[Senate Hearing 111-15]
[From the U.S. Government Publishing Office]
S. Hrg. 111-15
TRANSMISSION INFRASTRUCTURE
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
TO
CONDUCT A LEGISLATIVE HEARING TO EXAMINE DRAFT LEGISLATION REGARDING
SITING OF ELECTRICITY TRANSMISSION LINES, INCLUDING INCREASED FEDERAL
SITING AUTHORITY AND REGIONAL TRANSMISSION PLANNING
__________
MARCH 12, 2009
Printed for the use of the
Committee on Energy and Natural Resources
U.S. GOVERNMENT PRINTING OFFICE
48-760 WASHINGTON : 2009
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COMMITTEE ON ENERGY AND NATURAL RESOURCES
JEFF BINGAMAN, New Mexico, Chairman
BYRON L. DORGAN, North Dakota LISA MURKOWSKI, Alaska
RON WYDEN, Oregon RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana SAM BROWNBACK, Kansas
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
ROBERT MENENDEZ, New Jersey JOHN McCAIN, Arizona
BLANCHE L. LINCOLN, Arkansas ROBERT F. BENNETT, Utah
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
EVAN BAYH, Indiana JEFF SESSIONS, Alabama
DEBBIE STABENOW, Michigan BOB CORKER, Tennessee
MARK UDALL, Colorado
JEANNE SHAHEEN, New Hampshire
Robert M. Simon, Staff Director
Sam E. Fowler, Chief Counsel
McKie Campbell, Republican Staff Director
Karen K. Billups, Republican Chief Counsel
C O N T E N T S
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STATEMENTS
Page
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Clark, Tony, Commissioner, North Dakota Public Service
Commission, on Behalf of the National Association of Regulatory
Utility Commissioners and the North Dakota Public Service
Commission..................................................... 14
Detchon, Reid, Executive Director, Energy Future Coalition....... 58
Dickenson, James A., Managing Director and Chief Executive
Officer, JEA................................................... 63
Edwards, Graham, Acting President and CEO, Midwest Independent
Transmission System Operator, Inc.............................. 53
Morris, Michael G., Chairman, President and Chief Executive
Officer, American Electric Power............................... 41
Murkowski, Hon. Lisa, U.S. Senator From Alaska................... 3
Reid, Hon. Harry, U.S. Senator From Nevada....................... 3
Welch, Joseph L., Chairman, President and CEO, ITC Holdings
Corporation.................................................... 46
Wellinghoff, Jon, Acting Chairman, Federal Energy Regulatory
Commission..................................................... 8
APPENDIXES
Appendix I
Responses to additional questions................................ 77
Appendix II
Additional material submitted for the record..................... 105
TRANSMISSION INFRASTRUCTURE
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THURSDAY, MARCH 12, 2009
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 9:33 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. Why don't we go ahead and get started.
Senator Murkowski is on her way and will be here very shortly.
This morning we're to hear from witnesses on a proposal to
change the way that we permit and plan the transmission system
for the Nation. Over the last 120 years or so the system to
supply electricity has grown in importance for our economy and
our lives. In the early days there was not much in the way of
what we call transmission today. There were just local
distribution systems and they were not interconnected. As time
passed, we came to understand the economies that were possible
with broader sharing of electric resources and the transmission
system became important.
Still, the transmission system was built to serve the needs
of individual utilities for the most part. There were
exceptions, of course, like in New England and in the Mid-
Atlantic, where power-sharing pools grew up.
We here in Congress have changed the laws to encourage cv
competitive markets in electricity with both the Public Utility
Regulatory Policy Act of 1978 and the Energy Policy Act of
1992. Increases in the trade in electricity have followed these
changes. Along with these increases, new problems have arisen.
Congestion on the transmission system chokes off opportunities
for trade in electricity that could benefit entire regions.
More recently, we're becoming more aware of the opportunities
for cleaner domestic energy supplies. We have become aware that
a lack of transmission inhibits those opportunities.
The transmission system has not kept up with these changes
in the way that industry works. I think the North American
Electric Reliability Corporation tells us that we will see
twice the growth in generation that we see in transmission over
the coming decade if we stay on the same course we're on today.
In 2005 this committee tried to create a way to overcome
the difficulties we had in siting transmission and getting it
built. The Department of Energy was charged with examining
congestion on the system and designating corridors of national
interest. FERC could then site transmission in those corridors
when States were unable or unwilling to do so.
That system is widely seen as insufficient today. It does
not apply to most of the country. It does not take into account
future need. As a result, we've heard increasing calls for
broadening Federal authority. Voices such as the Manhattan
Institute, Governor Pitako, T. Boone Pickens, the Center for
American Progress, the former Chairman of the FERC Joe
Kelleher, Jim Hecker, the American Wind Energy Association,
environmental organizations, they've all called for a greater
Federal role.
Senator Reid introduced a bill this last week to address
these issues. He's here today to talk about that proposal. I
have circulated a discussion draft that is similar in thrust,
but has some differences. The proposals that we have before us
today are attempts to take on what most commentators have
identified as the three most difficult issues: the siting
authority, the regional planning, and the allocation of costs.
I hope that this hearing can help begin a discussion that will
lead us to constructive legislation in this area.
Senator Reid, we know your time is valuable. Why don't you
go ahead with your testimony at this time and then when Senator
Murkowski comes she will undoubtedly have a statement to give
as well.
Senator Reid. Here she comes.
The Chairman. Oh, OK.
Senator Murkowski. Good morning.
The Chairman. Hi. How are you?
Senator Murkowski. Doing wonderful today.
The Chairman. Good, good.
I just did a little opening statement here and we're glad
to hear one from you if you'd like, and then Senator Reid is
our first panel, and then we have two others.
[The prepared statement of Senator Mark Udall follows:]
Prepared Statement of Hon. Mark Udall, U.S. Senator From Colorado
Mr. Chairman, thank you for holding today's hearing on electricity
transmission.
Our transmission grid is in trouble. It is overextended,
inefficient, and vulnerable, and does not allow for the expansion into
new energy sources, such as renewable energy.
And that is a problem. We need to expand our use of sustainable and
domestically produced energy. I have long been a promoter of renewable
energy--I helped Colorado develop a renewable electricity standard
(RES), which requires that our state produce 20 percent of our
electricity by 2020. I also worked to get a 15 percent by 2015
amendment passed through by the U.S. House of Representatives in 2007.
Unfortunately, that effort failed in the Senate.
I am very pleased to be working with Chairman Bingaman and others
to bring a national RES to the President's desk this year.
Expanding and strengthening our transmission infrastructure will be
critical to implementing a national RES, but it will also help make our
energy use more efficient, open up new areas to energy development, and
make our grid system more secure.
However, there are several issues that we in Congress must address
to move this transmission work forward--specifically, how new
transmission projects are planned, where and how the transmission
infrastructure is sited, how to make it more secure, and how this new
infrastructure is paid for.
I'm looking forward to hearing from our witnesses on all of these
issues today.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Wonderful. Thank you, Mr. Chairman. I
appreciate you convening this hearing this morning. A really
difficult issue before Congress as we discuss our Nation's
transmission infrastructure. We know that we've got a problem.
We've got aging transmission infrastructure that is simply not
keeping pace with demand. By 2030 the EIA projects a 30 percent
increase in U.S. electricity demand, but the transmission has
only grown 6.5 percent since 1996.
So it's understandable that our transmission isn't adequate
to meet our future electricity needs. We all recognize that
transmission projects face enormous costs as well as public
opposition. In the 2005 Energy Policy Act we directed DOE to
designate national transmission corridors in constrained areas,
provided FERC with limited backstop siting authority. This
EPAct provision was controversial in its inception and has yet
to result in additional transmission capacity. So we know we've
got to do better.
Energy security is a national goal and transmission
infrastructure is a backbone requirement. We know that we need
to build the lines out to bring location-constrained renewable
resources to load. But as far as I'm concerned en security
means transmission must be an asset for all of our energy
sources, and we must ensure the reliability and the cyber
security of the grid while at the same time we make it smarter.
It's a tall order, but I commend you and our Majority
Leader Reid for crafting proposals aimed at addressing the many
obstacles to constructing transmission.
We've got a pretty good panel here this morning and I think
we'll get right to the issues: With planning, should we
establish interconnection-wide planning entities or are we
going to make progress through ongoing collaborative regional
efforts? Is additional Federal siting authority needed, and if
so what about the States' role?
Who pays? Who pays for the cost of the new transmission?
Should the cost be allocated throughout the interconnection or
should those who benefit pay for the costs?
Then, should we direct or dedicate new transmission to
renewable resources? I have to ask the question whether that's
even possible. In reviewing some of the testimony today, I
really had to smile when one of the witnesses cautioned us to
remember that Congress has the power to change all laws except
the laws of physics.
So we've got a lot in front of us, Mr. Chairman. Again,
Majority Leader Reid, I appreciate your leadership on this
issue and look forward to the testimony from our witnesses.
The Chairman. Senator Reid, why don't you go right ahead.
Welcome to the committee.
STATEMENT OF HON. HARRY REID, U.S. SENATOR
FROM NEVADA
Senator Reid. Mr. Chairman, thank you very much. This is
such an important committee. I'm happy to see such good
attendance here today.
I really do feel that I have to comment on the ranking
member of this committee. When I first came to the Senate, we
had Senator Mikulski. She was the woman on the Democratic side.
You know, men are always very macho about overcoming injuries
and putting up with stuff. Senator Murkowski flew all night
after really tearing up her knee, to come back and participate
in what we are doing here this week. It's admirable.
But I do say, Senator Murkowski, the things that we've done
to allow women--and I say ``allow women''--to participate in
athletics is stunning. My 9-year-old granddaughter broke her
arm Friday in a bicycle accident. She didn't know that. But she
went and played in two basketball games on the weekend. She's
left-handed. She broke her left arm, and was the star of the
tournament. Her mother said that she would a lot of times grab
her arm after playing.
So I think we've established, at least in my mind, that
women are tougher than men, or at least as tough as.
Senator Murkowski. Thank you.
Senator Reid. I say to John McCain--I want a chance to say
this to you. Your daughter was on the Rachel Maddow Show last
night and she was so good, stunningly good.
Senator McCain. Thank you very much. I am not a regular
viewer.
[Laughter.]
Senator Reid. One reason that I'm sure the show was watched
so much last night, because frankly I would have turned it off
too, but she said that your daughter was going to be on. So I
kept watching it, rather than flipping to ESPN, which I usually
do when I'm eating my dinner.
Senator McCain. Thank you. Thank you for your kind words.
Senator Stabenow. Just for the record, I watch her start to
finish, just for the record.
[Laughter.]
Senator Reid. Mr. Chairman, members of the committee: Thank
you very much for allowing me to testify here this morning.
This is a critical, important issue.
In 1931 the legendary inventory Thomas Edison had some
advice that he gave to Henry Ford. Here's what he said--and off
course you know Henry Ford's were driving up demand for
gasoline. He told Ford, and I quote: ``I'd put my money on the
sun and solar energy. What a source of power. I sure hope we
don't have to wait until oil and coal run out before we tackle
that.'' End of quote.
It's been more than 7 decades since then and today we find
ourselves facing a three-pronged energy crisis, threatening our
economy, our environment, and our national security. Our
national security we tend to just fluff over, but we cannot be
a secure Nation when we import almost 70 percent of our oil
from Chavez of Venezuela, the unstable Middle East, and on and
on.
The leadership of President Obama, members of this
committee, especially under the leadership of Chairman
Bingaman, and many elected officials, business leaders, and the
American people, gives us reason for hope that the time for
solutions has finally come. President Obama sent a strong
message that renewable energy development will be a cornerstone
of his Administration by placing major investments in clean
energy at the center of his economic recovery plan.
I'm confident that the President's plan will help create
jobs and lay the groundwork for long-term economic growth in
Nevada and across the entire country. We all realize that the
President's recovery plan is just the first of a number of
steps. Our energy crisis has been deepening for decades and
we're not going to solve it overnight. But we know one thing
for sure: Working together, in partnership with the White
House, Federal, State, and local governments, community leaders
and the private sector, we can and we must meet this moment
with the action it requires.
In addition to the innovation that has always carried our
country forward, the private sector and State and local
governments are already making great strides. They are
laboratories of creative ideas that we hope to stimulate with
recovery plans, with venture capital, and with reforms to our
national energy policy. For instance, in Pennsylvania renewable
energy has sparked more than $1 billion in private investment.
Senator Udall, I've spoken to Governor Ritter and he said
that the spur of jobs developed with renewable energy in
Colorado has stopped the economic crisis in Colorado from
deepening. In Iowa, shuttered factories are now re-opening to
build parts for wind turbines. In Nevada, which some call the
Saudi Arabia of renewable energy, we already have nearly 60
operating renewable energy projects, producing enough power to
heat and cool hundreds of thousands of homes.
This is just the beginning. The solar power in Nevada and
the desert Southwest alone could meet our entire energy needs
seven times over. The wind energy in the Great Plains, the
Midwest, and off both our coasts is similarly abundant. The
potential for geothermal energy still largely untapped is
simply staggering.
There has been a massive increase in wind energy generation
in recent years, creating 45,000 new jobs last year alone.
Solar power is poised for similar growth over the next few
years. NV Energy recently--that's the power company in Nevada--
announced plans for a 250-megawatt solar thermal plant in
Nevada, with plans for molten salt storage to firm up the
plant's capability.
All these actions have been thriving without sustained
Federal investment, at least until very, very recently. But
absent a permanent long-term Federal commitment and major
policy reforms, we're not close to reaching our national
potential. Our landscape is dotted with renewable projects, but
until now few have been connecting the dots. These renewable
projects are mostly where there aren't people. We need to take
it where there are people.
Senator Murkowski, during the last 10 years, elaborating on
what you said, we have developed 6,000 miles of natural gas
pipeline; less than 600 miles of power lines in the same 10
years. So we've got a problem.
Remember, we had to do something drastic when we built our
railroads to make sure that the trains could go where we wanted
them to go, and we did the same with the national highway
system; and we need to do the same with this energy that we're
talking about, connecting these dots with this smart
transmission grid, using new technologies developed and built
here in America to connect the places we produce renewable
energy with the places we use it.
A smarter grid would make it possible for consumers to save
money on their power bills by making energy efficiency more
profitable and transparent and cost-effectively integrate
affordably priced renewable power.
With input from stakeholders on all sides of this important
issue, I have introduced S. 539, and I appreciate the work this
committee has already done. Part of this legislation is to
break the logjam that's preventing access to incredible
renewable energy potential that exists across the entire
country, and in Nevada.
The country needs a plan that will result in the
construction of new transmission lines to these renewable
energy-rich zones, where the sun, wind, and heat of the earth
are super-abundant. At the other end of these lines, consumers
will get affordable and reliable clean power, power that will
help us meet our environmental and national security
challenges. By connecting these remote locations to the
population centers that consume the overwhelming majority of
energy, we'll open up vast new markets for a clean home-grown
product that creates American jobs that can never be
outsourced.
That's why this legislation requires the President
designate quickly renewable energy zones. Then the bill starts
a massive national planning effort to maximize the production
of renewables, to connect these regions to population centers
throughout the country.
Building this national smart transmission grid, this
superhighway, requires us to reform the current siting process.
Now a developer who is willing to invest in new transmission
lines must go through a long and painful process involving many
different regulatory hurdles that can add years and tremendous
cost to transmission projects. The L.A. Times wrote within the
past 2 months the average time of taking electricity from one
point to the other is 18 years. So that pretty well says it
all.
This legislation creates a Federal backstop transmission
siting authority which gives the Federal Energy Regulatory
Commission the authority to move renewable transmission
projects if their progress is stalled.
The next part of this legislation calls for States to make
proposals for allocating the cost of building and upgrading
these lines. We give States the opportunity to succeed in their
own, but we also give the Federal Energy Regulatory Commission,
FERC, the authority to step in if and when assistance is
required to keep projects moving forward and funded equitably.
If necessary, the FERC can use construction permits and the
Federal power marketing agencies can use bonds to finance this
construction.
This legislation calls for most of the capacity of these
new green transmission lines to be available for renewable
energy generators. That can be handled easily through an
interconnection agreement between a renewable generator and a
transmission provider.
Many of us here today strongly support a national renewable
electricity standard and a carbon cap. I believe we are moving
closer toward these critical goals. No one's been more out
front on the global warming issue than Senator McCain. But
until we achieve these--that is, the smart renewable
electricity standard and a carbon cap--we should act now to set
performance requirements for our new smart transmission grid
both in terms of how it works and what we attach it to.
I'm pleased to see that a lot of the bill that I introduced
has been incorporated into our staff draft, Mr. Chairman. I
appreciate that very much, especially the components that
address regional transmission planning and cost allocation. So
I look forward to continuing to work with the committee as we
develop legislation that powers our States while ensuring that
we achieve the necessary goal of integrating renewable energy
into our electric grid.
We have not arrived at a final product--I know that's the
case--but rather an excellent framework. As this legislation
moves forward, all sides will have an opportunity to take part
in the debate. That's how this committee has worked for years
and it will continue to work, I'm confident.
In recent months support for steps I've outlined and the
goal of ending our devastating addiction to oil have really
started to gel. At the Clean Energy Summit that we held in Las
Vegas last August and here in D.C. within the past month, we've
seen an extraordinary level of bipartisan problem-solving. This
committee will play a critical role in keeping us on that
productive path.
There will come a day when our children and grandchildren
look back upon this moment in history. They'll see that we knew
the scope of this multiple-pronged crisis, but, unlike any
generation before us, we took action to solve it.
Mr. Chairman, we can be here 10 years from now lamenting
the fact that we built 600 miles of transmission lines for
electricity, or we can really look back and say, you know, we
really did something. I've said to a number of people, we can
in the years to come give ourselves high-fives and cheer each
other on and look at all the renewable energy we could created
we have created, but if it can't move anyplace we've
accomplished nothing. That's what this is all about, being able
to move electricity from where it's created to where it's
needed.
I appreciate very much the long period of time. I'd like to
apologize to the committee for taking so much time, but I
appreciate the opportunity.
The Chairman. Thank you very much for your strong
leadership on this issue and for the bill that you put forward
and the testimony here this morning as well.
I did not have questions. Let me just ask if Senator
Murkowski or any member wanted to ask Senator Reid a question.
If not, we can dismiss him and proceed to to other two panels.
[No response.]
The Chairman. Thank you again. We appreciate it.
Let me call forward panel one, which is made up of: the
Honorable John Wellinghoff, who is the Acting Chairman of the
Federal Energy Regulatory Commission; and also the Honorable
Tony Clark, who is a Commissioner reporting NARUC, and he is
out of Bismarck, North Dakota.
Chairman Wellinghoff, why don't you go right ahead. Then
after you testify we'll hear from Commissioner Clark, and then
we'll have some questions.
STATEMENT OF JON WELLINGHOFF, ACTING CHAIRMAN, FEDERAL ENERGY
REGULATORY COMMISSION
Mr. Wellinghoff. Thank you, Mr. Chairman, members of the
committee. My name is Jon Wellinghoff and I'm the Acting
Chairman of the Federal Energy Regulatory Commission. Thank you
for the opportunity to appear before you today to discuss the
issues related to electric transmission lines. I commend you,
Mr. Chairman, and the committee for your decision to hold this
hearing, and I also commend you and Senator Reid for the
legislation that each of you has circulated and-or introduced
on these important issues.
I think the place to start is determining what problem are
we trying to solve. Taking full advantage of our capacity to
develop clean, renewable power is essential to meeting our
national energy goals. These goals include reducing our
greenhouse gas emission and reliance on carbon-emitting sources
of electric energy and strengthening our national security, as
well as revitalizing our economy.
Thus the problem is how to construct the new electric
transmission facilities that are essential to bringing new
sources of renewable energy to market. I believe that we need a
national policy commitment to develop an extra-high voltage,
EHV, transmission infrastructure to bring renewable energy from
remote areas where it's produced most efficiently to our large
metropolitan areas, where most of this Nation's power is
consumed. We must also commit to developing the feeder lines
and network upgrades that will be necessary to interconnect and
deliver large amounts of energy from those remote renewable
resources.
Developing local renewable energy and resources is
important as we expand our capacity to generate clean power.
But it should not be confused as a separate issue from, and
it's not a substitute for, developing the EHV transmission
infrastructure that I have described. The two should work hand
in hand.
A critical issue in constructing an EHV transmission
infrastructure is transmission siting. I believe that without
some level of broader Federal siting authority to accommodate
high levels of renewable energy it's unlikely that the Nation
will be able to achieve energy security and economic stability.
The commission has the institutional structure, capacity,
and experience to make important contributions to this national
transmission grid-building effort. Should Congress decide to
give the commission some form of enhanced transmission siting
authority, I recommend that Congress base that authority on the
principles of energy infrastructure development that have
worked well in other areas of energy infrastructure siting
under the commission's jurisdiction. Through decades of
experience in siting natural gas pipelines and in siting hydro
projects and associated transmission lines, the commission has
established regulatory regimes that encourage timely
development of appropriate energy projects. These regimes
provide for extensive public participation, including
participation by affected States, protecting the interests of
consumers, and safeguarding the environment.
We also have learned that a single Federal agency having
the responsibility and authority to make siting decisions with
regard to projects that affect the national interest is the
most efficient way to site major energy projects.
In addition to siting, we must address closely related
issues of transmission planning, cost allocation, and
reliability if we are to develop an effective national EHV
electric transmission grid that can spur the production and
movement to consumers of renewable energy. The commission has
recognized that transmission planning increasingly must look
beyond the needs of a single utility or even a single State to
examine the transmission requirements of the entire region.
Effective regional transmission planning will improve
reliability, reduce congestion, increase the deliverability of
existing power supplies, and identify investments necessary to
integrate significant and potential sources of renewable energy
that are constrained by lack of adequate transmission capacity
or facilities.
We would achieve greater benefits and efficiencies by
developing interconnection-wide transmission plans focused on
facilities that are needed to transport electric energy from
areas rich in renewable energy resources to load centers.
I recommend that any new transmission planning requirement
be harmonized with, rather than supplant, planning efforts
already taking place at the State and local level. Similarly,
if Congress determines that there are broad public interest
benefits in developing an EHV transmission system necessary to
accommodate the Nation's renewable energy potential, and
therefore the costs of transmission facilities needed to meet
our renewable energy potential should be fairly spread to a
broad group of energy users, then Congress should consider
giving the commission clear authority to allocate such
transmission costs on all load-serving entities within the
interconnection or part of an interconnection.
Even when delivered via an EHV transmission system,
renewable energy resources must be integrated into the
transmission system in a manner consistent with reliable
operation of the grid. The commission has approved the first
set of mandatory reliability standards for the bulk power
transmission system and the commission will continue to approve
reliability standards, including cyber security standards, to
ensure transmission grid reliability.
I would like to highlight two other factors that contribute
to reliability. First, in addition to improving market
transmission efficiency, demand resources, including demand
response, are the glue necessary to reliably integrate large
amounts of energy from renewable energy resources into the
transmission system.
Second, section 1305 of the Energy Independence Security
Act of 2007 requires the commission to promulgate rules for the
smart grid standards to govern interoperability. These
standards will modernize the transmission grid, making it more
efficient and more able to accommodate both additional
renewable resources and demand resources as well.
In summary, to achieve our national energy goals Congress
and Federal and State regulators, including the commission,
must address in a timely manner the issues of transmission
siting, planning, and cost allocation while recognizing
reliability issues. Congressional action in these related
areas, particularly additional siting authority to build an EHV
transmission line to accommodate high-quality location-
constrained renewable energy, would provide greater ability to
achieve these important goals.
Thank you again for giving me this opportunity to appear
before you today. The commission stands ready to work with
Congress, State and Federal agencies, and other stakeholders on
these important issues, and I will be glad to answer any of
your questions. Thank you.
[The prepared statement of Mr. Wellinghoff follows:]
Prepared Statement of Jon Wellinghoff, Acting Chairman, Federal Energy
Regulatory Commission
Mr. Chairman, and members of the Committee: My name is Jon
Wellinghoff, and I am Acting Chairman of the Federal Energy Regulatory
Commission (Commission). Thank you for the opportunity to appear before
you today to discuss the critical topic of the siting of electric
transmission facilities. The timely siting of electric transmission
facilities will be essential to meeting our Nation's goal of reducing
reliance on carbon-emitting sources of electric energy and bringing new
sources of renewable energy to market. To meet the challenges of
building needed new transmission facilities we must address not only
the role of Federal siting authority but also the closely related
issues of transmission planning, cost allocation and reliability. The
time has come to develop a regulatory framework that will allow us to
successfully meet these challenges.
I commend you, Mr. Chairman, and the Committee for your decision to
hold a hearing on these important issues. I also commend you and
Senator Reid for the legislation that each of you has circulated or
introduced in this area.
introduction
President Obama has stated that the country that harnesses the
power of clean, renewable energy will lead the 21st century. As the
President noted in his February 24 speech to Congress, the recovery
plan developed by the White House and Congress calls for doubling our
supply of renewable energy in the next three years, with historic
investments in basic research funding that will spur new discoveries in
energy. The President also stated that we will soon lay down thousands
of miles of power lines that can carry new clean energy to cities and
towns across this country.
I believe that, to implement these goals, there must be a mechanism
to invoke federal authority to site the transmission facilities
necessary to interconnect renewable power to the electric transmission
grid and move that power to customer load. We need a National policy
commitment to develop the extra-high voltage (EHV) transmission
infrastructure to bring renewable energy from remote areas where it is
produced most efficiently into our large metropolitan areas where most
of this Nation's power is consumed. Certainly, developing local
renewable energy and distributed resources is also important as we
expand our capacity to generate clean power, but that is a separate
issue from, and is not a substitute for, developing the EHV
transmission infrastructure that I describe above and the related
feeder lines that will interconnect renewable energy resources to the
transmission grid.
Without this National commitment, we will not be able to take full
advantage of our capacity to develop clean power. Clean power is
essential to meeting our National energy goals, such as reducing
greenhouse gas emissions, strengthening our National security, and
revitalizing our economy.
At a conference held by the Commission on March 2, a diverse group
of commenters shared the view that broader federal transmission siting
authority is necessary to promote the growth of renewable energy.
Development of a structured regulatory framework will enable the United
States to build the EHV transmission infrastructure necessary to
deliver our Nation's high quality, location-constrained renewable
resources to load centers. That framework must adequately address
transmission siting and the related issues of transmission planning and
cost allocation.
the commission's experience in siting energy infrastructure
The Commission has the institutional structure, capacity, and
experience to make important contributions to this National
transmission grid building effort. The Commission is well-versed in
reviewing and authorizing critical energy infrastructure projects, and
in establishing a regulatory regime that encourages the development of
appropriate energy projects, while at the same time protecting the
interests of consumers and safeguarding the environment.
Since 1920, the Commission has been charged with licensing and
overseeing the operation of the Nation's non-federal hydropower
projects. Today, the Commission regulates over 1,600 projects with the
capacity to produce over 54 gigawatts of clean, renewable electric
energy. Further, under existing authority in the Federal Power Act, the
Commission has sited thousands of miles of electric transmission lines
related to these projects that have delivered this power to the
Nation's consumers.
Under the Natural Gas Act, the Commission has authorized the
construction of natural gas pipelines for over 65 years. Under the
Commission's oversight, the country has developed a robust,
comprehensive pipeline grid that moves natural gas supplies from
producing areas to consuming regions. Since 2000, the Commission has
approved over 13,000 miles of new pipeline, with a capacity of nearly
95 billion cubic feet per day of natural gas. In total, there are
nearly 215,000 miles of interstate natural gas pipeline in service that
cross multiple states.
Based on its decades of experience in siting natural gas pipelines
and in siting hydropower projects and associated transmission lines,
the Commission has developed comprehensive, efficient processes that
provide for public notice and extensive public participation, including
participation by affected states. These processes ensure the early
identification of issues (and where possible, consensual resolution of
them), development of a thorough environmental analysis, and decisions
based on a complete record and consideration of the public interest. We
have also learned that a single federal agency having the
responsibility and the authority to make siting decisions with regard
to projects that affect the National interest is clearly the most
efficient way to site major energy projects. In a typical
infrastructure proceeding, the Commission involves, from the prefiling
process forward, federal and state resource agencies (as well as other
relevant federal agencies, such as the Department of Homeland Security
and the Department of Transportation), Indian tribes, local government,
and private citizens, to assist in the early identification of issues
and the development of the record. After gathering input from these
sources, the Commission crafts a decision that comports with all
aspects of the public interest.
the commission's transmission siting authority
In 2005, Congress gave the Commission authority to site and permit
interstate electric transmission facilities, under limited
circumstances and only within geographic areas designated by the
Secretary of Energy as National interest electric transmission
corridors. The Commission issued regulations establishing procedures
that involve extensive information-sharing and consultation with state
and federal agencies, members of the public, and other stakeholders.
The Commission staff is currently working with one potential applicant
under these regulations, using the prefiling process to provide
information regarding necessary data and analyses. As discussed later
in this testimony, the prefiling process is the first step the
Commission takes to involve all stakeholders in the siting of energy
infrastructure.
However, the United States Court of Appeals for the Fourth Circuit
has recently held that the limited authority granted by Congress to the
Commission to review and site facilities needed to transmit electric
energy in interstate commerce is not available in situations where a
state agency has timely denied an application for a proposed project,
regardless of how important the project may be in relieving congestion
on the interstate grid. The court's ruling is a significant constraint
on the Commission's already-limited ability to approve appropriate
projects to transmit energy in interstate commerce.
Congress should consider the question of how best to exercise its
authority over interstate commerce to ensure that necessary
transmission is built in a timely manner to deliver location-
constrained renewable power to customers. Without broader Federal
siting authority to accommodate high levels of renewable electric
energy--authority similar to that which exists for interstate natural
gas pipelines and most non-Federal hydropower projects--it is unlikely
that the Nation will be able to achieve energy security and economic
stability. Similarly, the development of new EHV interstate
transmission facilities, bolstered by broader federal siting authority,
would assist states in meeting their renewable portfolio standards.
principles for siting transmission facilities
Should Congress decide to give the Commission some form of enhanced
transmission siting authority, I recommend that Congress consider
basing it on the following principles of energy infrastructure
development, which have worked well in the other licensing areas under
the Commission's jurisdiction: 1) a pre-filing process that allows and
encourages all affected stakeholders to identify issues early; requires
working on environmental review and a project application
simultaneously; and involves common efforts to resolve conflicts and to
identify an acceptable environmental alternative; 2) designating a
single agency to make the overall public interest determination, while
respecting the roles of other federal and state agencies; 3) allowing
that agency to establish a schedule for all actions related to a
proposed project, thus ensuring that agencies act in parallel and that
the public can rely on predictable milestones; 4) building one federal
record, including one environmental document, on which decisions are
made; 5) providing for expeditious judicial review in a single United
States court of appeals (either in the circuit where the proposed
facility is to be sited or in the District of Columbia Circuit), based
on the record developed by the lead agency; and 6) once a federal
decision has been made, authorizing the permittee to use federal
eminent domain to acquire the property needed for a project that has
been determined to be in the public interest.
related matters
In addition to siting issues, the following are also crucial
aspects of developing an effective National EHV electric transmission
grid that can spur the production and movement to market of renewable
energy.
Planning
Effective regional transmission planning will improve reliability,
reduce congestion, increase the deliverability of existing power
supplies, and identify investments necessary to integrate significant
potential sources of renewable energy that are constrained by a lack of
adequate transmission capacity or facilities. Increasingly, such
planning must look beyond the needs of a single utility or even a
single state to examine the transmission requirements of the entire
region.
The Commission has recognized the need for improvements in
transmission planning. To improve the coordination of transmission
planning among utilities, it required all public utility transmission
providers to establish and participate in open and transparent regional
transmission planning processes (Order No. 890, February 2007). The
Order No. 890 regional planning process is in its first year, and the
Commission is reviewing how well those are working, is monitoring
implementation, and will be looking for ways to improve the regional
planning process.
Meeting our National energy goals will require building on such
regional planning initiatives and expanding their scope. For example,
we would achieve greater benefits and efficiencies by developing
interconnection-wide transmission plans focused on facilities that are
needed to transport electric energy from areas rich in renewable energy
resources to load centers. I recommend that any new transmission
planning requirements be harmonized with, rather than supplant,
planning efforts already taking place at the state and local levels.
Cost Allocation
Renewable energy resources such as wind, solar, and geothermal are
usually found in economically developable quantities at dispersed
locations remote from load centers. For this reason, there are often
high costs associated with developing transmission facilities needed to
deliver power from such resources.
Under FPA sections 205 and 206, the Commission ensures that public
utilities' (investor-owned utilities) rates, terms and conditions of
transmission service in interstate commerce are just, reasonable, and
not unduly discriminatory or preferential. This responsibility includes
allocating the costs of new transmission facilities built by public
utilities. At present, the Commission has greater ability to assign
such costs over broad geographic areas where there is a regional
transmission organization (RTO) or independent system operator (ISO).
If Congress determines that there are broad public interest
benefits in developing the EHV transmission system necessary to
accommodate the Nation's renewable energy potential, and therefore that
the costs of transmission facilities needed to meet our renewable
energy potential should be fairly spread to a broad group of energy
users (for example across a region or an entire interconnection), then
Congress should consider giving the Commission clear authority to
allocate such transmission costs to all load-serving entities within an
interconnection or part of an interconnection.
Reliability, Demand response, and Smart Grid
Renewable energy resources, even delivered via an EHV transmission
backbone system, must be integrated into the transmission system in a
manner consistent with reliable operation of the grid. EPAct 2005 added
a new section 215 to the FPA, pursuant to which the Commission has
certified an Electric Reliability Organization, approved the first sets
of mandatory reliability standards for the Bulk-Power System, and is
enforcing compliance with approved standards. The Commission will
continue to approve reliability standards, including cybersecurity
standards, to ensure transmission grid reliability. Two additional
factors are noteworthy with regard to the transmission grid. First,
building on the Commission's existing authority with respect to demand
response, section 529 of the Energy Independence and Security Act of
2007 directs the Commission to complete a National Assessment of Demand
Response and a National Action Plan on Demand Response. In addition to
improving market and transmission efficiency, demand resources
(including demand response) are the ``glue'' necessary to reliably
integrate large amounts of energy from renewable energy resources into
the transmission system. Second, section 1305 of the EISA requires the
Commission to promulgate rules for ``smart grid'' standards to govern
interoperability. These standards will modernize the transmission grid,
making it more efficient and more able to accommodate both additional
renewable resources and demand side resources.
commission actions facilitating transmission for renewables
The Commission has undertaken a number of initiatives, within the
scope of its current FPA authority, to encourage the transmission of
renewable power. These include:
In June 2005, the Commission, in Order No. 661, required
standardized interconnection procedures that recognized the
operational characteristics of wind generation.
In November 2006, the Commission issued a final rule
establishing procedures for implementing the limited
transmission siting authority provided by the Energy Policy Act
of 2005.
In February 2007, the Commission issued Order No. 890,
implementing open-access transmission reforms, which, among
other things, required that public utilities offer conditional
firm service, which is of particular importance to wind
resources; required transmission providers to conduct studies
to evaluate transmission upgrades needed to connect major new
areas of wind generation; required, where appropriate,
comparable treatment in the transmission planning process of
advanced technologies and demand-side resources; exempted wind
and other intermittent resources from the highest tier of
energy and generator imbalance provisions; and found that sales
of ancillary services to support transmission systems by demand
response and other load resources shall be permitted, where
appropriate, on a basis comparable to service provided by
generation resources.
In April 2007, the Commission approved an innovative
California Independent System Operator (CAISO) proposal to
allocate costs of facilities needed to interconnect location-
constrained resources (such as wind and solar) to the electric
transmission grid.
In March 2008, the Commission provided guidance to RTOs and
ISOs on processing interconnection queues, responding in part
to backlogs in regions that have attracted significant new
renewable energy resources.
In October 2008, the Commission granted transmission rate
incentives for PacifiCorp's Energy Gateway lines to deliver
renewable energy in six Western States.
In December 2008, the Commission granted transmission rate
incentives for the Prairie Wind and Tallgrass lines to access
wind power in Oklahoma and Kansas.
In February 2009, the Commission approved rates for the
Chinook and Zephyr lines to move wind power from Montana and
Wyoming to the Southwest, adopting a more flexible approach to
securing financing for merchant transmission projects.
Despite all of these actions, existing and future transmission will
not be adequate to fully realize our potential for renewable energy
development unless Congress provides additional tools. Foremost among
these tools must be a way to facilitate the siting of new EHV
transmission capacity.
conclusion
In summary, to achieve the Nation's renewable energy goals,
Congress and Federal and state regulators, including the Commission,
must address in a timely manner the issues of transmission planning,
transmission siting and transmission cost allocation. Congressional
action to address all three of these related areas, particularly
additional siting authority to build EHV transmission lines to
accommodate high quality, location-constrained renewable energy, would
provide greater ability to achieve these important goals. For example,
both the bill that you, Mr. Chairman, have circulated and the bill
introduced by Senator Reid last week address all three of these areas.
I would be happy to work with the Congress as you consider legislation
to provide a regulatory framework for tackling the challenging energy
issues that we face, and to provide Commission staff technical
assistance respecting any legislation the Committee may consider.
Thank you again for giving me the opportunity to appear before you
today. I stand ready to work with Congress, state and federal
regulators, industry, and other stakeholders on these important issues.
I would be happy to answer any questions you may have.
The Chairman. Thank you very much.
Commissioner Clark, why don't you go right ahead.
STATEMENT OF TONY CLARK, COMMISSIONER, NORTH DAKOTA PUBLIC
SERVICE COMMISSION, ON BEHALF OF THE NATIONAL ASSOCIATION OF
REGULATORY UTILITY COMMISSIONERS AND THE NORTH DAKOTA PUBLIC
SERVICE COMMISSION
Mr. Clark. Thank you, Mr. Chairman, and good morning, and
Ranking Member Murkowski and members of the committee. My name
is Tony Clark and I'm a member of the North Dakota Public
Service Commission. I also serve as Second Vice President for
the National Association of Regulatory Utility Commissioners,
or NARUC. Today I'll be testifying on behalf of NARUC and,
where noted, the North Dakota PSC.
I'm honored to have the opportunity to appear before you
this morning and to offer a State perspective on transmission
in general and specifically on legislative proposals on Federal
siting and regional transmission planning. I'd like to have my
testimony submitted into the record and will summarize my views
here.
The Chairman. We'll include all the testimony as if read.
Mr. Clark. All right, thank you.
There are many challenges to the development of much-needed
growth in the transmission system that is vital to reliable
electric service, our economic growth, and our national
security. Without increased transmission capacity, our ability
to develop the resources necessary to meet current and future
demand may be jeopardized, particularly if we embark on a
policy that limits greenhouse gas emissions and increases our
reliance on renewable generation. In addition, it has been
projected that the demand for electric energy in the United
States will grow by more than 30 percent in the coming decades.
Significant upgrades will be necessary in order to meet this
demand. Solutions to the current transmission challenges facing
us are not quick, simple, noncontentious, inexpensive, or in
some cases obvious. Finding and implementing solutions will
require cooperation by, not confrontation among, the various
stakeholders.
In my written testimony I mention that NARUC is debating a
new policy on transmission. I'd like to update that and state
for the record that NARUC did in fact update and adopt a new
policy just this Tuesday afternoon, and I would request that
this resolution* also be submitted into the record.
---------------------------------------------------------------------------
* Document has been retained in Committee files.
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I'm going to stray a bit from what's in my written
testimony, but I want to provide you details on the new policy
and the context in which it was adopted. It should come as no
surprise, and I'm sure it comes as no surprise to members of
this committee, that as an association made up of State
regulators, NARUC generally opposes further Federal authority
over transmission siting and planning. We're barely 3 years
removed from the passage of the Energy Policy Act of 2005 and
we would prefer to see that process, which gave the Federal
Energy Regulatory Commission backstop authority over certain
national interest lines play out before we start over.
That being said, the White House and Congressional
leadership have both made clear that they intend to move
forward with additional Federal oversight of transmission
expansion. Our membership recognizes that this is reality and
has been discussing since mid-February possible updates to our
existing policy. Our membership held a spirited debate last
month and earlier this week and the consensus reached was that,
although we continue to believe that Congress should not expand
Federal authority over transmission siting, we believe that we
did come up with a set of principles that we believe Congress
should incorporate should it decide to address this issue.
These principles reflect the vitally important role State
regulators play in siting and planning transmission and are
geared to ensure that States and regions are more than just
stakeholders, but key drivers in developing new energy
infrastructure. The principles, which are available on our web
site, are as follows.
First of all, any additional authority granted to FERC by
the legislation allow for primary jurisdiction first by the
States and that FERC provide, as Senator Reid referenced, a
backstop authority that be as limited in scope as possible. In
no event should FERC be granted any additional authority over
the siting and construction of new intrastate transmission
lines. We hope that those very in-State lines, you would
continue to see that the benefit rests in having those be at
the State level rather than Federalized.
In no event should FERC be granted any authority to approve
or issue a certificate for new interstate transmission line
that is not consistent with the regional transmission plan
developed in coordination with affected State commissions or
other designated State siting authorities and regional planning
groups that covers the entire route of the proposed project. We
do note that planning is an important part of the legislation.
In no event should FERC be granted any additional authority
to approve or issue a certificate for a new interstate
transmission line unless there are already in place either cost
allocation agreements among the States through which the
proposed project will pass, that governs how the project will
be financed and paid for, or a FERC-approved cost allocation
rule or methodology that covers the entire route of the
project.
In no event should any legislation allow FERC to preempt
State authority over retail ratemaking, the mitigation of local
environmental impacts under State authority, the
interconnection to distribution facilities, the siting of
generation, or the participation of affected stakeholders in
State and-or regional planning processes.
Finally, in no event should any legislation preempt State
authority to regulate bundled retail transmission services.
Mr. Chairman and members of the committee, I want to
reiterate the statement that NARUC President Fred Butler made
when he was commenting on Senator Reid's transmission bill last
week. He said that he appreciates Congress's attention to this
issue and that we do look forward to working together.
I thank you, Chairman Bingaman, for your leadership as well
and for opening your doors to us as you crafted your draft
proposal. I know you and Senator Reid recognize the important
role States play in this and we all want the best possible
result for the environment and, most of all, for our consumers.
These issues are extremely sensitive within our
organization precisely because they do not lend themselves to
simple or consensus solutions. Siting and cost allocation
issues are often controversial because in most situations
someone's gain is someone else's loss. There are no easy fixes
here, but if we work together and maximize the core
competencies between the State and Federal Governments we
believe we can make progress.
Thank you. I look forward to any questions you may have.
[The prepared statement of Mr. Clark follows:]
Prepared Statement of Tony Clark, Commissioner, North Dakota Public
Service Commission, on Behalf of the National Association of Regulatory
Utility Commissioners and the North Dakota Public Service Commission
Good morning Chairman Bingaman, Ranking Member Murkowski, and
Members of the Committee:
My name is Tony Clark, and I am a member of the North Dakota Public
Service Commission (NDPSC). I also serve as Second Vice President of
the National Association of Regulatory Utility Commissioners (NARUC).
