LEXIS-NEXIS® Congressional Universe-Document
Federal News Service, Inc.
Federal News Service
JUNE 29, 1999, TUESDAY
SECTION: IN THE NEWS
LENGTH: 4554 words
HEADLINE: PREPARED STATEMENT OF
THE HONORABLE MIKE JOHANNS
GOVERNOR OF NEBRASKA AND
GOVERNORS' PUBLIC POWER
SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES
SUBJECT - HEARING ON ELECTRIC UTILITY DEREGULATION
Thank you, Chairman Murkowski. On behalf of the State of Nebraska and my fellow
governors in the Governors' Public Power Alliance, I am pleased to appear today
to discuss the importance of
electric utility restructuring, including a review of the Clinton administration's
comprehensive proposal and providing the Alliance's viewpoint on specific areas
The Governors' Public Power Alliance, a bipartisan alliance of governors, was
formed to ensure that federal initiatives do not disadvantage the millions of
Americas who are served by locally and consumer-owned
electric utilities. Tennessee Governor Donald Sundquist and I chair the Alliance. Alas
Governor Tony Knowles is vice chairman. Other Alliance members are South Dakota
Governor Bill Janklow, Puerto Rico Governor Pedro Rossello, and Washington
Governor Gary Locke. I am honored to appear on their behalf.The
Senate Energy and Natural Resources Committee is facing a difficult task -- the
restructuring of an entire $200 billion a year industry. While some proposals
have already been offered, others are sure to follow. But one thing is clear:
Congress has only one chance to get it right. To include a date certain or not?
Repeal or reform the Public Utilities Regulatory Policies Act of 1978 and the
Public Utility Holding Company Act of I935? Additional regulation or no
regulation? Increased or diminished reliability and customer services? Lastly,
what do all these changes mean for consumers - are rates higher or lower? For
my Alliance colleagues and I, that is the most important question of all.
I commend you, Mr. Chairman, as well as Ranking Member Bingaman for holding
this hearing. Restructuring the
electric utility industry is clearly an important issue. And not just in Washington --
almost half of the states have deregulated all or part of their respective
electricity sectors; Texas and Ohio are the latest examples.
But some states, including those in the Alliance, remain skeptical. Indeed,
several states where
electric rates are low continue to ask: What's in it for our residents? Recent
deregulation -- including the airlines and telecommunications industries -- certainly
provide justification for such skepticism.
Before we rush headlong into yet another federal experiment in the
deregulation of an essential public service, perhaps we ought to pause and take stock of
the legacy of prior initiatives. First, let's recognize that the absence or
reduction of regulation does not in itself neccessarily increase
competition. Without the propermarket characteristics, competition will not
develop and consumers may pay the price.
We are finding this to have been the case in rural Nebraska.
And surprisingly, in larger Cities, too. In Council Bluffs, Iowa -- population
54,000 -- the local investor-owned utility tried to open the
electric market to other suppliers. Not a single utility -- other than a subsidiary of
the local utility -- wanted to compete for customers in this test of
competition in the
electric industry in Iowa. Can we realistically expect
electric industry competition when population density in some rural areas is less than
2 customers per mile of line?
deregulation has resulted in a dramatic loss of air service in rural Nebraska with
enplanements in our smaller cities down more than 65 percent since 1978, and
two of those airports -
Columbus and Sidney - now closed to commercial air service entirely. In the
railroad industry, the story is much the same. Nearly 2,000 miles - roughly
one-quarter of the active rail lines in Nebraska have been abandoned since 1982
and our vital agricultural industry, especially in remote parts of the state,
is finding it ever more difficult and expensive to get products to market.
In the communications industry, a significant rate shift is now well underway
and the trend lines are already clear: residential customers will end up paying
more. Of equal or greater concern is the growing communications infrastructure
deficiency in rural areas, compared to urban markets, which if not addressed
will compromise the ability of rural communities to optimize commerce,
healthcare and educational opportunities.As you well know, Mr. Chairman, in
your own home state of Alaska, the
electric industry is unusual. The state is very large and the utilities are very small.
Most utilities are isolated from each other, none are connected to the
interstate grid, and most are not even connected to an intra-state grid.
Because most of Alaska's utilities are stand-alone systems, even the smallest
are vertically integrated, providing generation, transmission, and distribution
to their power customers. To emphasize how small the utilities in Alaska are,
the largest utility in the state generates only about 480 megawatts.
