- Email: [email protected]
Consultant: Va. Regulators should review, control, holding co.-Utility dealings
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Dingell (D-Mich.) sat like a jurisdictional black hole, drawing nearly every important measure that passed through the house into E&C's legislative gravity field. Initial plans w o u l d have spun off securities jurisdiction to the banking committee, energy jurisdiction to the n a ~ r a l resources and science committees, railroad jurisdiction to the public works committee. ut the savvy Bliley didn't want to see his committee emasculated just as he began to give the orders. He worked hard behind the scenes to limit the damage of the reformers and, in the end, basically succeeded. Only a bit of the committee's gargantuan jurisdiction was spun off. Railroads left for the House Pub-
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Over in the Senate, the transition to GOP control has been far calmer. After all, they did it before, in 1981, w h e n the GOP took over following the 1980 elections. During the six years the Republican ran the Senate, the world did not come to an end, civilization as we know it survived, and the sun continued to rise in the East and set in the West. Ho-hum. Of course, party rule doesn't amount to all that much in the Senate, where there are 100 different political parties.
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What difference will Republican control make for issues of interest to those who live electrically? It's far too early to tell, but Republicans ought to be more responsive to business interests and less to environmentalists and consumer groups. The GOP also should be more responsive to calls for deregulation and competition. The new regime will also be a challenge to veteran energy lobbyists, who n o w have to learn a whole n e w set of names and faces, especially at the staff level in the House. Publishers of those illustrated guides to Congress will do an especially brisk business this year. - - Kennedy P. Maize
Consultant: Va. Regulators
Should Review, Control, Holding Co.-Utility Dealings
thousands of rail retirees in his district, was waiting with open arms. The rather low-wattage
irrelevant national labs. Finall},, the House Natural Resources Committee, chaired by the pugnacious Don Young of Alaska, a former river boat captain, picks up the energy committee's jurisdiction over Alaskan oil issues, including the Trans-Alaskan Pipeline System. But to get TAPS, Young had to give up a piece of his jurisdiction that was shared with Energy and Commerce nuclear waste.
C
Implications for Others?
lic Works and Transportation Committee, where n e w Chairman Bud Shuster (R-Pa.), with
House Science, Space and Technology Committee gets jurisdiction over the Energy Department's cash-rich and increasingly
O
Frank Murkowski of Alaska will be the chairman of the Senate Energy and Natural Resources Committee. There had been some talk that N e w Mexico's Pete Domenici would take over at energ~ but he decided to stick with the Senate Budget Committee, which he ran during the last Republican majori~. Ironically, Murkowski's elevation at Senate Energy and Young's rise in House Natural Resources gives Alaska the kind of control that would have belonged to Louisiana if the Democrats had held on to control.
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t arose out of an intercompany family feud that may have been sui generis, but the implications flowing from a consultant's report to the Virginia State Corporation Commission in early December could have ramifications not just in that state but for scores of other holding company-utility governance schemes in other states. Whatever its wider shadow might be, the report, focusing on the corporate relationship between Dominion Resources, Inc. and its Virginia Power subsidiar~ administered a stinging rebuke to Dominion.
