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Summary of Electricity Deregulation Hearings (6-28-99)


House Investigative Hearing on Electricity Competition:
PURPA, Stranded Costs and the Environment
House Committee on Commerce
Subcommittee on Energy and Power
May 20, 1999

Summary
    The House Committee on Commerce heard testimony on the issues of stranded cost recovery, PURPA, and renewable energies within the context of electricity deregulation.  Witnesses differed on whether the federal government should mandate national regulations for stranded cost recovery or if the states should each set their own policies.  Witnesses also disagreed on whether these costs should be passed on to rate payers with fee increases or be borne by the shareholders.  PURPA came under fire as having outlived its usefulness and of being an impediment to truly competitive markets. Witnesses testified on the state of renewable energy and how consumers have modified their electricity choices when offered blends that include renewable energies.  Testimony and questions by members focused on whether a competitive market would encourage production of cleaner fuels or if legislation should mandate a certain percentage of renewable fuels in all electricity blends.

Members Present
Committee Chairman Thomas J. Bliley (R-VA)               Rep. John D. Dingell (D-MI)
Subcommittee Chairman Joe Barton (R-TX)                   Rep. Ralph M. Hall (D-TX)
Rep. Michael Bilirakis (R-FL)                                         Rep. Karen McCarthy (D-MO)
Rep. Cliff Stearns (R-FL)                                                Rep. Frank Pallone, Jr. (D-NJ)
Rep. Steve Largent (R-OK)                                            Rep. Sherrod Brown (D-OH)
Rep. Edward Whitfield (R-KY)                                       Rep. Ted Strickland (D-OH)
Rep. Charles Norwood (R-GA)
Rep. John M. Shimkus (R-IL)
Rep. Heather A. Wilson (R-NM)
Rep. John Shadegg (R-AZ)
Rep. Charles Pickering, Jr. (R-MS)
Rep. Ed Bryant (R-TN)

Opening Statements
    Most opening statements focused on the issues of stranded costs, the incorporation of environmental regulation in the deregulation legislation, and the Public Utilities Regulatory Policies Act (PURPA).  Rep. Bliley and Rep. Dingell argued that stranded costs must be allowed to be recovered.  Rep. Dingell argued that the states, not the federal government, are best equipped to deal with this issue.  Rep. Brown did not agree that states can handle the stranded costs issue and argued that federal regulation is necessary.  Rep. Norwood was concerned that stranded costs will be passed on to counties that cannot accommodate them and that stranded costs will become a crippling burden for these areas.
    Rep. Bliley and Whitefield argued that no environmental reforms are needed in the deregulation legislation, while Rep. Pallone argued that federal environmental legislation is needed to avoid forcing consumers to choose between cleaner and cheaper fuel.  Rep. Bryant was leery of environmental legislation, as it may force people to buy more expensive green energy.  Both Rep. Stearns and Shadegg argued strongly for the repeal of PURPA.

Panel 1
Ms. Denise A. Bode                                                Mr. Richard Andelman
Commissioner                                                             Energy Systems and Utility Manager
Oklahoma Corporation Commission                              BJ's Wholesale Club, Inc.

Mr. Ross Ain                                                           Mr. Arthur Adelberg
President                                                                    Executive Vice President
East Coast Power                                                       CMP Group Inc.

Testimony of Ms. Bode
    Ms. Bode supported the transition of the electricity industry from monopoly to competitive market.  She stated that the federal government should limit its role only to issues that are beyond the individual state's abilities.  These include "regional transmission policies," removing "existing barriers to restructuring in current law," and the repeal of PURPA.  The federal government should pursue legislation that "enhance(s) the development of competitive markets" and then let the consumers choose their own fuel type from these markets even if Congress disagrees with that choice.  Ms. Bode also argued that stranded costs should be dealt with at the state level, as no legislation will work well for every state.

