[Senate Hearing 110-325]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 110-325
 
                       JON WELLINGHOFF NOMINATION

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

                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                                   ON

THE NOMINATION OF JON WELLINGHOFF TO BE A MEMBER OF THE FEDERAL ENERGY 
                         REGULATORY COMMISSION

                               __________

                           DECEMBER 18, 2007


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


                                 ______

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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

DANIEL K. AKAKA, Hawaii              PETE V. DOMENICI, New Mexico
BYRON L. DORGAN, North Dakota        LARRY E. CRAIG, Idaho
RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           BOB CORKER, Tennessee
KEN SALAZAR, Colorado                JOHN BARRASSO, Wyoming
ROBERT MENENDEZ, New Jersey          JEFF SESSIONS, Alabama
BLANCHE L. LINCOLN, Arkansas         GORDON H. SMITH, Oregon
BERNARD SANDERS, Vermont             JIM BUNNING, Kentucky
JON TESTER, Montana                  MEL MARTINEZ, Florida

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
              Frank Macchiarola, Republican Staff Director
             Judith K. Pensabene, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Domenici, Hon. Pete V., U.S. Senator From New Mexico.............     3
Reid, Hon. Harry, U.S. Senator From Nevada.......................     1
Wellinghoff, Jon, Nominee to be a Member of the Federal Energy 
  Regulatory Commission..........................................

                                APPENDIX

Responses to additional questions................................    21


                       JON WELLINGHOFF NOMINATION

                              ----------                              


                       TUESDAY, DECEMBER 18, 2007

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:41 a.m. in 
room SD-366, Dirksen Senate Office Building, Hon. Jeff 
Bingaman, chairman, presiding.

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

    The Chairman. Why don't we go ahead and get started. I know 
Senator Domenici is on his way and will be here very shortly, 
but let me get the hearing started; we've got several Senators 
that have been kind enough to come.
    The committee meets, this morning, to consider the 
nomination of Jon Wellinghoff to be a member of the Federal 
Energy Regulatory Commission for the term ending June 30th of 
2013. Mr. Wellinghoff has appeared before the committee before; 
that was a year and a half ago, when we considered his 
nomination for his present term, scheduled to expire in June. 
The committee favorably reported his prior nomination by voice 
vote in June 2006. The Senate confirmed him by unanimous 
consent in July 2006.
    Before being appointed to the Federal Energy Regulatory 
Commission, Mr. Wellinghoff served two terms as the State of 
Nevada's consumer advocate for customers of public utilities. 
Senator Reid would have liked to have introduced Mr. 
Wellinghoff this morning, but is unable to be here, because of 
the press of other business. He's asked me to note his strong 
support for Mr. Wellinghoff. Without objection, a written 
statement by Senator Reid will be included in the record.
    [The prepared statement of Senator Reid follows:]
    Prepared Statement of Hon. Harry Reid, U.S. Senator From Nevada
    I want to thank Chairman Bingaman and Ranking Member Domenici for 
scheduling this hearing today, particularly given the incredible amount 
of work to come out of this Committee in recent weeks.
    I originally recommended Commissioner Wellinghoff for this position 
because I firmly believed that the energy problems facing our nation 
called for a nominee of Jon's caliber and experience.
    I trusted that Jon would put his three decades worth of experience 
in energy markets to work to benefit the American consumer. That 
experience included not only included time back here working both in 
the Senate and for the Federal Trade Commission on such matters, but 
extensive experience at the state-level working to protect Nevada's 
consumers.
    He has served as Chief of the District Attorney's Consumer Fraud 
Division in Reno, Nevada, counsel to Nevada's Public Utilities 
Commission and a seven-year appointment as Nevada's Consumer Advocate. 
In that work, Jon saved Nevada's utility customers more than $40 
million. Jon also helped to write and enact Nevada's renewable energy 
requirements, one of the strongest in the nation.
    As a Commissioner, Jon has actively worked to put his experience to 
work for the nation. In conjunction with his colleague Commissioners, 
Commissioner Wellinghoff has worked to implement the directives of the 
EPAct of 2005. He has worked to provide more opportunities to integrate 
wind energy resources into the electric grid.
    Commissioner Wellinghoff has also worked to enhance collaboration 
between FERC and the states on demand side issues, serving as the co-
chair of the FERC/National Association of Regulatory Utility 
Commissioners joint collaborative on demand response.
    Commissioner Wellinghoff has worked to develop new innovations at 
FERC. For example, along with his colleagues, Commissioner Wellinghoff 
created a new ``Energy Innovations Sector'' at FERC. This new staff 
department is charged with institutionalizing the consideration of 
enhanced energy efficiency, incorporating innovative technologies into 
our energy infrastructure and considering issues such as renewable 
resources that are now underutilized in our system.
    There is, of course, much more work to be done at FERC and I am 
deeply pleased that Commissioner Wellinghoff is dedicated to continuing 
his tenure at FERC.
    I want to thank the Committee again for moving forward today and 
thank Jon for his willingness to continue to serve. I know he will 
continue to serve Nevada and the nation with great distinction as a 
FERC Commissioner.

    The Chairman. We are very pleased to welcome Mr. 
Wellinghoff to the committee. We appreciate his willingness to 
serve a second term on the Commission, and we welcome the 
opportunity to consider his nomination.
    At this point, we usually would hear Senator Domenici's 
statement. We'll interrupt to hear his statement when he 
arrives, but let me go ahead and ask Mr. Wellinghoff to come 
forward, and we'll go through the normal procedure. The rules 
of the committee that apply to all nominees require they be 
sworn in, in connection with their testimony. While you're 
still standing, could you raise your right hand, please?
    Do you solemnly swear that the testimony you're about to 
give to the Senate Committee on Energy and Natural Resources 
shall be the truth, the whole truth, and nothing but the truth?
    Mr. Wellinghoff. I do.
    The Chairman. Please be seated.
    Before you begin your statement, I'll ask you the three 
questions that we traditionally ask of each nominee before the 
committee.
    First, will you be available to appear before this 
committee and other congressional committees to represent 
departmental positions and respond to issues of concern to the 
Congress?
    Mr. Wellinghoff. I will.
    The Chairman. Second, are you aware of any personal 
holdings, investments, or interests that could constitute a 
conflict of interest, or create the appearance of such a 
conflict, should you be confirmed and assume the office to 
which you've been nominated by the President?
    Mr. Wellinghoff. I do not. My investments and personal 
holdings and other interests have been reviewed by both myself 
and the appropriate ethics counselors from within the Federal 
Government. I've taken appropriate action to avoid any 
conflicts of interest. There are no conflicts of interests, or 
other appearances thereof, to my knowledge, Mr. Chairman.
    The Chairman. OK, thank you. The third, and last, question 
that we always ask of our witnesses is, Are you involved, or do 
you have any assets that are held, in a blind trust?
    Mr. Wellinghoff. No, I do not.
    The Chairman. All right, thank you very much.
    Before we allow you to introduce any family members present 
and to make a statement, if you'd like to, Mr. Wellinghoff, let 
me see if Senator Domenici would like to make a initial 
statement here.

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

    Senator Domenici. Mr. Chairman, I do, and it will be brief.
    We're here to consider the nomination of Jon Wellinghoff to 
a second term as a member of the Federal Energy Regulatory 
Commission. Now, Federal Energy Regulatory Commission is one of 
those powerful line-item agencies that just go about doing 
their work, day in and day out, but it's terribly important 
work for the people of our Nation. I believe Chairman Joe 
Kelliher has been doing an outstanding job, and it seems to me 
that the nominee before us is going to contribute to that 
Commission and make it even more effective and more functional.
    I have a few comments that are in my statement; they'll be 
made a part of the record.
    [The prepared statement of Senator Domenici follows:]
    Prepared Statement of Hon. Pete V. Domenici, U.S. Senator From 
                               New Mexico
    We are here today to consider the nomination of Jon Wellinghoff to 
a second term as a Member of the Federal Energy Regulatory Commission 
[FERC]. I thank Chairman Bingaman for promptly scheduling this 
nomination. I am hopeful that we can quickly get this nominee confirmed 
along with another FERC nominee, Chairman Joe Kelliher, who's 
renomination has been waiting on the Senate Executive Calendar since we 
reported it last May.
    Since the enactment of the 2005 Energy Policy Act, many of us on 
the Committee have observed numerous times that the new authorities 
granted the FERC require a full complement of five commissioners if 
that law is to be implemented as we envisioned. So far, the Commission 
has, for the most part, been doing an excellent job with that 
implementation. But there is till much to be done. I, for one, would 
very much like to retain continuity at the Commission as that 
implementation continues. While Mr. Wellinghoff's current term does not 
expire until June, it seems prudent to ensure that we will have no gaps 
in Commission positions. I welcome this opportunity to get Mr. 
Wellinghoff's, as well as Mr. Kelliher's, nomination considered quickly 
by the full Senate.

    Senator Domenici. Needless to say, I support you, sir, and 
I hope we can get you confirmed quickly.
    Mr. Wellinghoff. Thank you.
    Senator Domenici. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Mr. Wellinghoff, why don't you go ahead. If you have any 
family members you want to introduce, this would be a good time 
to do that.

  TESTIMONY OF JON WELLINGHOFF, NOMINEE TO BE A MEMBER OF THE 
              FEDERAL ENERGY REGULATORY COMMISSION

    Mr. Wellinghoff. Thank you, Mr. Chairman.
    Yes, I do. I have my wife here, Karen Galatz, and my son, 
Jules Wellinghoff. My youngest son, Jacob, could not attend; 
he's taking two tests today, one in Spanish that he's having a 
tough time with, so we let him off.
    I'd also like to introduce members of my office. I have Jim 
Pederson here with me, David Morenoff, and Mary Beth Tighe.
    With that, thank you, Chairman Bingaman, for your courtesy 
and consideration for expediting this hearing. I appreciate it 
very much.
    Ranking Member Domenici, I understand you're retiring, and 
I want to thank you very much for the courtesy and 
consideration that you gave me in my first confirmation 
hearing. Thank you.
    Senator Domenici. Yes, sir.
    Mr. Wellinghoff. In summarizing my testimony, I was before 
you 16 months ago, and, at that time, I promised to use my 30 
years of consumer protection advocacy and knowledge in the 
energy field to improve efficiency in the infrastructure 
operations of the administration by FERC, and to do so in a way 
that would, in fact, benefit consumers. I believe I've done 
this, but, of course, I haven't acted alone. I've had the 
pleasure, in cooperation and collaboration, working with 
Chairman Kelliher, with Commissioner Moeller, Commissioner 
Spitzer, and Commissioner Kelly--in addition, I've had the good 
fortune to work with the staff at FERC--it is an excellent 
group of individuals--and, of course, my office members. As I 
indicated in my prepared statement that I've submitted to you, 
we've reviewed, and I voted on, individually in the last 16 
months, over 1684 orders. Each order, I ask the question, How 
will those orders affect consumers, and how can we improve 
efficiency to reduce costs for those consumers?
    So, I've looked at efficiency in two different sectors. One 
is in the area of infrastructure. Regarding infrastructure, one 
area of particular interest to me is the natural gas pipeline 
system in this country. It's a very effective system that does, 
in fact, deliver a commodity to consumers throughout the 
country. But I've determined that there are areas where, in 
fact, efficiency could be improved in that system. In fact, I 
believe there may be somewhere between 10 and 15 gigawatts--
that would be 10- to 15,000 one-thousand-megawatt power plants 
worth of efficiency that can be squeezed out of the natural gas 
pipeline system. So, as such, I've collaborated with the 
chairman and staff, and we're now asking gas pipeline producers 
who are in the process of building new facilities as to how 
they're going to improve the efficiency of those systems, how 
they're going to do waste heat recovery, how they're going to 
do things that, hopefully, can, in essence, get more energy out 
of the systems that they're now constructing.
    Another area is the integration of renewables into the 
grid. To the extent that we can have diversity in supply and 
also increase competition among resources, it's going to 
benefit consumers. With respect to that, I worked on an order 
where we provided for cost-allocation methodology for a trunk-
line system for wind energy in California that will facilitate 
development of wind. It will be an order that, I think, 
ultimately, will be a model for the country for wind.
    We also included, in a tariff filing--excuse me--in a 
tariff revision rule, rule 890, a provision called 
``conditional firm service,'' which provides for a new service 
product for, primarily, wind energy that can facilitate them 
getting on the grid.
    On the operations and administration side, we've also done 
work. Mr. Morenoff and I, that I introduced, did a paper for 
the Energy Law Journal recently, and in that paper we looked at 
a researcher who has developed information that indicates that 
there's at least an additional $35 billion in savings that 
could be achieved for consumers by integrating demand response 
into the wholesale organized energy markets.
    So, with this in mind, we've done a number of things. One, 
again, is with respect to tariff reform, in order 890, where we 
have provided for ensuring that demand response can provide 
services to the grid in a comparable way to generation 
resources, and get paid just like a generator. This ultimately 
will provide for creating a market for demand response and 
ultimately ensure the consumers can benefit from the lower cost 
in those markets because of incorporation of demand respond 
into the markets.
    We've also worked to incorporate demand response into the 
reliability rule so that demand response, in fact, can be used 
as supporting reliability; again, helping create a market for 
something that can reduce costs for consumers. I've worked with 
the States in a collaborative, that I co-chair with a number of 
other State commissioners under the auspices of the National 
Association of Regulatory Utility Commissioners, to look at 
barriers to demand response in the interface between the State 
and Federal sectors in integrating demand response into the 
grid.
    So, looking to the future, I believe there's much still to 
do. If we look at just improving the efficiency of the grid by 
5 percent, that 5 percent could have the effect of reducing the 
need for 50 one-thousand-megawatt power plants, a tremendous 
reduction. I believe this can be done by optimizing grid 
operations and software. I note that you, here in the Senate, 
passed H.R. 6, which directs FERC to do a demand-response 
assessment, and also develop a demand-response plan. If 
confirmed, I'd devote my expertise to this effort to, in fact, 
maximize savings benefits for consumers by increasing energy 
efficiency in the delivery of the energy system.
    Thank you, Mr. Chairman. I'll be happy to answer any of 
your questions.
    [The prepared statement of Mr. Wellinghoff follows:]
 Prepared Statement of Jon Wellinghoff, Nominee to be a Member of the 
                  Federal Energy Regulatory Commission
    Chairman Bingaman, Senator Domenici, and distinguished members of 
the Committee, I am honored to be here today as a nominee to the 
Federal Energy Regulatory Commission (FERC). Thank you, Chairman 
Bingaman, for scheduling this hearing. I thank President Bush for 
renominating me to this position, and I thank Majority Leader Reid for 
his continued support and the confidence he has expressed by 
recommending me to the President for renomination. At my confirmation 
hearing before this Committee in June, 2006, I promised to use my 30-
plus years of experience with consumers, utilities, and energy policy 
and regulation to work at FERC to improve the efficiency of our 
nation's energy infrastructure and operations, and the effectiveness 
and responsiveness of the agency to the needs of consumers through the 
more efficient administration of energy regulation. I believe I have 
worked to fulfill that promise in my last 16 months at the Commission. 
That work, however, has not and cannot be done alone. Chairman 
Kelliher, and fellow Commissioners Moeller, Spitzer, and Kelly have not 
only been supportive of these efforts, but they have actively 
collaborated and contributed significantly to the progress made in that 
time. The competent and capable staff of the Commission is also to be 
commended for their work in these areas.
    In terms of sheer numbers, the work has been substantial. In the 
time since I took office in August 2006, I have reviewed, discussed, 
and voted on over 1684 orders. These orders range from uncontested 
settlements of minor tariff issues to massive rulemaking proceedings of 
thousands of pages affecting fundamental issues such as the operation 
of our interstate transmission system and electric system reliability. 
With each of these orders I have considered, I have applied a 
consistent philosophy and approach. For each I have asked the following 
two questions:

