[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
               BLACKOUT 2003: HOW DID IT HAPPEN AND WHY?
=======================================================================

                                HEARINGS

                               before the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                   SEPTEMBER 3 and SEPTEMBER 4, 2003

                               __________

                           Serial No. 108-54

                               __________

       Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________






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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                   Dan R. Brouillette, Staff Director
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                  (ii)

  














                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Abraham, Hon. Spencer, Secretary, U.S. Department of Energy; 
      accompanied by Hon. Kyle McSlarrow, Deputy Secretary of 
      Energy.....................................................    33
    Burg, H. Peter, Chairman and CEO, FirstEnergy Corp...........   195
    Draper, E. Linn, Jr., Chairman, President and CEO, American 
      Electric Power.............................................   220
    Durkin, Charles J., Jr., Chairman, Northeast Power 
      Coordinating Council.......................................   148
    Eldridge, Brant H., Executive Manager, East Central Area 
      Reliability Council........................................   142
    Fleishman, Steven I., First Vice President, Merrill Lynch....   358
    Flynn, Hon. William M., Chairman, New York State Public 
      Service Commission.........................................   133
    Gent, Michehl R., President, North American Electric 
      Reliability Council........................................   138
    Glauthier, T.J., President and CEO, The Electricity 
      Innovation Institute.......................................   367
    Goulding, David, CEO, The Independent Market Operator of 
      Ontario....................................................   309
    Granholm, Hon. Jennifer, Governor, State of Michigan.........    87
    Harris, Phillip G., PJM Interconnection, Inc.................   322
    Kessel, Richard, Chairman and CEO, Long Island Power 
      Authority..................................................   211
    Kilpatrick, Hon. Kwame M., Mayor, City of Detroit............    94
    Lark, Hon. J. Peter, Chairman, Michigan Public Service 
      Commission.................................................   129
    Makovich, Lawrence J., Senior Director, Americas Research, 
      Cambridge Energy Research Associates.......................   354
    McGrath, Eugene R., Chairman, President and CEO, Consolidated 
      Edison Company of New York, Inc............................   202
    Moler, Elizabeth A., Executive Vice President for Government, 
      Environmental Affairs and Public Policy, Exelon Corporation   239
    Museler, William J., President and CEO, New York ISO.........   299
    Owens, David K., Executive Vice President, Edison Electric 
      Institute..................................................   372
    Popowsky, Sonny, Consumer Advocate of Pennsylvania...........   363
    Schriber, Hon. Alan R., Chairman, Ohio Public Utilities 
      Commission.................................................   125
    Taft, Hon. Bob, Governor, State of Ohio......................    84
    Torgerson, James P., President and CEO, Midwest ISO..........   304
    van Welie, Gordon, CEO, ISO, New England.....................   315
    Welch, Joseph L., CEO, International Transmission Company....   224
    Winser, Nicholas P., Group Director Transmission, National 
      Grid Transco PLC...........................................   206
    Wood, Hon. Pat, III, Chairman, Federal Energy Regulatory 
      Commission.................................................   120
Material submitted for the record by:
    Durkin, Charles J., Jr., Chairman, Northeast Power 
      Coordinating Council, letter dated October 7, 2003, to Hon. 
      W.J. Tauzin................................................   179
    Flynn, Hon. William M., Chairman, New York State Public 
      Service Commission, letter dated October 6, 2003, to Hon. 
      W.J. ``Billy'' Tauzin......................................   188
    Gent, Michehl R., President, North American Electric 
      Reliability Council, letter dated October 2, 2003, to Hon. 
      John D. Dingell............................................   181
    Goulding, David, CEO, The Independent Market Operator of 
      Ontario, letter dated September 22, 2003, to Hon. John D. 
      Dingell....................................................   387
    Kilpatrick, Hon. Kwame M., Mayor, City of Detroit, letter 
      dated September 15, 2003, to Hon. W.J. Tauzin..............   187
    Pataki, George E., Governor, State of New York, prepared 
      statement of...............................................   183
    Winser, Nicholas P., Group Director Transmission, National 
      Grid Transco PLC, letter dated September 9, 2003, to Hon. 
      W.J. Tauzin................................................   389
    Wood, Hon. Pat, III, Chairman, Federal Energy Regulatory 
      Commission, letter dated October 17, 2003, to Hon. W.J. 
      Tauzin.....................................................   190

                                 (iii)

  













               BLACKOUT 2003: HOW DID IT HAPPEN AND WHY?

                              ----------                              


                      WEDNESDAY, SEPTEMBER 3, 2003

                          House of Representatives,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:10 a.m., in 
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy'' 
Tauzin (chairman) presiding.
    Members present: Representatives Tauzin, Barton, Upton, 
Stearns, Gillmor, Greenwood, Cox, Burr, Whitfield, Norwood, 
Shimkus, Blunt, Radanovich, Bass, Pitts, Walden, Terry, 
Ferguson, Rogers, Issa, Otter, Dingell, Markey, Hall, Pallone, 
Brown, Gordon, Deutsch, Rush, Eshoo, Stupak, Engel, Wynn, 
Green, McCarthy, Strickland, DeGette, Capps, Doyle, Allen, 
Davis, Schakowsky, and Solis.
    Staff present: Jason Bentley, majority counsel; Sean 
Cunningham, majority counsel; Mark Menezes, majority counsel; 
Robert Meyers, majority counsel; Peter Kielty, legislative 
clerk; Sue Sheridan, minority counsel; and Bruce Harris, 
minority counsel.
    Chairman Tauzin. I want to thank our guests for attending 
today. I think we still have empty seats if folks want to get 
comfortable.
    Today we begin a series of 2 days of hearings. We have 
three panels today, extensive panels tomorrow. So I would 
invite everyone to get as comfortable as you can and ask 
everyone to give each other the courtesy of your attention as 
we go through a very hectic schedule for the next 2 days.
    Let me welcome my colleagues back to the grist mill. I am 
sorry we have to come together to examine such a tragic event 
in our Nation's history as the huge Northeast blackout, but 
obviously it is a critical time for us to review what happened 
in that event so that we can make sure in the conference on 
energy that we make all the right decisions to hopefully 
prevent this in the future.
    Let me again welcome our colleagues and guests and also 
extend a special welcome to Secretary Abraham, our colleague 
from his former Senate days, and Mr. McSlarrow, who is 
accompanying him today in an effort to help us understand what 
did occur in the Northeast blackout.
    The Chair recognizes himself for an opening statement.
    On August 14, we were painfully reminded of the importance 
of electricity in our day-to-day lives. The scenes of the 
blackout were everywhere: people milling around the streets, 
sleeping on the steps of train stations, productivity shut 
down. Routine activities like getting home from work, going to 
the grocery store, picking up children from day care suddenly 
became heroic tasks.
    I think it was even worse than we thought. I talked to 
people who were caught in the New York airport who told me that 
it was bad enough sleeping in an airport at 130 degrees with no 
electricity and no cooling, but what was even worse was the 
commodes wouldn't flush because they are all electrically 
flushed today. What was worse for folks in New York trying to 
get home was when they found out they couldn't use the keys to 
get in their apartments because now they are electronically 
operated.
    It became apparent to so many people caught in that awful 
situation--my friend John Dingell in Michigan--how difficult 
life is when this utility that we have come to expect to be 
available to us whenever we need it, which is become more and 
more important in our lives, is not available. A healthy, 
secure, productive society simply can't afford to live in the 
conditions like those of August 14. In some areas the--and in 
the days that followed, it was an absolute mess on our hands. 
The economy and our way of life demand affordable, reliable 
electricity.
    The purpose of our hearing today is to determine what 
happened and why. I realize there have been a lot of attempts 
to politically spin this event and create partisan arguments 
about who may or may not be responsible for it here or there or 
anywhere else. I hope we avoid that today. I am not terribly 
interested in that. I hope you aren't either. I think the 
American public wants us to examine what happened, why and what 
we can do to make sure it doesn't happen again.
    By all accounts, it was an otherwise average summer day. 
Temperatures were not excessively high. Demand for electricity 
was not unusually high. Power supplies in the Northeast that 
day should have been adequate. But in a matter of minutes an 
estimated 50 million people were suddenly left without power, 
with 62,000 megawatts of consumer load in the dark.
    So what went wrong? Why were we subjected to the single 
largest blackout in the Nation's history? We are going to find 
out from witnesses today a lot of different perspectives and 
hopefully eventually find out what happened and why.
    As we gain a better understanding, several things have 
become evident to us. Congress obviously needs to enact as part 
of a comprehensive energy bill legislation to modernize the 
Nation's electric infrastructure.
    To all opponents of electricity legislation, I hate to say 
I told you so, but, well, I told you so. February 15, 2001, 
more than 2\1/2\ years ago, at an electricity hearing on the 
lessons learned from California, I sat on this dais and said 
the following, ``If you are focusing today on California, 
tomorrow we will be focusing on New York, we will be focusing 
on Chicago, on Boston, on places we are told the energy grids 
are too weak; and blackouts and brownouts are likely this 
summer because of bottlenecks in those grids.'' And my 
colleagues, who may not always agree on the need of electricity 
legislation, may want to move it on a separate track.
    Let me read the rest of that statement: ``We will be 
focusing later on fuel supply problems the likes of which we 
saw in Chicago and Milwaukee last year.'' That was in the year 
2000, when fuel supplies were short, energy spikes, gasoline 
prices hit consumers; and angry consumers wanted to know why, 
what was going on, what was wrong with our supply situation in 
America. In other words, modernizing our Nation's electric 
transmission grid is pointless if we don't have the fuel to 
power the electric power plants, if we don't modernize the 
Nation's energy efficiency and conservation laws at the same 
time.
    Providing reliable electricity is only one component of the 
Nation's future energy needs. So I hope today we can better 
understand what happened on August 14, we can understand the 
scope, the severity of the incident. Local blackouts from ice 
storms and downed power lines will be a reality for years to 
come, but we shouldn't have to worry about high voltage 
interstate transmission lines blacking out large regions of the 
country. That is unacceptable, and we need to make sure it 
doesn't happen again.
    Before I yield, let me ask unanimous consent the committee 
proceed in accordance with the rule 4(e). Is there any 
objection? Without objection, so ordered.
    The Chair strongly encourages members to waive their 
opening statements if they can so we can get to question the 
witnesses as soon as we can, and without objection all members' 
written opening statements will be made a part of the record.
    It is now my pleasure to recognize one of the victims of 
the blackout from Michigan, our dear friend, the ranking 
Democrat of our committee, Mr. Dingell.
    Mr. Dingell. Mr. Chairman, I thank you; and I commend you 
for holding these hearings.
    The blackout of 2003, as you have observed, did have 
devastating consequences on many Americans; and the people in 
my district had substantial suffering to report. It was bad up 
there. It was not a mere inconvenience. Nearly every aspect of 
the lives of the people of my district were disrupted. 
Factories were closed, the economy suffered, and jobs were 
lost. To those of us in Michigan, it was particularly 
distressing. We had little control over a matter that appears 
to have begun outside our State.
    That said, the residents of Michigan have a lot to be proud 
of. Citizens, public officials, local businesses, local power 
companies, police, firefighters and public safety as well as 
municipal and State government all pulled together to get us 
through this crisis.
    We must now begin the process of learning what went wrong 
and how to prevent future widespread blackouts. That should be 
our first priority.
    My own view is that the Congress should take immediate 
action to enact transmission reliability provisions that are 
contained in both the House and Senate's comprehensive energy 
bills. The staff on this side and the members have suggested 
that this should be one of the things done in last year's 
energy conference. A number of these very controversial issues 
are contained in these bills, things which have unfortunately 
made it difficult for early enactment of an overall energy 
bill.
    While I will note that you, Mr. Chairman, and Mr. Domenici 
are committed to bringing to a conclusion the conference in a 
prompt fashion, the making of energy policy tends to defy the 
best intentions and timetables and we have had some 8 years in 
which we have made massive efforts without success in these 
matters.
    The goal of pursuing the energy conference with full vigor 
is not at odds with my suggestion that the Congress separate 
and pass consensus reliability provisions now. The reliability 
bill may not provide the full answer to all the challenges in 
the energy area which we confront, but there is broad consensus 
that it is a necessary part of the response and one which 
requires, I think, early attention. By all rights, this should 
be a bill for the suspension calendar.
    As the investigations proceed, we may learn more about the 
remedies than may be possible to include them in a 
comprehensive energy bill in which we now work. To that end, I 
will be introducing reliability provisions of the energy bill 
as a separate piece of legislation; and I urge my colleagues on 
this committee, including you, Mr. Chairman, to join me in 
ensuring that the bill is moved to the suspension calendar so 
it can be speedily considered.
    I am pleased that the Department of Energy moved promptly 
to initiate an investigation into the causes of the outages and 
actions necessary to prevent future blackouts, but I do have 
some reservations about this undertaking. It appears that the 
U.S.-Canada task force will involve participation by the North 
American Electric Reliability Council, NERC, and the Federal 
Energy Regulatory Commission, FERC. Certainly these two 
entities have expertise, data and personnel that will assist in 
such inquiry, but I am concerned that their involvement in the 
task force should not preclude them from conducting their own 
independent investigations and reaching their own conclusions 
under the authorities and responsibilities which they have. 
Indeed, under the Federal Power Act, FERC has the clear 
authority and arguably an obligation to conduct its own 
investigation and it is essential that it function as the 
independent regulatory agency that the Congress intended it to 
be.
    I thank you, Mr. Chairman, and my colleagues for your 
attention. I look forward to hearing from our witnesses, and I 
welcome Secretary Abraham to the committee.
    Chairman Tauzin. I thank my friend; and the Chair is 
pleased to recognize for an opening statement the majority whip 
of the House of Representatives, Mr. Blunt, for an opening 
statement.
    Mr. Blunt. Thank you, Mr. Chairman; and thank you for 
holding this hearing. I will file an opening statement, 
although I want to make a couple of comments.
    One, as I look at the agenda today I certainly don't know 
how it happened. I may not know how it happened after I 
carefully study all the testimony because of the complexity of 
the issue here, but you put together a tremendous set of panels 
today, starting with Secretary Abraham. I so appreciate his 
great leadership as the Secretary of Energy; and I am hopeful 
that later this year he is able to begin the implementation of 
a new energy policy.
    Because I do think I have some sense of why it happened, 
and why it happened is the failure to have an energy policy for 
a decade. President Bush has called on this Congress over the 
last 2 years to move forward with an energy policy. I think we 
can't expect to see the investment and commitment we need to 
have in power generation and power transmission unless we 
create some sense of certainty about what the system is going 
to look like for the next 15 to 20 to 25 years. Once we create 
that certainty, to a great extent this problem will take care 
of itself, but 10 years of no energy policy has created 
problems on both coasts now and throughout the middle of the 
country.
    Having a policy in my view is actually more important at 
this point than what the policy says. I hope we can work for 
the best policy, but we need to get this job done and done now.
    I am extremely optimistic that the topic of this hearing 
today is the event that will force this Congress to move toward 
a consistent energy policy. I am extremely hopeful that we do 
that in the very near future and look forward to the evidence 
that you and our committee will uncover in the next couple of 
days about this important issue.
    Chairman Tauzin. I thank the majority whip, and the Chair 
is now pleased to recognize our friend from the State of 
Massachusetts, the ranking member of the Telecommunications 
Subcommittee, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman.
    While I understand it may take some time to determine all 
of the changes in electric utility industry policies and 
practices in Federal utility regulations that might be needed 
to prevent a repetition of the events of August 14, it is not 
unreasonable for the American people to expect our Nation's 
energy regulators to explain what caused the blackout to occur 
in the first place and how it spread so quickly.
    Unfortunately, from what I can see in the prepared 
testimony submitted to the committee by the Department of 
Energy and the Federal Energy Regulatory Commission, the Bush 
Administration remains in the dark about the causes of the 
blackout. At the same time, the Bush Administration continues 
to press for the immediate adoption of an energy bill that 
contains language that would make sweeping deregulatory changes 
in electricity law and launch a wide-range assault on our 
environment in the name of increasing gas and oil production.
    The administration is essentially saying that these radical 
proposals are needed to prevent the recurrence of an event 
whose causes they say remain unknown. But if we don't know what 
caused the blackout in the first place, how can we know whether 
the proposed cure is worse than the disease? That is like a 
doctor telling he had no idea what caused you to black out but 
would like to see you in the morning for brain surgery. When 
you hear that, you know it is time to get a second opinion.
    That is why I support Congressman Dingell's proposal to 
move a narrowly focused bill enacting electricity reliability 
standards now. But when we solve the problems that occurred 2 
weeks ago, then we can add those additional resolutions to the 
final package in a separate bill.
    Oil is for cars and trucks, not for air conditioners, 
refrigerators, ovens or light bulbs. Only about 3 percent of 
the oil our Nation consumes is used for electricity. What 
stopped working during the blackout? Our lights, our cooling, 
our refrigerators and our ovens. Our cars and SUVs ran just 
fine.
    It is ridiculous to use the blackout as an argument for 
drilling in the Arctic Refuge and other pristine public lands 
and exposes those who make the argument as desperate for an 
outcome driven by ideology, not facts. The only relationship 
between the electricity blackout and gasoline is that several 
refineries shut down temporarily, which the oil industry used 
as an excuse to raise the price of gasoline to record-breaking 
levels Nationwide over the labor day weekend. I don't think 
that was justified, but at least the relationship is clear.
    Electricity doesn't depend on reliable oil. Oil depends on 
reliable electricity. That is why we should stop searching in 
Alaska for solutions to the blackout. The problem is not in 
Alaska. It is in Ohio. The solutions won't be found above the 
Arctic circle but below Lake Erie.
    I don't think we should be satisfied with the we-will-get-
back-to-you-later response that I see in the prepared statement 
submitted by the administration to the committee yesterday. 
This $7 to $10 billion hit to the economy could happen again 
tomorrow.
    The American people have a right to know what caused the 
blackout and who should be held accountable for the resulting 
inconvenience and economic disruption. We have a right to know 
what first energy, AEP and other utility companies did or did 
not do on August 14--whether their actions or omissions caused 
the blackout to occur or to spread, what their neighboring 
utilities did or failed to do in response and what new 
safeguards there are and should be adopting to prevent a 
recurrence.
    I look forward to hearing the testimony.
    Chairman Tauzin. I thank the gentleman for his statement, 
and I remind all members that six refineries went down which 
were operating at the time that were operating at 95 percent 
capacity. There was a huge effect on refinery production during 
the blackout.
    The Chair is pleased to recognize the chairman of the 
Telecommunications Subcommittee, the gentleman also from 
Michigan who also was a victim in this blackout, Mr. Upton.
    Mr. Upton. Thank you, Mr. Chairman. We were a victim, and I 
am pleased that our colleagues in the Senate have finally acted 
to pass an energy bill. Now, as Congress comes back after Labor 
Day, our first order of business is to in fact pass a 
comprehensive energy bill. Congress by many pundits' 
expectations is to adjourn in a little bit more than a month. 
Last month's blackout impacted 50 million Americans and had 
ramifications that we are still feeling with high gas prices 
and productivity losses, and those are still rippling through 
our economy today. But I have to tell you it could have been 
worse.
    I represent southwest Michigan. We had one of our coal-
fired plants, the Campbell plant in Grand Haven, Michigan, go 
off line. Just south, I have two nuclear plants in my 
congressional district. One of them, in fact, did experience 
irregularities. This particular plant provides 18 percent of 
the power for consumers' energy. I am led to believe that they 
were--had the full right to in fact shut that plant down 
because of the irregularities that were in the system. The 
finger was actually poised at the button to shut down that 
nuclear plant, like the Fermi plant that was closed on the 
other side of the State. And had that plant closed down it 
would have likely had again a rippling effect right around Lake 
Michigan, probably closing the Cook nuclear plant which had one 
of its reactors out already for maintenance, but in fact it 
easily could have included Chicago and the greater Midwest. We 
came within minutes, maybe even seconds of having a more 
dramatic impact because of this blackout.
    We have a responsibility in this committee to iron out the 
differences between the two energy bills that have passed in 
the House and the Senate so we can avoid another rippling 
domino effect that will certainly affect tens of millions of 
Americans. That responsibility starts today, and I hope we can 
work together to pass a comprehensive energy bill, and I yield 
back the balance of my time.
    Chairman Tauzin. I thank my friend.
    The Chair is pleased to recognize the gentleman from New 
Jersey, Mr. Pallone, for an opening statement.
    Mr. Pallone. Thank you, Mr. Chairman.
    While we have discussed electricity policies for years in 
this committee, today we clearly have been forced into a 
position where inaction is unacceptable. Comprehensive 
electricity policy should not be held hostage for another month 
in the voluminous energy bill that will shortly go to 
conference, nor should a comprehensive solution be crafted 
solely by conferees behind closed doors, which is too often the 
case here. We need to act on implementing the necessary changes 
in this area immediately and without connection to 
controversial issues that--clearly partisan--are likely to 
reign in the conference.
    Comprehensive electricity legislation should involve 
several key provisions. First, we need to call for mandatory 
regional transmission organization participation. Currently the 
voluntary nature of RTOs allows shifting participation in the 
organization on a day-to-day basis. Yet RTOs operate most 
efficiently and cost effectively when they can count on 
particular membership. The blackout demonstrated the need for a 
flexible transmission system that can adjust to the needs of 
its consumers on a second-by-second basis, and RTOs can meet 
this need.
    RTOs also necessitate a regional transmission planning 
process, a process that incorporates a broad range of 
stakeholders toward a single goal of reliable energy supplies; 
and this approach should lead to vast improvements in 
reliability.
    Mr. Chairman, this brings me to another crucial component 
of electricity policy, the need for mandatory and uniform 
reliability standards for electric grid performance. In 1997, 
this committee held a hearing on reliability. At that time, I 
noted that voluntary reliability in a deregulated market could 
create the potential for passing the buck should a problem in 
the system arise. While the DOE investigates the blackout to 
determine the cause of the system failure, I encourage this 
committee to finally address and implement mandatory 
reliability standards. Clearly, market forces alone cannot 
preserve reliability of the system. Furthermore, it is unfair 
to customers who expect a reliable supply of electricity not to 
require industry participants to meet Federal reliability 
standards that will ensure the customer's needs.
    Finally, I hope we can move forward toward the approval of 
FERC's rule on standard market design. Although outstanding 
questions regarding technical issues remain, I trust that these 
issues will be addressed prior to the final rulemaking and we 
will come to the other side of this with improved opportunities 
for competition that benefits electricity consumers.
    There are additional issues that remain an important part 
of the electricity debate, including the use of smart grid 
technologies that have the potential to bring us into the 21st 
century as well as a serious commitment toward the development 
of renewable energy sources, energy efficiency and distributed 
energy sources. However there is an immediate need to address 
the gaping holes that were left in electricity policy that we 
have ignored since the Energy Policy Act of 1992; and these 
gaps should be filled by specific determinations regarding RTO 
participation, grid performance requirements and standard 
wholesale power market design.
    Thank you, Mr. Chairman.
    Chairman Tauzin. Thank the gentleman.
    The Chair recognizes the gentleman from Pennsylvania, the 
Chair of our Oversight and Investigations Subcommittee, Mr. 
Greenwood.
    The gentleman passes.
    The Chair will move on to Mr. Cox from California for an 
opening statement.
    Mr. Cox. I thank the chairman----
    Chairman Tauzin. I should point out to the audience Mr. Cox 
serves another important role as chairman of the Select 
Committee on Homeland Security. And, Chairman Cox, I understand 
you will be holding some hearings or investigations as to the 
homeland security response aspects of the blackout, and I want 
to thank you for that effort.
    The Chair recognizes Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman.
    I want to thank you for convening these 2 days of hearings. 
I hope they will work in tandem with tomorrow's hearings on the 
Homeland Security Committee, where we will focus on the 
vulnerability of our Nation's power supply and distribution 
system to deliberate attack as well as the catastrophic 
secondary effects.
    We still don't know exactly how and why the blackout of 
2003 occurred, although today we expect to learn a bit more. I 
think that we will have to await the conclusion of ongoing 
investigations before we have answers that will satisfy not 
just politicians and regulators but also the electrical 
engineers who are responsible for constructing a system that 
will work. What we do know and what we have learned as a result 
of the events of last month is that the denial of electrical 
service for an extended period of time causes a dangerous 
ripple effect of death and destruction across virtually all of 
our Nation's civic and economic sectors.
    In the 21st century, America is more dependent upon 
electricity than ever before in our Nation's history. In the 
computer era, information systems and electronic controls 
dominate every aspect of our economic life and the public's 
health and safety. Lack of power can lead to significant 
fatalities and wreak tremendous havoc on our economy. This is 
certainly a desirable outcome to--and hence a goal of--our 
terrorist enemies as well as an accident that can occur, as we 
saw last month.
    The economic implications of a blackout are thus even 
greater than they might seem at first glance. It didn't take 
even 4 days before the vultures started circling--in this case 
trial lawyers rather than terrorists. On August 18th the first 
lawsuit was filed, a class action lawsuit in Ohio on behalf of 
all persons and entities residing in the United States who lost 
electrical power during the blackout. We are still 
investigating the causes of these events, but profiteers are 
lining up to make sure that they get theirs.
    The threat to the Nation is more complex than might appear 
on the surface. Together, the Energy and Commerce Committee and 
the Homeland Security Committee must determine accurately how 
vulnerable our power system is to attack and sustain denial and 
what steps we can take to reduce that vulnerability and 
mitigate the potential damage through contingency planning.
    We have an extraordinary 2 days, Mr. Chairman, during which 
we will learn a great deal; and I look forward to moving the 
energy legislation in this Congress which I strongly believe is 
connected fundamentally to these issues.
    I would merely add to what the chairman mentioned a moment 
ago. That is, that all of our electric power systems, save for 
nuclear and hydro, operate on sources of energy that are not 
included in the electricity title of the energy legislation; 
and we have got to take a look at the entire picture. Simply 
put, in the 21st century we are using so much power for 
computers and new electric technology that the system that we 
have built is going to break down unless we invest.
    Thank you, Mr. Chairman.
    Chairman Tauzin. I thank my friend.
    I should also remind the members that as this investigation 
goes forward, as our committee and Mr. Cox's committee goes 
forward, we also have a task force at work looking at the 
natural gas crisis that we also predicted is going to occur 
very soon because of the shortage of natural gas to power 
plants and to operate the chemical industry in our country. I 
had meetings in my district over the break on that subject, and 
there are some pretty serious problems there.
    I also want to comment before we move on to Ms. Eshoo, I 
hope you all had the same sense I had watching the citizens of 
New York walking the streets and the eerie reminder of 9/11; 
and I want to encourage Mr. Cox in examining how exactly the 
Nation responded to this crisis because I think it teaches us a 
lot of lessons about how we can better prepare ourselves for 
hopefully something we don't have to see again but could happen 
again, some other strike against our country.
    The Chair is pleased to welcome and recognize the 
gentlewoman from California, Ms. Eshoo, for an opening 
statement.
    Ms. Eshoo. Thank you, Mr. Chairman, for holding this 
important public inquiry into the Northeast blackout of August 
14.
    The joint U.S.-Canadian inquiry that got off the ground on 
August 19 is reportedly making progress, but the investigators 
are still churning through data. Before the committee draws 
conclusions and makes sweeping policy decisions, I think we 
have the responsibility to know the results of that inquiry.
    Unfortunately, in the absence of fact, theories and rumors 
are ruling the day. A few energy companies have developed time 
lines and theories to put themselves in the best light and put 
the blame on others. Everyone is denying responsibility. The 
House leadership has brought out the familiar theories that 
were advanced during the California energy crisis: blaming 
environmental rules, consumer protection laws, transmission 
constraints and the law of supply and demand.
    Back in 2001, these theories were the justification for 
passing the highly flawed national energy policy which did 
nothing to solve the price gouging and market manipulation that 
I and other members of Western States asked for help in 
stopping. When we began learning the facts about the California 
crisis after the release in May, 2002, of internal Enron 
numbers that detailed how the market was manipulated, the 
silence was deafening on the part of the administration and the 
House leadership. Our calls for hearings were completely 
ignored. The facts were too inconvenient. Now this blackout, 
the Northeast blackout, like the western energy crisis, is 
serving as justification for passing a national energy policy 
that has little to do with the underlying causes of the power 
outage.
    We have to know the facts. The Bush Administration, known 
for its coziness with oil and energy interests, has to stretch 
itself to move to the public interest. So I not only look 
forward to hearing the testimony today, but also hope that this 
committee, where the policy responsibility lies squarely with 
the Energy and Commerce Committee, will come up with a policy 
that directs itself toward the real issues and not to paper 
over and to force through a national energy policy that really 
does not fit with the facts.
    Thank you, Mr. Chairman.
    Chairman Tauzin. The Chair thanks the gentlelady; and the 
Chair is pleased to recognize the gentleman, Mr. Whitfield, for 
an opening statement.
    Mr. Whitfield. Mr. Chairman, thank you very much; and I 
want to thank those people attending from all three panels 
today. Secretary Abraham, we are glad you are here, and we will 
have local and State officials as well as those people from the 
various commissions that regulate the utilities.
    The blackout that swept across much of the Northeastern 
United States and parts of Eastern Canada we know can happen 
again almost at any time because the 150,000 miles of 
transmission lines are simply not adequate. The load growth has 
been more than 60 percent in the last 20 years, and yet the 
high voltage transmission lines have increased by only 20 
percent during that time.
    Now some people seem to think that moving quickly on a 
stand-alone reliability piece of legislation is the best way to 
proceed. That may be true, but I think everyone understands 
that isn't going to be easy either because of the complex 
issues involved here.
    We have a myriad of competing interests. We have low-cost 
States that are very much concerned about having to pay to 
upgrade transmission lines in other parts of the country. We 
have concerns about some strong environmental States who don't 
want coal plants built in their area, but they want to import 
electricity produced by coal from other areas of the country.
    We also know that power was available east of California 
during the energy crisis in California in 2000 and 2001, but 
there were simply not adequate transmission lines to get that 
power out there. We know that the power traders could not have 
manipulated the markets if there had been adequate transmission 
lines into California.
    So all of us want to address this issue and do everything 
that we possibly can to solve it, but I think it is naive for 
any of us to think that it is going to be very easy to do. And 
while I certainly would be willing to work with those wanting 
to move a stand-alone reliability legislation, I don't think 
that is going to be easy either. It is going to be complex, and 
I am delighted you are having this hearing today.
    Chairman Tauzin. Would the gentleman yield for a second?
    I want to point out to all my friends who are listening on 
this side, as you know, the other Chamber was not even able to 
pass a new bill and gave up trying to pass a new bill. They 
ended up by unanimous consent adopting the bill of last 
Congress so at least we could go to conference and try to work 
this out.
    The good news, of course, is that, in the conference, 
reliability provisions are already in the mix. So whether we 
have a separate stand-alone bill or not, it is before the House 
and the Senate. And the gentleman is right. We at least have a 
chance in the conference to complete that work. We ought not to 
miss that chance.
    I thank the gentleman for yielding.
    The Chair recognizes the gentleman from Florida, Mr. 
Deutsch, for an opening statement.
    Mr. Deutsch. Thank you, Mr. Chairman.
    I think all of us in our own life experience know that 
things happen that we don't plan for but that create 
opportunities. And how we respond to those changes and 
challenges defines us as individuals, but I think this 
challenge will define us in many ways as a country as well. 
Others have spoken to this, but I think it is important to 
focus that there is really this consensus point that exists in 
terms of what we need to do with the electric grid in the 
United States of America.
    I think each of us understands that it is our job to fight 
for what we believe in but also to represent our constituents 
and the entire country, and we need to take politics out of 
many of these decisionmaking processes, which is exactly what 
the country needs for us to do. For that reason, I think the 
focus really is and we will be judged on our ability to really 
support and pass separate legislation to specifically deal with 
the grid issue, which there is a consensus both from the 
Democrats and the Republicans outside of the body of the entire 
bill. I think America is focused, and America is watching, and 
I believe we are up to that challenge.
    I also want to mention another issue which is hopefully 
this will be really an opportunity and view this as an 
opportunity for us collectively as a Congress and the country 
to really take the energy bill and--not in the bill itself but 
maybe in other legislation in this Congress a step further. We 
are still at a point where effectively the largest tax in the 
history of the world continues to take place because of the 
power of OPEC over ourselves and other oil-consuming nations, 
and there needs to be a concerted effort.
    If we acknowledge that the greatest challenge facing our 
country is the threat of terrorists having weapons of mass 
destruction, which I believe there is a consensus on, and the 
greatest challenge of our country is our macroeconomy, which we 
can't defend ourselves unless our macroeconomy is strong, then 
our inability to address what is in fact the greatest threat to 
both our economy and our security, which is the threat of 
OPEC's power over us and the inability not just of this 
administration but really of the prior administration as well 
to challenge, that is really a question that I hope that this 
Congress and this country uses this opportunity, uses this 
crisis to change.
    Mr. Secretary, as you probably are aware, your department 
supported a conference on this, actually, this past week in 
Israel, which I heard about. I have read some of the documents 
presented there, and I hope it is something we can address in a 
larger setting.
    Chairman Tauzin. The Chair thanks the gentleman for his 
statement and recognizes the gentleman from Illinois, Mr. 
Shimkus, for an opening statement.
    Mr. Shimkus. I apologize for taking the 5 minutes.
    We have New Yorkers here, and I want to send word to them--
I know Mr. Engel and Mr. Towns--I think the Nation was really 
impressed by the way the folks of New York City handled the 
blackout in a calm demeanor. There were some great stories out 
of that. I think the folks in the Midwest were really pleased 
and honored by that response.
    I do also want you to know that most people in my district 
understand that I serve on this committee, and so right 
afterwards I got a lot of questions where are you at, what have 
you done and how soon can you get something moved. And I said, 
well, we are at a great time because we passed a bill both in 
the House and the Senate, and we are moving the conference. 
These hearings are designed for us to get the final bits of 
information that we can go and insert them into a national 
energy plan.
    So what do we have in there? Well, we have the repeal of 
PUHCA, which could bring more capital to expand the 
transmission grid. We have accelerated depreciation from 20 to 
15 years for electric transmission assets. We need in the 
bill--Congress--we need to be stepped up and ensure that the 
expansion of the grid is not slowed down by State regulators. 
So that is empowering the FERC on siting.
    The reliability issues have been addressed, and that is 
part of the bill.
    I am a big proponent of standard market design. Whether 
that gets part of the final part or not I am not sure, but I do 
think that is important if you are going to have a national 
transmission system, a national grid.
    We have a critical moment in time to move this bill. The 
public expects us to have success. We need to get our two final 
FERC commissioners at least up for a vote on the Senate floor. 
They have been delayed. How can you have the FERC fully vent 
out a problem when you only have three of the five seats 
filled?
    So if you have some of the highest natural gas prices that 
we have seen in a long time--and I am on the Natural Gas Task 
Force and we had hearings. We had no industry producing--only 
one industry in this country producing fertilizer, and that is 
a farmer-owned co-op. And if you have some of the highest gas 
prices that you seen in years and you have 50 million people 
without power, if you can't move a national energy plan bill 
now in this environment, my fear is we will never do it. The 
time is ripe.
    Thank you for coming.
    Chairman Tauzin. Just yield, the CF industries in my 
district laid off a bunch of workers again as they are shutting 
down more production at the chemical plants, fertilizer plants 
and basic building blocks of fertilizer because of the high 
price of natural gas. This is more than just a electricity 
problems.
    I thank the gentleman.
    The Chair now recognizes another gentleman from Michigan 
who also experienced a blackout, Mr. Stupak, for an opening 
statement.
    Mr. Stupak. Mr. Chairman, I will pass, but we didn't 
experience blackouts because I come from the best part of 
Michigan.
    Mr. Shimkus. You don't have power up there.
    Chairman Tauzin. The Chair thanks the gentleman for passing 
and understands his pride in his district.
    The Chair recognizes the gentlelady from California, Mrs. 
Capps, for an opening statement.
    Mrs. Capps. Thank you, Mr. Chairman; and thank you to 
Secretary Abraham for testifying today.
    I have a great deal of sympathy for the 50 million citizens 
who lost power last month. As many here remember, millions of 
businesses and families in California faced rolling blackouts a 
couple of years ago. These rolling blackouts inconvenienced 
millions and cost businesses billions, and the impacts are 
still being felt today. California was robbed of $9 billion by 
energy companies that illegally drove up electricity and 
natural gas prices. I am relieved that the long-term 
implications in the blackouts in the Midwest, Northeast and 
Canada will not be so dire.
    I wish to make a couple of points this morning. First, 
there is an eerie similarity in the reactions to the blackouts 
and to California's situation. California's troubles were used 
as an excuse to push through an energy bill that really had 
very little to do with the problems in California, and the same 
is happening today.
    Two-and-a-half years ago charges were made that the energy 
crisis was because California hadn't built enough power plants 
to meet growing demand or the Endangered Species Act was 
delaying new construction or the Clean Air Act was shutting 
down existing plants. And of course it wasn't any of these 
things. It was Enron, El Paso Natural Gas and other energy 
companies exploiting a badly written law and ripping off 
California. FERC's subsequent investigations have uncovered the 
market manipulation in case after case after case.
    The congressional response at the time, however, was to 
push through a bill which had nothing to do with what caused 
California's problems. The bill subsidized energy companies, 
opened more public lands to drilling and a host of industry 
goodies.
    Today we are not exactly sure what happened last month, but 
we are pretty sure it wasn't about the need to drill in the 
wildlife refuge or with big ethanol mandates or with more 
subsidies for nuclear power. And yet, like 2 years ago, the 
call goes out again for passage of a controversial energy bill, 
most of which has nothing to do with the issue at hand, the 
reliability of the electricity grid.
    So I agree with Mr. Dingell's call for quick passage of the 
energy bill's bipartisan reliability standards. These 
provisions have been agreed to by all parties for a number of 
years now. We know we need to make these changes, and we are 
pretty sure they factored into the blackouts. So I hope we 
won't let them get bogged down in the bill's other more 
controversial measures.
    In addition, I would like to bring to the members' 
attention an observation. The day after the blackout, political 
leaders in the affected areas made public calls for everyone to 
conserve energy to make sure the system wasn't overloaded when 
the lights came back on. It was a very smart call. People will 
pull together to conserve energy consumption if they are called 
upon, and conservation does work. In California, consumers cut 
consumption by 10 percent 2 years ago, and it helped to stop 
our energy crisis. But we should be making every effort to 
conserve energy every day, not just when there is a crisis; and 
yet the energy bill takes only baby steps to make sure air 
conditioners, buildings and cars are as efficient as possible. 
This committee even voted down some sensible conservation 
amendments.
    As the bill moves through conference, we should revisit the 
conservation measures and do more, much more. The blackout 
showed us again the instinct in our fellow Americans to do the 
right thing. We in Congress need to show some leadership on 
this issue, and the country will respond.
    Thank you. I yield back.
    Chairman Tauzin. I thank the gentlelady.
    The Chair is now pleased to recognize the gentleman from 
Georgia, Mr. Norwood, for an opening statement.
    Mr. Norwood. I will file an opening statement but just have 
a couple of remarks.
    Thank you, sir, for having this very important hearing; and 
I thank Secretary Abraham for being here and for your 
leadership in energy matters.
    As bad as everything was for the Northeast during the 
blackout, and I won't reiterate, everybody knows how terrible 
it is to be without electricity in the 21st century, as bad as 
you know all of that was, there was a real possibility here, a 
real potential here that Congress might actually do what it 
should do and pass a comprehensive energy bill. I think the 
House has done a pretty good job and has fought it out real 
well, and I hope the other body now will get serious about 
producing a comprehensive energy bill, not simply about 
electricity, although that is the subject today. The other 
parts of energy required by this country need to be dealt with, 
too; and let us hope that the Senate will finally wake up and 
come to conference and let us get serious about it.
    Mr. Secretary, I know the task force is working hard; and 
it is very important in my opinion for us to have a clear 
understanding of exactly what caused this blackout for two 
reasons. When we understand that, we may be able to put things 
in legislation that would prevent it in the future.
    But, second, until we hear from your task force, for some 
people it will be an excuse for us not to move forward on a 
comprehensive energy bill; and I encourage you and the Canadian 
members and U.S. Members of this task force to act with some 
haste and get us that information as soon as you can so that at 
the end of this first year of this Congress we won't be sitting 
there saying, well, we can't bring a bill up because we don't 
know what the cause of this issue was. So it clearly is pretty 
important that you folks act as quickly as you can; and, Mr. 
Chairman, I look forward to a conference so that we can come up 
with a comprehensive energy bill, not just an electricity 
title, although it is vital to our subject, too.
    Chairman Tauzin. I thank my friend; and I want to, for 
purposes of information, inform the audience that while we have 
not had official appointment of conferees on the energy bill 
with the Senate, staffs of House and Senate have been talking 
and isolating areas of agreements and disagreements and we have 
made a lot of progress during the month of August. We are going 
to move as fast as we can as soon as the Speaker makes the 
announcement of the conferees.
    I thank the gentleman.
    The Chair now recognizes the gentleman from Florida, Mr. 
Davis, for an opening statement.
    Mr. Davis. Thank you, Mr. Chairman. I will waive my time.
    Chairman Tauzin. The gentleman waives; and the Chair 
recognizes the gentlelady from California, Ms. Solis, for an 
opening statement.
    Ms. Solis. Thank you, Mr. Chairman.
    I would like to thank the Secretary for being here.
    As a Californian, I understand the importance of trying to 
make sure that we address our energy issues. I am not going to 
read through my statement but just point out that we need to 
address this energy shortage and there are some elements that I 
think we should consider.
    In my opinion, something that we should have kept in both 
the House and Senate energy bills was the protection of 
consumers, specifically consumer protection under the PUHCA law 
as it is stated to provide some kind of reliability and 
accountability to consumers. California went through a 
devastating crisis, and we are hopeful that this kind of 
language will be kept in whatever bill comes before the 
conference committee.
    As someone who has looked at how we can better 
systematically improve our conservation efforts in California, 
we know what it means to roll up our sleeves and conserve. We 
have done it. We were also victimized by unscrupulous 
businesses like Enron and others that came in and gouged the 
system.
    We still need FERC to come in and do some work, some heavy 
lifting for Californians, because many of our small businesses 
and in particular, minority businesses went under because of 
the increase in electricity bills that they were faced with and 
we have yet to see any remedy. When we talk about reforming 
this reliability plan for energy usage, we should look at 
renewables and conservation and above all protection for 
consumers, and I would leave it at that.
    Chairman Tauzin. The Chair thanks the gentlelady; and the 
Chair recognizes another member from the State of Michigan, Mr. 
Rogers.
    Mr. Rogers. Thank you, Mr. Chairman. I have a written 
statement for the record.
    Mr. Secretary, I just wanted to welcome you here today. As 
I am sure you can see, the political funny season has begun, 
and whatever action that you are to take or have taken is 
exactly wrong. I want to thank you for taking a thoughtful 
approach to what you have done and resisting the temptation to 
ready, shoot, aim.
    I am looking forward to your testimony. If we are going to 
respond in a manner that is consistent with what consumers 
want, need and should have, we have got to know the facts. The 
investigation that you have undertaken in your testimony today 
has shed a lot of light here, and thank you for the work did 
you have done so far.
    Chairman Tauzin. The Chair thanks the gentleman and 
recognizes the gentlelady, Ms. McCarthy, for an opening 
statement.
    Ms. McCarthy. I thank you, Mr. Chairman, and Ranking Member 
Dingell for holding this hearing to discuss the causes of the 
massive power failure that affected parts of the U.S. Midwest, 
eastern seaboard and Eastern Canada. During this hearing it is 
imperative that we address reliability issues, energy 
efficiency as well as problems related to the transmission 
grid.
    I look forward to hearing from you, Mr. Secretary, and from 
our panel of expert witnesses today and tomorrow. The 2003 
blackout shut down cities, airports, trains, subways, 
businesses, disrupted hospitals and dramatically changed the 
lives of millions of people who were unable to lead their daily 
routines. It is apparent from these events that our electricity 
grid needs to be modernized and upgraded in order to meet our 
growing power demands.
    We also need to reevaluate the reliability requirements on 
utility companies and ensure that provisions in our PUHCA law 
remain so that unfair pricing does not occur in the future. It 
is highly critical that we also invest in a reliable, 
affordable and cleaner energy system that increases 
conservation and efficiency. Giving power companies more 
authority to upgrade their facilities while allowing them to 
override environmental regulations should not be the way we 
lead our Nation.
    I am pleased that the legislation under consideration 
includes Federal penalties if companies fail to detect and 
isolate problems or, if they do not know, notify neighboring 
power systems of problems in order to avert future events such 
as we experienced. We can aggressively reduce demand by 
employing energy efficient technologies and encouraging sound 
conservation measures as an essential component of our energy 
policy. Utilizing more kinds of energy sources and using 
smaller, more distributive installations for peaking power will 
reduce the impact of system failures. Renewable energy sources, 
including wind, biomass and solar, lend themselves to these 
smaller energy generation installations.
    We as a Nation need to invest in more energy efficiencies 
since this is the fastest, cheapest and cleanest way to reduce 
the strain on our electrical system so it will save consumers 
money, reduce pollution and the need to ship power from region 
to region.
    Mr. Chairman, our strategy to address energy policy can 
produce a reliable supply of diverse fuels that minimize 
greenhouse gases and secure our leadership in energy technology 
to benefit our consumers and to export around the world.
    It is imperative that we invest in alternative fuels and 
reduce carbon emissions when considering a national energy 
proposal. We can do much more with the energy sources we 
already have by pursuing energy efficiency in our buildings, 
appliances, office equipment and industrial equipment and 
processes.
    Energy efficiency helps keep the money in our economy for 
productive purposes. It lessens the strain on electricity 
generation and transmission systems, while helping to reduce 
the impact of system failures and future blackouts.
    Thank you. And I look forward to working with my colleagues 
to address these critical issues. I thank every one of the 
panelists today for sharing their expertise in these matters. I 
yield back.
    Chairman Tauzin. The Chair thanks the gentlelady. I 
recognize the gentleman from Oregon, Mr. Walden, for an opening 
statement.
    Mr. Walden. Thank you very much, Mr. Chairman. Well, here 
we are again with another crisis that hopefully will prompt 
Congress to act. But I am disturbed by some of the comments 
from my colleagues on the other side of the aisle today, that 
just because we had a blackout means we shouldn't deal with the 
natural gas crisis that the Chairman of the Federal Reserve 
told us is upon us, or that we shouldn't deal with the gasoline 
problem that I will tell you, my constituents in Oregon are 
objecting to $2.09 gas.
    There are a lot of issues that need to be dealt with on a 
comprehensive plan as put forth by this administration and this 
Secretary and by this committee, that I think we ought to get 
ahead of the problem rather than wait until the crisis forces 
Congress to act.
    And, Mr. Chairman, I commend you for your efforts, 
especially as it relates to the Pacific Northwest. You see, 7 
years and 4 days before the upper part of our country in the 
Northeast suffered a blackout Bonneville Power Administration 
suffered a blackout. You know what they found there? Overloaded 
lines, sagging lines into brush, problems that eventually they 
figured out how to resolve.
    But from 1987 until this summer no new transmission lines 
were constructed. Why? In large part because of a lack of 
financial resources. Mr. Chairman, I want to thank you and I 
want to thank the Bush Administration and Secretary Abraham for 
working with us in the Northwest to secure $700 million in new 
bonding authority for the Bonneville Power Administration.
    As a result, this summer, new construction began in 
multiple locations to address the problem of adequate 
transmission and reliability standards for the future, and I 
think it is important to point out that the head of the 
Bonneville Power Administration, Steve Wright, said in an 
opinion piece of August 15, he really summed it up, and I think 
this says it all: We need to make the reliability standards for 
market participants mandatory and we need to enhance our 
electricity infrastructure. That is pretty much it. The rest is 
trying to sort out what happened in a matter of minutes or 
seconds, a matter of milliseconds in some cases with date 
stamps that don't add up, depending upon which computer they 
are on.
    It is going to take a lot of work. And Bonneville is 
putting forth a rule guru in the industry, Bill Middlestead, to 
help in this bi-country investigation.
    So, Mr. Secretary, I commend you for undertaking this 
effort to try and figure out what went wrong, and further for 
continuing to push forward on a comprehensive energy reform 
plan that includes conservation and includes our ability to get 
electricity where we need it, that includes trying to develop 
additional national gas resources, gasoline and oil resources, 
and clean coal technology.
    So, Mr. Chairman, I thank you for your help with bonding 
authority. I hope that we can move forward with the additional 
authority Bonneville says it needs to stay ahead of the curve 
as we move forward. Thank you.
    Chairman Tauzin. I thank the gentleman for his kind words. 
And the Chair yields to the gentleman from Tennessee, Mr. 
Gordon, for an opening statement.
    Mr. Gordon. Thank you, Mr. Chairman. Honoring your earlier 
request, I will make my formal remarks part of the record, and 
just quickly say that as important as this issue is a bad bill 
is worse than no bill. We have got a unique opportunity we need 
to get right.
    Chairman Tauzin. Thank the gentleman. And the Chair 
recognizes the gentleman from North Carolina, the vice chairman 
of our committee, Mr. Burr, for an opening statement.
    Mr. Burr. I thank the Chair. I welcome all Members back, 
and I especially welcome the Secretary back, who is a dear 
friend of this committee.
    Mr. Chairman, it is not difficult if we are looking for an 
answer to the question of what happened. Many Members of 
Congress got on the talk shows days and weeks after the 
blackout, and they suggested that they knew what happened. They 
were very specific in a wide range of reasons as to why a 
blackout happened in the Northeast.
    The unfortunate thing is that as we are challenged to write 
good policy that leads us into the next decade with an honest 
energy blueprint we have got to understand what really 
happened. We have got to understand where we really want to go. 
We have got to understand what our real needs are. And to do 
that, I think it is important that we stop and take a deep 
breath and that we spend more time listening over the next 2 
days than we do talking as members of this committee.
    I want to take this opportunity to applaud Mr. Wynn and 
others who have consistently, as we have talked about the need 
for energy policy and electricity legislation, never let us 
forget that the transmission grid deserves and requires a 
tremendous upgrade for us to go into the future.
    At the end of the day, regardless of what we find the 
reasons to be for the blackout, this has been a preview of 
potentially what could happen if we don't make the investments 
for our future and for the future needs of the infrastructure 
in this country.
    Mr. Chairman, I want to urge you and whoever are in fact 
the conferees at the time to fight in conference for the 
language that we need to make sure that the transmission grid 
is upgraded, that it is not forgotten, and I want to encourage 
you to remember that to accomplish this we have to have the 
confidence of the financial markets that there is a return that 
is predictable for them to finance what could be an asset 
outlay as large as what the current value of our transmission 
grid is.
    Mr. Chairman, I thank you for this hearing. Mr. Secretary, 
again, we thank you for your insight. I yield back.
    Chairman Tauzin. Thank the gentleman for those comments. 
They are absolutely valid. And the Chair recognizes the 
gentleman he just referred to, our friend from Maryland, Mr. 
Wynn, for an opening statement.
    Mr. Wynn. Thank you very much, Mr. Chairman. Let me begin 
by thanking you for moving expeditiously and aggressively in 
addressing this issue. Mr. Secretary, welcome, we look forward 
to your testimony.
    I would like to note that this hearing is not taking place 
in isolation; we have a product on the table--an energy bill. 
And I think that this committee should be a driving force to 
make sure that the conferees meet quickly to address the 
issues. If the desire is for a comprehensive bill, lets move 
forward and conclude this business before we go home.
    If we reach a conclusion that we cannot in fact do that, we 
ought to move forward on those areas of consensus. I think 
reliability is such an area as indicated by our ranking member, 
Mr. Dingell.
    I have had the pleasure of working with Mr. Burr on the 
issue of reliability over several years, and we think we have a 
product in the form of H.R. 1370 that would have addressed some 
of the concerns that we are talking about here today. The 
bottom line is that our electricity grid, transmission grid is 
not up to snuff. It is outdated, overburdened, and should be 
addressed with mandatory reliability standards. Our legislation 
does that. It provides for the establishment of an electric 
reliability organization with the Federal Energy Regulatory 
Commission providing oversight.
    This would facilitate the development and enforcement of 
mandatory reliability rules and standards that are binding on 
all electric companies and market participants. These standards 
would include technical standards relating to the maintenance 
and operation of electrical systems, performance standards for 
electrical systems and preparedness standards. Critically, we 
need preparedness standards related to the ability of those 
managing the electrical system to respond to anomalies or 
unexpected events in the grid.
    What we need is a system in place today that would provide 
the Federal Government with the authority and tools to sanction 
companies that don't comply with reliability standards. Another 
area of concern as Mr. Burr mentioned, is a lack of investment 
in the transmission system. Our bill would require the FERC to 
adopt transmission rules to promote capital investment. That is 
what we need in the system to improve the operation and allow 
for returns to investors reflecting the financial, operational 
and other risks inherent in transmission investment.
    And, finally, our legislation would address the issue of 
siting. We need to expedite siting. H.R. 1370 would give the 
FERC the ability to site transmission if State or local 
governments aren't able to do so. This is a serious problem. We 
are all talking about it now, but the problem has existed for 
some time. We need to take the responsibility to act, either 
comprehensively and address all of our issues in energy needs 
or to address those issues that we can agree on and make sure 
we do something before we go home. I hope we will be able to do 
that.
    Thank you very much, Mr. Chairman.
    Chairman Tauzin. I thank my friend. The Chair is now 
pleased to welcome the gentleman, the former lieutenant 
Governor of the great State of Idaho, Mr. Otter.
    Mr. Otter. Thank you, Mr. Chairman. It is well known that 
the United States must maintain an abundant and reliable supply 
of energy to keep our economic recovery on track.
    We saw earlier this month in the Northeast what can happen 
when energy supplies are disrupted. The potential cost is 
enormous, both in economic and in human terms. I am pleased 
that the chairman is holding this hearing today to look into 
exactly what happened in the Northeast and why it happened. 
Were we truly the architects of our own disaster?
    We also need to determine what can be done to prevent this 
type of disruption from happening in the future. However; as we 
move forward, we need to be careful not to rush to a one 
national, one size fits all approach in response to what 
happened in the Northeast. While there is obviously need to 
improve transmission across the country, any proposal to do so 
must take into account regional differences.
    I believe we need to work to remove unnecessary 
bureaucratic impediments to site transmission, as well as 
electrical generation. We need to streamline State and Federal 
siting processes and look into the NIMBY, not in my back yard, 
problem. I also believe we need more investment in the 
electrical industry, and should make sure that Congress is 
giving the right signals to encourage such investment.
    With that, Mr. Chairman, I yield back my time.
    Chairman Tauzin. I thank the gentleman. The Chair 
recognizes the gentleman from New York, Mr. Engel. And I too 
want to again, Eliot, on behalf of the entire Nation express 
our admiration to the folks in New York for the way that they 
handled yet another enormous crisis.
    I recognize my friend, Mr. Engel, for an opening statement.
    Mr. Engel. I thank the chairman for his kind words, and I 
thank Mr. Shimkus as well. We may see, as a result of what 
happened with the blackout that comes this May the census in 
New York may increase a great deal and that perhaps we can get 
back some of the Congressional districts we have been losing to 
reapportionment as a result.
    Chairman Tauzin. Wasn't that the effect of the last 
blackout? Wasn't there a huge baby boom in New York?
    Mr. Engel. Well, it did. In 1965 and 1977 we saw that 
happening. So, but seriously, Mr. Chairman, thank you.
    I am obviously, as every one else, but particularly as a 
New Yorker, outraged by the blackout. We were told that this 
couldn't happen. When we suffered in New York through the 
blackouts of 1965 and then 1977, we were told that after that 
happened steps were taken to ensure that it could never happen 
again. And yet it did. I am glad we are holding hearings, 
because I want to know what happened. We all want to know what 
happened. There are many issues to be discussed.
    Did deregulation play a role? What are other reasons that 
this blackout happened? What disturbs me though, and I hope 
this doesn't happen, is that I don't want, and I have heard 
some rumblings of it today, I don't want this blackout to be 
used to have a bill or to push a bill that has already been put 
forward.
    And, for instance, we have a bill that we passed in this 
Congress, which many of us have great difficulties with it. 
There is drilling in the Alaska wilderness. There is an energy 
bill that I believe is so tilted toward the industry and 
against renewable energy sources and conservation and sound 
energy policies that sometimes you have to wonder if no bill 
might be better than that bill. What troubles me with the 
administration is that the administration seems to believe, and 
I think the energy bill reflects it, that the solution to our 
energy problems is production, more oil, more gas, more power, 
drill in the Alaska wilderness. That will take care of all of 
our problems. But that won't.
    That is not the problem that caused the blackout, which 
cost the people and businesses of New York about $1 billion. By 
all accounts, it looks like this is a problem about 
transmission, the infrastructure of a national grid that was 
designed with 1950's technology and is being used in the 21st 
industry. We need to upgrade that grid.
    But I want to also use this to highlight a lot of 
differences that I and many others on this side of the aisle 
have with the Bush Administration about energy and about their 
energy policies, and my fear is that the administration will 
rush to use this blackout as a way to rubber stamp what I think 
are misguided energy policies. I want to talk about some of 
them.
    The unilateral withdrawal from the Kyoto protocol, the 
development of energy policies in secret, and refusal to 
provide documentation of these meetings contrary to Congress's 
request, the weakening of Clean Air Act regulations that will 
allow power plants in the Midwest to foul and pollute the air 
of New York.
    Also, most egregious, in light of September 11, the recent 
revelation by EPA's Inspector General that states that the 
White House and National Security Council forced EPA to lie 
about the air quality in New York City just after September 11 
to cook the books to make it look better.
    Of course, my favorite, the decision by FEMA and the NRC to 
approve the evacuation plan for Indian Point Nuclear Power 
Plant without certification from the State of New York or the 
local Counties of Westchester, Rockland, Orange and Putnam. So 
much for State and local control.
    Again, I hope that what happened is not used by the 
administration and others that support the administration's 
policies as a way of trying to ram through what I think are 
wrong policies.
    I want to ensure that the public gets the true facts, not 
facts that may be scrubbed to ensure its compatibility with 
administration doctrine. You know, when I was growing up, Mr. 
Chairman, we all watched the show Dragnet. And Detective Joe 
Friday used to say: The facts, ma'am, just the facts.
    Well, I want to know the facts. I want to know what 
happened with this blackout. Frankly, I want to know what is 
happening with energy policies throughout the country. Gas 
prices are jumping in leaps and bounds. Every week you turn 
around and the price of gasoline has gone up 10 or 15 cents a 
gallon. I want to know if there is some kind of collusion 
because I cannot believe that there is any other reason for gas 
prices to increase so quickly.
    So I want to say that we need investigations so we know 
what truly happened, so we find out what truly happened. I want 
to make sure that when it comes to investigating energy 
policies in this country that the administration doesn't take 
the view of these three monkeys, hear no evil, see no evil, and 
speak no evil.
    I look forward to the testimony today.
    Chairman Tauzin. I thank the gentleman. The Chair would 
want to point out in light of his comments, however, that while 
there were many Democrats who voted against the energy policy 
bill that was adopted by the House that has gone to conference, 
there were well over 40 Democrats who voted for it. It had very 
much of a bipartisan element in that regard. And there was no 
attempt to ram it through. I just want to caution my friend 
that we are trying our best to get consensus where we can and 
will continue to do so.
    The Chair is now pleased to recognize Mr. Total Recall, the 
gentleman from California, Mr. Issa, for an opening statement. 
Darrell, before you give your opening statement, I want to 
point out that the gentleman sitting in the front out there, in 
the first row on the right, third seat, remarkably reminds us 
of Gray Davis. I was a little concerned that Gray Davis had 
shown up today to face off with you.
    But the Chair is now pleased to--thank you for letting me 
do this, but the Chair welcomes the gentleman from California, 
Mr. Issa, for an opening statement.
    Mr. Issa. Thank you, Mr. Chairman. I am sure that Governor 
Davis is busy doing the work of the people in California today.
    But oddly enough focusing on California may be appropriate 
for my 3 minutes of time with the indulgence of the Secretary. 
It is interesting that when you look at this issue for 24 hours 
a day, 7 days a week, year after year after year, that we don't 
have more blackouts. Though I don't want to reduce the 
importance of this committee investigating and understanding 
what the cause of this massive blackout was, which may have 
cost the American people billions of dollars of lost revenue, I 
think it is also important that we not use this event as a 
platform from which to move or not move every agenda, 
particularly from my colleagues on the other side of the aisle 
from California, a State in which NIMBYism has been taken to 
the highest possible level, a State that, with all due respect 
to those who said we have taken care of our energy crisis, what 
we did is we exported our jobs. We have higher unemployment 
than we had when the energy crisis first happened in the West, 
and I think it is the result of logical and pragmatic thinking 
on behalf of the businesses of California. They have left 
California and taken with them their high paying jobs and their 
energy consumption.
    California, for the first time in decades, or in over a 
decade, is a net exporter of people. We are losing jobs. We 
have higher than national average unemployment. And all of that 
is legitimately the result of a lack of affordable and reliable 
energy in addition to some other well publicized problems.
    So as we review what happened when the lights went out on 
the East Coast I don't think we should haphazardly try to 
confuse the two. California's problems have to do with an 
unwillingness to produce new sources of reliable energy. We are 
a net importing region and one that has a problem that if and/
or when our jobs ever return the problems of energy shortage 
will return.
    So, Mr. Secretary, I look forward to this committee 
understanding better what did happen when the lights went out 
in the East, and hopefully there will be no more references to 
somehow linking California's inability to fix California's 
problems to a national issue. With that I yield back, Mr. 
Chairman.
    Chairman Tauzin. The gentleman yields back. I think we have 
four or five other Members who are going to give opening 
statements, Mr. Secretary. Then we will take a 5-minute break 
for you and for anyone else who may need a little break before 
we take your testimony.
    Next the Chair is pleased to recognize the gentleman from 
Pennsylvania, Mr. Doyle, for an opening statement.
    Mr. Doyle. I want to thank you, Mr. Chairman, for calling 
this hearing today. Clearly the blackout earlier this summer 
has rightfully attracted a great deal of attention and concern, 
and the issues involved here are complex. And while I suspect 
that we are unlikely to reach any definite answers through this 
set of hearings, largely because it is simply too soon to know 
all of the answers and those conducting the ongoing 
investigations need time to continue their work, these hearings 
I hope will still be productive, if for no other reason than 
they raise the level of awareness of the issues and help to 
find the questions we need to answer.
    Thankfully my district in Pittsburgh and in fact most of 
Pennsylvania was spared from the direct repercussions of the 
blackout. But just because our lights stayed on this time, that 
does not mean that will always be the case. I think it is 
behooves us all to work together to address the problems that 
arose on a national basis. I have said many times in the past 
that it is imperative that we strive to create effective 
cooperative regional approaches to the transmission of 
electricity.
    The RTO that we operate under in Pennsylvania has largely 
been a success story in this regard, and I believe it provides 
an effective model for the rest of the country. One danger as I 
see it is that the lesson we take from this blackout becomes 
that deregulation is too dangerous and that we should rely on 
the status quo in many regions as the safest course.
    In my view, nothing can be further from the truth. We need 
to continue to modernize and update our systems, adopt uniform 
reliability standards, and continue to create large RTOs as 
this will be the most effective way to oversee the transmission 
of power and comes closest to recognizing that these are not 
issues that stop at State boundaries.
    Protecting local interests or States rights in this case 
will not lead to effectively modernizing the whole system. If 
this blackout causes us to regress from a more standard 
national approach, that will be a true step backwards and the 
lingering effects of the blackout will prove even more damaging 
than they have already been.
    I want to also mention another issue that I have been 
involved in for quite some time, and that is promoting the 
utilization of distributed generation. When we look at the 
long-term approaches to addressing the problems that ironically 
enough this blackout brought to light, it is imperative that 
aggressive utilization and implementation of distributed 
generation technology and continued support for R&D work on 
this important--be an important part of our mix.
    Distributed generation technologies like fuel cells, micro 
turbines and the like are providing reliable and secure power 
throughout the Nation, and we need to promote their use, so 
that at least our critical facilities like hospitals, police 
stations, our military installations are guaranteed safe 
reliable power, even in the case of blackouts like the one we 
recently endured.
    The current issue of the Economist made a case for DG quite 
clear when they wrote: A system with more distributed 
generation would be more robust than today's grid. They 
continued that by speculating that the safest place in New York 
during the blackout may have been the middle of Central Park. 
Why? Because the police station in the park uses fuel cells. 
While the rest of the city was in darkness, super clean micro 
power plants carried on unaffected. New York's finest had all 
of the power and light they needed. To me, that is a clear 
example of the importance of distributed generation, and why I 
think we must focus on its widespread utilization as an 
integral part of our long-term efforts to address issues raised 
by this devastating blackout.
    Mr. Chairman, I thank you and yield back my time.
    Chairman Tauzin. I thank the gentleman for his statement. 
And the Chair recognizes the gentleman from Florida, Mr. 
Stearns, for an opening statement.
    Mr. Stearns. Good morning. And, Mr. Chairman, let me 
commend you for your leadership and your expeditious manner in 
having this hearing, and of course our witnesses for their 
patience through these opening statements.
    I think the American people should realize, of course, that 
we have this hearing to find out what happened. We also have 
the joint U.S.-Canadian task force, the North America 
Electrical Rural Council, and the affected utilities themselves 
are all trying to analyze what is a tremendous amount of data 
to try and understand exactly what happened.
    The good news, even though we had these many States that 
lost electricity, there was no huge amount of damage, so that 
in short order the States came back. We all know we avoided a 
catastrophe, because if it had gone on for 2 or 3 days, 
possibly there would have been severe damage in our 
infrastructure as well as what would happen to the food and to 
the water.
    I think many of my Members have mentioned we should pass 
our comprehensive energy bill, H.R. 6. We have a companion on 
the Senate side. We are hoping that this is a way for the 
public to focus on the need for a comprehensive energy plan 
which our bill H.R. 6 encompasses. We encourage investment. We 
provide incentives. It is not all about one thing, but it is a 
lot about many things, including trying to preserve energy and 
be more efficient with it.
    I would offer a word of caution, Mr. Chairman, that we need 
to look at this event in its totality. There were no shut-outs 
in the southern part of the country. We note that the regional 
differences that exist in this country have to be taken into 
account when looking to increase the number of independent 
organizations, such as the RTOs and the ISOs, whatever the next 
three-letter acronym may be as a result of our discussion.
    Throughout the Southeast, and I am from Florida, there has 
been lots of talk about our energy systems. But we were 
successful, and our States continue to work effectively in 
planning, I believe in coordinating and maintaining effective 
reliability measures. So I want to put that in the record.
    So I welcome the witnesses, and again I commend you, Mr. 
Chairman, for this hearing, and I yield back.
    Chairman Tauzin. The Chairman thanks the gentleman, and 
yields now to the gentleman from Maine, Mr. Allen, for an 
opening statement.
    Mr. Allen. Thank you, Mr. Chairman. I will waive an opening 
and submit my statement for the record.
    Chairman Tauzin. I thank the gentleman, and the Chair 
recognizes Ms. Schakowsky for an opening statement.
    Ms. Schakowsky. Thank you, Mr. Chairman. And welcome, Mr. 
Secretary. I am really pleased that the committee is taking the 
time to investigate the August 14 power outage that left 
millions of Americans and Canadians without electricity.
    I was in Israel watching on CNN late at night as the news 
broke and city after city was announced, and I think like so 
many people my first thought was to wonder if terrorism was the 
cause. And the relief, on finding that in this instance it was 
not terrorism, was tempered by knowing that in a country as 
technologically advanced as the United States we have an 
electric grid that is outdated and vulnerable to such drastic 
disruptions, whatever the cause, and so that was a returning 
sense of vulnerability and alarm.
    And while it is essential that we find out exactly what 
happened in a deliberative way, and that is what your task 
force is doing, it is also true that many, like Mr. Wynn, have 
been advocating for years that necessary fixes for the grid 
have to be made, but those fixes have been derailed.
    The blackout demonstrated to all of us that we can't delay 
any longer fixing the deficiencies in the U.S. Power grid. We 
can't allow for such roadblocks to prevent progress in the 
future. And in my view, we absolutely can't hold an agreement 
on the power grid hostage on behalf of an unsound and 
unwarranted desire by some to open up the Alaska wilderness for 
drilling, an anti-environmental move that would do nothing to 
prevent future blackouts.
    I support Mr. Dingell's wise suggestion that we move 
quickly to enforce reliability standards. Reliance on voluntary 
standards, the market and industry self-regulation will simply 
not suffice. Particularly given the poor state of the current 
U.S. Economy, we can't afford a repeat of the disruption to 
commerce and personal lives that came along with the blackout.
    We must work in a constructive bipartisan way to find 
solutions to the problems that caused the blackout. We need to 
move quickly and can't allow for extraneous issues or an 
irrational reliance on the market. Our constituents deserve 
better, and they deserve a guarantee that their government is 
acting to prevent future problems.
    My constituents have a few major questions: What are we 
doing to protect them? When will they see the results? So since 
we know the market alone won't work, what mechanisms are we 
going to employ to ensure our constituents that their State 
isn't next?
    And if it turns out that blackout was due to the behavior 
of industry actors, what are we prepared to do in response? 
These are questions that I hope over time we will get answers 
to and I hope we will continue these hearings. And I hope that 
at some point consumer experts will also be invited to present 
testimony. Thank you.
    Chairman Tauzin. Thank the gentlelady from Illinois. The 
Chair is pleased to recognize the gentleman from New Jersey, 
Mr. Ferguson, for an opening statement.
    Mr. Ferguson. Thank you, Mr. Chairman. And I appreciate the 
ranking member and Secretary and others for making today 
possible. We are going to obviously talk today about the events 
of August 14, which resulted in 50 million people being 
inconvenienced, businesses being hurt, and our Nation's 
security being put at risk, to name a few items. But it is also 
important to identify not only what went wrong, but what went 
right that day.
    I say that to highlight the good work Mr. Doyle was talking 
about before by PJM. By shutting down the power and by 
protecting the grid, PJM helped to contain the blackout and 
kept the lights on in most of my home State of New Jersey and 
in many other areas which otherwise would have been affected.
    While today nobody has identified the exact cause of the 
blackout, we do know that a disturbance within the system 
resulted in a cascade that crippled the energy grid. Cascades 
happen very quickly. They don't recognize State boundaries or 
international boundaries, as we found out. They also don't 
identify ownership of transmission lines.
    When a cascade occurs, communication over a wide network is 
vital. As a result of having a cohesive regional system in 
place, our State of New Jersey and PJM were able to help 
contain the blackout and assist our neighbors in New York 
during their time of need.
    I point this out because during the energy bill debate we 
had a healthy conversation about the need for RTOs, and their 
importance was highlighted again during the blackout last 
month. The blackout also taught us about the need for a 
comprehensive national energy policy, which as my friend from 
New York was talking about, all of the different energy 
questions he has, I would only suggest that if we had a 
rational national energy policy for the past decade, a lot of 
those questions would probably be a lot to answer these days.
    H.R. 6, which we have passed earlier this area, would take 
steps to correct a lot of these problems. It would require FERC 
to take a hard look at its policies regarding transmission 
rates and to set them high enough to get lines built. Our bill 
would also reform the siting of new transmission lines by 
giving States a year to act on an application for a new 
transmission line to be built. If the States failed to act, the 
DOE could step in and work with States to site lines that are 
deemed critical.
    All of these reforms are vital to modernize our grid, to 
credit investment incentives in our electricity industry and to 
reform transmission siting rules to reform the not in my 
backyard attitudes that are currently stopping lines from being 
built.
    I also believe we need to go one step further to recognize 
the important role that RTOs can play in a deregulated system. 
RTOs can help avoid another massive blackout by providing the 
oversight needed to guarantee reliability while also providing 
consumers with the lowest possible rate due to the purchasing 
power of a regional entity.
    Mr. Chairman, I look forward to the rest of this hearing 
and I yield back.
    Chairman Tauzin. I thank the gentleman, and thank you for 
reminding everyone that it was back in April when all of those 
reforms were passed by the House, much prior to this blackout, 
and all of them are going to be relevant as we go to 
conference. I thank the gentleman and I recognize the gentleman 
also from Illinois, my friend Mr. Rush, for an opening 
statement.
    Mr. Rush. Thank you, Mr. Chairman. Mr. Chairman, I want to 
commend you for holding these hearings, and I want to welcome 
the Secretary, Secretary Abrahams to this hearing. Mr. 
Chairman, I will try to be as brief as possible. I know that we 
have a busy time ahead of us.
    I caution this committee to not allow this hearing to 
deteriorate into a finger-pointing game with a lot of political 
posturing before we can know exactly what happened with the 
blackout and why it happened. Unfortunately, Mr. Chairman, I 
believe today's hearings will only highlight the fact that 
members of this committee, my esteemed colleagues on this 
committee, significantly disagree on major issues concerning 
energy regulation, electricity regulation.
    No doubt, after learning why transmission lines failed in 
the Midwest, and subsequently causing cascading failures to the 
North and in the East, we will continue to fervently disagree 
over how to appropriately legislate on this matter.
    However, there is also much we do agree on in this 
committee and in this Congress. In this regard, I want to voice 
my support for Ranking Member Dingell's belief that we should 
immediately pass a separate reliability bill that would at 
least partially address the blackout issues before us today.
    Mr. Chairman, there is no guarantee that this Congress will 
present to the President a comprehensive energy bill in the 
near future. Not only is there significant disagreement over 
the bill's electricity title, but there is significant 
disagreement over energy matters unrelated to the blackout.
    If we in Congress are serious about protecting Americans 
from future blackouts as quickly as possible, we should 
immediately pass a noncontroversial reliability bill with 
provisions that already enjoy broad-based support.
    We can address the other more contentious matters in the 
energy bill as time permits. Mr. Chairman, I believe that it is 
indeed important for us that we do provide for some type of a 
regulatory certainty so that we can send the right kind of 
signals to those investors who would have to invest their hard 
earned dollars into trying to upgrade our systems.
    Mr. Chairman, I am concerned because I don't know--no one 
has addressed, and no one has touched on the matter of how much 
we are going to upgrade the grids, upgrade our distribution 
system, and how much are the American people going to be asked 
to put up for this? Is it the $50 billion that the President is 
talking about? If that is the case, then who is going to pay 
for it? Will the rate payers pay for it? Will the taxpayers pay 
for it, or will the companies themselves pay for this upgrade?
    Mr. Chairman, you know, not too long ago in my city we had 
a large blackout, over a hundred thousand Chicagoans were 
without electricity during one of our hottest moments in the 
summer, during the July heat wave, and I am absolutely 
committed to doing all that I can, to make sure, as I know you 
are, to make sure that my constituents and your constituents 
don't have to experience this again. No one in this country 
should have to go through this type of experience, this type of 
traumatic occurrences and this type of financial sacrifices 
that they have been forced to make.
    And we should support Mr. Dingell's initiative in this 
regard, and this is the responsible thing for us to do as a 
Congress. And, Mr. Chairman, I look forward to the testimony. I 
look forward to the questions. And I look forward to give and 
take and to the deliberative discussions that we are going to 
engage in today.
    And, Mr. Chairman, I am absolutely focused on the issue of 
if--if we decide that there is going to have to be, which I 
believe there is going to have to be an upgrade in our grid, 
upgrade in our system, then I want to know who is going to pay 
for it.
    Chairman Tauzin. The Chair thanks the gentleman. The Chair 
reminds the gentleman that 2\1/2\ years ago when I predicted 
that we would be looking at New York very soon, I also included 
Chicago. Chicago has many of the similar problems as we 
examined them in the grids. I thank the gentleman for his 
intense interest because his great city obviously and his State 
is at risk here, too. I thank him for most of all his opening 
comment, that we ought not be politically spinning this thing, 
we ought to find out what happened and then we can debate how 
to solve it.
    The Chair is pleased now to welcome and recognize Mr. Pitts 
from Pennsylvania for an opening statement.
    Mr. Pitts. Thank you, Mr. Chairman. Welcome, Mr. Secretary. 
I will submit my entire statement for the record. Just let me 
say that I am hopeful that the hearing will examine why the 
blackout occurred and how future blackouts can be prevented.
    Unfortunately, some politicians have chosen not to discuss 
solutions to our energy problems, but instead blame all of our 
problems on deregulation and on the President's energy plan. I 
know from my own experience in serving in the Pennsylvania 
legislature back in the 1990's, when we passed the deregulation 
legislation there, that if done in the proper way deregulation 
can be successful, as it has been in Pennsylvania. And I look 
forward to hearing the testimony today. Thank you, Mr. 
Chairman.
    Chairman Tauzin. And the Chair is pleased, I think, to 
recognize the last member of our committee for an opening 
statement, the gentleman from Ohio, a State dramatically 
affected, and by some who indicate where the problem may have 
started, Mr. Strickland.
    Mr. Strickland. Now, we promised that we weren't going to 
point fingers today. Thank you, Mr. Chairman. I appreciate your 
work to put together these hearings regarding the August 14 
blackout.
    I recognize that we do not have all or even many of the 
answers to questions about what exactly caused the lights to go 
out on that Thursday afternoon. But it is imperative that we 
begin to sort through the information that we do have.
    I do look forward today, and I would particularly like to 
welcome Ohio's Governor Robert ``Bob'' Taft, who will be 
testifying later today, and someone that I admire greatly, Alan 
Schriber, who is the Chairman of Ohio's Public Utility 
Commission.
    On August 14, major cities were affected, including 
communities in northern Ohio. In fact not only did the lights 
go out in Cleveland, Ohio, but the city's water system 
experienced failures, and tens of thousands in the area were 
without safe drinking water. There is also no question but that 
the loss of electricity resulted in very harmful economic 
consequences.
    As Governor Taft's testimony will point out, quote, one 
major Ohio company lost steel-making capacity for more than a 
week. Rather than place blame before we have the full 
information, or use the August blackout as a reason to advance 
a larger energy agenda that is not without controversy. We 
should react to what we do know and move forward where there is 
much consensus. I am hopeful that we can pass legislation 
swiftly to address necessary changes in the regulation of our 
transmission grid.
    We need to make it abundantly clear who has responsibility 
for regulating our transmission grid, and assign that 
regulatory body the necessary authority to enforce strong and 
appropriate reliability standards.
    I think we can find common ground on the electricity 
reliability language that has been debated in this committee 
many times over the past several years. I urge the chairman to 
lead us, and I know he will, in the work necessary to pass 
legislation to improve reliability of our transmission system 
and to prevent future blackouts.
    In closing, I would just say that now is not the time to 
hold electricity reliability legislation hostage to a larger 
energy bill that has numerous controversial provisions in it. 
Instead, I would underscore the need to focus immediately on 
legislation that will help to keep the lights on, protect 
public health and safety, and avoid economic setbacks.
    And, Mr. Chairman, I yield back the remainder of my time.
    Chairman Tauzin. I thank the gentleman. I thank him for his 
words of confidence both in the Chair and the committee.
    For the record, let me, before we take a break, and I know 
you are anxious for one, Mr. Secretary, let me mention two 
individuals who are not here today who deserve an awful lot of 
credit for advancing so many of these hearings and so much of 
the information that we have used in order to pass the energy 
legislation that is now in conference, which includes so much 
of these electricity provisions: Chairman Barton of the Energy 
Subcommittee, who is attending an energy conference as we speak 
in Colorado, and his ranking member, Mr. Boucher, who have 
worked as a great team. I think they have held over 12 hearings 
leading up to the passage of the energy bill on the electricity 
title alone.
    So I want everyone to know that this committee, and its 
subcommittee, has been diligent in trying to find that 
consensus on this issue long before this crisis struck the 
Northeast. I want to thank the gentleman for his statement of 
confidence in the ongoing work we will have to do.
    Mr. Secretary, we will now take a 5-minute break. We will 
come back and hear your testimony, and go through a round of 
questions, and then later on this afternoon we will have the 
Governors coming in. So the Chair declares a 5-minute recess.
    [Additional statements submitted for the record follows:]
 Prepared Statement of Hon. Paul Gillmor, a Representative in Congress 
                         from the State of Ohio
    I thank the Chairman for the opportunity to learn more about last 
month's electricity blackout, the largest in U.S. history. This hearing 
is timely, both because of the events of August 14 and because of the 
major energy legislation we now have pending in a conference committee.
    August 14 was an event waiting to happen. If it had not happened 
then, it likely would have occurred soon thereafter in another place 
because of developments in the electricity marketplace in recent years. 
Electricity use and generation has been growing much faster than 
transmission capacity. We are putting more and more power into a system 
which is less and less able to carry it reliably.
    I would like to extend a special welcome to the Honorable Bob Taft, 
Governor of my home state of Ohio, and fellow Buckeye Alan Schriber, 
Chairman of the Public Utilities Commission of Ohio. I look forward to 
hearing their testimony later this afternoon regarding the blackout's 
affects on Ohio and the nation's human and economic health.
    While the exact cause of the blackout remains unclear, again, we do 
know that over the last several years, power companies have rushed to 
build new, de-regulated generation without the necessary expansion of 
the country's more-regulated transmission grid, where the Federal 
Energy Regulatory Commission (FERC) requires that those owning the 
lines sell access at a wholesale price. Yet, even if there were 
sufficient transmission capacity, it is difficult to predict whether 
such investment in new lines would have prevented the blackout as 
preliminary investigations point to the possibility of a series of 
human and mechanical errors.
    With future blackouts projected as the demand for power increases 
and transmission capacity remains stagnant, we in Congress must now 
focus on setting electricity reliability standards, while at the same 
time encouraging the expansion and modernization of the nation's power 
grid.
    As we further delve into what happened on August 14, we must also 
soon consider reconciling the differences between the House and Senate 
versions of the energy bill. Both measures contain provisions designed 
to speed approval of building lines on federal lands, and in the case 
of H.R. 6, includes additional language giving transmission companies 
more incentives for new investment. We must have a relentless 
commitment to producing a meaningful, comprehensive energy package 
aimed at conservation, alleviating the burden of energy prices on 
consumers, decreasing our country's dependency on foreign oil, and 
increasing electricity grid reliability. Furthermore, it is my hope 
that 50 million Americans without power, and no more, will be enough 
momentum to help put our energy bill into practice.
    I look forward to hearing from the well-balanced panels of 
witnesses over the next two days and yield back the remainder of my 
time.
                                 ______
                                 
   Prepared Statement of Hon. Vito J. Fossella, a Representative in 
                  Congress from the State of New York
    An old Billy Joel song starts out, ``I've seen the lights go out on 
Broadway.'' While many felt such a scenario was a thing of the past, it 
again became a reality on August 14th. Before New Yorkers could say 
Piano Man, they abruptly experienced the largest blackout in U.S. 
history. Many were forced to crawl out of the subway and sleep on 
streets as this country's biggest city worked to get public 
transportation and traffic communications back up and running. Although 
many steps have been taken to enhance reliability since the blackouts 
of 65 and 77, August 14th proved one thing definitively: our nation 
still has a long way to go in improving its system of delivering 
affordable, reliable electricity to Americans.
    Congress took great strides towards expanding markets and the 
availability of low cost power with the Energy Policy Act of 1992. By 
allowing wholesale generators greater access to the grid, this bill 
opened the door for consumer choice and the benefits of lower prices 
through embracing the free market. However, there is still work to be 
done. While the market for power generation is ripening, businesses 
continue to face obstacles in developing the transmission capacity 
necessary to bring this power to consumers. This year, our Committee 
has tried to eliminate regulatory red tape for consumers. The House 
passed energy bill once again paves the way for improving our energy 
markets by repealing ancient, burdensome regulations, such as the 
Public Utility Holding Company Act, and providing incentives for 
investment in transmission. The bill also recognizes electricity 
markets are interstate in nature. It provides the federal government 
with increased authority over the siting of interstate transmission 
lines and creates mandatory national reliability standards. These 
policies maintain states rights, while simultaneously recognizing 
electrons don't stop at political or state boundaries.
    In debating energy legislation, we must also examine ongoing 
efforts of federal agencies. One such initiative is the Federal Energy 
Regulatory Commission's Wholesale Market Platform. This proposed 
rulemaking promotes reliable energy markets by encouraging the 
formation of Regional Transmission Organizations, or RTOs. Such 
independent grid operators provide greater price transparency and more 
efficient flow of power to consumers. As FERC Chairman Pat Wood 
recently noted, ``the cascading nature of this blackout offers an 
object lesson of how the electricity grid requires regional 
coordination and planning.'' This is exactly the approach Congress 
should look to support by allowing FERC to continue developing its 
proposed rule. Independent oversight of the transmission grid is the 
most effective way to bring about the necessary policy coordination and 
needed investment to ensure future reliability. We must work vigorously 
to advance such policies as we move into the energy conference.
                                 ______
                                 
   Prepared Statement of Hon. George Radanovich, a Representative in 
                 Congress from the State of California
    Thank you Mr. Chairman for holding this hearing, and I applaud your 
efforts to identify the cause of the worst blackout in the nation's 
history and the steps needed to prevent similar events in the future.
    Our nation's health, safety, and economic well-being are tied to 
the reliable, affordable supply and delivery of electric power. 
Appropriate action must be taken to ensure that the system is reliable, 
efficient, and receives the kind of investment that is needed to 
maintain its service without compromising long-term failure.
    This blackout illustrates the fact that electricity is a regional 
commodity that doesn't respect state boundaries. Until we start 
thinking and planning regionally, and using new technology to build a 
more modernized grid, our nation will continue to be vulnerable to 
massive blackouts.
    The days are numbered for those who used the blackouts in 
California as a reason to stall market reforms and attack deregulation. 
As energy demand increased, we properly opened up the wholesale 
electricity market to greater competition. The right balance is not 
easy to achieve, but it is not impossible to craft energy regulation 
that will cut prices, improve choices and ensure a secure supply.
    Utilities and their customers have been painfully reminded by the 
meltdown in electricity markets that electricity is not just another 
commodity, but is instead an essential service for all consumers. Our 
nation has recognized the importance of a reliable transmission grid to 
investors, customers and the citizens of the U.S. Our country needs 
legislation that will promote reliability in our wholesale power 
markets. This will be achieved by working closely with FERC and the 
states to accommodate regional needs, state authority and other 
relevant concerns.
    Deregulation must not mean no regulation. Nor can it mean an inept 
regulator who arbitrarily intervenes in private decisions like Gray 
Davis. He not only helped freeze retail prices while making utilities 
pay volatile wholesale prices, but he also discouraged them from 
hedging the resultant risk through futures contracts.
    In the end, I hope we can work together to forge bipartisan 
legislation on a fair and effective national energy policy--one that 
protects consumers from the horrific consequences of a massive 
blackout.
    Thank you, Mr. Chairman, for holding this hearing today. I look 
forward to the witnesses' testimony.
                                 ______
                                 
Prepared Statement of Hon. Diana DeGette, a Representative in Congress 
                       from the State of Colorado
    Mr. Chairman, I thank you for holding these timely hearings. The 
testimony we will hear over the course of the next two days presents 
us, as Members of the Energy and Commerce Committee, with an excellent 
opportunity to gather the information we need to fulfill our duty to 
craft our nation's energy policy. I hope we all avail ourselves of the 
opportunity to listen to the experts, learn what they currently know 
about the outage and identify areas where our knowledge is lacking.
    I would like to begin by echoing the call of our esteemed 
Democratic leader, Ranking Member Dingell. I believe that we should 
empower the North American Electric Reliability Council (NERC) to 
mandate and enforce federal reliability standards. This measure is 
sensible, enjoys bipartisan support, and is relatively non-
controversial.
    But I urge caution in adopting more sweeping changes that are far 
more controversial. This includes a push for more deregulation and 
greater federal control over power-line siting. Public catastrophes do 
not warrant action that ultimately leads to public debacle. Many of the 
early responses to this crisis are guilty of overreach. I voted against 
H.R. 6 when our committee considered it earlier this year for what I 
believe are solid and serious policy considerations.
    The editorial pages of Denver's newspapers have raised similar 
concerns. I read from a Rocky Mountain News editorial dated August 
20th. ``We need an energy bill that spurs economic growth and helps 
ensure affordable and reliable energy supplies for Americans. What we 
don't need is a special-interest banquet that picks the pockets of 
taxpayers.''
    I agree with their call for an energy bill that increases 
affordability and reliability. In my view, we must also reduce 
consumption and use energy more wisely. Conservation must be a part of 
this policy. New technology, identified by the Energy Star label, could 
reduce wasted energy by up to 75 percent. These changes, while small on 
an individual basis, can have enormous impacts in overall energy 
consumption.
    During our earlier consideration of H.R. 6, I offered an amendment 
that would have made Congress follow the same energy efficiency 
requirements we have already required the other branches of government 
to meet. It's time for Congress to encourage widespread adoption of new 
technologies to reduce energy consumption that we hope will be widely 
adopted in commercial and residential properties. We need to continue 
our efforts on behalf of renewable energy programs and energy efficient 
programs. Maybe my amendment, which recognizes that what's good for the 
goose is good for the gander, will be adopted during the energy bill 
conference proceedings.
    Of course, this is a small part of the solution. But I do not 
believe that conservation should play a small part in our national 
energy debate. And I believe that H.R. 6 was not sufficient in 
recognizing the very real gains that conservation can achieve.
    In conclusion, the 2003 blackout was a staggering event. Thirty-
four thousand miles of transmission lines were adversely affected in 
approximately nine seconds, eventually leaving tens of millions of 
Americans across the Midwest and Northeast without power. Colorado was 
not walloped, but I do not fool myself that Coloradoans are immune to 
future blackout threats. Let's work together--across the aisle and 
across the nation--to improve reliability standards. Let's undertake 
more conservation efforts. And let's listen to the experts as we figure 
out the best way to avoid a repeat of the 2003 blackout.

    [Brief recess.]
    Chairman Tauzin. The committee will please come back to 
order. And we are pleased to now welcome the very patient 
Secretary of Energy of the President's Cabinet, and our dear 
friend, former Senator of the U.S. Senate, the Honorable 
Spencer Abraham, who is accompanied today by the Deputy 
Secretary of the Department of Energy, the Honorable Kyle 
McSlarrow, who is here to assist the Secretary in his 
testimony.
    Mr. Secretary, again, we are anxious to hear from you as to 
what your Department's understanding of this event is and any 
suggestions you might have about how we ought to proceed from 
here and what you believe will follow. Particularly, I know we 
are all interested in the joint task force that has been 
assigned to you and the officials in Canada to make sure that 
we have not only a multi-state but international cooperation in 
solving this problem.
    So again we thank you. We appreciate your service to the 
country, and your willingness always to come to our committee 
and share with us information as we desperately need it today. 
Secretary Abraham.

 STATEMENT OF HON. SPENCER ABRAHAM, SECRETARY, U.S. DEPARTMENT 
OF ENERGY; ACCOMPANIED BY HON. KYLE McSLARROW, DEPUTY SECRETARY 
                           OF ENERGY

    Secretary Abraham. Mr. Chairman, thank you very much. I 
thank you and the ranking member for inviting us here today. 
And as you indicated, I an joined by our Deputy Secretary, Kyle 
McSlarrow, who along with myself has been very active in 
overseeing the work of our task force. We appreciate the chance 
to give an initial briefing to this committee.
    As you know, President Bush and Prime Minister Chretien of 
Canada formed this joint task force just a few hours after the 
lights went out across large portions of the United States and 
Canada on August 14. I am the cochairman of the task force, 
along with my Canadian counterpart, Canada's Minister of 
Natural Resources Herb Dahliwal.
    I can assure this committee that both Minister Dahliwal and 
I take the responsibilities which we have been given extremely 
seriously. We have been in frequent contact since August 14, 
and since the task force was created, and will certainly apply 
our own personal commitments as well as the resources of our 
respective department and ministry to the task force efforts.
    As a personal matter obviously for me, this is significant 
not just because it happened here in America, but because one 
of the affected States is my own home State, Michigan. Like a 
number of the Members of Congress who are present here today, I 
have family members who were directly affected by this, and I 
can assure the Members of Congress that even as you implore us 
to answer the question of what happened and why, even more on 
my doorstep are my own relatives who want to know the answers 
to the question, those questions as well. And we intend to 
provide them.
    Our job is to find out why such a widespread power outage 
occurred and to recommend measures to help keep something like 
it from ever happening again. To ensure complete and 
cooperative investigation, the task force is working closely 
with the Governors of the States involved, some of whom I know 
will be testifying later today, as well as the affected 
Canadian Province of Ontario. We are also working with the 
major entities involved, with the operation of our electric 
transmission infrastructure, including the independent systems 
operators that manage the flow of power over transmission 
systems, the utility companies whose customers were affected by 
the blackout.
    Today, less than 3 weeks after the blackout, I think we are 
making good progress in putting together the extraordinarily 
complex sequence of events which surrounded the incident. And 
while we are encouraged by the progress, there is still a lot 
more to be done before we can determine exactly what caused the 
blackout and why it spread.
    As we all have heard, there are a number of theories 
already circulating as to what may have happened and who might 
be responsible. All of that, no matter what the source, is only 
speculation at this point. Determining the exact causes of this 
blackout is far too complex a task for anyone to know all of 
the answers at this stage. We are gathering information on 
about 10,000 individual events that happened across thousands 
of square miles in the space of about 9 seconds.
    All of that information has to be collected, compiled, 
sequenced, and analyzed before any credible conclusions can be 
drawn.
    To try to put the complexity of this inquiry into 
perspective, I think it is important to understand the nature 
of the electric transmission grid. Our grid system consists of 
thousands of power plants, tens of thousands of substations, 
switching facilities and other specialized equipment, hundreds 
of control centers and about 260,000 miles of power line 
stretching all across the country.
    The American portion of the area affected by the blackout 
included 34,000 miles of transmission lines and about 290 power 
generating units, which is a substantial segment of the 
national total. As members of this committee who have worked on 
these issues know, this intricate network delivers electric 
power to virtually every home and business in America.
    Electricity, because it can't be stored, might be produced 
almost the very instant it is used. It must be moved 
efficiently from where it is produced to where it is being 
consumed, traveling over this highly technical grid system at 
the speed of light. Keeping this complicated web of 
interconnected wires and power plants and control facilities 
operating is I think a miracle of modern engineering, and it is 
a miracle that happens 24 hours a day all year round.
    It is without a doubt the most complex and elaborate piece 
of infrastructure that this country has. And it is, in my 
judgment, the most important, because without electric power 
there is no U.S. Economy. When the lights go out, as members of 
this committee have already suggested today, modern life as we 
know it grinds to a sudden halt, transportation is interrupted, 
communications fail, water systems shut down, factory work is 
disrupted, food spoils, businesses lose money, and people are 
inconvenienced and even endangered.
    And that is why it is so important that our task force 
conduct a complete and totally thorough investigation of what 
happened on August the 14. It is why we have so many experts 
from so many sectors of government and industry working in our 
search for answers.
    The United States members of our task force are Secretary 
Tom Ridge of the Department of Homeland Security, Pat Wood, who 
is the Chairman of the Federal Energy Regulatory Commission, 
and Nils Diaz, who is the Chairman of the Nuclear Regulatory 
Commission.
    The Canadian members of the task force are Deputy Prime 
Minister John Manley, Kenneth Vollman, who is the Chairman of 
Canadian National Energy Board, and Linda Keen, who is 
President and CEO of the Canadian Nuclear Safety Commission.
    The task force is organized into three working groups that 
are focusing on critical areas of the investigation. Our 
Electric Systems Working Group, led by experts at our 
Department and FERC, along with Natural Resources Canada, is 
focusing on the transmission infrastructure, its workings and 
management. The Nuclear Power Working Group, which is managed 
between the Nuclear Regulatory Commission and the Canadian 
Nuclear Safety Commission, is looking at how nuclear plants in 
the affected areas performed during the outage. Our Security 
Working Group, managed with the Department of Homeland Security 
and the Canadian government's Privy Counsel Office, is looking 
at all of those security aspects of the incident, including 
cyber security.
    Technical support for the Electric Systems Working Group is 
being provided by our department's Consortium for Electrical 
Reliability Solutions, the CERTS group, a group of experts from 
our national laboratories, and a number of universities, people 
with broad experience in transmission and power delivery 
issues.
    That team, which has investigated a number of major power 
outages, including the 1999 blackouts, includes some of the 
world's foremost experts in transmission reliability issues, 
grid configuration, transmission engineering, wholesale power 
markets, outage recovery and power system dynamics.
    In addition, we have recruited transmission experts from 
the Bonneville Power Administration to help in the 
investigation as well. These are the experts who led the team 
that examined the 1996 blackouts in the West.
    Each working group will consist of technical management and 
engineering experts appointed by the Governors of each U.S. 
State affected by the blackout and the Province of Ontario in 
addition to the governmental agencies involved in the 
investigation. That will allow the States who are affected to 
be directly involved in helping us to both collect the 
information and try to analyze it effectively.
    Once we are able to determine what happened, why and how, 
we will then enter a second phase of the task force's 
assignments, which is formulating recommendations to address 
the problems which we uncover. Any recommendations that the 
joint U.S.-Canada task force makes will likely focus on 
technical standards for operation and maintenance of the grid, 
and on the management of the grid, in order to more quickly 
correct the problems which we identify.
    Mr. Chairman, we believe we have put together a superlative 
investigative team. We are pleased at the level of cooperation 
we are receiving from State and Provincial governments, 
regulatory agencies, utility companies and industry groups, and 
we work together in this binational effort.
    We are determined to complete this inquiry in a timely 
manner. We hope to have conclusions and recommendations in a 
matter of weeks, not months, but we will not compromise quality 
for speed. We want answers quickly, but we want to make sure 
they are the right answers. The American and the Canadian 
people want and deserve answers about what happened to our 
power system on August 14, and we on the task force are aware 
of the importance and the urgency of our assignment, and we 
know the vital role that our findings will play in maintaining 
the energy security of both of our countries. That is why we 
are dedicating so many resources to the investigation. That is 
why we will not engage in any sort of preliminary theorizing or 
speculation about what might have happened. We will focus only 
on the facts, we will follow the facts where they lead us, and 
we will not draw any conclusions until the facts are in.
    Mr. Chairman, I want to thank you, thank the ranking member 
of the committee for inviting me here today to appear before 
you on this important matter, and I will be glad to try to 
answer questions at this time.
    [The prepsred statement of Hon. Spencer Abraham follows:]
    Prepared Statement of Hon. Spencer Abraham, Secretary of Energy
    Good morning, Mr. Chairman and members of the Committee. I am 
pleased to be here today to discuss the August 14th blackout and the 
work of the joint U.S.-Canada Task Force that is investigating the 
cause or causes of the blackout and the reasons it cascaded to 
encompass such a wide area.
    Given that the U.S.-Canada Task Force has not yet completed its 
investigation, I will not speculate today as to why the August 14th 
blackout occurred or why it was not better contained. Such speculation 
would be premature. The Task Force will follow the facts wherever they 
lead us. We won't jump to conclusions. Our investigation will be 
thorough and objective.
    At the appropriate time and in consultation with the other U.S. and 
Canadian members of the Task Force, I will report to you on the Task 
Force's findings and recommendations. In the meantime, I want to 
describe for the Committee how the Task Force was formed and how it is 
conducting its work.
    On August 15, 2003, only hours after the blackout had occurred, 
President Bush announced that he and Canadian Prime Minister Chretien 
had agreed to form a Task Force to investigate the causes of the 
blackout and to make recommendations on how to minimize the risk of 
future outages. The President and Prime Minister determined that, given 
the international scope of the August 14 event, a bilateral 
investigation would be more efficient and would end the 
counterproductive international finger-pointing that began immediately 
after the blackout.
    President Bush appointed me to serve as co-chair of the Task Force 
along with Canadian Minister of Natural Resources Herb Dhaliwal, 
appointed by Prime Minister Chretien. On August 20th, I met in Detroit 
with Minister Dhaliwal. That day, we agreed on a joint communique 
expressing our determination to work cooperatively and quickly in 
carrying out the Task Force's work. Based on our discussions with each 
other and with relevant government agencies in each country, we also 
agreed on the membership of the Task Force and to an outline that lays 
out the working structure for the inquiry and the initial questions 
that the Task Force will address.
    The U.S. members of the Task Force are Tom Ridge, Secretary of 
Homeland Security, Pat Wood, Chairman of the Federal Energy Regulatory 
Commission (FERC), and Nils J. Diaz, Chairman of the Nuclear Regulatory 
Commission. The Canadian members are Deputy Prime Minister John Manley, 
Kenneth Vollman, Chairman of the National Energy Board, and Linda J. 
Keen, President and CEO of the Canadian Nuclear Safety Commission.
    Minister Dhaliwal and I agreed to a narrowly focused investigation 
to determine precisely what happened--in phase one, to identify why the 
blackout was not contained, and in phase two, to recommend what should 
be done to prevent the same thing from happening again. Our 
recommendations will focus on technical standards for operation and 
maintenance of the grid, and on the management of the grid, in order to 
more quickly correct the problems we identify.
    Because of the complexity of the work before us, the Task Force 
established three working groups to support the fact-finding phase of 
its work--an electrical system working group, a security working group, 
and a nuclear issues working group. These groups are chaired by the 
U.S. and Canadian agencies best able to carry out the work. In 
addition, as was stated in the August 20 statement issued by the U.S.-
Canada Task Force, the North American Electric Reliability Council 
(NERC) ``and the affected Independent System Operators and utilities 
have agreed that their investigations will supplement and contribute to 
the work of the Task Force.''
    Even before my meeting with Minister Dhaliwal, and shortly after 
the blackout occurred, I used my authority as Energy Secretary to 
assemble and dispatch a number of individuals to begin investigating 
the blackout. I also asked industry officials with involvement in the 
blackout and the recovery process to preserve all data of potential 
relevance to our investigation. The Task Force team has grown larger 
since those first days and is working hard to collect and review the 
massive amounts of data involved, as well as to interview officials 
from NERC, the relevant utilities, and the independent system 
operators.
    As I have repeatedly stated since being named Task Force co-
chairman, we are not setting a deadline for completing our work. We are 
focusing on doing the job right--not on meeting an arbitrary deadline. 
The complexity of the challenge demands no less than our full attention 
and enough time to do a complete and thorough job of assessing what 
happened and putting forth our recommendations and solutions.
    Finally, Mr. Chairman, I want to thank you for your complimentary 
remarks concerning my efforts with respect to the investigation. I look 
forward to answering any questions you may have.

    Chairman Tauzin. I thank you, Mr. Secretary, and the Chair 
recognizes himself briefly for a round of questions.
    Let me first, I guess, try to put this in layman's terms so 
we understand what we are looking at. In a house, in a home in 
which we live, power surges occurs. There is a short on a wire. 
Our homes are protected with circuit breakers, and the surge 
occurs, and the circuit breaker switches off, and our house 
doesn't burn down, but we are out of juice on that circuit. 
Lights go out, appliances stop until we flip the circuit switch 
back on and we got power again, and if that short isn't 
corrected, it clips it again.
    In a big grid, multistate, international, I assume that is 
part of the problem, too, that we have a series of events, some 
involving perhaps a tree falling on a line, we are told, 
perhaps a power plant going down, and, in the context of the 
surges or the shortages, whatever happens in that system, 
circuit breakers started going off. We know that parts of the 
system were protected from shut-down. Parts of the Northeast 
continue to have their lights, continue to have electricity. 
Others failed to work. So the two questions I think that we 
will anxiously await, all the technical gurus and the task 
force are working on, number 1: How did it start? That is 
important, what started it, although that is not the most 
critical one. Storms knock down power lines; ice storms, 
hurricanes, tornadoes, earthquakes knock down power lines, put 
stations out of work.
    The most critical one is we have these massive grids. Why 
did it spread? Why did these power surges develop, and why 
didn't the protections in the grid work? Was it a failure of 
the Reliability Council having enforcement authority to make 
sure standards were enforced throughout the grid that would 
have prevented the spread, or was it something else? Can you 
give us any kind of idea yet as to what you are learning or 
what you think we may want to focus on to reexamine with 
Governors and power company officials and others coming to our 
committee in the next 2 days?
    Secretary Abraham. Mr. Chairman, I should state at the 
outset and repeat what I said in my opening statement: Until we 
have what I think are and what our task force has a comfort 
level with and the analysts have given us a comfort level, I am 
not going to try to prejudge what might have happened or why it 
cascaded, although you have identified the first two parts of 
our responsibility, and why it cascaded, is that, in many ways, 
as you say, is even more important. There are a lot of things 
that might create surges or instability in terms of the grid.
    We do know some things, though, just as a fundamental 
matter. One is that these things happen very fast, and yet 
humans are in various rolls that are critical to the process, 
and people can't move as fast as these events can develop.
    Chairman Tauzin. Were there communications problems?
    Secretary Abraham. We are looking at that. We are also 
obviously looking at the interesting question of why certain 
areas were able to isolate themselves and others weren't.
    One of the broader issues, you know, that we have been 
talking about for some time is the need to move to a smarter 
grid, one that relies--or allows for much more instantaneous 
communication if issues happen, and all of those are part of 
the sort of the role or the possibilities that we will be 
taking into account. But it is early in the process, now, too 
early to specifically say why things failed in certain areas.
    Chairman Tauzin. Mr. Secretary, it is clear that States, 
communities in those States, are becoming more reliant on 
electricity generated and functioning over interstate 
boundaries. We now see in the Northeast blackout a situation 
where those boundaries even extended to another country, and I 
realize the President has called upon the task force 
representing both countries to look at this.
    As we wrestle with the problems of multistate 
jurisdictions, the jurisdiction of the FERC and your 
Department, and the complexities working out siting problems 
between sites, does the fact that these lines cross 
international boundaries add a level of complexity that we need 
to focus on?
    Secretary Abraham. It certainly adds more to the challenge, 
but I don't believe it is the case, at least in terms of the 
U.S. and Canada, that there is a lack of relationship or lack 
of communication or working relationship between us. We have 
initiated a number of strong binational energy dialog and 
working group activities to deal with these issues, but the 
point you make, helps to underscore how big this grid is, how 
complicated it is, how far we are now hauling electricity and 
it is not just a local or a single-State issue any longer, and 
the fact that it is international in scope underscores, I 
think, the challenges we have.
    Chairman Tauzin. And the final question, we have debated 
transmission in this committee for a long time. We have been 
told the transmission is the lowest profit, if you will, sector 
of the utility industry, that incentives for new transmission 
lines are desperately needed, that authorities to make sure 
those lines are built to at least the technical standards are 
desperately needed, that coordination between States and siting 
is desperately needed, all of which we tried to include in the 
energy package we sent to the floor. Do you concur that all 
three items are necessary basic reform, as we move to a 
solution?
    Secretary Abraham. Well, again, I want to separate what 
took place on August 14 from a broad discussion of public 
policy decisions. We don't know yet what happened on August 14.
    We do know, as I think was underscored in the national grid 
study which our Department completed last year, that the 
combination of growth and demand for electricity, the age and 
condition of the grid, and its congestion levels and so on 
require us to address all of the issues you identified, and 
obviously the recommendations of that are still well-known to 
this committee.
    Irrespective of what we might determine as to the causation 
of the events of August 14, those issues will remain before 
this country and a challenge for us to address as we move 
ahead.
    Chairman Tauzin. Thank you, Mr. Secretary.
    The Chair welcomes and recognizes the ranking Democrat, 
former chairman of our committee Mr. Dingell, for opening 
statements--for a round of questions, rather.
    Mr. Dingell. Mr. Chairman, thank you.
    Welcome, Mr. Secretary.
    Secretary Abraham. Thank you.
    Mr. Dingell. Mr. Secretary, I was impressed by your 
comments about the way you are inquiring into this matter, and 
I commend you for that. You and I have had some correspondence 
on this, and I would like to ask at this time, Mr. Chairman, 
that that correspondence----
    Chairman Tauzin. Without objection, the Secretary's 
response will be made part of the record.
    [The information referred to follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Dingell. There is one letter with questions I would 
appreciate an answer to, Mr. Secretary, and I hope you will 
give that.
    Secretary Abraham. Actually, we were working on that, and I 
will try to answer any part of that today as I can.
    Mr. Dingell. Now, Mr. Secretary, we have, really, an 
ongoing query to find out what was the cause. We also have no 
assurances that this blackout could not occur again; isn't that 
right----
    Secretary Abraham. Well----
    Mr. Dingell. [continuing] under current--under current 
practices, and so forth.
    Secretary Abraham. Until we know the exact reasons for this 
blackout, I think it is difficult to answer whether this 
particular type of incident would occur again, but I would just 
reiterate what I said in response to the last question: The 
condition of the grid, its age, the demands being put upon it 
causes a lot of concern, as we have expressed in our grid study 
and other comments the Department has made.
    Mr. Dingell. Now, Mr. Secretary, are you familiar with the 
reliability sections of the Senate and the House bills?
    Secretary Abraham. Yes.
    Mr. Dingell. Does it--does the administration support them?
    Secretary Abraham. Yes, we do.
    Mr. Dingell. Do you have any additional suggestions for 
legislative actions which would perhaps prevent either the 
event of August 14 or something similar thereto from occurring 
again?
    Secretary Abraham. We do. I believe, Congressman, that 
probably next week a broader statement of administrative 
position conferees will be forthcoming, but I think we have 
expressed, and I think my answers to Congressman Tauzin's 
question before indicate, our support for the need for 
providing incentives for investment in transmission, for the 
reliability standards that you have just referenced for 
addressing the broad set of issues that threaten the long-term 
health of the transmission grid.
    Mr. Dingell. Now----
    Secretary Abraham. Number of provisions, in other words, 
that are in----
    Mr. Dingell. I am concerned. General statements tend to be 
somewhat troublesome. They are hard to reduce to legislative 
language.
    Will you be submitting to us legislative language, or will 
you be submitting to us statement of principles?
    Secretary Abraham. I think that we will be submitting a 
fairly specific statement of administration position to 
conferees on the various issues that will be going to 
conference on the energy bill. I believe next week may even be 
the timetable.
    Mr. Dingell. I find that--I find us, Mr. Secretary, in a 
position where neither you nor I or anybody on the committee or 
regulatory agency can assure us that this kind of blackout, or 
at least these kinds of events, couldn't occur again, and I am 
very troubled by the need to get reliability authority in at 
the earliest time.
    I remember one time I was much praised for getting the 
clean air bill through the House in 13 hours. I observed it 
took me 13 years to get it through in 13 hours.
    We are now in our eighth or ninth year of hassling around 
with a general energy bill, and a big broad energy bill carries 
with it huge amounts of controversy that preclude early and 
speedy enactment, so I am concerned that--that, if we have a 
serious problem with regard to reliability, we address the 
reliability questions to reduce possibilities of confronting 
another event like we found on August 14 and the days that 
followed.
    Can you tell us that--that waiting around for a big energy 
bill will give us assurances that we can protect people in the 
Northeast and Midwest from the kind of events that we saw on 
August 14, or we would be better off if we are interested in 
reliability to bring forward a provision which will--which can 
be speedily passed on which there is agreement in the House and 
Senate already with regard to reliability? Which is the better 
course?
    Secretary Abraham. I think there are a lot of provisions in 
the energy bill that enjoy the kind of consensus support that 
the reliability provisions enjoy, and I think there are a few 
areas of contention that need to be worked on.
    I guess I would say this, that every few weeks or months, 
at least during the time that I have held this job, there has 
been a sector of the energy world that has had something either 
described as a crisis or certainly a serious problem, whether 
it is natural gas storage a few weeks ago or this blackout, or 
it is high gasoline prices. I think to ignore those other 
challenges would be----
    Mr. Dingell. I am not talking about ignoring them, Mr. 
Secretary.
    My time is running out.
    I just want to observe that some of these other areas are 
much more controversial. We can get to the areas where we have 
agreement, do so quickly, and then proceed to address the other 
more contentious questions which could delay us addressing the 
reliability question.
    I am curious which was the course that you would take.
    Secretary Abraham. I would reiterate what I have said to my 
friends on both the Republican and Democratic side for 2 years, 
which is let us get an energy bill done quickly, and I think 
now the conferees have plenty of reason and plenty of momentum 
to move quickly.
    We have conferenced much of this legislation, almost to 
completion a year ago. I don't think that that much has 
changed, so I believe it can happen quickly, and I would 
encourage the conferees and certainly the Chairman.
    Mr. Dingell. I would note in sheer desperation the Senate 
passed a bill which--which they had never even considered. It 
was last year's bill. They seemed to be trying to punt, and 
they have punted it, I think, either over here or into 
conference.
    What I am trying to do is figure out how to kill the 
closest snake first. It appears to me we are going to be busy 
killing snakes and maybe not the one that is most near us or 
that constitutes the most serious danger.
    Secretary Abraham. Well, I commend the Senate for finishing 
an energy bill this year, doing it in less time than it took 
them last year. I hope the same pragmatism will produce a bill 
through conference as soon as possible.
    Chairman Tauzin. Thank you, Mr. Dingell.
    Mr. Dingell. Thank you, Mr. Secretary.
    Chairman Tauzin. The Chair recognizes the chairman of the 
Telecommunications Subcommittee, Mr. Upton from Michigan, for a 
round of questions.
    Mr. Upton. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for your statement this afternoon.
    I would like you to comment briefly about the need to 
upgrade our transmission facilities, and in light of that, two 
statements that I see. One is a recent energy report that 
indicated, and I quote, some utilities are concerned that 
transmission investments may be of greater benefit to their 
competitors than to themselves, and, as a result, many 
promising technologies are left stranded.
    The second statement that I think you made at one point, 
indicating the need to increase rates of return from investment 
in transmission facilities, and in that--those remarks, I think 
it was understood that FERC had not acted sufficiently to 
address transmission investment.
    We have a provision in H.R. 6, the energy bill that passed 
the House, that requires that for transmission rulemaking to 
provide better rates, but there are a number of us that are 
concerned that they may not propose anything better than what 
they have already offered, and I would like to ask you whether 
you would support provisions to the Federal Power Act that 
would require for it to provide better transmission rates if, 
in fact, it is needed to encourage transmission expansion.
    Secretary Abraham. The administration, I think, has 
previously endorsed those provisions that are in the House 
bill.
    I think that the need for investment in terms of upgrading 
the transmission grid is obvious, and several Members who have 
worked on it spoke earlier very authoritatively about the need 
to do that.
    One of our concerns is not only that we upgrade the grid, 
but that we move to a smart grid, to a smarter grid, and also 
one that works more efficiently, which is also one reason we 
have invested very substantially in things like 
superconductivity research, to try to make the grid more 
efficient in its operation.
    One other point I would make is our grid study revealed--
and I think most experts concur on--is that the congestion in 
the grid is driving up the cost of energy for the ratepayers of 
this country today, and that, in fact, if we improve the 
transmission grid and relieve that congestion, it will actually 
have a positive impact on the other side of the bill, the part 
that relates to the cost of generation.
    Mr. Upton. As you begun to investigate the events of August 
14, is one of the things you are going to be looking at is the 
wholesale transactions that were scheduled to take place that 
day, particularly in the Midwest?
    Secretary Abraham. Well, we intend to look at all the 
events, to determine in both sequence and how they related to 
what took place, so those events would be included in the scope 
of the work we do.
    Mr. Upton. Now, for the most part, my district escaped 
direct impact because of the energy blackout, but one of the--
one of the events, and I mentioned this in my opening 
statement, that really did trigger an impact, that hit us, was, 
in fact, the almost immediate spike in gasoline prices about 2 
weeks later when they went up about 20 cents, in fact, 
overnight.
    Are those refineries back on-line that were taken out?
    Secretary Abraham. It is my understanding they all are back 
on-line.
    There was one, I think, in the Detroit area which was down 
a little longer than others because of problems that I think 
ensued in the wake of the blackout, but it too, is operational. 
So my understanding is that they all are up and functioning.
    Mr. Upton. Thank you.
    I yield back my time.
    Chairman Tauzin. Gentleman yields back, and the Chair is 
pleased to recognize the gentleman from Massachusetts, Mr. 
Markey for a round of questions.
    Mr. Markey. Thank you, Mr. Chairman.
    Mr. Secretary, I read in the paper that the Bush 
Administration has agreed to a proposal by Senator Shelby to 
prevent FERC Chairman Wood's proposed standardized market 
design plan from being implemented until the year 2007.
    What if it should turn out that one of the reasons why the 
existing system failed to contain the blackout was a lack of 
standardized market structure, including strong regional 
transmission organizations that communicate well with each 
other? Haven't you traded away already what is potentially one 
of the solutions to the problem?
    Secretary Abraham. Well, Congressman as you probably know, 
last year in the energy conference that was conducted with a 
Senate Majority of one party and the House majority on the 
other, the decision to delay implementation of those proposals 
had already been largely agreed to. We did not----
    Mr. Markey. Mr. Secretary----
    Secretary Abraham. Yes?
    Mr. Markey. There was no conference report which was ever 
completed between the House and Senate.
    Secretary Abraham. Yes. I am describing what I know to be 
and I think was reported at the time to be the situation.
    Our goal in this Congress is to see an energy bill passed. 
We thought that it remained the view that to have gotten a bill 
through the Senate required us to support that provision.
    Our top priority is to get an energy bill passed, and that 
remains our goal.
    Mr. Markey. Would you be willing to change your mind if it 
turned out that this is part of the solution? Are you open to 
that, changing your mind on the commitment that you have made 
to Senator Shelby?
    Secretary Abraham. This administration is on record as 
supporting the idea of regional transmission organizations. The 
question whether they should be mandated or not is not one we 
have endorsed, and so that is our position at this time.
    Obviously I am not going to speculate about what might or 
might not evolve from our investigation until I----
    Mr. Markey. Mr. Secretary, I think it is going to be 
difficult for you to get a comprehensive solution to this 
electricity problem if you have already made up your mind with 
regard to which provisions you are going to mandate and which 
you are going to negotiate away.
    I have also read in the papers that you have said that 
there aren't sufficient incentives for new investment in 
transmission, and that this may have contributed to the 
blackout.
    Why isn't rate recovery for transmission investment and a 
regulated 11 to 12 percent profit for those companies, which is 
what the Federal Power Act already allows the utilities to get, 
sufficient to incentivize them to invest in transmission?
    Secretary Abraham. I can't answer what investment decisions 
individual companies make. What I know and what I think a 
number of people on both sides today have commented on is that 
there are a number of impediments, including financial 
considerations, to the expansion of the grid. How long it takes 
to site transmission lines is a big impediment.
    In some instances, the extent of the return on investment 
is less predictable because sometimes the transmission line, 
the Chairman maybe mentioned this a little bit earlier, that 
the people who invest in building the line are not necessarily 
the people who benefit from its use.
    Mr. Markey. I know that, but there is a guaranteed 11 to 12 
percent return on investment, guaranteed. What business in 
America, in the world, gives you a guaranteed 12 percent return 
on investment? Why would a company need more than a just and 
reasonable return on their investment to build a transmission 
system? What is the flaw? How much more money do consumers have 
to give these companies to build transmissions lines, more than 
a 12 percent profit?
    Secretary Abraham. The ratepayers that you have heard, the 
consumers, two-thirds of whom are the businesses of America, 
private industry and business, obviously are shouldering a 
substantial burden with their energy costs. The one thing that 
we do know is that if we improve the transmission grid and 
alleviate some of the congestion, a very substantial amount of 
the energy prices people are paying will, in fact, be affected 
in a positive way, because right now, of the full energy bill 
the typical ratepayer pays, 80 percent is paid for generation; 
10 percent of that bill is----
    Mr. Markey. All I am saying is that a 12 percent guaranteed 
return seems to me----
    Secretary Abraham. Well----
    Mr. Markey. Mr. Secretary, let me ask one final question: 
In an August 27, 2003, article in The New York Times, Mr. 
Donald Benjamin, vice president of the North American Electric 
Reliability Council, said, we think we have a time line fairly 
well nailed down. It is down to the second in terms of what 
happens, which transmission is open when areas became isolated. 
It provides a good understanding of how the power flows.
    The article goes on to say that while NERC was unwilling to 
point to a particular cause, Federal investigators had already 
determined that, ``all the data pointed to mistakes by people 
in the event's earlier stages relating to the hour-long 
sequence of line failures and plant shutdowns in the Midwest.''
    This article suggests that you already have a chronology of 
the key events that led to the blackout and those which caused 
it to spread, and that based on that and other information, you 
already have a pretty good idea of what happened. If that is 
the case, why aren't you sharing that information and analysis 
with this subcommittee today?
    Chairman Tauzin. The gentleman's time has expired, but the 
Secretary may answer.
    Secretary Abraham. Yes.
    Congressman, we will share our conclusions when we reach 
that point, and the article in The New York Times was 
premature. It did not accurately state the actual status of the 
work that was being done.
    We are putting as much emphasis on this as we can to get a 
timely conclusion to this sequencing issue, but the analysts 
set another meeting yesterday, looking at the data they had, 
and concluded that they still did not have it to a stage where 
they felt they could recommend its release as being accurate.
    Believe me, I would have very much enjoyed coming here 
today and making news by announcing it before this committee, 
but we are not going to announce or release anything we claim 
is the authoritative sequence of events or any of the other 
things that we are addressing here until we really can tell 
this committee it is right and it is unimpeachable.
    Chairman Tauzin. I thank the gentleman.
    The Chair now recognizes gentleman from Pennsylvania, 
chairman of the Oversite and Investigations Subcommittee, Mr. 
Greenwood for a round of questions.
    Mr. Greenwood. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. Thank you for your patience.
    I would like to touch on an issue or ask you a couple of 
questions about an issue that is rather tangential to this 
hearing, but that is connected, and Mr. Upton mentioned it 
earlier, and that is the impact of the blackout on gasoline 
prices. Between August 18 and August 25, the average retail 
price for regular gasoline in the United States rose by 12 
cents a gallon, which I think is the largest weekly increase 
ever both in terms of the actual price increase and the 
percentage, which was 7 point----
    Mr. Upton. If the gentleman will yield, it went up 20 cents 
in my district.
    Mr. Greenwood. Well, you have a high-priced district.
    Mr. Upton. Yeah.
    Mr. Greenwood. It was 7.4 percent where smart shoppers buy 
gasoline, and it is 100--it is $.175 a gallon now, which I 
believe is the highest average retail price ever.
    We have heard that the fact that refineries were shut down 
because of the blackout contributed to a supply crunch, and, of 
course, this is all going into a high driving period of time 
for vacations and the Labor Day weekend and so forth.
    The question is: What has the Department done to--to look 
at--it seems it is a fairly straightforward mathematical 
calculation to estimate how much gasoline was not produced as a 
result of a blackout, what percentage of the supply that is, 
and how using that fairly simple economic model, how that 
should impact the price of gasoline, and also some estimate as 
to how long it should last.
    I think--I have no reason to believe there is anything at 
work here other than the basic laws of supply and demand, but I 
can tell you that most of my constituents are not quite sure 
that that is all there is to it.
    Secretary Abraham. Right Mr. Greenwood. It seems to them we 
had a hiccup here which produced a lasting and very significant 
increase in the price of gasoline. So the question is: What can 
you tell us about that; to what extent was it, in fact, related 
to the blackout, and what kind of studies and investigations is 
the Department undertaking?
    Secretary Abraham. There is almost nothing that goes on in 
the energy world that has my attention more quickly riveted 
than rising gasoline prices, because whenever the price goes up 
above about $1.50, I read articles that say it is my fault, and 
when it goes back down, somehow the market is working, so it 
gets me focused.
    There obviously were several incidents that occurred. There 
was, in addition to the blackout, and I think a certain amount 
of exaggerated speculation that always seems to happen when a 
crisis happens, people predicting dire and longer-term 
consequences than sometimes happen.
    We all know the events in Arizona which had an impact in 
that region that were very substantial, the pipeline breakdown, 
but the nature of this price--and then there was Labor Day 
driving and these other issues, and we had forecast some 
increase in the Department's Energy Information Administration, 
but the--the nature of this fluctuation struck me as being 
unusually large as well and in need of greater explanation.
    We have actually in this instance launched an internal 
inquiry on it, and just started doing that, but I think we will 
hopefully get some additional insight into whether or not this 
was really a market reaction only or if other factors were 
involved. I don't know.
    Maybe the Deputy might want to comment on some of the 
things we are doing specifically on that.
    Mr. McSlarrow. As Secretary Abraham said, he has directed 
us to look at the events, particularly over the last week. We 
did predict there would be, as most everyone knows, the 
inevitable price increase in the run up to the Labor Day 
weekend. We have very low gas inventories, we have no margin 
for error, so once the pipeline in Arizona went down, you had 
three refineries--because of the blackout, you had some 
problems out in California with refineries. It all added up to 
a predictable increase.
    The question is and what we will look into and work with 
our colleagues at the FTC about is whether or not anybody took 
advantage of a situation in terms of market manipulation.
    Mr. Greenwood. And assuming that there did, and I don't 
know, I am not an expert on these issues, but I know a little 
bit about human nature, if you can ride the wave a little bit 
longer than it actually exists, you will do it, but there is 
nothing illegal about that; am I right? In other words, profit 
taking, gouging, if that is what is going on, there is nothing 
illegal about that. And I don't--I am not going to put you on 
the spot about this right now, but I think when you do complete 
your analysis, including whether there was--whether there is 
ongoing profiteering that is resulting, I would appreciate it 
if you would let us know if you have any recommendations about 
that, because this is--it seems to happen with some frequency. 
It seems to happen in the home heating fuel sector as well.
    There always seems to be some sort of a perfect storm that 
causes these spikes, but then they seem to go on longer than it 
would intuitively seem should be the response. And, with that, 
Mr. Chairman, I will yield back the balance of my time.
    Chairman Tauzin. Would the gentleman yield quickly?
    I want to point out to the committee that we examined the 
effect of tight supplies on demand in the Chicago/Milwaukee 
spike situation that occurred a few years ago, and one of the 
things we learned was that when there are those tight supplies, 
and then something happens, a pipeline breaks or a refinery 
goes out--in this case six of them did--but when that happens, 
the first people who get the gas are the name-brand stations. 
They get it from the refineries of the name brand.
    The independent stations then have to compete for what 
supply remains, and they start bidding it up, so even a small 
ripple effect becomes a cascading effect in the marketplace, 
and that may have occurred in the marketplace. We obviously 
have to know that.
    And second, I commend the Secretary in his statement that 
they are going to look to see whether anybody abused the 
marketplace, the market manipulation. There are laws against 
predatory pricing, a pricing too low on a sustained basis to 
drive somebody out of business, and there are laws against 
market manipulation for an extended period of time in which 
someone uses anticompetitive power to gouge consumers. So we do 
have some relief here, and I am pleased the Secretary wants to 
look at it. He may want to comment on it.
    Secretary Abraham. Only that one of the things which we 
instituted a couple of years ago was a hotline so that 
consumers could, in fact, communicate directly with our 
Department if they believed gouging was taking place.
    We had--I think it was in the wake of 9/11 that we first 
launched this, and I would say that we had to monitor the 
frequency of calls on that to gauge whether there seems to be--
and one of the reasons why we decided to look even further into 
this situation is that we were getting what seemed like a 
broader and more disproportionate response on that, on that 
hotline in the last few weeks.
    Chairman Tauzin. I thank the gentleman.
    The gentleman yields back his time.
    Explain to the members of the audience.
    The gentleman had additional time because he waived his 
opening statement. Under our rules he got additional time, and 
he is yielding it back now, and the Chair is pleased to 
recognize Ms. Eshoo for a round of questioning.
    Ms. Eshoo. Thank you, Mr. Chairman, and welcome, Mr. 
Secretary.
    Whenever I am involved in either hearings and other 
legislative debates here at the committee relative to energy, I 
think many of my colleagues kind of tense up and think, here 
she goes again, because I am a Californian, and we are raw from 
our experience of market manipulation, indeed market 
manipulation, because the energy companies actually signed 
confession slips and had very well-known names for the tactics 
that they employed, but we didn't get anywhere.
    Certainly, California legislated, I think, shortage in 
their deeply flawed deregulation plan, but I think at the 
national level that there were huge failures and shortcomings 
as well. And so I led with that, with some of those comments, 
in my opening statement, and I think it is important to raise 
this today. Even though there may not be a nexus between the 
blackout that occurred in August in the--in the Northeast and 
in the Midwest, that it is very important for the 
administration, certainly for you in your leadership and 
trustee position as Secretary of Energy, that you take into 
consideration everything, everything.
    Market manipulation was not taken into consideration 
before, and while I agree with you in the statement, part of 
your statement, in your opening statement to the committee, 
that while the facts will lead you wherever they may go, that 
you will not jump to conclusions, and that the investigation 
will be thorough and objective. I commend you for saying that. 
I urge you to stick to that.
    Your assistant just mentioned a few moments ago that market 
manipulation should be examined, at least I think that is what 
you said, relative to the prices at the gas pump, and I might 
add that in California and in the Bay area, they jumped 35 
cents a gallon in 2 weeks. I filled my car up the other day. It 
was $2.35 for regular, for unleaded, so we know what market 
manipulation can do.
    What I want to ask you, Mr. Secretary, is will you commit 
to the examination of even that in your investigation; that the 
energy in whatever role they may have played--and they may not 
have played any role in this--but that you will be open to and 
will indeed look at this area as well, because the 
administration, most frankly, didn't before, when manipulation 
happened in California.
    Secretary Abraham. Well, first of all, we will follow the 
facts where they lead, as I said.
    Second, I don't want to leave unresponded to the 
implication the administration did nothing in California.
    Ms. Eshoo. What did you do?
    Secretary Abraham. Well, first of all, we inherited a 
problem that no one had done anything about.
    Ms. Eshoo. But what did you do?
    Secretary Abraham. Well, on the very first week in office, 
we promulgated emergency orders to allow electricity to be 
bought by California. The President issued----
    Ms. Eshoo. But I might interrupt because it is my time, Mr. 
Secretary, and I will let you finish that, but I think it is 
important--wait a minute. Wait a minute. It is my time.
    Secretary Abraham. For the record----
    Ms. Eshoo. It is very important to note that the FERC, 
which is--has a key role in this, would not allow and did not 
allow the refunds for a whole variety of reasons, but 
California has been screwed, in plain English.
    So you want to finish what you were saying about what you 
did do? I am curious.
    Secretary Abraham. Well, I would be happy--it is a fairly 
lengthy list. I would be happy to enter it into the record in 
order to preserve time.
    Ms. Eshoo. It did nothing about manipulation.
    Secretary Abraham. Well----
    Ms. Eshoo. That is my--that is my point.
    Secretary Abraham. I would only note that, prior to the 
appointment of Mr. Wood and Nora Brownell to the Commission, 
nothing had been done about--no investigations had occurred and 
no refunds had been ordered, and after the appointment by 
President Bush, all of those things happened.
    Ms. Eshoo. Nothing. I still don't--that is why I am asking 
about manipulation. If, in fact, the administration chose to do 
nothing, which is the public record--I mean, I don't know what 
you can point to that the administration ever did relative to 
market manipulation. We never even had a hearing here.
    Now we are here as a result of the August 14 blackouts, and 
I think it is very important that the administration, you, the 
Secretary, give us the encouragement that wherever the facts 
lead, and you have said that in your opening statement, that 
market manipulation be included in this, and I just want a yes 
or no answer.
    Secretary Abraham. I think I already gave you a yes answer.
    Ms. Eshoo. Good.
    Secretary Abraham. Again, Mr. Chairman, there was an 
administration that didn't do anything, but it was not ours.
    Chairman Tauzin. All right. The gentlelady's time has 
expired.
    Ms. Eshoo. I think that is a suspension of reality.
    Chairman Tauzin. Would the gentlelady or the Secretary 
request that that information be included as part of the 
record?
    Secretary Abraham. I would be happy to provide.
    Chairman Tauzin. Is there objection?
    Hearing none, you will enter that into the record.
    [The information referred to follows:]

    List of Administration actions on California blackouts:
                               california
    The Administration offered a great deal of assistance to the State 
of California during the power crisis. It is important to remember this 
crisis began months before the Administration took office. Prices began 
to rise in May 2000, and the blackouts started a week before the 
President was inaugurated. In the wake of these blackouts, one of the 
first actions Energy Secretary Spence Abraham took was to call Governor 
Davis and offer the assistance of the department.
    On the third day of the Bush Administration, Secretary Abraham 
issued emergency orders directing electricity generators to sell power 
to California. This action kept the lights on while the State passed 
emergency legislation authorizing the State to buy electricity on 
behalf of its citizens. President Bush issued emergency orders 
directing Federal agencies to conserve energy use and expedite permits 
for new power plants.
    Governor Davis asked Secretary Abraham to intervene with FERC and 
urge them to issue an emergency order waiving certain fuel requirements 
to qualifying facilities. Secretary Abraham intervened and FERC issued 
the desired order.
    Governor Davis asked Secretary Abraham to support his proposed 
purchase of the utilities' transmission grid. Secretary Abraham 
supported his proposal, although it was later rejected by the 
California State legislature.
    During the early months of 2001, FERC ordered substantial refunds. 
The Department of Energy consistently supported refunds of unjust and 
unreasonable charges.
    Secretary Abraham directed the Western Area Power Administration to 
take the necessary steps to build a transmission line to remove the 
Path 15 bottleneck that caused higher prices and lower reliability.
    The Bush Administration appointees to FERC developed a price 
mitigation approach that helped lower prices without causing more 
blackouts.
    In the past, Governor Davis credited the Administration for helping 
solve the California crisis: ``[President Bush] appointed Brownell and 
Pat Wood. They helped save our behinds . . . I think the world of 
President Clinton but the Clinton Administration didn't give us any 
help.'' San Diego Union Tribune, March 10, 2002.

