[Senate Hearing 110-538]
[From the U.S. Government Publishing Office]
S. Hrg. 110-538
RENEWABLE ELECTRICITY
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
TO
EXAMINE THE CHALLENGES AND REGIONAL SOLUTIONS TO DEVELOPING
TRANSMISSION FOR RENEWABLE ELECTRICITY RESOURCES
__________
JUNE 17, 2008
Printed for the use of the
Committee on Energy and Natural Resources
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
DANIEL K. AKAKA, Hawaii PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota LARRY E. CRAIG, Idaho
RON WYDEN, Oregon LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana JIM DeMINT, South Carolina
MARIA CANTWELL, Washington BOB CORKER, Tennessee
KEN SALAZAR, Colorado JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
JON TESTER, Montana MEL MARTINEZ, Florida
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
Frank Macchiarola, Republican Staff Director
Judith K. Pensabene, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
American Public Power Association................................ 69
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Domenici, Hon. Pete V., U.S. Senator From New Mexico............. 3
Freeman, Bryce, Wyoming Infrastructure Authority, Cheyenne, WY... 18
Furman, Donald N., Representing American Wind Energy Association. 59
Halvey, Richard, Western Governors' Association, Denver, CO...... 15
Hanson, Gary, Chairman, South Dakota Public Utilities Commission,
Pierre, SD..................................................... 43
Kaul, Will, Transmission Vice President, Great River Energy,
Maple Grove, MN................................................ 55
Kolevar, Kevin M., Assistant Secretary for Electricity Delivery
and Energy Reliability, Department of Energy................... 5
Pickens, T. Boone, BP Capital, Dallas, TX........................ 9
Reid, Hon. Harry, U.S. Senator From Nevada....................... 25
Wright, Stephen J., Administrator, Bonneville Power
Administration, Portland, OR................................... 48
APPENDIX
Responses to additional questions................................ 73
RENEWABLE ELECTRICITY
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TUESDAY, JUNE 17, 2008
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 10 a.m. in room
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman,
chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. Ok. Why don't we go ahead and get started.
We're about 2 minutes early. But we've got four of us here, so
that's a good sign. We do have a couple of panels, so we will
get started.
The topic of today's hearing is renewable electricity
generation and transmission. The Federal Government has been
trying to encourage development of renewable electricity since
at least the late 1970s with the passage of the Public Utility
Regulatory Policies Act. We've also had tax credits for
renewables. We funded research and development for renewables.
States have passed aggressive renewable portfolio
requirements or in other ways have set goals and targets for
increasing the amount of electricity produced through renewable
sources. In spite of all this, renewable generation is still
only 3 percent of our national electricity supply. Recent
studies have indicated that we can do much better.
The Department of Energy recently released a report
indicating that 20 percent of our electricity could come from
wind alone. The Western Governors' Association has adopted a
goal of 30,000 megawatts of clean energy resources by 2015.
Project 25 by 25 has accepted as a target that 25 percent of
all energy should come from renewables by 2025.
All these studies and reports agree that we should extend
the renewable energy tax credits, several of them supporting
national renewable electricity standard. All of them also
agree, however, that these actions are not enough and that one
of the most important barriers to accomplishing these goals is
the inadequacy of the existing transmission system.
I think it's important that we do all that we can to get
transmission built to carry renewable electricity to where it's
most needed. We need to be sure that FERC's rules for planning,
siting, pricing, interconnection and openness of access are
what they should be. Beyond that renewables do present unique
problems.
Most wind, solar and geothermal resources are located far
from the areas where the electricity is needed. The Upper
Plains states are rich with the potential for wind generation.
But these states are sparsely populated and far from large
metropolitan, industrial centers. The same is true for solar
potential in the Southwest and the geothermal resources in the
Mountain West.
Development of transmission lines to carry such resources
to load centers has to be done across many states and through
many jurisdictions. Siting the lines is a serious problem.
Often states that are not benefiting from either the jobs that
come to the states where the generation is located or the
electricity that is carried to customers in other states.
This makes it much more difficult for them to face the
opposition that often accompanies such projects. Cost
allocation is also a real difficulty. Customers in the states
where the plants are built and where the transmission is
essentially just passing through do not want to shoulder the
primary burden of paying for the lines that are supplying
somebody else.
This hearing we will look at a number of efforts to address
these vexing problems. Let me, before introducing any
witnesses, call on Senator Domenici for his opening statement.
[The prepared statement of Senator Salazar follows:]
Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado
Mr. Chairman and Ranking Member Domenici, thank you for holding
this hearing on the difficult challenges facing development of electric
transmission infrastructure for renewable energy resources.
Today's hearing has a decidedly western theme, and for good reason.
The Department of Energy's official renewable energy resource maps,
prepared by experts at the National Renewable Energy Laboratory in
Golden, Colorado, illustrate the incredible renewable energy potential
across the western states. Studying the existing electric transmission
infrastructure map, one quickly realizes the conundrum renewable
electricity project developers face: the best solar and wind energy are
in sparsely-populated locations--locations without transmission
capacity in place. The reason for this is simple enough. Over the past
century our electric infrastructure has evolved from a ``demand-
oriented'' perspective. That is, the first question when siting new
generation capacity has been ``where is growing demand located?'' Yet
today, renewable project developers are turning that question around
and asking the supply-oriented question of ``where is the best
renewable energy potential located?''
Connecting renewables to the grid can be incredibly difficult.
Planning and siting transmission is often plagued by jurisdictional
disputes and not-in-my-back-yard resistance. Efforts to finance
transmission are usually met with apathy if not resistance on the part
of local rate-payers, who may not have any incentive to participate. I
look forward to hearing today's witnesses describe the various
approaches they have taken to meet these challenges.
I believe the Western Governors Association, in partnership with
DOE, has shown incredible leadership in establishing the Western
Renewable Energy Zones. The WGA's resolution to deliver 30,000
megawatts of renewable electric power to the nation by 2015 is both
lofty and achievable--but only if we can meet our transmission
infrastructure goals. The Western Renewable Energy Zones project is a
textbook illustration of cooperation between states and the federal
government to share and organize critical information to achieve a
common purpose. While this is a wonderful start, my instincts tell me
that there is a clear need for an even deeper level of interplay and
coordination between local, state, and federal officials when it comes
to siting the transmission we need.
I believe each of our witnesses and many members of this committee
are driven by a common insight that renewable energy will enhance our
energy, environmental, and economic security. Displacing future fossil
generation capacity with renewables will reduce greenhouse gas
emissions, save water, create new jobs, and boost local tax revenue in
rural areas that so desperately need economic revitalization. The
western states are blessed with world-class solar and wind energy
potential, and we must do everything we can to ensure these resources
are developed in the interests of the environment, local communities,
and the nation as a whole.
I am eager to engage in this discussion and to hear the
perspectives of our panel on these critical issues. Thank you, Mr.
Chairman.
STATEMENT OF HON. PETE V. DOMENICI, U.S. SENATOR FROM NEW
MEXICO
Senator Domenici. Thank you very much, Mr. Chairman. Let me
say first for the committee's information and for yours, the
distinguished Republican leader has called for a meeting of
Republican senators who are interested in certain energy issues
pending before his--for his deliberation. He's asked us to
attend a meeting at 10:30 in his office.
I believe everybody that has an interest will go to that
meeting. I myself will. I assure that I will wait until the
last minute. I will come back from that meeting as soon as I
can.
In my 36 years in the Senate I've worked hard to further
the development of alternative energy. We've invested literally
billions of dollars in research and development of renewable
technologies like wind, biomass, solar and billions more to
come, these statements so far similar to yours. We have done
much of this bipartisan.
In 2005 I was very proud to help pass some of the largest
tax credits for renewable energy in history. There's widespread
agreement that they should be continued. Unfortunately the U.S.
House is now insisting on raising taxes to offset these
extenders, with another attempt this afternoon.
Even though Congress has never had to specifically offset
tax credits for the renewable industry since the credits were
first established in 1992. These tax credits are important
enough to be extended without offsets. The Senate has already
done this because they spurred development in the clean
technologies sector and act as a stimulus to our economy
without any doubt.
Over the past several weeks I've talked at length about my
vision for our energy future. The good news is that there is
widespread, bipartisan agreement on how to address energy
issues in the long term. In the short term we don't always see
eye to eye. But there is no question that the United States of
America will have to import crude oil for many decades.
The foremost experts suggest that the bridge from now to
that future without crude oil is about 40 years, meaning that
we will be on crude oil of substantial quantities for 40 years.
That's the bridge to the future and that's the short term
problem we've got which we can't get rid of. It just means we
will spend more and more of our money overseas for the next 40
years unless we have some way to abate that.
Increased domestic production, however, is just a bridge
that will sustain us as we develop new technologies. It is
important that we understand exactly what it will take to make
sure we get ready for it when it's available. Particularly when
it comes to our infrastructure needs.
That's the purpose of today's hearings. By year 2030,
Energy Information Administration projects that a 30-percent
increase in the U.S. electricity demand as estimated by that
assumes significant efforts to improve energy efficiency and
demand. However, with only 6.8 percent growth in total
transmission lines since 1996, our Nation's infrastructure
development is simply not keeping pace with this system's
demands.
The passage of the Policy Act of 2005 Congress sought to
tackle this difficult issue. Setting needed transmission lines
we directed DOE to study the country's transmission constraints
and designate transmission corridors in areas of severe
congestion. Importantly we provide FERC with backstop siting
authority to counter NIMBY opposition to interstate lines.
These are significant Federal authorities aimed at insuring
adequate transmission. Yet since its enactment and before they
had even fully been implemented these provisions have been
attacked by numerous interest groups, some Members of Congress
and one of our Federal Commissioners. Of all our witnesses here
today are wrestling with the thorny transmission issues from
the planning and siting to cost allocation to the integration
of intermittent resources.
I look forward to hearing from our panelists about these
efforts. Because those engaged in reaching the collaborative
processes are the ones who see the problems and must have
solutions. I thought we took a giant step when we were bold
enough to say for the first time that there would be
condemnation authority under certain circumstances as we
attempted to bridge stop gaps with power lines that were
eminent for national security and national transportation
needs.
With that I look forward to the witnesses. Thank you for
this important hearing.
The Chairman. Ok. Thank you very much. We have two panels
today.
On our first panel let me just start and indicate Senator
Reid has asked to address the committee. He has introduced
legislation, S. 2067, which tries to deal with this issue, and
directly confronts the cost allocation issue which is a very
important part of this issue.
He will be coming and joining this panel in the next few
minutes, I'm advised, and we will just add him when he comes.
Let me call the panel forward.
Kevin Kolevar is the Assistant Secretary for Electricity
Delivery and Energy Reliability in the Department of Energy.
Thank you for being here.
T. Boone Pickens is with BP Capital in Dallas, Texas. Thank
you for being here.
Richard Halvey representing the Western Governors'
Association from Denver.
Our other witness is Bryce Freeman with the Wyoming
Infrastructure Authority from Cheyenne.
So thank you all for being here. I think probably given the
time constraints everybody's got. Why don't we just go down the
line and have each of you summarize the main points you think
we need to understand. We will include your entire statement in
the record.
Then, if Senator Reid arrives after whoever is testifying
completes their testimony, we may allow Senator Reid to go
ahead because of his time constraints. But Kevin, why don't you
go right ahead and give us the perspective of the Department of
Energy.
STATEMENT OF KEVIN M. KOLEVAR, ASSISTANT SECRETARY FOR
ELECTRICITY DELIVERY AND ENERGY RELIABILITY, DEPARTMENT OF
ENERGY
Mr. Kolevar. Thank you, Mr. Chairman, Senator Domenici,
members of the committee for the opportunity to testify before
you today on the challenges of building transmission to meet
the growing demand of renewable electric generation capacity.
Decades of reliable electric service have made it easy to
take for granted the availability of and access to electricity
that powers our electronics, heats and cools our homes and
operates our businesses. However, electricity is the backbone
of our economy. Without a robust, reliable and affordable
supply the operation of commerce, transportation, finance, food
and water and our national security will be threatened.
As our Nation's economy continues to grow consumers demand
for electricity will steadily increase. Even when counting for
advances in energy efficiency, as Senator Domenici noted, the
Energy Information Administration estimates that by the year
2030, U.S. electricity consumption will increase by almost 30
percent from the 2006 level. Although this a positive indicator
of a growing economy, it means a significant amount of new
demand on electricity generation and transmission systems that
are already stressed and aging.
While we as a Nation should place great emphasis on
updating and upgrading the grid we have today. That alone will
not be enough. Significant new transmission will be necessary
in the 21st century, largely because much of the Nation's
future electricity demands will be met by generation sources
located in areas that currently lack adequate grid
connectivity. This applies in particular to wind, solar,
nuclear and clean coal with carbon capture and storage.
This means that if you want to support clean energy, you
have to support transmission expansion in appropriate areas.
Meeting our future electricity needs will not occur overnight
or with one solution, however. The new demand will only be met
through national and regional cooperation on a combination of
options such as new generation and transmission, advanced
technologies, demand response programs and improved efficiency.
But there is good news to report. While the technical
hurdles to continued, reliable electric service are
considerable, they will be overcome. This Nation is rapidly
surmounting our current technical challenges. I expect this
will continue.
The less good news is an even greater obstacle remains. We
must harmonize the multitude of local, State and Federal
regulatory rules, such that they complement, not conflict with
one another. To do this, we must coordinate efforts to meet
electricity demands regionally and not just at the State level.
For that reason the Department strongly supports regional
approaches to addressing the challenges of electricity resource
planning. The present pattern of siting much generation distant
from load and often in another State will continue for many
years to come, so State level planning needs to be followed
with regional scale planning and coordination. We will all
benefit if states in our region are able to work in a
coordinated way to bring their shared views to reality.
I'm pleased to note that the Department supports a number
of activities designed to assist states as they think through
the electricity choices. Initiatives such as the Mid-Atlantic
Distributive Response Resources Initiative and the National
Action Plan for Energy Efficiency are two good multi-State
examples. The Western Governors' Association's Western
Renewable Energy Zones effort is the latest. The Department is
tremendously pleased to have the opportunity to support this
ground breaking initiative.
The West has great potential for the development of
renewables as evidenced by the work the states are doing on
their own. But the scope of this work has been restricted to
renewable energy potential within each State's boundaries. As
we all know, renewable resources do not recognize State
borders.
The Western REZ project brings together both policymakers
and regulators from the Western states to consider as a body
the region's electricity needs and consider whether and how the
states can cooperate to address these needs. The process
provides a framework to bolster the growth of renewable energy
sources, increase regional electricity planning and work in an
open stakeholder process to consider transmission plans for the
deliver of these resources.
I can assure you that these multi-State initiatives are not
easy. No single effort holds the solution for a region's
electricity challenges. Nevertheless, these projects are
important examples of how regions can respond to the challenge
of using new sources of energy to meet the Nation's electricity
needs.
The Department is pleased to be a part of all of these
initiatives and hopes the Western REZ process in particular
will serve as an example of how regions can work cooperatively
to promote the development of clean and reliable energy
sources. The maturation of these efforts continue technological
advances and increasing market penetration of the broad range
of clean energy technologies and modernization of the existing
electricity transmission and distribution infrastructure are
critical components of the President's vision of a cleaner,
more secure, energy future.
I expect the DOE will continue its active support by making
available both technical and financial resources and by working
to raise awareness of the project's importance. This concludes
my statement, Mr. Chairman. I look forward to your questions.
[The prepared statement of Mr. Kolevar follows:]
Prepared Statement of Kevin M. Kolevar, Assistant Secretary for
Electricity Delivery and Energy Reliability, Department of Energy
Mr. Chairman and Members of the Committee, thank you for this
opportunity to testify before you today on the challenges of building
transmission to meet the growing demand of renewable electric
generation capacity.
Decades of reliable electric service have made it easy to take for
granted the availability of and access to electricity that powers our
electronics, heats and cools our homes, and operates our businesses.
However, electricity is the backbone of our economy, and without a
robust, reliable and affordable supply, the operation of commerce,
transportation, finance, food and water systems, and our national
security will be severely threatened.
OE MISSION
The mission of the Office of Electricity Delivery and Energy
Reliability (OE) at the Department of Energy (DOE) is to lead national
efforts to modernize the electricity delivery system, enhance the
security and reliability of America's energy infrastructure, and
facilitate recovery from disruptions of energy supply. These functions
are vital to DOE's strategic goal of protecting our national and
economic security by promoting a diverse supply and delivery of
reliable, affordable, and environmentally responsible energy.
MEETING OUR FUTURE ELECTRICITY NEEDS
As our Nation's economy continues to grow, consumers' demand for
more electricity will steadily increase. Even when accounting for
advances in energy efficiency, the Energy Information Administration
estimates that by the year 2030, U.S. electricity consumption will
increase by almost 30 percent from the 2006 level. Although this is a
positive indicator of a growing economy, it means a significant amount
of new demand on electricity generations and transmission systems that
are already stressed and aging.
And while we as a nation should place great emphasis on updating
and upgrading the grid we have today, that alone will not be enough.
Significant new transmission will be necessary in the 21st century,
largely because much of the Nation's future electricity demands will be
met by generation sources located in areas that currently lack adequate
grid connectivity. This applies to almost every type of generation:
Most of the Nation's best wind and solar resources are
located in remote areas where existing transmission capacity is
either minimal or non-existent;
Most new nuclear plants will not be sited in populous areas,
and will likely require additional transmission capacity;
Clean coal with Carbon Capture and Storage (CCS) will
presumably be sited near geologic formations suitable for CO2
storage, and may not be near major existing transmission
facilities.
This means that if you want to support clean energy, you have to
support transmission expansion in appropriate areas.
So it's clear that meeting our future electricity needs will not
occur overnight or with one solution. The new demand will only be met
through National and regional cooperation on a combination of options,
such as new generation and transmission, advanced technologies, demand
response programs, and improved efficiency. However, while the
technical hurdles to continued reliable electric service are
considerable, they will be overcome. This Nation is rapidly surmounting
our current technical challenges, and I expect this will continue.
There is another obstacle, however, that does threaten the long-
term provision of reliable electricity; we must harmonize the multitude
of local, state and Federal regulatory rules such that they complement,
not conflict with each other. And to do this, we must coordinate
efforts to meet electricity demands regionally, and not just at the
state level. Today, the greatest challenge to developing the
appropriate network of wires and other facilities to reliably and
responsibly generate and deliver the electricity to the American public
is the difficulty of coordinating state and Federal permitting efforts
and authorities.
DOE SUPPORT FOR REGIONAL ELECTRICITY PLANNING
For that reason, the Department strongly supports regional
approaches to addressing the challenges of electricity resource
planning. In most parts of the country, wholesale electricity markets
have become regional in scale. The present pattern of siting much
generation distant from load--and often in another state--will continue
for many years to come, so state-level planning needs to be followed
with regional-scale planning and coordination. To begin this process,
each state, after considering its future electricity objectives,
strengths, and needs, must engage with its neighbors to consider some
basic questions that include:
The mix and locations of the region's generation resources;
What transmission facilities are required and where; and,
How urban areas should strike an appropriate balance between
local generation, energy efficiency programs, and imports via
transmission.
We will all benefit if states in a region are able to work in a
coordinated way to bring their shared view to reality. I'm pleased to
note the Department has a number of activities where we are helping
states think through electricity choices regionally: Initiatives such
as the Mid-Atlantic Distributed Resources Initiative (MADRI), and the
National Action Plan for Energy Efficiency are two good examples. The
Western Governors Association's Western Renewable Energy Zones effort
(WREZ) is the latest, and the Department is tremendously pleased to
have the opportunity to support this groundbreaking initiative.
The WREZ project seeks to provide a framework to tackle the hurdles
facing the western region as it seeks to bolster the growth of
renewable energy sources, increase regional electricity planning, and
work in an open stakeholder process to consider transmission plans for
the delivery of these resources.
ORIGINATION OF WGA WREZ PROJECT
The idea for the WREZ project originated at a Western Governors'
Association (WGA) meeting in Fort Collins, Colorado in September 2007
to discuss the challenges regarding new demand for renewable energy
generation, the transmission necessary to deliver this power to
consumers, and integration of these clean resources into the electric
transmission grid. Out of this meeting came the idea to apply the
Competitive Renewable Energy Zones (CREZ) concept used in Texas to
promote the development of wind to the Western Interconnect. A number
of Western states, including Colorado, Nevada, New Mexico, and
California, have already begun or completed identification of renewable
energy zones within their own state boundaries.
The West has great potential for the development of renewables as
evidenced by the work the states are doing on their own. But the scope
of this work has been restricted to renewable energy potential within
each state's boundaries and, as we all know, renewable resources do not
recognize state borders. Limiting efforts solely to the state level may
lead to fractionalization among the states and complicate decisions for
a resource planner. The WREZ project applies existing WGA policy and
facilitates the work being done at the state level to the entire
Western Interconnect to create a regional market for new generation
capacity from wind, solar, geothermal, biomass and hydro technologies.
But this is only half the effort; the next step is to consider the
transmission needed to carry this load to consumer centers.
The work that the states, through the WGA, will be doing on this
project will be divided into several phases;
1) Identification of the renewable energy zones (REZ) using
technical resource assessments, economic analysis, and
stakeholder evaluation and feedback;
2) Development of conceptual transmission plans and balancing
requirements for REZs through existing Western Electricity
Coordinating Council-sponsored transmission planning process;
and
3) Coordinating load serving entity procurement to support
development of a regional market for renewable energy.
Finally, later in the process, the WGA project aims to develop
interstate cooperation to address permitting and multi-state cost-
allocation issues. Phase I began on May 29, 2008, in Salt Lake City
with the expectation that the initial phase will be completed at the
end of this year or early 2009.
STAKEHOLDER INVOLVEMENT
Increasing public attention to new energy infrastructure requires
greater stakeholder involvement to address concerns raised by opponents
and to ensure a greater success in siting new clean energy projects.
The WREZ project recognizes this point and has created an open and
transparent process for including stakeholders of various interests,
whether it is renewable generators, load serving entities, wildlife and
land conservationists, Native American tribes, or local citizens groups
concerned about their community.
NON-REZ RENEWABLES
While the WREZ holds tremendous potential for bringing considerable
clean energy to the West, not all generation in the region is abundant
enough to be located in specific, large ``zones.'' In fact, some of the
renewable resources, such as water power, geothermal, biopower, and
distributed solar (or solar photovoltaics) may not be needed to be
identified as existing in a ``zone'', or at least may be able to serve
nearby load without new transmission.
Thus, Phase I of the WGA WREZ project will also include
identification, particularly with GIS-based maps as appropriate, of
non-REZ renewable resources. This will include a state-by-state
estimate of potential for distributed renewables such as roof-top solar
photovoltaics. By supplying information on all of the renewable
resources that are available to states-not solely those to be used at
the bulk power level-potential developers and load-serving entities can
make their own choices on whether to tap remote, distant renewables, or
local renewables to meet their customers' electricity needs.
DOE SUPPORT FOR CLEAN AND DIVERSIFIED ENERGY
Finally, on the Federal side, the Department continues to invest
heavily in the research and development of a wide range of advanced
clean energy technologies, including clean coal technologies with
carbon capture and storage, next generation nuclear reactors, as well
as energy efficiency and related demand side technologies. Indeed, the
demand-side measures, such as conservation and increased efficiency,
are often cheaper and can be implemented much faster than supply side
resources. Maturation of these efforts, advancement of the previously
mentioned technologies and their increased market penetration, and
modernization of the existing electricity transmission and distribution
infrastructure are critical components of the President's vision of a
cleaner, more secure energy future.
As we move toward that secure energy future, renewables will play a
leading role in helping to reach our goal of a clean and diverse fuel
mix. The WREZ project is one example of how a region is responding to
this challenge of using new sources of energy to meet the Nation's
electricity needs. The Department is pleased to be a part of this
initiative and looks forward to continuing its work with the Western
Governors' Association and other regional state efforts to promote the
development of clean and reliable energy sources.
This concludes my statement, Mr. Chairman. I look forward to
answering any questions you and your colleagues may have.
The Chairman. Thank you very much.
Mr. Pickens, go right ahead please.
Senator Domenici. Mr. Pickens, before you start, might I
just thank you for coming from a long distance today to help us
with this very difficult problem. I know what you're going to
say having seen it. I complement you on your boldness in terms
of the suggestions you make.
Thank you, Mr. Chairman.
STATEMENT OF T. BOONE PICKENS, BP CAPITAL, DALLAS, TX
Mr. Pickens. I'm probably am the oldest oil man here today.
That's not in my notes. Thank you for having me.
Our country is in the most perilous time in history in
terms of imported oil. Any serious way out of our energy crisis
is going to take a real investment in our transmission system.
I believe renewable energy resources are a viable solution to
this crisis.
But any way you use to fix our dependence on foreign oil
will depend on our willingness to invest and streamline our
transmission system. Private enterprise will invest the money
and will bill it cheaply and efficiently if Congress adopts
clear, predictable policies. Senators, ladies and gentlemen,
simply stated our main energy problem begins and ends with
imported oil.
In the 1960 we were importing about 10 percent of our oil.
In 1973 we were up to 24 percent. By 1991 was 42 percent. And
now we're right on 70 percent.
We are getting close to exporting now $700 billion a year
overseas because of our addiction to foreign oil. More than
four times the cost of the Iraqi War. They get hard dollars
from us and we get a product that's burned and gone in 90 days.
The price of oil will go up further. In 10 years we will
have exported close to $10 trillion out of the country. If we
continue on the same basis we're going now. It is the greatest
transfer of wealth in the history of mankind. Our money is
going to a few friends and several enemies.
I have a plan that can stop all this. It has to begin with
the expanded use of renewable energy. We have the best wind in
the world, the United States does. It's time to get serious
about using it.
The lynch pin of my plan is utilizing our abundant,
domestic supplies of clean, affordable natural gas and putting
it to work in transportation. Now more than 70 percent of our
oil imports are used in transportation. Domestic natural gas is
better than imported oil.
But to make it work we have to release natural gas out of
power generation. It's wasted there. Wind energy can fill the
void.
When you look at the pie chart for power generation you
have 50 percent coal, 22 percent natural gas and 20 percent
nuclear. Hydro and biofuels is miscellaneous. It's the rest of
it.
In April 2007 the government released a study that showed
that you could develop 20 percent of your power generation from
wind. Sweetwater, Texas, a model for wind power. If you take
the total Sweetwater complex it's about 2,000 megawatts.
Let me tell you just a something about Sweetwater, Texas.
It is rural America. It was a 12,000 population town, went down
below 10,000 and now it's recovered to above 12,000 because of
the wind. It's a booming community. It can be duplicated over
and over again in real America if you use wind power.
Shell Oil Company is starting a project just Northwest of
Sweetwater, 3,000 megawatts. We're building the world's largest
wind project in Pampa, Texas which is 200 miles North of
Sweetwater. The Pampa Wind Project will be capable of
generating 4,000 megawatts of electricity, enough to serve 1.2
million U.S. homes. There will be 2,500 turbines in that
project.
If you go up through the wind corridor from Sweetwater to
Pampa to Goodland, Kansas and on up Hastings, Nebraska and on
to Canada, it is all good for wind, all of it. Fabulous
resource for this country to have. It's in the right place too,
in the central part of the United States. It's safe.
With wind power in place you can take the 22 percent of our
energy supply from natural gas and move it to transportation.
The 22 percent moved to transportation will replace all,
underline all, of OPEC imports. This is a real number. Foreign
oil imports represent a real threat to our national security
and our national economy.
This is an emergency. We need to consider giving our next
President emergency powers to deal with it. I would envision
Eisenhower Federal Highway System back in the cold war. I think
that's what it's going to take to do this.
It's got to be done quickly. Because of the $700 billion a
year we're exporting out of this country. In the meantime
Congress should bring leadership to the table and help address
one of the critical shortcomings of wind, energy
transportation.
If private enterprise is going to fund these efforts we
need to ensure they are clear, predictable policies regarding
siting, permitting, Federal land use, cost recovery, capacity
rights in cities. There are many benefits to doing this
including cleaner air, lower demand for water, marketing the
natural gas available for feedstock for chemical and
agriculture uses, making natural gas available for use for
transportation fuel, contribute to the revitalization of rural
areas in central United States, take advantage of plentiful
renewable resources to provide a secure supply of power.
Thank you, Mr. Chairman for holding this hearing today.
[The prepared statement of Mr. Pickens follows:]
Prepared Statement of T. Boone Pickens, BP Capital, Dallas, TX
Chairman Bingaman, Senator Domenici, and members of the Committee,
thank you for holding this hearing today. Our country is in a crisis
caused by imported oil, and any serious solution to help us escape from
this trap will require action by the Congress to promote private
investment in our electric transmission system.
We must develop and promote every available domestic energy
resource to solve this crisis, and the lynchpin to addressing our
escalating dependence on foreign oil is a willingness and determination
to invest in and streamline our electric transmission system. Private
enterprise will invest money, and will build new transmission
infrastructure cheaply and efficiently, if Congress adopts clear,
predictable policies.
And Senators, ladies and gentlemen, simply stated, our main energy
problem begins and ends with imported oil. Seventy percent of the oil
we use is imported. With current oil prices, we are getting close to
exporting $700 billion a year overseas because of our addiction to
imported oil. That's nearly four times the cost of the Iraqi war. We
purchase it from a few friends and a lot of enemies. We are paying for
the war against ourselves and we have got to stop it, some way,
somehow.
And the price of oil will go up further. Over the next 10 years,
you're looking at exporting $10 trillion out of this country. It will
be the greatest transfer of wealth from one country to other parts of
the world in the history of mankind. It is a clear and growing threat
to our national security, and our national economy. It has to be
stopped. We are on the verge of losing our Super Power status. It's
time to quit the blame game, and look for solutions and leadership to
solve the problem.
For decades, every presidential candidate has talked about making
us energy independent. That hasn't happened, of course, and the hole
we've dug for ourselves just keeps getting deeper. In 1945 we were
exporting oil to our allies. In the 1960s we were importing about 10
percent of our oil. By the 1980s it was 40 percent. In 1991 during the
Gulf War, it was 54 percent. Now it's about 70 percent.
The world produces 85 million barrels of oil a day, or more than 30
billion barrels of oil a year. We haven't replaced that amount of
consumption on an annualized basis since 1985. World oil production, I
believe, has peaked, and the world's current oil fields are declining
at the rate of 8 percent a year. The simple truth is we're never going
above 85 million barrels of oil production.
The U.S. consumes 25 percent of the world's oil, with only 5
percent of the world's population. And what's going to happen when
you're dealing with a supply capped at 85 million barrels and
increasing demand as the Chinese, Indians, and rest of the
underdeveloped countries around the world continue to use more and more
oil?
I have a plan to fix this problem. I've stress tested it with
government and business leaders across the U.S. in recent months. No
one has found any major flaws in it. That said, if there's a better
plan out there, it's time to hear it. The time for action is now.
Worldwide 70 percent of the 85 million barrels a day is used for
transportation. To replace foreign oil, we need a major energy source
that works for transportation. The domestic energy resources we have
are oil, coal, natural gas, wind, solar, bio-fuels, hydroelectric and
nuclear.
Natural gas and bio-fuels are the only fuels on the list that work
to replace foreign oil for transportation. It's my belief that bio-
fuels, while helpful, will not be the total solution.
So we have domestic natural gas as the replacement for foreign oil.
Natural gas is clean, abundant, affordable and, again, domestic.
Natural gas is the second largest energy resource in the country.
When you look at the piechart of power generation in the United States,
you have 50 percent coal, 22 percent natural gas, 20 percent nuclear
and 8 percent hydro and renewables.
If we take the natural gas we're using for electrical generation
and move it to transportation, we can replace 38 percent of our foreign
oil imports. And that, sports fans, is a real number.
Using natural gas for transportation is not a new idea. While there
are only 150,000 vehicles running on natural gas in the U.S., there are
nearly 8 million automobiles worldwide and that number is growing
rapidly. We're getting beat by the French in nuclear power, and by the
world in natural gas vehicles. We should be leaders, not laggards.
I know that we can do this because we've done it before. President
Eisenhower led us to build an extraordinary interstate highway system.
President Kennedy took us to the moon. And President Reagan led us to
win the cold war.
If you could lower your foreign oil imports by 38 percent, you are
reducing the amount of money you're exporting by 38 percent. Reduce
$700 billion in foreign oil purchases by 38 percent and you'll see an
annual savings of nearly $300 billion every year. $300 billion more
would be staying inside our country instead of going to other countries
overseas.
Nothing can reduce your imports better than this and you work with
energy supplies right here.
But if we use all of that natural gas for transportation, how do we
displace it from the nation's electrical grid?
The Sweetwater, Texas, wind complex is the model. If you take the
total Sweetwater complex it will soon be producing 2,000 megawatts. The
Shell Oil Company and TXU are getting ready to do another project just
north of Sweetwater, and that's 3,000 megawatts. My company, Mesa
Power, just put under contract with GE the largest single turbine order
that has ever been given. The first phase of the Mesa Pampa Wind
Project will be capable of generating 1,000 megawatts of electricity,
enough for 300,000 average U.S. homes. When we complete the entire
project, it will have the capacity to generate some 4000 megawatts and
will have cost close to $10 billion.
We have the best wind in the world. It's time we got serious about
using it.
The US wind corridor runs from Sweetwater to Pampa and Goodland, to
Kansas, and Hastings, Nebraska and right up the line to Canada. The
Department of Energy in April of this year showed that we could develop
20 percent of our electricity generation from wind using wind resources
in the heartland of the United States.
Now, if you take wind power and use it to replace natural gas for
electricity generation, you can release the natural gas to
transportation. One million cubic feet (MCF) of natural gas equals 8
gallons of gasoline. At $4 dollars a gallon for gasoline, that means an
MCF of natural gas is worth $32 dollars. And natural gas is selling
today around $10 dollars an MCF.
We don't buy all of our oil from our enemies. We do have some
friends--Canada and a few others. But most of the money that the world
pays for oil goes into the hands of countries that are not our reliable
allies. And some of that money is used right back against us in the war
on terror. And so, we are funding the people who are trying to wreak
havoc on this country.
The good news is we can use alternatives to address this problem. I
am 100 percent for all alternatives. It is clear that renewable energy
sources are an essential national security strategy. But in order for
renewables to replace a meaningful amount of our imported oil, we need
a national electricity transmission system to carry this electricity,
be it wind, solar, biomass or other alternatives.
I have always believed that an idea has to be simple to be worth
investing in. That is why I am building the world's largest wind farm.
There is good wind in the area where I live in Roberts County in the
Texas Panhandle, and I have the ability to transmit the electricity to
markets in Texas that will pay for it. Good wind and transmission are
the keys to my project.
I think that most of the witnesses here today have said that those
two elements are key to every wind project. That is because, as can be
seen from the Department of Energy wind resource map above, the large,
flat, open areas with adequate wind are usually located a long way from
where electricity is needed. Since we can't do much about where nature
has put the wind, we have to do something about transmission to move
the electricity to market.
Unfortunately, the large, flat, open areas with adequate wind do
not already have transmission service because there has been no reason
to provide transmission service to those areas, so we are looking at a
need for green field transmission projects. The Department of Energy
map below has identified the scale of transmission projects that will
be required to move electricity generated from our wind resource
heartland to the load centers that need it.
Greenfield transmission projects all face the same obstacles--
siting, use of federal lands, permitting, equitable allocation and
recovery of costs, equitable allocation of capacity, and availability
of financing. Senator Reid's bill, S. 2076, which would provide for the
identification of National Renewable Energy Zones, will definitely help
move the process forward, but I would like to explain to this Committee
what I see as the issues through the eyes of a wind project developer
who has had to deal with each of these issues.
There is a sequencing problem that is circular--transmission won't
be built unless there is generation capacity to be carried, and
generation won't be built unless there is transmission. Furthermore,
long distance transmission is only economic if it is built to high
capacity, which means that there must be a large amount of generation
capacity in one place.
I happened to be lucky with my project, because I was already
planning a water project that required a pipeline running in the same
direction that I needed transmission for my wind project. The water
project pipeline right of way eliminated the siting and permitting
issues, but I still have to face the financing, and cost recovery
issues.
As you may know, Texas has taken a leadership role in encouraging
the development of wind generation. The Texas Legislature has adopted a
renewable portfolio standard, which has encouraged development of wind
projects in Texas, and has directed the Texas Public Utility Commission
to identify competitive renewable energy zones (CREZ)--areas that are
well suited to development of renewable energy production, and to adopt
policies that will make transmission available to those zones.
