[Senate Hearing 109-27]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 109-27

                 POWER GENERATION RESOURCE INCENTIVES 
                             AND DIVERSITY

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   TO

 RECEIVE TESTIMONY REGARDING WAYS TO ENCOURAGE THE DIVERSIFICATION OF 
                       POWER GENERATION RESOURCES

                               __________

                             MARCH 8, 2005


                       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
LARRY E. CRAIG, Idaho                JEFF BINGAMAN, New Mexico
CRAIG THOMAS, Wyoming                DANIEL K. AKAKA, Hawaii
LAMAR ALEXANDER, Tennessee           BYRON L. DORGAN, North Dakota
LISA MURKOWSKI, Alaska               RON WYDEN, Oregon
RICHARD M. BURR, North Carolina,     TIM JOHNSON, South Dakota
MEL MARTINEZ, Florida                MARY L. LANDRIEU, Louisiana
JAMES M. TALENT, Missouri            DIANNE FEINSTEIN, California
CONRAD BURNS, Montana                MARIA CANTWELL, Washington
GEORGE ALLEN, Virginia               JON S. CORZINE, New Jersey
GORDON SMITH, Oregon                 KEN SALAZAR, Colorado
JIM BUNNING, Kentucky

                       Alex Flint, Staff Director
                   Judith K. Pensabene, Chief Counsel
                  Bob Simon, Democratic Staff Director
                  Sam Fowler, Democratic Chief Counsel
                         Lisa Epifani, Counsel
           Leon Lowery, Democratic Professional Staff Member


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator from New Mexico................     2
Bowers, Kerry H., Technology Manager, Southern Company, 
  Birmingham, AL.................................................    38
Brunetti, Wayne, Chairman and CEO, Xcel Energy, Inc., 
  Minneapolis, MN................................................     8
Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Furman, Donald N., Senior Vice President, Regulation and External 
  Affairs, PacifiCorp, Portland, OR..............................    35
Garman, David K., Assistant Secretary for Energy Efficiency and 
  Renewable Energy, Department of Energy.........................     3
Morgan, Richard E., Commissioner, District of Columbia Public 
  Service Commission, on Behalf of the National Association of 
  Regulatory Utility Commissioners...............................    17
Nogee, Alan, Director, Clean Energy Program, Union of Concerned 
  Scientists, Cambridge, MA......................................    42
O'Shaughnessy, Brian, President and Chief Executive Officer, 
  Revere Copper Products, Inc., Rome, NY, on Behalf of the 
  National Association of Manufacturers..........................    51
Popowsky, Sonny, Consumer Advocate of Pennsylvania, Harrisburg, 
  PA.............................................................    22
Salazar, Hon. Ken, U.S. Senator from Colorado....................     3
Wiser, Dr. Ryan, Scientist, Lawrence Berkeley National 
  Laboratory, Berkeley, CA.......................................    12

                                APPENDIX

Responses to additional questions................................    63

 
           POWER GENERATION RESOURCE INCENTIVES AND DIVERSITY

                              ----------                              


                         TUESDAY, MARCH 8, 2005

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:35 p.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Pete V. Domenici, 
chairman, presiding.

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

    The Chairman. First, let me thank you all for coming, and 
indicate that Senator Bingaman has long been an advocate of a 
Federally-mandated renewable portfolio standard that requires 
that retail suppliers obtain up to 10 percent of electricity 
from renewable resources, like wind, solar, geothermal, and 
traditional renewables. While that kind of RPS has received 
over 50 votes in the Senate in the past, the House has never 
been willing to accept that.
    Assistant Secretary Garman's written testimony makes it 
clear that the administration would not favor that specific 
kind of standard. Some have billed the RPS hearing--this as an 
RPS hearing, but I want to make it clear that we're here to 
talk, not exclusively about wind, hydropower, solar, and other 
traditional renewable energies, we're here to review the 
benefits and costs of renewable RPS programs, discuss State 
efforts, and, most importantly, to explore this question: 
Should Congress go beyond R&D and tax credit programs and begin 
to mandate the use of certain types of fuel for electricity 
generation in order to ensure diversification?
    Full diversification is--or fuel diversification is a very 
key and important issue, as Mr. Brunetti, who is here, notes in 
his written testimony. Any Federal generation diversity program 
needs to include more than just traditional renewable energy 
sources. That's essentially your position. You'll discuss it in 
far more detail. It should also include a variety of clean 
alternatives; at least that's the position that's being taken 
by one part of the industry.
    In addition to focusing on fuel diversity, I think we have 
to also consider the unique characteristics of each State. And 
someone will talk about that today, too.
    I would summarize by saying there are 19 States today, 
including my home State of New Mexico, and Senator Bingaman's, 
that have their own individual specially tailored versions of a 
portfolio program.
    Mr. Bowers, from Southern Company, makes the case that, 
because wind resources are limited, costly, and not of 
sufficient quality in the Southeast, a mandate that heavily 
favors wind would harm customers in that region, as I 
understand the testimony today. Senator Bingaman and others 
might talk about how that could be avoided or how that might be 
melded into something else.
    A Federal program that would force ratepayers in one region 
to subsidize specially favored resources from another region 
would seem to be very difficult to accept.
    Senator Bingaman, I read about a page of my observations, 
and----
    What is an acceptable program that balances the goals--fuel 
diversification and some kind of reality about States or 
States' rights--as part of the effort to develop an energy 
bill? I hope that Senator Bingaman and I, as well as other 
members, can make a good faith effort to work together on RPS. 
A national generation resource diversity standard should go 
beyond a subset of traditional renewables, and aim at capturing 
the benefits, as I see it, of fuel diversification, technology 
development, climate change, and other things.
    Now, the witnesses that have been invited today represent a 
variety of views. They advocate a range of ideas, from how best 
to encourage the use of traditional renewables, to how to 
encourage alternative clean sources, like advanced coal and 
nuclear technology. And I want to thank, again, each of you for 
the work you've done in preparing for this.
    And I want to thank Assistant Secretary Garman. Your 
nomination to DOE Under Secretary, by President Bush, reflects 
the confidence we all share in your abilities and your known 
character.
    So, I look forward to your comments. With that, I would 
yield to my Ranking Member, and then we'll proceed in an 
orderly manner so we can get everybody in this afternoon.
    Senator Bingaman.

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

    Senator Bingaman. Well, thank you very much, Mr. Chairman. 
Thanks for having this hearing. I think this is a very 
important issue.
    As you know, I have supported passing legislation to 
establish a renewable portfolio standard now for the last 
couple of Congresses. I believe it's an important part of a 
national comprehensive energy policy.
    I also believe--and I'm sure you do, too--that we should 
extend the production tax credit for renewables for at least 
another 5 years, if not 10 years, so that we can provide some 
stability in that area for companies that are making 
investments.
    The proposal we had in the previous Congress, of course, 
was to require 10 percent of electricity to be supplied from 
renewable resources by 2020. That is, in my view, an achievable 
objective, it's not an overly ambitious objective, and one that 
we ought to go back to. We have a lot of experience, because of 
the work that's occurred in many States, on how to structure 
renewable portfolio standard legislation. And we have strong 
support for doing something like this from consumer groups, 
from labor organizations, from trade associations, from 
utilities, from state and local authorities, environmentalists. 
A great many groups have expressed an interest in seeing 
something done along this line.
    I am interested in hearing from the witnesses on your 
suggestion about encouraging other generation sources, such 
nuclear power and Integrated Gasification Combined Cycle coal 
plants. I think we need to understand how that might work. And 
hopefully this set of witnesses can give us some insights.
    Thank you.
    The Chairman. Thank you very much, Senator.
    I note that Senator Salazar has entered. Would you like to 
comment before we start, Senator Salazar?
    Senator Salazar. I'll follow the Domenici rule and just say 
I have a statement for the record.
    [The prepared statement of Senator Salazar follows:]

   Prepared Statement of Hon. Ken Salazar, U.S. Senator From Colorado

    Thank you, Mr. Chairman. I'd like to extend a welcome to all the 
members of the two witness panels that are here today. Thank you for 
taking time out of your schedules to help this committee as we look for 
ways to secure America's energy future--including a robust Renewable 
Portfolio Standard (RPS).
    As the members of this panel are aware, Colorado is one of several 
states that have already instituted an RPS. Our target is to generate 
10% of Colorado's energy demands using renewable sources by 2015. I 
believe this is a reasonable goal: one that encourages investment in 
renewable energy, yet does not place a detrimental burden on industry 
or on consumers. In Colorado and across the country, we expect that 
more investment in renewable energy sources will reduce capital costs 
while increasing the efficiency of the generating systems. We also 
fully expect that investment in renewable energy technologies will lead 
to job creation and economic growth.
    I would like to specifically address the nation's capacity to add 
to its renewable portfolio by increasing investments in both wind and 
biomass energy. The potential amount of power that could be produced by 
those sources is tremendous, and research and development of these 
technologies is key to our energy future. The National Renewable Energy 
Laboratory in Colorado is an invaluable contributor to research in both 
of these areas. As for solar power, NREL has begun construction on a 
state of the art photovoltaic laboratory. A good RPS will use a wide 
variety of renewable energy sources; no single technology will do the 
trick.
    Finally, I want to point out that there is another aspect to 
balancing our power demands that does not receive enough attention. 
Energy efficiency needs to play a greater role in our future. 
Reductions in power demands can be achieved across a wide spectrum of 
applications, from cell phone chargers to the design of office 
buildings. Gains in efficiency have the same net result as an increase 
in renewable energy: with no new pollutants or emissions, more power is 
available.
    I look forward to our discussion.

    The Chairman. Thank you very much.
    Okay, now we're going to start over here on the left with 
the Secretary, and move across. Shall we start with 5 minutes 
each, with your statements already being made a part of the 
record? We do that right now. So let's proceed.
    David, you go ahead.

   STATEMENT OF DAVID GARMAN, ASSISTANT SECRETARY FOR ENERGY 
     EFFICIENCY AND RENEWABLE ENERGY, DEPARTMENT OF ENERGY

    Mr. Garman. Thank you, Mr. Chairman and members of the 
committee. I appreciate this opportunity to testify today on 
general portfolio standards.
    I have in the audience with me the Deputy Administrator of 
the Energy Information Administration, Howard Gruenspecht, in 
the event that questions pertaining to prior EIA analyses of 
this subject come up.
    As the chart beside me illustrates, 50 percent of our 
electricity is generated using coal, 20 percent is generated 
using nuclear power, 18 percent using natural gas, 9 percent 
using renewable energy, and 2 percent generated using oil. 
Portfolio standards have often been discussed as a way to alter 
that generation mix in pursuit of certain public goals.
    The administration, however, opposes a universally applied, 
Federally-mandated renewable portfolio standard. Indeed, we do 
not presently support a Federal power generation portfolio 
standard of any kind. We're mindful that past government 
attempts to alter the electricity generation mix have brought 
unforeseen consequences. One example is the Fuel Use Act, 
passed in 1978 and repealed in 1987, that curtailed the use of 
natural gas for electricity generation.
    We do, however, support narrower market interventions in 
the form of renewable energy production tax credits, a personal 
tax credit for the installation of residential solar, and 
investment tax credit for certain combined heat and power 
applications, and modification of the tax treatment for nuclear 
decommissioning funds.
    While we oppose a national RPS, we have not opposed efforts 
by States to adopt renewable portfolio standards. We believe 
that States are the best equipped to develop portfolio 
standards that fit their situation and their available 
resources. After all, power generation options and resources 
vary widely from State to State, States hold different views of 
the different types of resources they would like to support, 
and retail electricity sales are regulated largely at the State 
level.
    A national renewable energy portfolio standard, on the 
other hand, could create winners and losers among regions of 
the country; the winners generally being the regions with ample 
renewable resources, and the losers being the regions without. 
Moreover, a national RPS could lead to higher energy bills and 
opposition to renewable energy in areas where the resources are 
less abundant and harder to cultivate or distribute.
    About a third of the States have enacted mandatory 
renewable portfolio standards. These standards already apply to 
about 35 percent of the total U.S. electricity load. And though 
the policies are still young, they're beginning to drive the 
development of the renewable energy marketplace at a healthy 
pace.
    The President's own State of Texas is at the forefront of 
successful State renewables portfolio standards. Signed into 
law when President Bush was then the Governor, the Texas RPS 
requires that electricity suppliers in Texas purchase renewable 
energy, and those suppliers have primarily opted to tap the 
plentiful wind resources in the western part of the State. 
Texas, as a consequence, is now the second-largest generator of 
wind electricity in the country, with 1293 megawatts of 
installed wind capacity at the end of 2004.
    However, State experiences in setting and implementing the 
renewable portfolio standards also suggest that we need to be 
cautious on how we use regulations to stimulate renewable 
energy markets. As one example, an RPS will not increase 
renewable energy supply at reasonable cost if the supply/demand 
balance is not carefully managed. If the RPS is too aggressive, 
supply constraints and high costs may result. These and other 
challenges have confronted many States in the design and 
implementation of their RPS policies. And not all of these RPS 
policies are operating smoothly. Again, we believe that 
Governors, State legislatures, energy companies, and other 
regional stakeholders are in the best position to develop a 
portfolio standard that will meet their State's energy, 
environmental, and economic needs while responding to the 
challenging task of effectively implementing an RPS.
    I want to close my statement by noting that, while there 
are a number of policies and programs in place today to bring 
renewables into the mainstream, the most encouraging sign to me 
is that many renewable projects are being pursued because 
they're money-making options for investors. This is largely due 
to the technological advances that have occurred through the 
years of sustained Federal and private sector investment in 
renewable energy research and development.
    That completes my prepared statement. I'll be happy to 
answer any questions the Committee may have, either now or in 
the future.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Garman follows:]

  Prepared Statement of David Garman, Assistant Secretary for Energy 
         Efficiency and Renewable Energy, Department of Energy

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to testify today on electricity generation portfolio 
standards.
    Today, electricity in the United States is generated using a mix of 
coal (50%), nuclear power (20%), natural gas (18%), renewable energy 
(9%--mostly hydropower), and oil (2%). Portfolio standards have been 
discussed as a way to alter the generation mix in pursuit of certain 
public goals and benefits, and we welcome the opportunity to discuss 
the use of portfolio standards as a policy tool.
    The Federal Government has in the past intervened to alter the 
electricity generation mix, most notably with the passage in 1978 of 
the Fuel Use Act which effectively curtailed the use of natural gas for 
electricity generation. At the time of the Act's enactment, coal 
generated about 985 billion kilowatt hours of electricity in the United 
States, while natural gas generated about 305 billion kilowatt hours. 
By 1988, partially as a consequence of the Act, natural gas generation 
had fallen by 17 percent to 253 billion kilowatt hours, as coal-fired 
generation had risen by 56 percent to 1540 billion kilowatt hours. 
Since the repeal of the Fuel Use Act in 1987, natural gas generation 
has nearly tripled to over 690 billion kilowatt hours\1\, but the fleet 
of coal-fired plants put into service from 1970 through the mid-1980s 
has remained the backbone of our electricity generation capacity. 
Clearly, Federal interventions in the marketplace can have significant, 
long-lasting and, unfortunately, sometimes unanticipated negative 
impacts.
---------------------------------------------------------------------------
    \1\ Energy Information Administration, 2002 figures.
---------------------------------------------------------------------------
    The Administration opposes a national renewable portfolio standard 
(RPS). Because power generation options and renewable resources vary 
widely from state to state, because states hold different views of the 
types of resources that they would like to support, and because retail 
electricity sales are regulated largely at the state level, we believe 
that states are best equipped to develop portfolio standards that fit 
their situation and available resources. A national RPS, on the other 
hand, could create ``winners'' and ``losers'' among regions of the 
country the winners generally being the regions with ample renewable 
resources, and the losers being the regions without. Moreover, a 
national RPS could lead to higher energy bills and opposition to 
renewable energy in areas where these resources are less abundant and 
harder to cultivate or distribute. In the end, this may be counter-
productive to renewable energy moving into the mainstream of the 
Nation's energy supply mix. We do, however, support narrower market 
interventions in the form of a renewable electricity production tax 
credit; a personal tax credit for the installation of residential 
solar; an investment credit for certain combined heat and power 
applications; and modifications of the tax treatment of nuclear 
decommissioning funds.
    Although the Administration opposes a national RPS, we have not 
opposed efforts by states to adopt RPS programs at the state level. 
About a third of the states have enacted mandatory renewables portfolio 
standards (18 States plus the District of Columbia). These standards 
already apply to approximately 35 percent of the total U.S. electricity 
load, and though the policies are still young, they are beginning to 
drive the development of the renewable energy marketplace at a healthy 
pace. For example, the EIA has estimated that the development of more 
than 2,000 megawatts (MW) of renewable energy has been motivated, at 
least in part, by state RPS policies and other purchase mandates. More 
importantly, private research companies estimate that on balance, two-
thirds of new renewable energy capacity additions will occur in RPS-
States,\2\ and Ryan Wiser of the Lawrence Berkeley National Lab, one of 
the witnesses on our panel this morning, has estimated that nearly 50% 
of U.S. wind additions over the last four years have been motivated, in 
part, by state RPS policies. An estimated $30-$50 billion in capital 
will be necessary over the next decade to meet the requirements of 
state RPSs, assuming full RPS compliance. Separate forecasts estimate 
that current state portfolio standards, if implemented in full, will 
result in new renewable energy capacity additions of over 20,000 
megawatts by 2017. To put these numbers in context, the Nation's non-
hydro renewable electricity generation capacity will more than double 
over the next twelve years due to state renewable portfolio standards, 
rising from about 15,000 megawatts today to over 35,000 megawatts in 
2017. Much of the new capacity is likely to be fueled by wind power, 
with smaller amounts of landfill gas, hydroelectricity, biomass, 
geothermal, and solar photovoltaic technologies.
---------------------------------------------------------------------------
    \2\ (Source: An Investor's Guide to Renewable Power Technologies, 
Markets, and Policies, Nov. 2004)
---------------------------------------------------------------------------
    The President's own State of Texas is at the forefront of 
successful state renewables portfolio standards. Signed into law when 
President Bush was governor, the Texas RPS requires that electricity 
suppliers in Texas purchase renewable energy, and those suppliers have 
primarily opted to tap the plentiful wind resources in the western part 
of the State. As a result of the RPS, in combination with its energy 
needs and robust renewable resource base, Texas is now the second 
largest generator of wind energy in the country with 1,293 megawatts of 
installed wind capacity at the end of 2004. New legislation is being 
introduced in Texas this year that would expand the current RPS to 
increase installed capacity of renewable resources to 5,000 MW by 2015, 
and 10,000 MW by 2025, representing 10 percent of the State's predicted 
energy needs.
    The RPS policies in Texas, New York, Minnesota, California, 
Colorado, Pennsylvania, and New Mexico are expected to deliver 
significant new wind capacity additions in the years to come. Coupled 
with the Production Tax Credit for wind, the high quality wind 
resources and renewables portfolio standards found in these states are 
serving to stimulate development of new wind energy projects.
    New Jersey stands out as an example of a state that has adopted an 
innovative set of policies and programs to advance solar power. Along 
with an RPS, New Jersey has a green tag purchase program, a solar 
renewable energy certificates program, a tax exemption for solar and 
wind systems, and a clean energy rebate program, just to name a few. 
New Jersey's RPS specifically calls for a solar set-aside that will 
drive approximately 90 megawatts of solar electric generation by 2008 
as part of the State's 4 percent Class I renewables requirement. New 
Jersey's Solar Renewable Energy Certificates (S-RECs) program provides 
a means for solar certificates to be created and verified and allows 
the certificates to be sold to electric suppliers to meet their solar 
RPS requirement. All electric suppliers are required to use the S-REC 
program to show compliance with this part of the State's renewable 
portfolio standard. New Jersey's on-line marketplace for trading S-
RECs, launched on June 25, 2004, is among the first in the world. Solar 
projects funded by the State's Clean Energy Program also qualify for 
RPS compliance, and New Jersey has developed over 5 megawatts of solar 
through the Clean Energy Program and will continue to provide 
incentives to help meet the 90 megawatts goal. Other states that have 
developed solar-focused set-asides as part of their overall RPS include 
Arizona, Nevada, Colorado, Pennsylvania and New York, as well as 
Washington D.C.
    Four RPS-States have significant geothermal resource potential: 
California, Nevada, New Mexico, and Arizona. After a decade of 
dormancy, the market for geothermal power projects is now ``picking up 
steam,'' partly due to the state renewables portfolio standards. For 
instance, in California, 235 megawatts of new geothermal capacity is 
currently under development. In Nevada, Nevada Power has agreed to 
purchase 50 MW of power from three new geothermal facilities expected 
to be on-line in 2005. Furthermore, Platt's reports that there are 600 
MW of new geothermal contracts with utilities in California and the 
Northwest that have not yet been publicly disclosed.\3\
---------------------------------------------------------------------------
    \3\ An Investor's Guide to Renewable Power Technologies, Markets, 
and Policies, Nov. 2004, p.33
---------------------------------------------------------------------------
    However, state experiences in setting and implementing RPS programs 
also suggest that we need to be cautious in how we use regulations to 
stimulate renewable energy markets. If the RPS target is too 
aggressive, supply constraints and high costs may result. These and 
other challenges have been confronting many states in the design and 
implementation of their RPS policies, and not all of these RPS policies 
are operating smoothly. We believe that governors, state legislatures, 
energy companies, and other regional stakeholders are in the best 
position to develop a portfolio standard that will meet their states' 
energy, environmental, and economic needs.
    Outside of the renewables area, the Department is also supporting 
efficiency and cost improvements in other technologies that offer 
potential for diversifying our Nation's power generation portfolio and 
reducing pollution and greenhouse gases. In nuclear energy, for 
example, despite the remarkably improved operating record of the 103 
current U.S. reactor plants over the last decade-and-a-half, no new 
plants have been ordered since the 1970s. Only an incremental expansion 
in capacity is underway in the U.S. from uprates of current plants 
(over 3,500 megawatts have been approved, with another 2,000 MW 
expected) and from the Tennessee Valley Authority's work to bring 
Browns Ferry Unit 1 back on line by 2007. With only this minor increase 
in capacity, nuclear generation, which represents nearly three-quarters 
of our Nation's non-emitting generation today, will not keep pace with 
growing electricity demand, and its share of the electricity mix, which 
now is as high as 50 to 75 percent in some states, will fall. Unless 
new plants are ordered, the nuclear option will be limited to providing 
today's level of environmental and energy security benefits, foregoing 
the large potential for additional improvements that would come from 
new plants. The Administration's FY 2006 Budget addresses this issue by 
proposing approximately $500 million over six years for the Nuclear 
Power 2010 program to assist two consortia through the nuclear design 
and certification process.
    Another important resource pathway for cleaner, more efficient 
electricity generation is Integrated Gasification Combined Cycle (IGCC) 
technology that converts coal and other hydrocarbons into synthetic 
gas, which after cleanup is used as the primary fuel for a gas turbine 
in a combined-cycle system. IGCC systems offer significant 
environmental benefits compared to traditional pulverized coal power 
plants, the mainstay of the Nation's electricity generation portfolio. 
Two IGCC plants, which were built under the Department of Energy's 
(DOE) Clean Coal Technology Program, are producing commercial 
electricity in Florida and Indiana, and new locations are being 
proposed. Although still comparatively expensive, IGCC's future is 
promising because of its flexible feedstocks, process options and 
products; its ability to open new markets for coal; and its potential 
for low-cost emissions reduction, including the option of capturing 
CO2 emissions for subsequent geologic storage. The 
Department is supporting research, development, and demonstration on a 
number of advancements that will significantly drive down the costs of 
IGCC.
    I want to close my statement by noting that while there are a 
number of policies and programs in place today to bring renewables into 
the mainstream, the most encouraging sign to me is that many renewable 
projects are being pursued because they are money-making options for 
investors. This is largely due to the technological advances that have 
occurred through the years of sustained Federal and private sector 
investment in renewables research and development.
    This completes my prepared statement, and I am happy to answer any 
questions the Committee may have.

    The Chairman. Thank you very much.
    Mr. Brunetti, before you testify, I want to indicate that I 
am advised that Xcel, whom you represent, or are part of, 
announced, just yesterday, that they plan to build a 120-
megawatt wind farm in New Mexico. Is that correct?
    Mr. Brunetti. That's correct. We just announced it 
yesterday, sir.
    The Chairman. And where will that be?
    Mr. Brunetti. It's in the press release I gave Senator 
Bingaman.
    The Chairman. Right. Okay.
    Would you proceed with your statement.

        STATEMENT OF WAYNE BRUNETTI, CHAIRMAN AND CEO, 
               XCEL ENERGY, INC., MINNEAPOLIS, MN

    Mr. Brunetti. Thank you, Mr. Chairman, Senator Bingaman, 
and members of the committee. I want to thank you for the 
opportunity for Xcel to be here today to talk about our 
thoughts on diversification on power generation.
    As you may know, we are, by customer measure, the fourth 
largest utility, serving ten Midwestern and Western States in 
the United States. We are particularly pleased to provide 
electricity from renewables located in, or planned for, States 
of several Committee Members, including yours, as you just 
mentioned, Mr. Chairman, and Senator Bingaman, as well as in 
Colorado, where Senator Salazar, and North Dakota, Senator 
Dorgan; plan some in South Dakota; and we do have resources in 
Wyoming.
    Over the years, I think we've learned a lot about the 
utilization of renewable resources, and I hope, today, to 
provide you some insight on how to balance these resources.
    At the outset, Xcel believes that an overriding objective 
for Federal policy should be to develop and implement a wide 
diversity of power generation resources, while preserving and 
enhancing reliability. We need to encourage the use of all low- 
or non-emitting electric generation technologies throughout our 
economy. Renewable resources are a key component of such a 
policy, but only a component. We should not ignore increased 
efficiency and inherently clean technologies that increase fuel 
diversity.
    At Xcel, we're committed to generation diversity as a sound 
economic principle. It protects us against price spikes in a 
single fuel source. Fuel diversity also enhances national 
security by reducing our reliance on the single generation 
source.
    In Minnesota, we will soon employ nine separate generation 
resources. In 2004, we announced our intention to increase our 
wind capacity from 487 megawatts to 1,120 megawatts by 2010. By 
the end of 2005, we expect our customers--with an additional 
160 megawatts in Texas, for a total of 243 megawatts, increase 
wind from two megawatts to 202 in New Mexico, deploy an 
additional 12 megawatts of wind in North Dakota, and increase 
wind generation in Colorado, by the end of 2005, to 353 
megawatts.
    By 2053, Xcel will be the--have the highest penetration of 
non-hydro renewable resources of any utility in the United 
States. We also have a very successful green pricing program, 
called Windsource, which has been replicated in some other 
States. We also have 1,400 megawatts of controllable load, 
which is an important part of the portfolio.
    Well, we're proud of the record, but it's also important to 
remember, the reason we pursued this course is because we 
could. As many of you know, wind is a traditional renewable 
resource that approaches economic viability, compared to fossil 
and nuclear generation. Even that would not be true without the 
production tax credit.
    Xcel Energy's service includes America's--some of America's 
best classified wind resources, as can be seen by this chart. 
We're fortunate in that regard. As the chart behind me shows, 
other utilities are not so lucky. Regional difference in 
renewable resources availability means that wind-heavy 
programs, like those in my States, are impractical in others. 
It's important to note that States have stepped forward and 
acknowledged this.
    Currently, there are actually 21 States that have some sort 
of renewable portfolio standard. Five of the States in which we 
operate--Minnesota, Colorado, Texas, New Mexico, and 
Wisconsin--have instituted some type of standard. While it 
makes sense to work toward a more uniform approach over time, 
current State program were developed to best suit the needs and 
resources available in those States. It is not necessary today 
to harmonize these programs with a national standard.
    While it's not my intention to propose any particular 
Federal program, I would like to outline some concepts that are 
important for you to consider.
    As we have previously indicated, we strongly believe that 
any Federal program should defer to existing State programs. 
Many companies have, already, a number of programs, and have 
made long-term commitments, resource commitments.
    Second, any Federal program must allow for cost recovery in 
the implementation of those. For example, transmission costs to 
move wind power from high quality resource areas where the wind 
blows to low centers often outstrips the cost of the projects, 
themselves.
    Another cost of wind centers: plant performance. Fossil 
plants must be cycled up and down, depending on the intensity 
of the wind. This causes extreme stress on those facilities 
supporting large wind developments, and shortens the useful 
life of very solid facilities.
    Third, Federal generation diversity needs to include more 
than traditional resources--things like fuel cells, 
photovoltaic, nuclear IGCC. And if a Federal program is 
undertaken for those States without programs, it should at 
least be put in the form of a mandate for service providers to 
offer renewable and conservation services to the market. Such 
must-offer programs have been highly successful in many parts 
of the country.
    In concluding, an approach of this sort, I think, is far 
superior to straight ``one size fits all'' mandates. The 
proposal enlists utilities as partners, in energy conservation 
renewable development. Since it would be in the utilities' 
interest to ensure that statutory goals are met, this concept 
would unleash creative marketing/financing approaches to energy 
conservation and renewable development.
    And, with that, I'll conclude my remarks. Thank you, Mr. 
Chairman.
    [The prepared statement of Mr. Brunetti follows:]

        Prepared Statement of Wayne Brunetti, Chairman and CEO, 
                   Xcel Energy, Inc., Minneapolis, MN

    Chairman Domenici, Senator Bingaman and Members of the Committee, I 
thank you for the opportunity to provide Xcel Energy's views on ways to 
encourage the diversification of power generation resources and the 
role of renewable energy in our national energy strategy.
    Xcel Energy serves 3.3 million electricity customers and 1.8 
million natural gas customers in 10 midwestern and western states. 
Measured by number of customers, we are the fourth-largest combination 
natural gas and electricity company in the nation.
    We are particularly pleased to provide electricity from renewable 
projects located in the states of several committee members, including 
yours, Mr. Chairman and Senator Bingaman, as well as Colorado, Senator 
Salazar; North Dakota, Senator Dorgan; and Wyoming, Senator Thomas.
    Over the years, we have learned a lot about the utilization of 
renewable resources. What I hope to do today is to provide you with a 
balanced perspective on the various factors--economic, technical and 
regulatory--that affect the deployment and utilization of renewable 
energy as part of our nation's generation mix.
    At the outset, Xcel Energy believes that an overriding objective 
for federal policy should be to develop and implement a wide diversity 
of power generation resources while preserving and enhancing 
reliability. We need to encourage the use of all low and non-emitting 
electric generation technologies throughout our economy. Renewable 
resources are a key component of such a policy--but not the only 
component. We should not ignore increased efficiency (conservation) or 
inherently ``clean'' technologies that increase fuel diversity.

             XCEL ENERGY IS COMMITTED TO RESOURCE DIVERSITY

    At Xcel Energy, we are committed to generation diversity as a sound 
economic principle.
    It protects us against price spikes in any single fuel source. Fuel 
diversity also enhances national security by reducing our reliance on 
any single generation source.
    In Minnesota, we will soon employee nine separate generation 
resources. In 2004, we announced our intention to increase installed 
wind capacity in Minnesota from 487 MW to approximately 1125 MW by 
2010.
    By the end of 2005, we expect to provide our customers with an 
additional 160 MW of wind power generated in Texas, for a total of 
243MW; increase wind power from 2MW to 202 MW in New Mexico; deploy an 
additional 12 MW of wind power in North Dakota; and increase wind power 
generated in Colorado by the end of 2005 from 222MW to 353MW.
    By 2015, Xcel Energy will have among the highest penetration of 
non-hydro renewables on our system of any utility in the nation. We 
also offer our customers one of the nation's most successful green 
pricing programs, known as Windsource, and some of the country's most 
effective conservation and DSM programs. We have more than 1,400 MW's 
of controllable load on our system.

                             STATE PROGRAMS

    While we are proud of our record in renewables, it is also 
important to remember that one reason we pursued this course is because 
we could.
    As many of you know, wind is the ``traditional'' renewable resource 
that approaches economic viability compared to fossil or nuclear 
generation for most suppliers. Even that would not be true without the 
Production Tax Credit. (As an aside, the PTC must be renewed for a 
significant period if we are to avoid planning disruptions and the 
attendant cost increases that result. But that is a different story.)
    Xcel Energy's service territory includes much of America's class 5 
wind resources. We are fortunate in that regard. As the charts behind 
me show, other utilities are not so lucky. Regional differences in 
renewable resources availability means that wind-heavy programs like 
those in my states are impractical in others.
    It is important to note that states have stepped forward in 
acknowledgement of this fact.
    Currently twenty-one states have some sort of renewable portfolio 
standard in place.\1\ Because of the wide variability in available 
renewable resources and the existing generation and transmission 
systems in each of these states, the nature of these programs varies 
considerably.
---------------------------------------------------------------------------
    \1\ For a complete listing, visit the Database of State Incentives 
for Renewable Energy (DSIRE) at http://www.dsireusa.org.
---------------------------------------------------------------------------
                           FEDERAL PROGRAMS?

    Five states in which we operate--Minnesota, Colorado, Texas, New 
Mexico and Wisconsin--have instituted some type of renewable standard. 
While it makes sense to work toward a more uniform standard over time, 
current state programs were developed to suit the needs and resource 
availability of each jurisdiction. It is not necessary today to 
harmonize these programs which are already benefiting the public and 
the environment but it is an objective that bears consideration in the 
future.
    While it is not my intention to propose any particular federal 
program, I would like outline some concepts important for your 
consideration. First, as we have previously indicated, we strongly 
believe that any federal program should defer to existing state 
programs. Many companies already participate in a number of programs 
and have made long-term resource plans based on their assumptions.
    Second, any federal program must allow for cost recovery of the 
various costs necessary to implement the program. For example, 
transmission costs to move wind-power from high quality resource areas 
to load centers often outstrip the costs of projects themselves. (I'll 
talk a little more about transmission later.) Another cost of wind 
centers on plant performance. Fossil plants must be cycled up and down 
depending on wind intensity. This creates stress on those facilities 
supporting large wind developments and shortens their useful service 
life.
    Third, any federal generation diversity program needs to include 
more than the ``traditional'' renewable energy resources. We believe 
that the program should take into account all low-or non-emitting 
technologies plus activities by utilities that reduce demand. 
Consistent with this suggestion above, products including customer-
located solar, photovoltaic, fuel cell and micro wind generators, as 
well as energy efficient heating and cooling equipment and 
weatherization products should be included. Resource definitions could 
also be expanded to include IGCC and other inherently ``clean'' new 
generation resources.
    Again, if a federal program is undertaken for those states without 
programs (and I am not particularly advocating this), it should, at 
least initially, be put in the form of a mandatory offer to customers.
    Such ``must offer'' programs have been highly successful in many 
parts of the country, including ours. Under this type of program, 
retail suppliers would be required to offer low-emitting generation or 
energy conservation products to its customers.
    Finally, and only as a backstop to the entire program, a mandatory 
Resource Portfolio Standard could become effective further in the 
future if reasonable goals were not achieved. Existing state programs 
would be grandfathered. And, of course, to be fair any federal program 
should apply to all retail suppliers.
    While this is only an outline, I stand ready to provide the 
committee with further details.

                               CONCLUSION

    An approach of this sort is, I believe, far superior to a straight 
``one size fits all'' mandate.
    The proposal enlists utilities as partners, in energy conservation 
and renewable energy development. Since it would be in utilities' 
interests to ensure that the statutory goals are met, this concept 
would unleash creative marketing and financing approaches to energy 
conservation and renewable development. It may also present new 
business opportunities for retail suppliers.
    Moreover, the changes described above would enhance the role of 
energy conservation and small-scale renewable development in our 
national energy system. By placing these resource opportunities on the 
same playing field with larger scale renewable projects, we enhance the 
opportunities for supply diversity, technological advancement and 
entrepreneurship. This is particularly important for the photovoltaic, 
fuel cell and energy conservation product industries.
    Finally, this approach would leave in place carefully designed 
state-level programs that have already done a great deal to advance 
renewable energy in this country.
    In closing, I would ask that the committee think about grid 
expansion as a vital part of developing new and cleaner generation 
resources. H.R. 6, the energy bill you considered last year, included 
several provisions designed to promote the grid expansions necessary to 
get wind and other new sources to load centers. Four of those are worth 
specific mention: federal ``backstop'' siting authority, provisions to 
expedite siting on Federal lands, instruction to FERC for incentive 
rate treatment and accelerated depreciation schedules for transmission 
assets. Each of these is vital both to ensure the reliability of our 
current system and to encourage development of new renewable and other 
generation sources.
    At this point I will stop and be ready to answer any questions. 
Thank you, Mr. Chairman.

    The Chairman. Thank you very much.
    Could I clarify, Mr. Secretary? You said, in your 
description of the total--of the components of the total, 9 
percent renewables. And I don't think you broke that down into 
hydro and others. Could you do that?
    Mr. Garman. Yes.
    The Chairman. I think it's----
    Mr. Garman. Roughly 7 percent hydroelectric, 2 percent non-
hydro renewables.
    The Chairman. So if we're talking about wind as a--in that 
category, it would be part of the two, nationally, now, which 
included other than wind.
    Mr. Garman. It would be a small portion. The bulk of that 2 
percent comes from wood waste, biomass, pulp mills burning 
fuel, generating fuel.
    The Chairman. All right. Thank you very much.
    Dr. Wiser, would you proceed, please?

   STATEMENT OF DR. RYAN WISER, SCIENTIST, LAWRENCE BERKELEY 
               NATIONAL LABORATORY, BERKELEY, CA

    Dr. Wiser. Thank you, Mr. Chairman, members of the 
committee. It really is a privilege for me to be here today.
    My name is Ryan Wiser. I'm a scientist at Lawrence Berkeley 
National Laboratory, where I conduct renewable energy research.
    I'm here this afternoon to report on the findings of a 
recent study that I conducted, a study that explores the 
relationship between natural gas prices, on one hand, and 
investments in renewable generation and energy efficiency, on 
the other.
    In short, as I will describe briefly this afternoon, this 
study shows that diversification away from natural gas fire 
generation could put significant downward pressure on natural 
gas prices, and, thereby, provide important benefits to 
consumers.
    Now, just to be clear, I am here as an analyst to report 
the result of this research, and not to take a specific policy 
position on the issues of diversity, incentives, and standards.
    And to summarize the results of our study, I'd like to 
highlight four succinct points:
    First, we have very clearly seen a structural shift in the 
natural gas sector, a shift that has already led to more than a 
doubling of natural gas prices. Given this, most would agree 
that both--that a balanced energy policy must both expand the 
supply of, and reduce the demand for, natural gas. And I 
certainly comment this committee for its leadership in 
exploring both sets of these options.
    Second, our study specifically highlights the fact that 
increased renewable energy and energy efficiency can be an 
important part of the solution by reducing gas demand and, 
thereby, reducing gas prices. In fact, a growing number of 
modeling studies are showing this very effect, and our report 
summarizes those studies and, perhaps for the first time, 
evaluates and reviews the reasonableness of their findings in 
light of economic theory and other analyses.
    In particular, our report reviews 13 different studies, 
most of which explore a national renewables portfolio standard, 
though some evaluate state RPS policies, and others also 
include energy efficiency.
    Those studies that evaluate the impact of aggressive levels 
of renewable energy deployment find that such efforts could 
reduce demand for natural gas by as much as three to four quads 
a year by 2020, or about 10 percent of projected gas 
consumption. In that instance, well-head gas price reductions 
can be as high as 50 cents per million Btu or more than 10 
percent of projected gas prices, resulting in aggregate 
consumer gas savings in 2020 that exceed $15 billion in that 
year alone.
    Less aggressive levels of renewable energy development, not 
surprisingly, are found to reduce gas prices more modestly, 
perhaps by 3 percent or so, or about 15 cents per million Btu.
    Now, these potential consumer benefits clearly are 
reasonably significant. In fact, the studies often show that 
any predicted increase in the price of electricity caused by 
greater use of renewable energy and energy efficiency is 
largely or completely offset by the projected natural gas price 
savings. And, at least at the high end of the possible savings, 
these natural gas price reductions are similar in magnitude to 
those that have been predicted to come from aggressive supply 
side actions, such as increasing access to Alaskan gas and/or 
overseas liquified natural gas.
    Third, I think it is very important to acknowledge that 
these consumer benefits, at least to some degree, come at the 
expense of natural gas producers. Nonetheless, if policymakers 
are concerned about the impact of natural gas prices on 
consumers, or are concerned about the macroeconomic impacts of 
higher gas prices on the U.S. economy, then policies to reduce 
gas demand might well be considered appropriate.
    In addition, given anticipated future growth in imported 
natural gas, the gain to U.S. consumers would come, at least in 
part, at the expense of foreign producers; thereby, ensuring 
aggregate welfare gains for the United States as a whole.
    Fourth, while more work clearly needs to be done on this 
particular topic, we find that these modeling results appear 
reasonable, and appear likely to really be true, and, in fact, 
should be considered in policymaking. In particular, the 
results are consistent with, or even conservative, relative to 
six major energy models reviewed recently by Stanford's Energy 
Modeling Forum, and are also consistent with an energy model 
recently used by the National Petroleum Council and the 
National Commission on Energy Policy.
    So, to conclude, most would agree that both supply side and 
demand side actions will be necessary to moderate natural gas 
prices. Our study highlights the important role that renewables 
and efficiency might play in that process.
    Of course, I want to acknowledge that these effects are not 
strictly limited to renewable energy and energy efficiency. In 
fact, similar gas price reductions would result from increased 
use of any energy source that displaces natural gas 
consumption, which would include coal and nuclear power, as 
well.
    In addition, a comprehensive analysis of the costs and 
benefits of policy efforts must consider other impacts, as 
well. Of course, it's clearly not appropriate to look only at 
the natural gas price impacts when evaluating policies. 
Nevertheless, given present concerns about natural gas prices 
and the findings of our study, I believe that evaluations of 
policies to encourage fuel diversification would be well served 
to analyze the potentially beneficial impacts of that 
diversification on natural gas prices.
    With that, I'll conclude my statement. I'd be happy to 
answer any questions at the appropriate time.
    [The prepared statement of Dr. Wiser follows:]

  Prepared Statement of Dr. Ryan Wiser, Scientist, Lawrence Berkeley 
                          National Laboratory
  Easing the Natural Gas Crisis: Reducing Natural Gas Prices Through 
                   Electricity Supply Diversification

    Mr. Chairman and Members of the Committee, I appreciate the 
opportunity to appear before you today. My name is Ryan Wiser, and I am 
a Scientist at Lawrence Berkeley National Laboratory (Berkeley Lab). 
Since 1995, I have conducted renewable energy research at Berkeley Lab; 
research that has been funded in large part by the U.S. Department of 
Energy.
    I am here today to report on the findings of a recent study that I 
helped manage and conduct, a study titled ``Easing the Natural Gas 
Crisis: Reducing Natural Gas Prices Through Increased Deployment of 
Renewable Energy and Energy Efficiency.'' This study explores the 
relationship between renewable generation and energy efficiency 
investments and natural gas prices. As I will describe, the report 
finds that by reducing natural gas demand, deployment of renewable 
energy and energy efficiency could put significant downward pressure on 
natural gas prices and thereby provide sizable consumer savings.
    To be clear, I am here to report the results of this study, and not 
to take a specific policy position on the issues of diversity 
incentives or standards. Let me also note that my remarks are my own, 
and not those of Berkeley Lab or the U.S. Department of Energy.

                 THE CURRENT SITUATION WITH NATURAL GAS

    I think we can all agree that we have seen a structural shift in 
the natural gas sector; a shift that has already led to more than a 
doubling of natural gas prices and an increase in price volatility.
    From around $2 per mmBtu in the 1990s, average wellhead natural gas 
prices rose to $4.10 per mmBtu from 2000 through 2004, and $5.40 per 
mmBtu in 2004 alone. The 6-year NYMEX forward curve shows that the gas 
market expects prices at the Henry Hub to remain in the $5 to $8 per 
mmBtu range for at least the next six years, while the Energy 
Information Administration's (EIA) latest forecast projects that 
wellhead prices will average more than $5/mmBtu in the coming 20 years 
(all prices are reported in nominal dollars). Though both market and 
government forecasts of long-term gas prices have been notoriously 
inaccurate, we appear to be at a point where demand for natural gas is 
beginning to exceed our current ability to economically extract the 
fuel from domestic reserves.
    At the same time, natural gas is a fuel with many positive 
attributes, and as a result its use in the residential, commercial, 
industrial, and power sectors is expected by the EIA and others to 
continue to increase. The power sector, especially, has been driving, 
and is projected to continue to drive, growth in natural gas demand. 
For example, from 1998 to the present, over 80% of the new generating 
capacity in the U.S. has been fueled with natural gas.
    Correcting the present imbalance between natural gas supply and 
demand will clearly be a challenging task, and most would agree that a 
balanced energy policy must both expand the supply of, and reduce the 
demand for, natural gas. I commend this Committee for its leadership in 
exploring both sets of options, though for the remainder of these 
remarks I will be focusing on the potential benefits of demand-side 
measures.

