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Congressional Testimony
July 25, 2000 Statement of the Large Public Power Council
Submitted for The Large Public Power Council is pleased to submit the following comments for the record for the full Committee hearing held on July 25, 2001 which was held to "receive testimony on legislative proposals relating to comprehensive energy restructuring legislation, including a Committee White Paper." We appreciate the opportunity to comment and offer our assistance as the Committee weighs these issues. We will not be commenting on all of the provisions or proposals before the Committee but will instead focus our comments on the White Paper and will limit them to a few significant issues of concern. The Large Public Power Council and Our Role In the Electricity Debate The Large Public Power Council (LPPC) is an association of 22 of the largest public power systems in the United States. LPPC members directly or indirectly provide reliable, affordably-priced electricity to approximately 18 million customers, produce over 11,610,000,000 megawatt hours of generation, and own and operate approximately 26,000 circuit miles of transmission lines. LPPC members are located in states and territories representing every region of the country and include several state public power agencies as well. The majority of LPPC companies perform the same functions as traditional vertically-integrated utilities, however, LPPC members are publicly-owned, not investor-owned. As a result, LPPC member companies are not-for-profit entities that are service-focused and committed to the local residents and communities we serve. Therefore, the benefits resulting from the reliable and cost-effective provision of generation, transmission, and distribution service flow directly to public power customers and communities. The LPPC supports the enactment of comprehensive legislation that promotes a competitive, efficient wholesale power market of benefit to all consumers. The LPPC supports efforts to increase competition so long as low-cost, reliable service is ensured for consumers and believes that a robust wholesale market must be encouraged. We believe that there is a need for a comprehensive energy strategy, which addresses market concerns, constraints on transmission and generation investment, provides consumer protections, promotes fuel diversity as well energy efficiency and conservation, and encourages environmentally responsible behavior. We further believe that there should be environmentally responsible development of all our fuel sources and that unnecessary constraints on the use of any energy source should be removed. There is a need for hydro licensing reform, streamlining of environmental permits and siting decisions, and incentives for renewable energy, conservation and efficiency. In addition, we believe that any restructuring legislation must include a TVA title that would remove the many statutory impediments to a competitive wholesale power market in the Tennessee Valley. We appreciate the efforts this Committee has made to advance the debate on how to achieve a competitive market that benefits consumers and we would like to offer the Large Public Power Council's assistance in crafting legislation to facilitate competitive markets. During the debate on these issues in the last Congress, the LPPC provided our input to the Committee and contributed our views to the debate. We appreciate this opportunity to continue our involvement. LPPC Supports the Development of Comprehensive Energy Legislation LPPC appreciates the Committee's efforts to develop comprehensive energy legislation that includes reform of defects in the electricity industry. As noted above, the LPPC supports the enactment of comprehensive legislation that promotes a competitive, efficient wholesale power market that provides benefit to all consumers. LPPC also believes, and has long encouraged, congressional efforts to provide comprehensive reform for the electricity industry. As such, we strongly support the efforts being made by the Committee on Energy and Natural Resources. Private Use Tax Restrictions The LPPC specifically supports a number of the provisions contained in the "White Paper on Electricity Legislation." We agree with the themes and principles set forth and believe that the approach set forth is generally sound. A legislative solution to the current problems that ensures competitive markets and provides benefit to our customers would be welcomed by public power. Such legislation, however, must resolve the "private use" issue and should recognize the distinct nature of public power and its contribution to the electric industry and system. Without resolution of the private use issue, restrictions on tax-exempt bonds could prevent public power from fully opening up our transmission and distribution systems for use by investor-owned utilities, could prevent our participation in Regional Transmission Organizations, and will constrain our ability to make long-term sales of surplus power. Absent reform of the current tax restrictions relating to private use, one of the key problems - how to move electric power from generation to load - will continue to plague the system and the objectives of comprehensive energy legislation - the development of a robust, fair, and competitive market - will not be achieved. The LPPC is heartened by the White Paper's recognition of this problem and supports the Committee's efforts to "remove tax restrictions on participation by public power entities." We agree that reform of these restrictions are an "essential component of a functional electricity policy" and urge the Committee to incorporate the agreement endorsed by LPPC, American Public Power Association, and Edison Electric Institute into any legislation developed. Reliability The LPPC supports the White Paper's general approach to reliability. We agree that the legislation developed should authorize a system for assuring the reliability of the grid that is mandatory, that requires sanctions and penalties for failure to comply with the rules that institutions for that purpose develop, and that is subject to federal oversight. LPPC supports the consensus proposal developed with the North American Reliability Council (NERC). NERC currently establishes and monitors reliability standards. The Board of Trustees for NERC have approved and begun the transformation of NERC to the North American Electricity Reliability Organization (NAERO), in which participation and adherence to standards and practices would be mandatory. The Committee may wish to provide a more explicit role for NERC/NAERO in setting and enforcement of standards. LPPC has supported legislative proposals which