Before the United States House of Representatives
Committee on Commerce

Subcommittee on Energy and Power

Testimony of

Irwin A. Popowsky, Consumer Advocate of Pennsylvania

and

President, National Association of State Utility Consumer Advocates

(NASUCA)

On Behalf of the

National Association of State Utility Consumer Advocates

Concerning

Legislative Proposals on Electric Utility Restructuring

The National Association of State Utility Consumer Advocates (NASUCA) supports Congressional efforts to facilitate the development of competition in those segments of the electric utility industry where competition can do a better job than regulation in maximizing consumer welfare.

NASUCA is opposed, however, to a federal mandate that would require the implementation of retail electric competition in every state by a date certain. In NASUCA's view, the states are in the best position to determine whether a rapid transition to retail competition will benefit those states' consumers.

In addition, Congress must not preempt the states' determinations regarding the treatment of utility costs that are "stranded" as a result of retail competition. Again, each state should be permitted to determine the appropriate recovery of stranded costs, if any, that should be accorded to that state's utilities.

Congress can and should act, however, to ensure that market forces have an opportunity to produce true competition where such competition can benefit consumers. For this reason, NASUCA supports the market power provisions of H.R.1960 that are designed to ensure that certain participants in future electricity markets will not be able to stifle competition.

NASUCA has long supported the development of cost-effective renewable energy resources as an essential part of this Nation's energy policy. NASUCA has not taken a position on the need for a renewables portfolio standard, but does submit that the focus of any such standard should be on creating incentives for the development of additional cost-effective renewable resources.

NASUCA supports efforts to ensure that states which implement retail competition give adequate consideration to the need for enhanced consumer protections and the particular needs of low income consumers for affordable, universal service.

As the state-authorized representatives of utility consumers in our respective states, NASUCA members look forward to working with the members of this Committee in developing policies and legislation that benefit all consumers.

CHAIRMAN SCHAEFER AND MEMBERS OF THE SUBCOMMITTEE ON ENERGY AND POWER:

My name is Irwin A. Popowsky. I am the Consumer Advocate of Pennsylvania and I am the President of the National Association of State Utility Consumer Advocates (NASUCA), whom I represent here today. NASUCA is an association of 41 consumer advocate offices in 38 states and the District of Columbia. Our members are designated by laws of our respective states to represent the interests of utility consumers before state and federal regulators and in the courts. On behalf of NASUCA, I wish to thank you for the opportunity to testify at this legislative hearing on electric restructuring before this Committee.

First, I would like to commend Chairman Schaefer, the members of this Committee, and your staffs for your consistent recognition throughout your careful deliberations that it is the impact of your actions on electric consumers that is of paramount importance. NASUCA truly appreciates your efforts at every step in your considerations to date to seek out the views of consumers and consumer representatives. We look forward to continuing to work with you in developing policies and legislation that benefit all consumers.

As this Committee proceeds with consideration of restructuring legislation, NASUCA is confident that you will keep the interests of consumers paramount in your mind. Electricity is an essential component of modern life so the actions taken by this Committee -- and ultimately the Congress -- will have a profound effect not only on the future of electric service providers, but upon all electric consumers. Therefore, NASUCA urges Congress to support those policies and principles that benefit all electric utility consumers. The truth is that we will have accomplished very little if the end result of our labors is to bring competitive benefits to only a small segment of consumers and unregulated electric suppliers while rendering basic electric service less affordable and less reliable for many Americans.

The restructuring legislative proposals before this Committee offer different visions of the future of the electric industry. Although NASUCA is truly a state-based organization with many visions of the future electric industry, NASUCA has developed consensus opinions on numerous issues of national importance, which our members believe can benefit utility consumers. I will spend the next few minutes identifying those consensus positions and how they relate to the legislation before this Committee.

By way of introduction, however, NASUCA would support legislation that would facilitate the transition to greater competition in those portions of the electric industry where competition is likely to do a better job than regulation in protecting consumers. But NASUCA does not support legislation that would mandate retail competition in every state by a date certain. NASUCA also opposes legislation that would preempt the ability of the states to determine whether to allow utilities to recover costs that are stranded as a result of retail competition.

