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The board room: legislative issues in resource planning.

One of the most important buzzwords to enter our collective jargon within the recent past is "integrated resource planning" or IRP. Potentially one of the most far-reaching concepts to touch our industry, IRP is linked to numerous legislative issues currently being discussed in Congress.

Clint Vince's article on IRP was originally part of a panel discussion at the recent CFC Power Supply Symposium in Washington, D. C. It serves as a such an excellent broad-brush approach to IRP and the attendant legislation that we decided to reprint it here. We want to emphasize, however, that the article is not intended as the comprehensive "last word" on these issues, but rather as a snapshot of their more significant aspects as MQ went to press.

I. INTRODUCTION

A. Legislative Overview

When our panel began its coordination for this conference, we made a laundry list of all the potential legislative and related regulatory issues that might be relevant. Our list included: (1) Mergers/Acquisitions/Reorganizations; (2) Clean Air Act/Other Environmental Issues; (3) Reform of the Public Utility Holding Company Act/IPPs/Deregulation; (4) National Energy Strategy; (5) Transmission Access; (6) Integrated Resource Planning/Least Cost Planning; (7) Financing/Bankruptcy; and (8) Electric and Magnetic Fields. Since it would not be possible to cover each of these matters in a 20-minute presentation, I shall focus principally on the legislative highlights in several areas in which I have personally dabbled to a significant degree. These are: the National Energy Strategy and its major subsets, such as reform of the Public Utility Holding Company Act ("PUHCA") and IPPs; the status of transmission access legislation; the environmental picture; and how all these impact on integrated resource planning ("IRP"). You have already learned about financing this morning; bankruptcy issues I shall leave for another day. Now let us get to the heart of the matter.

B. What Is IRP And Why Should Cooperatives Care?

The definition I shall use for IRP here is shorter than many you may have seen, namely--the development of demand- and supply-side options which result in maximum benefits for consumers. As you know, the term has gained wide currency as the key to responsible utility planning. Ironically, the components of IRP have long been embraced by rural electrics.

In fact, since the late 1970s, rural electric cooperatives have undertaken IRP, under such assorted names as "supply-demand plans," "least-cost plans," "energy services planning," and "load management plans," because (a) it saved money for ratepayers and (b) the Rural Electrification Administration ("REA") required borrowers, through uncodified administrative policies, to engage in extensive demand- and supply-side management to assure that the borrowers were choosing least-cost options to meet consumer demand.

I do not really have to tell this audience that unlike investor-owned utilities, which earn a return on plant investment and thus have an incentive to build, consumer-owned systems do not have an economic stake in constructing marginally needed generation. Since not-for-profit systems do not have to worry about impacts on corporate earnings, the efficiencies these systems achieve through responsible power supply planning are reflected in lower consumer rates.

You need to be aware that, where for-profit systems are concerned, state regulators can decide to require IRP plans, or encourage their development as part of a utility's energy conservation efforts. IRP differs from traditional utility planning because it involves assembling a mix of options which will satisfy the electrical needs of consumers at the least cost, whereas traditional utility planning has not attempted to integrate supply and demand-side options.

Procedures for evaluating plans are usually specified in a state public utility commission's ("PUC's") order, which will often include a requirement for a hearing on least cost plan filings. Some of you, as distribution systems, are regulated by those PUCs which have opted to oversee retail rates. Where your wholesale rates are concerned, those of you who are regulated by the Federal Energy Regulatory Commission ("the FERC") may be required--if certain proposed legislation is passed by Congress--to conduct IRP programs by FERC in the future. PUCs also regularly require a monitoring component to ensure that the utility is meeting its near term program goals, and that the utility first selects lower cost resource options. Such monitoring can be conducted by a working group comprised of individuals designated by the commission. Opportunities for public involvement in the creation of an IRP plan before it is filed with a utility commission for review include the creation of an advisory committee comprised of local energy experts to help develop and review the plan.

