[Senate Hearing 109-1147]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 109-1147
 
                    CAPITALIZING ON RENEWABLES FOR 
                            OREGON'S ECONOMY

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

                             FIELD HEARING

                               before the

        SUBCOMMITTEE ON TRADE, TOURISM, AND ECONOMIC DEVELOPMENT

                                 of the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                            AUGUST 16, 2006

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation


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       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                     TED STEVENS, Alaska, Chairman
JOHN McCAIN, Arizona                 DANIEL K. INOUYE, Hawaii, Co-
CONRAD BURNS, Montana                    Chairman
TRENT LOTT, Mississippi              JOHN D. ROCKEFELLER IV, West 
KAY BAILEY HUTCHISON, Texas              Virginia
OLYMPIA J. SNOWE, Maine              JOHN F. KERRY, Massachusetts
GORDON H. SMITH, Oregon              BYRON L. DORGAN, North Dakota
JOHN ENSIGN, Nevada                  BARBARA BOXER, California
GEORGE ALLEN, Virginia               BILL NELSON, Florida
JOHN E. SUNUNU, New Hampshire        MARIA CANTWELL, Washington
JIM DeMINT, South Carolina           FRANK R. LAUTENBERG, New Jersey
DAVID VITTER, Louisiana              E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas
             Lisa J. Sutherland, Republican Staff Director
        Christine Drager Kurth, Republican Deputy Staff Director
                David Russell, Republican Chief Counsel
   Margaret L. Cummisky, Democratic Staff Director and Chief Counsel
   Samuel E. Whitehorn, Democratic Deputy Staff Director and General 
                                Counsel
             Lila Harper Helms, Democratic Policy Director
                                 ------                                

        SUBCOMMITTEE ON TRADE, TOURISM, AND ECONOMIC DEVELOPMENT

                   GORDON H. SMITH, Oregon, Chairman
TED STEVENS, Alaska                  BYRON L. DORGAN, North Dakota, 
JOHN McCAIN, Arizona                     Ranking Member
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
JOHN ENSIGN, Nevada                  JOHN D. ROCKEFELLER IV, West 
GEORGE ALLEN, Virginia                   Virginia
JOHN E. SUNUNU, New Hampshire        JOHN F. KERRY, Massachusetts
JIM DeMINT, South Carolina           MARIA CANTWELL, Washington
DAVID VITTER, Louisiana              FRANK R. LAUTENBERG, New Jersey
                                     BILL NELSON, Florida
                                     E. BENJAMIN NELSON, Nebraska
                                     MARK PRYOR, Arkansas


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on August 16, 2006..................................     1
Statement of Senator Smith.......................................     1

                               Witnesses

Carlson, William, Chairman, USA Biomass Power Producers Alliance.    50
    Prepared statement...........................................    52
Fast, Katie, Associate Director, Government Affairs, Oregon Farm 
  Bureau.........................................................    40
    Prepared statement...........................................    42
Maynard, Bob, Energy Outfitters, Board Member, Government Policy 
  Chair, Oregon Solar Energy Industries Association (OSEIA)......    54
    Prepared statement...........................................    56
McArthur, Hon. Mike, Executive Director, Association of Oregon 
  Counties.......................................................    44
    Prepared statement...........................................    47
Simpkins, Eric, Vice President--Business Development, Idatech....    25
    Prepared statement...........................................    27
Spettel, Scott, Power Management and Planning Manager, Eugene 
  Water and Electric Board.......................................    29
Suppah, Ronald, Tribal Council Chair, The Confederated Tribes of 
  the Warm Springs Reservation of Oregon; accompanied by Wasco 
  Chief Nelson Wooleton, Jim Mannion, Ralph Minnick and Cal 
  Mukomoto.......................................................     4
    Prepared statement...........................................     7
von Jouanne, Dr. Annette, Professor, Electrical Engineering and 
  Computer Science, Oregon State University......................    34
    Prepared statement...........................................    39
Watters, Stan, President Pacific Power...........................    20
    Prepared statement...........................................    22


            CAPITALIZING ON RENEWABLES FOR OREGON'S ECONOMY

                              ----------                              


                       WEDNESDAY, AUGUST 16, 2006

                               U.S. Senate,
      Subcommittee on Trade, Tourism, and Economic 
                                       Development,
        Committee on Commerce, Science, and Transportation,
                                                        Eugene, OR.
    The Committee met, pursuant to notice, at 9:30 a.m. at the 
Lillis Business Complex, Hon. Gordon H. Smith, Chairman of the 
Subcommittee, presiding.

          OPENING STATEMENT OF HON. GORDON H. SMITH, 
                    U.S. SENATOR FROM OREGON

    Senator Smith. Thank you very much, Dean, and please extend 
to President Frohmeyer my admiration and my gratitude for the 
University of Oregon's hospitality in allowing the Senate 
Commerce Committee to conduct this hearing here.
    I think it is doubly appropriate that we are gathered in 
such a remarkable and green building. We are here to talk about 
the environment and we are here to talk about energy. We're 
here to talk about how we can unite those two causes and great 
concerns to our country's future.
    As I travel around Oregon, I do sense a lot of economic 
insecurity, and it often is highlighted to people when they go 
to the gasoline station and fill up and they wonder what does 
the future hold.
    So as we look to the future, I think it is very important 
for those of us in national office who have an ability to do 
something about it, to start doing something about it in a very 
aggressive way.
    That's why I sit on the Energy Committee, with Senator 
Wyden. I also chair a subcommittee on Commerce, and the 
Commerce Committee certainly overlaps this area of such vital 
concern.
    I think it is also a credit to our state that we have 
always had a concern with the environment and the economy and 
tried to find a balance on those two things.
    Oregon is in the vanguard of environmental responsibility, 
and yet we have economic needs as a people.
    What we're going to talk about today is a sustainable 
industry that can meet our future energy demands and provide 
living wage jobs for Oregonians. Oregon's communities, its 
universities and businesses are pursuing a wide range of 
renewable energy sources from waves to wind to bio-diesel to 
cellulosic ethanol.
    Some of you may not know what the differences are, but 
there are differences. Yet we produce them all, and can truly 
be a national leader in finding alternatives in renewable 
energy.
    We will hear from two panels of witnesses who will discuss 
various renewable technologies being pursued today in Oregon 
and how they will affect the revenues and economic development 
plans of local governments.
    You know, I've never yet voted on a perfect bill in my 10 
years in the U.S. Senate. And each time you go to decide yes or 
no, you weigh whether or not the good outweighs the bad and try 
to avoid letting the perfect be the obstacle to good progress.
    I think such is the case with the Energy Policy Act of 
2005. It had some features that I did not like, but it had many 
features that I think clearly advance a green future when it 
comes to renewables and alternative energy sources. And there 
are certainly many opportunities for Oregon entrepreneurs to 
take advantage of the Energy Policy Act.
    A number of provisions in this Act that I specifically 
authored or supported include the following: Investment tax 
credits for fuel cell power plants, residential solar water 
heaters and photovoltaic equipment; extension and expansion of 
the Section 45 tax credits for the production of electricity 
from eligible renewable resources; creation of the Clean 
Renewable Energy Bonds For Consumer-Owned Utilities Act; and 
tax credits for alternative motor vehicles and alternative 
refueling properties.
    The Act also includes an ethanol mandate for fuel 
manufacturers that includes a specific amount of cellulosic 
ethanol. Oregon is filled with cellulosic biomass to be 
produced into ethanol.
    I realize that a number of these provisions have sunset 
dates, and that makes it difficult to get facilities in place 
and service in time to meet eligibility windows.
    Nevertheless I'm committed, as are many of my colleagues, 
to ensuring that these tax incentives are extended and are 
available to help launch these innovative technologies. Clearly 
capital businesses and entrepreneurs, need to have enough lead 
time in order to make investments and bring these facilities 
online.
    I'm also pleased that the Energy Department is finally 
taking some key actions to implement this Act. In the past two 
weeks, the Department announced that it will spend $250 million 
to fund new bio-energy research centers to enhance basic 
research on cellulosic ethanol and other bio-fuels.
    In addition, the Department has announced that it is 
seeking proposals under the loan guaranty program that was 
created under the Act for innovative energy technologies.
    I hope that interested parties in Oregon will carefully 
examine this program and see if they can utilize this new 
funding mechanism. There's money there to be used and it's 
waiting for entrepreneurial proposals that can take advantage 
of it. And few places are better situated thanOregon for that 
to happen.
    Switching to the transportation sector, this is where I 
think America simply has to get on a different road. We remain 
addicted to oil. Increasingly that oil is being imported from 
nations who wish us ill and would do us harm.
    I hear few comments more consistently around Oregon than 
those regarding the weariness of Oregonians to spending money 
to buy oil from nations that buy bullets to shoot back. We 
simply have to get beyond that.
    When the 1973 oil embargo was imposed, the United States 
was importing 36 percent of the oil we use. Remember that 
number. In 1973, our imports were 36 percent. Today, oil 
imports are over 60 percent and rising. They are projected to 
remain above 60 percent for as far as the eye can see.
    But that in my view is unacceptable. We need to reverse 
this trend that is so damaging to our national economy and our 
national security.
    There is another aspect of what these imports mean to our 
economic health. Do you realize that fully half of our current 
account deficit, our trade imbalance, is due to foreign oil? 
And I don't know about you, but I don't see much future in Hugo 
Chavez, the dictators of Nigeria or in Iran or other places 
that currently supply so much of the oil to the West.
    Bio-fuels represent a home grown option. They can be a 
direct replacement for petroleum products. I'm pleased that 
there's already one bio-diesel plant in operation in Oregon, 
and that about a dozen other facilities are in the planning 
stage.
    In addition, six ethanol plants with a total capacity of 
over 200 million gallons per year are well into the planning 
and approval process.
    We must also raise the fuel economy of the vehicles we 
drive. I believe this can be done without sacrificing consumer 
choice or family safety and without sacrificing American auto 
jobs.
    That's why I have joined with Senator Barack Obama of 
Illinois and several of my colleagues to introduce S. 3694, the 
Fuel Economy Reform Act of 2006. This bill sets a 4 percent per 
year target for increasing fuel economy standards for 
automobiles and light duty trucks.
    If we can do that, folks, we will get out of the grip of 
some of the worst tyrannies on Earth.
    We have every economic incentive to do so, and we certainly 
have a national security reason to do so. We must push the 
domestic auto industry to use available technology to increase 
fuel efficiency. The stagnation of the U.S. auto industry has 
resulted in the loss already, with their current offerings, of 
250,000 jobs since 2000.
    Auto parts industries here in America have also suffered 
these kinds of losses. With gasoline remaining at $3.00 per 
gallon, families and small businesses need better gas mileage 
from their cars.
    It's interesting, when Ron Wyden and I were in China last 
December, we met with a Chinese official who stunned me when he 
told me that in the city of Beijing alone, there are a thousand 
new cars added to the streets of Beijing every day.
    And if you contemplate what that means, is that when 
nations develop middle classes, those people begin to do what 
we do, and that is enjoy the freedom of an automobile.
    I first visited China in 1984 on a business trip. It was 
like going back in time, almost to a stone age. And yet today 
when we visit China, it is remarkable. They have literally 
built eight beltways going out from the city of Beijing. And 
yet they're all parking lots. There's not much moving. It is a 
shocking thing. The levels of pollution there are also 
incredible.
    India is in a similar situation. That's why, frankly, I 
don't see a barrel of oil coming down. I really don't.
    So, our alternative is to grow our way out of this with 
alternative energies that come off of American farms and 
forests and other sources.
    I remember the movie ``Back to the Future,'' where the 
crazy scientist is stuffing cans into the car and that made it 
go.
    Well, we've got to tap the brains of our scientists to 
start looking for these kinds of alternatives, because we don't 
have much choice. And our Nation is counting on us to lead.
    So, in closing, here in Oregon we have waves, wind, water, 
sunshine, and biomass. We also have geothermal, which we have 
hardly tapped in our state, but we've got a lot of it. Climb 
Mt. Hood with me, and I'm not saying you will build a 
geothermal plant on Mt. Hood, but there is a lot of steam 
coming out up there. That's an active mountain. And there are 
lots of fissures of geothermal where we may be able to take 
advantage of this natural resource that is certainly here with 
us and for a long time to stay.
    We also have brain power in Oregon. We've got great 
universities like this, and entrepreneurs who are committed to 
these sustainable resources.
    So, I look forward to hearing from each of our witnesses 
today. And I truly thank you for taking the time to add to my 
understanding, and the understanding of the people who are 
here. I know from your testimony that I have seen, you will add 
measurably to the record of the United States Senate and our 
understanding of how best to get beyond where we are.
    So with that, we will turn to our panel of witnesses. Let 
me properly introduce you. I've got to put on my glasses now 
when the print gets smaller, because I've lost my eyesight in 
the service of my country.
    Mr. Ron Suppah is a friend of mine. He is the Chairman of 
the Confederated Tribes of the Warm Springs Reservation. Thank 
you, Ron, for being here. Mr. Stan Watters is the President of 
Pacific Power in Portland, Oregon. Mr. Eric Simpkins is the 
Vice President of Business Development at IdaTech in Bend, 
Oregon; a great company there. And Mr. Scott Spettel is the 
Power Management and Planning Manager, Eugene Water and 
Electric Board here in Eugene. Thank you, Scott. And Annette 
von Jouanne is a Professor of Electrical Engineering and 
Computer Science at Oregon State University in Corvallis. Are 
beavers allowed here? I'm glad you're here.
    So, thank you all, and you constitute our first panel.
    So, Ron, why don't we start with you, and go in the 
direction as you were introduced.

     STATEMENT OF RONALD SUPPAH, TRIBAL COUNCIL CHAIR, THE 
           CONFEDERATED TRIBES OF THE WARMS SPRINGS 
   RESERVATION OF OREGON; ACCOMPANIED BY WASCO CHIEF NELSON 
     WOOLETON, JIM MANNION, RALPH MINNICK AND CAL MUKOMOTO

    Mr. Suppah. Maswepa, Senator.
    Senator Smith. Thank you.
    Mr. Suppah. I would like to take a minute, if I may, to 
introduce our Wasco Chief Nelson Wooleton, and some of my 
technical advisors, Jim Mannion, Ralph Minnick, Cal Mukomoto, 
and I'd like to, if I might, refer any technical or other 
questions to my staff.
    Senator Smith. We welcome you all, gentlemen. Thank you for 
coming.
    Mr. Suppah. Don't go to sleep on me now.
    Senator Smith. Oh, I won't. That happens to me. It won't 
happen to you, Ron.
    Mr. Suppah. My name is Ron Suppah. I'm the Tribal Council 
Chairman for the Confederated Tribes of the Warm Springs 
Reservation of Oregon.
    Thank you for inviting me to come and testify about how 
renewable energy provides opportunities for direct economic 
development and in meeting Oregon's and the Nation's energy 
demands.
    For the Tribe renewable energy projects, in particular 
woody biomass, grain and hydroelectric power, wind, geothermal, 
represent a significant economic development opportunity that 
could further the Tribe's sovereignty, self-governance, and the 
welfare of our Tribal members and the region's diversification 
of energy production.
    The Tribe is already an energy producer and has embarked on 
a course to become a significant supplier of renewable energy 
in the Pacific Northwest. We currently own a one-third interest 
in the 440 megawatt Pelton-Round Butte Hydroelectric Project 
and own a 19 megawatt Reregulating DamHydroelectric Project and 
a 7 megawatt biomass generation facility at the Tribe's mill 
site.
    Under agreement with Portland General Electric, the Tribe 
will eventually acquire a controlling interest in the Pelton-
Round Butte Project, and as co-licensees we are spending 
millions of dollars on project operations to ``green'' the 
hydro operations, including investments to improve fish 
passage, water quality, riparian and fish habitat and cultural 
resources.
    The hydro projects generate significant revenue for the 
Tribe on the order of around $11 million per year.
    We are actively pursuing an expansion of our biomass 
generation facility at the Warm Springs mill to 17 megawatts 
and are assessing our significant wind and geothermal energy 
resources on the Reservation for our commercial development.
    Last, but not least, we are involved in a cooperative 
discussion with Bonneville Power Administration and other 
rights-of-way holders across the Reservation, on ways to 
enhance reliable and adequate electric transmission for the 
region while still respecting the Tribe's important sovereign 
interests in our Reservation and culture.
    The Warm Springs Reservation is a beautiful but remote 
place, and that hinders more traditional economic development 
opportunities. The Reservation, however, has significant 
renewable energy production potential.
    To realize the full potential of the wind, geothermal and 
biomass opportunities on the Reservation requires meeting 
significant challenges. For example, our biomass proposal has 
to overcome the widely recognized hurdle of securing a stable 
source of material to fuel the facility.
    We did this, in part, by executing the historic MOU with 
the U.S. Forest Service and BLM related to the management of 
surrounding federal lands.
    The biomass facility will help to provide a market-based 
solution for the serious forest health and fire issues in 
Oregon and the Northwest. The biomass project is very 
competitive from a market perspective. We are in substantive 
negotiations for a power sale agreement and have entertained 
significant interest from potential equity investors and 
financing entities. (Beeping in audience).
    That means five minutes, or what?
    Senator Smith. No. It doesn't mean anything to me.
    Mr. Suppah. Okay. Like many renewable projects, modest 
Federal and state incentives are important in the overall cost 
structure of the biomass project.
    For us, a critical issue today is the sunsetting on January 
1, 2008, of the renewable electric production tax credit in 
Section 202 of the Energy Policy Act of 2005. Including 
yourself and Senator Wyden to pass--excuse me.
    On that point, Warm Springs has urged Members of the Senate 
Finance Committee, including yourself and Senator Wyden, to 
pass an extension of at least two years for the PTC and energy 
legislation this year.
    The extension is critical because the PTC is an essential 
element in attracting the needed equity investment.
    Right now longer than expected negotiations appear likely 
to push our project beyond the current January 1, 2008 in-
service deadline. Consequently, we need and Oregon's forest 
needs, an extension of the PTC of at least two years.
    Constraint in energy transmission is another common 
limiting factor in bringing renewable energy projects to 
market. The Tribes sees itself as a partner in developing a 
regional solution for ensuring adequate and reliable regional 
transmission. The Warm Springs Reservation is currently criss-
crossed by numerous energy rights-of-way, as noted earlier.
    The Tribe and BPA view each other as partners in ensuring 
reliability of critical transmission capacity and reliability. 
As partners we can address the particular size needs of the 
Tribe, EPA, utilities and the public.
    It is critical, however, that the Tribe's sovereignty be 
respected in any regional solutions to transmission capacity 
and reliability.
    We have submitted comments related to the 2005 Energy 
Policy Act, Section 1813, tribal rights-of-way study, which are 
attached to my testimony as an exhibit.
    The Draft 1813 rights-of-way study has just been released, 
recommending that condemnation is one option to permit rights-
of-way across tribal lands. The Tribes absolutely objects to 
any option that would permit condemnation of reservation lands. 
It is simply not necessary.
    Tribes are part of the states and regions in which they 
live. It is to all of our benefit to ensure that we have 
reliable and adequate transmission capacity.
    Last, another issue of specific significance to the 
economic tribal renewable projects is the expectation that some 
power purchasers and investors have related to performance 
guarantees.
    Given the structure of the Tribes and the Federal 
protections in place related to tribal assets, reaching an 
agreement on how the Tribes can provide generation performance 
guarantees can be problematic. Purchasing such guarantees might 
be an option. But that would increase the overall cost of 
tribal facilities and put them at a disadvantage compared to 
other energy generation facilities.
    A Federal solution to this issue may be necessary. I ask 
that this committee examine such possibilities. For example, 
such a solution can be a credit enhancement similar to the 
Tribal Federal Loan Guarantees authorized by Section 502 of the 
2005 Energy Policy Act.
    In conclusion, I cannot overemphasize the importance that 
renewable energy plays in the Tribe's economic future and well 
being. Renewable and green energy generation fits well with our 
traditions, culture and beliefs.
    We believe renewable energy generation will become ever 
more attractive in the energy market, but it is still a fact of 
life that modest Federal and state incentives are currently 
necessary to bring renewable projects to market.
    I ask this committee to keep that in mind and continue to 
support these important incentives.
    Equally important, however, is trying to find ways to 
create partnerships with other parties to capitalize on market 
solutions where they may exist to maximize the commercial 
appeal of renewables.
    As an energy producing Tribe, I pledge to continue to do 
that. That concludes my testimony. Thank you.
    [The prepared statement of Mr. Suppah follows.]

    Prepared Statement of Ronald Suppah, Tribal Council Chair, the 
    Confederated Tribes of the Warms Springs Reservation of Oregon; 
accompanied by Wasco Chief Nelson Wooleton, Jim Mannion, Ralph Minnick 
                            and Cal Mukomoto

I. Introduction
    The Confederated Tribes of the Warm Springs Reservation of Oregon 
(``Tribe'') is a federally recognized tribe comprised of three tribes--
the Warm Springs, Wasco and Paiute Tribes occupying the Warm Springs 
Indian Reservation (``Reservation'') in north Central Oregon. The Tribe 
is one of several northwest Indian tribes that is currently involved in 
renewable energy projects and/or is planning such projects.
    For example, there are three operating tribal utilities in the 
Pacific Northwest. With the likely changes to the Bonneville Power 
Administration (``BPA'') rate structure to tiered rates, these 
utilities will be required to either meet their own load growth or pay 
BPA's higher rate. At least one tribal utility is actively considering 
a renewable resource for this purpose. There are likely 5-6 other area 
tribes interested in forming utilities that will be faced with the same 
issue. Among non-utility tribes there are a number of existing 
renewable projects on tribal land, including small wind at Blackfeet, 
biomass and hydro power at Colville and hydro power at Spokane. A 
number of tribes are considering wind, wave generation, biomass and 
solar, and all tribes are interested in energy efficiency, which is one 
of the best forms of a renewable resource.
    As described more fully below, given our significant resources and 
expertise, the Tribe is poised to expand significantly our current 
involvement in energy generation and transmission. This involves adding 
generation capacity, facilitating well-planned transmission, and 
participating in policy discussions relating to renewable energy. In 
fact, the General Manager of our Warm Springs Power and Water 
Enterprises, Jim Manion, is participating on Governor Kulongoski's 
Renewable Energy Work Group which is defining the standard that should 
be considered for the state to implement a renewable energy portfolio 
policy. In short, our experience and expertise in energy matters, 
including renewable energy, is well recognized.
    For the Tribe, renewable energy projects--in particular, woody 
biomass, ``green'' hydroelectric power, wind, and geothermal--represent 
a significant economic development opportunity that could further the 
Tribe's self-governance, the welfare of our tribal members and the 
region's diversification of energy production. In addition, the Tribe's 
generation capacity can play an important role in assisting utilities 
and states in achieving a balanced renewable energy portfolio and in 
meeting renewable energy portfolio targets. Unquestionably, renewable 
energy will continue to play an ever more valuable role in the region's 
overall energy generation; however, there are still significant 
development constraints for renewable energy development in general and 
also as specifically related to tribes.
    The purpose of this testimony is to highlight the central 
importance that renewable and other energy development plays in the 
economic and social welfare of the Tribe and to identify select ways 
that critical development constraints could be met to facilitate 
renewable energy generation on reservations and elsewhere.