                   SUMMARY OF THE BERKELEY LAB STUDY

    With the recent run-up in natural gas prices, and the expected 
continuation of volatile and high prices for at least the mid-term 
future, a growing number of voices are calling for increased 
diversification of electricity supplies. Such diversification holds the 
prospect of directly reducing our dependence on a fuel whose costs are 
highly uncertain, thereby hedging the risk of natural gas price 
volatility and escalation. In addition, as I will describe in a moment, 
by reducing natural gas demand, increased diversification away from 
gas-fired generation can indirectly suppress natural gas prices.
    Our report highlights the impact of increased deployment of 
renewable energy and energy efficiency on natural gas prices and 
consumer natural gas bills. A growing number of modeling studies 
conducted by government, non-profit, and private sector entities are 
showing that renewable energy and energy efficiency could significantly 
reduce natural gas prices and bills. Our report summarizes these recent 
modeling studies and reviews the reasonableness of their findings in 
light of economic theory and other analyses. (Though our report focuses 
on renewable energy and energy efficiency, other non-natural-gas 
resources would likely have a similar effect).
    We find that, by displacing natural-gas-fired electricity 
generation, increased levels of renewable energy and energy efficiency 
will reduce demand for natural gas and thus put downward pressure on 
gas prices. These price reductions hold the prospect of providing 
consumers with significant natural gas bill savings. In fact, although 
we did not analyze in detail the electricity price impacts reported in 
the studies, the studies often show that any predicted increase in the 
price of electricity caused by greater use of renewable energy or 
energy efficiency is largely or completely offset by the predicted 
natural gas price savings. We conclude that policies to encourage fuel 
diversification within the electricity sector should consider the 
potentially beneficial cross-sector impact of that diversification on 
natural gas prices and bills.

                            ECONOMIC THEORY

    Our report confirms that the natural-gas-price reductions projected 
by earlier modeling studies are consistent with economic theory. 
Increased renewable energy and energy efficiency will cause an inward 
shift in the natural gas demand curve, leading to lower natural gas 
prices than would have been realized under the higher-demand 
conditions. Similar natural gas price reductions would likely result 
from increased use of other non-natural-gas energy sources that 
displace natural gas consumption (e.g., coal, nuclear).
    The magnitude of the price reduction will depend on the amount by 
which natural gas consumption is reduced, as well the shape of the 
natural gas supply curve (measured by the inverse price elasticity of 
natural gas supply, or the percentage change in price caused by a one 
percent change in demand). Given the ability of natural gas supply and 
demand to adjust to altered prices over time, the price reduction is 
likely to be greater in the near term than over the longer term.
    These reductions in gas prices benefit consumers by reducing fuel 
costs faced by electricity generators, and by reducing the price of 
natural gas delivered for direct use in the residential, commercial, 
industrial, and transportation sectors. According to economic theory, 
this benefit to consumers will, to some degree, come at the expense of 
natural gas producers. However, if policymakers are concerned about the 
impact of natural gas prices on consumers, or are concerned about the 
macroeconomic impacts of higher gas prices on overall economic 
activity, then policies to reduce gas demand might be considered 
appropriate. In addition, given anticipated future growth in imported 
natural gas, reducing natural gas prices may well enhance social 
welfare in the United States (because the gain to U.S. consumers comes, 
in part, at the expense of foreign producers).

                       REVIEW OF PREVIOUS STUDIES

    The Berkeley Lab report reviews five different studies by the 
Energy Information Administration (EIA), six by the Union of Concerned 
Scientists (UCS), one by the Tellus Institute, and one by the American 
Council for an Energy-Efficient Economy (ACEEE) (see the References 
section for a full listing, of these studies). In aggregate, these 
thirteen studies report results of twenty different modeling runs, 
which we review in our report. Most of the studies evaluate national 
renewables portfolio standard (RPS) proposals, though some evaluate 
state RPS policies and others also include energy efficiency 
investments. The vast majority of these studies rely on the National 
Energy Modeling System (NEMS), an energy model developed and operated 
by the EIA to provide long-term energy forecasts. Though these studies 
seek to evaluate a full range of economic impacts, the focus of the 
Berkeley Lab work is on the natural gas demand and price impacts.
    As shown in our full report, these studies consistently find that 
renewable energy and energy efficiency deployment will reduce natural 
gas demand, thereby putting downward pressure on gas prices.
    The level of demand and price reduction depends in large part on 
the level of renewable energy and energy efficiency deployment. Those 
studies that review the impact of more aggressive national renewable 
energy deployment efforts have found that such efforts could reduce 
demand for natural gas by as much as 3 to 4 quadrillion Btu (Quads) a 
year by 2020, or 10% of projected national gas consumption, with a mean 
reduction across studies of approximately 2 Quads (7%). Less aggressive 
levels of national deployment are found to reduce gas consumption 
studies of 0.7 Quads (2%).
    At the higher end of the demand-reduction spectrum, the drop in 
demand is expected to lead to wellhead price reductions that can be as 
high as $0.5 per mmBtu (17% below projected wellhead prices in 2020), 
with a mean reduction across studies of $0.3 per mmBtu (10%). At the 
high end of this range, aggregate consumer gas savings in 2020 exceed 
$15 billion. Less aggressive levels of demand reduction are found to 
reduce gas prices by as much as $0.3 per mmBtu (13%), with a mean 
reduction across studies of around $0.15 per mmBtu (5%). (See Table 1, 
and Figures 1 and 2 in the Appendix).* Note that, on the high end at 
least, these price reductions are similar in magnitude to those 
estimated to come from increased access to Alaskan gas and/or liquefied 
natural gas imports, as reported in recent studies by Stanford's Energy 
Modeling Forum and the National Commission on Energy Policy.
---------------------------------------------------------------------------
    * The appendix has been retained in committee files.
---------------------------------------------------------------------------
    Another key source of variation among the studies' results lies in 
their assumptions about the shape of the natural gas supply curve. A 
quantitative measure of that shape is the long-term average inverse 
price elasticity of natural gas supply. Of the twenty modeling runs 
that we reviewed, thirteen show an average inverse price elasticity of 
natural gas supply in the range of 0.8 to 2. This means that each 1% 
reduction in national gas demand is expected to lead to a long-term 
average reduction in wellhead gas prices of 0.8% to 2%. Some studies 
predict even larger impacts, especially in the near term. In fact, of 
the remaining seven modeling runs, five show even more significant 
price reductions--up to a 4% price reduction for each 1% drop in 
demand. (See Figure 3, in the Appendix).
    Overall, among those analyses that evaluate aggressive levels of 
national renewable energy development, nine of fifteen find that such 
deployment might provide natural gas bill savings in the range of $10 
to $40 billion from 2003-2020 (on a national, net present value basis). 
These savings are often more than enough to offset any predicted 
increase in the price of electricity that is caused by greater use of 
renewable energy sources. (See Figure 4, in the Appendix).
    Results from these studies further suggest that each megawatt-hour 
(MWh) of electricity generated from a renewable resource provides, on 
average, national consumer benefits (in the form of natural gas bill 
savings) that are typically in the range of $10 to $20/MWh. Even at the 
lower end of this range, these savings are significant relative to the 
current cost of supplying electricity from renewable resources, which 
averages perhaps $30 to $70 per MWh.

              BENCHMARKING OUR RESULTS WITH OTHER RESEARCH

    These consumer gas bill savings are clearly significant. But what 
level of confidence should be placed on these modeling results? After 
all, most of these results derive from a single energy model: NEMS. To 
answer this question, we sought to compare the results of the various 
modeling studies to each other, to the results of other national energy 
models, and to the empirical economics literature. We did this to test 
for model consistency over time, across models, and with economic 
theory.
    The details of these comparisons can be found in the full report, 
but to summarize, we conclude that there remains significant 
uncertainty about the exact magnitude of the natural gas price 
reduction. However, we also find that each comparison provides reason 
to believe that the price-suppression effect is real, and that the 
studies reviewed above have characterized this effect within reason, 
given the state of current knowledge.
    For example, four of six energy models (POEMS, CRA, E2020, MARKAL) 
used in a recent study by Stanford's Energy Modeling Forum show results 
consistent with those of the thirteen studies reported earlier, while 
the two outliers (NANGAS, NARG) display price-reduction impacts that 
are greater than those of the thirteen studies reported previously (See 
Table 2, in the Appendix). Meanwhile, the energy model from Energy and 
Environmental Analysis, Inc. (EEA), which was used by the National 
Petroleum Council and the National Commission on Energy Policy in their 
recent work, suggests that the long-term impact of demand reductions on 
natural gas prices will be at least double that reported earlier (i.e., 
a 1% decline in demand will result in a 4%+ drop in natural gas prices, 
compared to the 0.8-2% drop reported earlier).
    While more work needs to be done on this topic, in the meantime, 
existing modeling results appear to be reasonable and should not be 
dismissed.

                               CONCLUSION

    Elevated natural gas prices have emerged as a key energy-policy 
challenge for at least the early part of the 21st century. While our 
nation will continue to rely on natural gas, most agree that both 
supply-side and demand-side actions will likely be necessary to 
moderate prices. Focusing on just the demand side, our study has found 
that increased diversification of energy supplies should help to 
alleviate the threat of high natural gas prices over the short and long 
term, thereby reducing consumer natural gas bills.
    The thirteen studies and twenty specific modeling analyses reviewed 
in our report consistently show that increased use of renewable energy 
and energy efficiency can begin to reduce natural gas prices. Our 
report is the first to demonstrate that these results are broadly 
consistent with economic theory, results from other national energy 
models, and limited empirical evidence.
    Of course, these effects are not strictly limited to renewable 
energy and energy efficiency investments: any non-natural-gas resource 
that displaces gas use is expected to provide similar consumer 
benefits. In addition, a comprehensive analysis of the costs and 
benefits of policy efforts must consider other impacts as well, 
including impacts on electricity rates, national security, 
environmental outcomes, and economic development. Nonetheless, given 
present concerns about natural gas prices and the findings reported in 
this testimony, I believe it is prudent to carefully evaluate the 
cross-sector impacts of electricity-sector diversification policies on 
the natural gas market.

    Senator Bingaman [presiding]. Thank you very much.
    Mr. Morgan, why don't you go right ahead?

         STATEMENT OF RICHARD E. MORGAN, COMMISSIONER, 
 DISTRICT OF COLUMBIA PUBLIC SERVICE COMMISSION, ON BEHALF OF 
  THE NATIONAL ASSOCIATION OF REGULATORY UTILITY COMMISSIONERS

    Mr. Morgan. Good afternoon, Mr. Chairman and members of the 
committee.
    I'm Richard E. Morgan, commissioner on the Public Service 
Commission of the District of Columbia. I'm here today 
representing the National Association of Regulatory Utility 
Commissioners, or NARUC. On behalf of NARUC, I'd like to thank 
you for this opportunity to share our views with you.
    NARUC is a quasi-governmental, nonprofit organization 
founded in 1889. Its membership includes the State public 
utility commissions for all states and territories. NARUC's 
mission is to serve the public interest by improving the 
quality and effectiveness of public utility regulation. NARUC's 
members regulate the retail rates and services of electric, 
gas, water, and telephone utilities.
    NARUC has often emphasized the importance of promoting a 
diversified power generation portfolio, including renewable 
energy resources, in light of the significant benefits that 
clean energy resources can bring. These benefits include 
reducing energy price volatility, increasing energy 
independence, increasing diversity in energy supply, improving 
reliability, increasing energy security, and reducing the 
impact of energy resources on the environment.
    In particular, many States are concerned by recent natural 
gas price volatility, and are looking at options, such as 
renewable energy, to alleviate this problem. Analyses by 
government, industry, and environmental interest groups have 
shown that renewable energy can provide a hedge against 
volatile and escalating gas prices by reducing exposure to gas 
price risk and slowing the increase in these prices.
    NARUC believes that States have a central role to play in 
encouraging a diverse supply of power generation and developing 
clean power resources. To date, approximately 18 States and the 
District of Columbia have established some level of renewable 
portfolio requirements. In addition, 23 States have some form 
of tax incentives for renewables, 17 States have loan or grant 
programs to provide support for capital projects, and seven 
States offer payment programs for renewables funded by system 
benefit charges.
    To give some idea of why States are adopting policies to 
promote renewables, I'd like to read a quote from New York 
Public Service Commission Chairman William Flynn. Chairman 
Flynn says, regarding RPS, ``Not only will it help us meet our 
growing demand for electricity, but it will also provide 
additional benefits by increasing fuel diversity from our 
State's generation portfolio, reducing our exposure to fossil 
fuel price spikes and supply interruptions, increasing economic 
development activity from a growing renewable energy industry, 
and improving our environment.''
    And I'd like to also--I'm sorry--NARUC has not taken a 
formal position on the necessity for a Federal renewable 
portfolio standard. However, we believe that the--consistent 
with any adopted national standards for renewable energy 
supply, States should be afforded maximum flexibility to 
structure, apply, and supplement standards within the State in 
a way that best promotes the unique resource, technology, and 
economic goals of each State.
    I have, for your information and review, attached an 
appendix containing a short sample of State RPS programs.
    Additionally, I would like to bring your attention to a 
February 2001 report prepared on behalf of NARUC, entitled 
``The Renewables Portfolio Standard: A Practical Guide.'' This 
report has been widely used as a resource to governmental, 
industry, and environmental organizations across the country. 
It is aimed at assisting State policymakers and policy analysts 
in defining the particular goals they seek to achieve with an 
RPS. With many of these decisions there is no single right 
approach; rather, the option chosen will depend on the 
circumstances in each State and the intended goals of 
policymakers. Unfortunately, the report's too lengthy to 
include with this testimony, but it can be accessed on the 
NARUC Website.
    I would like to take a moment to read a brief couple of 
excerpts which help explain what an RPS is and why it's become 
a favored policy.
    This is a quote from the NARUC report, ``The essence of an 
RPS, properly structured, is captured by three characteristics. 
First, the RPS advances renewable energy resources in the most 
efficient way possible by maximizing reliance on the market. 
This efficiency is enhanced if the obligation is tradable. 
Second, the RPS maintains and increases the quantity of 
renewables in the system over a long period of time. Third, 
noncompliance penalties ensure that retail sellers will act to 
meet the State's renewable energy goal. These characteristics 
distinguish the RPS from other types of renewable energy 
policies, such as government subsidy programs and tax 
credits.''
    And, further, ``Efficiency is maximized because, one, the 
RPS policy allows each retail seller to meet its renewable 
energy obligation as efficiently as possible. Efficiency is 
assured, because the RPS does not prescribe the particular 
technologies, resources, or projects that the retailer must use 
to meet its obligation or provide particular levels of support 
to particular projects.''
    NARUC believes Congress should encourage clean energy 
resources as a tool to achieve fuel diversity and greater 
energy security. Additionally, to assist States in the 
promotion of expansion of diverse power generation resources, 
Congress could support policies that would complement State 
efforts to ensure that regional transmission organizations and 
other regional bodies have sufficient authority to conduct 
long-term planning for their regions and, working with the 
States and transmission owners, implement long-term planning. 
And we list a number of items here, but I won't take the time; 
they are included in the testimony.
    So, with that, I'll conclude my remarks and say that I 
would like--I appreciate the opportunity to appear before you. 
We look forward to working with you on this issue in the 
future.
    Thank you very much.
    [The prepared statement of Mr. Morgan follows:]

  Prepared Statement of Richard E. Morgan, Commissioner, District of 
     Columbia Public Service Commission, on Behalf of the National 
            Association of Regulatory Utility Commissioners

    Mr. Chairman and members of the Committee, I am Richard E. Morgan, 
Commissioner on the Public Service Commission of the District of 
Columbia and I am here today representing the National Association of 
Regulatory Utility Commissioners (NARUC). On behalf of NARUC, thank you 
for this opportunity to share our views with you.
    NARUC is a quasi-governmental, nonprofit organization founded in 
1889. Its membership includes the State public utility commissions for 
all States and territories. NARUC's mission is to serve the public 
interest by improving the quality and effectiveness of public utility 
regulation. NARUC's members regulate the retail rates and services of 
electric, gas, water and telephone utilities. We have the obligation 
under State law to ensure the establishment and maintenance of such 
energy utility services as may be required by the public convenience 
and necessity, and to ensure that these services are provided at rates 
and conditions that are just, reasonable and nondiscriminatory for all 
consumers.
    NARUC has often emphasized the importance of promoting a 
diversified power generation portfolio including renewable energy 
resources in light of the significant benefits that clean energy 
resources can bring. These benefits include reducing energy price 
volatility, increasing energy independence, increasing diversity in 
energy supply, improving reliability, increasing energy security, and 
reducing the impact of energy resources on the environment.
    In particular, many States are concerned by recent natural gas 
price volatility and are looking at options, such as renewable energy, 
to alleviate this problem. Analyses by government, industry, and 
environmental interest groups have shown that renewable energy provides 
a hedge against volatile and escalating gas prices by reducing exposure 
to gas price risk and slowing the increase in gas prices.
    To explore this issue further, this winter NARUC sponsored a two-
day conference, entitled ``The Natural Gas Crisis: Finding Clean 
Solutions'', to examine State, regional and federal opportunities for 
increased energy efficiency, renewable resources and clean distributed 
energy in response to high natural gas prices. The conference explored 
policy actions that could be implemented to encourage clean and 
affordable energy resources through State and federal regulatory 
actions. Conference participants included over a dozen utility 
regulators, environmental regulators, governors' office 
representatives, consumer advocates, industry representatives, and 
environmental advocates.
    NARUC believes that States have a central role to play in 
encouraging a diverse supply of power generation and developing clean 
power resources. To date, approximately 18 States and the District of 
Columbia have established some level of renewable portfolio 
requirements. In addition, 23 States have some form of tax incentive 
for renewables, 17 States have loan and/or grant programs to provide 
support for capital projects, and 7 States offer payment programs 
funded by system benefit charges.
    NARUC has not taken a formal position on the necessity for a 
federal Renewable Portfolio Standard (RPS). However we believe that 
consistent with any adopted national standards for renewable energy 
supply, States should be afforded maximum flexibility to structure, 
apply and supplement standards within the State in a way that best 
promotes the unique resource, technology and economic goals of each 
State.
    I have, for your information and review, attached an appendix 
containing a short sample of State RPS programs. Additionally, I would 
like to bring to your attention a February 2001 report prepared on 
behalf of NARUC entitled ``The Renewables Portfolio Standard--A 
Practical Guide.'' This report has been widely used as a resource to 
governmental, industry, and environmental organizations across the 
country. The report is aimed at assisting State policy makers and 
policy analysts in defining the particular goals they seek to achieve 
with an RPS. With many of these decisions, there is no single ``right'' 
approach; rather, the option chosen will depend on the circumstances in 
each State and the intended goals of policymakers. This report is too 
lengthy to include with this testimony, however it can be accessed on 
the NARUC website at: www.naruc.org.
    NARUC believes Congress should encourage clean energy resources as 
a tool to achieve fuel diversity and greater energy security. 
Additionally, to assist the States in the promotion and expansion of 
diverse power generation resources, Congress could support policies 
that would complement State efforts to ensure that Regional 
Transmission Organizations or other regional bodies have sufficient 
authority to conduct long term planning for their regions and, working 
with the States and transmission owners, implement long-term planning 
that should:

   Take into account fuel diversity including renewables 
        resources;
   Recognize the need for new investment in generation and 
        transmission facilities that provides adequate reserve margins;
   Assure that reliability is not compromised by resource 
        imbalances;
   Recognize environmental and societal risk, and associated 
        costs with benefits;
   Assure adequate resources in all regions of the nation.

    Moreover, NARUC believes States are instrumental in moving clean 
energy policies and technologies forward and should therefore retain 
authority to impose charges to fund programs that promote renewable 
energy and other measures, and to implement such programs.
    NARUC has urged its member State public utility commissions to 
consider implementing the Electric Power Research Institute 
recommendations as stated in the ``The Western States Power Crisis: 
Imperatives and Opportunities'' and ``The Electricity Enterprise 
Security Assessment.'' Specifically, recommendations to ``Demonstrate 
and deploy new generating technologies for the intermediate term and 
beyond (renewables, advanced coal, fuel cells, and nuclear) to maintain 
a balanced portfolio of generation options as the backbone of the 
nation's energy security.''
    State Commissions are also increasingly interested in an emerging 
regulatory concept known as of portfolio management. Portfolio 
management begins with the primary objectives of a utility or default 
service provider obtaining electricity resources for customers, with 
the primary goals including reliability, mitigating risk, maintaining 
customer equity, improving the efficiency of the generation, 
transmission and distribution system, improving the efficiency of 
customer end-use consumption, and reduction of environmental impacts 
and risks. Portfolio management provides a process for utilities to 
determine and implement the mix of electricity resources that will 
achieve these objectives to the greatest extent possible.
    Portfolio management is wholly consistent with efforts to create 
competitive wholesale electric markets and offers a structured approach 
for assembling a diverse mix of short-and long-term energy resources to 
serve retail customers at regulated rates, via traditional power 
supplies as well as energy efficiency, distributed generation, demand 
response, and renewable energy resources. Retail electric customers 
receiving regulated service can be protected from volatile energy 
markets by load-serving electric utilities that engage in prudent 
portfolio management practices. Fourteen environmental and consumer 
organizations and the National Commission on Energy Policy, have 
endorsed portfolio management efforts. NARUC encourages State 
regulatory commissions to explore portfolio management techniques that 
may be applicable to their particular circumstances, under either 
traditional or restructured markets, and to adopt appropriate 
regulatory policies to facilitate effective implementation of portfolio 
management practices by regulated utilities.
    NARUC and its members continue to investigate opportunities to 
develop research, training, and outreach programs on portfolio 
management to serve the needs of State commissions and to further 
develop the regulatory community's knowledge about resource management 
practices to minimize risk and improve system reliability and market 
performance. With funding from U.S. Department of Energy, NARUC is 
exploring the options available to State utility regulators to manage 
electricity resources in today's diverse regulatory environments. This 
project will address the role of utility regulators with regard to 
resource planning and risk management, particularly as they relate to 
the provision of default and regulated electric utility services.
    To kick off this project, NARUC's Committee on Energy Resources and 
Environment held a workshop on February 12-13, 2005, in Washington, DC, 
on the subject of Portfolio Management. NARUC assembled a balanced 
group of economic regulators, State energy officials, utilities, 
competitive sellers, consumer advocates, environmental advocates, and 
consultants to address the challenges of implementing portfolio 
management strategies in the context of today's electricity markets.
    In order to encourage the diversification of power generation 
resources, NARUC believes transmission policies should be developed 
that ensure that a variety of clean power resources can be 
interconnected to the electricity grid, while maintaining reliability. 
NARUC has been actively involved in the Federal Energy Regulatory 
Commission (FERC) proceedings on generator and small generator 
interconnection agreements. On March 2, 2005, NARUC filed comments on 
the FERC Notice of Proposed Rulemaking in the Interconnection for Wind 
Energy and Other Alternative Technologies Proceeding. NARUC's comments 
suggested that reliability rules should apply equally to all generation 
resources, including renewable resources such as wind, if the generator 
can demonstrate the ability to satisfy equivalent reliability criteria. 
In addition, NARUC's comments supported balancing the goal of 
maintaining the reliability of the transmission system with the goal of 
encouraging interconnection of renewable resources.
    Finally, NARUC urges the Congress to approve a five-year renewal of 
the 1.5 cent per kilowatt-hour (adjusted for inflation) production tax 
credit for electricity generated from new facilities brought on-line 
after December 31, 2001, using wind, solar, geothermal, and energy from 
waste facilities.
    Thank you for your attention today and I look forward to answering 
any questions you may have.

                                APPENDIX

                     A SAMPLE OF STATE RPS PROGRAMS

    (Please note: this is not a comprehensive review of all State 
programs, but rather a sampling and is not intended to endorse any 
particular program.)
Minnesota's Renewable Energy Objective

   The law establishes annual targets for all utilities in the 
        state to supply a small but growing percentage of their 
        electricity from renewable energy resources. (10% by 2015)
   Defined as wind, solar, biomass or low-capacity hydro. In 
        2003 expanded to include hydrogen and municipal solid waste 
        burning facilities.
Wisconsin

   Wisconsin has a Renewable Portfolio Standard. Increasing 
        standard from 0.05% 2001-2002 to 2.2% in 2011 and beyond.
   They also have a credit trading/tracking Program up and 
        running.
   They have completed rulemaking and have a contract with 
        Clean Power Markets to operate their trading/tracking system.
Iowa has a ``Policy'' and the Governor has stated a ``Goal"

   Iowa State Statute 476.41 provides ``It is the policy of 
        this state to encourage the development of alternate energy 
        production facilities and small hydro facilities . . .''
   Governor's goal of 1000 MW of renewable energy by 2010.
     Tax incentives
     Green pricing program
     Net metering rule
North and South Dakota

   Both states rely on voluntary actions by utilities in their 
        states.
   Neither state has defined ``renewables'' in statutes. 
        Utilities generally define renewables as solar, wind, biomass, 
        geo-thermal and small hydro-electric.
   Both North and South Dakota have strong wind regimes that 
        would facilitate export opportunities to other jurisdictions 
        needing to add renewables to their portfolios.

    (ND and SD have legislation proposed which would grant permissive 
authority to ND Public Service/SD Utilities Commission to participate 
in regional design and implementation of credit tracking and trading 
system.)
Pennsylvania

   Energy sources are split into two tiers, Tier 1 being pure 
        renewables such as wind, solar, etc., while Tier 2 includes 
        waste coal, coal gasification, and demand-side management.
   Tier 1 generation starts at 1.5% in 2007 and increments .5% 
        a year to reach 8% by 2020, while Tier 2 must contribute 10% by 
        2020.
   In the Tier 1 category there is a set-aside percentage 
        requirement for solar generation. The Public Utility Commission 
        will also set up an independent entity to manage an alternative 
        energy credits trading system.
California

   This is a renewable portfolio standard requiring 20% percent 
        of the generation for retail sales be sourced from eligible 
        renewables by 2017.
   Utility cost recovery for renewable purchases comes from two 
        sources; (1) recovery for contract costs up to the market price 
        in retail generation rates, (2) above market costs covered by 
        California's Renewable Resource Trust Fund, a public benefit 
        fund. Above-market costs are paid directly to sellers, not to 
        utilities.
   The California Public Utilities Commission (CPUC) will 
        establish annual procurement targets for each electrical 
        corporation. An initial baseline for these targets will be 
        based on the actual percentage of retail sales procured from 
        eligible renewable energy resources in 2001. The CPUC will then 
        develop a schedule whereby the % renewable requirement 
        increases each year until the requirement reaches a 20% minimum 
        standard for retail generation in 2017. The CPUC must ensure an 
        increase of at least 1% per year.
   The CPUC will also establish market prices for electricity.
Texas

   This is a capacity-based standard to ensure that 2,000 
        megawatts (MW) of new generating capacity from renewable energy 
        technologies is installed in Texas by 2009, for a cumulative 
        installed renewable capacity of at least 2,880 MW by January 1, 
        2009.
   The initial goal is 400 MW for 2002. The 2000 MW goal 
        remains constant from 2009 through 2019. New facilities are 
        defined as renewable energy generators placed in service on or 
        after September 1, 1999. The portfolio standard affects all 
        electricity retailers in competitive markets in Texas.

    Senator Bingaman. Thank you.
    Mr. Popowsky.

STATEMENT OF SONNY POPOWSKY, CONSUMER ADVOCATE OF PENNSYLVANIA, 
                         HARRISBURG, PA

    Mr. Popowsky. Thank you, Senator Bingaman, Senator Salazar, 
Senator Alexander.
    My name is Sonny Popowsky. I am the consumer advocate of 
Pennsylvania. I also serve as a member of the executive 
committee, and I formerly served as president of the National 
Association of State Utility Consumer Advocates, or NASUCA. 
NASUCA's members are authorized, by the laws of our respective 
jurisdictions, to represent the interests of utility consumers 
in 42 States and the District of Columbia.
    The adequacy, reliability, and cost of electric generation 
are all matters of paramount importance to electric consumers 
across the Nation. That is true whether those consumers live in 
States like Pennsylvania, that have restructured their electric 
industries to try to bring about competition among generation 
suppliers, or in States in which generation continues to be a 
part of the bundled service provided by vertically integrated 
monopoly utilities.
    In my opinion, the diversification of generation resources 
is a critical, but often overlooked, element that affects the 
reliability, adequacy, and cost of our Nation's electric 
generation supply.
    It is also my opinion that market forces, alone, are not 
likely to bring about the diversification in generation 
resources that is needed to ensure that our future electricity 
needs are met in the most reliable and economic manner. Rather, 
I believe that State and Federal policymakers can take steps to 
avoid excessive reliance on a particular fuel or type of power 
plant to meet our future energy needs.
    This issue has been illustrated most recently by the 
headlong rush in the electric industry to build power plants 
that are fired exclusively by natural gas. The rapid rise in 
natural gas demand for electric generation has had extremely 
harmful impacts on both the price of natural gas and the price 
of electricity. In effect, this has been a double whammy for 
consumers across the nation, particularly for those who rely on 
natural gas for home heating purposes.
    Reliability of utility service has also been called into 
question in some areas where demands for natural gas from 
electric generators during peak cold weather periods have 
clashed with the demands for more traditional natural gas 
seasonal usage.
    It is in this light, I believe, that one should consider 
Pennsylvania's decision in 2004 to become one of the most 
recent States to enact legislation that established a diverse 
portfolio standard for all generation suppliers. Even though 
Pennsylvania lies in the heart of PJM, which is generally 
recognized as the most successful regional competitive 
wholesale market in the nation, Pennsylvania, like its PJM 
neighbors, New Jersey and Maryland, has decided that it is 
necessary to establish mandatory enforceable portfolio 
standards to produce a diversity of resources, including 
renewable resources that the competitive wholesale generation 
market might not provide, or at least might not provide in a 
timely manner.
    In my view, Pennsylvania was correct in establishing 
portfolio standards. I believe that Pennsylvania consumers will 
benefit from the hedge that these standards will provide 
against volatile natural gas and other fossil fuel prices. The 
inclusion of non-polluting renewable resources in that 
portfolio also provides a hedge against the potential costs of 
future environmental regulation, including regulations to 
address global climate change. If and when this Nation decides 
to take steps to address global climate change, then I believe 
consumers in Pennsylvania and the PJM region will be well 
served by the development of the alternative resources that 
will have come about as a result of our states moving forward 
in this manner.
    Pennsylvania's legislation, I should note, is actually 
called an ``alternative energy portfolio,'' because, in 
addition to typical renewable resources, such as wind and 
solar, the Pennsylvania legislation contains a second tier of 
resources, such as waste coal and integrated combined coal 
gasification technology, that attempt to use Pennsylvania's 
indigenous resources and address Pennsylvania's particular 
environmental concerns. Importantly, the two tiers in the 
Pennsylvania portfolio standard must each be met independently 
so that, for example, the requirements for minimum levels of 
Tier I renewable resources, such as wind and solar, cannot be 
met by over-compliance from Tier II resources, such as waste 
coal.
    Given our progress in Pennsylvania and other States, the 
question before this committee is whether a Federal portfolio 
standard is necessary. The members of NASUCA have not taken a 
position on this issue, as an organization. My own view, 
however, is that a Federal portfolio standard should be 
enacted, as long as it does not block or hinder the ability of 
States like Pennsylvania to continue their own programs in a 
manner that best meets their own environmental and economic 
needs.
    For example, a Federal portfolio standard might designate 
minimum levels for certain types of resources that, for 
environmental, economic, or national security reasons, should 
be met on a national basis. But the Federal portfolio standards 
should not preempt the ability of States to continue a second 
category or tier of resources that the State believes is 
important to address that State's own economic and 
environmental needs.
    Finally, I would urge that any Federal portfolio standard 
include a trading program that will help to reduce the cost of 
the portfolio requirement by giving generation providers access 
to low cost solutions on the widest possible geographic and 
market area.
    Thank you.
    [The prepared statement of Mr. Popowsky follows:]

Prepared Statement of Sonny Popowsky, Consumer Advocate of Pennsylvania

    Thank you for the opportunity to speak to you today on the vital 
issues surrounding the diversification of our Nation's electric 
generation resources.
    My name is Sonny Popowsky. I have served as the Consumer Advocate 
of Pennsylvania since 1990 and I have worked at the Office of Consumer 
Advocate since 1979. My Office is statutorily authorized to represent 
the consumers of Pennsylvania in matters involving their utility rates 
and service. I also currently serve as a member of the Executive 
Committee and Electric Committee, and formerly served as President, of 
the National Association of State Utility Consumer Advocates (NASUCA). 
NASUCA's members are authorized by the laws of their respective 
jurisdictions to represent the interests of utility consumers in 42 
states and the District of Columbia.
    The adequacy, reliability, and cost of electric generation are all 
matters of paramount importance to electric consumers across the 
Nation. That is true whether those consumers live in states like 
Pennsylvania that have restructured their electric industries in order 
to try to bring about competition among generation suppliers, or in 
states in which generation continues to be a part of the bundled 
service provided by vertically integrated monopoly utilities. In my 
opinion, the diversification of generation resources is a critical, but 
often overlooked, element that affects the adequacy, reliability and 
cost of our Nation's electric generation supply.
    It is also my opinion that market forces alone are not likely to 
bring about the diversification in generation resources that is needed 
to ensure that our future electricity needs are met in the most 
reliable and economic manner. Rather, I believe that state and federal 
policymakers can take steps to avoid excessive reliance on a particular 
fuel or type of power plant to meet our future energy needs.
    This issue has been illustrated most recently by the headlong rush 
in the electric industry to build power plants that are fired 
exclusively by natural gas. The rapid rise in natural gas demand for 
electric generation has had extremely harmful impacts on both the price 
of natural gas and the price of electricity. In effect, this has been a 
double whammy for consumers across the Nation, particularly for those 
who rely on natural gas for home heating or industrial processes. 
Reliability of utility service has also been called into question in 
some areas, where demands for natural gas from electric generators 
during peak cold weather periods have clashed with the demands for more 
traditional natural gas seasonal usage.
    While the impact of higher natural gas prices on gas heating 
customers has been painfully obvious, the impact of high natural gas 
prices on electricity costs is somewhat more subtle. In the PJM 
Interconnection, for example, in which most Pennsylvania utilities 
participate, the wholesale spot price for all energy sold in any given 
hour is set at a single market clearing price. That market clearing 
price generally is determined by the cost of operating the most 
expensive power plant in that hour, which in turn, is largely 
determined by the cost of fuel at that unit. For many hours of the 
year, that fuel is increasingly expensive natural gas. The average 
locational marginal price of energy in the PJM market rose from $31.60 
per megawatt hour in 2002 to $41.23 in 2003. According to the PJM State 
of the Market Report for 2003, the impact of increased fuel costs on 
the average PJM energy price in that year was $12.63 per megawatt hour. 
In other words, were it not for the increased price of fuel experienced 
in 2003, the price of power on PJM would have been approximately $28.60 
per megawatt hour. When this differential is multiplied by the 
literally hundreds of millions of megawatt hours traded on the PJM 
market over the course of a year, the impact of fuel price increases on 
wholesale electric prices can be seen to be enormous.
    It is in this light that one should consider the decision by the 
General Assembly and Governor of Pennsylvania in 2004 to make 
Pennsylvania the eighteenth state to enact legislation that established 
a diverse portfolio standard for all generation suppliers who serve the 
state's retail electricity customers. Even though Pennsylvania lies at 
the heart of PJM, which is generally recognized as the most successful 
regional wholesale market in the Nation, Pennsylvania (like its PJM 
neighbors, New Jersey and Maryland) has decided that it is necessary to 
establish mandatory, enforceable portfolio standards to produce a 
diversity of resources, including renewable resources, that the 
competitive wholesale generation market might not provide. Or at least 
might not provide in a timely manner.
    In my view, Pennsylvania was correct in establishing portfolio 
standards for future generation. I believe that Pennsylvania consumers 
will benefit from the ``hedge'' that these standards will provide 
against volatile natural gas and other fossil fuel prices. The 
inclusion of non-polluting renewable resources in that portfolio also 
provides a hedge against the potential costs of future environmental 
regulations, including regulations to address global climate change. If 
and when this Nation decides to take steps to address global climate 
change, then I believe consumers in Pennsylvania and the PJM region 
will be well-served by the development of alternative resources that 
will have come about as a result of our states' moving forward in this 
manner.
    Pennsylvania's legislation, I should note, is actually called an 
``alternative energy'' portfolio standard because, in addition to 
typical renewable resources such as wind and solar, the Pennsylvania 
legislation contains a second ``tier'' of resources such as waste coal 
and integrated combined coal gasification technology that attempt to 
use Pennsylvania's indigenous resources and address Pennsylvania's 
particular environmental concerns. Importantly, the two tiers in the 
Pennsylvania portfolio standard must each be met independently, so 
that, for example, the requirements for minimum levels of Tier I 
renewable resources such as wind and solar cannot be met by 
overcompliance from Tier II resources such as waste coal.
    Given the progress of Pennsylvania and other states in moving 
forward in this area, one question before this Committee, of course, is 
whether a federal portfolio standard is either necessary or 
appropriate. The members of NASUCA have not taken a position on this 
issue as an organization. My own view, however, is that a federal 
portfolio standard should be enacted, as long as it does not block or 
hinder the ability of states like Pennsylvania to continue their own 
programs in a manner that best meets their own environmental and 
economic needs. For example, a federal portfolio standard might 
designate minimum levels for certain types of resources that, for 
environmental, economic, or national security reasons, should be met on 
a national basis. But the federal portfolio standards should not 
preempt the ability of states like Pennsylvania to continue a second 
category or tier of resources that the state believes is important to 
address that state's own economic and environmental needs. Many states 
may not have the unsightly and environmentally harmful mountains of 
waste coal that mar the Pennsylvania landscape, and I would not suggest 
the inclusion of waste coal in a federal portfolio standard. But I do 
think that Pennsylvania and other states should remain free to address 
this issue and others like it through their own portfolio standards.
    Any federal portfolio standard should also be accompanied by a 
trading program that will produce a liquid market for resource credits 
among generation providers in different states. Such a market should 
help to minimize the costs of any portfolio requirements to consumers. 
This is because generation providers would be able to achieve the 
lowest cost solutions to meeting the portfolio requirements over a 
broader geographic and market area.
    I am not suggesting that portfolio standards are the only means for 
state and federal policymakers to support the diversification of future 
generation resources. Carefully tailored tax credits and increased 
research and development funding would undoubtedly assist the 
establishment of resources that are currently the farthest from 
commercial development.
    Finally, while it is not a topic of this particular hearing, I 
would like to take this opportunity to implore the members of this 
Committee and all members of Congress to reject any cuts in the federal 
Low Income Home Energy Assistance Program (LIHEAP) and instead to 
increase LIHEAP funding substantially in the coming year. The impact of 
high natural gas and other home heating fuel prices has been harmful to 
all consumers, but it has been devastating to low income consumers. The 
need for greater energy assistance is real and immediate. I urge that, 
whatever else Congress does with respect to energy legislation in the 
next several months, that you take steps to ensure that energy 
assistance programs for our neediest consumers are adequately funded.
    Thank you for your attention to this testimony. I would be happy to 
answer any questions you may have.

