monopolistic for many years, and does not allow for the free and nondiscriminatory movement of electricity from seller to buyer.

That is why we believe that FERC must have the authority and be required to both promote rules for the independent operation of the grid and compel utilities to turn over control of their transmission facilities to independent Regional Transmission Organizations, or RTOS.

Such rules should preserve the reliability of the grid and encourage the sale and transportation of electricity from any seller to any buyer in an open, competitively neutral, and nondiscriminatory

manner.

FERC's recent Order 2000 on the RTO issue is a long-needed first step. But we believe that utility membership in an appropriate RTO should not be voluntary, as provided for in Order 2000. Rather, it should be mandatory, so that transmission facilities are not subject to independent operational authority in a system that needs to be completely nondiscriminatory.

RTOS must be large enough to mitigate market power. We believe that the provisions of S. 1047, proposed by the administration, and S. 1273, offered by Senator Bingaman, best address the question of RTOS. Those bills grant FERC the authority to oversee the creation of an RTO and compel utilities to turn over control of their transmission facilities.

Before I leave the transmission issue, I would like to highlight a provision in the chairman's bill, S. 2098, which we believe deserves favorable comment. The inclusion of language to provide a Federal right of eminent domain for the siting of transmission facilities recognizes that efforts to expand or upgrade interstate transmission grid can face considerable obstacles. This merely reflects a situation that we already have, and have had for many years, in natural gas. The language in S. 2098 will alleviate some of those problems. We thank you, Mr. Chairman, for including that. The CHAIRMAN. Thank you, Mr. Moeller.

Mr. MOELLER. I will now make selective comments about—-
The CHAIRMAN. Please, go ahead. Your time is running.

Mr. MOELLER. Okay. Selective comments about less comprehensive bills. The mandatory purchase provisions of PURPA are an anachronism in a truly competitive market and should be recognized as such. However, in States without customer choice, retaining the Federal guarantee for backup power now in PURPA is essential if there is to be any investment in cogeneration.

In conclusion, ELCON and its member companies favor a strong comprehensive Federal bill. It is not a question of State versus Federal rights. States assuredly have a role, especially in the distribution of electricity. But that role does not extend to the regulation of interstate commerce. And electricity transmission is clearly interstate commerce. That is why this committee and the Congress must enact a strong Federal bill-it is nothing less than an absolute need.

[The prepared statement of Mr. Moeller follows:]

PREPARED STATEMENT OF RON MOELLER, CORPORATE ENERGY MANAGER, CARGILL CORPORATION AND ON BEHALF OF THE ELECTRICITY CONSUMERS RESOURCES COUNCIL Good morning, my name is Ron Moeller. I am the Corporate Energy Manager for Cargill. Cargill is an international marketer, processor and distributor of agricul

tural, food, financial and industrial products and services with some 82,000 employees in 59 countries. Our annual USÂ energy bill is over $400,000,000, of which electricity comprises more than 70 percent. Interestingly, we also trade and sell electricity through an energy joint venture with a non-regulated subsidiary of an investor-owned utility. I am here today representing the Electricity Consumers Resource Council, or ELČON. ELCON, established in 1976, is the national association representing large industrial users of electricity. ELCON's member companies come from virtually every segment of the manufacturing community.

ELCON's members operate in a competitive, international environment and require an adequate and reliable supply of electricity at competitive prices in a vibrant interstate marketplace. Large users of electricity know very well that the decisions made in this Committee and by Congress will have a direct impact on their businesses' well being as well as business decisions. ELCON greatly appreciates the opportunity to testify.

ELCON and its member companies favor competition over regulation and have long advocated truly open and fully competitive electricity markets, including retail access guaranteeing that all consumers have the right to choose their supplier of electricity and electricity services. We also believe that, just as is true for other energy products, a large national or even international market with consistent rules and standards is optimal for the sale and purchase of electricity. Market rules for goods produced by Cargill do not change as we move from state to state. If they did, it would be quite burdensome for our company and much more expensive for

consumers.

Recently, industrial electricity users have experienced some good news and some less than good news. The good news is that competition in electricity is coming. It is inevitable. Well over sixty percent of the population live in states that have already decided to create competitive markets to the extent that they can absent federal legislation. We at ELCON believe that these competitive markets should come as soon as possible. The less than good news is that we must experience a lengthy transition period-often with no opportunity to realize lower prices or other cost savings-before achieving the desired end state of real competition.

