For Immediate Release

August 17, 2006

Ferndale, NY - Congressman Maurice Hinchey (D-NY) tonight will testify before the New York State Assembly's Standing Committee on Energy in opposition to the proposed New York Regional Interconnect (NYRI) transmission lines project.  Hinchey opposes this designation based partly on the fact that the two currently proposed routes for the transmission line run through the federally protected Upper Delaware Scenic and Recreational River corridor.  Hinchey's prepared testimony follows:

 

 

Good afternoon Chairman Tonko, Assemblywoman Gunther, and other distinguished Committee members.  My name is Congressman Maurice Hinchey, and I represent the 22nd Congressional District of New York.  I appreciate the opportunity to address the Committee today regarding the application of New York Regional Interconnect, Inc. to build a 190-mile transmission line from Oneida County to Orange County, New York.

 

As you are no doubt aware, the NYRI proposal to build a high voltage direct current (HVDC) power line from Marcy, New York to Rock Tavern, New York has been met with nearly unanimous opposition from communities in its proposed path as well as from an overwhelming number of elected officials, businesses and community organizations.  Since much of this project would be located in the district that I represent, I am here on behalf of the constituents I serve to reiterate my strong opposition to this specific proposal.  I am also here to voice my concerns regarding the federal and New York State policies that have not only set the stage for this project but also encouraged the development of projects such as the one proposed by NYRI. 

 

In the last decade and a half, both federal and state policies have moved us further away from a rationally planned, regulated electric system to a so called free market-based, deregulated system.  Unfortunately, these policies, including last summer's federal Energy Policy Act of 2005, which I strongly opposed and voted against, have resulted in the erosion of state and local jurisdiction over proposed electric transmission projects.  At the same time, these policies have failed to provide the investment in transmission infrastructure necessary to keep up with needs of our growing economy and population. In addition, since the Reagan years, we have steadily eroded public investments in the demand side of the energy equation and missed important opportunities to develop and foster an energy system that is environmentally-sound, energy-efficient, cost effective, reliable and respectful of the needs and desires of local communities.

 

As you know, the New York State Public Service Commission (PSC), whose members are appointed by the governor, began a 6 year process of deregulating and restructuring the State's electric utilities in 1996, just 4 years after the first Bush Administration began its deregulation crusade in Washington, DC.  The continued federal and state initiatives in 1992, 1996 and 2005 to deregulate the electric industry shifted important decision making to the same corporations that control the electric industry.  It's also important to note that the PSC undertook this deregulation through administrative action rather than action of the state legislature, raising concerns that the deregulation process was influenced by the requests of the electric industry over the needs of the citizens of New York.

 

New York's process was in many ways very similar to the process occurring in Washington, DC at the time. While the first Bush administration began this process of deregulation, the second Bush administration has worked to ensure that this process was completed.  Under both Bush administrations, with the complicity of Congress and numerous statehouses, vital decisions have been made largely out of view of the public by the regulators with the advice and consent of those they are charged to regulate.  This has unfortunately resulted in the rewriting of complex regulatory rules without legislative action, sufficient oversight or public understanding. 

 

New York State's admittedly imperfect  system of regulated, vertically-integrated utilities accountable to their local service areas was shifted to a profit-based, unbundled system that placed the so called "free-market" in charge of the electric industry, which has not protected the needs and interest of the state's residents and businesses. This of course was accomplished with the approval and support of Governor George Pataki and prominent members of the New York State Senate.  

 

I find it quite ironic that many of the Republican state and federal representatives who voted for such policies or allowed them to take place at their respective levels of government are now announcing their opposition to the NYRI project.  And while I appreciate everyone's opposition at this time, proposals, such as that submitted by NYRI, are an inevitable and predictable outcome of the market-driven deregulation that some of these same political leaders supported and promoted.  New York State's deregulation process was touted as a means of fostering competition and consumer choice and lowering electricity rates, but this has not been the result, as evidenced by the increased total rates of electricity service and the continued lack of meaningful customer choice. 

 

Additionally, federal energy policies which promoted so called "marketplace solutions" to our energy needs also did not protect the public interest in the generation and distribution of electricity.  As we have seen nationally, the drive towards deregulation and market control of our electric system has led to a less reliable and less stable system that fails to address critical public needs, including consumer protection for residents and businesses, environmental conservation, protection of local community interests and investments in much-needed infrastructure improvements. 

