NEWSROOM
Bipartisan Commission Offers Recommendations to Aid Troubled U.S. Electricity Sector
Friday, August 22, 2003
The bipartisan National Commission on Energy
Policy (NCEP) today
released a series of specific regulatory and
legislative
recommendations that would enable electricity
market competition to
progress, while also calling for regulations
and incentive provisions
that enhance the security and reliability of
the power system, assure
affordable service to small consumers and
provide flexibility for
states and regions.
“The massive power outages two weeks ago
are symptoms of a system
that needs both new regulatory requirements
and better economic
incentives,” said NCEP Co-Chair John Rowe, who
is also Chairman and CEO
of Exelon Corporation. “After months of
negotiation among the
Commission’s diverse membership, we have
reached a set of
recommendations that offer a pathway through
the regional and national
differences that have impeded efforts to
develop a national electricity
policy.”
In addition to Rowe, the Commission
includes many of the nation’s
leading electricity experts, among them former
US Congressman Phil
Sharp, former Deputy Energy Secretary Linda
Stuntz, MIT Professor Paul
Joskow, former Assistant Energy Secretary
Susan Tierney, Natural
Resources Defense Council Energy Program
Co-Director Ralph Cavanagh and
Chief of the Washington State Consumer
Protection Division Sharon
Nelson.
The Commission’s recommendations respond to
a comprehensive set of
electric industry concerns, from the need for
regulatory and business
certainty to national security and
environmental imperatives. The
recommendations call for action by Congress,
the Administration, State
and Federal regulators, boards of
consumer-owned utilities and other
decision-makers.
Underlying several of the Commission’s
recommendations is the need
for greater regulatory clarity concerning
which entities are
responsible for long-term resource
investments, a key factor in
promoting increased reliability.
The lack of new investment is particularly
acute when it comes to
the nation’s transmission infrastructure,
which is seriously overloaded
in many areas. To address this concern, the
Commission recommends that
transmission owners and operators be
challenged to identify and
consider all potentially cost-effective
solutions (including demand
reductions and new technology as well as new
transmission lines); that
the Federal Energy Regulatory Commission
(FERC) clarify cost-recovery
for transmission investments; and that more
regional resource and grid
enhancement planning be undertaken. The
Commission also recommends
making mandatory and enforceable the current
voluntary system of
reliability rules; and that additional
resources should be provided for
grid security as well as advanced distribution
and transmission
technologies.
“The current system represents the worst of
both worlds,” said Paul
Joskow. “Competitive markets are not
delivering promised benefits for
retail consumers or promoting adequate
investment by businesses.
Meanwhile, as tens of millions learned
recently, regulation is not
providing adequate reliability. Our
recommendations are geared toward
developing a regulatory framework which will
allow markets to produce
benefits while creating conditions that will
ensure reliability,
security, investment and flexibility for
states and regions.”
Among additional urgent problems cited by
the NCEP report:
Investment in all
categories of electricity infrastructure is
down significantly.
Electricity-related firms are stuck
between uncertain
regulatory regimes, with no assurance about
the rules that will
determine commercial survival and success.
Small customers continue to need and
to desire traditional regulated electricity
supply and price.
State and federal authorities have
been unable to resolve basic jurisdictional
issues.
“It’s up to state and federal
decision-makers to provide clarity,”
said Commissioner Phil Sharp. “Without it,
companies are stuck between
uncertain regulatory regimes; no one knows if
the rules today will be
the same tomorrow – or how they will recover
the sizable capital
commitments needed to maintain a reliable and
efficient electric
system.”
The need for greater clarity and certainty
extends to all segments
of the electricity industry. As a starting
point, the Commission makes
a distinction between wholesale power markets
– which are assumed to
function as competitive commodity markets –
and retail markets, in
which large numbers of household and small
business customers are
likely to continue relying on regulated
distribution companies.