The State of Alaska shares your belief, Mr. Chairman, that any federal
legislation should have a minimum emphasis on federal mandates and a maximum
emphasis on state flexibility. The Knowles Administration and the Alaska
Legislature are moving carefully and deliberately, They have commissioned a
comprehensive study on
electric utility restructuring. Alaska's
electric utilities - most of which are cooperatives or municipally owned systems - are
actively participating in this study. The consensus among virtually all the
participants is to move cautiously and systematically.
Deregulation is likely to be an issue before the Alaska Legislature next year.
Tennessee, like Nebraska, is unique. With small exceptions, public power
electric service throughout the state. Citizens of Tennessee purchase power that is
generated by the Tennessee Valley Authority and its distributors through
locally owned and controlled municipalities and rural
electric cooperatives. The Tennessee General Assembly created a special joint committee
electric utility industryrestructuring in 1997. The Committee continued during that
year and throughout 1998 to examine the anticipated impact upon citizens of
that state in the event of a restructuring of the
electric utility industry.
Like other members of the Governors' Public Power Alliance, Tennessee Governor
Sundquist is concerned about the impact of a federal
electric restructuring. Tennessee is anxious to determine for itself the best way to
assure continued availability to its citizens of reliable and low-c, st
electric power in the event of retail competition.
From the state level, we watch with great interest - and some trepidation --
what Congress is doing. Amid the hearings and legislative proposals, the
Clinton Administration recently unveiled its plan to restructure the
electric utility industry, which has since been introduced by you as S. 1047 and S.
As you know, when it comes to electricity Nebraska is unique. We have a
longstanding tradition of enjoying the benefits of what we commonly refer to as
public power -- every single resident receives
electric power from a municipality, public power district, or rural
electric cooperative. No other state can make that claim. At the beginning of the
century, Nebraska Senator George Norris, the father of the Tennessee Valley
fought to create public power to give consumers local control, reliable
service, and low rates.
In the late 1960s, long before the Energy Policy Act of 1992 required
deregulation of the wholesale
electric industry, Nebraska had wholesale wheeling. Today that pioneering tradition
continues, and Nebraskans are better off because of it.Still, like so many
other states, Nebraska is studying its own options for restructuring. The
Nebraska Legislature is currently reviewing this issue and expects to issue its
findings later this year. This study could lead to Nebraska creating its own
plan for retail competition. By what date certain this could happen is, of
course, uncertain at this time, but this is exactly the way states should
proceed -- on their own timetable, with no federal mandates that set a
schedule. In this respect, Nebraska is not unique. The fact that so many states
forward on restructuring should give pause to any Member of Congress that still
thinks a federal mandate with a date certain is in the best interest of all
This is why the Alliance commends the Administration for proposing a
comprehensive plan to advance the debate on how the
electric utility industry should be restructured, but the Alliance remains opposed to
any mandate -- flexible or otherwise. Federal mandates imply that state and
local governments cannot -- or will not -- act without federal intervention. In
fact, state restructuring initiatives prove that a federal mandate of any sort
is simply not necessary.
Nebraska, with its special concentration of public power systems, is
particularly concerned about federal legislative proposals. However, Nebraska
is not alone -- public power, delivered through power districts, cooperatives,
electric utilities, exists in every
single state except Hawaii. One of every four American consumers -- almost 70
million Americans -- receives power from customer-owned
electric systems. These local assets have made enormous contributions to the nation's
economic prosperity for more than 115 years. Their localownership and
not-for-profit structure makes them very different from private companies.
Public power systems will require different solutions to the challenges of the
new marketplace envisioned by restructuring advocates. Many states that have
embarked upon the deregulatory path, such as California, have acknowledged this
basic fact. Because of their common focus on consumer owner, we have included
cooperatives as part of a broader public power community. However, we recognize
that there are key legal differences between governmental utilities and
cooperatives, especially on
tax and governance issues. Public power's first and only purpose is to provide
reliable, efficient service to their customers
at the lowest possible cost. Like public hospitals, public schools, water,
sewer, parks, and police and fire departments, these public power systems are
local institutions that address a basic community need: They operate to provide
an essential public service at a reasonable, not-for-profit price. Public power
systems are governed democratically through state, regional and local governing
bodies. They operate in the sunshine, subject to open meeting laws, public
records laws, and conflict of interest rules.
