[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]


                     THE CALIFORNIA ENERGY CRISIS:
                     IMPACTS, CAUSES, AND REMEDIES

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

                                HEARING

                               BEFORE THE

                              COMMITTEE ON
                           FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 20, 2001

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 107-26


                   U.S. GOVERNMENT PRINTING OFFICE
73-595                     WASHINGTON : 2001


_______________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Printing 
                                 Office
 Internet: bookstore.gpo.gov Phone: (202) 512-1800 Fax: (202) 512-2550
               Mail: Stop SSOP, Washington DC 20402-0001


                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 JOHN J. LaFALCE, New York
MARGE ROUKEMA, New Jersey, Vice      BARNEY FRANK, Massachusetts
    Chair                            PAUL E. KANJORSKI, Pennsylvania
DOUG BEREUTER, Nebraska              MAXINE WATERS, California
RICHARD H. BAKER, Louisiana          CAROLYN B. MALONEY, New York
SPENCER BACHUS, Alabama              LUIS V. GUTIERREZ, Illinois
MICHAEL N. CASTLE, Delaware          NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          GARY L. ACKERMAN, New York
FRANK D. LUCAS, Oklahoma             KEN BENTSEN, Texas
ROBERT W. NEY, Ohio                  JAMES H. MALONEY, Connecticut
BOB BARR, Georgia                    DARLENE HOOLEY, Oregon
SUE W. KELLY, New York               JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                MAX SANDLIN, Texas
CHRISTOPHER COX, California          GREGORY W. MEEKS, New York
DAVE WELDON, Florida                 BARBARA LEE, California
JIM RYUN, Kansas                     FRANK MASCARA, Pennsylvania
BOB RILEY, Alabama                   JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           JANICE D. SCHAKOWSKY, Illinois
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, North Carolina      CHARLES A. GONZALEZ, Texas
DOUG OSE, California                 STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, Illinois               MICHAEL E. CAPUANO, Massachusetts
MARK GREEN, Wisconsin                HAROLD E. FORD Jr., Tennessee
PATRICK J. TOOMEY, Pennsylvania      RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       KEN LUCAS, Kentucky
JOHN B. SHADEGG, Arizona             RONNIE SHOWS, Mississippi
VITO FOSSELLA, New York              JOSEPH CROWLEY, New York
GARY G. MILLER, California           WILLIAM LACY CLAY, Missouri
ERIC CANTOR, Virginia                STEVE ISRAEL, New York
FELIX J. GRUCCI, Jr., New York       MIKE ROSS, Arizona
MELISSA A. HART, Pennsylvania         
SHELLEY MOORE CAPITO, West Virginia  BERNARD SANDERS, Vermont
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
PATRICK J. TIBERI, Ohio

             Terry Haines, Chief Counsel and Staff Director

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 20, 2001................................................     1
Appendix:
    June 20, 2001................................................    47

                               WITNESSES
                        Wednesday, June 20, 2001

Dobson, James L., CFA, Managing Director, Deutsche Banc Alex. 
  Brown..........................................................    37
Ellig, Jerry, Ph.D., Senior Research Fellow, Mercatus Center, 
  George Mason University........................................    33
Hunt, Hon. Isaac C. Jr., Commissioner, U.S. Securities and 
  Exchange 
  Commission.....................................................    14
Jackson, Hon. Alphonso, Deputy Secretary, U.S. Department of 
  Housing and Urban Development..................................    16
Smith, Vernon L., Ph.D., Regent's Professor of Economics; 
  Director, Economic Science Laboratory, University of Arizona...    30
Wolak, Dr. Frank A., Professor of Economics, Stanford University; 
  Chairman, Market Surveillance Committee, California Independent 
  System Operator................................................    35

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    48
    Cantor, Hon. Eric............................................    50
    Miller, Hon. Gary G..........................................    52
    Waters, Hon. Maxine..........................................    54
    Dobson, James L..............................................   152
    Ellig, Dr. Jerry.............................................   109
    Hunt, Hon. Isaac C. Jr.......................................    57
    Jackson, Hon. Alphonso.......................................    67
    Smith, Vernon L. (with attachments)..........................    73
    Wolak, Dr. Frank A...........................................   136

              Additional Material Submitted for the Record

Inslee, Hon. Jay:
    Heidi Willis, Seattle City Council member, prepared statement   187
    Paul L. Jaskow, Professor, MIT, prepared statement...........   169
Maloney, Hon. C.:
    Letter to Federal Energy Regulatory Commission, May 9, 2001, 
      and response...............................................   167

