Will inaction in the Senate and House prompt FERC to move ahead?

About 36 bills with the word "electric" in them were introduced in the 105th Congress. According to Capitol Hill and industry association staff, the 106th Congress, officially begun Jan. 6, appears likely to see fewer restructuring bills, but steadfast champions.

Likelier still are developments outside of Congress that will shape energy policy and perhaps beat legislators to the punch. That is especially true of the Federal Energy Regulatory Commission, which planned early this year to meet with state regulators on reliability and independent regional transmission organizations, or RTOs.

In the Senate's Energy and Natural Resources Committee, Chairman Frank H. Murkowski (R-Alaska) has promised to hold electric restructuring hearings and introduce "chairman's mark" legislation. In the House Commerce Committee, Rep. Thomas J. Bliley Jr. (R-Va.) presides over his last Congress as committee chair, meaning that there's a good chance of hearings in that forum as well.

The retirement of Senate energy committee ranking minority member Dale Bumpers (D-Ark.) and House Subcommittee on Energy and Power Chairman Dan Schaefer (R-Colo.) also promises to bring new players into the fray. Unclear is whether the replacements will be as strong proponents of renewable energy as Schaefer or Bumpers.

At press time, Rep. Joe Barton (R-Texas) stepped into Schaefer's subcommittee seat. In January, J. Dennis Hastert (R-Ill.) who has a long history of working with utility issues, emerged as the new House speaker to replace Rep. Robert Livingston (R-La.). Livingston resigned during presidential impeachment proceedings after admitting to marital infidelities.

With the entry of Barton, there's an interesting subcommittee combination with minority leader Ralph M. Hall, who's also from Texas. Meanwhile, with Bumpers' leave-taking, Sen. Jeff Bingaman (D-N.M.) becomes the ranking minority member on the Senate energy committee.

Handicapping bills in Congress requires speaking with Hill committee staff and the government relations staff of industry associations. Few staffers feel comfortable prognosticating on the record. But on background, their anonymous conversational currency is worth repeating, since it sometimes rubs against hard-grained party position.

One Senate energy committee staffer looked back to put into perspective the slow march toward restructuring. It doesn't have to be solely a federal legislative activity, he says.

"In 1983, when we tried to deregulate natural gas, Sen. Bradley offered an amendment to require basically open access to transportation of natural gas," according to the Hill staffer. "The bill got out of committee but failed on the floor. FERC went ahead and did it, order 436 ¼ and so forth. As a result of that, we never had to do anything on that issue. So sometimes, Congress should legislate where it needs to legislate. And if it doesn't need to legislate, why legislate?"

This comes from a committee whose chairman has been very vocal in promising to introduce legislation. But this year, will federal legislation matter?

Back in October, U.S. Department of Energy Secretary Bill Richardson gave the FERC authority under Section 202(a) of the Federal Power Act to partition the nation into regional grid reliability districts and RTOs. Then the FERC issued a Notice of Intent to consult with the states (Docket No. RM99-2- 000). At these meetings, state regulators will be asked where boundaries should fall and what their role should be in governing RTOs. (At least two commissioners, Vicky A. Bailey and Linda K. Breathitt, have criticized the NOI, questioning the FERC's authority.)

Besides the FERC's plans to meet with state regulators in January and February, low-cost states are becoming more vocal on restructuring.

Some 23 state commissions wrote to Congress in early December asking the elected body to let states decide individually if and how they should restructure their electric power markets. Regulators from such states as Virginia, Alabama and Utah said the average retail cost of electricity within their borders is 5.52 cents per kilowatt-hour, or 24 percent below the national average.

Some 18 states, including four "low-cost states," have restructured, or plan to restructure, electric power markets. Those states represent about half the country's population. Yet, according to the "Low Cost Electricity States Initiative," two-thirds of the country pay electric rates below the 1996 national average of 6.87 cents per kWh.

There are those, however, who believe federal legislation will matter.

"There's momentum for legislation," says one Hill observer. "I think with the two state referendums going down [Massachusetts and California], I think that pushes the momentum. I think there's a lot more room for piecing a bill together where you can coddle support, grow a coalition of support around. It all depends. On the House side, if Mr. Bliley does not advance a federal mandate bill, there's a strong possibility of things moving rather swiftly."

Deja Vu? Senate Bills

Evaluating last year's legislation proves a good starting point in determining what will and won't surface in this year's Congress.

