[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
       HEARING TO REVIEW ELECTRICITY RELIABILITY IN RURAL AMERICA

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON CONSERVATION, CREDIT,
                          ENERGY, AND RESEARCH

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                        WEDNESDAY, JULY 30, 2008

                               __________

                           Serial No. 110-46


          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov


                  U.S. GOVERNMENT PRINTING OFFICE
51-336                    WASHINGTON : 2009
-----------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092104 Mail: Stop IDCC, Washington, DC 20402ï¿½090001


                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            BOB GOODLATTE, Virginia, Ranking 
    Vice Chairman                    Minority Member
MIKE McINTYRE, North Carolina        TERRY EVERETT, Alabama
BOB ETHERIDGE, North Carolina        FRANK D. LUCAS, Oklahoma
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 ROBIN HAYES, North Carolina
DENNIS A. CARDOZA, California        TIMOTHY V. JOHNSON, Illinois
DAVID SCOTT, Georgia                 SAM GRAVES, Missouri
JIM MARSHALL, Georgia                MIKE ROGERS, Alabama
STEPHANIE HERSETH SANDLIN, South     STEVE KING, Iowa
Dakota                               MARILYN N. MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 RANDY NEUGEBAUER, Texas
JIM COSTA, California                CHARLES W. BOUSTANY, Jr., 
JOHN T. SALAZAR, Colorado            Louisiana
BRAD ELLSWORTH, Indiana              JOHN R. ``RANDY'' KUHL, Jr., New 
NANCY E. BOYDA, Kansas               York
ZACHARY T. SPACE, Ohio               VIRGINIA FOXX, North Carolina
TIMOTHY J. WALZ, Minnesota           K. MICHAEL CONAWAY, Texas
KIRSTEN E. GILLIBRAND, New York      JEFF FORTENBERRY, Nebraska
STEVE KAGEN, Wisconsin               JEAN SCHMIDT, Ohio
EARL POMEROY, North Dakota           ADRIAN SMITH, Nebraska
LINCOLN DAVIS, Tennessee             TIM WALBERG, Michigan
JOHN BARROW, Georgia                 BOB LATTA, Ohio
NICK LAMPSON, Texas
JOE DONNELLY, Indiana
TIM MAHONEY, Florida
TRAVIS W. CHILDERS, Mississippi

                                 ______

                           Professional Staff

                    Robert L. Larew, Chief of Staff

                     Andrew W. Baker, Chief Counsel

                 April Slayton, Communications Director

           William E. O'Conner, Jr., Minority Staff Director

                                 ______

       Subcommittee on Conservation, Credit, Energy, and Research

                   TIM HOLDEN, Pennsylvania, Chairman

STEPHANIE HERSETH SANDLIN, South     FRANK D. LUCAS, Oklahoma, Ranking 
Dakota                               Minority Member
HENRY CUELLAR, Texas                 MIKE ROGERS, Alabama
JIM COSTA, California                STEVE KING, Iowa
BRAD ELLSWORTH, Indiana              JEFF FORTENBERRY, Nebraska
ZACHARY T. SPACE, Ohio               JEAN SCHMIDT, Ohio
TIMOTHY J. WALZ, Minnesota           TIM WALBERG, Michigan
DAVID SCOTT, Georgia                 TERRY EVERETT, Alabama
JOHN T. SALAZAR, Colorado            JERRY MORAN, Kansas
NANCY E. BOYDA, Kansas               ROBIN HAYES, North Carolina
KIRSTEN E. GILLIBRAND, New York      SAM GRAVES, Missouri
DENNIS A. CARDOZA, California        MARILYN N. MUSGRAVE, Colorado
LEONARD L. BOSWELL, Iowa
STEVE KAGEN, Wisconsin
JOE DONNELLY, Indiana

               Nona Darrell, Subcommittee Staff Director


                             C O N T E N T S

                              ----------                              
                                                                   Page
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  prepared statement.............................................     4
Holden, Hon. Tim, a Representative in Congress from Pennsylvania, 
  opening statement..............................................     1
    Prepared statement...........................................     2
Lucas, Hon. Frank D., a Representative in Congress from Oklahoma, 
  opening statement..............................................     3
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, prepared statement..................................     4
Salazar, Hon. John T., a Representative in Congress from 
  Colorado, prepared statement...................................     5

                               Witnesses

Andrew, Hon. James M. ``Jim'', Administrator, Rural Development 
  Electric Programs, U.S. Department of Agriculture, Washington, 
  D.C............................................................     5
    Prepared stamen..............................................     7
Marlette, Cynthia A., General Counsel, Federal Energy Regulatory 
  Commission, Washington, D.C....................................    13
    Prepared statement...........................................    15
English, Hon. Glenn, CEO, National Rural Electric Cooperative 
  Association, Arlington, VA.....................................    32
    Prepared statement...........................................    34
Champagne, Paul T., President, PPL Development Company, 
  Allentown, PA..................................................    41
    Prepared statement...........................................    42
James, Revis W., Director, Energy Technology Assessment Center, 
  Electric Power Research Institute, Washington, D.C.............    46
    Prepared statement...........................................    47
Nichols, Hon. Jim, Former Secretary of Agriculture, State of 
  Minnesota; Former Senator, State of Minnesota, Lake Benton, MN.    51
    Prepared statement...........................................    54

                          Submitted Questions

Response to submitted questions..................................    77


       HEARING TO REVIEW ELECTRICITY RELIABILITY IN RURAL AMERICA

                              ----------                              


                        WEDNESDAY, JULY 30, 2008

                  House of Representatives,
 Subcommittee on Conservation, Credit, Energy, and 
                                          Research,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:35 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Tim 
Holden [Chairman of the Subcommittee] presiding.
    Members present: Representatives Holden, Herseth Sandlin, 
Cuellar, Costa, Space, Scott, Salazar, Boyda, Gillibrand, 
Donnelly, Lucas, Schmidt, and Moran.
    Staff present: Claiborn Crain, Nona Darrell, Adam Durand, 
Alejandra Gonzalez-Arias, Scott Kuschmider, Patricia Barr, Josh 
Maxwell, and Jamie Weyer.

   OPENING STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN 
                   CONGRESS FROM PENNSYLVANIA

    The Chairman. The Conservation, Credit, Energy, and 
Research Subcommittee hearing to review electricity reliability 
in rural America will come to order. I would like to thank the 
witnesses for being here, and I look forward to their 
testimony. Today we are going to look at issues surrounding 
electricity in rural America.
    In the 1930s, 90 percent of Americans living in urban areas 
had electricity, while only 10 percent of rural citizens had 
the same. The Rural Electrification Act of 1936 changed this by 
allowing the Federal Government to make low-cost loans in order 
to bring electricity to rural America for the first time.
    Luckily, we are no longer in the 1930s, but our nation's 
energy demands are at a critical point, and we must explore 
every opportunity to invest in rural communities and meet our 
growing power needs.
    During the consideration of the farm bill, several 
questions arose regarding the future of electric power in rural 
America. The ability of rural areas to develop economically 
depends on a strong, reliable infrastructure including electric 
power generation, transmission, and distribution. With the 
growing demand for power, it is time to find the solutions that 
will best serve our national needs and make economic sense.
    Now is not the time to pick a generation feedstock over 
another while some technologies, such as carbon capture and 
sequestration, are still being developed. We all know finding a 
way to limit emissions is the key to any new generation 
project, but we must also address the issue of financing 
generation and transmission needs before we automatically 
exclude low-cost options.
    Renewable production can play a role in our energy future, 
but it will take a balance of all resources to meet our 
electricity demands. We must design policies that work together 
and modernize systems to reach our goals. Agriculture and 
energy are logical partners, and much of all renewable energy 
generation can and should occur in rural America.
    A major barrier to making the best use of renewable energy 
is transmission capacity to get that energy to the markets 
where there is the most demand. The development of wind and 
solar generation farms opens the opportunity of power farming 
as a part of our rural solution to economic prosperity. To be 
part of the opportunities and growth that will occur in the 
21st Century, rural America must have access to the 
technological and information developments that are coming each 
year.
    Electric reliability at an affordable cost is a major 
aspect of these new opportunities. Today's hearing will 
hopefully teach us about our power generation needs, production 
technology development, infrastructure, and associated costs. 
And I look forward to hearing from our panel in testimony 
today.
    [The prepared statement of Mr. Holden follows:]

  Prepared Statement of Hon. Tim Holden, a Representative in Congress 
                           From Pennsylvania

    I would like to thank the witnesses for being here and I look 
forward to their testimony. Today we are going to look at issues 
surrounding electricity in rural areas.
    In the 1930s, 90 percent of Americans living in urban areas had 
electricity while only 10 percent of rural citizens did. The Rural 
Electrification Act (49 Stat. 1363) of 1936 changed this by allowing 
the Federal Government to make low-cost loans in order to bring 
electricity to rural America for the first time.
    Luckily, we are no longer in the 1930's, but our nation's energy 
demands are at a critical point, and we must explore every opportunity 
to invest in rural communities and meet our growing power needs.
    During consideration of the farm bill, several questions arose 
regarding the future of electric power in rural America. The ability of 
rural areas to develop economically depends on a strong, reliable 
infrastructure, including electric power generation, transmission and 
distribution. With the growing demand for power, it is time to find the 
solutions that will best serve our national needs and make economic 
sense. Now is not the time to pick a generation feedstock over another 
while some technologies, such as carbon capture and sequestration, are 
still being developed. We all know finding a way to limit emissions and 
providing for a capture and trade process is the key to any new 
generation project, but we must also address the issue of financing 
generation and transmission needs before we automatically exclude low 
cost options such as coal.
    Renewable production can play a role in our energy future, but it 
will take a balance of all resources to meet our electricity demands. 
We must design policies that work together and modernize systems to 
reach our goals. Agriculture and energy are logical partners, and much 
of our renewable energy generation can and should occur in rural 
America. A major barrier to making the best use of renewable energy is 
the transmission capacity to get that energy to the markets where there 
is the most demand. The development of wind and solar generation farms 
opens the opportunity of ``power farming'' as a part of our rural 
solution to economic prosperity.
    To be a part of the opportunities and growth that will occur in the 
21st Century, rural America must have access to the technological and 
information developments that are coming each year. Electric 
reliability at an affordable cost is a major aspect of these new 
opportunities.
    Today's hearing will hopefully teach us about our power generation 
needs, production technology development, infrastructure, and 
associated costs. I look forward to hearing from our panelists.

    The Chairman. And I recognize my friend, the Ranking Member 
from Oklahoma, Mr. Lucas.

 OPENING STATEMENT OF HON. FRANK D. LUCAS, A REPRESENTATIVE IN 
                     CONGRESS FROM OKLAHOMA

    Mr. Lucas. Mr. Chairman, thank you for calling today's 
hearing so we can discuss the reliability of electricity in 
rural America. I look forward to hearing from witnesses about 
the challenges we face in keeping up with electricity demand.
    The source of our energy troubles comes down to basic 
supply and demand. Demand for electricity usage is at record 
levels, pushing our nation's current energy providers to their 
limits. Addressing this energy crisis is a top priority of 
mine, and I believe should be a priority of this Congress.
    I have constantly supported expansions to our nation's 
energy supplies in clean, efficient ways. We not only need to 
help expand and enhance the existing methods of electricity 
production, such as expanding clean coal harvesting, but we 
also need to develop new and alternative energy sources such as 
wind power and nuclear power.
    I am a proponent of wind power and have supported the wind 
power industry in establishing wind farms in Oklahoma. Wind 
power is one of the most efficient forms of energy, and 
Oklahoma's wind industry is currently the ninth producer in the 
nation.
    American's wind production potential is far from fulfilled 
in many states but unfortunately been opposed by some who 
oppose those wind turbines being built within their borders. In 
addition to supporting wind industry in becoming established, 
more research and development is needed on how to transport the 
energy produced from wind turbines. If we are going to utilize 
renewable energy, then we must have a way in which to get it to 
the most populated areas of this country.
    I am interested in learning more today about what our 
greatest challenges are in ensuring that we continue to have 
reliable, affordable electricity in this country and in rural 
America.
    In the 1930s, Congress addressed the needs of rural America 
by providing Federal assistance for electric generation. When 
this program began, only 10 percent of rural residents had 
electricity. By 1950s, nearly 90 percent of U.S. farms had 
electricity. The Rural Electrification Act is a shining example 
of how a government program can truly make a difference.
    Now we must focus on how to maintain the reliable and 
affordable electricity that we have all come to know. We can do 
this by exploring and developing all of our renewable 
resources, expanding our transmission capacity, becoming more 
energy efficient, and committing more funding to research and 
development of new technologies.
    Again, Mr. Chairman, it is always a pleasure to serve with 
you on a hearing, and I look forward to the important 
information that we will glean today. Thank you.
    The Chairman. The chair thanks the Ranking Member and would 
ask all other Members of the Subcommittee to submit their 
opening statements for the record.
    [The prepared statements of Messers. Peterson, Goodlatte, 
and Salazar follow:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress From Minnesota

    Thank you, Chairman Holden, for calling this hearing and for the 
work you and Ranking Member Lucas are doing to ensure proper oversight 
of the issues vital to farm country and rural America.
    Today's hearing is a great opportunity for Members of this 
Committee to get up to speed on the major issues surrounding 
electricity generation and delivery in rural areas.
    All of us on this Committee spend a lot of time working to improve 
the economic conditions of rural America. And the health of rural 
America is only as good as the infrastructure that supports it. 
Reliable electricity was at one time unheard of in rural America. It's 
hard to imagine that kind of situation existing today, but this 
Committee should be no less interested in this issue, because although 
times have changed, many rural electricity systems are in need of 
constant upgrading, extending, and replacing.
    Many concerns about the reliability of rural electrification were 
raised as this Committee worked on the farm bill. While some of those 
were addressed in the legislation, there are a lot of unresolved issues 
that will have to be dealt with over the long term.
    The consensus coming out of the farm bill was that we really need 
to get Members educated on all aspects of rural electrification and the 
power market, and that's what today's hearing is all about. We will 
examine baseload generation, capacity, transmission, distribution, and 
the regulatory structure that oversees it all.
    One area of great interest to this Committee is the capability of 
renewable energy producers to access the grid. Rural areas are a great 
source of clean, renewable energy technologies, like wind, hydropower 
and solar, that can contribute to our nation's energy security for 
future generations. The ability of rural producers to access capital 
and navigate the patchwork of Federal, state, and local oversight can 
allow farmers and ranchers to power themselves and their neighbors.
    This has great economic development potential for rural communities 
in the long run.
    I know with the leadership of Chairman Holden and Ranking Member 
Lucas, this Subcommittee will be doing a lot more oversight on reliable 
electricity and other infrastructure issues that are vital to rural 
America, because they are simply too important to ignore until after 
the fact.
    I welcome today's witnesses and I look forward to their testimony. 
I yield back my time.
                                 ______
                                 
Prepared Statement of Hon. Bob Goodlatte, a Representative in Congress 
                             From Virginia

    Mr. Chairman, thank you for holding today's hearing to review 
electricity reliability in rural America.
    The United States is facing an energy supply crisis. Reliable and 
affordable electricity is expected in every home in the United States. 
However, the policies of Congress over the past 30 years have 
compromised the future availability of powering our homes and 
workplaces.
    I was very disappointed that a provision in the Senate-passed farm 
bill that would once again allow Rural Electric Co-ops to access RUS 
financing for any type of baseload electric generation did not make it 
into the conference report. Unfortunately, as a result, baseload 
generation from Nuclear, Gas, Coal with Carbon Capture sources will 
continue to be difficult, if not impossible to finance.
    This lack of financing for baseload generation forces Co-ops to buy 
electric power on the open market. Since the cheapest power on the 
market is generated from coal, Co-ops would be buying coal generated 
electricity from other sources; this will not lead to reduced 
CO2 emissions.
    The rest of the world is far outpacing the U.S. in its commitment 
to clean nuclear energy. We have not built any new nuclear facilities 
in over 25 years and generate only 20 percent of our electricity from 
this clean energy, when other countries can generate about 80 percent 
of their electricity needs through nuclear power. Nuclear energy is the 
most reliable and advanced of any renewable energy technology, and if 
we are serious about encouraging CO2-free energy use, we 
must support nuclear energy.
    Abundant and affordable energy and energy conservation are the keys 
to a strong economy. Until alternative fuel technology becomes more 
affordable and convenient, our cars, our jobs, and our economic growth 
will run on traditional energy sources. Coal is one of our nation's 
most abundant resources. We should do more to encourage clean coal 
technology such as Coal-to-Liquid and Carbon Capture and Sequestration.
    We must continue to encourage the development of renewable energy, 
such as wind, biomass, and hydropower. But relying heavily on these 
technologies is not the answer. By shifting to renewable energy sources 
that are not as available or as cost effective as traditional sources, 
we will see a rise in energy prices across the board. We must diversify 
our energy supply with new and traditional, environmentally friendly 
energy resources.
    I look forward to hearing today's testimony.
                                 ______
                                 
    Prepared Statement of Hon. John T. Salazar, a Representative in 
                         Congress From Colorado

    Good morning, I would like to thank Chairman Holden and Ranking 
Member Lucas for holding this important hearing.
    I also want to thank the witnesses of the two panels for coming to 
testify and provide background information on electricity in rural 
America.
    As you know, the 3rd District of Colorado is largely rural. While 
this quality helps preserve our land and maintain its beauty, it 
hinders our ability to take advantage of some technology and energy 
supplies.
    All communities deserve access to broadband and affordable 
electricity.
    We need to encourage companies to send broadband to our rural 
communities. We also need to incentivize groups to carry renewable 
energy from districts similar to my own to more urban areas.
    My district is among those with the greatest potential to produce 
renewable energy, such as wind, solar, and clean coal.
    We need to find a way to produce these renewables and then transmit 
this energy nationwide.
    Over the next 20 years, the U.S. will need to create four times the 
amount of power currently produced in California.
    We can only do this by being smart about energy legislation today.
    We need to maintain T. Boone Pickens' mantra that we cannot simply 
drill our way out.
    We need a comprehensive solution that includes fossil fuels and 
renewable energy if we ever want to reach energy independence.
    Our districts can be the heart of the growth of renewable energy, 
but we need to allocate funds and review the REA to see how we can best 
help this surge.
    With that said, I am anxious to hear the thoughts of our panelists 
as they discuss rural electricity.
    Again, thank you Chairman and Ranking Member.

    The Chairman. And I would like to welcome our first panel. 
Administrator Jim Andrew, Rural Development Utilities Programs 
for the United States Department of Agriculture. Ms. Cynthia 
Marlette, General Counsel, Federal Energy Regulatory 
Commission. Administrator Andrew, you may begin when you are 
ready.

           STATEMENT OF HON. JAMES M. ``JIM'' ANDREW,
           ADMINISTRATOR, RURAL DEVELOPMENT UTILITIES
           PROGRAMS, U.S. DEPARTMENT OF AGRICULTURE,
                        WASHINGTON, D.C.

    Mr. Andrew. Mr. Chairman, Members of the Subcommittee, 
thank you for the invitation to share our views on the 
reliability of the nation's electric system. My written 
statement reflects our comments on capacity and the need for 
additional capacity with some extensive documentation.
    Because I believe other panelists will go further into 
capacity for reliability, I want to address another facet of 
reliability: the physical condition of the system as we know 
it. Mr. Chairman, as noted, we are U.S. Rural Development 
Utilities Program. We are the REA, blending with the other 
rural agencies to make up USDA Rural Development.
    Our constituencies are the rural electric, rural water and 
waste, rural telephone, and broadband systems of America. But 
for purposes of this hearing, my statement will deal with rural 
electric systems.
    I am sure you know that this program is generally 
considered a bank, and we do make loans. Today we have just 
over $35 billion in outstanding loans on the books. Before a 
loan is approved and the money is obligated, there are many 
things that are considered by the professionals in the agency. 
We feel the government has no money. The funds we commit are 
taxpayers' money. It is our responsibility to invest them for 
the good of the borrowers who are member/owners of the electric 
cooperative.
    It is also our responsibility to see to it that the money 
is paid back. On that point, the program has less than 0.02 
percent past due 30 days and practically nothing past 60 days. 
In addition to financial concerns, the system must stand up to 
the rigors of weather and time placed on it so those taxpayers 
get their money's worth.
    From the beginning, the Rural Electrification 
Administration, the REA, has been innovative. The completely 
new distribution systems designed by the engineers back then 
still stand as a model. Furthermore, those systems still stand. 
It was just after the Depression; money was very tight, and the 
system needed to be built as inexpensively as possible and 
still have structural integrity. Those poles and wires had to 
cross some of the most rugged terrain in America, swamps, 
deserts, mountains, and so forth for anyone around; therefore 
rigid standards were established. Products were tested and 
specified. Construction was tightly monitored. Policies and 
procedures were developed. Field personnel continues to observe 
the system.
    Mr. Chairman, those rigid standards are still a part of the 
process and requirements today. A track was laid for a strong 
system, and the agency has stayed on track. An example of how 
that has worked so very well is the disaster of Hurricane 
Katrina. Many electrical systems were down on the ground. A 
large percentage were electric co-ops. When crews from co-ops 
from many parts of the USA came to help, they needed only to be 
shown where to begin work.
    They knew the system. They came with trucks loaded with 
materials from their own warehouses that met the established 
standards, and they went to work. The systems were put up very 
quickly. Being strong systems that have a consistent standard 
means that even in disaster, system reliability exists.
    Mr. Chairman, lest I over-speak, there is still work to be 
done. The expected growth in kilowatt hours means more capacity 
is needed. More capacity means more poles and wire for growth. 
Upgrades on existing systems will be necessary. Some upgrades 
because of the age, and some because of the desire to avoid 
being down, and some just to increase capacity on what is 
already there.
    We can get these things done. In fact, we are getting these 
things done. We will make over $6 billion in loans this year to 
these systems for growth and improvement. With this work being 
done, there is however another big hurdle: transmission. We 
believe that transmission is the biggest challenge to the 
growth and reliability we have. The same quality rules that 
apply to distribution and generation systems also apply to 
transmission. That is not a concern. The concern is that 
transmission affects every aspect we can discuss here at the 
hearing.
    We can build distribution systems. We can build generation 
systems. We can build massive renewable systems, but if we 
can't transmit the power to the place where it is needed, we 
really haven't accomplished much. The transmission challenges 
are extensive. Who owns it? Who finances it? How does the 
investment get repaid? Who controls the on and off ramps? Each 
state's regulations are different, and the list goes on.
    My new friend, Ms. Cynthia Marlette from the Federal Energy 
Regulatory Commission--we discussed this earlier--will have 
more to say about this and from a better perspective that I 
ever could.
    Mr. Chairman, no one wants these transmission systems and 
long spans of wire on their property. I don't, and you don't. 
The Rural Electric Cooperative serves 75 percent of the land 
mass in the U.S. which means much, if not most, of this 
transmission will be built in rural service areas. We finance, 
provide the regulations, and provide environmental studies but 
not the direction nor the location of these wires and poles.
    The systems are in good shape and are reliable physically. 
The standards are in place to guide the future as they have in 
the past. The challenges are to keep doing what we have been 
doing, and to find a way to expand the transmission grid to 
support our growth and with the agreement of the landowners.
    Generation from renewable sources will be necessary to 
supplement other forms of generation. These renewable sources 
will most probably be located in more remote places, and 
transmissions must get these resources to market.
    Mr. Chairman, please accept this oral statement and my more 
detailed written statement as my background for any questions 
the Committee may have. Thank you.
    [The prepared statement of Mr. Andrew follows:]

  Prepared Statement of Hon. James M. ``Jim'' Andrew, Administrator, 
 Rural Development Utilities Programs, U.S. Department of Agriculture,
                            Washington, D.C.

    Mr. Chairman, Members of the Committee, thank you for inviting me 
to discuss electric power generation and reliability issues in rural 
America.
    The demand for new generation capacity in rural areas is increasing 
just as it is in the urban centers. The last significant industry wide 
build-out of baseload electric generation plants occurred during the 
1970-1985 timeframe. Since that time, the industry has moved from a 
situation of surplus capacity to the current period in which most 
utilities are forecasting the need to build new baseload capacity to 
meet the requirements of their customers; in the case of rural electric 
cooperatives that means the member/owners of the system. Because of the 
significant lead time necessary for the addition of new baseload 
capacity, many utilities, including cooperatives, are not expanding at 
a rate necessary to meet the anticipated demand for electricity.
    Baseload generation means those plants that are designed to be 
operated 24 hours per day, 7 days per week. They are shut down only for 
required maintenance. Most baseload plants are generally fueled by 
either coal, nuclear power, or natural gas. When baseload plants cannot 
meet demand, intermediate facilities are started. These are typically 
fueled by natural gas and can be started as quickly as needed. The last 
in line are peaking plants that are also fueled by natural gas and also 
can be started quickly.
    According to a recent survey of Electric Cooperative Generation and 
Transmission borrowers conducted by the National Rural Electric 
Cooperative Association projects that due to electric load growth, many 
electric cooperatives will need to double generation capacity by 2020. 
Virtually no additional capacity was added during the 1990s and early 
in this century due to surplus capacity and the efforts to deregulate 
the electric power industry during the mid to late 1990s. Deregulation 
attempts created an atmosphere of uncertainty that the existing 
customer base would be there to ensure repayment of the investments.
    During this period, the electric cooperative side of the industry 
attempted to keep pace with demand by investing in smaller natural gas 
peaking and intermediate facilities which are less costly to build, but 
can be very expensive to operate at times when the price of natural gas 
spikes. Cooperatives also met customer demand by entering into power 
purchase contracts with other suppliers. Many of these contracts will 
expire in the near future; some as soon as 2011.
    Since 2000, the uncertainty associated with deregulation of the 
industry has waned. This combined with favorable interest rates 
encouraged Electric Program generation and transmission borrowers to 
begin developing plans for investments in new generation capacity. 
However, new uncertainties and challenges have since been introduced:

   There is much discussion that some form of carbon dioxide 
        emission limits will be imposed.

   Legal challenges to environmental permits can be expected on 
        any new baseload generation plant that has emissions.

   Costs of new plant construction are increasing substantially 
        each year due to a variety of factors.

Current Generation Capacity and Peak Demand
    Electric Program Generation and Transmission borrowers own 160 
generating units totaling 38,604 megawatts of generation capacity of 
which roughly 59 percent is from coal fired steam plants and about six 
percent is represented by partial ownership in nuclear plants and 
approximately 32 percent is from primarily gas fired peaking or 
intermediate units.
    Owned capacity represents 57 percent of the energy supplied to 
member distribution cooperatives. Purchases from other sources 
represent the other 43 percent. Generation and Transmission 
cooperatives attempt to maintain this balance between self-generation 
and purchased power to minimize risk and optimize their costs. If 
purchases can be secured at less marginal cost than that of operating a 
peaking or intermediate unit, the cooperative will opt for purchases to 
meet the requirements of its members.
    One reason that 59 percent of the capacity owned by these 
cooperatives is coal fired is that following the OPEC oil embargo of 
1973 Congress enacted the Power Plant and Industrial Fuel Use Act of 
1978 which strictly limited the use of oil or natural gas to generate 
electricity. This encouraged investment to coal and nuclear energy 
during the last baseload construction cycle in the late 1970s and early 
1980s.
    Another reason that coal is the preferred fuel is cost. Currently, 
energy generated from coal is available at a median total cost of 
$34.02 per megawatt hour. Gas fired combined cycle plants produce 
energy at an average cost of $96.60 per megawatt hour while nuclear 
energy costs a little over $40 per megawatt hour.
U.S. Capacity Margins
    The mission of the North American Electric Reliability Corporation 
(NERC) is to ensure that the bulk power system in North America is 
reliable. Under the oversight of the Federal Energy Regulatory 
Commission (FERC), NERC develops and enforces reliability standards; 
monitors the system; assesses and reports on future adequacy; and 
evaluates owners, operators, and users for reliability preparedness.
    In October of 2007, NERC released a report on Long Term Reliability 
Assessment which contained the following key findings:

   Long term capacity margins are still inadequate;

   Integration of wind, solar, and nuclear resources require 
        special consideration in planning, design, and operation;

   High reliance on natural gas in some areas of the country 
        must be properly managed to reduce supply risk and delivery 
        interruption;

   The transmission situation has improved, but more is still 
        required; and

   The aging workforce is still a growing challenge.