However, the Texas CREZ process began in 2005, and is expected to
be completed in 2013. I am eighty years old, and I don't have time to
wait for the process to be completed, and neither does this country. I
am building my own transmission line, which will ultimately travel 250
miles in Texas from the top of the Panhandle to near the Dallas/Fort
Worth area, and I will have to pay for this transmission line myself.
Not very many wind developers are in a position to do this.
I expect to sell my power in the Texas ERCOT market where prices
are set by competition among power generators. As a result, I will not
be able to simply increase the price of my power to cover transmission;
instead, my profits will be reduced by my transmission line costs. This
is a penalty that I am willing to pay in order to get my electricity to
market first, but it is not a burden that most developers can bear. It
requires scale and financial capacity. That is how I came to build the
world's largest wind farm. It is the only way to pay for the
transmission capacity as a private line, and it is only feasible within
Texas. If you want to do it on a national scale, where the transmission
line distances will be much longer, and utility regulations are
different, Congress must act.
As I said earlier, I believe that the United States has the
opportunity to build renewable electricity capacity to serve a
substantial part of our needs for energy. By doing so, we will increase
our energy security, improve our environment, revitalize the heartland
of the United States, reduce the demand for natural gas to be used as
fuel for generation, reduce the production of greenhouse gases, and
reduce the demand for water to be used in thermal generation.
In order to secure these benefits, the issues that I identified
above must be addressed. Let me take a moment to explain each of them.
Siting Authority.--As a land owner myself, I understand concerns
that landowners have about having their property taken for public use.
Quite properly, our Constitution provides protection for landowners
from arbitrary takings. However, for more than 150 years, we have
recognized that private companies transporting the common necessities
of life, food, water, fuel and electricity, to cities and towns are
serving the public interest because life in the cities would not be
possible without those necessities. As a result, private companies,
such as Mesa Power, have been permitted to use the power of eminent
domain, subject to oversight by public authorities and the courts, to
obtain rights of way for transportation corridors.
This system worked well for many years, but the large distances
between the best sites for renewable power and the places where that
power is needed have presented new challenges. The state public
authorities that oversee the use of eminent domain by private companies
are required to consider the benefits of the project to the citizens of
their states. They often have indicated that they do not have the
authority to consider the benefits to citizens of the United States who
are not residents of their states in deciding whether a particular
transmission line should be permitted to be located through the power
of eminent domain.
No project sponsor likes to use eminent domain powers. It is slow,
cumbersome, expensive and unpredictable. Negotiated easements that
result in a landowner willingly permitting the use of the land are very
desirable. However, a transmission line with a gap in it, no matter how
small, is useless. Any single landowner along a transmission route can
prevent the entire project from being constructed, no matter how
important the transmission project, unless the transmission provider
has the power of eminent domain.
Where state utility commissions are limited by state law to
considering benefits to citizens of their state, eminent domain power
may not be available to transmission developers wishing to cross the
state without providing transmission service to local generators or
local electricity users. This problem was recognized in the Energy
Policy Act of 2005 (EPAct 2005), but the provisions of that act, which
added Section 216 of the Federal Power Act, need to be extended.
Section 216 currently requires that the Secretary of the Department of
Energy conduct a study and issue a report designating corridors as a
National Interest Electric Transmission Corridors every three years.
After the designation, a transmission service provider can seek siting
approval from a state commission, and if the approval is not received
within one year, the provider can then seek siting approval from the
Federal Energy Regulatory Commission (FERC). This introduces a
potential delay of over four years before the FERC transmission
approval process can even begin. In addition, there is not agreement
that the language of Section 216 authorizes a finding by the Secretary
of Energy that transmission is ``constrained'' if there is a proposed
project, but no available transmission at all. Congress needs to
address these issues by amending Section 216 to direct the Secretary to
make designations of National Interest Electric Transmission Corridors,
outside the three year cycle provided by Section 216, upon request from
a transmission service provider who can show that a renewable project
developer has requested service and a load serving entity is willing to
contract to purchase power from the renewable project developer.
Congress also needs to provide the FERC exclusive jurisdiction to site
new transmission for a renewable energy project in the specific case
where a developer has contracted to build, and a load has contracted to
buy the energy from, a new renewable energy resource.
Federal Lands.--Most long transmission lines in the west will cross
federal lands. Again, while EPAct 2005 recognized the issue, and
provided a process to address the issue, the process for approval
should be streamlined. Either designation of a national interest
electric transmission corridor by the Secretary of Energy or specific
siting approval by the FERC should be sufficient to grant approval by
the United States for use of any federal lands crossed by the proposed
transmission line. (EPAct 2005 excluded lands included within the
National Park System, the National Wildlife Refuge System, the National
Wild and Scenic Rivers System, the National Trails System, the National
Wilderness Preservation System, or a National Monument from its scope,
and that exclusion should be continued.). Any affected federal agency
could appear in the FERC proceeding to present any concerns regarding
the use of federal lands included in the proposed route for the
transmission line.
Federal Permitting.--Every transmission line involves multiple
approvals from the United States and its agencies and departments.
While it is possible with enough time and patience to gather the
necessary permits, it introduces unnecessary delays into the process.
Again, EPAct 2005 addressed the issue, but the process can be further
streamlined. While EPAct 2005 did authorize the DOE to take the lead in
coordinating federal permitting, and required other agencies and
departments to enter into a memorandum of understanding with DOE
regarding permitting projects, I believe that DOE should be authorized
to issue the required permits directly after the transmission service
provider meets the requirements for those permits in the judgment of
DOE.
Equitable Cost Allocation and Recovery.--As I said earlier, a
transmission line with a gap in it is worthless. Put another way, there
is no useful way to build a transmission line in phases. It either is
or it isn't. As a result, the costs are all incurred at once before it
is available for use. Generation, on the other hand, can be built over
time, and may have to be built as wind turbines become available. That
means that the first wind turbines on a transmission line may not be
able to bear the entire cost of the transmission line until more of the
transmission line capacity is in use.
In Texas, we have concluded that transmission service to renewable
energy production areas is socially desirable, and our legislature has
directed our public utility commission to develop a plan, the CREZ plan
that I mentioned earlier, to pay for extending transmission lines to
serve areas where renewable resources are available to generate
electricity. The cost of those lines will be paid by the ratepayers
throughout ERCOT, because all of them benefit. In Texas, we have a very
large market for electricity, the ERCOT market, so that several billion
dollars of costs can be spread across the entire market without
creating a problem for electric rates. In much of the rest of the
country that is not true. It is a particular problem where many
interconnected systems would benefit from new long distance
transmission to serve renewable generation projects, but one utility or
group of rate payers is expected to bear the entire cost.
Once again, Congress addressed the issue in EPAct 2005, but the
FERC needs to be directed to spread the costs more widely, across
multiple states if necessary, to reflect the benefits that are gained
from the transmission project in terms of congestion relief, and other
benefits. I propose that the FERC should be directed to allocate the
costs of a new transmission line constructed under a special renewable
resource NIETC designation that the FERC has sited to all load that
benefits from the access to the energy transmitted over the line.
Equitable Allocation of Capacity.--If I put several billion dollars
at risk, which I expect to do with my project, it does not strike me as
fair that someone else can show up after everything is built, and all
of the risks have been taken, and ask for and receive the right to use
the transmission line that I paid for and force me to curtail
transmission of my own electricity to permit them to use the
transmission line. If you are going to encourage people to take
entrepreneurial risk, you cannot expect them to do so if they can
receive the same benefits by sitting back and waiting for someone else
to take all the risk. Open access is fine for transmission lines that
have already been in service for many years and their costs recovered,
but there must be a process that encourages renewable generation
developers to put up risk capital in return for preferred access rights
to transmission capacity.
Financial Incentives.--I think that I may be unique both in being
willing to take the risks that I am taking in developing my wind
project, and in having the capital to do so. Most of the other wind
developers, even the other developers who are willing to develop on
utility scale, are not willing to take the sorts of risks that I am
facing. I would not be willing to do it if I was not a believer that
Congress will do the right thing in the end. Wind and other renewable
energy projects need production tax credits. For projects like the one
that I am building, we need predictable policies regarding the credits
for the long period that it takes to get everything put together. My
project, even with the favorable regulatory climate for wind in Texas,
will take seven or eight years to complete. If we decide to build more
generation capacity to supply other parts of the country, it may even
take longer from start to finish. We need to know, when we start, what
economic incentives will be in place when we get to the finish line.
Otherwise, developers have to use very conservative assumptions about
project economics, and many projects just won't get built. We also need
targeted incentives for transmission lines, such as the loan guarantee
program for rural renewable transmission lines that was proposed by the
Senate in its version of the Farm Bill. Long distance transmission
projects for renewable energy should qualify for an investment tax
credit as well. When climate change legislation is considered again, if
a cap and trade program is the mechanism, renewable energy projects
should receive an allocation of credits based upon production. Those
credits can be sold to help underwrite the cost of transmission lines
to serve remote projects.
If we do these things, our country will benefit. We will see
reduced demand for imported oil, cleaner air, a reduction in the price
of natural gas, savings in demand for water to cool thermal generation,
revitalization of the rural heartland in the central United States, and
natural gas used for higher, better purposes than electricity
generation.
We can fix these problems over time if we move a meaningful amount
of our power needs to alternatives. There are no enemies, no
competitors, nothing in domestic alternatives.
I have a mission ladies and gentlemen. That mission is to try to
explain what I've just explained here. And no matter how many times I
explain it nobody argues with me about it. Which is interesting because
I wish somebody would jump up and say you're wrong and let me show you
where you're wrong. And nobody does that. Everybody says, well, that
sounds like a good idea.
So, I don't know whether it's a good idea or whether they don't
understand.
Again, thank you Mr. Chairman for holding this hearing today. If we
don't solve the energy problems we are facing, the hole we are in will
continue to grow and swallow more and more of our scarce resources and
will overwhelm us as a nation.
I am happy to answer any questions you may have.
The Chairman. Thank you for your statement. Mr. Halvey, go
right ahead.
STATEMENT OF RICHARD HALVEY, WESTERN GOVERNORS' ASSOCIATION,
DENVER, CO
Mr. Halvey. Thank you, Mr. Chairman, Senator Domenici and
members of the committee. In 2004 the Western Governors
resolved to increase the amount of clean energy in the
electricity generating portfolios of the Western States. To do
that, excuse me, they created the Clean and Diversified Energy
Advisory Committee.
In 2006, the Advisory committee provided the Governors with
a series of recommendations on how best to achieve increased
clean energy generation including how to expand renewable
energy resources. The Advisory committee recommendations made
it clear that while there are many incentives that can
stimulate renewable energy growth. Perhaps the most critical
obstacle renewable energy faces is the availability of
transmission.
In many cases high quality renewable resources are in
remote areas where transmission does not exist. We all know
building new transmission can be both a costly and lengthy, if
not controversial process. For the past 2 years the WGA in
collaboration with many of the key players from the renewable,
regulatory, environmental and utility sectors considered how
best to address the issue of transmission availability to
accommodate renewable energy development.
The idea that generated the most enthusiasm was to identify
those areas in the western electricity interconnection that
have the greatest commercial potential for development based on
a number of factors, the quality of the renewable resource,
environmental characteristics and the cost of plant
construction and transmission expansion. Once the areas have
been identified it would follow that conceptual transmission
plans to facilitate the environmentally sensitive development
of the most cost effective renewable resources be assembled.
This led the WGA to its affiliate organization, Western
Interstate Energy Board, to put together a proposal asking the
Department of Energy to provide the funding and technical
support for Western renewable energy's own project to
accomplish those tasks.
The WGA is pleased that the DOE supports this project.
We're especially pleased to have the opportunity to work in
cooperation with the DOE to accomplish the project goals. By
identifying the most developable renewable resource zones
throughout the Western Interconnection, load serving entities,
transmission providers and State regulators will be able to
make more informed decisions about the costs of renewable
power, the optimum transmission needed to move renewable power
to consumers and which entities might have the potential to
form partnerships for developing transmission to access
renewable energy.
By promoting a regional perspective we can blunt the
potential balkanization of renewables markets while respecting
each states primary jurisdictions siting generation and
transmission facilities. We can pave the way for interstate
collaboration on the permitting of multi-State transmission
lines and more equitably allocate and recover the cost of new
transmission.
We intend to accomplish this through the inclusive
stakeholder process. Governors from the United States and
Mexico, Canadian premiers, public utility commissioners and our
Federal partners have the responsibility of leading the
project. All sizes and types of utilities, transmission
companies, environmental organizations, State energy officials
and regulators, renewable energy development companies and the
Department of Energy and other Federal agencies will have the
responsibility of recommending to these western leaders which
areas in the Western Interconnection get to be identified as
renewable energy zones.
I should mention that this project will incorporate and
regionalize the current renewable energy zone efforts underway
in California, Nevada and Colorado. At the end of this process
we'll have a series of maps that clearly show where high
quality zones exist and a broad based consensus on how they can
be effectively developed and connected to the transmission
grid.
The WREZ project had its kick off meeting in Salt Lake on
May 28. We're planning to complete the mapping and conceptual
transmission work over the next 12 to 18 months. Once that is
completed we will spend another 12 to 18 months promoting
coordinated procurement of renewables and interstate
cooperation to facilitate the permitting and construction of
transmission lines to the favorable zones.
The project will not have reached its goal until we see the
renewable energy facilities and transmission capacity
developed. We believe the WREZ will also ultimately serve as a
model for any region interested in promoting the rapid and
responsible expansion of clean and diversified energy. The WGA
believes this process is critical to increase development of
clean and diversified energy and the transmission expansion
that must accompany such development.
We look forward to sharing the results of our work with the
committee and other interested parties. Thank you for providing
me with the opportunity to talk with you about the WREZ. I'm
happy to answer any of the committee's questions.
[The prepared statement of Mr. Halvey follows:]
Prepared Statement of Richard Halvey, Western Governors' Association,
Denver, CO
Thank you Mr. Chairman and members of the Committee. My name is
Richard Halvey. I am the Energy Programs Director at the Western
Governors' Association. I am also the project manager for the Western
Renewable Energy Zones, or WREZ, project.
In 2004 the Western Governors resolved to increase the amount of
clean energy in the electricity generating portfolios of the Western
states. To do that they created the Clean and Diversified Energy
Advisory Committee. In 2006 the advisory committee provided the
governors with a series of recommendations on how best to achieve
increased clean energy generation, including how to expand renewable
energy resources. The advisory committee recommendations made it clear
that while there are many incentives that can stimulate renewable
energy growth, perhaps the most critical obstacle renewable energy
faces is the availability of transmission. In many cases high quality
renewable resources are in remote areas where transmission does not
exist, and we all know building new transmission can be both a costly
and lengthy, if not controversial, process. For the past two years the
WGA, in collaboration with many of the key players from the renewable,
regulatory, environmental, and utility sectors, considered how best to
address the issue of transmission availability to accommodate renewable
energy development.
The idea that generated the most enthusiasm was to identify those
areas in the Western Electricity Interconnection that have the greatest
commercial potential for development based on a number of factors: the
quality of the renewable resource, environmental characteristics, and
the costs of plant construction and transmission expansion. Once the
areas have been identified, it would follow that conceptual
transmission plans to facilitate the environmentally sensitive
development of the most cost-effective renewable resources be
assembled. This input led the WGA and its affiliate organization, the
Western Interstate Energy Board, to put together a proposal asking the
Department of Energy to provide funding and technical support for a
Western Renewable Energy Zones project to accomplish those tasks. The
WGA is pleased that DOE supports the project, and we are especially
pleased to have the opportunity to work in cooperation with the DOE to
accomplish the project goals.
By identifying the most developable renewable resource zones
throughout the Western Interconnection, load-serving entities,
transmission providers and state regulators will be able to make more
informed decisions about the costs of renewable power, the optimum
transmission needed to move renewable power to consumers, and which
entities might have the potential to form partnerships for developing
transmission to access renewable energy. By promoting a regional
perspective, we can blunt the potential balkanization of renewables
markets while respecting each state's primary jurisdiction in siting
generation and transmission facilities. We can pave the way for
interstate collaboration on the permitting of multi-state transmission
lines and more equitably allocate and recover the costs of new
transmission.
We intend to accomplish this through an inclusive stakeholder
process. Governors from the United States and Mexico, Canadian
Premiers, public utility commissioners, and our federal partners have
the responsibility of leading the project. All sizes and types of
utilities, transmission companies, environmental organizations, state
energy officials and regulators, renewable energy development
companies, and the Department of Energy and other federal agencies will
have the responsibility of recommending to these Western leaders which
areas in the Western Interconnection should be identified as renewable
energy zones. I should mention that this project will incorporate and
regionalize the current renewable energy zone efforts underway in
California, Nevada, and Colorado.
At the end of this process we will have a series of maps that
clearly show where high quality zones exist, and a broad-based
consensus on how they can be effectively developed and connected to the
transmission grid. The WREZ project had its kickoff meeting in Salt
Lake City on May 28. We are planning to complete the mapping and
conceptual transmission work over the next 12-18 months, and once that
is completed, we will spend another 12-18 months promoting coordinated
procurement of renewables and interstate cooperation to facilitate
permitting and the construction of transmission lines to favorable
zones. The project will not have reached its goal until we see the
renewable energy facilities and transmission capacity developed.
We believe the WREZ will ultimately serve as a model for any region
interested in promoting the rapid and responsible expansion of clean
and diversified energy. The WGA believes this process is critical to
increased development of clean and diversified energy and the
transmission expansion that must accompany such development. We look
forward to sharing the results of our work with the Committee and other
interested parties. Thank you for providing me with the opportunity to
talk with you about the WREZ project.
The Chairman. Thank you very much.
Mr. Freeman, go right ahead.
STATEMENT OF BRYCE FREEMAN, WYOMING INFRASTRUCTURE AUTHORITY,
CHEYENNE, WY
Mr. Freeman. Thank you, Mr. Chairman, Senator Domenici,
members of the committee. I'm delighted to appear before you
today on behalf of the Wyoming Infrastructure Authority,
particularly in the presence of my Senator, Senator Barrasso
from Wyoming. Now the WIA was created in 2004 by the Wyoming
legislature at the urging of Governor Dave Fredenthal to
diversify and expand the State's economy through the
development of electric transmission infrastructure.
In 2006 the legislature expanded our role to include
advanced coal technologies. In keeping with the spirit of
today's hearing I'd like to highlight some of the challenges
that we're facing in developing transmission infrastructure in
the West. Offer a few suggestions that you might consider in
helping us overcome those challenges.
I want to begin by saying that if the market alone was
sufficient and operating properly there would be no need for me
to appear here today. But there is uncertainty in this market.
Uncertainty that you are all aware of based on a number of
issues including climate change legislation, fuel
diversification requirements and the difficulties associated
with siting new energy facilities.
As a member of the WIA Board and as Wyoming's utility
consumer advocate I am concerned about the future availability
and affordability of energy resources. In today's uncertain
environment many traditional generating resources have
increasingly limited application due to environmental impacts.
The reality is that new alternative forms of generation are not
yet commercially viable.
That said. No matter what generation resources we use in
the future, transmission infrastructure will almost certainly
be needed to deliver those choices to customers. We should
accelerate the construction of those facilities now.
Through public/private partnerships the WIA has been
working on transmission projects over the last 4 years that
will allow Wyoming's abundant, low cost energy resources to be
delivered to markets where they are needed. Wyoming has one of
the highest quality and most prolific wind resources in the
lower 48 states. With pending carbon legislation, increasingly
stringent renewable portfolio standards and growing loads
throughout the West there is an urgent need to bring this
resource to market in the near term.
A case in point is the Wyoming-Colorado Intertie. It is a
project that will access up to 900 megawatts of Class six and
seven wind in Eastern Wyoming and deliver it to Colorado and
the Denver market. It is only the second project, to the best
of my knowledge, that will use an open season auction process
to allocate capacity on the project.
Now the Trans-West Express Project is designed as a 3,000
mega watt direct current line that will originate in South
Central Wyoming and terminate at a point just South of Las
Vegas, projected to be in service in 2015. On this line we are
exploring the use of an anchor tenant approach to assist in
attracting development capital for the line. If approved by the
FERC this would be the first time that an anchor tenant
approach has been used to further transmission development that
I'm aware of.
Together with our development partners, Wyoming has enjoyed
much success over the last 4 years. There have also been many
challenges along the way. While these challenges are not
insurmountable, we would welcome Congressional assistance in a
few specific areas.
One of our biggest challenges is convincing load serving
utilities whose customers would be expected to pay for this new
transmission capacity that transmitting intermittent renewable
resources over long distances is economically viable. We
believe that the cost of capital financing for these
transmission projects could be reduced through the use by State
authorities of federally, tax exempt finance. This would
provide incentives for developers and investors and could
significantly reduce cost to customers. We need Federal
legislation to put this tool in place.
Second, we are developing and deploying innovative business
models in our approach to building transmission and as we do
that we will certainly be looking to the FERC to be receptive
to these experimental models.
Mr. Chairman, thank you for the opportunity to appear here
today. Our focus remains on utility consumers. We should not
forget that at the end of the day they're the ones that will be
expected to pay the freight for the policy decisions that we
make. These transmission investments will almost certainly find
their way into consumers' utility bills in the long run. We
should be square as Governor Fredenthal reminds us with utility
consumers about the true cost of these investments.
But there is a cost associated with inaction. It could end
up being a lot more than the transmission investments that
we're talking about. With that, I'd be happy to answer any
questions.
[The prepared statement of Mr. Freeman follows:]
Prepared Statement of Bryce Freeman, Wyoming Infrastructure Authority,
Cheyenne, WY
Good morning Mr. Chairman, Ranking Member, Senator Barrasso from my
home state of Wyoming, and members of the Committee. My name is Bryce
Freeman. I am the Administrator for the Wyoming Office of Consumer
Advocate and also serve on the Board of the Wyoming Infrastructure
Authority. In both capacities, I am appointed and serve at the pleasure
of the Governor of Wyoming. I am delighted to appear before you this
morning on behalf of the Wyoming Infrastructure Authority.
The WIA was created in 2004 to diversify and grow the state's
economy through the development of electric transmission
infrastructure. If the market alone was sufficient, there would be no
need for an entity such as the WIA to exist. However, in light of the
uncertainty that presently exists in the electric industry, the WIA was
created by the Wyoming State Legislature to promote transmission and
advanced generation development in the state and throughout the region.
The Legislature provides the WIA with bonding ability and other
powers, and the WIA participates in planning, financing, constructing,
developing, acquiring, maintaining and operating electric transmission
facilities and their supporting infrastructure.
The topics for this hearing are the challenges and possible
solutions in developing transmission for renewable electricity
resources. For the past four years the WIA has been in the forefront of
these very issues, and I look forward to sharing with the Committee
some of our transmission projects and cutting-edge business models
employed to get lines built to facilitate the expansion of renewable
resources in the West.
In keeping with the theme of today's hearing I would like to
highlight some of the challenges that we are facing in the West
regarding transmission development and offer some suggestions that you
might consider in helping us and other western states to overcome those
challenges.
As a consumer advocate I am both personally and professionally
concerned about the future availability and affordability of energy
resources. In today's uncertain environment many traditional generating
resources have limited application due to adverse environmental
impacts, but new alternative generation resources are not yet
commercially viable. But, no matter what the future holds in the way of
new generation resources, it is certain that new transmission
infrastructure will be needed to facilitate those choices.
Through public/private partnerships the WIA has been working on
transmission projects over the last four years that will enable
Wyoming's abundant, low-cost resources to be delivered to markets where
they are needed. Wyoming has one of the highest quality and prolific
wind resources in the lower forty-eight states. (See Appendix I). With
pending carbon legislation, increasingly stringent renewable portfolio
standards, and growing loads throughout the west, there is an urgent
need to bring this resource to market in the near term.
BACKGROUND ON THE AUTHORITY
Wyoming has very abundant, diverse energy natural resources,
including: wind, coal, oil, natural gas and uranium. For many years
Wyoming has had an objective to add value to the extraction of these
resources--particularly wind and coal--by generating electricity and
shipping the power to growing markets throughout the west.
In 2004, under the leadership of Governor Dave Freudenthal and
then-Governor Mike Leavitt of Utah, the region completed a year-long
planning process to better understand the opportunities for producing
power in the rocky mountain region and shipping that power to western
markets. This Rocky Mountain Area Transmission Study (RMATS) produced a
regional consensus that, if new transmission lines could be sited and
built, the benefits of accessing Rocky Mountain resources would
translate into lower costs for consumers and a more diverse resource
mix in the western interconnect. The RMATS study also pointed out a
number of institutional challenges that at the time were impeding the
development of transmission lines.
In response, the Wyoming Legislature created the Infrastructure
Authority in 2004, charging it with the challenge of furthering the
recommendations of the RMATS report. At the heart of the WIA's mission
is to diversify and grow the state's economy through the development of
electric transmission infrastructure. The Authority may issue revenue
bonds to help finance these facilities, including the ability to extend
up to $1 billion of these bonds to the private sector.
Since the formation of WIA, six states have created transmission
authorities along the Wyoming model, including: Colorado, Idaho,
Kansas, New Mexico, North Dakota, and South Dakota. We are working
closely with most of these states on both legislative and project
initiatives.
WIA'S CURRENT TRANSMISSION PROJECTS
The WIA was created as an innovative problem-solving organization
and our approach to transmission development reflects our innovative
roots.
Wyoming-Colorado Intertie
The growing electric markets most proximate to Wyoming in the
western interconnect are the city of Denver and the rapidly growing
communities along the Front Range. In 2005 the WIA entered into a
development partnership with TransElect, an independent transmission
company, and with the Western Area Power Administration (WAPA), to
explore the commercial viability of a transmission line from eastern
Wyoming to the Denver area.
We have now completed the feasibility, technical, and corridor
studies for a line that would be designed as a 345 kV facility from the
Colorado substation of Pawnee north to the Laramie River Station (LRS)
in Wyoming, with a potential segment at 230 kV from LRS to the Dave
Johnston coal plant further north in Wyoming.
We are now in the middle of a very exciting and possibly precedent-
setting process by offering capacity in the line to third parties using
a FERC-sanctioned open season and auction. The bidding application and
credit approval steps have been finalized and the list of qualified
bidders has us very optimistic that the auction will successfully
allocate the capacity. The bidding process began this week; the results
of the auction are scheduled to be announced on August 4.
What may make this open season precedent setting is that most of
the bidding activity is from parties that want capacity in the line to
support their development of wind power farms in eastern Wyoming. For
example, the Wyoming Colorado Intertie is a project that will access up
to 900 megawatts of class six and seven wind in eastern Wyoming and
deliver it to the Colorado front-range beginning in 2013. It is only
the second project I am aware of in the west to employ an open season
auction as means of committing capacity on the project.
TransWest Express
The TransWest Express project is designed as a direct current line
originating in south central Wyoming, with a route through Utah that
terminates at a point just south of Las Vegas. As designed, the project
would allow 3,000 megawatts of new generation to develop in Wyoming and
reach markets in the desert southwest, including Las Vegas, Phoenix and
southern California. The goal is to bring this line into service in
2015.
The TransWest Express concept was first explored by Arizona Public
Service (APS), a large load serving entity for the very rapidly growing
Phoenix area. APS published a promising feasibility study in 2006.
The WIA entered into a development partnership to further the
development of this project by joining with APS and with NationalGrid,
an independent transmission company. Subsequently the three development
parties entered into an interim co-development agreement with
PacifiCorp, and work on the project has been coordinated with
PacifiCorp's proposed Gateway South project. The two projects would
likely share common corridor along much of the route, and applications
for federal permits are pending for both projects.
Marketing efforts led by NationalGrid to secure commitments to the
line from load serving entities have not been successful due to a
number of factors. As such, we are now exploring the use of an anchor
tenant approach to subscribe the capacity of this line in order to
assist in the attraction of development capital. If approved by FERC,
this would be the first time that the anchor tenant approach has been
used to further the development of a transmission line. I am optimistic
that we will successfully realign the project with a new partnership,
likely including anchor tenant commitments from large wind developers
interested in building wind farms in Wyoming and shipping the power to
hungry renewable markets in the desert southwest.
High Plains Express
We are also actively engaged in the development of the High Plains
Express project which is a double circuit 500 kV AC line linking
Wyoming, Colorado, New Mexico and Arizona. A feasibility study was
completed in 2007, and the project sponsors are currently working on an
agreement to further the development. This project is a longer-term
opportunity, with a planned in-service date of 2017. The sponsors
include TransElect, an independent transmission company; six utilities
(Tri-State G&T, Colorado Springs Utilities, Public Service Company of
New Mexico, Salt River Project and Xcel Energy); three States with
transmission authorities (Colorado, New Mexico and Wyoming) and the
WAPA.
See Appendix II for more details on WIA's three pending
transmission projects, including depictions of conceptual routing.*
---------------------------------------------------------------------------
* Project maps have been retained in committee files.
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Regional Challenges and Solutions
While the WIA has been focused on the economic development
opportunity available to Wyoming, we recognize this is part of a bigger
regional picture. The western interconnect has a number of features
that make it unique, and these regional characteristics and challenges
will need tailored solutions.
The western electric interconnected system is a vast synchronized
machine involving eleven states, two Canadian provinces and parts of
Baja, Mexico. There are very long distances and very significant land
holdings controlled by federal agencies and Native American tribes.
With the exception of California and Alberta, there is no regional
system operator or transmission organization to manage congestion,
build transmission, and broadly allocate costs. The west is dominated
by vertically integrated utilities serving balkanized service
territories, with many functional control areas. The largest and
highest quality renewable resources are typically not located close to
the cities where the demand is highest. This is especially true with
wind resource potential. As this committee clearly recognizes by
holding this hearing, transmission infrastructure is the critical
linchpin to successfully developing and integrating renewable electric
generation in the West.
Together with our development partners, we have enjoyed much
success over the last four years. We have also encountered many
challenges. We don't see any of those challenges as insurmountable but
we would welcome your assistance in a few specific areas.
Tax-exempt Bonding by State Authorities
One of our biggest challenges is convincing the load serving
utilities whose customers would pay for the transmission capacity that
transmitting intermittent renewable resources over long distances is
economically viable. We believe that reducing the cost of capital
financing through the State Authorities' use of tax-exempt bonding
would provide a significant incentive to developers and investors and
lower costs to consumers.
We need federal legislation to put this tool in place. For the past
few years, in common cause with the other states that have created
transmission authorities, we have been working with the Senate Finance
Committee toward language that would in a limited way allow tax-exempt
bonds to be used by these authorities. The language, which is included
in the tax title to the Senate energy bill that is stalled in this
Congress, would allow State transmission authorities to utilize--within
each State's existing volume cap--tax-exempt industrial development
bonds.
FERC Needs to Allow Experimental Business Models
The WIA and its partners are deploying innovative business models
on our transmission projects. Especially in the West, with some of its
characteristics summarized above, I believe we need to stretch beyond
the vertically integrated utility ownership and control of transmission
facilities. The FERC sanctioned process that governs transmission
service requests is cumbersome at best. The WIA has worked to include
independent transmission companies in our partnership mix for this very
reason. We have also embraced innovative development tools, such as
open seasons and anchor tenant models, to stretch past some of these
institutional sticking points. We will ultimately be looking to FERC to
be receptive to approving these experimental models.
National Interest Corridor Designations
The Energy Policy Act of 2005 created a back-stop siting protocol
that could become a critical tool for facilitating the siting and
permitting of transmission lines to facilitate renewables. We believe
that there is a significantly expanded role to be played by the DOE in
identifying and designating prospective National Interest Electric
Transmission corridors. Together with the WGA's recently announced
Western Renewable Energy Zone initiative this would significantly
enhance our ability to identify and develop low cost, high quality
renewable energy resources in the west.
CONCLUSION
In closing Mr. Chairman, let me again thank you and the Committee
for the opportunity to appear here today and let me reiterate that my
focus remains on utility consumers. We should not forget that at the
end of the day they are the ones who will be expected to pay the
freight regarding the policy decisions of federal, state and local
policy makers. We have an obligation to serve their interests to the
best of our ability. I believe that the transmission development work
that the WIA is engaged in supports that high public interest standard.
These investments will eventually find their way into utility bills
that customers pay and, as Governor Freudenthal reminds us, we should
be square with utility consumers about the cost of these investments.
There are, however, costs associated with inaction. Those costs are
real and in the long term could prove to be much higher than the costs
of the transmission investments I have discussed today. With that I
would welcome any questions you might have.
APPENDIX I.--WYOMING'S ABUNDANT WIND RESOURCE
According to NREL, Wyoming has over 2/3 of the Class 7 and
over 1/2 of the Class 6 ``developable'' onshore wind in the
U.S. In addition, Wyoming has more Class 5, 6 and 7 developable
wind than all western states combined.
NREL data reflects ``developable'' Class 5 and higher wind
potential for the State is in excess of 100,000 MW's and Class
3 and higher wind potential in excess of 500,000 MW's (see
attached spreadsheet). To provide some relativity to those
numbers, the peak demand for the entire WECC grid is estimated
to be 175,000 MW's.
Over the last eighteen (18) months, the WIA has been
actively identifying generation projects in support of the six
(6) transmission projects in the State. To-date, we have
identified over 20,000 MW's of wind generation projects; nearly
2,000 MW's of natural gas-fired projects and 110 MW's of power
relative to a planned coal-to-liquids facility. These projects
represent possible future power which is currently un-
dedicated. The capacity factors of the wind projects identified
range from 35% to 50% with a weighted average in excess of 43%.
[Wyoming Wind Map has been retained in committee files.]
APPENDIX II.--SUMMARY OF WIA'S TRANSMISSION PROJECTS UNDER DEVELOPMENT
1. Wyoming-Colorado Intertie Transmission Project (WCI)
New 345 kV AC Transmission line between Wyoming and the
Front Range of Colorado delivering wind generation in Wyoming
to Colorado
Capacity: 900 MW
Length: 180 miles
In-service Date: 2013
Cost: < $300 Million
Developers: Trans-Elect; Western Area Power Administration;
Wyoming Infrastructure Authority
WECC Path Rating Process: Phase I complete; currently in
Phase II
ROW & Permitting Status: Waiting on the awarding of capacity
via Open Season
Status:
--FERC-sanctioned Open Season is underway with a start date of 3/
31/2008
--Project has been entered into the WECC, CCPG regional planning
group
Business Model, re: Market(s): LSE's in Colorado
Complementary Projects:
--High Plains Express
--PSCo's expansion of their system in N/E Colorado
Links: http://www.wyia.org/wci
2. TransWest Express Transmission Project (TWX)
New 500 kV DC line between Wyoming and Las Vegas
Capacity: 3,000 MW
Length: >800 miles
In-service date: 2015
Cost: >$2.5 Billion
Developers: As of March 2008, the participants were National
Grid (lead developer); Arizona Public Service; PacifiCorp; and
Wyoming Infrastructure Authority (WIA). Currently, the
participants are being redefined.
WECC Path Rating Process: Phase I
ROW & Permitting Status: Formal application has been filed
with the BLM in 2007; RFP for 3rd party contractor for NEPA
compliance has been issued. Working; and a common EIS with GWS
has been tentatively required by the BLM
Status:
--Project is being co-developed with the GWS project to mitigate
costs
--Initial feasibility studies completed;
--Other utilities are interested in participating including Salt
River Project, Tucson Electric Power, and Southern
California Edison
--Stakeholder meetings have been held in Utah, Wyoming, Arizona and
Nevada
--Actively involved in the identification of generation developers
to support the project
--Project has been entered into the WECC, NTTG regional planning
group
Business Model, re: Market(s): LSE's in Arizona, Nevada and
Southern California
Complementary Projects: see Gateway South project below.
