[Senate Hearing 109-674]
[From the U.S. Government Printing Office]

                                                        S. Hrg. 109-674

                        MARC SPITZER NOMINATION



                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION


                         REGULATORY COMMISSION


                             JUNE 28, 2006

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



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                 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 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               KEN SALAZAR, Colorado
GORDON SMITH, Oregon                 ROBERT MENENDEZ, New Jersey
                     Bruce M. Evans, Staff Director
                   Judith K. Pensabene, Chief Counsel
               Robert M. Simon, Democratic Staff Director
                Sam E. Fowler, Democratic Chief Counsel

                            C O N T E N T S




Domenici, Hon. Pete V., U.S. Senator from New Mexico.............     1
Kyl, Hon. Jon, U.S. Senator from Arizona.........................     2
McCain, Hon. John, U.S. Senator from Arizona.....................     1
Murkowski, Hon. Lisa, U.S. Senator from Alaska...................     6
Salazar, Hon. Ken, U.S. Senator from Colorado....................     8
Spitzer, Marc, nominee to be a Member of the Federal Energy 
  Regulatory Commission..........................................     4


Responses to additional questions................................    17

                        MARC SPITZER NOMINATION


                        WEDNESDAY, JUNE 28, 2006

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:30 a.m., in 
room SD-366, Dirksen Senate Office Building, Hon. Pete V. 
Domenici, chairman, presiding.

                           NEW MEXICO

    The Chairman. Will you please come to order. Senator 
Bingaman has authorized me to start in his absence. He 
indicated that he will be here very shortly, so I will proceed.
    The committees will come to order.
    We are here this morning to consider the nomination of Marc 
Spitzer to be a member of the Federal Energy Regulatory 
Commission. Before we begin, our colleagues, Senator McCain and 
Senator Kyl, have asked to make a few remarks. We will start by 
asking Senator McCain to proceed and will be followed 
immediately by Senator Kyle.
    Senator McCain.

                          FROM ARIZONA

    Senator McCain. Thank you very much Mr. Chairman and thank 
you for allowing me and my friend, Senator Kyle, to introduce 
Marc Spitzer of Arizona who has been nominated for a membership 
position on the Federal Energy Regulatory Commission, known as 
    Mr. Chairman, I've known Marc Spitzer for more than 20 
years. During that time, I have had the opportunity to witness 
first-hand his professional expertise leadership and personal 
commitment to the public service. His integrity for the 
Municipal Act, along with his broad experience and ability has 
a consensus builder are just a few of the attributes he would 
bring to the FERC.
    He served as a member of Arizona Corporation Commission 
with honoring distinction over the past 6 years and as chairman 
for 3 years. He has presided over several cases of national 
significance and throughout his career he has promoted a pro-
market philosophy while making sure that Arizonans received 
reliable, affordable and safe utility services. His public 
service and understanding of the watering power generation and 
supply sector, has contributed much to the benefit of Arizona 
consumers and producers. I am confident that he would be a 
great asset to the Commission.
    Before he served on the Arizona Corporation Commission, he 
had a distinguished career as an attorney and an Arizona bar-
certified specialist in tax law. In 1992 he was elected by the 
Arizona State Senate where he served his term in the judiciary 
and finance committees. The respect he commended among his 
colleagues and his dedication to citizens of Arizona earned him 
a position of Senate Majority Leader in 1996. In that capacity, 
Marc Spitzer established a strong legislative record as an 
advocate of consumer protection and tax relief and reform.
    I'd like to thank the Committee for allowing me to be here, 
and I urge your careful and favorable consideration of this 
fine man. He's a person of exceptional ability and experience 
who is recognized among Republicans and Democrats alike as a 
leader and energy expert. Our Nation's energy future is at a 
crucial juncture and it's essential that the FERC position be 
filled by an experienced and astute leader like Marc Spitzer.
    Mr. Chairman, just two additional points I'd like to make. 
I know of the chairman's commitment on nuclear energy issue. 
Marc Spitzer [inaudible] having been the last nuclear 
powerplant constructed in the United States. Marc Spitzer 
brings a great deal of expertise and knowledge about this 
particular successful utility and power generating 
establishment in our city of Phoenix. So he is very well-versed 
in the issue of nuclear power and an interest at full 
disclosure, and I hope the chairman will not to hold it against 
him. He has been involved in a number of my political campaigns 
for which I hope the chairman will be forgiven.
    I thank the chairman for allowing me to be here today. 
Thank you, Mr. Chairman.
    The Chairman. Thank you very much Senator and that will all 
be taken into consideration. I don't know what the outcome will 
    Senator Kyl would you proceed please.


    Senator Kyl. Thank you Mr. Chairman. Let me associate 
myself with the remarks by my colleague, Senator McCain in 
support of Marc Spitzer and perhaps just add a few other quick 
    In his position as the Senate Majority Leader in the 
Arizona State Senate, he occupied the same position that 
Justice Senator O'Connor before him occupied and it was said 
with her sentencing to the Supreme Court that gave her a 
special understanding of the legislative process, the role of 
the legislators in our Government here in Washington, and I 
think throughout her years on the Court, she demonstrated that 
experience, that life experience of hers, brought a unique 
perspective, and I think the same thing is true of Marc 
Spitzer. It's hopeful I think that FERC which is an 
administrative, a crazide judicial, but an administrative body, 
had that kind of experience represented on her and Marc Spitzer 
brings that perspective to the Commission.
    And second, the kinds of issues that he has dealt with are 
very similar to the kind of issues that he will have to deal 
with on FERC. Let me just mention a few. During his time as 
chairman of the Arizona Commission, we focused on policies 
which encouraged expansion of the natural gas infrastructure. 
Specifically, distribution and storage, creating a demand side 
management policy enhancing the Commission's renewable standard 
and advancing consumer privacy concerns in the 
telecommunications area. He presided over very contentious 
issues such as the planning and the permitting of new 
transmission line sites and for electric generation. Cases 
arising from the California energy crisis came up during his 
tenure as chairman. A major rate cases for gas, electric and 
telecommunication companies and the Qwest communications' entry 
into the long distance market which was a very large issue at 
the time. He as chairman was noted for balancing all of these 
interests while ensuring that Arizonans received safe and 
economical and reliable utility services. And I believe he will 
bring that experience to the FERC as well. So, he is a person I 
think is uniquely qualified to serve in this position and along 
with Senator McCain, I urge the committee's favorable and 
speedy consideration of his nomination.
    The Chairman. Thank you very much. We thank you both for 
your remarks.
    Now, Mr. Spitzer, do you have members of your family that 
are present?
    Mr. Spitzer. Yes, I do.
    The Chairman. Would you please introduce them if you would 
    Mr. Spitzer. I would certainly. Thank you, Mr. Chairman. 
Present behind me seated is my wife, Jacque; my mother, Edie 
Spitzer from Philadelphia; a close personal friend of the 
family, Len Barkan; and my brother also from Philadelphia, John 
Spitzer. Thank you, Mr. Chairman.
    The Chairman. You are all welcome to the hearing and your 
genuine abiding interest in this nominee certainly is helpful.
    Are there any Senators who wish to make opening statements 
or submit them for the record?
    Now we will proceed under the rules of the swearing in. The 
rules of the committee which apply to all nominees require that 
they be sworn-in in connection with their testimony. Would you 
please rise and raise your right hand please.
    Do you solemnly swear that the testimony that you are about 
to give to the Senate Committee on Energy and Natural Resources 
shall be the truth, the whole truth and nothing but the truth?
    Mr. Spitzer. I do.
    The Chairman. Please be seated.
    Before you begin your statement, in accordance with our 
rules, I need to ask you three questions that we ask each 
nominee that comes before us for confirmation. Please respond 
separately to each question.
    Will you be available to appear before this committee and 
any other congressional committees to represent Departmental 
positions and respond to issues of concern to the Congress?
    Mr. Spitzer. I will.
    Are you aware of any personal investments or holdings or 
interests that could constitute a conflict or create an 
appearance of such a conflict should be confirmed and assume 
the office to which you have been nominated by the President?
    Mr. Spitzer. Mr. Chairman, my investments, personal 
holdings, and other interests have been reviewed both by myself 
and the appropriate ethics counselors within the Federal 
Government. I have taken appropriate action to avoid any 
conflicts of interest. There are no conflicts of interest or 
appearances thereof to my knowledge.
    Are you involved or do you have any assets held in blind 
    Mr. Spitzer. No.
    The Chairman. Now with those questions having been 
completed, we're going to proceed and have you give your 
remarks, and we will have questions and I assume if nothing 
changes, I will be the only one who will have questions which 
means the Senators will submit them in writing and you will 
respond to them quickly so we can confirm you quickly.
    Mr. Spitzer. Thank you, Mr. Chairman.
    The Chairman. With that, will you please give your remarks 
to the committee as to why we should confirm you to the job the 
President has nominated you for.
    Please proceed.