 
                     THE CALIFORNIA ENERGY CRISIS: 
                     IMPACTS, CAUSES, AND REMEDIES

                              ----------                              


                       WEDNESDAY, JUNE 20, 2001,

             U.S. House of Representatives,
                           Committee on Financial Services,
                                                    Washington, DC.
    The committee met, pursuant to call, at 10:04 a.m., in room 
2128, Rayburn House Office Building, Hon. Michael G. Oxley, 
[chairman of the committee], presiding.
    Present: Chairman Oxley; Representatives Barr, Kelly, 
Weldon, Biggert, Green, Miller, Cantor, Hart, Capito, Tiberi, 
LaFalce, Waters, Sanders, C. Maloney of New York, Watt, 
Bentsen, J. Maloney of Connecticut, Lee, Mascara, Inslee, 
Schakowsky, Moore, S. Jones of Ohio, Ford and Crowley.
    Chairman Oxley. The hearing will come to order.
    This hearing of the Committee on Financial Services is 
beginning--and without objection, all Members' opening 
statements will be made part of the record in order to permit 
us to hear from our witnesses and engage in a meaningful 
question and answer session. I'm encouraging all Members to 
submit their statements for the record.
    The Chair recognizes himself now for a brief opening 
statement.
    Our hearing today represents the Financial Services 
Committee's continuing obligation to conduct oversight on the 
state of the U.S. economy.
    Today, we explore the impact and causes of the California 
energy crisis, and discuss steps this committee can take to 
help prevent it from being repeated.
    The California energy crisis has the potential to become an 
American economic crisis. Already in both California and 
throughout the West, high prices, drought conditions, and lack 
of investment in infrastructure have caused serious disruption 
to the lives of American families and workers.
    In the Pacific Northwest, aluminum mills have shut down 
because they cannot afford the cost of electricity. 
Predictably, this has led to a decline in U.S. aluminum 
production.
    According to the Silicon Valley Manufacturing Group, its' 
nearly 200 members lost over $100 million in a single day of 
rolling blackouts in June of last year.
    The State of California accounts for over 16 percent of 
U.S. commodity exports and nearly 25 percent of industrial 
equipment and computers, electronics and instruments exports.
    Declines in the ability of that State to manufacture and 
trade these products will increase the U.S. trade deficit.
    I could cite similar statistics, but they all have the same 
point. The California energy crisis is not only bad for 
California, it's bad for America.
    There's no question that when a State must issue the 
largest municipal bond offering in history in order to purchase 
electricity, there is something seriously wrong with the 
system.
    Our hearing today will explore what went wrong and provide 
insight into how to avoid such pitfalls in the future.
    Part of the purpose of this hearing is also to remind 
ourselves that this is not a new dilemma. The last major energy 
crisis in the 1970s led to our becoming a much more energy 
efficient country. Energy intensity, or the amount of energy 
used to produce a dollar's worth of GDP, has declined some 42 
percent, meaning that the U.S. has grown significantly more 
energy efficient over the last two decades.
    This has occurred despite the fact that personal energy use 
has increased over that same period.
    We'll hear today from the Department of Housing and Urban 
Development on the steps they have taken to contribute to this 
dramatic increase in energy efficiency, and what more there is 
to be done.
    It has been proven time and time again that truly 
competitive markets, free from overly burdensome Government 
intrusion, supply goods and services better than any of the 
alternatives.
    One securities law that has outworn its usefulness is the 
Public Utility Holding Company Act of 1935. Though not 
implicated in causing the current situation in California, 
PUHCA has nevertheless proven to be an unnecessary burden to 
creating a healthy electricity infrastructure.
    We are honored to have with us today Commissioner Isaac 
Hunt, Jr., to explain why the SEC has long called for the 
repeal of this out-dated legislation.
    This current crisis provides us an opportunity to confront 
the mistakes of the past and remove barriers to building a 
better future.
    I look forward to hearing from all of our witnesses today 
as this committee works to do its part to ensure that America's 
energy infrastructure becomes increasingly healthy and 
competitive.
    That completes the Chair's opening statement.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 48 in the appendix.]
    I now turn to our friend, the gentleman from New York, the 
Ranking Member, Mr. LaFalce.
    Mr. LaFalce. I thank you very much, Mr. Chairman, for 
convening today's hearing.
    The energy crisis, especially the crisis facing the Western 
States, is truly a national concern, and it is appropriate that 
we focus our committee's attention on it today.
    And it's particularly fitting, since our committee has in 
fact played a most significant role on energy issues in the 
past, primarily through its jurisdiction over the Defense 
Production Act and Loan Guarantee Authority.
    Notably, our House Banking Committee played the central 
role in the Economic Stabilization Act of 1970, which included 
authorities governing energy prices.
    Our committee also played a central role in the Energy 
Security Act of 1980 that was created pursuant to the creation 
of a special ad hoc Energy Task Force, chaired by a member of 
our committee at the time, Mr. Ashley.
    And that Act established the Synthetic Fuels Corporation as 
well as a host of other energy production guarantees. So, our 
committee has had a very, very important historical central 
role on energy issues.
    Today, I would like to comment briefly on three issues: 
Reform of the Public Utility Holding Company Act, solutions to 
the short-term crisis in the West, and the need for a long-term 
energy plan.
    I look forward to Commissioner Hunt's testimony on the 
Public Utilities Holding Company Act, the PUHCA, which some 
advocate raises difficult issues. Stand-alone repeal of PUHCA, 
or even granting the SEC exemptive authority, arguably amounts 
to a significant deregulation of the energy sector.
    Yet, currently a deregulated marketplace appears to be 
reeking havoc on the consumers and taxpayers of California and 
other Western States. PUHCA may need to be revisited to reflect 
the realities of today's marketplace. But PUHCA reform should 
be a very careful effort and one that is highly sensitive to 
maintaining protections for energy consumers as well as 
investors.
    More central to the current energy crisis in the West are 
the actions of the Federal Energy Regulatory Commission. As 
many of us see it, the FERC's most recent action to control 
prices may be a step in the right direction.
    Real price caps were desperately needed in the Western 
States months ago, and are no less desperately needed today. 
FERC's action on Monday moves us closer to effective price caps 
and should help moderate the price spikes of the Western 
markets.
    However, the plan also maintains a fundamental weakness by 
tying price controls to the production costs of the most 
expensive producer.
    I'll be interested in hearing the views of today's experts 
on that issue.
    If any good has come of the current energy crisis, it has 
been to focus public attention on the need for an effective, 
long-term national energy policy. The Administration has 
offered its own long-term plan, but some of us are troubled in 
that it appears, at least, to offer less to energy consumers 
than to energy producers.
    We surely need a serious bipartisan effort to address both 
the short-term impact of the current energy crisis on consumers 
while, at the same time, developing solutions to our Nation's 
long-term energy problems.
    And if we can make any contribution to such an effort here 
today, I hope it will be one driven by desire for sound policy 
and a balanced interest in protecting consumers, taxpayers, and 
the environment, while allowing for fair industry profits.
    I thank the Chair.
    Chairman Oxley. The gentleman's time expires.
    Are there further opening statements?
    The gentlelady from California, Ms. Waters.
    Ms. Waters. Thank you very much, Mr. Chairman, for calling 
this hearing.
    The issues surrounding the California energy crisis are 
extremely important to me and my constituents and the entire 
country, as well.
    This is a very timely issue as a number of Californians are 
expected to experience rolling blackouts today and throughout 
this week as temperatures to continue to climb.
    To highlight this issue, tomorrow's episode of the Tonight 
Show will be dedicated to energy conversation. It will be taped 
virtually in the dark without studio lights, TV monitors, 
amplifiers or other power sources.
    NBC says the idea came up when the network, like most other 
businesses in California, was asked to turn off lights and 
computers whenever possible.
    I hope other businesses will follow this example. The 
amount of power used on one episode of the ``Tonight Show'' 
equals a month's worth of power at a normal family home.
    In 1999, California paid $7 billion for its energy 
generation. Last year, even though demand was down due to 
conservation, the price was $32.5 billion. This year the price 
for approximately the same amount of electricity is estimated 
to be $70 billion.
    In the short space of 2 years, costs have increased 
tenfold. California does not have a demand problem; in fact, 
per capita, Californians use the lowest amount of power, and 
recent conservation efforts have reduced consumption even 
further.
    What California has is an artificial supply problem, a 
problem caused by power generators taking power generation off-
line for so-called maintenance. Over the past 6 months, the 
number of turbines closed for maintenance has vastly exceeded 
that of previous years.
    For example, outage rates in March 2001 averaged almost 
14,000 megawatts, four times higher than in March 2000.
    In April 2000, the power generators took approximately 
3,300 megawatts off-line for maintenance. In April 2001, they 
took almost 15,000 megawatts off-line on an average day.
    This practice is currently being investigated on the State 
level and deserves Federal scrutiny as well. Finally, after 
essentially ignoring the California crisis for months, the 
Federal Energy Regulatory Commission--FERC--has responded to 
the situation and their order goes into effect today.
    However, their actions were akin to putting a butterfly 
bandaid on a gushing wound. On Monday, FERC expanded its April 
26th order to apply 24 hours a day throughout the West. The new 
formula will be based on the cost of fuel plus an allowance for 
profit. And these limits will remain in effect around the 
clock, a step in the right direction. While the order does 
close some loopholes in the April Order, such as prohibiting 
generators from exporting energy to neighboring States and 
importing it back at higher prices, there are still outstanding 
issues.
    The prices will be determined by the most inefficient, 
highest cost generator. The nature of this order does nothing 
to discourage generators from withholding power in order to 
ensure that the least efficient unit sets the market clearing 
price.
    In addition, I am concerned that FERC has failed to order 
refunds of the more than $6 billion in potentially illegal 
overcharges. Instead, FERC has directed public utility buyers 
and sellers to try and reach settlement with a FERC 
Administrative Law Judge.
    FERC is clearly abandoning its mandate to ensure that rates 
are just and reasonable and to order refunds when rates do not 
meet that standard.
    This is why I'm a cosponsor of HR 1468, which was 
introduced by my colleague, Jay Inslee. The Energy Price and 
Economic Stability Act forces FERC to do its statutorily 
mandated job of ensuring fair electricity rates. This 
legislation directs FERC to establish cost-of-service-based 
rates for electric energy and instructs FERC to order refunds 
of illegal rates and charges.
    I urge all of my colleagues to support this crucial 
legislation. This crisis is having a major effect on some of my 
constituents and consumers throughout the West, many of whom 
who have seen their utility bills triple.
    Some have bills of more than $1,000; others are scrimping 
on food and medicine to keep their power on. And the Low Income 
Heat and Energy Assistance Funds, even combined with another 
$120 million from California, can only provide help for less 
than 10 percent of the 2.1 million households who qualify for 
energy assistance.
    On the other hand, while consumers suffer, corporations are 
just thriving. This crisis has proven to be a boon for some. A 
number of executives at the largest power companies have 
collected tens and even hundreds of millions of dollars through 
stock sales driven up by the California energy crisis.
    Enron Chair Kenneth Lane garnered $123 million in option 
transactions last year, which was ten times what he made in 
1998.
    Jeffrey Skilling, Enron's chief executive, netted more than 
$62 million in options gain last year.
    Peter Cartwright, Chairman and CEO of Calpine, netted 
almost $12 million through the exercise of options earlier this 
year.
    Many of these energy millionaires have found their way to 
Washington. This Administration has an unprecedented number of 
high level appointees with a background in the energy industry. 
Besides the President and Vice President, even Condoleezza Rice 
was on Chevron's board of directors for almost a decade.
    Commerce Secretary Don Evans served as CEO of a Texas Oil 
Company.
    Chairman Oxley. Could the gentlelady sum up please.
    Ms. Waters. Interior Secretary Gail Norton began her career 
at a conservative think tank funded by a number of energy 
companies.
    Mr. Chairman, I do have more, but I'm anxious to hear from 
our witnesses. I thank you for the opportunity to have this 
opening statement, and I will yield back the balance of my 
time.
    [The prepared statement of Hon. Maxine Waters can be found 
on page 54 in the appendix.]
    Chairman Oxley. The gentlelady yields back.
    The gentleman from Washington State, Mr. Inslee.
    Mr. Inslee. Appreciate it, Mr. Chair.
    I just want to say, I'm glad we're having this hearing, 
because I think it's clear that the FERC action a couple of 
days ago, although welcome in the sense that they finally threw 
us a rope, they threw us a rope that's about half as long as 
it's going to take to save us in the West.
    And I want to point out that this is not a California 
problem, this is a West Coast problem. In the State of 
Washington, we could lose 43,000 jobs this year alone, because 
of the 300, 500 percent price spikes that we've had in the 
wholesale electrical markets.
    And after studying the FERC order, it's very obvious that 
it's going to come up short for two reasons.
    Number one, in picking the highest priced electricity in 
the West Coast, the least efficient plant, probably the 
dirtiest plant, as being the bellwether for the price we're 
going to set. Anybody would flunk economics 100 who would want 
to use that incentive mechanism to the market for several 
reasons.
    Number one, it's like saying you want to control prices of 
cars, but you pick the price of a Rolls Royce Silver Cloud as 
your benchmark.
    Second, it sends a signal to the markets to start up your 
least efficient plants first.
    Why should we send a signal from the U.S. Government to 
generators to generate their most expensive electricity first? 
It doesn't make sense.
    Second, it has absolutely no action, meaningful action to 
bring the refunds to the consumers who have lost billions, and 
that's with a B, billions. California spent $7 billion a couple 
of years ago in electricity. Next year they may spend $70 
billion to give refunds to the consumers who are owed it.
    And I just want to ask FERC--I wish they were going to be 
here at this meeting--if these prices are wrong, if they are 
unconscionable, if they're illegal in July, why weren't they in 
January, February, March, April, May and June?
    And if they were, why is the Federal Government doing 
nothing to get refunds for the Americans that have them coming 
to them?
    So we think this FERC order is seriously deficient. We are 
going to push efforts to the floor. I hope Members in this 
committee will sign our discharge petition in the tone of 
bipartisanship. Peter Farrow, the Peter, Paul and Mary singer, 
sang both to the Republican caucus and to the Democratic caucus 
this week. I think that should bring us together on this and 
hopefully we'll get a vote on this.
    So I just want to tell the committee we will continue to 
push this issue.
    I also want to put in the record, if I may, Mr. Chairman, 
the unanimous consent to put in statements by MIT Professor Dr. 
Paul Joskow who is in favor of a price mitigation strategy, 
Seattle City Council member Heidi Wills, who has seen the 
devastation these prices have caused the City of Seattle, and 
Dr. Alfred Kahn, who also has a very important viewpoint on 
price mitigation.
    Thank you.
    [The information referred to can be found on page 169 in 
the appendix.]
    Chairman Oxley. Without objection.
    The gentleman's time has expired. Are there further opening 
statements?
    The gentleman from Vermont.
    Mr. Sanders. Thank you, Mr. Chairman.
    Let me just pick up on some of the points that Ms. Waters 
and Mr. Inslee made. The bottom line is that the energy crisis 
in California is not only a disaster for millions of people in 
that State, it is a potential disaster for every single 
American in terms of what it will do to our national economy 
and our standard of living.
    The bottom line is that at a time when corporate profits 
are soaring, when, as Ms. Waters just read, there are obscene, 
beyond belief, take-home pay for CEO executives of energy 
companies at the same time as low-income people do not know how 
they're going to pay their electric bills. The time is long 
overdue for the United States Congress to begin to stand up for 
ordinary people and have the guts to take on these large 
companies, which have acted in an absolutely outrageous way 
under deregulation, and have given the word ``greed'' a new 
meaning.
    It is no secret that this country does not have a serious 
energy policy, and given all of the technology out there, all 
of the wisdom out there, it is an absolute disgrace what we are 
not doing to protect consumers and to protect our environment.
    Let me just make some suggestions, which are incorporated 
in legislation which I will be introducing that will lead us 
into the right direction.
    Number one. In my State, where the weather gets a lot 
colder than it does in Los Angeles, we have thousands of homes 
that are not adequately weatherized because the people don't 
have the money to do that. Heat goes right out the door or 
right out the windows.
    We have got to significantly increase the weatherization 
programs in this country. That's a very important national 
investment.
    Number two. We have got to significantly increase the Low-
Income Heating and Energy Assistance Program, because there are 
millions of Americans today who cannot afford to pay their 
energy bill. They need immediate help and they need that help 
right now.
    We need to provide a refundable tax credit to low-to-middle 
income consumers, and non-refundable tax credit to small 
businesses who purchase energy efficient appliances and homes 
through the Energy Star program.
    We've got to raise, and here is it an absolutely scandalous 
what we have not done, the corporate average fuel economy, the 
CAFE standards, to at least 45 miles per gallon for cars and 34 
miles per gallon for light trucks over the next decade.
    It is amazing to me that while Congress puts hundreds of 
millions of dollars into Detroit, it is Toyota and Honda that 
come up with the new cars. The technology is out there for cars 
to get 60, 70, 80 miles to a gallon and millions of us are 
driving cars that get 15 or 20 miles per gallon, wasting huge 
amounts of fuel.
    We have got to, in the immediate crisis, impose a windfall 
profits tax on the oil, gas and electric industry to stop these 
absolute ripoffs that Ms. Waters was just talking about a 
moment ago.
    We have got to require 20 percent of the Nation's 
electricity to come from renewable sources of energy by 2020. 
New wind energy being developed in Denmark, in France, in 
Germany, and of course the United States is moving forward, but 
not fast enough.
    In fact, wind energy, to everybody's perhaps surprise, is 
the fastest growing new source of energy online in the world. 
And it is non-polluting.
    We have got to require replacement tires to be as fuel 
efficient as the original tires on new vehicles. We've got to 
provide at least a $6,000 tax credit to Americans who buy 
ultra-efficient cars made in the United States.
    These are common sense approaches which will go a long way 
to break our dependence on Middle East oil, develop new sources 
of energy renewable means. I think we are long overdue in 
moving in that direction.
    I would yield back the balance of my time.
    Chairman Oxley. The gentleman yields back.
    The gentleman from California, Mr. Miller.
    Mr. Miller. Thank you, Mr. Chairman.
    I want to thank you for holding this hearing, and I really 
look forward to listening to the witnesses today testifying 
before the committee.
    For the last 8 years, our Nation has failed to address our 
energy's outlook with a cohesive and comprehensive national 
policy. Instead of becoming more independent, we have increased 
our reliance on foreign sources to provide oil for meeting our 
everyday needs.
    Oil imports rose from 32 percent in 1992 to 55 percent last 
year alone. The previous Administration was put into the 
unfortunate position of sending our Secretary of Energy to the 
Middle East to beg for greater oil output from the very 
countries we defended from Saddam Hussein just a decade ago.
    Furthermore, special interests have seriously limited our 
ability to meet the growing demand that an increasingly larger 
population and the increased use of electronic information age 
technology have created.
    Radical environmentalists have lobbied for years to stop 
the construction of any new power production facilities. They 
protest the use of power generators that burn fossil fuel due 
to the air quality standards. Furthermore, they attack the 
nuclear plants for inadequate storage facilities for spent 
fuel. They object to hydroelectric because of a presumed effect 
on fish populations, wind turbine facilities because of the 
potential hazard to birds, and solar energy generation because 
of the amount of habitat that is replaced by power cells.
    It seems no matter the source of power, these radical 
environmentalists find some reason to oppose any type of 
electric generation.
    In the balance, they hold the public general welfare 
hostage. In my home State of California, no new power plant has 
been built for over 10 years. During the same period of time, 
California's population has increased 11 percent to 33 million 
people. As well, California's become the world's hub for e-
commerce which has created an even greater demand for electric 
supply.
    Now we're facing the reality of these failed policies as 
Californians are forced to import energy from other States. The 
problems in California are precursors to many of the problems 
this Nation will face if a comprehensive policy is not put into 
place.
    New and more efficient plants with environmentally 
sensitive technology would reduce the amount of fuel required 
to run them while helping meet the needs of the new economy. 
This, coupled with updating the infrastructure that would 
transmit the power, would allow California and the country to 
meet their energy challenges.
    Recent electricity shortages have lured suppliers, while 
reducing political obstruction, to construct new facilities. 
Creating a new power surplus will drive rates down, will also 
force suppliers to produce energy using the cheapest, most 
efficient means available.
    Moreover, price caps would not cap consumption into a major 
problem. For example, California's been able to conserve 11 
percent more energy in April when compared to the same month 
last year, but still faces rolling blackouts. The problem is 
energy shortages, not prices.
    As we witnessed during the mid-1980s and mid-1990s, as 
energy costs fall, our economy swells. I don't think we can 
stress that point enough. A strong energy policy which includes 
reliable, sustainable and cost-efficient electricity is a 
backbone of a strong economy.
    California has continued to be a driving force in America's 
economy. We must make certain that the power is available to 
our State in the future.
    I've been involved in the building industry for over 30 
years, and one thing I've found is, because of regulation and 
the process we're put through to get entitlements to build 
homes in the United States, we have artificially driven the 
prices through the roof on housing; we've done the same thing 
with energy.
    We had a major recession in 1990 and in 1989. In 1990, 
house prices in California were probably 20 percent above where 
they should have been, not based on the market itself, but 
based on the lack of adequate supplies being given to the 
market to deal with the impact of the people.
    We are having the same situation on energy with 
electricity, and we need to resolve it with more, more 
production.
    Thank you.
    [The prepared statement of Hon. Gary Miller can be found on 
page 52 in the appendix.]
    Chairman Oxley. The gentleman's time has expired.
    Are there further opening statements?
    The lady from Illinois, Ms. Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    I appreciate that the committee agrees that California's 
energy situation has implications for all of us, and that the 
Federal Government has a role and a responsibility to 
participate in the process to help California and to ensure the 
energy problems of the West do not extend themselves to the 
rest of the country.
    That being said, Mr. Chairman, while it's appropriate for 
this committee to examine the issues affecting California and 
the West, I believe our discussion needs to be widened to 
include problems facing consumers throughout the country.
    As you know, the Midwest has also experienced severe energy 
difficulties over the past year. This past winter, natural gas 
prices for consumers in my district tripled, and for the second 
summer in a row, consumers in the Midwest and especially 
Chicago are paying way above the national average for gasoline.
    Like the California crisis, these issues have been ongoing 
for some time and discussion of ways to bring relief and 
prevent future problems for the Midwest are also worthy of this 
committee's attention.
    I would like to say that I think to blame 
environmentalists, who for years have been pushing for sound 
alternative energy policies, and have met only with resistance 
from a Republican-dominated Congress, is really a false 
accusation, I believe.
    And I hope now we can put these differences behind us and 
move forward with a rational energy policy.
    I understand that our HUD and SEC witnesses will discuss 
the Public Utility Holding Company Act, PUHCA, as well as 
energy conservation efforts.
    I just want to make clear my strong view that any 
discussion of a possible repeal or revision of PUHCA should 
also include our colleagues in the Energy and Commerce 
Committee and must include a bipartisan agreement that any 
proposal for change to existing regulation should include, as a 
priority, strong measures to ensure the utmost protection for 
consumers.
    I'm pleased that our HUD witness is here today. However, I 
do not think we can have a complete discussion about 
conservation efforts at HUD without first addressing the 
serious budget shortfalls at the agency.
    I have concerns that the Administration's overall request 
for HUD is nearly $2 billion below last year's level and that 
the capital improvement fund, from where conservation and 
efficiency improvements would be funded, is down 25 percent or 
$700 million below last year's level.
    These shortfalls have serious ramifications for public 
housing in particular, and I hope our witness can address these 
concerns during the hearing.
    Again, Mr. Chairman, I want to thank you for convening this 
hearing and look forward to our witnesses' testimony.
    Chairman Oxley. The gentlelady's time has expired.
    The gentlelady from West Virginia is recognized for opening 
statement.
    Ms. Capito. Thank you, Mr. Chairman. I appreciate you 
holding this hearing today and I want to thank our witnesses 
for being here and providing us with their testimony.
    The energy crisis in California has been devastating to 
communities across the Western United States, but its effects 
are being felt across many industries and throughout the rest 
of the United States.
    Our Nation has been blessed with an abundance of natural 
resources from which energy can be produced. I feel that this 
unfortunate situation in California is one that need not be 
repeated, and we must to work to ensure this.
    At a time when we have the technology to produce more 
energy, particularly with coal, in a much cleaner more 
efficient way, we need to devise the long-term solutions to 
help prevent situations like this from reoccurring.
    However, that does not address the continuing struggles in 
the West. We are seeing the prices of services rise, and the 
funds to pay for these services depleting.
    Today, it costs more to operate businesses, drive our cars, 
and cool our homes. Unfortunately, the demand for energy is not 
decreasing. Companies are being forced to close and vital 
members of our Nation's work force are losing their jobs.
    With California's economy representing 13 percent of the 
total U.S. gross domestic product, it cannot survive under 
these conditions.
    A poorly thought-out deregulation plan has severely damaged 
the world's sixth largest economy, and I'm hopeful that 
hearings such as these will provide us with some insight into 
how we can avoid problems. I look forward to working with the 
Members of this committee as well as members of our panels to 
learn more about this situation.
    Again, thank you, Mr. Chairman, for calling us here today. 
I yield back the rest of my time.
    Chairman Oxley. The gentlelady's time has expired.
    The gentlelady from California, Ms. Lee.
    Ms. Lee. Thank you, Mr. Chairman. I want to thank you and 
our Ranking Member Mr. LaFalce for calling this important 
hearing.
    We know that the American economy, of course, is one of the 
central concerns of this committee. And the West Coast energy 
crisis has emerged as perhaps the most important economic issue 
of the year.
    California, of course, is the epicenter of the crisis and 
it is one of the world's largest economies. Its economic well-
being is critical to the financial health of the Nation as a 
whole.
    Many consumers in California have been confronted with 
skyrocketing bills that bore little relationship to the alleged 
laws of supply and demand. The State itself, and therefore 
California taxpayers have been forced to spend billions of 
dollars to keep energy flowing into the State.
    Now, when Minority leader Dick Gephardt and other Members 
of Congress came to Oakland, California, to my District several 
weeks ago, they saw the face of this crisis. They heard from 
small business owners who face potential bankruptcy.
    They heard from school administrators who have been forced 
to divert money from much needed textbooks, teacher's salaries 
and instructional supplies to pay energy costs.
    They heard from persons with disabilities for whom 
blackouts are really nightmares and rising bills are an 
impossible expense.
    They also heard from the people of California who have been 
paying the price of this crisis for the last year.
    Now, months ago, the Federal Energy Regulatory Commission 
officially determined that Californians had been charged unjust 
and unreasonable prices. It's only within the last week, 
though, that the FERC has begun to impose price mitigation 
measures. I think that's what they call it. And even these fall 
short of the needed solution.
    California's businesses and consumers have not only faced 
escalating prices, they have experienced blackouts that 
endanger health and safety and the regional economy.
    We should be asking very hard questions about the causes of 
these blackouts. Considerable evidence indicates that power 
generators may have manipulated supply in order to increase 
prices. This issue really does demand full investigation.
    We need national wholesale price controls. We need rebates 
immediately, rebates for consumers and institutions that have 
been forced to pay these unjust and unreasonable rates. And we 
need to spur our economy by investing renewable energy, and we 
need innovation and not stagnation.
    I want to thank you, Mr. Chairman, for these hearings, and 
I look forward to hearing from our witnesses in terms of how 
they view this crisis, which is devastating California, not 
only California, as I said, it's the epicenter, but it's moving 
to the rest of our country, as we know.
    Chairman Oxley. The gentlelady's time has expired.
    The gentleman from Georgia, Mr. Barr.
    Mr. Barr. Thank you, Mr. Chairman.
    Mr. Chairman, Washington really is a wonderful place. It 
never ceases to amaze me. I have a news release here dated June 
18 from the Federal Energy Regulatory Commission and the thing 
is five pages long of single-spaced type, and it's just full of 
all sorts of bureaucratic gobbledegook. But only in Washington, 
only in the world of Washington can somebody--and I presume 
that FERC put this thing out probably with a straight face--in 
the first paragraph, they say they're instituting curbs on 
prices, and then in the very next paragraph, they say this is a 
market-oriented principle.
    Well, it may be a market-oriented principle in a State-run 
market economy, but not in an economy such as we have always 
had in this country.
    And then it goes on, it talks about attracting additional 
investment. Well, it would be very interesting to see how you 
attract any investment, much less additional investment, when 
investors already have been beat up in California, because 
there are no incentives for them to invest.
    So, now we have additional curbs on prices or price 
mitigation or whatever nonsense they call it, but it is price 
caps, it is price control, and they think that this is going to 
solve the problems in California.
    It's not going to solve the problems in California. The 
Governor of California has caused these problems and now he's 
coming to the President and coming to the Congress and coming 
to these other regulatory bodies to try and shift the blame 
away from himself and away from his colleagues who, for year 
after year after year, have taken away incentives for energy 
investment, have put price caps on that are unrealistic, and 
have placed all sorts of limitation on the development of 
energy sources.
    Now it's fine to talk about new energy sources and 
alternative energy sources, but when you have limitations on 
the development of known energy sources, it seems kind of 
ludicrous to say, ``Well, let's forget about that, and let's go 
on to talk about new energy sources.''
    The problems that California is facing are immediate. They 
are not of the Federal Government's making, they are the making 
of the Government leaders in California, and I'm very sorry 
that FERC is now getting involved in sort of a process of let's 
share the misery rather than helping to really come to grips 
with what California has done with regard to restrictions on 
prices, restrictions on investment, restrictions on development 
of energy sources.
    So this really will be an interesting hearing to begin 
getting into some of these issues, Mr. Chairman, and I 
appreciate your taking the leadership on trying to at least get 
some of the facts out.
    Chairman Oxley. The gentleman's time has expired.
    The gentleman from North Carolina, Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman. I appreciate the 
Chairman calling the hearing.
    I've been watching this situation from a distance with a 
great deal of interest, because we are the United States, and 
even if this only affects California and the West, it would be 
a matter of extreme importance to us, but also because it could 
have some important implications for the rest of the country 
and could spread to the rest of the country.
    One of the concerns I've had about this is if we don't do 
something decisive to address the situation in the West, we 
increase the likelihood of problems in the rest of the country 
and increase the probability of it having implications in North 
Carolina and in Georgia and other places.
    One of the concerns with the FERC Order, therefore, is that 
to enter an order that finds that there has been substantial 
abuse, yet does not retroactively give people relief for the 
abuse that has taken place before the order was entered, would 
seem to me to encourage the same kind of activity possibly in 
other parts of the country.
    And so I'm extremely concerned that even if this order were 
sufficient to solve the problem prospectively, what message 
have we sent to folks who have abused, corporations that have 
abused the system retrospectively.
    I'm not a big supporter of price controls or Government 
intervention, but I do know that there are some areas of 
critical, essential public services and when I see the 
President inject himself into the airline situations, I can't 
imagine we would think that electricity would be less essential 
than airline service.
    There are some essential services where the Government has 
a role and I think this is one of them, primarily because there 
has been a long history of cost-of-service-based electricity 
rates in California, and at least in part, the deregulation of 
the industry has not been properly done, so you really kind of 
need to step back to where you were, while you try to figure 
out how you move forward to better solution.
    So, I appreciate the Chairman calling the hearing and look 
forward to any words of wisdom that our witnesses may have 
about retrospective remedies for people who have already been 
abused, and prospective solutions to this problem.
    Thank you, Mr. Chairman.
    Chairman Oxley. The gentleman's time has expired, and we'll 
now turn to our panel of witnesses.
    Appearing on the first panel is SEC Commissioner Isaac C. 
Hunt, Jr. Commissioner Hunt was confirmed by the Senate on 
January 26, 1996. Prior to being nominated to the Commission, 
Commissioner Hunt was Dean and Professor of Law at the 
University of Akron Law School, and he's also had experience 
with the Carter and Reagan Administrations.
    Joining Commissioner Hunt is Deputy Secretary Alphonso 
Jackson, of the Department of Housing and Urban Development. 
Secretary Jackson comes to the Department after serving most 
recently as President of American Electric Power-TEXAS.
    Mr. Jackson has also served as President and CEO of the 
Housing Authority of Dallas, and Chairperson of the District of 
Columbia Redevelopment Land Agency Board.
    Thank you, gentlemen, for both appearing before the 
committee today. And Commissioner Hunt, we'll begin with your 
testimony.