Why am I telling you this? Because it is important to know that you will be under increasing pressure to adopt IRP, if you have not already done so. To the extent that you may be REA-funded, REA's proposed rule covering "General and Pre-Loan Policies and Procedures Common to Insured and Guaranteed Electric Loans" would require the equivalent of an IRP process before approval of a loan. Applicants for loans would have to file supporting documents, including a Power Requirements Study (PRS) which, for power supply borrowers with assets of $100 million or more--approximately 44 of the existing G&Ts--would need to be submitted every three years, with annual updates.

In addition, a borrower would be required to maintain a current, REA-approved PRS work plan which set out the "resources, methods, schedules and milestones" for the preparation of the PRS. Any power supply borrower with total assets of less than $100 million would have to submit a current, REA-approved PRS in support of any request for financial assistance. Both categories of borrower would have to provide a current, REA-approved PRS before approval of long-term power contracts or "other actions." The proposed rule also includes details of the criteria for REA approval of a PRS, Construction Work Plans, and the requirement for investigating alternative sources of power before requests for the addition of generation capacity will be accepted. Under NRECA's guidance, the rural electric industry will, I expect, offer its views on the extent to which small systems should be required to become involved in IRP.

II. LEGISLATIVE INITIATIVES THAT MAY AFFECT RESOURCE PLANNING

A. The Wirth Amendment

Late this past spring, the rural electric cooperative industry was faced with the so-called "Wirth Amendment" to S.1220 (formerly Senate bill S.341), which is part of the national energy policy legislation. While well-intentioned (both cooperatives and public power interests have strongly supported the concept of IRP), the amendment unwittingly would have set up the opportunity for duplication and conflict between federal agencies, because cooperatives who already submit IRP plans to REA would have had to re-submit them to a power marketing administration (PMA), with no structure for resolving any possible conflict between them.

The Amendment included a proposal whereby the three smaller PMAs, namely the Southeastern ("SEPA"), Southwestern ("SWPA"), and Western Area Power ("WAPA") Administrations, would undertake IRP in a manner similar to, for example, the Bonneville Power Administration ("BPA"). This proposal would have required customers of the PMAs to implement IRP plans. So those rural electric cooperatives who were REA borrowers, and therefore required to submit IRP schemes to that agency, would have been subject to dual regulation by another federal agency--the regional power marketing administration.

Working closely with NRECA, we negotiated a technical amendment, on behalf of the Southeastern Federal Power Customers Group, which exempts systems that are already filing IRP programs with REA. It passed the Senate Energy and Natural Resources Committee deliberations and was reported out on June 5 as part of section 6303 of S.1220, the National Energy Security Act. The conference report makes clear that if either a non-regulated utility, or its sole power supplier, is already engaged in integrated resource planning mandated by another agency, then the PMA shall not impose any additional IRP requirements.

This result was excellent for cooperatives, because it means that G&T borrowers and their members will not be subject to potentially onerous dual regulation. In light of the relatively small size of the vast majority of distribution cooperatives and the limitations on their ability to engage in IRP, and REA's pre-existing requirements with respect to IRP, the co-ops achieved a significant victory on this issue.

Thus, such entities are exempted from the section 6303 requirement that both SEPA and SWPA institute rulemakings to determine whether these agencies should require contractual articles linking a federal power customer's continued eligibility for preference power with developing and implementing IRP. WAPA had already instituted a rulemaking on this subject in April of this year, and thus was exempted from the Amendment's coverage.

B. IRP and PMAs on the House Side

We would like to see a comparable exemption in the upcoming House legislation. What can you do about this? Work with NRECA, your regional organizations, and your members of Congress to ward off the specter of dual regulation by raising concerns whenever legislation is proposed which implicates that kind of regulation. As a proactive measure, you should educate your congressmen as to the IRP process that many of you have already employed. For those systems that have not yet embarked on IRP, you should know that the PMAs can play a valuable technical assistance role by exploring existing IRP activities and providing assistance in developing rigorous programs.

C. The National Energy Strategy: The Big Picture

The National Energy Strategy ("Strategy") published by the Bush Administration in February 1991 was a diluted version of the original draft. Much of the criticism it received was directed at the emphasis on production rather than conservation. With respect to integrated resource planning, the document stated that IRP should provide a framework for giving "consumers and producers appropriate incentives to make efficient consumption and production decisions, and by facilitating competition among providers of both electricity generation and demand reduction services."

