Energy Markets:

EEI President Kuhn talks upcoming legislation for Clear Skies, electric regs

The energy bill, the president's Clear Skies plan and federal electric power regulatory policies are on the table as Greenwire senior reporters Mary O'Driscoll and Darren Samuelsohn interview Tom Kuhn, president of the Edison Electric Institute about what these issues mean for the nation's investor-owned electric utilities.

Transcript

Mary O'Driscoll: Welcome to OnPoint. I'm Mary O'Driscoll. Today we're discussing energy and clean air policy with Tom Kuhn, president of the Edison Electric Institute and my colleague Darren Samuelsohn, senior reporter with Greenwire and E&E Daily. Tom thanks for coming today. I wanted to know, Congress again is poised to debate and to pass an energy bill. Do you think they can actually do it this year? They've tried this what, four years in a row now?

Tom Kuhn: Well we certainly hope so, Mary. I feel like I've been left at the altar a few times now or as the, you know, the Charlie Brown cartoon where Lucy yanks away the football away all the time just as he comes up to kick it. I think that an energy bill absolutely is a necessity to pass. We've seen tremendous volatility in energy prices. We've seen major problems in the energy industry year after year and there's a tremendous amount of bipartisan support for a comprehensive energy bill. There are a few items in there that are controversial. Hopefully there is a real resolve by the leadership on both sides, by the White House, etc. to move forward and push forward and we hope to get one.

Mary O'Driscoll: OK. Well, it looks kind of like the Senate is pretty intent on rewriting portions of the bill itself. They're looking at natural gas and other issues, but they have not ruled out maybe rewriting or taking a second look at the electricity title, now that is a provision that was pretty hard fought in earlier congresses. How do you feel about the prospect of rewriting the electricity title?

Tom Kuhn: Well the electricity title is a pretty delicate balance. It's got support from us and the co-ops and a whole host of other folks and you know, anytime you tinker with one part of it, I'm sure there's a lot of people that are going to come out of the wood work and say they want something diametrically opposite, so.

Mary O'Driscoll: Well but Alan Richardson of APPA tells us that he'd like to see them take another look at some of the transmission pricing provisions, another look at PUCHA repeal and issues like that. I mean, is EEI --

Tom Kuhn: Well, two years ago Alan Richardson said the bill was just fine the way it is, now he's changed his mind. I mean, people do change their minds. Again, a lot of people come out and say, "Let's start over again." It would take a considerably long time if you were really gonna try and do that and that I think would be a situation that could possibly impede the passage of the bill.

Mary O'Driscoll: Oh, well, so you think going in and looking at maybe updating any language regarding FERC's RTO policies or maybe some transmission policies in there. I know that there's the participant funding, which calls for the, those who want upgrades of the transmission grid, to have to pay for it. It's something that your industry supported pretty, pretty substantially. But there's some concern that maybe that should be looked at again because FERC policies, FERC transmission pricing policies, have adjusted a little bit in response to some of those earlier complaints about that. So you don't think that's worth a second look?

Tom Kuhn: Well, I think that's still an issue and I don't think that, again, I think if you tinker or you change things of that nature, there's so many very, very important provisions in that bill, NERC reliability language, the language in there that is going to allow us to build transmission in the future. I mean, if we can build additional transmission a lot of these problems are not going to be there anymore and the federal backstop authority, I think, is an extremely important provision, the DOE having a lead 8-0C on citing for federal lands is extremely important, the accelerated depreciation for transmission. All of this will help us get the additional needed transmission online. You know, when you do that, people will stop arguing over who gets what share of the transmission system and that's the way it got to be.

Mary O'Driscoll: So you think that the electricity title is just fine the way it is right now?

Tom Kuhn: I, you know, we strongly support it the way it is.

Mary O'Driscoll: OK.

Darren Samuelsohn: Tom, I'd like to ask about another big moving issue on Capitol Hill, which is --

Tom Kuhn: You bet Darren, there're a lot of them aren't there?

Darren Samuelsohn: There sure are. The Clean Air Act and this is been something where there's been a lot of momentum in past years, but never quite has there been complete, you know, movement towards passage of a bill. Your industry, as a whole, has a lot of different perspectives on this and I'm curious. You've got some companies that want to keep Clear Skies, or want to move Clear Skies forward. You have other utilities that are maybe more in the middle ground on this debate. I'm kind of wondering how does an organization like yours kind of keep, you know, on message on this?