    STATEMENT OF HON. ISAAC C. HUNT JR., COMMISSIONER, U.S. 
               SECURITIES AND EXCHANGE COMMISSION

    Mr. Hunt. Thank you, Mr. Chairman and Ranking Member 
LaFalce and Members of the committee.
    I am Commissioner Hunt of the U.S. Securities and Exchange 
Commission. I'm pleased to have this opportunity to testify 
before you on behalf of the SEC about the current energy 
problems in California and the Public Utility Holding Company 
Act of 1935.
    As I will discuss, because neither of the holding companies 
that own the major California utilities is registered under the 
Act, and because the Act is not an impediment to the 
construction of new generation facilities, the SEC's 
administration of the 1935 Act has not had any direct impact on 
the California situation.
    Nevertheless, the SEC continues to support efforts to 
repeal the 1935 Act and replace it with legislation that 
preserves certain important consumer protections or to amend 
the Act to grant the SEC broad exemptive authority.
    Before discussing the current problems in California and 
the SEC's position on repeal or amendment of the 1935 Act, it 
is useful to review both the history that led Congress to enact 
the Act in 1935, and the changes that have occurred in the 
electric industry since then.
    During the first quarter of the last century, misuse of the 
holding company structure led to serious problems in the 
electric and gas industries. Abuses arose including inadequate 
disclosure of the financial position and earning power of 
holding companies, unsound accounting practices, excessive debt 
issuances and abusive affiliate transactions.
    The 1935 Act was enacted to address these problems. In the 
years following the passage of the Act, the SEC worked to 
reorganize and simplify existing public utility holding 
companies in order to eliminate the problems that Congress 
identified.
    By the early 1980s, the SEC concluded that the 1935 Act had 
accomplished its basic purpose and that many aspects of it had 
become redundant with other Federal and State regulations.
    In addition, changes in the accounting profession and the 
investment banking industry have provided investors and 
consumers with a range of protections unforeseen in 1935.
    Because of these changes, the SEC unanimously recommended 
that Congress repeal the 1935 Act based on its conclusion that 
it was no longer necessary to prevent the recurrence of the 
abuses that led to the Act's enactment.
    For a number of reasons, including the potential for abuse 
through the use of a multi-State holding company structure, 
related concerns about consumer protection, and the lack of a 
consensus for change, repeal legislation was not enacted during 
the early 1980s.
    Because of continuing changes in the industry, however, the 
SEC continued to look at ways to administer the statute more 
flexibly.
    In response to continuing changes in the utility industry 
during the early 1990s, then-Chairman Arthur Levitt directed 
the SEC staff in 1994 to undertake a study of the 1935 Act that 
culminated in a June 1995 report.
    The report again recommended repeal of the 1935 Act or 
amendment of the Act to give the SEC broad exemptive authority 
to administer the Act. The June 1995 report also outlined and 
recommended that the Commission adopt a number of 
administrative initiatives to streamline regulation under the 
Act.
    The SEC has implemented many of these initiatives. The 
utility industry has continued to undergo rapid change since 
publication of the report.
    Congress facilitated some of these changes. Specifically, 
the Energy Policy Act of 1992, through statutory exemptions to 
the 1935 Act, allows holding companies to own exempt wholesale 
generators and foreign utilities, and allows registered holding 
companies to engage in a wide range of telecommunication 
activities.
    Today, the electricity shortages, price increases and 
rolling blackouts in California represent one of the most 
severe problems in the electric industry.
    Specifically, in California, acute supply shortages, 
opposition and legal impediments to new power plant 
construction, and high natural gas prices have driven wholesale 
electricity prices to extraordinary levels.
    The two largest California utilities have not been allowed 
to pass wholesale price increases through to consumers and, as 
a result, are experiencing severe liquidity problems. One of 
the utilities has declared bankruptcy; the other has stated 
publicly that it may also.
    Neither the 1935 Act nor the Commission's administration of 
the Act has had any direct impact on the situation in 
California. Although we have monitored the situation in 
California, neither of the major utilities in the State is part 
of a holding company system registered under the Act.
    As a result, the SEC, under the 1935 Act, does not directly 
regulate the two companies that have experienced the most 
severe financial problems.
    Additionally, and perhaps more importantly, a shortage of 
supply in electricity is undoubtedly a significant contributor 
to California's problems.
    Since the passage of the Energy Policy Act of 1992, the 
1935 Act has not been an impediment to investment in or 
construction of generation facilities.
    The Energy Policy Act facilitated the entry of new 
companies and hence new sources of capital into the generating 
business by permitting any person to acquire ``exempt wholesale 
generators''--EWGs--without the need to apply for or receive 
SEC approval.
    However, a registered holding company may not finance its 
EWG investments in a way that may have a substantial adverse 
impact on the financial integrity of the holding company 
system.
    The Energy Policy Act gave the FERC the responsibility to 
determine whether an entity may be classified as an EWG. After 
obtaining EWG status, an EWG is not considered an electric 
utility company under the 1935 Act and, in fact, is exempt from 
all provisions of the Act.
    Prior to passage of the Energy Policy Act, a generation 
facility would have been a public utility----
    Ms. Kelly: [Presiding]. Excuse me, Mr. Hunt. I'm going to 
ask if you would please sum up. You are well over your time.
    Mr. Hunt. Yes, ma'am.
    Although the 1935 Act has not played a significant role in 
California's energy problems, the SEC continues to recommend 
that Congress repeal the 1935 Act subject to appropriate 
safeguards.
    And short of repeal, the SEC believes that amending the 
1935 Act to provide the Agency with broad exemptive authority 
will ensure that the goals of the Act can be achieved without 
being an impediment to the development of the gas and electric 
markets.
    Thank you, Madam Chair.
    [The prepared statement of Hon. Isaac C. Hunt, Jr. can be 
found on page 57 in the appendix.]
    Ms. Kelly. Thank you very much, Mr. Hunt.
    We next go to Mr. Jackson.
    Welcome, Mr. Jackson.

        STATEMENT OF HON. ALPHONSO JACKSON, JR., DEPUTY 
  SECRETARY, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT.