Also:
--Palo Verde--Devers #2--500 kV line (on hold)
--EOR 9300 Project
--Palo Verde--North Gila #2--500 kV line
--Gateway West--2 500kV lines
--Gateway South
--Mona-Terminal--2 500 kV lines
--Populus-Terminal--2 345 kV lines
Links: http://www.wyia.org/projects
3. High Plains Express Transmission Project (HPX)
New 500 kV AC transmission lines between Wyoming and Arizona
with on-ramps and off-ramps in Colorado and New Mexico and
related facilities
Capacity: 3,500 MW
Length: 1,280 miles
In-service Date: 2017
Cost: >$5 Billion
Developers: Trans-Elect Development Company; Western Area
Power Administration; and Wyoming Infrastructure Authority;
Tri-state G&T; Colorado Springs Utilities; Public Service
Company of New Mexico, Salt River Project; and Xcel Energy
(Public Service Co of CO); New Mexico Energy, Minerals and
Natural Resources Department; New Mexico Renewable Energy
Transmission Authority; and Colorado Clean Energy Development
Authority
WECC Path Rating Process: Project is scheduled to enter the
Phase I process in 2009
ROW & Permitting Status: Some activity is scheduled to occur
in late 2009
Status:
--Feasibility studies continuing
--Executive committee has been formed to transition the oversight
of the development process from the planners
--Project has been introduced into the WECC, CCPG and SWAT/West
Connect regional planning groups
Business Model, re: Market(s): LSE's in Colorado, New Mexico
and Arizona
Complementary Projects:
--WCI Project
--Eastern Plains Project
--New Mexico Wind Collector (Path 48)
--Sun Zia Project
Links: http://www.rmao.com/wtpp/HPX--Studies.html; http://
www.tristategt.org/RP/Transmission.cfm; http://www.wyia.org/
projects
The Chairman. Thank you very much. We've been joined by the
Majority Leader, Senator Reid. Let me just reiterate what I
said at the beginning of the hearing and that is that Senator
Reid is one of those who urged us to have this hearing because
of the importance of this issue in his view.
He's also introduced S. 2067, which tries to confront
probably the most difficult issue here related to building more
transmission. That is cost allocation. So Senator Reid, go
right ahead with any comments you have.
STATEMENT OF HON. HARRY REID, U.S. SENATOR
FROM NEVADA
Senator Reid. Mr. Chairman, thank you very much. Members of
the Committee, I appreciate your allowing me to speak. The
Senate went in session at 10 o'clock and I had to get started
there. I apologize for being late to the hearing.
I also am happy to be on the panel with these respected
witnesses, especially Mr. Pickens. I, without his permission,
talked about you on the Senate Floor today. I said that the
great American entrepreneur T. Boone Pickens knows a lot of
things. But one is how to make money. If he's interested in
renewable energy, we all better start taking a look at it.
[Laughter.]
Mr. Pickens. Thank you.
Senator Reid. I also say to you, Mr. Pickens, that for many
years one of your biggest cheerleaders has been Michele
Lacksalt, who's of course from Nevada and my long time friend.
So glad to be on the panel with you.
Mr. Pickens. Thank you.
Senator Reid. Our Nation has many grave challenges that
have gone unaddressed for far too long. Chief among them is
global warming which is closely connected to our growing energy
and economic security problems. Fortunately the most abundant
form of energy in the United States and across Earth, renewable
energy, the wind, the sun, the heat of the Earth, biomass and
water is the solution that works best to meet all these
challenges.
It works best to grow our economy in a sustainable way,
create new jobs and to leave a legacy for our children we can
be proud of. One we wouldn't mind having in our own backyards
today. That's a better legacy than leaving piles of dangerous
waste, dirty air, threatened water supplies or dangerously
warmer world for generations to come.
Unfortunately the Nation has been fixated on easy answers
of throwing billions and billions of tons of carbon waste in
the atmosphere. We've been taking this carbon out of the Earth
and putting it into the atmosphere for far too long. Fixated on
short term profits and not investing enough in renewable
energy.
That's really unfortunate, because from the moment the
Senate ratified the United Nations Framework Convention for
Climate Change in 1992, industry should have been on notice of
cost effective, low carbon solutions need to be found and
invested in right away. But most of the momentum in the utility
industry to invest in renewable generation has come because of
State's passing renewable portfolio standards.
Right now 25 States and the District of Columbia have a
renewable portfolio standard. Many were created over the
objections of local utilities. These States understand the
potential for new jobs and the long term cost advantage of
renewable over increasingly expensive fossil fuels.
Just think about this. If 20 percent of the Nation's power
came from renewable energy by 2020 which happens to be the same
standard in Nevada, but for 2015, we would create at least a
couple hundred thousand new jobs and actually save consumers
more than $10 billion in lower electricity and natural gas
bills.
Some leaders in the utility industry are slowly waking up
to the value of investing in energy efficiency and renewables.
But some persist in thinking that we have the luxury of going
backward to the old, inefficient fossil fuel use of the past.
Mr. Chairman, we have on the Senate Floor a piece of
legislation that would give tax credits for renewables. We're
going to try and get closer on that today at 2:15.
I read into the record a few minutes ago a letter we
received yesterday from the major companies in America, major
companies, hundreds of them. MERCK, Commons Diesel, Coca Cola,
hundreds of major companies saying please, democrats,
republicans, vote for this. It's essential to the survival of
our country.
We don't have the luxury. We need not go backward. We have
to get away from persisting and thinking we can go backward to
the old, inefficient fossil fuel use of the past.
Rapid investments now in a combination of efficiency,
renewable energy and a smart and more flexible and reliable
electricity grid can meet the power demands of this country for
the foreseeable future, affordability and cost effectively.
Every Senator has heard me say this before, but it bears
repeating. A 100-mile-square area of Nevada, take the Nevada
test site. That would be part of our test site or really
anyplace in the desert southwest. There are well over 100
square mile areas. There's nothing on them except sun shining
every day can meet the entire Nation's electricity demand, a
solar PV and the right transmission infrastructure.
Think about that. One spot in the southwest could supply
electricity for all of America. The total solar thermal
potential in the southwest could generate seven times U.S.
current electricity capacity.
Despite 25 States with a renewable portfolio standard, the
Federal Government has been very slow to embrace renewable
energy instead preferring the older, dirty and more expensive
sources. Neither the Federal Government nor the utility
industry has invested enough to integrate the growing renewable
energy asset into the grid. overall the sluggish pace of
transmission investment by utilities has left us with a brittle
and insecure power grid.
Mr. Chairman, I can remember a dozen years ago, I was in a
place called Gerlock, Nevada about 90 miles above Reno. I went
to look at a generating plant powered by the steam that comes
out of it. You see it coming out of the ground around there.
Power plant. Geothermal.
I said to the man, this is nuts. Why is it so small? He
said well, I'm just using it to take care of the mine up here
in Gerlock. He said, see that power line over there. You could
see it was three quarters of a mile away. You could see it.
He said for me to have a big plant here it would cost me
$175 million to tie onto that power line. Now I don't know if
he was right. But that's what he told me. But that's a problem
we have, Mr. President. It's one of the problems we have.
Overall the sluggish pace of transmission investment of
utilities has left us with a brittle and insecure power grid.
Even the Department of Defense is concerned about grid security
now. Unfortunately nationwide investment in transmission
declined for 2 years, I'm sorry, for two decades. Let me say
that again. Unfortunately nationwide investment in transmission
declined for over two decades.
By 1998 companies spent less than half of what they did in
1975. At the same time electricity sales doubled. Prices have
risen. Consumer demand continues to grow.
Recently utilities have begun to increase their
transmission investment but they're far, far behind the curve.
A new and significant amount of investment must occur. This
will not be easy given the incredible backlog. It will not be
cheap because instead of making gradual improvements over the
years industry has waited until now.
The Brattle Group estimates the Nation will need $900
billion for distribution and transmission by the year 2030. But
that investment must be smart. By smart I don't mean simply
linking existing and highly inefficient coal plants by Federal
energy corridors. That investment and those corridors must
accommodate mainly new generation from renewables if we're
serious about addressing global warming.
I have, as you've indicated Mr. Chairman, introduced
legislation that tackles several of the obstacles to new
investment in renewable electricity transmission. I believe
it's time for the Federal Government to take a much more
constructive role, particularly since industry has not risen to
the challenge. My bill, S. 2076 directs the President to
identify and designate zones where renewable energy resources
can generate at least 1,000 megawatts of electricity. It would
then provide new financing options for building transmission
lines and connecting remote renewable energy zones to the grid.
After designation, the Federal power marketing agencies,
like the Western Area Power Administration, would have a year
to identify new transmission lines needed to access renewable
power in these zones. If no private companies invest within 2
years, the Federal agencies would each have $10 billion in
bonding authority to finance those power lines. These lines
would carry mostly clean, renewable energy, particularly if
they cross Federal land.
We need new sources of energy that don't add more global
warming pollution. Renewable energy companies cannot always
afford to pay up front for new transmission lines and the cost
of connecting to them as I give in one example. My bill would
help change this.
Renewable project and transmission developers would pay
back the federally financed lines, a cost over 50 years. But
the bill also clarifies FERC should let transmission utilities
recover prudently incurred costs for intrastate, high voltage
lines and allow for a systems charge in intrastate trunklines
which declines as more renewable projects are added. Existing
power market agency customers would not be liable for the cost
of renewable project interconnection.
Utility executives like to say that we can't afford to
build transmission lines that carry only or mainly renewable
generated electricity. They like to say it just doesn't pencil
out. But if they say that, I just don't think that they really
tried very hard to crunch those numbers.
This is particularly relevant when you look at the
declining cost curve for renewable energy technologies and the
rising costs of fossil fuels. Even without a carbon constraint
we know that within the past year coal has gone up 100 percent.
It's doubled the price.
Cost is an issue, but it's not an excuse for inaction. As
Senators know the utility industry is not noted for its agility
or flexibility. This is a function of the service it provides.
Americans want reliable and affordable electricity. But to
keep the lights on and meet the demand for clean power, America
must change. This legislation is a serious effort to find
solutions to the challenges of our energy security and global
warming problems.
The Federal Government has to add its weight in support to
help convince the pencil pushers of the necessity and the cost
effectiveness of investing in renewables. The Federal
Government needs to be a better partner.
The West will need 7,500 miles of new transmission lines
over the next decade to significantly expand renewable energy
production. The Western Governors' Association, the States of
Nevada, Texas, Oregon, Colorado and California are beginning to
consider how to connect renewable resources to transmission.
This is a responsible action. But their efforts will not be
sufficient without more constructive Federal involvement.
Efficiency, renewables and improvements to the grid can
more than meet the country's growing electricity demand, but
only if utilities don't sit on their hands and under invest
allowing a train wreck to occur like we saw in the Northeast
blackout in 2003 and the Western Energy crisis in 2000-2001.
I would like to ask to include in the record, Mr.
President, the executive summary of a recent energy foundation
study. The study uses as an example Nevada, the seventh largest
State in the Union, area wise, as a case study and contains a
solid road map for meeting growing demand without using old
technology. It emphasizes the need for greater efficiency. But
also the urgent need for renewable transmission capacity.
[The information referred to follows:]
Laying a Foundation for Nevada's Electricity Future: Generation
Facility Uncertainties and the Need for a Flexible Infrastructure
PREPARED FOR: ENERGY FOUNDATION, SAN FRANCISCO, CA
PREPARED BY: CARL LINVILL, CHRISTOPHER COOKE, AND SUZANNE PHINNEY,
ASPEN ENVIRONMENTAL GROUP, SACRAMENTO, CA AND RICHARD MCCANN, M.CUBED,
DAVIS, CA
February 2008
Disclaimer: Any opinions, findings, conclusions or recommendations
expressed in this publication are those of the authors and do not
necessarily reflect the view of the Energy Foundation.
Executive Summary
Sierra Pacific Power Company (SPPC) and Nevada Power Company (NPC)
recently announced a delay in the operation of the first 750 megawatt
(MW) coal unit of the Ely Energy Center (EEC).\1\ The Utilities have
further suggested that uncertainties may lead to further delays or
cancellation of the coal power plants.\2\ While all new sources of
generation face uncertainties that can affect the timing and ultimate
cost of those facilities, the delay or cancellation of the coal units
demonstrates the risk to reliability and rates associated with a
strategy that is dependent upon the timely completion of large
centralized generation. The potential absence of the 1500 MW EEC coal
plants highlights the need for a contingency plan to meet a resource
shortfall. This report frames the issues that need to be addressed by
such a plan. The intention of this study is to initiate a discussion
among the Nevada Utilities and policy makers that will expedite the
construction of an infrastructure that accesses distributed and
centralized resources from the state and the region. To their credit,
Nevada Utilities and Nevada's policy makers have already proposed
significant infrastructure additions. The proposal in this report
differs from existing proposals because it emphasizes the importance of
getting infrastructure in place in advance of the proposed coal plants
and it proposes more substantial access to distributed and demand side
resources. Building an infrastructure foundation now that leverages and
extends existing proposals will provide Nevada Utilities and policy
makers with a flexible array of options.
---------------------------------------------------------------------------
\1\ 2007. Reuters. ``RPT-Nevada Power Delays Ely Coal Power
Plant.'' December 1. Retrieved December 5, 2007 from http://
www.reuters.com/article/bondsNews/idUSN3033040220071201
\2\ 2007. ``Nevada Utilities Want to Kill Bill Amendment that May
Stifle Coal.'' California Energy Markets. December 7, p. 15.
---------------------------------------------------------------------------
The first cornerstone of a flexible infrastructure foundation for
Nevada is a north-south transmission inter-tie. Several north-south
interconnections have been proposed, including the Utilities' Eastern
Nevada Transmission Inter-tie (EN-ti) proposal.\3\ The Renewable Energy
Transmission Access Advisory Committee (RETAAC) recently expressed its
support for a north-south inter-tie in Nevada and RETAAC highlighted
the importance of such an inter-tie to facilitate development of
renewable energy in Nevada.\4\ Interconnecting SPPC and NPC facilitates
reserve sharing, captures system coordination benefits, facilitates
development of renewable energy resources in northern Nevada, and
provides NPC with access to electricity reserves in the Northwest,
Basin and Rocky Mountain regions of the western grid. It fulfills a key
promise from the Utilities' merger. Completing a north-south
interconnection by 2011 contributes significantly to meeting:
---------------------------------------------------------------------------
\3\ NPC. Integrated Resource Plan 2007-2026. Vol. 6, Supply Side
Plan , Transmission Plan and Financial Plan, pp. 87--93.
\4\ RETAAC. Phase 1 Report. December 2007, p. 6.
Nevada's near term needs by providing NPC with access to
SPPC excess capacity and regional reserves, and
Nevada's longer term needs by providing NPC with access to
northern Nevada and regional renewable energy projects.
The second cornerstone of building a flexible infrastructure in
Nevada is ensuring access to cost effective energy efficiency, demand
response and distributed generation resources. The Utilities, Nevada
policy makers, and the federal government have all contributed to
energy conservation in the state. However, the announced delay in the
EEC requires that proposed utility and non-utility efficiency enhancing
projects are implemented aggressively and that existing proposals are
complemented with additional distribution level measures. Existing
demand side management (DSM) and demand response (DR) programs should
be accelerated and improved, and combined heat and power (CHP)
partnerships between large commercial entities, such as casinos, and
the Utilities should be pursued. Completely accounting for all of the
energy and demand savings associated with existing utility and non-
utility programs in the Utilities' demand forecasts will be just as
important as implementing the programs well because documenting reduced
consumption contributes directly to meeting resource adequacy
requirements.
The third cornerstone is beginning pre-permitting, permitting and
construction of renewable energy transmission collector systems on an
expedited basis and aggressive pursuit of renewable energy projects
that benefit from the selected collector systems. Nevada is poised to
be at the national forefront for solar and geothermal resources, and
Nevada can begin adding wind power.\5\ A review of western planning
reports finds that these resources are expected to be cost competitive
with traditional gas and coal-fired generation. Nevada is evaluating
the alternatives, but in comparison with other western utility planning
reports, the Nevada evaluation could be more systematic and
comprehensive. SPPC identified routing studies that could facilitate
more rapid development of renewable energy resources in northern Nevada
in its most recent Integrated Resource Plan (IRP).\6\ Yet the
Utilities' ``Preferred Portfolios'' continue to focus on gas and coal
resources and downplay the potential for these resources to meet its
needs.\7\ To its credit, RETAAC identified and is refining plans for
transmission collector systems statewide that could facilitate the
development of renewable energy zones in Nevada\8\ Improving access to
resource alternatives as technology, resource discoveries and
availability of capital equipment evolve is an essential cornerstone to
laying a flexible infrastructure foundation. Utility and RETAAC efforts
are encouraging but delays in the EEC justify expedited development of
the most promising collector systems and initiating specific request
for proposals (RFPs) that can attract a set of projects to fill
possible collector system zones prior to 2013.
---------------------------------------------------------------------------
\5\ NPC. ``Renewable Energy,'' http://www.nevadapower.com/company/
renewables/, retrieved January 30, 2008.
\6\ SPPC. 2007 Integrated Resource Plan 2008-2027. Vol. 6, Supply
Side Plan, Transmission Plan and Financial Plan, p. 98.
\7\ Op. cit., pp. 60-61.
\8\ RETAAC. Phase 1 Report. December 2007, p. 9.
---------------------------------------------------------------------------
The fourth cornerstone complements the first three and includes
building flexible gas generation capabilities. NPC has announced that
it will ask for approval of an additional 500 MW unit at the Harry
Allen site. The utility is to be congratulated for having a pre-
permitted site that can be accessed quickly, however, the generation
built should be considered relative to its efficiency and thus CHP
applications should be considered alongside any new proposed gas
plants.\9\ In addition, the generation considered should also be
evaluated based on its ability to support a Nevada generation fleet
that will have more intermittent generation and more distributed and
demand side generation in the near future. Finally, construction of gas
storage facilities should be considered alongside the consideration of
new gas generation so that flexible gas contracting can increase the
Utilities' flexibility in how it dispatches its existing and planned
gas generation fleet.
---------------------------------------------------------------------------
\9\ Business Wire. ``Nevada Power Announces Plan to Build Natural
Gas Facility.'' November 28, 2007. Retrieved November 28, 2007 from
http://www.businesswire.com/portal/site/google/index.jsp?ndmViewId=
news_view&newsId=20071128006106&newsLang=en.
---------------------------------------------------------------------------
Nevada's long term resource needs will require an infrastructure
foundation that allows NPC and SPPC to access local, state and regional
resources. Federal and state policies, regulations and tariffs that
facilitate the construction of and access to Nevada's flexible
infrastructure can be developed and implemented. The first delay in the
EEC has created a need for additional resources by 2011. Additional
uncertainties surrounding the future development of the EEC cited by
Sierra Pacific Resources (SPR) in its 10-Q include possible changes in
environmental regulations, emissions limits, climate change legislation
and the possibility of increasing plant construction costs.\10\ Given
these uncertainties, delaying the deployment of the flexible
infrastructure needed to access diverse resources would be a serious
mistake. Nevada has the opportunity to lay the foundation of a flexible
infrastructure now, which will address the near term needs created by
this first delay and allow it to flexibly respond to longer term needs
as in-state and regional resources are developed.
---------------------------------------------------------------------------
\10\ SPR. Form 10-Q, Quarterly Report, Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations. November 2007. Retrieved on November 4, 2007 from http://
biz.yahoo.com/e/071102/srp10-q.html.
Senator Reid. Mr. President, this is done in a scholarly
fashion. You have Dr. Suzanne Phinney, who is a person who has
spent her lifetime looking at things like this. She holds a
Doctorate in Environmental Science from the University of
California, Los Angeles.
Dr. Carl Linvill holds a PhD in Economics from the
University of North Carolina where he is now working and on and
on with the people that worked on this. All eminently qualified
who have had experience, not only in the academic field. But
for example, Dr. Linvill was the economic advisor to Governor
Gwen when he was Governor of Nevada.
So I hope that the committee will move forward on taking a
real close look at transmission lines. That's the key to making
this alternative energy a success. I appreciate very much and I
apologize to my desk mates here coming in late and testifying.
I'm going to have to go back to the floor if that's ok with the
chairman of the committee.
The Chairman. Thank you very much, Senator Reid, for the
statement. We will certainly include the report that you
referred to as part of the record. We appreciate your strong
endorsement of the legislation that you've introduced.
Let me start with our questions. We'll have a 5-minute
round of questions here.
Mr. Pickens, one of the points that Senator Reid made is
that a significant amount of the progress that has been made in
promoting renewables has been because of renewable portfolio
standards that have been adopted in 25 states. We've tried to
adopt a national renewable portfolio standard and not been
successful. What's your view as to the utility of us doing
that? Is that something we ought to continue to pursue or does
it make a big difference?
Mr. Pickens. Let me go back to what I consider the problem
that I'm trying to attack and that is that we're paying for
$700 billion worth of imported oil. So, I then look at what is
available to us in this country to, in some way, off set that.
If you go down the list of resources we have available. We
have oil, which is in decline. We have coal. We have natural
gas. We have wind. We have solar. We have hydro. We have
biofuels. Nuclear.
We've got to look at everything. We got to look at
everything. The renewables, it's time for the renewables. The
wind is located in the right place.
If I could ask one of my guys to put a map, show me the one
that the DOE had. This is a great illustration. This is a DOE
map that was done in April of 2007. But it shows the wind
corridor, that being right up through the central part of the
United States.
It's in a perfect place, one, to have safety as to where
the location is. It's perfect as far as the people in that
area. They want it. They want the wind. It's not like on the
coast where you have problems there siting those turbines.
But here they want it. It could happen. I think the
Department of Energy did an excellent job of identifying the
resource and then also the transmission out of there.
I know you asked me the question about the renewables.
Renewables, it's time for the renewables. If you look at the--
my second again, Department of Energy map. I look like I don't
have any displace here, but I do have some too.
But anyway, get the one on the solar. Here we're very, very
close to doing something on solar. You can see here again
across the Southwest part of the United States is the solar
corridor. This could be put, solar and wind do extremely well
together in mixing them.
But what we need is leadership to come forward and develop
these resources for us because we are so close now to having
them and in quantities that would substantially reduce the $700
billion that we're buying foreign crude oil with. We've got to
get that stopped.
The Chairman. You, in your testimony there, you talked
about how we needed to release natural gas out of power
generation so that we take what we're currently using in power
generation and shift that to the transportation sector. In
addition to the renewable portfolio standard that we've been
talking about, are there other actions you think the Federal
Government should take to try to insure that the transition of
natural gas from power generation to transportation occurs or
will the market just bring that about? How do you see that
occurring right now?
I think the utilities have generated more and more power
from natural gas because that has been the cheapest way to
generate additional power. I don't know if the wind generation
you're talking about is going to be a more attractive option
for them or if we need to have policies in place that cause
that shift to occur.
Mr. Pickens. As we all know in this country that it's going
to go to the cheapest, you know, source of power. That's our
system that we all operate under. So it's got to go the
cheapest. Wind will be cheaper than anything else. Solar will
also. Not yet. I'm not saying we're there yet. We are on wind.
We're not on solar.
But the natural gas will move out of the power generation
slowly. I can see that it moves out and is very conveniently
replaced over a period of five to 10 years. So I don't know
that I would have any recommendations to you on this other than
let it happen. Encourage it to happen.
I think you've got to have a PTC to make it work. You know,
you want to go as quick as you can because you want to reduce
the 700 billion number. So PTC will, on our evaluation was
200,000 megawatts. The PTC for that would be $15 billion a year
to accomplish that. You need to give it a long enough time for
planning can happen.
Another point that I'm not sure and this was brought up in
a meeting last night that we don't have the manufacturing for
the wind and it's GE is big in the business. We have a few
other smaller ones, but if we have a PTC that shows the wind
manufacturing turbine people, they'll come into the country.
We'll have--and that'll bring down the cost. When they come in
they'll be more competition and it will bring down the cost
there.
But when you look at $15 billion a year, it's insignificant
compared to the 700 billion that's going out for foreign oil.
The Chairman. Alright.
Senator Barrasso.
Senator Barrasso. Thank you very much, Mr. Chairman. First
I'd like to welcome Mr. Bryce Freeman here to the Senate. He's
come from Wyoming. He serves on the Wyoming Infrastructure
Authority Board. It's an organization that was created with my
support when I served in the Wyoming State Senate.
Other states have followed the lead of Wyoming, have set up
similar organizations to develop electric transmission
infrastructure. Plus Bryce has served for years as the Consumer
Advocate to the State's Public Service Commission. So thank you
very much for being here.
Mr. Freeman. Thank you, Senator.
Senator Barrasso. There was an article in this morning's
Casper Star Tribune under the title, Utility Finds Power Line
Foes, which gets to the point of what we're talking about this
morning. I'll just read briefly. ``It seems like an idea that
any environmentalist would embrace. Build one of the world's
largest solar power operations in Southern California desert
and surround it with plants that run on wind and underground
heat.''
Those things you're talking about doing and the things that
the map has shown. Yet San Diego gas and electric and its
potential partners face fierce opposition because the plan also
calls for 150 mile high voltage transmission line. The show
downs over how to get renewable energy to consumers will likely
play out elsewhere around the country as well.
Providers of renewable power covet cheap land and abundant
sunshine and wind in places like West Texas, Wyoming, Montana
and Southern California. But utility executives say no one will
build plants without power lines to connect those remote spots
to the cities. That's the thing that many of you have
mentioned.
I guess my question, Mr. Pickens is that Mr. Freeman talked
about uncertainty in the market. Now people in this room know
that a lot of your success comes from seeing more clearly
through that uncertainty than others have been able to do. When
you look at this, when you look at the issues of the cost of
construction and siting and access to corridors, is one of
those a bigger burden than you see than the other?
Is it the cost of the construction? Is it the siting and
getting the permission to get through? What are you dealing
with?
Mr. Pickens. The biggest hurdle of course, is to get access
to the corridors. Somehow, I mean, I'm not sure how well versed
I am on this response. But if we could go the route that
Eisenhower used with the Interstate Highway System, I think the
issue is so critical, I think we are in an emergency.
I think the outflow of the--I keep saying this, but I want
to though, but $700 billion a year. We can't afford that. We're
going to be brought to our knees if this continues.
There's no reason to believe that the people with the oil
are going to bring the price down. I mean, if we reverse
positions and you and I are sitting on the table with the oil
and they don't have the oil. We're going to want to sell the
oil for the best price we can get for it. I mean, that's just
human nature.
They do have a finite resource. They do not have as much
oil as they can tell us they do. It isn't there.
I do believe in peak oil. I believe that you have peaked
out at 85 million barrels a day globally. Now we're using 21
million barrels of the 85 million and producing about 7 of the
21.
So if I could take just a minute on this point. The demand
is about 86.4 million barrels a day. When the demand is greater
than the supply, the price has to go up until it kills demand.
That's where we are. That's what we're dealing with. We're
killing demand in the United States.
We killed 500,000 barrels a day of demand in the last year.
But the Chinese have picked it up is what's happened. We are in
a global situation, is what's happened to us.
You know, when we say our truckers in this country and I
met with the Swift Trucking Company out in Phoenix 2 weeks ago.
They said what's in store for us. I said you're going to pay
more for diesel is what's going to happen.
It takes four barrels of oil to make one barrel of diesel.
That is becoming more and more expensive. Now I know you're
thinking does he mean you can get one barrel of diesel and
throw away the other three barrels. No, that isn't what
happened because it comes out of the products.
But diesel is becoming more and more expensive around the
world. You look at those truckers over there in France and
Turkey and they are parking their trucks and they're
frustrated. You know, they're saying we've got to have cheaper
fuel.
They do, if they're going to make money at the rates
they're charging so that price is going to go up or I don't
think they're going to get any cheaper fuel is what's going to
happen. So we've got to take care of ourselves. I think if you
can open up those corridors for transmission and for
renewables. I see the corridors as being for renewables. I
think that's very healthy and for the country.
Senator Barrasso. Thank you. Mr. Freeman, hearing what Mr.
Pickens said where he thought that the issue with the siting
and the corridors was greater than the cost that was the bigger
expense was not the financial cost, but the getting through the
corridors. Can you tell us about your experience in Wyoming?
What you've learned and what you think we need to do? He had
talked about possibly like an Interstate Transportation System.
Mr. Freeman. I, Mr. Chairman, Senator Barrasso, I certainly
agree with Mr. Pickens with regard to the importance of energy
corridors and particularly electric transmission corridors. I
neglected to mention in my summary that that is a challenge
that we have in the West is--and I think that we're convinced
that the Federal Government, particularly the Department of
Energy can play a much larger role than they have in the past
in identifying and designating national interest electricity
transmission corridors. We think, frankly that in combination
with the renewable resource zone initiative that the WGA has
recently announced that that will significantly enhance our
ability to identify and develop low cost renewable resources in
the West.
So, I do agree with Mr. Pickens that certainly the corridor
issue is first in time to a lot of the other issues because you
have to plan those corridors. You have to get the right of way
sewed up before anything else can happen. A lot in the West, a
lot of those corridors traverse Federal lands.
We've had some difficulty in the past working in an
efficient manner with the Federal agencies to try to get
transmission facilities sited. It doesn't look like that's
going to get any better unless we work on that problem
specifically. So corridors certainly are a high priority for
us.
Senator Barrasso. Thank you, Mr. Freeman. Thank you, Mr.
Chairman. My time's expired.
The Chairman. Thank you.
Senator Johnson.
Senator Johnson. Mr. Kolevar, in a question that you asked
Western Area Power Administration about transmissions like
Western power own thousands of miles of transmission lines. How
does the DOE envision the PMAs willing to grow in developing
wind energy resources?
Mr. Kolevar. Thank you, Senator. The PMAs, the Western area
Power Administration and Bonneville in particular, already have
substantial authority. Bonneville, in particular can finance
lines and in limited circumstances use the power of eminent
domain to site those lines. They are constrained by the manner
in which they would designate the costs, or a portion of the
costs, for those lines across all of the people that utilize
that system.
At the end of the day I think both of those power
administrations will play a key role in achieving the type of
infrastructure system you see on the map right there. That is
not our current infrastructure. That really envisions a much
larger series of high voltage backbones, including lines that
connect the Eastern Interconnection to the Western
Interconnection.
Both of the power administrations will play a role in that.
In and of themselves, they lack the authority to do that now. I
understand that there have been some discussions.
Senator Reid's bill speaks to the manner of which they
might bolster those authorities. I understand that there are
advocates as well as those that oppose within their customer
base. So I think there is a lot of room for discussion on this
involving those customers who are very concerned about the way
the costs of any new lines would be borne by them when the
benefits might be realized by someone else.
Senator Johnson. I yield.
The Chairman. Senator Smith.
Senator Smith. Thank you, Mr. Chairman. Mr. Pickens, thank
you for being here. We're honored to have you here. I wonder if
in your vision in terms of the transmission generation by wind,
how much investment is needed? Do you think that private
capital is available for this transmission?
I ask that question because I think the difference, as I
understand it, between your bill and Senator Reid's is your
talking about private capital investing in the transmission. I
think he's talking about public investment in that
transmission.
Mr. Pickens. Let me give you a number and I'm going to
check it and then come back to you on it. Ok? For the 200,000
megawatts that I had our guys look at and say, well, you know,
my question was the same as yours. What's this going to cost to
move 200,000 megawatts wherever it's going to go?
I believe that number was $70 billion. All the numbers that
we keep coming up with are so miniscule compared to what we're
paying for foreign oil that it almost, you know, when you think
about it. You step back and look at it. This is a bargain. This
is an absolute bargain when you look at that map with all of
the resource we have of the renewable there.
All we have to do is to transport. Give it PTC and then
transport it. I start to see it as a pretty simple solution to
a huge, huge problem for this country.
Senator Smith. But you do believe private capital is
available to accomplish that?
Mr. Pickens. I think private capital can do it if you have
a PTC.
Senator Smith. Ok.
Mr. Pickens. I think you've got to have that. I almost
believe that it could work with private capital and no PTC. But
it's going to be years and years to get to where you want to
be.
So it becomes cheap to get rid of the burden of foreign
oil.
Senator Smith. Sure. In your vision for the future would
natural gas be used as an alternative fuel as it is now or as a
feed stock for fuel cell vehicles?
Mr. Pickens. That again is an unbelievable timing for this
country. You almost start to think divine intervention because
here we are depleting our oil. It's, you know, we peaked in
1970 in the United States on oil. We've been in decline since
that time.
If you look at natural gas. Natural gas is actually being,
you're replacing your production annually. You're adding to the
reserve base.
The reason for this is because we have 21 shale basins in
the United States. About, I think, about four or five of them
are under development now. This geologist, I would have never
believed you could ever get gas out of shale. But you can.
That technology is so advanced now that there are
tremendous reserves. I think you can probably--our reserves for
this country is about 250 trillion cubic feet of gas. I think
that that will probably be doubled with the shale reserves.
So we have the reserves now. Do we have it forever? No, you
don't have it forever. I what I foresee will happen if you
could move today--this I think is worth mentioning, that I have
tried to promote natural gas as a transportation fuel since
1988. It was cleaner, cheaper and it was domestic.
When I tried to make that pitch that the only thing that
people heard when it came out was they didn't care whether it
was cleaner. They didn't care whether it's domestic. They just
wanted it to be cheaper. It was cheaper. But it wasn't enough
cheaper to pick up and that happened.
But what's happened around the world in the last 3 years
the increase in natural gas vehicles has gone from five million
to eight million. So we're eight million vehicles around the
world today. General Motors makes 19 platforms out of this
country but only one in this country because the demand isn't
here. Not because there is anything wrong with GM.
Ok. We only have 142,000 vehicles in the United States on
natural gas. We lag the world. We have the natural gas.
So it can happen. It can happen, you know, very
conveniently. We still have plenty of gas for petrochemicals
and other uses for natural gas.
Senator Smith. I want to emphasize the point that I think
you were making that if we're using natural gas just to make
electricity we're really wasting it. We're not using it as
efficiently as you're suggesting we ought to be.
Mr. Pickens. That's hard for me to say it's wasting it. I'm
not saying it's wasting because the industry has to sell their
product. Once you can make the investment, now you have a well.
Now you have to use it. There is no question it's the cleanest
of all for, other than renewables, in power generation.
Senator Smith. Mr. Kolevar, Oregon has some of the most
promising sites on Earth for wave energy, if properly sited to
avoid conflict with fisheries. We could also generate up to 200
megawatts of wave energy without needing any new transmission.
Can you tell me why the Department has been so slow to embrace
wave and tidal energy?
Mr. Kolevar. I guess it's hard to answer that question,
Senator. It's not within the portfolio that I oversee. It is a
technology that is receiving increased attention at the
Department.
It's a technology that is still expensive. But I think that
the increased attention at the Federal level through research
and development efforts at the private level, a number of
states, other than Oregon are interested in this as well.
Hawaii as you can imagine is very interested in this kind of
technology and ocean thermal and so it is one that is certainly
relative to the other forms of technology, a clean technology,
that we have looked at that is relatively a recent arrival on
the scene.
Notwithstanding that, given the push that we're seeing
toward cleaner forms of energy, I expect that it will be
receiving a lot of attention in the future. I do know that
there are a number of some of our best people at the Department
in the lab community that are very interested in pursuing this.
Senator Smith. I hope they will. I certainly want to
encourage it. Thank you.
The Chairman. Senator Dorgan.
Senator Dorgan. Mr. Chairman, thank you very much. Mr.
Kolevar, last year the President had recommended $115 million
for your agency. My Appropriations Subcommittee funds the
Department of Energy and related areas. I added $53 million,
almost 40 percent more than the President requested because I
agree with the Chairman and many of the witnesses.
This is one of the most important areas to unlock the
opportunities that exist. Can you tell me why there has been,
what I think, is relatively an anemic funding request from the
President in his budgets for your area?
Mr. Kolevar. Sir, I of course, support the President's
budget. But I can tell you that we have done very good work
within the bounds of the funding provided through that budget
but also the additional funding. I guess the real substantive
answer to that question mirrors the previous question.
In my experience, and I've been at the Department for about
seven and a half years now, you see attention focused on a lot
of very exciting forms of technology; and resources tend to
flow there. Those are resources in the forms of dollar. As well
as resources in the form of the kinds of technical expertise
from students coming out of college that want to get involved.
We're seeing a change. I think we're realizing a change.
Not just at the Department but across the country in the need
for greater support for the enabling technologies in particular
that apply to the grid and electricity storage.
So, again I guess I can't offer adequate explanations to
you for why we haven't in the past pushed harder on this except
to say I think that's there's a great realization today. I
think it's really taken place over the last couple of years,
that we need to focus much greater attention on our grid----
Senator Dorgan. It requires investments in the areas where
we need to get this done. The Midwest. I was just looking at
Midwest ISO for example, determined if they were to do the
studies for all the projects in their queue they would complete
it by 2362. That's 354 years from now.
I mean, we have a lot of things to do to fix this. I just,
I make the point that the President has not requested
sufficient funding. I'm going to try to increase it again this
year. The last person that came to this table working for this
President and said that they needed a little more money, the
next morning was fired.