The Electricity Journal
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The report, prepared for the SCC by Baltimore-based Liberty Consulting Group, offered a laundry list of more than three dozen recommendations for changes in corporate governance practices, enhanced separation of the two companies, and increased regulatory oversight and review. he report, commissioned following what the SCC termed the "unprecedented public dispute" between Dominion and V'trginia Power last summer, won't be final until next March, and the SCC said "several aspects of the investigation are not yet complete." But the interim paper found that, despite an uneasy truce, "tension remains" between the two companies, and that "a long-term solution must be developed." Liberty suggested that the SCC adopt a series of measures to assure the independence of Virginia Power's regulated utility operations from improper influence by the unregulated Dominion. In the area of corporate governance, the consultants offered a number of stinging rebukes critical of actions taken by the Dominion board and its chairman, Thomas E. Capps, during the midsummer unpleasantness. The consultants concluded that Virginia Power president and CEO James T. Rhodes should not be required to report to Capps or to any other Dominion officer. As part of the "settlement" of the confrontation between the two firms, Capps agreed in August to yield his post as chairman of the utility
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January~February 1995
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to John B. Adams, an outside director, and Rhodes began reporting to the parent company through Tyndall L. Baucom, who assumed Capps' previous title as president of Dominion. Adoption of the changes suggested by Liber~, including adding the title of chairman of Virginia Power to Rhodes' functions, would limit Dominion's day-to-day control over operations of the utility. In yet another direct rebuff to Capps, Liberty suggested that four directors added in August to the boards of both companies be removed. And the report said Virginia Power's legal and financial services functions, which Capps moved to the holding company after assuming the chairmanship there, should be returned to the utility. Another Liberty recommendation was that "the Commission should have the authority to limit
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the ability of a sole shareowner to assume the powers of a public utility subsidiary board." During the summer squabble, Domiru'on cited its ownership of all Virginia Power common stock as a principal rationale for its actions to remove some directors from the utility board and reorganize the board's membership. The consultants also suggested that the SCC should "have the authority to review in advance board and officer succession plans for the utility and the holding compan3a" Dominion has maintained consistently that the SCC has no authority over the holding company's non-regulated business activities, but the Liberty report demurred strongly from that position. The consultants concluded that the SCC should "have the power to order divestiture" under circumstances where non-utility investments or operations have the po-
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tential to adversely affect utility cost of, or access to, capital, either because of substandard performance or other risk factors. The Liberty report recomm e n d e d Draconian measures to guard against a range of possible actions by Dominion and its nonregulated subsidiaries that could conceivably "usurp significant opportunities or strategies that V'trginia Power will need to remain competitive with the nation's group of premiere electric utilities." Among the suggested safeguards: commission authority to examine and monitor virtually every aspect of the operation of Virginia Power, Dominion, "and any non-utility affiliates" to preclude any conditions that might be or become detrimental to the utility and its customers. The commission should, said Liberty, have the authority to inquire into any potential cross-subsidization or conflicts arising from use of common contractors and vendors by the holding company and the utilndependent financial economist J. Robert Malko, a professor in the College of Business at Utah State University and a long-time regulatory consultant with experience in both state and federal regulation, worked with Liberty in preparing the report. Malko identified a list of four "regulatory tools" needed by the SCC to "insulate" the utility and its ratepayers "from adverse risks of diversification." Malko found no evidence of financial wrongdoing, but called for the SCC to
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be empowered to restrict dividend payout ratios, establish a floor for common equity ratio, mandate five- and ten-year financial forecasts, and set an asset cap for diversification activities. Dominion's only official comment after the release of the Liberty document was that it is "studying the report." V'lrginia Power also declined comment. Both companies noted that the report has no immediate effect on regulatory policies until and unless the SCC adopts it wholly or in part.
SCC information director Ken Schrad called the conclusions of the report "preliminary or tentative in nature," and cautioned that "the Commissioners must ultimately decide whether they should be adopted and what actions would be necessary to implement them." Schrad also said the SCC is still "working on two related matters," an investigation of the rate effects of a Virginia Power-CSX coal transportation contract and a compliance audit of DominionV'rrginia Power 1993 affiliate interest transactions. - - Paul M . Feine
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Coal Wins Big in Court
D.C. Circuit Spanks EPAfor Overreaching on NOx Rules hen is a low NOx burner a low NOx burner? That Zen question came up recently, w h e n the U.S. Court of Appeals for the District of Columbia Circuit addressed the Environmental Protection Agency's NOx control rules under the agency's acid rain program. The answer--a low NOx burner is just that, a low NOx burner--should be instructive as a lesson in h o w administrative agencies try to wring the maximum flexibility for themselves under the law, and how the courts increasingly are unwilling to countenance that flexibility. At issue was the agency's rule for NOx control on tangentially fired boilers and dry bottom wallfired boilers. Those utility boilers must not exceed emission levels defined by Congress in the 1990 Clean Air Act amendments unless the EPA determines that the emission rates can't be met using "low NOx burner technology." In those cases, EPA can issue an "alternative emission limitation," the equivalent to a hall pass on NOx. The law also specifies that EPA cannot force a utility to install "any additional control technology beyond low NOx burners." After Congress passed the law, the issue passed to EPA, which had until May 1992 to come up with rules for the NOx program. A dispute quickly arose over the
W
The Electricity Journal
H
E
Dingell (D-Mich.) sat like a jurisdictional black hole, drawing nearly every important measure that passed through the house into E&C's legislative gravity field. Initial plans w o u l d have spun off securities jurisdiction to the banking committee, energy jurisdiction to the n a ~ r a l resources and science committees, railroad jurisdiction to the public works committee. ut the savvy Bliley didn't want to see his committee emasculated just as he began to give the orders. He worked hard behind the scenes to limit the damage of the reformers and, in the end, basically succeeded. Only a bit of the committee's gargantuan jurisdiction was spun off. Railroads left for the House Pub-
B
N
E
W
S
I
N
F
Over in the Senate, the transition to GOP control has been far calmer. After all, they did it before, in 1981, w h e n the GOP took over following the 1980 elections. During the six years the Republican ran the Senate, the world did not come to an end, civilization as we know it survived, and the sun continued to rise in the East and set in the West. Ho-hum. Of course, party rule doesn't amount to all that much in the Senate, where there are 100 different political parties.