    According to the report, peak demand for electricity in the U.S. is 
forecast to increase by over 135,000 MW or 17.7 percent in the next ten 
years. Capacity is projected to increase by only 77,000 MW. Capacity 
margins will begin dropping below the recommended 15% above peak demand 
by 2009 and continue to decline to under 10% by 2016. The decline below 
15% will occur first in the western third of the U.S. and Canada and in 
New England. A reserve of 15% is necessary to prevent brownouts or 
blackouts in case of unplanned outages of generation facilities, 
unusual weather events, or other unpredictable events occur.
    The map below identifies the years when a region or sub-region 
drops below target capacity margin levels required to meet summer peak 
(unless noted as winter) including both committed and uncommitted 
resources. Those regions or sub-regions not identified are not 
projected in the next ten years to drop below their target margin 
levels. Source: NERC. 



    The U.S. Department of Energy's Annual Energy Outlook for 2008 
forecasts electricity consumption to grow from 3.8 billion kilowatt 
hours (KWh) in 2006 to almost 5 billion KWh in 2030, an annual rate of 
increase of 1.1 percent. The 2008 forecast is lower than the 2007 
forecast of 1.5 percent annual increase due to slower economic growth, 
higher electricity prices and the enactment of new efficiency standards 
in the Energy Independence and Security Act of 2007.
    The Cambridge Energy Research Associates, a private research firm, 
estimates the U.S. electric power industry will invest $900 billion in 
new utility plants over the next 15 years. This level of investment 
surpasses the total net plant in service today. This total includes 
$350 billion for new generation, $300 billion for distribution, $150 
billion for transmission, $50 billion for conservation and efficiency 
and $50 billion for environmental retrofits (not including 
CO2 abatement).

Rural Areas
    Presently, rural electric Generation and Transmission cooperatives 
generate about 5% of the energy produced in the U.S. Every year the 
National Rural Electric Cooperative Association (NRECA) surveys its 
cooperative members regarding their planned capacity additions. The 
most current survey indicates a 10 year capital requirement of $65.5 
billion, $49.9 billion of which is specifically for new generation 
projects. Ten billion dollars is needed for new transmission and almost 
$3 billion is needed for environmental retrofits.

               Total Projected Investment By NERC Region



    While adding natural gas fired units in the short term is not seen 
as an optimal solution, this capacity will aid in meeting the energy 
requirements of cooperative consumers. The price of natural gas has 
been volatile and steadily increasing since 2000 and additional demand 
will add to the price volatility.

Construction Cost
    According to the Cambridge Energy Research Associates Power Capital 
Cost Index, the cost of new power plant construction has increased 130% 
during the past 8 years with almost 70% of the increase occurring since 
2005. The demand for construction material in China and India is a huge 
factor, but other supply constraints and increasing labor cost are also 
key factors. Earlier this year, one of the Generation and Transmission 
Cooperative borrowers shelved a coal-fired project that had been in the 
planning stage for 3 years because the projected cost had risen from 
$1.4 billion to over $1.8 billion.
    The time horizon for large baseload generation plants can easily be 
ten years from the beginning of planning to commercial operation; 
construction time alone can be 4 years. Making investment decisions 
with these time horizons is very difficult given the uncertainties 
discussed above. Adding to these uncertainties are the current 
disruptions in the commercial financial markets.

Financing Options and Costs for Generation and Transmission 
        Cooperatives
    Sixty-eight percent of long-term debt held by Generation and 
Transmission cooperatives has been provided by Rural Development 
Electric Program loans and guarantees. For most of these entities, this 
source of financing is the preferred option due to the lower interest 
rates and term length differences between government financing and 
commercial capital.
    On average, the cost of energy represents 65% of the electric bills 
at the rural retail level. Primarily residential, rural electric 
distribution cooperatives serve an average of 7.0 consumers per mile of 
distribution line compared to 35.1 for investor owned utilities and 
46.6 for municipally owned systems. Translated into revenue per mile of 
line distribution, cooperatives average $10,565 compared to $62,665 for 
investor owned utilities and $86,302 for municipally owned systems. Due 
to the low density of the customer base, the cost of energy, and the 
fact that most of the energy used is for residential needs (translates 
to less than a 50% load factor), the rates paid by rural distribution 
cooperative consumers average about 10% higher than neighboring 
investor owned and municipally owned systems. For these reasons, it is 
imperative that the Generation and Transmission cooperatives seek the 
least costly source of capital for their members.
    We are currently financing intermediate and peaking generators, 
improvements and pollution control improvements to existing generation 
plants, transmission, and renewable energy projects, as well as 
distribution system improvements. In Fiscal Year 2008, the electric 
program will provide a total of $6.6 billion for these needs.
    These types of improvements involve minimal risk to the government 
so there are virtually no subsidy costs associated with these 
investments. Another factor contributing to low subsidy rates is the 
fact that there is less than \1/10\ of one percent delinquency rate on 
the Rural Development Electric Loan Program's portfolio exceeding $36 
billion.

Renewable Energy
    Renewable energy, including hydropower, accounts for approximately 
eight percent of the nation's electricity production while coal and 
nuclear combine to total 68 percent and natural gas 22 percent. For 
electric cooperatives, renewable energy, primarily large hydroelectric 
facilities, accounts for 11 percent, coal accounts for 62 percent, 
nuclear 15 percent, natural gas 10 percent and diesel fuel two percent. 
Renewable energy is becoming a larger portion of the cooperative's 
energy portfolio.
    Presently 80 percent of the 900 rural electric cooperatives supply 
some of their electricity needs from renewable sources, owning or 
purchasing 1,415 megawatts, primarily wind. A little over 1,000 
additional megawatts, composed of wind and woody biomass, is being 
planned. Close to 150 cooperatives either own wind turbines or purchase 
output from wind farms. Basin Electric based in North Dakota purchases 
136 megawatts from three commercial wind farms and is planning to build 
and own another 200 megawatts of wind energy.
    Renewable Portfolio Standards (RPS) adopted by several states have 
had a significant impact on the deployment of renewable generation. 
Twenty-six states and the District of Columbia have passed RPS 
requiring utilities to add increasing amounts of renewable energy 
ranging from 10 to 25 percent of their energy mix. Other states have 
adopted renewable goals rather than mandates.
    To a large extent, renewable energy resources are found in remote 
rural areas. Fully developing those resources and delivering the energy 
to market centers will require substantial investments in transmission 
capacity, both in terms of delivering renewable energy to the 
transmission grid and increasing the capacity of the grid to handle 
increasing loads.
    We are currently working with Generation and Transmission 
cooperatives as well as private developers of wind and biomass projects 
on additional projects that will total well over $1 billion in 
financing. The success of these projects will drive additional 
investments in the future. The availability of the production tax 
credit, favorable depreciation rates, and Clean Renewable Energy Bonds 
are making renewable energy more price-competitive. This is in-turn 
stimulating increasing interest in developing renewable energy projects 
with the assistance of the Rural Development Electric Program.
    Additionally, several rural electric generation and transmission 
CEOs recently announced the formation of a national cooperative 
dedicated to the development of renewable energy sources. A national 
effort was deemed necessary because some areas of the country do not 
have sufficient renewable resources for generation of electricity. For 
example, generation cooperatives in the South and Southeast that have 
limited wind resources can participate in wind projects developed in 
the Great Plains through equity contributions.
    Wind and solar energy will continue to increase as important 
components of the energy mix, however, they should not be considered as 
baseload capacity resources because they can not generate electricity 
24/7. This has been best stated by the American Wind Energy 
Association; ``It is an energy resource. You take the wind when nature 
delivers it and rely on other system resources when it is not 
available.'' Biomass renewable sources such as waste wood can be 
operated as baseload resources.

Energy Efficiency
    The cooperative segment of the electric industry has been 
recognized nationally a leader in energy efficiency and demand side 
management practices. These practices reduce demand and help mitigate 
the need for new electric generation capacity. Most distribution 
cooperatives offer incentives, rebates and other assistance such as 
free energy audits for residential, commercial and industrial 
consumers. Many distribution cooperatives also participate in the 
Electric Programs Energy Conservation Program (ERC) which offers 
deferral of principal payments on debt for this purpose. This enables 
the cooperative to use those funds to assist consumers seeking to 
install energy efficient appliances or other energy saving measures. A 
very popular and successful effort is the installation of geothermal 
ground loop systems replacing inefficient heating and air conditioning 
systems. The upfront cost of these systems can be prohibitively 
expensive for many homeowners, but with the assistance of the ERC 
program, the cost to the home owner can be reduced to affordable 
levels.
    Recently, two cooperatives in Alabama and Kentucky and the Hawaii 
Habitat for Humanity Office were awarded High Energy Cost Grants, 
administered by the Electric Program, to assist low income homeowners 
to install energy efficiency measures to reduce their energy bills. A 
previous grant to the Alabama cooperative proposes to assist 100 very 
low income home owners repair or replace duct work, install energy 
efficient appliances, replace inefficient furnaces and central air 
conditioners with highly efficient heat pumps, install insulation, and 
install energy efficient doors and windows. These efforts not only 
reduce the energy bills of the home owner, but also reduce the amount 
of energy the cooperative has to purchase to serve those homes. One 
example shows the home owner monthly electric bill decreasing from 
3,979 kwh per month to 2,080 kwh per month, a 48 percent reduction.

Carbon Emissions
    As legislation designed to reduce the amount of greenhouse gas 
emissions is being considered, we must keep in mind that the 
intermittency of wind and solar energy means that we cannot depend on 
those resources for capacity reliance. There must be other energy 
sources available for those times that wind and solar sources are not 
available.
    This was demonstrated rather dramatically earlier this year in 
Texas when wind production of electricity in west Texas unexpectedly 
dropped by 75% while simultaneously late afternoon peak demand rose by 
over 2,000 megawatts as people returned home from work. In order to 
avoid brownouts, the Electric Reliability Council of Texas (ERCOT), the 
entity that manages the transmission grid in Texas, called 
interruptible customers, typically large commercial or industrial 
customers, and asked them to reduce their demand and simultaneously 
started up natural gas fired peaking facilities to generate additional 
power to balance supply and demand. Compounding the problem was that 
some baseload units were not generating power due to planned outages 
for maintenance or other reasons. All of this occurred in a matter of 
minutes.
    Occurrences such as this one lead us to believe that any approach 
to limiting carbon emissions should be balanced in order to maintain 
system reliability, sustain economic growth and provide time for the 
appropriate technologies to be developed. This includes a balanced mix 
beginning with energy efficiency and renewable resources, additional 
nuclear capacity, advanced clean coal generation, carbon capture and 
storage, plug-in-hybrid vehicles, and distributed energy resources.
    The Rural Development Electric Program intends to assist Basin 
Electric Cooperative in North Dakota install carbon capture technology 
at an existing coal fired generation plant. This technology will remove 
a portion of the carbon dioxide and feed it into an existing 
CO2 compression and pipeline system owned by Basin from 
which it will be sold for enhanced oil recovery in North Dakota and 
Canada. Smaller portions of CO2 will be taken out of the 
pipeline and injected into a non-recoverable coal seam and a saline 
formation to test sequestration capability of those geologic 
formations. Our goal is to help further the advancement of these 
technologies.

Conclusions
    The system reliability concerns identified in the NERC report, as 
well as other reports, point out that brownouts are probable unless we 
begin now to increase investment in transmission. Simultaneously, we 
must intensify energy efficiency efforts and add new generation sources 
beginning with additional renewable resources. But we also need to add 
baseload plants. The lead time associated with planning and 
constructing new baseload plants can easily consume 8 to 10 years and 
the country is already behind the demand curve.
    Ensuring reliability of the system and adequate supply is going to 
be costly and consequently consumer rates may increase. However, the 
economic cost of brownouts could be higher due to interruptions of 
commerce. Our economy is highly dependent on reliable electricity and 
that dependence is growing as more of the economy shifts to the service 
sector and as we move to energy independence. The development of 
alternative transportation fuels, regardless of the feedstock, will 
also require significant sources of new electric generation.
    Mr. Chairman, thank you for the opportunity to present our views on 
rural electric generation needs and the reliability of the electric 
system. I would be pleased to answer any questions the Members of the 
Subcommittee have.

    The Chairman. Thank you, Mr. Andrew. Ms. Marlette.

  STATEMENT OF CYNTHIA A. MARLETTE, GENERAL COUNSEL, FEDERAL 
                 ENERGY REGULATORY COMMISSION,
                        WASHINGTON, D.C.

    Ms. Marlette. Mr. Chairman and Members of the Subcommittee, 
thank you very much for the opportunity to be here today. I 
appear before you today as a staff witness of the Federal 
Energy Regulatory Commission, and I don't speak for the members 
of the Commission.
    My testimony today focuses on the Commission's limited 
jurisdiction over rural electric cooperatives and also 
discusses Commission policies that may affect the provision of 
service by electric cooperatives.
    As a general matter, the Commission has relatively little 
authority over the majority of electric cooperatives. We 
generally have no authority to regulate the rates and services 
of distribution-only utilities of any kind, including 
distribution cooperatives. To the extent the cooperatives 
engage in wholesale sales or transmission in interstate 
commerce, the Commission has authority to comprehensively 
regulate those activities only if the utility does not receive 
funding under the Rural Electrification Act of 1936 and the 
cooperative sells 4 million or more megawatt hours of 
electricity per year.
    Of the over 900 electric cooperatives in the United States, 
at this time, the Commission regulates only 15 of those 
cooperatives. However, the Commission does have certain limited 
authorities that apply to REA-financed cooperatives. This 
includes authority to order them to provide interconnection and 
transmission access to their facilities, authority to enforce 
compliance with the mandatory reliability standards for the 
bulk power system, authority to sanction market manipulation by 
any entity in connection with Commission jurisdictional 
transactions, and certain authority to require any market 
participant to disseminate to the public information regarding 
the availability and pricing of wholesale electric energy and 
transmission service.
    Although the Commission's authorities are limited over 
cooperatives, cooperatives have long been very active 
participants in Commission proceedings involving investor-owned 
public utilities. They have also been very active in our 
generic rule-making proceedings involving interconnection and 
transmission access as well as our rulemakings to implement the 
new reliability provisions and backstop transmission siting 
authority given to the Commission in the Energy Policy Act of 
2005.
    The Commission's policies clearly can affect cooperatives 
and the consumers they serve, particularly as the Commission 
and industry participants address the challenges ahead in 
developing new electric transmission infrastructure and meeting 
the future power needs of the nation's consumers.
    Among the policies and requirements that most affect 
cooperatives, there are five that I would highlight for you. 
First, electric cooperatives have the ability to use the open 
access transmission tariffs of Commission-regulated public 
utilities to obtain transmission services. Open access tariffs 
allow customers to obtain transmission service on a 
nondiscriminatory basis, whether to sell their own power or to 
go out in the market and shop for power to serve their 
customers.
    The Commission, last year, updated the open access service 
obligations including a requirement to offer new service 
options for long term firm customers.
    Second, electric cooperatives have the ability to 
interconnect their generating facilities with the interstate 
transmission grid through standardized nondiscriminatory 
procedures and agreements that are required to be used by 
Commission-regulated public utilities.
    These procedures and agreements vary depending on the size 
and nature of the generating facility, and they provide 
flexibility for small facilities and for non-synchronous 
technologies such as wind power.
    Third, last year the Commission directed all public 
utilities to develop and implement transmission planning 
processes that allow for customers, both on a local and 
regional level, to be involved in the transmission planning 
process. In adopting this reform, the Commission noted that 
particular emphasis was given by Congress in the Energy Policy 
Act to development of transmission infrastructure.
    By opening up the transmission planning process and 
granting customers access to planning-related studies and 
information, the Commission has tried to ensure that 
investments in transmission infrastructure are made in 
coordination with the customers being served, including 
electric cooperatives.
    Fourth, pursuant to the directive of Congress in the Energy 
Policy Act of 2005, the Commission has provided rate incentives 
to public utilities for new transmission infrastructure that is 
needed to ensure reliability and to reduce the cost of 
delivered power by reducing congestion on the transmission 
system.
    With new transmission, however, comes the very difficult 
issue of cost allocation. Who pays for the new transmission 
facilities that are needed? The Commission has encouraged 
regional, consensual solutions for addressing cost allocation 
issues, including the particular challenges that are associated 
with transmission facilities that are needed to reach remote 
location-constrained resources such as wind facilities.
    Fifth, the Commission has supported the continued 
development of competitive wholesale power markets including 
the voluntary formation of regional transmission organizations 
to operate the transmission system and energy spot markets on a 
nondiscriminatory basis. These institutions help to serve as a 
focal point for regional solutions including transmission 
planning and dealing with the cost allocation issues I 
mentioned.
    Finally, I would note that outside the context of the 
Commission's economic regulation affecting cooperatives, the 
Commission also is responsible for licensing non-Federal 
hydropower projects that are located on navigable waters or 
Federal lands or connected with the interstate grid.
    This includes licenses for electric cooperatives and to 
date, we have 14 electric cooperatives who have sought and 
obtained hydropower licenses from the Commission for 21 
hydropower projects.
    This concludes my oral statement, and I would be happy to 
answer any questions you might have.
    [The prepared statement of Ms. Marlette follows:]

  Prepared Statement of Cynthia A. Marlette, General Counsel, Federal 
             Energy Regulatory Commission, Washington, D.C.

    Mr. Chairman and Members of the Subcommittee:

    Thank you for the opportunity to be here this morning to discuss 
the provision of reliable electric service in rural America. My name is 
Cynthia Marlette, and I am General Counsel of the Federal Energy 
Regulatory Commission (Commission or FERC). I am appearing before you 
as a staff witness and do not speak for the members of the Commission.
    My comments today will focus on the Commission's limited 
jurisdiction over rural electric cooperatives and on Commission 
policies that affect the provision of service by electric cooperatives.
    As a general matter, the Commission has relatively little authority 
over the majority of rural electric cooperatives. It generally has no 
authority to regulate the rates and services of distribution-only 
utilities of any kind, including distribution cooperatives. To the 
extent a cooperative engages in wholesale sales of electric energy or 
transmission in interstate commerce, the Commission has authority to 
comprehensively regulate those activities only if the cooperative does 
not receive funding under the Rural Electrification Act of 1936 (REA) 
and the cooperative sells 4 million or more megawatt hours of 
electricity per year. Of the more than 900 electric cooperatives in the 
United States, at this time only 15 are subject to such regulation by 
the Commission.
    However, the Commission does have certain limited authorities that 
apply to REA-financed electric cooperatives and other ``non-
jurisdictional'' entities. This includes authority to order them to 
provide interconnection and transmission access, authority to enforce 
their compliance with mandatory reliability standards for the bulk 
power system, authority to sanction manipulation by any entity in 
connection with Commission-jurisdictional transactions, and certain 
authority to require any market participant to disseminate to the 
public information regarding the availability and pricing of wholesale 
electric energy and transmission service. Additionally, electric 
cooperatives have long been power customer participants in FERC 
proceedings involving investor-owned public utilities, and the 
Commission's policies clearly can affect rural cooperatives and the 
consumers they serve. These matters are discussed in further detail 
below.

Regulation of Public Utilities Under the Federal Power Act
    The Commission's primary jurisdictional responsibilities involving 
the electric industry are found in the Federal Power Act (FPA). Under 
the FPA, the Commission regulates the rates, terms and conditions of 
wholesale sales of electric energy and transmission in interstate 
commerce by public utilities. It also regulates certain corporate 
activities of public utilities and public utility holding companies. 
Most public utilities are investor-owned companies. They do not include 
governmental entities (such as municipal utilities, state power 
agencies and Federal power marketing agencies) or REA-financed 
cooperatives. The FPA defines a public utility to include individuals 
and corporations that own or operate facilities used for wholesale 
sales of electric energy in interstate commerce, or for transmission of 
electric energy in interstate commerce. While some electric 
cooperatives meet this definition, the Commission historically 
interpreted the FPA to exempt from public utility regulation those 
electric cooperatives receiving REA financing. In 2005, Congress 
codified and expanded this exemption by amending the FPA to expressly 
exclude from the Commission's general FPA authority electric 
cooperatives that either receive REA financing or sell less than 4 
million megawatt hours of electricity per year. As a result, the vast 
majority of electric cooperatives are now expressly excluded from rate 
regulation under the FPA.
    For the handful of electric cooperatives that no longer have REA 
financing and that sell 4 million or more megawatt hours of electricity 
per year, the Commission must find the rates, terms and conditions of 
their wholesale power sales and transmission in interstate commerce to 
be just, reasonable and not unduly discriminatory or preferential, and 
their rate schedules or tariff authorizations must be on file at FERC. 
These electric cooperatives are also subject to regulation of some of 
their corporate activities. As noted above, only 15 of the over 900 
electric cooperatives in the United States are subject to regulation by 
the Commission as public utilities under the FPA.\1\
---------------------------------------------------------------------------
    \1\ These electric cooperatives are: ACES Power Marketing LLC; 
American Cooperative Services Inc.; Continental Electric Cooperative 
Services, Inc.; Cooperative Energy Incorporated; Energy Cooperative of 
New York, Inc.; Energy Cooperative of PA, Inc.; Georgia Energy 
Cooperative; Golden Spread Electric Cooperative, Inc.; GS Electric 
Generation Cooperative; Newcorp Resources Electric Cooperative, Inc.; 
Old Dominion Electric Cooperative, Inc.; PNGC Power; Rainbow Energy 
Marketing Corp.; Wabash Valley Power Assoc.; and, Wolverine Power 
Supply Cooperative.
---------------------------------------------------------------------------
Other Regulation Under the Federal Power Act
    While most rural electric cooperatives are not subject to FERC 
regulation as public utilities, they may nonetheless be subject to 
certain provisions of the FPA that apply more broadly to the wholesale 
sale or transmission of electric energy in interstate commerce. Major 
provisions affecting electric cooperatives are discussed below.
FPA Sections 210 and 211 Interconnections and Transmission Service
    Under FPA section 210, the Commission may order on a case-by-case 
basis the physical connection of certain generation and transmission 
facilities upon request and a determination by the Commission that, 
among other things, such interconnection is in the public interest. 
Under FPA section 211, the Commission may order the provision of 
transmission service upon request and, again, a determination that, 
among other things, the service is in the public interest. Any person 
that sells electric energy is subject to the possibility of a mandatory 
interconnection order under section 210. Any entity that owns, 
operates, or controls facilities used for the transmission of electric 
energy in interstate commerce and for the sale for electric energy at 
wholesale is subject to the possibility of a transmission order under 
section 211.
    Sections 210 and 211 therefore apply not only to public utilities 
but also to government-owned utilities and electric cooperatives. This 
means that the Commission, upon application by an eligible wholesale 
power seller or power customer, may order cooperatives to provide 
access to, and transmission over, their wires. Similarly, cooperatives 
as customers have the ability to request such service from public 
utilities as well as otherwise non-jurisdictional entities by filing 
requests pursuant to sections 210 and 211. While the Commission has 
exercised its authority under section 210 and 211 to require public 
utilities to provide service to electric cooperatives on several 
occasions, the Commission to date has not directed an electric 
cooperative to provide service to others under sections 210 or 211.
Open Access Transmission and FPA Section 211A
    Electric cooperatives also have certain transmission-related rights 
and obligations under the Open Access Transmission Tariff (OATT) 
required to be filed by public utilities pursuant to the Commission's 
Order No. 888, issued in April 1996. In that order, the Commission 
required all public utilities that own, control or operate facilities 
used for transmitting electric energy in interstate commerce to offer 
non-discriminatory service on their transmission facilities pursuant to 
an OATT on file with the Commission. It also obligated such public 
utilities to ``functionally unbundle'' their generation and 
transmission services. This meant public utilities had to take 
transmission service for their own new wholesale sales and purchases of 
electricity under the open access tariffs and to separately state their 
rates for wholesale generation, transmission and ancillary services. 
Electric cooperatives that are wholesale sellers or wholesale buyers of 
electric energy may use the OATTs filed by public utilities to access 
transmission service on a non-discriminatory basis. This means that 
they, like other market participants, can reach alternative suppliers 
and buyers using the transmission systems of public utilities regulated 
by the FERC.
    Last year, the Commission revisited the terms and conditions of the 
OATT and adopted several reforms to ensure that it continues to achieve 
its core objective of remedying undue discrimination in the provision 
of transmission service. Of particular interest to rural electric 
cooperatives, the Commission directed transmission providers to 
implement new service options for long-term firm point-to-point 
customers, increasing the ability to obtain transmission service when 
capacity is limited. The Commission also relaxed penalties for 
imbalances created by intermittent resources (such as wind) delivering 
power to the grid. The Commission directed transmission providers to 
implement open and coordinated processes for transmission planning and 
to develop consistent practices governing the calculation of available 
transfer capability (ATC). Taken together, these and other reforms 
adopted by the Commission will better enable customers, including 
electric cooperatives, to obtain nondiscriminatory transmission service 
from public utilities.
    It is important to note that, while the OATT obligations do not 
apply directly to most electric cooperatives, as a condition of an 
electric cooperative (or any other entity) taking service from a public 
utility under its open access tariff, the cooperative has an obligation 
to provide reciprocal transmission service to the public utility if the 
cooperative, or its affiliate, owns or controls transmission 
facilities. Unless the electric cooperative obtains a waiver of its 
obligation to provide reciprocal service, denial of service by the 
cooperative may result in denial of service by the public utility. 
Approximately 40 electric cooperatives have sought and obtained a full 
or partial waiver of the obligation to provide reciprocal transmission 
service. The Commission also established a voluntary ``safe harbor'' 
process whereby non-jurisdictional entities such as electric 
cooperatives could voluntarily submit their own OATTs to the Commission 
in order to meet the reciprocity condition and thus help avoid public 
utility complaints that they are not providing reciprocal service. Nine 
electric cooperatives have voluntarily submitted open access tariffs to 
satisfy their reciprocity obligations.\2\
---------------------------------------------------------------------------
    \2\ These electric cooperatives are: Basin Electric Power 
Cooperative; Big Rivers Electric Corporation; East Kentucky Power 
Cooperative; Hoosier Energy Rural Electric Cooperative; Southern 
Illinois Power Cooperative; Southwest Transmission Cooperative; 
Sunflower Electric Power Corporation; Tri-State G&T Association; and, 
Umatilla Electric Cooperative Association.
---------------------------------------------------------------------------
    To address the Commission's lack of direct jurisdiction to order 
electric cooperatives and other non-jurisdictional entities to provide 
non-discriminatory open access (i.e., access to all eligible customers) 
transmission services, in the Energy Policy Act of 2005 Congress 
provided the Commission with authority in new section 211A of the FPA 
to direct unregulated transmitting utilities to provide transmission 
service to third parties on a basis that is comparable to the service 
they provide themselves, at rates that are comparable to those they 
charge themselves. This authority is in addition to the open access 
reciprocity condition contained in public utility open access tariffs 
and the Commission's authority to order transmission on a case-by-case 
basis under FPA section 211, discussed above. Section 211A can be 
applied, however, only to those unregulated transmitting utilities that 
sell 4 million or more megawatt hours of electricity per year. To date, 
the Commission has found the voluntary reciprocity approach sufficient 
and no electric cooperative has been directed to provide transmission 
service pursuant to new section 211A.