Today I will be testifying on behalf of NARUC and where noted, the
NDPSC. I am honored to have the opportunity to appear before you this
morning and offer a State perspective on ``transmission'' in general
and specifically on legislative proposals on federal siting and
regional transmission planning.
NARUC is a quasi-governmental, non-profit organization founded in
1889. Our membership includes the State public utility commissions
serving all States and territories. NARUC's mission is to serve the
public interest by improving the quality and effectiveness of public
utility regulation. Our members regulate the retail rates and services
of electric, gas, water, and telephone utilities. We are obligated
under the laws of our respective States 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.
There are many challenges to resolve prior to the development of
the much-needed growth in the transmission system that is vital to
reliable electric service, our economic growth, and our national
security. Without increased capacity in the transmission grid, our
ability to develop the energy resources necessary to meet current and
future demand may be jeopardized, particularly if we embark on a policy
that limits greenhouse gas emissions and increases our reliance on
renewable generation. In addition, it has been projected that the
demand for electric energy in the United States will grow by more than
30 percent over the coming decades. Significant upgrades will be
necessary in order to meet this demand. Solutions to the current
transmission challenges facing us are not quick, simple, non-
contentious, inexpensive, nor, in some cases, obvious. Finding and
implementing solutions will require cooperation by, not confrontation
among, the various stakeholders.
Currently, NARUC is debating a new policy position on transmission.
These difficult discussions are ongoing and I bring this to your
attention in an effort to illustrate that the nation's utility
regulators are well aware of the issues and complications surrounding
the transmission policy. These issues are extremely sensitive within
our organization precisely because they do not lend themselves to the
simple or even consensus solutions. Siting and cost allocation issues
are often controversial because in most situations someone's gain comes
at someone else's expense.
background
The Energy Policy Act of 2005 (EPAct 2005) required the Department
of Energy (DOE) to conduct a study of electric transmission congestion
one year after the legislation was enacted, and every three years
thereafter (language was included in the recently signed ``stimulus''
legislation modifying the DOE congestion study process). After
considering alternatives and recommendations from interested parties,
DOE must issue a report, based on the study, which may designate any
geographic area experiencing electric energy transmission capacity
constraints or congestion that adversely affects consumers as a
national interest electric transmission corridor (NIETC).
The first DOE Congestion Study was issued on August 8, 2006. On
April 26, 2007, the DOE issued two draft NIETCs: the Mid-Atlantic Area
National Corridor (some or all counties in Delaware, Ohio, Maryland,
New Jersey, New York, Pennsylvania, Virginia, West Virginia, and the
District of Columbia); and the Southwest Area National Corridor (seven
counties in southern California, three counties in western Arizona, and
one county in southern Nevada). On October 2, 2007, DOE finalized the
designations of both NIETCs: the Mid-Atlantic Area National Interest
Electric Transmission Corridor (Docket No. 2007-OE-01); and the
Southwest Area National Interest Electric Transmission Corridor (Docket
No. 2007-OE-02). DOE affirmed the NIETC designation orders on March 10,
2008.
EPAct 2005 gave federal backstop siting authority of certain
electric transmission facilities, based upon the process outlined
above, to the Federal Energy Regulatory Commission (FERC). Upon NIETC
designation by DOE, FERC may issue permits to construct or modify
electric transmission facilities if FERC finds that:
(1) A State in which such facilities are located does not
have the authority to approve the siting of the facilities or
to consider the interstate benefits expected to be achieved by
the construction or modification of the facilities;
(2) The applicant is a transmitting utility but does not
qualify to apply for siting approval in the State because the
applicant does not serve end-use customers in the State; and
(3) The State with siting authority takes longer than one
year after the application is filed to act, or the State
imposes conditions on a proposal such that it will not
significantly reduce transmission congestion or it is not
economically feasible.
To issue a permit, FERC must find that proposed facilities:
(1) are used for interstate commerce;
(2) are consistent with public interest;
(3) significantly reduce transmission congestion in
interstate commerce;
(4) are consistent with national energy policy; and
(5) maximize the use of existing towers and structures.
siting
A major impediment to siting energy infrastructure, in general, and
electric transmission, in particular, is the great difficulty in
getting public acceptance for needed facilities. This tells us that no
matter where siting responsibility falls--with State government, the
Federal government, or both--as prescribed in the EPAct 2005, siting
energy infrastructure will not be easy and there will be no ``quick
fix'' to this situation.
During the EPAct 2005 debate, NARUC opposed the ``backstop siting''
provision. NARUC's position prior to passage of EPAct 2005 was, and
continues to be, that to have the greatest economical and environmental
benefits transmission facilities should not be nationalized but
encouraged to be regionalized. Just as States have a role in the siting
of interstate highways, States need to continue having an active role
in transmission decisions.
As Congress considered EPAct 2005, NARUC expressed deep concern
with the language that eventually became Section 1221. At that time,
NARUC opined that the language could in essence overrule legitimate
State agency concerns and laws with regard to how a State ruled on a
transmission project. The language would then permit FERC to vacate the
decision and preempt State law and actions. It appears as though our
initial observations and fears were accurate and led to a federal court
case. In Piedmont Environmental Council v. FERC, the Fourth Circuit
overturned FERC's expansive interpretation of its backstop siting
authority in NIETCs. The court followed Commissioner Kelly's dissent to
Order 689, and held that section 216 of the Federal Power Act (which
gives FERC backstop siting authority if a State ``withheld approval for
more that one year'') clearly does not give FERC siting authority when
a State affirmatively denies a siting permit application within the
year.
In its comments on the FERC rulemaking which inspired the court
action, NARUC said it expected the backstop siting authority to have
limited applicability because the majority of the State commissions
have the authority to approve or deny proposed transmission projects
within their jurisdictions and State commissions are frequently allowed
to address the interstate benefits of proposed projects. Furthermore,
many State statutes require a petitioner to obtain a certificate of
public convenience and necessity, or some other similar certificate,
from a State commission before constructing transmission facilities
regardless of whether the applicant provides electric service to end-
use customers. In its comments, NARUC proposed that:
1. FERC clarify that federal backstop siting authority under
FPA Section 216 is only triggered when the State Commission
fails to or cannot act in a timely manner;
2. FERC clarify how it will apply the federal backstop
criteria;
3.The proposed rule be revised to implement the due process
requirements of the statute; and
4. The Final Rule adopted should incorporate a reference and
deference to extensive siting records developed at the State
level to prevent duplication and confusion.
The Final Order gave the States one full year to consider a
transmission line siting application before the federal pre-filing
process begins. The intent is to avoid conducting ``parallel
proceedings''--where a State commission and FERC would be considering a
siting application at the same time. If such ``parallel proceedings''
were allowed, that process would create ex parte and prejudgment
concerns under State law. Such a situation could potentially result in
an applicant ``gaming'' the siting process by purposefully filing a
deficient application to the State with the hopes of starting the one-
year federal clock and precluding adequate State consideration of the
application. NARUC did not appeal the FERC backstop siting rule and our
members have generally been attempting to work within the framework of
the EPACT 05 backstop provision.
With this as a backdrop, our membership is troubled, that Congress
finds it necessary to begin consideration of changing the siting
provision that was just established in EPAct 05. This provision has not
been given an appropriate amount of time to ascertain whether or not it
can, will or is working. We are pleased, however, to see that members
of this body are also concerned with federal government involvement in
the siting of electric transmission. For instance, there is currently a
proposed transmission project in New York State, which is encountering
intense local opposition. In the February 20, 2009, edition of the
Utica Observer-Dispatch, Senator Charles Schumer (D-NY), was quoted
``We will do everything we can to make sure that New York has final say
on routing decisions, which is what the court intended.'' We suspect
that many federal elected officials will reach a similar conclusion
when confronted with angry and vocal constituents whose rates may go up
in order to pay for a line which they believe will provide them no
benefits while producing financial gain for generators and transmission
owners.
If Congress does anything on siting, it should affirm the Fourth
Circuit decision by clarifying that if a State turns down a
transmission line proposal for good reason and within a reasonable time
frame; FERC should not be able to second guess the State. FERC
Commissioner Suedeen Kelly correctly reasoned that it was
incomprehensible that Congress intended FERC to override timely State
decision. In addition, it only seems fair that the one-year clock for
State action needs to be suspended whenever a federal agency is the
cause for the State delay in a permitting decision.
planning
State Commissions are acutely aware of the necessity and process of
regionally planning transmission projects. In all sections of the
country where there is a regional planning process, State Commissioners
and their staffs are participants in the process. For example, the
transmission planning effort currently taking place in the Upper
Midwest is being led by the Governors and state commissions in the
States of Minnesota, North Dakota, South Dakota, Iowa and Wisconsin.
Our five States have formed the Upper Midwest Transmission Development
Initiative (UMTDI) to coordinate sub-regional electric transmission
planning and related cost allocation issues. I would like to speak to
that now in my capacity as a member of the North Dakota PSC.
With a geographically dispersed resource like wind, generation
development may be impeded because the large transmissions lines needed
are not available where the wind resource is best. But, the
transmission lines do not get built because there is currently limited
generation development there. We are attempting to break this ``chicken
and egg'' cycle that can too often impede renewable projects. Rather,
as a region, we believe wind will be a major player in meeting our
electricity needs going forward. To encourage wind development, we plan
to proactively choose a number of geographic zones for development and
then model a transmission and cost allocation system from there. In
many ways, it is an attempt to learn from the success of the Texas
Competitive Renewable Energy Zones process, but over a region where
there are five states, a regional transmission organization (RTO), and
FERC, as opposed to just Texas and ERCOT.
Over the last six months, utility regulators, governors' staff,
utilities, transmission owners, non-governmental organizations and the
Midwest ISO have been working to identify our States' optimum renewable
energy resource zones and the regional transmission expansion needed to
link those resources to load, both in our States and possibly beyond
our region. In addition, we are working to develop a sub-regional cost
allocation approach that is vetted among State stakeholders to help
ensure that adequate transmission infrastructure gets built. Our plan
is to have a sub-regional transmission upgrade plan ready for inclusion
in RTO and regional planning processes by October 2009.
We also recognize that modernizing and expanding the transmission
system is essential to expanding renewable energy generation and
reaching the renewable portfolio goals outlined by President Obama and
many congressional leaders. In my region, we are encouraged by FERC
openness to ensuring that States--and particularly, multi-state
initiatives such as ours--can participate in developing national
interest strategies that allow us to move forward with policies that
provide equitable benefits to our citizens. We understand the
challenges and have moved aggressively to address those that have
seemed intractable in the past. Multi-state need and siting review
requirements have been incorporated into the UMTDI planning
considerations. Through the Organization of MISO States, the five
States have reviewed opportunities to coordinate regulatory procedures.
Current expansion efforts by the transmission owners in our sub-
region reflect progressive development practices that should facilitate
predictable outcomes. In my opinion, the UMTDI effort and its openness
in working with all stakeholders is exactly the kind of effort that is
needed to develop efficient transmission infrastructure.
cost-allocation
State regulators are concerned about transmission reliability,
adequacy, and the costs required to support the development of robust
competitive wholesale markets. The investment that is needed to upgrade
the transmission grid in order to support expanded wholesale power
markets will cost billions of dollars. Notwithstanding the general
benefit to the wholesale electric marketplace of encouraging the
construction of new generating capacity and its interconnection to the
grid, it is also important to provide proper price signals to encourage
optimal demand response and promote economic and efficient expansion of
the grid and siting of generation. The FERC has in the past adopted
transmission pricing policies that generally provide for the direct
assignment of costs to the parties causing the costs.
FERC Order No. 2000 stated the ``[m]arket designs that base prices
on the average or socialization of costs may distort consumption,
production and investment discussions and ultimately lead to
economically inefficient outcomes.'' FERC has departed, in some
instances, from a transmission pricing policy that provides for the
assignment of costs to the cost-causative parties. In general, NARUC
supports efficient pricing policies that result in the economic use and
expansion of the transmission system to support a robust wholesale
electricity market. We recognize that investments needed to maintain
the reliability of the existing transmission systems should continue to
be recovered through rates charged to all transmission users. We
advocate that the cost of upgrades and expansions necessary to support
incremental new loads or demands on the transmission system should be
borne by those causing the upgrade or expansion to be undertaken,
except that FERC should not preclude the assignment of interconnection
cost to the general body of ratepayers within a State when that State's
regulatory body determines that such allocation is in the public
interest.
A robust regional electric transmission system is an essential
prerequisite to support both reliability and the market function
allowing more generators to reach loads and compete directly for
wholesale sales to such loads in order to increase competition among
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 wholesale electric markets, future
increases in renewable generation capacity, and reliability.
majority leader reid's transmission legislation
Last week, Majority Leader Reid introduced ``The Clean Renewable
Energy and Economic Development Act.'' We want to thank Senate Majority
Leader Reid and his staff for reaching out and consulting NARUC as he
drafted this proposal. Sen. Reid is to be commended for bringing this
issue to Congress' attention, and we are optimistic that our continued
dialogue will produce a better outcome for consumers and the
environment. However, we are very troubled by a number of the
provisions included in this legislation. I would like to outline our
concerns and comments here:
Sec.402--How does the National Renewable Energy Zone
Designation relate to the 2009 Renewable Energy Transmission
Study required by Sec. 409 of the American Recovery and
Reinvestment Act? It seems logical that designation of a
Renewable Energy Zone be tied to the study.
Sec. 403--It is unclear how subsequent National Renewable
Energy Zone designations become reflected in the plan. Is the
plan expected to be revised every year (as suggested by the
requirement that the plan be submitted to the Commission
annually Sec. 403(e)(8))? How does that fit with the
requirement that the plan cover at least 10 years into the
future (Sec. 403(e)(5))?
Sec. 403(a)--The selection process for the regional planning
entities is somewhat obtuse. We would recommend that the States
and other stakeholders that must participate in the planning
process have a clearer role in selecting and shaping the
planning entity.
Sec. 403(d)--The one-year time frame from the date of
designations is too short for a comprehensive planning process
with multiple stakeholders. Although we recognize the
importance of immediate action, realistically it seems like at
least two years will be necessary for an initial plan.
Sec. 403(j)((B)(ii)(I) requiring Governor certification that
all load-serving entities ``offer a fairly priced renewable
power purchase option to all the customers of the entities.''--
It is unclear what this section means. It seems that it may
begin to mandate consumer choice, and we would suggest striking
it. We believe it is inappropriate for Congress to mandate
retail rate-design on a one-size-fits-all basis. For example,
in North Dakota the Commission rejected a proposed ``green
tariff'' at the urging of many in the environmental community
because it treated wind as a boutique fuel as opposed to an
integral component of the integrated system.
NARUC opposes Sec. 404. Further, we think that the section
preserving State siting authority Sec (404(n)) creates
potential for forum shopping.
Sec. 404(a)(1)(B) which allows federal siting for a project
that is not included in the Interconnection-wide transmission
plan (if the developer assumes all of the risk and cost of the
proposed facility) may undermine the planning process and cause
organizations to circumvent the planning process. This also
will allow for siting of a line without ANY State input. We
suggest that this section either (a) be removed or (b) require
State consultation before the siting of a line outside of the
Interconnection wide transmission plan, even if the developer
assumes all of the risk.
Sec 404(c)(2)--This section should include language that
would require the Commission to consult with the States in
promulgating regulations regarding the permit applications.
Sec 404(g)--the provisions providing for State consultation
allow the States to offer recommendations in only a very
limited number of areas and allow the Commission to easily
override the State recommendations. These provisions should be
changed to strengthen the States' role in identifying siting
constraints and mitigation measures.
We appreciate Section 406(b) for acknowledging that if the
States submit a joint cost allocation plan, the Commission
should approve the cost allocation unless the plan violates the
conditions of just and reasonableness or unduly inhibits
renewable energy.
We look forward to conversations with the Majority Leader's office
and the members and staff of this committee so we can bring about a
mutually acceptable outcome.
In conclusion, the electric transmission system must have the
capacity to meet the growing energy needs of the nation, regardless of
the generation source. The solutions to the challenges will not come
quickly or easily. These solutions will require the cooperation of all
stakeholders, including State and federal government, and must not
require ratepayers to bare the financial burden with the reward
allocated to the owners of generation and/or transmission. Thank you
and I look forward to your questions.
The Chairman. Thank you both very much for your testimony.
I'll start with 5 minutes of questions. Chairman
Wellinghoff, let me ask you first. I don't know if you've had a
chance to look at this discussion draft that we've circulated
in the last couple of days.
Mr. Wellinghoff. Briefly, Mr. Chairman, briefly.
The Chairman. Do you have any thoughts, initial thoughts as
to how it comports with the recommendations that you have made
about expansion of the commission's authority? Do you believe
that there are ways in which it differs from what you are
proposing, or do you consider it be consistent?
Mr. Wellinghoff. I believe that Senator Reid's bill and the
draft that the committee staff has circulated are very similar,
and certainly to the extent that there are a designation of
regional planning authorities I believe in both bills, and
those are regional planning authorities that as I understand it
could primarily be composed of State entities, then to that
extent they would decide on planning and could decide on cost
allocation, in fact could even be involved in the siting to
some degree. I think that's very consistent with what I am
proposing.
Really, I do not have a concrete proposal here today. I'm
simply here today to indicate that I believe that there does
need to be more Federal involvement in an interstate system if
we are to put in place a system that can effectively deliver
location-constrained remote renewable resources to load
centers.
But I think, with that said, I think the positions that are
in the two bills are very consistent with that overall approach
that I'm proposing and I think not all that inconsistent with
what we're hearing from NARUC today, from my fellow colleague.
The Chairman. Let me just bear down a little on this issue
of planning. Clearly that's one of the most difficult things to
figure out, is how to accomplish the planning that needs to be
accomplished. We've suggested--I believe Senator Reid's bill
does as well--that there should be a regional planning entity
in each interconnection, that should undertake this role, that
it should be approved by the commission, by FERC, and that the
plan should be approved by the commission as well. Further,
that if a body should not emerge as this planning group, then
FERC itself would undertake this role.
I guess one obvious question is is it practical to suggest
that planning bodies such as this should be interconnection-
wide? That's one question. Second, is it practical to think
that FERC could undertake this task if a group did not come
forward to do that planning?
So let me ask both of you those couple of questions. Maybe
we should start with Commissioner Clark.
Mr. Clark. Thank you, Mr. Chairman. With regard to regional
planning, one of the things that I think most NARUC
commissioners would certainly rally around is the idea that
there should be an allowance for a bottom-up type process and,
while there certainly can be a role for interconnection-wide
planning, we also realize that as regions and sub-regions many
of us have been working together for some time.
For example, in my own region of the upper Midwest, the
States of North and South Dakota, Wisconsin, Iowa, and
Minnesota have been working on just these very ideas regarding
working up renewable energy zones and figuring a system to get
it to load.
We would hope that any system that Congress comes up for
allows for those sub-regions to continue to operate and really
allow that interconnection-wide process to be a compilation of
those parts, as opposed to starting from a top-down type
mechanism.
The Chairman. Chairman Wellinghoff.
Mr. Wellinghoff. Yes. I think it is feasible to do
interconnection-wide planning. In fact, the western Governors
are doing that right now. So we have an example of an entity
that could be designated in the western interconnect to do
interconnect-wide planning, that is taking into account, as
Commissioner Clark indicated, the sub-regional activities--
there's sub-regional activities in many of the States--that is
then going to be put into that interconnect-wide plan, that
will look at location-constrained renewable resources and
determine how to deliver those through an extra high voltage
transmission system.
So I think it is feasible on an interconnect-wide basis and
as a backstop I believe that if, for whatever reason, an
interconnect entity was not successful, I believe FERC could
carry that out. We could carry it out with our national
reliability organization, NERC, which we already engage in
planning with respect to reliability. So I think it certainly
could be done by FERC if necessary, but I think it would be
preferable to have it done by the regions on an interconnect-
wide basis.
The Chairman. Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman.
I want to follow up on the planning side of it. There's
certainly a lot of transmission planning that is happening
right now. We've got DOE that's looking at the transmission
needs. We've got WGA that's taking on a renewable energy zone
effort. The RTOs are planning. We're going to hear from some
today. FERC has directed utilities to do a regional planning
approach. In the stimulus bill there was $80 million to FERC
and DOE for transmission planning. Then just yesterday the FERC
of Interior established renewable energy zones on public lands.
So there's a lot going on within the planning, and I would
agree with the chairman that this is a very important area
here. But at some point in time does this, the creation of new
planning entities--do we get to a choke point where we may
disrupt ongoing collaborative planning efforts and possibly
slow the growth of transmission? Should I be worried about this
or not, chairman?
Mr. Wellinghoff. I don't think so, Senator, in the sense
what we're looking at here I think is as I see it anyway, a
very focused purpose. The focused purpose again is to plan for
these location-constrained renewables and moving them to load
centers. That's the transmission planning I'm discussing. I
think it's the core of Senator Reid's bill and in part what is
in the draft circulated by the committee Staff as well.
So that planning process doesn't in any way supplant or
substitute for or interfere with all the other transmission
planning that should continue for all the other purposes, for
reliability, for reduction of congestion, etcetera. In fact,
Senator Reid's bill doesn't remove the section 216 provisions
of the 2005 EPAct for congestion corridors that DOE designated.
So I see it as a separate process that I don't think would
interfere with what's ongoing for general transmission
planning. I see it as very focused.
Senator Murkowski. Would you agree, commissioner, that
these are not duplicative, but that you've got focuses in
different areas that allow for greater collaboration, as
opposed to creating a choke point?
Mr. Clark. Mr. Chairman and Senator Murkowski, I do worry a
bit about that, which is I think one of the reasons that NARUC
has argued that whatever comes about needs to be very narrowly
tailored, so that what Chairman Wellinghoff is talking about is
in fact what happens. I think that we have perhaps a bit of a
concern that if there's mission creep beyond the sort of
renewable energy zone type concept, hooking up a national grid
to meet potentially a national portfolio standard, that we
could have some of those choke points occur.
For example, in my own State I know we would hate to think
of the 70-mile line that we've just sited between Belfield and
Rhame, which is purely in State, be held up because of an
interconnection process that has to take into consideration
theoretically something that could happen in Florida due to the
fact that we're both in the same interconnect.
So I think your concern is valid, which in our mind argues
for a specific and tailored role in the legislation.
Senator Murkowski. Let me ask you, Chairman Wellinghoff,
about the announcement from Secretary Salazar, his secretarial
order yesterday that called for Interior to not only establish
these renewable energy zones, but to handle the permitting and
the environmental review on Federal lands. Do you think that we
need one Federal authority with the authority to coordinate and
oversee the environmental review of the transmission projects
on the Federal lands? If so, is FERC the best entity to do
that?
Mr. Wellinghoff. I actually met with Secretary Salazar
yesterday. I'm meeting with him again this afternoon. I don't
think his vision is incompatible with mine. Certainly the BLM
and other Federal agencies must permit the siting of the actual
renewable facilities and I think that is what he is referring
to. But with respect to the transmission lines that would
connect those facilities, I think you do need one Federal
entity and I think FERC would be an appropriate one to do that,
to the extent that it is this system that we're talking about
of an interstate system to deliver remotely located renewable
energy to the load centers.
So I don't think what Secretary Salazar is proposing is
inconsistent with what I'm saying. I think they are compatible.
The Chairman. A question for you, Commissioner Clark, on
the cost allocation. You mentioned in your resolution coming
out of NARUC, you speak to that. What is your opinion on the
possible interconnection-wide allocation of the transmission
costs? Your resolution provides that no additional authority to
issue a certificate unless there is already in place a cost
allocation agreement among all the States through which the
proposed project will pass.
Is this one of the most difficult aspects that we're going
to be dealing with, is how we resolve this cost allocation
issue?
Mr. Clark. Senator Murkowski, I think you're exactly right.
One thing you probably will not see from NARUC is a very
specific point, is a consensus point on what that cost
allocation should be, because very much within our
organization, just as within Congress, where you're at on that
is very much related to where you sit.
So this is one of those times that I get to separate myself
a bit from NARUC and say that as an organization we don't have
a specific formula on what the cost allocation should be. As a
North Dakota commissioner, coming from a State that has huge
renewable energy potential for export, and looking at how
sometimes the cost allocation process can attempt to determine
a very finite value to costs and benefits and really gets
bogged down in that entire process, I could potentially for
some certain types of projects that serve a national need see
more of a postage stamp type pricing mechanism, simply because
it can facilitate the building of those lines. It's been
successful where tried within ERCOT in Texas. There are
economists who would probably quibble with me whether that's
the appropriate way to do it, but I think that there are a lot
of benefits to a fairly clean and simple way to fund it. But
again, that's speaking from my own perspective and not
necessarily the association.
Senator Murkowski. Thank you, Mr. Chairman.
The Chairman. Senator Udall.
Senator Udall. Thank you, Mr. Chairman.
I want to welcome the panel this morning. This is a very
important topic, obviously. We just passed in the last few
weeks the economic recovery package and in that package there
were $14 billion, if I have the number right, for transmission
grid infrastructure development and energy storage development.
I wonder if both of you would be willing to comment on where
those dollars are being spent, and do we have a chicken and egg
dynamic here, given what we're discussing today, especially
with transmission siting?
In other words, are those dollars sidelined until we answer
some of the questions that are being raised today? Chairman, if
we could start with you and then move to Commissioner Clark.
Mr. Wellinghoff. Thank you, Senator.
As I understand it, and again this is primarily under the
purview of the Department of Energy with respect to the
expenditure of those dollars, but as I understand it those
dollars will largely not be spent for transmission lines per
se, but for upgrades, things like phase monitoring units. In
fact, the meeting I was in with Secretary Salazar yesterday,
Secretary Chu was in that meeting as well. One of the things
that Secretary Chu directed his staff to do was to put some of
those dollars into things like sensing units on transmission
lines so we can gain more data about how those transmission
lines are operating, so we can plan better overall.
So it's my understanding that a good part of those dollars
is going into that kind of an effort. I don't think what we're
doing here today will in any way inhibit those dollars being
spent. We're talking about a lot larger amounts of money for
these types of systems, potentially hundreds of billions of
dollars. That would primarily come from the private sector and
is coming from the private sector now. So I don't think there
is a conflict there.
Senator Udall. Mr. Clark.
Mr. Clark. I'll apologize in advance because I'm afraid I
probably don't have a very good answer for you. I think
Chairman Wellinghoff did a good job of explaining the
waterfront. I think States are still trying to get their hands
around exactly what the potential for those dollars are. I know
that DOE has been working hard to promulgate regulations and
gather information on how that money should be spent, but I am
afraid I probably can't offer much more specific answer than
that. I think we're still struggling to figure out exactly how
all these new mechanisms and levers will work.
Senator Udall. Commissioner Clark, to move to another
subject, you both touched on eminent domain and the use of it
in your testimony. It's a sensitive issue. It certainly I
believe will come to the fore in certain areas and certain
projects. Would you care to comment in any further detail on
eminent domain and how you see the use of it and how we can
best manage it?
Mr. Clark. Senator Udall, I would just comment that I note
that at least one of the drafts, I think Chairman Bingaman's,
allows for either a Federal or State court venue for eminent
domain. I know in North Dakota the commission itself does not
have eminent domain authority. It's strictly the purview of the
courts.
You're right, it is always a contentious issue when it gets
to that point. We work very hard in our commission to try to
encourage utilities to, when they file applications before us,
not be in the position where they feel like it may be going to
eminent domain; that it's far easier to get those things worked
out in advance. Unfortunately, sometimes that can't be done and
those times there are the courts that are available.
We would, of course, urge that there continue to be
potential State relief for eminent domain and not just a
Federal eminent domain provision.
Senator Udall. Chairman Wellinghoff, do you care to
comment?
Mr. Wellinghoff. I certainly think that eminent domain
should be used very sparingly, and I think the history of
siting natural gas pipelines in fact demonstrates that. I have
some statistics here. For example, for the Rex West Pipeline,
approximately 700 miles of 42-inch pipeline in Wyoming,
Nebraska, Kansas, and Missouri, there was only 18 reported
eminent domain actions taken out of 1746 parcels, less than 1
percent. That's replicated in a number of other instances: Gulf
South, 110 miles of 36-inch pipeline with 336 affected
landowners there was no contested eminent domain proceedings
whatsoever.
So we're at least seeing in the gas pipeline area that
eminent domain is used very, very sparingly, if at all.
Senator Udall. Perhaps those lessons could be applied in
this challenge we have to expand our transmission system, and
we can look to you and other experts to understand how we can
bring those same lessons to bear.
Mr. Wellinghoff. I think it's part of the process, by
having one Federal agency coordinating with the landowners and
with the other affected entities to ensure that the process can
work smoothly and that there is a limited exercise of eminent
domain.
Senator Udall. Thank you.
The Chairman. Senator McCain.
Senator McCain. So if I understand your answer to Senator
Udall's question, Mr. Wellinghoff, there are occasions where
eminent domain is appropriate after all other avenues have been
explored?
Mr. Wellinghoff. In very limited instances, that's correct.
There have been some instances with respect to siting
pipelines, for example, where eminent domain proceedings have
been appropriate.
Senator McCain. Do you agree with that, Commissioner Clark?
Mr. Clark. In some cases I think it's true they may be
appropriate because there is a greater need. At the same time,
I think it perhaps illustrates a point that, at least for an
initial crack at siting, States are an appropriate venue to be
because it's frankly much easier for landowners and utilities
to work together in Bismarck or Phoenix or in their local State
capitals, as opposed to expecting landowners to interact at the
Federal level, which is much more difficult to do so.
So I think to the degree that it argues anything, perhaps
it does argue for, again, that more narrowly tailored Federal
role.
Senator McCain. Chairman Wellinghoff, in 2005 one of the
major goals of the legislation was to give your commission the
authority to site and permit interstate electric transmission
facilities under limited circumstances and, as you well know,
within geographic areas designated as national interest
electric transmission corridors.
The U.S. Circuit Court of Appeal, Fourth Circuit Court, has
basically negated that, wouldn't you say?
Mr. Wellinghoff. I think they certainly have limited it to
the extent that they've indicated that if a State in fact
denies an application then there is no backstop authority for
FERC. I think that will substantially limit it. We are
currently considering whether or not to appeal that particular
case, but I do think it does limit the effect of that
particular piece of legislation.
Senator McCain. Even with that legislation in effect,
before the Fourth Circuit Court held as they did there really
wasn't any applications for implementation of that legislation,
was there?
Mr. Wellinghoff. That's correct.
Senator McCain. So we really have not seen the expansion of
facilities that we would have liked to have seen?
Mr. Wellinghoff. We certainly haven't seen developers
proposing to expand facilities in corridors that were
designated by DOE.
Senator McCain. So that whole aspect of this issue needs to
be reviewed in pending legislation?
Mr. Wellinghoff. To the extent that that continues to be a
goal of Congress, that would be correct.
Senator McCain. You agree with that goal?
Mr. Wellinghoff. I certainly agree that we need to do
what's necessary to reduce congestion in the transmission
system, and I think that was the intent of that particular
piece of legislation, which is much different from Senator
Reid's legislation. As I indicated, as I say, Senator Reid's
legislation left in place that legislation and then added on
this piece, which has a different purpose, the purpose is to
take location-constrained renewable resources and delivering
them to load centers. That's different than looking at
congestive corridors as the 2005 legislation did.
We certainly need to do what we can do to relieve
congestion in corridors. We have issues there and problems. I'm
not sure that the way that the legislation was structured in
2005 is the most effective way to do that. I don't have a
recommendation today as to the most effective way. But I
certainly would be happy to get back to you in writing on that
issue.
Senator McCain. Thank you.
The legislation that Senator Reid discussed requires that
75 percent of the generating capacity connected to a new line
must be renewable, and under his proposal and others they
define ``renewable'' as solar, wind, biomass, landfill gas,
renewable biogas, geothermal energy, new hydro capacity at
existing sites.
I notice by its absence that nuclear power is not part of
that, quote, ``renewable energy.'' Do you believe that nuclear
power is renewable energy?
Mr. Wellinghoff. Currently, Senator, where we have the
problem today is with respect to renewables, the ones you've
enumerated.
Senator McCain. My question is do you believe that nuclear
power is renewable energy? My time is expiring.
Mr. Wellinghoff. No, I do not believe nuclear power is
renewable energy.
Senator McCain. Remarkable.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Shaheen.
Senator Shaheen. Thank you, and thank you to our panelists
for being here.
In New England we have some different challenges than I
think you do in the West, Commissioner Clark. But this is
really a question for both of you. Municipal and cooperative
utilities in New England have told us that, at least in New
Hampshire, that they would like the opportunity to jointly
plan, finance, and own new transmission facilities. They think
their participation will bring additional capital, will bring
more political support, and will make cost allocation decisions
easier.
Do you support joint ownership by these utilities? Is this
a partnership that you think could make sense going forward?
Mr. Clark. Senator Shaheen, I think it's worth exploring.
Coming from a State like North Dakota, cooperative power is a
big player in our State's electric system and electric grid and
the economy, as well as Federal power, the Western Area Power
Administration. We have seen where utilities have very
effectively jointly coordinated their systems with those
entities.
So I see the point, concede it, and think it's something
that's certainly worth exploring.
Senator Shaheen. Chairman Wellinghoff.
Mr. Wellinghoff. Yes, Senator, absolutely I believe that we
need to look at multiple ways to own, finance, and develop
transmission lines, and that would include cooperatives and
municipal entities being co-owners of those lines. I would very
much support that.
Senator Shaheen. In the Energy Policy Act of 2005, load-
serving entities were granted long-term transmission rights.
Does your view of Federal transmission policy going forward
recognize those rights?
Mr. Wellinghoff. Yes, it absolutely does.
Mr. Clark. I would concur.
Senator Shaheen. To go to the two bills in front of us
today, do you think it's more cost-efficient and effective to
design a transmission grid that only delivers for renewable
resources or does it make more sense as we're looking at the
resources we have for the future to look at all of the
challenges affecting us on the grid as we're thinking about how
to design and spend resources for new transmission?
Mr. Wellinghoff. Senator, we certainly need to look at all
the challenges, and I think what these two bills suggest is
that we're not excluding anything. Again, all the transmission
planning that would be underneath this overlay of an extra-high
voltage line that's intended, again, to address a specific
problem. As I indicated in my testimony, over 300 gigawatts of
renewable energy currently in the queue that can't get onto
transmission lines, that can't be developed, is the target of
the draft bills. In addition, however, we can continue to plan
for all the other resources, both the distributed resources at
the local level, local renewables in your State and New England
as well, offshore, all that can be planned as well.
I don't think the two are mutually exclusive in any way. I
think they in fact can be made consistent and harmonious.
Senator Shaheen. But let me ask, because I understand the
setting up the grid so that it provides for those renewable
connections. As I looked at it, it presented sort of a
challenge for us in New England because we don't have enough
resources or enough potential energy in the queue to qualify
for the amount of energy that would be needed to have one of
those new load centers.
So I'm not sure how we would then be affected by this.
Also, as I look at the design of that grid, there are
significant resources on both coasts with respect to wind and
potentially tidal energy that would not be included at all in
that design.
Mr. Clark. Senator, I appreciate the concern. I think that
perhaps the reason that renewables take on a particular role in
this is under the discussion of a Federal RPS. If there's going
to be a Federal mandate, then you at least have some rationale
for a Federal role in the siting of these EHV lines that could
help meet that Federal mandate without impacting the underlying
system.
The concern I think that State commissioners might have is
if you get beyond that and start incorporating everything into
it, then there can be, as I spoke about before that, mission
creep into areas that we think probably are not needed and
could be perhaps harmful, by moving some of these steps from a
more local level up to the Federal level.
Mr. Wellinghoff. Senator, it was never my view or vision
that this extra-high voltage system delivering renewables
primarily out of the Midwest, for example, to the East Coast,
would not be able to take advantage of that same system to
deliver the wind energy off the coasts and the ocean
hydrokinetic energy that may be available to not only load
centers on the East, but back into the Midwest, Chicago and
those areas as well.
So it could potentially go both ways. I don't see that as a
barrier either. I think we can develop our offshore wind as
well as develop our onshore wind. But what we ought to do is
develop the cheapest things first, and as I understand it the
wind in the Midwest, is much less expensive to develop than,
offshore wind.
Senator Shaheen. Thank you.
The Chairman. Senator Corker.
Senator Corker. Thank you, Mr. Chairman, and thank both of
you for your testimony.
I'm curious as to just an order of magnitude, not
necessarily dollars, but what kind of investment would be
necessary to deal with congestion and reliability issues that
really strongly affect our energy security in this country,
versus the investment, if you will, to deal with renewables
that is being so discussed here, as far as causing our country
to deal with those basic needs that are so important for us to
function versus adding on renewables? Give me an order of
magnitude of what needs to be invested in our transmission
lines?
Mr. Clark. Senator, I think there's going to be a speaker
who probably can detail those costs very well, perhaps better
than I or Mr. Chairman. But I think the JCSP, which is the
Joint Coordinated System Plan, for at least the interconnect
had for renewables a cost of about $80 billion to meet a 20
percent mandate. Their baseline study not including that, just
using existing resources, I think was $50 billion.
Senator Corker. Baseline?
Mr. Clark. If you didn't consider a national 20 percent
RPS.
Senator Corker. So $50 billion for the basic needs, $30
billion for the renewable needs?
Mr. Clark. I believe so, subject to check.
Mr. Wellinghoff. Senator, I would agree with those numbers.
But again, I think you've got a better witness coming up in the
next panel on that.
Senator Corker. How will the reliability of the grid be
affected with the addition of so much intermittent type of
energy, energy that cannot be used in any way for baseload
power?
Mr. Wellinghoff. Senator, that's one of the keystones I
think of this entire planning process. It shouldn't be affected
at all. In other words, we need to ensure that by putting on
variable resources, which would include wind and solar, that
there is no degradation in the reliability of the grid.
There are multiple ways to ensure that. One is through
additional storage. Another is through things like demand
response and other load-modifying means. Another wayis through
combined cycle combustion turbine units. So there's multiple
ways to ensure the reliability of the grid. Another way, of
course, is better sensing on the grid, better communications on
the grid so we can actually know what's happening and be able
to control it in a much better, efficient, effective way.
Under the 2005 Energy Policy Act, FERC was given the
responsibility to ensure reliability on the grid and we've
taken that responsibility and enacted a series of requirements.
We have a national reliability organization, NERC, that in fact
oversees reliability on the grid, and so we will continue to
ensure that the grid is reliable, would ensure that, even with
putting these additional resources on the grid, the
interconnect-wide plan was set forth in such a way that
reliability was maintained.
Senator Corker. One of the avenues that you didn't mention
is the need for redundance also. That's the other way you
ensure reliability. I'd like to understand from your
perspective how much redundance would be necessary to ensure
reliability, just percentagewise?
Mr. Wellinghoff. With respect to redundance, you need a lot
more redundance with large central station plants, a nuclear
facility for example. A 1,000 megawatt nuclear facility, you're
going to need redundance there. In the West, for example, the
Palo Verde unit is the largest contingency on the western
interconnection.
If you have multiple wind systems or multiple solar
systems, there's not as much need for redundancy because
ultimately you're not going to have all those systems fail at
once. You're going to have, some of them may go out. But if you
have one single large contingency, you have a much higher
redundancy requirement.
Senator Corker. So no percentage?
Mr. Wellinghoff. I don't have a specific percentage for
you. That would take a very large study to determine
percentages for a particular plan.
Senator Corker. But it would be interesting to know because
as we talk about costs, as you mentioned, with the nuclear
component that is figured into the cost, whereas as we look at
the cost here, the overall cost to the public, the fact is that
that redundance is at a cost that's probably not going to be
calculated in as we move ahead; is that correct?
Mr. Clark. Senator, what you raise are excellent points.
It's actually the type of planning that has to take place from
an engineering standpoint to make sure that it is sound. I
would agree with you, all of the costs need to be considered as
we move forward. We talk about the cost of deliverable power to
consumers. You need to consider the fact that there are
intermittent resources.
I would concur with what Chairman Wellinghoff said and
would only add that in the case of wind it does argue for much
more geographically dispersed wind. Wind does not tend to work
particularly well if it's just located in one specific spot,
because even in a State like North Dakota there are days in the
summer with very high load and the wind doesn't blow. So you
need those geographically dispersed resources to be able to
even out the peaks and valleys.
Senator Corker. I know my time is up. Just No. 1 or two,
would you say that taking care of our needs to deal with
reliability and congestion, if you have priorities, is one or
two as it relates to dealing with the renewable component?
Which of the two is of highest priority for our country's
energy security?
Mr. Clark. Senator, just speaking from my own perspective
as a State commissioner who deals with some of these issues in
cases, reliability paired with cost are always the things that
come to the top of the list.
Senator Corker. So the basic need would be of highest
priority.
Mr. Wellinghoff. Certainly, Senator, we've been given the
direction by Congress that reliability is the top priority.
Senator Corker. Thank you.
The Chairman. Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman, and I thank both
of our witnesses.
Mr. Wellinghoff, in the Northwest we're pretty blessed with
already a centralized planning organization, the Bonneville
Power Administration, and we've done quite well on renewables.
We've been able to, using the open season process for
electricity, basically getting rid of the queue and allowing
people who put the resources in to be evaluated up front as a
way to get the best projects on line.
But we have gone from a little more than 25 megawatts of
wind 10 years ago to more than 1500 megawatts of wind today,
and we expect those figures to double by the end of 2009.
That's how much we're doing, that wind generation will equal
about 30 percent of BPA's peak load. That's quite significant
given our hydro history.
So one of the questions I have is how do you think that--
I'm concerned about the western interconnection process,
disrupting what is already I think kind of a model planning
process for the country with what we already have in the
Northwest. So what are your concerns about the legislative
proposal before us and how that would affect the system?
Mr. Wellinghoff. I think Senator Reid's proposal certainly
allows for consideration of what Bonneville has already done
and the successes that you have there. Again, designating a
western interconnect-wide entity that would include the
regional entities as part of it, would include Bonneville. So
their interests would be considered and those interests would
be folded into the overall plan that would be developed. That
would be my expectation, and it would be folded in in such a
way that it would be consistent with, compatible with, and
continue to be beneficial for the Northwest. I would hope and
expect that it would in fact do that.
Senator Cantwell. But with our planning process already
working well and the thought of some maybe $80 million
surcharge, people I think are thinking about the improvements
within our region, not necessarily improvements--I mean, how
would that be affected? That would be a very big concern, to
think that Northwest ratepayers would be paying some sort of
surcharge for improvements in another planning system.
Mr. Wellinghoff. Some part of that $80 million ultimately
is what you're saying, to improvements that you're saying you
may not need, given how successful you are.
Senator Cantwell. I'm actually saying that open season
process has been pretty good and the planning has been very
good. I mean, it's working. So I think we need to think about
what's working about that and apply that, is I guess what I'm
saying.
Mr. Wellinghoff. Right. I do see that.
I think what's missing in the Northwest, and I think you've
hit on it actually. I had a visit from Steve Wright. What's
missing in the Northwest is you expect almost 30 percent wind
in your system, and when you reach 30 percent wind you're going
to have some difficulties with stability and reliability of the
system. I think an interconnect-wide planning process could
help you there, help you in a way to do things like dynamic
scheduling and other things that will ultimately help you
integrate more renewables into your system.