[Laughter.]
Senator Dorgan. So if I bully--well, no, it's true.
Senator Sanders. So watch what you say.
Senator Dorgan. It's true. In fact the person sat at that
very table the day before he was fired. So I understand you
have to support the President's budget.
I do think however, we have to make the right investments
here. I want to make a point and then ask a question of Mr.
Pickens. In 1916 we put in place a pretty substantial
incentives to people to look for gas and oil. Because you go
out and find yourself some gas and oil, we're going to provide
some tax break.
We want you to do that. That's what our country needs and
wants. So we did it. It was permanent. It's been there forever,
almost. It's now almost a century.
In 1992 we said production tax credit. That's what we
wanted to incentivize you to do. Production tax credit. In 1992
we put it in place, and we have extended it five times on a
short-term basis. We let it expire three times. It's a
pathetic, anemic response.
In my judgment this country ought to say here's where
America's headed for a decade, count on it. The production tax
credit, solar, other incentives, count on it for the next
decade because here's where America's going. That's what we
ought to do.
The bill on the floor that we can't even get passed has a
12 month extension, a miserable extension. Better than nothing,
but I mean that's not where we ought to go. We ought to go in a
much more aggressive way.
But the Chairman asked the question, Mr. Pickens, and I did
not hear the answer, specifically. We have tried very hard to
get the Federal Government to create a renewable energy
standard. I happen to feel very strongly that we ought to do
that.
The country ought to say here's where we aspire to go. Yet,
we've been unsuccessful, whether it's 10 percent, 20 percent,
15 percent. Do you think that the market system will move in
this direction of its own will or do you think it would be
useful for the Congress through a renewable electricity
standard to describe a goal?
Mr. Pickens. I think you're going to have to do it. Because
I don't think it's going to go that direction just because
people want to do renewables. I think I'm answering the
question you asked me, aren't I?
Senator Dorgan. Right.
Mr. Pickens. Ok. Again what you'll do is you'll go back to
the cheapest way to do it is the way it will be done. I mean
that's the system we live in.
Senator Dorgan. But we affect the price with tax
incentives, don't we?
Mr. Pickens. Yes, we do. So if you can give some help. But
I keep going back to this point and I don't think I made
exactly this one, but almost.
But that you know the way we've operated here as far as
energy concerned, the way our country has, it's almost like
send us the oil, never mind the cost. We just kept using more
and more oil. You know, and now we're up to 70 percent. We're
in the trap. We are in a trap, is where we are. We're caught in
the trap.
We've got to go to renewables. There's no question about
it. But when you look at these studies by the DOE, clearly we
have energy available to us. Why haven't we used it? We haven't
used it. Now comes the leadership that causes that to happen.
Senator Dorgan. Wvery addiction ends in a trap. The
question is, is there public policy that leads us out of this
in a different direction. You're correct in my judgment that
the market system moves to the cheapest form of energy.
Mr. Pickens. It does.
Senator Dorgan. But we also can have a significant impact
about what energy, with respect to what is the price of energy.
The price of a gallon of gas is not $4. It's probably about $10
if you factor in the cost of defense and other things that
we're spending in the free world.
Mr. Pickens. Right.
Senator Dorgan. So, but we have an impact on what the price
can be with respect to incentives. We put them in place a
century ago for oil and gas. We can, in my judgment can send a
much stronger signal for renewables than we've done.
Mr. Pickens. I agree. I think you can send a stronger
message on renewables. But we know we have it.
Finding oil and gas is a tough deal. I know. I've been in
that business for over 50 years. I've found a lot of oil and
gas, but it's been expensive at times, very, very expensive.
You can drill a lot of dry holes.
I will say this. You won't have to have anybody before you
this year that has drilled more dry holes than I have.
[Laughter.]
Senator Dorgan. Mr. President, my time has expired, but I
wanted to make one additional point. Wind and solar are both
intermittent forms of energy. But there are ways to firm up an
intermittent form of energy.
We have a project in North Dakota that I sponsored in which
we're taking energy from the wind, producing electricity
through electrolysis separating hydrogen water and storing
hydrogen for vehicle use. You can take an intermittent energy
source and produce vehicle fuel in terms of hydrogen. So
there's a lot of things we can do with wind and it's not hard
to find wind, at least in North Dakota.
Mr. Pickens. That's right. You have one of the best
resources of anyplace in the country.
Senator Dorgan. The Department of Energy says it's the
Saudi Arabia of wind. We are No. 1 in wind and we're number 50
in trees.
[Laughter.]
Mr. Pickens. I----
Senator Dorgan. So there's nothing there to break the wind.
Mr. Pickens. My ranch is in Van Allen, Texas and I've lied
about wind forever, that it doesn't blow as much as you all
think it does. That's what I always say. Now I say, can you
believe it, this wind is great.
[Laughter.]
Mr. Pickens. So, you know, it's just different times in
your life.
The Chairman. Senator Sanders.
Senator Sanders. Thank you, Mr. Chairman. Mr. Pickens,
there are a number of people. I think you heard Senator Reid
and myself and others up here who see huge potential in
sustainable energy if we can get our hands on and solve the
transmission problem.
So let me start off by asking you if we got our act
together. You talked about wind in the Midwest. Senator Reid
talked about solar thermal in the Southwest. What percentage of
electricity in this country could be generated by sustainable
energy?
I think the folks from the Western Governors' Association
were talking about 17 percent within the reasonable future
coming from solar thermal in the Western part of this country.
What do you think?
Mr. Pickens. Ok, if you look at that map right across the
top it says at 20 percent. Now that's from the DOE. We do not
disagree with that.
Senator Sanders. By when? 20 percent by when?
Mr. Pickens. Right, that's what it says across the top
there.
Senator Sanders. Twenty percent by 2020?
Mr. Pickens. No, they say by 2030. But I think you can beat
that.
Senator Sanders. Ok.
Mr. Pickens. Where we differ with them is how quick it
could be accomplished. If you called it an emergency, which I
believe it is that. I think you could do the 20 percent in less
than 10 years.
But you've got to do it quick because you have so much
outflow of money.
Senator Sanders. Right. You, I know, have been focusing on
wind. What do you see the potential of solar?
Mr. Pickens. I'm not an authority. I'm pretty good on wind.
I'm not that good on solar. I'm real good on oil and gas.
[Laughter.]
Mr. Pickens. But let me tell you that some of, you know,
some people really for me to go to renewables, a geologist
who's been in oil and gas his whole life they're somewhat
surprised and astounded of that. But this is where we have to
go. But quick answer on solar, it's there. There's no question
it's there.
Now it's not as cheap. Those things are going to happen. If
you'll give the incentives and tell them this is direction you
want.
Just look at what the President did for ethanol. The
President came out for ethanol. I mean ethanol happened. It
went and it probably was not the best idea I've ever seen. But
anyway----
[Laughter.]
Senator Sanders. All right let me ask you this. Obviously
we are dealing now with two international crises. There's
global warming and the high price of fuel. In terms of wind,
which you do know a lot about, how cost competitive is it today
with other sources of energy?
Mr. Pickens. The wind is--it's competitive. I think that
the wind, I'm going to stick my neck out here, but I believe
it--when you take coal and bring it up to clean it up and
everything else, I think wind will be, is competitive with
coal.
Senator Sanders. So today. Today, not in the future what
you're saying----
Mr. Pickens. No, I'm saying today.
Senator Sanders. Today. This is an extraordinary statement
that he's saying today wind is cost competitive or maybe
cheaper than coal. Is that what you think?
Mr. Pickens. I'm saying that, yes.
Senator Sanders. Let me ask you another thing. You know a
little bit about oil, right?
Mr. Pickens. About what?
Senator Sanders. Oil. You've heard of oil?
Mr. Pickens. I'm ready.
Senator Sanders. Alright.
[Laughter.]
Senator Sanders. Now it is interesting. Many of our
friends--I was on two television shows the other day and kind
of conservative commentators were saying the solution is drill,
drill, drill. We're going to solve all of our problems if we
just drill for all the oil that is in the United States.
Now I heard you mention several times ago you believe it
peak oil. Are we capable of drilling our way out of this
crisis?
Mr. Pickens. Let me take you on a little history. But we
peaked in the United States at ten million barrels a day in
1970. We're now producing five million barrels a day.
Could we have kept it at ten? There's no way that we had
the resources to do that. An average oil well in the United
States is five barrels a day. An average well in Saudi Arabia
is 5,000 barrels a day.
The Saudis are lifting six barrels of water with every
barrel of oil which tells me they're mature. That's mature. The
Russians are lifting nine barrels of water with every barrel of
oil. We're lifting over 100 barrels of water with every barrel
of oil.
So we are mature. Now could we drill our way out of it? No.
There's no way you can do that.
The--I don't agree with the USGS that there's 86 billion
barrels of oil off the East and West coast of the United
States. Those guys work on that a lot more than I do. So I'm
not going to say it's a ridiculous number. I just don't agree
with it.
When I look at ANWAR I would look at ANWAR and feel like it
may be time. I almost, and I laughed about it last night at
dinner. I said if I was one of the Senators that voted against
ANWAR, I would almost see the American people today.
It is shifting and the American people are wanting to do
something. They don't know for sure what it is, but they're
voting for ANWAR. I saw a poll the other day, 57 percent.
I said I almost think if I was one of those Senators that
voted against it, I'd say, you know, back there when those
Republicans were trying to get me to do ANWAR at $20 a barrel.
It was too cheap. But now at $120 a barrel, I may be more
interested in doing it.
So maybe we're coming around to a point where the value of
the oil at ANWAR, and I'm not one that believes there's 16
billion barrels at ANWAR either. There was 14 billion at
Prudhoe Bay which is the largest field we ever had in the
United States. The ANWAR does not have the same sediments
because you cross a fault going east of Prudhoe Bay. See, I
know this subject.
Senator Sanders. Alright, but let me just----
Mr. Pickens. But I don't think the oil in ANWAR is anything
like 16 billion. So don't have the idea that our problems will
be solved with a big discovery.
Senator Sanders. I surely don't. Mr. Halvey, what were your
estimates about what solar thermal in the Southwest from the
Western Governors' Association? What percentage of electricity
do you think it has the potential to produce?
Mr. Halvey. Let me say first of all it's going to depend
on, I think, the value that you're going to place on doing the
solar. One of the problems that we've got with solar is that
there isn't a manufacturing capacity. In the Clean and
Diversified Energy Report they talked about having 8,000 new
megawatts of solar online by the 2015. That was a conservative
estimate. It was based on current manufacturing capacity.
If you talked to the people in those industries what they
will tell you is that they will be cost competitive with the
cheapest sources of energy if there are incentives, if the
manufacturing capacity increases, if they can achieve the kind
of economies of scale that would be available. So I think, you
know Senator Reid mentioned that there's a tremendous
potential. You know, exploiting that potential is going to be
dependent on a lot of different things, finding the right type
of land.
I mean if you look at the map of solar it looks like
there's these broad----
Senator Sanders. But you published--you issued a
publication which I think said that you expected within the not
to distant future, if we got our act together we could do
something like 17 percent of the electricity that this country
needs just from the Southwest. Is that correct?
Mr. Halvey. What we said in the Clean and Diversified
Energy Report was 8,000 megawatts by the year 2015, 8,000 new
megawatts by the year 2015. That I think is a 2-year-old
figure. I think we would revise it significantly upward at this
point.
Senator Sanders. Upwards, though?
Mr. Halvey. Yes.
Senator Sanders. Thank you, Mr. Chairman.
The Chairman. Senator Dorgan wanted to make a short
statement and then we'll go on to the second panel. Go right
ahead.
Senator Dorgan. I just wanted to observe while we have
substantial wind energy capability in North Dakota and we're
developing it, not quite as quickly as I would like. But it's
happening. We are locked by transmission problems, which is the
purpose of this hearing.
We can produce, should produce and will produce much, much,
much more electricity from wind. But we've got to solve this
transmission problem if we're going to move the product of that
around this country on a grid. So that, I mean that's the
underlying foundation of this hearing which is important for us
to always remember.
There's a lot of potential here. But we won't unlock that
potential moving around the country in the way we need to
unless we solve the transmission problem. Nobody comes to the
transmission issue to say, you know what, I'm going to commit a
lot of money to build and I'm not quite sure how the income
stream going to be developed to pay for it. That just doesn't
happen.
That's why we need some sort of policy directions and some
plans to get this transmission issue solved. I appreciate the
Chairman holding the hearing on that subject.
The Chairman. Let me thank our witnesses here. I think it's
been very useful testimony from this first panel. Thank you
very much for being here, appreciate it.
Mr. Pickens. Thank you.
The Chairman. Let me ask the second panel to go ahead and
come forward. On the second panel we have Mr. Gary Hanson with
the South Dakota Public Utility Commission. I think Senator
Johnson was going to make a short introduction of him when we
start the panel.
Stephen Wright with the Bonneville Power Administration.
Will Kaul who is with the Great River Energy in Maple
Grove, Minnesota.
Don Furman representing American Wind Energy Association.
Senator Johnson, did you want to make a statement here
before we heard from your Commissioner?
Senator Johnson. I just wanted to take----
The Chairman. Alright, well why don't we start with you,
Mr. Hanson. Why don't you give us about a 5-minute summary of
what you think we need to understand on this issue. Then we'll
go right to Mr. Wright and then Mr. Kaul and then Mr. Furman.
Go right ahead.
STATEMENT OF GARY HANSON, CHAIRMAN, SOUTH DAKOTA PUBLIC
UTILITIES COMMISSION, PIERRE, SD
Mr. Hanson. Thank you, Senator Bingaman and thank you very
much Senator Johnson. Excuse me? Thank you, Senator Bingaman
and thank you Senator Johnson. I sincerely appreciate having a
very good, old friend introduce me this afternoon. I appreciate
that immensely.
My name is Gary Hanson. I'm Chairman of the South Dakota
Public Utilities Commission. I'm testifying today on behalf of
that agency.
I very much appreciate the opportunity to appear before you
this morning. I ask that my testimony be made a part of the
record as if fully read. I will summarize my written testimony.
The South Dakota PUC regulates the retail rates and
services of investor owned electric, gas and telephone
utilities. We're obligated under the laws of our State to
ensure the establishment and maintenance of such utility
services as may be required by the public convenience and
necessity and to ensure that such services are provided under
rates and subject to terms and conditions of services that are
just, reasonable and non-discriminatory. It is in our Nation's
best interest to resolve the challenges which have retarded the
healthy growth of electric transmission facilities.
Otherwise our efforts to assemble a viable, renewable
energy regime will fall far short of expectations.
Additionally, unless a more expeditious process is implemented
to facilitate transmission expansion serving interstate needs,
we will be at risk for serious reliability problems. Chief
among the solutions are resolving siting and cost allocation
challenges.
A disparity of policies across the states compels load
serving entities to locate wind capacity and associated
transmission based upon political boundaries instead of
physics, economics and other best practices. Local politics and
parochialism in one State should not be allowed to prohibit the
economic and environmentally friendly construction of renewable
energy facilities in another State. Our Nation's energy future
is far too important to allow this practice to continue.
To have the greatest economic and environmental benefits
practical considerations require transmission facilities be
regionalized. States need to have an active role in
transmission decisions. However, an effective regional
transmission system requires a regional transmission authority
with regional siting authority.
The present system used for pricing transmission and
compensates providers for that service is essentially based on
a regulatory method that is also--that is almost 100 years old.
The current regulatory system does not recognize that power
flows based on physical laws. Rather it assumes that power will
flow based on who contracts for the purchase of power.
A robust regional electric transmission system is an
essential prerequisite to support the reliability function and
the market function allowing more generators to reach loads and
compete directly for sales to such loads and meet national
goals for renewable generation and energy independence. A new
rate design is needed that will facilitate the construction of
the strong transmission background required to support the
Nation's electric market and reliability missions.
Any prospective transmission rate design should cover new
as well as existing transmission facilities.
Facilitate not impede construction of needed new
transmission facilities.
Reflect the regional use of the grid.
That power flows according to laws of physics.
Provide simplicity and certainty through a standard tariff
that defines in advance who will pay for new transmission
facilities.
How such costs will be recovered rather than relying on
potentially contentious, costly and time consuming, case by
case, facility by facility analysis of beneficiaries to
determine who will pay the cost of a specific facility.
Provide certainty that the parties owning transmission
facilities can obtain cost recovery and are not faced with a
risk of trapped cost.
I recommend a highway/byway rate design for the Midwest
ISO. Under this proposal a license plate component of the
transmission rate would recover the cost of local, low voltage
facilities. The cost of these byway facilities would be paid
solely by the load in the local license plate zone as is
currently the case.
The cost of defined high voltage highway facilities would
be included in a rate charged to all loads in the footprint on
a postage stamp basis. For administrative ease and to avoid
case by case disputes the tariff definition of highway
facilities would be determined by voltage level. Given the rate
of return currently allowed by the FERC on transmission
facilities and with these suggested changes, there should be no
shortage of capital to invest in the needed transmission
infrastructure.
I believe there are benefits for the WAPA to join MISO.
However in order to be fair and equitable for all participants
significant challenges need to be overcome first including
reducing the cost of MISO's charges and challenges with regard
to the queue. Thank you, Mr. Chairman.
[The prepared statement of Mr. Hanson follows:]
Prepared Statement of Gary Hanson, Chairman, South Dakota Public
Utilities Commission, Pierre, SD
My name is Gary Hanson. I am Chairman of the South Dakota Public
Utilities Commission (SDPUC) and I am testifying today on behalf of
that agency. The SDPUC regulates the retail rates and services of
investor owned electric, gas, and telephone utilities. We are obligated
under the laws of our State to ensure the establishment and maintenance
of such utility services as may be required by the public convenience
and necessity and to ensure that such services are provided under rates
and subject to terms and conditions of service that are just,
reasonable, and non-discriminatory.
It is in our nation's best interest to resolve the challenges which
have retarded the healthy growth of electric transmission facilities
throughout our country. Without vigorous transmission capacity our
efforts to assemble a viable renewable wind energy regime will fall far
short of expectations. Additionally, it is extensively acknowledged
that the demand for electric energy in the United States will grow by
nearly 400 gigawatts over the next 23 years. That demand can not be met
without significant upgrades to our present transmission system and yet
investment to the infrastructure has been virtually stagnant for many
years. Unless a more expeditious process is implemented to facilitate
transmission expansion serving interstate needs, we will be at risk for
serious reliability problems. Chief among the solutions are obtaining
resolutions to siting and cost allocation challenges.
Traditionally the states have been the incubators and drivers of
inventive energy policy. An example is the wide variety of renewable
portfolio standards across the country. However, the product result is
a patchwork of conflicting energy policies. This disparity of policies
compels load serving entities to locate wind capacity and associated
transmission based upon political boundaries instead of physics,
economics, and other best practices. An example is the hundreds of
megawatts of wind energy facilities in Minnesota that curiously end at
the South Dakota border, just as the wind resource potential increases.
To have the greatest economical and environmental benefits
transmission facilities, similar to renewable portfolio standards,
should not be localized or nationalized; practical considerations
require they need to be regionalized. This is not to say that states'
rights are to be ignored. Just as states have a role in the siting of
interstate highways, states need to continue to have an active role in
transmission decisions. Even so, a regional transmission system
requires a punctual regional transmission authority with regional
siting authority. We must overcome the inability or unwillingness of
individual states to provide timely action on proposed interstate
transmission projects. In some instances regulatory bottlenecks are
holding back the development of transmission projects as well as
renewable energy in an effort to prevent clean coal projects. Local
politics and parochialism in one state should not be allowed to
prohibit the economic and environmentally friendly construction of
renewable energy facilities in another state. And our nation's energy
future is far too important to allow this practice to continue.
The present system that is used for pricing transmission and which
compensates providers of that service is essentially based on a
regulatory method that is almost 100 years old. The existing
transmission regulatory process was developed at a time when a
vertically integrated utility built the generation and transmission in
its service area. The current regulatory system does not recognize that
power flows based on physical laws. Rather it assumes that power will
flow based on who contracts for the purchase of power. This, of course,
is fiction.
A robust regional electric transmission system is an essential
prerequisite to support a) the reliability function to keep the lights
on and b) the market function allowing more generators to reach loads
and compete directly for sales to such loads in order to increase
competition amongst generation suppliers and meet national goals for
renewable generation and energy independence. A new rate design is
needed that will facilitate the construction of the strong transmission
backbone required to support the nation's electric market and
reliability missions.
Any prospective transmission rate design should cover new as well
as existing transmission facilities and (1) facilitate, not impede, the
construction of needed new transmission facilities; (2) reflect the
regional use of grid and that power flows according to the laws of
physics; (3) provide simplicity and certainty through a standard tariff
convention that defines in advance who will pay for new transmission
facilities and how such costs will be recovered, rather than relying on
potentially contentious, costly, and time-consuming case-by-case,
facility-by-facility analyses of ``beneficiaries'' to determine who
will pay for the cost of a specific facility; and (4) provide certainty
that the parties owning transmission facilities can obtain cost
recovery and are not faced with the risk of ``trapped costs.''
Before I describe what I believe is a much better way for pricing
transmission, let me first describe the more typical methods that are
being used today. The first method is the `license plate' rate. The
license plate rate method requires the load to pay a rate for
transmission service based on the transmission zone where the load
resides. It obviously takes its name from car license plates where each
car owner purchases a license plate from its home state and can then
drive any place in the nation. The problem with this method when it
comes to transmission service is that a load located in zone A and
wants to purchase power from a generator in zone B would only pay for
the transmission in zone A. If there is transmission needed in zone B,
in order to export the power from zone B to zone A, the load in zone B
will have to pay for the needed transmission. There is a disincentive
for the load in zone B to build transmission for the benefit of the
load in zone A. Additionally, rural areas find it especially
challenging to build transmission for exporting renewable energy to
other states.
A second method is the `postage stamp' rate. Under this scheme all
load in a single marketing area such as the Midwest Independent System
Operator footprint, would pay the same transmission rate. This is
similar to paying the same postage for mailing a letter anywhere in the
nation. There tends to be a lot of resistance to implementing this type
of transmission pricing scheme because the more densely populated areas
tend to have a lower cost for transmission service versus the rural
areas. Thus if one were to implement this scheme there would be a cost
shift with the urban areas seeing a cost increase for their
transmission service while the rural areas would see a cost decrease.
A third method is the `pancake rate'. With this method, each time a
transaction is deemed to cross another transmission zone the user of
the service pays another full transmission tariff. This is similar to
paying a toll on a road. Each time a car uses the next segment of the
road, the user must pay another toll. However there is a great
difference on the actual use of a toll road and a power transaction. In
the case of a toll road, the driver physically uses the toll road so it
is appropriate that he pay for that use. However, in the case of an
electrical transaction, the power the user purchases might not even
flow over the transmission in the zone for which he is paying. This is
actually the worst and most expensive transmission pricing method. It
Balkanizes the system more than the license plate method, does not
recognize how electric energy flows and hinders the development of
renewable energy and energy independence. Additionally, it can stifle
any generation market as costs of transport may be prohibitive. This is
actually the system that we currently face in my home state of South
Dakota.
The fourth and final method that I wish to discuss is the `highway/
byway' rate method. This method is a hybrid between the license and
postage stamp rates discussed earlier. Under this method higher voltage
transmission uses the postage stamp pricing scheme and lower voltage
uses the license plate pricing scheme. The highway/byway method avoids
some of the cost shift that a pure postage stamp method causes and at
the same time encourages investment in high voltage transmission and
generation. This nation desperately needs high voltage transmission to
encourage development of renewable generation and assist with energy
independence and promote reliability.
Under the highway/byway proposal, a local license plate rate would
remain in place for defined low voltage facilities (``byway
facilities''). The cost of these facilities would be paid solely by the
load in the local license plate rate zone, as is currently the case.
This avoids much of the urban/rural cost shift mentioned previously.
The cost of defined high voltage (``highway'') facilities would be
included in a wholesale regional formula rate and recovered from all
loads in a regional market area such as the Midwest ISO footprint on a
postage stamp basis. For administrative ease, the definition of highway
facilities would be determined in advance by voltage level. I would
suggest highway facilities should include all non-radial facilities 100
kV or greater.
The proposed highway/byway transmission pricing approach addresses
the key issues. It facilitates construction by providing financial
certainty. Any transmission owner would collect the cost of it's
highway facilities under a regional tariff such as the Midwest ISO
wholesale tariff charge and thus (under established law) eliminate any
``trapped cost'' risk that may exist under a tariff that does not
definitively or formulaically derive an allocation of costs among
transmission owners.
This proposal also facilitates construction of needed new
facilities in the event an existing local transmission owner for any
reason declines to undertake construction of new transmission
facilities. In these situations, another transmission owner or a third
party financial investor could construct new highway facilities, place
the cost of the facilities into the wholesale postage stamp rate and be
assured cost recovery on a basis comparable to any other investor. As a
practical matter, this possibility will provide incentive to the local
transmission owner to undertake the construction rather than forego the
lost return to another party.
A postage stamp wholesale rate for new highway facilities would
minimize disputes concerning who will pay for new facilities. While
there likely would be the usual regulatory protests when the tariff
change to implement the highway/byway rate design was filed at FERC,
this would be a one-time contest. Once the tariff was in place, the
``who pays'' question is resolved definitely in the regional
transmission tariff. This is an important consideration in my
recommendation because it avoids the often case-by-case modeling
approach to cost allocation for major new facilities and avoids the
contentious and protracted debate over the modeling and other
assumptions used to derive a proposed cost allocation.
In this regard, please note that the postage stamp ratemaking
convention historically has been used by federal and state regulators
to recover the cost of transmission and distribution facilities.
Regulators long ago recognized that administrative convenience dictated
a simple postage stamp convention rather than spending the time and
effort to develop detailed allocation methods that could achieve only
fictional accuracy. Applying the postage stamp rates to just the
highway facilities continues this historical convention and at the same
time recognizes the changes that we need to make in the current
transmission pricing scheme to promote our national interests.
Transmission is not an end in itself; it is a means to allow the
most efficient and desirable mix of electricity to reach markets. We
need to recognize that transmission rates should be designed to further
this goal, and we should develop transmission rates that optimize
generation supply efficiencies instead of rates that stifle necessary
generation development.
ADDITIONAL DISCUSSION
A. Background
South Dakota has significant wind resources and land available for
the development of those resources. Those resources are essentially
land locked in South Dakota because of a lack of transmission capacity.
Unfortunately South Dakota, for the most part, is not part of a
regional independent system operator, specifically the Midwest ISO. For
this reason, any generation development in South Dakota, either wind or
conventional must pay a pancaked transmission rate to get the power to
market. As noted earlier, this transmission pricing scheme is a
significant barrier to generation development in South Dakota. To me
this is not in keeping with our state or our national goals. The major
transmission provider in South Dakota is the Western Area Power
Administration (WAPA). The SD PUC has no jurisdiction over WAPA so we
cannot order WAPA to join the Midwest ISO even though we believe that
this would be in the best interest of our state.
To me the Midwest ISO offers many benefits. The Midwest ISO has
commenced regional transmission service operation, implemented joint
regional transmission planning, commenced operation of day-ahead and
real-time bid-based energy markets, and institutionalized centralized
security constrained unit dispatch and regional congestion management.
The Midwest ISO now is in the process of a functional consolidation of
balancing authorities, creation of a region-wide market for ancillary
services and implementation of some form of a regional capacity
construct. In short, nearly all grid and market functions have been
regionalized, including pricing, except for transmission service
pricing.
The pricing for transmission service first and foremost should
facilitate, not impede, construction of needed new transmission
facilities. A robust regional electric transmission system is an
essential prerequisite to support the Midwest ISO's a) reliability
function (For example, from July 31 to August 2, 2007 the Midwest ISO
had excess generation trapped on the west side of the Midwest ISO due
to limited transmission and while this generation was trapped on the
west, simultaneously the Midwest ISO imposed emergency actions in
central and eastern portions of the Midwest ISO and curtailed service
to interruptible customers due to high peak demands.) and b) market
function (allowing more generators to reach loads and compete directly
for sales to such load as envisioned). A new rate design should
facilitate the construction of the strong transmission backbone
required to support the Midwest ISO's market and reliability missions.
Although I believe the slightly modified license plate pricing
approach currently used in the Midwest ISO was a useful compromise
initially to avoid cost shifts and facilitate the formation of the
Midwest ISO, a pure license plate pricing approach no longer meets
these needs of the Midwest ISO, its stakeholders or our national
interests. The continued use in any pure form of license plate rate
design will be counterproductive and make it more difficult than
necessary to construct the transmission facilities essential to the
Midwest ISO's reliability and market functions.
B. Recommendation
I recommend that WAPA join the Midwest ISO as a transmission owner.
This would eliminate the pancake transmission rate that generation in
South Dakota now faces. This pancaked transmission rate alone causes
generation in South Dakota to be 25% higher than generation located
just a few miles to the east in Minnesota. This is not good energy
policy and it is certainly not good national policy.
I further recommend a highway/byway rate design for the entire
Midwest ISO footprint. Under the proposal, a license plate component of
the transmission rate would recover the cost of local byway facilities.
The cost of these byway facilities would be paid solely by the load in
the local license plate rate zone, as currently is the case.
I note that while the allocation of costs to specific customers
will differ in a particular year under a postage stamp approach
(compared to the existing license plate approach), over a long term
planning and construction horizon, such difference should not result in
large inequities. In my judgment, the essential choice is accepting a
rough justice over time in the interest of the common good of
facilitating the construction of needed new transmission facilities to
support the Midwest ISO's reliability and the market functions versus
leaving in place a license plate pricing regime likely to cause ongoing
cost allocation disputes over each project and further complicate the
already too difficult process of transforming a planned project into
new facilities.
The cost of defined highway facilities would be included in a
wholesale formula rate charged to all loads in the Midwest ISO
footprint on a postage stamp basis. For administrative ease and to
avoid case-by-case disputes, the tariff definition of highway
facilities would be determined in advance by voltage level. I propose
that the highway facilities include non-radial transmission facilities
operated at a voltage of 100 kV or above. Any party that constructed
such new highway facilities would place the cost of such new facilities
into the wholesale postage stamp rate and obtain a formulaic revenue
recovery under the Midwest ISO tariff. Under this approach, if the
local transmission owner chose not to construct a planned highway
facility in a timely manner, any transmission owner or third party
could invest in such transmission facilities and obtain comparable
formula rate cost recovery of its investment under the Midwest ISO's
tariff. Given the current rate of return currently allowed by the FERC
on transmission facilities and with these suggested changes, there
would be no shortage of capital to invest in the needed transmission
infrastructure.
The Chairman. Thank you very much.
Mr. Wright.
STATEMENT OF STEPHEN J. WRIGHT, ADMINISTRATOR, BONNEVILLE POWER
ADMINISTRATION, PORTLAND, OR
Mr. Wright. Good morning, Mr. Chairman. My name is Steve
Wright. I'm the Administrator of the Bonneville Power
Administration. There are three main points to my testimony
today.
First, wind and other renewables have value to the electric
utility industry and are being implemented rapidly in the
Pacific Northwest.
Second, renewables in large quantities do create some cost
and reliability concerns for the utility industry.
Third, we at Bonneville are taking actions to mitigate
these concerns such as through the development of transmission
in our region. But much work is left to be done.
Now I'm sure this committee is aware that the Bonneville
Power Administration is an agency as part of the Department of
Energy serving the States of Oregon, Washington, Idaho and
Montana. We're a not for profit organization seeking to market
power from the Federal hydro-electric facilities in the
Northwest. We market about 35 percent of the energy in the
Pacific Northwest and operate about 75 percent of the high
voltage transmission in our region.
We have the authority to acquire cost effective generation.
We have the authority to build transmission. We have access to
capital through two sources--money that we can borrow from the
United States Treasury, up to a limited capped amount, and the
ability to use third party financing to be able to support our
transmission construction activities.
We've promoted renewables over the years. We were the first
to eliminate the imbalance charges for wind resources back in
2002, a policy that was ultimately adopted by the FERC. We have
developed a significant number of interconnections for new wind
projects in our region. We have purchased wind output that we
are using to serve our customers in the Northwest.
The amount of wind on our system over the last 3 years in
particular has exploded, in part due to our own policies, in
part due to the production tax credit, and in part due to State
policies within our region.
We now have more than 1,400 megawatts operating on our
system. We are simultaneously pleased, proud and anxious about
that development. We're pleased and proud because we believe
the green nature of these resources represent the values of the
Northwest. We're anxious because these resources have
operational characteristics that we're still learning about in
which, as I mentioned earlier, I do have some cost and
reliability consequences that we're trying to figure out how to
deal with.
To put it most simply utilities have responsibility to
assure that loads and resources balance instantaneously at all
times. That does make us somewhat conservative. Intermittent
renewables increase the challenges because it's not clear how
much they can be relied upon during the peak hour and due to
our relative inability to predict their hour by hour
variations.
We view these as challenges that need to be addressed and
are attempting to take them head on. Two years ago we formed
the Northwest Wind Integration Steering Committee, a group of
utilities, developers, regulators and members of the
environmental community. An action plan was developed by that
committee that unanimously agreed on 16 recommendations. We're
now in the process of implementing those recommendations.
One of the key recommendations was the need for new
transmission to broaden the geographic base of wind supply.
Thereby increase the diversity of wind output that should
reduce some of the operational risk of wind that I referenced
earlier.
Developing new transmission under FERC's open access tariff
as FERC has acknowledged has been difficult. But BPA has put
together a new approach working with a group of Northwest
stakeholders and with the Federal Energy Regulatory Commission.
That new process has allowed us to offer what's called a
network open season.
This new process does not require developers to provide up
front financing, addressing one of the issues that came up in
the last panel. FERC approved this approach last Friday for
which we are grateful. Our open season closed yesterday. I just
received the results this morning. It appears to be an
overwhelming success.
We had hoped that we would receive somewhere in the range
of two to three thousand megawatts of commitments, developers
who were prepared to pay for transmission if we built it. Based
on what we received last night, we received 6,800 megawatts of
commitments. More than double what were anticipating. Over
5,000 megawatts comes from wind resources.
The probability looks good that we have found a way to
break the log jam that will allow more transmission to be
built, further opening the wind frontier in the Pacific
Northwest. I also want to note that we're participating in the
Western Electric Industry Leaders Group, a group of Western
electric chief executive officers. This group recognizes that
the West effectively operates as one for reliability and market
purposes.
We've begun to look at the potential impacts of renewable
portfolio standards and CO2 limits in the West on
rates and reliability and the policies that can help to
mitigate these impacts. Particularly we've looked at a coarse
screening level analysis of the cost effectiveness of new
interstate transmission to support renewables. Our preliminary
conclusion that requires further testing is that new interstate
transmission and the development of a new renewable energy
credits market is worthy of further exploration.
This recognizes however, that there's a big challenge to
maintain reliability, and to fill new interstate transmission
lines with intermittent, reliable, renewable resources alone.
This conclusion is fundamentally driven by the potential value
of renewables in more remote regions of the West potentially
exceeding the cost of new transmission lines.
Mr. Chairman, from this short synopsis you can see that
we've been busy with respect to renewables in particular. Yet
I'm barely able to scratch the surface of the activities that
we're undertaking with the time that I'm allowed. I look
forward to answering your questions and would ask that my full
remarks be entered into the record.
[The prepared statement of Mr. Wright follows:]
Prepared Statement of Stephen J. Wright, Administrator, Bonneville
Power Administration, Portland, OR
Good morning, Mr. Chairman. My name is Stephen J. Wright and I am
the Administrator of the Bonneville Power Administration (BPA). I
appreciate the opportunity to relate BPA's experience to date in
bringing renewable electricity to markets and how we are positioning
the agency to integrate additional renewable resources into the Pacific
Northwest electricity system. My testimony today will describe the
success we've experienced in bringing a significant amount of new
renewable energy into our transmission system this past decade to the
present. I'll discuss some of our concerns that have arisen from that
experience and how we and our regional partners have responded to those
issues. I'll complete my remarks by describing how we will evaluate and
respond to opportunities to bring more renewable electricity to our
customers in a cost-effective manner.
INTRODUCTION AND BACKGROUND
BPA, founded in 1937, is a power marketing agency under the
Department of Energy. We are headquartered in the Pacific Northwest
where we operate about three-quarters of the high voltage transmission
and market power from 31 Federal dams in the Columbia River Basin as
well as the output of one nuclear plant. We supply about 34 percent of
the Northwest's electricity, selling at wholesale and at cost.
