State and federal regulators and the industries we regulate have donned life jackets. It's as if we are boating down the unexplored Grand Canyon with John Wesley Powell1 in 1869. We share a vague vision of what lies at the mouth of the canyon, but the rapids are treacherous and uncharted.
On the river, boatmen and women often scout the tough rapids from the shore. Back on the river, they carefully set themselves up at the proper position and angle, then apply deft, sometimes powerful, strokes at crucial moments. Likewise, good regulators carefully prepare proceedings (increasingly legislative ones), provide stakeholders with fair process, then make discreet, sometimes strong, decisions at key times.
Today's regulators have many advantages over the intrepid, one-armed Powell. We have fine equipment, excellent training and experience, and an enormous support group (em each other, through the National Association of Regulatory Commissioners (NARUC). But, like Powell, we face tremendous uncertainty.
In 1995, the gas industry and its regulators, led by the Federal Energy Regulatory Commission (FERC), eddied out in the up-welling water behind Order 636. They'd run the Class Five rapids over the last few years and, although they took on some water, they'd kept their boats upright. The unbundling of the industry had largely been a success, but a couple of tail waves remain: making electronic trading productive instead of obstructive, and crafting a market for upstream capacity release. The water industry has avoided the big water and stuck to Class Three streams, such as reform of the Safe Drinking Water Act.
The roiling white water this year was found in the electric and telecommunications industries.
Despite the rhetoric of the 1994 election campaign, the 104th Congress has rowed away from "new Federalism." A comprehensive federal/state framework to address the transition to a more competitive environment would be a major step forward. But, in the important areas of universal service, unbundling and interconnection, and appropriate regulatory regime, the regulatory boatmen and women must have maximum flexibility to navigate the "stream" to ensure that competition moves ahead, while protecting remaining captive customers from rate shock or service-quality degradation.
NARUC's overriding goal is to shape a final telecommunications bill that restores the proper balance between state and federal authority with respect to opening the local loop to competition. To this end, we strongly believe that the applicability of section 152(b) of the 1934 Communications Act, which reserves state authority over intrastate telecommunications, should remain intact. Restoration of section 152(b), which both the House and Senate bills repealed, will provide states maximum flexibility to manage the transition to a competitive marketplace and will best ensure that the interests of consumers, competitors, and incumbents are met in a fair and timely manner.
Second, we are concerned that federal telecommunications legislation not turn back the procompetitive efforts already underway in the states. Many states are moving ahead on interconnection arrangements, the terms and conditions for new entrants, and intraLATA toll dialing parity. The introduction of a duplicative federal regulatory presence will impede competition and invite regulatory gridlock. We urge Congress to make it clear that states' procompetitive policies can remain in effect during the transition to competition.
Finally, federal legislation must maintain the nation's longstanding commitment to universal service. Given the diversity of the states, legislation must not replace individual state efforts with a new centralized federal program. Legislation should allow state authority over intrastate universal service policies and pricing to complement a limited federal universal service effort.
Because Congress legislated electricity as recently as 1992 (the Energy Policy Act), it launched no armadas in 1995. Congressional hearings were held on the Public Utility Regulatory Policies Act, the Public Utility Holding Company Act, and nuclear spent fuel. In the budget process, pirates snuck retail wheeling into authorization bills for Amtrak and defense facilities. (What's next? Retail wheeling through schools enabled in the education bill?)
The big water in 1995 is at the FERC, which launched its "Mega-NOPR" in March. Following its success in restructuring the gas industry, the FERC is now trying to open the wholesale transmission system and provide equal access to all competitors. NARUC supports the FERC's procompetitive goals for the bulk-power markets, including the use of market-based pricing in truly competitive wholesale generation markets, but has raised important issues in the rulemaking through its Electricity Committee.
The transition to competition through open-access wholesale transmission services requires that state jurisdiction be affirmed over 1) wholesale power purchases by distribution utilities, 2) the need for and siting of transmission and generation facilities, 3) questions of industry structure, and 4) the evaluation and implementation of retail competitive policies, including unbundled retail transmission.
NARUC encourages the FERC to provide a way to treat equity issues (environment, low-income, renewables, research & development, and so on) through a nonbypassable, nondiscriminatory system benefits (or wires) charge.
Also at issue is jurisdiction over the allocation of retail stranded investment among ratepayers, shareholders, or users of the transmission grid. The FERC wants to be the sole judge in making this determination when a retail customer becomes a wholesale customer, and a backstop authority for this decision when a state
authorizes retail access but may lack the authority to address retail stranded costs. NARUC strongly disagrees with the legal foundation, as well as the policy premises, of this proposal. The identification, allocation, and recovery of so-called "retail stranded costs" is the exclusive responsibility of the states; the FERC should not perform a "backstop" or appellate role for state decisions.
In the NOPR we see the intrinsic tension between state and federal jurisdiction that defines federalism. In its proposed rule, the FERC has been aggressive; in its comments, NARUC has resisted what it sees as undue federal expansion. The FERC and the states should invent new joint processes on both regional and national levels to coordinate their respective efforts to manage the transition to competitive markets, which neither level of government can undertake unilaterally.
On the river, it is always tempting to look back after surviving a difficult, adrenalin-producing rapid. But from below, as it recedes from view and the roar fades, the rapid always seems benignly anticlimactic. So, too, regulation. But, as on the river, we cannot be lulled by perceptions of the past.
To maximize our chance of success, we must rig to flip, cinch up our life jackets, pull down the visors of our bleached river caps, squint to see the tell-tale wisps of jumping water on the river below, and concentrate on our vision: the clear waters of a marketplace with the best of competition and consumer protection. t
Bob Anderson is a commissioner at the Montana Public Service Commission and outgoing president of the National Association of Regulatory Utility Commissioners.
1 After solving the last geographic puzzle in the opening of the West by successfully descending the Colorado River through the Grand Canyon, Powell went on to help found and later head the U.S. Geological Survey.
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