8
U
S
What difference will Republican control make for issues of interest to those who live electrically? It's far too early to tell, but Republicans ought to be more responsive to business interests and less to environmentalists and consumer groups. The GOP also should be more responsive to calls for deregulation and competition. The new regime will also be a challenge to veteran energy lobbyists, who n o w have to learn a whole n e w set of names and faces, especially at the staff level in the House. Publishers of those illustrated guides to Congress will do an especially brisk business this year. - - Kennedy P. Maize
Consultant: Va. Regulators
Should Review, Control, Holding Co.-Utility Dealings
thousands of rail retirees in his district, was waiting with open arms. The rather low-wattage
irrelevant national labs. Finall},, the House Natural Resources Committee, chaired by the pugnacious Don Young of Alaska, a former river boat captain, picks up the energy committee's jurisdiction over Alaskan oil issues, including the Trans-Alaskan Pipeline System. But to get TAPS, Young had to give up a piece of his jurisdiction that was shared with Energy and Commerce nuclear waste.
C
Implications for Others?
lic Works and Transportation Committee, where n e w Chairman Bud Shuster (R-Pa.), with
House Science, Space and Technology Committee gets jurisdiction over the Energy Department's cash-rich and increasingly
O
Frank Murkowski of Alaska will be the chairman of the Senate Energy and Natural Resources Committee. There had been some talk that N e w Mexico's Pete Domenici would take over at energ~ but he decided to stick with the Senate Budget Committee, which he ran during the last Republican majori~. Ironically, Murkowski's elevation at Senate Energy and Young's rise in House Natural Resources gives Alaska the kind of control that would have belonged to Louisiana if the Democrats had held on to control.
~
t arose out of an intercompany family feud that may have been sui generis, but the implications flowing from a consultant's report to the Virginia State Corporation Commission in early December could have ramifications not just in that state but for scores of other holding company-utility governance schemes in other states. Whatever its wider shadow might be, the report, focusing on the corporate relationship between Dominion Resources, Inc. and its Virginia Power subsidiar~ administered a stinging rebuke to Dominion.