Our customers include Northwest cooperatives, municipalities,
public utility districts, Federal agencies, investor-owned utilities,
direct-service industries, port districts, irrigation districts, and
tribal utilities. Our service area covers Washington, Oregon, Idaho,
western Montana, and small parts of eastern Montana, California,
Nevada, Utah, and Wyoming. BPA is a self-financed agency that recovers
its full costs and repayment obligations from its customer ratepayers
through power and transmission rates. BPA receives no annual
appropriations for its operations.
We sell transmission-related services to more than 200 utilities,
power generators (including wind generators), and power marketers.
Consistent with Federal Energy Regulatory Commission (FERC) rules, BPA
has one open access tariff. It provides transmission services to all
customer utilities, power generators and marketers under the same
rates, terms, and conditions that it applies to its own Power Services
business line.
BPA'S AUTHORITIES TO BUILD AND FINANCE TRANSMISSION
BPA's statutory authorities include the authority to construct
transmission lines to deliver power to customers in the Pacific
Northwest. The capital costs to construct transmission lines to these
sites are significant--typically $1-$3 million per mile. In addition,
there are environmental and social impact mitigation considerations for
siting new transmission lines.
BPA's statutory authorities give us access to capital for new
transmission construction needs. In addition to a limited amount of
borrowing from the U.S. Treasury,\1\ we have the authority to rely on
capital of third parties.\2\ BPA has successfully used third-party
financing of facilities, through lease-purchase arrangements, to avoid
depletion of our more limited Treasury borrowing authority, which is
capped at outstanding indebtedness of $4.45 billion.\3\ The President's
Fiscal Year 2003 Budget supported the use of third-party financing for
future investments in transmission system upgrades.\4\ BPA also has
authorities to acquire real and personal property and to acquire real
property through eminent domain.\5\
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\1\ Federal Columbia River Transmission System Act, 16 U.S.C. Sec.
838k.
\2\ See Federal Columbia River Transmission System Act, 16 U.S.C.
Sec. 838i(b)(5); see also Bonneville Project Act, 16 U.S.C. 832a(f).
\3\ Federal Columbia River Transmission System Act, 16 U.S.C. Sec.
838k(a); Continuing Appropriations for 1983, Act of December 21, 1982,
Pub. L. 97-377, Title V, Sec. 115, 96 Stat. 1830, 1912 (1982); Energy
and Water Development Appropriation Act of 1984, Pub. L. 98-50, Title
III, 97 Stat. 257 (1984); Consolidated Appropriations Resolution of
2003, Pub. L. 108-7, Title VII, Sec. 701, 117 Stat. 423 (2003).
\4\ Budget of the U.S. Government Fiscal Year 2003, Office of
Management and Budget, at 133 (2002).
\5\ Bonneville Project Act, 16 U.S.C. Sec. 832a(e), (d).
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BPA'S ACTIONS TO PROMOTE RENEWABLE ENERGY
BPA's authorities to acquire resources to meet the loads of
Northwest utility customers require priority for cost-effective energy
conservation measures and renewable resources.\6\ Wind development has
become a success story for developing new renewable generation.
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\6\ Pacific Northwest Electric Power Planning and Conservation Act,
16 U.S.C. Sec. 839d
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Commercial-scale wind development on the BPA system began in 1998
with a 25 megawatt (MW) project in eastern Oregon. Over the next
several years, development proceeded slowly, but steadily. By 2005,
there were 428 MW of installed wind capacity on the BPA system. During
the first phase of development, BPA purchased wind output to serve a
portion of our customers' load and helped nurture the growth of
regional wind development in several ways. In 2002, BPA recognized that
the then-current FERC standard penalty for generators who failed to
meet their hourly scheduled output was actually a significant barrier
to cost-effective wind generation. This penalty was originally
developed to provide an economic disincentive for dispatchable
generation to choose to go offline. BPA determined that the variable
nature of wind power generation resulted in an unwarranted penalty not
likely to have the desired effect of causing operators to schedule
generation more carefully and so decided to eliminate the penalty for
wind generators. This change was subsequently adopted by FERC as a
component of its Order 890 pro forma tariff.
In 2004, BPA developed a wind integration service that facilitated
the purchase of wind energy by our public power customers by using the
Federal hydroelectric system to offset the variations in wind power
output. At the time, with a total of 428 MW of wind in a 9,000-MW
control area, we did not experience large operational or cost issues
associated with integrating the variable output of wind into our
system.
By 2005, things began to change. That year, the Northwest Power and
Conservation Council (Council) released its 5thNorthwest Power Plan.
The 5th Power Plan called for up to 6,000 MW of wind development in the
Pacific Northwest over the next 20 years. Around the same time, many
utilities started aggressively marketing voluntary renewable energy
options to customers interested in reducing greenhouse gas emissions,
and several Northwest states enacted policies to encourage further the
development and use of renewable energy by electric utilities in the
region. Spurred by continued volatility in the power and natural gas
markets, wind development began to increase rapidly.
Since 2005, wind development has increased rapidly in the BPA
control area. Today, there are 1,425 MW of installed wind capacity
directly connected to our grid. Less than three weeks ago, we recorded
a new record single-hour wind output of 1,304 MW. That's a third again
as much energy as it takes to power the City of Seattle. Wind
development has proceeded so rapidly, in fact, that we have had to
develop a new rate to recover the costs of providing the balancing
services that are necessary to maintain reliability as generators'
output increases or decreases.
Wind is a valuable resource, but it has characteristics that create
an integration challenge from a cost and reliability perspective. Due
to its intermittent nature, only part of the wind generation can be
relied upon to meet peak electricity demand. Utilities must maintain
adequate generation at the ready to meet peak loads if wind generation
is unavailable. In addition, the output of wind generation can swing up
and down in very short periods of time. See Figure 1.* That means that
the generation to balance the wind fleets must be maintained to
safeguard system reliability.
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* Figures 1-2 have been retained in committee files.
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Much of the wind development on the BPA system has been
concentrated in one general region of our system--east of the Columbia
Gorge. This raised the concern that the natural variability and
uncertainty of wind generation, combined with its overall low capacity
value (--in other words, its tendency not to generate at times of peak
load)--would be exacerbated by highly concentrated geographical
development. With many of the wind projects clustered in one part of
our region, they would all tend to behave in the same general fashion,
creating potentially large swings in our system operation. This
potential presented itself at a time of declining flexibility of the
Federal hydro system because of growing non-power constraints, such as
the support of endangered salmon runs.
These issues of wind's geographic concentration, system capacity
needs, and system reliability created challenges for BPA about the
potential impacts of integrating large amounts of wind energy into the
Northwest power system. Other regional utilities shared our concern.
As a result, in August 2006, BPA and the Council co-sponsored a
regional initiative to develop a Northwest Wind Integration Action
Plan. Central to the effort was an attempt to examine the technical
feasibility of integrating substantial amounts of wind into the Pacific
Northwest electricity system. We assembled a Steering Committee drawn
from the leadership of 22 regional utility, regulatory, wind
development, and environmental organizations to guide the work of
technical specialists from across the region who were assigned to
address several key questions related to system operations,
transmission expansion, and regional collaboration.
The Northwest Wind Integration Action Plan was released in March
2007 with the unanimous endorsement of the regional Steering Committee.
The Action Plan concluded that the fundamental value of wind (and other
intermittent resources) was to produce energy on an as-available basis
to displace the output of dedicated, dispatchable firm resources such
as natural gas and coal plants that would be necessary to maintain
reliable electrical service. The Action Plan found no fundamental
technical barriers to integrating 6,000 MW of wind in the Northwest,
but did conclude that the costs of integration, per unit of wind, would
increase as more wind comes onto the system. As a result, the Action
Plan called for 16 specific actions to help the region meet its wind
energy objectives in the most cost-effective fashion possible. First of
all, the Action Plan called for greater collaboration among regional
utilities to expand the availability of integration services and to
spread the variability of wind energy across a broader generation base.
Secondly, the Plan recommended increasing the geographic diversity of
the region's wind resources through transmission construction and new
transmission products such as conditional firm service. The Plan also
encouraged the development of new flexibility and storage technologies
to help manage wind variability and shape the energy into periods of
peak demand. BPA and other regional organizations are now actively
implementing these recommendations.
In a sign of real progress, BPA is joining several of the region's
other utilities to participate in a cooperative effort to pool the
diversity in their system operations known as the Area Control Error
(ACE) Diversity Interchange Pilot Project. Experience gained from this
collaborative effort may lead to other strategies for sharing
flexibility resources among regional utilities and for helping dampen
the rate of growth in wind integration costs.
We believe that we have established a sound regional consensus for
the next steps to resolve technical challenges for effective
integration and transmission of renewable energy. We next face issues
of financing and building necessary transmission and managing the queue
of service requests. We expect another 1,500--2,000 MW of wind to come
online in the next two years, along with additional requests for
transmission capacity, and, with that, continued challenges. We are
committed to addressing these challenges head on.
Our immediate new initiative is known as the Network Open Season.
By 2006, the number of new wind projects seeking service on the BPA
transmission system had exploded to over 15,000 MW. While clearly some
of this was speculative development, it became readily apparent that
the prevailing method of planning and offering new transmission service
would be inadequate. Network Open Season marks a major change from
traditional practices associated with managing our transmission queue
and financing new lines.
Under the Network Open Season, we are making contractual offers of
transmission capacity to all of the entities seeking access on the BPA
transmission network via our transmission queue if they sign precedent
agreements committing them to take and pay for service at a specified
time and under specified terms. Those who sign the agreements will be
grouped into cluster studies to determine how much new transmission
capacity will be needed to meet all the requests. Under the agreements,
BPA has committed to provide the new transmission service if it can be
offered at our embedded cost rate and all relevant environmental siting
requirements can be met. BPA would secure the necessary funding, either
through Treasury borrowing or from third parties. Unlike prior business
models, the generation developers will not be asked for up-front
financing for the transmission. Those entities that do not accept BPA's
offer of new service by signing a transmission agreement will be
removed from the queue. Customers can reapply for service, as BPA has
committed to conduct a Network Open Season at least once a year.
The deadline for signing the first wave of these agreements was
yesterday, June 16. There has been a tremendous regional response to
our Network Open Season, and we are anticipating that a significant
number of customers, including many wind developers and utilities
seeking to purchase wind power, will have signed agreements allowing us
to move forward confidently. By aggregating demand of those ready to
take service, it is likely that BPA will then finance, using either
Treasury borrowing or third party financing, and construct those
transmission expansion projects that will be supported by the rates of
the future path users.
In order to better utilize our existing transmission assets, BPA
has developed a redispatch pilot that we are using to optimize
generation dispatch to relieve transmission congestion. Also, BPA will
offer a conditional firm transmission service product that will allow
more efficient use of existing transmission capacity. These new
techniques for managing congestion on BPA's transmission system will
help support a more geographically diversified wind fleet in the
Northwest.
A regional stakeholder Transmission Issues Policy Steering
Committee has guided the development of our Network Open Season and
congestion management efforts and we have been very pleased with the
level of support we have received regionally as well as nationally.
CONCERNS FROM THE ENERGY INDUSTRY PERSPECTIVE
The general theme of regional collaboration that guided the
development of the Northwest Wind Integration Action Plan and the
design of the Network Open Season has now emerged more broadly among
utilities in the Western United States.
In April, I joined the leaders of 15 Western electric utilities in
signing a letter to Western state governors, regulators and other key
policy makers to call for a collaborative approach to addressing the
challenges of integrating renewable electricity into utility
portfolios. The group began its letter by stressing the inescapable
fact that ``our western electric grid is fully interconnected, and
[that] changes in policy, resource additions and operations affect us
all.''
As the letter expressed, there is concern about the potential rate
and reliability impacts of evolving public policy, particularly in the
West. The group believes it is imperative to look at what can be done
to achieve the various energy and environmental policy mandates
implemented by our home states, while ensuring the reliability of our
interconnected power grid at a reasonable cost. The letter also
suggests some alternatives worthy of pursuit to help mitigate these
concerns.
The group identified key issues that should be considered for
meeting future energy needs in the lowest-cost, most reliable and
environmentally sustainable manner. In pertinent part, the key issues
identified by the group are:
Renewable resources, especially in the West, often are
located far from the urban centers that need the power and will
require new transmission lines to deliver them to market.
Coordination is needed among state, local and Federal agencies
to expedite the current planning, permitting and approval
process for building new electric transmission to provide
access to renewable and conventional resources while ensuring
grid reliability.
Some renewable resources, such as wind and solar, are not
available at certain times of the day--when the sun doesn't
shine or the wind doesn't blow. Changes are needed in our
transmission systems and the operation of conventional
generating resources to accommodate the inherent voltage and
frequency fluctuations of these intermittent renewable
resources. Future technology advances in controlled demand
response, electricity storage and better wind forecasting could
help address these challenges. In the interim, the group
believes that new natural gas--fired and other state-of-the-art
resources must be developed as a bridge to the new
technologies. They also believe this will require the
development of adequate natural gas infrastructure.
Maintaining the output and operating flexibility of existing
power sources is vital to managing rates, ensuring grid
reliability and adequate supply while utilities pursue
increased renewable energy.
Low carbon generation resources and optimal use of the
interconnected grid are major elements in the effort to address
climate change. Significant investment in the research and
development of low carbon generation resources and interactive
grid technologies is required to meet our policy objectives.
The industry leaders group reminded the policymakers that energy
efficiency is still the most economic resource and urged them to work
with us to maximize the benefits of energy efficiency, advanced
metering technologies and other demand-side programs for customers and
our electrical system. With this reminder, they pledged to continue to
work with the Western state leaders to resolve these issues.
POTENTIAL LONG-DISTANCE TRANSMISSION
It is important to remember that renewable electricity resources
differ from coal, natural gas and uranium in that they generally cannot
be transported, except by transmission wire. Solar energy must be
generated where the sun shines. Wind energy must be generated where the
wind blows. Geothermal energy exists where geothermal deposits exit. So
we first must look for renewable resources that are closest to
electricity load. Unfortunately, resource maps indicate that close-in
attractive opportunities are limited. Another way to look at this is
that large population centers generally have not developed where the
wind is blowing hard much of the time.
But renewable sites can still be economical even if they are at
some distance from load centers. For wind, there is an economic
advantage for generation at a site located where the wind blows
stronger and more continuously. In the Pacific Northwest, there are
significant differences in the quality of wind throughout the region
depending on the terrain and prevailing weather conditions. Since the
fuel is free, energy cost at the generator is far lower at the higher
quality sites.
Adding diversity to the resource mix can also improve the economics
of integrating wind into the power system. A map of existing and
proposed wind generating sites in the Pacific Northwest shows the high
concentration of currently planned development sites east of the
Columbia Gorge. Projects were clustered in this area initially because
that is where existing transmission lines are located. Also, it was the
highest quality wind that was close to load centers and the existing
generation--literally in the center of the BPA system. Unfortunately,
production in the Gorge is highly correlated--the projects ramp up and
down together as the wind picks up and abates. This limits the capacity
value relative to a more geographically diverse portfolio of wind
resources.
Sites that are at some distance from the Gorge would add value if
the wind regime is different. Projects in one area may be increasing
output while others fall off. Overall, the power system would see much
more constant production which would be better able to meet consumer
demands.
In addition, increasing the diversity of the renewable resource mix
reduces the up and down challenges of wind. Geothermal plants generate
at a near steady rate. Solar projects produce in a predictable manner
during daylight hours. And ocean energy, when it becomes economically
viable, is also fairly predictable throughout its daily cycle.
To take advantage of these opportunities, it may reduce costs and
enhance reliability to build transmission facilities to the more remote
regions of the Northwest or interregionally to capture their higher
value and diversity.
The western energy leaders group collectively funded a
reconnaissance study to consider the potential economic attractiveness
of new high-voltage electric transmission to transport renewable
electricity from renewables-rich zones to load centers. The fundamental
question the study addressed is whether the differential in cost per
kilowatt-hour produced from areas where the wind blows harder or the
sun shines brighter is enough to offset the cost of new transmission.
The study was intended to provide a ``coarse screen'' analysis and was
not meant to be dispositive about any particular project or whether to
move forward. Yet, it provides interesting and thought-provoking
insights.
It is unlikely that new transmission could be justified solely by
the benefit associated with wind generation alone because of the likely
low capacity factors. Other uses such as resource diversity sharing,
storage and shaping may be necessary to make the full benefits of
transmission investment cost-effective. There are a substantial number
of transmission projects under consideration in the West that will be
actively testing these assumptions underlying this initial, coarse
analysis. Key issues will be the differentials in renewable resource
costs across the West, the cost of new transmission, the availability
of financing, and financing costs.
CONCLUSION
To conclude, Mr. Chairman, legislative and regulatory policy in the
Western United States is creating an explosion of renewable resource
development. Bringing these renewable resources onto our utility
systems creates rate and reliability challenges. At BPA, we believe the
region has worked well together to understand the multiple issues;
develop analytical, technical, and financial tools to respond; and to
design processes to identify and site economically justifiable
transmission and generation. We are also expanding our scope to work
collaboratively with utilities across the West, but much work remains
to be done. I look forward to answering questions from the Committee.
The Chairman. We will include everyone's full remarks in
the record.
Mr. Kaul, go right ahead.
STATEMENT OF WILL KAUL, GREAT RIVER ENERGY, MAPLE GROVE, MN
Mr. Kaul. Thank you, Mr. Chairman, Senator Domenici and
Senator Johnson. It's a pleasure to be here today. My name is
Will Kaul.
I'm a Vice President at Great River Energy which is a large
generation and transmission cooperative with operations in
North Dakota, Minnesota and Wisconsin. I'm here today on behalf
of the CapX 2020 project as its Chairman and also on behalf of
the trade association called WIRES as its President. I'll get
back to WIRES in a minute.
CapX 2020 is a collaboration of ten utilities in Minnesota,
in the Eastern Dakotas and Western Wisconsin who, which was
formed in the year 2004 in recognition of the need for some
major grid expansion. We are a joint ownership initiative
including cooperatives, municipals and investors in utilities
jointly planning, financing and owning new transmission
facilities. We took a two prong approach in our initiative.
One was to develop a long range, comprehensive, coordinated
plan for grid expansion out to the year 2020. The other was to
address certain regulatory issues that we felt needed to be
addressed in order for us to achieve that vision. We have
accomplished both of those things including going to our State
legislature and getting some cost recovery issues and others
things addressed by our State legislature.
I'm happy to report today that our first group of projects
is now moving through the regulatory process in Minnesota. We
have about 700 miles of primarily 345 kV projects. $1.7 billion
of investment, now moving through the process with the support
of all of major stakeholders.
That includes the Minnesota Department--or Minnesota Office
of Energy Security. It includes a broad coalition of
environmental groups. It also includes the Midwest ISO.
In the year 2007 the Minnesota legislature passed a law
requiring 25 percent of all energy produced by utilities be
renewable by the year 2025. That required our planners to go
back. Make some major adjustments in our plans.
They now are in the process of developing another set of
projects similar in size and scope to the first group of
projects. So that by the year 2016 we expect to have over $3
billion of new transmission infrastructure in service. So far,
so good.
We're now looking beyond that timeframe. We realize that we
need to bridge beyond the time of 2016 out to the year 2025. We
also realize that we need to bridge beyond the geography of
Minnesota. We see that effort is going to require an
extraordinary level of cooperation among many people among the
utilities, among the various State regulators in numerous
states, with wind developers and with others.
The CapX effort has been very successful so far. But it's
been successful because of a number of reasons. We've had very
favorable situation we're dealing with.
We have a clear State energy policy. We have a group of
utilities that are used to working with each other. We have an
opportunity for great economic development benefits from the
wind generation. We have the support of the environmental
groups, etc, etc.
When you expand beyond the boundaries of Minnesota and go
into the MISO market then you add many, many other political
jurisdictions, different kinds of energy policies, different
ways of recovering costs, some very significant challenges
there. There are a number of efforts that are going on right
now to address some of those issues.
First and foremost I would say the Midwest ISO, which
operates an organized market in our area, has brought together
the planners of the utilities of the region. We're developing a
plan for meeting the renewable energy requirements of all the
states within MISO. So instead of a 6,000 mega watt market that
we need just for Minnesota, we're talking about 15,000 or more
megawatts in the entire MISO market.
So they are convening a group. They're also working to
develop a plan. They're also working on tariff design which is
critical. Cost recovery is critical for every project of this
scale.
Also, going on at MISO is a study with the PJM market, the
Tennessee Valley Authority and also the Southwest Power Pool to
look at inter regional transmission needs for a 20 percent
renewable energy requirement for the Eastern Interconnect,
another very important study.
Another parallel effort that's going on is the Midwest
Governors' Association. They had a summit this last fall with a
very aggressive renewable energy platform. They recognized
transmission is a critical strategy for achieving that goal.
Working groups now are working on transcending all of the
issues from State to State.
Finally CapX itself is looking at its own business model
recognizing the need to expand its partnership beyond the ten
utilities that are currently involved and involve American
Transmission Company in Wisconsin, ITC in Southern Minnesota
and Iowa, Basin Electric and WAPA out West. We are looking at
how we can partner and plan with those other utilities.
So that's a quick discussion of what CapX is doing. I
wanted to mention the WIRES organization. It's a coalition of
transmission owners and transmission customers, independent
system operators and others. That it's trying to elevate the
profile of transmission in the energy policy debate.
Se've done a couple of projects I wanted to make you aware
of. One is we did a major piece last year on cost recovery. It
outlines principles for cost recovery. We have a blue ribbon
panel that we empanelled to do this with national and
international experts in economics, engineering and public
policy.
Also a very germane to this hearing we also are doing a
study on clean energy corridors. We're looking at the proposal
of Senator Reid and also proposals in Colorado, California and
Texas. We're trying to look at them to see what can be learned
from those practices and what the best practices might be.
Thank you, Senator. I appreciate your attention.
[The prepared statement of Mr. Kaul follows:]
Prepared Statement of Will Kaul, Great River Energy, Maple Grove, MN
Mr. Chairman, members of the Committee, my name is William Kaul. I
serve as the transmission vice president at Great River Energy, a
generation and transmission cooperative located in Maple Grove,
Minnesota with operations in North Dakota, Minnesota and Wisconsin. I
am a founder and chairman of CapX 2020, a collaboration of 10 utilities
including Xcel Energy, Minnesota Power, Otter Tail Power, Missouri
River Energy Services, Southern Minnesota Municipal Power Agency,
Central Minnesota Municipal Power Agency, Wisconsin Public Power
Incorporated, Dairyland Power Cooperative and the Rochester Public
Utilities. I am also the president of WIRES, a national coalition of
transmission providers and customers. Today I will talk about the work
of both CapX 2020 and WIRES aimed at the necessary expansion of
electric transmission infrastructure.
CapX 2020 collaboration.--CapX 2020 was formed in 2004 in
recognition of the need for a coordinated vision for grid expansion in
the greater Minnesota area. CapX 2020 is a ``joint ownership''
initiative that involves cooperative, investor-owned and municipal
utilities in the planning, financing and ownership of new transmission.
A package of materials further describing CapX 2020 and its proposed
projects is included with this testimony.*
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* Additional materials have been retained in committee files.
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CapX 2020 took a two-pronged approach to planning and implementing
a vision for grid expansion by: 1) establishing a coordinated and
comprehensive planning process, a ``vision study'', for grid expansion
in our collective service territories, and 2) seeking a workable
regulatory environment that will enable that vision to be realized.
Vision study.--CapX 2020 set a planning horizon of 15 years,
projected load growth during that period and ran scenario analyses of
different generation mixes, assuming a 10% renewable energy component.
The result was a conceptual plan, a vision for grid expansion, with
transmission line projects prioritized in groups.
Regulatory environment.--Regulatory reforms were needed to reduce
project risks, ensure cost recovery and make the permitting process
more predictable and efficient. We collaborated with stakeholder groups
including regulators, environmental groups and others on a legislative
initiative that resulted in formula rates for the investor-owned
utilities, ensuring predictable revenue recovery and cash flow,
streamlined permitting of need and siting, recognition of transmission
as regional infrastructure and the ability to transfer assets into a
transmission-only company if deemed in the public interest by the
Minnesota Public Utilities Commission.
Group 1 project status.--CapX 2020 Group 1 projects are currently
pending state regulatory review and approval. Group 1 projects include
four transmission lines, three at 345 kilovolts (kV) and one at 230 kV,
totaling 700 miles in length and projected to cost $1.7 billion. The
345 kV projects have been grouped into a single certificate of need
filing and are supported by all major stakeholders, including the
Minnesota Office of Energy Security, the environmental coalition and
the Midwest ISO. With this support, the environmental coalition and the
Office of Energy Security are recommending these 345 kV projects either
be upgraded to a higher capacity or built to support future double
circuit capability. The 230 kV project has no interveners in its
certificate of need filing.
Minnesota Renewable Energy Standard and Group 2.--In 2007, the
Minnesota Legislature passed a law (MN RES) requiring all utilities to
generate at least 25% of their electricity from renewable sources by
the year 2025, with Xcel Energy required to meet a 30% requirement by
2020--25% in the portfolio needs to be sourced from wind power.
Included in the law is a requirement that utilities develop a
transmission plan enabling compliance with the MN RES. This
dramatically changed the planning assumptions from the original CapX
2020 Vision Study. CapX 2020 is now in the process of developing
another group of 345 kV projects similar in scope to Group 1 that are
intended to achieve renewable energy milestones through 2016. CapX 2020
expects to invest more than $3 billion in the first two groups of
projects by 2016.
Bridging beyond the 2016 timeframe and Minnesota's geography.--Our
planning horizon is now in the 2016 to 2025 timeframe. We realize that
the excellent wind resources located in the Upper Midwest can and
should be developed for a much broader market. While it is expected
that 6000 MW of wind will be developed just to meet the MN RES, the
market potential for Midwest states is much greater and we are now
shifting our focus beyond the greater Minnesota region.
As the demand for renewable energy in regional markets evolves, the
Upper Midwest states will develop renewable energy resources that will
need transmission for exporting renewable energy to distant markets.
Accomplishing that feat will require an extraordinary level of
cooperation among utilities, state regulators and legislators,
renewable energy developers and other stakeholders. While CapX 2020 has
been a very successful initiative, it was achieved under very favorable
circumstances: one primary political jurisdiction, a clear state energy
policy, an organized energy market and tariffs (MISO), the prospect of
significant economic development from wind generation and the support
of environmental groups. The challenges of developing major inter-
regional transmission infrastructure increase exponentially with
additional political jurisdictions, multiple transmission providers,
conflicting energy policies, differential economic benefits, etc.
New initiatives to address new challenges. Several parallel efforts
are underway to address these challenges:
1. Midwest ISO.--The Midwest ISO has begun an initiative, the
Regional Generation Outlet Study (RGO study), that brings
together planners from across the MISO footprint to develop an
expansion plan for renewable resources that meets the needs of
the MISO market. In addition, MISO is conducting a joint
planning effort with PJM, Tennessee Valley Authority and
Southwest Power Pool to evaluate needed transmission under a
20% wind energy mandate for the Eastern Interconnection.
2. Organization of MISO States.--This is a group of public
utility commissioners, one from each state within MISO, that is
closely monitoring the activities of MISO and utilities within
MISO. The attention of this group to grid expansion planning is
critical since it is the public utility commissions who certify
the need for new transmission projects, site the lines and rule
on cost recover at retail.
3. The Midwest Governor's Association.--The Midwest
Governor's Association held an environmental summit last fall.
Its stated objectives were to improve energy efficiencies,
deploy lower-carbon renewable and fossil fuels and implement
geologic CO2 storage and terrestrial carbon sequestrations. The
MGA identified the development of transmission for renewable
energy as a key strategy for goal achievement. The MGA has
working groups now addressing the carbon reduction and
transmission expansion issues.
4. CapX 2020 future strategy.--The CapX 2020 utilities are
developing a strategy on how to plan and partner with other
transmission developers in the region such as International
Transmission Company (ITC), American Transmission Company
(ATCo), Western Area Power Administration (WAPA), Basin
Electric Power Cooperative and others, with an objective to
develop needed transmission projects to maintain reliability
and satisfy the various renewable requirements within the
Midwest. Just last week, CapX 2020 convened a forum for
transmission system planners from these companies to initiate
broader regional transmission plans. CapX 2020 also is actively
participating in the MISO RGO study and the MGA working groups.
WIRES.--Working at a national level, CapX 2020 is a founding member
of WIRES, which was formed in 2006 and is the nation's only pure
transmission advocacy group. WIRES membership includes CapX 2020, ITC,
Trans-Elect, National Grid, ONCOR, Xcel Energy, FPL Energy, Quanta
Services and Northeast Utilities.
WIRES believes that policy issues must be addressed in order to
achieve necessary transmission expansion. In 2006, WIRES convened a
Blue Ribbon Panel on cost allocation consisting of nationally and
internationally recognized economists, engineers and public policy
experts. I am providing the Committee with copies of their report
submitted with my testimony. One of the critical barriers to
transmission expansion is cost allocation--and resolution is paramount
in order for large scale transmission grid expansion.
WIRES has just commissioned an additional study to evaluate various
proposals for integration of wind and remote clean energy resources
into the existing transmission grid. In addition to proposals
introduced as legislation in Congress, a number of states, including
Texas, California and Colorado have developed and implemented renewable
energy zone concepts and related transmission expansion and upgrade
policies. WIRES will examine these initiatives with an eye out for what
can be learned from the experience so far and to identify ``best
practices''. The study is scheduled to be completed this fall and WIRES
would be pleased to be able to share the results with the Committee.
On behalf of the CapX 2020 consortium, WIRES and Great River
Energy, thank you for inviting us to participate in this hearing. I
look forward to answering any questions you may have.
The Chairman. Thank you very much.
Mr. Furman, you're our wrap up witness today. So go right
ahead.
STATEMENT OF DONALD N. FURMAN, REPRESENTING AMERICAN WIND
ENERGY ASSOCIATION
Mr. Furman. Mr. Chairman and members of the committee,
thank you for the opportunity to appear today. My name is Don
Furman. I'm Senior Vice President for Iberdrola Renewables. We
are America's second largest developer and operator of wind
generation. So we're the ones who are making the investments
and trying to find our way through the transmission system to
get to the market.
I'm appearing today on behalf of the American Wind Energy
Association for whom I'm the President Elect and the Chair of
the Transmission Committee. Since I am batting clean up I'm
going to try to say a few things that hopefully you can
remember and not repeat.
First of all, talking about the DOE report. The thing that
comes out of the DOE report that's important to remember is
that wind energy and achieving the 20 percent goal is
absolutely feasible. We're here talking about the one thing
that the 20 percent--that the DOE report identified.
The Chairman. You're saying the 20 percent by which year?
Mr. Furman. 2030. I'm sorry, did I misspeak?
The Chairman. No, no. You didn't misstate it. I just wasn't
clear.
Mr. Furman. Now the DOE report I think was trying to, I
think the point of the DOE report was to identify what was
truly the art of the possible. The one issue that DOE raises
that is a significant issue and which we're here to talk about
today is the transmission system.
There have been a number of numbers thrown around today. I
believe Mr. Pickens was asked what the cost was for the system.
He was right on the total cost.
I want to add one other point though. That is I'm going to
quote Suedeen Kelly, Commissioner at the FERC who recently
noted that if we were to make the investment identified in the
DOE report it's about 50 cents per customer on the average
bill. It's not a big investment. It's not going to have a big
impact.
In fact transmission, typically those of us in the power
industry who look at transmission, it's a relatively small part
of the average bill. But it has big impacts. The investment
itself and the recovery of that investment is a small part of
the bill.
But it has big impacts on the overall bill because it
enhances reliability. It allows access to the least expensive
resources. It allows those inexpensive resources to be operated
the most. So it's a very, very good investment overall.
In fact the investment in the transmission system in this
country, it was pointed out earlier. Senator Bingaman, I think
in your opening remarks, you noted that we have lagged behind
investment in this part of our infrastructure. It affects
reliability. It affects our ability to operate the system at
lowest cost.
We need to do this anyway. Forget about renewables. We need
to invest in this transmission system anyway.
Renewables is a great additional reason to do it. It is, as
has been pointed out, it is an impediment. So why aren't the
investments happening.
The single biggest issue in making investments in this
country is the fact--it's not a lack of capital. It's not a
lack of investment incentives. We've tried that and it hasn't
really made that much of a difference.
It's the division of responsibilities between Federal and
State government. It's been eluded to several times. The
reality is most of the transmission investment in this is owned
and operated by investor owned utilities that are regulated at
the State level.
So that investment sits in State rate base and it is under
the control and the regulation of people like my colleague to
the right, Commissioner Hanson. Commissioner Hanson in his
comments, I thought, made some very courageous statements which
is this needs to be regionalized. We can't be making these
decisions on a State by State basis.
How we do that? There are a number of different ways we can
do it. But somehow we've got to have a decisionmaking process
that allows the differing State interests to be compromised in
the national interest. That's very, very critical.
I think it's time to start that dialog. You cannot expect a
State Commissioner, who is in some cases elected or at a
minimum, is at least appointed to be out comprising it, his or
her State's interest, when their job is to look after the
individual consumers of that State. You know, we have a lot of
Commissioners in this country who understand that, at the State
level who understand that. Yet it's too much to ask I think for
them to do that.
The third point I want to make is the importance of the
Federal power marketing agencies. This transmission investment
that is controlled by the Bonneville Power Administration, the
Western Power Administration, TBA and others is regionalized.
Those costs are recovered over a regional basis. The decisions
are made on a regional basis because those agencies cover those
broader areas.
They also have condemnation authority. They have the
ability to essentially socialize or peanut butter those costs.
Those, particularly Western Area Power Administration, the
Bonneville Power Administration are in the windy State areas.
So they're very, very critical. I do applaud Administrator
Wright. I sat Friday for about an hour signing transmission
contracts in his open season. I'm glad to hear that it was as
successful as it appears to have been.
So we are poised to change the electric system in ways that
benefit national security, consumers, the environment. It's
very important that we get creative. We step away from the old
way of doing business and find ways to make this investment
flow. The dollars are there. There's plenty of dollars
available to invest in the system.
That concludes my remarks. I'd be glad to answer any
questions. Thank you again for the opportunity.
[The prepared statement of Mr. Furman follows:]
Prepared Statement of Donald N. Furman, Representing American Wind
Energy Association
INTRODUCTION
Mr. Chairman and members of the Committee, thank you for the
opportunity to appear before you today and thank you for holding this
important hearing. My name is Donald N. Furman. I am Senior Vice
President of Business Development, Transmission and Policy for
Iberdrola Renewables, an energy company that, among other things, is
engaged in the development and operation of wind and solar electric
generating facilities. Iberdrola Renewables is the leading generator of
wind energy worldwide and is the second largest wind energy generator
in the United States. Assuming that Congress acts to further extend
renewable energy tax credits, Iberdrola Renewables plans to invest at
least $8 billion between now and 2010 in wind and solar energy projects
located in the United States. I am also appearing here today on behalf
of the American Wind Energy Association where I serve on the Board of
Directors and as Chairman of the Transmission Committee.\1\ In a prior
job, I ran the transmission business for a large, multistate utility in
the West. As a result, I have had the opportunity to view transmission
issues from the perspective of both a transmission developer/operator
and a transmission customer.
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\1\ Iberdrola Renewables is also represented on the Board of
Directors of the Solar Energy Industries Association, which shares many
of the same transmission-related concerns as the American Wind Energy
Association.
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The purpose of my testimony is to discuss the essential link
between a robust, properly functioning electric grid and the ability of
emerging renewable energy technologies, such as wind, solar, and
geothermal, to meet a substantial portion of the nation's demand for
electricity.
According to a report released last month by the Department of
Energy,\2\ wind power on its own could supply twenty percent of all the
electricity consumed in the United States by 2030.\3\ The benefits
would be enormous:
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\2\ ``20 Percent Wind Energy by 2030--Increasing Wind Energy's
Contribution to U.S. Electric Supply'' (``20 Percent Wind Energy
Report''), U.S. Department of Energy (May, 2008).
\3\ In addition, there are over 6,800 gigawatts of solar energy
resources that could, potentially, be tapped in seven southwestern
states alone. ``Analysis of Concentrating Solar Power Plant Siting
Opportunities: Discussion Paper for WGA Central Station Solar Working
Group'', M. Mahos, National Renewable Energy Laboratory, July, 2005 at
page 2.
