SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1857 words

COMMITTEE: SENATE ENERGY AND NATURAL RESOURCES

HEADLINE: NATIONAL ENERGY POLICY

TESTIMONY-BY: LINDA BREATHITT, COMMISSIONER

AFFILIATION: FEDERAL ENERGY REGULATORY COMMISSION

BODY:
July 26, 2001

Testimony of

Commissioner Linda Breathitt Federal Energy Regulatory Commission

before the Committee on Energy and Natural Resources United States Senate

Mr. Chairman and Members of the Committee:

I appreciate this opportunity to appear before you today to discuss proposals relating to comprehensive electricity legislation. July 26, 2001 Today's hearing is timely because there is a real need for Federal legislation to address important and unresolved issues in the electric industry, such as reliability, jurisdiction, transmission siting, and tax restrictions. In addition, legislation is needed to ensure that the Federal Energy Regulatory Commission has sufficient authority to continue its efforts to establish fair, open and competitive bulk power markets.

The "White Paper on Electricity Legislation" prepared by Chairman Bingaman provides a good starting point for a discussion of these legislative needs and objectives. I believe the White Paper correctly identifies many of the key elements that federal legislation should address, including: (1) transmission jurisdiction; (2) reliability; (3) transmission siting; (4) market rules; (5) PUHCA and PURPA issues; and (6) tax code restrictions. Congress must focus its attention on these and related policy areas in order to achieve competitive and properly functioning electric markets that will ultimately provide real benefits to American consumers. Transmission Jurisdiction

The White Paper suggests that the Commission should have jurisdiction over all transmission, whether bundled or unbundled, and that the Commission's jurisdiction should be extended to public, cooperative and federal utilities.This is an essential element for any proposed energy legislation.

Full, non-discriminatory open access to transmission services is a necessary condition for the development of competitive wholesale bulk power markets. However, certain impediments to full open access remain. One such impediment is that a significant portion of the nation's transmission grid is owned and operated by utilities not subject to FERC's open access requirements. I would support legislation that extends the Commission's open access regulatory authority to non-public utilities that own, operate, or control transmission facilities, including Federal Power Marketing Administrations, the Tennessee Valley Authority, municipal utilities, and cooperatively-owned utilities. I note that S. 1273, introduced in the 106th Congress by Senator Bingaman, would extend Commission authority in this manner. I have previously stated this sentiment in testimony before this Committee on April 27, 2000.

The Committee's White Paper also calls for legislation affirming the. Commission's authority to order utilities to join regional transmission organizations (RTOs). In the Commission's Order No. 2000, issued on December 20, 1999, we concluded that the Commission has sufficient authority, pursuant to the Federal Power

Act, to order a public utility, on a case-by-case basis, to participate in an RTO upon finding, and where supported by the record, that the public utility is engaging in unjust, unreasonable, unduly discriminatory or anticompetitive practices, and that participation in an RTO is a reasonable remedy for such behavior. However, the FPA is not express with regard to the Commission's authority to order utilities to participate in RTOs. Therefore, I agree with the premise in the White Paper that legislation is needed to affirm the Commission's authority. If the Commission determines that it must resort to mandatory RTO participation, such legislation would allow the Commission and the industry to avoid costly and time-consuming litigation of the Commission's authority. Finally, the White Paper states that interconnection rules should be clarified in order to ensure that new sources of generation are able to interconnect to the transmission system. I agree with the contention that interconnection-related issues need to be addressed. In recent orders we have stated our intent to evaluate in the near future the importance of standardizing interconnection policies and procedures.

Reliability

The White Paper contends that legislation should authorize a system for assuring the reliability of the grid that: (1) is mandatory, (2) requires sanctions and penalties for failure to comply with reliability rules, and (3) is subject to federal oversight. I believe that the voluntary reliability system, which has been in place for over three decades, should be replaced with one in which a self-regulated independent reliability

organization, with oversight by the Commission, establishes and enforces mandatory reliability standards. I believe such a change in the manner in which the reliability of the interconnected grid is overseen and managed is required in order to ensure a competitive bulk power market. S. 2071, a stand-alone measure to promote the reliability of the nation's transmission system which was approved by the Senate during the 106th Congress, established such a self-regulated independent reliability organization, with oversight by the Commission. S. 388 and S. 597, introduced in the current Congress, include similar provisions. I wholeheartedly support these provisions.