          1. How will the order impact the consumer?
          2. Can the order be structured to improve efficiency and 
        consumer benefits?

    Improving efficiency while maintaining reliability of the 
infrastructure and operations of our nation's energy system will, in 
most instances, lower total life-cycle costs to consumers. Improving 
efficiency also often has the added benefits of reducing energy use and 
thus reducing local and global emissions, including greenhouse gas 
emissions. Improvements in efficiency must be considered, however, in 
the context of reliability and first costs, both of which are also 
important to consumers. It is within this context that I relate to you 
a sample of my experience to date at the Commission.

                         ENERGY INFRASTRUCTURE

    There have been significant opportunities to consider mechanisms to 
improve efficiency in energy infrastructure in the numerous cases 
presented to the Commission since my arrival. These have included the 
areas of electric transmission systems, natural gas pipeline and 
storage systems, and innovative technologies including renewable 
systems.
    In the area of transmission, the Congress in the Energy Policy Act 
of 2005 (EPAct 2005) directed the Commission to provide for incentives 
for the construction of new electric transmission facilities. The 
Commission complied by issuing Order No. 679 that provided for such 
incentives. In section 1223 of EPAct 2005, the Congress directed the 
Commission to encourage advanced transmission technologies that improve 
system efficiency. In those cases where transmission developers have 
requested incentives for transmission construction under our Order No. 
679, I have linked that incentive in my decision making to the 
developer also establishing that efficiency improvements have been 
incorporated into the line using some of the innovative technologies 
outlined by the Congress in EPAct section 1223. This linkage is 
important to encouraging improved transmission efficiency and use of 
the EPAct 2005 advanced transmission technologies.
    As another transmission example, in Order No. 890 the Commission 
has reformed its open access transmission procedures. In that Order, 
efficient transmission grid expansion is encouraged by improving the 
transmission planning process. Order No. 890 explicitly recognizes that 
demand side resources are an integral part of the transmission planning 
process and must be considered on a comparable basis to supply side 
resources. Consideration of such resources benefits consumers by 
promoting efficiency and allowing lower cost options to be considered 
by transmission planners.
    The natural gas pipeline system in this country delivers essential 
fuel for space and water heating, cooking and other domestic and 
commercial uses in homes and businesses. It is also vital to the 
delivery of fuel for electric generation, process heat, and as an 
industrial feedstock. The operation of that system consumes tremendous 
energy to compress the gas to move it through the interstate pipeline 
system. It is this compression process and the efficiency of the 
process that has been another area of focus for me while on the 
Commission. It has been estimated that there are between 10 and 15 
gigawatts of energy that could be recovered from our natural gas 
pipeline system through waste heat recovery at compressor stations and 
pressure recovery at pressure let down points. To the extent that this 
energy can be recovered economically and used to service consumers, 
they will benefit and all will benefit from the reduced carbon 
emissions. With assistance of the Chairman and the Commission staff, I 
began last year to explore the opportunities to recover this lost 
energy to generate electricity. At my request and the Chairman's 
direction, inquiries are now sent by staff to new pipeline developers 
to determine the extent to which they have considered these energy 
recovery techniques in their project. In addition, I have initiated 
talks with the pipeline industry to investigate opportunities for 
energy recovery on pipelines. I am confident that those discussions 
will prove productive, and the industry will agree to voluntarily 
collaborate with the Commission to identify and explore such 
opportunities.
    In the area of innovative technologies, to the extent that new 
energy resources such as renewable technologies can be better 
integrated into the electric grid and wholesale electric markets, 
consumers benefit from diverse supplies providing greater competition 
and consumer choice. In an effort to provide for more opportunities to 
integrate wind energy resources into the electric grid, Order No. 890 
provides for a ``conditional firm'' transmission service option that 
allows wind developers to take service that may better match the unique 
characteristics of wind systems. With respect to the financing of 
transmission necessary to provide for the delivery of renewable energy 
from remote locations, the Commission in a declaratory order issued to 
the California Independent System Operator (CAISO) allowed for sharing 
the costs of trunkline transmission lines necessary to deliver wind and 
other renewable energy from remote areas of California. This financing 
mechanism could apply not only to projects in California, but to any 
area where there are remote dispersed location-constrained resources 
(wind, geothermal, solar, hydrokinetic) that can be developed to 
provide consumers with new diverse energy choices. This order was 
applauded by the American Wind Energy Association (AWEA) and will serve 
as a model for other regions of the country.

              ENERGY SYSTEM OPERATIONS AND ADMINISTRATION

    With respect to energy system operations there have been multiple 
opportunities to improve efficiency and thus benefit consumers. Areas 
where I believe I have had a substantial impact include work to further 
incorporate demand response and other distributed resources into 
wholesale electric markets, enhanced collaboration between FERC and the 
states on demand side issues, and the institutionalization of energy 
innovations and efficiency into the FERC structure.
    David Morenoff, an attorney in my office, and I recently published 
an article in the Energy Law Journal that has been supplied to the 
Committee. In that article we document the substantial consumer savings 
possible from the incorporation of demand response into organized 
wholesale electric markets. One recent study estimated that the net 
present value to electric consumers over a twenty-year horizon could be 
as much as $35 billion. In an effort to accelerate the incorporation of 
demand response into these markets and secure these benefits for 
consumers, I have worked on a number of initiatives at the Commission. 
In Order No. 890, the Commission concluded that further reforms were 
needed to address deficiencies in its open access transmission tariff 
(OATT). For example, the Commission found that sales of ancillary 
services by ``load resources . . . should be permitted where 
appropriate on a comparable basis to service provided by generation 
resources.'' In support of this finding, the Commission stated that 
``comparable treatment of load resources is consistent with'' EPAct 
section 1252(f), which establishes a national policy to eliminate 
``unnecessary barriers to demand response participation in energy, 
capacity and ancillary service markets . . . .'' Such comparable 
treatment in wholesale energy markets will enable the expeditious 
incorporation of demand-side measures like demand response into those 
markets thus saving consumers substantial money.
    In another example, in Order No. 693, the Commission approved a 
number of electric reliability standards proposed by the North American 
Electric Reliability Corporation (NERC) and further directed NERC to 
submit improvements to several of these standards. In particular, the 
Commission directed modifications to include an explicit provision 
recognizing that demand response and other demand-side resources may be 
used to comply with certain reliability standards. Allowing demand-side 
resources to be used to comply with certain reliability standards again 
potentially saves consumers costs and increases efficiency.
    In the area of federal state collaboration, I have been designated 
by Chairman Kelliher to serve as the co-chair of the FERC/NARUC 
(National Association of Regulatory Utility Commissioners) joint 
collaborative on demand response. I serve with two NARUC co-chairs. The 
collaborative meets three times a year and investigates the 
relationship between wholesale and retail electric markets and the use 
of demand response to make those markets more efficient for consumers. 
We are currently undertaking a study to investigate the barriers to 
more robust incorporation of demand response into those markets and 
mechanisms to reduce those barriers.
    Finally, in the area of effective administration at FERC in the 
incorporation of efficiency in energy infrastructure and operation, I--
in collaboration with Commissioner Kelly--developed a proposal for the 
Chairman to create at FERC an ``Energy Innovations Sector''. The 
Chairman endorsed our proposal and created the Sector. This new staff 
department is responsible for institutionalizing within FERC the 
consideration of enhanced efficiency in energy infrastructures and 
operations, incorporation of innovative technologies into energy 
infrastructure and operations, and investigating issues related to 
demand-side, renewable, and other resources that are now underutilized 
and considered innovative. The Sector has been operational for several 
months and has a chief and several staff in place, as well as part-time 
assigned staff from other areas within the Commission.

                           FUTURE ACTIVITIES

    There is considerable work that lies ahead to advance efficiency in 
the realm of energy infrastructure and operations. As an example, if we 
could improve the operational efficiency of our electric grid by 5% 
through optimization of transmission software, we could save the 
equivalent of 50 large coal plants. Integration of storage into the 
grid with the promise of plug-in hybrid electric vehicles (PHEVs) could 
revolutionize the entire grid operation and provide economic support to 
consumers who purchase new advanced transportation technologies like 
PHEVs. On October 24th of this year, we demonstrated at FERC for the 
first time an electric vehicle providing regulation services to the 
grid in real time via a signal over the internet with a response time 
of less than a second. This demonstration provided the type of 
frequency response necessary to keep the grid stable and reliable and 
did so in a manner and time interval far superior to that of a 
generating resource that currently provides such grid services. FERC 
has taken initial steps, as I indicated above, to allow such ancillary 
services to be provided by demand-side resources like a PHEV. But much 
still needs to be done to ensure that the tariffs and infrastructure 
are in place so that consumers who own these vehicles can receive 
payments for the provision of these services when PHEVs become 
commercially available.
    In the area of demand response the Senate just passed legislation 
that directs FERC to conduct a National Assessment of Demand Response 
and develop a National Action Plan on Demand Response. Given the work I 
have already done in this area while at the Commission I believe I can 
provide a substantial contribution to this effort going forward.

                               CONCLUSION

    I appreciate this opportunity to relate to you my experiences and 
efforts at FERC. It has been truly an honor and a privilege to have 
served as a Commissioner. I have had the good fortune to work with the 
Chairman, fellow Commissioners and staff who have all been open and 
interested in my ideas and proposals to improve the efficiency of our 
energy system for the benefit of consumers. I look forward to 
continuing that work. I would be happy to answer any questions that you 
might have.

