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in section 108 of their legislation. It should be part of a comprehensive restructuring bill.

Adequacy of nuclear decommissioning funds should be assured

Several reports issued within the past year have questioned whether utilities are collecting adequate funds to ensure the safe decommissioning of nuclear powerplants at the end of their useful lives. The advent of increased wholesale and retail competition and market-determined rates, as opposed to regulated rates, raises further concerns. The safe decommissioning of nuclear power reactors is a health and safety issue that should be addressed in restructuring legislation. S. 2098 (Murkowski-Landrieu) and S. 1793 (Domenici) contain nearly identical language that establishes a legislative framework for ensuring that adequate funds will be collected and set aside for decommissioning. Congress should adopt this provision. Transmission regulation policies must be updated and codified

There are those that believe that since FERC has issued Order Nos. 888, 889 and 2000, there is no need for Congress to delve into the area of transmission policy. We respectfully disagree. Order No. 888 is currently being challenged in the D.C. Circuit Court of Appeals and we expect that Order No. 2000, or decisions applying that Order, will be challenged as well. This creates unnecessary uncertainty. The Congress needs to establish a new legislative framework governing transmission policy along the lines advanced by FERC in Order Nos. 888, 889 and 2000. S. 2098 (Murkowski-Landrieu), S. 1273 (Bingaman), and S. 1047 (Administration) all do this. The major difference between S. 2098 on the one hand, and S. 1273 and S. 1047 on the other, is whether the FERC can require utilities to join an RTO, or whether RTO participation should be encouraged, but not required. We believe that the voluntary approach is far preferable, given the fact that few market participants are satisfied with existing ISOs. We do not believe that we have enough experience with RTOS to make the determination that they should be mandatory at this time. In addition, the debate over whether RTOs should be mandatory or not obscures what we believe is the far more important issue of transmission policy facing Congress: and that is, how can we make the transmission business an attractive one in which to invest and grow. As the Chief Financial Officer of a company that has decided to sell its generation and concentrate on the transmission and distribution of electricity, this is a question I grapple with every day. The current tax code, rate structure, and federal regulatory policies make it difficult to convince investors that transmission is a business that will earn a reasonable and growing rate of return. Congress can, and should, address this fundamental issue.

Despite the disagreement as to whether FERC should be allowed to require RTOs, we believe that there is rough agreement on many of the other elements of transmission policy, and these are reflected in S. 2098.

Other issues

There are many other issues that one group or another believes should be addressed by Congress in restructuring legislation. These issues include whether FERC should be given additional authority to address retail market power concerns; whether uniform federal retail consumer information and protection measures should be imposed; whether national renewable portfolio standards should be adopted; and whether national standards regarding net metering, aggregation, or interconnection, should be established. We believe that what most of these groups are arguing for is greater federal intervention into retail issues, issues that are now subject to state jurisdiction. We believe that Congress should tread lightly in these traditional areas of state responsibility.

CONCLUSION

We believe that S. 2098 satisfactorily and thoughtfully addresses most of the electric industry restructuring issues that Congress must address. It represents a responsible, middle-ground position. It is similar in many respects to S. 1273 (Bingaman), S. 1047 (Administration) and S. 513 (Thomas). We do not underestimate the difficulty of resolving the differences that remain; we have been trying to do so ourselves over the past four years. However, continued uncertainty over the rules of the new electric industry is having serious negative consequences. We need the certainty that only Congress can provide in order to make the investments necessary to ensure an adequate and reliable supply of electricity for an economy increasingly dependent on it. We, therefore, urge prompt Congressional action on this issue and look forward to working with you to accomplish this. Thank you again for the opportunity to address these important issues.

Senator THOMAS. Thank you, sir.

Commissioner Rowe.

STATEMENT OF BOB ROWE, COMMISSIONER, MONTANA PUBLIC SERVICE COMMISSION, AND PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS

Mr. RowE. Good morning, Mr. Chairman and members of the committee. My name is Bob Rowe. I am a Montana Public Service Commissioner and also president of the National Association of Regulatory Utility Commissioners, or NARUC. NARUC is committed to improving the quality and the effectiveness of public utility regulation. We have a very strong consumer focus and an increasingly strong competition focus, based particularly on our work on telecommunications, which is my area of expertise.

I very much appreciate this committee's focus and your great interest and appreciation for what the States have done. I also very much appreciate the chairman's willingness to work with the States, and, indeed, all of your willingness to work with the States on those issues that the chairman described as being in the pile where consensus had not yet been reached. Again, we are eager to work with this committee and other stakeholders to reach consensus wherever possible.

I was very pleased to hear so many of you describe, I think, the aggressive and creative approaches that all of your States have taken to restructuring issues. And it is noteworthy to keep in mind that this has all happened in just the last several years. My own State of Montana, Senator Burns knows very well, was really in the forefront of low-cost rural States in restructuring. As Senator Burns has said, there is a lot of dirt between light bulbs in Montana.

One lesson that I spell out in more detail in my written testimony is that it is tough, complicated work. And as you have all said, the States play a key role in resolving many of those issues. States are pursuing actions that are appropriate to their own circumstances. And again, as so many of you have said, those circumstances vary tremendously, based on very specific conditions.

