[Senate Hearing 108-631]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 108-631

                      SUEDEEN G. KELLY NOMINATION

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                                   ON

THE NOMINATION OF SUEDEEN G. KELLY TO BE A MEMBER OF THE FEDERAL ENERGY 
                         REGULATORY COMMISSION

                               __________

                              JUNE 8, 2004


                       Printed for the use of the
               Committee on Energy and Natural Resources


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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                 PETE V. DOMENICI, New Mexico, Chairman
DON NICKLES, Oklahoma                JEFF BINGAMAN, New Mexico
LARRY E. CRAIG, Idaho                DANIEL K. AKAKA, Hawaii
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
CRAIG THOMAS, Wyoming                BOB GRAHAM, Florida
LAMAR ALEXANDER, Tennessee           RON WYDEN, Oregon
LISA MURKOWSKI, Alaska               TIM JOHNSON, South Dakota
JAMES M. TALENT, Missouri            MARY L. LANDRIEU, Louisiana
CONRAD BURNS, Montana                EVAN BAYH, Indiana
GORDON SMITH, Oregon                 DIANNE FEINSTEIN, California
JIM BUNNING, Kentucky                CHARLES E. SCHUMER, New York
JON KYL, Arizona                     MARIA CANTWELL, Washington

                       Alex Flint, Staff Director
                   Judith K. Pensabene, Chief Counsel
               Robert M. Simon, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     3
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Kelly, Suedeen G., Nominated to be a Member of the Federal Energy 
  Regulatory Commission..........................................     4

                                APPENDIX

Responses to additional questions................................     9

 
                      SUEDEEN G. KELLY NOMINATION

                              ----------                              


                         TUESDAY, JUNE 8, 2004

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:04 a.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Pete V. 
Domenici, chairman, presiding.

            OPENING STATEMENT OF PETE V. DOMENICI, 
                  U.S. SENATOR FROM NEW MEXICO

    The Chairman. The committee will come to order. I wonder if 
you would go ahead and take a seat, please, Suedeen.
    Good morning, everyone. Ms. Kelly, I welcome you back to 
our committee so that we may consider your nomination for an 
additional term as commissioner of the Federal Energy 
Regulatory Commission. While your first term, which concludes 
on June 30, has been brief since you were filling an unexpired 
term of a former commissioner, I note that you are generally 
regarded as conscientious and diligent in the performance of 
your duties.
    The rules of the committee which apply to all nominees 
require that you be sworn in connection with your testimony. 
Please rise and raise your right hand. Do you solemnly swear 
that the testimony that you are about to give to the Senate 
Committee on Energy and Natural Resources shall be the truth, 
the whole truth, and nothing but the truth?
    Ms. Kelly. I do.
    The Chairman. Please be seated. Before you begin your 
statement, I'll ask you three questions that are always asked 
of our nominees. Would you be available to appear before the 
committees of the Congress and other Congressional committees 
to represent departmental positions and respond to issues of 
concern to the Congress?
    Ms. Kelly. I will, Mr. Chairman.
    The Chairman. Are you aware of any personal holdings, 
investments, or interests that could constitute a conflict or 
create the appearance of such conflict should you be confirmed 
and assume the office to which you have been nominated by the 
President?
    Ms. Kelly. My investments, personal holdings, and other 
interests have been reviewed both by myself and the appropriate 
ethics counselors within the Federal Government. I have taken 
appropriate action to avoid any conflict of interest and there 
are no conflicts of interest or appearances thereof to my 
knowledge.
    The Chairman. Are you involved or do you have any assets 
held in blind trust?
    Ms. Kelly. No.
    The Chairman. We'll move now to opening statements from 
other members who may wish to make them. I assume that you 
would like to make a statement, Senator Bingaman.
    [The prepares statement of Senator Dorgan follows:]

       Prepared Statement of Hon. Byron L. Dorgan, U.S. Senator 
                           From North Dakota

