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MINNESOTA POWER

NORTHERN INDIANA PUBLIC SERVICE

OKLAHOMA GAS AND ELECTRIC COMPANY

OTTER TAIL POWER COMPANY

PENNSYLVANIA POWER & LIGHT COMPANY

PHILADELPHIA ELECTRIC COMPANY

POTOMAC ELECTRIC POWER COMPANY

PUBLIC SERVICE COMPANY OF COLORADO
PUBLIC SERVICE COMPANY OF OKLAHOMA

SOUTH CAROLINA ELECTRIC & GAS COMPANY

SOUTHERN INDIANA GAS & ELECTRIC COMPANY

SOUTHWESTERN ELECTRIC POWER COMPANY

SOUTHWESTERN PUBLIC SERVICE COMPANY

TECO ENERGY, INC.

TEXAS UTILITIES COMPANY

VERMONT YANKEE NUCLEAR POWER

WEST TEXAS UTILITIES COMPANY

WISCONSIN ELECTRIC POWER COMPANY

WISCONSIN PUBLIC SERVICE CORPORATION

STATEMENT OF DON D. JORDAN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, HOUSTON LIGHTING & POWER CO. Mr. JORDAN. Thank you, Mr. Chairman. Mr. Chairman, I appreciate the opportunity to testify in opposition to amendments to the Public Utility Holding Company Act in S. 341. I know I speak form experience, because my company has more nonutility generation than any other in the country, some 4,700 megawatts, 17 percent of the total number of kilowatt hours produced by-sold by our company were produced by nonutility generation. To give you a benchmark, that is more electricity than is used in the entire city of Cincinnati, Ohio.

So I have seen firsthand how well-intentioned Federal legislation is manipulated to saddle the electric utility consumer with billions of dollars and excess cost. It is important for me to note right at the beginning that this really is a bill about money, who gets it and who pays it. It is not a bill about electric capacity, about the type of fuel to me used, or a bill about competition. It is certainly not one about consumer benefits. It is a bill about money, who gets it and who pays it.

Now, let me explain that to you. When PURPA was first passed in 1978 it was intended by Congress to promote economy, efficiency, and conservation. Today, proponents of the PUHCA amendments will cite it is proof that deregulation works. It is true that independent generation was built, but at what cost? It has not worked well, and I offer these examples to you. I cannot hope to give you these details in 6 minutes. I hope you will ask me some questions to make me prove what I say is correct.

Let me tell you about hundreds of millions of dollars. On our three largest gas-fired cogeneration contracts customers are legally obligated to pay an average of over $190 million per year more for power coming out of those units than they would have to pay if we had been allowed to build comparable gas-fired generation. And they get nothing in return for that $190 million a year. That is nearly $2 billion coming out of their pockets over a 10-year contract for nothing.

When you multiply this by the number of times it has happened across the country there are billions of dollars that electric customers in the United States have paid that they would not have had to pay.

Item number two, a PURPA loophole allows a simultaneous buysell arrangement under which cogenerators can theoretically sell power to us at about 6 cents a kilowatt hour and buy it back at 2 cents a kilowatt hour in a paper transaction. One cogenerator last year took 288,344,559 kilowatt hours more from us than they theoretically sold back, and we paid them $65 million to take it.

Now, this will cost our consumers about $600 million for nothing over the term of that contract. Gentlemen, does that make any sense to you at all? I know the United States Senate would not have passed legislation such as this if they had know this would happen. But no windfall can go on forever. Congress started the downslide when they repealed the Fuel Use Act in 1988 and eliminated what was almost an absolute right to these huge returns.

Now, do you not think it is interesting that shortly thereafter, this effort was started? I suggest to you that is not just a coincidence. State commissions then started to realize what was happening and tightened up on the fact that electric retail customers were being ripped off. The new contracts that are now being drawn are much tighter, and these consumer rip-offs will not be available to the same degree in the 1990's.

Now, I think you can imagine that unregulated generators do not want to see this gold mine closed. They will use every legal, legislative, and administrative strategy available to protect it. For example, I have a letter with me today from one of the buy-sell cogenerators that States we are legally bound to extend that agreement beyond the terms of the contract at a cost of another $400 million to our consumer, and the consumer gets nothing in return. So it is clear that PUHCA amendments constitute the first step in the gold rush of the 1990's, and the gold deposits are found in the pockets of the American consumer, which is why we are here today. Senator, as the proponents of PUHCA, amendments did not come to you first. They began this process at the FERC where their efforts failed for lack of public support.

The CHAIRMAN. Mr. Jordan, you have up a good head of steam now and I hate to interrupt you, but if I could get you to summarize so we can have a few minutes for questions.

Mr. JORDAN. Okay, I will be through in 6 minutes.

They did not come to you first. They first began at FERC, where the efforts failed for lack of public support. In a very clever move, they are now asking you to do indirectly what they could not get done directly. They masked their goal behind the popular words of competition, but that is not their true goal. I do not think any of us ought to be deceived. Their motive is still the same unrestricted retail transmission access to in-users, either through the courts or through Congress, because that is where their gold mine lies.

Now, Mr. Chairman, I appreciate your determination that that will not happen, but I want my prediction to be recorded well here today. And that is that if you pass this legislation, it satisfies their first goal. And very soon, legal action will be filed on their part to attempt to force open transmission access. And if they win, residential and small commercial customers will once again pay for nothing.

You are being asked to brush aside a century of accomplishment in favor of industry restructuring. You must ask yourself why should you do it. You have been subjected to a lot of puff talk here this morning and I am sure over the last couple of months, but there are some obvious questions you must ask. I will give you my answers to those questions and, again, please make me prove it.

First, can IPP's construct comparable power plants cheaper than utilities? My answer is, absolutely not; not without cheating on design. And that perhaps is an opportunity for debate. Can they reduce the financing cost impact on the public? Absolutely not. Can they buy fuel or operate plants cheaper? Absolutely not. Do the IPP's promise to improve long-term choices of fuel requirements? Absolutely not.

Are their units more reliable or will the electric transmission system be improved? Absolutely not. Will they accept a utility rate

of return on equity? Absolutely not. Ask them if they are satisfied with 12.5 percent. Do they really seek true and equal competition? Absolutely not. And will the impact of regulation on electric utility distribution companies be reduced? Again, absolutely not. Then finally, is there a ground-swell of support for such legislation other than by those who would benefit from it? And I would say, absolutely not.

The United States Senate, Mr. Chairman, is a responsible body to which citizens look for protection. Surely there must be some clear and strong reason to pass new legislation restructuring this industry. This is a consumer issue, and if their long-term interest is considered I think you will have to reject the amendments to PURPA.

Mr. Chairman, I have some additional support documents I would like to file for the record, if that is all right.

[The prepared statement of Mr. Jordan follows, the additional materials have been retained in committee files:]

41-092 0 91 - 9

U.S. SENATE COMMITTEE ON ENERGY

AND NATURAL RESOURCES

March 14, 1991

Testimony of Don D. Jordan

on Behalf of

Houston Lighting & Power Company

and the

Electric Reliability Coalition

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