II. Tribal Sovereignty and the Warm Springs Reservation
    Participation in renewable and other energy projects is a central 
way to further and strengthen our sovereignty and to provide for the 
welfare of our tribal members. Tribal sovereignty must be understood in 
the context of the history of Indian reservations and in the context of 
our cultural beliefs. Respecting and strengthening our tribal 
sovereignty, in turn, is a vital component to ensuring the welfare of 
our tribal members.
    The Warm Springs and Wasco Tribes entered into a treaty with the 
United States on June 25, 1855. In that treaty, the tribes ceded title 
to approximately 10 million acres of land in north Central Oregon and 
reserved for their exclusive use the Warm Springs Reservation, which is 
approximately 640,000 acres of land. The Warm Springs Reservation is 
beautiful, but remote. It lacks the infrastructure and proximity to 
population centers that may provide more traditional commercial and 
industrial economic development opportunities. Furthermore, the 
Reservation as a whole is much less productive than our traditional 
lands for our time-honored ways of sustaining our families and 
communities through hunting, fishing and gathering.
    Through the years, our tribal government has been required to seek 
new ways to provide for our people. However, it is a critical element 
of our culture that we do so in a way that is in balance with the land 
and that never uses more of our precious natural resources than can be 
sustained forever. Indeed, although Federal law recognizes us as a 
sovereign people, we ultimately view our sovereignty not only as a 
construct of U.S. laws but fundamentally as given to us in the form of 
laws given by the Creator and by the land itself. Accordingly, we seek 
to develop economic opportunities in a way that honors and respects our 
traditional beliefs and provides opportunities for future generations 
to carry out the cultural traditions of our community.
    The Warm Springs Reservation--comprised of approximately 640,000 
acres, about \2/3\ forest lands and \1/3\ range land--has been the 
Tribe's greatest economic asset. Historically, timber resources have 
been the mainstay of tribal revenue; however, the Tribe has more 
recently asserted our own brand of stewardship over these resources and 
has changed the course from over harvesting to sustainable yield 
management. In the context of the global timber market, timber revenues 
no longer can play the same role in providing for the welfare of our 
members.
    It is well known that the Warm Springs Reservation community, like 
many other tribal communities, is a community in distress. Among other 
issues, our community has high poverty and unemployment rates, and high 
mortality and high education drop out rates for our young. 
Participation in the energy sector is a critical way for the Tribe to 
reverse these social and economic trends, provide for our members and 
to further our sovereignty.
    In short, the renewable and other energy resources available on the 
Reservation provide a unique opportunity to advance our sovereignty, 
self-sufficiency, the vitality of our traditional culture, and the 
well-being of our members.

III. Renewable Energy Potential and Existing Energy Projects on the 
        Warm Springs Reservation
    The Warm Springs Tribe is already an energy producer and has 
embarked on a course to become a significant supplier of renewable 
energy in the Pacific Northwest. It currently owns a one-third interest 
in the 440 MW Pelton-Round Butte Hydroelectric Project with Portland 
General Electric (``PGE''). The Tribe also owns the 19 MW Reregulating 
Dam Hydroelectric Project and a 7 MW biomass project that operates 
using wood waste from the Tribe's lumber mill. Future energy projects 
on the Reservation include development of a new 17 MW biomass facility 
at the Tribe's lumber mill utilizing materials removed from tribal and 
adjoining national forests in connection with forest health and 
wildfire reduction projects. The Tribe is also completing a 
comprehensive wind energy assessment for Tribal lands under a grant 
from the U.S. Department of Energy. Finally, the Tribe continues to 
inventory and study significant geothermal resources on the Reservation 
for future development.
    A. Tribal Participation in Existing Energy Generation--The 
``Greening'' of Hydro. The 440 MW Pelton-Round Butte Hydroelectric 
Project (``Project'') includes approximately 2,161.9 acres of Tribal 
land within the Reservation. The Tribe has regulatory authority within 
the Reservation and under an April 12, 2000 Long-Term Global Settlement 
and Compensation Agreement by and among the Tribe, the United States 
Department of the Interior acting by and through the Secretary of the 
Interior (the ``DOI'') and PGE, the Tribe acquired a one-third 
ownership interest in the Project. Under agreement with PGE the Tribe 
will eventually acquire a controlling interest in the Project. The 
Tribe is a co-licensee of the Project license. The Tribe also owns a 19 
MW Reregulating Dam Hydroelectric Project.
    There is no dispute that hydroelectric power generation has 
historically had significant environmental downsides; however, we 
include this project as part of this ``renewable energy testimony'' 
because, as with our experience in timber management, the Tribe is 
endeavoring to change the historical course of dam operations on the 
Reservation to produce more up-sides.
    Over several years of negotiations with PGE and various 
stakeholders, the Tribe and these parties in 2004 reached a historic 
Settlement Agreement Concerning the Relicensing of the Pelton Round-
Butte Hydroelectric Project, No. 2030 (the ``Settlement Agreement''). 
Important provisions related to fish and wildlife and riparian habitat 
of this Settlement Agreement have been incorporated in the current 
license for the Project (issued June 21, 2005). The Settlement 
Agreement and new license require the project licensees to invest 
millions of dollars in Project improvements related to, among others, 
improving fish passage, improving water quality, riparian and fish 
habitat and protecting cultural resources.
    The economic potential of the Project and Regulating Dam project 
are significant to the Tribe. Currently, these projects generate 
approximately $11 million per year to the Tribe. This could grow as the 
Tribe opts to assert more control over Project operations in future 
years.
    B. 17 MW Biomass Energy Generation Proposal. The Tribe already 
operates a 7 MW biomass generation facility co-located at the Warm 
Springs Mill site. With the assistance of a DOI grant and a USDA Woody 
Biomass Utilization Grant the Tribe has conducted a feasibility study 
to expand the generation capacity of the facility to 17 megawatts. 
Generated electricity from such an expanded facility would be sold on 
the open market and waste steam from the plant would be utilized to dry 
lumber at the kilns.
    Expansion of the Tribe's biomass facility (the ``Expanded 
Facility'') is expected to generate revenue for the Tribe, but its 
value goes well beyond the expected revenue generation. The Expanded 
Facility would provide us with the opportunity to replace 1930's era 
boilers to maximize efficiency at the mill, reduce water usage, and 
lower air emissions. In addition, the Expanded Facility would provide 
the potential to address hazardous forest fire threats on the 
Reservation and on adjacent Federal lands, to co-manage off-reservation 
treaty resources on Federal lands, and to add jobs for tribal members 
at the mill and in the woods. Indeed, the Tribe recently executed a 
historic Memorandum of Understanding with the U.S. Forest Service and 
Bureau of Land Management (the ``MOU'') on adjacent Federal lands to 
facilitate forest fuel reduction and forest and rangeland resource 
management projects of interest to the Tribe. The MOU recognizes the 
agencies' special Trust relationship to the Tribe and the Tribe's 
Treaty reserved rights to hunt, fish and gather food at usual and 
accustomed stations on federal lands. It is expected that one of the 
first Tribal Forest Protection Act projects will be coordinated under 
this MOU.
    The Expanded Facility will facilitate these benefits because it 
provides a ready market for the woody biomass generated from forest 
thinning and other forest or rangeland projects. In other words, the 
Expanded Facility provides a long-term market-based solution for the 
serious forest health issues in Oregon and the Northwest caused by 
decades of fire suppression that have led to the fuels buildup 
resulting in many recent catastrophic wildfires.
    A recognized challenge for the establishment of biomass facilities 
around the United States is the ability of project proponents to secure 
a stable and economical supply of woody biomass. Indeed, the Government 
Accountability Office (GAO) was asked to explore obstacles that are 
impeding the use of woody biomass for energy. The GAO has found that 
challenges associated with woody biomass usage included insufficient 
supply and that supply from Federal lands was particularly uneven. See 
GAO, Natural Resources, Report to the Chairman, Committee on Resources, 
House of Representatives; Woody Biomass Users' Experiences Offer 
Insights for Government Efforts Aimed at Promoting Its Use, March 2006 
(GAO-06-694T); GAO, Natural Resources, Federal Agencies Are Engaged in 
Numerous Wood Biomass Utilization Activities, but Significant Obstacles 
May Impede Their Efforts, May 2005 (GAO-05-741T).
    Under the tribal and Federal agency MOU, with the cooperation of 
BIA forest managers, and with the ready availability of urban wood, the 
Tribe's biomass facility has been able to demonstrate to potential 
power purchasers, equity investors and financing entities that such a 
stable supply is available for our efforts to construct the Expanded 
Facility.
    The Expanded Facility is very competitive from a market 
perspective. The likelihood of obtaining a favorable power purchase 
agreement is high. Potential power purchasers have shown concentrated 
interest, and we are in substantive negotiations for a power sale 
agreement. Similarly, we have entertained significant interest from 
potential equity investors and financing entities.
    Like many renewable projects, however, modest Federal and state 
incentives are important in the overall cost structure of the biomass 
project. Indeed, the GAO biomass study found that one of the most 
important factors facilitating biomass use was the availability of 
financial incentives or benefits and that government grants were 
deciding variables. (GAO-06-694T) At issue today is the sunsetting on 
January 1, 2008, of the Renewable Electricity Production Tax Credit 
(``PTC'') in Section 202 of the Energy Policy Act of 2005 (``2005 
EPAct''). I have urged Members of the Senate Finance Committee, 
including Senators Wyden and Smith, to support inclusion of an 
extension of at least two years, and preferably five years, for the PTC 
in energy legislation to be enacted by Congress and signed into law 
this year.
    The extension is critical for the following reasons. Currently, the 
PTC can provide over a million dollars per year for the first ten years 
of the project. That is significant for a roughly $40 million project. 
The PTC is an essential element in attracting the equity investment 
required by the Warm Springs to move forward with the projects for an 
Expanded Facility. Unfortunately, the time it is taking to finalize a 
power purchase agreement for the electric output of the project--which 
is another essential element for the project's financing--now appears 
likely to delay our equipment acquisition and installation and place 
our ``in service date'' beyond the current January 1, 2008 deadline. 
Consequently, we need, and Oregon's forests need, an extension of the 
PTC of at least two to five years. In short, the extension of the PTC 
as provided in the 2005 EPAct is not sufficient time for a power 
developer to get all the ``pieces'' together without taking significant 
implementation risk.
    In addition, the PTC places a distinction between different forms 
of renewable generation. In particular, the PTC permits 1.5 cents per 
kilowatt hour tax credit for wind, solar, closed-loop biomass and 
geothermal generation and .75 cents per kilowatt hour tax credit for 
open-loop biomass generation. The Tribe believes that this distinction 
is misplaced, especially if one understands the numerous social, 
environmental and economic benefits that a biomass facility can 
generate. Furthermore, open-loop biomass provides a steady and secure 
stream of electrical generation and has a valuable place in any energy 
portfolio that seeks to balance less steady energy generation such as 
wind generation. The Tribe would urge parity between open-loop biomass 
and other renewable energy generation in the PTC.
    C. Wind Energy Potential. With a Department of Energy (``DOE'') 
grant, the Tribe is assessing what potential we may have for commercial 
wind development. Preliminary results indicate that there may be 
sufficient resource present to advance to the next phase. We encourage 
the continued support from the DOE to explore the resources and assist 
the Tribe in developing this energy resource. As noted in the biomass 
discussion above, extension of the PTC will be critical to any wind 
development taking place on the Reservation. In addition, authorization 
of a new category of private activity tribal tax exempt bonds for 
renewable energy projects would assist the Tribe in contributing to the 
construction of wind towers.
    D. Geothermal. The Tribe is also assessing whether adequate 
geothermal resources exist to justify commercial-scale generation. In 
the 1990s, the Tribe had conducted some assessment of the resource, 
concluding that the market potential was not yet ripe for development. 
With the assistance of a DOE grant awarded in 2005, the Tribe is 
reviewing the material that was compiled in the 1990s. With a world-
renowned consulting firm, we are reassessing this resources and the 
market potential. We are preparing an updated report on this potential 
due to be completed in the fall of 2007. We are encouraged by the 
geothermal resource potential on the Reservation and the market 
potential for commercial development; however, for the reasons noted 
above, the PTC would be a critical incentive for such development. 
Tribal tax-exempt bonds could also be a critical factor facilitating 
commercial development of geothermal generation on the Reservation, but 
the Internal Review Service on August 9, 2006, released a notice 
stating that it expects to issue Regulations prohibiting use of tribal 
tax-exempt bonds to finance any commercial or industrial enterprise--
even if states and local governments engage in such activities 
themselves. In addition, given that tribes lack the economic resources 
to undertake such projects unless they partner with for-profit 
entities, a new category of private activity tax-exempt ``exempt 
facility bonds'' should be created by Congress to facilitate such 
projects. For example, such bonds could be used to drill test 
exploration wells, which could easily cost $1 million per well.
    E. Energy Transmission. Although energy transmission is not, 
itself, a ``renewable'' energy project or resource, no discussion of 
renewable projects is complete without considering the transmission 
picture. Only if renewable projects, often located in remote areas, can 
secure adequate and economical transmission of the generated 
electricity to market can they be viable. This is a common challenge 
for many renewable projects in the Northwest region and in the United 
States. The April 2006 Bonneville Power Administration White Paper 
titled, ``Challenge for the Northwest, Protecting and Managing an 
Increasingly Congested Transmission System'' states that ``problems 
presented by congestion have been growing steadily and have become 
increasingly urgent as dispatchers find themselves operating more and 
more in an `emergency' mode.'' Non-utility power sellers that do not 
have preexisting transmission arrangements to meet load, such as tribes 
wishing to sell renewable power must either pay large fees to `get into 
the transmission queue'' to acquire firm transmission (which generally 
does not exist), rely on non-firm transmission (which is often scarce) 
or provide the capital for necessary new facilities in advance.
    The Tribe sees itself as a partner in developing a regional 
solution for ensuring that renewable energy and other energy has 
adequate transmission. The Warm Springs Reservation is currently criss-
crossed by numerous energy rights-of-way. BPA, PacifiCorp, PGE, Wasco 
Electric Cooperative and the Tribe, itself, all maintain transmission/
and or distribution rights-of-way. The Tribe and these entities view 
each other as partners in ensuring the viability of critical 
transmission capacity and reliability. As partners, we can address the 
particularized needs of the Tribe, BPA, the utilities, and the public. 
Indeed, the Tribe is in active negotiations with BPA to determine how 
we can meet each others needs.
    It is critical, however, that the Tribe's sovereignty be respected 
in any regional solution to transmission capacity and reliability. We 
have submitted comments related to the 2005 EPAct Section 1813 Tribal 
land Right of Way Study. In those comments, attached hereto as an 
exhibit (Exhibit ``A''), we detail our objections to any authorization 
that would undermine tribal consent to rights-of-way across tribal 
lands. Importantly, the draft 1813 Tribal land Right-of-Way study has 
just been released recommending that condemnation is one option to 
permit rights-of-way across tribal lands. The Tribe absolutely objects 
to any option that would permit condemnation of Reservation lands. 
    Putting aside all of the important reasons detailed in our comment 
letter as to why Congress should respect tribal sovereignty issues, no 
need exists to undermine and damage our sovereignty. Tribal entities, 
including the Tribe, have a long track record of working with energy 
partners to ensure adequate transmission, and we continue to work with 
BPA and others to ensure a long-term capacity and reliability for 
transmission. Tribes are part of the states and regions in which they 
live. It is to all of our benefit to ensure that we all have reliable 
and adequate transmission capacity.

IV. Partnerships and Federal Incentives Are Critical
    Fully or even partially realizing the potential for the Tribe to 
utilize energy as a way to fulfill its obligations to its tribal 
members, requires focused and critical federal assistance/incentives 
and the continued recognition of Tribal sovereignty. It is well 
understood that the price of energy still does not reflect the true 
cost of production of fossil fuel generation. As a result, many 
renewable energy sources have a higher than market cost. Furthermore, 
the reality on the Warm Springs Reservation is the lack of 
infrastructure. Although there are significant transmission facilities 
that can be utilized, expanded transmission and other infrastructure 
needs may increase the cost of such generation.
    Equally as important is trying to find ways to create partnerships 
with other energy entities and to capitalize on market solutions where 
they may exist to maximize the commercial appeal of renewables. As 
noted above, the biomass proposal provides an excellent example of 
trying to create a market solution to address the condition of our 
forests and rangelands and further our treaty rights and the condition 
of these resources. Similarly, the Tribe has entertained equity 
investment in the biomass facility to take advantage of existing state 
and Federal incentives available for such projects. The fact of the 
matter, however, is that Federal and state incentives still play a key 
role in renewable energy development in Indian country and in the 
region. Below is a brief discussion of selected federal incentives that 
have been and can continue to be helpful to the Tribe in our energy 
generation opportunities.
    A. Production Tax Credit. The PTC provides an attractive incentive 
for potential equity investors for the Tribe's potential biomass, wind 
and geothermal projects. These projects all, and in particular the 
biomass project, have the potential to be very competitive on the 
energy market. The PTC can help to meet the small gap between project 
costs and market rates. In summary, the PTC is a good value for the 
Federal Government given the significant up-sides that the PTC will 
create by facilitating more renewable energy generation. Although the 
Tribe began planning the biomass plant well before the 2005 EPAct PTC 
extension, the current sunsetting of the PTC on January 1, 2008, simply 
does not allow a project developer to put together all of the requisite 
pieces. We urge this Committee to support passage of an extension of 
the PTC for at least two additional years and preferably five years in 
energy legislation this year.
    B. Tax exempt bonds. Providing authorization for and adequate 
funding for tribal tax exempt bonds could also greatly facilitate 
renewable energy generation on the Reservation. The Internal revenue 
Service has been increasingly hostile to the use of tax-exempt bonds by 
Indian tribes. In response to recommendations by many, including the 
Tribal Government Tax-Exempt Bond Parity Act of 2006 recently proposed 
by Senator Smith, that Congress intended Indian tribes to be able to 
issue tax-exempt bonds for any purpose for which non-tribal governments 
issue them, the IRS released a notice last week proposing to issue 
Regulations that would prohibit tribes from issuing tax-exempt bonds 
for the purpose of generating revenue--even if non-tribal governments 
customarily issue bonds for such purpose. In addition, given that most 
tribes lack the economic resources to pursue such projects without the 
involvement of private enterprise, the only practical way to access 
tax-exempt financing for these projects would be for Congress to create 
a new category to ``exempt facility bonds'' that would permit the 
issuance of tax-exempt bonds by tribes for tribally owned renewable 
energy projects in Indian country.
    C. Credit Enhancements. A difficult issue as it relates more 
particularly to tribal energy projects, including renewable and non-
renewable generation and other energy projects are the expectations of 
some power purchasers and investors related to performance guarantees. 
Given the structure of tribes and the Federal protections in place 
related to tribal assets, reaching a mutually acceptable manner in 
which the Tribe can provide performance guarantees can be problematic. 
Although purchasing such guarantees if available may be one way, such 
credit would increase the overall cost of tribal facilities and put 
them at a disadvantage vis-a-vis non-tribal renewable and other energy 
generation facilities. A Federal solution to this issue may be 
necessary. For example, such a solution could be expanding or creating 
a new program similar to the guarantee program authorized by section 
502 of the 2005 EPAct. Under this program, the Department of Energy is 
authorized to guarantee up to 90 percent of the unpaid principal and 
interest due on any loan made to an Indian tribe for energy development 
purposes (generally, activities that promote the generation of electric 
energy or production of fossil fuels on Indian lands).
    D. Office of Indian Energy. The Tribe applauds Congress for 
creating the Office of Indian Energy in section 503 the 2005 EPAct. 
Such an office can greatly enhance tribal opportunities to develop the 
technical expertise and conduct the necessary due diligence and 
technical studies to assess resources and market potential. The Tribe 
is a grateful beneficiary of Federal agency grant programs to assess 
the feasibility of the biomass, wind and geothermal projects and urges 
Congress to continue to support such grant programs. The Office can be 
used to coordinate technical assistance programs and grants between the 
Department of the Interior broadly, the Bureau of Indian Affairs, and 
the Department of Energy, among other federal departments and agencies; 
thereby obtaining maximum value from such programs. The Office also can 
help to coordinate other important federal incentives related to 
federal portfolio standards and preference power. The Office of Indian 
Energy, however, can only be effective if it is adequately funded.
    E. Portfolio Standards and Preference Power. The Tribe also 
applauds Congress for including in the 2005 EPAct Federal agency 
renewable portfolio standards, Indian energy double credit provisions, 
and Federal power purchase preferences for Indian energy. In 
particular, Section 203(a) of the EPAct requires that the Federal 
Government use not less than 3 percent in renewable energy in Fiscal 
Years 2007 to 2009, not less than 5 percent in renewable energy in 
Fiscal Years 2010 to 2012, and not less than 7.5 percent in renewable 
energy in Fiscal Year 2013 and years after. Section 203(c) provides for 
double credit if the energy used is produced on Indian land. Section 
503 permits Federal agencies to give a purchase preference to Indian 
power. These incentives all help to create and bolster the market 
demand for renewable energy in general and Indian renewables in 
particular. To date, however, it has been difficult to realize the full 
benefits of these incentives. The Tribe believes that the Office of 
Indian Energy can provide significant assistance in coordinating these 
incentives.

