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Billy Tauzin Chairman Committee on Energy and Commerce Thank you Mr Chairman

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James Madison wrote Such a use of the power by Cong sic accords with the intention and expectation of the States in transferring the power over trade from themselves to the Govt

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In Central Hudson Gas Electric versus Public Service Commission a 1980 Supreme Court case the Supreme Court developed an excellent balancing test for a very similar purpose that the Congress should look to as it develops legislation to eliminate unnecessary barriers to all forms of ecommerce

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Such a law would help to mitigate the special interest political power of local businesses and ensure that parochial State interests do not supersede the national interest of free and unfettered commerce among the States

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This strange confluence is a product of raw local political power of precisely the sort that the Constitution seeks to discourage Each State would pursue a system of commercial policy peculiar to itself

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In Central Hudson Gas and Electric v Public Service Commission 447 US 557 1980 the Supreme Court developed an excellent balancing test for a very similar purpose that the Congress should consider as it looks to develop legislation to eliminate unnecessary barriers to ecommerce

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To mitigate the special interest political power of local businesses and to ensure that the concept of a national marketplace is not subverted or unreasonably attenuated Congress should provide clear statutory guidance

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The base curve the diameter and the power

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Additional material submitted for the record follows Wine and Spirits Wholesalers of America 805 15th Street NW Suite 430 Washington DC 20005The Honorable Cliff Stearns ChairmanCommerce Trade Consumer Protection SubcommitteeCommittee on Energy CommmerceUS House of Representatives Dear Chairman Stearns I want to thank the Chairman and members of the Subcommittee for giving me the opportunity to present testimony about a remarkable American success story known as the threetiered alcohol distribution system

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The 21st Amendment is unambiguous in its enumeration of power to the states to regulate the importation and shipment of alcohol across its borders

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Principal among the reasons that the threetiered system was established was consumer protection it was determined that there should be an intermediary separating the supply and retail tiers to ensure that large suppliers with market power did not dominate individual retailers to the exclusion of other suppliers who might try to break into the market

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In response to those cases Congress passed the WebbKenyon Actentitled An Act Divesting Intoxicating Liquors of Their Interstate Character in Certain Casesthat was designed to cede federal commerce clause power to the states in an effort to provide them with the authority to effectively regulate the importation of alcohol

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They were created in legislatures by virtue of the power granted to the states under the 21st Amendment

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Joe Barton Chairman Subcommittee on Energy and Air Quality There have been many surprises related to Enron most of them unpleasant

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We knew energy markets worked but I think we were all surprised by the strength they showed last fall

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Electricity was delivered where it needed to go and natural gas still arrived on time

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The biggest marketmaker in both electricity and natural gas left the market and the result was nary a blip on reliability and prices

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Todays hearing is about the effect of the bankruptcy on the functioning of energy markets

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I ask each of the witnesses to tell us his or her perspective of the effect Enrons bankruptcy had on energy markets

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Some witnesses here today will say that energy markets actually work better today as a result of Enrons behavior before their downfall

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I am not here to say that energy markets work perfectly

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HR4 still awaiting action by the Senate seeks to improve both the supply and conservation of energy with an eye toward a better longterm balance in supply and demand

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During our experience last year on the Western electricity crisis we learned about the lack of adequate generation in the West and the awful disparity in takeaway capacity from interstate natural gas pipelines into California

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And since nearly everybody in town tells me that electricity markets are not operating at their maximum efficiency we have drafted HR3406 to improve transmission increase generation nationally encourage renewable energy and conservation and otherwise reduce barriers to wholesale competition

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Despite the good news of the past few months this is a dangerous time in the real world of energy markets

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Creditrating agencies have rightfully taken a new look at the complexity and business strategies of companies that trade energy and match buyers and sellers

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Our Nation needs energy companies to do more than simply show Wall Street and Congress that their house is in order

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We need energy producers energy traders and energy utilities leading us toward a better future

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We still need these capitalintensive projects to increase generation through new power plants and we still need innovative companies promoting efficiency in the generation marketing and consumption of energy

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Every time a company cancels or postpones a power plant project the future looks scarier

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Every time our confidence in energy trading decreases we take a step backwards

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Now is not the time to reregulate energy markets

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But now is the time to learn what we can learn from Enron and make energy markets better

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We always want the furnace to turn on the pilot light to be lit and the bill to be affordable no matter what happens to participants in the energy market