    The Chairman. Thank you very much. Let me ask a few 
questions to start with here.
    One of the main issues that I know you folks have been 
grappling with is this whole issue of deregulation of the 
electricity markets. There's an article in the Energy Daily 
today; I'll just read the first sentence of it and ask your 
comment. It says, municipal utilities, State consumer 
advocates, and industrial energy users, Monday, called on FERC 
to launch an investigation into, quote, ``unjust and 
unreasonable prices in deregulated wholesale electricity 
markets, complaining that the agency has failed to adequately 
protect consumers due to a blind ideological attachment to 
competition.''
    Can you give us any thoughts you've got on that kind of a 
charge?
    Mr. Wellinghoff. I'm familiar with the charge of that 
group. I've met with many of those groups, including the APPA, 
American Public Power Association, ELCON, and a number of the 
consumer advocates, including the NASUCA, which is the consumer 
advocate organization. I believe they do have some legitimate 
concerns with respect to wholesale markets, but two things I'd 
point out.
    No. 1, they need to look at the facts. The facts with 
respect to wholesale markets in this country is--from 2005 to 
2006, rates have gone down in every single organized wholesale 
market where's an RTO and ISO.
    No. 2, to the extent that they wish to provide for 
improvements to those markets, we need specific suggestions. 
When I looked at that petition that was filed yesterday, there 
were about 30 different individual organizations on that 
petition. Of those organizations, there was only one that has 
offered to FERC a concrete suggestion of how to improve the 
organized wholesale markets. That was the Forest Paper and 
Products Association. In fact, they had a very interesting 
suggestion that they submitted in an ANOPR that FERC has issued 
regarding the wholesale markets; and so, we're investigating 
this right now. I think we do need to investigate it. What we 
do need is concrete solutions from groups, rather than 
petitions.
    The Chairman. Sort of another aspect of that is the 
question of whether or not the incentives that we have in place 
for RTOs are aligned with the interests of consumers to result 
or produce the lowest possible rates consistent with reliable 
service. Do you believe that those incentives are properly 
aligned?
    Mr. Wellinghoff. I certainly think we can make 
improvements. To the extent that we have incentives for 
individuals to stay in RTOs, I think that's appropriate, 
because I think we have seen data that shows that RTOs, in 
fact, are saving consumers money; not simply from the area of 
markets that are being created and those markets providing for 
more competition, but another area that a lot of people forget 
about with respect to RTOs is economic dispatch. Those RTOs are 
dispatching generators over a large footprint; and, by doing 
so, they, in fact, can choose the generators that will provide 
consumers with the lowest costs. So, I think there are a number 
of reasons why RTOs are ultimately providing benefits to 
consumers. I'd say we do have to, certainly, align the 
incentives with those benefits to make sure that we're not 
paying too much to get the end result of the benefits that 
consumers are seeing. I would agree.
    The Chairman. All right.
    Senator Craig.
    Senator Craig. Mr. Chairman, thank you very much.
    Jon, again, it's good to have you before us.
    I appreciate--well, let me put it this way, I have watched 
you closely, and, while I may disagree with some of your 
thoughts, I appreciate your sincerity, I appreciate your 
commitment to the consumer, and one of the things that I feel 
I've gained here is a reality that we do not empower our 
consumers as much as we should. I think some of what you're 
doing, and your advocacy, is helping that a great deal, and I 
believe in that. I think it's tremendously important.
    When you ask a consumer to conserve, you ought to provide 
them with the knowledge and the tools to do that. Price and 
conservation can go hand in hand when, in fact, that consumer 
knows how to do it and how to shift his or her lifestyles, or 
adjust accordingly. Clearly there ought to be all the 
incentives out there to do so. I think you are an advocate of 
that, and I appreciate that.
    Let me ask this question. It is in relation to some of your 
thoughts and public statements over the past while.
    Commissioner, can you please give us your thoughts on a 
national renewable portfolio standard, an RPS? What role, if 
any, should FERC play in the oversight an RPS, should a 
Congress pass one?
    Mr. Wellinghoff. Thank you, Senator Craig.
    I actually was very involved in the first RPS in the State 
of Nevada. I actually wrote that legislation--or, actually, 
amendments to that legislation, that expanded considerably--and 
was involved in about six or seven other States that were 
developing RPSs, including Arizona and Colorado and California. 
At one time, I didn't believe it would be appropriate to have a 
national RPS, in the sense that I was concerned that there 
might be some Federal preemption, and some States actually had 
levels of targets that were above what the Federal levels were 
being proposed. But, ultimately, I believe that we do need it--
a Federal RPS--simply for the requirement that we have to be 
able to trade credits across State boundaries, and we have to 
be able to do that if we're going to achieve the kind of 
greenhouse gas reductions that we really need in this country 
and in the world. I think a Federal RPS would facilitate that.
    I think, with respect to your question as to who should 
administer it, I do believe that FERC should be the 
administrating agency. We are a regulatory agency, we have 
experience with the utilities, we have experience with this 
type of administration, and you can see what we've done in the 
reliability area. I think we've carried out the provisions of 
the 2005 EPAct, under the direction of Congress, very well. I 
think we could do the same thing with respect to an RPS.
    Senator Craig. As you know, Jon, one of the difficulties we 
have, here on the Hill, of fashioning a national RPS, is to try 
to not pick winners and losers, but, obviously, to have 
something that might fit all. Senator Domenici and I, in the 
last energy debate, in relation to our colleague, the chairman, 
here, got into an interesting discussion as it relates to RPS 
and what is new and what fits, versus what's old and may not 
fit as well. We were very sincere when we offered what we 
called a CPS, or a clean portfolio standard, believing that 
that is a much more modern way at looking at markets and 
driving markets, and a much more uniform way, by including new 
nuclear, new hydro, if any, new clean technologies, clean coal, 
all of those things that would drive a market toward a 
cleanliness, if you will, at the same time being much more 
acceptable, nationwide, as a standard. Do you have any thoughts 
on that concept?
    Mr. Wellinghoff. I do have concerns about including clean 
coal and nuclear into a Federal RPS, primarily because those 
two technologies are fundamentally different than the other 
renewables that we've talked about, and they're different in 
two areas. No. 1, they're different because they're usually 
very large-scale systems, 1,000 megawatts or more, unlike 
renewables that are usually very small-scale, relatively small-
scale. No. 2, they're not location-dependent, as renewables are 
very location-dependent; you can, in essence, site these plants 
anywhere. So, I really see them as very separate, and I'm not--
I personally would not include them in an RPS.
    Senator Craig. OK. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman.
    Mr. Wellinghoff, I've always seen you as a decent fellow 
and somebody trying to be responsive, but, I've got to tell 
you, in the area that affects Oregon and Washington, with 
liquified natural gas and related, you know, pipeline issues, 
that's just not going to be enough for me right now. It is 
absolutely bedlam out there. There are all kinds of projects, 
at least five interrelated projects, proposing the production 
of far more gas than our region can possibly use. Our citizens 
are running around to scores of meetings now, trying to deal 
with scoping and comment meetings and information. They say 
they can't get good information. In the case of one project on 
the Oregon coast, Bradwood Landing, two of the Federal 
agencies, FERC and the Corps of Engineers, have different 
descriptions out with respect to the same project. That's just 
unacceptable, you know, to me. I think that the agency has got 
to get away from this sort of blinders-on approach that just 
basically says, ``Well, we'll permit all these things. We'll go 
ahead with all of 'em. You know, we're not really interested in 
the environmental impact, we're not really interested what 
makes the most sense for energy production. All you people can 
just put your lives on hold out there on the Oregon coast and 
Washington.'' That's not acceptable to me.
    So, what I want to see is a change in the agency's policy 
in this area so that the agency looks at these projects 
comprehensively, looks at the projects in aggregate, and makes 
some key judgments as to which project best serves the market.
    So, my question to you is, having stipulated, already, I 
think you're a fine fellow, What are you going to do to shake 
this up and come up with a workable policy, now, when we've got 
bedlam, certainly in Oregon and Washington, with all these 
projects that our citizens can't even begin to track down the 
information on, given that the agencies are putting out two 
different accounts, in many respects?
    Mr. Wellinghoff. Senator Wyden, I do understand that there 
is a huge impact from all these projects that are seemingly 
simultaneously descending on Oregon. It is an issue that I'm 
concerned about, extremely concerned about. You've submitted 12 
questions to me, prior to this hearing, and I've tried to 
answer those as best I could. I think the best answer that I 
provided in those questions, hopefully, is that I'm committed 
to take our director of energy projects, Mark Robinson, and 
myself out to Oregon in January to talk to State officials, to 
look, on a generic basis, how we can deal with these issues in 
a way that we can make the process more transparent for the 
citizens in Oregon, and we can ease the process in a way that 
will hopefully allow for input, but do it in a way that does 
not overburden the----
    Senator Wyden. I appreciate that, but will you be the point 
person at FERC to change the policy here and get a policy that 
says, when you've got projects intended to serve the same 
market, the agency is going to look at them comprehensively to 
determine what best serves the market? That's the policy change 
I want to see, and I want to see--given the fact that you're 
the one up today, I want to see somebody say, ``I'll be the 
point person to get a new policy to look at what's best for the 
area.''
    Mr. Wellinghoff. I certainly would look at that policy, 
Senator, but I will tell you that I'm very hesitant to propose 
to my fellow commissioners a policy where FERC is picking 
people and markets. Let me----
    Senator Wyden. I don't----
    Mr. Wellinghoff [continuing]. Let me give you an example 
because Oregon's not the only place that's impacted. Let's talk 
about my State of Nevada. In my State of Nevada, we've got 
three coal plants--three huge coal plants being proposed that, 
from a baseload standpoint, could never be absorbed by the 
State of Nevada. One in Ely, that's being proposed by Nevada 
Power; another one outside of Ely that's being proposed by L.S. 
Energy; a third one that's being proposed in southern Nevada by 
Sythe, at Toquop. The BLM is doing the EIS on all those, 
they're not looking at them in a comprehensive manner in any 
way, fashion, or at all, they're, in fact, doing them 
individually and serially, I think, as FERC is doing the 
projects in Oregon.
    I really wouldn't want the BLM picking for Nevada which 
coal plant should go forward. I don't think that would be an 
appropriate thing to do. I have some concerns about FERC 
picking whether we should be doing Bradwood or the Oregon 
project or the Jordan Coal Project as the appropriate project 
for Oregon. I think the markets will ultimately pick, and, I 
think, if we do them serially, but consider, however, the 
multiple impacts--and I certainly will do that--there's no 
reason why we shouldn't consider the multiple impacts of 
projects, knowing that they are being proposed. That has to be 
considered, and that--how that impact will impact the citizens 
of Oregon, we should do that. I will----
    Senator Wyden. My time----
    Mr. Wellinghoff [continuing]. Commit to that.
    Senator Wyden. My time is up, but that's what I'm looking 
for, not picking winners and losers, but looking at this 
comprehensively. That isn't being done. Seems to me you've made 
at least aN open door to a fresh approach there, and I think 
that's constructive. But looking at them, collectively, 
comprehensively, determine all the impacts--which isn't being 
done today--that's what I'm looking for, and I appreciate it.
    Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    Senator Murkowski.
    Senator Murkowski. Thank you, Mr. Chairman.
    Commissioner, appreciate your good work. I want to ask a 
couple of questions this morning about natural gas; 
specifically, Alaska's natural gas and how we can get that to 
the American market. As you know, we have been working up in 
the State. Governor had a new proposal, applications have been 
submitted. There have been a handful that have come in, as well 
as a proposal that's outside of the regular process that the 
Governor is now considering.
    I guess the question to you this morning is, From the 
FERC's perspective, how do you view this process working, and 
is it on track to the level that we would like, in order to be 
able to provide this country the volume of gas that we have 
available in Alaska? We've just got to figure out how we get 
from there to here. So, just a few comments on that, if you 
would.
    Mr. Wellinghoff. Yes. Thank you, Senator.
    I believe that the resource of the natural gas in Alaska is 
essential to this country's economic viability. I believe that 
FERC, as I understand it, stands ready, at the point that 
projects ultimately are selected by the State, to move forward 
in a rapid fashion with respect to the EIS overview and other 
aspects of project planning, to ultimately license and site 
those projects.
    So, my understanding is that our Office of Energy Projects 
is prepared, and stands ready, to move forward expeditiously.
    Senator Murkowski. We appreciate that commitment and hope 
that we'll be working with you quickly in this manner.
    Let me ask you a little bit about LNG terminal approvals. 
How many do we have in place? What's the status of them? Just 
from a bigger-picture perspective, what do you view as, then, 
the future for imported LNG in this country? Is this an area 
where, in your perspective, we continue to rely more and more 
on these imports, and that's the direction that we go, in terms 
of a policy, as it relates to natural gas consumption in this 
country?
    Mr. Wellinghoff. I think LNG terminals are an essential 
part of the supply for natural gas. You can see, from the 
questions from Senator Wyden, we have a number of them proposed 
in Oregon, and there are a number of them proposed on the East 
Coast, as well, and in the Southeast, where the terminals have 
predominated, in the Southeast, and a couple in the Northeast. 
But I think we're going to see more terminals be necessary 
closer to load centers on the West Coast and on the East Coast, 
as well, and I would say that it's one of the part of the mix 
of supply of natural gas, that we're going to keep natural gas 
competitive in this country.
    Senator Murkowski. In terms of when those LNG receiving 
terminals will be online--I know that you've got applications 
in the works, but give me a 5-year picture of what it looks 
like, in terms of new LNG receiving terminals, in your opinion. 
Or maybe there's nothing in 5 years. Is it 10 years?
    Mr. Wellinghoff. I'll tell you, I--if I could, I'd like to 
get back to you----
    Senator Murkowski. OK
    Mr. Wellinghoff [continuing]. In writing on that.
    Mr. Wellinghoff. I think I could probably give you a much 
more detailed and answer, and give you an answer----
    Senator Murkowski. What I'm trying to understand is just 
what we have in the pipeline and what's realistic within a 
given timeframe.
    Mr. Wellinghoff. We have quite a few in the pipeline. I 
couldn't give you an exact number, but I think we have at least 
10 to 12 in the pipeline right now. I think it's realistic to 
see at least five of those over the next 5 years. But, again, I 
would like to reserve the right to get back to you and give you 
some detail----
    Senator Murkowski. We'd appreciate that.
    Mr. Wellinghoff [continuing]. For our project----
    Senator Murkowski. From the Alaskan perspective, of course, 
there's a concern that the longer our project, up north, is 
delayed, you've got to have commitments to make things happen 
around the Lower 48 to meet that demand. Once a commitment has 
been made and you've got your LNG receiving terminals in place 
and your contracts with your countries overseas to provide that 
gas, all of a sudden the domestic natural gas is not a part of 
the picture. We don't want to be pushed out of that picture.
    So, I'd like to understand, kind of, how the timeline moves 
for, and if you can provide that, we'd appreciate it.
    Mr. Wellinghoff. I'll do that.
    [The information follows:]

