MEMO TO COMMERCE COMMITTEE, DEMOCRATIC MEMBERS
FROM JOHN D. DINGELL, RANKING MEMBER

October 20, 1997

M E M O R A N D U M

RESPONSES TO ELECTRICITY QUESTIONNAIRE

Last April I asked a diverse group of state regulatory commissions, consumer groups, utilities, public power entities (including federal power agencies such as TVA and the Bonneville Power Administration), and other interested organizations for their views on changes taking place in the electricity industry and the need for federal legislation to restructure the industry. One hundred and thirty-four letters were sent, and eighty-three responses received.

The responses are enlightening and will help as the Committee's legislative deliberations proceed. All of the responses will be available on the Commerce Committee Democrats' website [www.house.gov/energycommerce] by Tuesday morning. I also have attached a summary of the responses prepared by Democratic Committee staff.

The responses underscore the difficulty of reaching a consensus on federal legislation in the near term. The single area of unanimity in responses was the opposition by every state utility commission to federal legislation preempting state prerogatives. The responses also exposed clear divisions between low-cost and high-cost states, and highlighted the diversity of circumstances in which different regions of the country, different utilities, different regulatory entities, and various consumers find themselves.

The responses reflected the high degree of activity going on at the state level. The vast majority of states have embarked on efforts to determine the impact of retail competition on their citizens and whether, when, and how they might want to change their existing regulatory regimes. Eleven states have already embraced retail competition and another thirty-eight have proceedings underway. While there is widespread and growing interest in the theoretical benefits of retail competition, various parties are at different stages of evolution in their thinking.

Similarly, there is no consensus within or among various categories of respondents as to whether or not Congress should enact legislation that would compel states to alter their regulatory systems, or even help facilitate voluntary state action. In sum, good faith differences of opinion are very much in evidence.

As might be expected, where a respondent stands on the question of retail competition depends largely on whether the price it now pays or charges for electricity is above or below the national average. Most state regulators that responded strongly in favor of retail competition were from states currently served by high-cost utilities. Interestingly, none of these states expressed support for a federal mandate telling them how or when to make the transition. In fact, no state commission responding to my inquiry asked Congress to pass legislation preempting any of its prerogatives, although some expressed interest in Congress telling other states what to do. (For example, some states that have adopted retail competition argued that Congress should grandfather their programs verbatim, while advocating mandatory guidelines for other states.)

Utilities and other entities that have low-cost power to sell also support federal legislation requiring states to adopt retail competition by a date certain. Like other respondents supporting a federal mandate, they generally emphasized the positive aspects of retail competition and downplayed difficulties that might attend the transition from regulation. They often drew analogies to other industries which have been deregulated, such as telecommunications, and expressed optimism that all consumers would benefit.

At the other end of the spectrum, many consumer advocates and regulators from states that now enjoy low-cost electricity supplies feared that their prices might rise under retail competition. They reasoned that their incumbent utilities would naturally seek to sell electricity to purchasers in higher-cost states, resulting in a bidding war for currently low-cost, in-state supplies. Some regulators and consumer advocates in low-cost states argued these resources should not be put up for auction, since they were built and paid for by the present consumer base.

Similar hesitancy was reflected in the responses of many utilities who currently generate power at above average costs. Whether large or small, independently owned or public, many fear that, under a rapid transition to retail competition, they could lose customers and revenue, particularly if stranded costs cannot be recovered.

A great number of respondents -- utilities, states, consumer advocates, many public power entities -- rest between these extremes of opinion. Many are not yet certain where their interests ultimately lie and expressed a strong desire for more time to study the issue, learn from others' experience, and develop their own solutions and their own timetables. Many are attempting to determine how best to respond to the changes already taking place in electricity markets, and are engaged in detailed study and debate over what retail competition would mean for consumers and various industry participants.

In this middle range, a number of respondents have concluded that retail competition is "inevitable" and that, regardless of their policy preferences, they should prepare for it. A few states with costs at or below the national average are adopting retail competition plans, although with less of a sense of urgency and later effective dates than high-cost states. A number of utilities also appear to be operating under the inevitability theory. They expressed conditional support for retail competition legislation so long as it addressed key concerns such as stranded cost recovery, transmission reliability, environmental impacts, and consumer protection. Many parties were optimistic that competition would benefit all consumer classes over the long run, but also expressed concern that hasty or poorly conceived "change for the sake of change" could backfire, particularly for small consumers.

Not surprisingly, the most difficult problem reflected in the responses -- regardless of the respondent's position on retail competition -- is what to do about the thorny transition issue of stranded costs. There is significant disagreement about how to apportion such costs between consumers, shareholders, taxpayers, and/or ratepayers. Obviously, this decision is the key to who wins and who loses under restructuring.

I trust this information, along with the attached staff summary and the responses now available at our website, will be useful. Please feel free to contact me, or have your staff contact Sue Sheridan or Howard Bauleke on the Democratic Committee staff at ext. 6-3400, if you have any questions or comments.