    I want to thank the Committee for holding this hearing and 
reconfirming Ms. Kelly in such an expeditious manner. Ms. Kelly has 
served the Commission well and will continue to play a vital and 
pivotal role as the Federal Energy Regulatory Commission (FERC) moves 
forward in the coming years to secure our energy needs and ensure 
consumer protections and reliability.
    While commending Commissioner Kelly on the job she has done since 
last November, I also want to bring her attention to a developing 
situation at FERC. This issue involves some FERC jurisdictional 
utilities and the contracts they entered into with non jurisdictional 
utilities. As the Commissioner may know, the Midwest Independent System 
Operator (MISO) recently proposed an Open Access Transmission and 
Energy Market Tariff (EMT). While understanding the need to provide a 
more efficient and reliable transmission infrastructure, I am concerned 
about the way this EMT will be implemented. As you will recall, the 
issue of Standard Market Designs (SMD's) was debated during 
consideration of the comprehensive energy bill, and it was ultimately 
decided that FERC would not implement any SMD's for 5 years. While this 
energy measure remains stalled in the Congress, it does shed light on 
Congress's view of SMD's.
    Before MISO was formed, over 300 contracts were entered into 
between jurisdictional and nonjurisdictional utilities. Since that 
time, many of these jurisdictional utilities have joined MISO and 
deposited their transmission assets for MISO to operate. There is a 
concern that MISO is trying to abrogate these contracts and force 
utilities within the MISO region to join MISO either directly or by 
default. It troubles me when the government intervenes into a 
contractual situation that has been negotiated between two private 
parties. These contacts were negotiated to facilitate jointly 
delivering electricity to the utilities in an efficient and reliable 
manner with cost savings to each.
    Additionally, the implementation of this EMT could have significant 
price increases to consumers, especially those citizens living in rural 
areas of my state. If these contracts have to be renegotiated, some of 
the additional costs that were not included in the original contracts, 
including congestion costs, marginal losses and administrative costs 
will need to be put into the new contracts. Ultimately, I am concerned 
consumers will get stuck with the bill.
    During the West Coast energy crisis a few years ago, FERC refused 
to abrogate ``over-priced'' California wholesale contracts entered into 
under duress, citing the sanctity of contracts and the importance of 
settled expectations. However, FERC, apparently in the MISO case, is 
willing to abrogate over 300-grandfathered agreements in the MISO 
region. These grandfathered agreements have served both jurisdictional 
and non jurisdictional utilities very well. These longterm contacts 
were negotiated to facilitate jointly delivering electricity to the 
utilities in an efficient and reliable manner with cost savings to 
each.
    FERC seems to be pushing a Standard Market Design (SMD) through 
MISO over the objections of a large percentage of stakeholders in the 
region and MISO appears to see the grandfathered agreements as an 
obstacle to moving forward.
    While I don't want you to comment on ongoing proceedings, there is 
an important broad policy here on which I think you can and should 
comment.

                               QUESTIONS

    1. Do you believe that grandfathered agreements, on which 
transmission customers rely for access for reliable, reasonably priced, 
power should be given at least as much protection as the Commission 
gave to the high-priced wholesale power contracts in California?
    2. Do you believe that long-term transmission agreements between 
jurisdictional and nonjurisdictional utilities should be changed 
because an RTO wants to initiate an energy market concept?
    3. FERC has been pressing forward with implementation of its 
Standard Market Design (SMD) aggressively, especially through MISO. 
However, there remain significant concerns about costs associated with 
this effort. Will you undertake a serious effort to evaluate the costs 
and benefits of the SMD model prior to its implementation?

 STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW MEXICO

    Senator Bingaman. Thank you very much, Mr. Chairman, for 
holding this hearing.
    I am very pleased to make a short statement in support of 
Suedeen Kelly's nomination to a full 5-year term. As you 
recall, she was confirmed by the Senate last November and has 
only been in the position she now holds for a little over 6 
months. I think it is very important that she be approved for a 
full 5-year term so that she can continue in that position. Her 
current term expires at the end of this month.
    She had a very impressive record of public service while in 
New Mexico, first as an attorney with the public utility 
section of the attorney general's office, then as a member, a 
commissioner, and then chairwoman of the New Mexico Public 
Service Commission. Of course, she taught at our law school. I 
thought last year the President made a very good choice in 
nominating her for this position and I am very pleased with the 
job she is doing. I think everyone who works with her is very 
impressed with the talent, experience, and dedication that she 
has brought to the position.
    So I commend you again for holding this hearing and I hope 
we can move very expeditiously to report her nomination to the 
full Senate and get her confirmed for a full term. Thank you.
    The Chairman. Thank you.
    Senator Bingaman, you mentioned that the President 
nominated her. I want to also acknowledge that you recommended 
her, and I appreciate that. I was pleased to encourage the 
administration to proceed and so she is here.
    I have about seven questions. Most of them have to do with 
reliability and a few related things. But I think I will submit 
them to you so that you can answer them. I would hope you would 
expedite those because, as I understand it, we ought to be 
approving you rather quickly. We cannot do that today. In a 
couple of weeks you should have these answered and we will have 
all of them here, and then we will confirm this, you will go on 
the calendar, and we hope there will not be any delays there 
because you are a sitting commissioner.
    I think that Senator Nickles also may have a question. I 
should have it, I apologize. He told us what it was, but we do 
not have it.
    So with that, unless you have something else, Senator 
Bingaman.
    Senator Bingaman. I think just any statement she would 
have.
    The Chairman. That is correct. It is your turn to tell us 
what you are going to do. I was going to not even let you 
speak. Go ahead, ma'am.
    Ms. Kelly. Thank you, Mr. Chairman. I am prepared to say a 
few things.
    The Chairman. I was kind of in a hurry to get you out of 
here. But go ahead.

TESTIMONY OF SUEDEEN G. KELLY, NOMINATED TO BE A MEMBER OF THE 
              FEDERAL ENERGY REGULATORY COMMISSION

    Ms. Kelly. I will speak quickly.
    Mr. Chairman, Senator Bingaman. I am honored to appear 
before you today and I would like to express my appreciation to 
President Bush for the confidence he has placed in me. I know 
that the committee has a full agenda of issues, so I am 
especially grateful to you, Mr. Chairman, and to your staff for 
scheduling the hearing expeditiously.
    I would like to thank Senator Bingaman for the support and 
the friendship he has provided me for over 20 years, and I 
would note that I learned a significant amount of energy law 
working for him when he was attorney general for the State of 
New Mexico.
    I have served as a Commissioner for 6 months now and I 
found the Commission staff to be very impressive. I have 
brought five of my personal staff members with me. They are 
experts in their field, very hard-working and dedicated to 
