Red, White, and Ready: The Patriotic Push for Energy Legislation

Deck: 
After 10 years of waiting, some experts say a Republican-controlled Congress and a patriotic mood will make the difference in passing energy legislation this year.
Fortnightly Magazine - May 1 2003


After 10 years of waiting, some experts say a Republican-controlled Congress and a patriotic mood will make the difference in passing energy legislation this year.

Could this be the year that Congress passes a comprehensive national energy bill? That's the question on the mind of the utilities industry. Some say with Republicans controlling both the U.S. House and Senate-not to mention the presidency-the prospects for comprehensive energy legislation are bright. But some pundits are not so sure.

Peter Fox-Penner, principal and chairman of the Brattle Group, says, "I wish Congress could, but I think the odds are against it," due partly to the war. "The president has a tax proposal. Last Congress couldn't even pass a budget. Hopefully, this Congress will do better at that," Fox-Penner noted. "Although I think energy is extremely important, we no longer have what I would characterize as a crisis in our electric power sector-at least a supply crisis. We do have terrible financial conditions, so I don't know that it will just break through the priority list on Capitol Hill."

Sen. Jim Bunning, R-Ky., a member of the Senate Energy and Natural Resources Committee, told the Fortnightly there are numerous distractions in addition to the war. He noted that Sen. Pete Domenici, R-N.M., the energy committee chairman, wants to work on the bill before the Easter recess and has plans to take the bill to the floor in May. "I think that is probably a good schedule, but I don't know if we can meet it or not because we have the budget bill, major changes in Medicare/Medicaid and prescription drugs, the tax bill, and all others follow that." But Bunning added, "My guess is that if the majority leader gives us time on the floor in May that we will be able to get a comprehensive energy bill. I'm not going to do that little deal where we do this and we do that. We have to have a comprehensive energy package."

Many senators believe that the president's State of the Union address decrying U.S. dependence on foreign oil and proposing a $1.2 billion investment in hydrogen research has given a new, almost patriotic purpose and urgency to passing energy legislation.

House Rules

On the House side, one month after the Jan. 28 address by the president, Reps. Joe Barton, R-Tex., and W.J. "Billy" Tauzin, R-La., released a 285-page draft comprehensive energy bill, the Energy Policy Act of 2003. Tauzin, chairman of the House Committee on Energy and Commerce, and Barton, chairman of the House Subcommittee on Energy and Air Quality, called the draft a "first step" toward a national energy policy.

The draft would:

  • include large appropriations for energy efficiency and conservation, distributed energy, and hydrogen-powered vehicles;
  • almost double the Strategic Petroleum Reserve to more than 1 billion barrels;
  • reauthorize the Price-Anderson Act;
  • repeal the Public Utility Holding Co. Act of 1935 (PUHCA) 12 months after enactment of PUHCA of 2003, which will allow federal and state regulatory bodies to access utility holding company records;
  • amend the Public Utility Regulatory Policies Act of 1978 (PURPA) to allow for prospective release from mandatory purchase obligations; and
  • add real-time pricing and time-of-use metering provisions.

Other wholesale electric reforms in the bill include proposed amendments to the Federal Power Act that would take on reliability, market transparency, transmission access, and transmission pricing. For example, participation in regional transmission organizations would be voluntary, but the law would codify the authority of FERC to offer incentive rates for joining.

The House Subcommittee on Energy and Air Quality on March 19 approved the bill by a vote of 21-9, and the House energy committee approved it April 3 by a 36-17 vote.

Far-Reaching Impact: Flashpoint SMD

Skepticism abounds on Capitol Hill regarding the standard market design (SMD) proposed by the Federal Energy Regulatory Commission (FERC), having filtered up partly from protests by regulators in Northwestern and Southern states. Two ranking senators on the Energy and Natural Resources Committee -Pete Domenici (a Republican) and Jeff Bingaman (a Democrat), both from New Mexico-have voiced some doubt on SMD. New Mexico is considering repeal of retail competition.

And while Rep. Barton hails from Texas, where the isolated ERCOT appears to have become a workable example of both wholesale and retail competition, Chairman Billy Tauzin of Louisiana is from one of the many low-cost Southern states up in arms over the proposed SMD.

