UTILITIES FRET OVER REFORMS PROPOSED IN ENERGY LEGISLATION

UTILITIES FRET OVER REFORMS PROPOSED IN ENERGY LEGISLATION

Energy legislation now pending in Congress could have a negative impact on the nation's utility industry.

That's the warning issued by Thomas R. Kuhn, president of the Edison Electric Institute, an association of investor-owned utility companies that produce and transmit about 75 percent of the nation's electric power.The U.S. Senate's approval of national energy strategy legislation in February and the recent movement of a similar bill out of a key House subcommittee gives strong indication that Congress will approve an energy policy bill later this year.

But unlike last year's failed legislative attempt, which focused on oil drilling in Alaska's Arctic National Wildlife Refuge and increased automotive fuel efficiency standards, lawmakers this year hope to reform the nation's utility industry.

Both the Senate energy bill, S. 2166, and the House version, H.R. 776, contain provisions that would amend the Public Utility Holding Company Act, or Puhca, which governs who is allowed to make and sell electricity.

Both bills would ease restrictions on independent power producers by allowing them to generate and sell electricity to utilities without submitting to the same strict regulation that govern public utilities.

The House bill, however, restricts utilities from competing with independent power producers, and takes utility reform a step further by seeking to mandate open access to the nation's power transmission system, Mr. Kuhn said in a recent interview.

"We have members on both sides of the Puhca issue, so we are officially neutral on that, " he said. "But if Puhca is changed to allow increased non- utility power generation, it should not exclude utilities from building generation capacity."

He said that under certain conditions, state regulators can allow utilities to add capacity through independent subsidiaries, which then would sell power back to the parent company.

The House bill would prohibit a utility's subsidiary from selling power to itself, while the Senate calls for state regulatory oversight on that issue, Mr. Kuhn said.

"We should be able to build plants under traditional regulations, and be able to compete on an equal basis with independent power producers," he said.

Independent, non-utility power producers already are expected to build about 18 percent of new generating capacity over the next 10 years, industry figures show.

More threatening to the nation's public utilities, Mr. Kuhn said, are provisions in the House bill that would force utilities to open their transmission lines to independent power producers or other utilities, allowing them to transport, or "wheel" wholesale electricity across local utility boundaries.

Although state regulators already allow some open access transmission tailored to local conditions, open access by federal mandate could disrupt economy and coordinated power purchases, Mr. Kuhn continued.

"Although there is a lot of wholesale wheeling now, the Edison Electric Institute is opposed to federally mandated wheeling over the objections of state regulators," he said.

"Utilities are interconnected, and we use those interconnections to get the lowest cost power for the consumer," he said. "Utilities have saved over $20 billion a year through coordinated buying and selling.

"In the Northeast, transmission capacity is now at 93 percent utilization,

because it's difficult to build more," he said. "If you add more players to the system, you might have to back off some least-cost power."

Under the House proposal, he said, if utilities did not have the transmission capacity to serve wholesale wheeling customers, they could be forced to build new transmission lines or back off their own economy transmissions.

At the same time, Mr. Kuhn said, the legislation doesn't allow for adequate compensation to the utility for adding new lines, forcing the utility to subsidize its cost.

What's more, some utilities think wholesale power wheeling would clear the way for retail wheeling, where low-cost power from beyond a utility's territory could be brought in on the utility's transmission lines and sold to the utility's best industrial customers at a discount, he said.

Retail wheeling would create major additional problems, he added, decreasing reliability by driving transmission systems to capacity, and forcing utilities to raise prices for smaller customers to compensate for the loss of large ones to outside suppliers.

Retail wheeling also could weaken utility conservation and efficiency programs, which are financed out of the customer rate base. A smaller rate base would drive up the consumer costs of those programs, he said.

"Utilities must be adequately compensated for use of their (transmission) lines," he said. "A significant role must remain for state regulators, and the legislation must prohibit retail wheeling."