Energy Policy Act of 2005

ELECTRIC TRANSMISSION PROPERTY DEPRECIATION

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SEC. 261, HYDROELECTRIC RELICENSING REFORM

Ms. CANTWELL. Mr. President, Section 261 of the underlying bill contains provisions designed to reform the hydroelectric relicensing process. These provisions are the result of a hard-won compromise, and I thank the chairman and ranking member, along with Senators CRAIG, SMITH and FEINSTEIN for their leadership on this issue. In particular, these provisions significantly differ from previous House- and Senate-passed versions, as they will allow States, tribes and the public to propose alternative licensing conditions, and will further allow these entities to trigger the trial-type hearing process outlined in this section. I believe these public participation provisions are key improvements in this legislation. I would also like to more fully explore the process by which alternative conditions proposed by these stakeholders should be considered.

Before an alternative condition or prescription to a license may be approved, the Secretary must concur with the judgment of the license applicant that it will either cost significantly less to implement, or result in improved operation of the hydro project for electricity production--at the same time it provides for adequate protection of the resource--or in the case of fishway prescriptions, will be no less protective than the fishway initially proposed by the Secretary. This provision does not provide the license applicant a so-called veto power over proposed alternatives, because this judgment requires the Secretary's concurrence. In addition, it is the Senate's intent that these judgments be supported by substantial evidence as required by Section 313 of the Federal Power Act. I would like to ask the senior Senator from New Mexico the following question: If the Secretary determines that a license applicant's judgment has been based on inaccurate data and thus fails to meet the test of being supported by substantial evidence, can the Secretary withhold his or her concurrence?

Mr. Domenici. The Senator from Washington is correct in expressing our intent that the license applicant's judgment be supported by substantial evidence. It is not our intent to provide an incentive for applicants to provide poor data in order to prompt the rejection of a condition by other stakeholders. If the Secretary of a resource agency determines that the evidence provided by the license applicant is of insufficient quality and therefore does not meet the substantial evidence test, the Secretary should not concur with the license applicant's judgment in the matter.

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Ms. CANTWELL. Mr. President, I wish to clarify for my colleagues the intent of section 1270 of the underlying Energy bill, which is a provision of extreme importance to my Washington State constituents. Ratepayers in my State were harmed by the Western energy crisis and the manipulation and fraudulent practices of Enron in wholesale electricity markets. A number of proceedings remain underway at the Federal Energy Regulatory Commission, which will determine the relief granted to consumers harmed by Enron's unlawful trading practices. An important issue that remains is whether utilities--such as Washington State's Snohomish County Public Utility District--should be forced to make termination payments to Enron, for power Enron never delivered in the midst of its scandalous collapse into bankruptcy.

The intent of section 1270 of the underlying bill and the technical correction we have adopted today is simply to affirm that the Federal Energy Regulatory Commission has exclusive jurisdiction under sections 205 and 206 of the Federal Power Act to determine whether these termination payments should be required. This provision expresses Congress's belief that the issues surrounding the potential requirement to make termination payments associated with wholesale power contracts are inseparable and inextricably linked to the commission's jurisdictional responsibilities.

Mr. CRAIG. I would like to inquire of the Senator from Washington, does section 1270 predetermine or in any way prejudice the manner in which FERC employs its jurisdiction in matters currently pending before the Commission?

Ms. CANTWELL. This provision in no way prejudices or predetermines FERC's decisions in those matters. During the Senate Energy Committee's work on this legislation, the supporters of this amendment and I initially considered offering an amendment that would have gone further to require a certain outcome, had the commission made certain findings. We chose not to pursue that amendment in response to concerns that were raised by colleagues. Section 1270 of this legislation is completely neutral regarding how the commission uses its authority under sections 205 and 206 of the Federal Power Act. As such, the provision does not in any way implicate what is known as the Mobile-Sierra doctrine, related to which standard FERC should apply to its review of jurisdictional wholesale power contracts.

Mr. CRAIG. How does the technical amendment adopted today further clarify the committee and Congress's intent in regard to section 1270 of the underlying legislation?