At a March 5 hearing before the House Subcommittee on Energy and Air Quality to consider Barton's proposed comprehensive energy bill, which originally did not contain an SMD provision, the FERC commissioners did not fare well.

The members were clear about their SMD doubts. The legislators from low-cost power states in the Northwest and South fear subsidizing electricity in higher-priced states in the Midwest and Northeast. Lawmakers from the low-cost states have threatened legislation to cut off FERC's funding if SMD advances as proposed.

Earlier in the year, Domenici proposed that FERC issue a white paper, due out in April, to allow FERC to attempt to persuade lawmakers of the case for SMD. Domenici noted that too many senators had questions, and compromise may be needed. And while FERC Chairman Pat Wood had been asked by some senators to drop the proposed SMD rule altogether, he declined, knowing that he had the backing of the DOE and Bush administration. However, that could change if the situation becomes too volatile.

"I see that Congress is already involved with SMD, not in legislating so much as sending messages to Wood to not move too quickly and to modify the proposal," Fox-Penner says. "I think those messages have been received at the FERC to some extent. It is a matter of degree, and I am not sure of the degree relative to the feelings of the critics of SMD. But I do feel that Congress [and] statements of people like Sen. Domenici and others are having an impact on the FERC.

"Do I think they are going to pass a specific bill on SMD? I think that depends on … how much the FERC does to modify its proposals to accommodate the critics."

On March 17, a coalition of Western business leaders that make up the Western Business Roundtable introduced an alternative plan to FERC's SMD. The "Western Market Design" (WMD) would empower Western states, rather than FERC, to take the lead in mapping the future of the Western wholesale electricity market. The coalition hopes the proposal will act as a model for other regions. The plan is intended to "provide a more regional approach to market design and get the country moving forward again on a path to increased investment in our electricity infrastructure system," said Jacob Williams, roundtable chairman and an executive with Peabody Energy.

A Tauzin amendment, meant to assuage a group led by Rep. Charles Norwood, R-Ga., was added to the House bill passed out of committee on April 3, and it addresses SMD. The new section will not allow states to opt out of SMD, but it does protect native load customers from federal regulation.

Sen. Domenici at the same time was adding language to the Senate's energy bill to allow for opposition to SMD.

Dividend Taxation: A Hard Sell?

Utility companies, which tend to be large dividend producers, strongly back President Bush's proposed repeal of the dividend tax. But Fox-Penner says utilities are just one of the factors in the debate over repeal of the tax.

Cole Kendall, vice president of Economic Strategies, called the dividend tax issue "a tough one."

"Basically as I see it now, the president has 19 things on his plate that he has to get done," Kendall says. "The first half is the utility tax, but number one clearly is the war with Iraq. I assume if Iraq ends and if N. Korea doesn't start and if the economy perks back up after Iraq, then he'll go full press on the repeal of the dividend tax and probably get it through," Kendall says. "I don't quite know how he got the last tax cut through, but he did, and the odds favor that once he sets his mind to it, it does go through. The only question is, will he clear the agenda so he can focus on this before June?"

But opinions on the chances for dividend tax repeal vary along party lines. Robert Shapiro, managing director of Sonecon LLC, fellow at the Brookings Institution, and former undersecretary of commerce for economic affairs in the Clinton administration, believes the chances of outright repeal are very small, and that dividend tax repeal will take away from other asset classes such as municipals and other tax-free investments.

The chances of a reduction are better, but not at all certain-probably less than 50-50. "The fact is with large deficits looming, and a war, a large tax cut doesn't make sense to most people," he said. "The president doesn't even have united Republican support for this. As economic policy, it really makes very little sense, and even as tax policy it is very badly designed," Shapiro says.

But Shapiro does believe the double taxation of dividends should be addressed. "The fact is some dividends are taxed twice, some dividends are taxed once, and some dividends are not taxed at all," Shapiro says. "The proper way to do this would have been to make it deductible at the corporate level, not at the individual level, so it doesn't even make real sense as tax policy. It will raise the cost of borrowing for cities and states that now enjoy a tax preference and will now have to be placed in a more competitive position that will raise the rates for them to borrow. So the cities and state governments are against it, and fiscal conservatives are against it."