Besides action by senators Murkowski and Bingaman on the Senate side, key bills may be introduced by Jim M. Jeffords (R-Vt.), Craig Thomas (R-Wy.), Slade Gorton (R.-Wash.) and Don Nickles (R-Okla.).

Murkowski and Bingaman are said to have a desire to work together.

"Based on what Chairman Murkowski has said, the approach of the Bingaman bill took on a lot of the FERC-related issues and he's supportive of that, so you may very well see large chunks of the Bingaman bill being incorporated into what Chairman Murkowski is doing," says a Hill source.

Not expected to resurface are the Public Utility Holding Company Act (S. 621) repeal bill and Public Utility Regulatory Policies Act amendment (S.2419). Both had been offered by Alfonse M. D'Amato (R-N.Y.), who was not re-elected. According to a legislative assistant to Sen. Phil Gramm (R-Texas) - who is expected to take over D'Amato's Banking, Housing and Urban Affairs Committee chairman's seat - Gramm hasn't determined whether he will float either bill again.

"Gramm has been rumored for a long time to be ruminating over his own restructuring bill, reportedly a year or so ago drafting one, but [his staff] demurred on that," says Joe Nipper, associate executive director at the American Public Power Association. "I don't think he's likely to introduce stand-alone pieces like [S.621 and S.2419]."

One of the largest questions is who will carry the administration's electric restructuring bill, S. 2287, introduced last year in the Senate as a courtesy by Bumpers and Murkowski. If Bingaman, Murkowski and Gorton each introduce bills, no senior senator will be left to carry the administration's water.

"It's going to be interesting to see whether anybody on the Senate energy committee is really going to want to carry the administration's bill," Nipper says.

It's not yet clear to the administration either who will sponsor the bill, says Dan Adamson, deputy assistant secretary for power technologies at the U.S. Department of Energy. "We'll send it up, first, regardless of whether we get a sponsor," he says. "What the bill is, is the administration position on electricity restructuring. So there's a huge value in outlining that regardless of who's sponsoring it and who introduces it. ¼ The success or failure hinges on to the extent Congress passes legislation on this topic and sends it to the president."

Adamson says the proposal will be the administration's marker, and much like last year's bill, should worm its way into the text of other legislation.

"And that's fine," he says. "We like that."

The administration bill allows consumers to choose their electricity suppliers by Jan. 1, 2003, but a state may opt out of retail competition if it believes consumers would be better off under the status quo or a under a state-crafted plan. The bill could be considered pro-consumer in that electric suppliers must uniformly disclose prices and energy. It also provides for at least 5.5 percent of electricity sales to come from renewable energy and calls for $3 billion in matching funds to be put toward public benefit programs. States would oversee recovery of stranded costs. The FERC would have the authority to require transmitting utilities to let independent system operators run their facilities.

The Nickles bill, meanwhile, as proposed in the last Congress, poses real problems for such important constituents as the National Association of Regulatory Utility Commissioners, even though S. 2187 tries to support the states and not mandate restructuring.

Nickles' bill declares distribution and transmission systems to be interstate commerce and therefore, under the Commerce Clause, there has to be open access to all of them. This throws the whole question of whether there is open access to the court system.

"I think the one thing we don't want to have federal legislation do is to have the industry immediately be slammed into court," says Peggy Welsh, NARUC's executive director. "We don't want these decisions to be made through litigation. We're finding that on the telecom side, that's how that market is being decided."

Some Hill observers have said they would be surprised if Nickles pushed his bill in the new Congress. Even Nickles' office has said he would like to see what debuts before he reintroduces S. 2187.

NARUC also will be watching what Sen. Bingaman's legislation does in relationship to FERC and the states.

"The one issue that we're not there on yet is what role the states should play in either a partnership with FERC or on a regional basis in adapting whatever national standards to be enforced by FERC, " says Charles D. Gray, NARUC general counsel. "There's not a single piece of legislation that we'd say answers all our needs and again relates back to the role of how state commissions participate in the enforcement, development of standards and the whole reliability regime."

The Thomas bill, S. 722, is to NARUC's liking, since it gives states the authority to order delivery of electric energy to all consumers. There's no mandate, but some fear this approach could result in increased rates for low-density states. One Hill observer says he would not rank this bill among the other restructuring bills, but that it was a "bookmark" on how Thomas would vote in committee.