Ms. CANTWELL. The clarifications to section 1270 effectuated by the amendment accepted today are consistent with the committee's intent in adopting section 1270. In addition, they are completely consistent with Supreme Court precedent.

The committee sought assurances that section 1270 would not disturb underlying legal doctrines such as the Mobile-Sierra doctrine or the separation of powers principles. The amendment provides further clarity that section 1270 is not intended to otherwise disturb or modify the Mobile-Sierra doctrine by adding the phrase ``or contrary to the public interest.'' This phrase, when coupled with the standard recital of FERC's exclusive authority to determine whether a charge is just and reasonable, makes it clear that Congress is making no pronouncements regarding the manner in which FERC exercises its authority, but rather only that it is the appropriate forum to resolve these issues. Congress is giving no guidance to FERC on Mobile-Sierra one way or another through this provision.

The committee's overarching intent with respect to section 1270 was to ensure that the Federal Energy Regulatory Commission, and not the bankruptcy court involved in the Enron matter, decides all of the issues surrounding whether termination payments are lawful. The addition of the phrase ``rate schedules and contracts entered thereunder'' ensures that result.

In addition, this clarification is completely consistent with Supreme Court decisions permitting Congress to give a Federal agency the authority to resolve matters that are also normally addressed by our judicial branch of government. As the Supreme Court stated in a case entitled Commodity Futures Trading Commission v. Schor, 478 U.S. 833, 854 (1986),

``looking beyond form to the substance of what Congress has done'', we are persuaded that the congressional authorization of limited CFTC jurisdiction over a narrow class of common law claims as an incident to the CFTC's primary, and unchallenged, adjudicative function does not create a substantial threat to the separation of powers. Thomas v. Union Carbide Agricultural Products Co., 473 U.S. 568, 589 (1985).

Similarly, in this instance, the grant of authority to FERC to decide this matter is exceedingly narrow insofar as it relates solely to the legality of Enron collecting additional profits in the form of termination payments for power not delivered. Clearly, it is directly related to the agency's core function to ensure just and reasonable rates and guard against market manipulation. Moreover, these are public rights that are at stake in this dispute--the rights of electric ratepayers across the country to just and reasonable rates, rights that have existed under federal statute since 1935--and not mere private rights that should be resolved by a non-article III bankruptcy tribunal. Accordingly, the clarification provided by the amendment is completely consistent with Supreme Court precedent on the separation of powers principle.

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Ms. CANTWELL. Mr. President, I rise to speak to a particular section of the comprehensive energy bill (S. 10) that we have been discussing for the past 2 weeks. My comments focus specifically on section 1270 of this legislation.

Section 1270 was an amendment I offered in the Energy & Natural Resources Committee mark-up of this legislation. It was accepted after considerable debate and discussion, on a bipartisan voice vote. Since then, I have continued to work with my colleagues on the Energy Committee, to further clarify and perfect this language. In fact, I was pleased to work with my colleague from Idaho, Senator Craig, on a technical amendment to this language, amendment No. 895, to refine it even further.

This provision, entitled ``Relief for Extraordinary Violations,'' is extremely important to the consumers of Washington State and ratepayers in other parts of the West, who bore tremendous costs as a result of Enron's schemes to manipulate our wholesale electricity markets. The principle at the heart of this provision is simple. The consumers of Washington State must not be forced to become the deep-pockets for Enron's bankruptcy. The same ratepayers who have paid so dearly for the Western energy crisis and Enron's schemes to manipulate markets should not be forced to pay even more--four years later--for power that Enron never even delivered.

I must thank my colleagues on the Energy Committee for their thoughtful consideration of this issue, particularly my colleagues from the Pacific Northwest and West as a whole who have seen first-hand the toll the crisis has taken on our economy and our constituents. I must also express my gratitude to the rest of the members of the committee, and to the chairman and ranking member for indulging what was a very thoughtful debate on this issue.

