ties, including smaller scale distributed generation. The siting process can be a contentious political undertaking and affected citizens and other stakeholders need access to state officials and public forums to express concerns in order to arrive at a publicly acceptable conclusion. In the wake of restructuring legislation, many states have undertaken a review of their siting statutes and policies. New Hampshire for example, updated and simplified its energy facility siting laws in 1998 to better support a competitive supply market. Please allow states to continue to work through these issues and maintain traditional local and state control of important land use decisions.

RELIABILITY

Preservation of electric reliability for the nation is fundamental. The very first principle of restructuring in New Hampshire's law (RSA 374-F:3, I) states: "Reliable electricity service must be maintained while ensuring public health, safety, and quality of life." Providing lower electric rates for consumers will not matter if service is intermittent or capacity is insufficient to meet demand. Reliability concerns, which are directly linked to supply and transmission constraints, must be addressed collaboratively by the states and federal government. Regional mechanisms and forums may be best suited to address our common concerns.

I think we are all aware of the U.S. Department of Energy's (U.S. DOE) report that predicts brown-outs for the coming summer and for the following few years as a result of insufficient capacity. This is in part due to the ongoing transition from a highly regulated supply planning system to a market based system. Like you, I hear from my constituents, especially when things go wrong. We need to work together to address this problem and preserve the integrity of the system. States and the federal government must establish reliability standards and provide explicit authority to FERC and the states to cooperate in enforcement of these standards. Also, federal legislation should provide states with the authority to create regional mechanisms and organizations like inter-state compacts and regional reliability boards to address transmission reliability issues.

S. 516, S. 1047, S. 1273, S. 2071 and S. 2098 all address reliability. However, S. 1047 and S. 1273 do not provide for a state role in ensuring reliable retail service. NCSL cannot support reliability language that does not include a provision for a distinct state role in the preservation of retail service reliability. We need to work together to protect electric reliability and avoid disruptions in service.

To ensure state jurisdiction and a role in the reliability effort, NCSL believes Congress should expressly include in legislation (1) a savings clause to protect existing state authority to protect reliability and (2) a regional advisory role for the states in any reliability organization that is established. Mr. Chairman and Senator Thomas, your bills S. 2098 and 516 provide both provisions and NCSL commends you for those inclusions. S. 2071 contains a savings clause "place holder" and NCSL is hopeful that Senator Gorton will add strongly worded language protecting reliability by strengthening state authority.

More specifically to bolster the reliability of the electric system and to ensure that state interests are heard on a regional level, NCSL supports the voluntary formation of Regional Transmission Organizations (RTOS). By becoming a member of an RTO, states could have the opportunity to work together with the other states in the region to develop stronger interstate markets. Stronger markets would likely help states and the region better assess and address their capacity needs which would improve the efficiency and reliability of the electric system. To provide RTOS with appropriate authority, FERC should defer to the RTOs which are better situated to address the concerns of those individual states comprising the region.

Regional Independent System Operators (ISOs), such as ISO-New England, adopt and implement policies regarding electric power transmission, its pricing, and interconnections to the grid. These are obviously of concern to the states and effect system reliability. For example, New Hampshire passed House Joint Resolution 3 last year. a copy of which is attached, expressing concern about certain ISO-New England policies that may be impeding timely development of new merchant generation supply. One approach to this type of problem may be to authorize voluntary formation of regional regulatory bodies to enable states to address regional transmission and system operation concerns, as suggested in Commissioner Bob Rowe's April 11, 2000 testimony on behalf of NARUC. A more specific change that I might suggest is to Section 304 of S. 2098 and Section 215(n) of S. 2071, concerning regional advisory bodies. Their function might be expanded to include advice on the governance and regulation of regional independent system operators. I would also suggest that the membership of such bodies be expanded to include at least one legislator (perhaps one plus an alternate) appointed by the presiding officers of each state legisla

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ture in the region, as state legislators have been and will continue to be on the front line of policy decisions and public accountability on these important issues.

