[Congressional Record Volume 149, Number 169 (Thursday, November 20, 2003)]
[Extensions of Remarks]
[Pages E2357-E2358]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         CONFERENCE REPORT ON H.R. 6, ENERGY POLICY ACT OF 2003

                                 ______
                                 

                               speech of

                        HON. W.J. (BILLY) TAUZIN

                              of louisiana

                    in the house of representatives

                       Tuesday, November 18, 2003

  Mr. TAUZIN. I rise to elaborate on the colloquy I had with Mr. 
Norwood during consideration of the conference report for H.R. 6 
regarding section 1242 (relating to participant funding). Section 1242 
(``Voluntary transmission pricing plans'') adds a new section 219 to 
the Federal Power Act. Under this section, any transmission provider 
(``TP''), regardless of whether the TP is a member of an RTO or ISO, is 
eligible to submit a transmission pricing plan to the FERC. In the case 
of a participant funding (``PF'') plan, the Federal Energy Regulatory 
Commission (``FERC'') must approve the plan if it meets the 
requirements of the section, regardless of whether a TP is in an RTO or 
ISO, because the native load customers of the TP should not be 
penalized by being compelled to pay for unneeded generator 
interconnection transmission upgrades.
  The provision requires the FERC to approve a PF plan if the plan is 
just and reasonable and meets other requirements relating to cost 
responsibility and allocation. The rates referenced means rates as they 
affect the TP's shareholders and native load customers. The rate must 
not be so low as to be confiscatory of the TP-shareholder's property. 
At the same time, the rate must not unjustly shift costs to the TP's 
native load customers. The just and reasonable requirement here 
operates in the context of a clear policy choice by Congress in favor 
of PF where an application meets the other requirements of this 
section. The requirements of (b)(2)(B) constitute a limitation or 
channelling of the FERC's discretion within the bounds of the just and 
reasonable standard, which the courts have held does not require a 
specific formula, method, or single numeric result in any given case. 
In determining the zone of reasonableness, the FERC is required to 
comply with the policy of allowing PF as provided in (b)(2)(B).
  PF ensures just and reasonable rates in three ways. First, the TP 
fully recovers (in charges assessed to all transmission customers) the 
costs of any monetary credits it must grant to the party requesting the 
upgrade. Second, PF protects consumers from bearing costs for 
facilities they do not need, by ensuring that the party causing the 
upgrade costs is assigned those costs. Third, rates are kept at 
reasonable levels by ensuring that generation and transmission are 
sited in an economically efficient manner.
  Subsection (b)(2)(B) provides that the upgrade costs are ``assigned 
in a fair manner.'' The costs ``assigned'' or ``paid'' here means the 
costs initially allocated at the time of the upgrade. If a cost is 
assigned to the TP, the TP rolls that cost into its embedded cost rate 
base and recovers the entire cost in a transmission charge assessed to 
all its own transmission customers. If a cost is assigned to, or paid 
by, the requesting party, the requesting party makes a lump-sum payment 
at the outset, financed by whatever means the requester arranges. 
Subsequently, the requesting party pays the same embedded cost 
transmission charge assessed to and paid by any transmission customer--
this charge is not considered a ``payment'' in this context.
  Subsection (b)(2)(B)(i) means that if, at the time of the request, 
the native load customers had no need for the upgrade, they do not have 
to pay for it. The phrase ``such transmission service related expansion 
or new generator interconnection'' refers to the specific upgrade 
requested. Thus, if the TP would not have built the same upgrade at the 
same time to serve its own customers, such customers should not have to 
pay for it. The phrase ``would not have required'' means that, at the 
time the upgrade is requested, the native load customers would not have 
needed the upgrade to reliably meet their load. Projected or 
hypothetical future ``needs'' or other ``benefits'' in no way qualify 
as upgrades required by these customers for the purposes of this 
provision.
  Going forward, the requester would be charged the same embedded cost 
transmission service charge as any other transmission customer--a 
charge that includes the cost of any monetary credit (as it is used) or 
any other item in the embedded cost ratebase. This point is made clear 
in subsection (b)(2)(B)(iii)(I), which provides that a monetary credit 
would be ``against the transmission charges that the funding entity or 
its assignee is otherwise assessed [by the TP].''
  Clause (ii) is a clarification of precisely what costs are assigned 
in the up-front allocation of the upgrade costs. Clause (ii)(I) 
references the requirement that the requesting party ``pay for'' the 
``assigned'' cost of the upgrade as set forth in clause (i). This 
language means that the requesting party makes a lump sum payment at 
the time of the upgrade for the costs of constructing the upgrade and 
any costs associated with completing the upgrade. Clause (ii)(II) makes 
clear that the requester is not also assigned, as part of this initial, 
lump-sum payment, certain future costs, resulting from the upgrade, 
that are later' included in the TP's embedded cost rate base. The 
initial cost of the ``physical'' upgrade is not directly or immediately 
included in the embedded cost because the upgrade itself is paid for 
(assigned to) up front by the requesting party. The term ``embedded 
cost'' is a term of art typically defined as funds already expended for 
investment in plant and operating expenses, as shown on the utility's 
books.
  The physical upgrade does not immediately qualify as a cost of 
``plant'' because the TP has not been assigned the cost in the initial 
upgrade--such cost is paid for in the initial cost assignment by the 
requester, not by the TP. The ``cost of the requested upgrade'' does, 
however, enter the TP's embedded cost basis in the form of any monetary 
credit given to the requester as compensation for the requester's 
initial payment. Because this credit is a credit against the 
transmission charge assessed to the requester, it is revenue foregone 
by the TP that must be recovered in the TP's rolled-in transmission 
rate. This cost is included in the TP's embedded cost charge to all 
transmission customers each billing period in the form of the cost of 
the monetary credit. Every transmission customer's rate (including the 
requester's) includes the cost of such credit. The difference for the 
requester is that he gets a credit against the same embedded cost 
transmission rate as charged to all transmission customers. Clause 
(ii)(II) means that, in the initial cost assignment, the requester does 
not also pay up front for the future rolled-in cost of the monetary 
credit. In the initial cost assignment, the requester pays only once 
for the transmission upgrade--and, under a PF plan using the monetary 
credit approach of (iii)(1), he gets full compensation for that lump 
sum payment in the form of the monetary credit over a 30 year period. 
In this lump-sum, up-front cost allocation, the requester does not have 
to pay for the upgrade twice by paying in advance for the monetary 
credit cost of the upgrade. For clarity, subclause (II) is expressed as 
a formula. The ``difference'' between the embedded cost including the 
upgrade and the embedded cost absent the upgrade equals the total cost 
of credits associated with the upgrade. Subclause (ii), in other words, 
means that the requester does not, in the up-front cost allocation, 
need to pay for both the cost of building the upgrade and the future 
cost of the credits needed to compensate it for that payment.