    Senator Bingaman. Thank you very much.
    The list I've been given here indicates Senator Domenici, 
of course, would be first in questions, when he returns, I'm 
second, Senator Salazar, and then Senator Alexander. So we'll 
start through 5 minutes of questions for each of us and just go 
through this list until we run out of questions.
    Let me ask about one of the suggestions that I think 
Senator Domenici made in his opening statement there, and that 
was that we ought to consider expanding the RPS to include base 
load generation from nuclear power or from clean coal power, as 
I understand it, from gasification technology. I know your 
position and the administration's position is, Secretary 
Garman, that you're opposed to any kind of renewable portfolio 
standard. Do you have any particular thoughts about what the 
impact would be of actually doing something at the Federal 
level on this much broader set of issues?
    Mr. Garman. No, sir, I don't. While we, at this point, 
currently oppose a generation portfolio standard or a market 
intrusion of that kind, we would be happy to work with this 
committee, using the resources of the Energy Information 
Administration, to model particular impacts of what you might 
have in mind. But, at this point, I don't have a good sense of 
that. Our past model, that I'm aware of, has been focused on 
renewable portfolio standards, and we have not modeled, to my 
knowledge, the impacts of variations on that theme.
    Senator Bingaman. It strikes me that the renewable 
portfolio standard was a device that was intended to take a set 
of technologies and abilities to generate power, which were 
fairly modest, as far as the overall mix that most utilities 
have for power generation, and expand that somewhat. That was 
the idea behind it. It seems to me, for the Federal Government 
to step in and say, ``Okay, we're going to also have, in 
Federal law, provisions that try to influence the--what 
utilities nationwide do in this much broader area, to include 
other--coal gasification, nuclear''--that seems to me to be a 
substantial expansion of Federal involvement that we haven't 
seen advocated before. I haven't.
    Mr. Morgan, did you have any thoughts on this?
    Mr. Morgan. Yes, I do, Senator Bingaman. It strikes me that 
the idea of expanding the RPS to include base load 
technologies, like nuclear and coal gasification, is really not 
a very good fit for this particular policy. I think there are 
some other policies that might be more appropriate for those 
technologies.
    The renewable resources that the RPSs--I guess, was 
originally conceived to address are--tend to be rather in small 
increments; whereas, the base load facilities are large, often 
a few hundred megawatts. And setting up a policy like this, 
you'd have a problem with very large chunks appearing, you 
know, at one time, and it--I think it would make it much more 
complicated, administratively. And you'd have to set the bar 
much higher if you were going to have any impact at all. You'd 
have to have a larger percentage. And, as you do that, you wind 
up almost providing a Federal dictate on how any electricity 
provider would have to develop a mix of resources. Granted, 
some of that would be tradable. But I think it--the intent of 
the RPS, at least as I understand it, is to help some 
technologies that are available and just need a little bit of a 
push to make them economically viable. And the idea of using an 
RPS to try to get a technology that is--really is more in need 
of a deployment phase, or something like that, just doesn't 
seem to fit into those particular approach to me very well.
    I should qualify that I'm really giving you my own opinion. 
This isn't something NARUC has taken a position on. But I would 
expect that a lot of utility regulators would have the same 
feeling, that if you go beyond, you know, the small percentages 
that we're talking about here, that starts to sound like a 
rather large Federal dictate on how we should, you know, 
procure resources for electricity generation.
    Senator Bingaman. My time is up, Mr. Chairman. Thank you.
    The Chairman [presiding]. Thank you, Senator Bingaman.
    Now, Senator Bingaman, might I just tell you and the 
committee, I have to leave. I've been scheduled to be at the 
White House for a number of days, and I can't get out of it. 
So, Senator Alexander's going to be here. And in the event he 
would have to leave before you finish, we have an understanding 
that you could continue the meeting.
    Thank you all very much. And we will be familiarized with 
what you all are saying. We're very interested, or we wouldn't 
have called the meeting. Thank you for your time.
    Senator Alexander [presiding]. Senator Salazar.
    Senator Salazar. Thank you, Senator Alexander and Senator 
Bingaman. Thank the members of the panel for your presentation 
today.
    Let me also just acknowledge Wayne Brunetti and your work 
in Colorado and your efforts on the implementation of Amendment 
37. As you know, Amendment 37 is something that we are mutually 
supportive of in Colorado, and it does create an RPS in 
Colorado with 10 percent renewable energy required to basically 
be in place by the year 2015. And I appreciate the public 
comments of support that you have made, and look forward to 
seeing that program implemented in the years ahead.
    I am a supporter of renewable energy, frankly, because I 
think it makes sense from an economic point of view, an 
environmental point of view, and it helps, at least to a small 
degree, lessen our over-dependence on foreign oil.
    I would ask, Mr. Brunetti, for you to just comment to the 
panel on how it is that we are moving forward with the 
implementation of Amendment 37 in Colorado, and how your 
company, that delivers much of the power within our State, is 
moving forward to try to get to that 10 percent threshold.
    And then, while I'm asking--while you're answering that 
question, I would just ask a second question to Assistant 
Secretary Garman, so you can be answering it. I want to ask you 
why it is that what we have done in Colorado--has been done in 
many States, including Texas and New Mexico--isn't really 
something that we ought to be doing at a national level. Every 
time that I have dealt with industry on natural resources and 
energy issues in my professional life, there's always a sense 
that industry would rather be subjected to one set of 
regulatory standards, as opposed to 50 different sets of 
programs that we establish around our country. And so, it makes 
sense for us to develop something, from my point of view, that 
might be able to bring more coherence to what we're doing all 
across the country, as opposed to leaving many of the RPS 
standards to be pushed by initiated measures, where we're going 
to have 50 different sets of programs within each one of the 50 
States.
    So, Wayne, if you will answer my question first, and then 
perhaps Secretary Garman.
    Mr. Brunetti. Thank you, Senator.
    For the committee's information, Amendment 37 was a ballot 
initiative that was passed in November in Colorado that 
mandated a renewable standard. The legislature in Colorado, for 
the past almost 3 years now, has been dealing with a renewable 
portfolio standard which our company has supported. We've found 
ourselves in an awkward position of opposing Amendment 37, 
because it had some poorly drafted language. That's the only 
reason.
    We have since, with the help of the environmental 
community, passed through committee some amendments to that 
Amendment 37 which will make it, certainly, easier to 
implement, but doesn't change the standard, itself, in 
Colorado.
    We have also announced, in Colorado, that we went out with 
an RFP for 500 megawatts. Because the production tax credit has 
a limitation by the end of this year, we were not able to 
secure enough resources to be in production by the end of the 
year. We've tailored that back. Hopefully--and I encourage 
Congress, please, to extend this over a longer period of time, 
because it takes time to site--get the developers in there, 
site these facilities; and, with a short window, it's very 
difficult. But we will meet that standard there, as well as 
four other states that we serve that have renewable standards 
in it.
    Senator Salazar. Mr. Brunetti, is it, in your mind, being 
an expert in electrical generation, feasible to do what we're 
doing in Colorado in other states across the country?
    Mr. Brunetti. Not the same kind of program, no. It would 
not work. One of the reasons I put that chart up is because you 
have to look at the resources available, by region. For 
instance, if we had a standard like that in the Southeast, I 
don't--if I was running a utility in the Southeast, I wouldn't 
know how to go about implementing it, at all, unless you 
expand--broadly expand the definition of what a renewable 
resource is. And that's what I suggest by my written testimony. 
But you have to expand it, because they just don't have the 
availability for wind, and even solar, if you look at the solar 
charts on it, it's just not there.
    Where we serve--Colorado, the Dakotas, Minnesota, Texas, 
and New Mexico--there's great resources available. So we can 
take advantage of that, but I don't know how some of my 
colleagues could ever do that, without expanding the 
definition.
    I just want to make one comment. I think--let's think about 
this from a business point of view. What problem are we trying 
to solve? And is it a security problem? Is it an environmental 
problem? Or, as was suggested, is it to help technologies 
develop? I would say--I would lean toward the first two, it's--
environmental and energy security is what the policy should 
concentrate on.
    Senator Salazar. Secretary Garman.
    Mr. Garman. Thank you, Senator Salazar.
    And my answer to that question largely follows on the heels 
of what my colleague here said. As this map illustrates, the 
distribution of renewable resources across the country is very 
uneven. And a single ``one size fits all'' federally-mandated 
standard would tend to create winners and losers, if you will, 
or wealth transfers. There are ways you can try to design a 
national standard to diminish those impacts; but, in general, 
the winners would be the regions that have ample renewable 
energy resources, and the losers would be those regions 
without. And, inevitably, you'd have some kind of trading 
mechanism where funds would flow from those that have--or from 
those that don't to those who have. It's the short answer.
    Senator Salazar. If I may--I know my time is up, but just 
to push you a little bit on that question--the reality of it is 
that, in the same way that Amendment 37 has happened and the 
same way that we have an RPS in Texas and in many of these 
other States, inevitably, I think what we're going to see 
across this country is going to be the phenomenon where groups 
are going to get together, they're going to put these measures 
on the ballot, they're going to push legislatures to move them 
forward. So you're going to have programs that are like 
Amendment 37 in most of our States around the country, but each 
one of them is going to be different.
    Could we craft something that would be a Federal RPS that 
would provide the kind of flexibility within it that would 
recognize the diversity of renewable sources from region to 
region or from State to State?
    Put it this way, if I were in Wayne Brunetti's shoes, and I 
was the CEO of his company, and I knew that I had to comply 
with one RPS out of Colorado and another one out of Texas and 
another one out of any of the other States that he works in, it 
would cause me some difficulty, I think, in terms of managing 
my compliance with these multiple RPS standards.
    Mr. Garman. That would be true, but retail electricity 
sales are largely regulated at the State level today, so he's 
already having to deal with a multiplicity of State regulators. 
So I don't know that this gains him a whole lot. But I would 
let him answer that on his own.
    Senator Salazar. Thank you.
    Senator Alexander. Thank you, Senator.
    I guess it's my turn to ask questions, and then we'll go to 
Senator Bingaman.
    Excuse me for missing the first part of your testimony. And 
I want to ask a couple of questions about wind. And, if you'll 
excuse me, I'm going to jump ahead a little bit.
    Mr. Bowers, who will testify next, has a map that's over 
there, about wind generation potential in the United States. 
And, in his testimony, he says that in the Southeastern United 
States they lack wind--sufficient wind speeds to support 
commercially viable wind generation, except for isolated 
mountain ridgetops, as shown in figure 3.
    Now, those isolated mountain ridgetops, as shown in figure 
3, include a general area that we might call the Great Smoky 
Mountains National Park and the Cherokee National Forest, which 
is the most visited national park in the United States, by a 
factor of three. Ten million people a year come there, as 
opposed to three million in Yellowstone.
    And I was trying to get a picture in my mind of what the 
Smokies and the foothills would look like with these wind 
turbines spread all around. Has anyone given any thought to 
what a renewable fuel standard that gave incentives, along with 
tax credits, to wind farms is likely to do to the American 
landscape? And has anyone thought about whether Congress should 
consider putting off limits certain parts of our landscape so 
that we could actually see the mountains? Most people from Ohio 
who drive down to the Smokies don't drive down there to see 
windmills or water slides or even cell towers. They drive down 
to see the Great Smokies. And if I'm not mistaken, these wind 
turbines are taller than football fields and can be seen for 
miles away.
    So I'll get to ask Mr. Bowers about that; I'm just 
wondering if, in the discussion of renewable fuel standards, 
there might be the unintended consequence of having Americans 
wake up 10 years from now and find thousands of these football-
field-tall wind turbines in their backyards and front yards and 
in front of their mountains, and whether anyone is thinking 
about that or trying to put that in some perspective.
    Mr. Brunetti, do you have any thoughts about that?
    Mr. Brunetti. I sure do, because, if you look at this map, 
the best wind in the United States is on the Continental 
Divide, which goes through Colorado and up the whole West. And 
it just comes down to the very practical, Senator, that you 
could never permit it. I mean, we could never permit it. We 
have seen citizens groups--in Wisconsin, there's a group that's 
called COW. It stands for Citizens Opposed to Wind, for visual 
reasons. There has been a Citizens Opposed to Wind in Kansas; 
and, as you probably know, in the Northeast, a coastal siting 
of wind generators offshore have raised some protests.
    So it comes down to some practical--any resource has its 
own unique set of problems. And siting usually takes care of 
it. I think, from a practical standpoint, we know that we could 
never try to permit something on the Continental Divide.
    Senator Alexander. Yeah. Before my time is up, if I could 
give a--I've got a picture there, just to--I think one of the 
things, as we think about renewable resources--and then I'll go 
to Senator Bingaman--is to be realistic. And I've tried to 
equate, for example, what one gas rig produces with how many 
wind turbines it would take to equal it. And I believe I'm 
correct that one gas rig offshore, which could be so far out 
that no one could see it, might produce enough energy for 500 
megawatts, more or less. And, if I'm right, that--if each wind 
turbine is one megawatt, or a little more, that would be about 
450 or so wind turbines. That's 46 square miles of wind 
turbines. Or, if you wanted to compare it to a single gas plant 
or a nuclear power plant, 1,000 or 1,100 megawatt plant, then 
that's a 1,000 or 800 or 900 wind turbines. And that's 100 
square miles of these, which can be seen for 5, 6, 7, 8, 10 
miles away.
    We are having a very emotional debate in the U.S. Senate, 
or will have, about whether we should drill for oil in a 3 
square mile area of the Alaska--of ANWR, in Alaska. And there 
is great testimony about how that scars that landscape, in an 
area where very few people will ever see it; yet we're just 
blithely going on, it seems to me, imposing Federal 
requirements that might have the unintended consequence of--and 
many State requirements--of producing thousands and thousands 
and thousands of--literally square miles of wind turbines, 
which produce, in the end, relatively little energy.
    I'd like to come back to that in my question, because my 
time is up, but my objective is to try to make sure we 
introduce some realism into the debate about energy and to make 
certain that, if we're talking about mandated green 
requirements, that we understand--we're not--may not be talking 
about just more fields of corn; we might be talking about 
something that's going to be permanently on the landscape.
    Senator Bingaman.
    Senator Bingaman. Mr. Chairman, I didn't have any 
additional questions for this panel.
    Senator Alexander. Senator Salazar.
    Senator Salazar. Yes. This is just for any member of the 
panel who would wish to comment on this. But, as we talked 
about these renewable energy sources and the different kinds of 
renewable energy that are out there--solar, wind, biomass--do a 
couple of you want to take a stab at giving, to me and to the 
members of the panel, which ones of those are the most 
promising to pursue?
    I think the administration should go first.
    Mr. Garman. Yes, sir. And, as you know, your State is home 
to the National Renewable Energy Laboratory, where many of 
these technologies are under development, we're quite excited 
about the potential of a number of them.
    Wind has tremendous potential. And one of the things we're 
looking at to ameliorate the concerns of Senator Alexander and 
others who are concerned about the aesthetic impact of wind 
turbines on hilltops, is to develop new wind turbine designs--
and this work is underway at the National Renewable Energy 
Lab--to allow wind turbines to be placed in areas of the 
country with lower wind speeds. And this is a long-term effort. 
We'll still have aesthetic issues, because these turbines will 
be even larger than the turbines we have today. But if they can 
be placed in a less sensitive spot, where aesthetics are less 
of a concern, then wind has tremendous potential.
    We also think that wind has tremendous potential offshore, 
perhaps even in some areas of the country out of sight of the 
shoreline, so that the electricity can be generated, but 
without the visual impact. And we think that has tremendous 
potential, particularly in the Northeastern United States, 
where electricity prices are quite high and there is a 
tremendous wind resource offshore, much of it in shallow water, 
where we can place wind turbines and send that power to shore.
    And, similarly, I'm bullish on the long-term prospects of 
solar. If we are successful in our target of developing 6 cent/
kWh electricity by 2020, which is what we're working on at that 
lab in Golden, Colorado--if we're successful, then I don't know 
that we'll have to have a lot of discussions about renewable 
portfolio standards or other mandates to force people into a 
behavior; I think people will be choosing renewable energy 
because it's the cheapest source available to them by that 
time.
    So, those are our hopes. That's what we're bullish on. 
That's what our R&D program is targeted for. And we're grateful 
for the support that we've received for that program from this 
committee, and the Congress, as a whole.
    Senator Salazar. Where are you with respect to ethanol and 
biomass energy?
    Mr. Garman. Ethanol, again, has potential if we start to 
think beyond the ethanol that we derive from corn. We generate 
about, I believe, 3.4 billion gallons of ethanol a year from 
corn, but we use 135 billion gallons of gasoline. We can't 
offset a lot of petroleum with ethanol from corn. However, if 
we are successful in bringing down the cost of ethanol derived 
from cellulosic materials and other waste products, such as 
corn stover, rice straw, wheat straw, other things that would 
normally be left in the field or thrown away, even some forms 
of municipal solid waste, if we're successful in doing that--
and that work is also underway at the National Renewable Energy 
Lab--then we could make a sizable dent--say, 40, 50 billion 
gallons a year--in our gasoline use.
    Senator Salazar. I would ask your continued support of NREL 
in Colorado, because I do think it is one of the facilities 
that has great promise for showing us a future that we need to 
find.
    My time is not quite yet up, but does anybody have any 
other thoughts, in terms of what that portfolio of renewable 
energy sources should be, in terms of the possibility of any of 
the different components that David Garman spoke about?
    Mr. Brunetti. Senator, from a practical standpoint, we have 
to, once again, look at what surrounds you and what's available 
to you. And, from our perspective, wind is--in those States 
that we serve, is the number one source. And one of the issues 
with wind is that, where the wind blows, there's no load, so 
transmission is an incredible--an important issue. That was 
part of the energy bill, dealing with the transmission issue. I 
encourage you to keep that in the energy bill, viability--
building more transmission--encouraging more transmission.
    But besides wind in our portfolio, conservation is a big 
part of our program approach to dealing with environment--
particular environmental issues. And load control is also a 
very important part of our particular portfolio, particularly 
in Minnesota, growing in Colorado, not so much in the 
southern--the states that we serve.
    We've tried some other programmed approaches. They're not 
at the economic point now. We work--I had my whole team down to 
NREL about 2 months ago, looking at some different program 
approaches. I also encourage Congress to keep supporting NREL, 
because it's a terrific lab.
    Senator Salazar. Thank you.
    Senator Alexander. Thank you, Senator Salazar.
    I have a series of questions that Senator Domenici wanted 
to be answered, and I'm going to ask the staff to submit those 
to you and ask you, if you would like to comment on them, to 
please do, because it'll be a full part of our record, and 
we'll play close attention to it.
    I'm going to ask just a couple of those questions of any of 
the witnesses, and then we'll wrap up this panel and go on to 
the next.
    First question is, If there were a national power 
generation diversity standard, should credits offered under a 
State program also count toward fulfillment of any Federal 
obligations? Any comment?
    Mr. Brunetti.
    Mr. Brunetti. The answer is yes. I mean, you have to 
preserve what the States have done. A lot of States have moved 
forward with their programs, and I think it's very important 
that you don't destroy what the states have done.
    Senator Alexander. Mr. Popowsky.
    Mr. Popowsky. Yes, I would agree. In Pennsylvania, as I 
said, we have moved forward with a standard. I think some of 
the things that are included in our renewable portfolio 
standard may not be particularly relevant to the rest of the 
Nation, things like coal waste that we have. But what our 
utilities and other generation suppliers do in Pennsylvania, I 
think they should be given credit for, on a national basis, as 
well.
    Senator Alexander. Well, if a multi-tiered approach like 
the Pennsylvania model were to be used in a national power 
diversity standard, what kinds of resources ought to be 
included? And should there be different levels of credit for 
different classes of resources?
    Mr. Popowsky. One of the things--just speaking for 
Pennsylvania, one of the things that we've found is that, we do 
have some unique environmental problems in Pennsylvania. We 
have these giant mounds of coal waste that we have to get rid 
of. And it's really hard for me to see that that would be 
included in a national standard. I think that there are certain 
resources that I believe, for national security, for 
environmental, for economic reasons, you probably would want to 
include in a national standard; and others, I would think that 
individual States may be able to pursue separately through 
their own separate tier.
    Mr. Morgan. Senator, if I could, I'd like to just add my 
voice, saying, absolutely, the Federal standard should 
essentially overlap with any State requirements that are there 
already that one resource could fulfill both at the same time; 
otherwise, it's seems like the cost would certainly be out of 
hand. And I think most people here would agree that that would 
really be untenable.
    In the District of Columbia, we're actually the newest 
district to have an RPS. It was just passed at the end of last 
year, after Pennsylvania's. And if there were a Federal 
standard, I think it would probably wind up, sort of, trumping 
what we've done already, and I wouldn't have any problem with 
that, you know, with basically meeting the Federal standard at 
the same time. I think that would be the efficient way to do 
it.
    Senator Alexander. And on that, as a follow-up, if there 
were a national power generation diversity standard with 
requirements of up to 10 percent diverse resources, how 
important would tax credits still be to a project's ability to 
be financed? Any comment on the importance of tax credits?
    Mr. Brunetti.
    Mr. Brunetti. Once again, I think this is a consumer issue 
that--development of particular types of renewable energy--
without the tax credit, the price tag to consumers would be 
unbearable, and particularly with, as has been mentioned, the 
run-up in natural gas prices. I mean, consumers are really 
hurting from that today. So it's really important that we--we 
can now price point, for instance, wind to match natural gas. 
And it competes very well with natural gas--with the tax 
credit; without it, the consumers would pay a price tag that I 
think--the question is, What's the tolerance level for 
consumers? And particularly with this run-up in natural gas, I 
think we've reached the complaint point, from a CEO's point of 
view, that's becoming intolerable.
    Senator Alexander. Anyone else?
    Well, I want to thank each of you for coming and for making 
your contribution. And we'll submit the questions to you and 
look forward to your responses.
    We'll now invite the second panel to come forward.
    Senator Alexander. Thank you for being here. I'm going to 
introduce each of you now, and then ask you just to proceed 
with your testimony. If you could summarize your remarks in 
about 5 minutes, and Senator Salazar and I will ask questions. 
As other Senators come in and out, we would give them a chance 
to do the same. Senator Salazar, I'll let you have the first 
questions, when we get to that.
    Don Furman is here, senior vice president, regulation and 
external affairs, PacifiCorp, Portland, Oregon. Welcome. Thank 
you very much. Kerry Bowers, who's manager of customer 
technologies, research and environmental policy department for 
Southern Company, in Birmingham. I already used your map. I 
hope you'll--you don't mind my doing that. Alan Nogee is 
director of Clean Energy Program, Union of Concerned 
Scientists, in Cambridge, Massachusetts. Welcome. And Brian 
O'Shaughnessy, president and CEO of Revere Copper Products, 
Rome, New York, on behalf of the National Association of 
Manufacturers.
    Why don't we just start with you, Mr. Furman, and then 
we'll go right down the row.
    Thank you.

     STATEMENT OF DONALD N. FURMAN, SENIOR VICE PRESIDENT, 
   REGULATION AND EXTERNAL AFFAIRS, PACIFICORP, PORTLAND, OR

    Mr. Furman. Thank you for the opportunity to appear before 
you today.
    As you said, I'm Don Furman. I'm senior vice president of 
regulation and external affairs at PacifiCorp, which is a 
company with 1.6 million electric customers in six Western 
States. We mainly rely on coal--a combination of coal and 
hydropower to serve our customers. And, as a result, we have 
some of the lowest rates in the Nation.
    The purpose of my testimony is to urge the Congress to 
enact national renewable portfolio standard legislation. 
PacifiCorp believes a well crafted national RPS will spur the 
development of renewable electric generation resources 
nationally, over both the short and the long term, in a manner 
that is most cost effective to electric consumers.
    Specifically, PacifiCorp supports an RPS that sets 
reasonably ambitious targets for the next 15 years, maximizes 
the efficiency for power suppliers by permitting the trading of 
renewable energy credits, and caps costs to suppliers and 
consumers.
    Although renewable generation outside of hydro is but a 
small part of our current resource mix, we believe that 
renewable energy, with the appropriate government incentives, 
can and should play a greater role in each utility's generation 
portfolio.
    PacifiCorp believes a national RPS offers a sensible route 
to portfolio diversification that is low cost and low risk to 
consumers. And we base this conclusion on several 
considerations.
    The first one is, portfolio diversification is in the 
national interest. Emphasis on ``national.'' With so much of 
the upward pressure on natural gas demand coming from electric 
generation, it is important for the electric sector, and the 
economy in general, to reverse this trend. Renewable energy can 
make a substantial contribution to generation diversity. 
Reducing the demand on gas will also reduce the upward pressure 
on prices. An RPS could help reduce natural gas costs by 
billions of dollars.
    Second, a national RPS is needed to address the policy 
patchwork emerging across the States. And this is a problem 
that we, in particular, have with six different States 
regulating us. While state RPS laws contribute to the worthy 
goal of driving resource portfolio diversification, a State-by-
State approach will never achieve the real efficiencies offered 
by a flexible national policy, and could be extremely 
troublesome to utilities that operate in more than one State. 
Federal and State policy can achieve an appropriate balance of 
consistency and flexibility by establishing a national standard 
and giving States the ability to set policies exceeding the 
national standard, but without limiting how their power 
supplies meet the Federal standard.
    Third consideration is the policy--is, the current policy 
of stimulating renewable generation development through tax 
incentives is unpredictable and not sustainable. And, for us, 
it's simply not working. The lack of certainty around the 
availability of the renewable production tax credit has 
hampered utilities seeking to acquire renewable resources. 
There is no question that, over the short term at least, the 
renewable PTC is vital to making many renewable projects 
economically viable; but the inability of developers and 
producers and, for that matter, the utilities who are relying 
on developers and producers, to know, with confidence, when the 
credit will be available, if it is available at all, has 
stalled renewable energy development. Enacting a national RPS 
that establishes long-term portfolio diversification objectives 
will give developers and utilities a longer timeframe to plan, 
site, procure, develop, and operate renewable generation.
    Fourth, and last, an RPS would deliver a range of benefits 
to consumers and the environment, establishing a national 
system of tradable renewable energy credits, would maximize 
cost efficiency. It would essentially be a market response, as 
opposed to just a simple subsidy, which is what the tax 
incentive does.
    A cap on compliance costs may also be built into the 
national policy to ensure minimal effect on consumers. Overall 
consumer costs could actually decline due to the reduction of 
natural gas prices, as Dr. Wiser pointed out in the last panel, 
resulting from greater development of renewable generation.
    Furthermore, by adding a significant amount of new 
renewable energy generating capacity, utilities will be able to 
reduce the risk of compliance with any future limits on carbon 
dioxide emissions. This is an issue particularly important to 
my company, because we are so reliant on coal, at the current 
time.
    Mr. Chairman, PacifiCorp recognizes the interest in 
expanding the portfolio standard approach beyond renewable 
energy to include other technologies, such as clean coal and 
nuclear power. It is important to spur the development of a 
diverse base of technologies and fuel sources. PacifiCorp, for 
example, is exploring the addition of an Integrated 
Gasification Combined Cycle, IGCC, coal plant to our resource 
mix. We're very excited about the potential, both in terms of 
the technology, but also in terms of the developing commercial 
arrangements that we think are possible with this sort of 
technology.
    Expanding a national portfolio diversification policy 
beyond renewables, though, should be approached carefully for 
some of the reasons that were mentioned in response to 
questions in the earlier panel. The inclusion of these large-
scale, longer-term technologies should not come at the expense 
of maintaining incentives for renewable energy development. 
And, I guess, to summarize that point, it is that we ought to 
be doing both things; we ought not necessarily be linking them 
into the same exact tool that we use, which is a portfolio 
standard.
    In summary, PacifiCorp believes that renewable development 
will best be achieved through a combination of tax incentives 
and resource portfolio targets over the short term. For the 
long term, PacifiCorp supports establishment of a reasonable 
set of national standards that increases the share of renewable 
generation in all power supply portfolios.
    Mr. Chairman, that concludes my prepared presentation. I'd 
be happy to respond to questions.
    Thank you.
    [The prepared statement of Mr. Furman follows:]

    Prepared Statement of Donald N. Furman, Senior Vice President, 
       Regulation and External Affairs, PacifiCorp, Portland, OR

    Mr. Chairman and members of the Committee, thank you for the 
opportunity to appear before you today. My name is Donald N. Furman. I 
am Senior Vice President of Regulation and External Affairs for 
PacifiCorp, a company with 1.6 million retail electric customers in six 
western states.
    The purpose of my testimony is to urge the Congress to enact 
national renewable portfolio standard (RPS) legislation. PacifiCorp 
believes a well-crafted national RPS will spur the development of 
renewable electric generation resources nationally over both the short-
and the long-term in a manner that is most cost-effective to electric 
consumers. Specifically, PacifiCorp supports a RPS that sets reasonably 
ambitious targets for the next 15 years, maximizes efficiency for power 
suppliers by permitting the trading of renewable energy credits, and 
caps costs to suppliers and customers.
    Today, a large portion of PacifiCorp's power supply portfolio is 
comprised of baseline coal generation. We also own and operate natural 
gas, hydroelectric, and a small set of wind and geothermal generating 
facilities, and we purchase power from other utilities, independent 
power producers, PURPA qualifying facilities and marketers. 
PacifiCorp's Integrated Resource Plan (IRP) projects substantial 
increases in demand for electricity from our customers and calls for 
the addition of thermal (both gas and coal) generating capacity, 
increased demand-side management and conservation programs and the 
procurement of 1,400 megawatts of renewable generating capacity 
(primarily wind) over the next ten years.
    The selection of such a substantial amount of renewable energy in 
our IRP analysis documents that renewables--with the appropriate 
government incentives--can and should play a greater role in utilities' 
generation supply portfolio. PacifiCorp believes a national RPS offers 
a sensible route to portfolio diversification that is low-cost and low-
risk to consumers. We base this conclusion on several considerations:
    1. Portfolio diversification is in the national interest. This 
Committee has taken an in-depth look at the supply and demand 
challenges facing natural gas in the United States. With so much of the 
upward pressure on natural gas demand coming from electric generation, 
it is important for the electric sector and the economy in general to 
reverse this trend. According to the National Petroleum Council, North 
American natural gas production will satisfy only 75% of domestic 
demand by 2025. The greatest increase in the demand for natural gas is 
attributable to the electric generation sector. If we don't act to 
enhance the diversity of our electric generation fuel mix, we will be 
forced to substantially increase gas imports. Unlike most thermal and 
nuclear plants, renewable energy facilities, especially wind 
generation, may be constructed and placed in service relatively 
quickly--making an immediate contribution to generation diversity.
    Reducing the demand for gas will also reduce the upward pressure on 
prices. A recently released paper prepared by the Lawrence Berkeley 
National Laboratory entitled: ``Reducing National Gas Prices through 
Increased Deployment of Renewable Energy and Energy Efficiency'', 
analyzed fifteen studies examining the impact of a national RPS on gas 
prices. These studies all concluded that a RPS will reduce natural gas 
costs by billions--nine of the fifteen studies predict savings in the 
$10-$40 billion range by 2020. The Energy Information Administration 
has on several occasions examined the impact of federal RPS proposals 
and concluded that the small increase in electricity costs would be 
offset by the reductions in gas prices.
    2. A policy patchwork is emerging across the states. Eighteen 
states and the District of Columbia have adopted renewable portfolio 
standards. Several others have a RPS under active consideration. While 
these laws contribute to the worthy goal of driving resource portfolio 
diversification, these state-by-state approaches will never achieve the 
real efficiencies offered by a flexible national policy and could be 
extremely troublesome to utilities that operate in more than one state. 
For example, some states make certain technologies eligible for their 
RPS policy that others do not. Some count only renewable energy that is 
generated inside their state boundaries even though so much electricity 
is bought and sold in interstate markets. Some states may allow credit 
trading while others may restrict it or prohibit it altogether. For 
multi-state utilities, a series of inconsistent requirements and 
regulatory frameworks will make planning, building and acquiring 
generating capacity on a multi-state basis confusing and contradictory. 
Federal and state policy can achieve an appropriate balance of 
consistency and flexibility by establishing a national standard and 
giving states the ability to set policies exceeding the national 
standard but without limiting how their power suppliers meet the 
federal standard.
    3. The current policy of stimulating renewable generation 
development through tax incentives is unpredictable and not 
sustainable. PacifiCorp has issued procurement solicitations for 
renewable resources to meet our IRP targets over the next several 
years. But the lack of certainty around the availability of the 
renewable production tax credit has hampered our ability to meet these 
targets. There is no question that over the short term, at least, the 
renewable PTC is vital to making many renewable projects economically 
viable. But the inability of developers and purchasers to know with 
confidence when the credit will be available--if it is available at 
all--has stalled renewable energy development, created supply scarcity 
for turbines, towers, related equipment, and skilled labor, and 
ultimately raised development costs.
    Consequently, PacifiCorp strongly encourages the Congress to adopt 
a two-track approach to promoting development of renewable energy. 
Enacting a national RPS that establishes long-term portfolio 
diversification objectives will give developers and utilities a longer 
time frame to plan, site, procure, develop, and operate renewable 
generation. In the near term, extension of the renewable energy 
production tax credit is essential to the continued development of 
renewable generation resources, however, until meaningful RPS targets 
kick in.
    4. A market-driven RPS policy would deliver a range of benefits to 
consumers and the environment. Establishing a national system of 
tradable renewable energy credits would maximize cost-efficiency. A cap 
on compliance costs may also be built into the national policy to 
ensure minimal effect on consumers. Overall consumer costs could 
actually decline due to the reduction of natural gas prices resulting 
from greater deployment of renewable generation.
    By adding a significant amount of new renewable energy generating 
capacity, utilities will be able to reduce the risk of compliance with 
any future limits on carbon dioxide emissions. For utilities with 
growing customer demand, this risk-reduction element is a particularly 
important.
    Mr. Chairman, PacifiCorp recognizes the interest in expanding the 
portfolio standard approach beyond renewable energy to include other 
technologies, such as clean coal and nuclear power. It is important to 
spur the development of a diverse base of technologies and fuel 
sources. PacifiCorp, for instance, is exploring the addition of an 
Integrated Gasification Combined Cycle (IGCC) coal plant to our 
resource mix.
    Expanding a national portfolio diversification policy beyond 
renewables should be approached carefully. Including the significantly 
larger (in terms of both generating capacity and actual output) size of 
coal and nuclear facilities would warrant a reconsideration of the 
targets and timeframes of the RPS proposals that have been introduced 
in previous sessions. And the inclusion of these large-scale, longer-
term technologies should not come at the expense of maintaining 
incentives for renewable energy development. If Congress desires to 
expand a portfolio standard requirement to include technologies beyond 
non-hydro renewable energy, it may be wise to establish separate tiers 
for renewable and non-renewable sources.
    In summary, PacifiCorp believes renewable generation resources are 
moving closer to economic viability such that they will become a 
growing part of many utilities' resource portfolios over the next two 
decades. Renewable energy development will best be achieved through a 
combination of tax incentives and resource portfolio targets over the 
short term. For the long term, PacifiCorp supports establishment of 
reasonable, economically viable standards that increase the share of 
renewable generation in all power supply portfolios.
    Mr. Chairman, this concludes my prepared presentation. I am happy 
to respond to any questions you and members of the Committee may have.

    Senator Alexander. Thank you, Mr. Furman.
    Mr. Bowers.

  STATEMENT OF KERRY H. BOWERS, TECHNOLOGY MANAGER, SOUTHERN 
                    COMPANY, BIRMINGHAM, AL

    Mr. Bowers. Well, good afternoon, Senator Alexander and 
Senator Salazar.
    My name is Kerry Bowers, and I am a technology manager for 
Southern Company. I am responsible for evaluating emerging 
technologies related to the generation, delivery, and end use 
of electric energy. It's my pleasure to present our views on 
renewable energy to you this afternoon.
    Southern Company operates over 39,000 megawatts of electric 
generation using a diverse fuel portfolio that includes coal, 
nuclear, natural gas, and hydro. We provide low-cost electric 
energy to over ten million people in the Southeastern United 
States.
    We support the development and use of cost effective 
renewable energy resources. The Southeast lacks sufficient 
resources from which to cost-effectively generate the amount of 
energy that a renewable mandate would require. Therefore, 
Southern Company does not support a mandatory renewable 
portfolio standard.
    I will address the major options for utility-scale 
renewable power generation--hydroelectric, solar, wind, and 
biomass--and comment on the ability to use these resources cost 
effectively in the Southeast.
    Southern Company obtains about 4 percent of our annual 
energy output from the 2,400 megawatts of existing hydro 
capacity. This renewable resource continues to serve an 
important role in our generating mix, providing a low-cost 
means of energy storage that helps us meet peak demands on our 
system.
    Solar energy is less available in the Southeast. This chart 
that's provided shows solar energy reaching the Earth's surface 
is highest in the Southwest, as indicated by the dark red 
colors. Solar energy in the Southeast is represented by the 
lighter greens and yellows, and is about one-half that amount 
observed in the Southwest. We have tested solar technologies in 
the Southeast, and we've concluded that solar generation will 
be prohibitively expensive in our region, and is not practical 
as a utility-scale power generation.
    We have also evaluated wind resources. The second chart--
it's already been referred to today--shows how wind resources 
vary across the country from class one to class seven, with 
class four or higher being required for cost-effective wind 
generation. The purple color shows that, except for the few 
isolated mountain ridgetops, the Southeast lacks sufficient 
wind speeds to support commercially viable wind generation. 
Consequently, our assessment is that wind energy is not 
commercially viable in the Southeast, and could not support a 
mandated renewables portfolio at any significant level.
    Biomass resources are available in the Southeast. We have 
been evaluating the co-firing of forestry wood wastes and 
agricultural crops in our existing coal-fired generating 
plants, and we have proven that biomass can be successfully co-
fired with coal. However, our testing concludes that co-firing 
will be limited to about 5 percent of the energy input to a 
coal-fired plant. Moreover, the ash residue left from 
combusting biomass will have a negative impact on the 
technologies being used to reduce nitrogen-oxide emissions from 
coal plants; thereby, offsetting a major environmental benefit. 
Thus, we do not plan widespread use of biomass co-firing 
technology in Southern's fleet of generating plants.
    However, there is an alternative approach to using biomass 
for power generation. It may be possible to apply gasification 
technology to biomass to form a synthetic fuel gas. Southern 
Company has extensive experience with coal gasification, having 
worked with the U.S. Department of Energy for over 10 years to 
develop this technology. We've recently initiated R&D efforts 
in our company to apply our knowledge of gasification to 
biomass. This R&D program is in its initial stages and will 
require several years of technology development to prove 
commercial viability. Pressurized biomass gasification has the 
potential to be a cost-effective utility-scale renewable option 
in the Southeast, and we are pursuing it.
    In summary, Southern Company has a long history of 
utilization of renewable energy. Not every renewable technology 
will be well suited to every region of the country. Hydro is 
available in the Southeast, and we use it. Solar and wind are 
not commercially viable renewable technologies for the 
Southeast. Some biomass is possible, but continued research and 
development will be needed to estimate its long-term potential.
    We are concerned about a ``one size fits all'' mandate that 
would require us to use more costly renewable resources or to 
pay penalties so that renewable technologies can be built 
elsewhere; thereby, increasing costs to our customers.
    We continue to seek cost-effective additions to our 
generation portfolio based on technology maturity, technical 
performance, and economic viability. We will continue to work 
to facilitate generation technology options, including coal, 
nuclear, natural gas, and renewable energy options that ensures 
a reliable, affordable, and environmentally sound supply of 
energy to meet the growing demands for electric power in our 
region.
    Thank you for the opportunity comment, and I'll be happy to 
address any questions you have.
    [The prepared statement of Mr. Bowers follows:]
      Prepared Statement of Kerry W. Bowers, Technology Manager, 
                    Southern Company, Birmingham, AL
      Renewable Energy Options for the Southeastern United States

                              INTRODUCTION

    My name is Kerry Bowers and I am a Technology Manager for Southern 
Company responsible for the assessment of emerging technologies in 
generation, transmission, distribution and end-use of electric energy. 
I am a Chemical Engineer by training and I have over 25 years of 
experience in the energy industry in technology assessment and 
evaluation. I am testifying today concerning Southern Company's 
experience with and outlook for renewable energy options in the 
Southeastern United States.
    Southern Company supports the use of cost-effective renewable 
energy. Southern Company operates over 39,000 MW of electric generating 
capacity--including more than 8,000 MW of non-emitting hydro and 
nuclear capacity--to provide low-cost electric energy to over 10 
million people in the Southeast. We continually assess renewable 
generation technologies available to augment our generation portfolio. 
I will address the major options for utility-scale renewable power 
generation--hydroelectric, solar, wind, and biomass--and provides 
comments on the ability to use these resources in the Southeast.

                        HYDROELECTRIC GENERATION

    Southern Company has operated hydroelectric plants for over 70 
years. We have 2,400 MW of hydro which supplies about 4% of our annual 
energy output. Hydro continues to serve an important role in our 
generating mix, providing a low-cost means of energy storage that helps 
us meet peak demands on our system. We have identified up to 125 MW of 
incremental renewable hydroelectric generation that could be obtained 
from enhancing existing hydro facilities with advanced technologies.

                            SOLAR GENERATION

    The amount of solar energy reaching the earth's surface in the 
Southeast is approximately one-half that observed in the southwestern 
U.S. due to variable cloud cover and humidity levels in the South that 
diffuse solar energy and reduce its intensity. Figure 1* below 
indicates where solar insolation levels are highest in the United 
States.
---------------------------------------------------------------------------
    * All figures have been retained in committee files.
---------------------------------------------------------------------------
    This reduced insolation level--compared to more favorable Southwest 
locations, clearly reduces the amount of usable electricity that can be 
generated from solar technologies in the Southeast. Moreover, there is 
obviously no solar generation possible at night which accounts for over 
one-half of the year. In addition, early morning and late evening solar 
intensities are reduced, although tracking systems attempt to 
compensate. Southern Company has evaluated numerous solar options over 
the past 20 years, including operation of thermal solar collectors, 
Solar Dish/Stirling technology, and photovoltaic arrays of the types 
shown in Figure 2.
    These technology evaluations were performed at the Georgia Power 
operated Shenandoah Solar Center. In addition, Georgia Power, Georgia 
Institute of Technology and the U.S. Department of Energy installed a 
340 kW photovoltaic roof-top generating system on the roof of the 
Georgia Tech Natatorium used as the Swimming Venue for the 1996 Summer 
Olympic Games in Atlanta. Southern Company has monitored the energy 
production from this facility--which at the time it was completed was 
the largest roof-top solar PV array in the world. The data derived from 
these technology evaluations, coupled with the moderate amounts of 
solar insolation in the Southeast along with concerns over 
intermittency have lead us to conclude that solar energy will be 
expensive in our region and not practical as a utility-scale power 
generation option.

                            WIND GENERATION

    Wind generation technology continues to evolve and Southern Company 
is evaluating installations by other utilities closely. Wind resource 
evaluations performed by the NREL and others conclude that the 
Southeastern U.S. lacks sufficient wind speeds to support commercially 
viable wind generation except for isolated mountain ridge tops, as 
shown in Figure 3.
    Mountain ridge-top locations are remote, requiring incremental 
costs for developing access roads and power transmission 
infrastructure. Moreover, the hilly terrain increases the complexity of 
installation and the overall costs of wind energy due to variations in 
wind flows observed in mountainous regions compared to flatter 
landscapes. This variation is depicted in Figure 6, below which 
illustrates the variable directional wind flow that can exist in 
mountainous areas. This variation tends to decrease the amount of 
usable energy that can be extracted from the wind, resulting in lower 
capacity factors. Reduced capacity factors increase overall cost per 
kilowatt-hour of energy generated.
    Use of mountain ridge tops is of additional concern in the 
Southeast due to concerns over land use for aesthetic reasons. 
Southeastern mountain locations are enjoyed for recreation by a large 
percentage of the public. Scenic vistas are important and Southern 
Company considers that there would be a considerable public resistance 
to the use of mountainous areas for the location of wind farms in the 
Southeast.
    In addition, the intermittency and uncertainty of wind adds to the 
cost of wind installations. Southern Company is a summer peaking 
utility, but wind energy is at a minimum in the Southeast in the summer 
months. Consequently, wind generation requires redundant power 
generation resources to meet seasonal peak loads.
    These factors taken together lead us to conclude that wind 
resources in the Southeast, unlike other areas of the country, are 
limited, costly and not of sufficient quality to support large amounts 
of utility-scale wind generation.

                           BIOMASS GENERATION

    Commercially available biomass-based options include landfill gas 
and co-firing biomass in existing power plants. We have surveyed 
landfill sites in the Southeast and have concluded that, at a maximum, 
there may be a total of 200 MW of available capacity scattered 
throughout our region. Landfills lack the necessary power transmission 
capability to export electricity and must secure environmental permits 
to use reciprocating engines for power generation. These factors 
constrain landfills as cost-effective generation resources.
    The Southeast does have abundant biomass resources in the form of 
wood and other agricultural crops. For over 10 years, we have been 
evaluating these resources by co-firing biomass fuels in our existing 
coal-fired generating plants. While we have proven that biomass can be 
successfully co-fired with coal, it is not without technical 
challenges. Biomass is much less dense than coal, requiring a large 
volume of fuel to be handled. Figures 9 and 10, below, indicate the 
impact of co-firing on power plant operations. Large areas of biomass 
storage and handling are required to accommodate the low mass density 
materials. We believe co-firing will be limited to no more than 5% of 
the energy input to a coal-fired power plant as shown in Figure 11.
    Moreover, the ash residue left from combusting biomass contains 
alkali and alkaline earth elements, such as sodium, potassium and 
calcium. These compounds bind irreversibly with the catalysts being 
used in Selective Catalytic Reduction (SCR) reactors that have been 
installed on Southern Company's large, coal-fired generating plants. 
See Figure 12. These compounds can lead to increased catalyst plugging 
and cause deactivation of SCR catalysts, thus reducing or eliminating 
the ability of this technology to reduce NOX emissions. 
Thus, current biomass co-firing technology cannot be deployed on the 
majority of Southern's fleet of generating plants.

                       NEW TECHNOLOGY APPROACHES

    An alternative technical approach to co-firing is the gasification 
of biomass to form a synthetic fuel gas. Southern Company has extensive 
experience with coal-gasification having worked with the U.S. 
Department of Energy for over 10 years to bring Transport Reactor 
gasification technology to commercialization based on research 
conducted at the Power Systems Development Facility, managed and 
operated by Southern Company. This research culminated in 2004 with an 
announcement to construct the first commercial plant using Transport 
Reactor technology. We have recently initiated R&D efforts in our 
company to use this knowledge for the pressurized gasification of 
biomass. This R&D program is just starting in a partnership with TVA 
and EPRI and will require several years of technology development to 
prove its commercial viability. However, we believe, of all the 
renewable energy technology choices available to us, pressurized 
biomass gasification has the best chance to be a cost-effective, 
utility-scale renewable option in the Southeast and we are pursuing it.

              IMPLICATION OF RENEWABLE PORTFOLIO STANDARDS

    Against this backdrop of the renewable resources available to us, 
we are concerned about mandates that would require us to utilize fixed 
amounts of renewable resources. We prefer to seek cost-effective 
additions to our generation portfolio based on technology maturity, 
technical performance, and economic viability. As natural gas prices 
continue to rise, renewables can be an important hedge against fuel 
cost increases and provide additional stimulus to pursue advanced 
biomass gasification.

                               CONCLUSION

    Southern Company has a long history of utilization of renewable 
energy. We continually assess our generation options--including 
renewable options--to provide low-cost, reliable energy to meet the 
growing demands for electric power in our region. Not every technology 
will be well-suited to every region of the country. We will continue to 
work to facilitate generation technology options--including renewable 
options--that ensures a reliable, affordable and environmentally sound 
supply of energy to meet the growing demands for electric power in our 
region.

    Senator Alexander. Thank you, Mr. Bowers.
    Mr. Nogee.

STATEMENT OF ALAN NOGEE, DIRECTOR, CLEAN ENERGY PROGRAM, UNION 
             OF CONCERNED SCIENTISTS, CAMBRIDGE, MA

    Mr. Nogee. Thank you very much, Senator Alexander, Senator 
Salazar. I appreciate this opportunity. My name is Alan Nogee, 
the energy program director for the Union of Concerned 
Scientists.
    Since you have my written comments, I'll use my limited 
time here to respond to some of the arguments against a 
renewable electricity portfolio standard we've heard today, 
that it's expensive, that it's unfair to some regions, and that 
it's an unnecessary mandate.
    As Dr. Wiser testified earlier, a wide range of studies has 
found that increasing renewable energy will reduce the demand 
for natural gas and the price of natural gas. Those studies 
have also found that a renewable portfolio standard will save 
money for consumers.
    Even when gas prices were low, EIA found that a 10 percent 
renewable standard would break even for electricity customers 
and create savings for natural gas customers. With today's gas 
price forecasts, EIA's model, even with very pessimistic 
assumptions about renewable energy costs, finds that a 20 
percent renewable standard would reduce both electricity and 
gas prices when we run that model out of the box, saving 
consumers $25 billion. Using our assumptions about renewable 
energy costs, we find that a 20 percent renewable standard 
would save consumers $49 billion. In addition, a 20-percent 
standard would give a major boost to the economy. It would 
produce 157,000 net additional jobs, $16 billion in income to 
farmers, and $5 billion in new property tax revenues for local 
communities.
    Now, of course, renewable resources do vary in quantity and 
quality by region. Some regions would gain more of those 
benefits than others. Some have, therefore, criticized the RPS 
as creating winners and losers among regions. But this 
criticism ignores the fact that today most States have to 
import fossil and nuclear fuels from other States, and 
nationally we're increasingly dependent on importing natural 
gas from unstable and unfriendly countries. Under a national 
RPS, every region of the country will be able to increase its 
use of clean, local energy resources.
    Additionally, the manufacturing jobs for those renewables 
are spread throughout the country. A recent study by the 
Renewable Energy Policy Project found that some of the leading 
States to gain from renewables development would be Rust Belt 
States like Ohio, Michigan, Illinois, Indiana, Pennsylvania, 
and Wisconsin, and Southern States, like South Carolina, North 
Carolina, Tennessee, Alabama, Georgia, Virginia, and Florida.
    No one prefers mandates if they're not necessary, but the 
renewables standards in 18 States plus the District of Columbia 
proved that such standards can be effective, affordable, and 
popular. Even with those standards, however, EIA projects that 
non-hydro renewables will increase from only 2 percent today to 
about 3 percent by 2025, a far cry from the 10 or 20 percent 
that EIA's studies, as well as ours, has found would be cost 
effective. That means, simply, without a national standard, the 
American people will pay higher electricity bills, higher gas 
bills, have fewer jobs, poorer communities, dirtier air, and be 
more dependent on overseas imports of natural gas.
    Moreover, utilities and their customers will bear the risks 
of much higher costs of reducing carbon emissions down the road 
if we forego the 59-percent reduction in projected power plant 
carbon emissions that a 20-percent renewables standard would 
provide while saving consumers money.
    Many of the RPS's benefits aren't captured in utility cost-
benefit decisions. Renewables save money over a 20- to 30-year 
operating life of a renewable plant, but utilities are 
increasing--in an increasingly competitive environment look for 
much shorter paybacks. The benefits to natural gas customers 
are off electric utility balance sheets, as are the benefits to 
rural communities and the manufacturing jobs and the national 
energy security. Utilities simply will not invest, they are not 
investing, and they will not invest in the level of renewables 
that are cost effective for our economy, as a whole.
    Finally, we note that a renewable fuels mandate has been 
supported by the House, by the Senate and the White House, even 
though EIA shows that a renewable fuel standard would cost 
consumers money, while a renewable electricity standard would 
save consumers money. And even though, if regional equity is a 
concern, these maps demonstrate the map of existing and 
proposed renewable electricity projects widely dispersed around 
the entire country, as opposed to renewable fuels facilities, 
which are highly concentrated in the Midwest and Upper Midwest, 
as on this map over here.
    Now, that doesn't mean that there's necessarily a problem 
with a renewables fuel standard. But if you like a renewables 
fuel standard for its fuel diversity, energy security, and 
potential environmental benefits, as we would without an MTBE 
liability waiver, you should love our renewable electricity 
standard.
    Renewable energy is still----
    Senator Alexander. The 5 minutes is up, Mr. Nogee, but go 
ahead, please finish your thoughts, and we'll--so we can get on 
to our questions.
    Mr. Nogee. Thank you. It's my last two sentences, Senator.
    Renewable energy is still trying to break into a market 
skewed by tens of billions of dollars of Federal subsidies for 
fossil and nuclear sources over many decades. We need an 
effective national policy to promote renewable energy, rather 
than leaving the critical national price-stability, energy-
security, job-creating, clean-energy benefits of renewable 
energy to the states and to individual volunteers.
    Thank you.
    [The prepared statement of Mr. Nogee follows:]

   Prepared Statement of Alan Nogee, Director, Clean Energy Program, 
              Union of Concerned Scientists, Cambridge, MA

                            I. INTRODUCTION

    The Union of Concerned Scientists (UCS) is a nonprofit organization 
of more than 60,000 citizens and scientists working for practical 
environmental solutions. For more than two decades, UCS has combined 
rigorous analysis with committed advocacy to reduce the environmental 
impacts and risks of energy production and use. Our Clean Energy 
Program focuses on encouraging the development of clean and renewable 
energy resources, such as solar, wind, geothermal, and bioenergy, and 
on improving energy efficiency.
    We favor the adoption of policies to increase the use of renewable 
energy resources in our nation's electricity generation mix. Such 
policies are needed to meet our future electricity needs, diversify our 
electricity supply, reduce the vulnerability of our energy system, 
stabilize electricity prices, and protect the environment. 
Specifically, we endorse a renewable electricity standard, also known 
as a renewable portfolio standard (RPS)--a market-based mechanism that 
requires utilities to gradually increase the portion of electricity 
produced from renewable resources.
    The United States is blessed by an abundance of renewable energy 
resources from the sun, wind, and earth. The technical potential of 
good wind areas, covering only 6 percent of the lower 48 state land 
area, could theoretically supply more than one and a third times the 
total current national demand for electricity. We have large untapped 
geothermal and biomass (energy crops and plant waste) resources. Of 
course, there are limits to how much of this potential can be used 
economically, because of competing land uses, competing costs from 
other energy sources, and limits to the transmission system. The 
important question is how much it would cost to supply a specific 
percentage of our electricity from renewable energy sources. As this 
testimony will show, analyses by both UCS and Energy Information 
Administration (EIA) demonstrate we could generate at least 20 percent 
of our electricity from renewable energy sources by 2020, in addition 
to our existing hydro resources, while reducing prices for both 
electricity and gas customers.
    In this testimony, I will review the evidence that shows that 
increasing renewable energy will save money for consumers, improve 
energy and national security, create jobs and income for American 
farmers and workers, improve the environment and reduce financial risks 
for utilities. I will also address why an RPS, along with other 
policies, is necessary to achieve these benefits, and why continuing to 
rely only on voluntary and state efforts will impose higher costs on 
families and businesses, weaken energy security, and harm the 
environment for all Americans.