TREATMENT OF STRANDED COSTS

To protect states from potential tax revenue losses and to help reduce electric rates, states should continue to have clear authority to determine utility costs that are stranded or made unrecoverable by retail competition. In addition, they should be authorized to provide for the recovery of those costs, if at all, as the state deems necessary or appropriate. Every sale of electricity to an ultimate consumer should be subject to state jurisdiction, especially for the purpose of wire charges, even if there are no state jurisdictional facilities involved.

Another matter of concern to some states arising from restructuring is tile ability ratepayers and utilities to make accelerated contributions to nuclear decommissionin a reserve funds without creating adverse federal tax consequences. Last year the New Hampshire legislature passed House Concurrent Resolution 11, a copy of which is attached, detailing our state's concerns and request for Congressional action to change the Internal Revenue Code to broaden the ability of taxpayers to make tax-deductible contributions to decommissioning funds. Such an action could help states avoid tremendous burdens on their budgets and future state taxpayers in the event of an early decommissioning. I don't believe any of the Senate restructuring bills address this although it is provided for in Section 803 of H.R. 2944, the Barton bill. I commend that clause to your consideration.

CONSUMER PROTECTIONS

State legislatures have incorporated consumer protections in many state electric restructuring bills. Provision of universal service and the rules for charging and delivering that service have always been within the purview of state regulation. NCSL believes states should retain that authority to ensure that consumers are able to avail themselves of legislative and regulatory remedies and protections more easily than if the responsibility were at the federal level. States have the consumer knowledge that has been amassed from the regulation of the industry as well as from the restructuring of the telecommunications industry. It was through that restructuring experience that we became familiar with and adept at thwarting the deceptive business practices of "slamming" and "cramming". NCSL is encouraged by section 203 of S. 1047 that addresses unfair trade practices within the industry and specifically prohibits slamming and cramming. Because of jurisdiction and experience, states are the appropriate authority to address consumer protections.

NCSL does encourage Congress to include minimum standards, based on state experience. that would re-affirm state jurisdiction over terms and conditions of retail service. Minimum federal guidelines or regulations protecting consumers from anticompetitive behavior, discrimination, poor service and market power abuses should be established. However, NCSL believes states should retain the authority to establish or require comprehensive consumer education and outreach programs to minimize public confusion and provide information so consumers are able to make informed choices and participate effectively in a restructured market. NCSL is encouraged by Section 202 of S. 1047 that would provide federal assistance to low-income customers.

ENVIRONMENTAL PROTECTIONS

To help reduce the nation's dependence on foreign oil, and improve the environment, NCSL is strongly in favor of Congress creating federal environmental protections that pertain to the electric industry for states to adopt on a voluntary basis. NSCL believes that deregulation of electricity production should no result in an increase in air pollution. Development of a federal renewable portfolio standard for states to adopt voluntarily, as proposed in S. 1369 and S. 1047 could have significant impact on improving air quality and diversifying the nation's energy resources. States could adopt these minimum federal standards alone or use them to supplement their own state standards, however NCSL opposes federally mandated fuel usage requirements. S. 516, S. 1047, S. 1273, S. 1369 and S. 2098 all include provisions to support energy efficiency and renewable energy. Many technological advances have dramatically increased the energy efficiency of homes and businesses. However, there is always room for improvement. We support the federal government establishing a public benefits fund as described in S. 1047 introduced by you, Mr. Chairman on behalf of the administration. NCSL would also support federal legislation that would establish a federal/state trust with funding from a non-bypassable, competitively neutral customer charge. States would petition the federal government for matching funds if they so desired.