Testimony of Mr. Ain
    Mr. Ain expounded on the role that PURPA has played in bringing competition to the market.  He argued that PURPA should not be repealed, but simply amended as long as existing contracts are honored. He stated that stranded costs should be recovered through rates and not from shareholders.  Lastly, he stated that there is no need to put environmental legislation in the deregulation bill because a truly competitive market will value cleaner energy over less environmentally friendly energy.  He urged Congress not to let debate over environmental issues stop the passage of this legislation.

Testimony of Mr. Andelman
    Mr. Andelman addressed the controversial topics of stranded costs and green power.  Mr. Andelman is opposed to having either the federal government or the rate payers bear the burden of the electricity companies' obsolete capital investments.  He argued that technological advances, not government regulation, made these companies' investments obsolete and as businessmen they should have known the risks involved with capital investment.  Mr. Andleman supported green power, but warns that most companies will not choose green power if it comes at a premium.  Instead of regulating the use of green power, the government should institute a pollution fee system for non-green utilities that will "level the playing field."

Testimony of Mr. Adelberg
    Mr. Aldelberg argued for the immediate repeal of PURPA as it has "outlived its usefulness."  Many PURPA contracts secure companies to prices higher than those in a competitive market and some of these contracts continue until after 2010.  In conjunction with PURPA repeal, Mr. Adelberg also stated that "assurance of PURPA cost recovery" will reduce the cost to consumers and the amount of subsequent litigation.  Mr. Adelberg is a strong supporter of the government allowing for the recovery of stranded costs by the utilities, but does not specify how these costs are to be reimbursed.

Question and Answer session of Panel 1
    The chairman wanted to know if it was feasible to deal with stranded costs on a state by state basis as each state is different.  Ms. Bode argued that without federal legislation utilities companies will receive unequal treatment depending on their location.  Much of the questioning focused on how stranded costs should be recovered and who should bear the costs.  The witnesses generally reiterated the positions given in their statements.

Panel 2
Ms. Karen O'Neill                                               Mr. Thomas Casten
Vice President-New Markets                                  President and CEO
Green Mountain Energy                                           Reigen Energy Corporation

Mr. Donald Niemiec                                             Mr. Armond Cohen
Vice President                                                         Director
Union Pacific Resources Energy Marketing              Clean Air Task Force

Mr. Paul Agathen                                                 Mr. Lawrence Codey
Senior Vice President                                              President and Chief Operating Officer
Energy Supply Services                                           Public Service Electric and Gas Company

Testimony of Karen O'Neill
    Ms. O'Neill cited studies that indicate consumers will choose "green" electricity over traditional methods of generation.  Congress' role should be to ensure competitive markets by allowing access to grid and transportation systems by all companies.  Congress should also mandate that companies label how their electricity is generated so consumers can make an informed choice.  Lastly, she argued for strict legislation on affiliates that would enforce "arms length" transactions preventing electricity companies from using their affiliates as dummy competitors to keep electricity prices artificially high.

Testimony of Mr. Niemiec
    Mr. Niemiec focused his testimony on how to protect the environment in a climate of restructuring.  He argued that a competitive-market based approach is the best way to insure environmentally friendly choices by companies.  In a true competitive market however, all costs must be calculated into the price, including costs of pollution.  He supports the institution of a "fuel neutral standard" that would require all fuels, regardless of type, to meet the same level of emissions.  Lastly, he argued for an "output based standard" that would require a fuel to meet its emission requirement based on per-unit of energy produced.

Testimony of Mr. Cohen
    Mr. Cohen also argued for emission and environmental standards to be the same regardless of fuel type or age of the plant.  He does not support "grand-fathering" of standards for old plants as this gives them a cost advantage over newer plants that must adhere to newer, stricter standards.  "Emissions policy is indisputably one of the few (issues) that demands federal attention, because of the interstate nature of pollution flows and the physical and political difficulty of unilateral state action."

Testimony of Mr. Casten
    Mr. Casten argued that the regulated electricity market "results in wasted money, wasted fuel, and needless pollution."  He stated that competition in the market should create lower prices by forcing companies to increase efficient in power production and reduction of emissions.  He argued for changes in the Clean Air Act so its focus includes not only reduction of emissions, but also increasing efficiency of energy production.