FPA Section 215 Mandatory Reliability Standards
    All users, owners and operators of the bulk power system, including 
electric cooperatives, are now subject to mandatory reliability 
standards approved by the Commission pursuant to section 215 of the 
FPA, which was enacted by Congress in the Energy Policy Act of 2005. 
There currently are 94 mandatory reliability standards that have been 
developed by the North American Electric Reliability Corporation (NERC) 
and approved by the Commission after receiving notice and comment from 
industry participants, including electric power cooperatives. Under 
section 215, NERC may impose penalties for violations of these 
mandatory reliability standards, subject to review by the Commission, 
or the Commission itself may impose such penalties directly.

FPA Section 220 Electricity Market Transparency
    The Energy Policy Act of 2005 directed the Commission to facilitate 
price transparency in markets for the sale and transmission of electric 
energy in interstate commerce and authorized the Commission to issue 
rules requiring any market participant to disseminate to the public 
information regarding the availability and prices of wholesale electric 
energy and transmission service. This permits the Commission to require 
information to be provided by otherwise non-jurisdictional entities 
such as electric cooperatives, unless they have a de minimis market 
presence. However, the Commission to date has not issued any rules or 
orders under this new authority.

FPA Sections 221 and 222 Prohibitions on Filing False Information and 
        Energy Market Manipulation
    The Energy Policy Act of 2005 granted the Commission authority to 
prosecute the willful and knowing reporting to a Federal agency of 
false information related to the price of electricity sold at wholesale 
or the availability of transmission capacity if the person or any other 
entity knew the information to be false at the time of the reporting 
and intended to fraudulently affect the data being compiled by the 
Federal agency. It also gave the Commission authority to sanction the 
use of manipulative or deceptive devices in connection with the 
purchase or sale of electric energy or transmission subject to the 
Commission's jurisdiction. These provisions apply to any entity and, 
therefore, prohibit electric cooperatives from engaging in such false 
reporting or manipulative behavior.

Policies for Interconnecting Generators to the Transmission Grid
    In order to facilitate the interconnection of new generation 
facilities to the transmission grid, the Commission has adopted 
standard procedures and agreements for the interconnection of 
generation facilities with the transmission facilities of 
jurisdictional public utilities. In the past, transmission providers 
with their own generating facilities had the incentive and ability to 
deny, delay, or make expensive the interconnection of rival generating 
facilities. The Commission eliminated that ability of public utilities 
to discriminate through a series of rulemaking proceedings to 
standardize the generator interconnection process. The resulting 
procedures and agreements vary depending on the size and nature of the 
generation facility, providing flexibility for small facilities and 
non-synchronous technologies, such as wind plants. Taken together, 
these standardized procedures and agreements offer comparable, open 
access to rival generators, including electric cooperatives seeking to 
interconnect with their local transmission provider. It should be 
noted, however, that the Commission's interconnection authority extends 
only to transmission facilities. It does not extend to local 
distribution facilities that are not used for wholesale sales.
    Recently, the Commission has expressed concern regarding the 
growing backlog of generator interconnection requests. In some regions, 
many interconnection requests that are pending in study queues appear 
to be for speculative or unlikely projects. Because interconnection 
requests are studied on a first come, first served basis, the resulting 
backlog in study queues is causing delay for projects that wish to move 
forward. This problem seems to be particularly prevalent in markets 
operated by regional transmission organizations (RTOs) and independent 
system operators (ISOs), which have attracted significant new entry to 
the marketplace. RTOs and ISOs are nonprofit entities that, except for 
the ERCOT region of Texas, are regulated by the Commission as public 
utilities. They operate transmission facilities within a single state 
or within a region encompassing many states. They are not affiliated 
with any market participant and provide non-discriminatory access to 
the interstate transmission grid. They also operate organized real-time 
energy markets, and some also operate day-ahead markets.\3\ Earlier 
this year, the Commission provided guidance to RTOs and ISOs regarding 
possible reforms that could be implemented to alleviate the backlog in 
processing generator interconnections. In response, interconnection 
queue reform proposals have been filed by the California ISO and the 
Midwest ISO. The Commission acted on the California ISO proposal 
earlier this month, while the Midwest ISO proposal remains pending.
---------------------------------------------------------------------------
    \3\ Currently there are six such entities regulated by the 
Commission: California Independent System Operator Corp. (California 
ISO); ISO New England Inc. (ISO New England); Midwest Independent 
System Operator, Inc. (Midwest ISO); PJM Interconnection LLC (PJM); New 
York Independent System Operator, Inc. (NYISO); Southwest Power Pool, 
Inc. (SPP).
---------------------------------------------------------------------------
Regional Transmission Planning
    As noted above, last year the Commission directed public utility 
transmission providers to update their open access tariffs to include 
an open, coordinated and transparent process for transmission planning. 
This reform bears special mention given that transmission planning is 
vital to ensuring that customers, including rural electric 
cooperatives, have robust and reliable access to markets. In the past, 
however, there were very few specific requirements regarding how 
customers should be treated in the transmission planning process. As a 
result, transmission providers had the ability to unduly discriminate 
when planning for system expansions, potentially favoring access to 
their own resources over those of their customers.
    To remedy that potential for undue discrimination, the Commission 
directed all public utility transmission providers to develop and 
implement planning processes that allow for customer involvement on a 
local and regional level. In adopting this reform, the Commission noted 
the particular emphasis that Congress placed on the development of 
transmission infrastructure in the Energy Policy Act of 2005. By 
opening the transmission planning process and granting customers access 
to planning-related studies and information, the Commission has ensured 
that investments in transmission infrastructure are made in 
coordination with the customers that are being served.

Incentives for New Transmission and Allocating the Cost of Transmission 
        Upgrades
    Pursuant to a directive from Congress in the Energy Policy Act of 
2005, the Commission within 1 year of the statute's enactment put in 
place rules to provide incentive-based rate treatment for new 
transmission facilities. In new section 219 of the FPA, Congress 
specified that these incentives must be ``for the purpose of 
benefitting consumers by ensuring reliability and reducing the cost of 
delivered power by reducing transmission congestion.'' A number of 
incentive requests have been filed under the new rules, some of which 
involved projects to allow location-constrained resources, such as wind 
power, to reach the transmission grid and other upgrades necessary to 
meet state renewable energy portfolio standards. These types of 
upgrades can benefit both suppliers and customers of renewable energy.
    With the nation's need for new transmission facilities and upgrades 
comes the difficult task of determining who will pay for that 
investment. This can be a particularly difficult issue for remote 
facilities needing to interconnect from long distances. The 
Commission's policy has been to encourage regional, consensual cost 
allocation solutions where possible. As part of the open and 
transparent planning processes discussed above, the Commission directed 
public utilities to work with their stakeholders to address the issue 
of cost allocation for new projects that do not fall under existing 
rate structures. The Commission has acted on a number of filings by 
public utilities seeking to comply with these provisions, while others 
remain pending before the Commission.

Competitive Power Markets
    In addition to the Commission's policies and requirements regarding 
open access, interconnection, transmission planning, and incentives and 
cost allocation for new transmission facilities, Commission policies 
supporting the development of competitive power markets also may affect 
rural electric cooperatives both as power buyers on behalf of their 
members and as power sellers in those markets. In recent years, the 
Commission has encouraged the creation of RTOs, discussed above, to 
operate the transmission system as well as operate real-time and day-
ahead auction-based markets for the purchase and sale of wholesale 
electric power. Two-thirds of the United States population is supplied 
by wholesale markets operated by Commission-approved RTOs. Earlier this 
year, the Commission instituted a rulemaking proceeding to consider 
reforms to RTO markets that would improve their operation, ensuring 
that they remain competitive and responsive to the needs of customers.
    In order for entities that are subject to the Commission's 
ratemaking jurisdiction to sell electric energy into an RTO-operated 
energy market, they must obtain authorization to sell power at market-
based rates. Such authorization is considered on a case-by-case basis 
and requires a showing that the requesting entity and its affiliates 
lack market power. The Commission has permitted market-based rates for 
generation sales by a variety of sellers, including traditional 
investor-owned utilities, independent generators, and independent and 
affiliated power marketers. Entities located outside of the RTO 
markets, or selling under bilateral contracts, may also seek 
authorization to make wholesale sales at market-based rates, again upon 
a showing that they and their affiliates lack market power. Of the 15 
electric cooperatives subject to the Commission's ratemaking 
jurisdiction, all but one have sought and obtained market-based rate 
authority.

Hydropower Licensing and PURPA
    In addition to the Commission's ratemaking jurisdiction under Part 
II of the FPA, the Commission has additional responsibilities under 
Part I of the FPA regarding the licensing of non-Federal hydropower 
projects located on navigable waterways or Federal lands, or connected 
to the interstate electric grid. In order to grant a license, the 
Commission must ensure that the project to be licensed is best adapted 
to a comprehensive plan for developing the waterway for beneficial 
public purposes. To the extent an electric cooperative owns or operates 
a hydropower project, the licensing requirements of Part I of the FPA 
may apply. To date, 14 electric cooperatives have sought and obtained 
licenses from the Commission for 21 hydropower projects.
    The Commission also has responsibilities under the Public Utility 
Regulatory Policies Act of 1978 (PURPA) to enforce the obligations of 
electric utilities to purchase electric energy from and sell electric 
energy to qualifying cogeneration and small power production facilities 
(QFs). Under PURPA, electric utilities were generally required to offer 
to purchase available energy from QFs, and to provide electric service 
to QFs, at just, reasonable and nondiscriminatory rates. These 
mandatory purchase and sale obligations apply to all electric 
utilities, which PURPA defines broadly to include all entities selling 
electric energy. Electric cooperatives are therefore subject to the 
mandatory purchase and sell obligations imposed by PURPA.
    In the Energy Policy Act of 2005, however, Congress amended PURPA 
to direct the Commission to lift the mandatory purchase and sale 
obligation if it finds, in effect, that there is a sufficiently 
competitive market for the QF to sell its power. The Commission 
implemented this directive through a rulemaking proceeding in 2006, 
providing a process by which electric utilities may apply to be 
relieved of the requirement that they enter into new contracts or 
obligations for the purchase of electric energy from QFs. Prior to 
these reforms, a number of electric cooperatives had sought and 
obtained waiver from the Commission of the mandatory purchase and sale 
obligation. To date, no electric cooperative has requested termination 
of the purchase and sale obligation pursuant to the amendments adopted 
in the Energy Policy Act of 2005.

Conclusion
    The Commission generally has no jurisdiction over distribution-only 
utilities, including rural distribution cooperatives. To the extent a 
cooperative engages in wholesale power sales or transmission in 
interstate commerce, relatively few of such cooperatives are subject to 
regulation by the Commission as public utilities.
    The Commission does have limited authority over cooperatives under 
certain sections of the FPA, including interconnection and wheeling 
authority under sections 210 and 211, the enforcement of reliability 
standards under section 215, the wholesale market transparency 
provisions of section 220, and the prohibition of false reporting and 
manipulative behavior under sections 221 and 222. While the Commission 
has limited experience with, and jurisdiction over, cooperatives, its 
policies clearly can affect the consumers served by rural cooperatives. 
Cooperatives have nondiscriminatory access to transmission service 
under the Commission's open access policies, with corresponding 
obligations to provide service to public utilities from which they 
receive service. Cooperatives also may use the Commission's non-
discriminatory procedures for interconnecting generating facilities 
with the transmission facilities of public utilities. Further, they 
have access to competitive power markets, including the organized 
markets operated by RTOs, that enhance their ability to purchase and 
sell electricity generated from their resources.
    To the extent an electric cooperative owns or operates a hydropower 
project, it may be required to obtain a license for that project under 
Part I of the FPA. To the extent it has not obtained a waiver from the 
Commission, an electric cooperative also will be required to offer to 
purchase and sell electricity to and from QFs under PURPA.
    I would be happy to answer any questions that Members of the 
Subcommittee may have.

