[Congressional Record (Bound Edition), Volume 147 (2001), Part 6]
[Extensions of Remarks]
[Page 7931]
[From the U.S. Government Publishing Office, www.gpo.gov]



     MODIFY THE DEPRECIATION OF PROPERTY USED IN THE GENERATION OF 
                              ELECTRICITY

                                 ______
                                 

                           HON. WALLY HERGER

                             of california

                    in the house of representatives

                         Thursday, May 10, 2001

  Mr. HERGER. Mr. Speaker, today I am introducing legislation that will 
foster adequate electric generation and reliability. Excessive 
electricity price volatility, concerns about power shortages, and 
harmful consequences for the regional economy in the West are all 
related to inadequate generation and transmission capacity in and 
around my home state of California.
  Moreover, the energy crisis in California and neighboring states has 
demonstrated the importance of developing generation facilities to 
ensure that electricity supplies are widely available at reasonable 
prices. But capacity shortages are not just an issue in California, and 
addressing this tax code problem is critical to helping avoid similar 
problems from developing in other regions of the country.
  To encourage new investments in generation, my bill would reduce 
depreciable lives of generation systems from their current cost 
recovery period of 15 or 20 years to 7 years. The current electric 
industry depreciable lives are longer than those of any manufacturing 
segment.
  America's booming technology-reliant economy of the 1990s spurred a 
demand for more electricity. However, that increase in demand was not 
met by building new generation. In the 1970s and 1980s, America had 
power surpluses. As a result, state regulators, trying to keep consumer 
rates down, often disallowed the costs of some excess capacity and did 
not allow utilities to recover in rates all of their costs for building 
power plants. In many cases, utilities were required by their 
regulatory commissions to buy power from other supplies rather than 
build their own plants. That, and the advent of competition, engendered 
a cautious attitude toward investment costs that might not be 
recoverable. The result was a construction lag, while demand for power 
increased by about 2 percent per year.
  Nevertheless, between 1978 and 1992, America's utilities had reserve 
margins that averaged between 25 percent and 30 percent to meet 
emergency demand situations. Since 1992, the reserve margin has dropped 
significantly--to less than 15 percent nationwide.
  Meanwhile, the Energy Information Administration (EIA), in its Annual 
Energy Outlook 2001, raised its own projections of electricity demand 
for the next 20 years because of projected increases in economic growth 
and the growth in electricity use for a variety of residential and 
commercial applications. To meet demand growth, EIA projects that 1,310 
new plants--with a total of 393 gigawatts of capacity--will need to be 
built by 2020. The 393 gigawatts represents nearly a 47% increase over 
current installed capacity, or the ability to serve approximately 60 
million additional customers.
  The current tax law profoundly impacts a generator's bottom line, 
making it difficult to compete, and discourages the formation of much 
needed capital investment. The price spikes and major power outages in 
recent years, most notably in California, have brought this issue home 
to millions of people. By way of example, no significant new generation 
has been built in my state of California in more than a decade, despite 
higher than-expected growth in the demand for power.
  Nationwide, the structure of the electric industry is rapidly 
changing from vertically-integrated, regulated monopolies to unbundled 
and fully competitive generation services--independent transmission 
companies and local distribution companies. Currently, 24 states and 
the District of Columbia, encompassing some 62% of the Nation's 
population, have either passed electric industry restructuring 
legislation or enacted regulatory orders to implement unbundling and 
competitive customer choice. In addition, the Federal Energy Regulatory 
Commission (FERC) is promoting wholesale competition and the formation 
of regional transmission organizations. Because of the introduction of 
competition, previously applicable rules regarding the cost recovery of 
capital simply do not apply any longer.
  Mr. Speaker, I urge my colleagues to cosponsor this urgently needed 
legislation.

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