So I think there is some value that could be added by this
process, and that value I think could certainly be sufficient
to offset any costs that might come to the Northwest.
Senator Cantwell. We'll be very mindful of that, because we
think it's working well for us already. So I think we need in
the Northwest more analysis on that, because wind and hydro go
very well together. They very well tradeoff. When the wind's
not blowing you can use the hydro system, or you can diversify.
So we think it's working pretty well, so we'll have concerns.
But I have another question about distributed generation as
we're looking at the build-out of the transmission system.
Obviously, distributed generation gives us the ability to do
things more efficiently. I think it's something like you can
eliminate 8 percent of the energy loss of long distance
transmission by just having the distribution focus on a more
regional basis.
So do you think that the process that FERC would undertake
should actually include a thorough analysis of relative life
cycle costs and energy efficiency in making these decisions, so
that you really are looking at distributed generation as an
alternative?
Mr. Wellinghoff. I think absolutely, and I would again
expect that the interconnect-wide planning processes that were
done by these regional entities that were designated would have
to include distributed generation. Because I think again
addressing Senator Corker's question with respect to
reliability, these distributed resources can enhance
reliability for the location-constrained renewables that are
brought in.
So we need to do all we can with distributed resources,
which would include the types of things that you're talking
about.
Senator Cantwell. What greater authority would FERC need
for that, if any?
Mr. Wellinghoff. No greater authority than suggested in
Senator Reid's bill or suggested in the bill circulated by
Committee Staff. I don't think we need any more than that. In
fact, now under our current planning process under Rule 890,
where transmission owner operators are required to do regional
transmission planning, we have specifically directed that those
transmission planners look at not only the supply side, but
they look at and consider the demand side in that planning
process.
So we're already doing that today, in essence requiring
that transmission planners look at both sides and fully
consider what are all the demand side options, like distributed
resources that you're discussing should be included in the
plan.
Mr. Clark. Senator, I would only add that I think that your
question does argue again for a very much bottom-up process,
because just as you're concerned about potentially some Federal
interaction with a process that seems to be working well in the
West, we would be concerned that when you do talk about
distributed generation it's hard to get much further down into
the distribution network than that, and it would really require
the significant input of States to help provide that kind of
data.
Senator Cantwell. Thank you. I would just say, Mr.
Chairman, technology is changing so rapidly, that's why I think
that we have to have an open mind about that aspect of it.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Barrasso.
Senator Barrasso. Thank you very much, Mr. Chairman.
Thank you for being here. If I could just ask you,
Commissioner Clark. I think one of the things you had said a
little earlier was where you are is where you sit, and in North
Dakota, Wyoming is the largest net exporter of energy in
America. We have it all. We have the coal, the oil, the gas,
the wind, the hydro. We have it all.
There is a specific opportunity, a significant opportunity
in Wyoming, for the growth in the wind industry. I want to make
sure that my State's energy resources can serve the needs of
others. We want to make sure that we make American energy as
clean as we can, as fast as we can, without driving up the
price to consumers.
I want to make sure that my constituents receive fair
treatment in the process. This gets to the issue we were
talking about with cost allocation. The question that I hear
from people around Wyoming is, why should they pay for
transmission lines across their property if the energy is just
being shipped to a population center elsewhere, whether it's
California, whether it's Nevada?
What are your thoughts on that and how can we make sure
that it's fair for the consumers who are not utilizing, the
people who actually are not consuming the electricity, but are
the areas where the transmission lines are going in terms of
how that payment works?
Mr. Clark. Senator, that's the heart of some very difficult
questions. Now, North Dakota--and I hear from similar
constituents to the ones that you do, who have those questions.
At the same time, there are undeniably some reliability
benefits that accrue to the whole system when there are large-
scale transmission projects that are built. From an economic
development standpoint, the State certainly has an interest in,
as I'm sure much as yours does, in having these transmission
lines built. So there is a bit of a cost-benefit tradeoff that
folks need to consider.
I also keep in mind that on some of these cost allocation
issues that, while they're important and while we need to get
the best answer that we can, at the same time transmission
continues to be a relatively small portion of a consumer's
bill. It's about 10 percent of the bill compared with
everything else about 90 percent.
I do worry that if, as a State and a Nation, we get too
hung up on the cost allocation issues we can hold captive the
90 percent of the bill that could drive down costs to try to
really chase pennies in the 10 percent of the bill.
So your concern is very valid and, as I said, there are no
easy answers because each State has a little bit different
interest in these lines.
Senator Barrasso. The other issue is that, your State,
strong private property rights, as is Wyoming and so many of
our western States. Do you believe that private property owners
have a right to say no to transmission lines on their land, and
how do you work with that?
Mr. Clark. Senator, as we both indicated earlier, at times
there are appropriate times for eminent domain to be exercised
because there is a greater good that's needed, whether it's for
roads or transmission lines or so on and so forth. I think
again the thing that we want to have as much as possible of is
that early public input, and I think that that argues for
potentially transmission corridors, so that there's not
duplicate lines being built across the landscape. It provides
some certainty and hopefully provides early on in the process
public input so that a landowner who just wants to have a tower
footing moved a few hundred feet away from a windrow or
whatever they want to have that moved, has the ability to
access that in a meaningful way and doesn't feel like they have
to trek to Washington to get that done.
Senator Barrasso. I guess that goes to the question of the
chairman, then. Do you agree that using public land in lieu of
using eminent domain should always be the top priority?
Mr. Wellinghoff. It certainly is preferable. I can cite for
you, for example, one transmission project that came to FERC
that is going to go from Montana to Mead in southern Nevada,
which is near Las Vegas. I think it's over 1200 miles. They
told me in that 1200 miles there were only 17 landowners. So in
the West it's certainly very doable and I think it usually is
preferable to use the public lands if possible.
Senator Barrasso. I think, Mr. Clark, you talked about
duplicate lines and parallel lines. My question is, if we're
talking in some of these proposals about a certain percentage,
75 percent of the new generating capacity needed to be
renewable--I don't know how you can tell where the electrons
are coming from, but would it be wise to include a percentage
of what has to go through the line, because that may cause to
have several lines needing to be built when otherwise you could
just move it all through a single line.
Mr. Clark. Senator, I don't know if percentage is the right
way to go about this or not. But I think that NARUC would
certainly argue that the more narrow and tailored that you can
make the Federal siting authority is better, because it does
then delineate that there may be some national needs that the
Federal Government is seeking to address, but reserving for
State and local authorities those much more sub-regional and
local needs.
Senator Barrasso. Thank you, Mr. Chairman. My time has
expired.
The Chairman. Senator Dorgan.
Senator Dorgan. Mr. Chairman, thank you very much.
Commissioner Clark, I was chairing another hearing, so I
was unable to be here for your testimony. But I've read your
testimony and I appreciate very much your work and your being
with the committee today.
Mr. Clark. Thank you.
Senator Dorgan. If I might make just a couple of comments
and then ask a question. No. 1, it seems to me electrons are
color-blind, so you read and hear about people that want to
build a green transmission line that would host only renewable
energy or green energy. The fact is a transmission line and
electrons it seems to me will carry whatever is put on the
line, and electrons are color-blind.
No. 2, it is almost certain that a renewable portfolio
standard or a renewable energy standard will pass this
Congress. We'll have a heavy debate about that, I say to some
of my colleagues, but almost certainly we will pass a renewable
energy standard. If so, we must have additional transmission
capability and connectivity in this country so that in areas
where we produce renewable energy in particular, we are able to
maximize that production and move it. Otherwise we'll have
stranded renewable energy, and we're going to need that
renewable energy to meet a renewable energy standard or a
renewable portfolio standard.
In the past 9 years we've built 11,000 miles of natural gas
pipeline and 668 miles of interstate high voltage transmission.
That just describes the dilemma.
So the question to me is not whether we decide to embark on
building additional transmission. The question is how do we do
it, and that brings us to this issue of planning, pricing, and
citing. Chairman Wellinghoff, you're involved in that from the
standpoint of the Federal Energy Regulatory Commission, and the
question of how much authority you should have or you feel you
should have, and how much authority we should give you.
Commissioner Clark, you're involved with the National
Association of Regulatory Utility Commissioners and from the
State authority.
So let me see if I can drill in just a bit on these
questions of citing especially. It seems to me citing is one of
the very significant issues. Commissioner Clark, you've
described to us the NARUC proposition with respect to citing.
Does that reflect generally the view of all of the States or
most of the States, or does it reflect your view? Tell me where
you are on these issues?
Mr. Clark. Thank you, Senator. I appreciate the opportunity
to comment.
Certainly each State has its own views and, as I indicated
before, it's often where you're situated. North Dakota,
speaking just from our perspective, is perhaps a case study in
exactly the types of problems that have occurred with renewable
energy development, in that tremendous wind resource potential,
also about as far from most major metropolitan centers and load
as you can get. So North Dakota has at times been more
supportive of a robust Federal role to help break some of those
logjams because, while we're able to site lines quite well in
North Dakota--in fact, our average siting process at the
commission is probably something like 4 months, 5 months--once
it gets to our borders it's not always as easy. So we've been
at times frustrated.
So strictly speaking from a North Dakota perspective, we
can see some value in having a Federal role with regard to
those renewables. But I would say, even from a North Dakota
perspective, we would have a few guiding principles. One is
we'd like to have the first crack at siting those lines, at
least within our State. We don't believe that primary
jurisdiction should rest with the Federal Government, that
people should still have an avenue of relief available in
Bismarck with a local hearing in the county that it's going,
and so on and so forth.
Even in North Dakota, we would argue that there needs to be
sub-regional planning, that it can't be a top-down process. So
while I certainly accede to the point that there are different
views and within a State like ours we may wish for a little bit
more Federal action to help break some of those logjams, at the
same time we do see very much a need for this to be a process
that starts at the local level, and then only as a backstop
authority goes to Federal Government.
Senator Dorgan. I'm a very strong supporter of renewable
energy. North Dakota is called the Saudi Arabia of wind, and
you said there are times the wind doesn't blow. I'm not
familiar with that, but----
[Laughter.]
Senator Dorgan. It is also the case that if we build lines
principally to unlock stranded energy in, for example, wind
energy corridors or solar and so on, because that's going to be
produced in many cases far from where it's needed, it's also
the case that those same lines will carry and can carry energy
that is now locked from a coal-fired generating plant. Isn't
that the case?
Mr. Clark. Senator, that's absolutely true, and in North
Dakota we have a confluence of a number of things that could
potentially be beneficial to the entire country, including not
only the wind portfolio that we've talked about, but the fact
the twe have a large coal reserve and it happens to sit
geologically in a very favorable location for carbon capture
and sequestration.
Senator Dorgan. Mr. Wellinghoff, you participated in a
roundtable meeting I had a while back with all of the
stakeholders, including NARUC, which was very helpful to me in
trying to think through and plan through this notion of how to
address the transmission issue, because we don't have a choice.
We've got to address that.
Senator Corker talked about reliability. All these things
are a part of the need to address it. We might have different
ways to address it, but I think this committee would probably
agree that this is not whether any longer--it's how.
I think the testimony and the judgments that you have
offered are helpful. The same is true with NARUC and
Commissioner Clark.
Most of us would agree, I think, that if you try to unlock
this so that you have the opportunity to proceed, we want the
Federal role to be as narrow as possible while still allowing
the progress that we know is necessary for the country, because
there is a national interest here. So eminent domain, we agree
with I think both of you that we want all these things to be
narrowly constructed, but constructed in a way that provides us
certainty that we're going to proceed.
So let me thank both of you for your testimony and the work
that you've done.
The Chairman. Senator Brownback.
Senator Brownback. Thank you, Mr. Chairman.
Panelists, I appreciate your comments and your thoughts. It
seems to me that at the core of all this we've got to figure
out how we hold the cost down of electricity to the consumer.
At the end of the day, Commissioner Clark, I think you're
probably well aware of the sensitivity of price of the consumer
to all of this. You start messing with people's rates, they get
real interested real fast, and real mad.
That's why I would hope, Chairman Wellinghoff, that we look
at these issues from the standpoint of what it is and how it is
that we do these things in a mixed ratio to the point where we
can hold the costs down the most that we possibly can.
Mr. Clark, you mentioned about your coal reserves in North
Dakota. You believe you're the Saudi Arabia of wind. We have
claimed that title in Kansas as well, and we believe we're
closer to market, too, than you are, and we have as many wind
resources.
But the need to mix the ratios of electric generation from
a coal, say, fired power plant and wind to hold your overall
costs down so that this is a sustainable national policy is
something I presume you've looked at and are fairly sensitive
to. Is that something you've been considering, on how you mix
the renewables with the non-renewables to hold your costs down
and to have the reliability which is central to the electric
grid?
Mr. Clark. Senator, I think you raise an excellent point. I
think each State commission probably takes those twin goals
that I mentioned earlier of reliability and cost most seriously
of any of the duties that we have. You're exactly right, when
rates go up we do hear from consumers.
In the upper Midwest, we find ourselves, much as I'm sure
Kansas does, in the situation where, because our wind resource
is so good, it is quickly becoming a very competitive source of
energy. So we have in the five States that I mentioned earlier
where we're doing this planning, have assumed that wind will be
an important part of that portfolio.
The thing about wind that differs from other baseload----
Senator Brownback. Because my time is going to run out--but
coal isn't part of the mix, too, for you?
Mr. Clark. Oh, in our region coal absolutely is.
Senator Brownback. Because of the price that coal can do
and the reliability that you can mix it?
Mr. Clark. Absolutely. We are the second most coal
dependent State in the country.
Senator Brownback. We're I think 60 percent coal-fired,
from in many cases depreciated coal-fired power plants. So the
electric rates are very competitive within that. Yet we're
bringing wind in when we can be competitive with it.
My point in saying that is we've got a situation now in my
State where there's a big debate about building two coal-fired
power plants for electric generation in State and then to
market that into the Front Range in Colorado and on down into
Texas at a cheap rate, that then can build the lines, the power
lines into those regions, that I can hook the wind into.
Because our problem, like yours, is getting our wind to market.
We've got a lot of it. We've got to get it to market and the
markets are a little bit of a distance away. To do that you've
got to have the power grid to do it.
I just think we've got to think a lot smarter about these
things, about how you mix these in so that you have a long-term
sustainable policy that's low cost, so that the consumer is
seeing those benefits to that. I would hope that's being
considered, Chairman Wellinghoff, as you look at these mixes on
it, because this is how we can do this in a sustainable, smart
basis over the longer term.
My other point. Chairman Wellinghoff, I had one of my
utilities in the other day and they said, you know, we have
enough trouble getting lines planned through a regional entity,
let alone a nationwide transmission grid. They don't see this
getting simpler. They see it getting harder for them if we
bring a national entity in. So you're going to have that, that
to overcome, I think as well as we look forward on how we're
going to be able to get this done, because they just don't see
the FERC as being able to make this a simpler process on
getting the wind and other renewables to market.
But a final thought here on it is that in some States it's
going to be cheaper to do renewables than other States. Has
there been given consideration to any sort of offset or trading
system within States, just as some way that you can say, you
know, this is going to be simpler for one State and cheaper for
one State than another, that you could then trade some of those
credits back and forth to help people and not make it so
expensive?
Chairman Wellinghoff.
Mr. Wellinghoff. I think that argues for a national RPS,
what you're suggesting. Certainly if we had a national RPS then
you could trade the credits back and forth. Right now you
can't, but if you had a national RPS you could. So that could
solve the problem.
Mr. Clark. Senator, from a North Dakota perspective, we
have been participating with other Midwestern States in
developing that type of green credit trading system.
Senator Brownback. The point, though, would be that you
can't do it as a way that just raises costs to somebody else,
because if it does then why should they be for it. You're just
going to raise their electric rates and they get nothing
different, and I don't think that's sustainable long-term.
The Chairman. Senator Risch.
Senator Risch. On these, one of the issues we have in the
West is the environmental issues with environmental groups. No
matter what happens, no matter what kind of an application is
made for use of the land, it is immediately filed by a NEPA
lawsuit or one of those. We have a number of species right now,
particularly high desert species--high desert, of course, in
Idaho is where we use a lot of these corridors for our
electrical siting.
Is there any thought about--and these things go on forever.
I mean, we've got environmental suits that go on--5 years is
not unheard of at all. You can expect when the prairie chicken
or what have you is involved, you're going to wind up in a 5-
year lawsuit.
Both of you, briefly, what are your thoughts on how we
wander through this with Federal legislation?
Mr. Wellinghoff. Senator, going back to the experience FERC
has with respect to gas pipeline projects. Through a
coordinated Federal agency approach where you ultimately have
an agency that coordinates with the other appropriate agencies,
whether it be the Forest Service or the BLM or the Fish and
Wildlife Service, and with the environmental groups and the
other stakeholders, we've had a great deal of success siting
natural gas pipelines, as Senator Reid indicated in his opening
remarks.
So I think these issues can be overcome as long as there is
a coordinated approach to looking at the issues and addressing
them through mitigation. We have in most of our proceedings a
long list of mitigation measures that we specify that must be
done before that particular project can move forward, and many
of those mitigation measures are for the purpose of addressing
environmental issues.
Senator Risch. Mr. Chairman, I would, with all due respect,
and I understand you work in a different area than I do, but
when I was Governor and other times our impression in our State
is that the term ``Federal coordinated approach'' is an
oxymoron.
Thank you.
Mr. Clark. Senator, I would only add that I know in talking
with some of my colleagues from the West they have expressed
concern similar to yours, that when there's discussion about
Federal siting they'll often state, within our State if the
feds would site quicker then there wouldn't be any issue,
because the State sites far more quickly than crossing Federal
lands.
I know in North Dakota's case we don't have nearly as much
Federal land as many other western States, but when I have
sited those cases typically utilities will go to great pains to
avoid any sort of Federal interaction because they don't want
to trip just those processes that you had mentioned.
Senator Risch. Mr. Clark, I agree with you. When I was
Governor I signed a memorandum of understanding for the
Northern Lights Line, which I'm sure you're familiar with, and
they were doing just that. They were trying to identify
corridors where they could avoid Federal properties. So I think
that needs to be addressed when we get to the end of the line
here.
Thank you, Mr. Chairman.
The Chairman. Senator Wyden.
Senator Wyden. Thank you, Mr. Chairman. I'm late and I
apologize to our witnesses.
But as far as I can tell, what we're doing here is
discussing electric transmission siting and somehow other
considerations, like liquefied natural gas and natural gas
pipeline siting, are just going to be worked out. That is not
happening. I think, Mr. Wellinghoff, you know in our part of
the country the natural gas siting process has just been a
disaster. We've got the landowners up in arms about how they've
been treated. The State of Oregon doesn't have a good thing to
say about their participation in the State process.
For the first major project, the Bradwood Landing project,
basically every major participant is now filing to reconsider
the decision. Even NOAA, another Federal agency, has filed to
have the decision reconsidered. It's not just Bradwood. We are
seeing this on other projects. The Palomar one, that I think
you're aware about as well, that's supposed to connect to
Bradwood by cutting through the Mount Hood National Forest.
So my sense is we've got to come up with a way to fix this,
and I'm trying to figure out why somebody ought to take comfort
in making electric transmission siting more like natural gas
project siting, because certainly if you ask people about that
in Oregon you wouldn't get a lot of support for that.
Mr. Wellinghoff.
Mr. Wellinghoff. Thank you, Senator Wyden. I'm not
suggesting that transmission siting be more like natural gas
siting, in the sense that the two bills that are being
considered here, one by Senator Reid and the one that the
committee staff has circulated, primarily give the planning,
siting, and cost allocation decision to two interconnect
entities, Eastern Interconnect and Western Interconnect. I
think that's the appropriate way to do it.
I think Senator Dorgan put his finger on it. What we're
trying to do here, as I understand it at least, is advance the
process of developing remote renewable energy resources to load
centers in the least intrusive way, in the least way of having
some Federal intervention or Federal oversight in that. I think
the two bills that have been put forward do that. They're
different from natural gas.
I hope that we are trying to address your issues with
natural gas in Oregon and I do understand those issues and I am
very concerned about them, Senator Wyden, and we are trying to
do everything we can to address those issues as best we can.
Senator Wyden. I know you haven't been in your current
position but a couple weeks. I will tell you, I'm still
troubled about the Federal Energy Regulatory Commission having
the final say here. I think that we have not had an experience
that has bred a lot of confidence, and I want this understood
that you've really been reaching out to our State. The problem
has been virtually nobody else has been, and now we're talking
about whether we ought to transfer a process that has been
dysfunctional to Oregonians--and I could go on through these
kind of horror stories. I just have a minute or so left and I'm
going to spare you. But we're going to need to work with you a
lot more before I can approve something like this, because we
have had so many problems.
You can't get all of these parties in agreement very often.
They are all in agreement that the process with respect to
liquefied natural gas has been a disaster. I'm going to do
everything I can to get this straightened out with respect to
liquefied natural gas before we then leap to say this is the
model that we ought to be using elsewhere.
Again, I want to commend you because I think you have been
reaching out, and you've been just about the only person who
has, and we look forward to working with you.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Stabenow.
Senator Stabenow. Mr. Chairman, I will pass on questions at
this point in the interest of time. I apologize for coming in
and out. I have three committee meetings I'm trying to be at.
I'm looking forward to the technology that says ``Beam me up,
Scotty'' so I can be at all three. But I have reviewed the
testimony and I appreciate the witnesses coming in today.
The Chairman. Senator Murkowski, did you have any other
questions of this panel?
Senator Murkowski. No, thank you.
The Chairman. Thank you both very much. As you can tell
from the attendance of Senators, there is great interest in
your testimony. So thank you for being here.
Mr. Clark. Thank you.
Mr. Wellinghoff. Thank you.
The Chairman. Why don't we invite the second panel to come
forward. Let me introduce them as they are coming forward. We
have Michael Morris, who is CEO of American Electric Power in
Columbus, Ohio; Graham Edwards, who is with the Midwest ISO in
Carmel, Indiana; James Dickenson with JEA in Jacksonville,
Florida; Reid Detchon, who is with Energy Future Coalition here
in Washington; and also Joseph Welch, and I believe Senator
Stabenow is going to make an introduction of Mr. Welch since he
hails from her home State of Michigan.
Senator Stabenow. Thank you, Mr. Chairman.
I'm so pleased to have Joe Welch here as a part of this
panel, hailing from Michigan. He's the Director, the President,
CEO, Treasurer, and Founder of ITC, which is the first
independently owned and operated electricity transmission
company in the United States. It's the only publicly traded
company of its kind.
Before launching ITC, Mr. Welch worked at Detroit Edison
from 1971 to 2003 and he knows the ins and the outs of the
electricity business and understands well the challenges that
the industry faces in bringing renewable energy to market.
So I welcome you, and I apologize again that I will be
running in and out. But I am so pleased that you're here and
that all of the witnesses are here.
Mr. Welch. Thank you for those kind words.
The Chairman. Thank you all for being here. Why don't we
just follow the same procedure: ask each of you to take about 5
minutes or so and give us the main points we need to understand
about this issue or about the proposed pieces of legislation,
and then we will, after we hear from all of you, we'll have a
few questions.
Mr. Morris, why don't you start. Thank you for being here.
STATEMENT OF MICHAEL G. MORRIS, CHAIRMAN, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, AMERICAN ELECTRIC POWER
Mr. Morris. Thank you, Chairman Bingaman, and Minority
Leader Murkowski and Senators. Thanks for being here.
Senator Stabenow, I know you know that we serve the
southwest corner of Michigan with our Indiana-Michigan, and
proud to serve Kingsport, Tennessee, one of the few non-TVA-
regulated utilities in the great State of Tennessee.
American Electric Power is among the largest utilities in
this country. Most importantly as it comes to this point, we
have 300,000 miles of transmission and distribution, 39,000
miles of extra-high voltage transmission, in fact 2100 miles of
EHV transmission 765,000 volt--the largest transmission system
in the country. We serve 10 percent of all the energy that
flows in the Eastern Interconnect, 10 percent of all the energy
that flows in ERCOT.
So we feel very happy to be here. We're pleased that the
Senate is finally taking up this most important piece of
legislation. Senator Bingaman, your leadership here is surely
welcomed and we thank you for that.
The grid was built in a different time for different
purposes, and our company, along with some of our colleagues,
have constantly pushed the concept of making it more reliable,
making it more cost effective, and continuing to add intellect
to the grid so that we can be a self-curing energy delivery
system.
Reliability was talked about with the other panel. It's
essential that we build this system out not only for
reliability, but also for the rationalization of generation
across the country. If there's a need going forward--and I
never have agreed with the EIA numbers of 30 percent growth in
30 years; that almost seems impossible. But let's presume that
you need to build 20 power plants in the United States over the
next 20 years. If we truly build an interstate highway-like
system for the electric transmission, you could probably build
about half of those stations. If they come in at $3 billion a
copy, the transmission cost not to build half of them would be
much, much less than the price we would have incurred by
building those systems out.
The concept of bringing renewables into the system, it's
essential to have this grid. Senator Dorgan, the State utility
representative from North Dakota made it crystal-clear.
Tremendous load center, and we always hear people say, well,
that will go all the way to New Jersey. I doubt that. It might
make it as far as the Twin Cities. But if the grid were built
out, demand on the East Coast would be served by a much less
congested system. Customers on the great eastern seaboard would
save more money by a developed grid than they pay for
electricity today or that they would pay for incurring the
costs associated with that.
Your bill and Senator Reid's bill touch on these issues
quite pointedly. Three issues that you laid out are critical:
Planning, it needs to be more regionalized. It may well be the
entire eastern interface. I worry about how we do that without
another layer of bureaucracy that will get in the way rather
than help get this done.
Siting is essential. You heard the numbers of natural gas.
I spent the first 12 years of my life at American Natural
Resources. You can build an interstate natural gas transmission
system, because the permitting and the cost allocation is done
at the FERC. It isn't State by State battling over how do we
allocate this out. In fact, your cost allocation concept if we
go to regional planning for a national surcharge, it's not a
bad idea.
We heard numbers this morning of 50 to $80 billion. When
you take that down to a per kilowatt hour cost, it's a mill on
the per kilowatt hour basis. A $1 billion transmission project
yields an annual cost of about $130 million to be recovered
from our customers. If you take the capacity that that could
handle, it is in fact less than one mill added to the overall
cost of the utility rate. You're talking about maybe a quarter
a month for the customer's bill.
The ability of this grid to allow the expansion of the
United States' ability to serve its own needs, not only in
energy security, reliability, is simply a time that is at hand.
The technology's at hand. The private equity's at hand, the
willing participants at hand. We need just the simplest change
to give FERC the authority to site and allocate once the
planning is done.
Thank you very much for the opportunity to be here.
[The prepared statement of Mr. Morris follows:]
Prepared Statement of Michael G. Morris, Chairman, President and Chief
Executive Officer, American Electric Power
Good morning Mr. Chairman and distinguished members of the Senate
Committee on Energy and Natural Resources.
Thank you for holding this hearing and allowing me an opportunity
to offer the views of American Electric Power (AEP) regarding the
need'for federal transmission legislation to facilitate expansion and
updating of the nation's electric transmission grid to support our
nation's economic, environmental and energy goals.
My name is Mike Morris, and I am the Chairman, President, and Chief
Executive Officer of American Electric Power (AEP). Headquartered in
Columbus, Ohio, we are one of the nation's largest electricity
utilities--with over 38,000 megawatts of generating capacity--and we
serve more than five million retail consumers in 11 states in the
Midwest and south central regions of our nation. AEP also owns the
nation's largest electric transmission system with three Regional
Reliability Organizations overseeing our vast system, and we are
members of three Regional Transmission Organizations.
The AEP transmission system is a 39,000-mile network, integrating
power delivery across 11 states. Our network includes more than 8,000
miles of extra-highvoltage (EHV) lines, including a network of 2,100
miles of 765-kilovolt (kV) transmission lines, which today serves as
the backbone of the PJM Interconnection (PJM) EHV system in the eastern
United States, facilitating efficient power flow within that region.
765 kV is the most efficient voltage class in commercial use within the
United States. While initially designed to provide service to AEP's
native customers, today it is the foundation of the NM system and,
enables PJM to link to neighboring systems in all geographic
directions.
summary of aep's position on federal transmission legislation
I want to thank you for putting before this Committee the issue of
federal authorization of interstate transmission facilities. This is
one of the most important challenges that must be resolved if we are
going to make meaningful progress in addressing the nation's future
electric energy needs. The President and Congress are clearly committed
to charting a path for our energy future that seeks much greater energy
independence and reliance on renewables, greater economic and energy
efficiency, and the integration of constantly evolving new
technologies. Critical to ensuring that future, as you have recognized,
Mr. Chairman, is a modem transmission grid that meets both our near
term requirements and our future ambitions for a cleaner, more reliable
and secure energy future.
AEP strongly supports development of an EHV interstate backbone
transmission system. Such a system can significantly improve the
reliability and security of the current grid, permit rapid integration
of new energy sources, including renewables, and support the
electrification of the transportation sector with plug-in hybrid
vehicles.
Today, the development of interstate transmission lines is slowed
by a fragmented regulatory system that discourages investment in major
interstate transmission projects. We believe that the best solution is
to empower the Federal Energy Regulatory Commission (FERC) to authorize
interstate transmission projects and to convene all interested parties
in siting proceedings to ensure that all voices are heard and that a
timely, final decision is made. We also believe that FERC should have
meaningful authority to oversee and ensure the development of an
interconnection-wide plan for EHV transmission and ancillary facilities
and that cost allocation principles should be established that spread
these costs broadly, so that no single customer bears a
disproportionate share of costs that will clearly benefit multiple
regions over long periods of time.
With these objectives in mind, I commend the Chairman for his
leadership. Your draft legislation includes the critical elements
required to get our modem grid built. We believe it is exactly the
right starting point for fashioning a comprehensive and workable plan
for promoting transmission investment, protecting the rights of
interested parties, and setting us on the path to meeting our nation's
long term energy goals. I also wish to thank Senator Reid for his
leadership and interest in this important issue. We are confident that
the legislative process will get us to a common end.
We very much look forward to working with the Committee and the
Congress to refine these proposals. We also strongly urge you to act
quickly, so that we can get about the business of building the modem
transmission system that will ensure the better energy future that we
all desire.
meeting future needs by expanding our current transmission system
The economic prosperity of the United States relies on the
efficient production, transmission and use of electric energy, today
and into the future. The nation's transmission grid should enhance
reliability and operational efficiency; and support energy independence
and environmental goals, including expanded use of renewable resources.
Unfortunately, our existing system is ill equipped to meet these needs.
Originally designed to connect local generation resources to
distribution systems over small geographic areas (primarily in one
state), the grid now integrates resources on a more regional level,
over larger areas and among numerous utilities with a high degree of
reliability. The current transmission grid has supported dramatic
changes in use and demand growth, including the development of
wholesale power markets, without significant investment over the last
few decades. But, the existing grid now is being pushed to its limits;
it is frequently overloaded with congestion losses growing dramatically
throughout the country, and reliability degraded during certain times.
This both increases the cost of electricity to consumers and threatens
an economy that is increasingly dependent upon reliable electricity
service. While sound, today's grid is in need of significant investment
if it is going to play a role in meeting our long term policy
objectives.
There is no question that a primary goal in expanding the
transmission system is to enable broad scale integration of
renewables--a critical first step on the path to addressing climate
change. In 2008, the United States added 8,358 megawatts of new
renewable wind generating capacity and surpassed Germany, one of the
countries with the highest wind utilization in the world. Yet, our
nation has only begun to harvest the available wind and solar resources
within our borders. All agree that new transmission is the key to
unlocking this important resource. But our current system for
permitting new transmission projects just isn't up to the task. It
takes, on average, only two years to develop a wind project, but many
years to site, permit and build the transmission lines to deliver the
wind power to consumers. If we want renewables soon, we need
transmission sooner.
While I know there is great excitement around transmission for
renewables, I strongly caution this Committee to remember that our
future economic and energy security requires a commitment to a robust
system that meets a number of important objectives. Within the past 24
months, our nation has witnessed unprecedented price volatility in oil
and other commodities, major economic turmoil and growing concern about
climate change. Our current situation has increased demands for energy
independence, development of renewable energy resources, and growth for
our economy, all as we seek to produce, transport and consume energy
more efficiently. Through the strategic expansion of the transmission
grid, we can address the limitations of our current system, permit the
rapid integration of new energy resources, including renewables, and
support the electrification of the transportation sector, with plug-in
hybrid vehicles. In essence, we must build the system that we need for
our future today.
For that reason, we strongly support the development of an EHV
interstate backbone transmission system. That system would overlay and
build upon the existing EHV and lower voltage infrastructure, relieving
major congestion and reduce electricity costs, improve reliability and
provide maximum flexibility for interconnecting new resources and load,
particularly renewables. Accomplishing this goal will require
legislation that clearly supports and facilitates the timely planning,
construction, and equitable sharing of costs for a transmission system
that meets these multiple purposes.
elements of effective transmission legislation
Today's need for a bold, national commitment to upgrade and expand
the electricity grid is no less compelling than the circumstances that
drove the development of the interstate highway system in the last
century. To achieve that goal we need to create a new federal process
that dramatically changes the way we plan, site and pay for EHV
transmission systems. Legislation implementing this federal process
requires three critical components:
Interconnection-wide Planning--FERC must have the authority
to bring together experts in the field with the representatives
of affected states, regional planners and others to determine
what facilities are needed and resolve competing concerns, so
that those implementing the plan know what to build and where.
Transmission Siting--FERC must have the authority to approve
and site projects proposed by private companies that are
consistent with the interconnection-wide plan.
Cost Allocation--FERC must have the authority to allocate
the cost to consumers throughout an interconnection for those
projects approved by FERC as consistent with the
interconnection-wide plans.
Interconnection-wide Planning
Currently, transmission is planned using a fragmented approach that
is unworkable for expanding EHV transmission beyond the borders of an
existing planning region. Today, we plan transmission using rigid and
often narrow reliability and economic criteria that vary significantly
by region. The result is a line-by-line approach to transmission
development rather than a ``system based'' approach. To develop an
interstate transmission system, we need an open, transparent and widely
participatory planning process that applies broad and strategic views
to transmission development.
Transmission Siting
The second piece is a single federal siting process for new EHV
transmission. Today, siting EHV transmission across several states is a
difficult and time-consuming process that involves affected states,
federal land agencies, and local regulators, each with individual
authority to disapprove a project. Many state processes do not
recognize or consider regional and inter-regional transmission needs or
benefits and may disapprove projects that do not directly benefit their
state. With federal siting authority for EHV projects, FERC would
assume responsibility for environmental reviews and would solicit state
participation to ensure state input and involvement to resolve the ``on
the ground'' concerns as FERC designates the transmission route. The
point is not to exclude the many voices that need to be heard but to
convene them in a single proceeding that will produce a final decision
in a reasonable amount of time.
Cost Allocation
Similar to siting, current methods of allocating the cost of EHV
transmission projects by identifying specific beneficiaries is
difficult, contentious and often includes vigorous attempts to shift
and re-shift costs among groups of customers. Interconnection-wide
planning will address national policy objectives and result in an
interstate transmission system that provides benefits across broad
regions and anticipates future needs. Therefore, legislation should
include simple and predictable cost allocation policies, which ensure
that everyone who benefits from the system shares in the cost of its
development. Wide allocation of cost also will mitigate the individual
rate impact of significant transmission investnents.
Companies like AEP are ready to step up and build a transmission
system that enhances our economy, supports renewable energy investment
and enhances energy security. Today, we are hindered by the outdated
patchwork of policies that currently constrain the development of an
interstate grid. Only Congress can address this predicament.
conclusion
As our country faces unprecedented economic, environmental and
national security challenges, I urge this Committee and the Congress to
seize the opportunity before them and, using the Chairman's draft as
the framework, to enact the legislation necessary to build the future
transmission system our country requires. I am confident that AEP and
our industry stand ready to commit the necessary resources and talent
to plan, site and construct an interstate transmission system necessary
to support our nation's economic, environmental and energy goals. We
strongly urge you to join Chairman Bingaman to provide the leadership
and tools necessary to complete this undertaking in a timely and
coordinated manner.
Again, Chairman Bingaman, thank you for holding these hearings and
thank you for proposing your draft transmission legislation. We look
forward to working with you and your Committee to address the
transmission needs of our country--
I am happy to answer questions.
The Chairman. Thank you very much for your testimony.
Mr. Welch.
STATEMENT OF JOSEPH L. WELCH, CHAIRMAN, PRESIDENT AND CEO, ITC
HOLDINGS CORPORATION
Mr. Welch. Good morning, Chairman Bingaman and Ranking
Member Murkowski and members of the committee. As you know, my
name is Joseph Welch and I'm the Chairman and President of ITC
Holdings, the Nation's first and only independent transmission
company.
As an independent transmission company, ITC is singularly
focused on ownership, operation, maintenance, and construction
of transmission. ITC has been able to maintain its focus on
improving transmission, making it more reliable, more
efficient, lowering the delivered cost of energy and ensuring
nondiscriminatory access. ITC has invested more than $1.1
billion in transmission upgrades over the last 5 years.
Right now the outdated laws that govern our electricity
grid are standing in the way of America's energy goals. If
Congress is serious about making renewable resources available,
reducing our dependence on foreign oil, meeting renewable
energy standards and addressing climate change and other
environmental challenges, we need to start by modernizing the
rules that govern the grid.
Congress must develop a cost allocation methodology for
regional transmission projects that would allow the costs to be
allocated based on the benefits realized by individual entities
within regions.
Many of the issues set forth today in the hearings are the
symptoms of one fundamental issue, the lack of a national
energy policy to guide planning. To plan properly, we need to
set forth the goals, such as a national RPS, so we can
effectively and efficiently meet them.
Regional transmission planning. ITC is a member of the
Midwest Independent System Operator, MISO. In ITC's estimation
MISO has established a first-rate technical staff and done a
very good job within the confines of the existing system that
has been thrust upon them to develop consensus around the MISO
transmission expansion plan.
However, the MISO and its peers face significant challenges
in their ability to develop truly regional transmission
improvement plans under the current regulatory framework. It is
the endeavor for the transparent planning process that has
ultimately led to the undue influence of market participants
and the subsequent derailment of true regional transmission
plans.
There are many challenges of regional planning--voluntary
membership, conflicts of energy markets and transmission
planning, influence of market participants, parochialism of
States and incumbent utilities--which result in sub-optimal and
inefficient solutions. We need your help and guidance to change
these rules so we can move to an efficient and effective
process.
In order to fix this regional planning issue, we must
transform our current planning process to be independent. Where
RTOs do exist, FERC's existing authority under Order 890 should
be strengthened. As such, all transmission owners would be
required to pay an assessment to cover the costs of planning
that would be the same regardless of which RTO the utility
participates in or if they are outside of an RTO they would be
assigned to the one for regional transmission planning
purposes.
These new planning-only RTOs would be responsible to
devleop regional transmission plans with an interconnection-
wide scope. We have spent tens of millions of dollars on our
current planning process. We don't need to throw it away. We
just need to make it independent so that they can do their job.
Federal siting. The FERC should be given a significant role
in transmission siting so that the infrastructure development
that is needed for the good of the entire country can go
forward expeditiously. I'm only proposing that the expansion of
that authority to address those regional projects and the
systems that are needed to support them, that they be developed
in the regional plan.
For transmission that supports only local needs, that
authority should rightfully stay with the State. FERC can
assume responsibility to issue a certificate of need for
projects that come through the more robust planning process.
Then the State would be given an opportunity to site these
certified lines and if after 1 year they fail to do so then
FERC should be given that backstop siting authority, so these
transmission lines can move forward and be built.
Once the regional planning and siting processes are
resolved, the implementation phase would begin, whereby an
independent transmission company would be given responsibility
for the overall coordination, development, and operation of the
super-regional high voltage system. All incumbent utilities
should be given the opportunity to be investors in any regional
project that passes through their service territories, but in
the end, to ensure no bias in any operational issues, an
independent company needs to be responsible for the overall
coordination.
One of the projects that we have put forth is our Green
Power Express transmission line, which would facilitate
development of 12,000 megawatts of power from the wind-abundant
regions of the Upper Midwest to Midwestern and Eastern States
that need clean renewable energy. According to independent
studies by CRA International and the Brattle Group, it shows
efficient movement of wind through the Green Power Express
would result in reductions of 34 million metric tons in annual
carbon emissions, which is equivalent to the annual emissions
of about 7 to 9 600-megawatt coal plants or 9 to 11 million
automobiles.
The Green Power Express provides access to high-capacity
wind, which has the result of making wind economically
competitive with all other fuel sources such as coal and
nuclear, a fact that is again supported by independent studies.
We have submitted this plan to MISO for their full
evaluation. However, cost allocation is the major issue that
needs to be addressed for this project.
I would like to thank you very much for my opportunity to
be here today and I'll be willing to take any questions you
might have.
[The prepared statement of Mr. Welch follows:]
Prepared Statement of Joseph L. Welch, Chairman, President and CEO, ITC
Holdings Corporation
Good morning Chairman Bingaman, Ranking Member Murkowski, and
Members of the Committee. My name is Joseph L. Welch, and I am
chairman, president and CEO of ITC Holdings Corp. (``ITC''), the
nation's first--and only--independent electric transmission company. I
am honored by the opportunity to speak before you this morning to offer
my perspective on legislation regarding transmission regulation.
role of independence
Before I begin I would like to provide some background as to the
significance of the independent transmission company business model as
I believe it is relevant to today's discussion. As an independent
transmission company, ITC is singularly focused on ownership,
operation, maintenance and construction of transmission facilities as
its single line of business. ITC has never invested in generation. All
of ITC's revenue is directed back to transmission rather than in any
market activities. ITC is now the eighth largest transmission-owning
company in the U.S., in terms of load served.
``Independence'' means that there is de minimis or truly passive
ownership by market participants and that there is minimal operating
dependence on, and ongoing relationships or affiliation with, any
market participant. To safeguard ITC's independence, the company and
its employees do not hold any market participant investments.
Through its independence, ITC has been able to maintain its focus
on improving transmission: making it more reliable, more efficient,
lowering the cost and ensuring nondiscriminatory access. To that end,
in its five or so years in existence, ITC has invested more than $1.1
billion in transmission system upgrades. In essence, the independent
model aligns the interests of the company and its shareholders with
those of electricity consumers.
This is markedly different than a vertically integrated utility
that owns generation and distribution in addition to transmission. In
fact, this vertically integrated utility business model is at the very
center for why there has been a 30-year trend of underinvestment in the
grid. That is not to say, however, that lack of independence will
always result in underinvestment. It is more accurate to say that the
lack of independence of a vertically integrated utility may result in
transmission being used as leverage to manipulate markets. As
previously alluded to, this can be done by minimizing transmission
system investment in order to maintain levels of congestion needed to
protect high-cost generation.
Conversely, a vertically integrated utility with significant
generation resources may want to build transmission as a means to bring
its generation to market while perhaps not providing the same
opportunity to other generators. It is for these very same reasons that
the Federal Energy Regulatory Commission (``FERC'') decided to form
independent transmission companies in order to promote the provision of
non-discriminatory access to the grid.