The stated goal of IRP was the reduction of generating capacity by about 7% by the year 2030, with an estimated net economic benefit of $35 billion between now and then. The existing Department of Energy ("DOE") IRP program would be expanded, including financial assistance to help states with their programs. While acknowledging that development of IRP programs was primarily a state activity, the Strategy stated that DOE would encourage the FERC to promote IRP in its wholesale ratemaking, including transmission transactions for third-party suppliers.

1. The Senate Side

The National Energy Security Act ("NESA"), S.1220, was introduced in its original draft by Senators J. Bennett Johnston (D-LA) and Malcolm Wallop (R-WY). At this time, NESA awaits a date on Senate Majority Leader George Mitchell's (D-ME) floor schedule. Initially, assisted by the momentum of the Persian Gulf crisis, the Johnston bill rolled through the Senate Energy and Natural Resources Committee, with the prospect of arriving on the Senate floor in June. But that momentum was lost with the return of the troops.

Informed observers suggest that the prospects for S.1220 to reach the Senate floor this year are receding. In the complex congressional schedule, a large number of bills (especially almighty appropriations) will be on the docket when Congress returns in September from recess; the target date for adjournment is October.

The sweeping ambit of this bill encompasses many major--and highly contentious--energy issues, such as opening Alaska's Arctic National Wildlife Refuge (ANWR) to oil and gas drilling, which would doubtless make it the subject of floor amendments.

In addition to energy production, other titles in the bill focus on such areas as renewable energy, energy efficiency (which includes utilities), coal technology, and PUHCA reform. It goes beyond the oil import reduction and regulation reform proposed in the Administration's bill (S.570), which was based on the National Energy Strategy.

Provisions in NESA for IRP include proposed amendments to PURPA, which would add new standards requiring, among other things, PUCs to consider (in the ratemaking process) making utility investment in energy conservation and demand side measures as profitable as investment in new generation facilities, as well as efficiency in supply side resources. Another new standard provides criteria and a process for the use of IRP by utilities. Proposed subsection 6301 (b) of S.1220 would require the Secretary of Energy to conduct a comprehensive study of least cost planning, and to present the results to Congress and the President. Section 6302 would create a grant program for state PUCs to encourage the consideration of conservation and demand side measures as mechanisms for modifying future demand. In addition, proposed amendments to the Department of Energy Organization Act require the Secretary to develop a least cost energy strategy.

2. The Sharp Subcommittee

During July, the House Energy and Power Subcommittee of the Energy and Commerce Committee, chaired by Representative Philip Sharp (D-IN), began marking up its comprehensive draft energy strategy legislation, "The National Energy Efficiency Act of 1991." This energy legislation has been cobbled together by Congressman Sharp as he has methodically taken up the concepts embedded in the Bush Administration's National Energy Strategy bill (which was introduced on the House side at the Administration's request by Energy and Commerce Committee Chairman, John Dingell (D-MI) but which has received little scrutiny by the House). Another package of Republican-sponsored legislation, "The Comprehensive Energy and Policy Act of 1991," H.R. 1543, was introduced by Rep. Norman Lent (R-NY) in March and was the subject of an Energy and Power Subcommittee hearing on June 25th. No further action has been taken, but it is possible that sections of this legislation will be offered as amendments by Republican members.

In the July 17th hearing, Rep. Sharp's Subcommittee marked up the draft legislation dealing with, among other items, energy efficiency in the electric utility industry. The legislative vehicle for these changes would be in the form of amendments to the Public Utility Regulatory Policies Act of 1978 ("PURPA"), which encompasses rural electric cooperatives. The proposed legislation directs PUCs to use least cost planning and demand-side management for utility ratemaking.

This bill will also require co-ops to adopt least cost planning; if they do not, they will have to explain the reasons in writing. Thus, a federal standard has been proposed for IRP, which will directly affect cooperatives. In addition, PUCs must factor in the external costs of a decision, such as environmental degradation, to their fuel choice deliberations. We shall keep a close eye on this legislation as it passes through Congress.

