Even with the changes that have been spurred by the factors discussed in the previous chapter, there are still statutory and regulatory limitations at both the Federal and State levels⁽¹⁾ on how quickly and how far restructuring can proceed. This chapter examines the restructuring initiatives of the U.S. Congress. A number of bills were introduced in the 106th Congress as well as in the past two Congresses which dealt with the deregulation of the electricity industry. Hearings, debates, and panels were held to determine the issues that must be addressed and decided. All groups associated with the electric power industry have been given a chance to be heard. As of July 1, 2000, 18 legislative proposals dealing with the electric power industry were pending in the House of Representatives and 13 in the Senate.⁽²⁾ Some of these bills addressed all of the issues surrounding the restructuring of the industry and are considered "comprehensive" legislation. Others addressed several closely related issues and still others concentrated on just one of the issues, for example bulk power reliability or tax-exempt financing by governmentally owned utilities. The latter have come to be known as "stand-alone" restructuring legislation. Stand-alone proposals receive strong support among some groups because they believe that this type of legislation can move through the legislative process quickly while others contend that this is a short-sighted and unsatisfactory "piece-meal" approach.

The Clinton Administration has been pressing Congress to reach consensus and enact comprehensive legislation without further delay.⁽³⁾ The Administration has stressed that more delays will result in a significant decrease in the reliability of the Nation's supply of power due to the ever-increasing demand for electricity coupled with the fact that needed investments in new generating capacity are being stymied due to investors' uncertainties during the industry's transition. The Administration had also made it known that, although reliability is at the forefront of the critical issues, they were not in support of a stand-alone bill that addressed reliability. However, some committee members stressed the necessity of such action if a workable comprehensive proposal could not be ironed out quickly. Consequently, the Senate Energy and Natural Resources Committee came to a decision in late June, 2000 to end their pursuit of comprehensive restructuring legislation because it was unlikely that it could be promulgated before the current Congress ends. Instead, they unanimously reported the stand-alone reliability legislation introduced by Senator Slade Gorton (R-WA).⁽⁴⁾ This bill ". . .would pave the way for FERC to designate the North American Electric Reliability Organization . . . as the developer and enforcer of electric reliability standards in the United States, under Federal Energy Regulatory Commission (FERC) supervision. The Committee approved the bill with an amendment that reflects industry consensus on State vs. Federal jurisdiction over reliability."⁽⁵⁾

On the House of Representatives side, Commerce Committee members have stated that they are still hoping to move ahead with a full-committee mark-up of a comprehensive bill before the end of this year's session.⁽⁶⁾ This bill was the only comprehensive proposal to move forward in the 106^th Congress. The reason for this seeming lack of progress can be attributed to the fact that reaching compromise and consensus on the number of issues involved in restructuring the electric power industry is a monumental task. The inset box below lists the major issues that have been considered and debated.

Underlying each of these issues are complex details which must be addressed. In addition, the pro and con arguments of a vast number of stakeholders with diverse interests have been heard and must be taken into account. The committee members themselves have been divided on various issues and must make decisions that will benefit not only the national economy and the industry, but also their varied constituencies. For instance, members who represent States or districts that already enjoy lower than average rates for electricity are concerned that certain actions, which may benefit the Nation as a whole, could result in an increase in rates for their electorate.

Major Issues Under Debate

The following paragraphs detail several of the more controversial of the issues mentioned above (reliability, regional transmission organizations, a renewable portfolio standard, and repeal of the Public Utility Holding Company Act of 1935 ( PUHCA) and the Public Utility Regulatory Policies Act of 1978 (PURPA)) followed by a synopsis of the Clinton Administration's Comprehensive Electricity Competition Plan.

Reliability
Voluntary compliance by electric utilities with procedures for ensuring the reliability of the power system, which were established by the North American Electric Reliability Council (NERC) and its member Regional Reliability Councils, has worked effectively over the past three decades. However, with the emergence of competition and the multitude of changes taking place in the industry over the past few years, industry leaders and government officials are concerned that the reliability of the system may be threatened. Many officials believe that a voluntary approach is no longer adequate, and that Federal legislation establishing mandatory reliability rules is required to ensure that competition does not compromise the reliability of the transmission system. A number of House and Senate bills contain provisions that would lead to mandatory reliability standards for electric utilities to follow.

Administration and enforcement of mandatory reliability standards is also an issue. One approach suggested in pending Federal legislation, would be to create an independent reliability organization, such as NERC, with FERC having some sort of oversight responsibility for establishing the reliability standards. The appropriate role of the States in establishing and enforcing standards is also an issue. State regulators want to maintain some control over the quality of service received by customers in their respective States. Federal legislation dealing with reliability will have to address, in some manner, the appropriate organization structure for enforcing reliability standards, and jurisdictional authority between Federal and State regulators.