At the conclusion of the committee debate, this Senator was extremely satisfied; first, because of the very nature of the debate itself, in which--for almost an entire hour--a bipartisan group of Senators focused their valuable time and attention on a situation that is highly complicated, and likely unprecedented in the history and application of our Nation's energy laws. And second, because, at the end of the day, the committee struck a blow for justice and for Western consumers. It was an important statement. This is not the kind of country where we should reward Enron for its criminal conspiracy to commit fraud; a fraud of historic proportions perpetrated against the consumers of the West.

As my colleagues appreciate by now, my State was particularly ravaged by the western energy crisis of 2000-2001. One of my State's public utility districts, Public Utility District No. 1 of Snohomish County, had a long-term contract with Enron, to purchase power. The contract was terminated once Enron began its scandalous collapse into bankruptcy. Nonetheless, Enron has asserted before the bankruptcy court the right to collect all of the profits it would have made under the contract through so-called ``termination payments.'' Enron has made this claim even though Enron never delivered the power under the contract, even though Enron had obtained its authority to sell power fraudulently, and even though Enron was in gross violation of its legal authority to sell power at the very time the contract was entered into. This has been demonstrated by the criminal guilty pleas of the senior managers of Enron's Western power trading operation, in which it has been admitted that Enron was engaged in a massive criminal conspiracy to rig electric markets and rip off electric ratepayers. But it has been further illustrated by the now-infamous Enron tapes, in which Enron employees discuss many unsavory topics, including specifically how they were ``weaving lies together'' in their negotiations related to the contract with Snohomish.

I will tell my colleagues that there is no way under the sun that I believe my constituents owe Enron another penny. Not one single penny more. What this amendment does is ensure that, when the Federal Energy Regulatory Commission FERC comes to a conclusion later this year about how to cleanup the Enron mess, that the bankruptcy court cannot overturn FERC's decision about whether these ``termination payments'' are just, reasonable or in the public interest. It says to FERC, ``do your job to protect consumers, and when you make a decision, that decision will stand.'' Interpreting our nation's energy consumer protection laws is not the job of a bankruptcy judge.

Now, this Senator has a very strong opinion on this matter in general. I believe there is no way no stretch of the imagination, or interpretation of law in which these termination payments could be deemed just, reasonable or in the public interest, knowing everything we know today about what Enron did to the consumers of my state. In fact, during committee debate on the underlying provision in this bill, some of my colleagues suggested that we should just out-right abrogate these contracts; simply declare them null and void on their face. But what we recognized, relying on the legal expertise of the committee staff, is that an act like that--as tempting as it may seem--would pose certain constitutional issues. We recognized that this provision section 1270--is the best way for Congress to express its will in this matter.

I have, as my colleagues know, had substantial differences with FERC over the course of the past few years. But I am glad to say today, after 4 long years, it appears that the commission may be on the right track on this issue. This March, FERC issued a ruling in which the commission definitely found that the termination payments at issue here ``are based on profits Enron projected to receive under its long-term wholesale power contracts executed during the period when Enron was in violation of conditions of its market-based rate authority.'' For the first time, FERC found that Enron was in violation of its market-based rate authority at the time victimized utilities such as Washington's Snohomish PUD inked power sales contract with the now-bankrupt energy giant. That FERC process is on-track to wrap-up this year; but so long as that process is ongoing, utilities like Snohomish have been operating under the threat that the bankruptcy court would swoop in and demand payments for Enron, regardless of the pattern of market manipulation and fraud. In a series of rulings, the bankruptcy court has expressed its will to do just that. What this provision does is ensure the bankruptcy court cannot force these utilities and their consumers to make termination payments that are unjust, unreasonable or contrary to the public interest.

Section 1270 states that notwithstanding any other provision of law, and specifically the bankruptcy code, FERC ``shall have exclusive jurisdiction'' to make these determinations. Many of my colleagues might naturally assume that this provision merely sets forth what is already the case.