When the Sharp Subcommittee completes its mark-up of the entire six sections of omnibus energy legislation some time after the August congressional recess (after which PUHCA reform and the related issue of transmission access will be examined), it may well have to compete with rival versions of omnibus energy legislation which have been reported out of other committees, such as the House Public Works and Transportation Committee, whose jurisdiction includes the Tennessee Valley Authority. Whichever version of an omnibus energy bill is ultimately approved by the House will have to be reconciled with the Senate's counterpart legislation.

D. Public Utility Holding Company Act Reform

Another major issue that figures prominently in the national energy strategy legislation in both the House and Senate is modification of the Public Utility Holding Company Act of 1935 ("PUHCA") to permit the creation of more independent power producers ("IPPs"). Some of you may have attended NRECA's April forum on the issue, in which case you are already aware of much of what I am about to say.

PUHCA regulates all companies (such as holding companies) which either (1) own ten percent or more of the voting securities of either an electric or gas utility company or a utility holding company under the Act; or (2) exercise "such a controlling influence on the management or policies of any public-utility or holding company" that it would be desirable in accordance with the purposes of the Act to consider such companies to be holding companies. If a company becomes a holding company under PUHCA, it must either apply for and receive an exemption from the SEC or register with that Commission, subjecting itself to substantial regulation.

In addition, the Act prohibits all persons who own five percent or more of the voting securities of a utility company or utility holding company from acquiring a five percent voting interest in an additional utility company without prior SEC approval. The Commission will not approve the acquisition unless the two utilities will be geographically, physically and operationally integrated. As a result, a non-utility generator must not only avoid a ten percent voting securities ownership interest in a utility company to evade holding company status, but it must also limit such ownership to less than five percent of the voting securities if it wishes to become involved in more than one utility company project.

Many companies who would be interested in IPP plants now avoid them because of the complex regulations of PUHCA. But the Administration's National Energy Strategy acknowledged that, given the PURPA experience, modification of PUHCA to allow greater competition among wholesale suppliers could be beneficial. Indeed, there have been several waves of legislation in Congress to amend PUHCA to encourage such development of IPPs.

A somewhat sobering note was sounded in July, however, when the National Independent Energy Producers published its study on competitive bidding. Although such bidding has become one of the major options for procuring new generation nationwide, the study revealed that bidders' profit margins have been shaved so close by competition that it should be replaced by "competitive negotiation," a mix of both bidding and negotiation. Obviously, this study raises important issues for discussion.

Action had already been taken by the end of May, however, on Senators Johnston's and Wallop's Title XV of S. 341, the precursor to S. 1220. Their proposals to amend PUHCA by creating a new class of PUHCA-exempt IPPs (or "EWGs"--Exempt Wholesale Generators--as they are known in this legislation in order to distinguish them from entities which receive market-based pricing) were marked up in Committee, and reported out with the rest of S.1220 on June 5. Two significant amendments are worthy of note. The first would prevent multistate holding companies from spinning-off generating plants to PUHCA-exempt subsidiaries without the approval of the affected state commission; the second would provide local state regulators of multistate systems with the authority to determine the prudence of holding company transactions with the exempt wholesale utilities. This provision would prevent the formation of new subsidiaries for the purpose of evading state review. There is, however, no regional regulation provision in the legislation: state and local authority over traditional holding company generation would remain void, leaving holding companies with an even greater incentive to add generation on their own, rather than through purchases from a less expensive, non-affiliated, source.

On the House side, "The Electricity Policy Act of 1991" (H.R. 2825), introduced by Representatives Billy Tauzin (D-LA), Thomas Bliley (R-VA), and Rick Boucher (D-VA) on June 27 would amend PUHCA to promote the development of IPPs by allowing them to own and operate non-rate-based plants, and by exempting them from the Act's restrictions on selling wholesale power to utilities.