                         status of lng projects
    The U.S. has five operating liquefied natural gas (LNG) import 
terminals that are able to regasify up to 5.8 billion cubic feet (Bcf) 
per day. These terminals are located in Everett, MA; Cove Point, MD; 
Elba Island, GA; Lake Charles, LA; and offshore Louisiana.
    The Commission has approved 14 new LNG terminals and expansion of 
five LNG terminals. Of this total, four terminals and two expansions 
are under construction as show in the table below.


----------------------------------------------------------------------------------------------------------------
                                                                                                       Volumes
                          Project Name                             Order Date      Proposed  In-      (Bcf per
                                                                                    Service Date        day)
----------------------------------------------------------------------------------------------------------------
Freeport LNG (TX)                                                      06/18/04             Mar-08          1.5
----------------------------------------------------------------------------------------------------------------
Sabine Pass LNG (LA)                                                   12/15/04             Apr-08          2.6
----------------------------------------------------------------------------------------------------------------
Sabine Pass Phase II (LA)                                              06/15/06             Apr-09          1.4
----------------------------------------------------------------------------------------------------------------
Golden Pass LNG (TX)                                                   06/30/05             Apr-09          2.0
----------------------------------------------------------------------------------------------------------------
Cameron LNG (LA)                                                       09/11/03      Sept-Nov 2008          1.8
----------------------------------------------------------------------------------------------------------------
Cove Point Expansion (MD)                                              06/15/06             Nov-08          0.8
----------------------------------------------------------------------------------------------------------------

    Based on the above schedule of projects, the U.S. can expect to 
have an additional 10.1 Bcf per day of LNG regasification capacity by 
early 2009. In addition, a deepwater port LNG terminal--the Northeast 
Gateway, offshore Boston, MA--is scheduled to go into service this 
month with the ability to regasify up to 0.8 Bcf per day.
    Eight new projects and three expansions totaling 21 Bcf per day of 
new regasification capacity have been approved by the Commission, but 
currently are not under construction. These projects are shown in the 
following table.


----------------------------------------------------------------------------------------------------------------
                                                                                                       Volumes
                           Project Name                               Order Date     Proposed  In-    (Bcf per
                                                                                     Service Date       day)
----------------------------------------------------------------------------------------------------------------
Corpus Christi LNG (TX)                                                   04/13/05            2009          2.6
----------------------------------------------------------------------------------------------------------------
Vista del Sol LNG (TX)                                                    06/20/05            2009          1.1
----------------------------------------------------------------------------------------------------------------
Weavers Cove LNG (MA)                                                     08/15/05            2010          0.8
----------------------------------------------------------------------------------------------------------------
Ingleside Energy (TX)                                                     07/21/05            2010          1.0
----------------------------------------------------------------------------------------------------------------
Port Arthur LNG (TX)                                                      06/15/06            2010          3.0
----------------------------------------------------------------------------------------------------------------
Crown Landing LNG (NJ)                                                    06/15/06            2008          1.2
----------------------------------------------------------------------------------------------------------------
Creole Trail LNG (LA)                                                     06/15/06            2009          3.3
----------------------------------------------------------------------------------------------------------------
Casotte Landing (MS)                                                      02/16/07            2010          1.3
----------------------------------------------------------------------------------------------------------------
Clean Energy LNG (MS)                                                     02/16/07            2009          1.5
----------------------------------------------------------------------------------------------------------------
Calhoun LNG (TX)                                                          09/20/07            2009          1.0
----------------------------------------------------------------------------------------------------------------
Freeport Expansion (TX)                                                   09/26/06            2009          2.5
----------------------------------------------------------------------------------------------------------------
Cameron Expansion (LA)                                                    01/18/07            2010          0.8
----------------------------------------------------------------------------------------------------------------
Elba Island Expansion (GA)                                                09/20/07            2010          0.9
----------------------------------------------------------------------------------------------------------------

    Eight proposals to construct liquefied natural gas terminals are 
pending at the Commission. Seven of those proposals have filed formal 
applications for siting; one proposal--Oregon LNG--is in the 
Commission's mandatory pre-filing process that precedes the filing of a 
formal application. The regasification capacity associated with these 
projects totals 9.2 Bcf per day.


------------------------------------------------------------------------
                                                               Volumes
           Project Name                    Location           (Bcf per
                                                                day)
------------------------------------------------------------------------
Broadwater LNG (NY)                  Long Island Sound, NY          1.0
------------------------------------------------------------------------
Long Beach LNG (CA)                         Long Beach, CA          0.7
------------------------------------------------------------------------
Northern Star LNG (OR)                        Bradwood, OR          1.0
------------------------------------------------------------------------
Quoddy Bay (ME)                         Pleasant Point, ME          2.0
------------------------------------------------------------------------
Downeast LNG (ME)                           Robbinston, ME          0.5
------------------------------------------------------------------------
Sparrows Point (MD)                          Baltimore, MD          1.5
------------------------------------------------------------------------
Jordan Cove (OR)                              Coos Bay, OR          1.0
------------------------------------------------------------------------
Oregon LNG (OR)                                Astoria, OR          1.5
------------------------------------------------------------------------

    The combination of the existing capacity, the capacity of the 
offshore terminal that will begin service shortly, and the capacity of 
the projects that are under construction has the potential for 16.7 Bcf 
per day of regasification capacity. This amount, plus the potential 
capacity from those projects that have not yet commenced construction 
and those projects that are under analysis at the Commission add up to 
an additional 30 Bcf per day of capacity. We believe that the market 
will decide that not all of this capacity is needed due to financing 
requirements and the availability of LNG supplies, among other things.
    However, if the market perceives that natural gas from Alaska will 
not be forthcoming in a timely manner, those LNG projects that may have 
seemed marginal may look more attractive, especially those projects 
with an in-service date in the next several years. Alaska offers a 
reliable continental source of natural gas for the Lower 48 States that 
will help the U.S. economy to grow and thrive, and also contribute to 
the economic well being of the State of Alaska.
    The average post-approval siting time is variable. Approval of an 
application for the siting of a LNG terminal by the Commission does not 
allow the applicant to commence construction the following day. All 
approvals have conditions attached to mitigate the environmental impact 
of a project, as well as conditions regarding safety and security of 
the facility. Certain conditions must be satisfied prior to the 
commencement of construction. If those conditions are met, then the 
Director of the Commission's Office of Energy Projects will issue a 
letter allowing construction to commence. Further, project sponsors may 
not opt to commence construction even when they receive approval, due 
primarily to non-environmental reasons (e.g., financing decisions, 
execution of contracts, procurement of materials and labor). Therefore, 
it is difficult to predict the post-approval siting time between 
Commission approval and the actual commencement of construction.
    As a general rule, when construction does commence, it can take 
approximately three years for an LNG terminal to go into service. The 
critical path is the construction of the storage tanks for the LNG. All 
of the other facilities at a LNG terminal can be constructed within 
this timeframe.