serving the public interest.
    I have appreciated also Chairman Wood's handling of matters 
that come before the commission. He seeks open discussion and 
consultation with me as well as the other commissioners.
    The pace at FERC is challenging and there have been some 
significant developments in energy policy since I began serving 
on the Commission. In the area of reliability, many initiatives 
have begun. In April, shortly after the U.S.-Canada Power 
System Outage Task Force issued its final report on the August 
14, 2003, blackout, FERC took several actions designed to 
increase the reliability of the country's interstate 
transmission grid.
    The Commission addressed the need to expeditiously modify 
the North American Electric Reliability Council's, NERC's, 
reliability standards in order to make them clear and 
enforceable. Priority matters that need to be handled by the 
NERC standards include vegetation management on transmission 
rights of way, transmission operator training, and adequacy of 
operator tools. NERC is working on coming up with mandatory 
reliability standards by January 2005 and the Commission is 
very supportive of this effort.
    FERC and NERC also agreed that by June 20 of this year NERC 
would undertake audits of the reliability readiness of 20 
control areas in the United States. These chosen control areas 
serve 80 percent of the U.S. electricity load.
    FERC has also announced that it expects public utilities to 
comply with reliability standards, stating that the commission 
interprets the phrase ``good utility practice'' that is present 
in most tariffs for transmission service to include compliance 
with reliability standards.
    FERC has also ordered all transmission owners to report on 
the status of their vegetation management practices by June 17 
and based on this information FERC will report to Congress on 
this matter.
    In the natural gas arena, FERC remains concerned that 
natural gas supplies are going to be tight this year in 
relation to demand. Since the fall of 2003, FERC has authorized 
12 natural gas pipeline projects to increase deliverability of 
gas in the United States, 4 gas storage projects and 2 
liquified natural gas projects. I would like to note that four 
of the projects will allow access to additional natural gas 
supplies in the Rockies and there are pending 11 project 
applications that would do the same thing.
    Finally, in the area of hydroelectricity, FERC, before I 
joined the Commission, adopted the Integrated Licensing 
Process, which is a new process option for the licensing and 
relicensing of hydrologic facilities. Its goal is to expedite 
the licensing process through better coordination with the 
processes of the other Federal and State agencies with 
responsibilities in licensing as well as through increased 
public participation during the pre-filing phase.
    ILP provides for the development by the applicant of a 
Commission-approved plan of studies and encouragement of 
informal resolution of disagreements at the beginning of the 
process. Since November, I am pleased to report that seven 
licensees have chosen this option for the processing of their 
applications, and I am hopeful that the process will indeed 
provide applicants and the public with a more efficient and 
satisfactory way to handle their license and relicense 
requests.
    In closing, Mr. Chairman, I thank you for the opportunity 
to appear before you today and if confirmed I will endeavor to 
serve the public with diligence, concern, and responsiveness to 
the many energy challenges the country will be facing in the 
next 5 years.
    Thank you.
    [The prepared statement of Ms. Kelly follows:]