Meanwhile, the energy industry has been waiting since 1992 for passage of comprehensive legislation to provide direction to an increasingly beleaguered sector. Public Utilities Fortnightly talks with a senator and congressmen on both sides of the aisle, as well as the Bush administration and president of the National Association of Regulatory Utility Commissioners, to find out if energy legislation will be worth the wait.


"I have several concerns about the president's dividend proposal. First, we should be finding ways to stimulate our economy, and it is questionable whether this proposal would do that."

The 107th Congress failed to send a comprehensive energy bill to President Bush. Do you expect a comprehensive bill with an electricity title to make it to his desk this congressional session?

Last year I had a good feeling that Congress was going to pass a comprehensive energy bill and send it to the president. But then elections came, and the results of those elections led to the conference ending without getting to a bill. As a general rule, most big bills in the Senate do not have a quick second act, and electricity is certainly not going to be any easier this time. But the House and Senate leadership are taking another shot at an energy bill. The goal, I believe, is to conference the bill this summer and get it to President Bush's desk before the August recess.

Is repeal of the Public Utility Holding Company Act a priority in this Congress?

Repealing the Public Utility Holding Company Act remains a priority for many of us in Congress-but only if the legislation includes adequate consumer protections, and only if it strengthens market power protections. Our bill last year would have done that by giving FERC tools to make sure that competitive markets work well to provide customers with affordable electricity, and by strengthening authority over mergers, clarifying authority over market-based rates, and increasing transparency in energy market information. The 2002 Senate bill also required the Federal Trade Commission to protect consumers against unfair trade practices in energy marketing, and created ways to better inform consumers.

As large dividend producers, utilities generally back repeal of the dividend tax. What are the chances of repeal?

I have several concerns about the president's dividend proposal. First, we should be finding ways to stimulate our economy, and it is questionable whether this proposal would do that. Second, this proposal is complicated and would be hard to administer. It would be up to the shareholders to determine whether all, some, or none of the dividends they received are taxable. Finally, I question whether this is possible at a time when we already face huge deficits, and we are [taking] on the cost of a war.

Will Congress likely get involved with FERC's proposed standard market design, and if so, how?

The Senate already is quite involved with the FERC's proposed standard market design rule. A good many of my colleagues have concerns about the draft's aim to exert jurisdiction over retail transmission in interstate commerce. Also, there seems to be strong objections, on both sides of the aisle, to the so-called "one size fits all" nature of the proposed rule. I'm not yet in a position to defend the details of what has been proposed, since it is only a draft and surely will be modified. But I do support the direction that FERC is taking. The SMD may have problems as to many of the details, but that does not mean that it is not necessary-even essential.

How would an energy bill promote repair and expansion of our energy infrastructure?

We have promoted a bill that tries to balance reasonable production enhancements with environmental protections, with meaningful conservation efforts, and with pursuit of alternative energy resources. On electricity, our bill last year would have authorized a structure to protect the reliability of the electricity system, and it would have subjected the entire grid to the same set of rules. It is not clear if we can do that this year, but it would be worthwhile.

What would you like to tell our readers about the direction of energy policy in the United States?

Energy is central to our nation's present and future prosperity. Improving and strengthening our national energy system can provide significant economic benefits for every American; similarly, vulnerabilities in our national energy system can present major threats to our national economic health. Also, there have been significant changes in energy markets since the last time Congress considered comprehensive energy legislation more than a decade ago.


"The situation in the Middle East does not directly bear on energy legislation. We proposed the National Energy Policy in May 2001 as a long-range plan to address long-range problems. It was not intended as a quick fix."

Do you expect the 108th Congress to present President Bush with a comprehensive energy bill this year, including an electric title? If not, what issues are of the most importance for inclusion in piecemeal legislation?

We think there is an excellent chance at getting comprehensive and balanced energy legislation enacted in the 108th Congress. We came close last year and are trying to build on the progress that was achieved. We have an opportunity to take action now to bolster our energy security and prevent a future energy crisis. I hope we take advantage of the window of opportunity.