Electric sector greenhouse gas emissions would be reduced by
25 percent;
The amount of natural gas required to generate electricity
would be cut by 50 percent and United States gas consumption
would be 11 percent lower overall--helping to limit our
reliance on energy imports and reducing consumer energy costs;
Because water is not required to operate wind farms, water
consumption would be reduced by 4 trillion gallons;
Approximately 500,000 new jobs would be created; and
Local tax revenues would rise by more than $1.5 billion.\4\
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\4\ Id. at pages 12-18.
The Department of Energy report analyzed the barriers that must be
addressed to reach the twenty percent target and concluded that two
distinct, but related, transmission barriers are critical. The first is
transmission infrastructure. Many of the best sites for the development
of renewable energy facilities are located in remote areas, some
distance from population centers where most electricity is consumed or
in places that the existing transmission grid does not reach. Without
sufficient levels of transmission capacity many good wind and other
renewable energy sites will not be developed. I would note that there
are a number of potential wind, solar and other renewable energy
projects in most of the states represented by members of this
Committee, including New Mexico, North Dakota, South Dakota, Oregon,
Washington, Colorado, Montana, Idaho and Wyoming, which are not being
developed today because of transmission constraints.
The second key barrier is power system operation with high levels
of variable resources, such as wind, given our current system of
balkanized electricity grids. The Department of Energy report concluded
that twenty percent wind is feasible if each of the three electric
grids--the Eastern Interconnect, the Western Interconnect and Texas--
operate more like single large power pools instead of the current
system of 140 independent balancing areas. This would also improve the
efficiency and reliability of the system.
Before discussing the policy options for addressing these
transmission barriers, I would like to emphasize that the lack of a
long-term stable policy structure has hampered the environment for
investments in new renewable energy facilities and the transmission to
connect them to the grid. With the renewable energy production tax
credit (``PTC'')\5\ currently scheduled to expire on December 31, 2008
and the current uncertain legislative environment, projects
representing thousands of megawatts of renewable energy expected to be
installed next year are now in question. The PTC, since its enactment,
has expired on three separate occasions and has never been extended for
longer than a three year period. The stop-start nature of the PTC has
impeded development of a domestic manufacturing base and has raised
significantly the capital cost of a wind power project.\6\ It is
important for Congress to extend the PTC as soon as possible for as
long as possible. Congress should also consider more stable long-term
policies, including the adoption of a national renewable portfolio
standard (``RPS''). We applaud Chairman Bingaman's leadership on this
issue and hope that Congress will adopt RPS legislation soon.
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\5\ 26 U.S.C. Sec. 45. The PTC is currently available for the
production of electricity from wind, geothermal, biomass, small
irrigation, landfill gas, trash combustion facilities and certain type
of hydropower facilities. Solar power facilities are eligible for an
investment tax credit, in lieu of the PTC, which is also scheduled to
expire on December 31, 2008. 26 U.S.C. Sec. 48.
\6\ ``Using the Federal Production Tax Credit to Build a Durable
Market for Wind Power in the United States'', Ryan Wiser, Mark
Bolinger, and Galen Barbose, Lawrence Berkeley National Laboratory
(November, 2007) at page 9.
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BACKGROUND
As a nation, we are facing a potentially serious transmission
crisis. Between the mid-1970's and the late-1990's investments in new
electric transmission capacity dropped from an average of $5.5 billion
per year to less than $3 billion per year (adjusted for inflation).\7\
Although transmission investments have risen in recent years, the
United States faces the prospect of not having sufficient transmission
infrastructure to meet the growing demand for electricity in a carbon-
constrained environment. According to Richard Sergel, the President and
CEO of the North American Electric Reliability Corporation (NERC):
``[T]he grid will be threatened unless we build the transmission
infrastructure that is necessary to support renewable resources like
wind, that will enable us to locate new clean coal facilities--or even
gas facilities . . . It doesn't matter if it's going to be the clean
coal plant or the nuclear plant or the wind project or the solar
project. The common denominator is that they are going to require
transmission to move it from where it is toward the load centers.''\8\
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\7\ ``20 Percent Wind Energy Report'' at page 94.
\8\ Statement of Richard Sergel, President and CEO of the North
American Electric Reliability Corporation, American Wind Energy
Association Press Conference (March 19, 2008).
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The lack of sufficient transmission capacity not only challenges
the ability of utilities to keep the lights on, it also increases the
price of electricity. Transmission congestion limits the ability of
utilities to access cheaper sources of generation that may be located
some distance away. Congestion also limits fuel diversity. If there is
not sufficient transmission capacity to access electricity generated at
remote locations, utilities will be forced to rely increasingly on
natural gas-fired electric generation facilities which are easier to
site closer to load centers. There are legitimate concerns that a
dramatic rise in the reliance on natural gas for electric generation
will further increase U.S. demand for energy imports and will increase
the pressure on gas prices.\9\
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\9\ ``20 Percent Wind Energy Report at pages 12-17.
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Although the level of investment that will be required for new
transmission facilities is substantial, the costs of doing nothing are
far greater, both in terms of reliability and overall electricity
prices. Transmission typically makes up less than ten percent of the
delivered cost of electricity.\10\ New transmission capacity typically
enables a utility to access lower cost generation--which makes up a
much larger portion of consumer electric costs\11\--and thereby the
transmission more than pays for itself. The Midwest Independent System
Operator (``MISO'') recently examined the costs and benefits of
developing 16,000 megawatts of wind energy on the MISO system and 5,000
miles of new 765 kv transmission lines to enable the transmission of
wind energy generated in North and South Dakota to the New York City
area. Even though the generation and transmission costs would amount to
approximately $13 billion, the study determined that, on a net basis,
consumers would save approximately $600 million per year because the
new transmission would enable utilities to acquire lower cost
electricity.\12\
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\10\ Energy Information Administration Annual Energy Outlook
(2005).
\11\ Ibid.
\12\ ``20 Percent Wind Energy Report'' at page 96.
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In the 1950's this country united to create the national interstate
highway system in order to address an increasingly antiquated
transportation system. I believe that a similar effort for interstate
transmission highways would bring substantial benefits, prevent
blackouts, and enable the nation to reduce its greenhouse gas emissions
and promote energy security through the use of domestic renewable
resources.
TRANSMISSION AND RENEWABLE ENERGY
As the attached map* demonstrates, the United States is blessed
with substantial wind resources. However, it also identifies the
challenge--significant transmission investments will be required to
access these remote resources. According to the Department of Energy,
an investment of $60 billion in new transmission capacity is needed
between now and 2030 to enable wind power to supply twenty percent of
our electricity.\13\ This would amount to approximately $3 billion per
year, a modest addition to the $8 billion that has been spent in recent
years on transmission infrastructure.\14\ This is a small price to pay
given the plethora of benefits that would result from reaching the
twenty percent target. Congress, federal and state regulators and
industry all need to work toward this goal.
---------------------------------------------------------------------------
* Map has been retained in committee files.
\13\ Id. at page 98.
\14\ Id. at 94.
---------------------------------------------------------------------------
The U.S. electric grid was not originally designed to be operated
on a large integrated basis. Instead, the grid was initially built
primarily to enable individual utilities to meet customer needs with
locally generated electricity. There was not much need to accommodate
transactions spanning several state borders or across regions.
Regulatory oversight was set up accordingly, at the state level, with
limited authority provided to the Federal Energy Regulatory Commission
(``FERC'').
The two main barriers to transmission development are cost
allocation and siting of transmission lines. Cost allocation is a
challenge because of the incentive to free ride. Many states,
utilities, and end users across a wide region and over a long time
period benefit from interstate transmission, and it is not in any of
their interests to pay for something that benefits so many others. With
jurisdiction largely at the state level, where state public utility
commissions (``PUCs'') generally permit cost recovery of only those
costs that provide direct benefits to that state's ratepayers, it is
difficult to gain approval for the recovery of costs associated with
interstate transmission. The situation with siting is similar. State
siting approvals are based on demonstrations of need where ``need'' is
defined as impacts within the state. Interstate lines that benefit a
region and the nation can be prevented from being built by individual
states. States may also fail to consider regional needs when approving
the location of specific transmission lines.
Moreover, utilities have little regulatory incentive to build
transmission facilities of the appropriate size. A 765 kv backbone
transmission facility can transmit much more electricity more
efficiently than a 345 kv line which might be of sufficient size for a
utility to serve its traditional customers. State regulators are
unlikely to permit utilities to recover the costs of these larger lines
which provide broader benefits.
FERC has limited jurisdiction and has been given little
encouragement by Congress to address regional and national objectives.
The Commission has no authority over utility decisions to build
transmission or, generally, over a utility's ability to recover
transmission investments. Even in areas where most transmission has
been placed into FERC-jurisdictional Regional Transmission
Organizations (``RTOs''), utility members of RTOs can change their
membership status to avoid assignment of costs. Moreover, FERC has been
too deferential to state wishes on cost allocation.
The Energy Policy Act of 2005 did provide FERC with limited siting
authority.\15\ However, given the tremendous controversy surrounding
the Commission's siting authority and the limited areas where FERC is
authorized to approve a transmission line, there is considerable
uncertainty whether this authority will yield significant new
transmission investments.
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\15\ Section 1221 of the Energy Policy Act of 2005 authorizes FERC
to consider the approval of a transmission line proposed to be located
in a National Interest Electric Transmission Corridor as designated by
the Department of Energy if state regulators fail to approve the line.
---------------------------------------------------------------------------
There are some innovative state-based solutions that should be
commended. Several states, including Texas, Minnesota, California and
Colorado are pro-actively planning to access renewable energy. In
addition, the Western Governors Association has initiated a four-phase
regional transmission development and cost-allocation strategy with the
intention of unlocking the region's vast supplies of wind, solar,
geothermal, biomass and wave power. The Midwest Governors Association
has also initiated a wide ranging process to promote regional
transmission for renewable energy. While these state-based efforts will
help, there are limitations to what they can accomplish. There is a
significant national interest in the proper development of the
transmission grid to access renewable energy resources that only
Congress can adequately address.
INTEGRATING VARIABLE RESOURCES
In addition to ensuring that there is sufficient transmission
capacity to access our country's enormous renewable energy resources,
it is equally important that the electric grid functions effectively.
Wind, solar and certain other resources generate power on a variable
basis. For instance, wind power fluctuates depending on the wind speed
where the wind project is located. Electric systems need to accommodate
this variability just as they accommodate constantly changing levels of
consumer demand. This is easier to do in regions served by RTOs because
generation and demand is balanced over a broad geographic region.\16\
Wind generation tends to be less variable the broader the region--the
wind may die-down in one area and pick up in another at the same time.
The breadth of RTO regions also provides greater access to conventional
sources of electric generation that can ramp up and ramp down to
address the variability of wind and certain other renewable resources.
---------------------------------------------------------------------------
\16\ ``Facilitating Wind Development: The Importance of Electric
Industry Structure'', B. Kirby and M. Milligan, National Renewable
Energy Laboratory (May, 2008).
---------------------------------------------------------------------------
I recognize that some regions have put RTO development on hold and
it is unlikely that new RTOs will be established in those regions any
time soon. In the absence of RTOs, utilities need to work together to
achieve some of the same benefits of reliability, efficiency, and
integration of non-dispatchable resources. These actions should include
the consolidation of balancing areas and the sharing of generation
across balancing areas to address variability issues.
TRANSMISSION POLICIES REQUIRED TO PROMOTE RENEWABLE ENERGY DEVELOPMENT
It is essential that Congress and the Federal government act to
help promote a more robust and effectively functioning electric grid,
if we are going to reap the full benefits associated with the nation's
renewable energy resources. As I have discussed, the current regulatory
structure is not well-suited to the challenges of the future. Unless
Congress makes it easier for utilities and other entities to build the
transmission necessary to access our renewable resources, consumers,
the economy and the environment will suffer. It is imperative that
Congress remove these barriers to help meet our national goals of
reducing greenhouse gas emissions, enhancing our national energy
security, providing consumers with reasonably-priced electricity and
growing the economy. More specifically, Congress should ensure that:
There are sufficient incentives to encourage investments in
the transmission facilities necessary to fully develop our
renewable resources;
The costs of new transmission facilities are fairly
allocated to take into account regional and national benefits,
including the development of renewable electric generation;
Utilities are able to recover the costs of reasonable
transmission investments;
States cannot unfairly inhibit the development of
transmission that will provide multi-state benefits;
U.S. power marketing agencies, the Department of Energy, and
FERC are encouraged to promote regional transmission
infrastructure and system operations in support of renewable
energy development; and
Legislation regulating greenhouse gas emissions recognizes
the contributions transmission can make to reducing emissions
in the electric generation sector.
I want to commend Senator Reid for his leadership in introducing S.
2076, the Clean Renewable Energy and Economic Development Act.\17\ This
legislation would establish national renewable energy zones, encourage
regional cost allocation for transmission built to serve renewable
generation, enable utilities building transmission in renewable energy
zones to recover their costs from ratepayers, and fund Federal utility
construction of transmission in renewable energy zones if private
entities fail to make their own investments. The Reid bill also would
require the Bonneville Power Administration (``BPA'') and the Western
Area Power Administration (``WAPA'') to use their transmission systems
to aid in the integration of wind and solar power. These are all
remedies that would prove extremely helpful.
---------------------------------------------------------------------------
\17\ Congressmen Jay Inslee and Earl Blumenauer have introduced a
similar bill--H.R. 4059, ``The Rural Clean Energy Superhighways Act''.
---------------------------------------------------------------------------
Senator Reid's legislation wisely recognizes that the Federal
utilities can play an important role in promoting the development of
renewable energy. BPA and WAPA, in particular, are two of the largest
transmission owners in the Western United States. Both serve regions
with substantial wind and solar resources. Both are able to build
transmission without some of the barriers faced by utilities subject to
state regulation. In particular, through its Open Season process, BPA
is helping utilities in the Pacific Northwest access renewable energy
and other remotely located electric generation by engaging in a program
designed to build additional transmission capacity. We encourage
Congress to provide similar authority to WAPA, to help promote the
development of renewable resources in North Dakota, South Dakota,
Colorado and other states served by WAPA.
Mr. Chairman, this concludes my prepared presentation. I am happy
to respond to any questions you and members of the Committee may have.
The Chairman. Thank you very much. Let me first turn to
Senator Domenici. He hasn't had a chance to ask any questions
that he might have.
Senator Domenici. First, Mr. Chairman I--and members of the
panel and those who were on the previous panel I know probably
have gone. But I want to state publicly my--that I feel very
badly that I was not here. But this place it's hard to be in
two places at once.
We had a meeting called by our Republican leader. I was
supposed to be there because the meeting is about something I
do around here. So I go and be a participant or go and don't go
and let a major issue go into somebody else's hands. So I
apologize. I'm sorry.
I just want to be brought to date from one of you in a very
simple way. When we have, when Senator Bingaman and I were
putting the big bill together 3 years ago, the one that took us
so long and everybody was pleased with the reform. We did have
an opportunity to address the impact that pipelines were
having.
We did provide a way to end up resolving disputes that we
unresolvable and the Federal level would take over and resolve
the issues. Is that not right? Didn't we do that in our bill?
Yes, the transmission corridors part of the national bill?
What does it do? What are the things we have to add to it to do
what you're talking about? Mr. Furman, could you talk about
that a minute?
Mr. Furman. Sure, Senator. The provisions of that bill
provide back up authority.
Senator Domenici. Right.
Mr. Furman. So in the case where there isn't investment
being made, the Federal Government essentially can step in and
provide that back up authority. Unfortunately, particularly in
the case of renewables, that authority has not been construed
to extend to essentially an extension cord into a renewable
energy zone. The back up authority has been construed to be
there to relieve congestion on the system.
Now you might argue that the lack of a line going from
North Dakota into Chicago is congestion because there is no
line there. But so far that's not the way it's been
interpreted. So and I think the other issue is, frankly, that
transmission lines are often controversial. I think there's
been a reluctance on the part of the government to invoke that
authority unless it's absolutely critical.
Senator Domenici. Let me just, without distinguishing any
of you, just ask you collectively. If we're having problems as
you described them here today. What are the recommendations
that you have made, just quickly, to fix them. Is there
anything we should be doing or somebody not doing their job or
why are we having the problems that we're having? Could anybody
give me a short summary so that I could get that before I leave
here today?
Mr. Hanson. I'm a regulator, so I'm probably not the one to
answer that. But I think at least from my own perspective as a
regulator it appears to me that there needs to be certainty in
the markets, that those who would invest in transmission need
to know that they are actually going to be able to pay for that
transmission that they invest in. Certainly there are, as was
pointed out by Mr. Furman, there are significant challenges
when we have a patchwork of laws across the United States and a
variety of positions taken by regulators.
There's significant challenges, I would think, to building
transmission when it takes longer to get regulatory authority
and siting authority to build that transmission than it does to
actually construct the transmission.
Senator Domenici. Anybody else want to comment?
Mr. Wright. Senator Domenici, I'll take a shot at that. I'm
Steve Wright from Bonneville Power Administration. Before you
came in I mentioned that we've spent the last year working on a
process to try to allow us to get support from developers that
will commit them to spend money to take transmission if we
build it. Based on the results that we got yesterday, it looks
really good. It looks like we're going to be potentially going
on and building some new transmission.
I think our biggest challenge going forward, candidly is
explaining to the public why it is we're going to need big, new
transmission lines that are going to go through some people's
dew sheds. We are going to struggle with that issue. We're
going to be on the cutting edge out there in terms of trying to
build some new transmission.
The more help we can get in terms of hearings like this,
explanation to the public about why it is that this create
value for the citizenry as a whole, how we are operating as a
Nation and not as a group set of individuals. That's going to
make the difference as to whether we're going to be successful
in building transmission.
Mr. Kaul. Senator, I would just say that I would agree with
both of these gentlemen to my right here. But also add that
there's a significant issue with respect to cost allocation and
cost recovery for new transmission. It makes the investments
risky for utilities and difficult to put together the financing
etcetera.
Mr. Furman. I would just add, Senator Domenici that I think
all three answers illustrate what the fundamental problem is.
Mr. Wright operates a system that crosses numerous states. He
has the ability to make investments in transmission and
allocate the costs across all the consumers in the Pacific
Northwest that benefit from them. That's at a good model.
Unfortunately that's the exception rather than the rule.
The rule tends to be more in Mr. Hanson's world which is where
you have investor owned utilities. They're vertically
integrated and so they're regulated at the retail level. If you
have the primary owners of the big transmission grids, they're
multi-State. So they need to somehow get their different states
to agree on a transmission investment.
For some of those states there may be a benefit in the form
of economic development, for example. The State of Wyoming has
been trying to get transmission built out of it for many, many
years, partly for economic development. On the other hand some
of the States that those lines would cross will then ask the
question well, what's in it for me and their State commissions
will say, well, I don't see the benefit.
So I think that that is a big part of the problem that
needs to be solved.
Senator Domenici. I want to, not having been here I want to
comment, Mr. Chairman, on Majority Leader Reid's observations
about the bill we're going to vote on this afternoon. That's a
very important bill to the industry that is involved in solar
and wind and two or three other of the alternative fuels
because it extends the tax credits that are very important.
As a Republican I want to state what we think the problem
is, No. 1, we have never voted for--we have voted for all of
the extensions. The last time we voted, we voted 88 to 8 to
extend them all. They were not paid for. Only when we agreed
that they would not need to be paid for did the vote of 88 to 8
occur.
That's the problem now. The House is insisting that for the
first time in order to continue these they must be paid for by
taxing other people. They have at least got off the idea of
taxing other energy sources. But just finding it in the tax
code revenues that would offset it is what they think is
important.
The Republicans have said we don't need any tax increases
for those extenders because we voted for them all already. This
is just an extension and they are all readily useable and will
readily develop economic--have economic positive results
immediately upon adoption. So for those who are waiting around,
we're in a deadlock.
The House says unless you put the taxes on we won't have
the bill. We say put them on like we've always had and you'll
get a bill. We also want to comment that the bill that's being
held up has three other things.
It has Davis-Bacon provisions in it. It has lawyer
contingency fund provisions in it. Third it has provisions that
provide for a $1.2 billion corridor or an electric train of
some sort in the city of New York.
We didn't vote for that ever before on a bill that extended
these credits. So we're not very anxious to vote for it now.
But there's plenty of reasons not to before we get to that.
Having said that, Senator Bingaman, I don't know what you
expected to get out of today's hearing. But it was certainly
something that turned out to be very, very important. A lot of
good information came forward.
Whenever you're trying to solve the problems that you bring
before us, it's obvious that there's polarization occurring all
over the place. We never want to get that quite involved. It's
the Federal Government.
But we did bite off a little bit in the Energy Policy Act
that had not ever been taken before by anyone. I was proud of
that. I wouldn't count us out if there's too many deadlocks out
there where people won't give and won't be reasonable and
states won't.
Who knows? The Senate might find a way to solve another
problem or two by making ourselves felt in a real way. Thank
you, Mr. Chairman.
The Chairman. Thank you very much.
I just have one additional question I wanted to put to the
panel because Senator Johnson had to leave for another
appointment. He asked me to ask you, Commissioner Hanson, in
your testimony you explained how localized decisions on siting
electricity transmission lines may not always optimize
environmental and economic benefits of renewable energy
resources. He wanted you to explain or describe any specific
instances of projects where regulatory bottlenecks have
frustrated the development of electricity transmission
infrastructure and then what the consequences of those
bottlenecks have been on grid reliability?
Mr. Hanson. That's quite a question.
The Chairman. Yes. I thought it was a fairly all
encompassing question. If you have any response, we'd be glad
to hear it.
Mr. Hanson. Certainly. At the risk of starting a war
between the states is not my intention, by any means. But
certainly there are challenges when one State has certain
renewable portfolio standards, for instance and an adjoining
State does not or if the legislature passes certain laws which
cause a load serving entity to have to build capacity in a
particular State.
We have a challenge right now where we have sited a coal
plant in South Dakota, as an example. We're attempting to--they
are attempting rather to build the transmission for that
facility. The load is in Minnesota and there is a protracted
siting process in Minnesota that is making it very difficult
and making the construction of this plant to be rather
tentative.
It's an exciting opportunity with this plant in that, since
he asked for an example, in that, there's approximately 150
megawatts of excess capacity for that transmission line which
will be used for renewable energy. So when we're looking at--
it's also a twin plant to another coal plant adjacent to it.
They have agreed to a significant amount of investment to
reduce the emissions from both plants so that they will be less
than the one plant all by itself. So there's some real benefits
there.
However the plant has been approved through the siting
authority in South Dakota some time ago and it's taken 3 years
to go through the process. It's still in process in Minnesota.
So that would be an example.
There are other states that have basically limited what
type of power, what type of capacity is permitted to enter
their State and it creates some challenges.
The Chairman. Alright. We appreciate very much the good
testimony from all of you. We may have some additional
questions that we come to you with.
Thank you very much for being here. That will end our
hearing.
[Whereupon, at 11:58 a.m. the hearing was adjourned.]
[The following statement was received for the record.]
Statement of the American Public Power Association
APPA represents the interests of more than 2,000 publicly owned
electric utility systems across the country, serving approximately 45
million Americans. APPA member utilities include state public power
agencies and municipal electric utilities that serve some of the
nation's largest cities. However, the vast majority of these publicly-
owned electric utilities serve small and medium-sized communities in 49
states, all but Hawai'i. In fact, 70 percent of our members are located
in cities with populations of 10,000 people or less.
Public power systems' primary purpose is to provide reliable,
efficient service to their local customers at the lowest possible cost.
Like hospitals, public schools, police and fire departments, and
publicly owned water and waste water utilities, public power systems
are locally created governmental institutions that address a basic
community need: they operate to provide an essential public service,
reliably and efficiently, at a reasonable, not-for-profit price.
The vast majority of APPA's members are ``transmission dependent,''
meaning that they must pay for access to the bulk transmission system
in order to acquire electricity from power plants for distribution.
However, a small number of public power systems own a significant
amount of bulk transmission--including Los Angeles Department of Water
and Power (LADWP) and Nebraska Public Power District, among others.
TRANSMISSION INVESTMENT NEEDED
It is widely recognized that our current transmission system is
insufficient and highly constrained. The weaknesses of the grid not
only threaten reliability, they undermine the ability of all types of
generation, including renewable generation, to get constructed.
Transmission improvements increase the overall efficiency and
reliability of the system. While improvements could increase the
transmission rate paid by an end-user, the same end-user would benefit
from increased reliability. Since generation and transmission are
linked, the end-user could also benefit from lower-priced generation
that would be available with additional transmission access.
Historically, the challenges to improving the grid have been
obtaining rights-of-way, environmental concerns about where the
transmission lines are sited, and state siting procedures. While these
challenges still exist for the most part, one major positive
development has occurred in recent years--the enactment of federal
``back-stop'' siting authority for transmission lines. This authority
was granted in the Energy Policy Act of 2005 (EPAct05) in Section 1221,
and sets up a process whereby: 1) the Department of Energy designates
certain corridors where transmission is highly congested; 2) the
Federal Energy Regulatory Commission (FERC) can employ federal eminent
domain authority for siting transmission lines if, after a certain
period, FERC has found that either state agencies and state compacts
have failed to act in exercising their own siting authorities, a state
does not have the authority to approve the siting of facilities or to
consider the interstate benefits, or the permit applicant is a
transmitting utility that does not serve end-use customers in the state
of the proposed project; and 3) FERC must take certain issues into
consideration when using its siting authority, including that the
proposed facilities will: significantly reduce transmission congestion
in interstate commerce; protect or benefit consumers; and enhance
energy independence. The proposed construction or modification must
also be consistent with sound national energy policy.
The mechanics of the siting authority established in EPAct05 have
only been finalized in recent months and the first request from a
transmission owner for FERC to employ this authority was filed only in
the last couple of weeks. APPA believes that the thoughtful use of
FERC's authority in this area will improve the bulk transmission grid
over time. We have been disheartened that some in Congress have sought
to repeal this authority, but are encouraged that they have not been
successful to date.
JOINT OWNERSHIP WOULD IMPROVE TRANSMISSION INVESTMENT
Encouraging proportional joint ownership of transmission facilities
by those load-serving entities, like public power utilities, providing
service in a given region is another way to get more transmission
built. If the responsibility for building and owning the transmission
grid is spread more broadly among entities serving loads (i.e. demand)
in a region, then joint transmission planning will be facilitated,
simply because there are more participants at the planning table. If
network customers of a dominant regional transmission provider are
encouraged to buy in to their load ratio share of the transmission
system, transmission usage and ownership will be more closely aligned,
and the frictions between transmission-dependent utilities and
transmission owners can be reduced.
Public power utilities have participated in jointly-owned
transmission arrangements for many years. One model of joint ownership
that has worked for public power is investment in a transmission-only
company. A second model is ownership in a shared system. There are two
transmission-only companies that are partially owned by public power
utilities. These are the American Transmission Company in Wisconsin and
the Vermont Electric Power Company. In shared or joint transmission
systems, two or more load-serving utilities combine their transmission
facilities into a single system. Examples of public power participation
in shared transmission systems are found in Indiana, Georgia,
Minnesota, and the upper Midwest region.
One impediment to expansion of joint ownership is the ``private
use'' restriction imposed on tax-exempt financing that is discussed in
more detail below. While other types of financing mechanisms are used
where private use restrictions apply, this situation is not ideal from
a parity standpoint with investor-owned utilities that have federal
financial incentives at their disposal for building new transmission.
REGIONAL PLANNING IS ESSENTIAL
Transmission improvements will be made where there is the greatest
benefit to the regional system as a whole. Because of the physical
properties of electricity, an improvement at one point in the regional
system can increase the efficiency in a different part of the region.
Historically, utilities have made transmission-building decisions based
on where the greatest benefits would occur, and these decisions
typically have been made in consultation with other regional utilities.
This is doubly true because of the political and policy barriers to
transmission siting delineated above. Successful regional planning has
occurred throughout the country as several of the witnesses at this
hearing have shown, but not at the pace or volume necessary to meet
demand for electricity while maintaining high reliability.
Regional planning and support from a broad array of stakeholders is
equally important to siting transmission to renewable facilities as it
is to traditional base load power plants. The major difference between
base load power plants and some renewable generation facilities is that
often renewable plants, like wind projects, for example, must be sited
remotely from population centers because that is where the wind blows,
etc. So, an added challenge to siting transmission lines to most
renewable facilities is the length of the lines and the remoteness of
the locations. Public power systems, like LADWP, have taken a lead role
in promoting transmission projects to renewable facilities. Two LADWP
transmission projects are in the planning phases that will enable
southern California to access thousands of megawatts of new renewable
generation capacity. One of these projects is a joint ownership
arrangement as noted below:
(1) Barren Ridge Renewable Transmission Project: This project
consists of construction of new 60 mile double-circuit 230 kV
from a newly constructed Barren Ridge substation to a proposed
new substation called Haskell. The project also includes
reconductoring existing 230 kV line. This project will allow
access to over 1200 MW of wind and solar generation resources
in the Tehachapi and the high desert by Mohave. The project is
in the environmental and permitting process and the first phase
of the project is expected in 2012.
(2) Green Path North Project: This project consists of the
development of an approximately 100 mile high voltage
transmission line for the Coachella Valley area to the Hesperia
area in Southern California. The transmission system will be
interconnected to the Imperial Irrigation District (a public
power system), LADWP, and Southern California Edison (an
investor-owned utility). The purpose of the project is to
provide access to the vast geothermal and solar resource
potentials in the Imperial Valley. Development work including
preliminary engineering and environmental studies are underway.
Depending on various factors, the project is expected to be in-
service by 2013.
concerns with federal mandates to build renewable transmission lines
Until most non-hydropower renewable energy can be used reliably at
anytime (as opposed to intermittently when the wind blows or the sun
shines), base load generating plants like those powered by large-scale
hydropower, natural gas, nuclear energy, and coal must be used to
produce electricity and to ``firm up'' the renewable resource. With
that in mind, legislative initiatives that would mandate 75 percent
renewable usage for a given bulk transmission line are not feasible
from a reliability standpoint. Furthermore, once these lines
interconnect to the rest of the grid, such a requirement would be
extremely hard to determine. The laws of physics are such that
electrons will flow where they will, and new high voltage additions
could well change transmission system configurations substantially,
causing changed power flows--some of which would be non-renewable--that
even the engineers did not anticipate in advance.
In addition, the variability of generation availability and
transmission assets from region to region dictates the need for
regional, rather than national, solutions. Even the federal back-stop
siting authority that APPA strongly supports envisions extensive state
and regional planning before the federal government has a role. And,
many of the witnesses at the hearing, including Steve Wright of
Bonneville Power Administration (BPA), Rich Halvey of the Western
Governors Association, and Bryce Freeman of the Wyoming Infrastructure
Authority, have provided excellent examples of significant actions to
access renewable energy at the state and regional levels. APPA members
have participated in and will continue to participate in the types of
initiatives discussed by these witnesses as well as others initiated by
public power entities like LADWP.
We have strong concerns about congressional mandates to build
transmission to certain types of generation sources when the focus
should instead be on getting transmission built, period. We are
especially concerned about mandates on the federal transmitting
entities, like BPA, the Western Area Power Administration, and the
Southwestern Power Administration, as their 70 year mission and
contractual obligation to their customers is to market federal
hydropower--a mission that is difficult enough to perform on its own.
LIMITS ON THE USE OF TAX-EXEMPT FINANCING
Traditionally, our federalist system of government has respected
the right of state and local governments to pursue activities that are
in the public interest and the interest of the citizens they serve.
Congress has promoted and protected the right of government to issue
municipal bonds for ``government owned and operated projects and
activities.'' Public power systems are just that--government-owned and
-operated systems similar to other local infrastructure projects such
as water systems, prisons, hospitals, and transportation lines.
While outside the scope of this committee's jurisdiction, we
believe and want to emphasize that Congress should continue to
recognize that a basic tenet of the federal system of government is the
constitutional doctrine of reciprocal immunity, under which the federal
government cannot tax the interest on obligations issued by state and
local governments for public purposes and state and local governments
cannot tax the interest on federal obligations.
In addition to continued access to tax-exempt bonds to finance
electricity infrastructure, it is important that Congress provide
adequate flexibility in the ability of public power utilities to
partner with private entities in the financing and use of certain
facilities, as is discussed above. Congress has recognized this
necessary flexibility by allowing a certain amount of ``private use''
from output facilities financed with tax-exempt bonds. Prior to the
1986 Tax Reform Act, the limitation on private use was set at 25
percent for all governmental issuers. However, the 1986 legislation
reduced the amount of private use to 10 percent. In addition to the
reduction of the private use limitation from 25 percent, the federal
tax code also provides that for certain output facilities--public power
and public natural gas generation and transmission facilities--the
private use limit is the lesser of 10 percent or $15 million. Private
use restrictions limiting the benefits available to private entities
from publicly financed facilities are based on sound and appropriate
public policy considerations. However, the restrictions should apply
equally to all governmentally financed and operated facilities.
The special $15 million private-use limitation that applies only to
publicly owned electric and gas facilities is not supported by any
public policy justification. It may force local governments that
provide transmitting facilities to have their surplus capacity sit idle
rather than having it sold to others in order to avoid the private use
limitation. This provision should be repealed because it is
discriminatory and it encourages practices that are neither
environmentally nor economically sound. It also discourages an
expansion of the joint ownership model that has been so successful in
some regions, and could be used to improve the bulk transmission system
in others.
APPENDIX
Responses to Additional Questions
----------
Department of Energy,
Washington, DC, September 19, 2008.
Hon. Jeff Bingaman,
Chairman, Senate Energy & Natural Resources, U.S. Senate, Washington,
DC.
Dear Mr. Chairman: On June 17, 2008, Kevin Kolevar, Assistant
Secretary, Office of Electricity Delivery and Energy Reliability,
testified regarding examining the challenges and regional solutions to
developing transmission for renewable electricity resources.
Enclosed are the answers to 10 questions submitted by you, Senators
Domenici and Johnson to complete the hearing record.
Sincerely,
Lisa E. Epifani,
Assistant Secretary, Congressional and Intergovernmental Affairs.
[Enclosures.]
Responses to Questions From Senator Bingaman
Question 1. It strikes me that the most difficult issues that we
face in getting transmission built are those of siting and cost
allocation. Both are complicated by the fact that long-distance
transmission must be built through several states and so across several
jurisdictional boundaries. How do you envision a multi-state approach
to siting working, and what regulatory framework would be required to
sustain it?
Answer. Ideally, when an application to site a major multistate
line is filed with one or more States, a working group with
representation from all of the affected States, and Federal agencies
when federal lands are involved, would be convened. This group would
establish a common list of information requirements needed to evaluate
the proposed project, and to the extent possible agree upon a common
schedule for the parties' respective reviews. Thus, the reviews would
be done in parallel, on a coordinated schedule and working from a
common information base.
To date, no projects have been addressed in this way, largely
because no such projects have yet been formally proposed. This
voluntary process, however, appears quite relevant to some of the major
multistate projects now being discussed in both the West and in the
Midwest Independent System Operator area. If this process proves
effective, it could be replicated in other regions. DOE would also be
happy to work with the States in other regions to establish such
protocols now, before actual proposals are ready for review.
Question 2. Your zones are described as areas that contain the
resources. The purpose of cost allocation--who bears what share of the
cost--it would seem that the zones need to include the load centers
since it is the customers who are buying the electricity who ultimately
will pay for the transmission. How do you see resolution of this
problem working?
Answer. In most cases it is not yet clear which load center markets
would be served by which resources, and thus it would be difficult for
the Western Governors Association (WGA) to include load centers into
their Western Renewable Energy Zones (WREZs) at this point.
WGA's project does include later phases after the Phase 1 Renewable
Energy Zone Identification that will attempt to resolve some related
issues of transmission planning, which specifically addresses which
load centers would buy the WREZ electricity, and the allocation of
costs.
Cost allocation, however, is a responsibility of the Federal Energy
Regulatory Commission.
Responses to Questions From Senator Domenici
Question 1. Is the Department's ongoing effort with WGA on planning
limited to renewable generation resources? Could it be applicable to
other clean energy sources?
Answer. The current WGA effort on Western Renewable Energy Zones is
limited to renewable generation resources. However, it could be
applicable to other clean energy sources as well should the Steering
Committee choose to make it so. The Department has helped and is
currently helping WGA on a range of regional electricity planning
issues outside of the Western Renewable Energy Zones effort, concerning
both renewable and non-renewable, clean energy sources. Moreover, the
Steering Committee Charter for the WREZ initiative clearly states this
effort is to complement other work WGA is doing to advance clean energy
in the West.
