SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 3024 words

COMMITTEE: SENATE ENERGY AND NATURAL RESOURCES

HEADLINE: NATIONAL ENERGY POLICY

TESTIMONY-BY: WILLIAM M. NUGENT, COMMISSIONER,

AFFILIATION: MAINE PUBLIC UTILITIES COMMISSION

BODY:
July 25, 2001

BEFORE THE UNITED STATES SENATE ENERGY AND NATURAL RESOURCES COMMITTEE

TESTIMONY OF

WILLIAM M. NUGENT COMMISSIONER, MAINE PUBLIC UTILITIES COMMISSION PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS

ON

"S. 388, S. 597, White Paper on Electricity Legislation, and S. 1273, S. 2098 from the 106 'h Congress"

Mr. Chairman and Members of the Committee:

Good morning. My name is William M. Nugent. I am a Commissioner on the Maine Public Utilities Commission and President of

the National Association of Regulatory Utility Commissioners, commonly

known as NARUC. 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 assure 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. I greatly appreciate the opportunity to appear again, on behalf of NARUC, before the Senate Energy and Natural Resources Committee.

Today I have been asked to comment on S. 388 and S. 597 from the 107th Congress and S. 1273 and S. 2098 from the 106th Congress. Additionally, I have been asked to comment on a White Paper containing a legislative proposal for the Committee. I believe NARUC witnesses have testified a number of times, during the last Congress, and are on record with regard to S. 1273 and S.2098, therefore I will limit my remarks to S. 388, S. 597, and the White Paper.

Transmission Jurisdiction

NARUC supports legislation affirming State authority to regulate retail power delivery regardless of the facilities used (transmission or distribution). We oppose the expansion of FERC jurisdiction to include unbundled retail transmission service. It is our position that States should retain authority to establish retail transmission rates unless the State tariffs violate Federally determined open-access, non-discriminatory, competitive

transmission policies. FERC should continue to have ratemaking authority for interstate wholesale transactions and should have jurisdiction over transactions between suppliers and retail customers located in different States. However, States should be authorized to form voluntary regional bodies to address regional transmission system issues and FERC should be required to defer to States acting on a regional basis.

States have an important stake in how retail services over transmission facilities are provided. Transmission facilities were approved by state governmental entities, and importantly have been paid for by retail customers. However, we are keenly aware of the interstate commerce implications of transmission service and we believe that the issue of transmission jurisdiction is correctly being adjudicated before the Supreme Court. Therefore, NARUC would respectfully recommend that Congress follow precedent and allow the Court to rule on this issue prior to taking legislative action.

States should be primarily responsible for expeditiously handling retail complaints alleging undue discrimination in the market place. Appeals by market participants could then be made to FERC.

NARUC supports legislation leading to voluntary formation of Regional Transmission Organizations (RTOs), with deference given to States in RTO development and to States acting collectively on a regional basis. Congress should develop a mechanism for States to address ongoing concerns in RTO functions after the initial RTO development period. State interests include reliability, market monitoring, pricing, congestion management, planning and interregional coordination. Additionally, Congress should provide for a State commission advisory role in RTO governance that allows for deference to State commissions that reach consensus concerning governance issues within a region.

NARUC supports legislation establishing national interconnection and power quality standards, developed and adopted by appropriate technical standards organizations, such as the Institute of Electrical and Electronics Engineers, Inc., for generating facilities by a date certain. However, the States should have the ability to adopt these rules or more tailored rules that a State chooses.

NARUC further 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 divesting.

For the reasons I just iterated, NARUC has serious concerns with the White Paper section on transmission jurisdiction and must respectfully oppose legislation based upon the language included in this section of the White Paper. Reliability

NARUC continues to support the NERC process and legislation that establishes mandatory compliance with industry-developed reliability standards and provides explicit authority to FERC and the States to cooperate to enforce those standards. NARUC also supports legislation that includes workable mechanisms to support energy efficiency programs that enhance reliability.

The reliability of the nation's electric system is one of the most important issues in this debate, and NARUC believes that Federal legislation must indeed address reliability. Enforcement of operational standards and criteria should be supervised by the FERC in cooperation with the States through existing state authority, joint boards, or other mechanisms. Enforcement of compliance with planning and system adequacy standards should rest first with the States and regional bodies. Congress should explicitly affirm the public interest in transmission grid reliability and the need for mandatory compliance with reliability standards.