    The Chairman. Thank you, Ms. Marlette. Mr. Andrew, can you 
elaborate on USDA's decision to suspend lending for coal-fired 
and nuclear-fired power plants?
    Mr. Andrew. In the early days of the 1970s and 1980s, a lot 
of generation was built, and we didn't have any subsidy rates 
established at that time. At this time when it became obvious 
that generation was going to be required to be built, we were 
trying to establish a subsidy rate to attempt to offset the 
cost of it. And we have a rate set, but we have not been able 
to get it in place. And the decision was made that we would not 
be able to make any generation, baseload generation that is, 
until we were able to assess a fee to convert the cost of the 
subsidy rate.
    The Chairman. Mr. Andrew, can you possibly explain the 
difference between the approval process if a co-op was trying 
to finance a plant fired by coal for the environmental impact 
study compared to if they were seeking private financing, the 
difference in the concern for the community with environmental 
impact?
    Mr. Andrew. Well, for us, a coal-fired plant requires an 
EIS environmental study, which is a lengthy process. And I 
cannot speak to how that works if it is privately financed, but 
there is certainly some environmental process. But with us, it 
is very strict and to that degree it is one of the reasons that 
sometimes we are not getting the loan requests that we had at 
one time because it does take a long time for environmental 
studies.
    The Chairman. So you would have an extensive vetting 
process in an environmental impact study?
    Mr. Andrew. Yes.
    The Chairman. And I know you said you couldn't answer this 
specifically, but probably private financing would be subject 
to some state rules and regulations?
    Mr. Andrew. Correct.
    The Chairman. And finally, Mr. Andrew, the once a borrower, 
always a borrower has come under some recent criticism. I was 
just wondering if you think that policy should be changed? And 
are you able to keep your hands around some of these so-called 
bad actors that might be crossing the lines so to speak?
    Mr. Andrew. I do not think it should be changed, and the 
ones who have some notoriety, if you will notice were not 
borrowers of RUS. We have been able to monitor these things and 
keep a pretty tight rein on what goes on with our borrowers.
    The Chairman. And you said you believe it should not be 
changed?
    Mr. Andrew. The once a borrower, always a borrower?
    The Chairman. Yes.
    Mr. Andrew. It should not be changed, no.
    The Chairman. Okay, thank you. Mr. Lucas.
    Mr. Lucas. Thank you, Mr. Chairman. Mr. Andrews, to follow 
up on the Chairman's comments about baseload issues, I suspect 
that there are a number of Members of this Committee like 
myself who were very disappointed that in the farm bill we were 
not able to rectify those issues as they dealt with RUS. One of 
the main comments I get from my constituents back home in the 
rural community is how do we maintain enough baseload.
    And while I am a great proponent of wind energy, the wind 
only blows 40 percent of the time in Oklahoma, contrary to 
popular myth and belief back home. So you got to have baseload. 
Could you touch for a moment on what it means in rural America 
if we don't do something about the baseload generation issue?
    Mr. Andrew. As I understand it, generation is going to have 
to increase. Requirements in rural America are going to double 
by 2020, the capacity requirements. We need to get some more 
baseload. You mentioned wind and we mentioned other renewables 
which we are actively involved in now, and they will be 
developed. A lot of it will be developed. We have a lot of it 
under development right now. In fact, we have $1.6 billion 
worth of programs in-house that we are looking at now. They 
vary from wind to woody biomass to manure and so forth.
    But the baseload generation, our estimation is that only 20 
percent of the future requirements can be met by renewables. It 
has got to be provided by more baseload generation. During the 
time between the 1970s and early part of this century, we were 
able to get surplus power off the grid to make up what we 
needed to because we were short of baseload generation. We 
overbuilt frankly in the early 1970s and late 1980s.
    So we were able to get that power off the grid thanks to 
some FERC regulations that allowed us to get onto the grid and 
take power off. I know in my State of Georgia, we used to buy a 
lot of power out of Kentucky. But that power is gone now. It 
has been used up. We had one of our borrowers come in, and I 
asked him how much capacity was he building, was there going to 
be a surplus. And he said Jim, we are building for the year 
1999. So it means that they have not built any baseload 
generation, and they need it desperately.
    So we do need the baseload generation. Right now, we are 
supplementing with some intermediate load natural gas right now 
and some peaking turbines to pick up some of the slack. But the 
baseload--it takes a long time to build these things, and we 
can't wait a long time.
    Mr. Lucas. For the sake of the record then what we are 
saying is if wind, for instance, blows 40 percent of the time, 
the other 60 percent of the time, you got to have the power 
from somewhere. It is that other 60 percent that is the 
baseload, the stuff you count on because it will be there.
    Mr. Andrew. It is available 24 hours.
    Mr. Lucas. Twenty-four hours. And the issue in the farm 
bill, explain that again for the benefit of the record. Why it 
was important that we have legislation addressing those issues 
that didn't make it in there so we would be able to do 
baseload.
    Mr. Andrew. Well, in the farm bill, we were asking for the 
authority to assess a fee to cover the subsidy cost. The 
subsidy was estimated to be 1.92 percent, and 1.92 percent 
times $1 billion is quite a bit of money. The subsidy rate had 
to be appropriated. We asked all the generation transmission 
cooperatives if they would pay this as a fee up front. They 
agreed to. Therefore it would not be a cost to the government 
if we did baseload generation. But it was taken out of the farm 
bill so we are at that point now.
    Mr. Lucas. So by not having that language there, in effect 
it ties your hands?
    Mr. Andrew. Correct.
    Mr. Lucas. You can't be in the baseload business. It is not 
that you don't want to help expand base generation capacity, 
but mechanically the way the law reads right now, you can't do 
it.
    Mr. Andrew. That is right.
    Mr. Lucas. Is that a fair statement?
    Mr. Andrew. If Congress appropriated the funds, we could. 
But right now, I don't see that as a possibility.
    Mr. Lucas. And one more time for the record, no matter how 
much wind we put on, no matter how many solar panels we put up, 
the fact of the matter is if you don't have baseload 
generation, for instance in wind that proverbial 60 percent of 
the time when the wind is not blowing, or on a cloudy day even 
with solar, if you don't have that baseload, we have brownouts, 
we have problems.
    Mr. Andrew. Yes, sir. In my State of Georgia, for example, 
the wind only blows five percent of the time, and we are 
growing probably the fastest of any state in the Union at 10 
percent a year. So we need it.
    Mr. Lucas. So this is a problem that won't go away?
    Mr. Andrew. It won't go away.
    Mr. Lucas. If we don't address the baseload issue, no 
matter how many good alternatives we use, we are fixing to slam 
into a wall somewhere in the near future.
    Mr. Andrew. Regardless of who makes the baseload loans, we 
got to have it.
    Mr. Lucas. Thank you, Mr. Andrew, Mr. Chairman.
    The Chairman. The chair thanks the Ranking Member. The 
gentleman from Texas left. The gentleman from Colorado.
    Mr. Salazar. Thank you, Mr. Chairman. I appreciate you 
having this hearing today. I guess my question, Mr. 
Administrator, is on transmission lines. In the San Luis Valley 
of Colorado where I live, we have one of the best places to 
produce solar energy. As a matter of fact, we have the largest 
solar farm in the country----
    Mr. Andrew. Yes.
    Mr. Salazar.--presently. The problem that we have is 
transmission lines in and out of the San Luis Valley. In order 
to be able to encourage development of solar energy within that 
valley, we need those transmission lines. Can you talk about 
the feasibility of underground transmission lines versus 
overhead transmission lines? Because that is a big controversy 
with the EEIS or the environmental community.
    Mr. Andrew. Yes, I understand that, sir. And let me say 
that I am not an engineer, but I do know a little bit about 
that. The lines that you see overhead are not insulated. They 
are air cooled. So the capacity that those lines have is based 
on being able to be cooled by the air. If we have to put it 
underground, you have to insulate it, and it takes a larger 
wire to be insulated. Therefore, it could be very expensive.
    I know in Colorado, our General Field Representative there 
tells me that a lot of developers have buried some transmission 
into their subdivisions, but they pay for it themselves. But 
long spans of it, Congressman Salazar, are going to be very 
expensive, and it is a matter of who pays for it.
    Mr. Salazar. Okay, thank you, Mr. Chairman.
    The Chairman. The chair thanks the gentleman. The gentleman 
from Kansas.
    Mr. Moran. Mr. Chairman, thank you very much. I appreciate 
the opportunity to hear more about impending challenges we face 
in the provisioning of power across our country.
    A couple of specifics, Mr. Andrew, in regard to Kansas. 
First, Kansas has experienced a number of natural disasters, 
particularly in regard to electrical generation, with ice 
storms 2 years in the running. And at the moment, our rural 
electric cooperatives are in a debate with FEMA in regard to 
the nature of the cost returning those power lines and poles to 
a correct standard.
    And it is my understanding that your agency has standards 
in regard to those transmission lines and poles, and that FEMA 
may have a separate standard. Do you know about this topic, and 
can you shed any light on that for me?
    Mr. Andrew. I just heard about this topic, and I can't shed 
a lot of light on it. But it is something that we need to deal 
with because we do have--as I said in my oral testimony, we do 
have rigid standards on how these things are built because we 
need for them to stand up.
    And I understand that FEMA is dealing with costs, and that 
probably is where they are coming from.
    Mr. Moran. It is my understanding that FEMA determined that 
your standards were not what they call code-based, and 
therefore they did not want to use your standards in 
determining how to rebuild line sections.
    And my guess is that--perhaps you can shed light on this--
your standards, I assume, would be based upon some level of 
expertise about challenges that we particularly face in rural 
places in the country, long distances, lots of wind, snow and 
ice storms. Can you provide me with some justification for 
where your standards come from, in part, so I can visit with 
FEMA to tell them that they ought to be paying attention to 
what you are doing?
    Mr. Andrew. I understand, Congressman. And I was just 
advised that we are working with FEMA right now trying to iron 
these things out. And if you don't mind, I will get back to you 
with an answer.
    Mr. Moran. That would be satisfactory. Thank you very much. 
Second, a Kansas issue: We have received national attention on 
a decision by our state government to deny a couple of coal-
fired plant permits, and again concern about baseload, in my 
opinion, concern about taking sources of energy off the table. 
In my opinion that is having significant consequences upon the 
price structure.
    In fact, I recall reading in one of our newspapers that 
when the permits were denied, one of the quotes by an 
environmental group was this is a great day because it means 
electricity prices will be doubling in Kansas, and that means a 
lot more conservation. Doubling electricity prices in rural 
America or across the country has significant consequences to 
consumers, to economic growth, to job creation.
    And I know that you are now involved in litigation in 
regard to the Sunflower permit process. My understanding of 
this is that RUS has little involvement in this project to 
build two new coal-fired plants. And I thought it might be 
useful for the record if you would place into the record the 
role that RUS now plays in financing Sunflower Electric Power 
Corporation.
    Mr. Andrew. We have no interest. We are not financing any 
of it.
    Mr. Moran. So as Sunflower requests permits to expand their 
capacity, they have not requested RUS to finance that 
expansion, true?
    Mr. Andrew. That is true.
    Mr. Moran. And you have originally some time ago financed 
operations at Sunflower. Is that true?
    Mr. Andrew. That is true.
    Mr. Moran. And when that occurred, was there an 
environmental assessment completed, impact statement?
    Mr. Andrew. Yes, it was, and that was in 1981.
    Mr. Moran. And at the moment, all RUS's relationship with 
Sunflower is that you are collecting payments on the debt they 
owe RUS. Is that true?
    Mr. Andrew. That is correct, and they are current.
    Mr. Moran. And I assume that there is a significant cost 
involved if RUS had to complete an environmental impact 
statement any time any utility that you are financing, 
collecting debt from, would be an expensive process if they 
asked to do something more, and you were required to provide an 
impact statement for them to be able to do that.
    Mr. Andrew. Absolutely. It is very expensive, and sometimes 
we take as much as 15 or 16 months.
    Mr. Moran. Anything you would like to add to this 
conversation? Again as the Chairman indicated, there are some 
limitations since there is litigation. But anything you would 
like to say to kind of clarify the relationship with Sunflower 
and this litigation?
    Mr. Andrew. I am not sure that I can say much more than 
what you have asked me questions, because I had discussed with 
Counsel as to what you would like to know. And I don't think I 
am able to discuss anything further.
    Mr. Moran. I thank you. Thank you, Mr. Chairman.
    Mr. Andrew. Thank you.
    The Chairman. The chair thanks the gentleman. The gentleman 
from Indiana, Mr. Donnelly.
    Mr. Donnelly. I have no questions at this time, Mr. 
Chairman.
    The Chairman. The gentlewoman from New York.
    Mrs. Gillibrand. Thank you, Mr. Chairman. And thank you 
both for coming in and testifying. This is a very important 
issue as energy issues are at the forefront of all my 
constituents' minds, and we want to be able to assure low-cost 
energy is available for the years to come. And my district in 
upstate New York is a largely rural one as well, so your work 
is essential to our communities.
    What I would like to talk to you a little bit about today 
is oversight. You know I received a letter from my colleague 
Jim Cooper about the status of co-ops in America today, and he 
talks a little bit about how the purpose of the co-op system 
was to provide energy for rural areas, but that any excess 
revenue is supposed to return to customers in the form of 
capital credits and that noncompliance in this would actually 
lead to the co-ops--rather would threaten the co-op's tax-
exempt status.
    And Mr. Cooper highlights that co-ops nationwide have 
amassed $31 billion in excess capital credits, and 93 percent 
of co-ops now engage in business ventures beyond providing 
electricity. And he cites to three scandals throughout the 
country, one in Austin, Texas, Pedernales Electric Cooperative 
where executives were paid millions of dollars and wasted 
thousands and thousands of dollars of the public's money on 
frivolous personal expenses.
    Another venture in Atlanta, Georgia where the executives 
subcontracted the entire operation to a for-profit entity that 
was secretly owned by the executives of the co-op. And a third 
one in Birmingham, Alabama where they had not held a Board of 
Directors election for 38 years.
    So I would like you to comment a bit about what your 
oversight role is and whether it needs to be refined or 
expanded or whether more transparency is needed in the 
regulation and regulatory system.
    Mr. Andrew. First, let me say that the ones that you 
mentioned were not borrowers of RUS, and Pedernales or in 
Georgia are not borrowers of RUS. Therefore, we have no 
oversight of them whatsoever. And the activities----
    Mrs. Gillibrand. But should you have oversight? I mean is 
the current oversight enough? Perhaps you should have 
oversight.
    Mr. Andrew. Over those two? Not over those two I wouldn't 
think. They are not borrowers of RUS, so we have no authority 
over them whatsoever. We do have authority--we have some 
oversight over the rest of them.
    Mrs. Gillibrand. So FERC has the oversight?
    Mr. Andrew. You will have to let FERC answer that. But 
since they are not borrowers of ours, I would let FERC answer 
that question. We finance about 617 out of the 900 electric co-
ops. Over the 617 we do have some oversight in that we see that 
they are financially stable, not how they elect their Board of 
Directors, nor how their Board of Directors operates their 
business. It is just like being elected to Congress. They are 
elected by the members, and they serve the will of the members.
    So we don't have any authority over that. We do monitor. We 
have our field accountants. They go in there on a regular basis 
and monitor the books to see that they are financially 
feasible, that they are keeping their rates right, that the 
system is run right and so forth. As far as how they operate 
from a Board of Directors, no, we don't have any authority over 
that.
    Mrs. Gillibrand. Ms. Marlette.
    Ms. Marlette. I am not sure if the Commission actually 
regulates the ones you were talking about. There are 15 that 
are subject to Commission regulation, two of which are in 
Georgia. I don't know if those are the ones you are talking 
about, but I would make clear that to the extent the Commission 
regulates co-ops, one, we don't regulate if they sell less than 
4 million megawatt hours per year. But also even for the ones 
we do regulate, we would not regulate the retail, the sales to 
the retail customers, those rates.
    Mrs. Gillibrand. So are you both satisfied that you have 
the resources you need and the ability you need to regulate co-
ops, the ones that you do have authority over, to make sure 
that these kinds of examples are not taking place in the ones 
that you do regulate?
    Mr. Andrew. I do. I can testify to that, yes.
    Ms. Marlette. And again for the ones that the Commission 
regulates, the Commission does have sufficient authority again 
only going to the wholesale side of the transactions.
    Mrs. Gillibrand. In my remaining time, can you just 
describe what your actual oversight process is? How often do 
you look at the co-ops? Do you review their books yearly? What 
is your actual process?
    Mr. Andrew. First of all, they have to send in statements 
monthly. Then they have to send annual reports to us with 
financial reports. We have our, what we call the field 
representative that goes in there very actively at least--I 
won't say how often because some of them are scattered kind of 
thin. But they go by and check the technology and the 
applications and so forth. Then we have field accountants that 
do audits on the books on a regular basis. Sometimes it depends 
on what kind of condition they are in as to how often it has to 
be done.
    I will say this. Over the years, they have become a little 
more sophisticated. They have better accounting. They have 
computers. They have all the things in their organization that 
we are able to monitor more closely than we ever have in the 
past even though we have fewer people in the field. Because of 
what we are able to do now, I feel very comfortable with the 
way we are monitoring, ma'am.
    Now--this is an aside. Having served on the Board of 
Directors of an electric co-op, I can tell you when you go to a 
co-op meeting, it is very serious when we talk about the 
financial arrangements and how they operate their organization. 
We know that we have to respond to the membership, and the 
Board Members are elected by the membership. Therefore it has a 
responsibility to be--and, yes, we feel financially liable as 
well.
    Mrs. Gillibrand. Ms. Marlette?
    Ms. Marlette. Depending on the type of entity it is, the 
Commission has two ways of regulating. One, some utilities are 
served under cost-based regulation; others have market-based 
rates. And depending on what type of regulatory authority they 
have, the Commission may be more detailed in how it regulates, 
and the Commission always has access to the books and records 
of companies.
    Mrs. Gillibrand. Do you look at the books and records of 
companies?
    Ms. Marlette. Yes, but more so for the ones that are under 
cost-based regulation. Almost all transmission rates are cost-
based regulated. For the generation side, we probably have more 
that are market-based regulated.
    Mrs. Gillibrand. How often would you review the books and 
records?
    Ms. Marlette. It is going to depend. I mean the Commission 
has an audit program. And again if they are under cost-based 
rates, we periodically audit. So I couldn't give you a specific 
number. It would depend on what the Commission is looking for 
and the type of issue.
    Mrs. Gillibrand. And do you feel you have sufficient 
resources? And do you feel that you think the regulatory basis 
that you have to use is sufficient?
    Ms. Marlette. Yes.
    Mrs. Gillibrand. Thank you.
    The Chairman. The chair thanks the gentlewoman. The 
gentlewoman from Kansas.
    Mrs. Boyda. Thank you, Mr. Chairman, and thanks to the 
witnesses for being here. I am also from Kansas and just wanted 
to kind of follow up on what you were seeing in the rest of the 
country, your perspective. When the Sunflower plant was 
discussed, most people in Kansas, not everybody, but most 
people in Kansas, understood that coal was going to be part of 
our future in some way or another.
    We came in with some coal sequestration and a closed-loop 
system that was really quite exciting. And are you financing; 
are you involved in any programs? Is there one up in North 
Dakota that we are talking about carbon sequestration? What is 
happening in your world with those new technologies?
    Mr. Andrew. Of course, we are not able to finance any 
baseload generation which basically would eliminate any coal.
    Mrs. Boyda. Can you help me explain that? I am not sure I 
heard the entire--you are not able to fund any baseload?
    Mr. Andrew. Well, we are able to, but we are temporarily 
suspended, I would guess would be a better way to say, until we 
arrive at a conclusion about fees to cover the subsidy rate.
    Mrs. Boyda. Yes, this is why we stay right here.
    Mr. Andrew. We need to have have this in place so we can 
make loans on baseload generators. Now, understand that 
baseload means 24 hours a day, 365 days a year. We have 
intermediate generation which takes up some of the slack there. 
As far as the one in North Dakota, that is Basin Electric in 
North Dakota. And we have been working with them for a long, 
long time, and they are very innovative. And they have an 
idea----
    Mrs. Boyda. A long time is?
    Mr. Andrew. Pardon?
    Mrs. Boyda. How long is a long time?
    Mr. Andrew. Probably 40, 50 years.
    Mrs. Boyda. Oh, my. Not on sequestration?
    Mr. Andrew. Not on sequestration.
    Mrs. Boyda. Okay, you had me worried there for a minute. 
Okay.
    Mr. Andrew. They use a lot of coal in their generation. 
Therefore, they have been working with sequestration, figuring 
out the best way to do these things.
    Mrs. Boyda. Right, and this is an existing plant that we 
are talking about?
    Mr. Andrew. Yes. Well, two plants. They have one plant that 
is making gas, natural gas out of coal, and they have some 
byproducts from that that are selling. But the CO2 
that is generated at that plant is put into a pipeline, 
transmitted 250 miles to Canada, pumped into oil wells which 
brings oil out of the ground.
    So, we are going to take one of their coal-fired generating 
plants that is nearby. They have a technology that has been 
tested in Ohio. They are going to expand it up to a big project 
now and put it at the back end, where the coal-fired generating 
plant will take the emissions out of that plant, transport it 
over to this other plant that is now taking the CO2 
and putting it in a pipeline. They will put this CO2 
in the pipeline.
    As I understand it, there is some oil in North and South 
Dakota. So, they might tap on this pipeline and do the same 
thing, and that is inject this down into the soil and force oil 
out.
    So yes, there is a project we are interested in. The 
technology looks good. They have researched it quite well.
    Mrs. Boyda. And are you helping to finance some of that 
then? Is that part of your----
    Mr. Andrew. They are telling us that they want to come in, 
and we are willing to help finance it. Yes, ma'am.
    Mrs. Boyda. And I am just again curious. Do you know if it 
has broader application, or is this pretty site specific or----
    Mr. Andrew. Well, we think it has broader application. In 
fact, generation and transmission cooperatives across the 
United States think it has broader application. We will see. We 
think it will.
    Mrs. Boyda. All right, thank you. Do you, Ms. Marlette?
    Ms. Marlette. Pardon me?
    Mrs. Boyda. Ms. Marlette, do you have anything to add? And 
just again this is so interesting to get just opinions. And I 
know you don't have a crystal ball any more than the rest of us 
do. But with the closed-loop bio-system; the algae in there; do 
you see any interest in that with existing plants? And I know 
you are not working with baseload plants. Do you see people 
coming to talk about that?
    Mr. Andrew. I have been looking at that a little bit 
lately, and especially about 3 weeks, 4 weeks ago, there was an 
agency in USDA that brought in some college projects for us to 
observe. And one had to do with algae, and I am very interested 
in that. It is not ready to go commercial yet, but the idea 
seems to be working. Put the CO2 in the water, the 
algae consumes it, and you burn the algae as diesel. I think it 
is going to work, but it is not ready for commercial 
application.
    Mrs. Boyda. All right, what is so interesting--and then I 
will yield back my time. But what is so interesting are 
technologies that really weren't even being discussed 2 and 3 
years ago are absolutely moving forward in real ways. So we 
appreciate what you are doing to help finance some of that. 
Thank you very much.
    The Chairman. The chair thanks the gentlewoman. The 
gentleman from Ohio.
    Mr. Space. I will yield my time, Mr. Chairman. Thank you.
    The Chairman. The gentlewoman from South Dakota.
    Ms. Herseth Sandlin. I have just one question for this 
panel. Administrator Andrew, your written testimony--and I 
apologize if this has been addressed before I was able to 
arrive at the Subcommittee meeting. But your written testimony 
notes that the October 2007 report by the North American 
Electric Reliability Corporation finding that in 2010, the 
capacity margins in the region that include South Dakota will 
fall below target margin levels needed to meet summer peak and 
avoid brownouts or blackouts.
    How do you think the region should address this challenge, 
and how are USDA programs helping them meet the challenge?
    Mr. Andrew. That margin is 15 percent, as I recall. I think 
that is correct, and what that means is it is like if you have 
total capacity--like at your home. If everything in your home 
is turned on and you reach capacity of your circuit breaker 
panel that is in there, you need a margin above it just in case 
something goes wrong. Well, their report says that in South 
Dakota that they are going to reach a point where that margin 
is going to start decreasing. And we think it is going to 
decrease all across the United States down to as low as 10 
percent within 2 years. And it is critical that that margin be 
there just in case we have a big outage if one plant goes down 
or whatever. And if it does, then that margin will not be there 
to take up the slack.
    Ms. Herseth Sandlin. So if the margins are going to go 
down, what policy should we be implementing? Is it increasing 
the capacity, a new transmission grid upgrade? I mean what----
    Mr. Andrew. All of the above. You are going to need some 
more transmission. You are going to need more generation. 
Generation is going to be the key to all this stuff along with 
transmission now. Like I have said several times, you can build 
all the wind farms you want to in North Dakota and South 
Dakota, but if you can't get it to Chicago, you have not done a 
good job.
    And right now, frankly, the low-hanging fruit is what we 
are gathering. We know where the wind is. And we are building 
the wind farms where there is transmission available. But when 
we run out of that and we still have places where the wind 
blows and we want to build these wind farms and other farms 
actually, transmission is going to be required to get it out of 
there.
    Ms. Herseth Sandlin. And then with generation, so USDA 
programs are helping meet the challenge on the generation front 
as well? As you know, in South Dakota, we have a project that 
is looking to expand in the far northeastern corner of the 
state that is hitting some challenges as it relates to 
regulatory approval in the neighboring State of Minnesota.
    We have a new possible plant going in through base and 
electric in north central South Dakota. Can you elaborate for 
the Subcommittee on how USDA programs are facilitating these 
efforts on the generation front?
    Mr. Andrew. Well, as we said earlier, we are not able to--
right now, baseload generation has been suspended, and that is 
some of what you are going to have in South Dakota. We can 
still make loans for intermediate power and peaking power, but 
baseload generation right now is on the back-burner.
    Ms. Herseth Sandlin. Okay, thank you. Thank you, Mr. 
Chairman.
    The Chairman. Mr. Andrew, the farm bill directed a study 
for electricity generation in rural America. What is the status 
of the study?
    Mr. Andrew. I am sorry. Say that again, sir.
    The Chairman. In the farm bill, we directed a study for 
electric generation in rural America.
    Mr. Andrew. It has been completed, and it is going through 
clearance right this minute.
    The Chairman. And how many days did we give you to present 
that to us? I forget. It was----
    Mr. Andrew. Any minute.
    The Chairman. So we will be receiving that any minute?
    Mr. Andrew. Yes.
    The Chairman. Thank you, Mr. Andrew. Ms. Marlette, what is 
the annual percentage of growth and usage of electric power?
    Ms. Marlette. Well, I don't have an answer for you on that 
right now. I could try to get one for you. I don't know. I can 
say that just as a general matter, as was alluded to earlier, 
reserve margins are going down. Generally, the country as a 
whole needs to focus very much on increased capacity to meet 
growing demands. Demand response is another issue, but the 
other piece of this I would point out is that transmission 
infrastructure is key to all of the future.
    The Chairman. Thank you. Any Members have any additional 
questions for the panel?
    Mrs. Boyda. Yes, I would like to, Mr. Chairman.
    The Chairman. The gentlewoman from Kansas.
    Mrs. Boyda. And again I apologize. I think you addressed 
this earlier, but could you help me understand why baseload is 
on hold again? Can you explain that to me? I didn't catch it 
the first time if you did.
    Mr. Andrew. We have not been able to arrive at a conclusion 
about how to deal with subsidy rates. We can, then establish a 
subsidy rate that the appropriators will provide for us, or we 
can be allowed to charge a fee, which we would like to do, so 
we don't have to have appropriations. Then we could make 
baseload generation loans.
    Mrs. Boyda. Is it Congress that is holding that up by any 
chance?
    Mr. Andrew. I am sorry?
    Mrs. Boyda. Who is holding that up? Is that----
    Mr. Andrew. Well, no one is really holding it up. It was 
established by OMB that we needed a 1.92 subsidy rate, and we 
had it in the farm bill that we could charge a fee up-front to 
cover that cost. And it was taken out of the farm bill. I think 
it was taken out of the farm bill at the last minute.
    Mrs. Boyda. All right. Thank you.
    The Chairman. The chair recognizes the Ranking Member.
    Mr. Lucas. Mr. Chairman, we have talked about the subsidy 
rate. If I could just touch on that for a moment. That is a 
very important issue. When OMB required that, in effect it 
stopped the program unless this number could be matched. The 
effort in the farm bill was to, in effect, give RUS the 
authority to charge almost two percent for a co-op wanting to 
come in and generate at the generating capacity.
    The language was removed at the highest level when we were 
in the farm bill conference. The highest level is not the 
minority side. It is not this Committee. It was removed at the 
highest level. It would appear, speculation, that it was 
removed because someone didn't want baseload generation to be 
created from coal or from nuclear.
    So in a polite response to the lady's question, that is 
where it went. Ask the Speaker.
    The Chairman. The chair recognizes the gentlewoman from 
South Dakota.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman. One last 
question, Mr. Andrew. In your testimony, you mentioned that 
cooperatives are energy efficiency and demand side management 
leaders. I agree, and I am just wondering from your perspective 
how can Congress best support such efforts to help low-income 
homeowners in rural states like South Dakota install energy 
efficiency measures; which, by all accounts, are additional 
low-hanging fruit to achieve the substantial percentage of 
conservation on efficiency measures in the country?
    Mr. Andrew. We have this year $6 million to be used for 
high energy cost grants, and that is what they are, grants. It 
is the only grant program we have. It is a very competitive 
thing, and we could have used more. But some of the projects 
that we have seen have been very innovative and very effective.
    So to say where it could be--that number is down right now, 
but the place that we can use--where the money is being used is 
in Alaska, Alabama, and other places. I think South Dakota got 
a couple this year. So the high energy grant is an important 
factor about this.
    Now, to take that one step further, in our announcements, 
we are saying we are talking about efficiencies because 
efficiency is not only our job, but it is the job of the 
electric co-op to sell it to the members of the co-op. For 
example, they have been handing out these compact fluorescent 
light bulbs by the thousands. We have been talking about what 
we call phantom power. If you walk in your house and you see 
all the little lights turned out, this counts for about 20 to 
25 percent of your electric bill. You don't realize if you turn 
it off at night, turn your television off, your cell phone 
charger is using electricity even when the cell phone is not 
hooked up. Those kind of things are what we are talking about 
to the co-ops, and they are adhering to it.
    I think I read that somewhere we have about 90 percent of 
our co-ops are participating in some sort of renewable projects 
or in some kind of efficiency projects and conservation 
projects.
    Ms. Herseth Sandlin. Thank you. Thank you, Mr. Chairman.
    The Chairman. The gentlewoman from Kansas wants to ask 
another question if the panel would just wait a moment please.
    Mr. Lucas. Mr. Chairman, while she is doing that if, on the 
next panel, some of the comments that were made about the 
integrity of the co-ops in this country, I would hope that we 
will hear a response and clarification at the appropriate time.
    The Chairman. I am sure we will. I see the Ranking Member; 
are there no further questions? Well, the chair thanks the 
panel for its testimony and welcomes the second panel. We would 
like to call them to the table. The Honorable Glenn English, 
CEO, National Rural Electric Cooperative Association. Mr. Revis 
W. James, Director of Energy Technology Assessment Center, 
Electric Power Research Institute. The Honorable Jim Nichols, 
former Minnesota Secretary of Agriculture and former Minnesota 
State Senator from Lake Benton, Minnesota. Mr. Paul Champagne, 
President, PPL Development Company, Allentown, Pennsylvania.
    Mr. English, welcome to a room you are very familiar with. 
I remember when you were sitting a few seats down from me, and 
I was all the way down there. I could barely see you. So when 
you are prepared, Mr. English.

 STATEMENT OF HON. GLENN ENGLISH, CEO, NATIONAL RURAL ELECTRIC 
                    COOPERATIVE ASSOCIATION,
                         ARLINGTON, VA

    Mr. English. Well, thank you very much, Mr. Chairman. It is 
a delight to be back in this Committee room, and I have a lot 
of fond memories. Not as many folks here that I served with 
that was just a few years ago, but certainly it is a pleasure 
to be here and certainly a pleasure to discuss with you what is 
a very critical issue not only for agriculture but for the 
country at large.
    The challenge that we are facing is not that different than 
the rest of the industry is facing, but only from a standpoint 
that electric cooperatives are growing twice as fast as the big 
power companies are. So with all this growth, obviously that is 
having an impact as far as the amount of power that is 
necessary.
    I think, Mr. Chairman, the Committee is probably well aware 
of the fact that electric cooperatives are not for profit. They 
are owned by their members, and they have local governments. 
And they are private. They are always very pleased to point out 
to me that they are independent and autonomous, and they act 
so. They certainly have a lot of different varieties in the way 
that they carry out their business and meet the needs of their 
community.
    The big issue I want to bring to your attention is one of 
the facts that we are running out of capacity. We simply don't 
have the generation capacity, and in the country certainly 
electric cooperatives do not to meet what the Department of 
Energy tells us is going to be a great demand.
    In fact, the Department of Energy is talking about over the 
next 20 years we are going to need somewhere in the 
neighborhood of 264 gigawatts of power, which is about 2\1/2\ 
times the amount of power that the State of Texas produces 
today or about four times what the State of California 
produces. And that is assuming that we implement all the 
efficiency provisions that we think can be the case, 
particularly as far as the electric utility industry is 
concerned.
    We think the next 10 years is going to be the most 
difficult simply because coal is not likely to be a part of the 
mix. We expect that there will be climate change legislation in 
the next year or 2 that will take coal out of the picture until 
we are able to get some kind of carbon capture and storage in 
place.
    I will let EPRI talk about what their expectations are as 
to when that will likely come about, but it is my understanding 
it will be somewhere in the neighborhood of 2020, 2025, 
somewhere in that neighborhood.
    And we are really looking at 118 gigawatts of power that 
this country is going to have to have before 2020 and have to 
be done without the use of what has been our primary fuel, 
namely coal. And, of course, that is going to make our job very 
difficult. Our role is to try to keep our electric rates as low 
as we can, those electric bills as low as we possibly can while 
trying to keep the lights on and meeting the needs of our 
members in rural America.
    That means we have to use other elements, and we are going 
to have to be innovative. And we are going to have to be 
committed, and this is going to have to be a partnership 
between the Federal Government and the electric utility 
industry, and certainly a partnership between this Committee 
and the electric cooperatives.
    Efficiency is going to have to play a major role. That is 
the so-called low-hanging fruit that we can probably harvest 
earliest, and we are already doing that. The Administrator 
talked about compact fluorescent light bulbs and co-ops across 
the country handing those things out by the millions. And we 
are looking for other ways in which we can address it.
    But, the point that we are going to have to deal with is 
low-income folks. Those are the people that are going to get 
hurt the worst. They are the people that are least in a 
position to be able to deal with this kind of a challenge, 
namely because they have the most inefficient homes, least 
insulation, most inefficient windows and doors, most 
inefficient appliances. And the Congress is going to need to 
address that.
    Renewables, which I know is a favorite of this Committee, 
can play a major role as well. How big a role is going to be 
determined by the amount of transmission we are able to build. 
Wind is going to be the primary fuel for generating renewable 
energy.
    It is the most advanced, and certainly we are looking at 
the Great Plains. We have established a national renewable 
electric cooperative, which allows cooperatives all across the 
nation to invest in the most cost-effective renewable projects 
that we can find, which we believe will be in the Great Plains. 
But we can generate far more power out there than we have 
people to use that power. So we need that.
    We need technology to speed up carbon capture and storage, 
and we need an even greater investment than the Congress has 
made in that area. And certainly nuclear power has to play a 
very major role as well where it can be utilized. And it may 
call for some very drastic measures on the part of the Federal 
Government.
    We have even advanced the idea that the only way that we 
can get the amount of power we are going to need over the next 
decade may be for the Federal Government itself, using the 
model of the PMAs, to go out and build nuclear power plants so 
we can reprocess the fuel. So we don't have to worry about that 
nuclear waste that so many folks in Nevada are worried about, 
Mr. Chairman. And to be able to site those plants where they 
need to be sited and also take care of the security needs that 
are going to accompany any kind of nuclear power plant.
    We are going to have to have some different kind of 
thinking to meet this challenge, Mr. Chairman. And it is always 
a pleasure to be here. Thank you very much for letting me run 
over about 34 seconds.
    [The prepared statement of Mr. English follows:]

Prepared Statement of Hon. Glenn English, CEO, National Rural Electric 
                 Cooperative Association, Arlington, VA

Executive Summary
    The nation is facing an unparalleled energy crisis and lacks a 
national policy to handle the problems of electricity capacity, 
reliability and rising prices. While it is important to find solutions 
to global climate change, it is equally critical to establish policies 
that will ensure there is enough electricity to assure consumers have a 
secure and affordable energy future.
    By 2030, according to the U.S. Department of Energy (DOE), even 
with relatively aggressive efficiency gains, the nation will still need 
264 new gigawatts of installed electricity capacity. To better 
understand the magnitude of this need, consider that 264 gigawatts is 
roughly 2.5 times the power now generated in the State of Texas. 
Efficiency and conservation are necessary and must be pursued wherever 
such projects are economic, but efficiency and conservation alone 
cannot meet the new capacity needs.
    Working with the Rural Utilities Service (RUS), the nation's 
electric cooperatives have, over the past 75 years, built incredibly 
reliable and efficient systems for distributing electric power to 75 
percent of the nation's land mass. Although the smallest segment of the 
electric utility industry, electric cooperatives are experiencing the 
highest growth percentages. Because of our historic service footprint, 
cooperatives also serve some of the nation's poorest consumers. We are 
deeply concerned about the impact of rising electricity prices and 
additional charges for new environmental programs on these consumers.
    The obligation to serve our 41 million consumers drives us to 
tackle these problems head on. Across our 47 state service territory, 
which encompasses 75 percent of the nation's land mass, cooperatives 
are actively engaged in discussions with our consumers and our elected 
officials, seeking balanced solutions that will protect the environment 
and assure consumers have a basic human right--affordable electric 
power.
    Areas of discussion, study and policy advocacy where cooperatives 
are engaged include:

   Renewable energy, including formation of a ``National 
        Renewable Cooperative Organization.''

   Energy efficiency, with a focus on helping low-income 
        consumers.

   Nuclear power, ensuring that cooperatives can access the 
        latest technologies and partner with other utilities.

   Climate change solutions.

   Clean coal technologies such as Carbon Capture and Storage.

   Support for new transmission projects.

   The Rural Utilities Service's role in helping electric 
        cooperatives meet these new challenges.

    Chairman Holden, Ranking Member Lucas and Members of the 
Subcommittee:

    My name is Glenn English, and I am the Chief Executive Officer of 
the National Rural Electric Cooperative Association (NRECA). I 
appreciate the invitation to appear before you today to discuss what 
our nation and electric cooperatives can do to help ensure a secure and 
affordable energy future. I had the distinct honor of Chairing this 
Subcommittee during the latter part of my service in Congress. In a 
way, I feel like I'm back home with you this morning.

Overview of Electric Cooperatives
    NRECA is a trade association consisting of nearly 1,000 
cooperatives providing electricity to 41 million consumers in 47 
states. As member-owned, not-for-profit organizations, cooperatives 
have an obligation to provide a reliable supply of electricity to all 
consumers in our service areas at the lowest possible price. We take 
our obligation to serve very seriously--the personal and economic 
health of our members, our communities, and our nation depends on it. 
Cooperatives serve primarily the more sparsely populated parts of our 
nation but cover roughly 75 percent of the nation's land mass.
    Electric cooperatives are:

   Private independent electric utility businesses,

   Owned by the consumers they serve,

   Incorporated under the laws of the states in which they 
        operate,

   Established to provide at-cost electric service, and

   Governed by a Board of Directors elected from the 
        membership.

    Electric cooperatives were born in the 1930s, when few rural 
Americans could access electricity at all. President Franklin Delano 
Roosevelt, champion of the Rural Electrification Administration (now 
the Rural Utilities Service or RUS), observed that ``electricity is no 
longer a luxury, it is a definite necessity.'' Seventy-five years 
later, RUS loan programs are still an essential ingredient in bringing 
affordable, reliable electricity to all parts of America. Investor-
owned and municipal utilities have access to substantial Federal 
support for infrastructure development through the tax code. Electric 
cooperatives, as private not-for-profits, do not have this access to 
this level of support and instead rely on lower-cost loans that must be 
paid back.
    Today, electric cooperatives continue their work, based in the 
strong belief that affordable, reliable electric power is a fundamental 
right for all Americans. However, this right has never been more in 
question than it is today.

The U.S. Faces a Daunting Energy Crisis: Reliability, Capacity and 
        Prices
    A serious energy challenge faces this nation. Frankly, I believe 
that many in Congress are focused on only one half of the looming 
challenge--global climate change. But the other half is just as 
critical, though it has not received the same spotlight, and that is 
the fundamental question of whether the nation will have enough 
electricity capacity to meet consumer energy needs.
    Some background facts are essential. EIA has projected, taking 
reasonably expected efficiency improvements into account, that 
electricity demand will grow 30 percent by 2030, requiring 264 new 
gigawatts of electric generating capacity. To better understand the 
magnitude of this need, consider that 264 gigawatts is 2.5 times the 
capacity now in the State of Texas. The more critical and immediate 
problem will come in the next ten years. The Department of Energy, 
again taking reasonably expected efficiency improvements into account, 
forecasts that U.S. economic and population growth will drive a 17 
percent increase in demand between 2006 and 2020, requiring a capacity 
increase of 118,000 MW.
    Among electric cooperative consumers, demand growth is projected at 
about double the national average. Additionally, cooperatives serve 
some of the nation's poorest consumers, including several Native 
American reservations. Electric cooperatives take seriously our 
responsibility to meet our consumers' electricity needs, while also 
taking a leadership role in the development of renewable energy, energy 
efficiency and the portfolio of new technologies and approaches needed 
to solve our nation's energy challenges.
    Section 6103 of the Senate farm bill would have allowed 
cooperatives to continue, as they have for 75 years, accessing RUS 
financing to construct baseload generation. Unfortunately, this 
provision was dropped in the farm bill conference. However, NRECA 
thanks the many Members of the Agriculture Committee who supported the 
provisions. Without RUS financing for baseload generation, co-ops will 
have to buy increasing amounts of power on the open market because they 
cannot generate enough power to meet their consumers' needs. With this 
significant policy shift, only electric cooperatives, among the three 
utility sectors, have been denied their primary source of Federal 
support for generation. Preventing cooperatives from accessing the RUS 
program places an additional heavy burden on their efforts to build 
generation that will reduce carbon emissions.
    Without significant changes in our national energy policy to meet 
capacity demands, in the next decade, U.S. consumers will be 
significantly exposed to rising and volatile electricity prices beyond 
anything experienced to date. In the absence of a true national energy 
policy, some advocacy groups are proposing piecemeal solutions, 
recommending over-reliance on their preferred technology or fuel. The 
reality--there is no one silver bullet and all the technologies at our 
disposal must be used to both meet our capacity needs and achieve new 
environmental goals.
    The reliability problems posed by a lack of adequate capacity will 
begin to manifest as early as 2009, according to the North American 
Electric Reliability Corporation (NERC), the self-regulatory 
organization responsible for monitoring and strengthening the bulk 
power system's reliability. In some regions, demand will soon outstrip 
capacity unless generation and transmission are added. Rapidly thinning 
capacity means that technicians and operations personnel, whose daily 
behind-the-scenes efforts keep the electric grid intact, are already 
seeing reliability ``near-misses'' when key lines or power plants go 
down. These events haven't resulted in widespread blackouts and so far, 
haven't received attention in the press or from policymakers. But, if 
we fail to address our growing energy infrastructure and technology 
development needs, some regions face increasing probabilities of 
brownouts and blackouts in the near future. (See attached NERC map of 
U.S. regions facing near-term reliability threats.)
    The Electric Power Research Institute (EPRI) has researched and 
written extensively on the need to have a full portfolio of solutions 
in order to ensure adequate capacity and achieve carbon reduction 
goals. EPRI conducts research and development on technology, operations 
and the environment for the global electric power sector. EPRI, a 
nonprofit organization, brings together its members, the Institute's 
scientists and engineers, along with experts from academia, industry 
and other research centers to meet challenges in electricity 
generation, delivery and use. EPRI supports multi-discipline research 
in emerging technologies, which drives long-range research and 
development planning. EPRI's members represent more than 90 percent of 
the electricity generated in the United States. (See attached EPRI 
``prism.'')
    This spring, NRECA brought over 3,000 co-op advocates to 
Washington, D.C. to talk with their Federal representatives about the 
nation's energy challenges and the types of bold ideas needed to solve 
these problems and provide Americans with a secure and affordable 
energy future. Congress will need to make significant policy decisions 
soon to address the coming electricity crisis and provide options for 
shifting the nation's generation fuels while minimizing costs. It is 
important that these issues be reconciled before a formal national 
policy to tax and regulate carbon is set in place. Working together, 
government and industry can make the investments and plans that are 
critical to ensuring that any carbon reduction policy is sustainable 
over the decades.