    Mr. Spitzer. Thank you, Mr. Chairman. With the preceding 
statements of my Senators from Arizona, I feel that I've sat 
through my own funeral eulogy, but I have submitted the written 
testimony, and I will very briefly summarize, Mr. Chairman.
    Mr. Chairman, I'm greatly honored to be before this 
committee this morning. This is a busy time at the Senate and I 
appreciate the committee holding this hearing today. I will be 
very brief again in summarizing my testimony.
    Along the many people who have supported me over the years 
and in this endeavor, I particularly acknowledge Senator McCain 
and Senator Kyl for their support today. I cannot begin to 
express my thanks and appreciation for the confidence the 
President of the United States has shown in me by nominating me 
to this important position.
    Service on the FERC is a challenging and exciting 
opportunity. I have been fortunate to have had wonderful 
educational, employment and public service opportunities. I was 
born and raised in the Commonwealth of Pennsylvania and 
educated at Dickinson College and the University of Michigan 
law school, and I am grateful to those institutions. I was 
trained in law by a brilliant lawyer and a wonderful man, Jim 
Powers. I have also learned much from my colleagues and the 
staff of the Arizona Legislature and the Arizona Corporation 
    Finally, I could not have accomplished very much without 
the loving and patient support of my wife, Jacque.
    The efforts of this committee have borne fruit in the 2005 
Energy Policy Act. Chairman Kelliher and Commissioners Bromwell 
and Kelly have been working hard to implement its provisions. 
The FERC now has an historic opportunity to enhance energy 
infrastructure, strengthen wholesale markets and protect 
consumers. It's a great honor to be considered and nominated to 
this position and if confirmed, I very much look forward to 
sharing in that historic opportunity. I look forward, Mr. 
Chairman, to responding to the committee's questions and I 
thank you very much.
    [The prepared statement of Mr. Spitzer follows:]
   Prepared Statement of Marc Spitzer, Nominee to be a Member of the 
                  Federal Energy Regulatory Commission
    Mr. Chairman, Senator Bingaman and members of the Committee, I am 
greatly honored to appear before you this morning and appreciate your 
consideration of my nomination to serve on the Federal Energy 
Regulatory Commission (FERC). There are many individuals whose support 
in this endeavor I appreciate, but I must especially acknowledge and 
thank Senator McCain and Senator Kyl for their support today. I cannot 
begin to express my thanks and appreciation for the confidence the 
President has shown by nominating me to this position and for the 
wonderful opportunity it provides to serve our Country. I would also 
like to acknowledge the loving support of my wife, Jacque.
    If confirmed, I pledge to bring a balanced perspective to the FERC, 
based on my educational and geographical background and professional 
experience. After being born and raised in Pennsylvania and attending 
Dickinson College in the East, I journeyed to the Midwest to attend law 
school at the University of Michigan. In 1982, I moved to Arizona to be 
an attorney at an established Phoenix law firm, where my practice 
focused on Federal income taxation. In 1987, I was certified as a 
Specialist in tax law by the State Bar of Arizona. I continued to 
practice law as a partner in that firm until 1997 when I joined a ``Big 
Five'' accounting firm as a tax attorney. I have practiced as a sole 
practitioner since 2001 and have maintained my credentials as an 
attorney and tax law specialist while in public service.
    I have always felt a desire to serve society and contribute 
meaningfully to my community. This led me to seek election to the 
Arizona State Senate in 1992 where I subsequently served as Chairman of 
the Finance and Judiciary Committees and was ultimately selected by my 
peers to represent them as Senate Majority Leader. As an elected 
legislator, I quickly learned to listen to all of my constituencies and 
that wise and effective government requires a careful balancing of 
competing interests. In my leadership capacities, I was required to 
manage people and personalities, mediate issues, and always exercise 
good judgment within the political framework. Having authored 
legislation, I am deeply respectful of the legislative process. During 
my tenure at the Arizona Senate, I had the experience of working on 
energy, tax and environmental issues. Of all the issues I dealt with, I 
felt these offered the greatest potential benefits to our community.
    In 2000, I was elected to the Arizona Corporation Commission. The 
Arizona Commission is one of several state regulatory bodies subject to 
popular election. In addition to exercising limited regulatory power 
over corporations, it is entrusted by the State Constitution with broad 
regulatory authority over public utilities. As Commissioner, I sit in 
judgment on contested cases and settlement proposals and render 
decisions by applying the law to the facts in specific cases. In my 
capacity as Commissioner, I am called upon to interpret and follow the 
State Constitution and the intent of the Legislature. Further, my 
decisions are based upon a written record that documents evidence 
presented and established at a contested hearing presided over by an 
administrative law judge. During my tenure on the Arizona Corporation 
Commission, I have made many difficult decisions, including increasing 
customers' rates and siting generation and transmission facilities. I 
am proud to have the reputation as one who treats all parties equally 
under the law and pride myself on my ability to listen with an open 
mind to all sides before rendering a decision.
    As Chairman of the Arizona Commission from 2003 to 2005, I presided 
over major proceedings involving electricity, natural gas, water, 
securities and telecommunications issues. As a Commissioner, I have 
been attentive to ratepayer concerns and compassionate in the face of 
rising utility costs. As a trained attorney, I deeply respect the law 
and recognize legal limits on regulatory authority. If confirmed, I 
believe my financial and tax background would be an asset to the 
impressive array of skills which already exist at the FERC.
    The Arizona Constitution mandates that the Commission on which I 
currently serve ensure reliable utility services at just and reasonable 
rates. But the Arizona Constitution also requires the Commission to 
authorize a fair rate of return for the retail utilities. Meeting these 
potentially divergent goals has been challenging in an era of rising 
energy prices. I believe our Commission has met those challenges by 
supporting critical infrastructure, including pre-approval of gas 
pipeline capacity and storage, and siting power plants and transmission 
lines. The Arizona Commission has also tackled the difficult task of 
balancing competing interests in setting retail rates for electricity 
and natural gas. While raising rates is never pleasant for a utilities 
regulator, elected or otherwise, it is imperative and ultimately in the 
consumers' best interests that the regulated utilities--public, private 
and co-operative--remain financially viable.
    If confirmed, I would welcome the opportunity to bring my 
experience to bear on the many interesting and challenging issues that 
are before the Federal Energy Regulatory Commission. By enacting the 
Energy Policy Act of 2005 (EPAct 2005), Congress wisely provided a 
framework for increasing the supply of energy and diversity of energy 
resources. EPAct 2005 also builds upon demand side management and 
energy efficiency strategies. In Arizona, our Commission simultaneously 
addressed these issues at the retail level. Implementation of 
Congressional intent at the wholesale and national platforms would be a 
daunting, but exciting task.
    By enacting EPAct 2005, Congress has given the Commission new 
authorities and tools that will help ensure just and reasonable prices 
and guard the reliability of the Nation's transmission grid. I commend 
Chairman Kelliher and the rest of the Commission. Their efforts and the 
fine work they have done after EPAct 2005 prove that Congress' trust 
was well placed. I hope that you will give me an opportunity to assist 
the Commission in carrying out its responsibilities under the law and 
to ensure that the ratepayers of our Nation receive reliable power at 
affordable prices.
    In closing, my broad experience in public service in both the 
Arizona legislature and the Arizona Corporation Commission provides me 
with an appreciation of the governmental process and the need for the 
various public bodies to work together to achieve successful results. 
Further, my experiences regulating the energy industry have prepared me 
well for the great responsibilities with which I would be entrusted, if 
confirmed. Being born and raised in the East, educated in the Midwest 
and practicing law and serving in public office in Arizona have given 
me a wider perspective than would be the case if I were familiar with 
only one geographic area of the Country.
    I thank you very much for your time and consideration and welcome 
any questions you may have.

    The Chairman. Thank you very much, sir. Two Senators have 
arrived, one from each side of the aisle. The first one having 
arrived from the State of Alaska. Would you like to inquire or 
comment? We will start with the Senator from Alaska and follow 
with the Senator from Colorado.

                          FROM ALASKA

    Senator Murkowski. Thank you, Mr. Chairman and thank you 
for allowing this hearing to proceed so quickly. I think it's 
significant that for the first time in many years, we might 
possibly have a full Commission on the FERC and recognizing 
what we did through this committee and through this Congress in 
passing the Energy Act last year. We put a great deal on the 
plate of the FERC and so it's important that the Commission be 
rounded out. I had the opportunity yesterday to meet with the 
nominee, Mr. Spitzer and speak to him about some of the issues 
that I was particularly concerned with. I wanted to bring up 
just one this morning, Mr. Spitzer. It's probably not going to 
be any surprise to you, but it relates to natural gas. We had a 
chance to discuss the situation in my State of Alaska and, as 
you know we have some 35 trillion cubic feet on Alaska's North 
Slope, with hopefully another 150 trillion cubic feet awaiting 
discovery. The potential for enhancing and increasing our 
domestic reserves is certainly there, but as with any resource, 
we've got to figure out a way to get it to market.
    Our Alaska legislature is reviewing the terms of a contract 
as we speak and we're hopeful that we will see very positive 
movement in the near future on that.
    My question to you this morning is from the perspective of 
importance to the Nation as a whole, how important is it to 
this country to have additional domestic supplies of natural 
gas coming into the market down here in the north ordinate. 
Specifically, how important is it to get Alaska's natural gas 
to America?
    Mr. Spitzer. Mr. Chairman, Senator, thank you very much. 
That's a good question. We in Arizona have struggled with high 
price of natural gas and there is an old saying, ``don't put 
all your eggs in one basket,'' and electricity is increasingly 
being generated by natural gas. In Arizona more natural gas 
goes into generation of electricity than heating homes which is 
a very interesting and striking fact.
    We need to do what we can to increase supply. There are 
limits to reducing demand of natural gas, so the main issue is 
on the supply side. I am not saying LNG within the deployment 
of natural gas is not an alternative, but again to put all your 
eggs in one basket doesn't seem to be the right choice.
    Senator Murkowski. Could you speak a little bit more to the 
issue of imported LNG and your recognizing that you mentioned 
from Arizona's perspective, focusing on the infrastructure and 
the distribution of storage aspects and you certainly have some 
background there. How wise is it for us as a Nation to be 
looking to imported LNG to meet this growing demand?
    Mr. Spitzer. Well Mr. Chairman, Senator, clearly the supply 
issue is largely controlled by the Congress at the Federal 
level, and it would not be in the realm of a State 
commissioner, nor a FERC Commissioner. But my experience in 
Arizona suggests that LNG can be problematic. There were 
tankers headed towards the United States that, based on price 
volatility, changed direction when there was a crisis in Europe 
and made delivery to England. So we were without a supply in 
that circumstance. In the case of long-term fixed contracts, 
some of the producers in very volatile, turbulent areas of the 
world are requiring 20-year fixed contracts. The consequence 
would be trillions of dollars leaving the United States to 
foreign countries. So again, my hopefully not overly simplistic 
approach of not putting all your eggs in the basket is to keep 
diversity of fuel for generation of electricity. In the natural 
gas area, we seek the same diversity with regard to production. 
Of course in Arizona we have no coastline, so natural gas 
travels via pipes. You and I had the opportunity to discuss the 
issue of a pipeline capacity, which is a very important matter, 
and FERC has siting authority over pipelines.
    Senator Murkowski. And we had discussions, Mr. Chairman 
about some of the aging infrastructure that we have in this 
country and the recognition as to FERC's role in overseeing so 
much of it. If we're going to be able to meet the demand, we 
have to have that infrastructure capacity.
    Mr. Chairman, again I appreciate that you are having this 
hearing. Mr. Spitzer, I appreciate your comments and your 
recognition that we do need to have a diversified portfolio of 
our energy needs and more importantly, that we must focus on 
the domestic side first so we don't have that exposure, that 
vulnerability that we have seen certainly with oil. We don't 
want to go down the same path with natural gas as we currently 
are with oil and our very heavy dependency on foreign 
resources. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Salazar.