 

In the worst cases, deregulation has led to serious market manipulation, such as in the classic case of Enron, where the company claimed they were exempt from PUHCA regulations, and while their claims were not validated by the Security Exchange Commission, they continued to act as an unregulated holding company.  The company was acting in an illegal fashion at a time when the SEC was taking a hands-off approach to PUHCA regulation.  It is possible that Enron's wrongdoings could have been discovered by the SEC sooner than they were, however, given the complexity and secrecy of Enron's illegal actions throughout that time period, it is still unclear whether or not even the most vigilant regulators could have stopped their abuses, which resulted in failure to meet the demands for adequate electricity reliability in parts of the country and blackouts. 

 

These deregulation policies began in the early 1990's with passage of the Energy Policy Act of 1992 and have been pushed aggressively up to the present day.  Throughout this process, we have seen industry investments declining -- in transmission infrastructure, energy efficiency, renewable energy research and development and promotion of consumer demand reduction programs -- at a time when such investments should have been significantly increasing. 

 

Looking back, it is becoming increasingly clear that if our country continued on the alternative energy path President Carter proposed during the energy crisis in the 1970's, we would have made significant strides over the past decades in diversifying our energy portfolio and may have avoided many of the problems that we are encountering today.  Consistent investments over these past decades in research and development of clean, renewable energy sources as well as aggressive energy efficiency and conservation measures would have gone a long way towards mitigating the circumstances we now find ourselves facing -- electricity constraints and skyrocketing demand.  Since the administration of Ronald Reagan, the federal government has consistently undermined investments in demand reduction conservation and efficiency -- measures that could have helped our state and our nation eliminate, or at least significantly reduce, the need for additional electricity generation and transmission, and massive projects like the ones we are seeing proposed today. 

While federal deregulation policy created profitable circumstances for the corporations that control the electric wholesale market, it failed to assure adequate transmission capacity and good management of the system to regulate transfer power within and between regions.  With a deregulated system, the traditional model of a vertically integrated utility that serves the needs of a particular geographic area has been replaced with a bifurcated system of generation and distribution that is based on the profits of the corporations which control the electric industry.  Demand for electricity continues to rise and yet regulatory uncertainties have created a situation where the financial community has been reluctant to invest capital in new transmission or generation projects. 

Deregulation was further accelerated last summer when, despite my opposition, the Republican controlled Congress passed the mammoth Energy Policy Act of 2005, after bringing it to the House floor from committee so quickly that few members had a chance to thoroughly read and analyze it before voting.  That bill finally repealed the 1935 Public Utility Holding Company Act (PUHCA), which was opposed by many consumer, non profit groups and state legislators and regulators since they feared that PUHCA repeal would not protect the public interest because repeal would only exacerbate the potential for market power abuses.

 

This is very important.  Repeal of PUHCA had long been on industry's wish list, and had long been opposed by consumer and public interest groups, since it had helped eliminate unfair practices since the 1930's.  An argument for additional PUHCA reform was made by electric utilities that wanted to further diversify their assets. Under PUHCA, a holding company could acquire securities or utility assets only if the Securities and Exchange Commission (SEC) found that such a purchase would improve the economic efficiency and service of an integrated public utility system.

 

It had been argued that reform to allow diversification would improve the risk profile of electric utilities in much the same way as in other businesses: The risk of any one investment is diluted by the risk associated with all investments. Utilities have also argued that diversification would lead to better use of underutilized resources (due to the seasonal nature of electric demand). Utility holding companies that had been exempt from SEC regulation argued that PUHCA discouraged diversification because the SEC could repeal their exempt status if exemption would be "detrimental to the public interest."

 

In the case of electric and gas companies, non-utility ventures that are undertaken as a result of diversification may benefit from the regulated utilities' allowed rate of return. Moneymaking non-utility enterprises would contribute to the overall financial health of a holding company. However, unsuccessful ventures could harm the entire holding company, including utility subsidiaries. In this situation, utilities would not be penalized for failure in terms of reduced access to new capital, because they could increase retail rates.

 

Several consumer and environmental public interest groups, as well as state legislators, expressed concerns about PUHCA repeal. PUHCA repeal could only exacerbate market power abuses in what they saw as a monopolistic industry where true competition did not yet exist.