Many Pieces of an Energy Policy Solution: All Require Concerted, Long-
        Term Efforts

Energy Efficiency
    NRECA supports efficiency and conservation as a least-cost means of 
reducing some of the need for increased capacity over the next decade. 
But consumers and policymakers are receiving a great deal of 
information about efficiency and it is very difficult to determine 
precisely how much energy savings efficiency technologies and measures 
can yield. Some advocacy groups believe that increased energy 
efficiency can absorb up to 80 percent of the projected growth in 
electricity demand. Others see potential for a 20 percent savings in 
total electricity demand.
    EIA has projected a need for 347,000 new megawatts of electricity 
capacity by 2030. EIA believes that allowing for the efficiency 
improvements we can reasonably expect, the new capacity demands will 
still equal, as I stated earlier, 264,000 megawatts by 2030. The 2005 
California residential and commercial building code is said to have the 
potential to save 180 megawatts in annual energy demand. Judging from 
the cited capacity needs projection (without efficiency measures ) of 
347,000 new megawatts, the nation would have to identify and develop 
and then consistently fund, operate and verify nearly 2,000 projects on 
the scale of California's to meet 100 percent of the new 2030 needs 
with efficiency and conservation. Utilities with an obligation to 
provide electric power would still be required to own generation 
sufficient to meet consumers' needs in case efficiency programs could 
not be consistently maintained.
    Electric cooperatives are engaged in many efforts to increase 
efficiency, conservation and demand response. For instance, NRECA is a 
member of the Energy Efficiency Codes Coalition (EECC), which is 
actively working to strengthen model building codes. Existing buildings 
are responsible for over 40 percent of the world's total primary energy 
consumption and account for 24 percent of the world's CO2 
emissions. Energy efficiency is often the most cost-effective way to 
increase energy security, reduce energy costs, and cut emissions. While 
Congress took some steps toward improving standards for appliances and 
manufactured housing in the Energy Independence and Security Act of 
2007, even more gains are needed.
    NRECA is also working to ensure that efficiency and conservation 
programs reach the people who can least afford to pay for efficiency 
improvements but whose homes are often most in need of new appliances, 
insulation and other measures. Personal income tax credit incentives 
can't help large segments of the population whose income is too low to 
pay significant taxes.
    Studies of successful low-income efficiency programs show that 
investments of about $2500 per household to replace or upgrade 
components such as windows, refrigerators, lighting and HVAC systems, 
can lower energy bills as much as 32 percent. Therefore, the nation 
should get started and provide the poorest fifth of American households 
even $500 dollars of direct assistance with energy efficiency--at a 
cost of over $12 billion a year. Such a program would give immediate 
help to reduce growth in national power demand and keep their electric 
bills affordable.

Nuclear Power
    Nuclear power can provide significant amounts of the clean capacity 
we need by 2020 and 2030. EPRI estimates four new plants will need to 
come online each year from 2015 to 2020 for nuclear power to make its 
contribution to meeting electricity needs and reducing carbon emissions 
to 1990 levels by 2030. This projection will not be met. The new fleet 
of baseload nuclear plants is progressing slowly, with virtually none 
expected to come online before 2020. These new plants also face 
opposition and substantial financial risks. In some cases, cost 
estimates for proposed plants match or exceed the entire value of the 
utilities proposing to build them. A 30 year U.S. hiatus from the 
business has resulted in suppliers, industry expertise and workforce 
being largely located overseas.
    Still, these plants are needed as soon as possible to achieve 
reliable and affordable power and reduced greenhouse gas emissions. In 
order to move past the many bottlenecks, policymakers must recognize: 
(a) the need for innovative funding which minimizes risks; and (b) that 
safe, on-site waste storage and reprocessing are possible for the next 
century until long-term storage is available. A comprehensive energy 
policy should also recognize the contributions cooperatives can make to 
nuclear projects and allow RUS to continue making baseload loans for 
generation, including nuclear generation. Electric cooperatives should 
also be able to lower their construction costs by accessing the nuclear 
tax incentives provided in the Energy Policy Act of 2005 and other 
bills.
    Cooperatives see these delays in increasing our nuclear capacity as 
a situation so urgent that Federal involvement is necessary in the form 
of incentives and new partnerships. For instance, the Defense 
Department has the capability to manage the construction of large 
projects and to protect sensitive sites. It also has priority access to 
materials, decommissioning expertise and many other skills which make 
the Defense Department a suitable partner. When the nation faced other 
serious electricity roadblocks, there was no hesitation to build these 
kinds of partnerships. We are at such a point in the nation's history 
again.

Renewable Energy
    The small amount of renewable generation in the current electricity 
fuel portfolio is welcome and needed. Including hydropower, renewable 
generation is eight percent of the overall portfolio. Non-hydro 
renewable generation (primarily biomass and wind, with smaller 
contributions from solar and geothermal) is only 2.5 percent of the 
overall portfolio, up from 2.2 percent in 1995. The growth percentages 
in non-hydro renewables are positive developments, but create 
misperceptions. Polls show that many mistakenly believe that renewable 
energy alone can satisfy increased demand for power and that non-hydro 
renewable energy is now a large percentage of the nation's electricity 
generation. Even wind generation, the primary source of recent 
renewable energy additions, is a tiny fraction of overall U.S. 
generation--0.6 percent in 2006 and an estimated 0.8 percent in 2007.
    Like all electricity power sources, renewable energy generation 
growth faces large hurdles in the next decade. Without large Federal 
subsidies, investment virtually stops. Construction costs, especially 
for wind, are rising rapidly and there are bottlenecks for equipment 
delivery--current wait times exceeding 2 years. Since wind and solar 
are intermittent resources, current projects are only commercially 
viable where conventional resources, usually gas, are sufficient to 
back them up. Finally, public opposition to siting projects, such as 
offshore wind farms and farms on public land, has stopped many 
renewable developments.
    Transmission capacity is inadequate to deliver renewable power from 
remote areas where renewable resources are located to the population 
centers where power is needed. Cooperatives are strong advocates for a 
strengthened and expanded transmission grid. For example, NRECA 
supports the Federal Energy Regulatory Commission's new rules for 
siting transmission lines in national interest corridors. In addition, 
NRECA believes the Federal Government must be willing to develop 
policies and funding mechanisms for transmission lines that could 
exceed $2.5 million per mile.
    Electric cooperatives across the country recently formed the 
National Renewable Cooperative Organization (NRCO) to accelerate the 
development and deployment of renewable energy resources. Formed in 
March 2008, NRCO's membership already represents approximately 500 
distribution cooperatives, collectively serving 23 million Americans in 
36 states. NRCO reflects the commitment of cooperatives around the 
country to the responsible development of cost-effective renewable 
resources in a manner that benefits their consumers, their communities, 
and the nation as a whole. NRCO will allow cooperatives to pool 
expertise in developing renewable energy, share access to sites that 
are conducive to renewable production, and potentially lower the high 
capital costs of these projects. National energy policy must recognize 
that renewable energy is more cost-effective and available in some 
regions than in others. For example, NRCO will permit southeastern 
cooperatives to invest in solar and wind where these resources are 
cheaper and more plentiful.
    Co-op planned and owned renewable energy projects are already 
underway in many of your states. The 2005 Energy Policy Act 
established, for the first time, a financing tool for renewable energy 
that gave cooperatives a level playing field with investor-owned 
renewable energy developers. The Clean Renewable Energy Bond (CREB) 
allows not-for-profit cooperatives access to low-cost financing, much 
as the production tax credit provides low-cost financing for profit-
making entities. So far, 40 electric cooperatives have developed or are 
developing $430 million worth of renewable energy projects using this 
program. I thank the many Members of the Agriculture Committee who have 
supported legislation to continue and expand the CREB program.
    As historic customers and champions of the Federal hydropower 
program, cooperatives are actively speaking out on the need to upgrade 
the dams and other key infrastructure under the jurisdiction of the 
Bureau of Reclamation and Corps of Engineers. A study conducted jointly 
by the Departments of Interior, Defense and Energy concluded that 2,500 
MW of new generation could be produced through rehabilitating and 
upgrading Federal facilities.

Research, Development and Deployment of New Clean Energy Technologies
    Technology is the key to retaining our nation's diverse menu of 
electric generation fuel options and for lowering the costs of carbon 
reduction. The sooner an array of clean energy and efficiency 
technologies are commercial, the sooner we will pass through this 
dangerous period. Congress can speed the arrival of that day by 
substantially increasing funding to $2 billion per year for the next 
decade for carbon capture and storage (CCS) technology and all other 
options for low- or no-carbon technology solutions.
    EPRI has assessed the economic impact of reducing carbon emissions 
to 1990 levels by 2030, assuming the availability of different fuel 
portfolios. EPRI emphasizes that new advanced clean coal plants are a 
critical part of a resource mix needed to provide adequate electricity 
and achieve aggressive carbon reductions. Based upon the EPRI analysis, 
if the U.S. adopts carbon reduction goals and builds new nuclear power 
plants as well as new highly efficient coal plants equipped with CCS 
technology, utility rate increases attributable to a climate strategy 
would average about 10 percent in real dollars. Electric rates would 
increase drastically by 2050, however, if the U.S. relies solely on 
natural gas, renewables and energy efficiency to meet capacity needs, 
and fails to invest in new nuclear and clean coal technologies.
    Some advocates mistakenly assert that CCS is already commercial and 
ready to be deployed on a wide scale. To ensure that coal will remain 
part of the nation's electricity fuel mix, a significant technology 
``push'' is needed to make applications like CCS commercially feasible. 
Scientific experts agree that CCS will not be available until 2020 at 
the earliest--even with significant investments in research and 
development. Extensive testing is needed for all phases--capture, 
transportation and long-term storage. The Federal Government, along 
with industry, must wrestle with complex issues of carbon ownership and 
liability.
    Recently, cooperatives worked with Congress to introduce the Carbon 
Reduction Technology Bridge Act of 2008 (S. 3208), which seeks to 
establish much-needed tax incentives for an array of CCS and efficiency 
technologies for clean coal. I anticipate this bill will also soon be 
introduced in the House and I ask for your support. Cooperatives 
brought this legislation to Congress in a good-faith showing of our 
willingness to partner with the Federal Government to solve our 
nation's energy crisis. We are proud, that as the smallest segment of 
the electric utility industry, we brought this forward and are actively 
gathering support for it.

Conclusion
    Seventy-five years ago, the Federal Government, helped greatly by 
your predecessors on the Agriculture Committee, created the Rural 
Electrification Administration so that all Americans could one day have 
safe, reliable and affordable electric power. Today, virtually all U.S. 
citizens enjoy this basic right, but it may slip away from future 
generations unless we all act now to reconcile energy needs and climate 
goals. Electric cooperatives are committed to developing wise and 
balanced energy and climate plans now and in the future. We will do 
this by continuing to work with Congress, RUS and thousands of locally 
elected cooperative leaders. Thank you for the opportunity to talk with 
you today. I look forward to answering your questions.



 Thank you, Mr. English. Mr. Champagne.STATEMENT OF PAUL T. CHAMPAGNE, 

           PRESIDENT, PPL DEVELOPMENT COMPANY, ALLENTOWN, PA

    Mr. Champagne. Thank you. Good morning, Mr. Chairman, Members of 
the Subcommittee. My name is Paul Champagne. I am President of the 
development subsidiary of PPL Corporation. I appreciate the opportunity 
to provide a broader view of the energy business and energy markets 
from PPL's perspective.
    PPL is a Fortune 500 company located in Allentown, Pennsylvania. It 
ranks among the largest utility companies in the country. It engage in 
the generation, marketing and trading, transmission and distribution of 
electricity. Our competitive generation portfolio consists of nuclear, 
coal, hydro, natural gas, and we also own an expanding renewable 
generation portfolio.
    PPL's generation is located in the Commonwealth of Pennsylvania, 
and the States of Maine, New York, Connecticut, Illinois, New Jersey, 
and Montana. One of our partners includes Allegheny Electric 
Cooperative, which owns 10 percent of PPL's nuclear generating facility 
located in Berwick, Pennsylvania.
    In the U.S. electric markets, electric grids connect major regions 
of the country and they themselves are interconnected, making it 
possible, where economically feasible, to move power back and forth 
across long distances creating reliability and service and economies of 
scale.
    In 13 eastern and midwestern states and the District of Columbia, 
the electric grid is operated by the PJM Interconnection, and 
independent, nonprofit regional transmission organization, of which PPL 
is a member. PJM plays a key role in ensuring that existing grid is 
operated in a reliable, cost-effective manner and that new 
infrastructure to meet steadily increasing demand for electric is 
developed.
    This infrastructure includes new generation transmission lines to 
move power from where it is generated to where customers need it. 
Owners of the transmission lines, including PPL and PJM, earn a FERC-
approved regulated rate of return on their asset.
    PJM also is responsible for running a robust and competitive energy 
market that provides an opportunity for generators or sellers of load 
or buyers to transact. Generators who are no longer regulated like PPL 
rely on the competitive marketplace to recover their investment and 
earn a rate of return over time. They also rely on adequate price 
signals from the market when making decisions on whether to expand or 
build new facilities.
    This is a major commitment involving many risks, which includes the 
high cost of construction, long lead time to site, permit, and build 
new generating facilities. Recently PJM has identified a need for 
additional infrastructure in the region including several new high-
voltage transmission lines that are critical to maintaining 
reliability.
    PJM also recognized that generators were not being sufficiently 
compensated for the electricity they were generating. The result was 
some generating units were retired, and additional generation needed to 
meet growing and future demand was not being built. In response, PJM 
changed the structure of the competitive markets. These changes appear 
to be working by helping to provide correct incentives for companies in 
making decisions to expand or build new generating facilities that are 
needed.
    What does the future look like from our perspective? Energy prices 
are increasing everywhere, whether the state is regulated or non-
regulated. On the supply side, the price of fuels used to generate 
electricity, primarily uranium, natural coal and gas, have increased 
dramatically. On the demand side, we see increasing demand in the near 
term and over the long haul.
    What can be done to address these higher energy prices? PPL is 
taking a number of steps on many fronts. We are working to increase 
generation, infrastructure in PJM and other regions. We are working to 
increase electricity transmission infrastructure, and we are working 
aggressively with customers to help them use energy more efficiently.
    Increasing generation capacity is important for our nation's energy 
security and to be able to meet growing customer demand for 
electricity. At PPL, we are increasing the output of our existing 
nuclear facility by about 10 percent. We are expanding renewable and 
clean hydroelectric generating capacity in Pennsylvania, Montana, and 
Maine. We are investigating opportunities to build new, efficient, 
natural gas-fired generating plants. We have supported research in 
carbon capture and storage technologies through our membership in the 
Future Generation Alliance.
    We are expanding our renewable energy business in wind, solar, 
biomass, and landfill methane. We plan to invest more than $100 million 
in new renewable energy projects and another $500 million in 
hydroelectric projects over the next 5 years. We are also preparing a 
combined operating license application for a new nuclear unit adjacent 
to our existing nuclear generation facility, and we plan to submit that 
to the U.S. Nuclear Regulatory Commission before the end of the year.
    At PPL, we are optimistic about the ability of nuclear energy to 
provide significantly increased generation capacity in the United 
States, but with the significant cost of nuclear generation, the 
financial backing of the Federal Government in the form of loan 
guarantees will be essential if projects are to be moved forward.
    We encourage the legislators to build a foundation based on the 
Energy Policy Act to support and expand a nuclear loan guarantee 
program. PPL already generates about 40 percent of its electricity from 
non-carbon emitting resources. And as a major generator, we recognize 
the need to address climate change in a reasoned way.
    Thank you for the opportunity to testify before you this morning. I 
will be happy to answer any questions.
    [The prepared statement of Mr. Champagne follows:]

  Prepared Statement of Paul T. Champagne, President, PPL Development 
                         Company, Allentown, PA

    Good morning Mr. Chairman and Members of the Subcommittee: My name 
is Paul Champagne, and I am president of the development subsidiary of 
PPL Corporation. I appreciate the opportunity to provide a broad 
overview of the energy business and energy markets from PPL's 
perspective.
    PPL is a Fortune 500 energy holding company headquartered in 
Allentown, Pa., and ranks among the 10 largest electricity companies in 
the country. We are engaged in the generation, marketing and trading, 
and distribution of electricity. All of the approximately 12,000 
megawatts of generation capacity we own are in deregulated, competitive 
wholesale electricity markets, primarily in the mid-Atlantic region and 
secondarily in the northwestern United States.
    On the regulated transmission and distribution side of our 
business, we serve more than four million customers through 
subsidiaries in Pennsylvania and the United Kingdom, and own and 
operate 52,000 miles of electricity transmission lines in Pennsylvania.
    Our competitive generation portfolio consists mainly of nuclear, 
coal, hydro and natural gas power plants, although we also own and 
operate a growing portfolio of biogas and solar generation assets. Our 
energy marketing and trading arm, PPL EnergyPlus, buys and sells energy 
in key U.S. competitive wholesale and deregulated retail markets, and 
provides energy solutions to business, industry, government and 
institutions. We have a long track record of providing reliable 
electricity in regions where we do business.
     In the U.S. electric market, PPL and other companies are able to 
buy and sell electricity widely because of the infrastructure that is 
in place: an electricity transmission and delivery system 
interconnected in a grid. Electric grids connect major regions, and are 
themselves interconnected, making it possible--when economically 
feasible--to move power back and forth across long distances, creating 
greater reliability of service and economies of scale.
    Here's a brief example. Say PPL generates a quantity of electricity 
at its Susquehanna nuclear plant near Berwick, Pa., and wants to sell 
that electricity to a wholesale buyer in Delaware. With price and other 
terms set, the plant generates the electricity, and the buyer in 
Delaware then takes an equal amount off the grid for use.
    In 13 eastern and midwestern states and the District of Columbia, 
the electric grid is operated by the PJM Interconnection, an 
independent, nonprofit entity whose main roles are to operate the grid 
reliably, plan for its expansion when necessary, help establish the 
correct price signals for new generation and transmission where needed, 
and oversee the electricity markets enabled by the grid.
    PJM, as an independent, regional transmission organization, can be 
seen as a very astute traffic cop who possesses an in-depth 
understanding of how a complex system of roadways, with many on and off 
ramps--in this case, the electric grid--works. PJM looks at the demand 
requirements of customers and communicates with generators and 
transmission owners regarding the amount of power needed, and where and 
when that power is needed; and PJM plans for future needs. PJM is the 
largest and most liquid electricity market in the United States, and it 
is in this market that most of PPL's generation assets are located.
    PJM plays a key role in enabling the new infrastructure needed for 
energy companies to meet steadily increasing demand for electricity. 
This infrastructure includes new generating plants and new transmission 
lines to move the power from where it is generated to where customers 
need it.
    If someone wants to build a generating plant in the PJM region, 
that plant may require an upgrade to the grid to handle its output and 
balance the overall system. PJM, working with the transmission owners 
and local electric delivery companies like PPL Electric Utilities, 
conducts interconnection studies for new sources of generation, and has 
a queue process through which generators get a place in line, pay for 
the costs of interconnection, and become interconnected in an orderly 
and controlled manner. PJM ensures that the system is not disrupted by 
additional generation sources and that the costs of interconnection and 
any required system upgrades are borne by the appropriate parties or 
customers.
    Owners of transmission lines on the grid earn a regulated rate of 
return on their assets. The return is set by the Federal Energy 
Regulatory Commission (FERC). Generators, who are no longer regulated 
in deregulated markets such as Pennsylvania, rely on the competitive 
market to recover their investment and earn a return over time. And 
they rely on adequate signals from the market when making a decision 
whether to build a new plant--a major commitment because of the risks 
involved, including the high cost of construction and the long lead 
time required to site, permit and build a new generating facility.
    Generators make their money in three ways--by selling energy, by 
selling capacity (which is the right to have generating units available 
to operate and provide power, if and when needed) and by selling 
ancillary services (which include needed voltage support services that 
are required to balance and operate the grid reliably and avoid 
disruptions).
    Recently, PJM has identified the need for additional infrastructure 
in the region--both transmission and generation, including several new 
transmission lines that are critical to maintaining reliability. Those 
lines are currently undergoing siting and related approvals. PJM 
conducts Regional Transmission Expansion Planning every year. Through 
this process, PJM can call for additional power lines to be built in 
the grid to handle increased demand for electricity or the need for 
more electricity capacity to serve markets in the grid.
    One example of this is a new 500,000 volt power line called for by 
PJM to run between Berwick, Pa., and Roseland, N.J., to prevent 
overloads on other power lines due to increasing demand for 
electricity. PPL Electric Utilities, in its role as an owner and 
operator of transmission, has been assigned by PJM to build the 
Pennsylvania portion of the line and is now in the process of choosing 
a preferred route and preparing to submit it the Pennsylvania Public 
Utility Commission for approval.
    As you know, the Energy Policy Act of 2005 granted ``backstop'' 
siting authority to the FERC for certain transmission lines. To date, 
FERC has not had to exercise this authority. It would be needed only if 
the traditional state siting process breaks down, and it is determined 
that a transmission line in a designated National Interest Electric 
Transmission Corridor (NIETC) must be built for grid reliability 
purposes. In the case of the Susquehanna-Roseland transmission line, 
PPL does not believe the NIETC process will be required because of the 
success the company has had with the state approval process in the 
past.
    Also, PJM identified that generators were not being sufficiently 
compensated for the electricity they were generating. Consequently, 
since generators were not earning sufficient revenues, the result was 
that some generating units were retired or were not being infused with 
adequate capital investment. Also, additional generation needed to meet 
growing and future demand was not being built.
    Because there is no practical way to store electricity after it has 
been generated, power grid operators constantly must match electricity 
production with electricity use. When electricity use increases, grid 
operators call on power plant owners to generate more electricity. To 
maintain the highly reliable supply of electricity we have come to 
expect, grid operators always have some generating capacity in reserve 
to meet increasing use or make up for plants that unexpectedly shut 
down.
    That ``reserve margin'' has been declining in recent years as the 
growth in electricity use has outpaced the addition of new generating 
sources. These tighter reserve margins are affecting the balance 
between supply and demand, and are contributing to higher electricity 
costs.
    In response to these various factors, PJM changed the structure of 
its competitive markets. These changes, which instituted a reliability 
pricing mechanism (RPM) and revised the price that PJM believes is 
appropriate to send the right signals for new generation to be built 
called the cost of new entry (CONE), appear to be working. These 
mechanisms seem to be helping to provide the correct incentives 
companies require to make decisions to build the new power plants that 
are needed--and to build them in the right locations--to meet current 
and future demand.
    That is a basic overview of the energy business and energy markets 
in the PJM region. What does the future look like?
    Energy prices are increasing everywhere--in deregulated states and 
in states where the electricity business remains regulated. Prices are 
going up for a few main reasons. On the supply side, the prices of fuel 
used to generate electricity--primarily uranium, natural gas and coal--
have increased dramatically. The price of coal has increased 56 percent 
and natural gas has gone up 200 percent since 2000. Uranium prices on 
the spot market have gone from about $10 a pound in 2000 to $65 a pound 
today--an increase of 550 percent.
    Costs of other key components of generation and transmission, such 
as steel, labor and other factors, have also risen significantly. On 
the demand side, the country continues to use more electricity. PJM has 
seen a 1.6 percent annual increase in electricity demand.
    In many states, including Pennsylvania, where policymakers 
recognized the benefits that competitive electricity markets can bring, 
transition periods with capped rates are coming to an end, and 
customers are seeing or will be seeing increases in prices of 
electricity. However, these price increases are not the result of 
competition. They are the result of significant and sustained increases 
in fuel prices and costs of materials needed to generate and distribute 
power. And these price increases are occurring in regulated 
jurisdictions as well as non-regulated jurisdictions.
    PPL firmly believes that competition will bring lower prices to 
consumers in the long run, and that competition has a number of other 
benefits as well. Competitive wholesale electricity markets have 
shifted the risk of building and operating generation from consumers to 
generators, and it is competitive wholesale electricity markets that 
will ensure reliable and lower cost energy supplies for consumers while 
promoting development of renewable energy and conservation.
    What can be done to address higher energy prices? PPL is taking 
steps on a number of fronts. We are working to increase generation 
infrastructure, we are working to increase electricity transmission 
infrastructure, and we are working aggressively with customers to help 
them use energy more efficiently.
    Increasing generation capacity is important for our nation's energy 
security, and to be able to meet growing customer demand for 
electricity. There is no single solution to this issue, and the answer 
lies in a portfolio approach to new sources of generation coupled with 
demand-side management and conservation programs.
    Regarding generation sources, non-carbon sources should be 
promoted--including renewable sources, clean coal technologies and 
nuclear power. PPL already generates about 40 percent of its 
electricity using non-carbon sources, and as a major generator, we 
recognize the need to address climate change in a reasoned way. 
Reducing greenhouse gas emissions requires the development of new 
technologies and regulations that support capture and storage of carbon 
dioxide emissions so that we can continue to use coal--our most 
abundant domestic energy source--as part of our future energy mix.
    In the meantime, we face important decisions on how to meet 
increasing demand for electricity to power our economy and support our 
quality of life. Renewable energy is an important, but intermittent, 
source of electricity, and its cost is still high. It should be 
developed wherever possible, but renewable energy alone will not 
fulfill the country's future energy needs. Continuing uncertainties 
about climate change legislation make coal an unlikely choice. Natural 
gas has significant cost concerns as the rate of use grows faster than 
increases in production. Nuclear energy does not emit carbon and has a 
strong safety record, but questions remain about the cost, and the 
political and regulatory climate.
    At PPL, we are considering whether to build a new nuclear power 
plant adjacent to our existing power plant in Berwick, Pa.; we are 
implementing plans to increase the output of our existing nuclear units 
by nine percent; we are expanding renewable hydroelectric generating 
capacity in Pennsylvania, Montana and Maine; we are investigating 
opportunities to build new, efficient natural gas-fired generating 
plants; we have supported research into carbon capture and storage 
technologies that would enable continued use of our abundant coal 
resources; and we are expanding our growing renewable energy business, 
which invests in wind, solar and landfill methane generation projects.
    We are preparing a Combined Operating License application for a new 
nuclear unit, which we expect to submit to the U.S. Nuclear Regulatory 
Commission before the end of this year. Expanding nuclear power is 
essential for the nation's energy policy. With reserve margins 
declining, and carbon regulation on the horizon, nuclear power is an 
increasingly attractive option to provide the nation with reliable, 
affordable, baseload electricity.
    At PPL, we are optimistic about the ability of nuclear energy to 
significantly increase our generating capacity in the United States. 
But with the significant cost of nuclear generation, the financial 
backing of the Federal Government, in the form of loan guarantees, will 
be essential if new projects are to move forward. We encourage 
legislators to build on the foundation of the Energy Policy Act by 
supporting a workable, effective and stable loan guarantee program--a 
key element for a successful renaissance of nuclear energy in the 
United States.
    We also have made significant gains in improving the operating 
efficiency of existing power plants, largely due to incentives created 
by the competitive wholesale energy markets where PPL does business. 
Plants that in a regulated environment operated about 75 percent of the 
time currently operate more than 90 percent of the time in a 
competitive market. Getting the most out of existing resources has 
enabled PPL and other generators to defer new power plant construction 
for several years.
    PPL produces about eight percent of its energy from renewable 
sources, including hydroelectric generation. We currently own, operate 
or are developing about 950 megawatts of hydroelectric generating 
capacity and a total of 30 megawatts of capacity of renewable energy 
projects, including two projects that have been honored by the U.S. 
Environmental Protection Agency.
    In addition, PPL has made a 20 year commitment to buy the 
electricity generated at two wind farms in Pennsylvania and has agreed 
to buy half of the renewable energy credits produced by a new wind farm 
in West Virginia. The three projects total 132 megawatts of renewable 
energy. PPL has 10 megawatts of solar generation, either in place or 
under construction or contract, in New Jersey; and we continue to look 
for new opportunities to develop solar generation as part of our larger 
renewable energy portfolio. We plan to invest more than $100 million in 
new renewable energy projects and another $500 million in hydroelectric 
projects through 2011.
    Regarding helping our customers use energy more wisely, we now have 
in place a web-based tool that allows our regulated delivery customers 
in Pennsylvania to view their daily electricity use, and, in the very 
near future, their hourly electricity use. This tool gives customers a 
better understanding of how their homes use electricity and provides 
personalized tips to save. This fall, we distributed more than 150,000 
compact fluorescent light bulbs to customers in our service territory 
to help them reduce energy use, raise awareness about energy efficiency 
and encourage them to use the Energy Analyzer online.
    We have arranged with an independent, nonprofit company to bring 
our customers an online store that sells a wide variety of energy-
efficient products. PPL Electric Utilities customers can receive a 20 
percent discount on all items they buy.
    We are also supporting rebates for small businesses that upgrade 
their lighting and providing grants for companies that ``go green'' 
when renovating or building new commercial or industrial facilities. 
Grants are available for companies that seek a ``green'' certification 
from the U.S. Green Building Council's Leadership in Energy and 
Environmental Design program.
    Last but not least, we are reaching out to customers through 
community presentations, home shows, energy fairs, advertisements and a 
newsletter inserted with customer bills to promote energy efficiency.
    In summary, our view is that the essential elements of a national 
energy policy include a commitment to domestic resources, a program to 
encourage ``clean coal'' technologies, nuclear power initiatives, new 
electricity transmission infrastructure, research and development of 
renewable power, and effective demand management and conservation 
measures.