Local power customers are direct owners of the utilities' operations and future.
In turn, public power utilities are community institutions with community-wide
goals. As state and local government entities, they boost economic development,
taxes, and make in-lieu-of-tax payments to states and communities, and lower citizen costs through
coordination of services with other government bodies. Local
electric systems give citizens -- as owners -- opportunities to participate in service,
financial,and operating decisions. For purposes of competition, they serve as
an important yardstick against which to measure the price, service,
reliability, and performance of private power companies.
While restructuring the
electric utility industry and introducing competition may give consumers new choices
electric power providers, consumers have always had a choice between creating their own
public power systems or awarding franchises to private power companies. The
Alliance believes this choice should be maintained for all Americans.
Alliance members are concerned consumers served by local and regional
electric systems will be overlooked in federal legislative and regulatory proposals.
That is why the Alliance adopted the following principles to guide its analysis
electric utility restructuring:
- Several issues are solely
within federal jurisdiction and must be addressed to openthe door to retail
competition and foster the development of competitive markets,including:
- Reliability; and
- Market power.
- A cornerstone of federal policy should be a commitment to respect state and
localdecision-making and not attempt to overrule it. For example, several
states -California, Massachusetts, and Texas have established renewable energy
goals and established funding mechanisms for projects that benefit the public
- It is inappropriate for the federal government to preempt state and local
restructuring efforts. Instead, the federal government should respect the
traditional prerogative of state and local authorities to regulate retail
utility transactions and support their efforts.
- Any federal legislation should facilitate state and local decisions regarding
- Federal barriers to competition should be eliminated. These barriers include
eliminating existing levels of market power while guarding
against future concerns, or clarifying appropriate state and federal roles so
restructuring can proceed.
- Federal legislation is needed to establish additional protections for
consumersagainst the establishment and abuse of market power.
Several of these same principles are also found in the Administration's
proposal. For example, the Alliance commends the Department of Energy for
strengthening market power protections. We support the provisions that allow
anyentity, including a municipality, to aggregate customers. While I support
fostering the growth of renewable energy resources, Alliance members view this
as an area where state and local decisions should be respected.
The Alliance would be remiss if we did not offer comments on a very serious
problem facing publicly-owned
electric utilities: current restrictions on
tax-exempt bonds. While I understand the Energy and Natural Resources Committee
does not have jurisdiction over
tax matters, this is
important not only to Nebraskans and Alliance states, but to the millions of
public power customers across the country.
Substantial portions of generation, transmission and distribution facilities
owned by public power systems are financed through the sale of
tax-exempt bonds. These bonds, like bonds for all types of governmental purposes,
carry with them restrictions on the amount of private use allowed for those
facilities. While sound
tax policies may warrant certain restrictions on private use of public facilities,
public power facilities have been singled out for unduly restrictive treatment
including the imposition of additional restrictions under the
Tax Reform Act of 1986.
These private use restrictions, which previously had a negative but survivable
impact on the financing of community-owned
electric output facilities, in their new form -- and in the new competitive
environment -- will restrict the financing of governmental facilities far
beyond Congress' intent as expressed in the
Tax Reform Act of 1986. The restrictions are also contrary to the goals of the
Energy Policy Act of 1992, and will infringe upon the historical and
fundamental right of citizens to act as a community and utilize their best
judgment to provide basic government services.The Clinton Administration should
be commended for tackling this difficult issue. The Alliance is pleased the
Administration's proposal seeks to
"modify" and revise
tax-exempt bond rules as part of
electric utility restructuring
"so that consumers benefit from competition." As I understand the proposal, public power systems that implement retail
competition would retain
tax exempt status for outstanding bonds previously issued to finance generation
and distribution facilities. Similarly, bonds issued to finance transmission
facilities would also continue their
"even if private
use resulted from allowing nondiscriminatory open access" to those facilities, including, for example, participation in an independent
system operator. The Alliance endorses this approach for previously issued
However, another part of the bill seems to prohibit public power systems from
building both generation and transmission facilities in the future with
tax-exempt bonds. While the Alliance appreciates the political debate surrounding
this issue, we are particularly concerned about the essence of this provision:
electric systems, especially the majority of the small systems in Nebraska and around
the country, could no longer exercise
"local control," and may be unnecessarily burdened by an overly restrictive proposal which, in
turn, would lead to higher utility bills for consumers.
