SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 2888 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: SANDRA L. HOCHSTETTER, CHAIRMAN

AFFILIATION: ARKANSAS PUBLIC SERVICE COMMISSION

BODY:
December 13, 2001

Sandra L. Hochstetter Chairman Arkansas Public Service Commission

My name is Sandra L. Hochstetter. I am the Chairman of the Arkansas Public Service Commission. I am here today on behalf of the National Association of Regulatory Utility Commissioners, commonly known as NARUC. I greatly appreciate the opportunity to appear before the House Energy and Commerce Subcommittee on Energy and Air Quality and I respectfully request that NARUC's written statement be included in today's hearing record as if fully read.

NARUC is a quasi-governmental, nonprofit organization founded in 1889. Its membership includes the State public utility commissions for all States and territories. NARUC's mission is to serve the public interest by improving the quality and effectiveness of public utility regulation. NARUC's members regulate the retail rates and services of electric, gas, water and telephone utilities. We have the obligation under State law to ensure the establishment and maintenance of such energy utility services as may be required by the public convenience and necessity, and to ensure that such services are provided at rates and conditions that are just, reasonable and nondiscriminatory for all consumers.- Mr. Chairman, NARUC commends you for your tireless work on the issue of electric restructuring. We would also like to thank you and your staff for including NARUC in the discussions and process since you have been Chairman of this Subcommittee. You have been willing to speak to our members on numerous occasions and have been consistently willing to listen to our concerns.

NARUC is pleased that you did not include a section that would expand FERC jurisdiction to include unbundled retail transmission service in H.R. 3406. We believe that the issue of transmission jurisdiction is now properly before the Supreme Court. Accordingly, NARUC continues to recommend that Congress allow the Court to rule on transmission jurisdiction issues prior to taking any legislative action. We would also like to take this opportunity to thank you for section 605, which clarifies that this legislation will not require a State to implement retail competition or require the unbundling of retail transmission.

Mr. Chairman, while we do appreciate the difficulties with divergent points of view you have confronted to get this legislation to this point, NARUC must express our significant concerns with H.R. 3406 as it is currently drafted. NARUC is troubled by the great extent to which the bill intrudes into areas now regulated by the States.

I would now like to share NARUC's views on specific provisions found in H.R. 3406. In some instances the NARUC positions may be at variance with the view of the Arkansas Commission and I will note these distinctions.

Interconnection; Net Metering; Demand Management

While NARUC supports national technical power quality standards adopted by appropriate technical standards organizations, we must oppose the provisions found in section 101 which provide for the Federal pre-emption of distribution interconnection terms, conditions, costs and rates. NARUC believes that Congress should support the States' authority to work with local distribution utilities and other stakeholders, including the renewable and small generating community, to provide interconnection arrangements for self-generation units that utilize the local distribution network. NARUC considers this a safety and reliability issue, as well as a generation supply and potential cost shifting issue, and therefore State and local officials and retail customers should be responsible for working out cooperative solutions that best fit the specific circumstances of connection to a distribution system. This way the safety, reliability, and economic impact concerns of a particular project and system are not jeopardized by a generic rule promulgated without the benefit of the project and systems unique specifications.

While NARUC appreciates the efforts to permit States to establish additional requirements to those net metering standards promulgated by FERC, NARUC must also oppose the Federally pre- emptive provisions found in section 102. Once again we must stress that net metering is a retail issue subject to State jurisdiction. NARUC supports legislation removing federal barriers to State implementation of net metering. The most critical barrier involves the current lack of jurisdictional clarity over net metering. The Federal Power Act has been alleged to preempt State net metering programs, slowing development of this promising new approach to promoting competition and resource diversity. Therefore, the bill should be amended to promote State implementation of net metering programs of the States' own choosing, in the States' own time, rather than being forced to implement minimum standards of FERC's choosing.

With regard to section 103, NARUC supports demand management programs, but believes that retail demand reduction programs should be developed by the States under traditional State jurisdiction over retail services. Congressional action to provide for more robust and effective demand-side options, without FERC pre-emption of the States, can be accomplished.

For example, Congress could promote energy efficiency programs through increased funding, tax credits, and the setting of increasingly more efficient national building codes and standards for motors, lighting and appliances.