   II. RENEWABLE ENERGY CAN REDUCE NATURAL GAS AND ELECTRICITY PRICES

    Energy is critical to our economy. Stephen Brown, director of 
energy economics at the Dallas Federal Reserve Bank, notes that ``nine 
of the 10 last recessions have been preceded by sharply higher energy 
prices.''
    Today's high natural gas prices, caused in part by a boom in 
natural gas power plant construction, are causing economic harm. In the 
February 11, 2005 release on the Short-Term Energy Outlook, the Energy 
Information Administration (EIA) found that the average Henry Hub 
natural gas spot price was $6.32 per Mcf in January. EIA estimates spot 
prices at Henry Hub will average $5.45 per Mcf in 2005 and $5.77 in 
2006. These natural gas prices today are more than double their 1990's 
levels.
    Because natural gas accounts for about 90 percent of the costs of 
fertilizer, escalating prices have put farmers under a severe economic 
hardship. Some manufacturing facilities and industrial users that rely 
heavily on natural gas have already had to reduce operation or move 
their factories overseas. On February 17, 2004, The Wall Street Journal 
reported that the U.S. petrochemical industry, which is heavily 
dependent on natural gas for a primary feedstock as well as for fuel, 
has lost approximately 78,000 jobs to foreign plants where the natural 
gas is much cheaper.
    Natural gas prices show no signs of returning to historic levels. 
EIA has raised its forecast of long-term natural gas prices for each of 
the last seven years. Moreover, a recent Lawrence Berkeley Lab study 
has found that EIA's gas forecasts have been and continue to be at 
least 50 cents/mmBtu lower than market forecasts, based on gas futures 
contracts.
    Renewable energy can help reduce the demand for natural gas and 
lower gas prices. On January 5, 2005, the Lawrence Berkeley National 
Laboratory (LBL) released a review of 13 studies and 20 specific 
analyses using different computer models and different assumptions. The 
analyses all confirmed that renewable energy (and energy efficiency) 
can reduce gas demand and put downward pressure on natural gas prices 
and bills by displacing gas-fired electricity generation. They found 
that the higher the level of renewable energy penetration, the more gas 
is saved, and the more gas prices are reduced. The LBL study also shows 
how these results are broadly consistent with economic theory, with 
results from other energy models, and with limited empirical evidence. 
Many of the analyses LBL reviewed were conducted by EIA and by UCS.
    Even in 2002, when gas prices and price projections were 
considerably lower than they are today, an EIA analysis conducted at 
the request of Senator Frank Murkowski (R-AK) showed that a 10 percent 
renewable electricity standard like the one that subsequently passed 
the Senate would have a negligible impact on electricity prices. EIA 
found only a one mill (one tenth of one cent) per kWh increase in 2020 
with a 10 percent RPS, and no impact in most years. When gas savings 
were considered, total electricity and gas bills were found to be as 
much as $13.2 billion lower with the 10 percent RPS (2000 dollars, 8 
percent discount rate).
    In April 2004, with the assistance of the Tellus Institute, we ran 
NEMS with no changes to the model, using all EIA assumptions. Because 
of the higher EIA gas price projections, the results showed that even 
an RPS of 20 percent by 2020 would reduce electricity and gas prices. 
Cumulative savings to electricity customers under a 20 percent RPS 
totaled $11 billion (net present value) by 2025, with cumulative 
savings to gas consumers of an additional $14 billion, for a $25 
billion total savings (Figure 2).*
---------------------------------------------------------------------------
    * Figures 1-3, and all additional attachments, have been retained 
in committee files.
---------------------------------------------------------------------------
    EIA uses very pessimistic projections of renewable energy 
technology costs. The model also imposes artificial limits on renewable 
energy penetrations, and arbitrarily high costs at increasing levels of 
renewable penetration. We have therefore tested the result of using 
cost projections closer to (but still somewhat more conservative than) 
those used by the national energy labs, and penetration limits and cost 
estimates based on utility studies and experience.
    In our analysis, the consumer savings nearly doubled to $49 
billion, with $35 billion in electricity savings, and $14 billion in 
gas savings (Figure 3).
    The most important conclusion, however, is that whether you believe 
that EIA's pessimistic projections of renewable energy costs are more 
likely, or the national lab projections, the analyses show that a 20 
percent RPS would save both electricity and natural gas consumers money 
in either case.
    A 10 percent renewable standard would save money too, but not as 
much. In our analysis we found that with a 10 percent renewable 
standard by 2020, electricity and gas consumers would save almost $20 
billion, compared to $49 billion under the 20 percent standard. 
Residential consumers could save an estimated $5.8 billion on their 
energy bills by the year 2025. Commercial and industrial customers 
would be the biggest winners saving a total of $13.8 billion between 
them.

     III. RENEWABLE ENERGY CAN IMPROVE ENERGY AND NATIONAL SECURITY

    In response to rising gas prices, and the declining productivity of 
North American gas wells, imports of LNG are projected to increase by 
sixteen fold over the next 20 years. This trend--assuming that the LNG 
infrastructure can be expanded sufficiently--threatens to push America 
down the same troubled road of rising dependence on imported gas that 
we have followed for oil. By reducing the demand for natural gas, 
renewable energy can reduce the pressure for increasing imports. Energy 
from the wind, sun, and heat of the earth are America's most abundant 
resources. They can never be depleted.
    Renewable energy can increase energy and national security in other 
ways as well. Lacking long fuel supply chains, renewable energy 
facilities are not vulnerable to supply disruptions, and the price 
shocks they can cause. Because they do not use volatile fuel or produce 
dangerous wastes, renewable energy facilities (except large hydropower 
dams) do not present inviting targets for sabotage or attack.

     IV. RENEWABLE ENERGY CAN CREATE JOBS AND INCOMES FOR AMERICAN 
                          FARMERS AND WORKERS

    Renewable energy can help improve our national economy. Investments 
in indigenous renewable energy sources keep money circulating and 
creating jobs in regional economies. Renewable energy can greatly 
benefit struggling rural economies, by providing new income for farmers 
and rural communities. It can also benefit manufacturing states, even 
those with less abundant renewable resources, by providing them the 
opportunity manufacture and assemble components for renewable energy 
facilities. And renewable energy can create enormous export 
opportunities, given the growing commitment of the rest of the world to 
expand use of renewable energy.
    With the assistance of consultant Marshall Goldberg, we ran the 
results of our NEMS runs through the IMPLAN input-output model of the 
U.S. economy, and found that a 20 percent RPS by 2020 would produce:

   More than 355,000 new jobs in manufacturing, construction, 
        operation, maintenance, and other industries, nearly twice as 
        many jobs as producing the same amount of electricity from 
        fossil fuels--a net increase of nearly 157,500 jobs by 2020;
   An additional $8.2 billion in income and $10.2 billion in 
        gross domestic product in the United States' economy;
   $72.6 billion in new capital investment;
   $15 billion in payments to farmers and rural areas for 
        producing biomass energy;
   $5 billion in new property tax revenues for local 
        communities; and
   $1.2 billion in wind power land lease payments to farmers, 
        ranchers, and rural landowners.

    Since renewable resources vary in quantity and quality among 
states, some states will obviously reap more of these economic 
development benefits than others. Some have therefore criticized a 
federal RPS for creating ``winners and losers'' among states. This 
criticism ignores the fact that most states are currently energy 
losers, importing fossil and nuclear fuels from other states and 
increasingly from other countries.
    Renewable energy resources are much more broadly dispersed than 
fossil fuel resources. A national renewable standard would therefore 
greatly broaden the number of states that are energy winners. Virtually 
every state should be able to increase its use of its own resources for 
generating electricity, build its local economy, and be less dependent 
on importing energy from other states and countries.
    Additionally, recent analysis by the Renewable Energy Policy 
Project (REPP) found that the economic benefits are not localized to 
the states that have the most renewable energy resources. REPP examined 
the capability of the manufacturing industries in each state to supply 
components for wind and solar facilities. They found that the top 20 
states for wind component manufacturing would be California Ohio, 
Texas, Michigan, Illinois, Indiana, Pennsylvania, Wisconsin, New York, 
South Carolina, North Carolina, Tennessee, Alabama, Georgia, Virginia, 
Florida, Missouri, Massachusetts, Minnesota, and New Jersey. The top 20 
states for solar manufacturing would be California, Texas, Arizona, New 
York, Pennsylvania, Massachusetts, Illinois, Ohio, Oregon, Florida, 
North Carolina, New Jersey, Colorado, Washington, Virginia, Indiana, 
Michigan, Minnesota, New Mexico, and Missouri.
    Interestingly, some have criticized a national RPS for electricity 
on ``regional equity'' grounds while supporting a national Renewable 
Fuels Standard (RFS). As the maps in Attachment I show, renewable 
energy resources are much more broadly distributed than ethanol 
production resources. In addition, EIA studies have found that the RFS 
would cost consumers money, while the RPS would save consumers money. 
This is not to argue that the energy security and potential 
environmental benefits of renewable fuels are not worth those costs. 
But anyone who likes a renewable fuels standard--as UCS would without 
an MTBE liability waiver--should love a renewable electricity standard, 
with its overall consumer savings and broader distribution of benefits, 
as well as energy security and environmental benefits.

 V. RENEWABLE ENERGY CAN IMPROVE OUR ENVIRONMENT AND REDUCE FINANCIAL 
                           RISKS TO UTILITIES

    Electricity use has a significant impact on the environment. 
Electricity accounts for less than 3 percent of U.S. economic activity. 
Yet, it accounts for more than 26 percent of smog-producing nitrogen 
oxide emissions, one-third of toxic mercury emissions, some 40 percent 
of climate-changing carbon dioxide emissions, and 64 percent of acid 
rain-causing sulfur-dioxide emissions. Renewable energy can reduce 
these emissions, thereby reducing the cost of hitting any emission 
caps.
    Our analysis found that a 20 percent renewable electricity standard 
could reduce the projected growth in power plant carbon dioxide 
emissions by 59 percent by 2025. Because the 20 percent renewable 
standard would save money for electricity and gas consumers, these are 
free (or negative cost) carbon reductions. They represent free 
insurance against the risk that power plants--the largest source of 
carbon emissions in the U.S. economy--may have to reduce those 
emissions someday.
    Even most utility executives believe that they will have to 
implement carbon reductions eventually. Yet in response to the increase 
in natural gas prices, more than 100 new coal-fired power plants have 
been proposed. These plants will expose their owners, power purchasers, 
and customers to the risk of future price increases that could be 
avoided by investing in renewable energy instead. Indeed, under an 
economy-wide cap-and-trade approach, the carbon reductions from 
increasing renewable energy will save money for every sector of the 
economy.
    Whether you think that the risk of climate change is great or 
small, increasing renewable energy can reduce the risk of responding to 
it. And renewable energy reduces emissions of sulfur dioxide, nitrogen 
oxides, particulates, and mercury, reducing the cost of complying with 
emission reduction requirements for these pollutants as well.

                VI. WHY A RENEWABLE PORTFOLIO STANDARD?

    If increasing renewable energy would save consumers money, why 
aren't utilities switching to renewables? In fact, a few are beginning 
to invest in wind, energy as a purely economic proposition. Others are 
financing renewable energy development by allowing customers to 
volunteer to pay a little more for renewable energy. But the reality is 
that about three-quarters of the renewable energy developed in recent 
years, and projected to be developed in the next decade, is the result 
of state renewable electricity standards.
    Renewable energy has made great strides in reducing costs, thanks 
to research and development and growth in domestic and global capacity. 
The cost for wind and solar electricity has come down by 80-90 percent 
over the past two decades. However, like all emerging technologies, 
renewable resources face commercialization barriers. They must compete 
at a disadvantage against the entrenched industries. They lack 
infrastructure, and their costs are high because of a lack of economies 
of scale.
    Renewable energy technologies face distortions in tax and spending 
policy. Studies have established that federal and state tax and 
spending policies tend to favor fossil-fuel technologies over renewable 
energy. A 2003 study by the Renewable Energy Policy Project showed that 
between 1943 and 1999, the nuclear industry received over $145 billion 
in federal subsidies vs. $4.4 billion for solar energy and $1.3 billion 
for wind energy. Another study by the non-partisan Congressional Joint 
Committee on Taxation projected that the oil and gas industries would 
receive an estimated $11 billion in tax incentives for exploration and 
production activities between 1999 and 2003. In addition to these 
subsidies, conventional generating technologies enjoy a lower tax 
burden. Fuel expenditures can be deducted from taxable income, but few 
renewable technologies benefit from this deduction, since most do not 
use market-supplied fuels. Income and property taxes are higher for 
renewable energy, which require large capital investments but have low 
fuel and operating expenses.
    Many of the benefits of renewable resources, such as reduced 
pollution and greater energy diversity, are not reflected in market 
prices, thus eliminating much of the incentive for consumers to switch 
to these technologies. Other important market barriers to renewable 
resources include: lack of information by customers, institutional 
barriers, the small size and high transaction costs of many renewable 
technologies, high financing costs, split incentives among those who 
make energy decisions and those who bear the costs, and high 
transmission costs.
    Some have called for future support of renewable energy through 
``green marketing,'' selling portfolios with a higher renewable energy 
content (and lower emissions) to customers who are willing to pay more 
for them. We strongly support green marketing as a means to increase 
the use of renewable energy and reduce the environmental impacts of 
energy use. Surveys show that many customers are willing to pay more 
for renewable energy, and pilot programs have shown promising, but not 
overwhelming results.
    Green marketing is not a substitute for sound public policy, 
however. There are many barriers to customers switching to green power, 
not the least of which is inertia. More than fifteen years after 
deregulation of long-distance telephone service, half of telephone 
customers still had not switched suppliers, even though they could get 
much lower prices by doing so. A 2003 study by the National Renewable 
Energy Laboratory projects that in an optimistic scenario, green 
marketing could increase the percentage of renewable energy in our 
electricity mix from about 2 percent today to only about 3 percent in 
ten years.
    With green electricity, the benefits of any individual customer's 
choice accrue to everyone, not the individual customer. Green customers 
gets the same undifferentiated electrons and breathe the same air as 
their neighbors choosing to buy power from cheap, dirty coal plants, 
creating a strong incentive for people to be ``free riders'' rather 
than pay higher costs for renewable resources. People recognize this 
public benefits aspect of green power. While they consistently say they 
are willing to pay more for electricity that is cleaner and includes 
more renewable energy, they overwhelmingly prefer everyone paying for 
these benefits to relying on volunteers. A deliberative poll by Texas 
utilities found that 79 percent of participants favored everyone paying 
a small amount to support renewable energy, versus 17 percent favoring 
relying only on green marketing.
    Fortunately, 18 states plus the District of Columbia have enacted 
renewable portfolio standards. The RPS is a market-based mechanism that 
requires utilities to gradually increase the portion of electricity 
produced from renewable resources such as wind, biomass, geothermal, 
and solar energy. It is akin to building codes, or efficiency standards 
for buildings, appliances, or vehicles, and is designed to integrate 
renewable resources into the marketplace in the most cost-effective 
fashion.
    By using tradable ``renewable energy credits'' to achieve 
compliance at the lowest cost, the RPS would function much like the 
Clean Air Act credit-trading system, which permits lower-cost, market-
based compliance with air pollution regulations. Electricity suppliers 
can generate renewable electricity themselves, purchase renewable 
electricity and credits from generators, or buy credits in a secondary 
trading market. This market-based approach creates competition among 
renewable generators, providing the greatest amount of clean power for 
the lowest price, and creates an ongoing incentive to drive down costs.
    The states have proven that renewable electricity standards are 
popular and can be effective. We project that state RPS laws and 
regulations will provide support for more than 25,550 megawatts (MW) of 
new renewable power by 2017--an increase of 192 percent over total 1997 
U.S. levels (excluding hydro). This represents enough clean power to 
meet the electricity needs of 17.2 million typical homes. We estimate 
that by 2017 these state RPS programs will also reduce carbon dioxide 
emissions--the heat-trapping gas primarily responsible for global 
warming--by 65.2 million metric tons annually. This is equivalent to 
taking 9.7 million cars off the road or planting more than 15.6 million 
acres of trees--an area approximately the size of West Virginia.
    As encouraging as these state developments have been, they are not 
enough to capture renewable energy's potential benefits to the national 
economy. Under a 10 percent RPS, we would have approximately 100,000 MW 
of non-hydro renewables. Under a 20 percent RPS, we would have 180,000 
MW of non-hydro renewables--and save consumers money.
    Many people forget that we have given voluntary measures and 
incentives more than a fair try. The Energy Policy Act of 1992 called 
for increasing our renewable energy supplies by 75 percent, and enacted 
the production tax credit. Unfortunately, these measures have not been 
successful at stimulating more than very limited renewable energy 
development outside of states that have implemented renewable portfolio 
standards. It is time for a national minimum standard, on which states 
and volunteer efforts can continue to build.
    Energy production creates national economic and environmental 
problems that need national solutions. A national renewables standard 
would establish uniform rules for the most efficient trading of 
renewable energy credits. This uniformity would reduce renewable energy 
technology costs by creating economies of scale and a national market 
for the most cost-effective resources.
    The RPS enjoys widespread bipartisan political support. In 2002, 
143 members of the House, including 21 Republicans called for including 
a Renewable Portfolio Standard in an energy bill. In a September 2003 
letter to the conferees, a bipartisan group of 53 Senators supported 
including a strong RPS in the energy bill conference report. The U.S. 
Senate has twice passed an RPS and the majority of Senators on the 
energy bill conference supported the Bingaman RPS amendment.
    The RPS is the surest mechanism for securing the public benefits of 
renewable energy sources and for reducing their cost to enable them to 
become more competitive. It is a market mechanism, setting a uniform 
standard and allowing companies to determine the best way to meet it. 
The market picks the winning and losing technologies and projects, not 
administrators. The RPS will reduce renewable energy costs by:

   Providing a revenue stream that will enable manufacturers 
        and developers to obtain project financing at a reasonable cost 
        and make investments in expanding capacity to meet an expanding 
        renewable energy market.
   Allowing economies of scale in manufacturing, installation, 
        operation and maintenance of renewable energy facilities.
   Promoting vigorous competition among renewable energy 
        developers and technologies to meet the standard at the lowest 
        cost.
   Inducing development of renewables in the regions of the 
        country where they are the most cost-effective, while avoiding 
        expensive long-distance transmission, by allowing national 
        renewable energy credit trading.
   Reducing transaction costs, by enabling suppliers to buy 
        credits and avoid having to negotiate many small contracts with 
        individual renewable energy projects.

    Some people have asked why hydropower is not eligible to earn 
renewable energy credits in most RPS proposals. The difference with 
hydro is that it is a mature resource and technology. In most cases, it 
is already highly competitive. It will not benefit appreciably from the 
cost-reduction mechanisms outlined above, and an RPS that included 
hydro would likely produce small, if any, increases in hydro 
generation. Additionally, new dams are unlikely to be built and are 
environmentally questionable. Nevertheless, we have supported RPS's 
that include incremental hydro generation from existing dams. Now that 
a Low Impact Hydro Institute (LIHI) certification process with broad 
stakeholder support is operating, we recommend that the definition of 
incremental hydro refer to incremental generation at LIHI-certified 
facilities.
    Some people have also expressed concerns about the variable output 
of renewable sources like solar and wind, and believe that an RPS would 
affect the reliability of our energy system. However, the electric 
system is designed to handle unexpected swings in energy supply and 
demand, such as significant changes in consumer demand or even the 
failure of a large power plant or a transmission line. Solar energy is 
also generally most plentiful when it is most needed--when air-
conditioners are causing high electricity demand. There are several 
areas in Europe, including parts of Spain, Germany, and Denmark, where 
wind power already supplies over 30 percent of the electricity with no 
adverse effects on the reliability of the system. In addition, several 
important renewable energy sources, such as geothermal, biomass, and 
landfill gas systems can operate around the clock. Studies by the EIA 
and the Union of Concerned Scientists show these non-intermittent, 
dispatchable renewable energy plants would generate about half of the 
nation's non-hydro renewable energy under a 10 percent RPS in 2020. 
Renewable energy can increase the reliability of the overall system, by 
diversifying our resource base and using supplies that are not 
vulnerable to periodic shortages or other supply interruptions.
    A summary of studies presented at the European Wind Energy 
Conference in June 2003 indicate that the impacts and costs for large 
scale wind generation on the power grid are relatively low at 
penetration rates that are expected over the next several years. At the 
relatively low penetration levels we see today, the cost is only 0.2 to 
0.3 cents per kWh. A 2003 study by PacifiCorp estimated that the 
additional costs of integrating 2,000 MW of renewables--nearly 20 
percent of its system capacity--were between 0.5 and 0.6 cents per kWh. 
In fact, the PacifiCorp 2003 least cost plan included 1,400 MW of wind 
capacity.

                  VII. ADDITIONAL POLICIES ARE NEEDED

    A number of complementary policies should be enacted to reduce 
market barriers to renewable energy development:

   Extending production tax credits of 1.8 cents per kWh and 
        expanding them to cover all clean, renewable resources 
        (excluding hydropower);
   Adopting national net metering standards, allowing consumers 
        who generate their own electricity with renewable energy 
        systems to feed surplus electricity back to the grid and spin 
        their meters backward, thus receiving retail prices for their 
        surplus power production; and
   Increasing spending on renewable energy research and 
        development.

    The deployment of all these policy solutions will be required to 
truly level the playing field for renewable energy. It is especially 
important that the Production Tax Credit be extended for a period of at 
least five to ten years to provide predictability and price stability 
in the renewables industry and avoid the costly boom-bust cycles 
created by the recent history of short-term extensions.
    The PTC should be extended for all renewable energy technologies. 
The Administration's recent budget assumed that the geothermal energy 
credit included in the last extension would now be dropped. Geothermal 
can play an important near-term role in reducing the demand for gas, 
especially in the Western states that have experienced significant 
price volatility in recent years.
    Net metering is essential to ensure that customers who invest their 
own money in renewable energy in their buildings get fairly compensated 
for excess electricity they produce. Net metering is not sufficient to 
promote renewable energy development, but it is essential to promote 
the use of clean, distributed resources like solar energy.
    Additionally, we urge Congress to pass a suite of policies to 
improve energy efficiency, including both demand-side efficiency and 
supply-side efficiency, such as providing incentives for combined heat 
and power plants. The LBL study and many others have found that energy 
efficiency is the least expensive way to reduce natural gas demand and 
natural gas prices.

                            VIII. CONCLUSION

    Survey after survey has shown that Americans want cleaner and 
renewable energy sources, and that they are willing to pay more for 
them. A survey conducted in 2002 by Mellman Associates found that when 
presented with arguments for and against a 20 percent RPS requirement, 
70 percent of voters support an RPS, while only 21 percent oppose it.
    The combination of EIA and UCS studies demonstrate that with 
appropriate policies, renewable energy technologies can provide 
Americans with the clean and reliable electricity they desire, while 
also saving them money, contributing to our nation's energy security, 
and achieving significant reductions in harmful emissions.
    The net metering and renewable energy production incentive 
provisions included in the current draft bill before the committee are 
laudable and deserving of support. But by themselves, these provisions 
will not get the job done. A strong, market-friendly renewable energy 
standard is required to realize the full potential of America's 
renewable energy resources.
    For all of these reasons, we respectfully urge that as the 
Committee moves forward with its development of national energy 
legislation, you support inclusion of a renewable portfolio standard.
    Thank you.

    Senator Alexander. Thank you, Mr. Nogee.
    Mr. O'Shaughnessy.

STATEMENT OF BRIAN O'SHAUGHNESSY, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, REVERE COPPER PRODUCTS, INC., ROME, NY, ON BEHALF OF 
           THE NATIONAL ASSOCIATION OF MANUFACTURERS

    Mr. O'Shaughnessy. Good afternoon, Senator Alexander and 
Senator Salazar.
    I'm Brian O'Shaughnessy, president of Revere Copper 
Products. My company was founded by Paul Revere in 1801, and 
may be the oldest manufacturing company in the United States. 
Our mission is to be the best in the world at what we do, and 
have fun doing it. This means using, to the fullest extent, the 
talents of all Revere people, working as a team in a safe, 
environmentally sound, and ethical manner to achieve absolute 
customer satisfaction through superior quality and reliability. 
I'd point out, this statement is 17 years old, 
``environmentally sound, ethical, and having fun.''
    But if the RPS provisions in the Senate Energy bills of the 
past two Congresses were enacted and fully implemented several 
years ago, the extra costs would have caused Revere to violate 
its banking covenants and driven us out of business, or led to 
a reduction of capital expenditures over the years that would 
have made continuing in business problematic.
    My background stretches from manufacturing to energy 
generation, transmission, distribution, regulation, and 
consumption, to natural resources and reserves, to 
environmental research based on sound science. So I'd like to 
share some observations on the subject of renewable power with 
you.
    Since the potential for increasing other sources of 
renewable power is modest, let's assume that wind energy would 
provide the bulk of a Federal renewable energy requirement. 
Germany, Denmark, and Great Britain have all recognized the 
practical and cost limitations of large wind power programs. A 
recent study by the Royal Academy of Engineering in England 
determined that wind power in Great Britain would be 
approximately three times the cost per kilowatt hour of 
pulverized coal or nuclear power plants. The estimate 
considered the cost of adequate standby generation to provide 
power when the wind did not blow, but their estimate did not 
consider the cost of additional transmission facilities to 
connect remote wind farms to consumers. The PUC of Texas 
estimates that cost would be one billion to meet half of your 
requirements, or 20 billion on a national level.
    Since wind, at best, averages to generate electricity only 
35 percent of the time in the United States, roughly three 
times as many windmills would have to be built in order to meet 
the RPS sales requirement, yet transmission lines have to be 
built to accommodate the maximum loads.
    Both in Texas and Great Britain, combined cycle gas 
generation is the preferred peaking power to back up wind 
power. So, instead of building the least expensive, but more 
difficult to permit coal and nuclear generation capacity, a 
Federal RPS requirement could have the unintended consequence 
of actually increasing gas use in electricity generation, 
rather than reducing it, as some proponents claim.
    A 1.5-cent penalty fee would simply be paid by generators 
and passed on to consumers and manufacturing companies given: 
one, the cost of building three times as many windmills in 
order to meet the requirement that 10 percent of sales be from 
renewable energy; two, building transmission to remote areas; 
three, dealing with matching dispatch and load harmonization; 
four, building the required backup generation; and, five, 
acknowledging the lack of access to wind in many regions of the 
country.
    Accordingly, many industry experts expect that the majority 
of electricity generators would simply pay the fee and attempt 
to pass the tax through to the consumer and, of course, 
manufacturing companies.
    Some argue that wind power is necessary to save natural gas 
resources for other uses or for future generations. We are 
seeing an unprecedented buildup of natural gas supply from 
foreign resources that are scarcely tapped and will be 
available for generations to come. Is it wise to have a 
national policy that saves this low-cost gas for Chinese 
manufacturing companies while American manufacturing companies 
and their workers and taxpayers are forced to pay the higher 
cost of renewable wind power?
    A number of States are pursuing mandated RPS, including, 
unfortunately, my home State. Frankly, there are enough 
experiments in the United States going on with wind power and 
other RPS sources that our Nation will gain the benefits or 
reap the failure of these experiments without putting our whole 
country at risk.
    One pretty good clue is that if a government program is 
mandated, subsidized, and surcharged, it's probably not good 
economic policy. In my opinion, no such wasteful economic 
policy is sustainable, and will only have a negative impact on 
the environment in the long run.
    Manufacturing in the United States is under assault like 
never before. I believe that providers and jobs in the United 
States are taxed, sued, and screwed to death by what are 
largely unintended consequences of government action. All too 
often, the focus in the U.S.A. is protection of the factory 
worker, while the endangered species is a factory job with a 
good wage in the safest, cleanest environment in the world.
    Please, don't hit us with another mandate. Let the midnight 
ride continue.
    Thank you for this opportunity, and I look forward to 
answering any questions you may have.
    [The prepared statement of O'Shaughnessy follows:]

    Prepared Statement of Brian O'Shaughnessy, President and Chief 
Executive Officer, Revere Copper Products, Inc., Rome, NY, on Behalf of 
                                  the 
                 National Association of Manufacturers

    Good morning, Mr. Chairman and members of the committee. I am Brian 
O'Shaughnessy, President and Chief Executive Officer of Revere Copper 
Products, Inc. Today, I am pleased to have the opportunity to testify 
on behalf of the National Association of Manufacturers (NAM) in 
opposition to proposals to mandate a federal Renewable Portfolio 
Standard (RPS) for electricity generators.
    As you undoubtedly are aware, the NAM is the nation's largest 
industrial trade association representing small and large manufacturers 
in every industrial sector and in all 50 states. The NAM's mission is 
to enhance the competitiveness of manufacturers and improve American 
living standards by shaping a legislative and regulatory environment 
conducive to U.S. economic growth. In light of our dedication to that 
mission, the NAM commends the Chairman and ranking Democrat for your 
efforts to produce comprehensive energy legislation again this 
Congress. Since the President's energy proposals in 2001, the NAM has 
been very active in support of comprehensive energy policies that will 
increase the supply of affordable and reliable energy from all sources, 
to improve the nation's energy infrastructure, and to support energy 
efficiency and innovative energy technologies. At the same time, the 
NAM has just as actively opposed federal imposition of Carter-era types 
of command and control energy mandates, such as arbitrarily high CAFE 
standards, fossil energy rationing through carbon regulation or one-
size-fits-all renewable portfolio mandates.
    My company was founded by Paul Revere in 1801 and may be the oldest 
manufacturing company in the U.S.A. Our headquarters and principal 
manufacturing plant are in Rome, N.Y., plus we have a smaller operation 
in Massachusetts. Our annual sales are over $200 million and we employ 
about 500 people.
    Everyone who works at Revere owns a piece of Revere and no one 
outside of Revere owns any of Revere. We do not pay dividends and 
reinvest every cent of cash flow above that needed to meet bank 
covenants to sustain the business.
    Our mission is ``to be the best in the world at what we do and have 
fun doing it. This means using to the fullest extent the talents of all 
Revere people working as a team in a safe, environmentally sound and 
ethical manner to achieve absolute customer satisfaction through 
superior quality and reliability.'' (This statement is 17 years old!)
    Revere delivers its goods anywhere, anytime as the midnight ride 
continues. We produce copper and copper alloy sheet, strip, coil and 
industrial plate as semi-finished products, which we ship to other 
manufacturing companies mostly in the U.S.A. This means the health of 
manufacturing in the U.S.A. is of paramount importance to our future. 
Revere competes with other similar facilities in the America and 
throughout the world. In recent years, our biggest competition is the 
competition our customers face from imported manufactured goods, 
largely from China, that are sold by large retailers.
    You can imagine in such a fiercely competitive world that cost 
control is critical, along with quality and reliability concerns. It is 
for that reason that the NAM and my company have steadfastly opposed 
mandatory renewable portfolio standards legislation.
    Indeed, if the RPS provisions in the Senate energy bills of the 
past two Congresses were enacted and fully implemented several years 
ago, the extra costs would have caused Revere to violate its banking 
covenants and driven us out of business, or lead to a reduction of 
capital expenditures over the years that would have made continuing in 
business problematic.
    You might think mandating such RPS provisions in the future would 
not be harmful to Revere since New York State has a RPS program and 
Revere would avoid most of the penalty. But Revere is part of a supply 
chain of other U.S. based manufacturing companies. Any burden placed on 
one member of that supply chain is a burden on all other members in 
that it makes the supply chain for that product less competitive with 
foreign sourced product. According to a recent study by the 
Manufacturing Institute and the Manufactures Alliance, U.S. based 
manufacturing is shrinking rapidly because the cost of manufacturing in 
the U.S.A. is 22 percent higher than the costs of manufacturing within 
the borders of our nine largest trading partners. This is not due to 
wages but to the burden of social costs imposed on manufacturing in the 
U.S.A. This is a result of the cumulative impact of largely unintended 
consequences of federal, state and legal actions over the years that 
are driving costs to manufacture in the U.S.A. to noncompetitive 
levels. Electric power costs are a key component of most manufacturing 
and must be competitive with foreign power.
    Revere is the largest consumer of electricity in the Mohawk Valley 
of New York State, with peak demand of 15 MW and annual gas consumption 
of 575,000 decatherms. Sometimes we switch to oil which drops our gas 
demand by 250,000 decatherms. Fortunately, New York State has 
recognized the importance of electricity costs to Revere and provides 
Revere (through the New York Power Authority) with Economic Development 
Power at competitive rates allowing us to stay in business.
    In New York State, I serve on the Board of Directors of three 
industrial energy users' groups and chair two of them. One intervenes 
before the State Public Service Commission in opposition to filings by 
utilities and other groups. In addition, I serve on the Board of 
Directors of a public utility that provides transmission and 
distribution of electricity and gas in Massachusetts and New Hampshire. 
Of course, this entity applies before the public service commissions of 
those states to support utility initiatives.
    Eight years ago, I championed the formation and then chaired, for 
seven years, the world-wide, world class copper industry's 
Environmental Program. This program employs a staff of seven scientists 
with an annual budget of $6 million to fund independent, peer reviewed 
research on environmental issues at leading academic and scientific 
institutions throughout the world. The first 20 years of my career were 
spent in mining where I gained a strong understanding of natural 
resources and reserves.
    The point is my background stretches from manufacturing to energy 
generation, transmission, distribution, regulation and consumption to 
natural resources and reserves to environmental research based on sound 
science. So I'd like to share some observations on the subject of 
renewable power with you.
    My company and the NAM are strongly opposed to a federally mandated 
RPS because it would increase the cost of electricity to consumers 
including the manufacturing sector and do little to improve the 
environment. It is unclear whether advances in renewable technologies 
will increase their economics enough to outstrip improvements in 
conventional power technologies. Since the potential for increasing 
other sources of renewable power is modest, let's assume that wind 
energy would provide the bulk of a federal renewable energy 
requirement.
    At the outset, it is important to note that the NAM does not oppose 
wind power or other alternatives to fossil, nuclear and hydro energy 
sources. In fact, NAM members manufacture some of the best renewable 
energy equipment in the world. What concerns the NAM and my company is 
when the federal government in Washington decides it knows that a one-
size-fits-all renewable energy portfolio is the best energy mix for 
electric utilities whether they are located in New York State, 
California, Montana or Georgia.
    With all due respect, Mr. Chairman, a federal mandate for wind 
power makes little economic or energy policy sense. Germany, Denmark 
and Great Britain have all recognized the practical and cost 
limitations of large wind power programs. A recent study by the Royal 
Academy of Engineering in England determined that wind power in Great 
Britain would be approximately three times the cost per kilowatt hour 
of pulverized coal or nuclear power plants. This estimate considered 
the cost of adequate standby generation to provide power when the wind 
did not blow, but their estimate did not consider the cost of 
additional transmission facilities to connect remote wind farms to 
consumers. Although often omitted by wind power supporters, new 
transmission requirements are not an inconsequential cost, particularly 
because most wind farms will be located in very remote areas rather 
than, say, just off of Nantucket.
    In fact, often it is the potential transmission costs for wind and 
geothermal that completely ruins the economics of a proposed wind 
program. If we assume that, somehow, half of a 10 percent federal RPS 
were to be met by new wind power by 2020, that would be about 20,250 MW 
of new wind generating capacity [using ETA's projected energy 
consumption from electric utilities in that year of 405,000 MW.] 
However, past RPS proposals have required that 10 percent of sales be 
from renewable powered electricity. Since wind at best averages to 
generate electricity only 35 percent of the time in the U.S., roughly 
three times as many windmills (or about 60,000 MW of new generating 
capacity) would have to be built in order to meet the RPS sales 
requirement. And, since transmission lines have to be built to 
accommodate the maximum loads, the transmission system would have to be 
able to handle all the wind from a farm generating at once (which it 
reasonably would); transmission lines would have to be built to 
accommodate all 60,000 MW of wind generating capacity.
    One state with a RPS is Texas where 2,000 MW of renewable energy 
are to be built by 2009. The Public Utility Commission of Texas 
estimates that it will cost over $1 billion in new transmission to 
bring a proposed 3,000 MW of new wind power from wind farms in west 
Texas to consumers in the rest of Texas. This $1 billion was for just 
3,000 MW of new wind power. If that proves to be an average national 
price, new transmission for all the future wind farms would require $20 
billion in new transmission by 2020, just to meet half of a 10 percent 
RPS requirement. By contrast, most nuclear, coal and natural gas 
generation proposals are relatively close to consumers or to current 
facilities and would require much less additional transmission 
investment.
    Another unfortunate consequence of the intermittent nature of wind 
power is that on a stifling hot August afternoon when air conditioners 
are powered up, the wind is not blowing and wind power simply may not 
be available. The consequences of that are greater than you may expect. 
First, most states have a requirement for reserve generation capacity 
to meet not only peak needs but also to meet unusual demands arising 
from unexpected events, such as supply disruptions or demand swings. 
For example, that reserve generation requirement may be 18 percent 
above the prior year's peak demand. But if wind power cannot be counted 
on when it is needed the most, it should not be counted toward the 
total generation capacity requirements under state regulations. So, 
wind power would make almost no contribution to fulfilling the need for 
building conventional generation to meet the reserve margin 
requirements.
    That means that when wind power is available, other conventional 
capacity would have to be shut down for the duration of the wind power 
generation and started up again as the wind power dies down. Such back-
up power must be able to come on and shut down quickly. Due to varying 
wind patterns around the country, up to 75 percent of the wind 
generating capacity may need to be backed-up during periods when the 
wind is not blowing. In some states that have high reserve margins, 
that back up capacity is already in place. In other states, this 
reserve may not be in place which would require new generation, most 
likely in the form of new natural gas units. Both in Texas and Great 
Britain, combined cycle gas generation is the preferred peaking power 
to back-up wind power. So, instead of building the least expensive but 
more difficult to permit, coal and nuclear generating capacity, a 
federal RPS requirement could have the unintended consequence of 
actually increasing natural gas use in electricity generation, rather 
than reducing it as some proponents claim.
    It also seems that most of the models for the cost of wind power do 
not add in the load balancing cost which every other generation source 
must absorb. Wind power proponents seem to want the consumer to absorb 
that cost, which would be significantly higher for wind power than for 
virtually any other kind of power.
    The RPS requirement in previous Senate bills contained a 1.5 cent 
per kilowatt hour fee that could be paid to the government if a utility 
fails to reach its renewable sales requirement. However, for many 
generators, this 1.5 cent fee will be for less than the costs of 
building three times as many windmills in order to meet the requirement 
that 10 percent of sales be from renewable energy, building 
transmission to remote areas, dealing with matching dispatch and load 
harmonization, building the required back-up generation and 
acknowledging the lack of access to wind or geothermal in many regions 
of the country. Accordingly, many industry experts expect that the 
majority of electricity generators would simply pay the fee and attempt 
to pass that tax through to the consumer. In summary, unless this fee 
is ratcheted up by a Congress eager to force a one-size-fits-all 
renewable energy requirement on the nation, the RPS will not really do 
much to increase renewables or significantly decrease natural gas 
demand, but it will certainly increase the cost of electricity to 
manufacturers and other consumers.
    Some argue that wind power is necessary to save natural gas 
resources for other uses or for future generations. The new reality is 
that natural gas is a global commodity. My company is the world's 
largest producer of end plates for heat exchangers used to liquefy and 
allow transportation of natural gas on LNG container ships. We are 
seeing an unprecedented buildup of natural gas supply from foreign 
resources that are scarcely tapped and will be available for 
generations to come. The rest of the world is rushing to build 
facilities to receive these ships and gas pipelines to transport that 
gas to the consumer. Is it wise to have a national policy that 
``saves'' this low cost gas for Chinese manufacturing companies while 
American manufacturing companies and their workers are forced to pay 
the higher cost of renewable wind power?
    As a broad-based, experienced and educated environmentalist with a 
prejudice based on sound science, I believe that nuclear power is the 
best source of sustainable power. So does France, which generates 82 
percent of its power from such sources. More importantly, so does 
China, which is rapidly building power generation from diverse sources 
including natural gas and clean coal as well as nuclear. The U.S.A. 
should do the same. Again, please understand that I am not against wind 
power in those cases where its use is aesthetically acceptable and 
market driven.
    A number of states are pursuing mandated RPS, including, 
unfortunately, my home state. Frankly, there are enough experiments in 
the U.S.A. going on with wind power and other RPS sources that our 
nation will gain the benefits or reap the failure of these experiments 
without putting our whole country at risk. I respectfully request that 
you consider letting these state efforts precede without federal 
interference or additional mandates. Maybe I'm wrong and the RPS policy 
of my state will be shown to be correct, but let's find out as we will 
over time before enacting a national mandate.
    Finally, the NAM is strongly opposed to a federally mandated RPS 
because it would start the federal government back down the perilous 
road of dictating fuel choices to the electricity industry. The history 
of federal interference with energy markets has not been pretty. In the 
1970s the federal government asserted control over price and allocation 
of petroleum products, resulting in a complex regulatory regime that 
subsidized crude oil imports, penalized domestic production and gave 
economic favors to preferred groups such as small refiners and rural 
gas stations. In the 1978 Natural Gas Policy Act, the federal 
government responded to natural gas shortages in the Midwest by 
clamping price controls on unregulated intrastate natural gas and 
setting up a matrix of some 32 different prices for domestic natural 
gas. Both the oil regulations and the Natural Gas Policy Act were acts 
of market interference plagued by temptations to cheat and economic 
favoritism doled out by Congress to influential groups.
    We should not go down this road again. Even the most well-meaning 
RPS necessarily picks winners and losers among energy sources--what can 
be a ``renewable'' and what can't. And, it necessarily picks winners 
and losers among the regions of the United States. Only four Western 
states have any significant geothermal resources, and the entire South 
has minimal wind power potential. We note that there may be efforts in 
the Congress to broaden the base of what energy sources may qualify for 
the RPS, such as adding nuclear, combined heat and power units, and/or 
clean coal generation. While the NAM supports this emphasis on new and 
efficient technologies, it is far better policy to provide incentives, 
research and demonstration assistance, and remove regulatory and 
political barriers rather than to try to improve on the RPS's flawed 
command and control approach. Once established, a federal energy 
regulatory framework such as an RPS will present a great temptation to 
the federal government to amplify the program's politically correct 
goals over economic realities, increase its burden on the economy and 
increase the economic advantages of some entities over others.
    One pretty good clue is that if a government program is mandated, 
subsidized and surcharged, it's probably not good economic policy. In 
my opinion, no such wasteful economic policy is sustainable and will 
only have a negative impact on the environment in the long run.
    Manufacturing in the United States is under assault like never 
before. I believe that providers of jobs in the U.S.A. are taxed, sued 
and screwed to death by what are largely unintended consequences of 
government action while foreign governments revere (pun intended), 
subsidize and support anyone who provides a good job. All too often, 
governmental policymakers and politicians in America support trendy 
environmental voyages instead of sound science and basic economics that 
lead to truly sustainable development. All too often, the focus in the 
U.S.A. is protection of the factory worker while the endangered species 
is a factory job with a good wage in the safest, cleanest environment 
in the world. Please, don't hit us with another mandate, let the 
midnight ride continue.
    Thank you for this opportunity and I look forward to answering any 
questions you may have.