 

PUHCA and the Federal Power Act (FPA) of 1935 (Title I and Title II of the Public Utility Act) established a regime of regulating electric utilities that gave specific and separate powers to the states and the federal government. A regulatory bargain was made between the government and utilities in which an exchange was made:  for an exclusive franchise service territory, utilities had to provide electricity to all users at reasonable, regulated rates.

 

To recap, prior to deregulation, electricity was distributed on a hub and spoke system, where a centralized power plant supplied the load for localities within its range, their utility service areas.  These were vertically integrated companies that owned the supply plants as well as the transmission facilities, making them more accountable and reliable to their localized customer base. 

 

With the 1992 Energy Policy Act, there was a much greater focus on interstate transfers of power on a system that was never designed for regional transmission of power.  So currently we have a patchwork system of transmission that was designed for local delivery, but is now expected to go across state lines as well as miles within a state, on a system that was never designed for regional transmission. 

 

With deregulation, decisions are no longer made by companies which serve the localities. 
Now we have the unbundled private electric sector making the decisions, based upon a free market.  But this is a pseudo-free market -- a market system that is free only until owners and investors in "megaprojects" like these need FERC guarantees like tariffs, without which, these projects are hardly worth financing. 

 

And to add insult to injury, increasingly in Washington DC, the Republican majority has touted states rights when convenient, but seems more willing than ever to take away the power of the states and localities when their rights conflict with free market principles.  One need only look as far as the transfer of power from the state public service commissions to FERC when the PSC's don't approve national interest corridors within one year as well as the eminent domain provisions in the section of the 2005 Act that give FERC authority to set up national interest transmission corridors against local will.

 

The Energy Act of 2005 also charged the Department of Energy with studying and reporting back to Congress a National Electric Transmission Congestion Study.  This report, released on August 8, 2006, will be used to evaluate and designate possible National Interest Transmission Corridors in order to facilitate new electricity transmission facilities.  It was not a surprise that this DOE report listed lower New York State as one of the most critically congested areas in terms of electricity transmission capacity. 

 

Having said that, I am very concerned about the proposal submitted by New York Regional Interconnect to the Public Service Commission, particularly since provisions of that Energy Act may allow the federal government, specifically the Federal Energy Regulatory Commission, to overrule New York State's decision on whether to allow this proposal if the PSC does not approve this proposal within one year of submittal.   

 

Like many of you, I have written to the Department of Energy (DOE) expressing my strong opposition to NYRI's application for "early designation" as a National Interest Electric Transmission Corridor for their proposed transmission corridor.  DOE had 11 applications for expedited corridor designation, including NYRI's, but the Department decided to hold off on all early designations and is waiting until sometime after mid November to make their decisions.  While the DOE has decided not to act upon NYRI's request at this time, their recently released National Electric Transmission Congestion Study highlighted what they called the "critical congestion area" in much of lower New York State. 

 

We expect the DOE to begin making NIETC designations by the end of this calendar year, and it is probable that such a designation will happen for New York State, unless Congress intervenes to stop that process.  Considering the current leadership in Congress at this time, I do not foresee that happening without a change of leadership as a result of the upcoming election.  And like many of you, I was very concerned to see recent statements by President Bush's most recent appointment to FERC, Marc Spitzer, who dubbed this project a "no brainer."  While I and other members of New York's congressional delegation will oppose this project and this designation at every step of the way, the playing field has clearly been tilted by the current administration in Washington.

 

Many other speakers today will highlight and detail the long list of problems and concerns with the NYRI proposal.  I would just like to touch upon some of those that have compelled me to oppose this proposal.  As you are aware, NYRI has proposed two study routes for their project.  The first runs straight through the more than 73-mile Upper Delaware Scenic and Recreational River corridor.  The alternative route also crosses this important corridor at a number of points and while it is less of a direct threat to the corridor itself, it would have profoundly negative impacts on the communities through which it is proposed to run.

 

The river corridor is one of our region's most important natural resources.  The corridor's federal designation under the Wild and Scenic Rivers Act recognizes the River Valley's outstanding scenic, recreational, historic, environmental and cultural assets and specifically provides for this corridor's protection for present and future generations by the National Park Service. 