Additional provisions on the House side to amend PUHCA to promote IPPs are contained within the Administration's National Energy Strategy bill, previously mentioned as introduced by Chairman Dingell. This legislation differs from the Senate bill in the state regulatory provisions, but would produce the same result of reducing regulation of all IPPs. Congressman Sharp has stated that he himself is "intrigued" by the notion of amending PUHCA in favor of IPPs and his Subcommittee will take up the issue in September, when it continues review of the omnibus energy efficiency legislation; jurisdictionally, however, consideration of such reform falls within the purview of Congressman Markey's subcommittee on Telecommunications and Finance. Chairman Sharp is on record as supporting the joint consideration of PUHCA reform and transmission access, with the added challenge of delineating FERC's powers over such access.

Although it is unlikely that Congress will amend PUHCA this year, especially if it is considered on a stand-alone basis, we expect Congress to amend the Act within the next few years.

On August 1, a staff draft of legislation amending PUHCA was released for comment and discussion, with an announcement indicating Chairman Sharp's desire to go into mark-up in September. This draft would permit the development of IPPs--free from regulation by the SEC--by utility affiliates and "true" IPPs. To curb potential affiliate abuse, state commissions would be provided the authority to approve, or disapprove, such transactions. To prevent possible cross-subsidy, the proposal would provide the states with access to books and records. In light of concern by state regulators with respect to "forum-shopping," the draft would give states the authority to approve new pooling agreements before federal preemption of review of intra-pool transactions would obtain. Finally, the draft provides transmission access consistent with the Tauzin-Bliley-Boucher bill, discussed above.

What is the possible impact of such reform? It would certainly expand the possible alternatives, from a generation standpoint, to meet demand. The most likely outcome would be that there would be little expansion in generation by traditional utilities: IPPs would be the source, including utility affiliates.

What would be the IRP implications of such reform? To the extent that IRP requirements exist already, such as for REA borrowers, it is likely that regulators would insist on competitive bidding before construction began, in which case the range of bidders would be potentially enormous. Theoretically, the most competitive bid wins. I do not need to tell you that rural electrics like to build their own generation, and to borrow cheap money to do it! A question for the future is--will it be more economic or less risky for cooperatives to purchase power from third-party power producers instead of building and operating generation capacity themselves?

E. Transmission Access

Strong opposition to PUHCA reform exists within the electricity industry, especially from those who fear it will be inextricably linked to transmission access. Such linkage, in fact, may be inevitable. Indeed, House leaders maintain that transmission access legislation is more likely to pass the House than PUHCA reform. Senator Johnston has steadfastly resisted all attempts to attach transmission issues to NESA, but at the end of June he conceded he would wait to see what happens in the House. The entire package of Senate legislation will be subject to floor amendments when it is scheduled for consideration by the full Senate.

There has been a flurry of legislation in the House on this highly contentious issue over the past few months. Two bills that have received a great deal of attention are:

1. The Markey-Moorhead Bill

The "Electric Power Fair Access Act of 1991," H.R. 2224, was introduced on May 2nd by Representatives Edward Markey (D-MA) and Carlos Moorhead (R-CA) to amend sections of the Federal Power Act and the DOE Organizing Act. Designed to improve competitiveness by providing more equitable access to transmission lines and services, it would give FERC authority to order transmission (for wholesale transactions only) on a case-by-case basis. In the process, FERC could order the filing of general transmission tariffs and/or the enlargement of transmission capacity. If a utility or its affiliate were to sell power at marked-based rates, or if a utility were involved in certain mergers and acquisitions, then it would have to provide transmission services to all qualified applicants, regardless of location, and file transmission tariffs with FERC. Other provisions include standards for transmission orders and tariffs, and the encouragement of regional transmission planning by the DOE.

2. The Tauzin-Bliley-Boucher Bill

As noted previously, H.R. 2825 was introduced by these Members to amend PUHCA. In addition, it deals with transmission issues by amending the Federal Power Act. It proposes that a utility be required to file an open-access transmission tariff at FERC only when it is requesting market rates for an affiliated IPP in its service area. With respect to pricing of transmission services for IPPs and other third parties, a utility could be reimbursed for all prudently incurred costs.