The Electricity Journal
T
H
E
The report, prepared for the SCC by Baltimore-based Liberty Consulting Group, offered a laundry list of more than three dozen recommendations for changes in corporate governance practices, enhanced separation of the two companies, and increased regulatory oversight and review. he report, commissioned following what the SCC termed the "unprecedented public dispute" between Dominion and V'trginia Power last summer, won't be final until next March, and the SCC said "several aspects of the investigation are not yet complete." But the interim paper found that, despite an uneasy truce, "tension remains" between the two companies, and that "a long-term solution must be developed." Liberty suggested that the SCC adopt a series of measures to assure the independence of Virginia Power's regulated utility operations from improper influence by the unregulated Dominion. In the area of corporate governance, the consultants offered a number of stinging rebukes critical of actions taken by the Dominion board and its chairman, Thomas E. Capps, during the midsummer unpleasantness. The consultants concluded that Virginia Power president and CEO James T. Rhodes should not be required to report to Capps or to any other Dominion officer. As part of the "settlement" of the confrontation between the two firms, Capps agreed in August to yield his post as chairman of the utility
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January~February 1995
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to John B. Adams, an outside director, and Rhodes began reporting to the parent company through Tyndall L. Baucom, who assumed Capps' previous title as president of Dominion. Adoption of the changes suggested by Liber~, including adding the title of chairman of Virginia Power to Rhodes' functions, would limit Dominion's day-to-day control over operations of the utility. In yet another direct rebuff to Capps, Liberty suggested that four directors added in August to the boards of both companies be removed. And the report said Virginia Power's legal and financial services functions, which Capps moved to the holding company after assuming the chairmanship there, should be returned to the utility. Another Liberty recommendation was that "the Commission should have the authority to limit
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C
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S
the ability of a sole shareowner to assume the powers of a public utility subsidiary board." During the summer squabble, Domiru'on cited its ownership of all Virginia Power common stock as a principal rationale for its actions to remove some directors from the utility board and reorganize the board's membership. The consultants also suggested that the SCC should "have the authority to review in advance board and officer succession plans for the utility and the holding compan3a" Dominion has maintained consistently that the SCC has no authority over the holding company's non-regulated business activities, but the Liberty report demurred strongly from that position. The consultants concluded that the SCC should "have the power to order divestiture" under circumstances where non-utility investments or operations have the po-
9
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E
tential to adversely affect utility cost of, or access to, capital, either because of substandard performance or other risk factors. The Liberty report recomm e n d e d Draconian measures to guard against a range of possible actions by Dominion and its nonregulated subsidiaries that could conceivably "usurp significant opportunities or strategies that V'trginia Power will need to remain competitive with the nation's group of premiere electric utilities." Among the suggested safeguards: commission authority to examine and monitor virtually every aspect of the operation of Virginia Power, Dominion, "and any non-utility affiliates" to preclude any conditions that might be or become detrimental to the utility and its customers. The commission should, said Liberty, have the authority to inquire into any potential cross-subsidization or conflicts arising from use of common contractors and vendors by the holding company and the utilndependent financial economist J. Robert Malko, a professor in the College of Business at Utah State University and a long-time regulatory consultant with experience in both state and federal regulation, worked with Liberty in preparing the report. Malko identified a list of four "regulatory tools" needed by the SCC to "insulate" the utility and its ratepayers "from adverse risks of diversification." Malko found no evidence of financial wrongdoing, but called for the SCC to
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F
be empowered to restrict dividend payout ratios, establish a floor for common equity ratio, mandate five- and ten-year financial forecasts, and set an asset cap for diversification activities. Dominion's only official comment after the release of the Liberty document was that it is "studying the report." V'lrginia Power also declined comment. Both companies noted that the report has no immediate effect on regulatory policies until and unless the SCC adopts it wholly or in part.
SCC information director Ken Schrad called the conclusions of the report "preliminary or tentative in nature," and cautioned that "the Commissioners must ultimately decide whether they should be adopted and what actions would be necessary to implement them." Schrad also said the SCC is still "working on two related matters," an investigation of the rate effects of a Virginia Power-CSX coal transportation contract and a compliance audit of DominionV'rrginia Power 1993 affiliate interest transactions. - - Paul M . Feine
O
C
U
S
Coal Wins Big in Court
D.C. Circuit Spanks EPAfor Overreaching on NOx Rules hen is a low NOx burner a low NOx burner? That Zen question came up recently, w h e n the U.S. Court of Appeals for the District of Columbia Circuit addressed the Environmental Protection Agency's NOx control rules under the agency's acid rain program. The answer--a low NOx burner is just that, a low NOx burner--should be instructive as a lesson in h o w administrative agencies try to wring the maximum flexibility for themselves under the law, and how the courts increasingly are unwilling to countenance that flexibility. At issue was the agency's rule for NOx control on tangentially fired boilers and dry bottom wallfired boilers. Those utility boilers must not exceed emission levels defined by Congress in the 1990 Clean Air Act amendments unless the EPA determines that the emission rates can't be met using "low NOx burner technology." In those cases, EPA can issue an "alternative emission limitation," the equivalent to a hall pass on NOx. The law also specifies that EPA cannot force a utility to install "any additional control technology beyond low NOx burners." After Congress passed the law, the issue passed to EPA, which had until May 1992 to come up with rules for the NOx program. A dispute quickly arose over the
W
The Electricity Journal