This independence is of particular importance as it relates to
decision-making for field and control room operations, generator
interconnections and both local and regional planning. A non-
independent transmission owner faces competing interests. As such,
independence from the energy market influence is critical in
consideration to the electric transmission grid; however, the concept
of independence should not be limited to the electric transmission
companies. Equally essential is the independence of any regional
planning organization with supporting governance and decision-making
processes established in a manner that do not provide undue opportunity
to thwart transmission development by stakeholders.
overview of legislative issues
Today's full committee hearing gets at the very heart of the issues
facing the electric utility industry, and specifically to the
challenges impeding the construction of regional transmission. Right
now, the outdated laws that govern our electricity grid are standing in
the way of America's energy goals. If Congress is serious about making
renewable resources available, reducing our dependence on foreign oil,
meeting renewable energy standards, and addressing climate change and
other environmental challenges, they need to start by modernizing the
rules that govern the grid. In other words, due to the historical
underinvestment in the nation's grid, transmission, which should be the
enabler, today is the roadblock to renewable resources.
However, I would be remiss if I did not also stress the importance
of developing a cost allocation methodology for regional transmission
projects that would allow the costs to be allocated based on the
benefits realized by individual entities within the region. In fact,
cost allocation goes hand in hand with regional planning because
without one, you cannot have the other. ITC believes that the costs for
a regional transmission project should be harmonized across a broad
geography in recognition of the multitude of benefits as well as
increased system optionality provided by having a robust and
highlyinterconnected transmission grid.
Many of the issues set forth in today's hearing are the symptoms of
one fundamental problem: the lack of a national energy policy to guide
planning. This national energy policy should clearly define national
energy priorities such as the establishment of a federal renewable
portfolio standard and federal regulation of greenhouse gas emissions.
Having this information codified would greatly enhance our ability to
plan for the regional transmission network that this country needs.
regional planning under today's regulatory constructs
ITC's operating companies (Michigan Electric Transmission Company,
LLC, ITC Midwest LLC and International Transmission Company
(``ITCTransmission'') are members of the Midwest Independent
Transmission System Operator, Inc. (``Midwest ISO''), and in ITC's
estimation the Midwest ISO has established a first rate technical staff
and done a noble job working within the confines of the existing system
that was thrust upon them to develop consensus around the Midwest ISO
Transmission Expansion Plans. However, the Midwest ISO and its peers
face significant challenges in their ability to develop truly regional
transmission improvement plans under the current regulatory stakeholder
framework. It is the endeavor for a transparent planning process that
has ultimately led to the undue influence of market participants driven
by voluntary membership and the subsequent derailment of true regional
transmission plans.
The problems that prevent the development of truly regional
transmission plans, however, can be solved by Congress or by the FERC.
You may ask: how can it be said that there is no independent regional
transmission planning given all the attention that the FERC has devoted
to the creation and governance of Regional Transmission Organizations
(``RTO'') and Independent System Operators (``ISO'')?
Voluntary Membership
The largest challenge that independent planning faces under the
current model is that membership in RTOs, and thus participation in
regional planning and cost sharing, is voluntary. If the regional/
public interest and the interest of an individual member diverge,
market participant stakeholders may endorse solutions that are not
optimal for the region but rather satisfy the stakeholders' individual
interests. If the RTO attempts to impose a solution that is in the
regional interest, the stakeholder may threaten to leave the RTO
potentially using membership fees as leverage. Additionally, individual
states have the potential to leverage the voluntary membership to
pressure its local utilities to leave the RTO if the state does not
support a planned project and its associated cost. Another form of
leverage that has been used by state regulators is the threat of not
passing through the cost of a particular transmission project or the
RTO membership fee.
Conflicts of Energy Markets and Transmission Planning
Additionally, another challenge faced by RTOs is related to their
respective governance structures. Owning responsibility for both
planning transmission and running the energy market may present
competing interests. While a utility may want to join an RTO as a means
to participate in the energy market, it will seek ways to avoid having
its transmission system encumbered by any regional planning efforts as
shown in the recent FERC order in which the Midwest ISO had requested
that FERC approve the ability of utilities neighboring the Midwest ISO
to become a part of the Midwest ISO energy market without having to
join the RTO as a full member. Ultimately and wisely, FERC denied this
request, but the request in itself is a demonstration of the conflict
of interest of having the RTO responsible for both transmission
planning and energy markets.
This conflict of interest often results in RTOs relying on re-
dispatch solutions instead of re-enforcing the transmission system.
Indeed, one inadvertent byproduct of LMP markets is that the ability to
purchase rights to ``buy through'' congestion effectively prevents
building the transmission that would avoid the congestion in the first
place. The consequences of doing business this way are evident. To
begin, transmission and distribution losses nearly doubled between 1970
and 2001 (from 5 percent to 9.5 percent) due to heavier utilization and
congestion. This is exacerbated by the belief that modeling can be done
to such a level that all of the benefits of transmission additions can
be accurately calculated.
Influence of Market Participants
The challenges inherent with the existing governance structure and
stakeholder driven planning processes have one notable result--little
to no true regional transmission has been planned or built. As alluded
to earlier in the discussion of the voluntary nature of RTOs, the
existing governance structures and stakeholder processes compromise the
RTOs' ability to independently plan the transmission system due to the
influence of market participants. The regulatory framework permitting
voluntary membership and the ability of market participants to play
critical roles in RTO decision-making, RTOs cannot plan the
transmission system from a truly independent perspective.
The stakeholder processes to which RTOs are bound, and to which the
Commission continues to defer in Order No. 890, for example, can never
be independent because the ``stakeholders,'' by definition are
operating on behalf of their own needs and can ``vote with their
feet''. In fact, several Midwest ISO TOs have submitted letters of
potential withdrawal ostensibly as a means to keep pressure on the RTO
to protect their interests. A truly independent planning entity, under
which membership would be mandatory, would be able to effectively
identify needed regional transmission infrastructure without the threat
of incumbent transmission owners threatening to withdraw from the
organization.
The existing stakeholder processes result in transmission planning
and related cost allocation protocols focused on the least common
denominator rather than on developing a robust regional plan with a
well-developed regional cost allocation mechanism. As a result,
transmission plans have a narrow scope rather than having a regional
focus, and the corresponding cost allocation protocols are complex and
generally do not promote development of regional transmission.
In addition to categorizing transmission investments in a somewhat
arbitrary fashion (e.g., economic, reliability, transmission service
request, generator interconnection, etc., each transmission upgrade is
viewed as having winners and losers. Even stakeholders from the same
sectors have varying interests. For example, generators in high cost
areas have an incentive to frustrate transmission plans as a means to
maintain existing constraints whereas generators in low cost areas want
to remove existing constraints as a means to broaden their access to
markets. Conversely, load regions with high costs want to remove the
constraints in order to access more economic sources of energy while
load regions with low costs are incented to maintain existing
constraints as a means to insulate their area from market prices.
In these cases, some individual state regulators have had a
parochial view and attempted to exert influence over the planning
process as a means to optimize conditions for their individual state.
This presents a case of competing interests because national policy
issues such as climate change and a focus on environmental stewardship,
energy security, regional reliability and market competitiveness cannot
be addressed state-by-state.
Another example in which individual interests come directly in
conflict with regional planning is as it relates to how costs are
allocated for a particular project. As I mentioned earlier in my
testimony, regional planning goes hand in hand with cost allocation.
The lack of a cost allocation mechanism can drive sub-optimal regional
planning. Direct current (``DC'') is a good technology solution if used
in the proper allocation; however, to some extent it has been applied
inappropriately due to the lack of a cost allocation methodology. DC is
generally used to deliver energy from point A to point B with little
opportunity for intermediate on-ramps and off-ramps. A DC line's single
purpose is to bring power from one location and therefore, it does not
unload the underlying system through the reduction of system congestion
or reduce losses, nor does it not provide network flexibility. This
limitation makes it such that the cost allocation issue is easily
answered in this case because there are only two beneficiaries--the
generator and the load. As a result, a difficult question is averted at
the cost of a sub-optimal plan.
Generator Interconnection Queue
As the demand for the integration of wind and other renewable
resources grows, the ability to effectively develop regional plans to
interconnect these resources where the best source of wind is located
is stifled. As shown in the map below,* the current planning processes
within the Midwest ISO do not support the level of demand for the
integration of the wind resources in the Upper Midwest, a region with
some of the most efficient wind resources in the United States.
According to some estimates, a new generator would potentially have to
wait up to 46 years in the generation interconnection queue before its
project can be studied by the Midwest ISO. Clearly, reactive planning
under the current configuration will not work as a means to build
regional transmission.\1\
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* Graphics have been retained in committee files.
\1\ The Midwest ISO has attempted to address this problem with its
proposed Forward Looking Interconnection Project (FLIP) process. The
link to the related Midwest ISO whitepaper can be found at http://
www.midwestmarket.org/publish/Document/
20b78d_11ef44fc9c0_-7bfb0a48324a/Midwest%20ISO%20Draft%20FLIP%20
Whitepaper%20v2%20020609%20clean.pdf?action=download&_property=Attachmen
t
---------------------------------------------------------------------------
Midwest ISO Generator Interconnection Queue\2\.
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\2\ http://www.midwestmarket.org/publish/Document/
735a38_109988af51a_-7f5e0a48324a/
MISO_Queue_Map.pdf?action=download&_property=Attachment
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In sum the fundamental issues facing transmission planning under
the current RTO configuration are directly related to the voluntary
nature of RTO membership and the stakeholder-driven planning process
that promotes an undue influence of market participants in the
development of regional plans.
Moving Forward on Regional Planning
The purpose of today's technical conference is to address regional
system planning as a means to integrate renewable energy.
Unfortunately, where we stand today will not serve as an effective
enabler to get the necessary regional transmission built in support of
the nation's vision of renewable energy.
ITC's experience as an independent transmission company has given
us unique insight into the value of independence in transmission
operations and planning. This independence should not be limited to the
transmission owning entity but should be extended to regional planning
by the RTOs. ITC is not calling for general mandatory RTO membership;
we are calling for mandatory planning. Where RTOs exist, RTO membership
should be mandatory for purposes of transmission planning and cost
allocation. Where RTOs do not exist, FERC's existing authority under
Order 890 should be strengthened. As such, all transmission owners
would then be required to pay an assessment to cover the costs of
planning that would be the same regardless of which RTO the utility
participates in, or if they are outside an RTO, thereby mitigating the
risk of utilities voting with their feet.
The regional planning conducted by RTOs is dictated by the scope of
the market while it should be performed more broadly based on system
considerations. RTOs should have the ability to plan a contiguous
region. A broader planning region will facilitate the kinds of multi-
state projects that are needed to deliver renewable resources to load
centers and to establish a strong backbone system for the grid. Only
then when we have a robust and flexible regional electric transmission
grid that does not provide discriminatory access to any one party will
the U.S. be able to benefit from the vast energy resources available
and achieve energy independence.
federal siting authority
Currently, transmission rates are regulated on a federal level by
the FERC, but siting is regulated by individual states that naturally
are focused on benefits to their respective state, not the region or
the nation. For this reason, the building of significant regional
transmission lines is virtually impossible. In many cases, transmission
projects are delayed for years through cumbersome state siting
processes. The FERC should be given a more significant role in
transmission siting so that infrastructure development that is needed
for the good of the entire country can go forward expeditiously.
This can be accomplished in one of two ways. FERC can assume
responsibility for issues a Certification of Need for projects that
come through the new, robust planning process. Under this approach,
states would continue to have authority to route project as they are
best informed on zoning, land use and other local concerns. Such an
approach also avoids potential delays in creating the federal staff
needed to undertake routing decisions across the country. There would
need to be a reasonable federal back stop in should a state fail to
assume its responsibility to route the project.
The same result could be accomplished through expanding and
strengthening FERC's existing backstop siting authority. Therefore,
regional transmission projects approved by the regional planning entity
would continue to subject to state review, but if a state fails to act
on, or rejects, a project within a year, the federal government can
step-in. This option has the potential of being more complex, could
result in delays in siting, and will no doubt be subject to litigation.
impact of right of first refusal / competitive bidding on construction
ITC believes that incumbent transmission owners should have the
right of first refusal, meaning the right to build the needed
transmission within their respective service territories provided they
are willing to make timely commitments to build the approved
construction. Right of first refusal without any limitation can impede
needed development. In fact, such a ``Right of First Refusal'' as
included in the SPP tariff, for example, is a formidable barrier to new
entrants. Stakeholder processes on which RTOs depend, and to which the
Commission continues to defer in Order No. 890, for example, can never
be independent because the ``stakeholders,'' by definition are
operating under parochial constraints. ITC feels strongly that
incumbent transmission owners should have a reasonable period of time
during which to submit an application to construct and site new
facilities. However, to the extent an incumbent fails to act within
that timeframe, and then the project should be open for other parties
to undertake. To this end, FERC would be in the position of resolving
any conflict arising from competing projects/developers. FERC should
look at a variety of criteria to determine who is best suited to build
a project including incumbent participation, public power, the ability
to maintain facilities going forward, etc.
Some have expanded this concept to argue for competitive bidding
for the construction of regional transmission projects. The typical
American utility does not have a construction department, and as such,
for each individual capital project, it must send the project out to
bid based on detail engineering design. The two key components to
determining the cost that the consumers will ultimately pay: 1) return
on equity (``ROE'') and 2) level of ongoing maintenance. As it relates
to competitive bidding, ROE is the only area in which utilities may
complete. This, in effect, creates negative incentive for utilities to
reduce maintenance and operations costs in an effort to recapture
profits, which ultimately results in the degradation of system
reliability. This is the system we have today and has led us to
underinvestment in transmission.
To address these inherent issues, the regional planning issue must
first be resolved, and then, in the implementation phase, an
independent transmission company should be responsible for the overall
coordination with the affected utilities that would have the right of
first refusal to build or participate in the building. This would allow
the incumbent utility to participate in construction if so desired
while ensuring that the independent transmission company takes
responsibility for coordinating construction and ongoing maintenance
across broad regions thereby ensuring that inventory requirements are
met, that maintenance crews are trained and that the necessary capital
is available with appropriate ownership so as to prevent the
transmission system from being manipulated by market participants.
itc's green power express as forcing function on policy issues
A more tangible example of the value of independent regional
planning can be found in ITC's recently announced ``Green Power
Express''. While this project is still in its very early stages, the
question of DC has already arisen. The Green Power Express is a broad
network of 765 kV transmission facilities that has been designed to
efficiently move vast amounts of renewable energy in wind-rich areas to
major Midwest load centers. The Green Power Express is consistent with
the vision outlined by President Obama in his national energy agenda.
President Obama specifically mentioned his desire ``to get wind power
from North Dakota to population centers, like Chicago.''\3\
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\3\ Transcript from appearance on Rachael Maddow Show of October
28, 2008: http://www.msnbc.msn.com/id/27464980/.
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The Green Power Express will allow this goal to be met as well as
set the stage for the integration of off-shore wind in the Great Lakes
in the future. By having a robust extra high voltage (``EHV'') grid
that serves as a transmission backbone in various regions, the
geographically diverse wind becomes readily accessible and more
economic thereby mitigating two of the major challenges with this
naturally intermittent resource.
We recently received the results of an independent study conducted
by the Brattle Group, entitled ``Transmission Super Highway: Benefits
of Extra High Voltage Transmission Overlays,'' which demonstrates that
wind power becomes economically competitive when it is generated from
areas with the highest capacity levels. The study uses ITC's proposed
Green Power Express development project as a model for examining the
potential benefits of adding a high voltage overlay to our existing
transmission system. It concludes that between 2010 and 2030, the Green
Power Express alone could deliver up to approximately 12,000 MW of new
wind energy, avoiding significant amount of carbon emissions.
The Green Power Express was designed to be an EHV backbone that
would gather the wind from the disparate wind abundant areas and
transport it eastward. In other words the Green Power Express as an
alternating current (``AC'') solution provides many onand off-ramps to
gather and distribute the wind power across a broad region. With DC
there would be less flexibility for how wind would be integrated into
the network. Additionally, DC presents some reliability concerns if
used as the initial phase of an EHV backbone. Because it does not allow
for easy redirection of power in the case of a line outage, at this
point a DC solution would make the system reliability vulnerable.
In effect, through the development of the Green Power Express, ITC
filled a gap that exists within the industry due the existing RTO
governance that does not currently give the RTOs direction to do
regional planning without undue influence of market participants. The
absence of market participant influence and ITC's independence from
undue market participant influence was critical in developing the right
solution that improves electric reliability, effectively and
efficiently integrates high capacity renewable energy to promote a
cleaner environment, protects national security, and the environment.
However, it should be recognized that while ITC was able to develop
this plan free from undue market participant influence, the project
will likely face the same challenges related to pressure from
stakeholders related to individual interests as ITC shepherds the Green
Power Express through an Order No. 890 compliant process.
As envisioned the Green Power Express will touch seven states, or
seven distinct siting jurisdictions. Under the current siting system,
this could mean that the project could get held up in court siting
procedures for an indefinite amount of time. In order to realize the
vast economic, environmental and reliability benefits of the Green
Power Express in a timely manner, it is imperative that there is some
form of backstop siting authority to compel the project forward.
It is widely recognized that the Upper Midwest is a region that has
great potential to develop wind energy facilities. There are other
regions that have similar opportunities such as wind in the Great
Plains region or solar energy in the Southwest. Generation from these
potential resources is intermittent due to the variable nature of wind
and solar ``fuel''. As such, regional diversity will provide
significant benefits as a means to dampen the impact of this resource
intermittency. Consequently, independent regional transmission planning
is essential as a means to identify and capitalize on the vast amount
of renewable resources economically while protecting the overall
reliability of the grid.
conclusion
Our country is trying to tackle 21st Century energy challenges with
an electric transmission grid largely built more than 30 years ago
while operating under an outdated regulatory system. To put it simply,
we will not meet our goals if we don't change how we do business. We
urgently need to reform how we plan, locate and pay for new
transmission. This requires moving beyond the parochial interests and
fractured regulatory structure that has led to decades of
underinvestment in our electricity grid. Congress and federal
regulators have the ability to modernize the rules to allow private
companies such as ITC and others to make much-needed investments. These
are solutions that don't require an infusion of taxpayer dollars, but
will create new jobs and help address our looming energy and
environmental crises.
A modern grid will solve our environmental and renewable energy
challenges and improve reliability and associated costs to the economy.
Now is the time for Congress to encourage private investment in
America's energy infrastructure.
Again, thank you, Chairman Bingaman, Ranking Member Murkowski, and
Members of the Committee. I sincerely appreciate the focus that you are
providing to the critical issue of the impediments to building regional
transmission as the facilitator of an energy policy vision for a
brighter, cleaner tomorrow.
The Chairman. Thank you very much.
Mr. Edwards, please go right ahead.
STATEMENT OF GRAHAM EDWARDS, ACTING PRESIDENT AND CEO, MIDWEST
INDEPENDENT TRANSMISSION SYSTEM OPERATOR, INC.
Mr. Edwards. Mr. Chairman, Senator Murkowski, members of
the committee: I appreciate very much you allowing me to be
here with you today. I'm Graham Edwards and I am with the
Midwest Independent System Operator.
We think that the legislation that is being reviewed today
is critical for the country going forward. At the Midwest ISO
we were the first independent transmission organization in the
country. We serve all or parts of 14 States, about 97,000 miles
of high voltage transmission lines. We have several functions
and services that we provide for our market participants and
our transmission owners: reliability coordination, transmission
administration, congestion management, and as important as
anything and probably more important today is regional
transmission planning services. That is critical in what we're
talking about today.
As we look at this legislation, this is a national problem
and we need a national solution and a process to handle the
national problems that we're facing. If it's done correctly and
right, I really believe we can end up with a plan that meets
our needs and has the right answers.
The interconnection systemwide planning process we think is
very appropriate, and also we think it's achievable. I say that
because we have just recently at the Midwest ISO over the last
15 to 18 months gone through an interconnection-wide study.
Albeit it was a very high level study and a first scenario,
Midwest ISO along with several other RTOs--PJM, Southwest Power
Pool--as well as MAP Region, TVA, some southeastern utilities,
as well as information from New York and New England.
We pulled all this together, built the model for the entire
eastern interconnect in order to look at what it would take for
a high voltage overlay. We worked also in conjunction with the
Department of Energy to develop a scenario that, from the
reference case, that if there were a 20 percent renewable
mandate, what will the impacts be. We did this process very
open and transparent. We had 12 different meetings in 12
different cities, over 300 participants, individuals and
entities.
So the process can be done, it's appropriate, and it is
doable. However, we strongly recommend that for it to be
successful several things need to be considered.
First, clear policy goals and objectives need to be
understood and set forth at the outset. Before any plans are
started, we need to know what renewable mandates are, we need
to know what carbon implications are going to be for the
future, what cost expectations are. Those need to be understood
up front before the process starts.
Second, we need to develop a very open, transparent,
robust, and inclusive process. Collaboration with the States is
very critical. It's got to be done in that manner because if
not I don't care what the answers are, people will not accept
them.
Third, we think that the designated planning authority
needs to be one independent both from commercial relationships
and from regulatory pressures. They need to be planning from a
perspective of independence. They also need to be experienced
and very sophisticated systemwide planning experience will be
critical to be successful.
In addition, we think that, similar to Senator Reid's bill,
we think it needs to be refreshed periodically. Technology
changes. Demographics change. We need to make sure we revisit
the plans periodically to make sure we're still going down the
right road.
Last and probably the most critical is, to be successful in
building transmission, the two things that others have talked
about, siting and cost allocation, are the most controversial
and contentious issues that we've all got to deal with. There's
got to be some political will at either the Federal or the
State level for those issues to be resolved and for us to move
forward. I think that your legislation is on the right road in
the role for the States in working cooperatively, so we think
that's an appropriate way.
In summary, we think systemwide, interconnection-wide
planning is good. We think clear policies are critical. It
needs to be transparent, open, independent planner, as well as
siting and allocation issues need to be in force and effect.
Finally, Mr. Chairman, I will take credit for the comment
made by Senator Murkowski at the onset. Congress has the
ability to change laws, to make new laws. I really don't think
we can change the laws of physics. What I hope is that the
planners don't get into a situation with goals and objectives
that go against the laws of physics.
With that, I will conclude my remarks and I appreciate the
opportunity and would be glad and look forward to your
questions.
[The prepared statement of Mr. Edwards follows:]
Prepared Statement of Graham Edwards, Acting President and CEO, Midwest
Independent Transmission System Operator, Inc.
Good morning, Chairman Bingaman, Ranking Member Murkowski, and
members of the Committee; thank you for inviting me to speak to you
today. I am Graham Edwards, Acting President and CEO of the Midwest
Independent Transmission System Operator, Inc. The Midwest ISO is a
non-profit, independent, member organization serving members in all or
parts of 14 states and one Canadian province, from western Pennsylvania
to eastern Montana and Missouri to Manitoba. In 2001, we were the first
Regional Transmission Organization approved by the Federal Energy
Regulatory Commission. The Midwest ISO operates day-ahead and real-time
energy markets and an ancillary services market. In addition, we
provide transmission scheduling and reliability services. Relevant to
this hearing, the Midwest ISO performs a regional planning function for
the members in its footprint.
transmission planning at the midwest iso
The Midwest ISO performs transmission planning at several different
levels--from individual generator interconnections to smaller sub-
regional transmission plans, to an annual expansion plan for the entire
Midwest ISO footprint. We are also part of a coordinated effort to look
at transmission planning on an Eastern interconnection-wide basis. Last
month, the first report from this effort was issued: the Joint
Coordinated System Plan or JCSP. The JCSP looked at two future energy
scenarios for the Eastern interconnection: a reference future
reflecting existing laws and about 5% wind penetration, and a wind
future in which 20% of the energy in the Eastern interconnection was
provided by wind. Another goal of both scenarios was to bring the
lowest delivered cost of power to consumers. Other participants in the
study included PJM, the Southwest Power Pool (SPP), TVA, the
MidAmerican Power Pool (MAPP), entities in the southeast and input from
the New York and New England regions. All of the work was done in
collaboration and coordination with the Department of Energy. The JCSP
was a first step, and more work needs to be done.
I look at the JCSP as a great success. It was the first joint
transmission process that looked at the entire Eastern interconnection
and it used new planning tools and techniques to perform its
engineering analysis. The results reflect the fact that it was an open
process to gather stakeholder input, visiting a dozen cities in all
regions of the Eastern interconnection with over 300 entities attending
the open meetings. Briefly, the JCSP found that for a 20% wind future,
about 15,000 miles of an extra high voltage transmission overlay would
be needed for the Eastern interconnection. The cost of this new
transmission would be about $80 billion, but the early estimates show
that benefits of the system exceed the costs.
Congress is now discussing how to promote new transmission for
various goals such as improved renewables access, carbon reduction,
national security/energy independence, and improved reliability. All of
these are important goals and new intelligent transmission can help to
achieve them all. Having just completed the JCSP, I would like to
discuss some of the lessons learned from that 15-month open process
that Congress should consider in the legislation being reviewed today,
and in any related legislation.
I wish to offer five points today:
Interconnection-wide planning is appropriate and achievable.
Interconnection-wide planning is best accomplished with
policy goals and expectations stated up front and important 1st
level questions already assessed.
The best and most useful plans come from open, inclusive,
robust sessions to develop and vet key assumptions.
Plans, once developed, must be revisited to keep them
relevant.
To build projects that will fulfill the plan, siting and
cost issues must be addressed.
interconnection-wide planning is appropriate and achievable
Because the issues being addressed in our nation's energy debate
involve topics of at least regional and often national scope, it is
crucial that they be addressed on the right level. Renewable resources
such as wind, solar and geothermal are most often at their peak
capacity in areas remote from the nation's major load centers. The
electrical grid for the lower 48 states operates in three
``interconnections.'' In the Eastern and Western interconnections,
harvesting the most vibrant renewables will mean moving energy over
distances of hundreds of miles through an intelligent extra-high
voltage grid overlay. To ensure that overlay can integrate renewables
with an end goal of the lowest delivered cost of energy, the planning
must be over comparably large regions. In our region, moving large
amounts of wind energy from the Great Plains to population centers
cannot be done with the existing transmission system, or even a
slightly improved system--it will require an intelligent extra high
voltage grid overlay.
In the West, the folks at WECC have shown that such plans can be
produced. In the East, we in cooperation with other entities like TVA,
SPP and PJM, among others, have shown an interconnection-wide plan can
be accomplished through the JCSP. This plan evaluated what would be
necessary for a 20% wind integration by the year 2024. The plan is a
good start. Additional efforts are underway to run more scenarios and
to consider off-shore wind resources and Canadian resources in the
plan. Moreover, we believe that an intelligent EHV overlay could be
self-healing and not significantly affect the existing transmission
planning processes of utilities, RTOs and ISOs used for transmission
that is not part of the overlay. The important news is that
interconnection-wide planning can be done in the Eastern
interconnection. The draft legislation appropriately requires that
planning for an intelligent extra high voltage grid be done on an
interconnection-wide basis.
interconnection-wide planning is best accomplished with policy goals
and expectations stated up front and important 1st level questions
already assessed
What policy goals one wishes to serve will be reflected in an
intelligent grid-overlay plan. It is not enough to say the goal is to
integrate renewables. The more Congress can inform the planners in
advance, the less they have to make up or decide for themselves and
risk frustrating the policy makers who gave them the job in the first
place. For instance, what other factors are to be considered--maximum
CO2 reduction, lowest cost of wholesale electricity,
national security/energy independence through plug-in electric
vehicles, or others? The answers to these questions are likely to
result in different grid overlay plans. I am not saying that these
goals are mutually exclusive, but the planners need to know what the
goals for the grid are so those goals can be reflected in the plan. The
draft legislation attempts to provide this clarity to the planners.
Further clarity regarding levels of renewables requirements and details
of carbon policy would be helpful, but those issues may be addressed in
other legislation.
It is also especially valuable if the determination of where the
renewable resource zones are located is already made or if the criteria
for choosing the zones are set. Planners know generally where the load
centers are (the cities); however, identification of the areas where
the renewables will come from is just as important in planning the
intelligent transmission grid overlay. A process needs to be in place
to identify where the renewable resources will be located. This could
be done through either a state or federal process or a combination of
both; but a process should be identified. The draft legislation does
not provide a framework for the process to identify the renewable
energy zones. I believe that a collaborative state and federal process
could quickly identify those regions where large quantities of
renewables are present. DOE has already done much of this work on a
national level. The states of the upper Midwest (North and South
Dakota, Minnesota, Wisconsin and Iowa) are working together with the
Midwest ISO to identify those particular regions in their states (based
on the broader DOE work), where wind development is most appropriate.
We understand that California, New York and the New England regions are
engaged in a similar process. Congress should allow those processes to
come to fruition and then allow that work to be incorporated into a
national plan. Incorporation of state plans into a national plan will
give greater credibility to the national plan.
the best and most useful plans come from an open, inclusive,
transparent, nondiscriminatory, robust process used to develop and vet
key assumptions and explain the tools and processes that will be used
by the modelers
Because siting and cost issues will arise from the implementation
of any plan, it is crucial that the plan be credible and respected by
not just policy makers and investors, but by the people and state
authorities whose land will be crossed by the projects that implement
the plan. When assumptions are arrived at out of sight, they become
secrets and the motivation of the planners is questioned. The draft
legislation appropriately requires an open stakeholder process to
develop the interconnection-wide transmission plan.
The interconnection-wide planning you are considering will be
valuable because it will produce an answer; not justify a predetermined
path of action. The JCSP was conducted in such a manner. Our experience
shows that the values of openness, transparency and inclusion do not
have to paralyze a process. Willing people can produce valuable work
that is thoughtful and respectful of others within time frames still
suited to action.
Another important consideration is the choice of the planner. It
should be an independent entity (which could be a joint venture of
entities) with experience in large scale transmission planning. These
requirements should be added to the draft legislation. Independence is
critical so that the planner is not beholden to any party interested in
the outcome and persons can have confidence that the planning process
was fairly run. Experience is critical because Congress appears to want
this process to begin soon. Transmission planning is a very arcane
subject and it could take an entity without experience too long to gain
the experience and produce a credible plan. Independence and experience
will provide greater credibility to the planning entity and its work
product.
plans, once developed, must be revisited to keep them relevant
Planning is an ongoing process. At its best, it is flexible enough
to adapt to new developments, like evaluating out of sequence projects,
and prudent enough to reconsider assumptions and incorporate new
developments on a periodic basis. The Midwest ISO's own regional plan
is a biennial plan. From our experience with the JCSP and our own
transmission expansion plans, we have found that no matter what
``future'' is looked at in the plan, there tends to be a ``core'' of
transmission projects that will be required no matter what. Identifying
the core projects allows plan flexibility in the future and helps
prevent building a system (or parts of it), that could become obsolete.
Flexibility in the plan will build public and stakeholder confidence in
the plan and the planning process. This confidence may also aid in the
eventual siting and cost allocation issues that will arise. You should
consider adding requirements that the plan be updated on a regular
basis. This will allow the plan to be updated as conditions change and
new technologies are developed.
to build projects that will fulfill the plan siting and cost must be
dealt with
The Committee will be considering various siting and cost recovery
proposals. It is critical, in my view, that they be addressed; for
without their consideration, the state-by-state review of regional
projects will be fraught with difficulty. That is not to say that the
state role should be eliminated--states have important knowledge that
will be valuable to the siting process.
It is also important that the cost recovery mechanisms for the
projects not be based on membership by companies in voluntary
organizations like RTOs. Recovery should be pursuant to rules that
cannot be sidestepped by withdrawing from an organization. The Midwest
ISO has its own costs allocation and recovery rules, but those rules
are not the same across different RTOs or ISOs or various utilities. It
would be very difficult to try and apply different cost allocation and
recovery rules for different areas to an intelligent extra high voltage
grid overlay that seeks to achieve national goals. However, in our
footprint, the states in the upper Midwest are also working
collaboratively to reach consensus on cost allocation principles for
transmission for renewables. The draft legislation appears to allow
this process to continue and be incorporated into a proposal to the
Federal Energy Regulatory Commission. We believe that this flexibility
and recognition of state efforts in the draft legislation is good. If
these state efforts do not succeed, then perhaps a federal solution
would be required.
in conclusion
Interconnection-wide planning is appropriate and achievable.
Interconnection-wide planning is best accomplished with
policy goals and expectations stated up front.
The best and most useful plans come from an open, inclusive,
transparent, nondiscriminatory, robust process used to develop
and vet key assumptions and explain the tools and processes
that will be used by the modelers.
Plans, once developed, must be revisited to keep them
relevant.
To build projects that will fulfill the interconnection-wide
plan siting and cost must be dealt with.
Finally, recall that Congress has the power to change all laws,
except the laws of physics. I do not see that problem in this draft
legislation, but as the bill moves through the legislative process,
please do not forget this. Thank you very much for this opportunity to
speak to you today. I look forward to your questions.
The Chairman. Thank you very much.
Mr. Detcheon, go right ahead.
STATEMENT OF REID DETCHON, EXECUTIVE DIRECTOR, ENERGY FUTURE
COALITION
Mr. Detchon. Thank you, Mr. Chairman, and thank you for
inviting us to testify. I'm the Executive Director of the
Energy Future Coalition, which is a nonpartisan public policy
group here in Washington. We have been concerned about the
state of the electric power grid in this country since we were
formed 7 years ago.
Last fall, in partnership with the Center for American
Progress and later the Energy Foundation, we undertook a series
of listening sessions with a wide range of stakeholder groups,
including all the gentlemen, the groups who spoke before me on
this panel. We found remarkably broad support for a new network
of extra-high voltage lines to bring high-quality renewable
energy resources, whether it's wind from North Dakota or solar
from Nevada, to market.
As you know, if we're going to have a renewable energy
standard we're going to have to have the transmission lines to
get it to market. Our chairman and head of our steering
committee Ted Turner wants to put wind and solar on his ranches
in New Mexico and Montana, but he has no way to get them to
market. There is some 300,000 megawatts identified of wind
projects available in this country that are awaiting access to
transmission.
In terms of cost, study after study have shown that a
renewable energy standard saves consumers money, doesn't cost
consumers money, in part because by displacing natural gas in
the electric power generation system it brings down the price
of gas and saves consumers net-net a lot of money.
But our concern has not just been about renewable energy.
It's also been about the efficiency of the system, the ability
to manage the system, to deliver power with the least loss, and
also security issues. I think that these are important to bring
up. As we take on the grid issues, we need to continue to
modernize the grid. The vulnerability of the grid to security
threats is hair-raising, and I think that as we look forward to
ways to get ourselves off our dependence on oil, clearly plug-
in electric hybrids are going to be a central part of that
answer, and again it puts us back onto the need for a secure
and modern digital grid.
The vision statement that we brought forward for the
national clean energy smart grid has been endorsed by some 55
organizations. These include the AFL-CIO, the Council on
Competitiveness, the Digital Energy Solutions Campaign, along
with many renewable energy groups and environmental group who
are not usually prominent supporters of new transmission lines.
We have appended both our statement and the white paper
produced by the Center for American Progress on this subject to
our statement.
What brought these environmental groups to the table, which
may, if Senator Risch were still here, be of interest to him,
and ultimately to an agreement on this statement was the
imperative of action to deal with the climate crisis. These
groups could accept the need for additional authority for new
transmission lines, but only if those lines were transporting
low-carbon energy. Building new lines to deliver electricity
from new conventional coal-fired power plants was unacceptable
to them and inconsistent with the transition that we see coming
at us.
So as part of the package that we recommended, we suggested
for the issue of access to these lines a greenhouse gas
standard that would reach up to the level of a single cycle gas
turbine, in order to make sure that the supply of energy was
reliable, but in effect that would exclude new conventional
coal-fired power plants without CCS.
As you said, Mr. Chairman, the three most important issues
are planning, siting, and cost allocation. Siting is seen as
the most pressing issue, but in fact I think that planning
turns out to be the most important issue. We've concluded that
better planning could reduce the difficulty of siting new lines
and would provide the basis for equitable allocation of costs.
We've been gratified by the inclusion of many of our
recommendations or similar recommendations in both Senator
Reid's bill and in the majority staff draft that you
circulated, especially as has been discussed today,
interconnection-wide transmission planning under strict
timetables, with FERC empowered to act if the States do not,
supported by broad-based cost allocation and underpinned by
Federal siting authority. I would emphasize the need to build
on the existing State and regional planning processes, as we
heard today from NARUC, a bottom-up process taking advantage of
the good work that's already been done, particularly by the
Western Governors Association, and the process just described
that MISO participated in. We believe that that early public
input and the designation of transmission corridors will do a
lot to make the siting process easier.
Finally, I just want to mention that the bills that have
been circulated so far do not yet include provisions dealing
with security of the grid, especially cyber security threats.
The Defense Science Board's report last year, ``More Fight,
Less Fuel,'' found that critical national security and homeland
defense missions are at unacceptably high risk of extended
outage from failure of the grid. I urge you to incorporate
provisions to ensure the protection of the grid from external
threat. It's vital to both our economy and to our security.
Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Detchon follows:]
Prepared Statement of Reid Detchon, Executive Director, Energy
Future Coalition
Mr. Chairman, thank you for inviting me to testify and for your
conciliatory leadership of this Committee. My name is Reid Detchon, and
I am the Executive Director of the Energy Future Coalition, a non-
partisan public policy group, supported by foundations, that works to
bring together business, labor, and environmental groups around common
energy policy objectives.
The Energy Future Coalition was formed seven years ago, in the wake
of the 9/11 attack, because of concerns that U.S. energy policy was not
adequately addressing issues of national security and climate change.
The condition of the nation's electric power grid was an immediate
topic of concern and the focus of one of our initial working groups.
Since that time, we have advocated for and applauded action by this
Committee and Congress as a whole to support advanced transmission and
smart grid technologies in the Energy Policy Act of 2005, the Energy
Independence and Security Act of 2007, and the American Recovery and
Reinvestment Act of 2009.
Several months ago, it became apparent that, thanks in part to the
advocacy of T. Boone Pickens, a new groundswell of support was emerging
for modernizing the nation's transmission grid and expanding it to
serve stranded large-scale renewable energy resources. Without such
steps, it would be challenging to meet a national renewable energy
standard, including the 25x'25 target that we have long supported.
Accordingly, the Energy Future Coalition, in partnership with the
Center for American Progress and later the Energy Foundation, began a
series of listening sessions with a wide range of stakeholder groups to
determine where the areas of agreement and disagreement were. We found
remarkably broad support for a new network of extra high-voltage lines
(345 kilovolts or above) to bring high-quality renewable energy
resources--wind in the Great Plains, solar in the desert Southwest--to
market.
With a smaller group of stakeholders, notably including the
American Wind Energy Association and the Solar Energy Industries
Association (whose joint white paper last summer, ``Green Power
Superhighways,'' was an important outline of the challenge and
opportunity--http://seia.org/galleries/pdf/
GreenPowerSuperhighways.pdf), Mesa Power, and the Sierra Club, we then
collaboratively crafted a vision statement for the National Clean
Energy Smart Grid, which I will describe in some detail. The full
statement appears at the end of this testimony, along with a list of
some 55 endorsing organizations.* These include the AFL-CIO, the
Council on Competitiveness, and the Digital Energy Solutions Campaign,
along with many renewable energy advocates and environmental groups,
such as the National Audubon Society, the National Wildlife Federation,
the Natural Resources Defense Council, Union of Concerned Scientists,
and the Wilderness Society. I mention them because they are not usually
prominent supporters of new transmission lines.
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* Documents have been retained in committee files.
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What brought these environmental groups to the table and ultimately
to agreement was the imperative of action to address with urgency the
growing global climate crisis. The Sierra Club's Carl Zichella, who
ably represented the environmental participants, repeatedly noted that
his constituency could accept the construction of new transmission
lines if and only if they transported low-carbon energy. Building new
lines to deliver electricity more efficiently from conventional coal-
fired power plants was unacceptable.
The group agreed that a national Clean Energy Smart Grid is an
economic, environmental, and national security imperative--vital to
renewing America's economic growth, strengthening national security,
and addressing the threat of global climate change. Investments are
needed in both interstate transmission and in smart grid technologies
to make the system more reliable, resilient, and secure, to accommodate
renewable power and enable more energy efficiency by individuals and
businesses.
These same conclusions were reflected in a white paper entitled
``Wired for Progress,'' prepared by our partner in this project,
Bracken Hendricks of the Center for American Progress, and available on
the Internet at: http://www.americanprogress.org/issues/2009/02/
wired_for_progress.html.
They were also the subject of a remarkable one-day forum on
February 23, chaired by Senator Reid with the Center for American
Progress, on the ``National Clean Energy Project: Building the New
Economy.'' Participants included Senators Bingaman and Dorgan, Speaker
Pelosi, former President Clinton and Vice President Gore, Energy
Secretary Steven Chu, Interior Secretary Ken Salazar, former New York
Governor George Pataki, T. Boone Pickens of BP Capital, Lee Scott of
Wal-Mart, John Sweeney of the AFL-CIO, Andy Stern of the SEIU, and Carl
Pope of the Sierra Club.
What are some of the benefits of a modernized grid?
According to the Department of Energy, obtaining 20% of U.S.
electricity from wind in 2030 would reduce electric sector
CO2 emissions by 25%--the equivalent of taking 140
million cars off the road--while creating 500,000 jobs and $450
billion in economic impact.
Almost 300,000 MW of proposed wind projects, more than
enough to meet 20% of our electricity needs, are waiting to
connect to the grid because there is inadequate transmission
capacity to carry the electricity they would produce.
California alone has over 18,000 MW of wind plants and almost
30,000 MW of solar plants waiting to connect to the grid.
The Electric Power Research Institute estimates that making
the grid smarter with modern control technology could reduce
electricity consumption by 5-10%, carbon dioxide emissions by
13-25%, and the cost of power-related disturbances to business
(estimated to be more than $100 billion per year) by 87%.
In our discussions, the three most important issues standing in the
way of new longdistance transmission lines for renewable energy were
planning, siting, and cost allocation. Siting was seen as the most
pressing issue, because opposition to new lines makes siting extremely
time-consuming, difficult, and expensive. However, planning turned out
to be the more important issue, as the group concluded that better
planning could reduce the difficulty of siting new lines and provide
the basis for equitable allocation of costs.
For these reasons, more than 55 stakeholder groups came forward to
endorse the following policies:
1. Interconnection-wide planning for transmission networks to
move renewable power from remote areas to population centers
while ensuring the efficiency and reliability of the
transmission grid, using a participatory and analytically
robust process designed to engage all interested parties early
and avoid later conflicts, minimize environmental impacts, and
overcome the geographic and procedural limitations of current
planning approaches.
2. A simple mechanism to pay for transmission investments and
smart grid transmission upgrades identified in the
interconnection-wide plans, which would minimize individual
economic impacts by allocating costs broadly among ratepayers.
3. Consolidated certification and siting authority to
expedite transmission projects identified in the
interconnection-wide plans to serve urgently needed renewable
energy resources while ensuring the efficiency and reliability
of the transmission grid.