Tom Kuhn: Well, we just came out, Darren, over a CEO meeting and there was strong support on all sides for moving forward on multi-emissions legislation along the lines of Clear Skies. I mean, our industry is very, very proud of the record that we have achieved since 1970 and the Clean Air Act that you mentioned. We have reduced emissions about 40 percent of sulfur and nitrogen and we have the ability here with the Clean, when you think about it, over that period of time, from 1970 until today, by 40 percent and we have the ability here and we're talking about reducing emissions an additional 70 percent of sulfur, nitrogen and mercury between now and the year 2018. I mean, that is huge, huge reductions. It will cost billions of dollars, but the difference is if they do it by rulemaking, you will have litigation the day after the rules are issued. That's the history of rulemaking out of the EPA. You will have, you might change that, it might change from administration to administration and when you're making long-term investments, like the utility industry, to make these reductions if you don't have that certainty you're probably going to invest the least amount possible because you don't, you know, you don't know how the rules have changed.

Darren Samuelsohn: To --

Tom Kuhn: The legislation would allow us to really move forward aggressively to meet those targets, 70 percent reductions targets. It would enable us to move forward with new technologies that we can bring online and just like the Clean Air Act amendments of 1990 my bet is if we get that legislation we will far exceed the goals just like we did for the Clean Air Act.

Darren Samuelsohn: In the Clean Air Act debates of 1990 though, there was Democrats controlling the Senate and House and a Republican in the White House. Here we have Republicans in the Senate and the House and the White House.

Tom Kuhn: Right.

Darren Samuelsohn: I'm curious. There hasn't been any movement to compromise. It's pretty much Republicans trying to move this bill and the Democrats feel pretty shut out of this process. Can it go forward on that, you know, with that scenario?

Tom Kuhn: Well I think, with respect to the energy bill and the multi-emissions legislation, it has to be bipartisan to a certain extent. When you talk about Republicans controlling the Senate I don't think anybody controls the Senate. You know? I mean, you need to get 60 votes out of the Senate.

Darren Samuelsohn: There's been no movement to compromise though, though there's been talk of compromise, there really hasn't been any public movement toward compromise in the Senate.

Tom Kuhn: Well, I think there's, I think there's a lot of action up there. Senator Voinovich has been talking to Senator Baucus and Senator Carper and even some people off the committee. I think that's starting to happen. I mean, we're still early in the session. We're only a month into, into the Congress.

Darren Samuelsohn: What would be, what would be acceptable, I guess, to the utility industries in terms of a CO2 compromise? Would, what do you think would be able to pass? I mean, if there's, if it's absent a cap on power plant emissions for CO2, but a mandatory registry program or international development, U.S. technologies going overseas to China and India. Would those be the kind of things that you think that the EEI would be welcome to accept?

Tom Kuhn: Well, Darren, No. 1, multi-emission legislation is a 3P bill, NOx, SOx and mercury, and the issue is whether or not you should take up carbon, the question is whether or not you should take up carbon now, again, the Senate is a place where anybody can offer an amendment, and we know for sure that some people are saying that you ought to put global climate on the bill as well. But to start out with, when I compare the record of our industry versus other industries on global climate we have been a real leader. When I signed the agreement with Al Gore, back in 1996, to reduce global climate gas from our industry they put out a goal of 40,000,000 tons per year that we would reach by the year 2000, we quadrupled that or quintupled that. We got to 200,000,000 tons per year by the year 2000. We just signed, I just signed a memorandum of understanding with DOE, with the other, with public power and co-ops and the rest of the utility industry, in which we are again moving forward aggressively. We have represented about 90 percent of the reductions that have been reported over the Energy Information Administration, in terms of accomplishments, reducing greenhouse gases. So our industry is out there and we have been reporting. We have been doing things and we have been making major, major progress. I think when you do get into the global climate issue it, you bring in a whole lot of other industries into the equation to. So you bring in a much larger political spectrum of people other than just the utility industry which is primarily focused on the 3P issue.

Mary O'Driscoll: I wanted to change the subject a little bit, going to FERC. FERC has a market power rule that they're looking at at this point and six of your member utilities failed at least the initial versions of the test which caused a really strong protest on the part of EEI. Stronger than we normally see when it comes to things --

Tom Kuhn: Right.

Mary O'Driscoll: That FERC does. I wanted to know, you've backed off a little bit, somewhat from that. I mean, is that due to FERC maybe starting to kind of look at the bigger picture and looking at more from your perspective, from the utility's perspective or what?

Tom Kuhn: Well let me say, when we talk about the market power screens, which FERC is talking about, No. 1, I think they, you know, their duty is to go out there and look at the market power issue. So we have not contested that it all. What we had a problem with was their initial screens that essentially have failed about 70 percent of the people that are not in RTOs right now.

Mary O'Driscoll: Right.

Tom Kuhn: You know, I think that the question is what they will do the follow-up on that is an issue. But I think more important, what we have said, and we have had very positive discussions with them, is that we put in to add an additional test that we would like to have them take a look at and that is the contestable load test.

