To predict the Clinton Administration's next step is foolhardy. And when it comes to the first federal restructuring bill, it's riskier still to rely on drafts that apparently were leaked to gauge reactions of the energy industry and media.
"There have been a gazillion versions of the bill which have been prepared," says a Department of Energy official. "Unless you have a copy that's been dated within the past week (em the past several days (em it's likely to be of not a whole lot of value."
That said, there are some aspects of the DOE's draft restructuring legislation likely to make it through the rewrites. The "final draft" was to be released for interagency review this month to the Environmental Protection Agency, the departments of Defense and Agriculture and other government units.
The DOE, in an early proposal, clearly took some positions of those who spoke at its four public meetings in late 1996, while rejecting the leanings of others. The bill shapes up as a Democratic bill, in contrast to H.R. 3970, introduced in the last Congress by Rep. Dan Schaefer (R-Colo.). One exception is that both bills propose a portfolio standard for renewable energy. (Rep. Schaefer expects to reintroduce his slightly altered bill this month.)
The most notable aspect of the DOE draft is that it would allow each state to vote yes or no on retail customer choice. If the state rejects retail access, it can fall back on an alternative plan for wholesale competition only. That would mean that utilities could get electricity supplies anywhere, but consumers would have no choice and little control over energy prices. This idea seems to counter broad thinking on "choice."
Utilities would be required to show no preference when it came to buying their own power under the DOE scheme, but it's unclear who would play policeman. This "loophole" seems to cater to states with low-cost power that are unwilling to follow the retail-choice road.
The draft bill also calls for consumer disclosure information, requiring that utilities reveal the generating source, emissions, price and other information about electricity they are buying. This requirement seems to ignore market realities in that brokers, who bring power buyers and sellers together, don't disclose generation sources as part of their usual business regime.
The draft bill would reverse prior law on electric holding company mergers and give the Federal Energy Regulatory Commission the say-so in approving holding company mergers. To put it mildly, state commissions would hate this provision. If passed as is, the bill could affect at least one pending merger; Pacific Enterprises and Enova Corp. are counting on an exemption under the current law.
One portion of the bill worth watching is the re-alignment of federal and state jurisdiction on retail transmission services. It appears as if the bill endorses FERC's jurisdictional claim, made in Order 888. The matter has become one of the order's most controversial. Whether the final bill repeals 888 on this point undoubtedly will be of great interest.
Other parts of the DOE draft bill worth noting:
• When it comes to federal standards for electricity pricing, the bill seems to adopt two tiers.
Utility prices must be nondiscriminatory; yet, competitors such as marketers appear to have no pricing restrictions.
• On conservation and energy efficiency, the draft reads as if states will be revisiting demand-side management. This marks a step backward, as many public utility commissions and utilities might
observe. The bill also calls on states to provide, through "appropriate measures," funding of research and development.
• The bill endorses multi-state, regional regulation (em a difference from the Schaefer bill.
• It creates the National Electric Systems Benefits Fund to match state contributions to conservation efforts.
A DOE official, who asked not to be named, says the Department will try to come up with answers to remaining questions:
• Should there be a retail choice mandate by a certain date?
• How should stranded costs be recovered, and who should recover them? (The DOE leans toward giving states the responsibility.)
• Should the restructuring bill set new pollution requirements to prevent low-cost, "dirty" plants from being over-used?
• How should the Power Marketing Administrations, or PMAs, be dismantled?
Late last year, the DOE trolled the country for input at public meetings in Sayreville, N.J.; Santa Fe, N.M.; Chicago, Ill.; and Atlanta.
At the Chicago meeting, Hazel R. O'Leary, now former energy secretary, spoke about the difficulty in drafting restructuring legislation.
"We're talking about commerce at so, so many levels," O'Leary said. "And we need to understand the levels of commerce. We need to understand the exchanges within the commercial transactions. And we need to be very clear about how we're shifting both responsibility and ... authority. My God, this is tough, and we need to do it together."
But according to the unnamed DOE official, the meetings and debate within the agency provided some internal consensus, even if stakeholders were split. The most overarching theme is that federal impediments to competition must be eliminated. Impediments would include taxes, the Public Utility Holding Company Act and the Public Utility Regulatory Policies Act, and yes, even PMAs, an explosive issue.
"We'd like to see a bill enacted this Congress," says the official. "I think we identified a fair amount of consensus in our hearings that supports a great deal of what's in our bill."
The latest bill, that is.
What was said at the hearings? A lot. The transcripts run more than 200 pages.
The New Jersey hearing focused on renewables, energy research and the environmental effects of deregulation, with one speaker noting that the state has the nation's second worst air quality. Another speaker said the shutdown of nuclear plants posed the gravest threat to increased air emissions.
In Atlanta, Arthur Adelberg, a Central Maine Power v.p., (who has been outspoken on PURPA reform) said that in his state high rates have driven customers into the diesel-generator market. "And if you think an energy policy that encourages small diesel generation is desirable, I think you've got something coming," he said. Air emissions is a problem, he noted, but only via lower rates will people stay in the utility system. And while research and development is a valuable public good, it may not be feasible in high-cost regions of the country, he said.
At the New Mexico hearing, speakers tackled stranded costs, regional approaches to transmission systems, reliability and federal scope. There was recognition that the industry is becoming regional, but speakers cautioned against creating another level of government. Robert W. Gee of the Texas Public Utility Commission, however, said that another government layer might not be needed, that the states simply could cede part of their authority to a regional body.
Gee argued for treatment of stranded costs on a local, not federal, level. The consensus of the panel of speakers, in fact, seemed to be deferring to the states.
Kati Sasseville of Otter Tail Power Co. said that while investor-owned utilities should not be allowed to subsidize other components of their business, by the same token, the federal government shouldn't subsidize preference customers or PMAs. "My question is: Given the political realities that we all are aware of, is the Department of Energy in the next session of Congress, in the legislation that is being offered, going to do the right thing, or are you going to give in to the political interests?"
"The clear answer is we will do the right thing," replied Robert R. Nordhaus, DOE general counsel. Nordhaus later came back to the question: "I am sure we will do the right thing to the best of our ability. Obviously, not everybody agrees what the right thing is."
At the Chicago hearing, reliability was on the agenda. Roy Thilly of the Wisconsin public power community said the North American Electric Reliability Council regional system isn't the appropriate model today. "Most of the regional councils are dominated by very large vertically integrated private utilities," he said. "The one we're in at the moment, I think two utilities control the majority of votes."
Richard H. Cowart, chairman of the Vermont Public Service Board, suggested at the New Jersey hearing that in drafting legislation the DOE always remember past policy.
"I'm reminded of the lowly goldfish," said Cowart. "My wife is a biologist and she told me once that the memory span of a goldfish is so limited that every trip around the bowl is an entirely new experience. That's an important metaphor to keep in mind with respect to energy policy. My hope is that as we restructure the electric industry in the 1990s that we remember the lessons we learned in the '60s, the '70s and the '80s." t
Joseph F. Schuler, Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY.
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