    The Chairman. Thank you, Mr. Champagne. Mr. James.

         STATEMENT OF REVIS W. JAMES, DIRECTOR, ENERGY
          TECHNOLOGY ASSESSMENT CENTER, ELECTRIC POWER
              RESEARCH INSTITUTE, WASHINGTON, D.C.

    Mr. James. Thank you, Mr. Chairman, Ranking Member Lucas, 
and Members of the Subcommittee. I am Revis James of the 
Electric Power Research Institute. I direct the Energy 
Technology Assessment Center at EPRI. EPRI is a 30 year-old 
nonprofit research foundation that has been focused on the 
electric sector, and we are focused primarily on the U.S. but 
also on quite a lot of the other areas of the world.
    A unique convergence of major challenges is facing the 
electric sector currently; substantial long-term growth and 
electricity demand, decreasing margins between maximum 
generation capacity and maximum loads, and anticipated 
CO2 emissions constraints, which we expect soon.
    While significant expansions of electric generation 
capacity and transmission systems are needed to support demand 
growth and maintain system reliability, accomplishing 
substantial and permanent reductions in electricity-related 
CO2 emissions will require new technology 
capabilities.
    Our analysis has shown that a full portfolio of advanced 
technologies would enable substantially lower emissions from 
the electric sector by 2030, on the order of 45 percent less in 
comparison to business-as-usual projections by the Energy 
Information Administration.
    But it is clear that there is no silver bullet. Achieving 
such reductions relies on a portfolio consisting of advanced 
levels of both performance and increased deployment of several 
technologies: end-use efficiency, renewables, advanced coal 
with CO2 capture and storage, nuclear power, plug-in 
hybrid electric vehicles, and distributed energy resources.
    Furthermore, many of these technologies haven't yet reached 
the levels of performance and deployment that would be 
necessary to enable the kinds of emissions reductions that I 
just discussed. Sustained, focused research development and 
demonstrations are going to be needed over the next 20 to 25 
years in order to realize that full portfolio of advanced 
technologies.
    Meeting these challenges will result in increased cost of 
electricity. Substantial deployment costs for new power plants 
and transmission infrastructure and new costs for 
CO2 emissions reductions are going to be principal 
factors. The commercial availability of key technologies will 
take different lengths of time to develop, and cost of 
materials and labor have been rising at significant rates.
    EPRI's economic analyses indicate that investments in RD&D 
can significantly reduce the costs of future climate policy 
through earlier availability of a wide array of technology 
options. Wholesale electricity production costs will increase 
much less with a full portfolio of advanced technologies.
    A very important part of this technology benefit is the 
eventual availability of, relatively speaking, decarbonized 
electricity for the remainder of the industry and enabling the 
rest of the economy to reduce it emissions.
    Differences in the time to full technology availability and 
the risk of unforeseen RD&D barriers reinforces the importance 
of concurrent aggressive RD&D, and demonstrations in 
particular, to minimize the time before the full portfolio will 
become available.
    Collaborating with its networks of technical advisors from 
across the electric sector, EPRI has identified several 
critical technology demonstration projects, which are central 
to the development of this whole portfolio. We have created a 
framework for each of these projects, and we are currently 
pursuing their development and implementation.
    To summarize, our research concludes that to serve 
increasing demand for electricity and at the same time 
substantially reduce CO2 emissions, first, we are 
going to have to substantially decarbonize generation itself. 
Second, we are going to have to develop a smart grid, which 
will enable much more efficient use of electricity. And third, 
we are going to have to use decarbonized electricity in a wide 
range of other sections of the economy to enable productions in 
those other sectors, for example in transportation.
    Sustained RD&D, starting now, can help lower the economic 
impact of creating this low-carbon future. Mr. Chairman, this 
concludes my vocal remarks, and thank you for the opportunity 
to address the Subcommittee.
    [The prepared statement of Mr. James follows:]

   Prepared Statement of Revis W. James, Director, Energy Technology 
 Assessment Center, Electric Power Research Institute, Washington, D.C.

    Thank you, Chairman Holden, Ranking Member Lucas, and Members of 
the Subcommittee. I am Revis James, Director of the Energy Technology 
Assessment Center at the Electric Power Research Institute (EPRI). EPRI 
appreciates the opportunity to provide testimony to the Subcommittee.
    EPRI is an independent, nonprofit research organization that brings 
together its members, scientists and engineers, along with experts from 
academia, industry and other centers of research to:

   collaborate in solving challenges in electricity generation, 
        delivery and use;

   provide technological, policy and economic analyses to drive 
        long-range research and development planning;

   support multi-discipline research in emerging technologies 
        and issues; and

   accelerate the commercial deployment of advanced electricity 
        technologies.

    During its 35 year history, EPRI's mission has been to define 
strategic technical challenges in the electricity sector and to clearly 
identify viable technology options to address them. In this context, 
and in anticipation of a low-carbon energy future, EPRI is conducting 
ongoing research on how climate change and potential goals to reduce 
greenhouse gas emissions affect the production and delivery of 
electricity.

    A convergence of major challenges: demand growth, decreasing 
capacity margins, CO2 emissions constraints

    Meeting potential CO2 emissions constraints and the 
projected demand growth for electricity is complicated by several 
risks. Advanced technology provides a path to mitigating these risks 
while addressing the concurrent challenges of demand growth, 
anticipated CO2 emissions constraints, and diminishing 
generation reserve margins.

    Demand growth

    Meeting the expected growth in electricity demand and maintaining 
system reliability presents a major challenge that drives the need for 
substantial new generation capacity. In its most recent Annual Energy 
Outlook, [1] the Energy Information Administration (EIA) projects U.S. 
electricity demand will grow by 29% between 2005 and 2030, an increase 
in consumption of 1046 TWh. This increase is roughly equivalent to the 
2006 electricity consumption of the top five consuming states in the 
United States: Texas, California, Florida, Ohio, and Pennsylvania. 
Growth at this scale will demand a huge increase in electricity 
generating capacity. The magnitude of new generation required to 
simultaneously meet demand growth and achieve major reductions in 
CO2 emissions will be enormous. The Energy Information 
Administration estimates than 200 GW of new generating capacity, [1] 
for example, will be required to meet U.S. electricity demand in 2030, 
highlighting the need for low-carbon generation sources to ensure this 
growth is accomplished with fewer emissions.

    Decreasing capacity margins

    Expansion of generation and transmission resources has not kept 
pace with electricity demand growth, leading to decreasing margins 
between peak consumption and generating capacity. The deployment of new 
capacity is also a priority to ensure electricity grid reliability and 
stability. The North American Electric Reliability Corporation (NERC) 
estimates that these margins will decrease below acceptable levels 
between 2009-2015 in the eight U.S. reliability areas. [2]

    CO2 emissions constraints

    It is clear that goals for reducing greenhouse gas emissions and 
the timeframe over which they will be targeted are likely to be large 
and very demanding. Significant progress on reducing emissions will 
have to begin very soon and continue for many decades if probable goals 
are to be met. Most of the proposals discussed to date require large 
scale emissions reductions by 2050 over most or all of the economy. The 
magnitude of these reductions can be appreciated by considering the 
difference between current annual emissions levels and projected 2050 
levels based on the proposed legislation. This difference is over 1\1/
2\ times the total CO2 emissions from all U.S. electric 
utility companies [3] in 2006. In essence, expected emissions 
constraints will ultimately require almost no emissions from new 
generating capacity while reducing emissions from the existing fleet, 
either via reduced electricity consumption, increasing efficiencies of 
existing coal and gas plants, or retrofitting CO2 capture on 
existing coal and gas plants.

    Additional factors complicate risk mitigation

   Timing of technology deployment: The commercial availability 
        of key technologies will take different lengths of time to 
        develop and deploy. Delays could have significant impacts on 
        electricity costs, the generation mix, and the ability to meet 
        a given emission constraint.

   Costs: The costs incurred to deploy advanced technologies 
        will be substantial, but will ultimately prove to be a valuable 
        investment in leading the electricity sector to 
        decarbonization. Moreover, because many of these technologies 
        are not yet commercially mature, cost uncertainties exist until 
        they have been demonstrated at large scale.

    Timing of Technology Deployment

    Recent EPRI work [4] has illustrated the necessity and the urgency 
to develop a full portfolio of advanced electricity technologies as 
part of the solution to satisfying our future energy needs in an 
environmentally responsible manner. Our analyses suggest that with 
aggressive research, development, demonstration, and deployment of 
advanced electricity technologies, it is technically feasible to slow 
down and stop the increase in U.S. electric sector CO2 
emissions, and then eventually reduce them over the next 25 years while 
simultaneously meeting the expected increased demand for electricity 
and minimizing the economic impact of reducing emissions.
    To develop this analysis, we compiled data on the current and 
likely future cost and performance of various electricity technologies 
from our own internal work, various public-private technology research, 
development, and demonstration (RD&D) roadmaps, and expert opinions 
from academia, industry, and the NGO community in the published 
literature. From this information, EPRI assessed the benefits of 
achieving substantial improvements in performance and aggressive 
deployment of advanced technologies in seven areas: end-use efficiency, 
renewables, nuclear generation, advanced coal generation, 
CO2 capture and storage (CCS), plug-in hybrid electric 
vehicles (PHEV) and distributed energy resources (DER). We then 
calculated the net change in CO2 emissions from the electric 
sector which would result from achieving each of those technology 
targets compared to the underlying assumptions in the reference case of 
the 2008 Annual Energy Outlook published by the Energy Information 
Administration (EIA). [1] The calculated potential for CO2 
emissions reductions is based solely on the technical capabilities, 
assuming no economic or policy constraints. Called the PRISM analysis 
because of the spectrum-like appearance of its graphical representation 
(Figure 1), the study's major finding is that it is technically 
feasible to halt and ultimately reverse the currently rising trend in 
CO2 emissions from the electricity sector. If aggressive 
RD&D of the full portfolio of advanced technologies is successful, 
annual emission levels could be reduced by roughly 45 percent relative 
to reference-case projections for 2030 in the U.S. Energy Information 
Administration's 2008 Annual Energy Outlook. [1] There is no silver 
bullet technology that can provide the majority of potential emissions 
reductions, but rather a diverse combination of new and existing 
technologies will be required to meet aggressive emission targets.



    Costs

    EPRI conducted a companion economic analysis [4] showing that 
investments in RD&D which lead to the creation of a full portfolio of 
advanced, low-carbon electricity technologies, including advanced coal-
based power plants with CCS and new expansions in nuclear power, can 
significantly reduce the costs of future climate policy. For a scenario 
in which we aspire to reduce U.S. emissions of CO2 in 2050 
to less than half of today's levels, this ``full portfolio'' would 
result in average wholesale electricity prices equivalent to 
approximately 9 cents per kilowatt-hour, compared to 21 cents per 
kilowatt-hour--more than twice as much--in the case where a ``limited 
portfolio'' of electricity technologies (i.e., excluding CCS or 
expansion of nuclear power) is available. Carbon prices are also twice 
as large in the world of the ``limited portfolio''. In a world without 
CCS and nuclear, future CO2 constraints would be met by 
massive fuel switching to natural gas (with resulting price increases 
and increasing import dependence) and by increasingly expensive energy 
conservation as consumers respond to very large carbon and electricity 
prices.
    For this hypothetical CO2 constraint, the existence of 
the ``full portfolio'' reduces the overall cost of the climate policy 
to the U.S. economy by approximately $1 trillion between now and 2050. 
Furthermore, the low-cost, low-carbon electricity provided by the 
``full portfolio'' would play an essential role in enabling 
CO2 reductions from other sectors of the economy.

    Transition to a Low-Carbon Future

    Since the key technology capabilities in the full portfolio will 
take different lengths of time to develop and deploy, their relative 
importance within the portfolio will shift over time. Over the decade 
of 2010-2020, availability of cost-effective and efficient 
CO2 capture technology or of commercial CO2 
storage sites is unlikely, and little or no deployment of new nuclear 
plants will occur. During this period, natural gas, wind and biomass, 
demand reduction, and improvements to existing coal plant heat rates 
are likely to be particularly important. The lack of availability of 
larger baseload generation options will make capacity planning much 
more uncertain. Combined with CO2 emissions reduction 
policies, consequences of this initially more limited technology 
availability will result in higher electricity production costs and 
natural gas prices. Rising electricity and CO2 costs will 
drive technology development. Beyond 2030, emergence of significant 
deployments of nuclear, advanced coal with CCS, wind and biomass will 
expand the technology portfolio. However, delays in technology 
development will directly affect the ultimate costs of achieving 
CO2 emissions reductions.
    The importance of multiple technologies within an economically 
optimal portfolio, coupled with the risk of unforeseen barriers in 
technology development reinforces the importance of concurrent, 
aggressive RD&D actions to maximize options by which the full portfolio 
can be achieved. In addition, full scale technology demonstrations for 
the key technologies will determine the time that it takes to reach 
full availability of the full portfolio.

    EPRI's Response to the Challenges: Technology Demonstrations

    Based on its 2007 research, [4] EPRI identified four major 
technology pathways in which substantial RD&D progress will be needed 
over the next 20-30 years to achieve the full portfolio of advanced 
technologies that will allow demand growth to be met while minimizing 
the cost of compliance with a CO2 emissions constraint:

   Development and demonstration of smart distribution grids 
        and communications infrastructures to enable widespread end-use 
        efficiency technology deployment, distributed generation, and 
        plug-in hybrid electric vehicles.

   Development and demonstration of enhanced transmission grids 
        and associated energy storage infrastructures with the capacity 
        and reliability to operate with 20-30% intermittent renewables 
        in specific regions of the United States.

   Expanded deployment of advanced light water reactors enabled 
        by continued safe and economic operation of the existing 
        nuclear fleet.

   Development and demonstration of commercial-scale coal-based 
        generation units operating with 90% CO2 capture and 
        with the associated infrastructures to transport and sequester 
        the captured CO2.

    EPRI subsequently identified particularly critical technology 
demonstration projects within these technology pathways necessary to 
ensure long-term achievement of the full portfolio. In concert with its 
network of technical advisors from across the electric sector, EPRI 
technical experts evaluated several candidate projects before 
identifying the following six for immediate action:

   Post-Combustion Carbon Capture and Storage Demonstrations.

   IGCC With Carbon Capture and Storage Demonstration.

   Ion Transport Membrane for Low-Cost Oxygen Production.

   Advanced Compressed Air Energy Storage Demonstration.

   Energy Efficiency Demonstration.

   Smart Grid Demonstrations.

    The above projects address pivotal technologies within the full 
portfolio which contain considerable technology uncertainty associated 
with performance, ease of scale-up, and cost. Through large scale 
demonstrations, these projects will ultimately enable commercially 
viable deployments of key advanced technologies. EPRI has created a 
collaborative framework for each of these projects and is currently 
pursuing them.

    Conclusion

    Decarbonization of electricity generation, development of a smart 
grid, and increasing use of electricity in other major economic 
sectors, such as transportation, will all occur in response to the 
combination of CO2 constraints and demand growth. Since all 
of the needed technology capabilities do not yet exist or are not yet 
economically available, the U.S. faces an unavoidable period of 
responding to demand growth and emissions reductions with a limited 
technology portfolio. If emissions reduction targets currently under 
serious discussion are to be achievable and affordable, a sustained and 
focused RD&D program is needed to develop, demonstrate and eventually 
deploy the full portfolio of advanced electricity technologies. A 
decarbonized electricity sector is the key to meeting economy-wide 
CO2 emissions goals.
    Timely, sustained collaborative RD&D can enable a low carbon future 
while lowering the cost of compliance with CO2 constraints, 
but concurrent actions in several technology areas must begin now to 
minimize this cost while continuing to meet demand growth. Thank you 
for the opportunity to address the Subcommittee.
Endnotes
    [1] ``Annual Energy Outlook 2008'', Energy Information 
Administration, U.S. Department of Energy, June 2008, DOE/EIA-
0383(2008), www.eia.doe.gov.
    [2] ``2007 Long-Term Reliability Assessment: 2007-2016'', North 
American Electric Reliability Corporation, October 2007, www.nerc.com.
    [3] ``Benchmarking Air Emissions'', National Resources Defense 
Council, http://www.nrdc.org/air/pollution/benchmarking/default.asp.
    [4] ``The Power to Reduce CO2 Emissions: the Full 
Portfolio'', EPRI 1015461, August 2007, www.epri.com.

    The Chairman. Well, thank you, Mr. James. Secretary 
Nichols.

STATEMENT OF HON. JIM NICHOLS, FORMER SECRETARY OF AGRICULTURE, 
 STATE OF MINNESOTA; FORMER SENATOR, STATE OF MINNESOTA, LAKE 
                           BENTON, MN

    Mr. Nichols. Thank you, Mr. Chairman, and thank you for the 
opportunity to come here with you and Colin Peterson. Very 
briefly, I will summarize my testimony and talk fast. Colin and 
I served together in the Senate, and we passed progressive 
legislation in Minnesota. My testimony says that.
    Over 14 years ago, Mr. Chairman, we passed our mandates for 
wind and ethanol, and it saved us actually $4 billion now. So 
we are very fortunate.
    My first handout there, if you go with me, it shows the 
price of E85 a week ago in Minnesota was $3.49. Today it is 
$3.29. Talked to the cabbie coming in here that brought me. He 
paid $3.99, and it was over $4 here in Washington. So if you 
have a progressive energy policy in the state, it saves you a 
lot of money. So I am lucky to get to live there.
    Also the thing I want to emphasize, the next thing in front 
of you I signed a power contract--I have a wind turbine on my 
farm--for 3.35 cents. Wind energy is the cheapest power in 
America. There is nobody that can generate it for 3.35 cents, 
and I wish the REAs would participate a little bit more on this 
because we could provide a lot of cheap power to the REAs.
    The reason why Minnesota has Xcel Energy, their cost to the 
consumer is 6.6 cents, Mr. Chairman, because they get 41 
percent of their power from non-fossil fuel sources, wind, 
hydropower, and nuclear.
    I grow energy on my farm, and let us never forget this, I 
grow distiller's grain. People think somehow we are causing a 
food shortage. Actually when we run our corn through the 
fermentation, as you well know, Mr. Chairman, we get a better 
food product in a high protein distiller's grain.
    Now, here is the problem. We would like to build more 
turbines, and I was the first farmer owned turbine in my 
county. I own it with my brother and our families, wives and 
our kids. All of the other turbines are owned by corporations, 
and the reason for that, Mr. Chairman, is because you have a 
law, as you well know, the production tax credit, that is only 
for corporations.
    Worse than that, the major owners of wind turbines in 
America beyond GE and FDL, are foreign corporations. So now we 
have created a situation where, because of the corporate tax 
credit, most of our wind turbines are owned by foreign 
corporations. And that is what surrounds me.
    Now, we would like to build more. We could supply 10,000 
homes with electricity on our two farms. We are not big 
farmers. And they could plug in their cars at night so 10,000 
cars at well, just for two farms, Mr. Chairman. The problem is 
you got to buy them in Euro dollars.
    And the next document there shows what I paid for the 
turbine was $1.5 million to build 1.5 megawatt turbine. To 
build a coal plant now, and the document includes that, it 
costs $3 million per megawatt to build a turbine. Wind energy 
has historically been $1 million a megawatt, and the wind is 
free. It is the cheapest power in America.
    But because our tax credit expires every 2 years, as you 
know--and I commend the House. You passes a pretty good energy 
bill. The Senate--enough said about that.
    Well, anyhow, we keep hoping out in the countryside you 
guys actually do some things here because it is discouraging. 
But it increases the cost of a turbine by $600,000 just in the 
exchange rate. Most of the turbines in America are installed by 
three major companies, Vestas, Siemens, and Gamesa. And Gamesa 
is a Pennsylvania company, I think. At least they have a 
factory in Pennsylvania. Is that correct?
    So we are getting more here, but still on half the bids, 
Mr. Chairman, you have to buy them in Euro dollars. And the GE 
turbine is a German turbine that is assembled here. Now, we are 
getting better because we build a lot of blades here now and a 
lot of towers. But they still want to charge you in Euro 
dollars. And because there is such a demand, I am on a 2 year 
waiting list to get a turbine. And if you argue about price, 
you are off the list.
    We need American manufacturers, Mr. Chairman, and that is 
my plea here. If we had a longer term tax credit, the 
manufacturers--you know you are going to make money in this 
business. And you know there is a demand. Everybody else is on 
a 2 year waiting list. If we can get American manufacturers, 
then we could get cheaper prices for our turbines. And the 
problem is if your turbines cost a lot of money because of the 
Euro dollar, that has to be reflected in the price to the 
consumer.
    So we can't build $4 million of megawatt anymore like we 
used to. It is closer to $2 million a megawatt. It is still 
cheaper than coal and anything else, but we can get back to $1 
million there.
    Now, I really want to encourage you--and that is part of 
the plan the Department of Energy has--the 20 percent energy by 
2030. It creates 500,000 jobs. And with that, they have their 
transmission. That is the other color thing you have in front 
of you, Mr. Chairman. We need to build a transmission system. 
Now, we have done a lot in Minnesota. The problem is when you 
get outside of your state, it is harder. You know, we can 
mandate wind and ethanol in Minnesota, and we can build 
transmission.
    But the real customers are in Los Angeles and New York and 
the big cities. There are only 800 farmers in my county, and my 
turbine supplies 500 homes. You know, the market is not--the 
power is out in the Midwest, but the customers are in the 
cities. The beauty of it is it moves at the speed of light.
    A wind turbine is better than an oil well. I will finish up 
here. It produces more energy. I want to get into that. And it 
moves at the speed of light. This is a crop that I grow on my 
farm, instantly convert wind to energy and transport at the 
speed of light to my customers that live in Minneapolis and St. 
Paul, and it is there just like that. No pollution.
    So now just very quickly, if we could get to the plug-in 
hybrids, Mr. Chairman, and you have the handout there on the 
Ford Escape--we are Americans--we are not going to drive those 
little cars or anything like that. I drive a four-wheel-drive 
pickup, and you probably do too. You can't live without it.
    But T. Boone Pickens is right. All those pickups that we 
drive should be converted to run on natural gas, compressed 
natural gas, propane. We did it in the 1970s, and we can do it 
again. The conversion kit is pretty cheap. So we can convert 
the existing vehicles we have to natural gas, and we can go the 
plug-in hybrids.
    Quickly to economics: My pickup uses--it is 15 miles to the 
gallon so it takes two gallons to drive 30 miles and more 
because I drove to the airport fast this morning. Usually it 
costs me almost $80 to fill the thing, but if I could plug it 
in, it takes 10 kilowatt hours to charge up the car. And I can 
drive 30 miles. I pay 7.2 cents for my REA co-op. So for 
72 cents, I could drive 30 miles if I could plug it in. But 
because I got to buy gas from the oil companies and the Arabs, 
it costs me $7.20. I could cut my fuel cost by 90 percent if we 
can solve this problem, Mr. Chairman.
    And finally, people don't realize this that wind turbines, 
they are oil wells. Our wind turbine, at full production, 
produces as much as 21 barrels of oil. We have a half a million 
oil wells, 507,000 oil wells in America. Those oil wells on 
average produce 10.3 barrels but 400,000 of them are stripper 
wells, and they produce 2\1/2\ barrels. A wind turbine will 
produce 10 to 12 barrels on average every day. A wind turbine 
is an oil well, Mr. Chairman, and it will never run dry. Thank 
you.
    [The prepared statement of Mr. Nichols follows:]

      Prepared Statement of Hon. Jim Nichols, Former Secretary of 
 Agriculture, State of Minnesota; Former Senator, State of Minnesota, 
                            Lake Benton, MN