PROMOTING COMPETITION

If one of the goals of electric restructuring is to create a competitive electric marketplace, NCSL believes that hard reciprocity should not be required as proposed in S. 516, 1047, 1273, 1284 and 2098. Preventing an electric marketer located in a state without electric restructuring from selling in a state with a restructured market, will only reduce the available choice of suppliers in the restructured state. However, NCSL believes hard reciprocity should be determined at the state level. Congress is considering repealing or modifying the Public Utility Holding Companies Act (PUHCA). Proponents of repeal argue that PUHCA is an antiquated regulation in a modern market and that it places unnecessary restrictions on utility companies. NCSL has no position on whether PUHCA should be repealed or modified. However, should it be repealed or modified, state authority should not be transferred to FERC or any other federal agency. Also, to prevent utilities from artificially inflating their rates, states should be provided access to utility books and records.

In addition to possibly repealing PUHCA, Congress is also considering repealing or modifying the Public Utility Regulatory Policies Act (PURPA). Repeal of PURPĂ would permit state utilities to end the above market-priced purchased power contracts with qualified facilities (QFs). NCSL has no position on whether PURPA should be repealed or modified, except that new QF purchase requirements under Section 210 of PURPA should terminate where customers have retail choice of generation suppliers. However, NCSL opposes authorizing FERC to preempt state authority over recovery of PURPA contract expenses. In addition, NCSL urges that changes in or to PURPA will not affect state authority to determine the specific methodology employed for calculating “avoided cost" of purchasing electricity from the QF. Considering the state-specific conditions of power generation capability, the determination of competitive prices for purchased power from PURPA QFs must remain a state responsibility. The purchase price for QF power must be based on the utility's service needs as determined in state ratemaking proceedings. In addition, existing state law and state regulatory authority should not be negatively impacted by PURPA repeal or modification.

NCSL also supports federal policy that facilitates regional or statewide aggregation of electric consumers as an option for small consumers to improve their market strength. However, state and local authority over aggregation must not be preempted.

NCSL appreciates the opportunity to present the views of state legislatures on federal electric industry restructuring. We are eager to continue to work with you to ensure that the nation's electric system is strengthened, while the very substantial progress made on retail competition at the state level is preserved and advanced.

Thank you very much for inviting NCSL to comment on pending federal electric restructuring legislation. We very much appreciate the leadership you, Mr. Chairman, and the ranking members have provided on this topic. NCSL would appreciate the opportunity to further assist in the dialogue between state and the federal government on this issue. If it would be helpful, we could convene a group of state legislators to consult with you on the federal electric restructuring issues concerning us both. We look forward to continuing this dialogue as the federal electric restructuring debate continues. I am happy to answer any questions you have.

The CHAIRMAN. I would be happy to accept that offer, assuming that the State legislators agree to a conclusion that they can support.

Senator BELOW. Yes.

The CHAIRMAN. On a quid pro.

Senator BELOW. Yes. I think that is what we have been trying to do. And half the States have that kind of conclusion often on a bipartisan basis.

The CHAIRMAN. All right. Well, you can get the other half, then. We welcome any help towards reaching something that is meaningful and constructive.

Mr. Joseph Ronan. Good morning. Vice President of Calpine Corporation. Please, proceed. You can move that microphone anywhere you want.

STATEMENT OF JOSEPH E. RONAN, JR., VICE PRESIDENT, CALPINE CORPORATION

Mr. RONAN. Thank you, Mr. Chairman.

My name is Joe Ronan. I am vice president of Calpine Corporation. And I am here to speak on behalf of Calpine and the Electric Power Supply Association.

Mr. Chairman, Calpine Corporation is the leading independent power company in the United States, dedicated to providing customers with reliable and competitively priced electricity, as well as the largest renewable company in the United States.

Calpine currently has interests in approximately 17,000 megawatts of capacity in operation, under construction, or in development in the United States, including the States of Oregon, Oklahoma, Louisiana, Washington, Illinois, and Florida.

With our 17,000 megawatts, which will all be online in about 2003 to 2004, we will provide enough energy to supply the needs of 17 million people in the United States.

