Federal restructuring plans wilt under summer heat waves

Gerald Garfield

Tara Hart-Nova

Day, Berry & Howard LLP

Federal deregulation of electricity has created a perpetual stalemate in Congress. Despite media reports of signs of momentum on Capitol Hill, Congress continues to falter when faced with restructuring legislation. The lack of federal presence in restructuring, combined with the active restructuring role undertaken by states, has left Congress grasping for suitable compromise legislation.

The most recent attempt at compromise was a bipartisan effort introduced by Representative Largent, a Republican from Oklahoma, and Representative Markey, a Democrat from Massachusetts. The Largent/Markey bill, H.R. 2050, received positive public comments, but it has not yet become a catalyst for federal restructuring.

The Largent/Markey proposal joins several other comprehensive deregulation bills that have become victims to congressional deadlock. The bills pending before Congress have received limited public attention, with the notable exception of the Clinton administration initiative. Interestingly, the Largent/Markey bill closely resembles the Clinton administration plan.

The key similarities between the Largent/Markey bill and the Clinton proposal include: the flexible mandate for states to “opt out” of restructuring (albeit with a deadline for competition of January 1, 2002); repeal of the Public Utilities Holding Company Act (PUHCA) 18 months after enactment; and repeal of the Public Utilities Regulatory Policies Act (PURPA) on the day of enactment. The Largent/Markey bill has a permissive stranded cost recovery provision, which allows states the power to determine the amount of recovery. However, unlike the Clinton bill, it includes a grant of authority for states to impose a non-bypassable charge to fund any such recovery.

The Largent/Markey bill differs slightly from the Clinton administration proposal in four key areas. First, the Largent/Markey proposal protects states by grandfathering all state deregulation statutes enacted by January 1, 2001. This provision guarantees the Largent/ Markey proposal more marketability with states than the Clinton bill, which has no grandfather provision. It could assist Congress in attracting support from states that are reluctant to accept federal action in restructuring.

Second, the Largent/Markey initiative offers a mandatory three percent renewable generation portfolio percentage, as compared to the Clinton bill`s controversial 7.5 percent. Clinton`s 7.5 percent, an increase from last year`s proposed 5.5 percent, resulted in immediate public ridicule from some lawmakers. The Largent/Markey percentage, three percent, may be a more feasible compromise for lawmakers.

Third, the Largent/Markey bill underwent a last minute revision prior to its introduction to place new language into its Tax-Exempt Bond Financing section. The new language incorporates the popular Bond Fairness and Protection Act that had previously been introduced into Congress. The Bond Fairness and Protection Act was created to clarify existing private use rules dealing with the issuance of tax-exempt bonds. Under the statute, public power utilities may be entitled to tax-exempt protections for outstanding bonds if no new tax-exempt debt is used to finance generation facilities. At the present time, the Act has 25 cosponsors in the Senate and 57 cosponsors in the House. The incorporation of this Act into the Largent/Markey initiative may boost support for the proposal among lawmakers.

Fourth, the Clinton administration bill establishes more federally funded programs than the Largent/Markey proposal. The Clinton plan creates a $3 billion “Public Benefits Fund” designed to protect low income customers, promote energy efficiency, fund consumer education and develop emerging technologies. The Department of Energy is responsible for collecting a tax to partly fund the programs. The Largent/Markey bill does not create a comparable federal program, but authorizes states to impose a non-bypassable charge to fund such programs at the state level. Similarly, the Clinton proposal creates a tribal assistance program through the authorization of $20 million in grants, establishes an Office of Indian Energy Policy and Programs, allocates $20 million to aid Southeast Alaskan electricity needs and authorizes $140 million in grants to rural and remote communities. The Largent/Markey bill does not provide for any of the aforementioned provisions.

Although the Clinton plan and the Largent/Markey proposal have many similar provisions, the differences between the bills allow the Largent/Markey bill to offer a more politically attractive compromise for lawmakers. The Largent/Markey initiative directly responds to many of the criticisms of the Clinton bill by providing a more state-friendly statute without much of the excess regulation.

Nevertheless, the fact remains that neither proposed bill has resulted in overwhelming congressional support. The Largent/Markey bill has failed, as of yet, to attract cosponsors, while lawmakers have publicly acknowledged that the Clinton bill is not likely to become a successful restructuring vehicle.

Meanwhile, proponents of federal restructuring legislation are pressing for federal action within the next few months. Reports that House Commerce Committee Chairman Bliley has abandoned his strong advocacy of date-certain legislation, combined with an aggressive hearing schedule established by Senate Energy and Natural Resources Chairman Murkowski has provided a faint glimmer of hope to proponents. The reality, however, remains bleak. A break in the congressional stalemate requires prompt action on Capitol Hill. Congressional action next year, with advancing elections, is unlikely. A failure by Congress to build true momentum within the next few months may defeat any hopes for federal restructuring legislation for the immediate future.

Gerald Garfield is a partner in the administrative and regulatory law department of Day, Berry & Howard LLP, in Hartford, Conn., specializing in utility and energy law. Tara Hart-Nova is an associate in the practice.

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