Please note that NASUCA's position on this issue is not a "knee-jerk" states' rights position in opposition to any federal intervention. Indeed, NASUCA did not oppose the provisions of the federal Telecommunications Act of 1996 that preempted state laws that prohibited local telephone competition. I, for one, agree with published remarks of Chairman Schaefer that the question before this Committee today is not one of states' rights, but rather is one of consumer rights. It is NASUCA's view, however, that it is state legislatures and commissions that are in the best position to determine the relative costs and benefits to consumers of an immediate or rapid transition to retail electric competition.

I personally supported the legislation in Pennsylvania that has put our Commonwealth at the forefront of the retail competition debate. But I also respect the principled arguments of consumer advocates in other states who contend that under the service and rate conditions in effect in their states that consumers might well be harmed rather than benefitted by a rapid transition to retail electric competition.

That is not to say that NASUCA is opposed to any federal legislation on electric restructuring. NASUCA supports, for example, the market power provisions of H.R. 1960, and any other other provisions that would facilitate, rather than force, the development of greater competition at the retail level in those states that choose to follow that path.

The elements of NASUCA's positions are set forth in more detail below.

CONGRESS SHOULD NOT MANDATE RETAIL ACCESS BY A DATE CERTAIN.
Without a legislative mandate from Congress, states continue to consider and adopt alternatives to traditional regulation of electric utilities. Virtually every state has at least launched legislative and/or regulatory initiatives to consider retail choice, rate unbundling, and various other aspects of electric restructuring. Several states, including my own state of Pennsylvania, have adopted comprehensive retail competition legislation.

In NASUCA's view, it is the state legislatures and regulators that are in the best position to tailor restructuring within their states to meet the needs of their consumers. States are in a better position to judge whether a transition to retail competition by a certain date will do more good for consumers than harm.

NASUCA believes that Congress should not mandate retail access. Rather, states should be permitted to determine the extent and pace at which any such transition to retail generation competition should occur. Instead, we would urge Congress to focus its efforts on proposals that would facilitate the efforts of states to move to greater reliance on competitive forces if they choose to do so. NASUCA therefore respectfully notes that it cannot support provisions such as those contained in H.R. 655 and H.R. 1230 mandating retail competition in all states by a date certain.

CONGRESS SHOULD NOT PREEMPT STATES ON STRANDED COSTS
To the extent that the uneconomic costs of some existing generation are potentially left stranded by competitive forces, it is NASUCA's position that utilities generally are not entitled -- either as a matter of constitutional law or traditional ratemaking policy -- to charge ratepayers for 100 percent of the recovery of and return on those investments. More importantly for purposes of this testimony, however, it is NASUCA's position that with respect to stranded cost recovery at the retail level, it is the individual states, not the federal government, that should determine the proper allocation of such costs among utility investors and ratepayers.

Congress should not preempt the authority of states and state public utility commissions to determine the appropriate recovery by utilities of uneconomic costs that are stranded as a result of retail access. State legislators and regulators are best situated to determine the appropriate sharing of costs and benefits that should result from competition, in light of the historic allocation of risks and costs of utility generation in their respective states and other relevant factors. A federally mandated stranded cost recovery rule would actually be a step backward for states such as Pennsylvania which leave it up to our Public Utility Commission to determine the just and reasonable level of stranded cost recovery with respect to utility-owned generation.

Therefore, NASUCA supports the approaches in H.R. 655 and H.R.1960 that allow states to determine the appropriate recovery, if any, of uneconomic costs which cannot be recovered in a competitive generation market. Conversely, NASUCA would oppose any provision that preempts state authority over retail stranded cost recovery.

MARKET POWER MUST BE ADDRESSED TO ENSURE COMPETITION
While NASUCA urges Congress to tread lightly when it comes to issues of retail electricity sales that have traditionally (and for good reason) been subject to state jurisdiction, NASUCA also recognizes the essential role that Congress and federal regulators must play in advancing both competition and consumer protection at the wholesale and interstate level. Indeed, it was the inability of state regulation to address the abuses of multi-state holding companies that gave rise to the Public Utility Holding Company Act of 1935. Congress and federal regulators must ensure that in our desire to bring the benefits of competition to wholesale and possibly retail markets, we do not allow the recurrence of some of the market power abuses that brought about the need for federal regulation in the first place. There is, of course, a vast difference between competition and mere deregulation; and deregulation, in the absence of true competition, is the worst of all worlds for utility consumers.

