where holding companies are proceeding in both State and Federal contexts and lots of lawsuits, instead of that you would have one single body dealing with these issues, and if they were not able to complete their decision within the 6-month period of time it would revert to the FERC.

Senator WALLOP. That is precisely the kind of thing that tells me that amongst the States there is maybe more flexibility and more interest in competition than there is around the confines of the beltway, where legitimate interest groups nonetheless have a more centralized view of what constitutes acceptability in and around the country, and thus the country itself.

I thank you for that. Thank you, Mr. Chairman.
The CHAIRMAN. Thank you, Senator Wallop.
Senator Wellstone.

STATEMENT OF HON. PAUL WELLSTONE, U.S. SENATOR FROM

MINNESOTA

Senator WELLSTONE. Thank you, Mr. Chairman. I, too, apologize for not being here this morning. I had several conflicts. I have a couple of concerns, and the question that I want to address especially to Ms. Eckert and Dr. Cooper speaks to these concerns. I would invite the other panelists to respond as well.

In 1989, the National Association of Regulatory Utility Commissioners strongly opposed amending the Public Utility Holding Company Act of 1935 unless four specific provisions were included. One of those provisions had to do with the right of each State utility commission to conduct bidding programs and least-cost planning programs and to determine the appropriate mix of generation in terms of fuel and technology choice and in terms of ownership.

As the chairman knows, I am very interested in how we can manage a transition to a sustainable energy future, and I believe efficient energy use and developing renewable resources indigenous to the different regions is going to be crucial to that future.

I have two questions.

One, I want to ask first Ms. Eckert and Dr. Cooper and then other panelists as well whether the legislation, at least as now constituted, is likely to bring about a tilt toward large conventional generating facilities?

Two, since I think that utility commissions are absolutely key to being able to carry out a focus on efficient energy use, aggressive programs for efficient energy use and renewable resources, I want to know whether or not the proposed legislation as now constituted is likely to significantly reduce the power of State utility commissions to do so.

Ms. ECKERT. I will attempt to respond to that. In connection with your question about the tilt to large conventional utilities, our experience in California has been primarily with QF's-qualified utilities.

In fact, we do not have any independent power producers in California, and the growth of QF's in California has really been quite astounding, and it has been clean energy. It has been energy that has been responsive to our environmental needs.

Right now, we have approximately 5,500 megawatts, which constitutes about 9.5 percent of California's total dependable capacity, and Nation-wide roughly 4 percent has been the experience with QF's.

Now, as far as we are concerned within our State, putting into place these bidding procedures would put not only the QF's but the İPP's and the utilities on a level playing field, and they bid for different aspects. They can bid for conservation, actually. We are coming up with ways to bid for demand-side management conservation, those kinds of things.

So if anything, our experience has been very positive, because the more competition, the better the rates are for the consumers and actually the less of a tilt there is towards the large conventional utility. So that has been our experience.

Dr. COOPER. I would suggest that insofar as the legislation as now drafted creates the possibility of federalizing decisions-that is, shifting them into the wholesale marketplace-they will avoid to some extent least-cost plans, and that could potentially damage the direction of California, and that is why we stipulate integrated resource planning as a condition for the exception.

On the other hand, I am not convinced that they would necessarily tend toward the large scale. I am not one who sees independent power production as a way to raise large sums of capital. They tend to be thinly financed, and that is why I express my concerns about financial risks when we remove the Public Utility Holding Company Act.

So that at those two levels I think there are conflicting messages with respect to what you suggest. What I think they will do is lead us down the path of the traditional. That is, if you make it easier to run thinly financed companies, people are going to keep doing what they have been doing because that is what you can finance, so that there is a conflicting message there. I do not see big, but I also see the possibility for avoiding integrated resource planning, or least-cost planning.

Mr. PATRIZIA. Senator, I would like to preface my direct response to your questions by noting that there has been a tendency on the part of some people on the panel to talk about decisions suddenly being federalized, or responsibility being shifted from the States, and the answer to that is that that is not true.

