SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 2400 words

COMMITTEE: HOUSE ENERGY AND COMMERCE

SUBCOMMITTEE: ENERGY AND AIR QUALITY

HEADLINE: TESTIMONY CONSUMER PERSPECTIVES ON ENERGY POLICY

TESTIMONY-BY: JOHNNY DUKE , NATIONAL DIRECTOR OF

AFFILIATION: FACILITIES/ENERGY

BODY:
May 15, 2001 Prepared Witness Testimony The Committee on Energy and Commerce W.J. "Billy Tauzin" Chairman Consumer Perspectives on Energy Policy Subcommittee on Energy and Air Quality Mr. Jonny Duke National Director, Facilities Mamnagement Kmart Corporation Chairman Barton and members of the Committee, on behalf of Kmart Corporation and the International Mass Retail Association (IMRA), thank you for granting me the opportunity to testify today regarding an issue of tremendous importance to our country: our nation's energy supply and its transmission. Kmart Corporation is a member of IMRA. As you may know, IMRA is the world's leading alliance of retailers and their product and service suppliers, and is committed to bringing price-competitive value to the world's consumers. IMRA improves its members' businesses by providing industry research and education, government advocacy, and a unique forum for its members to establish relationships, solve problems, and work together for the benefit of the consumer and mass retail industry. As National Director of Facilities/Energy for Kmart Corporation, I have a unique perspective on how rising costs and frequent interruptions of energy supply impact consumers and retailers alike. The rising costs of energy have greatly affected Kmart, and have seriously hurt our bottom line. We have seen a significant increase in electricity costs in our stores in at least 10 states thus far, and an increase of 200% in gas costs throughout the United States. We are preparing for potential rolling blackouts in New York and the Midwest this summer, depending on the temperatures. In California, Kmart has been hit with rolling blackouts, and when these blackouts occur it costs us $4,000 --$5,000 per hour, per store. During these blackouts, most customers leave the store, costing us not only the prices of unsold merchandise that is left behind, but also significant labor costs to re-stock the merchandise that is left in carts. Kmart has made important strides to conserve energy over the years and continues to make every effort possible to reduce energy costs. We are doing retrofits in 85 stores in California to reduce power; we have instructed stores to reduce salesfloor lights by 25%; and have installed energy management systems to control lighting, heating and cooling setpoints, which keep thermostats set at 75 -- 77 degrees during the day and 80 -- 83 degrees at night. In addition, we are turning off electronic administrative and display equipment and parking lot lights at night; we are recycling more cardboard, paper and plastic than ever before; and have installed heating ventilation and cooling replacements, watt reducers and electronic ballasts. Through these efforts, we have reduced carbon dioxide by 5,907 pounds, which is the equivalent of removing 597,205 vehicles from the road; saving 818,086 trees (in terms of reduced carbon dioxide); and providing 319,765 American homes with sufficient electricity. We are proud of our efforts to conserve energy and reduce energy costs. However, as the summer months approach, we are concerned that the continued pressure on both supply and demand will have a devastating effect in several regions of the country. We commend the Congress and the Administration for working to address this problem and are pleased to offer our input. As Congress debates a national energy policy, it is important to focus on both supply and demand issues. Addressing only one of the components will not solve the current energy problem facing our country. Several factors relating to supply and demand must be considered as a national energy policy is developed. These factors include: 1) increased transmission capability; 2) creation of an independent reliability organization; 3) a diverse fuel supply; 4) energy efficiency; and 5) consumer protections. While much of the focus on California's energy problem has been the actual lack of generation, it must be realized that the transmission grid is as equally important, and it has also failed to keep pace resulting in increased congestion. Legislation addressing energy policy should encourage new transmission construction in order to keep up with the current demand, and utilities should be required to join Regional Transmission Organizations (RTOs). As transmission capability needs to be improved, so does the reliability of delivering electricity to consumers. Consumers, both large and small, rely on uninterrupted delivery of service. To that end, we urge the creation of a new independent electric reliability organization with oversight from the Federal Energy Regulatory Commission (FERC). This new organization should be tasked with developing and enforcing reliability rules and standards that would be required for all market participants. Another issue which must be focused on is the fuel supply. The Administration has talked a great deal about fuel supply and we have heard much about new drilling opportunities and attempts to decrease the reliance upon foreign sourced oil. As Congress moves forward, we would encourage that the focus on fuel supply be as diverse as possible, as reliance upon one source of fuel for electricity generation could lead to further problems. Congress should consider promoting alternative fuels such as coal and nuclear power, and redouble its emphasis and incentive base to increase investment in hydropower and other renewable sources of energy. While we are all aware of problems with the use of coal, I would urge the Administration and Congress to focus on the development of clean coal technologies. Coal is the least expensive and most abundant fuel source available today. With the looming increase in domestic gas prices, we must explore other options for fuel sources. Diversification will lead to more surety for consumers with regards to availability and price stability. It is clear that increasing the power supply alone will not help the nation solve its current energy situation: we must also address demand-side issues. We encourage the inclusion of energy conservation as an integral part of the national energy policy. We applaud the Bush Administration for making efforts to reduce consumption in federal buildings in California, but this is only a start. We need to ensure that consumers are encouraged and given incentives to conserve as well. Another priority in moving forward with a national energy policy should be protecting consumers, both residential and commercial. As our experience in California has demonstrated, without protections against market power abuses, consumers are hurt by exorbitant energy prices. In order to avoid these market power abuses, we urge that any company in the business of selling electricity, such as a generator or marketer, must be legally and functionally separate from any company in the business of providing transmission and/or distribution. This will help avoid conflicts of interest that create high costs for consumers. Other issues we would like to discuss are the proposals to repeal the Public Utility Regulatory Policies Act (PURPA) and the Public Utility Holding Company Act (PUHCA). The calls to eliminate PURPA and PUHCA are understandable. The restrictions placed on the industry by these acts are costly and cumbersome. However, we believe that those restrictions are necessary only until the marketplace is completely competitive. Once true competition is realized, we agree that these two acts will no longer be needed. We d also like to take a moment to commend Chairman Barton for his attempts to help alleviate the terrible energy crisis in California through the introduction of H.R. 1647, the Electricity Emergency Relief Act. As California's energy problem spreads to other states in the region, your leadership is particularly appreciated. H.R. 1647 draws significant attention to the problem in California. Now that the problem is crossing state lines, we believe additional emphasis must be placed on the role of the federal government, in particular the Federal Energy Regulatory Commission (FERC), in scrutinizing the prices. The hardship this crisis has caused retailers and consumers would have been eased had FERC done more to ensure that consumers were not being overcharged by out-of-state suppliers. As you are well aware, the main culprit in California's energy crisis is the wholesale price of electricity. This issue was not addressed in California's deregrulation plan and is now affecting the energy situation in other western states. In addition to H.R. 1647, we believe it would be immensely helpful to include provisions addressing the wholesale price of electricity in California. Without addressing the problem of skyrocketing wholesale prices, California's serious problem will certainly move to other markets throughout the country at an accelerated rate. I thank the committee for this opportunity to testify today. I would be happy to answer any questions that members of the committee may have.

LOAD-DATE: May 16, 2001, Wednesday