    Chairman Tauzin. I would also remind the gentlelady that 
there were hearings in this committee on the California 
question, and we will be happy to go back in the record and 
clarify those.
    The Chair at this time would recognize----
    Ms. Eshoo. Not since the Enron memos came out, Mr. 
Chairman.
    Mr. Cox. A point of order, Mr. Chairman?
    Mr. Burr [presiding]. The Chair would recognize the 
gentleman from California Mr. Cox.
    Mr. Cox. Thank you, Mr. Chairman, and as a California 
Member, I certainly remember vividly participating in those 
hearings, answering questions, asking questions of the 
administration, and getting a very healthy response that I 
think was very constructive in helping California get back on 
its feet. And I want to commend you, Mr. Secretary, for the 
role that you played in those actions by the Bush 
Administration.
    I want to ask a question that anticipates some of the 
testimony we are going to get later today. Some of what we are 
going to hear is going to advise us that all of this August 
blackout could have been averted if only somebody at 
FirstEnergy had picked up the phone and alerted other 
transmission operators when it first detected problems.
    We will have other testimony not exactly to that effect, 
but to a similar point, which is that there were thousands of 
megawatts of capacity, of power plant capacity, that was shut 
down by American Electric Power, by Detroit Edison, by 
FirstEnergy, and if there had been better communication, this 
could have been avoided.
    And what I want to ask you is, without necessarily opining 
who shot John, because I know you are very clear that the U.S.-
Canadian task force is still studying this, and you don't know 
all these answers yet, if there is, in fact, an element of this 
that is apparent or appearing already that in here is 
inadequate communication among the different players, shouldn't 
we go beyond technology that looks like picking up the 
telephone, but relies on human beings watching things in real 
time when so much of this can happen in seconds and less than a 
second? And isn't technology part of the solution here; by 
investing in our systems, can we not build redundancy and 
backup into a security plan that doesn't currently exist?
    And, then, finally--and I will let you take all the time 
for answering, I will not ask a follow-up--finally, because I 
spend so much time worrying with another hat on in another 
committee about homeland security, isn't this an example of an 
area in which homeland security investment that protects us 
from the downside of things going bad can also make our economy 
healthier; by investing in what will protect us from security 
downside, we might also build the capacity of our country to 
produce more goods and services and make the lives of Americans 
better?
    Secretary Abraham. Well, I couldn't agree more with the 
last comment you made.
    First of all, we recognized when we launched the task force 
the important issues that relate to homeland security, which is 
why we have as one of the three working groups a security 
working group. That isn't because we have any evidence that 
there were homeland security or national security factors 
involved in the actual blackout, but because we want to learn 
from this experience and focus on anything that might be second 
either to this blackout or future ones where we might be able 
to enhance the security of the infrastructure.
    Second, there is no doubt that the technology either exists 
or can be developed to enhance the intelligence of the 
transmission grid and to assist the people who want it in terms 
of their ability to respond even quicker to developments that 
occur.
    I mentioned earlier in response to Chairman Tauzin's 
question the concern that we are talking about 10,000 events or 
so in 9 seconds. No human being has the ability to be that 
responsive, to take every action maybe in terms of 
communication, notification in that sort of timeframe. And so 
we are looking at or will look at the ones that collected 
information.
    We are going to be looking at the issues and analyzing 
whether communication problems were a factor, but, whether or 
not they were, I have already advocated here some of the new 
technology that we are looking at, whether it is in terms of 
superconductivity or smart grid technologies, to try to enhance 
the capacity of the system, and I think this committee on both 
sides has appreciated that point even in the abstract. Now 
maybe because of the blackout it is more widely appreciated 
nationwide.
    Mr. Burr . The gentleman's time has expired.
    The Chair would recognize the gentleman from Michigan Mr. 
Stupak for questions.
    Mr. Stupak. Thank you.
    I believe I get 8 minutes?
    Mr. Burr. The gentleman is correct.
    Mr. Stupak. Thank you.
    Mr. Secretary, thanks for being here.
    I mentioned that we weren't affected in northern Michigan 
from the blackouts, but I am sure a lot of my people were, as 
you have mentioned people from the United States, Canada, all 
over, were affected. There is a great deal of concern on what 
has happened here.
    When your task force meets, will these meetings be open to 
the public, where people can see what is going on?
    Secretary Abraham. Well, we are trying to address the 
question of how to properly keep people informed. Right now the 
work that is going on is taking place, a lot of it is taking 
place, at the NERC offices in Princeton, New Jersey. It is a 
setting in which literally a huge table of analysts is sitting 
in front of a computer terminal trying to sequence events and 
to analyze, so that is what----
    Mr. Stupak. These working groups are going to have to 
report back to your task force, right?
    Secretary Abraham. Right.
    Mr. Stupak. And will those meetings be open to the public?
    Secretary Abraham. Well, there are two phases which we are 
in. In the first phase, which is just collecting information, I 
don't really see that as lending itself to a public role. 
However, we are interested in and I have asked legal counsel to 
explore how, during that first phase, information can be 
formally received from people who are not part of these working 
groups. We recognize there may be individuals out there who are 
either not contacted by us or who may have information which 
would be helpful to us, so we are looking for a way to address 
that.
    Once that sort of data collection and analysis is done and 
we move to the sort of second phase that I described earlier, 
phase 2, which is kind of a time in which we would hope to make 
recommendations, then I think we are going to try to look at 
how we can determine what the public role is in terms of being 
careful what the legal issues are, both Canadian as well as 
American legal issues that surround participation and 
recommendation or policy formulation.
    Mr. Stupak. Well, there is some concern that we don't want 
this task force to be like the energy policy task force at the 
White House where nothing that happens there is public. In your 
testimony you go on to say that you are going to look to North 
America Electric Reliability Council, and I am quoting now, and 
the affected independent system operators and the utilities 
have agreed that their investigations will supplement and 
contribute to work of the task force.
    As I read that, these other people are going to be 
reporting to this task force, and your recommendations, I take 
it, will be after the report. So, while they are reporting to 
you, especially like the North America Electric Reliability 
Council, why wouldn't that be an open meeting so that we can 
see what is being recommended by the North American Reliability 
Council, which has some expertise----
    Secretary Abraham. Let me be very specific about what they 
are providing. They are not providing recommendations at this 
point. In phase 1, what all of those entities are providing are 
data----
    Mr. Stupak. Sure.
    Secretary Abraham. [continuing] and information.
    Mr. Stupak. This would be phase 2, right?
    Secretary Abraham. To the extent that we can, I envision 
that information also being made public. We haven't yet figured 
out as to how the formulation of recommendations will be done. 
We are working on that to address both the legal side of that--
--
    Mr. Stupak. Sure.
    Secretary Abraham. [continuing] as well as the public 
interest side.
    Mr. Stupak. Well, I am sure that if you mention that the 
task force is going to have a meeting, whether or not it is a 
working group, and that they are going to be looking at the 
report from the North American Electric Reliability, if you are 
concerned about whether people would be interested, why don't 
we just make it an open meeting, invite the media with C-SPAN 
on it so we can watch it, you know, and, if there is no viewer 
interest, I am sure they won't show up. But if there is 
interest, and I am sure there is great interest, why don't we 
just do it that way so there is an open dialog?
    Secretary Abraham. You are putting, I think, conclusion in 
place before we have gotten to that stage yet. I am not 
prepared today to tell you that, when we get to the 
recommendation stage, we are going to have outside groups, 
whether it is the North American Electric Reliability Council 
or anyone else, engaged as part of the effort. It may or may 
not be the case.
    Until we determine that, then I think at that point we 
would determine what the proper way was to make sure that the 
process was appropriately inclusive.
    Mr. Stupak. Well, in order to make the changes that may be 
needed in the energy grid, I have heard about new technology 
today. People are asking what is it going to be? Usually, when 
there are changes, the cost comes from the taxpayers, in this 
case the ratepayers. So I would think as recommendations are 
being made, whether recommendations will be asking the Congress 
to give tax breaks or whether you are going to push it off to 
the taxpayers, that they would want to know about that so that 
they could have some input before the recommendations are made. 
And that is the reason I am pushing so hard to make these 
hearings that you are going to be holding public in the 
recommendation stages, because I think we all have a stake in 
this, whether ratepaying or through just turning on the 
electricity in our homes, even in the Upper Peninsula.
    Secretary Abraham. I am cognizant of that, and I appreciate 
the recommendation.
    I would just say this: As I indicated in my opening 
statement, at this stage, and this is an early stage in this 
process, I think it is my belief, and I think Minister Dhaliwal 
shares this, that the types of recommendations that this task 
force will be putting forth are going to be far more in terms 
of operations, engineering and mechanics as opposed to broader 
public policy recommendations of the sort you outlined. I think 
the results of our effort will probably be used by Members of 
Congress, the Canadian Government, our administration and 
others to formulate those kinds of recommendations, and that is 
my sense of it.
    Mr. Stupak. The technical working part that you think you 
will be doing that we won't be interested in, I think we would 
be very interested. Also we are up here as policy makers. 
According to the North American Electric Reliability Council, 
in the year 2002, there were 97 planning standard violations 
and 444 operating policy violations. I mean, if that is what is 
going on, and if you are going to try to fix this so we don't 
have these 444 operating policy violations, which obviously may 
have led to some of this cascading effect of this blackout----
    Secretary Abraham. Right.
    Mr. Stupak. [continuing] I think we need to know that, 
especially if we are going to have to write some rules. Whether 
it is the energy bill that is in conference or Mr. Dingell's 
reliability bill that he is introducing today, these are things 
that we need to know, and you are assuring us that your report 
will be done in the next few weeks, not months, you said, were 
your quotes.
    Secretary Abraham. Right.
    Mr. Stupak. So I want to make sure that as you are doing 
your work, that we are all on the same page, and we can 
interact on what is going on, and people know what is going on 
before you come back or the Energy Committee comes back and 
says, we need this and that from the American taxpayer either 
through higher rate increases or through tax breaks. We want to 
make sure we are all on the same page so we don't have these 
problems again.
    Secretary Abraham. Right, and I appreciate the point.
    I would commit to the Congressman that I would share these 
concerns with our Canadian counterparts as we work to develop 
the process for the formulation of recommendations and also 
assure you that all of the information that we are obtaining 
that is forming the basis for this analysis will, to the 
fullest extent possible, legally be information we share.
    Mr. Stupak. One more and I will just wrap with this. There 
has been a lot of discussion about the gasoline prices. I 
happened to have the opportunity to be up in Pennsylvania with 
my colleague Mr. Doyle, and I couldn't help but notice that the 
gas was 30 cents less in Pennsylvania. Now, the blackout 
skirted around Pennsylvania, but I am sure some of the 
refineries were down, had to get their gas from some of these 
refineries that were down. Why would--you know, if this is a 
problem from Arizona because of a broken pipeline and the 
blackout, whatever else you want to call it, why wouldn't all 
States see the increases, or is it just a manipulation of a 
few?
    You have heard from about everybody here. Ms. Eshoo said 
hers was $2.35 to fill up. We are right around $2 up in the 
Upper Peninsula. Then I fly into Pittsburgh and fill up Mr. 
Doyle's car; I was happy to pay for his because it was 30 cents 
cheaper a gallon.
    So I hope you look at that in your investigation.
    Secretary Abraham. Yeah. And one of the other issues here 
is that transportation costs of the fuel itself can be a 
factor.
    We will try to analyze and separate that which is--I mean, 
as the Deputy Secretary indicated, and as I indicated, you 
know, we see a lot of fluctuations in prices. This one for a 
variety of reasons caused us concern.
    Mr. Stupak. Sure.
    Secretary Abraham. [continuing] and we decided to pursue an 
inquiry.
    Chairman Tauzin . The gentleman's time has expired, and the 
Chair yields to the gentleman from Illinois Mr. Shimkus for a 
round of questions Mr. Shimkus. Thank you. Mr. Chairman, and, 
Mr. Secretary, thank you for your long time being here.
    Let me just briefly talk about a few--energy cannot be 
discussed in isolation, so it is--I think it is appropriate 
that we talk about gasoline prices. I think it is appropriate 
that we talk about natural gas and generation of coal and other 
things. And that is why it needs to move in a bill together. 
Gasoline, because of the regional requirements for fuel being 
specific for the area, because of EPA standards on the Clean 
Air Act, that is why you can't move product from one area to 
another, even if--if there is disruption, because we can't move 
fuel. Hopefully in this energy bill, I think there may be some 
ease of that because of doing away with the 2 percent oxygen 
standard when we go to--with the 5 billion renewal fuel 
standard. So these should not be taken in isolation. It is 
very, very important.
    My friends on the other side talk about the reliability 
language which we support in the comprehensive bill, but the 
transmission grid is not a reliable--reliability standard by 
itself. There is need on investment, there is need on a return 
of that investment, and there is a need to address the siting 
issues, and we have had numerous hearings on the siting of 
transmission lines.
    Many times I have talked about the Illini Coal Basin. Nine-
tenths of the State of Illinois is the Illini Coal Basin, more 
coal reserves than Saudi Arabia has oil. The Illini Coal Basin 
also goes into Indiana. It goes into Kentucky.
    How does this all relate? Well, if we don't have a 
transmission grid, then what we have done is we site natural 
gas peaker plants that are actually running for baseload 
generation in different locations instead of using baseload 
generating facilities like coal and nuclear to do the everyday 
activity, and when we have to run a natural gas generating 
plant, that creates a higher demand, which then calculates into 
the price debate. So for those who will claim to take it, an 
isolated aspect of energy, it is just like putting a Band-Aid 
on a problem. That is why it is so critical to have a national 
energy policy.
    Let us make a statement. Let us set some consistency. Let 
us give investors the idea of where this country wants to move 
to be free of the swings that come when we just take a Band-Aid 
approach.
    So again, Mr. Secretary, I applaud the push, and this is 
the time again, as I said in my opening statement, if we can't 
move a national energy plan when natural gas has doubled in 
price, when we have gasoline prices as high as they have ever 
been at the pump, when we have 50 million people without power, 
if we can't do it now, then we ought to give up.
    I do have two questions, and I will ask them both and you 
can address those. Your agency has been working on high 
temperature superconductivity cables. We have had a tough time 
trying to authorize funding for that. Can you talk about the 
need and the importance of high temperature superconducting 
cables? And the other issue is why is Canada part of our grid?
    Secretary Abraham. Well----
    Chairman Tauzin. You sound like the kid from South Park, 
John.
    Mr. Shimkus. I don't let my kids watch that show.
    Secretary Abraham. I will answer the second one just by 
saying this: we think it holds the possibility of 
superconductivity really revolutionizing the electric system. I 
have said that two or three times in my answers. Because 
superconducting lines can carry much more electricity than 
conventional cables, and yet can be buried underground, they 
can serve multiple purposes potentially. So it is, in my 
judgment, yet another important ingredient in the comprehensive 
energy approach. And we have just awarded several substantial 
grants for new research in this area, and we think it holds 
tremendous promise and would urge Congress, in fact, would 
compliment the committee and the work it has done in this area 
and, more broadly, in trying to address the energy challenges 
through the passage of your energy bills, both this year and in 
the last Congress.
    Mr. Shimkus. Mr. Secretary, wouldn't that also alleviate 
some of the NIMBY aspects, if we can push more power over 
conventional rights-of-way, that that would be an important 
aspect?
    Secretary Abraham. It would seem that that would be 
important, because obviously, to the extent we can minimize the 
amount of transmission needed, transmission lines needed, and 
to the extent we might be able to put more underground instead 
of building towers as some wanted, that would certainly be 
better.
    The issue on Canada, I mean we really have a very 
interdependent economic relationship in North America. I do not 
know the exact history of the U.S. and Canadian cross border 
transmission construction, but it is consistent with much--a 
lot of other things where there is an intertwining of 
relationships. And I would note, it is always I think maybe an 
interesting side-bar is just that we have this 
interconnectivity with Canada throughout the country running 
north and south, but we don't have an east-west capability of 
transmission connectivity in this country, or I guess in 
Canada. So that is just an interesting comment on how the 
system evolved. It has evolved internationally, but it hasn't 
evolved nationally. And it has obviously implications as well. 
I am not advocating that we do anything specific about it; I 
just mean it is an interesting reflection of how the system 
develops.
    Chairman Tauzin. The gentleman's time has expired.
    The Chair recognizes Ms. McCarthy for a round of questions.
    Ms. McCarthy. Thank you very much, Mr. Chairman. Thank you, 
Mr. Secretary, for all of the time that you are spending with 
us today. I want to commend you and the administration for your 
work with Canada and to continue the line of thinking you have 
just been sharing with my colleague across the aisle.
    In your testimony you talk about recommendations that will 
focus on technical standards for operation and maintenance of 
the grid and on the management of the grid in order to more 
quickly correct the problems we identify. It is the management 
of the grid I would like to explore with you in the brief time 
that we have, particularly again working with Canada and the 
north-south grid. What will this mean for States' authority 
which traditionally has been the management and regulatory 
bodies for the 50 States? And second, does the administration 
still support PUHCA repeal? In the literature and in the 
information that I have received from both industry and other 
sources, PUHCA has served a very good purpose in transmission 
and regulation, and also in sort of shoring up the public's 
confidence that rates are indeed fair and no foul play has been 
going on. So I would love--I know you don't have the report and 
the recommendations will follow, but as far as the 
administration's view on PUHCA, do they still support repeal, 
and also how do you envision the administration's position on 
management of the grid and what that will mean to the States 
who have traditionally held such authority?
    Secretary Abraham. Well, in answer to the PUHCA position, 
we have not changed our position; we still favor its repeal. We 
believe that the benefits in terms of the potential for 
sufficient investment in the energy sector, particularly in 
transmission, would be very important.
    In terms of the management issues, I don't wish to be 
misunderstood. The comments that are in my testimony relate to 
what I suspect would be the scope of recommendations that our 
joint task force would make and that should be interpreted, at 
least as it was intended by me, as a small M, not a big M, 
management, and by that I mean the operational systems between 
ISOs between the managers of the system itself, the operational 
people. I am not trying to prejudge the outcome, but the scope 
that we are looking at right now is the actual day-to-day 
functioning, hour-to-hour and minute-to-minute functioning and 
how that is managed, as opposed to the broader issue that I 
think you are asking about in terms of the macro management of 
the structure, the regulatory structures of electricity 
systems.
    Ms. McCarthy. So you do not foresee a Federal regulatory 
role or even a Canadian-American role, but the power, or the 
authority still resting within the States and provinces?
    Secretary Abraham. Yes. Again, I don't want to be too far-
reaching and speculating about recommendations, but I do think 
this is a task force, the conclusions of which will be ones 
that both the U.S. and Canadian members will be either 
approving or not, and I just suspect that we will be looking at 
the operational side of the electricity grid. I don't foresee 
either the Canadians or the American participants trying to 
make recommendations about how the other country's overall 
regulatory structure is established. But again, I will leave 
myself a small amount of wiggle room. But that is what I 
believe, so far to be the----
    Ms. McCarthy. Well, I appreciate you can't anticipate the 
outcome of the study you are doing, but I do want to know the 
administration's view of that. And I want to revisit the PUHCA 
issue with you just briefly and be sure that you are aware that 
industries and groups such as Trans-Elect feel that it is the 
wrong time to act to repeal PUHCA. I am reading from their 
newsletter commentary: PUHCA has the effect of keeping certain 
predatory players out of the transmission business, and Trans-
Elect is perfectly willing to be governed under PUHCA and so 
should any other independent transmission player.
    As Mr. Markey I think raised with you earlier in the 
hearing, with a guaranteed return of 11 or 12 percent of 
whatever it is investing, utilities investing in transmission 
and PUHCA does nothing to restrict that investment; certainly 
PUHCA has not been a problem. So I am just wondering again why 
the administration feels that this is the time to eliminate 
PUHCA.
    Secretary Abraham. Well, again, I think our concern has 
been that the absence of investment in the modernization of the 
transmission system and other elements of the energy sector 
have been affected by that legislation, which is, as you know, 
a piece of legislation passed at a different time in terms of--
--
    Ms. McCarthy. Mr. Secretary, if I might regain my time.
    Chairman Tauzin. The gentlewoman's time has expired.
    Ms. McCarthy. I just want to close with PUHCA does not 
restrict their investments, Mr. Secretary, so I hope you will 
rethink that, and I thank the Chair for his indulgence.
    Chairman Tauzin. If you want, Karen, we can include a 
provision in the bill that says any company that wants to be 
covered by PUHCA can still be covered by them.
    I thank the gentlewoman.
    Mr. Norwood is recognized for a round of questioning.
    Mr. Norwood. Thank you very much, Mr. Chairman. I am going 
to try to get us a little bit back on the subject. I can't tell 
if this hearing reminds me of the markup or the many, many 
hearings we have had over the last year or what our subject 
matter is here. But as I recall, it is about the blackout, what 
caused it and what caused it to spread.
    Mr. Secretary, you have answered this in a lot of different 
ways this morning, but let me just ask you a couple of very 
simple questions for the record.
    You don't really know what caused the outage, do you?
    Secretary Abraham. We are not at the stage of being able to 
answer that question, no.
    Mr. Norwood. Well, do you agree that our response to this 
outage should be formed by a proper understanding of the 
reasons that it occurred?
    Secretary Abraham. Sure.
    Mr. Norwood. Yes, I thought you probably would.
    Can we make an intelligent legislative response to this 
outage until we know how it got started and what caused it to 
spread across the country?
    Secretary Abraham. Well, I am not going to speculate as to 
what might have caused this outage and, as a result, I am not 
going to speculate as to whether there will be a specific 
legislative silver bullet to prevent it from happening in the 
future. What I will reiterate is what I have said many times. I 
think the legislation this committee has worked on addresses 
both in the electricity sector as well as in a variety of other 
energy sectors serious challenges this country faces today and 
will face in the future. I would hearken back to the chairman's 
prediction of not too long ago that he has mentioned today, and 
that moving comprehensive energy legislation is important to 
try to avoid other kinds of problems afflicting either the 
electricity sector or other parts of our energy world.
    Mr. Norwood. Well, I totally agree with you and I 
appreciate your adult response to this because, frankly, I 
don't know how any of us think we can write legislation to 
solve a problem that we don't know what the problem is. I wish 
other members of the Federal Government would consider that as 
responsible, too. Because we had a blackout is not the time to 
use the blackout to try to ram down the throats of Congress 
that has already done this through the House, through hearings 
after hearings and produced legislation, one's personal agenda. 
Now is not the time to do that. Now is the time to let your 
task force work and us move forward. I appreciate some comments 
you made one time about forcing ideas and ramming it down the 
throat of individual communities and regions, and I think that 
also should apply to Congress. I don't think anybody ought to 
use this blackout simply as an excuse to push their agenda that 
has already been set aside by this Congress and will, in the 
end, cause great harm to a final energy comprehensive package.
    Let me just take a minute and talk plainly here. The 
problem--we keep referring to all of the United States, Mr. 
Secretary, about the problem simply that we have not met 
demands, there needs to be more generation, there is not enough 
transmission lines. I agree that that is true, but it is not 
true all over the United States. It is true in certain areas 
that has been pointed out, I forgot what the Vice President 
called his task force, that predicted this was going to happen 
immediately after the President came into office and produced 
his blue book. This has been fairly predictable. But it doesn't 
mean we should use this opportunity to ruin the parts of the 
country that has met demand, that does have good transmission 
and does have good generation. It seems to me everywhere 
blackout has ever occurred, it is in an area that insists on 
importing electricity, whether that be from another country or 
whether that be from two States over. There is where the 
problems are concerned. And I hope, Mr. Secretary, at the end 
of the day as you work with us in conference that we can all 
come to a good energy bill that actually doesn't tear up part 
of the country in order to fix another part of the country.
    I see my time probably ought to end about now, Mr. 
Chairman. I yield back.
    Chairman Tauzin. The gentleman yields back. I thank the 
gentleman. Hooray for Georgia.
    Ms. Solis is next. The Chair is pleased to recognize Ms. 
Solis for a round of questions.
    Ms. Solis. Thank you, Mr. Chairman. Thank you again, 
Secretary Abraham, for being here.
    My question is a little different. I wanted to ask about 
sitings of potential power lines that affect minority 
communities and low-income communities. We have--someone 
mentioned earlier I think on the other side of the aisle 
regarding NIMBY, NIMBYism. But the reality is that many times 
when we are looking at placing these kinds of power generating 
facilities, they end up in areas where minorities or low-income 
people or disadvantaged communities have to shoulder the 
burden. I would like to know what opinion you would have on the 
placement of future facilities like that and if there will be 
some level playing field that would be applied, some standard.
    Secretary Abraham. Well, the first and most important point 
is just that the Federal Government obviously does not have the 
power to site. These are decisions made at the State and local 
level, and I would hope they would be made in a credible and 
open process that allows everybody to have some input in terms 
of where the siting will occur rather than discriminate against 
any community. I think that one of the concerns we have has 
been that because the Federal Government in this unique area 
does not have any authority to do siting, no eminent domain 
power, unlike interstate highways or pipelines that failure to 
site sufficient transmission capability is obviously a problem 
and creates occasionally the kind of bottlenecks that result in 
higher prices for everybody, as well as creates stress on the 
system. So that is one of the reasons why we have advocated at 
least some sort of last resort authority for the Federal 
Government. But at this point we don't have any. The local 
communities and the States make those decisions. I would urge 
them to be as inclusive in the process of decisionmaking as 
possible.
    Ms. Solis. Might that be something that would be included 
in say a potential goals statement that might be included in 
language that might introduce? I mean we have done that in the 
past. Actually through President Clinton's Administration, we 
had an Executive Order that asked for different agencies to 
look at fair play standards in siting different projects 
throughout the country.
    Secretary Abraham. Well, I am happy to stand on the 
statement I just made which people are welcome to use. I think 
that it is something obviously the Congress needs to deal with. 
I think in the absence of having a Federal authority though to 
do any siting, it might be questionable whether the States 
would feel much reason to be responsive until the Federal 
Government itself is in the business. So it might be one 
possible step in the right direction to have at least some last 
resort authority for the Federal Government.
    Ms. Solis. Okay. My next question goes to renewable energy. 
It is my understanding that the Niagara project, which is a 
hydroelectric plant, did not go off line during the blackout, 
but plants powered by coal and natural gas and uranium all 
tripped off line. Why was the Niagara project less fragile to 
the blackout when other systems went off?
    Secretary Abraham. I don't know yet. I mean one of the 
things that I envision the task force and the working groups 
especially looking at are the places where things worked, where 
there wasn't a failure of the system. That would pertain to 
generating facilities as well as to parts of the grid. You 
mentioned renewables. There is no question that I think in the 
area of the hydro systems we are more easily able to get back 
on line or to be more stabilizing, and that is probably true of 
other renewable energy sources as well.
    Ms. Solis. What about solar power?
    Secretary Abraham. I think it would be consistent for most 
of the renewable energy generation approaches, wind, solar, or 
hydro. Unfortunately, of course, the percentage of energy 
generated from those sources is not as great at this time, but 
I think that comparatively speaking, obviously have a little 
different kind of activation approach, as I understand it, that 
allows them to be back up and running more swiftly, obviously, 
in comparison to other, bigger facilities.
    Ms. Solis. Might that be something that we could explore, 
given that as we heard earlier by some on our side that there 
are definitely incentives for some of the power companies to 
keep a profit to start putting that money back into other 
renewable type of sources?
    Secretary Abraham. Well, I don't know about that. I do know 
that we endorsed and supported that part of the energy package, 
the tax provisions that would help to subsidize more renewable 
energy.
    Ms. Solis. Incentives.
    Secretary Abraham. It is one of the reasons why our 
renewable energy budgets that we have submitted, our energy 
efficiency and renewable budgets for the last 2 years have been 
larger than any budget Congress has enacted in the last 20 
years. One of the earlier comments about distributed generation 
I think was a very important one, because the potential to have 
fuel cells play a role in terms of a smart grid and help to 
both be a backup, but also a provider of energy for the grid is 
important and is one of the reasons why we have put a lot of 
our resources in the Department research programs on fuel cells 
and hydrogen.
    Chairman Tauzin. The time of the gentlewoman has expired.
    I might point out to the gentlewoman that 70 percent of the 
energy bill passed out of this committee was in renewables and 
conservation, so a lot of good stuff in there.
    The Chair will yield to Mr. Walden for a round of 
questions.
    Mr. Walden. Thank you very much, Mr. Chairman.
    I wanted to follow up on the discussion about distributive 
energy generation. During the August break I met with a 
constituent out in La Grande, Oregon who is working on 
localized wind energy development, and he was telling me they 
think they can basically put a windmill on each farmer's farm 
that will power a full wheel of irrigation. So basically the 
farmer could recoup in a couple of years on energy savings the 
cost of putting one of these smaller sized wind generation 
facilities on their own farm and pay for their irrigation costs 
from then on. So it is an exciting development as we move 
forward on distributed energy.
    Mr. Secretary, I am told that within 6 hours of the start 
of the blackout, the NYPA's entire hydropower generation was 
back on line which provided New York with 3,794 megawatts of 
energy or close to 45 percent of the State's total electricity 
load, and that the two largest facilities, Niagara and St. 
Lawrence-FDR remained in service during the outage because 
their size enabled them to withstand the shock that had pushed 
thermal and other generating plants off line.
    As you know, H.R. 6 included House Resolution 1013, the 
legislation I introduced with my colleagues, Mr. Radanovich and 
Mr. Towns, which adds some common sense to a currently onerous 
relicensing process for non--for Federal hydro projects. 
Ninety-nine percent of the hydropower generated in my district 
in Oregon comes from facilities up for renewal over the next 3 
years. Together these projects have the cumulative potential to 
produce up to 1,602 megawatts of power or enough to serve the 
power loads for everyone with a home in the Pacific Northwest 
cities of Portland, Seattle, and Spokane.
    Hence my question to you is the administration's view on 
those hydro policy changes for relicensing first, and then I 
have two other questions.
    Secretary Abraham. Well, again, we are likely to be issuing 
an official statement of administration position in the next 
few days, but we have already acknowledged in both our energy 
plan and in the previous discussions of last year's bill and so 
on that we support the streamlining of relicensing for hydro 
facilities. We think it should be quicker, and that certainly 
we have to balance the environmental effect of dams with their 
ability to produce both abundant power and clean power, to fuel 
economies of the regions in which they are located, and we will 
play an active role, I expect, on that issue to try to make 
sure that a final bill would include provisions that help 
streamline the system consistent with those environmental 
challenges.
    Mr. Walden. Earlier this year, as I mentioned in my opening 
comments, the Congress provided $700 million in increased 
borrowing authority with the support of the administration for 
the Bonneville Power Administration to build new transmission 
facilities and, as you know, they got under way this summer. 
However, Bonneville had originally requested more than that in 
bonding authority. In light of the renewed focus on reliability 
and the need to modernize the grid, do you anticipate being 
able to support additional funding of--bonding authority, I 
should say, to reduce transmission congestion in the Northwest? 
I think they were seeking up to $1.3 billion.
    Secretary Abraham. Let me ask the Deputy Secretary to just 
comment because he has been involved in this quite a bit.
    Mr. Walden. Certainly.
    Mr. McSlarrow. The short answer would be not at this time. 
I was actually pleased to participate in one of the 
groundbreakings for one of the 3,500 KV lines that we have 
started construction on, but in my discussions with the 
Bonneville Administrator my understanding is that in terms of 
the pace and the resources required for the upgrading of the 
transmission grid in the Northwest, which everybody agrees is 
critically important, the $700 million is sufficient. If that 
changes, then we will obviously review it again.
    Mr. Walden. Mr. Secretary, I have a little less than a 
minute left, so let me ask you this: again, could you just 
summarize for us what additional investments--what the Bush 
Administration believes Congress should do to promote greater 
investment in the grid? What are the top two or three things 
that we could do here to get the reliability we need, and 
adequacy?
    Secretary Abraham. In terms of transmission investments, we 
had an earlier discussion about the repeal of PUHCA. I have a 
different opinion than that which was expressed by the 
Congresswoman, because we think that there are restrictions. 
The restrictions PUHCA has on who can even participate places a 
restriction on investment by and of itself, and we think its 
repeal would help to bring needed investment into the sector.
    Second, we would favor and have favored the provisions 
which would bring about a FERC action to try to produce an 
incentive system that would stimulate investment.
    Third, I think we have acknowledged on a number of 
occasions our support for the spinning off of transmission 
assets to RTOs, and I think that really those would be some 
examples of ways that this could happen.
    I mean at the end of the day people decide where their 
investment is best placed, and I can't speak for those 
companies who might invest in transmission. I mean they make 
those decisions based on their shareholders' concerns or 
whatever it might be that is their decisionmaking process. But 
presumably, they will invest what resources they have available 
in those investments that have the best chance of return, where 
they feel they have the best opportunities and the least risk. 
And clearly, if this was an attractive investment at this 
point, more of it would happen, I think. But maybe we also need 
more people able to make those investments.
    Mr. Walden. Thank you.
    Chairman Tauzin. The gentleman's time has expired.
    The Chair is now pleased to recognize the gentleman from 
Florida, Mr. Davis, for 8 minutes because he waived on his 
opening statement. By the way, Mr. Davis, our numbers indicate 
that California uses about nine times as much energy, total 
energy, as it produces within its State. Florida uses 22 times 
as much, and yet Florida has not had nearly the problems that 
other regions have had. That may be some compliment to your 
State, although I would like to see you produce more from 
California. The gentleman from Florida, Mr. Davis, is 
recognized.
    Mr. Davis. I didn't think you would let me off that easy, 
Mr. Chairman. Thank you.
    I want to congratulate the Secretary because he has 
succeeded in bringing this committee together on energy issues, 
and that is tough to do. There is a universal respect which I 
share that we should not rush to judgment, Mr. Secretary. We 
should wait upon the facts and have an open and honest 
discussion as to how we interpret those facts and the 
conclusions we draw. Certainly the public will be unforgiving 
if we do not act on that information once we ultimately have 
it.
    There was a statement made earlier by Congressman Blunt, a 
thoughtful member of this committee and the Republican whip, 
and I think it is important enough that I need to ask you your 
reaction. He said, I believe, that having a policy developed 
was more important than what the policy said. I don't agree 
with that, and I wanted to ask you your opinion. It ultimately 
is important that we get the right policy and not that we just 
rush into any policy, isn't it?
    Secretary Abraham. Well I can't actually remember his 
statement. But what I would say is that this committee, under 
Chairman Tauzin's leadership, has spent an awful lot of time 
trying to debate these issues, the broad issues, and I commend 
you for that. Energy challenges are important ones that have to 
be confronted and getting the best policy requires the kind of 
deliberation that is going on. I don't think this committee has 
underperformed when it comes to the deliberation on policy 
discussions in this area. It seems to me that the number of 
hearings that the full committee and subcommittee have had have 
been very thorough, and I think they have yielded legislative 
action here which resulted in a bill passing. So I commend you 
for it.
    Mr. Davis. Mr. Secretary, as I understand your testimony, 
the administration does support the incentive rates to 
encourage upgrades to the transmission grid?
    Secretary Abraham. Yes.
    Mr. Davis. Now, the FERC has already taken that position, 
and my question to you is, why is it so essential that Congress 
put that in statute as well?
    Secretary Abraham. It is my understanding that there is 
some dispute as to their authority to take action, and again, 
maybe in the later panel when Chairman Wood is here he might be 
able to shed more light on that issue. But my understanding is 
that the clarification of it by a congressional statutory 
action would be helpful to dispose of questions that might 
exist.
    Mr. Davis. In 1998 an advisory board to DOE issued a report 
that said, without fundamental reforms, substantial parts of 
North America will be exposed to unacceptable risk.
    My question to you is how urgent is it that the Congress 
act on the issues you have generally identified this morning to 
help tackle the blackout problem once it is fully defined?
    Secretary Abraham. Well, I think that, as I have said 
before, no one should confuse what we are doing to try to focus 
on the specific problems of the specific blackout with the 
obvious broad challenges that this committee has already 
wrestled with in the passage of its energy bill in terms of the 
electricity title. I mean regardless of what the sequence of 
events was on August 14 there is no question that the demand 
being put on the grid is growing and already pressing the grid 
to its full limits. There is no question that we need more 
transmission capability. There is no question that we need to 
have enforceable reliability standards, because some other 
event at some later point may be averted and likely will be if 
we do these things.
    So my view is that the legislation which has already moved 
through the House is a giant step forward to dealing with those 
challenges which not only that study, but the one which we 
conducted in 2002 identified. And again, I commend this 
committee and all of you for working on it and making it a 
priority.
    Mr. Davis. I guess my point, Mr. Secretary, is I understand 
your point of view that investor confidence is important and 
that steps need to be taken quickly to deal with this grid. 
Once you have finished your report and we all have a chance to 
look that over, there is an urgent need for us to act. To 
convince the rest of the country that we are serious about 
making sure this does not happen again, shouldn't we be 
prepared to pass that legislation separately if the Congress 
gets bogged down with the rest of the energy bill?
    Secretary Abraham. Well, I think the opposite is true. I 
think that the problem America faces is a broad set of energy 
challenges. And this is where it is frustrating, I have to be 
honest, in my job, because whenever there is one of these 
crises there are usually hearings and there are people who are 
calling for action to address that one crisis, and then there 
are other people who say it is wrong to let a crisis force 
legislation, and then soon the crisis abates, and then people 
say, well, we don't have a crisis, why do we need a bill? And 
this sort of circular, or the cycle, seems to keep happening.
    The problem is that it is not just a problem with 
electricity transmission, although that is the one that we are 
here today about. I think the chairman's--I can't remember your 
quote exactly, Mr. Chairman, but he predicted something like 
this. We were very much caught up in the concerns about, and 
continue to be, the natural gas storage levels as we go into 
the winter, and there is that problem. I would hate to see us 
ignore these other problems, because they are equally 
important. They will affect our economy, they will affect the 
safety and health of Americans in many respects as much as the 
blackout.
    Mr. Davis. Mr. Secretary, it is a fair point. I don't want 
to debate with you, I just want to underscore that the country 
is watching you, and us, and expects us to act. There are not 
even conferees appointed to this energy bill and, to my 
knowledge, there has been no meaningful staff conversation that 
would push forward a conference.
    Chairman Tauzin. Will the gentleman yield?
    Mr. Davis. Yes, Mr. Chairman.
    Chairman Tauzin. That is not true. Senator Domenici and I, 
and I will give the gentleman additional time, we had a 
conversation the day the Senate acted and we agreed to put our 
staffs immediately to the task of side by side analysis, to 
begin working out exactly what the conferees are going to need 
to agree and disagree on, because there are areas of broad 
agreement and there is of disagreement, to isolate them. The 
staff has been working all through--they took 1 week off. They 
worked all during the August recess, and if you were to call 
Senator Domenici today you will find out that he believes, as I 
do, that we are going to make speedy progress once we 
officially begin the conference. We have a lot of work going 
on. Add to that, Mr. Davis, the fact that we came awfully close 
last Congress, and the Senate under Democratic leadership came 
very close to agreeing with us last year, I feel very confident 
that our staffs are going to give us the chance to finish this 
work before we leave. So I hope you have a sense of the same 
optimism I have before this is over with, and as I predicted 
the problem, I hope my predictions about our answer is equally 
accurate.
    Mr. Davis. Thank you, Mr. Chairman. I hope the conferees 
are appointed soon so the official conference can start, and 
what the Senate has done speaks for itself.
    Mr. Secretary, in my remaining time which the chairman has 
generously offered to recalculate slightly, I would like to 
talk about something that has heavily affected my State and 
that is the price of gasoline at the pumps, and certainly the 
blackout is the major issue we will be discussing over the next 
couple of days.
    As I understand it, the EIA in your department had said not 
too long ago that they thought prices would be returning to the 
more normal range after the Labor Day holiday. Is that correct? 
Is that still your expectation?
    Secretary Abraham. Yes. I think we have a number on 
Monday--the Deputy Secretary points out that on Monday the 
wholesale gasoline--or Tuesday the wholesale gasoline prices 
dropped 20 cents, so that is kind of consistent with what we 
had predicted.
    Mr. Davis. I haven't seen that translate to a reduction at 
the pump in my area. Are you seeing it in other parts of the 
country?
    Secretary Abraham. That is a wholesale number.
    Mr. Davis. Okay. So my question was going to be what is 
your expectation or projection as to that translating into a 
reduction at the pump?
    Secretary Abraham. I will give you my projection. The 
analysts in the Energy Information Administration suggests 
there is typically a 2-week lag time in terms of the decline in 
price. And my observation has been that there is a much quicker 
increase whenever events happen, but there isn't a similarity 
in terms of the change in the price at the pump. The increases 
happen instantaneously, and the tendency, at least in my 
observation, it is nonempirical.
    Mr. Davis. I assure you that is the perception of the 
consumer at the pump as well.
    Do you expect that the investigation you have mentioned and 
presumably are undertaking is having a positive impact on 
bringing the prices back down?
    Secretary Abraham. Well, we just started, so I don't think 
that would be true. But I have said repeatedly whenever there 
has been one of the sort of major incidents over the last 
couple of years, starting with 9/11, is that we have a hotline, 
a gouger information hotline, and I will even read it into the 
record, Mr. Chairman. It is 1-800-244-3301.
    Chairman Tauzin. We will start calling it today.
    Secretary Abraham. I will let you finish.
    Mr. Davis. I don't need to call. I have delivered to you 
my----
    Secretary Abraham. Every time I have noticed that when we 
do reference that it is a positive statement, I think.
    Chairman Tauzin. The gentleman's time has expired, Mr. 
Davis.
    Mr. Davis. Mr. Chairman, thank you. I would just add, I 
hope that you would consider dispatching Mr. Greenwood as 
chairman of the Oversight and Investigation Subcommittee the 
opportunity to conduct some hearings on this very issue as 
well.
    Chairman Tauzin. Mr. Davis, I can assure you if the 
Secretary and Mr. McSlarrow indicate to us there is a need to 
do that, we will do that, but we obviously want to give them a 
chance to report to us.
    The Chair recognizes the vice chairman of our committee, 
Mr. Burr, for a round of questions.
    Mr. Burr. I thank the Chair.
    Again, welcome, Mr. Secretary. Some analyses of the 
blackout period have already taken place, though cursory, and I 
think it is safe to say that I think this committee would 
rather wait until the official committee that is set up comes 
out with their conclusions. But I think that there are some 
things that we can sort of take for granted, that this is a 
process that happened in very close to an hour or a little bit 
longer, that we went from the startup problems to a total 
blackout.
    In that process, in that hour period, we had transmission 
lines that tripped, we had generation that shut down; I might 
say all by design. Had that not happened, had that design not 
been in place, what would have happened to that grid and those 
generation facilities?
    Secretary Abraham. Well, obviously, there is a certain 
fragility in the system that is designed to be that way so 
that, for instance, a nuclear power reactor, if there is this 
instability that goes to backup generations so that there can't 
be any adverse affect on its cooling systems, things like that 
worked and we have got a nuclear security working group that is 
focused on that, to see if it worked the way it was anticipated 
across the board. Parts of the grid obviously responded 
effectively and quickly in terms of preventing the blackout 
from spreading, and others didn't. So we are--one of the most 
important parts of what we will be doing is to learn from the 
ones--the things that did work well to see what the 
dissimilarities would be between those systems and the ones 
that shut down.
    Mr. Burr. But it is true the transmission lines tripped so 
that they didn't overload, bringing the lines down?
    Secretary Abraham. Right.
    Mr. Burr. Generation shut down so that turbines didn't blow 
up. The net result is to not have it default, that they trip or 
go off line means that the potential damage is much more 
serious and longer, and that is why we do that?
    Secretary Abraham. Right.
    Mr. Burr. My question gets at the heart of whether we are 
headed in the right direction to totally separate transmission 
from generation. One might look at this and question whether in 
this particular case we have increased our ability to respond 
given that in the transmission or the generation end there is 
an anomaly that happens, that without the ability for immediate 
conversation between those responsible for generation and those 
responsible for transmission, it could in fact delay a decision 
and based upon not this scenario, but potentially others, the 
net result might be much worse. Do you have concerns of that?
    Secretary Abraham. As I have indicated, I think the issue 
of communication is one that will certainly be explored as the 
working groups try to assess what went right and what went 
wrong. I don't want to speculate as to how the nonexistence or 
existence of integration within the system addresses that; I 
think it falls in the category of issues that would be 
difficult and premature to look at today.
    Mr. Burr. Well, I hope, since we do have part of the system 
that was a member of an RTO, that the Commission will look at 
whether in fact that delayed or decreased our reaction time on 
particular decisions that may or may not have been made.
    I don't want to cover old ground, but I think in the week 
after the blackout you made some statements that I think were 
very much on line that related to the transmission grid. You 
said we need greater return on investment, we need quicker 
return on investment, we need adjustments to the Tax Code or 
adjustments to the Tax Code that favor voluntary sell off of 
transmission assets to a transmission only entity, along with 
NERC standards are among the types of remedies that you 
referred to that weekend after.
    I would only ask, is that still the belief of you and the 
Department of Energy today?
    Secretary Abraham. As I have said, again, I want to 
separate the specific causes and issues that affected the world 
on August 14 from what I think is a broader challenge, that 
regardless of what we might determine on this blackout need to 
be addressed, and certainly the adequacy of our transmission 
grid is one of those, and I stand by those comments.
    Mr. Burr. I would like to encourage you, in concluding, 
that the efforts that the Department has already entered into, 
the cooperation and the agreements which involve field testing 
of new potential transmission line, 3M, numerous manufacturers 
who are out there, I think it is an integral part of our 
decision as to where we head with our energy policy as it 
relates to the transmission upgrade. I think that it is really 
the role of the Department of Energy to set that standard, and 
I think you are making a correct investment today and I hope 
that investment continues so that when the capital markets are 
ready to finance this upgrade of the transmission grid that in 
fact what we are stringing or what we are burying is in fact 
the right thing for the future and not necessarily what is 
right for today.
    Chairman Tauzin. The gentleman's time has expired. I am 
sort of the multi-breaker here. I have to trip you off and go 
on. I recognize Mr. Engel from New York for a round of 
questions.
    Mr. Engel. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. I realize that many of us have 
different ideas about what energy policy should be, and I just 
wanted to ask you, we have heard a lot of talk here today about 
Congress should pass a comprehensive energy bill, and I agree. 
I don't like the bill that the Congress--the House passed. I 
think that it relies too much on coziness with the energy 
companies and with the industry, and I think that it talks too 
much about production. And what has been troubling me is the 
policy of the administration seems to be that the solution to 
our energy problem is production: more oil, more gas, more 
power, drilling in the Alaska wilderness, pass an energy bill 
that I think is very much tilted toward the industry and 
against conservation instead of energy policies.
    What bothers me is it seems that many people are putting 
the cart before the horse, saying that let's pass this bill 
again, and that is going to be the solution to all of our 
problems.
    Now, we in New York, and it has been said by the chairman 
and others, very generously, I am very proud of the way New 
York has acted during the blackout. We showed again why New 
York is a great city and showed again why New Yorkers are 
great, as the aftermath of September 11 showed that certainly 
we can cope with any kind of crisis. But we recently found out 
the EPA's Inspector General stated that the White House and the 
National Security Council essentially forced the EPA to lie 
about the air quality in New York City just after September 11.
    So what bothers me, and I guess I am saying to you say it 
ain't so, and you have said it, but I want to hear it again, 
that I want to first find out the facts. I want to find out 
what happened, and then I think it makes sense to decide where 
our policies go from there, and I am just worried that if we 
try to wrap this all into a big comprehensive energy bill that 
we are going to have lots of disagreements, and honest 
disagreements, that what we really need to do in terms of 
upgrading the grid and other things is going to fall by the 
wayside. So I just would like to hear from you that that is not 
the case, that we are not putting the cart before the horse, 
and that the administration doesn't already have an idea of 
what it wants to do before we find out what the facts really 
are.
    Secretary Abraham. Well, first of all, let me reassure you 
again, our goal is to find the facts and to follow the facts 
where they lead. And remember, a substantial amount of this 
energy bill has nothing to do with the electricity grid and has 
to do with a lot of other areas such as our hydrogen fuel 
initiatives, such as the tax credits that will support 
investments in the use of alternative fuel vehicles and 
renewable energy sources, a lot of things that I think the 
American public wants. And you have my assurance that our goal 
is to--and remember, this is a binational task force. This is 
not a task force of just the United States; it is one where the 
Canadians are equal participants in and certainly will bring 
the same commitment I believe that we bring.
    Mr. Engel. Can I ask you, Mr. Secretary, if any of the 
findings or backup documentation will be made classified, and 
if it is made classified, the public would not have access to 
it? Because, you know, there is an energy policy that was 
developed by the administration. The Vice President held 
meetings with Enron and other companies in the industry and 
refused to provide Congress with documentations of these 
meetings, contrary to Congress' requests. We don't know what 
happened. I just want the windows to open and the fresh air to 
come in, and I want to know will everything be made public or 
will we have parts of it being classified and, therefore, once 
again, we are not going to really know what the story is?
    Secretary Abraham. My goal and our goal is to have a 
transparent process. I have asked our legal counsel to 
determine what, if any, legal issues exist, and by that I would 
just point to the following: I have no idea what kind of 
proprietary information is being obtained from the various 
people who are part of this transmission system and what 
options we have as to the release of proprietary information. I 
don't know how that works, and we intend to determine that and 
determine, you know, what--but our goal is a fully transparent 
process.
    Mr. Engel. Are you involving FERC at all?
    Secretary Abraham. Yes, FERC's Chairman, who will be 
testifying some time today, I guess----
    Chairman Tauzin. We have the Governors scheduled for 2 
o'clock.
    Secretary Abraham. Mr. Chairman, Pat Wood is a member of 
one--one of the four U.S. members of the task force and FERC 
shares with our Department the lead responsibility on the U.S. 
side for the electricity working group.
    Mr. Engel. I think you can understand, and then I will give 
back the balance of my time, which is already up, that I just 
don't want to use this blackout as an excuse to cook the books, 
to further the administration's energy policies. I want to find 
out again what happened and I want to make sure that we act 
according to that. You said that the energy bill has all kinds 
of other things. I want to concentrate on why the power went 
out and what we can do to make sure that it never happens 
again.
    Secretary Abraham. I do, too.
    Chairman Tauzin. Well, the gentleman's time has expired.
    I want to point out to the gentleman that power doesn't 
come out of the air and it doesn't come out of the walls. 
Somebody has to deliver it to the wall. We had an amazing 
survey done, and I won't mention the State that recently had 
problems. A surprising number of respondents, when asked where 
electricity came from, said the wall. And a surprising number 
of respondents when asked who put it there said the contractor. 
Somebody has got to generate it and get it into that home, and 
if you don't have natural gas to build all the plants we are 
told we need and we don't have an energy bill that addresses 
those problems, we are going to have other problems. It is a 
complex maze that we have tried to literally work through in a 
major comprehensive bill.
    Mr. Engel. If the chairman would just yield for 10 seconds.
    Chairman Tauzin. I will be happy to yield.
    Mr. Engel. I think you would agree with me that energy can 
be dealt with in many different ways, and one of them would be 
to have more production, more oil, more gas, and more power, 
and another way would be to kind of temper that with 
conservation, renewables fuels, and things like that.
    Chairman Tauzin. The bill does all of that.
    Mr. Engel. Well, not to the extent that I think it should.
    Chairman Tauzin. Not to the satisfaction of you and your 
vote, but again, 40 Democrats found the bill satisfactory. It 
passed 247 to 175. It was a bipartisan vote.
    Mr. Engel. Okay, and 150 Democrats found it unsatisfactory.
    Chairman Tauzin. Exactly. Because you didn't like ANWR or 
something. But my point is that we have broad, comprehensive 
legislation in conference that has been agreed to by a 
bipartisan substantial majority of the House, and that is still 
true, whether you like that or not. We have to move on, though.
    The Chair recognizes Governor Otter for 5 minutes.
    Mr. Otter. Thank you, Mr. Chairman. I want to point out 
that being one of the low ranking members on the committee has 
its advantages and one of those advantages is trying to ask a 
question which hasn't been asked, which I think most all of 
them have been asked. But the other advantage is to try to 
clear up a few misgivings that certain members have offered 
through the Secretary, or to the Secretary. One of those, in a 
response to the other side of the aisle; in fact, I think it 
was Ms. Eshoo, the Secretary was without an answer to her 
question as to why didn't the Department of Energy do something 
when California had its crises. And I want to offer to the 
Secretary a copy of a letter that was dated March 20, 1997, 
signed by the California delegation, including Ms. Eshoo, on 
the very top. The letter is directed to the chairman of the 
Energy and Commerce Committee and it says, This measure 
provides for national first fully competitive electric utility 
systems. The new law provides for customers' choice to begin 
January 1, 1998, and to be fully implemented by the year 2002, 
and it goes on to explain the virtues of that new law that was 
passed by a unanimous vote in both Houses of the California 
State Legislature and signed by the Governor, and it concludes 
by saying, stay out of our business. We believe that the 
decision made in California on utility restructuring and 
competition are the right ones for our State, so stay out of 
our business.
    So I would also like to offer that, Mr. Chairman, as part 
of the official record of this committee.
    Chairman Tauzin. Without objection, it will be made a part 
of the record.
    [The information referred to follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Otter. Mr. Secretary, isn't it necessary to attract 
investment that public policy relative to any kind of 
information in the United States lasts beyond one Presidential 
term? I don't know of any infrastructure that we have where we 
asked the private sector or a private-public sector investment 
that we want to attract, that they can amortize those kinds of 
investments in 4 years, do you?
    Secretary Abraham. Obviously, the predictability of policy 
is critical.
    Mr. Otter. So you have to have continuity. You know, I 
haven't made a check, but I know that relative to one of the 
other members from the other side of the aisle's questions 
about why isn't 12 percent enough and why isn't that going to 
generate a tremendous investment; however, I suspect if we 
checked our portfolios for our 401(k)s for those members 
sitting in this committee on this dais today, we probably 
wouldn't find a lot of investment in that 12 percent by any 
stretch of the imagination.
    Let me move on. I want to commend you, Mr. Secretary, for 
staying away from leapfrogging over the process which you and 
the Canadians have already engaged in to try to come to some--
instead of playing the blame game to try to come to some sort 
of conclusion on what has happened, because we do that in 
Congress all the time. If there is a little problem we jump 
right in and say this is the answer, and in the end we always 
conclude that wet sidewalks cause rain, and the process of 
doing that in this case could be way too damaging.
    In another response, one of the questions was why aren't 
these hearings made public? I was not satisfied with your 
answer to that. But I would ask you this: have you and your 
colleagues made any assessment of opening these meetings and 
what it might suggest to the terrorists of the world of what 
our vulnerability would be if these meetings were opened and we 
came to some conclusions?
    Secretary Abraham. Well, as I indicated, we haven't even 
gotten yet to the stage of considering the deliberation 
process. Obviously, the task force at this point is in an 
information gathering stage, and the Congressman raises a very 
interesting and important point as to----
    Mr. Otter. So have you not made an assessment of that 
information being made public?
    Secretary Abraham. No, we have not reached the point of 
assessing public hearings.
    Mr. Otter. Immediately after 9/11 the Army Corps of 
Engineers was requested to go out and make an assessment of 
potential targets of our infrastructure like dams and like 
power plants and things like that. And then that information 
was made public, and of course it was a list of potential 
targets for somebody. Don't you think it is important that we 
not allow that kind of information in total to be made public?
    Secretary Abraham. The Department of Homeland Security and 
the Canadian counterpart are in the process of running that 
working group and I am sure they will be very explicit in terms 
of as they reach their information gathering and analysis as to 
the classification level of issues that might relate to 
terrorist threats.
    Mr. Otter. My time is up.
    Chairman Tauzin. The gentleman's time is up. Let me tell 
you where we are now. Mr. Secretary, you need to leave. I have 
four or five members who have still not asked questions. The 
Governors are here and we are trying to take good care of the 
Governors in our conference room and we need to get them up. So 
what I am going to ask if maybe the members who still have 
questions, if you could maybe make it one or two questions 
quick and move on.
    Mr. Doyle is next.
    Mr. Doyle. Thanks, Mr. Chairman. I won't use my whole 5 
minutes.
    Mr. Secretary, I understand that Chairman Wood is part of 
the task force. I also understand that FERC has the authority 
themselves to conduct an investigation but they are not 
presently doing so. It just seems to me that some autonomy 
could lead to a useful process and it wouldn't be much harm 
having an additional set of eyes, if you will, examining the 
issue. Do you think it would be useful for FERC to conduct 
their own independent investigation?
    Secretary Abraham. I think that, first of all, I strongly 
have urged that we have one investigation so that we could 
benefit from the collective work of all of the people who can 
bring some talent to this effort. No. 2, I don't know whether 
FERC's authority extends to the full range of areas that I 
believe the Department of Energy's authority extends in terms 
of our capacity to conduct a comprehensive investigation. We 
are in no position to prevent FERC from doing its own 
investigation.
    Mr. Doyle. So you wouldn't oppose it?
    Secretary Abraham. Chairman Wood and the members of the 
Commission and the two other members I guess will have to make 
a decision. But I think we benefit from bringing all of the 
expertise together in one investigation so that we can get 
hopefully a timely as well as a comprehensive approach.
    Mr. Doyle. But you wouldn't oppose it if they decided to do 
it on their own?
    Secretary Abraham. Chairman Wood's investigative authority 
I think in this area or the FERC's is derivative of our 
Department which we have assigned on a nonexclusive basis to 
FERC and they are an independent commission to make decisions. 
I think the country benefits from having all of the talent 
working together, combined with that which Canada brings to 
this effort.
    Mr. Doyle. Fine. Thank you, Mr. Secretary.
    Just one quick last question. I talked about distributed 
generation in my remarks and I felt strongly that this could go 
a long way toward solving some of our problems. Do you support 
ramping up R&D funding for this? I know you keep mentioning 
fuel cells, but the fuel cells that you mentioned, the hydrogen 
fuel cells are 15, 20 years down the road. We have fuel cells 
that have near term commercialization potential and that 
funding has been cut. So how do we get more resources to that?
    Secretary Abraham. Well, at the end of the day we have 
expanded our overall commitment to fuel cell research. I think 
the technologies that are being explored right now as to 
hydrogen production, for instance, as fuel cell functioning has 
the potential benefit in both the transportation as well as 
stationary application. But we certainly see, as I mentioned in 
response to another answer a little while ago, that we share 
the view that this is part of a long-term solution.
    Mr. Doyle. Thank you.
    Chairman Tauzin. I thank the gentleman. Let me ask, does 
anyone on this side have a question? Mr. Stearns, quickly.
    Mr. Stearns. Thank you, Mr. Chairman.
    Mr. Secretary, just an overview. It seems to me that if we 
are going to avoid incidences like these blackouts, the first 
thing we need to do is to establish a complete analysis of a 
national threat and vulnerability assessment that identifies 
these problems.
    Has your office done this yet, a national assessment of 
grid?
    Secretary Abraham. Actually the Department of Homeland 
Security has that charge now.
    Mr. Stearns. So you don't do that at all?
    Secretary Abraham. I mean, we play a role as technical 
support. The DHS has the infrastructure security 
responsibilities. They previously have been more in our 
department.
    Mr. Stearns. You know there were a lot of studies done in 
the Clinton Administration. In 1999, a study of the 
transmission grid was done. The DOE released its power outage 
study in March 2000. You know, given these reports, are these 
reports useful or useless? I mean, shouldn't these reports have 
told us some of the vulnerabilities?
    Secretary Abraham. Congressman, as I have commented several 
times today, we feel that the grid study we did in 2002 is 
explicit in identifying challenges which we confront. They were 
also, if one reads our energy plan, expounded on there. And 
Secretary Richardson was frequently seen and heard, in the wake 
of the blackout, talking about the work he had done in terms of 
these issues. We waited a long time to address them. They need 
to be addressed.
    Mr. Stearns. All right.
    Mr. Chairman, thank you.
    Chairman Tauzin. Anyone on this side the last question?
    I think Mr. Allen first, and then I will get you next.
    Mr. Allen. Thank you, Mr. Chairman.
    And, Mr. Secretary, thank you for being here. Like many 
other members, I am going to ask you a question about the 
energy bill, because you know, we are, as you have said several 
times, sort of ahead of the curve a little bit in trying to 
devise legislative solutions to what happened on August 14. But 
in the course of this hearing today, several members have 
referred to a provision in the energy bill that they have 
characterized as allowing the Federal Government to work with 
States to get transmission lines sited. But when you look at 
that provision, it is a provision that was reported by this 
committee, but opposed by almost every Democrat and certainly 
seems to be much more heavy-handed than working with a State.
    The provision allows FERC here in Washington to swoop into 
a State and preempt the State's ability to make siting 
decisions in a variety of situations, some of them, I would 
suggest, inappropriate. For example, if a State denies a permit 
for transmission facilities for any reason whatsoever, then 
FERC can overrule the State. So if a utility wants to build a 
transmission line interstate--transmission of interstate 
electricity in one spot rather than another--and the State 
agency has a preference, then basically the utility cannot 
agree, wait for a denial, wait for a delay and count on FERC to 
preempt the State. Or if the State takes more than a year to 
consider a transmission proposal, then FERC can also simply 
take over.
    This approach is great for utilities, but it may be 
terrible for States who want to ensure that these facilities 
are constructed in a way that meets their other public policy 
objectives, environmental and otherwise. And I think that 
Congresswoman Solis asked a question along these lines, and I 
think you used the words ``last resort'' in describing the 
State authority. But I would suggest to you that for an 
administration that prizes State rights, this looks and feels 
to some of us like a pretty heavy-handed power grab, to use the 
phrase, because the weight of the FERC authority is there from 
the beginning of the filing of the application, and basically 
FERC is there to take over the transmission siting decision, 
you know, if anything, changes.
    So the question after all that, with respect to this 
specific provision of the House energy bill, does the 
administration support it? Do you have reservations?
    Secretary Abraham. Let me tell you what I think, first of 
all.
    You know, nobody thinks twice if a pipeline is sited by the 
Federal Government or the highways. We have done those. This 
scenario, the Federal Government has no authority whatsoever. 
The problem we have is that made sense when essentially the 
transmission system was intrastate, when there wasn't a lot of 
interstate development. Now there is. The question is, should 
the Federal Government have any role.
    What we have tried to argue in our grid study and what I 
think was intended in the construction of the House bill was 
that we ought to identify serious congestion areas, what we 
called in the grid study ``national interest corridors,'' that 
is, interstate transmission corridors which were so severely 
congested as to cause the potential for the sorts of problems 
we are here today talking about; that once we identify those, 
we would wait, give the States an opportunity to act. But if 
the States won't act, the question is, do we just do nothing, 
or should there be some ultimate power at the Federal level; 
when its an interstate matter that affects interstate commerce, 
interstate health and safety issues, should there be an 
opportunity for the Federal Government to site in the last 
resort. That is the viewpoint we support.
    Mr. Allen. But you would agree, this is a fairly 
significant change from the rules that prevail today?
    Secretary Abraham. The communication I received from the 
Governors of this country on this issue certainly reflects that 
view, and I in no way wish to diminish the significance of it. 
But what is equally significant, I think--and again, I am not 
going to speculate about what happened on August 14, but I 
believe if we don't have adequate transmission on an interstate 
basis, and it is what we call--not every single transmission 
siting but ones that have caused severe congestion problems 
with broader implications, I think the State should have the 
first crack. They should have a sufficient time to act, but if 
they won't act, then I believe there ought to be some ability 
of last resort.
    Chairman Tauzin. The gentleman's time has expired.
    Let me point out, however, for the record that there is a 
tradeoff in the bill. Feds get that authority, but the States 
get additional siting authority on Federal lands as part of the 
tradeoff. So States do gain additional rights under the 
provisions of the House bill.
    Ms. Schakowsky and then Mr. Brown.
    Ms. Schakowsky. Before and after September 11 there was 
this broad acknowledgment that the grid had to be upgraded, and 
I am trying to understand under what conditions.
    Mr. Markey talked about that guaranteed 11 to 12 percent 
rate of return on the investment. And that doesn't seem to be 
sufficient to have prodded people, nor did the warnings that 
this could be a serious problem for the economy and for our 
security as a Nation. The--so the answer seems to be, we talk 
about incentive rates, representing the idea of consumers and 
who pays. Isn't another idea that we just say this is so vital 
to the United States' economy and to our security as a Nation 
that we require that the transmission grid be upgraded, as 
opposed to trying to find how much money do we have to require 
consumers to pay in order for companies to be induced, 
incentivized to do that?
    And then the question is, who does pay? I mean, is it going 
to be the captive consumers who are now paying so much at the 
pump or paying so much for natural gas and then seeing their 
electric utility bill rise? Is there some way to protect those 
captive consumers from those high rates?
    Secretary Abraham. Just two observations: First of all, 
about 80 percent--I mentioned this earlier. About 80 percent of 
the energy bill that people pay, whether it is the individual 
or the business or industry consumer, about 80 percent goes to 
the cost of generation, 10 percent goes for transmission, 10 
percent for distribution.
    It is our view--first of all, it is an important point that 
came out of our grid study that because of the congestion in 
the transmission system, we are artificially inflating the cost 
of the generation.
    Ms. Schakowsky. But you don't guarantee that prices will go 
down. There is a guarantee of a rate of return, but.
    Secretary Abraham. I am expressing just the results of our 
study.
    Ms. Schakowsky. I know, but consumers would feel, we give 
you this tradeoff and give you higher rates, and then we say, 
and then, therefore, we guarantee you that because congestion 
will be alleviated, prices will go down. As you said, prices go 
up pretty fast, but prices don't come down very fast; and there 
is no guarantee of that.
    Secretary Abraham. I think I was candid in my earlier 
response in that.
    I think the other point, though, I would bring to the 
committee's attention is this: Two-thirds of the consumption of 
energy in these rates that are paid is the consumption in the 
business-manufacturing-industrial sector; one-third is 
residential. And so what we have right now--I mean, in terms of 
who does pay the bill and who should pay the bill, it seems 
that as we look at this, I believe there will be an offset, but 
I also believe that these heavy industrial consumers need to 
pay their fair share, and if we are going to increase the 
system to meet those demands, that the people who are putting 
that demand into the system need to pay their fair share. And 
that would be my----
    Ms. Schakowsky. Did you ever lower--was there ever gouging 
found throughout your hotline, this gasoline price gouging 
hotline? Did anything result in lower prices?
    Secretary Abraham. We brought and referred to the FTC, you 
know, every.
    Ms. Schakowsky. Did anything ever happen?
    Secretary Abraham. I have no idea. I have to get back to 
the committee.
    Chairman Tauzin. The Chair reminds everyone, we have two 
Governors and a mayor who have to catch a plane. Mr. Brown is 
the last one.
    Mr. Brown. Thank you, Mr. Chairman.
    The response--to respond to the question of Ms. Schakowsky, 
can you give us in writing the response to her and to me of 
what actually came of those?
    Secretary Abraham. Sure.
    Mr. Brown. I have one question and a couple of remarks 
before the question, and I appreciate the chance to speak to 
you, Mr. Secretary.
    May, 2003, the North American Electrical Reliability 
Council issued its summer reliability assessment estimating 
summer electricity demand in the Midwest ECAR region, or the 
reliability region which includes my home State of Ohio, at 
over 100,000 megawatts. But according to NERC, our region will 
use demand-side efficiency measures in other words to meet less 
than 3 percent of the demand this year.
    The American Council for an Energy Efficient Economy 
estimated that adopting a seasonal energy efficiency ratio of 
13 for air conditioners would reduce demand nationwide by 
57,000 megawatts during the next quarter century. One of the 
White House directives in 2001 was to roll back the SEER, the 
SEER 13 air conditioner standard, rolling back the required 
efficiency. The Alliance to Save Energy says the 
administration's decision will cause demand to be 13,000 
megawatts higher than under the one point enacted, more 
responsible SEER 13 standard.
    During the next quarter century or so, the administration 
decision will reduce energy efficient standards for air 
conditioners and will cost consumers $18-plus billion in higher 
electric bills. With the grid already badly strained with 
demand-side measures meeting only a small fraction of total 
demand, it seems puzzling to me that we can ignore the 
reliability benefits of the SEER 13 standard.
    Are you willing--are the Department and the President and 
the administration willing--in light of this $18 billion cost 
on top of perhaps 50 billion in transmission grade upgrades 
brought on by what we are doing today, is it something you 
would reconsider?
    Secretary Abraham. Two points: First of all--and then I am 
going to have the Deputy Secretary comment.
    Point No. 1, these standards would go into effect in 2006. 
And I don't think there should be confusion as to how they 
might have in any way affected the blackout.
    Second, we increased the standard from 10 to 12. We did not 
roll anything back.
    Third, I would just point out that one of the reasons we 
did not support the 13 SEER standard was that--we concluded 
that the analysis--we concluded that the cost to the consumers, 
to low-income consumers, of the 13 SEER standards in position 
would be prohibitive in terms of their ability to afford to 
have residential air conditioning; and we did not think that 
that was an appropriate way to save on energy on the backs of 
those low-income consumers who would simply be priced out of 
the market.
    Mr. McSlarrow. I would only add that in addition to that 
rule, which increased the energy efficiency of air conditioners 
by 20 percent, this administration approved three other energy 
efficiency rules. The total savings in terms of electricity 
would equal over 5 years of all power that goes to every 
American home. So we have already done a tremendous amount.
    Now, it is true none of these start until 2006, but every 
rule that we had in front of us we approved.
    Mr. Brown. Just in closing, I would dispute a couple of 
things that the Secretary and the Deputy Secretary said. One is 
that while we did maybe increase from 10 to 12, the 
administration before, in addition to regulation, increased it 
to 13. So it is only in Washington do you call it an increase 
to paraphrase my friends.
    Second, this is the same administration, that is showing 
such concern for low-income air conditioning users, that 
doesn't seem to show that concern when it is time to put out a 
budget on helping low-income energy assistance when it is 
heating assistance in my part of the country.
    Secretary Abraham. That is actually false, Congressman. And 
if you look at the President's proposals on the weatherization 
program in my department, where we have consistently submitted 
to Congress budgets substantially greater than the 
appropriators have given us to try to expand the weatherization 
program. So that is not an accurate statement.
    Chairman Tauzin. The Chair wishes to express my sincere 
gratitude to the Secretary for the enormous patience he has 
shown today, and I wish you Godspeed.
    As you said, you plan to give us a report, you think, by 
next week?
    Secretary Abraham. We will give it.
    Chairman Tauzin. Thank you, Mr. Secretary and Deputy 
Secretary.
    And we will now move on to the second panel, which has been 
waiting patiently. And we will call the second panel and I will 
wait for them to assemble before I introduce them, but I ask 
all the members and guests to allow the Secretary to make his 
departure and to invite Governor Taft and Governor Granholm and 
Mayor Kilpatrick to enter the room.
    [Brief recess.]
    Chairman Tauzin. Let me ask the witnesses to take their 
seats. The Governors are here and the Mayor is here, and we are 
deeply honored to have the presence of two of our Nation's 
Governors and the distinguished Mayor of the great city of 
Detroit, who are here to share their perspectives on the crisis 
that occurred in the Northeast on August 14.
    So if our guests will take seats, please, we can begin the 
rest of our hearing. So please take seats and get the doors 
closed. Thank you very much.
    Ladies and gentlemen, the committee and guests, we are 
honored and pleased to have with us, as I mentioned, two of our 
Nation's most distinguished Governors and the great, 
distinguished Mayor of one of America's great cities that gives 
the New Orleans Saints the dickens every now and then.
    I want to welcome the Honorable Bob Taft, Governor of the 
great State of Ohio, the Honorable Jennifer Granholm, the 
Governor of the great State of Michigan, and the Honorable 
Kwame Kilpatrick, who is the Mayor of the great city of 
Detroit, Michigan. All of you had some real experience in what 
occurred August 14, and obviously a perspective that maybe can 
help us understand what happened and how we can best prevent it 
again.
    Let me extend to all of you, first of all, our sympathies 
for what your folks had to go through; and second, the great 
appreciation of the rest of our country in the way you handled 
it. In New York, your great city and State were an example to 
the rest of us of how to handle a crisis, and you managed it 
awfully well; and I want to extend my thanks to all of you for 
setting the right example for the rest of us in the country.
    And we will begin with Governor Taft, if you will lead off 
and give us your perspective, Governor.

      STATEMENT OF HON. BOB TAFT, GOVERNOR, STATE OF OHIO

    Governor Taft. Mr. Chairman and members of the committee, 
thank you for this opportunity to testify on a matter of great 
importance to Ohio and to the Nation. It is my hope that what 
happened on August 14 will awaken us all to the urgency of 
creating a modern, well-coordinated system for the transmission 
of electricity.
    The unprecedented blackout that occurred posed severe 
threats to public health and safety and to the economy of Ohio, 
other States and provinces and two nations. Although we will 
not know for some time the exact sequence of events that gave 
rise to the blackout, this incident revealed serious 
shortcomings in the transmission of electricity that could well 
create a real calamity in the future if not addressed.
    The blackout underscores our deep dependence on our energy 
infrastructure and the vulnerability of that system. The 
consequences go far beyond the personal inconvenience of 
lights, refrigerators or air conditioning. In Cleveland, the 
downstream impacts led to a near catastrophic failure of the 
city's water system leaving tens of thousands in the metro area 
without safe drinking water and rendering beaches unsafe for 
days due to sewage contamination.
    The blackout cost Ohio businesses more than a billion 
dollars in lost economic activity. One major Ohio company lost 
steel-making capacity for more than a week because of the 
damage of the blackout.
    Above all, the blackout shook the confidence of our 
system--of our citizens in the system that most take for 
granted. We must now do whatever it takes to establish an 
improved system that people can rely on to power their homes, 
their offices and their communities.
    In that immediate effort to assist with an answer to the 
question of what happened, I have directed the Public Utilities 
Commission of Ohio to undertake a second-by-second account of 
events in Ohio that took place leading up to and during the 
blackout. The chairman of the PUCO, Alan Schriber, has been in 
contact with utilities and industry groups operating in Ohio to 
gather time lines and other data critical to the investigation. 
He will be a member of the joint U.S.-Canadian task force and, 
in that capacity, will make his information available to 
support the binational investigation; and he will be testifying 
before you later today.
    From the standpoint of preventing a future potentially more 
serious blackout, we support several initiatives that are under 
way or under consideration. First, we urge the Congress to 
require mandatory reliability standards for the transmission of 
electricity. Voluntary standards have been proven inadequate. 
Responsibility for enforcement of rigorous national standards 
for safe, reliable transmission of electricity could be given 
either to a Federal agency or to State commissions operating to 
enforce Federal standards.
    With respect to rail lines, natural gas pipelines, there is 
already a precedent for State enforcement of national safety 
and reliability standards in Ohio and other States.
    Second, I strongly support FERC's proposal for an 
effective, empowered regional system that places direction and 
control of transmission with independent, regional grid 
operators. The current system is both fragmented and weak.
    For example, in Ohio, oversight of transmission is divided 
between two different organizations. We have companies that are 
members of the Midwest ISO, others that belong to PJM and one 
company whose efforts to join a regional group has been delayed 
by legal and technical disputes. In addition, the Midwest ISO 
and PJM still lack effective control over transmission lines in 
Ohio that they are supposed to oversee and coordinate with 
lines outside our State.
    Congress should act promptly to support FERC's plan for 
empowered, all-inclusive regional transmission entities. A 3-
year delay, as some are proposing, would impose an intolerable 
risk on the Nation.
    I have directed our PUCO to conduct a review of whether 
Ohio's division among two separate regional transmission 
organizations poses a serious risk to the reliability of the 
delivery of power to customers in Ohio and, if warranted, 
provide recommendations to bring our utilities within the State 
under a single transmission organization. Without strong 
Federal action, such a result may not be achievable.
    In addition to mandatory reliability standards and strong 
RTOs, we must not overlook the importance of investment in 
technology and infrastructure to upgrade the grid and its 
operating systems. It has been reported by many sources that 
investment in transmission has declined even as the burden on 
the lines has increased. After the blackout, a transmission 
system in a neighboring State stated that his company should 
have received a courtesy call from an Ohio utility in regards 
to lines going out in Ohio. Quite frankly, in the 21st century, 
a system that relies on courtesy calls is clearly outdated and 
needs to be modernized. Therefore, I encourage the Congress and 
the FERC to provide incentives and adequate returns on 
investments to enable grid operators to upgrade transmission 
systems, including deployment of advanced technology to detect 
problems and provide rapid communication and coordination.
    Some may disagree that change is needed. Others will use 
the blackout as a platform for concerns that are not relevant 
to the cause of the outage or actions necessary to prevent new 
blackouts in the future. I believe we must support the joint 
U.S.-Canadian task force as it works to identify the causes of 
the blackout, adopt national mandatory reliability standards 
and establish a strong regional transmission system capable of 
upgrading technology, creating regional wholesale markets and 
managing the power grid so our lights will stay on.
    I urge the Congress to enact the required reforms at the 
earliest possible date as part of a comprehensive energy bill 
that addresses, also, the need to expand domestic energy 
supplies, reduce our dependence on imported oil and eliminates 
the ethanol penalty which unfairly discriminates against Ohio 
and other States in the allocation of Federal gas tax dollars.
    Chairman Tauzin. Thank you very much, Governor.
    What is your relationship to the ex-President?
    Governor Taft. Great grandfather.
    Chairman Tauzin. I wanted to express the appreciation of 
the people of Louisiana because it was he who appointed one of 
our native sons and a great person in Louisiana history, Chief 
Justice Edward Douglas White, to the Supreme Court and named 
him Chief Justice. So we have a debt to your family.
    Governor Taft. Thank you so much, Mr. Chairman.
    [The prepared statement of Hon. Bob Taft follows:]
         Prepared Statement of Hon. Bob Taft, Governor of Ohio
    Mr. Chairman, members of the committee, thank you for this 
opportunity to testify. It is my hope that what happened on August 14th 
will awaken us all to the urgency of creating a modern, well 
coordinated system for the transmission of electricity.
    The unprecedented blackout that occurred posed severe threats to 
public health and safety and to the economy of Ohio, other states and 
provinces, and two nations. Although we will not know for some time the 
exact sequence of events that gave rise to the blackout, this incident 
revealed serious shortcomings in the transmission of electricity that 
could well create a real calamity in the future if not addressed.
    The blackout underscores our deep dependence on our energy 
infrastructure and the vulnerability of that system. The consequences 
go far beyond the personal inconvenience of lights, refrigerators or 
air conditioning.
    In Cleveland, the down-stream impacts lead to a near catastrophic 
failure of the city's water system, leaving tens-of-thousands in the 
metro area without safe drinking water and rendering beaches unsafe for 
days due to sewage contamination.
    The interruption of business activity resulted in the loss of 
millions of dollars of economic activity that will not be fully 
recouped through private insurance and state or federal programs. One 
major Ohio company lost steel making capacity for more than a week 
because of the damage from the blackout.
    Above all, the blackout shook the confidence of our citizens in a 
system that most take for granted. We must now do whatever it takes to 
establish an improved system that people can rely on to power their 
homes, their offices and their communities.
    In an immediate effort to assist with an answer to the question of 
``what happened?'', I have directed the Public Utilities Commission of 
Ohio (PUCO) to begin a second by second account of events in Ohio that 
took place leading up to and during the blackout. PUCO Chairman Alan 
Schriber has been in contact with utilities and industry organizations 
operating in Ohio, to gather timelines and other data critical to the 
investigation. As a member of the joint U.S.-Canadian Task Force, he 
will make that information available to support the bi-national 
investigation.
    From the standpoint of preventing a future potentially more serious 
blackout, we support several initiatives that are underway or under 
consideration. First, we urge the Congress to require mandatory 
reliability standards for the transmission of electricity.
    Voluntary standards have been proven inadequate. Responsibility for 
enforcement of rigorous national standards for the safe and reliable 
transmission of electricity should be given either to a federal agency 
or state commissions operating to enforce federal standards. With 
respect to rail lines and natural gas pipelines, there is already 
precedent for state enforcement of national safety and reliability 
standards in Ohio and other states.
    Second, I strongly support FERC's proposal for an effective, 
empowered regional system that places direction and control of 
transmission with independent regional grid operators. The current 
system is both fragmented and weak. For example, in Ohio oversight of 
transmission is divided between two different organizations. We have 
companies that are members of the Midwest ISO, others that belong to 
PJM, and one company who's efforts to join a regional group has been 
delayed by legal and technical disputes. In addition, the Midwest ISO 
and PJM lack effective control over the transmission lines in Ohio they 
are supposed to oversee and coordinate with lines outside Ohio.
    Congress should act promptly to support FERC's plan for empowered, 
all-inclusive regional transmission entities. A three-year delay, as 
some are proposing, would impose an intolerable risk on the nation.
    I have directed the Public Utilities Commission of Ohio to conduct 
a review of whether Ohio's division among two separate regional 
transmission organizations poses a serious risk to the reliability of 
the delivery of power to customers in Ohio and, if warranted, provide 
recommendations to bring utilities within the state under a single 
transmission organization. Without strong federal action, such a result 
may not be achievable.
    In addition to mandatory reliability standards and strong, regional 
transmission organizations, we must not overlook the importance of 
investment in technology and infrastructure to upgrade the grid and its 
operating systems. It has been reported by many sources that investment 
in transmission has declined even as the burden on the lines has 
increased.
    After the blackout, a transmission system operator in Michigan 
reported his company should have received a ``courtesy call'' from an 
Ohio utility in regard to lines going out in Ohio. Quite frankly, in 
the 21st Century, a system that relies on ``courtesy calls'' is clearly 
outdated and must be modernized.
    Therefore, I encourage the Congress and the FERC to provide 
incentives and adequate return on investments to enable grid operators 
to upgrade transmission systems including the deployment of advanced 
technology to detect problems and provide rapid communication and 
coordination.
    Some may disagree that change is needed. Others will use the 
blackout as a platform for concerns that are not relevant to the cause 
of the outage or actions necessary to prevent new blackouts in the 
future. I believe we must support the joint U.S.-Canadian Task Force as 
it works to identify the causes of the blackout, adopt national 
mandatory reliability standards and establish a strong regional 
transmission system capable of upgrading technology, creating regional 
wholesale markets and managing the power grid so our lights will stay 
on.
    I urge the Congress to enact the required reforms at the earliest 
possible date as part of a comprehensive energy bill that addresses 
also the need to expand domestic energy supplies, reduce our dependence 
on imported oil and eliminates the ethanol penalty which unfairly 
discriminates against Ohio and other states in the allocation of 
federal gas tax dollars.

    Chairman Tauzin. It is now our pleasure to welcome the 
Honorable Jennifer Granholm the Governor of the great State of 
Michigan for your testimony.

    STATEMENT OF HON. JENNIFER GRANHOLM, GOVERNOR, STATE OF 
                            MICHIGAN

    Governor Granholm. Thank you, Mr. Chairman, and thank you 
to all of the members of the committee, particularly the ones 
from my home State, Representative Upton, Representative 
Stupak, and of course our ranking member, Mr. Dingell.
    I appreciate the chance to come and tell you what it was 
like from the perspective of a Governor and from my 
perspective, as well, what we might take a look at in terms of 
remedying the problem.
    In Michigan more than 6 million people were without power. 
The entirety of the Detroit Edison system went down for the 
first time in their history. And of course that left us without 
recourse with respect to water. I am sitting next to the great 
Mayor of the city of Detroit, Mayor Kilpatrick, whose water 
system serves all of southeast Michigan, and without 
electricity, people couldn't turn on the taps and see fresh 
water coming out. And I know that the same was experienced in 
Ohio. Clearly there are negative impacts on all of our States.
    For us, the public dollars that we have requested 
assistance on amount to $20 million that we have calculated so 
far. Detroit Edison says that they suffered $35 million in 
losses.
    On the private side, at least 70 manufacturing plants went 
down. The water system, as I mentioned, was also shut down. And 
the total loss of earnings in Michigan, we believe will total 
at least $1 billion once the numbers are aggregated.
    So there were things that went right, however. There is a 
silver lining to all of this. The real success, I think, is 
that in Michigan we had no deaths. We had no severe injuries; 
we had no spikes in crime. We had a spike in community, and 
that was the good news that came out. This is a testament, I 
think, to our first responders who sprang into action and to 
the spirit of the great Michigan citizenry. It was the power of 
the people that really held us together in those dark hours.
    Our communities united instead of dividing. And as soon as 
we knew--for example in southeast Michigan, as a Michiganian, 
we come with a map attached to our persons--but in our 
southeast Michigan region, which is this part here that all 
went out, people from the west, when they learned that this 
part of Michigan was without power, began to send bottled 
water; and in fact over a million bottles of water were donated 
from areas of the State that were completely unaffected. So it 
was, I think, a good tribute to citizen patriotism.
    The suspected cause of the blackout was one of the 
questions that was asked when we were invited to testify. And 
of course as you heard from Spencer Abraham and you will hear 
from our public service commissioners, who will testify after 
us, investigations are ongoing, and it is difficult to 
speculate as to exactly the cause when it is still preliminary. 
However, I think there may be and I think the investigation 
might suggest three possible factors in this.
    One, I do believe there may be an aspect of human error 
involved, related to communications or lack thereof. And I 
agree with Governor Taft that we shouldn't have to rely on 
courtesy calls, absolutely. We should have a system that is 
reliable enough that you don't have to rely on a courtesy call.
    But in this case, of course, there was no courtesy call nor 
was there a system in place. Neither Detroit Edison nor the 
international transmission company which services the 
transmission grid in Michigan received any indication prior to 
the blackout, although it has been traced to about an hour and 
5 minutes prior to the time that in Michigan the transmission 
company found that there was a problem. So about an hour and 5 
minutes before that, problems began to emerge on the grid and 
yet nothing happened.
    In the best of all possible worlds, we would have a command 
and control system where it would be clearly--notification 
would be given to States, to connected grids, to connected 
entities that a problem was occurring; and if power needed to 
be offloaded, that would be the time to make that decision. 
None of that was able to occur because it was too late by the 
time the ITC, the International Transmission Company, which is 
our transmission grid, was notified--or found it wasn't 
notified--and saw the problem emerging on the system.
    If our utilities had the ability to identify that a problem 
was occurring either through the regional transmission 
organization, or some other entity during that previous hour, 
then this problem of cascading might have been prevented. So 
the first problem or the first factor that might weigh into 
this is the potential human error.
    Second, obviously we had a power line failure. There were 
reports that failure to adequately maintain some power lines in 
the region might have contributed to the blackout. I am sure 
that question is going to be covered extensively by other 
witnesses.
    And the third thing that is a factor, that may not be the 
cause of the problem but is certainly a factor for the 
discussion today, are the changes in the utility market. While 
restructuring of electricity, which has occurred in Michigan, 
did not cause the blackout, I think we have to explore whether 
an evolving utility market might not have impacted the ability 
to get responsibility out there for the power outage. In other 
words, nobody was taking responsibility because there is nobody 
we can point the finger to who is responsible for maintaining 
reliability and enforcing it.
    So Michigan has not fully deregulated like a number of 
other States, but several years ago, we did make significant 
changes in the ownership of our utility system and how power 
was transmitted. There are a lot of positive results that came 
from that. Wholesale electricity began to become competitive 
and people could purchase that. More power plants were built, 
more investment in the transmission grid and in the 
transmission lines.
    However, partial deregulation also had some impacts that 
may dilute responsibility, and that is a problem. Power 
companies sold off their transmission systems to separate 
operators. Movement of power on the grid is now controlled less 
directly by the power companies in Michigan and is much more 
widely influenced by the power supply and demand in the region. 
And the bottom line, of course, is that this contributes to a 
system where no one, myself included, knows who is ultimately 
responsible for ensuring reliability. That is an unacceptable 
situation.
    So the lessons that we learned are: First, increased 
training and planning after September 11 meant that we were 
able to respond. And you will hear from Mayor Kilpatrick, who I 
am sure will underscore the great efforts he made in 
responding; and two, the necessity of ensuring a safe and 
reliable and efficient electric transmission system should be 
critically apparent to all of us, and that is why we are here.
    The State of Michigan certainly stands ready to help, but 
the necessity of a Federal solution is evident. The third 
question you asked, How can similar incidents in the future be 
prevented, we need to pass immediate reliability standards. I 
think we also need to pass a bill included in that requires 
accountability.
    If we can look at price stability, that would be a 
marvelous thing. Something that incentivizes investment in the 
power grid would also be, I think, a worthwhile exploration for 
this committee. Perhaps investment tax credits. Perhaps an 
enhanced return on investment, some have suggested, although 
frankly 12.88 percent, or 13.88 if you are a member of an RTO, 
is a good return on investment and should be enough to provide 
incentive to invest in the grid.
    And, of course, I think the biggest incentive is to develop 
a regulatory framework that requires predictability, mitigates 
investment risk and ensures enforcement of reliable standards.
    So, as Governor, you know, I don't pretend to be an expert 
in this, but I do know this: that our citizens, when they flip 
the switch, they want the light to come on; when they get in an 
elevator, they want to be able to know they will be able to get 
off; when they turn on the tap water, they want to make sure 
safe water emerges.
    I appreciate the chance to come and share my thoughts with 
you, and I am confident that if sane heads prevail, we can see 
a quick resolution to this question of making sure we have got 
reliable, enforceable standards. Thank you.
    [The prepared statement of Hon. Jennifer Granholm follows:]
   Prepared Statement of Hon. Jennifer Granholm, Governor, State of 
                                Michigan
    Mr. Chairman and members of the Committee, my name is Jennifer 
Granholm and I am the Governor of the State of Michigan. I appreciate 
the opportunity to appear before the Committee on Energy and Commerce 
today to discuss the blackout that ripped across the Eastern United 
States and Canada on August 14th, eventually hitting and stopping in my 
State.
    As this Committee has recognized, all of us need to ensure that 
appropriate steps are taken to identify, address and correct the causes 
of the blackout.
    In Michigan, over 6 million people lost power. The entire utility 
system of the Detroit Edison Company (DTE) was knocked out, leaving the 
City of Detroit, and much of the southeast region of Michigan without 
electricity and other essential services such as water and sewer. 
Detroit Edison's officials have stated that this is the first time in 
the company's history that the utility lost power to all its customers 
at one time.
    I must express how enormously proud I am of Michigan's citizens, 
emergency responders, utility workers, and governmental employees who 
responded in extraordinary ways to lessen the severity of the crisis 
and restore the utility services as quickly and efficiently as 
possible. Our emergency preparedness was tested and I am pleased to 
report that Michigan's citizenry and emergency management system came 
through with flying colors.
    Despite the best efforts of the people of Michigan, the effects of 
the blackout on individual residents, small businesses, and major 
industrial electric users were very substantial. Although we are still 
in the process of assessing the damage, we have an initial estimate of 
direct cost of the emergency to state and local government of over $20 
million dollars. In addition, we know that DTE suffered about $35 
million in losses. Over 70 manufacturing companies in Michigan were 
forced to shut down. Anderson Economic Group in Lansing, MI has 
estimated that the total lost earnings in Michigan will reach the $1 
billion mark once all of the numbers are totaled. Moreover, facilities 
such as hospitals and nursing homes were left scrambling to provide 
care to those who needed it. Streets were clogged with cars and gas 
stations were largely shut down, which made it more difficult for 
emergency responders to get to people in need.
    We feel fortunate that despite the inconvenience, financial loss, 
and disruption of people's lives caused by the blackout, there was no 
loss of life. If we were to have a similar incident in the future, we 
might not be so lucky. In short, we cannot afford to have this kind of 
failure to our electric system happen again.
     what were the specific factors and events leading up to, and 
              contributing to, the blackouts of august 14?
    Michigan's Public Service Commission has launched an investigation 
into the outage, as has the U.S. Department of Energy in conjunction 
with our Canadian counterparts. I would like to thank Secretary Spencer 
Abraham for appointing Mr. J. Peter Lark, the Chair of the Michigan 
Public Service Commission, to this body. I can assure this Committee 
and Secretary Abraham that Mr. Lark brings with him a wealth of 
expertise that will serve both Michigan and the country very well.
    Until we receive the results of the investigations, I am reluctant 
to make pronouncements of what may have been the precise cause of the 
outage. While we believe we know the sequence of events that resulted 
in the power outage--power plants tripping off-line and transmission 
lines going down in a fashion we are not used to seeing--we do not know 
why those events occurred, and I believe we need to wait for the 
investigations to be completed before we jump to conclusions.
    Based on information provided by our utilities, transmission 
companies, and by our preliminary examination of the situation, we do 
know that there is a strong likelihood that the outage can be traced to 
at least three potential factors. One potential factor is human error. 
The transmission system that serves Detroit Edison's utility system, 
International Transmission Company (ITC), as well as Detroit Edison 
officials, have reported that they received no communications prior to 
the blackout from the northern Ohio utility that has been identified as 
the likely system where the troubles originated. ITC has traced the 
timeline on actions that contributed to the blackout back to 1 hour and 
5 minutes before it occurred. While ITC was able to develop and provide 
this information to us after the blackout occurred, ITC and DTE tell us 
they were unaware of any problem or any unusual activity on the grid 
until 2 minutes before the blackout, when the power flowing from 
Michigan to Ohio jumped by 2000 megawatts in 10 seconds. By this time, 
ITC told us that the situation was at the ``point of no return.'' If 
they had been informed during the previous hour that the system was 
having problems, they may have been able to craft a contingency plan 
for the energy demand and delivery, and avoid the cascading failure.
    The second potential cause for the blackout cited in various 
accounts is powerline failure, possibly due to inadequate maintenance. 
Again, the extensive investigations currently underway will probably 
give us a precise factor or set of factors and events that caused the 
blackout. I also anticipate that the testimony provided by public 
service commission chairs and by the transmission companies today will 
give you greater insight into the precise series of events and 
technical failures that occurred.
    A third potential cause that needs to be explored is whether an 
evolving utility market might have impacted the power outage. In 2000, 
Michigan passed PA 141, a law whose main goal was to provide cheap, 
reliable power for Michigan's industrial, commercial and residential 
customers. It was touted as a law that would provide ``[c]hoice for 
those who want it, and protection for those who don't.'' Whether you 
believe this act was a positive or negative step for electricity in 
Michigan it does not change the fact that this law completely altered 
the way electricity was transmitted, distributed and sold in Michigan. 
This legislation changed Michigan from a state with a fully regulated 
utility system, to one with a restructured market. Michigan did not 
fully deregulate like some other states, but Michigan did make 
significant changes in ownership of the utility system and how power 
was transmitted.
    There were some positive results that came out of PA 141. More 
power plants were built in Michigan which has helped us meet peak 
demand in the summer months, and 2000 MW of new transmission lines were 
constructed to transfer power in and out of the lower part of the 
state. Both of these changes should have helped enhance the reliability 
of the power supply.
    However, PA 141 also resulted in power companies selling off their 
transmission systems to separate operators. Before restructuring, 
Michigan's two big utilities, DTE and Consumers Energy, shared a power 
pool and were able to monitor and control production and movement of 
power between each other and their customers in a centralized fashion. 
Under PA 141, movement of power on the grid is now controlled less 
directly by the power companies in Michigan and is much more widely 
influenced by power supply and demand in the region.
    In addition, under the guidance of the Federal Energy Regulatory 
Commission (FERC), Michigan utilities chose to join a Regional 
Transmission Organization (RTO). The RTO that Michigan utilities and 
transmission companies generally joined was the Midwest Independent 
System Operator (MISO). MISO is supposed to help control the movement 
of power across the grid, and ensure that situations like the one that 
happened on August 14 do not occur. But, participation in an RTO is not 
mandated by the federal government, and there are no mandatory 
reliability requirements that RTOs must follow. In the case of MISO, 
some of Michigan's most critical partners--utility and transmission 
companies in Northern Ohio and Illinois--did not join. The bottom line 
is that this contributes to a system where no one, myself included, 
knows who is ultimately responsible for ensuring reliability. That is 
an unacceptable situation.
    The average citizen will not care who is responsible or how exactly 
they are held responsible. They simply want to know that when they get 
on an elevator, they are going to be able to get off; when they flip a 
light switch that light will come on; or when they turn on the tap safe 
drinking water will flow.
      which systems operated as designed and which systems failed?
    Again, I am reluctant at this time to suggest what worked, what 
didn't work, and why, until we receive the results of the 
investigations. While we do know the westward flow of the cascading 
blackout stopped in Michigan, we do not yet know why. I hope that 
investigations by the Michigan Public Service Commission and the United 
States Department of Energy shed light on what worked, what didn't, and 
why, so that we develop a system capable of stopping any future 
cascading blackouts.
             what lessons were learned from the blackouts?
    Two points stand out. First, our increased planning, training, and 
coordination since the events of September 11, 2001 paid off 
tremendously, even in a non-terrorism related contingency. We must 
continue to be prepared, to be vigilant, and to give our first 
responders every resource they need to protect our citizens in the 
event of another unseen emergency. The real success of this blackout is 
that Michigan had no deaths, severe injuries, or spikes in crime during 
the time when the power was out. This is a testament to our first 
responders who sprung into action, and to the sprit of the Michigan 
citizenry. It was the power of the people of Michigan held us together 
during our darkest hours.
    Our communities united instead of dividing. As soon as we knew that 
drinking water was needed in southeast Michigan, businesses around the 
state offered up their stocks of water bottles. In two days, through 
the generosity of Michigan businesses, over 1 million bottles of water 
were delivered to the victims of the blackout in southeast Michigan.
    During the early hours of the blackout, while the emergency 
management team and I were working hard to learn what had happened and 
what we needed to do, right outside my window civilians had taken to 
the street to help direct traffic and ensure people got home safely.
    Second, the necessity of maintaining a safe, reliable and efficient 
electric transmission system should be critically apparent to all as a 
result of this blackout. It is vital that we take all steps necessary 
to avoid a repeat of the August 14 disruption. The State of Michigan 
stands ready to help, but the physical and legal nature of the Nation's 
transmission system requires a strong, coordinated federal solution.
         how can similar incidents in the future be prevented?
    Congress must respond swiftly to institute measures to stabilize 
and protect our electrical transmission systems. By this I mean there 
must be in place a system of mandatory standards and rules for the 
reliable operation of the electricity grid. Congress should immediately 
pass a stand-alone bill that will provide enforceable reliability 
standards for the nation's transmission system. This could mean giving 
more regulatory teeth to the North American Electric Reliability 
Council (NERC) or to the Federal Energy Regulatory Commission (FERC). 
It could also mean putting a higher priority on making RTO's work 
effectively.
    The security and reliability of the interstate electric 
transmission system is unmistakably under the purview of the federal 
government. Yet, FERC's Chairman has stated that ``right now, there is 
no federal regulatory authority over reliability.'' I urge you to fix 
this deficiency by passing legislation that requires enforceable 
standards for the safe and reliable operation of the nation's power 
grid.
    While I believe that mandatory reliability standards should be 
immediately enacted in stand alone legislation, there are clearly other 
important goals that should be included in any overarching energy 
legislation considered by Congress:

1. Require Accountability--The electrical system in this country must 
        include a system of accountability. We need to know who is 
        responsible for what, and there must be ways to enforce 
        accountability in the system.
2. Ensure Price Predictability and Stability--The system must provide a 
        level of stability and predictability of energy prices. 
        Clearly, steps need to be taken to strengthen consumer 
        protections in electricity pricing. Currently, federal rules do 
        not prevent unfair price gouging in wholesale electric sales, 
        and they do nothing to protect families and businesses in 
        Michigan or any other state and the retail prices they pay. No 
        family--not just those living on fixed or low incomes, although 
        they are particularly vulnerable--can budget for wildly 
        changing or perhaps even doubling or tripling of their home 
        energy bills. And as vulnerable as each family's budget can be, 
        small businesses can be put out of business by dramatic 
        increases in their electric bills. Energy costs are a large 
        expense of doing business for the local grocery store, 
        restaurant, or dry cleaner. How do they survive without stable 
        and fair prices for their electricity? Even our largest 
        manufacturers could lose business--could lose job--if energy 
        costs climb and they lose they are unable to compete and win 
        against foreign competitors.
3. Encourage Investment in the Power Grid--Finally, comprehensive 
        energy legislation must do more to ensure the national power 
        grid is capable of handling the energy needs of our country. 
        Whether that is additional power lines, or the development of 
        new technologies that allow for more efficient distribution of 
        power, it is clear that we need a transmission system that 
        provides an appropriate level of investment in improvement and 
        maintenance. A poorly maintained power grid is not only an 
        inconvenience to every family in the country--it is a threat to 
        our jobs. Losing power shuts down commerce. Some of our largest 
        manufacturing plants were shut down for days as a result of 
        this outage. It threatens our health and safety when we can't 
        provide electricity to guide traffic, illuminate roads and 
        sidewalks, or power our water supply systems. And it has a 
        continuing impact. An unreliable electric supply is a direct 
        impediment to attracting investment, and something that we all 
        will suffer the consequences of in the future.
    As Governor, I do not set the rules for supplying electric power, 
but I am the one who has to protect the peace when the power goes off. 
A massive blackout has an even larger impact on public safety, from law 
enforcement to medical services, from ground transportation to even 
shutting down our airports. People will tell you that fixing this 
problem in our transmission system is going to be expensive, but the 
bottom line is we cannot afford to ignore this problem.
    In conclusion, whether we learn that the causes were systemic or 
human error, mechanical or electronic, an obvious starting point to 
address the problem will be the passage of legislation to enact 
mandatory and enforceable standards and rules for the safe and reliable 
operation of the nation's transmission grid. I urge Congress to act 
quickly to address these issues and meet the need that was so clearly 
demonstrated on August 14, 2003.
    Thank you for this opportunity to share these comments with you.

    Chairman Tauzin. Thank you for your excellent testimony. 
And I want to add something you said about the citizens across 
Michigan.
    The citizens in Michigan and Ohio have always been there 
when we got hit with hurricanes. Fresh water flows in from 
across the country. It is a beautiful example of, as you said, 
citizen patriotism. Kids in my State gave up Christmas money 
for construction of two fire engines to the people in New 
York--Christmas money.
    Those are good stories arising out of a crisis like this, 
and there are always reasons to celebrate.
    Now we welcome the Mayor of the great city of Detroit. I 
want to tell something about Kwame that you may not know. He is 
a son of one our colleagues, Ms. Carolyn Cheeks Kilpatrick, is 
his mother.
    I know she is as proud of you, as you are of her, Mayor. We 
are proud of you, too. And welcome.

 STATEMENT OF HON. KWAME M. KILPATRICK, MAYOR, CITY OF DETROIT

    Mr. Kilpatrick. Thank you, Mr. Chairman, and I feel right 
at home in Washington because my mommy is here; and I do 
appreciate you and Ranking Member Dingell from my home State. 
To the rest of the committee members, thank you for the 
opportunity. On behalf of the citizens of the city of Detroit, 
we see this as a privilege and an honor to come before this 
body and talk to you about what happened in the city of 
Detroit.
    I am coming from a little different perspective. I am a 
Mayor, and mayors we don't have time to deliberate those macro 
issues. We have to respond immediately. We have to send out 
those first responders. We talk to the person that rides the 
bus, the person that drives the bus, and also the person that 
builds the bus and fixes the bus. So we have all of those 
different things at our fingertips.
    The city of Detroit we boast as being the first city to 
deliver our homeland security plan to Secretary Ridge. We 
delivered our 10-point plan in April 2002. It focused on 
improving day-to-day service and preparedness to help us 
detect, prevent, and respond to terrorist attacks and any other 
critical issues, be it a tornado or the largest blackout in the 
history of this country.
    We appointed a homeland security director. We established a 
homeland security council made up of key public safety, public 
health and other entities. We upgraded our emergency operations 
center and updated the department emergency response plans 
which formed the foundation for operations during the blackout.
    On August 14, a massive power outage hit the northeastern 
United States and parts of Canada. The power outage hit the 
city of Detroit area about 4:17 p.m. When Enrico Fermi nuclear 
power plant lost power and shut down. The city of Detroit lost 
all power at 4:21 p.m. The impact: Transportation was 
paralyzed, communications disrupted, and many people, 
particularly senior citizens, were placed in potentially life-
threatening situations without basic necessary services from 
food to water to oxygen that they needed to survive.
    2.1 million people in Detroit lost power. Children suffered 
greatly. A lot of children who had asthmatic problems suffered 
because they couldn't get to the hospital.
    Half of the Detroit water system, which serves about 4 
million people, half of those people lost water completely. 
About 25 percent of the customers had low pressure, similar to 
New York. Part of our system is gravity fed, so the power 
stations didn't necessarily affect the same.
    Transportation systems shut down. Traffic was critically 
impacted especially at the border. Detroit-Windsor Tunnel was 
shut down, stranding numerous workers. About 27,000 people use 
the tunnel daily. Many of these people that use the tunnel work 
in our hospital system, so there was a shortage of nurses 
throughout the hospital system at the same time.
    Detroit Metro Airport remained opened, but had limited 
operations. About 216 flights were canceled by Northwest 
Airlines which is our hub carrier.
    The Marathon Ashland refinery, which is in southwest 
Detroit, suffered an explosion due to the outage. Residents had 
to be immediately evacuated from that area, and many of our 
police officers and fire fighters had to be called to that 
site.
    Most Detroit hospitals remained opened, but as I said, 
Children's Hospital had to immediately let people, who could be 
released, go to make room for all the children with asthma who 
had to come there immediately.
    Our homeland security director could not use his cell 
phone. This disrupted communications between the city and the 
Federal Department of Homeland Security. Some cell phone 
manufacturers told us that this could be used as a backup form 
of communications. This did not work because their cell towers 
was down. This is important to note, because to get in touch 
with Secretary Ridge and Homeland Security and the White House, 
we had to go through our consultant in Maryland to get to us to 
talk.
    Despite all of these things that were happening, it was 
calm in the city of Detroit. Our response to the blackout was 
quick and efficient due in large part to all of those planning 
initiatives that I told you about. The city responded 
efficiently with the rapid mobilization of first responders. We 
proved yet again that local first responders are the first in 
and the last out during critical incidents.
    Our local homeland security office served as a hub for 
sharing critical information between city and Federal, State 
and other entities. During the blackout, the council convened 
as a problem-solving team. The emergency operations center in 
the city of Detroit was up within 45 minutes of the blackout. 
The Detroit police officers were at every major intersection 
within 20 minutes of the blackout. Our EMS operators handled 
about 576 calls. It is the most in the city's history, and we 
responded to those 576 calls, most of which were respiratory 
problems.
    The entire police force was immediately placed on 
mobilization alert 2, which means all police officers, all 
police officers' vacations and furloughs were canceled and all 
of them were brought in. We were in all force, working 12-hour 
shifts with no one being able to leave.
    The Detroit fire department mobilized as well, establishing 
backup water sources throughout the city of Detroit. We even 
used some of our recreation pools for backup water because the 
fire hydrants weren't working. We mobilized another team to 
specifically go to the high-rise apartments where senior 
citizens lived throughout the city, and we immediately took 
them water. Every single door in senior citizen housing was 
knocked on and they were delivered food and things they needed. 
Over 230,000 bottles of water were delivered to senior citizens 
within the 36 hours including 1,200 gallon jugs of water.
    And thanks to the Governor of our State, 500 ``water 
buffaloes'' from the National Guard came from northern 
Michigan. They went to our hospital systems immediately and 
then to secured locations in the city of Detroit. So residents 
that needed water could bring containers to these sites and 
fill up.
    Our public lighting department moved in quickly to get 
backup generators on line within a few hours. All of our 
precincts, 13 precincts--the city of Detroit building was up 
and all of our public housing system was up with backup 
generation within a few hours.
    We moved quickly to get timely and accurate information to 
the public. We had periodic radio interviews and press 
briefings to make sure the calm would be there. We worked 
closely with State and Federal authorities. I personally 
briefed the White House on what was happening in the city of 
Detroit. And also I personally talked with Secretary Ridge on 
what was happening in the city of Detroit.
    What lessons did we learn? City personnel worked tirelessly 
to respond to the needs of the community in the event of an 
emergency. We also learned that our efforts to prepare for 
catastrophic emergency strengthened our ability to respond to 
the blackout of 2003. All of that preparation, all of those 
meetings that my department heads did not feel like coming to 
actually did pay off.
    However, despite our level of preparedness, we still have a 
long way to go. 911 and 311 communications and other 
information systems must remain operational and be able to 
handle a dramatic increase in use during a critical event. 
Communication among local, regional, State and Federal 
officials is vital during catastrophic events. A comprehensive 
notification process must be developed quickly. Locals should 
be contacted even in the midst of a crisis that is regional or 
national in scope; and communication with the public is vital 
especially during power outages.
    Next was the section on suspected causes of the blackout. 
As Mayor, I don't believe that it is our duty. I am Cochair of 
the U.S. Conference of Mayors' Borders and Security Task Force, 
and as mayors it is our job to stay out of that debate at this 
particular time and let you ponder that here in Washington. And 
I believe that it is fitting that our Governors are taking a 
stand in also weighing in on this macro conversation.
    The need in the future for local governments is that local 
governments need to be prepared to respond to future incidents. 
Thus, we expose the vulnerability in our security systems and, 
of course, in our energy systems in this country. We need to 
recognize the uniqueness of those systems. What may be needed 
in Chicago or L.A. may not be the same thing that is needed in 
Detroit.
    So whatever broad-based policy is being proposed, we would 
love the opportunity to talk about the unique needs of our 
city. While there is concern that homeland security dollars 
will be funneled off to fill budget gaps, or any dollars coming 
out of this institution, it is bad policy to fund--to say that 
funding cannot be used for salaries of first responders or to 
buy key equipment like backup generators, fire trucks or 
communication or information technology. Key systems like 911 
and other communication systems must have redundancy and 
capacity to be used during critical incidents like the 
blackout, and we cannot afford to politicize this issue.
    Cities need direct funding from the Federal Government, 
because once it goes to State governments, it typically becomes 
a Republican or a Democratic issue. I am glad our Governor--the 
safety and security of the American people cannot be 
politicized.
    And how much did the blackout cost? And this is my 
conclusion. It cost us over $10 million. Detroit is still 
tallying the overtime numbers and the hit on the general fund, 
and those numbers we want to present to the committee at a 
later time.
    Thank you, Mr. Chairman and Ranking Member Dingell and 
members of this committee.
    [The prepared statement of Hon. Kwame M. Kilpatrick 
follows:]
 Prepared Statement of Hon. Kwame M. Kilpatrick, Mayor, City of Detroit
                              introduction
    Good afternoon Mr. Chairman, Ranking Member Dingell and other 
members of the Committee. Good afternoon and thank you for this 
opportunity to participate in this critical hearing about the Blackout 
of 2003.
    At approximately 4:00 p.m. on August 14, 2003, a disturbance within 
the Eastern Interconnection power grid began a rapid chain of events 
that resulted in a massive power outage affecting a significant portion 
of the Northeastern United States. This outage disrupted service in 
eight states (and parts of Canada), forcing 50 million people to lose 
electrical power.
    The outage hit the Detroit area at approximately 4:17 p.m. That is 
when the nearby Enrico Fermi Nuclear power plant lost power and shut 
down. The City of Detroit lost all power shortly after that at around 
4:21 p.m. The blackout paralyzed transportation, disrupted 
communications and left many people--particularly senior housing 
residents--in a potentially life-threatening situation and without 
basic, necessary services. Four million customers of the Detroit Water 
and Sewage Department (DWSD) lacked drinking water, because the power 
outage shut down the pumps that delivered that water to homes and 
businesses throughout the region. Power was restored to the Detroit 
area on Saturday, August 16. However, even with the power restored, the 
region was forced to endure the threat of rolling blackouts, and 
residents were advised to boil-water until the following Wednesday to 
ensure that the drinking water was safe for consumption.
    Despite these difficult circumstances, the people of Detroit 
remained calm and showed a true sense of community. There was no panic 
in the streets and neighborhoods remained calm. Much of the credit goes 
to the hard-working men and women who are employed by the city. These 
personnel worked tirelessly to confront the endless stream of issues 
and problems that arose within the city during the outage. These 
personnel (using updated emergency response plans and other protocols 
developed as part of the city's homeland security planning efforts) 
were able to respond to the needs of Detroit's communities.
    I have learned a number of lessons from the events of those several 
days. The most important of which is that this experience serves as an 
indicator that our efforts to be better organized and prepared to deal 
with catastrophic emergencies has paid off and that our homeland 
security planning has pointed the city in the right direction. However, 
at the same time, this experience tells me that as a nation, we still 
have a long way to go particularly in addressing core vulnerabilities 
of critical infrastructure and in giving local governments the 
resources they need to be ready to respond to critical incidents.
What were the specific events leading to the blackout?
    As all of you are aware, a comprehensive investigation has begun 
into the causes of the blackout. But, based on information that has 
already been publicly disclosed, I am greatly troubled. I am troubled 
that we still do not know why the outage occurred and why the 
safeguards built into the system to specifically prevent such a large-
scale power outage failed to work. Even more disturbing is that this 
power outage is but one of a number of events that have occurred this 
summer that call into question the stability of our nation's critical 
infrastructure.

 On July 30, there was a major pipeline ruptured spilling 
        approximately 10,000 gallons of gasoline and causing a massive 
        disruption in fuel supplies within the State of Arizona. As a 
        result gas prices shot up not just in Arizona, but also across 
        the country.
 On August 20, a computer failure caused by two viruses shut down the 
        entire CSX Transportation system and halted train service for 
        hours in 23 states.
 Published reports also indicate that computer viruses disrupted New 
        York City's 3-1-1 system, forced the closing of the Maryland 
        Motor Vehicle Administration offices, shut down the check-in 
        system at Air Canada and wreaked havoc on an unclassified Navy-
        Marine Corps intranet.
 And, the nation is still dealing with the ramifications of the latest 
        ``Sobig'' and ``Master'' computer viruses, which spread to more 
        than a million computers in a matter of days and disrupted 
        critical public and private sector information systems.
    When all these events are viewed together, there is only one 
conclusion--the nation's critical infrastructures remain at risk and 
highly vulnerable to attack or failure due to system weaknesses. And 
despite two years of discussion and debate over how best to protect the 
nation's critical infrastructures, we have yet to take steps to assess 
the vulnerability of the infrastructures and mitigate the risks caused 
by those vulnerabilities.
Which systems operated as designed, and which systems failed?
    When the outage hit Detroit, approximately 2.1 million people lost 
power. Additionally, a number of key systems failed to operate 
effectively. For example:

 Four million Detroit Water and Sewage Department customers lost 
        water.
 While the city's 9-1-1 telephone system remained operational, the 
        computer aided dispatch system used by the police and fire 
        departments failed to operate at full capacity.
 The phone system used by the city government failed to operate.
 Cellular phones used by a number of key public safety personnel 
        failed to operate, because a number of cellular carriers 
        experienced partial network outages. This is particularly 
        important because one of these cellular telephone companies 
        advertises that its systems present a feasible back up to 
        public safety radio systems. In this case, one of the phones 
        that failed to operate was the one used by Detroit's homeland 
        security director. The failure of this particular cellular 
        phone actually disrupted communications between the city and 
        the Department of Homeland Security. DHS finally had to resort 
        to going through our homeland security consultants in Maryland 
        in order to get in contact with us.
 The blackout shut down transportation systems and critically impacted 
        traffic, especially at the border. The Detroit-Windsor tunnel 
        had to close, stranding some workers. 27,000 people use the 
        tunnel daily to cross the U.S.-Canadian border. Many of the 
        commuters staff our city's hospitals.
 Detroit Metropolitan Airport remained open, but with very limited 
        operations. Northwest Airlines, the main carrier out of 
        Detroit, cancelled 216 flights.
 The Marathon Ashland refinery, which is about 10 miles south of 
        Detroit, suffered a small explosion because of the outage, and 
        police had to evacuate hundreds of residents who lived within a 
        mile of the complex.
 Though most Detroit hospitals remained fully operational, they had to 
        utilize back-up generators and keep hospital employees from 
        using computers to conserve energy. Elective surgeries were 
        canceled. And at Children's Hospital of Michigan, everyone who 
        could be discharged was sent home in order to make room for 
        about 30 children who developed aggravated asthma problems due 
        to the lack of air conditioning in their homes.
    Despite all of these issues, I am proud to say that city personnel 
were able to respond to and manage the consequences of the blackout 
quickly and efficiently. As I said earlier, much of the credit goes to 
the hard-working men and women employed by the City of Detroit. Credit 
also goes to members of the community who were able to come together 
and weather this crisis. However, much of the city's success in 
managing this crisis was due to the procedures and protocols developed 
through Detroit's homeland security planning efforts. In April 2002, 
the city released its comprehensive homeland security strategy that 
focused on strengthening the day-to-day preparedness of the city. Since 
the release of that strategy, Detroit has taken a number of steps that 
improved the city's ability to detect, prevent and respond to terrorist 
attacks and other critical incidents. These efforts directly enhanced 
the city's ability to confront the myriad of problems that faced the 
city during the blackout. For example, the city:

 appointed a homeland security director who during the blackout served 
        as a hub for the sharing of critical information between the 
        city and various federal, state and other public and private 
        entities;
 established a Homeland Security Council comprised of key public 
        safety, public health and other city officials to coordinate 
        strategic planning and operational coordination before and 
        during critical incidents. (During the blackout, this group 
        convened immediately and served as a problem solving team, 
        working together to address the various consequences of the 
        outage);
 upgraded our Emergency Operations Center which was activated and 
        served as a command and control center during the entire 
        blackout; and
 updated our departmental emergency response plans and utilized those 
        plans as the foundation for operational activity during the 
        blackout. For example, police, fire and emergency personnel 
        were either dispatched to the streets or put on alert to handle 
        any potential emergencies. Additionally, three public schools 
        were converted to ``cooling centers'' for the elderly and 
        others in need of relief from the heat.
What were the lessons learned from this event?
    Despite our level of preparedness, what we learned from the 
blackout is that we still have a long way to go. The lessons learned 
include the following:

 When a catastrophic event occurs--whether it is a terrorist attack or 
        a power outage--local agencies are the first to respond and the 
        last to leave. In Detroit's case it was the fire and emergency 
        departments that handled a number of calls for service. It was 
        Detroit's police that patrolled the streets and kept the city 
        safe. And, it was Detroit's housing workers, along with labor 
        and business leaders, who checked on and delivered food to more 
        than 1,200 public housing and senior housing residents. Local 
        first responders handled this crisis.
 The same information networks, communication systems and personnel 
        that cities depend on to provide day-to-day emergency and non-
        emergency service are critical to effectively dealing with the 
        catastrophic events. 9-1-1, 3-1-1 and other communications/
        information systems must not only remain operational during any 
        crisis, but also have the ability to handle a dramatic increase 
        in use.
 Communication among local, regional, state and federal officials is 
        vital when an incident like this occurs. We still need to make 
        improvements in this regard.
 There needs to be thought given to how local jurisdictions will be 
        notified that they are in the midst of a crisis that is 
        regional or even national in scope. In this case, the city 
        first learned that the outage was not simply a local problem 
        from the news media. A comprehensive notification process must 
        be developed quickly.
 Communication with the public is also critical. The city placed a 
        high priority on getting accurate and timely information to the 
        public. Within minutes of the blackout occurring, the city was 
        communicating with the public via radio. I held four press 
        briefings during the course of the blackout, updating the 
        efforts to restore power, directing residents to cooling 
        centers and just generally keeping them informed. But, 
        obviously, as this was a power outage situation, communications 
        were limited to those who had access to cable television (which 
        was functioning), car radios or battery powered televisions and 
        radios. The City of Detroit is exploring alternative means of 
        communicating with the public (such as reverse 9-1-1 systems).
How can we avoid incidents like the blackout?
    Although there was no horrific loss of life, the power outage 
``like the attacks of 9/11--illustrate that there are still a number of 
steps the nation must take as we seek to improve our emergency 
preparedness.
    First and foremost, we need to take aggressive steps to assess and 
address the vulnerabilities to our nation's critical infrastructure 
(Agriculture and food, water, public health, emergency services, 
telecommunications, energy, transportation, banking and finance, etc.). 
As a first step, the nation needs to complete a national threat and 
vulnerability assessment that identifies vulnerabilities to key 
systems. Then, we must systematically proceed to address the risks 
posed by those vulnerabilities. As we approach the two-year anniversary 
of 9/11, I am concerned that this task has not been completed.
    In the meantime, local governments need to be prepared to respond 
should there be future incidents like the blackout (whether caused by 
mistake, disrepair or attack). Accordingly, local governments need to 
be given homeland security funding directly and have the flexibility to 
use those funds in a way that best meets the needs of that individual 
city. The needs of Detroit are different from the needs of Los Angeles, 
and prohibitions against using these funds to enhance a city's service 
delivery infrastructure are misguided and counterproductive.
    I understand that there are those in Washington who believe that if 
unchecked, homeland security dollars will get funneled off to fill 
other budget gaps. But to say that these dollars cannot be spent for 
salaries for first responders, key equipment such as fire trucks, or 
for the communication and information technology that comprises a 
city's service delivery infrastructure is just bad policy. Homeland 
security funds must be available for use by local governments to do 
things like improve and strengthen their 9-1-1, non-emergency and 
information systems. These systems must have the redundancy and 
capacity necessary to be of use during critical events such as the 
blackout.
Projected Costs
    Costs to the city based upon the blackout events, are projected to 
exceed 10 million dollars. We are still compiling this information and 
hope to have a final number before long.
Conclusion
    We have been told that this outage was not the result of a 
terrorist attack. But, even if terrorism has been ruled out, we should 
hardly take comfort in that fact. We have certainly revealed to the 
world some of our vulnerabilities, and it is now time to demonstrate 
that we are taking the necessary steps to assess the critical issues 
and address any weaknesses so that we will be prepared in the event of 
any future crisis.
    Thank you.