  Subsequent to the initial cost allocation, the requester, like any 
other transmission customer, is assessed a standard transmission 
service charge for accessing the transmission system. It is against 
this service charge that any monetary credit under (iii)(I) is applied. 
Nothing in the provision prevents the TP from rolling the cost of the 
monetary credit into the embedded cost transmission charge for the use 
of the system--a charge that all transmission customers must pay as 
they take service. Clause (ii)(II) does not say or imply that the 
requester should not have to pay a transmission charge for the use of 
the system. Such a misreading would result in an unjust and 
unreasonable confiscation of utility-shareholder property, as well as 
an absurd departure from the FERC policy requiring all transmission 
customers to pay an access charge derived from the embedded cost of the 
system, including the cost of any credits given as the requester is 
assessed transmission charges. In other words, the provision is not 
intended to give the requester a double credit or double compensation 
(i.e., a discounted transmission rate on top of a credit or other 
compensation).
  Conversely, the fact that the requester is assessed this charge 
(including the portion of the charge attributable to the cost of the 
monetary credit) in no way means that the requester is having to ``pay 
twice'' for the upgrade, because the transmission service charge is 
entirely separate from the cost allocation provided for in clause (ii). 
The requester pays for the upgrade in advance, and in exchange receives 
the credit or rights. By contrast, the requester is assessed a 
transmission charge in exchange for accessing the transmission system. 
Thus, this is not so-called ``and'' pricing.
  Clause (iii) provides that the requester over time shall receive a 
form of compensation for its up-front, lump-sum payment. This 
compensation may be in the form of a monetary

[[Page E2358]]

credit of equal value, or financial or physical transmission rights, or 
another form of compensation proposed by the TP. Under (iii)(I), the 
requirement that the crediting period be ``not more than 30 years'' 
means that, so long as the crediting period proposed in the plan is 30 
years or less, the FERC has no discretion to require that the crediting 
period be different from the proposed period.
  The term ``full compensation'' in clause (iii) generally means that 
the requester gets appropriate compensation in exchange for making the 
up-front payment for the upgrade. In the case of a monetary credit 
under (iii)(I), this compensation is specifically identified as being 
``equal'' to the cost of the participant funded facilities (spread over 
30 years). In the case of the ``financial or physical rights'' option 
under (iii)(II), the compensation need not be quantified in terms of an 
amount equal to the cost of the upgrade. For example, in the case of a 
market using locational marginal pricing (``LMP''), such amount need 
not (and cannot) be calculated in advance. Nevertheless, such property 
rights resulting from the expansion are of great benefit to the 
requester as a hedge against paying potential congestion charges in the 
future. Thus, they are appropriate compensation. Subclause (III) gives 
the TP the option of proposing a different form of compensation. It 
does not give FERC discretion to require a different form of 
compensation when the TP proposes a monetary credit under subclause (I) 
or appropriate rights under subclause (II).
  To ensure that native load consumers are protected from paying for 
facilities they do not need, I urge my colleagues in the House and 
Senate to vote for the conference report.

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