4. New policies to make electric grid security a priority,
and to coordinate and pay for investments that will rapidly
reduce the grid's vulnerability to cyber and physical attacks
and natural disasters.
5. Strong financial incentives for rapid deployment of smart
grid distribution and metering technologies.
6. Education and training to create the workforce we will
need to build, manage and maintain the National Clean Energy
Smart Grid.
Recognizing the complex nature of the electric grid, its importance
to the future of our economy, and its impact on our environment, these
new policies and authorities should be developed and implemented in
accordance with several key principles:
1. Interconnection-wide grid planning should not duplicate or
supplant already ongoing planning efforts at the utility and
regional level, but rather should build on them.
2. The interconnection-wide planning process should take into
account: opportunities for improved end-use energy efficiency,
customer demand response, clean distributed generation, and
energy storage; opportunities to improve the efficiency of the
grid; and opportunities to diversify and transform the Nation's
power supply resources.
3. New transmission plans should dramatically enhance our
capacity to meet steep greenhouse gas emission reduction goals
by targeting new clean renewable energy resources and limiting
interconnection for new high-emitting generation (while still
ensuring reliability).
We have been gratified to see many of these recommendations
reflected in S. 539, introduced last week by Senator Reid, and in the
Majority Staff draft circulated prior to this hearing--notably, a
system of interconnection-wide transmission planning under strict
timetables, with the Federal Energy Regulatory Commission empowered to
act if the states do not, supported by broad-based cost allocation and
underpinned by federal siting authority. The two bills give preference
to renewable energy in different ways; the approach chosen by our group
was to limit access to new transmission lines built with these special
authorities to energy generators whose greenhouse gas emissions are no
greater than that of a single-cycle natural gas-fired combustion
turbine--on the basis that gas will be needed on the lines to
compensate for the variability of renewable resources. The Majority
Staff draft does not appear to provide that same level of assurance.
Neither of these bills, however, yet includes provisions dealing
with the security of the grid, especially against cybersecurity
threats, the importance of which was recognized in Title XIII of EISA.
It is vitally important that the electricity grid be capable of real-
time management and instant correction, in order to minimize the risk
of disruption and the time for recovery, if a terrorist attack on the
system does occur. This will require the ability to monitor the status
of the grid on a real-time basis, to instantly recognize and diagnose
any unusual events on the system, and to respond intelligently with
adaptive changes in power flows, generating unit operations, and load
management.
For those of you unfamiliar with the Defense Science Board's 2008
report on energy, ``More Fight--Less Fuel,'' it found that ``critical
national security and homeland defense missions are at an unacceptably
high risk of extended outage from failure of the grid.''
The report warns: ``Informed and capable saboteurs can inflict
damage that would take down significant portions of the grid and other
critical infrastructure for long periods and make restoration, even
work-around measures, difficult, costly, time consuming and marginally
effective . . . .
``Grid control systems are continuously probed electronically, and
there have been numerous attempted attacks on the Supervisory Control
and Data Acquisition (SCADA) systems that operate the grid. None have
yet resulted in major problems in the U.S., but the potential exists
for major outages . . . .
``The grid is a relatively easy target for a terrorist. It is
brittle, increasingly centralized, capacity-strained, and largely
unprotected from physical attack, with little stockpiling of critical
hardware. Although the system is designed to survive single points of
failure, increasing demand on the system and increasing network
constraints make multiple points of failure more likely. These are
difficult to anticipate and more likely to result in cascading outages
and catastrophic outages that cover large areas for long periods of
time. Network Single Points of Failure (NSPF) are abundant. High
voltage transformers, breakers, and other long-lead time items are
particularly critical system elements. They can be easily targeted and
destroyed. Grid sections could be taken down for months even if
replacement transformers and breakers could be found; or for years if
certain components need to be newly manufactured and transported. There
are only limited backups located around the country--generally co-
located with operating equipment. For some of the largest equipment,
there is no domestic supply and only limited overseas production
capacity which is fully booked years ahead. For example, 765 kV
transformers are manufactured only by one company in Canada. Armed with
the right knowledge, a small number of people could shut down
electricity over significant areas for an extended period of time,
including power to critical DoD missions. The grid is not designed to
withstand a coordinated multi-pronged or wide-area attack.''
This situation represents an unacceptable threat to our national
security. Addressing it by modernizing the grid with smarter technology
to serve a digital economy would pay immediate dividends. In the last
Congress, the House Energy and Commerce Committee prepared draft
legislation to address the cybersecurity threat in particular; that is
a good place to start.
Mr. Chairman, you and your colleagues are well on your way to
writing legislation that will enhance our transmission system in
important ways. I urge you to take the next step and incorporate
measures to ensure the protection of that system from external threats.
Our economy and security deserve no less. Thank you for inviting me to
participate in this hearing.
The Chairman. Thank you very much.
Mr. Dickenson.
STATEMENT OF JAMES A. DICKENSON, MANAGING DIRECTOR AND CHIEF
EXECUTIVE OFFICER, JEA
Mr. Dickenson. Thank you, Mr. Chairman and Senators. I do
thank you for this opportunity to address the committee on
behalf of our consumers. My name is James A. Dickenson and I am
CEO of JEA, Jacksonville, Florida's municipally owned electric,
water, and sewage utility. JEA's electric system serves more
than 400,000 customers in Jacksonville and adjacent counties.
I'm testifying today on behalf of JEA and the Large Public
Power Council. LPPC is an association of 23 of the Nation's
largest municipal and State-owned utilities located throughout
the Nation, which also includes a number of States well
represented on this committee. Together, LPPC members own
nearly 90 percent of the non-Federal public power transmission
in the United States. LPPC members are also industry leaders in
the development of renewable generation and energy efficiency.
On a personal note, I spent the first 20 years of my 36-
year career in the electric utility industry designing and
building transmission lines.
My testimony today addresses the need for Federal
legislation to spur the development of transmission facilities
to bring new renewable resources to market, and I will address
three issues, that of siting, planning, and cost allocation.
LPPC members believe that enhanced Federal siting authority
would be very usful in developing needed transmission. State
commissions focus primarily on the interests of their States
when deciding whether to issue a permit or certificate for a
project. Current Federal authority is not adequate to overcome
this barrier since the authority given to FERC under the Energy
Policy Act of 2005 is limited to identified corridors and may
be even more limited by recent court rulings.
On the subject of siting on Federal lands, LPPC's western
members report that Federal agencies lack adequate resources
and have difficulty coordinating with each other. Congress
should also address this issue.
Finally, LPPC believes it would be a mistake for
legislation expanding Federal siting authority to restrict the
use of new transmission capacity simply to renewable resources.
Such a restriction would raise difficult issues regarding open
access policy and feasibility. Transmission lines available to
meet multiple needs are vastly more valuable to the grid than
those dedicated to a single use.
Planning. With respect to transmission planning, while we
believe there may be room for improvement, we do not think that
it would be productive to add a whole new planning bureaucracy.
Only last year, in Order 890 FERC directed the implementation
of a new region-wide planning process that called for an
unprecedented level of regional coordination, transparency, and
Federal oversight. All major utilities, including JEA, are
actively participating in a new region-wide planning process
designed to consider inter-regional planning challenges and
proposals. Congress should be wary of turning the industry's
planning process upside down at the very time we most need a
prompt and well-considered response to the new stresses that
will be placed on the grid.
On cost allocation, LPPC believes that the users of
proposed new transmission facilities should pay for them. I
would make several points on the proposals for interconnection-
wide cost allocation. First, building transmission to access
remote renewable resources is only one of the many ways for
utilities to respond to requirements to reduce greenhouse
gases. Other options include energy efficiency, demand
response, local renewable resources, which include distributed
solar, upgrading efficiency of existing generation, new nuclear
capability, and plug-in hybrid vehicles. Many of these options
will not require major transmission investments.
Second, interconnection-wide cost allocation for new
transmission may tilt the field in favor of distant renewables
and against development of more economical local alternatives
for reducing greenhouse gas emissions, such as energy
efficiency and nearby renewables. As Congress establishes new
environmental goals for our industry, utilities should have the
opportunity to respond in the most cost-effective manner
possible in view of the resources available to them. Subsidized
transmission for distant renewables should not be allowed to
crowd out more economical energy efficiency and local
renewables to the detriment of our customers.
Third, while the costs of proposed transmission build-out
is unknown at this time, it could be very high. One
transmission study estimates that the investment in
transmission in the Eastern interconect alone to meet DOE's 20
percent wind energy scenario would be $80 billion. Allocating
costs of new transmission projects to their users enforces a
cost discipline on the project that may be lost if
interconnection-wide cost allocation is implemented.
LPPC's view is that Congress should focus on clearing away
obstacles to transmission development. These steps include
implementing further Federal transmission siting authority that
is respectful to State and local concerns.
What Congress should not do in LPPS's view is create an
additional bureaucracy to oversee system planning or provide
for interconnection-wide allocation of new transmission
investment.
I would like to close with a comment on the draft
legislation released earlier this week on Chairman Bingaman's
behalf by the committee staff. I was pleased to see that it
takes a comprehensive, thoughtful look at these important
issues and includes provisions which address some of the
concerns I've articulated today. First, as I noted, we agree
with the premise that new Federal siting authority is called
for and that it should not be limited solely to transmission
lines for renewable resources. However, we think that the
exercise of this new authority need not be premised on the
creation of new planning institutions, but should instead be
vetted through the regional planning processes recently
implemented by FERC Order No. 890.
With respect to the allocation of costs for facilities, we
think that Congress should rely on existing law to determine
just and reasonable rates for the use of these facilities,
rather than trying to sort it out in legislation.
Thank you once again for the opportunity to address the
committee.
[The prepared statement of Mr. Dickenson follows:]
Prepared Statement of James A. Dickenson, Managing Director and Chief
Executive Officer, JEA
My name is James A. Dickenson and I am Managing Director & CEO of
JEA, a municipally owned electric, water and sewer utility system
located in Jacksonville, Florida. JEA's electric system serves more
than 400,000 customers in Jacksonville and parts of three adjacent
counties. I am testifying today on behalf of JEA and the Large Public
Power Council (``LPPC'').\1\ LPPC is an association of 23 of the
nation's largest municipal and state-owned utilities. Together, its
members own approximately 34,000 miles of transmission, representing
nearly 90% of the transmission investment owned by non-Federal public
power entities in the United States. LPPC members are located in states
and territories representing every region of the country. Our members
are not-for-profit entities that are directly accountable to our
customers--the citizens in our communities. Our commitment is to
provide highly reliable, low cost and environmentally responsible
electric service to our citizen-customers.
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\1\ LPPC's members are Austin Energy, Chelan County Public Utility
District No. 1, Clark Public Utilities, Colorado Springs Utilities, CPS
Energy (San Antonio), IID Energy (Imperial Irrigation District), JEA
(Jacksonville, FL), Long Island Power Authority, Los Angeles Department
of Water and Power, Lower Colorado River Authority, MEAG Power,
Nebraska Public Power District, New York Power Authority, Omaha Public
Power District, Orlando Utilities Commission, Platte River Power
Authority, Puerto Rico Electric Power Authority, Sacramento Municipal
Utility District, Salt River Project, Santee Cooper, Seattle City
Light, Snohomish County Public Utility District No. 1, and Tacoma
Public Utilities.
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LPPC members are among the industry's leaders in development of
renewable generation and energy efficiency, having invested, on
average, in renewable generation at a level above the industry average.
For example, Seattle City Light made its first wind purchase in 2000,
far before most utilities. Austin Energy now receives about 12% of its
energy from new wind resources, and will more than double this in the
next few years. Los Angeles Department of Water and Power (LADWP) plans
to receive 35% of its power from new renewables by 2020, perhaps the
most aggressive renewable goal in the nation. The Sacramento Municipal
Utility District will have 20% of its energy resources in renewables in
2010, with a goal of having 33% in renewables by 2020. Snohomish County
Public Utility District leads the country in FERC-approved tidal
applications. Our members in Florida and the Southeast, however, have
significant challenges when it comes to renewables, with biomass and
landfill gas resources as our best options.
On Monday, March 9 LPPC received proposed legislative language
entitled Siting of Interstate Electric Transmission Facilities, which
proposes to amend.Section 216 of the Federal Act (16 U.S.C. 824p). LPPC
has not yet had the opportunity to fully review and discuss this
proposal. However, we will comment on it in a supplemental submission
for the record and I will be prepared to discuss the proposal during
the hearing on March 12.
My testimony today addresses the need for federal legislation to
spur the development of transmission facilities to bring new renewable
resources to market. I address four policy issues relating to new
transmission: siting, planning, cost allocation and proposals for
dedicating new transmission exclusively or predominantly to use by
renewable resources. LPPC members support transmission development
needed to deliver renewable and other generation resources, and believe
that enhanced federal siting authority would be particularly useful.
With respect to system planning, while we recognize that there may be
room for improvement in existing planning institutions and processes,
much is now being done at FERC's recent behest. We believe it would not
be productive to layer a new planning bureaucracy on top of the current
regime.
As to cost allocation, LPPC believes that the users of the proposed
new transmission facilities should pay for them. Some current policy
proposals provide for interconnection-wide cost allocation for new
transmission facilities--that is, spreading the costs of new
transmission facilities constructed in the Eastern or Western
Interconnection to all consumers in the Interconnection.\1\ This cost
allocation policy is not necessary to encourage needed new facilities,
and may well discourage the development of more economical alternatives
for reducing greenhouse gas (``GHG'') emissions, such as energy
efficiency and local renewables. I am particularly concerned, from the
standpoint of JEA and its customers, that the large subsidies for
construction of transmission contemplated by some current proposals
would provide little benefit to Florida, and would prove to be a costly
burden. If Congress establishes environmental goals for our industry
through implementation of an RES or carbon control measures, or both,
Congress should let utilities, state regulators, and regional
transmission organizations determine how to meet those goals most
effectively by making economic choices among an array of available
options.
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\1\ The Eastern and Western Interconnections are the separate
interconnected transmission systems in the Eastern and Western United
States. A separate Interconnection operates in Texas.
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options for reducing carbon emissions
Building transmission to access remotely located renewable
resources is only one of many means by which utilities may respond to
requirements to reduce greenhouse gases (GHGs). The Electric Power
Research Institute (``EPRI'') through its ``Full Portfolio'' analysis
and McKinsey and Company in its 2007 ``U.S. Greenhouse Abatement
Mapping Initiative'' show a wide variety of options that we may employ,
including: energy efficiency initiatives (many calling for capital
investment); conversion of existing generation to more efficient
operations; the development of additional nuclear capability; advanced
coal generation and carbon capture and storage; distributed renewable
resources (including distributed solar); plug-in hybrid vehicles and
the development of large-scale remotely located renewable
generation.\2\ Many of these options are also useful in meeting a
Renewable Electricity Standard (``RES'').
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\2\ See mydocs.epri.com/docs/public/DiscussionPaper2007.pdf; and
http://www.mckinsey.com/clientservice/ccsi/greenhousegas.asp.
---------------------------------------------------------------------------
The EPRI and McKinsey studies demonstrate that we should take
advantage of the full range of alternatives available to us to reduce
carbon emissions. When considering these options from Florida's
standpoint, or the entire Southeast for that matter, we must also
remember that the available options depend very much on geography. It
is clear that in the Southeast, unlike the West, Pacific Northwest and
Mid-West, we are not blessed with substantial wind resources. The
Department of Energy's nation-wide study of wind resources shows
plainly that there are no significant on-shore wind resources in the
Southeast, and limited off-shore capability.\3\ It is telling that even
American Electric Power's ambitious proposal for a nation-wide
transmission build-out does not propose facilities in the Southeast.\4\
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\3\ See http://www.windpoweringamerica.gov/wind_maps.asp.
\4\ See: http://www.aep.com/about/i765project/docs/
WindTransmissionVisionWhitePaper.pdf. The map at p. 8 of that proposal
shows no facilities planned for the Southeastern United States.
---------------------------------------------------------------------------
What we do have in the Southeast is biomass capability, some
limited solar capability, the potential for nuclear development and the
opportunity to consume energy more efficiently. These options do not
call for an extensive transmission build-out, and it does not seem
reasonable or fair to me to call upon electric customers in the
Southeast to pay for transmission they cannot use. Certainly, I would
not expect others to fund the options we will choose for addressing RES
or GHG reduction requirements, including, potentially, new transmission
to reach off-shore wind resources. I believe that it makes a lot more
sense to permit utilities to make intelligent choices from among the
realistic alternatives they have available to them to meet RES and GHG
control requirements, without burdening them with costs of transmission
facilities useful only in distant regions.
transmission siting
LPPC believes that where transmission to remotely located renewable
resources is sensible, there are measures Congress should take to
facilitate that development. LPPC agrees that state siting authority is
not sufficient to address interstate transmission to benefit renewable
resources. State authorities are generally restricted to considering
the best interests of their jurisdictions in isolation when deciding
whether to issue a Certificate of Public Convenience and Necessity or
make state eminent domain powers available for a project, leaving any
state in a proposed interstate transmission pathway in a position to
exercise an effective veto. Nor is current federal authority adequate
to overcome this barrier. While the Energy Policy Act of 2005 (``EPAct
2005'') did amend the Federal Power Act by creating a new Section 216,
authorizing the Federal Energy Regulatory Commission (``FERC'') to
exercise ``backstop'' siting authority, the authority is of limited
utility for renewable resources. New Section 216 authorizes FERC to
issue certificates in instances in which states delay siting facilities
that would address transmission constraints in so-called ``national
interest corridors'' previously designated by the Department of Energy.
However, it is my understanding that these designations are generally
not intended to address transmission for renewable resources. I also
understand that the scope of federal authority was recently narrowed by
the Fourth Circuit Court of Appeals' decision in Piedmont Environmental
Council v. Federal Energy Regulatory Commission (Case No. 07-1651, 4th
Cir., February 18, 2009), where the court held that a state order
directly denying a certificate application did not serve as a predicate
for the exercise of federal backstop authority.
I also believe that any additional federal siting and eminent
domain authority that Congress creates should be respectful, to the
maximum extent feasible, of state and local concerns regarding siting
options and land use. State agencies historically responsible for
siting transmission facilities are well-equipped to consider
environmental and land use issues, the impact on local economies and
rates. These agencies have an important role to play in determining
routes subject to federal siting authority.
LPPC's Western members have experienced significant obstacles to
the development of interstate renewable transmission projects from such
federal agencies as the Department of the Interior's Bureau of Land
Management, the Forest Service and the Department of Defense, to the
extent they are responsible for the administration of federal lands
that may be crossed by transmission for renewable resources. Federal
land is often traversed by large-scale transmission projects, and
LPPC's Western members report that lengthy review processes, and
difficulty in valuing benefits of renewable goals can be problems for
these agencies. Here, empowering a single federal agency, preferably
FERC, to facilitate the federal siting process would be very helpful.
Finally, I note that LPPC believes it would be a mistake for new
legislation extending federal siting authority to include restrictions
on the use of this new capacity. Some of the current policy proposals
would restrict the use of new transmission to renewable resources.
These proposals raise difficult issues regarding compliance with open
access requirements, verification and equity. In addition, dispatching
power into the grid under such a system would be tremendously complex.
Such requirements simply may not work when one considers the physics of
the electric grid and the intermittent nature of renewable resources.
planning
Coordinated interregional planning will be important in the
development of new transmission to interconnect renewable resources.
There may be room for improvement in the existing planning institutions
and processes--but with the changes mandated by FERC in Order No. 890,
I think they are up to the task. In Order 890, issued last year, FERC
directed the implementation of new, region-wide planning processes that
call for an unprecedented level of regional coordination, transparency,
and federal oversight.\5\ Compliance filings by all utilities
reflecting these principles were accepted by FERC only a few months
ago, and the implementation process is now under way. Utilities in the
Southeastern United States, including JEA, are actively participating
in a new, region-wide planning process designed to address pan-regional
planning challenges and proposals.
---------------------------------------------------------------------------
\5\ Preventing Undue Discrimination and Preference in Transmission
Service, Order No. 890, 72 Fed. Reg. 12,266 (March 15, 2007), FERC
Statutes and Regulations 31,241, order on reh'g, Order No. 890-A, 121
FERC 61,297 (2007
---------------------------------------------------------------------------
Layering a new planning bureaucracy on top of what we are currently
developing is likely to be time-consuming and costly, and may delay
rather than expedite transmission development. As the industry moves
toward a more open, transparent and coordinated process under the Order
No. 890 framework, we have been careful to preserve the ``bottom up''
nature of the planning function, since doing otherwise would risk
system reliability. There is no doubt that the focus of this process
will change as an RES or other measures governing GHG emissions are
implemented. But I believe Congress should be wary of turning the
industry's planning process upside-down at the very time we most need a
careful, considered response to the new stresses that will be placed on
the grid.
cost allocation
The cost of the proposed transmission build-out is unknown at this
time. However, a recent transmission study undertaken by the Midwest
ISO, SPP, PJM, TVA and MAPP in the Joint Coordinated System Plan 2008
(``JCSP'') estimates that the investment in transmission in the Eastern
Interconnection alone to meet the 20% wind energy scenario studied by
the Department of Energy in its Eastern Wind Integration and
Transmission Study would be $80 billion. I think it is reasonable to
assume that a nationwide program may cost as much as twice that amount.
If Congress adopts an RES, and with the potential for other carbon
control measures, utilities will have every incentive to respond in the
most cost-effective manner possible, in view of the resources available
to them. Utilities will do what they need to do to meet these goals,
and if building transmission to access remote renewable resources is
the most economical alternative, that is what they will do. However,
allocating the cost of that transmission on an interconnection-wide
basis will tilt the playing field dramatically away from any
alternatives that do not depend heavily, or at all, on transmission. If
the cost of transmission to remote resources is essentially free from a
system planner's standpoint, other alternatives to meeting carbon
control requirements will be significantly less economical by
comparison. Low cost, subsidized transmission for distant renewables
should not be allowed to crowd out energy efficiency and local
renewables.
At such time as a Federal RES and some form of carbon control
regime is in place, utilities will have a powerful incentive to employ
all available options for GHG emission reductions. Of course, many
utilities will make plans to build new transmission facilities to
access remotely located renewable resources, while project developers
will have reason to invest in such facilities in order to access newly
motivated markets.
A good deal of work on transmission for renewables is already being
undertaken, particularly where state RES requirements are already in
place. According to the North American Electric Reliability
Corporation's (NERC) 2009 Long-Term Reliability Assessment,
approximately 11,000 more transmission miles are planned between now
and 2012, a substantial addition to the existing network of 164,000
miles, and more than the system has experienced for many years. Much of
this is specifically aimed at integrating new wind resources into the
electric grid. For example, there are two major transmission projects
in the West planned for completion in 2014 to integrate renewable
resources. Each of these 1,000-plus mile lines will facilitate the
delivery of 3,000 MW of primarily wind generation from the northern
plains to load centers in the Southwest.
Some argue that without an interconnection-wide funding mechanism,
needed transmission would not be built. This seems incorrect to me, and
it ignores the unavoidable incentive that an RES or carbon control
framework will establish. Faced with a direct mandate, or a substantial
financial incentive, utilities will respond in full compliance with the
law. Where economical, they will build or fund new transmission
systems. Whether the investment compelled by these new requirements
will support all of the high voltage facilities contemplated by some
project developers is an open question. But it doesn't make sense to
judge the economics of these lines in a vacuum. If it makes economic
sense to build new transmission facilities, when one looks at the
available resources and demand and compares the cost of construction to
all of the available alternatives, they should be built. Project
developers should be making these judgments based on projected
generating capacity, anticipated demand and the cost and efficiencies
of the facilities. There is no need for legislation addressing cost
allocation that would effectively prejudge those decisions.
what interconnection-wide cost allocation would mean for florida
The options for renewable generation to meet the RES in the
Southeast include further reliance on biomass resources, the
development of additional solar facilities, a substantial investment in
efficiency and demand response initiatives, and the potential
development of off-shore wind resources. These options do not depend on
a large scale transmission build-out, and no one has made a good case
for facilities that would cross half a continent in order to supply
Florida with additional wind resources. As I noted above, the
transmission build-out proposals I have seen leave Florida and the
Southeast out of the mix.\6\
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\6\ See AEP's proposal for building the new green grid at http://
www.aep.com/about/i765project/docs/
WindTransmissionVisionWhitePaper.pdf. The map at p. 8 of that proposal
shows no facilities planned for the Southeastern United States.
---------------------------------------------------------------------------
The effect of this, from the standpoint of JEA's customers, would
be to call for what amounts to a substantial tax, with no practical
benefit from an environmental standpoint. JEA will do what it must to
meet RES requirements, generate renewables or purchase renewable energy
credits, but adding an interconnection-wide fee for transmission
facilities we cannot use makes no sense.
what congress should do
LPPC's view is that Congress should focus on clearing away
obstacles to transmission development where they exist. These steps
include implementing further federal transmission siting authority that
is respectful of state and local concerns. Further, a full review of
existing statutes and federal agencies involved in authorizing
transmission across federal lands should be undertaken, in order to
respond to what I am told is the substantial need for coordination
among all federal permitting processes.
What Congress should not do, in LPPC's view, is create an
additional bureaucracy to oversee system planning, or require the
interconnection-wide cost allocation of new transmission investment.
The need to respond to an RES will drive transmission investment where
that makes sense. The ``socialization'' of transmission costs would be
a costly subsidy that would suppress other, potentially more
economical, alternatives to meeting renewable energy and GHG control
goals.
The Chairman. Thank you very much.
Thank you all for your excellent testimony.
Let me ask a couple of questions. Let me ask Mr. Morris--I
think you made reference to your concern about the way we've
got the planning provisions for the entire interconnect, as I
understand it. I gather that that's what Mr. Dickenson was
referring to as well when he was saying that we should defer to
the regional planning processes that are already in place as a
result of this FERC Order No. 890.
Could you elaborate as to your thoughts on this? We're
trying to figure out how to accomplish the planning in a way
that doesn't create new bureaucracy, but still has it take into
account all it should.
Mr. Morris. I offered that comment only as a caution
because of my fear for that. I think you've done an excellent
job of laying out a concept that would allow for a more
interconnected planning concept. As you know, and your
legislation addresses the issue, we really have two major
electric grids. The Eastern and Western Interconnect, ERCOT,
chose some years ago to take care of themselves. I guess today
they wish they hadn't, but we'll leave that for another day.
I think you've laid over that a concept that addresses--
some of those areas do have RTOs or ISOs. Some of them don't.
So you've blended that in when they do have those available,
taking advantage of that. Allowing the States to participate is
essential. But at the end of the day one of my fellow
panelists, I think Graham said it: Someone has to get over the
notion of we need to build some things, we need a Federal
authority to build them.
When you understand the statistics that obth Senator Dorgan
and Senator Reid shared with us, we've built thousands of miles
of natural gas pipelines and hundreds of miles of electric
transmission line. So I think you've really addressed that
issue. My caution only was I hope we don't create another
intervening slowing down.
You may remember, and I know you know this, in 2005 EAct,
it took the DOE forever just to designate three corridors in
this entire country. Yours is a much broader concept of
addressing it in a much more rational way for the entirety of
the two interconnects. So I just worry about the time line, but
I champion you for what you're trying to do. I think you've
done as well as one could hope in in the planning cycle in that
sense.
The Chairman. Let me just see if anybody else has a
comment. Your reference, Mr. Dickenson, to the concern about us
creating additional bureaucracies to oversee the system
planning--your thought is that this Order 890 is adequate to
get the planning done that's needed to be done; is that what I
understand?
Mr. Dickenson. Senator, I think part of my comment is is
that FERC Order 890 is relatively new in terms of really
encouraging regional planning, and I think my comment is just
to simply give that time to work itself out. As one of the
other panelists mentioned, the Eastern Interconnect is a very,
very wide geographic area with very diverse regional issues,
and to allow the regional issues to continue to work through
themselves I think is very important.
The Chairman. Mr. Edwards, let me ask your view of, if
you're modeling to determine the transmission system that will
reduce greenhouse gas emissions the most, I assume that means
you would come up with a different model than if you were
modeling to maximize the use of renewables?
Mr. Edwards. Yes, sir, but I think the two can go hand in
glove. In the coordinated joint system plan that was previously
mentioned, that was done at a high level for the Eastern
Interconnect. We saw that from the reference case to the 20
percent renewable case actually carbon basically reduced by
about 8 percent. So one does complement the other.
To me, the policy issues that need to be identified on
renewables are: how much renewables are going to be mandated;
and then how much carbon tax or cap and trade or whatever it
is, because those two have got to work together and there are
economic tradeoffs that we've got to look at.
So I think that you've got to look at both of them, Mr.
Chairman, but I think they both go hand in glove.
The Chairman. Let me defer to Senator Murkowski for her
questions.
Senator Murkowski. Thank you, Mr. Chairman.
I believe that both Mr. Edwards and Mr. Dickenson commented
on the renewable-only mandate for transmission. But I'd like to
ask the others: Do you believe that Congress should mandate
that we have a preference for renewable-only transmission? If
you do believe so--Mr. Edwards, you commented on the laws of
physics and I think we heard it from Senator Dorgan as well:
These electrons are color-blind there. How do you determine
whether you've got 75 percent of the power flowing in a
particular line coming from renewable?
Mr. Morris. We should absolutely not do that, for that very
reason, Senator. There's not a chance in the world that you'd
understand. Remember, electricity moves at the speed of light.
There is no way to know that it would be strictly for
renewables.
Besides that, you'd have an asset and utilizing it at a
substandard capacity factor, which just makes the economics
worse. If part of the goal here is to make sure that we
rationalize the system not only for the environmental benefits
and retiring old or unnecessary fossil-based power production
facilities, bringing renewables in is logical in that sense.
But limiting it would be like taking the highway system and
saying only front wheel drive vehicles can be out here. How
silly would that be?
So politically it may sound cute, but practically it won't
happen, and it's really ill thought through.
Senator Murkowski. I appreciate those comments.
Any other comments on that?
Mr. Detchon.
Mr. Detchon. If I might speak to that, Senator. I think
that this is a difficult issue, and you've raised some of the
reasons for it. But at the same time, I think that the reason
that we're talking about these transmission upgrades is a
special purpose, which is how are we going to move large-scale
renewables to market. I think we should restrict the special
authorities that we're creating to that purpose.
I think that I'm not in a position to argue one way or the
other about Senator Reid's bill, but my understanding of the
intent of that bill is that 75 percent of the capacity should
be available for renewable energy, not an actual measurement of
electrons, which of course is impossible.
Senator Murkowski. But just if I could understand your
comments, then, if it's made available. But you've got a
situation where you may be underutilizing this very, very, very
necessary transmission system, is that not correct?
Mr. Detchon. I think that the concept is that you use the
renewable energy when it's available and when it's consistent
with the reliability needs of the system. But what we don't
want to do is build a lot of new transmission lines under the
guise of bringing renewable energy to market and then have
those renewable energy lines dominated by coal-fired power
plants.
Mr. Welch. I'd like to comment to that. I agree
wholeheartedly with what Mike had to say here, that when we
design this grid--and I tried to address this in my prepared
remarks--we have to have an objective in mind. What is our
objective, and if it is to integrate renewable resources into
the grid then what we want to do is make sure that we get the
most cost-effective renewable resources into the grid.
When we're operating the grid, which is a totally different
issue, we go back to our fundamental principles. Reliability is
our No. 1 reason why we're here, to keep power flowing to the
customers in industry and everything that's out there. So we're
not going to limit these lines as to what they can do. We have
the design principles to get us to where we want to be. Then we
operate them for the conditions that exist moment by moment on
the grid every day.
If the wind's not blowing, you are certainly not going to
want us to prohibit that line from flowing coal energy or any
other energy, because we have people depending on that for
life, for business, and just for pleasure. On the other side of
the coin, you can't limit this. When you build one of these
high voltage grids, it actually unloads the underlying grid and
makes the underlying grid more efficient, which is exactly the
reason you want it. We actually achieve energy efficiency by
building a high-voltage overlay grid.
I would like to get to the point one of these days before I
die where somebody complains that we've built too much
transmission. I've been trying to build one big line for about
10 years, and the process is daunting. We need to streamline
this.
Senator Murkowski. Thank you.
Mr. Edwards, the question was raised earlier about, when we
were talking about reliability--and I think it was you, Senator
Corker, that brought up the issue of redundance. The study that
you undertook, the joint coordinated system plan, looking at
the future energy scenarios with wind, 5 percent wind energy,
and how much that might cost to bring on the transmission; 20
percent wind, a cost of $80 billion. How much backup generation
is needed in these scenarios to allow for this level of
reliability that we're all talking about.
Mr. Edwards. Senator, as I heard the question previously, I
asked my transmission technical expert behind me, and included
in the JCSP study wind was given about a 15 percent credit. So
that means that basically you would need about an 85 percent
reserve margin for it to effectively operate on parity within
the system. So wind will require--again, let me caveat it.
Depending on the diversity of the wind, where it's located, all
those issues, you will need additional resources. Is it 85
percent, is it 50 percent? We don't know exactly, but you will
need significant reserves for the wind.
Senator Murkowski. Are you studying that?
Mr. Edwards. We have not studied it at this point in time.
We made an assumption in the current study. That is something
we need to get our arms around, just like we need to continue
exploring wind forecasting, which is a critical issue to all of
us in this room.
Senator Murkowski. Thank you, Mr. Chairman.
Mr. Morris. I might add to that concept. There isn't really
a need for a redundancy. What they need is a requirement for
the interconnectedness. Chairman Wellinghoff mentioned the
tremendous nuclear station, Palo Verde. Palo Verde is connected
to the grid in three or four different ways. When it goes down,
as long as the grid is interconnected the Phoenix area lights
will not go out. So it isn't a redundancy. It's just an
interconnectedness. That's really what you're after here.
That's why you want to do the planning on the basis that you
spoke to, so when the wind does blow, it will move into the
system.
To Joe's point, when the wind doesn't blow the grid will
fill itself, because the physics of electricity is that it
loves a vacuum and it'll fill it.
Senator Murkowski. Thank you.
The Chairman. Senator Corker.
Senator Corker. Thank you, Mr. Chairman.
I really appreciate your responses regarding limiting the
grid only to renewable. It's hard to imagine that one would
consider that, and I hope that certainly common sense will make
its way into this legislation in that regard.
Let me ask you a question, because I can tell there's
division based on the panel members. At the end of the day
we're going to be debating a renewable electricity standard
down the road again, I'm sure, and very soon, it looks like.
The fact is that some people regionally benefit far more from
that than others in a system like that because there is in
fact, no matter how you cut it, a transferrence of wealth that
takes place when people in certain parts of the country don't
have the ability for certain defined renewables, especially
when important things, very important things like nuclear, are
left out of that provision. You have a transference of wealth
that takes place.
So just in listening to you, I'd love for you to respond as
to, then you have people in our country that greatly benefit
from a renewable electric standard financially. So why would it
be practical then to share the expense of that transmission
throughout an entire region when you have a few people who are
benefiting from the entire proposition of renewable electricity
standard, and a lot of people the tare losing in that
proposition? Why would you spread the costs of a system that's
designed basically for renewable electricity around the whole
mass of people?
Mr. Morris. Senator, that surely is one of the reasons I
answered Senator Murkowski's question the way that I did. It
would be illogical to do that.
Senator Corker. Illogical?
Mr. Morris. Illogical, yes. I'm sorry. I do hope common
sense prevails. In that regard, it's always been that way, that
certain areas will get more advantages than others. The
renewable energy standard, to me the definition should be as
broad as we can make it. I think that allows many, many people
to come in.
Senator Corker. Including nuclear and that kind of thing?
Mr. Morris. New nuclear, clean coal. In many Midwest
States, the Governors have chosen ``advanced energy'' as the
definition, ``energy efficiency'' as the definition,`` and that
allows all of us to get there. Our company, that serves 5.2
million customers and 11 States, some States have wind like
Texas; other States have wind maybe offshore like Ohio. We
don't have sun in the upper Midwest. But we continue to add
renewables to our system. This year alone, 2008, American
Electric Power added over 1,000 megawatts of wind to its
system, not a megawatt of coal to its system.
So even though our history is a coal-based utility, we're
not against renewables at all. I do believe that if States want
to have more than the Federal standard they ought to be allowed
to do that. If they'd like to have less, they ought to petition
someone, some Federal agencies, to seek less than that. But no
one should be able tnot to have renewables.
If you build the grid, as I said earlier on, you will get a
rationalization of power production facilities. Renewables,
when the sun is shining it'll get to market; when the wind is
blowing, it'll get to market; when it isn't, clean coal will
get to market, existing coal will get to market, and nuclear
will get to market, hydro will get to market.
Again, the obligation here is to see to it that in the most
cost-effective way we rationalize the power production and the
energy delivery system of this country. Again, the time is ripe
and the leadership is--this is impressive. I really believe
I've been after this since 1988 and I really believe that its
time is now.
Senator Corker. What was the term you used again to
describe not renewable, but----
Mr. Morris. Advanced energy.
Senator Corker. Advanced energy. So maybe we can have an
''AE`` standards instead of an RES standard.
Yes, sir, Mr. Welch.
Mr. Welch. I'd like to comment to that, too. One of the
things that frustrates me--and of course, I'm only in the
transmission business and I'm not on the production side--is
when we start to talk about the benefits that are brought to
the table, if you will, by transmission. I have not found a
transmission project of any sort that fits into any one nice
neat category.
For instance, we know that had we built a proposed line
that would looked at 3 years ago the blackout of 2003 wouldn't
have happened. Yet, the way the system is paid for today is
that the people in Michigan would have to pay for that line,
and yet the 50 million customers that went out were across the
spectrum.
Mike said all the generation that's available and yet it's
captured, cannot get to a market. We will see a rationalization
and a cost equalization of costs across the grid, as long as we
realize that we're designing the grid and the grid will flow.
The renewable resources, like we look at in the Upper
Midwest, while we are talking about renewable resources as
though they are all high cost, they are not high cost compared
to any technology, including coal-based generation on new to
new, if you take it out of the Dakotas. That's what our studies
have shown. It is cost competitive and actually costs less.
So if you're getting to the point where you're going to
start to replace generation, it's time that we start to look at
renewables, and we look at them in a cost-effective way. If
we're going to add them, let's do it in a cost-effective way.
So if you set a standard, let's be rational about it and set a
standard so we can get the most cost effective things into the
system the quickest and the easier.
Senator Corker. So that would be a broader standard, is
that correct?
Mr. Welch. Absolutely. I think that the rationalization for
the cost of it has to be on a very, very broad, regional basis,
because those benefits flow regardless.
Senator Corker. Those costs would be prior to all the
production tax credits and everything and would be the true
costs?
Mr. Welch. When we did our study it was true cost, true
cost to true cost. No tax incentives for the renewables and no
penalty on the fossil side for carbon tax. Just plain,
straight-up cost, and it included the cost of the transmission
to get it to markets.
Mr. Edwards. Just one last comment, Senator. Let's don't
lose sight. Renewable energy is just a part of the portfolio.
As others have said, we need to have a mix of new generation,
but the bulk transmission system, the overlay, will allow a lot
of things to be accomplished, for wind energy to be integrated,
for cheaper energy to be moved from various parts of the
country.
So the bottom line is that our studies show that through
the entire Eastern Interconnect, with the 20 percent renewable
there was about a 1.7 to 1 ratio of benefit to cost. So we
think that renewables integration is good for the consumer as
long as it's done in a coordinated and well planned way, so
that it's, say, part of a mix and not the sole answer to our
questions.
Senator Corker. But you wouldn't make the Southeast or some
parts of the country, you wouldn't make them use wind. You
would do it in a coordinated way to use the best assets we have
all the way around the country, and not transfer wealth;
correct?
Mr. Edwards. Yes, sir.
Mr. Detchon. Senator, I think that the renewable energy
standard is being considered because it's a national benefit to
the country, as the witnesses have just pointed out, in terms
of economic cost, in terms of our environmental benefits,
etcetera. So you have some unique barriers in the way of long
distance transmission of renewables. These projects tend to be
much smaller than, for example, a 1,000 megawatt nuclear plant.
So creating the backbone that can bring North Dakota wind to
market is a unique challenge, and I think that that's the
reason why these special authorities are focused particularly
on renewables.
Senator Corker. I witnessed that in our chairman's State of
New Mexico with the long runs out to what I saw were very
sophisticated wind turbines, and certainly I understand that
point and appreciate your bringing it up.
Mr. Dickenson. Senator, also I'd like to comment. On the
original question on allocation, many of our members in Large
Public Power Council have already moved forward very
aggressively to have renewable energy, and a lot of them in
their own areas. For instance, the city of Austin in Texas
already has 12 percent renewable based on wind. So those that
have moved forward aggressively may not need to participate in
large transmission lines or pay for large transmission lines to
bring renewables in because they're already moving forward and
doing that, so it would hit them twice.
I get a little concerned on, just because if you spread it
over everybody it's a little amount of money, that when you do
too many projects like that it ends up adding up to a lot of
money. So I'm just concerned about that type of an allocation.
Senator Corker. Thank you all.
Thank you, Mr. Chairman.
The Chairman. Senator Murkowski, do you have additional
questions?
Senator Murkowski. No, Mr. Chairman. A very, very good
hearing. Thank you.
The Chairman. Thank you all very much. This was very useful
testimony. We conclude our hearing.
[Whereupon, at 12:05 p.m., the hearing was adjourned.]
APPENDIXES
----------
Appendix I
Responses to Additional Questions
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Responses of James A. Dickenson to Questions From Senator Bingaman
Question 1. You indicate that there is significant difficulty in
the West in getting federal approvals for siting on Federal lands. In
2005 we required agencies to create an expedited process for approval
of corridors for energy facilities on Federal lands. Has this process
relieved any of the difficulty? Is it working?
Answer. Section 368 of the Energy Policy Act of 2005 required
agencies to designate energy corridors on federal lands and to expedite
applications to construct or modify transmission and distribution
facilities in such corridors. While federal actions have been taken to
pre-identify corridors, there were a fairly limited number of corridors
addressed in the Programmatic EIS (PEIS) that was finalized along with
a concurrent amendment to resource management plans for federal lands.
In addition, many intrastate and interstate projects that are underway
or being contemplated are not addressed by the Western Energy Corridor
process.
Unfortunately significant challenges remain related to receiving
timely review and approval. The existing guidance documents for the
development of environmental assessments (EA) and environmental impact
statements (EIS) should contain defined timeframes for the completion
of the processes on federal lands. After the guidelines are
established, federal agencies must have adequately trained staff to
complete the required work within those timeframes. For example, a
federal agency is generally expected to complete an EA within 12
months. Our western members report that this process often takes 2 to 3
years. Similarly, while most expect that an EIS can be completed within
24 to 30 months, utilities in the west report that the EIS process
often takes 3 to 4 years to accomplish. We believe that firm process
deadlines, additional resources and focused leadership will help ensure
schedules are met and improve the processes.
Ultimately, the most important criteria for completing siting and
environmental processes in a timely and efficient manner is to have
federal agency coordinators/project managers with sufficient direction,
authority and skilled resources to handle major infrastructure
projects. There is a need for improvements in staffing at the ground
level (real estate specialists, biologists, cultural resource
specialists, etc.). While entities seeking siting approval help to
facilitate the process by funding the use of third party specialists,
the work of the third parties still need to be reviewed by the federal
staff. In addition, more direct involvement from high level policy and
technical people will provide the needed support and direction to local
offices to bring projects to completion.