3. The NRECA Task Force

The NRECA Transmission Task Force has developed a Regional Coordinated Transmission Planning and Utilization Model, which you may wish to look at, if you have not already done so. With respect to IRP, this Model emphasizes: "Only coordinated transmission planning and utilization can optimize the development and utilization of the transmission infrastructure to enable utilities to take maximum advantage of existing generation and transmission resources and to take advantage of the least cost supply options in the future." This model offers the opportunity for all utilities to become "players" by buying into the transmission system and participating in planning.

4. The NARUC Position

In late July, state regulators gave additional impetus to broadening transmission access by passing a resolution in support of transmission reform. Indeed, a series of joint NARUC-FERC meetings, scheduled for the fall, will cover such topics as transmission and IRP.

F. The Environmental Picture

While focusing on integrated resource planning, I cannot fail to mention the potential impact of environmental issues on costs. I shall deal with three issues in particular: Electric and Magnetic Fields ("EMF"), the Clean Air Act Amendments of 1990, and global warning.

1. Electric and Magnetic Fields (EMF)

For those of you who may have been out of the country for the last few years, there is concern about the health effects (on people and animals) of electric and magnetic fields produced by transmission lines. Recent studies have heightened this concern. Health effects research is still preliminary and inconclusive, but a growing number of studies suggest that, under certain circumstances, even relatively weak electric and magnetic fields can produce biologic changes.

At this time, there has been no activity on EMF in the Senate. In the House, Rep. Frank Pallone (D-NJ) introduced "The Electric and Magnetic Fields Research and Public Information Dissemination Act," H.R. 1483, on March 19. Neither the Energy and Commerce Committee, nor the Science, Space and Technology Committee have acted on it as yet. The same bill was introduced in the last session of Congress, but was never taken up. It would set up and fund a federal program to conduct and coordinate reasearch into any issue related to potential health effects resulting from human exposure to EMF. Additionally, the program would be charged with recommending improved electricity delivery systems and usage to reduce potential human health risks posed by EMF, and with communicating available information on health effects of EMF to the public in an effective manner.

There has been, however, some appropriating activity. A House Appropriations Subcommittee passed a bill (H.R. 2519) on June 6, which called for two million dollars for an EPA study of EMF, one million dollars more than the Administration's request. A companion bill, authorizing only one million dollars, passed the responsible Senate Appropriations Subcommittee on July 18. Both bills will now go to the conference committee.

How does EMF affect cooperatives and their IRP plans? Those of you who are REA clients already know you need to comply with posting requirements for environmental notices in anticipation of construction of new transmission lines. Some of you may have changed proposed routes for the lines as a result of discussions with groups of residents. All of you have probably encountered the issue of occupational exposure, and the attendant liability issue which need to be factored in to your costs.

2. The Clean Air Act Amendments of 1990

As this conference has included an entire panel devoted to air quality issues, I will endeavor to avoid repeating much of what has been said before. In order to provide a frame of reference, however, I will list briefly the components of the new law, which wrought major changes in key aspects of the Clean Air Act and added several new provisions which use both "command and control" and "market" mechanisms to address air pollution problems.

Title I of the Amendments focuses on bringing all geographic areas, and both mobile and stationary sources, into compliance with national ambient (outside) air quality standards. Title II imposes stricter mobile source requirements. Title III places novel and stringent regulations on sources of airborne toxic pollutants, including electric power plants. Title IV sets out a complex scheme for controls on acid rain, which is caused principally by emissions of sulfur dioxide ("S [O.sub.2]") and nitrogen oxide ("[N.sub.2] O"). Phase I of the program runs from 1995 through 2000, and is targeted at 111 power plants required to reduce their emissions to levels established in the Act. Phase II, which starts in 2000, also requires utilities to meet specified emissions levels; the allowance trading program for emissions begins in this phase.

Title V adds provisions modeled on the existing Clean Water Act permit program, which will require most sources of air pollution to obtain operating permits. Title VI contains new provisions covering ozone-depleting chemicals to reduce their production and consumption by 50 percent by 1998. Title VII adds enforcement provisions, which include very strict criminal and civil penalties. Costs for compliance by the utility industry are, obviously, enormous; one piece of legislation designed to help lighten the burden is a proposed amendment (S. 1234) to the Internal Revenue Code of 1986 to provide tax relief to utilities installing acid rain reduction equipment, introduced by Senator Alan Dixon (D-IL) on June 6. The bill is currently pending in the Senate Committee on Finance until after recess.

