Mr. BIENSTOCK. That is correct. I was addressing the first phase of the project, rather than your individual phase. It is my understanding that for that phase, the original completion date was 1986, and that subsequently it slipped to 1988, and then we incurred another year's delay which makes 1989 the time for completion of that phase.

Mr. GRANT. That would be fairly close. That is the kind of program schedules that I am seeing now. I don't know how to put them into any valid context, other than that.

Mr. BIENSTOCK. Is it true that the machinery components for the centrifuge have to be created from scratch? In other words, there was no prototype per se as far as industrial capacity to produce these?

Mr. GRANT. That is absolutely correct. If any of you would like to make a trip to Tennessee, I will be glad to show you through down there. The degree of uniqueness that is involved there is very, very amazing.

Mr. BIENSTOCK. Thank you, Mr. Chairman. These are all the questions I have.

Mr. OTTINGER. Mr. Ward.

Mr. WARD. If in your reassessment, your three companies should individually decide that it is not profitable for you to continue with this, how long would it take to reestablish an industry infrastructure capable of supplying the centrifuges?

Mr. GRANT. All I can do is speak for what it has taken for me to get there. I started ordering equipment, placing orders for equipment, and that sort of thing, in November of 1977. I am starting to install equipment in Oak Ridge, Tenn., as of last week. So you are talking about 31⁄2 years roughly.

Mr. CLARK. I was going to say the same thing, Mr. Ward, about 32 to 4 years.

Mr. RACHLIN. I think that the other most important factor you have to consider is the people resources. You have a pool of talented, trained, cleared people to work on these programs. To lose that resource, the recovery time on that, you just can't forecast that. Mr. CLARK. I would like to add one other thing, if I might, Mr. Ward.

Another very key element of this thing is that you have to go back and recognize that we invested $20 million of our own money just to get to the point of being qualified to participate in the production program.

Mr. WARD. Thank you, Mr. Chairman.

Mr. OTTINGER. I want to thank all of you for your very informative and helpful testimony. It is really my first exposure to this program, and I think that it has very interesting possibilities. I assure you that we will pursue your concerns, and see if we can't resolve some of the problems that you are confronting.

Mr. GRANT. Thank you, Mr. Chairman.

Mr. CLARK. Thank you.

Mr. OTTINGER. The hearing is adjourned.

[Whereupon, at 4:20 p.m., the subcommittee recessed, to reconvene on March 4, 1981.]

DOE AUTHORIZATION FOR FISCAL YEAR 1982

ELECTRIC UTILITIES

WEDNESDAY, MARCH 4, 1981

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ENERGY CONSERVATION AND POWER,
COMMITTEE ON ENERGY AND COMMERCE,

Washington, D.C. The subcommittee met, pursuant to notice, at 2 p.m., in room 2322, Rayburn House Office Building, Hon. Richard L. Ottinger (chairman) presiding.

Mr. OTTINGER. Today the subcommittee will examine the role of the Department of Energy in the electric utility sector.

Ironically, at a time when the Federal Government is becoming increasingly aware of the problems facing the electric utility industry, the President's budget calls for a blackout of a variety of programs designed to assist the utilities and State regulatory commission in facing these challenges.

The subcommittee will soon be holding a series of hearings on the financial condition of utilities, and the Federal Energy Regulatory Commission has scheduled a public meeting on similar issues for this Friday. At the same time, however, the Department of Energy is proposing to end its involvement in the area.

During the past decade, the utility industry has undergone major changes. As the cost of fuel has increased, so has the cost of electric generation. Utilities have encountered increasing difficulties in raising capital to finance new construction. In response to this situation, a number of Federal laws have been enacted to reduce the fuel consumption of utilities and to reduce the need for large capital expenditures.

Some laws, such as the Energy Conservation and Production Act and the Public Utility Regulatory Policies Act, PURPA, have encouraged efficient ratemaking to improve load management and reduce the need for additional peaking capacity.

Other laws have provided incentives to utilities to get involved in conservation, cogeneration, and renewable energy resources as an alternative to new construction and the subcommittee is likely to consider further initiatives in these areas.

The Department of Energy has estimated that adoption of Federal ratemaking standards could reduce utility capital expenditures by $12 billion and save 275,000 barrels of oil per day, and the Residential Conservation Service could save another 200,000 barrels of oil a day.

These Federal programs have generally not been regulatory in nature and the role of State regulatory commissions has been preserved. Federal programs have assisted both utilities and State

commissions by providing financial assistance for innovative programs.

The tide of opinion among utilities appears to be shifting toward conservation, cogeneration, and renewables as an alternative to financing new plants. The assistance of the Federal Government has been working, and we would hesitate before totally snuffing out these programs which total about $57 million but can save consumers billions of dollars in unnecessary powerplant spending, and in the huge cost of imported oil.

Today we have a variety of witnesses from State regulatory commissions and utilities to discuss these issues. The hearing today, I will advise our witnesses, is directed at the Federal Government role in the utility sector, particularly the Federal budget, and the zeroing out of the DOE activities in these areas.

We will be taking up the question of what can be done to encourage the utilities to go into these other apparently attractive fields at another set of hearings, as I said, that we will be having somewhat later in the year.

We would particularly like to hear from our witnesses which of the Federal programs proved to be most effective, and any of the programs that they feel have not been effective, and might be cut or eliminated.