Question 2. We have provided for a process to allow regional
planning entities to propose a cost allocation plan, and for FERC to
allocate costs at a sub-regional basis if that is necessary. Does this
relieve some of your concern about interconnection-wide cost
allocation?
Answer. The draft legislation circulated by Chairman Bingaman's
staff is a meaningful improvement over proposals that would simply
allocate costs to all load serving entities, without respect to the
ability to use the facilities or the choice not to due to the
availability of more economical alternatives to meeting environmental
goals. However, it is still problematic because it provides that the
Commission may allocate costs (in the absence of an acceptable RPE
proposal) to all load-serving entities, or to all load-serving entities
within a part of the Interconnection served by the high priority
transmission projects, whether they use the new facilities or not.
As I indicated in my testimony (p. 3--5, 10), it would be terribly
inequitable to assess the cost of a transmission build-out to customers
that cannot make use of the facilities, or who elect not to because
more cost effective options that do not rely on large new transmission
are selected to meet their environmental mandates (like building local
solar and demand side measures for instance),. Further, I believe that
allocating the cost of transmission on an interconnection-wide basis
will provide an enormous inappropriate subsidy to one market segment
(remote large scale renewable generation). When LSEs determine that
access to remote renewables is the most cost effective way to meet
their carbon or renewable targets, that will drive the construction of
new transmission and ensure that a large investment in this technology
choice is well spent.
The importance of these decisions is underscored by my concern that
the estimates I have seen of the overall cost of a nation-wide
transmission build-out of the type contemplated in the proposed
legislation appear to be meaningfully understated. While the Joint
Coordinated System Plan I reference in my testimony (p. 8) shows an
estimated $80 billion investment aimed at resolving congestion and
meeting a 20% wind scenario, when all costs associated with integrating
these facilities into the grid and attaching wind resources are added,
there is reason to believe the cost may actually range between $100
billion and $200 billion for the Eastern Interconnection alone.
Nationwide costs, including the Western Interconnection may range
between $135 billion and $325 billion, equating to a monthly per
customer cost of between $14 and $35. These numbers are gross
estimates, but they suggest an order of magnitude that makes it clear
to me that Congress should have reliable data on these costs before
concluding that nation-wide cost allocation is a sensible approach.
I also believe that the proposal to create new planning entities
charged with undertaking interconnection-wide planning and cost
allocation filings, is unnecessary and may be counter-productive. As I
noted in my testimony (p. 7--8), in Order No. 890,\1\ FERC only
recently directed the implementation of new, region-wide planning
processes that call for an unprecedented level of regional
coordination, transparency and federal oversight. Compliance filings by
all utilities were accepted only months ago, and the planning processes
these filings contemplate are just now underway. Certainly, it is to be
expected that these processes, and FERC's oversight of them, will
evolve to meet new renewable requirements. Adding a new planning
bureaucracy to this mix, particularly at this time, is very likely to
be time consuming and appears likely to delay rather than expedite
transmission development.
---------------------------------------------------------------------------
\1\ Preventing Undue Discrimination and Preference in Transmission
Service, Order No. 890, 72 Fed. Reg. 12,266 (March 15, 2007), FERC
Statutes and Regulations 31,241, order on reh'g, Order No. 890-A, 121
FERC 61,297 (2007).
---------------------------------------------------------------------------
Responses of James A. Dickenson to Questions From Senator Murkowski
Question 1. In your opinion, will the imposition of a new
interconnection-wide planning process become a new ``choke point'' by
pre-empting ongoing planning efforts or delaying projects that could go
forward now?
Answer. Yes, as I indicate above in response to Chairman Bingaman's
second question, I am quite concerned that adding a new level of
planning bureaucracy will be counterproductive to efforts now underway.
Question 2. What is your position on the issue of siting? Can
federal and state regulators make progress on a collaborative basis or
is increased federal siting authority needed?
Answer. As I indicated in my filed testimony (pp. 5--7), I and LPPC
believe that additional federal siting authority is called for in order
to overcome the limited ability of individual states to address
multistate transmission projects designed to meet regional needs.
Having said that, I am also confident that such new authority can be
undertaken in consultation with existing state siting authorities in a
manner that capitalizes on existing expertise and ensures that states
and local concerns are addressed in the siting process.
Question 3. As you know, so often energy issues are regional and
not partisan. What is your opinion on the possible interconnection-wide
allocation of transmission costs? Does such a widespread approach
unfairly socialize costs across regions that may not be directly
benefiting from the particular transmission line?
Answer. Yes it is unfair and economically inefficient. As I
indicated above in response to Senator Bingaman's second question, I
believe that cost socialization unfairly discriminates against those
who cannot use the proposed facilities, and will discourage the
development of what may be more economical alternatives for reducing
greenhouse gas emissions, such as energy efficiency and local renewable
resources. I am particularly concerned that my company's customers,
located in Florida, will be called upon to provide large subsidies for
the construction of transmission they will be unable to use. If
Congress establishes environmental goals for our industry through
implementation of an RES or carbon control measures, it should let
utilities, state regulators, and regional transmission organizations
determine how to meet those goals most effectively by making economic
choices among the array of available options, without subsidy.
Question 4. You note that LPPC's Western members have experienced
significant obstacles to the development of interstate renewable
transmission projects from federal land management agencies. Please
explain. Can you comment on Secretary Salazar's recent ``Secretarial
Order'' calling for DOI to not only establish renewable energy zones on
public lands, but also to handle the permitting and environmental
review? Should FERC be given the coordinator role? Should we expedite
environmental or judicial reviews?
Answer. The challenges have been related to receiving timely review
and approval. The existing guidance documents for the development of
environmental assessments (EA) and environmental impact statements
(EIS) should contain defined timeframes for the completion of the
processes on federal lands. After the guidelines are established,
federal agencies must have adequately trained staff to complete the
required work within those timeframes. For example, a federal agency is
generally expected to complete an EA within 12 months. Our western
members report that this process often takes 2 to 3 years. Similarly,
while most expect that an EIS can be completed within 24 to 30 months,
utilities in the west report that the EIS process often takes 3 to 4
years to accomplish. We believe that firm process deadlines, additional
resources and focused leadership will help ensure schedules are met and
improve the processes.
Ultimately, the most important criteria for completing siting and
environmental processes in a timely and efficient manner is to have
federal agency coordinators/project managers with sufficient direction,
authority and skilled resources to handle major infrastructure
projects. There is a need for improvements in staffing at the ground
level (real estate specialists, biologists, cultural resource
specialists, etc). While entities seeking siting approval help to
facilitate the process by funding the use of third party specialists,
the work of the third parties still need to be reviewed by the federal
staff. In addition, more direct involvement from high level policy and
technical people will provide the needed support and direction to local
offices to bring projects to completion.
We are hopeful that Secretary Salazar's recent Order establishing
the development of renewable energy as a priority for the Department of
the Interior will help to coordinate federal efforts in this area. We
are also encouraged by the Order's call to create joint, single point
of contact offices to improve coordination and efficiency, and to
expedite the permitting process. The identification of renewable energy
zones by the Department of the Interior can lead to the identification
of transmission corridors from these zones to load centers. We are
pleased to see the Order's focus on identifying electric transmission
corridors for renewable resources in cooperation with other state and
federal agencies and its requirement to prioritize the permitting and
environmental reviews for transmission rights-of-way. To the extent
preliminary environmental review can be performed on these corridors,
the siting process may be expedited for related transmission
development. However, siting challenges exist for transmission
development beyond transmission for renewable resources. In any case,
we believe the challenges and delays ultimately relate to adequate
project management and staffing levels as noted above.
______
Responses of Graham Edwards to Questions From Senator Bingaman
Question 1. You all have undertaken an interesting exercise with
your modeling efforts. Do you think that the kind of planning entities
that we have envisioned in our draft allow for the kind of engineering
expertise that you have applied to your program?
Answer. Yes. Your draft legislation contemplates a FERC-approved
planning entity or entities that would plan for the entire
interconnection. This planning entity could be an ISO/RTO or a
combination of ISO/RTOs or utilities with independence, and experience
and expertise in this area. In any event, the planning entity
contemplated is supposed to work with others in the interconnection
when preparing the plan. The Midwest ISO would cooperate with this
entity and make its engineering expertise available to the planning
entity.
Question 2. The Midwest ISO plans for transmission on a fairly
large regional scale. Do you still find that you run into difficulties
when you try to figure out how to coordinate with planning entities
beyond your geographic scope?
Answer. Yes. In the Joint Coordinated System Plan (JCSP) process,
we found that we could work with other planning entities in the eastern
interconnection. The JCSP was able to complete its work in a timely
manner and produce a conceptual plan. However, all entities in the
eastern interconnection did not participate in the process. In order to
produce a plan for the entire eastern interconnection, all entities
must participate and provide data in order to produce a high quality
plan.
Responses of Graham Edwards to Questions From Senator Murkowski
Question 1. In your opinion, will the imposition of a new
interconnection-wide planning process become a new ``choke point'' by
pre-empting ongoing planning efforts or delaying projects that could go
forward now?
Answer. No. We believe that existing planning processes can provide
valuable input into the grid overlay planning process. Also, existing
projects would be incorporated into any plan and should not be delayed.
The planning for a grid overlay should not interfere with or delay
current transmission planning processes. The grid overlay sits on top
of the existing transmission network. The JCSP has shown that willing
people working together can produce a plan in a timely manner. However,
someone must be in charge of the process and everyone must participate
in order to develop the best plan.
Question 2. What is your position on the issue of siting? Can
federal and state regulators to make progress on a collaborative basis
or is increased federal siting authority needed?
Answer. State regulators have valuable knowledge concerning State
and local issues concerning siting. This extensive body of knowledge
should be relied upon in making siting issues. State regulators should
not be entirely preempted in the siting process. I believe that Federal
and State entities can work together for the common good.
Question 3. As you know, so often energy issues are regional and
not partisan. What is your opinion on the possible interconnection-wide
allocation of transmission costs? Does such a widespread approach
unfairly socialize costs across regions that may not be directly
benefiting from the particular transmission line?
Answer. The draft legislation allows the planning entity first to
propose a cost allocation methodology for Federal Energy Regulatory
Commission (FERC) approval, and if an acceptable plan is not proposed,
then the issue goes to the FERC. Allowing for the proposal of a cost
allocation methodology permits the parties that will eventually pay for
the system to create an acceptable method to allocate those costs. An
open stakeholder process will allow these regional concerns to be
heard. Also, please recall that one of the objectives for the JCSP was
to provide the lowest cost energy to consumers. Thus, in theory, the
entire interconnection would see a benefit, which is in addition to
both the environmental benefits that would accrue and the fact that an
overlay would produce a more robust transmission system that is less
prone to blackouts.
Question 4. What is the future of the JCSP process? Are you
advocating that the transmission identified in the JCSP be built?
Answer. The entities that participated in the JCSP are continuing
their work looking at more scenarios using new data such as off shore
wind data that was not available before and incorporating resources
from Canada. In addition, the entities are considering formalizing the
JCSP process and creating a separate entity, with its own charter, to
continue the planning work begun in the JCSP.
Question 5. If Congress directed the designation of new planning
entities, would MISO apply to be the planning entity for the Eastern
Interconnection? Why or why not?
Answer. I do not know at this time if the Midwest ISO would apply
to be the sole planner for the eastern interconnection. There are
several considerations. First, we would have to look at the
requirements actually placed on the planner by the final legislation.
We would also have to discuss such an application with our board of
directors and our stakeholders. Finally, we would have to discuss such
an application with our partners in the JCSP process; there may the
potential for a joint application of entities that may or may not
include the Midwest ISO. In any event, we would cooperate with and make
our experience and expertise available to such a planning entity.
Question 6. Why hasn't there been interconnection-wide transmission
planning before? How does this work internationally, with Canada and
Mexico?
Answer. There hasn't been interconnection-wide planning before
because there haven't been interconnection-wide questions before.
Issues such as a national renewable portfolio standard and a price of
carbon are now coming to the fore. To address big questions like these,
a big solution is required. In addressing large questions like these,
it is more efficient to look at the whole picture to produce a plan
that can produce benefits to everyone and meet these big national
goals. We have had good experience working with our Canadian neighbors.
I assume that these planning issues could be coordinated with Canadian
and Mexican entities. Of course, Canada and Mexico would have to site
any lines in their countries.
Response of Graham Edwards to Question From Senator Menendez
Question 1. Mr. Edwards, this proposal is designed to streamline
the process of building new transmission lines, but I worry it will
actually create a whole new bureaucratic process that could slow down
development. The proposal creates a new interconnection wide planning
entity to site all projects above a certain voltage. Examples of
projects that would have to be sited by this central board include:
In my state, installing a new transformer at the East
Windsor substation
In Michigan, replacing breakers at the Cook Power Plant
substation
In Indiana, upgrades at the Dumont substation near Fort
Wayne;
How will a small board responsible for siting power lines over 30
states be able to effectively site lines in Michigan, Indiana, or in my
state? Do we have to create a whole new bureaucracy in this case or
couldn't there be a less bureaucratic means to accomplish this result?
Answer. In the draft legislation, my understanding is that the
planning entity does not site the lines. The actual siting is left to
the FERC. The planning entity would be designated to plan for an extra
high voltage grid overlay. This planning function should not delay
transmission projects that ISO/RTOs or utilities find are needed in
their footprints and would be sited pursuant to existing law. These
regional plans would be ``rolled-up'' and input into the grid overlay
plan. There should be not a problem of an extra layer of bureaucracy
slowing down needed transmission upgrades.
______
Responses of Tony Clark to Questions From Senator Bingaman
Question 1. You suggest that the decision making for transmission
should be regional and not federal. We have attempted to include the
states at the most important level in our proposal, that is, in the
planning process. In fact, the states could form the planning entity to
be approved by FERC. Does this help to ensure that state resource plans
and other concerns will be included and addressed in the planning
process? Are there suggestions that you could make to make more sure
that they are?
Answer. The proposed planning processes requires that a FERC
approved regional planning entity consult with the affected States and
build on planning undertaken by States, RTOs, ISOs, federal
transmitting utilities, regional reliability entities, and other
entities. Although this provides a valuable participatory role for the
States, they are only one of many stakeholders at the table. Further,
``consultation'' is a weak term that does not guarantee that State
concerns will be taken into account. It would be better to require the
planning entities to work in coordination with the States and to have
the States participate in selecting the regional planning entities. The
process could better ensure that State concerns were represented if any
FERC certificates of public convenience and necessity included any
mitigation conditions recommended by the States. This process would be
similar to the State certification process under the Clean Water Act
Sec. 401 where States' conditions to a certification automatically
become conditions on any federal permit that is issued under that
section.
Question 2. I think that the cost allocation scheme, where the
planning entity, with direct input from the states, proposes an initial
that FERC has to approve if it meets certain criteria gives states a
new and more potent role in these decisions. Do you believe that to be
the case?
Answer. It is essential that cost allocation be determined prior to
the certification of any transmission line. Although it is valuable for
the planning entity, in consultation with the States, to have the first
crack at setting a cost allocation scheme, no matter who undertakes the
cost allocation, it will be challenging and contentious because it is
difficult to identify and define the beneficiaries of a transmission
line, and often times someone's gain comes at another's expense.
Response of Tony Clark to Question From Senator Murkowski
Question 1. As you know, so often energy issues are regional and
not partisan. What is your opinion on the possible interconnection-wide
allocation of transmission costs? Does such a widespread approach
unfairly socialize costs across regions that may not be directly
benefiting from the particular transmission line?
Answer. In my own opinion, an interconnection-wide ``postage
stamp'' allocation would be a straight forward and simple solution to a
multitude of cost allocation problems that have proved increasingly
difficult to solve. Perhaps we may one day get to such an allocation,
but so far there has been resistance among stakeholders because of the
cost shifts that would result. Those whose transmission rates would
increase feel that they would pay for transmission they do not need nor
benefit from.
However, there has been recognition that larger transmission lines
tend to transmit electricity regionally. For example, the Midwest ISO's
Regional Expansion Criteria and Benefits Task Force negotiated cost
allocation formulas for new transmission within the Midwest ISO that
include a Midwest ISO-wide allocation of 20% of the costs for new
transmission lines with voltages of 345 kV or higher. The feeling among
the task force was that these larger lines provide some regional
benefit and therefore some region-wide allocation was appropriate.
Responses of Tony Clark to Questions From Senator Shaheen
Question 1. How do we evaluate renewable energy projects, like
North Dakota Wind, including the cost of transmission, against
renewable alternatives closer to New England, like we have in New
Hampshire?
Answer. For wind energy, there is a trade-off between the cost of
installing fewer turbines and more transmission to bring energy from
areas with better wind resources versus the cost of more turbines and
less transmission to bring energy from local areas with lesser
resources. Evaluation involves studying the alternatives to arrive at
an estimated cost per kWh delivered for each alternative that can then
be compared and evaluated against regional needs to determine which
alternative or how much of each alternative to pursue. The difficulty
comes in maximizing the value of the transmission build out needed to
transmit large amounts of low-cost power from remote areas. There is
currently such a transmission study in progress, referred to as the
Joint Coordinated System Plan (JCSP). The New York ISO and ISO New
England have recently withdrawn from that study process before it has
been determined whether States such as New Hampshire can benefit from
low-cost Midwestern energy.
Question 2. With regard to interconnection-wide planning, how do we
ensure that local and smaller state concerns are represented?
Answer. Local officials and smaller States can best ensure that
their concerns are represented by participating fully in regional and
sub-regional planning processes, including the existing JCSP process,
while continuing to work towards increased coordination between regions
and across RTO borders. It is essential that the planning process build
on existing State and local planning processes and that States and
local governments have a place at the table during the planning
process.
Many local concerns will arise specifically in the context of
siting when the lines actually cross people's property and affect
people's neighborhoods. The Commission should incorporate all
reasonable mitigation measures and constraints recommended by the
States in order to address these local concerns.
Question 3. As we look at national planning of transmission, to
what degree should local planning (especially zones that are working,
like New England) be included?
Answer. Planning should come more from the ground up rather than
the top down. If an interconnection-wide planning process is
implemented, it must build upon and not interfere with the effective
plans currently generated within States and regions across the country.
The MAPP Sub-regional Planning Groups and Midwest ISO Sub-regional
Planning Meetings are examples of best practices for incorporating
local planning into regional plans.
Perhaps effective planning entities such as ISO New England could
be certified as regional planning entities. These regional plans could
then be integrated into the larger interconnect wide plan. This
iterative process may maintain the effective regional process while
still ensuring that the regional plans take into consideration the
whole interconnect.
Response of Tony Clark to Question From Senator Sessions
Question 1. I understand that the movement of electricity through
power lines over long distances results in some loss of power. Would an
improved grid and improved transmission lines reduce the amount lost?
If so, how much? And would the savings be sufficient over time to pay
for the cost?
Answer. All transmission of electricity results in some power being
lost to line resistance. In general, improvements to the grid that
reduce existing line loadings also reduce existing system line-losses.
To what degree varies by project, but losses can have an impact in
deciding what transmission facilities to build.
There is a trade-off between the capital costs of new transmission
projects and the amount of resulting line losses. Generally, higher
line voltages and larger conductor diameters equate to reduced line
losses. Energy efficient transformers can further reduce losses. High
voltage direct current (HVDC) transmission lines are more efficient
than alternating current lines, but are more expensive and have limited
applications. Studies are conducted during project design to optimize
the tradeoff between cost and efficiency so that total costs are
minimized over the expected lifetime of a project.
It is very difficult to quantify an example that would produce a
``typical'' result. Each project is very specific and would have very
different characteristics based on the grid in that region. As one
example, here in our region, we are aware of a case in which a double
circuit 345 kV line costing $460 million could have an expected
lifetime loss savings benefit of up to $152 million. Yet again, I
hasten to add this is but one example and may not be typical or able to
be generalized.
______
Responses of Reid Detchon to Questions From Senator Bingaman
Question 1. The Energy Future Coalition has been engaged in quite
an endeavor. Except for the cybersecurity recommendations, which we are
going to try to address in our broader energy bill, do you think that
our proposal is consistent with the principles that you have laid out?
Answer. The Energy Future Coalition and the stakeholder group we
assembled in support of a National Clean Energy Smart Grid, especially
our principal partner, the Center for American Progress, found a very
broad consensus that the three most important issues needing attention
were planning, siting and cost allocation. In each of those areas, the
Majority Staff draft is generally consistent with our recommendations.
The differences are related to choices about how to most effectively
tackle these three key issues. For instance, we believe that giving
states a special role in the consolidated FERC siting and certification
process, as was done in S. 539 (adding Sec. 404(g) to the Federal
Power Act), strikes the right balance between providing an expedited
regulatory process and empowering states on the local routing and
mitigation issues on which they have special expertise.
The Coalition also sought to ensure that the transmission build-out
serves the cause of promoting a transformation of our generation sector
to renewable and other clean energy resources. In our deliberations,
the need for federal legislation was driven principally by a desire to
facilitate long-distance transmission of renewable energy, from areas
of the country where it is most abundant to markets that could use it.
Our environmental partners supported increased federal authority for
siting transmission only if it enabled greater use of renewable energy;
they concluded that an expedited process was needed because of the need
to make a rapid transition to low-carbon energy systems.
Our approach was to limit interconnection to the transmission lines
that are built with this new authority to energy generators with
greenhouse gas emission rates no greater than that of a simple-cycle
natural gas-fired combustion turbine--on the basis that gas generation
may be needed, given the variability of renewable resources. The
Majority Staff draft includes a number of provisions favoring renewable
energy, but we remain concerned that the draft provides no safeguard
against the interconnection of conventional coal-fired plants to these
new transmission lines once they are constructed.
Question 2. Does the planning process that we have proposed give
sufficient scope for involvement of stakeholders at the appropriate
point in the process?
Answer. Yes, we believe that it does. The most extensive
stakeholder engagement should occur during the interconnection-wide
planning process, involving states, generation developers, transmission
owners and developers, environmental groups, consumer groups, and
labor.
Responses of Reid Detchon to Questions From Senator Murkowski
Question 1. In your opinion, will the imposition of a new
interconnection-wide planning process become a new ``choke point'' by
pre-empting ongoing planning efforts or delaying projects that could go
forward now?
Answer. The intent of the interconnection-wide planning process is
to allow for a consolidated evaluation of system needs within a strict
time limit and thereby to streamline, not delay, approval of individual
projects. In particular, the Energy Future Coalition stakeholder group
did not want to duplicate utility or regional level planning, or slow
infrastructure development already resulting from those planning
efforts. Rather, the goal of interconnection-wide planning is to enable
a broad perspective on what transmission infrastructure capability is
needed to meet the Nation's renewable energy goals, look at what grid
infrastructure already exists and is under development, and then
determine what more is needed to meet our goals. The Majority Staff
draft is appropriately clear in requiring this planning process to
build on--not supplant--planning undertaken by States, Federal
transmitting utilities, regional transmission organizations,
independent system operators, utilities, regional reliability entities,
and other parties.
Question 2. What is your position on the issue of siting? Can
federal and state regulators make progress on a collaborative basis or
is increased federal siting authority needed?
Answer. Siting multi-state transmission facilities is a long and
contentious process, often involving numerous state and local
regulators and Federal lands agencies, each with the power to block an
entire project. Certainly, progress is always possible, but recent
experience indicates that consolidated siting authority is needed to
expedite construction of a National Clean Energy Smart Grid.
The Coalition's stakeholder group concluded that a consolidated
Federal certification and siting process is needed in order to expedite
the process, but that each affected state should have a special role in
that process because of its special interest and expertise on local
matters of routing and environmental mitigation. A critical element of
the Coalition's proposal directs FERC to accept specific siting
recommendations from state natural resource agencies, provided those
recommendations do not prevent the construction of a transmission
resources identified in the interconnection-wide plan. This concept is
incorporated in S. 539 (adding Sec. 404(g) to the Federal Power Act).
Question 3. As you know, so often energy issues are regional and
not partisan. What is your opinion on the possible interconnection-wide
allocation of transmission costs? Does such a widespread approach
unfairly socialize costs across regions that may not be directly
benefiting from the particular transmission line?
Answer. In our view, the biggest risk with respect to cost
allocation is that project-by-project administrative litigation about
who benefits from a particular investment will threaten to stall
development of the desperately needed transmission infrastructure. The
interconnection-wide planning process will identify a package of
projects that will benefit the whole interconnection. Moreover, the
indirect benefits of renewable energy development are national in
scope--reducing the risk to American security of excessive dependence
on foreign sources of energy, creating new jobs for American workers
and new business opportunities for U.S. firms, and providing public
health and environmental benefits to the American people. For these
reasons, the costs of developing a National Clean Energy Smart Grid
should be allocated broadly.
Question 4. Your organization calls for any new power generation to
adhere to some kind of greenhouse gas emissions standards before
hooking up to the grid. I understand that, under your proposal, such a
standard would allow single-turbine natural gas plants to connect. What
about clean sources of energy that provide baseload power, such as
nuclear or hydropower?
Answer. Our group specifically recommended that interconnection to
the transmission facilities developed under this new regime should be
limited to generators that have a greenhouse gas emission rate no
higher than that of a simple cycle gas-fired generator. Clean resources
such as nuclear energy and hydropower would clearly meet that standard.
Our environmental partners were concerned about the possibility
that increased transmission capacity might increase the use of
conventional coal-fired power plants instead of renewable resources and
thus worsen global warming--an unacceptable outcome. For that reason,
we recommended an emission rate cap--because the variability of
renewable resources will require balancing from other power supplies,
and natural gas generation in many cases will be the preferred choice.
Hydropower would be an even more attractive balancing resource where it
is available.
Question 5. Certain renewables, such as wind resources, may have a
capacity factor of only 25-30%. Does it make sense as an economic
matter to have a transmission facility that is only utilized 25-30% of
the time? What are the reliability concerns with such low capacity
factors?
Answer. New transmission lines built under this new authority will
be planned for optimal utilization in order to minimize their cost to
consumers. Drawing on wind resources from a broad geographic region
will help reduce the variability of supply. It is further expected that
other resources, such as hydropower and gas-fired generation, will be
used to balance intermittent renewable resources. One important
criterion in the planning process is assuring that transmission
upgrades will maintain or enhance the reliability of the grid, and
deployment of smart grid technologies will improve the technology
platform for assuring reliable grid operation.
Question 6. Should we specifically require the new interconnection-
wide planning agency or FERC to examine alternatives to long-distance
transmission facilities, such as distributed renewable resources,
energy efficiency and demand-side management?
Answer. Yes, planners should first assess the availability of
demand-side resources and local distributed resources in order to
determine how much additional supply is needed and in what areas. The
Majority Staff draft is appropriately clear in requiring that the
interconnection-wide plans take into consideration ``existing and
potential demand response and energy efficiency programs.''
______
Responses of Michael G. Morris to Questions From Senator Bingaman
Question 1. Our discussion draft, like an earlier proposal
circulated by your company, cuts off federal jurisdiction at 345
kilovolts. We also provide that jurisdiction stems from the planning
process. Are we missing opportunities to relieve congestion and reduce
regional emissions if we do not go below that number, or is that a good
level for the federal system to begin at?
Answer. AEP believes that 345-kV transmission is the appropriate
floor for federal siting jurisdiction. The reason for this is that this
class of facilities provides benefits that are regional/inter-regional
in nature and can cross large geographic areas, including state
boundaries. Generally speaking, lower voltage lines serve more local
needs and as such are appropriate for siting to be conducted at the
state level. As a practical matter, because these lower voltage lines
serve local needs and are substantially shorter than 345 kV and higher
voltage lines, most of these lower voltage projects will fall entirely
within a single state. There is inherently a difficult balance in
determining the exact line where jurisdiction between state and federal
authorities should be drawn. Since EHV lines serve more regional needs,
we believe it is appropriate for federal jurisdiction to apply to these
facilities.
One exception to this bright line test could be for transmission
facilities that are used to harness renewables. For facilities that are
predominately used to serve as a collector system for renewable energy
that then feed into an interstate EHV grid, we believe these lower-
voltage feeder lines should be under federal jurisdiction.
Question 2. Do you think that the planning structure here works? Is
it feasible to try to plan on an interconnection-wide basis?
Answer. We believe that interconnection-wide planning is the most
efficient approach to planning the EHV interstate backbone grid. While
regional planning may continue to be an efficient approach to planning
the underlying lower voltage transmission system and ensuring
consistency with the new EHV transmission, our experience has shown
that cross-border issues (between RTOs or regions) related to project
selection and cost allocation are significant obstacles to the approval
and construction of the large scale, critical EHV projects. If as a
nation we seek to make large scale changes in the diversity of our
energy portfolio, we need a robust EHV backbone that will facilitate
this fundamental shift and secure our country's energy future. Today's
planning processes at the RTO level tend to be ``reliability based'',
using new transmission as a solution of last resort rather than looking
at transmission as a vehicle for advancing our national goals. Despite
pressure from many stakeholders to minimize the issues stemming from
the seams between the RTOs and other planning authorities, these issues
still exist. We believe that an interconnection-wide planning process
is feasible, necessary and can be achieved in a reasonable period of
time. We support FERC's role in overseeing the implementation of an
interconnection-wide planning process and believe that RTOs can play a
significant role within the context of the interconnection-wide plan.
Responses of Michael G. Morris to Questions From Senator Murkowski
Question 1. In your opinion, will the imposition of a new
interconnection-wide planning process become a new ``choke point'' by
pre-empting ongoing planning efforts or delaying projects that could go
forward now?
Answer. Not if it is done correctly. To be successful, the
interconnection wide planning process must be structured to avoid
delays. FERC needs to establish time frames for action, opportunities
for public input and clearly defined procedures to ensure the planning
process moves expeditiously. We believe that adoption of a well-
structured interconnection-wide planning process will ensure that the
EHV interstate backbone grid is planned, engineered and constructed in
a timely and efficient manner. First we believe that regional planning
efforts which identify EHV needs based on regional objectives should
continue in much the same way that they do today. To date these
planning processes have been very effective in identifying local and
regional reliability needs to address the need of the local and
regional systems. Any new planning efforts should take maximum
advantage of the knowledge base and expertise of RTOs and build upon
the existing system, so long as it does not result in a deferral to
regional planning efforts.
Our experience has shown that cross-border issues (between RTOs or
regions) related to project selection and cost allocation are
significant obstacles to the approval and construction of large scale,
critical EHV projects that will serve as the backbone of our country's
energy future. Today, planning assumptions, criteria and cost
allocation rules vary significantly among regions. This creates an
enormous roadblock to developing optimal interconnection-wide
transmission solutions. As we move forward, we believe that an
interconnection-wide planning process for all EHV transmission could be
efficiently implemented to complement today's existing planning
processes. RTOs would continue to support the needs of the systems
under their planning authority and ensure the reliable integration of
new EHV transmission that is developed pursuant to an interconnection
wide plan. In order to ensure the timely development of needed EHV
facilities, we believe it is important for FERC to be able to authorize
individual multi-state projects while the interconnection-wide plan is
under development, to ensure we are able to move quickly to get steal
in the ground.
Question 2. What is your position on the issue of siting? Can
federal and state regulators make progress on a collaborative basis or
is increased federal siting authority needed?
Answer. If we are to fulfill our emerging national vision of a more
secure, environmentally sound electric power supply system; we need a
workable and timely federal process that ensures that we can build a
transmission system to meet the needs of our energy future. For AEP,
this means that the Federal Energy Regulatory Commission (FERC) should
be able to authorize extra-high voltage transmission. With respect to
line siting and determining where it is routed, FERC has substantial
experience conveying parties through a comprehensive open process to
establish a route with minimal impact to the environment and private
landowners.
In the early days of the electric industry, transmission was built
and planned locally to serve local needs--typically bringing power from
the closest power plant to a community. It grew to broader uses, but
remained fairly limited in geographic scope. Today, the transmission
grid has evolved to serve far more people with far more power than was
imagined possible when the technology was in its infancy. As
transmission technology was evolving, the state regulatory commissions
were the appropriate place for siting authority to reside. But as the
grid has grown, both in geographic scope and in purpose, federal
authority for this portion of the nation's electric system makes more
sense.
The challenge for state regulators is not a lack of competence to
make these decisions. The challenge today is that the need for
transmission is driven by national energy policy objectives with a goal
to regionalize power supply, maximize the integration of renewables,
and achieve regional efficiency and reliability objectives. States
responsibilities traditionally have not extended to advancing national
energy policy; as a consequence the tendency may be to reject larger
projects in favor of smaller scale, more limited solutions. As a
result, the need for federal jurisdiction goes hand in hand with a
national electricity policy.
Question 3a. As you know, so often energy issues are regional and
not partisan. What is your opinion on the possible interconnection-wide
allocation of transmission costs?
Answer. AEP strongly supports allocating the cost of EHV
transmission broadly given the nature of the benefit provided. The
development of an interconnection-wide EHV overlay plan will by
definition provide benefits to many regions, if not the entire
interconnection. As such, we support spreading the costs of such an
overlay throughout the interconnection for several reasons. It is
important that benefits are not evaluated on a line-by-line basis.
Rather, the benefits of the EHV overlay, in the aggregate, justify an
interconnection-wide allocation. It is important to remember that the
cost of transmission for delivered energy is small when compared to the
cost of the energy commodity, and allocating these costs to the entire
interconnection avoids contentious and vigorous attempts to shift and
re-shift transmission costs among groups of customers.
Question 3b. Does such a widespread approach unfairly socialize
costs across regions that may not be directly benefiting from the
particular transmission line?
Answer. No, I don't believe it does. It is true that today many
energy issues are regional in nature. What we are proposing is that
interconnection wide plans be developed under a consistent set of
planning assumptions, rules and criteria so that the planning process
itself ensures that the overlay does not result in unfair socialization
of costs. We believe that much of the regional energy issues, whether
they be economic issues such as congestion, reliability issues, or a
need to transport renewable energy to or from an area, have a common
solution--an integrated, broadly planned EHV transmission grid that
spans the nation. While all areas may not share the same issues, one
solution addresses them all.
Whether addressing congestion issues in the Mid-Atlantic or
Northeast, lack of renewable energy in the Southeast, or a need to move
renewables to market from the Southwest or Northern Plains--the result
is diversification in our generation portfolio, and improved
flexibility, reliability and system efficiency. Much like the
interstate highway system, we cannot predict today how the system will
be used in the future. What we do know is that the system will provide
opportunities for promoting national objectives through a robust
national grid.
We had a perfect example of how one region can impact another on
Aug. 14, 2003. When a tree faulted a transmission line in northeast
Ohio, 50 million people in eight U.S. states and one Canadian province
paid the price in the form of a blackout that lasted the better part of
a week in some places--locations hundreds of miles away from the source
of the problem. The blackout stopped at AEP's EHV system due to the
nature of EHV transmission.
Today, our system is tightly integrated in some areas and loosely
integrated, if at all, in others. While there is some reliance between
regions, the lack of a robust EHV grid limits the support each region
can give to another. By overlaying the existing system with a robust
and reliable EHV overlay, we can not only strengthen what we have to
ensure such problems don't happen again, but we can use the system to
promote energy policies and ensure that we prosper together. Typically,
the transmission component of an electric bill constitutes 10% or less
of a retail consumer's bill. EHV transmission-at least at AEP--
constitutes about 20% of our total transmission miles but provides
benefits to the entire PJM region. Broad based cost support for EHV
would add pennies to the average residential consumer's monthly bill.
However, a narrower approach that attempts to identify specific
beneficiaries for individual EHV projects inappropriately burdens those
direct beneficiaries with the costs of societal benefits enumerated
above and will continue to delay projects, as cost allocations decision
are litigated and appealed.
Question 4. I understand that AEP supports allocating costs on an
interconnection-wide basis. But what about for DC lines? With a DC
line, which is essentially like a straw that takes power from Point A
and delivers it to Point B, it's clear who the project beneficiaries
are.
Answer. In our definition of EHV we include DC lines that operate
at 400kV and above. Again, the application of cost allocation and
federal siting for these facilities would depend on whether they are
developed pursuant to an interconnection wide planning process. DC
lines that are recommended as part of an interconnection-wide planning
effort should be allocated on an interconnection-wide basis. These
lines would typically be high-voltage/high-capacity lines that span
significant distances or link non-compatible AC grids. While they would
operate on a point-to-point basis, they serve to move bulk amounts of
power that would otherwise tax the underlying transmission system. As
such, they support the overall network. This could also be done using
comparable AC lines, but the determination of using DC versus AC is
part of the planning process that considers cost, efficiency, and
overall system needs. Some DC lines are not designed to support the
overall network, and those should be allocated to the beneficiary. The
planning authority can make this determination.
Question 5. I understand that your company is evaluating the
feasibility of building a multi-state, extra-high voltage transmission
project across the Upper Midwest to support the development of
renewable energy--consisting of about 1,000 miles of line, costing
between $5-10 billion, and taking approximately 10 years to complete
the construction. If Congress adds an additional layer of planning, how
will that impact your project? Also, could AEP go forward without the
costs being spread interconnection-wide?
Answer. We believe that the development of an interstate EHV grid
is vital to US energy independence. Any action taken by Congress to
address planning associated with EHV backbone transmission
infrastructure, rather than acting as an ``additional layer,'' should
be designed to remove the roadblocks that are inherent in today's
regional planning processes to ensure that the EHV interstate backbone
grid can be planned, engineered and constructed in a timely manner.
It would be very difficult for AEP, or any entity, to invest
significant capital in a large scale EHV transmission infrastructure
project without an approved cost allocation methodology. While we
firmly believe that an interconnection-wide allocation is appropriate
and is the most economically efficient approach to paying for
transmission, there may be other solutions, such as an allocation of
the project cost between existing RTOs with an approved method for each
RTO to further allocate those costs within the respective region that
may be acceptable. The critical nexus for being able to move forward
with such a project and make significant investment is that there must
be an approved methodology that ensures that the project costs will be
recoverable from a defined customer base.
Question 6. If FERC has new authority for permitting transmission,
how should it decide between competing developers?
Answer. First, Congress should grant FERC sufficient discretion to
design a broad set of criteria, both quantitative and qualitative, to
evaluate competing projects. FERC should apply these base criteria as a
foundation for evaluating competing projects, but must also have a
process for considering more subtle, qualitative factors such as
efficiencies or economies of scale (e.g. one provider's existing
presence in a given region; limits on the availability of resources to
a single provider; etc) which may factor into the selection of the
optimal candidate. In essence, FERC must adopt and apply a set of
defined, consistent criteria to properly evaluate projects, but must
also have the latitude to consider other relevant, qualitative factors.
Responses of Michael G. Morris to Questions From Senator Menendez
Question 1. Two years ago, you told investors that new transmission
represented a $9 billion opportunity for American Electric Power, and
compared a potential 765 kV line from your Amos Coal Plant in West
Virginia to suburban Middlesex County in New Jersey to a super highway
capable of ``5000 Mega Watts of improved transfer capability'' between
West Virginia and New Jersey. Mr. Morris, isn't that 5000 megawatts of
coal electricity? And aren't you supportive of this proposal precisely
because it will allow you to reach Eastern markets with electricity
generated from coal?
Wouldn't a significant build-out of transmission from the Midwest
allow you to build new coal plants to take advantage of the new
opportunity to export power from your home region? Can you rule that
out?
Answer. Would the line we proposed in 2006 carry coal-generated
electrons if it were in place today? Yes it probably would. Would it
carry coal exclusively? No. Would a transmission line in the
Southeast--where generation is typically natural gas or nuclear--carry
coal-generated electrons? Yes, it probably would.
The PJM northeast regions operate increasingly as an integrated
market. Power generated at any given time is largely based on the price
of fuel and its availability. In today's PJM market we are seeing
production from coal plants being displaced by generation from natural
gas plants. If natural gas prices were high we would see more coal
generation. That is the nature of an open and competitive market, which
has developed under FERC direction and guidance. It is important to
remember, however, that the EHV lines currently under construction
within the PJM region are much less ambitious than those to which you
are referring. In addition, the line that AEP is participating in
constructing is one that will not be completed until 2014. By that time
the generation mix in the region is likely to be significantly
different, driven by environmental regulatory requirements, economics,
load consideration and the availability of new resources. So while it
is possible that additional coal generation will be available, it is
also very possible that it will not be. This is why it is critically
important for new transmission investment, as a long-term investment in
supplying future electricity needs from whatever sources that we as a
nation choose to utilize.
Currently the AEP 765 system stands between some of the richest
wind regions that our country has to offer and its most populated load
centers. It would be painfully shortsighted if we were to sacrifice the
opportunity of maximizing our ability to integrate renewables because
of near term concerns that may or may not ever be realized. By
extending the reach of the interstate EHV grid, we can extend the reach
of renewable integration. Because it will take years to complete
construction of this interstate transmission grid, it is critically
important that we start today so that we can evolve to meet the
nation's changing needs.
Question 2. Would you support a policy requiring any new
transmission line built with the power of federal eminent domain and
expedited permitting to be limited only to the use of renewable energy?
Yes or No? Why or Why Not?
Answer. No. As discussed above, AEP is a strong supporter of an
efficient, robust interstate EHV grid that will enable the country to
meet a series of national objectives. While ``green transmission
highways'' for renewable resources only and transmission projects
restricted to renewable generation are widely discussed, they are
inefficient and limiting if not totally unworkable in practice.
Transmission lines that are only used to harness renewable energy and
are not tied to the development of an efficient and robust backbone
system create unnecessary redundancy and result ultimately in less
renewable energy being harnessed and the cost of energy being
unnecessarily costly. Efficiently generated, cost effective electrical
energy is fundamental to the economy of the country. We believe that as
a nation, we can dramatically increase the availability of renewable
energy, diversify our generation portfolio and reduce our carbon
footprint through an efficient, robust interstate EHV grid. It is
important to realize that what we build today will carry us into the
next century. If the system is robust and efficient, it will allow us
to integrate new generation technology that we cannot even begin to
contemplate. The lines we are considering today are vital for the
future of this nation's economy today and into the future.
______
Responses of Joseph L. Welch to Questions From Senator Bingaman
Question 1. We have tried, in our draft, to provide for significant
input from subregional planning entities like the one currently active
in the upper midwest. Have we done a good enough job at this?
Answer. Yes.
Question 2. Do you think that the cost allocation scheme--allowing
regional entities to propose a plan, but providing a FERC backstop--
works?
Answer. While the proposed process is workable, it will result in
delays to the construction of regional projects. Regional entities have
had almost a decade to develop equitable cost allocation methodologies
to facilitate transmission expansion and have failed. Providing an
additional year will not likely break the log-jam of parochial
interests that have stifled progress to date without doing anything to
change the fundamental political dynamics. To the extent a backstop
approach is adopted, clear guidance should be provided to FERC on
broadly allocating costs for extra-high voltage (EHV) facilities.
Responses of Joseph L. Welch to Questions From Senator Murkowski
Question 1. In your opinion, will the imposition of a new
interconnection-wide planning process become a new ``choke point'' by
pre-empting ongoing planning efforts or delaying projects that could go
forward now?