The company was founded in 1984 by Peter Cartwright. And we are traded on the New York Stock Exchange.

One thing I want to emphasize, Mr. Chairman, that all the powerplants we operate now and are under construction and are building, are all being built with private capital. We are truly an independent power company and not using ratepayer monies to build those powerplants.

In 1989, we had one megawatt. As I said, we will have 17,000 megawatts online in 2003/2004. How do we do that? We did that by focusing on the U.S. market, because the current infrastructure is aging and a major source of pollution, as was mentioned before. Modern gas fired combined cycle plants will lower the cost of electricity and drastically reduce the impact of power generation on the environment.

Furthermore, we focus on power generation. Deregulation has created the opportunities in the United States, particularly PURPA-that is where we started-the Energy Policy Act of 1992, and then State deregulation, as well. We urge you to continue this process to continue to open up the competitive market.

And finally, we focus on low-cost clean electric power. Older plants cannot compete with the efficient clean energy centers we are bringing online. We are using the most advanced technology and are fueled with clean natural gas or renewable geothermal steam.

Within the last year, the focus of the debate in Congress has shifted from retail customer choice to the needs of the wholesale power market. During the hearings you held last summer, Mr. Chairman, you listened to a panel similar to this one. At that time, you urged the need for greater consensus within the industry.

EPSA took that message to heart and has worked with a broad group of industry stakeholders to develop a collective vision and roadmap for legislation. In fact, last Thursday, a list of legislative principles was embraced by the broadest coalition yet assembled on this issue. Small and large consumers, power marketers, powerplant developers, public power, investor-owned utilities and fuel providers were present.

The message is clear that much still needs to be done. True comparability of rates, terms and conditions for interstate transmission service for all classes of customers has yet to be achieved. Barriers to entry for new market participants remain. Some monopoly providers of transmission services are learning to use their systems in ways that can be at odds with a competitive marketplace. It may surprise the committee, but many of EPSA's members actually believe the wholesale market is getting less, not more competitive.

And I wanted to say, what we see here is a real checkerboard of regulation or deregulation in the United States. There are maybe 25 States that have deregulated, but as-since we participate in 20 different States of the United States, we see a vast difference in terms of interconnection policies, transmission policies, and everything else.

That is why we urge a Federal action in this area. So that the— to be sure that the barriers to entry are removed and there is free competition across the United States.

EPSA clearly agrees with many provisions in the legislation before the committee, but there are issues that need further action or alternative solutions.

First, Federal authority should not be limited to unbundled power sales. An unbundled sale is where a customer is billed separately for power generation and transmission services.

As States move to retail competition, all power sales essentially become unbundled. This is critical to the concept of customer choice. Hence, in a world where all the States have embraced retail competition-as 25 have done already-Federal authority extends to all uses of the interstate grid.

As long as States opt against retail choice, your legislation perpetuates a system in which the uses of the same interstate transmission wires are sometimes subject to the control of FERC and sometimes subject to the control of State utility commissions.

Second, while EPSA has endorsed the stakeholder proposal on reliability spearheaded by NERC, the legislation must be careful not to interject State regulation in issues that are best considered at a national or regional level. Rules governing grid reliability clearly have regional, national and commercial impacts.

Nondiscriminatory-when FERC issued Order 888, it was to provide nondiscriminatory open-access for users of the interstate transmission grid. It is important to emphasize, however, that this open-access applies to those already on the interstate grid, and not to those trying to get onto the grid.

If you are already interconnected to the grid, Order 888 opens the door to a world of commercial possibilities. If you are seeking to interconnect to the grid, you may discover that Order 888 guarantees open-access to nothing.

Finally, Mr. Chairman, I would like to say something about renewable power. As Calpine is the largest renewable power company in the United States, through our geothermal production in northern California, Calpine and EPSA believe additional support for renewable resources should be considered as part of the Federal legislation. Renewables policy should build on and recognize the accomplishments and progress made by PURPA in this issue.