    Senator Murkowski. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman.
    Commissioner, we want to acknowledge your exemplary service 
on the Commission, particularly your interest in energy 
efficiency and distributed generation, as well as plug-in 
hybrids. I think that those are all things to be commended. I 
only wish more of your colleagues would take some of your leads 
on these things.
    I do have, however, a specific set of questions that I want 
to raise with you about New Jersey. Some of them have broader 
policy context than New Jersey, but--and it's about these 
extension cords that take place.
    We have a situation where we have the so-called extension 
cords being built to transport electricity from New Jersey to 
New York. There's one called the Neptune cable, that has saved 
Long Island customers millions of dollars, but has cost New 
Jersey customers much more. To accommodate this export, the 
Neptune cable paid only about 5 million of the 30 million 
necessary to accommodate the problem, and has cost New Jersey 
customers hundreds of millions of dollars in capacity payments.
    Not surprisingly, more cables are planned. In one of these 
proposals, the Cross Hudson Corporation proposes taking what we 
call the Bergen II Power Plant, one of New Jersey's most 
efficient natural-gas plants, and unplugging it from the PJM 
grid. All of its electricity would go under the river to 
Manhattan. In effect, Bergen II would be transported to New 
York to serve New York, but current regulations and laws do not 
require New York or the corporations involved in the deal to 
compensate New Jersey for the loss of capacity or this loss of 
electricity.
    So, my question is, Does the FERC--or is the FERC looking 
at this whole issue? I mean, New Jersey is specific, but I'm 
sure it's not unique. If everybody can go sell for higher 
prices and drain capacity from one State, is the FERC looking--
particularly contemplating any changes to rules governing 
capacity export charges to reflect changed circumstances, such 
as happened--some of these that I've described to you? 
Particularly, do you know if the FERC has any action--taking 
any action to address the impact that these extension-cord 
projects are having on New Jersey's already high electricity 
prices? How are we going to get customers compensated for the 
loss of capacity--electricity and capacity from these projects? 
This is an ever growing issue in my State. I assume that other 
States that will find itself in this set of circumstances will 
begin to raise these issues, and I'd certainly like to get your 
thinking on this.
    Mr. Wellinghoff. Certainly, Senator, to the extent that New 
Jersey can create capacity, it should be compensated. I 
absolutely believe that. I know that New Jersey has been one of 
the leaders in, for example, photovoltaics and also later and 
distributed generation. To the extent that those resources are 
creating capacity in lines, I think there needs to be ways that 
we, in fact, can compensate people in New Jersey who are 
creating that capacity. I think that's something--and something 
I'm certainly absolutely looking into. To the extent that any 
area is creating capacity on lines through the demand side or 
through distributed generation or other means, I think they, 
ultimately, need to be compensated for it, as a generator would 
be compensated for creating capacity.
    Senator Menendez. Let me ask you this. I appreciate hearing 
that; the problem is that that's not happening, largely 
speaking; certainly not happening in the context of any just 
compensation. Do you think there are any laws or regulations 
necessary to ensure that the entire power plants are not 
diverted to another wholesale electricity market without 
compensation? Do you think you all have the wherewithal to take 
care of such challenges today, or do you need to have 
authorities you don't have today in order to do this?
    Mr. Wellinghoff. Again, I would provide you an answer in 
writing on this, specifically, because I don't want to 
misspeak.
    Mr. Wellinghoff. However, I don't believe that, from the 
standpoint of a generator, that FERC has the ability to dictate 
how that generator sells its capacity, as far as where it sells 
it. If it can, in fact, market it--skip where it's at, to the 
next line jurisdiction--I believe that a generator has, 
ultimately, that right. To restrict it to a certain area, I 
don't believe is in our authority, but I definitely would get 
back to you on that.
    Senator Menendez. We'd like to see how some type of just 
compensation takes place, because, if not, we're going to have 
a major problem. Ratepayers are just going to go off the wall.
    Last, you know, we need a market monitor----
    Mr. Wellinghoff. Could I add to that, my last answer, just 
one thing, if I could? Excuse me, but--to the extent that these 
plants in New Jersey have been paid for by New Jersey 
ratepayers, I would think the appropriate jurisdiction to 
determine payments of that capacity would be the State Public 
Utility Commission, rather than FERC.
    Senator Menendez. Last--well, we will continue to follow up 
with you--lastly, on--you know, we had a whole issue with PJM 
and the market monitor saying he was being interfered with. 
It's, you know, imperative that we have a strong, independent 
market monitor that consumers can have confidence in that 
they're not being cheated by manipulation and/or monopolies, 
and we hope that you, as a commissioner, along with your fellow 
commissioners, are going to ensure that we do everything that's 
necessary to strengthen the hands of these market monitors to 
be truly independent. I have a real concern about this issue. 
When you look at all this other issues that we've just talked 
about, in terms of electricity costs, we hear from ratepayers 
all of the time. So----
    Thank you, Mr. Chairman.
    Mr. Wellinghoff. I would commit to you on that--on the 
market monitor--absolutely, Senator.
    The Chairman. Senator Tester.
    Senator Tester. Thank you, Mr. Chairman.
    I want to thank Jon Wellinghoff. Thank you for being here 
today. Thank you for being willing to serve. This is the first 
time I've had an opportunity to meet you, and I am very 
impressed with your knowledge of the area. I'm doubly impressed 
with the fact that you're one of the few of us that know how to 
spell your first name correctly.
    [Laughter.]
    Senator Tester. So, thank you.
    As you know, Montana deregulated their utilities in 1997. 
Maybe you don't know that, but they did. Our old regulated 
company sold off their assets, all of 'em. To be honest--it's a 
bit of an understatement--but deregulation has not been smooth 
in Montana. Prices have gone from some of the lowest in the 
region to some of the highest. They have more than doubled in 
the last 5 years, and are anticipated to continue to rise.
    Do you believe that competition in the electricity market 
is working the way it ought to?
    Mr. Wellinghoff. I believe it is working; it's not working 
as well as I'd like to see it working, but I think it can work. 
I think that consumers can benefit and be provided with more 
choices and more opportunities. The part about it that I like 
most is, I think it has the opportunity to bring in the demand 
side that we don't have now fully integrated into the markets. 
The demand side, I mean, really consumers participate in the 
market by reducing their demand at times that they--that's 
appropriate for them, but, ultimately, that--where they can 
ultimately make money. Things like plug-in hybrid electric 
vehicles that we're going to see coming to the markets will 
really benefit from a competitive market. I think we'll see 
real benefit. So, I think the benefits are really there. We're 
moving much slower than a lot of people, I think, would like to 
see. I know there are areas of the country, like Montana and 
others, that have been impacted, that have been impacted 
severely, and that concerns me--does concern me.
    Senator Tester. What can FERC do to encourage competition 
in rural areas like Montana?
    Mr. Wellinghoff. One thing we can do is, I think, better 
integrate in renewable systems. I think, the more renewable 
systems--and I know you've got a lot of wind in Montana--the 
more renewable systems that we can integrate into the grid, 
you're going to see that helping competition tremendously. So, 
we've worked on that in a number of orders that I mentioned, 
that I have detailed in my statement that I submitted to the 
commission--to the committee. I think that's one significant 
area where, in fact, we can improve competition by getting a 
more diverse supply.
    Senator Tester. I don't want to get into the rate case, 
but, as you well know, there was a case brought to FERC about a 
lack of competition in the marketplace. One of the problems we 
have goes to what Senator Menendez was talking about, in that, 
we can't get juice out, we produce more than what we utilize 
now, in the State of Montana. So, the question falls, in 
relation to the lines. There's a lot or proposals for 
additional lines going out of Montana, there's a lot of 
proposals for renewable, and, for the most part, I think that 
renewables have some real advantages. I want to see this kind 
of stuff happen, as long as it's done smartly. But, what can we 
do to protect our consumers, and not end up with high rates? 
Our rates are high enough, I don't want to end up with 
California rates. What can we do, what can you do, to protect 
the consumers in a State where we pay transportation, going 
both ways, in most every area, and would like not to have to do 
that in electricity?
    Mr. Wellinghoff. I think the biggest ways to protect 
consumers is to enable consumers to, again, participate in the 
markets. If you can enable consumers to, ultimately, use what 
they can on the demand side to ensure that their costs are 
managed, which consumers can do--in fact, there was a great 
experiment by Pacific Northwest Labs up in Washington--did an 
experiment, ultimately, with consumer appliances and how those 
consumer appliances could be utilized to, in fact, provide grid 
services. Consumers got paid for that, ultimately. So, to the 
extent that FERC and the States can work together to enable 
consumers to participate in these markets, with demand-side 
distributed generation, energy efficiency, demand response, 
those are ways that consumers can help protect themselves. We 
can enable them, and they then can protect themselves.
    Senator Tester. So, you anticipate it happening, from a 
usage standpoint, a conservation standpoint, and, when they use 
the electricity, more than just cents per kilowatt.
    Mr. Wellinghoff. I think that's going to be the best way 
for consumers to control bills--total bills.
    Senator Tester. OK.
    Can you tell me what FERC is doing now to encourage 
renewables in the marketplace? Let me preface this a little 
bit. When we had the first energy-bill debate, and we talked 
about a renewable portfolio standard. Many of the people who 
were opposed to a renewable portfolio standard just talked 
about wind as being the only renewable out there, but I see it 
as being much more than that, whether it's geothermal or 
biomass-powered, or whatever. What has FERC done to--and what 
can they do--to help promote renewables, so that it's not just 
seen as one entity supplying it?
    Mr. Wellinghoff. We're doing a number of things. One, we 
just had a workshop on interconnection to the grid. In the 
organized markets, in the ISOs and RTOs alone--there's over 300 
gigawatts of new development that is actually applied for an 
application to interconnect to the grid. Of that 300 gigawatts, 
45 percent is wind, and they're having great difficulty getting 
the studies done to make these interconnects and to ultimately 
develop the projects. So, we had a workshop at FERC to try to 
figure out how to break that logjam, so ultimately, we can get 
more of these projects connected. That was one thing we did.
    Commissioner Moeller and I had a workshop in Oregon that 
dealt with a new evolving renewable area, and that's 
hydrokinetics, which is wave power and also ocean current and 
in-river systems, that seemed to be very promising. FERC, in 
fact, has come up with a pilot-license project--pilot-license 
process, where, in fact, we can license small projects to 
demonstrate them, to determine if they can be interconnected, 
if they're environmentally benign, and if, in fact, they are in 
the public interest. That process seems to be working well. 
We're moving forward with that process, as well.
    We've done a number of things, in changing our open-access 
tariff provisions that allow for such things as conditional 
firm, where wind can actually hook onto the grid and not have 
to have the ability to have capacity in that grid every hour of 
the year, but just for the hours that they may need it over 
time on a conditional-firm basis. So, we're doing a number of 
things that I think are moving forward with fully integrating 
renewables into the grid and ensuring that we have more diverse 
supply in this country.
    Senator Tester. Finally, if I might, Mr. Chairman, I just 
want to thank you and thank the Commission for the relicensing 
of Mystic Lake. It's something in Montana that has been a bit 
contentious and, I think, just this last Monday, you did that.
    Mr. Wellinghoff. Yes, we did.
    Senator Tester. I want to thank you for that.
    The last thing is that being a farmer, a small-businessman, 
and a consumer of electricity in a State that's on the northern 
latitudes, energy cost is becoming a big thing, not just 
electricity, but transportation fuels, too. I'm sure we're not 
alone with that problem. I don't know how often you get out--
you talked about going to Oregon soon. If you get the 
opportunity, maybe stop off on your way out there; it's not 
really on the way, but it's kinda. It would be great to have 
you come out and visit Montana. Maybe you've already done this; 
if you have, I apologize--but it would be great to have you 
come out and visit with some of the public-service 
commissioners onsite to let them show you what's going on. 
Because for a State like Montana that's had such a great 
company as Montana Power for so many years, to have them sell 
off all their assets and have this whole thing up in the air 
for electricity rates is really sad to see. To be honest with 
you, and it's really inhibited our economic development in the 
State--in rural areas, in particular--even though the co-ops 
have done a fine job in protecting their customers, everybody 
knows that's not going to last forever.
    Mr. Wellinghoff. I'll do that, Senator.
    Senator Tester. Thank you.
    Mr. Wellinghoff. Thank you.
    The Chairman. Thank you very much.
    We'll allow members to file any additional questions with 
the committee, up until 5 o'clock this afternoon, if they have 
additional questions for the nominee.
    The Chairman. Again, thank you for being here.
    That will adjourn our hearing.
    [Whereupon, at 11:28 a.m., the hearing was adjourned.]