    Mr. Jackson. Chairman Oxley, Ranking Member LaFalce and 
other distinguished Members of the Financial Services 
Committee, thank you for the opportunity to appear before you 
to discuss----
    Ms. Kelly. Mr. Jackson, would you please pull that 
microphone closer to you? It's difficult for some people to 
hear.
    Mr. Jackson. Can you hear me now?
    Ms. Kelly. Yes. Much better. Thank you.
    Mr. Jackson. Chairman Oxley, Ranking Member LaFalce and 
other distinguished Members of the Financial Services 
Committee, thank you for the opportunity to appear before you 
to discuss the President's Energy Policy and specifically ways 
the Department of Housing and Urban Development supports the 
energy policy and conservation.
    Housing policy and energy policy are inextricably linked. 
No one knows this better than I do. I served as Executive 
Director and Chief Executive Officer of three major public 
housing authorities in this country, and lately I've served, 
before coming here, as President of American Electric Power.
    The President's energy policy is one that I believe takes 
into consideration the importance of energy in this country. 
HUD has already taken steps to respond to the rising energy 
costs at HUD-assisted housing.
    These include making $105 million in operating funds 
available to lessen the impact of higher utility rates on 
public housing authorities, raising payment standards for 
Section 8 vouchers, and reimbursing owners for increased 
utility costs and project-based Section 8 certificates.
    The President's Energy Policy directs the Environmental 
Protection Agency and the Department of Energy to promote the 
increase of energy efficient technology in housing, especially 
through increased promotion of the Energy Star initiative.
    HUD will work closely with the Environmental Protection 
Agency and the Department of Energy in implementing the 
President's objectives of improving energy efficiency in 
housing. This will not involve the establishment of any new 
programs, but rather the better use of existing programs.
    While there have been a variety of efforts over the years 
to improve the energy efficiency of assisted housing, as well 
as older unsubsidized housing, those efforts have lacked a 
coherent framework and focus.
    With the announcement of the President's Energy Policy, we 
now have the necessary framework for promoting increased energy 
efficiency in housing. HUD is committed to giving this issue 
the priority attention it deserves, ensuring that we make 
significant progress in conserving energy in housing.
    HUD's effort to increase the energy efficiency of housing 
will focus in four key areas: increasing energy efficiency in 
HUD-assisted rental housing; expanding the use of energy 
efficient mortgages; providing technical assistance to non-
profit, community-and faith-based organizations; and supporting 
the use and development of new technology.
    If I may, I would like to comment on the legislation.
    HUD currently provides $28 million for capacity building by 
organizations such as the Enterprise Foundation, LISC and 
Habitat for Humanity.
    Secretary Martinez and I both support local flexibility, 
especially with Community Development Block Grant funds. 
Funding under the public services cap can include childcare, 
crime prevention and drug abuse funding.
    Funding energy-efficient programs at the expense of other 
worthwhile programs would be a difficult decision for local 
communities. Increasing the cap at the discretion of local 
communities to pay for energy efficiency programs, however, is 
a good option and allows local communities to make 
determination of funding priorities.
    Our FHA mortgage incentive for energy efficient housing 
proposal would implement a new type of energy efficient 
mortgage by authorizing the Department to reduce the premium 
for homes that are particularly energy efficient.
    However, the Department already has an Energy Efficient 
Mortgage program. Before authorizing a new efficient energy 
mortgage program, it is vital that we examine what lessons we 
can learn from the current one and carefully examine what the 
administrative burden of the new program variant and whether it 
is justified.
    If the committee remains interested in this proposal, we 
strongly recommend that before authorizing a new type of energy 
mortgage, Congress and the Administration review our experience 
with the current program and examine whether loans secured by 
homes that exceed a particular threshold of energy efficient 
standards are in fact less risky.
    The proposed legislation for higher mortgage ceilings for 
solar-energy properties would allow FHA to insure 30 percent 
higher mortgages for both single family and multifamily 
mortgages for property with solar power.
    Currently, FHA has the authority to insure mortgages for 
solar-enhanced property that are up to 20 percent higher than 
other mortgages.
    This increase, while not necessarily one that would be 
widely used, could have a positive impact on properties whose 
cost is significantly higher because of the inclusion of solar 
technology.
    We believe that the Policy Development and Research--PD&R--
that occurs in HUD is already active in research on building 
technology and energy efficiency.
    As HUD implements the President's Energy Policy, we will 
reform these efforts.
    We would be happy to work with the committee to determine 
what demonstration of energy efficient technology would be 
appropriate. At that time, we can opine more specifically as to 
whether new legislation is needed to authorize such 
demonstrations.
    While including consideration of energy conservation and 
projects restructured under the Multifamily Assisted Housing 
Reform and the Affordability Act of 1997, is appropriate, the 
Department is concerned that the inclusion of this provision 
may require an appropriation in order to make the energy 
improvement that might be necessary.
    HUD's 5-year energy plan was first presented in 1992. It 
has been updated several times.
    We would be happy to provide the report and other 
information to the committee. The additional information 
requested by Congress under this proposed legislation would 
include, among other things, clarification of energy issues 
under programs created since 1990. The further requirement that 
HUD publish an immediate update is consistent with the 
requirements already made by the recent Executive Order.
    Again, thank you for the opportunity to address you on this 
important issue. I would be happy to answer questions by any 
Member of the committee.
    Thank you.
    [The prepared statement of Hon. Alphonso Jackson, Jr. can 
be found on page 67 in the appendix.]
    Ms. Kelly. Thank you very much, Mr. Jackson, and we will be 
happy to accept the report if you would like to bring it to the 
committee.
    We move now to some questions. And I have a couple of 
questions for Mr. Hunt.
    Mr. Hunt, in your testimony, you've stated that the--and 
I'm going to use the acronym PUHCA, I'm just simply going to 
call it PUHCA.
    You've stated that the PUHCA is redundant and should be 
repealed. It is unusual for a regulator to suggest that its 
authority be ceded to some other regulator.
    Why do you, at the SEC, support this reduction in that 
regulatory turf?
    Mr. Hunt. Several reasons, Madam Chair.
    First, we think that the ills that PUHCA was enacted to 
address have been essentially solved by action of the committee 
under PUHCA.
    Second, we believe with the advent of better State 
regulation of utilities and with the enactment of the bill that 
established the FERC, that adequate Federal and State level 
regulation of utilities is essentially in place.
    We would suggest some amendment of the power of FERC to 
give them more adequate access to the books and records of 
utility companies but, by and large, we think that because of 
FERC, because of adequate State regulation, because of 
improvements in accounting, because of improvements in 
investment banking, because of improvements in disclosure of 
all kinds of companies, including public utility companies 
under our supervision, that the 1935 Act is simply no longer 
necessary.
    Ms. Kelly. Thank you.
    I'm wondering about, as an alternative to the repeal of 
PUHCA, you think that we should give the SEC that same general 
exemptive authority that it has under the other Securities 
laws.
    Mr. Hunt. Yes, ma'am.
    Ms. Kelly. Do you want to tell us how that authority is 
administered under those laws currently so we can better 
understand what you're talking about with regard to this 
suggestion?
    Mr. Hunt. Well, we try to use our exemptive authority 
flexibly within the spirit of the statutes, and keeping in mind 
always the primary view of protection of investors, and we 
would hope to use the exemptive authority under the 1935 Act in 
the same way.
    Ms. Kelly. One final question, and then I'll move on.
    I want to know why the SEC's current exemptive authority 
under Section 3 of PUHCA is inadequate?
    Mr. Hunt. Because of changes in the industry and our need 
to interpret and administer the Act more flexibly with the 
rapid changes in the industry, we think that a broader 
exemptive authority is needed so that the 1935 Act does not 
create impediments to the development of the utility industry. 
We think we need either broader exemptive authority or that, as 
we've testified several times before this committee, that the 
Act should be repealed.
    Ms. Kelly. Thank you.
    Mr. Jackson, your biography indicates you've had 
experiences as the CEO of three public housing authorities. 
What efforts did you undertake in energy efficiency while you 
were in those positions?
    Mr. Jackson. It was belief that if we were going to 
instrument and institute energy efficiency, that we had to do 
it while we were developing new housing and/or renovating 
housing. We had to also consider the energy efficient 
facilities that we used, such as the washer and dryer system 
and the electrical system.
    And so we made every effort to make sure that the 
installation that was done in each one of those respective new 
or rehab developments was done at the highest energy efficiency 
level that we could.
    Ms. Kelly. Mr. Jackson, I just chaired a subcommittee 
hearing down in New Orleans, and I understand that the Section 
8 program provides an energy subsidy.
    Can you tell me why the New Orleans Section 8 recipients 
are suing HUD over the energy subsidy? Do you know about that?
    Mr. Jackson. No, not at this time, but I will be happy to 
get that for you.
    Ms. Kelly. If you could get that information for me, I'd be 
very interested in that.
    We move next to Ms. Waters.
    Ms. Waters. Thank you very much.
    My question is for Mr. Hunt.
    Mr. Hunt, you have given testimony that really supports the 
SEC while the position for further deregulation in the form of 
PUHCA repeal.
    Now you don't have oversight in California at this time, 
and you think the States should have more authority to regulate 
rather than have you involved.
    If that is so, California's precisely in that position. 
California deregulated and we have a crisis. How do you support 
deregulation in the form of PUHCA repeal, given the California 
situation?
    Mr. Hunt. Well, Madam Congressman, we think that adequate 
supervision does exist through State regulation, and as I said, 
through the Federal regulation in the form of the FERC.
    I don't know all the details of the deregulation system in 
California and how California got to this crisis. I have read 
some matters about the deregulatory system there and of course 
lack of generating power there, but I still don't think that 
the SEC's role through PUHCA, given the fact that the principal 
utilities are intra-state and non-regulated by us, I don't see 
how the SEC's involvement through PUHCA could have changed the 
landscape in California in any way.
    Ms. Waters. Do you believe that FERC has sufficient 
authority to intervene in some shape, form, or fashion, when 
you have rolling blackouts and the situation could get worse, 
given that we have come to appreciate reasonable cost energy in 
this country, it's a way of life.
    And we don't want to see a situation where the haves and 
the have-nots, one can have energy and the other cannot, 
because they can't afford to pay for it.
    You heard some of the testimony today about energy bills 
being as high as a thousand dollars for people on fixed incomes 
and low-incomes and low wage jobs.
    So what do we do to protect against that kind of harm and 
that kind of risk?
    Mr. Hunt. Well, first I think that the FERC, by and large, 
has the authority to do what the SEC has done under the Public 
Utility Holding Company Act of 1935 or PUHCA, which is to 
review inter-system transactions between utility holding 
companies and their utility operating subsidiaries.
    That is our principal interaction with FERC and what FERC 
does. In terms of the way FERC supervises the deregulatory 
process in California or other States, and sees to it that 
other generating power facilities are established, we have very 
little to do with the FERC's activity in those areas.
    Ms. Waters. Do you have access to the generating company's 
records?
    Mr. Hunt. Yes, ma'am, we do, of registered holding 
companies, yes, ma'am.
    Ms. Waters. Of the holding companies, that's right.
    Are you able to see and make a real determination about 
whether or not they are operating at full capacity?
    Mr. Hunt. I don't think we can see that from the books and 
records. What we can see from the books and records are such 
things as, you know, inter-system loans, upstream loans, the 
pass through of non-utility costs to consumers.
    Ms. Waters. Who is best able to see and know definitely 
whether or not these companies are operated at full capacity 
and whether or not, when they go off-line for so-called 
maintenance, it's really absolutely necessary?
    Mr. Hunt. I would think it would be the State regulatory 
authority and the Federal Energy Regulatory authority.
    Ms. Waters. Thank you very much.
    Mr. Miller. [Presiding.] Thank you, Ms. Waters.
    Ms. Waters mentioned that California deregulated, and we 
did that approximately 5 years ago, and she's absolutely 
correct. But we only deregulated the delivery side of energy in 
California. We never deregulated the production side.
    Currently in California, the Governor has mentioned he has 
signed permits for 10 or 13 power plants, but the problem with 
that is that those power plants have all been in process for a 
minimum of 4\1/2\ years, because you can't get a permit 
approved through the State of California in less than 4\1/2\ 
years if it's fast-tracked, and 5 years under normal process.
    In fact, I read in an article he had just signed 
authorization for a plant to be built in San Jose, but that 
plant was permitted, I believe, 3 years ago and local 
municipalities would not allow the plant to be located in their 
jurisdiction.
    The problem we have in California is not only do you have 
to deal with the process in Sacramento of getting a permit, but 
once you've accomplished that and you've invested millions and 
millions of dollars in getting that permit, then you have to go 
beg the locals to allow you to locate that plant within their 
jurisdiction. That's the problem in California.
    Mr. Jackson, you mentioned some things that are very 
important, I believe, and I just commend the Secretary on his 
approach to the housing issues. And you talked about energy 
efficiency and such.
    Now, California has the most energy efficient program of 
any State in the Nation. I mean, since the 1980s, we've had 
Title 24 requirements which require a builder to go deal with 
air infiltration, the type of windows--whether it's single-
glaze, dual-glaze, the actual floor coverings in a home, 
material you put on a fireplace, where you draw the combustion 
for a fireplace from.
    You have to count the load of your air conditioners so you 
provide the minimum requirement necessary to cool and to heat a 
home.
    I mean, we in California go far beyond any other State in 
environmental policy and regulation, yet, as I stated earlier, 
the problem in California, due to the high prices, is the 
production site.
    And the problem is, years ago in California, government 
decided that local agencies had purview and oversight over 
developers and builders when they came in for applications. So 
we decided we would create the sequel which is the California 
Environmental Quality Act, which applied only to government, 
because we thought government needed somebody to oversee them 
too on the environmental issues.
    But what happened was radical environmental extremists 
again sued in court and had CEQA applied to the private sector. 
And as you know, prior to that occurring, subdivision map acts 
said that local municipalities in government had to respond and 
make a decision on a track map within 58 days, and if they 
didn't 59 days later, it was approved by law.
    Now with CEQA in California, you can drag it out to 15 or 
20 years and yet never make a decision on provided housing in 
California dealing with the demand.
    We have done just the same thing with energy as we have 
done with housing in California specifically.
    Now, Mr. Hunt, because of PUHCA, exempt companies are 
limited in where and how much they can invest in energy 
production for fear of triggering PUHCA and basically having to 
register.
    For instance, Med-America Energy owned by Berkshire 
Hathaway, which is Warren Buffet, would have invested, but 
PUHCA was a concern, and they did not invest in energy in 
California.
    And, Mr. Hunt, you said PUHCA had no direct impact on 
California, but it certainly had a chilling effect on 
investment within California.
    Can you address that?
    Mr. Hunt. Well, I think that in the instance of the company 
owned by Berkshire-Hathaway, which is outside of California, I 
think the fear was that if that company had invested in one of 
the utilities in California, it would have become a utility 
holding company subject to the jurisdiction of the SEC under 
the 1935 Act.
    When that occurs, then the extent to which a registered 
public utility holding company can invest in other non-utility 
businesses is restricted by the provisions of the 1935 Act.
    So indirectly, to the extent that some companies might have 
wished to invest in the now-exempt California utilities, the 
1935 Act certainly was an indirect impediment to that 
investment.
    Mr. Miller. Ms. Waters, you expressed your anger at the 
prices in California for energy, and there's one thing that has 
a greater impact on my life than anything else, and it's my 
wife. And trust me. She pays our electricity bill and that is 
one ticked-off woman right now.
    And I'm as mad as anybody about the prices in California 
for energy. What angers me more is the housing crisis we are 
facing, Mr. Jackson, and the energy crisis we are into, Mr. 
Hunt, are directly associated with Government mandates, 
regulations, and processing.
    And that's what I think we need to deal with that we have 
yet to deal with that we're trying to put, once again, a 
bandaid over the problem instead of curing the cause of the 
need for a mandate.
    Ms. Waters. Will the gentleman yield?
    Mr. Miller. My time has expired.
    Mr. Watt.
    Mr. Watt. Thank you, Mr. Chairman.
    Mr. Hunt, you indicated in your testimony, I believe, that 
while you supported repeal of PUHCA, you thought that in 
connection with that, there needed to be some consumer 
protections implemented.
    Did I misunderstand you?
    Mr. Hunt. No, sir. I think I said that in connection with 
the repeal of PUHCA, there probably needs to be more power 
given to the Federal Energy Regulatory Commission so that they 
can have greater access to the books and records of intra-
interstate holding companies to make sure that nothing is going 
on in that holding company with respect to inter-system 
transactions that would harm consumers or ratepayers.
    Mr. Watt. I'm not clear on whether I misunderstood what you 
said. I thought you said that in connection with the repeal or 
amendment, there needed to be further consumer protections of 
some kind.
    Mr. Hunt. Yes, sir. That's the access to the books and 
records that we would suggest that FERC be given.
    Mr. Watt. OK. That was the question I was going to ask, 
what are those consumer protections, and you're saying----
    Mr. Hunt. Access to the books and records of the utility 
holding companies on the part of FERC.
    Mr. Watt. OK. And would you recommend that, in conjunction 
with that access, if some impropriety is found by FERC, that 
