The committee met, pursuant to notice at 9:35 a.m. in room SH216, Hart Senate Office Building, Hon. Frank H. Murkowski, chairman, presiding.

OPENING STATEMENT OF HON. FRANK H. MURKOWSKI, U.S. SENATOR FROM ALASKA

The CHAIRMAN. Good morning, ladies and gentlemen. The hour of 9:30 has come, and gone a little bit. This is the third hearing on pending electric legislation at the Committee on Energy and Natural Resources, and we have a distinguished panel today. We have the Chairman of the FERC, the Federal Energy Regulatory Commission, the Honorable James Hoecker; on the far left, the Honorable Linda Breathitt, Commissioner-it is nice to see you this morning; the Honorable William Massey, Commissioner, and the Honorable Curt Hebert. I wish you a good morning.

Let me open the hearing by identifying briefly an article that appeared in The New York Times the day before yesterday entitled "Energy Secretary Says the Threat of Blackouts Are Rising." He raises the specter of widespread blackouts affecting the Nation's energy electric system and the projection that it might fare worse this summer because of the rocky transition to deregulation when demand for power is booming.

Obviously, we have different views on deregulation but the objective clearly is one that I think we uniformly want to pursue, but not at the expense of the consumer that might be left in the dark, either by a regulatory process which you folks have a responsibility over or a congressional process which Senator Bingaman and I and others have a responsibility over.

As far as our advancement and enlightenment is concerned we seem to be stepping backward again. I am somewhat distressed that the President has seen fit to veto a bipartisan, pragmatic solution to the nuclear waste problem. It appears that the administration does not want to address it on its watch. I think it is fair to say the President has ignored the science, and I can only assume it is for the sake of simple politics, but maybe I will be enlightened this morning.

What we have got is government having taken in some 16 billion from the ratepayers; we have very little to show for it but an empty

hole in Yucca Mountain, and we have got an ongoing liability of some $40 to $80 billion in lawsuits for nonperformance of a contract that the Government entered into to take that waste in 1989. I think the environment is a big loser today, because this administration seems to be determined to shut down America's single largest source of emission-free energy while keeping nuclear waste spread somewhat, 80 sites in 40 States, perhaps in your neighborhood. But that is the reality that we are currently under as we address our responsibility today.

And as you know, this is the third day of our hearings. I hope we are going to hear about two issues that I think concern not only you folks, but those of us on the Energy Committee. First, I am concerned that FERC is not providing the incentives, and I emphasize incentives, necessary to get new transmission lines, I should say new transmissions, energy transmissions built in a timely manner. As you know, adequate interstate transmission capacity is the key to a highly competitive wholesale market. We have heard from industry relative to the high percentage of utilization on many of our transmission lines. Some are approaching the maximum desired capacity; that means you either build more of them or you just meet the reality that they are designed for so much load and that is it. And what you do about the increasing demand is suggestive of less power and unhappy people.

Further, the key to having an adequate transmission capacity is the FERC setting transmission rates that provide adequate incentives to build new transmissions and maintain existing transmissions. But instead of providing certainty and incentive rates, it appears that FERC is doing just the opposite. I hope you will explain to me that that is not the case, but that appears to be the case. The prime example of FERC's failure is the reduction in transmission rates California utilities face because they joined the California independent transmission organization. I would like to know this morning why FERC's policies appear to punish utilities that join independent transmission organizations; how does this really help competition? Competition is what we are striving for in the effort to reduce rates and increase efficiencies.

Secondly, I am concerned about FERC's action on the Independence Gas pipeline and the implications for electric prices in the northeast. And again, I would refer to the Energy Secretary, who predicts brownouts potentially. Now this may be an effort of simply shifting responsibility from the Department of Energy to the Congress; the Secretary has been known to do that from time to time and I have been known to throw it back at him, so I think we are somewhat even on that score.

Consumers are very concerned about high energy prices; we have seen the escalation in heating oils; we have got a lot of unhappy people here in the Congress from the Northeast corridor that have experienced a doubling of their heating oil in the last winter. But not much has been said yet about the reality of this area of the United States, to a large degree, depends on oil for electric power generation. So when the air conditioners start in this summer, they may not have seen anything in relationship to electric prices. The electricity may double, very possibly, as a consequence of the reality that we are going to be paying somewhere between 22 and 28

dollars a barrel for oil, which is double what it was last year. And as you and I know, there is a significant windfall associated with the last source of energy coming on line; everybody else raises their rates based on that windfall of the last and most inefficient producer.