Congress could also promote planning strategies for maintaining a proper balance between supply and load, which includes demand- side management techniques (including price-responsive demand mechanisms), intermittent and renewable resources, conservation/energy efficiency programs, as well as traditional supply and transmission options. One good way for Congress to act in this area would be to authorize willing States to address these issues on a regional basis. I would note that regulators in Arkansas, Louisiana, and Mississippi and the Entergy Corporation supported legislation introduced by Senator Dale Bumpers in the early 1990's, which would have authorized States that regulated electric utilities operating under PUHCA to conduct integrated resource planning on a regional basis. I believe such approaches are even more appropriate now than ten years ago.

Finally, Congress should continue to provide funding for energy efficiency and conservation for low and moderate income consumers through programs that provide education, weatherization, housing improvements, installation of higher efficiency appliances, and similar usage reduction measures.

Taken together, these options could help lower costs to consumers, reduce load, conserve valuable resources, and lower costs to utilities, while spreading the costs and benefits to all retail ratepayers, rather than providing benefits to just large industrial customers.

PUHCA

Congress should reform the Public Utility Holding Company Act (PUHCA), but in doing so, should allow the States to protect the public through maintaining effective oversight of holding company practices and expanding State access to holding company books and records, independent of any similar authorities granted to the federal regulatory bodies. NARUC believes that Subtitle B of H.R. 3406 fits within our criteria for support.

PURPA

NARUC supports legislation to lift PURPA's purchase requirement where a State determines that generating markets are competitive or that the public interest in resource acquisition is protected. However, NARUC opposes pre-empting State jurisdiction by granting FERC authority to order the recovery of costs in retail rates or to otherwise limit State authority to require mitigation of PURPA contract costs. It is NARUC's position that the States that have already approved these contracts are in a better position to address this issue than FERC.

In section 133, FERC is directed to promulgate and enforce regulations to provide for recovery of PURPA costs. Therefore, NARUC cannot support the PURPA provisions found in H.R. 3406.

Regional Transmission Organizations (RTO

On the important issue of RTOs, NARUC believes that RTO formation can provide benefits to the market and all customers, provided the policies that establish RTOs enhance the Federal-State partnership and provide for truly independent RTO governance and operation with appropriate Federal and State oversight. The Arkansas Commission has been one of the strongest State commission supporters of FERC's efforts to facilitate the formation of RTOs. However, we remain concerned that an appropriate role for State regulators in both RTO creation and operation has not been formalized.

Unfortunately, H.R. 3406 does not advance State participation in any aspect of RTO governance or decision making. The mandatory participation provisions of H.R. 3406 fail to recognize that currently, under State laws, utilities are generally required to obtain State commission approval to participate in RTOs, if RTO membership requires the utility to relinquish control or divest the transmission facilities held in the retail rate base. For instance, the utilities whose facilities comprise existing RTOs, which are "grandfathered" in section 202 (h) (6) on page 64, received State commission approval to participate in those RTOs.

Congress should require FERC, in cooperation with the States, to determine boundaries, structure, and functions for regional transmission organizations (RTO). The RTOs should be given sufficient authority to perform regional grid management and expansion, while providing for efficient system operations that are built and operated in the most economical, reliable and environmentally acceptable way in order to realize short-term and long-term reliability as well as facilitate efficient wholesale market transactions.

Congress should require FERC to recognize the States' interest in actively reviewing questions of RTO governance. This would include: development (and revision) of market rules; reliability and planning; access to RTO market monitoring information; and development, with federal authorities, of market power mitigation programs.

In addition, Congress should require that RTOs or other regional bodies have sufficient authority to conduct long term planning for their regions and, working with the State and transmission owners, implement long-term planning that should:

1.Recognize the need for new investment in transmission facilities;

2.Assures that reliability is not compromised;

3.Reduces any decisional role for entities with unreasonable market power; and 4.Provides a cost allocation method that is objective, non-discriminatory, weighs environmental and societal risk, and ensures that costs are allocated in a proportionate manner to those that receive the benefits

Transmission Reliability

In numerous communications with this Subcommittee, both in letters and in testimony, NARUC has consistently and repeatedly expressed the belief that reliability should be addressed in any Federal electricity legislation. Our position as to what policies must be included in any reliability legislation have been equally consistent.