Question 2. You testified that limiting planning efforts to only
the state infrastructure level decisions. Is there recognition at the
state level regarding the need for regional transmission planning? Are
some areas of the country moving forward with regional planning while
other areas are not?
Answer. I think there is broadening awareness of the need for
regional-scale transmission planning, among the States and across the
electricity industry. The Federal Energy Regulatory Commission's
requirement under Order 890 for regional-scale transmission planning is
prompting some of the awareness.
However, there are still two major hurdles at the State level in
regards to regional transmission planning. One is that the transmission
planners are often stymied by uncertainties about where the new
generation resources are likely to be located, so it is not clear where
the new transmission will be required. Regional groups of States need
to develop more coordinated concepts about what amounts of new
generation, using what resources, they would like to see developed
where--and with energy efficiency programs included in the process.
The second problem is that there are many ``seams'' problems at the
boundaries between Regional Transmission Organizations (RTOs),
Independent System Operators, and the areas that do not have centrally
organized markets. Many of the most significant transmission
constraints exist at these seams where differences in planning and
operational practices inhibit the development of effective solutions.
Seams issues have bedeviled the industry and its regulators for many
years. Although some progress has been made, the problems today seem
more severe because the industry is now seeking to move larger amounts
of energy across regional boundaries.
Question 3. DOE is to be commended for working with the WGA on this
collaborative regional effort. Clearly this Western Renewable Energy
Zones process is a multiyear undertaking. Will this project continue
with the change in Administration next year or will all this hard work
be lost?
Answer. DOE has worked productively with the WGA under several
Administrations. I see no reason why this effort will not continue.
Question 4. The Department recently formed the Electricity Advisory
Committee (EAC) and held its first meeting in May 2008. Will the EAC be
examining similar issues with regard to renewable energy generation and
transmission?
Answer. The Committee has undertaken an analysis of the major
issues associated with maintaining an adequate electric infrastructure
in the face of the multitude of new challenges such as siting
difficulties and likely carbon-constraints. I expect that key issues
pertaining to renewables and transmission will be addressed in their
report.
Question 5. Most of the hearing testimony emphasizes the benefits
of a collaborative regional process to address the critical need for
transmission infrastructure for a number of reasons, including
reliability and the need to transmit alternative energy sources. Mr.
Pickens, however, insists that these collaborative frameworks are--at
several years--too lengthy and that the country can't wait that long.
Do you agree with Mr. Pickens? Is there any way to expedite or
streamline these efforts?
Answer. Our existing institutions may function reasonably well if
there is a clear sense of urgency about the need for timely and
effective action. There is a much broader appreciation today of the
need for transmission additions than there was three years ago. A lot
of important work is being done on a regional basis today, and I hope
that in a few years we will find that we have made substantial
progress. If not, we may need to think about some institutional
changes.
Question 6. In general, is it advisable to mandate a transmission
line to carry only renewable resources? Given the capacity factor
issues, shouldn't the construction of facilities needed to deliver wind
also be available to deliver the back-up power and move other energy
when the wind is not blowing?
Answer. It would be technically difficult to implement such a
mandate--as this runs counter to the laws of physics that dictate how
AC transmission lines work--and it would also tend to erode one of the
principal benefits of transmission, which is to enable the most
efficient use of a region's entire generation fleet. Transmission
facilities are very long-lived assets. Once such facilities are in
place, it is difficult to anticipate how to use them to the region's
best advantage in the face of ongoing changes in fuel prices, patterns
of economic activity, natural disasters, and other events. A robust
transmission network makes the electricity infrastructure more flexible
and resilient in the face of such changes, and we need to enhance that
flexibility, not restrict it.
Responses to Questions From Senator Johnson
Question 1. Recently the state of South Dakota approved a large
generation resource and associated interstate transmission project. The
interstate transmission lines have been identified by the regional
transmission organization as the least cost alternative for
interconnection of the resource. The regional transmission organization
has also described the transmission grid in that area as ``severely
restricted.'' The transmission facilities will also support the
interconnection of renewable resources. In this case, the state of
Minnesota which has had the application to build these lines before it
for three years has not yet taken any action.
In instances such as these, where one state frustrates the
development and approval of transmission lines, what authorities does
the Department of Energy have to address these issues?
Answer. The Energy Policy Act of 2005 amended the Federal Power Act
to create a procedure that could be used if necessary to deal with
situations in which neighboring States are unable to agree on the
siting of a regionally beneficial transmission facility. The Act
directed DOE to publish an electric transmission congestion study every
three years, starting in August 2006; the Department is now making
plans for its 2009 Congestion Study. As amended, the Federal Power Act
further authorizes DOE to designate such areas as it considers
appropriate as ``national interest electric transmission corridors''
(National Corridors), based on its congestion study, comments received
from the States and other stakeholders, and other relevant information.
In turn, the Act also authorizes the Federal Energy Regulatory
Commission (FERC), in certain situations, to exercise jurisdiction to
site and issue permits for the construction of transmission facilities
that would ease transmission constraints within designated National
Corridors. At present, this area of the country is not identified as a
National Corridor. For that reason, the FERC has no authority to act
under the provisions of section 1221(a) of the Energy Policy Act of
2005. Should a future National Corridor be designated which covers this
area, FERC would have the authority to consider whether an application
for construction of such a line was in the national interest
irrespective of State (in)action.
Question 2. Recently the state of South Dakota approved a large
generation resource and associated interstate transmission project. The
interstate transmission lines have been identified by the regional
transmission organization as the least cost alternative for
interconnection of the resource. The regional transmission organization
has also described the transmission grid in that area as ``severely
restricted.'' The transmission facilities will also support the
interconnection of renewable resources. In this case, the state of
Minnesota which has had the application to build these lines before it
for three years has not yet taken any action.
What recommendations would you have for improving or expediting
federal approval for the siting and approval of interstate transmission
projects?
Answer. I recommend that the process established by the DOE to
implement the electricity title of the Energy Policy Act of 2005--a
process in place for less than a year--be allowed to work for a few
years before we consider making changes.
Using the authority provided by the Energy Policy Act, DOE
designated two National Corridors in October 2007, one in the Mid-
Atlantic--New York area, and one in Southern California also covering
some of Arizona. The intent of these designations was to underscore the
importance of addressing transmission congestion problems in these
areas, as opposed to prescribing the solutions. The States still have
primary responsibility for dealing effectively with these problems, but
if they do not do so, would-be transmission developers may request FERC
to exercise siting responsibility.
This arrangement gives the States strong incentives to work with
their neighbors to resolve transmission issues. At the same time, I
expect that DOE will continue to designate National Corridors where
they are needed to ensure that major transmission problems receive
appropriate attention.
______
Department of Energy,
Washington, DC, September 19, 2008.
Hon. Jeff Bingaman,
Chairman, Senate Energy & Natural Resources, U.S. Senate, Washington,
DC.
Dear Mr. Chairman: On June 17, 2008, Stephen J. Wright,
Administrator, Bonneville Power Administration, testified regarding
examining the challenges and regional solutions to developing
transmission for renewable electricity resources.
Enclosed are the answers to 11 questions submitted by Senators
Domenici and Smith to complete the hearing record.
Sincerely,
Lisa E. Epifani,
Assistant Secretary, Congressional and Intergovernmental Affairs.
[Enclosures.]
Responses to Questions From Senator Domenici
Question 1. BPA started adding wind resources to its system about a
decade ago. Initially, Bonneville was able to use the federal
hydropower system to shape the load but I understand that this is no
longer possible due to competing non-power demands on the hydropower
system. Please elaborate.
Answer. The Columbia River serves multiple purposes besides power
generation, including flood control, irrigation, and navigation as well
as fisheries mitigation and enhancement. These purposes have system
operation requirements that limit the optimization of river operations
for power generation.
The recent growth of wind generation in BPA's control area comes at
a time when the federal hydropower system is being further constrained
by storage and operation requirements to facilitate anadromous fish
migrations. Those requirements, established in response to the
Northwest Electric Power Planning and Conservation Act of 1980 and the
Endangered Species Act of 1973, prescribe periods of time when water
must be spilled, rather than run through dam turbines, and flow volume
requirements that must be met through seasonal reservoir storage.
These spill and storage operations have reduced the flexibility of
the hydropower system to meet peak demands and to follow load. As your
question points out, this was not as much of a concern when wind
generation began to be added to BPA's control area. Now, with 1,500 MW
of wind generation that can appear or disappear quickly, BPA's
hydropower system that operates at an average of 9,000 1 MW is
straining within the non-power constraints to fill in for the
intermittent wind.
We are continuing to actively seek solutions to this challenge that
facilitate the growth of the wind resource while keeping the cost of
integrating wind output with the rest of the generation system as low
as possible, and while also meeting system reliability and fish
protection requirements. Currently, the primary venue for this effort
is the Wind Integration Team which we committed to form and fund as
part of a recent rate case settlement.
Question 2. In general, is it advisable to mandate a transmission
line to carry only renewable resources? Given the capacity factor
issues, shouldn't the construction of facilities needed to deliver wind
also be available to deliver the back-up power and move other energy
when the wind is not blowing?
Answer. Limiting a transmission line to carry only renewable energy
would likely undermine the cost-effectiveness of construction. The
ability of a line to support a diversity of resources would improve its
capacity factor and its cost recovery and would also be consistent with
electric transmission open access policies.
Question 3. The intermittent nature of renewable resources like
wind present some challenges. How far off are future technological
advances, such as electricity storage and better wind forecasting,
which could help address some of these challenges?
Answer. Accurate wind forecasting is available today only over an
extended time period; for example, expected average output over a year.
Utilities operate from what is often called ``real time,'' which means
the actual operating hour that wind is occurring (the time domain of a
transmission operator or regional transmission organization) to next
hour and a day ahead (and longer) that is the time domain of the
generation side of a utility or Independent System Operator (ISO).
Accurate within the hour ``real time'' wind forecasts are not yet
commercially available. These forecasts are about being able to
anticipate sudden changes in wind generation. Large changes in wind
energy are difficult to predict but are important for effective
integration of wind operations and utility operations. The lack of
forecast capability, when the wind is currently generating, has led to
transmission operators increasing the amount of reserve generation.
This has increased the integration costs for wind to connect to the
grid to serve a contracted load. Several United States and European
wind forecast vendors are developing prototype systems to forecast wind
within the hour. Research supporting this development is being
sponsored by BPA, DOE, California, and the European Union.
Wind forecasts for the next operating hour and operating day are
improving. However, wind behavior is peculiar to regional geography
(coastal, central, mountain), global wind influences (trade winds, jet
stream), and terrain (river gorges, mountains, plains). An accurate
wind forecast system that may work well in the Midwest (for example)
may not work all that well if applied to California. Regardless, wind
forecasts a day ahead have become more accurate from what were
available several years ago. An important note--day in advance wind
forecasts are only able to forecast hourly average wind, which may have
little benefit to manage wind within the hour--the time domain of the
transmission operator.
Pumped storage (water) remains the storage leader for utility-scale
application. However, it has locational and environmental issues. BPA's
Office of Technology Innovation has a 2007 comprehensive study on
utility energy storage systems that may be the most up to date
assessment of utility scale energy storage systems. We have included it
as an attachment to our response (Attachment 1).
Prototype utility-scale energy storage devices are currently under
development and field testing. The broad application of energy storage
to support renewable intermittency has yet to be achieved. The
challenge is finding a technology that can fully charge and discharge
tens of megawatts several times in every 10 minute period to support
intermittency, and yet have sufficient life to recover costs and earn a
rate of return. Several utility-scale systems are currently in service
in the USA, but they are small and only economic when applied in
specific situations.
BPA's Technology Innovation Office, in partnership with DOE's
Office of electricity Delivery and Energy Reliability (OE), DOE
National Laboratories, and The state of California is in the second
year of a three year research effort to see if flywheel technology can
be scaled up to meet the wind integration demands. Several other
storage technologies are showing promise such as Sodium Sulfide (NaS)
batteries.
Further, DOE is developing an integrated energy storage program to
meet the evolving needs of the electric power grid through OE's Energy
Storage and Power Electronics program, in collaboration with the Office
of Science. OE currently supports several grid demonstrations of
various applications of energy storage, including compressed air,
super-capacitors, flywheels, and batteries.
Question 4. With the National Interest Electric Transmission
Corridor process established in EPAct 2005, Congress sought to address
the critical issue of transmission siting. However, at this time, these
provisions haven't been fully implemented and.no line as been sited
pursuant to EPAct. Nevertheless, the NIETC process has been
contentious.
I was surprised then to read some testimony--including that from
Mr. Pickens and Mr. Freeman with the WIA--that suggested these Energy
Policy Act authorities did not go far enough. Mr. Pickens goes so far
as to call on Congress to provide FERC with exclusive jurisdiction to
site new transmission for a renewable project. Please comment.
Answer. The currently designated National Interest Electric
Transmission Corridors are in other parts of the nation than the
Pacific Northwest. BPA has been able to site new transmission lines
successfully in this region, including recent major additions of 500-kV
capacity.
BPA's statutory authorities allow it to acquire interests in land
to site transmission lines, including the authority for eminent domain.
BPA has been able to site new transmission lines in the Pacific
Northwest working through public processes with federal, state, tribal
and local governments as well as private landowners. We have also been
able to construct transmission in sensitive environmental areas. For
example, we were able to construct new transmission reliability in the
City of Seattle's watershed, winning the support of the City Council
and environmental groups. BPA does not have a position on additional
transmission siting authority for FERC.
Question 5. BPA's Open Network Season was a tremendous success.
What are your next steps?
Answer. BPA was pleased by the customer response to its first
Network Open Season. By June 27, 27 customers had provided security
deposits for 153 Precedent Transmission Service Agreements (PTSA) for a
total of 6,410 megawatts (MW) of service. Most of those PTSAs were
associated with wind development.
Now that BPA has received the security payments, it will determine
what existing long-term firm capacity can be granted to the PTSAs and
begin the cluster study to evaluate transmission needs and facility
requirements where capacity is not available. Once the cluster study is
complete, then BPA will know what transmission facilities are needed to
meet the requests for service. BPA will use its financial model to
evaluate the results of the cluster study to determine the potential
rate impacts. BPA will need to complete all National Environmental
Policy Act requirements before starting new construction.
Responses to Questions From Senator Smith
JOE IMPLEMENTATION
Background
In 2000, Congress passed the Joint Operating Entity (JOE)
legislation (PL 106-273) which amended the Pacific Northwest Electric
Power Planning and Conservation Act. This 2000 Act requires the
Bonneville Power Administration (BPA) to sell preference power to a
qualifying JOE. The intent of the Congress was to establish a new type
of eligible preference customer, a JOE, which could aggregate its
members' contracts for the purchase of power from BPA into a single
contract. Congress wanted the JOE and its member utilities, which are
preference customers of BPA, to have the opportunity to join together
to meet their retail load power needs in a more efficient, cost-
effective manner. In BPA Administrator Judith Johansen's 3-29-00
response to Rep. John Dingell's 1-19-00 letter regarding the JOE
legislation, the Administrator stated ``(g)enerally, customers might
realize such benefits as reduction in administrative staff, reduction
in legal fees, combinations of operations and maintenance work, or
optimized use of the interconnected transmission and distribution
systems. Pooling would also provide the utilities with greater
opportunity to better manage the use of, addition to, or sales from
non-BPA resources than they could individually.'' Pooling of
geographically diverse loads and resources under one contract is one
mechanism for a JOE to optimize the use of the interconnected
transmission system; for example, sinking resources to its
geographically diverse load is one way to minimize transmission costs.
As the region moves forward with new long-term contracts, one
primary goal of the Regional Dialogue is to encourage utilities to
develop resources. ``Having willing utilities responsible for resource
acquisition decisions also enhances competition in the marketplace and
spreads risk.'' (Regional Dialogue Policy, page 6)
Question 1. How does BPA's Regional Dialogue process, including the
Tiered Rates Methodology and the new Regional Dialogue power contracts,
facilitate a JOE's ability to develop new power resources?
Answer. Ensuring adequate infrastructure development is one of our
primary goals in the Regional Dialogue contracts. In line with that
goal, we have focused intently on making it practical for our customers
to develop their own resources to meet their load growth. The new
Regional Dialogue contracts and Tiered Rate Methodology (TRM) will
facilitate a JOE's ability to develop new power resources in a number
of major ways. First and foremost, they will remove a barrier that
would otherwise be nearly insurmountable--BPA's past practice of
meeting customers' load growth at melded rates. When new resource costs
are far in excess of BPA melded rates, this practice makes resource
development by customers economically impractical. Second, BPA is
offering to provide at-cost services to back up and reshape the output
of customer-acquired resources, making it much easier and more
practicable for customers to add their own resources. Third, BPA has
agreed to pay for transmission of customers' new resources over third
party transmission systems. Fourth, BPA has committed to not use its
existing system resources to advantage its own sales of power for load
growth over customers' own resources. Fifth, BPA has taken steps to
give customers ample time to decide between adding their own resources
and buying from BPA to meet their load growth, so they are not rushed
into making a choice. Sixth, BPA will provide flexibility in how
customers schedule power from their own resources to their loads, in
order to reduce the delivered costs of those resources, so long as
these flexibilities do not create costs for other customers. These are
just some of the steps BPA is taking to facilitate resource development
by a JOE, and by other customers.
Question 2. The 2000 Act states that BPA 'shall' sell wholesale
power to a JOE. How is BPA implementing the various components of the
Regional Dialogue to ensure the statutory benefits of the JOE
legislation intended by Congress remain intact?
Answer. As a qualified customer of BPA, a JOE will continue to be
able to purchase an amount of power for its members' aggregated load
service from BPA, similar to how BPA currently sells power to PNGC
Power (PNGC), which is the only JOE with which we have a contract now.
We have invested substantial time and effort into minimizing the extent
to which Energy Northwest bond requirements constrain PNGC's future
purchase relationship with us, and believe that effort has been largely
successful. We are now in the midst of intensive efforts to work out
contractual and rate provisions as they apply to PNGC and other JOEs,
so it is premature to answer this question definitively, but we are
seeking to preserve the statutory benefits of JOE status under the new
contractual relationship and expect to be successful.
Question 3. Do BPA's Regional Dialogue scheduling policies advance
the goals of PL 106273 and the Regional Dialogue, regarding resource
development? And are they consistent with how BPA treats its own
resources, that is, in the most efficient and cost-effective manner
possible?
Answer. Yes, we believe the approach to resource scheduling in the
Regional Dialogue is consistent with PL 106-273 and the Regional
Dialogue. Specifically, BPA is offering scheduling services on behalf
of customers who add their own new resources, thereby removing one of
the primary potential barriers to customer resource addition. We have
also indicated to PNGC, that we will provide them scheduling
flexibility for their new resources, limited only by the need to ensure
that it does not impose costs on other BPA customers. We must also
ensure that the scheduling policies/provisions ensure that
implementation of the agreement is workable, though we do not expect
that to be a significant impediment. Given the importance you place on
this matter, we will highlight this issue in the contract negotiations
with PNGC and other customers, who could be impacted by the offering of
the services.
This treatment may not be entirely consistent with how BPA treats
its own Tier 2 resources because BPA must deliver those resources to
preference customer loads wherever they are located, and cannot
necessarily avoid incremental scheduling challenges across constrained
paths by netting new resources against existing load.
RESIDENTIAL EXCHANGE PROGRAM
BPA has drafted a proposal in which preference utilities will be
asked to give up their right to exchange power under the Residential
Exchange Program (REP) (established by section 5(c) of the Regional
Act), in order to sign new Regional Dialogue contracts. Without rights
to participate in the REP, the economics of new resource acquisition
and development by preference utilities is dependent on the continuing
existence of tiered rates during the term of the contract.
Question 1. What assurances can BPA give to those utilities that
sign Regional Dialogue contracts and forego their exchange rights that
there will be no melding of Tier 1 and Tier 2 costs during the contract
term (2028) and that there will be a transparent separation of Tier 1
and Tier 2 costs?
Answer. In the Tiered Rates Methodology BPA set forth a number of
principles that guide the allocation of costs. In particular,
Principles 2 and 3 provided as follows:
Tier 1 Costs will be kept separate and distinct from Tier 2
Costs. Tier 1 Costs will be recovered through the Tier 1 Rates.
Tier 2 Costs will not be recovered through the Tier 1 Rates
except when necessary to ensure BPA's cost recovery during the
Rate Period or to conform to court order.
Individual Tier 2 Cost Pools are to be kept separate from one
another; customers paying the cost of one Tier 2 Cost Pool will
not be responsible for paying the cost of another Tier 2 Cost
Pool.
BPA's intent in determining the costs included in individual Tier 2
Cost Pools is that the costs and cost of risk faced by each customer
that elects a particular Tier 2 Rate Alternative will reflect BPA's
incremental cost of serving the customer and will be comparable to the
types of costs and risks the customer would face if purchasing from a
non-Federal source.
These principles are being implemented through extensive provisions
in the TRM. BPA has expended extensive effort to give customers the
greatest possible assurance that these TRM provisions will be observed
for the full duration of the new contracts. Sections 12 and 13 of the
draft TRM are largely devoted to providing customers with protections
against changes in these TRM provisions over the 20-year life of the
contracts, as are related sections of the draft contracts.
While we believe these provisions provide substantial protection
against Tier 2 costs migrating to Tier 1, we always reserve the right
to collect otherwise unrecoverable costs in Tier 1. This is necessary
to assure that U.S. taxpayers are not burdened with inappropriate
costs.
Question 2. During the term of these contracts, does BPA plan to
combine the costs of new and existing resources, offer melded rates, or
allow other preference customers to exchange new resource costs with
BPA?
Answer. BPA does not plan on combining the costs of new and
existing Federal resources when it sets its power rates, except for an
identified and very limited amount of resources acquired to augment the
Federal system, as defined in the July 2007 Regional Dialogue Policy.
Beyond this limited augmentation, the costs of energy from Federal
resource acquisitions made after September 30, 2006, will be allocated
to particular Tier 2 cost pools and will not be added to the set of
Tier 1 System Resources.
BPA will provide Load Following customers with a limited
opportunity to select a Shared Rate Plan (SRP). Participants in this
plan will be subject to the same tiered rate structure as other
customers, but their bills will be averaged after charges are
calculated for each customer. BPA plans on limiting the participation
in the SRP to less than 10 percent of total preference sales.
Under the Regional Dialogue contracts, there is no provision that
would allow preference customers to exchange the costs of new non-
federal resources with BPA. Customers who wish to exchange the costs of
new resources will not have the opportunity to sign a Regional Dialogue
contract, and would not receive a high water mark. Such customers would
be offered a contract at some point in the future. The terms and
conditions of such alternative contracts have not been defined, in part
because of the expectation that all or virtually all customers will
sign the Regional Dialogue contracts.
Question 3. What options has BPA examined to allow preference
customers to retain exchange benefits?
Answer. BPA believes that the ability to exchange resources under
the Residential Exchange Program is incompatible with the concept of
tiered rates, and is likewise incompatible with the customers' strong
desire to keep the costs of the resources BPA acquires for service at
the Tier 2 rate out of the Tier 1 rate. In the Regional Dialogue Policy
BPA stated:
The cornerstone of the Regional Dialogue Policy is to limit
BPA's sales of firm power at the lowest cost-based rates to
approximately the firm capability of the existing Federal
system. Customers may purchase additional Federal power, but it
will be priced at a Tier 2 rate based on the marginal cost of
serving the additional load. The costs of power acquired to
serve load subject to a Tier 2 rate will be kept as low as
possible; however, BPA will not subsidize Tier 2 rates to
create a financial advantage over a non-Federal resource.
This goal of keeping the costs of new resources separate from
the costs of the existing system would be thwarted if
customers' higher-cost new acquisitions were to flow back to
the Tier 1 rate through the Residential Exchange Program.
______
Responses of Bryce Freeman to Questions From Senator Bingaman
Question 1. Do we need to change something in legislation to
accomplish what you think needs to be done about the federal backstop
siting authority? If so, what changes do we need to make?
Answer. No, we believe the 2005 Energy Policy Act provides
sufficient authority. However, in the West we believe it would be
appropriate for the Department of Energy to define congestion more
broadly than it currently does, for purposes of designating electric
transmission corridors of national interest. For example, DOE could
consider areas that are determined to be Western Renewable Energy Zones
and the transmission corridors that need expansion in order to deliver
these renewables to be corridors of national interest. There are many
other examples in the west where congestion would exist if new
generation was brought on to the system. This imminent congestion is
not adequately taken into account by the DOE under its current
practice.
Question 2. How is the process working to get siting permits in the
states that you are working with?
Answer. We are currently involved in TransWest Express, a project
that will require siting in Wyoming, Utah and Nevada. An application
has been filed and the Bureau of Land Management has been designated
the lead agency. We are very early in the process. At this point our
relationships with the regional land management agencies are excellent.
In addition, the three Governors have agreed to implement provisions of
a transmission siting protocol that was adopted by Western Governors;
this process will help to ensure close coordination among the state and
federal agencies.
Question 3. How are you allocating the costs for your projects? Is
it made easier by the fact that a state agency is involved?
Answer. First, the Wyoming Infrastructure Authority is an
instrumentality, not a state agency. In the projects we are involved
in, we are exploring business models that are alternative to the
traditional, vertically-integrated utility rate-base model. We are
hoping this innovation will help break through some of the cost
allocation barriers.
For example, the Wyoming Colorado Intertie is conceived as a
merchant line with capacity sold through a FERC sanctioned open season
auction. Costs of the line will be allocated through this process.
For the TransWest Express project, we are exploring the use of an
anchor tenant model, in which electric generation producers would
commit to capacity on at least some of the line's capacity during the
initial stages of development. Under this approach a significant
fraction of the costs would be allocated to these anchor tenant
customers. Additional capacity would likely be offered through an open
season, much like the Wyoming Colorado Intertie example above.
Question 4. Do your projects fit into a regional planning
framework? If so, how did that framework develop?
Answer. Yes. The regional planning blue print for our current
projects included a comprehensive plan that was sponsored by Governor
Freudenthal and then-Governor Leavitt in 2004--the Rocky Mountain Area
Transmission Study. Our projects are also included in WECC's ongoing
regional and sub-regional planning framework.
Responses of Bryce Freeman to Questions From Senator Domenici
Question 1. The WIA started its planning process back in 2004 and
already has underway a number of transmission projects. Is the WIA also
participating in the Western Renewable Energy Zone process spearheaded
by the Energy Department and the Western Governor's Association? If so,
how are you coordinating these two efforts?
Answer. Yes, we will actively participate in the Western Renewable
Energy Zone process. While this effort is just getting underway, we
anticipate that Wyoming's high quality wind resource will be identified
as a WREZ, and that the transmission projects we are developing, and
likely additional transmission needs beyond our current projects, will
be identified as transmission needed to facility the delivery of
Wyoming wind to load centers in the West.
Question 2. Is the WIA process focused solely on renewable
resources or are you also looking at alternative clean sources of
energy?
Answer. There is a significant effort in Wyoming to foster the
development of clean technologies that will utilize Wyoming's abundant
coal resource. The WIA is a part of this effort. In 2006, the State
Legislature expanded WIA's mission to include the promotion of advanced
coal electricity generation. The WIA formed a partnership with
PacifiCorp to explore the feasibility of locating a commercial-scale
integrated gasification combined cycle (IGCC) facility in Wyoming. As
part of this partnership we have been petitioning the Federal
Government to appropriate funds to implement Section 413 of the 2005
Energy Policy Act--which authorizes DOE to fund the development of a
western IGCC demonstration project at altitude, including the
capability to capture and sequester carbon dioxide emissions. For a
number of reasons, including lack of federal funds, this partnership
has been put on hold. WIA remains interested in pursuing alternative
clean sources of energy.
Question 3. You testified that FERC needs to allow experimental
business models like the WIA has done in embracing innovative
development tools, like open seasons and anchor tenant models. Please
explain how these tools work in practice. Also, in your opinion, why
hasn't the Commission been receptive to approving such models?
Answer. The open season process is a FERC-sanctioned business
model. See the answer to Senator Bingaman's question # 3 for a brief
description of how this tool works in practice.
Applying the anchor tenant model to a transmission project will
require approval from FERC. Since this model is used regularly in
pipeline regulation, and given some of the characteristics of the
TransWest Express Project, we are hopeful that FERC will be receptive
to approving the model.
Question 4. Most of the testimony today emphasizes the benefits of
a collaborative regional process to address the critical need for
transmission infrastructure for a number of reasons, including
reliability and the need to transmit alternative energy sources. Mr.
Pickens, however, insists that these collaborative frameworks are--at
several years--too lengthy and that the country simply can't wait that
long.
Do you agree with Mr. Pickens? Is there any way to expedite or
streamline these efforts?
Answer. The process for planning and developing a transmission line
is lengthy. For our projects, we have a sense of urgency as well as a
since of good coordination among federal and state agencies. Please see
my answer to Mr. Bingaman's question # 2 above. We do think the NIETC
process could be expanded, in conjunction with the pending WREZ
initiative.
Question 5. With the National Interest Electric Transmission
Corridor process established in EPAct 2005, Congress sought to address
the critical issue of transmission siting. However, at this time, these
provisions haven't been fully implemented and no line as been sited
pursuant to EPAct. Nevertheless, the NIETC process has been
contentious.
I was surprised then to read some testimony--including your
testimony and that from Mr. Pickens--that suggested these Energy Policy
Act authorities did not go far enough. Mr. Pickens goes so far as to
call on Congress to provide FERC with exclusive jurisdiction to site
new transmission for a renewable project. Please comment.
Answer. Please see my answer to Senator Bingaman's question # 1. We
believe the Energy Policy Act provides sufficient authority to DOE and
to FERC. Within this authority we would encourage DOE to take a broader
consideration of what it considers to be congestion. This could
contribute significantly to the WREZ initiative and other transmission
expansions in the west.
Question 6. In general, is it advisable to mandate a transmission
line to carry only renewable resources? Given the capacity factor
issues, shouldn't the construction of facilities needed to deliver wind
also be available to deliver the back-up power and move other energy
when the wind is not blowing?
Answer. No, we do not think it would be advisable to mandate a
transmission line to carry only renewable resources. We are currently
engaged in a transmission project development where a significant
portion of the line capacity could be allocated to parties wanting to
ship renewable power to markets. To the extent this includes
intermittent resources such as wind generation, there will be excess
transmission capacity that would be made available to the market place
on an open access basis. It is possible that in conjunction with the
development of wind generation in Wyoming, that back-up gas-fired
generation would develop to produce a more firm and reliable product.
It is also possible that this wind generation would be backed up by
existing gas-fired generation already owned by the load serving
entities that are buying the wind power.
______
Responses of Gary Hanson to Questions From Senator Bingaman
Question 1. You propose that the electricity system should be
planned and built for regional markets. What is the appropriate
regulatory framework to make decisions about a regional grid? Should it
be federal, or can there be some kind of regional authority composed of
state regulators?
Answer. It could be either. I simply have a bias against what I
believe would be a terribly complex and potentially cumbersome 'one
size fits all' federal bureau. Additionally, regional disagreements are
usually easier to work out than national, especially with the
integration of interstate transmission. However, federal laws would be
necessary to create the authorities for regionalization and the FERC
would be the most likely entity to oversee the regional authorities.
One of the challenges needed to be overcome is the patchwork of state
siting laws and authorities that create impediments to interstate
transmission projects. Except perhaps for the natural division between
the eastern and western grid, it is difficult to draw lines that
separate regions when addressing electricity flows other than RTOs. I
imagine the current map of RTOs/ISOs representing individual regional
footprints. However, none of these footprints can operate independently
and seams issues still need to be continually resolved.
Further, while there can be regional authorities, there will be
disputes such as siting and cost allocation issues of major
transmission lines between regions, and among states. There will be
policy issues with broad effects that will affect all regional entities
and those policy issues along with some of the disputes will have to be
resolved at the federal level.
The MISO region is large in terms of both area and affected states
and provinces. MISO is governed by a board and through stakeholders
comprised of groups representing, among others, service providers,
vendors, energy users, environmental groups and regulatory personnel.
The affected states have joined to form an oversight group, but this
group must petition the FERC if it disagrees with MISO policy.
MISO is primarily concerned with operating the transmission system,
including consideration of system expansion for both reliability and
economic purposes.
This framework could, and most likely should be used to accomplish
Congressional policy directives as we move toward expanding the role of
renewable energy sources. Still, that doesn't mean the regional entity
would have pervasive authority. There will be issues, as stated above,
that will require the FERC or DOE or possibly another federal agency's
decision-making in order to accomplish both regional and national
goals. I envision this process looking much like, or being added to the
functions performed by an RTO with Federal oversight.
Question 2. I think that your proposal that WAPA join the Midwest
ISO is an interesting one. Do you know why that has not happened? Is
there some problem in federal law that prevents it?
Answer. We know that both cost and operational barriers exist for
wind generation developers in WAPA's footprint who wish to sell into
the MISO market. No doubt WAPA could outline benefits it would achieve
with MISO membership. The reason this has not happened is very simple:
it is the negative cost/benefit accruing to WAPA and its existing
customers if it joins MISO.
WAPA serves a number of regions, including one which is primarily
North and South Dakota. Costs incurred in this region must be paid by
those in the region who use WAPA services. MISO membership also comes
with a cost. If WAPA joined MISO to support wind generation it would
unquestionably benefit wind generators. However, the costs of WAPA
membership in MISO under the present rate structure would have to be
paid by ND and SD WAPA customers. And the cost of membership is much
too high to be diluted by the potential new wind generators. The
existing customers would receive a benefit which is much less than the
additional cost of MISO membership. There is a fundamental problem when
the beneficiaries will be entrepreneurs and customers in markets
outside the ND/SD region, yet the bulk of the cost will fall upon those
who will likely benefit least. This is a challenge caused by license
plate pricing and pancaking of rates.
I am not aware of Federal laws preventing WAPA from joining MISO.
Responses of Gary Hanson to Questions From Senator Domenici
Question 1. Mr. Pickens suggests that Congressional siting
provisions in EPAct--namely the NIETC process--did not go far enough.
He suggests that we give FERC exclusive siting authority over renewable
projects. As a state regulator, what do you think of this suggestion?
Answer. States have local knowledge that would benefit any
transmission siting decision and that knowledge should be used. That
considered, there is no doubt siting and construction of interstate
lines face huge, if not insurmountable and time consuming barriers as
attempts are made to traverse multiple states. In some cases intrastate
lines may face huge barriers as well.
It seems fairly certain that state-by-state siting authority will
not yield any near-term results for rapid expansion of the transmission
system. Federal authority with state assistance appears to be a must if
we are to move forward in developing a robust interstate grid for
renewable energy. I also refer you to the answers to Senator Bingaman's
questions.
Question 2. I understand that South Dakota is having some problems
getting a transmission line through Minnesota for a clean coal project.
Please elaborate.
Answer. Otter Tail Power Company is the lead partner in a proposed
project to construct a base load generation plant to burn coal in a
supercritical boiler to produce electricity. This plant, Big Stone II,
is to be located adjacent to Big Stone I, both in South Dakota. The
site is within a few miles of the Minnesota border, and would need
either new or increased capacity of existing power lines to transport
the power to a load or to where it enters the regional grid. BS II
agreed to provide 850 MW of excess capacity on the transmission system
for renewable energy. The endpoints of Otter Tail's transmission line
construction are in Minnesota. Although, the plant received approval
after the proper hearing process from the South Dakota PUC in 2006, the
Minnesota commission has yet to approve the construction of the
transmission line. Additionally, this is not a lengthy transmission
line.
The Minnesota commission's process, which has initial hearings
before administrative law judges, has essentially re-reviewed our
proceedings twice. The first time the ALJ recommend approval. But after
delays caused costs to rise, the Big Stone II partnership make-up
changed and the plant was to be slightly smaller in capacity. Minnesota
used this change to review it again and the second time the ALJ's
recommended denial of the transmission line based on a second review of
the plant. The final decision of the commission is now on hold as the
commissioners could not reach a decision and one commissioner decided
additional information was necessary.
Question 3. In general, is it advisable to mandate a transmission
line to carry only renewable resources? Given the capacity factor
issues, shouldn't the construction of facilities needed to deliver wind
also be available to deliver the back-up power and move other energy
when the wind is not blowing?
