[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.
---------------------------------------------------------------------------
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.
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\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.
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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
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\1\ Freehold Cogeneration v. Bd. Reg. Com'rs of N.J., 44 F. 3rd
1178 (3rd Cir. 1995).
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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
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\2\ Public Service Company of New Hampshire, et al. v. Patch, No.
97-97-JD (D.R.I.).
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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
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\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.
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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
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\4\ See id., Table 6.2.
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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
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\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).
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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.
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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
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\11\ Id., at p. 10.
\12\ Id., at p. 11.
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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
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\13\ See, e.g., House of Commons, Canada, Standing Committee on
Environment, Out of Balance: The Risks of Irreversible Climate Change
(March 1991).
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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
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\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).
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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.
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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
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\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).
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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.
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\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
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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
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\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
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\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
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\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).
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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.
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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
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\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
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\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
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\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
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\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
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\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
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\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).
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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
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\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.
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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
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\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).
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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.
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\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
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\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
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\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