V. Conclusion
    The Tribe appreciates the opportunity to submit these comments. We 
are encouraged by the growing market for renewable resources and the 
growing viability for such markets. Renewable energy generation, 
including ``green'' hydroelectric and energy transmission solutions, 
will play a vital role in the Tribe's economic future and well-being. 
It also will play a critical role in honoring and sustaining our 
culture and sovereign rights. It is still a fact of life, however, that 
modest federal and state incentives, such as the Production Tax Credit, 
are necessary to bring renewable projects, such as our biomass project, 
to market. I ask this Committee to keep that in mind and to continue to 
support these important incentives, including extending the PTC. 
Equally important, however, is trying to find ways to create 
partnerships with other energy entities to capitalize on market 
solutions where they may exist to maximize the commercial appeal of 
renewables. As an energy-producing Tribe, we pledge to continue to do 
that.
                               Exhibit A

   The Confederated Tribes of the Warm Springs Reservation of Oregon

 Comments on the Energy Policy Act of 2005, Section 1813 Right of Way 
                          Study, May 15, 2006

    The Confederated Tribes of the Warm Springs Reservation of Oregon 
(``Tribe'') is a federally recognized tribe comprised of three tribes--
the Warm Springs, Wasco and Paiute Tribes occupying the Warm Springs 
Indian Reservation (``Reservation'') in north Central Oregon. There are 
approximately 3,800 tribal members, approximately 90 percent of whom 
reside on or near the Reservation. The Reservation is comprised of 
640,000 acres, about \2/3\ forest lands and \1/3\ range land.
Background
    The Warm Springs and Wasco Tribes entered into a treaty with the 
United States on June 25, 1855. In that treaty, the tribes ceded title 
to approximately 10 million acres of land in north Central Oregon and 
reserved for their exclusive use the Warm Springs Indian Reservation. 
They additionally reserved important hunting, fishing and gathering 
rights on unclaimed lands outside the reservation. Tribal members 
continue to exercise these rights on the millions of acres of BLM and 
Forest Service lands surrounding the Reservation. Through a 
comprehensive memorandum of understanding, the Tribe acts as a co-
manager on these federal lands to protect and preserve these important 
off-reservation rights.
    Two provisions of the treaty are directly relevant to the Section 
1813 Right of Way Study. After describing the boundaries of the 
reservation, the treaty provides ``all of which tract shall be set a 
part, and, so far as necessary, surveyed and marked out for their 
exclusive use . . .; nor shall any white person be permitted to reside 
upon the same without the concurrent permission of the agent and 
superintendent.'' Article 9 of the treaty also provides ``the said 
Confederated Bands agree that whensoever, in the opinion of the 
President of the United States, the public interest may require it, 
that all roads, highways and railroads shall have the right-of-way 
through the reservation herein designated, or which may at anytime 
hereafter be set apart as a reservation for said Indians.'' No 
provision is made for rights-of-way other than railroads and roads in 
the treaty.
    With passage of the Indian Reorganization Act in 1934 (the 
``IRA''), the three tribes occupying the reservation availed themselves 
of the provisions of Sections 16 and 17 of the IRA. Under Section 16, 
the Tribe adopted a constitution and bylaws establishing a form of 
tribal government under which all governmental authority was exercised 
by a tribal council. The Tribal Council consists of 11 members, 8 of 
which are elected every 3 years, and 3 of which are chiefs selected by 
their respective tribes to serve on the Tribal Council for life. The 
United States also issued to the Tribes a Federal corporate charter 
pursuant to the provisions of Section 17 of the IRA, under which the 
Tribe carries out much of its proprietary business activity. Copies of 
the Constitution and Bylaws, and Federal Corporate Charter are 
attached.
    The Reservation itself is bounded on the west by the summit of the 
Cascade Mountain Range, on the south by the Metolius River, on the east 
by the Deschutes River, and on the north by the Tygh highlands. Over 
400,000 acres is forested. Timber from these lands supplies the Tribe's 
lumber mill. The majority of the remainder of the land is rangeland. 
Minimal agricultural activity occurs on the reservation because of 
short growing seasons for relatively poor soil.
    The Reservation, like many others, was allotted to individual 
Indians late in the 19th Century. This allotment caused the 
fractionated ownership problem that is prevalent on so many 
reservations. The Tribe undertook to cure that problem beginning in the 
1960s. In 1961, Congress passed the Warm Springs Land Consolidation 
Act, which authorized the Tribe to purchase lands within its own 
reservation. Prior to that, the Tribe had been prohibited from such 
purchases.
    The Tribe then began setting aside money each year to purchase 
lands from willing allottee sellers and fee holders. After 45 years of 
purchases, the Tribe now owns approximately 93 percent of the land 
within the reservation. Approximately 7 percent is still held by 
allottees and less than one-third of one percent is held in fee. Of the 
few hundred acres of fee land remaining within the Reservation, most of 
it is held by individual Indians. No non-Indians live on fee lands 
within the Reservation. Consolidation and control of the Tribe's own 
lands has, thus, been a hallmark of tribal policy for decades. When the 
Tribe began its consolidation effort, the only major non-Indian 
business on the reservation was the lumber mill owned by Jefferson 
Plywood. In 1967, the Tribe purchased this mill.
    Since the Reservation was established, the Tribe has struggled to 
maintain control of its land as a homeland for its people. The Warm 
Springs Reservation was recognized early on by the United States as one 
of the poorest reservations ever established. Yet, the Tribe has 
created and maintained a tribal homeland that serves as the glue to 
hold its people and culture together. They have overcome the challenges 
posed by reservation allotment, and periodic non-Indian attempts to 
gain control of reservation resources. The Tribe controls its land base 
and manages it wisely.
    The tribal government derives its income from Reservation 
resources. It does not do it at the expense of cultural or religious 
values. For example, forest lands, valuable for timber production, are 
often managed for huckleberry production, a food of great religious and 
cultural significance to the Tribe. More than 30 years ago, the Tribe 
established in-stream flows for on-reservation streams necessary to 
protect the salmon fishery that defines its culture. Recently the 
Tribe's forests were certified as ``green'' by the Forest Stewardship 
Council, and the Tribe now markets environmentally sound lumber. The 
Tribe has established state-of-the-art integrated resource management 
plans for the forest and range lands that ensure sustainable use of 
those lands and protection of religious and cultural values.
    The Tribal Council has adopted comprehensive laws governing the 
reservation which are enforced by their justice system through the 
tribal courts. Those laws govern all non-Indian activity on the 
reservation. The Tribe has been delegated enforcement authority under 
the Clean Water Act by the Environmental Protection Agency (the 
``EPA'') and manages water resources on the reservation under that 
authority and the Tribe's inherit authority. The Tribe is in the 
process of acquiring regulatory authority over air quality on the 
reservation from the EPA.
    The Tribe has established a number of business enterprises that 
provide income to the tribal government with which to provide essential 
governmental services. Those enterprises include Warm Springs Forest 
Products Industries, Warm Springs Composite Products, Warm Springs 
Construction Enterprise, Kah-Nee-Ta Vacation Resort and Gaming 
Enterprise, the Museum at Warm Springs, Warm Springs Water and Power 
Enterprises, Warm Springs Ventures, and Tectonics International. 
Although not wealthy, the Tribe has managed to create a secure homeland 
for its members with the limited resources available to it. They have 
been able to do this because of the control and integrity of the 
Reservation land base. It is that control and integrity that will allow 
the Tribe to meet the significant challenges that it faces in the 
future to provide employment and housing for its rapidly growing 
membership.
    It is in this context that the right-of-way issue must be examined. 
Rights-of-way potentially impinge upon the ability of the Tribe to 
control and manage its land base far into the future. In addition, the 
Tribe must ensure that it derives fair compensation for the use of its 
resources in order to provide for the tribal membership. It was only 
when the Tribe was able to begin managing its own affairs that it began 
to achieve a degree of success and realize its aspirations for its 
people. Anything that infringes upon this right and ability will be 
vigorously opposed by the Tribe and is fundamentally inconsistent with 
the Tribe's exclusive use of its own reservation.

Consent Requirement
    First is the issue of tribal consent as it applies to rights-of-
way. Removal of tribal consent requirements is fundamentally 
inconsistent with the provisions of the treaty. The entire bargain 
struck in the treaty was based on the Tribe's cession of title to most 
of its ancestral lands in return for a guaranteed exclusive use to a 
small fraction of its aboriginal territory. Past violations of the 
consent principle throughout Indian Country have resulted in grave 
hardship for Indian tribes and have compounded the challenges in 
providing for the future of Indian people. That problem should not now 
be further exacerbated by new misguided attempts to remove the consent 
requirement.
    Second, removal of the consent requirement is inconsistent with the 
provisions of the Indian Self Determination Act. It is under this Act 
that tribes have been enabled to chart their own futures. Energy 
companies, motivated solely by their own profit, should not be allowed 
to unilaterally determine the future of Indian tribes in any respect.
    Third, the issue of consent has not been a serious impediment to 
the granting of rights-of-way on the Warm Springs Reservation. The 
Reservation, with tribal consent, contains numerous roads, railroads, 
telecommunications, energy and other rights-of-way. Some of these serve 
the Reservation, while others merely pass over it. Historically, the 
Tribe received inadequate compensation for some and adequate 
compensation for others. As the Tribe's control of its own resources 
and financial sophistication has improved, so has the economic return 
for rights-of-way through the Reservation. What is clear is that any 
future rights-of-way decisions made by the Tribe must ensure that the 
Tribe receives adequate economic return for the use of its resources.

Fair Compensation
    That brings us to the subject of fair compensation. The Warm 
Springs Reservation, like many Indian reservations, is criss-crossed by 
numerous energy rights-of-way. The Bonneville Power Administration, 
PacifiCorp, Portland General Electric Company, and Wasco Electric 
Company all maintain transmission rights-of-way. PacifiCorp and Wasco 
Electric also have distribution rights-of-way. Warm Springs Power and 
Water Enterprises, a tribal enterprise, maintains a transmission right-
of-way in connection with its Reregulating Dam Hydroelectric Project. 
The Tribe has also been in active discussion for several years with 
TransCanada Pipelines, Ltd., regarding the location of a gas lateral 
pipeline across the Reservation.
    The Warm Springs Tribe is, in addition, an energy producer and has 
embarked on a course to become a significant supplier of renewable 
energy in the Pacific Northwest. It currently owns a 1/3 interest in 
the 440 MW Pelton-Round Butte Hydroelectric Project with PGE. Under 
agreement with PGE it will eventually acquire a controlling interest in 
the Project. It also owns the 19 MW Reregulating Dam Hydroelectric 
Project and a 7 MW biomass project which operates using wood waste from 
the Tribe's lumber mill. The Tribe is developing a new 16 MW biomass 
facility at the mill that will utilize materials from tribal and 
adjoining national forests removed in connection with forest health and 
wildfire reduction projects. The Tribe is completing a comprehensive 
wind energy assessment for Tribal lands under a DOE grant. Finally, it 
continues to inventory and study significant geothermal resources on 
the Reservation for future development.
    The Tribe's first experience with energy rights-of-way began in the 
1950's with the licensing of the Pelton Hydroelectric Project by the 
Federal Power Commission. Until that time little development had taken 
place on the Reservation, and the Tribe was only beginning to sell its 
timber. The Federal Power Act and the FPC required Portland General 
Electric Company to enter into an agreement with the Tribe for the use 
of its lands. The 1955 agreement and subsequent 1960 amendment provided 
annual charges for the use of tribal lands in connection with the 
generation and transmission of power. The initial annual charges were 
approximately $90,000 for the Pelton Dam and $200,000 for the Round 
Butte Dam. The Federal Power Act and the tribal agreement provided for 
periodic readjustments of these charges. Since 1920, the FPC had used 
the ``sharing of the net benefits'' method to determine appropriate 
annual charges for projects located either on Indian lands or in 
government dams. The theory was that the net benefit of a project was 
the difference between energy costs at the licensed project compared 
with the next best alternative available to the developer. The net 
benefit was then ``shared'' between the landowner (either the Tribe or 
the government dam owner) and the developer. This was in recognition 
that both made essential contributions to the feasibility of the 
project. Typically the benefit was shared 50/50 between owner and 
developer.
    By the mid-1970s the value of power had risen substantially in the 
United States and through a series of vigorously contested readjustment 
proceedings before FERC and arbitration panels the compensation to the 
Tribe for the use of their lands rose to about $5 million per year. In 
1986, the Tribe and PGE entered into a comprehensive settlement 
agreement covering the remainder of the license period ending in 2001. 
At the end of the license period the compensation was approximately $11 
million per year.
    The provisions of the Federal Power Act are particularly 
instructive with regard to the Section 1813 study. They deal with each 
of the issues raised by the current controversy. Section 10(e) of the 
Federal Power Act (16 U.S.C. Section 803(e)) provides in relevant part:

        (e) Annual charges payable by licensees; maximum rates; 
        application; review and report to Congress

        (1) That the licensee shall pay to the United States reasonable 
        annual charges in an amount to be fixed by the Commission for 
        the purpose of . . . for recompensing it for the use, 
        occupancy, and enjoyment of its lands or other property . . . 
        Provided, That when licenses are issued involving the use of 
        Government dams or other structures owned by the United States 
        or tribal lands embraced within Indian reservations the 
        Commission shall, subject to the approval of the Secretary of 
        the Interior in the case of such dams or structures in 
        reclamation projects and, in the case of such tribal lands, 
        subject to the approval of the Indian tribe having jurisdiction 
        of such lands as provided in section 476 of title 25, fix a 
        reasonable annual charge for the use thereof, and such charges 
        may with like approval be readjusted by the Commission at the 
        end of twenty years after the project is available for service 
        and at periods of not less than ten years thereafter upon 
        notice and opportunity for hearing: Provided further, That 
        licenses for the development, transmission, or distribution of 
        power by states or municipalities shall be issued and enjoyed 
        without charge to the extent such power is sold to the public 
        without profit or is used by such state or municipality for 
        state or municipal purposes, except that as to projects 
        constructed or to be constructed by states or municipalities 
        primarily designed to provide or improve navigation, licenses 
        therefore shall be issued without charge; and that licenses for 
        the development, transmission, or distribution of power for 
        domestic, mining, or other beneficial use in projects of not 
        more than two thousand horsepower installed capacity may be 
        issued without charge, except on tribal lands within Indian 
        reservations; but in no case shall a license be issued free of 
        charge for the development and utilization of power created by 
        any government dam and that the amount charged therefore in any 
        license shall be such as determined by the Commission . . .

    Pursuant to these provisions licensees are required to obtain the 
consent for a project within the reservation. Periodic adjustment to 
the rents is made. And FERC considers the economic value of the project 
when adjusting charges.
    In the 1970s the Tribe entered into negotiations with the 
Bonneville Power Administration to construct a new right-of-way across 
the Reservation. The Tribe rejected initial offers based on traditional 
appraisals of their lands. The Tribe thought it was unreasonable to 
commit to an intrusive right-of-way for very little compensation. 
Eventually the Tribe and BPA agreed to split the difference between the 
cost of a right-of-way across the Reservation and an alternate route 
around the Reservation. The Tribe received $4 million, approximately 40 
times the original offer.
    Finally, in 2000, the Tribe entered into a settlement agreement 
with PGE regarding future ownership of the Pelton-Round Butte Project 
after the expiration of the original license. As a part of this 
agreement, it was necessary to amend 25 U.S.C. 415 to extend leasing 
authority on the Warm Springs Reservation from 25 years to 99 years in 
recognition of the fact that the long term agreement reached between 
the parties was not feasible with limited leasing authority. The 
agreement made the Tribe and PGE joint venturers in the project and 
aligned their interests in a way that minimizes the opportunity for 
future conflict.
    The foregoing development on the Warm Springs Reservation would not 
have been possible if traditional appraisal methods had been used. 
There simply would have been inadequate incentive for the Tribe to 
commit its resources. It was made possible because valuation of tribal 
interests was based on the value of its lands for power production or 
transmission purposes. Many rights-of-way are routed across tribal 
lands that have minimal value as range or desert lands. Even if the 
full value of these lands was paid to the Tribe it would be a pittance 
compared to their enormous value as energy rights-of-way. As the saying 
goes, real estate values are based on three factors--location, 
location, and location. It is the strategic location of rights-of-way 
across Indian lands that give them real value. The Tribe should be 
entitled to realize this value.
    Traditional appraisal techniques are totally inappropriate for 
valuation of tribal lands in connection with rights-of-way. Traditional 
methods include comparable sales, income analysis, cost analysis and 
cost of development. As applied in condemnation and acquisition 
proceedings with regard to energy rights-of-way they end up valuing the 
land for purposes other than for developing or transmitting energy. For 
example, in the context of the Federal Power Act landowners whose lands 
are condemned for hydroelectric project are not entitled to 
compensation based on the power production potential of their lands. In 
the arid west these types of lands can typically sell for less than 
$100 per acre when their value for power production or transmission 
purposes exceed that amount by orders of magnitude.
    Traditional appraisals are inappropriate for tribal land valuations 
for a number of reasons. First, they do not include in the valuation a 
number of things that are of primary importance for the Tribe. They do 
not factor in tribal historic, cultural, religious, privacy, community 
or other interests of the Tribes. They are contrary to the ``exclusive 
use'' provisions contained in many Indian treaties. They do not 
recognize that the highest and best use of the property is for energy 
production or transmission. They do not consider what impacts these 
rights-of-way may have on the rest of the Reservation. They do not 
consider what impacts the rights-of-way may have on the sovereignty of 
the Tribe and its ability to govern activities within its boundaries. 
They do not value lost opportunity costs to Tribes.
    Just as with traditional appraisal methods, appraisals based on 
energy production or transmission values may be carried out in a number 
of ways yielding a range of values. The method most appropriate in a 
particular case may vary based on the specific circumstances. Following 
is a description of a number of ways that such an appraisal could be 
approached.
    1. Costs of alternative routes around the reservation. This 
embodies the principle of ``substitution'' in traditional appraisal 
methodology. The method directly measures the ``location'' value of 
tribal lands that is its location as the cheapest route available. It 
is highly unlikely that a developer would pay the full amount for less 
than a perpetual right-of-way since anything less than that would have 
to factor into the cost of the tribal right-of-way any future costs 
associated with renewals, etc. It simply becomes a matter of bargaining 
to arrive at some allocation that will be acceptable to both.
    2. Valuation of energy system across reservation as compared to 
valuation of system as a whole. Individual states already parse out the 
value of an energy company among each state for income and property tax 
purposes as a means of constitutionally determining what they can tax. 
The reservation portion of the system receives a valuation as a 
percentage of the whole and then, at least for private companies, a 
portion of the income of the company can be attributed to the system on 
the reservation. An appropriate allocation between landowner and 
developer can then be negotiated. One advantage of this approach is 
that it can form the basis for adjusted charges in the future based on 
the changing profitability of the company, either up or down.
    3. Wheeling charge. Under FERC Order 888 directing open 
transmission across FERC regulated electric lines a per kWh charge is 
levied. The same principle could be applied to energy rights-of-way, 
i.e., the payment to the Tribe depends on the amount of energy 
transmitted across the reservation. Logically, the amount of energy 
transmitted and the length of the right-of-way are indicators of the 
value of the right-of-way.
    4. Comparable sales. Increasingly there are market sales of rights-
of-way that can be used to determine value. Bolton and Sick concluded 
that:

        ``The proper method for appraising properties within a corridor 
        is to use market data occurring within a corridor. There is a 
        vast amount of existing corridor space currently available, 
        literally hundreds of thousands of miles. If buyers and sellers 
        for a particular type of property exist in the market place, 
        then market data will be available to the appraiser.'' http://
        www.powerlinefacts.com/Power_Lines_and_Property_Values.htm.

    The market data approach was used in a recent report to the 
National Oceanic and Atmospheric Administration entitled ``Fair Market 
Value Analysis for a Fiber Optic Cable Permit in National Marine 
Sanctuaries.'' In this case market value was deemed to be the best 
method of valuation because of the particular circumstances involved. 
It also recognizes that fair market value will change over time and so 
should the amount charged under the permit.

        ``The authors of this report recommend the analysis of 
        comparable previous transactions as the appropriate approach to 
        determining fair market value. Most appraisers have rejected 
        land-based, across-the-fence methods as inadequate to address 
        current market conditions in the fiber-optic communications 
        market. While the scenario of the willing buyer and seller 
        emphasizes build-around cost as an upper bound on market value 
        for rights-of-way, the information required to evaluate build-
        around cost, particularly for submarine cables, is prohibitive. 
        Income-based analysis also requires substantial information 
        that is not readily available in most cases. Furthermore, 
        expectations about future income are already incorporated into 
        previous market transactions.'' http://sanctuaries.noaa.gov/
        library/national/fmvfin
        alreport.pdf.

    Unless tribes can receive value for rights-of-way based on their 
use as energy transmission corridors there is little incentive for the 
Tribe to grants rights-of-way. If nothing else, the tribe will reason 
that it should wait until it has the necessary access to capital to 
develop the lands as an energy corridor and then realize the economic 
benefit for itself, rather than to bargain away use of its lands for a 
tiny fraction of that value. The valuation issue is the key to dealing 
with the consent issue as it relates to renewals of rights-of-way. 
Unless the tribe can be assured that it can derive a portion of the 
economic value of the right-of-way there is little incentive to consent 
to renewal. On the other hand recognition of the entitlement of the 
tribe to a portion of the economic value sets that stage for a 
productive negotiation between the tribe and energy company.
    Over the last 10 years this subject has received considerable 
attention in the context of right-of-way corridors in other contexts. 
It is increasingly recognized that denial to landowners of any value 
associated with the actual use of the right-of-way is inappropriate. In 
fact, the issue has been considered in connection with rights-of-way 
across Federal lands. In the draft ``Capitol Hill Corridor Valuation 
Declaration: An Appeal for a Paradigm Shift from Monopoly to Market 
Corridor Valuation Methods and Federal Rights of Way Rent Schedules'' 
the signatories concluded:

        ``Conventional corridor valuation methods (e.g., Across-The-
        Fence (ATF) Method, Reproduction Cost Method, Liquidation Value 
        Method, Value for Non-Corridor Use), and legal case law 
        approaches such as the Nominal Method, are both self-interested 
        and polarizing approaches that do not solve the corridor fair 
        market rent valuation or easement valuation problems at hand in 
        a `new economy' in a deregulated environment. Deregulation of 
        the natural gas, telecommunications, and regional electric 
        utilities requires consideration of alternative methods that 
        reflect `buyer's market' value that assume the availability of 
        an alternate route in contrast with `seller's market' value 
        (ATF value, corridor premiums) that are predicated on no 
        alternate route.'' http://www.appraisers.org/disciplines/BLM-
        14.htm.

    The signatories concluded that rural federal land rents would be 
much higher if enterprise-based, rather than land-based rents, were 
used:

        Federal land management agencies are likely to realize 
        significantly higher rents for secondary uses of their 
        corridors and lands from enterprise-based rents than from land-
        value based rents especially in rural areas where the bulk of 
        its properties are located. Based on widely-advertised going 
        rents from major fiber optic companies it is rough estimated 
        that average rural land values would have to exceed $21,780 per 
        acre to be equivalent to quoted ``going rents'' in the fiber 
        optic industry . . . In other words, land-based values would 
        likely yield rents from around 2 percent of what enterprise-
        based values might generate in rural areas . . .'' (Emphasis in 
        original)

    It is axiomatic that appraisals must be based on the highest and 
best use of the land. It would be a very rare case in which rural 
Indian lands suitable for energy corridors had a higher and best use 
than for energy transport or transmission purposes. Bolton and Sick 
examined the question of corridor valuation and concluded:

        ``CVM (Corridor Valuation Methodology) is the most accurate and 
        reliable approach to evaluating a right-of-way corridor or the 
        property rights within the corridor. This method conforms to 
        the principle of highest and best use, the unquestioned bedrock 
        for appraising real property. Market data reflecting highest 
        and best use ought to always be used in analyzing the appraised 
        property, regardless of the resulting value conclusion, as long 
        as careful consideration is given to the differences as a basis 
        for adjustment of the market data. The ATF method may have some 
        applicability to appraising property not located in a corridor. 
        ATF methods seem inherently inconsistent with accepted 
        appraisal practice when evaluating an established corridor 
        property because it employs data that plainly does not reflect 
        the subject's highest and best use.'' http://
        www.boltonandbaer.com/downloads/articleValuation.pdf.

    And yet, the ATM method is one of the most common methods that has 
been used to value Indian lands. Much of the root of current disputes 
between tribes and energy companies has its root in the fact that 
energy companies are thinking in terms of valuations that do not 
consider the highest and best use of Indian lands to be for energy 
transmission or transport purposes.