adopt this approach and provide this explicit authority to NAERO. PUHCA We support the White Paper's stated position that repeal of the Public Utilities Holding Company Act (PUHCA) should be considered but only if FERC is given enhanced authority to address market power problems, and both FERC and the states are given greater access to the books and records of holding companies to prevent affiliate abuses. This is explained more fully below. FERC Transmission Jurisdiction and RTOs Since its inception, the LPPC has focused on transmission policy as a critical issue for its members and was the first group of transmission owning utilities to express support for open transmission access in the debates preceding the Energy Policy Act of 1992. At the same time, we led the way in developing and promoting regional transmission entities as a mechanism to manage and operate the transmission system in an open access environment. The LPPC supports open access transmission. "FERC-lite" is part of such open access. It would permit public power entities to provide transmission services at rates that are not unduly discriminatory and require the company's non-rate terms and conditions to be comparable to those required of the investor-owned utilities. We believe that open access transmission, including the "FERC-lite" provision, will encourage a robust and competitive market. However, the LPPC strongly opposes extending full FERC ratemaking jurisdiction to our public systems. In addition, we do not believe that FERC jurisdiction needs to be expanded to cover the transmission component of our bundled retail sales, as the White Paper suggests. Because of "private use" tax restrictions, our transmission-owning members have sized their transmission systems to supply their own wholesale or retail native loads. We have limited transmission capacity available for other entities. To the extent we have such capacity, we are willing to make it available to all comers on a non-discrimination basis, as FERC-lite would require. But, a rule that required us to make available to others transmission capacity we need to serve our native load will result in power curtailments or higher prices to our own customers. Any expansion of FERC transmission jurisdiction must respect the interests of the customers for whom the transmission facilities were built. Regional Transmission Organizations (RTOs) The LPPC believes that regional transmission organizations (RTOs) should have a broad geographic scope, preferably be not-for-profit, and, in all cases, be fully independent of market participants. This type of organization will operate more cost-effectively and will more likely result in the open transmission necessary for a fully functioning market. We believe that federal legislation should adopt the flexible framework established by FERC Order 2000, which contains these principles. The LPPC opposes granting FERC broad new authority to compel transmitting utilities to join RTOs. In some instances, where market abuses have occurred, formation of RTOs may be required. However, private use rules in place at this time may effectively preclude participation of certain public power systems in RTOs. As a result, it is essential that the private use rules be reformed in conjunction with the creation of RTOs. Also, many public power entities operate under additional legal and operational requirements that affect their ability to participate in the ownership of an RTO or to transfer ownership or operations of their transmission facilities to an RTO. These constraints must be addressed as the framework for RTOs is debated. The LPPC does, however, support confirming FERC's authority to order jurisdictional utilities into an RTO on a case-by-case basis in order to remedy undue discrimination or anticompetitive conduct. Market Power To ensure fully competitive markets, federal legislation should protect against anti-competitive concentrations of generation ownership and against abuse of market power. The LPPC believes that competitive regional wholesale electricity markets can benefit consumers. However, federal protections are necessary to ensure a level playing field for electric consumers and producers and to promote effective and sustainable competition. The benefits are eliminated if one competitor uses its dominant ownership of generation and/or transmission to stifle competition. Federal legislation should ensure that a mechanism is in place to protect against anti-competitive concentration of generation ownership and against abuse of market power. This is particularly true if consumer protection laws such the Public Utility Holding Company Act (PUHCA) are repealed. Similar to the approach advocated in the White Paper, we believe eliminating this law without updating the Federal Power Act would harm consumers. We support the White Paper's approach, that PUHCA should only be repealed "if FERC is given enhanced authority to address market power problems" and holding company mergers, but would also note that other critical restructuring issues, including RTO integration, must be addressed as well. In order to effectively bring benefit to the consumer and prevent market power abuses, the LPPC believes that Congress should take two additional steps. First, the Congress should confirm the authority FERC asserted in Order No. 2000 to order jurisdictional public utilities to participate in RTOs as a remedy for undue discrimination or anticompetitive effects, where supported by the record in a particular case. Second, in addition to authority FERC currently has under the FPA, it should be authorized to require a jurisdictional public utility having market power in FERC-regulated wholesale markets to submit a market power mitigation plan that FERC can approve, disapprove or modify. Contrary to the arguments of some, LPPC member systems have not exercised market control or profited from the recent electricity shortages. As public power entities, which are not-for-profit, LPPC member companies lack incentives to exploit the market, even if this were possible. In addition, most public power systems are smaller than investor-owned utilities and sell relatively little power on the open market. When taking into account the costs incurred, our member companies have not received a windfall as a result of the California electric crisis and have, in fact, had to expend significant resources to buy on the market to cover their own shortfalls. Our members provided power to areas of California to avoid blackouts, sometimes at tremendous cost to our own customers. Most public power systems are net buyers of electricity and, therefore, gain nothing from "gaming" the system. ### |
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