 Prepared Statement of Suedeen G. Kelly, Nominee to be a Member of the 
                  Federal Energy Regulatory Cmmission

    Chairman Domenici, Senator Bingaman and distinguished members of 
the Committee, I am honored to appear before you today as a nominee for 
Commissioner of the Federal Energy Regulatory Commission (FERC). I 
would like to express my appreciation to President Bush for the 
confidence he has placed in me. I know that this Committee has a full 
agenda of issues, so I am especially grateful to Chairman Domenici and 
his excellent staff for scheduling this hearing expeditiously. I would 
like to thank Senator Bingaman for the support and friendship he has 
provided me for over twenty years. I learned a significant amount of 
energy law working for him when he was Attorney General for the State 
of New Mexico. He hired me to work in the office he set up to protect 
the interests of New Mexico's residential and small business consumers 
in public utility matters.
    I have served as a Commissioner for six months now. I have found 
the Commission's staff to be very impressive. They are experts in their 
field, very hardworking and dedicated to serving the public interest. I 
have appreciated Chairman Wood's handling of matters that come before 
the Commission. He seeks open discussion and consultation with me as 
well as the other Commissioners. The pace at FERC is challenging, and 
there have been some significant developments in energy policy since I 
began serving on the Commission.
    In April, shortly after the U.S.-Canada Power System Outage Task 
Force issued its final report on the August 14, 2003, blackout, FERC 
took several actions designed to increase the reliability of the 
country's interstate transmission grid. The Commission addressed the 
need to expeditiously modify the North American Electric Reliability 
Council's (NERC) reliability standards in order to make them clear and 
enforceable. Priority matters that need to be handled by the NERC 
standards include vegetation management on transmission rights-of-way, 
transmission operator training, and adequacy of operator tools. NERC is 
working on coming up with mandatory reliability standards by January 
2005. The Commission is very supportive of this effort. FERC and NERC 
agreed that by June 20, 2004, NERC would undertake audits of the 
reliability readiness of twenty control areas in the United States. 
These chosen control areas serve 80% of the U.S. electricity load. FERC 
has also announced that it expects public utilities to comply with 
reliability standards, stating that it interprets the phrase ``good 
utility practice'' that is present in most tariffs for transmission 
service to include compliance with reliability standards. Thus, 
violation of good reliability practices will amount to violation of the 
utility's FERC tariff, and the Commission will consider taking utility-
specific action on a case-by-case basis to address significant 
reliability matters. FERC has also ordered all transmission owners to 
report on the status of their vegetation management practices by June 
17th. Based on this information, FERC will report to Congress on this 
matter.
    In the natural gas arena, FERC remains concerned that natural gas 
supplies are going to be tight in relation to demand. Since the Fall of 
2003, FERC has authorized twelve natural gas pipeline projects, four 
gas storage projects and two liquefied natural gas projects. Four of 
the projects will allow access to additional natural gas supplies in 
the Rockies.
    Last year, before I joined the Commission, FERC adopted the 
Integrated Licensing Process (ILP), a new process option for the 
licensing and re-licensing of hydroelectric facilities. Its goal is to 
expedite the licensing process through better coordination with the 
processes of the other federal and state agencies with responsibilities 
in licensing, as well as through increased public participation during 
the pre-filing phase. ILP provides for the development by the applicant 
of a Commission-approved plan for studies of project impacts on 
environmental resources and encouragement of informal resolution of 
study disagreements, backed up by a formal dispute resolution process. 
Since November, I am pleased to report that seven licensees have chosen 
this option for the processing of their license applications. I am 
hopeful that the ILP process will indeed provide applicants and the 
public with a more efficient and satisfactory way to handle their 
license and re-license requests.
    In closing, I thank you for the opportunity to appear before you 
today. If confirmed, I will endeavor to serve the public with 
diligence, concern and responsiveness to the many energy challenges the 
country will be facing in the next five years. I look forward to any 
questions you may have.