An industry association staff member says the Thomas bill was important in that it helped forge the debate on state-mandated competition. "I think a lot of the Senate bills were placed out there as a marker to help promote and encourage debate and I think what we've learned over the last two years is there's not the support, and i.e., votes, for a federal mandate type legislation," she says.

The House is more willing than the Senate to embrace a federal mandate. Bliley is on record as supporting a mandate, even though common wisdom might show little support for one.

Gorton has been supportive of a date and a mandate, but was not as supportive of Bumpers on stranded cost recovery. Gorton was looking into what support he has for the Bumpers-Gorton bill, S. 1401. But according to Hill observers, he'll focus on municipal tax issues, leaving it unclear as to whether he'll target an all-purpose bill or a muni tax and Bonneville Power Administration bill - his two highest priorities.

Jeffords' bill, S. 687, similar to H.R. 1359, is expected to be re-introduced, with some changes, according to his staff. The bill sets up a national public benefits fund to pay for renewables, universal service and energy conservation, among other areas. The fund is paid for through a wires charge of 2 mills per kilowatt-hour or less.

NARUC, for one, has no firm position yet on public benefits, but it supports Congress in making sure state programs aren't restricted through legislation.

Some think that working conservation or other programs into the restructuring bill would kill any chance of its passage. One of the largest electric restructuring issues for the new Congress will be answering the question of what is meant by "comprehensive legislation."

"One person's comprehensive legislation is another person's piece of atrocity because it doesn't include my Clean Air Act fix, or it does include something else," Gray says.

The broader the scope, the harder it will be to move bills. If the Senate insists on taking up tax, Power Marketing Administration, Tennessee Valley Authority and other issues, it may be difficult to move legislation forward.

House Action: Will Largent Lead?

In the House, electric restructuring policy will be shaped by the loss of Schaefer and Bill Paxon (R-N.Y.). Paxon, up until he announced his retirement, was, with Steve Largent (R-Okla.), picking up where Schaefer left off, putting out discussion drafts of restructuring bills with Bliley's oversight.

"That approach did not invigorate the process," says Nipper. When Paxon announced his retirement, Bliley said he would look to Largent to pick up the effort in 1999, Nipper says.

"I don't have any reason to think that Chairman Bliley or his staff have backed away from their basic approach toward competition," says a Hill insider. "The one thing you saw that Congressman Schaefer was very adamant about was the renewable portfolio standard. I don't think you're going to find another Republican on the committee who felt as strongly about that going into the bill."

Largent has been telling those on the Hill that he doesn't plan to drop in a bill, but will wait and see what comes out. He'll try to work more behind the scenes.

"But has [Largent] lost some steam by losing Paxon?" Welsh asks. "Has the new leadership of the House had an impact on the priority? We know that Bliley is not buried in his commitment to [Schaefer's] bill, so we'll be watching that effort closely."

Barton, likewise, isn't expected to pick up where Schaefer left off.

"I don't think Barton is as strong a proponent of a federally mandated date certain," says an observer. "I think Congressman Barton is far more sensitive to what's going on in the states," especially in Texas, which is grappling with restructuring with opposition from its large cooperative contingent.

Other House bills worth watching include those introduced by Richard M. Burr (R-N.C.), Tom DeLay (R-Texas) and Edward J. Markey (D-Mass.).

Burr has grown more vocal on restructuring issues. His staff says "under discussion" is whether he will reintroduce H.R. 4715. The bill calls for repeal of the Public Utility Holding Company Act and the Public Utility Regulatory Policies Act and also gives states authority to permit utilities to deny distribution and transmission access to non-reciprocal utilities.

DeLay and Markey introduced H.R. 4432 toward the end of the legislative session last year. Observers say Markey has been frustrated with the slow pace of the subcommittee.

H.R. 4432 is seen by public power proponents as having an excellent market power approach. It gives FERC authority to require ISOs, to require divestiture of generation facilities and to prohibit preferential transmission service.

In an earlier bill, H.R.1960, Markey takes on PUHCA and PURPA and adds changes to the Federal Power Act and the Fair Packaging and Labeling Act. H.R.1960 also gives states authority to certify competitors. It calls for charges to pay for low-income customers and other services, such as renewables (3 percent of total electricity in 1998, then higher in subsequent years). Markey's staff indicates it is "highly likely" that he'll drop in a new bill in the 106th Congress.

"Markey has good ideas, but again, he has a mandate," says a Hill observer. "He has strong consumer protections and market power provisions that are looked at positively from consumer groups and those who have opposed stand-alone PUHCA reform."