                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

                      Federal Energy Regulatory Commission,
                                 Washington, DC, December 19, 2007.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources, United States 
        Senate, Dirksen Senate Office Building, Washington, DC.
    Dear Chairman Bingaman: Thank you for conducting a hearing 
yesterday for my nomination to another term on the Federal Energy 
Regulatory Commission and thank you for reporting my nomination to the 
full Senate for consideration.
    Following the hearing you forwarded additional written questions 
from members of the Energy and Natural Resources Committee and asked 
that the answers be provided by the time you were to begin a business 
meeting to consider my nomination. That deadline was to be 11:30 AM 
today.
    Attached you will find my responses to all of the written questions 
posed by members of the Committee. In addition, I am responding in 
writing to Senator Murkowski's general question posed during the 
hearing about Liquefied Natural Gas terminal proposals currently 
pending before the Commission.
            Sincerely,
                                           Jon Wellinghoff,
                                                      Commissioner.
[Attachment.]
              Responses to Questions From Senator Bingaman
    Question 1. Over the last two years, as the Commission has 
implemented the Energy Policy Act transmission pricing provisions I 
have been concerned that the Commission might be awarding incentive 
rates for behavior that would have been undertaken by utilities in any 
event, and that petitioners before the Commission might view incentive 
rates as an entitlement and not as an inducement to increase beneficial 
investment. How can the Commission make clearer to builders of 
transmission that the term ``incentive rates'' does not always and only 
mean increased rates of return for all transmission?
    Answer. I believe that in providing an incentive return on equity 
(ROE) adder for transmission construction, the Commission should focus 
on encouraging investment decisions beyond the upgrades simply required 
to meet a utility's service obligations or the minimum standard for 
good utility practice. Incentive ROE adders should be more narrowly 
targeted to transmission investments that provide incremental benefits, 
such as those resulting from the deployment of best available 
technologies that increase efficiency, enhance grid operations, and 
result in greater grid flexibility. In this regard, I have linked each 
of my decisions on incentive ROE adders for new transmission 
construction to a demonstration by the developer that it has considered 
and, to the extent practicable, incorporated into its project some of 
the advanced transmission technologies specified by Congress in section 
1223 of EPAct 2005. I have also considered incremental benefits 
associated with new transmission construction that is needed to 
accelerate the integration of renewable energy resources into our 
nation's energy portfolio. I believe that this approach is engendering 
positive responses from transmission developers to now consider and 
incorporate such technologies into their projects.
    In several cases, including incentive proposals submitted by 
American Electric Power Service Corporation and Southern California 
Edison Company, applying these criteria led to me support the granting 
of incentive ROE adders. In other cases, including incentive proposals 
submitted by Trans-Allegheny Interstate Line Company and Baltimore Gas 
and Electric Company, I concluded that applicants failed to demonstrate 
that an incentive ROE adder was appropriate. My conclusions, however, 
have not always been shared by a majority of fellow Commissioners, 
resulting in my dissenting in a number of cases.
    Question 2. During the last few years utility rate increases in 
much of the Nation have brought questions as to whether markets are 
genuinely competitive and are producing the most efficient price 
signals in the electric industry. Does the Commission intend to 
undertake a comprehensive overview of the state of competition in 
electricity markets in the near future? Are market institutions 
functioning, in your view, to produce the lowest rates consistent with 
reliable service? Particularly, are such mechanisms as forward capacity 
markets, locational marginal cost pricing, ancillary services markets 
and other market mechanisms working to produce lower rates, or only 
adding to cost?
    Answer. The Commission conducts an annual State of the Markets 
Report analysis that has shown consistently that the wholesale markets 
are competitive. The market monitors in each RTO and ISO region also 
produce such reports that have demonstrated that markets are 
competitive. In addition, the Commission conducts a market power test 
prior to authorizing an entity to charge market based rates.
    At this time I do not believe a comprehensive overview of the state 
of competition in electricity markets is required. This is not to say 
that I believe those markets are functioning perfectly or that there is 
not room for improvement. I believe that as a whole, rates are just and 
reasonable. As I indicated at my hearing, the latest data from the RTO/
ISO Council indicates that wholesale rates have substantially declined 
in each RTO/ISO region from 2005 to 2006.
    While not a comprehensive overview, the Commission did issue an 
Advance Notice of Proposed Rulemaking (ANOPR) on June 22, 2007, to 
examine a variety of specific issues associated with competitive 
electric markets administered by Regional Transmission Organizations 
(RTO). The ANOPR followed two technical conferences that the Commission 
had convened to discuss some of the challenges facing wholesale energy 
markets and to address head-on some of the criticism being leveled at 
the competitive model. In the ANOPR, the Commission sought comment on 
the role of demand response in organized markets, how to increase 
opportunities for long term contracting, ways by which the Commission 
might strengthen market monitoring, and ways to better ensure that RTOs 
are responsive to their stakeholders. We have received a number of 
comments and suggestions for possible reforms--including a recent 
request to broaden the scope of the inquiry to examine additional 
issues. I am open to these requests to the extent that they can lead to 
concrete recommendations for solutions to current market problems.
    But the overarching issue from my perspective is not rates but 
total consumer bills. It is my belief that the construct of a wholesale 
competitive electric market provides the most efficient structure to 
give the consumer the opportunity for lowest total overall bills. This 
is through the mechanisms of fostering participation of consumers in 
those markets through demand response, energy efficiency, distributed 
generation and other distributed resources. Creating markets and 
industries to support those consumer dependent resources is the promise 
of organized competitive wholesale electric markets. This together with 
diversity of supply through enhanced opportunities for new renewable 
resources to participate in these markets will provide consumers with 
the opportunity to keep total bills stable and manageable.
    Currently market institutions, in my view, are not functioning to 
produce the lowest bills consistent with reliable service. But I 
believe that the Commission is incrementally moving toward implementing 
such market institutions that will produce lowest bills for consumers 
while maintaining reliable service. That is why market mechanisms such 
as forward capacity markets, locational marginal cost pricing, and 
ancillary services markets have been instituted to assist in producing 
lowest bills for customers. But to the extent that demand response and 
energy efficiency have only recently been incorporated into some of 
these market mechanisms and have not yet had the opportunity to provide 
full benefits to consumers, we do not yet know the extent to which 
consumer bills can be stabilized or reduced.
    Question 3. Many have argued recently that regional transmission 
organizations do not have either the proper governance structure or 
incentive structure to be sure that transmission prices and prices in 
the markets they administer are sufficiently protective of consumers. 
How should the Commission proceed to be sure that incentives for RTOs 
are aligned with interests of consumers to produce the lowest possible 
rates consistent with reliable service?
    Answer. The Commission recognizes both the type of concerns noted 
in your question and the importance of ensuring that RTOs' governance 
structures and incentives are consistent with consumers' interests. 
Indeed, such concerns contributed to the Commission's decision earlier 
this year to initiate a rulemaking proceeding on a variety of issues 
associated with competitive markets administered by RTOs. As noted 
above, following several technical conferences, the Commission issued 
an ANOPR in June that specifically sought comment on ways to ensure 
that RTOs are adequately sensitive to the needs of their customers. For 
example, the Commission preliminarily found in the ANOPR that 
representatives of customers must have some form of effective direct 
access to an RTO's board of directors, and sought comment on how that 
goal can best be achieved. The Commission is now in the process of 
reviewing the many comments that it received in response to the ANOPR 
and considering proposals to improve RTOs' responsiveness to consumers' 
concerns.
    More generally, it is important to recognize that RTOs are already 
providing important benefits to consumers. For example, as I discussed 
above, I believe that competitive markets administered by RTOs offer 
the greatest promise for efficient use of demand-side resources and 
renewable energy resources. The economic dispatch of these and other 
resources will drive down costs to the benefit of consumers.
    In addition, the Commission's Order No. 890 established new 
requirements for regional transmission planning in RTOs and other 
regions. The required open and transparent planning processes will 
provide opportunities for resources that are technically capable, such 
as demand response and distributed generation, to complement the build 
out of needed transmission infrastructure, thus lowering total costs 
and consumers' total bills.
    Question 4. The Advanced Notice of Proposed Rulemaking on 
Competition proposed what is called ``scarcity pricing'', which amounts 
to taking price caps off markets during emergencies, even for sales to 
and from affiliates. It seems to me that the only time price caps are 
important is during emergencies. Does this scarcity pricing not raise 
the danger that markets might spiral out of control again? What is to 
prevent sellers from taking advantage of emergency situations to charge 
unreasonable prices?
    Answer. The issue of how to appropriately price electricity during 
times of system shortage is one that the Commission raised in the 
ANOPR. The Commission sought comment on the need for further forms of 
``scarcity pricing'' and on various mechanisms to send price signals 
when additional resources are needed to serve consumers, such as during 
hot summer days when the electric system is running short. Commenters 
have raised some of the issues your questions raise.
    I believe that the objective of a shortage pricing mechanism should 
be to obtain the resources needed to provide electricity services at 
the lowest cost to customers. It is my position, which I stated at the 
Commission's open meeting when we released the ANOPR for public 
comment, that I will not vote for the scarcity pricing proposals in the 
ANOPR unless and until RTOs have fully integrated demand resources into 
their operations and planning. Further broadening the pool of resources 
to include demand response resources can improve the efficient 
operation of the markets, improve reliability and lower prices to 
consumers. Indeed, I believe that distributed energy resources, such as 
demand response, energy efficiency and distributed generation, are the 
most potent protection customers have against those who might try to 
take advantage of an emergency. Demand resources can provide a 
competitive threat to generators, lessoning the reward to withholding 
or other efforts to raise prices, before a market gets to the point of 
emergency conditions.
    The ANOPR asks questions about the potential of several methods to 
remove barriers to more widespread demand response by customers. There 
are many difficult issues associated with how to appropriately price 
electricity during emergency conditions, which are under active 
consideration at the Commission. We have sought, and continue to seek, 
workable solutions to inefficiencies that remain in RTO markets. I can 
assure you that I intend to fully consider all of the comments we have 
received to the ANOPR as I work through these difficult issues with my 
colleagues at the Commission.

               Responses to Questions From Senator Wyden

    In response to questions for the record during the Committee's 2005 
hearing on LNG permitting, Mark Robinson, Director of the Office of 
Energy Projects, responded that,

          The Commission is supportive of competition within the energy 
        industry and of the idea that the market drives infrastructure 
        development. Past experience, particularly since the 
        restructuring on the gas industry following Order No. 636, has 
        demonstrated that market forces can serve the same end as a 
        competitive or ``Ashbacker'' hearing. Where the Commission 
        approves multiple projects to serve a similar market, only an 
        economically viable project will actually be built, i.e., only 
        where customer commitments ensure new service will fulfill a 
        genuine need.

    Question 1. How is this policy consistent with the obligation of 
the Commission to make an affirmative finding of public convenience and 
necessity under the Natural Gas Act?
    Answer. A finding that a project is in the public convenience and 
necessity requires a determination regarding both economic and 
environmental considerations. Environmental considerations include 
design, safety and security issues.
    I believe that the Commission's current policy to allow the market 
to determine which project should be built is consistent with our 
obligation under the Natural Gas Act. A project results from an open, 
competitive process with customers making service choices, and the 
developer and customers to be served bearing the economic risks. In 
practice, the Commission's current policy has worked well to bring the 
right infrastructure into service at the right time. Under the current 
policy, there has not been any significant underinvestment or 
overinvestment in gas infrastructure.
    With regard to environmental considerations, the Commission has 
exercised its authority to condition the certificates we issue to 
prevent and mitigate as necessary the project's environmental impacts, 
including impacts on landowners and citizens. The FERC Environmental 
Impact Statement (EIS) is a comprehensive analysis of the design, 
safety, security and environmental issues of a project that underlie 
the conditions we attach to a certificate.
    Taken together, our certificate process fulfills our obligation 
under the NGA.
    Question 2. Do you agree with this policy that competitive or 
``Ashbacker'' hearings need never be conducted where multiple projects 
are proposed for a given market?
    Answer. No. Nonetheless, I do not believe that ``Ashbacker'' 
hearings are generally the appropriate or preferred method. I have 
serious doubts that consolidating projects at very different levels of 
development and review would result in a better selection process. Such 
a policy could delay needed supplies and increase costs to consumers. 
The rationale for an ``Ashbacker'' hearing is mutual exclusivity where 
issuing one license would preclude issuing the other. Therefore, it 
would be an appropriate process for virtually identical projects 
proposed to be sited in close proximity in the same timeframe.
    Question 3. Are there circumstances where you believe that it is 
ever appropriate for the Commission to conduct competitive or 
``Ashbacker'' hearings where multiple projects are being proposed to 
serve a single market? If so, when?
    Answer. Please see my response to question #2 above and my answer 
to your pre-hearing question #3.

              Responses to Questions From Senator Menendez

                      EXTENSION CORDS TO NEW YORK

    Question 1. I want to discuss the so-called ``extension cords'' 
which are being built to transport electricity from New Jersey to New 
York. The ``Neptune'' cable has saved Long Island customers millions of 
dollars, but has cost New Jersey customers much more. To accommodate 
this export, the Neptune cable paid only about $5 M of the nearly $30 M 
needed to accommodate the problem and has cost New Jersey customers 
hundreds of millions of dollars in capacity payments.
    Not surprisingly, more cables are planned. In one of these, 
proposals the Cross Hudson Corporation proposes taking the Bergen-2 
power plant, one of New Jersey's most efficient natural gas plants, and 
unplugging it from the PJM grid. ALL of its electricity would go under 
the river to Manhattan. In effect Bergen-2 would be transported to New 
York to serve New York, but current regulations and laws do not require 
New York or the corporations involved in the deal to compensate New 
Jersey for this loss of capacity or this loss of electricity.
    Does the FERC plan to take any action to address the impact that 
these ``extension cord'' projects are having on New Jersey's already 
high electricity prices?
    How will the FERC ensure that New Jersey customers are compensated 
for the loss of capacity, electricity and capacity from these projects?
    In particular, does FERC contemplate any changes to rules governing 
``Capacity Export Surcharges'' to reflect changed circumstances as 
happened with the Neptune Line?
    In relation to the Bergen-2 project in particular, PSEG has shown a 
willingness to work with me and my office to ensure New Jersey 
ratepayers are fairly compensated. But what laws or regulations are 
necessary to ensure the entire power plants are not diverted to another 
wholesale electricity market without compensation?
    Answer. I share your concerns with respect to the difficulties 
associated with allocating the potential costs and benefits of regional 
transmission projects that are built within the PJM footprint, as well 
as inter-regional projects such as underwater cables connecting New 
Jersey and New York. While our national economy works most efficiently 
when energy is traded freely across state boundaries, FERC has approved 
measures for PJM that can help offset certain negative, local effects 
of the types of projects you mention.
    With regard to transmission solutions, the Commission had taken a 
series of actions to improve the transmission planning process within 
PJM, which should result in a more robust transmission system and 
provide constrained areas such as portions of New Jersey with access to 
additional lower cost power supplies.
    In March 2007, the Commission issued an order (currently pending 
rehearing) that facilitates cost allocation for transmission projects 
identified as needed for either reliability or economic (congestion 
relief) reasons. The Commission's order allocates on a PJM region-wide 
basis the costs of new, centrally planned ``backbone'' transmission 
facilities that operate at or above 500 kV. The Commission reasoned 
that the benefits from those large ``backbone'' projects were 
sufficiently broad that a rate that spreads the costs region-wide was 
appropriate. The Commission also required the development of a detailed 
methodology for allocating the costs of new facilities below 500 kV so 
that the beneficiaries of those projects would bear the cost of the new 
facilities. Taken together, the modifications the Commission has 
required to the cost allocation method for new transmission facilities 
within PJM are aimed at developing transmission resources that can help 
supply the power needs of constrained areas like northern New Jersey at 
a reasonable cost.
    Indeed, looking at northern New Jersey alone, there are already 
several backbone projects currently under evaluation within PJM that 
could address congestion and looming reliability concerns. I would also 
point to PJM's Regional Transmission Expansion Plan (RTEP), which sets 
forth a structure that assures opportunities for demand response and 
generators using all fuel types. PJM presently has interconnection 
requests in New Jersey for plants that are fueled by wind, hydro, 
biomass and methane.
    I believe that the actions the Commission has taken in these 
various areas recognize the regional interconnected nature of the PJM 
transmission system and provide a platform for addressing the energy 
needs of all states within the PJM region. That platform allows 
effective regional planning and provides a level playing field for 
demand response, generation and transmission options for meeting the 
wholesale electric power needs of New Jersey's consumers. While there 
are difficult policy choices that lie ahead, I believe that we can work 
through those challenges together with our state regulatory colleagues 
to fashion energy solutions that work for all the states in the PJM 
region.