they be given enforcement authority to enforce those consumer 
protections if they find some impropriety?
    Mr. Hunt. If they don't have it now, I would certainly 
suggest that they be given it.
    Mr. Watt. Do you think they have some enforcement authority 
now?
    Mr. Hunt. I really don't know that, Mr. Congressman, the 
extent of their enforcement authority.
    Mr. Watt. You heard my opening statement. One of the 
concerns I expressed was that they had basically made a finding 
that consumers were being taken advantage of.
    Presumably, if that was the case now, it was the case for 
at least several months leading up to now, would you think they 
would have the authority, under current regulations, under 
current law, to retroactively provide relief for the people who 
have been taken advantage of up to this point?
    Mr. Hunt. Mr. Congressman, I really would have to defer on 
that.
    Mr. Watt. You've got some people behind you. Are they on 
your staff? They are shaking their heads yes. Maybe they're not 
on your staff?
    Mr. Hunt. No, they are, they are.
    Mr. Watt. OK.
    Mr. Hunt. We don't examine the FERC's enforcement 
authority, but our staff people who work in the utility 
regulatory system think that FERC does presently have the 
authority to do that.
    Mr. Watt. And if they don't have that authority, would you 
think it would be appropriate if we, if PUHCA were repealed or 
amended to give FERC that authority?
    Mr. Hunt. If PUHCA were amended or especially if PUHCA were 
repealed, and if FERC doesn't presently have that authority, I 
would think it appropriate to give it to them.
    Mr. Watt. OK.
    Mr. Jackson, given the substantial increase in energy 
costs, which I think we can kind of take legislative notice of 
in California all across the country, do you think it would be 
appropriate to increase in this supplemental appropriations 
bill, Emergency Supplemental Appropriations Bill, funding for 
LIHEAP?
    Mr. Jackson. For which now? I'm sorry.
    Mr. Watt. The Low Income Heating and Energy Assistance 
Program.
    Mr. Jackson. That is not a HUD program.
    Mr. Watt. I didn't ask you that. I said, do you think it 
would be appropriate to increase it, given the substantial 
increases in energy costs that have taken place since the last 
appropriation was done?
    Mr. Jackson. Well, Congressman, we have addressed that 
issue at HUD with our public housing authorities in the sense 
that we have increased it by $105 million to address the----
    Mr. Watt. Where'd you get the money from to do that, Mr. 
Jackson?
    Mr. Jackson. From the pay reprogram.
    Mr. Miller. Your time has expired, Mr. Watt.
    Mr. Watt. I'm sorry.
    Mr. Jackson. We did reprogram the money.
    Mr. Watt. It would be nice to know, if he doesn't have time 
to answer it now, where that money came from.
    Mr. Jackson. We reprogrammed it.
    Mr. Watt. Reprogrammed it from where? That's what I'm 
trying to find out.
    Mr. Jackson. Unspent moneys at HUD.
    Mr. Miller. We will try to come back, and I think we'll 
have more time when the other Members have a chance.
    Ms. Capito.
    [No response.]
    You have nothing?
    Mr. Bentsen.
    [No response.]
    Ms. Schakowsky.
    Ms. Schakowsky. Thank you.
    Mr. Jackson, the President's budget only proposes a $150 
million increase in the public housing operating budget, and 
that money is supposed to go to addressing increased energy 
costs.
    Some estimate that it would take at least $300 million to 
deal with high energy costs. What analysis has HUD done to 
ensure that $150 million is going to be adequate?
    Mr. Jackson. HUD basically bases its assumption on the 
Department of Energy, and we are very clear that might occur. 
But our position is that we have already allocated $105 
million, and to date, just about half of that money has been 
used.
    So we're very, very sensitive to the need that if it 
occurs, we will address that issue. But our assumptions are 
based on the Department of Energy.
    Ms. Schakowsky. Well, if I could have some documentation of 
that, I would appreciate it.
    In Chicago, the public housing authority may have to divert 
money from their $1.5 billion, 10-year redevelopment program to 
pay for higher energy costs.
    I wonder if HUD has any proposal to help make up for that 
lost funding?
    Mr. Jackson. I think, Congresswoman, as I've said, we've 
reprogrammed $105 million of our money to address higher energy 
costs, and if we see that more are necessary, we will be very 
sensitive to that.
    Ms. Schakowsky. What does that mean?
    Mr. Jackson. We will have to address the needs.
    Ms. Schakowsky. And where will that come from?
    Mr. Jackson. That has not occurred yet, so I'm not sure I 
can answer that question for you.
    Ms. Schakowsky. It would seem to me that one way that we 
could help prevent future energy crises is to make public 
housing more energy efficient.
    The President, however, would cut the Public Housing 
Capital Fund by $700 million, and that comes on top of a $22-
billion backlog in repairs that will prevent public housing 
authorities from making much needed capital improvements.
    In light of these cuts, what is HUD's plan to increase 
public housing energy efficiency?
    Mr. Jackson. Congresswoman, I would beg to differ with you. 
I think that having ran three major housing authorities, I have 
probably the best understanding of capital budgets and 
comprehensive grants.
    And if you remember some 8 years ago, Congress made the 
decision to cut $500 million out of the Capital Grant budget, 
and at that time it was called Comprehensive Grants.
    What occurred was that the backlog was so far behind that 
it served as an instrument to make sure that the housing 
authorities began to spend their capital money.
    We have the same problem with backlog today. We give them 
18 months to spend the money. We have a tremendous backlog at 
this point in time.
    It would be my position, and the Secretary's position, that 
if that money is expended within the next 18 months to 2 years, 
we would have to come back to see you.
    I seriously doubt that is going to occur, because other 
than a few housing authorities in this country, we have a 
number of major housing authorities in urban areas that are far 
behind in the spending of their capital funds.
    Ms. Schakowsky. So I can say to my people in Chicago that 
they have plenty of money to make----
    Mr. Jackson. I can tell your people in Chicago right now at 
this point in time, the capital funds spending is behind, and 
we're working with them to make sure that we do it in a very 
efficient and effective manner.
    Ms. Schakowsky. And so we have, in your view, completely 
sufficient money to make the kind of capital improvements that 
we need?
    Mr. Jackson. Yes, we do. And if we don't, I'll be happy to 
come back and discuss that with you.
    Ms. Schakowsky. Well, I appreciate that.
    Let me just ask Mr. Hunt. I was looking at your testimony, 
which you were not able to complete and I know a number of 
people have talked about consumer safeguards, and you talked 
about appropriate safeguards.
    If I could just ask this question, you've talked about how 
FERC ought to have information about Federal oversight of 
affiliate transactions, and so forth.
    But I'm wondering if you feel that--then you say, however, 
that the SEC would recommend either just a separate review of 
PUHCA or larger energy reform legislation.
    If you're saying on the one hand, we have to make sure that 
FERC has adequate authority, and on the other hand, just a 
straight repeal of PUHCA would be fine with you, how do you 
reconcile those two things?
    Mr. Hunt. Ma'am, I think what the testimony says is that we 
favor the repeal of PUHCA and whether it is done on a stand 
alone basis or done as a broad reform of the energy regulatory 
system is a matter for the Congress to decide.
    We also say that, so that's part of the equation.
    The other part is that we do think if PUHCA is repealed, 
that the FERC ought to be given additional authority to access 
the books and records of utility holding companies.
    Ms. Schakowsky. But even if it were, you would support 
repeal?
    Mr. Hunt. Yes, ma'am.
    Chairman Oxley. Mr. Ford.
    Mr. Ford. Thank you, Mr. Chairman.
    Mr. Watt, did you want to--I guess Mr. Watt doesn't want 
to, because he left.
    As we speak--thank you, Mr. Chairman--as we speak, we all 
know that Governor Davis is on the other side of the Hill 
testifying before the Government Affairs Committee with Senator 
Lieberman. And we all know what his request is.
    And for those of us not from California, I hale from 
Tennessee, Mr. Hunt and Secretary Jackson, we are all 
concerned. As Congressman Watt mentioned, I'm certain that all 
my colleagues on the committee as well as even those in the 
committee room feel that if California, as Governor Davis says 
so well, ``contracts pneumonia,'' the rest of us will get a 
really bad cold.
    In the effort of trying to avoid a really bad cold, perhaps 
I don't understand the testimony. A lot of these energy issues 
are new to all of us in the Congress. I don't have a wife like 
my friend, Mr. Miller, but as the person who pays the bills in 
my house, I get a little ticked off having to pay higher 
utility bills as most Americans do.
    Secretary Jackson, I understand that HUD doesn't play a 
role in these issues, but you will certainly be confronted with 
this challenge, and I appreciate the answer that you provided 
to the Congresswoman.
    But I would remind you that we also have a responsibility 
to answer to those constituents, and as much as you and others 
at the Department may be experts in housing matters and public 
housing matters in particular, when constituents call us, we 
are expected to at least be aware of the challenges and have 
asked you those questions.
    So I appreciate the passion in which you answered the 
question, but I hope you would appreciate as well the we have 
that charge, the same charge that you have, because we are 
elected, not appointed, to serve the constituents and the 
people of this country.
    That being said, the imposition of price caps, Mr. Hunt, 
and perhaps you've answered this in your remarks and I just 
haven't heard it, but I take it you are opposed to price caps 
in the form that Governor Davis is asking for?
    Mr. Hunt. I didn't say anything in my testimony about price 
caps, Congressman. That's in the purview of FERC. That's not 
something that the SEC has anything to do with.
    Mr. Ford. The SEC has no position or thoughts on the idea 
of price caps as proposed by Governor Davis?
    Mr. Hunt. We have not formulated an official SEC position 
with respect to price caps on utility rates, no, sir.
    Mr. Ford. To your knowledge, are you all in the process of 
developing any position on the Governor's----
    Mr. Hunt. No. We think that's not really within our purview 
either under the Public Utility Company Act, and certainly not 
under the other securities acts that we administer. We think 
that's something for the State regulatory authorities and the 
FERC on the Federal level to deal with.
    Mr. Ford. I would assume that the Department of Housing and 
Urban Development has not developed a response--would be the 
Administration's response most likely you would adhere to, 
Secretary Jackson.
    I have no further questions, Mr. Oxley. Thank you.
    Chairman Oxley. The gentleman yields back.
    The gentleman from Texas, Mr. Bentsen.
    Mr. Bentsen. Thank you, Mr. Chairman.
    Let me say at the outset, while I think PUHCA is probably 
an outdated piece of legislation, I'm not quite sure I 
understand the nexus between this and what's going on in 
California.
    And I think you laid that out subtley in your testimony, 
Mr. Hunt.
    But answer this for me, because I think it's interesting. 
In your testimony, you talk about PUHCA and you also talk about 
the Energy Policy Act of 1992, which allowed for exempt and 
non-exempt companies to acquire exempt wholesale generators.
    It's interesting to me, if I understand this correctly, 
this would have been about the same time that then-California 
Governor Wilson was pushing the California Energy Deregulation 
Plan through the legislature. And if I understand that plan 
correctly, they precluded State regulated holding companies 
from having their own generating capacity and required them to 
divest of generating capacity which, if I understand correctly, 
is part of the problem that they have right now in California 
is that the utilities themselves just became conduits for power 
more so than conduits in generating entities.
    I don't know if that's your understanding of what happened 
there, but I think it is a little ironic.
    Mr. Hunt. We think that your characterization is correct, 
sir, yes.
    Mr. Bentsen. And I mean again it has really nothing to do 
with the SEC or the Public Utility Holding Company Act.
    Mr. Hunt. That's right.
    Mr. Bentsen. But it is rather ironic that Governor Wilson 
would have been pursuing this, or whoever, the California 
legislature at the time, was sort of going in the opposite 
direction of where the Federal Government was going in 
providing that.
    And I think that tells a lot about the sort of mistake that 
was made in part in the California deregulation scheme that 
only deregulated part of the market and not the entire market.
    Other than that, the issue of, in the footnotes you talk 
about the issue of the potential for monopoly power, but I 
guess the question of monopoly--well, even with the repeal of 
the Public Utilities Holding Company Act, would the Securities 
& Exchange Commission have some regulatory authority over 
publicly held companies as it relates to their activities in 
the capital markets?
    Mr. Hunt. Oh, certainly, sir.
    Mr. Bentsen. And FERC would have some control, and then 
State regulators presumably would have some control. And then 
with respect to monopoly concerns, I would presume that the 
Justice Department and the Federal Trade Commission would have 
some issues that they would have control.
    Would that be your understanding?
    Mr. Hunt. I think that's right. Clearly, we would have 
control over the issuance of securities and their accounting 
and their disclosure to their investors, as with any publicly-
held company, and I would assume that as to the monopoly 
concerns that the agencies you mentioned would have that 
traditional jurisdiction.
    Mr. Bentsen. Mr. Chairman, I don't really have any other 
questions, although I am glad to see my fellow Texan, Mr. 
Jackson, is here, formally with the Dallas Housing Authority 
and, years back, at Texas Southern University as well--I think 
the Board of Trustees, Chairman of the Board of Trustees I 
believe at one point, which is in Houston.
    And I appreciate his testimony and I will say in looking at 
your testimony, Mr. Jackson, that while there've been some 
questions about the Administration's eagerness to pursue 
conservation as a part of a long-range energy strategy, I do 
see, at least in the HUD statement, that you all look for 
energy efficiency in conservation, and I appreciate that.
    With that, I yield back the balance of my time.
    Chairman Oxley. The gentleman's time has expired.
    The gentlelady from Ohio is recognized.
    Ms. Jones. Thank you, Mr. Chairman. Mr. Chairman, Mr. 
Ranking Member, thank you for putting this hearing together.
    Like my colleagues though I'm not from California, it is an 
issue that significantly impacts the area that I represent.
    I would like to say hi to Mr. Hunt. I know him from another 
life. He was the Dean of the Law School of the University of 
Akron when I was judging back in Ohio. It's good to see you 
again, Mr. Hunt.
    Mr. Hunt. It's good to see you, ma'am.
    Ms. Jones. Real quickly, I guess my initial questions 
actually are going to go to you, Mr. Jackson. Additional 
dollars for Section 8 housing. What about the people in public 
housing operated under HUD auspices that don't receive Section 
8 dollars, that are not in renovated housing that has been 
adapted for energy efficiency?
    What do we do for those folks?
    Mr. Jackson. I think that's a very excellent question, 
Congresswoman, because I think when you get to the Midwest and 
the Northeast, you have that serious problem, because they have 
not been renovated.
    I don't think the problem exists so much in the Southwest/
Southeast because most of them are very new. I think what we 
must do is go in, in the process, if they're not renovated, 
when there are serious problems, to make sure that not only do 
we correct those serious problems that are inside the units, 
but we try to make them energy efficient at the same time.
    That has not always been the case. I have to be very honest 
with you. But I think now that many of the housing authorities 
in the Midwest are seeing that, especially with the high 
spiraling energy costs, that we must go in and not just service 
the area that we are required, but to make the necessary 
repairs around the doors, around the windows, to make sure that 
they are sealed well and keep the heat out and keep the cold 
out.
    Ms. Jones. Because in reality, those are the situations 
where you read the story about a family burns up in a house, 
because they have a candle burnt sitting in the middle of the 
hallway or they are using kerosene lamps or doing something in 
order to be warm or to warm themselves when they really don't 
have in place long-term solutions for energy in their homes.
    Am I reading correctly that you do weatherization classes 
for people in public housing or suggestions of energy 
efficiency? Is that one of the President's proposals?
    Mr. Jackson. Yes. I think that's very important. When I was 
in Dallas, and in St. Louis, we did that. It might sound very 
strange, but----
    Ms. Jones. What was that thing that you provided a body 
with hair spray and hair dryers?
    Mr. Jackson. No. We are assuring them in many cases. For 
example, in St. Louis, we did not have enough maintenance 
people, so what we did was we took the resident counsels from 
each one of those respective housing authorities and said, 
``You can help us in this process if you would do this on a 
Saturday morning,'' and we would send two maintenance or three 
maintenance persons out. They would work with them and seal the 
windows, especially of the senior citizens and the elderly.
    Ms. Jones. You provide the supplies and the supervision 
then?
    Mr. Jackson. Yes.
    Ms. Jones. OK. Let me back up again to Mr. Hunt.
    Thank you, Mr. Jackson.
    Mr. Hunt. Oh, I guess it was three, four, seven, I don't 
know how many, maybe in the last 7 to 10 months, Mr. Hunt, it 
was not electricity, but it was gasoline that was an issue in 
the State of Ohio and then around Indiana, Kentucky, 
Pennsylvania. All the gasoline was cheaper, but for in Ohio.
    And the argument was that Ohio was imposing something upon 
the way in which gas was produced or the like that caused Ohio 
to be in this particular situation. I'm still waiting for the 
response on why Ohio, Indiana, I mean Indiana and all these 
other surrounding States, gas was cheaper than Ohio.
    But let me impose what this suggestion upon the situation 
with the electricity or this example upon the situation with 
electricity in California.
    Is it or is, if you know, electricity in the States 
surrounding California much cheaper than California 
electricity?
    Mr. Hunt. Do we know that?
    Ms. Jones. Anybody know that? Am I asking the wrong people.
    Mr. Hunt. We think it's a region-wide problem in terms of 
the Western part of the country.
    Ms. Jones. Sure.
    Mr. Hunt. But essentially in California.
    We think that--our understanding is that the generating 
facilities are most lacking in California.
    Ms. Jones. My time is up, and if you'll forgive me, next 
panel, for leaving. The issue in Cleveland right now is steel 
and I have a steel meeting, so I've got to leave.
    Thank you very much, Mr. Chairman. I yield.
    Chairman Oxley. The gentlelady yields back.
    Gentlemen, thank you for your testimony. We appreciate your 
being here with us again. Thank you.
    Could we have our second panel come forward.
    Let me introduce our next panel, three professors and a 
market analyst.
    Professor Vernon Smith is a Ph.D. Economist from the 
University of Arizona. With him are Dr. Jerry Ellig from George 
Mason University's Mercatus Center, and Dr. Frank Wolak from 
Stanford University. We are also pleased to have with us Mr. 
James Dobson, Managing Director of Deutsche Banc Alex. Brown.
    Gentlemen, thank you for appearing before the committee, 
and Dr. Smith, please begin.