Since enactment of this legislation (PL 101-549) last year, the Environmental Protection Agency ("EPA") has been required to draft proposed rules--approximately 25 of them within an 18-month period. One of the most contentious issues, and one which certainly impacts on least cost planning, is EPA's proposed rule on the so-called "WEPCO issue." As you are well aware, the question here is when do modifications to an existing power plant trigger the more stringent requirements for new sources?

In the late 1980s, EPA ruled that certain modifications, including the Wisconsin Electric Power Company's refurbishment of five coal-fired units, did just that. The industry responded that such rulings would discourage utilities from improving existing plant efficiency, and could have barred them from making the necessary modifications to comply with the new legislation. Resolution of this issue was not achieved during last year's reauthorization of the Clean Air Act but was delegated to EPA which, after much discussion with the Department of Energy and the White House, issued its proposed rule on June 14.

The proposal would, among other things, exempt the majority of pollution control projects from new source regulations. Since then, it has come under attack by environmental groups and by legislators, such as Rep. Henry Waxman (D-CA), Chairman of the House Health and Environment Subcommittee. They are concerned that power plants, whose modifications are not subject to new source reguirements, may contribute more overall air pollution--such as nitrogen oxides and fine particles--through increased plant utilization, even though S [O.sub.2] emissions are reduced. The Natural Resources Defense Council has written to industry officials, including cooperatives, informing them that it considers the proposed changes unlawful and would challenge the rules in court, as well as any utility attempting to rely on them.

On the Senate side, Senators Johnston and Wallop wrote to Senate Majority Leader Mitchell on June 28 informing him that, since EPA had proposed the rule, they were willing to strike the WEPCO provisions from the National Energy Strategy bill when it reaches the floor. The Senators stressed, however, that they would reserve the right "to revisit the WEPCO issue should EPA in the rulemaking process, or in the final rule, deviate from the proposed rule."

Complying with the new clean air legislation implicates not only potentially huge costs but also significant choices, which will impact on integrated resource planning. The three major options for compliance by utilities are: (1) scrubbers; (2) fuel switching; and (3) allowance trading. Uncertainties exist with regard to the selection of low-sulphur coal relative to scrubbers: should a utility commit to long-term contracts at today's lower coal prices, or should it purchase low-sulphur coal on the spot market?

Some states, in their desire to protect their domestic (high-sulphur) coal industries, may require their electric utilities to invest in expensive and energy-guzzling scrubbers. For example, Illinois has just passed legislation requiring two utilities to install scrubbers so they may use in-state coal and save over 20,000 coal industry jobs. A utility can apply for federal funding to help pay for scrubbers under the Department of Energy's Clean Coal Technology Program, which an Illinois congressman, Rep. Terry Bruce, has sought to extend through 1994 introducing recent legislation.

Another uncertainty is how the trading scheme for futures in S [O.sub.2] emissions allowances will play out. At this time, with the prospect of the program being run by the Chicago Board of Trade, rather than the EPA, a true market may develop. A G&T would need to consider how to treat emissions trading in its IRP plan.

3. Global Warming

This issue remains enormously controversial. While there is not yet a consensus in the scientific community on the seriousness of the threat of ozone depletion and global warming, President Bush has taken a "no regrets" stance. This position contemplates energy conservation and efficiency measures that help reduce emissions of greenhouse gases, even if there is no proven problem. It would appear that the electric utility industry needs to maintain its credibility by resisting the urge to dismiss global warming as not a problem; to play a role in policy making on this subject; and to avoid a poor negotiating position, as happened with the clean air amendments. NRECA has taken a strong lead by creating its Global Climate Task Force.