In August of 1999, Secretary of Energy Bill Richardson formed DOE's Power Outage Study Team. The Team's purpose was to study significant electric power outages and other disturbances that occurred across the Nation during the summer of 1999 and to recommend appropriate Federal actions to avoid electric power disturbances in the future. The first step was to meet with relevant utilities, independent system operators, and regulators in areas where outages and disturbances occurred. The Team's findings were published in an Interim Report issued in January 2000. Subsequently, three workshops were held to solicit recommendations from electric industry stakeholders on possible approaches to address the issues raised by the Team's findings. A Final Report was given to the Secretary on March 13, 2000, containing the Team's findings along with 12 recommendations for Federal lawmakers. Secretary Richardson stressed that "Congress must move ahead to make changes in the Federal statutory framework to provide the certainty that is needed to achieve reliable electric service in competitive wholesale and retail markets."⁽⁷⁾

Regional Transmission Organization Issues
In December 1999, FERC released Order 2000 calling for the voluntary formation of regional transmission organizations (RTOs). FERC believes that RTOs will facilitate the continued development of competitive wholesale power markets and will lead to improvements in reliability and management of the transmission system. (Chapter 7 has a detailed discussion of Order 2000). In order for an RTO to be fully effective, all of a region's transmission system must be controlled by the RTO. Its effectiveness and the benefits cannot be achieved if portions of the transmission system are left out.

Although voluntary participation in RTOs was requested, FERC has determined that it has the authority under Sections 205 and 206 of the Federal Power Act to order public utilities, primarily investor-owned utilities, to participate in RTOs on a case-by-case basis, if necessary, to remedy undue discrimination or anticompetitive activities of electric utilities. FERC believes that Federal legislation is needed to reinforce the Commission's authority to order public utilities to participate in an RTO, if the voluntary approach does not succeed. The above authority refers primarily to investor-owned utilities. To cover the entire transmission grid, FERC also needs similar authority with respect to municipal electric utilities, rural cooperatives, and Federally owned utilities.

Renewable Portfolio Standard
There have been a number of proposals for a renewable energy portfolio standard. Such a standard would require that any company selling electricity in a competitive market include some amount of renewable energy as part of its portfolio of generating fuels. The portfolio standard would more or less be competitively neutral, i.e., it would have to impose an equal obligation on any company selling electricity in any State.

Definitions would have to be made regarding which renewable resources were eligible. For instance, the Clinton Administration does not include hydroelectricity in the renewable portfolio section of its restructuring proposal. Purchase requirements would have to be decided upon, and the level of the standard needs to be determined. In addition, enforcement of the standard would have to be addressed as well as penalties for failure to meet the standard.

The main differences among the various renewable portfolio standards proposals are the required renewable share, the timing of the program, the definition of qualifying facilities, and whether or not there is a limit (cap) on the allowable price for renewable credits. For example, the Administration's proposed Comprehensive Electricity Competition Act, submitted to Congress on April 15, 1999, includes a Federal renewable portfolio standard that would apply to all U.S. electricity suppliers. The key provisions of the Act that pertain to a renewable portfolio standard are:

The required renewable share of electricity sales would be set at 2.4 percent for the years 2000 to 2004, increase to 7.5 percent by 2010, and then remain at 7.5 percent through 2015, after which it would expire (sunset).

Qualifying renewables would include geothermal, biomass (including biomass used in coal-fired plants), solar thermal, solar photovoltaic, wind, and the portion of municipal solid waste (MSW) that consists of biomass products.

The price for renewable credits would be capped at 1.5 cents per kilowatthour. If the market price for the credits rose above the cap, electricity retailers would be able to purchase credits from the U.S. Department of Energy (DOE) at the 1.5-cent price (with the resulting revenues deposited in a Public Benefits Fund). In that event, the qualifying renewable share actually achieved would fall below the required 7.5-percent share.⁽⁸⁾

Critics believe that a renewable portfolio standard will increase costs to consumers. They also argue that customers and the market should be able to select what types of electricity sources are used rather than be mandated to select one over another. These critics also say that promulgating a portfolio would also provide an unfair market advantage to renewable energy technologies. However, supporters argue that the portfolio standard would help diversify the Nation's energy supply and would promote environmentally-benign forms of electricity. Supporters further argue that fledgling renewable energy industries would receive a much-needed boost with an increased market demand for renewables.