  STATEMENT OF VERNON L. SMITH, Ph.D., REGENT'S PROFESSOR OF 
ECONOMICS; DIRECTOR, ECONOMIC SCIENCE LABORATORY, UNIVERSITY OF 
                            ARIZONA

    Mr. Smith. Good morning.
    First of all, Chairman Oxley, Congressman LaFalce and 
Members of the committee, thank you for allowing me the 
opportunity to address you on the impact and causes of the 
California energy crisis.
    My name is Vernon Smith. I'm currently the Regent's 
Professor of Economics and Director of the University of 
Arizona's Economic Science Laboratory. I will be employed there 
for 4 more days.
    Later next month, my colleagues and I will be moving to 
Northern Virginia to become affiliated with George Mason 
University and its Mercatus Center.
    This statement is based largely on my joint work with 
Stephen Rassenti and Bar Wilson, also of the Economic Science 
Laboratory, but who could not be here today. They're back home 
doing the work.
    I think a brief way in which I can approach my response is 
to have you begin by looking at Figure 1. I want to work from 
the figures.
    I want to first say that the energy crisis didn't begin in 
California if, by the crisis, we mean price spikes. Those price 
spikes began in the summer of 1988 in the Midwest, and the East 
in the summer of 1999, 2000, and they are likely to come back 
in the summer of 2001.
    Although the earlier price spikes have, to some extent, of 
course, attracted new capacity, and it's very hard to predict 
what the effect of that increased capacity is.
    In Figure 1, what we see here is the normal change in the 
consumption of electric power over the daily cycle and over a 
week. Notice that the peak consumption is about twice, or a 
little over twice the off-peak consumption.
    This graph is somewhat exaggerated by the fact that we do 
not, at the retail level, price hourly. We do not price on a 
time-and-day basis.
    As a result, people do not have an incentive to conserve 
on-peak, they don't have an incentive to shift to off-peak, and 
that tends to exaggerate this cycle.
    Now, in Figure 2, we see how the marginal cost of producing 
power varies throughout the typical day and week. This is not a 
recent graph. This is early 1980s. This is a hot August week in 
Chicago and in the Midwest. But you can pull this graph out in 
the 1970s or the 1960s or any time and also anywhere around the 
world, and you'll see a similar pattern.
    Now this is the wholesale cost. This is the cost that the 
distributor is paying hourly throughout the day. That 
distributor, back in the 1980s, and as is still true today, is 
reselling that power at a constant rate throughout the day.
    Now, in the early 1980s, the retail rate would have been in 
the Midwest, I think, would have been around 6 to 7 cents a 
kilowatt hour. About half that would be energy.
    All right, now imagine in Figure 2, that you draw a line at 
3 cents, a horizontal line at 3 cents. That is the price the 
distributor is getting from the--the regulated price the 
distributor is getting from the resale of that power.
    That means all of those peaking costs that are above that 
line, in effect, are peak consumption.
    The off-peak, which is much below that, people are paying 
more than it costs. In effect, you are taxing the off-peak 
user. This, I want to argue, is the crux of the problem in 
electric power not only in California, but in the rest of the 
United States.
    When you deregulate the wholesale market, you expect it, 
you want it to reflect the variation in costs of producing 
power, and that's what happened in wholesale markets. But we 
did not deregulate the retail price and this in California 
caught the utilities in a bind.
    Figure 3 shows a very bad week in the week of June 26th, 
2000 in California. These are the California PX prices, the 
spot prices, and you see they are varying all the way from 
about maybe $15 off-peak for megawatt hour--that's 1\1/2\ 
cents--up to $1100 a megawatt hour, that's a $1.10 per kilowatt 
hour.
    But they're reselling that power for around 12 cents. They 
raised that now, I believe it's 13 cents on average.
    And this gives you an idea of the extent to which peak 
users are being subsidized and off-peak consumers are being 
taxed implicitly.
    Now the California prices were not always this high, and in 
fact, if you look in April 1, 1998, you'll notice that the 
pattern of prices varied from 25 cents per megawatt at 1:00 
o'clock, zero at 2:00, 25 cents at 3:00 in the morning, and it 
went up to $5 a megawatt, that's a half-a-cent per kilowatt and 
so on, and peaked out around 25 cents.
    Now why do we have these sharp changes in price? And as I 
say, they are not unusual to California, they occur also in 
Australia, New Zealand and other places around the world.
    I and my colleagues were involved as consultants in the 
move to decentralize the electric power industry in New Zealand 
and in Australia.
    Now I have here on Figure 5, a chart of the actual asking 
prices submitted by generators in the Australian electricity 
market, and notice the base load guys are coming in there at 
zero. We actually proposed that the base load guys had the 
opportunity to bid a negative amount.
    And the reason is that the base load generators cannot be 
shut off. They cannot be ramped up and down as demand varies. 
And actually, if you have the supply of base load power 
exceeding the demand, you've got to shut down somebody. And if 
they are able to state how much they are willing to pay to the 
system to stay on, you have a further opportunity there for 
rationing among those base load units.
    But notice here, this is targeting 8:00 p.m. at night, the 
demand there is around 7800 megawatts and that yields a price 
of $15 Australian per megawatt. If the demand were moved up to 
around 8100, notice that the price would have jumped to $45. If 
it goes up to around 8200, it goes to about $55 and $60 and so 
on.
    Chairman Oxley. Dr. Smith, could you sum up, please?
    Mr. Smith. Yes. So this is a natural sort of way in which 
these markets work.
    All right. Now what we propose is more voluntary 
interruption of demand at the retail level, and the pricing at 
the retail level, the prices should reflect the true costs that 
are coming in from--in normal times at least--from the 
wholesale market.
    Now we find that with only 16 percent of peak demand 
interruptible to end users in our experiments, the time of day 
prices can be substantially lowered and price peaks eliminated.
    Basically what happens there is that whenever the asking 
prices are high from the generator side, the buyers interrupt 
how much of that demand they are going to take, and what they 
have. They do this by having voluntary interruption contracts 
with their customers.
    By a rolling sort of selective voluntary power 
interruptions, blackouts of whole neighborhoods can be avoided 
except under extreme weather conditions when they are 
unavoidable.
    The California crisis is a direct consequence of a failure 
to introduce time-of-day retail prices that reflect highly 
variable time of day wholesale prices and generator costs.
    What must change is the cultural mindset of local utility 
managers and their customers, which has been inherited from 
State regulation. This mindset is that all retail demand must 
be served without regard to the differences in individual 
consumers' willingness to pay for energy.
    This mindset will change, we believe, with full cost time-
of-day pricing and have the effect of incentivizing customers 
to prioritize their use of energy.
    The effect of these changes will be to create a far more 
efficient and smoothly functioning market that will not require 
Government intervention.
    It will enormously benefit the environment by reducing the 
growth in demand for energy and transmission capacity, and 
thereby reducing air pollution and unsightly power lines.
    Thank you, Mr. Chairman. I look forward to answering 
whatever questions you and your colleagues have.
    [The prepared statement of Dr. Vernon Smith can be found on 
page 73 in the appendix.]
    Chairman Oxley. Thank you.
    Dr. Ellig.

   STATEMENT OF JERRY ELLIG, Ph.D., SENIOR RESEARCH FELLOW, 
            MERCATUS CENTER, GEORGE MASON UNIVERSITY

    Dr. Ellig. Thank you. I'd like to thank the Chairman and 
Congressman LaFalce for the opportunity to testify today.
    My name is Jerry Ellig. I'm a research fellow at the 
Mercatus Center at George Mason University, and I should 
mention my views are only my own; I'm not speaking on behalf of 
the University today.
    As I read about what's happening in California and watch 
the ensuing policy debate, it really hits home in a personal 
way. And the reason it does is not just because I have family 
in California, but also because I grew up in Ohio during the 
natural gas shortages of the 1970s.
    The school that I attended for high school in the winter of 
1976-77, actually shut down for a couple of weeks, because 
there wasn't enough natural gas to go around.
    Then something bad happened. We went back to school, but 
not in our school--in the area of a local department store that 
had previously housed their Christmas merchandise. So customers 
coming in, instead of seeing inflatable Santa Clauses and 
tinsel, now saw a bunch of geeky high school kids talking to 
the walls as we practiced for debate class.
    Chairman Oxley. Where did this all take place?
    Mr. Ellig. Excuse me?
    Chairman Oxley. Where did this all take place?
    Mr. Ellig. Oh, in Ohio, in Cincinnati.
    Chairman Oxley. Oh, in Cincinnati. You were in high school 
in 1976?
    Mr. Ellig. That's right. I lost my hair after that.
    [Laughter.]
    Mr. Ellig. Now for us this was an adventure. For a lot of 
families in Ohio where the principal wage earner was at home 
because factories were also closing down, it wasn't funny, and 
so I can attest to having some personal experience with the 
disruption you have in people's lives when you have these types 
of energy shortages, whether it's gas shortages or electricity 
blackouts.
    In the time I have left, I want to mention two things, make 
two basic points.
    First, I'll talk a little bit about the roots of the 
California crisis and the California wholesale market.
    And second, talk about what this tells us about retail 
electricity restructuring and the wisdom of retail competition 
in electricity.
    In California, the big problem in California is an 
imbalance between supply and demand. And on the demand side, 
there are really two things to keep in mind.
    The first is that the utilities' demand for power is 
artificially inflexible. The reason it is artificially 
inflexible is because utilities must supply as much power as 
customers want at a regulated price, and it has the types of 
effects that Vernon Smith so eloquently just explained.
    The other thing you need to remember about demand in 
California is that it has been steadily growing, not because 
Californians are wasting energy, but because the California 
economy has been growing, the population's been growing, and 
when you get population growth, economic growth, you're going 
to use more energy even if your State is leading the Nation in 
conservation.
    Now, over on the supply side, we have largely, in a lot of 
ways, a fixed supply. You've probably heard the news reports. 
California's built no new power plants in 10 years, no new 
major transmission facilities in 10 years. Fixed supply, 
gradually increasing demand, summer of 2000, gradually 
increasing demand hits the fixed supply, you get price spikes.
    Now some folks have said, wait a minute, the price spikes 
are not just explained by natural supply and demand. There is 
also artificial manipulation of the market going on because 
generators are withholding capacity and shutting down plants, 
claiming they are performing maintenance when really they're 
just trying to reduce supply and increase price.
    Given the nature, the amount of judgment involved in 
maintenance decisions with power plants, I don't know if we 
will ever know for sure what's going on. But I do think it is 
worth noting that if a generating company wanted to manipulate 
the market, the California wholesale market was set up in ways 
that would be conducive to that kind of behavior and would 
encourage it.
    When you have artificially inflexible demand, the rewards 
are greater if you can jack up the wholesale price a bit, 
because demand is not going to drop off in response to the 
price increase.
    In addition, we have--well, a number of other problems that 
I'll skip over, but are in my testimony.
    Second issue. What does this tell us about the wisdom of 
retail competition? I think the principal thing that the 
California experience tells us about the wisdom of retail 
competition or about retail competition in electricity is that 
the devil is in the details and it is very easy to get it wrong 
and fail to create retail competition even when that is your 
goal.
    I don't think that needs to discourage us and I don't think 
the lesson is that retail competition is a bad idea. If we want 
to see that California is the outlier, rather than the typical 
example of retail competition, we need look no further than 
Pennsylvania, which has had a very highly successful retail 
electric restructuring where 20 percent of Pennsylvania retail 
customers have opted for supplier rather than utility. In some 
utility territories, you have as many as a third of the 
customers who have switched suppliers, so it really is possible 
to create effective retail competition without creating the 
types of price spikes and blackouts that we've experienced in 
California.
    It's also the case that California looks especially 
atypical if you compare it to our experience in other 
industries where we've undergone regulatory reform and 
deregulation, where again, generally the result we've gotten is 
lower prices, expanded supply. We haven't had shortages, we 
haven't had the price spikes.
    So the bottom line is there are certainly problems in 
California's market that can be dealt with through redesign of 
the market, and we should not take California as a typical 
example of what happens when you move to retail competition in 
electricity.
    [The prepared statement of Dr. Jerry Ellig can be found on 
page 109 in the appendix.]
    Chairman Oxley. Thank you, Dr. Ellig.
    Dr. Wolak.

   STATEMENT OF DR. FRANK A. WOLAK, PROFESSOR OF ECONOMICS, 
 STANFORD UNIVERSITY; CHAIRMAN, MARKET SURVEILLANCE COMMITTEE, 
             CALIFORNIA INDEPENDENT SYSTEM OPERATOR

    Mr. Wolak. Thank you very much for the opportunity to 
speak. I address three issues in my written testimony.
    The first is the fundamental cause of the California crisis 
and its implications for long-term regulatory oversight of 
electricity markets.
    The other is the likely effectiveness of FERC's recent 
market power mitigation policy for California.
    And the last is the need for a long-term Federal energy 
policy.
    I'll focus here just on the first two.
    I think it's been well-documented that one of the major 
problems in California is that the vast majority of its 
purchases were on the day-ahead and shorter-term energy 
markets.
    And I think that this is an important change and I want to 
explain the implications of this for the performance of the 
market.
    And in particular, what also happened in California when 
the restructuring took place is that the assets of the 
incumbent utilities, at least half of the assets, were sold off 
without what are called ``vesting contracts.''
    And what vesting contracts do is effectively give the 
seller of the plant the right to purchase back a significant 
fraction of the output of the plant that it sells at a 
regulated price for a long-term period.
    What this effectively does is creates a hedge on the 
wholesale market, so that the firm that has a retail obligation 
can purchase energy, at least that amount of energy, at a fixed 
price.
    And it is this fundamental lack of hedging that is, I 
think, the fundamental cause of the California crisis. In 
particular, one thing that I'll just go through is talk about 
how the forward contract obligation of a firm can exert an 
enormous influence on the bidding behavior in competitive 
markets.
    And a general result from virtually all markets around the 
world is that in markets where generators have a lot of forward 
contract cover, spot prices tend to be low and price volatility 
tends to be low.
    And in markets where generators are exposed to the spot 
market, meaning they have no forward commitments to supply 
electricity, average prices tend to be higher and price 
volatility tends to be higher.
    And the difference in performance of the market, when you 
have a lack of contract cover, is certainly exacerbated by the 
conditions that occurred in California in the summer of 2000 
where roughly 2000 to 3000 megawatts of imports disappeared as 
a result of hydro conditions in the Pacific Northwest.
    So this only exacerbated both the level and volatility of 
prices in California.
    And this relationship between forward market positions and 
spot market outcomes has essentially led to the creation of a 
new segment of the electricity industry, and that's called 
power marketers.
    And what power marketers do is effectively sell commitments 
to electricity which impact the incentives of their affiliated 
generation to participate in the market.
    And in the former regulated regime, the way you made money 
in the industry was to effectively produce your product at a 
lower cost and deliver it to consumers at a lower cost than the 
regulated retail rate.
    In this new regime, the way firms make money is effectively 
trading on their expectations of the spot price of electricity 
at the date of delivery. And moreover, because the firm owns 
plants, it has the ability to influence the spot price that it 
sold these forward commitments to clear against.
    And moreover, to be a successful participant in this new 
regime, you don't even need to own generation, you just need to 
know how generators will behave, in other words, how they will 
impact the spot price.
    And a good example here is Enron, which has a very 
profitable business in California despite the fact that it owns 
no generation.
    And so really what restructuring has done, if I was going 
to say the one lesson I'd like to get across here, is that it's 
changed the nature of the electricity industry to a standard 
commodity market like pork bellies.
    And as a consequence, I think that it should be regulated 
in the same way as these markets. For example, the CF Commodity 
Futures Trading Commission model I think is far more 
appropriate, rather than a public utilities commission or the 
FERC approach of essentially looking at the cost of production.
    And this perspective, I think, also implies a way to fix 
the California problem. The over-reliance of California on the 
spot market, the cost-based bid caps that the FERC has 
implemented create all the incentives that various of the 
previous speakers have alluded to.
    However, regulatory intervention on the forward market will 
effectively set up the incentives for generators to participate 
in the market and not withhold capacity from the market, 
operate their plants in an efficient manner, and maintain their 
facilities in top working order.
    And moreover, because there's a large contract cover that's 
available to consumers, they will be protected from spot price 
risk and realize the full benefits of competition.
    Thank you very much.
    [The prepared statement of Dr. Frank Wolak can be found on 
page 136 in the appendix.]
    Chairman Oxley. Thank you, Dr. Wolak.
    Mr. Dobson.