    Chairman Tauzin. Let me thank you all.
    First of all, Mayor, obviously you mentioned this, and I 
know, Governor Granholm, you mentioned this, as did Governor 
Taft, the failure of communication in the system.
    First of all, communication is on the grid. I think you are 
right; we are beginning to sense there were human errors caused 
by communication failures. And second, Mayor, you pointed out 
the communication problems of the responders, of yourself, 
trying to talk to the White House and get messages back and 
forth.
    Our committee also has jurisdiction on telecommunications, 
so we are extremely interested in the telecommunication aspects 
of these emergencies, these disasters, and how we can have 
smarter utility systems, smarter highways, smarter telecom 
grids; and second, how we can make sure these systems stay up 
when disasters hit.
    If you recall, on 9/11 cell phones tended to be the manner 
in which people communicated in New York. On the other hand, 
cell phones failed in your case and we need to understand what 
it is that worked or didn't work.
    I want to invite all of your attention to the fact that one 
of your members, Chairman Cox of California, is chairman of the 
Select Committee of Homeland Security, and if you have any 
thoughts or suggestions that you want to refer to both him and 
this committee, we would deeply appreciate any thoughts you 
might have about what we at the Federal level might be thinking 
about in terms of not only improving the communication in these 
grids, but inadequacies in the communications backup systems 
when things do go down. So I would invite your comments on that 
now or later, in writing.
    I want to thank you, Mayor, for that excellent summary of 
the effects of the blackout.
    People don't realize how much we depend upon electricity. 
When we started this meeting, I mentioned how in New York 
people couldn't open the locks on their apartment doors because 
they are electrically controlled now. And the toilets wouldn't 
flush. Imagine being in the airport all night long and all 
those people stuck in facilities that would not flush. I heard 
from friends of mine that were there that said it was just 
awful. So, I mean, we don't think about all these consequences.
    I heard people on several of the news channels saying, why 
did the water system fail; this was an electricity problem. You 
need electricity to drive the pumps and keep filtration systems 
going.
    We are learning more as we go along, and I want to thank 
you for sharing some of those extraordinary, sort of on-the-
ground experiences that you went through and again congratulate 
you on the way you handled it.
    I forgot to mention, I am not sure you know it, but right 
after Chief Justice Edward Douglas White completed his term, I 
believe it was your ancestor again who took over his position 
as chief justice by appointment of President Harding. Again, I 
thank you for that.
    What I would like each of you maybe to indicate to us is in 
terms of--Mayor, I know you can't get into some of the macro 
debates of what went wrong and how we have to fix them and more 
on-the-spot responding to the problem, and hope we can fix it.
    I understand there was a declaration of emergency, right, 
so there is going to be some assistance in terms of some of the 
damage that was done. But tell me, if you can, Governors, how 
you two deal with this issue, because we are facing it in our 
debate as we go into conference on the energy bill. You 
Governors of States, obviously the State would like to have, as 
you pointed out, Governor Taft, some authority to make sure 
these systems work; and there ought to be some body you can 
point to and count on for reliability purposes. But we are 
facing a situation where more and more of these electric grids 
become interstate, that they reach out--I think Texas is the 
only one that has a complete grid within their State. Most 
other States depend on other regions for electricity, other 
States, and electricity crosses State lines now.
    Siting of those transmission lines becomes an interstate 
issue. And I know States have jealously guarded their rights to 
make siting decisions. I had a Governor and I am not going to 
say who it was, call me last week and ask me if I would support 
a provision that would allow the Governors of our country to 
veto any electric project, generation project, in their State 
for any reason they wanted to. I said, Governor, that sounds 
like an interesting proposition; would you also agree if you 
vetoed energy production in your State that you would also 
disconnect yourself from any interstate grid? You are going to 
rely upon your neighbors exclusively and just have the right to 
shut down any project in your State for any reason you want?
    You have to understand, we have some conflicts here that 
need to be worked out on a State and Federal level. Any 
thoughts you have right now? I know you are coming at it from a 
State perspective, and we have to look at it from a Federal, 
national perspective. Somewhere in between we have to set up 
systems where we can arbitrate and resolve--as the Secretary 
said, doing nothing is not a good answer anymore. We have to 
have better grids. We have to have site improvements. We have 
to site generation facilities where they are needed.
    How do we solve this, Governor?
    Governor Taft. Electricity does not stop at the State line 
and in Ohio we are a great crossroads for the transfer of power 
from west to east from south to north, serving other areas. So 
we strongly support a strong regional approach under the 
supervision of Federal standards.
    Now, in terms of enforcing mandatory standards on the 
reliability of transmission lines, that could be done by the 
Federal Government, or if you wish to delegate that to the 
States to enforce those Federal standards, there are precedents 
for that type of a Federal-State partnership in the area of 
rail and natural gas lines and other areas.
    With regard to the issue of siting, we support and my 
chairman of Public Utilities Commission supports the section in 
the current energy bill, the electricity title that proposes a 
compromise under which, if the States wish to consider regional 
interests and base their siting decision on what is best for 
the region, then that would be acceptable, but have FERC as a 
backstop to settle disputes. So we think that kind of a 
compromise is something we can accept in Ohio.
    Chairman Tauzin. How about you, Governor Granholm?
    Governor Granholm. I think if we are asking for some 
Federal accountability, there obviously has to be Federal 
involvement with respect to siting, but I think the States 
should get the first crack. I think it can be a cooperative 
arrangement.
    Clearly, the States know where the sensitivities are in 
their States, but clearly the States have an incentive, as 
well, to ensure a reliable transmission system. So whatever 
period of time is a reasonable period of time that can be given 
to the States first to get the first crack at siting, I think 
that is appropriate; and then perhaps it could go back to the 
Feds if for some reason that is not able to be obtained.
    For State sovereignty reasons and for the ability of States 
to determine their own landscape, if you will, the States 
should get the first crack at it.
    Chairman Tauzin. Let me describe what we have in the House 
bill that is in conference. It basically says that in areas of 
national significance, national corridors where States are 
first given the opportunity for a year to settle the siting of 
a transmission improvement, if they don't settle it, the 
Federal Government, can step in and decide it; but it gives the 
States first opportunity and only in those areas where the 
national corridors of high density, if you will, movement of 
electricity and bottlenecks.
    Second, as a trade in our bill, we gave the States new 
authorities in siting on Federal lands, which you don't 
currently have, so you would have a role in Federal lands. Is 
that a fair trade?
    Governor Granholm. I am open to that as long as the time 
period is a reasonable one in which the States can resolve 
those siting issues first.
    Chairman Tauzin. Governor, do you have a comment?
    Governor Taft. I would also support that particular 
approach.
    Chairman Tauzin. Let me recognize Mr. Dingell, 
distinguished ranking member of our committee, for a round of 
questions.
    Mr. Dingell. Mr. Chairman, I thank you.
    I would like to extend my personal welcome to you, Governor 
Taft, and to Governor Granholm. And, Mr. Mayor, we are always 
delighted to see you. We have three distinguished public 
servants down there who have given us good counsel. We thank 
you, Governors and Mayor.
    And I have no further questions.
    Chairman Tauzin. Mr. Upton?
    Mr. Upton. Thank you, Mr. Chairman. I would join the 
accolades for the panel. But I always hold my hand like this. 
And I want to thank my two Michiganders here. We call it the 
``Big House.''
    And, Governor Taft, we welcome you.
    I just want to say, and I said in my opening statement a 
few hours ago that I know, Governor, we appreciated your visit 
to the west side of the State this last week for an extended 
period of time; and I know, as I was home during the August 
break, one of the visits I did was up in South Haven. And in 
talking to some of the local power officials there, of course, 
we had lost the Campbell plant, the coal-fired plant up in 
Grand Haven, and we were really very close to losing the 
Palisades nuclear plant because of the surge as it pulled out. 
And literally the finger was at the button for the shutoff. And 
had that happened, it would have likely gone right around the 
horn.
    As you know, one of the two reactors at the Cook nuclear 
plant down in Bridgman, Michigan, further down is already out 
for maintenance. But clearly this would have taken it all the 
way across to more of the heartland of the Midwest in terms of 
Chicago and all of the western part of the States. So in 
addition to the Detroit area, we would have had a massive 
economic problem. We appreciate your emergency declaration.
    And I guess, to follow up on the Chairman's question with 
regard to the RTOs, in the energy bill we passed last March, we 
had a Barton amendment or a Barton provision which was a sense 
of Congress urging that the utilities, in fact, join an RTO. 
Governor Taft, you talked about it in your testimony. Governor 
Granholm, you referenced it as well. It is not a mandatory 
challenge though, it is just the sense of Congress that they 
ought to be part of one.
    One of the problems we see if that language sticks, and 
certainly I would like to see it stick if not strengthened, 
though we have problems with the Senate, is because we have so 
many different power companies in my district and we have not 
only Consumers Energy, but we also have American Electric 
Power, American Electric Power headquartered in that Buckeye 
town of Columbus, with a small C, but they operate one of the 
facilities and obviously provide--used to be the old Indiana 
and Michigan, but obviously they operate in at least three 
States. And the question would be, which RTO are they going to 
be part of and how do we manage this?
    And those are some of the things we are grappling with as 
we try to pursue and enact legislation that will, in fact, 
prevent what happened on August 14 from ever happening again.
    But in the interest of time, I would be interested in your 
comments about the Barton provision and whether or not you 
believe it ought to be strengthened, knowing full well that 
some of the Governors in the western States don't appreciate 
that at all. In fact, they are looking for language to relax 
what we passed in the House.
    Governor Granholm. This electric experiment over the past 
few years has been, I think, a real opportunity for us to step 
back and see what works and what doesn't work.
    Clearly, electricity does not stop at the border of a 
State, and so a regional approach seems to make some sense. The 
problem is, when we have regionalized the transmission grid, we 
have not mandated the enforcement, so I think those provisions 
must be strengthened.
    Our State public service commission has no authority to 
mandate liability on the grid, on the transmission grid. Nobody 
has a requirement; the system is voluntary, as you suggest. 
That leaves nobody with anything. So we need to strengthen it 
if we are going to proceed down this path and hold, A, an 
entity responsible. Is it FERC? Is it NERC? Do they devolve it 
to the RTOs? This is acronym heaven, I recognize, but I think 
we have to make a decision about who is responsible.
    Perhaps FERC or NERC does some sort of regional--but at 
some point some entity must make those--that accountability 
enforcement decision. And if they contract or if they have an 
agreement with RTOs to do it, that is fine. I don't care about 
the RTOs so much as the enforcement of reliability on the 
electric system.
    Mr. Upton. Governor Taft.
    Governor Taft. I agree with Governor Granholm, someone has 
to be in charge of our transmission system in this country or 
we risk another calamity or another disaster of even greater 
proportions.
    This is a map of the existing RTOs and ISOs, and you can't 
really see it very well, but it looks in some respects like a 
patchwork quilt. You notice a big section of Ohio is not really 
fully integrated into any RTO yet. The reason for that is that 
AEP wants to join the PJM transmission organization, but it is 
being prohibited from doing that by regulation in two States 
that don't want it to join. They are making it impossible, 
either by law or by the regulatory power, for them to join a 
system. It would be excellent if an AEP was in that system.
    Then you have the problem of what about the seam, the 
border between PJM and Midwest. I know that the FERC is working 
on trying to close that area off, develop partnerships, develop 
greater coordination, develop operating agreements. That would 
go a long step forward.
    That would go a long step forward if we had an integrated 
system, Midwest over to the east coast there for regional 
transmission.
    Mr. Upton. Thank you.
    I know my time has expired. I yield back.
    Chairman Tauzin. For the record, I want to point out, 
Governor, that in the House-passed bill that is in conference 
now is the mandatory authority given to NERC under the 
supervision of FERC, very analogous to the authorities that the 
National Association of Securities Dealers has to make 
regulations under the SEC's power to enforce those regulations. 
So we patterned it very closely under that. I would ask to you 
look at it and see if you have any comments on it as we go 
forward.
    The Chair recognizes Mr. Brown from Ohio.
    Mr. Brown. I thank the chairman; and I welcome Mayor 
Kilpatrick, nice to see you; and Governor Granholm, nice to see 
you. I especially welcome my friend and Governor, Bob Taft, and 
thank you for the responsiveness you have provided to members 
of our delegation, both sides of the aisle, in your frequent 
visits here and what you do with us.
    Governor Taft. Thank you.
    Mr. Brown. Just one question of Governor Taft. Your 
comments offered insight into the need for Congress to promote 
not only modernization of America's bulk power system but also 
the modernization of the wholesale electric marketplace. You 
identified the enactment of mandatory reliability standards for 
the industry as the first priority that we should pursue in 
this Congress. I think most people agree with that. I certainly 
do. You also spoke of a broader piece of legislation, a broader 
energy bill, including things I also agree with, ethanol, clean 
coal provisions, both of which are important for a lot of 
reasons to our State.
    Some of us are concerned that holding reliability 
provisions hostage to something more, especially if those 
something more are environmental issues, or something where 
there is provisions about which there is more disagreement, and 
I think the issue boils down and Congressional action really 
boils down to two choices, and I would like to hear your 
comments.
    We can move quickly and bipartisanly, and it is--on 
legislation to ensure reliability for the electric power grid, 
or we can try to pass a significantly more comprehensive bill 
that includes some of the--both some of the President's pet 
projects, drilling in ANWR. You know how controversial that is. 
Even our own Senate Republican Senate delegation, one is for 
it, one is against it. Tax breaks for oil companies, many of 
the other wish lists the President has for the oil industry. 
What should we do?
    Governor Taft. First of all, I want to thank you, 
Congressman Brown, for your attention to this issue, for 
attending the hearing, as well as Congressman Gillmor, 
subcommittee chairman, and Congressman Strickland from Ohio. We 
appreciate very much your focus on this issue which is so 
important to the State of Ohio.
    Clearly, an improved transmission system is very important, 
but we are also, of course, facing high energy costs in other 
areas in the State of Ohio. Gasoline prices right now are 
spiking. We are concerned about the cost of natural gas in the 
winter for heating our homes. We know that the Congress has 
been working on an energy bill for a long, long time. We know 
the issues are tough. I don't pretend to tell you how to do 
your business. We have got enough problems just getting 
agreement in the State of Ohio on what we are trying to do in 
the State.
    But I would really encourage all of you to try to do what 
you can to enact, at the earliest possible date, a 
comprehensive energy bill that deals with all of these issues. 
And perhaps there is a way that you can use the impetus of what 
happened on August 14 to build bridges and to make compromises 
and make agreements that will get this country a strong energy 
policy that addresses, among other issues, the important 
challenge of improving our electrical transmission system in 
this country.
    Thank you.
    Mr. Brown. Ms. Granholm.
    Governor Granholm. I respectfully disagree. I think if you 
have something you agree on, that you can enact in a bipartisan 
fashion, just from our perspectives, we need a quick response. 
And if you can get the other quickly, more power to you.
    But something tells me that it might take a little bit 
longer than that. So if you can get agreement on this area that 
is so critical to our Nation's citizens, I urge you to do so in 
the most expeditious of fashions.
    Mr. Kilpatrick. You know, I didn't weigh in on this 
discussion because of some cognitive misunderstanding. It was 
more common sense. I need to stay out of this.
    But I will weigh in on this point. I agree with our 
Governor for a different reason. And going back to the mayor's 
perspective, we are closest to people; and the quality of life 
of people and citizens can't wait 2 or 3 years while this is 
deliberated. We need quick resolution because the vulnerability 
that has been exposed can also lead to some future security 
problems as well if we don't close this gap.
    Chairman Tauzin. Thank you, Mr. Brown.
    I take a chairman's prerogative here just to point out to 
all of you, however you may feel about the issue, Governor 
Granholm, you said ``if you could do it quickly.'' I would ask 
you all to ever try to pass a bill through the House and Senate 
of the United States quickly, with Senators having the right to 
hold up a bill without even knowing who they are. Under their 
rules, they have a right to stop passage of a bill and attach 
amendments onto it. They have no germaneness requirements on 
the Senate. They can put an amendment dealing with something 
across the globe on an energy bill with no restrictions on the 
Senate side, and all of a sudden it gets Christmas-treed and 
you end up with a mess in your hands. The notion of passing 
something quickly, even something we think we have general 
agreement on--believe me, there is still controversy over what 
an electric title would look like--is not that easily 
accomplished.
    I just want to point out to you, this is the second 
Congress, the House and Senate have both passed comprehensive 
energy bills. We are in conference now. We are one vote away in 
the House and the Senate, assuming we can reach those 
compromises, give those give and takes, of getting a 
comprehensive energy policy bill.
    As much as I know you want to see this done quickly, this 
may be our best chance to get it done in a long, long time. I 
would just urge you to, if you can, help us do that in any way 
you can. I thank you.
    I want to yield to our colleague from the great State of 
Ohio first, Chairman Gillmor. Paul.
    Mr. Gillmor. Thank you very much, Mr. Chairman.
    I want to welcome our Governor here. I don't have any 
questions for them. I had the opportunity to meet with them 
earlier. But I do agree with his comments on the desirability 
of moving the comprehensive bill.
    The issues related to electricity reliability are also 
greatly affected by the other provisions of the bill. For 
example, dealing with conservation affects the grid, global 
energy supply. So it is real difficult, if you are really 
concerned about reliability, to just isolate this one piece. 
They are all related.
    And I do want to welcome Governor Granholm, our neighbor of 
the great State to the north, with whom we get along very well, 
except for 1 day a year. I do want to, however, follow up a 
couple of the points that you made for you to elaborate a bit.
    But before I do that, I want to commend you, Mayor, for the 
actions you took in Detroit.
    You mentioned three items that you felt were contributing 
factors,and one of those was the lack of maintenance of the 
transmission system. I wonder if you would elaborate on that a 
little more as to why you think that happened. Is the reason a 
financial one in terms of the incentives to invest in the 
system? Is it a technical problem? If you could just elaborate 
a little more on why you think that happened and what can be 
done to prevent it.
    Governor Granholm. Clearly, we have to wait until the 
outcome of the investigations that are being jointly conducted. 
But I think, you know, as we say in the law res ipsa loquitur, 
the thing speaks for itself. Clearly, there was a problem with 
the lines. And since electricity seeks the path of least 
resistance and the wires were not big enough, if you will, in 
very simplistic terms to hold the voltage that was seeking to 
go through it, there needs to be an investment in the system so 
that does not occur again.
    Now, what can that be? It is possible, certainly, that 
Congress can provide some incentives to invest in the grid. As 
I was mentioning during my remarks, I think that there is an 
incentive which exists right now for the return on equity which 
currently is--if they belong to an RTO, is 13.88 percent, which 
is a good return. It gives enough confidence in investors that 
they will be able to maximize their investment. So there is an 
ability right now to invest.
    I do think the best way to provide an incentive for 
investment in the grid is to have a reliable and enforceable 
standard that is enforced by an entity that is not just 
voluntary; and that will be the--in my view, the hammer, the 
carrot, the stick, however you want to frame it, to get that 
transmission investment, which I think needs to happen.
    But, again, I think you are going to see more, and those 
who follow me will probably talk about this issue of 
maintenance of those power lines.
    Mr. Gillmor. Let me just ask you a little bit on one of the 
other factors which you mentioned, which is human error, which 
is a comment that we have heard from a number of people on the 
panel and elsewhere. And recognizing we don't know the causes 
but that you have instigated an investigation, in your 
investigation, have you made any contact with a company or 
companies or people who supposedly have made human error as to 
what actually transpired, or is--are we all just dealing with 
kind of hearsay here?
    Governor Granholm. I would defer that question to Peter 
Lark who will be following me, who heads up our public service 
commission and is responsible for the investigation. I don't 
want to repeat hearsay. I know generally what the impression 
is, but, again, I didn't speak directly with somebody myself.
    Mr. Gillmor. And the third factor which you mentioned, 
which I am not going to ask you about because I am running out 
of time, was the factor possibly that the Michigan law had some 
effect in your view.
    Governor Granholm. It had an effect on the inability to 
determine who is responsible.
    Mr. Gillmor. Thank you.
    Chairman Tauzin. Thank you, Chairman Gillmor.
    The Chair recognizes Mr. Stupak for a round of questions.
    Mr. Stupak. Thank you, Mr. Chairman. Thank you, Governor 
Taft, Governor Granholm, Mayor Kilpatrick, for coming today.
    Governor Taft, has your State started an investigation as 
to what happened? I know Michigan has.
    Governor Taft. Yes, we have. In fact, sitting right behind 
me is Allen Schriber, the Chair of our public utilities 
commission, who is going to testify later today. I asked him to 
prepare, based on Ohio information, a second-by-second account 
of what transpired; and he is still working on that and will be 
providing that of course to the public and also to the 
binational commission task force.
    Mr. Stupak. Leads me to my next question. The binational 
commission--I had asked Secretary Abraham earlier whether the 
meetings with this binational commission are going to be open 
so there can be public input. Are there going to be public 
hearings so we can see what is going on. Have any of you, the 
Governors or mayor, have you been invited to participate in 
this binational or Canadian-U.S. Task force? Have you been 
invited to submit your comments or concerns and/or do you have 
any reps on those task forces?
    Governor Taft. Let me state for Ohio, and I think other 
States as well, that Secretary Abraham has offered us, and I 
believe other States, the opportunity to have one person that 
we would appoint on each of the three subcommittees of the 
tasks force. We have submitted our names to the task force.
    Mr. Stupak. Okay. Same?
    Governor Granholm. Same here.
    Mr. Stupak. How about you, Mayor?
    Mr. Kilpatrick. Cities have not been invited.
    Mr. Stupak. Governors have.
    The deregulation question--and, Governor Granholm, if I 
may, I am looking at your testimony on page 6. You said: Before 
restructuring or deregulation, Michigan's two big utilities, 
DTE and Consumer's Energy, shared a power pool and were able to 
monitor and control production and movement of power between 
each other and their customers in a centralized fashion. Under 
PA-141, movement of power on the grid is now controlled less 
directly by the power companies in Michigan and is much more 
widely influenced by power supply and demand in the region.
    You go on and say that the bottom line is that this 
contributes to a system where no one, myself included, knows 
who is ultimately responsible for ensuring reliability, and 
that is unacceptable.
    Governor, I think Michigan deregulated, if you will, in 
2000, before you were Governor. Do you have any idea how much 
they spent on maintenance of their lines prior to deregulation 
and what they spend now after deregulation?
    Governor Granholm. I don't have those figures, Congressman. 
But perhaps Peter Lark, who will be testifying after me, would.
    Mr. Stupak. Okay. Governor Taft, Ohio has deregulated. They 
have been deregulated for a while?
    Governor Taft. We are in the process of phasing in 
deregulation right now.
    Mr. Stupak. Do you have any idea what the utility companies 
would have spent for maintaining their lines and services 
before deregulation and after?
    Governor Taft. I don't have that information. Again, Allen 
Schriber, the chairman of our commission, would be better 
prepared to testify on that particular issue. But he has 
indicated to me, in response to my questions, that there is no 
indication that they were spending any more on transmission 
lines before deregulation than after deregulation.
    Before deregulation, they had to come and get a rate case 
to get a rate increase. Those were far and few between. Often 
many years between those. So the same pressures existed from 
that standpoint before deregulation as might exist now.
    Governor Granholm. Congressman, for those who may be 
watching, of course in Michigan we went to this experiment of 
partially deregulating. And before the law changed, the 
distribution system, which are the wires to people's homes, the 
transmission grid, which are those big A-frame objects you see 
out there, and the generation, which are the power plants, were 
all owned by one company. So it was easy to point at who is 
responsible for investing and who is not.
    This issue of investing in the lines is really a 
distribution question. But the issue of investing in the 
transmission grid, which I think is what you are looking at, is 
one that is so difficult to penetrate, because that is the part 
that partial deregulation has spun off elsewhere, and nobody is 
enforcing that investment.
    Mr. Stupak. Which leads me to my next question, because you 
mentioned the enforcement and who is responsible. I cited 
earlier for Secretary Abraham that NERC as we call it, North 
American Electric Reliability Council, indicated in the year 
2002, 97 planning standard violations, and 444 operating policy 
violations. Who enforces them? NERC has no enforcement power. 
What happens to these violations? Were the Governors ever 
notified that in your States there may have been a violation? 
What power do you have under deregulation to say to a utility 
that is providing a service in your State, we have these 
violations, repeated violations, how are you--how do you get to 
enforce it? How do you get a remedy? How do you make sure 
things are done properly in your State with this deregulation 
or loosening of responsibility?
    Governor Granholm. These are the perfect questions that you 
are asking. Because those are exactly the questions that our 
public service commission is asking. I know that when he gets 
up here to testify he would say, well, we would assume that we 
have the responsibility for enforcing. But they would be taken 
to court by one of the transmission operators saying, no, you 
don't have the ability to do that. So the question is, who 
really does? You all need to provide the mechanism for that 
enforcement and reliability to occur. Perfect questions.
    Mr. Stupak. I think the Dingell bill would do it. Thank 
you.
    Chairman Tauzin. The Chair recognizes Mr. Rogers from the 
great State of Michigan.
    Mr. Rogers. Thank you, Mr. Chairman.
    Governors, thank you very much for taking the time to be 
here from busy schedules. Governor Taft, I want to thank you 
and your fellow Ohioans for that action in the 1830's, that you 
guys got Toledo and we got the Upper Peninsula and Bart Stupak, 
and believe me, we got the better part of that deal. All day 
long.
    Governor Taft. Come and visit us.
    Mr. Rogers. Actually, Congressman Gillmor just informed me 
that there was apparently a casualty in that exchange, and a 
mule was shot, which I didn't know until today. But we 
certainly.
    Governor Taft. Let's not revive these old conflicts.
    Governor Granholm. Let's move forward.
    Mr. Rogers. Thank you for the trade. Thanks, Bart, for 
being part of the Michigan delegation.
    Mr. Mayor, I want to thank you very, very much. You know, 
the Big Apple gets lots of the credit in that turmoil. But you 
did some pretty extraordinary things, and thank you, Governor 
Granholm, for assisting in that. The Motor City was running, 
too, in that blackout. Your outreach program was particularly 
impressive when you went to the senior centers, and the amounts 
of water that you were distributing throughout the city was 
very, very impressive. My hat is off to you. Congratulations, 
thanks for doing such a great job for the State of Michigan and 
Detroiters. You are making us proud down here in Washington, 
DC.
    Governor, I hope you can help me understand on the 141 
question, PA-141. So your sole concern is the ability to have 
at least some oversight? You are not necessarily concerned that 
it has to be in the State of Michigan, but at least some point 
in the system there has to be a catch in the system for 
oversight?
    Governor Granholm. Right. I think that having it at the 
FERC or through NERC is fine. It has to be an entity that is 
responsible, though.
    Mr. Rogers. I was encouraged to hear you say that you would 
support at least some measure that fixes this problem, no 
matter where it falls, and if we can do it quickly under the 
energy bill that is in conference, fine with you. If you can do 
it on a free-standing bill, fine with you, as long as it gets 
to the President's desk. Do I understand you correctly?
    Governor Granholm. We need the reliability standards 
passed. I am not so interested in the other stuff. But the 
reliability standards are what need to be passed in my opinion.
    Mr. Rogers. Thank you. Thank you for taking the time to be 
here. We know you are busy. And thank all of you for what you 
are doing. Appreciate it.
    Chairman Tauzin. The Chair now is ready to recognize 
another Ohioan. Congressman Strickland is recognized for a 
round of questions.
    Mr. Strickland. Thank you, Mr. Chairman.
    I also want to welcome my Governor. I am not sure exactly 
why it is, but it just feels good to look out there and see the 
Governor of Ohio and the Governor of Michigan sitting side by 
side.
    Governor Taft. That is a good thing.
    Mr. Strickland. Well, you both represent the heartland of 
our Nation.
    I was sitting here listening to your comments, and I was 
reflecting upon all of our opening statements and sort of 
contrasting and comparing. And what you said, the two of you--
the three of you--said to us was understandable, it was 
practical, it was doable; and maybe that is the difference 
between a Governor and a legislator, I don't know. But I think 
we can learn from what you have said to us; and if we would 
follow your advice, perhaps we could solve this problem.
    My dear chairman, someone that I respect a lot, made a 
comment about the Senate rules and the fact that the Senate can 
sort of muck things up and a single Senator can have so much 
power and anonymously stop things from moving forward. I agree 
with him that probably in the Senate individuals have too much 
power.
    But, Mr. Chairman, I would just like to say to you that I 
think here in the House that I think that maybe individuals, 
especially in the minority, have too little power. So maybe we 
can modify both the Senate and the House Rules.
    I say that for this reason. It is my firm belief that the 
differences which separate us in an approach to a comprehensive 
energy bill are so deep and so great that it is highly unlikely 
that we will be able to deal with that kind of bill in the 
short term. But we can agree on what you have said and what I 
think nearly all of us believe needs to happen. So what we 
need, I think, is a free-standing bill, the Dingell bill, which 
will speak to the questions raised by Mr. Stupak and will go a 
long way toward solving the problem that we are all here 
discussing today. Then there will be other days and weeks, 
months and perhaps years that we can spend arguing about ANWR 
or a whole host of other issues. But I think the Dingell bill 
is the bill that can solve the problem we are dealing with 
today, and that is why I would hope that we would move on it 
and try to solve this problem.
    I want to thank you, all three of you. I think you have 
given us words of wisdom today. We ought to listen to them. 
Thank you so much.
    Chairman Tauzin. The Chair thanks the gentleman.
    Are there further requests on this side for questions? The 
gentleman from Pennsylvania, Chairman Greenwood.
    Mr. Greenwood. Thank you, Mr. Chairman. I will be brief and 
don't need to use all of my time, but I wanted to address a 
couple of the questions to Governor Granholm.
    When I first read your testimony, it seemed that you were 
in some way implicating the deregulation legislation. Rereading 
it, you really aren't, because you have--there are many who 
seem to want to point fingers in that direction. But what you 
are acknowledging is that in fact it probably--the deregulation 
was responsible for putting more power plants and more 
transmission capability into your system.
    And in rereading your testimony, it seems to me that your 
real complaint here is not so much that reregulation may have 
created vulnerabilities, but it is a question of 
accountability, that your problem with it is that you are not 
sure who is responsible and you are not really quite sure if 
anyone is ultimately responsible. Could you clarify that?
    Governor Granholm. Yes. The way it has played out is that 
because of this diffuse responsibility that there has not been 
this command and control situation that is necessary, causing a 
communications breakdown. So there is sort of two potential 
factors involved in that. One is, because of the way it has 
played out--I am not saying that deregulation caused this. But 
the way it has played out because of the lack of accountability 
there is a contributing factor to a lack of communication that 
occurred in this particular instance and therefore also a 
problem with respect to who is responsible.
    So both of those are factors. They are not the cause of the 
problem. But I do think it is an important time to step back 
and say, what works with this deregulated environment? What 
doesn't work? And it may be time to take a look at the whole 
array and say, what can--what worked before? What works now? Is 
there a way to blend? Is there a way to make sure that we are 
doing what works?
    Mr. Greenwood. We probably need to wait until we have the 
final answers on exactly what happened here before we do that.
    Governor Granholm. Yes.
    Mr. Greenwood. Why, in your opinion, is the Midwest 
Independent Systems Operator, MISO--it seems to me that entity 
was designed and created to provide the command and control and 
to be responsible for the communications. Is it your early 
assessment that it didn't handle that function well?
    Governor Granholm. Well, under the current rules that 
exist, there is not a mandatory requirement that they engage in 
that command and control environment. These are the facts as I 
know them: Two minutes before the power went down in Michigan, 
our operator got word--our transmission operator got word that 
it was going down. An hour and 5 minutes before the power went 
down, the provider in Ohio and the MISO had information that 
there was trouble. So there was a lot of time in there that 
somebody could have been communicating this information.
    Mr. Greenwood. So when you say ``got word,'' somebody 
telephoned somebody? It was not an automated system?
    Governor Granholm. I want Peter Lark to testify to this, 
but it is my understanding that they--2 minutes before the 
blackout occurred, our independent--our transmission company 
saw that there was problems on the grid. It was not a formal 
communication it is my understanding at this point.
    Mr. Greenwood. Okay. Thank you, Mr. Chairman. I will yield 
back the balance of my time.
    Chairman Tauzin. The gentleman yields back.
    Further requests from this side?
    Mr. Engel first. I will get you, Mr. Rush.
    Mr. Engel. Thank you, Mr. Chairman.
    A lot of the questions have been asked. I wanted to just 
follow up with Mr. Greenwood's question. I was also going to 
ask a question about deregulation.
    I was on a panel on the BBC when this happened, and one of 
the so-called experts on the panel said that the root of this 
all stemmed from deregulation, and therefore if we didn't have 
the deregulation this wouldn't have happened. And when he was 
questioned about what do you do, do you go back to 
reregulation, he said, you can't put the genie back in the 
bottle, but one of the things that he would do is break the 
country into smaller regions.
    I am wondering if any of you have any opinions on that. The 
country now, as you know, is broken down into four regions; and 
he was saying perhaps 12 or more would make it easier to ensure 
that a blackout of this magnitude wouldn't happen again.
    Governor Taft. Well, we have an interconnected grid today 
pretty much across the country, Congressman; and we had that 
before deregulation as well. So there would have been the 
potential for the cascading effect even before deregulation 
would have occurred.
    But I really believe that we have to move toward larger 
regional wholesale markets for electricity and larger regional 
oversight direction and control of the transmission grid if we 
are going to make rederegulation work, if we are going to make 
our system work. You have to have an efficient wholesale 
market, you have to have good standards of reliability, and you 
have to have the ability to coordinate what happens in systems 
over a larger geographical area to prevent this cascading 
national--almost a nationwide blackout that occurred.
    So, you know, I would be in favor of somewhat larger 
regional transmission organizations, No. 1, and, No. 2, a 
Federal authority with the ability to require that, require 
participation in that and also to require certain types of 
coordination, integration or even partnership agreements among 
regional transmission organizations so that you deal with the 
issue of what happens across the seam, between one region and 
another.
    Mr. Engel. What about reregulating to some degree? 
Obviously, you cannot go back to the way it was. But in looking 
at the totality of what happened, would you move in that 
direction? And, if so, where and how?
    Governor Taft. Well, in a sense that is what Governor 
Granholm and I are proposing here with regard to transmission. 
As she was pointing out, at one time it was all under a State's 
jurisdiction. Now we have transmission under nobody's 
jurisdiction, and we are saying that needs--someone needs to be 
in charge of transmission. And, you know, we think that needs 
to be at the Federal level. If you are talking about the 
enforcement of standards, you know, that could be delegated to 
each State to enforce national standards with regard to 
reliability. But someone needs to be in charge. Someone has to 
be accountable for the development, the maintenance, you know, 
the reliability of that national transmission grid on which we 
are all so dependent today.
    Mr. Engel. Governor Granholm, I assume that you essentially 
agree with Governor Taft?
    Governor Granholm. I agree that the transmission 
reliability now is--the system is completely unacceptable. It 
needs to be monitored and enforced in an entity responsible for 
it. So, yes, with respect to the transmission grid, yes. With 
respect to some stability over pricing, I think that is very 
important for our residents.
    I do think the wholesale market has been effective; and the 
bigger players who want to be able to compete on the open 
market to purchase large amounts, it has worked well. So that 
is why I think we have got to get out of the sort of 
ideological hats that everyone always tends to wear and just 
figure out what works and what doesn't work.
    The system is a natural monopoly. And when you have a 
natural monopoly with respect to the transmission grid and the 
distribution lines then it is difficult to have full 
competition. So what is it that we create that protects our 
citizens, that makes sure that there is reliable electricity? 
That is what we have got to come and take a look at.
    Mr. Engel. Thank you.
    Mayor Kilpatrick, I want to talk to you about a novel 
program that Detroit is dealing with to get more power into the 
city. As you know, I represent parts of New York City and the 
suburbs, and that is replacing copper transmission lines with 
superconductors. I had an amendment which would do that here in 
the Congress. I just wanted to ask you how is that going? 
Because I know you have been a pioneer in that. I really 
commend you for that. How much is it expected to cost and how 
much will it save? Also, how have you dealt with the siting 
issue?
    Mr. Kilpatrick. First of all, let me say, Congressman, that 
the program is going fairly well. When we came into office 2 
years ago, we actually had to look at it all over again, and we 
actually put an RFP out for a study to answer those questions.
    Because when I walked in the office, no one could tell me 
how much it would save or how much it was going to cost us when 
it was completed. Now we know. We are moving forward with the 
project and the program. It actually picks up on the 
conversation before and deregulation, of which I was a member 
of the Michigan legislature at the time when this happened.
    Municipalities like the city of Detroit actually got a 
chance to compete in the commercial part of power and also 
generate our own power, which in this crisis our power in the 
city of Detroit from our public lighting department came back 
up before our commercial utility, and we were able to light up 
a whole lot of things and actually get generation from there. 
So it helped us.
    But we believe that moving to this conductor will help us 
push out more power but also enable us to compete in the market 
for generating power and selling power to different entities 
inside our city.
    Mr. Engel. Thank you. I want to say that the fine job you 
are doing is surpassed only by the fine job your Congressperson 
is doing. I think you are related a little bit.
    Mr. Kilpatrick. I can never be as good as she is.
    Chairman Tauzin. Just remember that.
    The gentleman's time has expired.
    Let me point out for the record the only deregulation 
occurred up here. States have done some deregulation. The only 
thing we have done up here in 1992 with EPAC was to deregulate 
the wholesale markets. And EIA has reported, since 1992 when 
that occurred, wholesale electric rates have dropped 20 percent 
to consumers, wholesale rates. In addition, they have reported 
that is about a $13 billion savings to America's consumers. So 
we have got to keep that in perspective as we move forward.
    I might mention also, to keep the record honest, that was 
also the period of time in which combined cycle natural gas 
technology was developed, which also helped reduce those rates. 
But the question is, did one inspire the other or not? All we 
know is that rates have gone down since that act in 1992.
    Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman; and I appreciate you 
all being here and for your patience, Governors and Mayor. I 
really appreciate your testimony, especially initially on the 
siting issue. I think maybe we perceive that as more of a 
contentious issue that what you all have presented.
    Governor Granholm. I don't know that we both speak for all 
of the Governors on this either.
    Mr. Shimkus. You are 2 of 50. That is what we need to hear. 
Because that is we have--the perception is that we have tried 
to address the siting issue somewhat.
    I would also encourage you to talk to some of the 
independently owned units and ask them why they are not 
investing in the transmission grid. For the sake you say--there 
is the Federal Power Act says 13.8 percent return. There has 
got to be a reason.
    Otherwise--so I would suggest that it might be siting 
issues, legal cases, environmental lawsuits, Federal lands 
issues, maybe crossing or not crossing. There is a reason why 
they are not investing, if it was just an ROE of 13.8 percent, 
and I think we should look at that. That is what we are trying 
to address here.
    In our bill, we have the FERC that would set a rate, in 
essence doing what the State public utility commission did 
years ago. Now we do it based on the whole regional aspect of 
expanding a transmission grid.
    So I think your testimony was very, very helpful and very, 
very appreciative. Because, as much as reliability is 
important, you can set all of the reliability standards that 
you want, but if you have a bottleneck on the transmission 
grid, you have got a problem. You have got a problem if the 
system goes down, and you have a problem for market 
manipulation. So the more pathways we have, the more that the 
market can work, and we get the return on the wholesale power, 
and we are in a much better position.
    Mayor, I know you are about ready to return. I apologize. 
But the question quickly for you is--and you said it in your 
testimony--how much did the movement to homeland security and 
the re-evaluation of your needs help in the power outage? Was 
it helpful? Did it help you focus? Or did you have plans in 
place? Can you just briefly talk through whether--because I 
think if it was helpful it is a story that probably hasn't been 
told yet.
    Chairman Tauzin. If I can interrupt, the mayor is only 
going to be here for about 5 or 6 minutes. I know Bobby wants 
to get in. He has to catch a plane. I don't know about the 
Governors. I want to try to honor your commitment to us. So if 
you will respond, and we will try to get Bobby Rush in and 
perhaps anyone else.
    Mr. Kilpatrick. Thank you.
    Congressman, it not only helped us focus, it prepared us. 
Those every 2 week meetings in setting up that homeland 
security council, it actually worked.
    After the power went out, to dispatch and go to our 
mobilization alert 2 for our police department automatically 
going out to these intersections, major intersections in the 
city of Detroit and directing traffic, we didn't have gridlock. 
Getting our emergency operations center up in 45 minutes, with 
all of the phones plugged in and able to communicate with 
water, fire, police, human services, housing, it actually did 
work.
    So the setup, as we originally planned for--whether it was 
a tornado or it was a weapon of mass destruction, we would 
react and respond the same, to go to the emergency operations 
center and really command the event. And we did that. We 
reported to the citizens of the city who didn't have power, but 
they had radios. So many of them were in cars or were listening 
to battery-powered radios, and actually the angst went down 
immediately, which also helped us in every other aspect of the 
city of Detroit, from crime to everything else.
    So, I mean, yes, the preparedness, the emergency 
preparedness, homeland security, moving over, getting that one 
person in place, that is the homeland security director, 
Derrick Miller, who is our chief administration officer, all of 
those people showed up at the EOC and really took control of 
the situation.
    Mr. Shimkus. Thank you.
    Chairman Tauzin. Bobby Rush.
    Mr. Rush. Thank you, Mr. Chairman.
    Mr. Mayor, I want to welcome you; and I wanted to welcome 
the other witnesses here, both of the Governors. But I am 
particularly concerned about the effect on local government and 
local governments' responsibility.
    Because, as you have so articulately illustrated, you know, 
really you--the mayors and the members of the city council, you 
are all on the front line. We are all here in Washington, we 
can have these hearings, but you have got to produce. You know, 
when the lights go out, the electricity goes out, you have got 
to produce; and I think that your role should be expanded.
    Can you inform us, what role do you think the local 
governments could play or should play in helping to develop 
this whole overall national policy as it relates to the 
upgrading of our grid systems and other ancillary issues? Can 
you explain to us what role would you like to play in this 
whole effort?
    Mr. Kilpatrick. Well, thanks, Congressman, for the 
question. And earlier Congressman Stupak asked the question 
also, have we been invited to this binational task force on 
this issue? I think that the macro issues involved with 
transmission and RTOs should be discussed between Governors and 
the Federal Government. Where I believe mayors should come in 
is how that impacts cities to doing other things, because all 
of the different discussions on energy don't surround the 
blackout. They also surround the future economy of this 
country, whether it is the hydrogen economy, which is the next 
wave of the manufacturing industry.
    In a city like Detroit what is unique about us is the 
largest corporation in the world, General Motors, sits on our 
border, which is tremendously dependent on this committee 
making good decisions. DaimlerChrysler, Ford, they are all 
housed in our city, and therefore they are all a big part of 
our economy.
    When the Windsor border shut down in Detroit after 9/11, we 
had 2-mile backups at the border, which essentially stopped the 
American economy. So mayors at some point, after we really 
decide whether we are going to have reliability or whether we 
are going to have an energy bill, or all the issues that need 
to be worked out in this arena, we need to sit at the table and 
talk about also how we move the economic issues involved in 
energy forward, as well, for our citizens' sake.
    Also dollars that flow from whatever bill that comes out of 
this place, we really need to be involved in getting those 
dollars first.
    I love our Governor. She was there every step of the way 
throughout this entire crisis. But there is no State fire 
department, there are no State EMS workers. There aren't any 
State police--we have State police officers, but they are on 
the roads giving tickets; they are not really going into those 
homes, really doing the things that our local police officers 
have done.
    We really need to be involved in conversations also when 
this shuts down, how do mayors respond? What is our role? How 
do the dollars follow the problem?
    Mr. Rush. In my city, Chicago, our local utility company, 
you have to, I think it is every 10 years or so, enter into a 
franchise agreement in order to use the public ways for 
transmission lines, things like that. And we in Chicago have 
not used it as well as we should. But we are beginning to 
really use that as an opportunity to make sure that there are 
certain reliability issues that are addressed within that 
franchise agreement.
    Do you all have the same kind of situation in Detroit?
    Mr. Kilpatrick. No. In Detroit--actually we do. We have our 
Detroit Public Lighting Department. We do have an agreement 
with our major utility on some transmission issues. I don't 
know the exact--if it is similar to Chicago's agreement. But we 
do, yes, use some of the transmission lines from our major 
utility. We do have agreements, rights-of-way, all of those 
types of things.
    Mr. Rush. Is there any intercity or intracity collaboration 
among mayors, as it relates to--especially concerning the 
blackout, in terms of what can be done at the local level?
    Mr. Kilpatrick. Not from the blackouts. But, what I can say 
is that Mayor Daley has called together the Great Lakes mayors 
and asked us to come together surrounding policy to create some 
type of interstate working relationship. I went to the first 
meeting we just had, and we are going to try to establish--now, 
since the blackout we have a lot to talk about, but before it 
was surrounding the water, you know, the sharing of information 
on manufacturing and the manufacturing industry, how to further 
diversify the economy with the service industry, a lot of our 
key cities in the Midwest of the United States.
    Mr. Rush. I want to take a moment. I know that a couple of 
years ago we had a blackout in Chicago. And although there 
weren't a lot of Federal or national concerns about it--or the 
issue wasn't really discussed on a national level, rather--I 
have to give credit to the mayor, because he used the bully 
pulpit of the mayor's office to make sure that public utility 
company in Chicago, that it invested money into the 
transmission system there in the inner city of Chicago.
    And he castigated them. He was very hard, hard-nosed on 
them, and they basically responded somewhat. And so I know the 
role that mayors can play in regards to making sure that we 
avoid this kind of problem in the future.
    Mr. Kilpatrick. For 30 or 40 years in the city of Detroit 
the conversation has been whether we need to be in the electric 
business at all, in the utility business at all.
    The conversation after the blackout is, how do we continue 
to work together to make sure all of the lights are on.
    So I believe the beginning of that type of relationship 
that you just spoke of may be able to happen now.
    Mr. Rush. Thank you very much.
    Chairman Tauzin. Thank you.
    Any further questions for the Governors and Mayor? Before 
we dismiss you, I wanted to mention something that I know that 
you have all read of the star quality of Governor Granholm, we 
have read a lot about it.
    But the real star at this table is the Mayor of Detroit. A 
recent report: Actor-Comedian Chris Rock directed and stars in 
a movie entitled Head of State which opens this weekend. And he 
did it with Detroit Mayor Kwame Kilpatrick in mind. The film is 
about a struggling young black alderman from Washington, DC, 
who goes from being an unknown to running a successful campaign 
to be the next President of the United States.
    Here is a quote from Chris Rock. ``I just saw Kwame 1 day 
on C-SPAN with that big earring, not realizing that he was the 
Mayor of Detroit,'' Rock, 37, says. ``I didn't know who he was. 
I thought that he was a baseball player's agent or something. 
Then I started listening to him. What he was saying was right 
on.'' He used the mayor as his model for his character in the 
new movie just starting out.
    So you not only have been a good example of a mayor who 
reacted in a crisis, you are star quality, man.
    Mr. Green. Mr. Chairman, was that a compliment from Chris 
Rock?
    Mr. Kilpatrick. Well, he made about $100 million on that 
movie, so I guess it was a compliment.
    Chairman Tauzin. We appreciate all of you being here and 
would deeply appreciate your continuing to stay in touch with 
us as we finalize this work. Obviously your perspectives are 
extraordinarily valuable to us. We thank you for the time you 
have shared with us.
    Any other members' final comments?
    Mr. Green.
    Mr. Green. Mr. Chairman, I don't have any questions of the 
Mayor if me needs to leave. But I had a couple of questions for 
the Governors. I will be real brief, because I think there are 
questions to both of you.
    One, I believe that the electricity crisis is broader than 
just reliability. I think it is the reliability of humans and 
our operating equipment. I think we have had a problem with 
generating capacity. And we saw what happened in California 
with transmission problems and pipeline problems; and it just 
seems like our infrastructure is not what we expect it to be.
    To build a natural gas-fired generating plant, you have to 
have a new pipeline or a new transmission line from there to 
the end; and the siting is an issue, I think.
    Governor Taft, as demand for electricity continues to grow, 
what are the plans in Ohio, particularly for encouraging new 
power generation development and the associated infrastructure 
that will support it?
    Governor Taft. We have a very favorable climate for 
construction, approval, siting of new power plants, new 
generating facilities. We have had a great number sited in Ohio 
in recent years, perhaps in part in response to deregulation. 
Most of these are gas-fired, but our capacity has expanded 
very, very significantly.
    Of course, we are all struggling with this transmission 
issue that we are talking about today. That is the fundamental 
problem in the system today.
    Mr. Green. So transmission you would identify. It is not 
necessarily the generation of the power, but transmission of 
the power?
    Governor Taft. Generation of power is very adequate in Ohio 
today.
    Mr. Green. Okay.
    Governor Granholm, I understand from your testimony you 
inherited recently an electricity restructuring effort from a 
previous Governor. And do you have any plans for considering 
encouragement of new generation development and also the 
associated infrastructure, for example, the problem with 
transmissions?
    Governor Granholm. I think that every Governor is taking a 
look at their generation capacity and making sure that you have 
got enough. But we, like other States, purchase on the open 
market as well. So that--you know, we want to see enough 
generation for us to be able to either buy or generate 
ourselves.
    We will be taking a look at that. And my chairman of the 
Public Service Commission will be testifying immediately after 
me. You can ask that question of him, too. We know there are 
several proposals to be able to get new plants up in Michigan.
    Mr. Green. Thank you, Mr. Chairman.
    Chairman Tauzin. Thank you, Mr. Green.
    I think that concludes this section of our hearing. I again 
deeply appreciate your attendance. And, again, stay in touch 
with us. We will try and keep in touch with you.
    We have a distinguished panel yet to be heard from. The 
panel includes the man that you have heard a great deal about, 
as we are going to discuss the jurisdiction of the FERC. That 
will be the Chairman of the FERC itself, Mr. Patrick Wood, and 
representatives of State PUCs, as well as some utilities.
    We invite all of our guests to take chairs again as we say 
good-bye to Governor Taft and Governor Granholm with our 
thanks.
    The committee will please come back to order as we ask our 
guests to take seats. We invite our next panel to come forward 
and welcome them.
    Let me introduce, first of all, the panel to you: The 
Honorable Patrick Wood, Chairman of the Federal Energy 
Regulatory Commission, who has been a frequent visitor to our 
committee room. We thank you again, Pat, for your steadfastness 
in working with us on these technical and very difficult 
issues.
    We also have with us the Honorable Dr. Alan Schriber, 
Chairman of the Ohio Public Utilities Commission; the Honorable 
Peter Lark, Chairman of the Michigan Public Service Commission; 
and the Honorable William Flynn, Chairman of the New York State 
Public Service Commission.
    By the way, as a caveat, let me mention that we had invited 
Governor Pataki and Mayor Bloomberg, who were scheduled to 
come, and then commitments interrupted, and they could not be 
with us today. But we certainly appreciate their efforts to be 
with us today.
    And, Mr. Flynn, thank you for coming.
    Also Michael Gent, President of the North American Electric 
Reliability Council, a man who we have heard and seen on 
television recently--Michael; Mr. Brantley Eldridge, the 
Executive Manager of the East Central Area Reliability Council; 
and Charles Durkin, the Chairman of the Northeast Power 
Coordinating Council of New York, New York.
    We certainly want to welcome you all. And again under our 
rules, you will have 5 minutes to tell us the most important 
things you have to tell us. Your written testimony is a part of 
our record, so please don't read it to us, but summarize your 
statement to us and highlight the important parts of that 
statement for us in 5 minutes.
    Chairman Wood, we welcome you first. And, again, thank you 
for your attendance again.

   STATEMENTS OF HON. PAT WOOD III, CHAIRMAN, FEDERAL ENERGY 
 REGULATORY COMMISSION; HON. ALAN R. SCHRIBER, CHAIRMAN, OHIO 
  PUBLIC UTILITIES COMMISSION; HON. J. PETER LARK, CHAIRMAN, 
  MICHIGAN PUBLIC SERVICE COMMISSION; HON. WILLIAM M. FLYNN, 
CHAIRMAN, NEW YORK STATE PUBLIC SERVICE COMMISSION; MICHEHL R. 
 GENT, PRESIDENT, NORTH AMERICAN ELECTRIC RELIABILITY COUNCIL; 
    BRANT H. ELDRIDGE, EXECUTIVE MANAGER, EAST CENTRAL AREA 
  RELIABILITY COUNCIL; AND CHARLES J. DURKIN, JR., CHAIRMAN, 
              NORTHEAST POWER COORDINATING COUNCIL

    Mr. Wood. Thank you, Mr. Chairman. I will actually go from 
my statement to respond to some of the questions that have been 
raised.
    Chairman Tauzin. Let me interrupt you, first. I want to 
thank you for a couple of things.
    I noticed you were here all day attending in the audience, 
listening to our other presenters and gathering information 
along with us. I don't know that other heads of Federal 
agencies would do that. I deeply appreciate that. I hope the 
American public understands how deeply and seriously you take 
your job and how tough it is. We thank you, Pat.
    Mr. Wood. Thank you. It is part of my job. I appreciate 
being thanked for it, anyway.
    As the Secretary testified early this morning, we are a 
very active participant in the joint U.S.-Canadian task force 
on reviewing the events of August 14 and 15.
    I do think, just in answering an earlier question, that is 
a very efficient and effective way for the Federal Government 
to combine its resources and move forward. It was the same 
method that was used in past recent blackouts since the 
Department has been formed. I think it is a good template for 
going forward.
    If there are, however, issues that are within the FERC 
jurisdiction that require further activity from our agency, 
whether they be enforcement or other kinds of inquiries, we 
will of course proceed as an independent agency should.
    It is not clear what happened on 8/14, and I will not 
prejudge this event until the engineers and all other technical 
experts have looked at it and explain to me exactly what 
happened, as an engineer. We have a lot of competent 
professionals working together.
    But, I should say that this is not the first region-wide 
blackout that we have ever had in this country. In 1996, while 
I was a Texas regulator, citizens in El Paso, Texas, were shut 
off when a line went down in Oregon, and 13 Western States were 
blacked out for the better part of a day. We have tended to 
forget about that.
    In 1999, I think, Mr. Chairman, you said about half a 
million citizens in your home State and mine were both blacked 
out during the summer for some rolling blackouts. Of course, we 
know about the blackouts that happened in 2000 and 2001 in 
California for other reasons. But, these are a series of events 
from which I think we have learned, and I think give us a 
legitimate base from which to start, that may or may not be 
germane to what happened 3 weeks ago.
    But, I think we would be derelict in our duty--I would be--
if I did not inform the committee the fact that we have been 
here before, and that as an agency, and collectively as a 
country, we have been working to address these problems in a 
thoughtful way.
    One key issue in these previous blackouts and perhaps in 
this one is investment in infrastructure--specifically 
regional, not local, infrastructure. What sort of actions have 
we taken to learn from the past? In repeating my strong support 
for regional transmission organizations in my testimony, I 
stand on long-standing bipartisan policy of our commission, 
which I should say predates the current administration, that 
well-structured RTOs will help foster a more robust and 
competitive power market and help contribute to a reliable grid 
operation for each region. Both of these are in the best 
interests of customers in every region of the country.
    The power industry needs an air traffic controller. I know 
all of you have flown in and out of airports recently, as I 
have. In the past, when electricity was chiefly a local 
commodity, the second-by-second balance of supply and demand 
was done by the local utility in about 150 to 200 small 
regions, small islands in the country.
    The New York City blackout of 1965 spurred the 
interconnectivity of local utilities into more regionally 
connected reliability groups, and thus was born NERC, that Mr. 
Gent heads today. Advances in technology and ultimately legal 
changes by this body in 1992 broadened the interconnectivity of 
the grid for greater commerce among utilities and increasingly 
nonutility providers of power.
    So, now with this greater regional scope and diversity of 
suppliers, who should be the air traffic controller making sure 
that supply and demand stays in balance, i.e., that the system 
stays reliable?
    Almost all agree that it should be someone independent of 
commercial interests and competent to do the job. That power 
traffic controller must be accountable and have the ability and 
the money to address the problems that exist on the system.
    And, as to how many there should be, so we don't have these 
communications issues that have been raised, I think less is 
better. When we had separate air traffic controllers for every 
utility, we had 140 little islands in the country, which is 
hard to personally coordinate certainly by phone, for a product 
that moves at the speed of light.
    So, when we consolidate or bring together these little 
islands, we call them control areas, and we put them under a 
regional traffic controller, who can ensure efficient dispatch 
and a highly reliable system, provided that it has a modern 
communications system and real-time controls to keep the supply 
and demand in balance.
    I don't care what we call these air traffic controllers, 
EROs, RTOs, whatever. They are and will be regulated entities, 
but we just need the Congress to tell us, or someone 
appropriate, to make this happen and we will do it. We are and 
will be accountable to you and to the public for this activity. 
We await congressional guidance on these broader policy issues, 
but I should say we are moving forward to fully understand the 
events of August 14, and I am personally committed to going to 
wherever the facts may lead.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Pat Wood III follows:]
  Prepared Statement of Hon. Pat Wood, III, Chairman, Federal Energy 
                         Regulatory Commission
                      i. introduction and summary
    The blackout experienced in the Midwest and Northeast on August 14, 
2003 serves as a stark reminder of the importance of electricity to our 
lives, our economy and our national security. All of us have a 
responsibility to do what we can to prevent a repeat of such a 
blackout.
    The United States-Canada Joint Task Force, with assistance from the 
Federal Energy Regulatory Commission (FERC or the Commission) and 
others, is working to identify the cause of the blackout and the steps 
needed to prevent similar events in the future. Analysis of the 
blackout is ongoing, and it is too early to know what caused the 
blackout or why the blackout cascaded through eight states and parts of 
Canada.
     ii. steps taken by ferc in response to the august 14 blackout
    FERC staff based in Washington, D.C., and at the Midwest 
Independent System Operator (MISO) in Carmel, Indiana, have monitored 
blackout-related developments from the first minutes.
    Directly after the blackout began, FERC staff members went to the 
U.S. Department of Energy (DOE) to coordinate our monitoring with DOE's 
emergency response team. At about the same time, FERC staff in the MISO 
control room began monitoring and communicating the events around the 
clock until most of the power was restored.
    During this time, FERC staff was involved in nearly 20 North 
American Electric Reliability Council (NERC) telephone conference calls 
with the reliability coordinators, assessing the situation. These calls 
also involved close coordination with our Canadian counterparts. Also, 
the on-site staff monitored other calls between MISO, its control 
areas, transmission-owning members, and other Independent System 
Operators (ISOs) and Regional Transmission Organizations (RTOs) in 
their joint efforts to manage the grid during restoration.
    In Washington, D.C., FERC staff immediately mobilized to provide 
relevant information to the Commissioners and to others, including DOE. 
These communications included, for example, data on output by 
generating facilities and markets adjacent to the blackout area. FERC 
also gathered information from ISO and RTO market monitors for each of 
the ISOs or RTOs in the affected regions. Our staff closely tracked the 
markets to make sure that no one took advantage of the situation to 
manipulate the energy markets. Working with the market monitor for the 
New York Independent System Operator (NYISO), we tracked the New York 
market especially closely during the period when that market was coming 
back on line and during the first unusually hot days later in the week 
of August 18.
    Currently, members of the Commission's technical staff are 
assisting the United States-Canada Joint Task Force on its 
investigation of the blackout. The Commission will contribute resources 
to this effort as needed to ensure a thorough and timely investigation.
                            iii. background
A. The Current State of the Electricity Transmission Grid
    The Nation's transmission grid is an extremely complex machine. In 
its entirety, it includes over 150,000 miles of lines, crossing the 
boundaries of utilities and states, and connecting to Canada and 
Mexico. The total national grid delivers power from more than 850,000 
megawatts of generation facilities. The grid is operated at about 130 
round-the-clock control centers, some large and others small. The large 
number of these control centers derives from the historical development 
of utility-franchised territories.
    When a generating facility or transmission line fails, the effects 
sometimes are not just local. Instead, a problem may have widespread 
effects and must be addressed by multiple control centers. The utility 
staff at these centers must quickly share information and coordinate 
their efforts to isolate or end the problem. Given the speed at which a 
problem can spread across the grid, coordinating an appropriate and 
timely response can be extremely difficult without modern technology.
    In recent years, the use of the grid has expanded significantly. 
The growth of our economy, and its increasing reliance on electricity, 
is the principal driver. Greater competition among power sources 
(wholesale power competition) has also increased use of the grid. The 
grid was built originally to interconnect neighboring utilities and to 
allow them to share resources when necessary but is now used as a 
``superhighway'' for broader, regional trading.
    Transmission capital investments and maintenance expenditures have 
steadily declined in recent years. In the decade spanning 1988 to 1997, 
transmission investment declined by 0.8 percent annually and 
maintenance expenditures decreased by 3.3 percent annually. 
(Maintenance activities include such items as tree-trimming, substation 
equipment repairs, and cable replacements, all of which affect 
reliability). Power demand increased by 2.4 percent annually during 
this same time period.
    Finally, perhaps even more important than adding transmission 
capacity, is improving the tools available to control center staff for 
operating the grid. One example is installing state-of-the-art digital 
switches, which would allow operators to monitor and control 
electricity flows more precisely than the mechanical switches used in 
some areas. Installing additional monitoring and metering equipment can 
help operators better monitor the grid, detect problems and take 
quicker remedial action. Improved communication equipment can help 
control centers coordinate efforts more quickly. The level of 
investment in these technologies has been varied.
B. Today's Regulatory Framework
    Currently, there is no direct federal authority or responsibility 
for the reliability of the transmission grid. The Federal Power Act 
(FPA) contains only limited authorities on reliability.
    For example, under FPA section 202(c), whenever DOE determines that 
an ``emergency exists by reason of a sudden increase in the demand for 
electric energy, or a shortage of electric energy or of facilities for 
the generation or transmission of electric energy . . . or other 
causes,'' it has authority to order ``temporary connections of 
facilities and such generation, delivery, interchange or transmission 
of electric energy as in its judgment will best meet the emergency and 
serve the public interest.''
    Under FPA sections 205 and 206, the Commission must ensure that all 
rates, terms and conditions of jurisdictional service (including 
``practices'' affecting such services) are just, reasonable and not 
unduly discriminatory or preferential. These sections generally have 
been construed as governing the commercial aspects of service, instead 
of reliability aspects. However, there is no bright line between 
``commercial practices'' and ``reliability practices.''
    The explicit authorities Congress has granted the Commission in the 
area of reliability are very limited. For example, under FPA section 
207, if the Commission finds, upon complaint by a State commission, 
that ``any interstate service of any public utility is inadequate or 
insufficient, the Commission shall determine the proper, adequate or 
sufficient service to be furnished,'' and fix the same by order, rule 
or regulation. The Commission cannot exercise this authority except 
upon complaint by a State commission.
    The Public Utility Regulatory Policies Act of 1978 (PURPA) also 
provides limited authority on reliability. Under PURPA section 209(b), 
DOE, in consultation with the Commission, may ask the reliability 
councils or other persons (including federal agencies) to examine and 
report on reliability issues. Under PURPA section 209(c), DOE, in 
consultation with the Commission, and after public comment may 
recommend reliability standards to the electric utility industry, 
including standards with respect to equipment, operating procedures and 
training of personnel.
    Since the electric industry began, reliability has been primarily 
the responsibility of the customer's local utility. Depending on state 
law, utilities may be accountable to state utility commissions or other 
local regulators for reliable service. Typically, the local utility 
keeps statistics on distribution system interruptions in various 
neighborhoods, inspects the transmission system rights-of-way for 
unsafe tree growth near power lines, and sets requirements for 
``reserve'' generation capability to cover unexpected demand growth and 
unplanned outages of power plants. Many state and local regulators 
exercise the authority of eminent domain and have siting authority for 
new generation, transmission, and distribution facilities.
    In 1965, President Johnson directed FERC's predecessor, the Federal 
Power Commission (FPC), to investigate and report on the Northeast 
power failure. In its report, the FPC stated:
        When the Federal Power Act was passed in 1935, no specific 
        provision was made for jurisdiction over reliability of service 
        for bulk power supply from interstate grids, the focus of the 
        Act being rather on accounting and rate regulation. Presumably 
        the reason was that service reliability was regarded as a 
        problem for the states. Insofar as service by distribution 
        systems is concerned this is still valid, but the enormous 
        development of interstate power networks in the last thirty 
        years requires a reevaluation of the governmental 
        responsibility for continuity of the service supplied by them, 
        since it is impossible for a single state effectively to 
        regulate the service from an interstate pool or grid.
Northeast Power Failure, A Report to the President by the Federal Power 
Commission, p. 45 (Dec. 6, 1965).
    In response to the 1965 power failure, the industry formed NERC. 
NERC is a voluntary membership organization that sets rules primarily 
for transmission security in the lower 48 states, almost all of 
southern Canada, and the northern part of the Baja peninsula in Mexico. 
More detailed rules are prescribed by ten regional reliability 
councils, which are affiliated with NERC. However, neither NERC nor the 
ten regional reliability councils have the ability to enforce these 
rules. And these rules are administered on a day-to-day basis at over 
130 utility control areas.
                             iv. next steps
    Regardless of the actual cause of this blackout, the event, like 
earlier blackouts, has demonstrated that our electrical system operates 
regionally, without regard to political borders. Electrical problems 
that start in one state (or country) can profoundly affect people 
elsewhere. Preventing region-wide disruptions of electrical service 
requires regional coordination and planning, as to both the system's 
day-to-day operation and its longer-term infrastructure needs.
    Currently, the Congress has before it, in conference, energy 
legislation which could address a number of issues that have arisen in 
the debate in the last few weeks over reliability in our wholesale 
power markets.
    First, both the House and Senate bills going to conference provide 
for mandatory reliability rules established and enforced by a 
reliability organization subject to Commission oversight. Many 
observers, including NERC and most of the industry itself, have 
concluded that a system of mandatory reliability rules is needed to 
maintain the security of our Nation's transmission system. I agree.
    That leads to the question of what entity will be in charge, on a 
day-to-day basis, of administering the mandatory reliability rules that 
are developed by the independent reliability authority. In Order No. 
2000, the Commission identified the benefits of large, independent 
regional entities, or RTOs, in operating the grid. Such entities would 
improve reliability because they have a broader perspective on 
electrical operations than individual utilities. Further, unlike 
utilities that own both generation and transmission, RTOs are 
independent of market participants and, therefore, lack a financial 
incentive to use the transmission grid to benefit their own wholesale 
sales.
    In the six years since the Commission ordered open access 
transmission in Order No. 888, the electricity industry has made some 
progress toward the establishment of RTOs, entities that combine roles 
relating to reliability, infrastructure planning, commercial open 
access and maintenance of long-term supply/demand. H.R. 6 endorses this 
effort in a ``Sense of the Congress'' provision. Congress can direct 
this effort to be completed.
    While coordinated regional planning and dispatch are sensible steps 
to take, we still need to attract capital to transmission investment. I 
understand that there is significant interest in investing in this 
industry already; however, to the extent the Commission needs to adopt 
rate incentives for transmission or other investment to alleviate 
congestion on the grid, including new transmission technologies, we 
should do so. While the Commission has recently taken steps in this 
direction, action by Congress on this issue, and in repealing the 
Public Utility Holding Company Act, can provide greater certainty to 
investors and thus encourage quicker, appropriate investments in grid 
improvements. The provisions in H.R. 6 would provide legal certainty to 
the Commission's recent efforts.
    In addition to ratemaking incentives from the Commission, Congress 
can also provide economic incentives for transmission development. 
Changing the accelerated depreciation from 20 years to 15 years for 
electric transmission assets, as in H.R. 6, is an appropriate way to 
provide such incentives. Similarly, Congress can provide tax neutrality 
for utilities wishing to transfer transmission assets to RTOs.
    To the extent that lack of assured cost recovery is the impediment 
to grid improvements, regional tariffs administered by RTOs are an 
appropriate and well-understood vehicle to recover these costs. The 
Commission has accepted different regional approaches to pricing for 
transmission upgrades, but the important step is to have a well-defined 
pricing policy in place.
    Getting infrastructure planned and paid for are two of the three 
key steps for transmission expansion. The third step is permitting. 
States have an exclusive role in granting eminent domain and right-of-
way to utilities on non-federal lands. Under current law, a 
transmission expansion that crosses state lines generally must be 
approved by each state through which it passes. Regardless of the rate 
incentives for investment in new interstate transmission, I suspect 
that little progress will be made until there is a rational and timely 
method for builders of necessary transmission lines to receive siting 
approvals. Providing FERC (or another appropriate entity) with backstop 
transmission siting authority for certain backbone transmission lines, 
in the event a state or local entity does not have authority to act or 
does not act in a timely manner, may address this important concern. 
H.R. 6 contains such a provision.
                             v. conclusion
    I look forward to visiting further with the Committee as the US-
Canada Task Force continues to get to the bottom of what happened 
before, during and after the Blackout on August 14, 2003. Thank you.

    Chairman Tauzin. Thank you, Mr. Chairman. We deeply 
appreciate it.
    We will now turn to the honorable Dr. Alan Schriber, who is 
Chairman of the Ohio Public Utilities Commission from Columbus, 
Ohio; and we are deeply interested in your thoughts on this 
crisis.

                 STATEMENT OF ALAN R. SCHRIBER

    Mr. Schriber. Thank you, Mr. Chairman.
    Also, I will note that I am chairman of the Ohio Power 
Siting Board board, too, which will play into this also.
    On August 14 at 4 o'clock I got back to my office after 
having a workout to relieve the stress of the day. By 5 
o'clock, I was ready to go back. But I think the stress that I 
experienced was far less than that experienced by people in 
other parts of the State and, of course, the eastern part of 
the United States, as was so aptly articulated by the Governors 
whom we have already heard from. What happened on that day is 
something that I am looking forward to being a part of the team 
to determine, as I have been appointed to the binational task 
force.
    I just want to make several points that are in my 
testimony.
    First of all, I am prepared to argue that the outage that 
we experienced is not a result of deregulation, and I would be 
glad to elaborate on that later.
    Second, I don't believe that we have anything remotely 
approaching a Third World grid, as has been articulated. This 
is not unlike the interstate highway system where you have 
great spots along the road and then sometimes it breaks down, 
sometimes it gets old and needs replacement, sometimes we get 
population shifts which cause demand for highway space, if you 
will, to increase in other areas, which is similar to that 
which we find on the electric transmission system.
    I think reliability is an absolute necessity that has to be 
addressed right away. I think among the very many press calls I 
got immediately following the incident, a lot of questions 
were, well, who is responsible for the transmission system? I 
said, you know, at the State level, we are responsible, for we 
regulate, we have terms and conditions, prices, all kinds of 
issues related to and standards related to the distribution 
system. But when it came to the transmission system, well, I 
knew that the FERC regulates the rates, transmission rates, 
prices and what have you along the system, but I had no idea, 
it had not occurred to me, of who is it that regulates 
transmission. As it turns out, it is generally accepted utility 
practices that regulate, that takes care of the transmission 
issues.
    Now, does that mean a transmission line is 12 feet above a 
tree or 14 feet above a tree? I don't know, and I don't know 
which would be the most appropriate. As I said, we do the 
distribution; we don't do the transmission. I am strongly in 
support and would urge you to move forward with either NERC or 
FERC promulgating rules that do and standards that do address 
transmission, the physical properties of the transmission 
systems.
    As far as enforcement goes, I would propose that 
consideration be given to States. Currently in Ohio and many 
other States, we enforce Federal rules. For example, the 
Department of Transportation, we enforce their rules with 
respect to natural gas pipeline safety, with respect to 
hazardous material transportation, rail, rail crossings. It 
could seem a logical leap, therefore, to be able to have the 
opportunity to enforce rules with respect to transmission 
lines, rules that are promulgated again by a Federal authority.
    Furthermore, I think that a comprehensive law is important 
to the following extent: I really believe we need to unshackle 
the Federal Energy Regulatory Commission. I think they need to 
be able--I think they must be able to move forward in order to 
establish their mission of a large regional footprint, if you 
will, a large regional transmission system. I think it relates 
to reliability.
    I think that a large regional transmission system best 
allocates resources, and as an economist I like to talk about 
the allocation of resources. If you have multifragmented 
transmission systems, each one would be throwing money, if you 
will, at that part of the system, of its own system that needs 
fixing, if you will, in contrast to a regional approach which 
will allocate dollars most optimally toward where they need to 
be.
    Furthermore, I think that attracts capital more readily. I 
think those investments that are made in the reliability of the 
transmission system, the more capital will be attracted at more 
favorable rates. So the more optimal the application of money, 
the more capital will be attracted.
    Also, I think there are a lot of pricing issues and pricing 
strategies that can be dealt with better in a super-regional 
transmission system.
    I know there is a lot of push-back on the transmission 
systems, the regional transmission systems. There is no 
compelling reason that we have to address all regions 
simultaneously. Pat and his group can clearly carve out a 
region and say, we are going to do X region, the Eastern 
region, the Midwest, the Mid-Atlantic, the Northeast first. If 
at some point in time the West wants to buy in, we can do that 
or the Southwest or whatever, we can do that. But I think it is 
absolutely essential that in order to have a successful and 
appropriate reliability system that we have been talking about 
that we must have a governance that singularly has oversight 
over a large regional organization in terms of its operation.
    At this point, I will stop. I appreciate the opportunity to 
testify and would look forward to some questions.
    [The prepared statement of Alan R. Schriber follows:]
  Prepared Statement of Alan R. Schriber, Chairman, Public Utilities 
                           Commission of Ohio
    Mr. Chairman, Members of the Committee, my name is Alan R. 
Schriber. I am the Chairman of the Public Utilities Commission of Ohio 
and the Ohio Power Siting Board and am here today to answer what 
questions can be answered to date and express our views. I appreciate 
the opportunity to appear before the House Energy and Commerce 
Committee. I respectfully request that the written statement submitted 
under my name on behalf of the Public Utilities Commission of Ohio be 
included in today's hearing record as if fully read.
    The Public Utilities Commission of Ohio is charged with the duty of 
regulating the retail rates and services of electric, gas, water and 
telephone utilities operating within our jurisdiction. Specifically, 
with respect to electricity, we regulate the distribution of power but 
not transmission. Additionally, since Ohio has restructured the 
industry, we no longer regulate generation. We have the obligation 
under State law to assure the establishment and maintenance of such 
energy utility services as may be required by the public convenience 
and necessity, and to ensure that such services are provided at rates 
and conditions which are just, reasonable and nondiscriminatory for all 
consumers.
    You have asked what factors and events led up to the blackouts that 
occurred on August 14. I am personally honored to be able to serve on 
the U.S.-Canada Joint Task Force on the Power Outage, and I am certain 
causes will be identified as expeditiously as possible. Following that, 
recommendations as to remedial action will undoubtedly be forthcoming.
    To this point, many of the events that took place in Ohio have been 
documented via timelines. However, the entire picture of what happened 
August 14th will take serious analysis well beyond the scope of Ohio 
alone. Its effect upon the citizens and businesses of Ohio were 
documented for you earlier by Governor Taft. In the aftermath, the 
Governor charged my Commission with the challenge of scrutinizing 
events as they occurred in Ohio and will complement those of the U.S.-
Canada Joint Task Force.
    As we pursue our quest for causes and solutions to the outage, I 
think that we will find that the electrical system in this nation is by 
no means ``third world''. It is a very complex, interconnected system 
that has in fact worked very effectively. The system operated as it was 
designed to operate on that unusual day in August. Lines tripped, 
plants tripped, and systems were isolated to prevent further blackouts, 
just as they were designed to perform. If the systems had not operated 
as above, not only would the loss of power been far more extensive, but 
severe damage would have resulted to our infrastructure.
    While it is reassuring that the situation was ``contained'' to some 
degree, and that remarkable restorations were implemented, we cannot 
ignore the fact that weaknesses exist that call for repair. Much like 
the Interstate highway system, traffic patterns on the wires have 
changed, congestion has increased, and wires need fixing. Above all, we 
learned how vulnerable we are, and how dependent we are on our electric 
system.
    You will undoubtedly hear from opponents of deregulation that 
states such as Ohio that have promoted retail competition collectively 
contributed to the 2003 outage. I must take issue with this stance. The 
type of competition that has been promulgated at the state level is one 
of retail competition, wherein end users purchase their power from 
marketers who, in turn, buy in the wholesale market. The grid as we 
know it today has always been the vehicle over which wholesale 
transactions take place. It was built to accommodate transactions 
between utilities. This is nothing new.
    Nothing has really changed that principle except for the number of 
transactions that travel the wires, which is a measure of the overall 
increase in the demand for electricity. The electrons know nothing 
except that the quickest way to get somewhere is along the shortest 
path. Therefore, if you live in Illinois and buy electricity from New 
Jersey, you'll write a check to the generator in New Jersey. However, 
the electrons that you end up with will come from close by, while the 
New Jersey generator's electrons will stay closer to home. That is the 
difference between the contract path and the physical path. All of this 
is to say that deregulation, which has been adopted by less than half 
the states with a modicum of success, should not be a relevant 
consideration.
    The real challenge that lies ahead, and one that Congress must 
confront, is molding the electric grid into one that can accommodate 
the economic realities of today. The reality is that demand has shifted 
and so to have the suppliers. Parenthetically, one should note that, in 
the aggregate, generation supply is sufficient to meet demand. The 
problem is that the suppliers are not necessarily lining up through the 
grid with the demanders. The reason for this misalignment is a 
patchwork of overseers of the grid; regional transmission systems, 
private transmission systems, and systems within the vertical 
structures of utility companies are accountable to no single boss even 
though they all interconnect at some point.
    If we had many discreet, non-interconnected systems, I suspect we 
would have more blackouts than fewer, although of less duration, since 
there would be no interconnected neighbor to help out on a hot day. On 
the other hand, a regionally coordinated transmission system with a 
super-large geographical footprint would enhance the ability to work 
through all kinds of contingencies, some of which are simply beyond the 
scope of smaller control areas.
    Everyone should want to see our transmission resources allocated in 
an optimal manner. I am prepared to argue that its achievement is 
predicated on the super-regional transmission system alluded to above. 
To this end, FERC is the federal agency endowed with the authority to 
make it happen. Congress should support FERC's efforts to enlist 
participation by all transmission owners into a regional grid that 
recognizes the economies of centralized management.
    I do not know how many billions of dollars it might take to upgrade 
the grid, but I do fervently believe that whatever dollars are expended 
are done so most economically when the needs of the grid as a whole are 
evaluated as objectively as possible. Given the myopia associated with 
the fragmented systems of today, dollars may be thrown at ``fixes'' 
that often do nothing but add an asset to the utility rate base; not 
only are the needs of the region ignored, but the utility that has 
determined to fence itself in does very little at the margin to benefit 
its own customers. Regional approaches must be adopted to appreciate 
the needs and recognize the benefits.
    An independently administered regional transmission system, on the 
other hand, could prioritize its investments based upon marginal 
benefits. Dollars would flow to the points on the grid that would yield 
the most benefits, for example, the amount of regional congestion that 
is relieved, regardless of whose ``backyard'' it resides. Why would a 
single state permit the construction of a high tension wire within its 
boundaries if there were not a single ``drop'' along the way? The 
answer would be that it probably would if it understood that the 
congestion relieved by the line significantly increased the level of 
unobstructed power flows within the state. The problem is in the 
``understanding''. The manager of an independent, integrated, profit 
maximizing transmission organization understands the resource 
optimization process because it has the bigger picture.
    In addition to rational planning, the aggregated grid system is 
also more likely to attract capital. Investment dollars move to the 
places where the potential yields are the greatest given the risks. We 
might conjecture that the greater the number of electrons that flow, 
the greater the dollars that flow to the construction of wires that 
carry those electrons. A unified super-regional grid maximizes power 
flow through the grid and should be politically indifferent as to the 
points of need located within. In contrast, sub-optimal investments in 
electric facilities are made when a single entity, without regard for 
the region around it, is more interested in closing itself off from the 
greater good. Those who provide the dollars are more likely to follow 
the path of investment with the greatest potential for risk/return 
optimization, which from my point of view resides with the regional 
grid.
    I have been talking to this point about the physical conditions 
that bind the grid for better or worse. However, the economics of all 
of this must not go unmentioned. Different transmission systems, as 
fragmented as they might be, often employ pricing strategies that are 
inconsistent with one another. When the price of moving electricity a 
number of miles across different operating areas varies according to 
whose area is being crossed, the outcome can be quite confusing for 
those paying the freight. Without belaboring the point, another strong 
argument that favors super-regional management of the grid is pricing 
consistency and the concomitant higher level of economic certainty 
conferred upon users of the grid.
    This aggregation of transmission systems or control areas is the 
cornerstone of the FERC's endeavor. To be thoroughly effective, 
however, it must also draw lifeblood from Congress as Congress 
deliberates its Energy Bill. It is antithetical to our interests to 
delay FERC's attempt to implement its design for a rational 
transmission market.
    If Congress must do any one thing immediately, it must address the 
issue of system reliability. While the states have the authority from 
their legislatures to set and enforce rules for distribution systems, 
the federal government must confer power upon someone to do the same 
for the transmission system. Whether it be the North American Electric 
Reliability Council (NERC) as currently proposed in the Energy Bill, or 
whether it be the FERC, the rules of the road must be mandatory. Once 
in place, the enforcement of the rules can follow the course taken by 
other federal agencies.
    A unique and efficient means of enforcement of some federal rules 
has evolved over the years. Ohio, as well as other states, undertakes a 
number of such tasks on behalf of federal agencies. For example, the US 
Department of Transportation has very specific rules that speak to 
natural gas pipeline safety. Ohio's Public Utilities Commission 
receives funds from USDOT to inspect and enforce those rules within the 
state's borders. Ohio also participates in the inspection protocols for 
the transportation of hazardous materials. The same process has evolved 
with the Federal Railroad Administration which has prescribed rules for 
rail crossings. The Ohio Commission has personnel evaluating and 
prioritizing grade crossings for the purpose of supporting communities 
with safety devices. Given the fact that Ohio and other states already 
support federal agencies in rule enforcement, does it not make sense to 
consider the same for the transmission of electricity?
    The events of the past couple of weeks speak clearly to the need 
for Congress to do two things. First, Congress must focus on endowing 
some agency or organization, e.g., the FERC or NERC, with rule-making 
authority that locks-in our quest for a reliable grid.
    Second, it must enable the FERC to move forward in its initiatives 
to bring about a physically and economically rational structure and 
governance to the transmission system.
    I appreciate the opportunity to have appeared here before you today 
and look forward to clarifying anything that I have said.

    Chairman Tauzin. Thank you, Dr. Schriber.
    I will turn to the Honorable Peter Lark, the chairman of 
the Michigan Public Service Commission in Lancing, Michigan. 
Peter.

                   STATEMENT OF J. PETER LARK

    Mr. Lark. Thank you.
    Good afternoon, Mr. Chairman and members of the committee 
and, in particular, members of the Michigan delegation, 
Congressmen Stupak, Upton, Dingell, and my own Congressman 
Rogers. I appreciate the opportunity and the honor to address 
this committee today to discuss the blackout that ripped 
through our country and Canada on August 14.
    The question on everybody's mind is what caused the 
blackout? Well, in Michigan, we have opened an investigation 
into the cause of the blackout, as have, as you know, many 
others. While I can't pinpoint the exact cause, I will leave 
that to the various inquiries presently under way. I think I 
may be able to help with the answer to the next question, and 
that is, what can be done to reduce the likelihood of another 
similar event recurring?
    In a word, the answer is: create a system with 
accountability. I think it would surprise a great number of 
Americans to know that there is presently no governmental 
oversight of the reliability of this country's electric 
transmission system. This shortcoming, in my view, must be 
eliminated. The buck must stop somewhere. Our citizens need to 
know who to turn to and the government needs to know who to 
hold accountable for ensuring a reliable system.
    In Michigan, Detroit Edison and the transmission system 
that serves it, ITC, have reported they received no 
communications prior to the blackout from the northern Ohio 
utility that has been reported as the likely system on which 
trouble began. As the Governor before me said, ITC has traced 
the time line on actions that contributed to the blackout back 
1 hour and 5 minutes before it occurred. While ITC was able to 
provide this information after the blackout occurred, it is 
vital to understand that neither entity had any idea what was 
happening at the time. What we have here is a failure to 
communicate.
    You have to ask yourself, did a single utility make 
imprudent decisions that jeopardized the integrity of many 
utility systems? Again, the buck must stop somewhere. Congress 
must pass mandatory and enforceable reliability rules 
applicable to all users, owners, and operators of the 
transmission network. Reliability rules must be mandatory 
throughout the industry within the footprint of the North 
American Electric Reliability Council.
    While the authority to establish reliability rules should 
repose in the Federal Energy Regulatory Commission, NERC may 
well be the best candidate for developing the rules. Where 
regional transmission organizations or RTOs are deemed 
essential, such as in the upper Midwest, these RTOs must have 
the authority to order its members where necessary to shed load 
or add generation. Whether or not RTOs are mandated throughout 
the country is less important than having in place a set of 
reliability standards that will govern the entire grid.
    There are sections of the grid where membership in an RTO 
makes a good deal of sense, such as the upper Midwest, and 
areas of the country where it may make less sense. The 
enactment of mandatory reliability standards that are 
enforceable by an entity with the power to sanction violators 
must not be postponed by regional squabbling. One thing is 
clear, the situation we presently find ourselves in where 
reliability rules are voluntary and there is no oversight or 
regulation of the grid is a prescription for disaster.
    Michigan's transmission companies are presently members of 
the Midwest Independent System Operator, or MISO. Unlike some 
other RTOs, MISO does not enjoy security coordination control 
over its 23 utility members. At most, as I understand its 
operation, MISO can make only suggestions to its members. This 
arrangement lacks the teeth necessary to reliably run a 
transmission system. Moreover, at present MISO is not the sole 
RTO in the upper Midwest. If power is to move reliably across 
this area of the country, there can be but one RTO and FERC 
must have the authority to order membership in that RTO. 
Anything less invites gamesmanship on the system.
    In conclusion, it is my view that Congress must pass 
legislation that does three things: First, that directs the 
development of a set of reliability rules applicable to all who 
use the grid; second, that gives oversight authority on the 
rules to the FERC; and, third, that requires the creation of 
RTOs where necessary that are geographically correct, that have 
security coordination control and have the authority to 
sanction scofflaws. If Congress gives FERC the authority to 
ensure a reliable transmission system, we can say with 
confidence, ``the buck stops here.''
    I appreciate the chance to share my thoughts with you, Mr. 
Chairman, and members of the committee. Thank you.
    [The prepared statement of J. Peter Lark follows:]
   Prepared Statement of Hon. J. Peter Lark, Chair, Michigan Public 
                           Service Commission
    Mr. Chairman and Members of the Committee: My name is J. Peter Lark 
and I serve as Chairman of the Michigan Public Service Commission. I am 
very pleased to have this opportunity to address this Committee today, 
although I wish it were under different circumstances.
    The topic of today's hearing, ``Blackout 2003: How Did It Happen 
and Why?'' allows exploration of some of the complex issues involved 
with keeping the nation's lights on. But it's much more than that. A 
safe, reliable electric utility industry is the heart that pumps 
America's blood. It was recently stated that the electricity business 
accounts for only two percent of the Nation's economy. But the other 
ninety-eight percent relies one hundred percent on the reliable and 
economic operation of that two percent. We are occasionally reminded, 
as we were on August 14th, just how significant the loss of electricity 
can be to our economy and to our daily lives.
    As you well know, Michigan was one of the State's that was hit hard 
by the blackout on August 14th. More than 2 million utility customers 
lost electricity on that day, the majority of them on the Detroit 
Edison utility system, which lost power to all of its customers for the 
first time in the company's long history. Detroit Edison estimates that 
about 6.1 million people lost power. The City of Detroit, and much of 
the southeast region of Michigan, was without electricity and other 
essential services such as water and sewer. The effect of the blackout 
on Michigan's residential, business, and major industrial electric 
users was devastating. For small and medium-sized business operations, 
the loss of revenue for even a single day can have dire implications. 
And the effect on the general citizenry cannot be downplayed. Although 
we are still in the process of assessing the damage, we have an initial 
estimate of the direct cost of the emergency to state and local 
government of approximately $20 million. In addition, we know that 
Detroit Edison claims $35 to $40 million in losses. Over 70 
manufacturing companies in Michigan were forced to shut down. 
Facilities such as hospitals and nursing homes were left scrambling to 
provide care to those in need. In short, we cannot afford to have this 
kind of failure on our electric system happen again. For every story we 
heard of how some people found creative ways to make the best of a bad 
situation, there were countless others for whom the loss of electricity 
meant the loss of essential services.
    It is incumbent that we take the steps necessary to ensure that 
future blackouts do not occur.
 what were the specific factors and events leading up and contributing 
                     to the blackouts of august 14?
    The Michigan PSC has initiated an investigation into this matter 
(Case No. U-13859), as has the U.S. Department of Energy in conjunction 
with our Canadian counterparts, so I would like to reserve a final 
determination on the cause of the blackout pending the outcome of the 
investigations. While we believe we know the sequence of events that 
resulted in the power outage--power plants and transmission lines 
tripping off--we do not know why those events occurred, and I believe 
we need to await the outcome of the pending investigations before 
jumping to conclusions.
    What we do know is that, based on information provided by our 
utilities, our transmission companies, and through other accounts, 
there is a strong likelihood that the outage can be traced to at least 
a couple of factors. None of these probable causes necessarily 
represents the smoking gun; but rather, one needs to look at the entire 
set of events, and the existing systems that allowed them to get to a 
point of criticality, before reaching a conclusion on the causes of the 
blackout.
    One apparent contributing factor appears to be a communication 
failure. Michigan's utilities and owners of the state's transmission 
system have stated that they had no warnings that there were problems 
on the system. To the extent other utilities were experiencing 
difficulties, those utilities failed to offer even a ``heads up'' to 
their neighboring utility systems. With even a little warning, 
safeguards could have been put in place that may have minimized, or 
even prevented, the outage.
    The International Transmission Company has traced the timeline on 
actions that contributed to the blackout back to 1 hour and 5 minutes 
before it occurred. While ITC was able to develop and provide this 
information to us after the outage, it is important to understand that 
ITC was unaware of what was happening during that period. Both ITC and 
Detroit Edison tell us they had no idea there were problems on the grid 
until 2 minutes before power went out in Michigan when power flowing 
from Michigan to Ohio jumped by 2,000 MW in 10 seconds. ITC describes 
this as the point of no return. One-and-one-half minute later, power 
flowing into Michigan from Ontario jumped by 2,600 MW. Thirty-seconds 
later, Detroit Edison's system was dead.
    Also cited in various accounts is power line failure, which may be 
attributed to, among other things, inadequate maintenance. Certain 
power line failures on August 14th, however, appear to have been due to 
overloading. How and why line maintenance was allowed to lapse to a 
breaking point, or why power was redirected to lines incapable of 
handling the added capacity are questions that I cannot answer at this 
moment, although I suspect the extensive investigations currently 
underway will give us a precise set of factors and events that caused 
the blackout.
    Last week Michehl Gent, who serves as the President of the North 
American Electric Reliability Council, was quoted in an article that 
ran in an August 26, 2003 issue of the Toronto Sun, that he believes 
rules ``were willfully broken'' on August 14th and that ``happens more 
or less routinely.'' That rules are broken routinely with no ability of 
any agency to enforce the rules on the transmission grid is a recipe 
for disaster. Plainly, a lack of enforceable standards for the reliable 
operation of the transmission system was a significant contributor to 
the blackout.
    Moreover, Michigan's transmission utilities chose to join a FERC-
approved Regional Transmission Organization known as the Midwest 
Independent System Operator. MISO's obligation is to help control 
movement of power across the grid, and ensure that the situation that 
occurred on August 14 does not happen. However, the federal government 
does not mandate participation in an RTO, and MISO possesses no command 
and control requirements to ensure reliability. Even more important, 
because membership in an RTO is not mandated, some of Michigan's most 
critical partners--utilities in Ohio and Illinois--are missing from the 
MISO's membership.
      which systems operated as designed and which systems failed?
    It is my expectation that the answer to this question will be 
clearly explained in the reports that will come out of the 
investigations presently underway. While I am reluctant to speculate as 
to those systems that worked and those that did not, it is clear that 
the cascading outage stopped its westward travel after coursing through 
Michigan. Thankfully, millions of Michigan's utility customers were 
protected from the blackout, as well as those customers in states to 
the west of us.
        what lessons were learned as a result of the blackouts?
    While I believe there are a number of valuable lessons that will 
become apparent the further we get into our investigation, a couple of 
thoughts clearly stand out. First, an electric utility industry where 
reliability rules are voluntary with no enforceable oversight is not 
acceptable. The necessity of maintaining a safe, reliable and efficient 
electric transmission system should be critically apparent to all as a 
result of this blackout. Second, a balkanized regional wholesale market 
for electricity, where some utilities are in and some are out; where 
more than one RTO is operating in a single discrete area; and where 
rules are unclear and unenforceable, does not work. There must be 
certainty in the operation of the transmission grid, and that cannot be 
achieved where reliability rules are optional, and RTO membership is 
voluntary. Far too much is at stake to have a transmission system that 
allows a single utility to jeopardize the safe, reliable and economic 
electric utility operations of entire regions of the country.
         how can similar incidents in the future be prevented?
    First, Congress must pass legislation that will create a system of 
mandatory and enforceable reliability rules applicable to all users, 
owners and operators of the transmission network.
    Reliability rules should be mandatory throughout the industry 
within the footprint of the North American Electric Reliability 
Council, which includes Canada. Reliability rules must be enforceable 
and must include the ability to impose sanctions on market participants 
that violate the rules.
    The security and reliability of the interstate electric 
transmission system is unmistakably under the purview of the federal 
government. Yet, the Chairman of the FERC has stated that ``right now, 
there is no federal regulatory authority over reliability.'' This 
deficiency must be eradicated by passing legislation that requires 
enforceable standards for the safe and reliable operation of the 
nation's power grid.
    The NERC is the best candidate for developing reliability rules. 
The NERC currently has such responsibility and is best positioned to do 
the job effectively. However, oversight of the development of the 
reliability rules should be given to the FERC.
    Reliability coordination and enforcement functions should be 
outside of the NERC, due to the potential conflicts between the 
financial interests of the utilities who constitute NERC's membership 
and reliability decisions. Coordination of the grid should be 
administered through an independent and strong RTO, while enforcement 
authority and the ability to impose sanctions should be vested in the 
FERC.
    Second, Congress must support the FERCs initiative to require 
transmission owners to join RTOs, at least in those regions where RTOs 
are recognized and either fully operational, or moving toward full 
operation.
    While I recognize that some parts of the country are opposed to 
mandating RTOs, in the Midwest and throughout the Northeast, strong 
RTOs are necessary. The transmission grid in these regions is highly 
interconnected and regionally responsive. Coordination of the grid is 
at the heart of preventing problems and RTOs must have this reliability 
coordination function. In these regions RTOs are well along in the 
developmental process. Backing off now would be a major setback to both 
economic efficiency gains and regional reliability improvements.
    In conclusion, whether we learn that the causes were systemic or 
human error, mechanical or electronic, an obvious starting point to 
address the problem is the passage of legislation that requires 
enactment of mandatory and enforceable standards and rules for the safe 
and reliable operation of the Nation's transmission grid. I urge 
Congress to act quickly to address these problems and meet the need 
that was so clearly demonstrated on August 14, 2003.
    Thank you for the opportunity to share these comments with you.

    Chairman Tauzin. The Chair thanks you, Mr. Chairman.
    We are now pleased to welcome the chairman of the New York 
State Public Service Commission, the Honorable William Flynn. 
Mr. Chairman.

                  STATEMENT OF WILLIAM M. FLYNN

    Mr. Flynn. Good afternoon, Chairman Tauzin, Ranking Member 
Dingell and other distinguished members of the committee. I 
would like to thank you for the opportunity to testify before 
this committee on the matter of the August 14 blackout.
    What we know for certain is that on 4 p.m. on August 14, 
immediately preceding the outage, New York State generation 
facilities and transmission and distribution systems operated 
normally to serve customers with reserves well in excess of 
minimum requirements. The State was serving a load of about 
28,000 megawatts, with available generating capacity of as much 
as 33,000 megawatts, more than enough to ensure reliable 
electric service in the State. There is no information of any 
unusual transmission system occurrences or events in New York 
preceding the outage. It appears that more than adequate 
generation capacity was available to serve the State's needs 
and that no difficulties on the in-State transmission 
distribution system impeded its delivery.
    There are a total of approximately 7.5 million customers in 
the State, representing the State's population of 19.2 million 
residents as well as thousands of commercial, industrial, and 
municipal facilities. About 6.7 million of those customers, or 
nearly 90 percent, were without power for some period of time, 
including virtually all of the customers in New York City who, 
unfortunately, went without power for the longest period of 
time.
    While we are concerned about outages in any part of the 
State, you can imagine how that concern is heightened when 
outages strike New York City. New York City not only serves as 
the financial capital of the world but is heavily reliant on 
electricity to power a subway system that carries more than 7 
million passengers each day, as well as for air-conditioning 
and lighting to the high-rise commercial and residential 
buildings that characterize the cityscape. For these reasons 
and others, New York State strives to maintain the highest 
reliability standards in the Nation.
    In terms of responding to the blackout, the State commenced 
emergency public communications programs by contacting radio 
stations to urge customers to curtail usage if they still had 
power or turn off electrical equipment and appliances while 
their electric service was being restored. In addition, 
Governor Pataki declared a State of emergency within an hour of 
the event and called for emergency demand reduction measures to 
be implemented across the State to conserve power and aid 
restoration efforts. In the end, the call for emergency demand 
reduction played a critical role in restoring power throughout 
the State in a timely and effective manner.
    The electric utilities and generators responded to the 
event by stabilizing the energized portions of the transmission 
systems, ascertaining any damage and following plans for 
service restoration. By necessity, system restoration was a 
deliberate and carefully measured process. Customer service 
could not be restored until generation was available and, 
because of the extent and nature of the outage, careful 
balancing of the loads and supply was required.
    Under the circumstances, the quick response of the 
utilities and generators and the restoration of electric 
service in New York State represent a significant 
accomplishment. Power was restored to about 95 percent of the 
upstate area by 4 a.m. on Friday. Con Edison, the utility 
responsible for delivering power to customers in New York City 
and Westchester County, managed to restore service to its 
essentially entire service area by 9 p.m. on Friday. Most 
noteably from a national perspective, Con Edison restored power 
to Wall Street roughly 3 hours before trading opened on Friday 
morning. In less than 30 hours, service was effectively 
restored to the entire State. This achievement is a testimony 
to the commitment and hard work of the men and women engaged in 
the power restoration, given the virtually unprecedented nature 
of this event, the complexity of the systems involved, and the 
magnitude of the effort required.
    In addition to the international effort, at the request of 
Governor Pataki I have directed my staff to lead a formal 
inquiry into the effects of this outage on New York State, 
including the circumstances of the outage, the effect of the 
events occurring outside of New York on electric service 
operations within the State, recommendations for actions or 
procedures to prevent, to the maximum extent possible, a 
similar outage from reoccurring, and any other relevant issues 
that arise during this formal inquiry. I hope to have 
information pertaining to New York State's inquiry available 
before the end of the year, but suffice it to say this is the 
agency's top priority.
    Yet, while New York reliability criteria are mandatory for 
New York electric corporations and the New York system operator 
is authorized to control the system pursuant to all rules 
established by the North America Reliability Council, the New 
York State Reliability Council and the Northeast Power 
Coordinating Council, this is not necessarily true for other 
parts of the country. While, based on what we know, the outage 
does not appear to have been caused by any flaw in New York 
State's transmission or generation system, the independence of 
regional power grids does leave us susceptible to disruptions 
and problems emanating from events outside of our jurisdiction. 
To minimize this susceptibility, the public service commission 
has supported mandatory national reliability standards, 
provided that New York State can retain the right to implement 
higher standards than might be required by the Federal 
Government. These national standards should serve as a floor 
and not a ceiling.
    To that end, I am aware of language Congressman Fossella 
has included in a bill before Congress concerning national 
electric reliability standards, H.R. 6, that suggests New York 
should retain the right to set higher standards than might be 
imposed at the national level, provided that such standards do 
not have any negative consequences for reliability outside of 
New York State. I would urge the conferees to support that 
language.
    As I mentioned earlier, New York's response to this crisis 
was exemplary, but we must seek ways to minimize the risk of 
repeated occurrences. The economic and social costs are simply 
too high. We would certainly support broader language to extend 
the ability to implement higher reliability standards to other 
States as well.
    Much has been written since the outage about the lack of 
appropriate regulatory financial incentives for upgrading the 
transmission infrastructure. It is FERC that creates these 
incentives for transmission investments by establishing 
appropriate rate recovery levels for utilities. The Federal 
regulatory framework for transservice must allow for cost 
recovery certainty and fully recognize and capture the multiple 
benefits to the market and reliability that are created by 
transmission system improvements. We look forward to continuing 
an open dialog with FERC and other stakeholders on the issues 
surrounding transmission infrastructure.
    In summary, the outage is of immense importance to all New 
Yorkers and the public service commission has taken the lead to 
inquire into the effects of the outage in New York. Right now 
we have many more questions than answers. Please be assured 
that we will commit every effort and resource necessary to 
conduct an exhaustive and comprehensive inquiry and to provide 
recommendations that hopefully avoid any repeat of the blackout 
and its effect on New York State. Once the report is complete, 
we would welcome the opportunity to come back in front of this 
committee and report its findings.
    Thank you, Mr. Chairman, for this opportunity; and I, like 
others, would be more than happy to answer any questions.
    [The prepared statement of William M. Flynn follows:]
Prepared Statement of William M. Flynn, Chairman, New York State Public 
                           Service Commission
    Good afternoon Chairman Tauzin and distinguished members of the 
Committee on Energy and Commerce. I would like to thank you for the 
opportunity to testify before this Committee on the matter of the 
August 14th blackout, which appears to have affected more than 50 
million people in the United States and Canada, including nearly 90 
percent of New York State's customers. I commend this Committee's 
efforts to better understand the causes behind the blackout and 
possible solutions to prevent an event like this from happening again.
    What we know for certain is that as of 4:00 p.m. on August 14, 
immediately preceding the outage, New York State generation facilities 
and transmission and distribution systems operated normally to serve 
customers, with reserves well in excess of minimum requirements. The 
State was serving a load of about 28,000 megawatts, with available 
generating capacity of as much as 33,000 megawatts, more than enough to 
ensure reliable electric service in the state. There is no information 
of any unusual transmission system occurrences or events in New York 
preceding the outage. It appears that more than adequate generation 
capacity was available to serve the State's needs and that no 
difficulties on the in-state transmission and distribution systems 
impeded its delivery.
    The early reports we have received indicate that a rapid series of 
events occurring outside of New York State in the period before the 
outage likely set the stage for occurrences resulting in power losses 
within New York State and elsewhere. The outage appears to have started 
on a transmission system outside of New York State and spread across 
the affected states in a matter of minutes. The reasons for the 
failures on these systems have not been identified with any certainty 
at this time, but according to preliminary New York Independent System 
Operator (NYISO) reports, approximately 3,000 megawatts of power surged 
into New York State over lines that connect us to the interstate grid, 
causing transmission lines and generators to trip and resulting in 
power outages. Significant power surges and frequency fluctuations 
occurred in New York State during 30 critical seconds, culminating in 
the blackout. To put this power surge into perspective, it is estimated 
that 3,000 megawatts is roughly enough power to supply 3 million 
typical households in New York State. I am not aware of any 
transmission system in the world that is designed to handle a surge of 
that magnitude.
    There are a total of approximately 7.5 million customers in the 
state, representing the state's population of 19.2 million residents as 
well as thousands of commercial, industrial, and municipal facilities. 
About 6.7 million of those customers, or nearly 90 percent, were 
without power for some period of time, including virtually all of the 
customers in New York City who unfortunately went without power for the 
longest period of time. While we are concerned about outages in any 
part of our state, you can imagine how that concern is heightened when 
outages strike New York City. New York City not only serves as the 
financial capital of the world, but it is heavily reliant on 
electricity to power a subway system that carries more than 7 million 
passengers each day, as well as for air conditioning and lighting to 
the high-rise commercial and residential buildings that characterize 
the cityscape. For these reasons and others, New York State strives to 
maintain the highest reliability standards in the nation.
    In terms of responding to the blackout, the state commenced 
emergency public communications programs by contacting radio stations 
to urge customers to curtail usage if they still had power, or turn off 
electrical equipment and appliances while their electric service was 
being restored. In addition, Governor Pataki declared a state of 
emergency within an hour of the event and called for emergency demand 
reduction measures to be implemented across the state to conserve power 
and aid restoration efforts. In the end, the call for emergency demand 
reduction played a critical role in restoring power throughout the 
state in a timely and effective manner.
    The electric utilities and generators responded to the event by 
stabilizing the energized portions of the transmission systems, 
ascertaining any damage, and following plans for service restoration. 
By necessity, system restoration was a deliberate and carefully 
measured process. Customer service could not be restored until 
generation was available; and, because of the extensive nature of the 
outage, careful balancing of the loads and supply was required.
    Under the circumstances, the quick response of the utilities and 
generators, and the restoration of electric service in New York State 
represent a significant accomplishment. Power was restored to about 95 
percent of the upstate area by 4:00 a.m. on Friday. Con Edison, the 
utility responsible for delivering power to customers in New York City 
and Westchester County, managed to restore service to essentially its 
entire service area by 9:00 p.m. on Friday. Most notably from a 
national perspective, Con Edison restored power to Wall Street roughly 
three hours before trading opened on Friday morning. In less than 30 
hours, service was effectively restored to the entire state. This 
achievement is a testimony to the commitment and hard work of the men 
and women engaged in the power restoration given the virtually 
unprecedented nature of this event, the complexity of the systems 
involved, and the magnitude of the effort required.
    Given the impact that this outage had on the lives of all New 
Yorkers, particularly the residents and commuters in New York City, I 
would like to take this opportunity to commend New Yorkers for their 
response to this crisis. Once again, crisis has brought out the best in 
New Yorkers and I am proud of the way in which we responded, as well as 
the public's cooperation in helping to restore service. Our focus now, 
however, must be on understanding the events that took place on August 
14th as well as on how to avoid a reoccurrence of this type of event in 
the future.
    I have every confidence that the U.S./Canadian Task Force led by 
U.S. Energy Secretary Abraham and Canadian Minister of Natural 
Resources Dhaliwal will identify the events occurring outside of New 
York State that led to the outage. I pledge the full cooperation of my 
staff to support that effort in any way possible and am pleased to see 
that my staff will be represented on the task force. In addition to 
this international effort, at the request of Governor Pataki I have 
directed my staff to lead a formal inquiry into the effects of this 
outage on New York State, including the circumstances of the outage; 
the effect of the events occurring outside of New York State on 
electric service operations within the State; recommendations for 
actions or procedures to prevent, to the maximum extent possible, a 
similar outage from reoccurring; and any other relevant issues that 
arise during this formal inquiry. I hope to have information pertaining 
to New York State's inquiry available before the end of the year. 
Suffice it to say, this inquiry is the agency's top priority.
    While I have attempted to lay out the facts leading up to the 
outage as we know them today, I must make it clear that we do not fully 
know the exact sequence of all the critical events, and their cause and 
effect relationships at this time. I cannot emphasize enough that it is 
very important for the success of our inquiry on the New York State 
system, the federal and international inquiries on the outage, and for 
development of any recommendations for changes, that speculation and 
conjecture is avoided. There have been countless reports in the media 
drawing conclusions as to the reasons behind the blackout based on 
limited, and at times erroneous, information. This speculation has 
placed blame for the blackout on factors ranging from lightening 
strikes to deregulation of the electric industry. Only after a 
complete, rigorous, and professional study and analysis is performed, 
will we be able to provide specific answers to the many questions about 
the outage and recommendations for future action.
    Based on historical precedence, it is very likely that this 
blackout will lead to regulatory, legislative, or policy changes, at 
either the federal or state level, in an effort to try to prevent an 
event of this magnitude from happening again. The blackouts of 1965 and 
1977 both resulted in significant changes at the national level as well 
as within New York State. The 1965 blackout provided the impetus for 
interconnecting individual state systems into more of a national grid 
structure, as well as the formation of the North American Electric 
Reliability Council (NERC) to establish reliability standards, albeit 
voluntary standards. The 1977 blackout provided the impetus for 
increased reliability standards in New York State that are now the most 
stringent in the country, and in fact are mandatory. As a result, we 
have since maintained what I believe is the most reliable system in the 
country. Yet, while New York reliability criteria are mandatory for New 
York electric corporations, and the New York Independent System 
Operator is authorized to control the system pursuant to all applicable 
rules established by the North American Electric Reliability Council, 
the New York State Reliability Council, and the Northeast Power 
Coordinating Council, this is not necessarily true for other parts of 
the country.
    While, based on what we know, the outage does not appear to have 
been caused by any flaw in New York State's transmission or generation 
system, the interdependence of regional power grids does leave us 
susceptible to disruptions and problems emanating from events outside 
of our jurisdiction. To minimize this susceptibility, the Public 
Service Commission has supported mandatory national reliability 
standards, provided that New York State can retain the right to 
implement higher standards than might be required by the federal 
government. These national standards should serve as a floor, and not a 
ceiling.
    To that end, I am aware of language Congressman Fosella has 
included in a bill before Congress concerning national electric 
reliability standards, HR 6, that suggests New York should retain the 
right to set higher standards than might be imposed at the national 
level, provided that such standards do not have any negative 
consequences for reliability outside of New York State. I would urge 
this Committee and Congress to support that language. As I mentioned 
earlier, New Yorkers' response to this crisis was exemplary, but we 
must seek ways to minimize the risk of repeated occurrences. The 
economic and social costs are simply too high. We would certainly 
support broader language to extend the ability to implement higher 
reliability standards to other states as well.
    The systems on the interconnected grid support and supplement each 
other through periods of stress. In some instances this interconnection 
has allowed New York State to support other states' systems in 
difficult times, while other states' systems have likewise provided 
assistance to New York State. On August 14th however, it appears that 
the regional interconnection may have enabled a problem in one state to 
cascade across borders into neighboring states as well as Canada. While 
I remain convinced that interconnections among states and regions 
represent a strength of the system rather than a weakness, mandatory 
reliability standards at the national level should help to reduce the 
likelihood of regional blackouts by requiring the bulk power systems to 
meet a minimum threshold for reliability. Admittedly, I cannot say with 
certainty that such mandatory standards would have prevented the 
blackout of August 14th, but with our economy more dependent than ever 
on reliable, uninterrupted access to electric power, we can no longer 
afford to simply leave consumers vulnerable to the voluntary compliance 
of national standards. The current reliability environment may or may 
not have contributed to the August 14th blackout, but given the 
interconnectedness of the nation's power grids and a future of growing 
demand for electricity, the current standards must be recognized as 
mandatory and minimum to prevent, to the greatest extent possible, 
systems in one region negatively affecting systems in other regions.
    Much has been written, since the outage, about a lack of 
appropriate regulatory financial incentives for upgrading the 
transmission infrastructure. It is FERC that creates those incentives 
for transmission investments by establishing appropriate rate recovery 
levels for utilities. The federal regulatory framework for transmission 
service must allow for cost-recovery certainty, and fully recognize and 
capture the multiple benefits to the market and reliability that are 
created by transmission system improvements. We look forward to 
continuing an open dialogue with FERC and other stakeholders on the 
issues surrounding transmission infrastructure.
    In summary, the outage is of immense importance to all New Yorkers, 
and the Public Service Commission is taking the lead to inquire into 
the effects of the outage in New York. Our formal inquiry will include 
a report on the circumstances of the outage; effects that occurred 
outside the State on electric service operations in the State; 
recommendations for actions or procedures to prevent, to the maximum 
extent possible, a similar outage; and other relevant issues. Right 
now, we have many more questions than answers. Please be assured that 
we will commit every effort and resource necessary to conduct an 
exhaustive and comprehensive inquiry, and to provide recommendations 
that hopefully avoid any repeat of the blackout and its effects on New 
York State. Once the report is complete, we would welcome the 
opportunity to come back in front of this committee and report its 
findings.
    Thank you again Chairman Tauzin for this opportunity to discuss the 
circumstances surrounding the August 14th blackout. I would be happy to 
answer any questions you may have regarding this event.

    Chairman Tauzin. Thank you, Mr. Chairman.
    We are now pleased to welcome the President of the North 
American Electric Reliability Council from Princeton, New 
Jersey, President Michehl Gent. Michehl, we have seen you on 
television discussing this a lot, and you can maybe give us the 
latest news.

                  STATEMENT OF MICHEHL R. GENT

    Mr. Gent. Mr. Chairman, I am retiring my celebrity status 
and I hope not to appear again on TV, but I thank you and Mr. 
Dingell and other members of the committee for having me here 
today.
    Let me start with the obvious. This outage simply should 
not have happened. NERC's standards for reliable operation and 
planning of electric systems have at their core prevention of 
widespread, uncontrolled, cascading outages such as the one 
that occurred on August 14. NERC is working with the United 
States Department of Energy in support of a joint U.S.-Canada 
task force to determine precisely the sequence of events during 
the blackout, the causes of the outage, why it spread as far as 
it did, and what needs to be done to prevent any reoccurrence. 
In the end, we will know if our NERC reliability standards were 
not adequate to prevent the cascading outages or if the 
responsible parties did not comply with our standards or 
possibly some combination of the two.
    Regarding our ongoing investigation, the industry answered 
our call for experts to help us very quickly. We had between 15 
and 30 people in our Princeton offices examining the data. We 
have had them there every day since the blackout, all working 
to determine what happened.
    In addition to our staff, we have systems operations people 
from each of the affected regional councils, the ISOs and RTOs 
and most of the affected companies. We also have dedicated help 
from several utilities that were not even in the affected area. 
The Department of Energy has up to five people onsite at all 
times. The FERC has a dedicated person and occasionally more 
than that, and we expect to have somebody from Canada onsite 
very soon. We must keep in mind that Canadian utilities and 
customers are also part of the blackout. We also have a 
steering group for the investigation that is comprised of the 
best experts the industry has to offer, and I have some of 
their bios in my prepared testimony.
    Every party that has been asked for data has responded 
quickly and thoroughly. Our initial call for data brought us 
tens of thousands of records. Fortunately, most of this was 
electronic, but not all of it. The handwritten logs are now 
beginning to arrive. We have built huge electronic data bases 
to house much of this data to go along with dozens of maps and 
diagrams that are plastered all over our walls. We will need to 
be able to use all of these to be able to understand the 
sequence of events.
    National security is a concern that I did not address in my 
written testimony. Even though we are certain this was not an 
act of terrorism, we do not want to be creating a blueprint for 
would-be terrorists and have therefore implemented standards 
for security processes and procedures in our offices and 
elsewhere.
    Our partnership with the Department of Energy has been 
outstanding. We jointly hosted a meeting in Newark on August 22 
to get the views of the affected parties, and we have continued 
to use that channel to develop a time line of events. The 
Department has the hammer and we have the expertise.
    We intend on holding other meetings as we proceed to the 
``why'' phase of the investigation. Obviously, we are too early 
in the investigation to draw any conclusions. To that end, we 
have agreed with the Department that all public information 
regarding the investigation will be released through the 
Department of Energy, thus freeing NERC to concentrate on the 
investigation. NERC's efforts will be a key component of the 
work of the joint U.S.-Canada task force that has been 
mentioned so many times here today.
    One important step Congress can take now is to enact the 
reliability legislation that has been proposed one way or 
another for the last 5 years by me and others and to make those 
reliability rules mandatory and enforceable. The comprehensive 
energy bills that have passed both the House and Senate have 
versions of that reliability language.
    I will close by repeating, NERC is fully committed to 
finding out what happened and to see that steps are taken to 
prevent a reoccurrence. I thank you again for this opportunity, 
and I look forward to your questions.
    [The prepared statement of Michehl R. Gent follows:]
 Prepared Statement of Michehl R. Gent, President and Chief Executive 
          Officer, North American Electric Reliability Council
    Good afternoon Mr. Chairman and members of the Committee. My name 
is Michehl Gent and I am President and Chief Executive Officer of the 
North American Electric Reliability Council (NERC).
    NERC is a not-for-profit organization formed after the Northeast 
blackout in 1965 to promote the reliability of the bulk electric 
systems that serve North America. NERC works with all segments of the 
electric industry as well as electricity consumers and regulators to 
set and encourage compliance with rules for the planning and operation 
of reliable electric systems. NERC comprises ten Regional Reliability 
Councils that account for virtually all the electricity supplied in the 
United States, Canada, and a portion of Baja California Norte, Mexico.
    NERC is uniquely qualified to set standards for the reliable 
operation of North America's high voltage, interconnected grid system, 
and we hope soon to be able to enforce those standards. We are also 
uniquely qualified to assist the U.S. Department of Energy (``DOE'') 
and the U.S.-Canada Joint Task Force on the Power Outage in 
investigating the August 14, 2003 blackout that encompassed parts of 
the upper Midwest and Northeast United States and eastern Canada.
    NERC is governed by a board of ten independent trustees and brings 
together the best electrical system technical expertise available in 
the world. We are an international organization, integrating 
reliability across North America's electricity grids. In short, our 
mission is bulk power system reliability--it's what we do.
    As a standing procedure, NERC reviews and reports on disturbances 
that occur on the bulk electric systems in North America. As the entity 
responsible for reliability standards for the bulk electric system, 
NERC must understand and communicate to its members what happened on 
August 14 and why it happened. NERC must also determine whether any of 
its standards were violated and whether its standards and procedures 
require modifications to take into account the ways in which the bulk 
electric system is being used. Finally, NERC must assure that measures 
necessary to avoid a recurrence of the August 14 outage are taken.
    Immediately after the onset of the blackout on August 14, 2003, 
NERC began assembling a team of the best technical experts in North 
America to investigate exactly what happened and why. Every human and 
data resource we have requested of the industry has been provided, and 
experts covering every aspect of the problem have been volunteered from 
across the United States and Canada. Shortly after the investigation 
began, representatives of DOE and the Federal Energy Regulatory 
Commission (``FERC'') joined the investigative effort. The 
investigative team has numbered between 15 and 30 individuals from day 
to day, and all members of the team, regardless of their affiliation, 
have worked side by side to help correlate and understand the massive 
amounts of data that are being received.
    To lead the NERC effort, we established a strong steering group of 
the industry's best, executive-level experts from systems not directly 
involved in the cascading grid failure. The steering group scope and 
members are described in Attachment A.
    NERC and DOE representatives, including people from the Consortium 
for Electric Reliability Technology Solutions (``CERTS''), have been 
jointly conducting the fact-finding investigation of the events leading 
up to the August 14th blackout. We expect to have representatives of 
provincial and federal agencies from Canada join the investigative team 
shortly. The investigation is ongoing, and no causal conclusions can 
yet be drawn. DOE is a part of the United States-Canada Joint Task 
Force on the Power Outage. NERC has provided its information to DOE in 
support of the Joint Task Force effort. DOE has requested, and NERC has 
agreed, that DOE, as a member of that Joint Task Force, coordinate 
release of that information.
    NERC and DOE collaborated on the data request that NERC issued on 
August 22, 2003, to those organizations who were directly involved in 
the August 14 outage, as well as surrounding systems. DOE and NERC are 
jointly developing a data warehouse to manage the thousands of data 
records being submitted in response to that request and all subsequent 
data requests. DOE and NERC also co-hosted a meeting of the major 
entities involved in the outage to help focus the investigation and 
begin to develop an understanding of the events that led to the outage; 
we expect to co-host additional fact-finding meetings in the future.
    Understanding exactly what happened and why is an enormously 
complex task requiring a methodical investigation by experts from many 
disciplines. Analyzing what happened and why it happened has both a 
technical side and a people side.
    The technical side begins with a reconstruction of what happened on 
the electrical system, within fractions of a second. The investigative 
team has already received many thousands of data records from control 
center event logs, disturbance recorders, and other system data that 
must be pieced together one at a time to understand how the power 
system broke apart and cascaded into a blackout. Unlike an airplane 
that has a single ``black box,'' the power grid has thousands of event 
and disturbance recorders that measure events at critical points on the 
system. Each event, which might be a relay or circuit breaker 
operation, or an electrical fault, is ``time stamped'' as it occurs. 
However, we discovered that many of these time stamps were not accurate 
because the computers that recorded the information became backlogged, 
or the clocks from which the time stamps were derived had not been 
calibrated to the national time standard. As our data analysis 
progressed, we have been able to confirm those events that were 
accurately time-stamped, and from those events, we are in the process 
of aligning the event data for each system event from multiple sources 
until we are confident we have the precise time for each event.
    I assure you this painstaking effort to synchronize event data down 
to fractions of a second is not an academic exercise. Most of the 
electrical operations in the system failure on August 14 occurred 
automatically over a very short period of minutes and seconds. Without 
such a deliberate, methodical reconstruction of events, it would be 
impossible to determine the exact sequence, and therefore the cause of 
the cascading failure and how it propagated to result in the ultimate 
blackout condition.
    To ensure that the investigation is complete, NERC and DOE have 
requested data from the affected organizations starting at 8:00 AM EDT 
on August 14. This data will enable the investigators to form a clear 
picture of how that day started and what events through the course of 
the day may have contributed to or set the stage for events later in 
the day. Because that data is still being accumulated and has not been 
evaluated, it is too soon to determine whether events earlier in the 
day may have contributed to the outage.
    To complete the technical investigation of ``what'' happened, we 
must also construct electrical models to simulate the exact conditions 
of August 14 and then subject those models to the events that occurred 
during the time preceding the outage to understand better its causes. 
These simulations will examine the electrical stability of the grid--
that is, how strongly the generators were synchronized to one another--
and whether there was a voltage collapse of the transmission system. We 
will also focus on why operating procedures that should have detected 
problems that developed on the grid and kept them from spreading did 
not prevent the cascading outage across such a wide area.
    Preparing these simulations is a complex task requiring the 
reconciliation of power system data snapshots from multiple data 
recorders on August 14. I am confident that the investigation, when 
completed, will allow us to describe exactly what happened to the power 
system and why it failed.
    The investigation also includes a ``people'' aspect. Working 
jointly with DOE as part of the U.S.-Canada Joint Task Force, we will 
be seeking to discover such things as: What were system operators and 
reliability coordinators doing leading up to the blackout? What 
indications of problems did they see or not see? What were their 
qualifications and training to recognize and respond to system 
emergencies? Did they follow established NERC and regional reliability 
standards and procedures? Were those standards and procedures 
effective? Were responsibilities clearly assigned and did operating 
personnel have the necessary authority to act in a timely manner to 
avoid the blackout? How effective were the control center computers and 
displays in providing information to the operators? What communications 
took place among system operators and reliability coordinators in 
different parts of the grid prior to and during the outage?
    After determining what happened on August 14th, the investigation 
will analyze the root causes of the cascading failure--looking once 
again at both technical and human factors. From the root cause 
analysis, we expect to develop a clear set of recommendations to ensure 
that our system operators, equipment, and reliability standards will 
successfully handle the kinds of events that led to the blackout.
    It is too soon to identify specific equipment, measures, and 
procedures that worked as intended on August 14, but large parts of the 
Eastern Interconnection did not suffer the blackout. (Attachment B to 
my testimony is a map showing the Eastern, Western, and ERCOT 
Interconnections.) Protective relays within the distressed area 
operated to remove transmission lines, transformers, and generating 
units from service before they suffered physical damage. The system is 
designed to do that. It was the action of those individual relays, 
operating to protect individual pieces of equipment, that eventually 
isolated the portion of the grid that collapsed from the remainder of 
the Eastern Interconnection. The fact that the transmission lines, 
transformers, and generating units did not suffer physical damage is 
what made it possible to restore the system and service to customers as 
quickly as happened.
    Another factor in the successful restoration was the restoration 
plans themselves. Restoring a system from a blackout requires a very 
careful choreography of re-energizing transmission lines from 
generators that were still on line inside the blacked-out area as well 
as from systems from outside the blacked-out area, restoring station 
power to the off-line generating units so that they can be restarted, 
synchronizing those generators to the Interconnection, and then 
constantly balancing generation and demand as additional generating 
units and additional customer demands are restored to service.
    We will learn many additional lessons from this event that will 
enable us to improve the overall reliability of the grid. We can also 
build on some of the positives from this event, such as the 
extraordinary efforts to quickly put the system back on line and 
restore electric service to consumers.
    I will close with one final point--the need to establish mandatory, 
enforceable reliability standards. NERC has developed a world-class set 
of planning and operating standards, and I expect we will find areas of 
those standards that need improvement based on the events of August 14. 
However, as long as compliance with these standards remains voluntary, 
we will fall short of providing the greatest possible assurance of 
reliability that could be achieved through mandatory verification of 
compliance and the ability to impose penalties and sanctions for non-
compliance.
    Apart from the particulars of the August 14th outage and without 
knowing whether or not violations of our reliability standards 
occurred, one important step Congress can and should take to strengthen 
the reliability of the bulk power system in general would be to pass 
legislation to make the reliability rules mandatory and enforceable. 
NERC and a broad coalition of industry, government, and customer groups 
have been supporting legislation that would authorize creation of an 
industry-led self-regulatory organization, subject to oversight by FERC 
within the United States, to set and enforce reliability rules for the 
bulk power system. The comprehensive energy bills that have passed both 
the House and the Senate have versions of that reliability legislation. 
NERC looks forward to working with the conference committee to achieve 
passage of that legislation this year.
    NERC is fully committed to finding out what happened on August 14, 
why it happened, and to see that steps are taken to prevent a 
reoccurrence. We are committed to supporting the U.S.-Canada Task Force 
in fully disclosing all the facts, the reasons for the cascading 
failure, and recommendations that will make the electricity grids in 
North America more reliable.
    Thank you.
    [Attachments are retained in subcommittee files.)

    Chairman Tauzin. Thank you, Mr. Gent.
    Now we hear from the two area councils. I understand they 
operate under the umbrella of NERC. We will hear first from the 
Executive Manager of the East Central Area Reliability Council, 
Mr. Brant Eldridge.

                 STATEMENT OF BRANT H. ELDRIDGE

    Mr. Eldridge. Thank you, Mr. Chairman and members of the 
committee. We appreciate the opportunity to assist your review 
here. For brevity, I will simply summarize my written 
testimony.
    ECAR is one of the 10 regional reliability councils of 
NERC. We were formed in 1967, and our membership is voluntary 
and open to any entity impacting the reliability of bulk power 
systems in the ECAR region. Our membership includes entities 
that own and operate electric systems in all or portions of the 
States of Michigan, Ohio, Indiana, Kentucky, Virginia, West 
Virginia, Pennsylvania, Maryland and Tennessee.
    It is important to note that ECAR itself is not a system 
planning or operating entity. Rather, ECAR is the forum through 
which the regional entities that are responsible for real-time 
assistance operations and planning coordinate reliability 
matters. The responsibility for planning and operating the ECAR 
region's bulk power systems rests with ECAR control area 
members.
    The August 14 blackout impacted electric systems in Ohio 
and Michigan, among several other States and provinces. In the 
ECAR region the most severely impacted systems were those of 
First Energy, Detroit Edison, and International Transmission 
Company. To a much lesser degree, Consumers Energy, Michigan 
Electric Transmission Company, and American Electric Power were 
also affected.
    Every effort is being made to properly coordinate the 
parallel investigations currently being conducted by the 
affected regional reliability councils and NERC. ECAR has an 
investigation under way, and ECAR members have provided 
information and other assistance to NERC's inquiry. As others 
have noted, the results of NERC's investigation, which we will 
be inputting to, will be an important input to the U.S.-
Canadian effort.
    As stated by others, the various investigations are not 
complete and will certainly take several more weeks at a 
minimum to finish. A massive amount of technical data is still 
being accumulated, which will be analyzed and evaluated to 
determine the cause or causes of the blackout.
    Over the years, NERC and its regional councils, including 
ECAR, have developed operating and planning standards and other 
reliability criteria that are aimed at keeping the 
interconnected bulk power systems reliable. A large, complex, 
interconnected power system cannot be made 100 percent fail-
safe. The goal of NERC and its regional councils, including 
ECAR, is to prevent the inevitable local problems from 
cascading out of control to other areas. Adherence to both NERC 
and ECAR reliability criteria is a fundamental obligation of 
ECAR membership.
    The August 14 blackout did not spread throughout the 
eastern interconnection. A basic reason is that the automated 
controls for systems that did not shut down detected abnormal 
operating conditions and disconnected their lines from the 
affected systems. Such automated system control operations 
prevent possible damage to major equipment, limit the extent of 
service disruption to customers, and enable the restoration 
process to proceed much more quickly than would otherwise be 
possible.
    Apart from any specific actions the blackout investigations 
may identify, there are several parallel issues that should be 
addressed. There have been relatively few new transmission 
lines built in the U.S. in the last 15 years, even as the 
demand for electricity has continued to grow and new generation 
has been installed to meet these demands. In addition, the 
existing transmission infrastructure is now being used in ways 
for which it was not designed. It was initially designed 
primarily to enable neighboring utilities to exchange power in 
the event of a loss of generation. But, today, many 
transmission lines are often heavily loaded as large amounts of 
power are transferred across multi-State regions. Therefore, a 
significant priority is to move forward with necessary 
modernization upgrades and expansion of the Nation's 
interconnected high-voltage transmission systems. Appropriate 
economic incentives are urgently needed.
    Federal and State governmental agencies should also enable 
utilities and merchant generators to site new generation 
facilities in locations that would relieve constraints and thus 
help reduce the need for major new transmission lines. However, 
where new transmission is required, we must have the political 
will to proceed.
    Also, resolution is needed to the ongoing national debate 
regarding FERC initiatives for the establishment of regional 
transmission organizations and standard market design. Finally, 
Congress is urged to adopt Federal reliability legislation that 
would make compliance with bulk power system reliability 
standards mandatory and enforceable.
    Mr. Chairman, ECAR is committed to doing its part to 
determine the cause or causes of the August 14 blackout and to 
help ensure that the bulk power system reliability is 
maintained in the future. I thank you for your leadership of 
this effort and will be pleased to respond to the committee's 
questions.
    [The prepared statement of Brant H. Eldridge follows:]
   Prepared Statement of Brant H. Eldridge, Executive Manager, East 
                    Central Area Reliability Council
    Chairman Tauzin, Ranking Member Dingell, and Members of the 
Committee, thank you for the opportunity to assist the Committee's 
review of the August 14 blackout events through participation in this 
important hearing.
    ECAR is one of the ten regional reliability councils of the North 
American Electric Reliability Council (``NERC''). ECAR serves as the 
forum for addressing matters related to the reliability of the bulk 
power systems in the east central region of the U.S.
    Parts of the ECAR Region were among the widespread areas affected 
by the blackout events. Among the major questions to be answered are: 
what caused the blackout and why did it spread so far?
                             ecar overview
    Formed in 1967 in the aftermath of the 1965 Northeast Blackout, 
ECAR is a non-profit, member funded, unincorporated association. 
Membership in ECAR is voluntary and is open to any entity having an 
effect on or interest in the reliability of the ECAR bulk power systems 
(generation and high voltage transmission).
    The membership of ECAR includes entities that own and operate 
electric utility systems in a geographic area covering all or portions 
of the states of Michigan, Ohio, Indiana, Kentucky, West Virginia, 
Virginia, Pennsylvania, Maryland, and Tennessee. Since ECAR's 
formation, all key entities in the ECAR Region that are involved in the 
planning and operation of bulk power systems in ECAR have been and are 
members.
ECAR Structure
    The core ECAR governing document is the ``East Central Area 
Reliability Coordination Agreement'' (``ECAR Agreement''). The stated 
purpose of the ECAR Agreement is ``to augment reliability of the 
parties' bulk power supply through coordination of the parties' 
planning and operation of their generation and transmission 
facilities.''
    Under the ECAR Agreement, the governing body of ECAR is the 
Executive Board. Each member of ECAR is represented on the Executive 
Board. Reporting to the Executive Board is the Coordination Review 
Committee (``CRC'') which, like the Executive Board, is composed of 
representatives of ECAR members. The CRC directs and oversees all 
technical activities of ECAR. To carry out its responsibilities, the 
CRC is supported by nine member-populated technical panels.
    ECAR also has a Market Interface Committee that serves as the ECAR 
forum for addressing issues related to the interface between the NERC 
and ECAR reliability criteria and the wholesale electric market. A 
small full-time staff located in Canton, Ohio provides support 
necessary to perform the ECAR's various functions.
    Currently, there are twenty one (21) ECAR ``Members'' and seventeen 
(17) ECAR ``Associate Members.'' Members have voting rights and provide 
most of the technical and financial support for ECAR activities. 
``Associate Members'' do not have voting rights and provide relatively 
little of the technical and financial support of ECAR, but are 
represented on the ECAR Executive Board and in other ECAR groups, and 
participate in deliberations regarding the reliability of the ECAR bulk 
power systems.
    ECAR members commit to (i) adhere to the reliability policies, 
principles, procedures, criteria, and practices adopted by the 
Executive Board pursuant to the ECAR Agreement; (ii) furnish all system 
data, studies, and other technical support necessary to coordinate 
planning and operation of ECAR's bulk power supply; and (iii) provide 
necessary financial support.
Reliability Criteria and ECAR Role
    The ECAR Members have developed a set of reliability criteria 
called the ``ECAR Documents.'' There are currently fifteen (15) ECAR 
Documents that have been approved and adopted by the ECAR Executive 
Board. The ECAR Documents are written to be in concert with the NERC 
Operating Policies and Planning Standards (collectively, the 
``reliability rules of the road''). The ECAR Documents also address 
certain ECAR-specific reliability criteria. Compliance with the ECAR 
Documents and the NERC Operating Policies and Planning Standards is 
considered a fundamental obligation of all ECAR members.
    It is important to note that ECAR is not a system planning or 
operating entity. Rather, ECAR is the forum through which those 
entities in the ECAR Region that are responsible for system planning 
and real-time system operations address and coordinate matters related 
to the reliability of the bulk power systems in ECAR. The 
responsibility for the planning and operation of the ECAR bulk power 
systems rests with ECAR Members. Each ECAR Member has the obligation to 
plan and operate its generation and/or transmission system in 
accordance with the NERC Operating Policies and Planning Standards and 
the ECAR Documents.
                         blackout investigation
    As the Committee is aware, the August 14th blackout impacted 
electric systems in Ohio and Michigan, among several other states and 
parts of Canada. Affected systems in Ohio and Michigan are part of the 
ECAR Region. The most severely impacted systems in the ECAR Region were 
those of FirstEnergy, Detroit Edison, and International Transmission 
Company. To a much lesser degree, Consumers Energy and Michigan 
Electric Transmission Company in Michigan and American Electric Power 
in Ohio were also affected.
    Following the blackout came the major task of restoring service to 
all affected customers. The ECAR Region systems that were impacted by 
the blackout immediately focused their resources on the restoration 
effort. Neighboring ECAR systems and others that were not blacked out 
were able to facilitate the restoration process by assisting in the 
reenergization of transmission facilities and supplying power. Many 
impacted customers had their service restored within several hours of 
the blackout, although for some customers it took one to two days.
ECAR Participation in Joint Investigation
    The United States and Canada are jointly conducting an 
investigation of the August 14th blackout events, with Energy Secretary 
Spencer Abraham leading the U.S. involvement in this effort. NERC and 
its regional reliability councils are fully supporting the U.S.Canada 
investigation through parallel investigations being conducted by NERC, 
ECAR, Northeast Power Coordinating Council (``NPCC''), Mid-Atlantic 
Area Council (``MAAC''), and others. ECAR members have provided 
information to NERC's inquiry.
    Every effort is being made to properly coordinate the regional 
reliability council and NERC investigations. The results of the ECAR, 
NPCC, and MAAC investigations will be inputs to the NERC investigation. 
In turn, the results of the NERC investigation will be an important 
input to the U.S.-Canada investigation.
    It is ECAR's understanding that the U.S. Department of Energy will 
coordinate release of information related to the investigation of the 
blackout events. The various investigations are not complete. While it 
is not known at this time how long it will take to conclude this 
detailed work, it will certainly require several more weeks, if not 
months, to finish the investigations. A massive amount of technical 
data still being accumulated will be analyzed and evaluated to 
determine the cause(s) of the blackout.
    The end result will be the release of a report from the joint U.S.-
Canada investigation effort. While it is premature to speculate on the 
final conclusions, once the root cause(s) of the blackout are 
identified and understood, ECAR (along with NERC and other regional 
reliability councils) will utilize the lessons learned from the 
investigations to: (i) implement all needed actions to lessen the 
probability of future widespread, cascading blackouts, (ii) reduce the 
impact of such an occurrence should it happen again, and (iii) enable 
more rapid system restoration.
ECAR Inquiry Elements
    Among other questions to be addressed, the investigations by ECAR 
and others are considering such issues as:

1) What were the conditions in the interconnected power systems in the 
        several hours prior to the blackout, and what was the precise 
        sequence of events that led up to the initiation of the 
        cascading blackout?
2) What caused these events to result in the initiation of the 
        cascading blackout?
3) Once the blackout began, why did it spread so far and so fast?
4) Did system protection devices and other equipment vital to the 
        reliable operation of the bulk power systems operate as 
        intended?
5) Are there any problems or deficiencies with the existing reliability 
        rules and procedures?
6) Were there violations of the existing reliability rules for the 
        real-time operation of the interconnected power systems?
7) Were communication and system operation oversight mechanisms and 
        protocols a factor in the blackout occurring?
8) What can be done, both short term and long term, to prevent such 
        blackouts in the future?
                      building on lessons learned
    These questions are central to developing a more comprehensive 
understanding of August 14th. Even as we are conducting this ongoing 
investigation, it is important for the Committee to be aware of the 
lessons learned and implemented in the almost forty years since the 
major 1965 Northeast Blackout.
    As a result of the 1965 blackout investigations, NERC, ECAR, and 
the other regional reliability councils were formed in the 1967-68 
timeframe. In the intervening years, NERC and its regional councils 
have developed operating and planning standards and other protocols 
aimed at keeping the interconnected bulk power systems of North America 
reliable.
    By ``reliable'', it is meant that the bulk power systems will be 
planned so as to meet the aggregate demand for electric energy 
(industrial, commercial and residential customer load), and that the 
interconnected power systems will be operated in real-time so as to 
prevent localized problems within the bulk power system from becoming 
widespread, uncontrolled, cascading blackouts.
Ongoing ECAR Reliability Actions
    With the rare exceptions of the 1977 Northeast blackout (which was 
not as widespread as the one in 1965) and the 1996 events in the 
Western Interconnection, the industry's collective efforts to maintain 
the reliability of the interconnected bulk power systems have been 
successful until the August 14th blackout.
    A large, complex interconnected power system cannot be made 100% 
fail-safe. The goal of NERC and its regional councils is to prevent the 
inevitable local problems from cascading out of control to other areas. 
Clearly, something went wrong on August 14th, and the investigation now 
underway will, in time, result in a full understanding of what were the 
cause(s) of the 2003 blackout.
    As part of its scope of responsibility, ECAR periodically assesses 
the reliability of the ECAR Region and revises its Documents as needed. 
Some of the steps that ECAR does and has done since the earlier 
blackout events to improve the reliability of the bulk power systems 
include:

1. ECAR performs assessments of the adequacy of the ECAR transmission 
        systems to satisfy the load requirements of our region. This is 
        normally done twice a year (for the summer and winter seasons). 
        Periodically, an assessment is done for a future year. The 
        purpose of these assessments is to identify potential 
        transmission constraints and to provide a relative indication 
        of the expected performance of the ECAR transmission systems 
        and surrounding Regions' systems as compared to the previous 
        year under a variety of possible operating scenarios.
2. ECAR participates on three interregional groups that assess the 
        adequacy of the transmission systems for the upcoming summer 
        and winter seasons in the involved regions. For the various 
        interregional studies, ECAR works with NPCC, MAAC, Mid-America 
        Interconnected Network (``MAIN''), and the Virginia-Carolina 
        (``VACAR'') and Tennessee Valley Authority (``TVA'') subregions 
        of Southeastern Electric Reliability Council (``SERC'').
      The interregional studies and the ECAR-specific assessments are 
        verycomprehensive and cover many possible scenarios. However, 
        the interconnected bulk power system is very complex and it is 
        not practical to study every possible scenario of system 
        operating conditions.
3. ECAR has implemented an Automatic Reserve Sharing System (``ARS''). 
        The purpose of this system is to enable a company to recover 
        from a sudden loss of generation as quickly as possible. In 
        essence, whenever an ECAR generator trips, all the Control 
        Areas in ECAR may be called upon to participate in replacing 
        the power from the generator that tripped instead of just the 
        Control Area where the tripped generator resides. Use of the 
        ARS results in one or more ECAR systems increasing generation 
        to replace the power lost when a unit is tripped, and speeds 
        the recovery from the lost generation. The ARS system is most 
        useful when the system demand is high and generation reserves 
        are tight.
4. ECAR has implemented a FERC-approved Inadvertent Settlement Tariff. 
        The purpose of this tariff is to discourage companies, through 
        financial penalties, from taking power from the Interconnection 
        during periods when power is costly and the interconnection is 
        operating below normal frequency.
5. ECAR performs assessments of the adequacy of generation resources to 
        satisfy the load requirements of our region. Three assessments 
        are done every year. One is done for the upcoming summer 
        period, one is done for the upcoming winter period, and one is 
        done for the next ten years (with primary emphasis on the next 
        five years).
    For each of the items, it is premature to determine their 
effectiveness or ineffectiveness concerning the August 14th blackout. 
We need to understand the cause(s) of the blackout events before we can 
fully evaluate this question. Any deficiencies that are identified from 
the investigations will be corrected.
                       preventing a reoccurrence
    What we clearly do know at this juncture is that the blackout 
affected a significant portion of the east central and northeastern 
parts of the country. Fortunately, the cascading did not spread through 
the Eastern Interconnection. The basic reason it did not spread further 
is that the automated control systems for those transmission systems 
that did not shut down detected abnormal operating conditions and 
disconnected their transmission lines from those of affected systems. 
The purpose of such automated system control operations is to prevent 
possible damage to major equipment and injury to utility personnel and 
the public. Avoiding damage to major equipment enables the system 
restoration process to proceed much more quickly than it otherwise 
would.
Systems Modernization and Expansion Priority
    Certainly, one issue that must be addressed, apart from any 
specific lessons learned from the blackout, is how to move forward with 
necessary modernization, upgrades, and expansion of the U.S.'s 
interconnected high voltage transmission systems.
    By and large, these systems have served the Nation well. However, 
there have been relatively few new transmission lines built in the U.S. 
in the last 15 years, even as the demand for electricity has continued 
to grow and new generation has been installed to meet the growing 
demand.
    The reasons for this situation have been well documented by many 
parties and key factors include: (i) lack of economic incentives to 
invest in new transmission infrastructure; (ii) inability and 
uncertainty regarding rate recovery for transmission investments; and 
(iii) public and governmental opposition to construction of new 
transmission lines which makes it very difficult to obtain the 
necessary permits to construct needed new lines.
Realigning System Constraint
    Another important issue is that the existing transmission 
infrastructure is now being used in ways for which it was not designed. 
This is primarily a result of the deregulation of the generation 
segment of the electric power industry. The Energy Policy Act of 1992 
paved the way for competition in the generation segment and the 
subsequent FERC Order 888 provided for open access to the 
interconnected transmission systems to enable the establishment of 
large regional markets for electric energy.
    The existing transmission infrastructure was initially designed 
primarily to enable neighboring utilities to exchange power in the 
event of a loss of generation or for economic reasons. With the 
deregulation of the generation segment, many transmission lines are now 
often heavily loaded as large amounts of power are transferred across 
multi-state regions. This has resulted in a situation where some 
transmission lines are now being operated closer to their design limits 
more of the time than before deregulation opened use of the 
transmission systems to foster wholesale competition. This is not to 
say that the transmission systems are being operated beyond their 
allowable limits, but only to point out that some transmission systems 
are operating with less margin than before for contingencies.
    In those areas where the transmission system is frequently 
constrained (heavily loaded and unable to take any more power flow), 
and where it is also politically or otherwise not feasible to build 
needed new transmission, the installation of local generation 
facilities (as opposed to remotely located facilities) would help to 
ease the burden now placed on such constrained transmission lines. 
Federal and state governmental agencies can play a key role by taking 
actions to improve the ability of utilities and merchant generators to 
site new generation facilities in locations that would help ease 
transmission constraints. The benefits to the country of such actions 
would be a more secure transmission system that would operate more 
reliably while achieving the aspirations of deregulation.
Legislative and Regulatory Action
    Finally, apart from any specific actions the blackout 
investigations may identify as necessary to enhance the real-time 
operational security of the interconnected bulk power systems, 
government policymakers are urged to address:

1) The need for passage and implementation of federal reliability 
        legislation that would make compliance with bulk power system 
        reliability standards mandatory and enforceable.
2) The need to provide appropriate economic incentives for investments 
        in needed expansion, upgrading, and modernizing of the 
        interconnected transmission systems and related critical 
        electric system infrastructure.
3) The need to provide for the siting of major transmission projects 
        through eminent domain, if necessary, when it is determined by 
        appropriate governmental authorities to be for the greater good 
        of the Nation.
4) The need for resolution of the on-going national debate regarding 
        the Federal Energy Regulatory Commission (``FERC'') initiatives 
        for the establishment of Regional Transmission Organizations 
        (``RTOs'') and Standard Market Design (``SMD'').
    Mr. Chairman, on behalf of the ECAR membership, we are committed to 
doing everything possible to determine the cause(s) of the August 14th 
blackout and to help ensure that bulk power system reliability is 
maintained in the future. ECAR is available to provide any additional 
information the Committee may request.

    Chairman Tauzin. Thank you, Mr. Eldridge.
    Finally, Mr. Charles Durkin, who is the Chairman of the 
Northeast Power Coordinating Council, New York, New York. Mr. 
Durkin.

               STATEMENT OF CHARLES J. DURKIN, JR.

    Mr. Durkin. Thank you, Mr. Chairman. As the other 
colleagues at this table, I am pleased to be here, and I thank 
you for the opportunity to speak to you and the members of the 
committee.
    I am going to jump over a good part of what I was planning 
to say, since the table has already said quite a bit of it. But 
let me first talk about NPCC.
    The NPCC region includes all of New York, New England, and 
Eastern Canada. The Canadian provinces are Ontario, Quebec and 
the Maritime Provinces. The load in our region between the 
Canadian provinces and the U.S. States is split about 50-50, 
with actually about 70 percent of the Canadian load within our 
region.
    The NPCC membership agreement provides for an open and 
inclusive membership and a fair and nondiscriminatory 
government structure. Within NPCC adherence to reliability 
criteria is enforced through a comprehensive program of 
compliance monitoring and nonmonetary sanctions.
    So what happened on August 14? The immediate electrical 
events observed at NPCC prior to the blackout occurred starting 
at about 4:10 p.m. eastern daylight time, with a sudden 
reversal of power flow between Ontario and Michigan. The NPCC 
system appears to have remained stable during this energy power 
surge. Within a minute or so, the NPCC region observed large 
in-rushing power flows and severe frequency and load 
oscillations. This power swing caused the tripping of 
interregional and regional tie lines. Consequently, portions of 
the NPCC region separated from the eastern interconnection.
    As a result, most of New England and the Maritimes 
successfully islanded from the rest of the interconnection. The 
Quebec area, because of its HVDC ties, was not affected.
    New York divided into two islands, a northwest island and a 
southeast island. The northwest island was also connected to 
eastern Ontario and continued to serve load. The southeast 
island, also connected to southwest Connecticut and Long 
Island, had insufficient generation to meet its load and 
blacked out. That, of course, includes New York City.
    Northwest Ontario, separated from the rest of the Ontario 
system, remained connected to Manitoba and Minnesota. Eastern 
Ontario separated from the rest of Ontario but remained 
connected to the northwest New York island, which continued to 
serve load. The remaining portion of Ontario had insufficient 
generation to meet its load and also blacked out.
    On August 15, NPCC announced that it would conduct an 
investigation into what happened within NPCC. That 
investigation involves determining a sequence of events, 
figuring out why the sequence occurred that way, and also an 
analysis of the restoration.
    In addition, along with the Chairman of MAAC, which is the 
regional council basically similar to PJM and ECAR, the three 
chairmen and myself have established a flexible coordination 
agreement with NERC as we proceed to investigate the blackout.
    I serve as the facilitator for this coordination, and we 
are presently using an existing group within the three regions 
to develop both the steady state low flow cases and the dynamic 
computer models that will be necessary to conduct a detailed 
analysis once the sequence of events is put together.
    Early indications are that the systems within NPCC that 
have been designed to protect the power system operated as 
expected. Similar to other regions, very little power system 
equipment was damaged by the power surges; and that, of course, 
was very important in allowing for a timely restoration.
    The events of August 14 have focused attention on the 
reliability interdependency of the systems within the eastern 
interconnection. This interdependency is by design and has been 
critical in avoiding blackouts in the past. As has been 
mentioned, one primary responsibility of each of the regions is 
to make sure local actions are taken to keep local problems 
from spreading.
    With regard to the future, we certainly need to wait until 
the analysis is done. However, in the meantime, NPCC has 
indicated its support for enactment of the U.S. electric 
reliability legislation and its preference for section 16031 of 
H.R. 6 as previously passed by the House of Representatives. In 
a letter attached to this testimony, NPCC has outlined its 
support for the provisions within this legislation which 
authorize the establishment of industry-based reliability 
organizations and advance NPCC's international reliability 
assurance efforts. NPCC prefers the language in section 16031 
of H.R. 6 because it contains express acknowledgment of the 
necessity for more stringent criteria to address the unique 
reliability needs within New York.
    In closing, I thank you again for this invitation to speak 
with you today.
    Chairman Tauzin. Thank you, Mr. Durkin. Thank you for your 
endorsement of our provisions in the House bill. I happen to be 
closer to those provisions than those in the Senate bill, as 
you might guess.
    [The prepared statement of Charles J. Durkin, Jr. follows:]
     Prepared Statement of Charles J. Durkin, Jr., Northeast Power 
                          Coordinating Council
                            i. introduction
    My name is Charles J. Durkin, Jr. I am Chairman of the Northeast 
Power Coordinating Council (``NPCC''), the international regional 
electric reliability organization for northeastern North America. My 
business address is Northeast Power Coordinating Council, 1515 
Broadway, 43rd Floor, New York, New York 10036.
    Prior to acceptance of this position in January 1999, I was a 
senior electric power executive for Consolidated Edison in New York 
City. I continue to provide consulting services to them and the 
industry. A summary of my qualifications is included at the end of this 
statement.
    I am pleased to have this opportunity to appear before you to 
discuss the electric power disruptions experienced on August 14, 2003 
and to tell you about NPCC's numerous follow-up activities.
                       brief description of npcc
    Let me start by giving you a brief description of NPCC. The 
Northeast Power Coordinating Council is one of ten Regional Reliability 
Councils, which together make up the North American Electric 
Reliability Council (``NERC''). NPCC's Region encompasses Northeastern 
North America, including all of New York and New England, and the area 
in Eastern Canada comprised of the Ontario, Quebec and Maritime 
Provinces. NPCC is almost equally balanced, 50 percent U.S. and 50 
percent Canadian. Approximately 70 percent of Canada's load is located 
within NPCC's region.
    NPCC plays a vital role in assuring the reliability of the 
international, interconnected bulk power systems in its Region. The 
NPCC Membership Agreement provides for open and inclusive membership, 
and fair and non-discriminatory governance with the Council's 
activities directed by a balanced stakeholder Executive Committee.
    Each NPCC Member is obligated to plan, design and operate its bulk 
power system in compliance with mandatory regionally-specific 
reliability criteria and broad-based industry-wide NERC standards. 
Within NPCC, adherence to reliability criteria is enforced through a 
comprehensive program of compliance monitoring and non-monetary 
sanctions.
                    ii. what happened on august 14th
    The sequence of events experienced in the NPCC Region on August 
14th happened in a very short time period (seconds) and was initiated 
by events outside its boundary. A full understanding of the events will 
come from careful review of all the data, on a consistent basis.
    What we know at the present time comes from information supplied by 
the operating entities within the affected areas. This information is 
still in the process of being reviewed and time-sequenced by NPCC and 
NERC. The following information may be revised as the disturbance 
analysis continues.
    The immediate electrical events observed in NPCC prior to the 
blackout occurred starting at approximately 4:10 p.m. EDT with the 
sudden reversal of power flow between Ontario and Michigan. The NPCC 
system appears to have remained stable during this initial power surge. 
Within a minute or so, the NPCC Region observed large inrushing power 
flows, and severe frequency and load oscillations. This first power 
swing caused the tripping of inter-regional and regional tie lines. 
Consequently, portions of the NPCC Region separated from the Eastern 
Interconnection. As a result:

 Most of New England and the Maritimes Area successfully islanded from 
        the rest of the eastern interconnection;
 The Quebec Area, because of its HVDC ties, was not affected;
 New York divided into two islands, northwest and southeast. The 
        northwest island, also connected to eastern Ontario, continued 
        to serve load; the southeast island, also connected to 
        southwest Connecticut and Long Island, had insufficient 
        generation to meet its load and blacked out.
 Northwest Ontario (west of Wawa, Ontario) separated from the rest of 
        the Ontario system, but remained connected to the Manitoba and 
        Minnesota systems and was not affected. Eastern Ontario 
        separated from the rest of Ontario, but remained connected to 
        the northwest New York island, which continued to serve load. 
        The remaining portion of Ontario had insufficient generation to 
        meet its load and blacked out.
                      summary of present analysis
    On August 15th, NPCC announced it was assembling an assessment team 
of regional experts to perform a detailed analysis of events within the 
Region. This activity, which will require significant effort, will be 
coordinated with NERC, the DOE, Provinces and States. The analysis is 
expected to require extensive investigative work to determine the 
factors within NPCC that contributed to the wide spread blackout. It is 
anticipated that it will take several months to complete.
    NPCC has adopted an aggressive three-phase approach in its internal 
analysis of the blackout; first, to develop a detailed sequence of 
events within NPCC; and second, to conduct a detailed analysis of the 
events that resulted in the cascading collapse of a major portion of 
the NPCC Region and identify areas for analysis. Included in this 
analysis will be a review of the sequence of the restoration. The third 
phase of the analysis will develop findings, conclusions and 
recommendations for further study.
    In addition, the Chairman of MAAC, a designated representative for 
ECAR and I, as Chairman of NPCC, have established a flexible 
coordination agreement with NERC as we proceed with our analysis of the 
Blackout of 2003.
    I serve as the Regional blackout investigation facilitator, working 
closely with the NERC blackout investigation steering group. NERC's 
efforts will supplement and contribute to the Joint U.S. DOE-Canadian 
Task Force Investigation.
    The Regions assigned an existing MAAC-ECAR-NPCC (``MEN'') 
interregional Study Committee the role of lead industry blackout study 
team and directed them to update the MEN 2003 summer load flow base 
case computer model to represent the system conditions that existed on 
August 14th. In addition, building on the dynamics analysis efforts 
already underway within NPCC, a Major System Disturbance Task Force 
(``MSDTF'') has been formed under the MEN Study Committee to develop a 
companion dynamics database. These cases will serve as the basis of the 
computer simulations of the events of August 14th.
                 iii. npcc systems operated as designed
    Early indications are that systems in NPCC designed to protect 
power system equipment operated as expected. Very little power system 
equipment was damaged by the power surges that came crashing in over 
the NPCC tie lines.
    In an occurrence such as this, one of the greatest dangers to the 
restoration of electric service is the potential for damage to the 
system itself--the power plants and the transmission lines, and related 
equipment. If damage of this nature occurs, it potentially could take 
days, weeks, or months to complete restoration. The complex protective 
mechanisms installed on the NPCC system, its power plants and related 
equipment worked as intended and no serious equipment damage was 
reported.
                          iv. lessons learned
    The events of August 14th have focused attention on the reliability 
interdependency of systems within the eastern interconnection. This 
interdependency is by design. The resources of the interconnected 
systems have throughout the years successfully supported individual 
utilities during times of capacity shortages and following sudden 
contingencies. As a result of this support, blackouts have been 
avoided.
    However, this interdependency also carries risk and specific 
responsibilities. The system must be operated consistent with its 
design in order to reap the economic and reliability benefits 
associated with interconnections. One primary responsibility is that 
local actions must be taken to keep local problems from spreading.
    This appears to not have happened in this case. Speaking from an 
NPCC perspective, by the time the systems in New York and Ontario saw 
indications of a serious problem, it was already too late.
                      v. avoiding future blackouts
    With regard to actions that can be taken to reduce the potential 
for future blackouts, we must avoid speculation and wait until the 
investigation currently underway is completed. Some of these possible 
actions can be extremely costly.
    However, in the meantime, NPCC has indicated its support for 
enactment of U.S. electric reliability legislation and its preference 
for section 16031 of H.R. 6 as previously passed by the House of 
Representatives. In a letter attached to this testimony, NPCC has 
outlined its support for the provisions within this legislation, which 
authorize the establishment of industry-based reliability 
organizations, and advance NPCC's international reliability assurance 
efforts. NPCC prefers the language in section 16031 of H.R. 6, because 
it contains express acknowledgement of the necessity for more stringent 
criteria to address the unique reliability needs within New York.
                                closing
    In closing, I thank you for the invitation to speak with you today, 
and answer questions you may have. I reaffirm NPCC's unwavering 
commitment to assuring a high level of electric system reliability and 
stand ready to take the necessary actions to accomplish this objective.