 

Furthermore, the River Management Plan for this corridor, which was approved by the Department of Interior, explicitly prohibits the construction of electric transmission lines of this size, recognizing them as incompatible with the protection of this corridor.  This prohibition recognizes that such projects are a threat to this tremendous natural resource and would be injurious to the long-term environmental and economic well-being of the Upper Delaware River Valley.  I will be meeting with the Director of the National Park Service in the near future when Congress reconvenes in order to ensure that the Park Service continues to respond vigorously in opposition to this serious threat to the River corridor.

 

Building power lines of this size and scope would have tremendously negative impacts to the entire region.  Some of the concerns highlighted to me by community and business leaders in the 22nd Congressional District include the concerns that the NYRI project would:

 

• Jeopardize a world class trout fishery that attracts thousands of sportsmen to the region each year and provides an important economic foundation for many local hospitality businesses.  Development of the power lines along the Delaware River may degrade water quality due to increased storm water run-off and loss of trees in the river's watershed.
• Negatively impact the local economic base of this region, which depends on tourism, second homes, boating, fishing and summer camps.
• Visually mar a corridor that includes or crosses part of the New York State Revolutionary War Trail, the Upper Delaware Scenic Byway and the Hudson River Valley National Heritage Area and Greenway.
• Reduce local property values.  Some studies have shown that properties adjacent to major electric transmission lines can lose a significant percentage of their values.
• Impact federally and state protected species, including the Bald Eagle.
• Result in possible health impacts to residents located near the proposed line.
• Require the acquisition of private property from thousands of local property owners, likely through the use of eminent domain. 

 

New York State does need to address the reliability of its electric transmission system, but it needs to be done in an environmentally responsible manner that respects the rights of local communities and property owners and that serves the public interest.  The NYRI proposal does not meet that standard, and I will continue to oppose any federal effort or designation that would preempt New York State's jurisdiction on the siting and permitting of transmission lines.

 

I believe that electricity constraints in areas of lower New York State could be met through aggressive federal and state policies promoting demand-side management of electricity as well as development of alternative renewable energy sources.  Unfortunately, the federal government, lead by a Republican Congress and a Republican Administration, is deriving its energy policy from the wish list of lobbyists and executives from the energy industry rather than focusing on a rational policy for moving this country forward toward a clean and reliable energy future.

 

It is vital to both our state's economic and environmental future that we deal effectively and responsibly with our growing energy needs.  Rather than promoting large scale energy projects that will scar our local landscapes and compromise our environment and public health, the federal and state governments should be taking action to reduce demand by significantly boosting energy efficiency programs and energy conservation initiatives, and to promote the use and development of clean, renewable energy sources.

 

Such policies would not only reduce our dependence on fossil fuels and lower greenhouse gases and other pollutants that contribute to global warming and poor air and water quality, but would also spur significant economic growth through job creation and investment in alternative clean technologies and efficiency improvements across our economy.  A cleaner, more decentralized energy system that incorporates common sense conservation methods would ensure reliable electricity in the long-term and would also reduce the cost of electricity and better respect the concerns of local communities and businesses that unanimously oppose the proposed high voltage lines running through their areas.  This is clearly not happening under a deregulated, profit-driven system.

 

I have coauthored the "Energy For Our Future Act", which would provide increased federal funding for energy efficiency upgrades and renewable energy.  The bill would promote and fund home weatherization, energy-efficiency upgrades for residential and commercial buildings, expansion of the EnergyStar program to encourage use of energy efficient appliances, and expansion of tax incentives for energy efficient transportation, appliances and renewable energy use.  The bill would also require electric utilities to increase their use of wind, solar and other renewable energy sources to 20 percent by 2030 and institute nationally "net metering," which requires utilities to purchase excess energy produced renewable energy sources at residential and business properties.

 

We have seen a fundamental failure of a market based, poorly regulated energy industry from California to New York and the political leadership that has promoted the industry's restructuring.  The NYRI proposal is simply a symptom of this larger national and state issue, but it is nonetheless one that we must be dedicated and committed to stopping in its tracks.

 

I thank you for your consideration of my remarks and your assistance in preventing the construction of the proposed NYRI transmission line.  Please do not hesitate to contact me if I can be of any assistance to you or your colleagues in this effort.