    Senator Alexander. Thank you, Mr. O'Shaughnessy.
    And thanks to all four of you. And I never anticipated I 
would meet the president of a company founded by Paul Revere. 
That is a pretty--that is impressive.
    Senator Salazar.
    Senator Salazar. Thank you very much, Senator Alexander.
    And thank you, as well, to the panelists for giving us such 
diverse perspectives on the issue of the RPS.
    My question is to you, Don Furman. Mr. Furman, you heard 
the comments from another energy producer, Mr. Bowers, where he 
comments that we ought not to have a national renewable energy 
portfolio standard. And, as his argument goes, and the argument 
of Mr. O'Shaughnessy and some of the panelists from before, the 
view is that we have such diversity across the Nation, in terms 
of what is available for renewable energy sources, that it 
would make no sense to have this national standard that has 
been dealt with by this Senate before. How would you respond to 
Mr. Bowers, Mr. Furman?
    Mr. Furman. Thank you, Senator Salazar.
    A couple of ways. One is, while there is a lot of diversity 
across the country, there are renewable resources in almost 
every part of the country. The Southeast has a lot of renewable 
resources in the form of biomass. And I'm not just talking 
about the potential of burning--co-firing biomass in large 
power plants; there are, you know, specifically--specific 
designed plants that will burn biomass much more efficiently.
    I think the other thing that is frequently missed is the 
concept of a national trading system. If you were to put in 
place--I mean, from our standpoint, the benefits of an RPS are 
that it creates a platform in which you can allow market forces 
to work. And if every utility has a requirement to either 
acquire renewable resources or acquire the credits from others 
who do, you create a market-based solution where only the most 
cost-effective, the most environmentally sound projects will 
get built. That's in contrast to the system we have right now 
with tax credits, which, besides the fact that they're 
politically undependable--let me just put it that way--the 
other problem is, every--you know, a wind plant on top of the 
Smoky Mountain National Park is going to get the same tax 
credit as a wind plant in the middle of Wyoming that nobody's 
going to see. And I think one of the thing is that we would see 
in a--with an RPS and combined with a trading system is that 
you would be able to smooth out those inequities across the 
country.
    Senator Salazar. And, Mr. Furman, how would you respond to 
this notion and reality that we're dealing with that we have 18 
States that have already passed a renewable energy standard? 
And I'm sure there are many more States on the way. Mr. 
O'Shaughnessy's own State is pursuing that. So how--what are 
the practical implications of having 50 different sets of those 
kinds of standards around the country to a power generating 
company like yours?
    Mr. Furman. For us, it's particularly difficult. And we're 
a little bit different from some of the other multi-state 
utilities, in that we're not a holding company with operating 
companies. And I won't go into the technical aspects of that. 
But, essentially, we are subject to an RPS currently imposed by 
the State of California. We serve northern California. We don't 
have an RPS in the State of Utah. Utah considered an RPS, but 
they've made a policy decision not to require that. And yet our 
six State system serves all six of those States, and we recover 
our costs through State regulation in all six of those States.
    We have not faced this yet, but one of the nightmares that 
we are concerned about is, we comply with an RPS mandate in one 
State, and another State says, ``Wait a minute, I didn't tell 
you to do that. I'm not going to allow you to recover those 
costs.'' And, again, I want to emphasize, we haven't gotten to 
that point with our State commissions, but it's not hard to 
imagine that sort of a situation emerging.
    I guess a corollary to that, if I could continue, is that I 
think this is a national issue. And that's what I tried to 
emphasize in the beginning of my remarks. And, for that matter, 
the whole issue of carbon is a global issue. And it is 
something that I think is suitable to national policy. And 
rather than having 50 different State legislatures making 50 
different polices, it just makes a lot of sense to me, from a 
public policy standpoint, in adhering to principles of 
federalism, that the Federal Government would, you know, be the 
one to step forward and establish policy.
    Senator Salazar. Mr. Bowers, to make sure that we give you 
equal time, from your point of view, why are the comments that 
Mr. Furman talked about in error? You don't believe we ought to 
have a national RPS, and you talk about the uniqueness of the 
Southern, or Southeastern, part of the Nation. Tell us why you 
think he's wrong.
    Mr. Bowers. Well, I would add that the transference of 
credit trading--our job, in the Southeast, is to add generation 
resources that provide power for our local customers. And to 
pay penalties under--or buy credits from other parts of the 
country transfers funds to those regions without adding a 
single kilowatt to serve our customers.
    We do believe that local--in contrast to a national issue, 
we think the whole renewables discussion should be done at the 
State level. It's about a regional availability of the regional 
resources available to a local utility company, and, I think, 
best served at the State level.
    Senator Salazar. Does it bother you that perhaps--and 
this'll be my last question, Mr. Alexander; I see my time is 
up--that, within your own region of service, that, over time, 
you may end up having three or four different sets of standards 
that you're having to deal with, based on what happens within 
the respective states that you serve?
    Mr. Bowers. Sir, we already operate across four States, and 
we have to deal with four state commissions. And so, we're 
pretty accustomed to dealing with the issues in different 
states.
    Senator Salazar. Okay.
    Thank you.
    Senator Alexander. Thank you, Senator Salazar.
    Mr. Furman, in your testimony you said that your company is 
mainly coal and hydro, which works pretty well. But you urge 
more renewable fuels. And you say renewable energy facilities, 
especially wind generation, can be placed in service relatively 
quickly. And then you cite some studies about renewable energy 
that will reduce natural gas costs by billions, $10 to $40 
billion by 2020. Since wind generation is a major part of that, 
about--do you have any rough estimate of how many megawatts of 
energy wind generation will produce, under this plan, by the 
year 2020 in the United States?
    Mr. Furman. Thank you, Senator.
    I don't. And the reason is, I didn't conduct that study. I 
was quoting Dr. Wiser's study.
    I can tell you what I do know, though. And that is, our 
experience with wind changed dramatically during the California 
energy crisis. My company wrote off a billion dollars of excess 
power costs that we--we recovered a small amount of that 
eventually, through rates, but most of that our shareholders 
ate, frankly. It would have been worse had we not had wind 
resources available to us. What we learned in that experience 
is how quickly you can put together and put up a wind resource. 
And I will concede that----
    Senator Alexander. How many wind turbines do you have 
available to you?
    Mr. Furman. We have, in our integrated resource plan--over 
the next 10 years, we plan to acquire 1,400 megawatts of 
renewable resources, which we expect to be predominantly wind, 
simply because of where we operate.
    Senator Alexander. So that's equal to one gas plant or one 
nuclear power plant or one coal gasification--one coal plant, 
right?
    Mr. Furman. One really big one, yes.
    And I don't mean to say we're going to place all of our 
reliance on renewables. To the contrary, we have, just in the 
last 3 years, either built or acquired or contracted for three 
major gas-fired plants, and we are looking very seriously, as I 
said in my comments earlier, at an IGCC or other clean coal 
technology solution.
    Senator Alexander. If I may interrupt, what is your, just, 
thumbnail response to the commercial viability of this coal 
gasification--the IGCC? Because we have a bipartisan--we're all 
tantalized by it, and wonder if we're being realistic about it, 
or wonder what we can appropriately do to encourage it.
    Mr. Furman. The technology's been around for a long time.
    Senator Alexander. Right.
    Mr. Furman. There's nothing really new about the 
technology. I think the big change was when General Electric, 
and then others, have acquired access to the technology and 
really changed the terms and conditions under which they're 
willing to develop and provide that sort of a resource to a 
utility. In the past, the risk was simply too great for a 
regulated entity to undertake.
    Beyond that, I can't really answer it definitively, because 
we have not committed to it. We are putting a lot of our own 
resources into exploring this. And it seems to have--what's 
interesting about it is the bipartisan support that we get for 
it from Rocky Mountain States, which are largely coal-based, to 
our West Coast States, which are much more interested in 
environmental issues. And it seems to be a place where 
everybody comes together. And as long as the cost is not 
prohibitive, it seems to make sense.
    Senator Alexander. I wonder if any of the witnesses have an 
answer. I'm just trying to get a rough idea in my mind where--
we're going from a situation where most renewable power is 
produced by hydroelectric power, right? And what we're talking 
about there today are standards that would mandate that we 
would--the non-hydro part of renewable power, which is 1 or 2 
percent of the total energy, would go to 10 or 12 or 15 or 20. 
And all of the testimony suggests that wind is an important 
part of that, so I wonder if anyone has a wild guess, if we 
were to adopt the policies being recommended today, about how 
many megawatts of wind power we could expect to be produced in 
the United States in the next 10, 15, 20 years. How can we get 
a sense of that?
    Mr. Bowers. Well, I'll take a crack at that.
    Senator Alexander. Yes, sir.
    Mr. Bowers. As we pointed out, we lack the sufficient wind 
resources of the--elsewhere in the country. Our wind resources 
are lower in the Southeast. But we have tried to estimate how 
many wind turbines we would have to install, as a company, to 
meet a 10-percent RPS. Using the lower wind speeds, it would 
take us about 5,000 wind turbines, just for our company. It's 
an enormous undertaking for us. We don't think it's practical.
    Senator Alexander. Now, 5,000----
    Mr. Bowers. 9,900 megawatts worth of wind turbines would be 
required, Senator, for us to comply with the 10-percent RPS.
    Senator Alexander. If each wind turbine is a little over 
one megawatt, that's about 500 square miles of wind turbines.
    Mr. Bowers. It's a lot.
    Senator Alexander. Washington D.C. is about 61 square 
miles, just to give an idea of size.
    Mr. Nogee, do you have any idea of what we could reasonably 
anticipate, under standards like the ones you suggest, of the 
amount of megawatts that might be produced by wind in the 
United States, as we look ahead?
    Mr. Nogee. It depends on quite a number of different 
assumptions, and I would have to check back at our analyses to 
get the outputs from our analyses. But on a rough--as a rough 
benchmark, you could expect that a 10-percent national standard 
would lead to about--between 90,000 and 100,000 megawatts of 
renewables. So perhaps two-thirds of that--of a 10-percent 
standard--would be wind.
    Now, I would point out that we're looking at about 1\1/2\-
megawatt turbines typically going in today, and larger sizes on 
the horizon, particularly for offshore use, where we're looking 
at 3\1/2\-megawatt turbines in the Cape Wind proposal, and 
they're already looking at 5-megawatt turbines offshore in 
Europe.
    Senator Alexander. Mr. Nogee, shouldn't we be also looking 
to encourage conservation in this discussion of portfolio 
standards? And, if so, how should we do it? Customer premises 
technologies, like fuel cells and photovoltaic systems and 
inherently clean generation sources, like IGCC and nuclear, as 
Senator Domenici was suggesting--why should these resources not 
be included as eligible resources under renewable policies--a 
portfolio standard?
    Mr. Nogee. I think we need to look at what the various 
resources need for their development, and issues around what 
kind of policies make the most sense for different resources. 
We certainly need to promote energy efficiency in this country. 
And one policy that could do that would be an energy efficiency 
performance standard. We are seeing that now being experimented 
with in a few states. That's certainly a positive direction.
    In terms of combining that in one standard with renewables, 
however, I think there's a mismatch, in terms of combining 
policies like energy efficiency, where each technology is cost 
effective on its own, and combining that with supply options, 
like biomass, geothermal, wind, and solar, where you want to 
promote a diversity of energy resources, not each of which is 
cost effective on its own, if you don't count the natural gas 
savings. We think that it would be best to pursue those 
independently.
    Similarly, for the other technologies, if you're looking at 
coal gasification, certainly a promising technology, it needs 
more research and development, we believe. And I think the most 
interesting ideas to come out of this discussion are that one 
could diversity one's portfolio, which is, I think we all 
agree, a major objective of this policy. You diversity one's 
portfolio by adding more of the resources that already comprise 
70 percent of your portfolio. I think that most Wall Street 
analysts would not consider that policy diversification.
    Additionally, there's issues with different levels of 
subsidies that these resources already get. If you were to 
eliminate all of the subsidies for fossil and nuclear fuels, 
and have them all compete, renewables would do very well. But, 
in fact, renewables are struggling to find market share in an 
industry where nuclear and fossil fuels have taken the lion's 
share of subsidies, historically, and continue to get very, 
very significant subsidies. In that environment, we should 
treat them separately.
    Senator Alexander. Thank you.
    Any other comment on that from--Mr. Furman? And then we're 
going to wrap the hearing up by 4:30.
    Mr. Furman. Senator, I just wanted to come back on the 
issue of how much wind is available. There have been 
estimates--and I think Mr. Nogee already hit the statistic I 
was going to give--but there have also been estimates of as 
much as 100,000 megawatts of wind capacity.
    The point I really want to make, though, is that a lot of 
that is in the West. But with a trading system, you can simply 
over-comply, or you could over-comply with the RPS system in 
the West, simply because there isn't--I guess I'm responding to 
Mr. Bower's comment about how much acreage it would take for 
them to comply in the Southeast. That's using Southeast wind 
speeds. But if credits were available for them to comply, they 
would be able to, essentially, take advantage of the wind in 
the West. And the wind resource in the West, in the Upper 
Midwest, is tremendous. It's very large.
    Senator Alexander. If we're going to have 100,000 wind 
turbines, or 80,000 or 90,000, covering, I guess, 10,000 square 
miles of land, would you agree that it might be wise to 
consider a policy of saying that at least some parts of our 
country are off limits, so that we could have some parts of the 
United States where we can look at the landscape and not see a 
wind turbine?
    Mr. Furman. Absolutely. And I think wind turbines aren't 
for every place and every environment. And I think that, in 
certain situations, visually, they're not desirable. I would 
agree with that.
    Senator Alexander. I want to thank each of you for taking 
the time to be here and for providing such excellent testimony, 
both in your written statements and in your oral comments. I 
can assure you that we'll take it very seriously. Senator 
Domenici has us working hard on these issues, and we are 
working in a bipartisan way to try to produce a sensible energy 
bill this year.
    The staff may have some extra questions that they could 
provide to you quickly. And if you have any comment to them, 
we'd like to have them. Or if you think of anything else you'd 
like to say to us, if you can get it in within a few days, we'd 
appreciate that. We'd appreciate that very much.
    Mr. O'Shaughnessy.
    Mr. O'Shaughnessy. Well, I just wanted to say that I don't 
have an oar in the water, as far as these different sources of 
energy. I don't gain or lose from any one of them. I have a 
pretty good understanding of the economics of all of them, all 
of the major ones. To me, it's a major disappointment that wind 
power doesn't work, aside from the aesthetics problems. It's a 
major disappointment that the economics are as disastrous as 
they are, because, when you want to talk about subsidies and 
understanding about the true economics, you'd better understand 
who wrote the study that you're reading. You want to look at 
independent studies where people don't have an oar in the water 
concerning the proposals that they're supporting.
    I think that you have to look globally. You have to 
understand that people who talk about ergonomic models on 
commodities and resources have never got it right. Not ever. 
And if they ever did, and they gave me the results of those 
studies, within 2 years I would put Soros to shame in the 
amount of money that I would control through my ability to 
trade commodities in this world.
    So, there's a lot of uncertainty here. I think the model of 
having different States doing different things on their own, 
and containing the disasters that this is leading to, is good 
economic policy for the United States and for manufacturing.
    Senator Alexander. Thank you, Mr. O'Shaughnessy.
    And, on that, we'll conclude the hearing. Thank you very 
much for coming. The hearing is adjourned.
    [Whereupon, at 4:30 p.m., the hearing was adjourned.]
                                APPENDIX

                              ----------                              


                   Responses to Additional Questions

                              ----------                              

   Responses of Mr. O'Shaughnessy to Questions From Senator Domenici

    Question 1. Does greater reliance on renewables affect our 
competitiveness with other manufacturing nations?
    Answer. First, Revere Copper Products and the NAM support a 
diversified portfolio of energy sources for the generation of 
electricity that includes affordable renewable power. Renewable power 
can make a contribution to increasing energy diversity, but in most 
cases will require federal and state tax support for expansion. Rather 
than command and control programs such as a portfolio mandate, we 
strongly believe that the market, assisted by incentive policies and 
removal of regulatory roadblocks, are far superior allocators of 
resources for electricity generation that will bring the lowest-cost 
electricity to consumers.
    The answer to question #1, is ``yes,'' but the reasoning is 
somewhat different depending on whether you project there will be a 
reduction in natural gas demand because of the RPS (a view is held by 
most of NAM members who have on-site steam and electric generation); or 
whether you anticipate, as Revere Copper Products and the majority of 
NAM members do, that an RPS that depends on wind power would have the 
perverse consequence of encouraging more future natural gas fired 
capacity than would otherwise be built (see the answer provided to your 
question 2. b., below).
    One problem in answering this question is that not only do we do 
not know whether an RPS will reduce domestic gas demand, but how much 
downward pressure such a demand reduction will have. Generally, lower 
natural gas demand would mean a lower natural gas price, which would 
help not only gas-intensive manufacturers and homeowners, but also 
would have a marginal impact on the price of electricity, which would 
help all manufacturers. Nevertheless, this traditional model may not be 
appropriate in the future. During the time frame of the next 15 years, 
the time proposed to meet the traditional federal RPS of 10 percent, 
LNG imports into the U.S. will increase and LNG is expected to have 
become a globally traded commodity. If U.S. powerplants use less 
natural gas to generate electricity as a result of an RPS, there will 
be a marginal reduction in the domestic demand for natural gas, which 
will in turn reduce marginal supply of natural gas--which may be 
imported LNG. However, it is unclear just how much impact lower LNG 
imports will have on the domestic natural gas price. In theory, it 
should, but we simply do not know yet whether in the next decades LNG 
will set the domestic U.S. natural gas price (so that the domestic 
natural gas price would not be affected by shifts in domestic demand) 
and whether or not the LNG market would be so large that the 
international price will not respond to modest shifts in U.S. demand.
    Accordingly, even if an RPS would act to lower natural gas use in 
electricity generation, no one has a sense how much impact that will 
have on overall domestic natural gas prices in 10 or 15 years. 
Certainly, any program that lowers natural gas prices would be a great 
help to natural gas-dependent manufacturing. But the benefits of any 
such program could be outweighed by the economic harm caused if that 
same program raised electricity prices, which would affect all 
manufacturers and the entire economy. Thus, an RPS or other program 
must not trade the real risk of raising electricity prices in exchange 
for perceived benefits, whether that is to increase energy diversity or 
reduce domestic demand for natural gas in electric generation.
    The competitiveness of U.S. manufacturers would be hurt to the 
extent that a traditional RPS or more diversified portfolio option 
raises the cost of electricity by mandating technologies or fees that 
are more expensive than currently idle excess capacity or the lowest 
priced electricity source options, usually pulverized coal. Such a 
program would allow Chinese factories to benefit from the lower cost 
clean technologies available and use more gas in their combined cycle 
gas generators. U.S. workers will not be able to compete. Jobs will be 
lost. Power needs to come from economic, low cost, clean sources such 
as nuclear, clean coal and gas in order for U.S. based manufacturing to 
compete.
    If the goal of an RPS or other portfolio option is to reduce demand 
for natural gas in the electricity sector, then it must also ensure 
that the lowest priced electricity is available to domestic 
manufacturers. If an RPS cannot keep electricity prices as low as 
possible, then the better polices to reduce natural gas demand would be 
to engage in federal policies that ensure more natural gas supply 
through increasing domestic production and LNG, incentivizing energy 
efficiency in the public and residential sector as well as the 
manufacturing sector, and facilitating construction of affordable coal 
and nuclear facilities, as well as providing incentives for increased 
use of alternative and renewable energy sources.
    Question 2a. Will the intermittent nature of renewable mean poor 
reliability?
    Answer. Yes. There are two kinds of reliability and both will 
suffer. The first has to do with having generation capacity available 
whenever it is needed. Intermittent sources by their nature are not 
always there when they are needed. The second occurs as the shortage 
will cause generators to feed lower voltages into the transmission 
lines and power quality and reliability will suffer. This causes 
manufacturing equipment to trip out, damaging the products being 
produced. Revere experienced an example of the costs of power failures 
in the summer of 2003, as area residents turned on air conditioners and 
quickly reached the limit of the supposed excess power generation 
capacity in this mid-state region of New York. Although the utility 
suggested this was caused by Revere equipment, it's funny how it only 
happens when the weather is hot and generation capacity is severely 
strained. Revere had no such incidents in the cooler summer of 2004. 
Reliability of electricity supply is vital to most manufacturers.
    Voltage will also drop as wind velocity drops. Reactive power will 
be needed to bring up voltage and to modulate fluctuations in voltage. 
These characteristics of wind power run counter to a growing need for 
increased power quality and reliability for the digital world. 
Manufacturing needs this to operate ever increasingly sophisticated 
electronic controls and equipment. The future of competitive 
manufacturing will depend on the availability of quality power at 
competitive prices. (Of course, it will also depend on having a tax and 
legal system conducive to manufacturing.)
    Question 2b. Will the intermittent nature of renewable mean greater 
reliance on natural gas for back-up generation?
    Answer. Yes, Revere Copper Products and many NAM members believe 
that adoption of an RPS will actually increase demand for natural gas 
in the electricity sector. When the wind stops, demand for electricity 
does not go down, especially on a stifling hot summer afternoon which 
is all the more uncomfortable because of the lack of wind. Consumers 
turn on air conditioners to compensate. Then, some other conventional 
capacity that has been shut down must come up to replace the wind 
power, as well as to meet the peak demand. Of course, natural gas would 
be saved if it is a natural gas combined cycle plant that was the 
conventional power source that had been idled when the wind blows. The 
real point is that federal policy needs to increase the deployment of 
pulverized and affordable clean coal and nuclear facilities, so that 
natural gas is not the least cost option for electricity generators.
    The type of generating capacity that is most suited for limited 
periods of high demand and providing peaking capacity is single-cycle 
gas turbines. I am aware that natural gas is the preferred back-up 
power to the wind units in Texas, California and Great Britain. It is 
possible that in areas with large reserve margins there may be some 
opportunity to utilize extra coal-fired generation to back-up wind, but 
that would mean that often the turbines would have to be spinning all 
the time, just in case the wind drops. This would effectively double 
the real cost of generating the wind power, and therefore appears to be 
a less likely choice by generators compared to using natural gas backup 
power.
    Any fair and impartial study of the cost of wind power or other 
intermittent sources should include the cost of that stand-by power 
that is not required for conventional sources. Think about that 
conventional power source having to shut down whenever the wind dies. 
Much, if not most, of those costs to build, operate and maintain those 
conventional units continue while the windmills turn. And that cost 
should also be fairly ascribed to wind power's real costs. Moreover, 
utilities cannot count wind power or any other intermittent source 
toward its capacity to meet peak demand unless there is the back up 
power behind it.
    Nevertheless, while an RPS does include several technologies, it is 
wind that appears to have the most potential to meet a traditional RPS. 
And, some NAM members believe that mandating even wind power will 
reduce--the use of natural gas units that will be used otherwise for 
peaking and non-peaking purposes. The ability of wind to be relied on 
to meet peaking requirements is suspect, but when the wind does blow 
during peak demand, wind would back out natural gas use. This analysis 
appears to have particular merit in cases where an electric generator 
has over-built its natural gas peaking capacity or has not been able to 
build coal or nuclear capacity to meet base load growth. Revere and 
other NAM members believe that the better solution for electricity 
consumers over all is for the Congress to pass the Clear Skies Act and 
provide other initiatives to promote new coal and nuclear generation. 
However, once again, an overall increase in electricity costs may 
outweigh for most manufacturers any benefits the reduced natural gas 
demand in the electricity sector.
    In conclusion, in many cases, an RPS will cause electric generators 
to build additional natural gas generation or utilize now idle gas 
generators to provide the necessary back-up power for the mandated 
intermittent renewable generation. This natural gas fired generation 
capacity will be in addition to the normal natural gas peaking capacity 
the generator needs to meet those peak demands on August afternoons. 
Thus, instead of reducing natural gas demand, an RPS could actually 
increase it natural gas use in cases where an electric generator can 
build adequate coal or nuclear generation capacity.

                   HOW TO IMPROVE THE TRADITIONAL RPS

    As indicated in my testimony, Revere Copper Products and the NAM 
strongly oppose the concept of a federal mandate on energy choice for 
electric generators, manufacturers and other consumers. Intrusions into 
the marketplace by previous Congresses and Administrations should be 
proof enough that such intrusions distort markets, have unintended 
consequences, waste consumers' money and prove difficult to turn off or 
improve as favored parties lobby for more rather than less regulation. 
Accordingly, we urge the Congress to refrain from mandating a 
nationwide portfolio for electricity sales or generation. The 
individual states are much better positioned to tailor the political 
and economic balances for electricity generation power sources 
particular to their own situation, including current infrastructure and 
access to renewable or other energy resources.
    However, if Congress deems it necessary to pass a one-size-fits-all 
fuels mandate, then inclusion of every factor that moves the 
traditional RPS closer to a free market mechanism would be an 
improvement. From the Revere Copper Product's and the NAM's perspective 
as consumers of electricity with little ability to pass through 
additional manufacturing input costs, we would like to see such a 
federal fuels mandate require that all net direct and indirect real 
costs (after state and federal tax credits and other incentives) 
incurred by electricity generators to install and operate qualifying 
generation be compared to that utility's lowest cost incremental power 
option, as determined by the local PUC, with full consideration of 
federal and state emission requirements. If the qualifying generation 
exceeds the lowest-cost alternative, there should be relief from the 
mandate to the extent that new sales or generation capacity is built 
with units that meet all Clean Air Act requirements.
    Such an escape value would be a vast improvement over the 1.5 cent 
K/w tax in earlier RPS proposals, as this new approach would encourage 
compliance with the very expensive new Clean Air rules with coal while 
not burdening manufacturers and other electricity consumers with 
unnecessary costs. In fact, the new Clean Air rules will already raise 
the cost of pulverized coal electricity generation, thereby increasing 
the economic attractiveness of renewables, nuclear and advanced coal 
technologies.
    In summary, the Revere Copper Products and the NAM believe a 
federal RPS or even Generation Diversity Standard (GDS) is an outdated 
and unnecessary concept that is not only economically harmful, 
especially in the context of today's competitive world marketplace, it 
is not needed in light of state and federal tax and other incentive 
programs and the stringent new Clean Air regulations.
    Question 3. What about applying the Federal mandate to incremental 
generation only?
    Answer. Certainly, the smaller the RPS or GDS requirement, the less 
impact it will have on the economy. Even if the RPS were only applied 
to the nation's incremental electricity requirements, and even if the 
percentage stayed at 10 percent, all of the sound arguments against a 
federal RPS would still obtain. Yes, there would be somewhat less 
unnecessary additional electricity costs, unfair treatment of some 
states compared to others and distortion of rational economic 
decisions. But, does the mere reducing of the economic harm of an RPS 
turn this lemon into lemonade? And, once this framework is in the 
federal law, history demonstrates that it would be significantly easier 
for future Administrations and Congresses to amplify its size and its 
faults.
    Again, the NAM and Revere Copper Products, believe the new Clean 
Air rules will increase the cost of pulverized coal electricity 
generation, and that will be a sufficient incentive, combined with 
state and local tax incentives, to increase the market penetration of 
renewables, nuclear and advanced coal technologies for incremental 
electricity needs.
    Question 4. Should credits offered under State programs count 
toward a Federal mandate?
    Answer. The closer a federal mandate approaches state requirements, 
the better. The individual states are much better positioned to tailor 
the political and economic balances for electricity generation power 
sources particular to their own situation, including current 
infrastructure and access to renewable resources. In fact, imposing a 
federal mandate as an overlay over the state's inherently more informed 
decisions is bound to lead to economic waste and unfairness between 
various states and the manufacturers and other electricity consumers 
within them.
    Question 5. What resources should be included in a GDS if a multi-
tier approach is used?
    Answer. More choices will always improve the mandate by moving 
toward the real marketplace. If Congress were to mandate a one-size-
fits-all GDS that allows nuclear and clean coal facilities to qualify 
in a GDS, then that would be an improvement over a traditional RPS. 
However, the consequence would be that Congress would be favoring every 
type of electricity generation energy except the most affordable in the 
near term--most importantly new or renovated pulverized coal 
facilities. Since such facilities are now required by the EPA under the 
Clean Air Interstate Rule and the Mercury Rule to meet dramatically 
lower emissions requirements, Congress would be steering electricity 
generators away from very clean and very affordable power options, to 
the detriment of our competitiveness and standard of living.
    Question 6. Should there be different levels of credit for 
different classes of resources?
    Answer. Rather than impose a new federal regulatory framework where 
Congress decides what is best for the marketplace and has to guess 
about circumstances and technologies many years into the future, it 
would be highly preferred if the Congress instead encouraged through 
tax incentives and RD&D efforts the widest variety of energy sources 
that could then be adjusted as circumstances and technologies change. 
Changing a GDS, on the other hand, would involve a major political 
struggle involving many now-advantaged parties, and would always be a 
political rather than an economically sound program.
    Question 7. What should be the States' role in determining 
resources, tiers and credits?
    Answer. A Federal GDS could only be improved if the several states 
were given the autonomy to use their individual judgment based on their 
particular circumstances. Accordingly, the NAM would respectfully 
suggest that the best GDS is a statement that the federal government 
will not preempt state RPS and GDS programs, and will not impose either 
on any state that has chosen not to adopt them.
    Question 8. Should transmission improvements, storage facilities 
and demand-side management gains be credited?
    Answer. Yes, definitely. If there has to be a GDS, in many cases 
these factors would be more affordable ways to use energy more 
efficiently and reduce the dependence on generation.
    Question 9. Should the payment of RPS credits by a retail supplier 
to the DOE be changed to make the DOE pay the retail supplier credits 
for qualifying investments?
    Answer. This is an excellent idea, and would have all the benefits 
of incentivizing whatever politically correct energy sources Congress 
chooses at a given time, without increasing electricity costs to the 
consumer. Perhaps the money to fund this DOE credit program could be 
raised from new on-shore federal oil and gas receipts or OCS revenues 
from production off the coasts of states that are willing to accept it, 
such as Virginia. This concept loses support from consumers like the 
NAM, however, if the funding source for the DOE credits were to come 
from some tax on energy.
    Question 10. If there is a mandated GDS of 10 percent, how 
important would tax credits still be to a project's financing?
    Answer. It is unclear whether the question refers to today's 
renewable energy production tax credit or the DOE credit proposed in 
question 9. If the GDS definition of qualifying generation energy 
source is very broad, then perhaps wind and biomass would only be built 
where it makes economic sense to do so. Today, wind power is rarely 
being built voluntarily without the federal and sometimes a similar 
state, tax credit. Thus, it is likely that federal outlays to the 
renewable energy tax credit will be considerable if there is an RPS, 
but less in the future if there is no RPS or if a GDS mandate included 
nuclear and other more affordable technologies.
     Response of Mr. O'Shaughnessy to Question From Senator Salazar
    Question 1. It is very clear from your testimony that you are 
against a renewable portfolio standard, but I don't believe you have 
thought this through. First, let me get this straight: your company is 
already subsidized by the government of New York State, which allows 
you to buy electricity at a rate less than the average consumer. If you 
are already subsidized by the state government, why do you think that 
would change under a renewable portfolio standard? Secondly, I dispute 
your claim that a federally mandated RPS would increase the cost of 
electricity to consumers. Mr. Nogee, sitting on this same panel, has 
hard numbers to prove that costs will not go up, and he is not alone. 
Models being used by the Union of Concerned Scientists, the Rocky 
Mountain Institute, and others are modeling oil at about 35 dollars a 
barrel today and dropping to 25 dollars a barrel by 2010. Natural gas 
prices follow a similar trend. These numbers are so low that you will 
have to admit something is wrong with them. Yet even under those 
models, the price of electricity and the price of natural gas would go 
down with a renewable portfolio standard. Why are you against cheaper 
electricity and gas prices?
    Answer. Revere is not subsidized by the government of New York 
State but it was allowed to buy power, at cost-based rates, from a 
state owned power plant as part of an economic development program. 
Fortunately, this program has had the effect of protecting 
manufacturing companies like Revere from the costly transition to 
deregulated markets in New York and the stranded costs that resulted 
from the failure of mandated state energy programs of many years ago.
    The irony is that the low cost power available to Revere as part of 
this arrangement is nuclear. Several years ago, the state sold its 
nuclear generation plants and no longer can supply low cost power 
outside of a narrow geographic band around its hydro plants. In about 
two years, the contract that Revere has for competitive cost power will 
run out and it is not clear that the state will be able to replace it. 
If I believed for a minute that wind power was truly low cost, you 
couldn't find anyone who would be more excited because they are being 
built all around my Rome, New York plant.
    By the way, the local utility believes there is excess power 
available in this area (mid-state) and that a transmission line should 
be built to transport the alleged excess power available in this region 
to downstate New York where there is clearly a shortage. This is a 
perfect example of having to build wind power in locations that are not 
close to where the shortage occurs. A clean coal or gas plant located 
closer to New York City would not require anywhere near the same 
investment for transmission lines to serve those locations from mid-
state New York. Of course, as stated in my earlier testimony, the 
additional transmission costs that are unique to wind power because of 
its site specific attributes are not included in wind power generation 
costs as they should be in any fair comparison.
    I am also concerned about Revere's customers who are other 
manufacturing companies located throughout the United States. For 
example, Revere ships to a manufacturing customer in Tennessee who may 
ship to a final product manufacturing plant in Alabama. Now that 
product must compete with a similar product made in China. A federal 
mandated program burdening them with high cost power just makes it all 
the more difficult for them to survive.
    Putting Revere aside for a moment, consider that the impact on 
Revere would be similar to the impact on many of the thousands of 
manufacturing companies located throughout the U.S.A. Most of these are 
small manufacturing companies like Revere and usually even smaller. 
However, many of our customers are the large manufacturing companies 
whose names are familiar to you. We don't want to see the competitive 
position of their manufacturing facilities in the U.S.A. harmed either.
    There are several categories of groups that perform economic and 
feasibility studies of energy sources . . . all lay claim to developing 
hard numbers. One group consists of environmental groups who are 
generally well intentioned but hardly independent since economic 
realities are not their first priority. A second group consists of 
manufacturing companies who benefit from alternative energy sources 
because they produce materials or equipment or fuels used in this 
sector. The third are utilities. The third group has many players with 
quite different agendas and are difficult to classify. Utilities will 
differ based on whether they are generators or transmission and 
distribution (t&d) companies. Is the generation regulated or 
``deregulated''? (In fact, deregulation should be termed reregulation.) 
The same utility or generator can have different objectives in 
different states. A ``deregulated'' generator could be very interested 
in wind power if the costs are subsidized and its use is mandated so 
that t&d companies must build transmission lines to their sites. The 
t&d regulated utilities may not mind that since they are in the 
business of building lines and recovering the costs in their rates. 
Finally the ISO must dispatch such power not on an economic basis but 
to meet the mandate. Yet other utilities may feel that the utter 
impracticality of renewable power is not good for their local economies 
but may be inhibited in speaking out because they do not want to appear 
to be politically incorrect.
    The long and short of it is that most of the parties who advocate 
for renewable power have interests that are not the same as a 
manufacturing company such as mine which can examine dispassionately 
the true economics of alternative sources and understand what is real 
and what is highly improbable. Based on pure economics, renewable power 
today unfortunately incurs costs much higher than conventional sources. 
If their costs were lower, governments would not have to mandate, 
subsidize and surcharge it into use. You would find people like me and 
my company doing it without you, thank you.
    Whenever Revere or any other well-run company that must compete in 
the real world does an economic analysis, one of the first things we do 
is list the assumptions made in the analysis. This list grows as the 
study proceeds. For example, a study that has five pages of data might 
have one full page of assumptions . . . say 20 items. Hard numbers as a 
result are extremely rate but what is clear is that in any economic 
analysis, it is easy to product a biased result. So you look at the 
source. What is the self-interest of that source? If you want to know 
what is good for manufacturing and manufacturing jobs in the U.S.A., 
ask me or NAM, not the Union of Concerned Scientists or the Rocky 
Mountain Institute or even a public utility.
    My examination of the true economics of wind power is that it (in 
most cases) represents an economic disaster that cannot be sustained. I 
further believe that any economic model that cannot be sustained is 
harmful to the environment. I've come to believe that since the 
evolution of renewable power is at a very early stage in its 
development, mandating renewable power with today's technology is like 
trying to go the moon in the 1950's. Someday a country that has a 
highly industrialized economy that supports a strong military will 
develop a new technology for renewable power that is clean and 
economic. This conclusion is based on a belief that only a strong 
economy can support the research effort that will be required to 
develop such a source and that it will be the result of a spinoff of 
military (and space) programs. Whimsical solutions like windmills are 
hallucinations. Don Quixote need not apply.
    Think about the wind blowing and the wind turbines generating. Then 
the wind stops and conventional power must kick in to replace it. Then 
the wind starts up again and the conventional power shuts down. Do you 
send the people at the conventional plant home? Do you dismantle the 
plant and sell the scrap to recover the capital cost of construction? 
In the real world, you include the back up costs that are uniquely 
required (to such an extent) for wind power as part of the wind power 
costs. This is what the Royal Academy of Engineers considered in its 
fairly unbiased study that I quoted. The irony is that the most 
efficient plants to shut down and start up for back up power are gas 
fired generation plants and not the lower cost large scale nuclear or 
clean coal plants. Having said all that, there is a place for wind 
power and the market will find that place if it is not mandated or 
subsidized or surcharged into an uneconomic application.

     Response of Mr. O'Shaughnessy to Question From Senator Talent

    Question 1. If there is a mandated RPS, how would transmission from 
remote locations be paid for?
    Answer. If the RPS is built within a non-competitive state, and the 
electric utility's rates are regulated by the Public Utility 
Commission, then the commission would have to presume a federal 
mandated costs of an RPS, including the back-up power and the 
transmission as well as the renewable generation facilities, as ``just 
and reasonable'' and pass those costs through to the ratepayers. Added 
to this rate increase for consumers presumably would be a standard rate 
of return on the capital invested--insult to injury for beleaguered 
electricity consumers.
    Question 2. How should nuclear energy and clean coal through coal 
gasification be factored into a national RPS?
    Answer. The NAM strongly supports federal encouragement of 
additional nuclear power, including aggressive RD&D of advanced nuclear 
technologies, and a broad exploration of new technologies to use the 
nation's abundant and affordable coal reserves. Since the NAM strongly 
opposes mandating a nation-wide portfolio for electricity sales or 
generation, we believe the better policy is for the federal government 
to encourage all potential sources of energy for electricity generation 
independently of some arbitrary portfolio requirement.
    Of course, if the Congress were to mandate a one-size-fits-all RPS, 
allowing nuclear and clean coal facilities to quality would be an 
improvement, but the consequence would be that the Congress would be 
favoring every type of electricity generation energy except the most 
affordable in the near term--most importantly new or renovated 
pulverized coal facilities. Since such facilities are now required by 
the EPA under the Clean Air Interstate Rule and the Mercury Rule to 
meet dramatically lower emissions requirements, the Congress would be 
steering electricity generators away from very clean and very 
affordable power options.
    Question 3. Should full costs of adding renewable resources and 
efficiencies, as compared to other sources of energy, be factored into 
any RPS?
    Answer. As you are aware from our testimony, the NAM is very 
concerned that the proponents of an RPS do not appear to take into 
account the ``hidden'' costs of the additional transmission, back-up 
power, balancing, load following and dispatch costs, and of course, the 
cost of building three times as much wind power generating capacity as 
is needed to meet the sales requirement. We found the testimony of the 
Union of Concerned Scientists to be especially oblivious to these real 
costs.
    The NAM urges the Congress to refrain from mandating a nation-wide 
portfolio for electricity sales or generation. The individual states 
are much better positioned to tailor the political and economic 
balances for electricity generation power sources particular to their 
own situation, including current infrastructure and access to renewable 
resources.
    However, if there must be a mandated, one-size-fits-all RPS, then 
of course, inclusion of every factor that moves the RPS closer to a 
free market mechanism would be an improvement. From the NAM's 
perspective as consumers of electricity with little ability to pass 
through additional costs, we would like to see such a federal RPS 
require that all net direct and indirect real costs (after state and 
federal tax credits and other incentives) incurred by electricity 
generators to install and operate the renewable generation be compared 
to that utility's lowest cost incremental power option, as determined 
by the local PUC, with full consideration of federal and state emission 
requirements.
    In our view, the most appropriate ``escape valve'' to prevent an 
RPS from hurting the economy would be to excuse compliance with the RPS 
if all qualifying generation options exceed the lowest-cost alternative 
available in the marketplace--whether that is CHP, pulverized coal or 
demand-side management.
    Such an escape value would be a vast improvement over the 1.5 cent 
K/w tax in earlier proposals, as this new approach would encourage 
compliance with the very expensive new Clear Air rules with coal while 
not saddling manufacturers and other electricity consumers with 
unnecessary costs. In fact, the new Clean Air rules will already raise 
the cost of pulverized coal electricity generation, thereby increasing 
the economic attractiveness of renewables, nuclear and advanced coal 
technologies.
    In summary, the NAM believes a federal RPS is an outdated and 
unnecessary concept that is not only economically harmful especially in 
the context of today's competitive world marketplace, it is not need to 
responsibly encourage renewables in light of the stringent new Clean 
Air regulations. If the goal of an RPS is really to decrease natural 
gas demand in electricity generation, then the NAM believes there are 
more appropriate polices to accomplish that goal that do not have the 
risk of raising the cost of electricity to all consumers. Better 
polices to reduce natural gas demand would be to engage in federal 
policies that ensure more natural gas supply through increasing 
domestic production and LNG, incentivizing energy efficiency in the 
public and residential sector as well as the manufacturing sector, and 
facilitating construction of affordable coal and nuclear facilities, as 
well as providing incentives for increased use of alternative and 
renewable energy sources.:
    Question 4. Would it be more appropriate to apply any national RPS 
only on generation needed to meet load growth?
    Answer. Certainly, the smaller the RPS requirement, the less impact 
it will have on the economy. Even if the RPS were only applied to the 
nation's incremental electricity requirements, and even if the 
percentage stayed at 10 percent, all of the sound arguments against a 
federal RPS would still obtain. Yes, there would be somewhat less 
unnecessary additional electricity costs, unfair treatment of some 
states compared to others and distortion of rational economic 
decisions. But, does the mere reducing of the economic harm of an RPS 
turn this lemon into lemonade? And, once this framework is in the 
federal law, history demonstrates that it would be significantly easier 
for future Administrations and Congresses to amplify its size and its 
faults.
    Again, the NAM , the believes the new Clean Air rules will be 
increasing the cost of pulverized coal electricity generation, and that 
will be a sufficient incentive, combined with state and local tax 
incentives, to increase the market penetration of renewables, nuclear 
and advanced coal technologies for incremental electricity needs.
                                 ______
                                 
       Responses of Mr. Nogee to Questions From Senator Domenici

    Question 1. Shouldn't other clean energy sources be eligible for 
inclusion in a portfolio standard--State or Federal?
    Would you agree with the statement that support for renewables 
should fit within a much larger public policy objective of:

   diversifying our sources of electric generation;
   reducing environmental impact;
   reducing reliance on oil and natural gas; and
   helping ensure that consumers pay no more than is necessary 
        for their electricity.