                         FROM COLORADO

    Senator Salazar. Thank you very much Chairman Domenici and 
congratulations to you Mr. Spitzer on your nomination and 
congratulations as well to your family.
    Mr. Spitzer. Thank you, Senator.
    Senator Salazar. Let me make a comment and just ask a 
question. I continue to believe that one of the finest moments 
of the 109th Congress when its looked back in history will be 
the work that this committee did last year in putting together 
an energy bill which had eluded the Congress for a very, very 
long time, and even though there are critics of the bill on 
both sides, I strongly continue to defend the bill because I 
think it was the right step and it would not have happened 
without the bipartisan leadership that we saw in this committee 
from Senator Domenici and Senator Bingaman. And so I am proud 
of that work of the 109th Congress.
    I have a question with respect to wind energy and other 
intermittent supplies of the electricity that we might see 
coming onto the grid and the Order to which has been proposed 
by FERC, Order 888. It's my understanding that historically 
there have been excessive transmission tariff penalties on 
intermittent generators such as wind-powered facilities and 
that has worked to the disadvantage of these intermittent 
producers of energy. The proposed Order by FERC, Order 888, 
would eliminate that disadvantage to our wind power, and I 
would like one, to ask you if you're familiar with that 
proposed Order and number two, generally, what your 
philosophical approach would be to wind power?
    Mr. Spitzer. Thank you Senator. I am familiar with that 
Order and because the Order may ultimately come before the 
FERC, it would not be appropriate for me to express an opinion 
on the merits so not to prejudge it. However Senator, while an 
Arizona commissioner for four years we worked tirelessly on a 
renewable energy standard of which wind energy is a valuable 
component. We have purchased, Mr. Chairman, wind energy from 
New Mexico and look forward to wind energy from other parts of 
the West being imported into Arizona and having Arizona export 
some of its wonderful solar energy to create a Western market 
for renewable energy.
    The issue of transmission has been a hindrance to the 
creation of the west-wide renewable market, and so it's 
important from a philosophical point of view that wind have 
equal access to the market. You referred, Senator, to the issue 
of intermittent resources and the question as to whether some 
of the tariff imbalance penalties under the current framework 
are to the disadvantage of wind. If confirmed as a FERC 
Commissioner, I will give very careful attention to that matter 
and balance the competing interests. The competing interest on 
the one hand is access to the market by wind generators. 
Normally, these generators are non-utility private projects, 
but that access to the market needs to be balanced against the 
interests of the transmission owners and the reliability of the 
    So, I look forward to paying very careful attention to the 
competing interests in reaching a good result.
    Senator Salazar. Thank you, Mr. Spitzer. Will you expound 
just a little bit on the program that you alluded to that you 
have been involved in Arizona for your taking some of the great 
sun that hits Arizona producing solar-generated electric power 
and then importing into Arizona some of the wind power from New 
    Mr. Spitzer. Yes, Senator. In fact, there are non-FERC 
jurisdictional entities that have entered into contracts to 
purchase wind energy from New Mexico. In an Arizona Public 
Service rate case that we decided, we imposed a renewable 
provision into that agreement. So Arizona Public Service went 
out to market and acquired wind from New Mexico. What I think 
is appropriate is for States to reach their own conclusions on 
their own renewable standards. I know that we have a very 
strong bi-partisan consensus in our legislature with regard to 
solar energy by virtue of the fact that we have 310 days of 
sunshine. The sun is shining today in Washington, which is 
good. We ultimately think there could be great benefit from a 
west-wide market including the great State of Colorado, but 
there will be additional transmission enhancements needed. I 
would point out that in addition to the FERC's responsibility, 
the Western Governors' Association has convened a number of 
working groups on green trading and green credits. There's 
something called the Frontier Line that has been proposed that 
would help the transmission of both renewable and coal from 
jurisdictions such as Colorado and Wyoming into the very fast 
growing areas of the Southwest. Those are the type of 
consensual approaches the Governors are working on. The State 
commissions working with the FERC, I think would be very 
    Senator Salazar. Well I appreciate your comments and look 
forward to your service. Thank you very much.
    Senator Menendez. Thank you Mr. Chairman. Mr. Spitzer, 
congratulations on your nomination to you and your family. I 
was very interested in seeing your biography at your greatest 
achievements and so I don't know if you know that it says at 
the bottom of your greatest achievement here.
    Mr. Spitzer. I certainly do, Senator.
    Senator Menendez. It is not a trick question, but I am 
proud to see what your greatest achievement is and happy to see 
you here today. I want to pursue a particular interest that 
those of us in New Jersey and many other parts of the Northeast 
have. The people of New Jersey like so many others around the 
country are facing much higher electric bills this year because 
of the high cost of natural gas and other fuels and just like 
last week, New Jersey tax payers began paying over 12 percent 
more, which is bad but as not as bad as it could have been 
because the State's competitive auction gets them much better 
prices than neighboring States.
    But the auction system can't work without a vibrant, 
effective and competitive region of power market and so my 
question is, if you're confirmed, will you work to ensure that 
regional markets in the Mid Atlantic, in the Midwest, the 
Northeast, all of which are critical to power consumers in my 
State, grow and thrive and can you help guarantee that as many 
competitive generating companies as possible get access to a 
reliable open transmission grid so that we can--so that they 
can compete to provide our constituents with electric power?
    Mr. Spitzer. Thank you Senator. In terms of wholesale 
competition, that is a mandate of the Congress and the FERC is 
directed to follow the law and follow that mandate and provide 
for competitive wholesale markets. At the same time Senator, I 
absolutely agree with you. In Arizona we had a competitive 
auction that saved Arizona ratepayers $150 million by providing 
that the utility company purchase power through a competitive 
solicitation. That was very successful in Arizona. It sounds 
from your statement that the same success for ratepayers 
occurred in the State of New Jersey. I know that in some 
regions of the country there has been resistance to regional 
transmission organizations. In other parts of the country, they 
have been embraced, such as in your State.
    You may get some confidence from the fact that I grew up 
across the river in Philadelphia, and I look forward to having 
competitive markets to the benefit of ratepayers throughout the 
    Senator Menendez. Well I appreciate that answer. The open 
transmission grid system to a State like New Jersey which is a 
main point of our electricity is incredibly important, and our 
regional transmission system has done an excellent job of 
operating a competitive market and maintaining the reliability 
of the grid was one of the reasons we didn't have the real 
consequences of the blackout of 3 years ago as such a 
significant problem for us. It could have been without this 
effort, so it's my hope that we won't backslide on the gains 
we've made.
    And one other question, we have as a State and I'm sure 
others as well, an interest and I heard some of your responses 
to Senator Salazar, so I am pleased by what I hear. Seeing the 
development of renewable sources such as solar power, wind 
power and demand side resources such as energy efficiencies a 
means to diversify our resources and reduce our dependence on 
foreign oil, the State has now created a huge boom in solar 
power thanks to a number of incentives to homes and businesses, 
and I have been told by a number of suppliers of energy 
efficiency devices and renewable sources, that a competitive 
wholesale power market is the key to stimulating new markets 
for energy efficiency and renewable resources. Is that 
something that you agree with and will you work as a member of 
the Commission to further development of competitive markets 
and enable these alternative energy sources to grow and develop 
in States like my own?
    Mr. Spitzer. Thank you Senator. New Jersey has done a 
fabulous job on solar energy, and we in Arizona in crafting our 
rules, Senator, looked to New Jersey as a model. And each State 
is obviously going to craft its own renewable rules. I am 
particularly proud of the Demand Side Management Program that 
the Arizona commission implemented when I was chairman, through 
Arizona Public Service, which is a way of modulating demand 
off-peak to use the least expensive, least cost resource and 
avoid the most expensive peaking power. Then there was energy 
efficiency that you alluded to Senator, which is a means of 
reducing energy demand by using devices that consume less 
electricity. They both are laudable. I think the great benefit 
that the FERC would employ with regard to renewable generation, 
and indeed traditional generation, is a reliable electric grid 
and that is of course a mandate of the 2005 Energy Act. The 
FERC is working on that currently and putting a great deal of 
effort into making sure that the grid is reliable and robust to 
serve as a vehicle for getting energy to market.
    Senator Mendenez. Thank you. I look forward to supporting 
your nomination.
    Mr. Spitzer. Thank you, Senator.
    The Chairman. Thank you Senator, now Senator Bingaman has 
some questions.
    Senator Bingaman. Mr. Spitzer, congratulations to you and 
it's good to see you again. I am sure you will be a great 
addition to the Commission, and I look forward to your service 
there. Let me ask you just about one section of the Energy 
Policy Act that we passed last year. This is section 203, that 
gave the Commission new authorities and new obligations in the 
review of mergers and acquisitions and dispositions of public 
utility assets. In that section we tried to replace to the 
extent that we could the protections for utility customers and 
for the competitive markets that were lost with the repeal of 
the Public Utility Holding Act. I supported the repeal of the 
Public Utility Holding Act, but I did so with the assurance 
that these new provisions would be there and would be 
implemented. To me, the key new provision was the requirement 
that FERC in approving such mergers and acquisitions should 
make a determination that the proposed merger or acquisition 
would not result in cross-subsidization of a non-utility 
associate company and would not result in the pledge or 
encumbrance of utility assets for the benefit of an associate 
company. It seemed to me that at the time the only way that his 
obligation could be fulfilled would be for the Commission to 
impose some strict structural rules for these inter-affiliate 
transactions in an emerged company, and that was the way I was 
envisioning it.
    The Commission, however, has now issued a rulemaking which 
is not final, but it purports to implement this section, this 
section 203 and in my view, it requires something far different 
than what I had in mind. The Commission provides that a section 
203 applicant, that's some utility who wants to engage in a 
merger or acquisition must provide an explanation with the 
appropriate evidentiary support of how it's providing assurance 
that the proposed transaction will not result in cross-
subsidization of an associate company or encumbrance of asserts 
for the benefit of the associate company. So it's true to an 
extent that we will know exactly how these protections against 
cross-subsidization and encumbrance of assets will work, but we 
won't know until cases have actually been brought and the new 
rules have been applied, the way I read what the Commission's 
has now proposed. I talked of this section I have been 
describing here with sort of a heart of the agreement by which 
Congress agreed to repeal the Holding Company Act and I think 
it's very important for consumers to be protected in the 
future. Could you explain any thoughts you have about how this 
approach to protecting consumers might work? How we can be 
assured that consumers are protected from the kinds of behavior 
that have occurred in recent years stemming from the abuse of 
these inter-affiliate relationships? I have in mind 
particularly the collapse of utilities like Allegany Electric 
and West Star. Those are examples which I think we're all 
familiar with and any thoughts you have on that subject, I 
