SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1876 words

COMMITTEE: HOUSE ENERGY AND COMMERCE

SUBCOMMITTEE: ENERGY AND AIR QUALITY

HEADLINE: ELECTRICITY TRANSMISSION

BILL-NO:

 

H.R. 3406             Retrieve Bill Tracking Report


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TESTIMONY-BY: LYNNE H. CHURCH, PRESIDENT,

AFFILIATION: ELECTRIC POWER SUPPLY ASSOCIATION

BODY:
Statement of

Lynne H. Church President, Electric Power Supply Association

Before the Subcommittee on Energy and Air Quality

United States House of Representatives

December 13, 2001

Chairman Barton, Representative Boucher and members of the Committee, I am Lynne H. Church, President of the Electric Power Supply Association (EPSA) and am here today representing EPSA's member companies. EPSA is the national trade association representing competitive power suppliers, including independent power producers, merchant generators and power marketers. These suppliers, which account for more than a third of the nation's installed generating capacity, provide reliable and competitively priced electricity from environmentally responsible facilities serving global power markets. EPSA seeks to bring the benefits of competition to all power customers. On behalf of the competitive power industry, I thank you for this opportunity to comment on H.R. 3406, the Electric Supply and Transmission Act. The Rationale Persists for Federal Legislation

We deeply appreciate the leadership that Chairman Barton and others here today have shown on the issue of electricity restructuring and the time and energy this subcommittee has devoted to this topic. We support the spirit of this bill - like Chairman Barton, EPSA believes in a competitive, reliable, efficient, environmentally-friendly wholesale electricity market. Many provisions in this bill further this goal. For example, there is the requirement that all transmitting utilities join regional transmission organizations (RTOs). In addition, the bill will ensure that currently non-FERC-jurisdictional utilities provide open access to the interstate transmission grid.

We particularly endorse the adoption of predictable, non- discriminatory interconnection standards, because we cannot overemphasize how important these rules are for investment and construction of new generation. We have been heavily involved in the regulatory process underway at FERC to resolve these issues. Your bill could give additional impetus to this effort and shortcircuit dilatory litigation.

While there is much in your bill to applaud, key provisions in this legislation could hinder the evolutionary process that started with Energy Policy Act of 1992, and hamper the development of a truly competitive wholesale market. These include language in the sections on RTOs and reliability, which I will discuss in turn.

RTO Language Would Slow Progress of RTO Development Although the bill text requires full participation by owners of the interstate transmission grid in RTOs, the provisions in Section 202 of this legislation would stop or dramatically slow progress that is now being made towards RTO development and invite additional litigation and foot-dragging. The provision is prescriptive and includes requirements for multiple evidentiary hearings, a new cost-benefit assessment, court appeals under standards of judicial review not normally applicable to Federal Power Act cases, and - most critically - a stay on FERC action while these appeals are being heard. This new process would radically change the calculations that companies now make when they consider how and whether to take part in the development of an RTO.

The RTO process now underway at FERC is difficult and painful for most participants. But there is no substitute for a deliberative process that allows for the steady evolution of market institutions and needs. We believe that the prescriptive approach laid out in the bill will stop the progress being made towards RTO development while participants take their cases to court.It will also remove much of the flexibility that the FERC has to adjust or reform these market organizations as the wholesale power market inevitably changes in size and scope.

We all agree that RTOs must be independent of any class of market participants in order to be an effective, non-discriminatory manager of the interstate grid.

However, the definition of market participant in this bill specifically excludes both transmission owners that do not buy or sell power and entities that own generation but only provide default service. Transmission development clearly affects the market value of generation and default providers have assets that influence regional wholesale prices. The blanket exclusion as it appears in the bill cannot be justified.

Lastly, the language in Title IV, Sec. 216 (a) 6 says that incentive rates should be used to "promote the voluntary participation in and formation" of RTOs. While EPSA does not, in general, object to the use of incentive rates, this particular language should be removed. The language runs contrary to the idea that RTO participation must be mandatory, and conflicts with the RTO section of the legislation.

Reliability Provisions Do Not Reflect Recent Industry Developments

With respect to the bill's provisions related to grid reliability, EPSA endorses the need for mandatory reliability standards that are broadly applicable to the wholesale power industry. However, the language in this bill could limit the industry's ability to address the challenges of the ongoing development and restructuring of the wholesale transmission system essential for reliable, efficient and well-functioning markets. As currently drafted, the bill shifts significant aspects of standards development and enforcement away from FERC to a new electric reliability organization.The text also does little to reflect the role that will need to be played by RTOs in future market management.