    If you agree with this statement, shouldn't we also be looking to 
encourage conservation; customer premises technologies like fuel cells 
and photovoltaic systems; and inherently clean generation sources like 
IGCC and nuclear? Should these resources be included as eligible 
resources under a RPS? If not, why not?
    Answer. I would agree that support for renewables should fit with 
the policy objectives outlined above, along with the objective of 
increasing use of domestic resources to enhance energy security and 
economic development, especially in rural areas.
    Customer-sited renewable generation, such as fuel cells using 
renewable fuels and photovoltaic systems, should continue to be 
eligible in a federal RPS, and continue to be eligible for triple 
credits, as enacted twice by the Senate. While I would agree that IGCC, 
advanced nuclear generation, and non-renewable customer sited 
generation should be encouraged, other mechanisms should be used to 
encourage these technologies, and they should not be included as 
eligible resources in an RPS, for the reasons discussed below.
    Each of the technologies listed in the question could somewhat 
reduce reliance on oil and gas. As Dr. Ryan Wiser testified, by 
reducing the demand for natural gas, they would help reduce its price, 
as he found that efficiency and renewable energy would do. Dr. Wiser 
also testified that the price impact from reducing demand is larger in 
the short-term than it is in the long-term.
    Over the long-term, however, the most important economic benefit of 
the RPS is that it would diversify the fuel sources in our energy 
portfolio, reducing consumer and industrial energy bills by creating 
new competitors to the coal, gas and nuclear resources that currently 
constitute about 90 percent of our fuel sources for electricity. 
Developing advanced technologies that use existing fuels is also 
important, but does not contribute to the objective of diversifying 
energy sources.
    Any new or minimally used fuel whose price is independent of 
existing fuels would help accomplish that objective. The more that new 
competitors are available to be rapidly deployed, the less vulnerable 
our economy is to potential energy supply shortages or interruptions, 
price spikes, price increases or price manipulation as a result of our 
current dependence on a limited supply of a limited number of fuels. 
Renewable resources--including wind, solar, biomass, geothermal, tidal, 
and wave power--are especially valuable in this respect because they 
are also domestic, non-interruptible, and nondepletable; because they 
do not present attractive targets for terrorists; because they avoid 
the risk of high future environmental and safety regulatory costs; and 
because they each have the potential for significant expansion as 
competitors to existing fuels.
    Improving the efficiency, the environmental performance, and the 
safety of technologies that utilize currently dominant fuels is also a 
very important objective, but accomplishing that objective cannot 
satisfy the critical national need to develop new competitors to 
current fuels. Because both objectives--developing new fuel sources, 
and developing advanced technologies using dominant fuels--are 
important, one policy, such as the RPS, should not be used to create a 
zero-sum game where achieving one objective competes with achieving the 
other objective.
    Proposals that would maintain or increase even other subsidies for 
the dominant resources, and potentially phase out the production tax 
credit for renewables, compound the concern that including other 
technologies in the RPS could limit or preclude its effectiveness in 
developing new competitors. Nuclear generation, for example, continues 
to receive significant subsidies for fuel enrichment, insurance, 
security, and waste disposal. A Cato Institute paper found that the 
insurance subsidy alone conferred by the Price-Anderson Act is worth as 
much as $3.4 billion per year to the nuclear industry.\1\
---------------------------------------------------------------------------
    \1\ Heyes, Anthony. ``Determining the Price of Price-Anderson.'' 
Regulation, Winter 2002-2003. Available at: 
---------------------------------------------------------------------------
    Improving energy efficiency is also a critical national objective, 
but one that should not compete with or displace the need to develop 
new supply-side competitors to coal, nuclear and gas. The U.S. needs 
both improved energy efficiency and new supply options. There are many 
very inexpensive efficiency options that are not being implemented 
because of market barriers in the electricity industry. Sound energy 
policy should ensure that those cost-effective efficiency options are 
implemented without putting them in competition with and compromising 
the objective of developing new supply options.
    The RPS is designed to help emerging renewable technologies cross 
over the so-called ``valley of death'' between R&D and commercial 
deployment. The RPS lets the market place determine winners and losers 
by creating a national market with competition among new commercially 
ready technologies to gain critical field installation and operating 
experience and achieve initial economies of scale, the RPS helps drive 
down the costs of the technologies to enable them to increasingly 
compete with established fuels.
    To the extent that Congress wants to utilize competition to meet a 
standard to further the objectives of developing new renewable energy 
sources, improve end-use efficiency, or developing advanced technology 
to utilize today's dominant energy sources, it should create entirely 
separate standards to meet each of the three objectives. In that way, 
similar technologies will compete with each other to achieve each of 
the three objectives, without trading one important objective for 
another.
    Before considering such a competitive mechanism for advanced 
technologies using today's dominant energy sources, however, we 
recommend that Congress consider:

   While there are now a number of states that have 
        demonstrated successfully that a renewable standard can work, 
        there is not yet one working state example of an advanced 
        technology standard. Pennsylvania's standard, with a separate 
        tier for non-renewable advanced technologies, is still in the 
        regulatory development phase.
   The RPS creates competition among renewable projects and 
        options because many small projects can compete to fulfill a 
        relatively small piece of the overall load. As Commissioner 
        Richard Morgan pointed out in his oral testimony, it is not 
        clear whether such a mechanism would work effectively with much 
        larger projects. Larger projects would create lumpy additions 
        to utility rates, and are not likely to be financeable using a 
        market-based mechanism such as tradable credits, especially for 
        initial deployment of new technologies.
   We are not aware of any analyses that would help determine 
        appropriate percentages, costs and benefits, or cost cap levels 
        for a standard for advanced technologies.
   To be on a level environmental playing field with 
        renewables, which have very low or zero net carbon emissions, 
        IGCC would have to be coupled with carbon capture and storage.
   An early deployment mechanism, like a portfolio standard, is 
        not a substitute for R&D. Carbon capture and storage still 
        requires significant R&D to determine if it can be effective 
        and economical. Advanced nuclear technologies require 
        considerable R&D to resolve safety, security, waste disposal 
        and economic issues before they are ready to consider for 
        deployment.
   Nothing will foreclose future nuclear options faster and 
        surer than another nuclear accident. The highest nuclear 
        funding priority should be increasing the Nuclear Regulatory 
        Commission's budget for inspection and enforcement.
   While R&D on advanced fossil and nuclear technologies is 
        very important, the paltry sums expended on R&D by the mature 
        energy industries in comparison to other industries\2\ suggests 
        that Congress may be perpetuating an unnecessary and expensive 
        expectation and dependence on federal R&D support. While the 
        graph below* from 1995, the R&D situation, particularly in the 
        electricity industry in the wake of restructuring, has become 
        only worse. Congress may want to consider how to induce greater 
        R&D spending by the energy industry itself, rather than simply 
        increasing subsidies for the well-established fossil and 
        nuclear industries.
---------------------------------------------------------------------------
    \2\ RM Margolis, DM Kammen, ``Underinvestment: The Energy 
Technology and R&D Policy Challenge.'' 1999 Science 285:690-692. http:/
/ist-Socrates.berkeley.edu/rael/Margolis&Kammen-Science-R&D.pdf
    * The graphs in this statement have been retained in committee 
files.
---------------------------------------------------------------------------
    Question 2. Are higher prices in store for consumers whose 
utilities have little ability to generate electricity from renewables?
    You make a strong ``big picture'' case for a national RPS citing 
job creation, manufacturing opportunities, creating fuel diversity 
among other advantages. However, there are still states and companies 
that oppose a renewable mandate because they do not have sufficient 
solar, wind or biomass sources to meet such a mandate and they believe 
that it will force ratepayers in their jurisdictions to pay higher 
rates for electricity because credits must be purchased to meet the 
mandate. How do you respond to those concerns?
    Answer. Thank you. A national renewable electricity standard would 
not only save money for U.S. consumers as a whole, but would most 
likely reduce energy bills in every region of the country. The 
following table illustrates the savings, by census region, from our 
analyses utilizing the NEMS model, in each of the three scenarios we 
have run using EIA's 2004 natural gas price projections. The graph 
shows the definition of the census regions, along with the savings from 
a 20 percent national RPS, using UCS assumptions.

          CUMULATIVE ENERGY BILL SAVINGS BY U.S. CENSUS REGION
                        [In billions of dollars]
------------------------------------------------------------------------
                                    20 Percent by 2020 RPS    10 Percent
                                  -------------------------- by 2020 RPS
          Census Region                                     ------------
                                       UCS          EIA          UCS
                                   Assumptions  Assumptions  Assumptions
------------------------------------------------------------------------
New England......................          1.4          0.7          1.1
Mid-Atlantic.....................          5.7          2.0          4.0
East North Central...............          8.4          5.3          6.1
West North Central...............          2.2          1.2          1.8
South Atlantic...................          2.9          0.1          4.0
East South Central...............          1.6          0.9          1.6
West South Central...............         13.3          8.1         10.5
Mountain.........................          5.0          3.1          2.8
Northwest........................          2.6          1.7          1.7
California.......................            6          4.2         4.3
------------------------------------------------------------------------
Results are in cumulative net present value 2002$ using a 7 percent real
  discount rate. Excludes transportation.
Source: UCS, 2005. Based on results from Renewing America's Economy.

    The reasons that all regions can benefit from a national RPS are 
that a) all regions would see lower natural gas prices for electricity 
generation as well as for other direct gas consumers b) all regions 
have some renewable resources, and would likely see an increase in 
using local resources for generation, c) the national credit trading 
market created by a national RPS means that all regions can buy 
renewable energy credits for the same price, and give utilities 
negotiating leverage over local renewable generators; and d) by 
achieving economies of scale, the national RPS will reduce the cost of 
renewable energy technologies throughout the country.
    Additionally, while the Southeast may not have as rich a renewable 
resource base as some other regions, the dearth of renewable resources 
in that region has sometimes been exaggerated.
    For example, Mr. Bower's testimony for the Southern Company 
neglected to mention the potential for off-shore wind energy resources. 
Recent research has found commercially significant wind resources--
including the very strongest class 7 winds--off-shore in the Gulf of 
Mexico and the South Atlantic.\3\
---------------------------------------------------------------------------
    \3\ Archer, C. L., and M. Z. Jacobson, Spatial and temporal 
distributions of U.S. winds and wind power at 80m derived from 
measurements, J. Geophys. Res., 108(D9), 4289, doi:10.1029/
2002JD002076, 2003. Available online at: http://fluid.stanford.edu/
lozej/winds/2002JD002076.pdf.
---------------------------------------------------------------------------
    The Southeast also has significant existing hydropower resources. 
According to the National Hydro Association, the Southeast as the 
potential to add 2,941 MW of incremental hydropower at existing dams--
second only to the Northwest/Rocky Mountain region.\4\ Mr. Bower's 
testimony also neglected other ocean resources, such as wave and tidal 
power, which are proving to be increasingly promising.\5\ Since 
incremental hydro, as well as off-shore wind, tidal and wave resources 
are not included in EIA's NEMS data bases, they are not included in 
either EIA or UCS analyses. Were these resources included, the analyses 
would show even greater benefits for the Southeast region.
---------------------------------------------------------------------------
    \4\ ``Averting Disaster: Keeping the Lights on With Hydropower,'' 
National Hydropower Association Issue Brief, Tables 2 and 3. http://
www.hydro.org/pubs/lights2.asp?t1= index.asp&n1=Publications
    \5\ e.g., Leonard Anderson and Timothy Gardner, ``Cities Eye Ocean 
Waves for Power Supplies,'' Reuters, Feb 13, 2005. http://
www.reuters.com/newsArticle.jhtml?type= businessNews&storyID=7611884
---------------------------------------------------------------------------
    Mr. Bower's testimony included a map of solar resources intended to 
demonstrate that such resources in the Southeast pale in comparison to 
the Southwest. In determining the value of solar energy, however, the 
effective load carrying capability (ELCC)--which reflects the match 
between solar output and peak electricity demand--can be more important 
than the measure of direct solar radiation in a region. The ELCC in 
most of the Southeast is very high, and in some areas of the Southeast 
is among the highest in the country.\6\
---------------------------------------------------------------------------
    \6\ http://www.nrel.gov/ncpv/documents/pv_util.html
---------------------------------------------------------------------------
    Southeast states currently import fossil fuels from other states 
and countries. Is it more of a problem for Georgia to import some wind 
energy from, say, the Midwest or Texas than to continue importing coal 
from Kentucky, Virginia, Wyoming, and Venezuela? Is it more of a 
problem for Florida to import some renewable energy from neighboring 
states than to continue importing coal from nine states plus Columbia, 
Poland, Venezuela and South Africa?\7\
---------------------------------------------------------------------------
    \7\ http://www.eia.doe.gov/cneaf/coal/quarterly/t28p01.txt
---------------------------------------------------------------------------
    A national RPS will have other benefits for the Southeast and other 
regions. By giving utilities the option of buying locally produced 
renewable resources or importing renewable credits from other states, 
utilities have more leverage over local producers to help keep costs to 
a minimum. By creating a national market for renewable energy credits, 
and encouraging development of each renewable technology where it is 
most cost-effective, a national RPS maximizes learning effects and 
economies of scale, driving down renewable energy costs. By improving 
technology faster, the national RPS makes renewable resources in every 
region cost-effective sooner than they would be without the RPS.
    As noted in my oral testimony, the Southeast, and every region of 
the U.S., has more renewable electricity potential than most regions 
have renewable fuels potential. Anyone who likes a national renewable 
fuels standard should love a national renewable electricity standard.
    Question 3. Are other Federal initiatives needed to make a Federal 
RPS work?
    Mr. Nogee, the Energy Information Administration estimates that 
renewables will meet approximately 3.2 percent of the nation's demand 
for electricity in 2025. If the federal government mandated a 20 
percent standard of electricity from renewables by the end of the next 
decade, what additional federal incentives may be needed to assist the 
states and electric utilities to meet the mandate?
    Answer. It is important to extend the production tax credit for at 
least five to ten years, whether the RPS is enacted or not. The 
financial industry needs predictability and stability in a familiar 
mechanism to continue to invest in renewable energy, and make the 
forward investments in manufacturing capability and infrastructure 
needed to sustain continued growth in the renewable energy industry. 
The PTC should also be tradable, so that it can be utilized by entities 
that may not have the tax situation needed to take advantage of the 
current PTC.
    The RPS is intended to be sufficient to accomplish the objective of 
helping the most commercially ready, cost-effective renewable 
technologies ramp up deployment and reduce costs. It is not sufficient 
to accomplish all critical objectives for encouraging the development 
of new renewable technologies. As recommended by PCAST, R&D on 
renewable technologies should double over five years. National net 
metering and interconnection standards are necessary to ensure fair 
treatment of customer-sited renewables. A national system benefit 
charge that provided matching funds for state programs would provide an 
incentive for more states to fund such programs, and more resources to 
ensure diversity within the renewable resource portfolio of each 
region. Transmission policies and prices are needed that do not 
unfairly penalize renewables for their unique characteristics, such as 
variable output. And to the extent that Congress considers support for 
traditional infrastructure, such as pipelines or transmission, Congress 
should consider support for transmission initiatives to regions with 
particularly rich renewable resources. These initiatives are not 
absolutely necessary for the RPS to work, but they would enable it to 
produce even more consumer savings, more economic development benefits, 
and more diversity of fuel sources.
    Question 4. Are EIA's estimates of future use of renewables too 
pessimistic?
    You suggest in your testimony that EIA uses very pessimistic 
projections of renewable energy costs. Would you explain for the 
Committee why you believe those projections to be pessimistic?
    Answer. We discuss below thy most analysts believe that EIA's 
projections for renewable energy costs and performance are pessimistic. 
Please note, however, that the question in the header, whether EIA's 
estimates of future use of renewables are too pessimistic, is a 
different question, that is more difficult to answer. On the one hand, 
to the extent that EIA's cost projections are pessimistic, EIA's model 
will tend to underforecast the use of renewables in the reference case. 
This problem is compounded by pessimistic forecasts of the likely 
result of state RPS programs. On the other hand, the NEMS model 
``builds'' the new capacity that is most cost-effective over the life 
of that capacity. Since most utilities have much shorter planning 
horizons and payback criteria, particularly since restructuring began, 
the model will tend to over forecast the extent to which utilities will 
invest in capital-intensive resources, like renewables, under business 
as usual.
    It is very difficult to know how these tendencies offset each 
other, and the extent to which EIA's business as usual forecasts of the 
use of renewables are too high or too low. However, because they 
utilize pessimistic assumptions about renewable energy costs, we 
believe that EIA significantly overstates the cost of achieving any 
given state or federal renewable electricity standard, where the 
minimum level of renewable use is determined by the standard, not by 
modeling assumptions.
    EIA's projections of renewable energy technology costs and 
performance are overly pessimistic compared with projections made by 
the national energy labs, the Electric Power Research Institute, and 
other renewable energy experts. For example, EIA's cost projections for 
wind, geothermal, and solar energy technologies are considerably higher 
than projections recently made by the U.S. Department of Energy (DOE) 
Office of Energy Efficiency and Renewable Energy (EERE) to examine the 
impact of their renewable energy R&D programs for the FY05 Government 
Performance Review Act (GPRA).\8\
---------------------------------------------------------------------------
    \8\ GPRA assumptions are online at www.eere.energy.gov/ofce_eere/
gpra_estimatesjy05.html. These assumptions are an update to assumptions 
originally made in NEMS by the Interlaboratory Working Group of the 
five national energy laboratories in Scenarios for a Clean Energy 
Future. The renewable energy cost and performance assumptions were 
originally developed by the Electric Power Research Institute (EPRI) 
and recently updated by the National Renewable Energy Laboratory (NREL) 
in the Power Technologies Databook 2003 and in the GPRA analysis.
---------------------------------------------------------------------------
    EIA's projections for wind power in good wind regimes are 1-2 
cents/kilowatt-hour higher than the DOE/GPRA projections, as shown in 
the figure below. EIA also projects that costs for wind will be 
relatively flat over time, because they assume wind is commercial 
technology and that modest improvements in performance will be more 
than offset by higher financing costs. In contrast, DOE/GPRA assumes 
that wind power will follow the historic trend of continued cost 
reductions due to increased volumes in manufacturing and research and 
development that lead to technology advances and improved performance. 
The figure also shows that the assumptions we used in our most recent 
national RPS analysis are closer to (but slightly more conservative 
than) the DOE/GPRA projections.
    EIA's model has also been criticized for artificially constraining 
the growth of renewable energy technologies. For example, EIA has 
assumed that there is an absolute limit on the penetration of wind 
energy in any region to ensure reliable grid operation. While EIA has 
raised this limit several times, EIA's maximum penetration limit has 
been below levels actually achieved in regions in the European 
Union.\9\ Recent European research indicates that there are only 
economic limits to penetration, as the cost of balancing the system 
increases at higher wind penetration levels, but no absolute limit.\10\
---------------------------------------------------------------------------
    \9\ EIA set the limit at 12% in the AEO 2001 and AEO 2002 versions 
of the model, raised to 20% in AEO 2003, and 40% in AEO 2004 along with 
higher economic penalties at higher levels of penetration.
    \10\ Soder, L. (2004) `On limits for wind power generation', Int. 
J. Global Energy Issues, Vol. 21, No. 3, pp. 243-254.
---------------------------------------------------------------------------
    Analysts have also critiqued EIA's model for applying unfair 
economic penalties to renewable energy technologies as their 
penetration increases. For example, EIA increases the capital cost of 
wind power by up to 200 percent to reflect resource degradation, 
transmission network upgrades, and competition with other uses (see 
figure). EIA's applies the highest cost penalty (a 200 percent 
increase) to over 90 percent of the total class 4-6 wind potential in 
the U.S. We do not believe there is any empirical support for this 
severe of an increase.
    In contrast, we assumed a maximum capital cost increase of 50 
percent as the penetration of wind increases to 30 percent of a 
region's electricity. This includes a 20 percent cost increase for 
integrating wind into the broader electricity system based on a recent 
analysis for PacifiCorp's Integrated Resource Plan and a 30 percent 
increase for additional siting and transmission costs based on 
estimates from wind developers, utilities, and other studies. 
PacifiCorp's wind integration cost estimate is at the high end of the 
range of studies that have been completed to date for several 
utilities.\11\
---------------------------------------------------------------------------
    \11\ A more complete description of the assumptions we changed in 
NEMS for our most recent national RPS analysis is available at: http://
www.ucsusa.org/clean_energy/renewable_energy/page.cfm?pageID=1504.
---------------------------------------------------------------------------
    EIA also does not include several advanced renewable energy 
technologies that could be economically viable over the next 20 years. 
Perhaps, most importantly, they do not include class 3 or offshore wind 
potential. DOE goal is to develop a low wind speed turbine that is 
capable of producing electricity for 3 cents/kilowatt-hour by 2012 in 
class 4 wind areas, without incentives or transmission costs. This low 
wind speed turbine would also increase the competitiveness of class 3 
wind areas, which are available in nearly every state in the U.S. and 
are often located close to load centers. Wind development is already 
occurring in class 3 areas in a few places in the Midwestern and 
Eastern U.S. and in Europe countries like Germany and Denmark. Several 
European countries are also aggressively pursuing offshore wind 
development. In addition, EIA does not include potential from enhanced 
geothermal systems, wave and tidal power, and incremental hydropower 
expansion at existing dams, and advanced biomass crops that can produce 
significantly greater yields than today. These resources and 
technologies could make a contribution to long-term U.S. electricity 
needs.
    EIA has also consistently underestimated natural gas prices over 
the past decade. The impacts of their gas forecasts are discussed in 
response to Senator Salazar's question #2.
    Question 5. Does a traditional RPS--limited to solar, wind and 
biomass--impose excessive costs on utilities and their customers?
    According to the Electric Power Research Institute, impacts of RPSs 
can be significant, especially for those companies that depend on coal 
and other fossil fuels to supply the power delivered to their 
customers. For example, under a 10% renewable portfolio standard, a 
large utility with 20,000 megawatts of generation delivering 140,000 
gigawatt hours per year of power to customers would need to replace up 
to 14,000 gigawatt hours per year with renewable energy. If wind was 
the only economical choice, it would be necessary to build and operate 
or purchase power from 5000 to 7000 megawatts of wind generation, 
depending on the wind resource strength. Thus, a single utility's wind 
energy requirement would approximately double the installed wind 
capacity in the United States today. This example could also require an 
investment of about $5 to $7 billion in wind facilities; and an 
additional investment in transmission and control facilities, which 
would be required to integrate the intermittent wind generation into 
the grid. Other significant issues include public acceptance, land use, 
and noise, visual, and avian impacts.
    Do you think EPRI's example accurately describes what could happen 
under a limited traditional RPS?
    Answer. Detailed studies by the EIA and by UCS show that a 
traditional national RPS would not impose costs, let alone excessive 
costs, on utilities and their customers, but results in savings on both 
natural gas and electricity bills.
    With respect to the hypothetical EPRI example, it is first 
important to note that a 20,000 MW utility would be a very large 
utility, equivalent to a utility covering the entire New England 
region, or the entire state of California.
    While the EPRI assumptions might apply in an extreme case, EPRI 
uses conservative assumptions that exaggerate the amount of wind 
development that would typically be required to meet the traditional 
RPS outlined in their example. First, EPRI assumes that the 20,000 MW 
of capacity belonging to the utility would be operating at an 80 
percent load factor. This load factor is considerably higher than the 
average would likely be for a large utility that has a portfolio with 
both a mix of electric generation technologies, and baseload and 
peaking plants. As a result, the overall amount of renewable generation 
required to meet the standard is high.
    Second, the EPRI example assumes that the utility has no existing 
renewable energy resources that could be used to either meet its 
requirement (wind, bioenergy, solar) or reduce its baseload 
(hydroelectric). And utilities in all regions would have the 
opportunity to import renewable energy credits from other regions.
    Third, EPRI assumes that wind resources would be the only renewable 
energy technology developed by the utility. However, our analyses and 
EIA find that wind would likely constitute 57 to 66 percent of the 
renewables developed to meet a national 10 percent RPS, with the 
remaining development coming from bioenergy, geothermal, landfill gas, 
and solar technologies. In regions with above-average wind resources, 
which would also mean having a large number of above-average wind 
sites, the percentages would be higher.
    Fourth, EPRI assumes that the wind resources developed would have a 
capacity factor ranging from just 23 percent to 32 percent. Both EIA 
and the National Renewable Energy Laboratory assume that wind capacity 
factors, particularly in areas with class 4 to 6 wind speeds, would 
range from 35 percent to 45 percent. The more pessimistic capacity 
factors assumed by EPRI result in greater amounts of wind development 
needed to meet the requirement.
    With more realistic assumptions, UCS finds that a utility with a 
20,000 MW portfolio would need 1,500 MW to 2,300 MW of wind, either in 
that utility's territory or somewhere else in the U.S. from which it 
would import credits, to meet a 10% national RPS. An additional 800 MW 
to 1,000 MW of other renewable energy sources would be needed to 
fulfill the utility's RPS requirement. This also conservatively assumes 
that the utility has no existing renewable energy development that 
could be used to meet the RPS.
    The investment needed to meet these targets depends greatly on 
projections of renewable technology costs. Using EIA projections, they 
would remain close to $1,000/kW. As discussed in question 4, however, 
we believe those projections are very pessimistic. (EPRI itself, in its 
Technical Assessment Guide, uses much more optimistic projections of 
future wind costs than EIA, however.) Some additional investment in 
transmission and control facilities would be required. These 
investments are included in the EIA and UCS analyses that find that 
there would still be net consumer savings from the RPS.
    Finally, after all is said and done, the EPRI publication quoted in 
the question recommends: ``Consider Support of Federal RPS: Proactively 
Develop Resource Definitions and Standards.'' (p. 4-6)
    Public acceptance. Public acceptance is an issue that affects all 
energy technologies, including coal fuel cycle and power plant siting; 
gas plants, pipelines, storage facilities and LNG terminals; nuclear 
power plants and waste storage facilities, and renewables. In some 
regions, like the northeast, it is difficult to build any type of 
energy facility. The public acceptance of wind has varied by region, 
state and specific locality. In general, areas that have been less 
accepting of other energy facilities, like the northeast, have been 
less accepting of wind as well.
    If the public in the hypothetical utility territory did not accept 
the full amount of wind needed to meet the full requirement in the in 
the hypothetical utility territory, the utility would have the choice 
of either utilizing other locally available renewable resources or of 
importing wind or other renewable energy credits from regions where 
public acceptance is higher.
    Land use. In a recent analysis, UCS examined the amount and types 
of renewable energy resources that would be developed under both a 10 
percent and 20 percent by 2020 national RPS. We used the National 
Energy Modeling System (NEMS), developed and maintained by the U.S. 
Department of Energy's Energy Information Administration (EIA), and 
examined the range of costs and benefits for each RPS proposal using 
EIA projections of renewable energy costs and performance, and using 
UCS projections for renewable energy costs and performance. The UCS 
assumptions are close to (but somewhat more conservative than) 
projections from the Department of Energy's national labs.

                          Table 1.--COMPARISON OF WIND RESULTS, NATIONAL RPS PROPOSALS
----------------------------------------------------------------------------------------------------------------
                                                               20 Percent by 2020 RPS    10 Percent by 2020 RPS
                                                             ---------------------------------------------------
                                                                  UCS          EIA          UCS          EIA
                                                              Assumptions  Assumptions  Assumptions  Assumptions
----------------------------------------------------------------------------------------------------------------
Total wind power capacity (MW)..............................      132,990      105,480       82,036       56,015
Estimated number of wind turbines*..........................       88,660       70,320       54,691       37,343
Land area requirement**
    Square miles............................................        7,900        6,266        4,873        3,327
    Acres...................................................    5,055,776    4,009,950    3,118,703    2,129,482
    Circle of radius = (miles)..............................         50.1         44.7         39.4         32.6
    Percent of contiguous U.S. land area....................        0.26%        0.21%        0.16%        0.11%
Actual Footprint***
    Square miles............................................          104           82           64           44
    Acres...................................................       66,495       52,740       41,018       28,008
    Circle of radius = (miles)..............................         5.75         5.11         4.51         3.74
Percent of contiguous U.S. land area                               0.003%       0.003%       0.002%       0.001%
----------------------------------------------------------------------------------------------------------------
* Assumes average wind turbine size of 1.5 MW.
** Assumes wind power development land density of 6.5 MW per square kilometer, based on U.S. EIA documentation
  for the Annual Energy Outlook 2004.
*** Actual footprint includes wind turbines, transmission tie-ins, and access roads. Source: Personal
  communication with Tom Gray, American Wind Energy Association, 3/10/2005, and based on input from wind power
  developers.

    In all four scenarios, wind power plays a dominant role in the 
renewable energy mix. Table 1 lists the total wind power capacity by 
2020 under both the 10 percent and 20 percent RPS for each set of 
assumptions. Table 1 also lists the estimated number of wind turbines 
needed to reach these capacity levels, the amount of land needed to 
build these turbines, and the actual footprint (including turbines, 
transmission line tie-ins, and access roads) of the wind development. 
Only a small fraction of the contiguous United State's land area--
ranging between approximately 0.11 percent and 0.26 percent--would be 
required for the level of wind development that could occur as a result 
of a national RPS. The actual footprint would be far less based on 
current experience, with more than 98 percent of the land area required 
for a wind facility still available for other uses such as farming and 
ranching. Figure 1 (see Appendix) illustrates the land area 
requirements for wind power development under a national RPS compared 
to the land area of the 48 contiguous states.
    The results presented above do not account for the potential of 
offshore wind power development in the United States, as EIA does not 
currently include offshore wind resources in NEMS. The U.S. National 
Renewable Energy Laboratory (NREL) estimates the total offshore wind 
resource potential to be 908,000 MW (excluding the Gulf of Mexico, 
Alaska and Hawaii, and Great Lakes).\12\ To the extent that offshore 
wind resources can be developed, the amount of land-based area required 
for wind development under a national RPS would be reduced.
---------------------------------------------------------------------------
    \12\ Musial, W., Overview: Potential for Offshore Wind Energy in 
the Northeast, Offshore Wind Energy Collaborative Workshop February 10-
11, 2005. National Renewable Energy Laboratory. Available online at 
http://www.mtpc.org/renewableenergy/Owec_pdfs/OWEC-%20Musial.pdf.
---------------------------------------------------------------------------
    Additionally, the land use area of fossil plants are often 
underestimated when the entire fuel cycle, including extraction, 
refining, transport, generation and waste disposal. At least one study 
calculates the lifetime fuel-cycle land-use impacts of a coal plant as 
exceeding the land use of the comparable generation from wind 
turbines.\13\ Because almost the entire fuel cycle impacts (except 
manufacturing) for a wind plant are in one location, however, whereas 
the fuel cycle impacts of a fossil fuel plant are spread over a number 
of different locations far from each other, the apparent impact of wind 
energy can be higher. Also, because the wind resource also tends to be 
higher on ridgelines, the overall visual impact of wind can be higher. 
Those impacts need to be balanced against the overall impacts of other 
energy sources, of course.
---------------------------------------------------------------------------
    \13\ Paul Brophy, ``Environmental Advantages to the Utilization of 
Geothermal Energy,'' Renewable Energy, Vol 10:2/3, Table 3, pp. 374, 
(1997).
---------------------------------------------------------------------------
    Avian impacts. There have been significant impacts on raptors at 
the Altamont, CA wind facility, and unexpected impacts with bats at a 
few Mid-Atlantic wind farms. Extensive research and mitigation efforts 
are underway at these sites. The avian impacts of wind energy 
facilities at most sites, and overall in the industry are very small, 
especially in comparison with other human sources of bird mortality, 
such as vehicle collisions, tall buildings, cell phone towers, 
transmission lines, and house cats. On average, there are 2.3 bird 
deaths per turbine per year, and that number has been decreasing with 
more experience and larger turbines. Overall, wind facilities today are 
responsible for approximately one of every 30,000 bird fatalities from 
human causes. The fossil fuel cycle also cause enormous impacts on 
wildlife.

                   HOW TO IMPROVE THE TRADITIONAL RPS

    As you know, there are efforts underway to craft a new kind of RPS 
that goes beyond the limited boundaries of a few favored traditional 
renewables and answers the need to increase of fuel diversity for power 
generation needs. There are many who favor allowing States to proceed 
to develop their own resource plans without federal interference, but 
there is also support for a nationalized program.
    The following questions explore new approaches to promoting 
Generation Diversity Standards.
    Question 6. In setting target levels for diverse generation 
resources, one proposal is to place any new resource obligation on new 
load growth--the ``incremental basis'' approach.'' The main benefit of 
this approach is that it allows the supplier and market to adjust as 
generation demand increases. Do you support this approach and why?
    Answer. As noted above in question 1, we do not support making 
different resources eligible for the RPS.
    We do not support setting the target level for an RPS based on new 
load growth, as opposed to the traditional approach of a percentage of 
overall sales. The objectives of more diversity of fuel supplies, lower 
environmental impacts, more domestic energy sources and choices, are 
important in areas where load is growing slowly, or even not at all, as 
well as for areas in which load is growing quickly. The impact of an 
RPS based on total sales is already scaled to an extent to be higher in 
territories where load is growing more quickly.
    An optimal scenario, from the perspective of minimizing energy 
bills, minimizing environmental impacts, and maximizing fuel diversity, 
would be to utilize energy efficiency to offset all load growth (or 
perhaps even reduce energy demand) and still utilize an RPS to 
diversify fuel sources. A scenario in which energy use continues to 
grow, and an RPS is used to meet some of the load growth, is likely to 
lead to continued growth in emissions, especially carbon emissions. 
Such a scenario is incompatible with United States obligations under 
the Rio Treat signed by President H.W. Bush and with the need to reduce 
carbon emissions to stabilize carbon concentrations in the atmosphere.
    Question 7. If there was a National Power Generation Diversity 
Standard, should credits offered under a State program also count 
towards fulfillment of any federal obligations?
    Answer. As noted in question one, we do not support adding 
technologies to a national RPS or creating a national power generation 
diversity standard. In a federal RPS, credits retired to meet state RPS 
programs should count towards fulfillment of any federal obligations. 
Likewise, in a state accepting alternative compliance payments to meet 
a state credit obligation, the state alternative compliance payments 
should count towards fulfillment of the same number of federal credit 
obligations.
    Question 8. If a multi-tier approach like the Pennsylvania RPS 
model was to be used in a National Power Generation Diversity Standard, 
what kinds of resources should be included?
    Answer. As noted in question one, we do not support adding 
technologies to a national RPS or creating a national power generation 
diversity standard. Eligible resources should only include renewable 
resources, as in the two previous renewable portfolio standards that 
were approved by the Senate.
    Question 9. Should there be different levels of credit for 
different classes of resources?
    Answer. As noted in question one, we do not support adding 
technologies to a national RPS or creating a national power generation 
diversity standard. We continue to support providing multiple credits 
to renewable facilities sited in customer facilities. Such distributed 
generation projects face additional market barriers not faced by bulk 
power renewables, and generally require more support to be implemented.
    Question 10. What should the States' roles be in determining what 
resources are assigned to what tiers and how much credit each should 
receive?
    Answer. As noted in question one, we do not support a national 
power generation diversity standard. Congress could consider a separate 
tier for renewable distributed generation facilities, as some states 
have done. That option would provide greater certainty that such 
facilities would be built than providing credit multipliers would, 
although at potentially higher cost.
    Question 11. Should improvements to transmission constraints and 
new storage facilities, like compressed wind facilities, also be 
credited under a National Power Generation Diversity Standard if they 
result in more efficient use of energy? Similarly, should demand-side 
management gains and other efficiency and conservation efforts be 
credited?
    Answer. As noted in question one, we do not support a national 
power generation diversity standard. We do not think that storage 
technologies should receive credit in a renewable portfolio standard. 
At least with RPS' of 20 percent or lower, it should not be necessary 
to add storage for either reliability or economic reasons. Developers 
already have to pay any ancillary service costs imposed by their 
facilities, which should be cost-based charges developed by independent 
system operators. Eventually, it may be economic for projects to 
propose storage as an alternative, or to consider adding system 
storage, but this is not an issue for the near future. Of course, we 
support continued R&D for advanced storage technologies, as they will 
eventually be needed to facilitate higher penetration levels of 
variable output technologies.
    Question 12. Under a traditional RPS, a supplier might be obliged 
to purchase renewable credits from the Secretary of Energy to meet his 
obligation if he could not generate the requirement or if found that 
buying it cost more than buying a credit from the Secretary.
    What if instead of spending the money on purchasing credits from 
the Government, which does nothing to increase diversity, the supplier 
was credited with meeting that obligation through investments in 
developing new diverse resources that equal the amount of money he 
would have paid the Government? In other words, should a retail 
supplier be able to receive credit for investments in renewable or 
other eligible resources?
    Answer. Under a traditional RPS, a supplier has the option of 
purchasing renewable energy credits from generators, either under long-
term contracts or in spot purchases, or of building and owning eligible 
generation facilities, and using the credits they generate for 
compliance, or of purchasing credits from the Government at a fixed 
price. The supplier thus already has the option of investing the 
developing new renewable resources.
    If the question is whether the supplier should receive credit 
according to dollars invested, rather than according to the megawatt 
hour output of the eligible facility, I would respond in the negative. 
In order to create as level a playing field as possible among the 
potential developers of renewables, all should receive credits annually 
according to the output of the facility. Awarding credits according to 
investment is a particularly weak concept, because it would reward non-
performing or poorly performing projects. Awarding credits according to 
facility output is not only fairer, it rewards and incentivizes good 
facility performance.
    With respect to the purchase of credits from the Government, I 
would not agree that this option does nothing for diversity. The 
Government should recycle the funds from alternative compliance into 
the development of renewable facilities, either through purchasing 
credits in the market to resell as needed, or by auctioning funds to 
potential developers, or by distributing the money to state renewable 
energy funds in the state served by the supplier.
    Question 13. If there was a National Power Generation Diversity 
Standard with requirements of up to 10% diverse resources, how 
important would tax credits still be to a project's finance-ability?
    Answer. As noted in Question 1, we do not support adding 
technologies to a national RPS or creating a national power generation 
diversity standard. With respect to tax credits and the RPS, please see 
the response to Question 3 above.

        Responses of Mr. Nogee to Questions From Senator Talent

    Question 1. If we mandate a national renewable portfolio standard, 
how would the transmission needed to get wind from remote locations, 
onshore or offshore, to load centers be paid for?
    Answer. While new transmission lines and upgrades would be needed 
to deliver wind power from remote locations to load centers under a 
national renewable portfolio standard, this situation is not unique to 
renewable energy or the RPS. Other resources, particularly new coal 
plants and many natural gas plants, will also need new transmission 
lines and upgrades.
    As discussed above, our national RPS analysis increased the capital 
cost of wind by up to 50 percent as the penetration of wind increases 
to 30 percent of regional electricity use to account for the costs of 
new transmission lines and upgrades and for integrating wind into the 
electricity system. An additional cost is also applied to interconnect 
wind to the existing electricity system. These costs are applied on top 
of a generic cost that EIA applies to all new generation for expanding 
the transmission system.
    Our analysis conservatively allocates 100 percent of the additional 
capital costs for new bulk transmission lines and upgrades to wind. In 
reality, other resources (both new and existing power plants) will 
likely use these lines to transmit power to electricity consumers and 
should therefore share in the cost of paying for them.
    The answer to the question of who pays for new transmission for 
wind and other resources is likely to vary by region. FERC has been 
using this approach in trying to implement its standard market design 
(SMD). For example, the Midwest Independent System Operator (MISO) is 
developing a methodology that they are planning to file with FERC in 
May that will likely be a combination of: 1) everyone within the MISO 
footprint paying for higher voltage ``highway'' type transmission 
facilities (345 or 500 kV) that have broader regional grid benefits and 
2) specific load paying for lower voltage transmission facilities 
(115kV) that supply load serving needs. ERCOT is proposing to spread 
the costs of new transmission to all ratepayers. These approaches 
provide a relatively equitable approach for allocating costs for new 
lines to wind and other resources.
    In contrast, we do not support proposals requiring ``participant 
funding'' of transmission upgrades, which could severely restrict the 
growth of wind power for years. It would doom hope of building major 
new power lines, as developers of 50-100 MW wind projects with six 
month lead times could not hope to finance a $500 million, 1,000+ MW 
transmission line with a six-year or more lead time needed to export 
wind from a windy region. It would also create higher transmission 
costs for developers of all new projects, but especially for variable 
output resources like wind. In addition, it would undermine efforts to 
improve electricity reliability, making it difficult and more expensive 
to site transmission, expand and improve the grid, and finance new 
power plants.
    We also believe that fair transmission rules are needed to level 
the playing field for wind power and other renewable resources. This 
includes eliminating unfair imbalance penalties, allowing for 
scheduling flexibility, removing multiple charges for transmitting wind 
over long distances (i.e. pancaked rates), using methods that 
recognizes the full capacity value of wind, and developing broader 
regional transmission organizations to optimize dispatch and grid 
expansion. A recent FERC staff briefing paper shows that effective 
transmission charges for wind generators under current transmission 
rules are more than twice as high as high as natural gas combined cycle 
plants in some parts of the country.\14\ The FERC paper, along with 
papers from AWEA and the National Wind Coordinating Committee, identify 
some solutions to this problem.\15\
---------------------------------------------------------------------------
    \14\ Assessing the State of Wind Energy in Wholesale Electricity 
Markets, FERC Staff Briefing Paper, Docket No. AD-04-13-000, November 
2004.
    \15\ National Wind Coordinating Committee, Transmission Planning 
Principles, February 2004, http://www.nationalwind.org/publications/
transmission/Transmission_Planning_ Principles.pdf. Christopher 
Ellison, et. al., A Review and Update Regarding the 2000 AWEA 
Transmission Access Priority Issues Report, December 2002, online 
athttp://www.awea.org/policy/documents/Transmissionwhitepaper12-
2002.pdf.
---------------------------------------------------------------------------
    Question 2. How should nuclear energy and clean coal through coal 
gasification be factored into a national renewable portfolio standard?
    Answer. As discussed extensively in response to Chairman Domenici's 
first question, nuclear energy and coal gasification should not be 
factored into a national portfolio standard.
    Question 3. We heard testimony from Mr. Brian O'Shaughnessy, CEO of 
Revere Copper Products, as to the potentially extraordinary cost of 
adding wind generation (additional transmission, three times the 
capacity requirements to meet the sales requirements, plus balancing 
and load following costs), particularly in areas of the country with 
low wind speeds. To what extent should the cost of adding renewable 
resources as compared to other resources, be factored in to any 
renewables requirement? Should economic dispatch of more efficient 
generating units also play a role?
    Answer. Mr. O'Shaughnessy did not present or cited any specific 
analyses to back up his claims. Costs for transmission, meeting 
capacity requirements, balancing and load following costs, and economic 
dispatch are all already included in the analyses using EIA's NEMS 
model discussed in my testimony that find that an RPS of 10% by 2020 or 
20% by 2020 will reduce both natural gas and electricity bills. As 
discussed in response to Chairman Domenici's Question 4 above, we 
believe that EIA's cost assumptions are generally quite pessimistic in 
these categories.
    Question 4. Would it be more appropriate to apply any national 
renewable portfolio standard requirements only on generation needed to 
meet load growth?
    Answer. As discussed in response to Chairman Domenici's Question #6 
above, we do not believe it would be more appropriate to apply any 
national renewable portfolio standard requirements only on generation 
needed to meet new load growth.