would be anxious to hear.
    Mr. Spitzer. Thank you, Senator. I want to be careful not 
to express an opinion on the pending rulemaking that I may be 
called to vote upon, so not to prejudge that matter. But I will 
Senator, respond to this very interesting question. In general 
terms, one of the most interesting cases I've ever dealt with, 
including 6 years on the commission, 14 years in public service 
and 24 years as an attorney, was the proposed acquisition of 
Unisource, the parent company of Tucson Electric Power by KKR. 
That transaction was being considered by the commission of 
Arizona at the same time the Texas Pacific matter was pending 
before the Oregon commission. In both cases the transactions 
were denied as not in the public interest by State utility 
commissions. So the Westar case was not relevant. We delved 
into the details of the cases, but the decision was made based 
on State law. The protection of consumer interests and the 
particularly salient issues of cross-subsidization and asset 
impairment were crucial in both cases. In both cases there's a 
term of art used called ring fencing.
    The Chairman. Called?
    Mr. Spitzer. I'm sorry, Mr. Chairman?
    The Chairman. Called what?
    Mr. Spitzer. Ring fencing is the State commission's 
authority to build a ring fence around utility assets to 
prevent cross-subsidization, to prevent from an economic point 
of view, earnings of the utility company being diverted to non-
utility separate investments of the holding company. And Oregon 
was described as having the gold standard of ring fencing, and 
in fact, Portland General Electric survived the Enron collapse 
even though it was a subsidiary of Enron because of the ring 
fencing in Oregon Law and so it proved very beneficial. In the 
Kansas--in the Westar case--there was not authority for the 
Kansas commission to impose ring fencing on Westar. Such 
authority was granted by the legislature only after closing the 
barn door after the horses had bolted, but many jurisdictions, 
I think most jurisdictions have some sort of ring fencing 
provision. As we went through the process in Arizona, and I 
followed the process in Oregon, it seemed to me that the State 
commission taking testimony with witnesses sworn under oath and 
subject to cross-examination and intervention by the parties 
including the commission staff, including the Residential 
Utility Consumer Office, including interveners, resulted in a 
very robust and thorough discussion on the asset impairment and 
cross-subsidization issues. And they were ultimately decided by 
the State commissions in rulings not to proceed with those 
transactions. So I think the fact that Oregon and Arizona 
worked in such ways should give the Senator some comfort that 
those issues are being dealt with on a very granular level by 
the States and again, serious proceedings that are based on a 
written evidentiary record decided by State utility 
    Now with that being said, there is certainly a role for 
FERC with regard to the market power issue and to ensure that 
no merger or acquisition gives market power over wholesale 
generation to the surviving entity. And of course the Justice 
Department has its own review under the anti-trust umbrella, 
the anti-trust standard. It may be Senator that some 
consideration of cross-subsidization and asset impairment might 
be appropriate where the State jurisdiction and State utility 
commission lacks the authority, but certainly in Arizona and 
Oregon, those cases suggest that the State commissions were 
paying very careful attention. The State commissions had 
authority under organic State law to deal with these issues.
    Senator Bingaman. Well, obviously as you say you can't give 
the opinion as to the specifics of the pending rule. It's my 
view that in some of the mergers and acquisitions that are 
likely to move ahead in coming years, the ability of some 
States to properly monitor and properly protect consumers in 
those cases may not be adequate, and I think FERC needs to have 
this started. That's why we put it in the statute, and that's 
not just the authority, but the responsibility to ensure that 
the cross-subsidization not exist. So, I hope you'll look 
carefully at that. As I say, I think that it's a core part of 
what we tried to do in last year's energy bill, and I think if 
you're looking ahead 5, 10 years and saying where can we get 
into difficulties with things that were in last year's 
legislation, I feel that this is one area where we could find 
ourselves in difficulties if FERC is not sufficiently energized 
or focused on this exact problem.
    Mr. Spitzer. Senator if confirmed, I will be zealous not 
only in following the mandates of the Congress and Federal law, 
but zealous in protecting the interest of consumers to the 
extent there is any regulatory gap. The statute suggests that 
there needs to be protection of the customers.
    Senator Bingaman. Thank you very much. Thank you, Mr. 
    The Chairman. Thank you Senator Bingaman. Let me on the 
same subject Mr. Spitzer, let me suggest a Senator like this 
one waited 25 years to see PUCA disappear and probably one of 
the most exciting parts of the bill to finally be able to say 
that PUCA had left the scene. Now we being from the same State, 
working hand in blood bi-partisan lives just didn't happen to 
agree totally on PUCA versus an open-market with reference to 
mergers. The most compromised we could do is the language read 
to you about this. So, we're speaking of what Senators think, I 
would like to make sure you know that others thinks as I do 
that one of the very powerful features of the Energy Act is the 
fact that you might get huge new investments into the utility 
industry because PUCA has left the scene. And the reason for 
that is that mergers will occur and that if FERC takes the 
position that they're going to put a rule in that says PUCA 
disappeared but only temporarily while we went ahead and put it 
back in by our rule when obviously you had done a great 
injustice to the hard work that went into getting rid of PUCA, 
and I am hopeful that you understand what I am saying, and I am 
sure you do.
    Mr. Spitzer. Very clearly, Senator.
    The Chairman. I appreciate that and having said that, let 
me say--let me try you on a couple of questions and we will 
    The Electric Reliability Organization and we'll speak about 
that for a minute. The EPA Act directed to ensure the 
reliability and security of the Nation's Bulk Power System 
pursuant to the energy bill, a single Energy Reliability 
Organization, an ERO will have the authority to establish and 
enforce mandatory reliability standards. We're now in the 
process of transitioning a system of voluntary compliance to 
this new mandatory regime. I am sure you're aware of that. In 
order to avoid a one size fits all approach, Congress was 
careful to provide a substantial role for the Regional 
Reliability Organizations. The National ERO which set the 
reliability standards must reputably presume that a standard 
proposed by a regional entity is valid. You understand that, 
reputably presumed?
    Mr. Spitzer. Yes, Mr. Chairman.
    The Chairman. As a Commissioner, how will you address the 
issue of regional flexibility? How will this fit into the ERO's 
National standard and their enforceability?
    Mr. Spitzer. Well Mr. Chairman, if confirmed I would of 
course follow the law and an organization such as the ERO, the 
reliability organization for the West. The statute is clear. As 
the chairman said, there's a rebuttable of presumption. The 
competing interests are the national necessity for reliability, 
but it is imperative that the FERC work with the State 
reliability organizations in a cooperative manner, and I would 
look forward to doing so.
    The Chairman. There has been sustained under investment in 
transmission in recent years. In order to encourage global 
investment, the EPA Act directed FERC to issue a transmission 
incentives rule to establish incentives for greater investment. 
Do you think there is a need for greater transmission 
investment? And if so, would you comment on whether you believe 
transmission incentives are the way to secure that investment 
or to pursue more vigorously?
    Mr. Spitzer. Mr. Chairman, if confirmed, I would be zealous 
in following the congressional mandate for greater incentives. 
It is very clear that we need additional transmission not only 
in my State where 12,000 people move to Arizona every month, 
but across the country to enhance a transmission grid to 
provide for reliability, to provide for stronger electricity 
interconnections and to provide for vibrant wholesale markets. 
So investment in infrastructure is critical. In addition, it is 
very difficult in some parts of the country to site 
transmission lines. I, Mr. Chairman, am an elected 
commissioner, and I've been called upon to vote for powerplants 
and transmission lines that people didn't want in their 
neighborhoods, but I voted for them because they had to be 
built. In other words, Mr. Chairman, it's a problem. Hostility 
in some parts of the country to siting transmission, as well as 
delays make it very difficult to finance these types of 
projects. I look forward, if confirmed, to working with local 
communities, with the companies, with the stakeholders, to try 
and get the transmission built that needs to be built.
    The Chairman. Mr. Spitzer, I want to talk about two issues 
that I hardly can quantify and hardly can question properly on, 
but I want to make the point and do the best I can.
    First, you understand you will no longer be a commissioner 
for Arizona right?
    Mr. Spitzer. That is very clear, Mr. Chairman, yes.
    The Chairman. You will be a Commissioner for the United 
States, correct?
    Mr. Spitzer. The entire United States. Yes, sir.
    The Chairman. Is it clear to you that whatever experience 
you had in Arizona will be an experience you had from Arizona, 
but that it's incumbent upon you to seek information from other 
States in what their problems are as quickly as you can so that 
you're not too depending upon information that comes to you 
from your state which you served admirably for such a long 
period of time?
    Mr. Spitzer. Mr. Chairman, the national position is very 
exciting. We're moving our family to Washington, and I am very 
much interested in serving the entire country and will work 
very hard to that end.
    The Chairman. Now second Mr. Spitzer, I want to talk about 
the issue of being a Commissioner versus being an independent 
operative, being a chairman, being in charge of. Do you 
understand that way this Commission is structured under Federal 
Law, there's only one Chairman, right?
    Mr. Spitzer. Yes, sir.
    The Chairman. You may be a chairman some day. That's fine, 
but for now the chairman is not you and you won't be chairman 
for awhile. It's kind of understood, right?
    Mr. Spitzer. Mr. Chairman, yes.
    The Chairman. You won't have any difficulty serving in a 
collegial matter as one of a number working together to achieve 
national significance under this act that creates you and gives 
you your authority. Is that a fair statement and would you 
speak to it for a little bit to give me your assurance that 
that's the case in terms of how you will react?
    Mr. Spitzer. Mr. Chairman I was elected to the Arizona 
commission in the year 2000. I was sworn-in as a member and I 
worked with the chairman at that time, it was Bill Mundell. He 
is a great man. I worked together with him as part of a team. 
In 2003 I became chairman and Mr. Mundell was just a 
commissioner and we continued to work together as part of a 
team. As I sit here, I am not the chairman of the Arizona 
commission and I worked with the current chairman, Jeff Hatch-
Miller, and I am pleased to do so. Joseph Kelliher I consider a 
friend, as well as Chairman of the Commission. I think he's 
doing a fine job, and I look forward to serving as part of his 
    The Chairman. That does not appear to give you any 
difficulty with reference to maximizing your service. You feel 
comfortable doing that?
    Mr. Spitzer. I believe I can serve the people of the United 
States as a Commissioner working as part of that team, yes sir, 
Mr. Chairman.
    The Chairman. Having said that, I have no further 
questions, nor will I submit any in writing. If any other 
Senator has any others, I will rule today. We're going to do it 
quickly I understand.
    If you have questions, you need to get them in by 5 o'clock 
today. If you don't get them in by 5 o'clock, you don't get 
them in, so don't waste your time tomorrow, do it today and you 
don't have to answer them, sir if they come in next week. We're 
finished. We're going to get you out of here before this place 
leaves on vacation, so we will try very hard.
    Mr. Spitzer. Mr. Chairman, thank you.
    The Chairman. With that, I want to thank your relatives for 
all the time they have taken to come here and I hope it has 
been an interesting hearing for you. It's interesting for us. 
They're all interesting even as old as I am, they're 
    We're in recess.
    Mr. Spitzer. Thank you, Mr. Chairman.
    [Whereupon, at 11:30 a.m., the hearing was adjourned.]