The Alliance supports a fair alternative to this aspect of the Administration's
bill. The Bond Fairness and Protection Act (S. 386)
introduced by Senator Slade Gorton and Senator Bob Kerrey, is a reasonable
solution to the problems posed by theprivate use restrictions on present and
future public power bonds. A companion bill has also been introduced in the
House of Representatives.
The Bond Fairness and Protection Act provides state and locally owned utilities
with two options for obtaining the necessary level of relief they need to eater
competitive markets without raising rates or jeopardizing the
tax-exempt status of outstanding bonds. The bill also requires those talcing this
option to make significant concessions on the future use of
tax-exempt bonds by giving up the fight to issue such debt for generation
facilities, but retaining the same fight to issue debt in the future for
transmission and distribution facilities. The Alliance considers The Bond
Fairness and Protection Act to be a
superior solution to the taxation issue.
Representatives Steve Largent and Ed Markey recently adopted the Gorton-Kerrey
proposal as part of their comprehensive restructuring legislation, H.R. 2050. I
urge you to consider the merits of the Gorton-Kerrey proposal, which has 22
cosponsors from both sides of the aisle.
The Comprehensive Electricity Competition Act, first unveiled by Energy
Secretary Richardson on April 15, represents an extensive approach to bringing
retail competition to the electricity industry. Among other key elements, the
measure focuses on a flexible plan for states -- and public power utilities --
to opt out of competition if they believe that their consumers would be better
off under an alternative policy. The
"opt out" provision is a step in the fight direction. However, to fully respect states'
fights, we would urge that any federal legislation leave to the states the
decision on when and
how to restructure
electric industries in the states.To his credit, Secretary Richardson has recognized
that while supporters may have concerns with specific elements of the proposal,
they stand behind the measure's comprehensive approach to retail competition
and the desire to see congressional action. I commend the Department of
Energy's approach for its emphasis on providing the greatest benefits to all
consumers of electricity, including the residents of Nebraska and other
Alliance states. Further thoughts by Governors' Public Power Alliance members
on S. 1047:
- Flexible Mandate. The proposal requires retail choice by January 1, 2003, but
would permit sates or
"non-regulated utilities" to opt out of the competition mandate if they find -- aft a public proceeding
-- that consumers would be better served by an alternative policy. As
previously stated, the Alliance is concerned with any federal mandate, flexible
or absolute, because
it implies state and local governments cannot or will not act without federal
intervention. The proposed" opt out" provision needs to also be flexible in the
"public hearing process" allowed. In Nebraska, for example, ere are 168 separate utilities, each of
which would be required to go through this process. Can't a simpler solution be
- Market Power. The Administration's bill has been made stronger than the
earlierproposal in that it requires the Federal Energy Regulatory Commission to
includethe effects of mergers on competition in wholesale and retail
electric generationmarkets during the Commission's review. Strengthening market power
protections in the current legislation is not only a step in the right
direction, it is critical to the future of the entire industry and is supported
by the Alliance.
Also, the Commission would be granted authority to establish independent
entities for the operation and control of interconnected
transmission facilities. Importantly, these independent transmission entities
would be given new authority over planning transmission facilities. The
Alliance views this aspect as important, but problematic since this authority
could usurp previously held local and state planning authority. We would favor
language that would give the Federal Energy Regulatory Commission authority to
promote, not mandate, the creation of voluntary regional transmission
- Federal Power Marketing Administrations. In a significant change from last
year's proposal, the Administration's newest proposal would authorize the
Bonneville Power Administration, Southwestern Power Administration and Western
Area Power Administration - which provides some power to Nebraska -to recover
their stranded costs through a transmission surcharge that would be subject to
review and approval by the Commission. The Alliance believes the customers who
benefit from low-cost electricity from the regional entities should help pay
for any stranded
costs incurred. As such, the Alliance supports this concept.The bill
anticipates that Bonneville will spin off its transmission facilities into the
"Bonneville Transmission System." The Commission also would have the authority over Southwestern and Western on
transmission access and transmission ratemaking. The Alliance has no position
on this aspect of the bill.