Mary O'Driscoll: Right.

Tom Kuhn: Which is not only to say, hey, you know, what is the theoretical situation but what is the actual situation happening in the marketplace? What is the situation with respect to the amount of load out there that is seeking, you know, wholesale transactions --

Mary O'Driscoll: Right.

Tom Kuhn: To the amount of load that is seeking to serve it and are they able to meet, are there any obstructions in transmission or whatever. I think that when you add that test to their test it's not a substitute for when you add that additional test, we think it would be a helpful test to take a look at to say what's actually practically happening in the marketplace.

Mary O'Driscoll: The American Public Power Association though says that that test still pretty much masks, is unfair because it masks over the fact that many utilities, many of the members of EEI, have such large generating fleets that even under this contestable load, that it masks their real ability to be able to control what's going on in the market.

Tom Kuhn: Right.

Mary O'Driscoll: And that that's something that you can't, you can't avoid because the investment in utilities is so large. So how do you, how'd you kind of assuage their fears that your sheer size is something that can't be overcome?

Tom Kuhn: Well, you know, it is, I mean, we're an industry that's not much more concentrated than a lot of other industries, is the, and from historical factors where utilities have built up generation to serve their loads and to serve their territories, you're not gonna change that. I think that, would public power say, "We should divest all our generation." I don't think that's what you want to do in this kind of a, in this kind of a situation particularly with the volatility that we've seen in the energy markets right now. So, I mean, I do think that what you should look at, what FERCs duty is to look at the abuses of market power and not just the existence. I mean, if you talk about the fact that you have X percent of generation and the test that FERC put out there was 20 percent in non-peak periods of time, while the average utility that has failed the test has had 47 percent. It's not even close. I guess, you know, the issue is if you, is there any exercise? I mean, that's why we talk about the contestable load test --

Mary O'Driscoll: Right.

Tom Kuhn: Is there any exercise or abuse of market power that you see happening out there --

Mary O'Driscoll: So actually, the possession of market power is not the issue --

Tom Kuhn: Right.

Mary O'Driscoll: It's the abuse of it.

Tom Kuhn: Right. And that's what FERC's duty is, to look at and say is there a problem out there?

Mary O'Driscoll: So, in the sense that, you know, a lot of people point to the Enron situation that, you know, look how long it took FERC and everyone to find out that they were actually exercising their market power and that there was tremendous damage done to the markets out in California. I mean, is that something that you're looking at? I mean, that might be an extreme of how that happens, that FERC is going to investigate until something horrible happens.

Tom Kuhn: Well, you know, Enron had very little generation. I mean, they weren't exercising market power per se, they were, it was fraud and abuse is what they were doing. I think that's what has been uncovered here and it took a whole lot of people time to uncover that situation.

Mary O'Driscoll: Yeah. Do you think that there's going to be, that there is ever going to be another RTO formed in the country? You've got RTOs in several places and a lot of your members, down in the Southeast in particular, don't like the RTOs. Do think there'll ever be another one formed?

Tom Kuhn: Well No. 1, I think that you've got a situation where RTOs have moved forward and they're still making changes. I mean, you know, the New England RTO is still making changes. MISO is still kind of even just coming online right now. PJM continually is looking at issues within their RTO with respect to capacity charges and things of that nature. So there's a lot of issues even in the ones that exist and I think that, you know, the Pacific Northwest, the Southwest and the Southeast have all talked about moving forward with regional transmission organizations, a possibility of independent administrators and market monitors and things of that nature. So the question might be what the definition is of an RTO. I mean, if you have companies working together regionally with market monitors and independent administrators, in my opinion, that's making major progress to the kind of thing that you're looking for.

Mary O'Driscoll: Yeah. OK. One final question I wanted to ask about FERC Chairman Pat Wood, his term is up in June, would you like to see him on another term at the commission or what?

Tom Kuhn: Well, you know, in the industry, you don't get to choose your regulators either at the federal level or the state level --

Mary O'Driscoll: You certainly get to kind of offer a suggestion.

Tom Kuhn: I think the president is the one that has to choose and Pat, and Pat has to indicate whether or not he's interested and I'm not sure he's even said that, but Pat has been a wonderful guy to work with. We've very much enjoyed him. He's always listened to us and we appreciate that.

Mary O'Driscoll: Well we'll have to end it on that note. I'd like to thank our guests Tom Kuhn, president of the Edison Electric Institute and Darren Samuelsohn my colleague at E&E Daily and Greenwire. I'm Mary O'Driscoll. Join us again next time for another edition of OnPoint.

[End of Audio]

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