A recent legislative proposal floated by Sen. Pete Domenici (R-NM) that would allow states to coordinate their own regional transmission and market designs through so-called regional energy services commissions (RESC) drew a bevy of skeptical comments from several electric industry representatives at a Senate hearing on Thursday.

A common theme voiced in testimony before the Senate Energy and Natural Resources Committee hearing is that the proposal will result in yet another layer of regulatory bureaucracy.

Domenici included his proposal for RESCs in broader draft energy legislation he unveiled this month.

“The RESC proposal, as it currently stands, further complicates an already too complicated jurisdictional split between FERC and the states,” said Betsy Moler, a top executive with Exelon Corp. and a former chairman of FERC. She testified on behalf of the Electric Power Suppliers Association (EPSA).

Under the proposal, an RESC would be allowed to govern a region’s transmission infrastructure and tariff rate design, instead of FERC. Utilities in RESC states would not be subject to FERC’s controversial standard market design (SMD) proposal or other FERC orders, to the extent states in that region agree to assume certain Federal Power Act authorities.

Moler said that the RESC proposal raises a number of practical issues. “It would create another layer of bureaucracy with authority over rates for transactions in interstate commerce. The industry would be hamstrung with multiple overlapping layers, including FERC, state PUCs, RESCs, RTOs, electric reliability organizations and municipal and cooperative entities.”

EPSA also has “serious questions” about the transition to RESCs, Moler said. “There are staffing issues. There are state issues with respect to requiring legislation to implement it. There are funding issues when states are having financial crises. There’s a question of recruiting appropriate staff to run these organizations and people these organizations and there’s a question of whether they could handle the case load.”

The power supply association also thinks that RESCs would exacerbate seams between regional power grids “rather than help them.” Moler told lawmakers that a “state could opt in one year, opt out the next year, as Virginia has just done, opt in the next year and where would you be? In short, we think it’s a mess.”

Virginia’s governor recently signaled his support for legislation that blocks utilities operating in the state from transferring ownership of their transmission assets to regional transmission organizations (RTOs) prior to July 1, 2004.

Ray Gifford, president of the Progress & Freedom Foundation, also voiced concerns about the RESC proposal. Gifford worries that “it will simply introduce a new layer of regulation that will be even less accountable than our current regulatory scheme.”

Gifford said that the accountability of an RESC “is highly questionable. Flying below the federal radar, but above state accountability, the RESC will become a prime target for regulatory opportunism. Our current state-federal jurisdiction ultimately makes the regulators accountable to some political body. The RESC, in contrast, will operate in a murky middle ground. This presents great risk for regulatory capture — the perversion of the regulatory process toward parochial ends.”

Similarly, John Anderson, executive director of the Electricity Consumers Resource Council (ELCON), said that the RESCs would create “yet another layer of bureaucracy” and questioned why the Senate committee would go to markup this week “on a legislative proposal that has only been in the public domain for two weeks.”

Anderson noted that ELCON’s members have long been concerned with the seams issues — how power flows from one region to another. “The proposal to create RESCs could make the ‘seams’ issue into a ‘walls’ issue,” Anderson warned.

Following last week’s hearing, Domenici instructed the Senate Energy Committee staff to incorporate input from the hearing on the electricity title into the staff draft of the committee energy bill.

“Today’s hearing went beyond just the pros and cons of a Standard Market Design to meaningfully address the appropriate regulatory regimes for electricity,” Domenici said. “Several witnesses expressed criticism and raised some concerns over the staff’s proposal to facilitate the creation of Regional Electricity Service Commissions as a way of addressing long-standing tension between federal regulation and the regional nature of electricity markets.”

Domenici said that he “found their comments cogent and insightful. As a result, I have instructed the committee staff to incorporate input from today’s hearing into a revised draft of the proposed electricity title.”

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