Perhaps the single most area of benefit would be the Northeast Corridor if they had a natural gas supply into their area. Not only would a pipeline reduce home heating oil cost; it would also help lower the cost of electricity, particularly during the summer. We are looking at some of the States in the Northeast: New Jersey is 21 percent dependent on oil-fired generation for peaking, New York, 37 percent; Connecticut, 41 percent. But the Commission's actions in the Independence Pipeline case seem to indicate that you do not or do not favor or do not want this pipeline to be built. There has got to be a reasonable return; otherwise there is no incentive to build it. To a large degree, one can suggest that you put such a burden in the requirements on that pipeline that it may not be economically feasible to build. I would hope that you could respond to that concern this morning.

In any event, I would look forward to your presentations and your explanations as you tell us why you are not doing everything that you can in your role to get this pipeline built and to get energy as fast and as cheaply into this area, where there is a great deal of vulnerability. So I look forward to your statements today. Senator Bingaman, do you care to proceed?

STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR
FROM NEW MEXICO

Senator BINGAMAN. Mr. Chairman, thank you very much for having the hearing and inviting all four members of the FERC to this hearing. Clearly, the Federal Energy Regulatory Commission is at the center of this whole set of issues and debate about electric utility restructuring. Most of the major issues that we are debating here in Congress related to electricity restructuring boil down to whether we need to expand FERC's jurisdiction and increase its authority, and in five areas primarily that occur to me. Let me just mention each of those. First, its authority to regulate transmission facilities owned by co-ops, by municipal utilities and by Federal power marketing administrations. Secondly, whether to expand its authority to regulate bundled retail transmission. Third, whether to expand authority to order utilities to join RTOS. Fourth, whether to expand its authority to enforce mandatory reliability standards. And finally, whether to expand its authority to remedy market power abuses.

Since these witnesses are the group that will ultimately be called upon to implement anything that is done in this area, I think it is very appropriate that we hear their views on these subjects, and I welcome them all and look forward to their testimony. The CHAIRMAN. Thank you, Senator Bingaman.

Senator Campbell.

STATEMENT OF HON. BEN NIGHTHORSE CAMPBELL, U.S. SENATOR FROM COLORADO

Senator CAMPBELL. Thank you, Mr. Chairman. I appreciate this series of hearings you have called on this issue. They have been very informative to me. Competition in the retail electric market currently is being administered already by a number of States, as you know, while the role of the Federal Government in this process is still being debated. With all the groups that regulate some portion of the electricity field, FERC has a very important role. How their oversight responsibility is administered is certainly important to the States. One issue we have to preserve is the State authority to regulate some aspects of retail electricity service. We cannot relinquish it in full, State power in this matter. Also we need to make sure that everyone will benefit from restructuring, not just people in the high rates.

We do need to insure that where reliability and cost are core principles in our findings from these hearings, consumers are worried, certainly in our State, about their electricity rates just as much as they are about reliability. The United States has the most reliable electricity service in the world. We need to make sure that our level of reliability is not compromised in any restructuring legislation. States have already been approaching their restructuring in a variety of ways. Each State has its own unique circumstances. The average electricity rates vary from nearly 12 cents per kilowatt-hour in some Northeastern States and Hawaii to about 4 cents a kilowatt-hour in Washington, Idaho and Kentucky. That difference reflects the availability of low-cost power in some regions. The prices and availability of fuels to generate electricity_affects the ultimate price to consumers, too. For example, in the Pacific Northwest, Federal dams provide inexpensive hydropower which keeps costs low. And our State, Colorado, enjoys relatively low-cost power, both in urban and in rural areas, and there are some concerns circling around the benefits that restructuring could bring to our home State, particularly in the rural areas.

If restructuring is implemented, we certainly want to know that the rates of Colorado, in both urban and rural, commercial, industrial and residential, low-income and high-income, are secured. Currently the average price for electricity in Colorado is about 5.95 cents per kilowatt-hour. That ranks Colorado in the top half of the least expensive States for electricity prices in the Nation, and we certainly want to keep it that way. Thank you, Mr. Chairman.

The CHAIRMAN. I appreciate the interest of Colorado, and we seem to have that common interest among members from various States, particularly from the West, who share low power cost and want to keep it that way. In any event, that will keep us busy trying to figure out how to resolve all of the interests.

Senator Craig.

STATEMENT OF HON. LARRY E. CRAIG, U.S. SENATOR

FROM IDAHO

Senator CRAIG. Thank you, Mr. Chairman. I continue to appreciate your efforts in this whole area and the constant effort of this committee to hold the kind of informative hearings we have had to build a knowledge base on restructuring.