Introductory Statement on S. 716
Mr. President, today I introduce the ``Federal Power Act Amendment of 2003.'' This bill is intended to ensure for the future the two things that matter most to all electricity customers: affordable electricity and reliable electricity.…
Mr. President, today I introduce the ``Federal Power Act Amendment of 2003.'' This bill is intended to ensure for the future the two things that matter most to all electricity customers: affordable electricity and reliable electricity.
Electricity users, my constituents and your constituents, wake up in the morning, flip a switch and expect their lights to turn on. They also expect that each month when their electricity bill arrives in the mail that they'll pay a reasonable price for that service. Customers don't care where the electrons come from or what new scheme the Federal Energy Regulatory Commission has in mind for the electricity industry or really much of anything else. And frankly, as a representative of nearly four and a half million people in my home State of Louisiana, affordable and reliable electricity are my primary concerns when it comes to electricity policy, and that is the purpose for which I offer legislation today.
Electricity prices in Louisiana, and throughout the Southeast for that matter, are some of the lowest in the nation. According to the North American Electric Reliability Council's most recent reliability assessment report, the Southeast region is expected to enjoy, at least for the near term, ``adequate delivery capacity to support forecast demand and energy requirements under normal and contingency conditions.'' In other words, electricity customers in the Southeast should expect to continue to enjoy reliable electric service over the short run. My concern, however, is about the future of retail electricity service in my State.
There are several specific areas of concern that I have and that I attempt to address in the legislation being offered today.
First, the current balance between State and Federal jurisdiction, which has worked exceedingly well in my home State to provide low-cost and reliable electric service, is in jeopardy. Retail transactions, regulated by State public utility commissions, have historically comprised 90 percent of most utilities' transactions and continue to do so in a majority of States that have not restructured their electricity markets. In fact, there is not a single State in the Southeast with the exception of Virginia that has authorized retail competition. Yet, customers in our region of the country enjoy some of the lowest priced electricity service.
The Federal Energy Regulatory Commission or FERC, however, has issued a proposed rule that would strip States of much of their current jurisdiction over retail electric service, including the transmission component of bundled retail sales. In so doing, FERC would dramatically impair the ability of States to use retail ratemaking to attain local policy goals and to continue to ensure low costs for retail customers. It would also prohibit States from ensuring that retail customers are given a priority for electricity service. As a result, in the event that supplies are tight, retail customers could lose the right to priority service.
FERC's proposed plan is a one-size-fits-all scheme on the entire country based on a model that closely resembles the one in place in New Jersey, much of Pennsylvania and Maryland. This model may work well in the Northeast, but it has never been tested or proven viable in any other part of the country. In fact, in a study performed by the consulting firm, Charles River Associates, it was concluded that there is ``considerable uncertainty as to whether [the FERC's proposed plan] would provide greater benefits to the southeast than the implementation costs.'' In Louisiana, and I'm sure in many other States throughout the Southeast and across the country, customers are happy with their electric service. So I ask, what's wrong with the current jurisdictional division between the State and Federal government? If a State or region wants to adopt a new approach, they should be free to do so. But we should not allow a Federal agency to make fundamental policy decisions that are best left to State officials who are accountable to local interests. We know what happened out West when California regulators attempted to institute a sweeping, new plan for its electricity markets. I hope to avoid importing those problems into Louisiana.
To address this jurisdictional concern, Section 2 of my bill would clarify the Federal-State arrangement under the Federal Power Act by explicitly stating that States shall have jurisdiction over the retail sale of electric energy, including all component parts of a bundled retail sale. In addition, Section 7 would enable States to continue to allow utilities to reserve transmission capacity for retail customers. This is current law and the current practice in a large number of States, including States with some of the lowest average retail rates and the best history of reliability. As contemplated by Congress when the Federal Power Act was enacted, FERC will retain jurisdiction over the wholesale sales of electric energy and States will retain jurisdiction over retail.
My second concern for retail customers is the potential for increased rates caused by the costs of accommodating the ``merchant generation'' that, over the past several years, have been seeking to connect to the electric grid in the Southeast. Though new generation is important to wholesale competition, it is a strain on the transmission system. To accommodate the new generation, new transmission facilities and upgrades to existing facilities are needed. However, customers in Louisiana would be forced to pay for the facilities needed to accommodate the merchant generators, even though most of their customers are out-of-region customers. State regulatory commissioners, understandably, are reluctant to pass transmission construction and upgrade costs off to local customers who are not benefitting from the electricity. Meanwhile energy dependent regions of the country are denied cheap and reliable electricity.