                   Responses to Additional Questions


                            Arizona Corporation Commission,
                                         Phoenix, AZ, July 6, 2006.
Hon. Pete V. Domenici,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: Enclosed are my responses to questions for the 
record of your Committee's June 28 hearing to consider my nomination to 
be a member of the Federal Energy Regulatory Commission for the term 
expiring June 30, 2011.
    If you have further questions or require additional information, 
please let me know.
                                                      Marc Spitzer.
              Responses to Questions From Senator Domenici
                  electric transmission infrastructure
    Question 1. We discussed at your hearing the need for new 
investment in transmission and FERC's role in providing incentives to 
industry to build these facilities. One of the obstacles in building 
transmission is cost allocation. FERC has taken different approaches to 
this issue in different regions, which seems appropriate. However, some 
have urged FERC to roll in all transmission expansion costs so that all 
users of the system share in its costs. Do you believe FERC should roll 
in all transmission expansion costs?
    Answer. Not in all cases. The FERC has discretion under the law to 
assign transmission costs on a case-by-case basis. The competing 
interests to be balanced are the rights of native load customers not to 
be improperly burdened against reasonably priced open access to 
                        ferc-state relationship
    Question 2. With FERC's new expanded responsibilities in the areas 
of reliability and backstop transmission siting, there is the potential 
for federal/state conflict. How do you propose to promote greater 
cooperation and coordination with the states in these areas? How can 
FERC best work with the states to identify and resolve congestion 
    Answer. The Arizona Commission had the responsibility to site 
electricity power plants and transmission lines. During my tenure on 
the Commission, no application for construction of a transmission line 
was denied. While I believe states generally do a good job siting 
infrastructure, I did not oppose the EPAct ``backstop'' provision, nor 
Federal line-siting authority where necessary. I believe FERC should at 
a minimum consult with state and regional authorities and cooperate 
with them as appropriate.
    Regarding congestion issues, communication is again the key. FERC 
should work with stakeholders to identify those areas in need of 
improvement and work towards a collaborative solution, if possible.
    Question 3. How would you suggest that FERC and the states better 
coordinate to provide regulatory consistency on transmission expansion 
issues such as cost allocation and cost recovery?
    Answer. Again, communication is critical. During the planning 
stages of transmission projects, communication between FERC and the 
stakeholders to identify regional cost allocation and recovery issues 
is essential.
                        open access transmission
    Question 4. Rather than pursue a Standard Market Design proposal, 
which would have fundamentally restructured the electric power 
industry, FERC is now focused on revising the Commission's open access 
transmission policy under Order 888. How will you approach revision of 
Order 888?
    Answer. While I would carefully study the record to arrive at a 
final conclusion about the proposed revisions to Order 888, I am 
convinced that a review of that Order is necessary since a myriad of 
changes have occurred in the electric industry since the FERC first 
issued Order 888. I believe first and foremost that Order 888 revisions 
should enhance grid reliability, while simultaneously affording open 
access to wholesale markets in a non-discriminatory and transparent 
    Question 5. In Section 1231 of EPAct, Congress gave FERC the 
authority to require government-owned utilities and electric 
cooperatives to provide open, non-discriminatory transmission access on 
their systems in a comparable manner to that required for public 
utilities. In its recent NOPR on Order 888, the Commission chose not to 
propose a generic rule to implement Section 1231, but instead to apply 
its provisions on a case-by-case basis. Do you agree with this 
    Answer. While I would carefully study the record to come to a final 
conclusion about the NOPR, my experiences with large governmental-owned 
utilities and rural cooperatives lead me to believe the correct 
approach is to apply EPAct 2005 to those entities on a case-by-case 
basis. It is important to note wide disparities in the economics of 
transmission with respect to rural cooperatives, even within the same 
jurisdiction, so treatment of cooperatives is particularly appropriate 
                         reliability investment
    Question 6. Reliability, of course, is one of FERC's top 
priorities. The Commission had indicated that for prudent reliability 
expenditures, such as vegetation management charges, it will consider 
separate rate recovery mechanisms, such as surcharges. Consequently, 
companies need not undertake a full blown rate case.
    When utilities seek rate recovery for a reliability investment, do 
you agree that the Commission should address this in a single issue 
rate case rather than examine the utility's entire set of rates?
    Answer. Yes. Companies would be encouraged to make timely repairs 
and maintenance if they knew they could timely recover their costs 
without the delay and expense inherent in a full blown rate case. 
However, surcharge applications should not be filed in lieu of 
necessary rate cases and their use should be limited to reasonable and 
prudent reliability expenditures.
                              native load
    Question 7. In EPAct, Congress provided that utilities with service 
obligations to their native load customers are entitled to use the 
transmission they own or hold under contract to meet these service 
obligations. Do you agree that the statute makes clear that there is 
nothing discriminatory about exercising this right?
    Answer. As a state commissioner, I concur with the Congress' intent 
to protect service to native load customers. If confirmed, I would 
uphold the Congressional intent that a utility's use of transmission it 
owns or holds under contract to meet service obligations under state 
law is not unduly discriminatory, to the extent the transmission is 
required to meet the service obligations.
    Question 8. Where there are competing uses of utility transmission 
under the open access framework, do you believe that the Commission 
must recognize the utility's statutory right to use its transmission to 
serve its native load customers?
    Answer. Yes. In EPAct 2005, Congress' intent was clear that such 
uses of transmission ``shall not'' be considered unduly discriminatory, 
to the extent the transmission is required to meet the native load 
                              natural gas
    Question 9. Inadequate gas storage capacity contributes to 
volatility of gas prices. In order to reduce volatility, the Energy 
Policy Act of 2005 authorized FERC to grant market-based rates to gas 
storage developers, even if they have market power, as long as a 
proposal meets a three part test: (1) it is in the public interest, (2) 
market based rates are needed, and (3) customers are adequately 
protected. I recognize it is unusual for Congress to authorize market-
based rates to a company that has market power.
    Are you prepared to support implementation of this provision and 
authorize market-based rates, assuming the public interest, need, and 
adequate protection criteria are met?
    Answer. Yes, assuming the three part test is met, I would adhere to 
both the law and Congressional intent.
    Question 10. According to FERC, Liquefied Natural Gas (LNG) 
presently comprises 2% of the natural gas used in the Northeast and it 
could provide up to 17% by 2025. Additionally, there are currently 
about 40 LNG terminals either before FERC consideration or being 
contemplated by the natural gas industry.
    As we meet this growing trend toward LNG in the U.S., what do you 
envision FERC's priorities should be and how do you think FERC can meet 
these priorities?
    Answer. As with all sources, FERC's priority is to ensure reliable, 
affordable wholesale energy and competitive markets. With LNG 
terminals, safety is of paramount importance. While on the Arizona 
Commission, I have advocated for diversity of fuel supplies and 
sources, including coal, nuclear and renewables. The observed trend 
towards LNG is significant and presents unique challenges. Second to 
public safety, FERC's goal should be to ensure adequate infrastructure 
so that LNG terminals are used efficiently. LNG is certainly part of 
the equation but not the entire solution.
    Question 11. In the Energy Policy Act of 2005, Congress clearly 
grants FERC exclusive authority to approve or deny an application for 
the siting, construction, expansion, or operation of an LNG terminal. 
Do you see any practical threats to this authority by those opposed to 
the construction of LNG facilities through the use of other laws to 
potentially place roadblocks to the construction and siting of LNG 
facilities? If so, how do you think this is best alleviated?
    Answer. EPAct 2005 indeed confirmed and strengthened FERC's 
authority over siting of LNG terminals. Not having adjudicated an LNG 
siting case, it is difficult for me to evaluate threats to FERC's legal 
authority. However, if confirmed, I would seek to enhance FERC's 
outreach to affected communities to explain the paramount importance of 
safety and the economic and societal benefits of increased energy 
supply, particularly to business, economic development and low income 
organizations. Further, FERC should work with state and local officials 
and other stakeholders early in the siting process. Finally, I 
recognize that lawsuits are inevitable in siting matters, so FERC 
should strive to have a strong factual record to sustain its orders and 
                          natural gas markets
    Question 12. Please comment on what you think the impact of 
commodities trading is on the price of natural gas. Do you believe that 
executive branch currently has the appropriate authority to effectively 
oversee the energy markets? Do you think that FERC has the appropriate 
authority necessary?
    Answer. Large industrial consumers of natural gas communicated with 
me in my capacity as an Arizona Commissioner suggesting a nexus between 
non-commercial (i.e. speculative) natural gas transactions and price 
volatility. In theory, arbitrageurs mitigate rather than exacerbate 
volatility in commodity prices. My expression of concern elicited a 
response from the Commodity Futures Trading Commission stating that no 
new legislation was needed to protect consumers.
    I believe sunshine is a wonderful disinfectant. Transparency is 
synonymous with accurate and timely information to market participants 
and regulators. As an advocate of free and fair markets, I believe FERC 
should use all the information available to eliminate market 
manipulation and thereby protect consumers.
    Question 13. In recent testimony before another Senate Committee, 
Commissioner Brownell stated, ``The natural gas and electricity markets 
are inextricably linked. . . . The emergence of renewable wind energy 
as an important electricity supply alternative, for example, will have 
a mitigating impact on natural gas prices.'' First, do you agree with 
this statement?
    Answer. Yes.
    Question 14. Secondly, do you believe that the authorities under 
current law are effective with respect to advancing the production of 
renewable energy on federal lands and federal submerged lands?
    Answer. I do believe the current laws are sufficient. However, my 
experience siting transmission lines in my capacity as a state 
commissioner has taught me that without the cooperation of other 
Federal agencies, such as the U.S. Forest Service and the Bureau of 
Land Management, advancing any proposed project, including renewable 
energy projects, may be challenging.
    Question 15. The Mobile Sierra doctrine and the public interest 
standard were established by the U.S. Supreme Court in a series of 
cases a half-century ago. The public interest standard does not protect 
sellers, it protects contracts, it protects the agreement. Sometimes 
the public interest standard works to the advantage of the seller, 
sometimes to the advantage of the buyer. Recently, it has worked to the 
advantage of the buyer. The power sales contracts between Calpine and 
California are costing Calpine $1 billion, and helped drive it into 
