Gerald Garfield, Esq.
Day, Berry & Howard
Competition in the electric marketplace is not a novel issue to Congress. The controversy surrounding the federal role in restructuring the electric industry has stretched from the 104th Congress into the 106th, most notably with the introduction of a new bill by the Clinton administration on April 15, 1999. The Clinton bill has not, however, resulted in a new dawn for federal deregulation legislation. Through its failure to provide a tempting restructuring package to the various stakeholders, the Clinton deregulation initiative will likely follow the fate of its predecessors.
Deregulation of the electric industry is well underway at the state level, with virtually all of the states having some sort of restructuring activity. The Department of Energy`s (DOE) deregulation update as of April 1, 1999, reported 16 states had enacted legislation addressing deregulation, four states had issued comprehensive restructuring orders, four states had legislative action pending, and 25 states had ongoing administrative or legislative deregulation investigations. (Two states, Florida and South Dakota, were characterized as demonstrating no significant restructuring activity.) And although each of those states takes a somewhat unique approach to restructuring, they all share the same single goal-the creation of a competitive electricity marketplace that will result in lower prices for consumers. While all of this action has been occurring at the state level, however, Congress has been conspicuously absent from the deregulation arena in recent years. Indeed, in the 105th Congress alone, 12 different comprehensive restructuring proposals were introduced, seemingly capturing all ideologies and convictions found in the deregulation debate, but none of those proposals was able to garner any meaningful bipartisan support, resulting in confusion, and ultimately inaction, at the federal level.
The introduction of a new restructuring bill by the Clinton administration marks the continuation of debate in Congress over federal deregulation legislation. The Clinton proposal joins several bills held within the Congressional stalemate over the federal role in restructuring efforts.
With the Clinton bill, four comprehensive restructuring proposals have been introduced into the 106th Congress. The Clinton administration plan joins initiatives introduced by Representative Burr, Representative Stearns and Senator Craig. Representative Burr`s Power Bill, H.R. 655, Representative Stearns` Electric Energy Empowerment Act of 1999, H.R. 1587, and Senator Thomas` Electric Utility Restructuring Empowerment and Competitiveness Act, S. 516, follow a similar states` rights approach to instituting competition
The states` rights approach focuses on removing federal impediments to any state choosing to implement deregulation. States are not, however, required to restructure their electricity markets. Burr, Stearns and Craig focus on amending the Federal Power Act to clarify the right of a state to undergo deregulation. Clarifications include the right of a state to impose reciprocity conditions, to dictate charges to fund stranded cost recovery, to establish reliability standards and to promote renewable energy resources. The bills provide for the repeal of the Public Utility Holding Company Act (PUHCA) and purchase requirements of the Public Utility Regulatory Policies Act (PURPA). Stranded cost recovery is not dictated, but rather left up to the individual states.
The Clinton administration proposal, the Comprehensive Electricity Competition Act, closely resembles the administration bill introduced in the 105th Congress. The key features of the bill remain the same, including repeal of PUHCA and the repeal of future purchase requirements of PURPA. Retail competition would be mandated for states by January 1, 2003, unless the state regulatory agency opts out. The bill also retains permissive stranded cost recovery language, but fails to require states to institute mandatory stranded cost recovery programs.
New additions to the bill include environmentally friendly sections such as the renewable generation percentage increase from 5.5 percent in last year`s proposal to 7.5 percent this year. The bill would allow a customer who pays a state-imposed charge for funding stranded costs to receive a reduction based upon use of electricity generated from selected renewable energy resources. Renewable energy credits also would be granted for each hour of energy generated through renewable energy resources on Indian Land.
The bill also includes new provisions to address equality of service among consumers.
A utility must agree to offer electricity service to low-income consumers as a condition of competition within a state. Concerns regarding reliability of service for rural and remote communities are addressed through grants. The bill would also provide tribal energy assistance and establish an office of Indian Energy Policy and Programs within DOE.