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The scheduling of todays hearing is timely and the examination of the effect of the Enron collapse on the wholesale electricity market is highly appropriate

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First in the wake of the Enron bankruptcy filing the wholesale electricity market functioned smoothly and effectively

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There was no interruption in power delivery and the lights stayed on and electricity flowed

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The wholesale electricity market experienced the largest corporate bankruptcy in American history and the fact that it didnt miss a beat is truly a testament to its strength

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As a third matter the stock values of companies involved in energy trading and in the construction of independent power plants have fallen significantly in the wake of the Enron bankruptcy

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Their ability to acquire capital for new power plant construction has been diminished

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As a result many power plant construction projects that had been announced have been delayed and in some cases canceled altogether

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The Nation may in fact find itself without sufficient electricity as a consequence and as the economy recovers we may experience that reality

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And in the basic business model of the merchant energy companies that supply electricity to it I have some suggestions

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I look forward to additional suggestions that todays witnesses may make for steps that can be taken at the FERC or perhaps by this subcommittee that will lead to greater wholesale market transparency and to strengthen investor confidence in the companies that supply electricity to it

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I do support this panels testimony on what effect if any Enrons collapse has had or will have on the competitive energy markets

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Yet power and gas prices remain low and stable

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To my knowledge Enrons collapse has had little effect on the consumer cost of electricity and natural gas

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This subcommittee should certainly fully understand the consequences of Enrons collapse before moving forward with electricity restructuring legislation

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However if this subcommittee doesnt consider electricity restructuring legislation it will be because the majority believe that it is in the best interests of consumers and the American economy and not due to any outside influences

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It will help us to begin to understand the impact of Enrons bankruptcy on energy matters and most importantly upon consumers

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I am pleased that both the Securities and Exchange Commission the SEC and the Federal Energy Regulatory Commission FERC are investigating Enrons activities

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On the other hand and this is most troubling to me and I suspect also to the committee both agencies already seem to have concluded that Enrons collapse raises no substantial question about regulation of the Nations electricity suppliers

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I know that is within your power

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John D Dingell a Representative in Congress from the State of Michigan Mr Chairman I commend you for holding this hearing to help us begin to understand the impact of Enrons bankruptcy on energy markets and most importantly on consumers

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I am pleased that both the Securities and Exchange Commission SEC and the Federal Energy Regulatory Commission FERC are investigating Enrons activities and trust that these inquiries will be conducted in a careful and thorough manner

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On the other hand and this is the troubling point both agencies already seem to have concluded that Enrons collapse raises no substantial questions about regulation of the Nations electricity suppliers

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Moreover these utilities might have met the same fate as Portland General Electric which currently is being sold off by a cashstrapped Enron

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Likewise I am puzzled by FERC Chairman Woods testimony which concludes that Enrons collapse has not had any substantial spillover effects on energy markets

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Perhaps this is a matter of terminology but I wonder how Chairman Wood reached this conclusion when FERC still is in the early stages of a factfinding investigation into allegations that Enron may have manipulated electric and gas markets

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Chairman Wood indicates that once the Commission receives the staff report it will decide whether to institute formal investigations under section 206 of the Federal Power Act into longterm power contracts whose prices may have been influenced by any inappropriate Enron activities

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Perhaps I fail to grasp an implicit distinction between impacts on energy markets and impacts on energy consumers

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I assure you however such distinctions will mean little to the average consumer in the West or any other region where Enron is found to have used its market power to manipulate pricesa matter squarely within FERCs responsibility to ensure that wholesale power prices are just and reasonable

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As I am sure you are aware Commissioner Isaac Hunt testified on behalf of the Commission before the Senate Committee on Energy and Natural Resources on February 6th

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The Commission continues to believe that repeal of PUHCA should be accompanied by legislation providing the Federal Energy Regulatory Commission and state regulators with effective tools to police against the risk of abusive affiliate transactions and crosssubsidization

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As we have testified as long as electric and gas utilities continue to function as monopolies whose rates are regulated by state authorities state and federal regulators must be able to protect consumers from potentially abusive practices

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It is certainly appropriate for Congress to await the results of various investigations of Enrons collapse and to apply what it learns from those investigations in a wide variety of areas including in its consideration of reforming and modernizing the regulation of the natural gas and electricity markets