We do support congressional action that facilitates and enables State restructuring efforts. And indeed, even if comprehensive legislation does not pass this year, we believe there are steps to promote reliability and the growth of the wholesale markets that Congress can and should take even if you must continue working on a more comprehensive approach.

We support a cooperative, Federalist approach to national energy policy, building on the complementary strengths of Federal and State policy. My testimony includes a very thorough discussion of positions that were adopted by NARUC as a part of some tough give-and-take compromises between experts among my colleagues, representing urban and rural, low-cost and high-cost States, States that have restructured and States that have not restructured. And that is the exact same kind of compromise that this committee is working towards.

I have 10 specific points that I spell out in more detail in my testimony. First, legislation should not include a data certain mandate. It is unnecessary, given the pace at which States are already

working, and unwise, given the need for each State to address issues at a pace that makes sense in light of its own circumstances. Second, legislation should grandfather State restructuring programs in those States that have adopted retail choice. Third, legislation should not include mandatory, as opposed to voluntary, reciprocity requirements, restricting access to markets that are open. În States such as mine, mandatory reciprocity would limit the number of suppliers that are available to help increase competition and thereby lower prices.

Fourth, legislation should support the development of cooperative Federalist mechanisms to promote reliability. And these are very much alive and well on the Western grid, for example. We support legislation establishing mandatory compliance with industry-developed reliability standards, and providing FERC and the States explicit authority to cooperate on enforcement of those standards. We support the development of new models, such as for example joint boards or working through existing State authority.

And remember, State commissions and State officials, much like yourselves, will be held accountable when the lights fail to go on. We will get those phone calls.

We have been working very closely with the North American Reliability Council and other stakeholders on efforts to produce consensus legislative language on a State savings clause concerning reliability, and we hope that will help bridge the gap that is still there on that issue.

Fifth, transmission and RTO jurisdiction should be addressed through clarifying Federal and State roles and authorizing new regional entities. Our view, of course, is that State authority to regulate retail power delivery regardless of the facilities used should be affirmed. And we see that as a relatively narrow issue in contrast to, for example, the larger issue of the power marketing authorities. We obviously applaud both the bills and the FERC for its efforts on RTO's.

Six, we believe Federal legislation should backstop State public benefits programs. Seventh, we prefer PUHCA and PURPA reform prospectively as part of comprehensive legislation. Eighth, States should continue to have the ability to address stranded cost recovery. Ninth, based on national standards, States should be able to implement distributed generation or net metering policies appropriate to their circumstances.

Tenth, and very, very importantly, consumer protection is a critical and a growing State commission role and responsibility in more comprehensive utility markets, and Federal legislation should support these efforts. This is a core function now for all State commissions.

In conclusion, States are now performing their historic roles as laboratories, to test how the goal of greater competition for retail customers can be turned into real-world savings for customers. And as the consequences of competitively based wholesale markets become clearer, States are putting in place complementary retail policies that are adapted to regional market conditions.

Thank you very much for your attention. I look forward to your questions.

[The prepared statement of Mr. Rowe follows:]

PREPARED STATEMENT OF BOB ROWE, COMMISSIONER, MONTANA PUBLIC SERVICE COMMISSION, AND PRESIDENT, NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS

Essential Elements of Federal Legislation

• States should be left to decide whether, when and how local markets should be opened to greater competition while enabling customers to choose among electricity suppliers, maintaining system reliability, protecting consumers from anticompetitive behavior or poor service, and ensuring the continuation of important public benefit programs.

• Federal legislation could greatly enhance restructuring initiatives by:

(1) Affirming state authority to order and implement retail access/customer choice programs;

(2) Affirming state authority to impose charges to support stranded costs and benefits policies;

(3) Clarifying state jurisdiction to regulate rates, terms and conditions of unbundled retail transmission services;

(4) Affirming state authority to regulate against customer bypass of local distribution networks;

(5) Reaffirming state jurisdiction over rates, terms and conditions of retail services;

(6) Authorizing voluntary formation of regional regulatory bodies to enable states to address regional transmission and system operation concerns;

(7) Reaffirm state role in ensuring system reliability.

• Legislation should include a comprehensive "Grandfather" provision to protect the consumers, new suppliers, and utilities in states which have already implemented electric utility restructuring programs.

• Legislation should repeal prospectively the mandatory purchase requirements contained in PURPA and reform PUHCA conditioned upon development of competitive electric markets.

• Reciprocity provisions could eliminate savings to consumers that may be gained through retail customer choice and accordingly, should not be included in legisla tion. During the transition to a competitive market, Congress should establish, a federal/state trust, funded by a non-bypassable, competitively neutral customer charge. A State would qualify for Federal matching funds by designating its own program and funding mechanism.

I. INTRODUCTION

Mr. Chairman and Members of the Committee: Good morning. My name is Bob Rowe. I am a Commissioner on the Montana Public Service Commission and Presi- . dent of the National Association of Regulatory Utility Commissioners, commonly known as NARUC. I respectfully request that NARUC's written statement be included in today's hearing record as if fully read.