Suggestions for Change
    The Section 1813 study has unfortunately established a negative 
dynamic with regard to participation by Indian tribes in America's 
energy future. Tribes know the origins of the legislation and 
understandably see it as one more in a long line of efforts to part 
them from their lands. Little has been said about the energy issue at 
the Denver meetings to dissuade them from that idea. In fact, threats 
of removal of consent requirements at the meetings have reinforced the 
tribe's conclusions.
    If Congress is serious about dealing with this issue and America's 
energy problems it will seek to make tribes partners in that effort, 
not adversaries. Many energy companies have recognized this and have 
developed significant and positive relationships with tribes. Warm 
Springs is just one example. Those efforts have been jeopardized by 
this study.
    But there are things that Congress can and should do to make the 
problem better, not worse.
    First, short lease terms are a problem. If the consent requirement 
is maintained many tribes would have no problem with longer lease 
terms. In fact, the Warm Springs Tribe sought and obtained amendment to 
25 U.S.C. Section 415 to lengthen permissible lease terms for Warm 
Springs tribal lands to 99 years in recognition of the fact that short 
lease terms do not provide sufficient time to make many projects 
commercially viable.
    Second, the decision of the U.S. Supreme Court decision in Strate 
v. A-1 Contractors, Inc., 520 U.S. 438 (1997) has made tribes leery of 
right-of-way grants. Although express reservations in rights-of-way may 
solve some of the problems created by this case Congress should 
consider a legislative fix to the problem.
    Third, the decision of the U.S. Supreme Court in Cotton Petroleum 
Corp. v. New Mexico, 490 U.S. 163 (1989) and earlier precedents have 
made economic development on Indian reservations even more difficult by 
allowing states to impose tax burdens on non-Indian developers for on-
reservation activity and property even though the states provide 
virtually no services on the reservation. These rulings have made it 
very difficult for Tribes, the entities that actually provide 
governmental services to the developers, to levy their own tax which 
would create a dual burden on the project. For this reason, rights-of-
way payments to Tribes must necessarily include money to provide 
governmental services--one more reason to value tribal rights-of-way 
different than other rights-of-way.
    Fourth, federal agencies, particularly the Department of the 
Interior lack the necessary expertise and resources to adequately 
advise and protect the interests of tribes. Although the energy 
interests of tribes are enormous the Department has only a small 
fraction of its personnel with expertise in the energy field that it 
does in other trust resource areas such as forestry.
    Fifth, there should be clear recognition that right-of-way payments 
to Indian tribes for energy rights-of-way should take into account the 
energy corridor value of the right-of-way.
    Sixth, the ability of the tribes and the energy industry to enter 
into joint ventures that align their economic interests should be 
facilitated. This can be done with common mechanisms involving bonding 
authority, accelerated depreciation, tax credits, and guaranteed loans.

    Senator Smith. Thank you, Ron, for your testimony. I am 
confident we will extend the tax credit, and I don't think that 
there is much partisan disagreement about the importance of 
that.
    I'm familiar with your timber operation on the Reservation 
of Warm Springs. And can you explain to the audience and have 
on the record how you believe your biomass proposal will be 
complimentary to that.
    Mr. Suppah. I would maybe like to ask Ralph Minnick or Cal 
Mukomoto to respond to that, to answer that.
    Mr. Mukomoto. Senator, we believe that our proposal----
    Mr. Suppah. Come up here.
    Mr. Mukomoto. OK. Senator, we believe that our proposal is 
a market solution to the forest restoration and ecological 
restoration of our forest.
    As you know, a hundred years of fire suppression has 
created overstocked and highly large amounts of hazardous fuels 
in our forest, and since we are going to be able to use biomass 
from the forest, we believe that this could create a 
marketplace for that fuel and help offset the cost of restoring 
our forests to a--our fire adapted forests to a natural state.
    Senator Smith. Very good. Thank you.
    Ron, do you believe that these rights-of-way issues are 
resolvable? Obviously, nobody wants transmission going through 
their neighborhood. But everybody wants to produce energy to 
put on transmission lines that are under-capacitized right now.
    Do you see that as an issue that can be resolved, and I'm 
not even proposing any route.
    Mr. Suppah. Yes, I do think that there are solutions, and I 
think that in the meeting coming up in Denver on the 24th, I 
hope that the tribal caucus can put together the position paper 
and statement on behalf of the Tribes.
    All the Tribes are different, though. And in Oregon's case, 
we're pretty lucky, because we have very amenable Tribes and 
they look for solutions versus being a problem. So, I think 
there are solutions out there.
    But in my testimony, and in the attachments, I believe that 
we've stated what we feel we need.
    Senator Smith. Very good. Well, thank you very much.
    We will turn now to Stan Watters.

      STATEMENT OF STAN WATTERS, PRESIDENT, PACIFIC POWER

    Mr. Watters. Good morning, Mr. Chairman. Thank you for the 
opportunity to speak before the Subcommittee today on renewable 
energy and its economic development benefits.
    My name is Stan Watters and I am the President of Pacific 
Power, which is part of PacifiCorp, an electric utility that 
serves in six Western states.
    We have approximately 1.6 million customers, including more 
than 525,000 in Oregon. PacifiCorp is a subsidiary of 
MidAmerican Energy Holdings Company, which is the largest 
utility developer of renewable energy projects in the country. 
More than 3,000 megawatts of MidAmerican's total capability, 
approximately 15 percent, currently comes from green energy 
sources.
    Senator Smith. How much is that?
    Mr. Watters. Fifteen percent.
    Senator Smith. Fifteen percent currently.
    Mr. Watters. Currently. PacifiCorp owns itself--owns or 
purchases or has under contract 1,704 megawatts of electricity 
from renewable sources.
    Last month we were pleased to announce the purchase of the 
100.5 megawatt Leaning Juniper wind farm in the Columbia Gorge, 
and this project should be online any day now.
    Leaning Juniper is a significant step in our commitment to 
develop an additional 400 megawatts of cost-effective new 
renewable energy by the end of 2007, and 1,400 megawatts by 
2015.
    We also consider hydropower to be a valuable, emission-free 
energy source. In fact, we were the first utility to benefit 
from the 2005 Energy Policy Act provision that gives utilities 
incentives for increasing efficiency that exists in hydro-
electric facilities.
    We are lucky to have locations within our service area with 
good wind resources and adequate transmission. However, most of 
these locations have already been developed and future 
developments will likely be more costly.
    It is both a benefit and a challenge that makes the areas 
with potential for high quality renewable energy development 
generally rural.
    On one hand residents tend to be more receptive to these 
developments and the new sources of income they tend to bring 
to the rural community.
    On one hand, resident property owners can receive annual 
rental payments of several thousand dollars per turbine, 
construction activity provides significant short-term benefits, 
and there are modest longer term employment opportunities.
    The local tax base also benefits. By the end of this decade 
some Columbia Gorge counties will have as much as 20 percent of 
their property taxes coming from wind farms.
    While rural economies may benefit, these locations tend to 
be far from electric load centers which requires substantial 
investment in electric transmission. It costs roughly $1 
million or more per mile to build new transmission lines.
    We believe that renewable energy is an important economic 
part of a diverse and balanced generation portfolio.
    Note that I said economic. While our investors make the 
funds available to construct renewable facilities, it is our 
customers who pay for what those facilities provide. And we owe 
it to our customers to make economic decisions.
    We know you have been a leader in encouraging Congress to 
adopt long-term extensions for the renewable production tax 
credits. These market-based incentives are the most effective 
and efficient way to increase the use of renewable resources.
    The most recent extension of the production tax credit led 
to an unprecedented boom in U.S. wind energy production. 
Unfortunately, this credit is due to expire at the end of next 
year, raising the possibility that renewable development will 
once again come to an abrupt halt.
    To facilitate a more economically-viable consumer-friendly 
renewable energy development policy, policies should be 
developed with increased financial certainty associated with 
renewable energy development.
    And this is the key point. We need a five-year extension of 
the production tax credit and a greater commitment by the 
regulators to ensure utilities can fully recover the cost of 
building projects and associated infrastructure.
    We also need to recognize that while renewable energy plays 
a role in meeting our future growth requirements, economics and 
geography require us to continue to develop environmentally 
responsible electric generation projects from all available 
energy sources, including fossil fuels.
    We should avoid the temptation to enact overly ambitious 
and arbitrary renewable portfolio standards that are not 
economically viable.
    In order to protect consumers, any RPS should be developed 
as a long range goal supported by reasonable incentives and 
sound regulatory policy, not a series of arbitrary short-term 
mile posts enforced by punitive penalties.
    Finally, we need to expand the Nation's transmission 
infrastructure by encouraging state cooperation in the approval 
of multi-state transmission corridors and by providing a clean 
means for recovering costs--a clear means for recovering costs.
    Senator Smith. And clean, yes?
    Mr. Watters. Yes. And clean. Over the next several years 
watch for PacifiCorp to set the pace for expanding renewable 
energy development in the Northwest.
    Thank you for your leadership in this area, and we look 
forward to working with you in the years to come.
    [The prepared statement of Mr. Watters follows:]

      Prepared Statement of Stan Watters, President, Pacific Power

    Good morning, Mr. Chairman. Thank you for the opportunity to speak 
before the Subcommittee today on the topic of renewable energy and its 
economic development benefits.
    My name is Stan Watters, and I am the President of Pacific Power, 
which is part of PacifiCorp, an electric utility serving six states in 
the Pacific Northwest and Rocky Mountain regions. We serve 
approximately 1.6 million customers, including more than 525,000 in 
Oregon. PacifiCorp is a subsidiary of MidAmerican Energy Holdings 
Company, the largest utility developer of renewable energy projects in 
the country.
    MidAmerican Energy Company, the other electric utility subsidiary 
of MidAmerican Energy Holdings Company, has 695.5 megawatts of wind 
energy facilities either in operation, under construction or under 
contract in Iowa.
    PacifiCorp owns, purchases or has under contract 1,704 megawatts of 
electricity from renewable sources--1,167 megawatts from hydroelectric; 
457 megawatts from wind; 29 megawatts from geothermal; and the 
remainder, 51 megawatts, from solar, biomass and biogas.
    MidAmerican subsidiaries also own and operate 10 geothermal energy 
plants in California and 2 in the Philippines, producing a combined 
capacity of nearly 700 megawatts of electricity from naturally 
occurring geothermal heat.
    More than 3,000 megawatts of MidAmerican Energy Holdings Company's 
total energy capability, approximately 15 percent, currently comes from 
green energy sources. Last month, PacifiCorp was pleased to announce 
that it purchased the 100.5 megawatt Leaning Juniper wind farm in the 
Columbia River Gorge in Gilliam County, Oregon. This project is 
virtually completed and should be online in the next week or two. On 
the other side of our system in Utah, PacifiCorp has also begun an 11 
megawatt expansion of the company's 26.1 megawatt Blundell geothermal 
energy plant. These transactions represent a significant step toward 
meeting PacifiCorp's commitment to develop an additional 400 megawatts 
of cost-effective new renewable energy by the end of 2007, and 1,400 
megawatts by 2015.
    Hydropower is also a valuable emissions-free energy source. 
PacifiCorp was the first utility to benefit from a provision in the 
Energy Policy Act of 2005 that provides utilities with incentives to 
make efficiency improvements or capacity additions to existing 
hydroelectric facilities. We qualified for those incentives as a result 
of work done that increased efficiency 2.6 percent at Unit 2 of our 
J.C. Boyle plant on the Klamath River in Southern Oregon.
    At PacifiCorp and throughout MidAmerican, we believe that renewable 
energy is an important, economic part of a diverse and balanced 
generation portfolio. Note that I said ``economic'' part of our 
portfolio. We can never lose sight of the fact that while our investors 
make the funds available to construct the renewable facilities, it is 
our customers who pay for the services provided by those facilities. 
And, we owe it to our customers to make economic decisions about the 
generation and energy efficiency resources that comprise our generation 
portfolio.
    In contrast to fossil-fueled generation where the utility chooses 
the location, renewable resources choose their own locations. 
PacifiCorp and MidAmerican Energy have been fortunate to have locations 
within their respective service areas that have good wind resources and 
adequate transmission. However, most of the economic locations have 
already been developed, and future developments will likely be more 
costly.
    It is both a benefit and a challenge that locations with high-
quality renewable energy development potential are generally located in 
rural areas. On one hand, residents of these areas tend to be more 
receptive to economic development and less inclined to invoke ``not in 
my back yard'' challenges to projects.
    These projects do tend to bring new sources of income to rural 
areas. Property owners can receive rental payments of several thousand 
dollars per turbine per year. There are also significant short-term 
benefits from the construction activity, and modest longer-term 
employment opportunities. And, the local tax base benefits. For 
example, Gilliam County should see a significant bump in property tax 
as a result of our new Leaning Juniper project. I've heard projections 
that by the end of this decade, some Columbia Gorge counties will have 
as much as 20 percent of their property taxes coming from wind farms.
    While the rural economies may benefit, it's also true that these 
locations tend to be far from electric load centers, requiring 
substantial investment in electric transmission. A rule of thumb for 
the transmission investment required to bring new capacity to market is 
approximately $1 million or more per mile of new transmission line 
needed. Through our Integrated Resource Planning process and ongoing 
regional dialogue--as well as planning upgrades to our system--we 
continue to work to address the integration issues that come with 
renewable development.
    For us, the issue of the economic deployment of renewable resources 
must remain front and center locally and nationally. Congress can help 
support the economics of renewables.
    We know you have been a leader in pushing Congress to adopt long-
term extensions of wind energy and other renewable production tax 
credits. These market-based incentives are the most effective and 
efficient means of increasing the deployment of renewable resources. 
The most recent extension of the Section 45 production tax credit 
provided in the Energy Policy Act of 2005 has led to an unprecedented 
boom in wind energy production in virtually every region of the 
country. Unfortunately, with the tax credit due to expire at the end of 
next year, project developers, turbine manufacturers and a host of 
other suppliers of materials and construction labor face the 
possibility that the industry will once again come to an abrupt halt.
    Going forward, renewable energy development needs to be placed in 
the larger context of coordinated energy, environmental and economic 
policies. To facilitate more economically viable, consumer-friendly 
renewable energy development, state and Federal governments should 
develop policies that:

        (1) Increase financial certainty associated with renewable 
        energy development through a five-year extension of the 
        production tax credit and a greater commitment by regulators to 
        ensure utilities can fully recover the costs of building 
        projects and associated infrastructure.

        (2) Recognize that while renewable energy plays a role in 
        meeting our future growth requirements, economics and geography 
        require us to continue to develop environmentally responsible 
        electric generation projects from all available energy sources, 
        including fossil fuels.

        (3) Avoid the temptation to enact overly ambitious and 
        arbitrary renewable portfolio standards that are not 
        economically viable. In order to protect consumers, any 
        renewable portfolio standard that Congress or the state choose 
        to enact should be developed as a long-range goal supported by 
        reasonable incentives and sound regulatory policy, not a series 
        of arbitrary, short-term mileposts enforced by punitive 
        penalties that do not serve to get any new resources deployed.

        (4) Promote expansion of the Nation's transmission 
        infrastructure by encouraging state cooperation in the approval 
        of multi-state transmission corridors and by providing a 
        definitive means for recovering costs of new transmission.

    Over the next several years, PacifiCorp looks forward to making 
historic strides to expand renewable energy development in the 
Northwest. We thank you for your leadership in this area and look 
forward to working with you in the years to come.

    Senator Smith. Well, thank you, Stan. So our audience 
understands further, I'll elaborate a little on what he was 
saying.
    In the Senate there was a real idealogical debate and 
conflict over whether you just mandate renewable portfolio 
standards or whether you incentivize through the tax code the 
development of what would qualify as renewable resources.
    My own voting, if anybody cares about it, it was to do 
both, to have a mandate, but then to provide the incentives to 
meet it. I was hoping that this dual track approach, which I 
think is the one that will get the best result with more 
winners, and fewer losers.
    Ultimately, we're all going to pay for the energy we use. 
We simply need to go that way and go there faster, and my view 
was a blending of the two ideologies was the best way to get 
there.
    Stan, I wonder, when evaluating coal versus nonemitting 
renewables, whether you factor carbon emissions into your 
resource planning?
    Mr. Watters. We do. In fact, we were the first utility in 
the country, I think, to put CO2 adder into our 
integrated resource plans, that when we are evaluating 
resources on what would be the least cost resources, that we do 
penalize CO2, burning fossil fuel generation.
    Senator Smith. That's commendable. What are the major 
challenges to integrating wind generation with other generating 
resources?
    Mr. Watters. Well, fortunately here in the Northwest, we 
have a lot of hydroelectric power, which enables us to 
integrate I think far more. I think the real challenge is----
    Senator Smith. What is your hydro portfolio?
    Mr. Watters. We are about 1,100 megawatts total.
    Senator Smith. And of your total energy, what portion does 
hydro represent?
    Mr. Watters. Hydro is about 15 percent.
    Senator Smith. 50?
    Mr. Watters. No, 12. It is right in that area. It is hard 
to keep track of that number, because we continue to grow and 
add additional resources.
    But to integrate wind, what's really important, of course, 
is the transmission infrastructure that's required.
    We do have a lot of constraints in the Northwest now, where 
historically we have not. The transmission system is, I don't 
want to say over-sold, but it is pretty close to its capacity. 
There are a few areas where additional generators can be 
brought in without adding significant infrastructure.
    I think the other is, when you are running an electrical 
system, you have to follow the loads of your customers, and 
your generators are generating power. And in order to follow 
wind, you need to use other generators to supplement that, 
because it is moving constantly up and down. And hydro 
resources are very good resources to do that, because they can 
move very quickly.
    Senator Smith. And it is just constant. When it is going, 
when you are turning the turbines.
    Mr. Watters. Right. But it's very variable, too, on the 
system. We have had situations with some of our wind farms, 
especially on hot days, where you don't get much generation out 
of them, and they can fluctuate.
    So, we need to be able to follow, what I say, follow the 
wind generation and provide--in providing reliable service to 
customers.
    Other types of resources that are difficult to move quickly 
to respond to that type of variability, such as large coal 
plants and others.
    So really the Northwest is in a good position to be a 
leader in the development of wind generation in the country. It 
has the right type of resources. But it will require additional 
transmission infrastructure to achieve even the goals that we 
have laid out for ourselves, even absent having a renewable 
portfolio standard.
    Senator Smith. One of the things I find as I talk energy 
around the state is that very few people understand that when 
you create electricity, you have to use it or you lose it. You 
can't store it, like you can water or something else. It's use 
or lose. And the wind doesn't always blow.
    Mr. Watters. Exactly.
    Senator Smith. And so that makes it going in and out of the 
transmission grid difficult at times to predict. And that's why 
you've got to have other sorts of energy facilities feeding in 
when the wind isn't blowing.
    So it's a juggling act you have to do, and I commend you 
for doing it.
    Mr. Watters. Thank you.
    Senator Smith. Mr. Simpkins.

     STATEMENT OF ERIC SIMPKINS, VICE PRESIDENT--BUSINESS 
                      DEVELOPMENT, IdaTech

    Mr. Simpkins. If we believe the theory that a good picture 
saves a thousand words, we can save a lot of my language with a 
power point presentation that I have brought today.
    Senator Smith. Good.
    Mr. Simpkins. If I could move to the podium. It's a hard 
copy so you're not tortured. It is double sided.
    Senator Smith. Yes.
    Mr. Simpkins. Mr. Chairman, I appreciate the opportunity to 
appear before you today and discuss economic and societal 
benefits of America's fuel cell technology. America's economic 
development is coupled with the use of renewable energy and the 
resulting beneficial societal impacts to energy independence 
and a clean environment.
    Beginning with his National Energy Policy Report in 2001, 
President Bush and Vice President Cheney have established a 
clear path for the Nation to achieve a clean, secure and 
affordable energy future to advance energy technology.
    He has launched initiatives with fuel cells in hydrogen, in 
applications including stationary, portable, and transportation 
applications. The pre-automotive market induction of stationary 
and portable fuel cell technologies will define the basis for 
transportation uses in years to come.
    As the President of our industry's trade association, the 
U.S. Fuel Cell Council, I can provide you with a description of 
fuel cells and their associated economic benefits, specifically 
for the Pacific Northwest.
    As a business development representative from Oregon's 
largest and most commercially advanced fuel cell company, I can 
provide insight with respect to IdaTech's fuel cell systems and 
the pathway for their market adoption and widespread use 
throughout the country.
    IdaTech is a high tech growth business headquartered in 
Central Oregon. The company develops fuel cell systems for a 
range of customers, including military, telecommunication 
markets, remote applications, and specialty interests.
    To familiarize you with fuel cells I will briefly describe 
three systems that currently serve these applications.
    IdaTech's ElectraGen family of backup power systems 
includes, pictured here, three kilowatt and five kilowatt power 
plants. The ElectraGen family is being evaluated and deployed 
by the telecommunications community in Europe and the U.S. and 
the utility community in Europe. There are two versions of 
this. One pictured here that's fueled with bottled hydrogen, 
and another version, the ElectraGen extended run module, or 
XTR, which is fueled with a liquid fuel that generates hydrogen 
internally through electric generation.
    This system can be fueled therefore with bio-methanol or 
other renewable feed stocks for powering, for example, an 
airport tug at PDX, or for a telecommunications tower sited 
deep in the Cascades.
    Fuel cells can operate with a number of renewable and 
conventional fuels. As with any fuel, their emissions are clean 
water and usable heat.
    Shown here is a comparison of the equivalent amount of 
renewable fuel, in this case, bio-ethanol, derived from wood 
waste. With bottled hydrogen for 48 hours of operation of a 
five kilowatt ElectraGen backup power system, using the 
extended run module for long-term operation.
    Fuel cells can be integrated with other renewable resources 
such as photovoltaic panels. That's a tough one. Remote 
applications where utility wires are not often portable.
    Several IdaTech 1 kilowatt hybrid solar/fuel cell systems 
are powering farms in southern France too remote for service 
from the electric grid.
    Renewable fuels typically associated with fuel cells 
include bio-methanol, cellulosic ethanol, bio-diesel and 
synthetic fuels.
    The benefits of fuel cell systems are compelling. They are 
environmentally benign. The fast growth fuel cell industry is 
generating jobs, with excellent wages.
    For example, IdaTech has grown from a three-person garage 
shop start-up 10 years ago to a 68 employee technology business 
working in a 45,000 square foot facility.
    IdaTech procures over $700,000 in materials and services in 
Oregon and nearly double that figure in the Pacific Northwest 
Region. IdaTech contributes over $13 million to the region in 
salary, benefits and indirect dollars.
    Fuel cells replace conventional power generation systems 
that pollute the air and pose a toxic waste disposal issue. 
Fuel cells are a technology that do not require petroleum fuels 
for power generation.
    As with any new power technology, fuel cells benefit from 
incentives to aid in market introduction. The Federal 
Government has established an investment tax credit for which 
you were instrumental in securing Senate passage. Thank you.
    The Energy Policy Act of 2005 authorized a market 
transition program where the governments would use fuel cells 
in new and renovated Federal buildings. These incentives are 
important.
    However, state incentives will hasten regional market 
introduction. IdaTech qualifies for the Oregon Business Tax 
Credit, 35 percent R&D credit, and the 35 percent tax credit 
for acquisition and installation of a fuel cell system to the 
owner.
    But the immediate need is for assistance in conducting fuel 
demonstrations to expose future power users to on-site fuel 
cell power generation.
    Currently there's no mechanism for funding these 
demonstrations. Government policy embracing renewal fuel cell 
power generation, coupled with financial support from early 
demonstrations in the Pacific Northwest would be especially 
helpful.
    Therefore, in anticipation of future market exceptions to 
fuel cells, there is a developing effort within the Western 
States contracting alliance for the identification of qualified 
fuel cell vendors. IdaTech has applied for this, and for 
establishing a standard purchase contract similar to the 
Federal GSA Schedule.
    At last, beyond the advantages of environmentally clean and 
affordable on-site power generation, the fuel cell industry 
benefits state and national energy policies.
    The technology reduces dependence on foreign oil. It gives 
utility systems another tool in their portfolio of power 
generation solutions. Fuel cells are environmentally clean and 
contribute to the growth of Oregon's green energy cluster.
    Thank you, Mr. Chairman, for the opportunity to provide 
testimony and thank you for your leadership in the energy area.
    [The prepared statement of Mr. Simpkins follows:]

     Prepared Statement of Eric Simpkins, Vice President--Business 
                          Development, IdaTech