A transition period with a crazy quilt of separate state rules and timetables is one in which monopolies continue to benefit and captive consumers cannot protect themselves. ELCON members sell their goods in interstate commerce with uniform rules in each state. This highlights the need for a strong federal bill.

This is not a view held only by large industrial users. Just last week a group of market participants, including ELCON, the Consumer Federation of America and seven investor-owned utilities, among others, released a list of Stakeholder Principles that could well supply the framework for federal legislation. My company has been involved in stakeholder meetings with a different group, comprised of utilities, users, and marketers, which is in the process of developing a very similar package. Both groups realize that we are dealing with an interstate market and both groups know that a strong comprehensive bill is needed sooner rather than later. And both groups recognize that such a bill (1) must provide for FERC jurisdiction over all transmission, bundled and unbundled, (2) must support a system where electricity can be transmitted across the country in an open, competitive, non-discriminatory manner, and (3) must provide federal government agencies with sufficient authority to address anti-competitive activity.

We are not advocating a "one-size-fits-all" approach. But strong federal legislation must be inclusive and is necessary to provide the framework for a large, seamless, vibrant interstate marketplace that will best serve all consumers-industrial, commercial, and residential.

It is against this standard of truly open and fully competitive markets that ELCON measures legislative proposals at both the state and federal levels. And it is against this standard that we look at the bills before the Committee today.

The bills have some features in common and some at variance. Three of the bills, S. 282, S. 1369, and S. 2071, are relatively narrow in scope. The other bills are much broader, each taking a somewhat different approach to the issue of electricity restructuring. I will discuss the five comprehensive bills, S. 516, S. 1047, S. 1284, S. 1273, and S. 2098, first.

A preliminary comment about S. 516. Neither ELCON members nor I are proponents of a large federal government. Many of us have lamented the over-reaching of federal regulators on a host of issues. Senator Thomas has stated that states are wonderful laboratories for experimentation. This is true. But when it comes to electricity, we are dealing with a commodity sold in interstate commerce. Our existing electricity system clearly transcends state lines. We need a national framework and a strong federal bill. While I look forward to seeing the creativity of the states, I

also want consumers to be able to benefit from a large, seamless interstate electricity market.

The major concerns of ELCON members are the linked issues of Market Power, Repeal of the Public Utility Holding Company Act (PUHCA), Reliability, and Transmission and Grid Governance. Customer choice and retail access are wonderful goals, but they are worthless if the transmission system, which will remain monopolistic for many years, does not allow for the free and non-discriminatory movement of electricity from seller to buyer. Given that owners of monopoly transmission_facilities will still exercise market power-that is monopoly power-I cannot emphasize too strongly that regulation is needed to ensure that the owners of the transmission system do not use their position to the detriment of real competition.

That is why we believe that FERC must have the authority and be required both to (1) promulgate rules for the independent operation of the grid and (2) compel utilities to turn over control of their transmission facilities to independent Regional Transmission Organizations, or RTOS. Such rules should preserve the reliability of the grid and encourage the sale and transportation of electricity from any seller to any buyer in an open, competitively neutral, and nondiscriminatory manner.

FERC's recent Order 2000 on the RTO issue is a long-needed first step. But we believe that utility membership in an appropriate RTO should not be voluntary as provided for in Order 2000, but mandatory. To allow transmission facilities to not be subject to independent operational authority in a system that is supposedly based on non-discrimination seems contradictory by definition.

RTOs must be large enough to mitigate market power. We believe that the provisions of S. 1047, proposed by the Administration, and S. 1273, offered by Senator Bingaman, best address the question of RTOs. Those bills grant FERC the authority to oversee the creation of an RTO and compel utilities to turn over control of their transmission facilities. The Chairman's bill, S. 2098, includes positive language, but does not require utilities to join RTOS and therefore leaves open the possibility of transmission facilities being operated in a manner that will not guarantee open access and non-discrimination. In contrast, S. 516, introduced by Senator Thomas, does not address this issue. Senator Bingaman deserves special praise for being the first to introduce this concept in his legislation last Congress, and we are pleased he has reintroduced it in this Congress.

Before I leave the transmission issue I would like to highlight a provision in the Chairman's bill, S. 2098, which we believe deserves favorable comment. The inclusion of language to provide a federal right of eminent domain for the siting of transmission facilities recognizes that efforts to expand or upgrade the interstate transmission grid can face considerable obstacles. This merely reflects the situation we have had in the natural gas industry for several years. The language in S. 2098 will alleviate some of those problems. Mr. Chairman, thank you.