Testimony of Mr. Agathen
    Mr. Agathen argued that market competition will reduce the negative environmental impact of the electricity industry.  He cited two studies that indicated no significant degradation of air quality would occur as a result of restructuring the industry.  Mr. Agathen's main concern was that some parties will use the restructuring debate to make "back door re-write(s) of Federal Clean Air Act requirements."

Testimony of Mr. Codey
    Mr. Codey expressed fear that the current environmental standards that are tied to fuel type, location of the plant, and age of the plant will cause a degradation of the environment if used in a competitive market situation.  He argued for an "out-put based, fuel-neutral generation performance standard governing nitrogen oxide an sulfur dioxide."  He also stressed the importance of disclosure of energy type and effect on the environment to consumers by every energy producer.  He argued for legislation "where the ability to pollute was not a competitive advantage."

Question and Answer Session for Panel 2
    The Chairman asked questions about the need for environmental regulations and was especially interested in the effect on the coal burning industry should environmental standard be changed.  Mr. Casten argued that coal is competitive, because while the national average is only 35% efficiency for plants, the technology is there to burn at 85% efficiency.  Rep. Shimkus also focused on the coal industry and was told that there is no expected increases in coal plant construction.  Rep. Dingell explored the issues of whether this legislation should apply to all companies or just private producers and whether dictating a percentage of renewable power and other environmental legislation was supported by the witnesses.  Rep. Pallone asked questions concerning mercury emissions and was told that this problem was virtually nonexistent at coal plants because the mercury trace element is removed by the sulfur scrubbers installed at each plant.

(Contributed by AGI/AIPG Geoscience Policy Intern Sarah Robinson)


Hearing on Electricity Deregulation
Subcommittee on Energy and Power
June 17, 1999

The Bottom Line
Despite months of work on electricity deregulation, this hearing resulted in clarification of many issues.  The sole witness at the hearing was Department of the Interior Solicitor Bill Richardson.  With limited opposition from both sides of the aisle, the subcommittee expressed commitment to pass deregulation legislation this session.  A wide range of questions were raised about the Clinton administration's proposed legislation (H.R.1828/S.1047), but representatives were particularly interested in why federal legislation is necessary despite state legislation and specifics of the opt-out clause offered to states.

Members Present
Rep. Joe Barton (R-TX), subcommittee chair  Rep. Ralph Hall (D-TX), subcommittee ranking Democrat 
Rep. Tom Bliley (R-VA), committee chair  Rep. John Dingell (D-MI), committee ranking Democrat 
Rep. Michael Bilirakis (R-FL) Rep. Karen McCarthy (D-MO)
Rep. Cliff Stearns (R-FL) Rep. Tom Sawyer (D-OH)
Rep. Steve Largent (R-OK) Rep. Edward Markey (D-MA)
Rep. Richard Burr (R-NC) Rep. Frank Pallone (D-NJ)
Rep. Ed Whitfield (R-KY) Rep. Bart Gordon (D-TN)
Rep. James Rogan (R-CA) Rep. Bobby Rush (D-IL)
Rep. John Shimkus (R-IL)
Rep. John Shadegg (R-AZ)
Rep. Chip Pickering (R-MS)
Rep. Ed Bryant (R-TN)
Rep. Robert Ehrlich (R-MI)

Opening Statements
Chairman Barton opened the hearing by stating that the Clinton administration and the subcommittee "agree on many of the same goals, although there may be some controversy on how to achieve those goals."  Ranking Democrat Ralph Hall (D-TX) agreed that the bill "has served pretty well to advance the debate."  Both Texas representatives present commented that the Texas state legislature recently passed its own reconstruction legislation.

