then. Mr. 
Crisson, do you support the private use tax provision language 
of the bill?
    Mr. Crisson. Yes, we do.
    Mr. Markey. Mr. Parkel, do you support our aggregation 
consumer disclosure language and the privacy language?
    Mr. Crisson. Yes, sir.
    Mr. Markey. You do. Do you want us to do more on universal 
service?
    Mr. Crisson. We would like to and we gave some recommended 
thoughts on that on our documentation to see if there was a way 
to get a little more definition and recognition for universal 
service; yes, sir.
    Mr. Markey. What would you suggest?
    Mr. Crisson. What we suggested is that because there is a 
great deal of pressure on the States in the financial areas 
that we think that the under-served, disadvantaged people will 
have some funding problems and suffer through this. We 
recommended that there may be a tax put on the providers. That 
there could be a joint Federal and State group to help give out 
these funds to prevent any problems, really, for the 
disadvantaged consumers.
    Mr. Markey. Excellent. Mr. Kanner, do you support the 
regional transmission provisions?
    Mr. Kanner. Absolutely, Congressman.
    Mr. Markey. And the reliability provisions?
    Mr. Kanner. Yes, we do.
    Mr. Markey. And you would like the market power language 
strengthened?
    Mr. Kanner. Correct.
    Mr. Markey. Because?
    Mr. Kanner. Because in our view, Congressman, the provision 
needs to be strengthened to ensure that the generation side of 
the business is adequately competitive. There are a few ways, 
both in the trigger and the scope of authority that need to be 
adjusted to make sure we have competitive markets.
    If I could take 1 minute, Congressman, to respond to Mr. 
Burr's earlier observation. I would note that Wall Street in 
fact likes to have robust liquid markets. That is what we are 
trying to get on the generation side. They have also found that 
utilities that have divested generation have gotten a premium 
above book, and that the resulting distribution company, in 
fact, is a better investment opportunity; so, just a few 
observations I wanted to share with you.
    Mr. Markey. Thank you. Mr. Brooks, you strongly support the 
PUHCA provisions in Largent-Markey. I am sorry, you oppose. You 
oppose the PUHCA provisions of Largent-Markey and you support a 
free-standing PUHCA repeal with no requirement for retail 
competition. Is that right?
    Mr. Brooks. Yes, sir, that is right.
    Mr. Markey. Is there anyone here who is willing to take up 
this issue with Mr. Brooks as to why, in your opinion, he is 
wrong in terms of opening up having a requirement that there be 
open retail competition? Do any of you wish to volunteer? Yes, 
Mr. Kanner.
    Mr. Kanner. Congressman, I can opine a little bit on that. 
PUHCA was established in tandem with the Federal Power Act to 
protect consumers, competition, and afford effective 
regulation. The choices are really competitive markets or 
regulated markets.
    I think the provision in Largent-Markey recognizes that if 
you remove the regulation but do not in fact require the 
competition, that you may not end up with the desired end 
state. And I think that the genesis of your provision has a lot 
of merit to it.
    Mr. Markey. That is correctly stated. Mr. Brooks, what 
would you say to me, sir?
    Mr. Brooks. Congressman Markey, back to the market power 
issue, as I have stated earlier in my presentation, we think 
that the act, itself, stimulates market power. If we eliminate 
PUHCA, then we open up the opportunity to eliminate market 
power.
    We are against tying elimination of PUHCA, as we see it 
today, tying that to retail access because it would be not only 
unwieldy, but unfair to a holding company like ours, as an 
example, who is serving in a State, which does not have open 
competition.
    We would have to open up our system to choice and our 
neighbors could come take our customers and we could not take 
theirs. So, we think that is the unfairness of it. We do think 
that the market power issue is addressed adequately.
    Mr. Markey. Ms. Zannes, can you comment on this issue?
    Ms. Zannes. I do not have a comment.
    Mr. Markey. You do not have a comment. Mr. Crisson or Mr. 