Federal legislation should also facilitate effective decision- making by the States and recognize the authority of the States to create regional mechanisms including but not limited to inter- state compacts, or regional reliability boards, for the purpose of addressing transmission reliability issues. NARUC cannot support reliability language that fails 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 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 come on. Additionally, because of this responsibility, State officials and State regulators are particularly concerned with the ability to promote actions that ensure uninterrupted electricity service.

NARUC believes that 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. Therefore, NARUC supports the reliability provisions on these points found in S. 388 and S. 597 and commends both you, Mr. Chairman, and Senator Murkowski for including these two provisions in your respective bills.

Rates and Market Power

Congress should not preempt jurisdiction in the States to address market power concerns, including the authority to require behavioral and structural remedies to address excessive market power. NARUC advocates a continuum of options, such as accounting conventions and codes of conduct, for the mitigation of market power, and urges Congress to preserve State flexibility to use these options as needed.

Legislation should clarify: 1) the authority of the States to require and police the separation of utility and non-utility, and monopoly and competitive businesses, and to impose affiliate transaction and other rules to assure that electric customers do not subsidize non-utility ventures; 2) that States have authority to require the formation of appropriate State, territory, and regional institutions where necessary to ensure a competitive electricity market; 3) as market power abuse may require the application of well-tailored structural solutions, legislation should clarify the States are authorized to require divestiture where appropriate and necessary; and 4) that State regulators have authority to ensure effective retail markets and should eliminate any barriers to the exercise of that authority by the States.

We believe these legislative suggestions should be included in both S. 388 and S. 597. Additionally, NARUC is concerned that the White Paper implies preemption of State market power jurisdiction by remaining silent on any role for the States.

Regional Planning and Siting

The main impediment to siting energy infrastructure is the great difficulty in getting public acceptance for needed facilities. Quite frankly, this tells us that no matter where siting responsibility falls, with State government or the Federal government, siting energy infrastructure will not be easy and there will be no "quick fix" to this situation.

NARUC believes that the States should do more to improve upon the tremendous success story of the nation's electricity infrastructure. States exercising jurisdiction over the siting and certification of transmission facilities should not discriminate against interstate facilities, meaning that in general, interstate facilities should be sited, certificated, and otherwise regulated under the same standards and procedures as intrastate facilities.

NARUC is strongly opposed to Federal eminent domain and siting authority. However, NARUC supports voluntary regional bodies that permit the States in which an interstate transmission facility is proposed to be sited, to issue certificates authorizing the construction of the proposed facility through collective decisionmaking. If States choose to retain certification authority for themselves, there should be agreed upon mechanisms to resolve disputes where individual States involved have come to conflicting and/or inconsistent determinations in their respective deliberations. These voluntary regional bodies could: address siting of transmission; identify regional bulk power market needs for State siting agencies to consider in their respective deliberations; and, plan for the construction of new interstate transmission facilities.

Congress should affirm that States have the primary authority to establish, operate and govern these voluntary regional siting bodies, and the Federal Energy Regulatory Commission (FERC) could act as an appropriate "backstop" authority where States or regions fail to act. Additionally, Congress should provide an explicit grant of authority to the States and FERC to act in cooperation.

Because the White Paper develops a necessity for FERC siting authority we must strongly oppose the provisions of this section that contemplate such authority going to FERC. While NARUC is supportive of the concept of a voluntary regional approach, NARUC is equally in opposition to the proposal found in the White Paper that contemplates FERC preemption of the regional bodies and the non-voluntary nature of the White Paper proposal. Additionally, as a matter of public safety, the States should continue oversight of-maintenance requirements.

Market Transparency Rules

Many regional electric markets throughout the country have experienced price spikes of unusual and unexpected proportions. These price spikes have led to curtailment or shutdown of operations of some large industrial customers and to increased prices for smaller commercial and residential customers.