We will proceed with two panels, the first of which, if the gentlemen would come up to the table, is Dr. Leigh Hammond, commissioner, North Carolina Utilities Commission, Raleigh, N.C.; Mr. Larry J. Wallace, the chairman of the Indiana Public Service Commission, Indianapolis, Ind.; and Dr. Alvin K. Grandys, the director of the Government Office of Consumer Services in the State of Illinois, Chicago.

Gentlemen, we welcome you. Your statements will appear in the record. We would appreciate it if you would try to confine yourself to a short summary of about 5 minutes, so we can have time for questions and answers with the panel.

We have with us here my ranking minority member, Mr. Moorhead from California. Would you like to say something at the outset?

Mr. MOORHEAD. Not at the present time, Mr. Chairman. Thank you.

Mr. OTTINGER. All right.

We must hear, then, first from Dr. Leigh Hammond.

STATEMENTS OF DR. LEIGH H. HAMMOND, COMMISSIONER, NORTH CAROLINA UTILITIES COMMISSION; LARRY J. WALLACE, CHAIRMAN, INDIANA PUBLIC SERVICE COMMISSION; AND DR. ALVIN K. GRANDYS, DIRECTOR, GOVERNOR'S OFFICE OF CONSUMER SERVICES, STATE OF ILLINOIS

Dr. HAMMOND. Thank you, Mr. Chairman.

I am Leigh Hammond, a commissioner with the North Carolina Utilities Commission. I am appearing today on behalf of the Commission and the National Regulatory Research Institute.

It is important to note also, I think, that the views that I express here today and express in my written testimony are consistent with those formally adopted by the National Association of Regula

tory Utility Commissioners, which is composed of the commissions of the 50 States that are engaged in the regulation of utilities.

My testimony focuses on the activities carried out by the North Carolina Commission and the National Regulatory Research Institute through support from the Department of Energy's Office of Utility Programs.

The reason that I am appearing on behalf of the Research Institute is that I am chairman of the board of that institute.

In fiscal year 1979, North Carolina received a grant from the Department of Energy to assist us in considering the PURPA rate standards, to evaluate innovative rate proposals, and initiate a pilot program for energy conservation.

In earlier years, we had received grants to conduct intensive time of day experiments with one of our regulated utilities, and also one of the rural co-ops in North Carolina.

The commission in 1980 had generic hearings on the PURPA standards. On February 4, 1981, we issued an order which substantially adopted the PURPA standards, except where in a few instances they conflicted with our State law.

The innovative rates funds helped us conduct several projects. One was a comparison of electric consumption patterns of the supplemental security income customers of one of our utilities. This comparison was looking to see whether rate differentials would be justified for that class of customer. It was a modified experiment in lifeline type rates.

Another study that we conducted with these funds had to do with a comparison of the cost effectiveness of various time-of-use rates, and direct load management strategies, to see which of those might be most cost effective for our utilities in North Carolina. Finally, we had another study that looks into the definition of a least-cost electricity supply strategy for the major electric utilities in North Carolina, to see what types of utility plants would be most effective in keeping the cost of our electricity low.

In relation to that, to demonstrate the North Carolina commission's search for new ways to keep our energy costs from increasing as fast as they have been in the past, we have instituted, through a small surcharge on our electric rates, a program to fund an alternative energy corporation in the State to look at various alternative energy sources as they would apply to our particular circumstances in North Carolina.

The programs that have been funded by the Department of Energy have provided us a much more solid analytical base for our decisions than would have otherwise been the case. I am convinced that all these programs will move North Carolina more rapidly along the path to an efficient energy production and distribution system.

Likewise, we are in a much better position to price our electricity in a manner that will give the consumer a more realistic signal of the true cost of providing the present and future supplies of electricity.

The National Regulatory Research Institute has also received financial support from the Economic Regulatory Administration. This institute, organized in 1977 at Ohio State University by the National Association of Regulatory Utility Commissions, operates

with a single objective in mind, and that is the provision of research, educational, and technical assistance to State regulatory commissions.

Almost all of the 50 State commissions have benefitted from the NRRI programs through a series of direct technical assistance efforts with the State commissions, research reports, and educational conferences to examine various issues. As each year passes, financial support from the various State commissions and Ohio State continues to grow, yet this infant institute is still too young to survive without some level of support from the Department of Energy.

No one argues seriously with the need to test the effects of the national policy to dampen the growth in Government spending, yet there is a critical need for some modest level of continued support for the innovative rates and load management efforts of the State commissions, and the analytical backup for those commissions provided by the National Regulatory Research Institute.

It is in the national interest to continue efforts to stimulate energy conservation and more efficient consumption patterns, as well as to stimulate greater energy production activities. We would make a serious error to abandon our concern for the demand side of the energy equation in order to focus on opportunities for stimulating the supply side. Commonsense as well as economic theory dictate that we look at both the demand and the supply issues. The North Carolina Commission and our utilities have benefitted greatly from the DOE support for rate research and rate design, and also direct load control efforts. There is still much to be done that will lead to a more efficient production and distribution system. Success in achieving the potential benefits of new rate structures and load management strategies calls for a true partnership between the States and the Federal Government, the utility companies, and the private industrial/commercial sector.

I strongly urge that the Federal Government continue in this partnership at some level of commitment.

Thank you.

[Testimony resumes on p. 974.]

[Dr. Hammond's prepared statement and attachments follow:]