Regarding the repeal of PUHCA, we first emphasize that PUHCA is the only federal consumer protection statute for electric utility customers. We believe that, if PUHCA is repealed, we need clear authority vested in the Federal Energy Regulatory Commission to prohibit any potential anti-competitive practices involving regulated utilities and unregulated affiliates. Rules are needed to address the operational unbundling of generation, transmission, system control, marketing and local distribution functions. State and Federal regulators must have complete access to all books and records of all regulated entities and entities owned or controlled by regulated entities. In addition, we argue that, optimally, PUHCA repeal not be effective until all states have retail access or until competition on a nation-wide basis is otherwise achieved. I might add that both stakeholder groups I mentioned earlier have included a provision supporting the need for federal regulatory authority to address market power and anti-competitive activities.

The only thing worse than a regulated monopoly is an unregulated monopoly, and that is what we would have with "no-strings-attached" PUHCA repeal. S. 516, S. 1047 and S. 2098 provide the minimum sufficient authority for regulators to gain the necessary access to books and records.

Another provision in S. 1047 notes special attention-that is the ability for purchasers to aggregate. It is obviously important for large users who wish to purchase all electricity from one source and receive one bill. But it is also important for small users. Without the ability to aggregate, small purchasers may be hard pressed to reap the benefits of competition. Many affinity groups such as labor unions, churches, alumni associations and others could offer electricity on an aggregated basis. And I know that several ELCON members are exploring the possibility of allowing employees to purchase electricity through the same aggregator used by the corporation.

There are other provisions in S. 1047 that are clearly not favorable. The plethora of new regulatory requirements regarding worker standards can only present bar

riers to new entrants into the field of electricity generation. Such barriers would retard both innovation and competition.

Similarly, while ELCON member companies are very concerned about the environment, we are also concerned that the language in S. 1047 establishing a Renewable Portfolio Standard would significantly distort markets. Certainly increasing the use of renewable energy sources to generate electricity is a laudable goal. However, our companies, especially those involved in manufacturing consumer goods, know that the way to increase sales is to create a demand for the product. Given experience to date in California and Pennsylvania, customers are shopping and many are choosing "green" electricity. If this trend prevails as more states open up, it may not be necessary to establish market-distorting requirements. Consumers often choose to pay more for products such as bottled water, organic produce, or recycled paper because they believe in a common good. Before enacting artificial incentives and thresholds, we should determine how "green" electricity fares in a world of customer choice.

It is appropriate at this point to commend Senator Nickles for his creativity in drafting S. 1284. As is true when he introduced similar legislation last Congress, his bill recognizes that a competitive market is better than a regulated market. How that objective is achieved is secondary to the end state. We think the concepts embodied in S. 1284 deserve both praise and further study.

Let me turn to the non-comprehensive bills.

S. 282, introduced by Senators Mack and Graham, repeals the mandatory purchase requirements of the Public Utility Regulatory Policies Act (or PURPA) of 1978. Many ELCON members cogenerate and sell electricity to utilities as Qualifying Facilities (or QFs) pursuant to PURPA. Despite its bad press, as long as consumers are held captive to monopoly utilities, PURPA is an essential law. It has produced a broader, more efficient base of electricity generation. Due to PURPA, electricity capacity was added in smaller increments, thus not burdening users with paying for generators that proved to be much larger than necessary. And generation was funded by entrepreneurs with private non-regulated capital.

That having been said, the “mandatory purchase" provisions of PURPA are an anachronism in a truly competitive market and should be recognized as such. With regard to existing PURPA contracts, be they at market or above today's market, no one is suggesting that such contracts be rescinded. Existing PURPA contracts are and should be a non-issue. Parenthetically I would add that utilities have voluntarily entered into above market purchase contracts with other utilities of approximately equal value to existing PURPA contracts. Those contracts should be protected as well. That simply reflects the sanctity of contracts.

The impact of repealing the mandatory purchase provisions of PURPA on a prospective basis is virtually non-existent. The number of new, uneconomic PURPAbased contracts being signed today based on the often above market "avoided cost" formula is close to nil. For a number of reasons the mandatory purchase provisions of PURPA clearly are not needed in a competitive electricity market. I hasten to add, however, that even without the use of these mandatory purchase requirements, the majority of new capacity being brought on line is from non-utility generation and that has been the case over several years. PURPA has succeeded in demonstrating that electricity can be generated by non-utility sources in an efficient, reliable, and environmentally favorable manner. Just 25 years ago utilities vehemently disputed what is now fact.