    Mr. Chairman, I appreciate the opportunity to appear before you 
today to discuss the economic and societal benefits of America's fuel 
cell technologies.
    America's economic development is coupled with the use of renewable 
energy and the resulting beneficial societal impacts to energy 
independence and a clean environment. Beginning with his National 
Energy Policy Report in 2001, President Bush has established a clear 
path for our Nation to achieve a clean, secure and affordable energy 
future through advances in technology. He has launched initiatives with 
Fuel Cells and Hydrogen in applications including stationary, portable 
and transportation uses. The pre-automotive market introduction of 
stationary and portable fuel cell technologies will define the basis 
for transportation uses in the years to come.
    As the President of our industry's trade association, the U.S. Fuel 
Cell Council, I can provide you with a description of fuel cells and 
their associated economic development benefits specifically for the 
Pacific Northwest. As the Business Development representative from 
Oregon's largest and most commercially advanced fuel cell company, I 
can provide insight with respect to IdaTech's fuel cell systems and the 
pathway for their market adoption and widespread use throughout the 
country.
    IdaTech is a high technology growth business headquartered in 
central Oregon. The company develops fuel cell systems for a range of 
customers including the military, telecommunications markets, remote 
applications and speciality interests. I will briefly describe three 
systems that serve these applications.
    IdaTech's ElectraGenTM family of backup power systems 
includes 3 kilowatt and 5 kilowatt plants. The ElectraGenTM 
family is being evaluated and deployed by the telecommunications 
community in Europe and the U.S. There are two versions--one pictured 
here that is fueled with bottled hydrogen, and an 
ElectraGenTM XTR module fueled with a packaged liquid fuel 
that generates hydrogen internally for electricity generation. This 
system can be fueled with biomethanol, or other renewable feedstocks 
for powering, for example, an airport tug at PDX, or for a 
telecommunications tower site deep in the Cascades.
    Fuel cells can operate with a number of renewable and conventional 
fuels. With any fuel, their emissions are clean water and usable heat. 
Shown here is a comparison of the equivalent amount of a renewable 
fuel, in this case biomethanol derived from wood waste, with bottled 
hydrogen for 48 hours of operation of a 5 kW IdaTech 
ElectraGenTM Backup Power System with an 

ElectraGenTM XTR Module for long-term operation.
    Fuel cells can be integrated with other renewable sources, such as 
photovoltaic panels, for remote applications where utility wires are 
not affordable. Several IdaTech 1 kilowatt hybrid solar/fuel cell 
systems are powering farms in southern France too remote for service 
from the electric grid. Renewables fuels typically associated with fuel 
cells include biomethanol, ethanol, biodiesel, and synthetic fuels.
    The benefits of fuel cells are compelling. They are environmentally 
benign. The fast growth fuel cell industry is generating jobs with 
excellent wages. For example, IdaTech has grown from a 3 person garage 
shop start-up to a 68 employee technology business working in a 45,000 
square foot facility. IdaTech procures over $700,000 in materials and 
services in Oregon, and nearly double that figure in the Pacific NW 
region. IdaTech contributes over $13,000,000 to the region in salary, 
benefits and indirect dollars.
    Fuel cells replace conventional power generation systems that 
pollute the air, and pose a toxic waste disposal issue. Fuel cells are 
a technology that does not require petroleum fuels for power 
generation.
    As with any new power technology, fuel cells benefit from 
incentives to aid in market introduction. The Federal Government has 
established an Investment Tax Credit for which Chairman Smith was 
instrumental in securing Senate passage. The Energy Policy Act of 2005 
authorized a market transition program wherein the government would use 
fuel cells in new and renovated Federal buildings. These incentives are 
important, however state incentives will hasten regional market 
introduction. IdaTech qualifies for the Oregon Business Energy Tax 
Credit, a 35 percent Research & Development credit, and a 35 percent 
tax credit for the acquisition and installation of a fuel cell system. 
But the immediate need is for assistance in conducting field 
demonstrations to expose future power users to on-site fuel cell power. 
Currently there is no mechanism for funding field demonstrations. In 
anticipation of future market acceptance of fuel cells, there is a 
developing effort within the Western States Contracting Alliance for 
the identification of qualified fuel cell vendors, and for establishing 
a standard purchase contract similar to the Federal GSA Schedule.
    And last, beyond the advantages of environmentally clean and 
affordable on-site power generation, the fuel cell industry benefits 
state and national energy policies. The technology reduces dependence 
on foreign oil. It gives utility systems another tool in their 
portfolio of power generation solutions. Fuel cells are environmentally 
clean, and contribute to the growth of Oregon's Green Energy Cluster.
    Thank you, Mr Chairman, for the opportunity to provide this 
testimony. I will be happy to answer questions on this subject.

    Senator Smith. Thank you, Eric. What's the life of a fuel 
cell?
    Mr. Simpkins. The market requires the life of a fuel cell 
to--as a fully integrated system, to be about five years, for 
small, portable----
    Senator Smith. Any disposal issues with them?
    Mr. Simpkins. There is no disposal. We are able to reclaim 
most of the materials. Today we're not at that market 
introduction point. We have a lifetime of about 10,000 hours, 
or a little over a year-and-a-half.
    Senator Smith. It is my understanding that the 
telecommunications industry is using these fairly extensively. 
Is that correct, and if so, why?
    Mr. Simpkins. The telecommunications industry has the most 
difficult certification requirements for on-site power systems, 
particularly the remote ones. They just can't afford failure.
    Senator Smith. I See.
    Mr. Simpkins. Battery systems, small internal combustion 
engines, require a great deal of maintenance, and they are 
expensive to maintain.
    Fuel cells don't require maintenance. We change an air 
filter or a water filter occasionally. We change a fuel cell 
stack, that's the cap that generates the electricity, once 
every couple to three years.
    Senator Smith. You heard us talking around the whole issue 
of transmission, congestion, and the grid. It is one of the 
bottlenecks that we've got to get around as we bring on all 
these new energy sources.
    But do you see fuel cells as being one of the solutions to 
those bottlenecks?
    Mr. Simpkins. Fuel cells is one of the solutions. The 
Director of the National Energy Technology Laboratory at one 
time said that ``if we use all of the technologies that are 
available everywhere, including nuclear, we will not meet the 
power demands of this planet in the year 2020.''
    So, fuel cells can be a component of that. A couple 
benefits are, they can be sited anywhere, particularly at the 
load, and they are very clean.
    Senator Smith. That's very helpful, and we thank you for 
what you're doing.
    We'll now turn to Scott Spettel. Thank you. Welcome.

   STATEMENT OF SCOTT SPETTEL, POWER MANAGEMENT AND PLANNING 
            MANAGER, EUGENE WATER AND ELECTRIC BOARD

    Mr. Spettel. Thank you, Mr. Chairman. I am the Power 
Management and Planning Manager for the Eugene Water and 
Electric Board. EWEB is pleased to be a partner with U of O in 
developing such a terrific building that we are in.
    I would note that we are purchasing the output of the 
photovoltaic panels that are embedded within this building.
    Senator Smith. They are attractive, too.
    Mr. Spettel. Yes, they are. In my testimony I would like to 
share EWEB's experience and insights into policy issues, such 
as Congressional funding for their renewable energy production 
incentive, REPI. That's the municipality equivalent of the 
production tax credit.
    I would stress the importance of extending the production 
tax credit, especially over a sufficient planning horizon so 
that developers can count on that being there as they're 
planning to bring their projects into fruition.
    I would also like to touch on constraints of EWEB's use of 
clean energy renewable bonds, CREBs, as well as suggest some 
possible goals for the Bonneville Power Administration to take, 
or to continue taking in the area of renewable resource 
development and economic development.
    I'd like to say the lights in this room are brought to you 
through EWEB's renewable energy portfolio.
    We have hydro-electric projects, not only locally along the 
McKenzie River, but one as far away as Boundary County, Idaho. 
We own 21 percent of the Foote Creek Rim wind project located 
at Carbon County, Wyoming. We are partners with Stan. I've 
learned more about transmission with that project than I care 
to think about.
    We also own a high-efficiency co-generation unit, located 
at the Weyerhaeuser container board facility in Springfield, 
and a similar unit that we share with the Clatskanie PUD 
located in Wauna, Oregon.
    Those two units have really stressed to me the importance 
of increased efficiency at these industrial facilities to 
maintain their competitiveness in Oregon.
    I would like to add we are purchasing about 150 KW of solar 
photovoltaics located in five different areas within our 
service area.
    Senator Smith. Those are just out in the field somewhere?
    Mr. Spettel. You will see some on rooftops of various 
buildings. So they are primarily on rooftops of commercial 
customers.
    Senator Smith. How much does their output fall when the 
sun's not shining in Eugene?
    Mr. Spettel. Well, we have sponsored----
    Senator Smith. I know it always shines here.
    Mr. Spettel. Surprisingly, it maintains fairly good output 
even on the cloudy days.
    I was surprised to find out through our solar monitoring 
program that we have with the U of O physics department that 
solar installation in Eugene is quite comparable to some areas 
that we think of being quite sunny in the Nation.
    Senator Smith. I'm asking this for my own information, and 
perhaps some in the audience, but when you go from a sunny to a 
cloudy day, what is the drop in the electricity?
    Mr. Spettel. I'd have to check the details. I'm afraid I 
can't throw out a number.
    Senator Smith. But it still works. We've got a hand up in 
the audience. Maybe he can educate us.
    Mr. Maynard. I am Bob Maynard with Energy Outfitters.
    We have been working with photovoltaics for over 20 years 
in Oregon.
    The best way, our tests and the best way to explain it in 
good simple terms is, if a bright, sunny day with perfect blue 
sky is a hundred percent output, a day with a very, very thin 
layer of gray overcast, but it's still bright enough outside to 
see a hazy outline of your shadow and maybe even cause you to 
squint, is approximately 50 percent output. A heavy gray 
overcast day, we're down to the neighborhood of about 10 
percent output. And on a really dark, stormy day, there's 
enough energy there typically to turn on the lights and the 
controls of the power electrodes but not really generate power.
    Senator Smith. That's very helpful. I appreciate very much 
you sharing that with me. That's sort of what I expected it to 
be. But you've confirmed what my expectations were. Thank you.
    Go right ahead.
    Mr. Spettel. Over the past 15 years, EWEB Board of 
Commissioners last directed staff to continually acquire the 
output of renewable resources. This is not only because they 
are less impactful to the natural environment but it helps 
produce a diverse power supply for utility as well as hedge 
price volatility that characterizes alternative sources of 
power supply available in the wholesale market.
    Therefore, renewable resource acquisition is more than just 
a concept of we do it to meet load growth. It is really a 
larger endeavor to diversify our entire resource portfolio.
    I'll say a few comments about some specific projects.
    One, our first experience with wind power was the Foote 
Creek Rim Project in Wyoming, right in the heart of coal 
country. As a municipal owner of that facility, we are eligible 
for and have been receiving payments through the renewable 
energy production incentive.
    However, that program must be appropriated periodically by 
Congress, and right now we're a little short. So, in terms of 
really counting on that money being there, it's difficult for 
us to really rely on that when we evaluate the economics of a 
wind project, because it may be there, it may not be there. We 
might be coming back and asking for some help in appropriating 
sufficient funds to fully fund that program.
    As part of our experience with that wind project, we 
developed a retail wind power power marketing program. That 
gives interested customers the option of purchasing the wind 
power commensurate with the output of that facility and paying 
the cost of that facility, so as power prices go up and down, 
due to various regions, and if you were in that program, your 
price stays at the price of that renewable energy project.
    I'd also note that we sell green tags to the University of 
Oregon's Earp Memorial Union. So after the hearing, if you have 
a cup of coffee, that cup of coffee was brewed with 
environmentally sound power.
    Senator Smith. If I was not a Mormon, I would have one with 
you. But I encourage you to drink mine.
    Mr. Spettel. Stateline Windpower Project, on the Oregon-
Washington border, that was our second bite of wind power.
    Because of our concerns with the REPI, we chose to 
structure this as an output purchased from a private developer 
that could lock in the benefits of the production tax credit 
and again these developers are telling us they need not only a 
two-year planning horizon where that leads to boom and bust 
cycles in resource development, but they'd like to see that 
extended on a five-year basis so they can rely on those tax 
credits and fold them into their business plan.
    That project also highlighted that wind is intermittent, 
and not only from hour-to-hour but from within the hour.
    We'd like to applaud the efforts of the Bonneville Power 
Administration to continue investigating sound and economic 
ways to use the region's resources to integrate the output of 
intermittent renewable resources.
    Senator Smith. We're leaning on them to do that, too, and 
they've been responsive.
    Mr. Spettel. Yes, they have. I'm quite impressed. I would 
also like to stress the importance of maintaining the operating 
flexibility in the region's hydro system, including some of our 
own projects, one that is going through relicensing currently. 
If we lose the ability to move that project on a minute-by-
minute, hour-by-hour basis, we'll lose the ability to integrate 
additional increments of wind power.
    Senator Smith. OK.
    Mr. Spettel. The Tieton Hydroelectric Project. It is under 
commercial test and it should be online by the end of the 
month.
    Again, the developer is having some--reports they are 
having difficulty monetizing the production tax credit 
benefits.
    It's a very small operation, family run business that is 
really the developer, and they don't have the tax appetite for 
the PTC. They need to sell that or transfer that to some larger 
financial institution. And for some of these smaller projects, 
that's just a difficult step to take.
    A quick word about the Bonneville Power Administration's 
new large single load green exemption program. That's a program 
whereby if a large industry in the region that currently is not 
eligible to be served with Bonneville Power, if they meet all 
but 10 megawatts of their load with on-site cogeneration or 
qualifying renewable energy, then they are eligible to get 10 
megawatts of low-cost power from the Bonneville Power 
Administration.
    We're working with the Emerald People's Utility District, 
one of their customers, Pope & Talbot, and BPA, to allow Pope & 
Talbot to take advantage of that program.
    And if we are successful before that program expires in 
December of this year, then that will be a significant economic 
development boon to that industry that's operating in a very 
competitive market.
    Two other resources. We have just completed negotiating a 
contract for a third increment of wind power, and that's the 
Klondike III ProjeCt located in Sherman County, Oregon. We 
considered the use of clean energy renewable bonds, if we were 
to own that project, but basically because we have competing 
needs for a balance sheet, even though those come at an 
attractive interest rate, we simply had difficulty folding them 
into our overall portfolio, given the other bonding needs that 
the utility was facing.
    Senator Smith. It sounds like they are doing it anyway, 
though.
    Mr. Spettel. So we went through a purchased power----
    Senator Smith. Not the bonding, but you're providing the 
renewables----
    Mr. Spettel. We are relying on the production tax credit 
and a private developer to bring that project to us.
    Geothermal. As some of you know, we at EWEB were active in 
the mid-1990s with a private company exploring for geothermal 
at the Newberry Crater location in Central Oregon. That effort 
did not produce evidence that a commercial geothermal project 
could be brought online.
    Senator Smith. Is that because the volume wasn't 
sufficient?
    Mr. Spettel. Well, there are two things you need. You need 
heat and you need fluid to transfer that heat. And while the 
geothermal industry is interesting, they are very proprietary 
about the results of their exploration. I think it is fair to 
say that they found one but not the other in their exploration.
    Senator Smith. They found the heat but not the water.
    Mr. Spettel. Yes. Indeed. Which is unusual for the 
Northwest. I would have thought it would have been the other 
way around.
    Senator Smith. Kind of like the Senate.
    Mr. Spettel. In the alternative, EWEB is underway in 
negotiating a contract to purchase output from the proposed 
Raft River Geothermal Project located in southeastern Idaho.
    We would not be able to do that without the assistance of 
BPA who has offered to exchange power. BPA has loads in Idaho, 
and if we earmark the output from that geothermal project for 
use in Idaho, they'll deliver us a commensurate amount at Grand 
Coulee or here on the west side.
    Finally, what does it take to really bring on the 
quantities of renewable energy that we're talking about?
    In real estate, it is location, location, location. And 
here it is transmission, transmission, transmission.
    I'm not just talking about major lines from the areas such 
as Montana and Wyoming that have a lot of potential, but even 
here in the I-5 corridor. I think of it as being similar to the 
in-state highway system built in the 1950s and 1960s, kind of 
running out of steam, it needs some attention.
    And that is going to be the constraint that we're facing 
over the next 10 to 15 years, and I'm hopeful that the 
Bonneville Power Administration will have access to sufficient 
financing to maintain and improve that system.
    Senator Smith. Well, you might have read, if you follow 
these issues, one of the fights we've had with the Bush 
Administration and the Clinton Administration, is sufficient 
bonding authority for BPA to add to transmission capacity.
    Mr. Spettel. Right.
    Senator Smith. Somebody mentioned the number, it's like a 
million dollars a mile to put these lines in. And nobody wants 
transmission lines near them. I understand that. Shoot, I live 
in eastern Oregon. I've got wind mills all around me. And I'm a 
big proponent of wheat and wind. That's how my neighbors stay 
in business.
    But almost with everything we do with energy, there is some 
environmental offset, and there is an inconvenience in terms of 
transmission lines.
    And I don't think they are attractive at all. I understand 
the resistance. I certainly understand the feelings of the 
Tribe, they don't want them running through their reservation, 
and I respect that.
    But the whole ``not in my backyard'' approach is proving 
very problematic. And your point is exactly right. We've got a 
1950s highway system and we've never updated it.
    Yet our economy can't grow without energy. It's just that 
simple. Our economy also needs to grow with the right kinds of 
energy. And the big bottleneck we're running into is getting 
the dollars, getting the investments through bonding, through 
BPA, so that the Northwest can have a modern system to transmit 
this electricity.
    Frankly, the California crisis of a few summers ago was in 
part, largely triggered by transmission congestion. The system 
just got overloaded, burnt up, and California went black. Then 
there wasn't enough electricity being generated behind that, 
and it's just simply an antiquated system. I just tell you this 
for your own information. It is something that we are 
struggling with, trying to get it right, so we can keep your 
lights on and do so at affordable rates.
    But, Scott, one of the things I want to say publicly, is 
what a pleasure it has been for me over the last 10 years to 
work with EWEB. You guys are great. I appreciate your efforts 
to get in there and rough it up with the big boys and stay 
competitive and get your part of BPA power. And I admire what 
is obviously your effort to expand a renewable portfolio. As 
you talked about, you offer green energy as well.
    Mr. Spettel. Right.
    Senator Smith. How much more is that to an average 
ratepayer?
    Mr. Spettel. At the moment, our wind power program is 
commensurate with the middle tier of our retail residential 
rate. So, it's not much more at all.
    Senator Smith. OK. Do you envision the day, as I do, that 
there won't be a difference between green and other power?
    Mr. Spettel. Absolutely. I think in the future, that the 
green technologies will be setting the market.
    Senator Smith. Frankly, I share this view with you. We just 
have to get renewables to a volume where the volume creates 
economies of scale that create an ability to price green, the 
same as you would any fossil energy.
    And we're not there. But we're pushing hard to get there, 
with mandates and incentives. So, thanks, Scott.
    Senator Smith. Now I want to brag on Dr. von Jouanne, who 
dazzled me, with the tour she gave me at OSU on wave energy. 
And I've got to tell you, if you want renewables and you want 
to see the future of this great emerging category, Dr. von 
Jouanne is leading some smart students and producing some 
remarkable technologies. We now need to commercialize this so 
that we can get them sited in places where it's not harmful to 
fish and that produces gobs of electricity.
    Did I give your speech?