    For the record my name is Jim Nichols. I have lived and farmed my 
entire life at Lake Benton, Minnesota. I had the privilege of serving 
four terms as a Minnesota State Senator and Minnesota Secretary of 
Agriculture. I served in the state Senate with my friends and 
colleagues that served here in Congress, Collin Peterson, Tim Penny, 
Gerry Sikorski and Bill Luther. Almost 15 years ago we passed 
legislation in Minnesota that mandated renewables, ethanol and wind. 
That legislation has saved Minnesotans more than $2 billion dollars in 
energy cost and I was pleased to have been a part of that legislation. 
This year Minnesota passed even more progressive legislation that 
requires 25% wind energy by 2025. Governor Tim Pawlenty has proposed to 
increase the required 10% ethanol blend to 20%. T Boone Pickens brought 
an excellent message to Congress last week and we have already adopted 
much of his message in Minnesota.
    My first two documents show the current price of ethanol blended 
gasoline in Minnesota at $3.49 per gallon and the Power Purchase 
contract that we signed with Xcel Energy in Minneapolis at a contract 
price for electricity of 3.35 cents per kilowatt hour and that price is 
locked for the next 25 years. Xcel Energy provides power to its 
consumers for 6.6 cents per kwh which is some of the cheapest power in 
America. Xcel Energy now gets 41% of its power from non-fossil fuel 
sources--wind, hydropower and nuclear. Consumers in Los Angeles now pay 
14 cents per kwh and New Yorkers pay 12 cents per kwh. It is nice to 
live in a state that has an energy policy.
    I own and operate my 630 acre farm and I grow energy and a high 
protein feed--distillers grain. Each year I produce 180,000 gallons of 
ethanol from the corn on my farm. Four years ago we purchased and built 
a 1.5 megawatt wind turbine on my farm and now produce the electricity 
for 500 homes. I own that wind turbine with my brother Kelly and our 
wives and children. Our grandchildren will be producing energy on that 
farm 100 years from now. We have plans to build 20 wind turbines on our 
farms and produce electricity for 10,000 homes. We cannot buy a wind 
turbine at this time because there is a 2 year waiting list. All of the 
wind turbines now standing in America are supplied by eight 
manufacturers. Three European manufacturers have most of the market. 
The European manufacturers are Vestas, Siemens and Gamesa. The GE 
Energy turbine is a German turbine assembled in America. The other 
manufacturers are Suzlon from India and Mitsubishi from Japan. Clipper 
and Acciona also have a small market share. We now manufacture many of 
the towers and blades in America but each turbine is sold as a package 
and the towers and blades are part of the package and usually must be 
purchased with Euro dollars.
    The next article shows wind projects stopped in South Dakota and 
around the nation because Congress has failed us once again. The House 
of Representatives did pass a pretty good energy bill and I commend you 
for that. The Senate did not pass a good energy bill. Wind turbine 
costs have moved closer to $2 million per megawatt in the past 3 years 
because the exchange rate for the Euro dollar is now $1.60. I have 
price quotes with me for turbines that I would like to purchase and you 
can see that the payment must be in Euro dollars. We have no American 
manufacturers because the tax credit for wind energy expires every 2 
years. The tax credit is for corporations only and with six major 
corporations owning most of the turbines in America there are no buyers 
without the corporate tax credit. Four of the major corporate owners of 
wind turbines are foreign corporations with a U.S. subsidiary. I do not 
understand why Congress would give a tax credit to foreign corporations 
and not give an energy tax credit to American citizens. A longer term 
tax credit would immediately create American manufacturers. The wind 
industry invested $9 billion in America in 2007 and will create 500,000 
jobs if we adopt the Dept of Energy plan for 20% wind energy by 2030 
(document cover is attached, the full report can be accessed at http://
www1.eere.energy.gov/windandhydro/pdfs/41869.pdf.) I contrast that with 
the big oil companies that have not built a refinery in 30 years and as 
you can see in the next article the big oil companies are not investing 
their profits in oil exploration. More than 70% of the exploration oil 
wells in America are now being drilled by the small, independent oil 
producers. These independent oil producers are investing in America.
    The next document shows that the actual cost of our turbine was 
$1.5 million for a 1.5 megawatt turbine and the document shows that the 
construction cost of a new coal plant proposed on the Minnesota border 
is $3 million per megawatt. The constructed cost of wind turbines has 
historically been $1 million per megawatt and the wind is free. With 
the escalating price of coal, and the expensive construction costs of 
coal plants, the American consumers are facing very high prices for 
electricity if Congress does not enact an energy policy. T. Boone 
Pickens is absolutely right when he says that we should use compressed 
natural gas to power our trucks and buses and not to generate 
electricity.
    The next document shows that wind energy and electricity can solve 
our fuel crisis. Ford now has the Escape plug-in hybrid that will get 
120 miles per gallon and cut fuel costs by 90%. My truck that I drove 
to the airport this morning gets 15 miles per gallon. It takes two 
gallons and costs me $7.20 to drive 30 miles. It takes 10 kilowatt 
hours to provide the charge to drive 30 miles. I pay 7.2 cents per kwh 
on my farm so a plug-in hybrid would cost 72 cents to drive 30 miles.
    The last document from the Dept. of Energy is the proposed 
transmission map for America. This transmission system will be paid for 
with a user fee and will give consumers in Los Angeles and New York 
access to the cheap energy that we have in the Midwest. That 
electricity will move at the speed of light from the farm fields to the 
big cities.
    We now produce five million barrels of oil per day from the 507,000 
oil wells in production in the United States, including Alaska and 
offshore. The average oil well produces 10.3 barrels per day. At full 
production a 2 megawatt turbine produces as much energy as 28 barrels 
of oil per day with an average of 12 barrels per day. The conversion 
factor for wind is 3,412 BTU per kwh and for oil is 5,800,000 BTU per 
barrel. With 500,000 wind turbines we can produce as much energy as we 
now produce from oil in America. The combination of oil and wind will 
produce 66% of the power needed for our cars. Ethanol, Biodiesel and 
Natural Gas will provide the remaining 33%. We must continue to grow 
corn, soybeans and cellulose and we must continue to drill new oil 
wells in America. The wind turbines will never run dry.

                              Attachment 1



  Thank you, Mr. Secretary. Your enthusiasm for what has been done in 
   Minnesota is evident, and we enjoyed very much visiting there and 
    seeing what you are doing at Buffalo Ridge.Mr. Nichols. We were so 
glad when you came, Mr. Chairman. Thank you.
    The Chairman. It was a very good learning experience. Mr. English, 
I assume that you were in the room for most of panel one and heard the 
gentlewoman from New York's question dealing with our colleague from 
Tennessee's report as well as the statement by Mr. Lucas at the end of 
the first panel.
    I just wonder if you can elaborate on some of the accusations of 
non-paid dividends, elections not being held, shell corporations, and 
where you are on the whole process of oversight in dealing with that.
    Mr. English. Well, thank you very much, Mr. Chairman. I appreciate 
that. I guess my first point with regard to the capital credit's issue 
and that is member equity. And basically it is invested mostly in 
infrastructure. I think Mr. Cooper points that out. There is about $3.8 
billion in cash throughout the electric cooperative system nationwide, 
all 47 states. What that amounts to is about 45 days operating expense 
for electric cooperatives, which I understand is very much within the 
realm of what most businesses would like to carry. Certainly one that 
is as resource intensive as electric cooperatives are.
    So most of what Mr. Cooper is talking about is tied up in wires and 
lines and poles and also infrastructure. And that is the investment, of 
course, that the membership owns. There is no question about that.
    As far as any kind of regulation, most of that is done, as you 
know, on the state level through public utility commissions. They 
normally handle that kind of duty with regard to utilities throughout 
the states. Different states have different laws as to how they handle 
that, how they deal with it. And that certainly is the case with regard 
to electric cooperatives. I believe, if I remember correctly, somewhere 
around 45 of the 47 states in which electric cooperative are located 
have some kind of regulation as far as those cooperatives are 
concerned.
    The not-for-profit aspect is probably the one that is the most 
sensitive. That gets down to salaries, and as Members of Congress know, 
those are always sensitive issues when we talk about pay. And that is 
true at the local cooperative and certainly the expenses of Boards of 
Directors and the managers. Those are issues that are now going to be a 
public record. They had been a public record. They are going to be even 
more extensively covered under the new form 990 in that the Internal 
Revenue Service requires each cooperative to file as a not-for-profit 
organization, including not only what your salary is, not only what you 
are paid in per diem, but also any conflicts of interest that you might 
have and goes further even than the SEC requires with regard to private 
entities that are filed with that organization.
    And certainly as the Administrator pointed out, any cooperative 
that borrows from the Rural Utility Service also is subject to the 
rules and regulations governing the loans made by the Rural Utility 
Service. That has been the case for many years, and it was pointed out 
to me that the Rural Utility Service even still today has authority, if 
they so wish and find it necessary, particularly if the loan is in 
jeopardy, to remove the manager or even to deny the hiring of a 
particular manager that a board may choose if they find that that 
person does not stand the test as far as protecting the government's 
investment in the loans.
    And the other point that I would make, Mr. Chairman, along those 
lines is that we have to understand that while I know many people in 
this country look upon electric cooperatives--in fact, many of them 
call them the REAs. I have heard them mention the REAs. That is not 
exactly the way it happened.
    The Federal Government was a lender, made it possible and certainly 
supported and assisted the local people who did not have electric 
service back in 1937 to come together to, in effect, develop their own 
electric utility and to have the resources necessary to build the 
infrastructure to provide themselves with electric power. Franklin 
Roosevelt made the observation at that time that electric power was no 
longer a luxury in this country. It was a necessity. And we think that 
goes to the heart of affordability, and that is what electric 
cooperatives have been about throughout their history. And they 
continue to do that today.
    We do have an obligation, of course, to treat every member fairly 
and justly, and the bylaws of each electric cooperative are aimed at 
doing that; the policies of that cooperative as well.
    Are there differences? Certainly that is the case. It is much like 
voting for school boards. We have differences among individuals. Local 
politics and personalities come into play in electric cooperatives just 
like they do the local school board. And certainly there is a 
recognition and an understanding of every officer, whether they be a 
director or manager or staff of electric cooperatives, that it is the 
membership that owns that electric cooperative. And it really is 
theirs.
    The Chairman. Thank you, Mr. English. I just wanted to give you a 
chance to respond to that and let you be aware that there have been 
some serious concerns that have been raised by our colleagues. We want 
you to get your hands around it and see what you can do to make sure 
that the integrity of the system is maintained. And I know my time has 
expired, but if the Subcommittee would----
    Mr. English. Could I continue just a minute on that----
    The Chairman. Absolutely, Mr. English.
    Mr. English.--Mr. Chairman? There is one other point that needs to 
be understood here, and we all see this. I know whenever I was taking 
civics in high school, I studied our form of government. When I came to 
Washington as a Member of Congress, I didn't find that our government 
operated exactly the way the civics books laid it out. Whenever you 
have all these different personalities together, when you got people 
involved, it took some twists and turns, and it didn't always operate 
the way it should. And it didn't always operate as smoothly as it 
should. That is the rule with people.
    And I would suggest that you have to look at the governance of 
electric cooperative much in the same way. These are people who are 
elected by the same folks that elect Members of Congress and state 
legislators and those same school board members. And the people that 
they elect to those offices all have different capabilities, and in 
some cases, differing degrees of integrity. And we have certainly seen 
that in every elected body, all the way from the highest levels of our 
government down to the lowest.
    And you run into people from time to time that go astray, stub 
their toe, do some things that they probably shouldn't. But the system 
that we have, whether it is our system of governance or whether it is 
the system of governance within electric cooperatives, works. And that 
is what we have seen take place, certainly in Texas with Perdenales. We 
saw it take place with regard to the co-op down in Alabama, and we have 
seen numerous other instances around the country throughout the history 
of this program. The membership takes care of those kinds of problems.
    The Chairman. Okay, Mr. English, getting back to the original 
purpose of the hearing. If you are restricted from borrowing from RUS 
because of the baseload generation problem that we are facing right 
now, would you be able to seek private financing? And would it be your 
intention to do that for coal-fired plants?
    Mr. English. Well, our members are going to do whatever they can to 
try to meet the requirements of our members, to try to provide them the 
electric power they need and try to keep those electric bills as low as 
they can. They are going to look at all the options that they have 
before them. I think there is a real question as we move forward and we 
anticipate, as I said, some kind of climate change legislation is going 
to be passing in the next year or two. And obviously whatever is done 
is going to have to be done in recognition of that and dealing within 
those parameters.
    But we are going to be taking whichever option tries to keep those 
electric bills as low as we possibly can. It is going to be a heck of a 
challenge.
    What I have a greater fear of, Mr. Chairman, is whether we are 
going to be able to provide the amount of electric power the country is 
going to need. I think that there was a mention of NERC and their study 
that they came forward with. There is a real possibility and 
likelihood, in fact, that in the next 5 to 6 years we are going to see 
rolling blackouts in this country because of the inadequate amount of 
power. And, it very well could happen in areas served by electric 
cooperatives.
    And, that is the real challenge. The country needs to come together 
and certainly the Congress needs to reconcile our objectives with 
regard to climate change with this 118 gigawatts of power that is going 
to be necessary in the next 10 years before we are able to have carbon 
capture and storage and bring coal back into, fully into play and being 
a major player as far as the deal.
    The Chairman. But private financing is available for your members?
    Mr. English. It is. It is going to cost us more. It means electric 
bills are going to be higher than they would otherwise be, and quite 
frankly, we have a little bit of difficulty understanding this. What 
started out as a fiscal problem, the Office of Management and Budget, 
said, ``Hey, we are not charging enough as far as interest on baseload 
generation loans. Therefore you can't do anything, make any more until 
we make this correction, this adjustment.''
    We agreed and said, ``Okay, charge more on interest for baseload 
generation, and we will gladly pay it.'' That is what was contained in 
the farm bill and unfortunately got knocked out.
    The Chairman. Thank you. Mr. Lucas.
    Mr. Lucas. Thank you, Mr. Chairman, and I certainly would be 
remiss, Mr. Chairman, if I didn't note coming from the great State of 
Oklahoma where one million of our 3\1/2\ million Oklahomans, are 
members, are family members, of co-op participants, literally 28 co-
ops. Oklahoma is an example of the 1937 Act because, quite simply, the 
reason we have so many people who are co-op members and consumers of 
co-op electricity is we were a poor state, and nobody wanted to come 
there and invest the money. And had it not been for the 1937 Act, we 
might still be sitting in the dark, many of us.
    So it has served its purpose, and I offer that as a disclaimer 
acknowledging the nature of my state and how successful the program has 
been.
    These hearings, to our friends on the panel who perhaps have not 
participated before, are very educational in that we occasionally 
educate each other. You provide insights. We build the record. We move 
forward and make decisions based on that, and I am very pleased that 
the Chairman gave an opportunity to address some very interesting 
public comments about the nature of co-ops.
    And I would note, for the record, my observations to my friend from 
Kansas, that certain decisions were made above and beyond the station 
of this Committee that very much affected the jurisdiction of this 
Committee. And when the language that would have basically put RUS back 
into base generation loaning capacity, when that language was stripped 
out, it had a very definitive effect on our folks back home.
    With that, addressing that if you would once again, Mr. English, 
observe if we don't give co-ops the maximum number of opportunities in 
which to generate new capacity to produce that capacity, repeat one 
more time for the record what folks out in rural areas can expect in 
the near future.
    Mr. English. Well, this is true, not just with regard to electric 
cooperatives, I think there is a real question whether the industry is 
going to be able to meet the demands and the need. We have been living 
with a surplus of generation for the last 25 years, and that has 
enabled us to keep electric bills low. That is not going to be the case 
in the future.
    The best case scenario may be that we are going to have very big 
increases, big spikes, in electric bills much like we have seen in 
gasoline. We are very fearful we are going to have a large number of 
our members who are not going to be able to pay their electric bills, 
not going to be able to afford that electricity that Franklin Roosevelt 
was talking about being a necessity. And we are not going to be able to 
achieve that goal.
    But certainly it is going to cost more on the electric bills in 
acquiring money on the open market as opposed to, obviously, money that 
is loaned to us through the Rural Utility Service.
    Mr. Lucas. Mr. James, if we take all these other options off the 
table, and I serve with a number of people who would say that 
conservation is the key. Let prices go high, which will drive the 
market in the other direction, whether it is gasoline or electricity. 
Let us force people to make the move. Can we conserve ourselves?
    Mr. James. Well, what we would say is that it is a question of the 
cost of producing energy or using energy in the economy. You can choose 
different strategies which are going to be a lot more expensive to 
commerce and business with a given amount of energy. Conservation, 
over-reliance on one technology, and I would include others including 
conservation in that, will generate a higher cost than a balanced 
portfolio.
    Mr. Lucas. So does that go back to what Mr. English is talking 
about? If we push the conservation or any particular area with that 
kind of intensity and we raise cost, there is an adverse effect on the 
poorer part of our society or the less economically advantaged part of 
our society?
    Mr. James. I would say electricity prices would go up.
    Mr. Lucas. Nobody wants to sweat in the summertime in Oklahoma----
    Mr. James. That is right.
    Mr. Lucas.--when it can get very hot. So there will be an adverse 
effect on those least able to pay those costs reflecting that agenda?
    Mr. James. Unless we try to find an optimum portfolio, reduce the 
impact of building new generation and meeting emissions constraints.
    Mr. Lucas. Mr. Nichols, I was very impressed with the tour that the 
Agriculture Committee took to Minnesota last year or year before. Very 
impressed. But it sounds--just very impressed. That is the best way I 
should leave that description.
    Mr. Chairman, thank you for calling this hearing. I appreciate----
    Mr. Nichols. Mr. Chairman, Congressman, the gentleman from 
Oklahoma. I had a group from Oklahoma that came to my wind farm about 
10 days ago. Great independent oil producers. Great people. And I 
learned so much from them. First of all, 70 percent, almost 80 percent 
of the oil exploration in America is done by the independents. The big 
companies--and I have that handout here--they don't spend their money. 
Exxon Mobile isn't investing in exploration. They are just handing it 
out to their stockholders.
    And these little producers, they are our future. They would like to 
get into wind energy because you have it in Oklahoma, as you well know, 
Congressman. The problem is in the oil industry, their tax credit 
doesn't expire every 2 years. So they are trying to figure out how to 
deal with this tax credit that expires every 2 years.
    And when I get home, Mr. Chairman, several projects came to see me 
yesterday because they heard I was going to be here. We have so many 
projects pending. What they want to know is do you think Congress will 
do anything with the PTC? So I know I will be faced with that tomorrow 
morning, those questions. And I know it is hard for you to answer those 
questions with the Senate over there, but we talk about the shortage, 
Glenn.
    It takes 1 day to build a wind turbine. You know you can build 100 
megawatts in 100 days. And if you have three cranes, you can build it 
in 30 days.
    With the REA co-ops, and I am a co-op member, when the wind is 
blowing you don't run the water over the dam because a lot of our power 
comes from the Missouri River. So the REA co-ops--and we don't ask for 
any loans or any of those guarantees or anything. The wind industry 
doesn't want any of that. All they need is some stability so we could 
buy the turbines in America, Mr. Chairman. And tens of thousands of 
megawatts could go up very, very quickly.
    We need to build 500,000 wind turbines, which would be the same as 
the 500,000 oil wells we now have. And then we could get out of this 
crisis between the wind and the oil from the independent producers, 
biodiesel, ethanol mostly, and natural gas. We wouldn't need to import 
from the Arabs anymore.
    Mr. Lucas. Mr. Nichols, I wholeheartedly appreciate what you are 
saying and as a proponent of all forms of American energy, stability in 
the tax credits so the wind people could count on it, access to 
punching holes everywhere where it is environmentally sound and 
resources may be, I am a proponent of that. I am a great proponent of 
all renewables. I watch the no-ethanol stickers now appearing on the 
gas pumps in Oklahoma. Someone is pushing back on us.
    But the bottom line is we need all sources of American energy to 
meet American needs. But we face challenges. Just as Ways and Means 
wants to dole out or dribble out the tax credit, just as certain people 
don't want us to be able to have all of the options for baseload 
generation, we face some internal problems here.
    But as our friend, Mr. English said, it is not exactly the way the 
civics books implied the system would work, but it is the best system 
on Earth. And all of us together will continue to work until we achieve 
what is in the best interest of our folks back home. Thank you, Mr. 
Chairman.
    The Chairman. Okay, I thank the gentleman. The gentlewoman from 
South Dakota.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman. Mr. Nichols, I am a 
neighbor of yours if not----
    Mr. Nichols. I know your father. I have never met you, and glad to 
now say hi to you, your father is a great guy.
    Ms. Herseth Sandlin. Thank you. He has shared with me some of what 
you have been doing and the potential that has for my constituents in 
South Dakota. And I agree with you that the Midwest, including South 
Dakota, Minnesota, other states, has an important role to play in 
developing wind energy to serve the nation's needs.
    And I also appreciate what you have to say about how we have 
structured the production tax credit. Not just our inability for the 
multi-year extensions, but how we have structured it to benefit larger 
developers rather than the community-based energy development that you 
have been able to facilitate across the border in Minnesota more 
effectively than we have.
    You know today I am introducing legislation that you may be aware 
of with my colleague, Mr. Fortenberry, who is also a Member of this 
Committee. He is from Nebraska. That is intended to support community 
wind generation similar to the 1\1/2\ megawatt turbine on your 
property, and it would target projects in the range of 5 to 20 
megawatts. The bill would prevent the so-called production tax credit 
haircut that you are probably familiar with, in which under current PTC 
rules, the value of the farm bill REAP Grant can be reduced by as much 
as 50 percent when local farmers and cooperate partners join together 
on these projects.
    And the haircut reduces the capital investment then for local 
producers and what they can bring to the project and lowers the value 
of the PTC to the corporate investor and delays the time at which the 
ownership flips back. In the case that I know that many folks in 
Minnesota have been able to flip that ownership back to the local 
owner.
    On the question of transmission, however, I mean there is a reason 
that Minnesota, which, in all due respect, does not have the same 
potential wind resource that we have in South Dakota. You have good 
wind. We have great wind. There is a reason----
    Mr. Nichols. You do. That is correct.
    Ms. Herseth Sandlin.--you are far ahead of us in developing wind, 
and that is the issue of transmission. So I am interested in hearing 
your thoughts on how we can enhance the transmission capacity to 
transport all of this clean, renewable energy resource to other parts 
of the country.
    Mr. Nichols. Thank you, Congresswoman, and first of all, for the 
rest of the Members, I brought this, and thank you for this. The 
projects that are stalemated in South Dakota because of the PTC, and I 
am right on the border. So some of the people who will come to see me 
tomorrow are going to be South Dakota people, and I appreciate what are 
you trying to do there. And you have worked hard on that.
    The transmission issue, we built a lot of transmission in 
Minnesota, but the map here, it is a color map, and you are familiar 
with that. If Congress would just move forward with the Department of 
Energy plan for 20 percent by 2030, that is all you have to do.
    Now, we can't quite do it as a state, and the beauty of this--and I 
have spent most of my life in South Dakota. You got a great wind 
resource. You don't have many people there. Your market is not in South 
Dakota for your wind. Your market is in Los Angeles is the first big 
market that desperately needs it. And this is crop that you can grow in 
South Dakota and deliver instantly to your customers in Los Angeles.
    These transmission lines are not expensive. They are, I mean 
relatively compared to a road, much cheaper. And they are a farm-to-
market road. And people say we don't have a corridor. And what kind of 
baloney is that? Every road ditch is a corridor. We have hundreds and 
thousands of miles of road ditches, and that is where we build. So we 
have the corridors. You just need to move forward with this 
transmission plan.
    And great engineers from all the utilities put it together. This is 
designed, and it will work, and it will deliver the power from where 
the wind is, the Midwest, your state, to the customers that need it 
around the nation.
    Ms. Herseth Sandlin. Just a quick follow-up question. In your 
opinion, do you think that to get Department of Energy's plan with the 
transmission map that they have laid out----
    Mr. Nichols. Yes.
    Ms. Herseth Sandlin. Do you think that needs to be an investment 
of, the estimates are about $70 billion that Congress makes directly? 
Or do you think that there will be enough money in the private market 
to meet that need and to build it on the timeframe that we need to have 
it? Or do you think it needs to be a public-private approach?
    Mr. Nichols. I think it needs to be public-private in this respect, 
and you have already done that in so many ways. You have just bailed 
out the Fannie Maes and the Freddie Macs. Loan guarantees would move 
this thing forward just immediately. The problem is the utilities, we 
don't reach across state lines, as you well know, Congresswoman. So it 
is very hard to do it state by state because how do we in Minnesota, 
how do you in South Dakota figure out a way to get your power to Los 
Angeles where they really need it?
    So loan guarantees would immediately solve that problem, and that 
would be my plea to you on that. It will be paid for with a user fee 
because the power is produced so cheaply on your farms in South Dakota. 
You know it is 14 cents a kilowatt hour in Los Angeles for electricity. 
I am producing it on my farm for 3.3 cents.
    You know there is a market out there. We just got to get it there. 
Now, I am lucky in Minnesota because we have created our market with 
our own state mandate which is 25 percent. But in your state, even if 
you had a mandate, you don't have enough people.
    Ms. Herseth Sandlin. That is why we have at-large members in South 
Dakota and North Dakota. Thank you, Mr. Nichols.
    Mr. Nichols. Thank you.
    Ms. Herseth Sandlin. Just a quick question for Congressman English. 
You focused on the need to assist low-income individuals in part of 
your testimony with energy efficiency efforts. And my understanding of 
that is 90 percent of the cooperative members are residential accounts, 
and that totals nearly 60 percent of co-op electricity sales. So 
obviously there is a large potential here as it relates to efficiency 
savings to be found.
    Now, one of the leading co-op efficiency efforts has been the 
installation of advanced metering infrastructure to improve load 
monitoring and control. And as you know, a Congressionally-directed 
Federal Energy Regulatory Commission staff report in 2006 concluded 
that rural electric cooperatives showed the highest rate of market 
penetration of advanced metering at nearly 13 percent, double the 
overall national rate.
    Two questions: To what do you attribute the higher rate for rural 
electric co-ops? And what are the key steps to increase the 
installation of AMI nationwide?
    Mr. English. The first thing would be because we are owned by our 
members, and that is where our focus is, and that is where our concern 
is. It is those electric bills that we are trying to deal with.
    The second one comes down to the issue that basically this has to 
be a national commitment. It has to be a recognition, an understanding, 
a determination by, quite frankly, the United States Government that we 
are not going to go backwards. That we are, in fact, going to make 
certain that the observation made by Franklin Roosevelt in 1936 
continues into the future. That we are not willing to let our citizens, 
a large portion of our citizens, be without what we regard as a 
necessity in this country and downgrade the quality of life and 
standard of living for our citizens. I think this is a fundamental 
principle, and if we are not careful, I am afraid we are going to step 
back into that reality without really making any kind of decision that 
that is where we wanted to go.
    And if I could add very, very quickly, the one thing is not going 
to be financing in my opinion with regard to the transmission line, and 
I think that Secretary Nichols and I agree on this. We need it. It is 
going to be sited, and there is going to be a lot of political--the 
political price is going to be far greater, quite frankly, than what it 
is going to take to build it. But that is what we are going to have to 
do.
    Ms. Herseth Sandlin. I appreciate you making that point, and I 
thank the Chairman for the additional time. As you know, that 
additional but limited authority we gave FERC in 2005 has been under 
assault repeatedly, and we need not only to retain that authority, but 
to enhance it, if we are going to effectively site the corridors. Yes, 
in certain parts of the country they may already be there, but we 
already know from certain pushback that we are getting, certain areas 
of what DOE has identified in that map may be problematic if we don't 
have the authority that FERC needs to do so, understanding that states 
and local communities and tribes need to be consulted and have a say. 
But the authority needs to be there to move forward; otherwise, the 
timetable will be slowed down dramatically. Thank you.
    The Chairman. Thank you. The gentleman from Kansas.
    Mr. Moran. Mr. Chairman, thank you. I appreciate the panel's 
testimony. It's been an interesting morning. I am fearful that we are 
headed down the path. We are spending a lot of time here in Congress 
today and weeks to come and weeks in the past on the cost of energy, as 
our constituents visit with us, in almost every conversation about the 
price of fuel at the pump.
    And it appears to me, based upon your testimony, but what I just 
intuitively know, what common sense tells me, is that we are in the 
process of creating similar circumstances for our customers of 
electricity. My fear is that, as we have done in gasoline, in the price 
of diesel, in the fears and concerns and consequences that we have 
today in our energy costs, that we waited too long to address the 
issue. And we are playing catch up as we try to solve this problem.
    I would love to be assured by any or all of you that there is some 
effort, industry-wide, government officials, the Department of Energy, 
that someone has a plan. The Congressman indicates that we may want to 
involve the Federal Government in nuclear power, and it does appear to 
me that probably almost no companies are capable of investing the 
resources necessary to build a nuclear power plant. But is there some 
place within the Federal Government, within the industry, that we are 
actually planning to meet this country's future needs for electricity?
    Mr. Nichols. Can I----
    Mr. Moran. Yes, sir, Mr. Nichols.
    Mr. Nichols. Mr. Chairman, I was in your state many times. I was 
the manager of your wind farms when I worked for Vestas, the largest 
wind company in the world. You have a great wind resource, and I know 
that the power purchase price from those wind turbines was very low.
    So when they talk about--and we all hear the same thing--the price 
of gas. When they talk about what is going to happen to energy, wind 
energy is cheap energy, and you have a lot of it. And the cost of a 
turbine, it is all debt service. You know, the rest of it is--the wind 
is free, and there isn't much maintenance.
    If we could build these in Kansas so we could buy them in American 
dollars, and if we could get some competition into this, we get the 
price of these turbines back to where they always were, which was $1 a 
watt, $1 million a megawatt. And that is what the Garden City, 
Montezuma, and all those down there, I was part of that. That was very 
low-cost energy for the consumers, and we need to move forward with the 
plug-in hybrids, Mr. Chairman.
    And we need more oil exploration. We need to find more in America. 
It is in Kansas, and it is in Texas and Oklahoma. And the little oil 
producers can do that. We are going to need nuclear power. Let us admit 
that.
    We are going to need every source of power that we can get, but we 
need to get away from importing the oil from the Arabs that are going 
to jack up the price to $200 a barrel. They have told us what they are 
going to do. We know what they are going to do to us. And we need to 
produce it on our own, and so the plan again, the Department of Energy 
plan, is 20 percent by 2030. It is right there.
    Mr. Moran. Mr. Secretary, I understand what you just said and 
believe what you just said. I recognize the importance of wind in 
Kansas and across the country. I am pleased that we have the industry 
that we do. It is growing. Facilities that you are talking about have 
contemplated expansion.
    Mr. Nichols. Yes, they are.
    Mr. Moran. And in addition to that, we have a couple companies that 
are seriously looking at locations in Kansas to build turbines. That 
would be, based upon what you suggest, would be a wonderful 
development.
    Mr. Nichols. Yes.
    Mr. Moran. My question is it just seems to me that we are--there is 
no clear direction. There is no plan. There is no strategy. We simply 
respond hodge-podge. I don't know how a utility company could make a 
decision about investing in wind based upon the inability for Congress, 
for example, to pass a tax credit encouraging that development. And if 
we do pass one, pass it with such short timeframe that no business can 
make an intelligent decision about what the future holds.
    Mr. Nichols. Two years is worthless.
    Mr. Moran. And so I guess the point I would make perhaps just 
rhetorically, because my time is about to expire, is that I am fearful 
that the Department of Energy, Congress, the administrative branch, the 
Legislative Branch of Congress, and perhaps the industry itself needs 
to respond with--this is the challenge.
    And I think it is important for you all--Mr. English's comments 
about the demands and what they mean for consumers. I think that is an 
important story to tell. There is a belief that electricity prices, if 
they go up, it is like the comment that I read in the paper, doubling 
energy prices in Kansas is a wonderful thing. Well, I represent lots of 
Kansans who struggle today certainly to pay their gas bill, their 
electric bill, their grocery bill, their doctor bill. Doubling energy 
prices is not a good thing for many people who struggle today and will 
struggle even more.
    And so the story about the demand, the growing demand for energy, 
is one that has to be told. But I also think that once the story is 
known, once the facts are there, I would love to see a more serious and 
concerted effort, a much more aggressive approach to the idea of 
filling that demand in an environmentally sound manner.
    And I would support conservation. It is a combination of things 
that we all can come together, and yet in the circumstances we find 
ourselves in, we are headed down the same path of responding too late 
to meet our country's needs.
    The gentlewoman from South Dakota is not in the room, but I am 
interested in her legislation. I would encourage her to visit with me 
about it. Because wind energy is an opportunity not just for the large 
production facilities that you mentioned in your comments, Mr. Nichols, 
but for communities, community colleges, businesses, families, to 
decide this is an opportunity for us to help meet our own and therefore 
the country's energy needs. Thank you, Mr. Chairman.
    Mr. James. Mr. Chairman, may I offer a----
    The Chairman. Yes.
    Mr. James.--add a comment on his question?
    The Chairman. Sure.
    Mr. James. What I would just like to say is that the industry 
certainly has been trying to develop a coherent technology strategy 
based on which it can move forward and minimize electricity costs, the 
growth and costs and we go forward. And the thing I would just ask the 
Committee to consider is that one option is always looking for cheaper 
technologies, looking for a technology that exists today that can 
generate electricity in cheaper costs.
    The other option is improving technology so you can reduce the cost 
of promising technologies so they can produce cheaply. That we work 
together to develop a portfolio of technologies and a development plan 
with research and demonstration projects to develop those technologies. 
And we are working with essentially the entire industry on those 
technologies and have been now for several years.
    Mr. Moran. Mr. Chairman, may I briefly respond? Just a thought, and 
I don't know a lot about this topic, but I do know that the land-grant 
universities have had a tremendous impact upon the efficiencies of 
agriculture in this country. And what you suggest, Mr. James, is very 
appealing to me. There may be great opportunity with government-private 
partnerships to advance research that moves us in the direction of 
greater efficiencies, higher technology, and less consumption. Thank 
you, Mr. Chairman.
    The Chairman. The chair thanks the gentleman.
    Mr. Nichols. Mr. Chairman, can I just say one thing about the cost, 
Congressman, because the great thing about electricity it is a 
regulated industry. I don't have to worry in Minnesota if I have a 
plug-in hybrid, when I plug it in that Xcel Energy or the REAs or any 
of them are going to jack up the rates. They can't.
    You know most of these haven't had a rate increase in 10 and 20 
years. And the great thing about that is if the cost of the turbine is 
too high, Xcel Energy won't sign a contract, and rightly so. They just 
say our consumers can't pay this, nor should they. We got to drive the 
cost down with American manufacturing.
    So the fact that it is regulated solves a lot of those problems. 
You don't have to worry about that price, and that is not something 
Congress has to worry about. The states have to control that. All you 
have to do is adopt the plan of the Department of Energy and make it 
the law. It is going to be 20 percent by 2030. That is the law, and we 
are going to build this transmission system, and we are going to have a 
tax credit that goes more than 2 years. And that is all you got to do.
    The Chairman. Well, thank you, Mr. Secretary.
    Mr. Nichols. It is simple. Thank you very much.
    The Chairman. Thank you, Mr. Secretary. Mr. James, what is the 
biggest impediment to carbon sequestration?
    Mr. James. Well, okay, carbon sequestration is the storage of 
carbon. Technically I would say the biggest impediment is demonstration 
at large scale. We have experience in storing carbon at smaller scales, 
enhanced oil and gas recovery. Although those projects are not really 
designed to store carbon for long periods of time. We know what it is 
like to inject into the ground.
    What we haven't done is had experience with injecting and storing 
and monitoring over a long period of time millions of tons of 
CO2, which is the scale of CO2 you would expect 
from an ordinary coal plant, for example. So demonstrations of these 
projects at large scale is what is needed.
    The Chairman. You know it is hard to imagine that we could put a 
man on the Moon 8 years after President Kennedy said we are going to, 
and then people are talking about 20 to 25 years before we have the 
ability to store carbon in large quantities. It is hard to understand.
    Mr. James. Well, I----
    Mr. Champagne. Mr. Chairman, if I could add something to that. In 
the Future Generation Alliance, and PPL was part of that, was the 
effort that started by this Administration, supported by the Congress 
to really demonstrate on a large commercial scale. We were going to 
sequester over a million tons a year for a long period of time.
    And the industry was really looking at that project as kind of the 
milestone to say does this work on a commercial scale. It was going to 
integrate many technologies that are going to be necessary to 
demonstrate it.
    In addition to the technical issues that Mr. James recognized, 
there are other issues that are needing to be addressed. One of the 
biggest ones is how you deal with the liability issues of putting that 
amount of carbon dioxide underground. You know, people may think it is 
an inert gas, but it is not. And you really have to look at what will 
you do to ensure that companies will want to make that kind of 
investment to deal with the fact that that stuff is going to have to be 
there, essentially, forever.
    The Chairman. Mr. Champagne, I did not forget about you, and I 
should know the answer to this question. But does Pennsylvania have a 
renewable portfolio standard in place?
    Mr. Champagne. Yes, there is a standard in the Commonwealth of 
Pennsylvania, and we are participating in that. It has several tiers. 
It supports not only the traditional renewables like wind, solar, 
biomass, and landfill gas. But they are also looking at waste, coal 
technologies, and hydro and other demand-side response.
    The Chairman. How is the implementation of that moving?
    Mr. Champagne. I think it is moving forward very well. I think you 
are seeing the technology starting to come. There has been a 
significant amount of wind energy in the state. There has also been a 
biomass and landfill gas push, and we are actively participating in it. 
And I think it is a good program.
    The Chairman. In your written testimony, you talk about your plans 
at Berwick for your nuclear expansion. Can you just elaborate on how 
that is proceeding as well?
    Mr. Champagne. Yes, we have roughly a 2,500 megawatt two unit 
facility at the Berwick site. We are looking to put a third unit in the 
vicinity of that site. We are in the process of preparing the combined 
operating application. We have joined with the UniStar Nuclear 
Consortium, which is made up of Constellation Energy out of Baltimore 
and the big French utility, EDF. And we are very encouraged by what we 
have seen so far in terms of moving forward on that with the NRC.
    I think one of the things that we are very concerned about is the 
level of loan guarantees. The Congress has appropriated $18.5 billion 
worth of loan guarantees. We think that is sufficient for maybe one or 
two, maybe three at most, units to be built in the country. So if there 
is going to be a nuclear renaissance, loan guarantees are going to be 
very important in seeing that renaissance happen, we are going to need 
additional support for that loan guarantee program.
    The Chairman. Well, the chair thanks the panel for their testimony 
and for the cooperation with the question-and-answer session that we 
had. I think it has been very, very productive and informing.
    Under the rules of the Committee, the record of today's hearing 
will remain open for 10 days to receive additional material and 
supplementary written responses from witnesses to any question posed by 
a Member of the panel. This hearing of the Subcommittee on 
Conservation, Credit, Energy, and Research is adjourned.
    [Whereupon, at 12:30 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
      
