Divest yourself of generating plants or allow retail sales by competitors, and PURPA's mandatory purchase clause in section 210 will no longer hold.

That's the basic deal to be offered to investor-owned electric utilities under the Electric Power Competition Act of 1996 (H.R. 2929), a new bill to amend the Public Utility Regulatory Policies Act (PURPA) introduced by Rep. Edward J. Markey

(D-MA) on February 1.

In the technical sense, the bill would suspend PURPA section 210 for any electric utility receiving a "certification of competition" from its state public utility commission. But from another angle, one might argue that the utility must leap new hurdles to assure regulators not only that it will open itself to competition, but that it will maintain certain public-purpose ideas previously associated with a regulated regime.

To gain eligibility for the certificate, the utility would satisfy one of two tests (em a) retail competition or b) divestiture of generation from transmission (em plus certain other conditions relating to energy efficiency, renewable energy, low-income services, fuel diversity, price discrimination, and recovery of stranded costs.

An electric utility would obtain state certification under the retail competition standard by a showing that it would:

s Permit competition in retail sales to all consumers in its territory

s Allow competitors the opportunity to build, own, and operate new state-approved generating capacity

s Not gain advantages over competitors through its status as a regulated electricity buyer and seller in its territory.

Under the bill's divestiture standard, an alternative to the retail competition standard, certification would be forthcoming if the utility:

s Divests itself from existing generating plants and is barred from owning/controlling generating plants for as long as it owns or controls distribution or transmission facilities

s Adopts open-access transmission tariffs approved as just, reasonable, and not preferential.

s s s

Reaction to the bill from both sides of the PURPA debate was predictable.

"It's somewhat of a disappointment to us," said Arthur W. Adelberg, chairman of the PURPA Reform Group and vice president of Central Maine Power Co. Adelberg said that although the bill's heavy-handed regulation disregards PURPA's harmful effects on utilities, he was encouraged that H.R. 2929 recognizes PURPA "has to go eventually."

"An excellent bill," offered Tobyn J. Anderson, deputy director of the National Independent Energy Producers (NIEP).

For NIEP, the bill's introduction was expected.

"It very closely tracks the draft proposal that NIEP has been floating since last spring," Anderson said. But he admitted it wasn't a perfect piece of legislation. "It's not what's going to be the final legislation, if in fact Congress reports, or passes, legislation. It's an initial marker out there." He said the PURPA debate will form the final bill. While the House is anxious to hold hearings, the Senate sees the issue as less urgent.

Bill Cowan, NIEP policy director, pointed out that H.R. 2929's retail access and divestiture standards go beyond the functional unbundling proposal set out in the Federal Energy Regulatory Commission (FERC) Mega-NOPR. Adelberg notes that utilities already are separating parts of their businesses so that markets can be more competitive.

"Central Maine Power Co. has just put on the table an offer to legally separate its generation from its transmission and distribution," he said. "Which should more than assuage Congressman Markey's interest. And it should hopefully make it clear to him once again that he doesn't have to come down with a heavily regulated mechanism to get what he wants. The market is well ahead of what he's trying to do. And the best thing they can do is get out of the way rather than create more hurdles for us."

Cowan recognized the efforts of utilities making forward-looking decisions. But "it's important that we have sort of a national standard of competition so that we would encourage more states to follow this path, more utilities to do it. It's happening very slowly. ... You're not seeing a groundswell of utilities willing to consider a separation option."

Anderson added: "It's pretty thoughtful legislation. It's just that it has the 'D' word in it, or contemplates the 'D' word. So if utilities out there are so willing to contemplate divestiture, it's hard for us to understand why it creates this kind of strong opposition."

H.R. 2929 marks the third bill within the past year to repeal, reform, or amend PURPA. Rep. Cliff Stearns (R-FL) sponsored H.R. 2562 to repeal PURPA's section 210; Sen. Don Nichols (R-OK), through S. 708, wants to repeal PURPA outright.

Markey says that he hopes to work with Rep. Dan Schaefer (R-CO), chairman of the House Commerce Subcommittee on Energy and Power, and Commerce Committee chairman Thomas Bliley

(R-VA) on a bipartisan effort to bring competition into the market.

On the same day the Markey bill was introduced, regulators, policymakers, and interested parties testified before the House Subcommittee on Energy and Power.

Schaefer said competition in electric generation was emerging, prices were dropping, plant efficiency was improving, technology was surfacing, and customer service was getting more attention.

"However, it is clear that our work is not yet complete," he said in a written statement of his subcommittee remarks. "Most of today's witnesses agree that there is not yet true competition in the generation sector, and that repeal of section 210 of PURPA would harm the progress we have made thus far. At the same time, most of today's witnesses would also agree that there have been problems in how PURPA has been implemented. The result has been that some utilities have had to pay higher prices for power generated by some qualifying facilities." (On February 27, Schaefer was to reconvene his House Commerce Subcommittee on Energy and Power to address how far state legislators and regulators are moving toward electric utility deregulation.)

In his testimony on H.R. 2929, Irwin A. "Sunny" Popowsky, consumer advocate of Pennsylvania and vice president of the National Association of State Utility Consumer Advocates, pointed out that PURPA has proven that utilities shouldn't have a monopoly over building and operating power plants: "While many utilities properly complain today about PURPA projects that cost six cents per kilowatt-hour, when the current market cost is only three or four cents, we cannot forget that many utility rate bases around the country are filled today with the costs of nuclear power plants that make some of the worst PURPA projects look like bargains."

Elizabeth A. Moler, FERC chair, noted it was becoming "increasingly difficult to reconcile PURPA's avoided-cost requirements with encouraging higher-priced renewable technologies, particularly in light of the goal of the Energy Policy Act to encourage competitive wholesale power markets."

PURPA repeal also was premature, according to Moler's testimony, given that, in her eyes, utilities still wield market power in transmission: "At a minimum, those who control the nation's transmission grid must provide comparable open access before we can have competitive wholesale power markets."

The testimony of Cheryl L. Parrino, Wisconsin Public Utility Commission chair and president of the National Association of Regulatory Utility Commissioners, seemed to echo parts of the Markey bill. She said PURPA reform should enable a state to "opt out" of mandatory purchase requirements if it finds that:

s Energy procurement is competitive

s Prices are driven by the market, rather than by the utility

s Reliability of services is protected.

Robert K. Green, executive vice president and COO of UtiliCorp United Inc., called for a comprehensive, nationwide approach to PURPA: "We believe some analogies to the current telecommunications reform legislation may be instructive. ... Any deregulatory efforts of PURPA should only be done in the context of comprehensive legislation that would bring competition to all local utility electric customers. With achievement of retail open access, there will be no need for PURPA because all competitors will be free to market directly to customers." t

Joseph F. Schuler, Jr. is associate editor of PUBLIC UTILITIES FORTNIGHTLY.

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