Flashpoint Congress


This year, or next, legislators will close in on a national energy bill.

Fortnightly Magazine - October 15 2002

Don't get too excited. We've been down this road before.

But be aware, all the same, that after these many years of little or no movement on comprehensive energy legislation, it seems that this year-this moment, this administration-might be just a bit different. Just the fact that there is a conference committee hashing out differences between the House and Senate energy bills makes this session stand out from past years.

Congressional sources told the Fortnightly not to get too worked up as the committee was running up against the Oct. 11 close of session. That was to be expected-insiders always bet against Congress taking action. But one source still expressed some hope that the committee would issue a conference report and beat the deadline. Meanwhile, at press time, the committee had less than a week to sort out disagreements on the Alaskan wildlife refuge, electricity market reforms, and a timetable on boosting ethanol production-not to mention all those "tier 2" R&D issues that our source said had delayed the process.

But whether an energy bill comes this year or next, some agreement already looks promising for several industry flashpoints:


  • Nuclear. Congress is going to encourage more nuclear development. The conference committee agreed on the reauthorization of the Price-Anderson nuclear liability act, which should allow for the development of a new generations of design for safer nuclear power plants.
  • Renewables. Congress is worried that relying too much on natural gas for power plants could send electricity prices on a roller-coaster ride-moving in tandem with the price spikes that frequently occur in gas commodity markets. So, to address greater fuel diversity, the conferees have agreed to provisions that would encourage renewables.
  • Climate Change. Despite concerns over price volatility, Congress will see to it that natural gas will come out ahead with respect to new climate legislation, as always. Of course, there is language in the legislation to fund research and development on clean coal technologies. Congress is talking about a national strategy on climate that would be coordinated out of the White House by "someone with authority and accountability." (Of course, many legislators want a national climate change strategy that makes room for economic growth and prosperity. To that end, the Senate bill would boost R&D funding both on climate studies and on the technology that in theory might master the problem.)
  • Oil & Gas Production. Congress wants to explore ways to stimulate production of domestic oil and gas by developing fiscal incentives in other parts of the country beyond Alaska, where there is heated debate over opening the Alaskan wildlife refuge to drilling.


Electricity Title Fight: A TKO?

Politicians so far have found agreement on topics like energy supply, the safety of energy transmission, and energy efficiency. But get into the ring on issues like electric deregulation, FERC authority, standard market design (SMD), and repeal of the Public Utility Holding Act (PUHCA), and you're certain to get a black eye.

Listen to the comments from a recent Congressional hearing that featured federal and state utility regulators as witnesses. It illustrates how far apart the two sides are on the question of SMD for electric transmission and wholesale power transactions, and how federal hegemony over the grid might affect time-cherished state prerogatives, such as control over those grid functions that serve retail load. Here, you see the "two Washingtons" going at it: Washington state commission Chairwoman Marilyn Showalter debating with Chairman Pat Wood from the Federal Energy Regulatory Commission, in Washington, D.C.:

Chairman Wood: "Some objections to our rule have come from some state energy regulators. This is understandable, given our proposal to treat all transmission uses the same.

"We don't take this step lightly, but it is not possible to create a fair and equitable marketplace without use of a single set of rules for uses of the transmission grid. In our proposed rule, we explain in detail why we find that undue discrimination continues to this day, and its negative effects upon the competitors and customers of the wholesale electric market."

Chairwoman Showalter: "FERC's proposed rule rests on the premise that a vertically integrated utility, by its very nature, engages in undue discrimination. That is, when a utility, in order to fulfill its own obligations under state law, reserves its own transmission and load-balancing generation facilities to serve its own customers, it is practicing, according to FERC, undue discrimination. From this premise-that utilities preferring their own customers are engaging in undue discrimination-the rest of the rule flows. If this premise is misdirected and overbroad (as I believe it is), then the rule loses its justification."

Both regulators are as geometrically opposed as their respective time zones. It is difficult to believe that if state and federal regulators cannot find agreement that Congress will. Nevertheless, most congressional watchers believe there is major support for an electricity title that would have policies that favor competitive energy markets.

PUHCA: Down for the Count

For many years, utilities have called for the repeal of the Public Utility Holding Company Act, or "the '35 Act," as it is also known, referring to its Depression-era enactment. But one cannot help observing that PUHCA repeal may be needed now more than ever.

Some experts believe the credit and financial problems that have plagued the energy industry in the last year might have been cushioned had utilities had sizable enough balance sheets to withstand economic downturns, credit issues and diversify their risks. Very soon, industry may get its wish.

Congressional sources say that the great majority of those in Congress now favor repeal of PUHCA-a feature included in both Senate and House bills. They disagree mainly on how much added authority they should give to FERC to regulate mergers, as a quid pro quo. Of course, some senators continue to cling to the notion that PUHCA may have prevented the Enron collapse. Most experts refute that notion, including the Securities and Exchange Commission (SEC). The SEC says PUHCA would not have prevented the Enron collapse.

In fact, the SEC wholeheartedly supports PUHCA repeal:

"Repeal of the act," the commission says, "would eliminate regulatory restrictions that prohibit utility holding companies from owning utilities in different parts of the country and that prevent non-utility businesses from acquiring regulated utilities. In particular, repeal of the restrictions of geographic scope and other businesses would remove the impediments … to capital flowing into the industry from sources outside the existing utility industry."

Caren Byrd, an investment banker at Morgan Stanley, best captures the argument for PUHCA repeal:

"PUHCA," she says, "has kept out many players, including the international players and the oil majors. It has barred some mergers that might have made sense to investors and analysts."

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