Repeal of PUHCA
Although the relevancy of PUHCA's provisions are in question today due to the current transitional state of the electric power industry, there is little question that 6 decades ago PUHCA achieved what it was designed to do--break up large, powerful trusts that abused their powers over the Nation's electric and gas distribution networks. However, in today's environment of increasing electric industry competition, there are those who believe that PUHCA's regulations are antiquated and are now impeding the transition to competition. Conversely, others believe strongly that, until the industry completes the transition, PUHCA's regulations must stay in effect in order to protect consumers.

Over the years, the petition for PUHCA repeal has, for the   most   part,   been  based  on  two  arguments--that PUHCA has already achieved its goal of restructuring in order to make holding companies manageable and regulated, and that it has been rendered obsolete because of changes that have occurred in the latter part of this century which preclude the holding company abuses of yesterday.⁽⁹⁾ They are as follows:

• The development of an extensive disclosure system for all publicly held companies
• The increased competence and independence of accounting firms
• The development of accounting principles and auditing standards and the means to enforce them
• The increased sophistication and integrity of securities markets and securities professionals
• The increased power and ability of State regulators.⁽¹⁰⁾

Supporters of stand-alone PUHCA-repeal legislation believe that speedy passage is of utmost importance, given the rapidly changing makeup of the electric industry. They contend that the current PUHCA provisions prevent all companies from competing on a level playing field, which some believe is a necessity in a competitive market. Under the prevailing law, the SEC imposes the business and financial restrictions which companies feel are unfair in the current changing environment. The major restrictions include the following: prices for wholesale and retail transactions are set by FERC and State utility commissions, respectively; registered holding companies need SEC approval to own electric and gas operations; mergers and acquisitions require regulatory approval; and the types of businesses in  which  registered  holding  companies  may  engage are severely limited, although exempt wholesale generators (EWGs) do not have the same limitations. While other comprehensive energy legislation that has been introduced contains provisions to repeal PUHCA along with provisions aimed at addressing other restructuring issues, certain interests feel that such comprehensive proposals will take far too long to move through the system. They argue that repeal of PUHCA must be promulgated now through stand-alone legislation.

Those who are against outright repeal of PUHCA are not arguing that the Act should remain in effect in an open market atmosphere. Rather, they believe that the time is not yet quite right for its repeal. Until the Nation has completed the transition to a fully competitive market, the safeguards that PUHCA provides are necessary. They question the wisdom of removing vital consumer protection mechanisms and leaving the door open to anticompetitive practices by monopolies which are at present aggressively taking actions, such as merging and diversifying, perhaps to increase their market dominance. Most opponents of the legislative proposals to repeal PUHCA stress that what they are against is immediate, stand-alone action. Instead, they want to see well-thought-out, comprehensive restructuring legislation that will deal with all deregulation issues, including repeal of PUHCA.

Repeal of PURPA
PURPA was born of the energy crises of the 1970s, which resulted in an intense desire by Congress to reduce the Nation's dependence on foreign oil (and fossil fuels in general) and to diversify the technologies used for electricity generation. PURPA's goal was to cultivate conservation and the efficient use of resources.⁽¹¹⁾ It was successful in that it promoted cogeneration, the use of renewable resources, and other energy-efficient technologies, and it was fortuitous in that it also introduced competition by demonstrating that the generation of electricity is not a natural monopoly. But, like PUHCA, PURPA is now being targeted for repeal due to the industry's move to competition. There are many arguments on both sides of the debate over the prudence of eliminating  PURPA  immediately,  eventually,  or  not at all.

Proponents of stand-alone PURPA-repeal legislation contend that the Act's mandatory purchase obligation is grossly anticompetitive and anticonsumer--anticompetitive because the Government created an artificial market by mandating that utilities buy from QFs, and anticonsumer because numerous studies have estimated that the Act caused utilities (and ultimately, consumers) to pay billions of dollars over present market prices for power. They claim that, although the Act introduced competition, it can hardly be said that it did so in an atmosphere of free market participation, a basic tenet of economic theorists who stress that the rules and prices must be established by the market--not by the Government. In addition they assert that, because of EPACT's creation of EWGs and its incorporation of competitive policies, PURPA's QF concept has been overtaken by events, i.e., the industry now realizes that nonutilities can cleanly and efficiently provide additional generating capacity.

