KF27 E5526 1984e COMMITTEE ON ENERGY AND COMMERCE JOHN D. DINGELL, Michigan, Chairman JAMES H. SCHEUER, New York EDWARD J. MARKEY, Massachusetts AL SWIFT, Washington MICKEY LELAND, Texas RICHARD C. SHELBY, Alabama MIKE SYNAR, Oklahoma W. J. "BILLY" TAUZIN, Louisiana RON WYDEN, Oregon RALPH M. HALL, Texas DENNIS E. ECKART, Ohio WAYNE DOWDY, Mississippi BILL RICHARDSON, New Mexico GERRY SIKORSKI, Minnesota JOHN BRYANT, Texas JIM BATES, California JAMES T. BROYHILL, North Carolina WILLIAM E. DANNEMEYER, California DAN COATS, Indiana THOMAS J. BLILEY, JR., Virginia MICHAEL G. OXLEY, Ohio HOWARD C. NIELSON, Utah CONTENTS Testimony of: Bollom, Dan, vice president, Wisconsin Public Service Corp., on behalf of Bosco, Hon. Douglas H., a Representative in Congress from the State of Chapman, Duane, professor of resource economics, Department of Agri- Cooper, Mark N., director of energy, Consumer Federation of America....... Dorgan, Hon. Byron L., a Representative in Congress from the State of Faudree, Russell E., Jr., Chief Accountant, Federal Energy Regulatory Foley, Michael, director of financial analysis, National Association of Regulatory Utility Commissioners.... Hamm, Steven W., president, National Association of State Utility Con- Harkin, Hon. Tom, a Representative in Congress from the State of Iowa ... Page 167 227 19 71 Mares, Jan W., Assistant Secretary for Policy, Safety and Environment, 41 Morgan, Richard E., economist, Environmental Action, Inc. 202 Utley, John F., national director, Regulated Business, Deloitte, Haskins & 253 Chapman, Duane, professor of resource economics, Cornell University: Letter to Chairman Ottinger, June 15, 1984, submitting additional in- Cincinnati Gas & Electric Co., Donald I. Marshall, manager, rate and 385 Material submitted for the record by-Continued Federal Energy Regulatory Commission: Responses to subcommittee questions........ Florida Power & Light Co., statement Florida Public Service Commission, Gerald L. Gunter, chairman, letter Kansas Gas & Electric Co., Eldred D. Prothro, controller, statement. National Taxpayers Union, statement of Jill Lancelot Page 114 393 399 401 403 406 413 140 421 424 428 437 439 Price Waterhouse, Paul R. Bjorn, chairman, public utilities industry services, statement... 443 Rochester Gas and Electric Corp., statement 447 San Diego Gas & Electric, statement 459 Sierra Pacific Power Co., Joe L. Gremban, president, letter and statement... 464 Southern Co., statement of Warren Y. Jobe. 483 Southwestern Electric Power Co., C.L. Westley, controller, letter. 515 Texas Utilities Co., Perry G. Brittain, chairman of the board, statement.... Treasury Department, Office of Tax Analysis: Responses to subcommittee questions.... Utah Power & Light Co., comments. Washington Water Power Co., Joseph R. Piedmont, vice president, letter.. 517 104 518 520 PHANTOM TAX REFORM TUESDAY, JUNE 12, 1984 HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON ENERGY CONSERVATION AND POWER, Washington, DC. The subcommittee met, pursuant to notice, at 10:05 a.m., in room 2322, Rayburn House Office Building, Hon. Richard L. Ottinger (chairman) presiding. Mr. OTTINGER. I apologize for the delay in the starting of the hearing. The chairman had a meeting, the chairman of the full committee. The microphones are off, so I would ask the witnesses to speak up so that the people in the room can hear. The subject of today's hearing is the ratemaking treatment of certain Federal tax benefits. Behind this subject lurks an even more important issue in my view, and that is whether the manner in which the country presently subsidizes investments by electric utilities in electric energy services, like the light, heat, mechanical energy, and other services which consumption of electricity can provide, is a wise use of valuable Federal tax expenditures. I want to compliment the gentleman from Iowa, Mr. Harkin, for the work he has done in putting this legislation together. Too often, our tax laws and energy policy, considered by different committees of Congress, are not synchronized with each other. H.R. 4923 integrates tax and energy policies in one bill and forces Congress to confront whether the two policies are working together or at cross-purposes. Through Mr. Harkin's work, this committee has a vehicle to consider whether changes should be made to make energy and tax policies pull together. I want to comment on the nonparticipation by members of the Federal Energy Regulatory Commission in this hearing. H.R. 4923 raises major policy issues for wholesale electricity regulation. Thus, I invited members of the Commission to testify at this hearing. None said they could. Two said they know nothing about the subject and would be embarrassed to appear. Two others and the Chairman said they had speaking engagements. We do have Mr. Faudree, the Chief Accountant of the Commission, here with us today, and no doubt we can learn much from him about the way the Federal Energy Regulatory Commission actually acts from a technical standpoint on these matters. But there are policy questions presented to which only Commissioners can speak. That the Commissioners were too busy making (1) speeches or were afraid to be here because they said they know nothing about the subject speaks very poorly for the Commission and is an affront to Congress. Before we begin, I want to make a comment on the substantive issues before us today. I don't have a problem in theory with normalization of Federal tax benefits provided, one, that we are talking about economic normalization—that is, that a utility is not permitted to earn a return on the capital made available through normalization—and two, the mixed loan and grant from the Nation's taxpayers represented by the tax benefits is invested in resources that are least cost resources from society's perspective. I am gratified indeed that the Department of the Treasury, in submitting its testimony, supports the committee and the legislation's view with respect to permitting only economic normalization, though it does not support us with respect to the least cost aspects of the legislation. We have got them halfway here, but it is an important halfway. We look forward to their coming the extra halfway in the future. The problem is that the conditions I have described do not apply to today's normalization. First, utilities may actually earn a return on the amount by which the cost of their investments is reduced by the investment tax credit, even though that amount is effectively a grant to them by the Nation's taxpayers. I think that to allow a return on this amount, certainly not risk capital, is outrageous and would breed cynicism by the Nation's ratepayers if more than a handful of them understood what was going on. Second, I do not believe that most utilities acquire resources on a least-cost basis, from society's perspective, the basis of the industry's position that the Federal tax benefits are already being put to economically efficient use. Third, I view H.R. 4923 as a serious reform proposal in an area that appears to need it. I am somewhat concerned, though, about the ease with which Federal tax benefits could under the bill be used to subsidize rates in the short run without any corresponding investment. After all, investment is the object of the tax benefits at issue. If those benefits are not used to produce investment, maybe they should be returned to the Treasury or, better still in my view, used to invest in cost-effective energy conservation measures in which utilities choose not to invest. [Testimony resumes on p. 15.] |