Given FERC's substantial responsibility to ensure the reliable and efficient operation of the transmission grid and the imperative to develop effective RTOs, this makes little sense. However, developed energy standards will have an inevitable impact on bulk power transmission systems and market operation essential for reliability. Accordingly, the standard setting process outlined in the bill raises serious concerns that failing to centralize this activity with FERC could lead to confusion and conflicts among multiple entities.

Further, the bill fails to account for recent industry efforts to rethink the nature, scope and organizational structure for a new standards setting process that recognizes the need to integrate reliability and market practices. On December 7th, over 125 representatives from all areas of the industry met at a DOEsponsored conference co-facilitated by EPSA, EEI, ELCON and NEM. The forum provided an opportunity for all interested parties to begin a broader collaborative effort to consider whether and how to combine NERC's reform proposals with the new North American Energy Standards Board (NAESB) that the Gas Industry Standards Board (GISB) approved on December 5th. As currently written, Chairman Barton's legislation could preempt this important process.

Many participants in the DOE conference acknowledged the potential benefits of merging NERC into NAESB. In a reprisal of the leadership role she assumed as FERC Chair, Betsy Moler challenged all the parties to work on a compromise model for a new standard setting organization. The implications of these developments are clear: legislation should not deny FERC or industry stakeholders the opportunity to develop new approaches to energy standards development. The DOE intends to host another conference on January 28th to discuss the progress on resolving these issues.Ideally, this process will produce a new legislative proposal that can be incorporated in this legislation when it is considered by the full Energy and Commerce Committee next spring.

PURPA Ownership Restrictions Are Out-of-Date

Permit me to make one last point on the legislation: the bill addresses PURPA without repealing the current PURPA ownership restrictions. These restrictions were initially included to encourage non-utility ownership of new power facilities and are now out-of-date. These restrictions are not applicable to other competitive generation, such as exempt wholesale generators, and add unnecessary complexity and inefficiency to the generation industry.While this reform has not yet been included in the Subcommittee bill, this proposal was included in the Senate Democratic energy proposal unveiled recently and in Administration position papers.We urge you to adopt this proposal.

A Comment on the Enron Bankruptcy

While my testimony today is focused on legislation, it is reasonable to expect the members of the Subcommittee are likely to raise questions related to the recent tragic bankruptcy of an EPSA member company, Enron. Let me make a few comments on the matter.

In the days since the company sought protection under bankruptcy laws, there have probably been hundreds of Enron obituaries published in news and trade papers. Some have been straightforward and thought-provoking examinations of how a company could move so quickly from being an industry innovator to insolvency. Others raised complex and appropriate questions about the diligence of investment analysts or the role of public accounting firms.

However, some of these post-mortem pieces have illuminated little more than the well-established fact that, like every entity that forges a new path to overwhelming success, Enron made some enemies along the way. While it's true and ironic that the competitive markets Enron helped to foster ultimately sealed its fate, they also worked as intended to help shield energy customers from any catastrophic consequences.

Opponents of the competition that Enron helped bring to the nation's energy markets have seized upon the occasion of the company's fall to proclaim that electricity restructuring should be halted or even reversed. In fact, however, the last few months have demonstrated exactly the opposite.

Perhaps the most persuasive proof of competition's power was seen in what happened in energy markets immediately following the largest bankruptcy filing in U.S. history-practically nothing. There's no talk of a bailout, either at the state or federal level. Trading went on with the many strong competitors who immediately stepped into the void and kept prices and supplies on an even keel. Although the move toward open markets is still young, competitive energy markets already have matured to the point where they can withstand the departure of a once-dominant player.

Many have used Enron's collapse to predict an end to competitive wholesale power markets. Missing from this chorus of doomsayers, however, are those who watch energy markets most closely. On Wall Street and at the Federal Energy Regulatory Commission, experts understand that Enron's decline, rather than a caution against competitive markets, actually highlights the need to hasten their arrival throughout the nation. These observers remain committed to opening energy markets because they have seen the power of competition put downward pressure on prices, open new reservoirs of supply and encourage efficiency and technology advances at every turn.

In closing, thank you for allowing me to testify here today. We look forward to continuing to work with you to advance the development of a robust, competitive electricity market.



LOAD-DATE: December 13, 2001