        STATEMENT OF DR. ANNETTE von JOUANNE, PROFESSOR,

          ELECTRICAL ENGINEERING AND COMPUTER SCIENCE,

                    OREGON STATE UNIVERSITY

    Dr. von Jouanne. Well, thank you very much, Senator. It is 
indeed an honor to share with you about wave energy, and also 
specifically about the economic development opportunities in 
this very emerging renewable industry.
    And just a reminder, when we talk about wave energy, we're 
talking about harnessing the energy in that linear motion of 
the wave and converting that into electrical energy.
    And wave energy has some significant advantages, very 
untapped advantages in that if we look at energy density, you 
look at the density of water compared to air, it's over 800 
times greater. Also if you look at availability and also 
predictability.
    So, significant advantages that I can go into more detail 
on.
    Senator Smith. Waves don't stop happening even when the 
wind stops blowing?
    Dr. von Jouanne. It's definitely a much more consistent 
resource. It is a seasonal resource, but we have a tremendous 
wave energy climate off the Oregon coast.
    Senator Smith. Describe the seasonality for the audience.
    Dr. von Jouanne. Absolutely. So, if we think about waves in 
the winter, they average about 3.5 meters, and in the summer 
they average about 1.5 meters.
    Now, if we convert that into raw energy, the energy 
available in the winter waves is equivalent to about 50 
kilowatt per meter of crest length. An average coastal home is 
about 1.3 kilowatt. So that 50 kilowatt per meter of crest 
length traveling toward shore already has a tremendous wave 
energy potential.
    And if you look at an overall average, and we look at 
between 10 kilowatt in the summer months and 50 kilowatt in the 
winter months, an overall average might be about 30 kilowatt 
per meter of crest length coming toward you, coming towards the 
shore.
    We have an Oregon coast line of about 460 kilometers. That 
is equivalent to an average of about 13,800 megawatt of raw 
energy. Our average electricity consumption in the state is 
about 5,000 to 6,000 megawatt. So that 13,000 megawatt of raw 
energy off the Oregon coast could make a substantial impact on 
our renewable energy portfolio.
    Senator Smith. But obviously you can't put them along the 
whole coast.
    Dr. von Jouanne. That's right.
    Senator Smith. Would you describe for the folks here what 
you have told me about what are the environmental trade-offs 
with wave energy in terms of fish?
    Dr. von Jouanne. So when we talk about a wave park, we talk 
about an array of buoys that would be located about one to 
three miles off the coast and in about 100 feet of water or 
greater.
    And this is, because we want to capture that energy before 
those waves start to crest. And these would be buoys that would 
be spaced by about 100 meters, and the first proposed 
commercial wave park is being developed for about a 20 megawatt 
site, and this is what we are looking at off of the Reedsport/
Gardener area, and that site would be about 3 miles that would 
be parallel to the coast by about 3,000 feet. So----
    Senator Smith. And you are out a mile, as well?
    Dr. von Jouanne. Yes.
    Senator Smith. So you won't see the buoys.
    Dr. von Jouanne. That is right. They would be virtually 
invisible to the naked eye from the shore, which is a very 
important aspect for Oregonians.
    And let me add, we are working very closely with the Oregon 
fishing and crabbing communities, as well as about 40 agencies 
which are being coordinated by the Oregon Department of Energy.
    This has been a tremendous collaboration of utilities, and 
state agencies, in order to very responsibly look at wave 
energy development off the Oregon coast.
    And we have some really strategic advantages here in Oregon 
which set us in a very good position to be a leader in the 
world as well as the Nation for wave energy research, 
development, and production.
    So the advantages that we have are, first off, strategic 
facilities such as at Oregon State University. Our energy 
systems lab is the highest power energy systems lab of any 
university in the Nation. We are already doing a lot of 
renewables work, as you saw. We are able to fully regenerate 
back onto the grid. And that enables us to really 
comprehensively research and test renewable technologies.
    Then we have the O.H. Hinsdale Wave Research Lab, which is 
one of the largest systems of wave basins in the world.
    We then have the Hatfield Marine Science Center there at 
Newport, and tremendous potentials off the Oregon coast.
    You think about how waves develop. Waves are really a 
concentrated form of solar energy in that the uneven heating of 
the Earth's surface creates the wind and the wind generates the 
waves. And we have those waves building up all the way across 
the Pacific, and that's why our wave resource is so much 
stronger here on the West Coast than it is on the East Coast.
    In addition to enabling the Nation's first commercial wave 
parks, we are working to establish a national wave energy 
research and demonstration center with the research 
headquartered at Oregon State and with demonstrations off of 
Newport, Oregon. And we are very excited about those 
opportunities.
    And specifically today, I'd like to discuss the wonderful 
economic development opportunities.
    So, if you might recall that the 2005 Oregon legislature 
created the Oregon Innovation Council, Oregon, Inc., to enhance 
the state's capacity for innovation, technology development and 
production.
    With wave energy, we have fortunately risen to the top as 
an economic development opportunity for Oregon, based on 
potential for high growth and high wages, and for Oregon to be 
a leader in global markets.
    Oregon, Inc.'s Commercialized Research Committee has 
identified clean energy, including wave energy, as a key part 
of a new signature research center and the Council is now 
developing its innovation plan to present to the 2007 
legislature to maximize the potential of this emerging 
industry.
    So, with the explosive growth of the industry on the 
horizon, really hundreds of jobs could be created in the next 
10 years to support the fabrication and services of wave energy 
projects in Oregon. And also to support the export of equipment 
to other countries.
    Wave energy will add many high paying jobs to the local 
coastal economy with the new needs in permitting, professional 
services, manufacturing, final assembly and operations and 
maintenance.
    Wave energy will also provide significant opportunities for 
the creation of new businesses here in Oregon.
    The most significant barrier to wave energy development is 
the above-market cost of the electricity. Due to the early 
stage of this industry, the current cost of electricity 
production from waves is estimated to be severaltimes the 
market price, similar to where wind was when it was emerging 
about 20 years ago.
    Senator Smith. Say that again, how much does its cost?
    Dr. von Jouanne. OK. So, if we look at cost specifics, we 
are looking at wind with subsidies at about 4 cents a kilowatt 
hour.
    Wave energy right now is coming in at about 20 to 30 cents 
a kilowatt hour, based on the type of technology. We at Oregon 
State University are trying to drive what's called these direct 
drive concepts, where we directly convert the linear motion of 
the wave into electrical energy, avoiding hydraulics and 
pneumatics. So we hope that also with volume, that we will be 
able to bring that cost down.
    So, to ensure wave developers are attracted to Oregon, we 
need to establish a production incentive that will offset the 
above-market costs of producing wave generated electricity.
    The production incentive mechanism would be tiered over the 
next 10 years to track the reduced cost of production. 
Discussions addressing these barriers and also finding 
solutions are under way at the state level through the Oregon, 
Inc. process. However, at the Federal level, it is critical 
that wave energy receive a similar incentive mechanism to the 
production tax credits that the wind industry receives. And 
assistance in this effort is greatly appreciated.
    Senator Smith. I can help.
    Dr. von Jouanne. Thank you. So, again, Oregon is really 
poised to lead the Nation and the world in wave energy 
research, development, and production. We have the wave 
resource, the expertise through a lot of tremendous 
collaboration, from utilities, the industries, the community, 
the crabbing and fishing industry, and we also have a 
tremendous utility infrastructure along the coast.
    Senator Smith. So you don't have a transmission issue.
    Dr. von Jouanne. We don't have a transmission issue, which 
is very, very fortunate.
    PGE has estimated that we could input about 2,000 megawatts 
of electric energy from the coast without having to develop 
additional transmission infrastructure. That puts Oregon again 
really poised to be a leader in the Nation, in the world in 
this area.
    Senator Smith. If we get this up to sufficient volume and 
by your using the linear motion as opposed to hydraulics and 
other types of wave energy machines, how close do you think you 
can get to the wind energy cost?
    Dr. von Jouanne. Very close. In fact because of the 
advantages that we talked about, energy density, availability; 
when you talk about availability----
    Senator Smith. And constancy.
    Dr. von Jouanne. Yes. You look at the numbers, and the 
availability of wave energy, that is how often are the waves 
rolling compared to how often is the wind blowing. Wave energy 
availability is about 80 to 90 percent.
    Wind energy is about 35 to 45 percent, depending on 
location.
    And we are very strong supporters of wind energy and solar 
energy, and we are looking at the opportunities for combining 
wave energy into our natural resource.
    Also the predictability. We have buoys out there 200 miles, 
and they are telling us the wave climate, what the wave 
magnitudes and periods are. Those waves differ very little from 
200 miles off to a few miles off where these wave parks would 
be located.
    So, we would have about 10-plus hours of forecast time to 
be able to tell the grid what a wave park would be putting on.
    Senator Smith. Are those buoys the same ones we have out 
there for tsunami protection?
    Dr. von Jouanne. Those buoys, they would have similar 
characteristics as far as coatings and protection and moorings, 
but these devices would be much larger.
    Senator Smith. These are different buoys?
    Dr. von Jouanne. Yes. Those ocean monitoring buoys would be 
giving us the information we would need----
    Senator Smith. So they would be tied to your system. They 
are not existing buoys----
    Dr. von Jouanne. We have existing buoys out there----
    Senator Smith. Is that what you would look at for the 
information?
    Dr. von Jouanne. Right. We would work together with NOAA in 
order to develop a very reliable system in order to be passing 
on the information of what the wave climate is.
    Senator Smith. What are the environmental impacts? You 
mentioned them to me when I asked at OSU. But as I recall the 
conversation, you said the only environmental impact might be 
the magnetism that's created will attract fish. Would you net 
around them, or what would be the impact to the fish?
    Dr. von Jouanne. So, that is one of the environmental 
impacts, is that these buoys, they are 
electromechanicaldevices. They generate electromagnetic fields, 
and marine life is attracted to electromagnetic fields.
    We are able to shield these buoys, as we do other 
electromagnetic systems, and that's all a function of cost. So, 
we really need to do research to determine how much do we need 
to shield these.
    Senator Smith. So you're not going to be electrocuting 
fish?
    Dr. von Jouanne. No, not at all. So, you may be familiar, 
there are actually books on how to fish with electromagnetic 
fields.
    Senator Smith. So unlike ODF, which electrocutes all the 
hatchery salmon, you don't do that?
    Dr. von Jouanne. No.
    Senator Smith. OK. So, technologically, we can get around 
this issue.
    Dr. von Jouanne. Absolutely, yes.
    Senator Smith. And it won't drive the fish crazy.
    Dr. von Jouanne. Right. And they have done studies that 
fish learn. At first it is something that they are very curious 
about, and then they learn, okay, there is a field there, and 
they go on their way.
    However, we do want to ensure that we don't disrupt the 
marine life patterns, and so we want to do the proper research 
and how much we need to shield.
    Senator Smith. Are you working with utilities or companies 
to commercialize this?
    Dr. von Jouanne. Yes, we are.
    Senator Smith. I mean, is OSU going to be the investor, are 
you going to get a return on this, or will it be the companies, 
or both of you?
    Dr. von Jouanne. We have investor companies that have 
contacted us because they are very interested in our direct 
drive technologies.
    We also have military that have contacted us. Navy, in 
particular, is very interested in implementing our direct drive 
technologies. So, we are working with a variety of different 
entities.
    We are also currently building a very large linear test bed 
in our lab in order to create that relative motion that you 
find in the waves right there in a dry setting in the lab.
    And that's right now one of our big research efforts, and 
that would really enhance our capabilities to show the nation a 
national wave energy center needs to be located somewhere in 
the U.S., and at OSU and the State of Oregon is an ideal 
location for that.
    We really do need to keep pace with what's happening around 
the country--really, the world, in that the European Marine 
Energy Center was formed a couple years ago, and for us to 
ensure that the market is here in the U.S., we don't want the 
same thing to happen that happened in the wind industry, that 
it is all taken into the European market. We want the wave 
energy market to be here in the U.S.
    Senator Smith. Are the Europeans ahead of us at this point?
    Dr. von Jouanne. Yes, they are, because of the Federal 
subsidies, just as they were in wind. And if you look at the 
statistics, wind is a $60 billion industry, and Denmark who had 
the Federal subsidies, has over a third of that industry in 
what they have in the country as well as exporting. So, there 
is a tremendous potential.
    Senator Smith. But the Beavers are going to do to them what 
they did to Notre Dame, right?
    Dr. von Jouanne. Well, with the proper support, that's what 
we'll do.
    Senator Smith. Annette, I could talk to you all day about 
this. I'm so excited about what you've got going there.
    [The prepared statement of Dr. von Jouanne follows:]

 Prepared Statement of Dr. Annette von Jouanne, Professor, Electrical 
       Engineering and Computer Science, Oregon State University

    It is an honor to share with you today about Wave Energy, and the 
economic development opportunities in this emerging renewable industry.
    First, when we talk about Wave Energy, we are talking about 
harnessing the linear motion of the waves, and converting that into 
electrical energy.
    Wave Energy is an untapped resource with three significant 
advantages: energy density, availability, and predictability.
    We have an excellent wave climate off the Oregon Coast, and 
combined with our strategic facilities at Oregon State University, 
Oregon is in an excellent position to lead the nation and the world in 
Wave Energy.
    For example, at OSU, we have the highest power Energy Systems lab 
in any university in the nation, where we have done a lot of renewables 
work, and where we can fully regenerate back on to the grid to 
comprehensively research and test renewable energy technologies.
    In addition, at OSU we have the O.H. Hinsdale Wave Research Lab, 
which has one of the largest systems of wave basins in the world.
    We also have the Hatfield Marine Science Center right there in 
Newport.
    And again, we have excellent wave energy potentials off the Oregon 
Coast, where wave heights in the winter average 3.5 meters, which 
converts to 50 kW per meter of crest length. (Each coastal home is 
about 1.3 kW.) During the summer, we see average wave heights of 1.5 
meters, which converts to 10kW per meter of crest length.
    Considering an overall average of 30 kW/m, and an Oregon coastline 
of 460 km, the total Oregon Coast Wave Energy potential is in the range 
of 13,800 MW. The average electrical energy consumption in the state is 
about 5-6,000 MW, so that 13,000 MW of raw wave energy can have a 
significant impact on our renewable energy portfolio.
    To properly explore these Wave Energy opportunities, we have been 
working closely with Oregon Department of Energy (ODOE) and about 40 
other agencies, including the Oregon fishing and crabbing industries, 
to enable the Nation's first Commercial Wave Parks to be developed off 
the Oregon Coast.
    We are also working to establish a National Wave Energy Research 
and Demonstration Center in Oregon, off Newport, with land-based 
facilities that could be integrated with the ongoing activities at the 
HMSC.
    As you can imagine, this all points to several wonderful economic 
development opportunities.
    Recall that the 2005 Oregon Legislature created the Oregon 
Innovation Council (Oregon, InC.) to enhance the state's capacity for 
innovation, technology development and product creation. Wave Energy 
has risen to the top as an economic development opportunity for Oregon 
based on the potential for high growth and high wages, and for Oregon 
to be a leader in global markets. Oregon, InC's Commercialized Research 
Committee has identified Clean Energy, including wave energy, as a key 
part of a new Signature Research Center. The Council is now developing 
its innovation plan to present to the 2007 Legislature to maximize the 
potential of this emerging industry.
    With the explosive growth potential of the industry on the horizon, 
hundreds of jobs could be created in the next ten years to support the 
fabrication and services of wave energy projects in Oregon, and the 
export of equipment to other countries. Wave Energy will add many high 
paying jobs to the local coastal economy with the new needs in 
permitting and professional services, manufacturing, final assembly, 
and operations and maintenance. Wave Energy will also provide 
significant opportunities for the creation of new businesses in Oregon.
    The most significant barrier to wave energy development is the 
above-market cost of the electricity. Due to the early stage of this 
industry, the current cost of electricity production from waves is 
estimated to be several times the market price, similar to wind when it 
was emerging 20 years ago. To ensure that wave developers are attracted 
to Oregon, we need to establish a production incentive that will offset 
the above-market costs of producing ``wave'' generated electricity. The 
production incentive mechanism would be tiered over the next ten years 
to track the reduced cost of production. Discussions addressing these 
barriers, and finding solutions, are underway at the state level 
through the OR InC. process. However, at the federal level, it is 
critical that wave energy receive a similar incentive mechanism to the 
production tax credits that the wind industry receives, and assistance 
in this effort is greatly appreciated.
    Again, Oregon is poised to lead the Nation and the world in wave 
energy development. We have the wave resource, the expertise through 
collaboration including tremendous industry, utility and community 
support, and the utility infrastructure along the coast to deliver this 
clean, renewable power into the grid.
    Thank you for your time!

    Senator Smith. I just want to commend you, and all of our 
witnesses. Thank you all for what you're doing. We do need to 
get to the second panel. You certainly have made this a 
meaningful hearing already. Thank you. All the best.
    We will now call up our second panel that will consist of 
Katie Fast, the Associate Director of Government Affairs, the 
Oregon Farm Bureau in Salem; and the Honorable Mike McArthur, 
Executive Director, Association of Oregon Counties, in Salem; 
Bill Carlson of the Carlson Small Power Consultants in Redding, 
California; and Mr. Bob Maynard, of the Energy Outfitters in 
Grants Pass, Oregon. Gentlemen, we welcome you all, and, Katie, 
thank you.

          STATEMENT OF KATIE FAST, ASSOCIATE DIRECTOR,

                      GOVERNMENT AFFAIRS,

                 OREGON FARM BUREAU FEDERATION

    Ms. Fast. Thank you.
    Senator Smith. Katie, take it away.
    Ms. Fast. Well, thank you for the opportunity to testify 
today on behalf of the membership, Oregon Farm Bureau.
    For the record, Katie Fast, Associate Director, 
Governmental Affairs.
    Oregon agriculture prospers from the diversity of its 
operations in the crops that we grow, and the renewable energy 
opportunities that we see add to the economic opportunities of 
our diversity.
    Biofuels is just one of the renewable energy segments in 
which Oregon agriculture will be investing in.
    Currently, there are two biofuel options that Oregon 
agriculture operators are most interested in, and they are 
biodiesel and ethanol. At this time, the biodiesel producing 
crop best suited for Oregon's growing condition is canola.
    However, the Oregon Department of Agriculture has rules in 
place that prohibit canola production in certain areas of the 
state, and one example is here in the Willamette Valley. And 
this is due to concerns with interactions between canola and 
the high-value specialty seed industry. And it is with cross-
pollination, disease issues and others.
    Currently, the Department will be requesting funding from 
the Oregon legislature in an E. Board situation to investigate 
how these two industries can co-exist in the same areas, and 
also research alternative crops for biodiesel in these regions.
    Nationally in the past two years the price of diesel for 
on-farm use has increased by nearly $1.00 per gallon, or 74 
percent. Due to these high energy prices, Oregon's interest in 
biodiesel has recently changed.
    Two years ago, farmers were more interested in growing the 
crop and marketing the feed stock for biofuels.
    Now I am talking to farmers who are wanting to grow the 
feed stock, crush it and process the feed to produce home grown 
fuel for their farms.
    Many of these operations are analyzing the opportunities 
where they would utilize all the fuel they produce themselves 
on the farm and not market any of the crops or the fuel off.
    Oregon agriculture is interested in looking into a pilot 
project and feasibility studies to further investigate these 
options.
    Oregon will probably never produce the levels of corn 
needed to support a conventional ethanol industry, as a 
majority of the Oregon ethanol plants will be importing corn 
from the Midwest. However, Oregon does have the potential to 
support the cellulosic ethanol industry.
    Cellulosic ethanol can be produced from a wide variety of 
biomasses. Our healthy agriculture and forest industries make 
Oregon a prime location for a cellulosic ethanol plant. 
Oregon's grass and wheat straw, combined with forest thinnings 
on private land and a full implementation on the Healthy Forest 
Act on Federal lands, create a strong base of cellulosic feed 
stock.
    Today there's actually a meeting at the Department of 
Forestry where Ag, Forestry and Energy representatives will be 
meeting to discuss cellulosic ethanol opportunities here in 
Oregon.
    In the processing of cellulosic ethanol, enzymes are 
employed to convert the biomass into fermentable sugars and 
then a microbiological fermentation process that yields ethanol 
and carbon dioxide.
    The high cost of these enzymes needed in the fermentation 
process is currently one of the key barriers in making the 
production of cellulosic ethanol economically feasible. 
Advancements in technology are needed to take place before this 
process will appear in widespread commercial settings.
    In my opinion, the greatest opportunity for Oregon 
agriculture is not just in producing the feed stock but also in 
participating in the processing and marketing of biofuels. In 
many areas of agriculture through cooperatives we already have 
the infrastructure in place to accomplish this added supply 
chain management.
    An example of one of these farmer-owned cooperatives is 
Pendleton Grain Growers. PGG has invested in the equipment to 
take canola seed, crush it and make biodiesel. Next year some 
of their growers will be producing canola to sell to the 
cooperative, and all the members will benefit from the sale of 
the end product, biodiesel through profit sharing.
    There are several actions that can assist a healthy Oregon 
biofuels industry. They include the extension of tax credits 
for biodiesel and renewable fuels; the enhancement of renewable 
fuel standard; enhanced opportunities for E-5; service station 
incentives to install pumps for renewable fuels; and the 
expansion of the energy title in the next Farm Bill.
    Also the Department of Energy and the United States 
Department of Agriculture need to increase their outreach to 
agriculture producers on the current programs that are 
available. There are very many in the 2005 Farm Bill. However, 
agriculture producers don't really understand this program and 
the two agencies need to get on the ground to let producers 
know the options.
    Additionally, I would like to share our support of Senate 
Resolution 97 that endorses the 25 by 25 vision, that 25 
percent of our Nation's industry use will come from renewable 
sources by 2025.
    As you work to assist Oregon and the Nation's farmers and 
ranchers in developing renewable energies, and other long-term 
solutions, please remember that traditional energy sources are 
impacting farmers' abilities to make profits. Prospecting and 
developing of natural gas and crude oil resources from the 
United States locations while using modern environmentally-
friendly methods will produce significant quantities of 
renewable resources and help stabilize prices.
    And thank you for your interest in renewable energy and 
holding this hearing in Oregon, and the Farm Bureau looks 
forward to working with you on this and other issues.
    [The prepared statement of Ms. Fast follows:]

   Prepared Statement of Katie Fast, Associate Director, Government 
                 Affairs, Oregon Farm Bureau Federation

    Thank you for the opportunity to testify on behalf of the Oregon 
Farm Bureau Federation. Oregon agriculture prospers from the diversity 
of its operations and the crops they grow; this is a diversity which 
can be expanded through renewable energy opportunities. Biofuels are 
one of many renewable energy segments in which Oregon farmers and 
ranchers can invest. Currently, the two biofuel options that 
agricultural operators are most interested in are biodiesel and 
ethanol.
    At this time, the biodiesel producing crop best suited to Oregon's 
growing conditions is canola. However, Oregon Department of Agriculture 
has rules in place that prohibit canola production in certain areas of 
the state, such as the Willamette Valley, due to concerns about 
interactions between this crop and high-value specialty seed crops. The 
Department will be requesting funding from the Oregon Legislature to 
investigate how these two industries can co-exist and research 
alternative oilseed crops for these regions.
    Nationally in the past 2 years, the price of a gallon of diesel 
fuel for farm use has increased nearly $1 per gallon or 74 percent. Due 
to these high energy prices, Oregon agriculture's interest in biodiesel 
has recently changed. Two years ago, farmers were more interested in 
growing and marketing the feedstock crops for biofuels. Today, farmers 
are wanting to grow the feedstock crops to crush and process the seed 
and run homegrown fuel in their farm equipment. Many operations 
analyzing this opportunity would utilize all the fuel themselves and 
not sell the crops or fuel off the farm.
    Oregon will probably never produce the levels of corn needed to 
support a conventional ethanol industry as the majority of ethanol 
plants located in Oregon will be shipping corn in from the Midwest. 
However, Oregon does have the potential to support a cellulosic ethanol 
industry. Cellulosic ethanol can be produced from a wide variety of 
cellulosic biomass feedstocks including agricultural plant wastes, 
plant wastes from industrial processes, and energy crops, such as 
switchgrass, grown specifically for fuel production. Our healthy 
agriculture and forestry industries make Oregon a prime location for a 
cellulosic ethanol plant. Oregon's grass and wheat straw industries 
combined with forest thinning on private land and the full 
implementation of the Healthy Forestry Act on Federal lands creates a 
strong base of cellulosic feedstock.
    In the processing of cellulosic ethanol, enzymes are employed to 
convert the cellulosic biomass into fermentable sugars; a microbial 
fermentation process then yields ethanol and carbon dioxide. The high 
cost of these cellulose enzymes needed in the fermentation process is 
currently the key barrier to making the production of cellulosic 
ethanol economically feasible. Advances in technology need to take 
place before this process will appear in commercial settings.
    In my opinion, the greatest opportunity for Oregon agriculture is 
not just in producing the feedstock, but also participating in the 
processing and marketing of biofuels. In many areas agriculture, 
through cooperatives, already has the infrastructure in place to 
accomplish this added supply chain management. An example of one of 
these farmer-owned cooperatives is Pendleton Grain Growers (PGG). PGG 
has invested in the equipment to take canola seed, crush it, and make 
biodiesel. Next year, some of their growers will sell canola to the 
cooperative, and all of the members will benefit from the sale of the 
end product, biodiesel, through profit sharing.
    There are several Federal actions that can assist a healthy Oregon 
biofuels industry. They include the extension of tax credits for 
biodiesel and renewable fuels, enhancement of the Renewable Fuels 
Standard, enhanced opportunities for E-85, service station incentives 
to install pumps for renewable fuels and the expansion of the Energy 
Title of the next Farm Bill. Additionally, I would like to share our 
support of the Senate Resolution 97 that endorses the 25x25 Vision that 
25 percent of our Nation's energy use will come from renewable sources 
by 2025.
    As you work to assist Oregon's and the Nation's farmers and 
ranchers in developing renewable industries, please remember that the 
prices of traditional energy sources are impacting their ability to 
make a profit. Prospecting and developing natural gas and crude oil 
resources from United States locations while using modern, 
environmentally-friendly methods will provide a significant quantity of 
energy resources and help stabilize prices.
    Thank you for your interest in renewable energy. The Farm Bureau 
looks forward to working with you on this and other issues.

    Senator Smith. I look forward to that as well, Katie. I'm 
so excited about having another outlet for all that we can grow 
on our Oregon farms.
    I guess I'm just curious, say that you had a 2,000-acre 
farm in eastern Oregon, or western Oregon. That's a big farm in 
western Oregon. And you wanted to create your own diesel to run 
your tractors and your other operations there.
    How much of that 2,000 acres would be dedicated? Let's use 
1,000 acres to make it easy, how much of that 1,000 acres would 
go to fuel and how much to the traditional crops, for food?
    Ms. Fast. Well, Senator Smith, that is part of the issues 
that Agriculture is trying to do a feasibility study. But I can 
maybe do an example for a 2,000-acre farm, because there are 
some farmers that I know looking at those options.
    I would say they would need to put aside about 100 acres 
for canola production, and they wouldn't grow canola on those 
acres every year. They would probably do a 1 in 4 year rotation 
on those 100 acres. And that should be able to utilize their 
on-farm use.
    And that is maybe more in the Willamette Valley setting 
than an Eastern Oregon setting, where they're going to get a 
little more poundage per acre. So, in eastern Oregon, that 
acreage might increase. But it's probably going to vary per 
operation.
    Senator Smith. I imagine the Farm Bureau is trying to 
figure out what are the consequences of canola growing and the 
cross-pollination problems.
    I mean, they are all your members, and how are you going to 
referee that fight?
    Ms. Fast. It's a big challenge that we are facing. And 
while we see the opportunities with canola, we can't forget the 
other high value crops.
    Senator Smith. We still need to eat, too.
    Ms. Fast. The biggest challenge with the specialty seed is 
its uniqueness on the areas that it can be grown. And what the 
trading partners will do.
    A lot of the issue has to do with more perception of risk 
than maybe true risk. And we're working with the Department of 
Agriculture here in Oregon to try to assessthose risks and 
create a program where these two industries can co-exist. And 
hopefully we can find alternative crops as well so we are not 
just looking at one crop that's an option.
    Senator Smith. I know the Midwest farmers are just really 
gearing up for ethanol. And that's a great thing. I mean, it's 
great for the rural communities in so many respects. And 
certainly the Energy Policy Act has all the incentives that you 
could need for the infrastructure for ethanol to be available 
to the whole country on a massive scale. And that would be 
very, very helpful to our energy future. I think it can be done 
without compromising our food future, as well. So, thank you, 
Katie.
    Ms. Fast. Thank you.
    Senator Smith. Mike McArthur.