    Chairman Tauzin. Let me first see if you all agree with me. 
We have heard from three panels now, all of whom have said that 
before we definitively say what happened, how it happened, and 
before we define the sequence of events and, therefore, before 
you can tell us what you recommend we do to correct the 
problem, there is still a little work to do and that none of 
you are prepared to definitively say essentially what caused 
this or why it spread and why some regions were able to isolate 
themselves and others were not. Is that generally correct?
    Let the record reflect the witnesses have all indicated 
yes.
    Second, Chairman Wood, I want to make sure the record is 
clear on this, because people have confused the mandatory 
reliability standards which Mr. Gent has spoken on television 
about and on which our bill speaks to in the House provisions 
that Mr. Durkin just endorsed. They have confused those 
provisions of mandatory reliability standards in these 
organizations with the questions of mandatory membership in the 
RTOs, which is the subject of a Senate amendment, as you know.
    Mr. Wood. Yes, that is a separate issue.
    Chairman Tauzin. As far as we are concerned in the House 
bill and the Federal regulatory commission which you chair, the 
House provisions were, in fact, worked out in concurrence with 
your office and you support those provisions, do you not?
    Mr. Wood. We do.
    Chairman Tauzin. And they include native protections for 
native load customers, is that correct?
    Mr. Wood. They do.
    Chairman Tauzin. And for the purpose of explanation for all 
who may be listening, those protections are designed to make 
sure that when utilities join a regional transmission authority 
that they do so with the capacity at least to ensure that it 
doesn't prejudice those customers who live in the area where 
the load is native, where it exists, and where those customers 
have been supportive of that utility and its transmission 
lines, is that correct?
    Mr. Wood. That is right. Yes, sir.
    Chairman Tauzin. And we have worked out that language to 
your satisfaction, is that correct?
    Mr. Wood. Yes, sir.
    Chairman Tauzin. Next, I wanted to please have an 
explanation, Mr. Eldridge. We have had a lot of members say, by 
golly, with all of the kind of guaranteed profit a person can 
make if they build a transmission line, why has demand 
increased so dramatically on these lines? If there is a 
guaranteed profit to be made, where are the investors? What is 
not happening? Why aren't we building new transmission lines 
just to take care of this enormously increasing demand?
    Mr. Eldridge. Well, the demand has been driven by continued 
load growth.
    Chairman Tauzin. That just means people are using more 
electricity. I have more customers using more electricity, the 
government says I can make 11, 12 percent, whatever it is. Why 
isn't Wall Street rushing, the financial markets rushing to 
support investments in new transmission? What is the problem?
    Mr. Eldridge. I can't answer that question.
    Chairman Tauzin. Somebody on this panel can. What is the 
problem? Come on. Anyone want to try it?
    Mr. Lark, you look like you have the answer.
    Mr. Lark. I don't know that I have an answer for you 
exactly, but I wouldn't say there has been no investment.
    Chairman Tauzin. There has been some.
    Mr. Lark. As I understand it, and I think I get this from 
NERC press releases, I think there is $3 billion per year.
    Chairman Tauzin. Yes. And I have seen numbers coming out of 
New York where demand is growing exponentially compared to 
investment in new transmission lines. It is essentially the 
problem in California, Path 15. You have extra power in 
northern California, a big demand in southern California, they 
can't get it from one end of the State to the other because you 
can't build a transmission line. If it is so profitable, if 
there is so much money to be made there, why aren't people 
flocking to build transmission lines?
    Do you want to handle that, Mr. Wood? The Chairman of the 
FERC, tell us why.
    Mr. Wood. If I were an investor, I would want to know what 
the rules of the road are so I know how I am going to get my 
money back, and I think there are a couple of different ways to 
slice that salami, but pretty much put your money where you 
have a good return. The promise of 12 percent is fine, but if 
you have a State squabble over whether you get any percent, 
much less 12, if there is a question about whether you have a 
cap on your retail rate like we saw in the West and we have 
seen in other States.
    Chairman Tauzin. So there is uncertainty in investment, 
essentially.
    Mr. Wood. I would think that is an understatement.
    Chairman Tauzin. And, second, you have to tie up your money 
for a long time waiting for all the permitting to go through, 
the siting problems, the lawsuits, the lawyers that come in and 
file suits on behalf of everybody who doesn't want a 
transmission line built in their backyard. So why would you tie 
your money up for all of these years waiting for this project 
to get approved?
    Mr. Wood. It is not attractive.
    Chairman Tauzin. It really isn't attractive today, is it?
    Mr. Wood. And for a regular utility, it is a small part of 
their business.
    Chairman Tauzin. It is a small part of the business.
    Mr. Wood. So why go through the headache?
    Chairman Tauzin. Why go through that headache when you can 
put your money into a new generation facility and just drop 
that load on that old line and hope it holds up.
    Doctor, you are about to tell us what is going on here.
    Mr. Schriber. I think it is more than just a siting issue, 
and I do agree that there are some siting issues there, but, as 
you suggested, investment dollars are going to chase those 
investments that have potentially the greatest yield at the 
less risk.
    Chairman Tauzin. And the quicker yield, right?
    Mr. Schriber. And the quicker. But if each one of us at 
this table had our own transmission systems and we each had our 
own concept of where the dollars needed to be spent, I would 
perceive that as more risky than if we all joined and agreed 
that there was, with one of us in control, a specific place 
that needed it more than anywhere else which would dictate the 
maximum.
    Chairman Tauzin. But the point I am making, and I hope you 
don't disagree with me, and if you do, I would love to hear it, 
is that it is not just the question of saying you can get a 
guaranteed rate of return if you build one. There has to be 
some rules of the road that are clear. There has to be an 
investment opportunity that is clearly understood by investors. 
There has to be some time certain in the process and some 
clarity in whether or not you are going to get permitted or 
whether or not you will be in court forever. Aren't all of 
those problems with investing in transmission lines, and 
shouldn't we be addressing as many as we can if we are going to 
get some new transmission lines built?
    I see you shaking your head, Mr. Durkin.
    Mr. Durkin. I think I would add one more to that, and that 
is exactly how does the return, be it 12, 13 percent or 
whatever, you know, get collected and distributed.
    Chairman Tauzin. Yes. That is another point: What happens 
to those returns?
    Let me ask you, too, you tell me there was some indication 
that something was wrong within this area. There were some 
fluctuations of frequencies. We saw a shift in the electrons. 
Instead of flowing in one direction, they were shifting around 
the loop in the other direction an hour or something before. 
What happened? Who called whom? Did any of you get a phone call 
or any of your counsels get a phone call saying there were some 
real aberrations on the system going on?
    Mr. Durkin. I will answer that. From so far, everything we 
have investigated within NPCC is there was no phone calls.
    Chairman Tauzin. No phone calls.
    Mr. Durkin. The first indication there was a problem within 
NPCC was the reversal of flow that took place at about 4:10.
    Chairman Tauzin. So maybe we have to look real hard at how 
these things get communicated and how people know there is a 
problem and who is in charge of making sure the right person 
gets the information so that they can make the right decision 
in terms of separating from a system that is about to go down.
    I mean, we don't--you are not ready to tell us what 
happened, Mr. Gent. I know that. But we do at least have some 
insights here, that there were a lot of surges occurring, and 
that it had held together for a while and then there started to 
be things separating and plants shutting down. And all of a 
sudden there wasn't enough power, and switches started 
tripping, and people were suddenly without lights. I mean, that 
is generally what happened. How it all happened and in what 
sequence you are going to tell us later. But doesn't that speak 
to real communication problems, that all of this was happening 
and the right person didn't get the right message to do the 
right thing?
    Mr. Gent.
    Mr. Gent. Mr. Chairman, I listened to many people testify 
today; and I would like to assure you that the communication 
equipment and protocols are all in place.
    Chairman Tauzin. But did they work well?
    Mr. Gent. That is part of the investigation.
    Chairman Tauzin. They are in place, but did they work?
    Second, there was some comment and, Mr. Durkin, you talked 
about mandatory regional specific reliability criteria, and I 
don't want to get into all of that. But today if your members 
join, they sign operating agreements with you, don't they? Are 
they enforceable operating agreements? If somebody violates 
them, what are your rights? What do you do?
    Mr. Durkin. Our membership agreement requires anyone who 
joins, which the five control areas that operate in our area, 
our region are members, it requires them to adhere to the 
criteria and so forth. We assess it. We do check. We make sure 
they do, and we use enforcement tools such as--we use a 
nonmonetary penalty, but we will inform the regulatory 
structure, we will inform the governmental structure.
    Chairman Tauzin. What does that mean? You have nonmonetary 
regulatory tools. What are they?
    Mr. Durkin. The first level is peer pressure within our 
organization.
    Chairman Tauzin. Peer pressure?
    Mr. Durkin. Let me finish, because it works well within our 
region.
    The second thing that we do is we will send letters to 
regulators, the regulatory structure.
    Chairman Tauzin. Letters to embarrass them into doing the 
right thing?
    Mr. Durkin. Well, just to let the regulators who have 
oversight for the operating entities within our region know 
that they are not in compliance.
    Chairman Tauzin. So you sort of report them to the dean?
    Mr. Durkin. Well, we sit here talking about the need for 
enforcement capability. I can tell you the regulators in our 
region take very seriously compliance problems.
    Chairman Tauzin. Nobody likes to have a letter like that 
written about them, I take it.
    Mr. Durkin. That is very correct.
    Chairman Tauzin. But the bottom line is this is an area 
that clearly needs some new enforcement authority.
    Mr. Durkin. Without any question.
    Chairman Tauzin. You guys endorse what is in House bill 6. 
This is in conference today.
    My time has expired.
    Joe Barton is the chairman of our subcommittee; and he just 
returned from Colorado, from an energy conference. I 
understand, Joe, that in Colorado whiteouts are as big a 
problem as blackouts in the wintertime. We want to welcome Joe 
and put him in the Chair, and I now recognize the distinguished 
ranking member of our committee for a round of questions.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy, 
and welcome and thank you to the panel.
    These questions are for Mr. Gent. You have appeared before 
the committee before. You have made some interesting comments 
at that time. You said, as economic and political pressures on 
electricity suppliers increase and as the vertically integrated 
companies are being disaggregated, NERC is seeing an increase 
in the number and severity of rules violations. Was that 
correct at the time it was given?
    Mr. Gent. That was correct then, and it is correct now.
    Mr. Dingell. Is it correct now? That was the second 
question.
    In a letter I sent on August 22, which I ask, Mr. Chairman, 
to be inserted in the record----
    Mr. Barton [presiding]. Without objection.
    Mr. Dingell. [continuing] I ask you, Mr. Gent, to expand on 
that statement to provide specific examples of these 
violations.
    In your response you noted that, in 2002, NERC found 97 
bonding standard violations and 400 operating policy 
violations, is that correct?
    Mr. Gent. That is correct.
    Mr. Dingell. Has that changed in any way that would be 
significant and would you like to make a comment on any changes 
since that letter?
    Mr. Gent. This is the latest data that we have. We will 
have another report later this year.
    Mr. Dingell. Thank you.
    You further state in your response that although NERC does 
not have the ability to level fines for violations, you do 
calculate simulated penalties that would have been assessed 
under a system of mandatory compliance. You state that the 
value of the aforementioned violations would have been just 
over $9 million, is that correct?
    Mr. Gent. Yes.
    Mr. Dingell. Would you tell us whether or not the character 
of those violations was serious, imposed risk to the system, 
and including possibility of shutdown of the kind that we saw 
on August 14?
    Mr. Gent. Yes. Chairman Dingell, the letter that you 
referred to lists several possible types of violations for 
which the violations occurred. I would like to give you a 
little context of those violations. This probably encompasses 
over 10,000 measurements, so when I come up with this 444 
operating policy violations, they could vary all the way down 
this page from being very serious to being, I won't say 
trivial, but being less serious.
    Mr. Dingell. I think it would probably therefore be useful 
that you submitted those for the record and with such 
explanatory comments as you might deem to be appropriate. Is 
that acceptable?
    Mr. Gent. I would be pleased to do that, yes.
    Mr. Dingell. I think that would be appropriate.
    Mr. Chairman, I would note that we have a good deal to 
learn about the sequence of events from the blackout. This 
information points to the urgent need to give NERC enforcement 
authority over the mandatory rules and to do so quickly.
    Mr. Gent, I thank you.
    Now, I would like to address the independence of the NERC 
blackout investigation. Mr. Gent, your testimony suggests that 
NERC must determine whether standards were violated and whether 
modifications to its rules are needed. I commend you for that, 
but your testimony also indicates that you were closely 
coordinating at least some of your efforts with DOE as a part 
of the U.S.-Canada task force, is that correct?
    Mr. Gent. Yes, it is.
    Mr. Dingell. Now, I am not clear. Is NERC conducting then 
its own independent inquiry? Will it issue its own independent 
findings and/or recommendations, or will it merge its inquiry 
with that of the Department of Energy? In other words, are we 
going to have an independent research and inquiry from NERC, or 
are we going to have something in which we are going to have 
the input of DOE?
    Mr. Gent. Right now there is one investigation under way, 
and it is being primarily conducted by NERC, NERC personnel. We 
have DOE people onsite, as I said in my oral. We have a FERC 
person and others. They are of great help. These are people 
there to dig through the data with us and try to help us 
organize the sequence of events. At some point, NERC will have 
to do what NERC does, and that is to take a look at whether our 
standards and operating procedures were violated. We will do 
that. And we will do whatever is necessary to correct the 
standards, if the standards are incorrect, or to point out the 
violations.
    After the data is all in and verified, I suspect that the 
Department of Energy will probably go in some other direction 
and deal with policy issues like the ones you have been 
discussing here today.
    Mr. Dingell. Now, I would note that in the event that NERC 
disagreed with DOE or the task force participants about finding 
the recommendations related to the blackout, you have kind of 
indicated to me then that NERC would issue its own independent 
findings, is that correct?
    Mr. Gent. That is correct, sir. We will do our own.
    Mr. Dingell. Now, going back to the questions earlier, you 
told me about the large number of violations, some of which 
were of great significance and some of which were rather lesser 
significance. Were any of these of the character which could 
have contributed to the creation of a major blackout or 
something of that kind?
    Mr. Gent. I am sure they were. I don't have the numbers in 
front of me or the specifics, but in that listing that we gave 
you, virtually half of these could have resulted in that kind 
of a blackout.
    Mr. Dingell. Roughly half of those could.
    Mr. Gent. Right.
    Mr. Dingell. Would you want to elaborate on that, please, 
because I think you have made a very important point.
    Mr. Gent. For instance, the first one says operating 
portions of the transmission system beyond their first 
contingency rating. That is a factor that could have played 
into and caused at least the start of the blackout.
    Mr. Dingell. What other ones do you find of that character?
    Mr. Gent. Failure to return the generation demand balance 
within 15 minutes following the sudden failure of generation.
    Mr. Dingell. What does that mean?
    Mr. Gent. That means if you have a large outage, then you 
have to get the system back in balance within 15 minutes.
    Mr. Dingell. And if you don't?
    Mr. Gent. Then you have exposed the system to compounding 
outages.
    Mr. Dingell. Okay. Any others of this character?
    Mr. Gent. One that might play in later--of course, we don't 
know this--is the lack of a restoration plan and training 
documentation to show that those restoration plans are 
conducted in training programs.
    Mr. Dingell. You view these as being important violations 
of the rules and exposing the system to substantial risk, do 
you?
    Mr. Gent. Well, we haven't seen--we are not at that point 
in the investigation yet, but we expect that we will uncover in 
our investigation plenty of violations of these rules.
    Mr. Dingell. Now, have you any appreciation that you found 
anything of that character in connection with your preliminary 
inquiry with regard to the events of August 14?
    Mr. Gent. We don't have anything conclusive yet.
    Mr. Dingell. I see.
    Mr. Chairman, you have been very courteous. Thank you.
    Mr. Barton. Thank you, Congressman Dingell, for those 
excellent questions.
    I have just assumed the Chair; and I am told that the order 
of appearance of our Republicans is Mr. Norwood, Mr. Walden, 
Mr. Bass and Mr. Whitfield. Does anybody object to that order 
of appearance on the Republican side? If not, then the Chair 
recognizes Mr. Norwood for 5 minutes for questions.
    Mr. Norwood. Thank you very much, Mr. Chairman. Welcome 
back.
    This has been a very interesting day of hearings. I thought 
our Chairman Tauzin came up with a pretty good summary just 
before he left, so I just have a couple of observations.
    One of the questions he asked and was looking for answers 
to is why would not investors wish to invest in transmission? 
And I think there are probably a number of reasons, but maybe 
high up on that list is that the utilities don't know which 
Congress or which FERC may take away their ability to run their 
business. That uncertainty would scare anybody; and I am 
certain that, since they are investor-owned, they have to pay 
attention to that. So I would like for us to think about that, 
too, as we concern ourselves with why we have not invested.
    Now I come from a part of the country where we have kept up 
with the demand by increasing generation. We have a lot of 
transmission, and we have relatively reasonable power rates. So 
we are concerned that in involving problems for other parts of 
the country that we sort of don't throw the baby out with the 
bath water. I mean, I like a lot of you guys up in the 
Northeast, but I am not willing to lower your rates to raise 
ours. I am not willing for you to have more reliable 
electricity as our reliability goes down. And as we are now, we 
are fairly happy with it.
    That doesn't in any way mean that we shouldn't try to solve 
the problem in the parts of the country that are importing 
electricity. We should. But we shouldn't maybe necessarily do 
it as a one-size-fits-all.
    One of you mentioned earlier about RTOs and the fact that, 
well, why don't we do one in the Midwest and let's see if that 
works. Don't make me do it if I don't want to, but if that is 
the way to go up there and everybody is happy with it, why 
don't you consider that, but don't mess with our little 
backyard where things are working pretty well.
    I don't think I have heard in all of the hearings we have 
been into, Mr. Chairman, the word reliability standard used 
more times than I have heard today. That was certainly part of 
our discussions. Our bill does deal with some of that. But 
witness after witness after witness has come forth today on 
three panels and are saying we have to have reliability 
standards.
    Well, the NERC gives us reliability standards now. We have 
them. The problem is, you can't enforce something that is 
voluntary, and it is basically you can't oversee something that 
you are suggesting people to do and, happily, Mr. Barton's bill 
deals with that. We make reliability standards mandatory. That 
is a good thing. We let NERC oversee it, enforce it, and, in 
some convoluted ways, we pass off to FERC occasionally if 
anybody can figure that out.
    I just want to point out and remind you, Mr. Chairman, that 
the two Governors here today implied pretty strongly that 
States are perfectly capable of doing that enforcement and 
probably in conference that ought not to be not considered. I 
happen to fall under the heading that, if the States don't do 
it, I would like to see NERC do it, but I am sure you are all 
pleased, as were the other panelists, that we are going to at 
some point this year, hopefully in the next month, make 
reliability standards mandatory and something that will happen.
    It is important, I think, that we don't confuse reliability 
standards with standard market design. At a time right after 
this blackout where everybody wants to solve this problem, that 
can be confused. Now, we have solved the problem of reliability 
standards, I believe.
    The standard market design is still of great interest to a 
lot of people. I find it interesting that the model that Mr. 
Wood and FERC wants to put out or has been pushing their 
concept about a standard market design is very similar to what 
is, frankly, going on at the PJM, at the Midwest ISO, the New 
England ISO, the New York ISO. They are pretty close to the 
model that Mr. Wood is suggesting, and we ought to consider 
that. Is there a problem there, that model may be part of the 
problem that has happened? We don't know the answer, Mr. 
Chairman. That is the purpose of this hearing, to find out why 
we had a blackout, why it spread. I urge us all to let's take 
our time and get the answers before we try to legislate.
    Mr. Barton. I thank the gentleman from Georgia; and I 
recognize the distinguished gentleman from Michigan, Mr. 
Stupak, for 5 minutes.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Gent, your standards, they are all voluntary, right?
    Mr. Gent. Yes.
    We would like to refer to it as mandatory standards, 
however the enforcement is voluntary.
    Mr. Stupak. So no accountability in other words?
    Mr. Gent. Yes.
    Mr. Stupak. Regarding your investigation, you said you are 
moving right along and the Canadian-U.S. Task force is working 
with you. Will your hearings or meetings on what happened be 
open to the public?
    Mr. Gent. We have not held any meetings per se. We had a 
joint meeting with the Department of Energy that was not open 
to the public.
    Mr. Stupak. Do you have any objections to them being open 
to the public in the future?
    Mr. Gent. If that meeting had been opened to the public, I 
don't think we would have learned what we learned.
    Mr. Stupak. Do you feel there comes a point in time that 
the public should know?
    Mr. Gent. Absolutely. It is important that we get what we 
know out into the public.
    Mr. Stupak. Would you agree with me that the previous 
blackouts occurred before the deregulation or restructuring, 
whatever you want to call them, the previous blackouts you 
cited in your opening statement?
    Mr. Wood. In 1996 and 1999.
    Mr. Stupak. 1996 would have been part of deregulation.
    Mr. Wood. And 1999 as well. 2000 and 2001 in California 
were certainly in the post restructuring.
    Mr. Stupak. Restructuring and deregulation.
    Mr. Wood. The 1977 and 1965 would be different.
    Mr. Stupak. Have you found 1996 and 1999--has the lack of 
accountability led to or could be one of the problems we have 
here for these blackouts, these failures?
    Mr. Wood. Lack of accountability? Yes.
    Mr. Stupak. You would agree with NERC's findings there are 
violations; some could lead to blackouts and no one is held 
accountable?
    Mr. Wood. Correct.
    Mr. Stupak. Would you suggest anything in the future of how 
you put the accountability in there and what should happen?
    Mr. Wood. The NERC language you just discussed which goes 
through us and they do the detailed work and it is a pretty 
strong structure.
    Mr. Stupak. Would you see NERC taking a role of doing the 
enforcement, leveling fines or whatever it might be or 
something you feel FERC should do?
    Mr. Wood. Either.
    Mr. Stupak. You mentioned air traffic controllers in your 
opening and the movement to privatize them, so I wouldn't use 
that as an example anymore.
    Mr. Wood. The privatization of the grid is a decent 
outcome. I don't know that it has to be a public asset, but I 
think what is important is that it not be operated by somebody 
who has got a vested interest in whose plane lands first and 
whose never gets to land.
    Mr. Stupak. The standards should be pretty much the same. 
If you are an air traffic controller in Washington, DC, or in 
Green Bay, Wisconsin, you should be using the same standards to 
land that plane, right?
    Mr. Wood. That certainly is a benefit.
    Mr. Stupak. Mr. Schriber, you mentioned a super regional 
RTO and how large they can be. Is there no limit on how large 
they can be?
    Mr. Schriber. I think certainly there are physical limits 
and economic limits. I think my reference to a super regional 
RTO would be one that is larger than that which exists today or 
those that exist today, for example, one that encompasses most 
of the eastern interconnect, if you will.
    Mr. Stupak. If you get larger does that lead to less 
accountability?
    Mr. Schriber. I don't think accountability is related here 
in terms of size. I think that accountability--well, let me 
retract that. I think the larger and the more centrally 
governed the RTO, the stronger is the accountability.
    Mr. Stupak. Give me some idea of maximum size. This 
blackout was 50 million people. What do you think the maximum 
size could be?
    Mr. Schriber. The eastern interconnection which encompasses 
the Northeast, the mid-Atlantic, the Midwest, part of the South 
would probably be reasonable both from a physical and economic 
point of view size.
    Mr. Stupak. Mr. Lark, you mentioned there are 23 utility 
members in MISO, and that is the Midwest ISO?
    Mr. Lark. It is my understanding, yes, sir.
    Mr. Stupak. And only one in Michigan, DTE, went down 
basically?
    Mr. Lark. Parts of Michigan. DTE was the largest utility to 
go down, affecting 2.1 million customers. But in addition our 
other large electric utility, Consumers Energy, was out for a 
little while too, but to a much lesser degree, as was the 
Lansing Board of Water and Light.
    Mr. Stupak. Any idea why it stopped in basically mid-Lower 
Peninsula in Michigan? Why didn't it go farther west?
    Mr. Lark. My understanding of this and of course I even am 
reluctant to speculate inasmuch as there are so many 
investigations ongoing now, but from what I have been able to 
understand--this could be a little lengthy--the power was 
attempting to flow into the northern Ohio area. And as lines 
tripped in northern Ohio so that the power could not get into 
northern Ohio it began to flow through the southwestern 
intertie in Michigan. Michigan has two points at which power 
can come in, southeast and southwest portion. So the power 
diverted itself in going through that southeast part and went 
all the way over to southwest, came through the AEP system and 
up through Consumers Energy, which occupies the western part of 
the State. All of the transmission grid properly tripped off 
between the Consumers Energy grid and the Detroit Edison grid. 
And at that point what happened, as what has been described 
earlier, there was a reversal in flow and the power suddenly 
reversed around and went around Lake Erie and Ontario came in 
through the Port Huron-Sarnia interconnect in Michigan into the 
Edison system and down to Cleveland, and everything tripped off 
from there. I don't know if that answers your question, but 
that is my understanding.
    Mr. Barton. The gentleman's time has expired. Before we 
recognize Mr. Walden just on that point, it is true that once 
you put power into the system it has to go somewhere. It can't 
just sit there like in a lake and if there is water you could 
put it in a lake. But once you put electricity, it has to move 
and it has to go and it is going to find the path of least 
resistance.
    Mr. Lark. And that is exactly what happened, the speed of 
just under 186,000 miles per second.
    Mr. Barton. Which is the speed of light. The gentleman from 
Oregon is recognized for 5 minutes.
    Mr. Walden. Thank you very much, Mr. Chairman. I wanted to 
first start out on this issue of the 1996 blackout and the 
reference that maybe deregulation had something to do with it. 
Now I am not a big fan of deregulation. I think it is 
instructive to note what happened there. On August 10 of 1996, 
Bonneville's transmission lines sagged into tree limbs 
triggering outages and system oscillations. The western 
interconnection separated into four electrical islands with 
significant loss of load in generations and it impacted an area 
from British Columbia to Baja, California and Norte in Mexico. 
So the whole western region. So what happened out of that? In 
response, Bonneville as well as other western utilities took 
steps to ensure that it would not be repeated. The utilities 
invested in voltage support devices, high-speed communication 
and control and implemented more conservative operations. 
Bonneville initiated a system-wide voltage support study, 
revamped its grid operating procedures and spent more than $130 
million to increase reliability of the transmission system. 
Specifically, Bonneville and the neighboring utilities 
aggressively ramped up the power lines to be as conservative 
and safe as possible. Set interim operating procedure for the 
intertie with Pacific Gas and Electric and Southern California 
Edison. Set conservative operating limits on the intertie. 
Installed additional remedial action schemes. Reviewed 
equipment at McNeary Dam. Set new limits on the exciters to 
assure generators wouldn't trip. And they went through step by 
step very methodically to determine what happened. I don't 
think sagging lines and tree limbs probably was directly 
related to the change in Federal policy. The outcome though is 
one that maybe is instructive here and I know that some of the 
people involved in determining what went wrong there are going 
to be involved in this discussion and investigation. One 
question I have for Mr. Gent.
    Mr. Gent. Gent.
    Mr. Walden. There are mandatory standards and voluntary 
compliance under the system you manage. What is the outcome? I 
mean you held up the list of issues that some of the 
participants have violated, some of the mandatory standards in 
question. But I never did hear what happened. Did they just 
blow you off and ignore you or were those issues you held up 
for our ranking Democrat, were they resolved? Were they 
addressed?
    Mr. Gent. Most of them were addressed and didn't occur 
again. But then they have a tendency of popping up elsewhere. 
So there is a compliance program in each of the 10 regions. In 
fact they have one in ECAR where they actually go out and 
inspect to see if people are in compliance with these rules.
    Mr. Walden. Do you have participants--I assume first that 
everybody participates if they are on the grid. Second, do you 
have participants who participate on the grid violate your 
mandatory standards and continue to participate?
    Mr. Gent. Yes.
    Mr. Walden. And so you have no way to say you are out of 
here?
    Mr. Gent. No, we don't.
    Mr. Walden. That is why the legislation we are working on 
has those provisions?
    Mr. Gent. That is part of it. And I would like to add that 
one of the things they implemented in the West after the 1996 
blackout was they all signed an agreement that they would 
comply to certain standards with monetary sanctions, and there 
has been a lot of money that has exchanged hands.
    Mr. Walden. Good to know. As an observer of all this during 
that period, the question kept going through my mind why did it 
take so long to turn the power back on. I understand a little 
bit about the tripping of things, but 30 hours is probably 
miraculous in time for what you had to do and the utilities you 
oversee. But could you educate a little bit about how complex 
it is to get a system that large?
    Mr. Gent. When you lose 280 something generating units, 
some of those you could bring back on like this, the jet 
engines and hydro. Others like natural gas where they have 
steam could take 4 to 6 hours. Coal plant might take 10 to 24. 
A nuclear plant might take 48 hours. And that is primarily the 
reason it took so long to bring Detroit back. Despite their 
best efforts they had to bring generation in. You had to get 
generation running and match it with load.
    Mr. Walden. So it is a sequencing of the generation and the 
load so you maintain a balance on the grid?
    Mr. Gent. Limited by the availability of generation and 
limitations as to how quickly you can bring it back on line.
    Mr. Walden. In terms of the lines themselves and the trip 
points, have you found lines that were actually severed as 
opposed to just tripping the relays?
    Mr. Gent. No. I know we used this jargon, but by tripping 
generally what happens is the relays trigger a breaker and they 
open up the line and that has always been the case. We haven't 
identified any lines or any other equipment that has been 
damaged significantly.
    Mr. Walden. In one way your system functioned the way it 
was designed, which was to prevent the destruction of the 
generating facilities; is that correct?
    Mr. Gent. Yes.
    Mr. Flynn. In New York the uniqueness, to add to his 
explanation, is where in upstate New York we have generally 
rural areas, you have above ground transmission lines, where as 
you mover to the higher population areas, New York City, 
Manhattan, Staten Island, you have underground transmission. So 
the uniqueness of upstate versus downstate, the New York guys 
not only had to balance demand and supply, but they also had to 
take into account the infrastructure they were working with to 
balance that demand and supply. You made note of 30 hours and 
that is a remarkable amount of time I am told to bring the full 
New York State system you know back on line.
    Mr. Walden. Do you have any idea how many circuit breakers 
broke, came open?
    Mr. Flynn. I have no idea. Mr. Museler, who runs the New 
York State ISO, will be here tomorrow to testify and he is 
probably watching right now and he will have that answer for 
you.
    Mr. Barton. Gentleman's time has expired. The gentlelady 
from Missouri is recognized for 5 minutes.
    Ms. McCarthy. Thank you, Mr. Chairman, and I thank all the 
witnesses for their wisdom.
    Mr. Wood, I was looking through your testimony and your 
optimism about the next steps. And again, as others have said, 
the word ``reliability'' seems to be almost on every page and 
almost every paragraph in much of the testimony, sometimes 
twice in a sentence. I would like to talk to you about your 
thoughts for the future that you talk about in section 4 in 
your next steps testimony. But begin with just from you a 
simple definition of reliability that you were perceiving as 
you talk about those next steps. What do you see as the--what 
is reliability in the future?
    Mr. Wood. There are two levels, Ms. McCarthy. The one that 
we focus the most on today is the one we refer to generically 
as the short-term reliability, the real-time balance that keeps 
that at 60 cycles per second all the time, plus or minus. The 
other issues, which actually came up more when we were doing 
hearings in California at this committee and others, deal with 
the longer term reliability, which is long-term supply and 
demand balance. So I think, depending on the context of the 
paragraph in my testimony, I do tend to view both as really 
shades of the same reliability concern.
    Ms. McCarthy. Well, you talk about the conference providing 
for mandatory reliability rules and enforced by a reliability 
organization subject to the Commission's oversight and that 
you--the industry has concluded a system of mandatory 
reliability rules is needed to maintain the security of our 
Nation's transmission systems. If the Congress were to mandate 
reliability rules, which would then dictate both the categories 
you described, including supply and demand balance, what would 
be the next step then for the industry if that is, in fact, the 
outcome of the conference committee work? How do they meet that 
mandate of supply and demand balance? Will it be the same old, 
same old or are we going to take a step back and look at the 
future in terms of alternatives and other means to provide for 
that reliability that we have not yet sought or found?
    Mr. Wood. I understand where you are going. I am not really 
sure and I will have to reread the language of the House bill. 
If that actually encompasses that, you would have that long-
term reliability as part of that mandatory NERC language. If, 
in fact, it does, certainly the rulemaking that we have been 
looking at in our Commission does envision the State 
commissioners at that level deciding if there are alternative 
fuels or alternative demand side participation in the 
marketplace; some of the technologies that may have been 
ignored by the prior market structure that we had. Those 
issues, I think, really still do lie fundamentally at the State 
regulators. And we have indicated the ability to work with them 
and have FERC be there to be able to implement those visions 
for longer term reliability. I haven't thought through if the 
rulemaking required in H.R. 6 would envision that breadth. I 
would be glad to look that over.
    Ms. McCarthy. I would appreciate that. I was a State 
legislator before coming to the Congress and I am very 
sensitive to that role of the States and this issue. And all 
day as I have been listening, I am torn, where are we going. If 
we create this national effort that has been traditionally the 
regulatory bodies of the 50 States that have created and 
supported this grid and the surety to the States of the cost 
and pricing of energy, in whose lap does it rest to meet this 
mandate? Will it come from at the Federal level from your 
organization or others, something we create omnibusly or is it 
the 50 States left to grapple with Federal language mandating 
such an effort? And having been a State legislator it fills me 
with some apprehension how we would resolve that. I think it is 
a good goal that you have mentioned and called for. I don't 
know how it plays out in reality.
    Mr. Wood. At least the debate for the last couple of 
years--and Mr. Gent might be able to shed some light on that--
has focused more on the short-term reliability, the minute-by-
minute supply and demand and not so much on the longer; that 
really has been primarily a State domain. In our standard 
market design rule, we call that resource adequacy and have 
made clear that is really the State's role. We are here to 
support that effort. If FERC is needed to help make it work on 
a regional basis where a single State can't make it work alone, 
we are glad to play that role. We know where our jurisdiction 
stops and it does stop before we get to long-term resource 
adequacy type planning, and whether that would actually be 
changed by this reliability statute I haven't researched that, 
and I would be glad to do that.
    [The following was received for the record:]

               Federal Energy Regulatory Commission
                                     Office of the Chairman
                                                    October 2, 2003
The Honorable Karen McCarthy
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C. 20515

Re: Response to Question Regarding the August 14, 2003 Electrical 
Outage
    Dear Congresswoman McCarthy: I am responding to the question you 
asked me during the September 3, 2003 hearing before the House 
Committee on Energy and Commerce, concerning the blackout experienced 
in the Northeast and Midwest on August 14, 2003. As you know, there is 
currently no direct federal authority or responsibility for the 
reliability of the transmission grid. The energy policy bill now in 
conference provides for mandatory electric reliability rules subject to 
Commission oversight. During the hearing, you asked whether these 
rules, as proposed in the pending legislation, would encompass both 
short-term and long-term reliability.
    Section 16031 of the House version of the draft energy legislation, 
H.R. 6, currently sets forth that the Electric Reliability Organization 
(ERO) would establish and enforce mandatory ``electric reliability 
standards,'' subject to Commission oversight. These standards would 
include requirements for the operation of existing bulk-power system 
facilities and the design of planned additions of modifications to such 
facilities, but would specifically exclude any requirement to enlarge 
such facilities or to construct new transmission capacity or generation 
capacity. Section 1603 1 also does not authorize the ERO or the 
Commission ``to order the construction of additional generation or 
transmission capacity or to set and enforce compliance with standards 
for adequacy or safety of electric facilities or services.'' In 
addition, Section 16031 states that it does not ``preempt any authority 
of any State to take action to ensure the safety, adequacy, and 
reliability of electric service within that State, as long as such 
action is not inconsistent with any reliability standard'' (except that 
the State of New York may establish rules that result in greater 
reliability within that State). Further, Section 16031 would require 
the Commission, within 90 days of the application of the ERO or other 
affected party, to issue a final order determining whether a State 
action is inconsistent with a reliability standard.
    Thus, the mandatory electric reliability standards authorized in 
H.R. 6 would allow the Commission to oversee short-term reliability by 
approving requirements for the operation of existing system facilities. 
But the provision, as presently drafted, would not clearly encompass 
long-term reliability.
    I believe that mandatory reliability standards are critical to our 
Nation's security. If Congress wishes to establish a stronger federal 
role in ensuring long-term reliability of the bulk-power system, 
Section 16031 of H.R. 6 could be revised to authorize the ERO, subject 
to Commission oversight, to order the enlargement of existing 
transmission facilities or the construction of additional transmission 
capacity. Apart from this possible exception, I believe H.R. 6 properly 
preserves state authority over long-term reliability issues.
    In conclusion, thank you for the opportunity to address these 
issues in detail. If I can be of further assistance in this or anything 
else, please call me.
            Best regards,
                                              Pat Wood, III
                                                           Chairman
cc: The Honorable W.J. ``Billy'' Tauzin, Chairman
   The Honorable John D. Dingell, Ranking Democratic Member

    Ms. McCarthy. Would you? And I would welcome some thought 
on that so we are not creating a situation that is worse than 
doing nothing. There is always that challenge in the things 
that we do. And I have gone beyond my time. Also the--you also 
mentioned we still need to attract capital transmission 
investment in your testimony, which I very much appreciate, and 
that is very much on our minds as we have these hearings this 
week.
    Earlier in the hearing, we talked about--one of our members 
mentioned the built in profit that exists by regulation for 
utility companies. And I wonder as we expect utilities to 
alleviate the congestion on the grid and come up with some new 
technologies and ways to assure that reliability, is it that 11 
to 12 percent profit margin that is the stumbling block or why 
is it in your testimony you tend to indicate that we have to 
find other ways to, you know, attract investment to the utility 
industry in order to accomplish the goal you and others share, 
we all share, of making sure we modernize the grid and make 
sure that it is working well and all of those things?
    Mr. Wood. Representative McCarthy, there have been a few 
instances since I have been on the Commission now for 2 years 
that use of an incentive has been productive. One of them, I 
guess most prominent, was the incentive that we gave of 13.5 
percent to the investors in Path 15 in California, which was 
kind of a notorious link in which was not being invested. We 
also did it with the utilities in Michigan as they spun off 
their transmission to stand-alone transmission companies. So, 
we have looked at that on a case specific basis. And I heard 
from a large company yesterday that admitted that the 12.8 
percent we are giving all the utilities in the Midwest is more 
than enough for them, that they just want to make sure that 
they navigate the State-Federal maze of actually being able to 
get their money back from customers at the end of the day. So 
it may not be so much the amount you give them, it is just the 
certainty of getting it back.
    Ms. McCarthy. May I ask unanimous consent for 1 more 
minute?
    Mr. Barton. Why don't we let Mr. Bass--if you wait until 
after him, I will let you ask some more.
    Mr. Bass. I will be very fast.
    Mr. Barton. Recognize the gentleman from the Granite State.
    Mr. Bass. Thank you, Mr. Chairman. Can anybody comment as 
to why the blackout stopped at the edge of New England? Are 
there any theories as to why that happened? It didn't affect 
except for a small part of Vermont, New Hampshire, Maine, Rhode 
Island, Massachusetts and most of Connecticut?
    Mr. Durkin. Probably the best place to start is that the 
protective systems that operated in New England to separate it 
from the rest of the interconnection are the same--designed 
with the same criteria as New York and Ontario and PJM and so 
forth. It is the function of the conditions that occurred when 
the large power swing came through New York and into Ontario 
that the New England systems saw that as crossing into the area 
where the protection systems needed to operate and they did and 
opened up that piece of the region from the rest of the region. 
New England actually ended up along with the Maritime Provinces 
as an island standing alone by itself. The--guessing at this 
point, because we don't have all the study work done, is that 
the magnitude of the surge was enough to cause generators to 
automatically shut down in the eastern part of New York. But 
that is very preliminary and only based upon some of the 
initial data that is coming in and the sequences together yet 
to know exactly how that played out.
    Mr. Bass. Is there any validity to the observation that 
perhaps the grid system was better in this region of the 
country than it was in other regions of the country and built 
better and better modernized and it functioned better? Any 
validity to that argument?
    Mr. Barton. I just heard that the Congressman was better.
    Mr. Durkin. There have been claims made very early on that 
were very unique characteristics in some of the systems, but 
the criteria to which New England and the Maritimes and New 
York and Ontario designed their system is all the same. It is 
all the same criteria that MPCC requires. It is not unique in a 
sense.
    Mr. Bass. You mentioned--I don't remember the term you 
used, I think it was recognized and cutoff. What do you mean by 
that? It is different, for example, from other parts of the 
country?
    Mr. Durkin. I will get a little more technical. When a 
large power surge runs through a system, two things happen. One 
is the voltage on the system goes down and the current flow on 
the transmission lines goes up. There are relay systems out 
there that monitor for that condition. If it is severe enough, 
the relays operate the disconnect from wherever the source of 
the problem appears to be.
    Mr. Barton. Would the gentleman yield on that point? Isn't 
it true you actually have control rooms that you can physically 
see this? I mean you actually have these monitors that you 
watch the voltage in the current and you watch the cycle that 
Mr. Wood was talking to and somebody in Mr. Bass' region saw 
that happening and literally--part of it was human and part of 
it was the program that just said save us. In his case they 
were lucky enough that as they shut off from the rest of the 
region they had a power supply to come in and pick up the load; 
isn't that true?
    Mr. Durkin. I would express it this way. What happened is 
once it separated, the operators then stabilized the island and 
did a very effective job in maintaining that island in service. 
A separation within the MPCC region occurred within a matter of 
seconds. There was insufficient time for operators to do 
anything once the second surge came in to the MPCC region.
    Mr. Barton. It was all computer generated?
    Mr. Durkin. It is even more decentralized than that. The 
transmission lines will protect themselves independent of any 
computer signals. They have their own independent protection 
systems to cause a separation or an opening to take place if 
the conditions that they are monitoring occur.
    Mr. Bass. If I can reclaim my time. I don't need much more 
time, Mr. Chairman. It is also true that at this particular 
time of year this region of the country may actually be 
exporting energy because--and doesn't that create a different 
kind of pressure differential, if you will? It is the reason 
they were able to create the island and make it work. And it 
might not have been the same in January or February but in the 
summer, the region, especially my State, New Hampshire, was 
pumping out electricity like crazy. And as a result, it 
lessened the impact of the blackout as it reached that region 
and they were able to get at it in time. Is there any validity 
to that?
    Mr. Durkin. The short answer is yes and the reason is that 
when the island separated, the load that was lost in 
southwestern Connecticut primarily and the generation that was 
lost was above balance, so the remainder of New England and the 
Maritimes were very well balanced. Actually there was excess 
generation and the unit did come off line due to the action of 
automatic control systems to stabilize the island and the 
Maritimes.
    Mr. Bass. Mr. Chairman, you know one of the big issues here 
is we all know this is getting the differential between supply 
and demand on a better parity nationwide. And despite what my 
friend from Georgia said a few minutes ago, the northeastern 
United States is in fact producing significant excess energy 
for much of the year and exporting it to other parts of the 
country and it did indeed mitigate to some extent possibly the 
effect of this blackout.
    One question for Mr. Gent. You have all these maps on the 
walls. How long is it going to take before we have some 
answers? Any idea?
    Mr. Gent. We have most of the data collected that is going 
to be collected. About 90 percent of the data has been 
collected. We made an estimate today that we have about 40 
percent of it certified and verified. It will take maybe 
another 4 weeks.
    Mr. Bass. Thank you.
    Mr. Barton. Before the Chair asks his questions, he is 
going to recognize the gentlelady from Missouri for one 
additional question.
    Ms. McCarthy. Thank you, Mr. Chairman. Mr. Wood, also in 
your testimony you talk about repealing PUHCA, and I wonder why 
a wholesale repeal is necessary. This is with regard to getting 
investor certainty in your testimony, because we have examples 
of targeted exemptions. We provided for the exempt wholesale 
generators. Why repeal the whole act if it is about investor 
certainty? Why not go down that same path of targeted 
exemptions?
    Mr. Wood. One good example I think of is, if there is a 
merger or, perhaps, even a foreign utility wants to come and 
invest in the United States and they want to sink capital into 
our infrastructure, which I think we would welcome, there is a 
strong prohibition on that, with some caveat. Certainly, the 
law over 70 years has changed, but there is a restriction on 
their ability to do that. And those may be beneficial mergers. 
I know Mr. Buffett wants to go shopping around for some 
transmission systems but he owns one right now, so that kind of 
maxes him out. There was a merger that happened when I was 
still a Texas regulator between a Texas utility and a Ohio 
utility that had to be linked, and basically the court has 
subsequently said, you failed PUHCA, although the merger 
actually went forward because the court took a while, but they 
have to be geographically connected to each other when the 
merger happens. From one who worries about market power, I 
actually would hope that utilities that are right next to each 
other don't merge because they might actually merge their 
competitive generation and create a market power problem in 
generation. Wires are regulated. They will be regulated. If 
they aggregate across the board or across the country, it 
becomes a regulatory issue, but not a market power issue, which 
is what we are concerned about when we look at how the 
competitive markets work. So, PUHCA is a significant obstacle, 
if not an outright bar to a number of companies that do have 
access to lower cost capital, to coming into the current 
market. It worked fine over the years, but I do think the 
market structure has evolved beyond when that law was written.
    Ms. McCarthy. I appreciate your comments and you will get 
back to me on the other issues that were raised. I appreciate 
the testimony that was shared today, and I appreciate the 
chairman for his indulgence.
    Mr. Barton. The Chair recognizes himself for the last 
series of questions unless another member who hasn't asked 
questions arrives. And Mr. Strickland has just arisen, so the 
Chair would recognize Mr. Strickland for 5 minutes, and Mr. 
Engel.
    Mr. Strickland. Thank you, Mr. Chairman, for your 
indulgence. Sorry I was called away, but since we have an 
Ohioan here, someone that I very deeply respect, Mr. Schriber, 
I did want to have a brief exchange because I note in your 
comments, sir, you said that you thought the blackout was not 
as a result of deregulation. But then I think you went ahead 
and said something to the effect that the grid was much like an 
interstate highway system, traffic patterns on the wires have 
changed and congestion has increased and the like. So would it 
be accurate to say that deregulation did not cause the 
blackout, but the blackout may be at least in part the result 
of deregulation because the traffic has increased on the grid, 
has it not, as a result of deregulation? So we don't want to 
unnecessarily fault deregulation. But when deregulation 
occurred, maybe we weren't as sensitive as we should have been 
to the need to attend to the additional strain that could occur 
on the transmission system.
    Am I reasonably correct in that description or tell me 
where I am wrong?
    Mr. Schriber. Thank you, Mr. Strickland. First of all, I 
don't think it was as a result of deregulation. The one thing I 
think we really need to distinguish here that I haven't heard 
much of is the distinction between wholesale and retail, where 
we have deregulated at the State level, 23 States if you will 
at the retail end of it. You can buy from another supplier 
other than your local. It has had a modicum of success. Ohio 
has been remotely slightly successful and hasn't been 
overwhelming anywhere. But the grid was actually at one time 
built for wholesale transactions. I mean the reason the grid is 
linked is so that you can have electricity moving from area to 
area and utility to utility. So it is really nothing new to 
have a large volume of transactions taking place around the 
grid.
    Mr. Strickland. Has the volume increased following 
deregulation?
    Mr. Schriber. It has increased but I am not convinced it is 
totally because of deregulation. More merchant generators have 
come on line looking for opportunities to sell electricity, 
thereby pumping electricity in, but not pumping electricity in 
if it is not economical. And if you look at August 14 we were 
operating at below capacity, well below capacity. We weren't 
pushing the limits. And I suspect at that point in time, there 
may not have been every power plant pumping power into the grid 
that might otherwise have been.
    Mr. Strickland. That is interesting information for me and 
it is enlightening information because I was operating under 
the assumption that at least part of the problem on August 14 
was that the system was in fact overloaded and was at or beyond 
capacity and that contributed to the blackout. But you are 
telling me that was in fact not the case?
    Mr. Schriber. In the aggregate it was not the case. 
However, there could have been pockets where there may have 
been problems. If you take out a transmission line, then those 
that run parallel will pick up the load. When another one goes 
down, then two are left to pick up the load. In the aggregate, 
we were not.
    Mr. Strickland. That leads me to another question. You 
know, we all thought when this happened this may be terrorism 
and we were relieved when it wasn't. But I am just sitting here 
thinking if one or two or three lines sagging and getting into 
a tree or whatever could begin a process that led to the 
cascading effect that led to this widespread blackout, my God, 
if I were a terrorist I would be looking at that thinking, you 
know, if the system in effect is that fragile, all I have got 
to do is find a location where I can cause that kind of 
disruption and we don't know what the result may be in terms of 
a blackout. Is that a reasonable fear on my part?
    Mr. Schriber. It is somewhat reasonable but I think there 
are sufficient backup--parallel backups if you will. I have 
seen a tornado take down a 765,000 volt line, which is huge, 
and yet there was enough there to back it up.
    Mr. Strickland. But there wasn't the backup in this case?
    Mr. Schriber. No. In this case you had a series of events 
that did cascade. But with respect to northern Ohio, it is my 
understanding that the system stabilized itself even at that. 
The customer, when those lines went down in that service 
territory, those customers did not lose electricity. They 
stayed on line. It was when the other events in addition to 
that event, I guess you could say, if there were other events--
I don't want to speculate on exactly what happened, but I would 
say that in and of itself would not have been catastrophic.
    Mr. Strickland. My time is up and I thank you. It has been 
enlightening.
    Mr. Barton. Recognize another gentleman who represents an 
area that was affected by the blackout, Mr. Engel of New York.
    Mr. Engel. Thank you, Mr. Chairman. We have been at this 
hearing since this morning. It is almost as long as the 
blackout. Maybe some people would wish that we were blacked out 
so it wouldn't keep going on and on. But I have learned a lot 
and hope to learn a great deal more.
    I would like to ask Mr. Gent, obviously you have a very 
hard job and I think most of us agree that some kind of 
national standards are necessary and that they need to be 
enforceable. I am wondering if you could comment on which 
agency in your estimation should have enforcement authority, 
NERC or FERC, and why you believe that.
    Mr. Gent. Yes, Representative Engel. We have had this bill 
before the House and the Senate for a number of years and it is 
the result of a consensus process where most of the entities in 
the industry have agreed that we should have a system, as 
Chairman Tauzin mentioned earlier, similar to what we have in 
the relationship between the FCC and the NASD and that has been 
sort of a basis of our proposal. And in that proposal, NERC 
would have that authority and they would be backstopped by the 
FERC. I need to also point out that if this goes through it is 
likely that the standards would be submitted to the FERC and 
those reliability standards would in fact be FERC standards. So 
that is the way the current legislation is constructed to work.
    Mr. Engel. Okay. Thank you. Mr. Flynn, let me ask you this. 
First of all, I should ask you how Albany has been these days. 
But let me just ask you, has New York determined why it didn't 
just isolate itself from the grid when the power surges started 
to occur? New Jersey did that, New England did that and why not 
New York?
    Mr. Flynn. That is the $64,000 question. And that is why 
Governor Pataki has asked the Public Service Commission to 
start a formal inquiry into why the circumstances affected the 
State. So in a formal inquiry that will be one of the, if not 
the No. 1 question we will be trying to answer.
    Mr. Engel. My knowledge of--I have lived through three 
power blackouts in New York, 1965, when I was in school; 1977, 
which happened to be my first year in the State Assembly and I 
was in Albany then, which wasn't blacked out but New York City 
was blacked out. And we were lulled into this feeling that it 
wouldn't ever happen again obviously, but it did. What is your 
feeling about--we had asked the Governors earlier on that--I 
appeared on a show where there was a panelist who was 
supposedly an expert and said that the whole problem was 
deregulation, that once things were deregulated, everything 
fell apart. What is your view on that?
    Mr. Flynn. My view is based upon some of the information 
you just gave us and those two prior blackouts, one you were in 
and one you were not, both were under regulated conditions. And 
this latest one was under a scenario where we have a 
restructured system on the generation side and still a 
regulated system on the transmission side. So, in essence, I 
don't think the issue of deregulation, someone would want to 
pin it on something like that, but I think this is going to 
come down to some of the other issues we talked about today, 
communication, judgment by humans, technology. I don't think 
deregulation is going to play as major a role as some of those 
other issues that I just raised.
    Mr. Engel. Mr. Wood, section 307 and 311, I believe, gives 
FERC the authority to do investigations. Department of Energy 
is obviously the lead agency in investigating. Why not FERC?
    Mr. Wood. The last three large blackouts, including the 
1977 blackout right after DOE was formed, the DOE took the lead 
and the FPC and then the FERC supported that effort. Our role 
is really to contribute our expertise to the team in this fact-
finding effort. If there are issues that do fall under FERC 
statutes, which as I mentioned in my testimony are relatively 
sparse on reliability issues, we will adjudicate those 
independent of the task force. But in this fact-finding 
gathering, like NERC, the Nuclear Regulatory Commission, and 
the Canadian entities, we are all working together to do the 
fact finding.
    Mr. Engel. I told Secretary Abraham before that I had hoped 
that whatever the investigation showed that everything would be 
transparent; that there would be nothing that would be 
classified or hidden from Congress or hidden from the public. 
And I think that is very important because we obviously want to 
make sure that the data that we get after conclusions are made 
that we know exactly what was there and that books aren't 
cooked and things aren't slanted so that people can have the 
result that they wanted to see before the investigation 
started, and I am wondering how you feel about that.
    Mr. Wood. I feel very strongly about that. I think 
certainly our experience with the California investigations, 
which were very significant and deep and data-intensive and 
gave answers that some people didn't want to hear, we released 
that. We are still litigating just how much we put out. Some 
people didn't want their personal e-mails out in public and we 
are adjudicating that. I am a big believer of transparency and 
I hope our record at FERC can demonstrate that to you. I think 
that is applicable here, subject, of course, to the security 
concerns about vulnerabilities or other issues related to 
security. But, I think when you let the facts go where they may 
and if that means dramatic changes in preconceived notions, we 
need to be big enough to accept that.
    Mr. Engel. Thank you, Mr. Chairman. I believe my time is 
up.
    Mr. Barton. The Chair would recognize himself for the last 
round of questions. Before I ask questions, I think I need to 
make a little bit of a statement since I have not been here 
most of the day. I was out in Colorado in the Edison electric 
Institute and their executive board and this was the topic of 
discussion. The subcommittee that I chaired passed a bipartisan 
bill that was modified at full committee. It then passed in a 
bipartisan fashion and was sent to the floor and passed in a 
bipartisan fashion. Many of the elements of that bill were 
considered very ugly. We had quite a bit of testimony about our 
poor little bill and it wasn't worth a warm bucket of spit 
maybe, but the fact of the matter are had that bill been law, 
say a dozen years ago, with mandatory liability standards and 
with the creation of RTOs and with incentive rate making 
authority explicitly for the FERC and accelerated depreciation 
for transmission, repeal of PUHCA, I think you could make a 
case of what happened on August 14 would not have happened. But 
just passing the bill next month is not going to prevent what 
happened until it is fully implemented. So I guess I just want 
to pat my subcommittee on the back and Mr. Boucher and Mr. 
Doyle and Mr. Strickland and Mr. Engel and Mr. Norwood and Mr. 
Burr and others. Not all of them voted for the bill but they 
had input into the bill and I appreciate them for their 
efforts.
    My first question to this panel and I apologize for keeping 
us so long, how many of you gentlemen actually lost power 
yourselves at your office or homes on August 14?
    Mr. Flynn. I did.
    Mr. Barton. Mr. Eldridge did and Mr. Lark did. So you 
experienced the pain so to speak. Mr. Lark, how long did it 
take you to get your power back on?
    Mr. Lark. Truth of the matter is I didn't lose power at my 
home but I did lose it at the office. And the office was up and 
running the next day.
    Mr. Barton. Mr. Eldridge.
    Mr. Eldridge. About 6 hours.
    Mr. Barton. Mr. Durkin?
    Mr. Durkin. The MPCC's office came back about noontime the 
next day.
    Mr. Barton. We didn't lose power in Washington. Mr. Wood, 
you had power? There are those who wished you would have lost 
power.
    Mr. Wood. I was actually in Texas.
    Mr. Barton. I was in Houston, Texas. Some of you know what 
it feels like to have something that we take for granted all of 
a sudden not be available. Mr. Eldridge and Mr. Durkin, there 
is a question at the staff level about how your two 
organizations communicated before the blackout occurred. Were 
you all on any kind of communication monitoring what happened 
before--in other words, this thing looks like it may be bad and 
we might need to do something about it. Was there any kind of 
communications between your two organizations before the 
blackout occurred?
    Mr. Eldridge. No, there wasn't. As I indicated before, ECAR 
is not an operating entity, the ECAR office operation, so we 
don't have the capability to monitor what is going on in the 
system. That is the responsibility of our operating companies 
working in conjunction with the reliability coordinators.
    Mr. Barton. Explain to me the difference between a 
coordinating council and a reliability council. Are they the 
same?
    Mr. Eldridge. The regional reliability council, which is 
what ECAR is and MPCC is, is a forum of members who coordinate 
planning and operation of a generation and transmission 
facility.
    Mr. Barton. But you don't operate.
    Mr. Eldridge. The members are the operating entities.
    Mr. Barton. You are a board of directors. You don't have a 
control room somewhere.
    Mr. Eldridge. No.
    Mr. Barton. So the control room would be Mr. Durkin, the 
Coordinating Council.
    Mr. Durkin. Within MPCC there are five control areas: the 
New York ISO, ISO New England, the interior IMO, the Quebec 
area and the Maritime Provinces. They are the ones who operate 
the system in real time.
    Mr. Barton. Do we have anybody here who actually works for 
an organization that operates these systems? You guys are all 
policy guys.
    Mr. Flynn. Tomorrow.
    Mr. Barton. Tomorrow at 9:30 we get to hear from the 
operating guys.
    Mr. Wood, you have already explained to Mr. Engel that your 
group--that the FERC is not a part--you are not doing your own 
investigation but are helping the investigation. Could you 
elaborate on that a little bit? Are you providing more legal 
assistance or staff assistance in terms of technical 
explanations? Exactly what is the FERC role in this 
investigation?
    Mr. Wood. I am personally a member with Secretary Abraham 
and Secretary Ridge and Chairman Diaz of the Nuclear Regulatory 
Commission on the overall task force from the U.S. side. Our 
counterparts, four gentlemen and a female from Canada, are of 
the other half. So that is at the steering level.
    There are three working groups. My assistant, Ms. 
Silverstein, is on the electricity working group. There is a 
separate working group on homeland security and a third one on 
nuclear issues. Those are staffed with a number of people from 
States, from industry, from experts outside the industry. So it 
is a very broad group.
    Our own people at FERC, like, for example, today, are up 
there working at Mr. Gent's organization with some issues 
related to the timeline that the Secretary spoke about earlier, 
getting that finalized and going through the details and making 
sure that it all works together. Contributing technical 
expertise is the primary job we are doing, but we are also 
offering legal assistance to the parties on confidentiality 
issues and the like.
    Mr. Barton. How many investigations are actually under way? 
Is there one investigation, two investigations or three 
investigations? Because we have the international task force, 
we have the NERC technical, and we have the DOE--your 
assistant, that is three. Do we have any interconnectivity?
    Mr. Wood. They are highly interconnected.
    Mr. Barton. Who is the ISO operator of all these?
    Mr. Wood. From our side, the Secretary and his counterpart 
in Canada are the guiding leadership on this joint 
multinational----
    Mr. Barton. Do any of the States--State of Ohio or the 
State of New York have State investigation, so we have some 
State investigations, too?
    Mr. Schriber. Yes, we do. And we have called the other 
companies in Ohio and have gone through time lines with them. 
Even though they were with power, we wanted to know what they 
were seeing. And I am on that binational task force, and we 
will be providing information to that task force with what we 
gather in Ohio.
    Mr. Barton. Mr. Gent, in response to questions from Mr. 
Bass, said that he had thought he would wrap his technical 
collection effort up in about 4 weeks. Is that the general 
timeframe for these other investigations?
    Mr. Flynn, what is your timeframe?
    Mr. Flynn. Hopefully, by the end of the year. But we are 
striving to get it done right instead of getting it done quick. 
We are already working with--the operator from New York State 
has already provided us information. We are cooperating or the 
utilities and generators in the State are cooperating along 
with the associations, and whenever information will be proved 
worthwhile we will feed it into the international investigation 
that is going on.
    Mr. Barton. So what is the--I mean, the Congress--we are in 
the energy conference with the Senate. We hope to move a bill--
at least I hope to move a bill. I can't speak for all the 
members of the committee. We hope to move a bill sooner rather 
than later. So when do all these investigations finally come up 
with their report? I mean, sometime next spring? Mr. Gent.
    Mr. Gent. I may have given you the wrong impression that we 
would be through in 4 weeks. That is when we hope to have the 
data all finalized. Then we have to go into the phase of why it 
happened, who is at fault, and that will go on. I have a whole 
outline here of what will probably take another year to finally 
conclude.
    Mr. Barton. Another year. So if a Member of Congress would 
say we ought to wait to get these investigation 
recommendations, that is basically a recipe to do nothing.
    Mr. Gent. I would very much be opposed to that.
    Mr. Barton. Let me ask you gentlemen a few questions, and 
then we will let you go.
    One of the elements in the House bill is that we do repeal 
PUHCA. The gentlelady from Missouri had a question about that. 
Mr. Wood addressed that. But is it not true that if you don't 
repeal PUHCA there is almost no way you are going to get the 
capital to come into this industry to rebuild and refurbish the 
infrastructure that I think everybody agrees that we need to 
refurbish and in some cases add capacity? Do any of you 
gentlemen oppose repeal of PUHCA?
    Mr. Lark. I am not as familiar as I might be with it, but--
--
    Mr. Barton. That doesn't mean you can't answer the 
question.
    Mr. Lark. I haven't seen the legislation and looked at it 
and vetted it the way I would like to before responding to your 
question. I do not believe in PUHCA repeal at this point, 
unless it was going to be replaced by something else, some 
other legislation with some consumer protections in it.
    Mr. Barton. We will have some reporting requirements and 
some expanded FERC authority for some increased FERC authority 
for penalties, financial penalties and maybe even criminal 
penalties. But the problem with PUHCA is, as Mr. Wood has 
pointed out, that you cannot get--unless your primary line of 
business is already utility business and unless you are 
adjacent to the service territory, PUHCA prevents you from 
merging or purchasing a utility. I mean, we have this huge 
infrastructure need and I think everybody in the panel agrees 
we are going to need more transmission siting. Is there anybody 
that disagrees with that?
    If you don't repeal PUHCA you either have to put the 
government--the government has to come in and nationalize the 
system to put the capital into it or you are going to have to 
make do with the current system with a little bit of increase, 
and we have been increasing transmission about a third as fast 
as demand has been increasing or at least that is what I have 
been told.
    Mr. Lark. I would just say that, as to how much investment 
is required in the transmission infrastructure, I don't think I 
have made a conclusion on that point; and that is one of the 
things I think we will learn following the outcome of the many 
investigations that you alluded to earlier.
    Mr. Barton. Does anybody on this panel oppose the incentive 
authority for incentive rates for new transmission capacity? 
FERC has some authority in that area already. The pending bill 
that the House passed expands that and makes it explicit that 
FERC has that authority. Are any of the panel members opposed 
to that?
    Mr. Lark. Well, don't want to say I oppose that, but I 
would want to think that through just a little bit. I know that 
my Governor made some remarks earlier and I think those went to 
the point that I believe the return on equity at present is 
12.88 percent. Membership in an RTO brings it up to 13.88, and 
there are other aspects that FERC has in place that would bring 
it up even higher. So I have not concluded that is the problem, 
that, in other words, without additional incentives----
    Mr. Barton. We don't have mandatory incentive rates for 
transmission. What the bill would do, that would make it 
explicit in certain cases that the FERC could do it. So you 
could still have the traditional State or Federal rate-making 
authority that would not have an incentive rate to it. So this 
is not a blanket. Every transmission line that is going to be 
built is going to have an incentive rate.
    Mr. Lark. I would like to look at the legislation.
    Mr. Schriber. Mr. Barton, you are talking part of this 
incentive rate making is the participant funding, which is 
pretty vague. It says those who benefit should pay, and it is 
not clear who benefits. That is the problem, because there may 
be benefits that are spread way beyond those that are perfectly 
obvious. It is a difficult part and I think needs to be 
ferreted before you go forward with that.
    Mr. Barton. Anything we would like to do in the House-
passed bill is make it possible to get a more reasonable 
depreciation schedule for transmission lines that are built. So 
that instead of having a 40-year transition period you could 
have 10 or 15 years so you get your capital back quicker.
    Any of you gentlemen oppose that?
    So we have agreement on that one.
    Mr. Lark. Mr. Chairman, I, again, would want to take a look 
at that. I think the general schedules presently are 
approximately 15 years. I believe what I am hearing is taking 
it down to 10 years. I wouldn't say I have a knee-jerk reaction 
about that, but, again, I am not certain that is necessary for 
transmission upgrades.
    Mr. Barton. One more question. RTOs, how many of you 
represent regions that are power generation sufficient? Ohio 
could generate all of its power. Michigan could generate all of 
its power. New York and New England could generate all of its 
power.
    Mr. Lark. Mr. Chairman, I wouldn't say Michigan can 
generate all its power, but we are not generation deficient. We 
presently bring in generation from the two southern 
interconnects. So in our area we don't consider ourselves power 
deficient.
    Mr. Barton. Is there anybody who represents a region that 
is not interconnected with other States? Is there anybody who 
wants to be its own island and not be interconnected with other 
States?
    So at least in principle we all agree there should be RTOs. 
The question is how to set them up and how to give the States 
and the regions the authority to set them up in a way that each 
State and each region has a say in that RTO that makes sense 
for that State and region's perspective.
    Mr. Schriber. Yes. And if I may, there are some States such 
as ours that have more than one RTO which has problems of its 
own.
    Mr. Barton. I want to ask Mr. Eldridge and Mr. Durkin, who 
do you actually report to? Who pays your salary?
    Mr. Durkin. My case, I am chairman of MPCC; and the 
membership pays my salary.
    Mr. Barton. So the utilities that are part of the 
Coordinating Council pay in and your salary is paid not 
directly but they supply funds to the Council and you are paid 
from those funds?
    Mr. Durkin. Yes. The funds that they provide pay me, they 
pay for the staff of the organization, and they also pay for 
the support that we are required to pay for NERC and so forth.
    Mr. Barton. What about you, Mr. Eldridge?
    Mr. Eldridge. Very same thing. ECAR is a nonprofit member 
organization.
    Mr. Barton. If you did a bad job, who would make the 
decision to replace you? Mr. Eldridge.
    Mr. Eldridge. Different from MPCC, which has kind of a 
permanent chairman, in ECAR we have an executive board which is 
a governing body of ECAR; and the chairman of the ECAR 
executive board is my boss. And----
    Mr. Barton. And who picks the chairman of the executive 
board?
    Mr. Eldridge. The board itself. They have a nominating 
committee process.
    Mr. Barton. Is that chairman of the executive board member 
a utility executive who would be an operating officer?
    Mr. Eldridge. The current chairman of ECAR's executive 
board is the CEO of Big Rivers Electric Corp.
    Mr. Barton. That is the kind of person----
    Mr. Eldridge. Typically, the people on the executive board 
are senior executive level people.
    Mr. Barton. You are not picked by Mr. Gent.
    Mr. Eldridge. I am picked by my board.
    Mr. Barton. The NERC puts these standards in place, but 
NERC does not serve in a supervisory capacity over you or Mr. 
Durkin.
    Mr. Durkin. That is correct.
    Mr. Barton. That is done by the participants who join your 
nonprofit organizations, and in most cases those are executives 
of utilities, is that correct?
    Mr. Durkin. In the case of MPCC, we have an executive 
committee that is split between transmission customers and 
transmission owners. The transmission customers are independent 
generation owners and so forth, market makers and so forth.
    Mr. Barton. Now is there any reason to believe that this 
structure--and I am not advocating that it did--but is there 
any reason that the way the structure is set up is a problem in 
terms of operating the system and preventing blackouts? Because 
it seems to be a very diffused structure.
    Mr. Durkin. Well, at ECAR each member company is 
represented on the executive board. The executive board 
determines the policy, direction and improves all reliability 
criteria that the ECAR forum develops; and most of what we 
develop is in conjunction with and in support of the NERC 
reliability standards. We are just a regional implementer of 
that, if you will. And--and I lost my train of thought there.
    Mr. Barton. It is late in the day. I just had a general 
question, and you have satisfied it.
    Gentlemen, I want to thank you. This hearing is going to 
recess and reconvene tomorrow morning at 9:30, and we do 
appreciate your attendance.
    [Whereupon, at 6:15 p.m., the committee was adjourned.]
    [Additional material submitted for the record follows:]

               Northeast Power Coordinating Council
                     1515 Broadway, New York, NY 10036-8901
                                                    October 7, 2003
Hon. W.J. Tauzin
Chairman, Committee on Energy and Commerce
Room 2125 RHOB
United States House of Representatives
Washington, D.C. 20515

Re: Committee on Energy and Commerce Request

    Dear Chairman Tauzin: As requested, attached is Northeast Power 
Coordinating Council's response to the questions transmitted in your 
September 22, 2003 letter. We welcome this opportunity to provide 
additional information. Please let me know if you or the Committee have 
any other additional questions.
            Very truly yours,
                                     Charles J. Durkin, Jr.
                                                           Chairman
cc: Members, NPCC Executive Committee
  Northeast Power Coordinating Council Response to the U.S. House of 
            Representatives Committee on Energy and Commerce
    Question 1. You mention NPCC's preference for the reliability 
language in H.R. 6, specifically due to its acknowledgement of New 
York's unique reliability needs. Could you elaborate on what those 
needs are and why it is important to recognize them?
    Response. NPCC criteria establish the regionally specific 
reliability requirements necessary to maintain the security and 
adequacy of its interconnected bulk power supply system. These criteria 
define the minimum requirements for both the design and operation of 
the Northeastern North American electric power system. While they are 
consistent with and meet NERC criteria, they are more stringent.
    More stringent criteria and rules make for a more robust system, 
especially when operation outside of normal system conditions is 
encountered. These requirements provide for extra margin that adds 
flexibility when extraordinary events occur and reduces the likelihood 
of the need for load shedding in response to such system disturbances.
    The New York State Reliability Council (``NYSRC'') establishes 
rules for maintaining the reliability of the electric power system 
within New York State (``Reliability Rules''). These Reliability Rules 
may be more specific and more stringent than NPCC Standards, 
recognizing special New York system characteristics or reliability 
needs.
    These Reliability Rules define standards for maintaining the 
reliability of the New York State Power System. Compliance with the 
Reliability Rules is required by the New York ISO and all entities 
engaged in transactions in the New York State Power System (New York 
ISO/NYSRC Agreement Section 2.1). Reliability Rules are developed in 
accordance with NERC, NPCC, FERC, PSC, and NRC standards, criteria, 
rules, and regulations, as provided in the NYSRC Agreement (New York 
ISO/NYSRC Agreement Section 4.1).
    The Reliability Rules pertaining to operation of the New York 
System during impending severe weather conditions (New York City Storm 
Watch in-city generation requirements, for example) recognize the 
specific New York transmission configuration and outline the corrective 
actions to protect the system for one contingency greater than that 
required by the normal criteria. For example, limits may be imposed on 
the 765kV tie line with Hydro Quebec when thunderstorms are reported in 
the vicinity. Local reserve and installed capacity requirements 
recognize specific New York transmission constraints.
    In general, due to New York's geography and network topology, a 
variety of local reliability rules are necessary in order to assure the 
safe and reliable operation of its electric power system.
    Question 2. Your testimony briefly explains how New York divided 
into two islands. Can you elaborate on that occurrence and describe 
what effect this had on power restoration?
    Response. Our understanding of the events described here, and of 
those not yet fully catalogued, may change as the investigation 
progresses.
    Initially, the Eastern Interconnection split into two sections 
separated by an east-to-west line. To the north of that line was New 
York City, northern New Jersey, New York, New England, the Maritime 
Provinces, eastern Michigan, the majority of Ontario, plus the Quebec 
system. To the south of that line was the rest of the Eastern 
Interconnection, which was not affected by the blackout. During the 
next nine seconds, several separations occurred between areas in the 
northern section of the Eastern Interconnection.
    The ties between eastern New York and New England disconnected, and 
most of the New England area became an island with generation and 
demand balanced close enough that it remained operational. However, 
southwestern Connecticut separated from New England and remained 
momentarily tied to the eastern New York system. At about the same 
time, the ties between eastern New York and western New York 
disconnected creating two islands.
    Ontario and western New York then separated, with 15% of the demand 
across New York State disconnected automatically. About 2,500 MW of 
Ontario demand automatically disconnected as the Ontario system 
attempted to rebalance.
    The Ontario-New York separation left New York's and Ontario's large 
hydro generators in the Niagara and St. Lawrence areas, as well as the 
765 kV intertie with Quebec, connected to the New York system, 
supporting the demand in upstate New York just south of Lake Ontario. 
Three of the transmission circuits near Niagara automatically 
reconnected Ontario to New York, and another 4,500 MW of Ontario demand 
automatically disconnected.
    Just after 4:11 pm (EDT), the Niagara lines disconnected again, and 
western New York and Ontario again separated. Most of Ontario blacked 
out after this separation, leaving 22,500 MW of demand disconnected out 
of a total demand of about 24,000 MW.
    The eastern New York island blacked out with only scattered small 
pockets of service remaining. The western New York island continued to 
serve about 50% of the demand in that island. When a 345 kV line 
feeding from southwestern Connecticut into eastern New York 
disconnected, it left southwestern Connecticut connected to New York 
only through the 138 kV cable that crosses Long Island Sound. About 500 
MW of southwest Connecticut demand was disconnected by automatic grid 
operations. Twenty-two seconds later the Long Island Sound cable 
disconnected, islanding southwest Connecticut and blacking it out.
    Some isolated areas of generation and load remained on line for 
several minutes. Some of those areas in which a close generation-demand 
balance could be maintained remained operational; other generators 
ultimately tripped off line and the areas they served were blacked out. 
One relatively large island remained in operation serving about 5,700 
MW of demand, mostly in western New York. This service was maintained 
by large hydro generating stations in New York and Ontario in the 
Niagara and St. Lawrence areas as well as the 765 kV inter-tie with 
Quebec. This island formed the basis for restoration in both New York 
and Ontario.
    NPCC's Emergency Operation Criteria requires each area to have a 
system restoration plan in accordance with NERC Operating Policies, and 
requires that system operators be knowledgeable of the strategy, 
priorities and procedures for implementing their system restoration 
plan. NPCC regularly assesses and assures compliance with these 
requirements.
    Under the New York ISO's Restoration Plan, developed in accordance 
with NERC and NPCC emergency operating criteria, priority is given to 
energizing the power system, synchronizing it with neighboring system, 
and restoring offsite power to nuclear facilities. The restoration of 
load to customers is the ultimate plan objective.
    The first step taken in the restoration process involved 
stabilizing the system and restoring the tie lines to the neighboring 
control areas. Within about three hours, the New York ISO was able to 
restore the major tie line at Ramapo to the remainder of the Eastern 
Interconnection. The first major New York power plant was returned to 
service in just under an hour after that, and a few minutes later a 
transmission path to New York City was re-established. From the outset 
of the emergency, the New York ISO placed high priority on the 
restoration of New York City, where the absence of electricity is a 
more severe threat to health and welfare than elsewhere. Throughout the 
next day, there was a painstaking process of bringing generators back 
to the system and re-energizing lines.
    New York State service was restored by 10:30 pm Friday, August 
15th. The restoration process was aided and shortened by the fact that 
the western New York island remained in service and by having on-line 
generation already available in this island during the initiation of 
the restoration process.
                                 ______
                                 
        North American Electric Reliability Council
                                      Princeton, New Jersey
                                                    October 2, 2003
The Honorable John D. Dingell
U.S. House of Representatives
2328 RHOB
Washington, D.C. 20515-6115
    Dear Congressman Dingell: During the September 3, 2003 hearing of 
the Committee on Energy and Commerce concerning the August 14th 
blackout in the upper Midwest and Northeast United States and eastern 
Canada, you requested that I supply additional information regarding 
the nature of the violations that NERC had found through its compliance 
enforcement program.
    This letter provides that additional information. At the outset I 
must emphasize that neither NERC nor the U.S.-Canada Joint Task Force 
on the Power Outage has completed its investigation of the blackout. 
Further, the violations described in this letter were not a product of 
that investigation; rather, these violations were found through NERC's 
ongoing compliance program.At the hearing you asked whether any of the 
violations that NERC found through its compliance program imposed risk 
to the system, including the possibility of a shutdown of the kind we 
experienced on August 14th. NERC found several types of violations that 
exposed the interconnected system to serious risk. A description of 
those violations and the nature of the risks they present follow.
     Operating portions of the transmission system beyond their 
``first contingency'' rating. NERC's planning standards and operating 
policies require that the transmission system be planned and operated 
to withstand the failure of any single element without affecting other 
portions of the transmission system. Some control areas and reliability 
coordinators reported specific situations during which they operated 
beyond the first contingency rating of a portion of their transmission 
system. In 2002, NERC referred to this rating as the ``operating 
security limit.'' Violating this limit increases the possibility that a 
disturbance to the transmission system could result in a widespread 
cascading failure. If portions of the system are being operated beyond 
their first contingency rating and the contingency occurs (such as a 
storm damaging a transmission line or a generating plant shutting down 
because of a boiler tube leak), then other portions of the transmission 
system could well be affected. Depending on the circumstances, such an 
occurrence could precipitate a cascading failure of a portion of the 
system. NERC's planning standards and operating policies require that a 
system operator know the first contingency ratings of the portion of 
the system under its control, that the system operator regularly assess 
system conditions, and that the system operator take corrective action 
to promptly bring the system back within first contingency ratings when 
those ratings are exceeded.
     Exceeding control performance limits. NERC operating policies 
require that each control area maintain a constant balance between its 
generation and demand within specified limits, recognizing that 
customer demand is constantly changing and generation control is never 
perfect. Operating outside those limits is considered a violation of 
these control performance policies and places a burden on the entire 
Interconnection as it feeds power to, or absorbs power from, the non-
compliant control area. NERC expects control areas to comply with these 
control performance policies at all times, even when generation is 
limited. That expectation might require a control area to curtail 
customer demand through public requests for conservation, voltage 
reductions, and even load shedding. NERC performs monthly surveys that 
track each control area's compliance with NERC's control performance 
policies. Although most control areas fully comply with these policies, 
we have seen obvious instances of non-compliance that resulted in 
noticeably lower frequency in the Interconnection. Non-compliance with 
the control performance standards can also result in unscheduled flows 
on the transmission system as the entire Interconnection responds to 
correct the imbalance. These unscheduled flows may overload portions of 
the system. Because the flows are unscheduled and therefore unknown to 
the system operators, it may be more difficult to resolve the overload 
because the system operators do not know what is causing it.
     Failure to return generation-demand balance within 15 minutes 
following the sudden failure of generation. Generating unit failures 
cause an instant imbalance between a control area's generation and its 
customer demand, resulting in a decrease in system frequency. NERC's 
control performance operating policies require that a control area 
return to a balance between its generation and customer demand within 
15 minutes following the sudden generating unit failure. Many control 
areas pool their generation reserve in a reserve-sharing group to 
quickly restore this balance. Until that balance is achieved, the 
entire interconnection feeds power to the deficient control area as a 
result of automatic controls on the generators. Our monthly surveys 
show that most control areas comply with this policy. Those that do not 
are required to carry additional operating reserves. Until balance is 
restored, unscheduled flows occur on the system, presenting the same 
potential for overloads discussed in the prior example.
     Lack of NERC-certified system operators. Since January 1, 2001, 
NERC has required that all control center operators be NERC-certified. 
NERC certification requires that the system operators pass an 
examination based on our operating policies as well as a general 
knowledge of interconnected system operations. Not having NERC-
certified system operators may place the system at risk because the 
non-certified operator may lack a sufficient understanding of 
interconnected system operations and the operating policies necessary 
for interconnected operations. The system operator may not appreciate 
the risk of operating in a particular manner. In the event of a system 
disturbance, the system operator may not understand the steps needed to 
bring the system back within acceptable operating parameters.
     Non-compliance with regional underfrequency load shedding 
programs. Underfrequency load shedding systems help provide a quick 
generation-demand rebalance when a portion of the Interconnection 
becomes isolated from the rest of the system. This underfrequency load 
shedding is accomplished automatically in fractions of a second. Each 
of the Regional Councils has established underfrequency load shedding 
requirements for its control area members. This load shedding must 
occur prior to generating units tripping offline to protect generating 
equipment and attempt to arrest a decline in system frequency. Not 
complying with these standards can result in insufficient 
underfrequency load shedding, or load shedding that doesn't occur until 
the frequency has declined too far. Once frequency declines to a 
certain point, relays designed to protect equipment on the system from 
physical damage begin to disconnect equipment (such as generating 
units) from the system, causing frequency to decline even further as 
demand and the resources available to meet it get even further out of 
balance.
     Lack of system studies. NERC planning standards require that 
utilities model their systems under normal, single contingency, and 
severe contingency situations. Studying the effects of contingencies on 
transmission system models helps the utilities and reliability 
coordinators understand how those systems are likely to respond under a 
range of normal to stressful situations. Lacking those studies means 
that the system operators may be faced with events whose outcomes might 
be unknown, i.e., operating in an unstudied state. Without such 
studies, system operators may not realize that they are operating 
beyond first contingency ratings, or system operators may not 
understand the limits they need to impose on transfers across the 
system to avoid a voltage collapse.
    The 444 violations of NERC Operating Policies included in the 2002 
Compliance Report break down in the following manner:

    Control performance standards, CPS-1 and CPS-2: 25
    Disturbance control standard: 8
    Formal policies and procedures to address the execution and 
        coordination of activities that affect transmission system 
        security: 11
    Operating security limit:
        Violation of first contingency limit: 15
        Violation of regional criteria that are more stringent than 
            NERC criteria: 98
        Path being up-rated (old limit violated--new limit not 
            violated): 12
    Adequate facilities for system operators to monitor specific system 
        parameters: 8
    Control area and operating authority to provide system data to 
        reliability authority: 10
    Operators must implement and communicate emergency plan: 1
    Emergency operation plans developed and maintained: 15
    System restoration plans: 27
    System operator authority: 12
    Operator certification violation: 193
    Reliability authority to perform next-day study: 8
    Issuance of energy emergency alerts: 1
    The 97 violations of NERC Planning Standards included in the 2002 
Compliance Report break down in the following manner:

    System performance under normal conditions with reporting 
        requirements: 11
    System performance under single contingency with reporting 
        requirements: 12
    System performance under extreme contingency conditions: 18
    Recorded fault and disturbance data: 5
    Develop and maintain a library of dynamic models: 2
    Consistency of entities with regional underfrequency load shedding 
        program: 44
    Analyze and document regional underfrequency load shedding program 
        performance: 2
    Analysis and documentation of under-voltage load shedding event: 2
    Regional assessment of special protection system coordination and 
        effectiveness: 1
    I hope this additional information is useful to the Committee. 
Please contact me if you have additional questions relating to the 
reliability of the bulk electric system.
            Very truly yours,
                                            Michael R. Gent
                                                  President and CEO
cc: The Honorable W. J. ``Billy'' Tauzin
                                 ______
                                 
  Prepared Statement of Hon. George E. Pataki, Governor, State of New 
                                  York
    Mr. Chairman, thank you for the opportunity to submit testimony 
regarding New York's experience during the recent northeast blackout.
    On August 14, 2003, nearly ninety percent of New York State 
experienced a loss of electric service that lasted for periods ranging 
from several minutes to nearly 30 hours. This power outage has cost the 
State and its citizens untold millions of dollars in lost commerce, 
equipment damage, food spoilage and restoration, as well as 
inconvenience and risk to public safety on a monumental scale.
    At this point, the precise origin of the outage is still not 
known--although speculation abounds. We also do not know how this fast 
moving event on our power grid could have crossed through so many 
jurisdictions and then entered New York without apparent warning. What 
we do know is that New Yorkers--upstate and down, young and old, rural 
and urban, responded to the situation with a sense of courage and 
community that is, unfortunately, learned only from hard experience. 
New Yorkers rose to this occasion as they have in the past--together. 
As the sun began to go down on August 14, 2003, millions of people 
tried to make their way out of New York City. They streamed across our 
bridges on foot, caught rides with co-workers or strangers, and many of 
them slept in our parks and on our streets. Neighbor looked after 
neighbor and New York met the challenge with a peaceful determination. 
In fact, during the time that New York was without power there was no 
discernible increase in crime of any kind in our state. Contrast that 
to 1977, when the last great blackout occurred. During that event there 
was widespread looting and crime as many took the opportunity to turn 
on their own neighborhoods. Not anymore, not in a City and a State that 
has been through what New York has been through in the last two years. 
Instead shopkeepers came out and directed traffic under darkened 
traffic lights. People offered rides to strangers and got them home 
safely. In some neighborhoods there were impromptu block parties as 
people came out of their homes and gathered in the streets--peacefully.
    These people deserve answers. They deserve results. They deserve a 
rock solid assurance that this will not happen again.
    One way we could fail them is to jump to conclusions. Another way 
we could fail them is to engage in an endless cycle of finger pointing 
or blame. But we will not fail them if we do two things: First, we must 
obtain a true understanding of this event before reaching any 
conclusions as to cause. Second, once those causes are identified, 
swift and certain action must be taken that deals--once and for all--
with the weaknesses that allowed this to happen in the first place.
    I would like to spend just a few minutes describing what was 
happening in New York State in the immediate aftermath of the blackout 
and some of the actions we took in response to this emergency. I then 
will offer to this Committee some specific actions which New York 
believes Congress can and should take to strengthen our nation's 
electricity system.
    Shortly after the first flickering of the lights in New York, the 
state's emergency response system was up and running. Our Emergency 
Operations Center in Albany was activated under the direct supervision 
of my staff by representatives of twenty-three state agencies, FEMA, 
and volunteer organizations like the American Red Cross. I declared a 
statewide emergency less than one hour after the power failure.
    The state's initial response focused on two major tasks: monitoring 
the restoration of electrical power to the citizens, and supporting 
local government efforts to protect public health and safety. While the 
Public Service Commission monitored and assisted the power restoration 
efforts of New York's major utilities and generators, including the 
shutdown of the state's six nuclear power plants, our other state 
agencies were engaged in public protection efforts.
    During this phase of the emergency our Operations Center 
coordinated the transfer of generators from state agencies to provide 
power to three downstate hospitals. Additional generators were 
dispatched to power local water supplies. The Department of Health 
remained in contact with the state's hospitals and, in coordination 
with New York City, organized the dispatch of over 50 ambulances from 
upstate New York to support New York City's emergency service units. 
The Department of Health in partnership with the Department of 
Agriculture and Markets provided inspectors to augment local inspection 
of grocery stores and restaurants as millions of refrigerators across 
New York suddenly stopped working. Immediately the state's private 
utilities and generators, as well as our own Long Island and New York 
Power Authorities, began working together with the Independent System 
Operator to restore electric service to 17 million people in a 
deliberate and orderly fashion.
    Late in the evening on Thursday night the New York Power Authority 
and its counterpart in Ontario appealed to the International Joint 
Commission for permission to divert additional water into the large 
hydro-electric plants at Niagara Falls. At that point these huge hydro 
plants were virtually the only generators running in our state--
thankfully they supply thousands of megawatts of dependable power.
    Recognizing the magnitude of this emergency the International Joint 
Commission quickly allowed the diversion of an additional 50,000 cubic 
feet of water per second from the Niagara River into the hydro 
projects. The famous tour boat ``Maid of the Mist'' had to temporarily 
suspend operations because only half as much water was flowing over 
Niagara Falls. However, the water diversion allowed for the generation 
of an additional 1,100 megawatts of electricity beyond the normal 
output of the facilities, enough to provide power to more than one 
million homes. At a time when most of the northeast United States was 
without electric generating capacity, this move turned out to be 
critical to the restoration process, allowing other generators to come 
back on line more rapidly and decreasing the severity and duration of 
the outage across the state.
    Over the course of the last two years we put together an initiative 
we call the Coordinated Demand Response Program, and on August 14th and 
15th it played a significant role. The program involves all of New 
York's energy agencies acting together to strategically plan and 
implement programs in cooperation with the New York Independent System 
Operator (NYISO) and local utilities to reduce the demand for 
electricity at key times. This program, which provides financial 
incentives to customers who reduce their demand for power, uses a 
``quick response'' alert system involving a statewide network of large 
and small electricity customers. For example, by operating via a 
combination of cellular and internet-based controls with 34 Home Depot 
stores throughout New York City we were able to reduce the electricity 
demand of these stores by over 4 megawatts--enough power for over 3,000 
homes. We also had in place a coordinated program for reduced energy 
consumption by State agencies and authorities across New York. On 
August 14th and 15th, those programs were instrumental in helping to 
restore electricity to New York State by balancing the load as the 
electricity delivery system was re-energized. In New York State we 
showed that energy efficiency, demand response programs, and public 
appeals are important grid management tools. In this case they proved 
to be an emission-free way of reducing electricity demand by 
approximately 2,500 megawatts--the combined output of three large 
generating facilities.
    During this same time frame Consolidated Edison was engaged in a 
major effort to restore power to the City of New York. Among the first 
significant electric generating station to come back on line in the 
greater New York City region was a small, clean-burning gas-fired 
combustion turbine located at Hell's Gate in the Bronx. This power 
plant and others in five locations throughout New York City had been 
installed in preparation for the summer of 2001 by the New York Power 
Authority. Because they are sited in strategic, energy-starved 
locations within New York City and are not dependent on long-range 
transmission, these small, clean power plants provided critical support 
to the electric grid, and helped to reduce the duration of the outage. 
In fact, many of the neighborhoods where these turbines are located 
were among the first to come back on-line. The installation of these 
plants is a clear example of New York's extensive planning and 
preparation to prevent and minimize energy emergencies.
    On Thursday, August 14th, we also appealed to Energy Secretary 
Spencer Abraham for assistance with a vital link between Long Island 
and the State of Connecticut. The Cross-Sound Cable, a 330 megawatt 
power line that was fully capable of functioning but which had not yet 
been activated due to what can only be described as parochial political 
reasons, was the subject of a New York request for an emergency order 
from the Department of Energy. Secretary Abraham and his staff answered 
our request almost immediately and within hours the Cross-Sound Cable 
was energized and critically needed power began to flow to Long Island. 
The operation of this line will make the entire region's electric grid 
more reliable as we begin to piece together how this event occurred.
    These are just a few examples of the many stories of people working 
together to restore service across the state. I am sure that you will 
hear more as some of the affected utility companies come before you 
tomorrow. Overall, the State's private utilities and generators, the 
Long Island Power Authority, the New York Power Authority, and the 
Independent System Operator worked closely together with an unmatched 
level of cool professionalism. The system began to come back up piece 
by piece, and less than thirty hours later, the electric system in New 
York State was fully re-energized.
    Again, we should not reach conclusions about what happened in this 
specific instance before an intensive investigation has reached its 
end. But that is not to say that we cannot begin the process of 
identifying how we might address the general state of our electric 
system and whether it is prepared to meet the challenges that we are 
placing on it every day.
    This event appears to have crossed through a number of states, and 
indeed into Canada and back again, before it was done. No single state 
or province can be expected to find the answers that a great swath of 
our nation deserves today. I therefore look forward to the findings of 
the Task Force headed by Secretary Abraham and the Canadian Minister of 
Natural Resources. They are the right people to lead the inquiry. We 
pledge our cooperation to the Task Force during this inquiry and have 
already provided expert personnel to the working groups supporting 
their effort.
    As no single state or province can be expected to find the answers, 
even more so no single state or province can be expected to supply the 
solutions that will guarantee the reliability that our nation deserves. 
The reliability of a system that is interconnected across nearly every 
state and into Canada can only be assured by the federal government, by 
Congress, by you. This Committee has an opportunity to begin breaking 
the gridlock on an issue that has remained in conflict for too long--
this nation's energy future.
    And so I cannot pass up this opportunity to tell you about how New 
York can provide some very pertinent examples for federal action at 
this crucial moment on the issue of energy and electricity.
    First, the issue of under-investment in our electric transmission 
system. When the federal de-regulation of the electric system was 
conducted through the Order 888 Federal Energy Regulatory Commission 
(FERC) rulemaking in 1996, the New York's Public Service Commission 
went to court to seek to maintain its authority to set retail 
transmission rates which in turn would have allowed New York to 
encourage transmission investments to be made.
    That case made it all the way to the Supreme Court of the United 
States in a case now known as New York v. FERC which held that FERC has 
jurisdiction over the rates for transmission to retail customers in 
states that have implemented retail electric supply competition. The 
case is rather prophetic considering the circumstances under which we 
find ourselves here today, and if I may, I would like to quote from the 
Court's unanimous opinion:
        ``New York argues that FERC jurisdiction over unbundled retail 
        transmission will impede sound energy policy. Specifically, New 
        York cites the States' interest in overseeing the maintenance 
        of transmission lines and the siting of new lines . . . 
        Regardless of their persuasiveness, the sort of policy 
        arguments forwarded by New York are properly addressed to the 
        Commission or to Congress, not to this Court.''
    That was a unanimous United States Supreme Court nearly two years 
before the blackout of 2003. The provision of financial incentives to 
induce the construction of interstate electric transmission is an issue 
that should properly, and legally according to the Supreme Court, be 
addressed at the federal level. This Congress can and must provide the 
level of investment certainty that will actually get transmission built 
and upgraded so we do not repeat this kind of event again. The problem 
is uncertainty. Nothing will chill investment like uncertainty. New 
Yorkers and others have unfortunately paid the price for an uncertainty 
that has existed for far too long. This Congress should fashion, or 
direct the FERC to fashion, clear rules that will allow transmission 
owners and other investors to know how, when, and by whom their 
investment will be returned. Without clear incentive, there will be no 
investment. Without investment, we cannot guarantee it will not happen 
again.
    A second and related issue I would like to cover concerns 
reliability standards. New York has in place the strictest state 
electric system reliability rules in the nation. In response to the 
1977 blackout New York adopted dozens of new, reliability rules: One of 
the most prominent is the need to protect against lightning strikes on 
critical transmission facilities supplying power to New York City--
known as the ``Thunderstorm Watch'' Procedure. In the energy 
legislation before Congress right now there are provisions which would 
establish national reliability standards--we need federal reliability 
standards in the form of law, not in the form of legislative proposals. 
As we have now learned the hard way, a reliable system in one state may 
be made suddenly unreliable by events outside of its borders. That is 
why only the Federal government can put in place the fixes that will 
ensure that it will never happen again.
    I support federal legislation which would impose mandatory minimum 
reliability standards nationwide, but with a retention of the ability 
of states such as New York to set higher reliability standards provided 
they do not negatively impact other states or regions. New York City, 
with its high population density and dependence on electricity has 
concerns not found in other portions of the country. We must have the 
flexibility to respond to the needs of our own citizens, and 
Representative Vito Fossella has recognized that and included a 
provision guaranteeing that New York's high reliability standards can 
remain in place. Nevertheless, this event demonstrates that we must 
have minimum federal reliability standards, states are simply not in a 
position to prevent events from occurring in other states. This 
Congress can and should pass national reliability standards.
    As I discussed previously, New York State has a long track record 
of programs designed to promote energy efficiency and conserve energy 
during periods of peak demand. Our efforts involve energy efficiency 
programs like New York's ``keep cool'' air conditioner rebate program, 
thermostats in houses that are controlled by the utility via the 
internet, and public education campaigns that educate people when and 
how to use energy wisely. In New York, already the most energy 
efficient state in the continental U.S., we are proving that energy 
efficiency is the most cost effective and cleanest grid management tool 
available.
    These programs not only make our electric grid more reliable, but 
they create jobs and clean up the air while doing so. New York 
currently spends nearly $290 million each year to improve the state's 
energy efficiency, develop the state's renewable and indigenous 
resources, and demonstrate new and emerging energy technologies. As of 
the end of 2002, these efforts resulted in nearly 1,700 gigawatt hours 
of electricity being saved--the equivalent of meeting the electricity 
needs of more than 283,000 households for a year. Additionally, these 
efforts have resulted in the creation or retention of more than 3,000 
jobs. Furthermore by improving energy efficiency and using renewable 
resources through the end of 2002, emissions of more than 1 million 
tons of carbon dioxide, 790 tons of nitrogen oxide and more than 1,200 
tons of sulfur dioxide have been avoided, helping to make the air 
cleaner for all New Yorkers.
    New York State calls on Congress to increase its support for 
improving the nation's energy efficiency and developing the nation's 
indigenous renewable energy resources. Federal tax policy should 
reflect that saving a kilowatt hour of electricity, a therm of natural 
gas, or a gallon of heating oil or gasoline, is more beneficial for the 
economy, national security, and the environment than producing such 
energy domestically or importing it from elsewhere. We need to expand 
our focus on efficiency, which means being more productive with the 
energy we do use. We need to implement a federal tax policy that 
rewards efficiency through tax incentives for homeowners and businesses 
that improve the way they use energy. Adoption of a national renewal 
portfolio standard will ensure that the nation as a whole takes the 
steps that New York and twelve other states are already taking to make 
our electricity supply more sustainable, and to create and retain jobs 
domestically. Further, funding for weatherization projects for homes of 
low income residents, as well as funding for the highly successful 
state energy grant programs, will continue to pay dividends well into 
the future.
    Finally, I would like to focus upon the importance of the use of 
distributed generation and combined heat and power as part of a 
comprehensive strategy to strengthen the electric grid. Distributed 
Generation is finding applications throughout New York--from helping 
hospitals to meet their critical energy needs to helping manufacturers 
meet their need for reliable, uninterrupted power. This technology 
offers many benefits: modern equipment is environmentally friendly; use 
of available heat (thermal energy) increases fuel-use efficiency, 
diversifies electric supplies to the end-user, and enhances energy 
security, and on-site generation alleviates transmission and 
distribution load pockets by targeting generation right where it is 
needed most.
    In New York State we have invested nearly $50 million that has 
leveraged another $150 million in private sector capital to construct 
and operate nearly 100 different distributed generation systems 
throughout New York State, from office buildings in Manhattan to farms 
in upstate New York. Through our efforts we are reducing the regulatory 
and financial barriers that have inhibited this clean and efficient 
technology. We have 12 megawatts on line currently with 20 megawatts 
expected by the end of the year, and another 90 megawatts of 
distributed generation projects coming on line over the next year.
    During the Blackout of 2003 and the subsequent restoration of New 
York's electricity grid, these systems were a part of turning the 
lights back on in New York State. The New York Police Department 
Central Park Precinct continued to serve and protect New Yorkers thanks 
to the electricity provided by a fuel cell installed at the police 
station by our own New York Power Authority. At the Rochester 
International Airport a new distributed generation system financed in 
part by the New York Energy Research and Development Authority helped 
the Airport to continue to operate. Outside of Buffalo the Oakwood 
Nursing Home distributed generation system kept the lights on and met 
the critical needs of its clients while the area surrounding them was 
without electricity.
    Those are some of the solutions that I ask you to consider. 
Increasing investment in our transmission systems, enforceable federal 
reliability standards, as well as new incentives for energy efficiency, 
renewable energy, and greatly increased use of distributed generation 
are all actions that are needed to answer the wake up call we have all 
now received. Once we have answers to what caused this outage it is 
important that the investigative phase of this incident be followed by 
swift and clear action on these and other issues. The people of New 
York responded exactly as they should have--they deserve the same from 
their political leaders. This is the year to get an Energy Bill done.
    Thank you Mr. Chairman.
                                 ______
                                 
                  Coleman A. Young Municipal Center
                                    Detroit, Michigan 48226
                                                 September 15, 2003
The Honorable W.J. Tauzin
Chairman, House Energy and Commerce Committee
U.S. House of Representatives
Room 2125
Rayburn House Office Building
Washington, DC 20515
    Dear Mr. Chairman: I would like to thank you for the opportunity to 
appear before the House Energy and Commerce Committee to discuss 
Detroit's response to the Blackout of 2003. The hearings provided an 
important opportunity to learn more about our nation's response to 
critical incidents.
    The Blackout of 2003 presented issues that are crucial to improving 
not only the way this nation operates on a day-to-day basis, but also 
the way it handles future crises, and possible acts of terrorism. I 
believe that we, as a nation, need to refocus on the fundamentals. 
Specifically, we need to complete an assessment of the nation's 
critical infrastructures and immediately work to address our 
vulnerabilities. The two-year anniversary of the attacks of September 
11th reminds us the completion of this task is long overdue.
    The City of Detroit demonstrated preparation could go a long way. 
Thanks to a comprehensive homeland security plan the City was able to 
handle the massive power outage that crippled much of the Northeast. 
The lessons we learned during the Blackout of 2003 can be applied to 
other cities and localities across the country. We recognize that:

 Communication and information systems must remain operational every 
        day and be able to handle a dramatic increase in use during a 
        critical incident. Our key communications systems must have the 
        redundancy and capacity to be of use during crises. For 
        instance, Detroit's 9-1-1 and 3-1-1 systems remained up and 
        running during the blackout. Detroit handled a record high 576 
        emergency medical service calls.
 The integration of communication among local, regional, state and 
        federal officials is vital during catastrophic events. The 
        blackout showed that communication between the Department of 
        Homeland Security and the City of Detroit was an issue.
 National processes and procedures need to be implemented and a 
        national threat assessment must be conducted to identify 
        vulnerabilities. This assessment will help to identify critical 
        factors for targeting resources, funding and priorities. 
        Detroit has already conducted a full threat and vulnerability 
        assessment and developed a process for constantly updating this 
        assessment.
 Local governments need to be prepared to respond to future critical 
        incidents. Detroit acknowledges the front lines of the nation's 
        war on terrorism are America's cities and towns. The same 
        communication and information systems we rely upon provide the 
        foundation for efforts to detect, prevent and respond to 
        terrorism.
 Decisions related to homeland security cannot be done in a vacuum, 
        separate and apart from day-to-day services. It must be a truly 
        ``all hazards'' approach and cannot take funding and resources 
        away from traditional public safety, public health and 
        emergency preparedness programs such as COPS, FEMA and OJP-
        administered grant programs like Edward Byrne Memorial Grants 
        or Local Law Enforcement Block Grants Programs.
 We need to view the role of localities as more than just first 
        responders. In the future, a police officer with the help from 
        a member of the community may be the first to identify an 
        impending terrorist threat. Likewise, city personnel, EMS and 
        firepersons will be the first to respond and confront the 
        issues and problems that arise during a critical incident.
    I truly appreciated the opportunity to appear before your committee 
in response to the Blackout of 2003 and I look forward to the 
opportunity to work with you and members of your staff.
            Sincerely,
                                        Kwame M. Kilpatrick
                                                              Mayor
                                 ______
                                 
     State of New York Department of Public Service
                       Three Empire State Plaza, Albany, NY
                                                    October 6, 2003
The Honorable W.J. ``Billy'' Tauzin
Chairman
Committee on Energy and Commerce
U.S. House of Representatives
2183 Rayburn HOB
Washington, D.C. 20515
    Dear Chairman Tauzin: In response to your letter of September 22, 
2003, I would like to thank you for the opportunity to clarify and 
expand upon the New York State Public Service's position regarding 
national reliability standards and the need for New York State to 
retain higher standards than any that might be implemented at the 
federal level.
    As discussed in my testimony on September 3rd, H.R. 6 contains a 
provision (sponsored by Congressman Fossella) that would permit New 
York State to continue to set reliability standards greater than those 
that might be established nationally. New York City presents unique 
circumstances and challenges that warrant reliability standards that 
exceed those of the rest of New York State or the nation. New York City 
serves as the financial capital of the world, meaning the economic 
consequences of power outages can literally be felt globally. We were 
very fortunate that the local electric utility in New York City, 
Consolidated Edison, was able to establish power to Wall Street hours 
before trading opened on the next day following the August 14th 
blackout. While emergency back-up generation exists throughout the 
city, including on Wall Street, it is simply not adequate to sustain 
the city's level of economic activity. Therefore, the loss of power in 
New York City for an extended period of time can essentially translate 
into billions of dollars in lost revenue for the financial industry and 
others.
    In addition, New York City is heavily reliant on electricity to 
power a subway system that carries more than 7 million passengers a 
day. The loss of power can have the impact of immobilizing the City, 
stranding commuters and endangering the lives of those unfortunate 
enough to be caught on the subway when an outage hits. Furthermore, the 
population density of New York City is significantly greater than any 
other large city in the nation. Due to its relatively small geographic 
size, the city has residential and commercial skyscrapers that require 
electricity for air conditioning, elevators, and lighting. In fact, it 
is estimated that at any given moment on a workday, more than 1 million 
people in New York City are either riding on elevators or in subways. 
Clearly the continuous and reliable flow of electricity to these 
buildings and subways is necessary to ensure adequate public health and 
safety.
    The city's population density also makes siting power plants within 
the city difficult, albeit not impossible. We have recently made 
progress in siting new power plants within New York City. Some are 
currently under construction, while others are essentially on hold due 
to the financial industry's reluctance to support large-scale power 
projects. In addition, New York State maintains a rule requiring that 
80 percent of the electricity consumed in New York City be capable of 
being generated from within the city itself. Despite this rule, and 
despite the promise of new power plants in the near future, New York 
City will likely remain reliant on the transmission of power from other 
regions of New York, as well as from other states, to fully meet its 
electricity needs. The state therefore has an obligation to ensure that 
those transmission facilities that operate under our regulatory purview 
do so reliably. We have promulgated regulations to build redundancies 
into these systems ensuring, to the greatest extent possible, that we 
avoid outages as a result of damage to any two--and in some cases, 
three--particular transmission facilities. This level of system 
redundancy has not been duplicated anywhere else in the nation, nor 
would we insist that any other state or region require such redundancy. 
National reliability standards that do not permit New York State to 
enforce higher standards could, however, undermine our ability to 
maintain these redundancy levels.
    The blackouts of 1965 and 1977 prompted New York State to develop 
and implement reliability standards for New York City and New York 
State that exceed those found anywhere else in the nation. We have 
continued to build upon these standards over time to respond to changes 
in the industry and ensure continued reliability. Some of the rules 
unique to New York State include:

 A requirement that operating reserves (generation available within 10 
        and 30 minutes in the event of an emergency) will equal, at all 
        times, one hundred and fifty percent of the single most severe 
        potential equipment outage;
 Development of detailed procedures and objectives for each of the 
        five system operating states: normal, warning, alert, major 
        emergency and restoration;
 Development of one of the most comprehensive set of guidelines and 
        procedures in the country for determining the operating 
        capacity of all bulk power system components in service in the 
        state;
 Requirements for the Con Edison transmission system to operate as if 
        the first contingency has already occurred when thunderstorms 
        are within one hour of the system or are actually being 
        experienced. This is known as the ``Thunderstorm Watch'' 
        procedure;
 Requirements for the maximum capability of all generating units to be 
        demonstrated by a formal test twice per year, once in summer 
        and once in winter; and
 Requirements that generating units be subject to minimum performance 
        targets to ensure they are available a high percentage of the 
        time.
    The above list is not exhaustive, but does provide you with a sense 
of the steps we are taking in New York State to ensure reliability. We 
certainly would not advocate that all states or regions of the country 
comply with such standards, but feel that the unique demographics and 
characteristics of the New York City region warrant heightened 
standards. At the same time, we would support the ability of other 
states to also implement higher standards than those that might be 
imposed by the federal government should they choose to do so, provided 
that such higher standards have no negative consequences on reliability 
in other states.
    It is important to note that the utilities in New York State 
generally comply with the reliability standards we have implemented and 
are effectively penalized if they fall out of compliance. There is no 
outcry from the industry that the standards are in any way unfair. 
Utilities have made adequate investments to meet these standards and 
have been adequately compensated for these investments through their 
rate structures. The decision was made, and supported through the 
years, that any added costs borne by ratepayers as a result of these 
higher standards were acceptable given the greater reliability the 
standards produce. The Public Service Commission supports mandatory 
national reliability standards to ensure that utilities in other states 
achieve at least a minimally acceptable level of reliability given the 
potential for reliability problems in one state to cross borders and 
impact other regions--as was demonstrated by the August 14th cascading 
blackout. However, equally important to the Commission is the need to 
retain the right to maintain and potentially enhance the State's 
current reliability standards to minimize the threat of future 
blackouts and outages to our citizens.
    Thank you again for the opportunity to share our views on 
reliability standards. Please do not hesitate to contact my office 
should you need any further information.
            Sincerely,
                                           William M. Flynn
                                                           Chairman
cc: The Honorable Vito J. Fossella
   The Honorable Peter V. Domenici
                                 ______
                                 
                       Federal Energy Regulatory Commission
                                                   October 17, 2003
The Honorable W.J. ``Billy'' Tauzin
Chairman
Committee on Energy and Commerce
U.S. House of Representatives
Washington, D.C. 20515-6115

Re: Responses to Questions from the Committee's September 3, 2003 
Hearing

    Dear Mr. Chairman: Thank you for forwarding Congressman Vito 
Fossella's questions for the record of your Committee's September 3, 
2003 hearing titled ``Blackout 2003: How Did It Happen and Why?''
    My responses to Congressman Fossella's questions are enclosed. I 
hope that this information is helpful. If you have further questions or 
need additional information, please let me know.
            Best regards,
                                              Pat Wood, III
                                                           Chairman
Enclosure

cc: The Honorable Vito Fossella
         responses to questions from congressman vito fossella
    Question No. 1: Your testimony notes how RTOs could go a long way 
towards improving reliability. Could you expand on this point and 
discuss whether or not better regional coordination through RTOs would 
have helped alleviate the effects of the blackout?
    Answer: The United States-Canada Joint Task Force is still working 
to identify the causes of the blackout that occurred on August 14, 2003 
and the reasons for its cascading through eight states and parts of 
Canada. Thus, I cannot state at this time whether better regional 
coordination through RTOs would have helped alleviate the effects of 
the blackout. However, the blackout demonstrates that our transmission 
system operates regionally, without regard to political borders. Once 
regional planning and coordination with respect to the system's day-to-
day operation and system upgrades are fully in place, they should help 
prevent or minimize region-wide disruptions of electrical service.
    As I indicated in my testimony, the Commission noted, in Order No. 
2000, that RTOs would improve reliability because they have a broader, 
more regional perspective on electric operations than individual 
utilities. Some 130 control area operators currently manage the 
operation of the transmission grid, whereas a smaller number of 
regional organizations could more effectively manage the grid. The 
Federal Power Commission's reports to President Johnson following the 
Northeast power failure of 1965 called for reductions in the number of 
control areas to improve system-wide communication and coordination. An 
excessive number of control areas can impede taking the best corrective 
actions during emergencies. Further, unlike utilities that own both 
generation and transmission, RTOs are independent of market 
participants and, therefore, lack a financial incentive to use the 
transmission grid to benefit one market participant over another.
    To expand upon my testimony, Order No. 2000 recognized that RTOs 
have unique advantages to assist in both regional planning for 
transmission infrastructure and the operation of the interstate 
transmission grid. The Commission required that RTOs have a regional 
planning process to identify and arrange for necessary transmission 
additions and upgrades. The Commission also identified the benefits of 
large, independent regional entities to operate the grid, and strongly 
encouraged, but did not require, utilities to join together to form 
such entities. For example, the Commission noted that an RTO of 
sufficiently large regional scope would, among other things, resolve 
loop flow issues by internalizing loop flow and addressing loop flow 
problems over a larger region; manage transmission congestion by more 
effectively preventing and managing transmission congestion over a 
larger area; and improve operations by allowing a single OASIS operator 
to allocate scarcity and reserve and schedule transmission use over a 
larger area.
    In Order No. 2000, the Commission also required that the RTO have 
operational authority for all transmission facilities under its control 
and serve as the security coordinator for its region. The RTO's 
authority to control transmission facilities would include switching 
transmission elements into and out of operation in the transmission 
system (e.g., transmission lines and transformers), monitoring and 
controlling real and reactive power flows, monitoring and controlling 
voltage levels, and scheduling and operating reactive resources. In its 
role as a security coordinator, the RTO would ensure reliability in 
real-time operations of the power system by assuming responsibility 
for: (1) performing load-flow and stability studies to anticipate, 
identify and address security problems; (2) exchanging security 
information with local and regional entities; (3) monitoring real-time 
operating characteristics such as the availability of reserves, actual 
power flows, interchange schedules, system frequency and generation 
adequacy; and (4) directing actions to maintain reliability, including 
firm load shedding.
    Also as discussed in Order No. 2000, the RTO must have exclusive 
authority for maintaining short-term reliability of the transmission 
grid under its control. The four basic short-term reliability 
responsibilities of an RTO include: (1) exclusive authority for 
receiving, confirming and implementing all interchange schedules; (2) 
the right to order redispatch of any generator connected to 
transmission facilities it operates if necessary for the reliable 
operation of these facilities; (3) when the RTO operates transmission 
facilities owned by other entities, the RTO must have authority to 
approve or disapprove all requests for scheduled outages of 
transmission facilities to ensure that the outages can be accommodated 
within established reliability standards; and (4) if the RTO operates 
under reliability standards established by another entity (e.g., a 
regional reliability council), the RTO must report to the Commission if 
these standards hinder its ability to provide reliable, non-
discriminatory and efficiently priced transmission service.
    Of course, RTOs must be fully operational to meet all of the 
required characteristics and functions of Order No. 2000 to be 
effective and bring more centralized control to the regional grids, not 
only for day-to-day activities, but also to handle emergencies. This 
will help ensure that transmission facilities are operated more 
reliably compared to the balkanized operations prevalent in many 
regions today.
    Question No. 2: Along the same lines, could you discuss how FERC's 
wholesale market platform proposal could help prevent another blackout?
    Answer: In a July 2002 Notice of Proposed Rulemaking (the Standard 
Market Design Rule), the Commission proposed to complete the nation-
wide transition to independent grid operators, building upon numerous 
public hearings on best practices in power markets around the world, 
and also upon lessons learned from market failures in California in 
2000. In response to over 1,000 filed comments to the rulemaking, the 
Commission issued a White Paper on Wholesale Power Market Platform in 
April 2003, streamlining the rulemaking effort by identifying the key 
elements of market design platform for improving the efficiency of 
wholesale markets. Such a platform would, among other things: (1) 
require the formation of RTOs with sound market rules and customer 
protection; (2) provide greater regulatory certainty to promote 
investment in new transmission infrastructure including new technology; 
(3) require reliable and efficient management of the use of 
transmission within the region and between neighboring regions, through 
day-ahead markets, facilitation of demand response, and the use of 
price signals.
    For the basic wholesale market platform, the Commission intends to 
build upon the existing rules adopted in Order No. 2000 for RTOs by 
adding features that the Commission has learned are necessary for 
effective wholesale power markets. For example, Order No. 2000 did not 
include market power mitigation measures and does not prevent flawed 
market designs. Wholesale electric markets will not be able to deliver 
full customer benefits in the future without the oversight and 
transparency that regional independent transmission organizations can 
provide. Healthy and well-functioning wholesale power markets are 
central to the national economy, and the Commission believes that 
regional, independent operation of the transmission system, with proven 
and effective market rules in place, is the critical platform for the 
future success of electric markets.
    In addition, Order No. 2000 did not include a regional view of 
resource adequacy. The Commission has learned that if one state has 
inadequate resources, it can create severe problems for the larger 
region. It is difficult for the Commission to assure just and 
reasonable wholesale market prices if there are insufficient resources 
to meet demand. Each region with an RTO or ISO will determine how it 
will ensure that the region has sufficient resources to meet customers' 
needs. The approach to and level of resource adequacy will be decided 
by the states in the region drawing from a mix of generation, 
transmission, energy efficiency and demand response.
    With respect to wholesale market design, the Commission has 
promoted the use of transparent congestion pricing to better manage 
congestion on the transmission system. Congestion usually occurs when 
someone wants to import power into an area, but must use more 
expensive, local generation because of transmission constraints. While 
additional transmission investment may ultimately be needed to resolve 
the congestion, such investment could take several years to site and 
build. In the interim, an efficient congestion management system can 
manage the use of the transmission system in a way that ensures 
reliability.
    In regions with an efficient congestion management system, such as 
the Northeast, a transparent pricing process provides real-time 
information on the level of transmission congestion. These price 
signals provide both short-term and long-term benefits to wholesale 
markets. In the short-term, spot prices can pinpoint where a 
transmission problem exists and provide incentives to adjust schedules 
to solve the problem. Wholesale market participants (including buyers 
and sellers) then can respond quickly based on these price signals and 
possibly prevent a blackout. In the long-term, consistently higher 
prices can serve as an early warning of potential transmission problems 
and signal the need for new investment.







               BLACKOUT 2003: HOW DID IT HAPPEN AND WHY?

                              ----------                              


                      THURSDAY, SEPTEMBER 4, 2003

                          House of Representatives,
                           Committee on Energy and Commerce
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:30 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. W.J. 
``Billy'' Tauzin, (chairman) presiding.
    Members present: Representatives Tauzin, Barton, Upton, 
Gillmor, Greenwood, Cox, Burr, Whitfield, Norwood, Shimkus, 
Wilson, Shadegg, Fossella, Buyer, Radanovich, Bass, Walden, 
Terry, Ferguson, Rogers, Otter, Dingell, Markey, Boucher, 
Towns, Brown, Rush, Stupak, Engel, Wynn, Green, McCarthy, 
Strickland, Doyle, Allen, Davis, and Schakowsky.
    Staff present: Mark Menezes, majority counsel; Sean 
Cunningham, majority counsel; Jason Bentley, majority counsel; 
Bob Meyers, majority counsel; Andy Black, policy coordinator; 
Peter Kielty, legislative clerk; Sue Sheridan, minority 
counsel; and Bruce Harris, minority professional staff.
    Chairman Tauzin. Would the hearing please come to order? 
Let me set the stage. We are in the second day of the hearings 
on the Northeast blackout. Today's effort following yesterday's 
effort, in which we heard from government officials and 
officials of the reliability councils to get their take on what 
they understand probably occurred and some of their analysis of 
what might be done to ensure that it doesn't occur again.
    Today we follow up with representatives of the industries 
and the officers of the entities that were in charge of either 
producing or transmitting the power involved in the blackout.
    We will also hear later on from representatives of the 
electric industry institutes and other think tanks and consumer 
advocate groups to get their take on this situation. By the 
time we are through today, we will have, I think, as good a 
picture as we can get before the reports are finally issued 
next week on the definitive findings of the technical staffs 
that are trying to analyze the tens of thousands of pages of 
data that will more definitively describe how it occurred and 
how, in fact, the damage spread across the system before it was 
finally contained.
    In yesterday's hearing, we opened up with opening 
statements by all of the members. It is the chair's intent to 
go directly to this panel of witnesses unless I am requested by 
any member to strike the last word to say anything. But absent 
that, it is my intention to introduce the panel and begin 
immediately the consideration of the testimony of our 
witnesses.
    We have a distinguished panel again today. Let me first 
thank all of you for being here, for coming the long distances 
you have to share with us your perspective on this crisis, and 
also to welcome you all to the Energy and Commerce Committee, 
the oldest committee of the U.S. Congress and I believe the 
best committee of the U.S. Congress, in this distinguished 
room, where so many decisions have been made over the history 
of our country through one crisis or another dealing with the 
interstate commerce of our country and, more lately, the energy 
situation our country finds itself in.
    This panel consists of Mr. Peter Burg, the Chairman and CEO 
of FirstEnergy Corporation; Mr. Eugene McGrath, the Chairman, 
President, and CEO of Consolidated Edison Company of New York; 
Mr. Nick Winser, the Group Director of Transmission of National 
Grid U.S.A.; Mr. Richard Kessel, the Chairman and CEO of Long 
Island Power Authority; Mr. Linn Draper Jr., the Chairman, 
President, and CEO of American Electric Power of Ohio; Mr. 
Joseph Welch, the CEO, International Transmission Company of 
Ann Arbor, Michigan; Elizabeth Moler, the Executive Vice 
President for Government, Environmental Affairs and Public 
Policy for the Exelon Corporation, who has had extensive 
experience here on the Hill. We welcome you back, Liz, and 
thank you for your many years of public service before you went 
into the private sector.
    As I said, we have two excellent panels to follow. So we 
have a lot of work to do. Under our rules, your written 
statements are all a part of our record. We have, as you can 
see, stacks of the written statements in front of the members. 
As they arrive, they are going to be thumbing through it and 
reading your written statements if they haven't yet read them.
    What I ask you to do today is to recognize that we live 
under what's called a 5-minute rule, which means that each of 
you has 5 minutes. And we have lights, timing. You see the 
lights. And if you look behind you, you'll see the members can 
see the lights as to the timing. We ask you to stay within that 
5-minute rule so we can hear all of your testimony and allow 
members a chance to ask any questions that may arise from your 
testimony.
    So during that 5 minutes, if you will summarize. If you 
would give us the highlights, the important points of your 
testimony, and then allow us a chance to maybe get some 
reaction from you as to what members think are important 
questions that need to be answered.
    We will start with the Chairman and CEO of FirstEnergy 
Corporation, Mr. Peter Burg.
    Peter?