Answer. Exactly, because of the capacity factor issue one should
not mandate renewable-only transmission. Also, the interwoven nature of
the grid and physics of electricity operate in such a way that
efficiency may be improved by allowing flows based on operating
circumstances and not by generation source.
The lowest per unit cost of transmission is achieved when the line
is used to capacity twenty-four hours a day. This is a 100% capacity
factor, and as one shrinks usage and lowers the capacity factor the
throughput is lowered and average cost per unit will be higher. Wind
generally achieves capacity factors well below 50% and any facility
dedicated solely to wind will come with a high transmission cost
component. With the cost of new energy capacity continually increasing,
it would be unwise to inflate those costs even further by specifying
renewable-only transmission.
Question 4. The intermittent nature of renewable resources like
wind present some challenges. How far off are future technological
advances, such as electricity storage and better wind forecasting,
which could help address some of these challenges?
Answer. Efficient and economical energy storage is an exciting
issue and could change the industry in terms of generation and
delivery, and would affect not only the traditional electricity
markets, but the transportation industry as well. Although significant
technological advances have been achieved, I know of no immediate or
even near-term resolution for economical storage.
Better wind forecasting, development of areas with better wind
regimes, and development of wind farms over larger areas aid greatly in
resolving reliability and grid integration issues. Nonetheless, wind is
intermittent and nondispatchable and will always need base load
generation or dependable and economical storage.
______
Responses of T. Boone Pickens to Questions From Senator Bingaman
Question 1. You state that renewable projects need the production
tax credit for long enough to get everything put into place to get a
project going. How long do you think the tax credit should be extended?
Answer. Based upon my experience, if you want to encourage large
scale projects like the Pampa project, the production tax credit needs
to be in place for at least eight years in order for a developer to
plan and complete development of a multi-gigawatt scale project. The
extension of the production tax credit needs to be long enough to
permit prudent people to plan and commit capital.
The production tax credit does not just affect wind project
developers, it also affects decisions by equipment suppliers to commit
the capital to open additional manufacturing facilities, and the
decision by makers of component parts to commit to manufacture
component parts for wind turbines in the United States rather than
forcing turbine manufacturers to buy parts from existing European and
Asian suppliers. Bringing these facilities to the United States
requires that businesses feel good about investing in manufacturing
facilities, and in hiring and training skilled workers. These
investments need a multi-year extension to justify investing the
capital. They cannot invest tens of millions of dollars to plants and
people that may not be needed in two years.
Question 2. Do you think that a federal renewable electricity
portfolio standard is a good idea?
Answer. I do believe that a federal renewable electricity portfolio
standard is a good idea. As I have previously indicated, the federal
government should view the energy crisis as a national priority that
affects our national security, and do everything possible to encourage
the development of renewable electricity generation as an alternative
to oil importation. As of May 8, 2008, there were 30 states with some
form of renewable portfolio standards according to the Department of
Energy website, including three states with voluntary standards. At
some point, it becomes important to have consistent national standards
and deep, liquid markets for renewable energy credits. A federal
standard would permit renewable projects to be located where they are
most efficient and provide the greatest economic benefit to the country
while the renewable electricity that they produce would benefit the
entire country.
Responses of T. Boone Pickens to Questions From Senator Domenici
Question 1. Under your proposed plan, natural gas would replace oil
as a transportation fuel, thus leading to a 38% decline in foreign oil
imports. Renewables, in turn, would replace natural gas as an
electricity source. As you know, currently approximately 3% of our
electricity is provided by renewable resources. How much of an increase
in renewable energy production would be ``meaningful'' for purposes for
your plan?
Answer. I believe that the United States can reasonably achieve a
goal of generating at least 22% of its electricity from wind and other
renewables as the Department of Energy has outlined in the study that
it released in April. The increase from 3% to 22% understates the
amount of additional renewable generation that would be required,
because the total amount of electricity that will be required by the
United States in the future will be greater than it is today. However,
this also means that you are not talking about putting existing
generation facilities out of business as much as you are talking about
building to meet new demand.
I also want to make clear that I favor using all of our resources
to reduce our dependency on foreign oil. My plan is not just about
wind, or even renewables, it is about using all of our available
domestic resources, including nuclear and clean coal, to save our
country.
Question 2. Your wind project certainly doesn't follow the norm--
there aren't many people who are able to undertake the construction of
their own transmission line. Your parallel project, the planned water
pipeline, along with your water district's eminent domain authority,
puts you in the unique position to deal with siting and permitting
issues. However, you still have to face the financing and cost recovery
issues. How are you planning to proceed on those issues or will you
self-finance the transmission line?
Answer. I have the ability to pay for the transmission line out of
my out pocket. I have not yet decided whether to do so. It would be
patently unfair to deny cost recovery to me just because I do have the
ability to pay for the transmission line out of my own pocket. There
are, however, trade offs that are required for cost recovery, and I
have not yet decided how to balance those tradeoffs, and may not decide
for some time. However, whatever my decision, unless you want the
additional renewable energy suppliers to be limited to a few people in
my position, cost recovery needs to be addressed at the national level
so that other renewable developers can also succeed.
Question 3. Most of the hearing testimony emphasizes the benefits
of a collaborative regional process to address the critical need for
transmission infrastructure for a number of reasons, including
reliability and the need to transmit alternative energy sources.
However, you insist that these collaborative frameworks are--at several
years--too lengthy and that the country simply can't wait that long. Is
there any way to expedite or streamline these efforts?
Answer. I have proposed that Congress grant to the FERC primary,
original jurisdiction for interstate transmission projects, and require
that the FERC process should be subject to a limitation, say nine
months, on the length of time involved. I believe that this is
necessary given the urgent nature of the imported oil crisis.
I do believe that there are models for responsible collaborative
processes that involve the various stakeholders in siting decisions,
and that those processes can be included without engendering
significant delays. The Texas Competitive Renewable Energy Zone process
is a good model, but as the first of its kind, it has taken a while to
figure out all of the steps required and work through them. The Western
Governors Association has undertaken a similar program, the Western
Renewable Energy Zone process, funded by the DOE, that is working on a
shorter timeframe. California apparently has sponsored a program
involving various stakeholders to reach consensus on siting for
renewable projects and transmission, which I understand is expected to
be completed within nine months.
DOE should be mandated to work with states and regions that are
interested in cooperating to help them bring their stakeholders
together and reach a consensus on their views on siting and permitting
and put those views forward in the FERC proceeding. This would allow
for a collaborative process, but still require that the timeframe that
I have proposed be implemented.
Question 4. In general, is it advisable to mandate a transmission
line to carry only renewable resources? Given the capacity factor
issues, shouldn't the construction of facilities needed to deliver wind
also be available to deliver the back-up power and move other energy
when the wind is not blowing?
Answer. Let me first say that transmission lines are usually
constructed to serve a particular project or group of projects, so a
requirement that a transmission line be intended substantially to serve
a renewable project will probably be sufficient. However, let me also
say that there may be technical reasons to permit a modest amount of
controllable generation on the transmission line for purposes of grid
stability. In addition, it may improve the economics of the
transmission line significantly, saving consumers money, if the
transmission line is permitting to carry electricity generated from
controllable generation sources when renewable energy is not available.
______
Responses of Richard Halvey to Questions From Senator Bingaman
Question 1. It strikes me that the most difficult issues that we
face in getting transmission built are those of siting and cost
allocation. Both are complicated by the fact that long-distance
transmission must be built through several states and so across several
jurisdictional boundaries. How do you envision a multi-state approach
to siting working, and what regulatory framework would be required to
sustain it?
Answer. In 2002, the Western Governors developed the Transmission
Permitting Protocol. By June 2004, the governors of 12 Western states
(AK, AZ, CA, CO, ID, MT, NV, NM, OR, UT, WA, WY), four federal agencies
(Departments of Energy, Interior, and Agriculture and the Council on
Environmental Quality), and the Premier of Alberta had signed the
Transmission Permitting Protocol. The Protocol provides for
coordination of permitting agencies for proposed interstate
transmission projects; however, to date, there have been no new
proposed interstate transmission lines that would trigger the protocol.
Similarly, Section 1221(h) of the Energy Policy Act of 2005 requires
coordination of federal agency permitting activities, and an
interagency MOU has been executed to implement this section.
Unfortunately, it is unclear how these two agreements will interact. We
agree with Senator Bingaman that securing federal permits for
interstate transmission remains the most difficult hurdle for
transmission developers in the West. In any case, the Western Governors
are reaffirming their commitment to the 2002 Protocol and would use the
Protocol to approach multi-state siting.
Interstate allocation of the cost of new transmission has been held
to be the ultimate obstacle to the construction of major transmission.
It is important to note that the existing transmission backbone in the
Western Interconnection was constructed through voluntary agreements
among multiple companies. The cost of these projects was passed through
to consumers. However, there is reason to believe that the future will
not look much like the past. That is, when multiple load-serving
entities determine they want to access the power at the other end of a
major proposed transmission line they will successfully allocate the
cost of the line among themselves and state regulators will find such
an allocation prudent. The continued success of interstate cost
allocation may, of course, depend on FERC policy allowing those who pay
for transmission to use the transmission.
Question 2. Your zones are described as areas that contain the
resources. The purpose of cost allocation--who bears what share of the
cost--it would seeming that the zones need to include the load centers
since it is the customers who are buying the electricity who ultimately
will pay for the transmission. How do you see resolution of this
problem working?
Answer. The current first phase of the WREZ project is critical.
The WREZ will identify those areas that have a specific, significant
amount of renewable energy potential, are developable given potential
obstacles related to wildlife, lands, and natural resources, and have
favorable development cost characteristics. In other words, the WREZ
will make obvious the most favorable renewable energy development
areas. This will in turn enable individual load serving entities (LSE)
to more easily evaluate which zones make economic sense to them. Where
multiple LSEs have interest in a zone, they may provide the critical
mass for development of a transmission project to move generation from
that zone to the LSEs. As part of the WREZ project, a transmission
model is also being developed to enable LSEs, regulators and others to
evaluate which zones might individually be the most attractive. The
WREZ project will also allow LSEs to evaluate more distant renewable
resources areas. We believe the LSEs understand the needs in their
services areas. What they may not understand is the optimal potential
for meeting those needs with renewable energy. This project will
provide broad geographic information that will assist the LSEs in
increasing the renewable energy portion of their portfolios.
Responses of Richard Halvey to Questions From Senator Domenici
Question 1. In your ongoing WREZ process with the Energy Department
and other stakeholders, how are you addressing some renewable
resources, such as water power, that will not fit neatly into these
zones?
Answer. At this point, it is the intent of the WREZ project to at
least identify renewable resources both within and outside a renewable
energy zone. However, additional analytical work such as development of
cost curves and examination of wildlife, lands and natural resources
characteristics will be limited to the renewable energy zones. The
major thrust of the WREZ is to identify those geographic areas with
enough resource and other favorable characteristics to justify major
transmission investments. Small resource areas, such as a single small
hydro project typically do not require major transmission investments.
However, as part of the identification of renewable energy potential,
we intend to develop a roadmap that will outline how smaller resource
areas can be integrated into resource portfolios.
Question 2. Most of the hearing testimony emphasizes the benefits
of a collaborative regional process to address the critical need for
transmission infrastructure for a number of reasons, including
reliability and the need to transmit alternative energy sources. Mr.
Pickens, however, insists that these collaborative frameworks are--at
several years--too lengthy and that the country simply can't wait that
long.
Do you agree with Mr. Pickens? Is there any way to expedite or
streamline these efforts?
Answer. The WREZ project is working on an expedited timeline and we
expect to have the identification of zones completed by early 2009. And
given that the WREZ project is really a first of its kind with respect
to its regional approach, it is premature to conclude that it will not
provide the stimulus for more rapid renewable energy and transmission
expansion. Secondly, given the potential opposition to certain
renewable and transmission projects, the WREZ is likely to create
greater certainty and minimal opposition regarding the developability
of a number of areas. This in itself should reduce the overall
timelines for project development. While Mr. Pickens' suggestion of
mega-developers with access to virtually unlimited capital is one
model, it is not the norm, nor can we rely on it. Finally, if there is
an implication that federal pre-emption of state siting processes will
expedite development, the pre-emption process established in Section
1221 of EPAct has often triggered litigation. In the West, the record
shows that it is the federal agencies that are typically the major
cause of delay in permitting transmission lines. We believe that if the
federal government streamlines and coordinates its permitting process
before pre-empting state siting processes, it will result in expedited
development.
Question 3. With the National Interest Electric Transmission
Corridor process established in EPAct 2005, Congress sought to address
the critical issue of transmission siting. However, at this time, these
provisions haven't been fully implemented and no line as been sited
pursuant to EPAct. Nevertheless, the NIETC process has been
contentious.
I was surprised then to read some testimony--including that from
Mr. Pickens and Mr. Freeman with the WIA--that suggested these Energy
Policy Act authorities did not go far enough. Mr. Pickens goes so far
as to call on Congress to provide FERC with exclusive jurisdiction to
site new transmission for a renewable project. Please comment.
Answer. As you state, there is no track record that Section 1221
pre-emption works. To the contrary, to date this process has resulted
in excessive litigation. We believe that if the federal government is
to pre-empt state siting decisions it should only do so based on clear,
convincing information. For example, in the case of the Department of
Energy's designation of a Southwest National Interest Electric
Transmission Corridor, designation was based on anecdotal information
and appears to be an arbitrary use of federal power. For that reason,
any future federal NIETC designations must be based on robust
information justifying the designation. Additionally, the pre-emption
authorities in Section 1221 only apply to the condemnation of private
lands. The major challenge in the West is securing permits to cross
federal lands.
Question 4. In general, is it advisable to mandate a transmission
line to carry only renewable resources? Given the capacity factor
issues, shouldn't the construction of facilities needed to deliver wind
also be available to deliver the back-up power and move other energy
when the wind is not blowing?
Answer. It is the policy of the Western Governors that transmission
be available for whatever energy sources require it. Mandates that
transmission carry only renewable power are not needed and may, in some
circumstances, hinder development of renewable resources. For example,
coupling flexible dispatch non-renewable generation with variable
output renewable generation may improve the economics of a major
transmission proposal by reducing generation integration costs and
increasing line utilization resulting in higher prices for the
renewable generation and lower transmission rates. The WREZ is intended
to complement all the efforts related to implementing WGA policy,
including development of a mix of clean and diverse energy resources
and having a secure, reliable interstate transmission network that can
move all generated electricity to markets.
______
Responses of William Kaul to Questions From Senator Bingaman
Question 1. You say that you had to get legislation passed to
facilitate the process to ensure cost recovering and permitting. Was
that just in Minnesota or were there elements in the laws of other
states that had to be changed? Is there something that we should do at
the federal level in legislation?
Answer. The legislative changes in Minnesota included addressing
the issues of regulatory lag in cost recovery for investor-owned
utilities, giving regional reliability and the electricity market due
consideration in the certificate of need process, placing all
transmission permitting within the purview of a single state agency and
allowing for the transfer of transmission assets into a Transco if
deemed in the public interest by the Minnesota Public Utilities
Commission. Legislative changes sought and achieved in North Dakota and
South Dakota addressed the regulatory lag issue only as other changes
were deemed unnecessary. In our region, permitting and siting issues
continue to take time (oftentimes 2 to 3 years) but the issues have not
developed to the point that requires a federal role.
Having said that--viewing transmission expansion primarily from the
point of view of enabling the development of renewable energy
resources--there have been significant delays and controversy
surrounding the certificate of need process in Minnesota for two
transmission lines that provide an outlet for the proposed Big Stone II
coal plant, located in South Dakota, just across from the Minnesota
border. There are significant unresolved issues associated with that
project, related to carbon emissions from the plant, even though it is
not located in Minnesota. The Minnesota Public Utilities Commission has
delayed making a decision on the transmission line certificate of need
pending further development of the record around future risks and
liabilities for ratepayers for carbon costs.
The CapX 2020 collaboration, as an open access, non-discriminatory
common carrier, does not take any positions on the relative merits of
various sources of generation, as required by the National Energy
Policy Act of 1992.
As the market for renewable energy develops regionally, and the
need for significant new, extra high voltage (EHV) transmission
materializes, a much broader regional collaboration will be necessary
and the collaboration needs to include key regulatory and legislative
policy makers in addition to transmission utilities. Initiatives are
underway attempting to meet the challenges.
For example, the Midwest ISO (MISO) has begun a process of
developing a transmission grid expansion plan and a new transmission
tariff for renewable energy development within a 13 state region. The
first phase of the plan is to be completed in June 2009. Also, the
Midwestern Governors Association (MGA) has a working group addressing
the challenges of expanding the transmission grid for the purpose of
developing renewable energy in its broad Midwestern region. The
challenges are significant and if the MISO and the MGA are unable to
meet them, a strong argument for federal legislation and/or regulation,
multi-state siting and/or cost recovery could evolve. While time is of
the essence--since the planning horizon for a large scale, inter-
regional EHVgrid expansion is many years--the need for federal role in
this region is not immediate. The CapX 2020 planning horizon is now in
the 2016-2025 timeframe and these are the very issues we face.
Question 2. Does the Midwest ISO cost allocation formula on file at
FERC, that is 80% participant funding/20% rolled-in cost, facilitate
the construction of new transmission for renewables?
Answer. Inadvertently. While it never was intended to, the MISO
``reliability'' 80/20 tariff will provide a substantial ancillary
benefit for wind development with the initial group of CapX 2020
projects. Actually, MISO has three tariff formulas in place that apply
to projects depending on how they are classified, either as
reliability, generation interconnection or economic. The 80/20 tariff
formula is for projects that fit into the reliability category.
Different cost allocation formulas apply for projects classified as
generation interconnection or economic. In the reliability category,
80% is paid by customers in the geographic area whose service
reliability is directly affected by the project. The 20% portion is
rolled-in or ``postage stamp'' MISO-wide. The rolled-in portion (the
20%) of the tariff only applies to projects 345 kV or greater. CapX
2020 has two projects that were designed to address system reliability
issues and likely will be classified as such, but that will also
provide significant additional transfer capability to the system.
The MISO generator interconnection tariff is the tariff directly
relevant to wind generators. However, this tariff was developed prior
to the time when the transmission service request queues started
filling up with wind projects. It was designed more for the gas turbine
projects of the day and worked well for that purpose. It calls for the
generation developer to pay for 50% of the network upgrades necessary
for reliable operation of the system caused by the generator's project.
The other 50% is paid by local customers who derive a reliability
benefit from the network upgrades. It's widely acknowledged that the
generator interconnection tariff does not work well for wind projects.
That is because the transmission developer must be able to identify the
wind project developers at the time the transmission project is
proposed. Since major transmission projects have a 5 to 7 year or
longer lead time and wind projects have just a 2 year or shorter lead
time, it is impossible to line up the developer's 50% commitment when
the transmission project is proposed. Wind project developers cannot
negotiate power purchase agreements (PPAs) that far in advance.
The California ISO has come up with, and the FERC has approved, an
innovative financing approach that has the transmission owner pay all
capital costs up front. Until the transmission investment later is
recouped from wind generators as they interconnect to the transmission
line, the transmission owner begins recovering the investment from its
retail customers. Other regions, including ours, are looking at this
approach to the extent it can be applied to certain types of
transmission lines.
In our view, cost allocation procedures should take an inclusive,
long-term view of project benefits and allocate costs over an
appropriate size region. The mechanism(s) should be understandable and
predictable without unreasonable analysis requirements and
administrative burden. As mentioned above, MISO is working with
stakeholders to propose a tariff that will facilitate the development
of renewable resources in this region.
Once again I will refer you to the White Paper on principles of
cost allocation and recovery commissioned by the WIRES organization,
included with my testimony.
Responses of William Kaul to Questions From Senator Domenici
Question 1. You testified that CAPX is a ``joint ownership''
initiative that involves investor-owned, municipal and cooperative
utilities in the planning, financing and ownership of transmission
upgrades. What are the benefits of the ``joint ownership'' model and
why did you proceed in this manner?
Answer. The Upper Midwest is populated with numerous non-profit
cooperative and municipal utilities, as well as investor-owned
utilities. These business models each have their advantages. For the
non-profits, the advantages are low cost capital that can be leveraged
for consumer benefit and self-regulation. Investor-owned utilities
provide good investment opportunities in a highly capital intensive
business that needs to attract capital. Joint ownership provides each
business model an opportunity to achieve its goals. It also presents an
opportunity to coordinate and gain consumer, landowner and political
support for large-scale transmission projects. The CapX 2020 joint
ownership model further provides efficiencies in planning, constructing
and operating facilities, reducing the need for redundant functions and
facilities in our overlapping geographies.
Question 2. Are there other successful examples of ``joint
ownership'' of transmission in the U.S?
Answer. Joint ownership is not new--this model was used during the
last major infrastructure build-out in the 1970's for new generation
and transmission. Many power plants are jointly owned by multiple
parties that include public power, cooperatives and investor owned
utilities. One of the oldest transmission joint ownership arrangements
is the integrated system in Georgia, which is jointly owned by Georgia
Power, Georgia Transmission Company (a cooperative) and the Municipal
Electric Authority of Georgia. Some other examples include: the
American Transmission Company (Wisconsin Public Power Inc. owns 5.7% of
the company); and Cinergy, Wabash Valley Power Association, and Indiana
Municipal Power Agency which own a Joint Transmission System covering
two-thirds of Indiana, part of Ohio and a small part of Kentucky.
Areas where joint ownership exists as the transmission development
model have more robust integrated planning and development. This,
generally, results in fewer transmission reliability and capacity
deficiencies than occur in areas without joint ownership. We believe
that joint ownership could facilitate financing and construction of
transmission in every part of the country, given sufficient support
from Congress and the FERC.
Question 3. The State of Minnesota has a very aggressive state RPS
requirement--30% by 2020 for Xcel Energy and 25% by 2025 for other
utilities. Is Minnesota on target to meet these RPS requirements?
Answer. Minnesota utilities are on track to meet these
requirements. One of the concerns at the time the bill was drafted was
whether transmission system limitations would prevent achieving the
RPS. To address that concern, the legislation also required a
transmission study that would identify new transmission facilities
necessary to meet milestones in 2010, 2012, 2016, 2020 and 2025. That
study was completed in November 2007. The result indicated that the
CapX 2020 utilities had in place, proposed or were planning new
projects to achieve the milestones through 2016.
As indicated in my testimony, meeting milestones beyond 2016
requires the integration of Minnesota RPS requirements with those of a
larger market--going from 6000 MW to 15,000 MW or more; thus, efforts
were launched by MISO, the MGA and CapX 2020 to look at broader
regional planning. However, there are significant issues associated
with transmission cost allocation if we are to build transmission
beyond the needs of the Minnesota RPS. The current MISO tariff options
do not meet the market needs for transmission development on this much
broader scale, primarily for renewable energy development.
Question 4. In general, is it advisable to mandate a transmission
line to carry only renewable resources?
Answer. No. Laws of physics and concerns about reliability and
economics militate against such a mandate. Additionally, the Energy
Policy Act of 1992 prohibits discriminatory use of the transmission
system and therefore requires all generation resources equal access and
use of the transmission grid. A national policy on carbon and/or
renewable energy portfolio standards would be a more effective approach
if the Congress wants to accelerate renewable energy development.
Given the capacity factor issues, shouldn't the construction of
facilities needed to deliver wind also be available to deliver the
back-up power and move other energy when the wind is not blowing?
Yes. Intermittent resources such as wind need not only back-up
power but other ancillary services as well. These other ancillary
services include such things as load following, frequency response and
voltage support. The transmission system needs to be designed to
integrate all sources of generation, in addition to intermittent
resources, into the entire system and managed as a whole, to be
efficient and maintain reliability. While it may be possible to use the
transmission that was constructed for the wind to also provide the
back-up power and ancillary services for the wind, siting the needed
back-up generation to use the transmission for wind capacity may not be
the best location for system reliability or economics. To achieve a
high level of penetration of intermittent renewable resources in an
area, such as wind, that area must be able to interact with other areas
to maintain the required real-time load-generation balance. That
interaction requires sufficient transmission capacity between the
areas, and this consideration alone will require expanding the system.
Siting any generation is very fact specific and depends on the
generation technology to be used. Transmission plays an important role
in generation siting but there are many other factors such as fuel
source, water source, labor availability and the ability of technology
to maintain reliability to name a few.
Question 5. The intermittent nature of renewable resources like
wind present some challenges. How far off are future technological
advances, such as electricity storage and better wind forecasting,
which could help address some of these challenges?
Answer. As the amount of wind generation increases, the challenges
of providing load-following, frequency response and voltage support
will increase. There will be a real limit on how much intermittent
energy can be accommodated by the electric grid, both in physical and
economic terms. Industry experience to date, at lower levels of
penetration of wind generation, has been mostly positive, especially in
an organized market such as exists in MISO. However, there was a recent
experience of system instability in Texas in which wind generation was
a contributing factor. As penetration of intermittent resources
increases, utilities will gain experience in managing the challenges,
but we must be cautious. So far, storage remains in a research mode and
not yet commercially viable. Integrating weather forecasts into
operations will help some. Geographic scope and diversity of the
intermittent resources will help smooth the variability, but a much
more robust transmission system will be required to realize that
benefit.
Question 6. With the National Interest Electric Transmission
Corridor process established in EPAct 2005, Congress sought to address
the critical issue of transmission siting. However, at this time, these
provisions haven't been fully implemented and no line as been sited
pursuant to EPAct. Nevertheless, the NIETC process has been
contentious.
I was surprised then to read some testimony--including that from
Mr. Pickens and Mr. Freeman with the WIA--that suggested these Energy
Policy Act authorities did not go far enough. Mr. Pickens goes so far
as to call on Congress to provide FERC with exclusive jurisdiction to
site new transmission for a renewable project. Please comment.
Answer. In the Upper Midwest where some state level RPS mandates
exist, transmission developments are moving along without a lot of
regulatory impediments. As stated in my testimony, moving beyond a
single jurisdiction or into a broader region without relatively
consistent policy alignment and interest in renewable energy
development, difficulties in permitting and determining cost allocation
can be expected. These challenges increase the risks of transmission
and wind developments and add delays and costs to an already long and
expensive process. In the event that regional collaborations, such as
that being undertaken by the MGA and the MISO are not successful, then
a federal authority may be necessary in some cases.
Once again, thank you for the opportunity to appear before the
Committee.
______
Responses of Donald N. Furman to Questions From Senator Bingaman
Question 1. Could you expand on the thought that larger control
areas reduce the effect of the intermittency of wind generation? What
ownership and management structures seems to provide this kind of
benefit? In other words, are there parts of the country where things
are managed better than in others, and if so, where?
Answer. There is strong evidence that larger control areas (also
known as balancing areas) facilitate the integration of wind energy.
The electric output from wind turbines over a broader area is less
variable than the output from turbines clustered in a smaller area. In
addition, larger balancing areas tend to facilitate access to a greater
number of flexible generation facilities that can help integrate wind
energy.
Regional Transmission Organizations (RTOs) and Independent System
Operators (ISOs) typically offer larger balancing areas. 74% of wind
development in the U.S. has occurred within RTOs and ISOs, even though
these areas comprise only 44% of the nation's wind resources and 53% of
electricity demand.
A recent study required by the Minnesota legislature to assess the
reliability and cost of providing 20% of the state's electricity from
wind stated: ``The MISO [Midwest Independent System Operator] energy
market also played a large role in reducing wind generation integration
costs. Since all generating resources over the market footprint are
committed and dispatched in an optimal fashion, the size of the
effective system into which the wind generation for the study is
integrated grows to almost 1,2000 individual generating units. The
aggregate flexibility of the units on line during any hour is adequate
for compensating most of the changes in wind generation.''
Question 2. What kind of regulatory framework do you see as
necessary for the resolution of multi-state cost allocation issues or
siting problems?
Answer. High-voltage transmission facilities benefit everyone by
promoting electric reliability and providing consumers access to a
greater number of electric generation facilities. In addition, these
transmission facilities are critical if the nation is going to be able
to tap the full potential of our vast renewable energy resources.
Transmission cost allocation is probably the most challenging
barrier to transmission development. The problem is that we have been
allocating costs for a public good (transmission) on a voluntary basis.
Some utilities their regulators would prefer to be free-riders, which
leads to under-investment in transmission.
FERC should be given more authority and guidance to spread
transmission costs broadly across all users and over time. This
approach has been used in Texas and the UK, with positive results. In
the context of interstate transmission facilities, FERC is best
positioned to advance the public good through broad cost allocation.
FERC should also be given more authority to issue permits to
construct transmission facilities if states are unwilling or unable to
site the lines. FERC's current siting authority should be expanded to
include transmission lines that are needed to access and deliver
significant amounts of renewable energy.
Responses of Donald N. Furman to Questions From Senator Domenici
Question 1. It is my understanding that the capacity, or
availability, of wind resources in the U.S. is between 10 and 15%. Is
this correct?
Answer. The electrical output of a wind turbine depends on the wind
speed. For the period 2004-2006, the typical wind plant in the U.S.
operated at an average of 33-35% of its nameplate capacity, which is
known as the plant's capacity factor, a figure that discounts output to
account for time periods when the turbine is not producing or is
producing below its maximum output. While an average capacity factor of
33-35% may sound low, this compares quite favorably to the capacity
factors of many other types of power plants. Historical data from MISO
indicates an average capacity factor of 8% for natural gas combustion
turbine power plants, 11% for natural gas combined cycle plants, 3% for
oil fired power plants, 27% for hydroelectric plants, 66% for coal
power plants, and 75% for nuclear power plants. In addition, wind plant
capacity factors continue to increase due to advances in turbine
technology and wind plant design.
Question 2. Since wind is an intermittent resource, must a buyer
arrange for back-up power to meet load when the wind does not blow?
Answer. Grid operators are accustomed to accommodating a large
amount of variability in the supply and demand of electricity. Demand
for electricity changes constantly. Similarly, electricity supply can
vary significantly if a power plant experiences failure and must
disconnect from the grid in a fraction of a second, as all power plants
do on occasion.
To accommodate this variability, system operators maintain a
significant amount of reserve generation that can be called-up on short
notice. Grid operators pool reserves for the whole system to allow them
to respond to a variety of potential changes in electricity supply and
demand. These same reserves are what grid operators use to accommodate
the variability of wind energy.
Adding a large amount of wind energy to the grid can add some
variability to the power system and thus cause an incremental increase
in the need for reserves. However, a large number of studies have
indicated that incremental reserve additions needed to accommodate wind
energy are very modest, as are the costs of maintaining these reserves.
Question 3. Is the wind industry undertaking research and
development to assist transmission providers with dealing with the
intermittent nature of the resource?
Answer. Research and development efforts undertaken by members of
the wind industry have produced technological advances hat have greatly
enhanced the capability of wind plants to control voltage, frequency,
and reactive power in ways that significantly improve the reliability
of the power grid. As wind energy has become a mainstream source of
electricity generation, industry leaders have devoted significant
resources to ensuring that wind energy technology keeps pace with the
demands of being a mainstream contributor to electric grid reliability.
The American Wind Energy Association (AWEA) has developed and
distributed best practices for the reliable integration of wind energy
with the electric grid. AWEA works with the Institute of Electrical and
Electronics Engineers (IEEE), the Utility Wind Integration Group, the
National Renewable Energy Laboratory, the Department of Energy,
electric utilities, and international experts to disseminate the latest
scientific findings related to the reliable integration of wind energy.
Question 4. In general, is it advisable to mandate a transmission
line to carry only renewable resources? Given the capacity factor
issues, shouldn't the construction of facilities needed to deliver wind
also be available to deliver the back-up power and move other energy
when the wind is not blowing?
Answer. For transmission lines that serve as part of the grid
network, it is physically impossible to restrict the use of these lines
to electricity from renewable resources. First, it is impossible to
discern between electrons that are generated by renewable resources and
electrons that are not. Even if this were not the case, the laws of
physics dictate that electricity will flow along the path of least
resistance from where it is generated to where it is consumed, making
it very difficult to regulate the flow of electricity on the grid.
It is possible to ensure that new transmission lines will carry a
significant amount of renewable energy by prioritizing construction of
transmission lines in regions with significant renewable energy
resources. Policies to promote the construction of transmission to
renewable energy resource zones have been quite successful in Texas,
Colorado, and California.
Question 5. The intermittent nature of renewable resources like
wind present some challenges. How far off are future technological
advances, such as electricity storage and better wind forecasting,
which could help address some of these challenges?
Answer. Wind energy forecasting is already playing an important
role in reducing the cost of integrating wind energy by reducing
uncertainty about what wind output will be several hours or days in
advance. Wind forecasting techniques are already quite advanced and are
highly accurate, although incremental improvements in data collection
and modeling techniques may yield further increases in accuracy. There
is significant potential for better integrating wind forecasts into
grid operations and better tailoring these forecasts to formats that
are most useful to grid operations. For example, the New York ISO
recently announced its implementation of a wind forecasting system that
will allow operators to know in advance the level of wind output on its
system.
Energy storage technologies deployed to serve the needs of the grid
as a whole have the potential to modestly reduce the cost of
integrating wind energy. Currently, increasing and decreasing the
output of flexible generators has proven to be a more cost effective
means of accommodating variability on the electric grid than energy
storage. It is important to emphasize that even if energy storage were
to become more cost-effective, it would be inefficient to treat it as a
resource dedicated to accommodating the variability of wind energy
alone. It is much more efficient for flexible resources, such as energy
storage, to serve as reserves for the grid as a whole instead of being
dedicated to specific generators.
Question 6. With the National Interest Electric Transmission
Corridor process established in EPAct 2005, Congress sought to address
the critical issue of transmission siting. However, at this time, these
provisions haven't been fully implemented and no line as been sited
pursuant to EPAct. Nevertheless, the NIETC process has been
contentious.
I was surprised then to read some testimony--including that from
Mr. Pickens and Mr. Freeman with the WIA--that suggested these Energy
Policy Act authorities did not go far enough. Mr. Pickens goes so far
as to call on Congress to provide FERC with exclusive jurisdiction to
site new transmission for a renewable project. Please comment.
Answer. The Energy Policy Act of 2005 authorized provided FERC with
``backstop'' authority to site transmission lines, under certain
circumstances, if the proposed line would be located in a National
Interest Electric Transmission Corridor (NIETC) as designated by the
Department of Energy (DOE). FERC has no authority over a proposed
transmission facility if the facility is not in a NIETC. To date, DOE
has only designated two corridors. In addition, it is not entirely
clear whether DOE believes it has the authority to designate corridors
in areas that are not currently congested but where significant
renewable resources are located. At the very least, the statute should
be amended to permit DOE to designate areas with significant renewable
energy potential as NIETCs.
It may also be appropriate for Congress to consider whether to
grant FERC exclusive authority to site certain interstate transmission
lines. As FERC Chairman Kelliher recently testified before the Senate
Energy and Natural Resources Committee, FERC's current backstop
authority does have some limits that could impair the construction of
vitally necessary transmission facilities. I agree with Chairman
Kelliher that Congress should consider giving FERC broader authority.
Question 7. I understand that it can be difficult to quantify the
costs of wind power to the consumer. Please provide the committee with
the cost per kilowatt hour of wind energy throughout the county on a
region-by-region basis and, if possible, state-by-state basis.
Answer. The cost of wind will vary by region of the country, mostly
related to the wind resource and capacity factor. The Midwest and
Western regions of the country have some of the best wind resource and
therefore may have a lower cost per kilowatt hour than other regions of
the country. The range of capacity factors in 2007 by region are below,
from DOE Annual Wind Power Market Report.
An improvement in capacity factor will lead to an equivalent
improvement in cost. For example, a 10% increase in capacity factor
(33% increasing to 36%) will lead to a 10% decrease in cost per kWh,
holding all else equal.
For the recent DOE report, 2% Wind Energy by 2030, Black & Veatch
developed cost estimates for wind, along with other technologies.\1\
Without the PTC, the wind cost estimates range from 7.2 cents to 8.5
cents per kilowatt hour for class 4 through 6 wind resources, depending
on capacity factor.
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\1\ 20 Percent Wind Energy Penetration in the United States http://
www.20percentwind.org/Black_Veatch_20_Percent_Report.pdf
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Finally, the cost of wind has increased significantly in recent
years, primarily due to increased turbine costs which is a result of
exchange rate penalty and declining value of the US dollar, increased
steel prices and other raw commodities, and labor costs. The cost of
all energy resources has increases similarly. The recent increase is
documented in the DOE Annual Wind Power Market Report, see chart
below.*
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* Graphics have been retained in committee files.