From our perspective, some of the most important elements of comprehensive energy legislation are modernizing federal electricity laws, promoting energy efficiency and renewable energy, authorizing environmentally responsible development of the oil and gas reserves at the Arctic National Wildlife Refuge, renewing the Price-Anderson Act, which provides for prompt compensation to the victims of nuclear accidents, and extending the Strategic Petroleum Reserve.

It is important to bear in mind there is a lot we can accomplish under current law. Over the past two years, the administration has made great strides toward increasing domestic energy supplies and diversifying foreign energy sources. For example, the president's decision to move forward on Yucca Mountain will ensure the continued viability of nuclear energy in the United States. The president's Coal Research Initiative will continue to develop new technologies for cleaning-and potentially eliminating-coal emissions, thereby protecting the viability of our largest domestic energy supply.

How should Congress incentivize companies and regulators to make it easier to repair and expand our energy infrastructure?

There is no question there is a need to increase investment in energy infrastructure, particularly the electricity infrastructure. Investment in transmission facilities has been stagnant for years, resulting in transmission bottlenecks that raise prices paid by consumers. FERC has taken some steps to encourage greater investment in transmission facilities, recently signaling a willingness to approve higher rates of return for transmission investments in some situations.

How best can energy legislation increase and diversify supplies while protecting the environment?

There are a number of legislative proposals pending that would increase and diversify our energy supplies while protecting the environment. Specifically, the administration put forward legislative proposals to increase U.S. renewable energy and energy efficiency, nuclear energy, hydropower, and oil supplies. The administration proposed tax provisions to promote renewable energy and energy efficiency, and Congress embraced our proposals. The administration put forward various proposals to promote an expansion of nuclear energy in the United States, including reauthorization of the Price-Anderson Act and nuclear decommissioning tax changes. Again, those proposals were embraced by Congress. The administration proposed legislative reform to the hydropower licensing process, and Congress has included licensing reform in House and Senate energy legislation. Congress has approved most of the administration's legislative proposals to expand domestic energy supply.

Where do conservation and renewables fit into an energy bill?

Energy efficiency and renewable energy are critical components of our National Energy Policy and comprehensive and balanced energy legislation. It was no accident that energy tax provisions proposed by the administration focused largely on promoting energy efficiency and renewable energy.

We have a two-track strategy-increasing domestic energy supply and reducing domestic energy consumption. Energy efficiency is as important to us as increasing domestic energy supply. We also have taken steps to promote renewable energy. Congress has embraced our energy efficiency and renewable energy proposals, and put a lot of their own ideas on the table. We are working with Congress on these proposals.

That being said, the administration does not support a renewable portfolio standard, which would mandate purchases of renewable energy without regard to cost and availability. We tried that approach once already with PURPA, which mandated purchases of renewable energy. PURPA did not effectively promote renewable energy, but did saddle consumers with billions of dollars of above-market costs. There are better ways to promote renewable energy that do not harm consumers.

As noted in the president's State of the Union address, why the focus on hydrogen fuel via a $1.2 billion initiative?

The National Energy Policy issued nearly two years ago recommended that the president direct the department to develop next-generation energy technologies, and specifically focused on hydrogen and fusion. The president carried out this recommendation by announcing the FreedomCAR initiative, a program designed to greatly accelerate the pace of development of hydrogen vehicles. The potential benefits of hydrogen-fueled vehicles are incredible. Hydrogen can be produced from diverse domestic energy sources, freeing us from reliance on foreign imports for the energy we use at home. Hydrogen can power fuel cell vehicles with more than twice the efficiency of today's engines. Hydrogen-powered vehicles would have a tremendous positive impact on the environment, as they would produce none of the harmful emissions that we see with today's gasoline-powered fleet. The only byproduct of a fuel cell is pure water.

Federal research and development programs focus on technologies that are over the horizon, technologies that are unlikely to attract commercial investment. If our initiative is successful, we could see hydrogen fuel cell vehicles in auto showrooms by 2020. The incredible potential benefits of hydrogen-fueled vehicles are well worth the investment.

How does the situation in the Middle East affect expected energy legislation?