The jurisdictional delineation of the bright line test that was laid down by the Federal Power Act was laid down in 1935. It has not been changed. The Mississippi decision did not change that bright line test. Neither did Nantahala. Neither did Narragansett. That decision was made by Congress in 1935.

It has been a very effective delineation of authority, and the Supreme Court has recognized that delineation of authority and has said that the intent of Congress was precisely to make that kind of bright line demarkation between retail rates that would be regulated by the States and wholesale rates that would be regulated by FERC.

Indeed, the reason for the passage of the Federal Power Act was the Attleboro decision in which the Supreme Court held that the States did not have the authority to regulate wholesale transactions in interstate commerce.

So I think the notion that we are shifting authority, or that decisions are being federalized, simply is not the case. Those decisions were taken 55 years ago in 1935, and that is a process that has worked very well.

Turning to your two earlier questions, Senator, on whether resource planning and things like that will be changed, or whether utilities will be left out of this, I do not think there is anything about the creation of EWG's that would cause that to occur.

I think that as you move toward a system which permits utilities to look at different kinds of mechanisms, whether it is EWG's or QF's or their own facilities, or, as Chairman Eckert has mentioned, demand side management programs, those will all continue to be in place.

I think utilities are learning, and will continue to learn, about different programs that work well. Many of the registered companies have those kinds of programs in place and will continue to do so. There is nothing about EWG's that will change that.

I do not think there is anything about EWG's that will necessarily lead to larger facilities if what you mean is a larger base load facility. I think what we could see is a situation in which we have more efficient use of some facilities, and I would think that you would support that, Senator.

For example and let me just give one easy example. A good chunk of the generation that is going to have to be built in the next, say, 10 years is actually peaking capacity rather than base load or intermediate capacity. It is very difficult for QF's and IPP's to build peaking capacity, because you do not have a sufficient number of hours over which that facility is run for it to be easily financed, therefore they tend to end up being utility facilities.

If you could have an arrangement under which you could try to share that capacity among several different facilities and work the load arrangements properly, you might well get more efficient use out of a single facility and therefore have less capacity being built over all if you do it efficiently.

There area number of ways to look at those kinds of issues. Senator WELLSTONE. Mr. Chairman, do I have just a minute more?

The CHAIRMAN. Sure.

Senator WELLSTONE. Because, unlike you, I am a student of this now, trying to learn every day.

Ms. ECKERT. Senator, may I just comment with respect to building peaking capacity? A couple of quick points I would like to make. First of all, the technology that has come about in electricity generation in the last 10 or 20 years, at least in California, has come from QF's, and I do not think we have had a chance to stress this, that the best technology that we can build will come about when we encourage more EWG's and QF's to build solar plants and to create cleaner kinds of energy.

Contrary to what you said, if we allow the EWG's to build their independent plants, they are in a much better position with respect to dispatchable power than the QF's are. The QF's are really much more tied to their steam holes and so on, and as a result they do not have as much dispatchable power with respect to meeting the peak capacities.

We feel that if the PUHCA reform is put into place and we get more IPP's that we will be in a much better position with respect to dispatchable power to meet the electricity needs when they are needed, and so I think there is another side to that.

Senator WELLSTONE. I am very interested in the question of what kinds of EWG's are likely to thrive under this legislation, and I am also interested in the question of whether or not this does indeed federalize the energy decision making or not. I am interested in preserving a decentralized State-level thrust.

Mr. VINCE. Senator, three quick points. First, with reference to federalizing it is a little bit cynical to describe regulation over generation on the basis of the 1935 act as a bright line. There is no question that States traditionally have had regulation over generation decisions. That is historically documented.

There is no question that, as a result of the Mississippi decision and holding company movement toward increased wholesale power sales, a wholesale power company now can avoid State regulation simply by forming a subsidiary that sells power in interstate commerce, and yanks the generating decision out of rate base and traditional retail level jurisdiction up to the Federal level.