Parkel?
    Mr. Crisson. Mr. Markey, I think that Mr. Kanner's view 
largely reflect the views of public power, frankly as a whole. 
Mr. Richardson's testimony in the first panel addresses this 
issue. We are somewhat sympathetic in the sense that we are 
pursuing legislation that will likely require the cooperation 
and input of another committee with jurisdiction. We think 
properly that any PUHCA repeal, as a part of any comprehensive 
legislation, that might go forward on electric restructuring.
    Mr. Markey. With all due respect, Mr. Brooks, I do disagree 
with your perception of what would happen if we repealed PUHCA 
and did not have some corresponding guarantee that the 
marketplace was open. My fear would be that you would be able 
to hold onto your monopoly, and yet be free from some of the 
responsibilities that are attendant to being in fact a 
monopoly.
    I think that is what we are trying ultimately to unravel 
here; that is the need to have the government in. That is the 
whole point of all of the laws we passed in the 1990's out of 
this committee. I just have to disagree with you on that.
    Mr. Brooks. Congressman, one other word. I understand that. 
First off, we think FERC has more than enough authority to 
control market power. Second, I would reiterate again the best 
way to not have market power is to have opportunity for all 
players to come in and provide generation in areas where we 
perceive there is market power.
    If we are a holding company, and we can only buy the 
utilities next door, we cannot participate several States away, 
nor can a market power dominated area expect participation from 
utilities in States further located away. So, we think the 
market power issue is really looked at in reverse on this 
issue. Eliminating PUHCA would help eliminate market power.
    Mr. Markey. We did create in the 1992 act----
    Mr. Barton. The gentleman's time has expired, I would say 
about 5 or 7 minutes ago. You got more votes than anybody else 
today. As the winner, we are giving you extended time.
    Mr. Markey. I thank you, Mr. Chairman. You are very nice.
    Mr. Burr. Mr. Chairman, could I make a public 
recommendation to the Chair that in following up on what Mr. 
Kanner said, that we try our best to have a Wall Street hearing 
at some point where we can actually bring people in and probe 
through this whole thing with Wall Street? I also would like to 
make it clear for the record that if our panelists ran for 
Congress, Mr. Markey would get four votes for his bill today 
and one against.
    Mr. Barton. Well, fortunately, none of these folks are 
considering running for Congress or we would all be in trouble. 
On your suggestion for a Wall Street hearing, my understanding 
is that is something that is under active consideration right 
now. That we actually have a memo to that effect that is in one 
of my many inboxes to take a look at. We are not going to have 
another final round. I had one more question.
    Mr. Burr, did you have another question?
    Mr. Burr. No.
    Mr. Barton. Mr. Markey?
    Mr. Markey. No.
    Mr. Barton. My question is to the AARP representative on 
aggregation. One of your representatives was at a working group 
meeting several days ago and I posed this question. I would 
like AARP to give some thought.
    Should aggregation be allowed by a national organization 
like AARP, or perhaps a company like McDonald's, or Walmart, in 
a closed State? In other words, is your support for aggregation 
only in those States that are already open? Have you thought 
about that or your organization?
    Mr. Parkel. We have thought about it. We have taken really 
no position on an AARP aggregation plan. We believe also that 
the States it would only really work in are the open States, 
the competitive States.
    Mr. Barton. Well, there is no technical reason if we 
statutorily allowed it that an association like AARP could have 
it everywhere, because it would seem to be somewhat unfair to 
let an AARP member in an open State, like Texas, participate 
but in a closed State, like Florida, not participate.
    Mr. Parkel. I agree with that. I just do not know how it 
would work at this point in time. I think that is something we 
would have to think about how to do it.
    Mr. Barton. Okay. I want to thank this panel for your 
patience. You were here at 11 a.m. and had to wait through a 
number of votes. We do not currently have any other hearings 
scheduled on electricity restructuring. We want to wait and see 
if we can put together a comprehensive bill. Hopefully we can, 
and we will have a legislative hearing or hearings on that 
bill.