  STATEMENTS OF H. PETER BURG, CHAIRMAN AND CEO, FIRSTENERGY 
    CORP.; EUGENE R. MCGRATH, CHAIRMAN, PRESIDENT AND CEO, 
  CONSOLIDATED EDISON COMPANY OF NEW YORK, INC.; NICHOLAS P. 
WINSER, GROUP DIRECTOR TRANSMISSION, NATIONAL GRID TRANSCO PLC; 
RICHARD KESSEL, CHAIRMAN AND CEO, LONG ISLAND POWER AUTHORITY; 
  E. LINN DRAPER, JR., CHAIRMAN, PRESIDENT AND CEO, AMERICAN 
      ELECTRIC POWER; JOSEPH L. WELCH, CEO, INTERNATIONAL 
 TRANSMISSION COMPANY; AND ELIZABETH A. MOLER, EXECUTIVE VICE 
  PRESIDENT FOR GOVERNMENT, ENVIRONMENTAL AFFAIRS AND PUBLIC 
                   POLICY, EXELON CORPORATION

    Mr. Burg. Thank you for the opportunity to be here. I'm 
Pete Burg, chairman and chief executive officer of FirstEnergy. 
I have submitted written testimony along with time line and 
power flow charts. Together, these materials provide a picture 
of conditions that existed on our system and in the region 
surrounding us, but they are by no means an exhaustive list of 
the events that occurred on August 14 on the Eastern 
Interconnection.
    Mr. Chairman, I have spent more than 30 years on the 
electric utility industry. Along with my fellow panelists, the 
thousands of dedicated professionals with whom we work, we take 
great pride in delivering safe and reliable electric service to 
our customers and are concerned whenever an outage occurs, 
particularly one of this magnitude.
    We have already provided a significant amount of 
information concerning our system and are cooperating closely 
with the Department of Energy and the North American Electric 
Reliability Council.
    While we are still analyzing data, it is important to 
recognize that FirstEnergy's 345 transmission system is a top 
performer in industry reliability measures and that the much 
reported 345 kV lines that tripped off on our system that day 
have a history of good performance. We also had experienced and 
NERC-certified operators manning the system control room that 
day.
    Based upon what we know today, FirstEnergy believes that 
the August 14 outage can only be the result of a combination of 
events that occurred across the Eastern Interconnection. We do 
not believe that events on any one system could account for the 
widespread nature of the outage.
    As my written testimony indicates, on August 14, a number 
of generating facilities were offline in the region. And others 
became unavailable during the course of the day. There were 
significant power sales scheduled in the region, much of which 
flowed through FirstEnergy.
    Following the trip of several generating units in the 
region in the early afternoon, including our East Lake unit 
number 5, power flows adjusted, as expected. And our system was 
in balance. And while a number of transmission lines in and 
outside of our system tripped off later, power flows into and 
out of FirstEnergy had not significantly changed as of 4:05 
p.m. our time. The system was automatically adjusting to these 
events.
    At 4:06 p.m, FirstEnergy's Sammis-Star transmission line 
tripped. That's when a small flow reversal with power now 
flowing from Michigan into Ohio occurred, but not in a 
magnitude that would appear to be of particular significance at 
that point.
    Then, at approximately 4:09 p.m., following the trip of two 
other lines in the region outside of our system, power flow 
from Michigan to Ohio substantially increased, but much, if not 
most, of it passed through our system into other systems. After 
that, additional transmission lines and generating plants begin 
to trip off to protect themselves from damage.
    This all occurred automatically on our system. And, to the 
best of my knowledge, it happened automatically on other 
systems throughout the region.
    Our interconnections to Michigan and PJM were severed, but 
we remained interconnected with Dayton Power and Light, 
Duquesne, PJM West through Allegheny, and with AEP. None of 
these systems with which we remained interconnected experienced 
significant customer outages.
    While we experienced problems with our Energy Management 
computer system and we are still evaluating its performance, 
information about the events of the day were occurring. The 
events that were occurring throughout the day were available to 
the group that coordinates electric reliability for our system, 
the Midwest ISO.
    Also during this time, our dispatchers were in 
communication with other system operators and plant operators, 
as well as the Midwest ISO.
    Mr. Chairman, even though the events of August 14 are 
complicated and interrelated in ways I think we don't yet 
understand, we believe that it's not possible for a few 
isolated events on any individual utility system to explain the 
widespread nature of this outage.
    While no one has all the answers at this point, my written 
testimony details a number of recommendations that I believe 
might help as we go forward. These include investments in the 
grid to accommodate competitive markets; transmission rate 
reform to encourage that investment; the implementation of new 
technologies; and maybe most importantly, I think, a 
comprehensive review of the significance of interstate power 
flows across the interconnected grids.
    Mr. Chairman, thank you for the opportunity to share 
FirstEnergy's perspectives here this morning.
    [The prepared statement of H. Peter Burg follows:]
   Prepared Statement of H. Peter Burg, Chairman and Chief Executive 
                       Officer, FirstEnergy Corp.
    Mr. Chairman: Thank you for the opportunity to testify today. I am 
Pete Burg, chairman and chief executive officer of FirstEnergy Corp., a 
registered public utility holding company headquartered in Akron, Ohio.
    FirstEnergy's seven electric utility operating companies provide 
electric service to 4.4 million customers in Ohio, Pennsylvania and New 
Jersey.
    We commend your determination, Mr. Chairman, to understand the 
events of August 14. Operation of the electricity grid is an extremely 
complex matter. Knowing all of the facts is vital to arriving at the 
policy decisions that could mitigate the risk of a repeat of this kind 
of outage. We are committed to helping determine what went wrong in the 
Eastern Interconnection on August 14 and are pleased to have the 
opportunity to tell you directly what we know about our system and our 
region within the Interconnection.
                                summary
    Notwithstanding the service interruptions on August 14, the United 
States has a reliable electric system, and I am particularly proud of 
FirstEnergy's 345 kV transmission system, which has achieved a top-
quartile ranking among companies in the 2003 SGS Transmission 
Reliability Benchmarking Survey.
    FirstEnergy has been the subject of a great deal of speculation 
during the past three weeks regarding the outage. Clearly, and as we 
have said from the outset, events on our system, in and of themselves, 
could not account for the widespread nature of the outage. After much 
more evaluation, we continue to believe this is true.
    We strongly believe that such a widespread loss of power could only 
result from a combination of events, not from a few isolated events. 
Industry experts share our view. Dave Nevius of the North American 
Electric Reliability Council (NERC), an organization charged with 
working to maintain electric reliability in the country, said, ``It's a 
more complicated problem than just one utility.'' 1 Alan 
Schriber, chairman of the Public Utilities Commission of Ohio, said, 
``This has been the perfect storm of electricity. It's the confluence 
of a lot of bad things going on that day, and I don't mean just after 4 
o'clock. There had been noticeable aberrations throughout the system 
all day.'' 2
---------------------------------------------------------------------------
    \1\ Reported in The New York Times, August 19, 2003.
    \2\ ``Grid Signaled Breakdown,'' The Plain Dealer, August 19, 2003.
---------------------------------------------------------------------------
    Today, I will highlight for you some of the significant events that 
we know happened. Bear in mind, however, that no one has all of the 
information yet, and it will take some time before we do. Much of the 
information regarding the events of the day is still being collected 
and analyzed. But from what we do know, a number of events occurred 
throughout the day, all of which could have combined to affect the 
Eastern Interconnection's ability to perform.
    It is understandable that everyone is looking for the straw that 
broke the camel's back. But there is no one straw--they're all heaped 
together. And the camel's ability to support the load cannot be 
overlooked.
    The reliability of the system--maintained by built-in reserve 
margins, operating protocols, sharing arrangements, communication 
systems, sophisticated electronics, and human vigilance--is a marvel. 
However, all those protections were not sufficient to prevent the 
problems that arose on August 14. The electric system is designed to 
handle contingencies that are bound to occur. Redundancies and 
protective devices are built into the system to protect equipment, 
maintain service to customers, and ensure safe operation. And, the 
entire interconnected network was built to provide support in 
emergencies. The interaction of all of these complex elements must be 
considered.
    The role of these protective devices--as well as their automated 
operation on August 14--should be a focus of the investigation.
    In addition, the investigation should take into account the fact 
that the transmission system was not designed to serve regional 
wholesale electricity markets as an integrated transmission 
superhighway. Like other transmission owners, FirstEnergy built and 
maintains its transmission facilities to reliably meet the requirements 
of customers in its own service area. While we support federal policies 
to adapt the existing transmission system to the needs of regional 
wholesale markets, no one's transmission system was constructed with 
this purpose in mind.
                        data collection process
    As I mentioned, August 14 data are still being analyzed.
    Our transmission experts are studying millions of data points. We 
have digital fault recorder data, oscillographic data, analog charts, 
and other recordings. Some of the computer records have readouts in 
millisecond intervals, some in two-second intervals, and others in 30-
second intervals.
    Additionally, the times for this information need to be calibrated 
and synchronized. The industry calculates the precision of time for its 
systems relative to the atomic clock. If the grid runs slightly above 
or below 60 Hertz, clocks will deviate slightly from the atomic clock, 
so the system must run slightly slower or faster to adjust. In fact, on 
August 14, the Eastern Interconnection was being run slightly below 60 
Hertz to slow clocks.
    The relevance of the synchronization is that, when precipitating 
events occur in rapid succession, it is necessary to establish precise 
times to gain a clear picture of sequences and interrelationships. This 
is a tedious and lengthy process that is still being completed.
    We have shared the information we have gathered to date with the 
Department of Energy and the NERC, and we will continue to fully 
cooperate with them and with your Committee.
                    personnel and system reliability
    FirstEnergy system dispatchers operating the facilities at the time 
of the events on August 14 have an average of more than 10 years of 
experience and are NERC-certified professionals. They are a dedicated 
group that takes immense pride in ensuring the safe and reliable 
operation of our system.
    From 1999 through 2002, we have spent $433 million system-wide on 
transmission operations, maintenance and capital, with nearly $200 
million spent on transmission in Ohio. More specifically, the four 
FirstEnergy 345 kV lines that failed on August 14 had a history of good 
performance. There were no sustained outages in 2001, 2002 and through 
August 13, 2003 on the Chamberlin-Harding, Star-South Canton and 
Sammis-Star lines. The Hanna-Juniper line had six outages in 2001 
ranging from four minutes to 34 minutes but none was tree related. The 
Hanna-Juniper line had no sustained outage in 2002 or 2003 through 
August 13.
    In short, we have qualified operators and we are consistently 
making the expenditures necessary to improve and maintain our 
transmission infrastructure.
             grid operation and oversight responsibilities
    The NERC and its affiliated regional reliability councils have the 
mission to ensure that the bulk electric system in North America is 
reliable, adequate and secure. That system is designed to maintain the 
interconnected network in order to provide emergency support and to 
prevent actions on one system from having unintended consequences on 
another. Since its formation in 1968, NERC has operated as a voluntary 
organization, relying on reciprocity and the mutual interest of all 
those involved. In recent years, NERC has made a significant effort to 
respond to changes in the regulation of the electric utility industry. 
For example, NERC has been aggressively seeking passage of legislation, 
which FirstEnergy also supports, to enable it to become an industry-
based, self-regulatory organization enforcing mandatory reliability 
standards.
    Utilities operate their systems and maintain interconnections 
consistent with standards and guidelines adopted by NERC and its 
regional reliability councils. The systems are designed to withstand 
single and multiple outages while still performing reliably. The 
regional councils conduct assessments of the interconnected systems and 
continuously revise the standards that utilities and other industry 
participants observe to enable daily operations and, increasingly, 
electricity trading to be conducted in a reliable manner.
    The Federal Energy Regulatory Commission (FERC) has required that 
Regional Transmission Organizations (RTOs) take responsibility for 
regional reliability. The Midwest Independent System Operator's (ISO) 
role as one of the reliability coordinators for the region is an 
example of how that responsibility is discharged. While the physical 
control of the system remains with the control area, the reliability 
coordinator shares responsibility for assuring that the bulk electric 
system is reliable, adequate, and secure. The Midwest ISO is the 
reliability coordinator for our transmission assets in Ohio.
    Clearly, a common understanding of the cumulative events of August 
14 will contribute very significantly to the consideration of reforms 
that can and should be made in reliability assessments and standards, 
and in protocols and procedures for commercial operation. One issue 
that comes to mind, however, is whether the reliability standards 
related to protective systems and their interactions with one another 
should be examined in light of the new ways we are using the 
interconnected networks to support inter-regional and international 
trading and marketing of electricity.
    For example, according to the Electric Power Research Institute, 
the number of wholesale transactions has increased by 400 percent over 
the past decade. The East Central Area Reliability Council (ECAR) 
transmission systems in particular have been used for increasing 
volumes of area-to-area and region-to-region transactions, supplying 
deficit areas within the Independent Electricity Market Operator (IMO), 
the New York Independent System Operator (NYISO) and the Mid-Atlantic 
Area Council (MAAC), predominantly from resources south and west of 
FirstEnergy. To fully understand the events of August 14, and more 
importantly, to evaluate what needs to be done to redesign the 
transmission system, these changes in usage of the system must be 
considered because they impact power flows and add stress to existing 
facilities.
                      system conditions and events
    Attached to my testimony is a chronology of events and summary of 
power flows that describe, as we know them, the condition of the 
regional transmission system on August 14, events occurring on that 
system, and the changes in power flows through FirstEnergy's system. 
This information has been compiled by a collaboration of our 
transmission and generation personnel and other company and industry 
experts. It should be noted that it depicts only a partial picture of 
that day, because all of the conditions and events that took place 
throughout the Eastern Interconnection are not available to us. That 
broader information ultimately will be required to fully understand 
what happened and what actions will be needed to mitigate the risk of 
such an outage in the future. However, the following summarizes what we 
know as of this point.
    On August 14, our load was projected to be approximately 85 percent 
of our estimated peak summer load. Load and weather conditions for the 
day were typical for a mid-August day. The areas in our service 
territory affected by the outage experienced seasonable temperatures 
and no major storms.
    The ECAR region had adequate generation available, even with a 
number of large generating units owned by various companies off-line 
during the day, including Detroit Edison's 800 megawatt (MW) Monroe 
Unit 1, AEP's 1,133 MW DC Cook unit and FirstEnergy's 883 MW Davis-
Besse unit. AEP's 1,300 MW Gavin Unit 2 was also off-line and was not 
scheduled to come back online until the afternoon of August 14. 
FirstEnergy's projected load was 11,958 MW. Our generating capacity for 
the day was 10,641 MW, and with net scheduled import power, we had 
adequate spinning reserves.
    Power generally was flowing from west to east, and from south to 
north--its typical pattern. Ontario was importing about 2,500 MW; New 
York was importing about 1,300 MW; and, the Mid-Atlantic Area Council 
(MAAC) area was importing about 2,500 MW.3
---------------------------------------------------------------------------
    \3\ MAAC includes territory in Pennsylvania, New Jersey, Maryland, 
Delaware, Virginia and the District of Columbia.
---------------------------------------------------------------------------
    It is now evident that unusual system conditions, some of which 
were detected at the time, were occurring during the day. To get a 
better understanding of these conditions, NERC has taken the right 
approach by reviewing the events of August 14 beginning at 08:00. 
FirstEnergy's attached list of events outlines conditions existing 
within ECAR on August 14 and details certain occurrences beginning 
shortly after 12:00. Some of the unusual events include oscillations in 
flow, frequency dips and reversals in power flow between regions along 
major interconnections.
    As the afternoon progressed, a number of generation and 
transmission facilities in the region became unavailable. In the hours 
leading up to the outage, generation facilities that went off-line in 
our region include, in chronological order: AEP's 400 MW Conesville 
unit; DTE's 600 MW Greenwood unit; and FirstEnergy's 597 MW Eastlake 
unit. Also that afternoon, Gavin Unit 2, which is a major facility, was 
coming back online from an outage, though by 16:00 the plant was only 
supplying 50 MW of power. Conesville also was coming back online later 
in the afternoon but was not supplying its full load. Greenwood was 
also being returned to service that afternoon.
    Following the trip of the Eastlake Plant at 13:31:34, power systems 
and flows corrected themselves and FirstEnergy's system was balanced 
and stable. And even though, as the day proceeded, a number of other 
events occurred, our system remained in balance and power flows 
continued to be about the same as experienced earlier in the day.
    Between 15:00 and 15:30, we lost our Chamberlin-Harding 345 kV 
line. After that event and others during the same time frame, our 
system was still stable and importing essentially the same amount of 
power as earlier. During this time, our power flows to Michigan were 
approximately 346 MW.
    Between 15:30 and 15:45, a number of transmission lines in the area 
tripped out of service. These included our Hanna-Juniper 345 kV line, 
the South Canton (AEP)-Star (FE) 345 kV line, the Cloverdale (FE)-
Torrey (AEP) 138 kV line, AEP's East Lima-New Liberty 138 kV line and 
our Pleasant Valley-West Akron/West 138 kV line. Even with the loss of 
these facilities, our net imports remained approximately the same, with 
power flows continuing into Michigan at 215 MW.
    From 15:45 to 16:05, the Cloverdale (FE)-Canton Central (AEP) 138 
kV line, East Lima (AEP)-North Findlay (AEP) 138 kV line, the West 
Akron 138 kV bus, and the Dale (FE)-West Canton (AEP) 138 kV line all 
tripped off. The Canton Central (AEP)-Tidd (AEP) 345kV line tripped and 
reclosed, although two 345-138 kV transformers remained isolated.
    Following these events, our net imports dropped by about 230 MW, 
reflecting reduced loads within our service area. Even so, about 150 MW 
continued to flow to Michigan.
    At 16:06:03, FirstEnergy's Sammis-Star 345 kV line overloaded and 
tripped. At this point, 150 MW that had been flowing into Michigan 
reversed and 155 MW began flowing from Michigan into Ohio. A reversal 
of this magnitude would not, in and of itself, appear to be of 
particular significance.
    Then, at 16:08:58, AEP's Muskingum-Ohio Central 345 kV line 
tripped, and at 16:09:06, AEP's East Lima-Fostoria 345 kV line tripped 
and reclosed automatically after a less-than-two-minute delay.
    At this point, flows from eastern Michigan to Toledo increased by 
1,855 MW; flows from FirstEnergy into AEP increased by 2,670 MW; and 
flows from AEP directly into western Michigan increased by 1,630 MW. 
Also at this time, because we had lost load, FirstEnergy's net imports 
actually were reduced by 1,100 MW. Then, events began occurring rapidly 
throughout the Eastern Interconnection.
    A critical fact is that the system kept working as it was designed 
to do, despite all of these circumstances. On the afternoon of August 
14, before we began to see unusual loop flows--a result not only of 
power seeking ways around unavailable lines, but also of the existing 
power flows between regions--we did not see the system perform 
inconsistently with its design. When a path started to overload, the 
circuit breakers performed as designed to cut off flow on the line and 
protect components from overheating and sustaining significant damage. 
This all happened automatically.
    In fact, to the best of my knowledge, no manual intervention to 
disconnect from the interconnected network was taken by anyone. Our 
system remained interconnected with DPL, DQE, APS, and AEP. And, 
through APS, we remained connected with PJM through PJM West. None of 
these interconnected systems experienced major service interruptions.
    While we also experienced problems with our Energy Management 
computer system and are still evaluating the functionality of that 
system that was available to our dispatchers during this time frame, 
information about our system and the events that were occurring 
throughout the day were available to our reliability coordinator, the 
Midwest ISO. Also during this time, our dispatchers were in 
communication with other system operators and plant operators, as well 
as the Midwest ISO. The Midwest ISO did not call for any system 
interventions.
    Looking back, however, I do not believe it would have been 
appropriate for operators to intervene in this event. Again, these 
systems are designed to protect themselves and interact in a way that 
keeps power flowing to as many customers as possible. That is how they 
functioned. The automation in fact did protect facilities and customers 
in adjoining areas. NERC Policy Number 5, relating to Emergency 
Operations, states: ``When an operating emergency occurs, a prime 
consideration shall be to maintain parallel operation throughout the 
Interconnection. This will permit rendering maximum assistance to the 
system(s) in trouble.''
    Had the ties been disconnected, the negative impact on these other 
systems and their interconnections and customers could have been 
significant.
    Once systems were rapidly reacting to surrounding conditions, it 
was beyond the ability of operators to control. Even recognizing the 
point at which the automated response began moving too rapidly for 
operator intervention may have been impossible when the systems are 
doing what they are supposed to do. Even if such a point could have 
been quickly recognized, there was no time to react. The Washington 
Post reported last week that, according to a PJM spokesperson, the 
blackout spread too fast to employ emergency measures, and that ``there 
were no conclusions reached'' about transmission load relief (TLR) 
measures until it was too late to implement them.
    Everyone wants to know: ``Why did the blackout happen? What was the 
precipitating event?'' Some might like to say it was the first outage 
that occurred. If that were the standard, which of the above facilities 
was the ``first'' outage? Some might like to say it was the first 
outage that caused power flows to shift in response. But every outage 
causes flows to shift. Others might like to say it was the moment the 
system was ``in trouble'' and couldn't recover. However, we believe it 
was the cumulative effect of occurrences in the region that combined to 
impact the event, not unlike the boxer who gets knocked out in the 
tenth round. That last punch was important, but the accumulation of all 
of the previous blows led to his weakened condition.
    We need to understand the many small, chance events that played a 
role on August 14, but more importantly, we need to focus on the larger 
system conditions that imposed a strain.
                              observations
    I have several observations about the foregoing that I would like 
to summarize.
    First, the events of August 14 demonstrate that the facts are 
complicated and interrelated in ways that no one yet understands.
    Second, the systems appear to have responded as they should have to 
address successive issues. However, at some point events began to occur 
so rapidly that, even if human intervention were advisable, it likely 
would have been impossible to avert the widespread nature of the 
outage. As mentioned above, this was an automated event in which the 
system and protective devices appeared to work as designed. However, 
the broader question is whether the design is appropriate given what we 
are asking the system to do today. Localized grid conditions do not 
explain the widespread nature of the event.
    Third, competitive markets impact the operation of the 
interconnected grid. A significant amount of power passes through our 
area en route to areas that do not have the same generation resources 
that exist in ECAR. As many have observed, this puts additional stress 
on the grid. On August 14, this situation resulted in certain areas 
being left with excess generation or load when individual systems were 
automatically separating themselves from one another.
    In the past, utilities were responsible to match load and 
generation within their own service territories. The system was 
designed and constructed with that mission in mind. Interconnections 
with neighboring utilities were reliability enhancements, not on-ramps 
to an interstate highway. We support wholesale markets, and in fact 
strongly rely on them to help serve our retail customers. However, 
imbalances between regions are a new factor to consider in updating 
reliability standards for the interconnected grid. This is especially 
critical when power has to move through several systems to reach 
customers.
    Fourth, grid responsibilities are now in the hands of more entities 
than ever before. This puts a premium on identifying new designs and 
devices to better coordinate the operation across a wider region.
                            recommendations
    I have several recommendations to decrease the likelihood of these 
kinds of events occurring again.
    The first is to make the transmission system more robust to 
accommodate the growth in competitive markets. This requires investment 
and the ability to site new facilities.
    Transmission owners make regular investments in their facilities to 
maintain reliability to their utility customers. I have already noted 
FirstEnergy's investment and excellent performance. But the nation's 
transmission investment in general is not geared today toward 
development of facilities to sustain wholesale markets, which can 
change on a day-to-day or hour-to-hour basis. This will be challenging 
because, unlike building facilities to serve a relatively stable 
customer base as was done in the past, investments to meet wholesale 
market opportunities can be rendered ``excess'' by a change in those 
markets.
    Transmission rate reform is necessary to encourage investment in 
the construction of a more robust interstate transmission network. 
FirstEnergy has been a strong proponent of policies that encourage such 
investment. We support the applicable language in H.R. 6.
    Regarding transmission siting, we support provisions in H.R. 6 that 
would grant FERC with ``backstop'' eminent domain authority to help get 
critical transmission lines built in a timely fashion.
    My second recommendation is to establish mandatory reliability 
standards for the industry. FirstEnergy has long supported such 
standards as an element of federal legislation, including those in H.R. 
6.
    Third, consistent with my previous observation, policy makers and 
the industry need to review automated and control systems to determine 
whether the right equipment is in place and whether new technologies 
would prevent this type of event. Over the years, we have supported 
proposals for the federal government to promote implementation of new 
transmission technology. It may be too soon to tell what advances in 
technology would have been necessary to mitigate the outage.
    Fourth, the government needs to review the significance of 
interstate power flows across interconnected grids. Experts agree that 
a more vigorous grid is needed to accommodate wholesale markets. But 
what does that grid and its protective equipment need to look like, 
based on what we see today, and where the market development trends are 
heading? In the course of reviewing the August 14 event, we may gain a 
better understanding of the impact of regional power flows, at least in 
the affected regions. But we must make sure that electric customers in 
one area are not burdened by the cost of transmission facilities that 
are being constructed because another region is not siting sufficient 
generation. Like in the old days, utilities built generation and the 
necessary transmission to get it to their customers. Generators should 
not be able to avoid these costs today.
                               conclusion
    It is not possible at this time to pinpoint the ``causes'' of the 
outage. There are many contributing factors. FirstEnergy is committed 
to working with Congress, the Administration, and industry 
organizations to promote changes that will decrease the likelihood of 
this kind of event occurring again.

    Chairman Tauzin. Thank you very much, sir.
    The Chair will now recognize Mr. Eugene McGrath, the 
Chairman, President, and CEO of Consolidated Edison Company of 
New York.
    Mr. McGrath?

                 STATEMENT OF EUGENE R. McGRATH

    Mr. McGrath. Thank you, Mr. Chairman and committee members. 
I am Gene McGrath, and I'm the chairman of Con Edison New York. 
I welcome the opportunity to discuss Con Edison's experience on 
August 14 and to participate in the investigations and the 
efforts to learn from this event.
    For us, the power outage was a widespread, fast-moving 
event, and it has not yet been fully analyzed. A number of 
organizations have initiated investigations, including Con 
Edison. In time, I'm confident they will paint a picture, a 
full picture, of the events. But a great deal of data remains, 
and we should take care not to draw conclusions prematurely.
    This morning I would like to talk about what happened at 
Con Edison on August 14, how we turned the power back on, and 
then offer some thoughts on broader energy policy.
    First, what happened at Con Edison, just before the outage, 
the Con Edison system was operating with adequate resources, 
and there were no unusual conditions. Preliminary reviews have 
indicated that the initiating events occurred hundreds of miles 
outside of the Con Edison service area.
    Just before 4:11 in the afternoon, voltage on our system 
began fluctuating wildly and declining and frequency began to 
drop. Low system frequency triggered sensors that actuated an 
automatic, four-step under-frequency load-shedding program 
disconnecting approximately 50 percent of our load.
    The voltage continued to fluctuate. And by ``fluctuate,'' I 
mean it went down to less than 10 percent of its normal voltage 
and did not recover. There was a loss of generation and 
transmission, and our system shut down very quickly. After the 
system shut down, we started restoration efforts immediately 
using predetermined plans.
    In New York City, because of our load density and the 
complexity of our underground system, restarting has to be done 
very carefully, thoughtfully, methodically, and in coordination 
with many others. It requires tight control of system voltage 
and balancing cable and equipment capacity with customer load 
and available generation.
    The first priority was to establish a stable transmission 
backbone by sequentially reconnecting parts of the transmission 
system to transmission lines that were connected to a source of 
power and as each new section was energized, picking up the 
amount of customer load necessary to maintain adequate 
transmission system voltage. This required close coordination 
with the New York independent system operator and to make 
certain the transmission line had the capacity to support the 
incremental customer load.
    Once the backbone became stable and as generation came on 
line, substations and distribution lines were energized, 
picking up the remaining load.
    Electricity was restored from 2 to 29 hours. And I am glad 
to report that our restoration effort was completed without 
injury to the public, company personnel, or significant damage 
to equipment.
    At this point I would like to offer some thoughts on our 
national energy system. A lot of attention has been focused on 
the grid and the possibility that interconnections between rate 
regions aggravated the situation.
    The Con Edison transmission system is connected to the 
Eastern transmission grid that covers large parts of the 
country from the Northeast to the Rocky Mountains and into 
Canada.
    The interconnection of transmission systems improves the 
reliability of individual systems. Transmission lines provide 
access to additional generation when local generating resources 
are offline or insufficient to meet peak loads.
    Transmission lines also provide access to economic sources 
of electricity. Turning New York or any region into an energy 
island without significant interconnections might protect us 
from disruptions that originate outside our service area, but 
doing so would significantly increase costs and undermine 
reliability in other ways.
    The power outage has also stimulated a lot of debate and 
discussion about our energy system and about energy policy. I 
would like to address some issues that we should keep in mind 
as we approach those challenges.
    We all know that delivering electricity is essential to 
economic growth and it's crucial for energy companies to stay 
ahead of demand and maintain strong generation transmission and 
distribution systems.
    Day-to-day reliability depends upon redundancy, 
flexibility, and capacity. To that end, I offer a few comments: 
one, the planning of electric generation and transmission 
should be integrated across and within regions. When planning 
to meet load growth, priority should be given to locating 
generation at or near load centers. The process for siting 
electric transmission, generation, and distribution facilities 
must be improved so that utilities and other investors can 
install the facilities needed to meet growing loads and support 
economic development. There must be adequate financial 
incentive to invest in all elements of the electric 
infrastructure. Communication among regions must be enhanced.
    Mandatory reliability rules established by an electric 
reliability organization, as proposed in H.R. 6, are an 
important step toward enhancing national electric system 
reliability.
    The Federal Energy Regulatory Commission should provide 
oversight. We also believe that local independent reliability 
organizations, such as the New York State Reliability Council, 
should be permitted to develop and promulgate stricter 
reliability standards when local conditions warrant.
    The efforts that this committee is making to examine these 
issues will improve the Nation's electric system. I thank you 
for the opportunity to participate.
    [The prepared statement of Eugene R. McGrath follows:]
Prepared Statement of Eugene R. McGrath, Chairman and CEO, Consolidated 
                              Edison, Inc.
                              introduction
    Good morning. Thank you, Mr. Chairman and committee members.
    My name is Eugene McGrath and I'm the chief executive officer of 
Consolidated Edison, Inc.
    Con Edison's distribution companies, Consolidated Edison Company of 
New York, Inc. and Orange and Rockland Utilities, Inc., deliver energy 
to 3.4 million electric customers. Our service area includes New York 
City and Westchester, Orange and Rockland Counties in New York, as well 
as small portions of northern New Jersey and Pennsylvania. During the 
restructuring of the electric industry in New York, we sold most of our 
generating facilities and transformed from vertically integrated 
utilities into electric delivery utilities. Primarily, we transmit and 
distribute electricity that is generated by others. Con Edison also 
distributes gas throughout most of its service area and steam in 
portions of Manhattan. We are a member of the New York Independent 
System Operator (NYISO) and the PJM Interconnection (PJM), which 
administer the wholesale electricity markets and operate the bulk power 
transmission grid in New York and a multi-state region including 
Pennsylvania and New Jersey.
    I welcome the opportunity to discuss Con Edison's experience during 
the August 14th power outage and to participate in the investigations 
and the efforts to learn from this event.
    The power outage was a widespread, fast moving event that has not 
yet been fully analyzed. A number of organizations have initiated 
investigations, including the U.S.-Canada Joint Task Force on the Power 
Outage, the U.S. Department of Energy, the North American Electric 
Reliability Council, the Northeast Power Coordinating Council, the 
utility regulatory commissions in New York and other affected states, 
the regional ISOs, and various utilities including Con Edison. In time, 
I'm confident they will paint a full picture of the events. But a great 
deal of data remains to be collected and analyzed, and we should take 
care not to draw conclusions prematurely.
    I'd like to talk about what happened at Con Edison on August 14, 
how we turned the power back on, and then offer some thoughts on 
broader energy policy.
                  the power system shutdown: august 14
    On August 14, just before the outage, the Con Edison system was 
operating with adequate resources and there were no unusual conditions. 
Preliminary reviews have indicated that the initiating event(s) 
occurred hundreds of miles outside of the Con Edison service area. Just 
before 4:11 p.m. EDT, voltage on our system began fluctuating and 
declining and frequency began to drop. Low system frequency triggered 
sensors that actuated an automatic, four-step under-frequency load 
shedding program disconnecting approximately 50% of our load. The 
voltage continued to fluctuate and did not recover. There was a loss of 
generation and transmission and the system shut down very quickly. 
Changes put in place as a result of our experience from the 1965 and 
1977 outages allowed our system to shut down without significant 
electrical or mechanical damage.
    At this point, studies are underway to understand what caused these 
changes in frequency and voltage and to determine the exact sequence of 
events. We are continuing to analyze all of our own data and will 
review information from others as it becomes available to us.
                       restoration, august 14-15
    We started restoration efforts immediately.
    Pre-determined system start-up plans were available to the system 
operators and they were able to begin restoration without having to 
perform time-consuming analyses and planning. Highly trained and 
experienced operators staff our control rooms.
    In New York City, because of our load density and the complexity of 
our underground system, restarting has to be done very carefully, 
thoughtfully, and methodically and in coordination with others. It 
requires tight control of system voltage and balancing cable and 
equipment capacity with customer load and available generation.
    The first priority was to establish a stable ``backbone'' by 
sequentially reconnecting parts of the transmission system to 
transmission lines that were connected to a source of power, and as 
each new section was energized, picking up the amount of customer load 
necessary to maintain adequate transmission system voltage. This 
required close coordination with the NYISO to make certain the 
transmission line had the capacity to support the incremental customer 
load.
    Once the ``backbone'' became stable and as generation came on line, 
substations and distribution lines were energized picking up the 
remaining load.
    Electricity was fully restored in 29 hours and for many customers 
much earlier. I'm glad to report that our restoration effort was 
completed without injury to the public, Company personnel or 
significant damage to equipment.
                              conclusions
    Substantial data is available that should allow the various 
investigators now at work to determine the causes and sequence of 
events. I'm optimistic that what we learn from these investigations 
will enable us to further reduce the small probability of such events 
recurring in the future.
    A lot of attention has been focused on the grid, and the 
possibility that interconnections between regions aggravated the 
situation. The Con Edison transmission system is connected to the 
eastern transmission grid that covers large parts of the country from 
the Northeast to the Rocky Mountains and into Canada.
    The interconnection of transmission systems improves the 
reliability of individual systems. Transmission lines provide access to 
additional generation when local generating resources are off line or 
insufficient to meet peak loads. Transmission lines also provide access 
to economic sources of electricity. Turning New York--or any other 
region--into an energy island, without significant interconnections, 
might protect us from disruptions that originate outside our service 
area. But doing so would also significantly increase costs and 
undermine reliability in other ways.
    The power outage has also stimulated a lot of debate and discussion 
about our national energy system, and about energy policy. I would like 
to address some issues that we should keep in mind as we approach these 
challenges.
    Delivering electricity is essential to economic growth, and it is 
crucial for energy companies to stay ahead of demand and maintain 
strong generation, transmission and distribution systems. Day to day 
reliability depends upon redundancy, flexibility and capacity. To that 
end, I offer the following comments:

 The planning of electric generation and transmission should be 
        integrated across and within regions.
 When planning to meet load growth, priority should be given to 
        locating generation at or near load centers.
 The process for siting electric transmission, generation, and 
        distribution facilities must be improved so that utilities and 
        other investors can install the facilities needed to meet 
        growing loads and support economic development.
 There must be adequate financial incentive to invest in all elements 
        of the electric infrastructure.
 Communication among regions must be enhanced.
    Mandatory reliability rules established by an Electric Reliability 
Organization (ERO), as proposed in HR 6, are an important step toward 
enhancing national electric system reliability. The Federal Energy 
Regulatory Commission should provide oversight. We also believe that 
local independent reliability organizations, such as the New York State 
Reliability Council, should be permitted to develop and promulgate 
stricter reliability standards when local conditions warrant.
    The efforts that this committee is making to examine these issues 
will improve the nation's electric system. I thank you for the 
opportunity to participate.

    Chairman Tauzin. Thank you, Mr. McGrath.
    And now we will hear from the President and CEO of the 
National Grid Transco, Mr. Nick Winser. Is it correct, Nick? 
Proceed, sir.

                 STATEMENT OF NICHOLAS P. WINSER

    Mr. Winser. Thank you, Mr. Chairman. As an Englishman, I 
feel particularly honored to address this congressional hearing 
on this vital matter.
    I am responsible for National Grid's electricity and gas 
transmission networks, both here in the U.S. and in the U.K. 
National Grid Transco, as is the group company, is one of the 
world's largest independent energy delivery companies.
    We own and operate the high-voltage transmission system in 
the U.K., in England and Wales, and also the gas transmission 
and distribution networks. Here in the U.S., we have 
substantial transmission and distribution systems in New York 
State and New England. We are also seeking to establish an 
independent transmission company in the Midwest called 
GridAmerica.
    Most of our 1.5 million customers in New York State were 
affected by the blackout on August 14. Our New England 
customers were generally more fortunate. Our customers in New 
York State were restored in about 7 hours. We are fully 
cooperating with the various investigations which are going on 
to establish why the outage occurred.
    I would like to confine my remarks to one observation and 
four recommendations. My observation is that this debate should 
probably be about how we run large interconnected AC networks, 
rather than deregulation. I think to talk about deregulation 
may be missing the point.
    All developed countries have large AC networks because they 
are more economic and generally more reliable. Turning the 
clock back and fragmenting the grid would be unthinkable.
    The three large integrated grids in the U.S. are 
characterized I think by three things. They are owned and 
operated in a very fragmented way with thousands of entities 
involved. Many of those entities also have generation 
interests. And there have been very low levels of investment 
for more than a decade.
    Following from this, my four recommendations would be that 
public policy should promote RTO formation to consolidate 
control of this fragmented grid. I believe it should also 
promote the formation of independent transmission companies; 
independence of generation interests, which will bring renewed 
management focus; and an appetite for investment of this 
forgotten infrastructure. Reforming tax laws and repealing PUCA 
clearly will move toward this goal.
    Second, I believe that public policy should establish 
effective regional transmission planning processes to identify 
and direct investment in the grid.
    Third, I believe that public policy should establish a 
rational and stable pricing regime, which will give utilities 
assurance that they will recover investments in the upgrades 
that are needed. And I think substantial upgrades are needed.
    And, fourthly, it should seek to reduce barriers to siting 
new facilities or, probably, indeed, more importantly, remove 
barriers to enhancing the existing facilities because we 
believe that there is every opportunity to get a lot more out 
of the existing rights-of-way. And we have quite a lot of 
knowledge of that, we believe. So some sort of backstop 
authority for FERC on siting would obviously be a help here.
    Thank you very much for the opportunity to make that 
address and welcome your questions.
    [The prepared statement of Nicholas P. Winser follows:]
Prepared Statement of Nicholas P. Winser on Behalf of National Grid USA
    Mr. Chairman, Members of the Committee. My name is Nicholas P. 
Winser. I am a fellow of the Institution of Electrical Engineers and 
have twenty years experience as an electrical engineer. I am Group 
Director for transmission of National Grid Transco plc, which is an 
international energy delivery business focusing on the transmission and 
distribution of electricity and natural gas in the United States and 
the United Kingdom. I am also Chief Executive Officer of National Grid 
Company, the subsidiary of National Grid Transco that owns and operates 
the high voltage electricity network in England and Wales.
    I am testifying today on behalf of National Grid USA, whose public 
utility subsidiaries transmit and distribute electricity in New England 
and New York State. National Grid USA's subsidiaries are no longer 
active in the electric generation business, having divested 
substantially all of their generating assets. In addition, National 
Grid USA's independent transmission company subsidiary, GridAmerica 
LLC, has executed contracts under which it will undertake certain 
responsibilities for the management and planning of the transmission 
assets of three major electric utilities in the Midwest, once all 
required regulatory approvals are obtained.
    Thank you for inviting me here today to address the events of 
August 14th and their implications for national energy policy. National 
Grid is pleased and honored to assist you and your Committee in the 
investigation of these events and in developing a comprehensive set of 
policies to strengthen the transmission grid.
    This inquiry is of particular importance to National Grid, since 
approximately 900,000 customers served by its New York subsidiary, 
Niagara Mohawk Power Corporation, lost power during the August 14th 
blackout. Fortunately, Niagara Mohawk personnel, working closely with 
the New York Independent System Operator, Inc. (NYISO), were able to 
restore power to all of those customers within about seven hours. While 
the immediate impact of the August 14th blackout on National Grid's 
customers was thus temporary, it was disruptive. The blackout serves as 
a reminder that electricity consumers are heavily dependent on the 
integrated interstate electricity delivery system that is straining 
under the weight of current demands.
    National Grid is committed to strengthening and expanding the 
transmission grid in the United States, not only by adding new 
transmission facilities, but also by making maximum use of existing 
facilities and rights-of-way. National Grid hopes that the unfortunate 
events of August 14th will underscore for policymakers the urgency of 
developing and implementing policies that will promote the 
establishment of a reliable and robust transmission infrastructure 
throughout the United States.
    In this statement, I will respond to the specific questions that 
you have asked. As you requested, I will address the important policy 
questions that must be considered if we are to enhance the reliability 
of the electric transmission grid and thereby minimize the risks of a 
repetition of the August 14th blackout.
The Events of August 14th
    We do not yet have a complete picture of the underlying causes and 
contributing events that led to the August 14th blackout, though it 
appears that the initial events took place off National Grid's system. 
National Grid has been cooperating fully with the joint U.S.-Canadian 
investigation of these events, as well as other investigations, and 
will continue to do so. Based on preliminary review of available data, 
we can provide the following description of the ``cascading'' effects 
of the initial disruption on National Grid's system.
    So that the Committee may understand how events occurring on other 
utilities' systems, in this instance apparently in the Midwest, could 
have such profound effects on service to customers on adjoining 
systems, it is necessary first to explain briefly some of the 
principles upon which the interconnected alternating current (AC) 
electric transmission system operates. In order to control power flows 
on an AC electricity system, the frequency at all locations on the grid 
must be synchronized. (The interstate AC grid in the United States 
operates at a design frequency of sixty cycles per second.) This in 
turn requires that load and generation on the grid remain in close 
balance at all times. If there is a mismatch between load and 
generation on a particular portion of the grid, the frequency at that 
location will attempt to deviate from the desired level. Because the 
frequency is synchronized across the grid, energy will move across the 
grid in an attempt to compensate for the local imbalance. This can lead 
to uncontrolled power flows and severe damage to transmission and 
generation equipment. System operators keep some generating capacity 
synchronized as operating reserves in order to enable them respond to 
relatively small short-term fluctuations in supply and demand, 
including unanticipated outages of generation.
    To prevent damage to equipment when large imbalances between load 
and generation occur, automatic protective systems are in place (many 
of them installed after the 1965 blackout) to respond to situations in 
which the frequency deviates outside of a very narrow band around the 
acceptable system frequency. Generating equipment has protective 
systems that disconnect it from the transmission system if frequency 
deviates outside the tolerable range (whether high or low) in order to 
prevent damage that could otherwise render the generation unavailable 
to restore the system and serve load after the incident.
    An additional and extremely important measure put in place after 
the 1965 blackout as a means of restoring the balance between load and 
supply following a major disturbance, was the introduction of the 
automatic capability to reduce demand (referred to as automatic under 
frequency load shedding). While the use of automatic load shedding, as 
a last resort, plainly inconveniences the affected customers, it 
prevents the disturbance from spreading and causing equipment damage, 
which would affect more customers by delaying even further the 
restoration of service. The need to rely upon automatic protection 
systems such as programmed load shedding can be reduced by good 
operating practices, through which the delivery capability of the 
system is monitored and analyzed on an ongoing basis and actions taken 
in response to changes in the configuration of the system before 
extreme and uncontrollable conditions result.
    With that brief introduction in mind, I will turn to the August 
14th blackout. On August 14th, the systems of National Grid and other 
utilities in New York State were affected by external events occurring 
within a very short period of time. From information made available by 
the North American Electric Reliability Council (NERC), it appears that 
a significant mismatch between load and generation developed in the 
Midwest (though we received no notice of the emerging conditions at the 
time). This caused large and abrupt swings in power flows and 
frequency, and protective systems tripped several transmission lines in 
New York State at approximately 4:10 p.m. This was the first indication 
we received of a disturbance.
    The electric system in western and central New York State separated 
from the system in eastern New York State. The system in western and 
central New York remained energized, and some load continued to be 
served throughout the event. In accordance with the under frequency 
load shedding program implemented by New York utilities in coordination 
with the reliability councils, automatic protective systems operated 
and initiated the controlled shedding of customer loads in an effort to 
bring the load and generation into balance. In eastern and central New 
York State, service was interrupted to a large number of customers, 
though some pockets of load were served in areas where generation was 
available, such as the Albany area. In most of eastern New York State, 
the balance between load and generation could not be maintained and the 
system collapsed into a blackout. As noted earlier, these events took 
place within a very short period of time. Indeed, many of the events 
occurred within a matter of seconds, well before operators could 
intervene manually.
    The transmission lines connecting the New York electric system and 
the New England electric system were also opened by operation of their 
protective systems. This separated the systems of New England and the 
eastern Canadian provinces from those to the west. Those systems appear 
to have been affected less severely by the power swings and voltage 
fluctuations, enabling them to remain stable, without further loss of 
service. In the end, New England only lost about 2,500 MW of load in 
Southwest Connecticut, Western Massachusetts, and Vermont for brief 
periods.
The Operation of Protective Systems
    Preliminary analysis indicates that the protection schemes in place 
in the New York/New England region generally worked as intended to 
prevent more extensive and long-lasting disruptions. They allowed the 
system to shut down with minimal damage to key transmission and 
generation facilities. Most of the transmission system in New York 
State indeed remained intact. While keeping the key components of the 
transmission and generation system undamaged did not keep the lights on 
for all New Yorkers, doing so was crucial to facilitating the 
restoration of service after the event. Had critical transmission lines 
or generating stations suffered significant physical damage, the 
necessary repairs could have extended the restoration process for days 
or even weeks in some areas, depending upon the location and severity 
of the damage.
    On National Grid's delivery system in New York State, approximately 
900,000 of the 1.5 million customers connected to National Grid's 
delivery facilities in upstate New York lost service on the afternoon 
of August 14th. Service was restored as rapidly as the available 
generation permitted, with all those customers back in service within 
approximately seven hours. The following day, as part of the 
restoration process, a small number of customers were again without 
power for a brief period, while load was being balanced with the 
generation that was coming back into service.
    The transmission control centers in New York also appeared to 
function well during the event. Back up power supplies to these control 
centers appear to have worked correctly. As a result, the control 
system stayed operable during the event, and the operators were able to 
follow established plans and communicate effectively. This also speeded 
the restoration process. It allowed the individual transmission owners 
to give instructions to the generators in their individual control 
areas while the NYISO coordinated bulk power restoration.
    The equipment and processes in place in New York State and New 
England therefore appear, based on preliminary analysis, to have 
functioned as they were designed to perform: to isolate the portion of 
the grid experiencing the disturbance and to protect generation and 
transmission facilities from serious damage when large, uncontrolled 
power swings occurred due to events on adjoining systems (which are 
still being investigated). The automatic systems that protected that 
equipment did so by disconnecting generation and load from the grid and 
by opening some transmission lines. Unfortunately, millions of 
customers lost power as a result. Each of the systems comprising the 
interconnected AC transmission system is affected by conditions on all 
other systems and we do not yet know exactly what happened outside of 
New York to cause the large, unexpected power swings that appeared on 
the New York State system. Accordingly, there are simply too many 
variables involved to tell whether the results would have been the same 
if the events of August 14, 2003 had transpired a year earlier.
Lessons Learned and Policy Recommendations To Enhance Reliability To 
        Guard Against the Recurrence of Similar Events
    Because the investigation into the events that led to the August 
14th blackout is still underway, it is too early to identify the 
specific technical and operational solutions that are needed to 
minimize the likelihood that similar events might occur in the future. 
It is important nevertheless to recognize that continued employment of 
sound operating principles will reduce the risks that severe 
disturbances might occur on the grid in the first place. This will 
minimize the need to rely on automatic systems that protect equipment 
from damage by disconnecting components and customers from the network 
when such disturbances occur. Once the circumstances that gave rise to 
the August 14th blackout are identified, I would expect that utilities 
and system operators will identify any shortcomings in existing 
equipment and operating procedures to prevent those circumstances from 
repeating themselves.
    From a policy perspective, a significant amount of work has already 
been done and can still be done to address problems like those 
experienced on August 14th. While the investigation into the specific 
technical and operational issues that led to the August 14th blackout 
is not complete, it is critical for policymakers to take the steps 
necessary to promote a more reliable delivery infrastructure. Those 
steps cannot be limited to generation, transmission, or demand-side 
measures in isolation. All of these areas may well form part of an 
integrated solution to this complex problem.
    For some years, National Grid and others have raised the concern 
with Congress, the Federal Energy Regulatory Commission (FERC), and the 
Department of Energy that investment in the interconnected transmission 
system has not kept pace with generation and load growth and that 
significant upgrades are needed to maintain and enhance reliability and 
expand competitive markets. We have also underscored the need for 
active and independent management of the transmission system. As a 
result, we strongly advocate energy legislation and regulatory policies 
that address the roadblocks to grid expansion and independent 
transmission operation. To achieve these objectives, policymakers 
should focus on the following areas:

 Promoting Independent Transmission Companies. For too long, the 
        electricity delivery system has been the forgotten element of 
        the Nation's electricity infrastructure, largely left to fend 
        for itself while market participants focus on new generating 
        plants. The events of August 14th reveal the dangers of 
        treating the delivery system as an afterthought. Independent 
        transmission companies that will focus their business plans on 
        the ownership and efficient operation of the grid and in making 
        the investments needed to bring it in line with the demands of 
        the 21st century are critically needed. As proactive managers 
        and operators of transmission assets they will be well-
        positioned to minimize instances when it is necessary to resort 
        to automatic protective systems. They also will be positioned 
        and motivated to maximize the use of existing transmission 
        facilities and rights of way. They will be able to make the 
        needed investments in the energy delivery infrastructure free 
        of competing demands for generation investments. Moreover, they 
        will promote open and non-discriminatory transmission service 
        because they have no generation interests to favor. For this 
        sector to develop, Congress must reform the tax laws to remove 
        impediments to transfers of transmission assets to new 
        independent owners and must repeal the Public Utility Holding 
        Company Act, which limits the expansion potential of 
        independent transmission companies. FERC also must allow these 
        companies sufficient authority over their assets to enable them 
        to do the job and enable them to employ performance-based rates 
        that reward increased efficiency.
 Effective Transmission Planning and Expansion Policies. To ensure 
        that the transmission grid upon which we all rely is adequate 
        to serve current and projected needs, regional transmission 
        planning processes must be established to regularly assess the 
        need for upgrades both to improve and enhance reliability and 
        to remove bottlenecks that limit customers' access to cheaper 
        electricity. To be effective, those processes must be 
        streamlined. They must not afford opportunities for market 
        participants that profit from existing bottlenecks (because 
        they keep competing suppliers from reaching their markets) to 
        delay or frustrate needed expansion projects. In particular, 
        needed upgrades must not be put on hold by requirements that 
        utilities search for voluntary participant funding or 
        regulators resolve debates over cost allocation. Instead, 
        regional planning processes should look to the region's 
        utilities to make the grid upgrades required both to preserve 
        reliability and expand customers' access to lower cost power.
 Rational and Stable Transmission Pricing. The transmission grid needs 
        significant upgrades to enable it to handle the increased 
        demands now placed upon it both for reliability and for 
        efficiency. FERC must establish transmission pricing policies 
        that give utilities adequate assurance that they will recover 
        investments in system upgrades. Those policies must recognize, 
        as the events of August 14th make clear, that customers and 
        generators throughout the region rely on and benefit from a 
        reliable and robust transmission system and should bear a fair 
        share of its costs. Policies must also be stable enough that a 
        utility can rely on them to return its investment over many 
        years and be simple enough to apply so that critically needed 
        delivery system upgrades are not delayed by battles to allocate 
        costs to different customer groups.
 Removing Barriers to Siting Transmission Facilities. FERC lacks the 
        authority to grant certificates for interstate electric 
        transmission projects, even though it has had that authority 
        for natural gas pipelines for decades. This regulatory gap 
        makes it profoundly difficult to site, construct, or modernize 
        transmission facilities, particularly between states and market 
        regions, even when the need for greater grid capacity is clear. 
        Congress should, at a minimum, grant FERC backstop siting 
        authority for electric transmission projects.
    As policy objectives, these are all key steps toward a regulatory 
and market regime that fosters the development of a reliable delivery 
infrastructure. FERC's proposed Wholesale Market Platform would make 
significant progress in implementing the first three of these policies. 
It consists of a significantly revised version of the so-called 
standard market design that FERC proposed last year and incorporates 
many of the comments that FERC received on that proposal from a broad 
cross-section of the industry, as well as consumers and state 
regulators. Progress on the policies embodied in the Wholesale Market 
Platform proposal is essential to the development of independent 
transmission companies, effective regional transmission planning, and 
rational transmission pricing policies that would facilitate critically 
needed grid expansion. From what we have seen, there appears to be no 
substance to the speculation that electric industry restructuring and 
FERC's efforts to develop competitive energy markets may have 
contributed to the blackout. To the contrary, National Grid believes 
that it is those efforts that will ultimately address reliability 
concerns, if they are premised on independent operation of the 
transmission grid and focused on the development of a delivery 
infrastructure that is both reliable and sufficient to support 
competitive markets.
    Policymakers should also give serious consideration to the content 
of the reliability standards that govern the design and operation of 
the interconnected electric transmission system. In general, the 
current reliability standards call for the transmission system to be 
designed so that it can withstand the single largest contingency 
considered by planners. Many other countries (as well as portions of 
the U.S. grid) are designed to more stringent standards. Adopting more 
stringent standards generally for the U.S. transmission system would 
improve its capability to deal with unexpected power swings without 
interrupting service. National Grid believes that closely scrutinizing 
the content of the rules themselves and promoting transmission 
companies focused on planning and operating to satisfy those 
requirements is crucial regardless of whether compliance with the 
reliability standards is enforced with a new regime of mandatory rules 
and penalties.
    While the cost of improving the Nation's transmission 
infrastructure will have to be borne by customers in their rates, 
transmission represents only a small portion of the total electricity 
bill (ten percent or less in most cases). Since an improved 
transmission grid will not only enhance reliability but will improve 
the efficiency of energy markets and ultimately lower energy costs to 
consumers, even modest energy costs savings are very likely to outweigh 
transmission reinforcement costs. Moreover, a more reliable 
infrastructure will reduce the likelihood of widespread outages and the 
resulting costs to the economy.
    In short, while the specific technical and operational solutions to 
solve the problems of August 14th are still being identified and 
assessed, it is incumbent upon policymakers to continue their work to 
establish a regulatory environment that fosters the development of a 
robust transmission grid--one that will ensure reliability of the 
entire system and deliver efficient competitive energy markets.
    National Grid appreciates the opportunity to assist the Committee 
in its vitally important review of the causes of and solutions to the 
problems experienced on August 14th.

    Chairman Tauzin. Thank you very much, Mr. Winser. And we do 
indeed welcome you here. Thank you. I'm just learning a lot 
more about you and your company. I've got some questions I want 
to ask you a little later.
    We're now pleased to welcome Mr. Rick Kessel, the Chairman 
and CEO of Long Island Power Authority of Uniondale, New York. 
Mr. Kessel?

                   STATEMENT OF RICHARD KESSEL

    Mr. Kessel. Thank you and good morning, Mr. Chairman and 
members of the committee. I'm Richard Kessel. I'm Chairman and 
Chief Executive Officer of the Long Island Power Authority, 
commonly known on Long Island as LIPA. I want to thank you for 
holding this hearing today.
    And I want to commend you, Mr. Chairman, for the work that 
you have done on behalf of energy consumers throughout the 
country. I've personally followed your career and know a lot of 
what you have done. And I commend you for taking this decisive 
action and holding this hearing today.
    Chairman Tauzin. Thank you very much, sir. You should like 
Norm Lent, for some reason.
    Mr. Kessel. Oh, I almost ran against him, actually, 1974. 
But that was a long time ago.
    Chairman Tauzin. Thank you.
    Mr. Kessel. And I wound up running for the State Senate and 
lost. Democrats from Long Island don't usually do well.
    I do want to bring greetings from Governor George Pataki 
from New York State. He sends his greetings.
    I have to say from the outset Governor Pataki just did an 
extraordinary job, a heroic job in my view, in helping LIPA and 
the other utilities in this State back to full recovery.
    And I have to tell you that if it wasn't for the Governor's 
efforts, particularly on the night of the blackout, in 
convincing the Department of Energy to energize the Cross Sound 
Cable from Connecticut to Long Island, Long Islanders would 
have experienced massive rolling blackouts on Friday. I think 
the Governor deserves tremendous credit for showing very strong 
leadership in New York State in stepping up to the plate when 
it mattered.
    Chairman Tauzin. Mr. Kessel, I am going to interrupt just a 
second because I think you will hear this from more than one 
member. I want to express to you the admiration of the entire 
panel, our entire committee, and I assume the whole Congress.
    We watched on television the experience in New York and the 
eerie resemblance to 9/11 and the fact that you came through 
that with so little injury and so little problem. And the calm 
and patience of the people of New York and Detroit and the 
other cities affected--we heard from the mayor of Detroit 
yesterday--was quite a scene for all of us to watch. There was 
a lot of admiration around the country for the way you handled 
this thing.
    I want to send my appreciation to both Mayor Bloomberg and 
to Governor Pataki on behalf of the people of this country for 
showing us such a good example.
    Mr. Kessel. I appreciate that, and I will certainly tell 
them that. I have to tell you that I was on the phone with the 
Governor within a couple of hours. And he was helping us 
throughout the night. And the next day, he came out to Long 
Island. I know he went to other utilities around the State and, 
really, I think did an extraordinary job. I want to talk a 
little bit about that in a couple of minutes.
    I think the Long Island Power Authority did very well. We 
worked very closely with our partners at KeySpan Energy and the 
employees, who I think don't get enough credit at the utilities 
for the great job that they did in synchronizing the grid and 
bringing it back in record time. In fact, we lost about 
1,084,000 customers. And they were all brought back within 25 
hours and 21 minutes, 80 percent by 8:30 the following morning.
    And it was an extraordinary effort on the part of the 
employees and all of the management of both LIPA and KeySpan. 
And with assistance from the Governor and his staff and also 
from the New York independent system operator and my friend 
Bill Museler here, it was an extraordinary partnership in 
getting everyone back together.
    I would like to really get to the heart of the matter, in 
my view, the issue that Congress ought to take a look at. It's 
the national symbol of what is wrong in my view with the energy 
grid in the country. This is it, the Cross Sound Cable.
    These are two slices of the Cross Sound Cable that was 
built for the Long Island Power Authority by a private company, 
TransEnergie, a subsidiary of Hydro Quebec.
    Several years ago, at the Governor's direction, Long Island 
decided that, in addition to new power plants on Long Island--
and we have added over 500 megawatts of new generation in the 
last couple of years.
    We wanted to build an interstate transmission line to help 
the reliability of the grid and the flow from Connecticut to 
Long Island and vice versa. And obviously that would open up 
the entire Northeast grid from New England through Long Island 
and New York.
    TransEnergie invested its own money and built what is known 
as the first merchant transmission line in the United States of 
America, the Cross Sound Cable, stretching from New Haven, 
Connecticut to Shoreham on Long Island.
    The transmission line was permanent, by Federal and State 
authorities received all of its operating permits, was 
completed right before the Summer of 2002, and lay dormant 
under the Long Island Sound until the emergency of August 14, 
when, thanks to the efforts of Governor Pataki and Energy 
Secretary Spencer Abraham, this cable was energized in order to 
not only enable Long Island to import electricity over the 
cable to Long Island but also to stabilize the voltage on both 
sides of the Long Island Sound.
    That cable was energized under an extraordinary emergency 
audit issued by Secretary Spencer Abraham. And, frankly, I 
think he deserves a lot of credit for having the guts to do 
that at the request of our Governor, Governor Pataki.
    That line provided 100 megawatts of power on Friday 
afternoon when we were right here. I mean, we were barely able 
to keep up with the demand because we were restoring customers 
too quickly.
    The 100 megawatts from that Cross Sound Cable around 12:30-
1 o'clock on Friday afternoon was a godsend to Long Island. Had 
we not had those 100 megawatts, we would have probably had to 
initiate rolling blackouts all across Long Island.
    The energy secretary issued the order. It was effective 
until Labor Day. Governor Pataki went back and requested that 
the order be extended because while the event of the blackout 
is over, the emergency isn't.
    We still don't know, really, what caused it or whether or 
not it can be prevented again. As the head of a utility of over 
a million customers, there is not a minute in my life that I 
don't worry that this could happen at any moment. And we don't 
know that it can't.
    The energy secretary was kind enough to and I think correct 
to issue a new order, which allows for the energizing of the 
Cross Sound Cable and its use as a normal transmission line 
during the emergency.
    But here is the point and is my one recommendation. I've 
got a lot in my testimony. If Cross Sound Cable cannot operate 
because of parochial, petty politics from another State, this 
grid is in big trouble. The only way in my view to rebuild the 
grid--and everyone admits the grid needs rebuilding. It needs 
tremendous investment. It's private capital.
    Utilities like LIPA and my friends at Con Ed and National 
Grid, we can't afford to invest all of that money at once in 
our grid because our customers would wind up paying significant 
rate hikes, although I have to tell you that LIPA has invested 
over a billion dollars in the transmission and distribution 
grid on Long Island since we acquired the Long Island Lighting 
Company's electric business 5 years ago.
    The issue is, is private investment, are private companies 
like TransEnergie, willing to step up to the plate and invest 
their hard-earned money in building transmission lines in this 
country if individual States and parochial, political interests 
are going to block transmission lines from operating. This is 
the national symbol of what is wrong with the grid.
    And so I have two recommendations. Recommendation No. 1 is 
I believe that the Federal Government needs to take control 
over the interstate transmission grid in this country. Now, 
maybe there ought to be some process of one-stop shopping, 
where local environmental concerns are addressed.
    But the notion that environmental concerns, this has been 
opposed because environmentally it could leak. Where is the 
leak? There is no fluid in this line. But the Federal 
Government has the capability of siting transmission.
    Second of all, we have to encourage private companies to 
invest in the grid throughout the Nation. It's the only way to 
get sufficient capital to bolster the grid without burdening 
our utility customers with rate hikes.
    And I propose two things. No. 1, I propose that utilities 
be able to invest by entering into power purchase agreements to 
power purchase off of these lines for a 10 to 20-year period as 
a way to pay back private companies for their investment.
    And, second, I would urge Congress to look at incentives to 
incentivize those private companies that are willing to invest 
capital in bolstering the transmission grid as a way to enhance 
service throughout the country.
    [The prepared statement of Richard Kessel follows:]
  Prepared Statement of Richard Kessel, Chairman and Chief Executive 
                  Officer, Long Island Power Authority
    My name is Richard Kessel and I serve as Chairman of the Board and 
Chief Executive Officer of Long Island Power Authority (Authority) 
located on Long Island in New York State. As an instrumentality of the 
State of New York and a public power agency, the Authority and its 
operating subsidiary, the Long Island Lighting Company d/b/a LIPA 
(LIPA), provide electric service to nearly 1.1 million customers, 
representing approximately 2.8 million people in Nassau and Suffolk 
counties, and the Rockaway Peninsula in the Borough of Queens, New York 
City.
    Three weeks ago, on August 14, 2003, LIPA and its customers were 
caught up in the Northeast power blackout which affected much of the 
Northeast United States and South Eastern Canada. Through the 
cooperation of LIPA customers who limited their demand and the 
committed work of LIPA employees and the employees of our service 
contractor, KeySpan, over 80% of LIPA customers had their power 
restored by 8:30 A.M. on August 15th and all customers had electric 
service restored within 25 hours, 21 minutes of the blackout.
    The blackout provides a telling example of the fragility of our 
electric transmission system and the need to continue our efforts to 
improve system reliability. We at LIPA are as committed as the members 
of this Committee to analyzing this situation and ensuring the 
prevention of a similar occurrence. For that reason, I want to thank 
Chairman Tauzin for calling this hearing and for providing me with the 
opportunity to speak on behalf of the LIPA's customers regarding what 
happened on August 14, 2003, and to provide recommendations on actions 
that can be taken to improve our electric transmission system and 
overall reliability.
  lipa--providing reliable electric service to its customers on long 
                                 island
    The Authority and its operating subsidiary, LIPA, own and operate 
the transmission and distribution system on Long Island while also 
providing retail electric service to customers on Long Island. The 
Authority was established in 1986 by the New York State legislature to 
resolve a controversy over the Shoreham Nuclear Power Plant and to 
achieve lower utility rates on Long Island. Created as a corporate 
municipal instrumentality of the State of New York, the Authority was 
authorized under its enabling statute to acquire all or any part of the 
securities or assets of the Long Island Lighting Company (LILCO). In 
May 1998, the Authority acquired LILCO as an operating subsidiary. This 
acquisition resulted in an average rate reduction of 20% to the Long 
Island ratepayers.
    LIPA owns 1,344 miles of transmission and sub-transmission lines 
that deliver power to 175 substations in its electric system. From 
these substations, 13,075 circuit miles of distribution lines deliver 
the power to nearly 1.1 million business and residential customers. In 
addition, Long Island is served by five operating transmission 
interconnections to neighboring electric systems and a new high voltage 
direct current interconnection to Connecticut--the Cross Sound Cable--
that is ready for full commercial operation which has been delayed for 
more than a year due to a permitting moratorium enacted by the State of 
Connecticut in June 2002. Instead, operation of the Cross Sound Cable 
has occurred only as the result of emergency operating orders issued by 
the Department of Energy for a short period of August and September, 
2002 and since August 15th in response to the Northeast power blackout.
    LIPA is committed to finding creative solutions to the provision of 
economic, environmentally sensitive and reliable electric supply for 
its customers. Historically, there have been reliability and service 
issues for the residents of Long Island. As an island with a robust 
economy, the demand for electricity on Long Island has been growing at 
a record rate in recent years. On average, for the past several years, 
our demand has grown at a rate of approximately 100 megawatts (MW) per 
year. For example, in July 1999, a four-day heat storm produced a 
summer peak demand record for LIPA of 4590 MW and 4757 MW for the Long 
Island Control Area. That 1999 LIPA record was 382 MW higher than the 
previous summer record of 4208 MW set in July of 1998. To provide some 
perspective, however, at the time of the August 14th system 
disturbance, all of the Long Island generation was functioning well 
with a typical summer demand load of 4677 MW--a demand level that, just 
four years ago, was a summer peak demand record. And this demand 
continues to grow. The peak demand in the Long Island Control Area for 
2002 was 5059 MW.
    Meeting this load growth, however, is not an easy task. In many 
ways, Long Island is a microcosm of the difficulties that face electric 
utilities today in providing the reliable and cost-effective energy 
that is critical to our local, state and national economy. Over the 
past several years, LIPA has taken aggressive steps to maintain and 
enhance the existing electrical system on Long Island to meet customer 
demand and improve reliability. The initiatives that LIPA has 
undertaken include:

 Initiation of a power supply enhancement program that has included 
        execution of power supply agreements with developers of new 
        generation units on Long Island (totaling 500 MW in 2002 and 
        2003) to meet peak energy demands, siting temporary mobile 
        generation units (200 MW in 2002 and 130 MW in 2003) and 
        issuing an RFP for additional baseload energy sources on Long 
        Island and transmission interconnection siting (for operation 
        in 2006);
 Initiation of conservation and efficiency programs such as LIPA's 
        Peak Load Reduction Partnership and LIPAedge which are designed 
        to help us meet and manage our demand obligations with the 
        assistance of our customers. LIPA's Clean Energy Initiative was 
        created in May of 1999 to support energy efficiency, clean 
        distributive generation and renewable technologies. The 
        Authority has spent more than $180 million in the first five 
        years of the program and has extended it for another five 
        years. Some of the accomplishments include the installation of 
        the largest commercial solar roof in the country, investment in 
        fuel cells and geothermal projects, as well as development of 
        wind turbine demonstration projects. The Authority is currently 
        reviewing responses to a recent RFP for a large offshore wind 
        project. In addition, LIPA's Peak Load Reduction Program and 
        LIPAedge Program were designed to meet and manage our demand 
        obligations with the assistance of our customers;
 Upgrading the transmission and sub-transmission infrastructure to 
        improve energy transfer capability to and from Long Island and 
        neighboring electric systems, increase the internal interface 
        transfer capability and accommodate competition from new 
        merchant generators on Long Island;
 Fostering the development of the Cross Sound Cable and, ultimately, 
        entering into a long-term transmission service agreement with 
        the builder of the Cross Sound Cable, TransEnergie U.S., which 
        made the financing of the project possible; and
 Substation and distribution line capital improvement projects to 
        provide the capacity to serve forecasted load growth and to 
        improve the overall reliability of the system.
    Electric energy is not a luxury. We must ensure that the 
infrastructure supporting the delivery of electricity to our customers 
is up to the critical task of ensuring that our homes are lit and our 
businesses have the electricity necessary to produce the goods and 
services that support our economy. On October 17, 2002, LIPA released 
its Draft Energy Plan which details a comprehensive, multi-faceted and 
flexible approach to providing a safe, reliable, environmentally 
friendly and cost efficient supply of electricity to LIPA's customers 
well into the future. In addressing the transmission and distribution 
components of the Draft Energy Plan, the first and foremost criteria 
for identification of projects was the ability to improve system 
reliability. In order to meet demand and maintain reliability, LIPA has 
invested heavily in transmission infrastructure and will continue to do 
so. Since taking ownership of the Long Island transmission and 
distribution (T&D) system in May of 1998, LIPA has invested $1.01 
billion in our T&D system. The expenditures have been made on a wide 
range of projects including new transmission and distribution lines and 
upgrades of existing lines, new substations and upgrades of existing 
substations. In 2002, LIPA invested nearly $332 million in improvements 
to the T&D system alone. LIPA's 2003 budget commits an additional $240 
million to such improvements. Projected expenditures for 2004 could 
reach $216 million, with expenditures for 2005 reaching nearly $200 
million.
    As part of its efforts to improve the overall transmission 
infrastructure serving Long Island, since 1998, LIPA has worked to 
establish a new interconnection between New York and New England across 
Long Island Sound--which ultimately became the Cross Sound Cable 
project. Constructed in 2002 by TransEnergie U.S., Ltd. (TEUS), the 
transmission line interconnects the New England and New York control 
areas and is capable of transporting 330 MW of electricity between Long 
Island and Connecticut. Although LIPA is not the owner or the operator 
of this transmission line, LIPA's involvement in the project has been 
critical to its construction and completion. By entering into a Long 
Term Firm Capacity Purchase Agreement with TEUS in August of 2000, LIPA 
provided the necessary support for the financing of this project. The 
development of this merchant transmission line, in addition to LIPA's 
other efforts, is necessary to continue to serve the growing demand for 
electricity of the residents of Long Island.
    Most recently, as part of our ongoing efforts to improve the 
transmission system, on August 28, LIPA announced a Research and 
Development (R&D) project with DOE and a consortium of manufacturers, 
led by American Superconductor of Massachusetts for the installation of 
a superconductive cable. This $30 million project will test the world's 
first installation of a superconductor cable in a live grid at 
transmission voltages. Called high temperature superconductor (HTS) 
power transmission cables, superconductors can transmit two to five 
times the amount of electricity through the same space occupied by 
existing cables. The 2000 foot 138kV transmission superconducting cable 
will be demonstrated as a portion of a circuit located in an existing 
right-of-way in East Garden City. Project development has already 
begun, and the superconductor cable will be installed in the fall of 
2005 with full operation scheduled for the end of 2005. If the R&D 
demonstration proves successful, LIPA would look to continue building 
the superconducting cable to the next substation. Connecting the two 
substations would provide a capacity of 600 megawatts.
    Maintaining system reliability is a key mission for LIPA. LIPA is a 
founding member of an international public/private R&D partnership to 
apply new technologies to electric T&D systems to create a ``self 
healing'' grid that will detect and correct problems before they occur. 
Called the Consortium for the Electric Infrastructure to Support a 
Digital Society (CEIDS), some 15 entities, including the U.S. 
Department of Energy (DOE), the New York Power Authority (NYPA), 
Consolidated Edison Company of New York Inc., Cisco Systems, Lockheed-
Martin, and Electricite de France have joined in the effort to develop 
the ``self healing'' grid technology concept. The CEIDS effort is part 
of the R&D projects spearheaded by the Energy Innovation Institute 
(E2I) a subsidiary of the Electric Power Research Institute (EPRI). 
Development of a ``self-healing'' transmission and distribution 
system--capable of automatically anticipating and responding to 
disturbances, while continually optimizing its own performance--will be 
critical for meeting the future electricity needs of an increasingly 
digital society.
       long island's experience during the blackout of august 14
    The events and circumstances of the Northeast blackout are still 
being examined through such efforts as the U.S./Canada Power System 
Outage Task Force (Joint Task Force). LIPA, as a transmission owner and 
load-serving entity in New York, has been cooperating with the Joint 
Task Force. Until the Joint Task Force completes its work, it is 
difficult to speculate on any one set of factors or conditions that may 
have caused the system disturbance.
    From Long Island's perspective, what we presently know is that in 
the moments leading up to the blackout, the Long Island transmission 
and distribution system was operating under normal summer conditions 
with a load demand of approximately 4,677 MW. There were no major 
generation facility outages on Long Island. Of the interconnections 
between Long Island and the rest of New York State and New England, the 
Y49 and Y50, 901 and 903 Cables were operating and had scheduled power 
flows. Due to operational rules regarding the interchange of energy 
between New York and New England, the fifth line interconnecting to 
Long Island, the Northport-Norwalk Tie had no scheduled power flow 
moving over its lines. The Cross Sound Cable, however, was de-energized 
due to the Connecticut siting moratorium that has delayed environmental 
review of a permit modification required prior to commercial operation 
of the facility.
    LIPA has emergency plans to address blackouts like the August 14th 
event. Consistent with LIPA policies and plans, our emergency plan was 
immediately put into place when our system operator, KeySpan, called a 
``Condition Red.'' Less than twenty minutes after the blackout, LIPA 
had put its first ``black start'' generating unit into service which 
served as the foundation of the system recovery. At 5:15 P.M., just an 
hour after the blackout, LIPA's emergency team was assembled to assess 
system conditions and determine critical tasks that needed to be 
undertaken. Attached to my testimony as Appendix A is a presentation 
that LIPA recently released detailing the power restoration efforts 
that took place.
    The Long Island T&D system and the interties with New England and 
the rest of New York State were a critical component of the power 
restoration efforts. During the restoration effort, LIPA's interties 
were used to provide emergency energy support and to connect LIPA's 
system to the Northeast power grid thus stabilizing system frequency. 
The interties were a valuable tool during LIPA's efforts to complete 
the restoration of its entire system. At 11:45 P.M., August 14th, LIPA 
received notice from the Department of Energy that Secretary Abraham, 
acting upon a request from Governor Pataki, had issued an emergency 
order immediately directing the operation of the Cross Sound Cable 
pursuant to Section 202(c) of the Federal Power Act. Once active, the 
Cross Sound Cable provided essential electricity to Long Island and 
helped stabilize voltage on both Long Island and in Connecticut. Cross 
Sound Cable transmitted 15,000 megawatt-hours of electricity over the 
critical three-day restoration period following August 14, enough to 
repower about 300,000 homes on Long Island.
    The ultimate effect of the Northeast blackout on Long Island is 
still being tallied. Estimates have been made that LIPA, alone, may 
have incurred an economic loss of $20,000,000. An assessment of LIPA's 
T&D system is still ongoing but preliminary assessments suggest that 
most of LIPA's transmission and distribution facilities were unharmed. 
However, LIPA has already determined that there was damage to a major 
power station step-up transformer and other facilities on its system, 
including damage at several transformers and substations.
    It is still too early to provide definitive opinions about what 
went wrong on August 14th or what equipment worked exactly as intended 
or not. However, in LIPA's opinion, it is clear that there is a lack of 
transmission infrastructure--both lines and systems--necessary to 
address a massive outage such as this one or to facilitate the 
restoration of service to our customers. There may not be one piece of 
equipment or hardware that would have prevented such a widespread 
outage. However, we do know that the Cross Sound Cable, had it been in 
commercial operation rather than sitting idle due to a politically-
motivated siting moratorium in Connecticut, would have, at the very 
least, reduced the time for restoration of power to Long Island 
residents. In this case, the Secretary of Energy properly stepped in 
and issued an emergency order to facilitate the use of the Cross Sound 
Cable in LIPA's power restoration efforts. I firmly believe that it did 
not, and should not, have to come to the issuance of an emergency order 
to initiate power flows over the Cross Sound Cable. It is the failings 
of the present system, that has allowed parochial politics to override 
the legitimate need for additional interstate transmission lines such 
as the Cross Sound Cable, that we must address if we are to move 
towards improving the reliability of our electrical grid.
  lessons learned from the blackout and how similar incidents in the 
                        future can be prevented
    The Northeast blackout demonstrates the need for improving system 
reliability through updates to operating protocols, modification of 
system management software, emergency planning and infrastructure 
investments. Many of these actions do not require Congressional action. 
However, other matters surely require Congressional attention--in 
particular, LIPA urges Congress to consider improvements that can be 
made in: (1) ensuring the optimization and full utilization of existing 
facilities such as the Cross Sound Cable to ensure system reliability; 
(2) facilitating new investment in transmission infrastructure by 
ensuring that there is certainty in cost-recovery and that all benefits 
of new transmission investments are captured in the compensation 
mechanisms; (3) removing obstacles to timely siting decisions for 
transmission facilities and avoiding multi-jurisdictional in-fighting 
over interstate transmission facilities; and (4) ensuring the 
development of effective reliability criteria.
Ensuring Full Utilization and Optimization of Existing Facilities to 
        Support Regional Reliability.
    The failure to fully utilize existing transmission facilities to 
ensure the efficient and reliable delivery of energy is unconscionable. 
For many of the same reasons that its energization pursuant to 
Secretary Abraham's emergency order gave LIPA a critical asset in its 
efforts to restore power to Long Island, the high voltage, direct 
current, Cross Sound Cable could have provided valuable assistance in 
efforts to stem the tide of the system disturbance that ultimately 
blacked out Long Island. As detailed in Appendix B, which describes the 
history of the Cross Sound Cable, state parochialism in the form of a 
Connecticut state siting moratorium has kept this cable from being 
placed into commercial operation--even though it is fully constructed 
and its operation will not result in adverse environmental conditions 
in Long Island Sound. Since the blackout, the Cross Sound Cable has 
been operating subject to an Emergency Order from the Department of 
Energy.
    Last Thursday, the Secretary extended this order, finding that 
emergency conditions continue to exist since there has been no 
authoritative determination of what happened on August 14th or why the 
existing system was unable to stop the spread of the outage. As a 
result, the Secretary directed that the owners of the Cross Sound Cable 
continue to energize its facilities to transmit and deliver electric 
capacity between the New York and New England control areas as well as 
to provide voltage support and stabilization facilities in accordance 
with normal operating and scheduling protocols in the NYISO and ISO-NE 
during the continued existence of emergency conditions.
    While the Order allows operation of Cross Sound Cable at this time, 
it is subject to revocation at any time. We must do more than just 
recognize the Cross Sound Cable's contribution to removing emergency 
conditions and allow the facility to be placed into full commercial 
operation so it can fully support and enhance the reliability of the 
adjoining New England and New York control areas.
    Another example of the lack of full utilization of existing 
facilities is that, presently, the NYISO and ISO-NE do not allow for 
separate power schedules to flow over Northport-Norwalk Harbor intertie 
and routinely set the available transmission capacity of this intertie 
to zero in favor of sending all flows between New York and New England 
over AC interties in upstate New York. While the NYISO and ISO-NE 
certainly have operational responsibility to determine a reliable power 
flow within their control areas and between the two regions, removing 
certain facilities completely from the available options does not 
provide the full amount of flexibility that can and should be present 
in the New York and New England systems. LIPA has been working with the 
NYISO and ISO-NE to resolve this matter. However, even under the most 
optimistic estimates a permanent solution is unlikely to be in place 
before Summer 2004--at the earliest.
    We must ensure that existing transmission facilities are fully 
utilized. Actions must be taken to immediately direct the operation and 
full utilization of existing interstate transmission facilities, such 
as the Cross Sound Cable, to support reliability while ensuring that 
such operations are conducted in a manner that protects the 
environment.
Certainty of Cost-Recovery and Recognition of All Benefits Provided by 
        New Transmission System Investments.
    At present, transmission owners are faced with a regulatory 
environment that does not provide certainty in rate recovery and does 
not fully recognize the reliability and market-related benefits created 
from transmission system improvements. This issue is not merely a 
question of what rate of return should be provided to a transmission 
owner. Rather, there is a more fundamental uncertainty as to whether, 
regardless of the rate of return applied to the expenditures made, cost 
recovery would ever actually occur. Further, all benefits of 
transmission investments must be recognized. Transmission facilities 
can provide reliability benefits, facilitate additional energy 
exchanges, improve access to additional installed capability resources, 
and provide voltage support.
    Further, there are innovative, leading-edge and smart technologies, 
such as high temperature superconductor (HTS) power transmission cables 
and ``self healing'' grid technologies that can infuse the transmission 
system with additional flexibility. Simply providing for cost recovery 
through a traditional transmission usage charge does not fully 
recognize the benefits provided by the new generation of transmission 
investments that electric utilities, like LIPA, are making today. 
Ultimately, the federal regulatory framework for wholesale transmission 
service must allow for cost-recovery certainty and fully recognize and 
capture the multiple benefits to the market and reliability that are 
created by transmission system improvements.
Removing Obstacles to Transmission Facility Siting.
    One of the most glaring issues that must be addressed to ensure 
future investment in transmission facilities is the complexity of 
siting multi-state transmission facilities. As a matter of course, 
transmission lines often cross multiple jurisdictional boundaries. 
Unlike interstate natural gas facilities (that are subject to siting 
certificate approval from a single entity, FERC), construction of an 
electric transmission facility can require the approval of multiple 
siting authorities. Furthermore, there is no standardization of 
facility siting review requirements or timelines for approvals. The 
result is a patchwork of siting authorities, with each one having the 
ability to fundamentally affect the ability of a particular project to 
proceed.
    LIPA believes that there must be a reconsideration of how siting 
decisions are made for interstate transmission facilities to ensure 
that there is not parochial, jurisdictional interference in the 
functioning of what is truly an interstate market in electric energy. 
The Mid-Atlantic and Northeast states are too densely populated and too 
interdependent economically and environmentally to permit one 
recalcitrant state to block environmentally benign and urgently needed 
infrastructure. LIPA has no objection to reasonable state oversight of 
permitting to ensure that legitimate local and environmental concerns 
are met. However, the fact remains that interstate transmission lines 
do not serve a single jurisdiction and provide critical bridges for 
regional reliability.
    A federal framework must be in place that ensures that interstate 
transmission facilities that are needed for reliability are not stymied 
by conflicts between multiple jurisdictions or political interference. 
Such a framework may be achieved through a number of different 
mechanisms, such as a one-stop siting approval procedure before FERC; 
or allowing the Secretary of Energy or FERC to direct the construction 
and operation of an interstate transmission facility upon a specific 
finding that it is required for regional reliability and can be 
accomplished with all necessary environmental safeguards. Ultimately, 
what is needed is a clear path by which critical, reliability 
improvements to the interstate transmission system can be made in a 
timely manner.
Improving Reliability Criteria and Coordination.
    The development of effective reliability criteria is a critical 
element in transmission system planning. As transmission system 
investments are made, it is important that such investments in new 
technologies and facilities incorporate and accommodate the appropriate 
reliability criteria to ensure a more stable and reliable network. To 
that end, the current reliability criteria and structure for regional 
reliability coordination should be reviewed and recommendations made 
for improvement. Further, reliability benefits of transmission system 
improvements must be fully recognized through such mechanisms as 
payments for generation.
                recommendations for congressional action
    In closing this testimony, LIPA urges Congress to take the 
following steps to ensure that our nation can be served by a safe, 
efficient and reliable transmission and distribution system:

 Actions must be taken to immediately direct the operation and full 
        utilization of existing interstate transmission facilities, 
        such as the Cross Sound Cable, to support reliability while 
        ensuring that such operations are conducted in a manner that 
        protects the environment.
 The federal regulatory framework must support transmission system 
        investments by providing for cost-recovery certainty and fully 
        recognizing and capturing the multiple benefits to the market 
        and reliability that are created by transmission system 
        improvements.
 A federal framework must be in place that ensures that the siting of 
        interstate transmission facilities that are needed for 
        reliability are not stymied by conflicts between multiple 
        jurisdictions or political interference.
 The current reliability criteria and structure for regional 
        reliability coordination should be reviewed and recommendations 
        made for improvement. Further, reliability benefits of 
        transmission system improvements must be fully recognized 
        through such mechanisms as payments for generation and 
        transmission improvements that result in a measurable benefit 
        to system reliability.
    LIPA looks forward to working with Chairman Tauzin and all members 
of this Committee on passage of legislation that enhances the 
reliability of our electric transmission and distribution systems.

    Chairman Tauzin. Thank you. Thank you very much, Mr. 
Kessel. By the way, did you personally cut that line? We may 
have found the problem.
    Mr. Kessel. Yes. This is it. Actually, I should say that 
the line, by the way, Mr. Chairman, is operating today. And we 
are hoping that by this afternoon, it will carry electricity 
from Connecticut across Long Island and back to southwest 
Connecticut. This is not a one-way street. And the grid is not 
a one-way street.
    Chairman Tauzin. Thank you, sir.
    We are pleased now to welcome Dr. Linn Draper, Jr., the 
Chairman, President, and CEO of American Electric Power. Dr. 
Draper, you and I go way back a long time, when you were I 
think a professor in the 1970's.
    Mr. Draper. That's correct in the Gulf States.
    Chairman Tauzin. And I believe I called upon you to come as 
a consultant to the Natural Resource Committee hearings in 
Louisiana way back then.
    Mr. Draper. That's absolutely right. You have a good 
memory.
    Chairman Tauzin. We meet each other in a new life. And I 
thank you for coming and appreciate your testimony, sir.

                STATEMENT OF E. LINN DRAPER, JR.

    Mr. Draper. Thank you, Chairman Tauzin, members of the 
committee. I appreciate the opportunity to appear before the 
committee and provide AEP's perspective on the August 14 
outage. I am Chairman, President, and Chief Executive Officer 
of American Electric Power. We are based in Columbus, Ohio.
    AEP is the largest generator and transmission owner in the 
United States. We have about 5 million customers linked to an 
11-State grid. With over $5 billion invested in our 
transmission grid, ours is a unique perspective.
    From the outset, let me be clear. Our system worked as 
designed. The AEP system held together, a point in which we 
take great pride. Our automated systems performed as they were 
designed to perform and our employees communicated as they 
should have. Our load and generation remained in balance.
    From an operational standpoint, August 14 was a fairly 
typical August day until we detected a transmission line 
problem at an interconnection with our neighbor FirstEnergy. 
AEP contacted FirstEnergy to discuss the problems. And we 
remained in extensive communication throughout with our 
reliability coordinator, PJM, and with FirstEnergy.
    As the power flows exceeded safe operating levels, our 
equipment in northern Ohio automatically tripped to isolate the 
problem. The protection devices isolated our system and 
prevented damage to equipment. They also stopped the cascade 
and prevented situations that could have threatened public 
safety.
    AEP's system was not the only one to respond this way. 
Consumers Power had the same scenario. I don't know why 
everyone's system didn't, and I won't speculate on the root 
cause.
    I take great exception to the characterization that the 
United States transmission system is a Third World grid. It's 
the strongest in the world, although it is being pushed to its 
limits on a continuing basis.
    The grid was designed to get a local utilities generation 
to its own customers, not to transport massive wholesale 
transactions across the country. Clearly there is a need to 
strengthen the grid through greater investments, to support it 
for the manner in which it is used today.
    Several factors will hasten grid improvement. Foremost, we 
must have regulatory certainty. Today a company's proposing a 
new transmission line must go through multiple State and 
Federal hurdles.
    We proposed a 765 kV line in West Virginia and Virginia in 
1990. After spending more than $50 million on the approval 
process, we were cleared to build the line this year, 13 years 
later.
    We respect the interests of all jurisdictions, but we'll 
never get where we need to be if it takes this long to get 
permission to build one line.
    Second, we must improve coordination and communication 
among the various entities that oversee the grid. We don't have 
one single grid owner or operator in this country, nor would it 
be physically feasible or even wise to do so. We will always 
have seams. And given those seams, we need to make sure they 
are in no way obstructive.
    We need continuing coordination among the various grid 
operators to ensure planning and operations and quick response 
in emergency situations. We must not let the endless 
controversies over RTOs get in the way of reliability.
    AEP has committed $50 million toward RTO development, 
chasing the changing Federal policy direction. The key points 
in the RTO debate, as we see it, our policy should balance both 
generation and transmission. Transmission owners must receive 
sufficient revenues to assure adequate investment. Parties that 
benefit from the competitive markets should bear the costs, 
including those that use the transmission system.
    Some have suggested splitting the AEP system to appease 
opposing political interests in the RTO debate. We think that 
is unacceptable and counterproductive. We have the strongest 
transmission system in the United States, and we don't think it 
should be split.
    AEP's system has been touted as being the backbone of the 
Eastern Interconnect. Splitting apart a highly integrated 
system the size of AEP's amidst efforts to increase the 
Nation's electric reliability flies in the face of reason.
    We need consensus on an appropriate use of the grid. The 
balance between reliability and commerce must be tipped toward 
reliability.
    Additionally, we must approve NERC as the enforcement 
entity for mandatory reliability standards, not voluntary ones. 
Our grid is interconnected. We must all play by the same rules, 
and we must have knowledge of an independent entity, such as 
NERC, empowered to enforce such standards.
    Thanks for the opportunity to address the committee. I 
pledge that AEP will continue to work with DOE, NERC, and all 
entities embarking on the investigations of the events of 
August 14 and look forward to a complete analysis of that day. 
And at the appropriate time, I would be delighted to respond to 
questions, Mr. Chairman.
    [The prepared statement of E. Linn Draper, Jr. follows:]
  Prepared Statement of E. Linn Draper, Jr., Chairman, President and 
            Chief Executive Officer, American Electric Power
    Mr. Chairman, members of the Committee, thank you for the 
opportunity to appear before this committee and provide AEP's 
perspective on the August 14th outage. My name is E. Linn Draper, Jr. I 
am Chairman, President and Chief Executive Officer of American Electric 
Power, the largest electricity generator and transmission owner in the 
U.S, with 38,000 MW of generation capacity and 39,000 miles of 
transmission line. Almost 5 million customers are linked to AEP's 11-
state electricity transmission and distribution grid. The company is 
based in Columbus, Ohio. With $5 billion invested in our transmission 
grid, ours is a unique perspective.
    From the outset, let me be clear, we did it right. The AEP system 
held together--a point of pride for us. Our protective systems 
performed automatically as they were designed to perform, our operators 
performed and communicated as they should and our load and generation 
remained in balance throughout the day. Our grid is large, robust and 
integrated, and can therefore withstand the power swings we experienced 
that day. Michehl Gent, NERC President and CEO, on Aug. 15 said AEP's 
765-kV transmission system is ``often heralded as the world's finest 
transmission system.''
    From an operational standpoint, the 14th was a fairly typical 
August day until our operators first detected transmission line 
problems at an interconnection point with FirstEnergy, and AEP 
contacted FirstEnergy's operators. Throughout this event, we maintained 
extensive communications with our reliability coordinator, PJM, and 
with FirstEnergy.
    Power flows before the event, especially into Michigan and northern 
Ohio, were high but not unusual, given typical summer loads. It's 
important to note that Michigan is often a significant importer of 
power. Power flows on our lines continued to increase because of 
increased demand outside our system. We still do not know the cause of 
that increased demand.
    As the flows of power exceeded safe operating levels across our 
lines, our equipment in northern Ohio operated automatically to isolate 
the problem. This is exactly the way the equipment is designed. To 
quote the DOE's National Transmission Grid Study, released in May of 
last year, ``electricity flows according to the laws of physics and not 
in response to human controls, what happens in one part of the grid can 
affect users throughout the grid.''
    The opening of the lines isolated our system and prevented damage 
to the equipment. More importantly, it avoided cascading outages across 
the AEP System and probably far beyond, given the central role of AEP's 
transmission grid in the Eastern Interconnection. AEP's system was not 
the only one to respond this way--the transmission system serving 
Consumers Power's load, among others, also isolated from the problem 
during the event, and their system held. I don't know why all systems 
didn't perform in a similar manner.
    Automatic tripping of lines is not simply a matter of protecting 
our equipment. There are serious reliability and safety implications if 
the automated protection mechanisms do not activate.
    First, if the equipment is damaged, it can be out of service for an 
extended time--further burdening other lines that are, as we all know, 
already stressed. In short, the system holds for as long as it can, but 
at some point equipment must trip off to prevent further cascading 
outages. In this instance, tripping off stopped the cascade to the 
south, enabling AEP's personnel to assist others in their restoration 
efforts, because we were not busy with restorations of our own.
    Tripping off also has safety implications. If current runs as high 
as it was during the event, it could actually cause the lines to 
literally melt or to sag beyond design criteria, which can result in 
safety hazards to the public.
    I can't speculate on the root causes for this event, so I can't 
tell you that it wouldn't have occurred a year ago, or that it will 
never occur in the future. The interconnected nature of our grid, and 
the fact that we're now using it in ways that it was not originally 
intended or designed, mean that these kinds of events can occur in the 
future, although lessons learned can prevent a reoccurrence of the same 
magnitude.
    I take great exception to the characterization of the U.S. 
transmission system as ``third world grid,'' as some have said. The 
American transmission grid is the strongest in the world, although it 
is being pushed to its limits on a continuing basis.
    The electrical grid in this country was designed in large part to 
get a local utility's generation to its customers--not to carry 
thousands of cross-country and regional transactions, as the grid is 
now called to do. In the five-year period during which wholesale 
electric competition first gained momentum, the number of wholesale 
transactions in the U.S. went from 25,000 to 2 million--an 80-fold 
increase. And many stakeholders are striving for continued growth. 
Needless to say, transmission infrastructure expansion--which is an 
expensive and time-consuming prospect at best--did not increase 80-fold 
in that time frame. In fact, very little expansion has taken place.
    Clearly, there is a need to strengthen the grid through greater 
investments--new equipment, new lines and new technologies--to support 
the grid for the manner in which it is used today.
    Several factors will hasten grid improvement:
    First and foremost, we need regulatory certainty. If we need to 
build new transmission facilities today, we must navigate through 
multiple state and federal regulators to get that done. Processes vary 
in every state. For permits and siting, for instance, we must get 
approvals from multiple state regulators, and probably multiple federal 
regulators as well. We proposed a 765-kV line in West Virginia and 
Virginia in 1990. After an expenditure of over $50 million, we received 
final clearance to build the line this year. While we respect the 
interests of all jurisdictions in siting decisions, we'll never get 
where we need to be if it takes 13 years to get permission to build a 
power line.
    And for every dollar we spend--and the National Transmission Grid 
Study quoted a price of $1.8 million per mile for a new 765-kV line--we 
must go back to those multiple state and federal regulators to receive 
full recovery. In this context, it is difficult to understand recent 
actions by the FERC to eliminate transmission revenues from third party 
or wholesale customers. If what FERC is proposing comes to pass, power 
can move from St. Louis to New Jersey for the same fee as moving power 
from Pennsylvania to New Jersey. Such scenarios not only jeopardize 
existing investments, they create a disincentive for future investments 
since full and fair cost recovery is even more difficult.
    Second, and also critically important, we must improve coordination 
and communication among the various entities that oversee the grid. The 
reality is that we don't have one single transmission grid owner and 
operator throughout the country, nor would it be feasible or wise to do 
so. It's a given that there will always be seams--or boundaries--
between various grid operators.
    What's required is continuous improvements in the coordination 
among the various grid operators to ensure coordinated planning and 
operations, and quick response in emergency situations. On Aug. 14, our 
operators did coordinate and communicate with other operators, which 
helped to prevent this from spreading even further across the country--
but we can all strive to improve. Those who are using this event to 
promote their desire for a single RTO administering a spot market are 
not only missing the boat, but misleading you and others into thinking 
that simply installing such an RTO would answer the reliability issues 
that have been raised by this event.
    Next, I fear that the current controversy and seemingly endless 
debate over the role of RTOs is hindering our ability to make progress 
and create an environment that is conducive to investment. While AEP 
has committed $50 million to RTO development, many states now are 
opposing an expansive role of RTOs, including a number of AEP's 11 
states, while others fully support a broad role for RTOs and more 
federal control over the grid and the wholesale market.
    While debate about RTOs rages on, let's not forget some key points:

 AEP is at the center of the current debate largely because of the 
        quality and the scope of our system, which is at the crossroads 
        of many markets--that's one big reason we're coveted by market 
        stakeholders in their attempts to expand.
 Policies should balance both generation and transmission. 
        Transmission owners must receive sufficient revenues to assure 
        adequate investment.
 Parties that benefit from competitive markets should bear the costs. 
        Those that use the transmission system to receive those 
        benefits should pay for it.
 While some have even suggested splitting up the AEP system, that's 
        unacceptable and counter-productive. AEP's system has been 
        touted as the backbone of the Eastern Interconnect. Splitting 
        it apart amidst efforts to increase the nation's electric 
        reliability flies in the face of reason.
    We need consensus on an appropriate use of the grid. If we focus 
solely on competitive markets and economics, serious implications for 
reliability and security arise. We need a balance, but that balance 
must be tipped toward reliability--the fundamental foundation of the 
transmission grid. Without reliability, we have no market to structure.
    The benefits of competitive markets should not only flow to 
generation owners or electricity users, as seems to be the present 
policy, but also to the transmission owners who need to receive a 
sufficient share of benefits to assure investment in the transmission 
infrastructure necessary to support competitive markets.
    Additionally, we must approve NERC as the enforcement entity for 
mandatory reliability standards. Our grid is interconnected. We must 
all play by the same rules, and we must have a knowledgeable 
independent entity--such as NERC--empowered to enforce such standards.
    Thank you again for the opportunity to address this committee. We 
will continue to work with DOE, NERC and all entities embarking on 
investigations of the events of August 14th and look forward to a 
complete analysis and answer to what happened that day.
    I encourage you to wait until the NERC/DOE investigation is 
complete to draw conclusions. Thank you again and I will be happy to 
respond to any questions from the Committee.

    Chairman Tauzin. Thank you very much, Mr. Draper. Doctor, 
we deeply appreciate your testimony.
    We are going on now to Mr. Joseph Welch, the CEO, 
International Transmission Company of Ann Arbor, Michigan.

                  STATEMENT OF JOSEPH L. WELCH

    Mr. Welch. Mr Chairman and members of the committee, thank 
you for this opportunity to appear before the committee to 
present my company's views on the electrical blackout that 
began on August 14, 2003.
    My name is Joe Welch, and I am President and Chief 
Executive Officer of International Transmission Company, 
headquartered in Ann Arbor, Michigan.
    Regardless of the cause of this occurrence, all of us in 
the electric power industry need to commit to take whatever 
action is necessary to prevent such a widespread event from 
happening again.
    We designed this vast interconnected grid to increase the 
reliability of service to our customers. And on August 14, that 
system failed us. While we await the outcome of the 
investigation into the cause of the blackout, I believe it is 
not too soon to begin thinking about steps we can begin taking 
to prevent its reoccurrence.
    Much of the problems associated with this blackout have 
been discussed and debated over years. The ITC staff is 
cooperating fully with the investigative teams. And we have 
shared much of this data in my written testimony.
    This morning I would like to focus on next steps. The 
letter inviting my testimony correctly notes that all 
indications are that the electric power supplies in the region 
affected by the blackout have generally been more than adequate 
to meet the peak summer demands.
    This blackout did not arise from a lack of electric 
generation supply. Rather, this blackout was rooted in a 
disconnect between the use of and the capability of the 
transmission system to deliver that supply. This disconnect, in 
turn, is rooted in institutional failures to properly regulate 
and monitor transmission usage such that the transmission 
system stays within its physical limitations.
    Ultimately, more transmission infrastructure will be 
required to accommodate increased usage of the transmission 
system, but until it can be provided, the proper and safe use 
of the transmission grid must be enforced.
    Ultimately, the safe and reliable operation of the grid can 
be restored by ensuring that the standards and procedures 
required to do so are developed and enforced, independent of 
market participants.
    Where the market desires transactions which the current 
grid cannot safely accommodate, new infrastructure investments 
must be made, rather than relying on complicated operational 
protocols. Some required infrastructure improvements will span 
multiple traditional utility footprints.
    Regulatory and rate changes will be required to get those 
facility investments made. Some of these investments will 
require significant time to obtain rights-of-way and address 
environmental issues.
    Let me identify some next steps I would hope this Congress 
would consider. First, mandatory reliability standards 
developed and enforced by non-market participants and funded 
independently of market participants is absolutely critical.
    Second, mandatory RTO participation is essential. And these 
RTOs must be tasked with the elimination of unscheduled loop 
flow. No seams which overlap natural markets can be tolerated.
    Reliability plans, such as the proposed MISO-PJM plan, 
which embeds loop flows on transmission systems, such as 
Michigan companies, will virtually assure additional blackouts.
    The August 14, 2003 blackout highlights the fact that loop 
flows have undesirable reliability consequences. These 
standards and protocols, coupled with investments in 
transmission infrastructure, must address the severity of loop 
flow to avoid events like this from happening again.
    Third, transmission pricing must reflect the actual flows 
on the system. FERC has provided sufficient ROE incentives, but 
without a pricing system that aligns cost recovery with real 
usage of the system, we will have a disconnect between 
incentives and the ability to recover costs.
    Finally, in addition to reliability standards, RTO 
participation and transmission pricing, the communication 
mishmash underlying the August 14 blackout must be unwound. As 
has been discussed throughout this hearing, there is a 
confusing array of entities with responsibility for different 
parts of the transmission grid.
    Governor Graham, Home, and others have talked about the 
lack of accountability in transmission operations. 
Accountability extends beyond any single identity or owner.
    The interconnected grid crosses State and National 
boundaries. And we need to develop structures that can control 
this interconnected grid and ensure single point accountability 
I commit my company to work with you on implementing these 
suggestions and others that will prevent a reoccurrence of 
severe problems, such as those we experienced on August 14.
    We have shared data with you on the committee and with 
others investigating this. We encourage others to share as 
well. While respecting sensitive commercial information, we 
hope that all investigations are conducted in the open so that 
we can avoid the appearances of manipulation to preserve market 
positions.
    Thank you very much. And I'm pleased to answer questions 
that you may have.
    [The prepared statement of Joseph L. Welch follows:]
 Prepared Statement of Joseph L. Welch, President and Chief Executive 
              Officer, International Transmission Company
                              introduction
    My name is Joseph L. Welch. I am President and Chief Executive 
Officer of International Transmission Company.
    ITC is a truly independent stand alone transmission company with no 
ties to any market participant or company that brokers electricity, 
owns electric generating facilities, or has an obligation to serve end-
use customers. Our sole mission is to provide the transmission 
infrastructure necessary to reliably support the electric market in a 
fashion that minimizes the total delivered cost of electricity to 
customers.
    ITC, jointly with the Michigan Electric Transmission Company (METC) 
(which is another independent transmission company), operates the 
Michigan Electrical Coordinated Systems (MECS) Control Area in Ann 
Arbor . This Control Area is responsible for ensuring that generation 
and load within the Michigan peninsula remains in balance and reports 
when it is not.
    ITC is also a member of the Midwest Independent Transmission System 
Operator (MISO) Regional Transmission Organization (RTO). MISO is the 
Transmission Provider for the Michigan transmission systems, and is the 
Security Coordinator responsible for the safe operation of the 
transmission grid. As Transmission Provider, MISO also schedules the 
use of the Michigan transmission grid (within its physical limitations) 
and bills the transmission customers for their use of the transmission 
grid.
    ITC became the sole owner of the transmission lines formerly owned 
by DTE Energy in southeast Michigan on February 28, 2003. DTE Energy's 
distribution utility subsidiary, Detroit Edison, physically operates, 
repairs, and maintains all of the ITC transmission assets under 
contract for a period of one year which began on February 28. On 
February 28, 2004, ITC will be solely responsible for such physical 
operation and maintenance in accordance with the February 20, 2003 
Federal Energy Regulatory Commission (FERC) Order in Docket Nos. EC03-
40-000 and ER03-343-000 which approved the sale of ITC.
    On August 14, 2003, with absolutely no warning, the ITC 
transmission grid experienced severe electric flows (which were a 
result of energy demands of electric customers other than those 
residing in Michigan) which collapsed our grid and the grids of our 
interconnected neighbors, ultimately blacking out over 50,000,000 
customers. This event is akin to a ``tsunami'' hitting an unsuspecting 
costal community. These severe electric flows described above are known 
in the electric industry as loop flow which is electric energy flow 
that travels over a transmission system without that flow being 
scheduled on the transmission system. It can be the results of another 
transmission provider scheduling and selling more capacity than its own 
transmission system(s) will accommodate without regard for its impacts 
on other interconnected transmission systems. Such loop flows also 
occur when an entity fails to curtail its transactions (imports and/or 
exports of power) when the transmission needed to support those 
transactions is no longer available.
    The letter inviting my testimony correctly notes that ``all 
indications are that the electric power supplies in regions affected by 
the blackouts have generally been more than adequate to meet peak 
summer demands.'' As I will discuss in my testimony, this blackout did 
not arise from a lack of electric generation supply. Rather, this 
blackout was rooted in a disconnect between the use of and the 
capability of the transmission system to deliver that supply. This 
disconnect in turn is rooted in institutional failures to properly 
regulate and monitor such transmission usage such that the transmission 
system stays within its physical limitations. Ultimately, more 
transmission infrastructure will be required to accommodate increased 
usage of the transmission system, but, until it can be provided, the 
proper and safe use of the transmission grid must be enforced.
1. What exactly were the specific factors and series of events leading 
        up and contributing to the blackouts of August 14th?
    See Attachment 1.
2. At what time did your company first become aware that the system was 
        experiencing unscheduled, unplanned or uncontrollable power 
        flows or other abnormal conditions and what steps did you take 
        to address the problem? Were there any indications of system 
        instability prior to that time?
    August 14, 2003 began as a typical summer day in Michigan. The only 
notable generation event was that Detroit Edison's Greenwood #1 unit 
shut down in a controlled fashion at 1:14 pm EST and returned to 
service at 1:57 pm EST later that day Electric system metrics :such as 
system voltages and frequency, as seen from Michigan, were completely 
with normal limits. Attachment 1, slides 19 through 21, are plots of 
voltage beginning at 7 am, and Attachment 1, slide 15, is a plot of 
system frequency for the same time period. Likewise, tie line flows 
across Michigan's three interfaces with the Eastern Interconnection 
(METC lines connecting to American Electric Power (AEP), ITC lines 
connecting to FirstEnergy (FE), and ITC lines connecting to Ontario) 
were all within normal parameters (Attachment 2) throughout the day, up 
until the blackout event (Incident).
    The MECS Control Center has a disturbance monitoring system which 
collects large amounts of data related to the operation of the 
transmission system. When the Incident occurred, this system was 
triggered and began collecting very comprehensive data throughout the 
Incident in very small time increments, tracking power flows, voltages, 
frequency, and generator outputs and status. This data enabled ITC to 
determine:

a. A very large demand (2200 MW plus voltage support demand) was 
        suddenly thrown on the ITC's three 345 kV interconnections to 
        FirstEnergy.
b. This sudden demand forced power flows to drastically increase across 
        the entire state of Michigan and to a lesser extent, via the 
        ITC-Ontario 230 kV interconnections. This in turn caused 
        depressed voltages on the ITC transmission system (leading to 
        the total voltage collapse).
c. These extreme power flows caused the four METC 345 kV lines 
        connecting the METC transmission system to ITC's transmission 
        system to disconnect resulting in the disconnecting of the 
        remaining lower voltage connections between METC and ITC as 
        well. This occurred in a matter of seconds.
      With METC and ITC disconnected, there was no other supply route 
        for the sudden demand on the (FE) ties except for Ontario. The 
        power demanded by FE subsequently caused the existing flow 
        across Michigan to reverse and flow around First Energy and 
        then through systems such as AEP, Pennsylvania--New Jersey--
        Maryland (PJM), New York, then into Ontario, Canada via the 
        Ontario-New York ties.
d. The voltage collapse within Michigan in conjunction with the power 
        swing through Canada was accompanied by the sudden loss of 
        generators connected to ITC's grid.
    All of these events and consequences were viewed from within 
Michigan and I can attest to the data that documents the event which we 
witnessed.
    Subsequent reports from various entities including AEP, the MISO 
RTO, the PJM RTO, and the North American Electric Reliability Council 
(NERC) indicate that areas in northern Ohio were experiencing serious 
internal problems for some time prior to the event (approximately two 
hours before the Incident). AEP and PJM reported they were also 
experiencing problematic high electricity demand on their connections 
to FE. While FE is connected to the three different transmission 
systems of ITC, AEP, and PJM, system flows and voltages within ITC and 
the rest of Michigan were well within nominal limits all day, 
notwithstanding the problems to the south.
    When the AEP and PJM systems disconnected from FE without warning 
to Michigan, the electricity demand that appeared to have been 
overloading the AEP-FE connections was thrown onto Michigan. Michigan 
is a peninsula and the Michigan transmission system was never designed 
to support northern Ohio on its own, and the results were devastating.
    The Michigan system collapsed under the strain, followed by the 
Ontario system shortly thereafter. PJM reported it had disconnected 
itself from the trouble areas to its west and north, which would make 
New York and New England a peninsula, isolating them from the Eastern 
Interconnection. When isolated in this fashion, portions of New York 
and New England were unable to avoid collapsing when the Ontario system 
disconnected.
3. What systems operated as designed and which systems failed?
    Physical systems within ITC operated substantially as designed. I 
cannot speak to the systems belonging to other entities.
    The protective relays on transmission lines are designed to 
disconnect lines for ``faults'' (for example, a wire touching the 
ground). Great care is taken to set them so that they do not 
inadvertently disconnect when there is no such fault (known as 
``overtripping''). They are also set to reclose automatically, 
following a safety check, to ensure that the overall grid remains 
reliable. However, these relays will disconnect lines when voltage 
collapses, as occurred within Michigan, because voltage collapse 
presents conditions which are similar to a fault. Transmission line 
protective relays within ITC appear to have operated properly in 
response to the conditions presented.
    The earlier NY blackouts of the mid-sixties resulted in the 
installation of technical safety devices (``underfrequency relaying'') 
throughout the transmission grid. which undoubtedly have protected the 
security of the grid in many cases in the past. Unfortunately, in this 
instance, such equipment was designed to address an imbalance in load 
and generation (a frequency event), not overuse of the system resulting 
in voltage collapse as we saw within Michigan, and had little value in 
mitigating the August 14 event.
    Black start procedures were generally effective in restoring 
operation of the grid after this blackout. Protective relays on 
generators largely disconnected generators before they were seriously 
damaged. I cannot speak for systems outside of Michigan but ITC 
transmission lines were undamaged and ready for restoration when the 
generation needed to supply the load was brought back on line.
    The systems which did fail were the ones underlying communication. 
(The communication failures were themselves a predictable outcome of 
new institutions even now being promulgated by a few parties, 
notwithstanding substantial objections.)
    Had Michigan been warned of the problems, a number of actions which 
would have forestalled the blackout were available.
    Michigan, in concert with AEP and PJM, could simply have opened its 
ties to FE as well. The FE system may have survived with some load 
loss, but more importantly, no cascading would have occurred as the 
problem would have been localized to the FE system.
    A better option, given advance warning, would have been for 
Michigan to prepare for the oncoming tsunami by interrupting air 
conditioner load in Detroit Edison, by interrupting the large 
voluntarily interruptible industrial load in Detroit Edison's area, 
starting Michigan peakers and other available generation), all 
basically reducing the initial loadings on the Michigan grid and 
bolstering the voltage support. The Michigan system would not have 
collapsed, and the cascading blackout would not have occurred. The 
worse case would have been the collapse of the FE system but FE's 
problems would have been localized.
    The best option of all, given an appropriate advanced request, 
would have been for Michigan to take the same steps outlined above; 
these steps could have strengthened FE sufficiently that FE may have 
survived; it would not have been necessary for AEP and PJM to 
disconnect their systems to save themselves. However, no such call was 
made or warning given. I have confirmed that by having my staff listen 
to control room operator tapes. I hope that the DOE task force will 
review all control room tapes for all the systems that were involved in 
any way.
    Phone calls are not the only means of communication. Within MECS at 
least, there are three electronic systems through which Control Area 
Operators and Security Coordinators communicate system status, convey 
warnings, etc. I asked my staff and MECS operators to determine what 
information was conveyed via that route. They informed me that there 
were no records or reports of the line outages which were so critical 
to this event. Without such information, there is no way for Control 
Area Operators or Security Coordinators to take actions necessary to 
mitigate problems, especially those events in other systems which could 
affect our system. I would expect that DOE will review this matter and 
determine why information was not communicated via those systems.
    The fact that no such calls or communications were undertaken or 
warnings extended or even properly reporting of the (subsequently 
reported) line failures in FE and AEP and PJM illustrates the number 
one cause of the blackout in my opinion.
4. If events similar to those that occurred on August 14, 2003 had 
        happened a year ago, would the results have been the same?
    Yes. The infrastructure components underlying this event were the 
same a year ago.
5. If similar events occur a year from now, do you anticipate having in 
        place equipment and processes sufficient to prevent a 
        reoccurrence of the August 14 blackout?
    ITC will proceed immediately to implement a plan that will protect 
ITC and its users, and Michigan as well, from further blackouts. It is 
unlikely that the physical infrastructure will be implementable within 
a single year, but we will proceed as soon as possible. The external 
processes necessary to avoid a reoccurrence will have to be undertaken 
at the national level; at the moment, a number of entities are 
attempting to institutionalize the underlying structure which sets up 
conditions which led to the blackout.
6. What lessons were learned as a result of the blackouts?
    On August 14, it was apparent that parties were choosing to operate 
the grid within their sphere of influence for their own purposes 
without regard to rules, procedures, or the impact of their actions on 
other users of the grid. Further, the convoluted RTO configurations 
which major entities have contrived to create virtually guarantees that 
communication, when it occurs, will be a matter of luck. As MISO Market 
Monitor Dr. David Patton warned in a March 2003 MISO market monitor 
presentation to FERC, ``The electrical configuration between the PJM 
and the MISO also raises substantial gaming concerns.''
    Entities will have the means to game the system to their own ends 
to the disadvantage of all other users.
    The regional RTOs have proposed to ``paper over'' this ``seam'' 
which is the focal point of the blackout with even more convoluted 
operational procedures and protocols, when there is insufficient 
evidence that even the current more elemental protocols have been 
followed.
    The result of the 1965 and 1977 blackouts in the Northeast resulted 
in many fine reliability standards of operation and planning that were 
followed with very good results until relatively recently. Loop flows 
such as those onerously imposed on Michigan allow over scheduling of 
the grid on fictitious contract paths without regard to the 
consequences. Operational practices such as ``parking'' and ``hubbing'' 
of transactions (scheduling of transactions using intermediary third 
parties rather than transacting directly between buyer and seller), 
cause actual use of the grid to be cloaked. This is because the park/
hub transaction, with its fictional flow of electricity, can fall 
beneath the screen whereas the original transaction would have been 
visible. Entities responsible for ensuring proper use of the grid 
ignore threats to reliable operation in response to pressure from 
market participants wishing unfettered use, regardless of actual 
infrastructure capability--to substitute operational procedures for 
infrastructure--to ignore the rules when it is advantageous.
7. How can similar incidents in the future be prevented?
    Mandatory reliability standards, developed and enforced by non-
market participants, and funded independently of market participants 
are absolutely critical.
    Mandatory RTO participation is essential to ensure elimination of 
unscheduled loop flow. No seams between RTOs can be allowed, and no 
seams which overlay natural markets can be tolerated. Reliability plans 
such as the proposed MISO-PJM plan which embeds loop flows on the 
transmission systems of Michigan companies will virtually assure 
additional blackouts.
    The communications mishmash underlying the August 14 blackout must 
be unwound. MISO is Michigan's and FE's Security Coordinator, and PJM 
is AEP's Security Coordinator. Michigan companies are members of MISO 
but FE is not. (The Security Coordinator is the entity which oversees 
the reliability of the grid within his footprint, acts to ensure that 
action is taken to maintain safe and reliability operation, and 
communicates to other Security Coordinators within other regions to 
ensure overall safe operation of the grid). AEP is not a member of any 
RTO but the Southwest Power Pool (SPP) is AEP's transaction scheduler. 
PJM does not report its internal flows and circuits to the systems 
which allow tracking and unwinding of transactions when necessary to 
resolve overload problems; MISO does, but only within its footprint. 
Unfortunately, Commonwealth Edison (an Exelon operating company) 
(ComEd), for example, is embedded within the MISO grid, so that ComEd 
transactions across the AEP grid into its affiliate in PJM are not 
subject to MISO oversight. As part of PJM, ComEd flows are no longer 
visible to the entities outside PJM. While these flows contribute 
significantly to the loop flows through Michigan, they are no longer 
curtailable through the current TLR (NERC's Transmission Line Loading 
Relief) process.
    When these RTO configuration issues were first raised at the July 
17, 2002 FERC meeting, NERC's Mr. Gent, in discussing the concerns 
raised, stated ``is this the configuration as you would have designed 
it? Probably not. Is it the configuration that I would have designed? 
Probably not. But it is the configuration that the participants have 
chosen, . . . Therefore, our recommendation to you is that you 
condition your approval of any configuration on the participants 
successfully convincing the industry, through our NERC Operating 
Committee, that reliability is not impaired.'' However, notwithstanding 
the forceful, unanimous, and continuous objections of the Michigan 
companies, the NERC Operating Committee and NERC regional council, 
ECAR, have approved, and continue to approve the proposed reliability 
plan. In fact, ECAR voted to approve the plan on August 15, 2003, while 
major areas of Michigan were still blacked out, when none of the 
Michigan companies were present.
    Ultimately, the safe and reliable operation of the grid can be 
restored by ensuring that the standards and procedures required to do 
so are developed and enforced, independent of market participants. 
Where the market desires transactions which the current grid cannot 
safely accommodate, new infrastructure investment must be made, rather 
than rely on luck and prayer. Some required infrastructure improvements 
will span multiple traditional utility footprints. Regulatory and rate 
changes will be required to get those facility investments made. Some 
of these investments will require significant time to obtain rights of 
way and address environmental issues. The institutional and regulatory 
changes I have described must come now so that the existing 
infrastructure can be optimized within its capabilities without 
repeating August 14.
    My findings are based on the data that we collected within Michigan 
which I will make publicly available. I urge that others do the same. 
At ITC, we chose to work in the open because our job is to serve the 
market to the benefit of all electric users.



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    Chairman Tauzin. Thank you very much. I hope you notice the 
cameras are going in this room. Everything we do is in the 
open.
    Before I introduce the next witness, I want to announce 
that I will be putting Joe Barton, the chairman of the Energy 
Subcommittee, in the Chair temporarily. I have been summoned by 
the speaker, I believe, to have a meeting on the appointment of 
conferees on the energy bill. So I need to get over to his 
office just now.
    I wanted to introduce our next witness before that, Joe, 
because I wanted to especially honor and respect her service to 
this country. Betsy Moler is a very familiar face to all of us 
who have served in government for as long as I have.
    She obviously served this country in an enormous capacity 
as counsel to the Senate Energy Committee for my colleague and 
friend, J. Bennett Johnson, who was a senior senator from 
Louisiana, who served as junior senator then with Russell Long, 
who served as chairman of the Energy Committee on the Senate 
side and did enormous work in the energy bills that flowed from 
those years of his chairmanship.
    She then went on to chair the Federal Energy Regulatory 
Commission, which I know is fond memories for you, Betsy, doing 
that work----
    Ms. Moler. Absolutely.
    Chairman Tauzin. [continuing] and then, finally, to serve 
our country as deputy secretary of the Department of Energy 
itself. So she brings enormous experience to the table when she 
now comes as an executive vice president for government and 
environmental affairs and public policy for the Exelon 
Corporation.
    I should point out that there are few women in this 
industry who have risen to the rank that Betsy Moler has risen 
to. And I think with the exception of Hazel O'Leary, she is 
probably one of the pioneers of women in the electric industry.
    And I wanted to say all of this, Betsy, to again honor and 
respect all of the work you have done and the pioneering work 
you have done in this industry and to particularly honor you 
for your service to our country. Will you please all join me in 
welcoming Betsy Moler, the Executive VP of Environmental 
Affairs and Government Policy for the Exelon Corporation. 
Betsy?

                STATEMENT OF ELIZABETH A. MOLER

    Ms. Moler. Thank you, Mr. Chairman, for that very warm 
welcome.
    I will not reintroduce myself, but let me talk a little bit 
about Exelon. While Exelon is not a household word, our two 
subsidiaries, PECO Energy of Philadelphia and Commonwealth 
Edison of Chicago, serve the largest electricity customer base 
in the United States with over 5 million customers, 12 million 
people. We also have one of the industry's largest generation 
portfolios, with 40,000 megawatts of capacity, either owned or 
under contract.
    PECO was one of the founders of PJM. The PECO transmission 
system is in PJM. And we expect the ComEd transmission system 
will join PJM later this year or early next year.
    I would also say that it is my privilege to serve as a 
member of the Secretary of Energy's Advisory Committee on 
Electricity and chair its Transmission Subcommittee.
    During last month's blackout, ComEd and PECO were far 
enough away from the origin of the problem and fortunate enough 
to escape the blackout. We were not as lucky in 1999, when 
ComEd had its own problems. Since then, we have spent more than 
$2 billion upgrading our system.
    There are three primary actions that I believe Congress 
must take to improve the reliability of the Nation's electric 
grid: first, authorize the establishment and enforcement of 
mandatory reliability standards; second, provide incentives for 
and remove barriers to construction of transmission capacity, 
both by addressing barriers to siting and by clearing the way 
for increased investment in the transmission system; and, 
third, to facilitate the development of regional transmission 
organizations to oversee competitive wholesale markets.
    As you heard yesterday, there is near universal agreement 
that mandatory reliability standards are needed to improve the 
reliability of the Nation's electric grid. This panel concurs 
with that. And I will not belabor the point.
    However, as an aside, I vividly remember in 1996, following 
the August blackouts in the West, that Hazel O'Leary called a 
meeting in Chicago to talk about mandatory reliability rules. 
We're still talking.
    This committee should be applauded for its consistent 
support of those rules. And we certainly hope that the soon-to-
be-convened conference will adopt that.
    But reliability standards alone are not enough. Expansion 
of the Nation's transmission infrastructure is critical. We 
have talked a lot about the interstate highway being the 
electric transmission system. It's got too many cars on it. And 
we need to expand the grid. It's that simple.
    H.R. 6 does contain a number of provisions to address the 
need for additional transmission facilities, including 
accelerated depreciation for transmission facilities and tax 
provisions to remove barriers to selling transmission to 
independent entities.
    Critically, H.R. 6 also addresses the siting issues. And we 
are pleased to support all of those provisions. The energy 
legislation passed by the Senate in August is not nearly as 
comprehensive. And we hope that the conferees will adopt the 
House-passed provisions.
    Since the blackout, we have heard a lot about----
    Mr. Barton. I didn't hear that. Would you repeat that, 
please?
    Ms. Moler. How many times? Yes, sir.
    Since the blackout, we have heard a lot about the need for 
mandatory reliability standards and additional transmission 
facilities. However, largely ignored have been the important 
rules that RTOs and wholesale market rules can play in assuring 
a reliable grid.
    Some have urged Congress to quickly pass reliability 
legislation, reliability legislation alone, and to forego 
efforts to address the broader range of electricity policy 
issues. We think that is a bad idea.
    Lack of rules and reliability are, in fact, inextricably 
linked. Let me emphasize and reemphasize we will not have a 
reliable system unless we get the wholesale market rules right.
    Some have blamed RTOs for contributing to last month's 
blackout. I believe that we need to strengthen RTOs and have a 
much more seamless approach from RTO to RTO. The folks in New 
England have to coordinate closely with New York. New York has 
to coordinate closely with PJM, PJM with MISO, et cetera.
    In addition, a properly designed energy market, such as 
that operated by PJM, enhances reliability. Arcane, need I say 
geeky issues, like congestion management and generation 
redispatch, really matter and affect reliability. My prepared 
testimony addresses this in some detail.
    But I cannot overemphasize this point. Regional 
transmission organizations with well-functioning wholesale 
markets are essential for assuring the long-term reliability of 
our Nation's electric grid. We should not make it impossible 
for FERC to do its job by taking away its authority to do both.
    Thank you.
    [The prepared statement of Elizabeth A. Moler follows:]
  Prepared Statement of Elizabeth A. Moler, Executive Vice President, 
    Government and Environmental Affairs and Public Policy, Exelon 
                              Corporation
    Mr. Chairman and Members of the Committee: Thank you for the 
opportunity to testify today on the recent blackout and its 
implications for our national energy policy. I am Elizabeth A. (Betsy) 
Moler, Executive Vice President, Government and Environmental Affairs 
and Public Policy for Exelon Corporation. Exelon is one of the nation's 
largest electric utilities and is a registered utility holding company. 
Our two utilities, Commonwealth Edison (ComEd) of Chicago, and PECO 
Energy of Philadelphia, serve the largest electric customer base in the 
U.S. with over 5 million customers, a combined service territory of 
over 14,000 square miles, and a population of nearly 12 million people.
    Exelon owns and operates transmission lines in Illinois, Indiana 
and Pennsylvania. Our transmission facilities in Pennsylvania are part 
of the PJM Regional Transmission Organization (PJM), which provides 
operation, planning and reliability coordinator services. In Illinois 
and Indiana, ComEd provides these services working closely with 
neighboring transmission operators to comply with reliability rules and 
to manage daily operation the grid. Since February, PJM has also been 
the reliability coordinator for our Chicago area transmission system. 
We plan to fully incorporate the ComEd transmission system into the PJM 
system later this year.
    Exelon also has one of the industry's largest generation 
portfolios--more than 40,000 megawatts of owned or controlled capacity 
resources--with a nationwide reach. Exelon Power Team, our wholesale 
power marketing division, markets the output of our generation 
throughout the continental United States and Canada with a perfect 
delivery record.
    At Exelon, ``Keeping the Lights On'' is job number one. It is a 
commitment that is engrained in our corporate vision statement and is 
shared by each of our 20,000 employees. During last month's blackout, 
Chicago and Philadelphia were far enough from the origin of the 
problem, and Exelon's transmission system was strong enough, well 
managed enough, and--above all--fortunate enough, to escape the 
cascading outages of transmission lines and power plants that struck 
much of the Northeast and Midwest regions of the country. Nevertheless, 
there are important lessons to be learned by us from this experience.
    The primary lesson learned is that the wholesale electricity grid 
is highly interconnected and interdependent. Given this physical 
reality, the electricity system requires carefully designed and 
consistent rules of the road so any investment will bring the maximum 
benefit to consumers throughout the region.
    The Committee has requested that I address several issues related 
to the cause of the blackout, its impact on Exelon and actions that can 
be taken to avoid such events in the future. Exelon's views on these 
issues are contained in our response to a separate letter from Chairman 
Tauzin that I have attached to my testimony.
    I would like to focus my remarks today on the primary question 
facing Congress and other Federal policymakers: how to improve the 
reliability of the nation's electric transmission grid to prevent a 
recurrence of last month's blackout.
    There are three primary actions that Congress must take to improve 
the reliability of the nation's electric grid:

1. authorize the establishment and enforcement of mandatory reliability 
        standards;
2. provide incentives for, and remove barriers to, the expansion of the 
        nation's electric transmission infrastructure, both by 
        addressing barriers to siting new lines and by clearing the way 
        for increased investment in the power grid;
3. facilitate the development of regional transmission organizations to 
        oversee competitive wholesale power markets.
                    mandatory reliability standards
    In the aftermath of last month's blackout, there is near universal 
agreement that mandatory reliability standards are needed to improve 
the reliability of the nation's electric grid. The nation's 
transmission grid is really three separate systems: the Eastern 
Interconnection, which was the site of last month's outage; the Western 
Interconnection, which suffered a serious outage in August, 1996.; and 
the Electric Reliability Council of Texas, or ERCOT, which is virtually 
an electric island. While our nation's transmission system's 
reliability is the envy of the world, the grid is suffering growing 
pains. Compliance with the North American Electric Reliability 
Council's (NERC) reliability standards is entirely voluntary. Expert 
after expert has called upon Congress to give FERC authority to oversee 
an enhanced NERC with authority to make compliance with its rules 
mandatory for all market participants. It is time to heed those calls. 
As an aside, I vividly remember attending a meeting in Chicago that 
then-Secretary of Energy Hazel O'Leary called in September 1996, 
following the Western blackout, where all in attendance recognized the 
need for mandatory reliability rules. The mantra at that meeting was, 
``We are only as strong as our weakest link.'' That was true then; it 
has been demonstrated again today, but we are still waiting to see this 
much-needed legislation enacted.
    This Committee should be applauded for its repeated support for 
legislation to address the reliability of the electric grid. The Energy 
Policy Act of 2003 (H.R. 6), approved by the Energy and Commerce 
Committee and passed by the full House of Representatives in April of 
this year, includes provisions that would create an electric 
reliability organization to develop and enforce mandatory reliability 
rules. I urge the Committee to work with the Senate to assure these 
provisions are included in comprehensive energy legislation that must 
be enacted as quickly as possible.
                expansion of transmission infrastructure
    While it is essential for Congress to empower an electric 
reliability organization, reliability standards alone are not enough. 
Expansion of the nation's transmission infrastructure is critical to 
ensuring the reliability of the electric grid. The nature of the 
electric power industry has been fundamentally transformed in the 
decade since Congress passed the Energy Policy Act of 1992, from a 
system of largely local electric utilities that relied on the 
transmission grid to engage in transactions with neighboring utilities 
to a complex system of utilities and merchant power generators that 
regularly buy and sell large blocks of electricity on a regional basis.
    It is clear that last month's blackout was not the result of an 
inadequate supply of electricity. Mr. Chairman, as you noted in your 
letter soliciting testimony at today's hearing, electric power supplies 
in the regions affected by the blackouts have generally been more than 
adequate to meet peak summer demands, with capacity margins exceeding 
20 percent or more. The policies put in place by Congress in 1992 have 
been successful in spurring the construction of electric generating 
capacity in many regions of the country.
    Having adequate generation resources in place, however, is not 
enough to keep the lights on. To provide a reliable supply of 
electricity to homes and businesses, companies must be able to get 
power from where it is generated to where it is needed. Unfortunately, 
the nation's transmission infrastructure has not kept pace with the 
changing nature of the electric power markets.
    If you think of the electric transmission grid as being similar to 
the nation's interstate highway system, it is easy to understand why we 
need to expand our transmission infrastructure: we have a lot more 
``cars'' on the ``road'' today than we did 10 years ago. While we can, 
and must, build distributed generation and embrace conservation to give 
people incentives to stay off the road. That alone will not do the job. 
We simply must build new roads and expand the highway from two lanes to 
three in parts of the country where the grid is inadequate.
    H.R. 6 contains a number of provisions to address the need for 
additional transmission facilities. The legislation includes provisions 
to attract capital investment by directing FERC to utilize innovative 
transmission pricing incentives and by repealing the Public Utility 
Holding Company Act of 1935, an antiquated law that effectively 
prevents many potential investors from investing in the construction of 
transmission facilities. The bill also amends the Internal Revenue Code 
to provide for accelerated depreciation of electric transmission assets 
from 20 to 15 years and to remove barriers for companies to sell their 
transmission assets to FERC-approved RTOs or independent transmission 
companies.
    H.R. 6 also addresses siting issues by granting FERC backstop 
transmission siting authority to help site transmission lines in 
``interstate congestion areas'' designated by the Department of Energy 
if states have been unable to facilitate such siting and by reforming 
the transmission permitting process on federal lands. Some have been 
leery of embracing these vital transmission siting provisions, arguing 
that states should remain supreme in the siting area. Simply put, that 
will not work any more. As we saw vividly last month, blackouts do not 
stop at a single state's border. We must recognize that an adequate 
transmission network is a national priority that requires a national 
perspective. Frequently you need to enhance transmission in State A to 
serve customers in State B or even C, D or E. Authorities in State A 
may be loath to act to approve a transmission enhancement to serve 
State B if they see no benefit to their citizens. Indeed, they may not 
have authority under state law to approve facilities that benefit 
customers in another state. FERC, working with DOE, must be given the 
tools to ensure that the transmission grid infrastructure is adequate 
to the task or we will undoubtedly have recurring outages. We at Exelon 
congratulate this Committee, and the House Ways and Means Committee, 
for their support of these critical initiatives.
    Energy legislation passed by the Senate in August includes some, 
but not all, of these provisions. We strongly urge the conferees to 
adopt the House-passed provisions.
                  regional transmission organizations
    Since the blackout, we have heard much about the need for mandatory 
reliability standards and additional transmission facilities. Largely 
ignored, however, has been the important role that RTOs can play in 
assuring a reliable grid.
    Some have urged Congress to quickly pass electric reliability 
legislation and to forgo efforts to address a broader range of 
electricity issues as part of the comprehensive energy legislation. 
While electric reliability and the structure of wholesale electric 
markets may appear at first blush to be separate from one another, 
these issues are, in fact, inextricably linked. Policy decisions 
regarding reliability will ultimately affect the operation of 
competitive wholesale markets; similarly, decisions about the structure 
of wholesale power markets will have significant implications for the 
reliability of the grid.
    The Secretary of Energy's Electricity Advisory Board considered the 
reliability of the power grid last year. I had the opportunity to Chair 
the Board's Subcommittee on Transmission Grid Solutions, which examined 
in detail many of the questions facing this Committee today. The 
Subcommittee's Transmission Grid Solutions Report,1 in 
addition to identifying many of the initiatives included in H.R. 6, 
highlighted the importance of Regional Transmission Organizations. The 
Subcommittee unanimously concluded, ``RTOs can provide the key to the 
success of a long-term, dependable, reliable and competitive wholesale 
energy market.''
---------------------------------------------------------------------------
    \1\ The Subcommittee's report is available at http://eab.energy.gov
---------------------------------------------------------------------------
    Exelon's PECO Energy affiliate is a member of the PJM RTO, which 
serves 25 million people in 8 states. Unlike some regional 
organizations, PJM operates the entire system under its control and is 
the control area operator, balancing load and generation on a real-time 
basis. As a result, there is a single decision-maker who sees 
everything that happens in the region as it happens and who can take 
actions necessary to effectively manage the grid. PJM experienced only 
minor outages on August 14, when neighboring systems in the Northeast 
and Midwest crashed.
    Some have blamed RTOs for contributing to last month's blackout, 
citing the fact that the blackout appears to have begun in an area 
within the Midwest Independent Transmission System Operator (MISO). It 
is important to note that, in contrast to PJM, MISO does not control 
the transmission operations of its member companies. There are 23 
separately operated Control Areas in MISO, an area that includes 
portions of 15 states and serves 20.5 million people.
    A properly designed energy market, such as that operated by PJM, 
enhances reliability. In a PJM-type market, congestion is relieved in 
real-time by generators and load reacting to price signals, effectively 
preventing the types of system overloads that threaten reliability. In 
non-market systems, the system operator must deal with congestion by 
canceling transactions--a process that can take up to 30 minutes and 
divert the attention of the operator from other matters. PJM redispatch 
occurs every five minutes, allowing congestion issues to be addressed 
as they arise. Currently, MISO does not operate an energy market; nor 
does it redispatch generation.
    Operating facilities in multiple states has taught Exelon the 
value, security and strength of regional coordination and planning, 
especially in times of crisis. RTOs offer a sound mechanism for 
addressing many of the barriers to the expansion of the nation's 
transmission grid. You cannot plan a viable, efficient transmission 
system on a state-by-state basis. Nor can you make the best decisions 
about the need for additional generation. RTOs can assess transmission 
needs on a regional basis, work with states to coordinate transmission 
planning and siting, and manage the daily operation of an energy market 
and regional transmission assets. Thus, while Congress must act to 
authorize mandatory reliability standards and to facilitate expansion 
of the transmission infrastructure, it is equally important to ensure 
that the structure of power markets will facilitate the effective 
operation of the electric grid and allow reliability standards to be 
enforced in an appropriate manner.
    I cannot over-emphasize this point: electric power markets are 
regional. Regional Transmission Organizations are essential for 
assuring reliability of electric power grid. Properly functioning RTOs 
operate as multi-state electrical regions. RTOs must closely coordinate 
with each other, and the borders between RTOs must be seamless. The 
market rules in New England must be compatible with those in New York 
and PJM; MISO and PJM need to work closely together, too. Given the 
catastrophic events of August 14, it would be irresponsible for 
Congress to halt progress towards the establishment of a wholesale 
electricity system that would better ensure reliable operations and 
provide the regulatory certainty essential to encouraging investment 
needed to modernize our wholesale electricity infrastructure.
    Thank you for the opportunity to appear today. I look forward to 
working with the Committee on these important issues.