A reason they choose to site in Louisiana is because we are blessed with abundant reserves of natural gas--the currently favored fuel source for electric generation. Merchant generators are siting their facilities to gain access to these resources as cheaply as possible, and then are delivering electricity to regions where they can sell electricity at a higher cost. If enough transmission is built to export just a portion of the new generation that is planned to come on-line in Louisiana--10,000 megawatts--the estimated cost would impose a retail rate increase of 5 to 11 percent.
Surely, there must be a more equitable way to allocate cost while simultaneously enhancing our transmission capacity. It is not fair to expect customers in energy generating States to keep paying for transmission expansion when this increased transmission is primarily being developed for out-of-region use. In Sections 3 and 4 of this bill, I have attempted to provide a more equitable system. Section 3 would allow for ``voluntary participant-funding'' in which a regional transmission organization may choose to establish a system in which market participants pay for expansions to the transmission network in return for the transmission rights created by the expansion investment. This approach gives proper economic incentives for new generator location and transmission expansion decisions.
Similarly, Section 4 of my bill would require the FERC to initiate a proceeding to establish rules for interconnecting new generation to transmission facilities. As in Section 3, any costs made necessary by the interconnecting generator would be funded by the generator, or cost-causer, in return for a right to use such facilities funded by the investment.
The third problem that I see is the lack of new investment in transmission facilities. FERC noted in its Electric Transmission Constraint study that transmission congestion costs retail
customers across the country millions of dollars every year. Over the past 10 years, demand for electricity has increased by 17 percent while transmission investment during the same period has continuously declined about 45 percent.
What is even more troubling is that current demand for electricity is projected to increase by 25 percent over the next 10 years with only a modest increase in transmission capacity. In the short term, this lack of transmission investment and the corresponding lack of transmission capacity, adversely affects the ability of retail customers to realize the benefits of wholesale competition. Over the long term, and if this trend continues, the reliability of the bulk power system could be compromised. In the summer of 2000, transmission constraints limited the ability to sell low-cost power from the Midwest to the South during a period of peak demand, causing higher costs for customers. In the summer of 2001 during the California electricity crisis, transmission constraints along the Path 15 transmission route were a significant cause of the blackouts experienced by customers in the northern parts of that State.
To help spur this needed investment in the transmission sector, Section 5 of the legislation would provide further guidance to FERC in establishing transmission rates in two ways. First, Section 5 would amend Section 205 of the Federal Power Act to clarify that the cost causer is responsible for paying the costs of new transmission investment and that all users of the transmission facilities are required to pay an equitable share of the costs such facilities. These provisions will help ensure that users of the transmission system have proper economic price signals and encourage investment where it is needed most. Second, Section 5 would add a new section to the Federal Power Act, Section 215, that would require the FERC to initiate a rulemaking to establish transmission pricing policies and standards to promote investment in transmission facilities. Although the Commission may have sufficient authority under current law to initiate such policies, our Nation's transmission system has been neglected too long and I believe that the FERC could benefit from more specific guidance from Congress.
Finally, customers are not realizing all of the potential benefits of wholesale electricity markets because of its balkanization. The likely result is higher electricity prices. In different parts of the country, electric utilities are in various stages of joining together to form large regional markets, or in the terms used by FERC--regional transmission organizations. In addition, public power entities, including municipal utilities, cooperatives, and federal and State power marketing associations have been willing or resisting, to varying degrees, to contribute to the efforts to establish regional markets. Exacerbating this problem is the underlying fact that FERC does not have the same jurisdiction over public power utilities as it does over electric utilities.
Properly functioning regional markets for electricity can bring about significant benefits to customers in all parts of the country. More competitive wholesale generation, for example, will allow retail sellers greater opportunities to purchase generation from independent power producers. Improperly functioning markets, or one-size-fits all proposals that do not take into consideration regional differences, can be devastating. Current law and policy at FERC has been insufficient in achieving the proper balance between the need for robust regional markets, the reality of regional differences and the legitimate efforts of utilities.
Therefore, in Section 6 of the bill, the FERC would be required to convene regional discussions with State regulatory commissions to consider the development and progress of regional transmission organizations. It would further provide for specific topics of discussion between FERC and the States including the need for regional organizations, the planning process for facilities, the protection of retail customers, and the establishment of proper price signals to ensure the efficient expansion of the transmission grid. Section 6 would also help reduce the balkanization of the electric grid by authorizing the federal utilities such as the Tennessee Valley Authority and the Bonneville Power Administration to join regional transmission organizations. Also, in an attempt to help expand wholesale markets, Section 8 would provide for FERC to require that public power entities provide a limited form of access to their transmission facilities. This provision would give wholesale generators increased access to markets and ensure that competitors pay only the fair and reasonable price to use the transmission grid owned by public power.
In conclusion, I ask my colleagues to support this legislation and consider its affect on retail electricity customers in their States. Affordable and reliable electricity should be our objective for all customers, in all parts of the country.