    The Chairman. Thank you.
    On the pipeline issue and the liquefaction, could you tell 
us about the liquefaction? You said there were two. What does 
that mean and where are they?
    Ms. Kelly. There were two LNG projects that were approved 
last fall. They were actually approved right before I arrived 
at the Commission. One is the expansion of the Trunkline LNG 
Import Terminal at Lake Charles, Louisiana, and the other is a 
new LNG import facility at Cameron, Louisiana, that provides 
capacity for 19.6 Bcf of LNG storage and sendout capacity of 
2.7 Bcf of regassified LNG.
    There were also two pipeline approvals that FERC issued in 
the last several months for pipelines from the Bahamas to 
Florida associated with LNG facilities in the Bahamas. The 
United States--FERC does not have jurisdiction over the 
facility itself, but we approved the pipelines.
    The Chairman. In the Bahamas?
    Ms. Kelly. In the Bahamas.
    The Chairman. That would be--the United States has no 
regulatory agency that has anything to do with the Bahama site?
    Ms. Kelly. Mr. Chairman, I am not certain if it would be 
the Coast Guard that would be involved in that or not. But the 
Bahama government, the Bahamian government, is involved in the 
approval process.
    The Chairman. I got you.
    With reference to the regular pipeline--let me stay on 
liquefaction for a minute. Does the local community have any 
input before you approve such things? I know this one, these 
two LNG's, were approved before you, but could you tell us--I 
think you would know. I understand it is not so easy now in 
various parts of the Nation to get a liquefaction, an LNG plant 
built; is that correct?
    Ms. Kelly. Mr. Chairman, there have not been any built in a 
while. We do have approximately seven other proposed terminals 
pending before us, and the process is very inclusive of public 
participation. FERC is responsible for the NEPA assessment and 
for ensuring that the facility as it is planned will be safe.
    We have a memorandum of understanding with the Department 
of Transportation as well as the Coast Guard, and we work 
cooperatively with them to ensure that all aspects of the 
import of LNG and the regassification are safe and that the 
environmental impacts are fully analyzed before any approval is 
given.
    The Chairman. Those two that are in Louisiana, would their 
product just go in the gas lines that are there?
    Ms. Kelly. That is correct.
    The Chairman. So wherever we put them, an LNG plant, once 
they produce the gas it is the same as any other and if the 
pipelines accommodate that is where they will go?
    Ms. Kelly. That is exactly right. Actually, we do have an 
initiative at FERC right now to ensure that the LNG that is 
imported is interchangeable with U.S. domestic gas that is in 
the pipeline. The Natural Gas Council has convened an industry-
wide collaborative initiative to come up with a process for 
ensuring that everything is interchangeable.
    The Chairman. Thank you very much.
    I forgot to have you introduce your daughter, who is here.
    Ms. Kelly. Thank you, Senator.
    The Chairman. Would you do that, please.
    Ms. Kelly. Yes. With me is my daughter, Vickie Kelly. 
Vickie, last Friday, finished her first year of medical school 
at the University of New Mexico. So I am very happy that she 
could come to be with me today.
    My other daughter, Katherine, is not with me. As we speak, 
she is sitting in a classroom at summer school at the 
University of Pennsylvania. She tells me that she is taking her 
laptop to class, that she has gone to the web site, she is 
following the webcast, and that her professor has no idea that 
she is watching television instead of taking notes.
    [Laughter.]
    I also have some friends of the family with me: Ian 
Medlock, who is from Thousand Oaks, California, and a graduate 
student at the University of New Mexico; and Tim Reynolds from 
Newport Beach, California, who is a senior at the University of 
Pennsylvania.
    Mr. Chairman, if I might introduce my staff.
    The Chairman. Let us go.
    Ms. Kelly. Thank you. Carrie Blocker, my secretary; Donna 
Glasgow, my confidential assistant; Rahim Amerkhail, my 
economic advisor; Maria Vouras, my legal advisor; and Laura 
Vallance, my legal advisor.
    Mr. Chairman, I also have a number of friends and 
colleagues in the audience and I would just like to acknowledge 
them and thank them for being here.
    The Chairman. Very good.
    Senator Bingaman.
    Senator Bingaman. Mr. Chairman, I have no questions.
    Ms. Kelly. Thank you, Senator.
    The Chairman. All right. We stand in recess.
    [Whereupon, at 10:19 a.m., the hearing was adjourned.]