Transmission Siting

I agree with the basic premise articulated in the White Paper that the goal of a national grid may be unattainable absent a new approach to transmission planning, expansion, and siting. Currently, under the Federal Power Act, the Commission has no role in the permitting and siting of new transmission facilities. I believe that shortages of transmission are no longer just single state issues; instead, these shortages have become interstate commerce issues that must be addressed by the federal government.

The White Paper proposes to use federal eminent domain as a backstop to a cooperative, regionally-based approach to transmission and siting issues. In essence, the proposed legislation would grant FERC eminent domain authority, which we, in turn, would be allowed to cede to regional regulatory compacts. My primary concern with this approach is that it could result in costly and inefficient duplication of processes, records, and efforts by the various decisional authorities involved in transmission siting. As we have seen with the Commission's hydro power licensing program, for example, it is very difficult to build speed into a process over which several entities exercise jurisdiction. While the Commission has made great progress in streamlining cumbersome processes in this regard, I would caution the Committee about initiating a new regime for transmission siting that could easily be mired in bureaucratic wrangling.

My recommendation would be for FERC to be granted Federal eminent domain authority similar to the authority the Commission exercises with respect to the siting of interstate natural gas pipelines under the Natural Gas Act. The Commission could build into its implementation of such legislation procedures to ensure cooperation and regional input. I believe this more centralized approach is necessary from an efficiency standpoint, and will result in less bureaucracy, more timely decisions, and lower costs for transmission providers and consumers. Furthermore, I am not advocating that the Commission should have siting authority for electric distribution lines or power plants. I believe the states are best suited to make those determinations.

Market Transparency Rules

The White Paper asserts that FERC and the Energy Information Administration should be granted clear authority to collect and publish appropriate transactional data, while protecting proprietary information. I strongly believe that transparency acts as an effective deterrent to market power by allowing regulators and the public to monitor the marketplace for abuses. The lack of accurate, timely, and easily accessed pricing information can impede competition and liquidity; and for that reason, I have supported many FERC initiatives aimed at expanding the range of publicly available transactional information. I am pleased that the Committee recognizes the relationship between strong market transparency rules and effective regulation.

PUHCA and PURPA Issues

The White Paper proposes the conditional repeal of both the Public Utility Holding Company Act (PUHCA) and the mandatory purchase requirements of the Public Utilities Regulatory Policy Act (PURPA). The repeal of PUHCA would be subject to the Commission being given enhanced authority to address market power problems, and both the Commission and the states being given greater access to the books and records of holding companies. The repeal of PURPA's mandatory purchase requirement would be subject to new provisions that would remove disincentives for renewable generation sources.I support the prospective repeal of PUHCA on the condition that the Commission and state authorities have sufficient access to books and records of all companies in a holding company system. I also support an unconditional prospective repeal of the mandatory purchase requirement in Section 210 of PURPA.

Tax Code Restrictions

Current tax laws impede certain public power and cooperatively- owned utilities from fully participating in the development of regional transmission organizations. One such example is the Internal Revenue Service Code's "private use" restrictions on the transmission facilities of public power entities financed by tax- exempt bonds. Such restrictions may prevent the transfer of operational control of existing transmission facilities financed by tax-exempt bonds to a for-profit transmission company. I believe it is crucial that public power and cooperative entities, which constitute such an important part of the nation's electric system, participate fully in RTOs. In fact, in Order No. 2000, the Commission stated explicitly that a properly formed RTO should include all transmission owners in a specific region, including municipals, cooperatives, Federal Power Marketing Agencies, Tennessee Valley Authority and other state and local entities. Participation by these entities will enhance the reliability and economic benefits of RTOs.

The Committee's White Paper notes that tax code restrictions will prevent public power entities from engaging in certain structural changes and states that these provisions should be repealed. I agree with this finding and urge Congress to take the necessary steps to eliminate these and other impediments to the formation of fully functioning RTOs and electric markets.

Conclusion

Comprehensive federal electric legislation is needed to address important and unresolved issues in the restructuring of the electric industry. The Commission must have sufficient authority to advance its goals of achieving fair, open and competitive bulk power markets.. Current impediments to the development of such markets must be removed as quickly as possible so that the intended benefits of restructuring for the American consumer ultimately may be realized.



LOAD-DATE: July 31, 2001