Answer. No, it is a ``choke point'' now with no interconnection-
wide or regional transmission plan. Before any interconnection-wide
planning process is established, Congress should provide clear
direction on a national energy vision that establishes guidance on
issues such as efficiency standards and renewable portfolio standards.
Prepared with that guidance, an entity focused on interconnection-wide
plan that has the appropriate mandate and long-term regional focus will
deliver this plan. Our approach of using ongoing planning organizations
and efforts will enable the interconnection-wide plan.
Question 2. What is your position on the issue of siting? Can
federal and state regulators to make progress on a collaborative basis
or is increased federal siting authority needed?
Answer. Currently, transmission rates are regulated on a federal
level by the FERC, but siting is regulated by individual states that
naturally are focused on benefits to their respective state, not the
region or the nation. For this reason, the building of significant
regional transmission lines is virtually impossible. In many cases,
transmission projects are delayed for years through cumbersome state
siting processes. The FERC should be given a more significant role in
transmission siting so that infrastructure development that is needed
for the good of the entire country can go forward expeditiously.
Our preferred path would be to have FERC assume responsibility for
issues a Certification of Need for projects that come through the new,
robust planning process. Under this approach, states would continue to
have authority to route project as they are best informed on zoning,
land use and other local concerns. Such an approach also avoids
potential delays in creating the federal staff needed to undertake
routing decisions across the country. There would need to be a
reasonable federal back stop in should a state fail to assume its
responsibility to route the project within one year.
Question 3. As you know, so often energy issues are regional and
not partisan. What is your opinion on the possible interconnection-wide
allocation of transmission costs? Does such a widespread approach
unfairly socialize costs across regions that may not be directly
benefiting from the particular transmission line?
Answer. In order to address the significant electric reliability
challenges coupled with the energy needs of tomorrow that incorporate
renewable resources, efficiency and demand response programs as well as
the changing use of the grid overall, the nation needs an extra-high
voltage (EHV) transmission overlay. This overlay would provide
significant benefits in the form of higher levels of reliability,
increased flexibility of the use of the grid and enhanced access to all
generation forms including wind and other renewable resources.
The benefits of an EHV overlay can be quantified using reliability
and economic metrics; however, the current system falls woefully short
of incorporating all of the direct and indirect benefits of a regional
EHV overlay. How do you measure the benefits of avoiding a repeat of
the 2003 Blackout? How do you measure the benefits of reduced carbon
emissions? How do you measure the benefits of indirect economic
development caused by the creation of construction and maintenance jobs
needed to support an EHV overlay? Any cost allocation method should
look at both the direct and indirect benefits.
ITC is supports the concept that the costs of transmission
facilities that comprise the EHV overlay and are developed through an
new interconnection-wide planning process to facilitate the connection
of renewable resources and provide a robust regional electric backbone
be spread broadly to all end users in that interconnection. Regional
transmission benefits the region, and as such, those costs should be
allocated accordingly.
Question 4. You have proposed to build the Green Power Express
project to bring renewable power from the upper Plains States to
Chicago. What hurdles must you jump through under the current planning
process for this project? What kind of time-line are we talking about
here? Also, how important will it be for your company to receive
incentive-based rates from FERC?
Answer. The issues with the current planning process are not so
much hurdles as they are problems with the criteria applied to evaluate
transmission projects and the corresponding cost allocation mechanisms.
They are focused solely on short term reliability or economic benefits
(looking at only a 10 year planning horizon), are often narrowly
tailored in geographic terms, and do not recognize the need for
forward-looking projects built primarily to support public policy, even
though in the long term (the average transmission asset has a useful
life of over 40 years), the same project will also provide reliability
and economic benefits.
Further, the current planning results essentially provide two basic
pieces of information; what impact the project will have on the rest of
the transmission system and a benefit cost ratio based on adjusted
project cost. Reductions in carbon and other emissions, support for
state renewable energy requirements, reduced need for operating
reserves, and impact on national security or energy independence
through providing access to more diverse fuel sources, just to name a
few, are not considered when evaluating the benefits of a project. The
process typically takes about a year but the results fail to account
for numerous other impacts of a project
Next, it is important to understand the integral relationship
between planning and cost allocation. Once the planning results are
available, a set of cost allocation criteria are applied. Cost
allocation policies currently place the majority of the cost for any
project strictly in the bills of the local customers and do not
recognize the broad reaching benefits of projects like large,
transmission backbone projects. In MISO, for example, a project that
has no adverse impact on the system must have a benefit cost ratio of
at least 3:1 in order to qualify for cost sharing. Even if this
threshold is met showing that the benefits are three times greater than
the costs, 80% of the total project costs are borne by the local
utility customers and 20% will be shared across the region. Under this
type of construct, local utilities will find it difficult to support
important projects because their customers will have to bear so much of
the cost which in turn works against the development of transmission
that will support the nation's future energy needs.
Finally, significant incentives are not necessary to motivate the
construction of regional transmission. For example, in ITC's recent 205
application for the Green Power Express, we requested a rate construct
that included a return on equity that was commensurate with other
Midwest ISO members and did not include incentives that were above and
beyond what were received by other members. The Green Power Express
consists of 3,000 miles of high voltage transmission traversing 7
states, 20 utility service territories, with a cost of $10-12 billion
dollars. As such, a rate construct with a competitive return on equity
provides the needed certainty needed to attract potential partners.
Question 5. As you know, the Stimulus bill provided brand new
borrowing authority for the Western Area Power Administration (WAPA) in
the amount of $3.25 billion, to plan and construct transmission lines
for renewable energy projects. The Reid bill would go even further by
directing WAPA and Bonneville to construct a transmission line
identified in the new planning process if no private financing
materializes within three years.
What are your thoughts on the new WAPA borrowing authority in the
Stimulus and the possible expansion in the Reid bill? What will such
federal authority mean for private transmission efforts and existing
regional grid planning?
Answer. Shareholder-owned utility transmission investment has been
steadily increasing since 1999. ITC and other members of the Edison
Electric Institute (``EEI'') are planning to invest more than $30
billion in transmission facilities in the three-year period from 2008
and 2010. Since 2003, ITC alone has already invested more than $1
billion in its transmission systems in an effort to improve electric
reliability, reduce costly system inefficiencies and interconnect all
forms of generation including wind and other renewable resources.
Despite the fact that WAPA has received an additional $3.25 billion
in borrowing authority in the recently-enacted American Recovery and
Reinvestment Act, this amount of money will not be enough to build all
the transmission that is needed to link remotely located renewable
resources with load centers, particularly within the WAPA service
territory. Accordingly, ITC is advocating that the PMAs use this
federal funding to leverage private sector financing and private
expertise to maximize results. Federal transmission policy should
support--not supplant--development of interstate transmission
facilities through private enterprise, which has the construction and
financial capability to build interstate transmission facilities for
which siting approvals and permits can be obtained. Through creative
partnerships with private transmission companies that have the
expertise and financial capability to build and finance high voltage
transmission lines, WAPA will be able to leverage the funding provided
and move us closer to the day when we have a robust, reliable, high
voltage grid connecting renewable rich resource areas with high
population centers.
To ensure the most efficient expenditure of limited taxpayer
dollars, Congress should encourage WAPA to target its spending under
the new ARRA borrowing authority on transmission projects that, but for
this new funding, would not likely be constructed in a timely manner
and to encourage WAPA to enter into partnerships to develop needed
facilities. Specifically, we suggest WAPA should certify before
committing funds to any project that: (1) no other entity is willing to
participate in the financing, construction or ownership of the project
in a timely manner; and (2) the project does not interfere with or
duplicate an existing project being constructed by another transmission
owner or operator. Legislative precedent exists for imposing similar
preconditions on federal utility transmission projects to avoid
duplication or preemption of private-sector infrastructure investment.
The Energy Policy Act of 2005 contains language designed to avoid
duplication of functions of existing or proposed transmission
facilities by certain joint transmission projects in which WAPA was
authorized to participate (Sec. 1222 of EPAct 2005).
In addition, any transmission expansion projects that WAPA plans
under its new borrowing authority should be consistent with ongoing
Western Electricity Coordinating Council (``WECC'') planning processes,
which identify a number of projects already being developed or on the
way. Notwithstanding the private-sector transmission investment numbers
outlined in the charts attached, building interstate transmission lines
continues to be challenging due to the need to obtain approvals from
every state that a transmission line traverses. Building interstate
lines, especially in the West, is further complicated by the difficulty
of obtaining authority to build across federal lands. In addition to
providing incremental borrowing authority for federal utility
transmission construction, Congress should also address important
siting and cost allocation issues that are frustrating the planning and
construction of transmission lines. Congress should strengthen Federal
Energy Regulatory Commission (``FERC'') siting authority for interstate
transmission lines and transfer to FERC the lead agency authority for
permitting projects that cross federal lands.
Question 6. Some consumers are concerned that giving FERC greater
authority to site transmission and allocate its costs will result in
more transmission than what is needed, and larger lines than are
strictly necessary. How do we assure customers that the system they get
is what they need?
Answer. Following a 30-year period of significant under investment,
the country is not in a situation where too much transmission will be
built anytime soon. Time and time again, study after study, is showing
the exact opposite. The lack of a robust transmission grid is
preventing the wide spread integration of a variety of different types
of renewable, and other traditional forms of generation, making it all
the more difficult to achieve goals of energy independence and the
maximization of the efficient use of our resources. Through an
interconnection-wide planning process that reflects a national energy
vision and includes ample feedback from stakeholders, a determination
of project need will be given, and this will provide the necessary
check and balance to prevent overbuild. ITC believes that
interconnection-wide planning, increased federal siting authority and
regional cost allocation will go far to remove the obstacles to
developing and implementing what customers want and need from our
energy supply system.
Question 7. I understand that AEP supports allocating costs on an
interconnection-wide basis. But what about for DC lines? With a DC
line, which is essentially like a straw that takes power from Point A
and delivers it to Point B, it's clear who the project beneficiaries
are.
Answer. While it is true that with DC, it is relatively easy to
determine the beneficiaries of a project, this solution is short-
sighted and can drive sub-optimal regional planning. DC a good
technology solution if used in the proper application; however, to some
extent it has been applied inappropriately due to the lack of a cost
allocation methodology.
As you say, DC is generally used to deliver energy from point A to
point B; however, it is does little to support the overall reliability
of the grid. DC lines have little opportunity for intermediate on-ramps
and off-ramps and therefore do not provide the benefits of a networked
AC solution. A DC line's single purpose is to bring power from one
location and therefore, it does not unload the underlying system
through the reduction of system congestion or reduce losses, nor does
it not provide network flexibility.
DC is only part of the solution; our nation needs an AC EHV
transmission overlay that will serve as the electric infrastructure
backbone. DC's limitations make it such that the cost allocation issue
is easily answered; however, we should not implement sub-optimal
solutions as a means to avoid addressing a tougher policy question.
That being said, to the extent that DC is part of a regional solution,
it may be eligible for a cost recovery approval process.
Question 8. If FERC has new authority for permitting transmission,
how should it decide between competing developers?
Answer. Through in interconnection-wide planning process, the risk
of having competing regional projects is mitigated. Once a project has
been identified, incumbent transmission owners should have the right of
first refusal, meaning the right to build the needed transmission
within their respective service territories provided they are willing
to make timely commitments to build the approved construction. However,
right of first refusal without any limitation can impede needed
development. ITC feels strongly that incumbent transmission owners
should have a reasonable period of time during which to submit an
application to construct and site new facilities.
However, to the extent an incumbent fails to act within that
timeframe, the project should be open for other parties to undertake.
To this end, FERC would be in the position of resolving any conflict
arising from competing projects/developers. FERC should look at a
variety of criteria to determine who is best suited to build a project
including: incumbent participation, independence from the market,
public power, the ability to maintain facilities going forward, total
cost to build and maintain the assets and technical capability, etc.
Response of Joseph L. Welch to Question From Senator Menendez
Question 1. As you know NJ is investing a great deal in solar,
offshore wind, and energy conservation. Does it make economic sense for
New Jersey to help pay for a giant transmission line to deliver wind
from the Midwest? Or is it more efficient to develop our own green
power closer to load?
From the standpoint of economic efficiency, don't we want
generators to consider the true costs of a project when deciding where
to build? If we hide transmission costs, doesn't that mean home-grown
renewable projects would gain no advantage from the fact that their
transmission costs are much lower? What is the economic logic behind
that?
Answer. The answer to the energy issues we face is not one
dimensional; the answer lies in many approaches to reduce carbon
emissions, improve reliability and efficiency, encourage conservation,
reduce our dependence on foreign oil and create economic development
here at home.
Where it is economical, local renewable energy should and will be
developed, but the efficiency of the local renewable resources also
must be considered. At one extreme, one could consider the construction
of a local wind farm in an area with little to no consistent wind.
In the example of ITC's Green Power Express, we envision
constructing approximately 3,000 miles of EHV transmission in a network
formation. Once constructed, this network would not only significantly
improve electric reliability and interconnect 12,000 MW of power from
the wind abundant regions to be transported to the major population
centers such as Chicago, Minneapolis, Detroit and points east, but it
would do so in an economic manner as found in two independent studies.
The Brattle Group concluded that the Green Power Express would make
wind power actually cost competitive with coal and other carbon-based
generation sources. The CRA International study was able to determine
that the construction costs to build the Green Power Express were
literally offset by the economic benefits of connecting wind from this
highly efficient wind region.
While it may appear intuitively obvious that building renewable
resources closer to the load is more economic, the Green Power Express
is one example of many where it makes more sense economically,
technically and environmentally to focus on building the EHV overlay
that would allow the most efficient and economic renewable resources to
be interconnected where it makes most sense.
Responses of Joseph L. Welch to Questions From Senator Stabenow
Question 1. As soon as we see the types of costs that a new grid
would cost--billions of dollars nationwide--we automatically have to
ask ourselves what this means to households and businesses, and
particularly our manufacturers. On one hand we can get more clean
energy into use and additional jobs manufacturing and installing wind
turbines and grid infrastructure for example. On the other hand we have
to assure our constituents that this investment will not unreasonably
increase their costs.
Can legislation promote the grid infrastructure we need and diffuse
costs in a way that is de minimus over time?
Answer. To the extent that legislation can resolve the challenge of
how to allocate costs for EHV transmission overlay infrastructure in a
way that recognizes the broad benefits of regional transmission and
allocates cost accordingly, then yes, legislation can indeed promote
the necessary grid infrastructure in a cost effective manner. For
example, significant levels of system congestion are literally costing
customers hundreds of millions of dollars per year. In 2004 ITC
completed the Jewell-Spokane project, which was a $10 million effort
that resulted in over $90 million in reduced system congestion on an
annual basis. This was a prime example where investment in transmission
had a leveraging effect on the total cost of delivered energy. Further,
it must be recognized that transmission only represents approximately
seven percent of the end-use consumer's bill and can have a leveraging
effect on the overall cost of delivered energy by providing reliable
access to more economic sources of generation.
Question 2. Can transmission grid policy protect manufacturers from
the potential price increases of a Renewable Energy Standard?
Answer. Renewable energy does not have to be uncompetitive in terms
of cost to other existing forms of generation. In fact, according to an
independent study by The Brattle Group of ITC's Green Power Express,
with a robust grid in place, wind energy can actually become cost
competitive with coal and other carbon-emitting forms of generation.
ITC believes that with the construction of an EHV overlay that is
planned on an interconnection-wide basis, access to renewable resources
that are not only environmentally-friendly but economic as well will be
made possible. The Green Power Express helps to integrate the most
abundant sources of wind generation in the country. Through the
networked configuration of the Green Power Express, geographic
diversity is realized, which provides both operating and economic
benefits. Moving forward, the Green Power Express could potentially be
later integrated with an EHV overlay in Michigan that would enhance
Michigan's ability to integrate its own renewable resources found off-
shore thereby allowing Michigan to enter the renewable energy market in
a meaningful way. Without a regional grid in place, generation
solutions may be constructed as a means to meet a mandated standard in
a manner that is sub-optimal.
Further, the challenge before us is a national issue that requires
a national solution. What will be the price to Michigan and the U.S.
economically, environmentally and from an energy independence
standpoint if we continue to import oil and do not maximize the use of
our existing efficient renewable resources available to use and
distributed effectively through an EHV system. Energy policies should
be developed on the national level rather than by taking a state-by-
state approach. We will not be able to build the necessary grid
infrastructure at the level needed with the existing policy barriers in
place.
Question 3. I would like your comments on the job opportunities
surrounding a new grid.
Who will design and make these systems? Is this an opportunity for
more green jobs?
Answer. Yes, a new grid would certainly enable the creation of more
green jobs. Without a robust regional grid, these green jobs will be
challenged to materialize in a meaningful way, and further, any
renewable energy that is integrated will not be done so in the most
efficient and effective manner. To understand this, we must first
consider how the grid should be planned and built.
ITC's experience as an independent transmission company has given
us unique insight into the value of independence in transmission
operations and planning. This independence should not be limited to the
transmission owning entity but should be extended to mandatory regional
planning by the regional transmission organizations (RTOs).
Once the regional plans are developed by independent entities, ITC
believes that incumbent transmission owners should have the right of
first refusal, meaning the right to build the needed transmission
within their respective service territories provided they are willing
to make timely commitments to build the approved construction.
However, to the extent an incumbent fails to act within that
timeframe, the project should be open for other parties to undertake.
To this end, FERC would be in the position of resolving any conflict
arising from competing projects/developers. FERC should look at a
variety of criteria to determine who is best suited to build a project
including: incumbent participation, independence from the market,
public power, the ability to maintain facilities going forward, total
cost to build and maintain the assets and technical capability, etc.
Once built, this regional grid should be independently operated, and
ongoing maintenance should be done on an independent basis.
Implementing these policies would go a long way toward removing
existing barriers to new transmission infrastructure. It is this same
transmission infrastructure that will assist in the facilitation of
wind and other renewable resources. If we consider ITC's Green Power
Express, for example, this project includes the construction of 3,000
miles of EHV lines and stations that will serve to integrate 12,000 MW
of power from the wind abundant regions of the U.S.
Consequently, we can expect that there will be a great opportunity
for the creation of jobs to construct the Green Power Express as well
as the many wind turbines that will be needed to generate the power.
Once constructed, we can then anticipate more jobs to operate and
maintain the Green Power Express and the wind farms. In fact, since
opening its doors, ITC's capital and maintenance efforts have resulted
in the creation of more than a thousand new jobs for Michigan alone.
These are but a few examples of a regional transmission solution, and
there are countless others including some very fine concepts to address
the reliability needs and opportunities in Michigan.
In short, the construction of this needed infrastructure
facilitated by the implementation of critically needed policy changes
will indeed lead to the creation of more green jobs.
Question 4. There is a lot of focus is on harnessing major wind
resources from the great plains and solar in the arid Southwest.
How can the wind and other renewable energy potential in Michigan
benefit from major transmission projects such as the Green Power
Express?
Answer. We should take best advantage of the most efficient
resources that we have. In this instance, the best advantage would
likely be to have renewable projects in places like Michigan complement
renewable projects in other locales. In that way, we can take advantage
of the geographic diversity and mitigate the risk of a local weather
event suddenly and dramatically reducing renewable output while still
taking advantage of the strongest wind resources available.
Question 5. How do we plan a system that can accommodate more
expensive wind, or wind resources in Michigan's ``thumb?''
Answer. As the company that owns the transmission system in
Michigan's thumb region, ITC is well aware of the opportunity to
integrate the wind from that region. Due to the intermittent nature of
wind and other renewable resources, geographic diversity is one factor
of consideration, and because Michigan's thumb region does have an
abundance of wind, it is reasonable to assume that Michigan wind will
be a part of the regional generation portfolio. Through pumping and
storage, wind from the Michigan thumb can become all the more economic.
Further, Michigan has significant off-shore wind that is available, and
we must begin working now to understand how that resource can be
integrated into the grid in a reliable and economic manner.
ITC believes that we need a regional transmission EHV overlay that
would provide the needed reliability and flexibility to interconnect
local abundant renewable resources, such as those found in the Michigan
thumb region, to the demand centers. A key component to making this
happen would be to establish a national energy vision that answers
important questions such as interconnection-wide planning, cost
allocation and regional transmission siting.
Question 6. You are in the transmission business. ITC does business
in multiple states. I assume this means you build transmission under a
number of cost allocation methodologies.
Which cost allocation methodology works best, and how do we make
that methodology agreeable to various stakeholders involved in the
planning?
Answer. While often connected, the issues of regional planning and
cost allocation are actually two very separate issues. In order to plan
and develop optimal regional transmission that has the appropriate size
and scope to address today and tomorrow's energy needs,
interconnection-wide transmission planning is a must.
Once planned it becomes clear that regional transmission benefits
the region, and as such, those costs should be allocated accordingly.
The lack of a regional cost allocation mechanism is the primary barrier
to the construction of regional transmission. Without understanding who
will pay, it is virtually impossible to construct these needed regional
facilities. Due to parochial interests, finding a cost allocation
methodology that is agreeable to all stakeholders is also virtually
impossible. Regional entities have had almost a decade to develop
equitable cost allocation methodologies to facilitate transmission
expansion and have failed. This is due in large part to the parochial
interests of the stakeholders involved in the development of a cost
allocation methodology. It is for this reason that Congress and the
FERC must provide the policy vision and leadership on this issue so
that we can break the logjam and implement and move forward in
resolving the cost allocation issue.
ITC supports the concept that the costs of transmission facilities
that comprise the EHV overlay and are developed through an new
interconnection-wide planning process to facilitate the connection of
renewable resources and provide a robust regional electric backbone be
spread broadly to all end users in that interconnection. This is a
method commonly known as the ``postage stamp'' allocation method.
______
Responses of Jon Wellinghoff to Questions From Senator Bingaman
Question 1. You have made a number of recommendations as to how the
Commission's authority should be administered. If you have been able to
look at our discussion draft, how do you think it comports with those
recommendations? How similar is it to the structure under the Natural
Gas Act?
Answer. The draft legislation bears similarities to the provisions
of the Natural Gas Act, especially sections 7 and 15, and the
recommendations on energy infrastructure siting articulated in my
testimony. The draft legislation clearly defines the tools and
authorities available to the Commission for expediting the siting of
``high-priority national transmission projects.''
Designating FERC as the lead agency with exclusive authority for
siting certain transmission facilities would establish a consistent
review process and assign clear responsibility for making public
interest determinations that are in the public convenience and
necessity. The legislation also recognizes the importance of having
FERC as the lead agency for environmental review, a fundamental part of
the siting process. Having a lead agency with the duty to perform the
environmental review and make the ultimate siting determination firmly
establishes responsibility for ensuring that issues identified in the
permit review process are considered in a timely manner. The lead
agency would also develop the schedule for all related federal
authorizations, thus bringing certainty and accountability into the
overall siting process. Further, the lead agency would have clearly
defined responsibilities for developing a single, comprehensive federal
record upon which judicial review would be based. Also, the right to
exercise eminent domain authority, which is used sparingly in the
siting of natural gas facilities, is a necessary tool to guarantee that
the greater public interest is served.
The draft legislation strikes a balance between federal and
traditional state roles for siting transmission line projects.
Exclusive state transmission siting authority would be preserved for
projects less than 345 kV (except renewable feeder lines). In addition,
projects not accorded high-priority status would remain under exclusive
state siting authority. For ``high-priority national transmission
projects,'' states are provided with a venue to voice interests and
concerns during interconnection-wide transmission planning and FERC's
transmission siting process.
Question 2. It seems to me that the most difficult thing to figure
out here is how the planning structure should work. We have suggested,
along with Senator Reid, that there should be a regional planning
entity in each interconnection to undertake this role, that it should
be approved by the Commission, and that the plan should be approved by
the Commission. Further, that if such a body should not emerge, the
Commission should undertake this role. Is it practical to suggest that
the planning bodies should be interconnection-wide? Is it practical to
suggest that FERC can undertake this role?
Answer. Transmission planning was historically done on a utility-
by-utility basis and focused primarily on serving local electricity
needs out of local generation. This is no longer adequate for the way
the grid is used today and will be used in the future if we are to take
full advantage of our Nation's renewable energy potential. Our power
supplies are often transmitted across multiple utility systems and,
thus, transmission planning needs to look at the reliability and
economic needs across a much larger area. To address this need, FERC
has required public utilities subject to its jurisdiction to engage in
regional transmission planning. Developing significant quantities of
renewable resources will require the scope of transmission planning to
be even broader, ideally looking at an entire interconnection. You have
asked whether this is practical. While expanding regional planning
efforts to encompass an entire interconnection will not be easy, it is
the right target. FERC is capable of performing this role if called
upon to do so, but it would be better to build on the planning efforts
of existing regional institutions, in which states and other interested
entities already provide significant input. It is vital that we combine
local and regional planning efforts with a broader perspective of the
kind of extra-high voltage overlay needed to make remote renewable
resources located in one portion of the interconnection deliverable to
population centers elsewhere in the interconnection.
Question 3. The Commission issued Order No. 890 to establish
voluntary regional transmission planning in 2007. Is it working to
accomplish the goals that we are trying to reach here?
Answer. In Order No. 890, the Commission directed all public
utility transmission providers to develop a transmission planning
process that, among other things, provides for coordination of
interconnected systems to: (i) share system plans to ensure that they
are simultaneously feasible and otherwise use consistent assumptions
and data; and, (ii) identify system enhancements that could relieve
congestion or integrate new resources. These processes are in tariffs
on file with the Commission, and the transmission providers are
required to comply with these tariffs. However, the Commission allowed
the utilities flexibility in defining the scope of each planning
process to reflect the integrated nature of the regional power grid and
the particular reliability and resource issues affecting individual
regions and sub-regions.
A number of regional and subregional transmission planning
processes have been developed or enhanced in response to Order No. 890.
For example, thirteen transmission providers in the Southeastern United
States have formed the Southeast Inter-Regional Participation Process
to coordinate on a regional level the evaluation of potential upgrades
or other investments that could reduce congestion or integrate new
resources or loads. Transmission providers in the West have formed
ColumbiaGrid, WestConnect and Northern Tier Transmission Group to
coordinate the development of transmission plans in western subregions.
And transmission owners in California, the Midwest, and the Northeast
continue to plan their systems on a coordinated basis through their
participation in regional transmission organizations.
Although these planning processes have resulted in increased
coordination among transmission providers within these regions,
currently none are designed to produce an Interconnection-wide
transmission plan. Similarly, cost allocation proposals tied to these
planning processes currently do not include Interconnection-wide cost
allocation mechanisms. In Order No. 890, the Commission directed
transmission providers to identify a method for allocating costs for
new projects that are not covered by existing cost allocation rules. In
the initial round of compliance filings, most transmission providers
did not address this issue completely and the Commission directed them
to supplement their planning processes to identify with particularity
the cost allocation rules for new projects. A second round of
compliance filings addressing this issue (and others) is currently
pending before the Commission and will be addressed in future orders.
Finally, Order No. 890 and the transmission planning processes
implemented in response do not address the issue of siting, which is
addressed in the proposed bills.
Response of Jon Wellinghoff to Question From Senator Murkowski
Question 1. In the 2005 Energy Policy Act, Congress directed FERC
to establish incentive-based rate treatments for transmission. However,
you have not supported the use of these incentives to spur the
construction of new transmission facilities. In your opinion, what role
does incentive-based ratemaking have in this debate?
Answer. I have supported granting incentive-based rate treatments
in many, though not all, cases in which they have been proposed since I
joined the Commission. Incentive-based ratemaking is an important tool
for the Commission to use in appropriate circumstances to spur
construction of needed transmission facilities, including new
transmission facilities that will carry substantial amounts of power
from renewable energy resources.
In evaluating requests for an incentive return on equity (ROE)
adder, the Commission should focus on encouraging investments beyond
those projects that are required to meet a utility's service
obligations or the minimum standard for good utility practice. In my
view, incentive ROE adders should be targeted to non-routine
investments that provide incremental benefits, such as those associated
with new transmission construction needed to accelerate the integration
of renewable energy resources into our Nation's energy portfolio, and
benefits that result from the deployment of best available technologies
that increase efficiency, enhance grid operations, and allow greater
grid flexibility.
These considerations are consistent with the Commission's Order No.
679, which implements new section 219 of the Federal Power Act (created
by section 1241 of the Energy Policy Act of 2005 and requiring a rule
providing incentive-based rate treatments for transmission). They are
also consistent with section 1223 of the Energy Policy Act of 2005,
which requires the Commission to encourage, as appropriate, the
deployment of advanced transmission technologies.
Responses of Jon Wellinghoff to Questions From Senator Menendez
Question 1. Mr. Wellinghoff, I'm told that the Energy Committee
proposal will allow more wind energy to be placed on the grid, but as I
read it, the proposal is more likely to create a superhighway for
Midwest coal electricity to reach eastern markets. Is there a
requirement that transmission built as the result of this bill contain
renewable electricity? On the first page of the bill this proposal says
it applies to any transmission ``at or above a voltage of 345
kilovolts.'' Doesn't that, by definition, mean there is no real
renewable electricity requirement in the proposal?
Answer. At the outset, I should note that I do not know what is
intended by each provision in the discussion draft and I do not wish to
prejudge how the Commission might address any new responsibilities that
might be given to it under new legislation. The Commission will need to
interpret any new legislation in light of the language that is
ultimately chosen and the legislative record.
With respect to your first question, the Energy Committee
discussion draft defines high-priority national transmission projects
to include three general categories of transmission and ancillary
facilities: those that operate at or above a voltage of 345 kilovolts
alternating current; those that operate at or above a voltage of 400
kilovolts direct current; and, renewable feeder lines that transmit
electricity directly or indirectly to a transmission facility that
operates at or above a voltage of 345 kilovolts alternating current or
400 kilovolts direct current. A renewable feeder line is defined as a
transmission line operating at 100 kilovolts or greater that is
identified in a high-priority national transmission plan or by the
Commission as a facility to be developed substantially to facilitate
collection or delivery to one or more load-serving entities or end-use
customers of energy produced by certain identified renewable energy
sources. The regional planning entities and the Commission are required
to develop plans for the development and improvement of such renewable
feeder lines. Thus, there appears to be a renewable energy requirement
with respect to those lines. Moreover, in developing the plans,
subparagraph (i)(5)(B) requires the regional planning entities and the
Commission to be guided by the goal of maximizing the net benefits of
the electricity system, taking into consideration ``support for the
development of new renewable generation capacity, including renewable
generation located distant from load centers.''
To the extent that concerns like those raised in your question
remain, Congress can address this issue expressly in transmission
legislation. For example, the legislation proposed by Senator Reid
includes additional safeguards to ensure that new transmission lines
serve clean renewable generation.
Question 2. I've heard significant concerns from the environmental
community that the Energy Committee proposal does not help wind
generation as much as it benefits coal generators. Please see the
attached memo from the Sierra Club and explain why you disagree with
their arguments. Also see an attached letter from 26 environmental
groups listing their priorities for a transmission plan.* Does the
proposal meet these principles?
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* See Appendix II.
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Answer. I support many of the goals outlined in the attached memo
from the Sierra Club, including an RES standard and limitations on
carbon emissions. I also believe Congress should consider legislation
to facilitate the transmission expansion needed to enable greater use
of renewable resources. The immediate environmental benefits of using
renewable resources should not be delayed pending further Congressional
action to address these other important aspects regarding U.S. carbon
policy.
I agree with many of the basic principles included in the
attachment, including comprehensive super-regional planning,
environmentally responsible siting, and more efficient use of existing
infrastructure. I see the Energy Committee proposal as generally
consistent with those principles. The legislation proposed by Senator
Reid may adhere more closely to the principle of having safeguards to
ensure that new transmission lines serve clean renewable generation.
Question 3a. Mr. Wellinghoff, the bill strikes Federal Power Act
subsections 216(a) through (c), eliminating the provisions allowing the
Department of Energy to designate National Interest Electric
Transmission Corridors, and for the Federal Energy Regulatory
Commission to issue construction permits for transmission projects in
those corridors. Will the repeal of these provisions nullify existing
designations of national corridors?
Answer. The Department of Energy's designations of National
Interest Electric Transmission Corridors are currently under appeal. If
the designations are upheld by the courts, my sense is that deletion of
those provisions would not nullify the existing designations, because
they would have been lawful when made. The significance of such a
designation, however, would be unclear.
Question 3b. Will the repeal of these provisions eliminate FERC's
authority to issue construction permits for projects in national
corridors that are already being considered by state and local siting
authorities?
Answer. My sense is that the repeal of those provisions would
eliminate the Commission's authority to issue construction permits for
projects in national corridors unless: (1) the projects in question
otherwise met the requirements of the new legislation; and (2) the
Commission had already issued a permit in a particular case.
Question 4. When a public utility proposes to build a new
transmission line in NJ, it must undergo environmental reviews if the
line is proposed to be built in an environmentally sensitive area. The
proposed Energy Committee bill provides that the FERC or the Secretary
of Interior will be the ``lead agency'' for coordinating environmental
reviews, including NEPA reviews. What role is envisioned for the States
to preserve their authority to conduct thorough and meaningful
environmental reviews of transmission projects in environmentally
sensitive areas deemed to be ``high-priority national transmission
projects''?
Answer. The designation of FERC as lead agency for ``high-priority
national transmission projects'' would preserve a key role for the
states in the environmental review process. State agencies would
continue to be responsible for reviewing a proposed project to ensure
compliance with state regulations, as well as any federal authority
that has been delegated to the state (e.g., coastal zone consistency
determinations).
As stated in my testimony, a typical FERC infrastructure proceeding
allows and encourages participation of all stakeholders, including
federal and state agencies. FERC attempts to actively involve all
stakeholders in its National Environmental Policy Act (NEPA) review
process to identify potential impacts and develop alternatives. FERC's
pre-filing process begins the NEPA review and encourages the early
identification and resolution of issues and concerns.
Under NEPA, coordination and cooperation among federal and state
agencies is an important aspect of the environmental review process.
While FERC as lead agency would have primary responsibility for
preparing environmental documents, FERC encourages states to
participate in the NEPA process by becoming ``cooperating agencies.''
As a cooperating agency, a state would assist FERC in determining the
scope of issues to be addressed in the NEPA process, identifying the
significant issues related to the proposed project, and reviewing and
providing comment on environmental documents. In addition, applicants
seeking to construct transmission facilities are mandated by NEPA to
consult with appropriate federal, regional, state, and local agencies
during the planning stages of the proposed action to ensure that all
potential environmental impacts are identified. These procedures are
designed to preserve the rights of stakeholders--especially the
states--in an infrastructure review process.
Question 5a. In creating plans for the development and improvement
of high-priority national transmission projects under subparagraph
(i)(5)(A), the regional planning entity for an Interconnection area
would be required to undertake centralized Interconnection-wide
transmission planning with respect to high-priority national
transmission projects.
Will the responsibilities of the regional planning entity for the
Interconnection overlap with those of the existing RTOs and ISOs? For
example, a project does not become a ``high-priority national
transmission project'' until after the regional planning entity
incorporates it into a plan; does that mean that there can be two
separate planning processes one after the other, with the RTO first
planning a project, and the regional planning entity subsequently and
separately planning a similar or identical project as a high-priority
national project?
Answer. Similar to the legislation proposed by Senator Reid, the
Energy Committee discussion draft requires the planning activities of
the regional planning entities to build on the planning conducted by
states and by existing organizations, such as RTOs and ISOs, utilities,
and regional reliability entities. I believe that stakeholders
participating in existing planning processes should continue to work
with each other to develop the best transmission plan for each region;
the interconnection-wide planning entity should harmonize those plans
and, if necessary, overlay on those plans additional transmission
projects necessary to meet the goals of the legislation. For example,
there may be significant savings from building one large inter-regional
line instead of multiple, lower voltage, intra-regional lines.
Conversely, as large extra-high-voltage lines are considered as part of
any interconnection-wide planning process, necessary transmission
system upgrades to adjoining utility systems will need to be taken into
consideration and those results will need to feed back into local and
regional planning efforts. Planning at different levels must be
coordinated adequately to ensure the best results.
Question 5b. To preserve the reliability of the existing
transmission systems while integrating high-priority national
transmission projects into those systems, additional improvements
beyond the high-priority project itself are likely to be needed. Who
will be responsible for planning those additional improvements? Will it
be the regional planning entity for the entire Interconnection area,
the regional transmission organization or independent system operator
for each part of the Interconnection area affected by the high-priority
project, or someone else?
Answer. The Energy Committee discussion draft appears to recognize
that upgrades to the transmission system will be necessary to integrate
new high-voltage transmission facilities into the grid. ``Ancillary
facilities and equipment necessary for the proper operation'' are
included within the definition of a high-priority national transmission
project and, therefore, within the new authority given to regional
planning entities and the Commission. This is similar to the bill
introduced by Senator Reid, which includes network upgrades associated
with underlying transmission networks among the facilities to be
planned for by the regional planning entities. Again, transmission
planning at the local, regional, and interconnection-wide level all
start from the premise of preserving (or enhancing) the reliability of
the existing system. There is a clear need to coordinate these efforts
to account for additional improvements which may be necessary beyond
any particular high-priority project.
Question 5c. Will it be the RTO/ISO or the regional planning entity
that is held accountable for ensuring reliability?
Answer. Responsibility for compliance with the mandatory
reliability standards approved by the Commission rests with the users,
owners and operators of the bulk power system, as registered by the
Commission-certified Electric Reliability Organization. Several of
these standards relate to planning for the reliable operation of the
transmission system. RTOs and ISOs are among the entities registered as
responsible for meeting these standards. If regional planning entities
are also registered as responsible for compliance with the planning
standards, they would share that responsibility with RTOs, ISOs and
others.
Question 6. Mr. Wellinghoff, under subparagraph (i)(2)(A),
applicants seeking to become the regional planning entity must propose
an open, inclusive, transparent, and nondiscriminatory planning process
that includes consultation with affected states. However, nothing in
the bill holds the regional planning entity responsible for satisfying
those requirements when it actually undertakes the planning process.
How will the regional planning entity be required to satisfy those
requirements? What will be the consequences if the regional planning
entity fails to satisfy those requirements?
Answer. The legislation requires the Commission to act on
applications to become a regional planning entity (RPE), and to
determine whether the specific procedures contained in such
applications comply with the statute. This includes the specific
procedures needed to meet the requirement for consultation with
affected states. The scope of the Commission's jurisdiction over an RPE
is unclear under the legislation. If the RPE is jurisdictional to the
Commission for purposes of complying with the procedures contained in
an approved RPE application, and if the RPE failed to satisfy the
requirements, then the Commission would have a range of enforcement
mechanisms, including civil penalties, and would decide the appropriate
enforcement response based on all of the relevant circumstances. It
would be helpful if Congress made clear in any legislation enacted the
scope of Commission authority over an RPE.
Question 7a. Under subparagraph (i)(5)(B), planning is required to
take into consideration support for the development of new renewable
generation capacity distant from load centers.
Why shouldn't planning take into account support for the
development of new renewable generation capacity close to load
centers--such as offshore wind generation capacity located within a few
dozen miles of coastal load centers?
Answer. It should. Transmission planning conducted by each
transmission provider should and already does take into account the
integration of resources and loads on that transmission provider's
system. Transmission planning to support the development of new
renewable generation capacity should take into account both remote
renewable generation located far away from load centers and renewable
generation capacity close to load centers, such as offshore wind
generation capacity located within close proximity to coastal load
centers. The idea is to have a planning process that explores all
renewable options--both remote and local. However, greater emphasis on
facilitating regional and interregional planning is necessary for
consideration of renewable generation located far away from load
centers because planning for transmission that crosses the systems of
multiple transmission owners is far more difficult to accomplish.
Question 7b. How can we ensure that ``high-priority national
transmission projects'' include projects that link offshore wind
generation capacity to coastal load centers?
Answer. It would be appropriate for Congress to provide direction
to regional planning entities and the Commission regarding the
importance of developing transmission facilities necessary to integrate
renewable resources. With that direction, the Commission would be able
to develop rules to ensure that plans include appropriate projects that
link offshore wind generation capacity to coastal load centers.
Question 7c. Will long-distance transmission projects intended to
support the development of new renewable generation capacity distant
from load centers also be available to carry electricity from non-
renewable projects that would increase pollutant emissions from
regional power production? How can we ensure that transmission linking
wind or solar resources to distant load centers do not also promote the
expansion of high-emitting conventional generation?
Answer. It is unlikely that new transmission lines linking areas of
the country that have significant renewable capacity will be used to
carry significant fossil generation capacity. The capacity factor of
most of the Nation's coal-fired generation, for example, is very high.
This means that the coal-fired plants currently used to produce
electricity cannot materially expand their production to take advantage
of new transmission capacity. As such, I do not believe there would be
a significant risk of increased pollutants as a result of such
legislation. To the extent Congress remains concerned, however, it can
address this issue expressly in transmission legislation. For example,
the legislation proposed by Senator Reid includes additional safeguards
to ensure that new transmission lines serve clean renewable generation.
Question 8. Mr. Wellinghoff, states have worked to expand demand
response, energy efficiency, and clean local electric generation. Under
(i)(5)(A)(2), the regional planning entity will develop plans that take
these efforts into consideration. However, large transmission projects
can send market signals that undermine these efforts--a problem that is
exacerbated by the regional planning entity's lack of tools to support
the states' efforts. How can we ensure that the Interconnection-wide
planning of high-priority projects will not undermine states' local
low-carbon solutions to energy challenges?
Answer. Local low-carbon efforts are certainly part of the
solution. But the Nation also needs to facilitate transmission planning
on an inter-regional basis to allow the addition of extra-high-voltage
transmission needed to interconnect renewable generation located
remotely from population centers. I do not see a conflict between local
low-carbon efforts and more distant renewables; both are critical to
meeting our nation's energy needs and the increasing demand for clean,
secure renewable resources. Moreover, local resources such as demand
response are vital ``dance partners'' that will enable large amounts of
energy from renewable energy resources to be integrated into the
transmission system in a reliable and efficient manner. Thus, the
development of extrahigh-voltage transmission to deliver energy from
remotely located renewable generation will likely stimulate accelerated
development of local demand response and make that demand response
resource more valuable. It will be critical to coordinate local
planning efforts, regional planning efforts, and interconnection-wide
planning efforts to ensure that all cost-effective solutions work in
concert to optimize system efficiencies for the benefit of consumers.
Question 9. According to the Joint Coordinated System Plan (JCSP)
put together by Midwest ISO, SPP, PJM, TVA, and MAPP, our transmission
future might look something like the map below. They project this will
cost at least $80 billion. Do you believe such a transmission plan
makes economic or environmental sense? Would transmission lines for
wind actually bypass coal plants on their way east as this map seems to
indicate?
Answer. The above Figure* refers to the ``The 20% Wind Energy
Scenario'' studied by JCSP, which assumes that the Eastern
Interconnection will meet 20 percent of its energy needs using wind
generation by 2024. In this scenario, the bulk of the wind production
capacity is assumed to be located in those areas with the highest
quality (best annual capacity factor) wind resources. These resources
are located in the western part of the Eastern Interconnection, i.e.,
the Texas Panhandle, Oklahoma, Kansas, Nebraska, North Dakota, South
Dakota and Minnesota.