NARUC is a quasi-governmental nonprofit organization founded in 1889. Its membership includes the state public utility commissions for all states and territories. NARUC's mission is to serve the public interest by improving the quality and effectiveness of public utility regulation. NARUC's members regulate the retail rates and services of electric, gas, water and telephone utilities. We have the obligation under state law to assure the establishment and maintenance of such energy utility services as may be required by the public convenience and necessity, and to ensure that such services are provided at rates and conditions that are just, reasonable and nondiscriminatory for all consumers.

I greatly appreciate the opportunity to appear on behalf of NARUC before the Senate Energy and Natural Resources Committee. I commend the Chairman for holding this hearing to examine legislation concerning electric industry restructuring now pending in the Senate.

On behalf of NARUC I would also like to commend and thank the Chairman for his leadership on the complicated issue of electric industry restructuring and his willingness to give full consideration to the positions held by the states. We believe that your efforts on S. 2098 demonstrate a desire to produce a workable, commonsense proposal that contains many provisions worthy of support from state regulators. We look forward to working with you and your staff on the portions of S. 2098 where consensus has not yet been reached. Again, thank you for continued consideration and readiness to work with the states on issues of great importance to the public interest in efficient, reliable electric service.

This testimony describes state restructuring efforts. It also provides NARUC's views on key issues in federal restructuring, including federally-mandated restruc

turing, grandfathering of states that have already acted, reciprocity, reliability, transmission and RTO jurisdiction, public benefits, PUHCA and PURPĂ reform, distributed generation and net metering, and consumer protection.

II. STATES HAVE TAKEN AGGRESSIVE AND CREATIVE APPROACHES TO ENERGY
RESTRUCTION, APPROPRIATE TO THEIR CONDITIONS

The electric supply industry is one of the last of the utility sectors to undergo a transformation from monopoly franchise to a competitive market. States are leading the charge to restructure retail electric markets. In each case, the states are putting in place elements that are essential to ensure vibrant, safe and sustainable markets. Twenty-five states have adopted retail electric restructuring programs to enable customers to choose among energy suppliers while ensuring the safety, reliability and quality of electric services. Still others are working through their state commissions and/or legislatures to open access to retail electricity markets.

My state, Montana, has among the lowest electric prices in the country. It is also a very rural state, with low per capita income and high heating degree-days. Nonetheless, the Public Service Commission began work on a restructuring inquiry and various market-based pricing proposals in 1995. In 1997, the Montana Legislature passed comprehensive electric restructuring legislation. The Commission has been working ever since to implement legislative direction, providing full retail choice for large customers in July 1997. The issues have been complicated in areas including stranded cost determination, customer protection and education, affiliate relationships, and providing service to those small business and residential customers who may be unable to participate in competitive markets. Customer input has been very important in rulemaking and in planning for “default supply." Surprises along the way have included Montana Power Company's decision to sell all of its generation, and now to sell its natural gas and electric distribution systems, and Pacificorps' decision to sell its Montana distribution system. There are several lessons from Montana's experience: First, even rural and low cost states have in some cases opted for retail choice. Second, events will develop in ways we are unable to foresee. Third, it's complicated work. Fourth and most importantly, it is essential to pay attention to customers and involve them in implementation.

The states that have adopted retail open-access electricity programs are home to more than fifty percent of the nation's population. All this activity has taken place within the last five years alone. States will continue to pursue restructuring programs that are in the public interest.

The states pursuing retail open-access are acting with great care and precision to ensure that the reliability of electric services and universal access to retail services and public benefits previously provided by a vertically integrated electric industry continue in a restructured environment. State restructuring initiatives contain many common elements: customer choice, functional unbundling, pricing reform, stranded cost recovery, protection of public benefits, sensitivity to the exercise of market power, and mechanisms to support emerging regional markets,

The timing and implementation of state initiatives differ from state to state in ways that reflect local customer needs and other market realities including such factors as climate, demographics, indigenous resources, environmental impacts, past choices of technology, current resource preferences, system capacity, geography, and form of utility ownership-to name a few.

It is the states' intention, and NARUC's hope, that we all can learn from the unfolding state initiatives. The States can demonstrate what does and does not work. These State activities should be given the opportunity to progress before risking harm to the broader consuming public by requiring states to restructure local markets by a date certain through a uniform set of Federal standards that fall to take unique local circumstances into account. Congress should not risk disrupting these policies through prescriptive national models. Instead, Congress should consider legislation that facilitates state restructuring efforts.

III. NARUC SUPPORTS A COOPERATIVE FEDERALIST FRAMEWORK FOR FEDERAL ELECTRIC

RESTRUCTURING LEGISLATION

Congress should adopt a "cooperative federalist" approach to national energy policy. This approach would build on the complementary strengths of federal and state policy. Questions to ask include:

"What actions are most appropriately taken at the national level?"
"What actions are most appropriately taken at the state level"
"What national actions are necessary to support state efforts?"

Last month, NARUC adopted a resolution establishing positions on issues in Federal electric restructuring. I have included this resolution as Attachment 1 to my

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