Rep. Frank Pallone (D-NJ) commended the administration for "substantially improving its restructuring bill since last year."  He was particularly pleased with changes in the renewable portfolio standard, inclusion of "incentives for combined heat and power systems and distributed power technologies," and inclusion of a public system benefits fund.  Rep. Pallone also expressed support for the proposal's "strong reliability language" and emissions trading provisions.  He called for further protection for the environment and promised to reintroduce a bill that would include greater environment and consumer protection provisions, "the heart of which is a muli-pollutant emissions trading program."  Pallone said his bill "will include trading for NOx, sulfate particulate matter, and carbon dioxide, and will address mercury emissions, as well."  Rep. Ed Whitfield (R-KY) also focused on concerns about the NOx trade provision of the administration's proposal.

The Commerce Committee's ranking Democrat, Rep. John Dingell, was most critical of the administration's proposal.  He questioned how the bill will affect states, whether it would bring deregulation or more regulation, and if it would give the Federal Energy Regulatory Commission (FERC) more responsibility.  In contrast, Commerce Committee chair Tom Bliley (R-VA) expressed strong support for the measure.  He said, "'Retail competition... will be good for consumers, good for the economy and good for the environment.'  Those are your words Mr. Secretary [Bill Richardson, Secretary of Energy], but they could as easily have been mine.  I am a Republican and you a Democrat, but we both agree that a truly competitive electricity power market, at both wholesale and retail levels, benefits all Americans."

Rep. Edward Markey (D-MA) also supported the proposal in his opening statement.  "We've had every question posed and every conceivable answer given" he said.  He accused electricity monopolies of trying to "beat back" legislation.  Rep. Tom Sawyer (D-OH) called for a "flexible framework."  Rep. Bobby Rush (D-IL) expressed curiosity about how the proposed legislation would treat co-ops, and how it would impact the way his state already handles co-ops under its own restructuring laws.  Rep. Albert Wynn (D-MD) questioned what federal action is appropriate in light of recent legislation by many states.

Panel 1
Bill Richardson, Secretary of Energy

Richardson testified that federal electricity restructuring legislation is essential despite recent state restructuring efforts, because it will address interstate markets and markets served by federal utilities including the Tennessee Valley Authority, remove federal statues that would interrupt state and local programs, and positively influence the environment.  Richardson said, "The fact is that retail competition can't and won't reach its full potential without comprehensive Federal electricity restructuring legislation.  Neither state nor Federal regulators have the necessary tools to ensure that electricity markets operate as efficiently as possible without complementary action by Congress."

He pointed out that the Comprehensive Electricity Competition Act would "allow states and non regulated municipal and co-operative utilities to opt-out".  Richardson told the subcommittee that the legislation would establish a target date of January 1, 2003 "by which all consumers would be able to purchase power from the supplier of their choice.  However, individual states and non-regulated utilities could opt-out from this requirement if they find, on the basis of a public proceeding, that consumers would be better served by an alternative policy or the current monopoly system."  He explained the new powers that would be granted to the Federal Energy Regulatory Commission (FERC) and how the bill would enable the Department of Energy (DOE) to require information disclosures from companies.

Richardson defended one of the most controversial aspects of the legislation, the 7.5% Federal Renewable Portfolio Standard to be met by 2010.  He said the DOE would sell credits to electricity companies in order to hold down costs.  The Secretary also stressed the importance of a Public Benefits Fund to provide matching funds up to $3 billion a year to states.

Rep. Hall questioned Richardson about plans to grandfather states that already have their own reconstruction legislation.  Richardson assured him that such states would be excused from some provisions of the law, but not from the interstate provisions.  "Sounds like good news to me," Hall replied.  "I was expecting a 'no.'"  Later during questioning by chairman Barton, Richardson clarified that the administration favors requiring "a proceeding with a conclusive response" before allowing states to opt out of deregulation, rather than simply accepting a letter from the governor or the state legislature.  He also clarified that the administration does not support a "hard date" or no date at all for completion of deregulation.  Rep. Barton said "we are about to stop talking and start working, I hope."

Rep. Bliley asked if congressional action was expected to spark investment in the electricity industry and if restructuring would cut federal electric bills.  Richardson said legislation was expected to increase investment and save federal, state and local governments about $20 billion a year.  He said the federal government would save around $8 billion every year.