The situation in the Middle East does not directly bear on energy legislation. We proposed the National Energy Policy in May 2001 as a long-range plan to address long-range problems. It was not intended as a quick fix to problems that were in the making for years.

However, the situation in the Middle East does remind us of the wisdom of the president's conclusion that the United States needs to take action to reduce reliance on energy imports, particularly oil imports. The situation in the Middle East may help Congress appreciate the dangers of increased dependence on foreign oil imports. The Senate vote on ANWR suggests that some in the Senate do not yet understand the danger. We have a series of long-term energy challenges that require action now. They will not go away. Inaction will not make them disappear. We tried inaction for 10 years, and the result was record import levels. The prior administration demonstrated indifference to our rising dependence on foreign imports. This administration is committed to working with Congress to develop solutions to our long-term energy challenges. We are ready to make the tough decisions needed to strengthen America's energy security. We have made significant progress, but much more needs to be done.

There have been objections by some states to FERC's proposed standard market design. Is the subject best left to the FERC, or do you expect Congress to intervene?

There are serious problems in electricity markets under the status quo-dramatic price spikes, market manipulation, transmission bottlenecks, and inadequate investment in transmission and new generation. Poor market rules helped cause these problems and were a prime cause of the electricity crisis in California and the West. The Enron market manipulation strategies were designed to exploit poor market rules and the disparity in rules in the West.

The goals of standard market design are to make competitive markets work better, prevent market power abuse and market manipulation, remove transmission bottlenecks, and assure adequate electricity supplies. These are the right goals. The question is whether standard market design-as proposed-will achieve these goals.

The Notice of Proposed Rulemaking is just that, a proposed rule. FERC has received hundreds of comments on the proposal totaling many thousands of pages. They are going through the record. The agency has indicated a willingness to make changes to the proposed rule, and in particular has demonstrated it understands the need to ensure market rules reflect regional characteristics. The only thing we know for sure right now is that any final rule will be very different from the proposed rule. That much is clear from FERC actions and statements in recent weeks. Furthermore, Congress directed DOE to complete a cost benefit study of the standard market design proposed rule by April 30, 2003. We hope that any congressional action would come after our independent analysis is complete.

"The events of California and the West demonstrated what can happen with a poorly designed, semi-regulated market. The provisions proposed in the new energy bill would give FERC much needed new authority to oversee competitive wholesale power markets."

The 107th Congress failed to send a comprehensive energy bill to President Bush. Do you expect a comprehensive bill with an electricity title to make it to his desk this Congress?

Clearly, our chances look a lot brighter these days as a result of the committee's diligent efforts during the 107th Congress. The new comprehensive energy bill will include an electricity title that addresses electricity supply and transmission, modernizes our infrastructure and wholesale power markets, and ensures reliable delivery of electricity when and where we need it.

Is repeal of the Public Utility Holding Company Act a priority in this Congress?

The proposed House energy policy takes an important step to improve the flow of capital into a sector that badly needs investment by calling for the repeal of the Public Utility Holding Company Act. I have supported repealing PUHCA for more than a decade. It is more imperative than ever that we repeal it now.

Will Congress likely get involved with FERC's proposed standard market design, and if so, how?

SMD is a sweeping regulatory initiative aimed at establishing uniform rules of the road for wholesale electricity markets, which is a positive thing. However, it affects different regions in different ways. In the Southeast, for example, there are legitimate questions about the benefits of SMD in the timeframe FERC is talking about. FERC is in a position to facilitate the transition to more competitive markets in these regions in the most cost-effective way, and many people are watching closely to see how FERC addresses these regional concerns. Will Congress get involved? It depends on how the rulemaking plays out. Are we proposing doing something in our House energy bill on SMD specifically at this time? No.

How would an energy bill promote repair and expansion of our energy infrastructure?

The proposed national energy policy will help to modernize our infrastructure and wholesale power markets to ensure the reliable delivery of electricity. The events of California and the West demonstrated what can happen with a poorly designed, semi-regulated market. The provisions proposed in the new energy bill would give FERC much needed new authority to oversee competitive wholesale power markets, such as prohibiting round-trip trading, increasing market transparency, increasing FERC's penalty authority, fixing FERC's refund-effective date, and giving FERC additional jurisdiction over all spot market sales and interstate transmission. These measures will help markets work better. These provisions also will help to restore consumer and regulator confidence in the sector. And, they will help to restore investor confidence.