STATEMENT OF JAMES L. DOBSON, CFA, MANAGING DIRECTOR, DEUTSCHE 
                        BANC ALEX. BROWN

    Mr. Dobson. Mr. Chairman, Ranking Member and esteemed 
Members of the committee, good afternoon and thank you for the 
opportunity to testify before you on the California energy 
crisis.
    My name is Jay Dobson. I'm a research analyst responsible 
for analyzing the U.S. electric power industry for Deutsche 
Banc Alex. Brown.
    High electricity prices have dominated the headlines in 
many areas of the United States over the last 12 months, most 
notably in California.
    The energy crisis in California is the result of an 
incomplete deregulation plan and extremely short generating 
supply. The deregulation plan in California essentially 
deregulated the wholesale market, but left the retail market 
regulated with fixed electricity prices.
    Further, the incumbent utilities were encouraged to sell 
many of their electricity generating plants. This forced the 
companies to purchase electricity in the wholesale market 
without the ability to recover their costs from consumers.
    This incomplete deregulation plan might have worked in a 
market with adequate or excess generating supply. However, as a 
result of the very poor hydroelectric conditions in the 
Northwestern United States, and the fact that no material 
amount of electricity generating capacity has been added in 
California over the last 10 years, a shortage of supply has 
developed, and wholesale electricity prices have materially 
exceeded retail electricity prices.
    This has caused a financial crisis for the incumbent 
electric utilities in California, and caused retail electricity 
prices to rise by 40 percent.
    The long-term solution to this problem is the addition of 
new generating supply. The recent high wholesale prices of 
electricity have caused generators to announce almost 25,000 
megawatts of new electricity generating capacity in California 
between now and 2006.
    This is a 45 percent addition to existing generating 
capacity in the State and clearly indicates that the 
competitive wholesale markets for electricity are working.
    More than half of this capacity will be available by 2003. 
Nationally, including California, electricity generation 
developers have announced the addition of 370,000 megawatts of 
new capacity over the next 5 years, a 49 percent addition to 
the existing capacity.
    Although some economic impact of rising electricity prices 
is unavoidable, we believe that the focus should be on managing 
the impact in the short-term, but encouraging supply additions 
in the long-term.
    This is an extremely precarious balance, though. The short-
term desire to control prices could derail the new supply 
additions in certain areas of the United States. This could 
support higher electricity prices in the intermediate term.
    In our opinion, the most critical action State and Federal 
legislators and regulators can take is to ensure the 
development of a competitive market for electricity. Avoid the 
temptation to cap electricity prices in the near term.
    Actions to ensure the enforcement of current law should be 
more than adequate to control price spikes.
    Importantly, avoiding the near-term temptation to cap 
electricity prices will deliver a much larger and longer term 
benefit to consumers. The economic benefit associated with the 
development of excess generating capacity in the United States 
will drive electricity prices sustainably lower.
    Further, as many of the new generating resources are 
significantly cleaner and more efficient than existing 
electricity generating capacity in the United States, an 
environmental benefit will accrue to consumers and the Nation 
in conjunction with lower prices.
    California is among the more than 20 States in the United 
States that have legislatively deregulated the electric power 
industry. However, California is different in several critical 
ways and the problems with deregulation appear most acute here.
    We would point to the States of Pennsylvania and 
Massachusetts, among others, as examples of where deregulation 
of electricity markets has worked. The successes, coupled with 
the prospect of declining electricity prices and more efficient 
electricity-generating supply should keep the United States on 
the road to fully deregulated electricity supply markets.
    Consumers do not want many of the risks the previous 
regulated electricity markets provided. The transition process 
to a deregulated market has provided its own risks, as 
evidenced in California.
    However, full deregulation of the electricity markets will 
allow the wholesale and retail markets to develop remedies to 
these problems. The generators proposed addition of 370,000 
megawatts of new generating supply in the United States over 
the next 5 years convinces me of this.
    In summary, we believe the Federal and State legislators 
and regulators should continue to encourage the development of 
a competitive electricity market and the addition of new 
capital to the electricity industry. New electricity generating 
capacity, as well as new electricity transmission capacity will 
go a long way to delivering to consumers the benefit originally 
promised to them in electricity deregulation; significantly 
lower electric prices.
    Thank you again for the opportunity to testify before you 
on this critical energy issue.
    I look forward to answering your questions.
    [The prepared statement of James L. Dobson can be found on 
page 152 in the appendix.]
    Chairman Oxley. Thank you, and thank you all, gentlemen.
    Let me ask all of you, from a layman's standpoint, I've had 
some background in energy in the other committee I served on 
for several years. And was involved in the Clean Air Act and 
other energy issues and environmental issues at that time.
    Let me start with you, Dr. Wolak. It's my understanding 
that in the last several years, California's supply of electric 
energy has actually decreased by 5 percent; at the same time 
there's been a 24 percent increase in demand.
    Is that correct?
    Mr. Wolak. No. At most, demand has increased probably over 
the past 3 years about 10 percent, and there have been some 
supply additions coming online in the last 2 to 3 years. True, 
no new large facilities, but certainly a lot of smaller 
facilities have been coming on line.
    Chairman Oxley. And how would you quantify that? What kind 
of an increase have we seen in California in terms of electric 
energy supply?
    Mr. Wolak. The difficult part in California is the fact 
that we are an integrated system and effectively historically 
rely on between 20 and 25 percent of our consumption is 
imports. So there's roughly a carrying capacity into the State 
of on the order of 12,000 megawatts into the State, and so a 
lot of the energy comes in through imports.
    Chairman Oxley. Is that a policy decision made by the 
political leaders of California?
    Mr. Wolak. Well, it actually is just a good economic 
decision in the sense that if you look in the surrounding areas 
of California, California pays an average retail price, say in 
1998, of on the order of 10 cents per kilowatt hour.
    People to the North of us pay an average price of about 
4\1/2\ cents. The Southwest pays an average price at that time 
of about 7\1/2\ cents. So you live around cheap power and 
they've got lots of it, so it makes sense to essentially buy 
what you can from them.
    Now the bad news is that when they grow, for example, like 
Nevada on the order of 50 percent in a 10-year period, or 
Arizona on the order of 20 percent in a 10-year period in 
population, they tend to consume all the power and leave very 
little for you to consume.
    So in that sense, that's what got California into the 
position that it was in, very few imports available to sell 
into the State.
    Chairman Oxley. Do any of the other panelists have a 
different view of that discussion I just had with Dr. Wolak?
    Mr. Ellig. I think part of the reason you hear somewhat 
different figures is people are quoting different start years 
and different end years, whether it's the past 3 years or the 
past 10 years, but that's--I think we all pretty much agree on 
the trend.
    Chairman Oxley. Let me ask you, beginning with Mr. Dobson, 
what would be the economic impact on investment if the Congress 
were to enact price caps on energy costs in the State of 
California?
    Mr. Dobson. It would have a very negative impact. As I 
pointed out in my testimony and my comments, about 25,000 
megawatts of new additions have been announced. Now, as you 
pointed out in some of your comments, these have not been sited 
yet, and that remains the challenge. However, I would expect 
more than half of that to be abandoned if, in fact, price caps 
were legislated by the Congress.
    Chairman Oxley. More than half would be abandoned?
    Mr. Dobson. More than half would be abandoned.
    Chairman Oxley. Dr. Smith.
    Mr. Smith. There's not only the impact on investment, but 
the price caps also are not going to help with the problem of 
conservation at the consumer level. And that's why it's very 
important, I think, to pass through the wholesale prices and 
also allow retail competition, so that you'll get an adjustment 
not only on the supply side, but also on the demand side.
    Chairman Oxley. Dr. Ellig.
    Mr. Ellig. Well, I know the last time we tried to do 
wholesale price controls in the energy industry on the Federal 
level, when I wasn't sitting on a department store floor trying 
to go to school, I was sitting in my car waiting for gas at a 
gas station. And in both cases, the regulated price was too 
low.
    You know, in theory, maybe you can find some price that's 
lower than the current price, but high enough that it doesn't 
discourage investment, but I'm not convinced we know enough to 
figure out where that price is.
    Chairman Oxley. And so you would suggest that the market 
mechanism is the best way to determine that?
    Mr. Ellig. Well, I think rather than focusing on the level 
of prices and talking about how to cap them, we ought to be 
asking what is it about the way the structure of the market is 
set up that's led to these high prices, and then fix the market 
structure rather than trying to overlay price controls on top 
of a market structure that's messed up.
    Chairman Oxley. Dr. Wolak.
    Mr. Wolak. I guess there are several layers of the answer 
to the question. But the first is that during the first 2 years 
of the market, there was a price cap on the energy market on 
the order of $250 per megawatt hour, and during that time, 
roughly all the capacity that is alluded to came to the State 
of California, and was wanting to be built.
    So I think that a price cap set at a high level has almost 
no effect whatsoever on investment behavior.
    Then the next is that this sort of capping prices is in the 
form of saying that I'm going to put you back to cost-of-
service regulation. I think it's also important to bear in mind 
that under cost-of-service regulation, we have a long history 
of gold-plating by utilities subject to cost-of-service 
regulation. So if anything, there's an incentive to over-
invest, because of cost-of-service regulation, not an under-
incentive to invest because of cost-of-service regulation.
    So, effectively, the final issue is just as I think all 
economists would agree, capping a price at a level below the 
point where competitive supply crosses competitive demand 
certainly is going to result in a shortage. But capping a price 
at a level that's above where competitive supply crosses 
competitive demand should have no effect whatsoever on the 
market.
    Chairman Oxley. The gentleman's time has expired.
    The gentlelady from New York, Mrs. Maloney.
    Mrs. Maloney. I ask permission to put my opening statement 
in the record, and also two letters that I wrote to the FERC on 
the energy situation in New York.
    Chairman Oxley. Without objection.
    [The information referred to can be found on page 167 in 
the appendix.]
    Mrs. Maloney. I really would like to ask Mr. Wolak about 
Vice President Cheney's comments when he said that energy 
conservation amounts to a personal virtue, but is not 
necessarily critical to a national energy strategy.
    Would you comment on the economic impact of successful 
conservation efforts? Doesn't conservation in the form of cars 
that use less gas, and lights that burn longer with less power 
centrally contributing to greater levels of economic 
efficiency, and why are we really investing more in new 
technologies to come up with other sources of energy so that 
we're not so dependent on other countries.
    Could you just comment on conservation and efforts in that 
area and new technologies. We're not really looking at new 
ideas of ways to conserve energy or create energy.
    Mr. Wolak. I certainly completely agree.
    I think that if energy was priced the same way that other 
products were priced, we would find that there would be very 
strong incentives of the form that Vernon Smith discussed of 
firms wanting to move away from peak periods to reduce the 
energy bill and effectively move their consumption to off-peak 
periods to essentially keep the same level of energy 
consumption.
    And, I think, a good example of the potential for 
conservation and just load shifting to really work to benefit 
consumers is that if you take the total amount of energy that's 
consumed in California during the year 2000, and you divide 
that number by the total number of hours in the year, that 
gives you an average number of megawatts of capacity that you 
use. And that number is on the order of 27,000 megawatts.
    I should also say that the amount of capacity that is 
located in California is 45,000 megawatts, so if somehow we 
could get consumers through these price signals and through 
these conservation measures, to shift their loads, we wouldn't 
need to build any new power plants in California. The only 
reason to build them would be simply to replace the existing 
plants that we have with more efficient technology.
    So, there's lots of low-hanging fruit, I think, on the 
conservation side, and, if you provide people with economic 
incentives to do it, they will benefit and we will not have to 
build as many power plants to serve us, and we will get the 
proper incentives for renewables to develop.
    Because, if I face high prices, then in peak periods I may 
want to substitute with a renewable technology during those 
periods.
    Mr. Smith. May I speak to that question?
    Mrs. Maloney. I would really like to request that anybody 
that has any ideas of ways that we could have economic 
incentives for people to conserve energy, if they would submit 
it to the record.
    But I want to get one more question to him before, and then 
I'll just open it up to anyone else who would like to respond.
    But, one of the things that frustrates me is that I don't 
see any new ideas for new technologies, new conservation, a lot 
of things that we can do. What he said, just with certain 
incentives, we could have not even had this crisis.
    But I want to get back to some of the FERC action. The 
action that they took on Monday suggests that the FERC 
Commissioners have at least partially gotten the message about 
the need for price caps, yet they chose to maintain a price 
control mechanism tied to the most expensive energy producer.
    And could you, Mr. Wolak, explain the logic of this 
approach, and will this approach effectively guard against 
future price gouging.
    And then anyone else who would like to comment.
    But could you comment on that, Mr. Wolak?
    Mr. Wolak. I certainly can't comment on the logic of the 
approach since it doesn't make much sense to me.
    But I certainly think that the same sorts of problems that 
occurred during the spring and winter of 2001 can once again 
occur because the mitigation measure also allows generators to 
pass through any input cost increases that it can cost justify.
    So, if they somehow managed to have increases in the price 
of natural gas, through perhaps not prudently procuring their 
natural gas supplies, generators have the ability to simply 
pass that through in the prices that they bid into the energy 
market and receive those prices.
    So, the mitigation plan provides little incentive for 
generators to wisely procure their natural gas. Moreover, it 
provides little incentives for them to maintain their 
facilities and particularly little incentive to maintain their 
most efficient facilities, because those are the ones that are 
cheap and they certainly wouldn't want those to be setting the 
market clearing price; instead, they would prefer to have the 
expensive facilities setting the market clearing price.
    So in some sense, the incentive is to maintain the 
inefficient facilities very well so they can set the price and 
don't maintain the efficient facilities, because you don't want 
them to set the price, which is a very peculiar set of 
incentives to set up.
    Chairman Oxley. The gentlelady's time has expired.
    Mrs. Maloney. Thank you, Mr. Chairman.
    Chairman Oxley. The gentlelady from California, Ms. Waters.
    Ms. Waters. Thank you very much.
    This may have been discussed prior to my returning to the 
committee. While I understand there has been testimony in 
opposition to so-called price controls, that it is not a good 
idea, it prevents investment, that's not the way the 
marketplace should work, all of that, all of that, I would like 
to know at what point do you believe there is a crisis and 
there should be intervention in order to protect the citizens 
of California or any other place who experiences the kind of 
crisis that we are experiencing now, protect them so that they 
have the ability to have access to electricity, to energy, and 
not have to suffer the huge increases or blackouts.
    At what point would you consider Government should 
intervene and place real price caps on if necessary?
    Each one of you?
    Mr. Dobson. I would argue, in response to the question, I 
am simply not convinced price caps is the appropriate 
intervention. The energy crisis, in my opinion, stems from a 
supply problem, certainly at peak periods.
    Absent near-term conservation, price caps are not going to 
solve the problem.
    Ms. Waters. OK, I got that point, and we only have so much 
time. I don't want to be rude.
    Do you know how the information, where the information is, 
whether or not we have adequate information at the State level 
to understand whether or not all of these plants are operating 
at full capacity, and have you been able or has anybody been 
able to determine whether or not the maintenance shutdowns are 
absolutely necessary, or whether or not somehow they have been 
created in order to force the whole question of supply as you 
are describing it?
    Mr. Dobson. I do believe that the Federal Energy Regulatory 
Commission and the State regulatory bodies of each State, 
including California, have the ability to acquire that 
information.
    And yes, I do believe that----
    Ms. Waters. Is that public information?
    Mr. Dobson. Yes, I believe it is.
    Ms. Waters. Have you seen it?
    Mr. Dobson. I've seen parts of it, not all of it.
    Ms. Waters. Do you know how it is collected?
    Mr. Dobson. It is collected from the generators themselves.
    Ms. Waters. The generators supply us with that information?
    Mr. Dobson. Yes.
    Ms. Waters. I don't know a lot about how the grid works. 
Can you tell me if the grid crosses State lines and in the 
reporting, is that information in each State, is it available 
to California, all of the information from the grid?
    Mr. Dobson. I'm not aware if the grid information is 
available. I was speaking specifically of the generators 
availability and maintenance schedules.
    Ms. Waters. Could anybody else help me with what I'm trying 
to determine here about access to information that would 
absolutely document the needed maintenance and/or whether or 
not these plants are operating at full capacity and whether or 
not we have access to all of the information to make a 
determination about these things?
    Mr. Wolak.
    Mr. Wolak. I guess the thing that I would say is that the 
analogy to a generating facility and a sick day is quite apt. 
That, in other words, generating facilities are extremely 
complex pieces of equipment. There's no way for anyone to know 
if really a generating facility can run or not.
    For the same reason that when you call in to your boss and 
you say, ``I'm sick today,'' he knows whether you're really 
sick or not, or if you are going to go to the beach. And 
moreover, he doesn't send a doctor to your house because he 
knows that if he does, the human body is a sufficiently complex 
piece of equipment that you could fake some disease that the 
doctor would have no way to ever learn is really, in fact, a 
disease that prevents you from working.
    Ms. Waters. Do we have inspectors or monitors?
    Mr. Wolak. It's exactly the same thing with the generating 
facilities. You send that independent engineer and these are 
30-year-old facilities. Just think if you have a 30-year-old 
house, which I have, everyday there's five things I could fix, 
but I don't fix.
    And moreover, if you run the facility--and you shouldn't be 
running the facility; it could probably explode and create 
health hazards--so for the same reason that you don't make the 
worker work when he says he's sick, it's the same thing. You 
don't make the generator work when he says he's sick.
    Ms. Waters. We have to take their word for it?
    Mr. Wolak. You have to take their word for it. So what you 
do instead is the same thing that you would do in the case of 
the worker. You say, ``Look, if you're going to take a sick 
day, then you have to replace yourself with someone else.''
    In other words, the risk of you calling a forced outage or 
you calling a sick day is that you have to replace yourself, 
and in the same sense that's the same way we can solve the 
problem with the generators, is that if a generator says that 
he's, ``sick'' today, or he's out today, then it is his 
obligation to supply the power that you need. And he must 
scramble, as opposed to the ISO scrambling, as is currently the 
case.
    And this is something that FERC is certainly aware of, but 
has done nothing to solve. I mean, they still maintain that, 
you know, there is no problem with a verifiable forced outage.
    But my viewpoint certainly is, given the economic 
incentives, if it's a good day to take a sick day and it allows 
me to raise the price, I certainly will. I mean, that's simply 
what I would do if I was a profit maximizing firm as certainly 
these firms are.
    Chairman Oxley. The gentlelady's time has expired.
    The gentleman from New York, Mr. Crowley.
    Ms. Crowley. Thank you, Mr. Chairman and thank you to the 
panel.
    When the President announced his energy plan through the 
Vice President, there was a big thud that hit the table, and it 
really hasn't moved since then. I think it was an embarrassment 
to the Administration. Certainly the American people, I think, 
were somewhat embarrassed by it as well.
    Very little discussion of better management or conservation 
or innovative fuel sources and more emphasis on the production 
and consumption of fossil fuels and use of electricity and 
other forms of the production of electricity.
    In fact, Matthew Warburton of UBS Warburg told CNBC that 
the energy service providers should benefit from President 
Bush's energy plan while, at the same time, there were no 
short-term winners.
    That means the consumers back in New York and especially in 
California, but in my home State of New York as well, the 
seniors or those on fixed incomes are the short-term and long-
term losers, according to this plan.
    The announcement from FERC on Monday that they have 
determined that price fixing has taken place in California, do 
you believe that one, the utilities that have been fixing the 
prices and have been gouging their customers ought to be held 
accountable and forced to send rebates to the consumers?
    What is your position? I understand the FERC's position. 
What is the position of the panel?
    Does anyone want to chime in?
    Mr. Dobson. It would certainly be my position that this 
should be investigated, as I know the attorney general and 
others are doing in the State of California. And if proven 
that, in fact, these were unjust and unreasonable prices, and 
the FERC has the authority to, in fact, force refunds, although 
I have not seen the complete data set looking at the 
information provided by some of the generation companies, none 
of that appears evident to me.
    Mr. Ellig. There are probably two things we need to keep in 
mind when we talk about this, because first off, when we talk 
about refunds, some of the power producers who might have to 
give refunds are sitting there saying, ``What refunds? We 
haven't been paid yet.''
    Second, I think we also ought to keep in mind, when we're 
talking about price gouging, just and reasonable prices, that 
there are a lot of different ways of trying to figure out what 
is a just and reasonable price.
    And FERC has one way, and if you go Professor Wolak's 
website and look at some of his research papers, there are 
other ways of doing it, and the figures don't always agree.
    So I guess before going to the refund issue, I'd want to 
raise my hand and say, well, wait a minute, I'm a little bit 
reluctant to accept somebody, either FERC's or somebody else's 
determination as to exactly what's just and reasonable and what 
is not, as a matter of economic analysis, trying to figure out 
what's going on in the market.
    I realize as a matter of law what they say goes, but in 
really trying to figure out what's going on and whether refunds 
or whatever are justified, I'm skeptical that the methods that 
they're using to calculate it make sense.
    Ms. Crowley. Welcome to the free market and energy sector. 
We have limited time.
    We've seen what the market has done in respect to 
prescription drugs to seniors, and unfortunately see the same 
thing happening in the energy sector.
    In New York, we had a real problem when home heating oil 
just rocketed not last winter, but the winter before, and 
seniors in my district were forced to make decisions as to 
whether they were going to pay their rent, purchase their 
foods, or purchase their prescription drugs, or pay their home 
heating oil bill. It was a real crisis.
    I support the opening this was a short term solution to 
help drive the market.
    I'd also like to hear what your positions are on that 
issue, as well as the fully funding and establishing a 
Northeast home heating oil reserve, and what affect that could 
have on the market, particularly in the Northeast and other 
regions of the country that experience potential price hikes 
during the winter months of home heating oil.
    Mr. Wolak. I would just like to comment on your previous 
question in a sense that just to tell you that FERC has no 
standard for determining whether rates are just and reasonable, 
so it's a moot point. That's sort of the fundamental problem 
with the electricity market, that they sort of pushed people 
out of the airplane without a parachute, that we'll sort of 
tell you when we've seen them, but we won't tell you how we see 
them, see that they are.
    So I think the first step would be for Government Oversight 
to say, ``Look, you at least must specify a methodology for 
determining whether rates are just and reasonable,'' so that 
the monitors, such as myself, who is on one of the market 
monitoring committees for the California ISO, can essentially 
say, ``Look, we've applied your methodology and here's what it 
yields,'' and so that also market participants can know what 
sorts of prices may be worthy of refunds at the start.
    But, the sort of current plan of saying we don't specify 
any methodology nor do we tell you what the exercise of market 
power is in a market that would constitute unjust and 
unreasonable rates, it makes trying to find it impossible, 
because you don't know what it is.
    Ms. Crowley. No positions on a Northeast home heating oil 
reserve?
    Chairman Oxley. The gentleman's time has expired, and we 
want to bring this to a close.
    Gentlemen, thank you for your testimony. It's good to have 
you all here and the hearing is adjourned.
    [Whereupon, at 12:30 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             June 20, 2001