NARUC believes that Congress should mandate compliance with industrydeveloped reliability standards for the bulk power system, while preserving the authority of the States to set more rigorous standards when deemed to be in the public interest. Congress should also ensure that States continue to have the authority to establish effective price signals that allow consumers to choose alternative levels of reliability and power quality. To that end, Congress should expressly include in legislation: (1) a savings clause to protect existing State authority to ensure reliable transmission service, and (2) a regional advisory role for the States.

We would like to thank you Mr. Chairman for including in Title III of H.R. 3406 the savings provisions that were substantially the similar to those savings provision included in S.2071 which was passed by the Senate during the 106th Congress. However,

I would also like to bring to your attention that H.R. 3406 does not address a regional advisory role for the States, which is especially critical to western States.

Reliability language should not fail to provide a continuing role for States in ensuring reliability of all aspects of electrical service, including generation, transmission, and power delivery services or results in FERC's preemption of State authority to ensure safe and reliable service to retail consumers. State officials will be held accountable by the public when the lights fail to stay on. Because of this responsibility, State officials and regulators are particularly concerned that they be able to act effectively to ensure uninterrupted electricity service.

Transmission Siting Authority

NARUC strongly opposes any legislative provisions that contemplate Federal siting authority. States should retain authority to site electric facilities, while Congress should support the States' authority to negotiate and enter into cooperative agreements or compacts with federal agencies and other States to facilitate the siting and construction of electric transmission facilities as well as to consider alternative solutions to such facilities, such as distributed generation and energy efficiency. Here again Congress should authorize the development of regional approaches in this area.

Giving FERC eminent domain and siting authority is not a panacea. Beyond the practical matter of the time FERC would need to be prepared to assume this new role and the additional funds that Congress would need to appropriate to accomplish this, NARUC does not believe that many examples actually exist, beyond anecdotal evidence, where a State action (or inaction) is solely responsible for unreasonably preventing a needed transmission project. Further, the numbers of examples that may exist do not warrant Federal pre-emption in this area.

In addition, there may be alternatives to a specific transmission project. A State may determine that a transmission line is not necessary if, for example, distributed generation is used instead, thereby saving valuable resources and protecting citizens from the unnecessary effects of the transmission project.

While the Arkansas Commission does understand the basis for the recommendation by some parties that transmission siting authority should be vested in the FERC, we would recommend that the States, utilizing where appropriate regional mechanisms, continue to have primary siting authority. If such regional approaches once employed prove inadequate, the question of FERC's role can certainly be revisited.

Consumer Protection

NARUC's members have a long standing commitment to consumer protection. Indeed, State utility commissions were established to ensure that consumers received essential services without fear of predatory practices and pricing. Therefore, we compliment you for your attention, Mr. Chairman, to the consumer issues that are found in H.R. 3406. However, while we favor strong consumer protection measures, NARUC does not believe that pre-empting the States by Federally legislating retail consumer protections is the way to go. The States are more capable in dealing with abuses that occur at the retail level, and in fact many, if not most, of the States that have moved to restructure and unbundled their retail electric markets have in place regulations or laws that address the consumer issues found in H.R. 3406. In short, Congress should not limit State authority to prescribe and enforce laws, regulations or procedures regarding consumer protection.

NARUC believes that it would be helpful if Congress would reinforce the States' authority to require all load serving entities to disclose generation sources and accompanying environmental impacts. Additionally, Congress should require regional transmission organizations, system operators, reliability counsels and other regional agencies to adopt policies that allow public access to information necessary to enable adequate monitoring of energy markets, while also providing protection for information demonstrated to be commercially sensitive.

Mr. Chairman, in conclusion, NARUC would again like to thank you for your efforts on this legislation and for offering us an opportunity to express our views. For your review and information I have included, as part of this testimony (Attachmentl), a copy of the NARUC National Electricity Policy that was adopted by the NARUC membership at our Annual Convention in November.

Unfortunately, NARUC cannot support H.R. 3406 as drafted. We do not believe that a compelling case has been made for Federal pre- emption of State retail authority. It is the position of NARUC that Congress can do a great deal to advance and enhance the wholesale market without risking possible harm to those retail institutions that have heretofore not experienced the major dislocations that have occurred in wholesale markets.

NARUC would welcome the opportunity to work with you and your office prior to the Subcommittee markup to address the concerns raised here today. I would be happy to answer any questions you may have.



LOAD-DATE: December 13, 2001