     STATEMENT OF HON. MIKE McARTHUR, EXECUTIVE DIRECTOR, 
                 ASSOCIATION OF OREGON COUNTIES

    Mr. McArthur. I am Mike McArthur. Thank you for the 
opportunity to appear here this morning. I appreciate your 
interest in this topic.
    I couldn't agree more with your opening remarks. 
Technically, I may be known as the former Honorable Mike 
McArthur. I am no longer an elected official, but I was the 
chief elected executive of Sherman County when Klondike 1----
    Senator Smith. You still look honorable to me, though.
    Mr. McArthur. Thank you. I appreciate that. And currently 
I'm chairing the state's renewable energy work group, which is 
looking to implement the state's renewable energy action plan, 
and amongst those, the renewable fuels standards and also 
renewable portfolio standard.
    The Governor has asked us to come up with a plan that would 
get us to 25 percent renewables by the year 2025. And we met 
here yesterday in trying to fashion that plan.
    I'm also a member of the Department of Energy Sustainable 
Energy Loan Program Advisory Committee, which is making funds 
available for renewable projects around the state.
    Oregon is really blessed with abundant renewable energy in 
the form of commercially developable regimes. We also have the 
advantage of transmission capacity in some places and the great 
advantages you heard earlier of the hydro, which is affirming 
ability for the intermittent renewable resources that are 
available.
    We have the opportunity for commercial size wind projects 
that you're seeing now being constructed throughout the Mid-
Columbia, in your neighborhood, and mine, from 50 megawatts up 
to as large as 450 megawatts. Some of the largest in the world. 
We also have the opportunity for community-based wind projects 
that are locally-owned by private individuals, land owners, or 
partnerships, with local communities and counties.
    These projects generally range in size up to about 10 
megawatts. I want to emphasize these two types of projects are 
very compatible. In fact one can't exist without the other, 
because of transmission constraints.
    Oregon is seeing wind development in diverse areas of the 
state, the Mid-Columbia, as I mentioned, very dramatic growth 
there in commercial wind farms, Klondike and Condon wind farms 
are currently online with 150 megawatts. There is expansion in 
Sherman County, Gilliam, Wasco, and Morrow County.
    And BPA is working with these wind developers to provide 
the new transmission access to their 500 kV lines that run east 
and west along the Columbia River Gorge. It is anticipated 
there are another 1,900 to 2,500 megawatts in the next 5 years 
that may come online in that area.
    I know that in Sherman County there are approximately 500 
megawatts either in the planning stages or going through the 
siting process, which if fully implemented and generating, will 
proximate the output of the John Day Dam.
    To put that in perspective, there are 66 1.5-megawatt 
turbines there now generating; at capacity,100 megawatts. One 
of those turbines would generate at capacity nearly enough 
electricity to power all the residential load in Sherman 
County. So, that needs to move somewhere.
    For this next step to happen, the only way that you're 
going to get transmission out of Sherman County is to tap into 
the 500 kV line at the John Day substation, and in order to do 
that, you have to have the transmission from the site to the 
substation, and you heard the million dollars a mile for 230 
volt lines. The substation itself may cost well above $420 
million to jump the power from 230 to 500. And one of those 
transformers costs $14 million, and you have to have a spare.
    So, you see, it takes a large scale commercial operation to 
amortize those costs in order to be able to put that 
transmission infrastructure there. But once there, that creates 
the opportunity for smaller projects that may be geographically 
not feasible for a large commercial site, which could be 
locally-owned, which would bring on additional economic 
advantage to the farmers themselves.
    Because the lease the farmers receive now is fairly modern, 
you're not going to live on the lease off the wind farm unless 
you have a very large block of land. But it does create the 
opportunity for investors to get into this locally.
    There are also other projects going on in Oregon: 
Stateline, VanCycle, and Combine Hills. And there is a new 
project now in Union County being built by Horizon, a 100-
megawatt project in Union County coming forward.
    Southern Oregon has a number of projects in the planning 
stage: Lake, Harney and Klamath counties. There's also a lot of 
opportunity on the coast because of the winds there.
    Oregon's renewable energy work group, as I said, is 
crafting legislation for the next legislative session that will 
introduce this renewable portfolio standard of 25 percent by 
2025. The RPS will likely be a hybrid type, with the majority 
likely going to large-scale wind projects, because that is the 
cheapest way to get there. It would be based on competitive 
bids.
    A significant portion, we hope, may go to these locally-
based renewable projects. The trick of it is how to do that and 
still stay within the economics of not driving up rates for the 
consumers.
    There are a number of factors that we were considering at 
work group. Issues like: Who should the portfolio standard 
apply to; what type of utilities; what should be the targets 
for when certain levels of percentage should be achieved by; 
what type of renewable should qualify; should there be cost 
gaps, and what should they be? And what about the penalties, 
and how do you structure a penalty regime if you don't get 
there; and what's the timeline for implementation?
    A number of Oregon communities are conducting resource 
assessments to identify potentially locally owned projects in 
their areas. These smaller projects can use smaller 
transmission systems than those needed by larger commercial 
projects and allow for smaller projects in areas not available 
but to the big projects. Their advantage is that the revenues 
from these projects remain local, and provide energy self-
sufficiency and economic development in rural areas that cannot 
benefit from the larger wind projects.
    Oregon is developing a support system to allow for growth 
of the rural energy projects, one of the best in the Nation. 
Our business energy tax credit, which you heard about, the 
sustainable energy loan program, which is funded by general 
obligation bonds issued by the state. The economic development 
funds that now exist to do feasibility studies to determine if 
projects get eligible for these other funds.
    And then, of course, we have the public purpose charges 
through the energy trust, are reinvested in the renewable 
energy projects.
    Federal programs. Oregon is putting in place a number of 
state programs to facilitate renewable energy projects.The 
needs of Oregon are changing and becoming more sophisticated as 
our renewable energy vision matures.
    Our Federal needs are becoming better defined, and I will 
give you examples of how it appears. You have heard so much 
about the production tax credit, and we really appreciate your 
support in keeping that going. The length of that extension is 
the real issue in the predictability of that, as you know.
    I really think that it has had an effect on the 
availability of turbines. There was one project, community 
project in Sherman County, that could not go forward because 
there wasn't a turbine available. And I think that's directly 
related to the uncertainty of the production tax credit. That 
is the interest in putting a manufacturing plant in Portland a 
few years ago. I think it was put on hold because of the 
uncertainty.
    So, in order to really capitalize on the economic 
development advantages, we need to have turbine manufacturers 
in the United States or in the Northwest, if we could, and we 
need to have a longer PTC extension to attract that kind of 
investment. And also keep the turbines affordable, because the 
start-and-stop cycle makes it uncertain for the manufacturers.
    The price of turbines has increased significantly in the 
last couple of years, and has affected the economics of certain 
projects.
    We need to create a community sized category in the Energy 
Bill to recognize the unique needs of smaller, locally-owned 
projects, up to 12 to 20 megawatts.
    At present the PTC language works well for commercial 
scaled projects, but actually is an impediment for the smaller 
projects. I think as you heard earlier, that some of the 
smaller developers don't have the tax appetite that is 
necessary for a production tax credit, so they have to sell 
those so then the whole project goes to the investor who has 
the tax appetite.
    A separate category in the Energy Bill would allow for 
specialized policies aimed at locally owned small projects.
    There are a couple of Federal measures being considered 
now, S. 2571 and H.R. 4716, which would create a 30 percent tax 
credit for the purchase of small wind systems used to power 
homes, farms and businesses. The small windtax credit is one 
component of S. 2571 and a wide ranging energy policy bill that 
was sponsored by Senator Conrad. H.R. 4716, sponsored by 
Representative Cole, is focused exclusively on small wind tax 
credits. So, I hope that you will give those some 
consideration.
    Also there has been some talk about considering a Federal 
RPS. Nineteen states now have them, and it might be interesting 
to see the consistency.
    We encourage an Oregon workshop to be comprised of 
knowledgeable stakeholders to define a new vision for renewable 
energy at the Federal level that speaks to the evolving needs 
of Oregon as it moves forward to become more energy self-
sufficient, in these difficult energy times we face.
    In my testimony there's a map that's included that shows 
some of the projects that are going on around the state right 
now, particularly on the community side, the smaller projects, 
studies, and actual projects going into the ground.
    That concludes my testimony, Senator. I would be happy to 
answer questions.
    [The prepared statement of Mr. McArthur follows:]

     Prepared Statement of Hon. Mike McArthur, Executive Director, 
                     Association of Oregon Counties

Oregon Renewable Wind Energy
    Oregon is blessed with abundant renewable energy in the form of 
commercially developable wind regimes. These wind regimes are allowing 
the creation of several types of wind projects:

   Commercial-sized wind projects with power for sale to 
        Northwest Utilities--these projects range from 50 MW up to as 
        large as 450 MW.

   Community-based wind projects that are locally owned by 
        private landowners or partnerships with local communities, 
        counties, etc.--these projects range in size up to 10 MW. 
        Oregon is seeing wind development in diverse areas in the 
        state.

   Mid-Columbia--this area is undergoing dramatic growth in 
        commercial wind farms. Klondike and Condon are currently online 
        with 150 MW with expansions planned in Sherman County, Gilliam, 
        Wasco and Morrow Counties. BPA is working with developers to 
        provide new transmission access into their 500 kV transmission 
        systems with an anticipated additional 1,900-2,500 MW in the 
        next 5 years.

   North-Eastern Oregon has Stateline, VanCycle, and Combine 
        Hills plus a proposed 100 MW project in La Grand with Horizon.

   Southern Oregon has a number of projects in the planning 
        stage in Lake, Harney, and Klamath counties.

    The Oregon Renewable Energy Work Group is crafting legislation for 
the next legislative session in 2007 to introduce a Renewable Portfolio 
Standard (RPS) of 25 percent Renewables by 2025. The RPS will probably 
be a hybrid type with the majority likely going to large-scale wind 
projects on competitive bids while a significant portion may be going 
to locally owned Community Based Renewable Energy projects.
    A number of Oregon communities are conducting resource assessments 
to identify potential locally owned projects in their areas. These 
smaller projects can use smaller transmission systems than those needed 
by larger commercial projects and allow for smaller projects in areas 
not available to the bigger wind projects. Their advantage is that the 
revenues from these projects remain local and they provide energy self 
sufficiency and economic development in rural areas that can not 
benefit from the larger commercial wind projects.
    Oregon is developing support programs to allow for growth of 
renewable energy projects:

   State tax incentives in the form of Business Energy Tax 
        Credits (BETC) which allow for tradable state tax credits 
        similar but more flexible than Federal Production Tax Credits 
        (PTC).

   Low interest Sustainable Energy Loan Program to provide 
        financing for qualifying projects.

   Economic Development funds to assist communities in early 
        feasibility studies.

Federal Programs
    Oregon is putting in place a number of state programs to facilitate 
Renewable Energy Projects. The needs of Oregon are changing and 
becoming more sophisticated as our Renewable Energy vision matures. Our 
Federal needs are becoming better defined and can be articulated to a 
few simple issues:

          1. Extend Production Tax Credits (PTC) for 10 years--the 
        current on-again/off-again two-year funding of PTC's has 
        crippled Oregon's ability to buy wind turbines for community 
        projects and is seriously hampering commercial wind 
        development. Turbine manufacturers have left the U.S. and the 
        few remaining are sold out for years in advance to a few large 
        developers. We must have longer PTC extensions to attract 
        turbine manufacturers to locate and build enough turbines to 
        meet demand.

          2. Create a ``COMMUNITY SIZED'' category in the energy bill 
        to recognize the unique needs of smaller locally owned projects 
        up to 20 MW. At present, the PTC language works well for 
        commercial scale projects but is actually an impediment to 
        smaller locally owned projects. A separate category would allow 
        for specialized policies aimed at locally owned smaller 
        projects.

          3. Support S. 2571 and H.R. 4716, both of which would create 
        a new 30 percent tax credit for the purchase of small wind 
        systems used to power homes, farms, and small businesses. The 
        small wind tax credit is one component of S. 2571, a wide-
        ranging energy policy bill sponsored by Senator Kent Conrad (D-
        ND). Meanwhile, H.R. 4716, sponsored by Representative Tom Cole 
        (R-Okla.), is focused exclusively on the small wind tax credit.

    We encourage an Oregon workshop comprised of knowledgeable 
stakeholders to define a new vision for Renewable Energy at a Federal 
level that speaks to the evolving needs as Oregon moves to become more 
energy sufficient in the difficult energy times we face.
    The following map shows a number of community-based renewable 
energy projects currently under study in Oregon. These projects are 
providing rural Oregon with opportunities for economic development and 
energy self-dependence.




    Senator Smith. Mike, how many Oregon counties that you know 
of are pursuing renewable energy facilities as a means of 
economic development?
    Mr. McArthur. Most of the counties in the Mid-Columbia, 
from Hood River east to Wallowa. Some of the counties on the 
coast are looking at that. The counties in the valley are 
mostly interested in the biofuels opportunities. Counties in 
Central Oregon are pursuing their opportunities, geothermal, 
solar, aggressively. There is an active group in Central Oregon 
working towards that. So, most of the counties have some 
interest.
    Senator Smith. I read in the Oregonian that California is 
pushing their renewable portfolio higher and a lot of 
California money is up here looking for opportunities in Oregon 
to meet their portfolio standard.
    Mr. McArthur. I understand.
    Senator Smith. Are you hearing from out-of-state money 
seeking to make these kinds of investments?
    Mr. McArthur. Senator, I understand that is the case, and 
that's one of the issues around a renewable portfolio standard, 
is the geographical eligibility.
    And in California's case, power that comes from Oregon is 
eligible to meet their standard.
    And Washington is headed in the same direction with the 
initiative that may be passed----
    Senator Smith. Washington is as well.
    Mr. McArthur. So we may be subject to other out-of-state 
interests looking to purchase our power resources.
    Senator Smith. Well, that may be what it takes to get those 
kinds of resources in there. I don't know. But if we're all 
pushing our portfolio standards up, it will take money. It 
eventually gets paid for by ratepayers. But if we get enough 
volume, the volume will drive down the end price.
    Mr. McArthur. Long-term, it may stabilize the price.
    Senator Smith. I don't like the way the price has been 
going with the status quo. It is going up. Thank you, Mike.
    Senator Smith. Bill Carlson.

            STATEMENT OF WILLIAM CARLSON, CHAIRMAN, 
              USA BIOMASS POWER PRODUCERS ALLIANCE

    Mr. Carlson. Thank you, Mr. Chairman. I am speaking today 
as Chairman of the U.S. Biomass Power Producers Alliance. The 
Alliance and its Oregon members and partners appreciate the 
opportunity to testify on the emergence of renewable energy and 
associated economic development opportunities in Oregon and 
elsewhere.
    We are a trade organization representing the interests of 
approximately two-thirds of the Nation's open loop biomass 
facilities.
    We thank you and the Senate for adding, in both the jobs 
and energy bills, open loop biomass to the list of renewable 
technologies qualifying for the Federal Section 45 production 
tax credit.
    This action, coupled with rising fossil prices and strong 
state renewable programs have produced a resurgence of interest 
in biomass power not seen since the mid-1980s. Previously the 
trend had been opposite, with over 30 percent of the country's 
biomass facilities closing since the 1990s, including several 
in Oregon.
    Here, activity has been especially frenzied with nearly 15 
proposals for new or reopened plants with a combined capacity 
in excess of 150 megawatts.
    Oregon has a good combination of programs for renewable 
power, some of which Mike described, that includes reasonable 
fossil-based avoided cost, 20-year contracts, and developer 
retention of the green tags.
    The state business energy tax credit of 35 percent of 
project capital cost, and a grant program administered by the 
Energy Trust of Oregon for projects selling their output to 
investor-owned utilities, coupled with the first ever 
availability of the Federal tax credit, have made Oregon a hot 
bed of biomass power activity.
    The typical proposal in Oregon is for a 5-10 Megawatt plant 
located at an existing sawmill or plywood plant. These 
locations provide a source of internal mill waste, a steam 
customer and an existing infrastructure.
    Proposed projects are in rural Oregon communities such as: 
Cave Junction, Lakeview, Tillamook, Roseburg and the Warm 
Springs Reservation, as you heard, communities that have been 
hard hit by the dismantling of much of the forest products 
infrastructure.
    Capitalization of an individual project is typically $12 to 
$25 million. That would be the largest private investment in 
these communities in many years, providing property taxes, jobs 
and hope.
    Activity is being truncated, however, by the impending 
expiration of the tax credit, as you have heard more than once 
this morning, which requires projects to be placed in service 
by the end of 2007.
    Only three of these projects are likely to meet this 
deadline. All others will be shelved, awaiting extension of the 
tax credit as a project not already contracted for cannot be 
completed in time.
    Biomass offers many benefits beyond displacement of fossil 
power generation common to all renewables. Beyond rural 
economic development, biomass power delivers capacity and 
energy reliability on demand, and is used to offset the 
purchasing utilities' need for new power generation.
    Biomass power facilities eliminate 96 percent of air 
pollution from open burning. Biomass power generation lowers 
greenhouse gas emissions below the zero net carbon emissions 
common to all renewables by lowering methane emissions from 
wood decomposing in the woods or landfills or burning 
uncontrolled, replacing it with much less damaging carbon 
dioxide.
    Oregon forests need a massive thinning effort to reduce the 
build-up of brush and small trees from 100 years of fire 
exclusion. A network of biomass power facilities is critical to 
this effort, since 50 percent or more of the thinned material 
is not suitable for forest products.
    Senator Smith. 50 percent?
    Mr. Carlson. As a minimum. Typically in the 50 to 60 
percent range, it is simply a fuel value, and the remainder can 
potentially be used for forest products.
    The combination of thinning to produce small saw logs and 
fuel is far more economic and environmentally positive than 
thinning with subsequent open burning of the thinned material.
    Scarce Federal dollars can treat far more acres and more 
quickly return health and fire resistance to the forest. The 
forest products industry in Oregon can be rebuilt on the basis 
of a steady long-term supply of small saw logs, with steady and 
long-term being prerequisites to obtaining capital for new 
mills or power plants. Projects utilizing forest thinning 
material requires a stronger set of incentives and would 
benefit dramatically from an equalization of the production tax 
credit among all renewables and by the funding of Section 210 
of the Energy Bill, which established a grant program to aid 
with transporting of fuels from forest thinnings.
    Currently, open loop biomass power qualifies for only one-
half of the credit of wind or geothermal power. Congress should 
remedy this inequity when it considers an extension to the tax 
credit, as was recommended to you by the Western Governor's 
Association.
    A level playing field among renewables is needed since many 
states fill needs for renewable capacity via open auctions. 
Biomass bids are typically not accepted by utilities as they 
are underbid by those who qualify for the full Federal credit. 
Often as much as 95 percent of all new capacity is wind and 
geothermal. Again we ask that this inequity be eliminated when 
the federal production tax credit is renewed.
    In summary, biomass power has seen a resurgence in Oregon 
and elsewhere due to the combination of the federal tax credit 
and strong state programs. A few mill residual projects will be 
completed by December 31, 2007, but many more are being 
shelved, awaiting an extension of the credit by Congress.
    Future biomass projects require at least that the tax 
credit be brought up to the level of equity with others. 
Several hundred megawatts of beneficial biomass power 
facilities in Oregon would strengthen and expand rural 
economies and forest products industries, make a large 
contribution to the greenhouse gas emissions in the state, and 
help restore Oregon's forests to health and fire resistance. 
Large-scale delivery of these benefits awaits the extension and 
equalization by Congress of the tax credit. Thank you.
    [The prepared statement of Mr. Carlson follows:]

           Prepared Statement of William Carlson, Chairman, 
                  USA Biomass Power Producers Alliance

    Chairman Smith and members of the Subcommittee:
    The USA Biomass Power Producers Alliance (USABPPA) and its Oregon 
members and partners greatly appreciate the opportunity to present 
testimony on the emergence of renewable energy and the associated 
economic development opportunities in Oregon, the Pacific Northwest and 
the United States. The USABPPA is a trade organization, representing 
the interests of approximately two-thirds of the Nation's total of 
about 100 operating open loop biomass power facilities.
    We first wish to thank the Senate and Congress for adding, first in 
the 2004 JOBS bill and then again in the 2005 Energy bill, open loop 
biomass to the list of renewable technologies qualifying for the 
Federal Section 45 Production Tax Credit, albeit at only half the rate 
available to some other technologies. This action, coupled with rising 
fossil prices and similar state renewable programs, have produced a 
resurgence of interest in biomass power not seen since the mid-1980's. 
Prior to this action, the trend had been in the opposite direction, 
with over 30 percent of all biomass power facilities across the United 
States having closed since the 1980s, including several in Oregon.
    In Oregon, activity has been especially frenzied, with nearly 15 
proposals for new or reopened plants being developed, with a combined 
capacity in excess of 150 megawatts. Oregon has a good combination of 
programs for renewable power that includes:

          1. Establishment by the Oregon Public Utilities Commission 
        (OPUC) of reasonable utility fossil based avoided costs 
        available in contracts as long as 20 years.

          2. A State Business Energy Tax Credit (BETC) of 35 percent of 
        project capital cost, deductible over 5 years.

          3. A grant program administered by the Energy Trust of Oregon 
        for projects selling their output to either PacifiCorp or 
        Portland General Electric.

          4. A ruling by the OPUC that projects selling at the 
        utility's avoided cost retain their ``green tags'' for 
        potential sale to others.