    This hearing on the bills that are currently before the 
Congress is adjourned.
    [Whereupon, at 3:45 p.m., the hearing adjourned.]
    [Additional material submitted for the record follows:]

                           Food Marketing Institute
                                 Washington, DC, 20006-2701
                                                      July 22, 1999
The Honorable Joe Barton
U.S. House of Representatives
2264 Rayburn House Office Building
Washington, DC 20515
    Dear Chairman Barton: The Food Marketing Institute would like to 
submit this letter for the Record for the Energy and Power Subcommittee 
hearing on July 22, 1999. FMI is pleased that the Energy and Power 
Subcommittee is holding this hearing to examine all the legislative 
proposals on electricity restructuring.
    The Food Marketing Institute (FMI) is a nonprofit association 
conducting programs in research, education, industry relations and 
public affairs on behalf of its 1,500 members including their 
subsidiaries--food retailers and wholesalers and their customers in the 
United States and around the world. FMI's domestic member companies 
operate approximately 21,000 retail food stores with a combined annual 
sales volume of $225 billion--more than half of all grocery store sales 
in the United States. FMI's retail membership is composed of large 
multi-store chains, small regional firms and independent supermarkets. 
Its international membership includes 200 members from 60 countries.
    Electricity is the second highest operating cost for FMI members, 
second only to the cost of labor. Electricity is the only commodity 
used by our members which cannot be purchased competitively in all 
states.
    FMI is, and has been for a number of years, a strong advocate for 
federal legislation to create a competitive national electricity 
market, which legislation should include a date certain to guarantee 
all consumers in all states have the right to choose their electricity 
supplier. A date certain is the only way to guarantee that all classes 
of customers--commercial, residential, and industrial--in all states, 
benefit from competition in the electric industry. States will have the 
crucial responsibility for the details of breaking up the state 
chartered franchises.
    For FMI members who operate in several states or in monopoly 
states, a date certain is crucial in order to be able to aggregate 
power purchases with interstate contracts. Under the current system, 
large industrial users have the ability to go off the system and 
cogenerate their own power. They also can negotiate ``cogeneration 
deferral rates'' (a special discounted rate that the large users can 
get in order for the utility to retain their load and prevent the large 
user from going off the system). In other words, large users have 
options and can negotiate discounts in states that have not adopted 
retail competition. Residential customers and most commercial 
businesses have no options in states that have not adopted some form of 
retail access.
    Opponents of competition have labeled a date certain as a federal 
mandate and an infringement on states rights. But in reality 
competition is not a question of state versus federal rights, it is a 
question of the public's rights--the right of every citizen to choose a 
supplier of electricity and not be beholden to a monopoly. At a 
minimum, it is imperative that federal legislation contain a strong 
aggregation provision which will allow customers operating in any state 
to aggregate their power purchases in order to take advantage of their 
total purchasing volume. A state that has not adopted retail 
competition should not infringe on the right of a customer to have an 
interstate contract for providing power.
    Therefore, federal legislation should in no way restrict any seller 
of electricity from aggregating customers and, at the same time, should 
guarantee that any purchaser, wherever located, should have the right 
to join or affiliate with any other purchaser to buy in an aggregated 
manner. Without the ability to aggregate, small customers, including 
many commercial businesses, will be hard pressed to reap the full 
benefits of competition. In addition, restrictions on aggregation would 
prevent businesses from allowing employees to purchase electricity 
through the same aggregator used by his or her employer.
    Thank you for allowing us to submit this letter in Record. I look 
forward to working with you on all the issues surrounding electricity 
restructuring. If you need any additional information, please feel free 
to contact me at (202) 429-8262.
            Sincerely,
                                        John J. Motley III,
               Senior Vice President, Government and Public Affairs
cc: House Commerce Committee Members
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