        Responses of Mr. Nogee to Questions From Senator Salazar

    Question 1. Mr. Nogee, I am very interested in the economic 
benefits of renewable power. The Union of Concerned Scientists has 
recently released a report stating that if only 10% of our energy 
demands came from renewable sources, this would create 91,000 new jobs 
and would save industrial, business, and home energy consumers $28.1 
billion dollars. Would you please comment on how new American jobs are 
created and how the country could save money by investing in renewable 
energy?
    Answer. New jobs are created by investment in renewable energy in 
several ways. First, there are direct jobs in manufacturing renewable 
energy technologies, as well as in installing and operating them. The 
Renewable Energy Policy Project has performed a number of analyses 
breaking down the specific types of jobs created by renewable energy 
investments and where they will likely be located.\16\ Secondly, jobs 
are created when the renewable energy workers spend their additional 
income, supplying them with goods and services. Third, jobs are created 
when energy bill savings are spent in the economy. Our jobs analysis 
calculates the net jobs created by all three such types of spending.
---------------------------------------------------------------------------
    \16\ Virinder Singh, The Work that Goes Into Renewable Energy, 
Renewable Energy Policy Project, November 2001. http://repp.org/
articles/static/1/binaries/LABOR_FINAL_REV.pdf George Sterzinger and 
Matt Svrcek, Wind Turbine Development: Location of Economic Activity. 
Renewable Energy Policy Project, Washington, DC, September 2004. http:/
/repp.org/articles/static/1/binaries/WindLocator.pdf George Sterzinger 
and Matt Svrcek, Solar PV Development: Location of Economic Activity, 
Renewable Energy Policy Project, Washington, DC, January 2005. http://
repp.org/articles/static/1/binaries/SolarLocator.pdf
---------------------------------------------------------------------------
    Renewable energy technologies tend to create more jobs than fossil 
fuel technologies because they are capital-intensive. Almost all the 
money for renewable energy is spent on manufacturing equipment, 
installing it and maintaining it. With biomass, money is spent on fuel, 
but usually from sources that are within 50 miles of a biomass plant, 
because it is too expensive to transport biomass electricity fuels for 
long distances. Renewables thus avoid the need to export cash to import 
fuel from other states, regions, or countries, keeping the money 
circulating in the local economy, creating more local jobs.
    A renewable standard saves consumers money in several ways. First, 
some renewable sources, especially wind energy at good sites, is now 
less expensive than natural gas or coal-fired power plants over the 
expected lifetimes of the plants. But in an increasingly competitive 
industry, utilities are reluctant to invest in capital-intensive 
renewable energy facilities that have long payback periods, even if 
they eventually pay for themselves. Second, by reducing the demand for 
fossil fuels, and creating new competitors for the dominant fuel 
sources, renewables help reduce the price of fossil fuels and restrain 
the ability of fossil fuel prices to increase in the future. Natural 
gas therefore costs less for electricity generation, as well as for 
other purposes, thus benefiting both electricity and natural gas 
customers. Third, renewable standards will reduce the cost of renewable 
energy technologies, by creating competition among renewable sources 
and projects to meet the standard, and by creating economies of scale 
in manufacturing, installation, operation and maintenance. As small 
manufactured technologies, renewables are much more susceptible to such 
economies than are large power plant construction projects.
    Question 2. Mr. Nogee, I note with some interest that your 
organization has run an economic model using the EIA's forecast natural 
gas prices and found that a 20% renewable portfolio by 2020 would save 
consumers money and reduce the price of electricity and gas. This is 
even more fascinating if we take into account the fact that EIA 
forecast prices are unrealistically low. For example, the EIA projects 
a barrel of oil to be about $35 this year when in fact the cost of oil 
is above $53 dollars today. Have you examined the benefits of a 
renewable portfolio if oil is at 50 or even just 40 dollars per barrel? 
If not, how much improvement do you think we would see?
    Answer. We have not examined alternative oil price forecasts, 
because outside of a few regions, very little oil is used for 
electricity generation any more. Oil prices tend to be correlated with 
natural gas prices, however. As illustrated below, EIA has increased 
its 20-year natural gas price projection, as published in Annual Energy 
Outlook (AEO), each of the last nine years to conform to new data. EIA 
and other state and federal agencies regularly use these forecasts to 
evaluate the costs and benefits of proposed energy policies. Companies 
also use EIA projections to evaluate long-term investment and 
technology decisions.
    Low natural gas prices make investments in energy efficiency and 
renewable energy appear more expensive than they really are. For 
example, a 2001 EIA analysis projected that a national renewable 
electricity standard of 20 percent by 2020 consumers would cost 
consumers $14 billion on their energy bills by 2020. By comparison, a 
2004 UCS analysis of a 20 percent standard using EIA's assumptions and 
model projected that consumers would save nearly $27 billion on total 
energy bills by 2020. EIA has changed a number of its assumptions 
between 2001 and 2004, however, most of the difference in energy bill 
savings is due to changes in natural gas prices.
    EIA now projects that natural gas prices will come down to the 
$3.50 range over the next five years or so, before gradually increasing 
again. However, it is also possible that gas prices will remain at 
current levels. The mid-term price declines are in part premised on 
opening new sources of supply, like LNG terminals. New LNG terminals 
could be delayed or canceled however, as a result of public opposition 
or other factors, which would tend to keep gas prices high.
    While EIA has steadily increased its long-term gas forecasts, it's 
most recent projection in Annual Energy Outlook 2005 (released in 
December 2004) is still well below where NYMEX natural gas futures 
contracts were trading at the time EIA finalized its gas price 
forecast. According to a recent analysis by Lawrence Berkeley National 
Lab, NYMEX futures prices are $1.11 per million Btu higher than the AEO 
2005 reference case over the next six years.\17\ This is the largest 
spread between EIA and the futures market that LBL has seen over the 
past five years. They go on to say that one would have to pay this 
premium ``in order to lock in natural gas prices over the coming six 
years to replicate the price stability provided intrinsically by fixed-
price renewable generation. Fixed-price renewables obviously need not 
bear this added cost, and moreover can provide price stability for 
terms well in excess of six years.''
---------------------------------------------------------------------------
    \17\ Mark Bolinger and Ryan Wiser, Berkeley Lab, ``Comparison of 
AEO 2005 Natural Gas Price Forecast to NYMEX Futures Prices,'' 
Memorandum, December 13, 2004.
---------------------------------------------------------------------------
    Finally, almost all fuel forecasts project relatively smooth 
average price trajectories for all fuels, while in reality, gas and oil 
prices are subject to large short-term fluctuations as a result of many 
factors, such as weather, storage conditions, temporary supply 
disruptions, price manipulation and other factors. These conditions 
have led to many periodic, temporary spikes in gas prices that will 
certainly continue in the future. By locking in fixed prices over an 
extended period of time, renewables avoid excess costs imposed by 
short-term volatility and price spikes, which are not reflected in 
either our or EIA analyses.
                                 ______
                                 
      Responses of Mr. Popowsky to Questions From Senator Domenici

    Question 1. Why have a Federally-mandated credit and trading 
program? Mr. Popowsky, your testimony highlights the benefits of the 
Pennsylvania RPS model and praises its state-tailored design. Yet, you 
suggest that a minimum federal renewable portfolio standard is needed. 
Is that because a national minimum standard is necessary for a national 
credit and trading program to work?
    Answer. My testimony addressed the need for a federal RPS because I 
believe there are certain key resources that potentially have 
significant national benefits. There are two factors that these 
technologies have in common. First, they advance America's energy 
independence and security because they are not dependent on imported 
fuel. Second, their relatively small size lends to the distribution of 
these technologies at many points on the electricity grid thereby 
enhancing reliability and grid security. Most of these resources are 
just at or near to being commercially competitive. We can ensure that 
these technologies become fully realized options in states that are 
either vertically regulated or restructured by including them in a 
national RPS.
    For example, there is one resource, solar electric or photovoltaic 
(PV) generation, which has significant security and environmental 
benefits but is unlikely to be cost-competitive with typical generation 
costs in the near term. Inclusion in a national portfolio standard 
would likely bring down the unit costs and improve the ability of this 
resource to meet long-term needs. This is the type of resource that can 
and should be part of a national portfolio standard.
    In addition, in my view, Pennsylvania consumers will benefit if 
renewable or other non-fossil fuel resources are used to reduce the 
growing demand--and resulting increased price--for natural gas. The 
wholesale natural gas market is obviously not confined to Pennsylvania 
or the mid-Atlantic region, and a reduced reliance on natural gas for 
electric generation throughout the Nation would benefit both natural 
gas and electricity consumers. Also, to the extent that renewable 
resources reduce our reliance on greenhouse gas emitting fossil fuel 
resources, the rapid development of those alternative resources on a 
national basis will reduce the potential cost of our future efforts to 
address global climate change. Clearly, this is not an issue that is 
limited to Pennsylvania or that can be fully addressed by Pennsylvania 
or other states on a stand-alone basis.
    On the other hand, as I noted in my written testimony, there are 
resources such as waste coal that are a particular major environmental 
concern in Pennsylvania, but are probably not relevant to most states. 
By allowing states to include resources such as waste coal in a 
separate tier of resources, a state and federal program could work 
together.
    I would also note that there is value to a national credit and 
trading system for both state and federal RPS programs. The value of a 
national credit and trading system is that it is efficient and that it 
can improve market liquidity by standardizing credit labeling. At 
present, tracking/trading systems are in place in New England and under 
development in New York and NM. A national system has the potential for 
substantial efficiencies by eliminating the need for regional trading 
systems. Further, a national system that objectively registers all 
useful generation characteristics will eliminate the potential 
confusion of differing regional designs. This will facilitate the 
broadest possible markets so that prices are minimized and choices are 
maximized.
    The point of a national generation credits tracking and trading 
system is that it facilitates liquid markets and reduces costs to 
consumers. Such a system makes trading simple because all important 
generation attributes can be listed for buyers to see. Buyers and 
sellers can establish a price based on the generation attributes that 
are important to them. What is important may vary from state to state 
depending on market dynamics or environmental and renewable portfolio 
compliance requirements. For example, Pennsylvania has tens of 
thousands of consumers buying green power products from the retail 
competitive market. Liquidity in the market for renewables is enhanced 
through a common, trusted labeling of generation attributes.
    One model for a national system is the trading systems used in New 
England and under development in PJM. This is based on the tracking of 
generation ``attributes.'' Under such a system, a ``tag'' is created 
for each megawatt-hour. These tags support regulatory reporting and can 
be sold to utilities and other entities serving retail load where, for 
example, renewable energy resources are a valued retail product. From 
either perspective, attributes like quantities of emissions of specific 
chemicals (SOX, NOX, CO2, etc.) can be 
listed. Other attributes that are expected to have market value include 
fuel sources (coal, nuclear, wind), fuel quantities and fuel mix, etc.
    To permit flexibility in complying with state requirements, tags 
can also be banked by generators or purchasers. This permits the 
purchaser to use credits from current generation to comply with future 
requirements. Again, the single tracking system will support differing 
state choices regarding the time over which credits may be used for 
compliance. In addition, the cost of a national credit trading system 
should be substantially lower than for a series of regional systems.
    Question 2. Would a Federal credit and trading program create a 
double subsidy? Many of the eligible resources under most RPS programs 
also qualify for the federal production tax credit, which is equal to 
approximately 1.8 cents per kWh. If we were to adopt a federal RPS with 
a 1.5 cent per kWh cost cap, dually eligible renewable resources could 
receive over 3 cents per kWh of subsidies. This is roughly the cost of 
generating electricity from coal or nuclear plants in many parts of the 
country. How can this double subsidy be justified and does it best 
serve consumers?
    Answer. Congress has established tax credits for several resources, 
including some resources not currently contemplated for inclusion in 
portfolio requirements, due to their economic or strategic importance. 
The continued need for tax credits for selected resources will depend 
on whether a portfolio requirement causes the selected resources to 
actually be purchased. In some cases, it may be appropriate to continue 
both tax credits and portfolio requirements for particular types of 
resources of great national interest. Put another way, a portfolio 
requirement that includes a wide variety of resources, including 
resources that are already competitive in the market, may do little to 
encourage the competitiveness of more expensive resources like solar 
energy or hydrogen fuel cells. This realization was one of the factors 
in Pennsylvania's creation of two tiers under its portfolio system. 
Accordingly, I recommend that Congress utilize both tax credits and 
portfolio requirements on a coordinated basis.
    Question 3. How do we allow maximum flexibility for State programs? 
In your testimony about the Pennsylvania Alternative Energy Portfolio 
and its multi-tier approach to eligible resources you emphasize that 
each tier carries its own percentage requirement. If a national 
standard were to be set, such a limitation would be very difficult to 
justify because every state has unique resources. Allowing each state 
to mix and match from a broad menu of eligible resources from multiple 
tiers would create needed flexibility.
    What do you think of such an approach?
    Answer. I agree that states should be afforded the maximum 
flexibility under any national RPS. However, a national RPS that 
includes too broad a list of resources would have only a limited impact 
on each resource. I would urge that any national standard be based on a 
fairly limited set of critical resources as discussed in my answer to 
Question 1.
    As I emphasized in my written testimony, a national RPS should 
complement, rather than supplant, individual state decisions. For 
example, a national RPS could establish a requirement related to solar, 
wind and hydrogen-fueled distributed generation equipment but 
explicitly not limit any state's ability to establish more extensive 
requirements for those resources and for any additional resources that 
the state believes are worthy of inclusion under an additional tier 
determined by state law.
    Question 4. Would it be useful to have a general Federal directive 
to formulate programs in lieu of a Federal mandate? Some argue that 
given the interesting and creative steps some states, like Pennsylvania 
for example, are taking to ensure a diversification of generation 
resources, it would be better to let States and regions develop their 
own resource plans before a national mandate was imposed. What if there 
was a PURPA-like requirement on States to develop generation resource 
diversification standards by a date certain? Do you see drawbacks to 
that idea?
    Answer. The focus on state decisions is consistent with my 
preference for maximum flexibility. I believe, however, that Congress 
should consider whether there are some resources of such. great 
national importance that they should be included in a ``baseline'' 
federal portfolio standard. The individual states could then build on 
that baseline, for example, through a second tier of state or regional 
requirements in the manner I described above.
    In my experience, the PURPA approach of requiring states to 
consider various policy issues has not been particularly useful. If 
Congress were to mandate actual implementation of a resource 
diversification standard, rather than just consideration of such a 
standard, it would have a greater impact. It would probably be 
necessary, however, for Congress to give at least some guidance to 
states on the type and level of resources that should be included in 
the state standards.

                   HOW TO IMPROVE THE TRADITIONAL RPS

    As you know, there are efforts underway to craft a new kind of RPS 
that goes beyond the limited boundaries of a few favored traditional 
renewables and answers the need to increase of fuel diversity for power 
generation needs. There are many who favor allowing States to proceed 
to develop their own resource plans without federal interference, but 
there is also support for a nationalized program.
    The following questions explore new approaches to promoting 
Generation Diversity Standards.
    Question 5. In setting target levels for diverse generation 
resources, one proposal is to place any new resource obligation on new 
load growth--the ``incremental basis'' approach.'' The main benefit of 
this approach is that it allows the supplier and market to adjust as 
generation demand increases. Do you support this approach and why?
    Answer. No, I do not support this approach. Load growth can have a 
variety of impacts on the electrical system. Depending on these 
impacts, only certain types of generating resources can satisfy the 
additional needs. If only used to meet load growth, the expansion of 
portfolio resources is likely to be slow and will certainly be 
unpredictable. This will continue to hamper the development of market 
competitiveness for these technologies and will reduce the security 
benefit of key resources. On the other hand, portfolio resources will 
not always be suitable to meet those needs but are almost always 
suitable for meeting some portion of existing demand.
    Not all load growth is the same. The specific requirements created 
by load growth naturally limit which type of generation is built. In 
practice, new generation requirements fall into one of three 
performance categories, depending on which specific demands that load 
growth place on the network. These three categories are baseload, 
intermediate or peaking. It is reasonably accurate to generalize that 
baseload generation runs almost all of the time, intermediate 
generation supports load during on-peak periods and peaking generation 
only operates at times of extreme demand. In general, different types 
of generation are used to satisfy these separate operating 
requirements. It is extremely inefficient to meet a specific 
performance requirement, such as a need for new peaking resources, with 
a plant designed as a baseload or intermediate resource. Thus, 
portfolio-eligible resources can only fill certain roles just as is the 
case with any other generating technology. The conclusion of this must 
be that portfolio resources will be introduced only slowly and on an 
irregular cycle if they are just used to meet load growth because they 
can also only be added where their operating characteristics meet 
specific system requirements.
    Question 6. If there was a National Power Generation Diversity 
Standard, should credits offered under a State program also count 
towards fulfillment of any federal obligations?
    Answer. Yes. To the extent that a particular resource qualifies 
under both a federal and state RPS that resource should be counted 
toward meeting both standards. I do not believe that it would be 
appropriate for a federal RPS to create a double compliance requirement 
for generation providers. Thus, for example, if both a state and 
national RPS required that 1% of all generation be from solar energy 
sources, then that requirement should be met by a total resource of 1%, 
not 2%
    Question 7. If a multi-tier approach like the Pennsylvania RPS 
model was to be used in a National Power Generation Diversity Standard, 
what kinds of resources should be included?
    Answer. As I have indicated, I believe that a national RPS should 
focus on a small number of key resources that have particular 
environmental and security benefits. If Congress finds that a two or 
more tier system is appropriate, I would also suggest that subsequent 
tiers include a limited compliance requirement covering only a limited 
number of core resources. Within each tier I also urge that states be 
provided with the discretion to both increase the requirement related 
to the core resources and include additional generating technologies.
    I suggest that the first tier include only technologies that are 
not fully competitive in the energy market or have particular value as 
distributed resources. These would include solar, wind, and hydrogen 
fuel cells. The logic of a second tier is to establish a requirement 
for resources that have other values. For example, Pennsylvania 
included waste coal generation because it addresses a particular 
environmental problem in this state. I suggest that the resources in a 
second tier be determined on a state or regional basis.
    Question 8. Should there be different levels of credit for 
different classes of resources?
    Answer. The simplest approach is to have every credit represent one 
megawatt-hour of generation. I urge that any national RPS be based on a 
one megawatt-hour to one credit system to make market transactions easy 
to understand and easily subjected to comparative analysis by market 
participants.
    There is an alternative approach in which some RPS methods propose 
that specific resources, photovoltaic energy in New Jersey's case, 
receive multiple credits. While such a choice may be appropriate for an 
individual state, I would not urge that this be done within a national 
RPS.
    Question 9. What should the States' roles be in determining what 
resources are assigned to what tiers and how much credit each should 
receive?
    Answer. As I mentioned elsewhere, I believe Congress should set a 
minimum level of standards and credits for a basic set of resources 
that Congress determines should be part of the national portfolio 
standard. Beyond that, it should be up to the states to determine 
whether to require additional amounts of the nationally designated 
resources and/or to establish a second tier of resources that are 
important to that state or region. Pennsylvania has huge amounts of 
waste coal and an underdeveloped solar market. Pennsylvania has 
determined that it is important to support energy development in both 
of these areas. In contrast, Florida has substantial existing solar 
thermal resources and no coal waste whatsoever. Florida, or other 
southern states, may decide to promote development of a completely 
different resource mix. Thus, the decision as to which resources are to 
be included in a second tier and how much credit they should receive 
should be left to the states.
    Question 10. Should improvements to transmission constraints and 
new storage facilities, like compressed wind facilities, also be 
credited under a National Power Generation Diversity Standard if they 
result in more efficient use of energy? Similarly, should demand-side 
management gains and other efficiency and conservation efforts be 
credited?
    Answer. I do not believe that removal of transmission constraints 
should be included in a generation diversity. standard. While removal 
of such constraints can certainly be beneficial to consumers, I do not 
see this as the sort of resource that should be considered in 
conjunction with the critical generation resources that logically fall 
within a portfolio standard. Transmission issues, I believe, are better 
addressed through the type of regional transmission expansion planning 
model that is in place in PJM.
    Storage facilities could qualify for inclusion in a federal 
generation diversity standard if Congress concludes that this is the 
type of resource that should be encouraged on a national basis. Storage 
facilities can provide ancillary services such as quick-response 
reserves or voltage support. On the other hand, as energy resources, 
some storage systems may consume more electricity than they produce. To 
the extent that these technologies either provide a unique security 
value or require support to further develop their markets, they could 
fall be in the same categories as other generation technologies that 
fall under a portfolio requirement.
    As to the inclusion of demand side response, this may be the type 
of resource that is better addressed on a state-by-state basis. 
Pennsylvania, which has never had substantial state-wide demand 
response programs, has included energy efficiency and demand response 
within the second tier of its portfolio requirement. Other states may 
have more effectively developed their demand markets and will not see 
the sort of additional value that warrants inclusion of demand programs 
in their portfolio requirements. It might also be difficult to measure 
and trade demand response resources in one state against generation 
resources in another.
    Having said that, I continue to believe that, from a consumer 
perspective, the cheapest kilowatt hour is the kilowatt hour that is 
not used. I also believe that we, as a Nation, have done far too little 
to take advantage of low-cost conservation and energy efficiency 
methods that are vastly less expensive and more environmentally 
beneficial than construction and operation of virtually any power 
plant. That is why, for example, I testified in favor of new appliance 
efficiency standards in Pennsylvania and would do the same at the 
federal level. The question is not whether conservation and energy 
efficiency are the most economic way to reduce energy costs; I believe 
they are. The question is whether they fit well into a national 
generation portfolio standard and, if so, how that will work.
    Question 11. Under a traditional MPS, a supplier might be obliged 
to purchase renewable credits from the Secretary of Energy to meet his 
obligation if he could not generate the requirement or if found that 
buying it cost more than buying a credit from the Secretary.
    What if instead of spending the money on purchasing credits from 
the Government, which does nothing to increase diversity, the supplier 
was credited with meeting that obligation through investments in 
developing new diverse resources that equal the amount of money he 
would have paid the Government? In other words, should a retail 
supplier be able to receive credit for investments in renewable or 
other eligible resources?
    Answer. I agree that it may be more useful to promote direct energy 
investment rather than require alternative compliance payments made in 
lieu of purchasing credits simply go to a government agency. In 
Pennsylvania, in fact, alternative compliance payments under our 
portfolio standard will be paid to our state sustainable energy 
development funds, along the lines suggested in your question. The 
difference is that under the Pennsylvania program, the supplier turns 
the money over to an independent sustainable energy fund, rather than 
allowing the money to be invested directly by the non-complying 
supplier. I think it would be preferable to have the money paid to an 
independent entity, as is done in Pennsylvania, which can then direct 
the payments to development of resources that are of the greatest 
public value.
    Question 12. If there was a National Power Generation Diversity 
Standard with requirements of up to 10% diverse resources, how 
important would tax credits still be to a project's ability to secure 
financing?
    Answer. Only if the portfolio is designed to ensure that all 
included resources are purchased is the portfolio as likely have an 
impact that is as great as a direct, targeted tax credit. As I 
indicated in my response to Question 2 above, the inclusion of a 
generating resource in a portfolio requirement does not guarantee that 
resource will be purchased. If a national RPS is established, I suggest 
that Congress examine the overall benefits of the resources that are 
included plus the extent to which those resources will actually be 
purchased and consider these factors to determine whether tax credits 
are also appropriate.

       Responses of Mr. Popowsky to Questions From Senator Talent

    Question 1. If we mandate a national renewable portfolio standard, 
how would the transmission needed to get wind from remote locations, 
onshore or offshore, to load centers be paid for?
    Answer. I support an approach under which generation developers pay 
the costs of interconnection, including costs that are incurred to 
upgrade the grid because of the additional flows of power, except to 
the extent that grid reliability is improved by the interconnection. 
That said, there is a need for standard interconnection procedures to 
ensure that interconnecting generators pay only what is necessary for 
safety and reliability.
    The allocation of transmission costs in areas that fall within 
Regional Transmission Organizations is in the process of being 
resolved. For example, in PJM, all generation that requests 
interconnection must pay all costs that would not otherwise occur. This 
``but for'' test is an approach that I support because it protects 
consumers from absorbing certain transmission system costs that do not 
directly benefit them.
    On the other hand, I believe all entities that use the transmission 
system and all consumers should share in the costs of transmission 
improvements that are necessary to ensure reliability or other benefits 
to the system as a whole. Again, I would point to the PJM Regional 
Transmission Expansion Plan as a successful, coordinated method of 
addressing reliability and economic transmission needs on a systematic 
basis. Under the PJM methodology, the costs of transmission 
improvements that are intended to relieve economic congestion in 
specific areas are assigned to the customers who benefit.
    Question 2. How should nuclear energy and clean coal through coal 
gasification be factored into a national renewable portfolio standard?
    Answer. In Pennsylvania, integrated combined coal gasification is 
included as a Tier Two resource. Coal has long been a vital indigenous 
resource in Pennsylvania, and the state's desire to encourage 
development of this important type of clean coal technology justifies 
its inclusion in the Pennsylvania portfolio standard.
    I would not, however, recommend the inclusion of large baseload 
units such as coal gasification or nuclear units in a national resource 
diversification standard. Rather, as I noted earlier, I would confine 
the national standard to smaller dispersed generation resources that 
Congress concludes have particular value to the Nation as a whole and 
have not traditionally been part of the resource mix.
    In any case, I do not think the problems of nuclear power would be 
resolved by inclusion in a portfolio standard. The greatest problem, I 
believe, is the enormous financial risk involved in developing such a 
project, particularly in a competitive generation market. To the extent 
that Congress wishes to encourage the development of a new generation 
of nuclear power plants, then I think that direct tax credits would 
make more sense than including such resources in a nationwide portfolio 
standard.
    Question 3. We heard testimony from Mr. Brian O'Shaughnessy, CEO of 
Revere Copper Products, as to the potentially extraordinary cost of 
adding wind generation (additional transmission, three times the 
capacity requirements to meet the sales requirements, plus balancing 
and load following costs), particularly in areas of the country with 
low wind speeds. To what extent should the cost of adding renewable 
resources as compared to other resources, be factored in to any 
renewables requirement? Should economic dispatch of more efficient 
generating units also play a role?
    Answer. There is no question that wind power is limited as to which 
sites are appropriate, though this is true of several other types of 
generation as well. In practice, while Pennsylvania has more wind 
generation in service or under construction than any other eastern 
state, most areas of the state are unsuitable for siting wind. One 
critical factor restricting where wind is sited is the available wind 
resource. Wind resource simply refers to the consistency and strength 
with which the wind blows in a location. I do not expect wind 
generation to be sited in areas where wind resources are poor because 
that would result in such low production that the wind farm would be 
uneconomic no matter what the alternative energy price. On the other 
hand, many areas in the mid-west have broad areas in which the wind 
resource is very robust and will exceed local requirements. Thus, I 
anticipate that, rather than siting wind where it doesn't make economic 
sense, portfolio requirements will be satisfied through the purchase of 
credits from areas where wind resources are plentiful. In this spirit,. 
the requirements that Pennsylvania imposes on utilities may be 
satisfied from anywhere in the applicable Regional Transmission 
Organization.
    With respect to cost, the benefit of a robust regional or national 
portfolio standard, with a credit and tracking system, is that it makes 
it more likely that suppliers and consumers will have access to the 
lowest cost resources that are available in a wider market area. As I 
indicated above, I believe that interconnection costs for wind or any 
other generation resource should be paid by the developer. This will 
tend to raise the costs of wind. However, the logic of a portfolio 
system is that requirements must be met from among the resources 
accepted in that portfolio. If wind is too expensive, compared to other 
qualifying generation sources, then wind will not be used.
    Economic dispatch is the norm in both Regional Transmission 
Organizations and in states that continue to be vertically integrated. 
Most resources will continue to be purchased from an energy market 
where prices are set through economic dispatch or where prices in 
private energy contracts are guided by that market price. Unless 
portfolio requirements expand to cover a substantial portion of 
generation delivered to customers, overall energy costs, including 
portfolio costs, will tend toward the market price. There are two 
reasons for this. First, the average cost of some portfolio resources 
might not be significantly different from the average cost of energy, 
particularly in those regions in which energy prices have been driven 
up by high natural gas prices. For example, wind generation has become 
increasingly competitive with other types of energy. Second, even where 
some portfolio resources like solar energy are substantially more 
expensive than typical market prices, the total price differs only 
slightly because the amount of high priced solar energy is only a tiny 
fraction of the total energy. Further, I anticipate that portfolio 
resources will be subject to selection on the basis of economic 
efficiency so that the least expensive qualifying resources will be 
used to satisfy the requirements.
    Question 4. Would it be more appropriate to apply any national 
renewable portfolio standard requirements only on generation needed to 
meet load growth?
    Answer. As I discussed in my response to Senator Domenici's 
Question 5, I do not think it would be appropriate to have portfolio 
resources used only to meet load growth. If this were the only area in 
which portfolio resources could qualify, the result is likely to be 
that their growth will be slow and volatile.
    The specific requirements created by load growth naturally limit 
which type of generation are built. In practice, new generation 
requirements fall into one of three performance categories, depending 
on which specific demands that load growth place on the network. These 
three categories are baseload, intermediate or peaking. It is 
reasonably accurate to generalize that baseload generation runs almost 
all of the time, intermediate generation supports load during on-peak 
periods and peaking generation only operates at times of extreme 
demand. In general, different types of generation are used to satisfy 
these separate operating requirements. It is extremely inefficient to 
meet a specific performance requirement, such as a need for new peaking 
resources, with a plant designed as a baseload or intermediate 
resource. Thus, portfolio-eligible resources can only fill certain 
roles just as is the case with any other generating technology. The 
conclusion of this must be that portfolio resources will be introduced 
only slowly and on an irregular cycle if they are only used to meet 
load growth because they can also only be added where their operating 
characteristics meet specific system requirements.
                                 ______
                                 
       Responses of Dr. Wiser to Questions From Senator Domenici

    Question 1. What is the mix of energy savings expected from 
renewables and efficiency improvements? Dr. Wiser vast improvements in 
energy efficiency have been realized in our economy since the mid-
1970's. EIA has shown that energy use per dollar of GDP has declined 
significantly. Between 1973 and 2000 energy consumption fell from 
13,910 Btu to 6,580 Btus per $1 dollar of GDP--more than a 50% increase 
in energy efficiency. Can you describe for the Committee exactly what 
further improvements in energy efficiency can be realized and how? 
Also, can you describe where and to what extent renewable energy can 
reduce demand for conventionally generated electricity?
    Answer. There is little doubt that our nation has seen substantial 
improvements in energy efficiency over the course of the last three 
decades. These improvements have come from a variety of sources 
including, for example, state programs to support energy efficiency and 
federal programs that have established minimum efficiency standards for 
new appliances. Energy intensity (energy use per dollar of GDP) has 
also fallen as our economy has shifted away from more energy-intensive 
sectors. On a going forward basis, it is difficult to estimate with 
precision how much incremental energy efficiency is technically or 
economically feasible. However, it is evident that this potential is 
significant.
    As just one example, in its Fifth Power Plan, the Northwest Power 
and Conservation Council (NWPCC) notes that energy efficiency 
investments have saved the Northwest (Oregon, Washington, Idaho, 
Montana) 10-12% of the region's electricity needs since 1978, or nearly 
2500 average megawatts of capacity (aMW), at an average cost of just 
2.5 cents/kWh. Much of this has come from state and regional programs, 
but a significant amount also derived from federal appliance efficiency 
standards. On a going forward basis, the NWPCC identifies 4600 aMW of 
additional technically available potential, of which 2800 aMW is 
estimated to be cost effective. This represents approximately half of 
all otherwise-expected load growth over the next 20 years. Those 2800 
aMW are predicted to be available at an average cost of just 2.4 cents/
kWh. The most significant savings are expected to come from residential 
and commercial lighting, as well as industrial energy savings.
    Similar studies have been conducted in other regions. Though the 
exact savings potential varies, as does the source of those savings, 
most studies reveal significant additional potential. A study completed 
in 2003 for the New York State Energy Research and Development 
Authority, for example, found that even with low energy costs assumed, 
the economic potential for energy efficiency would be over 50,000 GWh 
by 2022, representing over 12,000 MW of summer peak capacity. Studies 
in California have found that aggressive investment in energy 
efficiency could cut load growth in half over the next two decades. I 
would be happy to point the Committee to studies that have been 
conducted on these matters.
    Most would agree that achieving these savings, or even a fraction 
of these savings, will require policy intervention. Standard options 
include state and local financial incentives, building codes and 
standards, federal efficiency standards, federal and state tax 
incentives, and changes in utility rate design that breaks the link 
between electricity sales and utility profits. More recently, as the 
Committee knows, there has been some exploration of energy efficiency 
portfolio standards.
    On renewables potential and costs, I would direct the Committee to 
the National Renewable Energy Laboratory, the nation's premier research 
institute on this topic. As with energy efficiency, there is 
uncertainty over exactly how much technical and economic potential 
exists in the U.S. If transmission expansion needs can be met, however, 
it is clear that the technical potential for wind power alone is vast. 
It is true that wind power resources are not spread evenly across the 
United States, but all regions have at least some potential to utilize 
local sources of renewable energy.
    Use of renewable energy will offset conventional fuels. Recent 
analysis by the Energy Information Administration shows that renewable 
generation will displace both natural gas and coal generation, in 
approximately equal fractions. For natural gas specifically, 
assessments of federal RPS proposals have shown that gas displacement 
could be as high as 3 to 4 quadrillion Btu (Quads) a year by 2020, or 
10% of projected national gas consumption. Less aggressive levels of 
national deployment are found to reduce gas consumption by as much as 
1.5 Quads, or 4% of total projected demand in 2020, with a mean 
reduction across studies of 0.7 Quads (2%). Of course, achieving 
significant growth in renewable energy supply (in the 10-20% range for 
non-hydro renewables) will require transmission investments to access 
the nation's most robust resource areas.
    Question 2. In setting target levels for diverse generation 
resources, one proposal is to place any new resource obligation on new 
load growth--the ``incremental basis'' approach.'' The main benefit of 
this approach is that it allows the supplier and market to adjust as 
generation demand increases. Do you support this approach and why?
    Answer. This approach has not been used in any U.S. state, or in 
any other country that has developed a renewables portfolio standard 
(UK, Italy, Belgium, Australia, Japan, Sweden). That is not to say that 
the idea is without merit, and I do see some advantages to this 
approach. The key difficulty, in my view, comes in those states that 
have moved or are moving towards retail electricity competition. In 
these states, individual electricity suppliers experience substantial 
changes in load growth from one year to the next. Application of a 
standard to ``incremental'' load may be challenging in this instance 
because load for any single retail supplier could increase from one 
year to the next, only to then decrease the following year (as load 
switches to a different competitive supplier), and then increase again 
the next year. Applying a portfolio standard to load growth in this 
instance may be an administrative challenge, and would certainly 
require additional thought. It perhaps should also be noted that 
applying a standard to load growth ensures that the standard cannot 
increase annually by more than the underlying growth in load, which may 
limit the impact of a standard especially if the standard includes non-
renewable sources such as coal gasification and nuclear power.
    Question 3. If there was a National Power Generation Diversity 
Standard, should credits offered under a State program also count 
towards fulfillment of any federal obligations?
    Answer. I am not prepared to take a policy position on this topic. 
However, I would note that states have designed their RPS policies 
differently, in part reflecting different regional circumstances and 
goals. Some states clearly want to take an aggressive stance on 
renewable energy deployment, while others want to encourage preferred, 
local renewable resources (e.g., solar). In any case, states may wish 
to go above and beyond any federal standard. In previously proposed 
federal RPS legislation, the federal RPS would effectively establish a 
national ``floor'' for renewable energy development. In many cases, 
these proposals would allow states to go above and beyond the federal 
requirement or to tailor a local requirement towards specific locally-
desired resources. In this instance, state credits might, by default, 
count towards the fulfillment of the federal RPS. However, states would 
be allowed the flexibility to go beyond the federal standard. This 
approach would seem to have merit and, with the approval of my sponsors 
at the Department of Energy, I would be happy to work with the 
Committee in considering this and other approaches.
    Question 4. If a multi-tier approach like the Pennsylvania RPS 
model was to be used in a National Power Generation Diversity Standard, 
what kinds of resources should be included?
    Answer. It seems to me that at least three standards should apply 
to decisions about resource inclusion. First, does the resource provide 
important public benefits to the United States that are not otherwise 
being recognized in electric supply decisions. Second, does the 
resource need additional policy assistance to achieve significant 
levels of deployment. Third, is inclusion in a portfolio standard the 
most effective means to support the resource in question. Of course, it 
is up to this Committee to determine what ``public benefits'' are 
sought under a diversity standard, and therefore what specific 
resources deserve support under this policy (or an alternative policy 
best suited to those resources). Under a multi-tiered diversity 
standard, it is also important that resources be appropriately 
separated from one another. For example, if there is unique interest in 
renewable energy generation, then a specific tier that only includes 
renewable generation would be warranted. Decisions on this score are 
ones of policy, not of analysis.
    Question 5. Should there be different levels of credit for 
different classes of resources?
    Answer. Several states have developed such ``extra-credit-
multipliers,'' e.g., Arizona, Nevada, New Mexico, Washington D.C., 
Maryland, etc. Typically, such multipliers are intended to ``level the 
playing field'' among technologies that are at different stages of 
commercialization and cost. Ultimately, it is a policy decision as to 
whether the goal of the diversity standard is to require competition 
among all eligible resources (and to thereby minimize the cost of 
achieving the target), or to provide an extra incentive for certain 
preferred, higher-cost resources (ensuring more diversity within the 
target, but presumably coming at a higher cost). Of course, 
establishing different resource bands or multiple tiers can have a 
similar effect. Finally, I might also note that if states are allowed 
to go beyond the federal standard and apply their own preferences for 
certain resources, then it may be less necessary for a federal policy 
to develop such tiers or multipliers. With the approval of my sponsors 
at the Department of Energy, I would be happy to work with the 
Committee in considering the various options.
    Question 6. What should the States' roles be in determining what 
resources are assigned to what tiers and how much credit each should 
receive?
    Answer. Presumably, a federal diversity standard would 
legislatively establish eligibility guidelines as well as tiers and/or 
multipliers. Though state bodies and others would have the ability to 
weigh-in in advance of the legislation, it is not evident to me that 
those same states would have a role in determining these rules ex post. 
That said, if states are offered the flexibility to exceed the federal 
standard, then they might develop their own rules for renewable 
purchases above the federal requirements, as highlighted in an answer 
to a previous question.
    Question 7. Should improvements to transmission constraints and new 
storage facilities, like compressed wind facilities, also be credited 
under a National Power Generation Diversity Standard if they result in 
more efficient use of energy? Similarly, should demand-side management 
gains and other efficiency and conservation efforts be credited?
    Answer. Whether such resources are included in a diversity standard 
is a matter of policy. Energy efficiency has been included in the 
Pennsylvania portfolio standard, and is also referenced in the 
portfolio standards established in Colorado and Hawaii. Dedicated 
energy efficiency portfolio standards are also underway in a limited 
fashion in Europe.
    The key technical difficulties in including energy efficiency under 
a diversity standard come down to measurement and attribution: how to 
measure energy saving (i.e., it is easier to measure electricity 
generation than electricity savings, and it can be challenging to 
identify ``incremental'' savings beyond some baseline), and how to 
allocate those savings to obligated parties under a diversity standard 
(i.e., who initially owns the credits). These difficulties are 
surmountable, but will require serious effort. No U.S. state has yet to 
grapple with these specific difficulties, though there has been work 
done on this topic in Europe and Australia. I might recommend a further 
exploration of the nascent international experience with energy 
efficiency portfolio standards, and associated trading, to assess 
lessons learned (several nations are considering energy efficiency 
portfolio standards and initial implementation has begun in a subset of 
these countries--Italy, France, UK, Australia). I would also note that 
an International Energy Agency project involving five European 
countries is currently exploring the issues of energy efficiency 
portfolio standards and associated trading; the U.S. DOE is monitoring 
the progress of this effort.
    Improvements in transmission efficiency may be considered a form of 
energy efficiency, and its inclusion (or not) in a diversity standard 
could be discussed in whatever regulatory proceedings would be 
necessary to define the rules for the participation of energy 
efficiency under a diversity standard. Similar measurement issues would 
arise here, as with more traditional forms of energy efficiency 
investments. Wind power would, presumably, qualify whether used in a 
compressed air application or not.
    Question 8. Under a traditional RPS, a supplier might be obliged to 
purchase renewable credits from the Secretary of Energy to meet his 
obligation if he could not generate the requirement or if found that 
buying it cost more than buying a credit from the Secretary. What if 
instead of spending the money on purchasing credits from the 
Government, which does nothing to increase diversity, the supplier was 
credited with meeting that obligation through investments in developing 
new diverse resources that equal the amount of money he would have paid 
the Government? In other words, should a retail supplier be able to 
receive credit for investments in renewable or other eligible 
resources?
    Answer. Federal RPS proposals have almost universally applied a 
``cost cap'' in the form described above. States, however, have often 
used alternative approaches. In some cases, funds collected from the 
credit cost-cap are used by a state government entity to directly 
encourage renewable energy production (e.g., Massachusetts, 
Connecticut, Washington D.C., New Jersey, Pennsylvania, Rhode Island, 
and others). Such an approach ensures that funds are used to encourage 
diversity, but puts the state in charge of the use of such funds. In 
Arizona, meanwhile, electricity utilities are allowed to meet a small 
portion of their RPS by investing in renewable energy R&D.
    The question here proposes a different approach: the ability of the 
retail electricity supplier to directly invest in renewable or other 
eligible resources using the amount of money that otherwise would have 
been spent on purchasing credits from the Department of Energy. This is 
a creative option, though its details would need to be further 
developed. For example, what kinds of investment would ``count'': only 
investment in renewable or diverse electricity supply, or also 
investments in research and development or manufacturing capability? If 
the latter, rules for how to define eligible and ineligible investments 
would be required. If the former, one would need to develop rules that 
would not allow a retail supplier to dedicate all of its diversity 
standard resources to an excessively costly generation source that 
would supply little electricity. Though the sentiment behind this 
approach is sound (ensuring that funds are truly used to encourage 
diversity), it is unclear whether workable mechanics could be 
developed. A variety of other approaches might also be considered and, 
with the approval of my sponsors at the Department of Energy, I would 
be happy to work with the Committee in considering the various options.
    Question 9. If there was a National Power Generation Diversity 
Standard with requirements of up to 10% diverse resources, how 
important would tax credits still be to a project's finance-ability?
    Answer. Federal tax incentives are--very clearly--currently 
critical to the expansion of renewable energy markets. Though much is 
said about the role that states currently play in encouraging renewable 
energy development, it is often forgotten just how important federal 
tax incentives have been. A review of the history of recent wind 
installations in the United States, which fluctuate wildly with the 
availability of the federal production tax credit, demonstrates this to 
be the case. It is also clear, however, that with the level of 
renewable energy deployment possible under a national portfolio 
standard, the cost of indefinitely continuing federal tax incentives 
would be substantial.
    In theory, under a well-functioning national portfolio standard, 
federal tax incentives would no longer be necessary. Electricity 
suppliers would be required to purchase renewable energy credits, and 
thereby pay for any above-market cost of renewable electricity. 
However, one would also expect that a transition period would be needed 
between the current tax-incentive regime and a possible future, fully 
functional portfolio standard. This might call for a gradual phase-out 
of federal tax incentives as a national portfolio standard takes 
effect.
        Responses of Dr. Wiser to Questions From Senator Talent

    Question 1. If we mandate a national renewable portfolio standard, 
how would the transmission needed to get wind from remote locations, 
onshore or offshore, to load centers be paid for?
    Answer. This question points out one of the important 
implementation issues for any policy that would greatly expand 
renewable energy deployment, whether implemented at the state or 
federal level. But, as has been acknowledged by many, lack of 
transmission is a key issue that affects not only wind power, but also 
other energy resources that are often located remotely, such as coal 
and geothermal power. There is also widespread concern that lack of 
transmission may affect electric reliability in some regions of the 
country. Ultimately, new transmission will have to be built if 
reliability is to be preserved.
    Building new transmission may allow access to remote but perhaps 
ultimately less expensive energy sources such as wind, geothermal, and 
coal. Several regions have undertaken studies not only to examine 
whether transmission expansion is necessary, but what the cost savings 
would be over time if lower cost but remote energy sources were able to 
be accessed. The Midwest ISO's 2003 transmission expansion plan, for 
example, determined that adding 10,000 MW of wind could be cost 
effective if transmission was expanded to accommodate it. More 
recently, the Rocky Mountain Area Transmission Study (RMATS), an ad hoc 
planning process encompassing Colorado, Idaho, Montana, Utah, and 
Wyoming, determined that three transmission expansion projects, at a 
cost of $970 million, could deliver annual net savings of between $61 
million and $531 million (by supporting 1880 MW of incremental wind and 
2200 MW of incremental coal). The actual net savings will depend 
critically on natural gas prices and hydroelectric conditions. I would 
be happy to direct the Committee to these and other recent transmission 
studies.
    Under present circumstances, additional transmission is paid for 
through a variety of means. Transmission cost recovery and allocation 
is often overseen by FERC, but is also affected by local public utility 
commissions, regional transmission organizations, and perhaps, regional 
collaboratives such as RMATS. The market benefits of adding new 
transmission to access remote energy resources may be significant 
enough that state regulators or, if applicable, regional institutions 
such as regional transmission organizations, may determine that 
ratepayers should finance the new transmission. Akin to interstate 
highways, major new transmission of this type (often providing 
reliability and economic benefits) will tend to be ``socialized''--that 
is, paid for by ratepayers on a regional basis. In contrast, smaller 
transmission projects triggered by specific project developers will 
typically be paid for, at least initially, by the generation owner. In 
these instances, cost allocation may follow FERC policy of having the 
generator pay for transmission improvements up front, and then be 
reimbursed over time with transmission credits. Alternatively, FERC may 
allow regional transmission organizations to require generators to pay 
for transmission expansion as a condition of interconnection. The 
existence of a diversity standard may ease transmission financing, by 
providing longer-term contracts for eligible generators and by 
signaling policy direction. Nonetheless, lack of clarity on how 
transmission costs are to be allocated is clearly slowing transmission 
investment in our nation.
    A promising development is the emergence of transmission 
infrastructure authorities. Wyoming was the first state to do this by 
creating the Wyoming Infrastructure Authority (WIA) to own, operate, 
and maintain high-voltage transmission facilities. A five-member board, 
appointed by the Governor, directs the WIA. The WIA can issue revenue 
bonds to raise capital to build transmission infrastructure that it 
will own, with no limit on bonding authority. These bonds would be 
exempt from state taxation and may reduce the cost of transmission 
projects as compared to private equity and debt financing. The bonds 
cannot be backed by the faith and credit of the State of Wyoming, 
meaning that the bonds must be secured by a revenue stream if the 
financial community is to support the bonds (as such, certainty of 
transmission cost allocation and payment is still required). At least 
three other states--New Mexico, North Dakota, and South Dakota--are 
also considering establishing transmission infrastructure authorities.
    In summary, significant new wind expansion will necessitate 
transmission investments, and this expansion will have costs. Recent 
regional studies show that these costs are not insignificant, but 
neither do they eliminate the potential benefits of wind power. Of 
course, this is not an issue unique to wind, and the broader issue of 
expanding transmission to meet the nation's desire for low-cost, 
reliable power is an important one.
    Question 2. How should nuclear energy and clean coal through coal 
gasification be factored into a national renewable portfolio standard?
    Answer. Whether nuclear, coal gasification, or any other resource 
should be included in a national portfolio standard is question of 
policy that I am not prepared to address. As I noted in response to an 
earlier question, however, it seems to me that at least three standards 
should apply to decisions about resource inclusion. First, does the 
resource provide important public benefits to the United States that 
are not otherwise being recognized in electric supply decisions. 
Second, does the resource need additional policy assistance to achieve 
significant levels of deployment. Third, is inclusion in a portfolio 
standard the most effective means to support the resource in question 
It is up to this Committee to determine what ``public benefits'' are 
sought under a diversity standard, and therefore what specific 
resources deserve support under this policy (or an alternative policy 
best suited to those resources).
    Only one state currently allows a broad range of so-called 
``traditional'' energy sources into their portfolio standard: 
Pennsylvania. In that instance, waste coal, distributed generation, 
energy efficiency, large-scale hydropower, and coal gasification 
compete for a second tier of the state's portfolio standard, a tier 
that grows to 10% by 2020. The more typical renewable energy sources 
compete within a separate tier, which rises to 8% by 2020. Other states 
have also created resource tiers (e.g., Arizona, Colorado, Connecticut, 
Washington D.C., Maryland, Minnesota, Nevada, New Jersey, New York, 
Rhode Island), but in these instances the tiers only reflect different 
renewable resource eligibility rules. Creating separate tiers of this 
type has the benefit of allowing resources to compete only within their 
specific tier (and thereby ensuring some diversity in results), but as 
the number of tiers increases so does the complexity of the policy for 
the regulator and for obligated electricity suppliers.
    An alternative approach is to use credit multipliers. Several 
states have developed such ``extra-credit-multipliers,'' e.g., Arizona, 
Nevada, New Mexico, and others. Typically, such multipliers are 
intended to ``level the playing field'' among technologies that are at 
different stages of commercialization and cost, or to place a 
preference on certain resources. This approach might also be explored 
if additional energy sources were to be considered under a national 
diversity standard.
    Question 3. We heard testimony from Mr. Brian O'Shaughnessy, CEO of 
Revere Copper Products, as to the potentially extraordinary cost of 
adding wind generation (additional transmission, three times the 
capacity requirements to meet the sales requirements, plus balancing 
and load following costs), particularly in areas of the country with 
low wind speeds. To what extent should the cost of adding renewable 
resources as compared to other resources, be factored in to any 
renewables requirement? Should economic dispatch of more efficient 
generating units also play a role?
    Answer. I would first like to address the comment that wind power 
is enormously expensive. With the currently available federal tax 
incentives, my review of recent wind power sales agreements shows that 
utilities are purchasing wind power under long term contracts at prices 
that average -3 cents/kWh (real $2003). There is considerable range 
around this average value, with the least costly projects selling power 
at -2 cents/kWh (real $2003) and the higher cost projects selling at 
over 4 cents/kWh (real $2003). This compares to the cost of new gas-or 
coal-fired generation that the Energy Information Administration 
projects to be -5 cents/kWh (real $2003). Even without the federal 
production tax credit, wind generation costs--at the busbar--would be 
similar to those for new coal and natural gas at least in favorable 
wind resource areas.
    It is true that wind power is a variable resource, and cannot be 
flexibly dispatched in the same way as gas-fired generation. The 
science of understanding the costs of this variability has grown 
considerably in recent years led, in part, by the U.S. Department of 
Energy and the National Renewable Energy Laboratory. Studies have been 
conducted by various utilities and consulting firms, by GE, and by the 
National Renewable Energy Laboratory. Study after study is finding that 
at even significant wind penetrations, the cost of managing wind's 
variability is likely to be relatively modest, perhaps 0.2 to 0.5 
cents/kWh. In large part this is because the variability of wind is 
found to not be correlated with the variability of demand for 
electricity. In addition, as wind forecasting has improved, the cost of 
managing variable wind generation has decreased. Newer studies are 
being designed and carried out to explore the impact of even higher 
levels of wind penetration.
    Though one should not dismiss or ignore the real costs that wind 
imposes on the electrical system, it is also important to understand 
that other generation units also have their drawbacks. Older coal 
plants and nuclear plants, for example, generally ramp up and down very 
slowly and are designed to run flat out, meaning that these plants are 
not likely to be good candidates for load following or spinning 
reserves; hydropower and gas-fired plants, on the other hand, are quick 
to start up and are very good at providing spinning reserves. These 
characteristics and traits of each technology can balance each other 
out nicely.
    As noted in response to an earlier question, the incremental cost 
of transmission may also be significant, as it is for certain other 
resources. However, in addressing all of these costs in a comprehensive 
fashion, a growing number of utilities are finding that wind power can 
be an important part of a low-cost, low-risk electricity supply 
portfolio. I would be happy to direct the Committee to relevant studies 
that cover the above points. There are, of course, real limits to the 
degree to which a supply portfolio can economically include wind power, 
and these limits are more significant in areas with less attractive 
wind resources. However, on a national basis, many recent studies are 
finding that wind power can be an attractive option, even at 
significant levels of penetration.
    Finally, in considering a federal diversity standard, a careful 
accounting of all of the possible costs and benefits of wind power, and 
other eligible energy sources, would be desirable. In that regard, I 
would simply note that the DOE's Energy Information Administration has, 
in the past, evaluated the potential cost-impacts of federal RPS 
proposals. Though there are always limits to energy models and the 
results derived from such models, the Committee might chose to avail 
itself of the EIA's services in evaluating different possible diversity 
standards.
    Question 4. Would it be more appropriate to apply any national 
renewable portfolio standard requirements only on generation needed to 
meet load growth?
    Answer. This approach has not been used in any U.S. state, or in 
any other country that has developed a renewables portfolio standard 
(UK, Italy, Belgium, Australia, Japan, Sweden). That is not to say that 
the idea is without merit, and I do see some advantages to this 
approach. The key difficulty, in my view, comes in those states that 
have moved or are moving towards retail electricity competition. In 
these states, individual electricity suppliers experience substantial 
changes in load growth from one year to the next (as load switches to a 
different competitive supplier). Application of a standard to 
``incremental'' load may be challenging in this instance because for 
any single supplier load could increase from one year to the next, only 
to then decrease the following year, and then increase again the next 
year. Applying a portfolio standard in this instance may be an 
administrative challenge, and would certainly require additional 
thought. It perhaps should also be noted that applying a standard to 
load growth ensures that the standard cannot increase annually by more 
than the underlying growth in load, which may limit the impact of a 
standard especially if the standard includes non-renewable sources such 
as coal gasification and nuclear power.
                                 ______
                                 