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However in order to reduce unnecessary regulatory burdens on Americas energy industry we continue to support repeal of PUHCA at this time coupled with necessary consumer protections

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Despite Enron being the largest energy trader in North America a sudden and dramatic departure from the energy markets took place with little if any impact on energy prices and supplies

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That is a remarkable story and that somehow the markets worked around the financial collapse and still delivered energy to consumers at rational rates and still delivered ample supplies of gas and electricity in those markets and at a time when energy prices still remain significantly low

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And no disruptions in supplies and no disruptions in deliveries that we know of and I think that is a testament to the maturity and success of these competitive energy markets today and the stability and benefits that I think they will continue to deliver to folks in this country

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We saw that in gas and we also saw it in electricity and hopefully as a result of this hearing we can get a better picture of how that happened and how these markets are working in spite of this type of collapse so that we might follow a very important rule when we go about trying to fix some of these problems and that is do no harm

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At the same time we also believe that in this market as in other markets that more disclosure more transparencies is probably a very good idea and to the extent that you can shed some light on how this energy trading system can be perhaps more transparent and more informative to both consumers and investors in that market we will be interested in hearing

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But we want to hear more about it and we also want to welcome the Acting Director of the Energy Information Agency Ms Mary Hutzler back to the subcommittee for the first time with a new title and we welcome you

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This is going to shed light on what we hope will be an understanding of how these energy markets function in todays competitive marketplace

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Billy Tauzin Chairman Committee on Energy and Commerce Thank you Chairman Barton for working to coordinate this vital hearing which will consider the state of our Nations energy markets following Enrons collapse

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Despite Enron being the largest energy trader in North America its sudden and dramatic departure from the energy markets took place with little if any impact on energy prices and supplies

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Energy prices generally remained low and stable around the country as parties unwound their positions with Enron

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This is a testament to the maturity and success of competitive energy markets and the stability and benefits they can deliver when structured properly

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Natural gas markets provide another example of this fact

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Federal policies that regulated wellhead gas prices and allowed for the existence of gas pipeline monopolies which shut out competing suppliers and denied producers access to consumers resulted in serious gas shortages in the late 1970s

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Schools and hospitals closed down because they couldnt get gas to heat their buildings

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Beginning with the passage of the Natural Gas Act in 1978 Congress and the Federal government worked to open the market up by requiring pipelines to transport gas for others and finally by deregulating wellhead prices

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The same is true with electricity

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Electricity markets have been maturing around the country

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Beginning with the 1992 Energy Policy Act we have increasingly opened up access to the transmission grid for competitively priced wholesale power

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The result has been an overall decline in the price of wholesale power and the advent of cleaner more efficient generating plants

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The need for more affordable more efficient sources of energy and power and the benefits that customers derive from this are what drives competitive markets and what has driven reform of regulatory policynot the actions of a particular company

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If there indeed turns out to be a need for additional disclosure or transparency in electricity markets this Subcommittee will be ready to address that legislatively in Chairman Bartons electricity bill

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I also welcome Acting Director of the Energy Information Administration Mary Hutzler back to the Subcommitteebut for the first time with her new title

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Ken Lay told us to reform the electric power system and give American consumers the equivalent of one of the largest tax cuts in American history

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Well many States took Mr Lays advice and restructured their electric utilities

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According to a recent report by the Consumer Federation of America Despite predictions of huge rate reductions in States that restructured electricity service consumers there are paying higher prices and receiving less reliable service than in those which have not restructured

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He said that it is time to bring competition to the electric business and in the process cut electricity rates by 30 to 40 percent

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According to the Consumer Federation of America In retrospect claims of efficiency gains and price reductions of 40 percent or more for electricity restructuring seem silly

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At no point during the deregulation process did residential consumers enjoy the sharply lower electricity rates prices that advocates of the policy had forecast

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Mr Lay told us that customer choice will allow the introduction of green energy options

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Unfortunately the reality is that air pollution has gone up as a result of wholesale electricity competition

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The North American Commission for Environmental Cooperation recently conducted a study on this issue and as the chart shows found US Energy regulators underestimated the amount of increased pollution that arose after wholesale electricity competition rules were adopted in 1996

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Recent experience indicates that electricity competition is likely to increase air emissions from power plants

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FERC underestimated by nearly 8 percent the amount of carbon dioxide and other pollutants that US utilities emit under the worst case scenario