bankruptcy. Under the just and reasonable standard, there is little 
doubt the contract would have been modified. Under the public interest 
standard, Calpine continued to perform. So, the public interest 
standard saved California consumers $1 billion. The Supreme Court is 
presumed to be competent to read a statute. They read the Federal Power 
Act and came up with the Mobile Sierra doctrine and the public interest 
standard. What is your view of the Mobile Sierra doctrine? Is it good 
law? Do you agree with the Supreme Court?
    Answer. The Mobile-Sierra Supreme Court decisions and their progeny 
are, of course, judicial decisions based upon specific facts and were 
intended to balance the competing interests of certainty of contract 
with the obligation to ensure just and reasonable rates. It is my 
experience that it is difficult to apply a judicial doctrine to a 
rulemaking. The applicability of the Mobile-Sierra doctrine to electric 
and gas contracts where the parties did not clearly agree upon a 
standard of review is at issue in a pending rulemaking at FERC, so it 
would not be appropriate for me to address the merits of the argument 
further. Whatever final action the Commission takes should be 
consistent with the Federal Power Act, the Natural Gas Act and U.S. 
Supreme Court decisions.
    Question 16. I want your views on FERC authority over buyer market 
power. FERC has been encouraged to regulate buyer market power, by 
forcing utilities to buy available lower cost power rather than self 
generate. I am not convinced FERC has legal authority in this area. 
Also, there is serious potential for conflict with the states, since a 
FERC order to a utility to buy power instead of self generating would 
undercut state decisions on ratebasing generation. Do you think FERC 
has this kind of legal authority and do you think it is good policy?
    Answer. I have not exhaustively researched this issue, but I agree 
FERC's legal authority over the ``monopsony buyer market'' is 
questionable. At the Arizona Commission we ordered a competitive 
solicitation for wholesale power for Arizona Public Service and 
limitations on the utility's ability to ``self build''. I recognize 
that state commissions and legislatures would not desire conflicting 
Federal actions with respect to these types of determinations. On the 
other hand, the FERC does have authority to preserve competitive 
wholesale markets.
    Question 17. Under current law, the only way a licensee can 
challenge an arbitrary condition included in a FERC hydro license 
through exercise of mandatory conditioning authority is to seek 
judicial review of the FERC license. That is true even when FERC 
believes the mandatory condition is unsupported by the record or even 
contradicted by the record. The EPAct alternative condition provisions 
should reduce the prospect of arbitrary mandatory conditions, but they 
may still be proposed. For reasons of comity FERC sometimes does not 
highlight its disagreement with the federal or state agency when they 
propose an arbitrary condition. I think that approach is fundamentally 
unfair to licensees, since it deprives them of any prospect of 
overturning an arbitrary condition through judicial review. I believe 
FERC should make any disagreement with a conditioning agency plain in 
its orders. Do you agree?
    Answer. Yes.
    Question 18. As a member of the Arizona Corporation Commission, you 
supported a state RPS--15% by 2025. Do you support a national renewable 
    Answer. The question of a Federal RPS mandate is of course up to 
the Congress and, if confirmed as FERC Commissioner, I would defer to 
any Congressional action. It is my personal view that RPS 
determinations are best left to the individual states.
    Question 19. There are many studies required to be completed by the 
Department of Energy and in the Energy Policy Act. One of them is the 
Section 1813 Study. Section 1813 of the Energy Policy Act is an effort 
to address a vexing problem in the West: protracted negotiations 
regarding rights of way for existing energy infrastructure across 
Indian lands.
    I wrote to the Deputy Secretary of Energy last November about that 
study and in it I requested that the Department work closely with the 
FERC, since under the Natural Gas Act FERC has exclusive jurisdiction 
and authority to authorize the construction, operation and abandonment 
of most interstate natural gas pipelines.
    Mr. Spitzer, I bring this study to your attention because I wanted 
you to be aware that I consider it important that FERC participate in 
the preparation of the study so that it can bring to bear its expertise 
on the issues involved in ensuring that there is appropriate energy 
infrastructure development in this country.
    Answer. I agree. As a Commissioner from a state with many Tribal 
nations, I am acutely aware of the balancing of interests to secure 
reliable and affordable energy for ratepayers while appropriately 
compensating the owners of rights of way, including those located 
within Tribal nations. I would cooperate with Department of Energy and 
other stakeholders, including the Tribes, to ensure adequate energy 
infrastructure development and retention.
               Responses to Questions From Senator Thomas
    Question 1. Based on your experience at the Arizona Commission, can 
you describe the role that fiscal certainty plays in whether or not the 
private sector invests in large electric transmission and gas pipeline 
    Answer. I have observed the investment community increasingly 
expressing concerns over the timing of construction of energy 
infrastructure (high voltage transmission, gas storage, LNG terminals, 
and gas pipelines). In some cases there is doubt whether a project will 
be built at all, particularly with respect to electricity transmission. 
Such concerns often eclipse traditional regulatory and financial 
matters such as return on equity.
    The Arizona Commission changed the rules governing natural gas 
infrastructure by allowing pre-approval of participation by Arizona gas 
LDCs and electric utilities in gas storage and pipeline projects. This 
was an effort to facilitate infrastructure by affording regulatory 
certainty to cost recovery.
    I believe Federal and state regulators should be, and in fact are, 
willing to take a fresh look at working with the public and all 
segments of the industry to put steel in the ground, including the 
financial sector.
    Question 2. I'm concerned that some recent decisions at FERC 
indicate the Commission is moving to substantially reduce allowable 
rates of return on equity for energy infrastructure investments. I 
believe doing so would discourage new infrastructure investment. Do you 
share that concern?
    Answer. Return on equity is a balancing of the interests of 
wholesale and retail ratepayers and applicants seeking a fair rate of 
return on their investments. The FERC applies the principle of just and 
reasonable rates on a case-by-case basis, and just and reasonable 
applies to all parties.
    In deciding specific cases, if confirmed, I would be mindful of the 
Congress' mandate that FERC oversee reliability of the bulk 
transmission system, a task which in my judgment requires vigilance to 
ensure adequate investment in infrastructure.
    Question 3. Mr. Spitzer, I assume you're aware of the proposal by 
the Arizona Public Service Company to build the TransWest Express 
transmission line from Wyoming to Arizona. Do you believe the Public 
Service Commission will approve this project and the rate-based coal-
fired plants that have been proposed?
    Answer. As a sitting member of the Arizona Corporation Commission, 
it would not be appropriate for me to comment on the Arizona 
Commission's consideration of the TransWest Express project nor the 
rate-basing of power plants. However, I am aware of a number of 
transmission proposals for the West designed to meet the demands of 
dramatic population growth and to transmit low-cost coal and renewable 
generation to distant load pockets. I look forward to working with 
stakeholder groups to ensure reliable and affordable energy for the 
West and for all regions of the country.
    Question 4. Are there adequate financial signals to build new 
transmission lines in the West? If not, what more do you think?
    Answer. I am not sure the gravest concern is financial signals, as 
much as certainty of construction and ultimate cost-recovery. Some of 
the proposals for the West are vast undertakings requiring planning, 
permitting and construction periods of up to ten years, a very long 
time for an applicant to await cost recovery. And as you know, much of 
the path of construction requires Federal and state permits and 
environmental approvals.
    Question 5. Do you believe Arizona and other states need to 
diversify their fuel-base away from natural gas?
    Answer. Even though our Commission sited a coal-fired plant in 
2002, I do believe Arizona has become too dependent upon natural gas 
for new generation of electricity, and I suggest the same may be the 
case in many other jurisdictions and regions.
               Responses to Questions From Senator Allen
    Question 1. Virginia both produces electricity through coal, 
nuclear and natural gas resources and also, at times, imports power 
from the Midwest when the costs to generate electricity in that region 
are lower than the costs to generate in Virginia. I have been 
approached by constituents who are interested to know what assurance 
you can provide the Committee that the region will not end up with 
``least common denominator'' solutions that might work for other 
regions of the country but work contrary to the wholesale competitive 
market model that is in place in Virginia?
    Answer. Resource adequacy is a prime and appropriate concern of 
State Commissions. I believe it is the role of FERC to ensure the bulk 
transmission system is capable of sustaining resource adequacy 
decisions made at the state and regional levels. The states and the 
Federal government should work cooperatively to ensure that wholesale 
markets are robust.
    Question 2. Do you believe that a competitive market model for 
wholesale markets can stimulate new investment in transmission, 
renewable resources and energy efficiency? If so, what can be done to 
support development of such models? If not, why not?
    Answer. I absolutely agree. In fact, I believe interstate 
transmission, renewable resources and energy efficiency will thrive in 
competitive wholesale markets.
    Question 3. The Regional Transmission Organization that operates 
the transmission grid in Virginia presently undertakes an independent 
regional planning process to determine needed new transmission 
infrastructure. All of the instate electricity producers, Dominion, 
AEP, Allegheny and the municipal and cooperative utilities, participate 
in that process which is open to the public. On the other hand, 
Virginia borders other States that do not have similar processes. What 
is the best way for the Commission to address the ``seam'' that is 
created along the borders where regional planning is undertaken in some 
regions and not others?
    Answer. Arizona participates in a regional planning process in the 
desert Southwest, much as you describe for Virginia. The global issue 
of regional transmission planning is a component of a pending FERC 
rulemaking, so it would not be appropriate for me to comment any 
further on the merits.
               Responses to Questions From Senator Smith
    Question 1. From your experience on the Arizona Corporation 
Commission, can you describe for me the role that fiscal certainty 
plays in determining whether or not private sector entities will be 
willing to invest in large electric transmission and gas pipeline 
    Answer. I have observed the investment community increasingly 
expressing concerns over the timing of construction of energy 
infrastructure (high voltage transmission, gas storage, LNG terminals, 
and gas pipelines). In some cases there is doubt whether a project will 
be built at all, particularly with respect to electricity transmission. 
Such concerns often eclipse traditional regulatory and financial 
matters such as return on equity.
    The Arizona Commission changed the rules governing natural gas 
infrastructure by allowing pre-approval of participation by Arizona gas 
LDCs and electric utilities in gas storage and pipeline projects. This 
was an effort to facilitate infrastructure by affording regulatory 
certainty to cost recovery.
    I believe Federal and state regulators should be, and in fact are, 
willing to take a fresh look at working with the public and all 
segments of the industry to put steel in the ground, including the 
financial sector.