While the mandatory purchase provisions are no longer necessary in a truly competitive electricity market, it is important to note that PURPA and Section 210 are much more than simply mandatory purchase requirements. I commend the authors of S. 282 for not repealing other sections of PURPA Section 210, including its requirements that utilities interconnect with cogenerators. However, I cannot overemphasize the importance of a federal guarantee for back-up power at just and reasonable rates in states that remain non-competitive. Without such a guarantee, cogenerators would be captive to unregulated monopolies that could charge what they wish, and the cogenerators would have no alternative. In states without customer choice, retaining the federal guarantee for back-up power now in PURPA is essential if there is to be any investment in cogeneration capacity.

Another narrowly drafted bill is S. 1369, introduced by Senator Jeffords, which seeks to include environmental improvements as part of electricity restructuring. While his intent is admirable, energy legislation has traditionally been kept separate from environmental legislation for both policy and political reasons. Therefore, we will refrain from offering specific comments on S. 1369 at this time.

Finally, Senator Gorton has introduced S. 2071, the so-called consensus language on reliability. ELCON has been an active participant in the NERC process and supported the consensus document which was approved on the condition that it be con

sidered as part of a comprehensive bill and not on a stand-alone basis. This position is based on sound policy. While we recognize the need to establish a new, statutorily authorized self-regulating reliability organization (to be called the North American Electric Reliability Organization), such action will barely begin to address reliability. Legislation to reduce the potential for reliability problems must do more than simply provide accreditation to a new oversight body. It must establish a framework for Regional Transmission Organizations, it must guarantee non-discriminatory access to the grid, and it must clarify the current uncertainty about federal and state jurisdiction over transmission. Moreover, it cannot give new market regulating authority to those who now have, directly or indirectly, substantial market power. Given the narrow focus of S. 2071, we cannot support it as a stand-alone document. ELCON members do not sell their manufactured goods with different rules in each state. We should not have to purchase electricity with different rules in each state. We need strong, but not excessive, federal regulatory authority to guarantee that electricity is available throughout the nation on a non-discriminatory basis. It is up to this Committee and other oversight bodies to ensure that such regulation is not over-reaching, that it is encouraging and not hindering true competition.

In conclusion, ELCON and its member companies favor a strong federal bill so that all electricity consumers can enjoy the benefits of competition. As I stated earlier, competition is coming. But the reality is that we face a long transition period before we get there. I believe that all consumers would benefit if the end state of competition came sooner rather than later. Federal legislation is needed to achieve that objective. It is not a question of state versus federal rights. States assuredly have a role, especially in the distribution system. But that role does not extend to the regulation of interstate commerce. And electricity is clearly interstate commerce. That is why this Committee and this Congress must enact a strong federal bill— it is nothing less than their Constitutional imperative.

The CHAIRMAN. Thank you, Mr. Moeller.

Mr. MOELLER. Thank you.

The CHAIRMAN. Mr. Gary Zimmerman, executive vice president of Michigan Municipal Electric Association, and that is on behalf of the American Public Power Association.

Please, proceed.

STATEMENT OF GARY ZIMMERMAN, EXECUTIVE VICE PRESIDENT, MICHIGAN MUNICIPAL ELECTRIC ASSOCIATION AND GENERAL MANAGER, MICHIGAN PUBLIC POWER AGENCY, ON BEHALF OF THE AMERICAN PUBLIC POWER ASSOCIATION

Mr. ZIMMERMAN. Good morning, Mr. Chairman and members of the committee. And I wish to express my appreciation for the opportunity to appear before you today.

As you noted, I am here on behalf of the American Public Power Association, or APPA, which is a national service organization representing the interests of over 2,000 State and locally owned electric utilities.

We believe that Federal restructuring that will truly benefit all consumers' needs to focus on two basic goals: Removing Federal barriers to implementation of State retail competition programs, and establishing a structure for effective wholesale competition.

Achieving these goals means addressing a number of complex and interrelated issues at the same time; including the balance between federal, State and local authority, the role of FERC in ensuring effective wholesale competition, modifications to the Public Utility Holding Company Act, and last, but not least, reliability.

Mr. Chairman, we have submitted a detailed statement for the record that includes APPA's views regarding the Senate's pending restructuring legislation, including your own bill, but in the limited