Those who want PURPA eliminated now say that its mandatory purchase clause is anticompetitive and is therefore impeding the transition to competition. Furthermore, QFs have been receiving long-run avoided-cost rates that today substantially exceed current market prices. These rates were based on past forecasts of sharply rising oil and natural gas prices as well as the expectation of future increases in the demand for electricity and construction of new generating capacity. By the late 1980s and early 1990s, however, oil prices had stabilized, natural gas prices had declined, and excess generating capacity in most regions of the country allowed utilities to buy capacity and energy at much lower prices than had been forecast a decade earlier. The utilities' actual avoided costs dropped lower than in the mid-1980s and were considerably lower than the levels required by the long-term contracts imposed by some State Commissions. Many utilities contend that PURPA has caused dramatic hikes in retail electric rates, and many groups along with these utilities now believe that new regulatory action must be taken to correct past misjudgments.⁽¹²⁾

Forecasters predict that future power generation will be dominated by natural gas. Reformers argue that, based on these forecasts, PURPA becomes irrelevant because natural gas-fired power generation is relatively inexpensive and the most environmentally benign of all the fossil fuels used in electric power generation. As mentioned earlier, some groups contend that PURPA is no longer necessary because its goals have already been achieved--i.e., cogeneration using improved turbine techniques and the use of renewable resources has not only gotten a foothold but has claimed a rather significant share of electric power production. Proponents of repeal further contend that PURPA's environmental and fuel diversification goals will be maintained by the workings of a free market while others are not so sure. Although they may agree that a free market can provide a solution to many of the industry's problems, they seriously question the wisdom of relying on competition to continue the strides made in the use of renewables and cogeneration techniques. Energy conservation and diversification of generating fuels were mandated by Congress because of the growing dependence on foreign oil and the Nation's concerns about the energy crises of the 1970s. Those fears have faded with the passage of time, but it is argued that it is not out of the realm of possibilities that another crisis could occur. Indeed, some believe that it would be shortsighted and irresponsible to regard energy shortages as merely nightmares of the past and to gamble on the unlikelihood of a similar recurrence. They argue that the Nation cannot be without the ability to cope with such a situation in the future.

Even if dependence on foreign energy sources was not an issue, PURPA supporters stress that common sense dictates that energy be conserved and that electricity generation use more environmentally benign fuels in order to sustain a certain quality of life for future generations.⁽¹³⁾ In addition, some believe that QF policy corrects a market failure--i.e., the price of fossil or nuclear energy is too low based on the costly damage it does to the environment and the fact that those who create the pollution do not pay for it. In this context, some argue that conservation, diversification of fuels, and the use of renewable resources that are not depletable and other fuels that lessen the problems of acid rain and greenhouse gases must continue to be supported.

In addition to PURPA's merits regarding the environment and fuel diversification, its supporters point out that QFs bring increased reliability while decreasing the need for large, costly plants. They contend that today's utilities have too much market power, which makes it necessary for PURPA to continue to give nonutilities a competitive advantage, and until every electricity generator is playing on a level field, PURPA's QF provisions are justified.

There are also those who believe that, while PURPA repeal might be warranted in a competitive electricity supply scenario, such a scenario has not been realized yet. Just as some PUHCA reformers are against immediate piecemeal and stand-alone action, some PURPA reformers believe that repeal should be included in a comprehensive restructuring bill. They argue that there is no need to push a stand-alone repeal bill through Congress when there is currently other proposed electricity competition legislation that will comprehensively address the restructuring and regulatory issues that warrant legislative action, including repeal of PURPA.

The Administration's Comprehensive Electricity Competition Proposal

The Administration released its revised version of the Comprehensive Electricity Competition Plan in April 1999. The 1999 Plan closely mirrors the Administration's 1998 proposal.⁽¹⁴⁾ Both are built on the premise that a competitive electric energy market will lower prices, encourage innovation, and allow customers a choice in electric energy suppliers. The Administration's Plan also aims to promote a clean environment, increase the reliability of the national power supply grid, and to aid low-income consumers, rural communities, and Indian tribes.⁽¹⁵⁾

Several issues that were not adequately developed in the 1998 Plan have since been included in the 1999 Plan. These are:

Conclusion
This chapter has examined Federal-level restructuring actions taken by the U.S. Congress. Table 8 lists the bills that have been introduced into the current Congress that deal with one or more aspects of restructuring the electric power industry.⁽¹⁹⁾ It is in chronological order (by date of introduction) and begins with the House of Representatives bills followed by the Senate bills. Appendix D provides a summary of each.⁽²⁰⁾ Further details about the status of the proposals and statements made by the committee chairmen, as well as the full text of the bills, can be accessed through the Library of Congress website at http://thomas.loc.gov. The following chapter discusses additional Federal-level initiatives--those taken by FERC concerning wholesale power markets and restructuring the U.S. transmission system. Subsequently, Chapter 8 analyzes State-level activities and Chapter 9 looks at investor-owned utility strategies, i.e., mergers, acquisitions, and divestitures.

• Table of Contents
• Chapter 5
• Chapter 7

Endnotes

20. Bills that are not passed during the current Congress must be reintroduced in the next Congress. Of those which are reintroduced, some will be amended while others may remain the same.