During the subcommittee's extensive questioning of the secretary, Rep. Markey accused electricity monopolies of writing a "secret bill" that would water down deregulation.  Rep. Bilirakis again questioned why federal legislation was necessary despite recent state legislation.  Richardson reiterated what he said on this manner in his earlier statement.  Bilirakis expressed concern that the legislation may allow too many hoops for states to jump through to opt out of the plan, and that the proposal might not "address the right issues."

Rep. Sawyer said he wants to "encourage regional solutions" and Rep. Barton added that he wants Richardson to carefully consider what happens under the proposal to states geographically caught between producing and consuming states.

Rep. Largent mentioned that the alternative proposal he and Rep. Markey have proposed includes plans for regional planning organizations.  He said his bill includes a renewable portfolio and, like the administration's bill, it "would be green."  Sec. Richardson said the administration is willing to accept the more explicit grandfather clause of the Larget-Markey bill (H.R.2050), if legislators think it is necessary.  Rep. Largent said the question now seems to be not if deregulation should occur, but when deregulation should occur.

Rep. Rush said he is still concerned about the future of small electricity co-operatives.  Rep. Shimkus also said he is looking for a stronger statement that "we're not going to regulate co-ops."  Sec. Richardson said he wants to give the flexibility to regulate co-ops to FERC.  He added that co-ops that do and do not own transmissions should be treated differently.  "I think FERC has enough guidelines and sense" to realize that rural co-ops need protection, Richardson said.

Rep. Burr raised concerns about whether proposed legislation would actually increase or decrease regulation, and how this would affect market value.  Richardson said deregulation would decrease regulation, and that the response from Wall Street has been very positive.  Burr said he still thinks it will increase regulation and decrease market value, and he wants to consult with Wall Street further before passing deregulation legislation.

Rep. Barton brought up the issue of a public benefits fund.  He said there did not seem to be a lot of support for the fund and asked if it was really necessary given that many states already have such a fund.  During questioning by Barton and Rep. Shimkus, Richardson said the fund is just a "little pot" and is necessary because it is uncertain what will happen when state legislation expires.

(Submitted by AGI/AIPG Geoscience Policy Intern Althea Cawley-Murphree)



Alternative Energy Generation
Senate Committee on Energy and Natural Resources
June 22, 1999

The Bottom Line
Each witness stressed the societal benefits of alternative energy generation, and both senators at the hearing expressed support for the new technology.  The senators questioned whether federal legislation is necessary.  They were assured it is.  The only disagreement between panelists arose over how quickly the legislature needs to proceed.

Senators Present
Sen. Frank Murkowski, chairman (R-AK) Sen. Jeff Bingaman, ranking Democrat (D-NM)

Opening Statements
Sen. Jeff Bingaman (D-NM) opened the hearing in Sen. Frank Murkowski's (R-AK) absence, and expressed his optimism for the future of alternative energy sources.  He noted how particularly helpful such sources are in rural areas of New Mexico.

Panel
Dan Reicher, Assistant Secretary for Energy Efficiency and Renewable Energy
Beverly Jones, Vice President, External Affairs and Policy Development, Consolidated Natural Gas
Dr. Thomas Schneider, Vice Chairman, Energy Policy Committee, Institute for Electrical and Electronic Engineers (IEEE) Inc., USA
Matthew Nicolai, President and CEO, Calista Corporation
Tony Prophet, President and CEO, Allied Signal Power Systems, Albuquerque, New Mexico
George McNamee, Chairman of the Board, Power Plug, Latham, New York
Meera Kohler, General Manager, Anchorage Municipal Light and Power, Anchorage, Alaska

Mr. Reicher testified to the huge potential market and great environmental benefits of energy generated "on site" or in close proximity to the end user.  He compared alternative energy generation to development of the personal computer and the shift away from mainframe systems.  Reicher said alternative energy sources in his own home had reduced his energy bill from about $40 to around $10 a month.  He said such sources are also much more reliable because most power outages are caused by failures in the distribution system.  He called for legislation that creates national standards for alternative energy generation, to be enforced by FERC, and said he "strongly supports increased R & D [research and development] spending."