    Mr. Barton. Thank you, Mrs. Moler. The Chair would 
recognize himself for the first round of questions. I think 
that it's 5-minute rounds.
    My first question is for you, Mr. Draper. I understand that 
your company is headquartered in Ohio, but I understand you 
have a football team and college that is your favorite football 
team and it's not from Ohio. What is it?
    Mr. Draper. That's correct, Mr. Chairman. The University of 
Texas paid my salary for a good many years, and I have remained 
loyal to them as a football team.
    Mr. Barton. I just wanted to get that on the record. There 
are some fans in Ohio that are not Ohio State Buckeyes all the 
way.
    Mr. Draper. I think there are a good many here on the 
committee that are from Ohio----
    Mr. Barton. There are.
    Mr. Draper. [continuing] that are Buckeye fans. And I must 
say that they have had a terrific----
    Mr. Barton. He is not running for office in Ohio.
    I want to ask you, Mr. Kessel. You talked quite a bit about 
petty parochial politics, stopping that underground and 
underwater transmission line from being energized. What petty 
parochial State or locality was it that stopped that line?
    Mr. Kessel. The petty parochial policy came from the State 
of Connecticut.
    Mr. Barton. Connecticut?
    Mr. Kessel. Yes.
    Mr. Barton. In all seriousness, now that you have had the 
August 14 incident, what do you think Connecticut's view would 
be today? Would they be approving of that line being energized?
    Mr. Kessel. Well, they are continuing to oppose the Cross 
Sound Cable. In fact, it's my understanding that they have 
asked the energy secretary to rescind the order that was 
issued.
    The three issues--and I just should mention this. The three 
points of opposition from Connecticut are, No. 1, that this 
poses an environmental hazard and somehow would leak. There is 
no fluid whatsoever in this cable. It is the most modern 
technology available.
    The second argument against the cable is that in some way, 
New York Long Island would be stealing Connecticut's 
electricity, not recognizing the fact that the line flows both 
ways. In fact, New York exports more power to Connecticut than 
Connecticut exports to New York and Long Island.
    The third issue--and it's interesting when you look at 
these issues--is that Long Island hasn't done enough for 
itself, that Long Island should really add more generation. But 
we have added in the last decade or so over 600 megawatts of 
new generation on Long Island net. Connecticut when you include 
the decommissioning of all of the facilities has netted 18 
megawatts. And so these are arguments in my view that aren't 
really relevant.
    In my view--and, listen, I used to be in the consumer 
movement. I am in a very unique position. I headed a consumer 
group on Long Island for many years. I headed the State's 
consumer protection agency. We consumer advocates know how to 
get before the public.
    But these arguments are--in my view, if a State can step in 
and because of local political issues or grandstanding to the 
public step a major transmission intertie from operating that 
is so critical to the Northeast regional grid, there is 
something very wrong with the system.
    Mr. Barton. The members would like if you could pass the 
samples up to the dias so that they could actually look at 
them.
    Mr. Kessel. Sure.
    Mr. Barton. You don't have to do it yourself. We have 
people that will do that. I want to point out that the bill 
that passed the House on a bipartisan basis, we don't preempt 
the States from having a row in this process, but we do have 
Federal backstop authority so that if you did have a deadlock 
or a stalemate, the Federal Government could step in and say 
that was a critical path element that needed to be built. But 
we would not preempt any of the State and local authority until 
there was a stalemate.
    So we are not trying to totally tell the States. We are not 
trying to Federalize this.
    Mr. Kessel. I think, congressman, just to say one other 
thing about this cable, what is so frustrating is that the 
cable was ready to operate over a year ago. And it took an 
emergency to wake people up. And despite efforts by the 
Governor and a number of other officials in New York, it just 
kind of stayed there dormant. And that is a tragedy.
    Mr. Barton. And I need to ask Mr. Draper a question. Some 
have said that we need to go back to the old way, that this 
blackout for 50 million people proved that what is called 
restructuring the deregulation has gone too far and the problem 
was there was too much interconnectivity. And we just really 
need to go back to the old system. What is your view on that?
    Mr. Draper. Mr. Chairman, I don't believe we need to go 
back to the old system. I believe that we can have a reliable 
system under a variety of market conditions. I disagree with 
Betsy Moler a bit on that. I think if you have the wrong market 
structure, it will hamper reliability.
    But I believe that you can have a reliable system either in 
a regulated environment or one in which there is open and free 
wholesale commerce. And I think that our system is an example 
of such a situation. We have a system. In some States, there is 
retail choice and some there is not. But we have been able to 
maintain our system in a quite reliable situation.
    It is clear that we need to do things to further enhance 
the national grid. We need additional investment, but I don't 
believe it is necessary to either roll back to where we were or 
to dramatically change the situation that we now have. I 
think----
    Mr. Barton. My time has expired, but I want to ask one 
question, Mr. McGrath. Your service area, as I understand it, 
is principally New York City. Is that correct?
    Mr. McGrath. New York City, Westchester, Orange and 
Rockland Counties in New York, a little bit of New Jersey and 
Pennsylvania.
    Mr. Barton. Is it possible in your service area to build 
new generation next to the customer base or are you pretty much 
now having to get the transmission capacity to import it from 
outside your service area?
    Mr. McGrath. Well, we have a requirement in New York that 
80 percent of the capacity needed to meet the estimated peak 
has to be physically located in New York. It's very difficult 
to locate power plants in New York, but that is absolutely the 
right direction to go in.
    I really believe as an engineer you want to have a 
generation at the load. When you start separating generation 
and load, you introduce another component which has the 
potential to impede reliability. You can't always do that, and 
there are economic reasons, transmission. But the first 
priority ought to be to locate the generation----
    Mr. Barton. When is the last power plant that was sited, 
permitted, and actually built in your territory?
    Mr. McGrath. Well, we built some gas turbines very 
recently, within the last few years. New York Power Authority 
built about 400 megawatts of gas turbines. And we have an RFP 
out now to build a 500-megawatt unit in Queens that will come 
on line in a few years.
    Mr. Barton. Very good.
    Mr. McGrath. We still need more. We need about 3,000 more 
megawatts of generation over the next 5 years in this city.
    Mr. Barton. My time has expired, and I apologize for going 
over. We would next recognize Mr. Stupak. I think he is first 
in line on the minority side.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mr. Burg, you flow your energy or some of it up through 
Michigan to ITC. Is that correct?
    Mr. Burg. Well, we're interconnected with Michigan. And it 
goes through ITC at our power that's going there. But yes, 
power goes that way.
    Mr. Stupak. When you testified, when you mentioned power 
flowing to Michigan, that would be through ITC?
    Mr. Burg. Yes.
    Mr. Stupak. Yes. The first event appears to be after East 
Wake, you testified, after about 1:30. And then it appears from 
about 3 o'clock to 4 o'clock, there are a number of failures or 
tripping of plants, as they call it, right?
    Mr. Burg. My testimony indicates that we had some lines 
tripping as well as some other power plants going out in the 
general area as well as some other transmission lines going out 
in the area.
    I really don't have information with respect to----
    Mr. Stupak. Let's go to page 2 of your testimony. I think 
you lay it out there pretty well between 3 o'clock and 3:30. 
You lost the Chamberlain-Harding line. And then you go on to 
3:33-45, Hanna-Juniper, South Canton, Cloverdale. You are 
familiar with all of that, right?
    Mr. Burg. Yes, sir.
    Mr. Stupak. Okay.
    Mr. Burg. I was just referring to the fact that other 
events were going on as well. That's all I meant.
    Mr. Stupak. Right. I'm talking about your testimony, what 
you testified to. The point I am trying to make, what should 
have happened when all of these things started tripping?
    Mr. Burg. Well, I think what should have happened happened. 
A number of the----
    Mr. Stupak. Wait a minute. You mean when they started 
tripping, we have these blackouts?
    Mr. Burg. No, sir.
    Mr. Stupak. What should have happened?
    Mr. Burg. The automatic nature of the system took over.
    Mr. Stupak. Explain the automatic system for those of us--
--
    Mr. Burg. In other words, if a transmission line trips out, 
the megawatts get rerouted on the system, if you will. That's 
all I was referring to.
    Mr. Stupak. Did that happen here, it got rerouted on the 
system?
    Mr. Burg. I believe so. Yes, sir.
    Mr. Stupak. Why do we have all of these problems, then?
    Mr. Burg. Sir, that's obviously a very complex issue. I 
don't know that we know all of the facts yet. We are 
cooperating with the parties that are trying to obtain those 
facts. And hopefully we'll get to that position.
    Mr. Stupak. Let me ask it this way because we're still 
stuck with this system. Everyone has testified about things we 
should be doing in the future. And that's all great, but right 
now we are still with this system.
    Once it started tripping--and I am looking at your 
testimony because you sort of lay out all of these trips that 
go on. Who did you notify? Should you notify people? At what 
point in time does it appear to you and who makes the call, the 
responsibility here, that this is out of our control, things 
are going haywire here? Is there someone you have to call?
    Mr. Burg. Sir, we were in contact, as Dr. Draper said, with 
AEP. They called us, in fact, on a few occasions. We were in 
contact with the Midwest ISO during that timeframe.
    I would also tell you that the first line that you are 
talking about was a line in, really, eastern Ohio, northeastern 
Ohio, had really little, if any, effect on our system. Our 
voltage remained as----
    Mr. Stupak. I agree. One-thirty made the difference, but 
about 3:30-4 o'clock gets to be a critical time when a lot of 
things have started to trip. It had to be a point in time when 
someone had to realize, ``We can't control this anymore.''
    And who do you call? Who do you send it to? That seems to 
be the problem here. There is no accountability or 
responsibility when things started going haywire in this. The 
Governors talked about it yesterday.
    I've got some other questions for other panel members 
because they also have responsibility to monitor as well as 
being communicated to. It seems like we have a system that is 
put together in bits and pieces. When one thing starts going 
wrong in one part of the system, it is going to affect the 
whole system.
    Where is that legal, ethical, or moral duty when we have to 
start saying, ``Hey, this is out of our hands. We need some 
help here''? I guess that is what I am trying to look for. I 
don't see that anywhere in all of the testimony I have read for 
the last couple of days. There is no point in time when we say, 
``We have to get other help.''
    Mr. Burg. Well, again, as I think my testimony indicated, 
as you indicated, as late as 3:45 p.m. or so, when we had a 
number of transmission lines out of service, as did others, the 
flows into and out of our system were remaining stable. The 
Midwest ISO was in contact with us. They were doing contingency 
planning to look at what would happen if additional lines went 
out of service.
    It would appear that based upon what they are saying and 
what was flowing through our system at the time, we were not at 
a critical situation at that point in time, at least in 
hindsight. Once again, all of these things are being done and 
talked about in hindsight.
    Mr. Stupak. In the testimony from AEP, they said that their 
system worked--I'm looking at page 3 of theirs. It said, 
``avoided cascading outages across the AEP system''--and you 
are interconnected there with AEP on some of these--``and 
probably far beyond, given the central role of AEP's 
transmission grid in the Eastern Interconnection. AEP's system 
was not the only one to respond this way.''
    If theirs responded appropriately, I guess I have to ask 
why didn't FirstEnergy's respond this way?
    Mr. Burg. Congressman, our generation on the Ohio River, 
which is where the bulk of our generation is located, it 
remained on beyond the event. At least half of our customers in 
Ohio, unfortunately, went out, but the other half stayed on.
    We remained interconnected, as I said in my testimony, on 
certain lines at least, with AEP, with Duquesne, with Dayton, 
with PJM-West. So in many ways our system did work. It also 
protected our facilities, as others have said on this panel, in 
such a way that we were able to get those unfortunate customers 
that were out of service back on within in some cases 12 to as 
long as 36 hours. But they were back on.
    Mr. Stupak. Let me ask one more, if I may, Mr. Chairman.
    Mr. Barton. This will have to be the last one.
    Mr. Stupak. Yes. Mr. Welch, FirstEnergy's power flows on 
ITC's on your system into Michigan, and we had some problems in 
Michigan. So I guess what I am asking here, is what is the 
balance between ITC's own monitoring and information it relies 
on from FirstEnergy, as this problem goes on? How do you 
balance it?
    Whose responsibility is it here? Is it your responsibility 
to monitor to make sure this doesn't happen? Do you need more 
monitoring equipment or do you feel FirstEnergy should have let 
you know earlier? Where is the balance here, if you can, Mr. 
Welch?
    Mr. Welch. I'm sorry. First of all, it's the role of the 
system security coordinator to take into effect the continual 
outage of lines and loss of generation, to then monitor and 
remodel the system to make sure that there are no abnormal 
flows that are going to exist.
    One of the things that our post-examination found is that 
we can find nowhere in the SDX, which is the system data 
exchange, or in the interchange distribution calculator that 
any of these outages were accounted for.
    Had they been accounted for, the normal response of the 
system through the system security coordinator is to then issue 
under the MISO rules a transmission load relief, which we call 
a TLR, to start to curtail transactions or bring on other 
generation and redistribute the flow to prevent future 
overloads and any other abnormal event from happening.
    On that day in question, on the western side of Michigan, 
there was one TLR event for some outage way over by Holland, 
Michigan, which they said there are going to be no more 
transactions. In the ITC Michigan system, both METSI and ITC, 
all of that information is automatically telemetered on a real-
time basis to MISO on an ongoing basis.
    I don't know how others do it, but we send our data 
straight through the computer system as quickly as it comes in 
through our supervisory control and data acquisition system.
    Mr. Stupak. Thank you.
    Mr. Barton. Thank you for those questions. The Chair would 
recognize the gentleman from Georgia, Mr. Norwood.
    Mr. Norwood. Thank you very much, Mr. Chairman. Glad to 
have you back.
    Mr. McGrath, I found some of your comments very refreshing, 
and I want to just briefly explore it a little further. You 
implied that someone insists that Con Ed have 80 percent of its 
generation within reasonable reach of your end-users. Is that 
what you said?
    Mr. McGrath. That's correct. Eighty percent of the capacity 
we need to meet New York City load has to be physically located 
in New York City.
    Mr. Norwood. Is that a State law?
    Mr. McGrath. That's a requirement with the New York ISO. 
And I believe it's under NPCC criteria also.
    Mr. Norwood. Is that fairy typical of other ISOs?
    Mr. McGrath. No. It's one of the reasons we think that 
mandatory reliability standards are absolutely essential, but 
also local localities need to have the flexibility to impose 
stricter standards where it makes sense.
    Mr. Norwood. Do you think mandatory reliability standards 
would include having generation closer to the end-use?
    Mr. McGrath. I think as an engineer and as an operator, 
having the generation as close to the load center as it can be 
done is in the best interest of everybody.
    Mr. Norwood. Why do you say that?
    Mr. McGrath. Well, because as you separate generation from 
load, you introduce another component. And as you introduce 
other components, you can introduce cost and you can introduce 
reliability problems.
    On the other side of the coin, transmission is very helpful 
in cases where the generators, for example, are offline and you 
need to bring in power from somewhere else.
    And in New York, for example, for a summer peaking company 
and Canada is a winter peaking company, through the 
transmission system, we are able to build the capacity we need 
to meet the load in the summer in New York and Canada builds 
the capacity needed to meet the winter peak. And there's excess 
capacity in Canada in the summertime that we can use in the 
city.
    So transmission certainly is economical and does help with 
reliability in some cases. Plus, as a general rule, I think 
generation ought to be located at the load center.
    Mr. Norwood. I wonder if typically you have been able to 
increase your generation to be able to meet the increase in 
demand.
    Mr. McGrath. We have in New York State an 18 percent 
reserve requirement. We meet the 18 percent reserve 
requirement. That's probably tighter, is tighter than it was 
10-15 years ago. We probably have had 20-25 percent reserve. We 
still meet the criteria, but the gap is getting narrower.
    Mr. Norwood. So back to reliability, my impression is--and 
I am here for you to correct me--the most reliable thing is 
less day-to-day long distance hauling of electricity versus 
having generation close to the end-user. That's more reliable.
    Mr. McGrath. It's not always possible to have the 
generation right at the load center for environmental reasons 
and for physical location reasons. So to that extent, it has to 
move away a bit.
    My point would be that ought to be a very high threshold. 
We ought to have it located there. If we can't, then separate 
it, but it ought not to be our first approach.
    Mr. Norwood. And there probably are some political reasons, 
too.
    Mr. McGrath. There are always political reasons.
    Mr. Norwood. Yes.
    Mr. McGrath. Yes, sir.
    Mr. Norwood. Well, I wonder if other members of the panel 
could just, anybody who likes, briefly describe your situation 
about that. If reliability is at its best being close to the 
end-user, hadn't we ought to look at reasons in order to help 
with that and make certain that that occurs, which doesn't 
necessarily mean in my mind you can't haul long distances? 
There are times and situations in which to do that, but 
generally speaking, do we need to deal with the problem that 
many States have not kept up with their generation, many States 
are wishing to import their electricity over long distances? 
Anybody?
    Mr. Draper. I would be glad to address the AEP situation.
    Mr. Norwood. I'm glad. I can understand somebody from 
Texas.
    Mr. Draper. We are a quite different system from Gene 
McGrath's. He has a principally urban system. Ours is 
principally rural. We serve customers in 11 States, stretching 
from Michigan down to Texas.
    We have a very extensive network of power plants. Our 
system generates about 25 percent more electricity than our own 
customers use. And we sell that in the wholesale market. So we 
have plenty of generation capacity, but we also have a very 
robust, very strong transmission network that has the largest 
collection of extra high-voltage transmission in North America.
    Mr. Norwood. You have invested heavily in your 
transmission?
    Mr. Draper. Yes. We have over $5 billion in book value in 
our transmission and invested in the last 10 years close to $2 
billion.
    Mr. Norwood. Well, everybody yesterday said you didn't want 
to do that because it was only a 12 percent return. Why are you 
settling for a 12 percent return?
    Mr. Draper. We have routinely invested in transmission 
because we do have a large, strong system. We believe it's in 
the best interest of our own customers to have that strong 
transmission system and the reliability that comes with it.
    Mr. Barton. The gentleman's time has expired.
    Mr. Norwood. Yes, sir.
    Mr. Barton. The Chair would recognize the ranking member of 
the Energy and Air Quality Subcommittee, Mr. Boucher of 
Virginia.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. I 
want to join with you and Chairman Tauzin of the full committee 
in welcoming these witnesses today. This is a very 
distinguished panel, and we very much appreciate the time you 
have taken to prepare your informative testimony.
    Ms. Moler, let me begin my questions with you. I know that 
much has been said about the fact that some regional 
transmission organizations have greater authorities than 
others. Some have authorities to manage the transmission lines 
that are entrusted to them. PJM is an example of that. The MISO 
regional transmission organization does not have that 
authority. I noticed in your testimony, in particular, you make 
reference to that distinction.
    My question to you is this. Had the MISO had management 
responsibility and authority for the transmission lines in the 
territory that it serves, do you think that would have made any 
difference in terms of either eliminating this blackout or 
perhaps diminishing its effects?
    Ms. Moler. Congressman, no one yet knows the reasons the 
blackout occurred in any detail. So I cannot possibly speculate 
on whether if MISO had been a single control area and had 
complete authority over the transmission system, that it would 
have been avoided.
    As a policy matter, though, I think for the members of this 
committee, you should want fewer control areas, rather than 
more, and you should want fewer organizations with fewer 
conflicts between those organizations, rather than more.
    So the trend toward large regional transmission 
organizations with authority to actively manage the grid, do 
congestion management, re-dispatch, et cetera, is a very 
positive one and something that we believe this committee has 
and should continue to support.
    Mr. Boucher. Now, I believe the standard market design 
proposal as put forth by the FERC does have elements that would 
require that the regional transmission organizations have 
overall management and control responsibility for the lines. Is 
that correct?
    Ms. Moler. Yes, it does, though the wholesale market 
platform, as it was called in the April white paper, would 
respect regional differences to the extent that folks in a 
region want to do something slightly different.
    Mr. Boucher. Well, if the SMD went forward in accordance 
with the terms of the white paper released subsequent to the 
original standard market design proposal, do you believe that 
would be adequate in meeting the goal that you have established 
in your statement to the effect that control through the RTOs 
would be appropriate?
    Ms. Moler. Yes, we do. We support the implementation of SMD 
as refined in the white paper.
    Mr. Boucher. My question for this entire panel relates to 
the reliability standards that have been published so far on a 
voluntary basis by the North American Electric Reliability 
Council. These standards may be followed or not by the owners 
of transmission. If they're not followed, no formal penalty can 
result. And we have evidence submitted by the NERC that there 
have been more than 400 violations of these voluntary standards 
within recent history.
    Many of those have been resolved through the voluntary 
action of the various transmission owners, but they're not all 
resolved. My question to you is this. If the reliability 
standards had been mandatory and if appropriate enforcement 
powers had been conferred upon the NERC and also the FERC to 
make sure that these standards are followed, what difference, 
if any, would that have made with respect to this blackout 
either in eliminating the blackout or diminishing its effects?
    And a second question to each of these panel members is 
this. Do you believe that it is so important that we adopt 
these consensus-based standards, to which, as far as I know, no 
opposition has been expressed from any quarter, that if the 
overall energy bill, which is now in conference and contains a 
section that would make these standards mandatory and confer 
appropriate enforcement authority gets bogged down--many 
elements of it are controversial and there is certainly the 
potential that that energy bill would not be approved in the 
conference committee this year. If it does get bogged down, do 
you believe that it is sufficiently important that the Congress 
adopt the reliability standards and confer enforcement powers 
upon the NERC and the FERC, that we should pull that provision 
and pass it separately and make sure that that happens this 
year?
    So two questions. If the standards have been in effect, 
would it have made any difference in this blackout? And, 
second, should we act on those separately in order to make sure 
that they are passed this year? Who would like to respond? Yes, 
sir, Mr. Winser?
    Mr. Winser. Sir, I believe that the question of mandatory 
standards is an important one, but I would further believe that 
it's not only a question of whether they are mandatory or 
voluntary but also whether they're at the right level, whether 
they are conservative enough.
    I think, indeed, that leads back to a question of how much 
investment there is in the system because, of course, one could 
adopt. In various places around the world, there are more 
conservative standards for operating these sorts of grids.
    Mr. Boucher. Well, let me say we know what the standards 
are basically. They have been published by the NERC for some 
time. Let's suppose that the NERC would promulgate these very 
standards that are voluntary today for mandatory application. 
Do you believe that that would be a valuable step? And should 
we pass the legislation independently, if necessary, in order 
to make that possible?
    Mr. Barton. This will have to be the last answer to that 
question. I am sure every other member of the minority is going 
to ask the same question in some shape, form, or fashion, but 
at least this particular questioner. Then it will be the last 
time before we go to Mr. Greenwood.
    Mr. Winser. Sir, I believe it would be a valuable step but 
not on its own. I believe a whole raft of measures, as I 
outlined----
    Mr. Boucher. I understand. Thank you very much. Thank you, 
Mr. Chairman.
    Mr. Barton. Mr. Greenwood of Pennsylvania?
    Mr. Greenwood. Thank you, Mr. Chairman.
    I would like to address some questions to Mr. Burg, if I 
could. Mr. Burg, what can you tell me about the timing of when 
the Perry nuclear power plant went down and when East Lake 
power plant went offline?
    Mr. Burg. Well, I can tell you with respect, first of all, 
to the East Lake power plant, I believe it was early in the 
afternoon on the day of the event.
    Mr. Greenwood. Was it about 1:30?
    Mr. Burg. About 1:30 in the afternoon, a voltage regulator, 
as I understand it, acted, if you will, on some impulse. And it 
began to back down to a manual mode, if you will, to reduce the 
voltage in the plant.
    Mr. Greenwood. When that happened, did the operators out at 
East Lake call into the SCC? And would you explain what the SCC 
is?
    Mr. Burg. The SCC I believe you're referring to would be 
our system control center.
    Mr. Greenwood. Right.
    Mr. Burg. I'm not sure, sir, whether they called in 
directly there or they would have called in to our generation 
dispatch area, which is a separate component. The generation 
dispatch is in one area, system control in another.
    But they were in contact, I'm sure, in some ways with both 
of those, either----
    Mr. Greenwood. Did the SCC computers corroborate what they 
were hearing from the plant?
    Mr. Burg. I don't know the answer to that question. I know 
that an automatic reserve-sharing procedure was put into place 
at that time, which is a procedure that is used on the 
interconnection where other systems use some of their reserves 
to make up for lost capacity. I know that was done at just 
after 1:30 p.m. And the plant stayed off. And our system 
remained stable from that point on.
    Mr. Greenwood. When did the Perry nuclear power plant go 
offline?
    Mr. Burg. Sir, I believe the Perry plant was one of the 
last units to go off. It may have been as late as 4:10 p.m., 
plus or minus, and some seconds. So it was one of the last 
units to go down.
    Mr. Greenwood. Well, the information that I have is that 
there were massive voltage swings in the 345-kilovolt system. 
And operators from the field were calling in to your SCC 
reporting these problems and that the guys at the SCC were 
looking at their computer screens. And the computer screens 
were not reflecting these problems in the field. And they were 
tending to believe their computer screens, instead of what the 
guys were calling in and telling them who were sitting in the 
power plants. Is there truth to that?
    Mr. Burg. Well, there is no question that we had, as we 
said on I think the day after the event happened, that we were 
having some problems with our computers at our system control 
center.
    Mr. Greenwood. Well, you and I spoke yesterday in my 
office. And you talked about having problems with your 
computers in terms of the alarms not functioning.
    Mr. Burg. Right.
    Mr. Greenwood. But I am not sure and it may well have been 
that we discussed this, but I don't recall hearing from you 
that, in fact, a significant part of the problem here was that 
the guys in the fields out in the generators were calling in 
reporting very unusual massive swings, problems in the field, 
and that the folks at the control center were essentially 
flying blind because they weren't seeing this in their 
computers. Therefore, they didn't respond. Is that a fair 
analysis?
    Mr. Burg. Well, we know that the manual alarm system was 
not working at some point in the afternoon.
    Mr. Greenwood. Right, but I am specifically getting at the 
fact that here is a guy out at the power plant calling in and 
saying, ``My God, we've got these huge problems out here. What 
is going on?''
    And your guy is staring at the screen saying, ``We don't 
see anything'' and, therefore, not reacting. Is that an 
overstatement?
    Mr. Burg. What they were seeing--and, again, we're 
investigating this to the nth degree. We want to know as much 
as you do about what was on that screen and what was not. The 
screens were not black. The screens were on. The question is 
whether or not they were updating themselves as they should 
have been doing during that sequence.
    Mr. Greenwood. Would you explain what a SCADA is?
    Mr. Burg. A SCADA is really a supervisory control and data 
acquisition kind of a program that both our distribution as 
well as our transmission operators use in----
    Mr. Greenwood. Am I correct when I say that the SCADA 
system is supposed to look at every power plant and various 
components of the system once a second to get real-time 
feedback on voltage, amperage, et cetera? Is that pretty much 
what it is doing?
    Mr. Burg. I think the SCADA system is used for that purpose 
as well as actually controlling the system.
    Mr. Greenwood. Was part of the computer problem that the 
SCADAs were not communicating with the substations, that they 
weren't getting this information?
    Mr. Burg. I don't know that part to be true at this point 
in time. As I've said, we are going through everything we can 
to find out what was going on with that computer system.
    Mr. Greenwood. You don't know it for sure, but have you 
heard about it? Has anybody reported this to you?
    Mr. Burg. We really haven't discussed the SCADA system as 
such. We were discussing more what kinds of information did our 
operators have in front of them at various points in time.
    We do know that the system was going directly to the 
Midwest ISO, who is our security coordinator. We also know that 
the information was going to what is called the inter-regional 
security network, which was set up after the 1965 blackout for 
this very reason, where data points would go to other entities 
in the region so they could see what was going on in other 
systems.
    Mr. Greenwood. My time has expired. Correct me if I'm 
wrong, but it seems to me that the problem with your computers 
was a lot bigger than the alarms just not functioning. The 
problem with your computers was that your computer system in 
your central control center was not reflecting the reality out 
with your reactors in your system. And the guys that were out 
in the system were calling into the control center and saying, 
``We've got big problems out here.'' And the guys in the 
control center were saying, ``Well, we don't see it.'' And the 
question is, ``Since they didn't see it on their computers, did 
they, therefore, not believe it and not respond?''
    Mr. Burg. They were in----
    Mr. Barton. This will have to be the last answer to this 
question.
    Mr. Burg. They were in communication with the Midwest ISO. 
So they were in consultation with them. We don't see any 
changes on our system until the very end in terms of voltage 
flow----
    Mr. Greenwood. I understand you don't see the changes----
    Mr. Burg. [continuing] megawatts coming in.
    Mr. Greenwood. [continuing] but you're hearing the guys----
    Mr. Burg. Even now. But I'm saying even now, in hindsight, 
our system was relatively stable until the very end. And I wish 
they had. Had our system operators had perfect knowledge at 
that point in time, I don't know that they would have done 
anything differently than what was done. No one else 
intervened. The system shut down automatically and so forth.
    But we are trying to find that out, Mr. Greenwood. And we 
will provide that to you when we do.
    Mr. Greenwood. Thank you, Mr. Chairman.
    Mr. Barton. We have a series of either two or three votes 
on the floor. We're going to go to Mr. Dingell for his 5 
minutes of questions. Then we're going to recess. When we come 
back, Mr. Buyer will be the first questioner on the Republican 
side.
    So Mr. Dingell is recognized for 5 minutes for questions. 
And then we will recess after Mr. Dingell's questions.
    Mr. Dingell. Mr. Chairman, I thank you. You are very 
gracious.
    Mr. Draper, you found that there were peculiar events which 
were transpiring in connection with the events of August 14, 
did you not? Just say ``Yes'' or ``No.''
    Mr. Draper. Yes.
    Mr. Dingell. Mr. Burg, did you find that there were events 
that were curious which occurred on and around the 14th with 
regard to both cycles and voltage? In your system, did you find 
that?
    Mr. Burg. Some was going on at the time. We see more of 
that now in hindsight, sir, yes.
    Mr. Dingell. Okay. Ms. Moler, did you at Exelon?
    Ms. Moler. No, sir. We were----
    Mr. Dingell. Did not. Now, Mr. Draper, you were able to 
separate from the system. Why were you able to separate and 
others were not?
    Mr. Draper. You give us more credit in terms of physical 
actions. In fact, we separated automatically. The protective 
systems that are designed into this transmission system 
operated as they should and automatically separated. Why others 
did not, I don't know.
    Mr. Dingell. Now, were they all supposed to separate 
automatically?
    Mr. Draper. Ours are supposed to separate when certain 
conditions detect a fault on the line; that is, the line short-
circuits, goes to ground. They are supposed then to trip out. 
And they did.
    Mr. Dingell. Now, Ms. Moler, did yours separate 
automatically?
    Ms. Moler. There was no need for ours to separate.
    Mr. Dingell. Then somebody to the east of you must have 
separated to save you that trouble. Is that right?
    Ms. Moler. We did not have the kind of voltage fluctuations 
that occurred on other systems.
    Mr. Dingell. You did not?
    Ms. Moler. No, sir.
    Mr. Dingell. But you were able to--you did not have to 
separate. That means somebody to the east of you must have 
separated. Mr. Welch, did you separate?
    Mr. Welch. At the time that there was a voltage collapse 
that basically happened in the center of the State of Michigan, 
there were 30 lines that all operated automatically within an 
8-second period that isolated the eastern and the western side 
of the State.
    Mr. Dingell. Okay. They were separated, but the others were 
not.
    Mr. Welch. The thing that I want to lay out here is that 
the only reason those lines operated is that there was a 
voltage collapse, which may----
    Mr. Dingell. Voltage but not a variation in cycles?
    Mr. Welch. No. I supplied in my pre-filed testimony the 
frequency charts out of the MEPCC, which showed that, actually, 
at the time that this event occurred, the region, not just 
Michigan, the region, was in a time error correction, which 
means we were actually beating the system up. And there should 
be no frequency drag anywhere. That means there was adequate 
capacity, and we were bringing the system back up because the 
system had dropped down a little bit through the day. It has 
nothing to do with frequency.
    Mr. Dingell. Okay. Now, I'm trying to figure out, Mr. 
McGrath. You found that there were strange events affecting the 
operation of your system. Did you warn any of those to whom you 
are intertied or to the independent system operator that you 
were seeing these kinds of things?
    Mr. McGrath. We saw the lights blinking, voltage swinging 
rapidly. And our system shut down within seconds.
    Mr. Dingell. Did you warn anybody----
    Mr. McGrath. No time to warn----
    Mr. Dingell. [continuing] about error curiosities in the 
operation of the system?
    Mr. McGrath. There was no time to warn anybody. It 
happened----
    Mr. Dingell. But you had seen earlier events, had you not, 
which indicated that there were some aberrant events occurring 
in the system? Had you not?
    Mr. McGrath. The swings occurred somewhere between 4:10 and 
4:11. And within a minute, our system was shut down.
    Mr. Dingell. All right. Mr. Burg, do you have a comment on 
that?
    Mr. Burg. Well, sir, our system did appear to be stable 
until the very end, as Mr. McGrath just said. We were importing 
about the same amount of megawatts as we had been during the 
whole day. And the power flows into Michigan, in fact, were 
fairly stable until maybe 4:09 p.m. or so.
    Mr. Dingell. Some witnesses suggest that there was an 
inadequacy in NERC's rules for operating the system or 
noncompliance with NERC's rules. Do any of you gentlemen desire 
to comment on that fact?
    Mr. Welch. That there may have been noncompliance?
    Mr. Dingell. Either that there was an inadequacy in NERC's 
rules or there was noncompliance with NERC's rules.
    Mr. Welch. I would like to respond to that.
    Mr. Dingell. Please.
    Mr. Welch. As has been documented in all of the time 
sequences that have been published by ourselves and other 
people, there was a sequence of line outages that took place. 
And, as I stated earlier, I can find nowhere on any document 
that we have checked, either during the event or post the 
event, where the record of these line outages was put into the 
system data exchange system, where these line outages were 
accounted for in such a way that when a line goes out of 
service, we know that the power is going to continue to flow on 
other portions of the system.
    So at that point, you need to check with and re-look at the 
system, model the system to say, ``Okay. Do we have any 
overload contingencies? Is there anything that we are doing out 
there that we need to be very careful on?''
    And we have a sequence of several lines that go for--in 
this case, it starts in our time line at an hour and 5 minutes 
before the blackout with a sequence of lines that go out. And 
we can find no recordings anywhere where these were taken into 
account for by the system security coordinator. And the way 
that you would see that later is there would be some kind of 
issuance of a transmission load relief, meaning that some 
transactions out there have got to be curtailed in order for 
the system not to do what it did. We can't find that.
    So I don't know if there is a violation. I just didn't find 
it.
    Mr. Dingell. I don't mean to be discourteous, but our 
chairman has got his gavel in his hand. I am using more time 
than I should, but----
    Mr. Barton. We also have 5 minutes and 24 seconds in which 
to vote on the floor.
    Mr. Dingell. There's one question I would like to have 
anyone at the table address. And that is, what notices were 
given to anybody by anybody else with regard to the impendency 
of the events of August 14, including irregularities in the 
functioning of the different systems?
    Why, for example, was Ms. Moler's system able to not shut 
down, the New York systems able to not shut down, portions of 
Michigan able to not shut down while others did not and while 
people complained to me that they received no notice? Can 
somebody give me an answer to that question?
    Mr. Barton. And it needs to be a quick answer, 
unfortunately.
    Mr. Dingell. This is a question I think----
    Mr. Barton. It is an excellent question. I understand. We 
may have to have them respond to it in writing, but----
    Mr. Dingell. I will respect the wishes of the chair.
    Mr. Barton. Mr. Burg, do you want to give us an attempt at 
a verbal answer in about 30 seconds or less?
    Mr. Burg. I don't know that there would be the occasion for 
one major communication. I think there were a series of 
communications, whether oral or telephonic or through 
computers. I think those were the kinds of communications in 
terms of data that----
    Mr. Dingell. Did those occur, though? I'm gathering that 
they did not occur and----
    Mr. Burg. Again, this is part of the setting that we have 
to find out about.
    Mr. Dingell. And, yet, Exelon was able to separate itself. 
The New York folks were able to separate themselves. Others 
were not. Mr. Kessel, I apologize----
    Mr. Barton. Each of you all that chooses to answer that 
question, if you would do so in writing and try to get it to us 
as expeditiously as possible.
    We have 3 minutes and 55 seconds in which to go vote on the 
floor. So we are going to take a brief recess, try to reconvene 
at approximately 11:30.
    I can announce that the speaker and the chairman have met 
on conferees and conferees have been decided upon. I am going 
to leave it to the chairman to make those announcements. But we 
do have conferees scheduled to be announced or voted on in the 
House sometime this afternoon. We are in recess until 
approximately 11:30.
    [Brief recess.]
    Chairman Tauzin. The meeting will please come to order. 
Apparently we do have votes being called, but we'll try to get 
in a few more members. Mr. Buyer is ready to go. I think Mr. 
Towns is on his way or can he be here? If you can get him here, 
we will try to get Mr. Buyer and Mr. Towns a chance to do a 
round of questions. And then we will take some more votes and 
come back. Just want you to know we are all working hard for 
you out here. Mr. Buyer is recognized for 5 minutes.
    Mr. Buyer. Thank you. Mr. Chairman, I want to thank you for 
holding the hearing and all of the witnesses for coming today.
    A word that has been used often here is the word 
``incentivized.'' I suppose it can be inferred from that work 
it's defined subjectively, but let me use it in two questions.
    The question I have, I am quite interested in distributive 
generation. So Congress over the years----
    Chairman Tauzin. Steve, I am told we only have 3 minutes on 
this vote, that it's a motion to recommit or something and we 
have 5 minutes on it. So Ed, Steve, Mr. Towns, I think we had 
better all go make a vote. So we will take a recess, make a 
vote, and come right back.
    [Brief recess.]
    Chairman Tauzin. When last we recessed, we were questioning 
our witnesses. And the Chair now again recognizes Mr. Buyer for 
5 minutes for a round of questions.
    Mr. Buyer. We have used the word ``incentivized.'' And I 
have two questions, one dealing with distributive generation. 
Over the years, Congress has turned to incentivize the use of 
wind; solar, whether it's bioenergy; fuel cells; gas micro 
turbines; hydrogen; combined heat and power; hybrid power 
systems.
    I had held an energy forum in Indiana. And in Indiana, we 
have two very large manufacturers, not only Cummins but also 
Caterpillar, who built a lot of these very large generators. 
They had brought the issue about gaining greater access to the 
grid to me.
    As we were putting together the blueprint for a national 
energy policy, I was really focused on the incentives of how we 
upgrade the grid, not so much on backup systems. I think that 
Cummins and Caterpillar were thinking correctly. And, as it 
turned out, issues with regard to how we incentivize or get 
better access to connectivity to the grid really isn't part of 
the energy bill.
    In 2001, to help increase electricity supplies in the 
Western States, FERC even waived its prior notice requirements 
for businesses with onsite power generators that sell wholesale 
power to the grid. It was intended to encourage more generation 
from distributed renewable energy power sources.
    I ask unanimous consent to place in the record a letter 
from the vice president of Cummins addressed to me regarding 
issues on distributed generation.
    Chairman Tauzin. Do we have the letter?
    Mr. Buyer. Yes.
    Chairman Tauzin. Without objection, it is so ordered.
    Mr. Buyer. I'll submit it to you.
    [The letter follows:]

                           Cummins Power Generation
                          Minneapolis, Minnesota 55432-3796
                                                    August 28, 2003
Congressman Steve Buyer
2230 Rayburn House Office Building
Washington, D.C. 20515-1404
    Dear Congressman Buyer: I am writing to update you on the role 
Cummins Inc. played in the recovery from the recent East Coast 
blackout. I am also requesting your assistance in gaining an 
opportunity for Cummins Power Generation to testify at hearings 
regarding the blackout or participate in any Task Force considering the 
cause of the blackout, its impact and the recovery. Further, as 
Congress considers energy legislation in response to the blackout, I 
ask that you consider policies, such as uniform interconnection 
standards, that allow customers to invest in distributed generation 
systems that can protect them from outages and provide some relief to a 
clearly congested grid.
    Earlier this year, Jack Edwards, past President of Cummins Power 
Generation, testified at your Energy Forum in Indianapolis. In his 
testimony he discussed the important role distributed generation can 
play in the event of a blackout and the need to develop policies 
allowing distributed generation to more easily interconnect to the 
grid. Although it seemed unthinkable at the time, that blackout did 
happen. The massive power failure August 14-15 in parts of the East, 
Canada and around the Great Lakes forced more than 50 million people to 
cope without lights, public transportation, refrigeration and air 
conditioning for more than 24 hours. Although the public stayed 
remarkably calm, most businesses and factories shut down, 
transportation systems screeched to a halt and communications systems 
stopped working. Normal life was disrupted for just about everyone in 
the affected areas--except those with distributed generation systems.
    Throughout the cities affected by the power grid failure, Cummins 
Power Generation's commercial power systems kept the lights an and 
equipment operating for our customers. Our customers not only avoided 
the inconveniences associated with the loss of electric power, they 
were also able to stay in business and avoid serious financial losses 
during the outage.

 New York Mayor Michael Bloomberg was able to quickly respond to the 
        blackout because New York City Hall was powered by a Cummins 
        Power Generation power system.
 At a New York City hospital, doctors reportedly completed four 
        operations that were underway at the time of the blackout 
        thanks to a standby power system from Cummins Power Generation.
 In upper New York State, a Cummins Power Generation standby power 
        system at Buffalo General Hospital kept the lights on and 
        patient treatments on schedule.
 All airports have standby generation to power air traffic control 
        systems and runway fighting, but at Newark Liberty Airport, a 
        Cummins standby power system provided uninterrupted power to 
        the entire airport terminal throughout the outage.
 Water systems and sewage treatment facilities stopped working in 
        Detroit, Cleveland and several other cities in the affected 
        area, but in Mississauga, Ontario, outside of Toronto, a 
        Cummins Power Generation prime power system kept the sewage and 
        water system operating for the city's 800,000 residents.
 While people whose cell phones stopped working waited in long lines 
        to use a public phone, Verizon Wireless customers throughout 
        upper New York State enjoyed uninterrupted service because of a 
        cellular system backed up with Cummins Power Generation 
        equipment. According to Rick Polatas, director of network 
        services for Verizon Wireless, ``The outage had no impact 
        whatsoever on service to our customers. Every Cummins generator 
        at our remote cell sites and switching stations started and ran 
        perfectly.''
    As Congress begins to consider legislation in response to the 
blackout, there will be a lot of focus on large power plants and 
transmission lines, as is appropriate. But I believe Congress should 
not end its consideration there. The above examples demonstrate not 
only the significant role we played in supporting our customers, but 
also show the national importance of distributed generation and having 
diverse resources of generation on the grid. We would very much like to 
testify at Congressional hearings or serve on any outage Task Force to 
help inform the debate on the national benefits of distributed 
generation. Further, I hope Congress will consider these issues and 
adopt polices that will encourage this type of investment in the 
system.
    Please do not hesitate to contact me if you have any questions or 
comments regarding this letter.
            Sincerely,
                                         Tom Linebarger    
                                   Vice President--Cummins Inc.    
                                        President--Power Generation
cc: Dan Garcia

    Mr. Buyer. Thank you.
    My question to this panel is, should we make part of this 
national energy bill the development of uniform interconnection 
standards to make it more possible for small generators to be 
considered a power generation choice for electricity and energy 
customers, especially given the fact that when it went to the 
blackout, what was there to provide backup, not only for the 
self-systems and the hospitals and et cetera? I am interested 
in your opinions, please.
    Mr. Kessel. Yes. Thank you, congressman. I think that is an 
excellent question. When looking at that issue, first of all, 
New York State is pretty much a leader in terms of distributive 
generation. Under Governor Pataki's leadership, actually, the 
State has spent about $50 million on distributive generation. 
And that has leveraged about $150 million in private capital. 
We have got about 12 megawatts online, 20 megawatts in the 
State by the end of the year, 90 megawatts in the pipeline.
    Interesting, on Long Island, Long Island has the largest 
collection of individual fuel cells grid-connected of anywhere 
in the world at our West Babylon substation. And we think that 
this is a major solution to the problem.
    Ultimately when you look at the grid, you can't just look 
at generation and transmission. Those are critical. And there 
is no question generation is critical for reliability. 
Transmission is important to open up access to be able to move 
power back and forth. But distributive generation and clean 
energy and energy efficiency, reducing demand at critical hours 
if very important.
    I believe that we need to have some kind of uniform, simple 
standards of interconnection for devices like fuel cells, solar 
roofs, and micro turbines.
    I will tell you just one quick thing. On Long Island, one 
of the problems we have is that each town has a different 
policy about how to put up a solar roof. The bottom line is 
people can't even connect----
    Mr. Buyer. I don't have a lot of time. So I guess I have 
got about a minute left. We can go right down the line. I am 
interested. Give me 10-15 seconds. Should we have uniform 
interconnection standards? And should we make this part of the 
energy bill, even though it's an out-of-scope provision, 
meaning the chairman would have to introduce that at the 
conference? Just go right down the line, please. Mr. Draper?
    Mr. Draper. I think there should be uniform standards. I 
think there also ought to be consideration to how we pay for 
the connections that occur.
    Mr. Buyer. Thank you.
    Mr. McGrath. Yes, I think we should.
    Mr. Buyer. Thank you.
    Mr. Burg. We have no problems with uniform standards. I 
think we also, though, have to look at unintended consequences 
with respect to the whole issue you are talking about. I think 
that is another issue that should be--I don't know what those 
are. I'm just saying look at those.
    Mr. Buyer. All right. You could develop that further in a 
letter to us, sir, or follow-up, please.
    Mr. Burg. Glad to.
    Mr. Buyer. Thank you.
    Mr. Welch?
    Mr. Welch. I believe that we should have uniform standards 
for interconnection. I think, however, our focus is to try to 
get this reliability plan straightened out and don't want to 
bog it down.
    Mr. Buyer. I understand. Mr. Winser?
    Mr. Winser. I think, speaking as a transmission engineer, 
what is important is to have a good transmission planning 
process so that it can play its part in stable tariffs so that 
the people, at best, can get their money back.
    Mr. Buyer. Ms. Moler?
    Ms. Moler. I agree with Nick Winser's comments. I would 
also point out that FERC has just adopted uniform 
interconnection rules. And they are now exploring what you have 
to do for small generators as well. So maybe that will be done 
sooner, rather than later.
    Mr. Buyer. Okay. Thank you. Thank you, Mr. Chairman.
    Chairman Tauzin. The Chair recognizes Mr. Allen for 5 
minutes under the rule.
    Mr. Allen. Thank you, Mr. Chairman.
    Mr. Burg, what I would like to be talking to you today 
about I am going to pass. What I would really like to talk to 
you about is new source review and the weakening of the Clean 
Air Act by the Bush Administration because in my home State of 
Maine, Republicans, Democrats, all of us are very, very 
concerned about those issues. But I am going to stick to the 
ones that are the subject of this hearing.
    I wanted to follow up on Mr. Boucher's questions. He asked 
if mandatory standards and enforcement powers would have made a 
difference. I want to rephrase that question but basically go 
down the line and ask you essentially this. The underlying 
assumption is that the Midwest ISO, MISO, as not able to 
control events on August 14 because they didn't have 
operational control of the grid. If you disagree with that, 
that view, you can state it.
    But the question to each of you for whom this is relevant 
is, for those of you who have facilities in the Midwest, would 
you be willing to cede operational authority over the 
transmission system to a single reliability authority, such as 
an RTO, which would be fully accountable for system operation? 
Another way of saying that is, would you agree to support the 
restructuring of MISO as an independent RTO, however you want 
to begin? But I would like to have all of you answer that 
question.
    Mr. Welch. I'll go first. The simple answer to the question 
is yes, we support having a single RTO in the Midwest, but it's 
not just a simple ``Yes'' or ``No'' answer. There are 
reliability rules and seams issues.
    And right now the Midwest is bifurcated, and it is not 
cohesive, nor connective in the communicative sense. Unless all 
of those other things are put in place, there is nothing that 
having MISO do or not do would change the events that happened. 
It has to be one large RTO with all of the information and 
unilateral control. At that point, yes.
    Mr. Allen. Mr. Burg?
    Mr. Burg. I would just say that I don't know the number is 
what is important. I think it is the interconnectivity, the 
knowledge, and the flow of information, the ability to act and 
react.
    And I think, even more fundamentally, we talk about 
mandatory standards, but I really believe we have to go back 
and find out, do we have the right rules and processes in 
place?
    We could all follow the rules. But if the rules maybe need 
to be changed because we are operating systems in ways for 
which they were never intended, then we have to go back and 
look at the fundamental rules. I think that is important.
    Mr. Allen. Okay.
    Mr. Draper. At one time several years ago, there was a 
group of utilities that were contiguous that were proposing an 
RTO called the alliance. We thought it made good sense to have 
that collection of utilities in a single entity. The FERC found 
that that was not the appropriate configuration and, rather, 
there should be the PJM and the MISO.
    From AEP's point of view, the logical RTO to be a part of 
is not the MISO but the PJM system just to our east. We have 
more transactions in that direction. And so that is the one we 
have chosen to become a part of.
    Mr. Allen. Is the question appropriate for anyone else? 
Does anyone else want to answer?
    Ms. Moler. Mr. Allen, PECO was a founding member of PJM. We 
are working very hard to get ComEd in PJM. I agree, though, 
that whether you have one RTO or two RTOs, the critical thing 
is that they talk to one another. PJM and MISO have been 
working on a reliability coordination agreement. We are happy 
to turn over, we are anxious to turn over control to PJM, but 
they need to have well-coordinated, well-understood protocols 
with one another.
    Mr. Winser. In a general sense, I would say that the sector 
is very, very fragmented, both from the perspective of control, 
operation, and ownership. I think a very useful first step is 
to try to consolidate and control into larger groupings. 
Therefore, I would certainly support RTOs doing that job.
    Mr. Allen. And having the operational authority or with the 
transmission grid?
    Mr. Winser. Yes.
    Mr. Allen. Anybody else?
    Mr. McGrath. We don't have any facilities in the Midwest, 
but I would support the idea.
    Mr. Allen. Good. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Tauzin. Thank you, Mr. Allen.
    Mr. Whitfield, are you prepared, sir? Mr. Whitfield is 
recognized for 5 minutes.
    Mr. Whitfield. Thank you, Mr. Chairman. I had to leave 
earlier today, but I did understand that Mr. McGrath made a 
comment in response to Charlie Norwood that not too long ago, 
you had a reserve of like 25 percent and you are down to about 
18 percent now. Is that correct?
    Mr. McGrath. Yes. I've been around a long time, though. So 
I have been 40 years in the company, not too long ago, maybe 
longer than you think it is. Ten, 15 years ago or so, we went 
through cycles, but we had periods where we had 25 percent 
reserve capacity. Now we're right down about the 18 percent.
    Mr. Whitfield. You know, we have all been focusing on the 
transmission side of this equation. There is basic agreement on 
how we can improve that. It is in the energy bill. Charlie's 
comments raised another question, at least in my mind, which I 
guess was in his as well. And that is, should we also be 
focused on the generation side?
    The comment was made, obviously, the closer the generation 
is to the end-user, the more reliable it is. And I know from 
experience in my district that a company trying to locate a 
generating plant, it is going to take years and years and 
years.
    Do you think there is a need or will be a need for 
legislation to streamline the entire process of generating 
plant locations and whether or not the Federal Government 
should be involved in helping make decisions on where those 
plants should be located more so than--I mean, today my 
understanding is that outside the environmental aspect of it, 
there is not an extensive amount of Federal involvement.
    Mr. McGrath. I think as we restructure the industry, the 
bogey that we need to look back on is, how did this work under 
the old rules? We are trying to improve, improve this industry. 
And under the old rules and the old regulated industry, the 
utility had the responsibility for integrated planning, looked 
not just at transmission or not just at generation or not just 
at distribution but looked across the whole spectrum and 
decided which was the best solution for the particular problem. 
Was it put a generator at this area or put a transmission line 
or whatever?
    I think we need to be very careful going forward that what 
we replace the old rules with has the same ability to make that 
judgment as to what the appropriate way to deal with load 
growth is. And we have to monitor and watch the market 
mechanisms that have sent people to do that to see that they're 
working properly to come up with the--so we have great 
difficulty with siting; we are no longer in the generation 
business, but in the distribution transmission business a great 
difficulty siting substations in our service territory. And I 
think that is an issue that needs to be dealt with.
    We brought some property in 1965, I believe it was, in the 
1960's for a substation in Chelsea, in Manhattan that we knew 
eventually we would need.
    Along around 1990, the zoning was changed for that area, 
but we were kind of grandfathered because we were on notice 
that we were going to use it for a station.
    Then around 1995, they redid the streets. So as not to dig 
it up again later on, we put our facilities under the streets 
in the area.
    Then last year, we said, ``Okay. We want to build a 
station.'' And we were turned down. That's pretty far ahead of 
the curve.
    So I think this whole siting issue, not just transmission, 
distribution generation transmission needs to be dealt with.
    Mr. Whitfield. Is there anyone else who has any comments 
about it on the generating side?
    Mr. Burg. I was going to say, sir, that I agree with you 
totally, but, on the other hand, there are places where there 
is good news. We located a peaking unit in the State of 
Michigan in the last few years and a couple of peaking units in 
the State of Ohio. I would say in both of those jurisdictions, 
the various parties were very responsive, very helpful, went 
through all the proper protocols but allowed us to get those 
built in a very reasonable period of time.
    Mr. Draper. Our situation is a lot like Pete's. We have had 
success where we wish to build. We do business in 11 States. In 
some of those States, the generation has been separated from 
the distribution and transmission business. In others, like 
yours, they are still integrated utilities. And we have had 
relatively little difficulty building adequate generation in 
any of the 11 States in which we do business.
    Ms. Moler. Mr. Whitfield?
    Mr. Whitfield. Yes?
    Ms. Moler. The DOE Electricity Advisory Board looked at 
this. We found that there had been a lot of difficulties with 
transmission siting. And we did not conclude that you need 
similar Federal involvement in generation.
    Mr. Whitfield. Okay. Thank you. Mr. Chairman, I will yield 
back the balance of my time.
    Chairman Tauzin. The gentleman yields back. Mr. Dingell has 
a question he would like to pose to each one of the witnesses. 
And I would like to recognize him for that purpose.
    Mr. Dingell. Mr. Chairman, I thank you.
    Gentlemen, starting with Mr. Draper, if you please, this is 
going to be kind of a long question. It is in several parts. 
One, when did you become aware of the different aberrations in 
the operation of the system?
    Two, how did you become aware?
    Three, when did you see signs that indicated that there was 
a shutdown, and what were those signs? Did any of you receive 
calls, either from your neighboring systems by phone or by 
other mechanism, electronic device, or something which would 
warn you that there was an aberration in the system which was 
leading to a shutdown? Mr. Draper, if you please?
    Mr. Draper. We saw signs on the system in the early 
afternoon. And I can't tell you with----
    Mr. Dingell. Early afternoon of the 14th?
    Mr. Draper. Yes.
    Mr. Dingell. Like about when? Shutdown was about 4:08, if I 
remember. I was----
    Mr. Draper. Hours before that, we saw that the lines 
tripped off, no big deal. We called FirstEnergy to talk about 
it. Later we saw more and more lines trip off.
    We were not aware that the system was in peril of collapse 
until it did. At the time it did, we automatically separated.
    Mr. Dingell. You did talk to FirstEnergy?
    Mr. Draper. Yes, sir.
    Mr. Dingell. Okay. Mr. McGrath?
    Mr. McGrath. The first indication we had of abnormalities 
on the system that could lead to a shutdown was between 4:10 
and 4:11 on the afternoon of the 14th. The first indication to 
us was lights flickering, shortly followed by severe voltage 
swings on our system, followed very quickly with a reduction in 
frequency from 60 cycles on down.
    Our system is designed as frequency comes down, frequency 
is a proxy for a misbalance between generation and load. If 
there is not enough generation to meet the load, frequency 
starts to slow down.
    What we do on our system then is automatically rely sense 
data and start stripping load. In a matter of seconds, a half a 
load was stripped off. And the frequency continued to go down, 
as did voltage. And the whole system shut down.
    Mr. Dingell. Did you see any aberrations in the system 
prior to that time?
    Mr. McGrath. Nothing that would be outside the whole 
ranges.
    Mr. Dingell. Did you notify anybody, Mr. McGrath, that you 
were seeing these aberrations or anything of that sort?
    Mr. McGrath. The aberrations happened so quickly the 
operator did two things. He pressed the backs generation 
button, started up the gas turbines that weren't running. And 
by that time, the system was down.
    Mr. Dingell. Thank you. Mr. Burg?
    Mr. Burg. Well, again Mr. Dingell, during the afternoon, we 
obviously had lines going down, but we did not see any real 
changes in voltage conditions to speak of or in power flows 
into our system. We had lines going down, but basically I would 
say our system was stable.
    We were in contact, as Dr. Draper said, with AEP. We were 
in contact with the Midwest ISO. They indicated that our system 
was stable. So, really, until after 4:05 p.m., something in 
that nature, maybe even 4:09, that's when the flow reversals 
and so forth, and things really started to happen at that point 
in time.
    The power plants remained on. Except for East Lake 5, which 
went off at 1:30 in the afternoon, all of our power plants 
remained on until around 4:10, in that range.
    Mr. Dingell. Did you warn any adjacent systems that you 
were seeing these aberrations in the functioning of your system 
or did you receive warnings from any of your neighboring 
systems that they were seeing similar events in their systems?
    Mr. Burg. Well, again, we were in contact with the Midwest 
ISO, but our system was really, we felt, stable. So maybe there 
was no reason to do anything beyond what was done.
    Mr. Dingell. Mr. Welch?
    Mr. Welch. Basically I became aware of the system 
aberration when the lights in my office went out. Immediately I 
was on a telephone call. I got up from my chair, went 
downstairs, which is where the control center is physically 
located in our office building. And I asked what had happened. 
By that time, I was told that we were on emergency backup 
generation in the control center and that all the generation 
had tripped offline.
    Three minutes prior to this happening, every system that 
our control center sees, which is essentially the lower 
peninsula of Michigan, everything, every flow, all voltage 
readings were totally normal. And I've provided those in my 
pre-filed testimony and exhibits.
    Frequency? As I said earlier, we were in the process of 
doing a time error correction, which means we were actually 
speeding the system up, which means there are no capacity 
problems. There are absolutely no warning signals, no 
transmission load relief called to give warning that there is 
anything.
    We see 3 minutes prior to the event that we see a flow 
reversal on the lines, which would be normally consistent if 
you're sitting here just looking at the world out, that 
something had tripped or opened in the outside world.
    The job then of the control area operator is to make sure 
that everything is in balance. Our system was totally in 
balance. The flows were normal. So we would expect to see 
someone else if this was causing an imbalance somewhere else to 
do their normal thing. Their job is to get that back in balance 
in 10 minutes.
    Chairman Tauzin. Let me interrupt. We have a vote on the 
floor. By unanimous consent, the gentleman's time is extended 
to allow the other witness to respond.
    Mr. Dingell. You have been very gracious, Mr. Chairman.
    Mr. Kessel, can you give us an answer on this?
    Mr. Kessel. Yes. Just very quickly, people in our control 
room had about 9 seconds on advance warning. No calls were made 
to us. The entire system dropped about 1,084,000 customers 
within 2 minutes. Immediately after this occurred, within a 
minute or 2, we reached out to the New York independent system 
operator to inform them and to find out what was going on.
    Mr. Dingell. Mr. Winser?
    Mr. Winser. We had no prior knowledge either. The first 
thing that was really witnessed was lots of the circuit 
breakers opening. Our New England assets were obviously 
unstable because there was a balance of generation demand. The 
New York upstate assets, mostly low frequency, load shedding 
came into play. And that was the first we knew. We didn't 
receive any calls.
    Mr. Dingell. Now, Ms. Moler, your system did not go down. 
How is it that you were able to protect your system from the 
events that transpired that affected everybody else?
    Ms. Moler. Mr. Dingell, when you asked me the question 
earlier, I was in the Midwest in my answer for our Commonwealth 
Edison, our Chicago-based utility. We had some low-voltage 
variations. We learned of them at approximately 4:10 Eastern 
time, 3:10 Central time. They were just very short-lived 
frequency aberrations. Then the system returned to normal.
    From the PECO point of view, though, Philadelphia, we did 
have one nuclear generating plant trip. And we saw some 
automatic alarms as early as 4:06 p.m. And there were extensive 
communications through PJM.
    In Chicago, I also want to tout the fact that we do have a 
very good working relationship with the city of Chicago. We 
have what's called at 911 center. We man the 911 center. It's 
cooperative with the city of Chicago. And we worked extensively 
with the local officials there as well.
    Mr. Dingell. How was it that your system separated? Was it 
automatic or was it somebody to the----
    Ms. Moler. It didn't really separate. Nothing bad happened 
is the best way to think of it.
    Mr. Dingell. It happened to the folks to the east of you or 
in your Pennsylvania operation, it happened to the folks----
    Ms. Moler. Right. And it just happened automatically with a 
trip at one of our nuclear generating stations called Oyster 
Creek.
    Mr. Dingell. Mr. Chairman, I thank you. You have been very 
gracious.
    Chairman Tauzin. I thank the gentleman.
    We have less than 10 minutes on the vote. My suggestion is 
that we take a break again. My apologies to the witnesses, but 
I know members do have additional questions. So maybe you will 
take this break and use it wisely. And we will be back in a few 
minutes.
    [Brief recess.]
    Chairman Tauzin. May we please come back to order? Let me 
thank our witnesses for their patience again. The Chair 
recognizes Mr. Ferguson for a round of questions.
    Mr. Ferguson. Thank you, Mr. Chairman.
    Mr. Welch, I had a question, I think just one. One of the 
repeated themes that we heard over and over and over again 
yesterday that we have heard from Secretary Abraham right on 
down is that the answers to the questions that many of us have 
are simply not in yet. We don't have the data. We haven't done 
the research. We just simply don't know a lot of the answers 
yet. And to speculate or to jump to conclusions would be 
premature at best and irresponsible at worst.
    I've heard it loud and clear. I think most of us have heard 
it loud and clear. I think it's good advice. And I have read 
and listened to the testimony that I have heard today. It seems 
that you seem to be the one who is most willing to kind of 
begin to start drawing conclusions in coming up with some of 
these answers.
    Yesterday the committee released the operator transcripts 
that came from the Midwest ISO. These transcripts by any 
measure show a great deal of activity, significant operator 
concern, lines tripping, overloading, voltage regularities in 
an area broader than the area that your testimony addresses. 
Have you seen the transcripts that I have referring to?
    Mr. Welch. I've only looked at the stuff that was on CNN's 
news release. So I have not looked at those tapes.
    Mr. Ferguson. Okay. In the preparation of your testimony, 
did you consider the information from these transcripts that I 
am talking about yesterday when you prepared your Powerpoint 
presentation that was--obviously we're all familiar with the 
media. It has drawn a great deal of media attention. Were you 
familiar with these transcripts when you prepared that 
information?
    Mr. Welch. I just stated that I have not seen those 
transcripts, and I only read what was on the CNN newscast 
yesterday.
    Mr. Ferguson. Okay. It just seems to me that when we are 
going through looking at data that the DOE is still compiling, 
to study it, to consider it, to try and take it in its totality 
in regard to what is happening, what did happen, what is 
continuing to happen, before we start drawing conclusions and 
coming up with answers and pointing fingers, it seems to me it 
would be a more responsible way to go.
    Mr. Burg, I have a question for you. We have talked about 
PJM. I am from New Jersey. We have talked about PJM. I am, 
frankly, proud of the way our RTO in New Jersey helped to stop, 
helped to control the blackout from the 14th.
    Regarding the questions from my friend from Michigan 
before, Mr. Stupak, the line of questioning that he was 
addressing with you, wouldn't it have helped to have solved 
some of the problems from August 14 and wouldn't some of those 
problems have been avoided if your RTO, Midwest ISO, was 
communicating with everybody more effectively?
    Mr. Burg. Well, Mr. Ferguson, again, I have tried very hard 
in this whole endeavor not to try to throw stones or blame 
anybody else. I think we have to find out all the facts here. I 
do believe in the end, though----
    Mr. Ferguson. The question was, who did you call? Where was 
the communication? My question is, doesn't the Midwest ISO have 
some responsibility for making those calls?
    Mr. Burg. Well, again, I think the important thing to keep 
in mind as we go forward here is that the fundamental 
communication system I think probably needs to be upgraded 
across the region. What is important, though, from my 
standpoint with respect to your question is, the information 
from our system, the information from our system, was going 
real time to the Midwest ISO all through the day. They have 
corroborated that. They saw our system. That is No. 1.
    No. 2, I mentioned this. I just touched on it before. There 
is a another real-time system called the inter-regional 
security network. It was established after the 1965 blackout 
to, really, get at the kind of question or the answer to the 
question that you are asking.
    We have 2,100 different nodes on our sites, on our lines 
and so forth that send out information real time on our system, 
what kind of voltage is going on, are generators tripping, et 
cetera. That information went out real time to that inter-
regional service, if you will, all through the day.
    Mr. Ferguson. Okay. Thank you. My time is very short.
    Ms. Moler, in your testimony, you talked about the need for 
mandatory participation within RTOs. How do you feel like 
mandatory participation could have protected some of the events 
or helped the situation on August 14?
    Ms. Moler. My hope is that there would be much better 
communication and coordination through the single entities, 
larger entities, rather than the multiplicity of smaller 
entities.
    PECO and ComEd both communicated extensively with PJM. We 
also talked to NERC in Maine during the relevant time line. But 
I think fewer chefs in the kitchen would be better.
    Mr. Ferguson. My time has expired. Thank you.
    Mr. Shimkus. Yes. Your time has expired. Thank you.
    Just for a public announcement, I am going to miss the vote 
so we can keep the panel moving forward for folks on this side. 
Now, in the order of identification, we have Mr. Strickland is 
recognized for 5 minutes.
    Mr. Strickland. Thank you, Mr. Chairman. I will be brief 
because the panel has been very patient. And we appreciate the 
fact that they have given us so much of their time.
    I said yesterday as Governor Taft and the good Governor of 
Michigan were seated there side by side that it was good to see 
them in that position. I have been very pleased with this 
process so far in that, as Mr. Ferguson indicated was his 
preference, I think there has been a minimum of preliminary or 
inappropriate finger-pointing. I think the fact is that there 
is much we don't know and there is much more we need to find 
out. And that is a part of this process.
    I had two goals for these hearings. One was to try to find 
out what happened and to identify steps we could take to keep 
it from happening again. And the second one was to try to make 
sure the process was focused on the broader problem of our 
transmission system, rather than simply trying to lay blame.
    Mr. Welch, I have a question for you. As I understand your 
testimony thus far, you have indicated you had no warning of 
what was going on with FirstEnergy. I point this out because, 
as all of us know, FirstEnergy has in the past few days been a 
focal point of interest.
    Doesn't the Michigan electrical coordinating system receive 
computerized information? The reason I ask there, there have 
been discussions about courtesy calls and, even today, there 
have been questions about ``Did anyone call someone?'' You 
know, if that is what it takes, then I think we have got 
serious problems.
    Do you receive computerized information regarding what is 
going on with those facilities that you are interconnected 
with?
    Mr. Welch. Yes.
    Mr. Strickland. And did you receive this information from 
FirstEnergy?
    Mr. Welch. We did not receive any information from anyone.
    Mr. Strickland. Well, then, Mr. Burg, can you tell me 
whether or not FirstEnergy provided this computerized 
information that should have been available to Michigan or in 
Michigan?
    Mr. Burg. Mr. Strickland, as I understand it, the data from 
our EMS system, our energy management system, was working 
properly to the Midwest ISO. So they had it.
    In addition, there is this inter-regional security network. 
We have like 1,200 analog devices and 900 digital devices 
throughout our system that automatically collect data real time 
and send it directly out under this system. Now, if Mr. Welch 
or others on the panel have access to that data, which I assume 
they do, and they use it, they receive it.
    I mean, we send it out. It's out there. The whole process 
was set up after the 1965 blackout to really get to your point. 
You just can't be relying on telephone calls. There has to be 
some kind of automated information out there. That is my 
understanding.
    Mr. Strickland. Does everyone agree that before we reach 
conclusions, we should find out, first of all, whether or not 
the information just shared by Mr. Burg did, in fact, go out; 
if it was received, was it attended to; if it was not received, 
why wasn't it received?
    It seems to me that that is absolutely critical to any 
conclusions that we may reach before we start pointing fingers 
at any particular entity or point in this process. Is that 
something that we can all agree on or does anyone take issue 
with that conclusion on my part?
    Ms. Moler. I agree.
    Mr. Strickland. Mr. Kessel?
    Mr. Kessel. I definitely agree that we need to know that 
information. Obviously we are on Long Island. We're kind of 
like at the end of the system.
    Mr. Strickland. Sure.
    Mr. Kessel. And I think one of the questions that I have 
is, why did our operations room not really know about it? 
Basically the entire system collapsed in 9 seconds. And there 
should be some way that there can be communication between the 
various regional transmission organizations. I am not sure, 
frankly.
    One of the questions I get asked by our customers all the 
time is, ``Why didn't you disconnect? Why couldn't you just 
disconnect?'' And it's a question I have. You can't just 
disconnect. First of all, in 9 seconds, you can't do anything.
    Mr. Strickland. Sure.
    Mr. Kessel. But, even if you had time, you know, you would 
need at least an hour notification. It seems to me pretty 
shocking that somehow this is the sequence of events without 
assessing any blame to anyone. And somehow that is not 
communicated throughout the system.
    Mr. Shimkus. I am out of time. I want to thank you for your 
information that you have all provided to us today. Thank you 
all.
    And I thank my colleague. I am going to go out of order and 
let my colleague from Texas go since I decided to stay here. So 
I now recognize Congressman Green from Houston.
    Mr. Green. Thank you, Mr. Chairman. I appreciate the time 
of the panel. I know it's been a long morning. I apologize for 
all of us for having to run back and forth to vote, but that's 
the nature of the beast that we have to deal with.
    Mr. Kessel, your experience with that underwater line from 
Long Island to Connecticut, I think generally all of the 
testimonies talked about it, but Mr. Draper in his testimony 
talked about the electrical grid and our country was designed 
in large part for local utility generation to their customers, 
from the plant to the customers and, yet, because now we're 
doing so much more interstate, we just haven't kept up with the 
grid. I wish that was a silver bullet. It may be, but I think 
there are so many other ways of communications, as we just 
heard from my colleague in Ohio, that also helps.
    Mr. Draper, in the energy bill that is in conference 
committee now, and each of you, there are provisions in there 
that would solve some of the problems that we are identifying 
now? H.R. 6 or the energy bill that was passed by the House, 
not the Senate necessarily because I know the Senate adopted 
what they had last year, but from the House side, anything that 
would help with some of the problems with both siting, and also 
with leveling the playing field for permitting so it doesn't 
take 10 years, for example, to get a permit?
    Mr. Draper. I think it would help. It is clear that one of 
the issues is that, unlike the natural gas business, the 
electric business doesn't have the right of imminent domain for 
transmission lines. We still will have the issue of 
coordinating activities among multiple jurisdictions if a 
transmission line goes through several States. But I believe 
that there is no question that the proposals will help.
    The idea of having a greater ability to site transmission 
will be extraordinarily helpful, as will some of the other 
provisions that would include the mandatory standards.
    Mr. Kessel. Congressman, though, let me add that one of the 
issues that you kind of are getting to that is important to 
point out is that the Connecticut State legislature enacted a 
moratorium on all lines emanating from Connecticut through the 
Long Island Sound. Now, that just doesn't include this Cross 
Sound Cable, which, by the way, received all permits from the 
Federal and State government. The Connecticut Department of 
Environmental Protection said that this would not harm the 
environment and permitted the cable.
    But the moratorium also blocks other lines. As an example, 
there is a proposed Islander East gas pipeline that would bring 
natural gas from New England to Long Island and allow for the 
construction of new natural gas-fired generation plants on Long 
Island. That moratorium is stopping that Islander East line 
from connecting to Long Island.
    And if we want to build new generation on Long Island, we 
are not going to go nuclear. I mean, no one is. Coal is out of 
the question for us on Long Island. Natural gas is the 
preferred technology. Yet, we can't get enough gas to Long 
Island because, again, one State is able to stop interstate 
commerce of natural gas in order to fire up new generation. 
That is very frustrating.
    Mr. Green. And, obviously, if you can't tell from my 
accent, I understand. And I understand that natural gas is 
awfully important.
    Mr. Kessel. I like oil, too, though. I love oil.
    Mr. Green. We actually have more natural gas in the Gulf of 
Mexico than we do anything else, which gets me to the next 
question.
    Mr. Museler, I know we are speculating all sorts of things 
on the blackout, but I know New York State has to import so 
much more of their energy. Do we see any assistance in trying 
to actually build some generating plants so the New York ISO 
would have generating facilities, instead of worrying about 
cross-State transmission?
    Mr. Kessel. I'm Richard Kessel, but I'll speak for Bill 
Museler because he's my buddy back there from the ISO.
    Let me point out that I think we have had some success in 
New York State. In fact, several years ago, Governor Pataki had 
the New York Power Authority construct 11 new small generators 
that, frankly, in my view saved the city of New York from 
blackouts 2 summers ago. And on Long Island, we were able to 
construct 13 new of these smaller generators on Long Island 
that avoided rolling blackouts on Long Island as early as the 
Summer of 2002.
    I'm not speaking for Gene, but both Con Edison and the Long 
Island Power Authority have issued requests for proposals for 
new generation. We just received 15 very solid proposals back 
on September 2, just 2 days ago.
    This is a unique opportunity, congressman, for the public 
and the people in this country, who do resist many times the 
siting of new generation and even transmission, to recognize 
that if we want to keep the lights on, we can't have all this 
nimbiism. We've got to be very careful about environmental 
concerns. We have to reach out to the public beforehand. We 
have to work with communities. But at the same time, I think 
there is a unique window for America and certainly in New York 
State in my view to be able to convince people that if we want 
to avoid blackouts and brownouts, we need new generation to 
meet that need.
    Mr. Green. Mr. Chairman, I apologize. I've got to run to go 
vote, but I apologize for asking the question of you from the 
second panel.
    Mr. Museler. That's okay.
    Mr. Green. Obviously I got the answer I wanted.
    Chairman Tauzin. You had better run. You have got 10 
seconds.
    The Chair recognizes himself just briefly. Mr. Winser, I 
want to visit with you a second on exactly a little bit more 
about your company. Your company manages the transmission 
system pretty much for Great Britain, doesn't it--for England, 
I should say?
    Mr. Winser. For England and Wales.
    Chairman Tauzin. England and Wales?
    Mr. Winser. Thank you. For England and Wales.
    Chairman Tauzin. You are it? Is there any competition or 
you are the transmission operator there?
    Mr. Winser. We are it.
    Chairman Tauzin. You are it? Are you regulated as a 
monopoly? Are you----
    Mr. Winser. Yes, indeed. We have 5 yearly discussions with 
the regulator. And he allows us some revenues to fund our 
operational----
    Chairman Tauzin. But you have one regulator, I understand, 
in England, right? You have one regulator, right?
    Mr. Winser. That is correct.
    Chairman Tauzin. Now, here in the United States, you have 
invested or bought transmission facilities as well, right?
    Mr. Winser. Yes.
    Chairman Tauzin. And you operate them in this country, and 
your intent is to continue to acquire transmission facilities 
and grow in this country?
    Mr. Winser. Yes. It's an opportunistic thing, but we 
certainly feel that we bring some value to transmission in this 
country. And we have got a model which I think will help 
customers. So we are certainly very interested in that.
    Chairman Tauzin. The reason I am asking that is, to follow 
up on this conversation, there is a lot of puzzlement on this 
panel and I'm sure around the country with people who may be 
watching this hearing as to why, in fact, incentive of a 
guaranteed rate of return has not generated more investment in 
transmission facilities, why someone like you would be visibly 
expanding your business in transmission when others are not 
willing to make investments when we learn of a 13-year effort 
to try to get a transmission line sited, by the way, not in New 
England but in Virginia and West Virginia, where you would 
think siting would be less of a problem than it would be in an 
urban New England setting?
    Tell me a little bit about it. What is your take on this? 
Why don't we have more investment in transmission facilities? 
Why is transmission attractive to your company and perhaps not 
to other investors?
    Mr. Winser. Well, sir, we would be and are very interested 
in building transmission in this country. This is the core to 
our business. But that would be on a case by case sort of 
basis. And as it stands at the moment, we would and do, indeed, 
negotiate with the State regulatory authorities and, indeed, 
with the FERC. The particular footprint that we're operating in 
here has rate plans that give adequate remuneration. We think--
--
    Chairman Tauzin. In other words, you are buying existing 
transmission facilities. You're expanding by acquiring existing 
facilities, rather than going through the hassle of trying to 
get approval to build new ones, right?
    Mr. Winser. Well, we are buying existing systems. We are 
also reinforcing them.
    Chairman Tauzin. Right.
    Mr. Winser. We are spending quite substantially above the 
average spent of a----
    Chairman Tauzin. But modernizing a facility, as opposed to 
building a new transmission facility, right?
    Mr. Winser. Well, one of the great opportunities we think 
is to take existing rights-of-way and really pump them up and 
get more power through them.
    Chairman Tauzin. Out of existing rights-of-way. So where a 
line has already been approved?
    Mr. Winser. Yes.
    Chairman Tauzin. That's my point. There seems to be a big 
difference between the willingness of investors to put some 
more money into an existing right-of-way than there is to go 
out and finance the construction of new facilities where, in 
fact, transmission lines probably should be built in order to 
complete the capacity of these grids to handle the increased 
demand.
    I see a lot of you shaking your head. Does anybody want to 
jump in here? Dr. Draper?
    Mr. Draper. I think there are two issues, Mr. Chairman. One 
is the ability to site or even upgrade existing transmission 
lines. And that's a siting hassle. It's not an economic 
question particularly.
    There is a separate question, which is the willingness to 
invest funds in transmission facilities, where you are quite 
right there are adequate rates of return set by the Federal 
Energy Regulatory Commission. But for most companies, only 
about 10 percent of the use of the transmission system is in 
the wholesale realm. The other 90 percent is at the State 
level. And those rates are set by State commissions. In 
virtually all of the States we----
    Chairman Tauzin. I want to stop you there. That is an 
important point to make. All these folks have been talking 
about this great rate of return. We are only talking about 
whole sale rates set by the Federal Government. The States 
themselves set transmission rates for distribution within the 
State at retail. Is that correct?
    Mr. Draper. For about 90 percent of our transmission 
revenues, we are dependent on actions by the State commissions.
    Chairman Tauzin. And that may be quite different than the 
rate of return predicted by FERC?
    Mr. Draper. It's even worse than that because in most 
States, in all the States in which we do business,--and that's 
11--we have relatively long-term rate freezes.
    Chairman Tauzin. Yes.
    Mr. Draper. So if we make an investment, there is no way to 
recover those costs until that rate freeze expires.
    Chairman Tauzin. You were shaking your head, Mr. Kessel? 
You wanted to----
    Mr. Kessel. Well, I think you were making a couple of very 
important points. Uniquely, Long Island Power Authority is a 
State authority. And we actually set our own rates. But at the 
direction of Governor Pataki, who has been very interested in 
the transmission system within the State and on Long Island, we 
have been able to spend a little bit over $1 billion in 5 years 
on the system.
    I think the issue, though--and I have heard it said 
before--is that the public needs to be more aware of the siting 
issues because when you want to do a local transmission line 
somewhere, people get nervous about it, even if you take an 
existing line and you need to upgrade that line, you have a 
line there. You have got the rights-of-way and all you want to 
do is double that line, double the ability of that line, or to 
carry more electricity. And then if people hear that, they get 
nervous.
    I know on Long Island, we have that situation right now in 
the great Town of Riverhead, where we need a new line. There is 
tremendous growth out on the east end of Long Island in the 
Hamptons and the North Fork. We need a new line to sustain the 
growth.
    Do you know what the public says? No. Take the line that 
you have and bury it. And then you can double it. So I think 
there are perception issues that really have to be dealt with.
    The other thing I have to say to you, congressman, is that 
transmission isn't as sexy as generation. Everyone focuses on 
power plants. People don't really pay a lot of attention to 
wires.
    Chairman Tauzin. I think you're right.
    Mr. Kessel. And I don't think there is enough interest.
    Chairman Tauzin. Just one other quick--you don't have to 
answer because my time is up. I just want to know if anybody 
disagrees with me. Does anybody in this panel disagree with the 
Secretary's decision to withhold the findings on this 
investigation until all of the facts are in? Do any of you want 
to criticize him for not yesterday telling us exactly what 
happened because he doesn't quite yet know?
    Ms. Moler. No, sir.
    Chairman Tauzin. Anybody?
    [No response.]
    Chairman Tauzin. Thank you. The Chair recognizes Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. And thank you all for 
your testimony.
    Mr. Burg, you testified that FirstEnergy noticed unusual, 
your word, system conditions on that day in August 14. Tell us 
more about those conditions. Why were they unusual? Were they 
unusual conditions limited to FirstEnergy facilities? What was 
the status of power flows between Ohio and Michigan around the 
time of the blackout, that sort of thing?
    Mr. Burg. Well, again, for most of the day--I shouldn't say 
``most of the day.'' During the afternoon, as we have 
documented, at various times, we lost some transmission lines, 
not necessarily to overloading, but we lost some transmission 
lines. Other players in our general vicinity that we knew about 
also lost some transmission lines.
    There were two or three generating units in the region, 
I'll say, that went down. So all of these events were 
happening. And that's why I guess we said maybe some unusual 
occurrences were going on.
    We also at this time still don't know what else might have 
been going on, really, in the Eastern Interconnection. And 
maybe that had something to do with what ultimately happened.
    Anyhow, those things were going on. However, for the most 
part, our voltages, our power flows, our imports, if you will, 
were really stable, all the way up to maybe 4:06 or so in the 
afternoon. So while all of these things were going on around 
us, we were virtually stable at 4:06 and beyond even and as 
late as--I just looked at my time sheet here--I don't know--
15:48, the MISO reliability coordinator for us and PJM another 
reliability coordinator were looking at some of these outages 
on our system.
    And we're looking at what they call the next contingency. 
In other words, they were doing studies to see what else should 
happen if another line went out.
    So I won't say they weren't concerned, but they weren't 
overly concerned at that point in time.
    Mr. Brown. Thank you.
    Mr. Welch, you testified ``a very large demand, 2,200 
megawatts plus voltage support demand'' was suddenly thrown in 
the ITC's interconnections to FirstEnergy. That makes it sounds 
like FirstEnergy was demanding power from you. Earlier today in 
his written testimony, Mr. Burg testified that FirstEnergy was 
actually sending you power right up until 4:05 or so. Can you 
clarify that? Was their system, the FirstEnergy system, 
delivering power to you up until that time at least?
    Mr. Welch. You can see it in my testimony, too, that I have 
a sequence of the power flows. For an hour up to the blackout--
and you can see that in the sequence of pictorials there.
    What we see--and I can reference my testimony so I can get 
the time on its right--is that there were flows from Ohio into 
Michigan on the FirstEnergy tie. And it was in the direction of 
Michigan at 3:41 to 3:46 p.m. Okay?
    At 4:06 p.m., we see for the first time a reversal of flow, 
not only on the FirstEnergy interconnection--I have to check 
that. Yes. We see a reversal of flow on the FirstEnergy 
interconnection. And we see an increase, a slight increase, in 
the flow across Michigan. And that's the 2,900 megawatts and 
that arrow going across the top.
    At 4:09 p.m., then we see the other two lines that we were 
talking about. They go out of service. All of a sudden, there's 
a sudden in-rush of power from the western side of the State 
that takes the cross-State flow from 2,900 to 4,800 megawatts, 
which then sets the whole cards up which causes the cascading 
voltage problems in Michigan, which led to the blackout.
    Mr. Brown. So, after 4:05, when things reversed and 
Michigan began sending power to Ohio, my understanding is 
FirstEnergy wasn't using most of that power. It was moving 
through the FirstEnergy system, through AEP, and back into 
Michigan. Is that your understanding?
    Mr. Welch. I have no knowledge of where that power was 
coming from or going. Our job as a control area operator is to 
balance the needs of the State and make sure that everything 
that appears at the import that is not accounted for via 
contract inside the State is exported. In other words, we make 
sure that there is a net energy balance in the State. That's 
all we do.
    Mr. Brown. Mr. Burg, was that your understanding, that it 
went back through AEP back----
    Mr. Burg. Again, all I know is this. Some allegations have 
been made, and I read about them in the newspaper. I don't know 
who makes them all the time. Somehow we were sucking power from 
Michigan. What we're saying is power was flowing at the very 
end, before the event.
    Power was definitely flowing from Michigan into our system, 
but it was going right out the other end. I don't know where it 
went either, quite frankly. This is part of what we have to 
find out in this investigation.
    Mr. Brown. And last, Mr. Chairman, real quick. Dr. Draper, 
would you know that?
    Mr. Draper. No, I don't know the specific answer to that 
question. We are interconnected with FirstEnergy. And to the 
western part of Michigan, we are not directly interconnected 
with Mr. Welch's company. So we don't know what flows to his 
company and from where.
    Mr. Barton. The gentleman's time has expired. The gentleman 
from New York, Mr. Fossella, is recognized for 5 minutes.
    Mr. Fossella. Thank you very much. Thank you for your 
patience, all. And, Mr. Chairman, if I could submit in 
unanimous consent the statement of Governor Pataki----
    Mr. Barton. Without objection, so ordered.
    Mr. Fossella. [continuing] and questions from witnesses 
that appeared yesterday.
    Thank you again, all.
    My question will be directed to Mr. McGrath. Thank you for 
coming. Separate and apart from the big blackout, as you might 
be aware, there was a separate blackout on Staten Island 
specifically, about 42,000 customers on the south shore of 
Staten Island.
    As I understand it, NYISO ordered you at approximately 
9:30-9:45 to shed load on the system for an hour. And, as a 
result, there were some portions of Staten Island and I'm told 
some portions of Westchester that were shut down for a period 
of time upwards of 8 hours, in some cases longer than the first 
blackout.
    There are a couple of questions on the point that I would 
like to bring up. The questions are, when Con Ed was ordered to 
shed load for an hour, did it anticipate that the power in 
these 42,000 or so customers would be shut down for upwards of 
8 hours?
    Throughout the day, what led Con Ed initially to make the 
determination to shed load on those customers in Staten Island? 
And throughout the day, as power was being restored in other 
parts of the region, what types of decisions were being made to 
sort of keep the lights off in those areas because those lights 
had been turned back on, the power had been turned back on 
during the night?
    Mr. Barton. Would the gentleman let me interrupt? We are 
going to keep this hearing going. We are not going to suspend 
the hearing. So those who want to go vote and come back, do so.
    Mr. Fossella. Okay. So I am just curious in a layman's 
point of view how these decisions were reached and then 
throughout the day, in effect, what were so-called going to be 
rolling blackouts out, but in these areas of Staten Island, 
they weren't rolling at all. They were just the blackout.
    The third--and this may be an area of perhaps constructive 
relief down the road. In terms of notifying the public, many 
folks thought that the lights and the power were going to be 
back on indefinitely.
    And then in trying to elicit information from those, 
whether it's Con Ed or someone else, it was very difficult to 
convey or communicate that information to the public, at least 
initially, that their lights were turned off again. Whether 
it's Con Ed or NYISO, in the future, is there a better way to 
provide adequate communication and/or notification to the 
people who will be affected? A lot of questions, but I 
apologize.
    Mr. McGrath. Okay. Thank you.
    Our first priority in restoring New York City was to get 
access to power through transmission lines that had already 
connected up to power. So we worked from the south end of our 
system through Staten Island and the north end of our system 
through Westchester County. And we energized section by section 
of our 345 kV, 345,000-volt transmission system.
    As you energize a section of unloaded transmission line, it 
tends to rapidly raise voltages. So, for example, Buchanan at 
one point on our 345 kV system, when we energized it without 
load on it, it jumped up to about 412 kV.
    So one of the very important issues that the system 
operator is wrestling with is how to energize these sections 
and how to control voltage. A way to control voltage as you 
energize a section is very quickly put the appropriate amount 
of load, pick up the appropriate amount of customer load to 
balance that and bring the voltage down to normal ranges.
    Now, you can only pick up customer load to the extent that 
you have generation available to support it. So it's a kind of 
a balancing act. So early on in the process, we started working 
our way from the south and from the north section by section, 
very meticulous approach, picking up sections, picking up load, 
to support the continuation of connecting up our transmission 
grid.
    All the while until they came together, the north and south 
transmission came together, they were, in effect, a radial 
system, not very stable. Any event on a system could have taken 
everybody out. So our priority is to get an established 
transmission system.
    Early on, we energized parts of Staten Island to provide 
that voltage control for the transmission system. As you said, 
about 9:30 in the morning, we were still going through that 
process and hadn't yet brought the transmission system together 
so it was stable. There was an event upstate. I believe a 
generating station dripped out. And the ISO Statewide asked for 
the utilities to shed load.
    The only place, of course, we could shed load was those 
places we had already energized. We couldn't shed load where we 
didn't. So Staten Island and Westchester were energized. We 
took pieces of a load out of Staten Island and Westchester in 
response to that order to bring the load down.
    Meanwhile, we're doing switching and whatever to continue 
to connect up sections of transmission. Our ultimate priority 
is to get the transmission system together. As the day went on, 
the load that was already connected at Staten Island grew. As 
people went to work on the remaining areas that stayed 
energized, that load continued to grow. And we could satisfy 
that voltage constraint that we had and enable us to go to the 
next sections of transmission.
    To energize those, we had the same problem. We had to pick 
up local load where those transmission lines connected to keep 
the voltage under control. It didn't do us any good to put more 
load on Staten Island at that point. We needed to put it where 
we were energizing the new transmission connections.
    We went through that process until we synchronized the 
transmission from the south to the transmission from the north. 
We then brought in separate other lines. And now we had a 
stable system where we could bring up and load up the 
distribution system.
    So that was kind of our whole intent there and whole 
approach. I think Staten Island area went back in the 
afternoon, on Friday afternoon, as we were picking up other 
areas that had been connected through the transmission system.
    Now, with regard to communication, all of these events are 
enormous communication issues. We made almost 14,000 phone 
calls to customers that are on life-sustaining equipment, 
medical hardships. We contacted all the hospitals, nursing 
homes, housing projects. We contacted all elected officials 
throughout our service territory. We had 1,000 press calls. Our 
first media announcement went out at 4:25. This happened at 
4:11. We had nine of those through the day. We attempted to 
keep up communicating with all parties.
    That's an area that can always be improved. We'll look at 
this event and see how we can do better with that the next 
time.
    Mr. Barton. I'm going to have to cut this off. We have got 
9 minutes into the vote. I need to let Mr. Rush ask his 
questions so he can go vote. So the gentleman from Illinois is 
recognized for 5 minutes.
    Mr. Rush. Thank you, Mr. Chairman. You are so kind. Mr. 
Chairman, I want to welcome all of the panelists here, the 
witnesses here. I certainly want to take a moment to welcome 
Mrs. Betsy Moler from Exelon to this panel and look forward to 
hearing her testimony.
    And I'll begin by making a statement. Ms. Moler, today in 
the Chicago Sun Times, there was an article in the Business 
section entitled ``ComEd President Says Blackout Less Likely 
Here.'' The article says that since the 1999 Chicago blackouts, 
your subsidiary Commonwealth Edison has invested $2 billion in 
its high-voltage power lines and distribution system. It goes 
on to say that, in addition, ComEd will spend another $2 to 
$2.5 billion over the next 5 years on its transmission system. 
It concludes that, as a result of these improvements, the 
article says that Exelon is less vulnerable to blackouts 
compared to other utilities.
    Can you tell us why ComEd is able to make these sorts of 
important investments? And upgrades and what can other utility 
companies learn? And what can the Congress itself learn from 
your experiences?
    Ms. Moler. Mr. Rush, our $2 billion investment began, had 
its infancy, in a 1999 blackout in Chicago that I mentioned in 
my written comments and in my opening statement. We obviously 
had system issues we had to address. Our system was not well-
designed.
    We have built both transmission and distribution and 
basically rewired, if you will, big parts of downtown Chicago 
as to the way the system is designed. We have an obligation 
under the Illinois statutes to provide reliable service. And we 
had problems in 1999, and we fixed them.
    I will say that we have not recovered big parts of that 
investment because we have frozen rates in Illinois. So we just 
had to do it.
    Mr. Rush. I just want to say that I remember the blackouts. 
I was there. And I remember the contrasting picture. I remember 
the mayor of the city of Chicago--and I mentioned this in my 
opening statement--taking ComEd to the woodshed. I mean, he 
really--and I was proud of the way he was able to speak on 
behalf of the citizens of the city of Chicago.
    What was also illuminating to me and fairly remarkable was 
the response of John Rowe in terms of he wasn't defensive, he 
was very agreeable. And he displayed an attitude that I thought 
was very progressive, illuminating, and enlightening because he 
assumed the responsibility and he said, as you indicate, ``We 
will fix this situation.'' That was met with some skepticism.
    But now I am just delighted to know that he has kept his 
word and he is really moving to rebuild the transmission system 
there in the city of Chicago.
    I just want to say to you that I am proud of what ComEd has 
done in the city of Chicago--I really am--in regards to 
rebuilding the grid system.
    Ms. Moler. Thank you.
    Mr. Rush. You have indicated that the rates, the retail 
rates, are frozen in the State of Illinois. Is that correct?
    Ms. Moler. Yes, sir. Thank you for your comments. I will 
certainly tell him. He will be delighted. We were humbled. We 
can't say it won't ever happen again, but we have certainly 
done the best we can.
    Mr. Rush. So you assume the responsibility for the 
investment? You didn't place the responsibility solely on your 
retail customers; is that correct, to finance it?
    Ms. Moler. That's correct.
    Mr. Rush. Mr. Chairman, thank you very much. I yield back 
the balance of my time.
    Mr. Bass. Thank you very much. Thank you very much.
    The Chair will recognize himself for 5 minutes. I want to 
start with an apology. Due to the situation going on this 
afternoon, I haven't been able to hear the other questions, the 
other answers. I hate to be too repetitive. So, if I am, please 
just say, ``Keep it brief'' so we don't repeat too much.
    If part of the solution to preventing a recurrence of what 
happened on August 14 requires investment in electric 
transmission systems, what can and should Congress do to 
encourage the needed investment in the transmission grid? Do 
any of you wish to address that? Go ahead, sir.
    Mr. Kessel. Well, I'll just quickly repeat what I said 
before. I think that the Federal Government needs to take a 
role in siting interstate transmission lines and encourage 
private industry to partner up with utilities to make 
investments in that system.
    And I think the Congress can help by having some kind of 
financial incentives for interstate transmission by private 
companies whereby a private company would construct a 
transmission line for a utility, the utility would then enter 
into a power purchase agreement for a period of time to 
purchase the power off that line to repay the private company 
for their investment.
    If this is all left to the utilities, I don't think there 
are too many utilities that ultimately wouldn't have to raise 
rates significantly and quickly to catch up with the grid.
    I mentioned--and I said this before, and I am not going to 
repeat myself; I've said it many times--I think that when you 
have a situation like you have where the Cross Sound Cable was 
built between Connecticut and Long Island and was not allowed 
to operate, even though it was sound----
    Mr. Bass. Right.
    Mr. Kessel. [continuing] that does not give an incentive 
for private industry to act.
    Mr. Bass. In fact, I was impressed by your opening 
statement.
    Again, another general question. There had been barriers to 
installing infrastructure. And there are obviously indications 
that we haven't met those requirements in investment and 
transmission facilities during the last decade.
    What specifically do you think Congress can do to remove 
barriers to siting transmission facilities outside of what we 
currently have in the energy bill that is in conference? Any 
other ideas?
    Ms. Moler. I believe that providing a regional planning 
process where you bring the relevant folks in to discuss the 
infrastructure needs so that there can be agreement, to the 
extent it is possible, on what the infrastructure needs are, 
that needs to be done through an RTO planning process. An open 
RTO planning process would also help.
    Mr. Burg. Congressman, we have talked about a lot of 
elements that would be helpful. One we may not have talked 
about as much as maybe we should have has to do with what some 
call participant funding. In other words, the people that 
benefit from the transmission lines should help pay for those 
transmission lines, possibly even in some up-front way.
    So I think that is an important element that it is easy to 
say, ``Well, a company like ours, we build a transmission line, 
say, across Pennsylvania, but generators in Ohio use it to 
transmit power across Pennsylvania. It may not help many people 
in Pennsylvania.'' So I think that is an important element as 
well that we need to look at.
    Mr. Welch. I think that as an alternative to that, we have 
to look at the pricing issue itself and how transmission is 
paid for. And we have supported that it should be done on a 
flow-type basis, just like it's done in the gas pipeline and 
where the gas in the pipe is what pays for the transmission 
charge. We think that the flow, the energy flow, in the wire 
should pay for that.
    Then you don't have to worry about whether there is a 
benefit study or not. The actual flows are going to be who are 
the recipients of it because in an interconnected grid, it will 
ultimately start to pick up all of the flow. And so it benefits 
the grid. And so let the flow pay for it.
    Mr. Bass. One last question. Do you think there is a point 
at which a grid is too big, can't be controlled, too 
complicated, more than can be understood by the human mind, 
even with the aid of computers? Is there such a thing?
    Mr. McGrath. I think, congressman----
    Mr. Bass. Too large an RTO, let's say.
    Mr. McGrath. I think we have to be careful until we look at 
the whole picture. You know, the focus is on transmission here. 
And whatever we do on transmission, we have to do that in the 
context of what is best considering transmission, generation, 
and distribution.
    We can't go off and look at one piece of the equation and 
optimize that and optimize the whole. So I think what we have 
to be sure to monitor and make work is, are the market 
mechanisms working to optimize the whole picture, not just one 
segment of it?
    Mr. Welch. I don't think that you can actually build a 
transmission system to be too complex to operate. Actually, as 
the transmission system gets larger and more robust, it 
actually becomes easier to operate. I mean, if you look at what 
we have here today, it is that we have a very complex set of 
operating rules that were all put in place as a substitution 
for infrastructure investment.
    And what we will ultimately uncover is that there was some 
breakdown in communication, some breakdown somewhere that 
allowed flows to happen where they couldn't be supported.
    Mr. Bass. But the underlying system was inadequate in your 
opinion?
    Mr. Welch. The underlying system was inadequate. And if you 
undo the underlying inadequacies, you don't have to have the 
complex operating protocols.
    Mr. Bass. Thank you very much.
    Mr. Doyle?
    Mr. Doyle. Thank you, Mr. Chairman. And I thank you to the 
panel for your patience. I know you have been here a long time.
    I am sure you have been asked every which way possible 
about how you think this happened. I want to just take a 
slightly different tact. You know, as we have tried to pass an 
energy bill in this Congress, the electricity title has been 
one of the more controversial ones. And it seems to break down 
along regions, not parties.
    I am just curious. Secretary Abraham was here yesterday and 
told us that the administration would support a delay in FERC's 
SMD rulemaking until 2007, along the lines they had a 
negotiation with the Senate.
    And my question is--and this is for all of you--what impact 
would such a delay have on reliability and on the functioning 
of existing RTOs if we were to delay that rulemaking until 
2007?
    Mr. Welch. I believe that if we delay the rulemaking, we 
are going to start to take steps backwards. The whole issue is 
about the enforceability of reliability standards. It's clear 
that we have to get one point of accountability in one identity 
that says, ``Look, this is the information we have to have. 
This is the form we have to have it. This is what we are going 
to do with it. And these are the circumstances under which it 
operates.''
    What we have today is reliability counsel spread around, 
RTOs spread around, seams between RTOs. Standard market design 
will start to bring that under one roof. And it is absolutely 
the direction we need to go. To delay it means that we are 
going to have a lot more of this in between. And I, for one, 
think that it is not the right move.
    Ms. Moler. Mr. Doyle, if I could comment on that? It was my 
privilege to chair FERC for a number of years. I believe that 
the FERC needs to have authority to oversee the grid and energy 
markets.
    The unintended consequences of the delay are significant. 
They would make it impossible to have price caps, for example, 
because of the way the language is written. They would make it 
impossible to have market monitors. It would make it impossible 
to have mitigation when necessary.
    The rulemaking would put into place cyber security 
standards, for example. Because of the language of the delay, 
that would be impossible to do. There are just numerous 
unintended consequences from the delay. And I think it would be 
a very bad thing.
    Mr. Winser. To save time, could I just say that I agree 
with both of those points of view?
    Mr. Doyle. Thank you.
    Mr. Burg?
    Mr. Burg. Congressman, I was just going to say that I would 
encourage you to focus on reliability over markets, No. 1. I 
think Dr. Draper's testimony even talked, we have both. We have 
to balance them, but I would put the balance to reliability 
over markets.
    The other thing in the standard market design, we're not 
opposed to it, but I think it's important to recognize that one 
size may not fit all areas of the country.
    The country is different in some respects in terms of how 
far they have deregulated or where they are at with generation 
or capacity. So one size may not fit all. I think that is 
something that has to be looked at.
    Mr. Draper. I agree with what Mr. Burg just said. We do 
business in 11 States. Those 11 States have very different 
views about whether standard market design is desirable or not. 
We would hope that----
    Mr. Doyle. We've heard that on this committee, too.
    Mr. Draper. We would hope that the FERC and the States 
would get together and get this worked out so that we're not 
caught in the middle. But we do believe that it is important 
that we have mandatory NERC standards, that we get the 
reliability issues right. We think that can be done independent 
of solving this battle between the States and the FERC.
    Ultimately we think it makes perfect sense to be in an RTO, 
but we can't deal with the situation in which a number of our 
States believe one way and a number another way.
    Mr. Doyle. Mr. McGrath?
    Mr. McGrath. I think we need to get on with things here. To 
the extent we can clarify the rules, take care of siting 
issues, take care of reliability requirements. That's got to 
help this industry in its transition. And I think the sooner we 
get on with it, the better off we are.
    Mr. Doyle. Very good. And, last, obviously we have a number 
of RTOs functioning today. As you see it,--and, again, this is 
for all of you--what additional action should FERC take to 
facilitate the effective operation of the existing RTOs? And I 
also wonder whether any of those actions would be prohibited by 
the proposed delay in this standard market design rulemaking.
    Mr. Welch. I think that the RTOs should be made mandatory. 
I think that the FERC should be given the authority to tell the 
utilities what RTOs they're going to be in. What we have in the 
Midwest has absolutely been set up as from an operational point 
of view, from a reliability point of view, a disaster waiting 
to happen.
    There are too many scenes, too many handoffs, too many 
pieces to be coordinated. We need to get this, and they need to 
get it aligned such that you have an RTO that serves a region 
that is basically where the trading has been taking place and 
not a continual hash and rehash. The voluntary nature is just 
not working.
    Mr. Doyle. Yes?
    Ms. Moler. With your permission, I would like to submit a 
paper for the record that will talk about some of the potential 
unintended consequences of the delay. I think they are 
significant.
    [The paper offered by Elizabeth Moler follows:]
   Unintended Consequences of Delaying FERC's Standard Market Design
    By Elizabeth Anne Moler,1 Executive Vice President, 
     Government and Environmental Affairs & Public Policy, Exelon 
                              Corporation
---------------------------------------------------------------------------
    \1\ Ms. Moler served as a Commissioner (1988-1993) and then as the 
Chair (1993-1997) of the Federal Energy Regulatory Commission and as 
Deputy Secretary of the United States Department of Energy from 1997-
1998.
---------------------------------------------------------------------------
    As conferees on the energy bill race to complete action on the 
legislation, they will be faced with a proposal from the Senate to 
prohibit the Federal Energy Regulatory Commission (FERC) from 
implementing its July 2002 Standard Market Design rulemaking proposal 
(SMD).2 Prohibiting FERC from implementing SMD is one of 
those things that ``sounds good if you say it fast.'' But a close look 
at the proposed SMD rule, and FERC's April 2003 Wholesale Market 
Platform White Paper, clearly shows that delaying SMD will have 
numerous unintended consequences. The conferees should oppose the SMD 
delay proposal.
---------------------------------------------------------------------------
    \2\ Neither the House-passed nor the Senate-passed version of H.R. 
6 contains an SMD delay provision. However, Chairman Domenici and his 
staff have stated publicly that he made a commitment to Senator Shelby 
to support a provision to prohibit FERC from issuing its final rule in 
the SMD docket, or any related rule or order of general applicability, 
until December 31, 2006 in order to secure consent to pass the energy 
bill. According to press reports, Vice President Cheney supported the 
SMD delay provision in a telephone call to an unknown group of Senators 
just prior to final passage of the energy bill in the Senate in order 
to secure their commitment not to object to passage of the bill. The 
agreement is modeled after Section 1121 of S. 14, as reported by the 
Committee on Energy and Natural Resources, with the delay extended from 
July 1, 2005 to December 31, 2006.
---------------------------------------------------------------------------
    Those advocating SMD delay have proposed to prohibit FERC from 
issuing any ``final rule pursuant to the proposed rulemaking, including 
any rule or order of general applicability within the scope of the 
proposed rulemaking'' until December 31, 2006. Prohibiting FERC from 
issuing any rule or order that applies to more than a single utility, 
pertaining to any issue ``within the scope'' of the SMD notice of 
proposed rulemaking (NOPR), will have unintended consequences that even 
the opponents of SMD don't want.
                      rtos and smd are intertwined
    Those advocating for Congress to ``delay SMD'' argue that FERC 
should be stopped from implementing SMD, but should continue to 
encourage voluntary RTO formation. Frankly, it is not clear to me how 
Congress can ``delay SMD'' and ``encourage RTOs'' at the same time.
    How can an RTO do its job if it does not plan the transmission 
system, and address generation needs, on a regional basis? How can an 
RTO do its job if it does not manage congestion on its system and does 
not redispatch generation to avoid problems on its system? How can an 
RTO do its job if FERC is prohibited from acting to deal with market 
problems that develop, as in California?
    A close look at issues ``within the scope of the proposed 
rulemaking'' shows how harmful the unintended consequences of the 
broadly worded delay would be. Many initiatives included in the SMD 
NOPR have wide support, but FERC could not finalize or implement them 
broadly if the SMD NOPR is put on hold. If FERC's hands are tied by the 
SMD delay provision, these consequences will follow:
1. FERC will not be able to respond to the August 14 blackout by 
        requiring better coordination among regional transmission 
        organizations (RTOs) and individual public utilities that are 
        not in RTOs.
    The U.S. Department of Energy, Natural Resources Canada and the 
North American Electric Reliability Council are still working to 
complete their analysis of what caused the August 14 blackout. If the 
Senate SMD delay proposal were adopted, FERC would be powerless to 
address any RTO coordination issues, information sharing requirements, 
and the like until 2007. Nor would FERC have authority to issue a 
general rule requiring utilities that are not yet in RTOs to 
coordinate, share information, or take other appropriate steps to try 
to avoid another blackout. Thus, FERC would be sidelined with its 
shoelaces tied together, prohibited by Congress from adopting changes 
that DOE and NERC conclude are necessary to avoid a repeat of the 
blackout. Even so-called ``mandatory reliability rules'' would leave 
FERC very limited in its authority to develop solutions to whatever 
caused the blackout. Simply put, that is not an appropriate way for the 
Congress to respond to the blackout.
2. FERC will not be able to approve voluntary RTO development or 
        proposals to improve the operational efficiency and reliability 
        of existing RTOs.
    Many state regulators, public utilities, and other stakeholders are 
advocating that RTO development should be ``voluntary.'' Numerous 
utilities are actively engaged in discussions they hope will lead to 
voluntary RTO filings to form RTOs, perhaps even later this year. And 
the existing RTOs are constantly striving to improve their performance 
and advance their market design. Prohibiting FERC from issuing an order 
addressing RTO development would thwart even voluntary RTOs.
3. FERC will not be able to eliminate transmission rate pancaking and 
        adopt transmission rate reform, including so-called 
        ``participant funding.''
    In the SMD NOPR, and the White Paper, FERC proposes to eliminate 
transmission rate ``pancakes'' across an RTO (that is, charging 
multiple rates to wheel electricity across multiple utilities); 
incentives for construction of new transmission facilities; and 
authority for RTOs to require ``participant funding'' of transmission 
upgrades (requiring those who cause utilities to incur costs to expand 
their transmission system to pay the cost of the expansion).
    Putting SMD on hold would prohibit FERC from adopting any final 
rule that would codify these much-needed transmission rate design 
reforms. Ironically, some of the most vociferous opponents of SMD are 
touting the need for incentive pricing to encourage investment in our 
transmission system and participant funding so that their native load 
customers do not pay for system upgrades needed by generators locating 
in their service territory who propose to export their power outside 
the region.3 Putting these important initiatives on hold for 
three years is a bad idea.
---------------------------------------------------------------------------
    \3\ See Testimony of H. Allen Franklin, Chairman, President and CEO 
of Southern Company, on behalf of the Edison Electric Institute before 
the Committee on Energy and Natural Resources, United States Senate, 
March 27, 2003, in which he endorses participant funding.
---------------------------------------------------------------------------
4. FERC will not be able to issue rules governing how market monitors 
        can ensure that generation owners do not game the markets, as 
        happened in California, and adopt mitigation measures, such as 
        bid caps, to address market power or gaming.
    One of FERC's most important proposals in the SMD NOPR is to codify 
use of independent ``market monitors'' in existing RTOs and other 
regional markets to actively monitor markets and mitigate market power 
abuses and gaming, as in California. The SMD delay provision would 
eviscerate FERC's use of market monitors by prohibiting FERC from 
requiring RTOs to have market monitors, bid caps, and other initiatives 
to address Enron-style gaming practices. FERC must also be able to 
enforce orders requiring a utility to join an RTO to mitigate its 
market power, particularly market power resulting from a merger.
5. Regulatory uncertainty will be perpetuated that is dampening 
        investors' interest in building new transmission needed to 
        avoid future blackouts.
    The SMD rulemaking proposal was issued in July 2002. FERC received 
an avalanche of public comments and Congressional inquiries. In 
response, FERC issued its April 2003 White Paper, changing the proposed 
rule significantly. It recognized the need for regional variations 
among RTOs, proposed to give State officials a formal role in the RTO 
process by forming Regional State Committees, and pledged that FERC 
would not assert jurisdiction over the rate component of transmission 
used to provide retail service to native load customers. SMD delay 
would prolong an already lengthy period of the regulatory uncertainty 
that is chilling investment in transmission. The August blackout made 
crystal clear that we need robust investment now.
6. FERC will not be able to require RTOs and utilities to do ``regional 
        planning'' in order to address the need for new facilities 
        (both transmission and generation) on a regional basis.
    The SMD NOPR includes an initiative to foster a regional approach 
to planning transmission expansion and addressing the need for 
additional generation. If SMD is delayed, utilities would not be 
required to collaborate in the planning process. Capacity additions and 
transmission expansion would continue on a utility-specific or 
generator initiated basis, rather on a regional basis. Putting this 
initiative ``on hold'' for three years is a bad idea.
7. FERC will not be able to address transmission congestion and adopt 
        congestion management rules.
    The SMD NOPR proposes to mandate that RTOs adopt locational 
marginal pricing (LMP) to address congestion on transmission lines. 
PJM, ISO-New England, and the New York ISO use the LMP model. Even the 
most ardent opponents of SMD have endorsed the LMP 
initiative.4 The White Paper nonetheless backs off mandating 
LMP and proposes to defer to regional needs for congestion management 
systems. Both the LMP congestion management initiative and the White 
Paper's endorsement of regionally based congestion management 
initiatives would be victims of SMD delay. Congestion on transmission 
lines is a nationally recognized problem that must be addressed to 
enhance the reliability of the transmission grid. Putting congestion 
management initiatives ``on hold'' for 3+ years is another bad idea.
---------------------------------------------------------------------------
    \4\ The Alan Franklin testimony, cited previously, also endorses 
LMP.
---------------------------------------------------------------------------
8. FERC will not be able to adopt the North American Electric 
        Reliability Council's (NERC) cybersecurity standards.
    The North American Electric Reliability Council (NERC) has adopted 
a proposed industry cyber-security standard. It is self-evident that 
such a standard is necessary in the era of cyber terrorists and 
dependence on the Internet and other forms of electronic commerce. The 
SMD NOPR proposes to codify cyber security standards and FERC has 
indicated that security measures to protect critical information 
systems, like the Internet, would be a condition of market-based 
tariffs. Because the cyber security standards were a part of the SMD 
NOPR, an SMD delay would have the unintended consequence of prohibiting 
FERC from codifying the cyber-security standard.
9. FERC will not be able to adopt market rules developed by the North 
        American Energy Standard Board (NAESB).
    The SMD NOPR proposed to incorporate business practice standards 
for the industry developed by the North American Energy Standards 
Board. An SMD delay would prohibit FERC from doing so.
10. Finally, an SMD delay would invite litigation over the scope of 
        FERC's authority to do its job.
    The SMD delay provision is poorly drafted with undefined terms and 
untold consequences. It is a litigator's dream, virtually inviting 
lawsuits about what Congress allowed FERC to do and what Congress 
prohibited FERC from doing.
                               conclusion
    These potential unintended consequences of tying FERC's hands with 
the Senate's deal to delay SMD should make clear that Congress should 
not legislate an administrative process. These issues should be left to 
the established regulatory process where market participants, state 
regulators and consumers can participate in reaching acceptable 
compromises. The SMD delay provision is a law of unintended 
consequences. It would hamstring FERC at the very moment that we need 
better reliability and better coordination in wholesale energy markets. 
It should not be included in the final version of the energy bill.

    Ms. Moler. Clearly RTOs need to coordinate better with one 
another. The market rules, while we agree that one size may not 
fit all, they need to work. And there are numerous parts of the 
FERC initiative that I think everybody on this panel would 
agree need to happen that would be set back a number of years 
if a delay were enacted.
    Mr. Doyle. I see my time has expired. Thank you, Mr. 
Chairman.
    Mr. Bass. Thank you.
    The gentleman from Illinois?
    Mr. Shimkus. Thank you, Mr. Chairman. Again, I apologize 
for our delay on the floor. We are trying to keep things 
moving.
    Let me first say that I am a big supporter of standard 
market design. And I know we have got some critical problems 
with that, but we have standard market design for the natural 
gas infrastructure. We have it for the railway industry.
    I taught history. In the Civil War period, we had different 
gauges. The gauges really did not help the movement of troops 
and materiel. It stopped the interstate aspect of rail 
transportation.
    So I think we're foolish if we don't take this opportunity 
to move to a standard market design. But that's been done 
before here in Washington. So we'll see how far we'll get.
    But the benefits that we do have on the table now, the 
point was we've got to get to it. This is the time. We have an 
energy bill moving to conference. The conferees will be named 
today. And if there is a time to move on this, it will be in 
this energy bill.
    And there is depreciation. There is FERC authority 
increased, return on investment, siting issues. If you read 
some of the testimony yesterday, we had the Governor of 
Michigan. The Governor of Ohio said, ``After a given period, 
amount of time, should FERC then have a date certain on 
siting?'' And they both agreed. Now, they don't represent all 
the States, but that was very good to hear because maybe the 
siting issues aren't as critical now as they once were.
    Illinois, we produce more than we consume, especially in 
the southern part of the State. There are States that do not 
want to produce. There are States that do not want to generate 
electricity. So if they don't want to generate electricity, you 
have to have a transmission system to get power.
    And I'll tell you what. My State wants to generate it. We 
want to generate it by nuclear power. We want to generate it by 
coal power. And we do have natural gas facilities. I have other 
problems with those.
    Are retailing of PUCA, depreciation issues, FERC 
jurisdiction, return on investments and siting all helpful in 
moving the ball down the road and moving our grid to a more 
efficient system? I'll throw that open. Yes, sir?
    Mr. Winser. I think they are all helpful. I would chip in, 
in addition, that we really do need a rational and simple 
transmission pricing mechanism, though.
    There has been a lot of talk of things proposed, such as 
market participant funding, which seems to be proposed on a 
voluntary basis, where basically you sort of pass the hat 
around and try to get enough money to build something. Some 
people put in, and some people probably take out. And some 
people don't bother.
    What we need is to recognize these are shared resources and 
they will benefit a number of different people in the market, 
customers, generators. We have to recover the money from all 
the people that benefit. So I would add that to your list. And 
I would say that we do need to recognize that this is shared 
resource, recognize that for the most part, it is going to be a 
regulated shared resource and that we do need to have mandatory 
recovery of the investment.
    Mr. Shimkus. I was interested. A lot of the comments 
yesterday dealt with ``Well, the Federal Power Act gives us 
12.5 return on investment.''
    But then I turned to the Governors and said, ``If that's 
good, as a lot of people are claiming that that should be good 
enough, why aren't we getting the investments? There must be 
other reasons.''
    I'm not sure. Maybe it was Mr. Draper who said $50 million 
on approval. There was a $50 million cost on just the approval 
of transmission. I took that not even the costs that were 
incurred for the actual construction and the string of wires. 
Is that correct?
    Mr. Draper. That's right.
    Mr. Shimkus. Let me go on. And then you also applied to 
Alliance, right? What was the cost for the application to 
Alliance?
    Mr. Draper. I'm not sure how much money we spent, but it 
was----
    Mr. Shimkus. And what about MISO?
    Mr. Draper. [continuing] tens of millions of dollars.
    Mr. Shimkus. So that is what I want to really to my friends 
on the other side. The bureaucratic wrangling and the legal 
issues are very, very costly. So obviously a 12.5 ROE on the 
Federal Power Act is not sufficient. Otherwise we would have 
it.
    Mr. Draper. We talked a bit earlier--I am not sure you were 
in the room--about the 12.5 percent and whether you actually 
recover that, but I have made the point that for many 
companies, including my own, only about 10 percent of our 
transmission revenues are allocable to FERC wholesale 
transactions. And the rest are retail transactions within the 
State for which we don't recover the costs because we have rate 
freezes.
    Mr. Shimkus. Let me just finish. I know we have ComEd and 
Exelon here. They had power problems in 1999. In fact, the 
Chicago Sun Times ran an article. Great investment. Can you 
talk about that and really in the guise of we have had problems 
today? Do you see that as helping us move? Were the power 
problems in 1999 helpful in moving your company? And then do 
you think this engagement will help, as I say, the engine that 
moves an energy bill?
    Mr. Barton. This will have to be the gentleman's last 
question. Go ahead and answer.
    Ms. Moler. I would hate to say that the power problems in 
1999 were helpful. We certainly were humbled, learned a lesson, 
redesigned our system, and have spent $2 billion in 
transmission and distribution upgrades since then. And we are, 
knock on wood, hoping it will not occur again.
    I also believe that the blackout has brought the attention 
of this Congress and this committee to the electricity business 
in a way that I am hopeful will get the electricity title 
across the finish line this year.
    Mr. Barton. Gentlelady from Illinois, Ms. Schakowsky, is 
recognized for 5 minutes.
    Mr. Engel. Mr. Chairman, I am wondering if I can ask 
unanimous consent to go ahead of the gentle woman.
    Mr. Barton. If it's okay with the gentlelady. Without 
objection, so ordered. The gentleman from New York, Mr. Engel, 
is recognized for 5 minutes.
    Mr. Engel. Thank you, Mr. Chairman. I thank Ms. Schakowsky.
    I want to welcome everyone on the panel. I think you have 
gotten a little bit of an idea of how Congress works. Perhaps 
you're wishing we would have a blackout here this morning. I 
want to especially welcome the two New Yorkers on the panel, 
Mr. McGrath and Mr. Kessel.
    Mr. McGrath, I just wonder if you can help me understand 
how decisions are made when power is restored. As you know, I 
represent areas of the Bronx, Westchester and Rockland Counties 
in New York. Obviously when the power went out, it didn't 
return at the same time all across New York.
    How are these decisions made? Are there actual decisions 
made or is it simply a matter of when you can get the power 
back to different communities, you do it as quickly as possible 
or is there a priority list?
    Mr. McGrath. Well, the law of physics is probably the major 
determinant. Electricity follows certain rules. It depends on 
the event. Generally we need to reach out to supplies that are 
online and connect them into our system. That's a meticulous 
step-by-step process.
    In this case, I mentioned earlier we had to come from the 
south and the north. And we had to along the way pick up pieces 
to establish the grid. And that allowed us to startup 
generators, which were necessary to get enough capacity to pick 
up load.
    So although it looks like a patchwork pickup of load, it 
actually depends on the route that is taken to restore power to 
the transmission system. And that route meanders through our 
territory, came together down in the city, and we were able to 
synchronize. And then we had a stable grid, where we could pick 
up the rest of the load.
    Mr. Engel. But if you have a situation where you could get 
power back to different communities at the same time, is there 
a priority list? Do you, for instance, say, ``Well, since 
Manhattan is the hub of activity in New York City, that's where 
the priority would be'' or is it not done that way at all?
    Mr. McGrath. Well, actually, the load picked up at parts of 
Westchester and Staten Island before Manhattan because of this 
process that I went through. If we had a choice, we would try 
to get the high rises and the parts of the city that move 
people underground who depend on electricity and people who 
need water because of the vertical height of the buildings. We 
would try to give preference to that.
    But we don't have a lot of flexibility. It depends on the 
amount of load we need to pick up to stabilize voltage, the 
amount of generation available for us to pick up load. And that 
was a moving target as we brought together transmission systems 
and as generators came on line to give us more capacity.
    Mr. Engel. Let me ask you. I understand that Con Ed is 
joining a coalition of companies to pursue superconductors. Is 
that a fact? I have been interested in this area. I think it is 
good to pursue it. Do you have plans to use superconductors? 
And is there anything that Congress can do to make 
superconductors more attractive?
    Mr. McGrath. Well, there is a great potential provided by 
superconductors if they're made practical. We are involved with 
some R&D groups to look at what has to be done to make that 
practical out in to the future. Obviously if you can get a 
system where resistance doesn't matter, it can really improve 
the efficiencies of our system. So we would be interested in 
that. It's not anywhere near a proven technology, but we are in 
the R&D phases.
    Mr. Engel. Thank you.
    Mr. Kessel, can you talk to me a bit about the Cross Sound 
Cable? Secretary Abraham obviously used his authority to allow 
use of the cable. Can you talk about that a little bit? Why has 
Connecticut been holding it up? And what are the problems 
there?
    Mr. Kessel. Well, yes, I will, congressman. It's good to 
see you again.
    Mr. Engel. Thank you.
    Mr. Kessel. And I would report to you and to the committee 
that I have been informed that for the first time, the Cross 
Sound Cable today is being used to take power from Connecticut 
to Long Island across Long Island and into southwest 
Connecticut for the first time, which shows that we can help 
Connecticut as much as Connecticut can help us, which is what 
this is all about.
    The major opposition to the cable comes from the attorney 
general in Connecticut. And it's legislative in nature as well. 
There are three objections. One is environmental, that somehow 
the Cross Sound Cable would create environmental problems in 
the Long Island Sound.
    I indicated before--and I know you weren't here--I don't 
know if we have the cable, but it's a solid cable. There is 
absolutely no environmental harm from the cable whatsoever. In 
fact, I have challenged the attorney general in Connecticut now 
that it's operated if there is environmental harm to show it to 
the public. We certainly wouldn't want to do anything to harm 
the Long Island Sound.
    The second objection comes from people who say that New 
York is trying to steal electricity from Connecticut. The fact 
of the matter is that we actually import less electricity from 
Connecticut than Connecticut imports from Long Island. In fact, 
I actually have some numbers that, actually, between 1998 and 
2001, the flow from New York to Connecticut was 5,754,550 
megawatt hours. The flow from Connecticut to New York was only 
2,207,450 megawatt hours. In effect, more electricity flows 
from New York to Connecticut than from Connecticut to New York.
    The final issue that has been used is that somehow New 
York, Long Island in particular, is not paying attention to its 
own generation needs and why should Connecticut help out, why 
doesn't Long Island build more generation or New York.
    The answer is very simple. We have. We have added in the 
last 2 years over 500 megawatts of new generation on Long 
Island itself, which is more than has been added in the prior 
25 years.
    I would point out that if you looked at the Connecticut 
versus Long Island alone and you net out plants that have been 
decommissioned in Connecticut, Long Island has added slightly 
over 600 megawatts while Connecticut has added slightly over 18 
megawatts.
    So I think those arguments are specious. I think it's 
political parochialism. And I think it's a bad policy for this 
country.
    Mr. Barton. The gentleman's time----
    Mr. Engel. Thank you. Thank you, Mr. Chairman. And thanks 
to Ms. Schakowsky again.
    Mr. Barton. We have now got the answer why Connecticut 
doesn't want that line. They don't want that tainted New York 
electricity, see?
    Mr. Kessel. Our electricity is much cleaner than 
Connecticut's.
    Mr. Engel. I was going to say point of personal privilege, 
Mr. Chairman.
    Mr. Barton. Well, they certainly don't want that dirty 
Texas electricity getting up there, you know.
    The gentleman from Michigan, Mr. Rogers, 5 minutes.
    Mr. Rogers. Thank you, Mr. Chairman. And thank you, 
gentlemen and lady, for taking so much time and effort to be 
here today on such an important issue.
    It sounds like we are starting to coalesce, at least around 
some critical mass of----
    Mr. Barton. Excuse me. Would the gentleman suspend just 
briefly?
    Mr. Rogers. You bet.
    Mr. Barton. You all have been here a long time. If anybody, 
not the whole group at one time but if you want a personal 
convenience break one at a time because we are going to keep 
going, so if you all want to kind of cycle that through but 
keep the voltage within 60 seconds as you do it, we're okay on 
that.
    Gentleman from Michigan? Reset your clock.
    Mr. Rogers. Thank you, Mr. Chairman.
    I would direct this question to Mr. Welch to change a 
little bit. I have heard some reports that Michigan consumers 
may be footing the bill to the tune of maybe even $30 million a 
year on energy that is put into the grid and not compensated 
for that gets lost--I don't know--maybe for people leaning on 
the grid or other issues. And I wonder if you could help me 
understand how that happens and if there is anything that we 
can do to rectify that.
    Mr. Welch. The phenomenon that you're talking about is loop 
flow. Loop flow is a very critical issue. First it has the 
economic consequences that you talked about that this flow is 
unscheduled and as a result of being unscheduled also usually 
winds up not curtailable in the event that there is some kind 
of reliability issue.
    It was actually a huge amount of loop flow on our system 
that brought the system to collapse. It was clearly 
unscheduled. We in Michigan--and this is all of the utilities, 
the major utilities, in the lower peninsula; let me clarify 
that, CMS, DT Energy, METC, and ITC--have had issues on the 
loop flow from a reliability perspective. That needs to be 
dealt with.
    If there is going to be any kind of reliability package, 
this loop flow issue because of the peninsulas' nature that we 
are surrounded by the Great Lakes, we absolutely get an 
additive effect. It has both financial and reliability issues. 
And as a result of that, we are constantly being asked to 
upgrade the transmission system for something that there is 
virtually no compensation for because there is no compensation 
for it.
    Mr. Rogers. Does technology fix that problem?
    Mr. Welch. There are technological fixes. You can either 
start to use asynchronous connections; i.e., DC. We actually 
had going into service a device called a phase angle regulator 
that would not have corrected the problem that we had on August 
14, but it would start to limit some of that.
    Mr. Rogers. Leaning on the grid, how much of an issue is 
that in the current system?
    Mr. Welch. In our case, it's fairly significant. Most of 
the time we see as much as 50 percent of the flow on our 
southern 2 interfaces being unscheduled flow. Going into the 
day of the blackout, I think the schedule was 800 and the line 
was going somewhere around 12 or 14 hundred, which means the 
difference between the schedule and the actual is this loop 
flow. And obviously the effects of whatever happened were an 
additional 2,500 megawatts of loop flow put on our system that 
was what caused the voltage collapse.
    Mr. Rogers. How would you define in your words leaning on 
the grid? What in your mind?
    Mr. Welch. Well, normally leaning on the grid isn't 
referred to in transmission talk. It's usually one control area 
is out of balance with another control area. In other words, 
the control area operator is to balance the load consumption in 
their control area and make sure that all schedules are adhered 
to; in other words, that what arrives at your border and is to 
be shipped somewhere else is shipped to that other point.
    As the day goes on, there are ebbs and flows. Generators 
come in and out of service. Lines open. And so you will have 
imbalance in that flow. Control area operator then gets 
generators. The deficient control area's job is to get the 
generators to pick it up or to allow for a purchase.
    The loop flow is just an uncompensated flow. And it has 
effect for both transmission and generation in that because it 
is unscheduled, that means it is not accounted for. So it has 
to be delivered to the other part of your system. That means 
that the losses have to be made up for it. The bar support, the 
voltage support has to be done. That means the generators in 
that region are being asked to make that up all the time.
    The negative effect that it has on transmission is that in 
the case of some of our interfaces, they basically consume 50 
percent for flow, of which there is no tracking or knowledge 
of.
    Mr. Rogers. Would you agree with that estimate of $30 
million a year?
    Mr. Welch. No. Actually, I think it is more than that.
    Mr. Rogers. You think it is higher than that?
    Mr. Welch. Yes.
    Mr. Rogers. Interesting.
    Mr. Welch. Actually, I think that if you look at the 
affected utilities in this case, a combination of transmission 
revenues and generation costs, it's more in the $40 to $50 
million range annually.
    Mr. Rogers. Ma'am, did you want to respond as well?
    Ms. Moler. Yes. Thank you. I would not want my silence on 
this subject to reflect that I concur with Mr. Welch's 
conclusion that ``loop flow brought the system to a collapse.'' 
I don't know what brought the system to a collapse.
    We are litigating the loop flow issues right now at FERC. 
We have been for a long time. And I just did not want my 
silence to indicate that I agree with Mr. Welch's conclusion. I 
don't believe that any of us has defined movement on this 
subject at this point.
    Mr. Barton. Will the gentleman yield?
    Mr. Rogers. Yes.
    Mr. Barton. The gentleman's time has expired. If it's 
directly on point.
    Mr. Otter. Would you spell that? Is that loophole? Is that 
loop or----
    Mr. Welch. L-o-o-p f-l-o-w, loop flow.
    Mr. Otter. Oh, okay. Thank you.
    Mr. Barton. The gentlelady from Illinois, Ms. Schakowsky, 
is recognized for 5 minutes.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    I have questions for Ms. Moler from Exelon, Commonwealth 
Edison. I talked to the citizens utility board yesterday to ask 
about the vulnerability of our system. They reinforced what we 
have been reading and I have been hearing that since 1999, I 
participated in a hearing that Representative Rush had that 
Commonwealth Edison has made significant investments in the 
grid. And I applaud you for that.
    In the testimony, a couple of things. First off, how is 
Commonwealth Edison's economic health just briefly? How is it 
doing? You said that you haven't recovered all of the costs of 
that investment. And I was just curious about how the company 
is doing.
    Ms. Moler. We are financially healthy, I am pleased to say.
    Ms. Schakowsky. Wonderful. In 2006, when the rate freeze is 
over, can consumers based on this $4 million plus, then, $4.5 
million investment in the transmission system, expect a spike 
in its rate?
    Ms. Moler. We expect to file a transmission rate case one 
of these days to recover some of our investment in the near 
future, but in 2006, I would not expect a price spike. We are 
in active dialog with the Illinois Commerce Commission about 
what to do when our current rate freeze expires in 2006. And we 
will put proposals before them. But I would not expect a price 
spike.
    Ms. Schakowsky. You spoke in your testimony of innovative 
transmission pricing incentives. I have to say from a consumer 
point of view when one hears the words ``innovative'' and 
``incentive'' kind of pricing, what people hear is ``Our rates 
are going to go up.'' What do you mean by that?
    And while it was the chairman's questioning and the answers 
were instructive to me that we are talking about when we talk 
about the 11, 12, 13 percent rate of return, we are only 
talking about 10 percent of transmission costs, as I understand 
it, that the rest is regulated at the State level; is that 
right, talking about wholesale costs that can be recovered 
through those regulated national FERC rates?
    Ms. Moler. There is a difference between--the transmission 
rates are regulated by Federal Energy Regulatory Commission, 
all of them.
    Ms. Schakowsky. Oh, okay.
    Ms. Moler. But then the question is whether one can pass 
through all of those rates----
    Ms. Schakowsky. I see.
    Ms. Moler. [continuing] because of the various retail rate 
freezes, such as we have in Chicago. We can increase our 
transmission rates, but we cannot pass them through because of 
a rate freeze.
    Ms. Schakowsky. Except that, well, I guess I'm confused, 
then. If we're talking about rate of return on your investment 
of 11 to 13 percent--I understand a rate freeze, but absent 
that, you wouldn't be able to pass those through. Is that not 
true?
    Ms. Moler. That is correct.
    Ms. Schakowsky. So why isn't that sufficient? And what are 
we talking about when we talk about innovative transmission 
when incentive rates are talked about? And why do we need them?
    Ms. Moler. There are lots of ways that one can do rate 
design. It's an arcane thing that lots of people in this room 
are involved in. And I would submit to you that if you do it 
right, in some cases because you do not have to have additional 
generation, if you do transmission rate, you can actually save 
customers money by operating the transmission system more 
efficiently so that they do not have to invest in the 
generation. And there are lots of creative things that we could 
go on and on about.
    Ms. Schakowsky. But don't necessarily mean end consumer 
pays more, correct? Okay.
    One of the things that we could do, the DOE national 
transmission grid study conducted, ``Expansion of the 
transmission system must be viewed as one strategy in a 
portfolio to address transmission bottlenecks.'' This portfolio 
also includes locating generation closer to load, relying on 
voluntary customer load reduction, targeting energy efficiency, 
and distributive generation.
    In the past, I know Commonwealth Edison has spent less than 
most utilities on energy efficiency. I was involved in a lot of 
pretty adversarial relationships with ComEd and know that to be 
true. Maybe that is different now. Are we seeing an investment 
in local distribution and efficiency, et cetera, that will----
    Ms. Moler. We have an active efficiency program. We have a 
very large distributive generation effort. We also have 
interruptable load. Customers have agreed to be interrupted in 
stressful times so that we don't have to build as much 
additional generation. We have actively explored all of these 
kinds of efforts.
    Ms. Schakowsky. Thank you very much.
    Mr. Barton. The gentlelady's time has expired. Before we go 
to Mr. Otter, could we have one, Mr. Draper, what is the 
breakdown of the average customer bill? What percent did the 
commodity charge of the generation? What percent is the 
distribution charge? And what percent is the wholesale 
transmission since there seems to be some confusion about this 
10 percent number.
    Mr. Draper. Well, it's all over the map, Mr. Chairman. As 
you know, the electric rates of retail customers in the United 
States vary by more than a factor of two. It depends on the 
fuel source for the generation. It depends on how big the 
transmission system is.
    Generally speaking, I think it's accurate to say that the 
generation element is in most parts of the country the biggest 
element. And the transmission is the smallest perhaps, 10 
percent or so.
    Mr. Barton. So generation may be 60 percent and 
distribution 30 percent and transmission 10 percent just 
generally?
    Mr. Draper. Could be.
    Mr. Barton. Could be. The gentleman from Idaho is 
recognized for 5 minutes.
    Mr. Otter. I thank you, Mr. Chairman.
    Much has been said about the investment or the lack of 
investment. I think we're confusing some terms here. In reading 
most of the testimony this morning, I see the term ``return on 
ROE,'' instead of ROI, which is what we have been concentrating 
on here. Is it ROI? Is it return on equity or is it return on 
investment? Anybody could answer that.
    Mr. Welch. The authorization that you get from FERC is 
return on equity.
    Mr. Otter. Which is decidedly different than when we are 
figuring return on investment. And it has also been the 
testimony that we have heard here this afternoon that the 12 
percent or 13 percent, which is continually used, is not close 
to the mark. Is that pretty much the consensus of the panel?
    Mr. Welch. We're a transmission-only company. And we don't 
find that that is an inadequate rate of return.
    Mr. Otter. I want to pursue that because I think there are 
some other things that are involved in here that kind of 
imbalance the true answers that we are talking about here as 
far as some of these investments are concerned because one of 
the ingredients in our energy bill, which is now languishing in 
purgatory, so to speak, has some investment attractions to it.
    Environmental costs, filing environmental impact 
statements, making structural changes for environmental 
purposes, can you capitalize those?
    Mr. Welch. Yes.
    Mr. Otter. All of them?
    Mr. Welch. Normally.
    Mr. Otter. I see. How about acquisition costs for rights-
of-ways, transmission lines?
    Mr. Welch. Yes.
    Mr. Otter. Are all capitalized?
    Mr. Welch. Yes.
    Mr. Otter. Over how long a period?
    Mr. Welch. I think the depreciation period is somewhere in 
the 30-year range.
    Mr. Otter. Okay. So if you are depreciating both your 
environmental, up-front environmental costs----
    Mr. Welch. Right, but you don't depreciate property.
    Mr. Otter. But you are depreciating the acquisition costs?
    Mr. Welch. No. You just earn a return on it. You don't 
depreciate it.
    Mr. Otter. Well, but if you have got to go through some 
condemnation or legal proceedings in order to get the rights-
of-ways,----
    Mr. Welch. You take that off.
    Mr. Otter. [continuing] you take that off. But that is 
capitalized, right? And then that goes on your depreciation 
schedule. And your depreciation then goes into cash-flow, 
instead of into investment return. Am I right? Good. It works 
the same way in the French fry business most of the time.
    I am interested in this loop flow that we heard from my 
colleague from Michigan talking about. What happens to that $40 
million or $50 million? What happens to that money?
    Mr. Welch. Basically, since there is no revenue stream for 
it, when you do a calculation for your revenue requirements, 
which is the way you calculate rates, it doesn't show there as 
any kind of offset. So maybe customers picked that up, they pay 
for it. They pay for it in the form of higher fuel bills if you 
are a generating company.
    My company is transmission only. But they also pay for it 
in the fact that there is no offset in their transmission bill. 
That's why our position has been that the fix that we need in 
the transmission, one of the fixes that we need is that we need 
to get the flow base for revenue distribution, that the flows 
in the wire are what works the wire. And, therefore, the wire 
will get built where it is needed because the flows are there. 
It's just that simple.
    Mr. Otter. I understand. Ms. Moler, you talked a little bit 
about interruptable rates. Are the interruptable rates 
generally something that business and industry would buy 
because, No. 1, it's cheaper?
    Ms. Moler. Yes, sir.
    Mr. Otter. And, No. 2, unfortunately, when they shut down, 
people get laid off or people get sent home early or whatever. 
Does your interruptable rate generally go to business and 
industry?
    Ms. Moler. The program to which I was referring is 
generally business is industry. We look for large users who get 
a lower rate who would be willing to be interrupted, hopefully 
for a very short period of time. We're not talking about 
sending them home for the summer or anything like that. When 
we're an absolute--we call it a needle peak.
    Mr. Otter. On a kilowatt basis, how much cheaper would that 
be?
    Ms. Moler. I'm sorry. I don't have that.
    Mr. Otter. But it is cheaper?
    Ms. Moler. It is a distribution rate, and it is cheaper, 
yes.
    Mr. Otter. But it is an overall income scheme that helps 
the bottom line eventually. Am I not right?
    Ms. Moler. It makes it so we have to have less generation 
ultimately to serve those very hottest days. We can interrupt 
them.
    Mr. Otter. Okay. Thank you. I am getting interrupted myself 
here.
    Mr. Barton. Yes. The gentleman's time has expired. The 
gentleman from Massachusetts is recognized for 5 minutes.
    Mr. Markey. Thank you. Thank you, Mr. Chairman, very much.
    Mr. Burg, in January of this year, the Davis-Besse nuclear 
reactor, which is owned by FirstEnergy, was penetrated by the 
slammer worm. A safety monitoring system was disabled for 5 
hours, despite a belief by plant personnel that a firewall 
existed.
    Of course, the Davis-Besse reactor is offline because of 
boric acid, which almost ate through the head. So there is no 
power to black out at the time, but the incident raises some 
troubling questions.
    One, after the smaller worm incident, did FirstEnergy 
conduct an assessment of cyber security at all of its other 
facilities?
    Mr. Burg. Mr. Markey, I can't give you time and date, but 
it's my understanding we have been going through this process 
almost since 9/11 throughout our system in terms of looking at 
what the potentials are with respect to cyber security. So I 
would assume, yes, sir.
    Mr. Markey. You would assume, but you don't know?
    Mr. Burg. I haven't asked that question, but I know our 
people have been going through cyber security.
    Mr. Markey. You have not asked the question of what is the 
level of cyber security at the rest of your plants after the 
slammer worm successfully penetrated your Davis-Besse plant?
    Mr. Burg. I didn't say that, sir. What I said was I didn't 
ask our people when they started their examinations and so 
forth. I knew they were doing those examinations and reviewing 
not only our nuclear facilities but other facilities throughout 
our organization.
    Mr. Markey. What did you do to ensure that all cyber 
security vulnerabilities at all FirstEnergy facilities were 
corrected?
    Mr. Burg. Well, in some cases--and I am not trying to be 
off the subject here, but I would suggest that there are some 
things that we're not allowed to talk about in this area in 
terms of how they go about----
    Mr. Markey. I don't want to know the--what did you order to 
be done?
    Mr. Burg. I didn't order anything. It was automatically 
done by our people, sir, in looking at the vulnerabilities on 
our system. We are in concert in this case with the NRC. I am 
sure we may have been in concert with the Homeland Security 
Agency in terms of what are some of the things that all 
companies should be doing in this area.
    Mr. Markey. You stated that FirstEnergy experienced 
computer problems in the hours leading up to last month's 
blackout. Could they have been due to the blaster worm, which 
was at its height of activity at that time?
    Mr. Burg. We really do not believe so because the kind of 
software that is involved at our system control center, the 
kind you are now referring to, is not Microsoft-based and, 
therefore, as I understand it, not susceptible to that 
particular worm.
    Mr. Markey. So you do not have communications systems that 
rely upon Microsoft technologies?
    Mr. Burg. No. We do, sir. I didn't say that. I said the 
particular technology that you were referring to is not micro-
based technology. It's probably for security purposes. It's 
kind of a stand-alone system, if you will, right there at the 
site.
    Mr. Markey. According to this morning's papers, your 
control room operators were in the dark about what was going on 
within your system. You said earlier that you still don't know 
what exactly happened to your computers on August 14. What is 
to prevent, then, your computers from misreading what the 
actual situation is going on in your system?
    Mr. Burg. We, as I said, have, from what I am told, the 
world's foremost expert on those kinds of systems totally going 
over our system as we speak; the designer of the system, G.E., 
going through our system.
    Mr. Markey. So you don't know the answer yet?
    Mr. Burg. I don't know the answer to that yet as we don't 
know the answer to the entire situation yet.
    Mr. Markey. So it could happen again?
    Mr. Burg. Anything in life can happen again, Mr. Markey. We 
would expect----
    Mr. Markey. So the answer is yes? You don't know what 
happened. And, as a result, it could happen again?
    Mr. Burg. We know that the information on that particular 
day was not being updated as fast as it should have been on our 
systems. We also know that the information was flowing directly 
to our security coordinator on a real-time basis, as it is 
today. We also know that some 2,100 nodes, if you will, of 
information were being put on an inter-regional security 
network that others could look at that day. So we have verified 
that all of those kinds of backup redundant systems, those 
copilot systems, et cetera, are also working as we go forward.
    Mr. Markey. My time is going to run out, Mr. Burg, but from 
what I can tell, FirstEnergy should not have a license to drive 
a car, let alone operate nuclear power plants and an 
electricity generation, transmission, and distribution system. 
All of the evidence appears to be focusing on FirstEnergy as 
the culprit in this blackout. And you appear to be trying to 
shift the blame elsewhere.
    There is a pattern here, Mr. Burg. You failed to properly 
maintain your nuclear power plant, as the Davis-Besse situation 
clearly indicates. You allowed a computer virus to infect your 
corporate computer systems and let it get into the Davis-Besse 
safety systems. You have been found liable by the courts for 
violating the Clean Air Act by spewing pollution into the air 
at some of your other plants. And you freely acknowledge that 
on August 14, you had wires going down but no warning flags 
going up to anyone else who could be affected and a control 
room whose computers couldn't tell your operators what was 
actually going on during the crisis.
    There is a pattern here at FirstEnergy. It is a pattern of 
cutting corners and neglect. And it has devastating 
consequences, not only on your consumers but for consumers 
throughout the Midwest and the Northeast.
    I hope that the result of these hearings, Mr. Chairman, 
will be that we guarantee that we never again in our country 
see a repetition of what happened on August 14.
    Mr. Barton. We thank the gentleman. Before I recognize Mr. 
Walden, I want to point out that all the witnesses who are here 
are here voluntarily. There is nobody here under subpoena. And 
the gentleman's questions are exactly the kind of questions we 
should be asking, but as of yet, we are not here thinking that 
there is any criminal activity. Of course, the gentleman didn't 
infer that. We appreciate everybody being here.
    Does Mr. Walden wish to ask questions?
    Mr. Walden. Mr. Chairman, I will pass at this time.
    Mr. Barton. Mr. Davis?
    Mr. Davis. I'll pass for now, Mr. Chairman. Thank you.
    Mr. Barton. Seeing no other members present who haven't had 
an opportunity to ask questions, we are going to excuse this 
panel and thank you for your attendance. And we will call the 
second panel forward.
    [Brief recess.]
    Mr. Barton. Okay. If everybody would find their seat. We 
welcome our second panel. Our first witness is Mr. William 
Museler who is president and CEO of the New York Independent 
System Operator in Schenectady, New York. Mr. Museler, your 
testimony is in the record in its entirety. We ask that you 
summarize it in 5 minutes. You have to push that button.

 STATEMENTS OF WILLIAM J. MUSELER, PRESIDENT AND CEO, NEW YORK 
ISO; JAMES P. TORGERSON, PRESIDENT AND CEO, MIDWEST ISO; DAVID 
  GOULDING, CEO, THE INDEPENDENT MARKET OPERATOR OF ONTARIO; 
GORDON VAN WELIE, CEO, ISO, NEW ENGLAND; AND PHILLIP G. HARRIS, 
                   PJM INTERCONNECTION, INC.