Congress is already considering controls on greenhouse gases, which include carbon dioxide ("C [O.sub.2]"), nitrogen oxides, chlorofluorocarbons, and methane. Representatives Jim Cooper (D-TN) and Mike Synar (D-OK) introduced H.R. 2663, The Carbon Dioxide Offsets Policy Efficiency Act, in June. This bill would require new and modified sources, which emit over 100,000 tons of C [O.sub.2] per year, to offset those emissions over a 15-year period. Moreover, in the year 2005, all power plants built over 65 years ago would be required to obtain offsets by such actions as, for example, increasing efficiency at existing plants, and buying land for tree planting in the U.S. and abroad.

Representative Terry Bruce's bill to extend DOE's Clean Coal Technology Program--mentioned in the previous section--is designed to address, among other things, potentially harmful effects of global warming. In addition to encouraging pollution control technology, the bill would require FERC to adopt clean coal technology incentives. Even though there is no consensus yet on the environmental cost of [CO.sub.2], coops will need to consider the possible future costs attached to [CO.sub.2] emissions as a potential factor in designing an IRP program.

III. CONCLUSION

I was asked to prognosticate somewhat on how the legislative, and accompanying regulatory aspects, may play out. With the caveat that the following is pure speculation, I offer these few thoughts.

A. Transmission access

Although there are still deep divisions within the industry on this issue, in my view the debate is shifting from whether transmission access should be required to issues of pricing (and subsidiary issues such as protection of native load). Recently, for example, Entergy Corporation, one of the largest utility holding companies in the country, filed an open-access transmission tariff with the FERC. Also last week, FERC approved the merger of Northeast Utilities and Public Service Co. of New Hampshire, which is predicated on major transmission considerations. And in the House, as explained earlier in this presentation, several major proposals are being considered. If I were to predict some possible outcomes, I would say that the Markey-Moorhead bill may never obtain support from co-ops because it requires all utilities (including co-ops) to file rate schedules with FERC for transmission service. Cooperatives doubtless will not wish to be regulated by FERC, or to give up their transmission systems in order to avoid such regulation. The Tauzin-Bliley-Boucher bill is less explicit about the requirement to file with FERC, but it would permit potential transmission users to apply to FERC for an order requiring transmission access. Some kind of transmission legislation will pass, and it could be during this session of Congress.

B.EMF

While the scientific analysis is not yet conclusive, there is increasing evidence linking EMF to biological changes. The politics seem to be way ahead of the science--I firmly believe that public clamor will demand serious action by Congress. The utility industry should not stonewall on this issue: there should be a commitment to research, information sharing, and the development of remedial measures.

C. Clean Air Act Amendments

Utilities are already heavily involved in compliance, and planning for compliance, with this Act. My prediction is that the electric utility industry will learn from the policital mistakes made in addressing--of nor addressing--acid rain legislation. The industry will seek to become a "player" in future legislation, including issues such as global warming, EMF, and transmission access.

D. Global warming

I anticipate significant legislation here. My expectation is that those who wish to debate the science of global warming will be left in the dust. Again, as in the case of EMF, the politics are way ahead of the science. Someone once said, on the occasion of Duke Ellington's death: "I don't have to believe it if

I don't want to!" I do not suggest that this strategy be employed by the utility industry with reference to the topic of global warming. The industry needs to be a player in the ongoing debate. Indeed, I think we could apply that thought to everything I have discussed today touching on rural electric cooperatives and IRP.

Clinton A. Vince, a graduate of Trinity College and Georgetown University Law Center, is a partner in the law firm of Verner, Liipfert, Bernhard, McPherson and Hand. He heads the firm's twenty-five member Energy and Environmental Group which is actively involved in the legislative issues covered in this article. Sherry Quirk is also a partner at Verner, Liipfert, Bernhard, McPherson and Hand. She graduated from Mount Holyoke College and from the J.D. Washington College of Law at American University. Jan Frazer-Smith received her undergraduate degree from New York University and her law degree from Georgetown University. She is currently Energy and Environmental Group Planner at Verner, Liipfert, Bernhard, McPherson and Hand.
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No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:power resources
Author:Vince, Clinton A.; Quirk, Sherry A.; Frazer-Smith, Jan
Publication:Management Quarterly
Date:Sep 22, 1991
Words:6405
Next Article:Management memo: strategies in packaging a zero interest loan for REA's rural economic development financing program.
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