Market power is not an abstract concept. It real, it is powerful, and it could prevent true competition from developing -- unless federal restructuring legislation addresses market power, self-dealing, cross-subsidy and entry barrier issues. It is for this reason that NASUCA was one of the first supporters, and continues to support, the market power provisions of H.R 1960. By giving the Federal Energy Regulatory Commission and the states enhanced authority over mergers and acquisitions, interaffiliate transactions, cross-subsidization, and other potential anti-competitive practices, H.R. 1960 would substantially increase the likelihood that all consumers can benefit from the restructuring that is currently ongoing in the electric industry. If Congress fails to deal effectively with market power, consumers could become the victims of electric utility restructuring, not the beneficiaries.

UNIVERSAL SERVICE MUST BE A CENTRAL GOAL OF ANY LEGISLATION
Universal electric service is a basic necessity of modern life. Unfortunately, if the electric industry is restructured in a manner that fails to take this into account, the most economically vulnerable customers may be placed at risk. Market forces alone will not ensure that all Americans have access to safe, affordable electric service. Just as the Telecommunications Act of 1996 retained universal service as the central goal of national telecommunications policy, even as Congress sought to inject greater competition into all telecommunications markets, so too should any state or federal legislation that addresses retail electric competition also address the need to ensure universal electric service.

Because NASUCA does not support federally mandated retail competition, we have not addressed the need for a federally mandated universal service program. Nor has NASUCA taken a position on the merits of some type of National Electric Systems Benefits Charge such as that suggested in H.R. 1359. It is NASUCA's position, however, that any legislation that does establish retail competition, either at the state or federal level, should include protections for low-income and other consumers whose access to universally available, affordable electric service might otherwise be placed at risk.

NASUCA SUPPORTS THE DEVELOPMENT OF COST-EFFECTIVE RENEWABLE RESOURCES BUT BELIEVES THAT ANY RENEWABLES PORTFOLIO STANDARD SHOULD BE LIMITED TO NEW RENEWABLE RESOURCES
In a series of resolutions over the last several years, NASUCA has stated its strong support for the development of cost-effective renewable resources as a key element in meeting the Nation's future energy needs. In continuing its discussions on this issue, NASUCA has reached no consensus on the need for a federal renewables portfolio standard. To the extent such a standard is developed, however, it is NASUCA's position that it should be designed to create incentives for the development of new, additional renewable resources, rather than as a reward for the prior development of existing resources at the time of the enactment of such a standard. Thus, NASUCA would urge that the focus of any renewables portfolio standard be on the development of new cost-effective renewable resources.

CONSUMER PROTECTION STANDARDS MUST BE ADOPTED
As the electric industry is restructured, electric customers may be faced with a variety of vendor choices with regard to the purchase of electric power. As the activities of power suppliers, marketers, and brokers and marketing activities of electricity suppliers increase significantly as competition is introduced into some aspects of the electricity marketplace, customers may be subject to unfair, deceptive, unconscionable, or anti-competitive practices with regard to power supply and other service contracts. Previously existing state utilities regulations and consumer protection laws may not provide adequate consumer protections in this new more competitive environment.

NASUCA supports the establishment of appropriate and adequate consumer safeguards to protect customers during any transition to and in the operation of any restructured retail electricity marketplace.

Safeguards should include a comprehensive consumer information and education outreach program; protection from undue discrimination; certification, registration, and bonding requirements to assure that all electricity providers can provide reliable and safe service; appropriate maintenance of privacy of confidential customer information; and a code of conduct for third-party providers and affiliated utility vendors.

Again, to the extent that retail electric competition remains a question of state laws, NASUCA has not addressed the question of whether additional federal consumer protections are needed. However, if the federal government is going to mandate greater retail competition, it must recognize the need for the states to address consumer protection issues, such as those set forth above.

CONCLUSION
NASUCA supports the efforts of this Committee to develop pro-consumer policies in a restructured electric industry. In particular, NASUCA supports proposals to facilitate the development of competition in those areas of the electric industry where competition can maximize consumer welfare. In many cases, however, NASUCA believes that those policies can best be developed at the state, rather than the federal level. NASUCA looks forward to continuing to work with this Committee as these extraordinarily important deliberations move forward.