                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

              Federal Energy Regulatory Commission,
                                Office of the Commissioner,
                                     Washington, DC, June 14, 2004.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Enclosed are my responses to questions for the 
record of your committee's June 8 hearing to consider my reappointment 
to the Federal Energy Regulatory Commission for the term expiring June 
30, 2009.
    If you have further questions or need additional information, 
please let me know.
            Sincerely,
                                        Suedeen G. Kelly.  
[Enclosure.]

                    Questions from Senator Domenici

    Question 1. As you noted in your testimony, since December of last 
year, FERC has taken a number of steps to address electric reliability 
matters. Are you supportive of NERC as the lead organization on 
reliability matters until mandatory reliability rules are in place?
    Answer. NERC is currently undertaking several initiatives on 
reliability matters, and I am supportive of them and of NERC being the 
lead organization regarding them. For example, in response to the Final 
Report of the U.S.-Canada Power System Outage Task Force on the August 
14, 2003 Blackout, NERC is working to replace its existing reliability 
standards with standards that are clearer and will be enforceable. NERC 
expects to adopt an integrated set of new reliability standards by 
February 2005. In addition, NERC is reviewing the reliability readiness 
of reliability coordinators and the major control areas. NERC plans to 
complete the 20 highest priority reviews by June 30 of this year. The 
operators that will be audited by NERC serve over 80 percent of North 
America's electric load.
    Question 2. There is some debate about how an Electric Reliability 
Organization should be funded to ensure independence. Can you describe 
for us the funding models under consideration and tell us how you would 
ensure that non jurisdictional utilities as well as Canadian and 
Mexican transmission owners participate in the funding?
    Answer. FERC has assembled a staff task force and directed it to 
explore all possible options for funding an Electric Reliability 
Organization to ensure its independence in relationship to the entities 
whose actions it will oversee. FERC asked the task force to conduct its 
study and report its findings to the Commission as expeditiously as 
possible. The task force is currently working on this project.
    I will work to ensure that all transmission owners pay their fair 
share of the costs necessarily incurred by an effective Electric 
Reliability Organization. I am hopeful that all non jurisdictional, 
Canadian and Mexican transmission owners will be willing to enter 
voluntarily into binding agreements to participate fairly in the 
funding. I am willing to work with the Electric Reliability 
Organization to achieve this goal.
    Question 3. FERC has been supportive of utility cost recovery for 
reliability-related expenditures. A significant percentage of 
utilities' transmission revenues are recovered through state-approved 
charges. How does FERC plan to work with the states to ensure that 
reliability costs are fully recovered?
    Answer. Since I have been at the Commission, FERC has embarked on a 
series of reliability initiatives. One of them is a new, comprehensive 
liaison effort with government, as well as industry, leaders to foster 
better electric reliability across North America. We have begun 
reliability-related outreach efforts with the National Association of 
Regulatory Utility Commissioners, which is the organization of state 
utility regulators, as well as with Natural Resources Canada, the 
Canadian provincial regulators, the Department of Energy, the Nuclear 
Regulatory Commission, NERC and representatives from the electric 
industry. This is the effort we will use to work with the states to 
help ensure that utilities' prudently incurred reliability costs are 
fully recovered.
    Question 4. Do you believe that the business model of a vertically 
integrated utility can coexist with competitive wholesale markets and 
RTOs?
    Answer. Yes, I do. Although a vertically integrated utility 
structure can present a situation where a utility affiliate operating 
in the competitive market could benefit unfairly from preferential 
treatment by the utility, I believe that the Commission's rule 
prescribing standards of conduct governing the relationship between 
transmission utilities and their energy affiliates goes a long way 
toward eliminating this potential for abuse. The Commission's standards 
of conduct rule was adopted in November 2003 and clarified and 
reaffirmed in April 2004.
    Question 5. How would you envision the balance of roles for the 
states, FERC, and the RTOs in overseeing the planning and acquisition 
of generation resources to serve native load?
    Answer. States have primary responsibility for ensuring that their 
utilities acquire generation resources sufficient to serve native load. 
RTOs have a role in planning for the adequacy of transmission in a 
region. Because transmission is the means of getting generation 
resources to load and because transmission and generation are sometimes 
alternatives for providing electricity to load, transmission planning 
is inevitably tied to generation planning and location. Therefore, RTOs 
will have a coordination role in regional planning for generation 
adequacy; and states, in turn, would likely benefit from receiving 
regional resource adequacy information from RTOs when the states are 
looking at generation adequacy. I do not believe RTOs should be in the 
business of acquiring generation resources, although I would hold out 
the possibility that an exception might be made to this rule in the, 
hopefully unlikely, situation of a generation emergency that for some 
reason cannot be adequately addressed by the affected state. Finally, 
in carrying out its statutory responsibilities under the Federal Power 
Act to approve acquisitions and mergers if they are in the public 
interest, and to ensure that rates are just and reasonable in reviewing 
contracts for wholesale sales of power, FERC may be required to look at 
the acquisition of generation resources.

                     Question from Senator Nickles

    Question 1. As you are aware, the recent OG&E case regarding market 
power and the acquisition of generation facilities has caused some 
controversy at the Commission. Parties to the case have filed 
settlement plans with the Administrative Law Judge and FERC has stepped 
in to expedite the appeal of the case. Can you tell me what the 
expected timeline is for resolution of that matter?
    Answer. Chairman Wood, in his role as motions Commissioner, 
referred both OG&E's settlement offer and Intergen's competing 
settlement offer to the full Commission for consideration on May 10 and 
May 18, respectively. The Commissioners are currently giving this 
matter their full consideration, and I am hopeful that we will issue a 
decision quickly. I understand the importance of this case to the 
people of Oklahoma and your desire to have it settled as expeditiously 
as possible.