However, the Governors' Public Power Alliance opposes any legislative efforts
to sell these federal assets and would oppose any efforts to change to other
than cost-based rates.
As Governor of Nebraska, I must comment on Congressional efforts to treat one
or two of the power marketing administrations as
"special cases, deserving of separate consideration." Each of the federal entities, be it Bonneville, Western, Southwestern or
Tennessee Valley Authority, has unique issues which make crafting a one-size
fits all solution difficult. For example, Western may be viewed by some as
having fewer complex
problems. While it does not have Bonneville's salmon issues or Tennessee Valley
Authority's 'wall" issues, it has navigational, flooding, and environmental concerns which are
critical to economies in states served by We. stem. I am certainly familiar
with the difficulty of resolving complex hydropower issues among competing
interests be they power generation, environmental, agricultural, recreational
or governmental. It took 14 years and $40 million to secure reissuance of
hydropower license for just one darn on a riverin Nebraska. And no one knows if
the proposed agreement costing $75 million will work.
Lastly, some have suggested that power marketing administration customers have
the ability to resell inexpensive federal hydropower and pocket the profit.
Current federal law prohibits this practice and the Alliance members endorse
Electric Reliability Council - This authorizes the North American
Electric Reliability Organization to replace the North American
Electric Reliability Council and oversee a mandatory -- not voluntary -- reliability
system backstopped by the Commission. This provision is based on an industry
consensus and is supported by Alliance members.
- Aggregation. As I indicated earlier, the Alliance endorses the efforts of the
Administration to amend the Public Utility Regulatory Policies v Act of 1978 to
allow any entity, including municipal utilities, to aggregate customers in a
retail competitive market. This is a prime example of true competition at the
- Renewable Portfolio Standard. Much has already been said or written about the
Renewable Portfolio Standard, which would require all retail sellers to cover a
percentage of their electricity sales with generation from renewable
technologies,excluding hydropower. By 2010, fully 7.5 percent of electricity
sales must be comprised of
generation from wind, solar, closed-loop biomass and geothermal only. Numerous
public power utilities have invested in the development of renewable resources.
As previously stated, the Alliance does not support mandates, but if a
renewable portfolio standard - or minimum amount of power from renewable
resources is required -- let each of the states determine the mix of fuel
sources that would be appropriate for its area. We need to keep in mind one of
the goals of restructuring is to reduce rates for all customers. The impact of
a renewable portfolio standard should not nullify cost savings realized by
- Public Benefits Fund. The Administration's bill would create a $3 billion a
year public benefits fund to provide matching funds to states for low-income
assistance, energy efficiency programs, and other related efforts. This fund
would be financed through
a generation or transmission interconnection fee on all electricity.
The Alliance believes the concept of this fund - especially a rural safety net
is admirable. As always seems to be the case, the devil is in the details.
Because matching state funds are required to receive grants under this fund,
would the rural safety net be exempt from this matching requirement? If not,
wouldn't this be adding an additional hardship for rural Americans?
Senator Craig Thomas introduced another bill, S. 516, earlier this year. I
understand the senator is a former member of the rural
electric cooperative community, so I think I understand the fundamental principles of
his bill. Clearly, I support his effort to work on restructuring by not
imposing a federal mandate on the states. Several other provisions -- stranded
costs, renewable resources, universal service -- are also appropriately
left to the states. The Alliance has several concerns over provisions regarding
market power, repeal of the Public Utility Holding Company Act of 1935, and the
absence of a balanced approach on
taxes, but I commend Senator Thomas for his efforts.
S. 282, introduced by Senator Mack and Senator Graham, addresses repeal of a
portion of the Public Utility Regulatory Policies Act of 1978. Previous
Alliance testimony has been presented on this issue. Clearly, much like repeal
of the Public Utility Holding Company Act of 1938, this is best done through
S. 161, introduced by Senator Moynihan plots a course for moving the all
federal power producers to a market-based, not a cost-based, rate for
The Alliance is concerned about the provisions contained in this
legislation since it could pose substantial hardships for those consumers least
likely to benefit from restructuring of the
electric industry: rural consumers.
I appreciate the opportunity to present these comments on behalf of the people
of Nebraska and the members of the Governors' Public Power Alliance. We look
forward to working with the Committee as you design a legislative approach
which will benefit all Americans.
LOAD-DATE: June 30, 1999