Two congressmen and a Clinton Administration official recently weighed in on the future of electric industry deregulation, giving observers an inkling of what they might expect in legislation or policy this year.
Sen. J. Bennett Johnston (D-LA), the ranking minority member of the Energy and Natural Resources Committee, spoke before the Electric Generation Association (EGA) January 22. Just three days later he introduced S. 1526. The bill (see outline below) calls for full stranded-cost recovery, including decommissioning costs for nuclear plants. He hopes to protect retail wheeling, respect historic jurisdiction between federal and state governments, give states control over local markets, reform the Public Utility Regulatory Policies Act (PURPA), and repeal the Public Utility Holding Company Act (PUHCA).
Rep. Dan Schaefer (R-CO), chairman of the Energy and Power Subcommittee of the House Commerce Committee, was less specific about his plans, but asked for ideas so that he could meet his "aggressive timetable for pushing legislation this year."
Meanwhile, Charles B. Curtis, deputy secretary, Department of Energy, told members of the American Public Power Association (APPA) that restructuring should be delayed until after the Federal Energy Regulatory Commission (FERC) makes its final rule on the open-access Mega-NOPR, due sometime in April. Initiatives in California, Wisconsin, New York, and Massachusetts also should be given consideration.
"While I have counseled waiting, I do not counsel benign neglect," Curtis said. "The electricity utility industry is our nation's most vital, exercising enormous influence on our standard of living and on the competitiveness of U.S. business and its capacity for jobs creation. . . . We cannot afford a failed experiment on a national scale."
Curtis's most welcome announcement concerned privatization of the federal Power Marketing Administrations (PMAs): "Our fiscal year 1997 budget planning documents do not presently contain any PMA sale proposal." But as with any announcement in the industry lately, the PMA "rally" revealed a flip side.
Joe Nipper of the APPA noted that Congress may have plans for the PMAs, which are being studied by the General Accounting Office at the request of Rep. John Doolittle (R-CA). Doolittle, chair of the House Resources Subcommittee on Water and Power Resources, is expected to lay groundwork in 1996 for privatizing the PMAs in 1997.
The largest portion of Johnston's speech was dedicated to stranded-cost recovery: "It is simply
unfair to leave utilities holding the bag for the energy policies of the past. . . . Eighty-seven of the largest [investor-owned utilities] could lose $135 billion in stranded investment in the next 10 years. This is more than 80 percent of the total equity of these companies. Make no mistake about it. If we force the utilities to eat the stranded costs, we have a bankrupt industry."
Rep. Schaefer made it clear that his plans for deregulation will follow the action of the telecommunications bill: "We cannot deregulate until we eliminate the fundamental reason for those strict regulations in the first place (em the government-protected monopoly.
"To simply remove the government (em to deregulate (em without restoring the free market is the wrong kind of deregulation. Such deregulation, by definition, endorses the idea of government picking
winners and losers in the marketplace. It does not return the benefits of the free market to consumers. It only strengthens the monopoly."
Curtis posed several questions for Congress to deliberate:
s Should retail competition be a matter of federal or state policy?
s Should the states or the FERC have jurisdiction over transmission services?
s Should states have jurisdiction over some elements of every direct-access transmission?
Curtis suggests that the FERC, the Securities and Exchange Commission, and the states reach binding jurisdictional agreements to clarify and adjust "jurisdiction at the margins." He also noted that legislation on PUHCA and PURPA may be unnecessary: "The essential question for the Congress is whether to recast PUHCA and PURPA or rely on administrative change. In my view, much can be done administratively." t
Joseph F. Schuler, Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY.
A 'Sea Change' in Policy?
Depending on which industry source you pool, there will be (em no, won't be (em Congressional action this year on utility industry restructuring. As William L. Massey, FERC Commissioner, told the Edison Electric Institute conference in Palm Beach, Fl, in reference to Rep. Dan Schaefer's (R-CO) announced intention to consider fundamental changes in the nation's utility laws: "He indicated a willingness to consider nothing short of a sea change in federal policy." Legislators have sought to repeal PUHCA since 1982, in every session of Congress. Last October, Sen. Alfonse M. D'Amato (R-NY) sponsored S. 1317, a bill that would repeal PUHCA a year after the bill's passage. The SEC has recommended conditional or unconditional repeal; observers say the commission can't handle the merger filings coming in or supervise activity related to the Act.
"The bottom line is, I think something is going to happen," says Joe Nipper of the American Public Power Association (APPA). Although APPA doesn't favor PUHCA repeal, Nipper says its would be heartned if the FERC were given resources to protect consumers under a reformed Act. The SeC and FERC chair Elizabeth A. Moler have said the FERC can take on a new administrative role (em with the right resources.
At least one industry source believes that the FERC will take action on mergers. "The real nitty gritty review of mergers occurs right now at FERC anyway. That would remain unchanged by repeal of PUHCA," says William Conway, former senior counsel to the Senate Energy Committee.
S. 1526 would:
. Set retail access provisions. States wouldn't be "preempted" from ordering retail wheeling, nor would the federal government stop them. Any action on this point shouldn't conflict with the Mega-NOPR.
. Provide for stranded-cost recovery. The FERC would be given authority to ensure recovery of retail stranded costs.
. Set up shared federal and state responsibility. States would get the chance to either set up competitive wholesale procurement markets; establish a retail access program for all consumers; or devise their own program, ensuring that utilities don't favor their own generation.
. Set a timetable for the switch to competition.
. Provide for PURPA reform and PUHCA repeal.
. Provide for the recovery of all nuclear decommissioning costs.
Public Power Resolves
At its legislative and resolutions committee rally in Washington, DC, the American Public Power Association passed several resolutions. A sampler:
. The APPA opposes the application of stranded generation investment charges as add-ons to transmission charges or as exit fees on wholesale customers.
. The APPA asks the Congress and the Administration to maintain PUHCA's consumer protection provisions.
. The APPA finds utility applications for confidential rate schedules anticompetitive and anticonsumer, and believes they represent a disturbing trend toward predatory pricing and discriminatory service.
. The APPA supports changes to the hydropower licensing process to eliminate duplicate processes, enhance the involvement of the public, and provide a stronger role for the states.
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