This sector relies on capital from investors. Electricity is our nation's most capital-intensive industry. The merchant power sector, responsible for the majority of new power construction, lost more than 80 percent of its market capitalization in 2002. By most estimates, of the new power plants that were scheduled to come on line in 2003-2004 … as much as 30 percent of these projects have already been canceled. You can't flip a switch and get a new power plant. So we must ... we must restore the confidence necessary for investments to flow again to build power plants and expand generating capacity.

What would you like to tell our readers about the direction of energy policy in the United States?

Our nation's energy infrastructure is deteriorating and ill-prepared to meet energy demands expected to nearly double over the next 20 years. We lack sufficient domestic energy sources to keep up with advances in technology. And we have become more and more dependent on volatile Middle Eastern countries, such as Iraq, for oil. But enacting a national energy policy is not only about meeting the energy demands of our homes, business and automobiles, it also is about providing the essential energy necessary across the spectrum of federal, state, and local anti-terror efforts. We simply cannot fight terrorism without ensuring that our nation's energy future is secure.


"My Republican colleagues seem to be largely in favor of FERC's misguided rule on SMD. This rule essentially tramples states' rights and makes local utilities bid for power on their own transmission lines against behemoths to serve their customers first."

The 107th Congress failed to send a comprehensive energy bill to President Bush. Do you expect a comprehensive bill with an electricity title to make it to his desk this Congress?

As we began writing an energy bill last Congress, members of the House Energy and Commerce Committee on a bipartisan basis decided that, in the absence of a consensus, including an electricity title could only jeopardize the rest of the bill. The wisdom of that approach was confirmed late last year, when electricity proved to be one of the most difficult issues in conference. The lack of resolution on that issue is one of the reasons the administration ultimately pulled the plug on the energy bill. I have seen no evidence in this Congress that we would be best served by reversing that decision now.

Is repeal of the Public Utility Holding Company Act a priority in this Congress?

Repeal of PUHCA would be an unwise move. Those who favor repeal apparently care little for the consumer or the investor or are ignorant of the Act's importance, or both. Enron provided us with a prime example of why we not only need PUHCA in place but also need to shore up enforcement. Deregulation and non-enforcement of PUHCA by the Securities and Exchange Commission helped create Enron, which would prove to be nothing more than a drop in the bucket compared to the torrent we could face if Congress pulls the plug on PUHCA.

As large dividend producers, utilities generally back repeal of the dividend tax. Where do you stand on this, and what are the chances of repeal?

I'm not on the Ways and Means Committee, so I haven't really developed an opinion on these matters. I will note, however, that these experiments with deregulation that the Bush administration is so fond of have left many in the utility industry and their investors with so few dividends that it hardly seems worth the effort to repeal the tax.

Will Congress likely get involved with FERC's proposed standard market design, and if so, how?

My Republican colleagues seem to be largely in favor of FERC's misguided rule on SMD. This rule essentially tramples states' rights and makes local utilities bid for power on their own transmission lines against behemoths to serve their customers first. Many low-cost utilities and their state regulators strongly oppose this rule, and right-minded people should as well.

How would an energy bill promote repair and expansion of our energy infrastructure?

If my Republican colleagues have their way and pass legislation that has an electricity title that resembles the one currently before the Committee on Energy and Commerce, you can rest assured that it will undercut or outright repeal a number of existing consumer protections under the Federal Power Act, the Public Utility Regulatory Policies Act of 1978, and the Public Utility Holding Company Act of 1935. A lack of balance and stability will ultimately undermine needed long-term investment in the electricity sector.

What would you like to tell our readers about the direction of energy policy in the United States?

We need a more balanced energy policy than that currently under discussion. We cannot dig, drill, and detonate our way to a sound energy future. And without a more bipartisan approach than we have seen so far this year, it will not be possible to enact the balanced policy we need.