    Mr. Museler. Thank you, Mr. Chairman and members of the 
committee. I have been asked on behalf of all of the ISOs and 
RTOs to start my statement with a brief description of their 
ISOs and RTOs and their function as system operators. I 
currently serve as chair of the Independent System Operator 
Regional Transmission Organization Council, which is comprised 
of the CEOs of existing U.S. ISOs and RTOs, plus Ontario's 
Independent Electric Market Operator and the Alberta Electric 
System Operator.
    Each of these organizations performs analogous functions 
that I will now describe for the committee. By way of 
background, independent system operators and later regional 
transmission organizations were established to help implement 
the Federal Energy Regulatory Commission's policies of 
restructuring of wholesale electric power delivery and markets 
as originally set forward in Order 888 issued in 1996. FERC set 
forth certain functions of ISOs including responsibility for 
ensuring a reliable supply of energy for their respective 
regions and for operating fair and efficient wholesale electric 
markets. Subsequently, FERC created a related entity known as 
an RTO, which is a regional transmission provider.
    In 2000, FERC charged RTOs and ISOs with the added 
responsibility for assessing and planning for the short-term 
and long-term reliability needs of the system in their 
respective regions. ISOs and RTOs are responsible for the 
reliable daily operation of the bulk electric generation and 
transmission system in their control areas. To meet this 
objective, ISOs and RTOs, sometimes operating through satellite 
control centers with differing degrees of authority and 
autonomy, administer the bulk transmission system and dispatch 
power from generators onto the grids in accordance with system 
demands and reliability criteria. ISOs and RTOs in the 
Northeast, for example, adhere to reliability standards 
established by the North American Electric Reliability Council, 
the NERC, and the Northeast Power Coordinating Council, NPCC.
    A primary function of ISOs and RTOs is to ensure non-
discriminatory access to the transmission system and fair and 
efficient markets. This objective is achieved through the 
development and implementation of transparent market rules and 
procedures that facilitate accurate market-based rates. Thus 
ISOs and RTOs are structured to be independent of any 
individual market participant or any one class of market 
participants, do not have any financial interest in any 
transactions for the generation or sale of electricity and do 
not own transmission assets or purchase transmission services. 
The regional planning function assigned by FERC to ISOs and 
RTOs in 2000 is critical to their reliability and efficiency 
objectives.
    ISOs and RTOs with input from a broad range of affected 
stakeholders, including States and market participants, 
independently assess the needs of the entire grid in their 
geographic footprint. ISOs and RTOs also work together to 
ensure interregional coordination of planning activities. An 
independent regional and interregional approach to grid 
planning serves as an essential source of information, both to 
achieve competitive market outcomes and to develop transmission 
solutions that best serve the overall reliability and 
efficiency needs of the region.
    I will now turn to the remarks of the New York Independent 
System Operator. The New York Independent System Operator began 
in operation in 1999, and we are charged with the 
responsibility to operate the New York State electric grid for 
providing non-discriminator access to that grid and for the 
operation of New York's electricity market. The exact causes of 
the August 14 outages are not known at this time, and we should 
not speculate on them. The International Commission and NERC 
will make that determination. We are cooperating fully with the 
NERC as well as with the New York State Public Service 
Commission's formal inquiry on that outage.
    What we do know is that the New York electric system was 
subjected to very large power swings beyond what the system was 
designed to withstand. At the time of the event, the New York 
system was operating normally and within all of its prescribed 
design limits. Based on the data we have thus far, and I 
emphasize again that firm conclusions must await analysis of 
all of the data, but based on what we know so far, the New York 
electric system and its components operated as they were 
intended to operate. The system was overwhelmed by the power 
surges that flowed through New York and through Ontario as well 
as through the other systems in the Northeast.
    The New York system was isolated from the Eastern 
Interconnection by those power surges, and the system broke 
into two electrical islands. The upstate island shed a 
considerable amount of load but enough generation stayed online 
such that the system was balanced at about 5,000 megawatts. 
About 20 percent of the New York State load in the upstate area 
stayed up and enough generation survived the event in order to 
achieve a balance.
    Mr. Barton. You need to summarize. I hate to make you do 
that but if you could do it in the next 30 seconds.
    Mr. Museler. Mr. Chairman, your staff indicated that the 
initial statement was not part of the 5 minutes. If it is, I 
will certainly adhere to whatever your ruling is.
    Mr. Barton. Well, we have a difference of opinion about 
that. How much longer do you have, do you think?
    Mr. Museler. About 2 minutes, and I will go fast.
    Mr. Barton. Okay. Thank you.
    Mr. Museler. The Eastern Island, which included New York 
City, was left with a very large mismatch of load and 
generation, too much load and that area went black. Power was 
fully restored to New York State in about 30 hours, and the 
workers and all the utilities and generators in New York, both 
public and private, did a superb job. Our neighbors in PJM in 
New England were also very helpful in restoring power in New 
York, and throughout all of this we coordinated our restoration 
activities with the IMO in Ontario.
    While we do not know all the facts yet, the New York ISO 
believes there are three recommendations which we would like to 
present to this committee for your consideration. First, the 
current NERC voluntary reliability rules should be made 
mandatory under FERC jurisdiction, and entities that wish to 
have more stringent reliability rules should be allowed to do 
so. Second, the New York transmission grid should be 
strengthened, and we have provided specific recommendations 
along those lines in a document called ``Power'' in March and 
in a more detailed report, ``The New York Transmission Grid: 
The X Factor,'' which has been provided to the PSC and to the 
New York market participants late last year. Third, the 
internal New York and interregional planning processes should 
be enhanced and operating and communication protocols developed 
over a larger area. I would stress that it is not just the 
communication but it is the protocol in terms of what you do 
when you know that there may be potential problems out there.
    Finally, I agree with Mr. Gent of NERC that this should 
never have happened. Having the lights go out in New York City 
was our worst nightmare, and the NYISO will do all in its power 
to get to the facts and to do all we can to reduce the 
possibility of future events of this type. Thank you for your 
consideration and the extra time, Mr. Chairman.
    [The prepared statement of William J. Museler follows:]
 Prepared Statement of William J. Museler, President and CEO, New York 
                      Independent System Operator
    Good morning, ladies and gentlemen. My name is William J. Museler, 
and I am the President and Chief Executive Officer of the New York 
Independent System Operator, or NYISO. I appreciate the opportunity to 
brief the Committee on what we know so far about the August 14, 2003 
blackout and our restoration operations. My testimony today will focus 
on the questions raised by the Committee in the Notice of Hearing.
    Immediately prior to coming to the NYISO, I was the Executive Vice 
President of the Transmission/Power Supply Group of the Tennessee 
Valley Authority, which in terms of MW served, is the size of New York. 
Prior to that, I was Vice President of Electric Operations at Long 
Island Lighting Company. I serve as the Chairman of the ISO/RTO 
Council, and have served on the NERC Board and as Chairman of the 
Southeast Electric Reliability Council. I am a graduate of Pratt 
Institute and Worcester Polytechnic Institute.
    The NYISO was created to operate New York's bulk transmission 
system and administer the wholesale electricity markets. We are a New 
York not-for-profit organization and started operation in 1999. As you 
know, we are pervasively regulated by the Federal Energy Regulatory 
Commission (``FERC''). As provided in the Federal Power Act, we are 
also regulated with respect to certain financings by the New York State 
Public Service Commission.
    ISOs, and later regional transmission organizations (``RTOs''), 
were established to help implement the FERC's policies of partial 
deregulation as originally set forth in its Order 888, issued in 1996. 
In its order, FERC set forth certain functions of ISOs and, in a later 
order, of entities with similar functions such as RTOs. ISOs and RTOs 
generally act as the primary interface between generators, transmission 
owners and other participants in the wholesale electric marketplace. 
ISOs and RTOs accomplish this by dispatching the power system in their 
control area (i.e., directing the power plants to generate a specific 
amount of power at a specific time) to supply electricity to customers 
while maintaining safety and reliability. In addition, ISOs generally 
facilitate and administer a number of different electricity markets, 
thereby providing market participants with the ability to sell and 
purchase various services on an unbundled basis.
    The primary market function of ISOs or RTOs is to ensure fair and 
non-discriminatory access to the transmission system. As such, ISOs are 
meant to be independent of any individual market participant or any one 
class of participants. Reliability and security of the transmission 
system represent the other critical functions for a system operator. 
For example, the NYISO, in accordance with NERC, the Northeast Power 
Coordinating Council (``NPCC'') and the New York State Reliability 
Council (``NYSRC'') rules, implements and adheres to reliability 
standards intended to ensure that the integrated New York State 
electric system has enough generating capacity, including reserves, to 
provide a reliable power supply. Although ISOs play a key role in 
ensuring reliability, ISOs have only operational control of the bulk 
power system. They do not generate power, or own any generating or 
transmission equipment. They do not have any financial interest in any 
transactions for the generation or sale of electricity.
    I would like to make clear at the outset the areas that we know and 
those that we do not. While I am, of course, aware of what has been in 
the press regarding the events that initiated the blackout in a 
significant part of the Eastern Interconnection, I am not yet able to 
tell you anything in detail about those events because they have not 
yet been determined in detail, and details in this case are extremely 
important. Because the initiating events happened in a very short 
period of time--really just a matter of seconds--and happened away from 
New York, understanding them fully depends largely on interpreting 
electronic data that we do not have. The International Commission 
formed by President Bush and Prime Minister Jean Chretien of Canada is 
being given the data 1 and is undertaking its 
interpretation. We are, of course, cooperating fully in this 
investigation. The U.S. end of that investigation is well underway and 
is headed by the Department of Energy. Like you, I'm anxiously awaiting 
their conclusions.
---------------------------------------------------------------------------
    \1\ NERC has been designated as the central data collection and 
analysis point and all data is being sent to them.
---------------------------------------------------------------------------
    In addition to outside investigations, the NYISO began its own 
investigation and analysis within hours of the event. The NYISO is 
reviewing its own records to determine the precise sequence of events 
that took down major portions of the New York system within fractions 
of a second. We have, in our preliminary analysis, identified two 
uncontrollable power swings that led to the New York system disturbance 
that occurred at about 4:11:00 p.m.
    Up until the event, our system was operating normally, well within 
applicable criteria and with adequate reserves. There had been a 
routine scheduling call with adjoining control areas that occurred only 
11 minutes before the event (at 4:00:00 p.m.) without indication of a 
problem. The first indication of a possible problem somewhere on the 
Eastern Interconnection occurred at 4:09:09 p.m. in the form of a 
counter-clockwise 700 MW power swing that flowed from the PJM control 
area through New York into the Ontario control area (which is operated 
by the Independent Electricity Marker Operator or ``IMO''). The 700 MW 
power swing did not, however, create a system contingency on the New 
York system (i.e., the system was still secure and within intended 
operating criteria). This 700 MW power swing was not a very unusual 
occurrence and thus did not alarm the operators. Such a swing usually 
indicates that a power plant or transmission element has failed in 
another region.
    A second counter-clockwise 1100 MW power swing occurred a minute 
later, at 4:10:40 p.m., again flowing from the PJM control area through 
New York into the Ontario control area. At this point, there were 
approximately 2700 MW flowing through this New York transmission 
corridor, consisting of approximately 900 MW of normal flow compounded 
by the 700 MW and 1100 MW power swings. Our preliminary data indicates 
that seconds thereafter, a 2700 MW reverse power swing either from or 
through Ontario into the New York system occurred, which 
instantaneously took down major portions of the New York system. 
However, several hydro plants in upstate New York, as well as the 
Quebec tie line, remained in service, as did the majority of the 
upstate transmission system. Thus, about 20% of the New York load 
continued to receive service during the disturbance. Unfortunately, New 
York City was completely without service at this point.
    Immediately after the event, the NYISO began implementing its 
restoration plan. The first step in the restoration process involves 
stabilizing the system and restoring our ties to the neighboring 
control areas. After that, the process of bringing power plants and 
outside sources back online must take place, including the delicate 
balancing of the power they can supply with the demand in the 
individual area being restored. If the demand were greater than the 
supply, the system would crash in the affected area, and fortunately 
that did not occur.
    Within about three hours, we were able to restore one major tie to 
the remainder of the Eastern Interconnection at Ramapo. The first major 
power plant was returned to service in just under an hour after that, 
and a few minutes later we re-established a transmission path to New 
York City. Throughout the next day, there was a painstaking process of 
bringing generators back to the system and re-energizing lines. 
Statewide service was completely restored by 10:30 p.m. Friday, August 
15th. The restoration process followed NYISO's pre-arranged plan and it 
worked well.
    Preliminary analyses indicate that the New York system operated as 
designed, given the event, and that the power swings New York 
experienced were beyond anything the system had been designed to 
withstand.
    In an occurrence such as the recent blackout, the greatest danger 
to electric service is potential damage to the system itself--the power 
plants and the transmission lines. Had that kind of damage occurred, it 
could have taken days, weeks, or even months to restore. Fortunately, 
the complex protective mechanisms that had been installed on New York's 
transmission system and on its power plants worked as intended and no 
serious damage was done. This protection shortened the restoration 
process considerably.
    We do not know at this time what equipment, design, or process 
improvements would be required to prevent a reoccurrence of the August 
14th blackout. It is important to understand that the facts must drive 
the measures taken to prevent a reoccurrence of the August 14th 
blackout. Until the cause of the cascading blackouts is ascertained, we 
cannot anticipate what design changes, preventive equipment, or process 
improvements should be put in place. Needless to say, we will 
thoroughly review our own operations to determine if they can be 
improved, and all of our data and analyses will be forwarded to NERC 
for use in the International Commission's investigation.
    The events that so affected New York on August 14th are not yet 
known in sufficient detail to plan and implement specific solutions. 
However, we believe it makes sense to examine the known problems that 
could give rise to other reliability concerns in the future. We believe 
that the reliability standards set by the NERC, which are now 
voluntary, should be made mandatory. That issue is now before the 
Congress in the energy legislation now before a conference committee. 
We also believe those standards should mandate significantly improved 
communications and operating protocols among the various regions of the 
country, since we are now painfully aware of the extent to which events 
in one region can affect neighboring regions. Right now, there is no 
expectation that a non-adjacent system operator would communicate to 
other, non-contiguous control areas the existence of a condition or 
disturbance on its system, which is outside of allowable operating 
limits. Neither, is there an obligation on the control area's neighbors 
to communicate to the control area any information they obtain 
regarding problems on other systems. Communications alone, 
unfortunately, will not prevent a future blackout from occurring. The 
goal of having better communication is to enable ISOs and RTOs to take 
anticipatory action, if required, as soon as a system condition or 
disturbance becomes apparent anywhere on the Interconnection. Of 
course, there is no guarantee that prior knowledge or notice will 
translate into anticipatory action that can prevent a system 
disturbance.
    There are some actions that can be taken in New York to help ensure 
that other reliability problems do not arise. New York has been short 
of generation in the recent past and projections indicate that 
deficiencies are likely again later this decade. That shortage will 
grow and will represent both a reliability concern and, in our new 
competitive markets, a cost to consumers. The NYISO has already 
reformed its capacity markets to encourage investment in needed 
facilities and is working with neighboring regions to develop regional 
capacity markets.
    New York's transmission grid and its internal planning process 
needs to be strengthened. Current incentives for building transmission 
are inadequate. Likewise, inter-regional planning processes should be 
improved, and in the case of interstate facilities, a federal override 
(backstop authority) may be appropriate. I should note that this 
problem also has a continuous upward effect on electricity prices, 
since congestion on our transmission grid inhibits the free trade in 
electricity that the competitive markets were designed to foster.
    In this brief statement, I have tried to respond to the Committee's 
questions and to summarize the state of the investigations into what we 
know about how we handled the recent blackout in New York. I have tried 
to do so without speculating on things about which it is premature to 
draw conclusions. Needless to say, once the results of the 
international investigation are available, the NYISO will move 
aggressively to implement appropriate changes, as indicated by that 
investigation. Finally, I have taken the opportunity to alert the 
Committee to some of the measures, which can help to avoid future 
problems.
    I want to thank the Committee for the opportunity to come here 
today, and we will be cooperating with the Committee and the on-going 
inquiries into the outage.

    Mr. Barton. Thank you, sir. I want to just clarify 
something. Everybody's testimony is in the record, and all the 
members and their staffs, I am told, have had the testimony in 
advance so that we can read it and prepare questions, but we 
really do ask that you summarize in 5 minutes. Now, obviously, 
we are not going to shoot you if you don't, but we would like 
you to hold it as close to 5 minutes as possible. So with that, 
we will go with Mr. Torgerson who is the CEO of the Midwest ISO 
in Indianapolis, Indiana and ask that you try to summarize in 5 
minutes.

                 STATEMENT OF JAMES P. TORGERSON

    Mr. Torgerson. Good afternoon, Mr. Chairman and members of 
the committee. My name is James Torgerson. I am the president 
and chief executive officer of the Midwest ISO. I would like to 
thank the committee for allowing me to appear today to provide 
what insights I can concerning the circumstances surrounding 
the power outages of August 14 and offer suggestions as to what 
might be done in the future.
    The Midwest ISO was formed in 1998. The Midwest ISO was the 
Nation's first voluntary regional transmission organization 
that did not originate from a legislative mandate or against 
the back drop of a tight power pool. The Midwest ISO is also 
the first entity found by the Federal Energy Regulatory 
Commission to be a regional transmission organization.
    The Midwest ISO's region covers portions of 15 States and 
the Canadian province of Manitoba. Of relevance to your inquiry 
here, our current role is that of a NERC-certified reliability 
coordinator. As a reliability coordinator, the Midwest ISO 
monitors flows on key transmission facilities, develops day-
ahead plans, conducts next-hour analysis regarding the high 
voltage grid and communicates with the control areas in our 
region who have the primary control capabilities to open and 
close transmission circuits and to redispatch generation. Three 
of the more than 30 companies within our reliability 
coordinator territory suffered outages in the black out: 
Consumers Power Company, Detroit Edison Company and FirstEnergy 
Company.
    The cause of the blackout and why it cascaded will be 
forthcoming from the work being done by the International Task 
Force formed by President Bush and Prime Minister Chretien of 
Canada. The Midwest ISO only has a part of the data needed to 
reconstruct the events. The Midwest ISO is cooperating with the 
committee, the International Task Force and the General 
Accounting Office. Likewise the reason for the cascading effect 
of the outages is unknown at this time.
    The analysis that has been done to date in the Midwest 
seems to indicate that there were a number of events in the 
Eastern Interconnection on August 14. Some are surely related 
to separations and the substantial losses of load that 
occurred, and others are likely unrelated. At approximately 
4:10 Eastern Daylight Time portions of the Eastern 
Interconnection were separating from one another, and the loss 
of significant load was only seconds or minutes away. At 4:19, 
the Midwest ISO initiated the first NERC coordinating call of 
the day among NERC and the regional reliability coordinators. 
During that first call, the issues became ascertainment of 
system conditions and then commencement of restoration 
activities.
    The Midwest ISO worked with each control area to ensure the 
individual area restorations would not threaten even a small-
scale repeat of Thursday afternoon's events. The Midwest ISO 
was able to relay information to Michigan about power available 
from Illinois that could safely be imported to hasten the 
restoration of load. Additionally, the Midwest ISO, in 
combination with the IMO and others, determined when it was 
safe to reestablish the ties between Michigan and Canada.
    As only one of the companies contributing information to 
NERC and DOE, we do not have a picture of events across and 
adjoining the footprint of affected systems. Events occurring 
across the Eastern Interconnection, including plant outages, 
voltage conditions and the operation of protective relay 
schemes, will have to be evaluated before cause can be 
distinguished from effect.
    The question has been asked, what systems worked and what 
failed? The full answers to the questions posed cannot be known 
until the work of the DOE-led investigation is complete. 
However, it seems there were a number of items that did work as 
they were intended. Equipment that was designed to protect 
transmission lines and generators during cascading events 
operated successfully to isolate equipment before there was 
permanent damage. Automatic protection systems did keep the 
blackout from spreading even further. Considering the size of 
the area impacted, the restoration proceeded in an orderly 
manner with much of the load restored within 48 hours.
    The committee is also confronting the question of what can 
be done to prevent a recurrence of the outages. I believe that 
you will find agreement that widespread adherence to strong 
reliability standards will be important. Other matters will be 
crucial as well, and in my opinion they include the development 
of more transmission infrastructure consistent with regional 
plans, such as the one recently developed by the Midwest ISO, a 
reassessment of the existing hierarchical control structure 
between the control areas and reliability coordinators, 
increased automated data sharing about system conditions over a 
wider area and review of protective relaying practices in the 
industry.
    Finally, for the Midwest ISO in particular, acceptance by 
the FERC of our tariff filing to establish energy markets in 
our territory is critical. This will bring added elements of 
region wide action that are not present today--a security 
constrained generating unit commitment program and a real-time 
security constrained economic dispatch.
    This concludes my remarks, and I would be pleased to answer 
questions.
    [The prepared statement of James P. Torgerson follows:]
Prepared Statement of James P. Torgerson, President and Chief Executive 
    Officer, Midwest Independent Transmission System Operator, Inc.
    Good morning, Mr. Chairman and Members of the Committee. My name is 
James P. Torgerson. I am the President and Chief Executive Officer of 
the Midwest Independent Transmission System Operator, Inc. (``Midwest 
ISO''). I am appearing on the panel with the other CEOs of the 
Independent System Operators (ISOs) and Regional Transmission 
Organizations (RTOs) that were affected during the blackout of August 
14 to offer what insights I can concerning the circumstances 
surrounding the power outages and offer suggestions as to what might be 
done in the future.
    The Midwest ISO was formed in 1998. The Midwest ISO is the nation's 
first voluntary regional transmission organization that did not 
originate from a legislative mandate or against the back drop of a 
tight power pool. The Midwest ISO is also the first entity found by the 
Federal Energy Regulatory Commission to be a Regional Transmission 
Organization.
    The Midwest ISO's region covers portions of fifteen states and the 
province of Manitoba. Of relevance to your inquiry here, we act as a 
Reliability Coordinator for three sets of companies. As Reliability 
Coordinator, the Midwest ISO monitors, plans, conducts analyses 
regarding the high voltage grid and communicates with the Control Areas 
in our region who have the primary control capabilities to open and 
close transmission circuits and to redispatch generation. We perform 
this coordination function for the companies that have transferred 
functional control of their transmission systems to us. We do it 
through contract with the East Central Area Reliability Council (ECAR) 
for two systems that are scheduled to transfer control to us in the 
future, Northern Indiana Public Service Company and First Energy's 
Northern Ohio system (First Energy's eastern assets are under the 
control of PJM). Finally, through a contract with MAPPCOR we perform 
this service to companies in the Mid-Continent Area Power Pool (MAPP) 
region that have not transferred control of their transmission systems 
to the Midwest ISO. Three of the more than 30 companies within our 
reliability coordinator territory suffered outages in the black out--
Consumers Power Company, Detroit Edison Company and First Energy 
Company.
    What exactly caused the blackout will be forthcoming from the work 
being done by the International Task Force formed by President Bush and 
Prime Minister Chretien of Canada. As Secretary of Energy Abraham's 
press release of last Wednesday states: ``It's a complex job we are 
undertaking. It's going to take some time to compile all this 
information, get it all synchronized and sequenced, and then determine 
exactly what happened when--and how it's all interrelated.'' The 
Midwest ISO only has a part of the data needed to reconstruct the 
events and is not in a position to characterize the proximate cause of 
the blackout. The Midwest ISO is cooperating with the Committee, the 
International Task Force and the General Accounting Office's 
investigations into the matter. Likewise the reason for the cascading 
effect of the outages is unknown at this time.
    The analysis that has been done to date in the Midwest seems to 
indicate that there were a number of events in the Eastern 
Interconnection on August 14th. Some are surely related to separations 
and the substantial losses of load that occurred, and others are likely 
unrelated. During the morning and into the afternoon, Midwest ISO 
personnel were in contact with various control area operators and PJM, 
the neighboring reliability coordinator about the events of the day, 
which by the afternoon had included the outages of several high voltage 
transmission lines. During the morning of August 14th, there was no 
indication to the Midwest ISO of significant problems in our territory. 
During the course of the hour preceding the cascading event, after the 
loss of a large generating unit in northern Ohio had already occurred, 
several transmission line outages also occurred in the Ohio area. 
During this period the Midwest ISO operator was in contact with the 
neighboring Reliability Coordinator at PJM as well as control operators 
within our territory. At this point in time, the issues did not seem to 
implicate a regional problem.
    Things began to change at 4:09. By 4:10 Eastern Daylight Time 
portions of the eastern interconnection were separating from one 
another and the loss of significant load was only seconds or minutes 
away. At 4:19 the Midwest ISO initiated the first NERC coordinating 
call of the day among NERC and the regional Reliability Coordinators. 
These calls were repeated every several hours thereafter and eventually 
to a few times per day during the restoration. During that first call 
the issues became ascertainment of system conditions and the 
commencement of restoration activities.
    During the restoration efforts, the Control Area operators 
performed their responsibilities in linking returning generation with 
load to be restored. The Midwest ISO, as a Reliability Coordinator, 
played its part in analyzing the transfer capability into Michigan and 
Ohio to safely deliver power into those areas. The Midwest ISO worked 
with each area to ensure the individual area restorations would not 
threaten even a small-scale repeat of Thursday afternoon's events. The 
Midwest ISO was able to relay information to Michigan about power 
available from Illinois that could safely be imported to hasten the 
restoration of load. Finally, the Midwest ISO, in combination with the 
IMO and others, determined when it was safe to reestablish the ties 
between Michigan and Canada.
    As only one of the companies contributing information to NERC and 
DOE we do not have a picture of events across and adjoining the 
footprint of affected systems. Events occurring across the eastern 
interconnection including plant outages, voltage conditions and the 
operation of protective relay schemes will have to be evaluated before 
cause can be distinguished from effect. I am awaiting the results of 
the International Task Force formed by President Bush and Prime 
Minister Jean Chretien of Canada.
    The question has been asked, what systems worked and what failed? 
The full answers to the questions posed cannot be known until the work 
of the DOE led investigation is complete. However, it seems there were 
a number of items that did work as they were intended:

 Equipment that was designed to protect transmission lines and 
        generators during cascading events operated successfully to 
        isolate equipment before there was permanent damage to the 
        equipment. This shortened the time period of the restoration 
        efforts because, had protection systems not operated to protect 
        individual components as designed, the power production and 
        delivery systems could have been severely hampered for many 
        months.
 Automatic protection systems did keep the blackout from spreading 
        even further.
 Considering the size of the area impacted, the restoration proceeded 
        in an orderly manner with much of the load restored within 48 
        hours of the initial disruption. The Control Areas have primary 
        responsibility to restore their systems while maintaining a 
        balance of resources and load. The ISO/RTOs assisted in the 
        restoration effort by ensuring equipment was not being put at 
        risk for furthering cascading as generators were being brought 
        back on-line and as load was being restored. The coordination 
        among the ISO/RTOs and their member systems worked to assure a 
        reliable restoration.
    In my opinion, the restoration efforts would have been less 
effective a year ago, because at that time our territory was smaller, 
our regional view was not as developed and an additional reliability 
coordinator would have been involved in the Midwest. The Midwest ISO 
was able to assist in the regional coordination of the restoration of 
power in a fashion that did not allow a repeat of August 14th's events.
    Looking forward a year presents much the same difficulties as 
looking back. Until we know the exact cause and effect of the various 
incidents and how certain physical equipment expected to operate to 
isolate outages earlier did perform, no one can give a conclusive 
answer. Making a few presumptions, I believe the Midwest ISO will be in 
a better position next August to lessen the likelihood of any 
recurrence. We have before FERC a tariff that if accepted and 
implemented will have the Midwest ISO running wholesale markets, much 
like PJM, the New York ISO and ISO New England do today. That tariff 
will put matters like a regional security constrained unit commitment 
and real time generation dispatch in place. Each of these additions 
should be of substantial benefit. That will give the Midwest ISO more 
information about generation unit status than we have today and add an 
ability to direct generator actions within the footprint. This market 
will improve reliability. Indeed a strong, reliable system is the 
necessary underpinning of a successful market. The two are not opposite 
poles they are two halves of what is necessary for reliable service to 
customers.
    I think all the regional entities involved have an appreciation 
today that communication between reliability coordinators and other 
entities has to be raised to a higher level than has been required or 
practiced in the past. At a basic level, that has already happened. The 
use of the NERC coordinating call to apprise our industry counterparts 
of the computer virus on August 20th is an example of that increased 
communication. Mere telephone communication; however does not seem 
adequate for the future. The Midwest ISO and PJM have a Joint Operating 
Agreement under development that calls for substantial real time 
automated data transfers between our systems. While the Joint Operating 
Agreement is not yet finalized, the Midwest ISO and PJM have recently 
established the physical communication network links to allow for the 
types of data transfer called for by the Agreement. Once the software 
is in place the enhanced data transfer can be made operational. We are 
each reassessing the Agreement to determine what additional features it 
should have in light of the events of August the 14th.
    The Committee is also confronting the question of what can be done 
to prevent a recurrence of the outages. While the definitive answer 
cannot be given today, I believe that you will find agreement that 
widespread adherence to strong reliability standards will be important.
    Other matters will be crucial as well. In my opinion they include:

 The development of more transmission infrastructure consistent with 
        regional plans;
 A reassessment of the existing hierarchical control structure;
 Increased, automated data sharing about system conditions over a 
        wider area; and
 Review of protective relaying practices in the industry.
    For the Midwest area as a whole we need the participation of all 
major transmission systems in an RTO. This will end the prospect of the 
risks posed by a Swiss cheese configuration of systems, some in an RTO 
and others not. Finally, for the Midwest ISO in particular, acceptance 
by FERC of our tariff filing to establish energy markets in our 
territory is critical. This will bring added elements of region wide 
action that are not present today--a security constrained generating 
unit commitment program and a real-time security constrained economic 
dispatch.
    Of the eight items I mentioned, the first, mandatory reliability 
standards is largely in your hands. As to the development of more 
infrastructure in our region, the Midwest ISO issued its first 
transmission expansion plan this June. It calls for construction of 
$1.3 billion of already planned projects. It identifies another $ .5 
billion of proposed reliability projects. Commitment of participating 
transmission owners to pursue these projects is crucial for the future. 
The cooperation of the states in allowing timely construction is also 
important. I am pleased that within our region we have begun that 
cooperation with the newly created Organization of MISO States. This 
organization includes 14 states and the Canadian province in our 
region.
    The remaining six items will call for the strong interplay of 
industry participants and the national government mediated through or 
directed by the Department of Energy and the Federal Energy Regulatory 
Commission.
    This concludes my remarks and I would be pleased to answer 
questions.

    Mr. Barton. Thank you, Mr. Torgerson. We now want to hear 
from Mr. David Goulding who is the CEO of the Independent 
Market Operator of Ontario. You are recognized for 5 minutes.

                   STATEMENT OF DAVID GOULDING

    Mr. Goulding. Thank you very much. Yes, I am David 
Goulding. I am CEO of the Independent Electricity Market 
Operator in Ontario, and I would like to thank the committee 
for inviting me to come and speak to them on this particular 
event.
    With a population of about 11 million people, Ontario has 
an electricity supply system which is roughly equal to that of 
New England, with annual usage of about 150 terawatt hours. Our 
electricity system has been fully integrated with neighboring 
U.S. systems for many decades. The significant import and 
export capability with the States of New York, Michigan and 
Minnesota that can total about 2,700 megawatts. And in fact 
this import and export capability has been used many times over 
the years, first of all, for trade, the economic trade in 
electricity, second, both ways in times of need when our 
neighbors or ourselves may have had an issue with adequacy for 
some period of time, and, third, in times of response to 
contingencies on the power system when there has been immediate 
flows across North if it was a problem in Ontario, south if it 
was a problem in the United States. So this system has worked 
extremely well.
    We in Ontario and the IMO are participants and members of 
the standard setting companies, such as NERC and the Northeast 
Power Coordinating Council, and we are also members of the 
recently formed Regional Transmission Organization Council of 
all operating Regional Transmission Organizations and ISOs.
    Electricity in Canada is predominantly a provincial 
jurisdiction. The Federal involvement is mainly through the 
National Energy Board exercising a role quite limited in terms 
of export permits and international facility approvals. So the 
regulator in Ontario will be the Ontario Energy Board, and we 
at the IMO have certainly regulatory functions too. Although we 
are not under the jurisdiction of FERC, the Commission in a 
recent decision did find that the IMO operates electricity 
markets that meet their criteria for providing non-
discriminatory access to U.S. entities as well as to Ontario 
entities.
    The IMO itself was created in 1999 as a part of the Ontario 
restructuring of electricity and one or two key 
accountabilities that I would like to mention that I think are 
important. One is that our objects were assigned by the 
provincial legislation to include participating in the 
development of standards and criteria relating to the 
reliability of transmission systems, as well as directing the 
operation and reliability of IMO control grid. We have a 
license from the Ontario Energy Board obliging us to enter into 
agreements with transmitters to direct the operation of the 
grid. We have an extensive set of market rules that go into 
considerable detail related to reliability obligations, 
authority monitoring and enforcement, and a copy of that has 
been filed with FERC. And I think particularly important in the 
context of what we are hearing during these 2 days is we do 
have a full status-based authority for establishing, monitoring 
and enforcing reliability standards. And in this regard, the 
IMO has been an active participant in NERC and MPCC and has 
adopted the standards developed through those organizations as 
the basis for our standards in Ontario.
    So we are both a control area operator for Ontario, we are 
also the reliability coordinator for Ontario, and we have been 
the subject of a NERC reliability coordination audit. In 
respect to our ability to enforce compliance and impose various 
types of penalties, a reliability compliance audit by the MPCC 
concluded that our procedures and practices are exemplary in 
discharging reliability authority function, and if I can quote, 
``The Ontario Are Compliance Program is unique in that it is 
directly tied to the established market rules and licensing 
requirements. This structure makes compliance a binding 
obligation and facilitates in the administration and 
enforcement of compliance. The MPCC's Compliance Monitoring and 
Assessment Subcommittee encourages other areas to consider such 
a compliance model.''
    So very briefly, in finishing off, we were unaware of any 
events on the interconnected system until around 4:09, 4:10 on 
August 14. Our system was operating normally within all limits, 
voltage and transmission limits. We had the requisite operating 
reserve available to us, and we, like some of our other 
colleagues, were hit by power swings on the system which 
developed over seconds, essentially, and shut down the whole 
province of Ontario. So maybe I will leave at that. Thank you.
    [The prepared statement of David Goulding follows:]
  Prepared Statement of David Goulding, President and Chief Executive 
    Officer, The Independent Electricity Market Operator of Ontario
    I would like to thank the Committee for inviting the Independent 
Market Operator of Ontario to join this panel. My name is David 
Goulding, and I am the President and CEO of the IMO since its inception 
over four years ago.
    There is strong tradition of cooperation and trade in electricity 
between Ontario and its U.S. neighbours. Our interconnections have 
yielded significant benefits to all parties over the years--benefits 
that can and should be preserved as we move forward. I say this even 
though Ontario was one of the jurisdictions hardest hit when this 
disturbance cascaded across our borders.
    Today, I'll provide a quick background on how Ontario fits into the 
North American grid and markets, then proceed to address the six 
questions that were in the chairman's letter of invitation.
     1. ontario is fully integrated into the u.s. grids and markets
    With a population of 11 million people, Ontario has an electricity 
system roughly equal in size to New England's. Annual use is about 150 
TWh, valued at over CAD $11--billion. The generation mix in Ontario is 
made up of nuclear, coal, hydroelectric and natural gas. Trade with our 
neighbouring jurisdictions is considerable, amounting to several 
hundred million dollars/year. For example, in the last twelve months, 
Ontario has traded the following volumes with its neighbouring states:

------------------------------------------------------------------------
                                                               EXPORTS
                                                 IMPORTS to      from
                                                Ontario GWh  Ontario GWh
------------------------------------------------------------------------
New York......................................        1,572        3,149
Michigan......................................        5,436          132
Minnesota.....................................          364           23
    TOTAL.....................................        7,372        3,304
------------------------------------------------------------------------

    Ontario's electricity system has been fully integrated with 
neighbouring U.S. systems for many decades. There is significant 
import/export capability with the states of New York, Michigan and 
Minnesota that can total up to 2700 MW. This can supply up to 10% of 
Ontario's peak demand. We are active participants and members of 
international standards setting and development organizations such as 
North American Electric Reliability Council (NERC), Northeast Power 
Coordinating Council (NPCC), and of the recently formed Regional 
Transmission Organization (RTO) Council of all operating Regional 
Transmission Organizations in North America.
    Electricity is predominately under provincial jurisdiction in 
Canada, with the federal National Energy Board (NEB) exercising a role 
limited to export permits and international facility approvals. The 
Ontario Energy Board (OEB) is the main regulatory agency for 
electricity in Ontario, although substantial regulatory functions, 
including reliability, are carried out by the IMO.
    While Ontario utilities are not under the jurisdiction of FERC, the 
Commission, in a recent decision, found that the IMO operates markets 
that meet their criteria for providing non-discriminatory access to 
U.S. entities as well as to Ontario entities.
   2. background on the independent market operator in ontario (imo)
    The IMO was created in 1999 as part of Ontario's restructuring of 
its electricity sector, and is the functional equivalent of a U.S. 
based ISO or RTO such as NYISO, PJM, or ISO-NE. The objectives of the 
IMO are established by Ontario's Electricity Act, 1998. Our objectives 
are:

(a) to exercise and perform the powers and duties assigned to the IMO 
        under this Act, the market rules and its licence;
(b) enter into agreements with transmitters giving the IMO authority to 
        direct the operations of their transmission systems;
(c) direct the operations and maintain the reliability of the IMO-
        controlled grid;
(d) establish and operate the IMO-administered markets;
(e) collect, and provide to the public, information relating to the 
        current and future electricity needs of Ontario and the 
        capacity of the integrated power system to meet those needs;
(f) participate in the development by any standards authority of 
        standards and criteria relating to the reliability of 
        transmissions systems; and
(g) work with responsible authorities outside Ontario to coordinate the 
        IMO's activities with their activities.
    Participation in and operation of the IMO-administered markets is 
governed by a comprehensive set of Market Rules. A Board of Directors, 
made up of independents as well as stakeholders, governs the IMO and 
approves the Market Rules.
    The IMO-administered markets have been in operation since May 1, 
2002.
           3. specific accountabilities regarding reliability
     The IMO's objects assigned to it by Provincial legislation 
include participating in the development of standards and criteria 
relating to the reliability of transmissions systems, as well as 
directing the operation and maintaining the reliability of the IMO-
controlled grid.
     The IMO's licence, granted by the Ontario Energy Board (OEB), 
obligates the IMO to enter into agreements with Transmitters for 
purposes of directing the operation of the grid.
     An extensive set of Market Rules goes into considerable detail 
related to reliability obligations, authorities, monitoring and 
enforcement. A copy of these Market Rules is on the IMO website 
(www.theimo.com). A copy has been filed with FERC for information.
     The IMO has full statute-based authority for establishing, 
monitoring and enforcing reliability standards. In this regard, the IMO 
has been an active participant in NERC and NPCC and has adopted the 
standards developed through those organizations as the basis for 
reliability standards in Ontario.
     The IMO is Ontario's Control Area operator, and is party to the 
Northeast Power Coordinating Council (NPCC) agreement.
     The IMO is also the reliability coordinator for Ontario and was 
subject of a NERC reliability coordination audit in October, 2002.
     A 2002 reliability compliance audit by the NPCC concluded that 
the IMO's procedures and practices are exemplary in discharging its 
reliability authority functions. Its conclusion is that ``the Ontario 
Area compliance program is unique in that it is directly tied to the 
established market rules and licensing requirements. This structure 
makes compliance a binding obligation and facilitates in the 
administration and enforcement of compliance. NPCC's Compliance 
Monitoring and Assessment Subcommittee (CMAS) encourages other Areas to 
consider such a compliance program model''.
Question 1--What exactly were the specific factors and series of events 
        leading up and contributing to the blackouts of August 14?
    The Committee will hear from NERC on September 3rd, the day prior 
to this testimony.
    The IMO, along with many other entities, is working with NERC to 
put a complete picture of events together. Our technical experts and 
our data are being made available for this purpose.
    This testimony expands on the Ontario perspective on the 
disturbance and how we worked with our neighbours to restore service to 
customers.
Question 2a--At what time did your company first become aware that the 
        system was experiencing unscheduled, unplanned or 
        uncontrollable power flows or other abnormal conditions.
    Answer to 2a. Subsequent analysis of data indicates that the 
disturbance started at approximately 4:09 pm, and for the next several 
minutes, the following sequence occurred:

 The flow into Ontario from Michigan reversed, from a flow into 
        Ontario of about 486 MW to a flow out of Ontario which 
        increased over time, reaching over 2200 MW about 3 minutes into 
        the disturbance period.
 Voltages across Southwestern Ontario declined.
 Flow into Ontario from New York first increased by 700 MW and stayed 
        there for a minute or so and then increased further. Shortly 
        after, the flow reversed to be from Ontario out to New York, 
        settling at about 1,200 MW.
 During this time, voltage instability occurred in Ontario, and 
        frequency declined causing automatic frequency protections to 
        operate in Ontario in an attempt to arrest the decline by 
        shedding load.
 Various generating units and transmission lines started tripping off-
        line to protect equipment.
 Separation of Ontario from Michigan occurred at around 4:12 pm.
 Ontario is largely blacked out by 4:12 pm.
 Small pockets of Ontario remained connected to New York and in 
        Northwest Ontario to Minnesota and Manitoba.
Question 2b--What steps did you take to address the problem?
    Answer to 2b. Steps taken to address the problem:

 Confirmed extent of the disturbance
 Activated the Ontario Power System Restoration Plan including:
    --Communication with other Control Areas (CAs)
    --Communication with Transmitters
    --Communication with market participants in Ontario
 In order to restore power reliability to customers throughout the 
        Province, the priorities of the restoration plan are:
    --Restore Class IV AC power to all nuclear sites
    --Restore power to critical transmission and generating station 
            service loads
    --Restore critical utility owned telecom facilities
    --Restore customer loads to the extent necessary to control 
            voltages and secure generating units
    --Synchronize islands together and/or to adjacent power systems
 Suspended Ontario's IMO-administered Markets at 4:20 pm
 Activated the IMO's internal Emergency Response Team and our external 
        Crisis Management Support Team (within minutes):
    --Focus on public health and safety
    --Early notification to provincial and federal government regarding 
            scope and scale of the blackout
    --Early notification to telecommunications service providers to 
            sustain critical telecom
    --Identification of status of priority loads at several stages 
            through restoration (e.g.--hospitals, oil and gas 
            refineries, and water treatment plants)
 Set up Decision Support and Communication Centre with Ontario 
        government officials, including working with industry and 
        government to assist in implementation of the Ontario 
        government's voluntary conservation/curtailment program over 
        the week following the disturbance.
    Service was restored to all customers in Ontario by end of Friday, 
August 15th, with the voluntary curtailment request from government 
being lifted on Friday, August 22nd.
Question 2c--Were there any indications of system instability prior to 
        that time?
    Answer to 2c. There were no indications of system instability prior 
to that time.
    Pre-disturbance conditions:

 All reserve requirements were being met (1,580 MW)
 Operating within all system limits
 System voltages were within required ranges
 No significant transmission outage
 Actual Ontario demand--24,050 MW
 Schedules: from Michigan--1, 074 MW, from New York--373 MW
 Actual Flows: from Michigan--486 MW, from New York--1,089 MW
Question 3--Which systems operated as designed and which systems 
        failed?
    Power System Protections. Protections intended to isolate equipment 
from damage worked as designed. These protections provided a safe and 
orderly shut down for generators, transformers, and transmission lines.
    Emergency Power Supply to Control Centre. Back-up battery/diesel 
systems worked seamlessly at the IMO's Control Centre, providing 
electrical power to enable the IMO to direct the restoration of 
Ontario's power system.
    Public Telephone System. With the exception of cell phones that 
were overloaded early in the event, the public telephone network was 
generally available to the Control Centre. Subsequently, the heavy 
traffic made arranging large conference calls difficult.
    System Restoration and Crisis Management Processes. 

 Efficient and effective assignment of accountabilities within the 
        control room
 Good cooperation from field staff of generators and transmitters
 Good cooperation with neighbouring area operators
 Successful restoration plan
    Large-scale restoration is inherently complex, and our control room 
staff adapted to changing circumstances as the restoration proceeded, 
modifying approaches as necessary to achieve objectives. The overall 
restoration and crisis management processes proceeded in an orderly 
fashion and met their objectives.
    IMO Help Centre. The IMO Help Centre was immediately able to expand 
its operations from weekdays to 24x7, and successfully handled a 400% 
increase in call volumes over the ensuing 8 days. As a result there was 
always someone available to answer questions during the declared 
emergency, and all questions were handled quickly.
    The IMO Help Centre typically answers calls from IMO customers. 
During this period significant volumes also came from large industrial 
consumers, small businesses and the general public. The overriding 
request was for information to help them ensure that they, as 
electricity users, were ``doing the right thing,'' such as implementing 
conservation measures.
    The communication systems that the IMO Help Centre relies on to 
receive and reply to inquiries (i.e. phone and e-mail) functioned 
normally during the entire emergency.
    Communication Centre/Provincial Decision Support. A Communications 
Centre was set up to brief media on status of system restoration in 
Ontario and to provide information as to how customers can assist in 
the restoration effort. Press conferences, scheduled twice daily, were 
coordinated with Provincial officials.
    Provincial government officials were continuously briefed on power 
restoration priorities to ensure coordination with other government 
agencies.
Question 4a--If events similar to those that occurred on August 14, 
        2003 had happened a year ago, would the results have been the 
        same?
    Answer to 4a. No comprehensive analysis of the initiating and 
subsequent events is yet available. This question can only be answered 
in a meaningful way once that analysis, now underway at NERC, is 
complete.
Question 4b--If similar events occur a year from now, do you anticipate 
        having in place equipment and processes sufficient to prevent a 
        reoccurrence of the August 14 blackout?
    Answer to 4b. Ontario's intent is to incorporate lessons learned 
from this event, and to follow up on all recommendations designed to 
avoid a re-occurrence. But Ontario's actions, and those in our 
neighbouring jurisdictions, must be part of wider regional actions and 
solutions. It will not be sufficient if even a few entities fail to 
address the lessons learned. Actions must be taken by all 
interconnected jurisdictions.
Question 5--What lessons were learned as a result of the blackouts?
    It is too early to know all the lessons learned at this time. Only 
by thoroughly studying the events of August 14th and getting to the 
root cause of the events will the lessons become apparent. We can, 
however, confirm the value of various plans and practices from 
Ontario's perspective:

1. We confirmed that the devices that are in place to protect equipment 
        operated as planned.
2. We confirmed that maintaining a well-documented restoration plan, 
        supported by training and rehearsals involving the IMO, market 
        participants and government, was and will continue to be a key 
        investment.
3. We confirmed that close cooperation amongst the IMO, and Ontario 
        Transmitters, Generators, market participants and government is 
        essential to achieving an orderly restoration.
4. The significance of communication protocols between different 
        control areas and reliability coordinators became evident.
5. Maintaining a secure power system in a strongly interconnected 
        network is difficult when there is imperfect knowledge about 
        the extent of local disturbances that have the potential to 
        spread regionally. The extreme speed at which events can 
        cascade across the system increases the significance of timely 
        information.
Question 6--How can similar incidents in the future be prevented?
    While additional lessons will be identified as the event analysis 
proceeds, it is the submission of the IMO that the following principles 
should be adopted by the Committee, and acted on at the earliest 
possible date:

1. Maintain and enhance the integration of systems and markets: The 
        interconnections with our neighbours have yielded substantial 
        reliability and trading benefits for all parties over the 
        years. These benefits are significant and must be preserved.
2. Mandatory enforceable reliability standards should be put in place 
        where they do not exist:Reliability standards for the 
        interconnected North American grid should continue to be 
        developed through the NERC international processes and the 
        associated regional reliability councils but those standards 
        should no longer be voluntary, they should be mandatory.
    --A well-defined statute-based mandate should be established in the 
            U.S. under which a responsible organization would have 
            clear enforcement, compliance and sanctioning authority for 
            reliability performance. This mandate should be compatible 
            with the corresponding Ontario mandate with respect to 
            Ontario entities.
    --Ontario already has in place a statute-based authority to support 
            the development and enforcement of reliability standards. 
            Under Ontario law, the IMO establishes reliability 
            standards, and can and does enforce those standards. 
            Ontario standards established and enforced by the IMO meet 
            or exceed relevant NERC and NPCC guidelines and policies. 
            The IMO has all necessary authorities to impose sanctions 
            on asset owners for non-compliance.
    --The U.S. reliability standards language in the current U.S. House 
            and Senate Bills allows for the creation of an 
            international organization that properly reflects the 
            multi-national nature of the grid.
3. The industry should continue to pursue the three part strategy of 
        prevention, containment and minimization of impact:
    prevention: through good planning and operations, adequate 
            investments and putting in place mandatory enforceable 
            standards.
    containment: through monitoring capabilities, communication 
            protocols, as well as equipment and processes that are set 
            to limit the scale of disturbances.
    minimization of impact: through good restoration plans, practical 
            training, education and communications.
4. The industry should build on the strong institutional and regulatory 
        foundations already in place: It is our view that the framework 
        exists to provide for improvements and future prevention of 
        similar incidents. The strong and long tradition of 
        international cooperation has served North America well. The 
        institutions, agreements, and organizations already in place, 
        supplemented by well-defined authorities as necessary, are 
        fully sufficient, in our view, to take the industry forward.
    This concludes my prepared remarks. I am prepared to answer 
questions at this time.

    Mr. Barton. Thank you, Mr. Goulding. We now want to hear 
from Mr. Gordon van Welie, who is the CEO of the New England 
Independent System Operator in Holyoke, Massachusetts. You are 
recognized for 5 minutes.

                  STATEMENT OF GORDON VAN WELIE

    Mr. van Welie. Thank you, Mr. Chairman and members of the 
committee. My name is Gordon van Welie, and I am president and 
CEO of ISO New England. Sitting directly behind me is Steve 
Whitley who is senior vice president and chief operating 
officer. Before making some policy recommendations, I would 
like to briefly cover in a summary fashion the events on August 
14 from the perspective of our New England region.
    As you know, there is an intensive effort ongoing by the 
Department of Energy aided by the North American Electric 
Reliability Council to determine exactly what happened on 
August 14. We are confident that the blackouts began outside of 
New England, and we know that our system reacted as intended to 
limit the spread of the disturbance into New England. Automated 
protective mechanisms in our system open the ties 
interconnecting our system with New York and separated most of 
New England from the disturbance to the West. Power was lost in 
limited areas near the border with New York and most notably in 
southwest Connecticut where the transmission system is outdated 
and the State of Connecticut just recently approved a 
transmission upgrade. Our operators acted quickly to balance 
the isolated system, preventing further disturbance and began 
effective procedures to restore power where it was lost. They 
did an outstanding job.
    Moving on to the policy recommendations, it may be too 
early to propose detailed solutions, but based on our 
experience in New England as one of the most mature electricity 
markets in the country, I would like to offer four policy 
recommendations. Firstly, there must be a single entity with 
clear operational responsibility for a regional area of 
control. ISO New England fulfills this role in New England, we 
do so through one control area. Creating a Regional 
Transmission Organization in New England will further define 
our responsibilities and our authorities. We believe that size 
and operation responsibilities and authority are important 
considerations for Regional Transmission Organizations.
    It is difficult to determine what exactly the right size 
is; there is no science to this. However, we believe this is a 
balance and a tradeoff between regional vantage point and 
having a sufficient depth in one's system to deal with a wide 
range of contingencies, for instance, not making it too complex 
for human operators to be able to control. As we have seen 
under emergency conditions, computer systems fail, and in the 
end we have to rely on human operators to make decisions in a 
matter of seconds. In addition to science, clear operational 
responsibilities and authorities must be defined. Lack of 
clearly defined operational responsibilities between an RTO and 
participating transmission entities can lead to confusion and 
hesitancy of action, and those are dangerous situations in an 
emergency situation.
    Other speakers have emphasized the point that reliability 
standards must become mandatory. Ms. Betsy Moler in a previous 
panel had also mentioned that market rules need to be looked as 
well, and I would like to second that. Particularly, there is a 
dependency, particularly in the area of the way one schedules 
transactions, and I think in looking at reliability standards 
and ensuring that RTOs operate in a standardized way in the 
scheduling of those transactions is a very important point as 
well.
    The third policy recommendation I would like to make is 
that we need to have new transmission infrastructure, but we 
can't do so on an ad hoc basis. It must be done pursuant to 
systematic and thorough planning process such as one used in 
New England and in a number of system operators elsewhere in 
the country.
    The final point that I would like to make is that a balance 
must be struck between the interest of States to site 
transmission facilities and the importance of such facilities 
in the reliable operation of the regional electric system. A 
State should have the first opportunity to act upon application 
for siting approval. However, in instances of serious 
transmission constraint or congestion, appropriate Federal 
authorities should be empowered to issue permits for new 
transmission facilities if the public interest requires such a 
facility to relieve constraints and a State has failed to take 
action in a reasonable amount of time. And those are my 
comments. Thank you.
    [The prepared statement of Gordon van Welie follows:]
      Prepared Statement of Gordon van Welie, ISO New England Inc.
                      introduction and background
    Good Morning, Mr. Chairman and Members of the Committee. My name is 
Gordon van Welie, and I am the President and Chief Executive Officer of 
ISO New England Inc., the independent system operator of the bulk power 
grid that serves the six New England states. I am accompanied today by 
Stephen G. Whitley, ISO New England's Senior Vice President and Chief 
Operating Officer.
    By way of background, I joined ISO New England in 2000 after 
serving as Vice President and General Manager of the Power Systems 
Control Division of Siemens Power Transmission & Distribution LLC, 
where I worked closely with electric utilities on control systems 
involving generation and power supply reliability. An electrical 
engineer with a graduate business degree, I have twenty years of 
experience in the electric power industry in both the United States and 
South Africa.
    Steve Whitley has been in charge of ISO New England's operations 
since 2000. He was previously with the Tennessee Valley Authority 
(``TVA'') for thirty years, starting as an electrical engineer and 
progressing through a variety of positions which gave him 
responsibility for control area operations, power supply, economic 
dispatch, system protection, transmission security and services, and 
dispatching for TVA's six-state service territory. He was also in 
charge of the planning, design, and construction of the TVA 
transmission system. He is currently Chairman of the Electric Power 
Research Institute Grid Operations, Planning and Markets Working Group. 
Steve is available for comment today regarding operational matters, 
including the effect of the blackouts in our region and ISO New 
England's response thereto.
         iso new england's role as independent system operator
    ISO New England, an independent, non-profit corporation, is 
responsible for the reliable daily operation of New England's bulk 
electric generation and transmission system, which supplies 
approximately 14 million people. The system has an installed capacity 
of more than 31,000 megawatts. There are more than 350 generators and 
plants and over 8,000 miles of high voltage transmission lines in our 
region, and we have 12 interconnections with neighboring systems in New 
York and Canada. ISO New England's mission also includes fair and 
efficient operation of the region's $4.5 billion wholesale electricity 
marketplace, and it has been tasked by the Federal Energy Regulatory 
Commission (``FERC'') since 2000 to assess and plan for the regional 
system's short-term and long term reliability needs.
        roles and responsibilities in the electric power system
    Before addressing the Committee's specific questions, comment on 
today's restructured electric industry might be helpful. Different 
entities handle different functions in today's restructured electric 
industry. In New England, which constitutes one of the most mature and 
advanced electricity markets in the country, there are generators, 
transmission and distribution companies, marketers and the independent 
system operator. Generation is increasingly provided by unregulated 
entities who compete to sell their power into the marketplace, hoping 
to achieve satisfactory returns on their unregulated investments in 
generating plants. Transmission and distribution companies distribute 
electricity to customers on a regulated basis, using their own 
transmission and distribution lines, including protective devices which 
are designed to protect equipment in the event of power system 
disturbances and keep disturbances from spreading. These utilities earn 
an allowed return from rates which are a blend of transmission rates 
set by FERC and distribution rates established by state regulators. 
Marketers buy and sell generation to transmission and distribution 
companies.
    An independent system operator, sometimes operating through 
satellite control centers with differing degrees of authority and 
autonomy, administers the bulk transmission grid and dispatches power 
from generators onto the grid in accordance with system demands and 
reliability criteria. With several different players having replaced 
yesterday's vertically integrated utility, the need for clear 
delineations of responsibility and authority today is an increasingly 
pressing matter.
                      the new england power system
    Much of the bulk power system in New England was constructed on 
sound engineering principles in the late 1960's, and while it was 
constructed to accommodate future growth, the demand for power and the 
demands placed on it by competitive markets have outstripped the 
system's design.
    The market structure we administer in New England has been 
successful in attracting approximately 10,000 megawatts of new 
generation to the region since 1999, representing almost a third of the 
system load in peak season, and we believe the new standard market 
design we have just recently implemented provides more accurate market 
signals to incent the location of generation nearer to load centers. 
The market signals provided by the standard market design also more 
accurately value the availability of generation supply, such that in 
times of scarcity, wholesale market prices rise, which in turn creates 
an incentive for the building of new generation capacity. New 
generating plants sited in New England over the past five years have 
significantly increased regional generating capacity, but these plants 
have typically been built in less populous areas far removed from areas 
that are in the most need of generation. While this suggests the need 
for added transmission capability to get surplus power to customers, 
the increased investment in generation has not been matched by 
investments to upgrade the transmission grid. Our major problem in New 
England, and we are typical of many areas in the country, is therefore 
in delivering the power from generators to customers. Surplus 
generating capacity is not helpful if transmission cannot take it where 
it is most needed, nor can the economic benefits of a competitive 
market for electricity be fully realized if surplus generation cannot 
be accessed due to transmission constraints.
    Our ongoing planning efforts, which result in an annual planning 
document known as the Regional Transmission Expansion Plan, have 
identified three particular areas where major transmission improvements 
are needed: Southwest Connecticut, Northwest Vermont and Greater 
Boston. Nearly a billion dollars in new transmission projects are 
underway or planned to meet the needs of these transmission-constrained 
areas.
    Experience tells us that efforts to improve the transmission grid 
will run into problems. First, existing incentives for investment in 
new transmission may be inadequate in terms of return, certainty of 
recovery, and uncertainty of approval. Transmission investment must be 
made more attractive and process barriers must be reduced. Second, the 
regulatory approval process has become too long, too expensive and too 
uncertain. Potential transmission applicants need greater assurance 
that the approval process will be fair and efficient. Third, 
reliability has become politicized, and state regulatory bodies who 
must approve or deny applications for new transmission facilities and 
other equipment installations come under tremendous pressure in dealing 
with such applications. Politics should not be allowed to detrimentally 
affect reliable service.
                the transmission siting approval process
    As the Committee has invited comment which might help to prevent 
future disruptions, and as we believe siting and regulatory approval 
processes are relevant to efforts to install new transmission 
infrastructure needed for system reliability, we would like to offer 
observations and suggestions based on recent and pending regulatory 
proceedings in our region.
A. The Siting Approval Process Needs More Efficiency
    In July, Connecticut regulators approved a 22-mile transmission 
line crossing five towns, the first leg of a 345kV loop which will 
relieve system inadequacies in Southwest Connecticut, the most affected 
area in our region during the blackouts. Despite general 
acknowledgement of the need to improve electric service in Southwest 
Connecticut, the transmission application was not well received by 
towns and residents along the proposed route when Northeast Utilities 
began pre-application consultation activities with municipalities in 
July, 2001. The result, after formal filing of the application in
    October, 2001, was grass roots pressure on the siting process, 
executive and legislative involvement in transmission siting issues, a 
one year legislative moratorium on the proceeding, a task force to 
review the siting of transmission facilities, and the passage of 
legislation which will add considerable time, expense and uncertainty 
to the transmission siting approval process in Connecticut. The line 
was ultimately approved in July, 2003--almost three years after it was 
filed. And this was after a hearing schedule which spanned several 
months, consideration of more than twenty proposals, and eventual 
consent by the applicant to use a less preferred underground cable 
technology for a considerable portion of the route.
    An approval proceeding involving the second leg of the 345kV loop, 
a 52 mile line, lies ahead. The full 345kV loop serving Southwest 
Connecticut will not be completed until 2008 at the earliest. In the 
meantime, customers will continue to be exposed to the possibility of 
service disruption and higher prices.
    There is clearly a need for a speedier, more efficient process for 
siting approval, especially as siting decisions in one state can affect 
the operation of the electric grid in several other states--as should 
be apparent from the events of August 14th. Since bulk transmission 
facilities operate in interstate commerce, it is appropriate to provide 
that if state regulators are unable to conclude siting proceedings 
within a certain amount of time, federal authorities should take over 
the process. States should certainly retain primacy in approving 
transmission siting, but we favor federal backstop authority when 
states cannot act in a timely manner.
B. Mandatory Reliability Standards Will Benefit Regulators by 
        Depoliticizing Reliability
    ISO New England contributed to the siting approval proceeding for 
the first leg of the 345kV loop in Connecticut by providing reliability 
studies comparing the ability of different proposals to meet the need 
for improved electric service in Southwest Connecticut. We used 
national reliability standards adopted by the North American Electric 
Reliability Council (``NERC'') and regional standards adopted by the 
Northeast Power Coordinating Council (``NPCC''). Opponents of the 
proposed transmission line included state officials and affected towns 
who claimed that our reliability studies were flawed because our test 
cases assumed, in their estimation, that too many generator or 
transmission line outages could occur at the same time, thus subjecting 
the various alternatives under study to too many contingencies and 
overstressing them to unrealistic extremes. Even when opposing experts 
conceded that it was appropriate to overstress the system for planning 
purposes, they asserted that transmission lines should not be designed 
to deal with the more severe multiple contingency scenarios envisioned 
by planners.
    In effect, Connecticut siting regulators were being urged by 
governmental officials to approve a lower voltage transmission line 
than necessary to meet reliability standards. I mention this not as 
criticism of any particular party's right to present its views, but as 
an indication of the need to adopt mandatory reliability standards in 
order to fortify state siting officials against localized pressures to 
do less than what is necessary to assure reliability. I applaud the 
Connecticut Siting Council for reaching an appropriate decision in the 
face of considerable opposition, but mandatory reliability standards 
would have made their decision easier and should facilitate decision-
making in other areas of the country.
                    responses to committee questions
    Q. What exactly were the specific factors and series of events 
leading up and contributing to the blackouts of August 14?
    As the blackouts began in other regions, it is difficult for me to 
speculate on the specific factors which contributed to them. I assume 
others are better able than I am to answer this question. As the 
Committee undoubtedly knows, the Department of Energy and the North 
American Electric Reliability Council (``NERC'') are engaged in an 
intensive fact-gathering exercise to determine what happened, and I 
will be interested in their conclusions.
    Q. At what time did your company first become aware that the system 
was experiencing unscheduled, unplanned or uncontrollable power flows 
or other abnormal conditions and what steps did you take to address the 
problem? Were there any indications of system instability prior to that 
time?
    ISO New England control room operators first became aware that the 
system was experiencing a disturbance at 4:10 pm (EDT). There had been 
no prior indications of problems on the New England system prior to 
that time.
    Q. Which systems operated as designed and which systems failed?
    In the recent disturbance which affected much of the Northeast, we 
were able to isolate most of the New England grid from the rest of the 
power system. The New England system was designed and maintained 
properly and worked as expected. Automatic protective relay devices on 
the transmission lines opened as intended, interrupted the transmission 
lines and opened the ties interconnecting our system with New York. 
This mechanical action separated most of New England from the 
disturbance to the west. While power was lost in limited areas, the 
rest of the system was rebalanced and saved from a system-wide 
collapse. Of the limited areas in our system which were affected, I 
would suggest that Southwest Connecticut was hardest hit because its 
transmission system is the weakest part of our New England system and 
it could not withstand the disturbance. The 115kV transmission lines 
serving Southwest Connecticut cannot carry as much load as the 345kV 
lines serving the rest of Connecticut. Thanks to extensive training in 
restoration and an annual system restoration procedure exercise, our 
operators were well prepared to bring back power. Our operators adhered 
to their training and used the tools available to them within clearly 
established lines of authority, and we were able to restore power to 
many customers in the limited areas in our system which were affected, 
mainly in Southwest Connecticut, within approximately 12 hours. I 
regret that any customer lost power, but I believe ISO New England did 
an outstanding job under the circumstances of August 14. The 
coordination within the Northeast Power Coordinating Council (``NPCC'') 
was excellent throughout the disturbance and system restoration.
    Q. If events similar to those which happened on August 14, 2003 had 
happened a year ago, would the results have been the same? If similar 
events occur a year from now, do you anticipate having in place 
equipment and processes sufficient to prevent a recurrence of the 
August 14 blackout?
    Answering from the perspective of New England, being at the eastern 
edge of the disturbance, I would have expected similar results in our 
region if a similar set of events had occurred elsewhere a year ago. 
The protective relays in our system were audited by NPCC approximately 
a year ago and were in good condition, so I assume they would have 
worked. However, Southwest Connecticut's dependence on a 115kV 
transmission system would probably have made it similarly vulnerable. 
We have been deeply concerned over the last few years that Southwest 
Connecticut could experience significant outages because it is a major 
load center served by a very constrained transmission system. We simply 
cannot provide reliable service to a 3,500 megawatt load center with a 
115kV transmission system.
    Until 2008, five full years from now, when installation of the full 
345kV transmission line will hopefully be completed in Southwest 
Connecticut, we will continue to be concerned that this area could 
experience significant outages. As load continues to grow, it is my 
belief that events similar to those which occurred on August 14 could 
have similar effects in our region: most of the system would separate 
from adjacent systems, but Southwest Connecticut would remain 
challenged by its weak transmission system. Southwest Connecticut's 
growing demand for electricity has outpaced ISO New England's ability 
to assure reliable service to the people who live and work there. We 
have also identified Northwest Vermont and Greater Boston as areas of 
concern.
    I strongly support the regular maintenance program within New 
England and administered by NPCC to assure that all protective 
equipment is properly installed and in proper working order, and I 
advocate the continued thorough review and standardization of operating 
procedures and training so that both operators and equipment will be 
prepared to respond in the event of a recurrence a year from now. As 
noted, 345kV lines in certain areas of concern will not yet be in place 
next year but will eventually help in the event of a recurrence. Please 
see my comments below in response to the Committee's question regarding 
prevention of similar incidents in the future.
    Q. What lessons were learned as a result of the blackouts?
    ISO New England and the rest of the electric power industry in the 
Northeast are attempting to reconstruct exactly what happened, and the 
Department of Energy and NERC are working together to determine the 
causes of the blackout. We are still very much engaged in a learning 
exercise, and it may be appropriate to revisit this question after all 
the facts are established. In the meantime, we should probably all look 
closely at the way we operate our systems, the territory they cover, 
the decision-making structure and lines of authority, and applicable 
operating procedures and reliability standards.
    The operators at ISO New England know what the security limits are 
on the transmission system--thermal, voltage and stability. This 
knowledge is derived from both ``on-line'' and ``off-line'' software 
tools which are run periodically, in order to determine the security 
limits of the power system under a variety of operating conditions. The 
operators are trained to proactively operate within those limits in 
real time operation. They take immediate action when loading exceeds 
those limits, even if this means curtailing demand in a local area. I 
believe this operating posture was key to New England's ability to 
minimize the August 14 disruption and stay balanced following 
separation from the rest of the eastern power grid.
    Q. How can similar incidents in the future be prevented?
    The short answer is to increase the reliability of the electric 
system and to operate the system in a secure and analyzed state. We 
have several thoughts about how this objective should be accomplished. 
Upgrading infrastructure is an obvious priority, but the answer goes 
beyond that. We know that there are limits to public acceptance of 
transmission facilities and other infrastructure necessary for a 
reliable and uninterrupted supply of electricity. It is not realistic 
to expect reliability enhancements without infrastructure upgrades or 
improvement without investment, but aside from infrastructure issues we 
have a duty to maximize our ability to operate whatever system we have 
as reliably and cost effectively as we can. To this end, I would like 
to offer four policy recommendations which I believe will greatly 
improve the reliability of the bulk power grid.
                         policy recommendations
    1. There must be a single entity with clear operational 
responsibilities and authorities for the bulk power system in a region. 
ISO New England operating as a single control area fulfills this need 
for New England. Our area in New England is a manageable size, enabling 
us to operate with only four satellite control centers, without the 
need to yield operating autonomy to them. They provide information to 
the operators in our main control center, and the operating decisions 
are made by ISO New England. Creating a Regional Transmission 
Organization in New England will further define our operational 
responsibilities and authorities.
    In other areas of the country, size and operational 
responsibilities and authorities become very important considerations 
in creating and defining Regional Transmission Organizations. While it 
is difficult to describe what the ``right'' size of a regional area of 
control should be, size is nonetheless a very important consideration 
in creating Regional Transmission Organizations. A regional area of 
control must be large enough to track regional flows and have 
sufficient operational flexibility to be able to deal with a reasonably 
wide range of contingencies. However, as we have recently experienced, 
in an extreme emergency, operational control will rest on the shoulders 
of one or more human operators and, therefore, the area to be 
controlled cannot be too large. The accuracy of software tools supplied 
to operators are dependent on complex mathematical models, which in 
turn rely on accurate data being transmitted from the field. In 
emergency situations, these data sources can be compromised, thus 
further increasing the dependency on human interaction. In summary, 
there is a trade-off between size (in terms of regional ``vantage 
point'') and complexity, and achieving a reasonable balance between the 
two is paramount.
    In addition to size, clear operational responsibilities and 
authorities must be well defined. There must be documented a clear 
split of responsibilities between the Regional Transmission 
Organization and the transmission entities (including satellite control 
centers or control areas). Lack of clearly defined operational 
responsibilities between the Regional Transmission Organization and the 
participating transmission entities can be a major potential source of 
operational risk, particularly under emergency conditions. Cascading 
outages occur, as you have seen, in a matter of moments. There is no 
time for questions of overlapping responsibility, confusion of roles, 
or hesitant action. If you have only seconds to prevent voltage 
collapse and cascading, decisions regarding the redispatch of 
generation, reconfiguration and balancing of the system, and 
curtailment of transactions and firm load cannot be scattered among the 
system operator, satellite control centers, utilities and independent 
transmission companies. The control of the transmission system must be 
consolidated in one Reliability Authority which would not delegate its 
duties to underlying authorities and thus could be held clearly 
accountable for system operation. For this reason, we believe that 
reliability would be enhanced through proper implementation of the 
Regional Transmission Organization concept. The RTO, as an independent 
transmission provider, would have clear operational control and 
authority over the transmission grid in its region. The separation 
between planning for system reliability and implementing system 
reliability measures would be significantly narrowed, if not 
eliminated.
    2. Reliability standards must become mandatory and operating 
procedures must be standardized. Adequate reliability standards do 
exist today, but to ensure regional reliability they must have teeth. 
Reliability standards must become enforceable, with penalties, to 
assure that appropriate, modern equipment will be in place, that it 
will be properly maintained by trained personnel, and that there will 
be enough personnel to operate and maintain the system in accordance 
with reliability standards.
    Clear standards for transmission operation are also necessary, with 
standardized grid management rules and operational procedures, 
including adequate security limits, so that operators in every region 
will be better positioned to coordinate actions with their counterparts 
elsewhere in response to critical events. Right now we have procedural 
seams between our regions, and standardized operating rules would help 
eliminate them. I would be glad to volunteer the procedures utilized by 
ISO New England as a detailed and well-proven model. A core principle 
embodied in these procedures is to operate the power system in a secure 
and analyzed state. To supplement the concept of seamless operating 
procedures, I would also suggest an overview system whereby the status 
of the entire grid, including actual voltages, power flows and 
scheduled transactions could be monitored at the NERC and provided to 
each RTO Reliability Coordinator in real time.
    Referring again to the incredible speed with which voltage collapse 
can cascade into widespread outages, the first line of defense 
protecting one system from a disturbance in an adjoining system is 
mechanical. Mandatory reliability standards will encourage Reliability 
Coordinators and control areas to assure the readiness of their 
security analysis and alarm systems at all times. Mandatory standards 
will promote proper maintenance to assure that such important equipment 
as protective relay devices will always respond to transmission trouble 
and interrupt faulted lines before they cascade into other systems.
    If automated protective mechanisms fail to contain a system 
collapse, the second line of defense against cascading outages is 
human, and the likelihood of appropriate human response will be greatly 
increased by standardized operating procedures. Control room operators 
must take immediate action to get and keep the system within safe 
operating limits. This will prevent cascading blackouts. They must be 
empowered to immediately adjust any or all generating and transmission 
resources. They must also be empowered to immediately take load off the 
system. Operators must have a reflexive mastery of these procedures and 
must follow them in times of crisis with confidence in the knowledge 
that their counterparts in adjacent systems are following the same 
procedures.
    3. We must have new infrastructure, which means that we must 
provide new incentives for transmission owners to build new 
infrastructure. Right now the task of gaining approval for new 
transmission infrastructure is discouragingly costly, uncertain and 
time-consuming, with no assurance of regulatory approval and cost 
recovery, and clearly, the financial incentives for undertaking the 
task may not currently match the risks involved. Ways must be found to 
reduce process disincentives and assure appropriate investment 
incentives, including tax credits, to make transmission investments 
more attractive and to assure recovery of investment and an adequate 
return. Finally, it must be clearly understood that there will be 
significant costs for improving the reliability of the electric system, 
and that the costs will have to be paid by someone, most probably the 
customer who will ultimately benefit from both increased reliability 
and access to competitively priced electricity in an expanded 
marketplace. It is important to note that transmission infrastructure 
cannot, and should not, occur on an ad-hoc basis. It should occur 
pursuant to a deliberate evaluation of the overall adequacy of the bulk 
power system in a region, taking into account inter-regional 
dependencies. This can only be achieved with a systematic planning 
process, such as that currently employed by ISO New England and a 
number of other system operators. Such a planning process should also 
be mandatory, since it becomes the basis for exposing power system 
weaknesses on both a regional and national basis.
    4. A balance must be struck between the interests of states to site 
transmission facilities and the importance of such facilities in the 
reliable operation of the regional electric system. A state should have 
the first opportunity to act upon any application for siting approval. 
However, in instances of serious transmission constraint or congestion, 
appropriate federal authorities should be empowered to issue permits 
for new transmission facilities if the public interest requires such a 
facility to relieve constraints and a state has failed within a 
reasonable time to act upon a permit application or has unreasonably 
conditioned approval of the project.
    Thank you for your consideration.

    Mr. Barton. Thank you, sir. We now want to hear from Mr. 
Phil Harris, who is the president of the PJM Interconnection, 
which, as I understand it, is an RTO, and it has been approved 
by the FERC; is that correct?

                 STATEMENT OF PHILLIP G. HARRIS

    Mr. Harris. That is correct, Mr. Chairman.
    Mr. Barton. Okay. Your statement is in the record, and you 
are recognized for 5 minutes.
    Mr. Harris. Thank you, Mr. Chairman. I think, first of all, 
it is important to talk about what we are talking about with 
the Eastern Interconnection. It is a single 600,000 megawatt 
interconnected motor. The things travel at the speed of light. 
There are 3,300 different companies involved in the generation, 
transmission and distribution of power in the Eastern 
Interconnection, two countries, 38 States and 129 control 
areas. And if you do the combinations and permutations of the 
math about who has ideas to do what, you can begin to see it is 
an insurmountable problem. That means you have to have 
coherence, you need cohesion, and you need direction to operate 
this single synchronized motor in the most optimum way for the 
best public good.
    PJM is the largest control area in North America. It is 
78,000 megawatts. We currently have other systems that we are 
working with to join PJM: American Electric Power, Commonwealth 
Edison, Dayton, Duquesne and Dominion Resources. We are moving 
ahead, we have been operating competitive markets for a little 
over 6 years now, and the reliability has improved within the 
system, and the markets work and are stable.
    On the particular day of August 14, we were going along 
with business as usual. What is business as usual? Every 10 
seconds we were looking at 16,000 bits of information coming in 
from the system. This information will change. Any time there 
is a status change it will change immediately. Every minute we 
were looking at 2,000 different possible contingencies that 
could be happening to the system. Every 30 seconds we had a 
tool called the state estimator that was looking at the state 
of the system to make sure the data was valid and being 
communicated appropriately. In minutes, we were looking at the 
transfer limits of the flows that were coming into and out of 
the PJM system. Every 2 seconds we were looking at regulation 
of the generation that was coming in and leaving. Every 10 
seconds we were looking at the economic signals that we were 
sending out to the generators to work in a competitive market, 
and every 5 minutes we were looking at the security-constrained 
dispatch to make sure that the dispatch that was set up at that 
point in time could withstand the contingency on the system. As 
we went into the day, we had noticed some anomalies happening 
early on in the Midwestern part of the system, and we were in 
communication to the areas and the control areas out in that 
area about what was happening. This is normal course of 
business because things do break in this electrical mechanical 
system. It is designed to be able to withstand default and then 
to be able to go on.
    At exactly 4:10:48, as experienced with other systems, 
everything basically went south on us. We then took--the 
automatic actions took place to isolate the problem, and most 
of PJM was isolated from the system. We then took immediate 
action to analyze the condition of the system, because the next 
thing is the triage to ensure that your system is stable and 
would be able to withstand the next single fault that could 
possibly occur. We initiated a mobilization plan where we 
called for all generation to come online, we called for manning 
of the substations, manning of the combustion turbines. We 
began the preparation to support system restoration and provide 
all the support to the areas that were affected as soon as 
practicable.
    I will add, Mr. Chairman, that we do analyze twice a year 
and do complete restoration studies and analysis, and I do 
think from a professional point of view it is quite outstanding 
that New York was able to restore in a little less than 30 
years. It was a tremendous engineering feat, management feat, 
and the fact that they did it safely with large public support 
is something that should not go unnoticed.
    Looking at these events, the things happened and worked 
within PJM, our market continued to work and function 
appropriately. We do think that in looking at the lessons 
learned, yes, you need reliability rules and they need to be 
mandatory. You operate a system that operates at the speed of 
light. It is impossible to be ahead of it so you have to 
operate always planning for the worst thing to happen, and you 
are only as strong as the weakest link, so everybody has to do 
their part to make sure they can withstand that worst possible 
event.
    The other thing I would like to talk about is the 
importance of regional planning. It was touched on oftentimes 
in the earlier panel. PJM was blessed in the fact that our 
States insisted in 1995 that before we began competitive 
markets we set up regional planning protocols. Because we have 
regional planning protocols, we have participant funding, we 
have generation being built, we have over $700 million of 
transmission being built, we have the capability to optimize 
that for the public good. So if it is a distributed generated, 
that could be the optimum choice, if it is economic demand 
side, that could be the optimum choice. It is an allocation of 
a resource, and regional planning that is transparent and done 
by an independent entity gives you the wherewithal to allow the 
public and those with a vested interest to optimize the right 
choice for investment, whether it is transmission generation, 
distributed generation or demand side. Thank you, Mr. Chairman.
    [The prepared statement of Phillip G. Harris follows:]
    Prepared Statement of Phillip G. Harris, President and CEO, PJM 
                        Interconnection, L.L.C.
    Mr. Chairman and Members of the Committee: The events of August 14, 
2003 represent as much a crisis in confidence in this industry as it 
does a failure of the electric power grid. As one who has worked in 
this industry my whole life, I am vitally concerned that we restore the 
public's confidence by establishing a clear road map to move this 
industry forward. Of course, time needs to be taken to ensure careful 
analysis and the development of solutions which can be tested and 
retested prior to full scale implementation. And although thoughtful 
reflection is needed, we simply cannot allow the events of August 14 
(as significant as they were) to paralyze us from moving forward.
    None of us can repeal the laws of physics which ultimately control 
the behavior of this speed-of-light product. As a result, policymakers 
need to drive rational public policy, market development and 
infrastructure investment which free this industry from mountains of 
red tape, constant political and legal battles over individual 
proposals and never-ending regulatory proceedings over Regional 
Transmission Organization (``RTO'') formation. These solutions also 
need to meet the interstate and international nature of this speed of 
light product. As a result, although I will spend part of my testimony 
addressing the specific questions you raised concerning the August 14 
event, I want to lead with what I think is the far more pressing issue: 
How do we address the critical crossroads we find ourselves in today? 
How does Congress, as our nation's policymaker, moves this industry 
forward through clear and coherent policies and institutions? How do we 
avoid the pitfall of unclear or internally contradictory policies 
slowing industry growth and discouraging need investment?
    To answer these questions, we can look at real facts and analyze 
the positive as well as negative experiences faced by this industry. 
The ``bottom line'' is that certain models of deregulation and 
restructuring of the industry have worked and have developed real value 
for the customer. It has been proven that restructuring and 
deregulation can work to provide real benefit to customers in the form 
of stable prices, increased generator efficiency and new demand side 
options for consumers. Although not necessarily the answer to the 
events of August 14, market rules and procedures can work to limit the 
adverse impacts of transmission or generation outages triggering larger 
events. And as a result of our transparent and independent regional 
planning process, the PJM system was designed to withstand and did 
withstand, for the most part, an outage of this magnitude. So as we 
move the industry forward, we must not throw out the baby with the 
bathwater or tie the hands of the regulator to move forward based on 
the positive experiences that have occurred during this otherwise 
troubled time.
    Much of the mid-Atlantic region's ability in real time to withstand 
the disturbance of August 14 was the result, not of human intervention, 
but of hardware working as it should--hardware that was designed to 
protect each of our systems from outside faults, voltage drops and 
other system disturbances that threaten system stability. But in the 
longer run, a transparent planning process undertaken by an independent 
entity such as a regional transmission organization with a ``big 
picture'' look at the entire grid, can ensure that the appropriate 
hardware is in place and that reliability is maintained proactively and 
at prudent cost to the consumer. And important market tools such as 
ordering redispatch of generation between neighboring systems, 
something which PJM and the Midwest ISO have put forward as a 
reliability solution in the Midwest, and which PJM and the New York ISO 
are piloting between their systems, can help alleviate the adverse 
impacts of curtailments of individual transactions. Only independent 
entities such as RTOs can undertake these solutions in a manner which 
will not be seen by the marketplace as favoring one provider over 
another or sacrificing one entity's ``native load'' at the expense of 
another's ``native load''.
    Just as Abraham Lincoln stated that ``a house divided cannot 
stand'', neither can an industry continue to rely on unchanged 20th 
century institutions and tools to police the new 21st century world 
surrounding this speed of light product. Today we find ourselves 
teetering somewhere in between a traditional and restructured 
environment. This is a highly unsustainable state and cannot help to 
either improve reliability or attract needed capital for investment. 
Let me give an example.
    The Energy Policy Act of 2003 provides for incentives for the 
construction of vitally needed new transmission. Such investment is 
extremely important and Congress should be applauded for taking this 
bold step. However, in the same breath, there is discussion of adding 
provisions which would limit or suspend FERC's ability, through 
rulemakings, to create the very institutions needed to independently 
and in an unbiased manner, plan the right location for this new 
investment. Absent a rational planning process undertaken by an 
independent entity such as an RTO, one that balances the need for 
generation, transmission and demand side solutions simultaneously, we 
risk building transmission in the wrong place and appropriating private 
property for investments that don't necessarily solve (and in some 
cases create new problems) for the regional grid. In short, if we are 
not careful, without the proper tools in place, we run the risk of 
creating tomorrow's stranded investment and simply throwing ratepayer 
money at the problem. By contrast, regional planning processes 
undertaken in an unbiased public process, allows the marketplace to 
obtain the needed information to effectuate the wise choice between 
transmission, generation and demand side solutions to meet our 
reliability and economic needs. The states in the mid-Atlantic were 
extremely wise during PJM's formation--they insisted that before any 
markets are started that the RTO have in place a regional planning 
protocol. They correctly noted that as we are talking of using a power, 
which only the government can grant, to appropriate private property, 
we ought to ensure that we are exercising this powerful government 
authority both wisely and judiciously. An unbiased regional planning 
protocol can do just that.
    For all these reasons, we recommend that Congress undertake the 
following steps:

i. Provide FERC with the authority it needs to ensure that regional 
        organizations can flourish to plan and manage the grid in a 
        coordinated manner;
ii. Do not discourage or strip FERC's authority to move forward in 
        those regions of the country that wish to move forward with the 
        development of competitive markets;
iii. Ensure that the laudable goal of protecting native load does not 
        work to repeal the anti-discriminatory provisions of the 
        Federal Power Act or to otherwise balkanize the grid. A clear 
        statement from Congress that native load should be protected 
        but flexibility in how that native load is protected would 
        ensure this proper balance;
iv. Whether federal or state siting is preferred, encourage regional 
        planning processes undertaken by independent RTOs with state 
        and stakeholder input before the power of eminent domain is 
        exercised to appropriate private property to build 
        transmission.
v. Reliability standards should be made mandatory, with their 
        development and enforcement overseen by a public body. 
        Deference should be provided to regional solutions that improve 
        reliability for the region and for neighboring systems.
    With this overview in mind, I will proceed to address the questions 
in your correspondence of August 22:
    1. What exactly were the specific factors and series of events 
leading up and contributing to the blackouts of August 14?
    2. At what time did your company first become aware that the system 
was experiencing unscheduled, unplanned or uncontrollable power flows 
or other abnormal conditions and what steps did you take to address the 
problem? Were there any indications of system instability prior to that 
time?
    3. Which systems operated as designed and which systems failed?
    Answer. As noted above, the location, character and proximate cause 
of the initial disruption in the transmission and supply of electricity 
is the subject of an ongoing NERC/DOE investigation and PJM defers to 
that investigation. As a result, PJM will limit its response to actions 
it took on its own system both prior to and during the August 14 
outage.
    As to its own system, PJM first became aware of a disturbance on 
the Eastern Interconnection at about 4:10 pm on August 14th. Prior to 
that time, August 14th could be characterized as a typical 
unexceptional summer day in the PJM control area, with a typical number 
of lines out of service, and relatively few scheduled or unscheduled 
outages. At noon on August 14th, NERC initiated a routine time 
frequency correction across the Eastern Interconnection in accordance 
with NERC operating policies, because the time frequency had exceeded 
its margin for error. PJM was properly following the NERC standard 
process, but it is mentioned in this context because it accounts for a 
frequency fluctuation in PJM data at the time the correction was 
implemented.
    PJM became aware of significant impacts on its system from an 
external disturbance at approximately 4:10pm. At the time of the 
disturbance, PJM recordings of telemetered load and frequency revealed 
an initial loss of more load than generation on the PJM system. 
Subsequently system operators reduced generation output in order to 
bring the system back into balance. PJM experienced a loss of load of 
approximately 4,500 MW of its total load of approximately 61,200 MW at 
the time of the disturbance. About 4,100 MW of PJM's lost load 
manifested in northeastern New Jersey, while an additional 400 MW of 
load was lost in northwestern Pennsylvania near Erie.
    The disturbances noted by PJM at approximately 4:10pm resulted in 
some individual units going off-line in PJM and in transmission lines 
opening. The cascading effect of the outage caused PJM to lose 
approximately seven percent of its load, but automatic relay devices 
deployed throughout PJM in accordance with our design and planning 
criteria isolated most of the PJM footprint from the power loss. 
Automatic relay devices effectively isolated most of PJM from Ohio and 
New York, which were subjected to prolonged outages. By 4:12pm., most 
of the tripping of generating stations and transmission lines within 
PJM had subsided. Thereafter, PJM system operators worked to rebalance 
generation and load within the PJM system by reducing system frequency 
to a normal range. In addition, PJM system operators initiated 
procedures for more conservative operation of the system, to assure 
that system restoration could proceed more effectively. The disturbance 
itself played out over the course of mere seconds--with no real-time 
human intervention possible--but system operators played a vital role 
in system restoration.
    In summary, the system worked as it was designed--through the 
automatic operation of relays PJM was able to isolate problems which 
effectively separated it from the outage and ``kept the lights on'' for 
the overwhelming majority of its customers. Through swift operator 
action, PJM was able to stabilize its system and also provide critical 
support to the restoration efforts in Northern New Jersey and 
Northwestern Pennsylvania, as well as the neighboring systems in the 
New York, and Ohio.
    4. If events similar to those that occurred on August 14, 2003 had 
happened a year ago, would the results have been the same? If similar 
events occur a year from now, do you anticipate having to place 
equipment and processes sufficient to prevent a reoccurrence of the 
August 14 blackout?
    Answer. Prior to the August 14 outage, PJM and its Midwest 
counterpart, the Midwest ISO had just reached agreement on an historic 
Joint Operating Agreement and Reliability Plan that, if implemented, 
would bring a new level of coordination and data sharing that would 
clearly have avoided some of the communication and coordination 
problems that arose in the context of the August 14 outage. The Joint 
Operating Agreement and Reliability Plan provides for an unprecedented 
level of coordination and data sharing among neighboring systems in the 
Midwest. The Joint Operating Agreement detailed monitoring measures and 
specific actions that each of the large RTOs would take to clear 
congestion or reliability problems on the other's system. at key 
designated flowgates. It would provide for actions that presently do 
not occur systematically in the Midwest including:

 day-ahead and real-time monitoring of each RTO's system;
 detailed data exchange between the two RTOs;
 emergency operations protocols;
 joint planning protocols; and
 mandatory redispatch of each other's generation in order to relieve 
        congestion on the other's system.
    This Agreement, coupled with the fact that there would be just two 
entities, both with planning responsibility and a large regional look 
as opposed to multiple control areas with a more limited view of 
neighboring systems, would provide for an increased level of 
reliability in the Midwest and would reduce the coordination and 
communication issues that exacerbated the problems which occurred on 
August 14th. The Joint Operating Agreement and associated reliability 
plan were undergoing stakeholder review at the time of the August 14th 
outage. Subsequent to that time, both PJM and the Midwest ISO have 
committed to reviewing the document in light of lessons learned from 
the August 14th outage and providing appropriate enhancements. PJM 
looks forward to review and comment by the respective stakeholders and 
state commissions in the area.
    That being said, PJM believes that should the Joint Operating 
Agreement and Reliability plan be allowed to move forward it would 
provide a model that has been sorely lacking in this nation relative to 
coordination and communication between two large regional entities each 
charged with the responsibility of ensuring reliability of the regional 
transmission grid.
    5. What lessons were learned as a result of the blackouts?
    6. How can similar incidents in the future be prevented?
    Answer. As the DOE investigation to the causes of the blackout is 
first beginning, it is too soon to detail with specificity all of the 
``lessons learned'' from the August 14 event. That being said, there 
are some overarching lessons of August 14 which played out dramatically 
in how different entities reacted:
    We cannot continue to use 20th century solutions to solve 21st 
century problems--In the last century, reliability was ensured through 
a series of loosely described emergency support agreements among 
neighboring utilities. No regional planning process existed and each 
individual utility was charged with maintaining and planning for the 
reliability of its individual portion of the grid. Although regional 
reliability councils exist to coordinated regional efforts, such 
entities were neither independent of the market participants nor 
empowered to require solutions and order penalties. It is clear that 
these loose agreements and institutions of the last century will not 
work in the future. Rather, we need Congress to:

i. encourage the development of regional transmission organizations and 
        not strip or suspend FERC authority to undertake necessary 
        generic rulemakings;
ii. tie any transmission investments to the use of regional planning 
        processes undertaken with the states and interested 
        stakeholders to ensure that whatever transmission is incented 
        is the ``right'' transmission located at the key location 
        needed to ensure maximum benefit to reliability and economics 
        of grid operation;
iii. encourage and require native load protection but not tolerate 
        discriminatory conduct favoring one's own market position in 
        the name of protecting one's ``native load''; and
iv. finally, Congress should make reliability standards mandatory but 
        avoid codifying statutory deference to standard-setting and 
        enforcement in some regions but not others. Deference should be 
        provided to regional solutions, arrived at in open stakeholder 
        processes and with state concurrence, in all parts of the 
        country while any national organization review is limited to 
        ensuring that solutions arrived at on less than an 
        interconnection-wide basis, promote reliability in the larger 
        region. The negotiation of the Joint Operating Agreement and 
        reliability plan between PJM and the Midwest ISO, which will 
        soon be submitted for NERC review, is an example of the process 
        working at its best with NERC focusing on whether the plan 
        enhances reliability between regions while avoiding the 
        commercial infighting among member companies.
    For grid operators themselves, it is clear that we have to ensure 
that our relay hardware is appropriately sized, maintained and 
programmed to protect systems in the event of cascading outages. RTOs 
need to be more vigilant in defining their role vis-a-vis the local 
transmission owner who still owns and maintains this critical 
equipment. Agreements such as the MISO/PJM Joint Operating Agreement 
should be a mandatory ``baseline'' of coordination between RTOs and 
should provide appropriate and reciprocal support of adjacent systems 
both between market areas and where market areas abut non-market areas. 
And most of all, we need to move this industry forward with flexible 
policies that are designed to meet and restore the public's confidence 
in this critical industry so important to our nation's secure future.
    I thank you for this opportunity to testify and look forward to 
your questions.

    Mr. Barton. Thank you, Mr. Harris. The Chair is going to 
recognize himself for the first 5 minutes, and we don't have 
too many more members come, we may be able to do two rounds of 
questions. It is very complicated for the average congressman 
and certainly for the average citizen to understand what an RTO 
is and an ISO is. I could ask one question to explain the 
differences and that would take my 5 minutes, so I am not going 
to go down that trail, but I am going to ask Mr. Harris, who 
represents and RTO that has been approved by the FERC, and Mr. 
Torgerson, who represents an ISO who I think, I understand, is 
in the process of being created, if you all both have the same 
authority to operate your system. Do you have the authority 
that Mr. Harris or his designee has, you or your designee, in 
your system, in the Midwest ISO?
    Mr. Torgerson. Mr. Chairman, the Midwest ISO is also an RTO 
as determined by FERC. Now, our authority is different today in 
that we act as a security coordinator for our entities. We do 
not run the energy markets yet. We will be next March, which 
means there are certain aspects of being an RTO that we are not 
fulfilling yet today.
    Mr. Barton. Now, my understanding is, and I do not claim to 
be an expert on this, Mr. Harris or his operating designee can 
order dispatch, can order load shifting, has what is called a 
tight operating system, and I am told that the Midwest ISO does 
not have that. In other words, you basically kind of take what 
comes and try to make the best of it, but he can actually 
manage preventively. Now, if I am wrong, explain how I am 
wrong.
    Mr. Torgerson. Mr. Chairman, I think that is pretty close. 
We do not operate the transmission lines or the generation, 
whereas Mr. Harris runs that control area and operates the 
generation.
    Mr. Barton. Now, if your ISO had the authority that Mr. 
Harris' RTO has, would that have made a difference on August 
14?
    Mr. Torgerson. I think Betsy Moler gave probably the right 
answer to that. We don't know all the things that happened. I 
believe that once we have the market and we have all those 
other authorities, I think it would certainly help.
    Mr. Barton. You think it would--does anybody disagree with 
that? In the pending energy bill that the House passed, that is 
pending with the Senate, do we need to strengthen the RTO 
provisions? And under the current House bill, we encourage the 
creation of RTOs but we don't mandate it, we do have mandatory 
reliability standards. Should the legislation that is pending 
with the Senate should we go in and strengthen the provisions 
for RTO creation? Mr. Harris?
    Mr. Harris. Yes, Mr. Chairman. I just think it is time for 
common sense to prevail. You have 33 different companies, 38 
States and two countries involved. Common sense says that you 
are dealing with a speed of light product. It is a giant 
ecological system; one thing affects everything else. Common 
sense would say you need large regional entities that can look 
at all these vast volumes of data, coordinate between 
themselves in order to handle this speed of light real-time 
product. It can work and it just seems it makes common sense 
that you need some institution. Now, whether you call it an RTO 
or what, I don't know, but you need large regional 
coordination----
    Mr. Barton. Is that a yes?
    Mr. Harris. Yes, sir.
    Mr. Barton. I hate to be that blunt about it. Mr. van 
Welie.
    Mr. van Welie. Yes. I would like to jump in and just say 
something with respect to your question, and that is this is 
particularly important when one makes the decision to go to 
wholesale markets. So in many ways we are going to stuck 
halfway between the old world of vertically integrated 
utilities and the new world where we started seeing 
disaggregated entities operating in a wholesale market. A 
wholesale market places very different demands on the 
transmission system, and if one's intention is to go in that 
direction, which I think this is the way we ought to head, I 
think we ought to mandate that RTOs be set up.
    Mr. Barton. Okay. Mr. Museler.
    Mr. Museler. Mr. Chairman, I believe that the FERC, NPOR 
and the subsequent White Paper outlines an RTO that--RTO 
requirements that are correct and that are strong enough. I 
think if RTOs are not mandated, my opinion is we will probably 
get to the same place eventually but it will take much longer, 
and potentially things like August 14 may happen in the 
interim.
    Mr. Barton. Okay. Mr. Torgerson, FirstEnergy is a 
participant of your ISO; is that correct?
    Mr. Torgerson. They are not yet a member of the Midwest 
ISO. They are planning to be a member in about November. We 
took over security coordination for them this last February. So 
they are not a member.
    Mr. Barton. On the day that the incident--the outages 
occurred, August 14, I am told that they were operating their 
own system and were not part of an ISO. They were independently 
operating their system; is that correct?
    Mr. Torgerson. That is correct.
    Mr. Barton. Had they been part of your ISO, would that have 
made a difference?
    Mr. Torgerson. It is hard to say it would have made a 
significant difference, because we still would have been 
relying on them as the control area operator to do their 
function, and we would have done our function as security 
coordinator. We probably would have had a little more 
visibility for them, so it may have helped.
    Mr. Barton. Okay. My time has expired. The Chair would 
recognize the senior gentleman from Michigan, Mr. Dingell.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy. I 
have been looking here, just to carry forward on what the 
chairman's been inquiring of, I note that apparently 
FirstEnergy is not a part of the system but that one of their 
subsidiaries or transmission subsidiaries is; is that right?
    Mr. Torgerson. That is correct, sir. It is the American 
Transmission System, Incorporated and their subsidiary is the 
one that would be joining the Midwest ISO in the future. They 
are a non-transmission owning member today.
    Mr. Dingell. What is the practical impact of that?
    Mr. Torgerson. The practical impact is they haven't joined 
the--they just haven't joined the RTO or the ISO at this point. 
We monitor their--we are acting as their security coordinator 
through a contract with ECAR today.
    Mr. Dingell. Is that as efficient as having them be a 
member and full participant?
    Mr. Torgerson. No, it is not.
    Mr. Dingell. It is not. And if you were to correct it, what 
would be the practical result?
    Mr. Torgerson. They intend to join. We would prefer they--
we would want them to join as soon as possible and become a 
member, and then we can do all the functions that we are 
supposed to do.
    Mr. Dingell. All right. Now, I have some questions that 
will follow along on the line of what we were asking earlier. 
Mr. Museler, you were--on the 14th, were any part of your 
service area or your constituent groups adversely affected by 
the shutdown?
    Mr. Museler. Yes, sir. We lost approximately 80 percent of 
our load and the entire eastern and southeastern portion of our 
transmission system, including all the load in New York City.
    Mr. Dingell. Now, you were hurt badly or your constituent 
service areas were very seriously hurt; is that right, Mr.----
    Mr. Museler. Yes, that is correct.
    Mr. Dingell. And, Mr. Torgerson, same thing with you?
    Mr. Torgerson. Our areas would have been Michigan with the 
Detroit consumers and then----
    Mr. Dingell. And, of course, Mr. Goulding, I gather that 
Ontario got it quite bad.
    Mr. Goulding. Yes. Not quite the whole of the province was 
shut down in fact but part of the northwest held together with 
Manitoba and Minnesota, and there were a couple of pockets that 
held together with New York but predominantly generation and 
little demand in them.
    Mr. Dingell. Mr. van Welie, your area and your consumers 
were badly hit also, were they not?
    Mr. van Welie. Actually, in comparison to some of our 
neighbors, we were actually relatively fortunate. We lost about 
2,400 megawatts of load down in southwest Connecticut, which is 
a little----
    Mr. Dingell. How about your area, Mr. Harris?
    Mr. Harris. Our area was largely in tact. We lost a little 
bit in Newark, New Jersey, which is next to New York City, got 
caught up in that, and we lost a----
    Mr. Dingell. Now, how is that you were able to separate 
yourself whereas others were not?
    Mr. Harris. I don't know as far as the others were not, but 
our system operated as designed. It was to isolate itself from 
the problem which it detected.
    Mr. Dingell. Did you receive notice from anybody that the 
shutdown was coming your way?
    Mr. Harris. No. At 4:10:48 when everything happened, the 
automatic relays and the protective equipment, which we train, 
drill and rehearse on, actually worked and did as it was 
expected to do.
    Mr. Dingell. Now, gentlemen, with the rest of our 
witnesses, would you tell us, gentlemen, whether you received 
notice from any party, from FirstEnergy or anybody else, that 
there were aberrations either in the frequency or aberrations 
in the voltage levels or other circumstances which would cause 
the shutdown of the system?
    Mr. Goulding. Absolutely no.
    Mr. Dingell. Do you want to start, Mr. Goulding?
    Mr. Goulding. Absolutely not.
    Mr. Dingell. I am sorry?
    Mr. Goulding. No.
    Mr. Dingell. No. How about you, Mr. van Welie?
    Mr. van Welie. Also, not. We were only aware of the 
disturbance around 4:09.
    Mr. Dingell. Mr. Torgerson, did you receive any?
    Mr. Torgerson. No. We were in conversation with FirstEnergy 
regarding the lines that tripped out but not of an event that 
was going to occur?
    Mr. Dingell. Did you find any aberrations or anything like 
that within the service areas that are under your jurisdiction?
    Mr. Torgerson. We saw a couple lines that had tripped. 
Those were the aberrations we saw.
    Mr. Dingell. Did you see any curiosity in the frequencies 
or any curiosities in the voltage levels?
    Mr. Torgerson. Not till later, like at the 4:10 point.
    Mr. Dingell. At the 4:10. Mr. Museler, what did you find?
    Mr. Museler. No notice and no communication, sir.
    Mr. Dingell. Would you each tell us, please quickly, 
whether you found any violations of the voluntary rules which 
you lay in place for the behavior of the energy deliverers 
within your area, starting with you, if you please, Mr. 
Museler?
    Mr. Museler. No, sir. And we are still obviously providing 
information to the International Commission, but thus far we 
have found no violations of any of the reliability rules in New 
York.
    Mr. Dingell. How about you, Mr. Torgerson?
    Mr. Torgerson. No, we haven't seen any. We are also waiting 
for the results of the study.
    Mr. Dingell. Mr. Goulding?
    Mr. Goulding. Nothing at all.
    Mr. Dingell. Mr. van Welie?
    Mr. van Welie. No, sir, not.
    Mr. Dingell. Mr. Harris?
    Mr. Harris. No, sir; we have not.
    Mr. Dingell. Mr. Chairman, I note that I am 16 seconds 
over. I would ask unanimous consent that I be permitted to ask 
just one more question, if you please? Gentlemen, this is 
directed particularly at Mr. Torgerson, what energy generators 
or transmission deliverers within your area are not full 
participants in your program? I gather FirstEnergy is not.
    Mr. Torgerson. FirstEnergy is not.
    Mr. Dingell. Who else?
    Mr. Torgerson. Northern Indiana Public Service Company is 
not yet. Ameren, which is in St. Louis, is not yet. There are a 
number that are further in the upper Midwest, Northwestern part 
of the country that are not. Those would be the big ones. Then 
there are Dayton Power & Light, AEP and ComEd have all 
indicated they are going to be in PJM, which is adjacent to us.
    Mr. Dingell. Same question to you, Mr. Museler.
    Mr. Museler. Sir, all of the transmission and generation 
entities in New York are members of the New York ISO.
    Mr. Dingell. That is because you have certain mandatory 
powers under State law; is that right?
    Mr. Museler. The New York ISO was set up administratively 
under the Public Service Commission, and in order to form the 
ISO, it was a requirement that all of the entities within the 
State participate, including the public entities, the State 
entities and the municipal and cooperative power systems.
    Mr. Dingell. Mr. Goulding, what do you want to tell us 
about people within your service area--within the service area 
under your jurisdiction?
    Mr. Goulding. In order to be connected to the IMO control 
grid in Ontario, each participant needs a license from the 
regulatory, the Ontario Energy Board, and in that license it is 
mandatory that they adhere to all of the market rules within 
Ontario, so they are all members.
    Mr. Dingell. Mr. van Welie?
    Mr. van Welie. Similar situation. When our State regulators 
and the FERC decided to set up the ISO back in 1996, there was 
a requirement that market participants sign an agreement and 
operational control of facilities are directly controlled from 
the ISO.
    Mr. Dingell. Mr. Harris?
    Mr. Harris. We are currently in the process of Commonwealth 
Edison, American Electric Power, Dayton Power & Light, Duquesne 
and Dominion Resources joining the existing PJM area.
    Mr. Dingell. Gentlemen, thank you. Mr. Chairman, I thank 
you for your courtesy.
    Mr. Bass [presiding]. Thank you very much, Mr. Dingell. The 
Chair recognizes himself for 5 minutes. My first question for, 
I would say, Mr. van Welie, Mr. Torgerson and Mr. Harris is the 
issue of size of an RTO. Are there--and by the way, I asked 
this question of the last panel and I can't remember who it was 
who responded but the answer essentially was there is no limit 
to--or issues with limits to sizes of RTOs because of the 
technology involved. I don't want to paraphrase an answer, but 
I am wondering what your perspectives are on the issue of size 
of an RTO. Start with Mr. Harris.
    Mr. Harris. We have seen through our analysis when you look 
at the technology that is required that you certainly have the 
technology to handle very large systems. I mean we are in an 
age of information technology and you can do that.
    Mr. Bass. You can do that.
    Mr. Harris. Yes, sir. The limits seem to be more social and 
political along the regional boundaries, the way people have 
historically operated and so forth. You do have increased 
sophistication. We put about $5 million extra a year into 
operator training. We have tripled the size of the operators. 
We are into advanced technologies, artificial intelligence. You 
have much more sophistication that is necessary to handle the 
size. But with that it certainly is doable and the efficiencies 
are there. What that optimum is, it could be a big swing, but 
you certainly can handle larger areas within the 600,000 
megawatt Eastern Interconnection.
    Mr. Bass. Mr. van Welie?
    Mr. van Welie. I listened carefully to your question and 
the answer in the previous panel, and I think the--perhaps it 
was a little misconstrued. I think the transmission system 
itself can be made as large as one likes, and from an operator 
perspective, the more highly interconnected it is the better, 
at least from a delivery point of view. I guess my opinion 
would be that there is a tradeoff in terms of operating that 
transmission system in terms of size. So the bigger one makes 
it, and there are advantages to scope and size, the more one 
increases complexity, as Mr. Harris has said. And as one 
increases complexity, of course one becomes more dependent on 
automated tools. At some point, there is a point when the 
advantages of the size and the scope outweigh the disadvantages 
of risk and complexity.
    Mr. Bass. Mr. Torgerson?
    Mr. Torgerson. I think, as Mr. Harris said, the technology 
is there today to accomplish an RTO of significant size, and 
you can do it safely. How you operate the system you may have 
to have--we have 23 control--actually, 35 control areas we work 
in; 23 are members. That probably needs to come down to a much 
more smaller number, but you still can do it with the size of a 
rather large----
    Mr. Bass. Do all of you support mandatory reliability 
standards? Is there anybody here who does not? Everybody 
supports mandatory reliability standards. Are there specific 
benefits that accrue to being an RTO versus an ISO. Mr. van 
Welie, anybody else have any comments on that? Specific 
benefits to that status.
    Mr. van Welie. I would say at the moment, although there 
are these two members at this table who have the RTO 
designation and have different functional responsibilities, but 
I would say, in general, not at the moment. So if you look at 
ISO New England, for example, we have very similar functional 
responsibilities to PJM and to New York. So there is no real 
functional distinction at this point in time. I think FERC has 
actually indicated that in the White Paper. I guess the issue 
for me will be more what does the future hold? Is there some 
distinction in the future?
    Mr. Bass. Does anybody else have any comment on that? Okay. 
One last question: Mr. Museler, your ISO lost 80 percent of its 
power, you said, or something like that, and Mr. van Welie, you 
lost 20 percent. In a layperson's terms, what has happened in 
New England that was different in New York?
    Mr. Museler. Mr. Chairman, I think the detailed answer to 
that will come out of the International Commission, but maybe 
one way to look at it in very, very broad terms, not electrical 
engineering terms. Betsy Moler was asked why her system was not 
affected or affected very little in terms of the Chicago area 
was not affected by this, and her answer, I think, was accurate 
in that she said, ``Well, we were far removed from the problem 
and the closer the power surges, because of the lines that 
tripped, flowed through PJM, through New York and through 
Ontario.'' And if you think of it as a river that is necking 
down, the speed or the velocity of the water in the wide part 
of the river is fairly low. When it gets down to the neck of 
the funnel, it tends to be very, very high velocity and 
turbulent. That is a hydraulic analogy not an electrical 
engineering analogy, but the bottom line is that the power 
surges were concentrated in New York and Ontario and we were 
isolated from the rest of the Eastern Interconnection.
    Now, Mr. Harris correctly points out that his system 
isolated itself from some of the high flows going through. That 
left New York and Ontario to be the final conduit of these 
power surges, so that is not a very elegant description, but it 
does basically says that New York and Ontario were in the 
direct path of the flow and then we lost the support of the 
rest of the Eastern Interconnection. The detailed analysis will 
tell us whether or not our systems performed the way they 
should have performed under those circumstances, but this was 
well beyond anything that our system was designed to survive, 
and I think the same goes for----
    Mr. Dingell. Mr. Chairman, would you yield and I would ask 
unanimous consent you have 2 additional minutes.
    Mr. Bass. Thank you. Without objection, Mr. Dingell.
    Mr. Dingell. I think maybe Mr. Harris can--no, no, not Mr. 
Harris but Mr. Torgerson and Mr. Museler but also Mr. Goulding 
can give us some assistance on this. What happened with regard 
to those who weren't shut down with the shutoff was that either 
they got warning or their automatic system worked or they were 
far enough away that somebody else between them and the trouble 
shutdown. Isn't that what transpired? Wasn't that why Betsy 
Moler's company didn't wind up getting shut down, they had 
somebody between them and the trouble.
    Mr. Harris. Well, that is close, Congressman. Basically, 
because it is a speed-of-light system, the design criteria is 
that you operate for what the worst thing that can happen to 
you is. And so your protective equipment looks at the system to 
say if there is a problem on one side, I need to isolate myself 
to protect my equipment, and that is how you operate the 
system, you are always looking for what can go wrong. And so 
each system, large area, designs their relays and their 
protective equipment to be able to--and in the PJM area, again, 
one is the size, we are 78,000 megawatts, it is a single 
coordinated area, so all the relays are coordinated, everything 
is working together to make sure our area can isolate itself 
from the problem. So when the problem happened instantaneously, 
then these automatic devices begin to operate and they separate 
us from where the problem areas were.
    Mr. Dingell. Thank you, Mr. Chairman, you were gracious.
    Mr. Bass. The Chair recognizes the gentleman from Michigan, 
Mr. Stupak.
    Mr. Stupak. Thank you. Thank you, Mr. Chairman. Mr. 
Torgerson, I am looking at your testimony on the bottom of page 
1 and going up on page 2. Earlier on, I asked a question from 
FirstEnergy about their power flow up into Michigan through 
ITC. I was asking them about who would be in control, who would 
be responsible for the communications. They seemed to point to 
you as the regional coordinator for them. Would that be a fair 
statement?
    Mr. Torgerson. We are the security coordinator for 
FirstEnergy through a contract with ECAR.
    Mr. Stupak. Okay. And on top of the second page it says, 
``We perform this coordination function for the companies that 
have transferred functional control of their transmission 
systems to us,'' and then it goes on and says we do it through 
a contract. By ``we do it,'' it being, again, the coordination 
function for FirstEnergy?
    Mr. Torgerson. Yes, that is correct.
    Mr. Stupak. And then it goes on to say, and you testify in 
the third page, first paragraph, it says, ``During the course 
of the hour preceding the cascading event, after the loss of a 
large generating unit in northern Ohio had already occurred, 
several transmission line outages also occurred in the Ohio 
area. During this period, the Midwest ISO operator was in 
contact with neighboring reliability coordinator at PJM as well 
as control operators within our territory. At this point in 
time, the issues did not seem to implicate a regional problem 
and then things began to change basically a minute later at 
4:09 and 4:10.'' How were you in contact with people, just 
through telephone or----
    Mr. Torgerson. Primarily telephone, yes.
    Mr. Stupak. Would these other coordinators, the reliability 
coordinator at PJM and your control operators be seeing the 
same data you would be seeing?
    Mr. Torgerson. Some of them would. It depends how much of 
the system you were looking at at the time. I can't say that 
PJM would be looking at all of the same data we would be, just 
like we don't necessarily see all of the data that FirstEnergy 
or our control area would see. We monitor key facilities, and 
those key facilities are ones they tell us that should be 
monitored.
    Mr. Stupak. So from FirstEnergy, you only get the 
information they give you?
    Mr. Torgerson. No. We get the information but then they 
tell us which ones are important to monitor, which ones are 
important to put alarms on and to flag.
    Mr. Stupak. But as a safety coordinator or security 
coordinator, wouldn't you really make those determinations?
    Mr. Torgerson. We work with them on determining what they 
are ahead of time. It is not done at the last minute. We do it 
ahead of time before they even become part of the system.
    Mr. Stupak. If you are working with, and I am sure you 
were, the reliability coordinator at PJM and control operators, 
no one anticipated this cascading event even after you knew all 
these lines were down and things like this?
    Mr. Torgerson. Not at that point. We were looking at it 
working with FirstEnergy, as we work with other utilities and 
control areas in our area when the same circumstances happen. 
When a line would go out, we would work with them, determine 
what the cause was and then work with them to figure out what 
the resolution would be, whether you implement a TLR or do 
something else. So at that point, we were working with 
FirstEnergy.
    Mr. Stupak. Is this a normal occurrence in August to have a 
large generating unit out, several transmission line outages? 
Is that normal?
    Mr. Torgerson. I can't say it is really normal every day 
but it does happen.
    Mr. Barton. Will the gentleman just suspend? What is a TLR?
    Mr. Torgerson. I am sorry. Transmission line loading relief 
mechanism that is used by those who don't have markets to 
unload the system when you have a constraint and you want to 
back down for an overloaded situation.
    Mr. Stupak. Part of FirstEnergy's system is under PJM, 
right, the eastern part of their system?
    Mr. Torgerson. Yes.
    Mr. Stupak. And they didn't have any trouble on that 
eastern part?
    Mr. Torgerson. Not to my knowledge.
    Mr. Stupak. Would Mr. Harris----
    Mr. Harris. We had about 400 megawatts in the Northeast, a 
small portion in the Erie area that went black.
    Mr. Stupak. Why was the eastern part different from the 
western part, let us say, or the part that is with the MISO?
    Mr. Harris. I think, potentially, because this is the part 
that was purchased general public utilities, and so in the 
general public utilities area we had the data and information 
real-time, as I was articulating earlier in my comments, that 
we were monitoring real-time throughout the system. So we had 
control of the critical points and we were watching it.
    Mr. Stupak. You know, I did hear your comments about every 
2 seconds and 5 seconds, you are looking at all this. Is that 
the norm throughout an ISO in the Nation?
    Mr. Harris. Well, certainly, I think for New England and 
New York when you operate in the large markets, you run these 
tools, you have to have thousands of bits of data that you are 
looking at, you bring it in so you can maintain the control and 
also manage the markets appropriately.
    Mr. Goulding. I should mention that we also have similar 
types of tools in Ontario.
    Mr. Stupak. Okay. Mr. Torgerson, do they have more 
monitoring capabilities than the MISO did?
    Mr. Torgerson. Today, we do it on a 30-second interval. We 
will be going to the quicker interval once we have the market 
in place.
    Mr. Stupak. If you had the quicker interval, would that 
have helped prevent some of these problems?
    Mr. Torgerson. I think we would have to wait and see the 
analysis to determine that, but, as I said before, I think 
going to the market where we are then doing the dispatch I 
think could help.
    Mr. Barton [presiding]. The gentleman's time has expired.
    Mr. Stupak. Just if I may, the reason why I am asking these 
questions is that you are all saying and giving us great 
suggestions what we should do in the future, but we are stuck 
with this system here for a while, and our concern is how do we 
prevent it. If there are some things we can do simply before we 
go to major policy changes, we would like to do that. Thank 
you, Mr. Chairman.
    Mr. Barton. The gentleman from Arizona is recognized for 5 
minutes.
    Mr. Shadegg. Thank you, Mr. Chairman. Mr. Museler, I want 
to ask this question directly of you, and then maybe I will let 
the others comment on it. Have you had a chance to review the 
statement submitted by Governor Pataki?
    Mr. Museler. No, sir, I have not.
    Mr. Shadegg. Okay. At pages 5 and 6 of that statement and 
going on over to page 7, he explains that one of the things 
that was done in the course of this is that the New York Power 
Authority and its counterpart in Ontario appealed to the 
officials at Niagara Falls to divert more water through the 
turbines and that by doing so, since they were able to turn 
those on instantaneously, in his testimony he says roughly 1 
million homes did not lose power, and because Niagara Falls' 
hydroelectric generating capability was able to pick up that 
load, it made it possible for other plants to come back online 
more quickly than they would have otherwise and shortened the 
duration of the entire outage. Would that be consistent with 
your understanding of what happened?
    Mr. Museler. Generally, yes, sir. Those generating units 
stayed online so they did provide the power source, one of the 
major power sources to restore the system. We also did appeal 
on the New York Power Authority and its counterpart in Ontario, 
also worked with the appropriate authorities to increase the 
amount of capacity we could get out of those units. There are 
what are called water restrictions that are used to both 
control the flow over Niagara Falls as well as to optimize the 
use of that energy, and there are some contractual 
international contracts that govern that. What that allowed us 
to do is to get more generation out of those units than would 
have happened otherwise, and that clearly was very helpful in 
terms of restoring power quicker in New York.
    Mr. Shadegg. His statement makes it clear that as a matter 
of fact so much additional water was diverted through those 
hydroplants for that brief period of time that the tour boat, 
the Maid of the Mist, was not able to go up the river as far as 
it normally would and get underneath the falls as it might 
otherwise because they were able to divert more water through 
the turbines and less water was going over the falls. Given 
that, there is language in the energy bill which we have sent 
over to the Senate which does two things: It allows for the 
addition of--for an economic incentive for the addition of new 
generating equipment to dams which do not have generating 
capacity currently, and it also provides an economic incentive 
for installing more efficient turbines in dams where we already 
have turbines there but they are older generation, less 
efficient turbines. Would it be your testimony, and I guess I 
will ask any of the others on the panel, that that kind of 
incentive for making sure that where we have dams but not have 
any turbine at all and the dam is susceptible to the 
installation of turbines to generate power, or where we have 
dams that have older turbines that are not efficient in them we 
could, because of the instantaneous nature of hydropower, 
benefit in a circumstance such as this outage?
    Mr. Museler. I think the short answer to your question, 
Congressman, is yes, and particularly with additionally, which 
is basically a renewable resource it has some environmental 
benefits. The only caveat I would add is that obviously there 
are, particularly in dams that have no current hydrounits in 
them, there are environmental considerations which I am sure 
would be dealt with in the process.
    Mr. Shadegg. Obviously, all of this would have to be done 
in light of environmental restrictions that do apply and flow 
restrictions and other concerns, but it seems to me if we have 
the ability and we are already releasing water, it can be an 
advantage, and this outage apparently proves that. Yes, sir, 
Mr. Harris?
    Mr. Harris. Thank you, Congressman. I think that that is 
important as to one element, but we can't away from the fact 
that the electrical grid is a giant ecological system. As we 
saw in the blackout, one thing affects everything else, and so 
in order to determine what is the right solution to the 
electrical grid, it may be a demand response or distributed 
generated or more transmission. You really need large regional 
planning protocols so that you can look at all the data, and 
certainly you should have this as a wherewithal that this is 
the right solution, it is the one that should be engaged. But 
there may be other solutions too, and the planning protocol is 
what needs to be in place to enable the appropriate solutions 
to the situation that we are facing.
    Mr. Shadegg. Mr. Goulding or Mr. Torgerson, did you have a 
comment to make?
    Mr. Goulding. Yes. I was just going to add to Mr. Museler's 
response. In terms of Niagara, first of all, clearly half of 
the Niagara water is used in Ontario, and our generating 
stations were still isolated and operating onto the New York 
system. And that additional water that was made available was 
very important to us as we used that anchor point, if you like, 
as one of the main paths to move out and restore supplies 
within our system. That was one of 3 or 4 places that we used 
as an anchor, so that was very important.
    Mr. Shadegg. Mr. Torgerson?
    Mr. Torgerson. I really don't have anything to add. I agree 
with what was said.
    Mr. van Welie. I would say, in general, hydro resources are 
an extremely valuable resource. They provide a lot of 
flexibility to the system operator. I wish we had more of them. 
But other than that, I don't have anything further.
    Mr. Shadegg. Thank you very much. I yield back the balance 
of my time, which is expired.
    Mr. Barton. The gentleman from Maine is recognized for 5 
minutes.
    Mr. Allen. Thank you, Mr. Chairman. Mr. Torgerson, I want 
to ask you some questions here and at least contrast with PJM, 
Mr. Harris. Forgive me if some of these have been asked before. 
But I understand, Mr. Torgerson, that the Midwest ISO does not 
have the, what you might call, exclusive and centralized 
control of the transmission grid in your region, at least as 
compared to the kind of control that PJM has over its grid in 
its region. Is that a fair statement?
    Mr. Torgerson. That is fair. We don't do the dispatch of 
generation yet at this point, which we intend to do in March.
    Mr. Allen. Which you what?
    Mr. Torgerson. We will--the plan is to be able to do that 
in March.
    Mr. Allen. Okay. Now, is that pursuant to existing 
contracts or negotiations? What I really want to know is when 
you have--what is the reason for the difference in authority 
that you have as compared to PJM, and to what extent have you 
sought the additional authority? To what extent have you been 
resisted by either the utility companies or the State PUCs? Can 
you talk about that a bit?
    Mr. Torgerson. Certainly. The way the Midwest ISO was 
started it was started voluntarily by utilities in the Midwest. 
Initially, they wanted to set us up with the, I guess I would 
call it, the minimum characteristics or minimum functions they 
could have and then get FERC to approve it, which is what they 
did. As we have moved through time, and we have only been 
operational since February of 2002, so as we have moved 
forward, FERC has said, ``You need to have an imbalanced 
market, you need to have market-based congestion management.'' 
Our stakeholders then said in order to do things, the best way 
to do it is to implement a market which would have the economic 
dispatch of generation, the security constrained unit 
commitment, those aspects which these other people already 
have. And we are moving that direction. When we started up we 
didn't have it, so that is why you see different layers of 
control and authority between the Midwest ISO and the other 
entities.
    Mr. Allen. And does the blackout give you some, I guess I 
would say, more determination to move ahead along those lines?
    Mr. Torgerson. It certainly gives me more. You asked were 
some people resistant to us taking on more and clearly there is 
that aspect of it. Some people would prefer to keep their own 
control, so we have seen that in some areas.
    Mr. Allen. We see that in a lot of different areas. Do you 
think it makes sense for MISO to consider reorganization as an 
RTO?
    Mr. Torgerson. Well, we are determined to be an RTO by 
FERC.
    Mr. Allen. Okay.
    Mr. Torgerson. And FERC has said also we need to add these 
other aspects.
    Mr. Allen. The other aspects. Okay, fine. Let me also ask 
if you are going--standard market design, do those issues 
operate in any way to affect your desire to get more operating 
authority over the transmission grid? Is there anything about 
the standard market design issue? The administration has agreed 
to delay the FERC's SMD until 2007 or later, I am told, and I 
am just wondering whether you are then left in a situation 
where you may not have the authority--you may not have the 
power to get all you really need to make the MISO more 
effective? Is there any connection between those two things?
    Mr. Torgerson. I think what we have in front of FERC now, a 
filing to allow us to implement a market tariff, if that is 
approved, that will give us the authority we need outside of 
even the standard market design, because the standard market 
design looked at the entire country or Eastern Interconnect. 
For our region, I think it will work fine, and then we have to 
work with other RTOs, for example, we are working on a joint 
operating agreement with Mr. Harris' company, we are going to 
have similar agreements with others, so that we can coordinate 
between those that are designated as RTOs.
    Mr. Allen. Okay. Good. Thank you very much. I yield back.
    Mr. Barton. Thank the gentleman from Maine. The gentleman 
from Illinois wish to ask questions?
    Mr. Shimkus. Yes, sir.
    Mr. Barton. The gentleman is recognized for 5 minutes.
    Mr. Shimkus. Seniority there. Sorry. Thank you. Thank you 
all for coming.
    Mr. Barton. Actually, it is order of appearance at the 
first of the day, that is what it was.
    Mr. Shimkus. Yesterday when we started these hearings?
    Mr. Barton. Today.
    Mr. Shimkus. Oh, okay. So I still beat you I think again. 
They are crying. Thank you and I know it has been a long day, 
but I have been on this subcommittee, this is the full 
committee, but the subcommittee now 7 years, and I think we are 
really getting close to having some exciting things happen, I 
think positive. Some would disagree but I thin positive. And so 
the transmission issue will, I think, help incentivize moving a 
national energy plan. Let me ask this, and Mr. Harris, since 
people are agreeing that the transmission grid has to be 
improved, updated, investment has to come, tell me that could 
investment in transmission pay for itself in terms of providing 
access to cheaper generation of resources?
    Mr. Harris. Well, the answer is most certainly it can. I 
had been talking earlier about a regional plan. Well, we have 
been doing regional transmission planning for a little over 6 
years. We have $700 million of transmission that is being 
built. The interesting thing, about 60 percent of that is 
participant funding. Those that have caused are paying for it, 
and generation is being built. About another 30 percent of that 
is just upgrades, improving the substations equipment, not new 
lines. So there is a lot that can be accomplished just by 
having a way to look at the problem in a wholistic way.
    Mr. Shimkus. Does anyone else want to mention that? Yes, 
sir?
    Mr. Museler. Yes, Congressman. New York, unfortunately, is 
the poster child for transmission congestion. Literally, 
hundreds of millions of dollars in higher energy costs are paid 
by New York consumers because our system is pretty constrained. 
The Secretary of Energy's Energy Advisory Board transmission 
report pointed that out.
    Mr. Shimkus. So if you expand the grid, you would hope to 
see lower pressure on your consumers.
    Mr. Museler. That is correct, sir. Now, that has to be done 
in an integrated manner, as Mr. Harris pointed out earlier, but 
the feedback, we have done some studies and provided that 
information to the Public Service Commission and to our market 
participants that show for a number of representative projects 
paybacks of 5 to 10 to 1 in energy savings for the cost of the 
ongoing transmission. So there is no question that if done 
properly and in an coordinated planning process there are very 
large potential benefits for consumers.
    Mr. Shimkus. Yes. Let me--and I know some people want to 
answer, but let me move to another question and you can 
probably roll this in. There was a big movement when we talked 
about energy a couple years ago for green power and people to 
have choice in the type of power produced. Would it be easier 
for people to make a choice to use green power if we expanded 
the transmission grid? Mr. van----
    Mr. van Welie. Van Welie.
    Mr. Shimkus. [continuing] van Welie, sorry.
    Mr. van Welie. Let me just--I will answer that from a New 
England perspective. This is something that we have been 
grappling with in New England, transmission, first of all, to 
supply power to where there is an inadequate availability of 
power, for example, southwest Connecticut. The other thing you 
touched on is does it give one access to more efficient sources 
of power, and the answer there is yes as well. And I think the 
answer to your third question is also yes, which is to the 
extent that people want to locate green power sources and one 
has the transmission network to be able to distribute that in 
the region, it facilitates that.
    Mr. Shimkus. Yes, sir.
    Mr. Torgerson. In our expansion plan, which just came out 
in June, we identified $1.8 billion in programs that could be 
done, should be done for reliability. Also, we identified 
economic projects for transmission that could hook up wind 
power up in the Dakotas. People are looking at putting in 
10,000 megawatts of wind power, which would be obviously a 
renewable resources there. There isn't the transmission system 
to carry it to the markets today. Also, in Kansas, they are 
looking at the same things with wind power. And, again, we 
would need more of a transmission system to get that energy to 
market.
    Mr. Shimkus. You know, we have a coal generating facility 
here that powers DC. We could probably use wind generation 
facilities here. I know that has probably been said before, but 
there is a lot of wind that we circulate up here that maybe if 
we could connect that up to the grid, we could be very, very, 
very successful. My time is running out. Go ahead, sir.
    Mr. Goulding. Yes. I was just going to say, similarly, 
Ontario, we have several thousand megawatts of green projects 
on the books, as it were, many of them located away from the 
grid, and we currently have a Conservation and Supply Task 
Force, which has been initiated a couple of months ago; I am a 
member of it. And one of the things we are looking at is the 
appropriate mix of generation facilities that one should have 
in the future, the appropriate mix along with conservation and 
demand programs and what is the necessary transmission in order 
to make those things happen.
    Mr. Shimkus. So if you really want green power, you really 
should be proposing expansion of the grid.
    Mr. Goulding. I think green power is one of the things that 
is required in order to help drive some of the expansion of the 
grid.
    Mr. Shimkus. My time is out. Thank you, Mr. Chairman.
    Mr. Barton. Gentleman from Massachusetts, Mr. Markey.
    Mr. Markey. Thank you, Mr. Chairman. Mr. van Welie, in your 
testimony, you express concern over the vulnerability of 
southeastern--southwestern, rather, Connecticut to future 
outages. If there were to be such future outages, what is the 
risk that Boston and eastern Massachusetts could be affected in 
some subsequent event?
    Mr. van Welie. The answer is really that it depends on the 
size of the outage, but if there is a substantial outage, it 
will have a ripple effect elsewhere within the system and can 
very well have a reliability impact on Boston.
    Mr. Markey. And what is a substantial outage?
    Mr. van Welie. Well, if you were to lose several thousand 
megawatts in an area as vulnerable as southwest Connecticut, 
that would probably cause us a problem. And it also--let me 
just say that it also depends on where in the network the 
outage occurs.
    Mr. Markey. So you have identified greater Boston as an 
area of concern.
    Mr. van Welie. Boston is an interesting case study because 
if you go back several years, it was very vulnerable. In the 
last several years, transmission upgrades have occurred and 
some new generating facilities have been located and have 
actually gone operational. So it is in a reasonable state at 
this point. Our projections looking forward, and we will be 
shortly releasing another version of our original expansion 
plan, is that Boston--if the load growth continues as we are 
projecting, it will become vulnerable again, and we will have 
to strengthen the infrastructure around the Boston area.
    Mr. Markey. What is the point at which it does become 
vulnerable? What is the tripping point? How great does the load 
have to be on these wires?
    Mr. van Welie. Well, that is the function of this regional 
plan that we do. So we have a planning department that runs 
many different scenarios. They do a very detailed analysis and 
they essentially are doing a ``what if'' analysis and trying to 
predict under various circumstances what may occur. Those 
studies are the things that lead us to identify vulnerabilities 
in the system and therefore to put forward plans to correct 
them.
    Mr. Markey. So you are saying right now we are okay.
    Mr. van Welie. I would say at the moment Boston has come 
from a situation of being marginal and is certainly in a much 
stronger position it was several years ago.
    Mr. Markey. When would the word, ``marginal,'' have been 
used appropriately?
    Mr. van Welie. Well, what we use----
    Mr. Markey. No. when was that? What year are we talking 
about?
    Mr. van Welie. I would say prior to that last 2 years, so 
there are some recent transmission upgrades and generating 
investment that has occurred within the last 2 years.
    Mr. Markey. Okay. Now, when I look at the mismatch that 
seems to exist between the duties and responsibilities of MISO 
and PJM and the whole history of what happened with the 
alliance RTO proposal that FERC rejected from the Midwest, it 
seems to me that there may be a notion out there amongst some 
transmission owners that they can shop around for the best deal 
amongst RTOs regardless of whether that makes sense from the 
standpoint of regional grid reliability. Do you agree with 
that, Mr. van Welie, and if you do, how can this committee 
prevent companies from gaming the system to the detriment of 
the reliability of the overall system?
    Mr. van Welie. Well, my view as a system operator and as an 
engineer is that that is a bad thing. Basically, what it does 
is it creates non-contiguous areas in terms of control areas, 
and you end up with a swiss cheese arrangement that one has to 
operate. To me, what that does is it really increases the 
complexity of what the operator has to deal with, and you are 
therefore increasing the risk.
    Mr. Markey. So should we prohibit that in legislation?
    Mr. van Welie. In my opinion, yes.
    Mr. Markey. Okay. Thank you. Do you agree with the 
testimony submitted by Mr. Makovich that the--and by the way, 
thank you for sticking around all day, you will be up here 
sometime before supper--who is on the next panel that the 
Midwest network suffers a misalignment between organizations 
and the underlying extent of the regional network? And if so, 
what should we do to correct that situation, Mr. van Welie?
    Mr. van Welie. I am sorry, could you repeat the question?
    Mr. Markey. What he said in his testimony was that the 
Midwest network suffers a misalignment between the 
organizations and the underlying extent of the regional 
network.
    Mr. van Welie. I can only assume, and so let me preface it 
with that, that what he is really referring to is the 
functional responsibilities that the Midwest ISO might have in 
the future versus the way the organization is structured and 
the operational control they have over those facilities. But 
further than that, I am hesitant to comment.
    Mr. Markey. All right. I will pose the question.
    Mr. Barton. The gentleman's time has expired. The gentleman 
from Pennsylvania, Mr. Greenwood.
    Mr. Greenwood. Thank you very much, Mr. Chairman. I would 
like to address a couple of questions to Mr. Torgerson. The 
information that I have is that on the day of the blackout, 
beginning as early as perhaps 1:30 in the afternoon, at the 
FirstEnergy service area, there were operators of plants who 
were calling into the SCC, the control center for FirstEnergy 
and indicating that things were going wrong, that there were 
very big fluctuations in the frequency or the power, that there 
were power plants that went offline at--I think one went 
offline at 1:30, one went off a little after 4. Meanwhile, MISO 
was also calling into the control center asking questions, 
reporting things, and the folks at the control center seemed 
unaware, based on looking at their computer screens, that these 
things were happening, which suggests strongly that there was 
something wrong with the computer system, that it was not 
picking up the information that it was designed to pick up from 
the system.
    The question is, first off, if that is accurate or not 
accurate, I would like to know what you think about that. And, 
second, it seems to present a problem because when you have--it 
seems to me that there should be some sort of standard 
operating procedures so that when a control center for a 
utility is receiving information from different sources, its 
own operators in the field as well as MISO, whether they see it 
on their computer screens or not, they ought to be able to 
determine that the actual reports coming from elsewhere may be 
more reliable than what they are looking at on their computer 
screens. And then the secondary question is what does MISO--
what options do you have when you are calling into the control 
center saying, ``Are you aware of this, are you aware of 
that,'' and the guys in the control center are saying, ``No''? 
You don't have, as I understand it--you have some 
responsibility but you don't have any authority to start 
telling people to do things.
    Mr. Torgerson. Well, first off, on what we saw or what we 
heard, I mean we did find out at about 1:30 their East Lake 
plant one of their units went out. We did not know anything 
about the conversations between their plant and their control 
center. What we saw later, closer to the 4 hour, and if you saw 
the transcript----
    Mr. Greenwood. Let me just interrupt you for a second.
    Mr. Torgerson. Yes.
    Mr. Greenwood. When you saw that East Lake went out at 
1:30, you reported it to the SCC, correct, or no?
    Mr. Torgerson. No, they advised us that----
    Mr. Greenwood. Oh, they advised you. The SCC advised you.
    Mr. Torgerson. Right.
    Mr. Greenwood. Okay.
    Mr. Torgerson. That it was out. But that was a little later 
in the day that they advised us. We know now that it went out 
at 1:30; we weren't aware right at 1:30. Later----
    Mr. Greenwood. So how much time elapsed between the time 
when they knew it was out and you knew it was out?
    Mr. Torgerson. About 40 minutes.
    Mr. Barton. Would the gentleman suspend?
    Mr. Greenwood. Certainly.
    Mr. Barton. If the same thing had happened at PJM, wouldn't 
you have been notified immediately as opposed to 30 or 40 
minutes later?
    Mr. Harris. Yes, sir. As I was advising earlier, we run 
tools in the seconds. One of our tools is called a state 
estimator. We run it every 30 seconds on all the equipment that 
validates the data and those that stay with the system.
    Mr. Greenwood. I am sorry. Finished, Mr. Chairman? Go 
ahead.
    Mr. Torgerson. Okay. Then we had conversations with 
FirstEnergy. We had one around half an hour before the event. 
We were asking them questions, because we were observing then a 
line that went out, they called us back a little while later 
and they still hadn't responded at that point. And that----
    Mr. Greenwood. But were they essentially saying to you, 
``We are not getting this data from our own equipment here.'' 
Weren't there SCADAS not reporting data to them?
    Mr. Torgerson. We didn't know that at the time, and----
    Mr. Greenwood. Do you know it now?
    Mr. Torgerson. At about 4 when we had that conversation 
with them was the first time it came to light that they were 
having problems with their data and information. And then as 
you look back, you can see what had transpired, but up and to 
that point, we didn't. And as I said, we monitor key facilities 
for them and it is not all of them right now. So, as Mr.----
    Mr. Greenwood. What I am trying to get at is--to make a 
parallel--if I am an air traffic controller and I am looking at 
my screen and I am seeing one depiction of the world and, first 
off, pilots start calling in and saying, ``By the way, we just 
had a close call here, we just had a close call there,'' and 
another entity was calling in and saying, ``Do you know you 
have a problem here or you have a problem there,'' at some 
point, as an air traffic controller, I have to start to think 
maybe my screen is not giving me the right story here, and what 
does this--and how is the system designed to handle that?
    Mr. Torgerson. For the operator, if they are not seeing 
what people are telling them, it would at least tell someone 
that they ought to be looking elsewhere, looking to someone who 
can see things for them, calling the operations, finding out 
exactly what is going on and then----
    Mr. Greenwood. Did that seem to happen in this case?
    Mr. Torgerson. That I really don't know. I think this will 
be all part of the investigation, but what FirstEnergy did and 
who they communicated with other than us, I mean I know the 
communications we had with them, I don't know what the 
communications they had back----
    Mr. Greenwood. I mean the picture I get here is----
    Mr. Barton. If that is the gentleman's last comment.
    Mr. Greenwood. Okay. The picture I get here is that the 
guys in the SCC were flying blind. Others from MISO and from 
the plants were telling them, ``The system is collapsing around 
you,'' and they flew it blind right into the mountain. Is that 
an exaggeration?
    Mr. Torgerson. I don't know that I would go that far, but I 
think we were calling and trying to find out what was going on, 
because we were seeing some things and we were trying to 
confirm it with them as to what was going on, and we weren't 
getting the confirmation immediately.
    Mr. Greenwood. Thank you, Mr. Chairman.
    Mr. Barton. The gentleman wasn't here when I was asking 
questions but Mr. Torgerson's ISO has much less authority than 
Mr. Harris' RTO, and at least the chairman has the opinion that 
that is a possible cause of what happened. The gentleman from 
Pennsylvania, Mr. Doyle.
    Mr. Doyle. Thank you, Mr. Chairman. Well, reliability is 
certainly a hot topic right now, and I am just curious to get 
your opinions on which entity you think is better suited for 
managing and enforcing reliabilities, individual utilities or 
RTOs, and why? Maybe Mr. Harris can start.
    Mr. Harris. Well, I think the answer is all of the above. 
As I mentioned, the Eastern Interconnection there is 3,300 
different entities involved in the generation, transmission and 
distribution of power. I think from the overall perspective of 
the transmission grid, you have some entities that are 
regulated by the FERC, some that are not. You have some that 
are regulated by the States and not the FERC and some by the 
Department of Energy, I guess. So having some coherent body 
that is accountable to the Congress for the public policy 
aspects of reliability I think is important, and that is 
something that should be done.
    As far as the actual practice of the reliability, there are 
things down to maintenance and practices, O&M standards that 
need to be done at the local level. When it comes to the real-
time operation of the grid, then you need large regional 
entities that can deal with the speed-of-light product in an 
appropriate way to ensure that the grid is stable and reliable 
at any point in time. So I think all of those have to be 
effectuated.
    Mr. Doyle. Anyone else? Yes.
    Mr. Goulding. Yes. I firmly believe that RTOs are the 
appropriate organizations. If I can just quote my own 
particular instance in Canada. First of all, we are independent 
so we don't have any vested interest in the results in the 
marketplace, and I think that is an important point. The second 
one is that we can see a bigger picture than individual 
utilities can see and coordinate across a broader area. The 
third one is that in this particular context we can do the 
scheduling, dispatching, all the good things that Mr. Harris, 
Mr. Museler and Mr. van Welie can do on sort of an 
interconnected basis, and I think that is very important. And 
the fourth one, as I have mentioned earlier, is that having an 
RTO and particularly having it with some mandatory capability 
in terms of applying the standards, the processes and 
procedures, which we have, is a very effective way in ensuring 
that operations get carried out as appropriate and also in 
setting out the necessary standards for others to follow in 
terms of maintenance and operating technique. So I think, quite 
clearly, an RTO for me is a far more appropriate body.
    Mr. Doyle. Anybody else?
    Mr. van Welie. Yes. I will comment on that as well. I think 
I made an earlier statement that it really depends on where one 
is headed, and I think in, let me call it, the old world, the 
vertically integrated utility world, even in that world, 
particularly in highly integrated networks type pools, type 
power pools, the utilities felt that it was a good thing to 
have somebody managing the system from a regional vantage 
point. Going forward, however, as one moves into wholesale 
power markets, you are putting a lot more stress on that 
integrated system, and I then think it becomes a requirement to 
have an organization such as this.
    Mr. Doyle. Thank you. Finally, just one more question. I 
have been a big proponent of distributed generation, and I just 
wonder if you think increasing utilization of distributed 
generation could help improve reliability, and would you all 
support including standard, interconnection standards as part 
of any energy bill we pass?
    Mr. Harris. Absolutely. I was saying our regional planning 
protocol distributed generation has an equal shot to meet the 
electrical needs of the Mid-Atlantic region as well as a larger 
generator or transmission line. So you need regional planning 
protocols that allow them to play on an equal basis with any 
other solution, but it provides a depth and a resource that I 
think is definitely needed.
    Mr. Doyle. Yes?
    Mr. Torgerson. I would agree. I mean it is a way to make 
sure you have reliable power. You need to know about it, and 
you need to plan for it, though, too.
    Mr. Doyle. And you support standardizing the 
interconnection standards so that it is easier for DG to get on 
the grid?
    Mr. Torgerson. Yes.
    Mr. van Welie. I would also comment which is to say that 
the regional planning process that both I and Mr. Harris have 
mentioned is very important in terms of identifying needs of 
the marketplace so that the market can respond. And then given 
that need being identified, I think it makes a lot of sense to 
have standardized procedures for interconnection.
    Mr. Doyle. Great. Thank you, Mr. Chairman. I yield back.
    Mr. Barton. Thank the gentleman. The gentleman from 
Michigan, Mr. Rogers.
    Mr. Rogers. Thank you, Mr. Chairman. Mr. Torgerson, are you 
familiar with the third entry point in Michigan that was 
attempted a few years ago through Indiana? Do you have any 
knowledge on that effort?
    Mr. Torgerson. No, I do not.
    Mr. Rogers. Okay. We had testimony from a gentleman who was 
the CEO and president of ITC who said that loop flow problems, 
or at least designed into the grid, may cost Michigan consumers 
anywhere from $40 million to $50 million in uncompensated costs 
that get laid back on the consumer which end up paying that in 
their energy costs. Can you provide any insight for me on that?
    Mr. Torgerson. Well, I know loop flows a phenomenon to the 
system, I mean because the power flows along the path of least 
resistance, so there will be loop flows and they are there all 
the time. One of the reasons to set up RTOs was to manage the 
loop flows within the RTOs. That was part of it. The cost that 
it has to Michigan I am just not sure what it is. I mean I know 
Mr. Welch, and he and I have had conversations about this 
before. His concerns about not being compensated for it and 
mechanisms to allow that we have talked to him and worked with 
him on that in front of our stakeholders, as a matter of fact, 
directly. So I am familiar with what he is talking about, I 
just didn't know the magnitude.
    Mr. Rogers. How do we fix it?
    Mr. Torgerson. I am not sure how to fix it, because you are 
talking about who--really, it is who pays? Which entity, if it 
is coming from somewhere else, you are asking someone else to 
pay for something they are not today. So that really becomes 
the issue is who pays for it.
    Mr. Rogers. Yes, sir?
    Mr. Museler. I was going to say there are obviously 
reliability issues associated with loop flow as well, but just 
sticking, reinforcing what Jim said, essentially, the cost of 
the consumers in the area where the loop flow is having an 
impact is a free rider issue, and people are getting to use the 
transmission system--use someone else's transmission system and 
therefore are able to utilize their own system more, because 
they are getting a free ride on the other person's transmission 
system. And both the NOPR and the subsequent White Paper 
reinforces not just the authority but the obligation of the 
RTOs and the ISOs to resolve those loop flow issues, not just 
within our individual territories but between our territories.
    Mr. Rogers. And if I understand it--yes, sir; go ahead, 
please.
    Mr. Goulding. Yes. I just wanted to add a little bit. This 
has been an issue for many years, and at one point in time 
there was a lot of work done on what was erroneously called the 
general agreement on parallel paths, which was an attempt to 
identify that you should pay for the transmission that you use, 
not the transmission that you pretend to schedule your 
transaction over, because they never match. At the end of the 
day, what that showed, and what we still see today, are there 
are winners and losers by doing that, and so you never get an 
agreement. But at the end of the day, I think what is necessary 
really is if you can solve the financial problem to ensure that 
if you are going to be making use of other transmission, you 
actually pay for that transmission, I think that not only 
provides compensation to the correct parties, but I think that 
will also drive, quite frankly, more investment in 
transmission, because it will be less of an incentive for 
people to use other transmission paths. So I think that is a 
key element in terms of investment in transmission.
    Mr. Rogers. Is that a technology issue?
    Mr. Goulding. Doesn't have to be a technology issue, no. It 
can be simply that somebody doesn't want to build a 
transmission in a particular place because it is not going to 
get a lot of use or because they can carry out their 
transactions at this point in time without additional 
transmission on their own network. And that is what causes 
these loop flows.
    Mr. Rogers. Is leaning on the grid a contributor to loop 
flow?
    Mr. Goulding. Well, leaning on the grid is really something 
a little bit different. Leaning on the grid is generally meant 
to mean that somebody doesn't provide sufficient generation or 
purchase power within their own area in order to satisfy their 
demand in schedule. So they will be undergenerating, if you 
like, and pulling power in from others. That can often be done 
when power is there at a high price. The current rules of the 
game call that inadvertent energy, and often what a party will 
try to do is pay that inadvertent energy back so they look 
honest over a period of time. But you pay it back in the middle 
of the night when the prices are low. So that is more of an 
issue of leaning on the grid.
    Mr. Rogers. Interesting. I yield back my time, Mr. 
Chairman.
    Mr. Barton. The gentleman from Oregon, Mr. Walden, is 
recognized for 5 minutes.
    Mr. Walden. Thank you, Mr. Chairman. I just have a couple 
of questions, I guess. One is an issue that came up yesterday 
about rates of return needed to sustain the grid and to build 
it out for capacity. From your experience, what is that magic 
number? Is there one? How do you achieve it? We have heard 
numbers of 10, 12, 13 percent rate of return. What do you find?
    Mr. Torgerson. I think my experience is that if you are in 
the 12, 13 percent range, that is a very good return on equity 
today. I mean if you look at comparable markets, that seems to 
be okay. The issues become more of when are you going to get 
that rate of return, and when you are building transmission it 
is over a very long period of time before it can get started 
because of the siting and all the planning and right-of-ways, 
all the things you have to go through. So it could be 7, 10 
years before you start getting your return and you have put the 
money out. That leads to a lot of the reluctance for people to 
expend a lot of dollars on transmission today.
    Mr. Walden. How much of that is related to the siting 
delays?
    Mr. Torgerson. Siting is a big issue, big part of it. You 
will hear a number of the States, and we work with our States, 
we have an organization of MISO States who are trying to start 
working toward getting siting done on a more regionalized 
basis, so the States are--commissions are actually working 
together. But it can take one, two, 3 years for siting to 
occur. And then you have to go through the--usually, the siting 
happens pretty fast, but then you have the litigation 
afterwards.
    Mr. Walden. Right, the appeals. Anyone else want to comment 
on this issue? Yes, sir?
    Mr. Museler. Congressman, I think you heard from the 
previous panel that the rate of return, 10 percent, 12 percent, 
is not so much the issue as not only when they would actually 
see that rate of return but if they actually would see that 
rate of return at some point. The bundled rates where FERC may 
set the wholesale rates but the States have authority to set 
the bundled rate, which is what the utility really receives, is 
a major issue for them. The utilities in our area are very 
reluctant to propose projects because they really don't have 
any assurance that they will actually see the rate of return 
even if FERC grants it to them. Now, there are places where 
that has been overcome, but in our State it has not been.
    Mr. Walden. Because I think it was Mr. Markey or someone 
yesterday talking about you have this guaranteed FERC rate of 
return of upwards of 12, 13 percent; isn't that adequate and 
all that? What you are saying is, yes, but that is what FERC 
will authorize, it is the States that set the actual--so it is 
sort of like we play here, we give you a big authorization and 
a small appropriation, and you can't spend an authorization. Is 
that what I am hearing?
    Mr. Museler. Yes, sir, and the utility companies are the 
ones to really give you their opinion on that, but I think you 
heard that in the earlier panel.
    Mr. Walden. Yes, sir?
    Mr. Goulding. Yes. I would just like to add that I think 
another factor is perhaps the design of the tariff, and I think 
that is extremely important. It is not just the rate of return 
on the investment or on equity but the tariff itself. If part 
of a tariff, for example, means that you get paid for the 
amount of usage of your transmission network, if you build 
another line, then the use of your existing network might go 
down. So there can be a bit of a hit there. So tariff design I 
think is also extremely important.
    Mr. Walden. Well, I think that is an issue that concerns me 
as we move forward on developing RTOs is we do create 
artificial chokepoints that cause price spikes? Who oversees 
that? How do you keep from some sort of manipulation occurring 
in that process? Nobody wants to tackle that one. How do you do 
it now?
    Mr. Torgerson. We all have independent--well, we have an 
independent market monitor who looks at transactions that occur 
on the system and looks to see if anybody is manipulating it 
or----
    Mr. Walden. But couldn't it be pretty soft manipulation in 
the sense that a decision as to where to build the grid or 
expand the grid for greater capacity so you end up with a 
congestion that drives up the cost?
    Mr. Torgerson. We do our planning process and we look and 
evaluated all of the projects that are going to happen, and we 
do then studies to see where it should be and will it create 
additional congestion, what the impacts are going to be? So we 
would at least have knowledge of that it someone is building 
transmission. And we would go through that in our planning 
analysis and our studies.
    Mr. Walden. One final--oh, yes, Mr. Harris?
    Mr. Harris. I just want to comment that in our area the 
States insisted we had to have a regional planning protocol 
that dealt with these issues, so everyone has a chance to look 
at that regional data. So the transmission construction that is 
being built the company is obligated to build and construct, 
and it is approved by an independent entity, so you don't get 
into that tangled sort of mess as to are you goldplating, is it 
being abused and so forth? We have got an independent entity 
approving the plant.
    Mr. Walden. Thank you very much.
    Mr. Barton. The gentleman from Michigan is recognized for 5 
minutes.
    Mr. Dingell. Gentlemen, I would like to get this answer on 
the record, but I have very limited time. Would you each tell 
me the respective authorities that your agency has with regard 
to reliability, reporting, disclosure, information that you 
might get with regard to impending problems, the power you have 
over siting, the ability to require that the facilities be run 
at certain speeds or certain ways? Indicate to us in each of 
the cases what powers you have to assure reliability of several 
members of your respective organizations. Would you do that for 
us for the record, please? Please. Not right now but just 
submit that to us. And would you now tell us what would be the 
power that a well run RTO would need to address the problems of 
reliability? And I guess I will ask you, Mr. Goulding, because 
the Canadians seem to like government, over here we don't seem 
to, and I would like to hear what an intelligent race would 
have to tell us about how these things should be done.
    Mr. Goulding. So what specific question would you like me 
to respond to?
    Mr. Dingell. Well, what would be the powers that a well run 
RTO should have?
    Mr. Goulding. I think a well run RTO should, first of all, 
have access to all of the information that is required. I think 
a well run RTO should have the ability to both run a 
marketplace but to also recognize that reliability is paramount 
and to instruct changes in dispatch and schedules and the 
loading of lines in order to respect reliability within that 
marketplace. I think a well run organization should have the 
ability to carry out investigations, the ability to go and seek 
additional information in terms of whether the rules are being 
complied to or not. I think they should have, and I have 
already said we do have, the ability to enforce penalties, be 
they non-compliance letters, financial----
    Mr. Dingell. You have that authority.
    Mr. Goulding. I have that authority through statute, 
absolutely, and have applied it and have also found that having 
the stick is a better deterrent, quite frankly, that we haven't 
had any major issues, although we have penalized some people. 
And I think that is probably the key thing that is missing 
today from most authorities, the ability to have the big stick, 
to go in, to seek the information, to apply sanctions when 
necessary and to demand and order corrective plans and approve 
those corrective plans.
    Mr. Dingell. And to receive information when you need it in 
a timely fashion.
    Mr. Barton. Would the gentleman----
    Mr. Goulding. Receive information in a timely fashion, 
exactly.
    Mr. Barton. Would the gentleman yield on that, briefly?
    Mr. Dingell. Of course.
    Mr. Barton. When you say have that authority you mean in 
real time, not go to a governance board and file an appeal and 
3 months later, but you have the authority in Canada if you see 
a utility or a plant doing something it is not supposed to do, 
you can correct it immediately.
    Mr. Goulding. We can correct it immediately, yes. In fact, 
most events that we will come across don't need to be corrected 
immediately but need further investigation. And there is a due 
process and there is a dispute resolution panel that the 
parties can go to to seek some sort of redress as well. But in 
terms of particularly significant reliability events, we can 
move immediately, yes.
    Mr. Dingell. Now, Mr. Harris and Mr. Museler, and in fact 
all, gentlemen, do any of you have the level of powers that has 
been described by Mr. Goulding? You, Mr. Museler, do you have 
authority to lay penalties in place for non-compliance?
    Mr. Museler. Yes, sir, for specific failures to follow 
instructions, particularly from a reliability standpoint, 
failure to follow dispatch instructions, failure to provide 
information. There are sanctions with monetary penalties that 
we have. And that is a short-term situation. Longer than that, 
and this does require going to the FERC, but longer than that 
there is an ultimate sanction which is to remove market base 
rate authority and remove people's ability to transact in the 
market, which is----
    Mr. Dingell. How about you, Mr. Harris, you don't have that 
authority.
    Mr. Harris. No, sir, we do not have that authority to do 
that at all.
    Mr. Dingell. Now, I sense that both you and Mr. Museler 
would indicate to us that you have the capacity to address many 
of the problems that we confronted on this situation on August 
14; am I correct in that?
    Mr. Harris. Yes, we do. We have the--we could certainly 
direct the information. We have the authority to direct and 
control the system. I think it also begins with the board of 
the RTOs, and I think this is important. Our board has the 
authority to ensure that we operate a safe and reliable system, 
and as the fiduciary obligation of the independent board of 
directors, they take that quite seriously and will do what is 
necessary to ensure that we operate a safe and reliable system 
in the area that we serve. We do not have the direct 
sanctioning authority and the directive authority that Mr. 
Goulding has described.
    Mr. Dingell. I ask unanimous consent to proceed for 2 
additional minutes, Mr. Chairman. Mr. Torgerson, I say this 
with respect and affection, you have got a tough job, but I get 
the impression that you don't have the authorities that Mr. 
Museler was talking about, Mr. Goulding was talking about or 
Mr. Harris was talking about; is that correct?
    Mr. Torgerson. That is correct today, yes.
    Mr. Dingell. You strike me as having been more of a 
spectator in this matter and things were happening but nobody 
was calling you and you were trying to find out what was going 
on. It is pretty clear that you need the authority to address 
those things; isn't that so?
    Mr. Torgerson. I would agree.
    Mr. Dingell. And I say this with respect because I happen 
to know you are running a new operation and you have some 
difficulties here. Can you tell us what of the authorities that 
Mr. Goulding described that you have to address any of the 
problems that you confronted?
    Mr. Torgerson. The only one we have right now is if someone 
does not do something for reliability purpose, we have the 
ability to penalize a transmission-owning member if they don't 
follow a specific direction. That is the only thing we have 
right now.
    Mr. Dingell. That is a penalty that has its own 
counterproductive results.
    Mr. Torgerson. Yes.
    Mr. Dingell. Now, I would note here that we have a picture 
of your area, and I note that it was--somebody was critical of 
the idea that we had swiss cheeses, and it strikes me here we 
do have a swiss cheese. I note you have one in the general area 
of Chicago, you have areas in northern Michigan, you have areas 
in, I guess it is, South Dakota and eastern, I guess it is, 
Kansas where you have no authority to address those questions. 
Fortunately, it didn't occur there, but August 14 could have 
afflicted those people. And I find myself curious, you received 
virtually no phone calls, you had virtually no electronic 
communications through computers and so forth that would warn 
you that this trouble was coming on; is that right?
    Mr. Torgerson. We did communicate with FirstEnergy. We do 
get data in but we don't get it at the same rate and speed as 
the others do.
    Mr. Dingell. Of course, data unevaluated is only data. Data 
only becomes information when you have the ability to evaluate 
it so that it becomes a workable tool for decisionmaking; isn't 
that right?
    Mr. Torgerson. I agree.
    Mr. Dingell. And you did not have that.
    Mr. Torgerson. We have some coming in, and we have the data 
coming in, and we have specific things we look at. Like in the 
case of FirstEnergy, as I said, we evaluate key facilities that 
we work together to identify. Those are the ones we look at. 
But the control area, and we are not a control area, the 
control area is the one that has all the information, and they 
are the ones that balance the generation and the load. We need 
to move to that.
    Mr. Dingell. Thank you. Mr. Chairman, I thank you.
    Mr. Barton. Thank the gentleman. I am going to ask one 
question, and then we are going to let this panel go. I want 
each of you to tell me who hires you and who could fire you. We 
will start with you, Mr. Museler?
    Mr. Museler. My independent board of directors hires me, 
and they can fire me.
    Mr. Barton. And who makes up the independent board of 
directors?
    Mr. Museler. There are nine members on the independent 
board of directors. They have no financial affiliation with any 
of the customers or market participants. They were originally 
selected by a panel of the market participants, the customers, 
for the ISO. Going forward they can self-perpetuate themselves.
    Mr. Barton. But they are not utility employees.
    Mr. Museler. They are not utility employees. Three of them 
are retired utility executives, but they have no affiliation 
with any companies in New York.
    Mr. Barton. Mr. Torgerson?
    Mr. Torgerson. I am hired and then can be fired by the 
independent board. There are seven members of our board that 
are totally independent of market participants. They are 
elected by the members, and they stand for--they are on 3-year 
terms.
    Mr. Barton. And the members are?
    Mr. Torgerson. The members are anyone who joins the Midwest 
ISO either as a transmission owning or non-transmission owning 
member. A member could be someone like Reliant, Synergy, 
marketers----
    Mr. Barton. But they would be utilities, either investor-
owned or----
    Mr. Torgerson. Well, we have----
    Mr. Barton. A merchant plant operator.
    Mr. Torgerson. Morgan Stanley is a member, so there are 
financial houses that may be trading in the market when we have 
the market going, but those types of people are also members.
    Mr. Barton. Mr. Goulding?
    Mr. Goulding. Yes. I was hired by the board and can be 
fired by the board. My board is 17 people, including myself. 
Seven of those members are independent. The other nine 
represent stakeholders, so they would represent the generators, 
transmitters, large distributors----
    Mr. Barton. Is there a government representative on your 
board?
    Mr. Goulding. There is no government representative on my 
board, no.
    Mr. Barton. Okay. Mr. van Welie?
    Mr. van Welie. We have a board of nine independent 
directors. They both hire me and can fire me, but none of the 
directors have any affiliation with any market participant.
    Mr. Barton. And how are the directors appointed?
    Mr. van Welie. This particular board was appointed by a 
committee of the New England State regulators and I believe the 
market participants back in the 1996 timeframe. And going 
forward we are contemplating some changes to our governance 
arrangements, which we hope will give our board even further 
independence.
    Mr. Barton. Okay. And last but not least, Mr. Harris.
    Mr. Harris. Yes. We have a 10-member board, 9 independent 
members and then myself. I serve at the pleasure of the board 
and was hired by the board. We are organized as a limited 
liability company, so our board is elected by the membership, 
and every year one-third of the board is up for reelection by 
the membership.
    Mr. Barton. And who is the membership?
    Mr. Harris. Everyone that participates in our market. We 
have now currently about 250 some odd members. Anyone that 
participates has to be a member of the LLC to participate----
    Mr. Barton. So a member could be a distribution company?
    Mr. Harris. Yes. We have distribution companies, marketers, 
traders, Wall Street firms, anyone that is doing business in 
the electrical business must be a member and must be able to 
participate and abide by the rules.
    Mr. Barton. And is it one member, one vote or----
    Mr. Harris. One member, one vote by sector. We have five 
sectors and it is one member, one vote, and it takes two-thirds 
of that total vote in order to pass or to elect the board.
    Mr. Barton. But none of you have boards that I would say 
would be dominated by utilities; is that fair?
    Mr. Harris. Our board has to be totally independent from 
the marketplace.
    Mr. Barton. Okay. Oh, I am told that the gentleman from New 
Hampshire has one question. Mr. Bass.
    Mr. Bass. Very quickly, Mr. Chairman, I appreciate that. 
There is a--there might be a nexus between vantage point, i.e. 
the single dispatch station and size. I was wondering if either 
Mr. van Welie or Mr. Harris could comment. I think you two have 
single dispatch stations. As the FERC goes forward with 
regulations involving standard market designs, should they be 
considering the relationship between size of the system and the 
vantage point through the dispatch station issue?
    Mr. Harris. Well, we actually operate out of two different 
centers. We have one in the western area and then one in Valley 
Forge, and these operate in tandem in a mutually supportive way 
in order to cover that. You get into communications technology 
and some fairly sophisticated tools to enable that, but that is 
how you manage across that footprint.
    Mr. van Welie. I think it is something that is very 
difficult to give you a formula on. It is a matter of judgment. 
I think what one has to look at is what is the state-of-the-
art, and it is possible for certain regions to grow, but it has 
to be done in a really systematic way with careful analysis and 
with support with technology and tools. So I think my concern 
really would stem from leaping too quickly to a very large 
system without having underlying infrastructure. Remember, I 
also said that the other issue here is complexity. As one grows 
in size, one increases in complexity and sophistication. I am a 
proponent of software automation. I have spent 20 years of my 
life developing automation systems, and we know that one cannot 
place all one's reliance in software systems. At some point 
they fail, and one has to rely on human operators in order to 
manage the system. And so I think that is a very real 
constraint as we look at what is the determining point in terms 
of size.
    Mr. Barton. Okay. We want to thank this panel. We 
appreciate your attendance. There may be some follow-up 
questions in writing, and we would hope that you would comply 
with the answers expeditiously.
    Let us now have our third panel come forward. We have Mr. 
David Owens, who is the executive vice president of the Edison 
Electric Institute; Mr. Larry Makovich, who is the senior 
director for Cambridge Energy Research Associates; Mr. T.J. 
Glauthier, the president and CEO of the Electricity Innovation 
Institute; Mr. Sonny Popowsky, Consumer Advocate of 
Pennsylvania; and Mr. Steve Fleishman, who is first vice 
president for Merrill Lynch. If you gentlemen would come 
forward, please.
    Welcome, gentlemen. If everybody would find their seat. 
Your statement is in the record in its entirety, but you all 
are seated differently than you are on the witness list, so we 
are going to go in order of seating. So we are going to start--
are you Mr.--the gentleman right here, what is your name?
    Mr. Makovich. Makovich.
    Mr. Barton. Makovich, okay. So we are going to go Makovich, 
Fleishman, Popowsky, Glauthier and Owens. All your statements 
are in the record in their entirety. Each of you will be given 
5 minutes to summarize. We will start with Mr. Makovich.