       Responses of Mr. Morgan to Questions From Senator Domenici

    Question 1. Do current Federal policies constrain State RPS 
programs?
    Are there instances where utilities have examined opportunities to 
improve their efficiency or include technologies as part of an overall 
energy portfolio only to find themselves constrained by federal 
policies? If so, how might we change those policies to offer utilities 
more flexibility?
    Answer. I am not aware of any such instances.
    Question 2. Are State RPS programs successful?
    Many States have mandated that utilities draw a specific percentage 
of their generation from renewable energy according to a firm schedule. 
How are these State programs working?
    Answer. Among the 19 jurisdictions that have adopted some form of 
renewables portfolio standard, these policies are in various stages of 
implementation. Some States like Texas, Maine, and Arizona have a few 
years of experience with RPS. Others like Colorado, Maryland, 
Pennsylvania, and my own District of Columbia are still in the early 
stages of implementation. The viability of RPS as a policy for 
encouraging diversity in energy supplies is attested to by its growing 
popularity at the State level. Many RPS design and implementation 
issues are addressed in NARUC's report ``The Renewables Portfolio 
Standard--A Practical Guide'' which I quoted in my oral statement. I 
have attached excerpts from the NARUC report (Executive Summary and 
Chapter One). The report can be downloaded from NARUC's website: 
www.naruc.org.
    Question 3. Should some suppliers be exempt from a Federal RPS?
    If a federal RPS mandate is imposed, do you believe that it should 
apply to all electricity suppliers? If not, wouldn't exemptions skew 
the electricity market by favoring some suppliers over others?
    Answer. Yes, any RPS should be applicable to all retail electricity 
suppliers without exception. Otherwise, consumers will have an 
artificial incentive to switch suppliers, and the result would be 
economically inefficient.
    Question 4. How should utilties be allowed to recover costs for 
transmission for intermittent sources?
    The intermittent nature of wind generation makes it difficult to 
upgrade transmission lines solely to handle new wind generation 
capacity because the increased capacity is likely to be un-used 60-70 
percent of the time. How should regulators treat cost recovery for 
utilities that expand transmission capacity to carry intermittent 
alternative resources like wind generation?
    Answer. All State regulatory commissions have established 
procedures for cost recovery of new or upgraded transmission 
facilities, and I see no reason why upgrading transmission facilities 
for wind should require any special regulatory treatment. Furthermore, 
wind-generated power typically shares transmission facilities with 
power generated by other resources, and it generally displaces power 
from fossil fuels that otherwise would have required transmission 
capacity for delivery.
    Question 5. Will ``build it in-State'' requirements hinder a 
Federal RPS?
    Some State RPS programs require suppliers to derive the renewable 
power from facilities in that State. If a National Power Generation 
Diversity Standard was to be developed, how should such State 
requirements be dealt with? Are these ``build it in-State'' 
requirements violations of the commerce clause?
    Answer. I personally do not support a ``build it in State'' 
requirement, which I believe defeats one of the purposes of an RPS. One 
advantage of an RPS is its flexible, market-based approach which takes 
advantage or resource diversity among the States, thereby minimizing 
costs. However, because ``build it in State'' provisions are not 
widespread in State RPS requirements, I am not convinced that a federal 
legislative fix is needed. I have no opinion regarding whether or not 
such requirements violate the ``Commerce Clause ``.
    Question 6. Should the Federal Government impose utility efficiency 
performance requirements?
    Some have suggested that utilities should be encouraged to adopt 
energy efficiency performance standards or that such standards be 
imposed on public utilities as part of an overall energy portfolio.
    How would your organization react to a national efficiency 
performance standard for public utilities?
    Answer. End-use energy efficiency should be encouraged by federal 
and State policy, but not necessarily through performance standards. 
Because energy efficiency cannot be directly measured in the same sense 
as renewable generation, it is difficult to establish criteria for 
documentation of energy savings. Any energy efficiency performance 
standard would need explicit criteria for measurement and verification. 
If an energy efficiency performance standard were to be pursued, I 
would recommend it as an option, not a requirement. That is the 
approach taken by Pennsylvania in its new Alternative Energy Portfolio 
Standard, and many observers are anxious to see how well it works.
    Question 7. Can State programs be harmonized with a Federal RPS?
    Close to 20 States have adopted renewable resource goals or 
renewable ``must offer'' programs. These programs differ in a number of 
ways such as:

   what qualifies as an eligible renewable resource;
   whether the resources must be developed within the region;
   what the compliance dates are;
   whether tradable certificates can be bought and sold;
   what baselines are set;
   how existing resources are treated; and
   whether alternative compliance payments can be made in lieu 
        of procuring the required amount of renewables.

    Do you believe that it is possible to harmonize a federal RPS 
mandate with these existing State programs? If so, how?
    Answer. Yes, a federal RPS can be harmonized with existing RPS 
requirements at the State level, without preempting State RPS 
requirements. In most cases, the majority of energy resources that 
comply with a State RPS could comply with the federal RPS at the same 
time. The fact that some States might include additional resource types 
or set a higher percentage threshold would not necessarily interfere 
with the federal RPS. Furthermore, the existence of RPS requirements in 
a number of States would make the goals of a federal RPS easier and 
cheaper to achieve.

                   HOW TO IMPROVE THE TRADITIONAL RPS

    As you know, there are efforts underway to craft a new kind of RPS 
that goes beyond the limited boundaries of a few favored traditional 
renewables and answers the need to increase of fuel diversity for power 
generation needs. There are many who favor allowing States to proceed 
to develop their own resource plans without federal interference, but 
there is also support for a nationalized program.
    The following questions explore new approaches to promoting 
Generation Diversity Standards.
    Question 8. In setting target levels for diverse generation 
resources, one proposal is to place any new resource obligation on new 
load growth--the ``incremental basis'' approach.'' The main benefit of 
this approach is that it allows the supplier and market to adjust as 
generation demand increases. Do you support this approach and why?
    Answer. This approach of applying a portfolio obligation to 
incremental resources seems workable, provided the required percentage 
is adjusted upward accordingly.
    Question 9. If there was a National Power Generation Diversity 
Standard, should credits offered under a State program also count 
towards fulfillment of any federal obligations?
    Answer. Yes, to the extent that the same types of resources are 
eligible for both standards.
    Question 10. If a multi-tier approach like the Pennsylvania RPS 
model was to be used in a National Power Generation Diversity Standard, 
what kinds of resources should be included?
    Answer. I recommend applying the standard to renewable resources 
including solar, wind, geothermal, and biomass, as with the majority of 
State RPS requirements. These resources offer the greatest benefits in 
terms of fuel diversity and reduced environmental impacts. I do not 
recommend including baseload technologies such as emerging nuclear 
technologies and coal gasification, which would not enhance the 
nation's fuel diversity. Because these technologies come in large size 
increments and are not yet commercially available, they would likely 
add substantial complications to an RPS. These technologies, are better 
suited for other public policy tools such as RD&D and loan guarantees.
    Question 11. Should there be different levels of credit for 
different classes of resources?
    Answer. In general I prefer the simplicity and flexibility of a 
single standard. However, a case can be made for a separate standard 
for solar because of its particular benefit and cost characteristics.
    Question 12. What should the States' roles be in determining what 
resources are assigned to what tiers and how much credit each should 
receive?
    Answer. The States' role should apply to the State's RPS 
requirements, if any, not to a federal RPS.
    Question 13. Should improvements to transmission constraints and 
new storage facilities, like compressed wind facilities, also be 
credited under a National Power Generation Diversity Standard if they 
result in more efficient use of energy? Similarly, should demand-side 
management gains and other efficiency and conservation efforts be 
credited?
    Answer. Electricity storage facilities may offer important capacity 
benefits. However, energy storage generally entails substantial losses 
of energy and cannot be considered an efficiency device. While it may 
be possible for an RPS to provide credit for efficiency and 
conservation efforts, this raises some challenging issues. Because 
energy efficiency cannot be directly measured in the same sense as 
renewable generation, it would be necessary to establish complex 
criteria for documentation of energy savings. Any energy efficiency 
performance standard would need explicit criteria for measurement and 
verification.
    Question 14. Under a traditional RPS, a supplier might be obliged 
to purchase renewable credits from the Secretary of Energy to meet his 
obligation if he could not generate the requirement or if found that 
buying it cost more than buying a credit from the Secretary.
    What if instead of spending the money on purchasing credits from 
the Government, which does nothing to increase diversity, the supplier 
was credited with meeting that obligation through investments in 
developing new diverse resources that equal the amount of money he 
would have paid the Government? In other words, should a retail 
supplier be able to receive credit for investments in renewable or 
other eligible resources?
    Answer. I would not recommend this approach which would be 
difficult to enforce and would invite gaming and perverse behavior by 
energy suppliers. If suppliers are able to choose their own compliance 
options, there is no assurance that public goals would be achieved 
beyond a ``business as usual'' approach.
    Question 15. If there was a National Power Generation Diversity 
Standard with requirements of up to 10% diverse resources, how 
important would tax credits still be to a project's finance-ability?
    Answer. A well designed diversity standard that requires a minimum 
level of renewable generation might over time obviate the need for 
existing tax credits for renewable generation. A diversity standard 
that includes baseload technologies as well as renewables is less 
likely to achieve that goal.

        Responses of Mr. Morgan to Questions From Senator Talent

    Question 1. If we mandate a national renewable portfolio standard, 
how would the transmission needed to get wind from remote locations, 
onshore or offshore, to load centers be paid for?
    Answer. This is a matter that should properly be determined by 
utility regulators in the State where the transmission facilities are 
located. Utility regulators are accustomed to addressing cost 
implications of new generation and transmission facilities.
    Question 2. How should nuclear energy and clean coal through coal 
gasification be factored into a national renewable portfolio standard?
    Answer. I believe the need for incentives for new baseload 
generation technologies can be better addressed through other policy 
options such as loan guarantees and RD&D. At this time, emerging 
nuclear and coal gasification technologies probably have not advanced 
commercially to the point the where they can benefit from an RPS, and 
they would not enhance the nation's fuel diversity. Furthermore, RPS is 
better suited for smaller generation increments than for the large 
baseload facilities represented by nuclear and clean coal facilities. 
Inclusion of large baseload facilities would necessitate raising the 
percentage obligation for each company's portfolio. If a portfolio 
standard becomes too large and too inclusive, it begins to resemble a 
federal mandate for resource acquisition rather than a market-based 
incentive for fuel diversity. I believe a portfolio standard that is 
too inclusive would needlessly constrain future investment in power 
facilities to the detriment of consumers.
    Question 3. We heard testimony from Mr. Brian O'Shaughnessy, CEO of 
Revere Copper Products, as to the potentially extraordinary cost of 
adding wind generation (additional transmission, three times the 
capacity requirements to meet the sales requirements, plus balancing 
and load following costs), particularly in areas of the country with 
low wind speeds. To what extent should the cost of adding renewable 
resources as compared to other resources, be factored in to any 
renewables requirement? Should economic dispatch of more efficient 
generating units also play a role?
    Answer. The market-based features of an RPS will ensure that 
incremental transmission costs are properly taken into account in 
selecting new generation resources and that facilities are located 
where they are most cost effective.
    System operators such as regional transmission organizations (RTOs) 
can assure that generating facilities are optimally dispatched. The 
option for energy suppliers to purchase credits at a fixed price from 
the government limits the cost of new renewables facilities.
    Question 4. Would it be more appropriate to apply any national 
renewable portfolio standard requirements only on generation needed to 
meet load growth?
    Answer. Applying an RPS to incremental load growth may be a viable 
approach worth considering. The percentage requirement would need to be 
adjusted upward accordingly.
                                 ______
                                 
      Responses of Mr. Brunetti to Questions From Senator Domenici

    Question 1. Should some suppliers be exempt from a Federal RPS?
    If a federal RPS mandate is imposed, do you believe that it should 
apply to all electricity suppliers? If not, wouldn't exemptions skew 
the electricity market by favoring some suppliers over others?
    Answer. All electricity suppliers should be included. Exempting 
some suppliers, such as electric cooperatives or municipal providers, 
for example, would indeed significantly skew the market.
    Question 2. Would a Federal credit and trading program create a 
double subsidy?
    Many of the eligible resources under most RPS programs also qualify 
for the federal production tax credit, which is equal to approximately 
1.8 cents per kWh. If we were to adopt a federal RPS with a 1.5 cent 
per kWh cost cap, dually eligible renewable resources could receive 
over 3 cents per kWh of subsidies. This is roughly the cost of 
generating electricity from coal or nuclear plants in many parts of the 
country. How can this double subsidy be justified and does it best 
serve consumers?
    Answer. We believe that a production tax credit could be phased out 
consistent with the timing of a federal RPS ``phase-in.'' This would 
provide a certain continuity in support for renewable energy 
development and help smooth the transition to the RPS. Again, this 
answer assumes that these programs would apply to all suppliers.

                   HOW TO IMPROVE THE TRADITIONAL RPS

    As you know, there are efforts underway to craft a new kind of RPS 
that goes beyond the limited boundaries of a few favored traditional 
renewables and answers the need to increase of fuel diversity for power 
generation needs. There are many who favor allowing States to proceed 
to develop their own resource plans without federal interference, but 
there is also support for a nationalized program.
    The following questions explore new approaches to promoting 
Generation Diversity Standards.
    Question 3. In setting target levels for diverse generation 
resources, one proposal is to place any new resource obligation on new 
load growth--the ``incremental basis'' approach.'' The main benefit of 
this approach is that it allows the supplier and market to adjust as 
generation demand increases. Do you support this approach and why?
    Answer. We would generally not support this approach, both from a 
practical standpoint and from a fairness perspective. Load growth 
varies over time, from area to area, and from utility to utility. 
Serving load growth also involves a mix of both regulated and 
unregulated electricity suppliers. It is also very difficult to 
distinguish between horizontal growth (use per customer) and vertical 
growth (additional use by existing customers). The ability of a utility 
to project growth precisely and to apply a renewable requirement only 
to that portion of demand would be complex and exceedingly difficult 
under these circumstances, and we would be concerned about the cost 
recovery risk for a regulated utility trying to meet the standard. 
Equally important, we believe such an approach would penalize rather 
than reward utilities that have been aggressively pursuing renewable 
energy development already.
    Question 4. If there was a National Power Generation Diversity 
Standard, should credits offered under a State program also count 
towards fulfillment of any federal obligations?
    Answer. Yes, to the extent the type of generation included under 
the state program is consistent with the generation included in the 
federal program, since these credits represent actual generation of the 
energy that is desired. To do otherwise, would create unnecessary 
complexity under this type of program. The Federal legislation could 
provide some broad parameters under which the state could issue the 
credits to allow flexibility and recognize differences but still 
provide some standardization of the market.
    Question 5. If a multi-tier approach like the Pennsylvania RPS 
model was to be used in a National Power Generation Diversity Standard, 
what kinds of resources should be included?
    Answer. Generally, non-emitting resource options should be included 
in this type of standard e.g. wind, solar, conservation.
    Question 6. Should there be different levels of credit for 
different classes of resources?
    Answer. In concept we would support different levels of credit, 
recognizing that the cost of entry and environmental benefits vary from 
one form of energy to another. However, more policy analysis is 
probably warranted to ensure that any system implemented is simple to 
administer and does not unduly reward or penalize one class or type of 
resource over another.
    Question 7. What should the States' roles be in determining what 
resources are assigned to what tiers and how much credit each should 
receive?
    Answer. In our view, assuming establishment of a National Power 
Generation Diversity Standard, states would participate in a national 
rulemaking process undertaken to implement the federal legislation. In 
this rulemaking the individual interests of the states would be 
recognized and given significant deference in the development of the 
national policy.
    Question 8. Should improvements to transmission constraints and new 
storage facilities, like compressed wind facilities, also be credited 
under a National Power Generation Diversity Standard if they result in 
more efficient use of energy? Similarly, should demand-side management 
gains and other efficiency and conservation efforts be credited?
    Answer. Assuming passage of a National Power Generation Diversity 
Standard, we would support this approach for energy transmission and 
storage. Clearly, both of these components are becoming more and more 
critical to our electrical system's capability to accommodate 
additional renewable energy in a cost-effective manner. Some amount of 
credit should probably be given to transmission improvements and new 
energy storage, at least initially to facilitate entry on the part of 
renewable energy resources. In the longer term, it is likely that 
investments in these facilities would be captured in the value of a 
renewable energy (or generation diversity) credit. Credit for DSM, 
conservation, and efficiency is a yet more difficult matter. While we 
also support this concept, we recognize there is a vast array of 
governmental programs encouraging these kinds of measures, and 
implementing a credit program with corresponding tracking and 
accounting will require additional analysis and consideration.
    Question 9. Under a traditional RPS, a supplier might be obliged to 
purchase renewable credits from the Secretary of Energy to meet his 
obligation if he could not generate the requirement or if found that 
buying it cost more than buying a credit from the Secretary.
    What if instead of spending the money on purchasing credits from 
the Government, which does nothing to increase diversity, the supplier 
was credited with meeting that obligation through investments in 
developing new diverse resources that equal the amount of money he 
would have paid the Government? In other words, should a retail 
supplier be able to receive credit for investments in renewable or 
other eligible resources?
    Answer. We believe this idea has merit and is likely preferable to 
involving the Department of Energy in the credit market.
    Question 10. If there was a National Power Generation Diversity 
Standard with requirements of up to 10% diverse resources, how 
important would tax credits still be to a project's finance-ability?
    Answer. We feel that tax credits would remain important initially 
but could gradually be phased out as requirement levels associated with 
a new standard become effective.

       Responses of Mr. Brunetti to Questions From Senator Talent

    Question 1. If we mandate a national renewable portfolio standard, 
how would the transmission needed to get wind from remote locations, 
onshore or offshore, to load centers be paid for?
    Answer. Provision of transmission would appear to depend on the 
circumstances (e.g. state versus interstate transmission requirements). 
Certainly, sufficient new transmission capacity would be needed to 
support expansion of renewable energy resources. The FERC is 
considering RTO pricing and participant funding rules that could 
dictate how transmission funding needs are accommodated, depending on 
the situation.
    Question 2. How should nuclear energy and clean coal through coal 
gasification be factored into a national renewable portfolio standard?
    Answer. We believe these forms of energy should be included in a 
generation diversity standard, but may not necessarily be appropriate 
for a renewable energy standard, depending on the policy Congress 
wishes to establish.
    Question 3. We heard testimony from Mr. Brian O'Shaughnessy, CEO of 
Revere Copper Products, as to the potentially extraordinary cost of 
adding wind generation (additional transmission, three times the 
capacity requirements to meet the sales requirements, plus balancing 
and load following costs), particularly in areas of the country with 
low wind speeds. To what extent should the cost of adding renewable 
resources as compared to other resources, be factored in to any 
renewables requirement? Should economic dispatch of more efficient 
generating units also play a role?
    Answer. It is our view that there are ancillary costs associated 
with incorporating additional renewable energy into our nation's energy 
grid and that these costs need to be taken into account. We would 
expect such costs to be reflected and imbedded in the value of 
renewable energy credits, and establishing a cost cap may be one 
effective way to help ensure that the cost of the renewable energy (and 
corresponding credits) remain within reasonable economic parameters. A 
well-designed, market-based credit system should also encourage 
development and utilization of more efficient generating units.
    Question 4. Would it be more appropriate to apply any national 
renewable portfolio standard requirements only on generation needed to 
meet load growth?
    Answer. We would generally not support this approach, both from a 
practical standpoint and from a fairness perspective. Load growth 
varies over time, from area to area, and from utility to utility. 
Serving load growth also involves a mix of both regulated and 
unregulated electricity suppliers. The ability of a utility to project 
growth precisely and to apply a renewable requirement only to that 
portion of demand would be complex and exceedingly difficult under 
these circumstances, and we would be concerned about the cost recovery 
risk for a regulated utility trying to meet the standard. Equally 
important, we believe such an approach would penalize rather than 
reward utilities that have been aggressively pursuing renewable energy 
development already.

      Response of Wayne Brunetti to Question From Senator Bunning

    Question 1. Mr. Brunetti, Kentucky does not have many sources of 
renewable energy. It would be very difficult to put a wind turbine or 
solar panels in the state and obtain sufficient amounts of energy from 
them. Since many states are in the same boat as Kentucky, how would a 
national RPS affect ratepayers in states with low amounts of renewable 
energy? What would a company in a low renewable state have to do in 
order to comply with a national RPS as the one suggested in last 
Congress' energy bill?
    Answer. These issues would seem to emphasize the importance of a 
well-designed national renewable energy credit trading program. We feel 
that Congress would want to establish the most effective goals for the 
nation as a whole, and then look to the marketplace to achieve these 
goals most efficiently. Depending on the nature and intent of the 
standard enacted, e.g. a Diversity Generation Standard, conservation 
and efficiency programs implemented in a state could also be included 
in the achievement of the national goal. These are objectives to which 
Kentucky could contribute.

      Responses of Mr. Brunetti to Questions From Senator Salazar

                    COLORADO AMENDMENT 37 PROVISIONS

    Question 1. Xcel Energy has acknowledged that its customers 
supported Colorado's Amendment 37, which requires a 10% renewable 
portfolio by 2015, by a significant margin in the November election, 
and your company has stated its willingness to work cooperatively to 
implement this new law. Will you do everything you can to achieve the 
goals of Amendment 37 in Colorado, and especially the solar energy 
component of this law? Will Xcel Energy agree not to delay the solar 
implementation schedule in Colorado's Amendment 37?
    Answer. With due consideration of the rate impact cap established 
in Amendment 37, the company will work hard and cooperatively to 
achieve the targets set by the new law. Xcel Energy has aggressively 
pursued development of renewable resources in the past and will 
continue to do so in the future. We are now engaged in the rule-making 
process, which is important to ensuring that the measures we initiate 
to meet the solar and other new portfolio standards are also consistent 
with the Colorado PUC's requirements implemented to protect the 
interests of company's customers.

                   REDUCING GREENHOUSE GAS EMISSIONS

    Question 2. In August of last year, Mr. Brunetti, you were quoted 
in a Business Week cover article on global warming. Speaking about 
cutting greenhouse gas emissions, you said:
    ``Give us a date, tell us how much we need to cut, give us the 
flexibility to meet the goals, and we'll get it done.''
    I appreciate your willingness to embrace greenhouse gas reductions 
and your recognition of the very real problem of global warming.
    1) I would very much appreciate your input into how these 
reductions can best be achieved. What would your strategies be for 
making the cuts, and how can the government help you implement them?
    2) How would your actions to reduce carbon emissions affect the 
diversity of your power supply?
    Answer. We believe that the best means to achieve greenhouse gas 
(GHG) reductions will vary from company to company, and thus pursuing a 
voluntary approach to achieving those reductions is the preferable 
policy. Xcel Energy has been extremely pro-active in managing its GHG 
emissions for over a decade. The company was a charter member of DOE's 
Climate Challenge Program in 1993 and is now participating in the new 
GHG reduction agreement signed between DOE and the Edison Electric 
Institute just this last December. Acting on its own initiative, Xcel 
Energy announced voluntary corporate GHG targets and a Carbon 
Management Plan in April, 2004. This Plan includes objectives 
addressing both emissions intensity and total CO2 emissions. 
In the case of emissions intensity, the target is to reduce the 
emissions rate from our overall energy supply portfolio by 7 percent by 
the year 2012. In terms of total emissions, our goal is to reduce the 
volume of our CO2 emissions by 12 million tons through 2009. 
The company will be reporting progress toward these targets publicly 
beginning this Spring.
    To date, the company has been able to obtain the majority of its 
reductions through energy conservation programs, lower-emitting 
generating facilities, efficiency improvements, and renewable energy. 
For example, Xcel Energy is the nation's second-largest retail provider 
of wind energy, with 884 MW in the current supply portfolio and plans 
to expand to over 2500 MW by 2012. .The company has so far been able to 
achieve reductions cost-effectively without increasing costs to its 
customers. However, we expect this advantageous situation to become 
harder to maintain over time, as each incremental amount of reduction 
becomes more difficult and potentially more expensive. Looking ahead, 
therefore, we believe it is important to promote market-based 
approaches, greater planning certainty, and newer, cleaner 
technologies. We believe the government could do more to support 
development and deployment of integrated gasification combined cycle 
(IGCC) technology through R & D funding and IGCC project tax 
incentives. We also feel it is vital to the nation's environmental 
interests for the federal government to ensure the continued operation 
of the country's nuclear power plant fleet and to respect its 
obligation to provide a repository for spent nuclear fuel.
                                 ______
                                 
       Responses of Mr. Bowers to Questions From Senator Domenici

    Question 1. How would a Federal RPS affect consumer prices in areas 
with little opportunity to generate from renewables?
    Mr. Bowers, you make it fairly clear in your testimony that the 
Southern Company believes the amount of electricity Southern can 
generate from traditional renewables--like solar, wind, and biomass--is 
significantly constrained. You argue that the imposition of a national 
RPS with a credit and trading system would generally require your 
company to purchase credits to meet its requirements. What would the 
impact of such a policy be on consumers in your service territory?
    Answer. While Southern Company supports the use of cost-effective 
renewable energy, we do not support mandated standards or mandated 
credit trading. If forced to purchase credits, the impact on our 
consumers will depend on the amount we are required to purchase, the 
availability and cost of the credits.
    For example, we would address a mandated 10% national RPS using our 
traditional ``least-cost planning'' approach. Depending on the cost and 
availability of credits, we would likely first deploy the limited 
amount of renewable generation that we have available in the Southeast 
(please refer to my previous written testimony). We believe that this 
would add less than 500 MW of new generation to our 39,000 MW system--
far less than needed to meet a 10% mandate.
    Southern would then be required to purchase credits in the amount 
of 80 to 90% of the total 10% requirement to meet the remaining portion 
of the mandate. If the credits were purchased from the DOE, we estimate 
that this would cost us an additional $1.1 to $2.3 billion by 2020. 
These costs would increase prices to Southern's customers, but add zero 
incremental generation resources as a benefit for customers.
    Question 2. Does a traditional RPS--limited to solar, wind and 
biomass--impose excessive costs on utilities and their customers?
    According to the Electric Power Research Institute, impacts of RPSs 
can be significant, especially for those companies that depend on coal 
and other fossil fuels to supply the power delivered to their 
customers. For example, under a 10% renewable portfolio standard, a 
large utility with 20,000 megawatts of generation delivering 140,000 
gigawatt hours per year of power to customers would need to replace up 
to 14,000 gigawatt hours per year with renewable energy. If wind was 
the only economical choice, it would be necessary to build and operate 
or purchase power from 5000 to 7000 megawatts of wind generation, 
depending on the wind resource strength. Thus, a single utility's wind 
energy requirement would approximately double the installed wind 
capacity in the United States today. This example could also require an 
investment of about $5 to $7 billion in wind facilities; and an 
additional investment in transmission and control facilities, which 
would be required to integrate the intermittent wind generation into 
the grid. Other significant issues include public acceptance, land use, 
and noise, visual, and avian impacts.
    Do you think EPRI's example accurately describes what could happen 
under a limited traditional RPS?
    Answer. Yes. EPRI's analysis and approach is reasonable. The case 
for Southern Company is very nearly the same--only the numerical values 
are larger. Southern operates 39,000 MW of generation (a mix of coal, 
nuclear, natural gas and hydro). Our annual sales at Retail level (i.e. 
not including wholesale generation sold to other retail electricity 
providers) in 2004 were approximately 150,000 gigawatt-hours. We 
forecast continued growth in Retail sales. By 2020, we anticipate we 
would need 22,000 gigawatt-hours of renewable credits to meet a 10% 
RPS. The low-wind speeds in the Southeast limit the amount of 
generation achieved by any wind turbine. We estimate no more than 25% 
of the possible generation of a wind turbine could be achieved on an 
annual basis in the Southeast--compared to capacity factors in Texas 
and the Mid-West of 35 to 40%. Moreover, the 25% capacity factor in the 
Southeast could only be achieved by installations on mountain ridge 
tops--as evidenced by the Tennessee Valley Authority's 29 MW wind farm 
on Buffalo Mountain, Tennessee.
    Assuming Southern built wind turbines with 25% capacity factors, to 
generate 22,000 gigawatt-hours with wind energy would require Southern 
Company to install 9,900 MW of wind turbines--over 5,500 individual 1.8 
MW machines. At an installed capital cost of $1250/kW, this would 
represent a significant capital requirement of over $12 billion, not 
counting transmission investment. We consider this an excessive cost 
imposition on retail consumers in the SE.
    It should also be noted that wind generation adds very little 
generation capacity to meet system peak demands. Southern is a summer 
peaking utility and wind generation is likely to be non-existent in the 
summer months. Thus, in the above example, while Southern would be 
installing $12 billion in new wind generation, there would be little to 
no benefit for meeting peak loads. Southern would need to make 
incremental investments in dispatchable, peaking generation that would 
be needed under future load growth forecasts over and above wind 
generation investments. Thus, wind generation adds incremental capital 
costs that will not off-set peaking generation.
    The issue of public acceptance and land use is very much of 
concern. To install 5,500 new wind turbines on mountain ridge tops 
would require an enormous amount of land. As noted in my original 
written testimony--and as pointed out by Senator Alexander in the March 
8, 2005 hearing, mountain vistas in the Southeast are enjoyed by a 
large portion of the public for recreational purposes. We think the 
likelihood of gaining public acceptance of 5,500 wind turbines located 
on mountain ridge tops in the Southeast is zero.

                   HOW TO IMPROVE THE TRADITIONAL RPS

    As you know, there are efforts underway to craft a new kind of RPS 
that goes beyond the limited boundaries of a few favored traditional 
renewables and answers the need to increase of fuel diversity for power 
generation needs. There are many who favor allowing States to proceed 
to develop their own resource plans without federal interference, but 
there is also support for a nationalized program.
    The following questions explore new approaches to promoting 
Generation Diversity Standards.
    Question 3. In setting target levels for diverse generation 
resources, one proposal is to place any new resource obligation on new 
load growth--the ``incremental basis'' approach.'' The main benefit of 
this approach is that it allows the supplier and market to adjust as 
generation demand increases. Do you support this approach and why?
    Question 4. If there was a National Power Generation Diversity 
Standard, should credits offered under a State program also count 
towards fulfillment of any federal obligations?
    Question 5. If a multi-tier approach like the Pennsylvania RPS 
model was to be used in a National Power Generation Diversity Standard, 
what kinds of resources should be included?
    Question 6. Should there be different levels of credit for 
different classes of resources?
    Question 7. What should the States' roles be in determining what 
resources are assigned to what tiers and how much credit each should 
receive?
    Question 8. Should improvements to transmission constraints and new 
storage facilities, like compressed wind facilities, also be credited 
under a National Power Generation Diversity Standard if they result in 
more efficient use of energy? Similarly, should demand-side management 
gains and other efficiency and conservation efforts be credited?
    Answer. We choose to answer these questions as a group, since they 
deal with a proposed National Generation Diversity Standard. We believe 
that power generators should be allowed to responsibly select 
generation resources based on prudent decision criteria consistent with 
regional resource availability, environmental responsibility, local 
regulatory oversight and lowest costs.
    At Southern Company, we continuously evaluate our generating mix in 
order to balance fuel risk and generation technology risk in an 
environmentally responsible manner to achieve the lowest overall cost 
to our consumers. In some of the states where we operate, some of our 
regulated affiliate companies do this review under State regulatory 
oversight through an Integrated Resource Planning (IRP) process. In 
other states where we operate without a State-regulated IRP process, we 
continuously evaluate our resource mix. We maintain a diverse 
generation mix today, with coal, nuclear, gas and hydro all playing 
important roles. We are aggressively pursuing Integrated Gasification 
Combined Cycle technology. We are performing R&D on biomass 
gasification technology. We are pursuing a diverse generation portfolio 
consistent with prudent operations, environmental responsibility and 
lowest cost.
    Investments in transmission and/or energy storage should be 
considered as part of the overall cost of adding any generation 
resources and included in the cost analysis described above.
    Demand side management gains and other efficiency and conservation 
programs should be considered only to the extent that they can be shown 
to be cost-effective means to impact future generation supply without 
causing cost increases for portions of our customer base.
    Question 9. Under a traditional RPS, a supplier might be obliged to 
purchase renewable credits from the Secretary of Energy to meet his 
obligation if he could not generate the requirement or if found that 
buying it cost more than buying a credit from the Secretary.
    What if instead of spending the money on purchasing credits from 
the Government, which does nothing to increase diversity, the supplier 
was credited with meeting that obligation through investments in 
developing new diverse resources that equal the amount of money he 
would have paid the Government? In other words, should a retail 
supplier be able to receive credit for investments in renewable or 
other eligible resources?
    Answer. Again, we do not support the mandated purchase of credits 
or mandated investment in the development of specific generation 
resources. Investment in generation resources should be based on 
technology review, risk analysis and probability of achieving 
commercially viable, cost-effective generation that does not increase 
costs to consumers.
    Question 10. If there was a National Power Generation Diversity 
Standard with requirements of up to 10% diverse resources, how 
important would tax credits still be to a project's finance-ability?
    Answer. This question seems to pre-suppose that cost-effective 
renewable resources are available to take advantage of tax credits. Tax 
credits are likely to be important to the degree any emerging 
technology is immature or not cost-effective compared to traditional 
generation. If tax credits are used to incentivize market adoption of 
new technologies, the credits should apply to multiple generation 
resources, including wind, solar, all forms of biomass gasification, 
Integrated Gasification Combined Cycle (using coal), advanced nuclear, 
etc.

        Responses of Mr. Bowers to Questions From Senator Talent

    Question 1. If we mandate a national renewable portfolio standard, 
how would the transmission needed to get wind from remote locations, 
onshore or offshore, to load centers be paid for?
    Answer. Additional transmission facilities required by wind 
generators and not otherwise needed by the local utility being asked to 
build the facilities should be paid for by the wind generators or their 
customers.
    Question 2. How should nuclear energy and clean coal through coal 
gasification be factored into a national renewable portfolio standard?
    Answer. We do not believe that there should be a mandated national 
renewable portfolio standard. We believe that the addition of 
generation technologies to a utilities' generation mix should be based 
the cost-effectiveness of the technology, regional resource 
availability, environmental responsibility and suitability to manage 
risk in an overall generation portfolio in such a way that minimizes 
costs to consumers while assuring adequate energy supply.
    Question 3. We heard testimony from Mr. Brian O'Shaughnessy, CEO of 
Revere Copper Products, as to the potentially extraordinary cost of 
adding wind generation (additional transmission, three times the 
capacity requirements to meet the sales requirements, plus balancing 
and load following costs), particularly in areas of the country with 
low wind speeds. To what extent should the cost of adding renewable 
resources as compared to other resources, be factored in to any 
renewables requirement? Should economic dispatch of more efficient 
generating units also play a role?
    Answer. We are very concerned that the costs of renewable resources 
should be considered when making decisions about generation portfolio 
mix. Renewable resources should not be mandated irrespective of cost.
    Question 4. Would it be more appropriate to apply any national 
renewable portfolio standard requirements only on generation needed to 
meet load growth?
    Answer. Incremental generation should be added to meet load growth 
on the basis of an evaluation of cost-effectiveness, environmental 
responsibility and suitability to meet load growth demands.
                                 ______
                                 
    [Responses to the following questions submitted to the Department 
of Energy were not received at the time this hearing went to press.]
                    Questions From Senator Domenici

    Question 1. Would a Federal credit and trading program create a 
double subsidy?
    Many of the eligible resources under most RPS programs also qualify 
for the federal production tax credit, which is equal to approximately 
1.8 cents per kWh. If we were to adopt a federal RPS with a 1.5 cent 
per kWh cost cap, dually eligible renewable resources could receive 
over 3 cents per kWh of subsidies. This is roughly the cost of 
generating electricity from coal or nuclear plants in many parts of the 
country. How can this double subsidy be justified and does it best 
serve consumers?
    Question 2. Will expanded use of intermittent sources harm system 
reliability?
    Will reliability suffer as a result of increasing reliance on 
generation sources like wind and solar that are intermittent, meaning 
they may not be available when needed? Will additional natural gas 
peaking capacity have to be added to deal with this problem?
    Question 3. Does impending U.S. reliance on imported LNG have a 
beneficial effect on renewables, nuclear and domestic coal?
    Recently, Cambridge Energy Research Associates' Senior Director of 
North American Power Larry Makovich said that future LNG supplies in 
North America are critical in all scenarios for future electric power 
generation. CERA estimates that power sector needs will cause natural 
gas market demand to expand between 14% and 36% by 2020. CERA predicts 
an increased risk of higher costs, on-going uncertainty surrounding 
natural gas supply, a drive to bring new sources of gas supply to 
market and an opportunity for other power generation fuels and 
technologies--especially coal, renewables and even nuclear--to grow. Do 
you agree with this analysis?

                   HOW TO IMPROVE THE TRADITIONAL RPS

    As you know, there are efforts underway to craft a new kind of RPS 
that goes beyond the limited boundaries of a few favored traditional 
renewables and answers the need to increase of fuel diversity for power 
generation needs. There are many who favor allowing States to proceed 
to develop their own resource plans without federal interference, but 
there is also support for a nationalized program.
    The following questions explore new approaches to promoting 
Generation Diversity Standards.
    Question 4. In setting target levels for diverse generation 
resources, one proposal is to place any new resource obligation on new 
load growth--the ``incremental basis'' approach.'' The main benefit of 
this approach is that it allows the supplier and market to adjust as 
generation demand increases. Do you support this approach and why?
    Question 5. If there was a National Power Generation Diversity 
Standard, should credits offered under a State program also count 
towards fulfillment of any federal obligations?
    Question 6. If a multi-tier approach like the Pennsylvania RPS 
model was to be used in a National Power Generation Diversity Standard, 
what kinds of resources should be included?
    Question 7. Should there be different levels of credit for 
different classes of resources?
    Question 8. What should the States' roles be in determining what 
resources are assigned to what tiers and how much credit each should 
receive?
    Question 9. Should improvements to transmission constraints and new 
storage facilities, like compressed wind facilities, also be credited 
under a National Power Generation Diversity Standard if they result in 
more efficient use of energy? Similarly, should demand-side management 
gains and other efficiency and conservation efforts be credited?
    Question 10. Under a traditional RPS, a supplier might be obliged 
to purchase renewable credits from the Secretary of Energy to meet his 
obligation if he could not generate the requirement or if found that 
buying it cost more than buying a credit from the Secretary.
    What if instead of spending the money on purchasing credits from 
the Government, which does nothing to increase diversity, the supplier 
was credited with meeting that obligation through investments in 
developing new diverse resources that equal the amount of money he 
would have paid the Government? In other words, should a retail 
supplier be able to receive credit for investments in renewable or 
other eligible resources?
    Question 11. If there was a National Power Generation Diversity 
Standard with requirements of up to 10% diverse resources, how 
important would tax credits still be to a project's finance-ability?

                      Questions From Senator Craig

    Question 1. Do you see the need for the federal government to take 
an active role to bring demonstrated technologies--such as Iogen's 
cellulose ethanol production technology--out of the ``valley of death'' 
where they are languishing because commercial lenders will not finance 
the first-of-a-kind technologies? If so, do you think that loan 
guarantees could be a useful part of this strategy?
    Question 2. Our farmers produce quite a bit of wheat straw, corn 
stover and barley straw, rice straw and rice hulls as agricultural 
waste products. United States biotechnology companies are developing 
enzymes (cellulases) that will convert those waste products to energy 
and other products. What programs has DOE undertaken to help these 
companies move these biotech ethanol productions processes forward? 
What has DOE done to help speed the development of cellulase enzymes to 
convert wheat straw to bioethanol?
    Question 3. We have solved many of the technical problems in using 
biotech enzymes to convert crop residues to bioethanol. The big 
remaining problem is the cost of constructing commercial scale 
biorefineries. How is DOE going to help our companies build these first 
generation biorefineries in the U.S.? What type of loan guarantees or 
financing mechanisms can DOE provide?
    Question 4. The New York Times has reported that Vice President 
Cheney is supporting clean energy production methods that use enzymes 
to convert waste products to energy. In the past, President Clinton had 
signed an Executive Order to begin a biobased products and bioenergy 
initiative. What will the Bush Administration do under your leadership 
to build on these efforts to help us develop a carbohydrate-based 
economy?
    Question 5. The USDA and DOE have been required by the Lugar/Udall 
legislation to set up a technical Advisory Committee made up of 
industry people to advise these agencies on advanced biomass conversion 
technologies. This biomass advisory committee has been in existence for 
few years. What kind of work product has it produced? Has DOE and USDA 
implemented the recommendations of this citizen's advisory panel?
    Question 6. The president has focused a great deal of effort on the 
hydrogen initiative. Has that effort come at the expense of bioethanol 
energy technologies? Is it possible that since bioethanol is a source 
of hydrogen it should be included in the national hydrogen initiative?

                     Questions From Senator Talent

    Question 1. If we mandate a national renewable portfolio standard, 
how would the transmission needed to get wind from remote locations, 
onshore or offshore, to load centers be paid for?
    Question 2. How should nuclear energy and clean coal through coal 
gasification be factored into a national renewable portfolio standard?
    Question 3. We heard testimony from Mr. Brian O'Shaughnessy, CEO of 
Revere Copper Products, as to the potentially extraordinary cost of 
adding wind generation (additional transmission, three times the 
capacity requirements to meet the sales requirements, plus balancing 
and load following costs), particularly in areas of the country with 
low wind speeds. To what extent should the cost of adding renewable 
resources as compared to other resources, be factored in to any 
renewables requirement? Should economic dispatch of more efficient 
generating units also play a role?
    Question 4. Would it be more appropriate to apply any national 
renewable portfolio standard requirements only on generation needed to 
meet load growth?

                     Questions From Senator Bunning

    Question 1. Kentucky does not have many sources of renewable 
energy. It would be very difficult to put a wind turbine or solar 
panels in the state and obtain sufficient amounts of energy from them. 
Since many states are in the same boat as Kentucky, how would a 
national RPS affect ratepayers in states with low amounts of renewable 
energy? What would a company in a low renewable state have to do in 
order to comply with a national RPS as the one suggested in last 
Congress' energy bill?
    Question 2. What possible negative effects, if any, would adding 
clean coal as a qualifying energy in a national RPS have on utilities 
and ratepayers?
    Question 3. Would the Administration continue to oppose a national 
RPS if other types of energy sources such as coal and nuclear were 
added as qualifying energy?
                     Question From Senator Salazar
    Question 1. Assistant Secretary Garman, reducing electrical 
transmission losses over long distances would mean an increase in 
energy efficiency, and could result in significant energy savings. 
Could you comment on how combining renewable energy sources with a 
distributed generation system would positively benefit rural areas?

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