    The above programs and rulings, coupled with the first ever 
availability of the Federal Section 45 Production Tax Credit, have made 
Oregon a hotbed of biomass power activity.
    The typical biomass power proposal in Oregon is for a 5-10 megawatt 
power plant located at an existing sawmill or plywood plant. These 
locations provide a source of reasonably priced mill waste (bark, 
sawdust, shavings), a steam customer in the form of lumber dry kilns or 
veneer dryers and an existing infrastructure to support the 
development. These proposals piece the above circumstances together 
with various state and Federal programs to create an economically 
viable project. Each piece of the puzzle is important.
    Almost exclusively, these proposed projects are located in rural 
Oregon communities such as: Cave Junction, Lakeview, Tillamook, 
Roseburg and the Warm Springs Reservation; communities that have been 
economically hard hit by the dismantling of much of the forest products 
infrastructure in Oregon over the last 15 years. Though the total 
capitalization of an individual project may total only $12-25 million, 
it would be the largest private investment in these communities in many 
years, providing much needed property taxes, jobs and hope.
    The model described above is about to be truncated, however, by the 
impending expiration of the Federal tax credit, which requires projects 
to be placed in service prior to the end of 2007. At this time, it 
appears that only projects at Rough & Ready Lumber in Cave Junction, 
Douglas County Lumber in Roseburg and Freres Lumber in Lyons will meet 
this deadline, at least partly because each was able to find a used 
turbine-generator matching its requirements. All others will likely be 
placed on the shelf, awaiting extension of the Federal production tax 
credit by Congress as, with only 16\1/2\ months remaining in the tax 
credit qualification period, a project not already contracted for 
cannot be completed in time.
    This is truly a shame, as biomass, among renewables, offers many 
societal and environmental benefits beyond the mere displacement of 
fossil fuel power generation that all renewable technologies offer. The 
rural economic development potential was described above. Second, 
biomass power delivers capacity and energy reliably on demand, and thus 
can be used to offset the purchasing utility's need for new power 
generation, something several renewable technologies cannot offer.
    In addition, fueling of biomass power facilities can contribute to 
the elimination of air pollution from open burning, prescribed fires or 
forest fires. Utilization of urban wood waste can reduce the demand for 
scarce landfill space. Biomass power generation has the potential to 
lower greenhouse gas emissions below the zero net carbon emissions 
common to all renewable technologies, and further lower existing 
methane emissions from wood decomposing in the woods or landfills, or 
burning in uncontrolled prescribed or forest fires, replacing these 
methane emissions with much less damaging carbon dioxide.
    Oregon forests, particularly those east of the crest of the 
Cascades and in Southern Oregon, need a massive thinning effort to 
reverse the build up of brush and small trees that have resulted from 
100 years of fire exclusion. The existence of a network of biomass 
power facilities is critical to this effort, as typically 50 percent or 
more of the thinned material is not suitable for traditional forest 
products, but all is suitable for fuel. The combination of thinning to 
produce small sawlogs and biomass fuel is far more economic and 
environmentally preferable than thinning with subsequent open burning 
of the thinned material as is commonly done in Oregon. Scarce Federal 
dollars can thus treat far more acres with the result that the forest 
is more quickly returned to health and rendered more fire resistant. At 
the same time, the forest products industry in Oregon can be rebuilt on 
the basis of a steady long-term supply of small sawlogs. The ``steady'' 
and ``long-term'' phases are prerequisites in any Federal thinning 
program before large scale capital for new mills or power plants can be 
obtained.
    The types of biomass power projects utilizing forest thinning 
material unfortunately require a stronger set of power contract pricing 
and incentives than do the mill waste projects described earlier, and 
all such project proposals in Oregon and elsewhere in the West are 
currently stalled. These projects would benefit dramatically from an 
equalization of the Federal production tax credit among all renewables, 
and by the funding of Section 210 of the 2005 Energy Bill, which 
established a grant program to assist with the cost of transporting 
fuel from forest thinning activities. Currently, open loop biomass 
power qualifies for only \1/2\ the credit of wind or geothermal power. 
We would request that Congress address and remedy this inequity when it 
considers an extension to the Section 45 Production Tax Credit. This 
was the Number 1 recommendation of the Western Governor's Association 
Biomass Task Force.
    A second strong reason to create a level playing field among 
renewables with regards to the tax credit is that many states, 
including some Pacific Northwest states, fill needs for renewable 
capacity via auctions. This method of adding new renewable capacity has 
been judged by the Federal Energy Regulatory Commission (FERC) as an 
acceptable means of implementing PURPA. For biomass power, it means 
that their bids are typically not accepted by utilities as they are 
underbid by wind and geothermal producers who qualify for the full 
Federal credit. In some states, as much as 95 percent of all new 
capacity is in wind and geothermal. Again, we ask that this inequity be 
eliminated when the Federal production tax credit is renewed.
    In summary, biomass power has seen a resurgence in Oregon, and 
elsewhere in the United States, due to a combination of a newly 
expanded federal tax credit, strong Oregon state programs and wise 
rulings by the OPUC. A few mill waste based projects are proceeding 
prior to the 12/31/07 expiration of the tax credit, but many more are 
being shelved, awaiting an extension of the credit by Congress. 
Projects based on forest thinning residuals require at least that the 
tax credit be brought up to the level of equity with wind and 
geothermal projects.
    Utilized to its full beneficial extent in Oregon, biomass power 
facilities could approach 1,000 MW of capacity, and in the process, 
strengthen and expand rural economies including rural forest products 
industries, lower criteria air emissions, make a large contribution to 
lowering greenhouse gas emissions in the state, displace imported 
fossil fuel and increase energy security, and help restore Oregon's 
incredible forests to health and fire resistance. Delivery of these 
benefits on a large scale awaits the extension by Congress of the 
Section 45 Production Tax Credit and the equalization of the credit 
among renewable technologies.
    The USA Biomass Power Producers Alliance and its Oregon members and 
partners appreciate the opportunity to testify at this hearing.

    Senator Smith. Thank you very much, Bill. You have some 
great ideas. We have noted them, and we will do our level best 
to get the equalization included in the extension of the tax 
credit.
    Do you think that the Oregon forest industry looks at 
biomass fuels as a future component to their own viability?
    Mr. Carlson. Certainly the solid wood producers see itthat 
way. That they have to get more value out of their residual 
materials.
    I mean, historically, chips has been the one material that 
they've had, and it has had substantial value above its 
transportation cost.
    Senator Smith. For pressboard and things like that?
    Mr. Carlson. Yes. And for paper primarily. And some of the 
others have fluctuated with the availability and demand for the 
other products, such as particle board. But certainly they see 
it as a major component.
    Senator Smith. As you see biomass as a category among the 
renewables, where do you think its future is relative to the 
others? Is it the elephant in the room, comparatively, or----
    Mr. Carlson. No. The Western Governors Association Biomass 
Task Force estimated that there may be as many as 10,000 
megawatts of biomass in the west that could be developed at a 
cost of about 8 cents per kilowatt hour, without incentives.
    Senator Smith. We're not going to run out of biomass 
either.
    Mr. Carlson Oh, no. The Federal Government did what they 
call, ``the billion ton study,'' because some of the 
projections of 25 or 30 percent of the Nation's energy from 
biomass, say, by the year 2050 would require a billion tons a 
year of material, which is a lot of material obviously, and 
they estimated that on a sustainable basis, the Nation's supply 
could be as much as 1.3 billion tons per year, using actually 
very conservative assumptions when it came to the forestry 
side.
    Senator Smith. So it is entirely renewable.
    Mr. Carlson. Yes.
    Senator Smith. That's very helpful. Thank you very much, 
Bill.
    Senator Smith. Bob Maynard.

            STATEMENT OF BOB MAYNARD, OWNER, ENERGY

       OUTFITTERS; BOARD MEMBER, GOVERNMENT POLICY CHAIR,

       OREGON SOLAR ENERGY INDUSRIES ASSOCIATION (OSEIA)

    Mr. Maynard. Thank you, Senator Smith----
    Senator Smith. You're the one with the answer to my earlier 
question.
    Mr. Maynard. Thank you. Thanks very much for this 
opportunity to testify today.
    My name is Bob Maynard and I am the Owner of Energy 
Outfitters, a solar electric distribution company based in 
Grants Pass and a Board Member of the Oregon Solar Energy 
Industries Association.
    We would also like to thank you for introducing S. 2677, 
The Securing America's Energy Independence Act. This Act will 
extend the renewable energy tax credits for 8 years and expand 
the residential credit to $2,000 per kilowatt.
    Solar energy companies need these long-term commitments in 
order to raise the capital, build the new facilities, and 
create the jobs and expand the markets. With these signals, the 
industry will attract investment and deliver jobs to 
communities throughout Oregon and the Northwest. Jobs in 
manufacturing, distribution, installation and service.
    Energy from the sun is adding valuable assets to our energy 
portfolio in the form of electricity, commercial and domestic 
hot water, active and passive heating and cooling.
    Globally, solar energy markets are expanding rapidly and 
the United States has fallen behind. Without strong leadership 
and focus on the long-term, the United States will continue to 
lose ground to other highly competitive countries.
    We face the proposition of replacing our current energy 
imports with future imports of solar energy technology and 
products. America's window of opportunity is still open if we 
take a decisive action. We once led the world with solar energy 
innovation.
    Silicon-based solar cells originated in the United States 
by inventors with close ties to Oregon. We have an 
extraordinary record of achievement in high-tech sectors and 
innovation, and solar energy hold enormous potential if we just 
restore the commitment to it.
    The current tax credits are a good start, but will not 
encourage the investment in domestic manufacturing because they 
are too short in duration.
    S. 2677 addresses this problem with longer vision and yet 
another obstacle remains. Many businesses have gone through the 
process of evaluating solar energy investments only to find the 
alternative minimum tax prevents them from using the tax 
credit. Exempting the solar energy tax credit from the AMT will 
improve the conditions needed for the installations of 
commercial systems and it's an important part of S. 2677.
    From global experience we know that the successful long-
term programs are fueling one of the newest and fastest growing 
industries in the world, solar energy. Distribution companies 
like mine, Energy Outfitters located in Grants Pass, are 
expanding and growing with this industry.
    Founded in 1999 as a retail store in Cave Junction, today 
we operate three distribution facilities, supplying 
approximately 300 solar contractors throughout the United 
States and Canada. Eighty-five percent of our sales come from 
outside of Oregon. Our revenues have grown 500 percent in the 
last 5 years. And we currently employ about 25 people.
    We are developing our own line of complimentary products 
and will be expanding our production facility in Grants Pass.
    To round out this business portfolio, we have been 
investing in building in our commercial and industry 
installation division in Oregon.
    PV Powered, a manufacturer near Bend, is designing and 
manufacturing invertors, the power electronics required for 
solar electric systems. Most of their products are exported out 
of state, bringing more dollars home to Oregon.
    REC in Moses Lake, Washington, the world's largest producer 
of solar grade silicon, is committed to an additional $600 
million expansion of their Northwest facility.
    The rapidly growing solar industry is also creating growth 
opportunities for glass manufacturers, aluminum extruders, 
makers of specialty coatings, metal fabricators, and machine 
manufacturers.
    Many diverse Oregon businesses will benefit from this. A 
steel fabrication in Roseburg that once had no relation to 
solar energy now generates a significant portion of their 
business from manufacturing support structures for solar 
tracking systems. Solar energy provides several valuable assets 
to the energy portfolio, including electricity and hot water.
    The largest contribution to our energy needs from solar is 
the production of hot water. It's far more effective to 
transfer the heat of the sun directly to hot water than it is 
to burn valuable gas and electricity.
    Solar electric systems generate their peak performance when 
electric demands are high and have very predictable 
performance. We know this from years of research performed 
right here in Eugene by the University of Oregon solar 
radiation monitoring lab. They have compiled one of the largest 
continuous records of solar data available today. This data 
accurately allows us to forecast the performance for years to 
come. Today's solar electric panels typically have power output 
warranties of 25 years and an estimated life expectancy of 40+ 
years.
    Senator Smith. With very little maintenance?
    Mr. Maynard. With virtually no maintenance. Solar's long-
term reliability, predictability, and performance, reduces the 
cost and the risk associated with volatile future fuel 
supplies.
    Because solar is typically a distributed generation 
technology, expensive transmission line upgrades are avoided, 
prolonging the useful life of our existing investment in the 
grid.
    Oregon has supported solar energy systems with tax credits 
for over 20 years, and today is the leader in the number of 
installed systems in the Northwest.
    With a long-term and significant commitment from the 
Federal Government with the efforts like S. 2677, and the Solar 
America Initiative, we can regain the global leadership 
position we once held with solar energy.
    We applaud your efforts and the support of all the 
renewable energy technologies, and we encourage you to continue 
to lead our Nation to a stable, clean energy future.
    This concludes my testimony. Thank you for the opportunity.
    [The prepared statement of Mr. Maynard follows:]

  Prepared Statement of Bob Maynard, Owner, Energy Outfitters; Board 
    Member, Government Policy Chair, Oregon Solar Energy Industries 
                          Association (OSEIA)

    Thank you, Senator Smith and members of the Committee, for giving 
me the opportunity to testify today. My name is Bob Maynard, and I am 
Owner of Energy Outfitters, a solar distribution company based in 
Grants Pass, Oregon and a Board Member of the Oregon Solar Energy 
Industries Association (OSEIA).
    I would also like to thank Senator Smith for introducing S. 2677, 
The Securing America's Energy Independence Act. This Act will extend 
the renewable energy tax credits for 8 years and expand the residential 
credit to $2,000 per kilowatt.
    These long-term commitments are the correct signals we need to 
stimulate growth in America's renewable energy companies. With these 
signals, the renewable energy industry can attract investment and 
deliver jobs in communities throughout Oregon and the Northwest--jobs 
in manufacturing, distribution, integration, installation, and service.
    Renewables like solar will play a significant role in our clean 
energy future. In our local communities, both rural and urban, energy 
from the sun can add valuable assets to our energy portfolio including 
electricity, commercial and domestic hot water, and active and passive 
heating and cooling. Solar is not ``the only answer'' to our energy 
problems, but it will be a significant part of the solution. Solar, 
along with other renewables, will be a significant contributor to our 
energy portfolio, our job base, our economy, and our clean energy 
future.

What the Renewable Energy Industry Needs
    Renewable energy companies need long-term commitments in order to 
raise capital, build new facilities, create jobs, and expand markets. 
In countries and states that have done this, renewable energy has 
thrived, producing jobs, economic opportunities, and clean energy.
    The early vision and long-term programs in Germany and Japan are 
now beginning to show a significant return. As interest and private 
investment pours into renewable energy manufacturing and 
infrastructure, these countries top the list in growth and 
profitability in this industry. They have successfully demonstrated the 
critical role that government must play to spur growth, leading to 
sustainable markets with diminishing support.
    Globally, renewable energy markets are expanding rapidly and the 
United States has fallen behind. Without strong leadership and focus on 
the long term, the United States will continue to lose ground to other 
highly competitive countries. Without a serious and sustained effort, 
we will not be competitive in the renewable energy industry. We face 
the proposition of replacing current energy imports with future imports 
of renewable energy technology and products designed and manufactured 
abroad.
    It doesn't have to be this way--a window of opportunity is still 
open. If we want these economic opportunities in Oregon, the Northwest, 
and America, now is the time to take decisive action.
    The United States once led the world with renewable energy 
innovation. Silicon-based photovoltaic cells were invented in the U.S. 
and the inventors had close ties to Oregon. We have an extraordinary 
record of achievement in high-tech sectors and innovation in America 
and renewable energy holds limitless potential, if we just restore our 
commitment to it.
    Businesses are highly motivated to succeed in solar and other 
renewable energy ventures and are rising to the challenge. Wall Street 
is beginning to take notice. More solar companies are going public and 
the early results look very good. The average gain for U.S. solar 
stocks was 134 percent in 2005.
    The current tax credits are a good start but will not encourage 
investment in domestic manufacturing. They are too short in duration. 
Senate bill S. 2677 addresses the problem with a longer vision but 
obstacles still remain.
    Larger commercial solar systems are important because they produce 
more clean electricity and attract investment from out of state. 
However, many businesses have gone through the initial process of 
evaluating solar energy investments only to find the Alternative 
Minimum Tax (AMT) prevents them from using the federal renewable energy 
tax credit. Exempting the renewable energy tax credit from the AMT is 
crucial if installations of commercial systems are to go forward in any 
significant volume.
    Other Federal programs such as the Solar America Initiative which 
provides crucial funding for technology improvement and acceptance are 
important early steps to keep the United States competitive. The 
Northwest will benefit from this initiative. We urge you to support 
this program and work to expand it next year.

What the Renewable Energy Industry Will Deliver
    With long-term commitments, America's solar companies will continue 
to leverage the creativity and innovation that is currently fueling one 
of the fastest growing industries in the world.
    We will deliver jobs in communities throughout Oregon and the 
Northwest--jobs in manufacturing, distribution, integration, 
installation, and service.
    Installation companies are starting up in communities throughout 
Oregon. These small businesses, along with all other Oregon small 
businesses, form the backbone of our economy.
    Distribution companies like my company, Energy Outfitters, 
headquartered in Grants Pass, are expanding and growing with the solar 
industry. Founded in 1991 as a tiny retail renewable energy store in 
Cave Junction, today we operate three solar electric distribution 
facilities, supplying approximately 300 contractors in the U.S. and 
Canada. Eighty-five percent of our sales come from outside Oregon. Our 
revenues have grown 500 percent in 5 years and we employee 
approximately 25 people. We are developing our own line of 
complementary products and will be expanding our production facility in 
Grants Pass. To round out our business portfolio, we have been 
investing in and building our commercial and industrial installation 
division in Oregon that will create and support many well paid jobs 
deploying renewable energy systems.
    Oregon manufacturers such as PV Powered in Bend are designing and 
manufacturing inverters, the power electronics portion of solar 
electric systems. The vast majority of PV Powered products are exported 
out of state bringing dollars home to Oregon.
    Other Northwest manufacturers such as REC Solar Grade Silicon in 
Moses Lake Washington are bringing investments into the Northwest. 
Solar Grade Silicon has recently committed to an additional $600 
million expansion of their facility which is already the largest 
producer of solar grade silicon in the world.
    The rapidly growing solar industry is also creating opportunities 
outside traditional solar companies. Glass manufacturers, aluminum 
extruders, makers of specialty coatings, metal fabricators, and machine 
manufacturers are all seeing growth as a result of the solar industry. 
A recent study from the Renewable Energy Policy Project (REPP) placed 
Oregon in ninth place nationally to receive over $900 million by 2015 
in investments attributed to the parts and pieces needed to manufacture 
solar electric systems. Oregon manufacturers from semiconductor, sheet 
metal, test equipment, and plastics industries will reap the benefits 
of expanded production and profits from the increased need for their 
products due to the growth in the solar industry.
    A steel fabrication company in Roseburg, Oregon that once had no 
relation to solar now generates significant business from manufacturing 
support structures for solar tracking systems.
    With the right signals the solar industry can and will deliver 
jobs, economic opportunities and some of the cleanest energy on earth 
at the most critical time--during peak load hours.

What Solar Energy Has To Offer
    Solar energy provides several valuable assets to our energy 
portfolio including electricity, commercial and domestic hot water, and 
active and passive heating and cooling.
    Solar energy's largest contribution to our energy needs is 
producing hot water. It's far more effective to transfer heat from our 
sun directly to water than burning valuable gas or electricity. The 
faster we can deploy solar water heating devices throughout America, 
the quicker we will free up present natural gas and electricity 
supplies and infrastructure for more important uses.
    Solar electric systems generate at their peak performance when 
electricity demands are high. These systems offset energy at critical 
times of heavy use and will continue to do so reliably over time. We 
know this from many years of research performed by the University of 
Oregon Solar Radiation Monitoring Laboratory. They have compiled one of 
the longest records of solar data available and we now know what to 
expect this year, next year, and five, ten, and more years down the 
road from our solar energy systems. Solar electric panels manufactured 
today have power output warranties of typically 25 years and an 
estimated life expectancy of 40+ years.
    This long-term reliability underscores another important 
contribution from solar and other renewable energy resources: long-term 
predictable stability that reduces cost and risk associated with 
volatile future fuel supplies.
    Yet another valuable asset from renewable energy is the distributed 
nature of the power generation. These systems can be strategically 
located on the grid to prevent bottlenecks that occur and reduce the 
grid pressure points at critical times effectively offsetting 
investment in expanded infrastructure. With solar electricity, the 
power is being generated at the point of use. With solar thermal, the 
reduction in demand eases the load on existing pipelines and wires.

Conclusion
    Solar energy systems have been reliably producing hot water and 
clean electricity, for decades in the Northwest, and Oregon is the 
leader in number of installed systems. This is not an accident. Oregon 
has supported renewable energy systems with tax credits for over 20 
years.
    With long-term and significant commitment from the Federal 
Government with efforts like S. 2677 and Solar America Initiative we 
can regain the global leadership position we once held with renewable 
energy. We applaud your efforts and support of renewable energy and 
encourage you to continue to lead our Nation to a stable clean energy 
future.
    This concludes my testimony. Thank you for the opportunity to 
testify.

    Senator Smith. That's wonderful testimony, Bob. For my own 
edification and perhaps others here, where does solar come in 
in terms of cost compared to other renewables, or current 
energy sources?
    Mr. Maynard. Right now, with no incentives, solar is 
probably one of the most expensive; it's probably up there 
somewhere near the potential that wave generation may have.
    Senator Smith. Like what is it, 30 cents?
    Mr. Maynard. Somewhere between 20 and 25 cents per kilowatt 
hour. With current incentives----
    Senator Smith. When you come to that number, do you include 
the need for no maintenance and the life of----
    Mr. Maynard.--some of that is figured into it, but so much 
of that is obscure and not recognized by true financial people 
that sit down and analyze it. We try not to portray that as too 
strong of a picture.
    Senator Smith. But there are real cost savings, if you 
bring that number down.
    Mr. Maynard. That's correct. And again the distributed 
nature is really the beauty of it. Solar electric systems 
deployed upon residential roof tops throughout America can be 
looked at almost less as energy generation, in the big scope of 
things, and more as energy efficiency.
    And I'll use my home in Grants Pass as an example. Two-and-
a-half years ago I put a little 3 kW system on it, got a 
$25,000 investment. I saw no return coming in the future for 
that investment for me personally. The incentive package that I 
was able to take advantage of through the energy trust of 
Oregon and through the state tax credits, significantly reduced 
my out-of-pocket, but it still left me somewhere at about a 20 
year payback.
    Does that make financial sense, just looking at it that 
way? Probably not.
    But I had an interesting event occur last fall that changed 
that whole picture for me. My wife and I were looking to 
refinance the home. Got to get an appraisal on the home. We 
kind of looked around our neighborhood and said, ``we're the 
only house in this neighborhood this funny looking, we're 
probably going to lose value on our home.'' We didn't influence 
the appraiser. We gave him no information.
    When the appraisal came in, he gave me a $10,000 increase 
in the value of my home.
    So, if I look at my out-of-pocket expense as just another 
home improvement, at two-and-a-half years, this investment 
broke even.
    Senator Smith. Isn't it also true that new solar panels are 
being made more attractively? I mean, I've heard them described 
as screen doors on your roof, but that isn't necessarily true 
any more, is it?
    Mr. Maynard. Well, there is a lot of effort going into the 
esthetics, being able to create what we refer to as building an 
integrated photovoltaic product that is very unobtrusive.
    Senator Smith. With shingles and things like that?
    Mr. Maynard. That's correct. And over the next few years we 
are going to see a lot more of that product coming to market 
and making solar electric on the residential roof either almost 
invisible or actually an attractive feature.
    Senator Smith. That's very commendable. Again I want to 
thank you all for your taking the time, going to the trouble of 
participating in this Senate hearing. I have benefited from 
what you have had to say. And we're thankful for what you do, 
each of you.
    I want to also thank Bill Bridges, who is our recorder for 
this Senate hearing. He happens to hail from my home town of 
Pendleton, and recorded our Ag hearing yesterday in Bend, and 
did a great job there, too. And thank you, Bill, for coming.
    What we often do with Senate hearings, and this will be no 
exception, we'll leave the record of this hearing open for 5 
days. If anyone has comments or statements they would like to 
be included, we will receive those and include them. And with 
that, we are adjourned.
    [Whereupon, at 11:50 a.m., the hearing was adjourned.]

                                  
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