                         DISTRIBUTED GENERATION

    Question 2. In your oral testimony, you explained that full 
participation in real-time electrical markets is one way to make sure 
these markets treat consumers fairly. This participation can take the 
form of demand-response programs, but it also includes small renewable 
sources of electricity.
    In the PJM region, we have seen intermittent renewable sources, 
such as solar power, participating in capacity markets only when 
aggregated. Individual small solar projects can get paid for excess 
electricity, but do not receive capacity payments. What needs to be 
done to allow small intermittent electrical sources to participate 
fully in forward capacity markets? This question also applies to 
disaggregated demand-response programs.
    Answer. Small intermittent electric sources, such as individual 
small solar projects, present unique problems in forward capacity 
markets. Because they are intermittent, individual projects may not 
generate electricity at the same time as system peak demand or during 
shortages of available generation. Grid operators will be reluctant to 
provide capacity payments under these circumstances. Nevertheless, a 
variety of solutions could be employed to firm output from these 
intermittent sources. First, on-site storage (which could be based on 
battery technology, flywheels, small hydroelectric facilities with 
storage capability or plug-in hybrid electric vehicles) could be added 
or linked to the project. Producing and storing electricity during 
solar or wind availability would allow the project to inject 
electricity into the grid at the time of high system demand or when 
directed by the grid operators. A recent November 2007 study by the 
California Independent System Operator on the integration of renewable 
resources indicates that this linkage is feasible.
    Second, the intermittent electric source could be linked to demand 
response technologies or actions at an associated facility. If capacity 
is required during a period when the intermittent resource is not 
operating, reductions in demand could be achieved that match the 
capacity of the intermittent resource. Third, additional research could 
be focused on measuring and verifying generation patterns from the 
individual resource. If the resource can be demonstrated to produce 
electricity under a variety of conditions with identifiable generation 
patterns, then grid operators may allow these intermittent sources to 
participate in forward capacity markets.
    Disaggregated demand-response programs have a greater ability to 
participate fully in forward capacity markets. Both PJM and ISO New 
England currently allow demand resources to participate in their 
forward capacity markets. In order to receive capacity payments, demand 
response providers must submit detailed measurement and verification 
plans that document the ability of their demand resources to provide 
demand reductions during peak periods or when directed over time. 
Increased participation in these forward capacity markets by 
disaggregated demand-response programs could be achieved by additional 
actions. First, the installation of advanced meters at all residences 
and businesses could increase participation by allowing cost-effective, 
detailed measurement and verification to be achieved at more 
facilities. Second, grid operators typically impose minimum size 
requirements for demand resources in capacity markets because their 
systems cannot model or sense smaller resources. If a disaggregated 
demand-response program is below the minimum size threshold, it cannot 
participate. Additional investment in software or sensors may be 
required to expand the capability of the grid operator to model and 
monitor smaller, disaggregated demand response resources. The 
Commission has recently created an Energy Innovations Sector within our 
staff that is tasked to explore such issues with PJM and other 
stakeholders.

                                  MMU

    Question 3. I'd now like to discuss an issue which affects the 
entire PJM RTO region. Last spring, Dr. Joseph Bowring from PJM's 
market monitoring unit came public with disturbing allegations that his 
work was being interfered with and manipulated. Under FERC's oversight, 
PJM and its Market Monitoring Unit have been trying to resolve their 
dispute.
    It is imperative that we have fair and competitive electricity 
markets. Without a strong, independent market monitor, consumers cannot 
be confident that they are not being cheated by monopolies or 
manipulators. In evaluating any proposed solution, FERC should make 
sure that the Market Monitor has timely access to whatever information 
they need to determine whether prices need to be mitigated. The Market 
Monitor must have the staff and infrastructure needed to do their job. 
And, in order to preserve its independence, the Market Monitor should 
report to a board outside of the PJM hierarchy, a board which 
represents all stakeholders. What steps will the FERC take to make sure 
that this dispute does not result in a weakened Market Monitor or 
uncompetitive markets?
    Answer. I agree that strong independent market monitors are 
essential to fair and competitive electricity markets. I am committed 
to that objective, as is the Commission, as can be gleaned by actions 
we have taken in the last six months.
    First, in June, the Commission issued an Advance Notice of Proposed 
Rulemaking (ANOPR) that, among other issues, sought comments on 
proposals to strengthen the effectiveness of market monitors by 
safeguarding their independence and fostering useful and transparent 
market analysis. As particularly relevant to your concerns, to ensure 
that market monitors would have adequate tools with which to do their 
jobs, the Commission proposed requiring each RTO or ISO to include in 
its tariff a provision imposing upon itself the obligation to provide 
its MMU with access to market data, resources, and personnel sufficient 
to enable the MMU to carry out its functions. Furthermore, we noted 
that an inherent tension exists in a structure that requires MMUs to 
report to RTO/ISO management yet, at the same time, perform evaluations 
and issue reports that may be critical of that management. We stated 
that it could be difficult for an MMU to discharge these oversight and 
reporting obligations effectively unless it had some degree of 
independence from RTO/ISO management. Therefore, the Commission 
proposed that each RTO and ISO, in addition to maintaining a market 
monitoring function, be required to have its MMU--whether internal, 
external, or a hybrid combination of the two--report either directly to 
the RTO's or ISO's board of directors or directly to a committee of 
independent board directors. The Commission is currently considering 
comments with respect to these issues and others that were raised in 
the ANOPR.
    Second, with respect to the PJM market monitoring situation, as you 
are aware, the Commission has under active consideration two complaints 
that alleged interference by PJM in the ability of the MMU to monitor 
the market. The parties are engaged in settlement discussions being 
facilitated by the Commission's Chief of Staff, whose report is due to 
the Commission this week. I am confident that the ultimate resolution 
of this matter will not result in a weakened market monitor or 
uncompetitive markets, as neither would be acceptable to the Commission 
under current policy or to me personally.
                       reliability pricing model
    Question 4. About a year ago, FERC approved PJM's ``Reliability 
Pricing Model.'' RPM was intended to encourage the construction of 
power plants in New Jersey and other locations where they are needed 
most, by increasing the revenues that power plant owners and developers 
would receive for selling the rights to their capacity.
    Thus far, RPM has caused some plants that were slated to retire to 
stay online, but there is no sign of getting more power plants built in 
the locations where they are needed most. In the meantime New Jersey 
customers are paying billions more for electricity.
    Some have suggested new plants have not been built because there 
are many market barriers for new entrants to build plants. Others have 
suggested that the capacity markets need to be put to auction 6 or even 
8 years in advance instead of the current 3 in order to give companies 
the ability to show the financial community a long-term stream of 
revenues to attract financing.
    What is FERC doing to ensure that this system is working, and that 
this money will result in needed generation?
    Does FERC have any plans on how to change RPM if the new capacity 
they have projected does not come online?
    Answer. I supported the Commission's order that approved RPM as a 
mechanism to address the long-term reliability needs of all electricity 
consumers within the PJM footprint, including consumers in New Jersey. 
The early stages of RPM implementation have produced some positive 
results: available capacity in 2009-2010 should increase by 9,107 MW as 
a result of the RPM implementation, and the most recent auction for the 
2009-2010 delivery years cleared 893 MW of demand response. It is also 
noteworthy that RPM includes a reliability backstop mechanism. If PJM's 
market is short for three consecutive delivery years, PJM's Office of 
the Interconnection will declare a capacity shortage and make a filing 
with the Commission for approval to conduct a reliability backstop 
auction.
    The Commission will continue to actively monitor implementation of 
RPM. If experience demonstrates that RPM is not achieving its goals, 
the Commission will consider modifications to the RPM rules, as 
necessary.

              Responses to Questions From Senator Cantwell

             THE MOBILE-SIERRA DOCTRINE AND FERC DISCRETION

    In a brief recently filed with the U.S. Supreme Court, FERC took 
the position that, under the Federal Power Act's statutory ``just and 
reasonable'' standard, it was free to approve long-term contracts 
arising out of the 2000-01 Western power crisis notwithstanding 
evidence that, in the words of Stanford University energy economist Dr. 
Frank Wolak, suppliers to the Western markets during this period were 
``able to exercise market power at unprecedented levels,'' resulting in 
``prices vastly in excess of competitive levels.'' FERC also claimed 
authority to override contracts for essentially any reason. In light of 
these claims, please answer the following:

    Question 1. How does FERC define ``just and reasonable'' in the 
context of market-based rates and, in light of its position that the 
unprecedented contracts signed during the 2000-01 crisis are ``just and 
reasonable,'' is there any remaining upper limit on prices FERC will 
approve?
    Question 2. Given FERC's claim of virtually unlimited discretion to 
override contracts, will FERC provide any clarification explaining the 
circumstances under which it will intervene to abrogate or reform 
contracts arising from dysfunctional markets?
    Question 3. How can FERC reconcile its claim to the Supreme Court 
that it is free to ignore evidence of market manipulation and market 
power abuse in determining whether to correct contracts affected by 
that abuse with its recent emphasis on enforcement of market standards? 
Does FERC's position in the Supreme Court allow market abusers to 
protect their ill-gotten gains by locking them up in contracts, 
undermining any incentive they might otherwise have to obey market 
rules and report abuses by other market participants?
    Question 4. Given that the courts have concluded that FERC is the 
sole forum to bring complaints of market power abuse and manipulation, 
isn't FERC's refusal to intervene in contracts arising from the Western 
power crisis tantamount to granting market abusers complete immunity 
from antitrust laws?

    Answer. I believe that these questions are most effectively 
answered together.
    With regard to the U.S. Supreme Court's consideration of Morgan 
Stanley Capital Group, Inc. v. Public Utility District No. 1 of 
Snohomish County, Washington, et al., it is first important to 
recognize that the Commission did not support the petitioners' petition 
for a writ of certiorari. In a brief filed with the Court in August 
2007, the Commission stated that further review of the Ninth Circuit 
Court of Appeals' underlying decisions was not warranted. In support of 
that conclusion, the Commission stated that the Ninth Circuit's 
decisions ``stand for the narrow proposition that, if there is a 
credible claim that severe market dysfunction has affected the 
formation of a market-based contract, the Commission must take that 
fact into account in determining whether the public-interest standard 
of Mobile-Sierra applies to its review of that contact.'' These 
statements align with the Commission's and my belief that the Ninth 
Circuit's decisions could be implemented consistent with our statutory 
responsibilities.
    Unfortunately, despite the Commission's brief to the contrary, the 
Court granted the petition for certiorari. After the Court made that 
decision, the Commission was obligated under the Court's decision in 
SEC v. Chenery Corp., 332 U.S. 194 (1947), to defend its underlying 
orders on the grounds set forth in those orders. Consistent with that 
obligation, the Commission filed a brief on the merits with the Court 
in November. The Solicitor General (at the U.S. Department of Justice) 
represents the U.S. government before the Court and has the final say 
as to the content of the government's briefs. I do not necessarily 
agree with all of the arguments that appeared in the Commission's 
November brief.
    Because the case now before the Court may still come back to the 
Commission on remand, it is not appropriate for me to discuss the 
merits of the specific case. However, on a more general issue raised by 
your questions, I have clearly stated my views about how the Commission 
should approach application of the Mobile-Sierra ``public interest'' 
doctrine, such as in the attached concurrence to the Commission's 
October 2006 Entergy Services, Inc. order. Applying the standards 
described in my Entergy statement, I have concluded in dozens of 
subsequent cases that the Commission should not agree with requests to 
apply the ``public interest'' standard to future changes to settlements 
sought by nonparties to those settlements or the Commission acting on 
its motion. My conclusions often have not been shared by a majority of 
my fellow Commissioners, resulting in my dissenting in numerous cases.

                THE CONVERSION TO MARKET FUNDAMENTALISM

    When you were first nominated, you expressed healthy skepticism 
about FERC's market-based reform efforts, pronouncing yourself 
``agnostic'' about whether markets deliver benefits to consumers 
greater than traditional regulation. In light of the unmitigated 
disaster that resulted from California's deregulation effort, this 
skepticism seems justified. Moreover, recent analysis reveals a large 
and growing gap between prices paid by consumers in states without RTOs 
and ``organized'' markets and states operating in such markets, which 
were created at FERC's behest. At the same time, the Amaranth episode 
reveals that markets continue to be vulnerable to market power abuse 
and manipulation of market prices. Despite any clear evidence of 
bottom-line benefits for electric consumers, you recently reversed 
course, declaring yourself a ``convert'' to the religion of market-
based reforms.
    Question 1. Given what is, at best, a mixed record of results for 
consumer benefits, how can you justify abandoning your skepticism about 
market-based reforms?
    Question 2. During the 2000-01 Western energy crisis, it is now 
clear that the FERC commissioners then sitting allowed their enthusiasm 
for market-based reform to trump growing evidence of market dysfunction 
and abuse until the crisis reached historic proportions. Without a 
skeptic of markets on the Commission, isn't there a danger that hope 
will once again triumph over experience at FERC, and that the 
regulatory failure of 2000-01 will repeat itself?
    Answer. As I discussed yesterday in response to questions from 
Senator Bingaman, I have come to believe that open, fair competitive 
markets offer a better structure for development and implementation of 
innovative new technologies such as renewables, distributed generation 
and demand response. For example, the use of economic dispatch in 
wholesale electric markets provides the opportunity for these resources 
to compete on level playing field with more traditional resources. And 
where these innovative resources such a demand response are lower cost 
traditional resources, use of them in our electric system will lower 
total costs to consumers and provide consumers with real choices.
    Therefore, contrary to abandoning my skepticism about market-based 
reform, I have embraced the opportunities for innovation that 
competitive markets open and intend to work to improve the efficiency 
or these markets in order to lower the total costs to consumers. As I 
stated yesterday, I think there are opportunities to improve the 
current competitive market structures. In my 16 months at the 
Commission, I have work aggressively to ensure the demand resources and 
renewable technologies receive comparable treatment in all aspects of 
electric transmission and market operations and planning. I am actively 
engaged with my colleagues in a rulemaking to examine a variety of 
specific issues associated with competitive electric markets 
administered by Regional Transmission Organizations (RTOs). Among the 
issues we are considering are ways to increase access and participation 
in these markets by demand resources. We are also considering ways to 
improve the responsiveness and accountability of RTOs to their 
stakeholders. I assure you that I continue to aggressively pursue 
implementation of the specific reforms necessary to make a market 
structure work best for consumers.