"It is so important that in a comprehensive way we signal to all of the interested parties that as a country we do have our act together, that we have commonly defined and accepted goals and are going to move towards those goals with all due haste."

The 107th Congress failed to send a comprehensive energy bill to President Bush. Do you expect a comprehensive bill with an electricity title to make it to his desk this Congress?

I am more prepared to take congressional and executive office leadership at their word, that both the issues have matured more and the conditions have matured more. We worked very hard in that 107th Congress to gain understandings-be those state versus federal [or] one region with a different regional view. Those kinds of things we worked real hard to understand. Also, the new technological possibilities and the underlying investment climate. Those are all good and valuable kinds of lessons learned, and with them learned as a foundation, I think there is a good possibility it will actually get done this year.

Is repeal of the Public Utility Holding Company Act a priority in this Congress?

That is probably more appropriately answered by the members of Congress. But let me tell you the position of NARUC. This has been a fairly consistent position. We think that current and recent lessons have demonstrated how good and solid our thinking is in this regard. And our thinking is that some conditions have changed since that law was enacted, and so it does need to be reviewed and altered-in particular, the aspects of the act that prevent what are today good investment decisions. Those provisions should be modified so that we are not blocking good due diligent, open investment from occurring.

We have also learned very recent lessons from the headline-grabbing issues in the energy sector and with problems in the accounting business that say we should not throw out all pieces of PUHCA, we should do it selectively, we should correct the things that are really problematic for investment. But we should retain the ability of states and regional organizations and entities, such as FERC, to have full and free and open access to the books and records of the companies that are affected by the provisions of the act.

As large dividend producers, utilities generally back repeal of the dividend tax. Where do you stand on this and what are the chances of repeal?

NARUC has not developed a position with regard to this or any other provisions being discussed with regard to tax reform.

Personally, I am in favor of any of the tools that can be brought out that would induce investment in this country's critical infrastructure. Even if it doesn't apply across the board, those industries, in my opinion, that are invested in our critical infrastructure, whether electric, gas, or water, should be structured in such a way that they incent investor confidence, and that they incent the move to infrastructure investment. I think it is important today from a homeland security perspective, I think it is important today as well from a concern for the economy.

Maybe even more importantly, with the economy slowed down and demand down in a lot of sectors. We are limping along OK with the infrastructure that we have in place, but when the economy turns-and we all know the economy will turn and will recover once world events and uncertainties are resolved one way or another-the economy will bubble on and pick up its pace. We are not going to be prepared as a country for that economic rebound with the infrastructure as it currently exists. We need investment in gas delivery systems, electric transmission systems, and generation.

We need to encourage investment in technologies that are already proven, already ready to serve our future needs. What better way to do it than provide tax incentives for building important components of the American economy and getting us ready to export those components to other corners of the world as the world economy makes those demands as well.

Will Congress likely get involved with FERC's proposed standard market design, and if so, how?

Versions that I am aware of do not get into it. I don't necessarily think that they will, but again, it is one of those questions better asked of the senators and House members.

How would an energy bill promote repair and expansion of our energy infrastructure?

We know, for example, that people have given a great deal of discussion and thought to the need for this country to develop its diversified portfolio of energy sources, and an energy bill could do that in so many ways.

[For example], we have a dumb old transmission system in this country. It virtually is the system that was conceived 100 years ago working via mechanical switches and things like that.

We need to invest in our transmission system so that it operates just as we have to understand the operation of the Internet. The technology already exists for us to do that, and we need to send the right signal that we want that type of development to occur. That would serve us so well for homeland security and the underpinning of our national, regional, and state economies.

What would you like to tell our readers about the direction of energy policy in the United States?

I really think it is time to add clarity for investment purposes, for national homeland security purposes, for increasing fuel diversity portfolio development, and to encourage the deployment of already proven technologies. The real zipadeedoodah economy that we have experienced throughout the mid- and late '90s was powered not just by the dotcom explosion, but also was driven by this country's access to moderately priced energy in all forms, and a very workable type of infrastructure across the board in energy, telecommunications, water, and all those underpinning infrastructure components. We need to make sure once our economy starts to recover that we have the pieces in place to sustain that.


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