[GRAPHIC] [TIFF OMITTED] T3595.001

[GRAPHIC] [TIFF OMITTED] T3595.002

[GRAPHIC] [TIFF OMITTED] T3595.003

[GRAPHIC] [TIFF OMITTED] T3595.004

[GRAPHIC] [TIFF OMITTED] T3595.005

[GRAPHIC] [TIFF OMITTED] T3595.006

[GRAPHIC] [TIFF OMITTED] T3595.007

[GRAPHIC] [TIFF OMITTED] T3595.008

[GRAPHIC] [TIFF OMITTED] T3595.009

[GRAPHIC] [TIFF OMITTED] T3595.010

[GRAPHIC] [TIFF OMITTED] T3595.011

[GRAPHIC] [TIFF OMITTED] T3595.012

[GRAPHIC] [TIFF OMITTED] T3595.013

[GRAPHIC] [TIFF OMITTED] T3595.014

[GRAPHIC] [TIFF OMITTED] T3595.015

[GRAPHIC] [TIFF OMITTED] T3595.016

[GRAPHIC] [TIFF OMITTED] T3595.017

[GRAPHIC] [TIFF OMITTED] T3595.018

[GRAPHIC] [TIFF OMITTED] T3595.019

[GRAPHIC] [TIFF OMITTED] T3595.020

[GRAPHIC] [TIFF OMITTED] T3595.021

[GRAPHIC] [TIFF OMITTED] T3595.022

[GRAPHIC] [TIFF OMITTED] T3595.023

[GRAPHIC] [TIFF OMITTED] T3595.024

[GRAPHIC] [TIFF OMITTED] T3595.025

[GRAPHIC] [TIFF OMITTED] T3595.026

[GRAPHIC] [TIFF OMITTED] T3595.027

[GRAPHIC] [TIFF OMITTED] T3595.028

[GRAPHIC] [TIFF OMITTED] T3595.029

[GRAPHIC] [TIFF OMITTED] T3595.030

[GRAPHIC] [TIFF OMITTED] T3595.031

[GRAPHIC] [TIFF OMITTED] T3595.032

[GRAPHIC] [TIFF OMITTED] T3595.033

[GRAPHIC] [TIFF OMITTED] T3595.034

[GRAPHIC] [TIFF OMITTED] T3595.035

[GRAPHIC] [TIFF OMITTED] T3595.036

[GRAPHIC] [TIFF OMITTED] T3595.037

[GRAPHIC] [TIFF OMITTED] T3595.038

[GRAPHIC] [TIFF OMITTED] T3595.039

[GRAPHIC] [TIFF OMITTED] T3595.040

[GRAPHIC] [TIFF OMITTED] T3595.041

[GRAPHIC] [TIFF OMITTED] T3595.042

[GRAPHIC] [TIFF OMITTED] T3595.043

[GRAPHIC] [TIFF OMITTED] T3595.044

[GRAPHIC] [TIFF OMITTED] T3595.045

[GRAPHIC] [TIFF OMITTED] T3595.046

[GRAPHIC] [TIFF OMITTED] T3595.047

[GRAPHIC] [TIFF OMITTED] T3595.048

[GRAPHIC] [TIFF OMITTED] T3595.049

[GRAPHIC] [TIFF OMITTED] T3595.050

[GRAPHIC] [TIFF OMITTED] T3595.051

[GRAPHIC] [TIFF OMITTED] T3595.052

[GRAPHIC] [TIFF OMITTED] T3595.053

[GRAPHIC] [TIFF OMITTED] T3595.054

[GRAPHIC] [TIFF OMITTED] T3595.055

[GRAPHIC] [TIFF OMITTED] T3595.056

[GRAPHIC] [TIFF OMITTED] T3595.057

[GRAPHIC] [TIFF OMITTED] T3595.058

[GRAPHIC] [TIFF OMITTED] T3595.059

[GRAPHIC] [TIFF OMITTED] T3595.060

[GRAPHIC] [TIFF OMITTED] T3595.061

[GRAPHIC] [TIFF OMITTED] T3595.062

[GRAPHIC] [TIFF OMITTED] T3595.063

[GRAPHIC] [TIFF OMITTED] T3595.064

[GRAPHIC] [TIFF OMITTED] T3595.065

[GRAPHIC] [TIFF OMITTED] T3595.066

[GRAPHIC] [TIFF OMITTED] T3595.067

[GRAPHIC] [TIFF OMITTED] T3595.068

[GRAPHIC] [TIFF OMITTED] T3595.069

[GRAPHIC] [TIFF OMITTED] T3595.070

[GRAPHIC] [TIFF OMITTED] T3595.071

[GRAPHIC] [TIFF OMITTED] T3595.072

[GRAPHIC] [TIFF OMITTED] T3595.073

[GRAPHIC] [TIFF OMITTED] T3595.074

[GRAPHIC] [TIFF OMITTED] T3595.075

[GRAPHIC] [TIFF OMITTED] T3595.076

[GRAPHIC] [TIFF OMITTED] T3595.077

[GRAPHIC] [TIFF OMITTED] T3595.078

[GRAPHIC] [TIFF OMITTED] T3595.079

[GRAPHIC] [TIFF OMITTED] T3595.080

[GRAPHIC] [TIFF OMITTED] T3595.081

[GRAPHIC] [TIFF OMITTED] T3595.082

[GRAPHIC] [TIFF OMITTED] T3595.083

[GRAPHIC] [TIFF OMITTED] T3595.084

[GRAPHIC] [TIFF OMITTED] T3595.085

[GRAPHIC] [TIFF OMITTED] T3595.086

[GRAPHIC] [TIFF OMITTED] T3595.087

[GRAPHIC] [TIFF OMITTED] T3595.088

[GRAPHIC] [TIFF OMITTED] T3595.089

[GRAPHIC] [TIFF OMITTED] T3595.090

[GRAPHIC] [TIFF OMITTED] T3595.091

[GRAPHIC] [TIFF OMITTED] T3595.092

[GRAPHIC] [TIFF OMITTED] T3595.093

[GRAPHIC] [TIFF OMITTED] T3595.094

[GRAPHIC] [TIFF OMITTED] T3595.095

[GRAPHIC] [TIFF OMITTED] T3595.096

[GRAPHIC] [TIFF OMITTED] T3595.097

[GRAPHIC] [TIFF OMITTED] T3595.098

[GRAPHIC] [TIFF OMITTED] T3595.099

[GRAPHIC] [TIFF OMITTED] T3595.100

[GRAPHIC] [TIFF OMITTED] T3595.101

[GRAPHIC] [TIFF OMITTED] T3595.102

[GRAPHIC] [TIFF OMITTED] T3595.103

[GRAPHIC] [TIFF OMITTED] T3595.104

[GRAPHIC] [TIFF OMITTED] T3595.105

[GRAPHIC] [TIFF OMITTED] T3595.106

[GRAPHIC] [TIFF OMITTED] T3595.107

[GRAPHIC] [TIFF OMITTED] T3595.108

[GRAPHIC] [TIFF OMITTED] T3595.109

[GRAPHIC] [TIFF OMITTED] T3595.110

[GRAPHIC] [TIFF OMITTED] T3595.111

[GRAPHIC] [TIFF OMITTED] T3595.112

[GRAPHIC] [TIFF OMITTED] T3595.113

[GRAPHIC] [TIFF OMITTED] T3595.114

[GRAPHIC] [TIFF OMITTED] T3595.115

[GRAPHIC] [TIFF OMITTED] T3595.116

[GRAPHIC] [TIFF OMITTED] T3595.117

[GRAPHIC] [TIFF OMITTED] T3595.118

[GRAPHIC] [TIFF OMITTED] T3595.119

[GRAPHIC] [TIFF OMITTED] T3595.120

[GRAPHIC] [TIFF OMITTED] T3595.121

[GRAPHIC] [TIFF OMITTED] T3595.122

[GRAPHIC] [TIFF OMITTED] T3595.123

[GRAPHIC] [TIFF OMITTED] T3595.124

[GRAPHIC] [TIFF OMITTED] T3595.125

[GRAPHIC] [TIFF OMITTED] T3595.126

[GRAPHIC] [TIFF OMITTED] T3595.127

[GRAPHIC] [TIFF OMITTED] T3595.128

[GRAPHIC] [TIFF OMITTED] T3595.129

[GRAPHIC] [TIFF OMITTED] T3595.130

[GRAPHIC] [TIFF OMITTED] T3595.131

[GRAPHIC] [TIFF OMITTED] T3595.132

[GRAPHIC] [TIFF OMITTED] T3595.133

[GRAPHIC] [TIFF OMITTED] T3595.134

[GRAPHIC] [TIFF OMITTED] T3595.135

[GRAPHIC] [TIFF OMITTED] T3595.136

[GRAPHIC] [TIFF OMITTED] T3595.137

[GRAPHIC] [TIFF OMITTED] T3595.138

[GRAPHIC] [TIFF OMITTED] T3595.139

[GRAPHIC] [TIFF OMITTED] T3595.140

[GRAPHIC] [TIFF OMITTED] T3595.141

                                        