The restructuring issue has stayed somewhat partisan, at least in the House.

"It's not a partisan issue, it's a regional issue, to me," notes another Hill observer. "I'm somewhat surprised that the Republicans haven't reached out more to the Democratic side of the aisle to work through a compromise. It's not like the tax bill where it's very partisan."

An earlier bill by DeLay, H.R. 1230, would have the FERC deferring to state commissions to regulate local distribution, lifeline service, certification of ESPs, universal service and conservation programs.

In the bill, DeLay was hopeful. He had electric restructuring taking effect Jan. 1, 1999.

That date is now history. Whether the 106th Congress becomes part of the annals of electricity deregulation remains to be seen. If the states and the FERC continue moving ahead, Congress could find itself left behind.

Joseph F. Schuler Jr. is senior associate editor at Public Utilities Fortnightly. Research assistance was provided by Carl J. Levesque.

Will Private Use Get Public Airing? Tax-exempt debt under fire.

Outside strict electric restructuring bills, the issue that could unleash the most venom in this Congress is legislation affecting private use of public power systems.

Public power systems are allowed to use tax-exempt bonds to finance their facilities, but the U.S. Constitution limits tax-exempt debt so that public credit isn't used for private purposes. The Tax Reform Act of 1986 placed the limit on government bonds. Private use may not exceed the lesser or either 10 percent or $15 million for a single project. Private use regulations violations can result in loss of tax exemptions for bondholders and forced recall of the bonds.

The U.S. Treasury Department passed temporary rules just over a year ago that allow public power systems to participate in independent system operators, but public power believes the rules don't go far enough. The new rules also apply to generation facilities financed by bonds.

Several bills that could shape the debate on private use, if they are introduced again this year, are S. 2182, by Sen. Slade Gorton (R-Wash.); S.1483, by Sen. Frank H. Murkowski (R-Alaska); H.R. 3927, by Philip S. English (R-Pa.); and H.R. 4732, by Robert T. Matsui (D-Calif.) and Richard E. Neal (D-Mass.).

There is some doubt whether Murkowski will put aside his "full-service" restructuring bill to revisit the private use issue. Murkowski's approach to help move public power to a competitive marketplace is seen by some as detrimental to public power. Under Murkowski's proposal, public power systems that have outstanding bonds would immediately have to call in their debt. Public power believes that by calling in outstanding bonds, worth almost $80 billion, one sector of the industry's electricity costs will increase, shortchanging the goal of competition.

According to Joe Nipper, associate executive director at the American Public Power Association, Gorton's S.2182 is the preferred solution. The bill deems open access transactions not to be private business use. It also allows public power systems to issue bonds for new transmission facilities and doesn't require public power systems to pay income tax on revenues.

Not everyone agrees with Nipper.

"We think the Gorton bill is the extreme," says Ron Clements, government affairs director at the Edison Electric Institute. "The Gorton bill basically takes care of private use for them and does nothing for anybody else. It is a public power only bill."

The English bill also leans in favor of public power in dealing with generation and new transmission beyond the "fence," Clements says.

"The purpose of tax-exempt debt is to aid the people who live within the municipality," he says. "If you go outside to engage in a commercial marketing activity, that doesn't aid the people within the municipality. We're saying that's not a legitimate function. ¼ If they're not engaged in a legitimate government function, then they shouldn't be tax exempt."

The Matsui-Neal solution goes beyond the English bill. It says there should be no new tax-exempt debt for new generation or new transmission Clements says he thinks there is a compromise between public and private power. "We're not as hard line as, for example, the Murkowski bill on the bond recall stuff," he says. "We can live without bond recalls. With the right incentives, we could live with private use."

But that doesn't mean agreeing that tax-exempt bonds should have no private use restrictions applicable to them. "That is a major, major fix for the munis," he says. "That's what the Gorton bill does.

"What we're saying is you've got to give us some income tax relief. We can't go out and compete with somebody that doesn't pay taxes and be a competitor."

Nipper says over the past year, there has been more debate on private use and EEI has come to see, if not agree, that it is a legitimate problem.

"They still don't want it fixed the same way we do," he says. "But they're not as hard a line now as a year ago."

He said he is encouraged to see that IOUs' only complaints, though not minor, are related to transmission and income tax. "We have no intention of supporting a proposal that would tax municipal revenues," he insists. "But I think the fact that they've narrowed their complaints ¼ signals that they've moved in our direction."

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