    Question 2. Do you believe that such projects will be needed to 
meet the nation's future energy supply needs?
    Answer. Yes.
    Question 3. I've heard concerns that some recent decisions at the 
Federal Energy Regulatory Commission (FERC) could indicate that the 
Commission is moving to substantially reduce allowable rates of return 
on equity (ROEs) for energy infrastructure investments. Some say that 
would discourage investment in new infrastructure projects. What are 
your views on this issue?
    Answer. Return on equity is a balancing of the interests of 
wholesale and retail ratepayers and applicants seeking a fair rate of 
return on their investments. The FERC applies the principle of just and 
reasonable rates on a case-by-case basis, and just and reasonable 
applies to all parties.
    In deciding specific cases, if confirmed, I would be mindful of the 
Congress' mandate that FERC oversee reliability of the bulk 
transmission system, a task which in my judgment requires vigilance to 
ensure adequate investment in infrastructure.
    Question 4. As you know, FERC has a statutory responsibility in 
reviewing rates filed for approval by the Bonneville Power 
Administration, to ensure that the proposed rate is sufficient to cover 
its Treasury obligation. Do you agree that FERC would have to reject 
any rate that ``walled off'' revenues from BPA secondary sales and 
required such funds be used to pre-pay debt, rather than being used 
consistent with established precedent?
    Answer. I have not had previous occasion to review these statutory 
requirements but, if confirmed, I look forward to delving into BPA 
matters. I would follow Congressional mandates with regard to BPA 
rates, and apply the law to the factual record, including applicable 
judicial decisions, to determine just and reasonable rates.
    Question 5. Do you agree that the Federal Columbia River 
Transmission System Act (P.L. 93-454) requires the BPA Administrator to 
consider all revenue sources ``in the aggregate'' when setting rates?
    Answer. I would certainly adhere to Federal law in considering BPA 
and all other matters before the Commission.
    Question 6. Are you aware that the California ISO has filed a 
Market Redesign proposal (MRTU) with FERC and that a number of 
entities, including other control areas, in the Western Interconnection 
have objected to that filing? After seeing the impact on the Western 
markets of the 2000-2001 California energy crisis, are you concerned 
about this? Do you plan to insist that no decision be made on this 
filing until you are confirmed? Do you think the FERC has the 
obligation to resolve the specific seams issues articulated by the 
other western utilities before implementing such a dramatic market rule 
    Answer. I am familiar with this MRTU matter. Because it is likely 
to come before me for a vote, if I am confirmed, it is not appropriate 
for me to comment on the merits. If confirmed I will take my 
experiences as state legislator and state commissioner from 2001-2006 
with me to FERC. Based on that experience I am keenly aware of the 
circumstances creating the California energy crisis (which was a 
western crisis) and will, if confirmed, use every tool in FERC's 
arsenal to prevent a repeat performance.
              Responses to Questions From Senator Bunning
    Question 1. A number of Kentucky electric distribution companies 
(and other customers) signed new service agreements with the Tennessee 
Valley Authority (TVA) in 1997. The agreements included provisions 
under which the Kentucky distributors agreed to remain TVA customers 
for another 10 years. However, the agreements also stated that the 
Kentucky customers could provide TVA Notice of their intent to leave 
TVA after five years and would then be allowed to leave TVA after an 
additional 5 years. The contracts also specifically stated that any 
departing customers would not be liable for any exit fees or stranded 
costs. The agreements further contained language concerning services 
(eg transmission) TVA would provide departing customers. Several 
Kentucky customers (and a Tennessee customer) of TVA have exercised the 
rights they have under these contracts and given Notice of their intent 
to leave TVA. The Kentucky customers provided this Notice for, among 
other reasons, their ability to secure much less expensive power for 
their customers from sources other than TVA. Since giving Notice, these 
Kentucky customers have attempted to negotiate with TVA on the rates 
and terms and conditions of the requested transmission and/or 
interconnection service they requested. TVA has been entirely unwilling 
to even discuss the services the departing customers are requesting.
    Please provide your views on whether the FERC, as a matter of 
public policy, should facilitate access to the interstate transmission 
grid and encourage competition in the electric generation market by 
ordering the wheeling of power for electric distribution companies that 
wish to secure transmission service on the interstate transmission 
grid. For purposes of this question, please assume that the FERC has 
the legal authority to compel transmission on behalf of customers on 
the TVA system (ie ``inside the fence'').
    Answer. My record on the Arizona Commission was supportive of 
ensuring adequate transmission for our rural distribution cooperatives. 
These cooperatives and their suppliers were clearly subject to the 
jurisdiction of the Arizona Commission. Where the FERC has been granted 
jurisdiction by the Congress, I would, if confirmed, be zealous in 
ensuring wholesale customers have access to reliable and reasonably 
priced electricity.
    Question 2. Kentucky has the least expensive electric rates in 
America. This is in large part due to the abundance of coal in Kentucky 
and the use of this coal to generate power. The railroads play an 
integral part in moving coal from the mine locations to the power 
generating facilities. Recently, problems with the reliability of coal 
deliveries and the rates railroads are charging for transporting coal 
have begun to develop. These problems have the potential to impact the 
ability of Kentucky to use its coal to generate reasonably priced power 
in Kentucky and to send its coal to other markets.
    I understand the FERC recently convened a conference on these coal 
issues. Please provide your views on what role the FERC's should play 
in assuring an adequate, reliable supply of coal for our nation's 
generating facilities.
    Answer. The Arizona Commission supported Arizona's rural 
cooperatives (the litigant was AEPCO, the genco cooperative) in a 
proceeding against a rail carrier before the Federal Surface 
Transportation Board. I have not yet read the record of the June 15th 
FERC conference. I believe the matter of coal transport is of the 
utmost importance. FERC has a clear role with regard to system 
reliability, and inadequate coal supply poses a concern. If confirmed, 
I look forward to reviewing the record of the FERC technical conference 
and then considering whether additional Commission action is necessary.
    Question 3. As I noted above, Kentucky has the least expensive 
power in the nation. Kentucky is anxious to make sure its citizens and 
businesses continue to enjoy this reasonably priced power. Please 
explain your views on the importance of the FERC recognizing and 
respecting differences in regional energy markets as it makes decisions 
on the structure of the interstate energy markets.
    Answer. I believe FERC has the responsibility to both recognize and 
respect state and regional concerns in fostering reliable, competitive 
and efficient wholesale markets.
    Question 4. The Energy Policy Act of 2005 (EPAct) gave the 
Department of Energy authority to establish National Interest Electric 
Transmission Corridors. EPAct further gave the FERC the authority to 
authorize the construction of transmission lines in these corridors. 
Please provide your views on the responsibility of the FERC to consult 
and collaborate with states that may be impacted by the construction of 
electric transmission lines in these corridors.
    Answer. The Arizona Commission had the responsibility to site 
electricity power plants and transmission lines. During my tenure on 
the Commission, no application for construction of a transmission line 
was denied. While I believe states generally do a good job siting 
infrastructure, I did not oppose the EPAct ``backstop'' provision, nor 
Federal line-siting authority where necessary. I believe FERC should at 
a minimum consult with state and regional authorities and cooperate 
with them as appropriate.
    Question 5. Concerns have recently been raised that the operating 
costs charged by Regional Transmission Organizations are excessive. 
These costs can eventually be absorbed by residential and industrial 
electricity consumers in states like Kentucky. Please provide your 
views on the responsibility of the FERC to oversee and review these 
types of RTO costs.
    Answer. The FERC has the obligation to ensure RTO costs are not 
excessive. It is critical that the stakeholders in organized markets 
have faith and confidence in their RTO. To date the FERC has worked 
hard to ensure that wholesale customers and retail ratepayers enjoy 
benefits from the RTOs. I suggest that traditional regulatory models of 
prudency of incurred costs are applicable.
    Question 6. Transparency of energy markets and the availability of 
timely information about costs and capacity in energy markets are 
crucial for state commission to perform their duties. Please provide 
your views on the FERC's responsibility and legal authority to provide 
for transparency in energy markets and the timely availability of 
information about conditions in the energy markets.
    Answer. EPAct 2005 granted FERC substantial new legal authority to 
ensure transparency in energy markets. This is particularly critical in 
a time of escalating wholesale commodity prices. If confirmed, I would 
consider transparency of wholesale energy markets a priority.
               Responses to Questions From Senator Wyden
                         promoting green power
    Question 1. Recently, the Federal Energy Regulatory Commission 
certified an incremental hydroelectric upgrade for the first time under 
provisions of the Energy Policy Act of 2005, allowing PacificCorp, an 
Oregon energy company, to qualify for a renewable energy tax credit. 
Are there other FERC policies and programs that can boost the 
production, use and sales of renewable energy? What will you do as a 
commissioner to encourage FERC to promote green power?
    Answer. The Congress amended the tax code to increase tax credits 
for renewable energy projects. The FERC can advance Federal, state and 
regional policies supporting renewable energy. For example, constraints 
in interstate transmission impaired delivery of two potential projects 
in the renewable energy solicitation of Arizona Public Service. 
Particularly in the West, a robust transmission grid will enable 
renewable energy developers to bring projects to market.
    The FERC can also assist state commissions with best practices in 
distributed generation, demand side management and energy efficiency, 
all of which in my judgment are components of resource adequacy as well 
an efficient and reliable transmission grid.
                           consumer advocate
    Question 2. Chairman Kelliher and Commissioner Kelly both support 
my proposal to create a Federal consumer advocate at FERC similar to 
what more than 40 states currently have. My proposal to create this 
position was unanimously agreed to during consideration of the Senate 
Energy Bill? Will you support creating a Federal ratepayer advocate at 
    Answer. I have reflected on this question and in fact spoken with 
the Director of Arizona's Residential Utility Consumer Office, a state 
agency independent of the Arizona Commission. Most state consumer 
advocates are members of the National Association of State Utility 
Consumer Advocates (``NASUCA''). NASUCA is effective in advancing the 
interests of retail ratepayers on a national level. NASUCA has 
intervened in FERC proceedings, but perhaps the role of NASUCA at FERC 
could be formalized. One benefit of NASUCA intervention, as opposed to 
that of a new Federal entity, is that disagreements among and between 
states are better managed within a state rather than Federal 
             respect for state/local views in lng licensing
    Question 3. As you know, the Energy Bill gave FERC exclusive 
authority over siting, construction and operation of liquefied natural 
gas (LNG) import facilities. The role of states and local communities 
is limited to making suggestions to FERC during the licensing process. 