Ms. Jones said in her testimony that customers want the choice to self regulate to improve the cost, reliability, and quality of their energy.  She said federal legislation is necessary despite growing enthusiasm of states for alternative energy because "states are very uneven in the pace of reconstruction" and states themselves want federal leadership in the debate.  She said: "Only the federal government can assure that the benefits of distributed power--greater flexibility, lower costs, lower emissions, enhanced reliability, greater customer choice--reach all corners of the marketplace." She added that the administration's proposal for energy restructuring (S.1047/H.R.1828) and the Larget-Markey proposal (H.R.2050) "both contain provisions for a national, uniform interconnection standard for distributed generation as well as accelerated depreciation for certain small-size generating units."

Dr. Schneider said that there is a pressing need for comprehensive federal standards and that professional consensus standards present the best option.  However, he said one year may be too soon to impose such standards.  He urged the committee to involve all interested parties.

Mr. Nicolai testified about the hardship rural Alaskans face without alternative energy generation.  He said fifty-six villages have high unemployment and have struggled for decades with economic development in part because energy is very expensive in the region.  He said energy bills in the region are about 250% more expensive than in Anchorage and are expected to skyrocket to 600% as federal energy subsidies are phased out.  Nicolai said a great deal of time and expense has been spent unsuccessfully looking for natural gas in this oil-barren region.  He testified that about 360 tons of precious metals have been found in the region but cannot be removed without energy and transportation resources.

Mr. Prophet told the committee about the benefits from and obstacles to alternative energy generation.  He said this new technology would mean a "real choice" for customers, lower costs and a cleaner environment.  However, he said industry has the means and the motive to stop these advances.  Prophet said standards cannot be different in every state.  He objected to penalties for demand switching and prejudicial pricing and urged the committee to address both these issues through legislation.  He also said on-site reviews are highly impractical as the industry wants to put thousands of units in individual homes.  He urged safe standards be implemented as soon as possible because even two years "is an eternity."

Mr. McNamee said General Electric plans to begin selling individual fuel cells in 2001 and is developing a fuel cell that will run on diesel for use in areas with no other power sources.  He predicted that "just as the personal computer hasn't eliminated the mainframe, this new technology will not replace traditional power plants."  He said that worldwide there are approximately one billion households without power today.  McNammee said the industry faces a patchwork of state and local fees and regulations, which must be remedied by federal legislation.  He brought with him a dishwasher-sized model of the Power Plug Fuel Cell 7000, which he said could power a single home.

Ms. Kohler testified before the committee that standards will be very helpful to the industry but cautioned "we must take time to do it right."  She raised many concerns about the practicality of using alternative energy generation and urged the committee not to "rush into this."

During a question and answer period, Sen. Murkowski emphasized how important he thought this issue was to consider, especially for rural customers whom he does not expect to benefit from electricity deregulation.  He asked if low prices quoted during the hearing included capital costs, and was assured they did.  Sen. Bingaman clarified that Prophet wanted the committee to develop interconnection standards and prohibit prejudicial pricing and demand switching penalties.  Reicher told Bingaman that regulations could be used in place of federal legislation but would only create more patchwork and would therefore be ineffective.  McNamee urged quick action because it will take time to implement new standards and told the senator "we need to educate a nation of building inspectors and fire marshals."  Prophet said the technology his company has developed is ready for commercial use and has already undergone two years of international field trials with no safety problems.  Several members of the panel agreed that the federal government or preferably an independent third party is needed to test, certify, and monitor this technology.

(Submitted by AGI/AIPG Geoscience Policy Intern Althea Cawley-Murphree)


Please send any comments or requests for information to the AGI Government Affairs Program.

Contributed by AGI/AIPG Geoscience Policy Interns Althea Cawley-Murphree and Sarah Robinson

Last updated June 28, 1999


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