                          Submitted Questions

Response from Hon. James M. ``Jim'' Andrew, Administrator, Rural 
        Development Utilities Programs, U.S. Department of Agriculture, 
        Washington, D.C.
    Question 1. Can you explain your regulatory responsibility over 
rural cooperatives? What is the difference between your role and the 
role of FERC?
    Answer. Rural Electric Cooperatives are self-regulating and as long 
as they are borrowing from us they, with minor exceptions, are exempt 
from FERC regulation. Cooperatives are owned by their member/consumers 
who elect a Board of Directors that govern their activities. USDA is a 
lender and as long as the cooperatives are complying with their 
mortgage and loan contract requirements, USDA only monitors financial 
soundness, periodic reviews of operations and management and compliance 
with other Federal statutes.
    In reviewing loan applications USDA does review and approve long 
range financial forecasts, load forecast (demand for electricity) and 
the engineering plans and specifications, but does not serve as a 
regulatory body.

    Question 2. Can you please describe the electric portfolio at USDA? 
What kind of loans and guarantees do you provide? Are cooperatives your 
only customers?
    Answer. The outstanding loan portfolio is over $35 billion, 
composed primarily of loans to distribution and generation and 
transmission cooperatives. We have also made a few loans to municipally 
owned utility systems, Native American Tribes, and U.S. territories 
over the years and recently have begun to finance renewable energy 
applications from private developers. Applications from private 
developers will necessitate evaluation of the subsidy rate to determine 
if the financial risk is materially different than financing similar 
cooperative sponsored projects.

    Question 3. How many rural cooperatives currently borrow from RUS? 
Are you starting to see a trend toward rural cooperatives going to 
private financing instead of RUS? If so, why?
    Answer. We have about 617 active distribution borrowers and 57 
generation and transmission borrowers. We are seeing some distribution 
borrowers that bought out of the program in the 1990s return to the 
program and more are discussing returning. Some Generation and 
Transmission borrowers, those with ratings, have accessed private 
capital for a number of years for a portion of their needs and more are 
considering that route due to the fact that financing of baseload 
generations is not currently available through the Electric Program. 
One Generation and Transmission Cooperative bought out of the program 
last year joining a few others that had previously bought out of the 
program.
    USDA has had periods in which there were insufficient funds to meet 
the demand for loan funds resulting in 2 years or longer before 
applications could be funded. That is one reason some borrowers left 
the program. Presently, the inability to finance baseload generation is 
the reason the generation and transmission cooperatives are looking to 
commercial capital to finance their needs.

    Question 4. The ``once a borrower, always a borrower'' has come 
under fire due to some bad actors in the system. How does RUS follow up 
with a borrower to make sure the facility stays in compliance with 
regulation, and does not become a bad actor?
    Answer. We employ General Field Representatives that visit the 
borrowers frequently to assist with applications, construction work 
plans load forecasts, and long range financial forecasts, and to 
conduct operational and management reviews. We also require annual 
audits of financial statements and periodically conduct loan fund 
reviews to ensure the funds borrowed are used for approved purposes. 
Additionally, borrowers are required to submit independent annual 
audits of financial operations. Further, we conduct annual financial 
analyses to determine if borrowers may be in technical default, and if 
so, we work with the borrower to develop a corrective action plan. None 
of the recently publicized ``bad actor'' co-ops are Electric Program 
Borrowers.

    Question 5. What stipulations come with being a RUS borrower? For 
example, what regulations must a customer follow?
    Answer. USDA has a very comprehensive set of regulations designed 
to protect loan security. But, the compelling piece is the mortgage 
which provides that the Agency has first lien on all of the borrower's 
assets, including assets that may be required in the future. 
Additionally, borrowers cannot dispose of assets without our approval. 
USDA approves all contracts for construction and monitors the 
expenditure of all loan funds and to some extent the use of general 
funds.

    Question 6. You mention renewable portfolio standards (RPS) in your 
testimony, and that 26 states including the District of Columbia have 
RPS standards. Are these standards fairly similar or are there big 
differences in state law and implementation?
    Answer. There is some commonality among the standards, but there 
are differences in terms of the percentage of demand requirement and 
the effective date.

                   State Renewable Portfolio Standards
------------------------------------------------------------------------
          State                 Requirement           Effective Year
------------------------------------------------------------------------
          Arizona                       15%                    2025
       California                       20%                    2010
         Colorado                       20%                    2020
      Connecticut                       23%                    2020
District of Columbia                    11%                    2022
         Delaware                       20%                    2019
           Hawaii                       20%                    2020
             Iowa             105 megawatts
         Illinois                       25%                    2025
    Massachusetts                        4%                    2009
         Maryland                      9.5%                    2022
            Maine                       10%                    2017
        Minnesota                       25%                    2025
       Missouri *                       11%                    2020
          Montana                       15%                    2015
    New Hampshire                       16%                    2025
       New Jersey                     22.5%                    2021
       New Mexico                       20%                    2020
           Nevada                       20%                    2015
         New York                       24%                    2013
North Carolina **                     12.5%                    2021
           Oregon                       25%                    2025
     Pennsylvania                       18%                    2020
     Rhode Island                       15%                    2020
            Texas           5,580 megawatts                    2015
           Utah *                       20%                    2025
        Vermont *                       10%                    2013
       Washington                       15%                    2020
        Wisconsin                       10%                    2015
------------------------------------------------------------------------
* Missouri, Virginia and Vermont have set voluntary goals with binding
  targets.
** North Carolina has specific targets for wind and biomass within the
  Standard.


    Question 7. Can you please provide a breakdown of baseload 
generation loans made over the past 10 years? When, where, and to whom 
were these loans made?
    Answer. See the Table below:

------------------------------------------------------------------------
                                              Capacity
     Borrower       Approval    Amount for     in Mega       Comments
                      Date      Generation      Watts
------------------------------------------------------------------------
East Kentucky      09/23/2003  $413,753,000         268  Gilbert Plant
 Power
 Cooperative
East Texas         06/17/2004   $79,403,000         182  Ownership in
 Electric                                                 three Entergy
 Cooperative                                              units
Cornbelt Electric  08/12/2004   $65,395,000          42  5.6% of Council
 Cooperative                                              Bluff Plant
Central Iowa       08/12/2004   $89,923,000          60  8.0% of Council
 Power                                                    Bluff Plant
 Cooperative
Dairyland Power    09/07/2005  $280,000,000         150  30% of Westin
 Cooperative                                              Plant #4
East Kentucky      02/23/2006  $481,388,000         278  Spurlock #4
 Power                                                    Plant
 Cooperative
------------------------------------------------------------------------


    Question 8. On average, how long does it take to build a new 
generation plant?
    Answer. Assuming you are referring to baseload generation, it can 
take 8 to 12 years for planning, permitting and construction. The 
construction phase of a new baseload plant can take 4 years. This is 
true of projects developed by Investor Owned Utilities (IOUs) as well.

    Question 9. What do you see as the role of the RUS in the next 
decade and beyond? Are rural areas growing in their use of electric 
power?
    Answer. I see the primary role as continuing to meet the financing 
needs of the rural electric cooperatives. Rural areas, just like the 
rest of the country, are experiencing increasing demand for electricity 
and they are dependent on the financing available through USDA Rural 
Development to enable them to provide safe, reliable and affordable 
electricity. We will continue to provide the same services we have been 
providing for decades, plus assisting in more renewable energy projects 
as well as energy efficiency and demand side management.
    In addition, as mentioned in my written statement, we are also 
planning to assist Basin Electric Cooperative in North Dakota in adding 
CO2 capture technology to an existing coal fired plant. This 
particular technology has, on a small scale, demonstrated a 90% capture 
of CO2. Our objective is to further the implementation of 
clean coal technologies. We will also continue to examine other 
opportunities to further this and other clean coal technologies.

    Question 10. No one disputes the role of the REA in energizing 
rural America. With some 95 percent of the nation having access to 
electric power, where do you see the need for the Agency exists?
    Answer. There are several needs: (1) financing the replacement of 
aging infrastructure, some of the infrastructure has been in place for 
over 50 years and we view this as a high risk; (2) financing the 
renewable energy resources the cooperatives and other developers are 
engaged in; (3) financing the transmission infrastructure needed to 
move renewable energy to the grid; (4) continuing to finance 
improvements to existing generation systems, environmental controls, 
and peaking and intermediate generation facilities, and financing 
energy efficiency and demand side management in efforts to reduce the 
need for new generation plants; and (5) resumption of financing 
baseload generation plants.
    Rural electric cooperatives are committed to the goal of reducing 
greenhouse gas emissions from existing and new generation facilities 
and Rural Development is equally committed to assisting generation 
cooperatives meet these challenges.
    Electric Cooperatives are still rural, averaging seven customers 
per mile of line. They also serve 90 percent residential member/owners 
with low load factors. For both reasons, they depend on low interest, 
long term financing to be financially feasible.

    Question 11. In the Food, Conservation and Energy Act of 2008, 
Congress directed USDA to do a study on rural electric power 
generation. What is the progress of that study and when do you expect 
to be able to deliver it to the Committee.
    Answer. The report was delivered to the House and Senate Committees 
on August 25th, 2008.

    Question 12. What is the breakdown of fuel feedstock for electric 
generation for electric cooperatives? Can you tell us how this compares 
with national figures?
    Answer. Rural Electric Generation and Transmission Cooperatives own 
160 generating units totaling 38,604 MegaWatts of generation capacity 
of which roughly 59% is from coal fired steam plants. About 6% 
represents partial ownership in nuclear plants and about 32% is 
primarily gas fired peaking or intermediate units. In the rest of the 
industry coal provides about 49%, natural gas 20%, Nuclear about 20% 
Hydro about 7% and other renewables about 2%.

    Question 13. A corresponding aspect to generation is the 
transmission of electric power. Has RUS done any analysis of the 
transmission demands? If this is a pending study, when can we expect 
for it to be finished?
    Answer. We have developed an analysis of regional transmission 
needs. We are in the process of final evaluation of the recommendations 
within the Department and will soon be discussing the findings with 
DOE, FERC and other Federal agencies later this Fall.

    Question 14. What is RUS doing in the area of renewable electric 
power? Do you encourage ``green power'' and if so, how? What are the 
limitations for developing more renewable power?
    Answer. We have had an administrative policy since 2001 of setting 
aside $200 million annually for renewable energy projects and offered 
priority processing of renewable applications. We have made about $140 
million in loans for renewable projects and are now facing a potential 
demand of well over $1 billion.
    The most significant limitation today is the lack of transmission 
capacity to move renewable energy to the grid and the lack of capacity 
on the grid. Some projects have also been slow to materialize due to 
the uncertainty of the Production Tax Credit.

    Question 15. What are the major differences between building a 
renewable facility versus one with traditional feedstocks? Are there 
any special considerations? If so, what are they?
    Answer. One major difference would be that some renewable projects 
are new technologies, which means that we must satisfy ourselves that 
the technology will perform as advertised and at the cost advertised. 
Wind is a proven technology and we have little concern with the 
technology, but we have to be very sure the wind regime will support 
the investment and transmission capacity sufficient to distribute this 
output. With regard to other technologies such as using waste wood as 
the fuel, we need to ascertain that there is a dependable source of the 
fuel to support a long term investment. Otherwise the process is 
essentially the same. Some applicants are not our traditional borrowers 
which require the staff to do a comprehensive analysis on the structure 
and content of these applications.

    Question 16. What has been you program level and budget authority 
over the past several years? How can you provide the program level with 
low budget authority?
    Answer. The program level for the last few years has ranged between 
just under $4 billion to over $6 billion. The budget authority has been 
negligible due to negative subsidy rates. The subsidy rate reflects the 
risk of providing this type of financing, interest rate differentials 
and other factors. The Electric Program currently has a portfolio of 
over $35 billion with a delinquency rate of less than \1/10\ of one 
percent. At the present time we have funding only for the hardship 
program and the Federal Financing Bank (FFB) program. The budget 
authority for the hardship program is $120,000 supporting a program 
level of $100 million. The FFB program, for loan purposes other than 
baseload generation, has a negative subsidy rate requiring no budget 
authority.

            Electric Program Funding Levels and Subsidy Rates
                           Dollars in Millions
------------------------------------------------------------------------
 Fiscal Year     2004        2005        2006        2007        2008
------------------------------------------------------------------------
     Actual   $3,831,803  $4,319,115  $5,389,764  $3,889,767  $6,600,000
 Obligations
------------------------------------------------------------------------
                         Subsidy Rate by Program
------------------------------------------------------------------------
   Hardship        ^2.33        3.04        0.92        2.14        0.12
  Municipal        ^2.42        1.35        5.05        1.51        4.20
   Treasury        ^0.06       ^0.06        0.01        0.01        1.15
        FFB        ^1.99       ^2.23       ^0.48       ^1.19       ^0.70
       FFB,          N/A         N/A         N/A        2.11        1.92
  Generation
------------------------------------------------------------------------


    Question 17. What is the current delinquency rate among RUS 
borrowers? How does this compare to years past?
    Answer. The current portfolio is over $35 billion. Of that amount, 
the accounts 30 days overdue are about .002 percent and the accounts 60 
days overdue are negligible. This has been a very consistent pattern 
for the last several years.

    Question 18. What is your current number of employees? How does 
this compare to levels 10 and 20 years ago? What is not getting done 
today that could be done with more employees?
    Answer. The Electric program has an authorized staffing level of 
136 full time equivalents. Currently about 120 of those positions are 
filled. Twenty years ago there were 350 full time equivalents in the 
Electric Program. Much of this difference in employment has been offset 
by advances in technology. We do not anticipate a need for additional 
personnel.

    Question 19. You mention the plant in North Dakota is in the 
process of installing carbon capture technology at an existing coal 
fired plant. Is this the first of its kind? Have there been any 
problems or issues with this plant? When do you it will be online.
    Answer. I should clarify that Basin is evaluating the technology 
for use in the plant in North Dakota and will be installing it later. 
The technology was tested positively at a much smaller scale at a plant 
in Ohio. Basin is now taking the technology to a higher level. I 
believe the target date for being online is 2012.

Response from Cynthia A. Marlette, General Counsel, Federal Energy 
        Regulatory Commission, Washington, D.C.

    Question. Do you know what the annual percentage growth is of 
electricity use in the U.S.?
    Answer. I'm not sure whether the Congressman meant ``growth in 
electricity use'' or ``growth of electricity production in the U.S.'' 
but here is what we put together. We will be happy to put our response 
in a formal letter to the Chairman. Please let me know.

        Total retail sales of electricity increased 2.1% between 2006 
        and 2007 based on Energy Information Administration (EIA) data.

        Total electric generation output increased 2.8% between 2006 
        and 2007 based on Edison Electric Institute (EEI) data.

    The difference in the growth rates is due to the fact that we're 
using EIA for sales and EEI for production.
    These numbers may be misleading since both annual sales and output 
depend on weather. To give you an idea how both use and production have 
grown since the turn of the century:

        Total retail sales of electricity increased on average 1.4% per 
        year between 2000 and 2007 based on Energy Information 
        Administration data.

        Total electric generation output increased on average 1.8% per 
        year between 2000 and 2007 based on Edison Electric Institute 
        data.

    The annual sales and output statistics are provided below.

              EIA Electric Power Monthly--June 2008 Edition
                         (Million Kilowatthours)
------------------------------------------------------------------------
                      Total Retail
                          Sales         Through March      Growth Rate
------------------------------------------------------------------------
          2000           3,421,414
          2001           3,394,458                               ^0.8%
          2002           3,465,466                                2.1%
          2003           3,493,734                                0.8%
          2004           3,547,479                                1.5%
          2005           3,660,969                                3.2%
          2006           3,669,919                                0.2%
          2007           3,748,149           905,503              2.1%
          2008                               929,506              2.7%
------------------------------------------------------------------------
              Average annual growth rate 2000 to 2007: 1.4%
------------------------------------------------------------------------


         Edison Electric Institute Weekly Electric Output Report
                         (Million Kilowatthours)
------------------------------------------------------------------------
                    Total Generation
                         Output       Through 8/2/2008     Growth Rate
------------------------------------------------------------------------
          2000           3,639,827
          2001           3,620,004                               ^0.5%
          2002           3,753,765                                3.7%
          2003           3,770,332                                0.4%
          2004           3,853,410                                2.2%
          2005           3,994,971                                3.7%
          2006           3,988,870                               ^0.2%
          2007           4,100,610         2,411,478              2.8%
          2008                             2,428,993              0.7%
------------------------------------------------------------------------
              Average annual growth rate 2000 to 2007: 1.8%
------------------------------------------------------------------------

            Thanks.

Carol E. Connors,
Congressional and Intergovernmental Affairs, Federal Energy Regulatory 
Commission.

                                  