What will you do to ensure that the views of states and local 
communities are not only considered but given deference in the 
licensing process? Will you support licensing of facilities over the 
strong objections of the state and local community?
    Answer. EPAct indeed strengthened Federal siting authority for LNG 
facilities, but such authority is by no means absolute. My view is that 
the safe operation of LNG facilities is a paramount concern. The views 
of state and local officials must be taken into account, particularly 
with respect to issues of public safety. Prudence and good governance 
suggest FERC dialogue and then engage with these officials consistent 
with Federal law.
                     hydro relicensing settlements
    Question 4. I understand the Commission's practice has generally 
been to encourage hydro relicensing settlement agreements, but that the 
Commission has never addressed in a comprehensive manner the question 
of what kinds of settlement provisions may be incorporated into license 
conditions. As a result, similar proposed conditions have been accepted 
in some cases and rejected in others. This has caused confusion among 
parties to these settlements as to how FERC draws these distinctions. 
There appears to be a growing recognition within the Commission that 
additional guidance is needed and that prompt agency action is 
necessary to provide negotiating parties the regulatory certainty and 
clarity they've been lacking. Do you share that view, and if so, would 
you agree that the Commission's treatment of proposed hydro licensing 
conditions ought to be consistent and predictable for all parties 
    Answer. I look forward to delving in to matters relating to 
hydropower. I agree that uncertainty and confusion are antithetical to 
fair and effective settlement agreements. I look forward to becoming 
more familiar with and working on hydro issues.
              Responses to Questions From Senator Cantwell
    Question 1. Under the Northwest Power Act, FERC has the final say 
in approving the Bonneville Power Administration's rates provided that 
the proposed rates are ``sufficient to assure repayment of the Federal 
investment in the Federal Columbia River Power System over a reasonable 
number of years after first meeting the Administrator's other costs . . 
. and are based upon the Administrator's total system costs.''
    When determining the definition of terms like ``reasonable number 
of years'' and other terms in BPA's various organic statutes what 
deference would you give to years of agency precedent and practice in 
defining those terms?
    Answer. Due deference to agency practice and precedent is 
    Question 2. What deference would you give to federal statues that 
define certain provisions in BPA's organic statutes?
    Answer. Federal statutes are of course entitled to deference by 
    Question 3. As a FERC Commissioner, would you rely on relevant 
judicial precedent in order to define terms in BPA's organic statutes?
    Answer. I appreciate the importance of Federal judicial precedent. 
My law practice has focused on Federal law for over 24 years. If 
confirmed by the Senate as a FERC Commissioner, I would rely on 
judicial precedent in BPA and other matters.
    Question 4. As you probably know, you will have a number of 
applications for renewal of hydroelectric licenses before you in the 
next few years. The Northwest is heavily reliant on hydroelectric 
generating resources. In WA State alone some 13 projects representing 
5,863 MW of generating capacity will be in various stages of the 
relicensing process between now and 2015.
    Can you provide the Committee with your perspective on 
hydroelectric power and your thoughts on the relicensing process under 
EPACT '05 and the Interim Final Rule published last year?
    Answer. Hydropower is important nationally and particularly in the 
Northwest, and I look forward to delving into hydro cases. I would use 
all Federal statutes and regulations, including EPAct 2005 and the 
Interim Final Rule, to encourage a streamlined and efficient 
relicensing process, consistent with due process for all affected 
    Question 5. The Northwest has spent more than a decade locked in 
contentious debate over various forms of regional transmission 
management. The region is currently looking at an option--known as 
ColumbiaGrid--that appears very promising, both in its substance and 
broad base of support. I will note, however, that it does not meet the 
RTO standards of FERC Order 2000.
    Do you think FERC should nonetheless encourage the development of 
this region-specific development as it moves forward?
    Answer. I support regional collaboration and similar collaborative 
efforts between FERC and regional bodies, both in RTO and non-RTO 
    Question 6. As you know, western energy markets and ratepayers in 
WA State are still suffering negative effects of deregulation and 
related market manipulation during the 2000-2001 energy crisis. 
Ratepayers in the Northwest and the larger regional economy continue to 
suffer the ill effects of related energy hikes--some as high as 50%. 
The GAO noted in a report last November that ``. . . consumers in 
California and across other parts of the West will attest, there have 
been many negative effects [related to restructuring], including higher 
prices and market manipulation.''
    Has energy market restructuring been successful?
    Answer. I am convinced that Congress' restructuring of wholesale 
natural gas markets in 1982 has saved consumer billions of dollars. I 
further believe competitive wholesale energy markets have benefited 
ratepayers. The Arizona Public Service competitive solicitation has 
saved Arizona consumers over $150,000,000 through reduced wholesale 
power costs.
    The crisis of 2000-2001 that began in California and engulfed the 
West had many and varied causes. Hard lessons were learned from flawed 
market design, generation and transmission inadequacies and market 
    The FERC has many new tools granted by Congress to protect 
consumers from fraud and misconduct. If confirmed, I look forward to 
insisting upon transparency and to protecting the interests of 
wholesale (and ultimately retail) consumers.
    I believe in the rights of states to choose their own paradigms for 
resource adequacy and in their prerogatives with regard to siting 
energy infrastructure. Nevertheless, it is a fact that improvident 
decisions by one jurisdiction may negatively affect neighboring states 
that have done nothing wrong. If confirmed as a FERC Commissioner, I 
would strive to work with regional stakeholders and, if necessary, 
intervene early to ensure disastrous scenarios are not repeated.
    Question 7. Of those areas of the country that have not 
restructured and have not deregulated retail rates, like the Pacific 
Northwest, do you believe those regions should largely be left alone to 
address the needs of their specific industry structure as they see fit? 
If not, how far should FERC go in changing them?
    Answer. As a former state legislator, I respect state authority and 
as a sitting state commissioner I believe retail utility rates, and 
rate mechanisms, should be determined by state commissions. I believe 
FERC should work to foster competitive and transparent wholesale 
markets that permit states to choose their own paths without fear or 
    However, as noted in my answer to Question 6 above, circumstances 
may arise whereby one state's actions damage regional wholesale 
markets, making Federal intervention necessary and appropriate.
    Question 8. In recent press reports, the head of the California 
Independent System Operator has suggested that the rest of the West 
will simply have to comply with California markets and that the seams 
created between California and other areas in the west is a failure of 
the neighboring states to adopt compatible models. My region has 
suffered once as a result of California's experiments, and stakeholders 
throughout the west are very concerned by these comments.
    Do you believe that FERC has a responsibility, when reviewing 
filings for California's market redesign efforts, to assess the impact 
and consequences for neighboring states?
    Answer. Without prejudging any matter that may come before me 
(including the MRTU filing), the answer is yes.
    Question 9. Last year's comprehensive energy legislation included a 
broad ban on the market manipulation practices exercised by Enron. As 
you know, the Northwest continues to suffer from the ill-effects of 
Enron's market manipulation practices. I imagine you are acquainted 
with the smoking-gun Enron memos, in which the company laid out 
strategies such as `Fat Boy,' `Get Shorty,' `Death Star' and the like, 
to drive up prices in the West.
    I would like to know whether you believe there is any circumstance 
in which a transaction resulting from manipulative market practices can 
be ``in the public interest,'' or ``just and reasonable?''
    Answer. A fraudulent transaction that damaged ratepayers would in 
my judgment fail both the ``public interest'' test as well as the 
standard of ``just and reasonable'' rates. I consider myself free-
market, but my record on the Arizona Commission demonstrates I have a 
profound sense of right and wrong.
    Question 10. Under FERC's Notice of Proposed Rulemaking RM-05-35-
000, the Commission has proposed amending its regulations regarding the 
standard of review that must be met to justify proposed modifications 
to Commission jurisdictional agreements. Essentially, with the 
exception of transmission service agreements under the Open Access 
Transmission Tariff and certain natural gas transportation agreements, 
when proposed modifications to FERC jurisdictional agreements are not 
agreed to be dealt with by contract signatories under the `just and 
reasonable' standard, the Commission will review such agreements under 
the `public interest' standard, in accordance with the Mobile-Sierra 
doctrine. Most people believe that the ``public interest' standard is 
practically insurmountable.
    I know you can't tell me how you might vote as a Commissioner. I am 
concerned about any diminishment of consumers ability to find relief 
when they are exposed to rates, terms, and conditions of service that 
are not just and reasonable--the standard found in the Federal Power 
Act. However, can you tell me your views on the application of the 
``public interest'' standard and how you think it should be applied in 
contracts where there is no standard of review specified?
    Answer. The Mobile-Sierra Supreme Court decisions and their progeny 
are, of course, judicial decisions based upon specific facts and were 
intended to balance the competing interests of certainty of contract 
with the obligation to ensure just and reasonable rates. It is my 
experience that it is difficult to apply a judicial doctrine to a 
rulemaking. The applicability of the Mobile-Sierra doctrine to electric 
and gas contracts where the parties did not clearly agree upon a 
standard of review is at issue in a pending rulemaking at FERC, so it 
would not be appropriate for me to address the merits of the argument 
further. Whatever final action the Commission takes should be 
consistent with the Federal Power Act, the Natural Gas Act and U.S. 
Supreme Court decisions.
    Question 11. Congress revised FERC's merger review authority in the 
2005 Energy Policy Act. I am concerned that the Commission may not be 
giving sufficient attention to these proposed mergers and their 
potential affect. I'm not offering an opinion on the details of this 
specific merger, but I am concerned that FERC is giving inadequate 
attention to the potential market power implications of proposed 
mergers. I am told that the Arizona Corporation Commission carefully 
scrutinized, and then rejected, a proposed merger.
    Do you agree that FERC needs to take a more careful review of 
proposed mergers and the expressed concerns of states and intervenors?
    Answer. I agree the FERC should carefully review all merger 
applications to ensure the public interest is served. EPAct 2005 
broadened FERC's authority over merger transactions beyond a wholesale 
generation market power analysis.
    The case you referenced was considered by the Arizona Commission at 
the same time the Oregon Commission rejected a similar transaction. The 
Congress should take comfort from the thoughtful diligence the Oregon 
Commission displayed during the Texas Pacific proceeding. I believe 
that state commissions are well-suited to exercise jurisdiction and 
resolve asset impairment and cross-subsidization issues on a granular 
level. That being said, if confirmed I look forward to tackling the 
responsibilities assigned to FERC by Congress with respect to proposed