It is just too cynical to say that because the bright line has been there, there has been no change in what is actually happening. Grand Gulf historically would have been a State-level generating decision.

What happened is the energy holding company formed a whollyowned subsidiary, gave it complete ownership of Grand Gulf, made nonarm's length transactions in interstate commerce to all of its other holding companies, and State regulation went out the window.

That is not a philosophical concern or an abstract concern. That is reality in Arkansas, Louisiana, and New Orleans, and NARUC has addressed that issue considerably.

Second-I know I will be much quicker in my response here—I agree in general with Mr. Cooper's earlier comments. The problem right now is, if you open up EWG's and make them nonexempt and give increased wholesale level transactions, least-cost planning is going to become most-cost planning and the States, especially in a holding company system, just are not going to have jurisdiction over those critical issues.

The same thing with the Clean Air Act. How are you going to regulate emission allowances and credits, et cetera, on a multistate holding company system? What is going to happen is, without some form of regional body looking at that and cooperation among the States, the holding companies are going to march into the FERC and give us a cram-down under the Mississippi Power & Light case. The CHAIRMAN. If the Senator would yield, if I could mention what I was suggesting earlier and put it in the context of what these witnesses have said, it is true, as Mr. Vince says, that under the Mississippi holding company case-the Grand Gulf case—that they did plow some new ground on laws and say, in effect, that the registered holding company, the holding company that has multistate subsidiaries, could allocate power from the Grand Gulf to States in accordance with the way Middle South planned it rather

than the way the public utility commissions of the various States wanted to do.

Now, what I am suggesting in this law, or in this act—and it is not in the draft right now, but what I am suggesting is that, to the extent we create new entities called EWG's to sell power to multistate holding companies, or indeed to anybody, but to the extent that they can sell to the multistate holding companies we give to each PUC covered-in the case of Middle South, Mississippi, Arkansas, Louisiana-give them a veto as to the purchase from that EWG, which would mean that to the extent that we authorize a new power, that that power would be limited by the right of veto. Now, it does not go back and fix the law as it relates to the Grand Gulf case, which is not a problem created by this actwhich, by the way, is a very, very difficult problem to fix—but it would fix any problems created by the EWG situation.

Senator WELLSTONE. That is helpful.

Dr. COOPER. I just wanted to add one point. It is important not to argue that power pooling is synonymous with registered holding companies. That is, you do not have to have the integration or unification of ownership in order to have efficient pooling, so one of the things we might want to encourage is expansion of pooling for efficiency purposes, but that does not only happen within registered holding companies.

The complaint here is that if someone tries to get into the holding company, you will disrupt the pooling. Pooling takes place outside of holding companies. They can accommodate EWG's through pooling agreements, so that the efficiencies of that sort of grid management are not dependent upon ownership and planning in one corporate entity.

Mr. PATRIZIA. Senator, let me just add to that. Dr. Cooper is correct that pooling occurs outside of the holding company context. What he does not add there-and I think it is important to emphasize is that pooling agreements are subject solely to FERC authority.

The whole point here is that the reason for that is that once you start making those kinds of wholesale power decisions and making them among a regional grouping because that is the most efficient and effective way to do it, you have a Federal issue.

It is not a State-by-State issue, and if you are going to give a State-by-State veto, you are going to lose the very efficiencies that you are trying to achieve. You are going to make it very difficult for EWG's to sell to registered holding companies and make it very difficult for those kinds of efficiencies to be realized.

Senator WELLSTONE. Mr. Chairman, I will not keep questioning, but Ms. Eckert kind of had her hand up, and as a teacher I am pretty sensitive to that, if we can let her comment.

Ms. ECKERT. Thank you, I grew up in Hastings, Minnesota, which is just a few miles from Northfield, from where you hail.

But just on a clarification on a reading of Mississippi, California really does not feel that Mississippi Power & Light will take away our jurisdictional rule on whether it was prudent for a State to include a portion of a FERC-regulated rate in their retail rate.

There are some nuances in Mississippi that the difference is between the States regulating retail and the FERC regulating whole