POLICY STATEMENT: COMPETITION IN ELECTRICITY MARKETS

The electric industry has been restructured in the Northeast, opening the way for competition for both generation and energy services. Most Northeast states have implemented legislative and regulatory actions to increase customer choice and reduce the region’s historically high electricity costs. The Northeast is in the vanguard of efforts to create competitive retail electricity markets. Competitive wholesale markets are being established throughout the region. At the same time, individual state actions to bring choice of electricity suppliers to their businesses and citizens lay the foundation for competitive and retail markets. These developments to open the electric industry to competition is the beginning of the creation of truly competitive markets.

The Administration and the Congress are expected to address restructuring of the electric system in the 106th Congress. Federal legislation must be carefully drafted if it is to advance retail choice. Legislation which imposes rigid Federal mandates could set-back the substantial progress already underway in states and various regional electricity markets, and also reduce the flexibility which states need to create viable marketplaces. Federal restructuring legislation should not preempt restructuring programs and plans already adopted by the states.

Federal legislation can advance the development of a competitive marketplace for electricity by enabling state efforts in a number of areas. The Coalition of Northeastern Governors (CONEG) urges the Congress and Administration to work closely with the states on these matters.

• In the changing environment for electricity, federal legislative action could clarify the jurisdictional relationship of federal regulatory and state legislative/regulatory authority and reduce judicial questions. Federal legislation should make unambiguous State jurisdiction over the distribution and retail sale of electricity and affirm the States' right to: apply distribution charges, access charges or other mechanisms deemed appropriate by the State; order wheeling for retail sales; and determine the appropriate recovery mechanisms for costs stranded through retail competition. State jurisdiction should also include access to the generation profile, books and records for any company generating or selling electricity in the State.

• Reliability throughout the system remains of the utmost concern to the Northeast Governors. The federal government and the states must act as partners to provide leadership and oversight in developing an appropriate mechanism to ensure adequate reliability standards and enforcement for the transmission system, with any national standards enforced by a national reliability organization set by the organization itself, not the FERC or Congress.
  
  States must maintain authority over the reliability of local distribution systems. Since states are in the best position to use their knowledge of local or regional reliability concerns, any federal legislation must retain states' right to set additional standards appropriate to their bulk power systems.

• Emergence of fair and equitable competitive markets requires the identification and mitigation of market power abuses. The challenge lies in balancing the need to prevent and mitigate market power abuses without imposing federal dictates which might hinder the market’s development and innovation. Federal legislation should allow states to continue their constructive work with FERC to craft mitigation strategies where potential market power problems are perceived. States must also retain authority over market power at the distribution and retail level, as well as full authority for siting of facilities.

• Disclosure is essential for both informed consumers and effective market operations. It will allow consumers to choose more environmentally benign fuel sources, such as renewables. Any federal action should encourage consistent standards for disclosure, but a federal mandate for uniform standards or a specific reporting format is not needed at this early stage of market development. States and markets should be given adequate time to cooperate in developing consistent disclosure requirements.

• States' authority to mitigate stranded costs, as well as provide for recovery mechanisms in state restructuring programs, must not be preempted by federal legislation. All CONEG states that have restructuring plans in place provide for recovery; and in several states, generation assets are being divested. Any federal legislation should reaffirm the states' right to calculate and determine the appropriate recovery mechanism for stranded costs including non-bypassable charges to generate monies for recovery.

• Renewable energy offers many public benefits and contributes to the diversification of fuels. The Northeast states, in their restructuring programs, have embraced a variety of means to encourage renewable energy in the fuel mix. The federal government should maintain its presence in research and development for renewable energy. Any federal legislation should recognize states' authority to incorporate renewable energy into state restructuring plans, encourage state action to support renewable energy, and clarify states' authority over net metering programs.

• Public benefits programs remain an important tool of public policy in a restructured electric industry. The Northeast states' restructuring programs incorporate a variety of public benefits programs and funding approaches -- each appropriate to a state’s particular situation and public policy objectives. While a national public benefits trust fund is one means for the federal government to encourage or enhance state-designed and implemented programs, such a federal fund should not preempt states’ authority to design or set the appropriate funding level for such programs. Any federal restructuring legislation must reaffirm, protect and respect the states’ authority to provide the particular package of public benefits programs that it determines appropriate, including the right to impose non-bypassable charges to fund public benefits programs.

• Independent control of transmission operations and planning is important for the emergence of accessible and competitive markets. The CONEG states are well underway in the process of converting their long-established power pools into FERC-approved ISOs. Any federal legislation must respect this process and the resulting ISOs. Regional entities should adopt a broad perspective when developing plans in an open market environment, but such planning and related siting should not be federalized.

• Timely, meaningful and credible information about changes underway in industry and their impacts is essential if both the emerging market and policy makers are to understand, assess, and adapt effectively. CONEG welcomes the recent Administrative initiative to track and report on industry-wide emissions and resource generation data. The Governors urge the Administration to act promptly to meet a similar need for timely and ongoing information on the impact of wholesale and retail competition on the electric industry in such areas as industry structure, price, consumption and demand, reliability, efficiency and renewable programs, and research and development.

• Competition in the electric industry must coexist with environmental quality goals. The adoption of equitable and comparable environmental emissions provisions applied evenhandedly to all market participants is an important foundation for effective and successful competition in electric markets.
  
  The development of a market-based emissions-trading or "cap and trade" system for utilities will allow industries greater flexibility in choosing appropriate and cost-effective pollution control measures. Any national restructuring legislation should provide EPA with clear legal authority to require such an interstate trading system for NO_X . Control measures taken by generators to reduce ozone-related emissions can be taken without jeopardizing reliability when they are designed and implemented in a well-planned and efficient manner. To ensure maximum cost effectiveness, such measures should be coordinated with EPA programs designed to address other pollutants produced by electricity generators.

The CONEG Governors stand ready to share our states’ insights and experiences with electricity restructuring to ensure that any national legislation enhances and reinforces the substantial progress of the Northeast states in creating competitive electricity markets.