Unfair trade practices and prohibitions against consumer slamming have been added to the proposal. The bill would require DOE to establish a residential electricity consumer database to offer comparisons of providers` rates, terms and conditions of service. The bill would require that the database be available to the public, and it specifically mentions publication on the Internet.
The standards for establishing an Electric Reliability Organization have been strengthened through the use of more concise requirements and definitions. The bill would also create an Electricity Outage Investigation Board, as well as a Generating Plant Efficiency Study. DOE is required to develop and circulate to the states a Model Code for the regulation of retail suppliers to ensure consumer protection and a Model Code, that establishes standards for electric utility workers to secure both safety and reliability of facilities.
The most notable additions to this year`s bill are the provisions addressing the Tennessee Valley Authority and the Bonneville Power Administration under a deregulated market. Many deregulation proposals have failed to address the fate of the federal power agencies under restructuring. Under Clinton`s bill, the agencies would be opened to competition and be able to recover stranded costs under a surcharge on transmission.
Critics of last year`s administration bill commented on the lack of details included within the restructuring plan. The revised proposal answers this criticism by building on last year`s proposal with greater precision and clarification. Many industry officials, as well as lawmakers, have criticized the bill for developing too broad a regulatory scheme. Critics contend that the Clinton bill increases the federal role in restructuring and adds more regulations for states, rather than simply lifting the obstructions faced by the states in creating deregulated markets. The bill has been characterized as a “re-regulation” rather than a deregulation of the electric industry.
As in the past, the Clinton bill`s omission of a stranded cost recovery mandate has led to opposition by members of the utility industry. Individual congressmen and senators remain sharply divided over stranded costs and the role that federal legislation should play in their recovery. Consumer advocates have sharply criticized past federal initiatives, which guarantee or provide for any recovery of stranded costs. States have also expressed a reluctance to turn over the issue of stranded cost recovery to a sweeping federal law, preferring to rely upon state-created solutions. Yet, many utilities argue that a “regulatory compact”, in which payment of stranded costs would be a condition precedent to deregulation, is a necessity to ensure a balanced competitive market. The administration`s treatment of this issue, encouraging stranded cost recovery but leaving the ultimate decision to the states, is a pragmatic political approach to this controversial area.
The renewable portfolio standard of 7.5 percent is also a source of contention for many lawmakers and industry officials. The standard proposed last year by Clinton, 5.5 percent, failed to generate much support and the increase in this year`s bill drew almost immediate fire and public ridicule. Comments from lawmakers indicate that the high renewable portfolio percentage may well be the sticking point for the legislation. Senator Murkowski, Chair of the Senate Energy and Natural Resources Committee, has gone as far to call the renewable requirement “absurd”.
Another point of controversy in the renewable debate centers upon the exclusion of hydropower as a renewable energy source. Last year`s bill included hydropower under the renewable energy portfolio standard. Lawmakers and members of the hydropower industry have blasted this new exclusion particularly in light of the fact that hydropower currently produces half of the renewable energy generated in the United States.
Generally, the response of Congress to the Clinton proposal has not been overwhelming. A common view among lawmakers is the hope that the administration proposal will build momentum for any congressional action on deregulation. In comparison to last year`s medley of federal deregulation initiatives, however, currently the 106th Congress has a limited restructuring plate before it.
The congressional impasse over restructuring efforts has not been removed by the introduction of any of the comprehensive deregulation proposals. This leads to the inevitable conclusion that a successful federal restructuring bill must result from a congressional compromise composed of key components from the variety of bills paraded before Congress in the 106th and past sessions. The possibility and timing of such a compromise measure remains uncertain.
Gerald Garfield is a partner in the administrative and regulatory law department of Day, Berry & Howard in Hartford, Conn., specializing in utility and energy law.
The congressional impasse over restructuring efforts has not been removed by the introduction of any of the comprehensive deregulation proposals.