                               ATTACHMENT

                       United States of America 
                  Federal Energy Regulatory Commission



           Entergy Services Inc.              Docket No. ER05-1065-002




                       (issued october 18, 2006)
    WELLINGHOFF, Commissioner, concurring:

    The parties to the ICT Agreement have asked the Commission to apply 
the ``public interest'' standard of review if and when it considers 
requests from any of those parties to change the Agreement in the 
future.\52\ The parties have also asked the Commission to apply the 
``public interest'' standard when such changes are sought by either a 
non-party to the Agreement through a complaint or the Commission acting 
sua sponte.
---------------------------------------------------------------------------
    \52\ The ``public interest'' standard of review and the related 
Mobile-Sierra doctrine stem from the U.S. Supreme Court's rulings in 
United Gas Pipe Line Co. v. Mobile Gas Serv. Corp., 350 U.S. 332 
(1956), and FPC v. Sierra Pacific Power Co., 350 U.S. 348 (1956).
---------------------------------------------------------------------------
    In its original order approving the ICT Agreement,\53\ which issued 
prior to my becoming a Commissioner, the Commission did not comment on 
or explain why it was appropriate to apply the ``public interest'' 
standard in the circumstances sought by the parties, rather than 
retaining the ``just and reasonable'' standard of review for 
prospective contested changes to the Agreement. I believe that the 
particular facts of this case warrant the Commission agreeing to apply 
the ``public interest'' standard when it considers such changes to the 
Agreement. In light of the importance of this issue, I want to take 
this opportunity to explain how I reached that conclusion.
---------------------------------------------------------------------------
    \53\ Entergy Services Inc., 115 FERC  61,095 (April 24, 2006 ICT 
Order), errata notice May 4, 2006, order on reh 'g, 116 FERC  61,275 
(2006) (ICT Rehearing Order).
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    The Federal Power Act and the Natural Gas Act require that rates, 
terms, and conditions of service must be ``just and reasonable'' and 
not unduly discriminatory or preferential.\54\ There is little dispute 
that the Commission's initial review of an agreement is conducted under 
the ``just and reasonable'' standard.\55\ Similarly, there is little 
dispute that the parties to an agreement should be able to expressly 
prescribe the standard of review for future disputes over the agreement 
as between or among the parties to that agreement. Thus, the parties to 
an agreement may request that the Commission use the ``public 
interest'' standard, which is generally viewed as higher or stricter 
than the ``just and reasonable'' standard,\56\ in reviewing proposed 
changes to their agreement that are contested between or among the 
parties at some future time after the agreement is initially approved 
by the Commission.
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    \54\ 16 U.S.C. Sec.  824d; 15 U.S.C. Sec. 717c.
    \55\ See, e.g., Maine Pub. Utils. Comm'n v. FERC, 454 F.3d 278, 
283-86 (D.C. Cir. 2006).
    \56\ See, e.g., Standard of Review for Modifications to 
Jurisdictional Agreements, Notice of Proposed Rulemaking, 113 FERC  
61,317 at P 4 (2005) (citing Papago Tribal Utility Authority v. FERC, 
723 F.2d 950, 954 (D.C. Cir. 1983)).
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    Other circumstances, however, present more difficult policy 
decisions for the Commission. These include what standard of review 
should apply when the parties to an agreement fail to expressly state 
the standard of review that should apply when the Commission considers 
future contested changes to the agreement. Difficult questions of 
policy also arise when the parties to an agreement ask the Commission 
to apply the ``public interest'' standard when it considers changes 
sought by either a non-party to an agreement or the Commission acting 
sua sponte.
    Case law on the applicability of the ``public interest'' standard 
is not entirely clear and is, in fact, inconsistent.\57\ Indeed, the 
courts have noted that ``[w]hether and when Mobile-Sierra applies in 
varying contexts is going to remain in confusion'' until the Commission 
establishes a clear policy.\58\ The courts have further suggested that 
the Commission need not tolerate the ``public interest'' standard at 
all and could require prospectively that all contracts be subject to 
the ``just and reasonable'' standard.\59\
---------------------------------------------------------------------------
    \57\ See, e.g., Boston Edison Co. v. FERC, 233 F.3d 60, 67 (1st 
Cir. 2000) (stating that even cases within the D.C. Circuit ``do not 
form a completely consistent pattern'').
    \58\ Id. at 68.
    \59\ Id.
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    Given this uncertainty in case law, I believe that the Commission 
should set a clear policy on these issues. That policy should strive to 
strike a balance between recognizing contracting parties' needs for 
certainty with respect to their agreements and protecting the interests 
of energy consumers. An agreement, by its terms, may affect not only 
the rights and interests of the parties thereto, but also the rights 
and interests of others, as well as the operation of markets that shape 
rates, terms and conditions of service within the Commission's 
jurisdiction. Therefore, the Commission's determination as to whether 
and when it will agree to apply the ``public interest'' standard to 
future changes to an agreement sought by non-parties or the Commission 
acting sua sponte should not be limited to a consideration of the 
rights and interests of the contracting parties alone.
    To strike the proper balance, I would first require parties to 
include specific language in an agreement if they intend to ask the 
Commission to apply the ``public interest'' standard with regard to 
future changes sought by any or all of a party, non-party, or the 
Commission acting sua sponte. Thus, unless specific language appeared 
in an agreement, the Commission would apply the ``just and reasonable'' 
standard to future changes. This approach reflects my belief that as a 
general matter, retaining the right to future review under the ``just 
and reasonable'' standard enables the Commission to more effectively 
fulfill its statutory mandate under the FPA and the NGA.
    The ``just and reasonable'' standard is not new; it is well-known 
and well-defined. The electric and gas industries have operated and 
thrived under this standard for seven decades, during which it has 
served the Commission well as a tool to protect the interests of 
consumers. The Commission should not surrender this important tool 
absent a compelling factual and policy basis for doing so.
    I reject the argument, made by some advocates of broad use of the 
``public interest'' standard, that the ``just and reasonable'' standard 
is antithetical to the principle of sanctity of contract and fails to 
promote certainty and stability in energy markets. Past precedent 
demonstrates that the Commission recognizes the importance of sanctity 
of contract and that the Commission uses the ``just and reasonable'' 
standard judiciously in considering contract modification. In Order No. 
888, for example, the Commission made precisely these points and 
indicated that an entity ``has a heavy burden in demonstrating that the 
contract ought to be modified'' even under the ``just and reasonable'' 
standard.\60\
---------------------------------------------------------------------------
    \60\ Order No. 888 at 31,665.
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    Second, where the parties to an agreement ask the Commission to 
apply the ``public interest'' standard to future changes to sought by 
non-parties or the Commission acting sua sponte, I would require the 
parties to demonstrate by substantial evidence that a factual and 
policy basis supports their request. In particular, I believe that the 
Commission should only grant such requests in narrowly proscribed 
circumstances where substantial evidence affirmatively demonstrates 
that the contract or agreement has broad-based benefits to both parties 
and non-parties. In making this assessment, I would take into 
consideration, among other issues: (1) whether the contract or 
agreement was negotiated through a stakeholder process reflecting a 
wide range of interests, (2) whether state commissions had meaningful 
opportunity to participate in the stakeholder process, (3) the extent 
of and justification for opposition to the request for the Commission 
to apply the ``public interest'' standard; and (4) whether granting the 
request is necessary to the resolution of the proceeding. Requiring a 
showing of broad-based benefits, supported by substantial evidence, is 
an appropriate condition precedent to the Commission granting such a 
request because the term ``public interest'' implies interests beyond 
and distinct from those of the contracting parties.
    Third, it is important to recognize that the Mobile-Sierra doctrine 
assumes that agreements are entered into voluntarily. The courts have 
stated that ``the purpose of the Mobile-Sierra doctrine is to preserve 
the benefits of the parties' bargain as reflected in the contract, 
assuming that there was no reason to question what transpired at the 
contract formation stage.''\61\ Therefore, the standard of review that 
applies to prospective contested changes to an agreement--whether it be 
the ``just and reasonable'' standard or the ``public interest'' 
standard--does not affect the ability of a party, or the Commission 
acting sua sponte, to seek to make that agreement void (e.g., on the 
basis of fraud, mistake, misrepresentation, duress, or undue 
influence).
---------------------------------------------------------------------------
    \61\ Atlantic City Electric Co. v. FERC, 295 F.3d 1, 14 (D.C. Cir. 
2002) (citing Town of Norwood v. FERC, 587 F.2d 1306, 1312 (D.C. Cir. 
1978)). See also PacifiCorp v. Reliant Energy Services, Inc., 105 FERC 
 61,184 at P 55 (2003) (``All three cases [cited by PacifiCorp] 
recognize that Mobile-Sierra preserves the parties' bargain as 
reflected in the contract, when there is no need to question what 
transpired at the contract formation stage. Our decision here is 
consistent with those cases, as there has been no showing of fraud, 
duress, or the exercise of market power at the contract formation 
stage.'').
---------------------------------------------------------------------------
    Applying these standards to the facts of this case, I believe that 
it is appropriate for the Commission to agree to apply the ``public 
interest'' standard when it considers future changes to the ICT 
Agreement sought by parties, non-parties, and the Commission acting sua 
sponte. Concerns about transmission access on the Entergy system have 
been extensive and persistent. The ICT proposal, as modified by the 
Commission, promises to alleviate such concerns and significantly 
improve access to transmission service.
    Since 2002, the Commission, state regulators, and market 
participants have worked with Entergy to improve access to transmission 
service on Entergy's system.\62\ The first attempt toward that end was 
the Generator Operating Limits (GOL) proposal. However, significant 
errors in Entergy's use of the GOL methodology did not permit the 
Commission or market participants to determine whether available 
transmission capacity was being restricted or withheld from independent 
power producers and other generators that use transmission service. The 
next attempt was the Available Flowgate Capability (AFC) proposal. 
Again, implementation errors led to numerous claims by customers of 
loss of access to transmission, lack of transparency, and data 
reliability problems.
---------------------------------------------------------------------------
    \62\ See April 24, 2006 ICT Order at P 4-21; ICT Rehearing Order at 
P 2-7.
---------------------------------------------------------------------------
    The ICT proposal marks the third, and a significantly different, 
attempt to improve access to transmission service on Entergy's system. 
The ICT appears to have sufficient authority to independently and 
fairly grant or deny transmission service, perform necessary 
feasibility and system impact studies, administer Entergy's OASIS, and 
ensure that the terms of Entergy's OATT are administered in a 
nondiscriminatory manner. In particular, having an independent entity 
oversee and evaluate Entergy's AFC process and verify Entergy's data, 
and requiring Entergy to report any disagreements it has with the ICT 
over proposed modifications to the AFC process, will provide 
transparency to Entergy's transmission program. The ICT is also 
required to develop and chair a stakeholder process that will provide 
safeguards for continued nondiscriminatory access to transmission 
service, as well as a forum for further improvements.
    In addition, several of Entergy's retail regulators were parties to 
the Commission's proceeding on the ICT Agreement, and the Commission 
took their comments, as well as the comments of other parties, into 
account when making its determinations. Consideration of those comments 
was entirely appropriate and helped the Commission in reaching its 
conclusion that Entergy's ICT proposal, as modified, is just and 
reasonable and consistent with or superior to the Commission's pro 
forma OATT.
    Taking all of these factors into account, I believe that it is 
appropriate for the Commission to grant the request of the parties to 
the ICT Agreement, and to apply the ``public interest'' standard when 
it considers future changes to the ICT Agreement sought by parties, 
non-parties, and the Commission acting sua sponte.
    For these reasons, I respectfully concur with the Commission's 
order.