 STATEMENTS OF LAWRENCE J. MAKOVICH, SENIOR DIRECTOR, AMERICAS 
   RESEARCH, CAMBRIDGE ENERGY RESEARCH ASSOCIATES; STEVEN I. 
FLEISHMAN, FIRST VICE PRESIDENT, MERRILL LYNCH; SONNY POPOWSKY, 
 CONSUMER ADVOCATE OF PENNSYLVANIA; T.J. GLAUTHIER, PRESIDENT 
  AND CEO, THE ELECTRICITY INNOVATION INSTITUTE; AND DAVID K. 
   OWENS, EXECUTIVE VICE PRESIDENT, EDISON ELECTRIC INSTITUTE

    Mr. Makovich. Okay. Thank you, Congressman Barton. After 
listening to all the testimony today and what passed yesterday, 
it seems clear that it reinforces the conclusion that we had 
come to as to what is gone on here. It looks like we had a 
combination of very normal component failures within the 
complex transmission network that has been subject to 
deterioration from a lack of investment and that there was an 
inability to respond and contain this problem at several levels 
of control. And so as you look at the root cause here, it seems 
to be a breakdown in the planning, coordination and 
communication necessary to control these interconnected power 
systems.
    Now, other people have testified to what went right about 
capturing data and restoring power, but it looks like on August 
14 when the power system was not particularly stressed it was 
not configured properly to withstand this series of normal 
problems that were allowed then to cascade. And so the sequence 
of events of this blackout caused parts of this power system to 
act on their own rather than in a coordinated fashion, and 
everyone was not in a position to act on their own and keep 
everything up.
    So as far as the recommendations go, properly defining the 
mission here is important. There has been a lot of talk and 
policy focus on doing things to create a seamless national grid 
serving a standardized market structure, and whether that is or 
is not desirable, I think we have to come to grips with the 
fact that what we are dealing with here is a transmission 
network that needs the coordination and planning and data 
transfer that everybody has been talking about today. But it is 
a natural monopoly, it has seams, it involves places where 
markets are well developed, like PJM and other places where we 
still have traditional regulation in place, where we have got 
ownership spread between public power, both at the State and 
Federal level, as well as investor-owned assets, and all of 
this has to be coordinated. And so these organizations need to 
line up with the underlying networks, and they need to span 
these big differences that we have today.
    We also all agree, it seems, on the necessity for mandatory 
reliability standards, and with regard to transmission 
investment, I think the point here is our analysis shows there 
are many, many opportunities to make investment in the 
transmission network with big benefits compared to the costs. 
So there are big payoffs here. So if you provide for more 
accelerated appreciation, greater rate of return, that 
difference just increases, but it is still not getting done. 
And the problem here really goes to that who pays problem, that 
because we have got prices frozen, we can approve rates for 
transmission. That is the good news. The bad news is we can't 
pass them on to the people that need to pay them.
    So the recommendation here is to unfreeze the prices that 
need to be unfrozen and have a default position. You make an 
investment, it is going to get spread across the entire 
network, and then if proceedings need to happen to try to 
rearrange the allocation, fine, but don't hold it up as you try 
to resolve this very thorny question of who is going to pay. 
Thank you.
    [The prepared statement of Lawrence J. Makovich follows:]
   Prepared Statement of Lawrence J. Makovich, CERA Senior Director, 
                    Americas Gas and Power Research
    A definitive analysis of the contributing events and causes of the 
August 14, 2003, blackout will take months to complete. At this time, 
Cambridge Energy Research Associates' (CERA's) analysis indicates that 
a combination of normal component failures, transmission system 
deterioration, and an inability to respond and contain the problem at 
several levels of control caused the cascading blackout.
    At this time, it appears that the greatest power failure in US 
history began with normal component failures. For example, one failure 
on August 14 was an unplanned outage of a unit at the East Lake power 
plant that caused power flows to instantaneously reroute in the 
transmission network. Such unplanned power plant outages occur 
thousands of times each year and so too does the instantaneous 
rerouting of power flows. Such normal component failures and dynamic 
power flows are part of normal power system operations.
    Transmission system operators plan for normal component failures. 
To do this, they configure the electrical system--the real-time 
balancing of sources of power and uses of power and the limits on 
transmission line loadings in the system to withstand the effects of 
normal component failures. At a minimum, proper transmission network 
planning keeps the power system configured in such a way that it can 
withstand the effect of the most critical component in the system 
failing (first contingency planning). Automatic controls on generating 
plants and transmission lines allow the power system to isolate 
problems, protect equipment, and reconfigure itself to a stable 
condition within seconds following a normal component failure.
    As power system conditions change (supply, demand, weather, etc.), 
power flows reroute at close to the speed of light. Thus, when a 
generating unit and a transmission line trip and power reroutes, 
several transmission lines carry more power and, as expected, begin to 
sag. On August 14, one of these lines carrying more power near 
Cleveland sagged close enough to a tree to short circuit. Proper 
maintenance (tree trimming) should prevent such contact but, again, 
transmission line failures of various types are something power system 
operators also plan for. Nevertheless, when power rerouted along the 
remaining lines, additional overloading occurred and automatic 
protections for generating plants and transmission lines disconnected 
additional power plants and lines in the network. At some point, the 
multiple failures pushed the system past its limits to isolate and 
restabilize. Consequently, the problem expanded over a larger area of 
the power network as significant rerouting of power flows continued.
    When a power system is not configured to contain a normal component 
failure, the destabilization of a larger part of the power system 
quickly follows. Power surges spread through some parts of the 
network--Pennsylvania, New Jersey and Maryland, and AEP--that reacted 
(both automatically and with discretion) to isolate themselves in order 
to maintain stable system operations. However, such actions add to the 
rerouting dynamics of the remaining power network and begin to 
overwhelm the remaining parts such as eastern Michigan, Ontario, and 
finally New York.
    The root cause of the cascading blackout appears to be a breakdown 
in the planning, coordination, and communication necessary to control 
the interconnected power systems. The sequence of events in the 
blackout caused parts of the power system to act on their own rather 
than in a coordinated fashion. Such coordination has not gotten the 
proper investments of time, money, and systems in the past several 
years and this system deterioration--the cumulative effects of years of 
underinvestment in the varied needs of transmission networks--is a root 
cause of the blackout.
             past efforts to prevent and minimize blackouts
    The blackouts of 1965 and 1977 in the Northeast and in 1996 in the 
West spurred efforts to prevent and minimize blackouts in the future. 
The lesson from 1965 was that greater integration of regional power 
systems created desirable day-to-day benefits from electric trade but 
required an associated higher level of planning, coordination, 
communication, and control to prevent cascading power outages. As a 
result, the formation of the North American Electric Reliability 
Council (NERC) and its regional reliability councils followed the 1965 
blackout.
    The lesson from the two blackouts of 1996 in the West was that a 
breakdown in planning, coordination, communication, and control can 
allow normal events--again, in one case, a power line sagging into a 
tree--to cascade into a large regional system failure. In this case, 
the cascading failure began with federally owned transmission assets 
that were highly integrated with other publicly and privately owned 
transmission infrastructure. Following the 1996 blackouts, the western 
power system decreased the amount of power flowing on transmission 
lines (forgoing savings from increased power trade) in order to 
maintain the level of redundancy necessary to prevent a repeat of 
cascading failures following normal component failures. A year or more 
passed before the planning and coordination got to the point that these 
power transfer limits could return to pre-blackout levels.
    The blackouts of 1977 in New York and several years ago in Chicago 
highlighted the problem of underinvestment in power delivery systems. 
In Chicago the problem was underinvestment in distribution (the small 
wires near homes) rather than in transmission (the large wires that 
carry power long distances). Even the best planning and coordination to 
properly manage a power system cannot offset the problems created by 
continued underinvestment. Eventually the probability of multiple 
component failures and the increasing constraints on systems operators 
charged with configuring a reliable power system leads to a major 
blackout. This underinvestment affects more than just transmission 
lines and substations and includes computer systems, backup systems, 
software, instrumentation, data, rules, and organizations.
                       what worked on august 14?
    The conditions across the eastern power interconnection on August 
14 were not highly stressful. The East was not in the throes of a 
prolonged heat wave or suffering from an abnormally high level of 
supply outages. Interregional power flows were providing benefits, as 
areas with higher-cost generation were able to draw upon areas of 
lower-cost generation. As the blackout cascaded through the Midwest, 
Ontario, and New York the automatic protective devices for power lines 
and power plants worked to prevent damage. Restoration of electric 
service reflected a well-thought-out and rehearsed sequence of 
procedures. The control centers of the electric systems appear to have 
captured the real-time data necessary to reconstruct the details of the 
cascading failure. The blackout exposed weakness in the US power grid 
but did not provide evidence that the US has a third world transmission 
infrastructure. Normal component failures should be expected even in a 
state-of-the-art transmission network. Quite to the contrary--the high 
degree of interconnection of the US grid exposed the need for better 
planning, coordination, communication, and control.
                          needed improvements
Defining the Transmission Mission
    Electric transmission is critical infrastructure in the US economy. 
The transmission network is a natural monopoly that is in the middle of 
an industry that is stuck halfway between regulation and the 
marketplace. Transmission remains in the center of integrated regulated 
power companies and public power entities as well as at center stage in 
emerging power markets, where it governs the interactions between 
consumers and producers. A properly structured transmission sector 
requires that the institutions and rules meet the needs of both of 
these existing industry structures. Transmission policy must adjust to 
the reality that regional power systems in the United States will 
operate for quite some time with very different structures--some 
relying greatly on market mechanisms and others relying on 
comprehensive regulation. Transmission institutions and rules must 
accommodate the different power industry structures that are 
interconnected and need to interface properly.
Transmission Organizations
    Transmission organizations need to reflect the underlying reality 
of the transmission infrastructure. We do not have a seamless, national 
transmission grid and are not even close to having one. Instead, the US 
power system consists of a dozen regional transmission networks within 
three largely independent transmission interconnections, with varying 
levels of power transfer capability between regional networks and with 
networks in Canada. These networks cover multistate areas and need 
organizations that align with the physical extent of the grids to 
implement the necessary planning, coordination, communication, and 
control.1Thus, the Federal Energy Regulatory Commission (FERC) should 
not allow movement to the market in regions that do not have proper 
alignment between the transmission organization and the network. 
Currently, the US Midwest network has two transmission organizations in 
formation and transition, rather than one, and suffers a misalignment 
between the organizations and the underlying extent of the regional 
network. On the other hand, if the FERC gains authority to order 
regional transmission organization participation in regions moving to 
the market, then it should also order proper alignment between 
transmission organizations and networks.
    Since these regional networks do have significant interconnections, 
the need also exists for an umbrella organization to coordinate 
operations and interdependencies within the interconnections. We want 
sufficient overall control to avoid situations in which one regional 
network protects itself by causing collapses in neighboring networks. 
The current NERC comes close to the envisioned umbrella organization 
but suffers from being a voluntary organization with limited 
enforcement authority.
Mandatory Reliability Standards and Procedures
    Mandatory electric reliability standards and procedures would help 
address the breakdown in planning, coordination, and communication that 
are at the foundation of power system control. A system of rules and 
procedures is needed that provides real-time information flows such 
that all system operators have a clear view of not just their local 
power system but also the larger whole. Such standards and procedures 
need to be enforced by an agency with authority over both publicly and 
privately owned transmission assets in competitive as well as regulated 
industry structures. International agreements are also necessary to 
coordinate with Canadian power systems and, to a much smaller extent, 
Mexican power systems.
    An umbrella organization must ensure that contingency planning 
evaluates the power system as a whole--and is not just an uncoordinated 
set of regional contingency plans with a blind spot regarding their 
interdependencies.
Resolving the Gridlock in Transmission Investment
    More investment is needed in the US transmission network. Many 
opportunities exist where the benefits of additional transmission 
infrastructure investments far exceed the costs, and this result is 
robust under a wide range of future conditions. The problem, as CERA 
identified in its 1999 report entitled Gridlock--Transmission 
Investment and Electric Restructuring, is that ``[c]urrently there is 
no entity in the emerging industry structure--neither generators, 
transmission owners, independent system operators, distribution 
companies, traders, retail marketers, nor end users--facing the proper 
incentives to invest.'' Our conclusion four years ago was that 
``[s]ustained underinvestment in transmission may eventually threaten 
the reliability of the bulk power system.''
    Underinvestment in transmission and the gridlock in transmission 
policy are longstanding problems. When I last testified before the 
Senate in July 2002, CERA warned that a continued lack of investment 
would lead to reliability problems: ``A gridlock plagues most 
transmission investment decisions because incentives are misaligned.'' 
These investments ``were not being undertaken because no one faced the 
full costs and benefits of AC network investments and was in a position 
to pursue these opportunities profitably.'' Over a year ago, the 
Department of Energy's National Transmission Grid Study provided a 
similar warning. And in CERA's Special Report Energy Restructuring at a 
Crossroads: Creating Workable Competitive Power Markets, 5 out of 12 
recommendations on making power markets work involved transmission 
issues. CERA's currently ongoing study Grounded in Reality: Bottlenecks 
and Investment Needs in the North American Transmission System is 
finding that significant transmission congestion exists both within and 
between regions.
    The solution goes beyond higher allowed regulated rates of return, 
tax incentives, or accelerated depreciation. The payoffs already exist. 
The problem is settling who pays. The current principle is that whoever 
benefits ought to pay. However, implementation of this principle is 
very difficult. Benefits are robust under a wide variety of conditions 
but as conditions change, the incidence of those benefits can shift 
dramatically. Transmission investment is stymied by the complex 
arguments of who will benefit and thus who should pay. As a result, 
adequate investment is not yet being made. Transmission investment 
planning at the network level that guarantees cost recovery and 
prevents investment indecision due to gridlock on cost allocation and 
recovery mechanisms is sorely needed. One possibility is a policy that 
allows economic transmission investment identified by analyses at the 
network level to go forward with a default decision to spread the costs 
across the entire network. Reallocations and true-ups can follow later 
if necessary and substantiated.

    Mr. Shimkus [presiding]. Thank you. A record for 
testifying. Now I would like to recognize Mr. Fleishman.

                STATEMENT OF STEVEN I. FLEISHMAN

    Mr. Fleishman. Mr. Chairman and committee members, thank 
you for the invitation to provide my views on--Mr. Chairman and 
committee members, thank you for the invitation to provide my 
views on issues surrounding the August 14 blackout. My name is 
Steve Fleishman and I am an equity analyst covering the utility 
industry for Merrill Lynch. My primary job is to observe and 
study developments in the utility sector and specific companies 
and then make investment recommendations to clients. As such, I 
do not come here with any vested interest on the contentious 
debate over future industry structure; instead I speak more as 
an active observer of the industry and one importantly who 
interacts daily with the retail and institutional investors who 
ultimately will be asked to invest the capital that is 
necessary to build a more reliable transmission network.
    As of today, the exact chain of events that precipitated 
the blackout is not determined nor the exact cause is known. 
Whatever the ultimate cause, the blackout has served to 
highlight many of the structural issues that the industry now 
faces. While many call it a transitional problem, it might be 
better called a long period of limbo. Some of the examples of 
this limbo include the fact that approximately half the States 
have deregulated their electric business, the other half have 
not. In many regions, transmission is still owned by the 
utilities but controlled by ISOs or RTOs. While this split of 
ownership and control is difficult to work, it does require 
rules that are very clear to make work.
    Finally, as Larry mentioned, when a generator adds a power 
plant, it is not clear in some regions who is responsible for 
bearing the cost of the associated transmission additions. The 
lack of clarity on these issues and others are some of the 
examples of significant barriers to companies and investors as 
they look to invest capital in the sector.
    The blackout is also a wakeup call that there has been 
underinvestment in the transmission grid. Underinvestment in 
the grid is not a new story. According to the studies in the 
past, we have seen significant reductions in the amount of 
transmission investment relative to peak demand to the degree 
of 17 percent during the decade of the 1990's and projected 
another 12 percent in the coming decade. This structural 
uncertainty in the transmission business we think is clearly 
part of the reason of the underinvestment and then siting of 
transmission probably even a greater impediment. FERC has 
recognized these barriers to investment has recently been 
supporting higher returns on equity for transmission investment 
and has also supported incentives for potentially even greater 
returns based on if that investment is made by independent 
entities.
    I commend FERC on these steps but also would consider other 
forms of incentive regulations, such as sharing of cost savings 
between shareholders and consumers, incentives tied to 
transmission reliability and then finally, maybe most 
importantly, incentives tied to reducing congestion costs in 
the power markets. We do continue to see significant 
inefficiency in these markets due to bottlenecks, and the 
resulting congestion costs we think are in the many billions of 
dollars, and that an incentive regulatory approach that would 
allow for a sharing of congestion cost savings between 
transmission builders and customers could be a win-win 
solution.
    Some may question whether incentive regulation is 
necessary. My belief is that the recent investment climate for 
utility investors makes this even more important. For example, 
roughly half of the 37 utilities we track had to reduce or omit 
their common dividends over the past 5 years. Balance sheets in 
the industry have been stretched to, on average, about 60 
percent debt to total capitalization. In 2002, Standard & 
Poor's lowered utility credit ratings 10 times as many upgrades 
that they did, and so far this year that number is 11. Given 
these financial pressures, utilities are very focused on 
reducing debt and living within their means.
    As a result of this, we estimate capital spending for the 
utilities we track will drop from $50 billion in 2002 down to 
$35 billion in 2004, 34 percent reduction. This reduction is 
crucial to many companies maintaining their current credit 
ratings, and in order to avoid further credit pressure, 
companies would need to make a clear case to the rating 
agencies and Wall Street of the attraction of new transmission 
investments.
    The good news here is that public policymakers have taken 
actions and can take further actions to entice new capital to 
help resolve the infrastructure issues of the industry. One of 
the actions already taken has been the reduction in taxes on 
corporate dividends. We believe this will be an important 
attraction for regulated utility investments and will also 
increase equity and less debt in funding these investments. We 
have talked also about incentive regulation, tax incentives for 
transmission investment, and we think also repeal of the Public 
Utility Holding Company Act would provide more certainty to 
investors and also make it easier for non-traditional investors 
such as financial or private equity investors to invest in the 
industry and specifically in transmission.
    Finally, we highlight that actions on siting will be really 
critical in the near term as most of these incentives for new 
investment in transmission will play out over a long period of 
time. For there to be some near-term strides, siting is really 
the critical issue, and we do support a process of determining 
national interest transmission lines led by the Department of 
Energy and regional State and utilities. And once these are 
identified, the DOE would work with the States to streamline 
the siting process, including looking at building these lines 
on Federal lands.
    Finally, I would like to thank the committee for the 
opportunity to share my thoughts on potential actions to help 
resolve issues raised by these blackouts. I would highlight 
that certainty is critical for investors to commit to 
investments, and I believe we do have an opportunity here in 
the near term to provide much more certainty to investors. 
Thank you.
    [The prepared statement of Steven I. Fleishman follows:]
   Prepared Statement of Steven I. Fleishman, First Vice President, 
                       Merrill Lynch & Co., Inc.
    Thank you, Mr. Chairman, for the invitation to provide my views 
before your Committee on issues surrounding the blackout in the 
Northeast, Midwest, and Canada on August 14. My name is Steve Fleishman 
and I am an equity analyst covering the utility industry for Merrill 
Lynch. My primary job is to observe and study developments in the 
utility sector and of specific utility companies. I then make 
investment recommendations to clients on stocks of utility sector 
companies.
    As such, my comments to the Committee do not come as an advocate of 
a specific side of the table on the debate over future industry 
structure. Instead, I speak as an active observer of the industry and, 
more importantly, one who interacts daily with the institutional and 
retail investors who will ultimately be asked to provide the new 
capital necessary to build a more reliable transmission network.
    I have called the blackout on August 14 a ``black eye'' for the 
electric utility industry. This is an industry that prides itself on 
safe and reliable electric service to customers. The blackout was 
obviously a serious breach of this commitment.
    Despite this breakdown, there are many aspects of the system that 
did work. Utility workers performed admirably in returning electric 
service to all customers within days after the blackout. Moreover, the 
affected generation units and transmission lines are currently up and 
running with little to no permanent damage caused by the blackout.
               electric industry in structural ``limbo''
    As of now, the exact chain of events that precipitated the blackout 
is not determined, nor are the exact causes known. Whatever the 
ultimate cause, the blackout has served to highlight many of the 
structural problems that the industry now faces. While many call it a 
``transitional'' problem, it might better be called a long period of 
``limbo''. Following are just a few of many examples of the lack of 
clarity that companies and investors face as they look to invest 
capital into this sector:

1) Approximately half of the states have deregulated their electric 
        businesses and the other half have not.
2) In many regions, transmission is still owned by the utilities but 
        controlled by independent system operators (ISOs) or other 
        forms of regional transmission operators (RTOs). This split of 
        ownership and control is difficult to make work and can be an 
        impediment to new investment, unless there are very clear rules 
        in place.
3) When a generator adds a power plant, it is not clear in some regions 
        who is responsible for bearing the cost of the associated 
        transmission additions, the generator, or the local utility 
        (the participant funding issue).
    As President Bush aptly stated, the blackout is ``a wake-up call'' 
to the American people, the utility industry, and public policy makers 
that these and other structural issues need to be resolved.
                    need for transmission investment
    The blackout is also ``a wake-up call'' that there has been 
underinvestment in the transmission network during this period of 
structural uncertainty and that this trend must change quickly. It is 
not certain that a lack of transmission investment will prove to be the 
direct cause of the blackout. However, I suspect that more transmission 
capacity and better information technology on the grid could have 
helped to at least limit the scope of the blackout.
    Underinvestment in the transmission grid is not a new story. This 
has been an issue discussed within the industry for some time. 
According to a 2001 Edison Electric Institute (EEI) study, transmission 
investment grew by only 0.5% annually during the 1990s well below the 
2.5%+ annual growth in peak demand. Transmission capacity relative to 
peak demand dropped by 17% during the decade and is projected to fall 
by another 12% based on projections for the next decade. In order to 
simply maintain transmission capacity relative to peak demand at 2000 
levels, $56B of investment would be needed in the current decade, well 
above current expected expenditures of $35B.
    I believe the greatest impediment to transmission investment has 
been siting. While a power plant can often be located in a barren area 
or in an industrial zone, transmission lines in high-usage regions 
often need to be sited close to the population raising NIMBY concerns. 
A second issue has been the structural uncertainty of transmission. 
Will a utility control the transmission it builds? Will it need to be 
spun-off in a few years to a new company? With these questions 
overhanging the business, it has been difficult to commit significant 
funds, in my view.
                          incentive regulation
    The FERC has recognized these barriers to investment in 
transmission and has recently been supporting higher returns for 
transmission investment (A Midwest utility was recently allowed a 
12.88% return on equity). FERC has also supported incentives for even 
higher returns if the investor is independent from the regional 
generation or distribution companies. I commend FERC on these positive 
steps, though I believe that other forms of incentive regulation should 
also be considered. For example, sharing of cost efficiencies above a 
baseline return on equity would incentivize actions by transmission 
owners to increase efficiency. Incentives based on transmission 
reliability and safety would provide a balance to cost cutting.
    Finally, I would also encourage incentives tied to reducing 
congestion costs in the power markets. There remains significant 
inefficiency in the power markets as a result of transmission 
bottlenecks that limit customers' ability to access the lowest-cost 
supply. The resulting congestion costs are estimated in the billions of 
dollars. I believe that an incentive regulatory approach that would 
allow for a sharing of congestion cost savings between transmission 
builders and customers could be a win/win solution. This would also 
stimulate investment in transmission projects that would have the 
greatest economic benefit to customers. Moreover, since congested areas 
are also ones that are typically subject to more reliability risks, it 
would likely enhance system reliability.
                  challenges facing utility investment
    Some may question whether incentive regulation is necessary to 
encourage transmission investment. My belief is that the recent 
investment climate for utility investors makes this even more 
important. The last few years have been very difficult for many utility 
stockholders and bondholders.

 During the past five years, roughly half of the thirty-seven 
        utilities we track had to reduce or omit their common 
        dividends.
 Balance sheets have been stretched to an average of nearly 60% debt 
        to total capitalization.
 The result has been a dampening in credit ratings for the sector. In 
        2002, Standard & Poors lowered ratings ten times for every 
        upgrade. This trend has continued in 2003 with eleven 
        downgrades for every upgrade. Given these financial pressures, 
        utilities are very focused on reducing debt and living within 
        their means.
 We estimate capital spending for the utilities we track will drop to 
        approximately $35B in 2004, down from $50B in 2002, a 34% 
        decline. This reduction in spending is crucial to many 
        companies maintaining their current credit ratings. In order to 
        avoid further credit pressure, companies would need to make a 
        clear case to the rating agencies and Wall Street of the 
        attraction of new transmission investments.
                 public policy actions are on the table
    The good news is that public policy makers have taken actions and 
can take further actions to entice new capital to help resolve the 
infrastructure issues the industry faces. These include:

1. The reduction in taxes on corporate dividends. I believe this will 
        be an important attraction for regulated utility investments 
        and will also encourage more use of equity and less debt.
2. Incentive regulation to encourage new transmission investment. This 
        has already been adopted to some degree by FERC and is also 
        supported in the House Energy Bill (H.R. 6).
3. Tax incentives for transmission investment. Proposals in the House 
        Energy Bill to accelerate depreciation of transmission assets 
        for tax purposes (to 15 years from 20 years) would provide 
        another incentive for transmission investment. Further, 
        proposals to eliminate the tax liability for those selling or 
        contributing transmission assets to independent buyers would 
        help to accelerate the move to stand-alone transmission 
        companies.
4. National Interest Transmission Lines. Even with the right 
        incentives, near-term development of new transmission lines is 
        constrained by siting difficulties. To address threats to 
        reliability in the near-term, I support the process of 
        determining National Interest Transmission Lines that would be 
        identified through a joint process by the Department of Energy 
        and regional states and utilities. Once identified, the DOE 
        would work with the states and other federal agencies to 
        streamline the siting process including determining whether 
        part of such projects could be built on federal lands. 
        Investment in these lines could be accelerated by support from 
        DOE or appropriate incentive regulation by FERC. This process 
        should only be followed for critical reliability projects. For 
        the long term, the gas pipeline model for siting and regulatory 
        approvals would be an appropriate one for electric transmission 
        investment. This proposal would be similar to the siting 
        provisions already contained in the House Energy Bill.
5. Mandatory reliability standards for transmission. This is already 
        proposed in the House and Senate Energy Bills and would help to 
        ensure that no parties fall behind on their transmission 
        spending and operations.
6. Repeal of the Public Utility Holding Company Act. I believe that 
        PUHCA repeal would provide more certainty to investors and 
        reduce some barriers to investment by utilities. More 
        significantly, it could make it easier for non-traditional 
        utility investors, such as financial investors or private 
        equity, to acquire and invest in utility assets such as 
        transmission. Financial buyers have targeted billions of 
        capital to the utility sector and will be an important source 
        of capital in the future.
                                summary
    I would like to thank the Committee for the opportunity to share my 
thoughts on potential actions to help resolve issues raised by the 
recent blackout. While the blackout was a ``wake-up call'', the good 
news is that many of the constructive public policy initiatives that 
would enhance electricity reliability and promote new investment are 
already on the table in the proposed Energy Bill. Certainty is a 
critical driver for investment and I believe that it is an important 
time to increase certainty in the electricity business to encourage 
investment.

    Mr. Shimkus. Thank you, and we appreciate it. I think this 
is the first time testifying before the committee and you are 
with a panel that has all been before us before, so you did 
well. Thank you. And now I would like to yield to Mr. Popowsky 
for his testimony.

                   STATEMENT OF SONNY POPOWSKY

    Mr. Popowsky. Thank you, Mr. Chairman and members of the 
committee. My name is Sonny Popowski. I am the State consumer 
advocate for the Commonwealth of Pennsylvania. Consumers 
require, and I believe they are willing to pay for, a robust, 
reliable electric transmission system. Ask any consumer who has 
had to dispose of a refrigerator full of spoiled food after a 
long outage, and they will tell you that they understand the 
costs of failures in our electric network.
    But simply charging ratepayers more money for higher 
profits on transmission lines I don't think is necessarily the 
solution to the problems that caused the blackout of August 14. 
If it turns out that the events that gave rise to the August 14 
blackout were operating or communications failures, then simply 
building more power lines or increasing profit levels is not 
necessarily the correct solution.
    Fortunately, one immediately constructive response is 
already contained in legislation that has been endorsed by this 
committee, and that is the establishment of mandatory 
reliability rules for the interstate power grid. I believe that 
voluntary reliability rules will no longer work in today's more 
competitive wholesale bulk power market. We don't have 
voluntary speed limits on our interstate highways, and we can 
no longer rely on voluntary reliability standards for operation 
of our interstate electric grid. Another area where the need 
for improvement seems clear is in the area of communications 
systems and coordination between system operators within 
regions and between regions.
    As a representative of Pennsylvania consumers, I feel 
fortunate that most of our electric utilities have long been 
members of the original PJM interconnection. The utilities of 
the original PJM have operated on an integrated basis for 
decades, and for the reliability purposes, the entire original 
PJM system is operated out of the PJM control center as a 
single control area. PJM has now evolved to the point where the 
system operators are independent of the utilities whose 
transmission facilities comprise the physical backbone of the 
PJM interconnection. What that means is that PJM can plan and 
operate the system in a manner that serves the reliability of 
the grid as a whole and not the potentially conflicting 
financial interests of particular owners or users of the grid.
    As shown by the experience of August 14, however, the mere 
presence of an independent system operator cannot prevent a 
failure from one part of the Eastern Interconnection from 
cascading into another area of that interconnection. This 
clearly points to the need for better communication systems and 
coordination among regional grid operators. I do not agree, 
however, that the events of August 14 demonstrate that America 
is served by an antiquated or Third World transmission grid. 
Again, referring to PJM, our utilities committed to more than 
$700 million in transmission improvements in 2001 and 2002, 
pursuant to the PJM regional transmission expansion plan, which 
is a regional planning process that identifies potential 
reliability problems and develops cost effective regional 
solutions to address those concerns.
    I am not suggesting that we do not need significant 
continuing transmission improvements at PJM or around the 
Nation. Clearly, we do. I also agree that transmission owners 
ought to recover the costs of needed facilities, including a 
fair rate of return. I think it is a mistake, though, to assume 
that the current levels of return authorized by the FERC or, 
for that matter, by our State commissions, are inadequate in 
some way. Transmission investments certainly are less risky 
than many of our utilities' ill-fated investments in 
competitive generation, trading and foreign subsidiaries.
    To the extent the August 14 outage was the result of 
operational failures or non-compliance with NERC standards or 
to the extent that NERC standards failed to provide adequate 
guidance for this particular series of events, the answer is 
not necessarily increased incentives. Consumers should expect 
to pay the cost of a reliable transmission network, but 
consumers should also expect that the network will be operated 
in the public interest and within the rules that have been put 
in place to ensure that the system is safe and reliable.
    There is no such thing as a perfectly reliable electric 
system, and even if there were, it would be infinitely 
expensive. But the North American electric is designed and is 
supposed to be operated so that a failure in one part of the 
system does not grow into an uncontrolled cascading outage like 
the one experienced on August 14.
    To conclude, I believe that the investigators from NERC, 
DOE and the affected system operators will get to the bottom of 
what happened from a physical and technological standpoint on 
August 14. America's consumers will then look to you and other 
State and Federal policymakers to use the results of that 
investigation to take steps to ensure that this type of event 
does not happen again and that all Americans continue to 
receive reliable and reasonably priced electricity service. 
Thank you for letting me testify. I would be happy to answer 
any questions at the end of the panel.
    [The prepared statement of Sonny Popowsky follows:]
Prepared Statement of Sonny Popowsky, Consumer Advocate of Pennsylvania
    Chairman Tauzin, Chairman Dingell and Members of the House Energy 
and Commerce Committee: Thank you for inviting me to testify on this 
matter of extraordinary importance to electricity consumers across the 
Nation. My name is Sonny Popowsky. I am the Consumer Advocate of 
Pennsylvania. I am a state official and I have spent the last 24 years 
representing the consumers of Pennsylvania on matters involving their 
utility service.
    I have served as the President of the National Association of State 
Utility Consumer Advocates (NASUCA) and I currently serve on the 
Executive Committee of that organization, whose members are state-
designated consumer representatives in 40 states and the District of 
Columbia. In 1997, I was elected to serve as the first representative 
of residential electricity consumers on the Board of the North American 
Electric Reliability Council (NERC). I served on the NERC Board until 
2001, when the governance of NERC was transferred to an independent 
non-stakeholder board. Since that time, I have continued to serve as a 
consumer representative on the NERC Stakeholders Committee.
    As an advocate for electricity consumers and as a participant at 
NERC, I received two shocks as a result of the events of August 14, 
2003.
    The first shock was that this massive cascading outage could have 
happened in the first place. This is precisely the type of event that 
NERC standards were designed to prevent. Indeed, this is the very type 
of event that NERC itself was established to prevent. In other words, 
unless someone was operating outside of NERC reliability standards, or 
unless there is a serious gap in NERC standards that we didn't know 
about, this catastrophic event simply should not have occurred.
    My second shock was when I read on Monday August 18 that Secretary 
of Energy Abraham had stated on a Sunday morning news show that 
consumers will have to pay up to $50 billion in higher electric bills 
to modernize the Nation's transmission system. As stated by Secretary 
Abraham: ``Ratepayers, obviously, will pay the bill because they're the 
ones who benefit.'' I agree that consumers will ultimately pay the 
costs of any necessary improvements to the transmission network. I also 
agree that consumers are, or at least ought to be, the primary 
beneficiaries of a reliable transmission system. Ask any consumer who 
has had to dispose of a refrigerator or freezer full of spoiled food 
after a long outage, and they will tell you that they are more than 
happy to pay their fair share of the costs of a reliable electric 
system.
    I don't think, though, that it should simply be assumed that 
spending $50 billion of ratepayer money on new transmission facilities 
(or higher equity returns on new and existing facilities) will solve 
the problems that caused the blackout. If the events that gave rise to 
the August 14 catastrophe were operating failures and communications 
failures, then building more power lines or increasing utility profit 
levels is not the solution.
    Fortunately, one possible immediately constructive response is 
already before the members of this Committee and Congress, and that is 
the establishment of mandatory reliability rules that has been proposed 
in legislation that is supported by NERC and by a wide range of 
organizations including NASUCA and the Edison Electric Institute (EEI). 
I would venture to say that this may be the only provision of the 
Electricity Title in either the House or Senate Energy Bills upon which 
NASUCA and EEI agree. I think that is because nearly everyone in the 
industry recognizes that voluntary reliability rules that were enforced 
in the past by peer pressure and mutual self-interest will simply not 
work in today's more competitive wholesale bulk power market. The 
people who operate the transmission grid must understand the rules as 
well as the consequences for violating the rules. We don't have 
voluntary speed limits and traffic rules on our interstate highways, 
and we can no longer rely on voluntary reliability standards for 
operation of our interstate electric grid.
    Another area where the need for improvement seems clear is in the 
area of communications and coordination between system operators within 
regions and between regions. As a representative of Pennsylvania 
consumers, I feel fortunate that most of our electric utilities are 
members of the PJM Interconnection and indeed became members of PJM 
many years before the acronyms ISO and RTO were ever invented. The 
utilities of the original PJM have operated on an integrated basis for 
decades and, for reliability purposes, the entire original PJM system 
was operated as a single control area. What that means is that if 
something goes wrong anywhere on the PJM system, the information 
appears immediately in the PJM control center, where the problem can be 
evaluated and corrective actions taken in order to protect the overall 
reliability of the system. PJM is in a position to operate every part 
of the system in a way that maximizes the reliability and economic 
benefits of the entire system. Significantly, in recent years, PJM has 
evolved to the point where the system operators and management of the 
organization are truly independent of the individual utilities whose 
transmission facilities comprise the physical backbone of the PJM 
Interconnection. What that means is that PJM's employees can design and 
operate the system in a manner that serves the grid as a whole, and not 
the potentially conflicting financial interests of a particular owner 
or user of the grid. Whatever one thinks about the market design of PJM 
and the use of PJM as a model for a standard market design across the 
Nation, I think a great deal can be learned from the way the original 
PJM has operated (along with the Mid Atlantic Area Reliability Council, 
whose boundaries also coincide with the traditional PJM control area) 
as a framework for reliable regional operation, particularly in the 
highly interconnected Eastern grid.
    As shown by the experience of August 14 in the New York ISO, 
however, and even in parts of PJM in Northern New Jersey and 
Northwestern Pennsylvania, the mere presence of an independent system 
operator cannot prevent a failure from one part of the Eastern 
Interconnection from cascading into another area of that 
Interconnection. This clearly points to the need for better 
communications and coordination between and among regional operators. 
This communication must occur in the hours leading up to a potentially 
catastrophic failure, not just in the few seconds it takes for such a 
failure to spread across a wide swath of the Nation.
    I do not agree, however, that the events of August 14 demonstrate 
that America is served by an antiquated or ``third world'' transmission 
grid. NERC has stated on countless occasions that the North American 
bulk electric system is ``the most reliable system in the world.'' 
Again referring to PJM, our utilities committed to more than $700 
million in transmission improvements in 2001 and 2002 pursuant to the 
PJM Regional Transmission Expansion Plan, which is a regional planning 
process that identifies potential reliability problems in the PJM 
region and develops cost-effective solutions to address those concerns. 
The PJM transmission planning process is now being expanded to include 
projects that are necessary to resolve economic transmission 
bottlenecks as well as reliability concerns.
    I am not trying to say that we do not need significant continuing 
transmission improvements, either in PJM or around the Nation. We do. 
There are many areas that require additional investments to ensure that 
we have a robust, reliable transmission network. I also agree that 
transmission owners ought to recover the costs of needed facilities, 
including a fair rate of return on their investment that is 
commensurate with the risk of those investments. I think it is a 
mistake, though, to assume that the current level of returns authorized 
by the Federal Energy Regulatory Commission--such as the 12.88% return 
authorized by FERC to transmission owners in the Midwest ISO--is 
somehow inadequate to attract sufficient capital. Though not risk-free, 
transmission facilities are a relatively safe investment, certainly 
much less risky than many of our utilities' ill-fated investments in 
competitive generation, trading, and foreign subsidiaries. It is those 
unregulated investments, not investments in regulated transmission and 
distribution facilities, that have led some of those companies up to 
and over the brink of bankruptcy. As members of the Transmission Access 
Policy Study (TAPS) group have pointed out, ``there is no lack of 
capital available to fund transmission construction that will provide a 
solid year-in and year-out 12% return on equity with very small risk. 
Ask anyone with an IRA.''
    I also believe it is important to find out what went wrong on 
August 14 before we can determine where to make the investments that 
will ultimately be supported by ratepayers. To the extent the 
widespread outage was a result of operational failures or non-
compliance with NERC standards, or to the extent the NERC standards 
failed to provide appropriate guidance for this particular series of 
events, I would say again that the answer is not necessarily massive 
construction of new power lines. Consumers should expect to pay the 
costs of a reliable transmission network, and the cost of that network 
may be substantial. But consumers should also expect that the network 
will be operated in the public interest and within the rules that have 
been put in place to ensure that the system is safe and reliable.
    It has been widely reported that the potential for significant 
transmission problems in parts of the Midwest was identified in a 
Report by NERC that was issued in May 2003. What that Report actually 
stated was that ``As long as transmission limitations are identified 
and available operating procedures are implemented when required, no 
cascading events are anticipated.'' The corollary to that comment, 
however, is that if transmission limitations were not identified, or if 
available operating procedures were not implemented when required, then 
the events of August 14 could indeed occur.
    Accidents will happen. Tree limbs will fall on power lines. Ice 
storms will wreak havoc in certain locations. There is no such thing as 
a perfectly reliable electric system and, even if there were, it would 
be infinitely expensive. But the North American electric system is 
designed and is supposed to be operated so that a failure in one part 
of the system does not grow into an uncontrolled cascading outage like 
the one experienced on August 14.
    I believe that the investigators from NERC, DOE and the affected 
system operators will get to the bottom of what happened from a 
physical and technological standpoint on August 14. America's consumers 
will then look to the members of this Committee and other state and 
federal policy-makers to use the results of that investigation to take 
steps to ensure that this type of event does not happen again, and that 
all Americans continue to receive reliable, and reasonably-priced 
electricity service.
    Thank you again for permitting me to testify at this hearing. I 
would be happy to answer any questions you may have at this time.

    Mr. Shimkus. Thank you very much. Now we would like to 
recognize Mr. Glauthier for 5 minutes. Welcome.

                   STATEMENT OF T.J. GLAUTHIER

    Mr. Glauthier. Thank you, Mr. Chairman, Mr. Dingell and 
members of the committee. We believe that technology can be an 
important part of the solution to these problems and that the 
focus of that technology will be the self-healing smart grid 
based on 21st century electronics. I will summarize my 
testimony. I am T.J. Glauthier, president and CEO of the 
Electricity Innovation Institute, an affiliate of EPRI, the 
Electric Power Research Institute, and I am here today 
representing both organizations.
    EPRI is a non-profit research institute sponsoring R&D in 
the public interest in electricity-related technologies. EPRI 
has more than 1,000 members in the utility industry which 
produce and deliver more than 90 percent of our Nation's 
electricity. The Electricity Innovation Institute was formed 2 
years ago by the EPRI Board of Directors as a separate but 
affiliated organization. It is also a non-profit research 
institute, and its focus is to sponsor longer term strategic 
R&D programs through public-private partnerships. Its board of 
directors is primarily composed of independent and bipartisan 
public representatives.
    With respect to the official outage investigation, EPRI is 
actively supporting the binational U.S.-Canada Joint Task Force 
working with DOE and NERC. EPRI has staff in the region now and 
is lending its experience and expertise to the overall effort 
to learn exactly what did happen on August 14 and what the root 
causes were for that event.
    On a broader front, last week, EPRI released a report on 
the current challenges facing the electricity sector in the 
U.S. That report, the ``The Electricity Sector Framework for 
the Future,'' was completed prior to the August 14 outage and 
had been developed over the past year under the leadership of 
the EPRI Board of Directors. EPRI engaged more than 100 
organizations and held a series of regional workshops, 
including customers, suppliers, elected officials, 
environmentalists and others. The report calls upon Congress to 
take action in a number of areas, such as establishing 
mandatory reliability standards, clarifying regulatory 
jurisdictions and helping to restore investor confidence in the 
electricity sector so that needed investments can be made. We 
have submitted a copy of the full report to the committee as 
part of the record for this hearing.
    EPRI and EII are also already active in modernizing the 
electricity grid. Eighteen months ago, we began a public-
private R&D partnership to design and develop the technologies 
enabling a self-healing smart grid. This partnership involves a 
number of public and private utility companies, the Department 
of Energy, several States and the high-tech industry. We have 
issued a multimillion dollar contract to a team that includes 
GE, Lucent Technologies and others to design an open 
architecture for the smart grid, and 2 days ago we issued an 
RFP for another multimillion dollar project on fast simulation 
and modeling.
    You have heard many references to a smart grid from 
witnesses, members and groups like the Bipartisan Energy Future 
Coalition, but what is it? It is a fully computerized system 
with real-time sensors, integrated communication and digital 
age electronic controls. It will manage the system, both 
transmission and distribution systems, in real time as a 
network integrating, distributed and renewable energy resources 
and enabling whole new applications for customers. In the event 
of a disruption from either natural or man-made causes, it will 
be self-healing by automatically isolating affected areas and 
rerouting power to keep the rest of the system up and running. 
This represents a fundamental upgrade of the current system, 
the first one in the last 50 years.
    And it will yield significant benefits. It will spur a new 
phase of entrepreneurial innovation and will reduce the costs 
of the power disturbances which we estimate to be at least $100 
billion a year--that is 1 percent of GDP. Because of that, 
building the smart grid could yield at least 5 to 1 return on 
investment.
    To conclude, we offer four recommendations for the energy 
bill. First, establish the smart grid as a national priority. 
Second, authorize increased funding for R&D and demonstrations 
of the smart grid in key DOE programs. We estimate that this 
will require increased Federal funding for R&D on the scale of 
approximately $1 billion over the next 5 years, with the 
private sector contributing a significant amount of matching 
funding. Third, recognize the importance of carrying this out 
in partnership with the private sector. The government cannot 
do this alone. It is the industry that will be ultimately 
responsible for building, maintaining and operating the 
electricity system to keep the lights on and the computers 
humming. Finally, develop an approach to the long-term funding 
for deployment. A national approach is needed to fund the full-
scale deployment of a smart grid that will be effective, fair 
and equitable. We estimate it will require an investment of 
$100 billion over a decade. We urge the Congress to include 
language in the energy bill to direct the administration to 
work with industry, the States, customers and others to develop 
a recommendation and report back to the Congress 1 year after 
enactment. Thank you.
    [The prepared statement of T.J. Glauthier follows:]
 Prepared Statement of T.J. Glauthier, President and CEO, Electricity 
                          Innovation Institute
    Mr. Chairman, Members of the Committee, I am happy to be here today 
as you examine what happened in the electricity blackout on August 14, 
2003, and most importantly, what to do to strengthen the nation's power 
grid in the future. We believe there is an answer for the future, and 
that answer is a self-healing, ``smart grid'' based on 21st century 
technologies.
    I am T.J. Glauthier, President & CEO of the Electricity Innovation 
Institute, an affiliate of EPRI, the Electric Power Research Institute. 
I am here today representing both organizations.
    EPRI is a non-profit research institute sponsoring R&D in the 
public interest in technologies and systems related to the generation, 
delivery, and use of electricity in our society. EPRI was created 30 
years ago, in the aftermath of the 1965 Northeast power blackout. EPRI 
was formed with the support and legislative approval of the Congress, 
and with the support of the States and their regulatory commissions.
    EPRI has more than 1,000 members in the electric utility industry, 
including investor-owned companies, public power organizations, coops, 
federal power systems and others. Its members produce and deliver more 
than 90% of our nation's electricity.
    The Electricity Innovation Institute (E2I) was formed two years ago 
by the EPRI Board of Directors as a separate, but affiliated 
organization. It is also a non-profit, 501 (c)(3), public-benefit 
research institute, and its focus is to sponsor longer-term, strategic 
R&D programs through public-private partnerships. E2I's Board of 
Directors, is primarily composed of independent, bi-partisan public 
representatives.
    E2I is already active in modernizing the electricity grid. For 
example, with technical support from EPRI, it began 18 months ago a 
public-private R&D partnership to design and develop the system of 
technologies enabling a self-healing, ``smart grid.'' This partnership 
involves a number of public and private utility companies, the 
Department of Energy, several states, and the high tech industry. It 
has one multi-million dollar contract underway with a team that 
includes GE, Lucent Technologies and others, to design an ``open 
architecture'' for the smart grid.
    EPRI and E2I actively support the dialogue on national energy 
legislation by providing objective information and knowledge on energy 
technology, the electricity system and related R&D issues.
            support of the august 14th outage investigations
    EPRI is actively supporting the bi-national US-Canada Joint Task 
Force on the Power Outage of August 14th, working with DOE and NERC. 
EPRI has staff in the region now, and is lending its experience and 
expertise to the overall effort to learn exactly what did happen on 
August 14th, and what the root causes were for that event. EPRI will 
work through that team, and does not expect to issue any independent 
evaluation of the outage events or its causes.
          report: electricity sector framework for the future
    Last week, EPRI released a report on the current challenges facing 
the electricity sector in the U.S., outlining a Framework for Action. 
The report, the Electricity Sector Framework for the Future (ESFF), was 
completed prior to the August 14th outage, and had been developed over 
the past year, under the leadership and direction of the EPRI Board of 
Directors.
    EPRI engaged more than 100 organizations, and held a series of 
regional workshops, including a diverse group of stakeholders--
customers, suppliers, elected officials, environmentalists, and others. 
That dialogue has provided valuable insights into the causes of 
problems, such as the disincentives for investment and modernization in 
transmission facilities, which have become much more widely recognized 
since the August outage.
    The ESFF report lays out a coherent vision of future risks and 
opportunities, and of a number of the issues that must be dealt with in 
order to reach that future. It is also notable that this report 
reflects viewpoints widely shared by the broad electricity stakeholder 
community who contributed to its development. That future will be based 
on a transformed electricity infrastructure that is secure, reliable, 
environmentally friendly, and imbued with the flexibility and 
resilience that will come from modern digital electronics, 
communications, and advanced computing.
    To arrive at that future, many parties must take action. The report 
calls upon Congress to take action in a number of areas, such as 
establishing mandatory reliability standards, clarifying regulatory 
jurisdictions, and helping to restore investor confidence in the 
electricity sector so that needed investments can be made.
    We are submitting a copy of the full report to the Committee, as 
part of the record for this hearing. We have already sent announcements 
and electronic links to the report to all the Members of this 
Committee, to your staffs, and to the Members of other, relevant 
committees in the Congress. We hope the report will be helpful to you 
as you deal with the various dimensions of these issues in the final 
energy bill--and we are happy to offer our assistance in whatever ways 
will be most helpful.
        the 21st century transformation of the electricity grid
    The August 14th outage served to again remind us of the absolutely 
essential nature of electricity service. It is the lifeblood of our 
nation's economy and quality of life. As such, the modernization of the 
electricity system is an essential investment in our nation's continued 
prosperity. This investment is particularly urgent in the face of 
today's rising security and societal demands on the nation.
    The modernization of the electricity infrastructure described in 
the report is toward a ``smart grid''--a self-healing, intelligent and 
digital electricity delivery system to meet the social and economic 
needs of the 21st century. This represents a fundamental upgrade of the 
current system--the first one in at least 50 years--comparable to the 
creation of an interstate highway system 50 years ago. Increasingly, 
leaders are becoming aware of the urgency of this need. For example, 
the bi-partisan Energy Future Coalition made the smart grid one of its 
six areas of principal emphasis in its June, 2003 report.
    This smart grid, which encompasses both the long distance 
transmission system and the local distribution systems, must 
incorporate ubiquitous sensors throughout the entire delivery system 
and facilities, employ instant communications and computing power, and 
use solid-state power electronics to sense and, where needed, control 
power flows and mitigate disturbances instantly.
    The upgraded system will have the ability to read and diagnose 
problems, and in the event of a disruption from either natural or man-
made causes, it will be ``self-healing'' by automatically isolating 
affected areas and re-routing power to keep the rest of the system up 
and running. It will be alert to problems as they unfold, and able to 
respond at the speed of light.
    Another advantage of the smart grid is that it will be able to 
support a more diverse and complex network of energy technologies. 
Specifically, it will be able to seamlessly integrate an array of 
locally installed, distributed power sources, such as fuel cells, solar 
power, and combined heat and power systems, with traditional central-
station power generation. This will give the system greater resilience, 
enhance security and improve reliability. It will also provide a 
network to support new, more energy efficient appliances and machinery, 
and offer intelligent energy management systems in homes and 
businesses.
    The enhanced security, quality, reliability, availability, and 
efficiency of electric power from such a smart grid will yield 
significant benefits. It will strengthen the essential infrastructure 
that sustains our homeland security. Moreover, it will reduce the cost 
of power disturbances to the economy, which have been estimated by EPRI 
to be at least $100 billion per year--and that's in a normal year, not 
including extreme events, such as the recent outage. Further, by being 
better able to support the digital technology of business and industry, 
the smart grid will also enable a new phase of entrepreneurial 
innovation, which will in turn accelerate energy efficiency, 
productivity and economic growth for the nation.
    The economic benefits of the smart grid are difficult to predict in 
advance, but they will consist of two parts: (1) stemming the losses to 
the U.S. economy from power disturbances of all kinds, which are now on 
the order of 1% of U.S. GDP, and (2) taking the brake off of economic 
growth that can be imposed by an aging infrastructure. The first part 
alone could yield a five-to-one return on the investment required to 
build and implement the smart grid.
                    recommended congressional action
    The current legislation contains some good provisions in support of 
technology development, but the national transformation of the grid is 
so important that it requires stronger action and support from the 
Congress in the energy bill. There are four key areas of technology 
policy that the energy legislation should address, as described below:
1. Establish the ``Smart Grid'' as a national priority
    First, the Congress can provide real leadership for the country by 
establishing the ``smart grid'' as national policy and as a national 
priority in the legislation. By articulating this as national policy 
and offering a compelling vision for the country, Congress can increase 
the pace and level of commitment to the modernization of the 
electricity grid.
    That action itself will help to focus the attention of the federal 
and state agencies and the utility industry and others in the private 
sector. By making the smart grid a national priority, Congress will be 
sending a clear message that this modernization is critically important 
in all sectors and in all regions of the country, and that deployment 
should be undertaken rapidly.
2. Authorize increased funding for R&D and demonstrations of the 
        ``Smart Grid''
    To carry through with the priority of the smart grid, the 
legislation should include significantly increased development funding. 
In particular, it should contain authorization for significant 
appropriations over the next five years for programs managed by the 
Department of Energy, working in partnership with the private sector.
    The Administration has taken some steps in this direction in its 
earlier budgets, but this demands even stronger, more targeted action 
by the Congress. Support is needed in two areas. One is more extensive 
R&D in the relevant technologies, needed to provide all the components 
of the smart grid. The other area is to support an aggressive program 
of technology demonstration and early deployment projects with the 
states and the industry, to prove out these components, and to refine 
the systems engineering which integrates all these technologies in 
real-world settings.
    EPRI estimates that this research and demonstration program will 
require increased federal funding for R&D on the scale of approximately 
$1 billion, spread out over five years, with the private sector 
contributing a significant amount of matching funding. These R&D and 
demonstration funds represent an investment that will stimulate 
deployment expenditures in the range of $100 billion from the owners 
and operators of the smart grid, spread out over a decade.
3. Recognize a public/private institutional role for the R&D
    It is vitally important that the legislation recognize that this 
R&D and demonstration program should be carried out in partnership with 
the private sector. The government can sponsor excellent technical 
research. However, it is the industry that will ultimately be 
responsible for building, maintaining and operating the electricity 
system to keep the lights on and the computers humming. And as we've 
just seen, there is little tolerance for error--it has to work all the 
time--so this is more than a ``research'' program, it is an engineering 
and operations program on which the country will rely.
    DOE is the lead agency for the federal government in this area, and 
its new Office of Electricity Transmission and Distribution should have 
the lead responsibility on behalf of the federal government for 
directing the program. To succeed, DOE needs a partner that can 
effectuate the involvement of the private sector and other stakeholders 
in carrying out this program. This should be an organization that can 
work collaboratively with DOE on the management of the program, and 
that can receive and manage matching funds from both the public and 
private organizations. Congress should formally recognize the 
importance of this type of public/private partnership in the energy 
bill.
    One potential vehicle for this role is the Electricity Innovation 
Institute. It was with these strategic goals in mind, that the EPRI 
Board of Directors sponsored the creation of this new organization in 
2001, with the strong support of its Advisory Council composed of state 
utility regulators, academics, and representatives of business and 
public interest organizations.
4. Develop an approach to the long-term funding for deployment
    A national approach is needed to fund the full-scale deployment of 
the smart grid throughout the country. The scale of deploying the 
technology, and doing the detailed systems engineering to make it work 
as a seamless network, will require significant levels of investment, 
estimated at $100 billion over a decade.
    These implementation costs for the smart grid will be an investment 
in the infrastructure of the economy. This investment will pay back 
quickly in terms of reduced costs of power disturbances and increased 
rates of economic growth.
    Nevertheless, this is a substantial challenge for an industry that 
is already under financial strain, and is lacking investment incentives 
for the grid. It's a challenge, too, because this investment must be 
new and additional to what the industry and its customers are already 
providing to keep the current systems operating. A business-as-usual 
approach will not be sufficient.
    We need a national financing approach or mechanism that will be 
effective, fair, and equitable to all parts of society. This will 
require agreement among the industry, state regulatory commissions, 
customers and other stakeholders as to how that should be carried out.
    The answer to this will undoubtedly take extended discussions with 
the various stakeholder groups. Rather than rush to judgment on one or 
another specific approach, we urge that Congress include language in 
the energy bill to direct the Administration to develop an appropriate 
recommendation. The Administration should work with the industry, the 
states, customers, and other to develop its recommendation and report 
back to Congress at a specific time, no later than one year after 
enactment.
    As noted earlier, the cost of developing and deploying the smart 
grid for the country should be thought of as an investment in the 
future--in a secure, reliable, and entrepreneurial future--that will 
pay back handsomely over many decades to come as the energy backbone of 
the 21st century.
    Thank you.

    Mr. Shimkus. Thank you, and I want to commend the panel for 
really being close on time. It has been very, very helpful.
    Mr. Owens. Do I get a chance?
    Mr. Shimkus. Yes. That is why I said it. I knew it was 
coming.
    So you are recognized, Mr. Owens, for 5 minutes. Welcome.

                   STATEMENT OF DAVID K. OWENS

    Mr. Owens. Thank you, Congressman. Good afternoon, Mr. 
Chairman and members of the committee. I am David Owens, 
executive vice president of the Edison Electric Institute. We 
appreciate the opportunity to appear before this committee this 
afternoon. I will focus my testimony on the policies, issues 
raised by the recent power outages, especially those addressed 
in pending energy legislation.
    The fact is that competition in electricity markets exists, 
and we cannot retreat from those markets. Instead, we must 
focus on making the markets work. For any model of electricity 
markets to work, there must be adequate transmission in place 
and appropriate rules for reliable operation. Without 
sufficient transmission, none of the models will work reliably. 
While utilities are investing roughly $3 billion a year in 
transmission, most of the new transmission being built is to 
help serve local load and connect generation to the grid. In my 
opinion, more emphasis is needed on removing disincentives to 
investment and long distance, high voltage transmission wires 
necessary to strengthen regional markets. We believe that 
Congress can help strengthen our Nation's transmission 
infrastructure by including a number of provisions in the final 
version of the energy legislation.
    We strongly support provisions in both the House and the 
Senate energy bills that would create an electric reliability 
organization with FERC oversight. In fact, I think that is the 
consensus you have heard all day. This organization would be 
responsible for developing and enforcing mandatory reliability 
rules and standards that are binding on all electric companies 
and market participants. We also support a provision in the 
House energy bill to grant FERC limited backstop siting 
authority to help site transmission lines in DOE-designated 
interstate congestion areas if States have been unable to agree 
to move forward.
    Now, FERC has 55 years of experience in siting natural gas 
pipelines. FERC also has the ability to consider the regional 
needs and benefits of new transmission lines. The House energy 
bill contains provisions to reform and simplify the 
transmission permitting process on Federal lands, and we 
strongly urge their inclusion in the final energy bill. As you 
know, these provisions would designate DOE as the lead agency 
to coordinate and set deadlines for the Federal environmental 
and permitting processes. The House bill also would set 
deadlines for the designation of transmission corridors across 
Federal lands.
    We also believe that repealing PUHCA, the Public Utility 
Holding Company Act, would help attract the billions of dollars 
of new capital needed to increase investments in our 
transmission infrastructure. PUHCA is a substantial impediment 
to investment and energy infrastructure. Now, both versions of 
the energy legislation include provisions to repeal PUHCA and 
to transfer consumer protections to FERC and the States.
    We also believe that FERC and the States should utilize 
innovative transmission pricing incentives--you heard all the 
members of the panel make reference to that--including 
performance-based rates and higher rates of return to attract 
capital for investments and transmission. By reducing 
transmission congestion and increasing the grid's efficiency, 
investments in new and existing transmission will allow greater 
economic dispatch of lower-cost generation. The net benefits to 
the consumer overall could be a lowering of electric bills. The 
House version of the pending energy legislation includes FERC 
pricing provisions.
    Now, I know this committee does not have jurisdiction over 
tax issues, but EII believes that the U.S. tax code should be 
amended to provide enhanced, accelerated depreciation for 
transmission assets similar to the tax treatment that is 
provided to other major capital investments. We support, for 
example, reducing the depreciable lives of transmission 
facilities from 20 years to 15 years. In addition, we believe 
that it is appropriate for Congress to ensure that electric 
companies that sell or dispose of their transmission facilities 
through a FERC-approved RTO or through some form of an 
independent transmission company do not suffer substantial tax 
penalties because of such actions. Accelerated depreciation 
provisions are included in the House version of the pending 
energy legislation. Both the House and Senate bills also 
address transmission asset sales or dispositions.
    In conclusion, adequate transmission infrastructure 
governed by mandatory reliability rules is essential regardless 
of how electricity markets evolve. Our challenge is to work 
together to make sure the transmission system can provide 
consumers with affordable, reliable electric service no matter 
what industry structure model exists. We look forward to 
working with Congress on the pending energy bill to meet that 
challenge. Thank you for this opportunity and I look forward to 
your questions.
    [The prepared statement of David K. Owens follows:]
Prepared Statement of David K. Owens, on Behalf of The Edison Electric 
                               Institute
    Mr. Chairman and Members of the Committee: My name is David K. 
Owens, and I am Executive Vice President of the Edison Electric 
Institute (EEI). EEI is the association of U.S. shareholder-owned 
electric utilities and industry affiliates and associates worldwide. We 
appreciate the opportunity to testify on the electric power outages 
that affected regions in the Eastern Interconnection for several days 
in August.
    The Committee has requested information on the specific factors and 
events leading up to and contributing to the blackout. While there has 
been a great deal of speculation about the sequence of events that 
caused the blackout, we believe that the international investigative 
effort being led for the United States by the Department of Energy 
(DOE), with technical expertise from the North American Electric 
Reliability Council (NERC), the regional reliability councils and the 
affected regional transmission organizations (RTOs) and individual 
utilities, will provide answers to those questions.
    Our testimony will focus on the policy issues that have been raised 
by the recent power outages, especially those addressed in the pending 
comprehensive energy bill, and what we believe Congress can do to help 
prevent similar incidents in the future.
             electricity competition and the infrastructure
    The question of whether electricity competition caused the blackout 
has been repeatedly asked and argued about. We believe that is not the 
relevant question. Competition in wholesale and a number of retail 
electricity markets exists, and we cannot retreat from these markets. 
We must work together to make competitive markets work.Electrons follow 
the laws of physics. No matter what utility structure model exists--
competitive, a mixed model or fully integrated--there must be adequate 
infrastructure in place and appropriate rules for reliable operation. 
Sufficient transmission capacity is a critical building block in all of 
the models. Without adequate transmission, none of the models will 
work.
    The recent blackout, whatever its causes, reveals that the current 
system faces many stresses. Fortunately, Congress can help to relieve 
those stresses with a number of provisions that are included in the 
pending energy legislation.
       ensure reliability standards are mandatory and enforceable
    NERC was formed in the aftermath of the 1965 power outages in the 
Northeast, and for more than thirty years, NERC has set voluntary 
reliability rules and standards. This system has generally worked well 
in the past, but today's electricity market requires a mandatory 
reliability system, with enforcement mechanisms. The number of market 
participants has increased dramatically, as have the number and 
complexity of electricity transactions being transmitted.
    Since early 1999, a broad group of stakeholders, including EEI and 
many of its individual member companies, have supported legislation 
that would create an electric reliability organization, with Federal 
Energy Regulatory Commission (FERC) oversight, to develop and enforce 
mandatory reliability rules and standards that are binding on all 
electric companies and market participants. Reliability provisions 
supported by these stakeholders are included in both the House and 
Senate versions of the pending energy legislation. We strongly urge 
inclusion of these reliability provisions in a final energy bill.
              remove roadblocks to transmission investment
    The level of investment in the long-distance, high-voltage wires 
has not kept pace with the growing demands being imposed on the system 
because of greater electricity use, competition in wholesale markets 
and related factors. Thus, it is not surprising that the transmission 
grid is becoming increasingly congested:

 According to NERC, the volume of actual transmission transactions has 
        increased by 400 percent in the last four years. Transactions 
        that could not be completed because of congestion on 
        transmission lines increased five-fold to almost 1,500 in 2002, 
        compared with 300 uncompleted transactions in 1998.
 Congestion in the Mid-Atlantic region, where the highly respected PJM 
        RTO controls transmission, has quintupled between 1999 and 2001 
        to $271 million, before increasing to $430 million with the 
        additional of PJM West.
    Billions of dollars are being spent annually on new transmission 
facilities, but the bulk of the new transmission being built is to help 
serve local load and connect new generation to the grid. More emphasis 
is needed on removing disincentives to investment in the long-distance, 
high-voltage wires needed to strengthen regional electricity markets, 
such as siting delays, regulatory barriers and tax policies.
    In the early 1970s, the annual growth rate in lower voltage line-
miles that support localized grid operations and interconnections was 
1.9 percent, while the annual growth rate for high-voltage line-miles 
was 3.2 percent. By the latter half of the 1990s, this relationship had 
reversed: the higher voltage line-miles were growing at only 0.3 
percent, while lower voltage line-miles were growing at 3.5 percent.
    According to the Energy Information Administration (EIA), consumer 
demand for electricity is going to increase by roughly 50 percent over 
the next two decades. To meet this increase in demand, capital 
investments in upgrades and new transmission lines must increase from 
the current level of $3 billion annually to roughly $5.5 billion 
annually over the next ten years.
    A number of critical disincentives actually discourage investment 
in transmission, including:

 Local opposition to siting new facilities,
 Inability to recover planning and related costs when facilities are 
        delayed or ultimately rejected by siting authorities,
 State retail rate caps that may prevent utilities from recovering 
        their investments in transmission,
 Uncertainty over transmission ownership and control policies, and
 Uncertainty as to whether beneficiaries will pay for new 
        transmission.
                  grant ferc backstop siting authority
    While traditional state siting processes will be adequate for most 
local upgrades to existing transmission systems, limited FERC backstop 
siting authority to help site new transmission lines in interstate 
congested areas would be a critical aid in developing the more 
significant transmission infrastructure needed to support regional 
wholesale electricity markets.
    Before states will grant utilities siting permits, utilities 
typically must prove that the new facilities are needed. The 
determination of ``need'' often focuses on service to in-state 
consumers and not to consumers across an entire region. In fact, many 
state siting laws do not allow for the consideration of regional, or 
out of state, benefits of new transmission lines. If states consider 
only intrastate benefits and not regional benefits, they may have 
little choice under state law but to reject the proposed line, even if 
the benefits to the region are significant.
    As competitive wholesale electricity markets continue to develop, 
multi-state RTOs will increasingly gain operational control of utility 
transmission lines. But, most state siting laws do not recognize the 
role new entities such as RTOs or independent transmission companies 
will play in transmission planning and siting. It is not clear that 
these new entities would even be considered utilities under state laws.
    Regional electricity markets require a siting process that has the 
ability to consider regional and even national needs. FERC has 
jurisdiction over wholesale electricity markets, but, unlike its 
authority to site natural gas pipelines, it currently does not have any 
authority over transmission siting to help ensure that there is 
sufficient transmission capacity to support those markets.
    The House version of the pending energy legislation gives FERC very 
limited backstop transmission siting authority. This authority extends 
only to helping site transmission lines in ``interstate congestion 
areas'' designated by DOE and only if states have been unable to agree 
or act within a year. We strongly urge its inclusion in the final 
version of the energy bill.
    FERC has decades of experience in siting energy facilities. Since 
1948, interstate natural gas pipelines have gone to FERC for 
certificates that grant them eminent domain authority. FERC has 
permitted hydroelectric facilities since 1920.
    Protection of the environment is a top consideration in FERC's 
processing of natural gas pipeline certificates. Under the National 
Environmental Policy Act (NEPA), FERC is required to perform a 
comprehensive environmental analysis of all gas pipeline construction 
proposals. The House transmission siting provision would require the 
same environmental protection process for any transmission line 
construction proposal.
              reform the federal lands permitting process
    The unnecessarily complicated, time-consuming and difficult multi-
jurisdictional federal permitting process to site energy facilities, 
including authorizations for siting across federal lands, is another 
major impediment to building new transmission. In some areas of the 
country, this is the principal impediment.
    Problems with the federal permitting process include (1) a severely 
fragmented process, where each federal agency with potential 
jurisdiction has its own set of rules, timelines for action and 
processes for permitting; (2) the tendency by federal agencies to 
require multiple and duplicative environmental reviews; (3) a failure 
to coordinate with any state siting process; and (4) a lack of 
harmonized permit terms from one agency to the next.
    The federal transmission permitting process needs to be 
coordinated, simplified and made to work with any state siting process. 
The House-passed energy bill accomplishes this objective by designating 
DOE as the lead agency to coordinate and set deadlines for the federal 
environmental and permitting process. In addition, DOE would be 
responsible for coordinating the federal process with any state and 
tribal process. A state where a transmission facility would be located 
could appeal to DOE when a federal decision deadline has been missed or 
a federal authorization has been denied. To further facilitate siting, 
the House version of the energy bill sets deadlines for the designation 
of transmission corridors across federal lands. We strongly support 
inclusion of these provisions, with some technical modifications, in 
the final energy bill.
         repeal the public utility holding company act (puhca)
    We also believe that repealing PUHCA will help attract significant 
amounts of new investment capital in the industry. By imposing 
limitations on investments in the regulated energy industry, PUHCA acts 
as a substantial impediment to new investment in energy infrastructure, 
keeping billions of dollars of new capital out of the industry. As a 
result, we believe that PUHCA has contributed to the failure of the 
electricity infrastructure to keep pace with growing electricity demand 
and the development of regional wholesale markets.
    We also believe that repealing PUHCA will help expedite the 
formation of interstate transmission companies (ITCs). ITCs can play an 
important role in planning and building new transmission 
infrastructure. However, interstate transmission companies could be 
required to become registered holding companies and subject to PUHCA's 
restrictions and additional regulation, making it more difficult to 
raise financing.
    Both House and Senate versions of the pending energy bill contain 
provisions that would repeal PUHCA and transfer consumer protections to 
FERC and the states. These provisions should be included in the final 
energy bill.
                 reform ferc transmission rate policies
    We believe that FERC and the states should utilize innovative 
transmission pricing incentives, including performance-based rates and 
higher rates of return, to attract the capital necessary to fund needed 
investment in transmission. In addition, transmission users must pay 
their fair share of the system's costs. We support the FERC pricing and 
transmission technologies provisions in the House version of the 
pending energy bill. Likewise, we encourage the states to assure that 
utilities can recover their costs for investments for transmission 
under state regulation, with a reasonable rate of return.
    According to a December 2001 FERC ``Electric Transmission 
Constraint Study,'' transmission costs make up only 6 percent of the 
current average monthly electric bill for retail consumers. On the 
other hand, generation costs make up 74 percent of the average bill. By 
reducing transmission congestion, investments in new transmission will 
allow greater economic dispatch of lower cost generation.
    FERC estimates that a $12.6 billion increase in transmission 
investment would add only 87 cents to an electric customer's average 
monthly bill. But, since increased transmission investment will help 
reduce congestion and enable lower cost power to reach consumers more 
easily, FERC anticipates that the net benefits to overall electric 
bills could be potentially quite large.
    For example, FERC estimates that if the reduced transmission 
congestion resulted in just a 5 percent savings in generation costs, 
consumers would see more than a $1.50 decrease in their average monthly 
bills. If the generation savings from reduced congestion were 10 
percent, the average monthly bill for consumers would drop by $4.00. 
So, a small increase in transmission investment can reap a much more 
significant benefit in lower generation costs.
    In addition to investments to relieve congestion, investments in 
new technology to help improve the control and use of existing 
transmission lines is critically important.
        revise the tax code to encourage transmission investment
    While we appreciate that the tax provisions in the energy bills 
originated in other committees, we want to call your attention to 
several critical tax provisions that will help increase investment in 
our transmission infrastructure.
    The U.S. tax code should be amended to provide enhanced accelerated 
depreciation (from 20 to 15 years) for electric transmission assets, 
similar to the tax treatment governing other major capital assets. 
Currently, transmission assets receive less favorable tax treatment 
than other critical infrastructure and technologies. In addition, 
Congress should ensure that electric companies that sell or otherwise 
dispose of their transmission assets into a FERC-approved RTO or ITC do 
not suffer tax penalties. Accelerated depreciation provisions are 
included in the House version of the pending energy legislation; both 
the House and Senate versions of the bill address transmission sales or 
dispositions. We strongly urge inclusion of both of these provisions in 
the final version of the energy bill.
                               conclusion
    As I stated earlier, an adequate transmission infrastructure, 
governed by mandatory reliability rules, is essential regardless of 
whether wholesale competition or retail competition exists or whether 
electric companies are vertically integrated or disaggregated. Our 
challenge is to work together to make sure the transmission system is 
robust enough to keep the lights on and provide consumers with 
affordable, reliable electric service no matter what industry structure 
model exists. The utility industry is currently investing billions of 
dollars a year in upgrading our transmission infrastructure. But, 
clearly more needs to be done. We urge Congress to adopt badly needed 
reforms to our federal electricity laws to help facilitate reliability 
and investment in, and construction of, our energy infrastructure.

    Mr. Shimkus. Excellent, excellent, excellent. My 
appreciation for the panel and your long suffering for waiting 
all day for this time to come. I would now like to recognize 
the chairman of the Energy and Air Quality Subcommittee, Mr. 
Barton.
    Mr. Barton. Thank you. Thank you, Mr. Chairman. Mr. Owens, 
you represent the investor-owned utilities, I believe; isn't 
that correct?
    Mr. Owens. That is correct.
    Mr. Barton. I have heard your answer to this, but I want to 
hear it again just to put it on the record. We have had a lot 
of discussion in previous panels about RTOs and the 
inclusiveness that is needed for RTOs and the operational 
management that is needed. I just want to make--does EII 
support in a given area if you are going to have an RTO that 
everybody in that area should be a part of the RTO regardless 
of the ownership or the type of transmission or generator that 
is in that area?
    Mr. Owens. We are strongly supportive of Regional 
Transmission Organizations. I might amplify my answer and say, 
however, we do not support mandatory Regional Transmission 
Organizations.
    Mr. Barton. But you do support, if you are going to have 
one, that the coops be in it and the munis be in it.
    Mr. Owens. We support all participants: Investor-owned 
utilities, municipal companies, cooperatives, government-owned 
entities, such as the Bonneville Power Administration.
    Mr. Barton. Okay. Thank you. Mr. Glauthier, I didn't really 
read your testimony in detail but you talked about the smart 
grid. Does that include more R&D for super conducting 
transmission wire, that you might not have to build additional 
lines, you could just upgrade existing lines so that they could 
more current with less resistance?
    Mr. Glauthier. Yes, Mr. Chairman. That would be a feature 
on key inner ties or areas that are key congestion points.
    Mr. Barton. And if you were to do that, you wouldn't have 
some of the siting issues. We could use existing right-of-ways. 
It would be easier to upgrade the system and to get more 
capacity out of it.
    Mr. Glauthier. Super conductivity can do that and so can 
some other current technologies that could come into place even 
more promptly.
    Mr. Barton. Okay. Now, Mr. Makovich and Mr. Fleishman, it 
appears that the problem, and we don't have a definitive answer 
on exactly what caused the problem, but it appears that this 
issue of the Lake Erie loop going down and then a backflow in 
the Lake Erie loop is a part of it. Has there been adequate 
additional transmission, long-line transmission built in that 
area? And if not, is that a State siting issue, is it an equity 
issue of the affected utilities? If in fact they need 
additional transmission capability in that area, why haven't 
they done it in the past?
    Mr. Makovich. Well, if you look at the date on transmission 
investment, it has been declining now for over 5 years. I think 
we reached a 10-year low a year ago. In July of 2002, I 
testified in the Senate and I said that a gridlock plagues most 
transmission investment decisions because incentives are 
misaligned, and we are not able to undertake the cost-benefit 
analyses and nobody is in the position to confront all those 
costs and benefits to get this investment job done. So we have 
had a longstanding set of transmission investments that are 
highly economic and they are just not getting done.
    Mr. Barton. Mr. Fleishman?
    Mr. Fleishman. Yes. I would just also highlight that most 
of the utilities in those regions, Ohio, Michigan, have been 
under rate freezes that have been in place and continue in 
place for some period of time. And that obviously is another 
issue that has been mentioned in the past as being a potential 
impediment to committing to large transmission investments.
    Mr. Barton. Okay. Mr. Owens, and then I want Mr. Glauthier 
to answer this one too since you were in your prior life the 
Deputy Secretary at--Under Secretary at Energy, so you have got 
a broader portfolio than you are admitting to in your testimony 
today. Mr. Dingell and myself asked the prior panel, the ISO 
CEOs, the amount of authority they had in terms of operational 
control and dispatch authority. They all agreed that the more 
control an ISO would have in that area, the better able they 
would be to manage the problem and perhaps prevent it. Mr. 
Owens, how strongly does EII feel about a tight RTO? And, Mr. 
Glauthier, just in kind of the general good public policy, what 
do you think about having a tight RTO?
    Mr. Owens. If I might put it in a context. A tight RTO 
would be an RTO much like PJM, the New York ISO and the New 
England ISO. We all recall that the PJM ISO really evolved from 
a tight power pool, was started in 1927. Tight RTO would be one 
that would run the energy market and would keep the reliability 
of the grid operational. We support tight RTOs but we also 
believe it is important to recognize there has to be a 
transition to move from a current state to one where the RTO 
would run the energy market. As I understand it, MISO is 
scheduled to be up and running the energy market by next March. 
It does not, however, suggest to me that MISO will have the 
level of efficiency or operational flexibility that PJM has--a 
system that was started in 1927.
    Mr. Barton. Mr. Glauthier, and I know my time has expired 
so----
    Mr. Glauthier. Yes. Just briefly, it seems to me that what 
we need to do is recognize there are going to be regional 
differences, that there isn't going to be one size that will 
fit all solutions. And we need to have management that will be 
appropriated in every region. That management needs to include 
all the sources, it needs to be able to be effective, but it 
can be implemented with different kinds of ownership 
structures, different regulatory structures.
    Mr. Barton. Okay. Thank you, Mr. Chairman.
    Mr. Shimkus. I would like to recognize the gentleman from 
Massachusetts, Mr. Markey, for 5 minutes.
    Mr. Markey. Thank you. Is there any reason why Texas isn't 
part of the Eastern Interconnect? Would any of you want to 
defend----
    Mr. Owens. It is not in the East.
    Mr. Markey. Would any of you----
    Mr. Owens. We will defer to the Chair.
    Mr. Markey. See, I mean it kind of makes sense to have an 
Eastern Interconnect and a Western Interconnect if the Rocky 
Mountains are the big obstacle there, plugging the two into 
each other, but wouldn't it have really helped if Ohio had some 
of that Texas power that was surging up there? Is there any 
reason, in other words, logistically, for Texas not to be tied 
into the Eastern Interconnect? Mr. Makovich?
    Mr. Makovich. Well, there is actually a lot of history 
behind this, but Texas--there are parts of Texas----
    Mr. Markey. Yes. Dan Abraham was chairman of this 
committee.
    Mr. Makovich. There are parts of Texas that are in the 
Eastern Interconnect, but there is a transmission network 
inside of Texas that does align with ERCOT, the Electric 
Reliability Council of Texas. That part of the Texas grid for a 
variety of reasons, including not being subject to FERC 
regulation historically, created an organization that was 
separate and interconnections not synchronized with the Eastern 
Interconnect or the Western Interconnect, but with these 
questions of size it certainly is large enough that it can 
operate reliably. And in fact because there is good alignment 
with the organization and the underlying network, it is, along 
with PJM, one of the few places where we are seeing some 
significant transmission investment.
    Mr. Markey. Is New England large enough to operate alone?
    Mr. Makovich. Yes. There doesn't seem to be a current ISO 
that looks to be too small.
    Mr. Markey. So if we fought becoming part of the Eastern 
Interconnect for all these new ideas, that would--we would be 
able to be self-sufficient.
    Mr. Makovich. I am sorry, would you repeat that?
    Mr. Markey. New England would be able to be as self-
sufficient as Texas is in terms of its electricity----
    Mr. Makovich. Well, you must recognize, though, that there 
are an awful lot of benefits that New England gains by being--
--
    Mr. Markey. I understand that, but I am saying if we 
decided----
    Mr. Makovich. It could. It could, yes.
    Mr. Markey. Because Texas forgoes those benefits as well.
    Mr. Makovich. And in fact the fact that it was able to 
unplug and stay up shows that it does have a degree of self-
sufficiency, yes.
    Mr. Markey. Let me read you this from a Standard & Poor's 
July 2003 report. It is entitled, ``The Credit Quality for U.S. 
Utilities Continues Negative Trend,'' S&P July 2003. Quote, 
``The downward slope in the power industry's credit picture can 
be traced to higher debt levels and overall deterioration in 
financial profiles, constrained access to capital markets as a 
result of investor skepticism over accounting practices and 
disclosure, liquidity problems, financial insolvency and 
investments outside the traditional regulated utility 
business.'' So would you agree that it is not PUHCA but other 
factors, such as the failed diversifications, that lead 
utilities not to invest in upgrade in transmission? Mr. 
Makovich?
    Mr. Makovich. Oh. Well, most of the financial distress that 
we are finding in the merchant power plant area, the people 
that built all those gas-fired power plants since 2000, are not 
typically the people that own these transmission assets. Most 
of the transmission assets, and many of the people that spoke 
today, Exelon and AEP and others, own very large portions of 
the transmission network, are financially healthy and could 
make the investments but as Exelon said, it took the 
deterioration of the system, the embarrassment of a blackout 
and the problems they had to go through there defending 
themselves that caused them to finally make billions of dollars 
of investments, some of which they still can't even recover. 
That is not a healthy environment for investors.
    Mr. Popowsky. Yes, I agree. That is the point.
    Mr. Markey. Are you related to Eddie Popowski who was the 
base coach for the Red Sox?
    Mr. Popowsky. No. His name was spelled with an I. I know he 
was a third base coach for the Red Sox----
    Mr. Markey. Yes.
    Mr. Popowsky. [continuing] but----
    Mr. Markey. No? No relation?
    Mr. Popowsky. [continuing] I can't claim any relation. That 
is exactly the point. The companies that have had problems, 
including some of our regulated utilities who have gotten into 
unregulated businesses, they haven't lost money on the 
transmission and distribution, they have lost money on their 
unregulated generation, telecommunications, water utilities, 
foreign subsidiaries. So I don't think the place where they are 
losing money and the financial distress is coming from is from 
there.
    Mr. Markey. Let me go to Mr. Fleishman because my time is 
going to run out. Mr. Fleishman, could you--you know, it has 
been alleged the PUHCA is preventing investment from going into 
transmission. Wasn't most of the transmission system 
constructed under PUHCA? And in your opinion, looking at this 
whole pattern of diversification that many of these utilities 
engaged in, do you think the repeal of PUHCA is central to our 
ability to build the transmission system of the 21st century?
    Mr. Fleishman. I would say repeal of PUHCA is one piece of 
the puzzle. There are certainly a number of other reasons for 
the underinvestment in transmission. What I would say is that 
because of the condition that the industry is in today, which, 
as you noted, is due to many different reasons, but because of 
the weak financial condition that the industry is in today, 
there is a need for more non-traditional outside capital than 
we have typically had in the past and that that is one of the 
reasons where PUHCA is more of an impediment than it has been 
in the past.
    Mr. Markey. PUHCA companies tend to have much higher 
ratings, bond ratings, than non-PUHCA companies. Why is that?
    Mr. Fleishman. Well, I am not sure the ratings are that 
much different. Clearly, the unregulated----
    Mr. Markey. No. I have the fixed ratings right here for--
oh, what is the date on this--September 2, and they are much 
higher right across the whole board.
    Mr. Fleishman. I think a lot of the non-PUHCA companies are 
the merchant energy companies, the pure play companies that 
were purely invested in the unregulated area.
    Mr. Markey. But PUHCA prohibits diversification and by 
doing so their bond ratings are higher than the----
    Mr. Fleishman. Well, PUHCA companies have diversified.
    Mr. Markey. Right. But----
    Mr. Shimkus. The man from Massachusetts knows I have great 
admiration for him, but my patience is wearing thin. Thank you. 
But I will jump into this debate a little bit in that, yes, 
transmission was expanded under PUHCA but that was under a 
regional monopoly system in which return was set by the--it was 
a whole different world than what we have evolved to now with 
merchant plants and a competitive market, wholesaling of power 
and the like.
    Mr. Owens. Mr. Chair, could I respond to that, just amplify 
on the----
    Mr. Shimkus. Sure.
    Mr. Owens. [continuing] answer that Mr. Fleishman gave? He 
made----
    Mr. Shimkus. Mr. Owens, I think your microphone----
    Mr. Owens. He made a point about investment alternatives, 
and one of the things that we want to preserve is the 
opportunity to have interstate transmission companies created. 
What PUHCA does it really retards the attraction for investors 
to create multi-State transmission companies. It retards the 
ability of investors to put their money in these companies and 
at the same time recognize that they are in other businesses. 
It is my view that if we are seeking to expand our transmission 
system, that we need to have all the options available, and the 
Public Utility Holding Company Act certainly takes away that 
option.
    Mr. Shimkus. Does it not impede capital? In this 
environment today, what we need is capital to flow, and PUHCA 
impedes the ability for capital to flow.
    Mr. Owens. It would suggest to an entity that were seeking 
to make investment in the transmission system that they would 
be subject to a whole series of complex regulatory laws, and it 
would be a disincentive for them making that investment in a 
transmission system.
    Mr. Shimkus. Okay. I want to go to--and I have limited time 
even though I do have the gavel, and I want to move on to a 
couple other questions. Mr. Glauthier, I want to go back to 
this loop flow debate since you are an expert in research and 
development, and we were talking as members over there as the 
question was if your State is a net exporter of power, if you 
generate more electricity than is consumed and you are 
exporting, are you subject to the loop flow problem or is that 
a problem--is it a problem because you are, in essence, a--you 
are leaning on the grid, as the terminology was used earlier?
    Mr. Glauthier. I am not a technical expert, but I believe 
it can be a problem still. The loop flows are a problem in many 
parts of the country.
    Mr. Shimkus. So it is not whether you are a net exporter or 
a net importer of power in a region.
    Mr. Glauthier. That is my understanding.
    Mr. Shimkus. Okay. Good. I think a lot of us have learned a 
lot.
    Mr. Owens. If I might amplify on that. He is absolutely 
right, it is not whether you are an exporter or importer of 
power, but it has a lot to do with the physical configuration 
of the system. So, for example, to the degree that you do not 
have sufficient transmission capacity, it could result in 
electrons flowing over paths that were not originally designed 
to flow over. So it is a function of the physical design of the 
system, the availability of transmission and capacity of 
generating resources.
    Mr. Shimkus. And what I would also like to do is I am 
still, as people now probably know if they have listened the 
last 2 days, a proponent of the standard market design. Based 
upon your distinct positions across the board, where do you 
individually stand, or your organization, on the standard 
market design? And we will start with Mr. Makovich.
    Mr. Makovich. Yes. In general, the standard market design 
makes a lot of sense. There is a right way and a wrong to set 
up power markets, and I think what standard market design did 
was it tried to take the lessons from power markets that worked 
and said, ``Here are the things you need to do to get power 
markets to work properly.'' But I would caution that 
particularly going forward I think we are confronted with the 
reality that we have got half the business that is moving that 
direction and half the power system that is not, and we have 
got to tackle this reliability question and regional 
coordination and planning with this kind of hybrid.
    Mr. Shimkus. Mr. Fleishman?
    Mr. Fleishman. Yes. I would generally agree with Mr. 
Makovich's comments in that we think the concept of standard 
market design is something that was a good concept to try. I 
think clearly the regional differences in these markets and 
their state of deregulation requires a good amount of 
flexibility in actual implementation of these markets and that 
it is critical that is considered. The other thing I would 
highlight is that it is going to be very important that there 
is a buy-in of the States and local entities into the ultimate 
design in a region, and if there is not a buy-in and a good 
Federal-State partnership in working this through, then I worry 
that the markets will not work.
    Mr. Shimkus. Mr. Popowsky?
    Mr. Popowsky. Yes. Being from a PJM State, I, like you, 
think the standard market design works pretty well in our 
region and in our type of region, but I can certainly 
understand the principal objections of people in the Pacific 
Northwest or the Desert Southwest that say, no, their systems 
are very much different from the kind of systems that we have 
in our region of the country.
    Mr. Shimkus. Thank you. Mr. Glauthier?
    Mr. Glauthier. Yes. The organizations I am representing are 
focused on technologies to help make the system work reliably 
and securely in whatever political and ownership environment 
there is. So rather than take a position on standard market 
design, we are trying to work with all of these different 
settings and make sure that the technology is available and 
will work well.
    Mr. Shimkus. And Mr. Owens?
    Mr. Owens. For any market design to work you need an 
adequate infrastructure, and some of the challenges with 
respect to a standard market design are that you have to 
recognize regional differences. We have got to also recognize 
that we have different forms of ownership in our industry. We 
have got to recognize as well that the States for the most part 
have the responsibility on planning and siting of resources, 
and for any design to be successful, it is going to require the 
States and the FERC working together. The States have to 
recognize removing of regional markets, FERC has to recognize 
that the States have a very powerful voice in the siting and 
the development of the overall infrastructure.
    Mr. Shimkus. Thank you very much, and now I would like to 
recognize Ms. McCarthy from the Show Me State for 5 minutes.
    Ms. McCarthy. Thank you, Mr. Chairman. I want to thank all 
the panelists for their expert testimony here today, and I am 
very much intrigued by this public-private R&D partnership, Mr. 
Glauthier, that you are advancing. And I wonder, Mr. Makovich, 
you put some very thoughtful words together on what the problem 
is, on settling who pays in your testimony, and I understand 
the concerns that you raise about where to spread the costs. 
But if we look to a model such as Mr. Glauthier is describing 
of public-private effort, would that in fact address the 
concerns that you very rightly raise in your research and 
testimony about these complex arguments about who will benefit 
and who should pay and all the things that seem to keep us from 
getting where we need to be? I wonder, Mr. Makovich, if you 
would just expand on your thoughts on transmission investment 
planning at the network level and the guarantee of cost 
recovery prevents investment? If we found this public-private 
partnership, could we then move forward?
    Mr. Makovich. Well, at Sierra, we started a study in 
January, it is called, ``Grounded in Reality,'' to try to put 
some numbers on how much investment opportunity exists in the 
transmission network. And it is not just new power lines and 
substations, a lot of this new technology that we are talking 
about here has very, very strong payback. And so a lot of this 
solid State technology would provide for greater control, could 
limit some of this loop flow problem and so forth, but, again, 
it costs money to implement this, and the argument who pays--
the benefit of this new technology is very robust, but its 
conditions change. The people that get that benefit can shift 
dramatically. So if you hold this up until you get everybody to 
agree how much of it they are willing to pay for, what we are 
seeing is we are just not getting the investment done.
    Ms. McCarthy. So based on that last sentence, does someone 
like the Federal authority have to step in and resolve that? 
How best to get over that hump that is a very real issue and 
contentious----
    Mr. Makovich. Right.
    Ms. McCarthy. [continuing] especially given the 50 States 
and the regional grids----
    Mr. Makovich. Right.
    Ms. McCarthy. [continuing] and the territorial instincts of 
all of that.
    Mr. Makovich. The recommendation here is when the network 
planning happens and they identify what should be done, those 
investments should go forward and the costs should be spread 
across the network. Now, there is a good example. People have 
talked about southwestern Connecticut. There is a portion of 
that line that the people there insisted should go underground 
because they didn't want to look at. Now, there is quite a 
legitimate objection from people in the State of Maine or Rhode 
Island, why should they have to pay for the undergrounding 
costs? So if we spread all these costs and allow the investment 
to go forward but then allow for a process that we can go back 
and spread some allocation and then true up through time for 
people that have paid too much or too little, that would stop 
us from stymieing all this investment over this wrangling about 
who is going to pay.
    Ms. McCarthy. I thank you for sharing those thoughts. And, 
Mr. Glauthier, would you like to weigh in on this concept and 
how we can get there?
    Mr. Glauthier. Yes. Thank you, Congresswoman. I think we 
need to move to another level of thinking about the advancement 
of technology and upgrading the system. This is a national 
need. We need to move into the 21st century, we need to develop 
a system that is robust, that will support renewable 
technologies and distributed generation and whole new 
applications. So rather than just focus on how we deal with 
today's problems, we need to set our sights on a transformation 
of the system that is not unlike what was done in the country 
50 years ago when the super highway system was developed for 
the country. It was a national priority, it was done on a 
national basis, done with the strong cooperation of the States. 
We need to address that, we need to look into this with full 
participation of customers, of the political entities, the 
State commissions, the Governors and others, and I think 
Congress needs to show leadership in that, in directing that 
and trying to come to some resolution that is fair and 
equitable and effective.
    Ms. McCarthy. When you bring Congress into this what has 
been traditionally--I was a former State legislator, so what 
was traditionally a States' rights concept, how do you perceive 
that legislatively so that Congress doesn't look like it is 
trampling all over States' rights?
    Mr. Glauthier. The proposal we are making is that the 
Congress direct the administration to undertake a process of 
engaging the States and the customers and the industry and come 
back with some kind of a recommendation. And in the end, it may 
be a recommendation that is actually adopted by the States. It 
may not necessarily be some sort of a Federal system of funding 
and the like, but I think some uniform approach to it is going 
to be important, and some way of engaging all these people that 
is a leadership that the Federal Government can really 
exercise.
    Ms. McCarthy. I thank you, and I am giving you back some 
time, Mr. Chairman.
    Mr. Shimkus. Well, I appreciate that. Thank you very much, 
Madam. And now I would like to recognize Mr. Walden from 
Oregon.
    Mr. Walden. Thank you, Mr. Chairman. I would like to follow 
up on this issue of the standard market design, because I think 
some of you have touched upon one of the concerns those of us 
who represent Pacific Northwestern districts and States have, 
and that is the one size doesn't fit all, what you may have in 
PJM and how we deal with different things. When 62 percent of 
our region is hydro-based and our 82 percent of our grid is 
under Bonneville, it is a little different process, and so I am 
just wondering if you were in our shoes here, do you think SMD 
would actually work in the Northwest, the same set of rules 
work there that work in Ohio or Texas?
    Mr. Owens. Well, I certainly don't think the same set of 
rules work, and I don't think you can have a one size fits all, 
so I am in agreement with you. The Eastern Interconnection is 
very different than the Western Interconnection, you correctly 
point out. The Eastern Interconnection is a thermally based 
interconnection, the western is a hydroly based.
    Mr. Walden. Right.
    Mr. Owens. The Eastern Interconnection does not have the 
ownership diversity that the Western Interconnection does. 
Pacific Northwest, as you correctly point out, 70 percent of 
the ownership of the transmission system is in the hands of the 
Bonneville Power Administration, so certainly one size doesn't 
fit all. I think, however, it is appropriate to recognize 
regional differences. The FERC came out with a White Paper, 
which, in my opinion, is a bold attempt to try to deal with 
some of these regional differences, to try to recognize that 
some States may like some elements of a wholesale market 
platform and will be able to implement those. Some elements 
they may reject. It is a step in the right direction, but 
certainly I don't think we could have a national design that 
would represent a one size fits all.
    Mr. Walden. Ye, sir?
    Mr. Makovich. It is true that the Pacific Northwest is 
different from PJM, but PJM also has hydro and there is a well 
thought out way in which the hydro is dispatched and then the 
thermal dispatch occurs afterwards. I think one of the things 
that we have observed is one of the things that went terribly 
wrong in California was that they couldn't all agree on the 
market design, and they made a lot of compromises that added 
flaws. So when you open the door to say, as the FERC White 
Paper has, that we will be flexible, you open the door to the 
kind of compromise that led to big flaws in the market design 
in California. So this is a very difficult area to work in, but 
by and large, with some minor modifications, standard market 
design ought to work, but, of course, Bonneville doesn't have 
to play if they don't want to, and that is not standard market 
design, but----
    Mr. Walden. Well, but they could have been put under FERC--
--
    Mr. Makovich. Right.
    Mr. Walden. [continuing] jurisdiction, and FERC writing the 
rules could have, in effect, dictated to Bonneville what it is 
they could or couldn't do.
    Mr. Makovich. Right, but that is outside really of the 
standard market design questions.
    Mr. Walden. Yes, but our concern was the way it was written 
they could have been dragged under that, and so all of the work 
that was being done on a regional basis could have been voided, 
in effect, by FERC's decision on what should or shouldn't occur 
there. And some of our concerns, I asked Pat Wood directly, 
what is it we are not doing you think we ought to do out there, 
and there is really not much they come back with. And yet I 
don't necessarily believe that everybody in this operation has 
a clear understanding of how the hydro system works, our 
requirement for fish and the water flows, what happens in a 
drought. I mean it is a whole different deal. I am glad in 
Niagara and wherever they could flow more water whenever they 
needed to. It is a little different out there. You would have a 
suit in a heartbeat over the Endangered Species Act issues. 
Yes, Mr. Owens?
    Mr. Owens. If I could just add, and I agree with the 
premise of your question, and, as I said, I think there are 
differences. I think, though, you can distinguish the standard 
market design from the mandatory reliability rules, which I 
believe----
    Mr. Walden. I agree.
    Mr. Owens. [continuing] are supported by the folks in the 
Western Coordinating Council and even----
    Mr. Walden. And Bonneville.
    Mr. Owens. [continuing] and in Canada. So I think there is 
an agreement that we can have some mandatory reliability 
principles that would be in effect nationwide.
    Mr. Walden. See, I think that is very true, and I know 
Bonneville would support that, and I think we in the Northwest 
would support that as well. And in fact the disturbing part of 
some of the testimony yesterday I think from Mr. Gent from NERC 
was that they have got these voluntary standards and no big 
stick; there is no way to enforce them. And he told us there 
are some companies that just sort of say, well, tough, and 
there is not much that can be done, even with peer pressure. So 
I think you are right, I think that there are some mandatory 
reliability standards that could be put in place. My time has 
expired anyway. Thank you.
    Mr. Shimkus. The gentleman's time has expired. We are going 
to end this but we have agreed to allow our colleague from 
Massachusetts--we were asking him whether it is a Markey minute 
or a regular synchronized minute, and we are going to find out 
right now. The gentleman is recognized for 1 minute.
    Mr. Markey. Yes. I just wanted to put in a good word for 
PUHCA just so people can understand what PUHCA does and doesn't 
do. There is nothing in PUHCA that prevents utilities from 
going to Wall Street and issuing additional stock or going to 
Wall Street and issuing bonds to pay for investment in new 
transmission infrastructure. What PUHCA does do is to prevent 
registered holding companies from diversifying into virtually 
any business. It limits diversification to out-of-region 
generation, foreign utilities and telecommunications.
    PUHCA also prevents huge conglomerates, like Warren 
Buffet's Berkshire Hathaway, from owning and controlling 
registered holding companies. He can be a passive investor and 
buy and hold their stocks and bonds, but he can't control the 
company. And we know from the rating agencies, from S&P and 
Fitch that PUHCA companies tend to have higher bond and hence a 
lower cost of capital than the exempts that diversify into 
risky unregulated businesses. Where registereds have gotten 
into trouble it has tended to be from the unregulated 
businesses. The core regulated utility businesses seem to 
remain rather profitable, and it still is difficult to 
understand why 11 or 12 percent guaranteed return isn't 
sufficient for many of these companies to ensure they upgrade 
their transmission. Thank you.
    Mr. Shimkus. And the question is----
    Mr. Markey. No question.
    Mr. Shimkus. No question. Now I would like to recognize the 
chairman of the Energy and Air Quality Subcommittee, Chairman 
Barton, for 1\1/2\ minutes.
    Mr. Barton. I want a Markey minute, which is a minute and 
42 seconds. That is what was put on the clock. I just want to 
say a few good things about ERCOT since it was disparaged a 
little bit. You have got 77,000 megawatt capacity, generation 
capacity. You have got, I am told, around 30 percent reserve 
margin in terms of transmission, you have a reliability 
standard that by any measure is as good as any in the country, 
you have sufficient natural resources that if you needed to 
increase your generation or transmission, you could do it 
intrastate, and you serve a territory that is totally within 
one State. So I would like to know what is wrong with ERCOT if 
it is all done within the State, it has sufficient reserve 
margins, both for generation and for transmission, and it has 
an excellent reliability standard, and since it is within the 
State it doesn't need FERC jurisdiction for interconnection and 
interstate commerce. Mr. Makovich, is there anything wrong with 
that?
    Mr. Makovich. No. There is nothing wrong with ERCOT as a 
stand-alone electric system. It certainly is big enough, and, 
as you say, the record is clear. The only thing I would add is 
ERCOT could benefit with some additional interconnection and it 
is typically DC lines that are put in because it is not 
synchronous. They have got a lot of bottled up generation right 
now, they have got a big surplus, and in the years ahead, not 
right now, but in the years ahead that could come in handy to 
some neighboring regions.
    Mr. Barton. Right. But in terms of serving any other State 
that had the natural resources and wanted to use them to build 
generation and had a State public utility commission and State 
law that allowed for transmission lines to be built in a fair 
fashion and expedition, they could do the same thing.
    Mr. Makovich. That is right. They have actually gotten more 
done because of that focus and alignment.
    Mr. Barton. So there is nothing----
    Mr. Shimkus. Mr. Chairman, I am going to be challenged by 
this side now. You have now reached Markey time.
    Mr. Barton. All right. Then I am going to yield back.
    Mr. Shimkus. The gentleman yields back. We want to thank 
the panel actually for staying for the entire day. We do 
appreciate that. And the hearing is adjourned.
    [Whereupon, at 5:23 p.m., the committee was adjourned.]
    [Additional material submitted for the record follows:]

                                                 September 22, 2003
The Honorable John D. Dingell
United States House of Representatives
2328 Rayburn House Office Building
Washington, D.C. 20515-2215
Re: House Energy and Commerce Committee September 4, 2003 Hearing 
        Inquiry Regarding the Ontario Independent Electricity Market 
        Operator's Authority to Maintain Reliability

    Dear Representative Dingell: This letter is in response to your 
inquiry, posed to members of Panel II during the House Energy and 
Commerce Committee's September 4, 2003 hearings, concerning the 
reliability authorities of the respective ISO/RTOs.
    We understand your inquiry to be as follows: ``Would you each tell 
me the respective authorities that your agency has with regard to 
reliability . . . reporting disclosure; information you might get about 
impending problems; powers you have over siting; the ability you have 
to require that facilities be run at certain speeds or certain ways. 
Indicate to us in each of the cases what powers you have to assure 
reliability?''
    As Mr. Dave Goulding, President and Chief Executive Officer of the 
Independent Electricity Market Operator (IMO) stated in his oral 
testimony, the IMO currently has ``the powers a well run RTO would need 
to address the problems of reliability,'' including:

1) having access to all the information that is required;
2) having to both run a market-place but also recognizing that 
        reliability is paramount;
3) instructing changes in dispatch, schedules and loading of lines in 
        order to respect reliability within that market-place;
4) carrying out investigations; seeking additional information in terms 
        of whether rules are being complied with or not;
5) enforcing penalties--applying sanctions if necessary; and
6) demanding and ordering corrective plans, and approving those plans.
    In his written testimony, Mr. Goulding provided the basis of these 
reliability authorities. In particular, the IMO has been granted the 
authority for establishing, monitoring and enforcing reliability 
standards in its constating statute. As a result, the IMO has been an 
active participant in NERC and Northeast Power Coordinating Council 
(NPCC) and has adopted the standards developed through those 
organizations as the basis for reliability standards in Ontario.
    The IMO draws its authorities for reliability from the following 
sources:

 The IMO's objects assigned to it in its constating statute include 
        participating in the development of standards and criteria 
        relating to the reliability of transmissions systems, as well 
        as directing the operation and maintaining the reliability of 
        the IMO-controlled grid.
 The IMO's licence, granted by the Ontario Energy Board (OEB), enables 
        the IMO to enter into agreements with Transmitters for purposes 
        of directing the operation of the grid.
 An extensive set of Market Rules that go into considerable detail 
        related to reliability obligations, authorities, monitoring and 
        enforcement. A copy of these Market Rules is on the IMO web 
        site (www.theimo.com). A copy has been filed with FERC for 
        information.
 The IMO is Ontario's Control Area Operator, and is party to the NPCC 
        agreement.
 The IMO is the reliability coordinator for Ontario.
    The following responds to your other questions:

 Pursuant to the Market Rules, Market Participants are responsible for 
        reporting and disclosure to the IMO. These requirements are 
        judged adequate for the purpose of maintaining reliability.
 Market Participants are also responsible for providing the IMO with 
        information regarding impending problems. Specifically, they 
        must promptly inform the IMO of any change or anticipated 
        change in the capability of their facilities or the status of 
        their equipment or facilities. These requirements are also 
        specified in the Market Rules and operating agreements. 
        Corrective and preventive actions arising from impending 
        problems in one control area that may impact another control 
        area are addressed in operating agreements between the IMO and 
        its counterpart organization.
 While the IMO has no direct authority over siting, the IMO can issue 
        an RFP for upgrades of existing or investments in new 
        transmission facilities if the IMO determines that reliability 
        criteria are at risk in the absence of these investments. The 
        IMO is also responsible for conducting connection assessments 
        to determine if proposed facility modifications or expansions 
        meet established reliability criteria. Interested parties refer 
        their proposed solutions to the OEB for approval. The IMO's 
        assessment may have an impact on the siting decision.
 The IMO's authorities regarding the control of transmission and 
        generation facilities to maintain reliability are specified in 
        the Market Rules and in the operating agreements between the 
        IMO and transmitters in the province. These rules and 
        agreements are judged adequate for this purpose.
    We trust this is the information you require. We would be pleased 
upon request to provide clarification or additional information.
            Respectfully submitted,
                                               Amir Shalaby
                               Manager, Regulatory Affairs, The IMO
                                 ______
                                 
                                              National Grid
                                                  September 9, 2003
The Honorable W.J. Tauzin
Chairman
Committee on Energy and Commerce
U.S. House of Representatives
Washington, DC 20515-6115
    Dear Chairman Tauzin: Thank you for the opportunity to testify 
before your Committee on September 4 regarding the power outages on 
August 14.
    During your hearing you inquired about the role and investment 
perspectives of independent transmission companies. I would like to 
provide further explanation so that you and the members of your 
Committee may better understand our role and the nature of our 
business.
    National Grid USA is an energy delivery company. We are not in the 
power generation business. We purchase and manage transmission assets 
because through the efficient management of and investment in assets, 
we believe that we will be able to make a reasonable return on our 
investment. Our clear management focus ensures that our efforts are 
concentrated on transmission investment and the benefits to customers 
that it can provide.
    Our latest venture located within the Midwest ISO is GridAmerica, 
an independent transmission company. GridAmerica, subject to obtaining 
regulatory approvals, will undertake responsibilities for the 
management and planning of the transmission assets of three major 
electric utilities in the Midwest.
    The independent transmission company business model offers 
significant potential benefits to the nation's electricity system, 
Independent transmission companies operate, manage and sometimes own 
electric trannsmission facilities and are focused solely on the secure 
and economic delivery of electricity. Independent transmission 
companies will therefore invest in and install transmission facilities 
where it is in the public interest. As companies cam returns for their 
investors by managing and investing in transmission assets, independent 
transmission companies will be, motivated to make those investments, as 
long as the regulatory regime affords an opportunity to earn reasonable 
returns on them.
    In addition to investing in new transmission lines, National Grid 
also has experience in maximizing the capability of existing delivery 
facilities and rights of way. Building new lines on new rights of way 
is almost always more difficult, more expensive, and takes longer than 
updating existing facilities. Where additional capacity can be most 
easily created by reconfiguring existing facilities, independent 
transmission companies can be similarly incentivized through rate 
structures that allow them to retain a portion of the savings created 
by their efficiency.
    I would like to clarify one other point that arose at the hearing 
on September 5. One witness implied that New York utilities are 
reluctant to invest in transmission because of the potential rate 
impacts. National Grid, including its subsidiary in New York, Niagara 
Mohawk Power Corporation, already has a capital budget that provides 
for a level of investment in excess of the national average. We had 
begun discussions with the New York Public Service Commission prior to 
the blackout regarding the potential benefits of further upgrades. 
National Grid is committed to make the investments in our New York 
system that we and the Public Service Commission conclude are in the 
public interest. We are confident that working with the Commission we 
will be able to manage the impact on rates from those investments.
    We would be honored to answer any further questions you may have.
            Respectfully submitted,
                                     Nicholas P. Winser    
                                   Group Director Transmission,    
                                          National Grid Transco plc

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