Accordingly, the Commission’s recommendations
for wholesale markets
focus on promoting competition while curbing
market power abuses and
include support for FERC’s efforts to ensure
non-discriminatory
transmission access and foster greater
transparency in markets.
On the retail side, the Commission’s
recommendations are aimed at
providing regulated distribution companies
with the investment
certainty and incentives needed to support
sound management of a
portfolio of electricity resources, including
electric generation,
energy-efficiency improvements, targeted load
reductions and other risk
management tools. Specifically, the Commission
recommends that
regulated utilities retain responsibility for
retail electricity
distribution and resource portfolio management
for customers who
continue to use regulated utility
service.
The Commission also recommends that
customers – especially large
customers – who initially choose alternate
suppliers but then wish to
return to regulated utility service be allowed
to do so only on terms
that hold harmless other customers and the
utility provider and that
orderly schedules for extending choice to
small customers be
established on a regular basis. In addition,
the paper suggests that
large customers who opt for regulated
portfolio service be required to
execute long-term contracts with the utility
portfolio manager; and
that state regulators and boards of
consumer-owned utilities explore
incentives for good portfolio management.
Options include rewarding
utility managers and shareholders (where
applicable) on the basis of
objective performance benchmarks.
Other important Commission recommendations
address ways to improve the electricity
sector’s environmental performance.
“More efficient electricity use remains
vital to improving both
economic and environmental performance, and
cost-effective efficiency
incentives and standards figure prominently in
these recommendations,”
said Ralph Cavanagh. “In addition, Congress
should establish a schedule
for reducing power plant emissions, both to
help the environment and to
provide much needed regulatory certainty for
industry.”
Among the main recommendations of the NCEP
report:
Security and Reliability:
To improve system security and
reliability, the
national electricity system should maintain
dispersed and well-guarded
stockpiles of critical equipment with long
replacement lead times and
to standardize such equipment when feasible.
Congress should approve proposals to
make mandatory
the reliability rules for electricity grids.
Voluntary compliance is no
longer adequate.
Transmission owners should be
challenged to identify
all potentially cost-effective solutions to
congestion and reliability
problems.
Congress, FERC and state regulators
should encourage more regional resource and
grid enhancement planning.
The electricity sector’s research
and development investments need to be
revived.
State and Corporate Responsibilities:
Retail distribution should remain a
responsibility of utilities under state and
local regulation.
Large customers who choose regulated
portfolio service
should be required to execute long-term
contracts with the utility
portfolio manager.
State regulators and boards of
consumer-owned utilities need to focus more on
incentives for good portfolio management
service.
FERC’s efforts to ensure
nondiscriminatory
transmission operations and access to grids
and wholesale markets
should be continued and supported. Wholesale
electric markets should be
as liquid and transparent as possible.
Appropriate deference needs to
be exhibited for states that have not adopted
retail competition and
individual states’ crucial role in ensuring
resource adequacy.
Environment Performance:
Congress should 1) establish a firm
multi-year
schedule of phased emission reductions that
accommodates both
environmental and system reliability needs;
and 2) use market-based
mechanisms to the maximum extent feasible to
minimize compliance costs
and encourage innovation.
Congress should tighten energy
efficiency standards where practical and
cost-effective.
“It’s important to stress that these are
only initial
recommendations,” said Commissioner Linda
Stuntz. “The nation’s
electric industry faces formidable challenges
and we will be
undertaking further analysis to help define
options for overcoming
them.”
NCEP’s full 18-member board is comprised of
leading energy experts
from industry, government, academia and groups
representing labor,
consumer protection and environmental
interests.*
“When it comes to electricity, disparate
interests and competing
goals have more often produced policy
paralysis than consensus,” noted
Commissioner Susan Tierney. “The fact that we
as a group can agree on a
framework for moving forward – given the
diversity of views and
cumulative expertise we represent – suggests
an opportunity for real
progress on issues that are now being
addressed haphazardly, or not at
all, in different parts of the country.”
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