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* Graphic has been retained in committee files.
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JCSP claims that this extra-high-voltage transmission network
overlay of the existing interconnected power grid should achieve the
following three objectives: (1) reduce the Nation's carbon footprint by
facilitating the development and reliable integration of renewable and
supporting resources to the power grid; (2) ensure and even improve
system reliability and resiliency to withstand and/or contain severe
contingencies due to deliberate threats or natural disasters to
safeguard national security; and (3) increase system capabilities to
ensure the supply and deliver ability of renewable resources while
lowering dependency on non-US energy sources. The Commission has not
performed the extensive analytical work needed to determine the
economic or environmental impacts of any such overlay design.
Additional research as to implementation of those objectives would be
beneficial.
As to possible bypass of coal plants, the transmission lines shown
by solid black lines (in the Figure above) that extend from the central
plains to major load centers utilize high voltage DC (HVDC) technology.
Two-terminal HVDC technology does not interconnect with the existing
underlying AC transmission system on which the coal plants are located.
As envisioned by JCSP, the power is collected from the generation
resources located on the western end of the HVDC line and then
transmitted to the load centers on the eastern end. However, the
proposed JCSP design utilizes a multi-terminal HVDC technology that
includes a mid-point tap to allow the load and resources in the middle
to use the facilities. With a multi-terminal HVDC design, it is
possible to collect power from other resources, such as wind resources
in Michigan, as well as power from other generation such as coal
plants. Again, however, it should be noted that the introduction of
substantial additional energy on to such a grid system from existing
coal-fired generators is unlikely given their current high capacity
factors. Further, new coal-fired generation is unlikely to be
constructed in the midst of existing uncertainty regarding carbon
regulation and potential future carbon trading prices.
Response of Jon Wellinghoff to Question From Senator Sessions
Question 1. I understand that the movement of electricity through
power lines over long distances results in some loss of power. Would an
improved grid and improved transmission lines reduce the amount lost?
If so, how much? And would the savings be sufficient over time to pay
for the cost?
Answer. All transmission lines experience real power losses.
Developing a more efficient transmission grid is likely to reduce those
losses. The extent of the reductions would depend on several factors,
such as the design of the transmission lines under examination,
including their voltage and conductor type, and the distance over which
those transmission lines would carry energy.
Rather than focus solely on changes in real power losses, it is
useful in evaluating the benefits associated with an enhanced
transmission grid to consider a broader metric: total savings that
result from changes in system losses and the reduction in total system
production costs. The calculation of those total savings also depends
on several factors, such as the power flow pattern, the transmission
configuration, the system load, the generators that are running, and
the above-noted considerations related to real power losses. A
transmission system planner must perform a series of transmission
studies, including a production cost study, to quantify the system
benefits associated with a proposed transmission system addition.
Without performing these studies, it is not possible to accurately
quantify the total benefits of an improved grid.
Responses of Jon Wellinghoff to Questions From Senator Stabenow
A group of regional transmission organizations released a plan
(Joint Coordinated System Plan (JCSP) in 2008, which provides a view of
new transmission necessary to interconnect generation resources. The
plan illustrates approximate locations for new transmission facilities
necessary to link wind resources in the western portion of the Eastern
Interconnect to customers. Both American Electric Power (AEP) and ITC
have proposed building Extra High Voltage (EHV) lines to accommodate
wind. Both projects of AEP and ITC appear to lie within the conceptual
framework of the transmission line recommended in the Report. The cost
of such a major undertaking will have a significant impact in Michigan.
Question 1. How would competing projects, such as these--be
selected for construction? Would the projects identified by the FERC-
appointed Regional Planning Entity be subject to competitive bids--with
those presenting the least cost bid--being selected to develop
projects?
Answer. Historically, the incumbent public utility, municipal or
cooperative transmission system, or power marketing administration
would often undertake such construction--either individually or through
some form of joint project. More recently, merchant transmission
developers have demonstrated willingness to undertake the risk of
building transmission projects without guarantee of cost recovery from
any particular set of ratepayers. As a general matter, a formal
competitive bidding process administered by a government agency has not
been necessary with regard to selecting a particular project developer
(whether incumbent utilities or merchant developers). Rather,
competitive forces and input from entities with either or both of
planning and siting authority over particular projects have been
important to resolving situations where competing projects are
proposed. The Regional Planning Entity and the corresponding rules of
the planning process also could make important contributions to
resolving such situations efficiently.
Question 2. Formula rates are currently granted by the FERC for
transmission owners operating in the major RTOs. Formula rates offer
the transmission owner just and reasonable cost recovery through annual
rate adjustments that do not require FERC rate review. Would the cost
of new transmission facilities built to interconnect renewable
resources (estimated at $80 billion), be recovered through formula
rates or will there be a formal review and approval of costs and rates
through a more traditional rate setting process by FERC? If not through
a traditional rate setting process, what assurances will there be to
local utilities bearing the cost--which the costs incurred in building
a high voltage transmission system to interconnect renewable resources
will be--prudently incurred?
Answer. Cost recovery for new transmission facilities to
interconnect renewable resources could be recovered through a formula
rate structure or through individual rate filings as individual
transmission projects are built. The Commission's review of an initial
formula rate (which can automatically adjust to reflect additional
costs associated with a new project) is as rigorous as the rate review
that occurs with regard to individual, project-specific rate filings.
Both are ``traditional'' rate-setting mechanisms that fully protect
customers. It would be the decision of the applicant whether it wished
to propose a formula rate that could adjust automatically or a stated
rate that would require a new filing each time additional transmission
facilities are added. In either event, only prudently incurred costs
would be recoverable through a FERC-jurisdictional transmission rate.
Question 3. Senator Reid's proposed legislation provides that the
Regional Planning Entity (RPE) will solicit input from regional
transmission organizations, independent system operators, States,
generator owners, prospective developers and other interested parties.
The proposed legislation also provides that the RPE may recover
prudently incurred costs to carry out interconnect-wide planning
studies from a Federal transmission surcharge that will be assessed to
all load-serving entities. Should local utilities such as Michigan
utilities Wisconsin Electric, Detroit Edison and Consumers' Energy be
entitled to provide input to the planning process? If not, why not?
Answer. Yes.
Question 4. Section 404e of Senator Reid's proposed bill provides
that the Commission may grant construction permits for service in an
area already served by another transmission provider. This provision
allows multiple entities that are involved in transmission to come into
the same jurisdiction. If there are multiple entities interested in
developing transmission, how will those conflicting desires be
addressed? Will there be competitive bidding processes instituted by
the Federal Government that will determine which entity will be
selected to develop projects? If projects aren't selected via a
competitive bidding process, which agency of the government will
provide oversight to ensure projects are being built in a cost
effective manner?
Answer. Please see my answer to your first and second questions,
above.
Responses of Jon Wellinghoff to Questions From Senator Shaheen
Question 1. How do we evaluate renewable energy projects, like
North Dakota Wind, including the cost of transmission, against
renewable alternatives closer to New England, like we have in New
Hampshire?
Answer. Developing local renewable energy and distributed resources
is important as we expand our capacity to generate clean power.
However, such development is not a substitute for developing the extra-
high-voltage transmission infrastructure needed to bring renewable
energy from remote areas where it can be produced most efficiently into
our large metropolitan areas where most of this Nation's power is
consumed. Both local renewable resources and more remote renewable
resources will be necessary if this Nation is to reduce its carbon
emissions and respond effectively to the challenge of climate change.
Consistent with those goals, transmission planning to support the
development of new renewable generation capacity should take into
account both remote renewable generation located far away from load
centers and renewable generation capacity close to load centers. The
idea is to have a planning process that explores all renewable
options--both remote and local.
Question 2. With regard to interconnection-wide planning, how do we
ensure that local and smaller state concerns are represented?
Answer. With regard to interconnection-wide planning, it is vitally
important that local and state concerns are fully represented. There
will be a need for close coordination between transmission plans
originating at the local utility level, transmission plans developed at
an RTO or ISO level, and ultimately any interconnection-wide planning
efforts. Interconnection-wide planning will necessarily build upon the
plans developed on a sub-regional basis. Moreover, there may be
significant savings from building, for example, one large inter-
regional line instead of multiple, lower voltage, intra-regional lines.
Conversely, as large extra-high-voltage lines are considered as part of
any interconnection-wide planning process, necessary transmission
system upgrades to adjoining utility systems will need to be taken into
consideration and those results will need to feed back into local and
regional planning efforts. It will be critical to coordinate local
planning efforts, regional planning efforts, and interconnection-wide
planning efforts to ensure that all cost-effective solutions (including
demand response and other local low-carbon efforts) work in concert to
optimize system efficiencies for the benefit of consumers.
Question 3. As we look at national planning of transmission, to
what degree should local planning (especially zones that are working,
like New England) be included?
Answer. Please see my answer to your second question, above.
Appendix II
Additional Material Submitted for the Record
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Statement of Paul J. Hibbard, Chairman, Massachusetts Department of
Public Utilities, on behalf of the Commonwealth of Massachusetts
Thank you for the opportunity to comment. We are heartened that
Congress is taking up critical energy issues, with the goal of
improving energy policy and instituting a greenhouse gas control
regime. In particular, we support the move to a more rational policy
governing the electricity sector, one that supports the development of
renewable electricity while supplying ratepayers with reliable, fairly
priced energy.
But we are concerned about current efforts to expand the
transmission authority of the Federal Energy Regulatory Commission, as
provided for in the draft legislation proposed by Senators Reid and
Bingaman, and related efforts to rapidly deploy interconnection-wide
transmission highways. In our view, these efforts are unwarranted from
energy or environmental policy perspectives, strip states of authority
over energy resource planning, and could diminish or eliminate benefits
of competition in electricity markets.
At the outset, we need to recognize the appropriate level of
jurisdiction that FERC does and should have over transmission in
interstate commerce. The siting of transmission infrastructure is
critical to supporting competitive markets and ensuring the safe and
reliable operation of our interconnected transmission networks. FERC
currently has, and should have, backstop authority for siting
interstate transmission projects that are needed to meet federally
enforceable reliability standards, or to address major transmission
system bottlenecks. When it comes to challenges to system reliability
or significant transmission system inefficiencies, the federal
government needs to step in when states do not act in a reasonable
timeframe.
But key to this authority is its limitation to projects needed to
maintain bulk power system reliability. This is fundamentally different
from what is proposed in both pieces of draft legislation, which would
dramatically expand FERC's siting authority to include transmission
that is not needed for reliability, but instead is only needed to
interconnect new generating resources to the transmission network.
While on its face this seems like a laudable goal, especially when
linked to bringing distant renewables to market, the practical impact
is likely to lead to costly and inefficient results. Federal decisions
that serve to pick the generation that will be used to meet electricity
demands on a national basis from among all possible sources will
override the operation of competitive electricity markets, and squash
state and regional efforts to promote demand response, energy
efficiency and local renewable resource development.
In contrast, we believe that renewable resources steered to market
should be those that are lowest cost, as determined by testing all
options within a competitive market framework.
In the world of electricity, this means:
The continuing evolution of FERC's oversight of wholesale
electricity rates across the country in a way that increases
reliance on regional competitive market structures to capture
system efficiencies and fairly allocates risks and rewards
among market participants and consumers. This includes
expansion of short-and long-term markets for energy, capacity,
transmission rights, and ancillary services;
Meeting environmental policies through cap-and-trade
emission control programs that rely on allowance trading to
meet established annual emission caps through market-driven
mechanisms that achieves lowest costs; and
Meeting renewable policies through standards that place a
minimum purchase requirement on load-serving entities and
thereby establish a monetary value (through tradable renewable
energy credits) in regional markets; this added value improves
the competitiveness and viability of emerging renewable
resources within each state or region's competitive electricity
market.
In every instance, this approach sets the requirement, leaving it
to the creativity of the energy marketplace to produce the most
efficient--and least cost--compliance path.
Our energy and climate challenges are pressing, but meeting those
challenges does not mean we give up the ability to keep energy costs to
a minimum. But this is exactly what might result from the proposed
legislation.
One way to view this is in comparison to current markets. In New
England, new resource developers of all types compete in a competitive
capacity market to meet growing demand. The response has been
overwhelming, with active and successful participation by demand
response and renewable resources. Well over 10,000 megawatts of demand
response and supply resources, including renewables, have responded to
competitive market auctions. All of these resources compete to meet
future demand (1) with full internalization of the cost of
NOX, SO2, and CO2 as a result of
national and regional cap and trade programs--increasing the price
offered by fossil-based resources, (2) with full internalization of the
value of renewable resources through the issuance and trading of
renewable energy credits generated by state renewable portfolio
standards--decreasing the price offered by renewable resources, and (3)
with full internalization of development costs, including the cost to
transmit power reliably to load. In this way, evolution of our region's
power system happens in a manner that meets our states' energy and
environmental policy goals, but does so at delivered prices to
ratepayers that are driven to their lowest possible levels by
competition.
By contrast, the proposed legislation enables, and in effect
requires, that FERC approve, site, and allocate the costs associated
with transmission to connect generation, without consideration of what
this means to the prices consumers pay at the end of the line. This
provides a direct subsidy for distant resources only, on a
discriminatory basis, thus eliminating the level playing field that
exists in regional markets. This will increase electricity prices to
consumers, and undercut demand response and local renewable resource
alternatives. This is a bad outcome for consumers, and for meeting
long-term environmental objectives alike.
In many respects, the transmission discussion nationally appears to
be proceeding along the line that 1) since everyone accepts that we
need transmission to provide the renewables that we need then 2) prima
fascia reasoning is that it doesn't matter who pays for the
transmission. Therefore we should charge transmission to everybody
because we need it. This will unintentionally disfavor more expensive
local renewables which are near load centers (even thought their total
all-in delivered cost might well be lower) because we will effectively
give a free ride to the distant renewables since they won't have to
bear the cost of their transmission investments in their delivered
costs.
We recognize that support is building for transmission from wind
projects in Texas and the Dakotas to load centers thousands of miles
away. Bringing renewable energy to market from remote sources should
certainly be one option for meeting our clean energy needs. But if we
are to meet those needs in the most economic and responsible way, such
resources must compete on a fair and equal basis with demand-side and
renewable resource alternatives within each region--based on the price
of power at the point of consumption, including all transmission and
other development costs.
In that context, the proposed legislation is not simply about
transmission siting, but something more. It will effectively strip
states and regions of their resource planning functions, eliminate them
as laboratories for the development of innovative low-carbon
alternatives, seriously damage the function of competition in regional
electricity markets--and, in so doing, drive up electricity prices
unnecessarily.
The very best wind resource in our country--from the perspectives
of resource size, distribution, capacity factor, reliability, proximity
to population centers, and minimization of environmental impact--is
located a short distance off the major load centers of the East Coast.
Offshore wind turbine installation may currently cost more than on-
shore wind development, but better wind resource economics, decreasing
unit costs with increased development opportunities, and the absence of
the need for cross-country transmission could make offshore wind
competitive with remote wind farms. The higher cost of construction may
well be more than offset by the markedly lower cost of transmission. In
short, offshore wind should and must have that opportunity to compete
on a delivered energy cost basis--and not be disadvantaged by
transmission subsidies for other forms of renewable power generation.
We urge you to focus not on an expansion of FERC's authority over
resource planning, or the buildout of a massive transmission system
focused on one set of pre-determined renewable generation resources,
but rather on how to direct funding and assistance in a way that brings
the best and most economic renewable resources to market, in a context
of local resource availability and regional system planning.
This will lead to the most effective use of government research and
development assistance dollars, preserve the competitive market
foundation for electricity resource additions, minimize the cost of
electricity to consumers, and leave in place an appropriate level of
state and regional review of electricity infrastructure development.
Any bill related to regional planning and transmission development
should at a minimum contain the following:
Create new federal energy efficiency and renewable energy
mandates on load serving entities that are simple, transparent
and technology neutral--and capitalize on the more than a
decade of successful direct experience by many states in
developing strong efficiency and renewable mandates and
markets;
Consider new and additional market mechanisms such as
regional procurements for renewable energy in the form of long
term power purchase agreements--again, allowing all renewable
generation interests to compete on the basis of all-in costs of
delivered power to load centers;
A requirement that regional system planners with load
centers along the coasts specifically develop a plan within and
across regions for establishing an offshore wind development
transmission regime; a mandate to FERC to identify a
transmission access and capacity rights policy for
interconnection to major offshore transmission projects
dedicated for offshore wind development; and, establish an
expedited siting review for offshore lines in federal waters
and their interconnection to coastal load centers.
Thank you for this opportunity to comment. I would be happy to
follow up with the Committee in whatever manner is most helpful.
______
Statement of Edward N. Krapels, President of Anbaric Transmission LLC
Chairman Bingaman, Senator Murkowsi, and members of the committee,
I thank you for the opportunity to present testimony on the VERY
important subject of our Nation's electric transmission infrastructure.
My name is Edward N. Krapels and I am the President of Anbaric
Transmission LLC, which is an incubator of electric transmission
projects. I am a Principal of the Neptune Regional Transmission System
and the Hudson Transmission Project. Neptune is a 660MW, high voltage
direct current underwater transmission line which connects New Jersey
and Long Island and was built on-schedule and on-budget between 2004
and 2007. Neptune, now run by my partner, Ed Stern, provides between 10
and 20 percent of the energy used on Long Island. Hudson Transmission,
which connects New Jersey and Manhattan, is similar in size and scope,
and is scheduled to go into construction this summer. Both Neptune and
Hudson were selected in highly competitive procurement processes
conducted by New York State Authorities. As an electric transmission
developer entirely without any affiliation with a public utility
company, we were not without our critics and skeptics who said there
was no need for nor value in independent transmission providers. The
success of Neptune and Hudson serves, however, as a compelling
rejoinder to these skeptics and these two projects now serve as an
ideal illustration of the feasibility and value of regulated
competition in transmission development.
Anbaric is also leading the development of a number of other
innovative projects in the United States. We believe we can efficiently
develop several thousand megawatts of additional, renewables-enabling
transmission lines and have them ready for construction by 2011. We
have excellent relationships with financiers willing and eager to
invest in transmission infrastructure. Capital availability--debt and
equity--while challenging, is not a major constraint on our activities.
We are ready, willing, and able to develop additional projects under
careful regulation and under the strict disciplines of project finance,
properly executed.
We also do not consider siting to be among the top challenges to
the development of our kind of transmission. By and large, we take the
difficulty of siting terrestrial, overhead lines as a given, and seek
alternative ways to install our cables. As a result, we have focused on
sub-sea, sub-river projects. Even under intense environmental scrutiny,
the installation methods we use are minimally disruptive and--because
we will typically seek to access renewables--present a strong and
compelling net environmental benefit. We have not needed eminent domain
in our projects, nor have we sought to invoke the designation as a
``National Interest Transmission Corridor'' under the 2005 Energy
Policy Act.
All that said, Mr. Chairman, our successful development efforts
have not been without obstacles. The top challenges, and our proposed
solutions, to building modern and environmentally responsive
transmission, are as follows:
1. Out-dated planning objectives.--The regional organizations
that conduct electric system planning do so with the single-
minded purpose of meeting specified reliability criteria.
Nowhere are they empowered, let alone mandated, to explicitly
incorporate state and federal environmental policies to advance
the construction, development, and integration of transmission
to support new renewable energy generation resources. As a
result, despite the best efforts to date by FERC to broaden the
range of reasons for which system planners choose transmission
projects, there have been no major ``environmental projects''
approved in the Eastern Intertie. Indeed, Anbaric and others
have encountered this problem first hand in New England with
our ``Green Line'' and competing projects. Despite an express
finding by FERC in February 2007 that we were ``independent and
capable,'' this regulated transmission line has been mired in
an outdated planning process that does not properly assess the
value of bringing new renewable resources into the grid.
Similar proposals by other developers and utilities have been
similarly thwarted by the ``reliability-only'' criteria used by
regional planning processes to determine which transmission
projects are needed. Today, Texas, with its Competitive
Renewable Energy Zones, provides the best example of how to
develop renewable resources as well as the transmission to
support them in an effective and competitive manner. Texas's
``CREZ'' approach opens up transmission development and has
made Texas the leading area in our country for renewable energy
development. We urge Congress to empower and direct FERC to
require that regional transmission planning efforts explicitly
include environmental policies and requirements and identify
and incorporate access to renewable energy resources within
approved regional plans.
2. Lack of inter-regional planning cooperation.--In our
experience, most transmission planning can and should be done
at the regional level. Regional planning organizations have
attempted, and should be encouraged, to work cooperatively to
identify and facilitate projects that meet inter-regional
needs. At times, however, cooperation can, and will, break
down, as regional organizations focus on their regional
interests. When this occurs, FERC must be given the necessary
tools to intervene in the national interest and remove the
planning impediments to sensible, inter-regional projects. We
urge Congress to empower FERC to approve inter-regional
transmission projects on their merits when a lack of inter-
regional cooperation or agreement becomes an obstacle to
development.
3. Disagreement over cost allocation.--The inability of state
governments to agree upon a fair and equitable allocation of
transmission infrastructure expenses is impeding the
development of needed and desirable projects. The interstate
nature of our electric transmission grid makes it difficult,
indeed impossible, to track with precision each beneficiary and
the benefit they receive over time from the addition of new
transmission infrastructure. The perfect has become the enemy
of the good. Today, the need for a clear, national policy on
transmission cost recovery has never been greater, now that our
Nation is poised for a major build-out of transmission
facilities to support a smart-grid concept and to deliver new
supplies of renewable power to the customers that need them. We
urge Congress to expressly empower and direct FERC to impose
cost allocation solutions on ISO or RTO regions (and possibly
across an entire interconnect) that allow the cost to be borne
equally across a market area when the regions are unable to
agree upon another cost allocation solution, and especially
when those costs are associated with the delivery of new
renewable resources.
4.--The need for competition in transmission. Independent
transmission companies, like Anbaric and its competitors, have
already demonstrated their ability to provide the cost-
effective development, construction, and operation of new
transmission facilities. We respect the obligations electric
utilities have to build transmission under certain
circumstances. The development of renewable and economically-
oriented transmission, however, will benefit from competition
from independents, who typically bring innovation and financial
discipline to their proposed projects. Indeed, at a recent FERC
hearing, we were encouraged when we heard one of the Nation's
foremost electric companies, Exelon, endorse the notion of a
competitive process for the development of new transmission
facilities to deliver renewable power. We believe competition
in transmission is viable, valuable and should be the norm, not
the exception. We urge Congress to expressly provide for the
right of independent transmission providers to compete with
incumbents and to make explicit the presumption of competition
for the development of all new transmission resources.
In closing, let me thank the Committee once again. We hope that our
views are helpful to your deliberations and we stand ready to assist
the Committee in any way we can.
______
Statement of Rhone Resch, President & CEO, Solar Energy
Industries Association
``We will build the roads and bridges, the electric grids and
digital lines that feed our commerce and bind us together.''
President Barack Obama,
January 20, 2009.
Mr. Chairman and Members of the Committee, Thank you for the
opportunity to submit this written testimony on reforming the way in
which electric transmission lines are planned, paid for, and sited in
the United States. We are grateful that the Committee recognizes the
important role the transmission grid plays in shaping our clean energy
future.
i. introduction
The Solar Energy Industries Association (SEIA) is the national
trade association for the solar energy industry. Established in 1974,
SEIA works to expand the use of solar technologies, strengthen research
and development, remove market barriers and improve education and
outreach for solar.
SEIA is collaborating with many other organizations committed to
expanding access to and development of the grid. In particular, SEIA
and the American Wind Energy Association (AWEA) recently released a
white paper, Green Power Superhighways: Building a Path to America's
Clean Energy Future, and we recommend this reading to you.\1\ We
recognize and appreciate the ongoing work by our associates at AWEA;
the Energy Foundation; the Energy Future Coalition; T. Boone Pickens
and others involved in the Pickens Plan; the WIRES Group and Jim
Hoecker; national environmental organizations--NRDC, the National
Wildlife Federation, the Sierra Club, the Wilderness Society--and many
others.
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\1\ http://www.seia.org/galleries/pdf/GreenPowerSuperhighways.pdf
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A. Transmission is Important to Solar Energy Development
SEIA is grateful for the proactive leadership Chairman Bingaman and
Majority Leader Reid have brought to the issue of our out-dated
transmission grid. We are happy to see that our longneglected
electricity infrastructure will be a priority in the 111th Congress.
While many think of solar energy as a distributed generation resource,
deployment of utility-scale solar power plants is increasingly common.
Last July this Committee held a field hearing in Albuquerque, New
Mexico, on Concentrating Solar Power (CSP) technologies where this
trend was discussed.
In addition to the CSP plants already operating in the Southwest,
several announced projects intend to use photovoltaic (PV) arrays to
generate hundreds of megawatts of electricity.\2\ Regardless of the
solar technology employed, sellers of wholesale electricity will
invariably require access to the transmission grid. A study conducted
by the Department of Energy for the Western Governors' Association
determined that the seven states in the Southwest (Arizona, California,
Colorado, Nevada, New Mexico, Texas and Utah) have the combination of
solar resources and available suitable land to generate up to 6,800
gigawatts (GW) of electricity.\3\ Compares this to today's nameplate
capacity for all electricity generation in the U.S.: 1,000 GW.\4\
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\2\ See Utility-Scale Solar Projects List at Attachment 1. (Note:
Attachment has been retained in committee files.)
\3\ ``Analysis of Concentrating Solar Power Plant Siting
Opportunities: Discussion Paper for WGA Central Station Solar Working
Group,'' M. Mehos, NREL, July 2005, Page 2.
\4\ http://www.eia.doe.gov/cneaf/electricity/epa/epat2p2.html
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President Obama is committed to producing 25 percent of U.S. energy
from renewable sources by 2025. This will not be achieved without
reinvesting in our national grid infrastructure. Investment in the
transmission grid will stimulate economic development, reduce
electricity costs for consumers, and improve grid reliability.
Legislation introduced by Chairman Bingaman, Senator Reid, and others
provides a solid framework for new transmission infrastructure that
will allow vast quantities of solar power to be delivered to consumers
across the country.
It should be noted that SEIA does not view transmission development
as an alternative to energy efficiency measures, nor deployment of
distributed generation technologies. Indeed, all of these strategies
should be pursued to promote a clean energy economy in this country.
We need a dramatic shift in where and how transmission is planned
and built. A robust electric transmission grid will allow limitless
sources of renewable energy to power our homes, businesses, and
communities. It will also cultivate economic development and new,
goodpaying jobs in the areas where power plants and transmission
infrastructure are developed. Investment in the transmission grid will
reduce costs to consumers, improve grid reliability, and link solar-
rich regions to high-demand population centers.
B. Transmission Policy Reform is an Urgent Need
Our nation is in peril. We face the highest unemployment since 1981
and our President is pointing to renewable energy development as a
driver for creating millions of new jobs. Construction and operation of
utility-scale solar power plants will be responsible for creating tens
of thousands of these jobs.
Moreover, provisions in the recent American Recovery and
Reinvestment Act of 2009\5\ make available guaranteed loans for
renewable energy and transmission projects and grants from the Treasury
department for renewable energy development. Recipients of either
program are required to commence construction of their project before
September 30, 2011 (loan guarantees) or December 31, 2010 (grant
program). Unless critical transmission reforms are put in place to
enable the development of renewable energy generating resources, we
will lose the opportunity to create tens of thousands of new, green-
collar jobs from these projects.
---------------------------------------------------------------------------
\5\ See Section 406--Temporary Loan Guarantee Program for Rapid
Deployment of Certain Renewable Energy, Electric Power Transmission,
and Biofuel Projects.
---------------------------------------------------------------------------
The need for a more integrated and extensive transmission network
is real. The U.S. is home to the greatest amount of renewable resources
in the world, yet today renewable energy comprises less than 2% of our
electricity generation. As we transition to a low-carbon energy future,
renewable resources will provide the vast majority of our new
generation. A recent report from the North American Electric
Reliability Corporation (NERC), urges the electric industry to focus on
solutions to integrating renewable resources. NERC CEO Rick Sergel
added, ``The need to reliably integrate renewable resources is no
longer a question, it is a priority.''\6\ Unfortunately, policy
barriers--not technological or economical barriers--are the primary
reason why modernizing the grid has been, at best, slow going.
---------------------------------------------------------------------------
\6\ Keynote speech delivered by Rick Sergel to the Federal Energy
Regulatory Commission, March 2, 2009, in Docket No. AD09-4-000.
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ii. policies required for creating green power superhighways
While SEIA continues to study the various legislative proposals put
forth, we focus our testimony here on a three major principles that
need to be carefully addressed in any transmission legislation: (1)
interconnection-wide transmission planning; (2) interconnectionwide
cost allocation; and (3) streamlined siting processes. Certain
proposals suggest changes that would apply to all transmission built in
the U.S. However, our recommended policy reforms are focused on only
those facilities that are necessary for creating Green Power
Superhighways. These superhighways would be designed with the specific
goal of interconnecting renewable generation resources, while
maintaining system reliability.
A. Interconnection-Wide Transmission Planning
A key to achieving our national clean energy goals is to
effectively plan new transmission and existing grid upgrades, with the
goal of connecting to the grid location-constrained renewable
resources. Both the Western and Eastern interconnections should develop
a comprehensive, regional transmission plan that identifies where new
transmission lines, or increased capacity on existing lines, are
necessary to connect renewable energy resources to the grid. Such plans
should include both extra-high-voltage transmission lines and lower-
voltage feeder lines that are necessary to facilitate the development
of green power superhighways.
Planning these grid enhancements must focus on national goals while
accommodating local and regional concerns. To that end, the planning
process should be informed by governors, public utility commissions,
and other regulatory bodies in the interconnection. These entities can
provide expert insight and advice on how an interconnection-wide plan
will help their states meet their environmental, energy, and economic
development goals. In addition, the planning process should be open and
transparent, allowing all affected stakeholders to express their views.
Reaching location-constrained renewable resources is the primary
goal of this interconnectionwide transmission planning exercise.
However, these plans should also promote reliability, reduce
transmission congestion, and integrate other resources that are
necessary to support the grid. Plans should expressly take into account
established state and federal renewable energy requirements, as well as
anticipated changes in generation and demand pattern shifts resulting
from greenhouse gas emission policies and the commercialization of
plug-in electric vehicles.
Creating transmission plans that are designed to safeguard
sensitive lands and protect the environment is of great importance. To
minimize environmental impact, plans should utilize existing
transmission corridors whenever possible, and new lines should be
designed to their optimal size.
B. Interconnection-Wide Cost Allocation
Just as the transmission grid should be planned to meet broad
regional and national energy goals, so too should the costs of meeting
these goals be shared on an interconnection-wide basis. Ratemaking and
certainty of cost recovery should address one of the most important
barriers to transmission development--the question of who should pay.
The current process of assigning costs to specific users who volunteer
to pay does not work; it only exacerbates the free rider problem where
transmission grid users attempt to shift costs onto others. All users
benefit from a reliable and robust transmission grid, pollution
reductions, and greater access to low-cost renewable generation, and
our regulatory policies must reflect these realities. Facilities
identified in the interconnection-wide plan as necessary for the
development of green power superhighways should be eligible for broad,
regional cost allocation. Specifically, the Federal Energy Regulatory
Commission (FERC) should allocate, based on electricity usage, the
capital and operating costs of these transmission lines across all
load-serving entities on an interconnection-wide basis.
C. Streamlined Siting Processes
Following the robust planning process, and guarantees of cost
recovery, policies to ensure siting of transmission are necessary. Many
a transmission line has been proposed and financed without ultimately
being constructed and delivering electricity. To achieve dramatic
increases in renewable electricity production, substantial reform of
the transmission siting process is required. The most effective model
for streamlined siting is the full authority given to FERC for siting
interstate natural gas pipelines.
For green power superhighways, the facilities identified in the
interconnection-wide plans would be subject to FERC approval for siting
and permitting. Separate siting approval at the state level would not
be required. FERC should act as the lead agency for purposes of
coordinating all applicable federal authorizations and environmental
reviews with other affected agencies. As is the case for natural gas
pipeline and hydroelectric facility permitting, FERC would be required
to consider siting constraints based on habitat protection,
environmental considerations, and cultural site protections identified
by state and federal agencies.
While the concept of federal siting authority for electric
transmission has been controversial in the past, laws governing the
siting of transmission date from an era when utilities were generally
not interconnected and the modern network of interstate lines and
multi-state interconnections did not exist. The need to connect
location-constrained renewable generation resources to growing load
centers requires a new regulatory approach and justifies giving FERC
exclusive authority for siting green power superhighways.
iii. conclusion
The U.S. has enormous economic, energy, and climate challenges to
face in the months and years to come. None can be solved without new,
innovative ways of carrying renewable electricity across a robust
transmission grid. If we want to improve our energy independence,
tackle global warming, and expand our use of electricity for electric
cars and other emerging technologies that make our lives better, then
we can no longer wait. The time for Congress to act on this is now.
Again, thank you for allowing SEIA to submit this testimony. We
look forward to working with the Committee to cultivate solar energy
development in this country and spur investment in the infrastructure
needed for green power superhighways.
______
Statement of Daniel F. Caruso, Chairman, Connecticut Siting Council
Thank you for this opportunity to comment with respect to S. 539,
the proposed Clean Renewable Energy and Economic Development Act. While
I am supportive of the overall goals of this legislation, especially
with respect to its efforts to spur the development of a robust
transmission system that will bring renewable sources of energy to
market, I am nevertheless troubled by certain aspects of the proposed
bill. Specifically, I respectfully hope that you will reconsider the
dramatic changes which would occur relative to jurisdiction involving
the siting of electric transmission infrastructure.
A review of the measures related to the proposed shift in electric
transmission siting authority demonstrates that the proposed changes
will provide for both an unwarranted and unwise move from local
decision making and citizen input.
Under Section 216 of the Federal Power Act (FPA), the Federal
Energy Regulatory Commission (FERC) already has backstop authority for
siting interstate transmission projects that are needed to meet
federally enforceable reliability standards, or to address major
transmission system bottlenecks. This is appropriate; few would argue
that the federal government must be empowered to step in when states do
not act in a reasonable timeframe in matters involving system
reliability or significant transmission system inefficiencies.
The draft legislation proposed by Senator Bingaman, however, grants
FERC exclusive siting authority for all ``high priority national
transmission projects,'' thereby usurping state authority to review,
site and certificate projects within their jurisdiction, and most
importantly preempts those voices of reason in all localities whose
knowledge of their communities is invaluable.
States have extensive expertise in the siting and construction of
electric transmission facilities. Mere consultation with the states on
strictly local matters such as habitat protection, environmental
considerations or cultural site protection is inadequate to address the
true concerns of our communities and our citizens, especially when, as
proposed, recommendations on these matters can be preempted by FERC to
the detriment of the state's welfare.
Resource planning and availability has been traditionally and
appropriately, a local matter. For a multitude of reasons, states are
better equipped to address, and should retain, primary siting
authority. Accordingly, I recommend that any expansion of FERC's
jurisdiction be strictly limited to interstate transmission for the
purpose of interconnecting new renewable energy generation where the
state siting authority has rejected the transmission proposal, failed
to act on it within eighteen months, or approved it with conditions
that will frustrate the interconnection.
After all, experience demonstrates that our nation, economy, and
ecology are best served when all stakeholders are accorded appropriate
time, consideration, and respect. Such a collaborative system is more
likely to produce results than lawsuits.
______
MEMORANDUM
TO: Energy and Natural Resources Committee Majority Staff
FR: Carl Zichella and John Coequyt, Sierra Club
Date: March 12, 2009
RE: Concerns regarding discussion draft
We are writing to express concern that the committee's discussion
draft bill as currently formulated could result in substantial
backsliding regarding Carbon Dioxide emissions reductions in both the
Eastern and Western interconnections.
This bill, if enacted without a cap on carbon, a RES standard and
other policy tools would facilitate increased carbon emissions from new
coal interconnections in the western US and would allow expanded
emissions from existing sources in the eastern interconnection.
Improvements ostensibly made to facilitate renewable development could
backfire and instead increase CO2 emissions just as the
nation takes needed actions to curtail them.
For example, recent projects proposed in Pennsylvania and Virginia
billed as renewable lines would ultimately result in significant new or
expanded remote coal generation. To ensure that new transmission moves
the nation toward a clean renewable energy future, robust safeguards
must be put in place to ensure that new lines are designed, sited,
built, and operated to serve clean renewable electric generation while
taking into account the considerable contributions that distributed
generation, untapped energy efficiency and demand response can make for
reducing the need for new facilities.
The proposed bill would prioritize general grid upgrades that
create advantages for existing emitters to increase emissions.
Safeguards such as provisions to limit renewable lines to low carbon
interconnections are needed, especially if the bill moves forward prior
to a cap on carbon being adopted where meaningful price on carbon is
established. This is especially true for the situation in the eastern
interconnection where artificially low coal prices and economic
dispatch rules would actually incentivize increased operations and
emissions at existing coal facilities to take advantage of more
lucrative electricity pricing in neighboring markets using capacity
improvements to the grid justified as being needed to wheel renewable
energy.
We and our colleagues are committed to working with you and the
committee staff to address these issues and report energy and
transmission bills the nation needs.
Thanks for your consideration. Attached is a letter many of us sent
today to the Obama administration that details these concerns further.
attachment
March 11, 2009.
Carol Browner,
Assistant to the President for Energy and Climate Change, Executive
Office of the President, Washington, DC.
Dear Ms. Browner: We support significant reforms in how electrical
transmission lines in this country are planned, sited, built, and
managed as part of a comprehensive effort to transition to a clean
energy economy. The centerpiece of a national strategy must be an
economy-wide cap on global warming pollution that results in rapid and
dramatic emissions reductions. Additional, complementary measures must
also be undertaken that promote deployment of renewable energy
resources, energy efficiency measures, and environmentally-beneficial
demand response policies. Meeting our country's energy needs with clean
renewable energy will require significant investments that must be
undertaken immediately, but these investments must not exacerbate
global warming emissions or air pollution that harms human health and
ecosystems.
In this context, we believe it imperative that legislation
reforming federal electric transmission policy contain the following
elements:
Coherence with Clean Energy Priorities
Transmission policy reform must result in new lines that serve
clean renewable resources, rather than expanding the carbon-intensive
power generation that currently accounts for more than 40 percent of
U.S. greenhouse gas emissions and contributes to the continued
deterioration of air quality in the country's most vulnerable
communities. Piecemeal energy policy-especially electric transmission
policy reform-in advance of a comprehensive national climate regime can
have the real but unintended effect of facilitating more, not less,
greenhouse gas pollution. For example, recent projects proposed in
Pennsylvania and Virginia billed as renewable lines would ultimately
result in significant new or expanded remote coal generation. To ensure
that new transmission moves the nation toward a clean renewable energy
future, robust safeguards must be put in place to ensure that new lines
are designed, sited, built, and operated to serve clean renewable
electric generation while taking into account the considerable
contributions that distributed generation, untapped energy efficiency
and demand response can make for reducing the need for new facilities.
Comprehensive Super-Regional Planning
Resource planning for the western and eastern interconnections is
crucial to an economically and environmentally sound electric grid. The
planning processes for our national grid must be fair, unbiased,
science-based, broadly participatory, and transparent. In designing
these processes, the traditional role of states, regional authorities
and the federal government must be reappraised. Transmission is only
one piece of our clean energy future; energy efficiency, demand
response, energy storage, and distributed generation technologies are
all resources that must be considered along with traditional central
power stations that require interstate transmission. These alternative
resources must be evaluated as part of a region-wide integrated
resource plan, evaluated and weighed equally with new generation in
making a determination of need. New transmission lines should only be
built if they are truly needed, and demand for low-carbon generation
cannot be satisfied otherwise. In particular, broad deployment of
small-scale scale renewable and low carbon distributed generation is a
critical component to reducing carbon emissions, as it decreases the
need for expensive new transmission lines by facilitating energy
production and consumption in the same location and reduce line
loadings on existing facilities.
Environmentally Responsible Siting
Some of the richest renewable energy resources are far from major
population centers. Under the current transmission planning process,
some state and regional siting decisions have missed opportunities to
cooperatively identify zones and corridors for development of renewable
resources that protect unique and sensitive natural systems, wildlife
habitats, and cultural resources, as well as national park units and
other protected public lands. Future transmission siting must use the
best practices developed via processes such as California's Renewable
Energy Transmission Initiative and similar protocols. These efforts
apply screening criteria to prioritize areas for development based on
their suitability, and ensure that critical habitat, environmentally
and culturally sensitive lands, or protected areas are excluded. Such
an approach benefits all parties by clearly delineating which areas of
most potential for renewable energy generation and transmission have
the least conflicts, and are therefore less likely to result in
conflict or litigation, an outcome that all parties would prefer to
avoid. It is also imperative that the social and ecological impacts of
transmission lines be assessed in full compliance with our nation's
environmental laws-including the National Environmental Policy Act-and
must provide the public with ample opportunities for meaningful
involvement. Regional, state, and federal wildlife, lands, and resource
agencies must be full partners in future transmission planning
processes.
Smarter Use of Existing Infrastructure
Before building any new transmission, we need to make every effort
to improve efficiency to negate the need for new supply, and also to
better utilize existing transmission infrastructure. With this in mind,
we believe foremost that the nation needs to pass additional energy
conservation measures and implement more efficient technologies at all
levels of supply, delivery, and end-use. Future energy demand cannot be
met without ambitious efficiency gains in our buildings, appliances,
industries, and transportation. We need to provide incentives for
deployment of energy storage and innovative smart grid technologies.
Much cost-effective and carbon-free demand reduction and conservation
potential remains untapped in these areas. We must also be sure to
maximize the use of the existing power grid by way of voltage and
service upgrades and by making use of existing transmission
infrastructure and other rights-of-way including existing pipelines,
roads, and rails. Damages to private and public values from development
of existing and new rights of way should be minimized and appropriately
addressed.
With these principles in mind, we fully support and promote the
deployment of clean, renewable energy across the nation and the new
transmission infrastructure that will be necessary for much of that
power to access electricity markets. However, although new transmission
is an important and perhaps imperative option, it must be carried out
properly in order to ensure that we do not overlook other superior
energy opportunities, sacrifice our nation's precious lands and
wildlife, or undermine critical efforts to rid the nation of dangerous
dirty air and global warming pollution.
Thank you for your time, and we look forward to discussing these
ideas with you further.
Sincerely,
Appalachian Mountain Club; Biodiversity
Conservation Alliance; Center for Native
Ecosystems; Earthjustice; Energy
Conservation Council of
PennsylvaniaEnvironmental Defense Fund;
League of Conservation Voters; National
Audubon Society; National Parks
Conservation Association; National Wildlife
FederationNatural Resources Defense
Council; Nevada Conservation League; Nevada
Wilderness Project; Oregon Natural Desert
Association; Pennsylvania Land Trust
Association; Piedmont Environmental
Council; San Luis Valley Ecosystem Council;
Sierra Club; Southern Alliance for Clean
Energy; Southern Environmental Law Center;
Southern Utah Wilderness Alliance;
Southwest Environmental Center; Union of
Concerned Scientists; Western Resource
Advocates; Western Environmental Law
Center; The Wilderness Society.