But as I stated earlier, that is not necessarily the case. This provision is necessary and critical because the Federal bankruptcy court has already concluded that it will not defer to FERC with respect to whether our constituents will be required to make termination payments. Not only has the bankruptcy court not deferred to FERC, it compounded the seriousness of the issue by enjoining FERC from proceeding with its own specific inquiry into whether Enron is owed the termination payments. It forced FERC to stop on a matter that FERC had said required its special expertise.

Imagine making it through the arduous and frustrating, years-long process of proving the case against Enron and proving it to FERC, only to find out at the end of the day that the bankruptcy court would intervene and force these termination payments anyway. It is this situation--a collision between FERC and the bankruputcy court that this legislation addresses. And what the Congress is saying with this amendment, as counsel for the Energy Committee stated during our extended discussion, is that ``the Commission, not the bankruptcy [court], is the proper forum in which these question be resolved.'' That is certainly my view, and the view of many of us who represent ratepayers harmed by Enron.

I do not assume this position in denigration of the responsibility of the bankruptcy court. The bankruptcy court has an important role to play in our law and our economic community. However, I do think it is fair to say that it is a forum in which it naturally looks first to maximizing the assets of the estate. In contrast, the Federal Energy Regulatory Commission's first obligation is to protect our nation's ratepayers. In this very unique context, in which a seller of electricity that has fraudulently and criminally manipulated the market in violation of the tariffs on file with the commission--and where the seller is now seeking to reap the profits from that activity in the form of termination payments for power never delivered--what we are saying here, unequivocally, is that FERC is the forum in which this should be resolved. FERC is the entity that is supposed to look after our nation's ratepayers, and should have make the decision about whether termination payments are permissible under the Federal Power Act..

Given the nuanced, legal nature of this provision, I can assure my colleagues that this ``rifle shot,'' as the ranking minority member of the committee called it, is narrowly drawn in order to minimize any unanticipated impacts. It is only applicable to contracts entered into during the electricity crisis with sellers of electricity that manipulated the market to such an extent that they brought about unjust and unreasonable rates. There is only one such seller, and that is Enron, and there are only a handful of terminated contracts with Enron that haven't been resolved as of this date.

As a result, the amendment does not tamper with or otherwise disturb long-standing legal precedents. It does not tamper with the Mobile-Sierra doctrine, nor does it disturb other recent federal court decisions regarding the relationship of the bankruptcy courts and FERC in the context of the rejection in bankruptcy of FERC approved power sales contracts. It is, as the ranking minority member of the committee observed, a ``clean shot'' that ``affirms that FERC is the entity with the authority to review whether termination payments associated with cancelled Enron power contracts are lawful under the Federal Power Act.''

The ultimate disposition of this issue is of paramount concern to my constituents. It will decide whether they will be on the hook for more than $120 million, an amount that means more than $400 in the pocket of each ratepayer in Snohomish County, WA. It is critical that this issue be decided by the forum with the specialized expertise in matters relating to the sale of electricity with a stated mission of protecting ratepayers, and that is the Federal Energy Regulatory Commission.

Let me conclude by saying that I am very pleased that this provision has broad bipartisan support as well as the support of the Edison Electric Institute, the National Rural Electric Co-operative Association and the American Public Power Association. I believe my colleague from Oregon, Senator Smith, said it exactly right when this amendment was debated in committee, and I am extremely grateful for his support. He essentially said that no Senator Republican or Democrat should feel any limitation in ``lending their shoulder to this wheel,'' to get this situation fixed. Senator Smith, Senator Allen, and Senator Craig all played important roles during the mark-up in allowing this measure to move forward.

And I would be remiss if I did not mention the invaluable assistance from the Senators from Nevada on this issue the minority leader, Senator Reid, but also Senator Ensign. While Senator Ensign does not serve on the Energy Committee, he played a crucial role in ensuring that colleagues on both sides of the aisle understood the importance and reasonableness of this measure, and the importance of this provision to him and to the people of Nevada.

I thank my colleagues, look forward to the passage of this provision out of the Senate and to working together to ensure this critical measure is included in legislation that emerges from the Energy bill conference with the House of Representatives.

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