                     Questions from Senator Dorgan

    Question 1. Do you believe that grandfathered agreements, on which 
transmission customers rely for access for reliable, reasonably priced, 
power should be given at least as much protection as the Commission 
gave to the high-priced wholesale power contracts in California?
    Answer. I believe that grandfathered agreements, like the high-
priced wholesale power contracts you reference, should be protected as 
written unless there is record evidence that the contracts are unjust 
and unreasonable, unduly discriminatory or preferential or contrary to 
the public interest pursuant to the Federal Power Act.
    Question 2. Do you believe that long-term transmission agreements 
between jurisdictional and non jurisdictional utilities should be 
changed because an RTO wants to initiate an energy market concept?
    Answer. I do not believe that the Commission should change the 
terms of long-term transmission agreements unless there is substantial 
evidence in the record that the contracts are unjust and unreasonable, 
unduly discriminatory or preferential or contrary to the public 
interest pursuant to the Federal Power Act.
    Question 3. FERC has been pressing forward with implementation of 
its Standard Market Design (SMD) aggressively, especially through MISO. 
However, there remain significant concerns about costs associated with 
this effort. Will you undertake a serious effort to evaluate the costs 
and benefits of the SMD model prior to its implementation?
    Answer. Yes. In fact, the Commission recently requested specific 
evidence from MISO and its Market Monitor regarding the benefits, 
including any reliability benefits, of the MISO's proposed congestion 
management system. In determining whether to approve this proposal, I 
will give careful consideration to the costs and benefits of 
implementing it, as well as to all other facts in the record developed 
at the Commission.

                    Questions from Senator Cantwell

    Question 1. As you know, the Western electricity crisis of 2000-
2001 has left my region with deep economic scars. We are still paying 
the price for the schemes of Enron and other unscrupulous actors in the 
market, which conspired to drive up prices and gouge our consumers. 
People in the State of Washington are shocked and disgusted by the 
evidence that continues to surface, demonstrating the brazen and 
despicable attitude of the Enron traders, who knew they were 
essentially ``stealing from Grandma Millie'' while the crisis was 
unfolding. As you probably know, I have proposed legislation (S. 2015, 
the Enron Act) that would--based on securities law that has been on the 
books for 50 years--put in place a broad statutory ban on manipulative 
practices in our nation's electricity markets. Further, it would 
declare rates resulting from market manipulation ``unjust and 
unreasonable'' under the Federal Power Act. This language has 
previously passed the Senate with 57 votes. Personally, I believe that 
FERC already has authority to take a strong stand against market 
manipulation. But by making this ban explicit, this legislation would 
leave no doubt in the mind of FERC or the energy industry that Congress 
will no--t abide the types of Enron schemes we saw in California, and 
would eliminate the inevitable legal challenges. Do you support 
legislation, such as the ENRON Act, that would make explicit a ban on 
manipulation in our nation's electricity markets?
    Answer. Yes. I agree with the goals of S. 2015, the Electricity 
Needs Rules and Oversight Now (ENRON) Act. This legislation would 
significantly enhance the Commission's authority to prohibit market 
manipulation, and I support it.
    Question 2. I think there is one other piece of electricity-related 
legislation that Congress must pass this year before we adjourn: 
electric reliability legislation. The Northeast-Midwest blackout last 
summer caused an estimated 50 million consumers and businesses in the 
Northeast and Midwest to lose power-in some cases, for up to four days-
and cost Americans an estimated $4 billion to $10 billion as a result 
of lost economic activity. Therefore, I think adjourning this year 
without passing legislation to make reliability standards mandatory and 
enforceable would be nothing short of irresponsible. Here in the 
Senate, we have a tripartisan reliability bill--S. 2236--with 30 
Senators as cosponsors. I think it is very unfortunate that it is being 
held hostage to broader politics surrounding the energy bill conference 
report. In the very least, passing stand-alone reliability legislation 
now would serve as an insurance policy--in the very likely event no 
consensus is reached on comprehensive energy legislation. Do you agree 
that Congress should pass stand-alone reliability legislation as soon 
as possible?
    Answer. It is my hope that Congress acts swiftly to pass 
legislation to make reliability standards mandatory and enforceable in 
whatever fashion Congress finds appropriate.