The high market price volatility has raised concerns about the integrity of the markets, leading to calls from numerous participants, consumers and policy makers for heightened monitoring of these markets by regulatory bodies. In order to identify corrective policy options to assure the public of the competitiveness and efficiency of the developing wholesale electricity market and its prices, regulatory bodies need access to data such as production for generating plants, transmission path schedules and actual flows._

The electric industry restructuring efforts of the Federal government and the various States are based upon an assumption that wholesale markets are workably competitive. To that end, policy makers must have the ability to provide confidence to an already skeptical and uneasy public that the market is not being "gamed." This confidence can only be provided if regulators are able to access the data necessary to ensure that the market is functioning in a truly competitive fashion. To the extent data is currently shared among market participants for purposes of reliability, it should also be available to regulators and the public.

NARUC supports legislation recently introduced by Senator Wyden and co-sponsored by Senator Burns as an effective way to ensure both Federal and State regulators have the information necessary to adequately monitor wholesale electricity markets and to assure proper access to such information. NARUC believes this legislation would provide great benefits to the market and its customers and should be included in any comprehensive energy bill.

PUHCA and PURPA

NARUC has adopted resolutions that support Congressional action to address the Public Utility Holding Company Act (PUHCA) and the Public Utility Regulatory Policies Act (PURPA) provided certain conditions are met. In the case of PUHCA, we believe that Congress could substantially streamline the statute (while providing State commissions and FERC enforceable access to holding company books and records, such as in sections 814 and 815 of S. 389) only as part of a broader legislative effort to restructure the utility industry. With respect to PURPA, we would support prospectively repealing the utility mandatory purchase requirements, conditioned upon the development of competitive electric markets and as part of broader restructuring legislation, not as a stand alone initiative.

As a general matter, it is NARUC policy that neither PUHCA nor PURPA should be repealed on a stand-alone basis or in a vacuum. NARUC believes that relief from these statutes should be contingent upon the development of competitive markets as determined through a State commission supervised restructuring program.

I wish to address a specific concern with S. 388. Section 803 is intended to protect prior PURPA contracts by preempting State ratemaking authority. Specifically, it restricts the ability of State commissions to require utilities to take steps to mitigate stranded costs that may result from abovemarket contracts. Section 803 of S. 388 would leave little incentive for utility companies to minimize costs passed through to customers, holding harmless utilities and qualifying facilities.

Consumer Information and Protection

As we have seen in restructured telecommunications markets, the movement to competition in retail energy markets will require State regulators to be especially vigilant on such consumer protection issues as slamming (unauthorized switching of consumers to alternative service providers) and cramming (charging consumers for services they did not request).

Complaints to State commissions about utility service quality and about specific practice have burgeoned in recent years. Most States have expanded their customer service programs. Many State legislatures have adopted tough new laws to protect customers from practices such as slamming and cramming. Through NARUC and the National Regulatory Research Institute, State commissions have worked together to develop creative and effective new customer education and protection programs. NARUC has strongly supported policies to provide consumers with price and environmental impact information concerning their electricity consumption. These efforts strengthen competition, especially for small business and residential customers by giving customers the confidence they need to participate in energy markets and by keeping the bad apples out of the energy market barrel.

Federal restructuring legislation must not interfere with State efforts " to protect consumers, either by preempting State authority or precluding States from adopting more protective standards in areas where Federal standards apply.

Public Benefits

NARUC continues its insistence that public benefits programs must be included in any federal legislation, however we believe that further study of societal costs and benefits is warranted prior to NARUC supporting any particular implementation or funding mechanism for the continued support of public benefits programs.

Tax Provisions

NARUC has taken no position on the tax provisions described in the White Paper or in S. 388 and S. 597.

In conclusion, I would like to thank the Chairman, the Ranking Member and the Committee for giving me an opportunity to appear on behalf of NARUC. On the jurisdictional issues where consensus is difficult to reach, such as siting RTO membership and retail transmission, we would urge the Committee to defer to the courts and FERC to wrestle with these issues. In other critical areas such as enforceable reliability standards, uniform interconnection rules and development of market monitoring tools, we urge the Committee to move forward with legislation to serve the goal of establishing workably competitive and transparent wholesale power markets.

Thank you for your attention, and I look forward to any questions the Committee may have.



LOAD-DATE: July 26, 2001